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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
935 Pardee Street, Berkeley, California 94710
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 845-9535
Securities registered pursuant to Section 12(g)
of the Act:
Common Shares, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The approximate aggregate market value of voting stock held by nonaffiliates of
the registrant was $73,207,651 as of September 22, 1998.
10,026,579
(Number of Common Shares outstanding as of September 22, 1998)
Documents Incorporated by Reference
None
PART I
Item 1. Description of Business
Overview
BioTime, Inc. (the "Company" or "BioTime") is a development stage
company engaged in the research and development of aqueous based synthetic
solutions that can be used as blood plasma volume expanders, blood substitutes
during hypothermic (low temperature) surgery, and organ preservation solutions.
Plasma volume expanders are used to treat blood loss in surgical or trauma
patients until blood loss becomes so severe that a transfusion of packed red
blood cells or other blood products is required. The Company is also developing
a specially formulated hypothermic blood substitute solution that would have a
similar function and would be used for the replacement of very large volumes of
a patient's blood during cardiac surgery, neurosurgery and other surgeries that
involve lowering the patient's body temperature to hypothermic levels.
The Company's first three blood replacement products, Hextend,(R)
PentaLyte,(R) and HetaCool,TM have been formulated to maintain the patient's
tissue and organ function by sustaining the patient's fluid volume and
physiological balance. Various colloid and crystalloid products are being
marketed by other companies for use in maintaining patient fluid volume in
surgery and trauma care, but the use of those solutions can contribute to
patient morbidity, including conditions such as hypovolemia, edema, impaired
blood clotting, acidosis, and other biochemical imbalances. Hextend, PentaLyte,
and HetaCool contain constituents that may prevent or reduce the physiological
imbalances that can cause those problems. Albumin produced from human plasma is
also currently used as a plasma expander, but it is expensive and subject to
supply shortages, and a recent FDA warning has cautioned physicians about the
risk of administering albumin to seriously ill patients.
Based upon the results of its clinical studies and laboratory research,
the Company has determined that in many emergency care and surgical applications
it is not necessary for a plasma volume expander to include special oxygen
carrying molecules to replace red blood cells. Therefore, the Company is
developing formulations that do not use costly and potentially toxic oxygen
carrying molecules such as synthetic hemoglobin and perfluorocarbons.
During March 1998, the Company completed the submission of its New Drug
Application ("NDA") to the United States Food and Drug Administration ("FDA"),
seeking approval to market Hextend in the United States. The chemistry,
manufacturing and control data for the NDA was submitted to the FDA during
December 1997. The NDA includes data from the Company's Phase III clinical
trials, in which the primary endpoints were successfully met when Hextend was
used as a plasma volume expander in surgery. An important goal of the Hextend
development program was to produce a product that can be used in multi-liter
volumes to treat patients who have lost a large volume of blood. An average of
1.6 liters of Hextend was used in the clinical trials, and volumes ranging from
two to five liters were used in some of the higher blood loss cases. The safety
related
2
secondary endpoints targeted in the study included those involving coagulation.
The Company believes that the low incidence of adverse events related to blood
clotting in the Hextend patients demonstrates that Hextend may be safely used in
large amounts. However, the FDA will make its own evaluation of the clinical
trial data and there is no assurance that the FDA will approve the Company's
NDA.
On April 23, 1997, BioTime and Abbott Laboratories ("Abbott") entered
into a License Agreement under which BioTime 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. So far, Company has received $1,650,000 of license fee
milestone payments, including a payment of $250,000 during May 1998 for
achieving the milestone of filing an NDA for Hextend. In addition to the license
fees, Abbott will pay BioTime a royalty on annual net sales of Hextend. The
royalty rate will be 5% plus an additional .22% for each $1,000,000 of total
annual net sales, up to a maximum annual royalty rate of 36%. The royalty rate
for each year will be applied on a total net sales basis so that once the
highest royalty rate for a year is determined, that rate will be paid with
respect to all sales for that year. 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.
In order to preserve its rights to obtain an exclusive license for
PentaLyte under the License Agreement, Abbott notified the Company that Abbott
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.
The Company intends to enter global markets through licensing
agreements with over-seas pharmaceutical companies. By licensing its products
abroad, the Company will avoid the capital costs and delays inherent in
acquiring or establishing its own pharmaceutical manufacturing facilities and
establishing an international marketing organization. A number of pharmaceutical
companies in Europe, Asia and other markets around the world have expressed
their interest in obtaining licenses to manufacture and market the Company's
products. Representatives of the Company and Nihon Pharmaceutical Company, Ltd.
("Nihon") met in Japan to discuss the development of BioTime products for the
Japanese market, and the development of a clinical trial program to obtain
Japanese regulatory approval. Nihon and the Company previously signed a letter
of intent to negotiate a licensing agreement to manufacture and market BioTime
products in Japan. Nihon is a subsidiary of Takeda Chemical Industries, Japan's
largest pharmaceutical manufacturer. The
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Company is continuing to meet with representatives of companies in other
territories to discuss and negotiate potential agreements.
The Company is also pursuing a global clinical trial strategy, the goal
of which is to permit the Company to obtain regulatory approval for its products
as quickly and economically as practicable. For example, the United States Phase
III clinical trials of Hextend involved 120 patients and were completed in less
than 12 months. Although regulatory requirements vary from country to country,
the Company may be able to file applications for foreign regulatory approval of
its products based upon the results of the United States clinical trials. Based
upon discussions with the Canadian Bureau of Pharmaceutical Assessment, the
Company plans to file for Canadian market approval based the results of its
United States clinical trials. Regulatory approvals for countries that are
members of the European Union may be obtained through a mutual recognition
procedure. The Company plans to determine whether one more member nations would
accept an application based upon the United States clinical trials. If approvals
based upon those trials can be obtained in the requisite number of member
nations, then the Company would be permitted to market Hextend in all 16 member
nations.
The Company plans to conduct a pilot study of the use of Hextend to
treat hypovolemia in geriatric patients undergoing high blood loss surgery. This
new clinical trial will be a double blind study designed to compare Hextend with
a hetastarch in saline solution and is intended to confirm and expand upon the
results of the United States Phase III trials. This pilot study may be used to
design larger scale trials that may be needed to obtain regulatory approval in
Western Europe. Approximately 60 patients 65 years of age or older will be
studied. The geriatric population generally experiences a higher degree of
inter-operative and post-operative mortality and morbidity than younger patients
undergoing similar major surgery. The Company believes that in a study involving
geriatric patients the advantages of Hextend will most clearly and consistently
be seen. The Company has submitted a Clinical Trials Exemption ("CTX")
notification to the Department of Health, Medicines Control Agency of the United
Kingdom for permission to conduct the study. After approval of the CTX, the
trial will be conducted at the Middlesex and Royal Free Hospitals of the
University College London Hospitals in London, England, where it has been
approved by the institutional review board.
The Company was incorporated under the laws of the State of California
on November 30, 1990. The Company's principal office is located at 935 Pardee
Street, Berkeley, California 94710. Its telephone number at such office is(510)
845-9535.
Hextend(R) and PentaLyte(R) are registered trademarks, and HetaCoolTM
is a trademark, of BioTime, Inc.
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Products for Surgery, Plasma Replacement and Emergency Care
The Market for Plasma Volume Expanders
The Company is developing Hextend, PentaLyte, HetaCool and other
synthetic plasma expander solutions to treat acute blood loss that occurs during
many kinds of surgery. The solutions could also be used by emergency room
physicians or by paramedics to treat acute blood loss in trauma victims being
transported to the hospital.
Approximately 10,000,000 surgeries take place in the United States each
year, and blood transfusions are required in approximately 2,500,000 of those
cases. Transfusions are also required to treat patients suffering severe blood
loss due to traumatic injury. Many more surgical and trauma cases do not require
blood transfusions but do involve significant bleeding that can place the
patient at risk of suffering from shock caused by the loss of fluid volume
(hypovolemia) and physiological balance. Whole blood, packed red cells, or blood
plasma generally cannot be administered to a patient until the patient's blood
serum has been typed and sufficient units of compatible blood or red cells can
be located. Periodic shortages of supply of donated human blood are not
uncommon, and rare blood types are often difficult to locate. The use of human
blood products also poses the risk of exposing the patient to blood borne
diseases such as AIDS and hepatitis.
Due to the risks and cost of using human blood products, even when a
sufficient supply of compatible blood is available, physicians treating patients
suffering blood loss are generally not permitted to transfuse red blood cells
until the patient's level of red blood cells has fallen to a level known as the
"transfusion trigger." During the course of surgery, while blood volume is being
lost, the patient is infused with plasma volume expanders to maintain adequate
blood circulation. During the surgical procedure, red blood cells are not
replaced until the patient has lost approximately 45% to 50% of their red blood
cells, thus reaching the transfusion trigger at which point the transfusion of
red blood cells may be required. After the transfusion of red blood cells, the
patient may continue to experience blood volume loss, which will be replaced
with plasma volume expanders. Even in those patients who do not require a
transfusion, physicians routinely administer plasma volume expanders to maintain
sufficient fluid volume to permit the available red blood cells to circulate
throughout the body and to maintain the patient's physiological balance.
Several units of fluid replacement products are often administered
during surgery. The number of units will vary depending upon the amount of blood
loss and the kind of plasma volume expander administered. Crystalloid products
must be used in larger volumes than colloid products such as Hextend.
The plasma volume expanders marketed by other companies have certain
draw backs. The use of those products can contribute to patient morbidity,
including conditions such as hypovolemia, edema, impaired blood clotting,
acidosis, and other biochemical imbalances. Albumin produced from human plasma
is expensive and subject to supply shortages, and a recent FDA warning has
cautioned physicians about the risk of administering albumin to seriously ill
patients. In contrast,
5
Hextend, PentaLyte, and HetaCool contain constituents that may prevent or reduce
the physiological imbalances that can the problems associated with the use of
other plasma volume expanders, and because the Company's products are synthetic
they can be manufactured in large volumes.
The Market for Products for Hypothermic Surgery
Approximately 400,000 coronary bypass and other open heart surgeries
are performed in the United States annually, and approximately 18,000 aneurysm
surgeries and 4,000 arterio-venous malformation surgeries were performed in the
United States during 1989. Those procedures often require the use of
cardio-pulmonary bypass equipment to do the work of the heart and lungs during
the surgery. During open heart surgery and surgical procedures for the treatment
of certain cardiovascular conditions such as large aneurysms, cardiovascular
abnormalities and damaged blood vessels in the brain, surgeons must temporarily
interrupt the flow of blood through the body. Interruption of blood flow can be
maintained only for short periods of time at normal body temperatures because
many critical organs, particularly the brain, are quickly damaged by the
resultant loss of oxygen. As a result, certain surgical procedures are performed
at low temperatures because lower body temperature helps to minimize the chance
of damage to the patient's organs by reducing the patient's metabolic rate,
thereby decreasing the patient's needs during surgery for oxygen and nutrients
which normally flow through the blood.
Current technology limits the degree to which surgeons can lower a
patient's temperature and the amount of time the patient can be maintained at a
low body temperature because blood, even when diluted, cannot be circulated
through the body at near-freezing temperatures. As a result, surgeons face
severe time constraints in performing surgical procedures requiring blood flow
interruption, and those time limitations prevent surgeons from correcting
certain cardiovascular abnormalities.
Hextend, PentaLyte and HetaCool
The Company's first three blood replacement products, Hextend,
PentaLyte, and HetaCool, have been formulated to maintain the patient's tissue
and organ function by sustaining the patient's fluid volume and physiological
balance. Hextend, PentaLyte, and HetaCool, are composed of a hydroxyethyl
starch, electrolytes, sugar and a buffer in an aqueous base. Hextend and
HetaCool use a high molecular weight hydroxyethyl starch (hetastarch) whereas
PentaLyte uses a low molecular weight hydroxyethyl starch (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 blood substitute for low temperature surgery is needed or where the
patient's ability to restore 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 restoring lost blood
proteins. BioTime believes that by testing and bringing all three products to
the market, it can increase its market share by providing the medical community
with solutions to match patients' needs.
6
Results from certain laboratory tests indicate that Hextend and
PentaLyte may prove more effective at maintaining blood calcium levels than the
leading domestically available plasma extender when used to replace large
volumes of blood. Calcium can be a significant factor in regulating blood
clotting and cardiac function. Results from other in vitro tests of Hextend
indicate that Hextend does not alter the activity of a number of specific blood
clotting factors, other than by simple hemodilution.
BioTime has not attempted to synthesize potentially toxic and costly
oxygen carrying molecules such as hemoglobin because the loss of fluid volume
and physiological balance may contribute as much to shock as the loss of the
oxygen carrying component of the blood. Surgical and trauma patients are
routinely given supplemental oxygen and retain a substantial portion of their
own red blood cells. Whole blood or packed red blood cells are generally not
transfused during surgery or in trauma care until several units of plasma or
plasma volume expanders have been administered and the patient's hematocrit has
fallen to the transfusion trigger. Therefore, the lack of oxygen carrying
molecules in the Company's solutions should not pose a significant
contraindication to use.
Experiments by BioTime scientists have demonstrated that laboratory
animals are able to survive at normal temperatures and without supplemental
oxygen when more than two-thirds of their circulating blood volume is replaced
by Hextend and/or PentaLyte. When animals are placed in an oxygen rich
environment, they are able to survive at normal temperatures when even more of
their circulating blood volume is replaced by Hextend.
