FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2005
Commission File # 0-24875
BIOENVISION, INC.
(Exact name of issuer as specified in its charter)
Delaware 13-4025857
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State or other jurisdiction IRS
of incorporation or organization Employer ID No.
345 Park Avenue, 41st Floor, New York, NY 10154
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(Address of principal executive offices)
(Issuer's Telephone Number) (212) 750-6700
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months (or 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 _____
As of November 1, 2005, there were 40,760,763 shares of the issuer's common
stock, par value $.001 per share (the "Common Stock") outstanding.
Transitional Small Business Disclosure Format (Check One): YES [ ] No [X]
C O N T E N T S
PART I FINANCIAL INFORMATION Page
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited) -
As of September 30, 2005 and June 30, 2005 1
Consolidated Statements of Operations (Unaudited) -
For the periods ended September 30, 2005 and 2004 2
Consolidated Statements of Stockholders Equity (Unaudited) -
For the periods ended September 30, 2005 and June 30, 2005 3
Consolidated Statements of Cash Flows (Unaudited) -
For the periods ended September 30, 2005 and 2004 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits 24
SIGNATURES
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, June 30,
2005 2005
-------------- -----------
ASSETS
Current assets
Cash and cash equivalents $12,208,760 $31,407,533
Restricted cash 290,000 290,000
Short-term securities 48,209,088 32,746,948
Accounts receivable, less allowances of $869,220 and $869,220,
respectively 1,403,542 1,785,779
Inventory 361,741 277,908
Other current assets 781,060 342,628
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Total current assets 63,254,191 66,850,796
Property and equipment, net 290,068 279,778
Intangible assets, net 8,155,836 8,252,936
Goodwill 1,540,162 1,540,162
Security deposits 208,475 209,665
Deferred costs 3,599,006 3,656,798
--------- ---------
Total assets $77,047,738 $80,790,135
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $1,755,461 $1,602,267
Accrued expenses 5,266,932 4,581,444
Accrued dividends payable 57,329 56,404
Deferred revenue 498,607 498,607
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Total current liabilities 7,578,329 6,738,722
Deferred revenue 7,312,945 7,437,598
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Total liabilities 14,891,274 14,176,320
Commitments and contingencies - -
Stockholders' equity
Convertible preferred stock - $0.001 par value; 20,000,000 shares
authorized; 2,250 2,250
2,250,000 shares issued and outstanding on each of September 30,
2005 and June 30, 2005 (liquidation preference $6,750,000)
Common stock - par value $0.001; 70,000,000 shares authorized; 40,761 40,559
40,760,763 and 40,558,948 shares issued and outstanding at
September 30, 2005 and June 30, 2005, respectively
Additional paid-in capital 129,282,618 128,946,717
Deferred compensation - (145,646)
Accumulated deficit (67,220,665) (62,331,005)
Accumulated other comprehensive income 51,500 100,940
------ -------
Stockholders' equity 62,156,464 66,613,815
---------- ----------
Total liabilities and stockholders' equity $77,047,738 $80,790,135
========== ==========
The accompanying notes are an integral part of these financial statements.
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
September 30,
2005 2004
-------------- --------------
(Restated -
Note I)
Revenue
Licensing and royalty revenue $400,130 $363,182
Product sales 194,996 -
Research and development contract revenue 75,092 722,146
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Total revenue 670,218 1,085,328
Costs and expenses
Cost of products sold, including royalty expense
of $201,000 for the three months ending
September 30, 2005 328,291 -
Research and development 2,430,918 2,138,897
Selling, general and administrative, 2,887,462 1,756,713
(includes stock based compensation expense of $482,000
and $391,000 for the three months ending
September 30, 2005 and 2004, respectively)
Depreciation and amortization 224,283 339,706
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Total costs and expenses 5,870,954 4,235,316
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Loss from operations (5,200,736) (3,149,988)
Interest and finance charges (66,761) -
Interest income 462,905 55,437
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Net loss (4,804,592) (3,094,551)
Cumulative preferred stock dividend (85,068) (126,341)
-------- ---------
Net loss available to common stockholders $(4,889,660) $(3,220,892)
=========== ===========
Basic and diluted net loss per share of common stock $(0.12) $(0.11)
====== ======
Weighted average shares used in computing 40,572,626 28,516,450
basic and diluted net loss per share ========== ==========
The accompanying notes are an integral part of these financial statements.
- 2 -
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Accumulated
Other Total
Convertible Additional Deferred Compre- Stock-
Preferred Stock Common Stock Paid In Compen- Accumulated hensive holders'
Shares $ Shares $ Capital sation Deficit Income (Loss) Equity
------ - ------ - ------- -------- ------- ------------ ------
Balance at July 1, 2004
(Restated - Note I) 3,341,666 $ 3,342 28,316,163 $ 28,316 $ 68,517,702 $(223,990) $(37,664,141) $ 139,598 $30,800,827
Net loss for the period
(Restated - Note I) (24,262,785) (24,262,785)
Cumulative preferred stock
dividend for the period (404,079) (404,079)
Currency translation adjustment (38,658) (38,658)
Deferred compensation 78,344 78,344
Preferred stock converted to
common stock (1,091,666) (1,092) 2,183,332 2,183 (1,092) -
Income related to repricing
of options (314,950) (314,950)
Warrants issued in connection
with services - 524,928 524,928
Shares issued in connection
with services 62,500 63 496,188 496,250
Options exercised to common
stock 685,833 686 707,638 708,324
Warrants exercised to common
stock 1,811,120 1,811 3,277,151 3,278,962
Shares issued in connection
with public offering, net of
related expenses 7,500,000 7,500 55,739,152 55,746,652
--------- ------- ---------- -------- ------------ ---------- ------------ --------- -----------
Balance at June 30, 2005 2,250,000 $ 2,250 40,558,948 $ 40,559 $128,946,717 $(145,646) $(62,331,005) $ 100,940 $66,613,815
========= ======= ========== ======== ============ ========= ============ ========= ===========
Net loss for the period (4,804,592) (4,804,592)
Cumulative preferred stock
dividend (85,068) (85,068)
Currency translation adjustment (49,440) (49,440)
Employee stock-based
compensation 458,565 458,565
Deferred compensation (136,457) 145,646 9,189
Options exercised 191,196 191 (191) -
Warrants issued in connection
with services 13,995 13,995
Warrants exercised 10,619 11 (11) -
--------- ------- ---------- -------- ------------ ---------- ------------ --------- -----------
Balance at September 30, 2005 2,250,000 $ 2,250 40,760,763 $ 40,761 $129,282,618 $ - $(67,220,665) $ 51,500 $62,156,464
========= ======= ========== ======== ============ ========== ============= ========= ===========
The accompanying notes are an integral part of this financial statement.
- 3 -
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
September 30,
2005 2004
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Restated - Note I
Cash flows from operating activities
Net loss $(4,804,592) $(3,094,551)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 224,283 339,706
Stock based compensation 481,748 391,098
Changes in net deferred revenue and expenses (66,861) (77,502)
Changes in assets and liabilities
Accounts payable 167,241 45,349
Inventory (91,406) -
Other current assets (443,113) (140,459)
Accrued interest on investments (287,498) -
Accounts receivable 363,380 1,767,489
Accrued expenses 715,786 (453,012)
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Net cash used in operating activities (3,741,032) (1,221,882)
Cash flows from investing activities
Purchase of intangible assets (103,586) (42,115)
Capital expenditures (35,576) (2,254)
Purchase of short-term securities (15,174,642) -
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Net cash used in investing activities (15,313,804) (44,369)
Cash flows from financing activities
Proceeds from exercise of options, warrants and other convertible
securities - 180,000
Dividends paid (84,144) (126,141)
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Net cash (used in) provided by financing activities (84,144) 53,859
Effect of exchange rates on cash (59,793) (294)
----------- ------------
Net decrease in cash and cash equivalents (19,198,773) (1,212,686)
Cash and cash equivalents, beginning of period 31,407,533 18,875,675
---------- ----------
Cash and cash equivalents, end of period $12,208,760 $17,662,989
========== ===========
The accompanying notes are an integral part of these financial statements.
- 4 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
NOTE A - Description of Business and Significant Accounting Policies
Description of Business
Bioenvision, Inc. is a product-focused biopharmaceutical company with two
approved cancer therapeutics. On December 29, 2004, the FDA approved our lead
cancer product, clofarabine, for the treatment of pediatric acute lymphoblastic
leukemia, or ALL, in patients who have received two or more prior regimens.
Clofarabine has received Orphan Drug designation in the U.S. and the European
Union. Genzyme Corporation, the Company's co-development partner, currently
holds marketing rights in the U.S. and Canada for clofarabine for certain cancer
indications and controls U.S. development of clofarabine in these indications.
Genzyme is selling clofarabine under the brand name Clolar in the U.S. In
Europe, the Company has filed for approval of clofarabine in pediatric ALL with
the European Medicines Evaluation Agency, or EMeA.
The Company is currently selling its second product, Modrenal(R), in the United
Kingdom. Modrenal(R) is approved in the U.K. for the treatment of
post-menopausal advanced breast cancer following relapse to initial hormone
therapy.
We anticipate that revenues derived from our two lead drugs, clofarabine and
Modrenal(R) will permit us to further develop the other products currently in
our pipeline. In addition to clofarabine and Modrenal(R), we are performing
initial development work on Virostat for the treatment of Hepatitis C and
Velostan, initially for the treatment of bladder cancer.
Significant Accounting Policies
Revenue Recognition
In accordance with SEC Staff Accounting Bulletin No. 104 "Revenue Recognition",
or SAB 104, upfront nonrefundable fees associated with research and development
collaboration agreements where the Company has continuing involvement in the
agreement, are recorded as deferred revenue and recognized over the estimated
research and development period using the straight-line method. If the estimated
period is subsequently modified, the period over which the up-front fee is
recognized is modified accordingly on a prospective basis using the
straight-line method. Continuation of certain contracts and grants are dependent
upon the Company and/or its co-development partners' achieving specific
contractual milestones; however, none of the payments received to date are
refundable regardless of the outcome of the project. Upfront nonrefundable fees
associated with licensing arrangements are recorded as deferred revenue and
recognized over the licensing arrangement using the straight line method, which
approximates the life of the patent.
Royalty revenue from product licensees is recorded as earned.
The Company currently sells its products to wholesale distributors and directly
to hospitals, clinics, and retail pharmacies. Revenue from product sales is
recognized when the risk of loss is passed to the customer, the sales price is
fixed and determinable, and collectibility is reasonably assured.
