**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**





**FORM
10-K**


**FOR
ANNUAL AND SPECIAL REPORTS**


**PURSUANT
TO SECTIONS 13 OR 15 (d) OF THE**


**SECURITIES
EXCHANGE ACT OF 1934**




x  **ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES** **EXCHANGE
ACT OF 1934**




**For
the fiscal year ended December 31, 2004**





**OR**




**TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** **SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]**




**Commission
File Number: 0-25544**







**_______________**


**Miravant
      Medical Technologies**(Exact
      name of Registrant as specified in its
charter)


Delaware
    77-0222872(State
      or other jurisdiction of
    (IRS
      Employer Identification No.)incorporation
      or organization)





336
      Bollay Drive, Santa Barbara, California 93117(Address
      of principal executive offices, including zip
code)





(805)
      685-9880(Registrant’s
      telephone number, including area code)





Securities
Registered pursuant to Section 12(b) of the Act: **None**




Securities
registered pursuant to Section 12(g) of the Act:


**Common
Stock, $0.01 Par Value**


**Common
Share Purchase Rights**




Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]




Indicate
by check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]




Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).




Yes [ ].
No [X].




The
approximate aggregate market value of voting sto ck held
by non-affiliates as of June 30,
2004  based
upon the last sale price of the Common Stock of $1.61 per share, as reported on
the OTC
Bulletin Board®, was
approximately $42,879,000. For purposes of this calculation only, the registrant
has assumed that its directors and executive officers, and any person, who has filed a Schedule 13D
or 13G, is an affiliate.




The
number of shares of Common Stock outstanding as of M arch 14,
2005 was 37,049,842.













**DOCUMENTS
INCORPORATED BY REFERENCE**





Portions
of the following document are incorporated by reference into Part III of this
Form 10-K: the Proxy Statement for the Registrant’s 2005 Annual Meeting of
Stockholders, which Miravant currently anticipates holding in June 2005. A copy
of the proxy statement may be obtained, when available, upon written request to
the Corporate Secretary, Miravant Medical Technologies, 336 Bollay Drive, Santa
Barbara, CA 93117.





2








**MIRAVANT
MEDICAL TECHNOLOGIES**





**ANNUAL
REPORT ON FORM 10-K**


**FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2004**





**TABLE OF CONTENTS**


****









****
    **PART
      I**Item 1.
    Business
    4Item 2.
    Properties
    25Item 3.
    Legal
      Proceedings
    25Item 4.
    Submission
      of Matters to a Vote of Security-Holders
    25****
    **PART
      II**Item 5.
    Market
      for Registrant’s Common Equity and Related Stockholders
      Matters
    26Item 6.
    Selected
      Consolidated Financial Data
    27Item 7.
    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
    28Item 7A.
    Qualitative
      and Quantitative Disclosures About Market Risk
    65Item 8.
    Financial
      Statements and Supplementary Data
    65Item 9.
    Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
    94Item 9A.
    Controls
      and Procedures
    94Item 9B.
    Other
      Information
    94****
    **PART
      III**Item 10.
    Directors
      and Executive Officers of the Registrant
    95Item 11.
    Executive
      Compensation
    95Item 12.
    Security
      Ownership of Certain Beneficial Owners and Management
    95Item 13.
    Certain
      Relationships and Related Transactions
    95Item 14.
    Principal
      Accountant Fees and Services
    95****
    **PART
      IV**Item 15.
    Exhibits,
      Financial Statement Schedules and Reports on Form 8-K
    96Signatures
    101







3









**PART
I**





**SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS**





This
Annual Report on Form 10-K 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, which 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 recently branded for
ophthalmology indications as PHOTREXTM; 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; our ability to meet the covenants of 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; 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 March 2005 Debt Agreement and 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, see “Risk
Factors”, included in Item 7, for a discussion of certain risks, including those
relating to 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.





**ITEM
1.****BUSINESS**





**General**





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 PhotoPoint â . Our
drugs and devices are in various stages of development and require regulatory
approval prior to sales, marketing or clinical use.





4








Our most
advanced drug, PHOTREXTM (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 Europe. We have selected
Kendle International, Inc., an international clinical research organization, to
manage the clinical trial, which is to be conducted in the United Kingdom and
Central and Eastern Europe and is currently planned to commence in 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
may take a significant amount of time, and FDA approval, if any, is contingent
upon satisfying safety and efficacy requirements.





We
believe that PhotoPoint PDT is a platform technology that has the potential to
provide safe and effective treatments for a number of diseases including those
in ophthalmology, dermatology, cardiovascular disease and oncology. Our
current objective is to develop our PhotoPoint technology for disease
indications with large potential market opportunities and/or unmet medical
needs. Our strategy is to develop PhotoPoint PDT as a primary therapy and, where
appropriate, as a combination therapy with other treatments such as surgery or
drug therapy to achieve efficacious clinical results.





We
believe that commercial success will depend upon safety and efficacy outcomes,
regulatory approvals, competition, third-party reimbursements and other factors
such as the manufacturing, marketing, sales and distribution of our products. At
this time, the scope of our business is research and development with limited
manufacturing capabilities. For commercial manufacturing, marketing, sales and
distribution activities, we have selected and/or may elect to use outside
contractors and/or develop these capabilities internally, or seek strategic
collaborations with pharmaceutical and medical device partners in certain
therapeutic areas.





We have
been unprofitable since our founding and have incurred a cumulative net loss of
approximately $212.9 million as of December 31, 2004. We expect to continue to
incur significant, and likely increasing, operating losses over the next few
years, and we believe we will be required to obtain substantial additional debt
or equity financing to fund our operations during this time until we to 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.





We were
incorporated in Delaware in 1989 and, effective September 15, 1997, changed
our name from PDT, Inc. to Miravant Medical Technologies. Our executive offices
and the offices of our three subsidiaries, Miravant Pharmaceuticals, Inc.,
Miravant Systems, Inc. and Miravant Cardiovascular, Inc., are located at 336
Bollay Drive, Santa Barbara, California 93117 and maintain a small office in
Indianapolis, Indiana. Our telephone number is (805) 685-9880. Unless
otherwise indicated, all references to us also include our subsidiaries.





5








The
following is a summary of our recent significant events:





·
    Our
      primary focus from 2003 through 2004 was the preparation and filing of our
      NDA for marketing approval of PHOTREX (formerly known as SnET2), a new
      drug for the treatment of AMD and the related responses to requests by the
      FDA. In January 2003, we announced our plans to move forward with
      preparing our first NDA submission of PHOTREX for the treatment of AMD. We
      submitted the NDA on March 31, 2004, seeking marketing approval based on
      clinical results in the “per protocol” study population. The per protocol
      population consists of those patients who received the minimum exposure to
      the PHOTREX treatment regimen pre-specified in the clinical study
      protocol, comprising a sub-population of patients in the total study
      population. The NDA was accepted by the FDA for filing on June 1, 2004 and
      was given 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 Approvable Letter outlined the conditions for
      final marketing approval, which included a request for an additional
      confirmatory clinical trial, as well as certain other requirements.In
      February 2005, we announced that we would conduct a confirmatory Phase III
      clinical trial based on a Special Protocol Assessment bythe
      FDA;





·
    In
      March 2005, we entered into a Note and Warrant Purchase Agreement, or the
      March 2005 Debt Agreement, with the March 2005 Lender. The March 2005 Debt
      Agreement allows us to borrow up to $1.0 million per month, with any
      unused monthly borrowings to be carried forward. The maximum aggregate
      loan amount under the March 2005 Debt Agreement is $15.0 million with the
      last available borrowing in June 2006. The March 2005 Lender obligation to
      fund each borrowing request is subject to material conditions described in
      the March 2005 Debt Agreement. In addition, the March 2005 Lender may
      terminate its obligations under the March 2005 Debt Agreement at any time
      if Miravant in the reasonable judgment of the March 2005 Lender, is not
      meeting its business objectives and is subject to negative covenants and
      other restrictions. Each Note and accrued interest, if any, will be
      convertible into shares of our Common Stock at a conversion price of one
      hundred ten percent (110%) of the average monthly closing price of the
      month preceding the issuance of each Note. The notes earn interest
      quarterly at the prime rate plus three percent (3%) and at our option and
      subject to certain restrictions, we may make interest payments in cash or
      in shares of Common Stock. The borrowings are secured by our assets to the
      extent of the amount borrowed. In connection with each borrowing under the
      March 2005 Debt Agreement, we will issue a warrant to purchase one-quarter
      (1/4) of a share of Miravant Common Stock for each convertible share of
      Common Stock issued. The exercise price of each warrant will be equal to
      one hundred ten percent (110%) of the average monthly closing price of the
      month preceding the issuance of each Note. Each warrant will terminate on
      December 31, 2013, unless previously exercised. We have also agreed to
      provide the March 2005 Lender certain registration rights in connection
      with this transaction;





**·**
    In
      July 2004, we entered into a Collaboration Agreement and Securities
      Purchase Agreement with Advanced Cardiovascular Systems, Inc., a wholly
      owned subsidiary of Guidant Corporation, pursuant to which we sold
      1,112,966 shares of Series A Convertible Preferred Stock, resulting in
      proceeds to us of $3.0 million. Additionally, we can receive up to $4.0
      million in additional convertible preferred stock investments upon the
      completion of certain milestones related to our cardiovascular program.
      The $3.0 million of Preferred Stock purchased by Guidant is convertible
      into our Common Stock at $2.70 per share and includes registration rights
      for the underlying Common Stock. In addition, we are required to provide
      additional funding of at least $5.0 million over the period of the
      collaboration and the funds invested by Guidant must be spent on specified
      cardiovascular programs. The agreements also contain various covenant and
      termination provisions as defined by the
agreements;





·
    In
      April 2004, we entered into a Securities Purchase Agreement with a group
      of institutional investors, pursuant to which we sold 4,564,000 shares of
      Common Stock at $2.25 per share, resulting in proceeds to us of
      approximately $10.3 million;





6








·
    In
      February 2004, we entered into an Unsecured Convertible Debenture Purchase
      Agreement, or the February 2004 Debt Agreement, with certain private
      accredited investors, or the February 2004 Lenders. Under the February
      2004 Debt Agreement we issued $2.0 million worth of convertible
      debentures, convertible at $2.00 per share. As of March 14, 2005, all $2.0
      million of the Notes issued have been converted into 1.0 million shares of
      Common Stock; and




·
    In
      August 2003, we entered into a Convertible Debt and Warrant Purchase
      Agreement, or the August 2003 Debt Agreement, with certain private
      accredited investors, or the 2003 Lenders. Under the August 2003 Debt
      Agreement we borrowed $6.0 million, with interest accruing at 8% per year
      and due and payable quarterly, with the first interest payment due on
      October 1, 2003. The principal amount matures on August 28, 2006 and the
      debentures are convertible into shares of our Common Stock at a rate of
      one share per dollar of debt, subject to adjustment. At our option and
      subject to certain restrictions, we may make interest payments in cash or
      in shares of Common Stock. Upon the occurrence of certain events of
      default, the holders of the convertible debentures may require that they
      be repaid prior to maturity. In connection with the August 2003 Debt
      Agreement, we issued warrants to each 2003 Lender to purchase a total of
      4,750,000 shares of our Common Stock, each with an expiration date of
      August 28, 2008 and an exercise price of $1.00 per share. As of March 14,
      2005, $2.6 million of the notes have been converted into 2,600,000 shares
      of Common Stock and warrants covering 1,425,000 shares of Common Stock
      have been exercised.





The cost
of an additional clinical trial and any other requirements we must complete to
satisfy the conditions of the Approvable Letter from the FDA, amending the NDA
and obtaining related requisite regulatory approval, and commencing
pre-commercialization activities prior to receiving regulatory approval, will
require substantial expenditures. If requisite regulatory approval is obtained,
then substantial additional financing will be required for the manufacture,
marketing and distribution of our product in order to achieve a level of
revenues adequate to support our cost structure. Besides
the possible use of
PHOTREX alone or in combination with other therapies, we have identified
potential next-generation drug compounds for use in various eye diseases. These
drugs are in the early stage of development and will not likely begin further
development until we obtain additional funding and/or a corporate partner or
other collaboration in ophthalmology.





Based on
our ability to successfully obtain additional funding, our ability to obtain new
collaborative partners, our ability to license and pursue development and
commercialization of PHOTREX for AMD or other disease indications, our ability
to reduce operating costs as needed, our ability to regain our listing status on
Nasdaq 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 be able to or elect to further develop PhotoPoint PDT procedures in
ophthalmology, cardiovascular disease, dermatology, oncology or in any other
indications. If we are unable to secure additional funding, or if our lender
terminates our existing funding, we may be unable to continue as a going
concern.





**Background**





Photodynamic
therapy, or PDT, is a treatment modality based on light-activated, or
photoselective drugs to locally treat diseased cells and abnormal blood vessels.
The drug and light procedures involve three components: photoselective drugs,
light producing devices and light delivery devices.





7


We are
developing a family of medical procedures trademarked PhotoPoint® PDT that are
based on proprietary, synthetic photoselective drugs. These drugs have the
ability to transform light energy into chemical energy in a manner similar to
that of chlorophyll in green plants. When administered to the body, either
systemically by intravenous injection or locally at the treatment site, our
PhotoPoint drugs are designed to preferentially accumulate in rapidly
reproducing, or hyperproliferating, cells and blood vessels based on the
metabolic characteristics of these tissues. Since a number of disease conditions
involve tissue and/or cellular hyperproliferation, we believe that PhotoPoint
PDT has a number of potential applications. Certain examples are abnormal blood
vessels at the back of the eye associated with macular degeneration; plaque
psoriasis that causes excessive proliferation of the epidermis, or outer layer
of the skin; cardiovascular diseases caused by unstable (vulnerable) or
obstructive plaque within coronary arteries; and the rapid growth of cells and
new blood vessels in cancer tumors.


Our
photoselective drugs are inactive until exposed to a specific wavelength and
dose of visible light. The wavelength corresponds to the color of the light, and
the light dose represents the number of photons, or light energy, delivered to
the target tissue over time. We have designed our drugs to respond to various
light wavelengths depending on the desired depth of light penetration into the
target tissue. When light is delivered to the treatment site and the drug and
light interact, a photochemical reaction occurs in which molecular
oxygen is consumed to produce reactive oxygen intermediates that can
lead to cell death or vascular shutdown. We can control the treatment response
by varying the respective drug and light doses and the relative timing of their
administration. The result is a localized, light-selective response that can
potentially destroy diseased cells and abnormal blood vessels with minimal
damage to surrounding normal tissues and vessels.




Low
power, non-thermal visible light is used to activate PhotoPoint drugs. The light
is generated by diode lasers or, for certain applications, by non-coherent light
sources. The light is typically delivered from the light source to the patient
via fiber optic delivery devices that produce uniform patterns of light for
different disease applications. The fiber optic devices may be designed to focus
light on body surfaces such as skin or to channel into the body via catheters
for internal applications. Additional methods of light delivery include the slit
lamp adapter used with our ophthalmic laser device co-developed with
Iridex.





