UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File # 0-24875
BIOENVISION, INC.
(Exact name of issuer as specified in its charter)
Delaware 13-4025857
---------------- -------------
State or other jurisdiction IRS Employer ID No.
of incorporation or organization
345 Park Avenue, 41st Floor, New York, NY 10154
-----------------------------------------------
(Address of principal executive offices)
(212) 750-6700
--------------
(Issuer's Telephone Number)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding
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 ___
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer ___ Accelerated filer _X_ Non accelerated filer ___
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes___ No__X__
As of October 19, 2006, there were 41,458,616 shares of the issuer's common
stock, par value $.001 per share (the "Common Stock") outstanding.
C O N T E N T S
PART I FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
As of September 30, 2006 (Unaudited) and June 30, 2006 2
Condensed Consolidated Statements of Operations (Unaudited) -
For the three months ended September 30, 2006 and 2005 3
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) -
For the three months ended September 30, 2006 4
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - 4
For the three months ended September 30, 2006 and 2005
Condensed Consolidated Statements of Cash Flows (Unaudited) -
For the three months ended September 30, 2006 and 2005 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 20
SIGNATURES
BIOENVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2006 2006
-------------- ----------
ASSETS (unaudited) (Note 1)
Current assets
Cash and cash equivalents $ 4,215,118 $ 3,377,937
Short-term securities 31,562,264 41,637,106
Accounts receivable, less allowances of $899,000 3,233,091 2,369,446
Inventories 425,402 427,514
Other current assets 1,460,491 844,810
--------------- -------------
Total current assets 40,896,366 48,656,813
Property and equipment, net 288,193 273,632
Intangible assets, net 7,337,322 7,549,520
Goodwill 1,540,162 1,540,162
Other assets 897,051 706,840
Deferred costs 3,463,197 3,523,497
------------ -------------
Total assets $ 54,422,291 $ 62,250,464
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,154,171 $ 1,557,507
Accrued expenses 8,064,329 6,464,445
Accrued dividends payable 57,328 56,404
Deferred revenue 513,662 513,662
------------ -------------
Total current liabilities 11,789,490 8,592,018
Other liabilities 703,074 -
Deferred revenue 6,942,306 7,070,725
--------- -------------
Total liabilities 19,434,870 15,662,743
-------------- --------------
Commitments and contingencies
Stockholders' equity
Convertible participating preferred stock - $0.001 par value;
20,000,000 shares authorized; 2,250,000 shares issued and 2,250 2,250
outstanding at September 30, 2006 and June 30, 2006 (liquidation
preference $6,750,000)
Common stock - par value $0.001; 70,000,000 shares authorized; 41,459 41,457
41,458,616 and 41,456,616 shares issued and outstanding at
September 30, 2006 and June 30, 2006, respectively
Additional paid-in capital 134,229,990 133,604,996
Accumulated deficit (98,778,030) (86,567,268)
Receivable from stockholder (300,000) (340,606)
Accumulated other comprehensive loss (208,248) (153,108)
-------------------- ----------------
Total stockholders' equity 34,987,421 46,587,721
------------------- -----------------
Total liabilities and stockholders' equity $ 54,422,291 $ 62,250,464
================ ===============
The accompanying notes are an integral part of these financial statements.
-2-
BIOENVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
September 30,
2006 2005
------- -------------
Revenue
Product sales $ 1,874,494 $ 194,996
Licensing and royalty revenue 990,078 400,130
Research and development contract revenue - 75,092
----------- ------------
Total revenue 2,864,572 670,218
----------- ------------
Costs and expenses
Cost of products sold, including royalty expense of $361,000 and 422,728 328,291
$201,000 for the three months ended September 30, 2006 and 2005,
respectively
Research and development 9,269,582 2,430,918
Selling, general and administrative 5,468,891 2,887,462
Depreciation and amortization 241,700 224,283
----------- -----------
Total costs and expenses 15,402,901 5,870,954
------------ -----------
Loss from operations (12,538,329) (5,200,736)
Interest and finance charges (47,684) (66,761)
Interest income 460,319 462,905
------------ -------------
Net loss (12,125,694) (4,804,592)
Preferred stock dividend (85,068) (85,068)
------------- -------------
Loss applicable to common stockholders $ (12,210,762) $(4,889,660)
============== ============
Basic and diluted net loss per share applicable to common stockholders $ (0.29) $ (0.12)
============= =============
Weighted average shares used in computing 41,456,942 40,572,626
basic and diluted net loss per share ============ ============
The accompanying notes are an integral part of these financial statements.
