-----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, NGWdf+tgmimXYYlf/pYm+oc/+++R74O9uSaT+BRi5vShwm0J4soITyuEoMD7XddT eEMLCQmd7vPb4jjZ8gqVLg== 0000933745-02-000026.txt : 20021114 0000933745-02-000026.hdr.sgml : 20021114 20021114165112 ACCESSION NUMBER: 0000933745-02-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25544 FILM NUMBER: 02825767 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-Q 1 f10qsept2002.txt FORM 10-Q - SEPTEMBER 30, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-25544 Miravant Medical Technologies - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 77-0222872 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 336 Bollay Drive, Santa Barbara, California 93117 - -------------------------------------------------------------------------------- (Address of principal executive offices, including zip code) (805) 685-9880 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 8, 2002 ----- ----------------------------- Common Stock, $.01 par value 23,929,598 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
Page Item 1. Condensed Consolidated Financial Statements Condensed consolidated balance sheets as of September 30, 2002 and December 31, 2001............................................................. 3 Condensed consolidated statements of operations for the three and nine months ended September 30, 2002 and 2001............................... 4 Condensed consolidated statement of stockholders' equity (deficit) for the nine months ended September 30, 2002.......................... 5 Condensed consolidated statements of cash flows for the nine months ended September 30, 2002 and 2001........................................ 6 Notes to condensed consolidated financial statements............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................10 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds .......................................38 Item 3. Qualitative and Quantitative Disclosures About Market Risk.......................38 Item 4. Controls and Procedures..........................................................38 Item 6. Exhibits and Reports on Form 8-K.................................................39 Signatures.......................................................................40
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 2002 2001 -------------------- --------------------- Assets (Unaudited) Current assets: Cash and cash equivalents............................................... $ 1,984,000 $ 1,458,000 Investments in short-term marketable securities......................... -- 4,654,000 Accounts receivable..................................................... -- 5,030,000 Inventories............................................................. -- 395,000 Prepaid expenses and other current assets............................... 1,297,000 1,024,000 -------------------- --------------------- Total current assets....................................................... 3,281,000 12,561,000 Property, plant and equipment: Vehicles................................................................ 28,000 28,000 Furniture and fixtures.................................................. 1,395,000 1,404,000 Equipment............................................................... 5,531,000 5,447,000 Leasehold improvements.................................................. 3,495,000 3,382,000 -------------------- --------------------- 10,449,000 10,261,000 Accumulated depreciation................................................ (9,684,000) (9,057,000) -------------------- --------------------- 765,000 1,204,000 Investments in affiliates.................................................. 328,000 635,000 Deferred financing costs................................................... -- 913,000 Patents and other assets................................................... 579,000 810,000 -------------------- --------------------- Total assets............................................................... $ 4,953,000 $ 16,123,000 ==================== ===================== Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable........................................................ $ 1,022,000 $ 2,535,000 Accrued payroll and expenses............................................ 596,000 786,000 Current portion of long-term debt....................................... 5,238,000 -- -------------------- --------------------- Total current liabilities.................................................. 6,856,000 3,321,000 Long-term liabilities: Long-term debt, less current portion.................................... 5,554,000 26,548,000 Sublease security deposits.............................................. 94,000 94,000 -------------------- --------------------- Total long-term liabilities................................................ 5,648,000 26,642,000 Stockholders' equity (deficit): Common stock, 50,000,000 shares authorized; 23,917,002 and 18,876,075 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively.......................................................... 179,404,000 161,496,000 Notes receivable from officers.......................................... (556,000) (864,000) Deferred compensation................................................... (241,000) (547,000) Accumulated other comprehensive loss.................................... (663,000) (356,000) Accumulated deficit..................................................... (185,495,000) (173,569,000) -------------------- --------------------- Total stockholders' equity (deficit)....................................... (7,551,000) (13,840,000) -------------------- --------------------- Total liabilities and stockholders' equity (deficit)....................... $ 4,953,000 $ 16,123,000 ==================== ===================== See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended September 30, Nine months ended September 30, 2002 2001 2002 2001 ----------------- ----------------- ---------------- ---------------- Revenues: License-contract research and development......... -- 20,000 20,000 224,000 Bulk active pharmaceutical ingredient sales....... -- 763,000 479,000 3,049,000 Royalties......................................... -- -- -- 75,000 ----------------- ----------------- ---------------- ---------------- Total revenues...................................... -- 783,000 499,000 3,348,000 Costs and expenses: Cost of goods sold................................ -- 236,000 479,000 364,000 Research and development.......................... 2,114,000 3,692,000 7,338,000 9,825,000 Selling, general and administrative............... 1,797,000 1,418,000 4,483,000 4,492,000 ----------------- ----------------- ---------------- ---------------- Total costs and expenses............................ 3,911,000 5,346,000 12,300,000 14,681,000 Loss from operations................................ (3,911,000) (4,563,000) (11,801,000) (11,333,000) Interest and other income (expense): Interest and other income........................ 29,000 187,000 147,000 730,000 Interest expense................................. (1,000) (524,000) (282,000) (1,705,000) Gain on sale of property, plant and equipment.... 10,000 -- 10,000 586,000 ----------------- ----------------- ---------------- ---------------- Total net interest and other income (expense)....... 38,000 (337,000) (125,000) (389,000) ----------------- ----------------- ---------------- ---------------- Net loss............................................ (3,873,000) (4,900,000) (11,926,000) (11,722,000) ================= ================= ================ ================ Net loss per share - basic and diluted.............. (0.19) (0.26) (0.61) (0.63) ================= ================= ================ ================ Shares used in computing net loss per share......... 20,580,224 18,670,704 19,450,691 18,612,873 ================= ================= ================ ================
See accompanying notes. MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
Notes Accumulated Receivable Deferred Other Common Stock from Compensation Comprehensive Accumulated Shares Amount Officers and Interest Loss Deficit Total ------------ -------------- ------------- --------------- -------------- -------------- ------------- Balance at December 31, 2001..18,876,075 $ 161,496,000 $ (864,000) $ (547,000) $ (356,000) $(173,569,000) $(13,840,000) Comprehensive loss: Net loss.................... -- -- -- -- -- (11,926,000) (11,926,000) Net change in accumulated other comprehensive loss.... -- -- -- -- (307,000) -- (307,000) ------------- Total comprehensive loss..... (12,233,000) Issuance of stock (net of approximately $73,000 of offering costs).......... 5,000,000 2,427,000 -- -- -- -- 2,427,000 Issuance of stock awards and ESOP matching contribution.. 40,927 30,000 -- -- -- -- 30,000 Non-cash contributions by Pharmacia Corporation: Lease payments............. -- 40,000 -- -- -- -- 40,000 Debt restructuring......... -- 15,393,000 -- -- -- -- 15,393,000 Deferred compensation........ -- 18,000 -- (18,000) -- -- -- Officer notes and related non-cash interest accrued.. -- -- (192,000) -- -- -- (192,000) Reserve of officer and employee loans............. -- -- 500,000 -- -- -- 500,000 Amortization of deferred compensation................ -- -- -- 324,000 -- -- 324,000 ------------ --------------- ------------- --------------- -------------- --------------- ------------- Balance at September 30, 2002..23,917,002 $ 179,404,000 $ (556,000) $ (241,000) $ (663,000) $(185,495,000) $(7,551,000) ============ =============== ============= =============== ============== =============== =============
