-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Caj7JNLU6ZtImS1EHuQvSXV2xQHjRP2xmaorL/gKy/gx9R1E51rxAu7MpHHQeYcf EDMgpnqjc4hr2gwqXAxkjg== 0000933745-02-000015.txt : 20020531 0000933745-02-000015.hdr.sgml : 20020531 20020530195144 ACCESSION NUMBER: 0000933745-02-000015 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020531 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIRAVANT MEDICAL TECHNOLOGIES CENTRAL INDEX KEY: 0000933745 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 770222872 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25544 FILM NUMBER: 02666874 BUSINESS ADDRESS: STREET 1: 336 BOLLAY DRIVE CITY: SANTA BARBARA STATE: CA ZIP: 93117 BUSINESS PHONE: 8056859880 MAIL ADDRESS: STREET 1: 336 BOLLAY DRIVE CITY: SANTA BARBARA STATE: CA ZIP: 93117 FORMER COMPANY: FORMER CONFORMED NAME: PDT INC /DE/ DATE OF NAME CHANGE: 19941214 10-K/A 1 f10k2001amend1_may02.txt FORM 10-K AMENDMENT NO. 1 - 12/31/01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A FOR ANNUAL AND SPECIAL REPORTS PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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) Securities Registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value Common Share Purchase Rights 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 [ ] Indicate by check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ___ ] The approximate aggregate market value of voting stock held by non-affiliates as of March 15, 2002 based upon the last sale price of the Common Stock of $1.15 per share, as reported on the Nasdaq National Market, was approximately $16,566,361. For purposes of this calculation only, the registrant has assumed that its directors and executive officers, and any person, who has filed a Schedule 13D or 13G, is an affiliate. The number of shares of Common Stock outstanding as of March 15, 2002 was 18,876,508 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (As amended on May 30, 2002 to revise research and development disclosure.) This section of the Annual Report on Form 10-K 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 and include statements regarding our general beliefs concerning the efficacy and potential benefits of photodynamic therapy; the timing of the completion of our analysis of the clinical data from the SnET2 Phase III wet age-related macular degeneration, or AMD, clinical trials, which Pharmacia Corporation, or Pharmacia, concluded had not met the primary efficacy endpoint; the assumption that we will continue as a going concern and stay listed on Nasdaq; our plans to collaborate with other parties; our ability to continue to retain employees under our current financial circumstances; our ability to use our light production and delivery devices in future clinical trials; our expected research and development expenditures; our patent prosecution strategy; and our expectations concerning the government exercising its rights to use certain of our licensed technology. Our actual results could differ materially from those discussed in these statements due to a number of risks and uncertainties including: a failure of our drugs and devices to receive regulatory approval; unanticipated complexity or difficulty in analyzing clinical trial data; other parties may decline to collaborate with us due to our financial condition or other reasons beyond our control; our existing light production and delivery technology may prove to be inapplicable or inappropriate for future studies; we may be unable to obtain the necessary funding to further our research and development activities and the government may change its past practices and exercise its rights contrary to our expectations. For a more complete description of the risks that may impact our business, see "Risk Factors", for a discussion of certain risks, including those relating to our ability to obtain additional funding, our ability to establish new strategic collaborations, our operating losses, risks related to our industry and other forward-looking statements. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto. 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) PDT, our proprietary technologies for photodynamic therapy. We have been unprofitable since our founding and have incurred a cumulative net loss of approximately $173.6 million as of December 31, 2001. As we currently do not have any significant sources of revenues, we expect to continue to incur substantial, and possibly increasing, operating losses for the next few years due to continued spending on research and development programs, the funding of preclinical studies, clinical trials and regulatory activities and the costs of manufacturing and administrative activities. We also expect these operating losses to fluctuate due to our ability to fund the research and development programs as well as the operating expenses of the Company. We believe with the implementation of our cost restructuring program in January 2002, we have sufficient resources to fund the current required expenditures through September 30, 2002. In addition, we also believe we can raise additional funding to support operations through corporate collaborations or partnerships, licensing of SnET2 or new products and equity or debt financings prior to September 30, 2002. However, there can be no assurance that we will be successful in obtaining such financing or financing will be available on favorable terms. If additional funding is not available when required, we believe we have the ability to conserve cash required for operations through December 31, 2002 by the delay or reduction in scope of one or more of our research and development projects and adjusting, deferring or reducing salaries of employees and by reducing operating and overhead expenditures to conserve cash to be used in operations. Our historical revenues primarily reflect income earned from licensing agreements, grants awarded, royalties from device product sales, milestone payments, non-commercial drug sales to Pharmacia and interest income. During 2001, we sold approximately $4.3 million of the SnET2 bulk active pharmaceutical ingredient, or bulk API, to Pharmacia to be used in preclinical studies and clinical trials and in anticipation of a potential New Drug Application, or NDA, filing for SnET2 for the treatment of wet age-related macular degeneration, or AMD. Our future bulk API sales are expected to consist of the approximately $450,000 in reimbursements that we are to receive from Pharmacia for bulk API costs incurred by us through January 2002. Any other future potential new revenues such as license income from new collaborative agreements, revenues from contracted services, grants awarded and/or royalties from potential drug and device sales, if any, will depend on, among other factors, the timing and outcome of applications for regulatory approvals, the results from our ongoing preclinical studies and clinical trials, our ability to establish new collaborative partnerships and their subsequent level of participation in our preclinical studies and clinical trials, our ability to have any of our potential drug and related device products successfully manufactured, marketed and distributed, the restructuring or establishment of collaborative arrangements for the development, manufacturing, marketing and distribution of some of our future products. We anticipate our operating activities will result in substantial, and possibly increasing, operating losses for the next several years. In collaboration with Pharmacia, in December 2001, we completed two Phase III ophthalmology clinical trials for the treatment of AMD with our lead drug candidate, SnET2. In January 2002, Pharmacia, after an analysis of the Phase III AMD clinical data, determined that the clinical data results indicated that SnET2 did not meet the primary efficacy endpoint in the study population, as defined by the clinical trial protocol, and that they would not be filing an NDA with the U.S. Food and Drug Administration, or FDA. Based on Pharmacia's analysis of the AMD clinical data, we may not be able to proceed with our plans to seek regulatory approval of SnET2 as formerly planned. In March 2002, we entered into a Contract Modification and Termination Agreement with Pharmacia, whereby we regained the license rights to SnET2 as well as the related data and assets from the Phase III AMD clinical trials and restructured our outstanding debt with them. We are currently conducting our own detailed analysis of the clinical data, including an analysis of the subset groups. We expect to complete our analysis by the end of the second quarter 2002 and, based on the results of our analysis, we will determine the future potential development of SnET2, including the potential use of SnET2 in other disease indications, such as in cardiovascular disease and oncology. In addition, we have terminated our license collaboration with Pharmacia, and we intend to seek a new collaborative partner for PhotoPoint PDT in ophthalmology. We have four primary disease indications, or research and development programs, for which we have focused our research and development efforts: ophthalmology, dermatology, cardiovascular disease and oncology. In ophthalmology, besides the possible use of SnET2 in other eye diseases and another AMD clinical trial, or in combination with other therapies, we are continuing the development of next generation drug compounds for use in the same eye disease areas. In our dermatology program, we have developed a topical gel formulation to deliver a proprietary new photoreactive drug directly to the skin. In July 2001, we completed a Phase I dermatology clinical trial and, in January 2002, we commenced a Phase II clinical trial with a topical formulation of our photoreactive drug, MV9411, for potential use in the treatment of plaque psoriasis, a chronic dermatological condition for which there is no known cure. Plaque psoriasis is a disease marked by hyperproliferation of the epidermis, resulting in inflamed and scaly skin plaques. The Phase II clinical trial is currently ongoing and we expect to complete the trial by the end of 2002. We are also conducting preclinical studies of SnET2 and 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. We are in the process of formulating a new lead drug, MV0633, and performing the requisite studies to prepare for an Investigational New Drug application, or IND, in cardiovascular disease. 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 PDT and other types of compounds. Below is a summary of the disease programs and their related stages of development. The information in the column labeled "Estimate of Completion of Phase" contains forward-looking statements regarding timing of completion of product development phases. The actual timing of completion of those phases could differ materially from the estimates provided in the table. Additionally, due to the uncertainty of the scientific results of any of these programs as well as the uncertainty regarding the Company's ability to fund these programs, we are unable to provide an accurate estimate as to the costs, capital requirements or the specific timing necessary to complete any of these programs. For a discussion of the risks and uncertainties associated with the timing of completing a product development phase for our company as well as our industry as a whole, see the "Risk Factors" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Phase of Estimate of Completion Program Description / Indication Development of Phase ---------------------- ----------------------------------- -------------------- ------------------------ Ophthalmology AMD (SnET2) Review of Phase III data Q2 2002 New drug compounds Research studies ** Dermatology Psoriasis Phase II 2002 Cardiovascular Restenosis (MV9411) Preclinical studies ** disease Oncology Tumor research (MV6033) Research studies **