Hextend is BioTime's proprietary hetastarch-based synthetic blood
plasma volume expander, designed especially to treat hypovolemia in surgery and
trauma care where patients experience a large amount of blood loss. The Company
has submitted an NDA to the FDA seeking approval to market Hextend in the United
States. The NDA includes data from the Company's clinical trials in which the
primary endpoints were successfully met when Hextend was used as a plasma volume
expander in surgery.
An important goal of the Hextend development program was to produce a
product that can be used in multi-liter volumes to treat patients who have lost
a large volume of blood during surgery or as a result of injury. An average of
1.6 liters of Hextend was used in the clinical trials, and volumes ranging from
two to five liters were used in some of the higher blood loss cases. The safety
related secondary endpoints targeted in the study included those involving
coagulation. The Company believes that the low incidence of adverse events
related to blood clotting in the Hextend patients demonstrates that Hextend may
be safely used in large amounts. However, the FDA will make its own evaluation
of the clinical trial data and there is no assurance that the FDA will approve
the Company's NDA.
BioTime also plans to test the use of Hextend as cardio-pulmonary
bypass circuit priming solution. In order to perform heart surgery, the
patient's heart must be stopped and mechanical apparatus is used to oxygenate
and circulate the blood. The cardio-pulmonary bypass apparatus requires a blood
compatible fluid such as Hextend to commence and maintain the process of
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diverting the patient's blood from the heart and lungs to the mechanical
oxygenator and pump.
BioTime believes that Hextend will maintain blood pressure and
physiological balance better than the solutions presently used as bypass priming
solutions. Approximately 2 liters of Hextend would be used for each bypass
operation. Based upon the number of coronary bypass operations performed, the
potential market for Hextend as a bypass circuit priming solution in the United
States would be about 800,000 liters annually.
PentaLyte is BioTime's proprietary pentastarch-based synthetic plasma
expander, designed especially for use when a faster elimination of the starch
component is desired and acceptable. Although Hextend can be used in these
cases, some physicians appear to prefer a solution which could be metabolized
faster and excreted earlier when the longer term protection provided by Hextend
is not required. PentaLyte combines the physiologically balanced Hextend
formulation with pentastarch that has a lower molecular weight and degree of
substitution than the hetastarch used in Hextend.
HetaCool is a modified formulation of Hextend. HetaCool is specifically
designed for use at low temperatures. Surgeons are already using a variety of
other solutions to carry out certain limited procedures involving shorter term
(up to nearly one hour) arrest of brain and heart function at temperatures
between 15o and 25o C. However, BioTime is not aware of any fluid currently used
in medical practice or any medically-approved protocol allowing operations which
can completely replace all of a patient's blood at temperatures close to the ice
point. The Company believes that very low temperature bloodless surgical
techniques could be developed for open heart and minimally invasive closed chest
cardiovascular surgeries, and removal of tumors from the brain, head, neck,
heart, and other areas.
The Company is in the process of preparing an amendment to its Hextend
IND application to conduct preliminary clinical trials to use HetaCool as a
cardio-pulmonary bypass circuit priming solution in low temperature
cardio-vascular surgery, as a step to preparing an amended IND application to
conduct clinical trials using HetaCool as a solution to replace all of a
patient's circulating blood volume during profound hypothermic (carried out at
near-freezing temperatures) surgical procedures. The experimental protocol for
the planned blood replacement clinical trial is being tested on animal subjects
at Baylor University Medical Center and Mt. Sinai Medical Center. HetaCool would
be introduced into the patient's body during the cooling process. Once the
patient's
8
body temperature is nearly ice cold, and heart and brain function are
temporarily arrested, the surgeon would perform the operation. During the
surgery, HetaCool may be circulated throughout the body in place of blood, or
the circulation may be arrested for a period of time if an interruption of fluid
circulation is required. Upon completion of the surgery, the patient would be
slowly warmed and blood would be transfused.
Cardiac surgeons are working to develop innovative procedures to repair
damaged coronary arteries and heart valves. If optically guided surgical
instruments can be inserted into the heart through blood vessels or small
incisions, there may be no need to open the patient's chest cavity. BioTime
believes that HetaCool may be useful in these minimally invasive closed chest
cardiac procedures because the solution is transparent and if it were used to
completely replace blood at low temperatures it would permit surgeons to use
their optically guided instruments inside the heart or blood vessels without
having their view obstructed by blood. The use of BioTime's solutions may also
allow better control over stopping and starting the heart, as well as extending
the time period of such surgeries. BioTime intends to conduct a series of
laboratory studies using animal subjects to test the utility of HetaCool as a
low temperature blood substitute in such procedures.
HetaCool has been used to completely replace the blood volume of
hamsters, dogs and baboons at temperatures approaching freezing. Many of these
animal subjects survived long term after hypothermic blood substitution with
HetaCool. In these laboratory tests, the animals' blood was replaced by HetaCool
and they were chilled for one to more than four hours with deep body
temperatures between 1oC and 10oC.
Organ Transplant Products
The Market for Organ Preservation Solutions
Organ transplant surgery is a growing field. Approximately 5,000 donors
donate organs, and approximately an additional 5,000 donors donate skin, bone
and other tissues in the United States each year. As more surgeons have gained
the necessary expertise and surgical methods have been refined, the number of
transplant procedures has increased, as has the percentage of successful
transplants. Organ transplant surgeons and their patients face two major
obstacles, namely the shortage of available organs from donors, and the limited
amount of time that a transplantable organ can be kept viable between the time
it is harvested from the donor and the time it is transplanted into the
recipient.
The scarcity of transplantable organs makes them too precious to lose
and increases the importance of effective preservation technology and products.
Current organ removal and preservation technology generally requires multiple
preservation solutions to remove and preserve effectively different groups of
organs. The removal of one organ can impair the viability of other organs.
Available technology does not permit surgeons to keep the remaining organs
viable within the donor's body for a significant time after the first organ is
removed. Currently, an organ available
9
for transplant is flushed with an ice cold solution during the removal process
to deactivate the organ and preserve its tissues, and then the organ is
transported on ice to the donee. The ice cold solutions currently used, together
with transportation on ice, keep the organ healthy for only a short period of
time. For example, the storage time for hearts is limited to approximately six
hours. Because of the short time span available for removal and transplant of an
organ, potential organ donees may not receive the needed organs.
BioTime is seeking to address this problem by developing a more
effective organ preservation solution that will permit surgeons to harvest all
transplantable organs from a single donor. The Company believes that preserving
the viability of all transplantable organs and tissues simultaneously, at low
temperatures, would extend by several hours the time span in which the organs
can be preserved prior to transplant.
Using HetaCool for Multi-Organ Preservation. The Company is seeking to
develop HetaCool for use as a single solution that can simultaneously preserve
all of a single donor's organs. When used as an organ preservation solution,
HetaCool would be perfused into the donor's body while the body is chilled,
thereby eliminating an undesirable condition called "warm ischemia," caused when
an organ is warm while its blood supply is interrupted. The use of HetaCool in
conjunction with the chilling of the body should help to slow down the process
of organ deterioration by a number of hours so that a surgeon can remove all
organs for donation and transplant. The Company's current estimates are that
each such preservation procedure could require at least 50 liters of HetaCool.
The Company believes that the ability to replace an animal's blood with
the Company's solution, to maintain the animal at near freezing temperatures for
several hours, and then revive the animal, would demonstrate that the solution
could be used for multi-organ preservation. Company scientists have revived
animals after more than six hours of cold blood-substitution, and have observed
heart function in animals maintained cold and blood-substituted for more than
eight hours. An objective of the Company's research and development program is
to extend the time span in which animal subjects can be maintained in a cold,
blood-substituted state before revival or removal of organs for transplant
purposes. Organ transplant procedures using animal subjects could then be
conducted to test the effectiveness of Hextend as an organ preservative.
Long-term Tissue and Organ Banking
The development of marketable products and technologies for the
preservation of tissues and vital organs for weeks and months is a long-range
goal of the Company's research and development plan. To permit such long-term
organ banking the Company is attempting to develop products and technologies
that can protect tissues and organs from the damage that occurs when human
tissues are subjected to subfreezing temperatures.
HetaFreeze is one of a family of BioTime's freeze-protective solutions
which may ultimately allow the extension of time during which organs and tissues
can be stored for future transplant or
10
surgical grafting. In laboratory experiments, BioTime's proprietary
freeze-protective compounds have already been used to preserve skin when used as
a whole animal perfusate. Silver dollar size full thickness shaved skin samples
have been removed after saturation with HetaFreeze solution, frozen at liquid
nitrogen temperatures and stored for periods ranging from days to weeks. The
grafts were then warmed and sewn onto the backs of host animals. Many of these
grafts survived.
In other laboratory experiments, BioTime scientists have shown that
animals can be revived to consciousness after partial freezing with their blood
replaced by HetaFreeze. While this technology has not developed to an extent
that allows long term survival of the laboratory subjects, and their organs, a
better understanding of the effects of partial freezing could allow for extended
preservation times for vital organs, skin and blood vessels.
Other Potential Uses of BioTime Solutions
Isolated regional perfusion of anti-cancer drugs has been used to treat
melanoma of the limbs, and inoperable tumors of the liver. The Company believes
that employing such a procedure while the patient is kept in ice-cold
blood-substitution may allow high doses of toxic anti-cancer drugs to be
directed at inoperable tumors within vital organs. Keeping the rest of the
patient in a cold, blood substituted state may reduce or eliminate the
circulation of the toxic drugs to healthy tissues.
BioTime considers such surgical techniques to be a longer range goal of
its research and development program for hypothermic surgery products. Use of
this complex technology in the practice of oncology can occur only after
ice-cold blood-substitution has advanced to an appropriate level of safety and
effectiveness.
Research and Development Strategy
From inception through June 30, 1998, the Company has spent $9,958,128
on research and development. The greatest portion of BioTime's research and
development efforts have been devoted to the development of Hextend, PentaLyte
and HetaCool for conventional surgery, emergency care, low temperature surgery,
and multi-organ preservation. A lesser portion of the Company's research and
development efforts have been devoted to developing solutions and protocols for
storing organs and tissues at subfreezing temperatures. In the future the
Company may explore other applications of its products and technologies,
including cancer chemotherapy. As the first products achieve market entry, more
effort will be expended to bring the next tier of products to maturity.
One major focus of the Company's research and development effort has
been on products and technology to extend the time animals can be kept cold and
blood-substituted, and then revived without physical impairment. An integral
part of that effort has been the development of techniques and procedures or
"protocols" for use of the Company's products. A substantial amount of data has
11
been accumulated through animal tests, including the proper surgical techniques,
drugs and anesthetics, the temperatures and pressures at which blood and blood
substitutes should be removed, restored and circulated, solution volume, the
temperature range, and times, for maintaining circulatory arrest, and the rate
at which the subject should be rewarmed.
Experiments intended to test the efficacy of the Company's blood
replacement solutions and protocols for surgical applications involve replacing
the animal's blood with low temperature blood substitute solution, maintaining
the animal in a cold blood-substituted state for a period of time, and then
attempting to revive the animal. Experiments for multi-organ preservation
involve the maintenance of the animal subjects at cold temperatures for longer
periods of time than would be required for many surgical applications, followed
by transplant procedures to test the viability of one or more of the subject's
vital organs.
The Company is conducting experiments at hospital and medical school
research facilities. These collaborative research programs are testing solutions
and protocols developed in the Company's laboratories and, in some cases,
comparing the efficacy of the Company's blood substitute solutions with
commercially available FDA approved products manufactured by other companies.
The Company intends to continue to foster relations with research hospitals and
medical schools for the purpose of conducting collaborative research projects
because it believes that such projects will introduce the Company's potential
products to members of the medical profession and provide the Company with
objective product evaluations from independent research physicians and surgeons.
Licensing
On April 23, 1997, the Company and Abbott entered into a License
Agreement under which the Company 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 where the patient's body
temperature is lower than 12(degree)C ("Hypothermic Use"), or replacement of
substantially all of a patient's circulating blood volume ("Total Body
Washout"). The Company 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 the Company up to
$40,000,000 in license fees, of which $1,650,000 has been paid to date, and an
additional $850,000 will become payable in installments upon the achievement of
specific milestones pertaining to the approval of the Company's NDA 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 $15,000,0000 and $30,000,000. Abbott's obligation
to pay licensing 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.
12
In addition to the license fees, Abbott will pay the Company a royalty
on total 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%. The royalty rate for each year will be applied on a total net sales
basis so that once the highest royalty rate for a year is determined, that rate
will be paid with respect to all sales for that year. 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, the Company 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. Abbott has agreed to manufacture
Hextend for sale by the Company in the event that Abbott's exclusive license is
terminated in either case.
Abbott has a right to acquire additional licenses to manufacture and
sell the Company's other plasma expander products in the United States and
Canada. If Abbott exercises its right to acquire a license to sell such products
for uses other than Hypothermic Surgery or Total Body Washout, in addition to
paying royalties, Abbott will be obligated to pay a license fee based upon the
Company's direct and indirect research, development and other costs allocable to
the new product. If Abbott desires to acquire a license to sell any of the
Company's products for use in Hypothermic Surgery or Total Body Washout, the
license fees and other terms of the license will be subject to negotiation
between the parties. For the purpose of determining the applicable royalty
rates, net sales of any such new products licensed by Abbott will be aggregated
with sales of Hextend. If Abbott does not exercise its right to acquire a new
product license, the Company may manufacture and sell the product itself or may
license others to do so.