See accompanying notes. MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, Operating activities: 2002 2001 ------------------- ---------------------- Net loss.......................................................... $ (11,926,000) $ (11,722,000) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization.................................. 709,000 946,000 Amortization of deferred compensation.......................... 324,000 426,000 Stock awards and ESOP matching contribution.................... 30,000 1,458,000 Gain on sale of property, plant and equipment.................. (10,000) (586,000) Non-cash interest and amortization of deferred financing costs on long-term debt............................ 316,000 1,734,000 Provision for employee and officer loans, net of non-cash interest on officer loans.................................... 883,000 88,000 Changes in operating assets and liabilities: Accounts receivable......................................... 5,030,000 (3,106,000) Prepaid expenses, inventories and other assets.............. 110,000 (1,350,000) Accounts payable and accrued payroll and expenses........... (1,703,000) (481,000) ------------------- ---------------------- Net cash used in operating activities............................. (6,237,000) (12,593,000) Investing activities: Purchases of marketable securities ............................... (46,951,000) (11,203,000) Proceeds from sales of marketable securities ..................... 51,605,000 22,695,000 Additions to patents.............................................. (228,000) (63,000) Proceeds from the sale of property, plant and equipment........... 65,000 863,000 Purchases of property, plant and equipment........................ -- (189,000) ------------------- ---------------------- Net cash provided by investing activities......................... 4,491,000 12,103,000 Financing activities: Proceeds from issuance of Common Stock, less issuance costs....... 2,427,000 7,000 Issuance of note to officers...................................... (155,000) (300,000) ------------------- -------------------- Net cash provided by (used in) financing activities............... 2,272,000 (293,000) Net increase (decrease) in cash and cash equivalents.............. 526,000 (783,000) Cash and cash equivalents at beginning of period.................. 1,458,000 1,935,000 ------------------- ---------------------- Cash and cash equivalents at end of period........................ $ 1,984,000 $ 1,152,000 =================== ====================== Supplemental disclosures: Cash paid for: State taxes..................................................... $ 3,000 $ 13,000 =================== ====================== Interest ....................................................... $ 1,000 $ -- =================== ====================== Supplemental disclosure of non-cash transactions: See Notes 5 and 6 of the notes to the condensed consolidated financial statements for discussion of non-cash transactions occurring during the nine month period ended September 30, 2002. See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The information contained herein has been prepared in accordance with Rule 10-01 of Regulation S-X. The information at September 30, 2002 and for the three and nine month periods ended September 30, 2002 and 2001, is unaudited. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. For a presentation including all disclosures required by accounting principles generally accepted in the United States, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2001 included in the Miravant Medical Technologies Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. Through September 30, 2002, the Company had an accumulated deficit of $185.5 million and expects to continue to incur substantial, and possibly increasing, operating losses for the next few years. The Company is continuing its efforts, though at a reduced level, in its research and development and the preclinical studies and clinical trials of its products. These efforts, and obtaining requisite regulatory approval, prior to commercialization, will require substantial expenditures. Once requisite regulatory approval has been obtained, if at all, substantial additional financing will be required for the manufacture, marketing and distribution of its product in order to achieve a level of revenues adequate to support the Company's cost structure. Executive management of the Company believes that it has sufficient resources to fund the required expenditures through December 31, 2002 at a reduced capacity. Executive management is currently in discussions with one of its significant investors for some additional bridge financing to extend the Company's cash resources beyond December 31, 2002. In addition, executive management also believes it can raise additional funding to support operations through corporate collaborations or partnerships, licensing of SnET2 or new products and equity financings in the near future. However, there can be no assurance that the Company will be successful in obtaining such financing or that financing will available on favorable terms. If additional funding is not available when required, management will begin implementing additional cost restructuring programs by the further delay or reduction in scope of one or more of its research and development programs and further adjusting, deferring or reducing salaries of employees and by reducing operating and overhead expenditures to conserve cash to be used in operations. 2. Comprehensive Loss For the nine months ended September 30, 2002 and 2001, comprehensive loss amounted to approximately $12.2 million and $12.0 million, respectively. The difference between net loss and comprehensive loss relates to the change in the unrealized loss or gain the Company recorded for its available-for-sale securities on its investment in its affiliate Xillix Technologies Corp. 3. Per Share Data Basic loss per common share is computed by dividing the net loss by the weighted average shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Since the effect of the assumed exercise of common stock options and other convertible securities was anti-dilutive, basic and diluted loss per share as presented on the condensed consolidated statements of operations are the same. 4. Private Placement In August 2002, the Company completed a private placement financing which consisted of the sale of unregistered shares of Common Stock for gross proceeds of $2.5 million at $0.50 per share, based on a premium of approximately 20% of the average closing price for the prior 10 trading days. For every two common shares acquired, the equity purchase included a warrant to purchase one share of Common Stock at a price of $0.50 per share, with an exercise period of 5 years from the date of grant. A group of private investors participated in the offering. The proceeds are being used for research, development and general corporate purposes. 