** Based on the early development stage of these programs we cannot reasonable estimate the time at which these programs may move from a research or preclinical development phase to the clinical trial phase. The decision and timing of whether these programs will move to the clinical trial phase will depend on a number of factors including; the results of the preclinical studies, the estimated costs of the programs, the availability of alternative therapies and our ability to fund or obtain additional financing or to obtain new collaborative partners to help fund the programs. Based on our ability to successfully obtain additional funding, our ability to obtain new collaborative partners, our ability to pursue further development of SnET2 for AMD or other disease indications, our ability to reduce operating costs as needed, our ability to remain listed on Nasdaq and various other economic and development factors, such as the cost of the programs, reimbursement and the available alternative therapies, we may or may not be able to or elect to further develop PhotoPoint PDT procedures in ophthalmology, cardiovascular disease, dermatology, oncology or in any other indications. Pharmacia Corporation Over time we have entered into a number of agreements with Pharmacia to fund our operations and develop and market SnET2. In March 2002, we entered into a Contract Modification and Termination Agreement with Pharmacia under which we regained all of the rights and related data and assets to our lead drug candidate, SnET2, and we restructured our outstanding debt to Pharmacia. Under the terms of the Contract Modification and Termination Agreement, various agreements and side letters between Miravant and Pharmacia have been terminated, most of which related to SnET2 license agreements and related drug and device supply agreements, side letters, the Manufacturing Facility Asset Purchase Agreement and various supporting agreements. We also modified our 2001 Credit Agreement with Pharmacia. The termination of the various agreements provided that all ownership of the rights, related data and assets to SnET2 and the Phase III AMD clinical trials for the treatment of AMD will revert back to us. The rights transferred back to us include the ophthalmology IND and the related filings, data and reports and the ability to license the rights to SnET2. The assets include the lasers utilized in the Phase III AMD clinical trials, the bulk API manufacturing equipment, all of the bulk API inventory sold to Pharmacia in 2001 and 2002 and the finished dose formulation, or FDF, inventory. In addition, we will also reassume the lease obligations and related property taxes for our bulk API manufacturing facility. The lease agreement expires in October 2006 and currently has a base rent of approximately $26,000 per month. Under the Manufacturing Facility Asset Purchase Agreement, which was entered into in May 2001 and subsequently terminated in March 2002, Pharmacia satisfied the following obligations during 2001: * Pharmacia agreed to buy our existing bulk API inventory at cost for $2.2 million. As of June 30, 2001, the entire $2.2 million of the existing bulk API inventory had been delivered to Pharmacia, recorded as revenue and the payment had been received into the inventory escrow account; * Pharmacia committed, through two other purchase orders, to buy up to an additional $2.8 million of the bulk API which would be manufactured by us. As of December 31, 2001, we had sold $2.1 million of newly manufactured bulk API inventory, which had been delivered to Pharmacia, recorded as revenue and the payment had been received into the inventory escrow account. Additionally, in March 2002, Pharmacia made their final purchase of newly manufactured bulk API of approximately $450,000 which will be paid directly to us. No further bulk API will be sold to Pharmacia; * Pharmacia agreed to purchase the manufacturing equipment necessary to produce bulk API. The manufacturing equipment was purchased for $863,000, its fair market value as appraised by an independent appraisal firm. The payment for the purchase of the equipment was made into an equipment escrow account to be released in June 2001; * The interest earned by the inventory and equipment escrow accounts accrued to us and will be released from each escrow account. All amounts received into escrow are recorded as accounts receivable until the amounts are released; * In January 2002, the inventory escrow account as well as accrued interest was released to us in full; and * In connection with the Contract Modification and Termination Agreement, Pharmacia has transferred ownership of all of the bulk API inventory and bulk API manufacturing equipment back to us and has released the equipment escrow funds in March 2002. The Contract Modification and Termination Agreement also modified the 2001 Credit Agreement as follows: * The outstanding debt that we owed to Pharmacia of approximately $26.8 million, was reduced to $10.0 million plus accrued interest; * We will be required to make a payment of $5.0 million plus accrued interest on each of March 4, 2003 and June 4, 2004. Interest on the debt will be recorded at the prime rate, which was 4.75% at March 5, 2002; * In exchange for these changes and the rights to SnET2, we terminated our right to receive a $3.2 million loan that was available under the 2001 Credit Agreement. Also, as Pharmacia has determined that they will not file an NDA for the SnET2 PhotoPoint PDT for AMD and the data from the Phase III AMD clinical trials data did not meet certain clinical statistical standards as defined by the clinical trial protocol, we will not have available to us an additional $10.0 million of borrowings as provided for under the 2001 Credit Agreement. Pharmacia has no obligation to make any further milestone payments, equity investments or to extend us additional credit; * The early repayment provisions and many of the covenants were eliminated or modified. Our requirement to allocate one-half of the net proceeds from any public or private equity financings and/or asset dispositions towards the early repayment of our debt to Pharmacia was modified as follows: * If our aggregate net equity financing and/or assets disposition proceeds are less than or equal to $7.0 million, we are not required to make an early repayment towards our Pharmacia debt; * If our aggregate net equity financing and/or assets disposition proceeds are greater than $7.0 million but less than or equal to $15.0 million, then we are required to apply one-third of net the proceeds from the amount in excess of $7.0 million up to $15.0 million, or a maximum repayment of $2.7 million towards our Pharmacia debt; * If our aggregate net equity financing and/or assets disposition proceeds are greater than $15.0 million but less than or equal to $25.0 million, then we are required to apply one-half of the net proceeds from the amount in excess of $15.0 million up to $25.0 million, or a maximum repayment of $7.7 million towards our Pharmacia debt; * If our aggregate net equity financing and/or assets disposition proceeds are greater than $25.0 million, then we are required to apply all of the net proceeds from the amount in excess of $25.0 million, or repay the entire $10.0 million plus accrued interest towards our Pharmacia debt; and * Any early repayment of our Pharmacia debt applies first to the loan amount due on March 4, 2003, then to the remaining loan amount due on June 4, 2004. Aside from the changes made under the Contract Modification and Termination Agreement discussed above, there were no changes made to the Warrant Agreement, the Equity Investment Agreement and the Registration Rights Agreement with Pharmacia. In connection with the 2001 Credit Agreement, we granted Pharmacia warrants to purchase a total of 360,000 shares of our Common Stock. The exercise prices and expiration dates are as follows: 120,000 shares at an exercise price of $11.87 per share expiring May 5, 2004, 120,000 shares at an exercise price of $14.83 per share expiring November 12, 2004 and 120,000 shares at an exercise price of $20.62 per share expiring May 23, 2005. Pharmacia will retain all of its rights under the terms and conditions of the Warrant Agreement. In 1999, through an Equity Investment Agreement, Pharmacia purchased 1,136,533 shares of our Common Stock at $16.71 per share for an aggregate purchase price of $19.0 million. Additionally, in connection with the original SnET2 license agreement in 1995, Pharmacia purchased 725,001 shares of our Common Stock for $13.0 million. Under the terms of the Contract Modification and Termination Agreement, Pharmacia will retain all the shares of Common Stock purchased from us. Critical Accounting Policies Revenue Recognition. The Company recognizes revenues from product sales based on when ownership of the product transfers to the customer and when collectibility is reasonably assured. Sales of bulk active pharmaceutical ingredient to Pharmacia is recorded as revenue in the period when the product is received by Pharmacia at their facility. Our current licensing revenues represent reimbursements from Pharmacia for out-of-pocket expenses incurred in our preclinical studies and clinical trials for the SnET2 PhotoPoint PDT treatment for AMD. These licensing revenues are recognized in the period when the reimbursable expenses are incurred. Grant income is recognized in the period in which the grant related expenses are incurred and royalty income is recognized in the period in which the royalties are earned. Research and Development Expenses. Research and development costs are expensed as incurred. Research and development expenses are comprised of the following types of costs incurred in performing research and development activities: salaries and benefits, allocated overhead and occupancy costs, preclinical study costs, clinical trial and related clinical drug and device manufacturing costs, contract services and other outside costs. The acquisition of technology rights for research and development projects and the value of equipment or drug products for specific research and development projects, with no alternative future use, are also included in research and development expenses. Stock-Based Compensation. The Statement of Financial Accounting Standards, or SFAS, issued SFAS No. 123, "Accounting for Stock-Based Compensation," which encourages, but does not require, companies to record compensation expense for stock-based employee compensation plans at fair value. We have chosen to continue to account for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion or APB Opinion No. 25 and related interpretations, including Financial Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," in accounting for our stock option plans. We also have granted and continue to grant warrants and options to various consultants of ours. These warrants and options are generally in lieu of cash compensation and, as such, deferred compensation is recorded related to these grants. Deferred compensation for warrants and options granted to non-employees has been determined in accordance with SFAS No. 123 and Emerging Issues Task Force or EITF 96-18 as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Deferred compensation is amortized over the consulting or vesting period. Recent Accounting Pronouncements In October 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" or SFAS No. 144. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and discontinued operations. SFAS No. 144 is effective for all fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected to have a material effect on our consolidated financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" or SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In July 1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 has not had a material effect on our consolidated financial statements. Results of Operations The following table provides a summary of our revenues for the years ended December 31, 2001, 2000 and 1999:
--------------------------------------------------------------------------------------------------------------------------- Consolidated Revenues 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------------- License - contract research and development................... $ 302,000 $ 4,481,000 $13,996,000 Bulk active pharmaceutical ingredient sales................... 4,306,000 -- -- Royalties..................................................... 75,000 -- 143,000 Grants........................................................ -- 112,000 438,000 --------------------------------------------------------------------------------------------------------------------------- Total revenues................................................ $ 4,683,000 $ 4,593,000 $14,577,000 ---------------------------------------------------------------------------------------------------------------------------
Revenues Revenues. Our revenues decreased from $14.6 million in 1999 to $4.6 million in 2000 and increased slightly to $4.7 million in 2001. The fluctuations in revenues are due to the following: Bulk Active Pharmaceutical Ingredient Sales. In May 2001, we entered into an Asset Purchase Agreement with Pharmacia whereby Pharmacia agreed to buy our existing bulk API inventory at cost for $2.2 million and committed to buy an additional $2.8 million of newly manufactured bulk API through March 2002. In 2001, we recorded revenue of $2.2 million related to the existing bulk API inventory and $2.1 million related to the newly manufactured bulk API inventory. There were no bulk API sales in 2000 or 1999. License Income. License income, which represents reimbursements of out-of-pocket or direct costs incurred in preclinical studies and Phase III AMD clinical trials, decreased from $14.0 million in 1999 to $4.5 million in 2000 and $302,000 in 2001. The decrease in license income is specifically related to the transition of the majority of the operations and funding responsibilities of the Phase III AMD clinical trials to Pharmacia Corporation in 1999 and the completion of the preclinical studies and our AMD clinical trial responsibilities. Reimbursements received during 2001 were primarily for costs incurred to complete preclinical studies for AMD. During 2000, we were responsible for the oversight of the AMD related preclinical studies, as well as a portion of the equipment and drug costs related to the Phase III AMD clinical trials. We were completely reimbursed for all out-of-pocket preclinical study costs and approximately half of the equipment and drug costs. In 1999, in addition to being responsible for the same types of costs incurred in 2000, we were also responsible, and subsequently reimbursed, for the out-of-pocket costs associated with the screening, treatment and monitoring of individuals participating in the Phase III AMD clinical trials. We do not expect to have any significant license income from Pharmacia in 2002. In January 2002, Pharmacia, after an analysis of the Phase III AMD clinical data, determined that the clinical data results indicated that SnET2 did not meet the primary efficacy endpoint in the study population, as defined by the clinical trial protocol, and that they would not be filing an NDA with the FDA. Subsequently, in March 2002, we entered into a Contract Modification and Termination Agreement with Pharmacia whereby Pharmacia has agreed to reimburse us for all of our finished and in-process lots of bulk API for approximately $450,000. We will receive no further reimbursements from Pharmacia related to any of our ongoing preclinical studies and clinical trials and Pharmacia will not make any more purchases of bulk API. Grant Income. We have recorded grant income of $112,000 and $438,000 for the years ended December 31, 2000 and 1999. There was no grant income recorded for 2001. Grant income relates to a two-year grant received in 1997 that was extended to the end of 2000. While we will continue to pursue obtaining grants as a means of funding research and development programs, we have not yet received any additional grants and currently do not have any grant funds available to us. Additionally, there can be no assurance that we will be successful in obtaining any future grants. We currently do not have any grant funds available nor have any grants been awarded. Royalty Income. We earned royalty income from a 1992 license agreement with Laserscope, which provided royalties on the sale of our previously designed device products. We recorded income of $75,000 in 2001 and $143,000 in 1999. We did not record any royalty income under this agreement in 2000. The royalties recorded in 2001 represent the final amounts due under the Laserscope license agreement, which expired in April 1999 and no further royalty income will be recorded under this agreement in the future. Cost of Goods Sold. In connection with the newly manufactured bulk API sold under the terms of the Asset Purchase Agreement with Pharmacia, we recorded $934,000 in manufacturing costs for the year ended December 31, 2001. The amounts recorded as cost of goods sold represent the costs incurred for only the newly manufactured bulk API in 2001. No costs were recorded for those expenses incurred in prior periods for raw materials and the bulk API manufactured prior to 2001, as these costs were expensed as research and development costs in the periods incurred. Based on the terms of the Contract Modification and Termination Agreement with Pharmacia in March 2002, future costs of goods sold are only expected to be for those costs related to the finished and in-process bulk API lots that Pharmacia has agreed to reimburse us for. Research and Development. Research and development expenses are expensed as incurred. Research and development expenses are comprised of direct and indirect costs. Direct costs consist of preclinical study costs, clinical trial and related clinical drug and device development and manufacturing costs, drug formulation costs, contract services and other research and development expenditures. Indirect costs consist of salaries and benefits, overhead and facility costs, and other support service expenses. Our research and development expenses decreased from $29.7 million in 1999 to $19.9 million in 2000 and $13.3 million in 2001. The overall decrease in research and development expenses is specifically related to the transition of the majority of the operations and funding responsibilities of the Phase III AMD clinical trials to Pharmacia in December 1999 and the completion of the preclinical studies and our AMD clinical trial responsibilities. Our research and development expenses, net of license reimbursement and grant revenue, were $13.0 million in 2001, $15.4 million in 2000 and $15.3 million in 1999. As previously mentioned, we have four primary research and development programs for which we have focused our research and development efforts: ophthalmology, dermatology, cardiovascular disease and oncology. Research and development costs are initially identified as direct and indirect costs, with only direct costs tracked by specific program. These direct costs consist of clinical, preclinical, drug and formulation development, device development and research costs. We do not track our indirect research and development costs by program. These indirect costs consist of labor, overhead and other indirect costs. Prior to 1999, we did not track our historical research and development costs by specific program, but rather by the type of expense incurred. For these reasons we cannot accurately estimate with any degree of certainty our indirect research and development costs or our total historical costs on a specific program basis. The specific program research and development costs represent the direct costs incurred. The direct research and development costs by program are as follows:
Program 2001 2000 1999 ----------------------------------- ------------------- ------------------- ----------------------- Direct costs: Ophthalmology............. $ 1,060,000 $ 6,112,000 $ 15,370,000 Dermatology................ 639,000 1,474,000 1,527,000 Cardiovascular disease..... 2,038,000 1,217,000 814,000 Oncology................... 126,000 655,000 965,000 ------------------- ------------------- ----------------------- Total direct costs.............. $ 3,863,000 $ 9,458,000 $ 18,676,000 Indirect costs ................. $ 9,455,000 $ 10,486,000 $ 11,073,000 ------------------- ------------------- ----------------------- Total research and development costs........................... $ 13,318,000 $ 19,944,000 $ 29,749,000 =================== =================== =======================
