SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
X TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1998 to December 31, 1998
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. [X]
The approximate aggregate market value of voting stock held by nonaffiliates of
the registrant was $ 124,860,000 as of March 24, 1999. Shares held by each
executive officer and director and by each person who beneficially owns more
than 5% of the outstanding Common Shares have been excluded in that such persons
may under certain circumstances be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
10,804,733
(Number of Common Shares outstanding as of March 24, 1999)
Documents Incorporated by Reference
None
PART I
Statements made in this Form 10-K 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. Words such as "expects," "may," "will," "anticipates,""intends,"
"plans," "believes," "seeks," "estimates," and similar expressions identify
forward-looking statements. See "Risk Factors" and Note 1 to Financial
Statements.
Item 1. Description of Business
Overview
BioTime, Inc. (the "Company" or "BioTime") is a development stage
company engaged in the research and development of synthetic solutions that can
be used as blood plasma volume expanders, blood replacement solutions 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 volume 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. The Company's products do not contain
albumin. 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.
The Company has submitted a New Drug Application ("NDA") to the United
States Food and Drug Administration ("FDA"), seeking approval to market Hextend
in the United States. The FDA has completed its review of the NDA and during
November 1998 BioTime received an action letter from them requesting several
clarifications. BioTime has responded to the FDA's request and is presently
awaiting their approval.
2
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 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 and Abbott Laboratories ("Abbott") have 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, the Company has received $1,650,000 of license fee
milestone payments. 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.
3
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 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 upon 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 has determined that several 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 is conducting 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 trial is being conducted at the Middlesex and Royal Free Hospitals
of the University College London Hospitals in London, England.
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.
4
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, 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.
5
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 volume 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 replacement solution 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. The Company recently began testing HexaLyte, a new plasma volume
expander that contains a low molecular weight hydroxyethyl starch and that would
be eliminated from the body more rapidly than Hextend and HetaCool, but not as
rapidly as PentaLyte. BioTime believes that by testing and bringing these
products to the market, it can increase its market share by providing the
medical community with solutions to match patients' needs.
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.
6
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. After reviewing the NDA, the FDA sent BioTime an action letter seeking
clarification of certain matters. BioTime has responded to the FDA's action
letter and is awaiting approval of the NDA. 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.
7
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
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 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.
8
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, pigs, 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.
BioTime is developing a new formulation that has allowed the revival of
hamsters after as long as 6.5 hours of hypothermic blood substitution during
which time the animals' heartbeat and circulation were stopped.
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 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.
9
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 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.
10
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 December 31, 1998, the Company has spent
$11,681,988 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
been accumulated through animal tests, including the proper surgical techniques,
drugs and anesthetics, the temperatures and pressures at which blood and blood
replacement solutions 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.
11
Experiments intended to test the efficacy of the Company's low
temperature blood replacement solutions and protocols for surgical applications
involve replacing the animal's blood with the Company's 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 products 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 12EC ("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.
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.
12
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 and market the Company's products in various countries 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
sales. There is no assurance that any such additional arrangements can be made.
13
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 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.
14
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 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.
15
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.
Patents and Trade Secrets
The Company holds a number of United States patents having composition
and methods of use claims covering BioTime's proprietary solutions, including
Hextend and PentaLyte. The most recent U.S. patents were issued during 1998.
Patents covering certain of the Company's solutions have also been issued in
Australia, Israel, and South Africa. Additional patent applications have been
filed in the United States and certain other countries for Hextend, PentaLyte
and other solutions.
16
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
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 be recognized as providing 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 of kidneys,
livers and pancreases for surgical transplant.
Abbott and Baxter International manufacture and sell 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.
17
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 the introduction of generic plasma expanders 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 December 31, 1998, the Company employed eleven persons on a
full-time basis and three 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
Some of the factors that could materially affect the Company's operations
are and prospects are discussed below. There may be other factors that are not
mentioned here or of which BioTime is not presently aware that could also affect
BioTime's operations.
BioTime Products Cannot Be Marketed Without FDA and Other Regulatory Approvals
The products that BioTime develops cannot be sold until the FDA and
corresponding foreign regulatory authorities approve the products for medical
use. 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
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. 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.
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 be recognized as
providing medically significant advantages. The competing products are being
manufactured and marketed by established pharmaceutical companies with more
resources than the Company.
19
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 and Baxter
International manufacture and sell a generic equivalent of Hespan. As a result
of the introduction of generic plasma expanders intended to compete with Hespan,
competition in the plasma expander market has intensified and wholesale prices
have declined. There also is a risk that the Company's competitors may succeed
in developing safer or more effective products that could render the Company's
products and technologies obsolete or noncompetitive.
Development Stage Company
BioTime is in the development stage, and, to date, has been principally
engaged in research and development activities. None of the Company's products
are on the market yet, and 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 the Successful Development of Medical 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 December 31, 1998, the Company spent
$11,681,988 on research and development, and the Company expects to continue to
incur substantial research and development expenses.
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.
20
BioTime May Need to Raise Additional Capital
Although the Company recently raised $7,329,000 through the sale of common
shares in a subscription rights offer, the Company may need to raise capital in
the future to meet its operating expenses until such time as it is able to
generate sufficient revenues from product sales or royalties. The Company's
operating expenses will increase if it succeeds in bringing additional products
out of the laboratory testing phase of development and into clinical trials.
Additional financing may be required for the continuation or expansion of the
Company's 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. 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.
Absence of Manufacturing and Marketing Capabilities; Reliance Upon Licensing
The Company presently does not have adequate facilities or resources to
manufacture its products or the hydroxyethyl starches used in its products.
BioTime has granted Abbott an exclusive license to manufacture and market
Hextend in the United States and Canada, and BioTime plans to enter into
additional arrangements with pharmaceutical companies for the production and
marketing of the Company's products in other countries. 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 additional licensing or manufacturing arrangements cannot be
made on acceptable terms, the Company may have to construct or acquire its own
manufacturing facilities and to establish its own marketing organization, which
would entail significant expenditures of time and money.
