FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12830
BioTime, Inc.
(Exact name of registrant as specified in its charter)
California 94-3127919
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
935 Pardee Street
Berkeley, California 94710
(Address of principal executive offices)
(510) 845-9535
(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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 9,899,079, common
shares, no par value, as of February 2, 1998.
1
PART 1--FINANCIAL INFORMATION
Item 1. Financial Statements
BIOTIME, INC,
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
December 31, June 30,
ASSETS 1997 1997
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 6,321,242 $ 7,811,634
Research and development supplies on hand -- 100,000
Prepaid expenses and other current assets 249,757 259,109
-------------- --------------
Total current assets 6,570,999 8,170,743
EQUIPMENT, Net of accumulated depreciation of $162,871 and $139,241 127,055 92,609
OTHER ASSETS 24,422 34,422
-------------- --------------
TOTAL ASSETS $ 6,722,476 $ 8,297,774
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 333,238 $ 249,168
Accrued compensation -- 175,000
Deferred revenue - current portion 500,000 900,000
-------------- --------------
Total current liabilities 833,238 1,324,168
DEFERRED REVENUE 187,500 437,500
-------------- --------------
Total liabilities 1,020,738 1,761,668
-------------- --------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred Shares, no par value, undesignated as to Series,
authorized 1,000,000 shares; none outstanding
Common Shares, no par value, authorized 25,000,000 shares; issued
and outstanding 9,845,079 and 9,609,579 18,411,076 17,625,646
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (12,803,310) (11,183,512)
-------------- --------------
Total shareholders' equity 5,701,738 6,536,106
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,722,476 $ 8,297,774
============== ==============
See notes to condensed financial statements.
2
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended Period from Inception
December 31, December 31, (November 30, 1990)
1997 1996 1997 1996 to December 31, 1997
-------------- ------------ ------------- -------------- ----------------------
REVENUE:
License Fee 525,000 -- 650,000 -- 712,500
-------------- ------------ ------------- -------------- ----------------
EXPENSES:
Research and development $ (864,276) $ (485,659) $(1,542,548) $ (917,825) $ (8,451,901)
General and administrative (384,846) (288,630) (890,340) (594,983) (6,120,661)
-------------- ------------ ------------- -------------- ----------------
Total expenses (1,249,122) (774,289) (2,432,888) (1,512,808) (14,572,562)
-------------- ------------ ------------- -------------- ----------------
INTEREST AND OTHER INCOME: 86,945 19,802 163,090 39,965 1,081,583
-------------- ------------ ------------- -------------- ----------------
NET LOSS $ (637,177) $ (754,487) $ (1,619,798) $ (1,472,843) $ (12,778,479)
============== ============ ============= ============== ================
BASIC LOSS PER SHARE $ (0.06) $ (0.09) $ (0.17) $ (0.18) $ (1.95)
============== ============ ============= ============== ================
DILUTED LOSS PER SHARE $ (0.06) $ (0.09) $ (0.17) $ (0.18) $ (1.95)
============== ============ ============= ============== ================
COMMON AND EQUIVALENT
SHARES USED IN COMPUTING
PER SHARE AMOUNTS:
BASIC 9,832,411 8,382,279 9,736,402 8,353,395 6,546,926
============== ============ ============= ============== ================
DILUTED 9,832,411 8,382,279 9,736,402 8,353,395 6,546,926
============== ============ ============= ============== ================
See notes to condensed financial statements.
