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| MRVT.PK > SEC Filings for MRVT.PK > Form 10-Q on 15-Aug-2005 | All Recent SEC Filings |
15-Aug-2005
Quarterly Report
CONDITION AND RESULTS OF OPERATIONS
This section of the Annual Report on Form 10-Q contains forward-looking statements, which involve known and unknown risks and uncertainties. These statements may be identified by the use of words such as may,will,should,potential,expects,anticipates,intends,plans,believes and similar expressions. These statements are based on our current beliefs, expectations and assumptions, and are subject to a number of risks and uncertainties, including but not limited to statements regarding: our general beliefs concerning the efficacy and potential benefits of photodynamic therapy; our ability to successfully complete the conditions of the Approvable Letter as outlined by the U.S. Food and Drug Administration, or the FDA, relating to our New Drug Application, or NDA, submission for SnET2, which we have branded for ophthalmology indications as PHOTREX; our ability to raise funds to continue operations; the use of PHOTREX to treat wet age-related macular degeneration, or AMD; our ability to meet the covenants and continue to borrow under the $15.0 million March 2005 Convertible Debt and Warrant Purchase Agreement, or the March 2005 Debt Agreement; the August 2003 Unsecured Convertible Debt and Warrant Purchase Agreement, or the August 2003 Debt Agreement; our ability to ultimately receive regulatory approval from the FDA for our NDA submission upon satisfactory completion of the contingencies outlined by the FDA in their Approvable Letter; the assumption that we will continue as a going concern; the impact of our recently implemented cost restructuring program; our ability to regain our listing status on Nasdaq or other national stock market exchanges; our plans to collaborate with other parties and/or license PHOTREX; our ability to meet the requirements of our July 2004 Collaboration Agreement and Securities Purchase Agreement with Guidant Corporation; our ability to continue to retain employees under our current financial circumstances; our ability to use our laser and delivery devices in future clinical trials; our projected IND filings; our expected research and development expenditures; our patent prosecution strategy; and our expectations concerning the government exercising its rights to use certain of our licensed technology. Our actual results could differ materially from those discussed in these statements due to a number of risks and uncertainties including but not limited to: failure to obtain additional funding in a timely manner, if at all; our failure to comply with the covenants in our August 2003 Debt Agreement; or, to the extent we are unable to comply with these covenants, our ability to obtain waivers from these covenants, which could lead to a default under those agreements; a failure of our drugs and devices to receive regulatory approval; other parties declining to collaborate with us due to our financial condition or other reasons beyond our control; the failure of our existing laser and delivery technology to prove to be applicable or appropriate for future studies; our failure to obtain the necessary funding to further our research and development activities; and unanticipated changes by the government in its past practices by exercising its rights contrary to our expectations. For a more complete description of the risks that may impact our business, such as, our ability to obtain additional funding, our ability to establish new strategic collaborations, our operating losses, risks related to our industry and other forward-looking statements, see the Risk Factors, section of Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto.
Overview
We are a pharmaceutical research and development company specializing in photodynamic therapy, or PDT, a treatment modality based on drugs that respond to light. When activated by light, these drugs induce a photochemical reaction in the presence of oxygen that can be used to locally destroy diseased cells and abnormal blood vessels. We have branded our novel version of PDT technology with the trademark PhotoPointâ. Our drugs and devices are in various stages of development and require regulatory approval prior to sales, marketing or clinical use.
Our most advanced drug, PHOTREX (formerly known as PhotoPoint® SnET2), generic name rostaporfin, has completed two Phase III clinical trials for the treatment of wet age-related macular degeneration, or AMD. We submitted a New Drug Application, or an NDA, for PHOTREX, to the U.S. Food and Drug Administration, or the FDA, for its marketing approval on March 31, 2004 with a priority review designation. On September 30, 2004, we announced that the FDA had issued an Approvable Letter for our NDA submission for PHOTREX. The letter outlined the conditions for final marketing approval, which included a request for an additional confirmatory Phase III clinical trial, as well as certain other requirements. We have completed a Special Protocol Assessment with the FDA for the confirmatory placebo-controlled, randomized clinical trial, and have made the decision to conduct the clinical trial at investigational sites in the United Kingdom and Central and Eastern Europe. We have selected Kendle International, Inc., an international clinical research organization, or CRO, to manage the clinical trial, which is currently planned to commence during the third quarter of 2005. Even though the FDA has issued a conditional Approvable Letter, the FDA may not ultimately approve our NDA for PHOTREX. The clinical trial and approval process will take a significant amount of cost and time, and FDA approval, if any, is contingent upon satisfying safety and efficacy requirements.
