FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
Commission File # 0-24875
BIOENVISION, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-4025857
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State or other jurisdiction IRS
of incorporation or organization Employer ID No.
345 Park Avenue, 41st Floor, New York, NY 10154
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(Address of principal executive offices)
(Issuer's Telephone Number) (212) 750-6700
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ___X___ No _____
As of November 12, 2004, there were 28,797,169 shares of the issuer's common
stock, par value $.001 per share (the "Common Stock") outstanding.
Transitional Small Business Disclosure Format (Check One): YES [ ] No [X]
C O N T E N T S
Page
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Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation 10
Item 4. Controls and Procedures 15
Part II - Other Information 16
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2004 2004
----------- -----------
ASSETS (unaudited)
Current assets
Cash and cash equivalents $17,662,989 $18,875,675
Restricted cash 290,000 290,000
Deferred costs 241,824 241,824
Accounts receivable 860,284 2,627,773
Other assets 393,769 253,311
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Total current assets 19,448,866 22,288,583
Property and equipment, net 44,881 47,857
Intangible assets, net 14,271,299 14,563,660
Goodwill 3,902,705 3,902,705
Security deposits 79,111 79,111
Deferred costs-long term 3,591,015 3,651,471
--------- ---------
Total assets $41,337,877 $44,533,387
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $1,541,214 $1,495,866
Accrued expenses 869,572 1,322,584
Accrued dividends payable 90,341 90,141
Deferred revenue 551,828 551,828
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Total current liabilities 3,052,955 3,460,419
Deferred revenue-long term 7,771,640 7,909,598
Deferred tax liability-non-current 5,646,573 5,780,799
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Total liabilities 16,471,168 17,150,816
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Stockholders' equity
Preferred stock - $0.001 par value; 20,000,000 shares authorized; 3,342 3,342
3,341,666 shares issued and outstanding at September 30, 2004 and
June 30, 2004 (liquidation preference $10,024,998)
Common stock - par value $0.001; 70,000,000 shares authorized; 28,597 28,316
28,597,172 and 28,316,163 shares issued and outstanding at
September 30, 2004 and June 30, 2004, respectively.
Additional paid-in capital 69,066,456 68,517,702
Deferred compensation (201,927) (223,990)
Accumulated deficit (44,169,063) (41,082,397)
Accumulated other comprehensive income 139,304 139,598
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Stockholders' equity 24,866,709 27,382,571
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Total liabilities and stockholders' equity $41,337,877 $44,533,387
=========== ===========
The accompanying notes are an integral part of these financial statements.
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
September 30,
-------------
2004 2003
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(unaudited) (unaudited)
Licensing and royalty revenue $363,182 $54,041
Research and development contract revenue 722,146 775,000
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Total revenue 1,085,328 829,041
Costs and expenses
Research and development 2,138,897 803,900
Selling, general and administrative 1,756,713 2,438,088
(includes stock based compensation expense of $391,098
and $1,284,646 for the three months ended September 30,
2004 and 2003, respectively)
Depreciation and amortization 339,706 339,621
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Total costs and expenses 4,235,316 3,581,609
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Loss from operations (3,149,988) (2,752,568)
Interest income (expense)
Interest income 55,437 19,037
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Net loss before income tax benefit (3,094,551) (2,733,531)
Income tax benefit 134,226 134,226
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Net loss (2,960,325) (2,599,305)
Cumulative preferred stock dividend (126,341) (223,710)
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Net loss available to common stockholders $(3,086,666) $(2,823,015)
=========== ===========
Basic and diluted net loss per share of common stock $(0.11) $(0.16)
====== ======
Weighted average shares used in computing 28,516,450 17,188,295
basic and diluted net loss per share ========== ==========
The accompanying notes are an integral part of these financial statements.
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Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
September 30,
--------------------------------------
2004 2003
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(unaudited) (unaudited)
Cash flows from operating activities
Net loss $(2,960,325) $(2,599,305)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 339,706 339,621
Deferred tax benefit (134,226) (134,226)
Shares and warrants issued to non-employees 566,943 569,763
Compensation costs - re-pricing of options (197,908) 714,883
Compensation costs-options issued to employees 22,063 -
Changes in assets and liabilities
Deferred costs 60,456 5,808
Deferred revenue (137,958) (29,041)
Accounts payable 45,349 (260,500)
Other current assets (140,459) (197,580)
Other long term assets - 81,692
Accounts receivable 1,767,489 -
Other accrued expenses and liabilities (453,012) 352,977
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Net cash used in operating activities (1,221,882) (1,155,908)
----------- -----------
Cash flows from investing activities
Purchase of intangible assets (42,115) (22,332)
Capital expenditures (2,254) -
----------- -----------
Net cash used in investing activities (44,368) (22,332)
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Cash flows from financing activities
Proceeds from issuance of common stock - 262,500
Proceeds from exercise of options, warrants and other convertible
securities 180,000 -
Cash dividends paid (126,141) -
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Net cash provided by financing activities 53,859 262,500
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Effect of exchange rate on cash (294) -
Net decrease in cash and cash equivalents (1,212,685) (915,740)
Cash and cash equivalents, beginning of period 18,875,675 7,929,686
----------- -----------
Cash and cash equivalents, end of period $17,662,989 $7,013,946
=========== ==========
Supplemental cash flow information
Income taxes $32,975 $20,891
The accompanying notes are an integral part of these financial statements.
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BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE A - Description of Business
Bioenvision, Inc. (the "Company") is an emerging biopharmaceutical company that
develops and markets drugs to treat cancer. The Company's two lead drugs are
clofarabine and Modrenal(R), although the Company has several other products and
technologies under development. As of November 8, 2004, the Company employs
eleven full-time and four part-time employees based in New York, New York and
Edinburgh, Scotland.