In order to preserve its rights to obtain an exclusive license for
PentaLyte under the License Agreement, Abbott notified the Company that Abbott
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.
The foregoing description of the License Agreement is a summary only
and is qualified in all respects by reference to the full text of the License
Agreement.
The Company is also discussing and negotiating prospective licensing
arrangements with other pharmaceutical companies, some of which have the
capacity to produce the Company's products, as well as market them, for various
over-seas markets. In licensing arrangements that include marketing rights, the
participating pharmaceutical company would be entitled to retain a large portion
of the revenues from sales to end users and would pay the Company a royalty on
net
13
sales. There is no assurance that any such additional arrangements can be made.
Manufacturing
Facilities Required
The Company has sufficient equipment, space and personnel needed to
synthesize the quantities of its products used in its research activity, but the
Company does not have facilities to manufacture the solution in commercial
quantities, or under "good manufacturing practice" required by the FDA. Any
products that are used in clinical trials for FDA approval, or that are approved
by the FDA for marketing, will have to be manufactured according to "good
manufacturing practices" at a facility that has passed FDA inspection. In
addition, any products that are approved by the FDA will have to be manufactured
in commercial quantities, and with sufficient stability to withstand the
distribution process, and in compliance with such federal and state regulatory
requirements as may be applicable. The active ingredients and component parts of
the products must be either USP or themselves manufactured according to "good
manufacturing practices".
Abbott has provided Hextend manufactured under good manufacturing
practices for use in the Company's clinical trials, and Abbott has the
facilities to manufacture Hextend and other Company products in commercial
quantities. If Abbott chooses not to obtain a license to manufacture and market
another BioTime product, or to manufacture it under contract for BioTime, the
Company will need to enter into licensing or product manufacturing arrangements
with another established pharmaceutical company, or else the Company will have
to acquire its own manufacturing facility.
Acquiring a manufacturing facility would involve significant
expenditure of time and money for design and construction of the facility,
purchasing equipment, hiring and training a production staff, purchasing raw
material and attaining an efficient level of production. Although the Company
has not determined the cost of constructing production facilities that meet FDA
requirements, it expects that the cost would be substantial, and that the
Company would need to raise additional capital in the future for that purpose.
There can be no assurance that the Company will be able to obtain the capital
required for the acquisition of production facilities. To avoid the incurrence
of those expenses and delays, the Company is seeking contract and licensing
arrangements with established pharmaceutical companies for the production of the
Company's products, but there can be no assurance that satisfactory arrangements
will be made.
Raw Materials
Although most ingredients in the products being developed by the
Company are readily obtainable from multiple sources, the Company knows of only
a few manufacturers of the hydroxyethyl starches that serve as the active
ingredient in Hextend, PentaLyte and HetaCool. Abbott presently has a source of
supply of the hydroxyethyl starch used in Hextend, PentaLyte and
14
HetaCool, and has agreed to maintain a supply sufficient to meet market demand
for Hextend in the United States and Canada. McGaw, Inc., a wholly owned
subsidiary of B. Braun Melsungen AG, a private German company selling
intravenous solutions and other medical products around the world, has produced
Hextend for BioTime's clinical trials and can produce the pentastarch used in
PentaLyte. In order to manufacture its products for overseas markets, or
products not presently licensed to Abbott for the United States and Canadian
markets, the Company or a licensee would have to secure a supply or production
agreement with one or more of the known hydroxyethyl starch manufacturers, but
if such an agreement could not be obtained, the Company or a licensee would have
to acquire a manufacturing facility and the technology to produce the
hydroxyethyl starch according to good manufacturing practices. The possibility
of producing hydroxyethyl starches through a co-operative effort with a small,
independent starch manufacturer has also been considered. The Company might have
to raise additional capital to participate in the development and acquisition of
the necessary production technology and facilities.
If arrangements cannot be made for a source of supply of hydroxyethyl
starch, the Company would have to reformulate its solutions to use one or more
other starches that are more readily available. In order to reformulate its
products, the Company would have to perform new laboratory testing to determine
whether the alternative starches could be used in a safe and effective synthetic
plasma volume expander, low temperature blood substitute or organ preservation
solution. If needed, such testing would be costly to conduct and would delay the
Company's product development program, and there is no certainty that any such
testing would demonstrate that an alternative ingredient, even if chemically
similar to the one currently used, would be as safe or effective.
Marketing
The Company's proposed products and services are intended for sale to
hospitals, medical centers, and physicians engaged in the practice of specific
areas of medicine, including transplantation, neurosurgery, cardiovascular
surgery, anesthesiology, oncology, emergency room and trauma care and critical
care. The Company intends to license its products to pharmaceutical companies
that have their own, well established marketing and sales organizations. A
license to market Hextend in the United States and Canada has been granted to
Abbott, and the Company is discussing product licensing arrangements with a
number of companies for over-seas markets. Although such arrangements could
permit the Company to receive revenues from the sale of its products
expeditiously and with lower costs, the Company would have to share those
revenues with the participating pharmaceutical companies. There can be no
assurance that any additional pharmaceutical companies will be willing to enter
into marketing arrangements on terms acceptable to the Company. If the Company
does not enter into licensing or other arrangements for the sale of a product in
a particular market, the Company would have to establish its own marketing
organization.
Published studies and presentations by physicians who have participated
in clinical trials or laboratory studies of Company products may be used as part
of the Company's product marketing
15
efforts. The Company also will continue to seek opportunities to conduct
research in collaboration with well-known institutions and to demonstrate its
work at scientific conventions.
Government Regulation
The FDA will regulate the Company's proposed products as drugs,
biologicals, or medical devices, depending upon such factors as the use to which
the product will be put, the chemical composition and the interaction of the
product on the human body. Products that are intended to be introduced into the
body, such as blood substitute solutions for low temperature surgery and plasma
expanders, will be regulated as drugs and will be reviewed by the FDA staff
responsible for evaluating biologicals.
The Company's human drug products will be subject to rigorous FDA
review and approval procedures. After testing in animals, an Investigational New
Drug (IND) application must be filed with the FDA to obtain authorization for
human testing. Extensive clinical testing, which is generally done in three
phases, must then be undertaken at a hospital or medical center to demonstrate
optimal use, safety and efficacy of each product in humans. Each clinical study
is conducted under the auspices of an independent Institutional Review Board
("IRB"). The IRB will consider, among other things, ethical factors, the safety
of human subjects and the possible liability of the institution. The time and
expense required to perform this clinical testing can far exceed the time and
expense of the research and development initially required to create the
product. No action can be taken to market any therapeutic product in the United
States until an appropriate New Drug Application ("NDA") has been approved by
the FDA. Even after initial FDA approval has been obtained, further studies may
be required to provide additional data on safety or to gain approval for the use
of a product as a treatment for clinical indications other than those initially
targeted. In addition, use of these products during testing and after marketing
could reveal side effects that could delay, impede or prevent FDA marketing
approval, resulting in a FDA-ordered product recall, or in FDA-imposed
limitations on permissible uses.
The FDA also regulates the manufacturing process of pharmaceutical
products and requires that a portion of the clinical trials for new products be
conducted using products produced in compliance with "good manufacturing
practices." See "Manufacturing."
Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
Even if FDA approval has been obtained, approval of a product by comparable
regulatory authorities of foreign countries must be obtained prior to the
commencement of marketing the product in those countries. The time required to
obtain such approval may be longer or shorter than that required for FDA
approval.
16
Patents and Trade Secrets
On April 18, 1995, the Company was granted a United States Patent which
protects methods for using BioTime's proprietary solutions, including the use of
Hextend and PentaLyte to replace blood. Claims include the use of the solutions
at normal and hypothermic (below normal) body temperatures as plasma expanders,
and for increasing circulation of a hypovolemic (acute blood loss) patient.
Additional patents were granted in 1996 and 1997 for other related company
products. During February 1997, the United States Patent and Trademark Office
informed the Company of the allowance of additional claims regarding the
composition of Hextend and PentaLyte; one patent covering those claims was
granted on December 30, 1997, and the Company expects that additional patents
covering those claims may be issued. Additional patent applications have been
filed in the United States and certain other countries for Hextend and other
solutions. The Company also holds a United States Patent on its microcannula.
There is no assurance that any additional patents will be issued, or
that any patents now held or later obtained by the Company will not be
successfully challenged by third parties and declared invalid or infringing of
third party claims. Further, the enforcement of patent rights often requires the
prosecution of litigation against third party infringers, and such litigation
can be costly to pursue.
While the Company believes that the protection of patents and licenses
is important to its business, the Company also will rely on trade secrets,
know-how and continuing technological advancement to maintain its competitive
position. The Company has entered into intellectual property, invention and
non-disclosure agreements with its employees and it is the Company's practice to
enter into confidentiality agreements with its consultants. There can be no
assurance, however, that these measures will prevent the unauthorized disclosure
or use of the Company's trade secrets and know-how or that others may not
independently develop similar trade secrets and know-how or obtain access to the
Company's trade secrets, know-how or proprietary technology. If, in the future,
the techniques for use of the Company's products become widely known through
academic instruction or publication, patent protection would become more
important as a means of protecting the Company's market share for its products.
Competition
If successfully developed, the Company's solutions will compete with
products currently used to treat or prevent hypovolemia, including albumin,
other colloid solutions, and crystalloid solutions presently manufactured by
established pharmaceutical companies, and with human blood products. Some of
these products, in particular crystalloid solutions, are commonly used in
surgery and trauma care and sell at low prices. In order to compete with other
products, particularly those that sell at lower prices, the Company's products
will have to provide medically significant advantages. The competing products
are being manufactured and marketed by established pharmaceutical companies that
have substantially larger research facilities and technical staffs and greater
financial and marketing resources than BioTime. For example, DuPont
Pharmaceuticals presently markets Hespan, an artificial plasma volume expander,
and Viaspan, a solution for use in the preservation
17
of kidneys, livers and pancreases for surgical transplant. Abbott manufactures
and sells a generic equivalent of Hespan.
To compete with new and existing plasma expanders, the Company is
developing products that contain constituents that may prevent or reduce the
physiological imbalances, bleeding, fluid overload, edema, poor oxygenation, and
organ failure that can occur when competing products are used. To compete with
existing organ preservation solutions, the Company is seeking to develop a
solution that can be used to preserve all organs simultaneously and for long
periods of time.
A number of other companies are known to be developing hemoglobin and
synthetic red blood cell substitutes and technologies. BioTime's products have
been developed for use before red blood cells are needed. In contrast,
hemoglobin and other red blood cell substitute products are designed to remedy
ischemia and similar conditions that may result from the loss of oxygen carrying
red blood cells. Those products would not necessarily compete with the Company's
products unless the oxygenating molecules were included in solutions that could
replace fluid volume and prevent or reduce the physiological imbalances as
effectively as the Company's products. Generally, red blood cell substitutes are
more expensive to produce and potentially more toxic than Hextend and PentaLyte.
As a result of Abbott's introduction of a generic plasma expander
intended to compete with Hespan, competition in the plasma expander market has
intensified and wholesale prices have declined. Competition in the areas of
business targeted by the Company is likely to intensify further as new products
and technologies reach the market. Superior new products are likely to sell for
higher prices and generate higher profit margins once acceptance by the medical
community is achieved. Those companies that are successful in introducing new
products and technologies to the market first may gain significant economic
advantages over their competitors in the establishment of a customer base and
track record for the performance of their products and technologies. Such
companies will also benefit from revenues from sales which could be used to
strengthen their research and development, production, and marketing resources.
All companies engaged in the medical products industry face the risk of
obsolescence of their products and technologies as more advanced or cost
effective products and technologies are developed by their competitors. As the
industry matures, companies will compete based upon the performance and cost
effectiveness of their products.
Employees
As of June 30, 1998, the Company employed eleven persons on a full-time
basis and two persons on a part-time basis. Three full-time employees and one
part-time employee hold Ph.D. or Masters Degrees in one or more fields of
science.
18
Risk Factors
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. Some of the factors that could affect the Company's operations are:
Development Stage Company
The Company is in the development stage, and, to date, has been
principally engaged in research and development activities. The Company has not
generated a significant amount of operating revenue. As a result of the
developmental nature of its business, the Company can be expected to sustain
additional operating losses. There can be no assurance that the Company will
generate sufficient revenues from the sale or licensing of its products and
technologies to be profitable.
Uncertainty as to Human Application of Products
Although the Company believes that its Phase III clinical trials show that
Hextend is safe for use in clinical medicine, there is no assurance that the FDA
will reach the same conclusion. The Company's other experimental products and
technologies have not been applied in human medicine and have only been used in
laboratory studies on animals and there can be no assurance that those products
will prove to be safe and efficacious in the human medical applications for
which they were developed.
Uncertainty of Future Sales; Competition
The Company's ability to generate substantial operating revenue depends
upon its success in developing and marketing its products. There can be no
assurance that any products that receive FDA or foreign regulatory approval will
be successfully marketed or that the Company will receive sufficient revenues
from product sales to meet its operating expenses. The acceptance of the
Company's products and technologies by the medical profession may take time to
develop because physicians and hospitals may be reluctant to try a new product
due to the high degree of risk associated with the application of new
technologies and products in the field of human medicine.