Ophthalmology. Our direct ophthalmology program costs have decreased from $15.4 million in 1999 to $6.1 million in 2000 and $1.1 million in 2001. Costs incurred in the ophthalmology program have consisted of clinical trial expenses for the screening, treatment and monitoring of individuals participating in the AMD clinical trials, internal and external preclinical study costs, and drug and device development and manufacturing costs. The continued decrease from 1999 to 2001 is specifically related to the transition of the majority of the operations and funding responsibilities of the Phase III AMD clinical trials to Pharmacia in December 1999 and the completion of the SnET2 preclinical studies and our AMD clinical trial responsibilities. Dermatology. Our direct dermatology program costs were $1.5 million in 1999, $1.5 million in 2000 and decreased to $639,000 in 2001. Costs incurred in the dermatology program include expenses for drug development and drug formulation, internal and external preclinical study costs, and Phase I clinical trial expenses. The decrease in 2001 as compared to prior years is due to the majority of the costs for preclinical studies and drug formulation were incurred in 1999 and 2000, while 2001 consisted primarily of the relatively minor cost for the Phase I clinical trial. Cardiovascular Disease. Our direct cardiovascular disease program costs increased from $814,000 in 1999 to $1.2 million in 2000 and to $2.0 million in 2001. Our cardiovascular disease program costs include expenses for the development of new drug compounds and light delivery devices, drug formulation and manufacturing and internal and external preclinical study costs. The continued increase from 1999 to 2001 is related to the progress of the program which has required expanded preclinical studies, as well as, the increase in development and manufacturing activities for drug and devices used in the preclinical studies. Oncology. Our direct oncology program costs have decreased from $965,000 in 1999 to $655,000 in 2000 and $126,000 in 2001. Our oncology program costs have primarily consisted of costs for a Phase I clinical trial for prostate cancer, internal and external preclinical study costs and expenses for the development of new drug compounds. The decrease in oncology program costs from 1999 to 2001 is related to our decision in 2000 to suspend the further development of the prostate cancer clinical trial and to focus on more discovery and research programs for use of PhotoPoint PDT in oncology. Indirect Costs. Our indirect costs have decreased from $11.1 million in 1999 to $10.5 million in 2000 and $9.5 million in 2001. Generally, the decrease from 1999 to 2001 was attributed to a reduction in our responsibilities in the AMD program, as well as a continued reduction in labor costs due to employee attrition. The decrease was also related to the sublease of one of our buildings, which reduced facility and overhead costs. The decrease from 2000 to 2001 was primarily attributed to the reclassification of certain research and development labor costs to cost of goods sold due to API sales associated with the Manufacturing Asset Purchase Agreement entered into with Pharmacia in 2001. Selling, General and Administrative. Our selling, general and administrative expenses decreased from $7.5 million in 1999 to $6.3 million in 2000 and $6.1 million in 2001. Selling, general and administrative expenses consist primarily of payroll, taxes and other operating costs. The slight decrease from 1999 to 2001 was a result of a decrease in deferred compensation expense and the reclassification of a portion of certain overhead costs into the cost of inventory as cost of goods sold. We expect future selling, general and administrative expenses to remain consistent with prior periods although they may fluctuate depending on available funds, and the support staff levels needed 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 $615,000 as of December 31, 2001. The $417,000 expense recorded in 1999 represents a reserve for the final amount of borrowings under the credit line plus accrued interest. The investment in Ramus has been fully reserved for since December 31, 1999. Interest and Other Income. Interest and other income increased from $1.2 million in 1999 to $1.4 million in 2000 and $1.4 million in 2001. Interest and other income earned in 2001 represents $798,000 of interest earned on the available cash and marketable security balances and $586,000 recorded on the gain on sale of bulk API manufacturing equipment to Pharmacia. Interest and other income earned in 2000 and 1999 represent interest earned on cash and marketable security balances. 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. However, we expect our interest and other income to decrease in future periods unless additional funding is obtained. Interest Expense. Interest expense increased from $434,000 in 1999 to $2.3 million in 2000 and decreased to $2.1 million in 2001. Interest expense represents interest related to borrowings under the 2001 Credit Agreement with Pharmacia and interest expense related to the value of the warrants issued in connection with these borrowings. The decrease in interest expense in 2001 as compared to 2000 is directly related to the decrease in the rate of interest being charged which was offset by an increase in the total amount of borrowings. The borrowings accrue interest at the prime rate which was 4.75% , 9.5% and 8.0% at December 31, 2001, 2000 and 1999, respectively. The increase in interest expense between 1999 and 2000 is related to the increase in the amount of borrowings outstanding under the 2001 Credit Agreement. Interest expense related to the value of the warrants issued with the borrowings was $374,000, $315,000 and $57,000 for 2001, 2000 and 1999, respectively. In March 2002, we entered into a Contract Modification and Termination Agreement with Pharmacia whereby the principal balance of the debt owed to Pharmacia was reduced from $26.8 million to $10.0 million, plus approximately $800,000 in accrued interest. As a result of the decrease in the principal balance of the loan, as well as the write off of the value of the warrants issued in connection with the borrowings, we expect future interest expense to decrease. Interest on the new principal balance will continue to accrue at the prime rate over the term of the loan and we will only record interest expense to the extent the prime rate rises above the amount used to record the debt reduction to total expected cash flows in accordance with the accounting for the debt restructuring. Non-cash Loss in Investment. In June 1998, we purchased an equity interest in Xillix. We received 2,691,904 shares of Xillix common stock in exchange for $3.0 million in cash and 58,909 shares of Miravant Common Stock. During 2000, we determined that the decline in the value of our investment in Xillix was other-than-temporary. We recognized a loss totaling $3.5 million to adjust our investment in Xillix to its estimated current fair value based on the average closing prices over a 120 day period. This loss is included in "Non-cash loss in investment" in the accompanying consolidated statements of operations, stockholders' equity and cash flows. As of December 31, 2001, we still hold the 2,691,904 shares of Xillix common stock received in our original investment transaction. The new cost basis in the investment is $991,000 and this investment will continue to be classified as an available-for-sale investment recorded at fair value with any resulting unrealized gains or losses included in "Accumulated other comprehensive loss" in the consolidated balance sheet and statement of stockholders' equity. Income Taxes. As of December 31, 2001, we had net operating loss carryforwards for federal tax purposes of $171.5 million, which expire in the years 2002 to 2022. Research credit carryforwards aggregating $8.7 million are available for federal and state tax purposes and expire in the years 2002 to 2021. We also had a state net operating loss carryforward of $46.4 million, which expires in the years 2002 to 2006. Of the $46.4 million in state net operating loss carryforwards, $17.5 million will expire during 2002 and 2003. Under Section 382 of the Internal Revenue Code, utilization of the net operating loss carryforwards may be limited based on our changes in the percentage of ownership. Our ability to utilize the net operating loss carryforwards, without limitation, is uncertain. We do not believe inflation has had a material impact on our results of operations. Liquidity and Capital Resources Since inception through December 31, 2001, we have accumulated a deficit of approximately $173.6 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's purchases of Common Stock and credit arrangements. As of December 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. As of December 31, 2001, our consolidated financial statements have been prepared assuming we will continue as a going concern. We have received the entire $22.5 million available to us under the 2001 Credit Agreement with Pharmacia. We have issued promissory notes to Pharmacia for the principal loan amounts received of $22.5 million, as well as promissory notes of $4.0 million for the related interest due on each of the quarterly due dates through December 31, 2001. The promissory notes accrue interest at the prime rate, which was 4.75% at December 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 trading days, preceding such request, exceeds the related warrant exercise price. Under the Manufacturing Asset Facility Purchase Agreement with Pharmacia in May 2001, Pharmacia agreed to buy our existing bulk API inventory at cost for $2.2 million and committed to buy up to an additional $2.8 million of the bulk API which would be manufactured by us. In addition, Pharmacia agreed to purchase the manufacturing equipment necessary to produce bulk API. The manufacturing equipment was purchased for $863,000, its fair market value. The amounts received for the sale of bulk API and the manufacturing equipment were recorded as accounts receivable as of December 31, 2001. In addition, these amounts were held in inventory escrow and equipment escrow accounts, which were approximately $4.1 million and $880,000, respectively, at December 31, 2001. The inventory escrow account was released to us in full in January 2002. Under the 2001 Credit Agreement, which amends and restates the $22.5 million 1999 Credit Agreement, Pharmacia was to provide us with up to an additional $13.2 million in credit beginning in April 2002, under certain conditions related to the results of the SnET2 Phase III AMD clinical trials. In January 2002, Pharmacia, after an analysis of the Phase III AMD clinical data, determined that the clinical data results indicated that SnET2 did not meet the primary efficacy endpoint in the study population, as defined by the clinical trial protocol, and that they would not be filing an NDA with the FDA; as such Pharmacia was released from their obligation to loan us an additional $10.0 million. Subsequently, under our negotiated Contract Modification and Termination Agreement in March 2002, we released Pharmacia from their remaining $3.2 million loan obligation to us, in exchange for reducing our debt of $26.8 million to $10.0 million, with $5.0 million due in March 2003 and the remaining $5.0 million due in June 2004, as well as changing and eliminating many of our covenants. Additionally, the funds in the equipment escrow account, containing a principal and interest balance of $880,000, were released to us in March 2002. In addition to receiving funds through private and public stock offerings, we have also received funding through the exercise of warrants and stock options. For the year ended December 31, 2001, we have received $315,000 in proceeds from warrant and option exercises. 