-3-
BIOENVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
(unaudited)
Accumulated
Additional Receivable Other Total
Convertible Comprehensi
Participating Common Stock ve
Preferred Stock Paid-in Accumulated from Stockholders'
Shares Amount Shares Amount Capital Deficit Stockholder Loss Equity
------ ------ ------ ------ ------- ------- ----------- ---- ------
Balance at July 1, 2006 2,250,000 $ 2,250 41,456,616 $ 41,457 $133,604,996 $ (86,567,268) $ (340,606) $ (153,108) $46,587,721
Net loss for the period (12,125,694) (12,125,694)
Cumulative preferred
stock dividend (85,068) (85,068)
Currency translation
adjustment (55,140) (55,140)
Due from stockholder 40,606 40,606
Employee and board of
director stock-based
compensation 622,496 622,496
Warrants exercised for
common stock 2,000 2 2,498 2,500
----------- -------- ----------- -------- ------------ --------------- ----------- ----------- -----------
Balance at September 30,
2006 2,250,000 $ 2,250 41,458,616 $ 41,459 $134,229,990 $ (98,778,030) $ (300,000) $ (208,248) $34,987,421
=========== ======== =========== ======== ============ =============== =========== =========== ============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
Three months ended
September 30,
2006 2005
---- ----
Loss applicable to common stockholders $ (12,210,762) $ (4,889,660)
Foreign currency translation loss (55,140) (49,440)
-------------- -------------
Comprehensive Loss $ (12,265,902) $ (4,939,100)
============== =============
The accompanying notes are an integral part of these financial statements.
-4-
BIOENVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
September 30,
2006 2005
------------ ------------
Cash flows from operating activities:
Net loss $(12,125,694) $(4,804,592)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 241,700 224,283
Stock-based compensation 622,496 481,748
Deferred revenue (128,418) (124,652)
Deferred costs 60,300 57,791
Changes in operating assets and liabilities:
Accrued interest on investments (428,619) (287,498)
Accounts receivable (775,451) 363,380
Inventories 15,414 (91,406)
Other current assets (597,774) (443,113)
Other assets (173,308) -
Accounts payable and accrued expenses 3,015,713 883,027
Other liabilities 703,074 -
-------------- -------------
Net cash used in operating activities (9,570,567) (3,741,032)
Cash flows from investing activities:
Additions to intangible assets - (103,586)
Capital expenditures (41,692) (35,576)
Redemption of short-term securities 10,503,461 -
Purchase of short-term securities - (15,174,642)
-------------- --------------
Net cash provided by (used in) investing activities 10,461,769 (15,313,804)
Cash flows from financing activities:
Proceeds from exercise of options and warrants 2,500 -
Due from shareholder 40,606 -
Dividends paid (84,144) (84,144)
--------------- --------------
Net cash used in financing activities (41,038) (84,144)
Effect of exchange rates on cash and cash equivalents (12,983) (59,793)
--------------- --------------
Net increase (decrease) in cash and cash equivalents 837,181 (19,198,773)
Cash and cash equivalents, beginning of period 3,377,937 31,407,533
------------ -------------
Cash and cash equivalents, end of period $ 4,215,118 $12,208,760
============ ===========
The accompanying notes are an integral part of these financial statements.
-5-
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - Basis of Presentation
Description of Business
The Company is a product-oriented biopharmaceutical company primarily focused
upon the acquisition, development, distribution and marketing of compounds and
technologies for the treatment of cancer, autoimmune disease and infection. Its
product pipeline includes Evoltra(R) (Clofarabine), Modrenal(R) (for which
Bioenvision has obtained regulatory approval for marketing in the United Kingdom
for the treatment of post-menopausal breast cancer following relapse to initial
hormone therapy), and certain anti-infective technologies including the
OLIGON(R) technology; an advanced biomaterial that has been incorporated into
various Federal Drug Administration, or FDA, approved medical devices and
Suvus(R), an antimicrobial agent currently in clinical development for
refractory chronic hepatitis C infection.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the condensed consolidated financial
position of the Company as of September 30, 2006, the condensed consolidated
statements of operations for the three months ended September 30, 2006 and 2005,
the condensed consolidated statement of stockholders' equity for the three
months ended September 30, 2006, and the condensed consolidated statements of
cash flows for the three months ended September 30, 2006 and 2005.
The condensed consolidated balance sheet at June 30, 2006 has been derived from
the audited consolidated 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-K filed by the Company for the year
ended June 30, 2006.
The condensed consolidated results of operations for the three months ended
September 30, 2006 and 2005 are not necessarily indicative of the results to be
expected for any other interim period or for the full year. Certain
reclassifications of balances previously reported have been made to conform to
the current presentation.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. The provisions of SFAS 157
are effective for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact, if any, of the provisions of SFAS 157.