We have been unprofitable since our founding and have incurred a cumulative net loss of approximately $221.5 million as of June 30, 2005. We expect to continue to incur significant, and possibly increasing, operating losses over the next few years. We believe we will be required to obtain substantial additional debt or equity financing to fund our operations until we achieve a level of revenues sufficient to support our anticipated cost structure. Our independent registered public accounting firm, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2004 consolidated financial statements that, based on the standards of the Public Company Accounting Oversight Board (United States), our viability as a going concern is in question.
In July 2005, we implemented a significant cost restructuring program. This cost restructuring program included a detailed evaluation of all of our research programs and operating costs. Based on the results of this evaluation, the Board of Directors concluded that a reduction in staff was necessary, as well as an overall salary decrease for some of the remaining employees and executives. In addition, for additional cost savings, we relocated our corporate offices to a less costly and smaller facility. The initial results of the cost restructuring program are expected to reduce our monthly payroll and overhead cash expenditures significantly and the intention is to keep these costs at these lower levels, until certain milestones are met and additional funding is obtained.
We continue to closely monitor all costs to be incurred for our research and development, preclinical studies, clinical trials and general corporate activities. Our ability to achieve and sustain profitability depends upon our ability, alone or with others, to receive regulatory approval on our NDA submission for PHOTREX in AMD, to successfully complete the development of our proposed products, obtain the required regulatory clearances and manufacture and market our proposed products. No revenues have been generated from commercial sales of PHOTREX and only limited revenues have been generated from sales of our devices. Our ability to achieve significant levels of revenues within the next few years is dependent on the timing of receiving regulatory approval, if at all, for PHOTREX in AMD and our ability to establish a collaboration with a corporate partner or other sales organization to commercialize PHOTREX once regulatory approval is received, if at all. Our revenues to date have consisted of license reimbursements, grants awarded, royalties on our devices, PHOTREX bulk active pharmaceutical ingredient, or bulk API sales, milestone payments, payments for our devices, and interest income. We do not expect any significant revenues until we have received regulatory approval and commenced commercial sales of PHOTREX, or have established a collaborative partnering agreement. Our significant funding activities over the last eighteen months have consisted of the following:
· An $8.0 million convertible preferred stock investment completed in May 2005;
· A $15.0 million convertible line-of-credit financing completed in March 2005;
· A Collaboration Agreement and Securities Purchase Agreement with Guidant Corporation, or Guidant, completed July 1, 2004, providing an equity investment of $3.0 million upon signing and two additional investments of $2.0 million each upon the completion of certain milestones related to our cardiovascular program;
· A $10.3 million equity investment completed in April 2004;
· A $2.0 million convertible debt financing completed in February 2004; and
· Warrant exercises through August 8, 2005 providing proceeds of approximately $1.5 million.
As a result of our most recent financing completed in May 2005 pursuant to a Series B Convertible Preferred Stock Agreement, or the May 2005 Preferred Stock Agreement, executive management and the Board of Directors believe that as long as payment of our outstanding debt is not accelerated and if we are able to continue to borrow under the Note and Warrant Purchase Agreement, as amended, or the March 2005 Debt Agreement, then we have the ability to conserve cash required for operations through December 31, 2006. If the funding from the March 2005 Debt Agreement and/or additional funding is not available when needed, we believe that depending on the amount borrowed under the March 2005 Debt Agreement, we may have cash required for operations through November 30, 2005 assuming the delay or further reduction in scope of one or more of our research and development programs and adjusting, deferring or further reducing salaries of employees and by further reducing operating facilities and overhead expenditures. We believe we can raise additional funding to support operations through corporate collaborations or partnerships, licensing of PHOTREX or new products and additional equity or debt financings, if necessary. There can be no assurance that we will be successful in obtaining additional financing or that financing will be available on favorable terms.