3
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible
Preferred Shares Common Shares Deficit
--------------------- ----------------------- Accumulated
Number of Number Contributed During
Shares Amount of Shares Amount Capital Development Stage
--------- --------- --------- ---------- ----------- ------------------
BALANCE, November 30, 1990
(date of inception) -- -- -- -- -- --
NOVEMBER 1990
Common shares issued for cash 1,312,761 $ 263
DECEMBER 1990:
Common shares issued for
stock of a separate entity at fair value 1,050,210 137,400
Contributed equipment at appraised
value $ 16,425
Contributed cash 77,547
MAY 1991:
Common shares issued for cash
less offering costs 101,175 54,463
Common shares issued for stock
of a separate entity at fair value 100,020 60,000
JULY 1991:
Common shares issued for
services performed 30,000 18,000
AUGUST-DECEMBER 1991
Preferred shares issued for
cash less offering costs of $125,700 360,000 $474,300
MARCH 1992:
Common shares issued for
cash less offering costs of $1,015,873 2,173,500 4,780,127
Preferred shares converted
into common shares (360,000) (474,300) 360,000 474,300
Dividends declared and paid (24,831)
on preferred shares
MARCH 1994:
Common shares issued for cash less
offering costs of $865,826 2,805,600 3,927,074
NET LOSS SINCE INCEPTION (3,721,389)
--------- --------- ---------- ---------- --------- -----------
BALANCE AT JUNE 30, 1994 -- $ -- 7,933,266 $9,451,627 $ 93,972 $(3,746,220)
See notes to condensed financial statements. (Continued)
4
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible
Preferred Shares Common Shares Deficit
--------------------- ----------------------- Accumulated
Number of Number Contributed During
Shares Amount of Shares Amount Capital Development Stage
--------- --------- --------- ---------- ----------- ------------------
BALANCE AT JUNE 30, 1994 -- $ -- 7,933,266 $ 9,451,627 $ 93,972 $ (3,746,220)
Common shares repurchased
with cash (253,800) (190,029)
NET LOSS (2,377,747)
--------- --------- ---------- --------- --------- -------------
BALANCE AT JUNE 30, 1995 -- $ -- 7,679,466 $ 9,261,598 $ 93,972 $ (6,123,967)
Common shares issued for
cash (exercise of options and warrants) 496,521 1,162,370
Common shares issued for cash
(lapse of recision) 112,176 67,300
Common shares repurchased
with cash (18,600) (12,693)
Common shares warrants and options
granted for services -- 356,000
NET LOSS (1,965,335)
--------- --------- ---------- ---------- --------- -------------
BALANCE AT JUNE 30, 1996 -- $ -- 8,269,563 $10,834,575 $ 93,972 $ (8,089,302)
Common shares issued for cash less
offering costs of $170,597 849,327 5,491,583
Common shares issued for cash
(exercise of options and warrants) 490,689 1,194,488
Common shares warrants and options
granted for service -- 105,000
NET LOSS (3,094,210)
--------- --------- ---------- ---------- --------- -------------
BALANCE AT JUNE 30, 1997 -- $ -- 9,609,579 $17,625,646 $ 93,972 $(11,183,512)
Common Shares issued for cash
(exercise of options)- Unaudited 235,500 775,130
Common shares warrants and options
granted for service - Unaudited 10,300
NET LOSS - Unaudited (1,619,798)
--------- --------- ---------- ---------- --------- -------------
BALANCE AT DECEMBER 31, 1997 - Unaudited -- $ -- 9,845,079 $18,411,076 $ 93,972 $(12,803,310)
========= ========= ========== ========== ========= =============
See Notes to condensed financial statements. (Concluded)
5
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended Period from Inception
December 31, (November 30, 1990)
1997 1996 to December 31, 1997
------------- -------------- ---------------------
OPERATING ACTIVITIES:
Net loss $(1,619,798) $ (1,472,843) $(12,778,479)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred Revenue (650,000) (712,500)
Depreciation 23,630 20,248 162,871
Cost of Services - options and warrants 27,825 140,549 466,781
Supply Reserves 100,000 -- 200,000
Changes in operating assets and liabilities:
Research and development supplies on hand -- -- (200,000)
Prepaid expenses and other current
assets (8,173) (15,240) (215,035)
Deposits 10,000 -- (24,422)
Accounts payable 84,070 192,683 333,238
Accrued compensation (175,000) -- --
Deferred revenue -- -- 1,400,000
------------ ------------ ------------
Net cash used in operating activities (2,207,446) (1,134,603) (11,367,546)
------------ ------------ ------------
INVESTING ACTIVITIES:
Sale of investments -- -- 197,400
Purchase of short-term investments -- -- (9,946,203)
Redemption of short-term investments -- -- 9,934,000
Purchase of equipment and furniture (58,076) -- (273,501)
----------- ------------ ------------
Net cash used in investing activities (58,076) -- (88,304)
----------- ------------ ------------