The Company's plasma expander products will compete with products currently
used to treat or prevent hypovolemia, including albumin and other colloid
solutions, and crystalloid solutions. Some of these products, in particular
crystalloid solutions, are commonly used in surgery and trauma care and sell at
low prices. In order to compete with other products, particularly those that
sell at lower prices, the Company's products will have to provide medically
significant advantages. The competing products are being manufactured and
marketed by established pharmaceutical companies with more resources than the
Company. For example, DuPont Pharmaceuticals presently markets Hespan, an
artificial plasma volume expander, and Viaspan, a solution for use in the
preservation of kidneys, livers and pancreases for surgical transplant. Abbott
manufactures and sells a generic equivalent of Hespan. There also is a risk that
the Company's competitors may succeed in
19
developing safer or more effective products that could render the Company's
products and technologies obsolete or noncompetitive.
FDA and Other Regulatory Approvals Required
Preclinical and clinical trials and manufacturing and marketing of
BioTime's medical products will be subject to the rigorous testing and approval
processes of the FDA and corresponding foreign regulatory authorities. The
regulatory process, which includes preclinical, clinical and post-clinical
testing of each product to establish its safety and efficacy, can take several
years to complete and require the expenditure of substantial time and funds.
Data obtained from preclinical and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent FDA regulatory
approval. In addition, delays or rejections may be encountered as a result of
changes in FDA policy during the period of product development and FDA
regulatory review of each submitted new product application. Similar delays may
also be encountered in foreign countries. There can be no assurance that, even
after substantial expenditures of time and money, regulatory approval will be
obtained for any products developed by the Company. Moreover, even if regulatory
approval of a product is granted, such approval may entail limitations on the
indicated uses for which the product may be marketed. After regulatory approval
is obtained, the approved product, the manufacturer and the manufacturing
facilities are subject to continual review and periodic inspections, and a 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. Failure to comply with the applicable
regulatory requirements can, among other things, result in fines, suspensions of
regulatory approvals, product recalls, operating restrictions and criminal
prosecution. Additional government regulation may be established which could
prevent or delay regulatory approval of the Company's products.
Additional Financing May Be Required
Additional financing may be required for continued research and product
development, additional clinical trials of new products, and production and
marketing of Hextend and any other Company products that may be approved by FDA
or foreign regulatory authorities. The time frame in which the Company may
generate internally the funds necessary to carry on its planned operations
depends upon its success in developing products and obtaining FDA and other
regulatory approvals. It often takes many months for the FDA to complete its
review of an NDA after clinical trials are complete and it can take several
months for a pharmaceutical company to introduce a new drug to the market.
Therefore, the Company may need to raise capital from time to time to meet its
operating expenses until such time as it is able to generate sufficient revenues
from product sales or royalties. There can be no assurance that the Company will
be able to raise additional funds on favorable terms or at all, or that such
funds, if raised, will be sufficient to permit the Company to develop and market
its products. Unless the Company is able to raise additional funds when needed,
it is likely that it will be unable to continue its planned activities,
notwithstanding the progress of its research and development projects.
20
Uncertainty as to Results of Research and Development of New Products
The Company's business involves the attempt to develop new medical
products and technologies. Such experimentation is inherently costly, time
consuming and uncertain as to its results. If the Company is successful in
developing a new technology or product, refinement of the new technology or
product and definition of the practical applications and limitations of the
technology or product may take years and require the expenditure of large sums
of money. From the date of the Company's inception through June 30, 1998, the
Company spent $9,958,128 on research and development, and the Company expects to
continue to incur substantial research and development expenses.
Absence of Manufacturing and Marketing Capabilities
The Company presently does not have adequate facilities or resources to
manufacture its products in commercial quantities or in compliance with FDA
standards. Accordingly, the Company plans to enter into arrangements with
pharmaceutical companies for the production and marketing of the Company's
products. Abbott has obtained an exclusive license from the Company to
manufacture and market Hextend in the United States and Canada. Although a
number of pharmaceutical companies have expressed their interest in obtaining
licenses to manufacture and market Company products in other countries, there
can be no assurance that the Company will be successful making other licensing
arrangements. If licensing or manufacturing arrangements cannot be made on
acceptable terms, the Company would be required to construct or acquire its own
manufacturing facilities and to establish its own marketing organization, which
would entail significant expenditures of time and money.
Uncertainty of Patent Protection
The Company has obtained patents in the United States, Israel, and South
Africa, and has filed patent applications in certain foreign countries, for
certain products, including Hextend and PentaLyte. No assurance can be given
that any foreign patents will be issued to the Company, or that, if issued,
those patents and the Company's United States patents will provide the Company
with meaningful patent protection, or that others will not successfully
challenge the validity or enforceability of any patent issued to the Company.
The costs required to uphold the validity and prevent infringement of any patent
issued to the Company could be substantial, and the Company might not have the
resources available to defend its patent rights.
Uncertainty of Health Care Reimbursement and Reform
The Company's ability to successfully commercialize its products may
depend in part on the extent to which reimbursement for the cost of such
products and related treatment will be available from government health
administration authorities, private health coverage insurers and other
organizations. Significant uncertainty exists as to the pricing, availability of
distribution channels and reimbursement status of newly approved health care
products and there can be no assurance that
21
adequate third party coverage will be available to enable the Company to
maintain price levels sufficient for realization of an appropriate return on its
investment in product development. In certain foreign markets, pricing or
profitability of health care products is subject to government control. In the
United States, there have been a number of federal and state proposals to
implement similar government controls, and new proposals are likely to be made
in the future.
Potential Disputes Over Ownership of Technology
Because certain officers and directors of the Company were employees of
Cryomedical Sciences, Inc. ("CMSI") prior to founding the Company, it is
possible that CMSI might claim an ownership interest in products and
technologies developed by the Company based upon the scope of research conducted
by such persons while they were employed by CMSI, or based upon the terms of
certain agreements between such scientists and CMSI with respect to the
ownership of technology and products. To date, no such claims have been asserted
against the Company by CMSI. CMSI holds patents with respect to certain low
temperature blood substitute solutions. No assurance can be given that CMSI will
not claim that the Company's products infringe upon CMSI's patents. The Company
has obtained a non-exclusive license to use certain experimental low temperature
blood substitute solutions developed by CMSI. The license is not assignable or
transferable and is subject to termination under certain circumstances,
including a sale of control of the Company. However, the Company abandoned use
of the CMSI solutions many years ago and does not intend to pursue the
commercialization of the CMSI solutions.
Dependence Upon Key Personnel
The Company depends to a considerable degree on the continued services of
its executive officers. Although the Company maintains key man life insurance in
the amount of $1,000,000 on the life of Dr. Paul Segall, the loss of the
services of any of its executive officers could have a material adverse effect
on the Company. In addition, the success of the Company will depend, among other
factors, upon successful recruitment and retention of additional highly skilled
and experienced management and technical personnel.
No Dividends
The Company has not paid any cash dividends on its Common Shares. For the
foreseeable future it is anticipated that earnings, if any, which may be
generated from the Company's proposed operations will be used to finance the
growth of the Company and that cash dividends will not be paid to holders of
Common Shares.
Possible Volatility of Market for Common Shares
The Common Shares are traded on Nasdaq. The market price of the Common
Shares, like that of the common stock of many biotechnology companies, has been
highly volatile. The price of such securities may rise rapidly in response to
certain events, such as the commencement of clinical trials
22
of an experimental new drug, even though the outcome of those trials and the
likelihood of ultimate FDA approval remains uncertain. Similarly, prices of such
securities may fall rapidly in response to certain events such as unfavorable
results of clinical trials or a delay or failure to obtain FDA approval. In the
event that the Company achieves earnings from the sale of products, securities
analysts may begin predicting quarterly earnings. The failure of the Company's
earnings to meet analysts' expectations could result in a significant rapid
decline in the market price of the Company's Common Shares. In addition, the
stock market has experienced and continues to experience extreme price and
volume fluctuations which have affected the market price of the equity
securities of many biotechnology companies and which have often been unrelated
to the operating performance of these companies. Such broad market fluctuations,
as well as general economic and political conditions, may adversely affect the
market price of the Common Shares.
Requirements for Continued Listing of Securities on Nasdaq
The Company's Common Shares are traded on the Nasdaq National Market,
which hast adopted rules that establish criteria for initial and continued
listing of securities. Under the Nasdaq rules for continued listing, a company
must maintain at least $4,000,000 of net tangible assets, or at least
$50,000,000 of total assets, or a market capitalization of at least $50,000,000,
or to have generated at least $50,000,000 of revenue. Although the Company had a
market capitalization in excess of $50,000,000 on the date of this report, there
is no assurance that future losses from operations will not cause the Company's
net tangible assets or market capitalization to decline below the Nasdaq listing
criteria in the future. If the Common Shares are delisted by Nasdaq, trading in
the Common Shares could thereafter be conducted on in the over-the-counter
market on the Nasdaq SmallCap Market or on an electronic bulletin board
established for securities that do not meet the Nasdaq listing requirements. If
the Common Shares were delisted from the Nasdaq National Market and were not
listed on the Nasdaq SmallCap Market, they would be subject to the so-called
penny stock rule that imposes restrictive sales practice requirements on
broker-dealers who sell such securities. Consequently, delisting, if it
occurred, could affect the ability of shareholders to sell their Common Shares
in the secondary market.
Item 2. Facilities.
The Company presently occupies an approximately 5,200 square foot office
and laboratory facility in Berkeley, California under a lease that will expire
on May 31, 1999. The current rent is $5,300 per month, plus the cost of
utilities. This facility serves as the Company's principal executive office and
laboratory for small animal experiments.
The Company uses, on a fee per use basis, facilities for surgical research
on animals at an unaffiliated privately run research center located in Winters,
California. Contracting for the use of research facilities has enabled the
Company to initiate its research projects without the substantial capital cost,
overhead costs and delay associated with the acquisition and maintenance of a
modern animal surgical research facility.
23
Item 3. Legal Proceedings.
The Company is not presently involved in any material litigation or
proceedings, and to the Company's knowledge no such litigation or proceedings
are contemplated.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1997 Annual Meeting of Shareholders of BioTime, Inc. was held May 18,
1998. The Board of Directors of the Company presently consists of eight members,
who are elected to hold office for a one year term until the 1998 Annual Meeting
of Shareholders. The following table shows the directors who were elected and
the number of votes each director received.
Director Votes For Votes Withheld
- ---------------- ---------------------- ----------------------
Ronald S. Barkin 9,127,207 106,669
Victoria Bellport 9,199,007 104,869
Milton H. Dresner 9,198,857 105,019
Jeffrey B. Nickel 9,199,007 104,869
Judith Segall 9,198,641 105,235
Paul Segall 9,199,007 104,869
Hal Sternberg 9,198,807 105,069
Harold Waitz 9,198,857 105,019
The second proposal brought before the shareholders was the vote to amend
the Company's Articles of Incorporation to increase the number of authorized
Common Shares from 25,000,000 to 40,000,000. The results of the voting were as
follows:
For Against Abstained
- --------------- ---------------- ----------------
9,219,295 63,115 21,166
The third proposal brought before the shareholders was the vote to ratify
the appointment of
24
Deloitte & Touche LLP as the independent accountants of the Company for the
fiscal year ending June 30, 1998. The results of the voting were as follows:
For Against Abstained
- -------------- ---------------- ----------------
9,277,862 12,364 13,650
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Shares are traded in the over-the-counter market on
the Nasdaq under the symbol BTIM. The Common Shares have been trading on the
Nasdaq National Market since April 28, 1998, and traded on the Nasdaq SmallCap
Market from March 5, 1992 through April 27, 1998. The closing price of the
Company's Common Shares on Nasdaq on September 22, 1998 was $9.06.
The following table sets forth the range of high and low bid prices for the
Common Shares for the fiscal years ended June 30, 1997 and 1998, based on
transaction data as reported on the Nasdaq SmallCap Market. All prices have been
adjusted to give effect to the Company's payment of a stock dividend during
October 1997 to effect a three-for-one stock split.
Quarter Ended High Low
- ------------- ---- ----
September 30, 1996 $7.67 $4.67
December 31, 1996 9.33 4.83
March 31, 1997 13.42 8.08
June 30, 1997 12.33 7.58
September 30, 1997 17.08 8.67
December 31, 1997 27 18.50
March 31, 1998 19.75 11
June 30, 1998 14.37 5.81
As of September 3,1998, there were 320 shareholders of record of the Common
Shares based upon information from the Registrar and Transfer Agent.
The Company has paid no dividends on its Common Shares since its inception
and does not plan to pay dividends on its Common Shares in the foreseeable
future.
25
Item 6. Selected Financial Data.
The selected financial data as of June 30, 1998, 1997, 1996, 1995 and 1994 and
the period from inception (November 30, 1990) to June 30, 1998 presented below
have been derived from the financial statements of the Company which have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing elsewhere herein (which expresses an unqualified opinion and
includes an explanatory paragraph related to the development stage of the
Company's operations). The selected financial data should be read in conjunction
with the Company's financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere.