The Company's primary business strategy relates to its two lead drugs,
clofarabine and Modrenal(R). With clofarabine, the Company's strategy is to
complete drug development in Europe and obtain marketing authorization from the
European regulatory authorities to market and distribute clofarabine in Europe
for the treatment of pediatric and adult acute leukemias (ALL and AML). The
Company anticipates launching clofarabine in Europe in mid-2005, subject to its
obtaining from the European regulatory authorities the first approval for
clofarabine which is expected to be for pediatric ALL and AML. The Company will
continue clinical trials in other indications with the intention of aggressively
seeking label extensions after clofarabine's first approval, including its
Pivotal Phase II trial of clofarabine in adults with Acute Myeloid Leukemia
(AML) which commenced in August 2004 and is ongoing. Following this strategy,
throughout the world, approximately two-thirds of the cancer patients dosed with
clofarabine to date fall outside of the pediatric acute leukemias.
Clofarabine is a small molecule and a purine nucleoside analogue, which the
Company believes is effective in the treatment of leukemias, based upon its own
clinical studies and studies conducted by others on the Company's behalf.
Clofarabine may also be an effective agent to treat patients with solid tumor
cancers, based on preclinical studies and Phase I clinical trials performed to
date.
Modrenal(R) is a hormonal agent with a novel mode of action that makes it an
effective agent in patients with advanced breast cancer who have acquired
resistance to other hormonal agents. The Company launched Modrenal(R) in May
2003 in the United Kingdom, where it received regulatory approval for its use in
the treatment of post-menopausal breast cancer. In the second quarter of
calendar year 2005, the Company intends to apply for mutual recognition in
another four large European territories in an effort to gain approval for
Modrenal(R) in each such territory. The Company anticipates receiving approval
in each such territory during calendar 2005, but such approval is subject to the
appropriate regulatory decisions.
With Modrenal(R), the Company's strategy is to expand sales in the United
Kingdom and apply for mutual recognition to obtain the right to market and
distribute Modrenal(R) in the major European markets. The Company anticipates
receiving mutual recognition from major European Community member states by Q3
of calendar 2005. The Company intends to further U.S. development of Modrenal(R)
in prostate and breast cancer indications, subject to the ongoing results of its
clinical trials it is currently conducting in the U.S. and Europe.
The Company's secondary business strategy is to continue to develop its
portfolio of ancillary products and technologies. The Company anticipates that
revenues derived from clofarabine and Modrenal(R) and milestone payments and
royalties from the ancillary products will permit it to further develop its
portfolio of ancillary products and technologies.
NOTE B - Interim Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all the adjustments necessary to present fairly the
consolidated financial position of the Company as of September 30, 2004 and the
consolidated results of operations and cash flows for the three months ended
September 30, 2004 and 2003.
The condensed consolidated balance sheet at June 30, 2004 has been derived from
the audited financial statements at that date, but does not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. For further information,
refer to the audited consolidated financial statements and footnotes thereto
included in the Form 10-KSB filed by the Company for the year ended June 30,
2004.
The condensed consolidated results of operations for the three months ended
September 30, 2004 and 2003 are not necessarily indicative of the results to be
expected for any other interim period or for the full year.
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NOTE C - Stock Based Compensation
At September 30, 2004, the Company has stock based compensation plans which are
described more fully in the Company's annual report on Form 10-KSB for the year
ended June 30, 2004. As permitted by SFAS No. 123, "Accounting for Stock Based
Compensation," the Company accounts for stock based compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees." Compensation expense for stock
options issued to employees is based on the difference on the date of grant,
between the fair value of the Company's stock and the exercise price of the
option. Under APB 25, no stock based employee compensation cost is reflected in
reported net loss, when options granted to employees have an exercise price
equal to the market value of the underlying common stock at the date of grant.
For the three months ended September 30, 2004, the Company recognized stock
based employee compensation income of $197,908, as a result of the March 31,
2003 re-pricing of 380,000 options granted to an employee pursuant to the terms
of his employment contract. For the three months ended September 30, 2004, the
Company recorded compensation expense of $22,063, as a result of options granted
to certain employees.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling Goods or Services,"
as amended by EITF No. 00-27. Under EITF No. 96-18, where the fair value of the
equity instrument is more reliably measurable than the fair value of services
received, such services will be valued based on the fair value of the equity
instrument. The Company expects to continue applying the provisions of APB
Opinion No. 25 for equity issuances to employees.
The following table illustrates the effect on net loss and loss per share as if
the fair value based method had been applied to all outstanding and unvested
awards in each period.
Three months ended
September 30
------------
2004 2003
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Net loss available to common stockholders, $(3,086,666) $(2,823,015)
as reported ------------ ------------
Add: Stock based employee compensation (175,845) 714,883
recognized under fair value based method for all
awards
Deduct: Total stock based employee compensation (243,317) (986,100)
recognized under fair value based method --------- ---------
for all awards; net of related tax effects
Pro forma net loss $(3,505,828) $(3,094,232)
Loss per share ============ ============
Basic and diluted - as reported $ (0.11) $ (0.16)
Basic and diluted - pro forma $ (0.12) $ (0.22)
The fair value of options at the date of grant was established using the
Black-Scholes model with the following assumptions:
Three months ended
September 30
------------
2004 2003
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Expected life (years) 4 4
Risk free interest rate 3.35% 3.00%
Expected volatility 80.00% 80.00%
Expected dividend yield 0.00 0.00
NOTE D - Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common
shares outstanding during the periods.
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Diluted net loss per share is computed using the weighted average number of
common shares and potentially dilutive common shares outstanding during the
periods. Options and warrants to purchase 12,983,535 and 15,574,543 shares of
common stock have not been included in the calculation of net loss per share for
the three months ended September 30, 2004 and 2003, respectively, as their
effect would have been anti-dilutive.