5. Contract Modification and Termination Agreement with Pharmacia On March 5, 2002, Miravant and Pharmacia entered into a Contract Modification and Termination Agreement pursuant to which the Company regained all of the rights and related data and assets to our lead drug candidate, SnET2, and restructured its 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 these agreements related to SnET2 license agreements and related drug and device supply agreements, side letters, the Manufacturing Facility Asset Purchase Agreement and various supporting agreements. The termination of the various agreements provided that all ownership of the rights, data and assets related to SnET2 and the Phase III AMD clinical trials revert back to the Company. The rights transferred back to the Company include the ophthalmology Investigational New Drug application, or IND, and the related filings, data and reports and the ability to license the rights to SnET2. The assets which the Company received ownership rights to 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 to receiving back all of the bulk API inventory sold to Pharmacia in 2001, the Company also received a payment of $479,000 for the costs of the in-process and finished bulk API inventory manufactured through January 23, 2002. The Company also reassumed the lease obligations and related property taxes for its bulk API manufacturing facility. The lease agreement expires in October 2006 and currently has a base rent of approximately $26,000 per month. The Company is currently in negotiations to sublease this facility. As a condition of the Contract Modification and Termination Agreement, Pharmacia had released to the Company $880,000, which included accrued interest, held in an equipment escrow account, which was originally scheduled for release in June 2002. These funds represent the $863,000 purchase price that Pharmacia paid under the Manufacturing Facility Asset Purchase Agreement for the purchase of the Company's bulk API manufacturing equipment in May 2001 plus interest earned through the release date. The Contract Modification and Termination Agreement also modifies the 2001 Credit Agreement. The outstanding debt that the Company owed to Pharmacia of approximately $26.8 million has been reduced to $10.0 million plus accrued interest. The Company 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 has remained 4.75% since March 5, 2002. Additionally, the early repayment provisions were modified and many of the covenants were eliminated or modified. In exchange for these changes and the rights to SnET2, the Company terminated its 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 Phase III clinical trial data did not meet certain clinical statistical standards, as defined by the clinical trial protocols, the Company will not have available an additional $10.0 million of borrowings as provided for under the 2001 Credit Agreement. In accordance with Statement of Financial Standards No. 15, or SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings", the Company permanently reduced the debt due to Pharmacia to the total future cash payments of the debt, including amounts designated as interest and principal. The total future cash payments, at the current interest rate, are estimated to be $10.8 million. The difference between the total debt outstanding of $25.9 million (net of the unamortized debt issuance costs of $851,000) and the total future cash payments of the restructured debt of $10.8 million was recorded as an increase to stockholders' equity due to Pharmacia being a greater than 10% stockholder in the Company as of March 5, 2002. Additionally, the net book value of the API manufacturing equipment received from Pharmacia, approximately $274,000, was recorded as an increase to property, plant and equipment and stockholders' equity. Therefore, the Company recorded a total increase to stockholders' equity in the first quarter of 2002 of $15.4 million. The Contract Modification and Termination Agreement also provided for the transfer of ownership of several assets back to the Company, including the lasers utilized in the Phase III AMD clinical trials, the bulk API and FDF inventories and the bulk API manufacturing equipment used to manufacture SnET2. As discussed above the Company recorded the transfer of ownership of the API manufacturing equipment at its net carrying value prior to the sale to Pharmacia, which was $274,000. Under generally accepted accounting principles, there was no value recorded on the balance sheet for the transfer of ownership of the lasers, the bulk API and FDF inventory, since these assets, according to the Company's accounting policies, had been expensed as research and development costs in prior years. 6. Notes Receivable from Officers and Employees As disclosed in Note 3 in the Company's consolidated financial statements for the year ended December 31, 2001 in the Company's annual report on Form 10-K, as amended, filed with the Securities and Exchange Commission, the Company has made loans to officers and employees over the years secured by stock and stock options and certain unsecured loans. In light of the decrease in the Company's stock price and certain other factors affecting the collectibility of these loans, the Company recorded a reserve for these loans to officers and employees in the amount of $920,000 in the quarter ended September 30, 2002. Of the amount recorded, $270,000 is included in research and development expenses and $650,000 is included in general and administrative expenses in the statements of operations for the three and nine month periods ended September 30, 2002. As of September 30, 2002, the balance of these loans, net of reserves, is $595,000. 7. New Accounting Pronouncements: SFAS No. 144 Adoption In October 2001, the Financial Accounting Standards Board 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 Company adopted SFAS No. 144 in January 2002 and the adoption has not had a material effect on the Company's consolidated financial statements. 8. Reclassifications Certain reclassifications have been made to the 2001 condensed consolidated financial statements to conform to the current period presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section of our quarterly report on Form 10-Q contains forward-looking statements, which involve known and unknown risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as "may," "will," "should," "potential," "expects," "anticipates," "intends," "plans," "believes" and similar expressions. These statements are based on our current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties and include statements regarding our ability to fund our operations through December 31, 2002 in a reduced capacity; our ability to raise funding through collaborations, licensing arrangements, financing transactions or obtaining a line of credit from certain of our current private investors, 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; the expected completion of our ongoing dermatology clinical trials; our cardiovascular program strategies; and our expected general and administrative expenditures. Our actual results could differ materially from those discussed in these statements due to a number of risks and uncertainties including: our actual expenditures exceeding our projections; other parties may decline to collaborate with us due to our financial condition or other reasons beyond our control; we may be unable to locate parties willing to invest in our securities; unanticipated complexity or difficulty in analyzing clinical trial data; we may be unable to obtain the necessary funding to further our research and development activities or our ongoing programs may encounter difficulties or fail to meet objectives; and our general and administrative costs may not remain level due to expenses associated with financing and partnering activities or other matters. 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 Condensed 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 $185.5 million as of September 30, 2002. 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 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 that we have sufficient resources to fund the required expenditures through December 31, 2002 at a reduced capacity. Executive management is currently in discussions with one of our significant investors for some additional bridge financing to extend our cash resources beyond December 31, 2002. In addition, executive management also believes we can raise additional funding to support operations through corporate collaborations or partnerships, licensing of SnET2 or new products and equity financings in the near future. However, there can be no assurance that we will be successful in obtaining such financing or that financing will available on favorable terms. If additional funding is not available when required, management will begin implementing additional cost restructuring programs by the further delay or reduction in scope of one or more of our research and development programs and further 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 and through January 2002, we sold approximately $4.8 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. The January 2002 sales of bulk API was the final amount sold to Pharmacia. 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 results from our ongoing preclinical studies and clinical trials, including those of the completed Phase III AMD clinical trials, the timing and outcome of applications for regulatory approvals, our ability to re-license SnET2 and 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 August 2002, we completed a private placement financing which consisted of the sale of unregistered shares of Common Stock for gross proceeds of $2.5 million at $0.50 per share, based on a premium of approximately 20% of the average closing price for the prior 10 trading days. For every two common shares acquired, the equity purchase included a warrant to purchase one share of Common Stock at a price of $0.50 per share, with an exercise period of 5 years from the date of grant. A group of private investors participated in the offering. The proceeds are being used for research, development and general corporate purposes. Executive management is currently in discussions with some members of this group, as well as other investors, for some potential bridge financing during the fourth quarter 2002. There are no guarantees we will be able to complete another private placement or other financing with this group of investors or any other potential investors prior to December 31, 2002 or at all. 