Statement of Operations Data:
Period from Inception
November 30, 1990)
June 30, (to June 30, 1998
----------------------------------------------------------------------------- --------------------
1998 1997 1996 1995 1994
------------- ------------ ------------ ------------- ---------------
REVENUE:
Licensing Fee $ 1,150,000 $ 62,500 $ -- $ -- $ -- $ 1,212,500
------------- ------------ ------------ ------------- --------------- ---------------
EXPENSES:
Research and development $ (3,048,775) $(2,136,325) $(1,145,168) $ (1,791,698) $ (777,668) $ (9,958,128)
General and administrative (1,849,312) (1,209,546) (954,049) (808,432) (931,439) (7,079,633)
------------- ------------ ------------ ------------- --------------- ---------------
Total expenses (4,898,087) (3,345,871) (2,096,217) (2,600,130) (1,709,107) (17,037,761)
------------- ------------ ------------ ------------- --------------- ---------------
INTEREST AND OTHER
INCOME:
Interest 276,832 183,781 127,212 218,416 152,438 1,139,311
Other 17,909 5,380 3,670 3,967 9,716 73,923
------------ ------------ ------------ ------------- --------------- ---------------
Total Interest and Other Income 294,741 189,161 130,882 222,383 162,154 1,213,234
------------ ------------ ------------ ------------- --------------- ---------------
Net loss $(3,453,346) $(3,094,210) $(1,965,335) $ (2,337,747) $ (1,546,953) $ (14,612,027)
============ ============ ============ ============= =============== ===============
Basic and Diluted Net loss
per share $ (.35) $ (.35) $ (.25) $ (.30) $ (.25)
============ ============ ============ ============= ===============
Common and equivalent shares
used in computing per share
amounts 9,833,156 8,877,024 7,827,732 7,900,392 6,139,335
============ ============ ============ ============= ===============
Balance Sheet Data:
June 30
------------------------------
1998 1997
------------- ------------
Cash, cash equivalents and
short term investments $4,105,781 $7,811,634
Working Capital 3,724,663 6,846,575
Total assets 4,641,780 8,297,774
Shareholders' equity 4,014,750 6,536,106
26
Item 7. 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 June 30, 1998 the Company
had incurred a cumulative net loss of $14,612,027. 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.
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, PentaLyte, and HetaCool. By testing and bringing all three
products to the market, BioTime can increase its market share by providing the
medical community with solutions to match patients' needs.
On March 31, 1998, the Company completed the submission of its New Drug
Application (NDA) to the FDA, seeking approval to market Hextend in the United
States. The NDA includes data from the Company's Phase III clinical trials, in
which the primary endpoints were successfully met. The Company believes that the
low incidence of adverse events related to blood clotting in the Hextend
patients demonstrates that Hextend may be safely used in large amounts. However,
the FDA will make its own evaluation of the clinical trial data and there is no
assurance that the FDA will approve the Company's NDA.
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.
Abbott also has a right to obtain licenses to manufacture and sell other BioTime
products.
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. So far, Company has received $1,650,000 of license fee
milestone payments. In addition to the license fees, Abbott will pay BioTime a
royalty on total 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%. The royalty rate for each year will be applied on a total
net sales basis so that once the highest royalty rate for a year is determined,
that rate will be paid with respect to all sales for that year. 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.
The Company intends to enter global markets through licensing
agreements with overseas pharmaceutical companies. By licensing its products
abroad, the Company will avoid the capital costs and delays inherent in
acquiring or establishing its own pharmaceutical manufacturing facilities and
establishing an international marketing organization. A number of pharmaceutical
companies
27
in Europe, Asia and other markets around the world have expressed their interest
in obtaining licenses to manufacture and market the Company's products. The
Company is continuing to meet with representatives of interested companies to
discuss potential agreements.
The Company is also pursuing a global clinical trial strategy, the goal
of which is to permit the Company to obtain regulatory approval for its products
as quickly and economically as practicable. For example, the United States Phase
III clinical trials of Hextend involved 120 patients and were completed in less
than 12 months. Although regulatory requirements vary from country to country,
the Company may be able to file applications for foreign regulatory approval of
its products based upon the results of the United States clinical trials. Based
upon discussions with the Canadian Bureau of Pharmaceutical Assessment, the
Company plans to file for Canadian market approval based the results of its
United States clinical trials. Regulatory approvals for countries that are
members of the European Union may be obtained through a mutual recognition
procedure. The Company plans to determine whether one more member nations would
accept an application based upon the United States clinical trials. If approvals
based upon those trials can be obtained in the requisite number of member
nations, then the Company would be permitted to market Hextend in all 16 member
nations.
In order to commence clinical trials for regulatory approval of new
products, such as PentaLyte and HetaCool, or 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 additional Hextend studies. Filings with foreign regulatory
agencies will be required to commence clinical trials over-seas. The cost of
preparing those regulatory filings and conducting those clinical trials is not
presently determinable, but could be substantial. It will be necessary for the
Company to obtain additional funds in order to complete any clinical trials that
may begin for its new products or for new uses of Hextend. The Company plans to
negotiate product licensing and marketing agreements that require overseas
licensees and distributors of Company products to bear regulatory approval and
clinical trial costs for their territories.
In addition to developing clinical trial programs, 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.
Year 2000 Considerations
The Company has reviewed its internal computer and software systems and
has determined that it is highly unlikely that any of those systems will be
adversely affected by problems associated with the year 2000. Accordingly, the
Company does not expect to incur any material expense in bringing its computer
systems into year 2000 compliance. The so-called "year 2000 problems" may arise
if computer programs do not properly recognize years that begins with "20"
instead of "19."
28
If not corrected, computer applications that are affected by they year 2000
problem could fail or create erroneous results.
The Company relies upon data analysis provided by independent third
parties that conduct tests on Company products and compile and analyze data from
Company laboratory studies and clinical trials. The Company is asking its third
party contractors to inform the Company's management whether their systems will
be adversely affected by the year 2000 problem and what plans they have to
remedy any such problems in a timely manner.
Because the Company does not have its own pharmaceutical production
facilities, it will rely upon Abbott and others to manufacture and distribute
Company products. If year 2000 problems were to impede the ability of those
companies to manufacture and distribute Company products or raw materials used
in the manufacture of Company products, future sales of Company products could
be adversely affected. Abbott has announced the implementation of a program to
assess and remedy any year 2000 problems that may affect its operations, and has
asked its key suppliers to certify that their systems are year 2000 compliant.
The results of the year 2000 compliance programs implemented by Abbott and its
suppliers are not presently known.
Results of Operations
Years Ended June 30, 1998 and June 30, 1997
From inception (November 30, 1990) through June 30, 1998, the Company
generated $2,425,734 of revenue, comprised of $1,212,500 in license fee income,
and $1,213,234 in interest and other income. During the fiscal year ended June
30, 1997, the Company received $1,400,000 for signing the License Agreement and
achieving a license fee milestone pertaining to the allowance of certain patent
claims pending. During the fiscal year ended June 30, 1998, the Company received
an additional milestone fee of $250,000 for filing its NDA for Hextend. The
Company recognized $62,500 of such revenue during the fiscal year ended June 30,
1997 and recognized $1,150,000 of such revenue during the fiscal year ended June
30, 1998. The remaining $437,500 of revenue will be recognized during the fiscal
year ending June 30, 1999. (See Note 3 to the accompanying financial
statements). Interest and other income increased to $294,741 for the year ended
June 30, 1998 from $189,161 for the year ended June 30, 1997. The increase in
interest and other income is attributable to the increase in cash and cash
equivalents from the subscription rights offering.
From inception (November 30, 1990) through June 30, 1998, the Company
incurred $9,958,128 of research and development expenses, including salaries,
supplies and other expense items. Research and development expenses increased to
$3,048,775 for the year ended June 30, 1998, from $2,136,325 for the year ended
June 30, 1997. The increase in research and development expenses is attributable
to the cost of preparing and filing an NDA for Hextend, and preparing for future
regulatory filings in Europe and Canada. It is expected that research and
development expenses will increase as the Company continues clinical testing of
Hextend and commences clinical studies of other products.
From inception (November 30, 1990) through June 30, 1998, the Company
incurred $7,079,633 of general and administrative expenses. General and
administrative expenses increased
29
to $1,849,312 for the year ended June 30, 1998, from $1,209,546 for the year
ended June 30, 1997. This increase is attributable to an increase in the general
operations of the Company, an increase in personnel, and bonus awards.
Years Ended June 30, 1997 and June 30, 1996
For the year ended June 30, 1997, the Company generated $62,500 from
the signing of the License Agreement with Abbott. The Company deferred
recognition of $1,337,500 of revenue received for signing the License Agreement
and achieving a license fee milestone pertaining to the allowance of certain
patent claims pending (See Note 3 to the accompanying financial statements).
Interest and other income increased to $189,161 for the year ended June 30, 1997
from $130,822 for the year ended June 30, 1996. The increase in interest and
other income is attributable to the increase in cash and cash equivalents from
the subscription rights offering, completed February 5, 1997.
Research and development expenses increased to $2,136,325 for the year
ended June 30, 1997, from $1,142,168 for the year ended June 30, 1996. The
increase in research and development expenses was attributable to the Company's
Phase III human clinical trials of Hextend, initiation of a clinical trial at
Middlesex Hospital in London, England, and an accrual for bonuses granted after
June 30, 1997.
General and administrative expenses increased to $1,209,546 for the
year ended June 30, 1997, from $954,049 for the year ended June 30, 1996. This
increase was attributable to an amortization expense associated with agreements
the Company entered into with certain financial advisors and consultants in
exchange for warrants to purchase the Company's stock, an increase in the
general operations of the Company, an increase in personnel, and bonus awards.
Taxes
At June 30, 1998, the Company had a cumulative net operating loss
carryforward of approximately $13,800,000 for federal income tax purposes.
30
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations
through the sale of equity securities and licensing fees, and at June 30, 1998,
the Company had cash and cash equivalents of $4,100,000. Management believes
that additional funds will be required for the successful completion of the
Company's product development activities. The Company plans to obtain financing
for its future operations through royalties and licensing fees from Abbott, from
licensing fees from other pharmaceutical companies, and/or additional sales of
equity or debt securities. Sales of additional equity securities could result in
the dilution of the interests of present shareholders.
Under its License Agreement with Abbott, the Company has received
$1,650,000 of license fees and milestone payments for signing the agreement and
achieving milestones pertaining to the allowance of certain patent claims
pending and the submission of the NDA for Hextend. Up to an additional $850,000
of license payments under the License Agreement will become payable in
installments upon the achievement of specific milestones pertaining to the
approval of the NDA 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 is uncertain. 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
elsewhere in this Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company did not hold any market risk sensitive instruments as of
June 30, 1998 and June 30, 1997.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Pages
-----
Independent Auditors' Report 33
Balance Sheets 34
Statements of Operations 35
Statements of Shareholders' Equity 36-37
Statements of Cash Flows 38-39
Notes to Financial Statements 40-48
32
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
BioTime, Inc.:
We have audited the accompanying balance sheets of BioTime, Inc. (a development
stage company) as of June 30, 1998 and 1997, and the related statements of
operations, shareholders' equity and cash flows for the period from November 30,
1990 (inception) to June 30, 1998, and for each of the three years in the period
ended June 30, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of BioTime, Inc. as of June 30, 1998 and 1997,
and the results of its operations and its cash flows for the period from
November 30, 1990 (inception) to June 30, 1998, and for each of the three years
in the period ended June 30, 1998 in conformity with generally accepted
accounting principles.
The Company is in the development stage as of June 30, 1998. As discussed in
Note 1 to the financial statements, successful completion of the Company's
product development program and ultimately the attainment of profitable
operations is dependent upon future events, including maintaining adequate
financing to fulfill its development activities, obtaining regulatory approval
for products ultimately developed, and achieving a level of sales adequate to
support the Company's cost structure.
DELOITTE & TOUCHE LLP
San Francisco, California
August 18, 1998
33
BIOTIME, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS June 30,
------------------------------
1998 1997
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 4,105,781 $ 7,811,634
Research and development supplies on hand -- 100,000
Prepaid expenses and other current assets 245,912 259,109
------------ -------------
Total current assets 4,351,693 8,170,743
EQUIPMENT, Net of accumulated depreciation of $188,526 and $139,241 190,665 92,609
DEPOSITS AND OTHER ASSETS 99,422 34,422
------------- -------------
TOTAL ASSETS $ 4,641,780 $ 8,297,774
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 189,530 $ 249,168
Accrued compensation -- 175,000
Deferred revenue - current portion 437,500 900,000
------------- -------------
Total current liabilities 627,030 1,324,168
DEFERRED REVENUE -- 437,500
------------- -------------
Total liabilities 627,030 1,761,668
------------- -------------
COMMITMENTS (Note 5)
SHAREHOLDERS' EQUITY:
Preferred Shares, no par value, undesignated as to Series, authorized 1,000,000
shares; none outstanding (Note 4)
Common Shares, no par value, authorized 40,000,000 shares; issued
and outstanding 9,947,579 and 9,609,579 shares (Note 4 ) 18,557,636 17,625,646
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (14,636,858) (11,183,512)
------------- ------------
Total shareholders' equity 4,014,750 6,536,106
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,641,780 $ 8,297,774
============= ============
See notes to financial statements.
34
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Period from Inception
(November 30, 1990)
Year Ended June 30, to June 30, 1998
------------------------------------------------- ----------------------
1998 1997 1996
-------------- -------------- --------------
REVENUE:
License fee $ 1,150,000 $ 62,500 $ -- $ 1,212,500
-------------- -------------- -------------- -----------------
EXPENSES:
Research and development (3,048,775) $ (2,136,325) $ (1,142,168) (9,958,128)
General and administrative (1,849,312) (1,209,546) (954,049) (7,079,633)
-------------- -------------- -------------- -----------------
Total expenses (4,898,087) (3,345,871) (2,096,217) (17,037,761)
-------------- -------------- -------------- -----------------
INTEREST AND OTHER INCOME:
Interest 276,832 183,781 127,212 1,139,311
Other 17,909 5,380 3,670 73,923
-------------- -------------- -------------- -----------------
Total interest and other income 294,741 189,161 130,882 1,213,234
-------------- -------------- -------------- -----------------
NET LOSS $ (3,453,346) $ (3,094,210) $ (1,965,335) $ (14,612,027)
============== ============== ============== =================
BASIC AND DILUTED LOSS PER SHARE $ (0.35) $ (0.35) $ (0.25)
============== ============== ==============
COMMON AND EQUIVALENT SHARES
USED IN COMPUTING PER SHARE
AMOUNTS:
BASIC AND DILUTED 9,833,156 8,877,024 7,827,732
============== ============== ==============
See notes to financial statements.