On September 13, 2006, the Securities and Exchange Commission "SEC" issued Staff
Accounting Bulleting No. 108 ("SAB 108"). SAB 108 provides interpretive guidance
on how the effects of the carryover or reversal of prior year misstatements
should be considered in quantifying a potential current year misstatement. Prior
to SAB 108, companies might evaluate the materiality of financial statement
misstatements using either the income statement or balance sheet approach, with
the income statement approach focusing on new misstatements added in the current
year, and the balance sheet approach focusing on the cumulative amount of
misstatement present in a company's balance sheet. Misstatements that would be
material under one approach could be viewed as immaterial under another
approach, and not be corrected. SAB 108 now requires that companies view
financial statement misstatements as material if they are material according to
either the income statement or balance sheet approach. The Company has analyzed
SAB 108 and determined that it will have no impact on the reported results of
operations or financial condition of the Company.
NOTE 2 - 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 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 123,
"Accounting for Stock-Based Compensation"; and (b) compensation expense for all
stock-based compensation awards granted subsequent to July 1, 2005, based on
-6-
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 2 - Accounting for Stock-based Compensation - continued
the grant date fair value estimated in accordance with the provisions of SFAS
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 123. Under APB Opinion No. 25, no
stock-based employee compensation cost was reflected in reported net loss, when
options granted to employees have an exercise price equal to or greater than 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. The Company also no longer re-measures
the intrinsic value of the 380,000 re-priced options granted to an officer of
the Company. The Company recognizes compensation expense for stock option awards
to employees based on their grant-date fair value. The Company recorded, as a
component of net loss, employee stock-based compensation expense of $614,000 and
$459,000 for the three months ended September 30, 2006 and 2005, respectively.
As of September 30, 2006, the total compensation cost related to unvested equity
awards granted to employees but not yet recognized is approximately $3,460,000.
There were no option grants to employees during the three months ended September
30, 2006. The weighted average fair value per share for stock options granted to
employees during the three months ended September 30, 2005 was $4.64. The fair
value of each stock option grant is estimated on the date of grant using the
Black-Scholes option-pricing model which incorporates the following weighted
average assumptions:
Three Months Ended
September 30,
---------------------
2005
---------------------
Risk-free interest rate 3.99%-4.07%
Expected weighted average term (in years) 3.5
Expected weighted average volatility 80%
Expected dividend yield 0%
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. This cost will be amortized on a straight-line
basis over the remaining weighted average vesting period of 1.7 years.
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 ValueR
--------- -------------- ---- ------
Balance - June 30, 2006 4,641,000 $ 4.24 4.44 $ 11,270,000
Granted -
Exercised -
Cancelled -
Forfeited (10,000) 8.05
--------
Balance - September 30, 2006 4,631,000 4.23 6.88 $ 11,228,000
=========
Exercisable - September 30, 2006 3,253,000 $ 3.09 6.09 $ 6,009,000
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 (R) 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." 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.
-7-
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3 - Accounts Receivable
Our accounts receivable are primarily due from wholesale distributors and our
co-development partners. One customer comprises approximately 21% and 52% of
revenues earned for the three months ended September 30, 2006 and 2005,
respectively. Based on our evaluation of the collectibility of the accounts
receivable due from this customer, we believe that the balance relating to
research and development reimbursements may not be collectible and, therefore,
have reserved this balance at September 30, 2006. Another customer comprises
approximately 52% and 0% of revenues earned for the three months ended September
30, 2006 and 2005, respectively.
NOTE 4 - Inventories
Inventories are stated at the lower of cost or market, with cost being
determined under the first-in, first-out method. We only capitalize inventory
that is produced for commercial sale. Manufacturing costs incurred to produce
clofarabine prior to approval were recorded as research and development costs.
The Company periodically reviews inventory on hand. Items considered outdated or
obsolete are reduced to their estimated net realizable value.
September 30, June 30,
2006 2006
---- ----
Raw materials $ - $ 118,213
Work-in-progress 338,797 180,048
Finished goods 86,605 129,253
---------- ----------
Total inventories $ 425,402 $ 427,514
========== ==========
NOTE 5 - Intangible Assets
Intangible assets at September 30, 2006 and June 30, 2006 are as follows:
September 30, June 30,
2006 2006
---- ----
Patents and licensing rights $9,382,450 $9,382,450
Other intangible assets 298,505 298,505
----------- -----------
9,680,955 9,680,955
Less: accumulated amortization (2,343,633) (2,131,435)
----------- -----------
Total intangible assets, net $7,337,322 $7,549,520
========== ==========
Amortization of patents, licensing rights and other intangible assets amounted
to approximately $212,000 and $201,000 for the three months ended September 30,
2006 and 2005, respectively, and are amortized over periods generally ranging
from 1-20 years. Amortization for each of the next five fiscal years will amount
to approximately $800,000 annually.
-8-
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6 - Accrued Expenses
Below is a breakdown of our accrued expenses at September 30, 2006 and June 30,
2006.