FINANCING ACTIVITIES:
Issuance of preferred shares for cash -- -- 600,000
Preferred shares placement costs -- -- (125,700)
Issuance of common shares for cash -- -- 16,373,106
Net proceeds from exercise of common share options
and warrants 775,130 524,458 3,131,988
Common shares placement costs -- -- (2,052,296)
Contributed capital - cash -- -- 77,547
Dividends paid on preferred shares -- -- (24,831)
Repurchase Common Shares -- -- (202,722)
----------- ------------ ------------
Net cash provided by (used in) financing activities 775,130 524,458 17,777,092
----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,490,392) (610,145) 6,321,242
CASH: AND CASH EQUIVALENTS:
At beginning of period 7,811,634 2,443,121 --
----------- ------------ ------------
At end of period $ 6,321,242 $ 1,832,976 $ 6,321,242
=========== ============ =============
See notes to condensed financial statements. (Continued)
6
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended Period from Inception
December 31, (November 30, 1990)
1997 1996 to December 31, 1997
------------- -------------- ---------------------
NONCASH FINANCING AND
INVESTING ACTIVITIES:
$ 16,425
Receipt of contributed equipment
Issuance of common shares
in exchange for shares of
common stock of Cryomedical
Sciences, Inc. in a stock-for-stock
transaction $ 197,400
Granting of options and warrants for services 10,300 105,000 479,000
See notes to condensed financial statements. (Concluded)
7
BIOTIME, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND DEVELOPMENT STAGE ENTERPRISE
General - BioTime, Inc. (the Company) was organized November 30, 1990
as a California corporation. The Company is a biomedical organization,
currently in the development stage, which is engaged in research and
development of synthetic plasma expanders, blood volume substitute
solutions, and organ preservation solutions, for use in surgery, trauma
care, organ transplant procedures, and other areas of medicine.
The balance sheet as of December 31, 1997, the statements of operations
for the three and six months ended December 31, 1997 and 1996 and the
period from inception (November 30, 1990) to December 31, 1997, the
statement of shareholders' equity for the six month period ended
December 31, 1997, and the statements of cash flows for the six months
ended December 31, 1997 and 1996 and the period from inception
(November 30, 1990) to December 31, 1997 have been prepared by the
Company without audit. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present
fairly the finanical position, results of operations , shareholders'
equity and cash flows at December 31, 1997 and for all periods
presented have been made. The balance sheet as of June 30, 1997 is
derived from the Company's audited financial statements as of that
date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as permitted by
regulations of the Securities and Exchange Commission. Certain
previously furnished amounts have been reclassified to conform with
presentations made during the current periods. It is suggested that
these interim condensed financial statements be read in conjunction
with the annual audited financial statements and notes thereto included
in the Company's Form 10-K for the year ended June 30, 1997.
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the balance sheet dates and the reported amounts of
revenues and expenses for the periods presented. Actual amounts may
differ from such estimates.
The results of operations for the periods ended December 31, 1997 and
1996 are not necessarily indicative of the operating results
anticipated for the full year.
Certain Significant Risks and Uncertainties - The Company's operations
are subject to a number of factors that can affect its operating
results and financial condition. Such factors include, but are not
limited to the following: the results of clinical trials of the
Company's products; the Company's ability to obtain United States Food
and Drug Administration ("FDA") and foreign regulatory approval to
market its products; competition from products manufactured and sold or
being developed by other companies; the price of and demand for any
Company products that are ultimately sold; the Company's ability to
obtain additional financing and the terms of any such financing that
may be obtained; the Company's ability to negotiate favorable licensing
or other manufacturing and marketing agreements for its products; the
availability of ingredients used in the Company's products; and the
availability of reimbursement for the cost of the Company's products
(and related treatment) from government health administration
authorities, private health coverage insurers and other organizations.