NOTE E - License and Co-Development Agreements
Clofarabine
The Company has a license from Southern Research Institute ("SRI"), Birmingham,
Alabama, to develop and market purine nucleoside analogs which, based on
third-party studies conducted to date, may be effective in the treatment of
leukemia, lymphoma and certain solid tumor cancers. The lead compound of these
purine-based nucleosides is known as clofarabine. Under the terms of the
agreement with SRI, the Company was granted the exclusive worldwide license,
excluding Japan and Southeast Asia, to make, use and sell products derived from
the technology for a term expiring on the date of expiration of the last patent
covered by the license (subject to earlier termination under certain
circumstances), and to utilize technical information related to the technology
to obtain patent and other proprietary rights to products developed by the
Company and by SRI from the technology. Initially, the Company is developing
clofarabine for the treatment of leukemia and lymphoma and studying its
potential role in treatment of solid tumors.
In August 2003, SRI granted the Company an irrevocable, exclusive option to
make, use and sell products derived from the technology in Japan and Southeast
Asia. The Company intends to convert the option to a license upon sourcing an
appropriate co-marketing partner to develop these rights in such territory.
To facilitate the development of clofarabine, the Company entered into a
co-development agreement with ILEX Oncology, Inc. ("ILEX") in March 2001 for the
development of clofarabine in cancer indications. Under the terms of the
co-development agreement, ILEX is required to pay all development costs in the
United States and Canada, and 50% of approved development costs worldwide
outside the U.S. and Canada (excluding Japan and Southeast Asia), in each case,
for the development of clofarabine in cancer indications. ILEX is responsible
for conducting all clinical trials and the filing and prosecution of
applications with applicable regulatory authorities in the United States and
Canada in cancer indications. The Company retains the right to handle those
matters in all territories outside the United States and Canada (excluding Japan
and Southeast Asia) and retains the right to handle these matters in the U.S.
and Canada in all non-cancer indications. The Company retained the exclusive
manufacturing and distribution rights in Europe and elsewhere worldwide, except
for the United States, Canada, Japan and Southeast Asia. Under the
co-development agreement, ILEX will have certain rights if it performs its
development obligations in accordance with that agreement. The Company would be
required to pay ILEX a royalty on sales outside the U.S., Canada, Japan and
Southeast Asia. In turn, ILEX, which would have U.S. and Canadian distribution
rights in cancer indications, would pay the Company a royalty on sales in the
U.S. and Canada. In addition, the Company received $7.5 million in milestone
payments from ILEX throughout the U.S. drug development program. Under the terms
of the co-development agreement, ILEX also pays royalties to Southern Research
Institute based on certain milestones. The Company also is obligated to pay
certain milestones and royalties to Southern Research Institute with respect to
clofarabine.
The Company received a nonrefundable upfront payment of $1.35 million when it
entered into the co-development agreement with ILEX and received an additional
$3.5 million in December 2003 when it converted ILEX's option to market
clofarabine in the U.S. into a sublicense. The Company received an additional
(i) $2 million in April 2004 upon ILEX's filing the New Drug Application for
clofarabine with FDA and (ii) $2 million from ILEX in September 2004 in
connection with the achievement of the NDA filing. The Company deferred the
upfront payment and recognized revenues ratably, on a straight-line basis over
the related service period, through December 2002. The Company has deferred the
milestone payments received to date and recognizes revenues ratably, on a
straight line basis over the related service period, through March 2021. For the
three months ended September 30, 2004 and 2003, the Company recognized revenues
of approximately $110,000, and $0, respectively, 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 ILEX. The Company
defers all royalty payments made to SRI and recognizes these costs ratably, on a
straight-line basis concurrent with revenue that is recognized in connection
with research and development costs including approximately $55,000 and $0 for
the three months ended September 30, 2004 and 2003, respectively, related to
such charges.
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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. The Company has no plans to establish its own
manufacturing facility for Modrenal(R), but will continue to use third-party
contractors.
The Company received a nonrefundable upfront payment of $1.25 million when it
entered into the License and Sublicense Agreement with Dechra Pharmaceuticals in
May 2003. The Company deferred the upfront payment and recognizes revenues
ratably, on a straight-line basis over the related service period, through May
2014. The Company recognized revenues of approximately $28,000 and $29,000 in
connection with the upfront payment from Dechra for the three months ended
September 30, 2004 and 2003, respectively.
Deferred costs include royalty payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Dechra in May 2003. The Company defers all royalty payments made
to Stegram and recognizes these costs ratably, on a straight-line basis
concurrent with revenue that is recognized in connection with the Dechra
agreement. Research and Development costs include approximately $5,700 and
$5,800 for the three months ended September 30, 2004 and 2003, respectively.
Anti-Estrogen Prostate. We received Institutional Review Board approval from the
Dana Faber Cancer Institute for a Phase II study of trilostane for the treatment
of androgen independent prostate cancer. The study is being conducted by The
Dana Faber Cancer Institute and commenced in July 2004.
Operational Developments
In June 2003, the Company entered into a supply agreement with Ferro-Pfanstiehl
Laboratories ("Ferro"), pursuant to which Ferro has agreed to manufacture and
supply 100% of Bioenvision's global requirements for clofarabine-API. Subject to
certain circumstances, this agreement will expire on the fifth anniversary date
of the first regulatory approval of clofarabine drug product.
In June 2003, the Company entered into a development agreement with Ferro,
pursuant to which Ferro agreed to perform certain development activities to
scale up, develop, finalize, and supply CTM and GMP supplier qualifications of
the API- clofarabine. Subject to certain circumstances, this agreement expires
upon the completion of the development program. The development agreement is
milestone-based and payments are to be paid upon completion of each milestone.
If Ferro has not completed the development agreement by December 2007, the
development agreement will automatically terminate without further action by
either party.
In May 2003, we entered into a sub-license agreement with Dechra, pursuant to
which Dechra has been granted a sub-license for all of Bioenvision's rights and
entitlements to market and distribute Modrenal(R) in the United States and
Canada solely in connection with animal health applications. Subject to certain
circumstances, this agreement expires upon expiration of the last patent related
to Modrenal(R) or the completion of the last royalty set forth in the agreement.
Through September 30, 2004, we have recognized revenue and costs related to this
agreement of approximately $155,000 and $31,000 respectively. The Company
received an upfront non-refundable payment of $1.25 million upon execution of
this agreement and may receive up to an additional $3.75 million upon the
achievement by Dechra of certain milestones set forth in the agreement.