35
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
JANUARY - JUNE 1995:
Common shares repurchased with cash (253,800) (190,029)
NET LOSS SINCE INCEPTION (6,099,136)
--------- --------- ---------- ---------- --------- ------------
BALANCE AT JUNE 30, 1995 -- $ -- 7,933,266 $9,451,627 $ 93,972 $(3,746,220)
See notes to condensed financial statements. (Continued)
36
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
--------- --------- --------- ---------- ----------- ------------------
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) 337,500 887,130
Common shares warrants and options
granted for service 38,050
Common shares issued for services
500 6,250
NET LOSS (3,453,346)
--------- --------- ---------- ----------- -------- -------------
BALANCE AT JUNE 30, 1998 -- $ -- 9,935,579 $18,534,076 $ 93,972 $(14,636,858)
========= ========= ========== =========== ======== =============
See Notes to financial statements. (Concluded)
37
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Year Ended June 30,
------------------------------------------------------- Period from Inception
(November 30, 1990)
1998 1997 1996 to June 30, 1998
---------------- --------------- --------------- --------------------
OPERATING ACTIVITIES:
Net loss $ (3,453,346) $ (3,094,210) $ (1,965,335) $ (14,612,027)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred revenue (500,000) (62,500) (562,500)
Depreciation 49,284 41,023 35,886 188,525
Cost of services - options and warrants 44,300 240,821 167,932 483,256
Supply reserves 100,000 100,000 200,000
Changes in operating assets and
liabilities:
Research and development supplies on hand -- (200,000) (200,000)
Prepaid expenses and other current
assets 13,197 (180,837) 24,705 (193,665)
Deposits and other assets (65,000) (24,722) (99,422)
Accounts payable (59,638) 119,939 (182,198) 189,530
Accrued compensation (175,000) 175,000 --
Deferred revenue (400,000) 1,400,000 1,000,000
-------------- ------------ --------------- -------------
Net cash used in operating activities (4,446,203) (1,285,486) (2,119,010) (13,606,303)
-------------- ------------ --------------- -------------
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 (147,340) (32,072) (28,442) (362,765)
-------------- ------------ --------------- -------------
Net cash provided by (used in) investing
activities (147,340) (32,072) (28,442) (177,568)
-------------- ------------ --------------- -------------
FINANCING ACTIVITIES:
Issuance of preferred shares for cash 600,000
Preferred shares placement costs (125,700)
Issuance of common shares for cash 5,662,180 16,373,106
Common shares placement costs (170,597) (2,052,296)
Net proceeds from exercise of common share options
warrants 887,690 1,194,488 1,162,370 3,244,548
Contributed capital - cash 77,547
Dividends paid on preferred shares (24,831)
Repurchase of common shares (12,693) (202,722)
-------------- ------------ --------------- -------------
Net cash provided by (used in) financing activities 887,690 6,686,071 1,149,677 17,889,652
-------------- ------------ --------------- -------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,705,853) 5,368,513 (997,775) 4,105,781
CASH AND CASH EQUIVALENTS:
At beginning of period 7,811,634 2,443,121 3,440,896 --
-------------- ------------ --------------- -------------
At end of period $ 4,105,781 $ 7,811,634 $ 2,443,121 $ 4,105,781
============== ============ =============== =============
See notes to financial statements. (Continued)
38
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Year Ended June 30, Period from Inception
----------------------------------------------------- (November 30, 1990)
1998 1997 1996 to June 30, 1998
---------------- --------------- ------------- ---------------------
NONCASH FINANCING AND
INVESTING ACTIVITIES:
Receipt of contributed equipment $ 16,425
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 $ 38,050 $ 105,000 $ 356,000 $ 517,050
Issuance of common shares in exchange for $ 6,250 $ 6,250
services
See notes to financial statements. (Concluded)
39
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 the 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.
Certain Significant Risks and Uncertainties - The preparation of financial
statements in conformity with generally accepted accounting principles
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 date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Such
management estimates include certain accruals. Actual results could differ
from those estimates.
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 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.
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 limited
operating revenues and has incurred operating losses of $14,612,027 from
inception to June 30, 1998. 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.
40
2. SIGNIFICANT ACCOUNTING POLICIES
Equipment is stated at cost or, in the case of donated equipment, at fair
market value. Equipment is being depreciated using the straight-line method
over a period of thirty-six to eighty-four months.
Patent costs associated with obtaining patents on products being developed
are expensed as research and development expenses when incurred. These
costs totaled $81,303 for the year ended June 30, 1998, $95,362 for the
year ended June 30, 1997, $95,598 for the year ended June 30, 1996, and
cumulatively, $453,282 for the period from inception (November 30, 1990) to
June 30, 1998.
Research and development supplies on hand are comprised of a quantity of
the Company's PentaLyte solution for use in human clinical trials, and are
stated at lower of cost or net realizable value.
Research and development costs, consisting principally of salaries, payroll
taxes, research and laboratory fees, hospital and consultant fees related
to the clinical trials, are expensed as incurred.
Stock-based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees.
Stock Split - In October 1997, the Company effected a three-for-one split
of its common shares. All share and per share amounts have been restated to
reflect the stock split for all periods presented.
Net Loss Per Share - In 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 (loss) per share (EPS) data for prior
periods to conform with SFAS 128. SFAS 128 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. As a result of operating losses, there is no difference
between basic and diluted calculations of EPS.
Recently issued accounting standards - In June 1997, the Financial
Accounting Standards Board issued Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," 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
41
Related Information," 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. LICENSE AGREEMENT
In April 1997, BioTime and Abbott Laboratories ("Abbott") entered into an
Exclusive License Agreement (the "License Agreement") under which BioTime
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 $1,650,000 was paid as of June 30,
1998, and an additional $850,000 will become payable upon achievement of
specific milestones. 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 $15,000,0000 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.
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.
The Company has deferred recognition of $437,500 of the license fee revenue
received for signing the License Agreement. The Company will recognize the
deferred revenues during the
42
fiscal year ending June 30, 1999. The additional milestone payments that
may be earned when the NDA is approved and when sales of Hextend commence
will be recognized during the periods in which the milestones are achieved.
Additional license fees and royalty payments will be recognized as the
related sales are made and reported to the Company by Abbott.
4. SHAREHOLDERS' EQUITY
On February 5, 1997, the Company completed a subscription rights offering
raising $5,662,180 (less offering costs of $170,597), through the sale of
849,327 common shares.
During 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 for financial
advisory services with Greenbelt Corp., a corporation controlled by Alfred
D. Kingsley and Gary K. Duberstein, who are also shareholders of the
Company. Under this agreement the Company issued to the financial advisor
warrants to purchase 304,169 Common Shares at a price of $1.97 per share,
and the Company agreed to issue additional warrants to purchase up to an
additional 608,336 Common Shares at a price equal to the greater of (a)
150% of the average market price of the CommonShares during the three
months prior to issuance and (b) $2 per share. The additional warrants were
issued in equal quarterly installments over a two year period, beginning
October 15, 1995. The exercise price and number of Common Shares for which
the warrants may be exercised are subject to adjustment to prevent dilution
in the event of a stock split, combination, stock dividend,
reclassification of shares, sale of assets, merger or similar transaction.
The warrants are exercisable at the following prices: 456,252 at $1.97 per
share; 76,042 at $2.41 per share;76,042 at $9.88 per share; 76,042 at $9.64
per share; 76,042 at $10.73 per share; 76,042 at $16.11 per share; and
76,042 at $14.07 per share. The total value of these warrants at the
agreement date, estimated to be $300,000, was capitalized in fiscal 1996
and was amortized over the two year term of the agreement.
During April 1998, the Company entered into a new financial advisory
services agreement with Greenbelt Corp. The agreement provides for an
initial payment of $90,000 followed by an advisory fee of $15,000 per month
that will be paid quarterly. The agreement will expire on March 31, 2000,
but either party may terminate the agreement earlier upon 30 days prior
written notice.
During June 1994, the Board of Directors authorized management to
repurchase up to 200,000
43
of the Company's common shares at market price at the time of purchase. As
of June 30, 1998, 90,800 shares have been repurchased and retired. No
shares have been repurchased since August 28, 1995.
5. STOCK OPTION PLAN
The Board of Directors of the Company adopted the 1992 Stock Option Plan
(the "Plan") during September 1992. The Plan 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 other 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
three years ended June 30, 1998, 1997 and 1996, employees, including
directors, were granted options to purchase 17,500, 123,000 and 6,000
common shares, respectively, and non-employees were granted options to
purchase 14,500, 165,000 and 180,000 common shares respectively. At June
30, 1998, 619,000 shares were available for future grants under the Option
Plan.
Option activity under the Plan is as follows:
Weighted
Number of Average Exercise
Shares Price
---------------------- -----------------------
Outstanding, July 1, 1995 (552,000 exercisable at a
weighted average price of $2.45) 675,000 $ 2.21
Granted (weighted average fair value of $0.74 per
share) 186,000 1.07
Exercised 171,000 1.81
Canceled -- --
---------------------- -----------------------
Outstanding, June 30, 1996 (537,000 exercisable at a
weighted average price of $2.26) 690,000 $ 2.01
44
Weighted
Number of Average Exercise
Shares Price
---------------------- -----------------------
Granted (weighted average fair value of $6.83 per
share) 288,000 7.37
Exercised 138,000 2.37
Canceled -- --
---------------------- -----------------------
Outstanding, June 30, 1997 (678,000 exercisable at a
weighted average price of $4.22) 840,000 3.78
Granted (weighted average fair value of $18.25 per
share) 32,000 16.56
Exercised 337,500 2.63
Canceled -- --
---------------------- -----------------------
Outstanding, June 30, 1998 (411,500 exercisable at a 534,500 $ 5.28
weighted average price of $6.52)
---------------------- -----------------------
Additional information regarding options outstanding as of June 30, 1998 is as
follows:
Options Outstanding Options Exercisable
------------------------------ ------------------------------------
Weighted Avg.
Remaining
Range of Number Contractual Life Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding (yrs) Exercise Price Exercisable Exercise Price
- -------------------- ----------------- -------------------- -------------------- --------------- ---------------
$0.66-1.13 216,000 4.15 $1.08 93,000 $1.02
3.39-6.27 181,500 2.27 5.36 181,500 5.36
10.33-18.25 137,000 3.93 11.79 137,000 11.79
534,500 411,500
As discussed in Note 1, the Company continues to account for its employee
stock-based awards using the intrinsic value method in accordance with
Accounting Principles Board No. 25, Accounting for Stock Issued to
Employees and its related interpretations. Accordingly, no compensation
expense has been recognized in the financial statements for employee stock
arrangements. Options to purchase 203,500 shares were outstanding to
employees at June 30, 1998. Options granted to non-employees have been
recognized in the financial statements at the
45
estimated fair value of the services or benefit provided. Options to
purchase 331,000 shares were outstanding to non-employees at June 30, 1998.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) requires the disclosure of pro forma
net income and earnings per share had the Company adopted the fair value
method as of the beginning of fiscal 1995. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect
the calculated values. The Company's calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 24 - 60 months following vesting; stock
volatility, 83.87% in 1998, 95% in 1997, and 92% in 1996; risk free
interest rates, 5.64% in 1998, 5.96% in 1997, and 5.75% in 1996; and no
dividends during the expected term. The Company's calculations are based on
a multiple option valuation approach and forfeitures are recognized as they
occur. If the computed fair values of the 1996, 1997 and 1998 awards had
been amortized to expense over the vesting period of the awards, pro forma
net loss would have been $1,969,755 ($0.25 per share) in 1996, $3,983,890
($0.44 per share) in 1997 and $3,665,915 ($0.37 per share) in 1998.
However, the impact of outstanding non-vested stock options granted prior
to 1996 has been excluded from the pro forma calculation; accordingly, the
1996, 1997 and 1998 pro forma adjustments are not indicative of future
period pro forma adjustments, when the calculation will apply to all
applicable stock options.
6. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with six officers/shareholders for
five-year terms, five of which expire in June 2001 and one which expires in
April 2002, and all provide for base salaries with annual increases. The
agreements provide for severance payments equal to the greater of (a) 2.99
times the average annual compensation for the preceding five years and (b)
the balance of the base salary for the unexpired portion of the term of the
employment agreement. These officers/shareholders have signed intellectual
property agreements with the Company as a condition of their employment.
The Company leases its principal office and research facilities under a two
year agreement, expiring in June 1999. Rent expense totaled $62,990,
$59,376, and $58,188, for each of the three years ended June 30, 1998, 1997
and 1996, respectively; and cumulatively, $289,692 for the period from
inception to June 30, 1998.