Research & development contract revenue represent payments due from our
co-development partner relating to the reimbursement of 50% for certain of our
ongoing research costs in the development of clofarabine outside the United
States. Currently, the Company has billed but not recorded approximately
$1,825,000 of revenues relating to the reimbursement from our co-development
partner for certain of our ongoing research costs in the development of
clofarabine outside the United States. When the Company has determined that the
criteria relating to revenue recognition has been met, the Company will record
the revenue. At September 30, 2005, the Company continues to hold a provision
for bad debts of $869,000 relating to the outstanding receivables due from the
co-development partner.
The Company follows the guidance of Emerging Issues Task Force 99-19, or EITF,
"Reporting Revenue Gross as a Principal versus Net as an Agent" in the
presentation of revenues and direct costs of revenues. This guidance requires
the Company to assess whether it acts as a principal in the transaction or as an
agent acting on behalf of others. The Company records revenue transactions gross
in its statements of operations if it is deemed the principal in the
transaction, which includes being the primary obligor and having the risks and
rewards of ownership.
- 5 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Description of Business and Summary of Significant Accounting Policies
- continued
Research and development
Research and development costs are charged to expense as incurred. Research and
development costs include the cost of clofarabine sold prior to product approval
through our named patient program.
Accounting for Stock-Based Compensation
On July 1, 2005, the Company adopted the fair value recognition provisions of
SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123 (R)"), requiring
the Company to recognize expense related to the fair value of stock-based
compensation. The modified prospective transition method was used as allowed
under SFAS No. 123 (R). Under this method, the stock-based compensation expense
includes: (a) compensation expense for all stock-based compensation awards
granted prior to, but not yet vested as of July 1, 2005, based on the grant date
fair value estimated in accordance with the original provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation"; and (b) compensation expense for all
stock-based compensation awards granted subsequent to July 1, 2005, based on the
grant date fair value estimated in accordance with the provisions of SFAS No.
123 (R). Prior to the adoption of SFAS 123 (R), the Company had accounted for
stock based compensation arrangements in accordance with provisions of
Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued
to Employees", as permitted by SFAS No. 123, "Accounting for Stock Based
Compensation." Under APB Opinion No. 25, no stock-based employee compensation
cost is reflected in reported net loss, when options granted to employees have
an exercise price equal to the market value of the underlying common stock at
the date of grant.
Upon adoption of SFAS 123 (R), beginning July 1, 2005, the Company reversed the
unrecognized deferred compensation costs, associated with options granted to
certain employees, of approximately $136,000 with a corresponding reduction to
the Company's Additional paid-in capital (see Note E). The Company also no
longer re-measures the intrinsic value of the 380,000 re-priced options granted
to an officer of the Company (see Note E). The Company recognized expense of
approximately $12,000 for the options during the three months ended September
30, 2005 based on the fair value, as determined in accordance with SFAS 123 (R),
of the modified award that remains unvested.
Beginning July 1, 2005, the Company is recognizing compensation costs for stock
option awards to employees based on their grant-date fair value. The fair value
of each stock option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The weighted average fair value per share
for the 10,000 stock options granted to employees during the three months ended
September 30, 2005 was $4.64. Values were estimated using a zero dividend yield,
expected volatility of 80%, and a risk free interest rate range of 3.99% to
4.07%. The expected term of 3.5 years was utilized based on historical exercise
of employees.
As required by SFAS 123 (R), management made an estimate of expected forfeitures
for all unvested awards and is recognizing compensation costs only for those
equity awards expected to vest. The impact on previously reported pro forma
disclosures under SFAS No. 123 where forfeitures were recognized as incurred is
not material. As of September 30, 2005, the total compensation cost related to
unvested equity awards granted to employees but not yet recognized is
approximately $3.2 million. This cost will be amortized on a straight-line basis
over the remaining weighted average vesting period of 1.1 years.
- 6 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Description of Business and Summary of Significant Accounting Policies
- continued
A summary of the Company's stock option activity for options issued to employees
and related information follows:
Weighted
Average
Weighted Remaining Aggregate
Number Average Contractual Intrinsic
of Shares Exercise Price Life Value
--------- -------------- ---- -----
Balance - June 30, 2005 4,156,000 $3.18
Granted during 2006 10,000 8.04
Exercised during 2006 225,000 1.25 $189,000
Forfeited during 2006 5,000 8.80
------------ --------
Balance - September 30, 2005 3,936,000 $3.30 5.31 $7,993,000
----------- --------
Exercisable - September 30,
2005 2,497,000 $2.21 3.49 $3,484,000
A summary of the Company's nonvested options at September 30, 2005 and changes
during the three months ended September 30, 2005 is presented below:
Weighted
Average
Non-vested Fair Value
Number at
of Shares Grant Date
--------- ----------
Balance - June 30, 2005 1,434,000 $3.13
Granted during 2006 10,000 4.64
Exercised during 2006 - -
Vested during 2006 - -
Forfeited during 2006 5,000 5.03
----------- ----------
Balance - September 30, 2005 1,439,000 $3.13
----------- ---------
The following table summarizes the pro forma effect of stock-based compensation
as if the fair value method of accounting for stock options had been applied in
measuring compensation cost for the three months ended September 30, 2004.
Three months ended
September 30,
2004
----
(As restated)
Net loss available to common stockholders, $ (3,220,892)
as reported
Add: Stock-based employee compensation expense
(income) as reported (175,845)
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards (283,423)
------------
Pro forma net loss $ (3,680,160)
Loss per share
Basic and diluted - as reported $ (0.11)
Basic and diluted - pro forma $ (0.13)
- 7 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Description of Business and Summary of Significant Accounting Policies
- continued
The weighted-average assumptions used for the three months ended September 30,
2004 were risk-free interest rate of 2.41%, expected dividend yield of 0.0%,
expected life of 3.89 years and expected volatility of 80%. The Company
corrected an error on the pro-forma stock based compensation disclosures
required under SFAS 123 determined under fair value based method in the table
above. In calculating the fair value using the Black-Scholes option-pricing
model, the Company unintentionally used the vesting term of the awards instead
of the expected term. The correction has decreased such amounts previously
reported in the proforma net loss for the three months ended September 30, 2004
by approximately $40,000.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and EITF No. 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling Goods or Services," as amended by EITF No. 00-27.
Under EITF No. 96-18, where the fair value of the equity instrument is more
reliably measurable than the fair value of services received, such services will
be valued based on the fair value of the equity instrument.
Income taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes", or SFAS 109. Under SFAS 109, deferred tax assets and liabilities are
determined based on the differences between the financial reporting and tax
basis of assets and liabilities and are measured using the enacted tax rates
that will be in effect when the differences are expected to reverse.
We have not generated any taxable income, subject to federal taxes, to date and,
therefore, have not paid any federal income taxes since inception. We record a
valuation allowance to reduce deferred income tax assets to an amount that is
more likely than not to be realized. Assessment of the realization of deferred
income tax assets requires that estimates and assumptions be made as to the
taxable income of future periods. Our deferred tax assets are reduced to zero,
as management believes that it is more likely than not that the deferred tax
assets will not be realized. Projection of future period earnings is inherently
difficult as it involves consideration of numerous factors such as our overall
strategies and estimates of new product development and acceptance, product
lifecycles, selling prices and volumes, responses by competitors, manufacturing
costs and assumptions as to operating expenses and other industry specific and
macro and micro economic factors.
Net loss per share
Basic net loss per share is computed using the weighted average number of common
shares outstanding during the periods. Diluted net loss per share is computed
using the weighted average number of common shares and potentially dilutive
common shares outstanding during the periods. Options and warrants to purchase
11,234,314 and 12,983,535 shares of common stock have not been included in the
calculation of net loss per share for the three months ended September 30, 2005
and 2004, respectively, as their effect would have been anti-dilutive.
Comprehensive Loss
Total comprehensive loss for the three months ended September 30, 2005 and 2004
was $4,939,000 and $3,087,000, respectively.
Foreign currency translation
The reporting currency of the Company is the US dollar. The functional currency
of Bioenvision Limited, the Company's wholly-owned subsidiary, organized under
the laws of the United Kingdom with offices in Edinburgh, Scotland, is the Pound
Sterling. We translate assets and liabilities to their U.S. dollar equivalents
at rates in effect at the balance sheet date and record translation adjustments
in accumulated other comprehensive income (loss). We translate statement of
income accounts at average rates for the period. For the three months ended
September 30, 2005, foreign currency transaction gains and losses included in
selling, general and administrative expense were $1,000 and $9,000,
respectively.
Cash and cash equivalents and Short-term securities
The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents. All funds invested
in a Certificate of Deposit with maturities greater than three months and less
than one year are classified as short-term securities determined by management
to be available-for-sale securities.
- 8 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Description of Business and Summary of Significant Accounting Policies
- continued
Deferred costs
Deferred costs represent payments to Southern Research Institute, or SRI, and to
Stegram Pharmaceutical Ltd, which directly relate to milestone payments received
in connection with the Genzyme Co-Development Agreement and the Dechra
Sub-License Agreement, respectively. The amortization of these costs have been
presented in research and development on the statement of operations.
Credit Risk
Our accounts receivable are primarily due from wholesale distributors and our
co-development partners. One customer comprises approximately 52% of revenues
earned for the three months ended September 30, 2005. At September 30, 2005, the
Company continues to hold a provision for bad debts of $869,000 relating to the
outstanding receivables due from the customer. Another customer comprises
approximately 29% of revenues earned for the three months ended September 30,
2005.
Inventory
Inventories are stated at the lower of cost or market, cost being determined
under the first-in, first-out method. We only capitalize inventory that is
produced for commercial sale. The Company periodically reviews inventories and
items considered outdated or obsolete are reduced to their estimated net
realizable value. Inventories consisted of $117,000 and $0 of raw materials,
$6,000 and $171,000 of work-in-progress, and $239,000 and $107,000 of finished
goods at September 30, 2005 and June 30, 2005, respectively.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated on a straight-line basis
over their estimated useful lives, which range from 3 to 7 years.
Estimated September 30, June 30,
Asset Description Useful Life 2005 2005
----------------- ----------- ---- ----
Computer equipment and software 3 to 5 years 337,000 305,000
Furniture and fixtures 7 years 51,000 49,000
------- ------
388,000 354,000
------- -------
Less: accumulated depreciation (97,000) (74,000)
-------- --------
Net property and equipment $ 291,000 $ 280,000
============ ===============
The Company recorded depreciation expense for the three months ended September
30, 2005 and 2004 of approximately $24,000 and $5,000 respectively.
Fair Value of Financial Instruments
The Company has estimated the fair value of financial instruments using
available market information and other valuation methodologies in accordance
with SFAS No. 107, "Disclosures About Fair Value of Financial Instruments."
Management of the Company believes that the fair value of financial instruments,
consisting of cash, cash equivalents, short term securities, accounts
receivable, accounts payable and accrued liabilities, approximates their
carrying value due to the immediate or short-term maturity associated with these
instruments.