In May 2003, we entered into a master services agreement with
Penn-Pharmaceutical Services Limited ("Penn"), pursuant to which Penn has agreed
to label, package and distribute clofarabine on our behalf and at our request.
The services to be performed by Penn also include regulatory support and the
manufacture, quality control, packaging and distribution of proprietary
medicinal products including clinical trials supplies and samples. Subject to
certain circumstances, the term of this agreement is twelve months and renews
for subsequent twelve month periods unless either party tenders notice of
termination upon no less than three month prior written notice.
In April 2003, we entered into an exclusive license agreement with CLL-Pharma
("CLL"), pursuant to which CLL has agreed to perform certain development works
and studies to create a new formulation of Modrenal(R). CLL intends to use its
proprietary MIDDS.-patented technology to perform this service on behalf of the
Company. This new formulation, once in hand, will allow the Company to apply for
necessary authorization, as required by applicable European health authorities,
to sell Modrenal(R) throughout Europe. Through September 30, 2004, the Company
paid an advance of $175,000 related to development services provided by CLL over
an eighteen month period, which advance was initially recorded as a prepaid
development cost by the Company.
-7-
NOTE F - Equity Transactions
In June 2002, the Company granted options to an officer of the Company to
purchase 380,000 shares of common stock at an exercise price of $1.95 per share,
which equaled the stock price on the date of grant. Of this amount 50,000
options vested on June 28, 2002 and the remaining 330,000 options vest ratably
over a three-year period on each anniversary date. On March 31, 2003, the
Company entered into an Employment Agreement with such officer of the Company,
pursuant to which, among other things, the exercise price for all of the 380,000
options were changed to $0.735 per share, which equaled the stock price on that
date. In addition, the Company issued an additional 120,000 options at an
exercise price of $.735 per share which vest immediately. As a result of the
repricing of all of the 380,000 options, the Company will remeasure the
intrinsic value of these options at the end of each reporting period and will
record a charge for compensation expense to the extent the vested portion of the
options are in the money. For the three months ended September 30, 2004 and
2003, the Company recognized stock based income (expense) of approximately
$198,000 and $(715,000), respectively, due the re-pricing of said options.
The Company recorded compensation expense of $22,063 for the three months ended
September 30, 2004 as a result of 505,000 options issued to certain employees on
January 20, 2004.
On January 20, 2004, the Company granted 25,000 options to Dr. Michael Kauffman
for serving as a member of the Board of Directors, at an exercise price of $4.55
per share which vest ratably on the first and second anniversaries of the grant
date. The Company recognized $11,805 as a consulting expense for the three
months ended September 30, 2004 relating to said options.
On June 22, 2004, the Company entered into a consulting agreement pursuant to
which the consultant will provide certain investor relations services on behalf
of the Company. In connection therewith, the Company issued a warrant to said
consultant pursuant to which he has the right to purchase 50,000 shares of the
Company's common stock at a price of $8.25 per share upon the completion of
certain milestones, as set forth in such agreement. The Company recorded
$218,430 as consulting expense for the three months ended September 30, 2004
relating to said 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 upon satisfaction of certain
milestones included in the warrant. The Company recorded $155,396 as consulting
expense for the three months ended September 30, 2004 relating to said warrants.
On August 9, 2004, the Company issued two warrants to a consultant pursuant to
which said consultant has the right to purchase 45,000 shares of the Company's
common stock at a price of $6.10 per share. The Company recorded $181,313 as
consulting expense for the three months ended September 30, 2004 relating to
said warrants.
During the three months ended September 30, 2004, certain warrant holders of the
Company exercised their warrants to acquire 214,277shares of the Company's
common stock. The Company received proceeds of approximately $117,500 during the
three months ended September 30, 2004 from the exercise of warrants.
During the three month period ended September 30, 2004, certain holders of
options to purchase an aggregate of 66,732 shares of the Company's common stock
were exercised. The Company received proceeds of $62,500 during the three months
ended September 30, 2004 from the exercise of options.
NOTE G - Related Party Transactions
In May 2002, we completed a private placement pursuant to which we issued an
aggregate of 5,916,666 shares of Series A convertible participating preferred
stock for $3.00 per share and warrants to purchase an aggregate of 5,916,666
shares of common stock and in March of 2004 we consummated a private placement
pursuant to which we raised $12.8 million with a second closing in May 2004 in
which we raised an additional $3.5 million. An affiliate of SCO Capital Partners
LLC, one of our stockholders, served as financial advisor to the Company in
connection with these financings and earned a placement fee of approximately
$1.2 million in connection with May 2002 private placement and a placement fee
of $1.1 million and warrants to purchase 260,291 shares of common stock for
$6.25 per share for the March and May 2004 financings.
NOTE H - New Accounting Pronouncements
In May 2003, the Emerging Issues Task Force ("EITF") reached a consensus on EITF
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). EITF 00-21 provides guidance on how to determine when an arrangement
that involves multiple revenue-generating activities or deliverables should be
divided into separate units of
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accounting for revenue recognition purposes, and if this division is required,
how the arrangement consideration should be allocated among the separate units
of accounting. The guidance in the consensus is effective for revenue
arrangements entered into in quarters beginning after June 15, 2003. The
adoption of EITF 00-21 did not impact the Company's consolidated financial
position or results of operations, but could affect the timing or pattern of
revenue recognition for future collaborative research and/or license agreements.
NOTE I - Litigation
On April 1, 2003, RLB Capital, Inc. filed a complaint against the Company in
the Supreme Court of the State of New York (Index No. 601058/03). The Complaint
alleged a breach of contract by the Company and demanded judgment against the
Company for $112,500 and warrants to acquire 75,000 shares of the Company's
common stock. The Company submitted its Verified Answer on June 25, 2003 and, in
pertinent part, denied RLB's allegations and asserted counterclaims based on
negligence. In September 2003, the Company filed a motion for summary judgment
and RLB filed its response on October 27, 2003. On November 12, 2003, the
Supreme Court granted the motion for summary judgment and the complaint was
dismissed. In March 2004, the complaint and two counterclaims asserted by the
Company were dismissed with prejudice.