Patents May Not Protect BioTime Products from Competition
The Company has obtained patents in the United States and certain other
countries, and has additional patent applications pending, for certain products
including Hextend and PentaLyte. No assurance can be given that any additional
patents will be issued to the Company, or that the Company's patents will
provide meaningful protection against the development of competing products.
There also is no assurance that competitors 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.
21
Prices and Sales of Products May be Limited by Health Insurance Coverage and
Government Regulation
Success in selling BioTime's products may depend in part on the extent to
which health insurance companies, HMOs, and government health administration
authorities such as Medicare and Medicaid will pay for the cost of the products
and related treatment. There can be no assurance that adequate health insurance,
HMO, and government coverage will be available to permit BioTime products to be
sold at prices high enough to generate a profit. In some foreign countries,
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.
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 the 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.
Year 2000 Problems Could Impair Sales of BioTime Products
Because BioTime does not have its own pharmaceutical production facilities,
it will rely upon Abbott and others to manufacture and distribute BioTime
products. If year 2000 problems were to impede the ability of those companies to
manufacture and distribute BioTime products or to provide raw materials used in
the manufacture of those products, BioTime's product sales could be adversely
affected. BioTime does not have a contingency plan to address those problems if
they were to arise, and it may not be able to replace Abbott or any other
company that may obtain a license to manufacture and distribute BioTime
products. 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.
BioTime Does Not Pay Cash Dividends
BioTime does not pay cash dividends on its Common Shares. For the
foreseeable future it is anticipated that any earnings generated from the
Company's business will be used to finance the growth of the Company and will
not be paid out as dividends to BioTime shareholders.
22
The Price of BioTime Stock May Rise and Fall Rapidly
BioTime 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 BioTime shares may rise rapidly in response to
certain events, such as the commencement of clinical trials of an experimental
new drug, even though the outcome of those trials and the likelihood of ultimate
FDA approval remains uncertain. Similarly, prices of BioTime shares 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 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 BioTime Common Shares.
Requirements for Continued Listing on Nasdaq
BioTime Common Shares are traded on the Nasdaq National Market, which has
adopted rules that establish criteria for initial and continued listing of
securities. Under the rules for continued listing on the Nasdaq National Market,
a company must maintain at least $4,000,000 of net tangible assets, or a market
capitalization of at least $50,000,000, or total assets and total revenue of at
least $50,000,000 for the most recently completed fiscal year or two of the
three most recently completed fiscal years. Although BioTime had more than
$4,000,000 of net tangible assets and 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 from the Nasdaq National Market, trading in the
Common Shares could be conducted 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 occupies its office and laboratory facility in Berkeley,
California under a lease that will expire on March 31, 2004. The Company
presently occupies approximately 5,200 square feet of space. The amount of space
leased by the Company will increase by approximately 3,000 square feet and the
monthly rent will increase to $10,000 per month when the additional space is
made available to the Company, which is expected to occur on or around June 30,
1999. The rent will increase annually by the greater of 3% and the increase in
the local consumer price index, subject to a maximum annual increase of 7%. The
Company also pays all charges for utilities and garbage collection.
23
The Company has an option to extend the term of the lease for a period of
three years, and to terminate the lease early upon six months notice after
September 30, 2000.
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.
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.
Not Applicable.
24
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 March 19, 1999 was $13.75.
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 and the fiscal
year ended December 31, 1998 (six months), based on transaction data as reported
by Nasdaq. 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 13.20 8.08
June 30, 1997 12.33 7.58
September 30, 1997 17.08 8.67
December 31, 1997 27.00 18.50
March 31, 1998 19.75 11.00
June 30, 1998 14.37 5.81
September 30, 1998 9.88 5.50
December 31, 1998 18.13 7.00
As of March 19,1999, there were 319 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 December 31, 1998, June 30, 1998, 1997, 1996,
1995 and 1994 and the period from inception (November 30, 1990) to December 31,
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
June 30, (November 30,
December 31, ----------------------------------------------------------------------- 1990) to
1998 1998 1997 1996 1995 1994 December 31, 1998
------------- ------------ ------------ ------------ ------------ -------------- -----------------
REVENUE:
Licensing Fee $ 250,000 $ 1,150,000 $ 62,500 $ -- $ -- $ -- $ 1,462,500
------------- ------------ ------------ ------------ ------------ -------------- --------------
EXPENSES:
Research and development (1,723,860) $(3,048,775) $(2,136,325) $(1,142,168) $(1,791,698) $ (777,668) (11,681,988)
General and administrative (710,131) (1,849,312) (1,209,546) (954,049) (808,432) (931,439) (7,789,764)
------------- ------------ ------------ ------------ ------------ -------------- --------------
Total expenses (2,433,991) (4,898,087) (3,345,871) (2,096,217) (2,600,130) (1,709,107) (19,471,752)
------------- ------------ ------------ ------------ ------------ -------------- --------------
INTEREST AND OTHER INCOME: 89,513 294,741 189,161 130,882 222,383 162,154 1,302,747
------------- ------------ ------------ ------------ ------------ -------------- --------------
Net loss $ (2,094,478) $(3,453,346) $(3,094,210) $(1,965,335) $(2,337,747) $ (1,546,953) $(16,706,505)
============= ============ ============ ============ ============ ============== ==============
Basic and Diluted Net loss
per share $ (0.21) $ (0.35) $ (0.35) $ (0.25) $ (0.30) $ (0.25)
============= ============ ============ ============ ============ ==============
Common and equivalent shares
used in computing per share
amounts 10,008,468 9,833,156 8,877,024 7,827,732 7,900,392 6,139,335
============= ============ ============ ============ ============ ==============
Balance Sheet Data:
June 30,
-----------------------------------------
December 31, 1998 1998 1997
----------------------- ------------------ ------------------
Cash, cash equivalents and
short term investments $2,429,014 $4,105,781 $7,811,634
Working Capital 2,157,578 3,724,663 6,846,575
Total assets 2,809,455 4,641,780 8,297,774
Shareholders' equity 2,384,752 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 December 31, 1998 the
Company had incurred a cumulative net loss of $16,706,505. 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.