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. As of December 31, 2001, the average exercise price of stock options and warrants outstanding were $14.60 and $13.55, respectively. Statement of Cash Flows For 2001, 2000 and 1999, we required cash for operations of $15.2 million, $13.4 million and $18.4 million, respectively. The increase in net cash required for operations in 2001 as compared to 2000 is directly related to the production and sale of our bulk API inventory, our subsequent bulk API sale to Pharmacia and the timing on the collection of the payments from an escrow account for these sales which was deferred into 2002. Subsequently, a payment of $4.1 million for the sales of bulk API was released in full to us in January 2002. The increase in net cash required for operations in 2001 was offset by an increase in stock awards used as employee compensation. The decrease in net cash used in operating activities in 2000 compared to 1999 was primarily due to the timing of funds received from Pharmacia for reimbursable research and development costs and an increase in non-cash interest and amortization of deferred financing costs related to the Credit Agreement. These activities were offset by reductions in depreciation, amortization, deferred compensation expense and accounts payable. For 2001, net cash provided by investing activities was $14.8 million. For 2000 and 1999, net cash used in investing activities was $15.8 million and $4.4 million, respectively. The net cash provided by financing activities in 2001 was related to the proceeds from the net sales of marketable securities as well as proceeds from the sale of bulk API manufacturing equipment to Pharmacia. The net cash used in 2000 and 1999 for investing activities was directly related to the net purchases of marketable securities based on an analysis of the funds available for investment and purchases of property, plant and equipment. For 2001, 2000 and 1999, net cash provided by financing activities was $15,000, $11.9 million and $30.6 million, respectively. Cash provided by financing activities in 2001 was related to $315,000 provided by warrant and option exercises which was offset by $300,000 in loans provided to an executive officer of the Company. Cash provided by financing activities in 2000 was attributed to the $7.5 million provided under the 2001 Credit Agreement with Pharmacia and warrant and option exercise proceeds of $4.4 million. Cash provided by financing activities in 1999 was primarily attributed to Pharmacia's $19.0 million equity investment, net of offering costs, and $15.0 million provided under the 2001 Credit Agreement. Lease Obligations and Long-Term Debt
Contractual Obligations Payments Due by Period ------------------------------------------------------------------------------------------------------------ Less than 1 year 1 - 3 years 4 - 5 years After 5 years Total --------------- ----------------- -------------- --------------- -------------- Long Term Debt(1)....... $ -- $ 10,000,000 $ -- $ -- $ 10,000,000 Building Leases(1)(2)... 773,000 964,000 262,000 -- 1,999,000 --------------- ----------------- -------------- --------------- -------------- Total Contractual Cash Obligations....... $ 773,000 $ 10,964,000 $ 262,000 $ -- $ 11,999,000 =============== ================= ============== =============== ==============
(1) The long-term debt represents the principal amounts due to Pharmacia under the terms of the Contract Modification and Termination Agreement entered into in March 2002. Additionally, the amounts recorded for contractual building leases includes the lease payments for our bulk API manufacturing facility for which we reassumed in March 2002 under the Contract Modification and Termination Agreement. (2) The amounts recorded for building leases consist of leases on four buildings and is net of sublease revenue of $423,000 in 2002 and $352,000 in 2003. We invested a total of $9.6 million in property, plant and equipment from 1996 through December 31, 2001. 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. 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: * Our ability to implement an effective cost restructuring program to reduce our use of cash; * The viability of SnET2 for future use; * Our ability to establish additional collaborations; * Our ability to stay listed on Nasdaq; * Our ability to raise equity financing or use stock awards for employee and consultant compensation; * The pace of scientific progress and 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; and * Our dependence on others for development and commercialization of our potential products. We have implemented a cost restructuring program in January 2002 that will allow us to reduce our overall use of cash from operations in future periods. Based on our current cash and investment balances, the $450,000 payable to us by Pharmacia for bulk API drug sales during the first quarter 2002 and approximately $880,000 released to us in March 2002 for manufacturing equipment sold to Pharmacia, we anticipate that we only have sufficient cash to fund our operations through September 30, 2002. For this reason our auditors have indicated that there is substantial doubt about our ability to continue as a going concern. We plan to actively seek additional capital needed to fund our operations through corporate collaborations or partnerships, through licensing of SnET2 or new products and through public or private equity or debt financings. Additional financing may not be available on acceptable terms or at all. Our ability to raise funds may become more difficult if our stock is delisted from trading on the Nasdaq National Market. Any inability to obtain additional financing would adversely affect our business and could cause us to significantly reduce or cease operations. 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: * The future development decisions related to the ongoing analysis of the data from our Phase III AMD clinical trials; * The future development and results of our Phase II dermatology clinical trial and our ongoing cardiovascular and oncology preclinical studies; * The potential future use of SnET2 for ophthalmology or other disease indications; * Our ability to successfully raise funds in the future through public or private equity or debt financings, or establish collaborative arrangements or raise funds from other sources; * The extent to which our obligation to pay Pharmacia a portion of the funds received in our financing activities will hinder our fundraising efforts; * Our requirement to allocate certain percentages of net proceeds from any public or private equity financings and/or asset dispositions, as defined earlier, towards the early repayment of our debt of $10.0 million plus accrued interest due to Pharmacia under the Contract Modification and Termination Agreement; * The potential for equity investments, collaborative arrangements, license agreements or development or other funding programs that are at terms acceptable to 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, if any; * Our ability to maintain, renegotiate, or terminate our existing collaborative arrangements; * Our ability to receive any funds from the sale of our 33% equity investment in Ramus, consisting of 2,000,000 shares of Ramus Preferred Stock and 59,112 shares of Ramus Common Stock, neither of which are publicly traded and the fair market value of which is currently negligible; * Our ability to liquidate our equity investment in Xillix, of 2,691,904 shares of Xillix Common Stock, which is publicly traded on the Toronto Stock Exchange under the symbol (XLX.TO), but has historically had very small trading volume; 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 now, when needed, or if at all. If additional funding is not available in the near term, we will be required to scale back our research and development programs, preclinical studies and clinical trials and administrative activities or cease operations. As a result, we would not be able to successfully develop our drug candidates or commercialize our products and we would never achieve profitability. Related Party Transactions In April 1998, we entered into a $2.0 million revolving credit agreement with our affiliate, Ramus. As of December 31, 2001, we have provided the entire loan of $2.0 million to Ramus. The revolving credit line, which was due in full in March 2000, has been subsequently extended indefinitely. In addition, in accordance with the 1996 equity investment in Ramus, we had an exclusive option to purchase the remaining shares of Ramus for a specified amount under certain terms and conditions. We elected not to exercise the option, which expired March 3, 1999. Additionally, we do provide various services to them on an as needed basis, which have been insignificant to date and due to Ramus' poor financial condition, we have deferred Ramus' sublease rent payments until sometime in the future. In July 1996, the Board of Directors appointed Joseph Nida, a partner in a law firm that we use for outside legal services, to serve as our corporate Secretary. We paid Mr. Nida's law firm fees for legal services totaling $55,000 in 2001, $40,000 in 2000 and $46,000 in 1999. In addition, we have issued warrants to Mr. Nida's firm to purchase a total of 87,500 shares of Common Stock as partial consideration for his services as acting in-house legal counsel and corporate Secretary. RISK FACTORS FACTORS AFFECTING FUTURE OPERATING RESULTS The following section of this report describes material risks and uncertainties relating to our company and its business. Our business operations may be impaired by additional risks and uncertainties that we are not aware 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. RISKS RELATED TO OUR BUSINESS OUR BUSINESS IS NOT EXPECTED TO BE PROFITABLE FOR THE FORESEEABLE FUTURE AND WE WILL NEED ADDITIONAL FUNDS TO CONTINUE OUR OPERATIONS PAST SEPTEMBER 2002. IF WE FAIL TO OBTAIN ADDITIONAL FUNDING, WE COULD BE FORCED TO SCALE BACK OR CEASE OPERATIONS. Since our inception we have incurred losses totaling $173.6 million as of December 31, 2002 and have never generated enough funds through our operations to support our business. Although we have