On December 19, 2003, the Company filed a complaint against Dr. Deidre Tessman
and Tessman Technology Ltd. (the "Tessman Defendants") in the Supreme Court of
the State of New York, County of New York (Index No. 03-603984). An amended
complaint alleges, among other things, breach of contract and negligence by
Tessman and Tessman Technology and demands judgment against Tessman and Tessman
Technology in an amount to be determined by the Court. The Tessman Defendants
removed the case to federal court, then remanded it to state court and served an
answer with several purported counterclaims. The Company denies the allegations
in the counterclaims and intends to pursue its claims against the Tessman
Defendants vigorously.
-9-
BIOENVISION, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
Except for historical information contained herein, this quarterly report on
Form 10-QSB 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 an "
Managements 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 and should be read
in conjunction with the accompanying financial statements and related notes.
Overview
We are an emerging biopharmaceutical company that develops and markets drugs to
treat cancer. Our two lead drugs are clofarabine and Modrenal(R), although we
have several other products and technologies under development. As of November
8, 2004, we employ eleven full-time and four part-time employees based in New
York, New York and Edinburgh, Scotland.
Our primary business strategy relates to our two lead drugs, clofarabine and
Modrenal(R). With clofarabine, our strategy is to complete drug development in
Europe and obtain marketing authorization from the European regulatory
authorities to market and distribute clofarabine in Europe for the treatment of
pediatric and adult acute leukemias (ALL and AML). We anticipate launching
clofarabine in Europe in mid-2005, subject to our obtaining from the European
regulatory authorities the first approval for clofarabine which is expected to
be for pediatric ALL and AML. We will continue clinical trials in other
indications with the intention of aggressively seeking label extensions after
clofarabine's first approval, including our Pivotal Phase II trial of
clofarabine in adults with Acute Myeloid Leukemia (AML) which commenced in
August 2004 and is ongoing. Following this strategy, throughout the world,
approximately two-thirds of the cancer patients dosed with clofarabine to date
fall outside of the pediatric acute leukemias.
With Modrenal(R), our strategy is to expand sales in the United Kingdom and
apply for mutual recognition to obtain the right to market and distribute
Modrenal(R) in the major European markets. We anticipate receiving mutual
recognition from major European Community member states by Q3 of calendar 2005.
We intend to further U.S. development of Modrenal(R) in prostate and breast
cancer indications, subject to the ongoing results of our clinical trials we are
currently conducting in the U.S. and Europe.
Our secondary business strategy is to continue to develop our portfolio of
ancillary products and technologies. We anticipate that revenues derived from
clofarabine and Modrenal(R) and milestone payments and royalties from the
ancillary products will permit us to further develop our portfolio of ancillary
products and technologies.
Over the next 12 months, we intend to continue our internal growth strategy to
provide the necessary regulatory, sales and marketing capabilities which will be
required to pursue the expanded development programs for clofarabine and
Modrenal(R) described above.
Clofarabine is a small molecule and a purine nucleoside analogue, which we
believe is effective in the treatment of leukemias, based upon our own clinical
studies and studies conducted by others on our behalf. Clofarabine may also be
an effective agent to treat patients with solid tumor cancers, based on
preclinical studies and Phase I clinical trials performed to date.
In July 2004, we filed for approval of clofarabine in Europe to treat children
with pediatric acute leukemia (ALL and AML). Further, we are conducting a
Pivotal Phase II clinical trial of clofarabine, as first line therapy for the
treatment of adults with
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Acute Myeloid Leukemia (AML). Also in Europe, at our direction, an Investigator
Sponsored Trial of clofarabine as first-line therapy for adults with AML was
completed ahead of schedule and an interim analysis indicates a 64% complete
response rate observed in this patient population.
In the U.S., ILEX Oncology, Inc., our sub-licensor of U.S. and Canadian cancer
marketing rights, filed a New Drug Application ("NDA") in March 2004 for
approval of clofarabine to treat children with acute leukemias (ALL or AML). The
NDA was based upon results of two Pivotal Phase II clinical trials completed by
ILEX prior to the NDA filing. In connection with the NDA, the United States Food
and Drug Administration (the "FDA") has set a Prescription Drug User Fee Act
("PDUFA") response date at December 30, 2004. A PDUFA date is the is the date by
which the FDA is expected to review and act upon an NDA submission. Clofarabine
will be reviewed by the FDA Oncologic Drug Advisory Committee ("ODAC") on
December 1, 2004.
In January, 2002, the European orphan drug application for use of clofarabine to
treat acute leukemia in adults was approved. Orphan Drug Designation provides
the Company with ten years of market exclusivity in Europe for clofarabine, upon
grant of marketing authorization. The drug has also been granted orphan drug
status and "fast track" treatment by the FDA. Further, in July 2004, the FDA
granted six months of extended market exclusivity to clofarabine under the Best
Pharmaceuticals for Children Act.
In August 2003, we obtained the exclusive, irrevocable option to sell, market
and distribute clofarabine in Japan and Southeast Asia from the inventor of
clofarabine. These rights were not previously granted by Southern Research
Institute and fall outside the scope of the Company's then current licensing and
development contracts with respect to clofarabine. We originally obtained an
exclusive license from Southern Research Institute to sell, market and
distribute clofarabine throughout the world, except for Japan and Southeast
Asia, for all human applications, pursuant to a co-development agreement, dated
August 31, 1998, between the Company and Southern Research Institute. On March
12, 2001, we granted an exclusive option to sell, market and distribute
clofarabine in the U.S. and Canada to ILEX Oncology, Inc. We converted ILEX's
option to an exclusive sublicense on December 30, 2003. Accordingly, we do not
possess the rights to sell, market and distribute clofarabine for cancer
indications in the U.S.