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 overall 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 regained the license rights to SnET2 as well as the related data and assets from the Phase III AMD clinical trials from Pharmacia. 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 are currently conducting our own detailed analysis of the clinical data, including an analysis of the subset groups 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. Executive management is currently pursuing various potential strategic partners in fields of ophthalmology and cardiovascular disease. In the field of ophthalmology we entered into a non-binding letter of intent with Bausch & Lomb in June 2002, for SnET2 for the treatment of AMD. As of October 1, 2002 the letter of intent has expired, however, we continue to have discussions with Bausch & Lomb regarding this opportunity. Bausch & Lomb may still continue to pursue potential licensing opportunities with us for SnET2, or other compounds, however, at this time we have not entered into any definitive or exclusive agreements with them. In the field of cardiovascular disease, we are in discussions with various potential strategic partners, but also have not entered into any definitive or exclusive agreements. There are no guarantees that Bausch & Lomb or any other potential strategic partner will enter into a license agreement or provide us with any potential funding to advance our research and development programs. We were notified by Nasdaq on July 11, 2002 that our Common Stock would be delisted and begin trading on the over-the-counter bulletin board, or OTCBB, effective as of the opening of business on July 12, 2002. The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. OTCBB securities are traded by a community of market makers that enter quotes and trade reports. Our Common Stock trades under the ticker symbol MRVT and can be viewed at www.otcbb.com. Our executive management intends to make every effort to regain our listing status on the Nasdaq National Market, however, there is no guarantee we will be able to raise the additional capital needed or to increase the current trading price of our Common Stock to allow us to meet the listing requirements for the Nasdaq National Market on a timely basis, if at all. In ophthalmology, besides the possible use of SnET2 alone or in combination with other therapies, we have identified a few potential next generation drug compounds for use in various eye diseases. These drugs are in the early stage of development and will not likely begin further development until obtaining a corporate partner or other collaboration in ophthalmology. In our dermatology program, we use a topical gel formulation to deliver MV9411, a proprietary 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 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 clinical trial by the end of 2002. We are also conducting preclinical studies of SnET2 with existing and new photoselective drugs for cardiovascular diseases, in particular for the prevention and treatment of vulnerable plaque and restenosis. Vulnerable plaque is unstable and a rupture-prone inflamation within the artery walls and restenosis is the renarrowing of an artery that commonly occurs after balloon angioplasty for obstructive artery disease. We are in the process of formulating a new lead drug, MV0633, and, pending the outcome of our preclinical studies with some existing photoselective drugs and financial considerations and other factors, we may prepare an Investigational New Drug application, or IND, in cardiovascular disease for MV0633 or one of the existing photoselective drugs. As a result of our preclinical studies in cardiovascular disease, we are evaluating the use of PhotoPoint PDT for the prevention and/or treatment of graft disease in arterial-venous grafts, or AV grafts. AV grafts are placed in patients with End Stage Renal Disease to provide access for herrodialysis. Pending the results of our preclinical studies as well as financial considerations and other factors, we may choose to file an IND for the commencement of clinical trials in this field. 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. Based on our ability to successfully obtain additional funding, our ability to obtain new collaborative partners, our ability to license and pursue further development of SnET2 for AMD or other disease indications, our ability to reduce operating costs as needed, our ability to regain our listing status 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 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 reassumed 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. We are currently in negotiations to sublease this facility. 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: * Pharmacia agreed to buy our existing bulk API inventory at cost for $2.2 million. During 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 September 30, 2002, we had sold $2.5 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. 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; * The interest earned by the inventory and equipment escrow accounts accrued to us and was released in full from each escrow account in January 2002 and March 2002, respectively. All amounts received into escrow were recorded as accounts receivable until the amounts were released. 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 has remained 4.75% since 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, based upon their overall analysis of the Phase III AMD data, 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 were modified 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 the net 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. Results of Operations Revenues. For the nine months ended September 30, 2002, our revenues decreased to $499,000 from $3.3 million for the same period in 2001. For the three months ended September 30, 2002, we had no revenues compared to $783,000 for the three months ended September 30, 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 they agreed to buy bulk API inventory through March 2002. We recorded revenue related to bulk API sales of $763,000 and $3.0 million for the three and nine month periods ended September 30, 2001, respectively, and $479,000 in January 2002. No further bulk API was sold to Pharmacia after January 2002, and as such there were no bulk API revenues for the three months ended September 30, 2002. 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 to $20,000 for the nine months ended September 30, 2002 from $224,000 for the nine months ended September 30, 2001. There was no license income for the three month period ended September 30, 2002 compared to $20,000 of license income for the three months ended September 30, 2001. The decrease in license income is specifically related to the conclusion of the Phase III AMD clinical trials in December 2001 and the completion of the preclinical studies and our AMD clinical trial responsibilities. Reimbursements received during 2001 and 2002 were primarily for costs incurred to complete preclinical studies and clinical trial oversight for AMD. 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 $479,000. 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. 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 $479,000 in manufacturing costs for the nine months ended September 30, 2002 compared to $364,000 for the same period in 2001. There were no manufacturing costs for the three month period ended September 30, 2002 compared to $236,000 for the same period in 2001. The amounts recorded as cost of goods sold in 2002 represent the costs incurred for only the newly manufactured bulk API in 2002. The amounts recorded for cost of goods sold in 2001 represent the costs for the final preparation of existing bulk API that had been manufactured in 1999 and 2000 and recorded as research and development expenses in those periods. No further cost of goods sold are expected, as Pharmacia will not be making any further purchases of bulk API. 