September 30, June 30,
2006 2006
---- ----
Accrued research and development $5,302,882 $4,389,951
Accrued professional fees 370,666 493,924
Accrued compensation fees 670,451 702,097
Accrued other 1,720,330 878,473
----------- --------
Total accrued expenses $8,064,329 $6,464,445
========== ==========
Accrued research and development expenses include amounts relating to clinical
trials, pre-clinical operating costs and amounts due on the license to develop,
manufacture, market, distribute and sell Evoltra(R) in Japan and Southeast Asia.
Accrued other includes inventories, marketing costs, royalties due on product
sales and other operating expense accruals.
NOTE 7 - Comprehensive Loss
Our comprehensive loss includes loss applicable to common stockholders and
unrealized gains (losses) from foreign currency translations to the US dollar,
the reporting currency of the Company. 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 US dollar equivalents at rates in
effect at the balance sheet date and record translation adjustments in
accumulated other comprehensive loss. We translate statement of operations
accounts at average rates for the period.
NOTE 8 - Net Loss Per Share of Common Stock Applicable to Common Stockholders
We compute loss per common share in accordance with SFAS No. 128, "Earnings Per
Share" ("SFAS 128"). Basic net loss per share is calculated by dividing net loss
applicable to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed
using the weighted average number of common shares and potentially dilutive
common shares outstanding during the periods. As the Company incurred net losses
for the three months ended September 30, 2006 and 2005, the basic earnings per
share equals the diluted earnings per share. Options and warrants to purchase
11,451,480 and 11,234,314 shares of common stock have not been included in the
calculation of net loss per share for the three months ended September 30, 2006
and 2005, respectively, as their effect would have been anti-dilutive.
Additionally, convertible participating preferred stock that is convertible into
4,500,000 shares of common stock have not been included in the calculation of
net loss per share for each of the three months ended September 30, 2006 and
2005, as their effect would have been anti-dilutive.
NOTE 9 - Geographic Information
We have one operating segment and 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, is located in the United Kingdom
and manages our product sales. The following table reconciles our revenues by
geographic region to the consolidated total:
Three Months Ended Three Months Ended
September 30, September 30,
-------------------------------------------------
2006 2005
-------------------------------------------------
United States $ 990,078 $ 400,130
United Kingdom 1,874,494 270,088
------------- ---------
Total Revenue $ 2,864,572 $ 670,218
============= =========
-9-
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 10 - Short-term Financing
During the three months ended September 30, 2006, the Company borrowed
$5,000,000 in conjunction with a promissory note signed with our financial
institution. All amounts drawn were fully repaid as of September 30, 2006.
NOTE 11 - License and Co-Development Agreements
Clofarabine (Evoltra(R))
The Company has a license from SRI to develop, manufacture, market, distribute
and sell a class of 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 (Evoltra(R)). The Company
received regulatory approval for Evoltra(R) from the European Medicines Agency
on May 31, 2006 under the centralized approval process for treatment of acute
lymphoblastic leukemia, or ALL, in pediatric patients who have relapsed or are
refractory to at least two prior regimens of treatment.
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 Evoltra(R) for the treatment of leukemia and lymphoma and
studying its potential role in treatment of solid tumors.
To facilitate the development of Evoltra(R) 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 Evoltra(R) 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 Evoltra(R) in cancer
indications. Currently, the Company has billed but not recorded approximately
$4,600,000 of revenue relating to the reimbursement from our co-development
partner for certain of our ongoing research costs in the development of
Evoltra(R) outside the United States. If and when the Company has determined
that collectibility is reasonably assured, the Company will record the revenue.
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
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 and Canada. 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 direct 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 SRI based on
certain milestones. The Company also is obligated to pay certain royalties to
SRI with respect to Evoltra(R).
The Company received a nonrefundable upfront payment of $1,350,000 when it
entered into the co-development agreement with Genzyme and received an
additional $3,500,000 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 (NDA) for clofarabine with the FDA, the Company received an
additional (i) $2,000,000 in April 2004 and (ii) $2,000,000 in September 2004.
The Company deferred the upfront payment and recognized revenues ratably, on a
straight-line basis over the related service period. 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, 2006 and 2005, 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 over the related service period, concurrent
with the revenue that is recognized in connection with these research and
development costs through 2021. The Company recognized approximately $55,000 for
each of the three months ended September 30, 2006 and 2005.
-10-
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 11 - License and Co-Development Agreements - continued
In September 2006, the Company obtained the exclusive license to develop,
manufacture, market, distribute and sell Evoltra(R) in Japan and Southeast Asia.
We made an initial payment of $2,500,000 cash to SRI upon execution of this
agreement and are obligated to pay SRI additional milestone payments and
royalties during the term of this agreement.
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"). 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 $1,250,000 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, respectively, in connection with the upfront payment from Dechra for
each of the three months ended September 30, 2006 and 2005.