Modrenal(R) is a hormonal agent with a novel mode of action that makes it an
effective agent in patients with advanced breast cancer who have acquired
resistance to other hormonal agents. We launched Modrenal(R) in May 2003 in the
United Kingdom, where we have received regulatory approval for its use in the
treatment of post-menopausal breast cancer. In the second quarter of calendar
2005, we intend to apply for mutual recognition in another four large European
territories in an effort to gain approval for Modrenal(R) in each such
territory. We anticipate receiving approval in each such territory during
calendar 2005, but such approval is subject to the appropriate regulatory
decisions.
In the U.S., we filed an IND to conduct Modrenal(R) clinical trials for prostate
cancer in February 2004 and commenced enrolling patients in this clinical trial
in July 2004. Further, we intend to seek regulatory approval for Modrenal(R) in
the United States as salvage therapy for hormone-sensitive breast cancer upon
completion of additional clinical studies.
We originally obtained an exclusive license from Stegram Pharmaceuticals Ltd. to
sell, market and distribute Modrenal(R) throughout the world, except for South
Africa, for all human and animal health applications, pursuant to a
co-development agreement dated July 15, 1998.
Company Status
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 emerging stage. Our management believes that we have
the opportunity to become a leading oncology-focused pharmaceutical company in
the next four years if we successfully bring clofarabine to market and if mutual
recognition is granted for Modrenal(R) in the largest European commercial
markets.
We anticipate that revenues derived from our two lead drugs, clofarabine and
Modrenal(R) will permit us to further develop the other products currently in
our product pipeline. We anticipate the launch of clofarabine in Europe by
mid-2005 and further anticipate reaching profitability within 12 months
following the marketing launch for clofarabine in Europe.
We commenced marketing one of our lead products, Modrenal(R), in June 2003 and
have commenced building out our internal infrastructure of sales and marketing
professionals to sell Modrenal(R) and to conduct pre-marketing activities for
clofarabine in Europe. Management believes it can create synergies through
internal growth by developing a sales and marketing presence which will be in
position to sell both lead drugs at lead European cancer centers across a broad
range of cancer indications.
-11-
Further, we intend to continue developing our existing platform technologies
with a primary business focus on drugs to treat cancer, and commercializing
products derived from such technologies. As a result of the acquisition of
Pathagon, Inc. in February 2002, we have several anti-infective technologies.
These include the OLIGON(R) technology, an advanced biomaterial that has been
approved for certain indications by the FDA in the U.S., and is being sold by a
product co-development partner, and the use of thiazine dyes, such as methylene
blue, which are used for in vitro and in vivo inactivation of pathogens
(viruses, bacteria and fungus) in biological fluids. It is not the Company's
strategy to sell devices or to expand into the anti-infective market per se, but
the technology obtained in the Pathagon acquisition has specific application for
support of the cancer patient and oncology treatment. 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 ("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 United
States and Canada, to Dechra. We received $1.25 million in cash, together with
future milestone and royalty payments which are contingent upon the occurrence
of certain events. We intend to continue to try and capitalize on these types of
opportunities as they arise.
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 respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. 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
We have acquired development and marketing rights to a portfolio of six platform
technologies from which a range of products have been derived and additional
products may be developed in the future. Although we intend to commence
marketing our lead product, Modrenal(R), and to continue developing our existing
platform technologies and commercializing products derived from such
technologies, a key element of our business strategy is to continue to develop
new technologies and products that we believe offer unique market opportunities
and/or complement our existing product lines. Once a product or technology has
been launched into the market for a particular disease indication, we plan to
work with numerous collaborators, both pharmaceutical and clinical, in the
oncology community to extend the permitted uses of the product to other
indications. In order to market our products effectively, we intend to develop
marketing alliances with strategic partners and may co-promote and/or co-market
in certain territories.
The Company recorded revenues for the three months ended September 30, 2004 and
2003 of approximately $1,085,000 and $830,000, respectively, representing an
increase of $255,000. Of the revenues recorded for the three months ended
September 30, 2004, approximately $830,000 was recognized from ILEX, pursuant to
the Co-Development Agreement, and approximately $189,000 was recognized from
Stegram Pharmaceuticals under the Stegram Co-Development Agreement.
-12-
Research and development costs for the three months ended September 30, 2004 and
2003 were approximately $2,139,000 and $804,000, respectively, representing an
increase of $1,335,000.
Our research and development costs include costs associated with six projects,
four of which, the Company devotes significant time and resource. Clofarabine
research and development costs for the three months ended September 30, 2004 and
2003 were approximately $1,880,000 and $436,000, respectively, representing an
increase of approximately $1,444,000. The increase primarily reflects costs
which are associated with our increased development activities and clinical
trials being conducted in Europe and costs associated with our filing a Common
Technical Document with EMEA for approval of clofarabine for the treatment of
pediatric acute leukemias, which filing occurred in July 2004.
Modrenal(R) research and development costs for the three months ended September
30, 2004 and 2003 were approximately $250,000 and $283,000, respectively,
representing a decrease of $33,000. The decrease primarily reflects our
increased focus on clofarabine during this period, including the filing for
approval of clofarabine in Europe which occurred in July 2004.
Gossypol research and development costs for the three months ended September 30,
2004 and 2003 were approximately $8,000 and $64,000, respectively, representing
a decrease of $56,000. The decrease primarily reflects our increased focus on
clofarabine during this period, including the filing for approval of clofarabine
in Europe which occurred in July 2004.
The clinical trials and development strategy for the clofarabine and Modrenal(R)
projects, in each case, is anticipated to cost several million dollars and will
continue for several years based on the number of clinical indications within
which we plan to develop these drugs. Currently, management cannot estimate the
timing or costs associated with these projects because many of the variables,
such as interaction with regulatory authorities and response rates in various
clinical trials, are not predictable. Total costs to date for four of our
projects is as follows: (i) clofarabine research and development costs have been
approximately $7,500,000; (ii) Modrenal(R) research and development costs have
been approximately $4,600,000; (iii) Gossypol research and development costs
have been approximately $308,000; and (iv) Gene Therapy research and development
costs have been approximately $450,000. Our other two research and development
projects involve our two ancillary technologies; OLIGON and Methylene Blue. We
do not currently devote any significant time or resources to these research and
development projects, but we intend to do so if and to the extent we
successfully commercialize our lead drugs, clofarabine and Modrenal(R), over the
next two years.