The Company has submitted a New Drug Application (NDA) to the FDA,
seeking approval to market Hextend in the United States. After reviewing the
NDA, the FDA sent the Company an action letter seeking clarification of certain
matters. The Company has responded to the FDA's action letter and is awaiting
approval of the NDA. 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.
27
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 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 has determined that several 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.
28
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." If not corrected, computer applications that are affected by
the 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. BioTime does not have a contingency plan to address those
problems if they were to arise, and it may not be able to replace Abbott or any
other company that may obtain a license to manufacture and distribute BioTime
products. 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.
Change of Fiscal Year
In November 1998, the Board of Directors approved a change to the
Company's operating fiscal year from a fiscal year ending June 30 to a fiscal
year ending December 31, beginning January 1, 1999. See Note 1 of Notes to
Financial Statements. In connection with this change, the Company is filing this
transition report on Form 10-K with the Securities and Exchange Commission
covering the transition period from July 1, 1998 to December 31, 1998.
Accordingly, the accompanying financial statements are for the six months ended
December 31, 1998, the twelve months ended June 30, 1998 ("Fiscal 1998"), the
twelve months ended June 30, 1997 ("Fiscal 1997") and the twelve months ended
June 30, 1996 ("Fiscal 1996").
29
Results of Operations
Six Month Period Ended December 31, 1998, and Years Ended June 30, 1998, June
30, 1997, and June 30, 1996
During Fiscal 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 Fiscal 1998, the Company
received an additional milestone fee of $250,000 for filing its NDA for Hextend.
The Company deferred recognition of a portion of the license fee payment
received for signing of the License Agreement. The Company recognized $62,500 of
license fee revenue during Fiscal 1997, $1,150,000 during Fiscal 1998, and
$250,000 during the six month period ended December 31, 1998. The remaining
$187,500 of license fee revenue will be recognized by June 30, 1999. (See Note 3
to the accompanying financial statements). For the six month period ended
December 31, 1998, the interest and other income was $89,513. Interest and other
income increased to $294,741 for Fiscal 1998 from $189,161 for Fiscal 1997 and
from $130,822 for Fiscal 1996. The increase in interest and other income is
attributable to the increase in cash and cash equivalents from the Company's
sale of Common Shares through a subscription rights offering that was completed
during February 1997.
For the six month period ended December 31, 1998, research and
development expenses were $1,723,860, which include laboratory study expenses,
salaries, expenses for the preparation of additional clinical trials in Europe
and the preparation of European regulatory applications, and consultants' fees.
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. Research and development expenses increased to $3,048,775 for
Fiscal 1998, from $2,136,325 for Fiscal 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.
Research and development expenses increased to $2,136,325 for Fiscal 1997, from
$1,142,168 for Fiscal 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.
For the six month period ended December 31, 1998, the general and
administrative expenses were $710,131, which are comprised of salaries,
consultants' fees, and general operating expenses of the Company. General and
administrative expenses increased to $1,849,312 for Fiscal 1998, from $1,209,546
for Fiscal 1997. This increase is attributable to an increase in the general
operations of the Company, an increase in personnel, and bonus awards. General
and administrative expenses increased to $1,209,546 for Fiscal 1997, from
$954,049 for Fiscal 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.
30
Taxes
At December 31, 1998, the Company had a cumulative net operating loss
carryforward of approximately $19,600,000 for federal income tax purposes.
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations
through the sale of equity securities and licensing fees, and at December 31,
1998 the Company had cash and cash equivalents of $2,400,000. On March 9, 1999,
the Company completed the sale of 751,654 common shares through a subscription
rights offer and raised an additional $7,328,626, before deducting expenses of
the offer. The Company expects that its cash on hand will be sufficient to
finance its operations beyond the next 12 months. However, additional funds may
be required for the successful completion of the Company's product development
activities. The Company plans to obtain financing for its future operations
through 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 amount of license fees and royalties that may be earned through the
licensing and sale of the Company's products, as well as the future availability
and terms of equity and debt financings, are 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company did not hold any market risk sensitive instruments as of
December 31, 1998, June 30, 1998 or June 30, 1997.
31
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Pages
-----
Independent Auditors' Report 33
Balance Sheets As of December 31, 1998 34
and June 30, 1998
Statements of Operations For the Six Months Ended
December 31, 1998, the Three Years in the Period
Ended June 30, 1998 and the Period From Inception
(November 30, 1990) to December 31, 1998 35
Statements of Shareholders' Equity For the Six Months
Ended December 31, 1998, the Three Years in the Period
Ended June 30, 1998 and the Period From Inception
(November 30, 1990) to December 31, 1998 36-37
Statements of Cash Flows For the Six Months Ended
December 31, 1998, the Three Years in the Period
Ended June 30, 1998 and the Period From Inception
(November 30, 1990) to December 31, 1998 38-39
Notes to Financial Statements 40-49
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 December 31, 1998 and June 30, 1998, and the related
statements of operations, shareholders' equity and cash flows for six months
ended December 31, 1998, each of the three years in the period ended June 30,
1998, and the period from November 30, 1990 (inception) to December 31, 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 December 31, 1998 and
June 30, 1998, and the results of its operations and its cash flows for the six
months ended December 31, 1998, each of the three years in the period ended June
30, 1998 and the period from November 30, 1990 (inception) to December 31, 1998,
in conformity with generally accepted accounting principles.