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 studies, clinical trials and related clinical drug and device development and manufacturing costs, drug formulation expenses, 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 to $7.3 million for the nine months ended September 30, 2002 compared to $9.8 million for the same period in 2001. For the three months ended September 30, 2002, our research and development expenses decreased to $2.1 million compared to $3.7 million for the same period in 2001. The overall decrease in research and development expenses is specifically related to the conclusion of the Phase III AMD clinical trials in December 2001 and the completion of the preclinical studies and our AMD clinical trial responsibilities. Our research and development expenses, net of license reimbursement, were $7.3 million for the nine months ended September 30, 2002 and $9.6 million for the same period in 2001. Our research and development expenses, net of license reimbursement, were $2.1 million for the three months ended September 30, 2002 and $3.7 million for the same period in 2001. Research and development expenses for the three and nine months ended September 30, 2002 and 2001 related primarily to payroll, payroll taxes, employee benefits and allocated operating costs. Additionally, the Company incurred research and development expenses for: * Development work associated with the development of new devices, delivery systems, drug compounds and formulations for the dermatology and cardiovascular programs; * Preclinical studies and clinical trial costs for our Phase I and Phase II dermatology program; and * Costs incurred to complete preclinical studies for the Phase III AMD program in 2001 and to compile and review the Phase III AMD clinical data in 2002. As previously disclosed, we have four 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 costs 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. The specific program research and development costs represent the direct costs incurred. Certain reclassifications have been made to direct costs and indirect costs for the three and nine month periods ended September 30, 2002, based on further analysis of these costs during the periods then ended. The direct research and development costs by program are as follows:
Three months ended September 30, Nine months ended September 30, -------------------------------- ----------------------------------------- -------------------------------------- Program 2002 2001 2002 2001 -------------------------------- ---------------- --------------------- --------------- ------------------ Direct costs: Ophthalmology.............. $ 61,000 $ 84,000 $ 195,000 $ 400,000 Dermatology................ 33,000 186,000 291,000 533,000 Cardiovascular disease..... 188,000 322,000 1,025,000 781,000 Oncology................... 17,000 228,000 39,000 324,000 ---------------- --------------------- --------------- ------------------ Total direct costs.............. $ 299,000 $ 820,000 $1,550,000 $ 2,038,000 Indirect costs ................. 1,815,000 2,872,000 5,788,000 7,787,000 ---------------- --------------------- --------------- ------------------ Total research and development costs........................... $2,114,000 $ 3,692,000 $7,338,000 $ 9,825,000 ================ ===================== =============== ==================
Ophthalmology. Our direct ophthalmology program costs have decreased from $400,000 for the nine months ended September 30, 2001 to $195,000 for the same period in 2002. For the three months ended September 30, 2002 our direct ophthalmology program costs have decreased to $61,000 compared to $84,000 for the same period 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 decrease for both the three and nine month periods ended September 30, 2002 is specifically related to the conclusion of the Phase III AMD clinical trials in December 2001 and the completion of the SnET2 preclinical studies and our AMD clinical trial responsibilities. Additionally, costs for 2002 have primarily consisted of Clinical Research Organization expenses for the analysis of the AMD clinical data. Dermatology. Our direct dermatology program costs decreased from $533,000 for the nine months ended September 30, 2001 to $291,000 for the same period in 2002. For the three months ended September 30, 2002 our direct dermatology program costs have decreased to $33,000 compared to $186,000 for the same period 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 and Phase II clinical trial expenses. The decrease for the nine months ended September 30, 2002 as compared to 2001 is due to 2002 consisting primarily of only the cost of the Phase II clinical trial, while 2001 consisted primarily of the cost for the Phase I clinical trial as well as expenditures related to preclinical studies and device and drug formulation development and manufacturing. Cardiovascular Disease. Our direct cardiovascular disease program costs increased from $781,000 for the nine months ended September 30, 2001 to $1.0 million for same period in 2002. For the three months ended September 30, 2002 our direct cardiovascular disease program costs have decreased to $188,000 compared to $322,000 for the same period in 2001. Our cardiovascular disease program costs include expenses for the development of new drug compounds and light delivery devices, drug formulation costs, drug and device manufacturing expense and internal and external preclinical study costs. The increase from 2001 to 2002 is related to the progress of the program, which has required preclinical studies, as well as, an increase in development and manufacturing activities for drug and devices used in the preclinical studies and in preparation for future clinical trials. Oncology. Our direct oncology program costs have decreased from $324,000 for the nine months ended September 30, 2001 to $39,000 for the same period in 2002. For the three months ended September 30, 2002, our direct oncology program costs have decreased to $17,000 compared to $228,000 for the same period in 2001. Our oncology program costs have primarily consisted of costs for internal and external preclinical study costs and expenses for the early development of new drug compounds. The decrease in oncology program costs from 2001 to 2002 is related to our decision to focus on more discovery and research programs for use of PhotoPoint PDT in oncology. Indirect Costs. Our indirect costs have decreased from $7.8 million for the nine months ended September 30, 2001 to $5.8 million for the same period in 2002. For the three months ended September 30, 2002 our indirect costs have decreased to $1.8 million compared to $2.9 million for the same period in 2001. Generally, the decrease from 2001 to 2002 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. We expect future research and development expenses may fluctuate depending on available funds, continued expenses incurred in our preclinical studies and clinical trials in our ophthalmology, dermatology, cardiovascular, oncology and other programs, costs associated with the purchase of raw materials and supplies for the production of devices and drug for use in preclinical studies and clinical trials, results obtained from our ongoing preclinical studies and clinical trials and the expansion of our research and development programs, which includes the increased hiring of personnel, the continued expansion of existing or the commencement of new preclinical studies and clinical trials and the development of new drug compounds and formulations. Selling, General and Administrative. Our selling, general and administrative expenses for the nine months ended September 30, 2002 were consistent at $4.5 million as compared to $4.5 million for the nine months ended September 30, 2001. For the three months ended September 30, 2002 our selling, general and administrative expenses increased slightly to $1.8 million compared to $1.4 million for the same period in 2001. Selling, general and administrative expenses for the three and nine month periods ended September 30, 2001 and 2002 related primarily to payroll, payroll taxes, employee benefits and operating costs such as rent and utilities. These expenses have decreased from 2001 to 2002 as a result of a decrease in the number of administrative employees as well as a temporary reduction in wages taken by all employees during the first quarter of 2002. These decreases in 2002 were offset by employee and officer loan reserves of $650,000 recorded in the three month period ended September 30, 2002. As disclosed in Note 3 in our consolidated financial statements for the year ended December 31, 2001 in our annual report on Form 10-K, as amended, filed with the Securities and Exchange Commission, we have made loans to officers and employees over the years secured by stock and stock options and certain unsecured loans. In light of the decrease in our stock price and certain other factors affecting the collectibility of these loans, we recorded a reserve for these loans to officers and employees in the amount of $920,000, of which $650,000 is included in general and administrative expenses and $270,000 is included in research and development expenses. As of September 30, 2002, the balance of these loans, net of reserves, is $595,000. 