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 for each of the three months ended September 30, 2006 and
2005.
NOTE 12 - Marketing and Distribution Agreements
In March 2006, the Company entered into a Marketing and Distribution Agreement
with Mayne Pharma Limited, a public company in Australia, to develop, market and
distribute Evoltra(R) in Australia and New Zealand in certain cancer
indications. The Company anticipates entering into similar arrangements with
other marketing and distribution partner(s) around the world (outside North
America) to capitalize on the commercial potential of Evoltra(R), with a fully
integrated sales and marketing team being a primary focus for the sales and
marketing partner(s) the Company may select at any time or from time to time.
NOTE 13 - Stockholders' Transactions
Stock Options
The Company grants stock options to members serving on the Board of Directors.
The Company recognized $8,800 and $14,000 as consulting expense during the three
months ended September 30, 2006 and 2005, respectively, related to such options
granted.
There were no options exercised for the three months ended September 30, 2006.
During the three months 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 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, of which 20,000 warrants vested
immediately and 20,000 vest upon satisfaction of certain milestones included in
the warrant. No milestones were met during the three months ended September 30,
2006 and 2005.
On August 9, 2004, the Company issued two warrants to a consultant pursuant to
which said consultant has the right to purchase an aggregate of 45,000 shares of
the Company's common stock at a price of $6.10 per share. The Company recognized
consulting expense of approximately $0 and $9,000 for the three months ended
September 30, 2006 and 2005, respectively. All milestones were
-11-
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 13 - Stockholders' Transactions - continued
met as of September 30, 2005 related to said warrants.
During the three months ended September 30, 2006, certain warrant holders
exercised their warrants to acquire 2,000 shares of the Company's common stock.
The Company received proceeds of approximately $2,500 from the exercise of such
warrants. During the three months ended September 30, 2005, certain warrant
holders 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.
Shareholder Receivable
Subsequent to the exercise of an option by a former member of management on
September 27, 2005, the Company became aware of the statutorily required
withholding taxes due to the UK tax regulatory authority. In order to maintain
compliance with the UK tax regulatory authority, the Company remitted the taxes
due on behalf of the former employee in January 2006 and, in return, received a
promissory note from the former member of management dated November 28, 2005 for
$340,606, of which $40,606 has been collected. The payment of these taxes was
not part of the option agreement. The Company has classified such note as a
shareholder receivable in the equity section of the condensed consolidated
balance sheets.
-12-
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.
We are a product-oriented biopharmaceutical company primarily focused
upon the acquisition, development, distribution and marketing of compounds and
technologies for the treatment of cancer, autoimmune disease and infection. Our
product pipeline includes Evoltra(R) (Clofarabine), Modrenal(R) (for which
Bioenvision has obtained regulatory approval for marketing in the United Kingdom
for the treatment of post-menopausal breast cancer following relapse to initial
hormone therapy), and certain anti-infective technologies including the
OLIGON(R) technology; an advanced biomaterial that has been incorporated into
various FDA approved medical devices and Suvus(R), an antimicrobial agent
currently in clinical development for refractory chronic hepatitis C infection.
Evoltra(R) is our lead product. In May 2006 the European Medicines Agency
approved Evoltra(R) for the treatment of acute lymphoblastic leukemia (ALL) in
pediatric patients who have relapsed or are refractory to at least two prior
regimens. The licensed indication includes patients who were less than 21 years
of age at the time of initial diagnosis of their leukemia. Evoltra(R) has been
granted orphan drug designation, providing marketing exclusivity for 10 years in
Europe, which 10-year period commenced in May 2006 upon our receipt of EMA
marketing approval. We have a dedicated sales force in the U.K. and several
other countries within the E.U. and will continue to expand our sales force as
we continue to work through pricing and reimbursement in individual countries
within the E.U.
In March 2006, we entered into a Marketing and Distribution Agreement with
Mayne Pharma Limited, a public company in Australia, to sell, market and
distribute Evoltra(R) (Clofarabine) in Australia and New Zealand in certain
cancer indications. We anticipate entering into similar arrangements with other
marketing and distribution partner(s) around the world (outside North America)
to capitalize on the commercial potential of Evoltra(R) (Clofarabine), with a
fully integrated sales and marketing team being a primary focus for the sales
and marketing partner(s) we may select at any time or from time to time.
In September of 2006, the Company exercised its option from SRI to obtain an
exclusive license to the patents and technology relating to Evoltra(R) to
develop and commercialize products in Japan and Southeast Asia.
We also are developing Evoltra(R) for the treatment of adult acute myeloid
leukemia (AML) as first-line therapy. The Company has completed enrollment of
its Phase II clinical trial for the treatment of adult AML in elderly patients
unfit for intensive chemotherapy and expects to file a Marketing Authorization
Application in 2006 for this indication - the Company's first label-extension
for Evoltra(R).