Selling, general and administrative expenses for the three months ended
September 30, 2004 and 2003 were approximately $1,756,000 and $2,438,000,
respectively, representing a decrease of $681,000. The decrease primarily
relates to stock based compensation recorded during the period resulting from
the repricing of the options issued to an officer of the Company.
Depreciation and amortization expense for the three months ended September 30,
2004 and 2003 were $340,000 and $340,000, respectively.
Liquidity and Capital Resources
We anticipate that we may continue to incur significant operating losses for the
foreseeable future. There can be no assurance as to whether or when we will
generate material revenues or achieve profitable operations.
The Company received a nonrefundable upfront payment of $1.35 million when it
entered into the co-development agreement with ILEX and received an additional
$3.5 million in December 2003 when it converted ILEX's option to market
clofarabine in the U.S. into a sublicense. The Company received an additional
(i) $2 million in April 2004 upon ILEX's filing the New Drug Application for
clofarabine with FDA and (ii) $2 million from ILEX in September 2004 in
connection with ILEX having completed such NDA filing. The Company deferred the
upfront payment and recognized revenues ratably, on a straight-line basis over
the related royalty period, through December 2002. The Company has deferred the
milestone payments received to date and recognizes revenues ratably, on a
straight line basis over the related service period, through March 2021. For the
three months ended September 30, 2004, the Company recognized revenues of
approximately $111,000 in connection with the milestone payments received to
date.
Deferred costs included royalty payments that became due and payable to SRI upon
the Company's execution of the co-development agreement with ILEX. The Company
defers all royalty payments made to SRI and recognizes these costs ratably, on a
straight-line basis, concurrent with revenue that is recognized in connection
with the ILEX agreement. Research and Development costs include approximately
$55,000 for the three months ended September 30, 2004 related to such charges.
-13-
The Company received a nonrefundable upfront payment of $1.25 million when it
entered into the License and Sublicense Agreement with Dechra Pharmaceuticals in
May 2003. The Company deferred the upfront payment and recognizes revenues
ratably, on a straight-line basis over the related royalty period, through May
2014. The Company recognized revenues of approximately $28,000 and $29,000 in
connection with the upfront payment from Dechra for the three months ended
September 30, 2004 and 2003, respectively.
Deferred costs include royalty payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Dechra in May 2003. The Company defers all royalty payments made
to Stegram and recognizes these costs ratably, on a straight-line basis
concurrent with revenue that is recognized in connection with the Dechra
agreement. Research and Development costs include approximately $5,700 and
$5,800 for the three months ended September 30, 2004 and 2003, respectively.
On May 7, 2002 we authorized the issuance and sale of up to 5,920,000 shares of
Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock
may be converted into shares of common stock at an initial conversion price of
$1.50 per share of common stock, subject to adjustment for stock splits, stock
dividends, mergers, issuances of cheap stock and other similar transactions.
Holders of Series A Convertible Preferred Stock also received, in respect of
each share of Series A Convertible Preferred Stock purchased in a private
placement which took place in May 2002, one warrant to purchase one share of our
common stock at an initial exercise price of $2.00 subject to adjustment.
Through May 16, 2002 we have sold an aggregate of 5,916,666 shares of Series A
Convertible Preferred Stock in the May 2002 private placement for $3.00 per
share and warrants to purchase an aggregate of 5,916,666 shares of common stock,
resulting in aggregate gross proceeds of approximately $17,750,000. A portion of
the proceeds were used to repay in full the Jano Holdings and SCO Capital
obligations upon which such facilities were terminated as well as to repay fees
amounting to $1,610,000 related to the transaction.
On March 22, 2004, we consummated a private placement transaction, pursuant to
which we raised $12.8 million and issued 2,044,514 shares of our common stock
and warrants to purchase an additional 408,903 shares of our common stock at a
conversion price of $7.50 per share. We recorded proceeds of $11,792,801 net of
all legal, professional and financing fees incurred in connection with the
offering. We consummated a second closing for this financing on May 13, 2004 in
order to comply with certain contractual obligations to our holders of Series A
Convertible Preferred Stock which hold preemptive rights for equity offerings.
We raised an additional $3.2 million (net of all legal, professional and
financial services incurred) from the second closing and issued an additional
558,384 shares of our common stock and warrants to purchase 111,677 shares of
our common stock at a conversion price of $7.50 per share.
On September 30, 2004, we have cash and cash equivalents of approximately
$17,663,000 and working capital of $16,396,000 which management believes will be
sufficient to continue currently planned operations over the next 12 months. We
can not ensure additional funds will not be raised during the next twelve months
because of the significant scale up of our operating activities, including
clofarabine development, the potential launch of clofarabine, and the launch of
Modrenal(R). However, if required or desirable, there can be no assurance that
suitable debt or equity financing will be available for the Company. Further,
although we do not currently plan to acquire or obtain licenses for new
technologies, if any such opportunity arises and we deem it to be in our
interests to pursue such an opportunity, it is possible that additional
financing would be required for such a purpose.
We anticipate that we may continue to incur significant operating losses for the
foreseeable future. There can be no assurance as to whether or where we will
generate material revenues or achieve profitable operations.