The Company is in the development stage as of December 31, 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 revenues adequate to
support the Company's cost structure.
DELOITTE & TOUCHE LLP
San Francisco, California
February 5, 1999
(March 9, 1999, as to Note 9)
33
BIOTIME, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS December 31, June 30,
1998 1998
--------------- ---------------
CURRENT ASSETS
Cash and cash equivalents $ 2,429,014 $ 4,105,781
Prepaid expenses and other current assets 153,267 245,912
--------------- ---------------
Total current assets 2,582,281 4,351,693
EQUIPMENT, Net of accumulated depreciation of $217,107and $188,526 166,474 190,665
DEPOSITS AND OTHER ASSETS 60,700 99,422
--------------- ---------------
TOTAL ASSETS $ 2,809,455 $ 4,641,780
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 237,203 $ 189,530
Deferred revenue - current portion 187,500 437,500
--------------- ---------------
Total current liabilities 424,703 627,030
COMMITMENTS (Note 6)
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 10,033,079 and 9,947,579 shares (Note 4) 19,022,116 18,557,636
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (16,731,336) (14,636,858)
--------------- ---------------
Total shareholders' equity 2,384,752 4,014,750
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,809,455 $ 4,641,780
=============== ===============
See notes to financial statements.
34
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Six Months
Ended Year Ended June 30, Period from Inception
December 31, -------------------------------------------- (November 30,1990) to
1998 1998 1997 1996 December 31, 1998
------------- ------------- ------------- ------------- ------------------
REVENUE:
License fee $ 250,000 $ 1,150,000 $ 62,500 $ -- $ 1,462,500
------------- ------------- ------------- ------------- ---------------
EXPENSES:
Research and development (1,723,860) (3,048,775) (2,136,325) (1,142,168) (11,681,988)
General and administrative (710,131) (1,849,312) (1,209,546) (954,049) (7,789,764)
------------- ------------- ------------- ------------- ---------------
Total expenses (2,433,991) (4,898,087) (3,345,871) (2,096,217) (19,471,752)
------------- ------------- ------------- ------------- ---------------
INTEREST AND OTHER INCOME: 89,513 294,741 189,161 130,882 1,302,747
------------- ------------- ------------- ------------- ---------------
NET LOSS $(2,094,478) (3,453,346) (3,094,210) (1,965,335) $ (16,706,505)
============= ============= ============= ============= ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.21) $ (0.35) $ (0.35) $ (0.25)
============= ============ ============= =============
COMMON AND EQUIVALENT SHARES
USED IN COMPUTING PER SHARE
AMOUNTS:
BASIC AND DILUTED 10,008,468 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 Deficit
Preferred Shares Common Shares Accumulated
---------------------- ----------------------- During
Number Number Contributed Development
of Shares Amount of Shares Amount Capital Stage
---------- ---------- ---------- ----------- ------------ ---------------
BALANCE, November 30, 1990
(date of inception) -- -- -- -- -- --
NOVEMBER 1990 1,312,761 $ 263
Common shares issued for cash
DECEMBER 1990:
Common shares issued for
stock of a separate entity at
fair value 1,050,210 137,400
Contributed equipment at $ 16,425
appraised value
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
on preferred shares $ (24,831)
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 -- $ 7,679,466 9,261,598 $ 93,972 $(6,123,967)
Common shares issued for cash
(exercise of options and
warrants) 496,521 1,162,370
Common shares issued for cash
(lapse of recision) 112,176 67,300
Common shares repurchased with
cash (18,600) (12,693)
Common shares warrants and
options granted for services 356,000
NET LOSS (1,965,335)
---------- ---------- ---------- ----------- ---------- -------------
BALANCE AT JUNE 30, 1996 -- $ -- 8,269,563 10,834,575 93,972 (8,089,302)
See notes to financial statements. (Continued)
36
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Continued)
Series A Convertible Deficit
Preferred Shares Common Shares Accumulated
--------------------- ------------------------- During
Number Number of Contributed Development
of Shares Amount Shares Amount Capital Stage
---------- ---------- ------------- ----------- ----------- -----------------
Common shares issued for cash less 849,327 5,491,583
offering costs of $170,597
Common shares issued for cash 490,689 1,194,488
(exercise of options and warrants)
Common shares warrants and options 105,000
granted for service
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) 337,500 887,690
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 -- -- 9,947,579 $18,557,636 $93,972 $(14,636,858)
Common shares issued for cash
(exercise of options and warrants) 84,000 395,730
Common shares options granted for
services 50,000
Common shares issued for
services 1,500 18,750
NET LOSS (2,094,478)
---------- ---------- ----------- ----------- --------- --------------
BALANCE AT DECEMBER 31, 1998 -- $ -- 10,033,079 $19,022,116 $93,972 $(16,731,336)
========== ========== =========== =========== ========= ==============
See Notes to financial statements. (Concluded)
37
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Six Months
Ended Year Ended June 30, Period from Inception
December 31, -------------------------------------------- (November 30,1990)
1998 1998 1997 1996 to December 31,1998
---------------- --------------- ------------- -------------- -------------------
OPERATING ACTIVITIES:
Net loss $ (2,094,478) $ (3,453,346) $ (3,094,210) $ (1,965,335) $ (16,706,505)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deferred revenue (250,000) (500,000) (62,500) (812,500)
Depreciation 28,582 49,284 41,023 35,886 217,107
Cost of services - shares, options and warrants 78,750 44,300 240,821 167,932 577,328
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 87,367 13,197 (180,837) 24,705 (138,545)
assets
Deposits and other assets 34,000 (65,000) (24,722) (60,700)
Accounts payable 47,673 (59,638) 119,939 (182,198) 237,203
Accrued compensation (175,000) 175,000
Deferred revenue (400,000) 1,400,000 1,000,000
-------------- -------------- ------------- -------------- --------------
Net cash used in operating activities (2,068,106) (4,446,203) (1,285,486) (2,119,010) (15,686,612)
-------------- -------------- ------------- -------------- --------------
INVESTING ACTIVITIES:
Sale of investments 197,400
Purchase of short-term investments (9,946,203)
Redemption of short-term investments 9,946,203
Purchase of equipment and furniture (4,391) (147,340) (32,072) (28,442) (367,156)
-------------- -------------- ------------- -------------- --------------
Net cash used in investing activities (4,391) (147,340) (32,072) (28,442) (169,756)
-------------- --------------- ------------- -------------- --------------