- 9 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Description of Business and Summary of Significant Accounting Policies
- continued
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over the fair value of identifiable net
assets of Pathagon. Intangible assets include patents and licensing rights
acquired in connection with the acquisition of Pathagon. The Company accounts
for these assets in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets. Goodwill is not amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets.
For goodwill, each year and whenever impairment indicators are present, we will
calculate the implied fair value of each goodwill amount and record an
impairment loss for the excess of book value over the implied fair value, if
any.
Impairment of Long-Lived Assets
The Company adopted the provisions of SFAS No. 144 on July 1, 2003. In
accordance with SFAS No. 144, long-lived assets, such as property and equipment
and intangible assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset (see Note D).
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS 153 "Exchange of Nonmonetary assets".
This statement was a result of a joint effort by the FASB and the IASB to
improve financial reporting by eliminating certain narrow differences between
their existing accounting standards. One such difference was the exception from
fair value measurement in APB Opinion No. 29, "Accounting for Nonmonetary
Transactions", for non-monetary exchanges of similar productive assets. SFAS 153
replaces this exception with a general exception from fair value measurement for
exchanges of non-monetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. This
statement is effective for non-monetary assets exchanges occurring in fiscal
periods beginning after June 15, 2005.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS 151
amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4. This statement
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS 151 is the result of a
broader effort by the FASB and the IASB to improve financial reporting by
eliminating certain narrow differences between their existing accounting
standards. This statement was effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of SFAS 151 did not
have a material impact on the results of operations or financial position of the
company.
NOTE B - Interim Financial Statements
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all the adjustments consisting of normal accrued adjustments
necessary to present fairly the consolidated financial position of the Company
as of September 30, 2005, the consolidated results of operations for the three
months ended September 30, 2005 and 2004, the consolidated statements of
stockholders equity for the three months ended September 30, 2005, and cash
flows for the three months ended September 30, 2005 and 2004. Certain
reclassifications of balances previously reported have been made to conform to
the current presentation.
The consolidated balance sheet at June 30, 2005 has been derived from the
audited financial statements at that date, but does not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. For further information,
refer to the audited consolidated financial statements and footnotes thereto
included in the Form 10-KSB filed by the Company for the year ended June 30,
2005.
The consolidated results of operations for the three months ended September 30,
2005 and 2004 are not necessarily indicative of the results to be expected for
any other interim period or for the full year.
- 10 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - License and Co-Development Agreements
Clofarabine
The Company has a license from Southern Research Institute ("SRI"), Birmingham,
Alabama, to develop and market purine nucleoside analogs which, based on
third-party studies conducted to date, may be effective in the treatment of
leukemia, lymphoma and certain solid tumor cancers. The lead compound of these
purine-based nucleosides is known as clofarabine. Under the terms of the
agreement with SRI, the Company was granted the exclusive worldwide license,
excluding Japan and Southeast Asia, to make, use and sell products derived from
the technology for a term expiring on the date of expiration of the last patent
covered by the license (subject to earlier termination under certain
circumstances), and to utilize technical information related to the technology
to obtain patent and other proprietary rights to products developed by the
Company and by SRI from the technology. Initially, the Company is developing
clofarabine for the treatment of leukemia and lymphoma and studying its
potential role in treatment of solid tumors.
In August 2003, SRI granted the Company an irrevocable, exclusive option to
make, use and sell products derived from the technology in Japan and Southeast
Asia. The Company intends to convert the option to a license upon sourcing an
appropriate co-marketing partner to develop these rights in such territory.
To facilitate the development of clofarabine, in March 2001, the Company entered
into a co-development agreement with ILEX Oncology, Inc. ("ILEX"), our
sub-licensor until it was acquired by Genzyme Corporation ("Genzyme") on
December 21, 2004, for the development of clofarabine in cancer indications.
Under the terms of the co-development agreement, Genzyme is required to pay all
development costs in the United States and Canada, and 50% of approved
development costs worldwide outside the U.S. and Canada (excluding Japan and
Southeast Asia), in each case, for the development of clofarabine in cancer
indications. Genzyme is responsible for conducting all clinical trials and the
filing and prosecution of applications with applicable regulatory authorities in
the United States and Canada for certain cancer indications. The Company retains
the right to handle those matters in all territories outside the United States
and Canada (excluding Japan and Southeast Asia) and retains the right to handle
these matters in the U.S. and Canada in all non-cancer indications. The Company
retained the exclusive manufacturing and distribution rights in Europe and
elsewhere worldwide, except for the United States, Canada, Japan and Southeast
Asia. Under the co-development agreement, Genzyme will have certain rights if it
performs its development obligations in accordance with that agreement. The
Company is required to pay Genzyme a royalty on sales outside the U.S., Canada,
Japan and Southeast Asia. In turn, Genzyme, which would have U.S. and Canadian
distribution rights in cancer indications, is paying the Company a royalty on
sales in the U.S. and Canada. Under the terms of the co-development agreement,
Genzyme also pays royalties to Southern Research Institute based on certain
milestones. The Company also is obligated to pay certain royalties to Southern
Research Institute with respect to clofarabine.
The Company received a nonrefundable upfront payment of $1.35 million when it
entered into the co-development agreement with Genzyme and received an
additional $3.5 million in December 2003 when it converted Genzyme's option to
market clofarabine in the U.S. into a sublicense. Upon Genzyme's filing the New
Drug Application for clofarabine with the FDA, the Company received an
additional (i) $2 million in April 2004 and (ii) $2 million in September 2004.
The Company deferred the upfront payment and recognized revenues ratably, on a
straight-line basis over the related service period, through December 2002. The
Company has deferred the milestone payments received to date and recognizes
revenues ratably, on a straight line basis over the related service period,
through March 2021. For each of the three months ended September 30, 2005 and
2004, the Company recognized revenues of approximately $110,000, in connection
with the milestone payments received to date.
Deferred costs include royalty payments that became due and payable to SRI upon
the Company's execution of the co-development agreement with Genzyme. The
Company defers all royalty payments made to SRI and recognizes these costs
ratably, on a straight-line basis concurrent with revenue that is recognized in
connection with research and development costs including approximately $55,000
for each of the three months ended September 30, 2005 and 2004.
Modrenal(R)
The Company holds an exclusive license, until the expiration of existing and new
patents related to Modrenal(R), to market Modrenal(R) in major international
territories, and an agreement with a United Kingdom company to co-develop
Modrenal(R) for other therapeutic indications. Management believes that
Modrenal(R) currently is manufactured by third- party contractors in accordance
with good manufacturing practices ("GMP").
- 11 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - License and Co-Development Agreements -continued
The Company has no plans to establish its own manufacturing facility for
Modrenal(R), but will continue to use third-party contractors.
The Company received a nonrefundable upfront payment of $1.25 million when it
entered into the License and Sublicense Agreement with Dechra Pharmaceuticals in
May 2003. The Company deferred the upfront payment and recognizes revenues
ratably, on a straight-line basis over the related service period, currently
through September 2022. The Company recognized revenues of approximately $15,000
and $28,000 in connection with the upfront payment from Dechra for the three
months ended September 30, 2005 and 2004, respectively.
Deferred costs include royalty payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Dechra in May 2003. The Company defers all royalty payments made
to Stegram and recognizes these costs ratably, on a straight-line basis
concurrent with revenue that is recognized in connection with the Dechra
agreement. Research and Development costs related to this agreement include
approximately $3,000 and $6,000 for the three months ended September 30, 2005
and 2004, respectively.
NOTE D- Intangible Assets
September 30, June 30,
2005 2005
---- ----
Patents & Trademarks $9,618,000 $9,514,000
Accumulated Amortization (1,462,000) (1,261,000)
----------------------------------
$8,156,000 $8,253,000
==================================
Amortization of patents and trademarks amounted to $201,000 and $334,000 for the
three months ended September 30, 2005 and 2004, respectively. Intangible assets
are recorded at cost and amortized over periods generally ranging from 5-20
years. Amortization for each of the next five fiscal years is expected to amount
to approximately $800,000 annually.
At June 30, 2005, we recognized an impairment of approximately $5,276,000
relating to the methylene blue intangible acquired in connection with the
Pathagon acquisition. Due to the loss of an intellectual property patent suit
which occurred during the Company's fourth quarter of 2005, relating to the
international use of virostat in fresh frozen plasma, we re-evaluated the
intangible asset relating to Virostat at June 30, 2005. At that date, we
estimated that our undiscounted future cash flows, relating solely and
exclusively to approved uses of Virostat, were less than the carrying value of
our long-lived asset. As a result, we recognized a non-cash impairment loss of
$5,276,000, equal to the difference between the estimated future cash flows for
approved uses of Virostat, discounted at an appropriate rate, and the carrying
amount of the asset. Making the determinations of impairment and the amount of
impairment requires significant judgment by management and assumptions with
respect to the future cash flows of the assets. Changes in events or
circumstances that may affect long-lived assets makes judgments and assumptions
with respect to the future cash flows highly subjective.
NOTE E - Stockholders' Transactions
Stock Options
The Board of Directors adopted, and the stockholders approved the 2003 Stock
Incentive Plan at the Annual Meeting held in January of 2004. The plan was
adopted to recognize the contributions made by the Company's employees,
officers, consultants, and directors, to provide those individuals with
additional incentive to devote themselves to our future success and to improve
the Company's ability to attract, retain and motivate individuals upon whom the
Company's growth and financial success depends. Under the plan, stock options
may be granted as approved by the Board of Directors or the Compensation
Committee. There are 4,500,000 shares reserved for grants of options under the
plan and at September 30, 2005, options to purchase 2,966,500 shares of common
stock had been issued. The Company's policy is to issue new shares for option
exercises. Stock options vest pursuant to individual stock option
- 12 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - Stockholders' Transactions -continued
agreements. No options granted under the plan are exercisable after the
expiration of ten years (or less in the discretion of the Board of Directors or
the Compensation Committee) from the date of the grant. The plan will continue
in effect until terminated or amended by the Board of Directors or until
expiration of the plan on November 17, 2013.
In June 2002, the Company granted options to an officer of the Company to
purchase 380,000 shares of common stock at an exercise price of $1.95 per share,
which equaled the fair value on the date of grant. Of this amount 50,000 options
vested on June 28, 2002 and the remaining 330,000 options vest ratably over a
three-year period on each anniversary date. On March 31, 2003, the Company
entered into an Employment Agreement with such officer of the Company, pursuant
to which, among other things, the exercise price for all of the 380,000 options
were changed to $0.735 per share, which equaled the stock price on that date. In
addition, the Company issued an additional 120,000 options at an exercise price
of $.735 per share which vested immediately. As a result of the repricing of all
of the 380,000 options, the Company remeasured the intrinsic value of these
options at the end of each reporting period based on changes in the stock price
through June 30, 2005. As a result of the adoption of SFAS 123 (R) on July 1,
2005, the Company no longer re-measures the intrinsic value of the 380,000
re-priced options. The Company determined the fair value of the modified award
in accordance with SFAS 123, the guidance then in effect, and has recognized
expense relating to the portion of the options that were unvested on July 1,
2005. For the three months ended September 30, 2005 and 2004, the Company
recognized stock based employee compensation (expense) income of approximately
$(12,000) and $198,000, respectively, related to these options.