The Company has the following commitments as of September 30, 2004:
Payments Due in
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Total 2005 2006 2007 Thereafter
---------------------------------------------------------------------------------------------------
Employee Contracts 824,539 662,039 162,500 - -
---------------------------------------------------------------------------------------------------
Occupancy Lease and Automobiles 1,547,435 259,105 332,043 323,855 632,432
---------------------------------------------------------------------------------------------------
Total 2,371,974 921,144 494,543 323,855 632,432
---------------------------------------------------------------------------------------------------
The Company leased 3,229 square feet under a lease that expires on September 30,
2005. This lease was terminated on October 31, 2004.
-14-
Subsequent Events
On October 25, 2004, the Company filed a $90 million shelf registration
statement with the Securities and Exchange Commission. The Company announced
that, if consummated, the proceeds from the offering would be used for the
marketing launch of clofarabine in Europe and expanding the Company's existing
sales and marketing infrastructure to accommodate European sales of both
clofarabine and Modrenal(R).
On October 20, 2004, the Company appointed Dr. Achim Mueller to serve as
European Marketing Manager and appointed Mr. Robert Bradbury to serve as U.K.
Sales Manager. Further, in November 2004, the Company commenced development of
its sales infrastructure by appointing four U.K. sales representatives. The
Company intends to hire additional sales representatives in the U.K. and in
other European countries over the course of the next 12 months.
In October, 2004, the Company executed a Sublease Agreement pursuant to which we
sublease 5,549 square feet of commercial space at 345 Park Avenue, 41st Floor,
New York, NY 10154, which is the new location of the Company's principal
executive offices. Subject to the terms and conditions of the Sublease
Agreement, the lease expires on December 31, 2009.
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-QSB. 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.
In connection with its review of the Company's consolidated financial statements
for and as of the three month period ended March 31, 2004, Grant Thornton LLP
("Grant Thornton"), the Company's independent accountants, advised the Audit
Committee and management of certain significant internal control deficiencies
that they considered to be, in the aggregate, a material weakness, including,
inadequate staffing and supervision leading to the untimely identification and
resolution of certain accounting matters; failure to perform timely reviews,
substantiation and evaluation of certain general ledger account balances; lack
of procedures or expertise needed to prepare all required disclosures; and
evidence that employees lack the qualifications and training to fulfill their
assigned functions. Grant Thornton indicated that they considered these
deficiencies to be a material weakness as that term is defined under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a significant deficiency in one or more of the internal
control components that alone or in the aggregate precludes our internal control
from reducing to an appropriately low level the risk that material misstatements
in our financial statements will not be prevented or detected on a timely basis.
The Company considered these matters in connection with the quarter end closing
of accounts and preparation of related quarterly financial statements at and as
of March 31, 2004 and determined that no prior period financial statements were
materially affected by such matters.
In response to the observations made by Grant Thornton, the Company will proceed
more expeditiously with its existing plan to enhance the Company's internal
controls and procedures, which it believes addresses each of the matters raised
by Grant Thornton.
Changes in Internal Controls
We enhanced our internal control procedures in March 2004 by adding a full-time
dedicated accountant with more than seven years work experience to the staff in
our principal executive offices in New York, New York. Our accountant works
directly for our outsourced accounting firm which assists us in the preparation
and finalization of our accounts on an ongoing basis. Her responsibilities
include preparation of the Company's financial statements on a quarterly and
annual basis and preparation of budget-to-actual analyses on a quarterly basis.
Our management intends to expand her responsibilities on our behalf to include
preparation of monthly financial statements and monthly and annual
budget-to-actual analyses. We believe the addition of this dedicated resource
will further enhance the Company's internal control over financial reporting in
the near term, which management will continue to monitor on a regular basis.
In June 2004, we hired a new employee to serve as our Vice President, Corporate
Compliance and Associate General Counsel. This new employee has five years of
corporate law experience with a full-service internationally based law firm in
-15-
the office located in New York, New York. She has represented several public
companies and is knowledgeable with respect to contract law, the requirements
under the Sarbanes-Oxley Act and other areas of public disclosure. We intend to
continue to streamline the responsibilities of our Chief Financial Officer and
General Counsel to permit him to focus more of his time and effort, as needed,
on the accounting and financial reporting needs of the Company.
Further, in July 2004, the Company adopted, and management implemented, a
comprehensive set if internal accounting controls, which were approved by the
audit committee.
BIOENVISION, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 1, 2003, RLB Capital, Inc. filed a complaint against the Company in the
Supreme Court of the State of New York (Index No. 601058/03). The Complaint
alleged a breach of contract by the Company and demanded judgment against the
Company for $112,500 and warrants to acquire 75,000 shares of the Company's
common stock. The Company submitted its Verified Answer on June 25, 2003 and, in
pertinent part, denied RLB's allegations and asserted counterclaims based on
negligence. In September 2003, the Company filed a motion for summary judgment
and RLB filed its response on October 27, 2003. In December 2003, the Supreme
Court granted the motion for summary judgment and the complaint was dismissed.
In March 2004, the complaint and two counterclaims asserted by the Company were
dismissed with prejudice.
On December 19, 2003, the Company filed a complaint against Dr. Deidre Tessman
and Tessman Technology Ltd. (the "Tessman Defendants") in the Supreme Court of
the State of New York, County of New York (Index No. 03-603984). An amended
complaint alleges, among other things, breach of contract and negligence by
Tessman and Tessman Technology and demands judgment against Tessman and Tessman
Technology in an amount to be determined by the Court. The Tessman Defendants
removed the case to federal court, then remanded it to state court and served an
answer with several purported counterclaims. The Company denies the allegations
in the counterclaims and intends to pursue its claims against the Tessman
Defendants vigorously.
Item 2. Changes in 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
There is no other information to report that is material to the Company's
financial condition not previously reported.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
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 Financial Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Christopher B. Wood , Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
-16-
32.2 Certification of David P. Luci, Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant Section 906 of the
Sarbanes-Oxley Act of 2002.
(B) Reports on Form 8-K:
None.
-17-
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 15, 2004 By: /s/ Christopher B. Wood M.D.
----------------------------
Christopher B. Wood M.D.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 15, 2004 By: /s/ David P. Luci
----------------
David P. Luci
Chief Financial Officer and General Counsel
(Principal Financial and Accounting Officer)
EXHIBIT INDEX
Exhibit No.
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 Financial Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Christopher B. Wood , 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 David P. Luci, Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.