8
Development Stage Enterprise - Since inception, the Company has been
engaged in research and development activities in connection with the
development of synthetic plasma expanders, blood volume substitute
solutions and organ preservation products. The Company has not had any
significant operating revenues and has incurred operating losses of
$12,768,179 from inception to December 31, 1997. The successful
completion of the Company's product development program and,
ultimately, achieving profitable operations is dependent upon future
events including maintaining adequate capital to finance its future
development activities, obtaining regulatory approvals for the products
it develops and achieving a level of sales adequate to support the
Company's cost structure.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income"(SFAS 130), which requires that an enterprise
report the change in its net assets from nonowner sources by major
components and as a single total. The Board also issued Statements of
Financial Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS 181), which establishes
annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these statements
will not impact the Company's consolidated financial position, results
of operations or cash flows, and any effect will be limited to the form
and content of its disclosures. Both statements are effective for
fiscal years beginning after December 15, 1997, with earlier
application permitted.
3. SHAREHOLDERS' EQUITY
In September 1996, the Company entered into an agreement with an
individual to act as an advisor to the Company. In exchange for
services, as defined, to be rendered by the advisor through September
1999, the Company issued warrants, with five year terms, to purchase
120,000 common shares at a price of $6.25 per share. Warrants for
75,000 common shares vested and became exercisable and transferable
when issued; warrants for the remaining 45,000 common shares vest
ratably through September 1997 and become exercisable and transferable
as vesting occurs. The estimated value of the services to be performed
is $60,000 and that amount has been capitalized and is being amortized
over the three year term of the agreement.
During September 1995, the Company entered into an agreement with a
firm to act as its financial advisor. In exchange for financial
consulting services associated in part with a plan to secure additional
capital, the Company issued to the financial advisor warrants to
purchase 300,000 common shares at a price of $2 per share, and the
Company agreed to issue additional warrants to purchase up to an
additional 600,000 common shares at a price equal to the greater of (a)
150% of the average market price of the common shares during the three
months prior to grant or (b) $2 per share. The additional warrants were
issued in equal quarterly installments over a two year period,
beginning October 15, 1995. The warrants are exercisable at the
following prices: 450,000 at a price of $2 per share, 75,000 at a price
of $2.44 per share, 75,000 at a price of $10.01 per share, 75,000 at a
price of $9.78 per share, 75,000 at a price of $10.88 per share, 75,000
at a price of $16.34 per share, and 75,000 at a price of $14.26 per
share. The total value of these 900,000 warrants at the agreement date,
estimated to be $300,000, was capitalized in fiscal 1996 and is being
amortized over the two year term of the agreement.
9
The Board of Directors of the Company adopted the 1992 Stock Option
Plan (the "Plan") in September 1992, which was approved by the
shareholders at the 1992 Annual Meeting of
Shareholders on December 1, 1992. Under the Plan, as amended, the
Company has reserved 1,800,000 common shares for issuance under options
granted to eligible persons. No options may be granted under the Plan
more than ten years after the date the Plan was adopted by the Board of
Directors, and no options granted under the Plan may be exercised after
the expiration of ten years from the date of grant.
Under the Plan, options to purchase common shares may be granted to
employees, directors and certain consultants at prices not less than
the fair market value at date of grant for incentive stock options and
not less than 85% of fair market value for nonstatutory stock options.
These options expire five to ten years from the date of grant and may
be fully exercisable immediately, or may be exercisable according to a
schedule or conditions specified by the Board of Directors or the
Option Committee. During the quarter ended December 31, 1997, options
to purchase a total of 4,500 common shares were issued to consultants
at a price of $18.25 per share. The estimated fair value of the
services totaled $10,300 and was recognized in the period. At December
31, 1997, 629,000 shares were available for future grants under the
Option Plan; and options to purchase 626,500 shares have been granted
and were outstanding at exercise prices ranging from $0.66 to $18.25.
In June 1994, the Board of Directors authorized management to
repurchase up to 600,000 of the Company's common shares at market price
at the time of purchase. As of June 30, 1997, 272,400 shares have been
repurchased and retired. No shares have been repurchased since August
28, 1995.
4. LICENSE AGREEMENT
In April 1997, BioTime and Abbott Laboratories ("Abbott") entered into
an Exclusive License Agreement (the "License Agreement") under which
BioTime has granted to Abbott an exclusive license to manufacture and
sell BioTime's proprietary blood plasma volume expander solution
Hextend in the United States and Canada for certain therapeutic uses.