implemented a cost restructuring program in January 2002 that will allow us to reduce our overall use of cash from operations in future periods, we currently anticipate that we only have sufficient cash to fund our operations through September 30, 2002. Our independent auditors, Ernst & Young LLP, have indicated in their report accompanying our year end consolidated financial statements that, based on generally accepted accounting principles, our viability as a going concern is in question. We will need substantial additional resources in the near term to continue to develop our products. If we do not receive sufficient funding by the end of September 2002 we may be forced to cease operations. The timing and magnitude of our future capital requirements will depend on many factors, including: * Our ability to implement an effective cost restructuring program to reduce our use of cash; * The viability of SnET2 for future use; * Our ability to establish additional collaborations; * Our ability to stay listed on Nasdaq; * Our ability to raise equity financing or use stock awards for employee and consultant compensation; * The pace of scientific progress and 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; and * Our dependence on others for development and commercialization of our potential products. We plan to actively seek additional capital needed to fund our operations through corporate collaborations or partnerships, through licensing of SnET2 or new products and through public or private equity or debt financings. No commitments for such collaborations or funding are currently in place. Any inability to obtain additional financing would adversely affect our business and could cause us to significantly scale back or cease operations. If we are successful in obtaining additional equity financing it may result in significant dilution to our stockholders. In addition, any new securities issued may have rights, preferences or privileges senior to those securities held by our current stockholders. OUR EXISTING LOAN OBLIGATIONS, NASDAQ LISTING STATUS AND THE FUTURE DEVELOPMENT UNCERTAINTY OF SNET2, WILL MAKE OBTAINING ADDITIONAL FUNDING DIFFICULT. Our ability to obtain additional funding by September 30, 2002 to operate our business may be impeded by a number of factors including: * We currently owe Pharmacia Corporation, or Pharmacia, $10.0 million, and are obligated to pay a portion of net proceeds from any public or private equity financings and/or asset dispositions towards the repayment of the $10.0 million plus accrued interest due to Pharmacia under the Contract Modification and Termination Agreement: * If our aggregate net equity financing and/or assets disposition proceeds are less than or equal to $7.0 million, we are not required to make an early repayment towards our Pharmacia debt; * If our aggregate net equity financing and/or assets disposition proceeds are greater than $7.0 million but less than or equal to $15.0 million, then we are required to apply one-third of net the proceeds from the amount in excess of $7.0 million up to $15.0 million, or a maximum repayment of $2.7 million towards our Pharmacia debt; * If our aggregate net equity financing and/or assets disposition proceeds are greater than $15.0 million but less than or equal to $25.0 million, then we are required to apply one-half of the net proceeds from the amount in excess of $15.0 million up to $25.0 million, or a maximum repayment of $7.7 million towards our Pharmacia debt; * If our aggregate net equity financing and/or assets disposition proceeds are greater than $25.0 million, then we are required to apply all of the net proceeds from the amount in excess of $25.0 million, or repay the entire $10.0 million plus accrued interest towards our Pharmacia debt; and * Any early repayment of our Pharmacia debt applies first to the loan amount due on March 4, 2003, then to the remaining loan amount due on June 4, 2004. * Our Common Stock is subject to being delisted from trading on Nasdaq; and * The uncertainty surrounding the effectiveness of SnET2, following the January 2002 announcement, that Pharmacia, after an analysis of the Phase III wet age-related amcular degeneration, or AMD, clinical data, determined that the clinical trial data results indicated that SnET2 did not meet the primary efficacy endpoint in the study population, as defined by the clinical trial protocol, and that they would not be filing a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA. We will need a substantial amount of funding to further our programs and investors may be reluctant to invest in our equity securities if the funds necessary to grow our business are instead used to pay down our existing debt obligations. Investors may also be reluctant to provide us funds for fear that Pharmacia may foreclose on our assets. The fact that our Common Stock may no longer be listed for trading on Nasdaq may also discourage investors or result in a discount on the price that investors may pay for our securities. We will also have to overcome investor concerns about our other compounds given the failure of SnET2 to demonstrate success in meeting the primary efficacy endpoint in the Phase III AMD clinical trials. These and other factors may prevent us from obtaining additional financing as required in the near term on favorable terms or at all. PHARMACIA DETERMINED THAT SNET2, OUR LEADING DRUG CANDIDATE, DID NOT MEET THE PRIMARY EFFICACY ENDPOINT FOR THE STUDY POPULATION, AS DEFINED BY THE CLINICAL TRIAL PROTOCOL, IN OUR PHASE III AMD CLINICAL TRIALS WHICH CAUSED US TO DELAY AND POTENTIALLY CANCEL OUR PLANS TO SEEK REGULATORY APPROVAL FOR SNET2. WE ARE CURRENTLY ANALYZING THE CLINICAL DATA FROM THE PHASE III AMD CLINICAL TRIALS. IF THE DATA DO NOT PRESENT ANY PROSPECT OF FUTURE DEVELOPMENT FOR SNET2, THEN WE MAY BE UNABLE TO SUCCESSFULLY ESTABLISH A NEW COLLABORATIVE PARTNERSHIP, WHICH COULD MATERIALLY HARM OUR DEVELOPMENT PROGRAMS. In collaboration with Pharmacia, in December 2001, we completed two Phase III ophthalmology clinical trials for the treatment of AMD, with our lead drug candidate, SnET2. In January 2002, Pharmacia performed an analysis of the clinical data and determined that the clinical data results indicated that SnET2 patients did not meet the primary efficacy endpoint in the study population, as defined by the clinical trial protocol, and that they would not be filing an NDA with the FDA. Based on Pharmacia's analysis of the AMD clinical data, we may not be able to proceed with our plans to seek regulatory approval of SnET2 as formerly planned. In March 2002, we regained the license rights to SnET2 as well as the related data and assets from the Phase III AMD clinical trials from Pharmacia. We are currently conducting our own detailed analysis of the clinical data, including an analysis of the subset groups. We expect to complete our analysis by the end of the second quarter 2002 and, based on the results of our analysis, we will determine the future potential development of SnET2, including the potential use of SnET2 in other disease indications. In addition, we have terminated our license collaboration with Pharmacia, and we intend to seek a new collaborative partner in ophthalmology for PhotoPoint(TM) PDT, our proprietary technologies for photodynamic therapy. If our analysis of the clinical data does not provide the information to support further development, then we may be unable to enter into an agreement with a new collaborative partner and may be unable to continue our current research programs. If we cease development efforts for SnET2 it could adversely affect our funding and development efforts for our other programs and severely harm our business. THE CURRENT TRADING PRICE OF OUR COMMON STOCK, OUR MARKET CAPITALIZATION AND THE AMOUNT OF OUR STOCKHOLDER'S EQUITY AND NET TANGIBLE ASSETS, COULD RESULT IN OUR SHARES BEING DELISTED FROM TRADING ON NASDAQ. IF WE BECOME DELISTED FROM NASDAQ, THEN OUR ABILITY TO RAISE ADDITIONAL CAPITAL MAY BE LIMITED OR IMPAIRED. Our Common Stock is listed on the Nasdaq National Market. We currently do not satisfy the Nasdaq continued listing standards concerning the size of our market capitalization and the minimum bid price of our stock. Nasdaq recently informed us of its intention to delist our Common Stock. This delisting, however, has been stayed pending the outcome of an oral hearing scheduled on April 18, 2002 to appeal the Nasdaq decision. If this appeal is denied, our stock will be delisted from Nasdaq. If this were to happen, it would be much more difficult to purchase or sell our common stock or obtain accurate quotations as to the price of the securities. UNDER THE CONTRACT MODIFICATION AND TERMINATION AGREEMENT ENTERED INTO WITH PHARMACIA IN MARCH 2002, OUR OUTSTANDING DEBT TO PHARMACIA OF $10.0 MILLION REMAINS SECURED BY ALL OF OUR ASSETS. IF WE BECOME UNABLE TO REPAY OUR BORROWINGS OR VIOLATE THE COVENANTS UNDER THIS AGREEMENT, PHARMACIA COULD FORECLOSE ON OUR ASSETS. Under the terms of the Contract Modification and Termination Agreement with Pharmacia, we have outstanding debt to Pharmacia of $10.0 million which is secured by all of our assets. Our ability to comply with all covenants and to make scheduled payments, early repayments as required or to refinance our debt obligation 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 Contract Modification and Termination Agreement, Pharmacia could accelerate the debt and foreclose on our assets. As a result, we could be forced to obtain additional financing at very unfavorable terms or significantly reduce or cease operations. OUR FINANCIAL CONDITION AND COST REDUCTION EFFORTS COULD RESULT IN DECREASED EMPLOYEE MORALE AND LOSS OF EMPLOYEES AND CONSULTANTS CRITICAL TO OUR SUCCESS. Our success in the future 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. We currently have limited cash and capital resources and the efficacy of our primary drug development candidate is questionable causing our business outlook to be uncertain. In January 2002, we implemented measures to reduce our expenses to provide us more flexibility. These actions included temporarily reducing our employees salaries by approximately 20% until April 5, 2002. Additionally, due to our ongoing limited cash balances, we try to utilize stock options and stock awards as a key component of short-term and long-term compensation. However, given that our current stock options outstanding are significantly de-valued, the current value of our stock is low and the uncertainty of our long-term prospects, our ability to use stock options and stock awards as compensation may be limited. These measures, along with our financial condition and unfavorable clinical data results from the Phase III AMD clinical trials, may cause employees to question our long-term viability and increase our turnover. These factors may also result in reduced productivity and a decrease in employee morale causing our