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 and warrants 395,730 887,690 1,194,488 1,162,370 3,640,278
Contributed capital - cash 77,547
Dividends paid on preferred shares (24,831)
Repurchase of common shares (12,693) (202,722)
-------------- -------------- ------------- -------------- --------------
Net cash provided by financing activities 395,730 887,690 6,686,071 1,149,677 18,285,382
-------------- -------------- ------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,676,767) (3,705,853) 5,368,513 (997,775) 2,429,014
CASH AND CASH EQUIVALENTS:
At beginning of period 4,105,781 7,811,634 2,443,121 3,440,896 --
-------------- -------------- ------------- -------------- --------------
At end of period $ 2,429,014 $ 4,105,781 $ 7,811,634 $ 2,443,121 $ 2,429,014
============== ============== ============= ============== ==============
See notes to financial statements. (Continued)
38
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Six Months
Ended Year Ended June 30, Period from Inception
December 31, -------------------------------------------- (November 30,1990)
1998 1998 1997 1996 to December 31,1998
---------------- --------------- ------------- -------------- -------------------
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 $ 50,000 $ 38,050 $ 105,000 $ 356,000 $ 567,050
Issuance of common shares in exchange
for services $ 18,750 $ 6,250 $ 25,000
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 $16,706,505 from
inception to December 31, 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 revenues adequate to support the Company's cost
structure.
40
2. SIGNIFICANT ACCOUNTING POLICIES
Change in fiscal year - On November 12, 1998, the Board of Directors of
BioTime determined that it would be in the best interests of the Company
and its shareholders to change the Company's fiscal year from one ending
on June 30 to one ending on December 31 and, accordingly, the Company
adopted a December 31 or calendar year-end beginning on January 1, 1999.
Accordingly, the accompanying statements of operations, shareholders'
equity and cash flows include the transition fiscal period for the six
months from July 1, 1998 to December 31, 1998.
The following are the unaudited results of operations for the six months
ended December 31, 1997:
Total Expenses $2,432,888
Operating Loss 1,782,888
Net Loss 1,619,798
Net Loss Per Share 0.17
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 $47,781 for the six month period ended
December 31, 1998, $81,303, $95,362 and $95,598 for the years ended June
30, 1998, 1997, and 1996, respectively, and cumulatively, $501,063 for
the period from inception (November 30, 1990) to December 31, 1998.
Revenue recognition - License revenue is recognized ratably over the
development period of the Hextend product which was originally determined
to be two years. Milestone payments are recognized as revenue when
milestones have been acheived.
Research and development costs are expensed when incurred and consist
principally of salaries, payroll taxes, research and laboratory fees,
hospital and consultant fees related to the clinical trials, and the
Company's PentaLyte solution for use in human clinical trials.
Stock-based compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion 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.
41
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.
Comprehensive Income (Loss) - In July 1998, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which requires an enterprise to report, by major components and
as a single total, the change in net assets during the period from
nonowner sources. Comprehensive income (loss) was the same as net loss
for all periods presented.
Segment information - The Company operates in the single segment of
producing aqueous based synthetic solutions used in medical applications
and is currently in the development stage of this segment.
Recently issued accounting standards - In June 1998, the Financial
Accounting Standards Board issued Statement of Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
(SFAS 133) which establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 requires that
entities recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. Adoption of this statement is
not expected to have a material impact on the Company's financial
position, results of operations or cash flows. The Company will adopt
SFAS 133 in its financial statements in the first quarter of the fiscal
year ending December 31, 1999.
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 December
31, 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.
42
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 increment of $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 $187,500 of the license fee
revenue received for signing the License Agreement. The Company will
recognize the deferred revenue during the fiscal year ending December 31,
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
During June 1994, the Board of Directors authorized management to
repurchase up to 200,000 of the Company's common shares at market price
at the time of purchase. As of December 31, 1998, 90,800 shares have been
repurchased and retired. No shares have been repurchased since August 28,
1995.
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 311,276 Common Shares at a
price of $1.93 per share, and the Company agreed to issue additional
warrants to purchase up to an additional 622,549 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.
43
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: 466,912 at $1.93 per share; 77,818
at $2.35 per share; 77,818 at $9.65 per share; 77,818 at $9.42 per share;
77,818 at $10.49 per share; 77,818 at $15.74 per share; and 77,818 at
$13.75 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 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 124,510 common
shares at a price of $6.02 per share. 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. Warrants for 77,775 common shares vested
and became exercisable and transferable when issued; warrants for the
remaining 46,735 common shares vested ratably through September 1997 and
became exercisable and transferable as vesting occured. 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.
On February 5, 1997, the Company completed a subscription rights offering
raising $5,662,180, through the sale of 849,327 common shares.
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.
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.
44
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.
During the six months ended December 31, 1998, no options were granted to
employees, and an option to purchase 20,000 shares was granted to a
consultant. The options were valued at $50,000 based on the underlying
services provided and were recorded as consulting expense in the quarter
ended December 31, 1998. At December 31, 1998, 599,000 shares were
available for future grants under the Option Plan.