**Industry**





As early
as 1900, scientists observed that certain compounds localized in tissues
elicited a response to light, a response that came to be known as photodynamic
therapy, or PDT. Since the mid-1970s, various treatment applications of PDT
have been investigated and approved for use in humans. PDT continues to be
studied by a variety of companies, physicians and researchers around the world
to treat a broad range of disease indications. Early industry development was
hindered by issues such as drug manufacturing and purity, the use of costly and
inefficient lasers and the lack
of integrated drug and device development. Since our founding, we have
endeavored to address these issues in our PhotoPoint development programs. In
the last few years, the industry has significantly advanced and achieved
regulatory approvals for several PDT drugs in the United States and abroad.





**Business
Strategy**





Our
current objective is to develop our PhotoPoint technology for disease
indications with large potential market opportunities and/or unmet medical needs
with ophthalmology and cardiovascular disease as our current primary areas of
focus. Our strategy is to develop PhotoPoint PDT as a primary, stand-alone
therapy and, where appropriate, as a combination therapy with other treatments
such as surgery or drug therapy to achieve efficacious clinical results.





8








We
believe that commercial success will depend upon safety and efficacy outcomes,
regulatory approvals, competition, third-party reimbursements and other factors
such as the manufacturing, marketing, sales and distribution of our products and
their acceptance by the medical profession. At this time, the scope of our
business is research and development with limited manufacturing capabilities.
For clinical and regulatory affairs, large-scale manufacturing, marketing, sales
and distribution activities, we may elect to use outside contractors and/or
develop these capabilities internally, or seek strategic collaborations with
pharmaceutical and medical device partners in certain therapeutic
areas.





**Technology
and Products**





Our
drugs, light producing and light delivery devices have been developed in-house
and with outside collaborators and have been used in various clinical and
preclinical investigations.





*Drug
Technology.* We own
and hold exclusive license rights under certain United States and foreign
patents to several classes of synthetic, photoselective compounds, subject to
certain governmental rights, as described under the heading Patents and
Proprietary Technology. From these broad classes we have synthesized several
hundred unique photoselective compounds, which have been characterized and
screened in biological testing systems. The
development status of our key drug candidates is as follows:





PhotoPoint®
      Drug
    Indication
    Development
      StatusPHOTREXTM
      (rostaporfin; formerly known as SnET2)
    Wet
      age-related macular degeneration, or AMD
    FDA
      Approvable Letter, September 2004; confirmatory
      Phase
      III clinical trial to be initiated in 2005MV0633
    Cardiovascular
      disease: atherosclerosis,
      vulnerable
      plaque, restenosis
    Advanced
      preclinical, IND expected to be submitted in 2005MV9411
    Plaque
      psoriasis
    Phase
      II clinical trial completed, under data analysis and
      evaluationMV2101
    Vascular
      access graft disease in
      hemodialysis
      patients
    Advanced
      preclinicalMV6401
    Solid
      tumors (treatment of cells and neovasculature,
      or
      new blood vessels)
    Preclinical





Our
ongoing commitment to the various programs depends upon a number of factors,
including the results of investigational studies, regulatory approvals,
financial resources, strategic business considerations, the competitive
marketing environment and potential return on investment. Currently, our primary
areas of focus are ophthalmology and cardiovascular disease.





*Light
Producing Devices.* Our
PhotoPoint procedures are designed to use reliable and affordable light
producing devices. Our light technologies include software-controlled diode
lasers, light emitting diode, or LED, arrays, and non-coherent light sources.
Either internally or with outside collaborators, we have developed a variety of
devices producing various wavelengths of light for use in our investigational
studies. We are collaborating with Iridex Corporation, or Iridex, on the
development of light producing devices for PhotoPoint PDT in ophthalmology.
Iridex co-developed with us and manufactured the diode laser to be used in our
AMD confirmatory Phase III clinical trial.





9








*Light
Delivery Devices.* We have
developed various configurations of fiber optic devices to deliver uniform light
to target tissues, for example, our proprietary guidewire-compatible
endovascular light catheter that is being tested in preclinical studies for the
treatment of cardiovascular disease.





**Targeted
Diseases and Clinical Trials**





We
believe that our PhotoPoint PDT technology has potential utility in a number of
disease indications. We have established certain development programs based upon
technical, regulatory, clinical, manufacturing and market considerations.
Currently, our primary areas of focus are ophthalmology and cardiovascular
disease. Our ongoing commitment to the various programs depends upon such
factors as adequate funding, corporate partner support, the results of
investigational studies, governmental regulatory communications, competitive
factors, potential return on investment, various other feasibility or economic
considerations as well as our overall business strategy.





*Ophthalmology*





We
believe that PhotoPoint PDT has the potential to treat a variety of ophthalmic
disorders, including conditions associated with neovascularization such as wet
AMD and diabetic retinopathy. Ocular neovascularization is a condition in which
new blood vessels grow abnormally on or beneath the surface of the retina or
other parts of the eye. We have investigated PhotoPoint PDT as a potential
treatment to selectively eliminate such abnormal blood vessels, and we have
completed Phase I/II and two Phase III human clinical trials of PHOTREX
(rostaporfin, formerly known as SnET2) as a treatment for wet AMD, with a third
confirmatory Phase III clinical trial to be initiated in 2005.





AMD is
the leading cause of blindness in Americans over age fifty. Patients
with AMD experience distortion or loss of central vision as the disease
progresses. In wet
AMD areas of neovascularization develop beneath the retina, leaking fluid and
blood that can cause retinal lifting, scarring and irreversible loss of central
vision. These lesions are comprised of choroidal neovascular membranes, or CNV,
known as “classic” and “occult” components. It is estimated that approximately
60% of wet AMD lesions have some component of classic CNV, while approximately
40% are occult lesions.





In
December 2001, we completed two Phase III ophthalmology clinical trials for the
treatment of wet AMD lesions with any presence of a classic component. The
primary efficacy endpoint of the clinical studies was the percent of patients
with stabilized vision, specifically, the proportion of PHOTREX treated patients
losing less than 15 letters from baseline on a standard ETDRS eye chart compared
to placebo controls. In
January 2002, our ophthalmology corporate partner, Pharmacia,
reviewed the top-line Phase III AMD clinical data and determined that PHOTREX
did not to meet the primary efficacy endpoint in the study population, as
defined by the clinical trial protocol. Pharmacia notified us that it would not
pursue an NDA submission for PHOTREX. In March 2002, we regained the license
rights to PHOTREX from Pharmacia as well as the related data and assets from the
Phase III AMD clinical trials. In addition, we terminated our license
collaboration with Pharmacia, and have the opportunity to seek a new
collaborative partner for PhotoPoint PDT in ophthalmology in the
future.





During
2002, we completed a comprehensive analysis of the Phase III AMD clinical data
and held certain discussions with regulatory consultants and the ophthalmic
division of the FDA. Based on our review of the data from two independent Phase
III clinical studies, we believe that PHOTREX reduced the risk of vision loss in
certain PHOTREX-treated patients versus placebo patients. Additionally,
secondary efficacy analyses relative to placebo suggested that PHOTREX prevented
severe vision loss and impacted the physiologic characteristics of treated
lesions by reducing leakage and fluid accumulation. Based on retrospective
analyses, the PHOTREX data suggested that when PHOTREX therapy was given as
required in the protocol, a positive treatment response versus placebo was
demonstrated across all compositions of wet AMD lesions, regardless of the
percentage of classic or occult components. A small number of occult patients
were enrolled in the Phase III AMD clinical trials and they demonstrated a
beneficial trend of treatment, but those data require additional confirmatory
studies.





10








In regard
to safety, we believe the PHOTREX treatments were well tolerated in the study
population, with a low overall incidence of treatment-related adverse
events.  The most
common side effect was skin photosensitivity, or sun sensitivity, which was
reported in less than 5% of PHOTREX administrations, and was predominantly mild
in nature, transient in duration and required no special treatment. Based on
discussions with our clinical investigators, we believe the photosensitivity to
be a manageable side effect that typically produces mild erythema, or redness,
of the skin. In addition, there were few reports of either back pain on infusion
or acute post-treatment vision loss (neither had less than 0.2% in both the
treated and placebo patients), which have been previously reported with
competitive PDT technology.





Based on
our analysis of the Phase III AMD clinical data, we submitted the NDA on March
31, 2004 for PHOTREX as a treatment for wet AMD, specifically wet AMD lesions
with any classic component, with or without an occult component. We submitted
the NDA seeking marketing approval based on clinical results in the “per
protocol” study population. The per protocol population consists of those
patients who received the minimum exposure to the PHOTREX treatment regimen
pre-specified in the clinical study protocol, comprising a sub-population of
patients in the total study population.





The NDA
was submitted on March 31, 2004 and was accepted by the FDA for filing on June
1, 2004 and given 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 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,
which we plan to initiate in 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 600 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 involving a series of injections into the
eye. The treatment is considered a competitive and potentially complementary
technology to PDT. The FDA approved Macugen for both classic and occult lesions,
which we believe will increase the overall number of patients seeking treatment
for wet AMD.





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.





11





*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 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 Investigational New Drug application, or IND, in
cardiovascular disease for MV0633 in 2005. 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, w e entered
into a Collaboration Agreement with Guidant Corporation, to develop MV0633 for
cardiovascular diseases. In connection with the Collaboration Agreement, we are
required to submit the IND by December 31, 2005.





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 about initiating a Phase II
clinical trial. We are currently pursuing potential strategic partners in this
field to help fund these clinical studies. Pending the results of our
preclinical studies as well as financial considerations, corporate
collaborations and other factors, we may decide to file an IND for the
commencement of clinical trials in this field.





*Dermatology*





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. Analysis of the
clinical results and other factors such as the availability of funding and other
resources will determine whether we continue this program.





12








*Oncology*





In our
oncology research program, we have
ongoing 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 is 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. **





**Definitive
Collaborative Agreements**




*Guidant
Corporation*





In July
2004 we entered into a Collaboration Agreement with Advanced Cardiovascular
Systems, Inc., a wholly owned subsidiary of Guidant Corporation, or Guidant.
Guidant will collaborate
with us on the development, pre-clinical and clinical investigations of our
MV0633 compound and related laser devices for use in the treatment of
restenosis, atherosclerosis and atherosclerotic plaque cardiovascular diseases
through the end of Phase I clinical studies. Guidant has an option to enter into
an additional development and marketing agreement with us for additional
clinical studies and post-FDA NDA approval marketing activities. Upon the
signing of the agreements, we sold 1,112,966 shares of Series A Convertible
Preferred Stock, resulting in proceeds to us of $3.0 million. Additionally, we
can receive up to $4.0 million in additional convertible preferred stock
investments upon the completion of certain milestones related to our
cardiovascular program. The next milestone is expected in December 2005. The
$3.0 million of Preferred Stock sold is convertible into our Common Stock at
$2.70 per share and includes registration rights for the underlying Common
Stock. We are required to provide additional funding of at least $5.0 million
over the period of the collaboration and the funds invested by Guidant must be
spent on specified cardiovascular programs. We also granted Guidant registration
rights with respect to the shares of Common Stock into which the Series A
Preferred Stock is convertible. The agreements also contain various covenant and
termination provisions as defined by the agreements.





*Kendle
International, Inc.*





We have
selected Kendle International, Inc., or Kendle, a leading international contract
research organization, or CRO, with locations throughout Europe, to conduct our
confirmatory Phase III clinical trial for PHOTREX in AMD. Kendle will be
responsible for the set-up of the clinical sites, patient and site monitoring,
data collection and compilation, site close-out and the final clinical study
report for the upcoming confirmatory Phase III clinical trial. The randomized,
placebo-controlled trial under a Special Protocol Assessment by the FDA is
designed to include a broad range of wet AMD patients, including patients with
both classic and occult choroidal neovascularization. We are in the process of
finalizing the agreement with Kendle. Upon the execution of the agreement, we
will pay Kendle an upfront payment and will be required to make monthly payments
over the term of the clinical trial, with various milestone payment amounts due
on the first and last patient enrolled, at the one year analysis and upon
receipt of the final clinical study report. We are also responsible for payment
of out-of-pocket costs incurred by Kendle, as well as payments made by them to
the clinical sites for patient treatments and ancillary costs incurred. When
finalized, we expect the agreement to include a provision allowing it to be
terminated due to clinical efficacy or safety issues at any time with any
expenses and services incurred by Kendle, as of the date of termination, to be
paid by Miravant.




*Giliead
Sciences, Inc.*




In
December 2004, we entered into a development and license agreement with
Gilead Sciences Inc., or Gilead, to develop the formulation for our drug
MV0633, which is currently being used in our cardiovascular indications. In
connection with this development agreement, we are required to pay an
upfront license fee of $200,000 and ongoing costs for development and
formulation. We will also be required to pay milestones upon the occurrence of
the first patient treated in a Phase III clinical trial using the formulation
and upon the first regulatory approval in the United States or other significant
market. In addition, we will pay royalties based on the drug revenues as
defined by the agreement.


13








*Pharmacia
Corporation*





In August
2003, in connection with the 2003 Debt Agreement, we entered into a Termination
and Release Agreement with Pharmacia AB, a wholly owned subsidiary of Pfizer,
Inc., or Pharmacia, for the retirement of $10.6 million of debt owed by us to
Pharmacia and the release and the related security collateral, in exchange for a
payment of $1.0 million in cash, 390,000 shares of our Common Stock, and an
adjustment of the exercise price of Pharmacia’s outstanding warrants to purchase
360,000 shares of our Common Stock to $1.00 from an average exercise price of
$15.77, and an extension of the expiration date of those warrants to December
31, 2005 from expiration dates ranging from May 2004 to May 2005. The
Termination and Release Agreement supercedes all previous
agreements.





In the
past, we had entered into a number of agreements with Pharmacia to fund our
operations and develop and market SnET2. In March 2002, we entered into a
Contract Modification and Termination Agreement with Pharmacia under which we
regained all of the rights and related data and assets to our lead drug
candidate, SnET2, and we restructured our outstanding debt to Pharmacia. Under
the terms of the Contract Modification and Termination Agreement, various
agreements and side letters between Miravant and Pharmacia have been terminated,
most of which related to SnET2 license agreements and related drug and device
supply agreements, the Manufacturing Facility Asset Purchase Agreement and
various supporting agreements. We also modified our 2001 Credit Agreement with
Pharmacia.