Also, in conjunction with our North American co-development partners, Genzyme
Corporation, clofarabine (Evoltra(R)) is in clinical development for the
treatment of myelodysplastic syndrome (MDS), chronic lymphocytic leukemia (CLL),
chronic myeloid leukemia (CML), non-Hodgkin's lymphoma (NHL), multiple myeloma
(MM), solid tumors and as a preconditioning regimen for transplantation.
Bioenvision is also conducting late-stage preclinical development of
Evoltra(R) for the treatment of psoriasis and is planning further worldwide
development of Evoltra(R) in autoimmune diseases.
Bioenvision holds an exclusive worldwide license for clofarabine. Bioenvision
granted an exclusive sublicense to Genzyme to co-develop clofarabine for cancer
indications in the US and Canada. Genzyme is commercializing clofarabine for
certain cancer indications in the US and Canada under the brand name Clolar(R).
Bioenvision holds an exclusive license in the US and Canada for all non-cancer
indications. Bioenvision originally obtained clofarabine development and
commercialization rights under patents held by Southern Research Institute.
-13-
In the U.S., in December 2004, the Food and Drug Administration, or FDA,
approved 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 was the first new medicine
initially approved in the U.S., for children with leukemia in more than a
decade. Our U.S. partner, Genzyme Corporation, received Orphan Drug designation
status for clofarabine in the U.S., providing marketing exclusivity for 7 years.
Genzyme is marketing clofarabine under the brand name Clolar(R) in the U.S.
We are marketing our second product, Modrenal(R), in the United Kingdom, or
U.K., through our sales force of six 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.
With the approval of Evoltra(R) under the EMA's centralized process, we
intend to continue to expand our sales force by adding 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.
Initially, outside the U.K., we maintain a fully dedicated sales force through
Innovex, an affiliate of Quintiles Corporation, which we intend to convert to a
direct sales force of our own by fourth quarter of calendar 2007.
In addition to Evoltra(R) and Modrenal(R), we are currently in clinical
development of Suvus(R) for chronic hepatitis C. This product is also in
pre-clinical development for the treatment of West Nile Virus and influenza.
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 described above.
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.
We anticipate that revenues derived from Evoltra(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 development work Suvus(R) for
the treatment of Hepatitis C. The work to date on these compounds has been
limited because of the need to concentrate on Evoltra(R), but management
believes these compounds have potential value. With Suvus(R) the Company has
commenced a phase II clinical trial in patients with hepatitis C viral
infection. 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.
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 $1,250,000
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;
-14-
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 revenue for the three months ended September 30, 2006
and 2005 of approximately $2,865,000 and $670,000 respectively, representing an
increase of approximately $2,195,000. This increase is primarily due to
increased product sales of $1,679,000 as a result of Evoltra's approval in
Europe.
The cost of products sold for the three months ended September 30, 2006 and
2005 were approximately $423,000 and $328,000, respectively, representing an
increase of approximately $95,000. The cost of products sold reflects the direct
costs associated with our sales of Modrenal(R) and includes royalty expense of
$361,000 and $201,000 for the three months ended September 30, 2006 and 2005
respectively. The direct costs associated with clofarabine sales have been
expensed in periods prior to the E.U. approval.
Research and development costs for the three months ended September 30,
2006 and 2005 were approximately $9,270,000 and $2,431,000, respectively,
representing an increase of approximately $6,839,000. Our research and
development costs include costs associated with the six products shown in the
table below, three of which the Company currently devotes time and resources:
Three Months Ended
September 30,
Product 2006 2005
---- ----
Evoltra(R) $ 8,483,000 $ 2,138,000
Modrenal(R) 773,000 236,000
Suvus(R) 14,000 57,000
Velostan - -
OLIGON(R) - -
Gene Therapy - -
----------- -----------
Total $ 9,270,000 $ 2,431,000
=========== ===========
Evoltra(R) research and development costs for the three months ended
September 30, 2006 and 2005 were approximately $8,483,000 and $2,138,000
respectively, representing an increase of approximately $6,345,000. This
substantial increase is primarily due to approximately $4,000,000 of costs
recorded in connection with the acquisition of the Japanese and Southeast Asian
rights to Evoltra(R) which occurred in the quarter ended September 30, 2006.
Other factors contributing to the increase in R&D costs include an increase in
our development activities and clinical trials of Evoltra(R) in Europe,
including the process of filing for approval in our first label extension for
Evoltra, and certain non-cash expenses incurred for stock-based compensation
relating to stock options granted to employees that devote their time to
research and development activities.