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 required for research and development activities, the costs associated with potential financing and partnering activities, continuing corporate development and professional services, compensation expense associated with stock options and warrants granted to consultants and expenses for general corporate matters. Interest and Other Income. Interest and other income decreased to $147,000 for the nine months ended September 30, 2002 from $730,000 for the nine months ended September 30, 2001. For the three months ended September 30, 2002 interest and other income decreased to $29,000 from $187,000 for the same period in 2001. The fluctuations in interest and other income are directly related to the levels of cash and marketable securities earning interest and the rates of interest being earned. The level of future interest and other income will primarily be subject to the level of cash balances we maintain from period to period and the interest rates earned. Interest Expense. Interest expense decreased to $282,000 for the nine months ended September 30, 2002 from $1.7 million for the same period in 2001. For the three months ended September 30, 2002 interest expense decreased to $1,000 from $524,000 for the same period in 2001. The decrease for both the three and nine month periods was primarily related to the restructuring of the Pharmacia loans in March 2002, which provided for interest for only two months in 2002. In accordance with the Statement of Financial Accounting Standards No. 15, or SFAS No. 15, with the restructuring of the Pharmacia debt in March 2002, we reduced our outstanding debt to the total future cash payments of the debt, which included $792,000 designated as interest and $10.0 million as principal. Also, with the restructuring of the debt, the value of the warrants issued to Pharmacia was reduced to zero. Therefore, unless there is an increase in the prime rate used of 4.75%, no further interest expense will be recorded for the Pharmacia loans. The level of other interest expense in future periods is not currently expected to be material. Liquidity and Capital Resources Since inception through September 30, 2002, we have accumulated a deficit of approximately $185.5 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 September 30, 2002, we have received proceeds from the sale of equity securities, convertible notes and credit arrangements of approximately $225.5 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 September 30, 2002, our condensed consolidated financial statements have been prepared assuming we will continue as a going concern. In March 2002, Miravant and Pharmacia entered into a Contract Modification and Termination Agreement pursuant to which we regained all of the rights and related data and assets to our lead drug candidate, SnET2, and 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 these agreements related to SnET2 license agreements and related drug and device supply agreements, side letters, the Manufacturing Facility Asset Purchase Agreement and various supporting agreements. The termination of the various agreements provided that all ownership of the rights, data and assets related to SnET2 and the Phase III AMD clinical trials 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 which we received ownership rights to 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 final drug formulation, or FDF, inventory. In addition to receiving back all of the bulk API inventory sold to Pharmacia in 2001, we also received a payment of approximately $479,000 for the costs of the in-process and finished bulk API inventory manufactured through January 23, 2002. We reassumed the lease obligations and related property taxes for our bulk API manufacturing facility effective March 2002. The lease agreement expires in October 2006 and currently has a base rent of approximately $26,000 per month. We are currently in negotiations to sublease this facility. As a condition of the Contract Modification and Termination Agreement, Pharmacia has released to us in March 2002 the $880,000, which included accrued interest, held in an equipment escrow account, which was originally scheduled for release in June 2002. These funds represent the $863,000 purchase price that Pharmacia paid under the Manufacturing Facility Asset Purchase Agreement for the purchase of our bulk API manufacturing equipment in May 2001 plus interest earned through the release date. The Contract Modification and Termination Agreement also modified the 2001 Credit Agreement. The outstanding debt that we owed to Pharmacia of approximately $26.8 million has been 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 has remained 4.75% since March 5, 2002. Additionally, the early repayment provisions were modified and many of the covenants were eliminated or modified. 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 Phase III clinical trial data did not meet certain clinical statistical standards, as defined by the clinical trial protocols, we will not have available an additional $10.0 million of borrowings as provided for under the 2001 Credit Agreement. In connection with the borrowings received under 2001 Credit Agreement, 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. Statement of Cash Flows Net cash required for operations for the nine months ended September 30, 2002 and 2001 was $6.2 million and $12.6 million, respectively. The net cash required for operations in 2002 is primarily related to the net loss recorded for the period and a decrease in accounts payable and accrued expenses, offset by the release of the $5.1 million contained in the inventory and equipment escrow receivable accounts. For the nine months ended September 30, 2001, the net cash required for operations was due primarily to the amount and timing of the funds received from Pharmacia for reimbursable research and development costs, the gain recorded on the sale of the API manufacturing equipment to Pharmacia and the increase in receivables associated with the escrow accounts with Pharmacia, which was offset by an increase in stock awards issued. For the nine months ended September 30, 2002 and September 30, 2001, net cash provided by investing activities was $4.5 million and $12.0 million, respectively. The net cash provided by investing activities for both periods was primarily related to the proceeds from the net sales and purchases of marketable securities. In addition, for the period ended September 30, 2001 net cash provided by investing activities also related to Pharmacia's purchase of our API manufacturing equipment. For the nine month periods ended September 30, 2002 net cash provided by financing activities was $2.3 million and for the nine months ended September 30, 2001 net cash required for financing was $293,000. The net cash provided by financing activities was related to the net proceeds from the August 2002 $2.5 million private placement. The net cash required for financing activities in 2001 related to loans provided to executive officers of the Company. We need substantial additional resources to develop our products. The timing and magnitude of our current and future capital requirements will depend on many factors, including: * Our ability to implement an additional effective cost restructuring program to reduce our use of cash; * Our ability to establish additional collaborations; * The viability of SnET2 for future use; * Our ability to regain our listing status 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 implemented a cost restructuring program in January 2002 and have incurred employee attrition throughout 2002 which has allowed us to reduce our overall use of cash from operations currently and in future periods. Based on our current cash and investment balances we anticipate that we only have sufficient cash to fund our operations through December 31, 2002 at a reduced capacity. Executive management is currently in discussions with one of our significant investors for some additional bridge financing to extend our cash resources beyond December 31, 2002. In addition, executive management also believes we can raise additional funding to support operations through corporate collaborations or partnerships, licensing of SnET2 or new products and equity financings in near future. However, there can be no assurance that we will be successful in obtaining such financing or that financing will available on favorable terms. If additional funding is not available when required, management will begin implementing additional cost restructuring programs by the further delay or increased reductions in scope of one or more of our research and development programs and further adjusting, deferring or reducing salaries of employees and by reducing operating and overhead expenditures to conserve cash to be used in operations. For this reason our independent auditors have indicated that there is substantial doubt about our ability to continue as a going concern. Our ability to raise funds has become more difficult as our stock has been 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 near 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, consisting 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. 