For the three months ended September 30, 2004, the Company recorded compensation
expense of approximately $22,000 as a result of 505,000 options granted to
certain employees at an exercise price below the grant date trading price. Upon
adoption of SFAS 123 (R), beginning July 1, 2005, the Company reversed the
unrecognized deferred compensation costs of approximately $136,000, associated
with these options, with a corresponding reduction to the Company's additional
paid-in capital and is recognizing the fair value estimated in accordance with
the original provisions of SFAS No. 123 for the unvested options.
On January 6, 2005, the Company granted 7,500 options to a board member for
serving as a member of the Board of Directors, at an exercise price of $8.17 per
share which 1,875 vest immediately on the grant date and the remaining 5,625
vest ratably on the first, second and third anniversaries of the grant date. The
Company recognized approximately $2,000 as consulting expense for the three
months ended September 30, 2005.
On January 20, 2004, the Company granted 25,000 options to a board member for
serving as a member of the Board of Directors, at an exercise price of $4.55 per
share which vest ratably on the first and second anniversaries of the grant
date. The Company recognized approximately $12,000 as consulting expense for
both the three months ended September 30, 2005 and 2004 relating to said
options.
During the three month period ended September 30, 2005, certain non-employee
holders of options exercised pursuant to the cashless exercise feature available
to such option holders and the Company issued approximately 191,196 shares of
its common stock in connection therewith.
Warrants
On June 22, 2004, the Company entered into a consulting agreement pursuant to
which the consultant will provide certain investor relations services on behalf
of the Company. In connection therewith, the Company issued a warrant to said
consultant pursuant to which he has the right to purchase 50,000 shares of the
Company's common stock at a price of $8.25 per share upon the completion of
certain milestones, as set forth in such agreement. The Company recognized
approximately $218,000 as consulting expense for the three months ended
September 30, 2004.
On August 4, 2004, the Company issued a warrant to a consultant pursuant to
which said consultant has the right to purchase 40,000 shares of the Company's
common stock at a price of $7.22 per share upon satisfaction of certain
milestones included in the warrant. The Company recognized approximately
$155,000 as consulting expense for the three months ended September 30, 2004,
relating to said warrants.
On August 9, 2004, the Company issued two warrants to a consultant pursuant to
which said consultant has the right to purchase 45,000 shares of the Company's
common stock at a price of $6.10 per share. The Company recognized approximately
$9,000 and
- 13 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - Stockholders' Transactions -continued
$181,000 as consulting expense for the three months ended September 30, 2005 and
2004, respectively, relating to said warrants.
During the three months ended September 30, 2005, certain warrant holders of the
Company exercised their warrants to acquire 10,619 shares of the Company's
common stock. The Company received proceeds of approximately $76,000 from the
exercise of such warrants.
Common Stock
On December 3, 2004, the Company issued 62,500 shares of common stock to a
consultant for services rendered. In connection with such issuance we recognized
approximately $497,000 as compensation expense for the period ended June 30,
2005.
On February 8, 2005, we completed a secondary public offering in which we sold
we sold 7,500,000 common shares at $8.00 per share, with net proceeds to the
Company of approximately $55.6 million, after deducting underwriting discounts
and commissions and estimated offering expenses.
NOTE F-Quarterly Tax Accounting Policy
Income taxes have been provided for using the liability method in accordance
with SFAS No. 109. The provision for income taxes reflects management's estimate
of the effective tax rate expected to be applicable for the full fiscal year.
This estimate is re-evaluated by management each quarter based on the Company's
estimated tax expense for the year. The Company also pays capital stock tax to
certain state and local jurisdictions. The Company evaluates the amount due on a
quarterly basis.
NOTE G - Geographic Information
We define geographical regions as countries in which we operate. Our corporate
headquarters in the United States collects licensing, royalties and research &
development contract revenue from our arrangements with external customers and
our co-development partners. Our wholly owned subsidiary, Bioenvision Limited,
located in the United Kingdom manages our product sales (including the named
patient program).
The following table reconciles our revenues by geographic region to the
consolidated total:
Three Months Ended
September 30
2005 2004
Region
United States $400,000 $1,075,000
United Kingdom 270,000 10,000
------- ------
$670,000 $1,085,000
-------- ----------
NOTE H - Litigation
On December 19, 2003, the Company filed a complaint against Dr. Deidre Tessman
and Tessman Technology Ltd. (the "Tessman Defendants") in the Supreme Court of
the State of New York, County of New York (Index No. 03-603984). An amended
complaint alleges, among other things, breach of contract and negligence by
Tessman and Tessman Technology and demands judgment against Tessman and Tessman
Technology in an amount to be determined by the Court. The Tessman Defendants
removed the case to federal court, then remanded it to state court and served an
answer with several purported counterclaims. The Company denies the allegations
in the counterclaims and intends to pursue its claims against the Tessman
Defendants vigorously.
NOTE I- Restatement
In May of 2005, the Company identified an error with respect to the accounting
for income taxes in connection with the Pathagon acquisition completed on
February 1, 2002. The Company had originally concluded that the realization of
the deferred tax asset related to the net operating losses and other deductible
temporary differences existing at the acquisition date, and generated after the
acquisition date, did not meet the "more likely than not" criteria and, as a
result, a valuation allowance was established on the deferred tax assets of the
Company. The Company's restated accounting treatment determined that the
deferred tax liability recorded in connection with the Pathagon acquisition
creates taxable income as the taxable temporary differences reverse.
Consequently, the
- 14 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I- Restatements -continued
ability to realize the deferred tax assets is "more likely
than not" and a valuation allowance is not required against the deferred tax
assets, to the extent the deferred tax liability offsets the deferred tax
assets. This restated accounting treatment resulted in the recognition of our
deferred tax assets to the extent of our deferred tax liabilities. The deferred
tax asset, in excess of the deferred tax liability, is not "more likely than
not" to be realized, and therefore, a full valuation allowance has been
established against the net deferred tax asset.
The Company restated its previously reported financial statements and all
interim periods as of and for the years ended June 30, 2004 and 2003, to record
additional benefit relating to the recognition of deferred tax assets as
indicated in the first paragraph of this note. For the years ended June 30,
2004, June 30, 2003, and June 30, 2002, the Company previously recorded the
reduction to the deferred tax liability and a corresponding tax benefit of
$537,000, $537,000 and $253,000, respectively. In the restated financial
statements for years ended June 30, 2004 and June 30, 2003, the Company recorded
deferred tax assets, with a corresponding additional deferred tax benefit of
$923,000 and $1,580,000, respectively, offsetting the deferred tax liability
resulting from the Pathagon acquisition. Additionally, as of the acquisition
date on February 1, 2002, a deferred tax asset was recorded for $2,363,000 with
a corresponding reduction to goodwill. This represented the deferred tax assets
that existed at the date of acquisition and for which the previously recorded
valuation allowance was eliminated.
As a result of the above, the Company previously restated its consolidated
financial statements as of June 30, 2004 in its Form 10-KSB/A. The following is
a summary of the effects of the income tax accounting corrections on the
Company's consolidated financial statements for the three months ended September
30, 2004.
For the three and six months ended September 30, 2004 and December 31, 2004, the
Company had recorded a deferred tax liability for $5,647,000 and $5,505,000,
respectively. Due to the correction of an error, the Company has now reported no
net deferred tax asset or deferred tax liability for the three months ended
September 30, 2004.
Three months ended
September 30, 2004
As Reported As Restated
---------------------------------------------------------------------------
Consolidated Statements of Operations:
Income tax benefit $ 134,226 $ -
Net loss (2,960,325) (3,094,551)
Net loss available to common (3,086,666) (3,220,892)
stockholders
Basic and diluted net loss per share $ (0.11) $ (0.11)
of common stock
- 15 -
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I- Restatement-continued
The restatement has no effect on total cash flows from operating, investing, or
financing activities as shown in the Consolidated Statement of Cash Flows.
However, the restatement did affect the individual components of net loss and
deferred tax benefit within the net cash from operating activities.
As of and for the three months
ended September 30, 2004
(as reported) (as restated)
Goodwill 3,902,705 1,540,162
Total assets 41,337,877 38,975,334
Deferred tax liability 5,646,573 -
Total liabilities 16,471,168 10,824,595
Accumulated deficit (44,169,063) (40,885,033)
Shareholder's equity 24,866,709 28,150,739
Revenue 1,085,328 1,085,328
Loss before income tax benefit (3,094,551) (3,094,551)
Income tax benefit 134,226 -
----------------- ----------------
Net loss (2,960,325) (3,094,551)
Net loss available to common (3,086,666) (3,220,892)
shareholders
Net loss available to common
shareholders per basic and dilutive $(0.11) $(0.11)
share
The quarterly net loss per common share amounts are rounded to the nearest cent.
Annual net loss per common share may vary depending on the effect of such
rounding.
Additionally, the Company restated the pro-forma stock based compensation
disclosures required under SFAS 123 determined under fair value based method due
to the correction of an error noted during February 2005. Refer to Note A for
further discussion.
- 16 -
BIOENVISION, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, this quarterly report on
Form 10-Q contains forward-looking statements within the meaning of the Section
21E of the Securities and Exchange Act of 1934, as amended, which involve
certain risks and uncertainties. Forward-looking statements are included with
respect to, among other things, the Company's current business plan and
"Management's Discussion and Analysis of Results of Operations." These
forward-looking statements are identified by their use of such terms and phrases
as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects,"
"expect," "expected," "project," "projected," "projections," "plans,"
"anticipates," "anticipated," "should," "designed to," "foreseeable future,"
"believe," "believes" and "scheduled" and similar expressions. The Company's
actual results or outcomes may differ materially from those anticipated. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
The following discussion and analysis of significant factors affecting the
Company's operating results, liquidity and capital resources should be read in
conjunction with the accompanying financial statements and related notes.