Under the License Agreement, Abbott has agreed to pay the Company up to
$40,000,000 in license fees; of which $1,000,000 due upon signing of
the License Agreement (the "signing payment"), and $400,000 due upon
the achievement of a patent claims milestone (the "patent payment")
have been received; an additional $1,100,000 will become payable in
installments upon the achievement of specific milestones (the
"milestone payments") pertaining to the filing and approval of a New
Drug Application for Hextend and the commencement of sales of the
product. Up to $37,500,000 of additional license fees will be payable
based upon annual net sales of Hextend at the rate of 10% of annual net
sales if annual net sales exceed $30,000,000 or 5% if annual net sales
are between $15,000,000 and $30,000,000. Abbott's obligation to pay
license fees on sales of Hextend will expire on the earlier of January
1, 2007 or, on a country by country basis, when all patents protecting
Hextend in the applicable country expire or any third party obtains
certain regulatory approvals to market a generic equivalent product in
that country.
10
In addition to the license fees, Abbott will pay the Company a royalty
on annual net sales of Hextend. The royalty rate will be 5% plus an
additional .22% for each $1,000,000 of annual net sales, up to a
maximum royalty rate of 36%. Abbott's obligation to pay royalties on
sales of Hextend will expire in the United States or Canada when all
patents protecting Hextend in the applicable country expire and any
third party obtains certain regulatory approvals to market a generic
equivalent product in that country.
Abbott has agreed that the Company may convert Abbott's exclusive
license to a non-exclusive license or may terminate the license
outright if certain minimum sales and royalty payments are not met. In
order to terminate the license outright, BioTime would pay a
termination fee in an amount ranging from the milestone payments made
by Abbott to an amount equal to three times prior year net sales,
depending upon when termination occurs. Abbott's exclusive license also
may terminate, without the payment of termination fees by the Company,
if Abbott fails to market Hextend. Management believes that the
probability of payments of any termination fee by the Company is
remote.
As of December 31, 1997, the Company received $1,400,000 from Abbott
under the License Agreement, and has deferred recognition of $687,500.
The Company will recognize the signing payment over the estimated
development period (two years). Further milestone payments will be
recognized as achieved. Additional license fees and royalty payments
will be recognized as the related sales are made and reported as earned
to the Company by Abbott.
5. NET INCOME PER SHARE
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). The Company adopted SFAS 128 in the second quarter
of fiscal 1998 and restated earnings per share (EPS) data for prior
periods to conform with current presentation.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes dilution
and is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution from securities and other contracts
which are exercisable or convertible into common shares.
Diluted EPS is computed by dividing net income (loss) by the weighted
average number of common shares that would have been outstanding during
the period assuming the issuance of common shares for all dilutive
potential common shares outstanding. As a result of operating losses,
there is no difference between the basic and diluted calculations of
EPS.
11
6. STOCK SPLIT
On October 30, 1997, the Company effected a three-for-one stock split
by distributing to its shareholders of record on October 9, 1997 two
additional shares for each share owned by them. All share and per share
data have been restated to reflect the stock split for all periods
presented herein.
7. LETTER OF INTENT
On January 5, 1998, the Company signed a letter of intent with the
Nihon Pharmaceutical Company, Ltd., a subsidiary of Takeda Chemical
Industries, Japan's largest pharmaceutical manufactuer, to negotiate a
licensing agreement to manufacture and market Hextend and other
products in Japan.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since its inception in November 1990, the Company has been engaged
primarily in research and development activities. The Company has not yet
generated significant operating revenues, and as of December 31, 1997 the
Company had incurred a cumulative net loss of $12,768,179.
Most of the Company's research and development efforts have been
devoted to the development of the Company's first three blood volume replacement
products: Hextend(R), PentaLyte(R), and HetaCool(TM). The Company has completed
its Phase III clinical trials of Hextend, its proprietary blood plasma volume
expander. An analysis of the Phase III trials has confirmed that Hextend can be
used to treat hypovolemia (loss of blood volume) by adequately maintaining blood
pressure and volume during high blood loss surgery. At the 16th Annual Symposium
Clinical Update in Anesthesiology in San Juan, Puerto Rico in January 1998, the
clinical trial investigators reported that an average of 1.6 liters of Hextend
were used in surgical procedures with no serious related adverse events, even
when Hextend was given in volumes as high as 2 to 5 liters - a level that
greatly exceeds the use of currently available colloid plasma expanders in U.S.
clinical medicine.