Modrenal(R) research and development costs for the three months ended
September 30, 2006 and 2005 were approximately $773,000 and $236,000,
respectively, representing an increase of $537,000. This increase is due
primarily to the costs associated with our Phase II clinical trial in
pre-menopausal breast cancer and Phase IV clinical trial in patients with
post-menopausal breast cancer, which are each being conducted in the U.K.
Suvus(R) research and development costs for the three months ended
September 30, 2006 and 2005 were approximately $14,000 and $57,000 respectively,
representing a decrease of $43,000. The decrease primarily reflects the costs
associated with the investigator sponsored Phase II clinical trial conducted in
Egypt prior to the quarter ended September 30, 2006.
-15-
There were no research and development costs associated with Velostan for
the three months ended September 30, 2006 and 2005 because the Company has been
working with its vendors on revising the manufacturing process 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 was no research and development costs for OLIGON(R) for the three
months ended September 30, 2006 and 2005 due to the Company's focus on
Evoltra(R) and Modrenal(R) during this period.
There were no research and development costs associated with Gene Therapy
for the three months ended September 30, 2006 and 2005 due to the Company's
focus on Evoltra(R) and Modrenal(R) during this period. We anticipate that
revenue 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 Evoltra(R) and
Modrenal(R), 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 $31,923,000; (ii) Modrenal(R) research and development costs
have been approximately $9,425,000; (iii) Velostan research and development
costs have been approximately $380,000; (iv) Suvus research and development
costs have been approximately $522,000; (v) OLIGON(R) research and development
costs have been approximately $24,000; 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, 2006 and 2005 were approximately $5,469,000 and $2,887,000,
respectively, representing an increase of $2,582,000. The increase is primarily
due to the an increase in costs associated with the expanded sales and marketing
and administrative infrastructure and costs associated with the internal build
out of the Company.
Depreciation and amortization expense for the three months ended September
30, 2006 and 2005 were approximately $242,000 and $224,000, respectively,
representing an increase of $18,000.
Liquidity and Capital Resources
We anticipate that we will continue to incur significant operating losses
for the foreseeable future. There can be no assurance as to whether or when we
will generate material revenue or achieve profitable operations.
On September 30, 2006, we had cash and cash equivalents and short term
investments totaling, in the aggregate, approximately $35,777,000. Management
believes the Company has sufficient cash and cash equivalents, short-term
securities and working capital to continue currently planned operations over the
next 12 months.
However, we may need additional financing to continue to fund the research
and development and marketing programs for our products and to generally expand
and grow our business. Because we will be required to fund additional operating
losses in the foreseeable future, our financial position will continue to
deteriorate. We cannot be sure that we will be able to find financing in the
future or, if found, such funding may not be on terms favorable to us. If
adequate financing is not available, we may be required to delay, scale back, or
eliminate some of our research and development programs, to relinquish rights to
certain technologies or products, or to license third parties to commercialize
technologies or products that we would otherwise seek to develop. Any inability
to obtain additional financing, if required, would have a material adverse
effect on our ability to continue our operations and implement our business
plan.
Although we do not currently plan to acquire or obtain licenses for new
technologies, if any such opportunity arises and our Board deems 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, 2006 and 2005, net cash used in
operating activities was approximately $9,571,000 and $3,741,000, respectively,
representing an increase of approximately $5,830,000. 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
increase in costs associated with the expanded sales and marketing and
administrative infrastructure and costs associated with the internal build out
of the Company and (iii) cash paid for insurance premiums. For the three months
ended September 30, 2006 and 2005, net cash provided by (used in) investing
activities was approximately $10,462,000 and $(15,314,000), respectively,
representing an increase of approximately $25,776,000. This increase is
primarily due to the redemption of our certificates of deposit during the
period. For the three months ended September 30, 2006 and 2005, net cash used in
financing activities was approximately $41,000 and $84,000 representing a
decrease of $43,000. This decrease is primarily due to cash received on a
promissory note due from a
-16-
shareholder.
The Company has the following commitments due over the next five fiscal
years:
2007 2008 2009 2010 2011
Operating Leases $ 796,911 $ 833,973 $ 372,073 $ 178,570 $ -
Contractual obligations 971,272 1,000,000 250,000 500,000 4,000,000
--------------------------------------------------------------------
Total $ 1,768,183 $ 1,833,973 $ 622,073 $ 678,570 $ 4,000,000
====================================================================
The contractual obligations relate to minimum payments due for research
conducted on Modrenal and minimum royalties due on our licenses.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.