Overview and Company Status
We are a product-focused biopharmaceutical company with two approved cancer
therapeutics. In December 2004, the Food and Drug Administration, or FDA,
approved our lead cancer product, clofarabine, for the treatment of pediatric
acute lymphoblastic leukemia, or ALL, in patients who are relapsed or refractory
to at least two prior regimens of treatment. We believe clofarabine is the first
new medicine initially approved in the United States for children with leukemia
in more than a decade. Clofarabine has received Orphan Drug designation in the
U.S. and the E.U. Genzyme Corporation, our co-development partner, currently
holds marketing rights in the U.S. and Canada for clofarabine for certain cancer
indications and currently controls U.S. development of clofarabine in these
indications. Genzyme is marketing clofarabine under the brand name Clolar(R) in
the U.S. In Europe, we have filed for approval of clofarabine in pediatric ALL
with the European Medicines Evaluation Agency, or EMeA. If approved, we
anticipate commencing sales in Europe during the first half of calendar 2006
through a dedicated European sales force. We are selling our second product,
Modrenal(R), in the U.K., through our sales force of eight sales specialists.
Modrenal(R) is approved in the U.K. for the treatment of post-menopausal
advanced breast cancer following relapse to initial hormone therapy.
If we receive additional European approvals for our products, we intend to
expand our sales force by adding up to six to 10 sales specialists in each of
five other key regions within the E.U. which include the countries of France,
Germany, Italy, Spain, Portugal, Netherlands, Austria, Belgium, Denmark and
Sweden. Further, we intend to penetrate all of the other markets within the E.U.
upon establishing traction in the E.U's major markets.
Over the next 12 months, we intend to continue our internal growth strategy to
provide the necessary regulatory, sales and marketing capabilities which will be
required to pursue the expanded development programs for clofarabine and
Modrenal(R) described above. Currently, we are considering all options available
to us for the marketing and distribution of clofarabine in our primary markets,
including, without limitation, doing so directly and internally with our own
sales force, doing so through one or more distributors or wholesalers or
disposing of the marketing and distribution rights to a third party.
We have made significant progress in developing our product portfolio over the
past twelve months, and have multiple products in clinical trials. We have
incurred losses during this early stage of our operations. Our management
believes that we have the opportunity to become a leading oncology-focused
pharmaceutical company in the next four years if we successfully bring
clofarabine to market in Europe and successfully develop certain of our other
product candidates.
We anticipate that revenues derived from our two lead drugs, clofarabine and
Modrenal(R) will permit us to further develop the other products currently in
our product pipeline. In addition to clofarabine and Modrenal(R), we are
performing initial development work on Virostat for the treatment of Hepatitis C
and Velostan. The work to date on these compounds has been limited because of
the need to concentrate on clofarabine and Modrenal(R) but management believe
these compounds have potential value. With Virostat, the Company has commenced a
phase II clinical trial in patients with hepatitis C viral infection and with
Velostan the Company has been developing a process for the separation of optical
isomers of the compound and we are conducting additional pre-clinical testing.
We have had discussions with potential product co-development partners from time
to time, and plan to continue to explore the possibilities for co-development
and sub-licensing in order to implement our development plans. In addition, we
believe that some of our products may have applications in treating non-cancer
conditions in humans and in animals. Those conditions are outside our core
business focus and we do not presently intend to devote a substantial portion of
our resources to addressing those conditions.
- 17 -
In May 2003, we entered into a License and Sub-License Agreement with Dechra
Pharmaceuticals, plc, or Dechra, pursuant to which we sub-licensed the marketing
and development rights to Vetoryl(R) (trilostane), solely with respect to animal
health applications, in the U.S. and Canada, to Dechra. We received $1.25
million in cash, together with future milestone and royalty payments which are
contingent upon the occurrence of certain events. We intend to continue to try
and capitalize on these types of opportunities as they arise. The Company also
owns rights to OLIGON(R) technology and we have had discussions with potential
product licensing partners from time to time, and plan to continue to explore
the possibilities for co-development and sub-licensing in order to implement our
development plans.
You should consider the likelihood of our future success to be highly
speculative in light of our limited operating history, as well as the limited
resources, problems, expenses, risks and complications frequently encountered by
similarly situated companies. To address these risks, we must, among other
things:
o satisfy our future capital requirements for the implementation of our
business plan;
o commercialize our existing products;
o complete development of products presently in our pipeline and obtain
necessary regulatory approvals for use;
o implement and successfully execute our business and marketing strategy to
commercialize products;
o establish and maintain our client base;
o continue to develop new products and upgrade our existing products;
o continue to establish and maintain relationships with manufacturers for our
products;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these or any risks associated with our
business and/or products. If we were unable to do so, our business prospects,
financial condition and results of operations would be materially adversely
affected. The likelihood of our success must be considered in light of the
development cycles of new pharmaceutical products and technologies and the
competitive and regulatory environment in which we operate.
Results of Operations
The Company recorded revenues for the three months ended September 30, 2005 and
2004 of approximately $670,000 and $1,085,000, respectively, representing a
decrease of approximately $415,000. This was primarily due to a decrease in
research and development contract revenue as the Company did not record
approximately $685,000 of revenues relating to the reimbursement from our
co-development partner for certain of our ongoing research costs in the
development of clofarabine outside the United States because it determined that
the criteria for recognizing such contract revenues had not been met. When the
Company has determined that the criteria relating to revenue recognition has
been met, the Company will record the revenue. This decrease is offset by an
increase in product sales of Modrenal(R). The increase in product sales of
Modrenal(R) is due to the fact that we received marketing authorization from the
Medicines and Healthcare Products Regulatory Agency for Modrenal(R) in September
of 2004 and we are now marketing, Modrenal(R) in the U.K., through our own sales
specialists, for the treatment of post-menopausal advanced breast cancer
following relapse to initial hormone therapy.
The cost of products sold for the three months ended September 30, 2005 was
approximately $328,000. The cost of products sold reflects the direct costs
associated with our sales of Modrenal(R).
Research and development costs for the three months ended September 30, 2005 and
2004 were approximately $2,431,000 and $2,139,000, respectively, representing an
increase of approximately $292,000.
Our research and development costs include costs associated with the six
projects shown in the table below, four of which the Company currently devotes
time and resources:
- 18 -
Three months ended September 30,
Product 2005 2004 Change from prior year
-------- ---- ---- ----------------------
(in thousands)
Clofarabine $2,138 $1,880 $258
Modrenal $236 $251 $(15)
Virostat $57 $0 $57
Velostan $0 $8 $(8)
OLIGON - - -
Gene Therapy - - -
Clofarabine research and development costs for the three months ended September
30, 2005 and 2004 were approximately $2,138,000 and $1,880,000, respectively,
representing an increase of approximately $258,000. The increase primarily
reflects costs which are associated with our increased development activities
and clinical trials of clofarabine being conducted in Europe.
Modrenal(R) research and development costs for the three months ended September
30, 2005 and 2004 were approximately $236,000 and $251,000, respectively,
representing a decrease of $15,000. These costs did not increase in the
three-month period ended September 30, 2005 because the Company had not yet
expanded its clinical development program for this compound as it continued to
review the development strategy with its regulatory advisors.
Virostat research and development costs for the three months ended September 30,
2005 and 2004 were approximately $57,000 and $0, respectively, representing an
increase of $57,000. The increase primarily reflects the costs associated with
the ongoing, multi-center investigator sponsored Phase II clinical trial being
conducted in Egypt and Southern Europe.
Velostan research and development costs for the three months ended September,
2005 and 2004 were approximately $0 and $8,000, respectively, representing a
decrease of $8,000. These costs did not increase because the Company is actively
working on the manufacturing process with its regulatory advisors to develop a
raceamic form of the compound for use in the Company's clinical development
program. No assurance can be given the Company will be able to create the L-form
velostan required for the clinical development program or, if it can, the timing
of such development.
There were no research and development costs associated with Gene Therapy or
OLIGON for the three months ended September 30, 2005 and 2004 due to the
Company's focus on clofarabine during this period. We anticipate that revenues
derived from our two lead drugs, clofarabine and Modrenal(R) will permit us to
further develop these products.
The clinical trials and development strategy for the clofarabine and Modrenal(R)
projects, in each case, is anticipated to cost several million dollars and will
continue for several years based on the number of clinical indications within
which we plan to develop these drugs. Currently, management cannot estimate the
timing or costs associated with these projects because many of the variables,
such as interaction with regulatory authorities and response rates in various
clinical trials, are not predictable. Total costs to date for each of our
projects is as follows: (i) clofarabine research and development costs have been
approximately $16,453,000; (ii) Modrenal(R) research and development costs have
been approximately $6,605,000; (iii) Velostan research and development costs
have been approximately $380,000; (iv) Virostat research and development costs
have been approximately $246,000; (v) OLIGON research and development costs have
been approximately $25,000; and (vi) Gene Therapy research and development costs
have been approximately $451,000.
Selling, general and administrative expenses for the three months ended
September 30, 2005 and 2004 were approximately $2,887,000 and $1,757,000,
respectively, representing an increase of $1,130,000. Of this amount $882,000 is
related to an increase in payroll and other compensation expenses due to an
increase in headcount in both the New York and Edinburgh offices and stock-based
compensation due to the Company adopting SFAS 123(R), on July 1, 2005, an
increase in sales and marketing costs of $250,000 related to the Company's
deployment of a sales and marketing force in the UK in early 2005, and an
increase in rent expense of $104,000 due to the Company moving offices in both
New York and Edinburgh.
Depreciation and amortization expense for the three months ended September 30,
2005 and 2004 were approximately $224,000 and $340,000, respectively,
representing a decrease of $116,000. The decrease is due to the Company
recording an impairment charge of $5,276,000 at June 30, 2005, which decreased
the cost basis of our methylene blue intangibles.
- 19 -
Liquidity and Capital Resources
We anticipate that we may continue to incur significant operating losses for the
foreseeable future. There can be no assurance as to whether or when we will
generate material revenues or achieve profitable operations.
At September 30, 2005, we had cash and cash equivalents and short-term
securities of approximately $60,708,000 and working capital of $55,676,000.
Management believes the Company has sufficient cash and cash equivalents and
working capital to continue currently planned operations over the next 12
months. Although we do not currently plan to acquire or obtain licenses for new
technologies, if any such opportunity arises and we deem it to be in our
interests to pursue such an opportunity, it is possible that additional
financing would be required for such a purpose.
For the three months ended September 30, 2005 and 2004, net cash used in
operating activities was approximately $3,741,000 and $1,222,000, respectively,
representing an increase of approximately $2,519,000. This increase is primarily
due to increased costs associated with (i) our expanded research and development
activity, (ii) selling general and administrative expenses, including an
increased headcount, sales and marketing costs and increased rent expense and
(iii) cash paid for insurance premiums. For the three months ended September 30,
2005 and 2004, net cash used in investing activities was approximately
$15,314,000 and $44,000, respectively, representing an increase of approximately
$15,270,000. This increase is primarily due to our purchase of short term
securities with proceeds from our February 2005 secondary offering in the amount
of approximately $15,175,000. For the three months ended September 30, 2005 and
2004, net cash (used in) or provided by financing activities was approximately
$(84,000) and $54,000 representing an increase of $138,000. This increase is
primarily due to the fact that we did not receive any proceeds this quarter from
the exercise of options, warrants, or other convertible securities where we had
received $180,000 for the three months ended September 30, 2004 for such
matters. This is partially offset by a decrease in dividends paid to our Series
A preferred shareholders which resulted from the conversion of a majority of
these shares that were outstanding for the quarter ended September 30, 2004.