business to suffer. We do not have insurance providing us with benefits in the event of the loss of key 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. IF WE ARE NOT ABLE TO MAINTAIN AND SUCCESSFULLY ESTABLISH NEW COLLABORATIVE AND LICENSING ARRANGEMENTS WITH OTHERS, OUR BUSINESS WILL BE HARMED. Our business model is based on establishing collaborative relationships with other parties both to license compounds upon which our products and technologies are based and to manufacture, market and sell our products. As a development company we must have access to compounds and technologies to license for further development. For example, we are party to a License Agreement with the University of Toledo, the Medical College of Ohio and St. Vincent Medical Center, of Toledo, Ohio, collectively referred to as Toledo, to license or sublicense certain photoselective compounds, including SnET2. Similarly, we must also establish relationships with suppliers and manufacturers to build our medical devices and to manufacture our compounds. We have partnered with Iridex for the manufacture of certain light sources and have entered into an agreement with Fresenius for supply of the final dose formulation of SnET2. Due to the expense of the drug approval process it is critical for us to have relationships with established pharmaceutical companies to offset some of our development costs in exchange for a combination of manufacturing, marketing and distribution rights. We formerly had a significant relationship with Pharmacia for the development of SnET2 for the treatment of AMD. To further develop SnET2 it is essential that we establish a new collaborative relationship with another party. We are currently at various stages of discussions with various companies regarding the establishment of new collaborations. If we are not successful in establishing new collaborative partners for the potential development of SnET2 or our other molecules, we may not be able to pursue further development of such drugs and/or may have to reduce or cease our current development programs, which would materially harm our business. Even if we are successful in establishing new collaborations, they are subject to numerous risks and uncertainties including the following: * 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 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 fulfill 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. ALL OF OUR PRODUCTS, EXCEPT SNET2 AND MV9411, ARE IN AN EARLY STAGE OF DEVELOPMENT AND ALL OF OUR PRODUCTS, INCLUDING SNET2 AND MV9411, MAY NEVER BE SUCCESSFULLY COMMERCIALIZED. Our products, except SnET2 and MV9411, are at an early stage of development and our ability to successfully commercialize these products, including SnET2 and MV9411, 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, INCLUDING SNET2 AND MV9411, MAY NOT SUCCESSFULLY COMPLETE THE CLINICAL TRIAL 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/or clinical trials prior to regulatory approval for commercial use, which is a lengthy and expensive process. None of our products, except SnET2, 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 FDA that our products are safe and efficacious; * Our products may not be as efficacious as our competitors products; * Our ability to successfully complete the testing for any of our compounds within any specified time period, if at all; * Clinical outcomes 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. 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. In collaboration with Pharmacia, in December 2001, we completed two Phase III ophthalmology clinical trials for the treatment of AMD, with our lead drug candidate, SnET2. In January 2002, Pharmacia performed an analysis of the clinical data and determined that the clinical data results indicated that SnET2 patients did not meet the primary efficacy endpoint in the study population, as defined by the clinical trial protocol, and they would not be filing an NDA with the FDA. Based on Pharmacia's analysis of the AMD clinical data, we may not be able to proceed with our plans to seek regulatory approval of SnET2 as formerly planned. In March 2002, we regained the license rights to SnET2 as well as the related data and assets from the Phase III AMD clinical trials from Pharmacia. We are currently conducting our own detailed analysis of the clinical data, including an analysis of the subset groups. We expect to complete our analysis by the end of the second quarter 2002 and, based on the results of our analysis, we will determine the future potential development of SnET2, including the potential use of SnET2 in other disease indications. In addition, we have terminated our license collaboration with Pharmacia, and we intend to seek a new collaborative partner in ophthalmology. 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. 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. WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE LOSSES IN THE FUTURE, WHICH MAY FLUCTUATE SIGNIFICANTLY. WE MAY NEVER ACHIEVE PROFITABILITY. We have incurred significant losses since our inception in 1989 and, as of December 31, 2001, had an accumulated deficit of approximately $173.6 million. We expect to continue to incur significant, and possibly increasing, operating losses over the next few years. Although we continue to incur costs for research and development, preclinical studies, clinical trials, manufacturing and general corporate activities, we have currently implemented a cost restructuring program which we expect will help to reduce our overall costs. 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 commercial sales of SnET2 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 several years. Our revenues to date have consisted of license reimbursements, grants awarded, royalties on our devices, SnET2 bulk active pharmaceutical ingredient, or bulk API sales, milestone payments, payments for our devices, and interest income. Our revenues for the foreseeable future are expected to consist of the remaining $450,000 of bulk API sold to Pharmacia through January 2002, reimbursements under license agreements, milestone payments, licensing fees and interest income. THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE. From time to time and in particular during the last couple of months, 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 15, 2001 to March 15, 2002, our Common Stock price, per Nasdaq closing prices, has ranged from a high of $12.42 to a low of $0.80. 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 reduce the market price of the Common Stock. Extreme price fluctuations could be the result of the following: * Future development decisions related to the results of our Phase III AMD clinical trials; * Announcements concerning Miravant or our collaborators, competitors or industry; * Our ability to successfully establish new collaborations; * 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; * Our ability to stay listed on Nasdaq; * 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. If these broad market fluctuations cause the trading price of our Common Stock to significantly decline, we may be unable to obtain additional capital that we may need through public or private financing activities and our stock could be delisted from Nasdaq further exacerbating our ability to raise funds and limiting your ability to sell your shares. Because outside financing is critical to our future success, large fluctuations in our share price that harm our financing activities could cause us to significantly alter our business plans or cease operations altogether. WE RELY ON THIRD PARTIES TO CONDUCT CLINICAL TRIALS ON OUR PRODUCTS, AND IF THESE RESOURCES FAIL, OUR ABILITY TO SUCCESSFULLY COMPLETE CLINICAL TRIALS WILL BE ADVERSELY AFFECTED AND OUR BUSINESS WILL SUFFER. To date, we have limited experience in conducting clinical trials. We had relied on Pharmacia, our former corporate partner, and Inveresk, Inc., formerly ClinTrials Research, Inc., a contract research organization, for our Phase III AMD clinical trials and we rely on a contract research organization for our Phase II dermatology 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. The failure to have adequate resources for conducting and managing clinical trials will have a negative impact on our ability to develop marketable products and would harm our business. Other contract research organizations may be available in the event that our current contract research organizations fail; however there is no guarantee that we would be able to engage another organization in a timely manner, if at all. This could cause delays in our clinical trials and our development programs, which could materially harm our business. WE RELY ON PATIENT ENROLLMENT TO CONDUCT CLINICAL TRIALS, AND OUR INABILITY TO CONTINUE TO ATTRACT PATIENTS TO PARTICIPATE WILL HAVE A NEGATIVE IMPACT ON OUR CLINICAL TRIAL RESULTS. 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 clinical trials. A specific concern for potential future AMD clinical trials is that there currently is an approved treatment for AMD and patients enrolled in future AMD clinical trials, if any, may choose to drop out of the trial or pursue alternative treatments. This could result in delays or incomplete clinical trial data. We cannot assure 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 result in slower introduction of our potential products, a reduction in our revenues and may prevent us from becoming profitable. 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. Failure to obtain and keep patients in our clinical trials will delay or completely impede test results which will negatively impact the development of our products and prevent us from becoming profitable. WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, OUR PATENTS AND OUR PROPRIETARY TECHNOLOGY, WHICH WILL MAKE IT EASIER FOR OTHERS TO MISAPPROPRIATE OUR TECHNOLOGY AND INHIBIT OUR ABILITY TO BE COMPETITIVE. 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 reduce our future income, increase our costs and limit our ability to develop additional products. 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 prohibit us from developing our products as planned; 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. Further exposure could arise from the following risks and uncertainties: * 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. The occurrence of any of these events described above could harm 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. We may not be successful in any such proceeding. Litigation and other proceedings are 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. 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. 