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 DECEMBER 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 $185.5 million as of September 30, 2002 and have never generated enough funds through our operations to support our business. Although we 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 December 31, 2002 at a reduced capacity. 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 funding by the end of December 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 additional effective cost restructuring program to reduce our use of cash; * Our ability to establish additional collaborations; * The viability of SnET2 for future use; * Our ability to regain our listing status 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. IF THE DATA FROM OUR COMPLETED PHASE III AMD CLINICAL TRIALS DO NOT PRESENT ANY PROSPECT OF FUTURE DEVELOPMENT FOR SNET2, THEN WE MAY BE UNABLE TO SUCCESSFULLY ESTABLISH ONE OR MORE NEW COLLABORATIVE PARTNERSHIPS, WHICH COULD MATERIALLY HARM OUR BUSINESS. In collaboration with Pharmacia, in December 2001, we completed two Phase III ophthalmology clinical trials for the treatment of age-related macular degeneration, or 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 a New Drug Application, or NDA, with the 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 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 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 have held discussions with various potential corporate partners to seek a new collaborations for PhotoPoint PDT in ophthalmology. 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. Additionally, if discussions with the FDA on our clinical data from our completed Phase III AMD clinical trials does not present an opportunity to file an NDA with the FDA for SnET2, we then may be required to conduct another clinical trial, which will require substantial funding and time. We may be unable to obtain corporate funding or other financing to conduct this clinical trial which would materially harm our business. THE LOAN REPAYMENT OBLIGATIONS UNDER OUR CONTRACT MODIFICATION AND TERMINATION AGREEMENT WITH PHARMACIA MAY PRECLUDE US FROM OBTAINING ADDITIONAL FUNDING AND, IF WE BECOME UNABLE TO REPAY OUR BORROWINGS OR VIOLATE THE COVENANTS UNDER THIS AGREEMENT, PHARMACIA COULD FORECLOSE ON OUR ASSETS. In connection with the termination of our license collaboration with Pharmacia, we entered into a Contract Modification and Termination Agreement on March 5, 2002. Under the Contract Modification and Termination Agreement our outstanding debt 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 has remained 4.75% since March 5, 2002. The outstanding debt to Pharmacia is secured by all of our assets. Our ability to comply with all covenants and to make scheduled payments, apply early repayments as required or to refinance our debt obligations 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. Additionally, under the Contract Modification and Termination Agreement we 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 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 the net 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. 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. WE WERE DELISTED FROM NASDAQ, WHICH MAY DECREASE THE LIQUIDITY OF OUR STOCK AND MAY LIMIT OR IMPAIR OUR ABILITY TO RAISE ADDITIONAL CAPITAL. On July 12, 2002 our common stock ceased trading on Nasdaq due to our inability to satisfy the Nasdaq continued listing requirements concerning the size of our market capitalization and the minimum bid price of our stock. We were notified on July 12, 2002 that our common stock would begin trading on the over-the-counter, or OTC, bulletin board, or OTCBB, effective as of the opening of business on July 12, 2002. The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in OTC equity securities. OTCBB securities are traded by a community of market makers that enter quotes and trade reports. Our delisting could reduce the ability of our stockholders to purchase or sell shares as quickly and as inexpensively as they have done historically. For instance, failure to obtain listing on another market or exchange may make it more difficult for traders to sell our securities. Broker-dealers may be less willing or able to sell or make a market in our common stock. Not maintaining a listing on a major stock market may: * Result in a decrease in the trading price of our common stock; * Lessen interest by institutions and individuals in investing in our common stock; * Make it more difficult to obtain analyst coverage; and * Make it more difficult for us to raise capital in the future. 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. Because we currently have limited cash and capital resources, the efficacy of our primary drug development candidate is questionable and we have reduced the scope of our research and development activities, our business outlook is uncertain. In January 2002, we implemented measures to reduce our expenses to provide us more flexibility. These actions, which included temporarily reducing our employees salaries, offering voluntary severance packages for a limited time, and subsequent layoffs and attrition, have reduced our payroll costs since the beginning of the year by approximately 40%. 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, unfavorable clinical data results from the Phase III AMD clinical trials and limited research and development programs, may cause employees to question our long-term viability and future career development prospect, and increase our attrition rate. 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 THIRD PARTIES, 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 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; * If our partners fail to fulfill their contractual obligations or terminate the relationships described above, we may be required to seek other partners, or expend substantial resources to pursue these activities independently, which may or 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. Also, as discussed above with regard to our lead drug candidate, SnET2, 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. THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE. From time to time and in particular during the past year, the price of our Common Stock has been highly volatile. These fluctuations create a greater risk of capital losses for our stockholders as compared to less volatile stocks. From September 30, 2001 to September 30, 2002, our Common Stock price, per Nasdaq and OTCBB closing prices, has ranged from a high of $11.26 to a low of $0.26. 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: * Our current and future cash position and expenditures; * 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 regain our listing status 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. 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 WE NO LONGER HAVE ACCESS TO THESE THIRD PARTIES, 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 previously relied on Pharmacia, our former corporate partner, and Inveresk, Inc., formerly ClinTrials Research, Inc., or Inveresk, a contract research organization, for our Phase III AMD clinical trials. We continue rely on Inveresk to assist us in the analysis of our Phase III AMD clinical data and for possible preparation of an NDA or future Phase III AMD clinical trials and a contract research organization for our Phase II dermatology clinical trials. In the future, 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. BECAUSE WE RELY ON PATIENT ENROLLMENT TO CONDUCT CLINICAL TRIALS, IF WE ARE UNABLE TO CONTINUE TO ATTRACT PATIENTS TO PARTICIPATE IN THESE TRAILS, THERE MAY BE 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, which may cause patients enrolled in future AMD clinical trials, if any, 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. 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. In addition, 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 TO SATISFY OUR MANUFACTURING NEEDS. 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 may 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 active pharmaceutical ingredient, or bulk API, at our Santa Barbara, California facility for clinical trial and other use. This facitility is currently being shut-down, and can be restarted to begin manufacturing, if needed. We currently have in inventory significant quantities of the bulk API, the process up to the final formulation and packaging step, which we believe would provide adequate supplies for future clinical trials and initial commercial launch. We also 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 restart or 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 restart or expand capacity for our API manufacturing 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 LIMITED EXPERIENCE IN THE MARKETING, DISTRIBUTION AND SALE OF OUR PRODUCTS. 