Option activity under the Plan is as follows:
Number of Shares Weighted Average
Exercise 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
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
weighted average price of $6.52) 534,500 5.28
Granted (weighted average fair value of $2.50 per share) 20,000 7.25
Exercised 84,000 4.71
Canceled -- --
--------------------- ----------------------
Outstanding, December 31, 1998 470,500 $ 5.46
--------------------- ----------------------
45
Additional information regarding options outstanding as of December 31, 1998 is
as follows:
Options Outstanding Options Exercisable
------------------------- -------------------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life (yrs) Exercise Price Exercisable Exercise Price
- --------------------- --------------- ------------------- ------------------- --------------- ------------------
$0.66-1.00 57,000 1.64 $0.96 57,000 $0.96
1.10-1.13 156,000 4.34 1.12 126,000 1.13
3.39 15,000 0.30 3.39 15,000 3.39
6.00-7.25 105,500 4.21 6.40 105,500 6.40
10.33-13.00 115,000 3.34 10.55 115,000 10.55
18.25 22,000 3.90 18.25 22,000 18.25
--------------- ---------------
470,500 3.59 $5.46 440,500 $5.76
--------------- ---------------
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 197,500 shares were outstanding
to employees at December 31, 1998. Options granted to non-employees have
been recognized in the financial statements at the estimated fair value
of the services or benefit provided. Options to purchase 273,000 shares
were outstanding to non-employees at December 31, 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.
46
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%, 95.00%, and 92.00% for the years ended June 30, 1998,
1997 and 1996, respectively; risk free interest rates, 5.64%, 5.96%, and
5.75% for the years ended June 30, 1998, 1997 and 1996, respectively; 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 for the years ended
June 30, 1998, 1997, 1996 awards had been amortized to expense over the
vesting period of the awards, pro forma net loss would have been
$3,665,915 ($0.37 per share) in 1998, $3,983,890 ($0.44 per share) in
1997, and $1,969,755 ($0.25 per share) in 1996. No employee options
vested or were granted in the six months ended December 31, 1998.
Therefore, pro forma net loss is the same as recorded net loss for the
six months ended December 31, 1998. The impact of outstanding non-vested
stock options granted prior to 1996 has been excluded from the pro forma
calculation; accordingly, the six months ending December 31, 1998, and
the years ended June 30, 1998, 1997, 1996 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 who are also
shareholders, for five-year terms, five of which expire in June 2001 and
one which expires in April 2002. All provide for base salaries with
annual increases. The agreements also provide that in the event any of
the officer's employment terminates, voluntarily or involuntarily, after
a change in control of the Company through an acquisition of voting stock
or assets, or a merger or consolidation with another corporation or
entity, the executive officers will be entitled to severance payments
equal to the greater of (a) 2.99 times the average annual compensation
for the preceding five years or (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 occupies its office and laboratory facility in Berkeley,
California under a lease that will expire on March 31, 2004. The Company
presently occupies approximately 5,200 square feet of space. The amount
of space leased by the Company will increase by approximately 3,000
square feet and the monthly rent will increase to $10,000 per month when
the additional space is made available to the Company, which is expected
to occur on or around June 30, 1999. The rent will increase annually by
the greater of 3% and the increase in the local consumer price index,
subject to a maximum annual increase of 7%. Rent expense totaled $32,694
for the six month period ending December 31, 1998, $62,990, $59,376, and
$58,188, for each of the three years ended June 30, 1998, 1997 and 1996,
respectively; and cumulatively, $322,386 for the period from inception to
December 31, 1998.
47
7. INCOME TAXES
The primary components of the net deferred tax asset are:
Six Months Ended Year Ended
December 31, 1998 June 30, 1998
-------------------- -------------------
Deferred Tax Asset:
NOL Carryforwards $7,256,851 $5,125,447
Research & Development Credits 622,516 444,398
Other, net 320,790 327,492
-------------------- -------------------
Total 8,200,157 5,897,337
Valuation allowance (8,200,157) (5,897,337)
-------------------- -------------------
Net deferred tax asset $ -0- $ -0-
==================== ===================
No tax benefit has been recorded through December 31, 1998 because of the
net operating losses incurred and a 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 December 31, 1998 and 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 December 31, 1998, the Company has net operating loss carryforwards
of approximately $19,600,000 for federal and $9,800,000 for state tax
purposes, which begin to expire during fiscal years 2006 and 1999,
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.
48
8. RELATED PARTY TRANSACTIONS
During the six months ended December 31, 1998 and the years ended June
30, 1998, 1997, and 1996, $6,119, $15,649, $33,500, and $36,000,
respectively, of fees for consulting services were paid to a member of
the Board of Directors.
9. SUBSEQUENT EVENT
On March 9, 1999, the Company completed a subscription rights offering
raising $7,328,626, through the sale of 751,654 common shares.
10. QUARTERLY RESULTS (UNAUDITED)
Summarized unaudited results of operations for each quarter of the six
months ended December 31, 1998 and the fiscal years ended June 30, 1998,
1997, 1996 are as follows:
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ------
Six Months Ended
December 31, 1998
-------------------
Revenue $ 125,000 $125,000 $250,000
Net loss $1,137,742 $956,736 $2,094,478
Net loss per share $ 0.11 $ 0.10 $0.21
Fiscal Year Ended
June 30, 1998
-----------------
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 $ 0.10 $ 0.06 $ 0.11 $ 0.08 $ 0.35
Fiscal Year Ended
June 30, 1997
-----------------
Revenue - - $65,500 $62,500
Net loss $718,356 $754,487 $520,282 $1,101,085 $3,094,210
Net loss per share $ 0.26 $ 0.27 $ 0.17 $ 0.37 $ 1.05
Fiscal Year Ended
June 30, 1996
-----------------
Revenue - - - - -
Net loss $377,407 $463,395 $413,230 $711,303 $1,965,335
Net loss per share $ 0.13 $ 0.18 $ 0.18 $ 0.27 $0.75
49
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
50
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, 53, 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., 56, is the Vice President of Engineering and
Regulatory Affairs 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.
51
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.