Ongoing Operations
We have continued our scaled back efforts in research and development and the preclinical studies and clinical trials of our products. Our primary efforts in the first half of 2005 have focused on the preparation for the confirmatory Phase III clinical trial and in 2004 our primary efforts focused on preparing and submitting our NDA for marketing approval in AMD for PHOTREX. We expect over the next year or so, our likely activities and costs to consist of the following:
· Commencement of a confirmatory Phase III clinical trial for AMD based on the conditional Approvable Letter from the FDA, scheduled to begin during the third quarter of 2005;
· Development activities in preparation for an Investigational New Drug application, or IND, and Phase I clinical trial for our cardiovascular program; and
· Activities related to drug and device manufacturing in support of the confirmatory Phase III clinical trial for AMD and in preparation of our cardiovascular Phase I clinical trial.
The level of effort extended for each of these activities will depend on available funding and resources. If requisite regulatory approval is obtained for PHOTREX, substantial additional funding will be required to support the manufacture, marketing and distribution activities required to generate revenues at a level that adequately supports our cost structure.
Ophthalmology
In ophthalmology, our primary focus through March 31, 2004 had been the preparation of our NDA for submission for marketing approval of PHOTREX, a new drug for the treatment of AMD. The NDA was submitted on March 31, 2004 and on September 30, 2004, we announced that the FDA had issued an Approvable Letter for our NDA submission for PHOTREX. The Approvable Letter outlined the conditions for final marketing approval, which included a request for an additional confirmatory Phase III clinical trial, as well as certain other requirements. In March 2005, we announced that we would conduct a confirmatory Phase III clinical trial in the United Kingdom and Central and Eastern Europe based on a Special Protocol Assessment by the FDA. We have selected Kendle International Inc., an international clinical research organization, to manage the clinical trial in which we plan to begin treatment of patients in the third quarter of 2005. The clinical trial is designed to evaluate AMD patients with both classic and occult choroidal neovascularization (CNV lesions). Currently, we expect the study to be conducted at up to 50 investigational sites. We plan to conduct a primary efficacy endpoint analysis at twelve months (one year after initial treatment), and expect a total of approximately 650 patients to be analyzed.
The competitive PDT drug Visudyne (QLT, Inc. and Novartis) has been approved as a treatment for AMD, specifically predominantly classic lesions, since April 2002 and is currently in widespread use in the U.S. and internationally. In January 2005, Macugen® was introduced to the market by Eyetech Pharmaceuticals, Inc. and will be co-promoted with Pfizer, Inc. Macugen is the first anti-angiogenic drug approved for the treatment of wet AMD , and involves a series of injections directly into the eye. The FDA approved Macugen for both classic and occult lesions, which we and believe will increase the overall number of patients seeking treatment for wet AMD. In July 2005, Genentech, Inc. announced the results of the their Phase III clinical trial in AMD for their lead drug, Lucentis. Their results appeared to have superior efficacy versus placebo and other currently approved technologies. The Macugen and Lucentis treatments are considered competitive to each other and to PDT and also potentially complementary technologies to PDT.
We believe that the technology of PDT will continue to be utilized as a component of first-line therapy for wet AMD, either stand-alone or in combination with steroids and newer anti-angiogenic drugs. In addition to conducting the confirmatory Phase III clinical trial to be conducted in Europe, we currently plan to initiate combination studies of PHOTREX with other drug agent(s).
We have also conducted preclinical studies for the treatment of other ophthalmic diseases such as corneal neovascularization, glaucoma and diabetic retinopathy. Besides the planned use of PHOTREX alone or in combination with other therapies, we have identified certain next-generation drug compounds for potential use in various eye diseases. These programs are in early stages of development and will not likely advance until we obtain additional funding and/or a collaborative partner in ophthalmology.
Cardiovascular Disease
We are investigating the use of PhotoPoint PDT for the treatment of cardiovascular diseases, in particular for the treatment of atherosclerosis and atherosclerotic vulnerable plaque, and for the prevention and treatment of restenosis. Atherosclerosis is a common condition involving complex lipid, or fat, derived plaques within arteries that can lead to obstructive artery disease. Clinicians have become aware that certain inflamed plaques within artery walls are highly unstable and vulnerable to rupture. Vulnerable plaque has been estimated to cause up to 80% of fatal heart attacks. Preclinical studies with PhotoPoint PDT indicate that certain photoselective drugs may be preferentially retained in hyperproliferating cells in artery walls and lipid-rich components of arterial plaques. In preclinical studies, we believe we have demonstrated that PhotoPoint PDT has the potential to remove problematic inflammatory cells and induce positive mechanisms of healing and repair that are consistent with true plaque stabilization.