Hextend met the study's primary endpoints for effectiveness judged by
the maintenance of heart rate, blood pressure and urine flow, and by the amount
of fluid required to treat loss of blood volume. Endpoints for safety were met
as judged by comparing adverse events, blood product
12
utilization and laboratory parameters in the two study groups. Secondary
endpoints targeted in the study, which reached statistical significance,
included those related to coagulation and cardiac function. There was a
statistically significant decrease in adverse events related to blood clotting
in the Hextend group compared to controls.
On December 17, 1997 the Company initiated the filing of its New Drug
Application with the Food and Drug Administration for the manufacture and
marketing of Hextend under the rules for 90 day advanced submissions of
chemistry, manufacturing and contol data. The Company is continuing to prepare
the NDA and expects to complete the NDA submission for Hextend by the end of
March 1998. The FDA will then review the Company's NDA and determine whether to
approve Hextend. FDA approval must be obtained in order to market Hextend in the
United States.
Additional clinical studies are being planned to obtain regulatory
approval to market Hextend in other countries, to expand the clinical
indications for the product and to obtain further data to support worldwide
marketing efforts. The Company is also designing clinical trials for PentaLyte
and HetaCool.
Hextend, PentaLyte and HetaCool are similar formulations, except that
Hextend and HetaCool use a high molecular weight hetastarch whereas PentaLyte
uses a lower molecular weight pentastarch. The hetastarch is retained in the
blood longer than the pentastarch, which may make Hextend and HetaCool the
products of choice when a larger volume of plasma expander or a blood substitute
for low temperature surgery is needed or where the patient's ability to
regenerate his own blood proteins after surgery is compromised. PentaLyte, with
pentastarch, would be eliminated from the blood faster than Hextend and HetaCool
and might be used when less plasma expander is needed or where the patient is
more capable of quickly regenerating lost blood proteins. By testing and
bringing both Hextend and PentaLyte to the market, BioTime can increase its
market share by providing the medical community with solutions to match
patients' needs.
In order to commence clinical trials of new products and certain new
therapeutic uses of Hextend, it will be necessary for the Company to prepare and
file with the FDA an Investigational New Drug Application ("IND") or an
amendment to expand the present IND for Hextend. The cost of preparing those IND
filings and conducting those clinical trials is not presently determinable, but
could be substantial. It may be necessary for the Company to obtain additional
financing in order to complete any clinical trials that may begin for its new
products or for new uses of Hextend.
On April 23, 1997, BioTime and Abbott Laboratories entered into a
License Agreement under which BioTime has granted to Abbott an exclusive license
to manufacture and sell Hextend in the United States and Canada for all
therapeutic uses other than those involving hypothermic surgery, or the
replacement of substantially all of a patient's circulating blood volume.
BioTime has retained all rights to manufacture, sell or license Hextend and
other products in all other countries.
Under the License Agreement, Abbott has agreed to pay BioTime up to
$40,000,000 in license fees based upon product sales and the achievement of
certain milestones, and to provide assistance to BioTime in connection with the
Company's Phase III clinical trials of Hextend. In addition to the license fees,
Abbott will pay BioTime a royalty on annual net sales of Hextend. The royalty
rate will
13
be 5% plus an additional .22% for each $1,000,000 of annual net sales, up to a
maximum royalty rate of 36%. Abbott's obligation to pay royalties on sales of
Hextend will expire in the United States or Canada when all patents protecting
Hextend in the applicable country expire and any third party obtains certain
regulatory approvals to market a generic equivalent product in that country.
Abbott has also agreed to manufacture Hextend for sale by BioTime in the event
that Abbott's exclusive license is terminated prior to expiration.
During January 1998, Abbott notified the Company that Abbott is
exercising their rights pursuant to Paragraph 11(b) of the License Agreement and
will supply BioTime with batches of PentaLyte, characterization and stability
studies and other regulatory support needed for BioTime to file for an IND and
to conduct clinical studies. Abbott's actions preserve its rights to obtain an
exclusive license for PentaLyte.