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 materials and components are available from various sources, we are dependent on certain suppliers for key materials or services used in our drug and light producing and light delivery device development and production operations. One supplier is Fresenius, which processes our SnET2 drug substance into a sterile injectable formulation and packages it in vials for distribution. We expect to continue to develop new drugs and new drug formulations both in-house and using external suppliers, which may or may not have similar dependencies on suppliers. Another supplier is Iridex, which provided the light producing devices used in our AMD clinical trials and can be used for future commercial use in ophthalmology. We recently regained ownership of the bulk API and finished dose formulation, or FDF, inventories and lasers from Pharmacia. Based on the quantities received, we are not expected to need additional bulk API, FDF, or lasers in the near term. These 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 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 may in the future, 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 have in the past been 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. TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND WASHINGTON, D.C. ON SEPTEMBER 11, 2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY AFFECT THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY. Terrorist attacks may negatively effect our operations. These attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers, which could result in higher expenses and/or lower revenue. Furthermore, these attacks may make travel of our sales and support staff more difficult and more expensive and ultimately affect the sales of our products. Also as a result of terrorism, the United States has entered into an armed conflict, which could have a further impact on our domestic and international sales. Political and economic instability in some regions of the world may also result and could negatively impact our business. RISKS RELATED TO OUR INDUSTRY WE ARE SUBJECT TO UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM. Our products may not be covered by the various health care providers and third party payors. If they are not covered, our products may 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 payors 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 PROGRAMS OR POTENTIAL PRODUCTS NON-COMPETITIVE 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 to continue using familiar methods they are comfortable with using rather than trying 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 current 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, QLT, Axcan and Dusa, 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. PART II. OTHER INFORMATION ITEM 2.CHANGES IN SECURITIES AND USE OF PROCEEDS (c) Recent Sales of Unregistered Securities. In August 2002, the Company completed a private placement financing which consisted of the sale of unregistered shares of Common Stock for $2.5 million at $0.50 per share, based on a premium of approximately 20% of the average closing price for the prior 10 trading days. For every two common shares acquired, the equity purchase included a warrant to purchase one share of Common Stock at a price $0.50 per share, with an exercise period of 5 years from the date of grant. In addition, we also issued a warrant to purchase 300,000 shares of Common Stock to one of our current stockholders who helped facilitate the private placement. A group of approximately 10 private investors, all of whom were "accredited investors" as such term is used in the Securities Act of 1933, as amended (the "Securities Act"), participated in the offering. The shares of Common Stock and warrants were issued pursuant to an exemption from registration under Rule 506 promulgated under Regulation D of the Securities Act. The proceeds are being used for research, development and general corporate purposes. ITEM 3.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates. The risks related to foreign currency exchange rates are immaterial and we do not use derivative financial instruments. From time to time, we maintain a portfolio of highly liquid cash equivalents maturing in three months or less as of the date of purchase. Given the short-term nature of these investments and that our borrowings outstanding are under variable interest rates, we are not subject to significant interest rate risk. ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of disclosure controls and procedures. Our chief executive officer and our chief financial officer, after evaluating our "disclosure controls and procedures" (as defined in Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this Quarterly Report on Form 10-Q, have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in internal controls. Subsequent to the Evaluation Date, there were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures, nor were there any significant deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required or undertaken. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit 4.17 Securities Purchase Agreement dated August 28, 2002 between the Registrant and certain Purchasers named therein (incorporated by reference to the Current Report on Form 8-K filed by the registrant on September 3, 2002). Exhibit 4.18 Registration Rights Agreement dated August 28, 2002 between the Registrant and certain purchasers of Common Stock named therein (incorporated by reference to the Current Report on Form 8-K filed by the registrant on September 3, 2002). Exhibit 4.19 Common Stock Warrant Purchase Certificate dated August 28, 2002 between the Registrant and certain purchasers named therein (incorporated by reference to the Current Report on Form 8-K filed by the registrant on September 3, 2002). Exhibit 99.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. 1) Current Event Report on Form 8-K filed on July 12, 2002 announcing that the registrant received a notification from Nasdaq, following two separate requests for extensions, that it had not met certain requirements for continued listing and that the Company's common stock will begin trading on the OTC bulletin board (OTCBB), effective as of the opening of business on July 12, 2002. 2) Current Event Report on Form 8-K filed on September 3, 2002 announcing that the registrant sold and issued to a group of private investors (i) unregistered shares of common stock at $0.50 per share for aggregate proceeds $2.5 million and (ii) for every two shares of common stock acquired, a warrant to purchase one share of common stock at $0.50 per share. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. Miravant Medical Technologies Date: November 14, 2002 By: /s/ John M. Philpott -------------------------- John M. Philpott Chief Financial Officer (on behalf of the Company and as Principal Financial Officer and Principal Accounting Officer) EX-99 2 f10qsept2002exb99_1.txt EXHIBIT 99.1 - OFFICER CERTIFICATIONS Exhibit 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Gary S. Kledzik, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Miravant Medical Technologies on Form 10-Q for the fiscal quarter ended September 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Miravant Medical Technologies. By: /s/ Gary S. Kledzik ----------------------------- Name: Gary S. Kledzik Title: Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, John M. Philpott, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Miravant Medical Technologies on Form 10-Q for the fiscal quarter ended September 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Miravant Medical Technologies. By: /s/ John M. Philpott --------------------------------- Name: John M. Philpott Title: Chief Financial Officer Exhibit 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Gary S. Kledzik, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Miravant Medical Technologies; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 By: /s/ Gary S. Kledzik ----------------------------- Name: Gary S. Kledzik Title: Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John M. Philpott, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Miravant Medical Technologies; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 By: /s/ John M. Philpott --------------------------------- Name: John M. Philpott Title: Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----