The
termination of the various agreements provided that all ownership of the rights,
data and assets related to SnET2 and the Phase III AMD clinical trials for the
treatment of AMD revert back to us. The rights transferred back to us include
the ophthalmology IND and the related filings, data and reports and the ability
to license the rights to SnET2. The assets include the lasers utilized in the
Phase III AMD clinical trials, the bulk API manufacturing equipment, all of the
bulk API inventory sold to Pharmacia in 2001 and 2002 and the finished dose
formulation, or FDF, inventory. In addition, we reassumed the lease obligations
and related property taxes for our bulk API manufacturing facility. The lease
agreement expires in March 2006 and had a base rent of approximately $26,000 per
month. In January 2003, we sublet this facility through December
2005.





*Iridex
Corporation*





In May
1996, we entered into a co-development and distribution agreement with Iridex, a
leading provider of semiconductor-based laser systems to treat eye diseases. In
2004, we entered into an Accord and Satisfaction Agreement on Essential Terms
whereby, upon FDA marketing approval, Iridex will manufacture and distribute a
laser device to be used in conjunction with Photrex (SnET2) for the treatment of
eye diseases. The agreement provides, among other things, the
following:





·
    The
      May 1996 agreement is terminated;


·
    Iridex
      will be our exclusive provider of the devices developed under the
      co-development and distribution agreement at costs as set forth in the
      agreement; and


·
    Iridex
      will have an exclusive, worldwide license to make, distribute and sell all
      co-developed devices, on which Iridex will pay us royalties.





The
agreement remains in effect, subject to the execution of a formal manufacturing
and distribution agreement. The light producing device used in AMD clinical
trials was co-developed with Iris Medical Instruments Inc., a subsidiary of
Iridex, under this agreement, and any commercialization of this device is
governed in part by this agreement.





14








*The
University of Toledo, The Medical College of Ohio and St. Vincent Medical
Center*





In
July 1989, we entered into a License Agreement with the University of
Toledo, the Medical College of Ohio and St. Vincent Medical Center, of Toledo,
Ohio, collectively referred to as Toledo. This agreement provides us with
exclusive, worldwide rights:





·
    To
      make, use, sell, license or sublicense certain photoselective compounds,
      including SnET2 covered by certain Toledo patents and patent applications,
      or not covered by Toledo patents or patent applications but owned or
      licensed to Toledo and which Toledo has the right to sublicense;


·
    To
      make, use, sell, license or sublicense certain of the compounds for which
      we have provided Toledo with financial support; and


·
    To
      make, use or sell any invention claimed in Toledo patents or applications
      and any composition, method or device related to compounds conceived or
      developed by Toledo under research funded by Miravant.





The agreement
further provides that we pay Toledo royalties on the revenues we receive from
the sales or sublicenses of product covered by this agreement. To date, no
royalties have been paid or accrued since no drug or related product has been
sold. Under the agreement, we are required to satisfy certain development and
commercialization objectives once an NDA has received approval. This agreement
terminates upon the expiration or non-renewal of the last patent which may issue
under this agreement, currently 2017. By the terms of the agreement, the license
extends upon issuance of any new Toledo patents. We do not have contractual
indemnification rights against Toledo under the agreement. Some of the research
relating to the compounds covered by this License Agreement, including SnET2,
has been or is being funded in part by certain governmental grants under which
the United States Government has or will have certain rights in the technology
developed, including the right under certain circumstances to a non-exclusive
license or to require us to grant an exclusive license to a third party. For a
description of governmental rights see “Patents and Proprietary
Technology.”





*Hospira,
Inc. (formerly Fresenius AG)*





We have a
formulation and commercial supply agreement, or Formulation Agreement, with
Hospira, Inc., a subsidiary of Abbott Corporation, or Hospira, to develop and
manufacture an emulsion formulation suitable for intravenous administration of
SnET2 in a finished dose formulation, or FDF. This agreement was originally with
Pharmacia but was assigned to Fresenius Kabi Nutrition AB, a subsidiary of
Fresenius Kabi AG, or Fresenius, effective November 30, 1998, as part of an
Asset Transfer Agreement. Fresenius sold its drug manufacturing business to
Hospira in 2004.





As part
of the activities necessary under the Pharmacia Contract Modification and
Termination Agreement, we entered into an agreement with Pharmacia whereby all
of Pharmacia’s rights and obligations under their Contract Manufacturing
Agreement were assigned to us. By operation of Fresenius’ consent to the
assignment and Hospira’s subsequent purchase, the Formulation Agreement has been
superceded by the terms of the Contract Manufacturing Agreement. The material
operating terms of this agreement include the following:





·
    Hospira
      remains our exclusive manufacturer and supplier of our worldwide
      requirements for SnET2 FDF;


·
    Hospira
      will not develop or supply drug formulations or services for use in any
      photodynamic therapy applications for any other company;
    and


·
    The
      agreement term is indefinite except that it may be terminated ten years
      after the first commercial sale of SnET2
FDF.





15





*Ramus
Medical Technologies*





In December
1996, our wholly owned subsidiary, Miravant Cardiovascular, Inc., entered into a
co-development agreement with Ramus Medical Technologies, or Ramus, an innovator
in the development of autologous tissue stent-grafts for vascular bypass
surgeries. In
conjunction with the co-development agreement, we purchased a $2.0 million
equity interest in Ramus, and obtained an option to acquire the remaining shares
of Ramus. In April 1998, we entered into a $2.0 million revolving credit
agreement with Ramus, which was fully utilized. Due to financial difficulties,
it was determined that it was probable that we would be unable to collect the
amounts due from Ramus under the contractual terms of the loan agreement.
Therefore, we have established a reserve for the entire outstanding balance of
the loan receivable. We continue to have discussions with Ramus regarding the
future of Ramus and the proposed terms of the reorganization of their
outstanding debt and equity.





*Xillix
Technologies Corp.*





In June
1998, we purchased an equity interest in Xillix Technologies Corp., or Xillix.
We received 2,691,904 shares of Xillix common stock in exchange for $3.0 million
in cash and 58,909 shares of Miravant Common Stock. In conjunction with the
investment, we also entered into an exclusive strategic alliance agreement with
Xillix to co-develop proprietary systems incorporating PhotoPoint PDT and
Xillix’s fluorescence imaging technology for diagnosing and treating early stage
cancer and pre-malignant tissues. The co-development agreement was terminated in
November 2003.  In
December 2003, we sold our entire investment in Xillix of approximately 2.7
million shares, which had an adjusted basis of $393,000 and received net
proceeds of approximately $1.6 million, resulting in a net gain of $1.2
million.





**Research
and Development Programs**





Our
research and development programs are committed to the discovery, development
and optimization of drugs and devices for PhotoPoint PDT. Currently, our areas
of focus are ophthalmology and cardiovascular disease. These activities are
conducted in-house in our pharmaceutical and engineering laboratories or in
contract laboratories or in extramural collaborations with academic or medical
research institutions or corporations. We have expended, and expect to continue
to spend, substantial funds on our research and development programs. We
expended $7.6 million, $7.6 million and $9.5 million on research and development
activities during 2004, 2003 and 2002, respectively .





We have
pursued and been awarded various government grants and contracts. These grants
have been sponsored by the National Institutes of Health and/or the Small
Business Innovative Research Administration, which supplement our research
efforts and facilitate new development.





**Manufacturing**





Our
strategy is to retain manufacturing rights and maintain limited manufacturing
capabilities and, where appropriate due to financial and operational
considerations, to partner with leading contract manufacturing organizations in
the pharmaceutical and medical device sector for certain manufacturing
processes. We also have the limited ability to manufacture small-scale
quantities of prototype light producing devices and light delivery devices at
this location and provide other production and testing activities to support
current clinical programs. However, we have limited capabilities, personnel and
experience in the manufacture of finished drug and light producing and light
delivery devices at commercial levels. We will require outside suppliers,
contracted or otherwise, for certain materials and services related to our
manufacturing activities, especially at large-scale levels. Although most of our
materials and components are available from various sources, we are dependent on
certain suppliers for key materials or services used in drug and device
development and production operations.





16








One
supplier is Hospira, which processes our SnET2 drug substance into a sterile
injectable formulation and packages it in vials for distribution. Gilead
Sciences, Inc. is working with us to develop the MV0633 FDF for cardiovascular
indications. Another key supplier is Iridex, which provided the light producing
devices used in our AMD clinical trials and may be used as a supplier for future
investigational and commercial devices in ophthalmology. We expect to continue
to develop new drugs, new drug formulations and light devices both in-house and
using external suppliers, which may or may not have similar dependencies.





Prior to
supplying drugs or devices for commercial use, our manufacturing facilities, as
well as the Iridex and Hospira manufacturing facilities, must be inspected and
approved by the FDA for compliance to current Good Manufacturing Practices, or
cGMP. Our pharmaceutical manufacturing facility was inspected by the FDA for
cGMP compliance as a part of the PHOTREX NDA review process with no deficiencies
cited. Suppliers Iridex and Hospira were also inspected by the FDA with
satisfactory results. Any drugs and devices manufactured by us or our suppliers
for prospective commercial use must be withheld from distribution until FDA
approvals are obtained, if at all. In addition, if we elect to outsource
manufacturing to other third-party manufacturers, these facilities must satisfy
FDA requirements.





We were
licensed by the State of California to manufacture bulk active pharmaceutical
ingredient, or API, at one of our Santa Barbara, California facilities for
clinical trial and other use. This particular manufacturing facility was closed
by us in 2002 and has been reconstructed and now operates in our existing
operating facility, which has not yet been inspected by the State of California.
In the original manufacturing facility, we manufactured bulk PHOTREX API, the
final process before formulation and packaging. As previously discussed, we
regained ownership from Pharmacia of that bulk API inventory as well as lasers,
neither of which are currently subject to expiration dates, whereas the FDF
received has expired. We have API inventory in quantities that we believe will
be adequate for an initial commercial launch of PHOTREX, if and when we gain
regulatory approval for the facility and for use of the API
inventory.





**Marketing,
Sales and Distribution**





We are
developing several plans for the marketing, sales and distribution of PHOTREX
for wet AMD. We may decide to license PHOTREX or otherwise partner with an
established pharmaceutical company for commercialization of the drug. If
financially and logistically feasible, we may elect to retain all rights to
PHOTREX and contract the marketing, sales and distribution to outside
independent contractors or develop certain internal capabilities. There are a
number of factors that will influence this decision, including partnering
opportunities, terms and conditions, our potential return on investment,
financial resources and operational capabilities. **





In regard
to products in longer-term development, we will consider various avenues for
commercialization as appropriate in our strategic planning and licensing
discussions.





**Customers
and Backlog**





Our drugs
and devices are in various stages of development and have not yet been approved
by the FDA. Thus, we
currently have no marketed drugs or devices and therefore no customers or
backlog. We have derived revenue in the past from the sale of API to our
collaborative partner and have received governmental research grants. We have
also received limited royalty income from Laserscope for the license of our
first generation dye laser technology.





**Patents
and Proprietary Technology**





We pursue
a policy of seeking patent protection for our technology both in the United
States and in selected countries abroad. We plan to prosecute, assert and defend
our patent rights when appropriate. We also rely upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain our competitive position. The following is a summary of our current
patents:





17








·
    Record
      owner of forty-one issued United States patents, expiring 2010 through
      2021;


·
    Record
      owner of eight issued foreign patents, expiring 2012 through
      2019;


·
    Exclusive
      license rights under nineteen issued United States patents, primarily
      pharmaceutical, expiring 2006 through 2017;


·
    Exclusive
      license rights under seven issued foreign patents, expiring 2006 through
      2017;


·
    Co-owner
      of three additional issued patents, expiring 2015 through 2017;
      and


·
    Holder
      of a number of United States and related foreign patent applications filed
      and pending, relating to photoselective compounds, light devices and
      methods.





We
obtained many of our photoselective compound patent rights, including rights to
SnET2, through an exclusive license agreement with Toledo. Certain of the
foregoing patents and applications are subject to certain governmental rights
described below **.**





The
patent positions of pharmaceutical and biotechnology companies, including ours,
can be uncertain and involve complex legal, scientific, and factual questions.
There can be no assurance that our patents or licensed patents will afford legal
protection against competitors or provide significant proprietary protection or
competitive advantage. In addition, our patents or licensed patents could be
held invalid or unenforceable by a court, or infringed or circumvented by
others, or others could obtain patents that we would need to license or
circumvent. Competitors or potential competitors may have filed patent
applications or received patents, and may obtain additional patents and
proprietary rights relating molecules, compounds, or processes competitive with
ours.





It is our
general policy to require our employees, consultants, outside scientific
collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of our
relationship are to be kept confidential and not disclosed to third parties
except in specific limited circumstances. We also generally require signed
confidentiality or material transfer agreements from any company that is to
receive confidential data or proprietary compounds. In the case of employees and
consultants, the agreements generally provide that all inventions conceived by
the individual while rendering services to us, which relate to our business or
anticipated business, shall be assigned to us as our exclusive property.





Some of
our research relating to certain pharmaceutical compounds covered by the license
agreement with Toledo, including SnET2, has been or is being funded in part by
Small Business Innovation Research Administration and/or National Institutes of
Health grants. As a result, the United States Government has or will have
certain rights in the inventions developed with the funding. These rights
include a non-exclusive, paid-up, worldwide license under these inventions for
any governmental purpose. In addition, the government has the right to require
us to grant an exclusive license under any of these inventions to a third party
if the government determines that:





·
    Adequate
      steps have not been taken to commercialize such inventions;


·
    Such
      action is necessary to meet public health or safety needs;
    or


·
    Such
      action is necessary to meet requirements for public use under federal
      regulations.





Federal
law requires that any exclusive licensor of an invention that was partially
funded by federal grants, which is the case with the subject matter of certain
patents issued in our name or licensed from Toledo, agree that it will not grant
exclusive rights to use or sell the invention in the United States unless the
grantee agrees that any products embodying the invention will be manufactured
substantially in the United States, although this requirement is subject to a
discretionary waiver by the government. It is not expected that the government
will exercise any of these rights or that the exercise of this right would have
a material impact on us.





18








**Government
Regulation**





The research,
development, manufacture, marketing and distribution of our products are subject
to regulation for safety and efficacy by numerous governmental authorities in
the United States and other countries. In the United States, pharmaceutical
products and medical devices are regulated by the FDA through the Food, Drug and
Cosmetic Act, known as the FDC Act. The FDC Act and various other federal and
state statutes control and otherwise affect the development, approval,
manufacture, testing, storage, records and distribution of drugs and medical
devices. We are subject to regulatory requirements governing both drugs and
devices.





*Drug
Products.* The FDA
generally requires the following steps before a new drug product may be marketed
in the United States:





·
    Preclinical
      studies (laboratory and animal tests);


·
    The
      submission to the FDA of an application for an IND exemption, which must
      become effective before human clinical trials may commence;


·
    Adequate
      and well-conducted clinical trials to establish safety and efficacy of the
      drug for its intended use;


·
    The
      submission to the FDA of an NDA; and


·
    The
      review and approval of the NDA by the FDA before any commercial sale or
      shipment of the drug.