On January 5, 1998, the Company signed a letter of intent with the
Nihon Pharmaceutical Company, Ltd., a subsidiary of Takeda Chemical Industries,
Japan's largest pharmaceutical manufacturer, to negotiate a licensing agreement
to manufacture and market Hextend and other products in Japan. The Company and a
number of overseas and multinational pharmaceutical companies are continuing
discussions regarding licenses to manufacture and market Hextend and other of
BioTime's products.
In December 1997, two patents covering composition of matter and
methods claims were issued to the Company, affording further patent protection
for the Company's products currently under clinical and research development.
The Company plans to continue to provide funding for its laboratory
testing programs at selected universities, medical schools and hospitals for the
purpose of developing additional uses of Hextend, PentaLyte, HetaCool, and other
new products, but the amount of research that will be conducted at those
institutions will depend upon the Company's financial status.
Because the Company's research and development expenses, clinical trial
expenses, and production and marketing expenses will be charged against earnings
for financial reporting purposes, management expects that losses from operations
will continue to be incurred for the foreseeable future.
Hextend(R) and PentaLyte(R) are registered trademarks, and HetaCool(TM) is a
trademark, of BioTime.
Results of Operations
Revenues
From inception (November 30, 1990) through December 31, 1997, the
Company generated $712,500 of license fee revenues. For the three months ended
December 31, 1997, the Company has
14
earned total revenues of $525,000, comprised of license fees from the signing of
the License Agreement with Abbott, and from the achievement of a license fee
milestone pertaining to the allowance of certain patent claims. At December 31,
1997 the Company has deferred recognition of $687,500 of revenue received for
signing the License Agreement (See Note 4 to the accompanying financial
statements). The Company did not earn any license fee income during the three
months ended December 31, 1996 or the six months ended December 31, 1996, as the
Company did not have any license agreements in effect during those periods. The
Company's ability to generate substantial operating revenue depends upon its
success in developing and marketing or licensing its plasma volume expanders and
organ preservation solutions and technology for medical use.
Operating Expenses
From inception (November 30, 1990) through December 31, 1997, the
Company has incurred $8,441,601 of research and development expenses, including
salaries, supplies and other related expense items. Research and development
expenses were $853,976 for the three months ended December 31, 1997, compared to
$485,659 for the three months ended December 31, 1996. Additionally, research
and development expenses increased to $1,532,248 for the six months ended
December 31, 1997, from $917,825 for the six months ended December 31, 1996. The
increase in research and development expenses is attributable to completion of
and full payment for the Phase III clinical trials, compilation of data and
preparation of an NDA. It is expected that research and development expenses
will increase in the future as the Company commences additional clinical testing
of Hextend in the United States and abroad, and commences clinical studies of
other products.
From inception (November 30, 1990) through December 31, 1997, the
Company has incurred $6,120,661 of general and administrative expenses. General
and administrative expenses were $384,846 for the three months ended December
31, 1997, compared to $288,630 for the three months ended December 31, 1996.
General and administrative expenses also increased to $890,340 for the six
months ended December 31, 1997, from $594,983 for the six months ended December
31, 1996. The increase is primarily attributable to increased personnel costs.
Interest and Other Income
From inception (November 30, 1990) through December 31, 1997, the
Company has generated $1,081,583 of interest and other income. For the three
months ended December 31, 1997, the Company has generated $86,945 of interest
and other income, compared to $19,802 for the three months ended December 31,
1996. The interest and other income generated also increased to $163,090 for the
six months ended December 31, 1997, from $39,965 for the six months ended
December 31, 1996. The increase in interest income is attributable to an
increase in cash and cash equivalents from the Company' subscription rights
offering completed on February 5, 1997.
15
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations
through the sale of equity securities and licensing fees, and at December 31,
1997, the Company had cash and cash equivalents of $6,321,242. Management
believes that additional funds may be required for the successful completion of
the Company's product development activities. The Company plans to obtain
financing for its future operations through additional sales of equity or debt
securities, and through the licensing of its products to pharmaceutical
companies.