Other Events
As described in the Company's current report on Form 8-K, filed on
September 18, 2006, on September 12, 2006, the Company entered into a License
Agreement (the "Agreement") with SRI pursuant to which SRI granted the Company
the exclusive license to its clofarabine patents and technology to develop and
commercialize products in Japan, Indonesia, Malaysia, Taiwan, Hong Kong,
Singapore, Vietnam, Cambodia, Thailand, Laos, Philippines, and South Korea
(collectively, the "Asian Territories"). The Company will be responsible for
developing products relating to the license, as well as obtaining regulatory
approval for such products, in the Asian Territories, including all associated
expense. In consideration for the license, the Company, among other things, paid
SRI $2.5 million within two days after the effective date of the Agreement. The
Company will also pay SRI $1 million at the time either the Company or its
sub-licensee obtains regulatory approval for clofarabine in any country within
the Asian Territories. In addition, the Company will pay SRI royalty fees based
on a percentage of net sales of its products in the Asian Territories, certain
maintenance fees and a percentage of the sub-license revenue it receives. The
Agreement will continue in effect unless earlier terminated by either the
Company or SRI.
As described in the Company's current report on Form 8-K, filed on October 11,
2006, effective October 6, 2006, the board of directors (the "Board") of the
Company voted to increase the number of directors from 5 to 6. On the same date,
the Board, in accordance with the Company's director nomination policy,
unanimously approved the election of Joseph P. Cooper as a director of the
Company to fill the newly created vacancy on the Board. Mr. Cooper will serve
until the 2006 annual meeting of stockholders, and until such time as his
successor is duly elected and qualified, or until his earlier resignation or
removal. The Board has determined that Mr. Cooper is "independent" under the
Nasdaq Global Select Market and Nasdaq Global Market Listing Standards. There is
no arrangement or understanding between Mr. Cooper and any other persons
pursuant to which he was selected as a director. There are no relationships
between Mr. Cooper and the Company or its subsidiaries that would require
disclosure pursuant to Item 404(a) of Regulation S-K. In consideration for Mr.
Cooper agreeing to serve on the Board, on October 6, 2006, the Company granted
him an option to purchase 25,000 shares of the Company's common stock, which
will vest in equal portions on the first and second anniversary of the grant
date.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. The provisions of SFAS 157
are effective for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact, if any, of the provisions of SFAS 157.
On September 13, 2006, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulleting No. 108 ("SAB 108"). SAB 108 provides
interpretive guidance on how the effects of the carryover or reversal of prior
year misstatements should be considered in quantifying a potential current year
misstatement. Prior to SAB 108, companies might evaluate the materiality of
financial statement misstatements using either the income statement or balance
sheet approach, with the income statement approach focusing on new misstatements
added in the current year, and the balance sheet approach focusing on the
cumulative amount of misstatement present in a company's balance sheet.
Misstatements that would be material under one approach could be viewed as
immaterial under another approach, and not be corrected. SAB 108 now requires
that companies view financial statement misstatements as material if they are
material according to either the income statement or balance sheet approach. The
Company has
-17-
analyzed SAB 108 and determined that it will have no impact on the reported
results of operations or financial condition 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. As of September 30, 2006, 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 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 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
During the quarterly period ended September 30, 2006, there have been no
changes in our internal controls over financial reporting that materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
-18-
BIOENVISION, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
We are not currently engaged in any legal proceedings.
Item 1A. Risk Factors
None.
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.
-19-
ITEM 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)
-20-
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, effective as of October 23, 2002 (18)
10.25 Employment Agreement between Bioenvision Limited and Ian
Abercrombie, 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
ated March 12, 2001 between Bioenvision, Inc. and ILEX.
(21)
10.29 Joinder made by Bioenvision, Inc., dated February 26, 2004
(22)
10.30 Supply Agreement-Trilostane, by and among, Stegram
Pharmaceuticals, Bioenvision, Inc., Dechra Ltd. and Sterling
SNIFF, dated as of August 12, 2005 (22)
10.31 Supply Agreement-Trilostane, by and among, Stegram
Pharmaceuticals, Bioenvision, Inc., Dechra Ltd. and Steroid
SpA, dated as of August 12, 2005 (22)
10.32 Amendment to Employment Agreement, by and between
Bioenvision and David P. Luci, dated February 6, 2006 (23)
10.33 Clofarabine Marketing and Development Agreement, by and
between Bioenvision Inc. and Mayne Pharma Limited, dated
March 24, 2006 (24)
10.34* License Agreement by and between Southern Research Institute
and Bioenvision, Inc., dated September 12, 2006
* Portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment request
under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.
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)
16.5 Letter from Deloitte & Touche LLP to the Securities and
Exchange Commission , dated January19, 2006 (25)
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.
(22) 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, 2005.
(23) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on February 10, 2006.
(24) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-Q, for the three month period ended March
31, 2006.
(25) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on January 20, 2006.
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 9, 2006 By: /s/ Christopher B. Wood M.D.
----------------------------
Christopher B. Wood M.D.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 9, 2006 By: /s/ David P. Luci
-----------------
David P. Luci
Chief Financial Officer and General Counsel
(Principal Financial and Accounting Officer)