In addition to obtaining FDA approval
for each new drug product, each drug manufacturing establishment must be
registered with the FDA. Manufacturing establishments, both domestic and
foreign, are subject to inspections by or under the authority of the FDA and by
other federal, state or local agencies and must comply with the FDA’s cGMP
regulations. The FDA will not approve an NDA until a pre-approval inspection of
the manufacturing facilities confirms that the drug is produced in accordance
with current drug cGMPs. In addition, drug manufacturing establishments in
California must also be licensed by the State of California and must comply with
manufacturing, environmental and other regulations promulgated and enforced by
the California Department of Health Services.





Preclinical
studies include laboratory evaluation of product chemistry, conducted under Good
Laboratory Practices, or GLP, regulations, and animal studies to assess the
potential safety and efficacy of the drug and its formulation. The results of
the preclinical studies are submitted to the FDA as part of the IND. Unless the
FDA asks for additional information, additional review time, or otherwise
objects to the IND, the IND becomes effective thirty days following its receipt
by the FDA.





Clinical
trials involve the administration of the investigational drug to human subjects
under FDA regulations and other guidance commonly known as Good Clinical
Practice, or GCP, requirements under the supervision of a qualified physician.
Clinical trials are conducted in accordance with protocols that detail the
objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol is submitted to the FDA as a
part of the IND. Each clinical study must be conducted under the auspices of an
independent Institutional Review Board, or IRB. The IRB considers, among other
things, ethical factors, the safety of human subjects and the possible liability
of the testing institution.





Clinical
trials are typically conducted in three sequential phases, although the phases
may overlap.





·
    Phase
      I represents the initial introduction of the drug to a small group of
      humans to test for safety, identify adverse effects, dosage tolerance,
      absorption, distribution, metabolism, excretion and clinical pharmacology
      and, if possible, to gain early evidence of
  effectiveness;


·
    Phase II
      involves studies in a limited sample of the intended patient population to
      assess the efficacy of the drug for a specific indication, to determine
      dose tolerance and optimal dose range and to identify possible adverse
      effects and safety risks;





19








·
    Once
      a compound is found to have some efficacy and to have an acceptable safety
      profile in Phase II evaluations, Phase III clinical trials are
      initiated for definitive clinical safety and efficacy studies in a broader
      sample of the patient population at multiple study sites. The results of
      the preclinical studies and clinical trials are submitted to the FDA in
      the form of an NDA for marketing approval;


·
    Once
      the NDA is submitted and reviewed by the FDA, the FDA may require
      additional information or an additional confirmatory Phase III clinical
      trial prior to approval, if approved at
all.





Completing
clinical trials and obtaining FDA approval for a new drug product is a long
process and is likely to take several years and require expenditure of
substantial resources. When an NDA application is submitted, there can be no
assurance that the FDA will approve the NDA. Even if initial FDA approval is
obtained, further studies may be required to gain approval for additional
disease indications to expand its clinical use. Also, the FDA requires
post-market surveillance programs to monitor and report the drug’s side effects.
For certain drugs, the FDA may also, concurrent with marketing approval, seek
agreement from the sponsor to conduct post-marketing, Phase IV, studies to
obtain further information about the drug’s risks, benefits and optimal use.
Results of this monitoring and of Phase IV post-marketing studies may
affect the further marketing of the product.





Where
appropriate, we may seek to obtain accelerated review and/or approval of
products and to use expanded access programs that may provide broader
accessibility and, if approved by the FDA, payment for an investigational drug
product. For instance, we requested and received fast track designation from the
FDA for PHOTREX for the treatment of AMD for our first NDA submission. Under the
FDA Modernization Act of 1997, the FDA gives fast track designation to drugs and
devices that treat serious or life-threatening conditions that represent unmet
medical needs. The designation means that data can be submitted to the FDA
during the clinical trial process based on clinical or surrogate endpoints that
are likely to predict clinical benefit, and the FDA can expedite its regulatory
review. There can be no assurance that we will maintain the fast track
designation for our amended NDA, if submitted, in the future. Other examples of
such activities include pursuing programs such as treatment IND or parallel
track IND classifications which allow expanded availability of an
investigational treatment to patients not in the ongoing clinical trials, and
seeking physician or cross-referenced INDs which allow individual physicians to
use an investigational drug before marketing approval and for an indication not
covered by the ongoing clinical trials. We can also seek an orphan designation
for an investigational product that has a limited patient population, which
would provide certain regulatory benefits as well as a period of market
exclusivity. However, there can be no assurance that we will seek such avenues
at any time, or that such activities will be successful or result in accelerated
review or approval of any of our products.





*Medical
Device Products.* Our
medical device products are subject to government regulation in the United
States and foreign countries. In the United States, we are subject to the
rules and regulations established by the FDA requiring that our medical
device products are safe and efficacious and are designed, tested, developed,
manufactured and distributed in accordance with FDA regulations.





Under the FDC
Act, medical devices are classified into one of three classes (i.e.,
class I, II, or III) on the basis of the controls necessary to reasonably
ensure their safety and effectiveness. Safety and effectiveness can reasonably
be assured for class I devices through general controls (e.g., labeling,
premarket notification and adherence to GMPs) and for class II devices through
the use of general and special controls (e.g., performance standards, postmarket
surveillance, patient registries and FDA guidelines). Generally, class III
devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness (e.g., life-sustaining, life-supporting and
implantable devices, or new devices which have been found not to be
substantially equivalent to legally marketed devices).





20








Before a new
device can be introduced to the market, the manufacturer generally must obtain
FDA clearance through either a 510(k) premarket notification or a Premarket
Approval Application, or PMA. A PMA requires the completion of extensive
clinical trials comparable to those required of new drugs and typically requires
several years before FDA approval, if any, is obtained. A 510(k) clearance will
be granted if the submitted data establish that the proposed device is
“substantially equivalent” to a legally marketed class I or class II
medical device, or to a class III medical device for which the FDA has not
called for PMAs. Devices used by other companies for photodynamic therapy, which
are similar to our devices, have been classified as Class III, and have been
evaluated in conjunction with an IND as a combination drug-device product.
Therefore it is likely that our products will also be treated as a combination
drug-device product.


**


*Combination
Drug-Device Products.* Medical
products containing a combination of drugs, devices or biological products may
be regulated as “combination products.” A combination product is generally
defined as a product comprised of components from two or more regulatory
categories (drug/device, device/biologic, drug/biologic, etc.) and in which the
various components are required to achieve the intended effect and are labeled
accordingly. Each component of a combination product is subject to the
rules and regulations established by the FDA for that component category,
whether drug, biologic or device. Primary responsibility for the regulation of a
combination product depends on the FDA’s determination of the “primary mode of
action” of the combination product, whether drug, biologic or device.





In order to
facilitate premarket review of combination products, the FDA designates one of
its centers to have primary jurisdiction for the premarket review and regulation
of both components, in most cases eliminating the need to receive approvals from
more than one center. The determination whether a product is a combination
product or two separate products is made by the FDA on a case-by-case basis.
Market approval authority for combination photodynamic therapy drug/device
products is vested in the FDA Center for Drug Evaluation and Research, or CDER,
which is required to consult with the FDA Center for Devices and Radiological
Health. As the lead agency, the CDER administers and enforces the premarket
requirements for both the drug and device components of the combination product.
The FDA has reserved the decision on whether to require separate submissions for
each component until the product is ready for premarket approval. Although, to
date, photodynamic therapy products have been categorized by the FDA as
combination drug-device products, the FDA may change that categorization in the
future, resulting in different submission and/or approval requirements.





If separate
applications for approval are required in the future for PhotoPoint PDT devices,
it may be necessary for us to submit a PMA or a 510(k) to the FDA for our
PhotoPoint PDT devices. Submission of a PMA would include results of clinical
trials to show the safety and efficacy of the device for its intended use in the
combination product. A 510(k) notification would include information and data to
show that our device is substantially equivalent to previously marketed devices.
There can be no assurance as to the exact form of the premarket approval
submission required by the FDA or post-marketing controls for our PhotoPoint PDT
devices.





In March
2004, simultaneous with the submission of our PHOTREX NDA, we submitted a PMA
for the Iridex laser device used to activate the drug PHOTREX to treat patients
with AMD. The PMA was reviewed by CDER, and an Approvable Letter was issued for
the device contingent upon NDA approval of PHOTREX.


**


*Post-Approval
Compliance.* Once a
product is approved for marketing, we must continue to comply with various FDA,
and in some cases Federal Trade Commission, requirements for design, safety,
advertising, labeling, record keeping and reporting of adverse experiences
associated with the use of a product. The FDA actively enforces regulations
prohibiting marketing of products for non-approved uses. Failure to comply with
applicable regulatory requirements can result in, among other things, fines,
injunctions, civil penalties, failure of the government to grant premarket
clearance, premarket approval or export certificates for devices or drugs,
delays or suspensions or withdrawals of approvals, seizures or recalls of
products, operating restrictions and criminal prosecutions. Changes in existing
requirements or adoption of new requirements could have a material adverse
effect on our business, financial condition and results of operations.





21








*International.* We are
also subject to foreign regulatory requirements governing testing, development,
marketing, licensing, pricing and/or distribution of drugs and devices in other
countries. These regulations vary from country to country. Beginning in 1995, a
new regulatory system to approve drug market registration applications was
implemented in the European Union (EU). The system provides for new centralized,
decentralized and national (member state by member state) registration
procedures through which a company may obtain drug marketing registrations. The
centralized procedure allows for expedited review and approval of biotechnology
and high technology/innovative product marketing applications by a central
Committee for Proprietary Medicinal Products that is binding on all member
states in the EU. The decentralized procedure allows a company to petition
individual EU member states to review and recognize a market application
previously approved in one member state by the national route. Our devices must
also meet the new Medical Device Directive effective in Europe in 1998. The
Directive requires that our manufacturing quality assurance systems and
compliance with technical essential requirements be certified with a CE Mark
authorized by a registered notified body of an EU member state prior to free
sale in the EU. Registration and approval of a photodynamic therapy product in
other countries, such as Japan, may include additional procedures and
requirements, preclinical studies and clinical trials, and may require the
assistance of native corporate partners. We are currently gathering information
from outside consultants as to how we may proceed with filing for market
approval in non-U.S. countries.





**Competition**





The
pharmaceutical and medical device industries are characterized by extensive
worldwide research and development efforts and rapid technological change.
Competition from other domestic and foreign pharmaceutical or medical device
companies and research and academic institutions in the areas of product
development, product and technology acquisition, manufacturing and marketing is
intense and is expected to increase. These competitors may succeed in obtaining
approval from the FDA or other regulatory agencies for their products more
rapidly than us. Competitors have also developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products.





Many of
our competitors have substantially greater financial, technical and human
resources than we do, and may also have substantially greater experience in
developing products, conducting preclinical studies or clinical trials,
obtaining regulatory approvals and manufacturing and marketing and distribution.
Further, the establishment of patent protection by our competitors could harm
our competitive position. The existing competitors or other companies may
succeed in developing technologies and products that are more safe, effective or
affordable than those being developed by us or that would render our technology
and products less competitive or obsolete.





We are
aware that other companies are marketing or developing certain products to
prevent, diagnose or treat diseases for which we are developing PhotoPoint PDT.
These products, as well as others of which we may not be aware, may adversely
affect the existing or future market for our products. Competitive, non-PDT
products include, but are not limited to, Macugen and other drugs designed to
inhibit angiogenesis or otherwise target new blood vessels, and certain medical
devices such as drug-eluting stents in cardiovascular disease.





We are
aware of various competitors involved in the AMD and photodynamic therapy
sectors. We understand that these companies are conducting preclinical studies
and/or clinical trials in various countries and for a variety of disease
indications. Our direct competitors in our sectors include QLT Inc., or QLT,
DUSA Pharmaceuticals, or DUSA, Axcan Pharm Inc., or Axcan, Eyetech
Pharmacueticals Inc., or Eyetech, Pharmacyclics, Genetech, Inc., Alcon, Inc.,
and Allergan, Inc. In AMD, QLT’s drug Visudyne® has received marketing approval
in the United States and certain other countries for the treatment of AMD and
has been commercialized by Novartis. Eyetech received marketing approval for its
Macugen Ò treatment for AMD in December 2004 and expects to begin co-marketing their
product with Pfizer, Inc. in the beginning of 2005. Genetech, Inc. and Alcon,
Inc. are both completing Phase III clinical trials. Other laser, surigical or
pharmaceutical treatments for AMD also may compete against us.





22








In
photodynamic therapy, Axcan and DUSA have photodynamic therapy drugs, both of
which have received marketing approval in the United States - Photofrin® (Axcan)
for the treatment of certain oncology indications and Levulan® (DUSA
Pharmaceuticals) for the treatment of actinic keratoses, a dermatological
condition. Pharmacyclics has a photodynamic therapy drug that has not received
marketing approval, which is being used in certain preclinical studies and/or
clinical trials for ophthalmology, oncology and cardiovascular indications. We
are aware of other drugs and devices under development by these and other
competitors in additional disease areas for which we are developing PhotoPoint
PDT. These competitors as well as others that we are not aware of, may develop
superior products or reach the market prior to PhotoPoint PDT and render our
products non-competitive or obsolete.





In the
photodynamic therapy sector, we believe that a primary competitive issue will be
the performance characteristics of photoselective drugs, including product
efficacy and safety, as well as availability, treatment price and cost and
patent position, among other issues. As the photodynamic therapy industry
evolves, we believe that for cardiovascular disease and some other disease
indications, new and more sophisticated devices may be required and that the
ability of any group to develop advanced devices will be important to market
position.





**Corporate
Offices**





Our
principal office is located at 336 Bollay Drive, Santa Barbara, California,
93117. Our main telephone and fax numbers are (805) 685-9880 and (805) 685-9572.
In addition, in February 2005 we set up a small office area for a few of
our cardiovascular employees in Indianapolis, Indiana. We were incorporated in
the state of Delaware in 1989.





**Employees**





As of
March 14, 2005, we employed 47 individuals, approximately 17 of which were
engaged in research and development, 10 were engaged in manufacturing and
clinical activities and 20 in general and administrative activities.




Our
future success also depends on our continuing ability to attract, train, retain
or engage highly qualified scientific and technical personnel or consultants.
Competition for these personnel is intense, particularly in Santa Barbara where
we are headquartered. Due to the limited number of people available with the
necessary scientific and technical skills and our current challenging financial
situation, we can give no assurance that we can retain, attract or engage key
personnel or consultants in the future. We have not experienced any work
stoppages and consider our relations with our employees to be good. None of our
employees are represented by a labor union.