46
7. INCOME TAXES
The primary components of the net deferred tax asset as of June 30 are:
1998 1997
------------------ ------------------
Deferred Tax Asset:
NOL Carryforwards 5,125,447 $4,221,000
Research & Development Credits 444,398
Deferred Tax Liability:
Other, net 327,492 (171,000)
------------------ ------------------
Total 5,897,337 4,050,000
Valuation allowance (5,897,337) (4,050,000)
------------------ ------------------
Net deferred tax asset -0- -0-
================== ==================
No tax benefit has been recorded through June 30, 1998 because of the net
operating losses incurred and full valuation allowance provided. A
valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company
established a 100% valuation allowance at June 30, 1998 and 1997 due to the
uncertainty of realizing future tax benefits from its net operating loss
carryforwards and other deferred tax assets.
As of June 30, 1998, the Company has net operating loss carryforwards of
approximately $13,800,000 for federal and $6,900,000 for state tax
purposes, which expire during fiscal years 2006 and 1998, respectively.
Internal Revenue Code Section 382 places a limitation (the "Section 382
Limitation") on the amount of taxable income which can be offset by net
operating loss ("NOL") carryforwards after a change in control (generally
greater than 50% change in ownership) of a loss corporation. California has
similar rules. Generally, after a control change, a loss corporation cannot
deduct NOL carryforwards in excess of the Section 382 Limitation. Due to
these "change in ownership" provisions, utilization of the NOL and tax
credit carryforwards may be subject to an annual limitation regarding their
utilization against taxable income in future periods.
47
8. RELATED PARTY TRANSACTIONS
During the years ended June 30, 1996, 1997, and 1998, $36,000, $33,500 and
$15,649 in fees for consulting services was paid to a member of the Board
of Directors.
9. QUARTERLY RESULTS (UNAUDITED)
Summarized results of operations for each quarter of fiscal 1998 and 1997
are as follows:
First Second Third Fourth Total
1998 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
Revenue $125,000 $525,000 $125,000 $375,000 $1,150,000
Net loss $982,621 $637,177 $1,071,538 $762,010 $3,453,346
Net loss per share $ .10 $ .06 $ .11 $ .08 $ .35
1997
Revenue $62,500 $62,500
Net loss $718,356 $754,487 $520,282 $1,101,085 $3,094,210
Net loss per share $ .09 $ .09 $ .06 $ .12 $ .35
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
48
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers
The names and ages of the directors and executive officers of the
Company are as follows:
Paul Segall, Ph.D., 56, is the Chairman and Chief Executive Officer and
has served as a director of the Company since 1990. He was a research scientist
for Cryomedical Sciences, Inc. ("CMSI") and a member of its Board of Directors
from 1987 to December 1990, serving as Director of Research and Vice President
of Research for CMSI, from April 1988 until 1989. Dr. Segall received a Ph.D. in
Physiology from the University of California at Berkeley in 1977.
Ronald S. Barkin, 52, became President of BioTime during October, 1997,
after serving as Executive Vice President since April 1997. Mr. Barkin has been
a director of the Company since 1990. Before becoming an executive officer of
the Company, Mr. Barkin practiced civil and corporate law for more than 25 years
after getting a J.D. from Boalt Hall, University of California at Berkeley.
Victoria Bellport, 33, is the Chief Financial Officer and Vice
President and has been a director of the Company since 1990. Ms. Bellport
received a B.A. in Biochemistry from the University of California at Berkeley in
1988.
Hal Sternberg, Ph.D., 45, is the Vice President of Research and has
been a director of the Company since 1990. He was a research scientist for CMSI
from 1987 to December 1990, serving as Vice President of Biochemistry for CMSI
from November 1987 to 1989. Dr. Sternberg was a visiting scientist and research
Associate at the University of California at Berkeley from 1985-1988, where he
supervised a team of researchers studying Alzheimer's Disease. Dr. Sternberg
received his Ph.D. from the University of Maryland in Biochemistry in 1982.
Harold Waitz, Ph.D., 55, is the Vice President of Engineering and has
been a director of the Company since 1990. He was a research scientist for CMSI
from 1987 to December 1990, serving as Vice President of Technology for CMSI
from November 1987 to 1989. From 1986-1988, Dr. Waitz served as Vice President
of Research at the Winters Institute, a non-profit biomedical research
institution, at which Dr. Waitz studied arteriosclerosis in primates. He
received his Ph.D. in Biophysics and Medical Physics from the University of
California at Berkeley in 1983.
Judith Segall, 45, is the Vice President of Technology and Secretary,
and has been a director of the Company from 1990 through 1994, and from 1995
through the present date. She performed services on a contract basis as a
biochemist for CMSI during 1989, until the formation of BioTime. Ms. Segall
received a B.S. in Nutrition and Clinical Dietetics from the University of
California at Berkeley in 1989.
49
Jeffrey B. Nickel, Ph.D., 54, joined the Board of Directors of the
Company during March 1997. Dr. Nickel is the President of Nickel Consulting
through which he has served as a consultant to companies in the pharmaceutical
and biotechnology industries since 1990. Prior to starting his consulting
business, Dr. Nickel served in a number of management positions for Syntex
Corporation and Merck & Company. Dr. Nickel received his Ph.D. in Organic
Chemistry from Rutgers University in 1970.
Milton H. Dresner, 72, joined the Board of Directors of the Company
during February 1998. Mr. Dresner is Co-Chairman of the Highland Companies, a
diversified organization engaged in the development and ownership of residential
and industrial real estate. Mr. Dresner serves as a director of Avatar Holdings,
Inc., a real estate development company, Hudson General Corporation, an aviation
services company, and Childtime Learning Centers, Inc. a child care and
pre-school education services company.
Executive Officers
Paul Segall, Ronald S. Barkin, Victoria Bellport, Hal Sternberg, Harold
Waitz and Judith Segall are the only executive officers of BioTime.
There are no family relationships among the directors or officers of
the Company, except that Paul Segall and Judith Segall are husband and wife.
Directors' Meetings, Compensation and Committees of the Board
The Board of Directors has an Audit Committee, the members of which are
Jeffrey Nickel and Milton Dresner. The purpose of the Audit Committee is to
recommend the engagement of the corporation's independent auditors and to review
their performance, the plan, scope and results of the audit, and the fees paid
to the corporation's independent auditors. The Audit Committee also will review
the Company's accounting and financial reporting procedures and controls and all
transactions between the Company and its officers, directors, and shareholders
who beneficially own 5% or more of the Common Shares.
The Company does not have a standing Nominating Committee. Nominees to
the Board of Directors are selected by the entire Board.
The Board of Directors has a Stock Option Committee that administers
the Company's 1992 Stock Option Plan and makes grants of options to key
employees, consultants, scientific advisory board members and independent
contractors of the Company, but not to officers or directors of the Company. The
members of the Stock Option Committee are Paul Segall, Ronald S. Barkin, and
Victoria Bellport. The Stock Option Committee was formed during September 1992.
During the fiscal year ended June 30, 1998, the Board of Directors met
twelve times. No director attended fewer than 75% of the meetings of the Board
or any committee on which they served.
50
Directors of the Company who are not employees receive an annual fee
of $20,000, which may be paid in cash or in Common Shares, at the election of
the director. Directors of the Company and members of committees of the Board of
Directors who are employees of the Company are not compensated for serving as
directors or attending meetings of the Board or committees of the Board.
Directors are entitled to reimbursements for their out-of-pocket expenses
incurred in attending meetings of the Board or committees of the Board.
Directors who are employees of the Company are also entitled to receive
compensation in such capacity.
Executive Compensation
The Company has entered into five-year employment agreements (the
"Employment Agreements") with Paul Segall, the Chairman and Chief Executive
Officer; Victoria Bellport, the Chief Financial Officer; Judith Segall, Vice
President of Technology and Corporate Secretary; Hal Sternberg, Vice President
of Research; and Harold Waitz, Vice President of Engineering. The Employment
Agreements will expire on December 31, 2000 but may terminate prior to the end
of the term if the employee (1) dies, (2) leaves the Company, (3) becomes
disabled for a period of 90 days in any 150 day period, or (4) is discharged by
the Board of Directors for failure to carry out the reasonable policies of the
Board, persistent absenteeism, or a material breach of a covenant. Under the
Employment Agreement, the executive officers are presently receiving an annual
salary of $99,000, and will receive a one-time cash bonus of $25,000 if the
Company receives at least $1,000,000 of equity financing from a pharmaceutical
company. Each executive officer will be entitled to seek a modification of his
or her Employment Agreement before the expiration of the five year term if the
market value of the Company's outstanding capital stock exceeds $75,000,000.
In the event of the executive officer's death during the term of his
or her Employment Agreement, the Company will pay his or her estate his or her
salary for a period of six month or until December 31, 2000, whichever first
occurs. In the event that the executive officer's employment terminates,
voluntarily or involuntarily, after a change in control of the Company through
an acquisition of voting stock, an acquisition of the Company's assets, or a
merger or consolidation of the Company with another corporation or entity, the
executive officers will be entitled to severance compensation equal to the
greater of (a) 2.99 times his or her average annual compensation for the
preceding five years and (b) the balance of his or her base salary for the
unexpired portion of the term of his Employment Agreement.
The Company also entered into a similar employment agreement with
Ronald S. Barkin, which commenced on April 1, 1997 and expires on March 31, 2002
Each executive officer has also executed an Intellectual Property
Agreement which provides that the Company is the owner of all inventions
developed by the executive officer during the course of his or her employment.
51
Insider Participation in Compensation Decisions
The Board of Directors does not have a standing Compensation Committee.
Instead, the Board of Directors as a whole approves all executive compensation.
All of the executive officers of the Company serve on the Board of Directors but
do not vote on matters pertaining to their own personal compensation. Paul
Segall and Judith Segall do not vote on matters pertaining to each other's
compensation.
Board of Directors Report on Executive Compensation
The compensation policies implemented by the Board of Directors have
been influenced by the need to attract and retain executives with the scientific
and management expertise to conduct the Company's product development program in
a highly competitive industry dominated by larger, more highly capitalized
companies. Executive compensation is also influenced by the cost of living in
the San Francisco Bay Area. Executive compensation may be composed of three
major components: (i) base salary; (ii) annual variable performance awards
payable in cash and tied to the Company's attainment of corporate objectives and
the officer's achievement of personal goals; and (iii) long-term stock-based
incentive awards (stock options) designed to strengthen the mutuality of
interests between the executive officers and the Company's shareholders.
The Company entered into five-year employment agreements with each of
its executive officers in order to assure that their services would continue to
be available at a pre-determined base salary during a critical period in the
development of the Company's products and technology. The base salaries fixed by
the employment agreements are at or below median salaries for small to medium
market capitalization biotechnology and drug development companies in the same
geographic area as the Company.
An annual bonus may be earned by each executive officer based upon the
achievement of personal and Company performance goals. Because the Company is in
the development stage, the use of performance milestones based upon profit
levels and return on equity as the basis for such incentive compensation was not
considered appropriate. Instead, the incentive awards have been tied to the
achievement of personal and corporate performance targets. The Company
performance goals vary from year to year according to the stage of the Company's
operations. Important milestones that have been considered by the Board of
Directors in determining incentive bonuses have been (i) procurement of
additional capital, (ii) licensing Company products, (iii) completing specified
research and development goals, and (iv) achievement of certain organizational
goals. Personal goals are related to the functional responsibility of each
executive officer. The Board of Directors as a whole determines whether or not
each Company performance goal has been achieved. During the year ended June 30,
1998, the Board of Directors awarded cash bonuses to certain executive officers,
including the Chief Executive Officer, as reflected in table shown below. In
determining to award cash bonuses, the Board of Directors considered a number of
factors, including, the executive officer's contribution to the Company's
achievement of key milestones, especially the completion of its Phase III
clinical trials, establishing investment banking relationships, and
52
improving shareholder relations and communications. Other significant factors
considered were the executive officer's base salary and years of employment, the
compensation being paid to executive officers of biotechnology and drug
development companies in the San Francisco Bay Area, whether the executive
officer was awarded any stock options as a long-term incentive, and the
financial condition of the Company at the time the bonuses were awarded.
The Company did not grant any stock options to its executive officers
during the fiscal year ending June 30, 1998.
The following table summarizes certain information concerning the
compensation paid to the Company's five most highly compensated executive
officers during the last three fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Principal Position Year Salary($) Bonus Stock Options (Shares)
- --------------------------- ---- --------- ----- ----------------------
Paul Segall 1998 $95,500 $50,000 __
Chairman and Chief Executive Officer 1997 $90,583 __ __
1996 $76,041 __ __
Hal Sternberg 1998 $95,500 $25,000 __
Vice President of Research 1997 $90,583 $25,000 __
1996 $76,041 __ __
Harold Waitz 1998 $95,500 __ __
Vice President of Engineering 1997 $90,583 $50,000 __
1996 $76,041 __ __
Victoria Bellport
Vice President and 1998 $95,500 $25,000 __
Chief Financial Officer 1997 $90,583 $25,000 __
1996 $76,041 __ __
Judith Segall 1998 $95,500 $25,000 __
Vice President and Corporate Secretary 1997 $90,583 $25,000 __
1996 $76,041 __ __
53
Stock Options
The following table provides information with respect to the Company's
five most highly compensated executive officers, concerning the exercise of
options during the last fiscal year and unexercised options held as of June 30,
1998
Aggregated Options Exercised in Last Fiscal Year,
and Fiscal Year-End Option Values
Number of Number of Value of Unexercised
Shares Unexercised Options at In-the-Money Options at
Acquired Value June 30, 1998 June 30, 1998
on Realized --------------------------- ---------------------------
Name Exercise ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------- -------- ----------- ------------- ----------- -------------
Paul Segall 63,000 500,850 0 0 0 0
Ronald S. Barkin 0 -- 0 0 0 0
Hal Sternberg 63,000 500,850 0 0 0 0
Harold Waitz 63,000 500,850 0 0 0 0
Victoria Bellport 0 -- 0 0 0 0
Judith Segall 0 -- 0 0 0 0
(1) Based on the average of the high and low bid prices of a Common Share as reported on Nasdaq on the date
the options were exercised.