On February 8, 2005, we completed a secondary public offering in which we sold
7,500,000 common shares at $8.00 per share, with net proceeds to the Company of
approximately $55.6 million, after deducting underwriting discounts and
commissions and estimated offering expenses. We intend to use the net proceeds
for further development of our lead products, for sales and marketing expenses
related to the commercial launch of our lead products, for working capital and
other general corporate purposes.
On March 22, 2004, we consummated a private placement transaction, pursuant to
which we raised $12.8 million and issued 2,044,514 shares of our common stock
and warrants to purchase an additional 408,903 shares of our common stock at a
conversion price of $7.50 per share. We recorded proceeds of $11,792,801 net of
all legal, professional and financing fees incurred in connection with the
offering. We consummated a second closing for this financing on May 13, 2004 in
order to comply with certain contractual obligations to our holders of Series A
Convertible Preferred Stock which hold preemptive rights for equity offerings.
We raised an additional $3.2 million (net of all legal, professional and
financial services incurred) from the second closing and issued an additional
558,384 shares of our common stock and warrants to purchase 111,677 shares of
our common stock at a conversion price of $7.50 per share.
On May 7, 2002 we authorized the issuance and sale of up to 5,920,000 shares of
Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock
may be converted into shares of common stock at an initial conversion price of
$1.50 per share of common stock, subject to adjustment for stock splits, stock
dividends, mergers, issuances of cheap stock and other similar transactions.
Holders of Series A Convertible Preferred Stock also received, in respect of
each share of Series A Convertible Preferred Stock purchased in a private
placement which took place in May 2002, one warrant to purchase one share of our
common stock at an initial exercise price of $2.00 subject to adjustment. We
sold an aggregate of 5,916,666 shares of Series A Convertible Preferred Stock in
the May 2002 private placement for $3.00 per share and warrants to purchase an
aggregate of 5,916,666 shares of common stock, resulting in aggregate gross
proceeds of approximately $17,750,000. A portion of the proceeds were used to
repay in full the Jano Holdings and SCO Capital obligations upon which such
facilities were terminated as well as to repay fees amounting to $1,610,000
related to the transaction.
The Company has the following commitments as of September 30, 2005:
Payments Due in
Total 2006 2007 2008 2009 2010
Occupancy Lease 1,514,721 397,780 326,401 316,216 316,216 158,108
Contractual obligations 433,270 213,786 219,484 0 0 0
--------------------------------------------------------------------------
Total 1,947,991 611,566 545,885 316,216 316,216 158,108
==========================================================================
- 20 -
Off-balance sheet arrangements
We have no off-balance sheet arrangements.
Restatement
On May 23, 2005, management and the audit committee of the Company concluded
that financial statements included in its annual report on Form 10-KSB for the
fiscal year ended June 30, 2004, should not be relied upon because of a
requirement to correct the Company's tax accounting related to the acquisition
of Pathagon, Inc. in February 2002 which was identified during the review
process of the financial statements to be included in the Company's quarterly
report on Form 10-QSB for the quarter ended March 31, 2005. Accordingly, the
Company restated its financial statements included in its annual report on Form
10-KSB for the year ended June 30, 2004 (the "10-KSB/A"). The Company's 10-KSB/A
was filed on June 29, 2005.
On May 24, 2005, the Company received a notice from the Nasdaq staff indicating
that the Company was not in compliance with Nasdaq's requirements for the
continued listing due to its failure to timely file its Form 10-QSB for the
period ended March 31, 2005, as required under Marketplace Rule 4310(c)(14) and
that therefore its common stock was subject to delisting from The Nasdaq Stock
Market. The notice does not by itself result in immediate delisting of the
common stock, although Nasdaq stated that unless the Company timely requested a
hearing, the Company's securities would be delisted from The Nasdaq Stock Market
at the opening of business on June 2, 2005. The Company made a timely request
for a hearing with the Nasdaq Listing Qualifications Panel to review the Nasdaq
staff's determination which stayed the delisting pending the hearing and a
determination by the Nasdaq Listing Qualifications Panel. On June 29, 2005, the
Nasdaq Listings Qualifications Panel approved Bioenvision's request for
continued listing on the Nasdaq National Market and the fifth character "E" was
removed from Bioenvision's trading symbol on the opening of trading on Friday,
July 1, 2005.
Recent Accounting Pronouncements
On July 1, 2005, the Company adopted the fair value recognition provisions of
SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123 (R)"), requiring
the Company to recognize expense related to the fair value of stock-based
compensation. The modified prospective transition method was used as allowed
under SFAS No. 123 (R). Under this method, the stock-based compensation expense
includes: (a) compensation expense for all stock-based compensation awards
granted prior to, but not yet vested as of July 1, 2005, based on the grant date
fair value estimated in accordance with the original provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation"; and (b) compensation expense for all
stock-based compensation awards granted subsequent to July 1, 2005, based on the
grant date fair value estimated in accordance with the provisions of SFAS No.
123 (R). Prior to the adoption of SFAS 123 (R), the Company had accounted for
stock based compensation arrangements in accordance with provisions of
Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued
to Employees", as permitted by SFAS No. 123, "Accounting for Stock Based
Compensation." Under APB Opinion No. 25, no stock-based employee compensation
cost is reflected in reported net loss, when options granted to employees have
an exercise price equal to the market value of the underlying common stock at
the date of grant.
In December 2004, the FASB issued SFAS 153 "Exchange of Nonmonetary Assets".
This statement was a result of a joint effort by the FASB and the International
Accounting Standards Board, or IASB, to improve financial reporting by
eliminating certain narrow differences between their existing accounting
standards. One such difference was the exception from fair value measurement in
APB Opinion No. 29, "Accounting for Nonmonetary Transactions", for non-monetary
exchanges of similar productive assets. SFAS 153 replaces this exception with a
general exception from fair value measurement for exchanges of non-monetary
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This statement was effective
for non-monetary assets exchanges occurring in fiscal periods beginning after
June 15, 2005. The adoption of SFAS 153 did not have a material impact on the
results of operations or financial position of the company.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS 151
amends Accounting Research Bulletin, or ARB, No. 43, Chapter 4. This statement
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS 151 is the result of a
broader effort by the FASB and the IASB to improve financial reporting by
eliminating certain narrow differences between their existing accounting
standards. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of SFAS 151 did not
have a material impact on the results of operations or financial position of the
company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our excess cash is invested in certificates of deposit with various short-term
maturities. We hold no derivative financial instruments and we do not currently
engage in hedging activities. We do not have any outstanding debt. Accordingly,
due to the maturity and credit quality of our investments, we are not subjected
to any substantial risk arising from changes in interest rates, currency
exchange
- 21 -
rates and commodity and equity prices. However the company does have some
exposure to foreign currency rate fluctuations arising from maintaining an
office for the Company's U.K. based, wholly owned subsidiary which transacts
business in the local functional currency. Management periodically reviews such
foreign currency risk and to date has not undertaken any foreign currency hedges
through the use of forward exchange contracts or options and does not foresee
doing so in the near future.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
quarterly report on Form 10-Q. Based on this evaluation, except as set forth
below, our principal executive officer and principal financial officer concluded
that these disclosure controls and procedures are effective and designed to
ensure that the information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the requisite time periods.
Changes in Internal Controls
We made no changes in our internal controls over financial reporting during the
quarter that materially affected or is reasonably likely to materially affect
our internal control over financial reporting.
Description of Material Weaknesses in Internal Controls Over Financial Reporting
(a) Restatement of the Company's 10-KSB for the fiscal year ended June 30, 2004.
In connection with the preparation and filing of our quarterly report on Form
10-QSB for the three-month period ended March 31, 2005, our internal corporate
staff identified errors with respect to our tax accounting treatment associated
with the acquisition of Pathagon, Inc. which was consummated in February 2002.
Our initial accounting concluded that the realization of our deferred tax assets
related to the net operating losses and other deductible temporary differences
existing at the acquisition date, and generated after the acquisition date, did
not meet the "more likely than not" criteria and, as a result, a valuation
allowance was established on the deferred tax assets of the Company. The Company
subsequently determined that the deferred tax liability recorded in connection
with the Pathagon acquisition creates taxable income as the taxable temporary
differences reverse and, therefore, a portion of the valuation allowance
previously established on our deferred tax assets was not required.
Management reported its findings to the Audit Committee of the Board of
Directors. After initial discussions with the Audit Committee, management
reviewed these matters in further detail, and after completing its analysis on
May 15, 2005, recommended to the Audit Committee that previously reported
financial results be restated to reflect correction of these errors. The Audit
Committee agreed with this recommendation. Pursuant to the recommendation of the
Audit Committee, the Board of Directors determined at its meeting on May 15,
2005, that previously reported results be restated to correct the income tax
treatment associated with the Pathagon acquisition.
In connection with the restatement, under the direction of our Chief Executive
Officer and Chief Financial Officer, we reevaluated our disclosure controls and
procedures. We identified the following material weakness in our internal
control over financial reporting with respect to accounting for income taxes
associated with a purchase business combination:
o a failure to ensure the correct application of SFAS 109 "Accounting for
Income Taxes" with respect to purchase business combinations and failure to
correct that error subsequently resulting from the lack of personnel
knowledgeable in the accounting for income taxes.
Solely as a result of this material weakness, we concluded that our disclosure
controls and procedures were not effective as of March 31, 2005.
As of June 30, 2005, we had taken the following measures to remediate the
material weakness in our internal control over financial reporting with respect
to accounting for income taxes that existed as of March 31, 2005 and therefore
believe that this material weakness has been rectified. The remedial actions
included:
o improving training, education and accounting reviews designed to ensure
that all relevant personnel involved in income tax transactions understand
and apply accounting in compliance with SFAS 109;
o hiring additional internal resources, including a Director of Financial
Reporting, to perform internal control activities previously completed by
outside consultants; and
- 22 -
o engaging an outside tax consultant to supplement our internal tax staff and
enhance our internal controls over income tax accounting.
(b) In connection with the filing of our annual report on Form 10-KSB, for the
fiscal year ended June 30, 2005, under the direction of our principal executive
officer and principal financial officer, we evaluated our disclosure controls
and procedures and concluded that as of June 30, 2005, the following material
weakness in internal control over financial reporting existed:
o we did not maintain effective controls relating to the timely
identification, evaluation and accurate resolution of non-routine or
complex accounting matters, specifically, (i) we did not timely identify
and evaluate a change of circumstances that resulted in an impairment of
our intangible assets relating to certain patents, (ii) we did not timely
identify and accurately resolve an accounting issue related to contractual
revenue recognition and (iii) we did not timely evaluate our accounts
receivable for the need of a valuation allowance, each of which resulted in
a material adjustment to our consolidated financial statements for the
fiscal year ended June 30, 2005.