23





**EXECUTIVE
OFFICERS**





The
names, ages and certain additional information of the current executive officers
of the Company are as follows:





**Name**
    **Age**
    **Position**Gary
      S. Kledzik, Ph.D.
    55
    Chairman
      of the Board and Chief Executive OfficerDavid
      E. Mai
    60
    President
      of Miravant Medical Technologies,
      Miravant
      Systems, Inc., Miravant Pharmaceuticals, Inc. and
  DirectorJohn
      M. Philpott
    44
    Chief
      Financial Officer, Treasurer and Assistant
Secretary





***Gary
S. Kledzik, Ph.D.*** **** is a
founder of the Company and has served as a director since its inception in June
1989. He served as President of the Company from June 1989 to May 1996. He has
been Chairman of the Board of Directors since July 1991 and Chief Executive
Officer since September 1992. Prior to joining the Company, Dr. Kledzik was Vice
President of the Glenn Foundation for Medical Research. His previous experience
includes serving as Research and General Manager for an Ortho Diagnostic
Systems, Inc. division of Johnson & Johnson and Vice President of Immulok,
Inc., a cancer and infectious disease biotechnology company which he co-founded
and which was acquired by Johnson & Johnson in 1983. Dr. Kledzik holds a
B.S. in Biology and a Ph.D. in Physiology from Michigan State
University.




***David
E. Mai*** ** has
served as President of the Company since May 1996, President of Miravant
Cardiovascular, Inc. from September 1992 to June 2001, President of Miravant
Pharmaceuticals, Inc. since July 1996 and President of Miravant Systems, Inc.
since June 1997. Mr. Mai served as Vice President of Corporate Development for
the Company from March 1994 until May 1996. Mr. Mai became associated with the
Company in July 1990 as a consultant assisting with technology and business
development. He joined the Company in 1991, serving as New Product Program
Manager from February 1991 to July 1992 and as Clinical Research Manager from
July 1992 to September 1992. Prior to joining the Company, Mr. Mai was Director
of the Intravascular Ultrasound Division of Diasonics Corporation from 1988 to
1989. Previously, Mr. Mai served as Director of Strategic Marketing for Boston
Scientific Corporation’s Advanced Technologies Division, Vice President of
Stanco Medical and Sales Engineer with Hewlett-Packard Medical Electronics. Mr.
Mai holds a B.S. degree in Biology from the University of Hawaii.





***John
M. Philpott*** has
served as Chief Financial Officer since December 1995. Since March 1995, Mr.
Philpott had served as Controller. Prior to joining the Company, Mr. Philpott
was a Senior Manager with Ernst & Young LLP, which he joined in 1986. Mr.
Philpott is a Certified Public Accountant in the State of California. He holds a
B.S. degree in Accounting and Management Information Systems from California
State University, Northridge.





**Where
You Can Find More Information**





We file annual, quarterly and special
reports, proxy statements and other information with the SEC. Our filings are
available to the public over the Internet at the SEC’s website at
http://www.sec.gov. You may also read and copy any document we file at the SEC’s
Public Reference Room in Washington, D.C., located at 450 Fifth Street, N.W.
Please call the SEC at 1-800-SEC-0330 for further information on the Public
Reference Room.





We make
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to such reports filed pursuant to Section 13(a)
or 15(d) of the Exchange Act, available, free of charge, on or through our
Internet website located at http:// www.miravant.com,
as soon as reasonably practicable after they are filed with or furnished to the
SEC. Additional
information about us can be obtained from our Internet website at
http://www.miravant.com.





24





**ITEM
2.****PROPERTIES**





We
currently have a month-to-month lease in place for approximately 27,000 square
feet of office, laboratory and manufacturing space in Santa Barbara, California.
This building currently houses the majority of our operations and employees. We
entered into this lease in August 1996. This lease provides for rent to be
adjusted annually based on increases in the consumer price index and the base
rent is currently approximately $33,000 per month. The leased property is
located in a business park. We have limited ability to manufacture our active
drug ingredient, our light producing and light delivery devices and perform
research and development of drugs, light delivery and light producing devices
from this facility. At this time we intend to continue to lease month-to-month
until we decide that our financial position supports a longer-term commitment.
In addition, we are aware that the lessors can give us a 30-day notice at any
time requiring us to vacate. In February 2005, we entered into a one-year lease
agreement for 650 square feet of office space in Indianapolis, Indiana. The
monthly rent is approximately $900 and has a renewal option.




**ITEM
3.** **LEGAL
PROCEEDINGS**


We are
not currently party to any material litigation or proceeding and are not aware
of any material litigation or proceeding threatened against us.








**ITEM
4.** **SUBMISSION
OF MATTERS TO A VOTE OF SECURITY-HOLDERS**





No
matters were submitted to a vote of security holders during the fourth quarter
of 2004.





****





25





**PART
II**


****


**ITEM 5.****MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS**





Our
Common Stock is traded on the OTC
Bulletin Board® , or
OTCBB, under the symbol MRVT. The following table sets forth high and low bid
prices per share of Common Stock as reported on the OTCBB. The closing price of
our Common Stock as reported on the OTCBB under the symbol MRVT on March 14,
2005 was $0.94.





**2004:**
    
    **High**
    
    **Low**Fourth
      quarter
    
    $
    1.71
    
    $
    0.90Third
      quarter
    
    
    2.87
    
    
    1.56Second
      quarter
    
    
    3.70
    
    
    1.61First
      quarter
    
    
    4.10
    
    
    1.19**2003:**Fourth
      quarter
    
    $
    1.35
    
    $
    0.99Third
      quarter
    
    
    1.44
    
    
    0.90Second
      quarter
    
    
    1.29
    
    
    0.92First
      quarter
    
    
    1.57
    
    
    0.71





As of
March 14, 2005 there were approximately 289 stockholders of record of the Common
Stock, which does not include “street accounts” of securities brokers. Based on
the number of proxies requested by brokers in connection with our annual meeting
of stockholders, we estimate that the total number of stockholders of the Common
Stock exceeds 6,000.





**Dividend
Policy**





We have
never paid dividends, cash or otherwise, on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain future earnings, if any, to finance the growth and development of our
business.





**Nasdaq
Listing**





We were
notified by Nasdaq on July 11, 2002
that our Common Stock would be
delisted and begin
trading on the OTCBB effective as of the opening of
business on July 12, 2002. The OTCBB
is a regulated quotation service that displays real-time quotes, last-sale
prices and volume information in over-the-counter equity securities. OTCBB
securities are traded by a community of market makers that enter quotes and
trade reports. Our Common Stock trades under the ticker symbol MRVT and can be
viewed at www.otcbb.com. Management
continues to review our ability to regain our listing status with Nasdaq or
another national stock market exchange, however, there are no guarantees we will
be able to raise the additional capital needed or to increase the current
trading price of our Common Stock to allow us to meet the relisting requirements
for the Nasdaq National Market, Nasdaq Small Cap Market or
another national stock market exchange on a
timely basis, if at all.





**Recent
Sales of Unregistered Securities - Fiscal Year 2004**





In
January 2004, in consideration of services rendered, we issued a warrant to
purchase 10,000 shares of Common Stock to a consultant with an exercise price of
$1.24 and expiration date of January 2008. The warrant was issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended.





26


**ITEM
6.****SELECTED
CONSOLIDATED FINANCIAL DATA**





In the
table below, we provide you with summary historical financial data of Miravant
Medical Technologies. We have prepared this information using the consolidated
financial statements of Miravant for the five years ended December 31, 2004. The
consolidated financial statements for the five fiscal years ended December 31,
2004 have been audited by Ernst & Young LLP, independent registered public
accounting firm.





When you
read this summary of historical financial data, it is important that you read
along with it the historical financial statements and related notes in our
annual and quarterly reports filed with the SEC, as well as the section of our
annual and quarterly reports titled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”


**Year
      Ended December 31,****2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000****(in
      thousands, except share and per share data)****Statement
      of Operations Data:**Revenues
    
    $
    —
    
    $
    —
    
    $
    499
    
    $
    4,683
    
    $
    4,593Costs
      and expenses:Cost
      of goods sold
    
    
    —
    
    
    —
    
    
    479
    
    
    934
    
    
    —Research
      and development
    
    
    7,637
    
    
    7,616
    
    
    9,549
    
    
    13,493
    
    
    20,194General
      and administrative
    
    
    5,416
    
    
    4,620
    
    
    5,726
    
    
    5,903
    
    
    6,023Total
      costs and expenses
    
    
    13,053
    
    
    12,236
    
    
    15,754
    
    
    20,330
    
    
    26,217Loss
      from operations
    
    
    (13,053
    )
    
    (12,236
    )
    
    (15,255
    )
    
    (15,647
    )
    
    (21,624
    )Interest
      and other income (expense)Interest
      and other income
    
    
    121
    
    
    76
    
    
    169
    
    
    798
    
    
    1,370Interest
      expense
    
    
    (3,038
    )
    
    (5,649
    )
    
    (286
    )
    
    (2,139
    )
    
    (2,254
    )Gain
      on sale of assets
    
    
    74
    
    
    62
    
    
    10
    
    
    586
    
    
    —Gain
      on sale of investment in affiliate(1)
    
    
    —
    
    
    1,196
    
    
    —
    
    
    —
    
    
    —Gain
      on retirement of debt (2)
    
    
    —
    
    
    9,086
    
    
    —
    
    
    —
    
    
    —Non-cash
      loss in investment in affiliate(1)
    
    
    —
    
    
    —
    
    
    (598
    )
    
    —
    
    
    (3,485
    )Total
      net interest and other income (expense)
    
    
    (2,843
    )
    
    4,771
    
    
    (705
    )
    
    (755
    )
    
    (4,369
    )Net
      loss
    
    $
    (15,896
    )
    $
    (7,465
    )
    $
    (15,960
    )
    $
    (16,402
    )
    $
    (25,993
    )Net
      loss per share (3)
    
    $
    (0.48
    )
    $
    (0.30
    )
    $
    (0.78
    )
    $
    (0.88
    )
    $
    (1.42
    )Shares
      used in computing netloss
      per share (3)
    
    
    32,986,422
    
    
    24,703,543
    
    
    20,581,214
    
    
    18,647,071
    
    
    18,294,525****
    
    **December
      31,****2004**
    
    
    **2003**
    
    
    **2002**
    
    
    **2001**
    
    
    **2000******
    
    
    **(in
      thousands)****Balance
      Sheet Data:**Cash
      and marketable securities (4)
    
    $
    6,099
    
    $
    1,030
    
    $
    723
    
    $
    6,112
    
    $
    20,835Working
      capital (deficit)
    
    
    4,555
    
    
    (664
    )
    
    (5,953
    )
    
    9,240
    
    
    19,431Total
      assets
    
    
    7,509
    
    
    2,405
    
    
    3,390
    
    
    16,165
    
    
    28,027Long-term
      liabilities
    
    
    7,633
    
    
    7,440
    
    
    6,273
    
    
    26,642
    
    
    24,888Accumulated
      deficit
    
    
    (212,890
    )
    
    (196,994
    )
    
    (189,529
    )
    
    (173,569
    )
    
    (157,167
    )Total
      stockholders’ equity (deficit)
    
    
    (1,982
    )
    
    (7,027
    )
    
    (10,110
    )
    
    (13,798
    )
    
    (164
    )






(1)
    See
      Note 10 of Notes to Consolidated Financial Statements for information
      regarding the gain on sale of investment in affiliate and non-cash losses
      in investment in affiliate.


(2)
    See
      Note 2 of the Notes to Consolidated Financial Statements for information
      regarding the gain on retirement of debt.


(3)
    See
      Note 1 of Notes to Consolidated Financial Statements for information
      concerning the computation of net loss per
share.


(4)
    See
      Notes 2 and 3 of Notes to Consolidated Financial Statements for
      information concerning the changes in cash and marketable
      securities.





27
 ****


****





**ITEM
7.****MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL** **CONDITION AND RESULTS OF OPERATIONS**
 
 This section
of the Annual Report on Form 10-K contains forward-looking statements, which
involve known and unknown risks and uncertainties. These statements relate to
our future plans, objectives, expectations and intentions. These statements
relate to our future plans, objectives, expectations and intentions. 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, which 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 recently branded for
ophthalmology indications as PHOTREXTM; 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; our ability to meet the covenants of 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; 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 March 2005 Debt Agreement and 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, see “Risk
Factors," included in Item 7, for a discussion of certain risks, including those
relating to 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.
 
 The following
discussion should be read in conjunction with the 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 PhotoPoint â . Our
drugs and devices are in various stages of development and require regulatory
approval prior to sales, marketing or clinical use.





28








Our most
advanced drug, PHOTREXTM (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 in 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 $212.9 million as of December 31, 2004. 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.





Although
we continue to incur costs for research and development, preclinical studies,
clinical trials and general corporate activities, we have continued to control
overall costs by adhering to the cost restructuring program we implemented in
2002. 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 established a collaborative
partnering agreement, receive regulatory approval and commence commercial sales
of PHOTREX.





Our
significant funding activities over the last twelve months have consisted of the
following:





·
    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 financing completed April 23,
2004;


·
    A
      $2.0 million convertible debt financing completed in February
      2004;


·
    Warrant
      exercises through March 15, 2005 providing proceeds of $1.4 million;
      and


·
    The
      sale of our investment in an affiliate, Xillix Technologies Corp., or
      Xillix, in December 2003, providing net cash proceeds of $1.6
      million.





29








We
believe we can raise additional funding to support operations through corporate
collaborations or partnerships, through licensing of PHOTREX or new products and
through public or private equity or debt financings prior to December 31, 2005.
If additional funding is not available when required, we believe that as long as
we are able to borrow under the March 2005 Debt Agreement and our debtdoes not
become accelerated, then we have the ability to conserve cash required for
operations through March 31, 2006. If the funding from the March 2005 Debt
Agreement and/or additional funding is not available when needed, we believe
depending on the amount borrowed under the March 2005 Debt Agreement, we may
have cash required for operations through December 31, 2005
assuming the delay or reduction in scope of one or more of our
research and development programs, and adjusting, deferring or reducing salaries
of employees and by reducing operating facilities and overhead expenditures.
There can be no assurance that we will be able to continue to borrow under the
March 2005 Debt Agreement, if certain requirements are not met or are not
satisfactory to the March 2005 Lender. In addition, there is no guarantee 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
2004 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 Approvable
      Letter from the FDA;


·
    Development
      activities in preparation for an Investigational New Drug application, or
      IND, and Phase I clinical trial for our cardiovascular program;


·
    Commencement
      of 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; and


·
    Review
      and follow-up of our Phase II dermatology 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, o ur
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 was accepted by the FDA for filing with a
priority review designation on June 1, 2004. 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, which we plan to initiate
in 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 600 patients to be
analyzed.





30








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 involving a series of injections into the
eye. The treatment is considered a competitive and potentially complementary
technology to PDT. The FDA approved Macugen for both classic and occult lesions,
which we believe will increase the overall number of patients seeking treatment
for wet AMD.