52
During the fiscal year (six months) ended December 31, 1998, the Board
of Directors met three times. No director attended fewer than 75% of the
meetings of the Board or any committee on which they served.
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 and Regulatory
Affairs. 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 $75,000,000.
In the event of the executive officer's death during the term of his
or her Employment Agreement, the Company will pay his or her estate his or her
salary for a period of six month or until December 31, 2000, whichever first
occurs. In the event that the executive officer's employment terminates,
voluntarily or involuntarily, after a change in control of the Company through
an acquisition of voting stock, an acquisition of the Company's assets, or a
merger or consolidation of the Company with another corporation or entity, the
executive officers will be entitled to severance compensation equal to the
greater of (a) 2.99 times his or her average annual compensation for the
preceding five years and (b) the balance of his or her base salary for the
unexpired portion of the term of his Employment Agreement.
The Company also entered into a similar employment agreement with
Ronald S. Barkin, which commenced on April 1, 1997 and expires on March 31, 2002
Each executive officer has also executed an Intellectual Property
Agreement which provides that the Company is the owner of all inventions
developed by the executive officer during the course of his or her employment.
53
The following table summarizes certain information concerning the
compensation paid to the Company's five most highly compensated executive
officers during the last three fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Principal Position Year Ended Salary($) Bonus Stock Options (Shares)
- --------------------------- ---------- --------- ----- ----------------------
Paul Segall December 31, 1998 $49,500
Chairman and Chief Executive Officer June 30, 1998 $95,500 $50,000 __
June 30, 1997 $90,583 __ __
June 30, 1996 $76,041 __ __
Hal Sternberg
Vice President of Research December 31, 1998 $49,500
June 30, 1998 $95,500 $25,000 __
June 30, 1997 $90,583 $25,000 __
June 30, 1996 $76,041 __ __
Harold Waitz December 31, 1998 $49,500
Vice President of Engineering June 30, 1998 $95,500 __ __
and Regulatory Affairs June 30, 1997 $90,583 $50,000 __
June 30, 1996 $76,041 __ __
Victoria Bellport December 31, 1998 $49,500
Vice President and June 30, 1998 $95,500 $25,000 __
Chief Financial Officer June 30, 1997 $90,583 $25,000 __
June 30, 1996 $76,041 __ __
Judith Segall December 31, 1998 $49,500
Vice President and Corporate Secretary June 30, 1998 $95,500 $25,000 __
June 30, 1997 $90,583 $25,000 __
June 30, 1996 $76,041 __ __
Insider Participation in Compensation Decisions
The Board of Directors does not have a standing Compensation Committee.
Instead, the Board of Directors as a whole approves all executive compensation.
All of the executive officers of the Company serve on the Board of Directors but
do not vote on matters pertaining to their own personal compensation. Paul
Segall and Judith Segall do not vote on matters pertaining to each other's
compensation.
54
Stock Options
The following table provides information with respect to the Company's
five most highly compensated executive officers, concerning the exercise of
options during the fiscal year ended December 31, 1998 and unexercised options
held as of December 31, 1998
Aggregated Options Exercised in Last Fiscal Year,
and Fiscal Year-End Option Values
Number of
Shares Number of Value of Unexercised
Acquired Value Unexercised Options at In-the-Money Options at
on Realized December 31, 1998 December 31, 1998
-------------------------------------------------------------------------
Name Exercise ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
Paul Segall 0 0 0 0 0 0
Hal Sternberg 0 0 0 0 0 0
Harold Waitz 0 0 0 0 0 0
Victoria Bellport 0 -- 0 0 0 0
Judith Segall 0 -- 0 0 0 0
Certain Relationships and Related Transactions
During the six months ended December 31, 1998, $6,119 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, who are also shareholders of the Company. Under
this agreement the Company issued to the financial advisor warrants to purchase
311,276 Common Shares at a price of $1.93 per share, and the Company agreed to
issue additional warrants to purchase up to an additional 622,549 Common Shares
at a price equal to the greater of (a) 150% of the average market price of the
Common Shares during the three months prior to 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
number of shares and exercise prices shown have been adjusted for the Company's
subscription rights distributions during January 1997 and February 1999 and the
payment of a stock dividend during October 1997. The warrants are exercisable at
the following prices: 466,912 at $1.93 per share; 77,818 at $2.35 per share;
77,818 at $9.65 per share; 77,818 at $9.42 per share; 77,818 at $10.49 per
share; 77,818 at $15.74 per share; and 77,818 at $13.75 per share.
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.
55
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 a 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.
56
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of March 24, 1999 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)
Gary K. Duberstein
Greenbelt Corp.
Greenway Partners, L.P.
Greenhouse Partners, L.P.
277 Park Avenue, 27th Floor
New York, New York 10017 1,365,642 11.6
Paul and Judith Segall (2) 745,408 6.9
Harold D. Waitz (3) 524,166 4.8
Hal Sternberg 502,043 4.6
Victoria Bellport 205,978 1.9
Ronald S. Barkin (4) 192,761 1.7
Jeffrey B. Nickel (5) 15,000 *
Milton H. Dresner 13,271 *
All officers and directors
as a group (8 persons)(4)(5) 2,198,627 20.0%
- ---------------------------
* Less than 1%
(1) Includes 933,825 Common Shares issuable upon the exercise of certain
warrants owned beneficially by Greenbelt Corp and 59,730 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 90,750 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 270,442 Common Shares
owned solely by Mr. Kingsley, as to which Mr. Duberstein disclaims
beneficial ownership. Includes 10,895 Common Shares owned solely by Mr.
Duberstein, as to which Mr. Kingsley disclaims beneficial ownership.
(2) Includes 543,245 shares held of record by Paul Segall and 202,163 shares
held of record by Judith Segall.
(3) Includes 2,100 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 15,000 Common Shares issuable upon the exercise of certain
options.