Restenosis is the re-narrowing of an artery that commonly occurs after balloon angioplasty for obstructive artery disease. We believe data from preclinical studies suggest that PhotoPoint PDT may aid in the prevention and treatment of restenosis by inhibiting the aggressive overgrowth of cells that cause re-narrowing, or restenosis, of arteries.
We are in the process of conducting preclinical pharmacology and toxicology studies using our lead cardiovascular drug candidate, MV0633. Pending the outcome of our preclinical studies, financial considerations, and other factors, we are planning to prepare an IND in cardiovascular disease for MV0633 in the fourth quarter of 2005 or first quarter of 2006. The timing of the IND is dependent on numerous factors, including preclinical results, pharmacology and toxicology results, available funding and other resources. In July 2004, we entered into a Collaboration Agreement with Guidant Corporation, or Guidant, to develop MV0633 for cardiovascular diseases. In connection with the Collaboration Agreement, we are required to file the IND in order to avoid penalties and to receive continued funding from Guidant.
As a result of our preclinical studies in cardiovascular disease, we are evaluating the use of PhotoPoint PDT for the prevention and/or treatment of vascular access graft disease. Synthetic arteriovenous, or AV, grafts are placed in patients with End Stage Renal, or Kidney, Disease to provide access for hemodialysis. While these grafts are critical to the health of the patient, their functional lifetime is limited due to stenosis, or narrowing, caused by cell overgrowth in the vein. We have held discussions with the FDA regarding initiation of a Phase II clinical trial. We held various discussions with potential strategic partners in this field to help fund these clinical studies. This program will not advance until we obtain additional funding and/or a collaborative partner.
Dermatology
In our dermatology program, we use a topical gel formulation to deliver MV9411, a proprietary photoreactive drug, directly to the skin. We believe that PhotoPoint PDT may be potentially useful to treat a number of dermatological, or skin, disorders. One of these is plaque psoriasis, a chronic skin condition involving abnormal proliferation of the epidermis, or outer layer of the skin, that causes inflamed and scaly skin plaques. We are investigating PhotoPoint drug MV9411 in a topical gel formulation for this disease indication. In July 2001, we successfully completed a Phase I dermatology clinical trial of MV9411, and in January 2002, commenced a Phase II dose-escalation clinical trial for the treatment of psoriatic plaques. We are now in the process of closing the Phase II clinical trial and analyzing the clinical trial results. This program will not advance until we obtain additional funding and/or a collaborative partner.
Oncology
In our oncology research program, we have completed numerous preclinical studies in solid tumors to target tumor cells and tumor neovasculature. Cancer is a large group of diseases characterized by uncontrolled growth and spread of tumor cells with the associated growth of new blood vessels, or neovascularization. The focus of our preclinical research has been to evaluate the utility of PhotoPoint PDT as a stand-alone treatment or as a combination therapy with experimental or conventional therapies. Currently, our research efforts focus on the use of PhotoPoint PDT in treating cancers such as those of the brain, breast, lung and prostate. We have an existing oncology IND for SnET2, which is currently inactive, and under which we may choose to submit protocols for clinical trials in the future. This program will not advance until we obtain additional funding and/or a collaborative partner.
Below is a summary of the disease programs and their related stages of development. The information in the column labeled Estimate of Completion of Phase is forward-looking in nature and the actual timing of completion of those phases could differ materially from the estimates provided in the table. Additionally, due to the uncertainty of the scientific results of any of these programs as well as the uncertainty regarding our ability to fund these programs, we are unable to provide an accurate estimate as to the costs, capital requirements or the specific timing necessary to complete any of these programs. For a discussion of the risks and uncertainties associated with the timing of completing a product development phase for our company as well as our industry as a whole, see the Risk Factors section of Managements Discussion and Analysis of Financial Condition and Results of Operations.