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 2005. 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, w e 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 by December 31, 2005.





31








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 about initiating a Phase II
clinical trial. We are currently pursuing potential strategic partners in this
field to help fund these clinical studies. Pending the results of our
preclinical studies as well as financial considerations, corporate
collaborations and other factors, we may decide to file an IND for the
commencement of clinical trials in this field.





*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. Analysis of the
clinical results and other factors such as the availability of funding and other
resources will determine whether we continue this program.





*Oncology*





In our
oncology research program, we have
ongoing 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 is 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. **





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 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”





32








**Program**
    
    **Description/Indication**
    
    **Phase
      of Development**
    
    ****
      **Estimated
      date of Phase**Ophthalmology
    
    AMD
      (PHOTREX)
    
    Commencement
      of confirmatory Phase III clinical trial
    
    Q2/Q3
      2005New
      drug compounds
    
    Research
      studies
    
    CompletedDermatology
    
    Psoriasis
      (MV9411)
    
    Close
      out of Phase II
    
    Q2
      2005Cardiovascular
      disease
    
    VP
      and Restenosis (MV0633 and other compounds)
    
    Continuation
      of Preclinical studies and IND submission
    
    **AV
      Graft (MV2101)
    
    Continuation
      of Preclinical studies
    
    **Oncology
    
    Tumor
      research
    
    Continuation
      of Research studies
    
    **(MV
      6401)








** Based
on the early development stage of these programs we cannot reasonably estimate
the time at which these programs may move from a research or preclinical
development phase to the clinical trial phase. 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 programs.





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.





**Critical
Accounting Policies**





***Research
and Development Expenses.*** ** Research
and development costs are expensed as incurred. Research
and development expenses are comprised of the following types of costs incurred
in performing research and development activities: salaries and benefits,
allocated overhead and occupancy costs, preclinical study costs, clinical trial
and related clinical drug and device manufacturing costs, contract services and
other outside services and consulting costs. The
acquisition of technology rights for research and development projects and the
value of equipment or drug products for specific research and development
projects, with no or low likelihood of alternative future use, are also included
in research and development expenses.





***Stock-Based
Compensation.*** ** Statement
of Financial Accounting Standards, or SFAS, No. 123, “Accounting for Stock-Based
Compensation,” encourages, but does not require, companies to record
compensation expense for stock-based employee compensation plans at fair value.
We have chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion, or
APB, Opinion No. 25 and related interpretations, including Financial
Interpretation No. 44, “Accounting for Certain Transactions Involving Stock
Compensation,” in accounting for our stock option plans.





33








We also
have granted and continue to grant warrants and stock options to various
consultants of ours. These warrants and options are generally in lieu of cash
compensation and, as such, deferred compensation is recorded related to these
grants. Deferred compensation for warrants and options granted to non-employees
has been determined in accordance with SFAS No. 123 and Emerging Issues Task
Force, or EITF, 96-18 as the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measured. Deferred compensation is amortized over the consulting or vesting
period.





**Recent
Accounting Pronouncements**





On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised in 2004), or Statement No. 123(R), Share-Based
Payment, which is a revision of FASB Statement No. 123, or Statement 123,
Accounting for Stock-Based Compensation. Statement No. 123(R) supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB
Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement
No. 123(R) is similar to the approach described in Statement No. 123.
However, Statement No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the statement of
operations based on their fair values. Proforma disclosure is no longer an
alternative. Statement No. 123(R) must be adopted no later than July 1, 2005.
Early adoption will be permitted in periods in which financial statements have
not yet been issued. We expect to adopt Statement No. 123(R) on July 1,
2005.





Statement
No. 123(R) permits companies to adopt its requirements using one of two methods.
The first method is a modified prospective transition method whereby a company
would recognize share-based employee costs from the beginning of the fiscal
period in which the recognition provisions are first applied as if the
fair-value-based accounting method had been used to account for all employee
awards granted, modified, or settled after the effective date and to any awards
that were not fully vested as of the effective date. Measurement
and attribution of compensation cost for awards that are nonvested as of the
effective date of Statement No. 123(R) would be based on the same estimate of
the grant-date fair value and the same attribution method used previously under
Statement No. 123.





The
second adoption method is a modified retrospective transition method whereby a
company would recognize employee compensation cost for periods presented prior
to the adoption of Statement No. 123(R) in accordance with the original
provisions of Statement 123; that is, an entity would recognize employee
compensation cost in the amounts reported in the pro forma disclosures provided
in accordance with Statement No. 123. A company would not be permitted to make
any changes to those amounts upon adoption of Statement No. 123(R) unless those
changes represent a correction of an error. For periods after the date of
adoption of Statement No. 123(R), the modified prospective transition method
described above would be applied.





We
currently expects to adopt Statement No. 123(R) using the modified prospective
transition method, and expects the adoption to have an effect on our results of
operations similar to the amounts reported historically in the our footnotes
under the pro forma disclosure provisions of Statement No. 123.





34








**Results
of Operations**





The
following table provides a summary of our revenues for the years ended December
31, 2004, 2003 and 2002:





**Consolidated
      Revenues**
    
    2004
    
    2003
    
    2002License
      - contract research and development
    
    $
    —
    
    $
    —
    
    $
    20,000Bulk
      active pharmaceutical ingredient sales
    
    
    —
    
    
    —
    
    
    479,000Total
      revenues
    
    $
    —
    
    $
    —
    
    $
    499,000


Our
historical revenues primarily reflect income earned from licensing agreements,
grants awarded, royalties from device product sales, milestone payments and
non-commercial drug sales to Pharmacia. Any future potential new revenues such
as drug and device product sales, license income from new collaborative
agreements, revenues from contracted services, and royalties or revenues from
potential drug and device sales, if any, will depend on, among other factors,
the results from our ongoing preclinical studies and clinical trials, the timing
and outcome of applications for regulatory approvals, including our NDA for
PHOTREX, our ability to re-license PHOTREX and establish new collaborative
partnerships in ophthalmology and cardiovascular disease and their subsequent
level of participation in our preclinical studies and clinical trials, our
ability to have any of our potential drug and related device products
successfully manufactured, marketed and distributed, the restructuring or
establishment of collaborative arrangements for the development, manufacturing,
marketing and distribution of some of our future products. Based on the above
mentioned factors, among others, we anticipate our operating activities will
require significant expenditures and result in substantial, and possibly
increasing, operating losses for the next few years.





***Total
Revenues*** *.* Our
revenues have decreased from $499,000 in 2002 to no revenues in 2003 and 2004.
The fluctuations in revenues are due to the following:





*License
Income* . License
income, which represents reimbursements of out-of-pocket or direct costs
incurred in preclinical studies and Phase III AMD clinical trials, decreased
from $20,000 in 2002 to zero license income in 2003 and 2004. The decrease in
license income is specifically related to the conclusion of the Phase III AMD
clinical trials in December 2001 and the completion of the preclinical studies
and our AMD clinical trial responsibilities. Reimbursements received during 2002
were primarily for costs incurred to complete preclinical studies and clinical
trial oversight for AMD.





*Bulk
Active Pharmaceutical Ingredient Sales* . In May
2001, we entered into an Asset Purchase Agreement with Pharmacia whereby they
agreed to buy bulk API inventory through March 2002. In January 2002, Pharmacia
reimbursed us for all of our remaining finished and in-process lots of bulk API
for approximately $479,000. In March 2002, we entered into a Contract
Modification and Termination Agreement with Pharmacia whereby our license
agreement for PHOTREX was terminated. In accordance with the Contract
Modification and Termination Agreement, we will receive no further
reimbursements from Pharmacia related to any of our ongoing preclinical studies
and clinical trials and Pharmacia will not make any more purchases of bulk
API. **








***Cost
of Goods Sold.*** ** In
connection with the manufactured bulk API sold under the terms of the Asset
Purchase Agreement with Pharmacia, which was terminated in March 2002, we
recorded $479,000 in manufacturing costs for the year ended December 31, 2002.
The amounts recorded as cost of API sales represent the costs incurred to
manufacture the bulk API sold in the first quarter 2002 and throughout fiscal
2001. No cost of API sales were incurred for the year ended December 31, 2003
and 2004 and no further cost of API sales are expected until regulatory approval
is received and commercial sales commence.





35








***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 were
$7.6 million and $7.6 million for the years ended December 31, 2004 and 2003 and
decreased compared to $9.5 million for the same period in 2002. Research and
development costs remained consistent for the year ended December 31, 2004
compared to 2003. The reduction in research and development costs for the year
ended December 31, 2003 compared to 2002 related to the implementation of the
cost restructuring program that mandated a scale back of costs to focus on the
NDA submission for PHOTREX. Research
and development expenses for the year ended December 31, 2004, 2003 and 2002
related primarily to indirect costs such as payroll, payroll taxes, employee
benefits and allocated operating costs. Additionally, we incurred research and
development expenses for:





·
    Preparation
      for submission of an NDA for PHOTREX in
AMD;


·
    Work
      associated with the development of new devices, delivery systems, drug
      compounds and formulations for the dermatology and cardiovascular
      programs; and


·  Clinical
trial costs for our Phase II dermatology program.





As
previously disclosed, we have three research and development programs on which
we have focused our efforts: ophthalmology, cardiovascular disease and
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:





**Program**
    
    **2004**
    
    **2003**
    
    **2002**Direct
      costs:Ophthalmology
    
    $
    1,897,000
    
    $
    1,522,000
    
    $
    239,000Cardiovascular
      disease
    
    
    853,000
    
    
    294,000
    
    
    1,136,000Dermatology
    
    
    65,000
    
    
    220,000
    
    
    503,000Total
      direct costs
    
    $
    2,615,000
    
    $
    2,036,000
    
    $
    1,878,000Indirect
      costs
    
    
    4,822,000
    
    
    5,580,000
    
    
    7,671,000Total
      research and development costs
    
    $
    7,637,000
    
    $
    7,616,000
    
    $
    9,549,000





*Ophthalmology.* ****** In 2004,
our direct ophthalmology program costs have increased to $1.9 million from $1.5
million in 2003 and from $239,000 in 2002. These increases relate primarily to
costs associated with the preparation and filing of the NDA for PHOTREX. Costs
in 2003 reflect NDA preparation while 2004 costs reflect final preparation prior
to the March 2004 filing, the costs of follow-up work and the commencement of
pre-commercialization activities.





36








*Cardiovascular
Disease.* ****** Our
direct cardiovascular disease program costs increased to $853,000 in 2004 from
$294,000 in 2003 and decreased compared to $1.1 million in 2002. The increase
from 2003 to 2004 reflects the results of a
Collaboration Agreement entered into in June 2004 with Guidant Corporation,
which requires us to develop MV0633 for restenosis, atherosclerosis and
atherosclerotic vulnerable plaque cardiovascular diseases. This agreement
provides funding and mandates milestones in the development process of MV0633. Research
costs for 2004 are comprised of development and manufacturing activities for
drug and devices to be used in the preclinical studies and the preparation work
for an IND and Phase I clinical trial. We expect to continue to incur an
increase in development costs for this program as they relate to the Guidant
Collaboration agreement. The decrease in expenditures from 2003 to 2002 reflects
the results of the 2002 cost restructuring program that required a reduction in
overall research and development costs and a focus of resources on the NDA
filing for PHOTREX.





*Dermatology.* Our
direct dermatology program costs decreased to $65,000 in 2004 from $220,000 in
2003 and from $503,000 in 2002. Costs incurred in the dermatology program
include expenses for drug development and drug formulation, internal and
external preclinical study costs, and Phase I and Phase II clinical trial
expenses. The decrease in 2004 as compared to the same period in 2003 and 2002
is related to the decrease in patient treatments in the Phase II clinical trial
compared to 2003 and 2002.





*Indirect
Costs.* Our
indirect costs have decreased to $4.8 million in 2004 from $5.6 million in 2003
and from $7.7 million in 2002. Generally, the decrease in 2003 and 2002 to
2004 was attributed to a decrease in costs related to the downsizing of
facilities and related reduction in overhead costs, which was slightly offset by
an increase in 2004 in employee compensation which was adjusted for the
first time since 2001.





We expect
that future research and development expenses may fluctuate depending on
available funds, continued expenses incurred related to our completion of the
conditions of the Approvable Letter received from the FDA, pre-commercialization
costs for drug and devices manufacturing, costs for preclinical studies and
clinical trials in our dermatology, cardiovascular and other programs, costs
associated with the purchase of raw materials and supplies for the production of
devices and drug for use in preclinical studies and clinical trials, results
obtained from our ongoing preclinical studies and clinical trials and the
expansion of our research and development programs, which includes the increased
hiring of personnel, the continued expansion of existing or the commencement of
new preclinical studies and clinical trials and the development of new drug
compounds and formulations.





***General
and administrative.*** Our general
and administrative expenses increased to $5.4 million in 2004 from $4.6 million
in 2003 and slightly decreased compared to $5.7 million in 2002. General
and administrative expenses
related primarily to payroll related expenses, operating costs such as rent,
utilities, professional services and insurance costs and non-cash expenses such
as stock compensation and depreciation. For 2004, the employee compensation
expenses increased from 2003 due to the increase in employee wages, which were
adjusted for the first time since 2001, stock awards and bonuses, in addition to
an increase in insurance and stock compensation costs. For 2003, the employee
and overhead related expenses decreased compared to 2002 due to the decrease in
the number of administrative employees and a decrease in facility related costs
from the reduction in facilities. These decreases were primarily offset by an
increase in insurance and stock compensation costs.





We expect
future general and administrative expenses to remain consistent with prior
periods although they may fluctuate depending on available funds, and the need
to perform our own marketing and sales activities, the support required for
research and development activities, the costs associated with potential
financing and partnering activities, continuing corporate development and
professional services, facility and overhead costs, compensation expense
associated with employee stock bonuses and stock options and warrants granted to
consultants and expenses for general corporate matters.





37








***Interest
and Other Income.*** Interest
and other income increased to $121,000 in 2004 from $76,000 in 2003 and
decreased compared to $169,000 in 2002. The overall increase in interest and
other income is directly related to the levels of cash and marketable securities
earning interest and the rates of interest being earned. Interest and other
income earned in 2004, 2003 and 2002 primarily represent interest earned on cash
and marketable security balances throughout the year as well as interest on
employee and executive loans. The level of future interest and other income will
primarily be subject to the level of cash balances we maintain from period to
period and the interest rates earned. However, we expect our interest and other
income to decrease in future periods unless additional funding is
obtained.