Management discussed this material weakness with the audit committee. In an
effort to remediate the identified material weakness we continue to implement a
number of changes to our internal controls over financial reporting, including,
improved training and education for all relevant internal personnel,
implementation of additional checklists, the more timely review of non-routine
transactions, and the hiring of additional internal resources. We believe that
the material weakness identified above had not yet been rectified as of
September 30, 2005.
Notwithstanding the above mentioned weaknesses, we believe that the consolidated
financial statements included in this report fairly present our consolidated
financial position as of, and the consolidated results of operations for the
period ended, September 30, 2005.
BIOENVISION, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 19, 2003, the Company filed a complaint against Dr. Deidre Tessman
and Tessman Technology Ltd. (the "Tessman Defendants") in the Supreme Court of
the State of New York, County of New York (Index No. 03-603984). An amended
complaint alleges, among other things, breach of contract and negligence by
Tessman and Tessman Technology and demands judgment against Tessman and Tessman
Technology in an amount to be determined by the Court. The Tessman Defendants
removed the case to federal court, then remanded it to state court and served an
answer with several purported counterclaims. The Company denies the allegations
in the counterclaims and intends to pursue its claims against the Tessman
Defendants vigorously. Each of the parties has moved for summary judgment
dismissing all but one of the claims of the other parties. Those motions have
not been decided by the Court.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
- 23 -
ITEMS 6. EXHIBITS
Exhibit
Number Description
------- -----------
2.1 Acquisition Agreement between Registrant and Bioenvision, Inc.
dated December 21, 1998 for the acquisition of 7,013,897
shares of Registrant's Common Stock by the stockholders of
Bioenvision, Inc. (1)
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
February 1, 2002, by and among Bioenvision, Inc., Bioenvision
Acquisition Corp. and Pathagon, Inc. (5)
3.1 Certificate of Incorporation of Registrant. (2)
3.1(a) Amendment to Certificate of Incorporation filed January 29,
1999. (3)
3.1(b) Certificate of Correction to the Certificate of Incorporation,
filed March 15, 2002 (6)
3.1(c) Certificate of Amendment to the Certificate of Incorporation,
filed April 30, 2002 (6)
3.1(d) Certificate of Designations, Preferences and Rights of series
A Preferred Stock (6)
3.1(e) Certificate of Amendment to the Certificate of Incorporation,
filed January 14, 2004 (15)
3.2 Amended and Restated By-Laws of the Registrant. (13)
4.1 Registration Rights Agreement, dated as of February 1, 2002,
by and among Bioenvision, Inc., the former shareholders of
Pathagon, Inc. party thereto, Christopher Wood, Bioaccelerate
Limited, Jano Holdings Limited and Lifescience Ventures
Limited. (8)
4.2 Stockholders Lock-Up Agreement, dated as of February 1, 2002,
by and among Bioenvision, Inc., the former shareholders of
Pathagon, Inc. party thereto, Christopher Wood, Bioaccelerate
Limited, Jano Holdings Limited and Lifescience Ventures
Limited. (8)
4.3 Form of Securities Purchase Agreement by and among
Bioenvision, Inc. and certain purchasers, dated as of May 7,
2002. (6)
4.4 Form of Registration Rights Agreement by and among
Bioenvision, Inc. and certain purchasers, dated as of May 7,
2002. (6)
4.5 Form of Warrant (6)
4.6 Registration Rights Agreement, dated April 2, 2003, by and
between Bioenvision, Inc. and RRD International, LLC (14)
4.7 Warrant, dated April 2, 2003, made by Bioenvision, Inc. in
favor of RRD International, LLC (14)
4.8 Common Stock and Warrant Purchase Agreement, dated as of March
22, 2004, by and among Bioenvision, Inc. and the Investors set
forth on Schedule I thereto (16)
- 24 -
4.9 Registration Rights Agreement, dated March 22, 2004, by and
between Bioenvision, Inc. and the Investors set forth on
Schedule I thereto (16)
4.10 Form of Warrant (16)
4.11 Bioenvision, Inc. 2003 Stock Incentive Plan (17)
10.1 Pharmaceutical Development Agreement, dated as of June 10,
2003, by and between Bioenvision, Inc. and Ferro Pfanstiehl
Laboratories, Inc.
10.2 Co-Development Agreement between Bioheal, Ltd. and Christopher
Wood dated May 19, 1998. (3)
10.3 Master Services Agreement, dated May 14, 2003, by and between
PennDevelopment Pharmaceutical Services Limited and
Bioenvision, Inc.
10.4 Co-Development Agreement between Stegram Pharmaceuticals, Ltd.
and Bioenvision, Inc. dated July 15, 1998. (3)
10.5 Co-Development Agreement between Southern Research Institute
and Eurobiotech Group, Inc. dated August 31, 1998. (3)
10.5(a) Agreement to Grant License from Southern Research Institute to
Eurobiotech Group, Inc. dated September 1, 1998. (3)
10.6 License and Sub-License Agreement, dated as of May 13, 2003,
by and between Bioenvision, Inc. and Dechra Pharmaceuticals,
plc
10.7 Employment Agreement between Bioenvision, Inc. and Christopher
B. Wood, M.D., dated December 31, 2002 (3)
10.8 Employment Agreement between Bioenvision, Inc. and David P.
Luci, dated March 31, 2003 (14)
10.9 Securities Purchase Agreement with Bioaccelerate Inc dated
March 24, 2000. (4)
10.10 Engagement Letter Agreement, dated as of November 16, 2001, by
and between Bioenvision, Inc. and SCO Securities LLC. (7)
10.11 Security Agreement, dated as of November 16, 2001, by
Bioenvision, Inc. in favor of SCO Capital Partners LLC. (7)
10.12 Commitment Letter, dated November 16, 2001, by and between SCO
Capital Partners LLC and Bioenvision, Inc. (7)
10.13 Senior Secured Grid Note, dated November 16, 2001, by
Bioenvision, Inc. in favor of SCO Capital Partners LLC. (7)
10.14 Exclusive License Agreement by and between Baxter Healthcare
Corporation, acting through its Edwards Critical-Care
division, and Implemed, dated as of May 6, 1997. (12)
10.15 License Agreement by and between Oklahoma Medical Research
Foundation and bridge Therapeutic Products, Inc., dated as of
January 1, 1998. (12)
10.16 Amendment No. 1 to License Agreement by and among Oklahoma
Medical Research Foundation, Bioenvision, Inc. and Pathagon,
Inc., dated May 7, 2002. (12)
- 25 -
10.17 Inter-Institutional Agreement between Sloan-Kettering
Institute for Cancer Research and Southern Research Institute,
dated as of August 31, 1998. (12)
10.18 License Agreement between University College London and
Bioenvision, Inc., dated March 1, 1999. (12)
10.19 Research Agreement between Stegram Pharmaceuticals Ltd., Queen
Mary and Westfield College and Bioenvision, Inc., dated June
8, 1999 (12)
10.20 Research and License Agreement between Bioenvision, Inc.,
Velindre NHS Trust and University College Cardiff Consultants,
dated as of January 9, 2001. (12)
10.21 Co-Development Agreement, between Bioenvision, Inc. and ILEX
Oncology, Inc., dated March 9, 2001. (12)
10.22 Amended and Restated Agreement and Plan of Merger, dated as of
February 1, 2002, among Bioenvision, Inc., Bioenvision
Acquisition Corp. and Pathagon Inc. (5)
10.23 Master Services Agreement, dated as of April 2, 2003, by and
between Bioenvision, Inc. and RRD International, LLC(14)
10.24 Employment Agreement between Bioenvision Limited and Hugh
Griffith, made effective as of October 23, 2002 (18)
10.25 Employment Agreement between Bioenvision Limited and Ian
Abercrombie, made effective as of January 6, 2003 (18)
10.26 Amendment # 2 to the Co-Development Agreement between
Bioenvision and ILEX Oncology, Inc. dated December 30,
2003.(21)
10.27 Amendment to the Co-Development Agreement between Bioenvision,
Inc. and SRI, dated as of March 12, 2001.(21)
10.28 Letter Agreement For Co-Development Of An Oral Clofarabine
Formulation and First Amendment to Co-Development Agreement
dated March 12, 2001 between Bioenvision, Inc. and ILEX .(21)
10.29 Joinder made by Bioenvision, Inc., dated February 26, 2004
10.30 Supply Agreement-Trilostane, by and among, Stegram
Pharmaceuticals, Bioenvision, Inc., Dechra Ltd. and Sterling
SNIFF, dated as of August 12, 2005
10.31 Supply Agreement-Trilostane, by and among, Stegram
Pharmaceuticals, Bioenvision, Inc., Dechra Ltd. and Steroid
SpA, dated as of August 12, 2005
14.1 Bioenvision Inc.'s Code of Business Conduct and Ethics (19)
16.1 Letter from Graf Repetti & Co., LLP to the Securities and
Exchange Commission, dated September 30, 1999. (9)
16.2 Letter from Ernst & Young LLP to the Securities and Exchange
Commission, dated July 6, 2001. (10)
16.3 Letter from Ernst & Young LLP to the Securities and Exchange
Commission, dated August 16, 2001. (11)
16.4 Letter from Grant Thornton LLP to the Securities and Exchange
Commission , dated April 7, 2005 (20)
- 26 -
21.1 Subsidiaries of the registrant (4)
31.1 Certification of Christopher B. Wood, Chief Executive Officer,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of David P. Luci, Chief Accounting Officer, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Accounting Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
-----------------------
(1) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on January 12, 1999.
(2) Incorporated by reference and filed as an Exhibit to Registrant's
Registration Statement on Form 10-12g filed with the SEC on September 3,
1998.
(3) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB/A filed with the SEC on October 18, 1999.
(4) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on November 13, 2000.
(5) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on April 16, 2002.
(6) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on May 28, 2002.
(7) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on January 8, 2002.
(8) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on February 21, 2002.
(9) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on October 1, 1999.
(10) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K/A, filed with the SEC on July 26, 2001.
(11) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on December 6, 2001.
(12) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on June 24, 2002.
(13) Incorporated by reference and filed as an Exhibit to Registrant's Quarterly
Report on Form 10-QSB for the three-month period ended December 31, 2002.
(14) Incorporated by reference and filed as an Exhibit to Registrant's Quarterly
Report on Form 10-QSB for the three-month period ended March 31, 2003.