Program Description/Indication Phase of Development Estimated
date of
Phase
Ophthalmology AMD (PHOTREX) Commencement of Q3 2005
confirmatory Phase
III clinical trial
New drug compounds Research studies Completed
Cardiovascular VP and Restenosis Continuation of Q4 05/Q1
disease (MV0633 and other Preclinical studies 06
compounds) and IND submission
AV Graft (MV2101) Preclinical studies Suspended
**
Dermatology Psoriasis (MV9411) Inactive IND Suspended
**
Oncoclogy Tumor Research (MV Inactive IND Suspended
6401) **
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** The decision and timing of whether these programs will move to the clinical trial phase will depend on a number of factors including the results of the preclinical studies, the estimated costs of the programs, the availability of alternative therapies and our ability to fund or obtain additional financing or to obtain new collaborative partners to help fund the program.
Based on our ability to successfully obtain additional funding, our ability to obtain new collaborative partners, our ability to license and pursue further development of PHOTREX for AMD or other disease indications, our ability to complete the confirmatory Phase III clinical trial for PHOTREX for AMD, our ability to reduce operating costs as needed, our ability to regain our listing status on Nasdaq or other national stock market exchanges and various other economic and development factors, such as the cost of the programs, reimbursement and the available alternative therapies, we may or may not elect or be able to further develop PhotoPoint PDT procedures in ophthalmology, cardiovascular disease, dermatology, oncology or in any other indications.
Revenues. We had no revenues for the three and six months ended June 30, 2005 and 2004.
Historically, we have recorded limited revenues for the sale of our bulk active pharmaceutical ingredient and license income for the reimbursement of out-of-pocket expenses incurred under license agreements. Any future revenue will likely be related to new collaborative agreements, and royalties or revenues from drug and device sales upon regulatory approval and subsequent commercial sales, if any.
Research and Development. Research and development costs are expensed as incurred. Research and development expenses are comprised of direct and indirect costs. Direct costs consist of costs incurred by outside providers and consultants for preclinical studies, clinical trials and related clinical drug and device development and manufacturing costs, drug formulation expenses, NDA preparation services and other research and development expenditures. Indirect costs consist of internally generated costs from salaries and benefits, overhead and facility costs, and other support services. Our research and development expenses for the six months ended June 30, 2005 were $5.1 million compared to $3.9 million for the same period in 2004. Research and development expenses increased to $3.3 million for the three months ended June 30, 2005 compared to $1.6 million for the same period in 2004. The increase in research and development expenses for the three and six months ended June 30, 2005 compared to the same period in 2004 is specifically related to the activities associated with the preparation of the confirmatory Phase III clinical trial for PHOTREX in AMD and costs related to our cardiovascular program. Research and development expenses for the three and six months ended June 30, 2004 related primarily to payroll, payroll taxes, employee benefits and allocated operating costs. Additionally, the Company incurred research and development expenses for the three and six month periods in 2005 for:
· Preparation for the upcoming confirmatory Phase III clinical trial for PHOTREX in AMD;
· Preclinical pharmacology and toxicology studies and preparation of an IND for the cardiovascular program; and
· Work associated with the development of new devices, delivery systems, drug compounds and formulations for the cardiovascular programs.
We have primarily focused our research and development efforts on two areas in 2005: ophthalmology and cardiovascular disease, with minimal efforts to dermatology. Research and development costs are initially identified as direct costs and indirect costs, with only direct costs tracked by specific program. These direct costs consist of clinical, preclinical, drug and formulation development, device development and research costs. We do not track our indirect research and development costs by program. These indirect costs consist of labor, overhead and other indirect costs. The research and development costs for specific programs represent the direct costs incurred. The direct research and development costs by program are as follows:
Three months ended June 30, Six months ended June 30,
Program 2005 2004 2005 2004
Direct costs:
Ophthalmology $ 1,298,000 $ 462,000 $ 1,797,000 $ 1,157,000
Cardiovascular disease 601,000 61,000 715,000 96,000
Dermatology 34,000 5,000 34,000 47,000
Total direct costs $ 1,933,000 $ 528,000 $ 2,546,000 $ 1,300,000
Indirect costs 1,342,000 1,119,000 2,581,000 2,608,000
Total research and development costs $ 3,275,000 $ 1,647,000 $ 5,127,000 $ 3,908,000
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Ophthalmology. For the six months ended June 30, 2005, our direct ophthalmology program costs have increased to $1.8 million from $1.2 million for the six months ended June 30, 2004. For the three months ended June 30, 2005, . . .
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