***Interest
Expense.*** Interest
expense decreased significantly to $3.0 million in 2004 from $5.6 million in
2003 and increased compared to $286,000 in 2002. The decrease in 2004 compared
to 2003, is primarily related to a decrease in the amortization of the
beneficial conversion value from the February 2004 Debt Agreement and the August
2003 and 2002 Debt Agreements. The increase in 2003 compared to 2002, is
directly related to the amortization of the beneficial conversion value recorded
in 2003, which was approximately $3.9 million, from the August 2003 and 2002
Debt Agreements. Under Emerging
Issues Task Force No. 98-5, or EITF No. 98-5, we were required to determine the
beneficial conversion value for the August 2003 Debt Agreement and the December
2002 Debt Agreement. The beneficial conversion value represents the difference
between the fair value of our Common Stock on the date of the first available
conversion and the intrinsic value, which is the value of the 2003 Notes on an
as converted assumption and the value of detachable warrant issued. The
remaining beneficial conversion value from the August 2003 Debt Agreement and
December 2002 Debt Agreement of $681,000 was amortized during 2004.
Additionally, a $300,000 beneficial conversion value associated with the
February 2004 Debt Agreement was recorded and amortized during 2004. These
amounts were recorded as interest expense. The
decrease in interest expense in 2004 compared to the same period in 2003 was
partially offset by an increase in interest expense from borrowings under the
December 2002 Debt Agreement, August 2003 Debt Agreement and the February 2004
Debt Agreement and the related amortization of deferred financing costs
associated with those agreements of $1.0 million. The
amortization of the beneficial conversion value based on the first available
conversion dates for the August 2003 Debt Agreement and the December 2002 Debt
Agreement aggregated approximately $3.9 million, for the year ended December 31,
2003 and was recorded to interest expense in 2003. The
remaining increase in interest expense for 2003 compared to the same period in
2002 related to an increase in interest expense from borrowings under the 2002
Debt Agreement and the related amortization of deferred financing costs
associated with the 2002 and 2003 Debt Agreements. The level of interest expense
in future periods is expected to increase as monthly borrowings on the
promissory notes are continued, deferred financing costs associated with the
August 2003 Debt Agreement continue to amortize over the term of the related
borrowings and any additional borrowings under the March 2005 Debt
Agreement.





***Gain
on Sale of Assets*** *.* The ** gain ** on sale
of assets increased to $74,000 in 2004 from $62,000 in 2003 and from $10,000 in
2002. The gain on sale of assets in 2004, 2003 and 2002 related to the gain on
the sale of equipment sold which was fully depreciated.





***Gain
on Sale of Investment in Affiliate.*** **** In 2004
there was no gain on sale of investment in affiliate. In December 2003, we sold
our investment in Xillix Technologies Corp., or Xillix. We owned approximately
2.7 million shares of Xillix at an adjusted cost basis of $393,000 and received
net proceeds of approximately $1.6 million, resulting in a net gain of $1.2
million.





38





***Gain on Retirement of
Debt.*** In 2004
there was no gain on retirement of debt. In August 2003, we recorded a gain of
$9.1 million for the settlement of our debt to Pharmacia. There was no gain on
retirement on debt recorded in 2002. In connection with the our 2003 debt
financing, we entered into a Termination and Release Agreement with Pharmacia,
that provided, among other things, for the retirement of the $10.6 million debt
owed by us to Pharmacia and the release of the related security collateral, in
exchange for a $1.0 million cash payment, 390,000 shares of our Common Stock,
with a fair market value on the date of issuance of $386,000, and the adjustment
of the exercise price of Pharmacia’s outstanding warrants to purchase shares of
our Common Stock, valued at $151,000. We recorded a net gain of $9.1 million,
which was determined as follows: the $10.6 million debt was reduced by the $1.0
million cash payment, the fair market value of the issued Common Stock of
$386,000 and the Black-Scholes value of the repriced warrants of $151,000,
resulting in a net $9.1 million gain.





***Non-cash
Loss in Investment in Affiliate.*** **** During
2000 and again in 2002, we determined that the decline in the value of our
investment in Xillix was other-than-temporary. Since we made the investment in
June 1998, the value of the Xillix common stock had decreased by approximately
70% through 2000 and approximately an additional 20% through 2002 and had been
at similar levels for at least nine months prior to the write-down. In December
2000, we recorded a loss write-down totaling $3.5 million and in December 2002
another $598,000 loss write-down was recorded, to reduce our investment in
Xillix to its estimated current fair value based on quoted market prices as of
December 31, 2002. As mentioned above, we sold this investment in December 2003,
which net a gain of $1.2 million.





***Income
Taxes*** *.* As of
December 31, 2004, we had net
operating loss carryforwards for federal tax purposes of $192.0 million, which
expire in the years 2006 to 2024. Research credit carryforwards aggregating $9.6
million are available for federal and state tax purposes and expire in the years
2004 to 2024. We also had state net operating loss carryforwards of $93.0
million which expires in the years 2005 to 2014. Of the $93.0 million in state
net operating loss carryforwards, $33.0 million will expire during 2005 and
$19.0 million of the state tax operating losses expired during the 2006 tax
year. Under Section 382 of the Internal Revenue Code, the utilization of our tax
net operating losses may be limited based on changes in the percentage of
ownership in our Company.





***Inflation.*** We do
not believe inflation has had a material impact on our results of operations.





**Off-Balance-Sheet
Arrangements and Other Contractual Obligations**





***Off-Balance-Sheet
Arrangements.*** We have
not entered into any transactions with unconsolidated entities whereby we have
financial guarantees, subordinated retained interests, derivative instruments,
or other contingent arrangements that expose us to material continuing risks,
contingent liabilities, or any other obligation under a variable interest in an
unconsolidated entity that provides financing, liquidity, market risk, or credit
risk support to us.





39








***Contractual
Obligations***





**Payments
      due by**
      **Period**
    
    **Debt
      (1)**
    
    **Building
      and Equipment Leases (2)**
    
    **Total**2005
    
    $
    —
    
    $
    58,000
    
    $
    58,0002006
    
    
    3,400,000
    
    
    126,000
    
    
    3,526,0002007
    
    
    —
    
    
    3,000
    
    
    3,0002008
    
    
    6,300,000
    
    
    3,000
    
    
    6,303,0002009
    
    
    —
    
    
    —
    
    
    —Total
      Contractual Obligations
    
    $
    9,700,000
    
    $
    190,000
    
    $
    9,890,000








(1)
    The
      debt represents $3.4 million of borrowings under the August 2003
      Agreement, which has a due date of August 28, 2006 and $6.3 million of
      borrowings under the 2002 Debt Agreement, which has a due date of December
      31, 2008.


(2)
    The
      amounts recorded for building and equipment leases consist of a lease on
      one building and various office equipment. The lease of our primary
      facility and storage area are month-to-month and are not presented in the
      table shown above. Should these two facilities be maintained through 2005,
      the rental costs should approximate an additional $620,000 per year.In
      addition, we are aware that the lessors can give us a 30-day notice at any
      time requiring us to vacate.





In March
2005, we selected Kendle, a leading international CRO, to conduct our
confirmatory Phase III clinical trial for PHOTREX in AMD. Upon the execution of
the agreement, we will pay Kendle an up front payment of approximately $700,000
and will be required to make monthly payments of approximately $120,000 per
month over the estimated 38 month term of the clinical trial, with various
milestone payment amounts due on the first and last patient enrolled, at the one
year analysis and upon receipt of the final clinical study report. We are also
responsible for payment of out-of-pocket costs incurred by Kendle, as well as
payments made by them to the clinical sites for patient treatments and ancillary
costs incurred. When finalized, we expect the agreement to include a provision
allowing it to be terminated due to clinical efficacy or safety issues at any
time with any expenses and services incurred by Kendle, as of the date of
termination, to be paid by us.





**Liquidity
and Capital Resources**




Since
inception through December 31, 2004, we have accumulated a deficit of
approximately $212.9 million and expect to continue to incur substantial, and
possibly increasing, operating losses for the next few years. We have financed
our operations primarily through private placements of Common Stock and
Preferred Stock, private placements of convertible notes and short-term notes,
our initial public offering, a secondary public offering, Pharmacia’s purchases
of Common Stock and credit arrangements. As of December 31, 2004, we have
received proceeds from the sale of equity securities, convertible notes and
credit arrangements of approximately $254.8 million. We do not anticipate
achieving profitability in the next few years, as such we expect to continue to
rely on external sources of financing to meet our cash needs for the foreseeable
future. As of December 31, 2004, our consolidated financial statements have been
prepared assuming we will continue as a going concern. 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 Public Company Accounting Oversight
Board (United States), our viability as a going concern is in
question.







40







In March
2005, we entered into a Note and Warrant Purchase Agreement, or the March 2005
Debt Agreement, with the March 2005 Lender. The March 2005 Debt Agreement allows
the Company to borrow up to $1.0 million per month, with any unused monthly
borrowings to be carried forward. The maximum aggregate loan amount under the
March 2005 Debt Agreement is $15.0 million with the last available borrowing in
June 2006. The March 2005 Lender obligation to fund each borrowing request is
subject to material conditions described in the March 2005 Debt Agreement. In
addition, the March 2005 Lender may terminate its obligations under the March
2005 Debt Agreement at any time if Miravant, in the reasonable judgment of the
March 2005 Lender, is not meeting its business objectives, and is subject to
negative covenants and other restrictions. Each Note and accrued interest, if
any, can be convertible into shares of our Common Stock at a conversion price of
one hundred ten percent (110%) of the average monthly closing price of the month
preceding the issuance of each Note. The notes earn interest quarterly at the
prime rate plus three percent (3%) and at our option and subject to certain
restrictions, we may make interest payments in cash or in shares of Common
Stock. The borrowings are secured by our assets to the extent of the amount
borrowed. In connection with each borrowing under the March 2005 Debt Agreement,
we will issue a warrant to purchase one-quarter (1/4) of a share of Miravant
Common Stock for each convertible share of Common Stock issued.  The
exercise price of each warrant will be equal to one hundred ten percent (110%)
of the average monthly closing price of the month preceding the issuance of each
Note. Each warrant will terminate on December 31, 2013, unless previously
exercised. We have also agreed to provide the March 2005 Lender certain
registration rights in connection with this transaction.




In July
2004, we entered into a Collaboration Agreement and Securities Purchase
Agreement with Advanced Cardiovascular Systems, Inc., a wholly owned subsidiary
of Guidant Corporation, pursuant to which we sold 1,112,966 shares of Series A
Convertible Preferred Stock, resulting in proceeds to us of $3.0 million.
Additionally, we can receive up to $4.0 million in additional convertible
preferred stock investments upon the completion of certain milestones related to
our cardiovascular program. The $3.0 million of Preferred Stock purchased by
Guidant is convertible into our Common Stock at $2.70 per share and includes
registration rights for the underlying Common Stock.




In April
2004, we entered in a Securities Purchase Agreement, or the 2004 Equity
Agreement, with a group of institutional investors, whereby we sold 4,564,000
shares of Common Stock at $2.25 per share, resulting in proceeds to us of $10.3
million. There were no placement fees associated with the offering and the
shares issued were unregistered. On April 29, 2004, we filed a registration
statement with the SEC to cover the resale of these shares of Common Stock with
the SEC.





In
February 2004, we entered into an Unsecured Convertible Debenture Purchase
Agreement, or the February 2004 Debt Agreement, with certain private accredited
investors, or the February 2004 Lenders. Under the February 2004 Debt Agreement
we issued $2.0 million worth of convertible debentures, convertible at $2.00 per
share. As of March 14, 2005, all $2.0 million of the Notes issued have been
converted into 1.0 million shares of Common Stock.





In August
2003, we entered into a Convertible Debt and Warrant Purchase Agreement, or the
August 2003 Debt Agreement, with a group of private accredited investors, or the
August 2003 Lenders, pursuant to which we issued securities to the August 2003
Lenders in exchange for gross proceeds of $6.0 million. Under the August 2003
Debt Agreement, the debt can be converted at $1.00 per share into our Common
Stock. We issued separate convertible promissory notes, which are referred to as
the 2003 Notes, to each August 2003 Lender and the 2003 Notes earn interest at
8% per annum and are due August 28, 2006, unless converted earlier or paid early
under the prepayment or default provisions. The interest on each 2003 Note is
due quarterly beginning October 1, 2003 and can be paid in cash or in-kind at
our option. Under certain circumstances each 2003 Note can be prepaid by us
prior to the maturity date or prior to conversion. The 2003 Notes also have
certain default provisions which can cause the 2003 Notes to become accelerated
and due immediately upon notice by the August 2003 Lenders. If the 2003 Notes
are declared to be due prior to their scheduled maturity date, it is unlikely we
will be able to repay these notes and it may force us to significantly reduce or
cease operations or negotiate unfavorable terms for repayment. As of March 14,
2005, $2.6 million of the $6.0 million principal balance of the 2003 Notes have
been converted into 2.6 million shares Common Stock.





41








In
connection with the August 2003 Debt Agreement, we also issued to the August
2003 Lenders warrants to purchase an aggregate of 4,500,000 shares of our Common
Stock. The exercise price of each warrant is $1.00 per share and the warrants
will terminate on December 31, 2013, unless amended as noted below or unless
previously exercised. We can force the exercise of warrants to purchase
1,500,000 shares of our Common Stock under certain circumstances. In accordance
with the registration rights related to the August 2003 Debt Agreement, in
October 2003 we registered, as required, certain shares underlying the
convertible promissory notes and the shares underlying the warrants for certain
note holders. In addition, of the 4.5 million warrants issued, 1,425,000
warrants have been exercised through March 14, 2005, resulting in proceeds
to us of $1.4 million.





In
connection with the closing of the March 2005 Debt Agreement, of the 3,025,000
unexercised warrants issued under the August 2003 Debt Agreement, 1,875,000
warrants issued to a certain 2003 Lender were extended to December 31, 2013 from
the original expiration date of August 28, 2008.




In
December 2002, we entered into a $12.0 million Convertible Debt and Warrant
Agreement, or the 2002 Debt Agreement, with a group of private accredited
investors, or the 2002 Lenders. This available borrowing provisions of this
agreement were terminated in May 2004. As of December 31, 2004, we have borrowed
$6.3 million and there will be no further borrowings under this agreement.
Additionally, in connection with each borrowing we have issued warrants to
purchase a total of 1,575,000 shares of our Common Stock at an exercise price of
$1.00 per share. We also issued an origination warrant for the purchase of
250,000 shares at an exercise price of $0.50 per share. In connection with the
closing of the March 2005 Debt Agreement, the expiration date of these warrants
have been extended to December 31, 2013.





In
connection with the execution of the August 2003 Debt Agreement, certain of the
2002 Lenders, to whom we issued notes to under our December 2002 Debt Agreement,
as described above, agreed to subordinate their debt security position to that
of the 2003 Lenders. In exchange for the subordinated security position, the
2002 Lenders received additional warrants to purchase an aggregate of 1,575,000
shares of our Common Stock at an exercise price of $1.00 per share.
Additionally, under the anti-dilution provision of the December 2002 Debt
Agreement, the conversion price of the five notes issued thereunder to the 2002
Lenders during the period February 2003 through July 2003 was reduced to $1.00
and the exercise price of the related warrants issued to the 2002 Lenders during
the same period was reduced to $1.00 per share. In connection with the closing
of the March 2005 Debt Agreement, the expiration date of these warrants have
been extended to December 31, 2013.