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 at some commercial levels, we have not yet manufactured any products under GMPs which can be released for commercial use, and we have limited experience in manufacturing in commercial quantities. We are licensed by the State of California to manufacture SnET2 bulk API at our Santa Barbara, California facility for clinical trial and other use. We currently manufacture the bulk API, 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 we believe we 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 commercial product sales, as well as our overall business growth could be limited, which in turn could prevent us from becoming profitable or viable as a business. Fresenius is the sole manufacturer of the final dose formulation of 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. At this time, we have no readily available back-up manufacturers to produce the final formulation of SnET2 at commercial levels or back-up suppliers of the light producing devices. If Fresenius could no longer manufacture for us or Iridex was unable to supply us with devices, we could experience significant delays in production or may be unable to find a suitable replacement, which would reduce our revenues and harm our ability to commercialize our products and become profitable. We have no direct experience in marketing, distributing and selling our 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 Iridex for any medical device needs for the AMD program. 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 PRODUCTS MAY EXHIBIT ADVERSE SIDE EFFECTS THAT PREVENT THEIR WIDESPREAD ADOPTION OR THAT NECESSITATE WITHDRAWAL FROM THE MARKET. Our PhotoPoint PDT 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 PDT drug and device products as potential therapeutic agents may be a period of photosensitivity for a certain period of time after receiving PhotoPoint PDT. This period of photosensitivity is generally dose dependent and typically declines over time. 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. 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. For example, if we are able to eventually obtain approval of our drugs and devices to treat cardiac restenosis we will have to demonstrate and gain market acceptance of this as a method of treatment over use of drug coated stents and other restenosis treatment options; * 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 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. Although most of our raw materials and components are available from various sources, 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. We are seeking to establish relationships with additional suppliers, however, we may not be successful in doing so and may encounter delays or other problems. If we are unable to produce our potential products in a timely manner, or at all, our sales would decline, our development activities could be delayed or cease and as a result we may never achieve profitability. WE MAY NOT HAVE ADEQUATE PROTECTION AGAINST PRODUCT LIABILITY OR RECALL, WHICH COULD SUBJECT US TO LIABILITY CLAIMS THAT COULD MATERIALLY HARM OUR BUSINESS. The testing, manufacture, marketing and sale of human pharmaceutical products and medical devices 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 product liability insurance that would cover a claim relating to the clinical or commercial use or recall of our products; * In the absence of product liability insurance, claims made against us or a product recall could result in our being exposed to large damages and expenses; * If we obtain product liability 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 cause us to pay large amounts in damages; 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 currently do not expect to obtain product liability insurance until we have an approved product and begin distributing the product for commercial use. We plan to obtain product liability insurance to cover our indemnification obligations to Iridex for third party claims relating to any of our potential negligent acts or omissions involving our SnET2 drug technology or PhotoPoint PDT light device technology. A successful product liability claim could result in monetary or other damages that could harm our business, financial condition and additionally cause us to cease operations. 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. WE RELY ON THE AVAILABILITY OF CERTAIN UNPROTECTED INTELLECTUAL PROPERTY RIGHTS, AND IF ACCESS TO SUCH RIGHTS BECOMES UNAVAILABLE, OUR BUSINESS COULD SUFFER. Our trade secrets may become known or be independently discovered by competitors. Furthermore, inventions or processes discovered by our employees will not necessarily become our property and may remain the property of such persons or others. In addition, 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 our rights to our unpatented trade secrets and know-how. In the event that the intellectual property we do or will rely on becomes unavailable, our ability to be competitive will be impeded and our business will suffer. 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, or Rights Plan. The Rights 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 Rights 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 April 2001, the Rights Plan was amended to increase the trigger percentage from 20% to 25% as it applies to Pharmacia and excluded shares acquired by Pharmacia in connection with our 2001 Credit Agreement with Pharmacia, and from the exercise of warrants held by Pharmacia. 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 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 or may discourage another party from acquiring voting control of us. BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS. Our operations are vulnerable to interruption by fire, earthquake, power loss, floods, 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 were subject to electricity blackouts as a consequence of a shortage of available electrical power. There is no guarantee that this electricity shortage has been permanently resolved, as such, we may again in the future experience unexpected blackouts. Though we do have back-up electrical generation systems in place, they are for use for a limited time and 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 adequate business interruption insurance to compensate us for losses that may occur and any losses or damages incurred by us could be substantial. 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 not be purchased or sold as expected. Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for these products and related treatment will be available from 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 prevent us from selling our potential products profitability, may reduce our revenues 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 European Union, or 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, preclinical 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, device 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 PDT 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, cost and price of our light systems; * The cost and price of our drug; and * The amount reimbursed for the drug and device treatment by third-party payors. We cannot give any assurance that new drugs or future developments in photodynamic therapy or in other drug technologies will not harm 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 any assurance that developments by our competitors or future competitors will not render our technology obsolete. WE FACE INTENSE COMPETITION AND OUR FAILURE TO COMPETE EFFECTIVELY, PARTICULARLY AGAINST LARGER, MORE ESTABLISHED PHARMACEUTICAL AND MEDICAL DEVICE COMPANIES, WILL CAUSE OUR BUSINESS TO SUFFER. 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 and distribution. Further, our competitive position could be harmed 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 PDT. 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, such as drug-eluting stents 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. Our direct competitors in our sector include QLT Inc., or QLT, DUSA Pharmaceuticals, or DUSA, Axcan Pharmaceuticals and Pharmacyclics. QLT's drug Visudyne has received marketing approval in the United States and certain other countries for the treatment of AMD and has been commercialized by Novartis. Axcan and DUSA have photodynamic therapy drugs, both of which have received marketing approval in the United States - Photofrin(R) (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. Pharmacyclics has a photodynamic therapy drug that has not received marketing approval, which is being used in certain preclinical studies and/or clinical trials for ophthalmology, oncology and cardiovascular indications. We are aware of other drugs and devices under development by these and other photodynamic therapy competitors in additional disease areas for which we are developing PhotoPoint PDT. These competitors as well as others that we are not aware of, may develop superior products or reach the market prior to PhotoPoint PDT and render our products non-competitive or obsolete. OUR INDUSTRY IS SUBJECT TO TECHNOLOGICAL UNCERTAINTY, WHICH MAY RENDER OUR PRODUCTS AND DEVELOPMENTS OBSOLETE AND OUR BUSINESS MAY SUFFER. The pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our products under development or our 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, biotechnology and device 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 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 three of our competitors in the market for photodynamic therapy drugs have received marketing approval of their product for certain uses in the United States or 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 restenosis, 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 PDT 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 or diagnostic tools, 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 SUBJECTING US TO COMPLIANCE ISSUES THAT COULD CREATE SIGNIFICANT ADDITIONAL EXPENDITURES AND LIMIT THE PRODUCTION AND DEMAND FOR OUR POTENTIAL PRODUCTS. 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 limit the demand and manufacturing of 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 hinder 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 IS SUBJECT TO ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS, AND IN THE EVENT OF AN ENVIRONMENTAL LIABILITY CLAIM, WE COULD BE HELD LIABLE FOR DAMAGES AND ADDITIONAL SIGNIFICANT UNEXPECTED COMPLIANCE COSTS, WHICH COULD HARM OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONs. 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 cause us to pay significant amounts of money and harm our business. Further, the cost of complying with these laws and regulations may increase materially in the future. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Miravant Medical Technologies /S/ Gary S. Kledzik ------------------------------------------- Gary S. Kledzik, Ph.D. Chief Executive Officer and Chairman of the Board -----END PRIVACY-ENHANCED MESSAGE-----