57
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 December 31, 1998.
58
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 Sheets As of December 31, 1998 34
and June 30, 1998
Statements of Operations For the Six Months Ended
December 31, 1998, the Three Years in the Period
Ended June 30, 1998 and the Period From Inception
(November 30, 1990) to December 31, 1998 35
Statements of Shareholders' Equity For the Six Months
Ended December 31, 1998, the Three Years in the Period
Ended June 30, 1998 and the Period From Inception
(November 30, 1990) to December 31, 1998 36-37
Statements of Cash Flows For the Six Months Ended
December 31, 1998, the Three Years in the Period
Ended June 30, 1998 and the Period From Inception
(November 30, 1990) to December 31, 1998 38-39
Notes to Financial Statements 40-49
59
(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.^
60
10.16 Intellectual Property Agreement between the Company and
Ronald S. Barkin.^
10.17 Addenda to Lease Agreement between the Company and Donn Logan.**
23.1 Consent of Deloitte & Touche LLP**
27 Financial Data Schedule**
+Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1998.
+ 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.
61
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
30th day of March 1999.
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 March 30, 1999
Director (Principal Executive Officer)
/s/Ronald S. Barkin
- ---------------------
Ronald S. Barkin President and Director March 30, 1999
/s/Harold D. Waitz
- ---------------------
Harold D. Waitz, Ph.D. Vice President and Director March 30, 1999
/s/Hal Sternberg
- ---------------------
Hal Sternberg, Ph.D. Vice President and Director March 30, 1999
/s/Victoria Bellport
- ---------------------
Victoria Bellport Chief Financial Officer and March 30, 1999
Director (Principal Financial and
Accounting Officer)
/s/Judith Segall
- ---------------------
Judith Segall Vice President, Corporate Secretary March 30, 1999
and Director
- ---------------------
Jeffrey B. Nickel Director March 30, 1999
- ---------------------
Milton H. Dresner Director March 30, 1999
62
Exhibit Index
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
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.^
10.16 Intellectual Property Agreement between the Company and
Ronald S. Barkin.^
10.17 Addenda to Lease Agreement between the Company and Donn Logan.**
23.1 Consent of Deloitte & Touche LLP**
27 Financial Data Schedule**
63
+Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1998.
+ 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.
64
ADDENDUM NO. 3 TO LEASE
This is an Addendum to the Lease dated June 1, 1993 in which BioTime, Inc., a
California corporation, is referred to as "Lessee." The following changes are
hereby incorporated. In the event of a conflict of terms, those of this Addendum
shall prevail.
1. The Premises are hereby expanded to include the entire building at 935 Pardee
Street, Berkeley, California being approximately 8890 square feet on two levels,
and its adjacent parking area. The additional space, comprising approximately
3,000 square feet, is referred to as the "Expansion Space."
2. Regarding Paragraph 1: The term shall be Five (5) years commencing April 1,
1999.
3. Regarding Paragraph 2: Rent shall be Five Thousand Five Hundred Dollars
($5,500.00) per month prior to Lessor's delivery of the Expansion Space to
Lessee. Upon Lessee's possession of the Expansion Space, rent shall increase to
Ten Thousand Dollars ($10,000.00) per month for the entire premises. If the
Expansion Space is delivered to Lessee on a day other than the first day of a
calendar month, the rent shall be prorated at the rate of Thirty-Seven Cents
($0.037) per square foot per day.
4. Regarding Paragraph 14: Lessee shall pay for all utilities and refuse
collection.
5. Regarding Paragraph 29: Rental for any holding over shall be Eleven Thousand
Dollars ($11,000.00) per month as stated in said paragraph.
6. Regarding Paragraph 33: On each anniversary of the lease, rent shall be
increased according to the increase in the Consumer Price Index during the
previous year, except that no single increase shall be less than three percent
(3%) nor greater than seven percent (7%). The Consumer Price Index shall be the
consumer price index (All Urban Consumers, base year 1982-84=100) for San
Francisco Oakland - San Jose CMSA published by the United States Department of
Labor, Bureau of Labor Statistics.
7. Regarding Paragraph 34: Lessee shall have one (1) option to extend the lease
for an additional three (3) years on the same terms and conditions stated in
said paragraph.
8. Possession: Lessor shall deliver possession of the Expansion Space to Lessee
June 30, 1999 or on such earlier date on which the Expansion Space becomes
vacant and meets the conditions of Paragraph 9C of this Addendum.
9. Condition of Premises at Commencement: As-is excepting the following which
shall be the Lessor's obligation:
1
A. Lessor shall inspect wood floors on the second floor and repair and
strengthen as required.
B. Lessor shall modify shed to provide for its use as a parking space.
C. The Expansion Space shall be in good condition and repair, broom swept
clean and free of all personal property, equipment, furniture and trade
fixtures of the prior tenant.
10. Early Termination: At any time after the expiration of the eighteen (18)
month of the new lease term, Lessee may terminate the lease by so notifying
Lessor in writing no less than six (6) months prior to the intended termination
date.
/s/ Ronald S. Barkin 2/8/99
- ----------------------------------- ---------------------------
for BioTime, Inc., Lessee Date
/s/ Donn Logan 2/8/99
- ------------------------------------ ---------------------------
Lessor Date
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 February 5, 1999 (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 December 31, 1998.
We also consent to the reference to us under the heading "Selected Financial
Data" in such Form 10-K.
DELOITTE & TOUCHE
March 29, 1999
San Francisco, CA
5
6-MOS
DEC-31-1998
JUL-01-1998
DEC-31-1998
2,429,014
0
0
0
0
2,582,281
383,581
217,107
2,809,455
424,703
0
0
0
19,022,116
0
2,809,455
0
250,000
0
(2,433,991)
0
0
(89,513)
(2,094,478)
0
0
0
0
0
(2,094,478)
(0.21)
(0.21)