(15) Incorporated by reference and filed as an Exhibit to Registrant's Quarterly
Report on Form 10-QSB for the three- month period ended December 31, 2004.
- 27 -
(16) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on March 24, 2004.
(17) Registrant's definitive proxy statement on Schedule 14-A, filed in
connection with the annual meeting held on January 14, 2004.
(18) Incorporated by reference and filed as an Exhibit to Registrant's Quarterly
Report on Form 10-QSB for the three- month period ended September 30, 2003.
(19) Incorporated by reference and filed as an Exhibit to Registrant's Annual
Report on Form 10-KSB for the year ended June 30, 2004.
(20) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on April 7, 2005.
(21) Incorporated by reference and filed as an Exhibit to Registrant's Annual
Report on Form 10-KSB, filed with the SEC on October 13, 2005.
- 28 -
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 14, 2005 By: /s/ Christopher B. Wood M.D.
----------------------------
Christopher B. Wood M.D.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2005 By: /s/ David P. Luci
-----------------
David P. Luci
Chief Financial Officer and General Counsel
(Principal Financial and Accounting Officer)
- 29 -
Exhibit Index
Exhibit
Number Description
------- -----------
2.1 Acquisition Agreement between Registrant and Bioenvision, Inc.
dated December 21, 1998 for the acquisition of 7,013,897
shares of Registrant's Common Stock by the stockholders of
Bioenvision, Inc. (1)
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
February 1, 2002, by and among Bioenvision, Inc., Bioenvision
Acquisition Corp. and Pathagon, Inc. (5)
3.1 Certificate of Incorporation of Registrant. (2)
3.1(a) Amendment to Certificate of Incorporation filed January 29,
1999. (3)
3.1(b) Certificate of Correction to the Certificate of Incorporation,
filed March 15, 2002 (6)
3.1(c) Certificate of Amendment to the Certificate of Incorporation,
filed April 30, 2002 (6)
3.1(d) Certificate of Designations, Preferences and Rights of series
A Preferred Stock (6)
3.1(e) Certificate of Amendment to the Certificate of Incorporation,
filed January 14, 2004 (15)
3.2 Amended and Restated By-Laws of the Registrant. (13)
4.1 Registration Rights Agreement, dated as of February 1, 2002,
by and among Bioenvision, Inc., the former shareholders of
Pathagon, Inc. party thereto, Christopher Wood, Bioaccelerate
Limited, Jano Holdings Limited and Lifescience Ventures
Limited. (8)
4.2 Stockholders Lock-Up Agreement, dated as of February 1, 2002,
by and among Bioenvision, Inc., the former shareholders of
Pathagon, Inc. party thereto, Christopher Wood, Bioaccelerate
Limited, Jano Holdings Limited and Lifescience Ventures
Limited. (8)
4.3 Form of Securities Purchase Agreement by and among
Bioenvision, Inc. and certain purchasers, dated as of May 7,
2002. (6)
4.4 Form of Registration Rights Agreement by and among
Bioenvision, Inc. and certain purchasers, dated as of May 7,
2002. (6)
4.5 Form of Warrant (6)
4.6 Registration Rights Agreement, dated April 2, 2003, by and
between Bioenvision, Inc. and RRD International, LLC (14)
4.7 Warrant, dated April 2, 2003, made by Bioenvision, Inc. in
favor of RRD International, LLC (14)
4.8 Common Stock and Warrant Purchase Agreement, dated as of March
22, 2004, by and among Bioenvision, Inc. and the Investors set
forth on Schedule I thereto (16)
4.9 Registration Rights Agreement, dated March 22, 2004, by and
between
Bioenvision, Inc. and the Investors set forth on Schedule I
thereto (16)
4.10 Form of Warrant (16)
4.11 Bioenvision, Inc. 2003 Stock Incentive Plan (17)
10.1 Pharmaceutical Development Agreement, dated as of June 10,
2003, by and between Bioenvision, Inc. and Ferro Pfanstiehl
Laboratories, Inc.
10.2 Co-Development Agreement between Bioheal, Ltd. and Christopher
Wood dated May 19, 1998. (3)
10.3 Master Services Agreement, dated May 14, 2003, by and between
PennDevelopment Pharmaceutical Services Limited and
Bioenvision, Inc.
10.4 Co-Development Agreement between Stegram Pharmaceuticals, Ltd.
and Bioenvision, Inc. dated July 15, 1998. (3)
10.5 Co-Development Agreement between Southern Research Institute
and Eurobiotech Group, Inc. dated August 31, 1998. (3)
10.5(a) Agreement to Grant License from Southern Research Institute to
Eurobiotech Group, Inc. dated September 1, 1998. (3)
10.6 License and Sub-License Agreement, dated as of May 13, 2003,
by and between Bioenvision, Inc. and Dechra Pharmaceuticals,
plc
10.7 Employment Agreement between Bioenvision, Inc. and Christopher
B. Wood, M.D., dated December 31, 2002 (3)
10.8 Employment Agreement between Bioenvision, Inc. and David P.
Luci, dated March 31, 2003 (14)
10.9 Securities Purchase Agreement with Bioaccelerate Inc dated
March 24, 2000. (4)
10.10 Engagement Letter Agreement, dated as of November 16, 2001, by
and between Bioenvision, Inc. and SCO Securities LLC. (7)
10.11 Security Agreement, dated as of November 16, 2001, by
Bioenvision, Inc. in favor of SCO Capital Partners LLC. (7)
10.12 Commitment Letter, dated November 16, 2001, by and between SCO
Capital Partners LLC and Bioenvision, Inc. (7)
10.13 Senior Secured Grid Note, dated November 16, 2001, by
Bioenvision, Inc. in favor of SCO Capital Partners LLC. (7)
10.14 Exclusive License Agreement by and between Baxter Healthcare
Corporation, acting through its Edwards Critical-Care
division, and Implemed, dated as of May 6, 1997. (12)
10.15 License Agreement by and between Oklahoma Medical Research
Foundation and bridge Therapeutic Products, Inc., dated as of
January 1, 1998. (12)
10.16 Amendment No. 1 to License Agreement by and among Oklahoma
Medical Research Foundation, Bioenvision, Inc. and Pathagon,
Inc., dated May 7, 2002. (12)
10.17 Inter-Institutional Agreement between Sloan-Kettering
Institute
for Cancer Research and Southern Research Institute, dated as
of August 31, 1998. (12)
10.18 License Agreement between University College London and
Bioenvision, Inc., dated March 1, 1999. (12)
10.19 Research Agreement between Stegram Pharmaceuticals Ltd., Queen
Mary and Westfield College and Bioenvision, Inc., dated June
8, 1999 (12)
10.20 Research and License Agreement between Bioenvision, Inc.,
Velindre NHS Trust and University College Cardiff Consultants,
dated as of January 9, 2001. (12)
10.21 Co-Development Agreement, between Bioenvision, Inc. and ILEX
Oncology, Inc., dated March 9, 2001. (12)
10.22 Amended and Restated Agreement and Plan of Merger, dated as of
February 1, 2002, among Bioenvision, Inc., Bioenvision
Acquisition Corp. and Pathagon Inc. (5)
10.23 Master Services Agreement, dated as of April 2, 2003, by and
between Bioenvision, Inc. and RRD International, LLC(14)
10.24 Employment Agreement between Bioenvision Limited and Hugh
Griffith, made effective as of October 23, 2002 (18)
10.25 Employment Agreement between Bioenvision Limited and Ian
Abercrombie, made effective as of January 6, 2003 (18)
10.26 Amendment # 2 to the Co-Development Agreement between
Bioenvision and ILEX Oncology, Inc. dated December 30,
2003.(21)
10.27 Amendment to the Co-Development Agreement between Bioenvision,
Inc. and SRI, dated as of March 12, 2001.(21)
10.28 Letter Agreement For Co-Development Of An Oral Clofarabine
Formulation and First Amendment to Co-Development Agreement
dated March 12, 2001 between Bioenvision, Inc. and ILEX .(21)
10.29 Joinder made by Bioenvision, Inc., dated February 26, 2004
10.30 Supply Agreement-Trilostane, by and among, Stegram
Pharmaceuticals, Bioenvision, Inc., Dechra Ltd. and Sterling
SNIFF, dated as of August 12, 2005
10.31 Supply Agreement-Trilostane, by and among, Stegram
Pharmaceuticals, Bioenvision, Inc., Dechra Ltd. and Steroid
SpA, dated as of August 12, 2005
14.1 Bioenvision Inc.'s Code of Business Conduct and Ethics (19)
16.1 Letter from Graf Repetti & Co., LLP to the Securities and
Exchange Commission, dated September 30, 1999. (9)
16.2 Letter from Ernst & Young LLP to the Securities and Exchange
Commission, dated July 6, 2001. (10)
16.3 Letter from Ernst & Young LLP to the Securities and Exchange
Commission, dated August 16, 2001. (11)
16.4 Letter from Grant Thornton LLP to the Securities and Exchange
Commission , dated April 7, 2005 (20)
21.1 Subsidiaries of the registrant (4)
31.1 Certification of Christopher B. Wood, Chief Executive Officer,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of David P. Luci, Chief Accounting Officer, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Accounting Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
-----------------------
(1) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on January 12, 1999.
(2) Incorporated by reference and filed as an Exhibit to Registrant's
Registration Statement on Form 10-12g filed with the SEC on September 3,
1998.
(3) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB/A filed with the SEC on October 18, 1999.
(4) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on November 13, 2000.
(5) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on April 16, 2002.
(6) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on May 28, 2002.
(7) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on January 8, 2002.
(8) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on February 21, 2002.
(9) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on October 1, 1999.
(10) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K/A, filed with the SEC on July 26, 2001.
(11) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on December 6, 2001.
(12) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on June 24, 2002.
(13) Incorporated by reference and filed as an Exhibit to Registrant's Quarterly
Report on Form 10-QSB for the three-month period ended December 31, 2002.
(14) Incorporated by reference and filed as an Exhibit to Registrant's Quarterly
Report on Form 10-QSB for the three-month period ended March 31, 2003.
(15) Incorporated by reference and filed as an Exhibit to Registrant's Quarterly
Report on Form 10-QSB for the three- month period ended December 31, 2004.
(16) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC
on March 24, 2004.
(17) Registrant's definitive proxy statement on Schedule 14-A, filed in
connection with the annual meeting held on January 14, 2004.
(18) Incorporated by reference and filed as an Exhibit to Registrant's Quarterly
Report on Form 10-QSB for the three- month period ended September 30, 2003.
(19) Incorporated by reference and filed as an Exhibit to Registrant's Annual
Report on Form 10-KSB for the year ended June 30, 2004.
(20) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on April 7, 2005.
(21) Incorporated by reference and filed as an Exhibit to Registrant's Annual
Report on Form 10-KSB, filed with the SEC on October 13, 2005.