Under its License Agreement with Abbott, the Company has received
$1,400,000 of license fees and milestone payments for signing the agreement and
achieving a milestone pertaining to the allowance of certain patent claims
pending. An additional $1,100,000 of license payments under the License
Agreement will become payable in installments upon the achievement of specific
milestones pertaining to the filing and approval of a New Drug Application for
Hextend and the commencement of sales of the product. Additional license fees
and royalties will become payable based upon product sales.
License fees and royalties will also be sought from Abbott or other
pharmaceutical companies for United States and Canadian licenses of new products
and uses of Hextend that are not covered by Abbott's license, and for licenses
to manufacture and market the Company's products abroad.
The future availability and terms of equity and debt financings, and
the amount of license fees and royalties that may be earned through the
licensing and sale of the Company's products cannot be predicted. The
unavailability or inadequacy of financing or revenues to meet future capital
needs could force the Company to modify, curtail, delay or suspend some or all
aspects of its planned operations.
Statements contained in this report that are not historical facts may
constitute forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
discussed. See Note 1 to Financial Statements and the "Risk Factors" discussed
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1997.
16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Numbers Description
3.1 Articles of Incorporation as Amended.=
3.3 By-Laws, As Amended.#
4.1 Specimen of Common Share Certificate.+
10.1 Lease Agreement dated July 1, 1994 between the Registrant and Robert
and Norah Brower, relating to principal executive offices of the
Registrant.*
10.2 Employment Agreement dated June 1, 1996 between the Company and Paul
Segall.++
10.3 Employment Agreement dated June 1, 1996 between the Company and Hal
Sternberg.++
10.4 Employment Agreement dated June 1, 1996 between the Company and Harold
Waitz.++
10.5 Employment Agreement dated June 1, 1996 between the Company and Judith
Segall.++
10.6 Employment Agreement dated June 1, 1996 between the Company and
Victoria Bellport.++
10.7 Intellectual Property Agreement between the Company and Paul Segall.+
10.8 Intellectual Property Agreement between the Company and Hal Sternberg.+
10.9 Intellectual Property Agreement between the Company and Harold Waitz.+
10.10 Intellectual Property Agreement between the Company and Judith Segall.+
10.11 Intellectual Property Agreement between the Company and Victoria
Bellport.+
10.12 Agreement between CMSI and BioTime Officers Releasing Employment
Agreements, Selling Shares, and Transferring Non-Exclusive License.+
10.13 Agreement for Trans Time, Inc. to Exchange CMSI Common Stock for
BioTime, Inc. Common Shares.+
17
10.14 1992 Stock Option Plan, as amended.+++
10.15 Employment Agreement dated April 1, 1997 between the Company and Ronald
S. Barkin.^
10.16 Intellectual Property Agreement between the Company and Ronald S.
Barkin.^
27 Financial Data Schedule**
= Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1997.
+ Incorporated by reference to Registration Statement on Form S-1, File Number
33-44549 filed with the Securities and Exchange Commission on December 18, 1991,
and Amendment No. 1 and Amendment No. 2 thereto filed with the Securities and
Exchange Commission on February 6, 1992 and March 7, 1992, respectively.
# Incorporated by reference to Registration Statement on Form S-1, File Number
33-48717 and Post-Effective Amendment No. 1 thereto filed with the Securities
and Exchange Commission on June 22, 1992, and August 27, 1992, respectively.
* Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1994.
++ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1996.
+++ Incorporated by reference to Registration Statement on Form S-8, File Number
333-30603 filed with the Securities and Exchange Commission on July 2, 1997.
^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
** Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K for the three months ended
September 30, 1997.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOTIME, INC.
/s/ Ronald S. Barkin
Date: February 3, 1998 ----------------------------
Ronald S. Barkin
President
/s/ Victoria Bellport
Date: February 3, 1998 -----------------------------
Victoria Bellport
Chief Financial Officer
19
5
3-MOS
JUN-30-1998
OCT-01-1997
DEC-31-1997
6,321,242
0
0
0
0
6,570,999
289,926
162,871
6,722,476
833,238
0
0
0
18,411,076
0
6,722,476
0
525,000
0
0
(1,249,122)
0
(86,945)
(637,177)
0
0
0
0
0
(637,177)
(0.06)
(0.06)