Certain Relationships and Related Transactions
During the twelve months ended June 30, 1998 $15,649 in fees for
consulting services was paid to Jeffrey B. Nickel, a member of the Board of
Directors.
During September 1995, the Company entered into an agreement for financial
advisory services with Greenbelt Corp., a corporation controlled by Alfred D.
Kingsley and Gary K. Duberstein. Under this agreement the Company issued to the
financial advisor warrants to purchase 304,168 Common Shares at a price of $1.97
per share (as adjusted to reflect payment of a stock dividend during October
1997), and the Company agreed to issue additional warrants to purchase up to an
additional 608,336 Common Shares at a price equal to the greater of (a) 150% of
the average market price of the CommonShares during the three months prior to
issuance and (b) $2 per share (as adjusted for the Company's subscription rights
distribution during January 1997, and payment of a stock dividend during October
1997). The additional warrants were issued in equal quarterly installments over
a two year period, beginning October 15, 1995. The exercise price and number of
Common Shares for which the warrants may be exercised are subject to adjustment
to prevent dilution in the event of a stock split, combination, stock dividend,
reclassification of shares, sale of assets, merger or similar transaction. The
warrants are exercisable at the following prices: 456,252 at $1.97 per share;
76,042 at $2.41 per share;76,042 at $9.88 per share; 76,042 at $9.64 per share;
76,042 at $10.73 per share; 76,042 at $16.11 per share; and 76,042 at $14.07 per
share.
54
Under the agreement, upon the request of Greenbelt Corp., the Company will
file a registration statement to register the warrants and underlying Common
Shares for sale under the Securities Act of 1933, as amended (the "Act") and
applicable state securities or "Blue Sky" laws. The Company will bear the
expenses of registration, other than any underwriting discounts that may be
incurred by Greenbelt Corp. in connection with a sale of the warrants or common
shares. The Company shall not be obligated to file more than two such
registration statements, other than registration statements on Form S-3.
Greenbelt Corp. also is entitled to include warrants and common shares in any
registration statement filed by the Company to register other securities for
sale under the Act.
During April 1998, the Company entered into an new financial advisory
services agreement with Greenbelt Corp. The new agreement provides for an
initial payment of $90,000 followed by an advisory fee of $15,000 per month that
will be paid quarterly. The agreement will expire on March 31, 2000, but either
party may terminate the agreement earlier upon 30 days prior written notice.
The Company has agreed to reimburse Greenbelt Corp. for all reasonable
out-of-pocket expenses incurred in connection with its engagement as financial
advisor, and to indemnify Greenbelt Corp. and the officers, affiliates,
employees, agents, assignees, and controlling person of Greenbelt Corp. from any
liabilities arising out of or in connection with actions taken on behalf of the
Company under the agreement.
Comparison of Shareholder Return
The graph depicted below reflects a comparison of the cumulative total
return (change in stock price plus reinvestment of dividends) of the Company's
Common Shares with the cumulative total returns of the Nasdaq Stock Market
Index, the BioCentury 100 Stock Index, and the Hambrecht & Quist Biotechnology
Index. The BioCentury 100 Stock Index includes many companies in an early stage
of development that have a market capitalization similar to BioTime's. The graph
covers the period from July 1, 1993, the first day of the Company's fifth
preceding fiscal year, through the fiscal year ended June 30, 1998.
The graph assumes that $100 was invested on July 1, 1993 in the Company's
Common Shares and in each index and that all dividends were reinvested. No cash
dividends have been declared on the Company's Common Shares.
Measurement Period BioTime BioCentury H&Q BioTech NASDAQ
(Fiscal Year Covered) Shares 100 Index US Index
- --------------------- ------ --- ----- --------
July 1, 1993 100.00 100.00 100.00 100.00
June 30, 1994 30.49 91.96 95.57 100.96
June 30, 1995 17.07 121.95 129.06 134.77
June 30, 1996 221.95 178.93 167.86 173.03
June 30, 1997 321.95 189.34 175.18 210.38
June 30, 1998 183.11 202.47 187.97 277.69
55
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of September 22, 1998
concerning beneficial ownership of Common Shares by each shareholder known by
the Company to be the beneficial owner of 5% or more of the Company's Common
Shares, and the Company's executive officers and directors. Information
concerning certain beneficial owners of more than 5% of the Common Shares is
based upon information disclosed by such owners in their reports on Schedule 13D
or Schedule 13G.
Number of Percent of
Shares Total
--------- ----------
Alfred D. Kingsley (1) 1,305,055 11.9%
Gary K. Duberstein
Greenbelt Corp.
Greenway Partners, L.P.
Greenhouse Partners, L.P.
277 Park Avenue, 27th Floor
New York, New York 10017
Paul and Judith Segall (2) 709,914 7.1
Harold D. Waitz (3) 499,207 5.0
Hal Sternberg 478,137 4.8
Victoria Bellport 196,170 2.0
Ronald S. Barkin (4) 190,011 1.9
Jeffrey B. Nickel (5) 15,000 *
Milton H. Dresner (6) 11,000 *
All officers and directors
as a group (8 persons)(4)(5)(6) 2,089,439 20.6%
- ---------------------------
* Less than 1%
(1) Includes 912,505 Common Shares issuable upon the exercise of certain
warrants owned beneficially by Greenbelt Corp and 54,300 Common Shares
owned by Greenbelt Corp. Mr. Kingsley and Mr. Duberstein may be deemed to
beneficially own the warrant shares that Greenbelt Corp. beneficially owns.
Includes 82,500 Common Shares owned by Greenway Partners, L.P. Greenhouse
Partners, L.P. is the general partner of Greenway Partners, L.P. and Mr.
Kingsley and Mr. Duberstein are the general partners of Greenhouse
Partners, L.P. Greenhouse Partners, L.P., Mr. Kingsley and Mr. Duberstein
may be deemed to beneficially own the Common Shares that Greenway Partners,
L.P. beneficially owns. Includes 245,850 Common Shares owned solely by Mr.
Kingsley, as to which Mr. Duberstein
56
disclaims beneficial ownership. Includes 9,900 Common Shares owned solely
by Mr. Duberstein, as to which Mr. Kingsley disclaims beneficial ownership.
(2) Includes 517,377 shares held of record by Paul Segall and 192,537 shares
held of record by Judith Segall.
(3) Includes 2,000 shares held for the benefit of Dr. Waitz's minor children.
(4) Includes 135,000 Common Shares issuable upon the exercise of certain
options.
(5) Includes 5,000 Common Shares issuable upon the exercise of certain options.
(6) Includes 500 Common Shares that Mr. Dresner may acquire in lieu of cash
director's fees during the next sixty days.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of changes in ownership of
Common Shares and other equity securities of the Company. Officers, directors
and greater than ten percent beneficial owners are required by SEC regulation to
furnish the Company with copies of all reports they file under Section 16(a).
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with during the fiscal year ended June 30, 1998, except that Milton H. Dresner
filed a Form 5 disclosing two acquisitions of Common Shares that should have
been reported on a Form 4 for the month of May 1998.
57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a-1) Financial Statements.
The following financial statements of BioTime, Inc. are filed in the Form 10-K:
Page
----
Independent Auditors' Report 33
Balance Sheet at June 30, 1998 and 1997 34
Statements of Operations for each of
the three years in the period ending June
30, 1998, and for the period from
November 30, 1990 (inception) to June 30, 1998 35
Statements of Shareholders' Equity for the period
from November 30, 1990 (inception) to June 30, 1998 36-37
Statements of Cash Flows for each of the three years
in the period ending June 30, 1998, and for the
period from November 30, 1990 (inception) to June 30, 1998 38-39
Notes to Financial Statements 40-48
58
(a-3) 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.+
10.14 1992 Stock Option Plan, as amended.##
10.15 Employment Agreement dated April 1, 1997 between the Company and
Ronald S. Barkin.^
59
10.16 Intellectual Property Agreement between the Company and
Ronald S. Barkin.^
23.1 Consent of Deloitte & Touche LLP**
25 Financial Data Schedule**
+ 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 the Company's Form 10-Q for the quarter ended
March 31, 1997.
## 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.
** Filed herewith.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on the
28th day of September 1998.
BIOTIME, INC.
By:/s/ Paul E. Segall
----------------------------
Paul E. Segall, Ph.D.
Chairman and Chief Executive
Officer (Principal executive
officer)
Signature Title Date
--------- ----- ----
/s/Paul E. Segall
- ----------------------
Paul E. Segall, Ph.D. Chairman, Chief Executive Officer and September 28, 1998
Director (Principal Executive Officer)
/s/Ronald S. Barkin
- -----------------------
Ronald S. Barkin President and Director September 28, 1998
/s/Harold D. Waitz
- ------------------------
Harold D. Waitz, Ph.D. Vice President and Director September 28, 1998
Hal Sternberg
- ------------------------
Hal Sternberg, Ph.D. Vice President and Director September 28, 1998
Victoria Bellport
- ------------------------
Victoria Bellport Chief Financial Officer and September 28, 1998
Director (Principal Financial and
Accounting Officer)
/s/Judith Segall
- ------------------------
Judith Segall Vice President, Corporate Secretary September 28, 1998
and Director
/s/Jeffrey B. Nickel
- ------------------------
Jeffrey B. Nickel Director September 28, 1998
/s/Milton H. Dresner
- ------------------------
Milton H. Dresner Director September 28, 1998
61
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos.33-56766, 33-88968 and 333-30603 of BioTime, Inc. on Form S-8 of our report
dated August 18, 1998 (which expresses an unqualified opinion and includes an
explanatory paragraph related to the development stage of the Company's
operations), appearing in the Annual Report on Form 10-K of BioTime, Inc. for
the year ended June 30, 1998.
We also consent to the reference to us under the heading "Selected Financial
Data" in such Form 10-K.
DELOITTE & TOUCHE, LLP
San Francisco, California
September 23, 1998
AMENDED ARTICLES OF INCORPORATION
OF
BIOTIME, INC.
Paul Segall and Judith Segall certify that:
1. They are the President and the Secretary, respectively, of BioTime, Inc.,
a California Corporation.
2. The Articles of Incorporation of this corporation are amended to read in
full as follows:
"ONE: The name of this corporation is BioTime, Inc.
TWO: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: The corporation is authorized to issue two classes of shares, which
shall be designated "Common Shares" and "Preferred Shares". The number of Common
Shares which the corporation is authorized to issue is 5,000,000 and the number
of Preferred Shares which the corporation is authorized to issue is 1,000,000.
The Preferred Shares may be issued in one or more series as the board of
directors may by resolution determine. The board of directors is authorized to
fix the number of shares of any series of Preferred Shares and to determine or
alter the rights, preferences, privileges, and restrictions granted to or
imposed on the shares of Preferred Shares as a class, or upon any wholly
unissued series of any Preferred Shares. The board of directors may, by
resolution, increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series of Preferred Shares
subsequent to the issue of shares of that series. Upon the amendment of this
article to read as herein set forth, each outstanding share of common stock is
converted into or reconstituted as 0.1667 Common Share.
FOUR: The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. The
corporation is authorized to indemnify "agents", as such term is defined in
Section 317 of the California Corporations Code, to the fullest extent
permissible under California law."
3. The foregoing amendment of articles of incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of articles of incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the corporation
is 5,351,672. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this amendment are true and correct of
our own knowledge.
Date: July 15, 1991
s/Paul Segall
----------------------
Paul Segall, President
s/Judith Segall
------------------------
Judith Segall, Secretary
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
Ronald S. Barkin and Judith Segall certify that:
1. They are the President and Secretary, respectively, of BioTime, Inc., a
California corporation.
2. The sentence of Article THREE of the Articles of Incorporation that now
reads "The number of Common Shares which the Corporation is authorized to issue
is 25,000,000 and the number of Preferred Shares which the Corporation is
authorized to issue is 1,000,000" is amended to read as follows:
"The number of Common Shares which the Corporation is authorized to issue is
40,000,000 and the number of Preferred Shares which the Corporation is
authorized to issue is 1,000,000."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with section 902 of
the Corporations Code. The total number of outstanding Common Shares of the
corporation entitled to vote with respect to the amendment was 9,935,579. There
are no Preferred Shares outstanding. The number of Common Shares voting in favor
of the amendment equaled or exceeded the vote required. The percentage vote
required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Executed at Berkeley, California on June 1, 1998.
s/Ronald S. Barkin
--------------------
Ronald S. Barkin
President
s/Judith Segall
---------------------
Judith Segall
Secretary
5
12-MOS
JUN-30-1998
JUL-01-1997
JUN-30-1998
4,105,781
0
0
0
0
4,351,693
379,190
188,526
4,641,780
627,030
0
0
0
18,557,636
0
4,641,780
0
1,150,000
0
(4,898,087)
(17,909)
0
(276,832)
(3,453,346)
0
0
0
0
0
(3,453,346)
(0.35)
(0.35)