In
connection with the August 2003 Debt Agreement, we entered into a Termination
and Release Agreement with Pharmacia, that provides, among other things, for the
retirement of the $10.6 million debt owed by us to Pharmacia and the release of
the related security collateral, in exchange for a $1.0 million cash payment,
390,000 shares of our Common Stock and the adjustment of the exercise price of
Pharmacia’s outstanding warrants to purchase shares of our Common Stock.
Additionally, we extended the expiration date of the warrants to December 31,
2005. As a result, as of the date of this report, Pharmacia has warrants to
purchase an aggregate of 360,000 shares of our Common Stock at an exercise price
of $1.00 per share. The $1.0 million cash payment to Pharmacia was made from the
proceeds from the August 2003 Debt Agreement.




In
December 2003, we sold our investment in Xillix. We owned approximately 2.7
million shares of Xillix at an adjusted basis of $393,000 and received net
proceeds of approximately $1.6 million, resulting in a net gain of $1.2
million.







42








**Statement
of Cash Flows**





For 2004,
2003 and 2002, we required cash for operations of $11.5 million, $10.8 million
and $8.6 million, respectively. The increase in cash used for operations from
2004 compared to 2003 was due to an increase in operating costs from the
preparation and related follow-up on the NDA filed with the FDA and increased
employee compensation which were adjusted for the first time since 2001. These
costs were offset by the use of Common Stock for payment of interest expense and
compensation as well the non-cash cost associated with beneficial conversion
amortization.  The
increase in net cash required for operations from 2003 as compared to 2002 is
directly related to collections of accounts receivable in 2003 from the receipt
of amounts due from Pharmacia under an Asset Purchase Agreement entered into in
fiscal 2001 as well as non-cash cost associated with beneficial conversion
amortization. This was offset by the non-cash gain on retirement of the
Pharmacia debt and the cash gain from sale of our investment in an affiliate.
The cash required for operations in 2002 was related to the inventories and
accounts receivable from the production and sale of our bulk API inventory to
Pharmacia and the timing on the collection of the payments from an escrow
account for these sales which was deferred into 2002.





For 2004,
net cash used in investing activities was $3.3 million, and for 2003 and 2002,
net cash provided by investing activities was $1.3 million and $4.6 million,
respectively. The increase in cash used in investing activities from 2004
compared to 2003 was due to purchases of marketable securities and the increase
in the purchases of patents and property, plant and equipment. The net cash
provided by investing activities in 2003 related to the receipt of cash from the
sale of our investment in Xillix and disposal of property, plant and equipment
offset by the purchases of patents and property, plant and equipment. The net
cash provided by investing activities in 2002 was related to the proceeds from
the net sales of marketable securities offset by the purchases of patents.





For 2004,
2003 and 2002, net cash provided by financing activities was $16.9 million, $9.8
million and $3.3 million, respectively. The cash provided by financing
activities for 2004 primarily related to the $2.9 million from the Guidant
Preferred Stock investment, $10.3 million from the 2004 Equity Agreement, the
$2.0 million from the February 2004 Debt Agreement and the $1.6 million received
from warrant and stock option exercises. The cash provided by financing
activities for 2003 primarily related to the net proceeds received from the
borrowings under the December 2002 Debt Agreement and the August 2003 Debt
Agreement received during the year ended December 31, 2003, which was offset by
the $1.0 million payment to Pharmacia related to the retirement of their debt
and an earlier payment of $170,000
for interest due to Pharmacia . Cash
provided by financing activities in 2002 related to the funding received from
the August 2002 sale of Common Stock of $2.4 million and the first $1.0 million
drawdown received under our December 2002 Debt Agreement.





We
invested a total of $9.8 million in property, plant and equipment from 1996
through December 31, 2004. Based on available funds, we may continue to purchase
property and equipment in the future as we expand our preclinical, clinical and
research and development activities as well as the buildout and expansion of
laboratories and office space.





43








We will
need substantial additional resources to develop our products. The timing and
magnitude of our future capital requirements will depend on many factors,
including:





·
    Our
      ability to successfully complete the confirmatory Phase III clinical trial
      for PHOTREX in AMD as outlined by the Approvable Letter from the
      FDA;


·
    Our
      ability to resubmit our NDA and ultimately obtain regulatory approval for
      PHOTREX;


·
    The
      cost of performing a confirmatory Phase III clinical trial and
      pre-commercialization activities;


·
    Our
      ability to establish additional collaborations and/or license PHOTREX or
      our other new products;


·
    Our
      ability to continue our efforts to conserve our use of cash, while
      continuing to advance programs;


·
    Our
      ability to continue to borrow under the March 2005 Debt
      Agreement;


·
    Our
      ability to meet our obligations under the December 2002 Debt Agreement,
      August 2003 Debt Agreement, the Securities Purchase Agreement and
      Collaboration Agreement with Guidant and the March 2005 Debt
      Agreement;


**·**
    Our
      ability to receive future equity investments from Guidant by meeting the
      milestones established under our Collaboration
  Agreement;


·
    The
      viability of PHOTREX for future use;


·
    Our
      ability to raise equity financing or use common stock for employee and
      consultant compensation;


·
    Our
      ability to regain our listing status on Nasdaq or other national stock
      market exchanges;


·
    Our
      ability to file and maintain IND’s for new drug and disease
      indications;


·
    The
      pace of scientific progress and the magnitude of our research and
      development programs;


·
    The
      scope and results of preclinical studies and clinical trials;


·
    The
      costs involved in preparing, filing, prosecuting, maintaining and
      enforcing patent claims;


·
    The
      costs involved in any potential litigation;


·
    Competing
      technological and market developments; and


·
    Our
      dependence on others for development and commercialization of our
      potential products.





As of
December 31, 2004, our consolidated financial statements have been prepared
assuming we will continue as a going concern; and o ur
independent registered public accounting firm, Ernst & Young LLP, have
indicated in their report accompanying our December 31, 2004 consolidated
financial statements that, based on generally accepted auditing standards, our
viability as a going concern is in question. **** We are
continuing our scaled-back efforts, we implemented in 2002, in research and
development and the preclinical studies and clinical trials of our products. The
cost of an additional confirmatory Phase III clinical trial and any other
requirements we will need to complete to satisfy the conditions of the
Approvable Letter from the FDA, resubmitting the NDA and obtaining related
requisite regulatory approval, commencing pre-commercialization activities prior
to receiving regulatory approval, and successfully completing the development of
our cardiovascular program under our Guidant collaboration, will require
substantial expenditures. If requisite regulatory approval is obtained, then
substantial additional financing will be required for the manufacture, marketing
and distribution of our product in order to achieve a level of revenues adequate
to support our cost structure. If we are able to continue to borrow under the
March 2005 Debt Agreement, executive management believes that as long as our
debt is not accelerated, then we have the ability to conserve cash required for
operations through March 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 December 31, 2005 assuming the
delay or reduction in scope of one or more of our research and development
programs and adjusting, deferring or reducing salaries of employees and by
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.





44








Our
ability to raise funds has become more difficult as our stock has been delisted
from trading on the Nasdaq National Market. Any inability to obtain additional
financing would adversely affect our business and could cause us to
significantly reduce or cease operations. Our
ability to generate substantial additional funding to continue our research and
development activities, preclinical studies and clinical trials and
manufacturing, and administrative activities and to pursue any additional
investment opportunities is subject to a number of risks and uncertainties and
will depend on numerous factors including:





·
    Our
      ability and the cost to successfully complete the conditions required by
      the FDA which includes an additional confirmatory Phase III clinical
      trial;


·
    Our
      ability to resubmit our NDA and ultimately obtain regulatory approval for
      PHOTREX


·
    Our
      ability to continue to borrow and meet the requirements of the March 2005
      Debt Agreement;


·
    The
      potential future use of PHOTREX for ophthalmology or other disease
      indications;


·
    Our
      ability to raise funds in the near future through public or private equity
      or debt financings, or establish collaborative arrangements or raise funds
      from other sources;


·
    The
      potential for equity investments, collaborative arrangements, license
      agreements or development or other funding programs that are at terms
      acceptable to us, in exchange for manufacturing, marketing, distribution
      or other rights to products developed by
us;


·
    Our
      ability to meet the milestones and covenants established under our
      collaboration agreement with Guidant;


·
    The
      future development and results of our Phase II dermatology clinical trial
      and our ongoing cardiovascular and oncology preclinical
      studies;


·
    The
      amount of funds received from outstanding warrant and stock option
      exercises, if any;****and


·
    Our
      ability to maintain, renegotiate, or terminate our existing collaborative
      arrangements.




We cannot
guarantee that additional funding will be available to us now, when needed, or
at all. If additional funding is not available in the near term, we will be
required to scale back our research and development programs, preclinical
studies and clinical trials and administrative activities or cease operations.
As a result, we would not be able to successfully develop our drug candidates or
commercialize our products and we would never achieve profitability. 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.





45





**Related
Party Transactions**





In April
1998, we entered into a $2.0 million revolving credit agreement with our
affiliate, Ramus. Between 1998 and 1999, Ramus borrowed the entire $2.0 million
available under the credit agreement. As of December 31, 2004, the balance of
the loan, including principal and accrued interest, was $2.7 million. The loan
was used to fund Ramus’ clinical trials and operating costs. Beginning in 2002,
it was determined that it was probable that we would be unable to collect the
amounts due from Ramus under the contractual terms of the loan agreement.
Therefore, we established a reserve for the entire outstanding balance of the
loan receivable and no interest income is being accrued under the loan. We have
held discussions with Ramus to reorganize their outstanding debt or to convert
their entire debt, including accrued and unpaid interest, to Ramus equity.





In July
1996, a partner in a law firm used by us for outside legal counsel was elected
by the Board of Directors to serve as Secretary of Miravant. In connection with
general legal services provided by the law firm, we were billed $96,000,
$150,000 and $47,000 for the years ended December 31, 2004, 2003 and 2002,
respectively. From 1996 through December 31, 2004, this individual’s law firm
has received stock options to purchase a total of 176,250 shares of Common Stock
with an average exercise price of $11.65 for his services as acting in-house
legal counsel and Secretary of Miravant. In January 2004, of 176,250 stock
options issued, 107,500 were cancelled and exchanged for 53,750 shares of
restricted Miravant Common Stock as noted below.





In August
2003, we received a short-term bridge loan of $250,000 from one of our
non-employee board members, who is currently no longer a board member. In
connection with the loan, we issued warrants to purchase 25,000 shares of our
Common Stock. This loan was immediately paid off in September 2003 with the
proceeds from the August 2003 Debt Agreement.





In
January 2004, the Compensation
Committee of the Board of Directors approved a Stock Option Exchange Program for
the non-employee directors and the secretary for Miravant. This program allowed
these individuals to exchange stock options that had an exercise price of
greater than $5.00 for restricted Common Stock at a two for one ratio. The
restricted Common Stock was fully vested on the date of exchange. One
non-employee board member exchanged 70,000 stock options for 35,000 shares of
restricted Common Stock and our secretary, and his law firm, exchanged 107,500
stock options for 53,750 shares of restricted Common Stock. Due to the exchange
we recorded $217,000 as general and administrative expense in our 2004 statement
of operations, which represented the fair value of the restricted stock on the
date of grant.





46







**RISK
FACTORS**


****


**FACTORS
AFFECTING FUTURE OPERATING RESULTS**





The
following section of this report describes material risks and uncertainties
relating to our business. Our business, results of operations or cash flows may
be adversely affected if any of the following risks actually occur. In such
case, the trading price of our Common Stock could decline.





**RISKS
RELATED TO OUR BUSINESS**





***Our
future success is highly dependent on regulatory approval and successful
commercialization of PHOTREX. We may not be able to successfully complete the
additional confirmatory Phase III clinical trial required or the results of the
clinical trial may not support the approval of the NDA by the FDA. If we are
unable to satisfy the requirements of the FDA and thus unable to obtain approval
of the NDA for any reason, our business will be substantially harmed.***





On
September 30, 2004, we announced that the FDA notified us that they have issued
an Approvable Letter for PHOTREX. The letter outlined the conditions for final
marketing approval, which included a request for an additional confirmatory
Phase III clinical trial. Even though the FDA issued an Approvable Letter, the
FDA may not ultimately approve our NDA for PHOTREX. This approval process may
take a significant amount of time and the FDA’s approval, is contingent upon
satisfying these additional requirements. For instance, the FDA has required a
confirmatory Phase III clinical trial prior to final approval, which will be
costly and will cause a significant delay in the timing of receiving FDA
approval, if at all. If the FDA does approve this NDA, the approved label claims
could be for a limited market or may likely have increased competition,
resulting in smaller than expected markets and revenue. Any delay in receiving
FDA approval would further limit our ability to begin market commercialization
of PHOTREX and would harm our ability to raise additional capital to support our
on-going funding requirements and our business. Additionally, we might be forced
to substantially scale down our operations or sell certain of our assets, and it
is likely the price of our stock would decline precipitously.







***We
are highly leveraged, our recent debt and equity agreements have further diluted
our existing stockholders and our debt service requirements make us vulnerable
to economic downturn and impose restrictions on our
operations.*** **




The
aggregate face amount of our debt outstanding was approximately $10.3 million as
of March 14, 2005. There is no certainty that our cash balance and our financing
arrangements, will be sufficient to finance our operating requirements, and our
indebtedness may restrict our ability to obtain additional financing in the
future. The issuance of additional shares of Preferred Stock in July 2004 and
Common Stock in April 2004, the issuance of warrants to purchase Common Stock in
connection with the December 2002 Debt Agreement, August 2003 Debt Agreement and
March 2005 Debt Agreement and related negotiations with existing debtors has
resulted in the issuance of significant amounts of securities which has a
dilutive effect on our existing stockholders. Also, we are highly leveraged,
which may place us at a competitive disadvantage and makes us more susceptible
to downturns in our business in the event our cash balances are not sufficient
to cover our debt service requirements. In addition, the March 2005 Debt
Agreement, the July 2004 Collaboration Agreement and Securities Purchase
Agreement with Guidant Corporation, the August 2003 Debt Agreement and the
December 2002 Debt Agreement contain certain covenants that impose operating and
financial restrictions on us. These covenants may affect our ability to conduct
operations to raise additional financing or to engage in other business
activities that may be in our interest. In addition, if we cannot achieve the
financial results necessary to maintain compliance with these covenants, we
could be declared in default.





47








***It
may be difficult to recruit patients and/or maintain the patients enrolled in
our additional confirmatory Phase III clinical trial thus making it challenging
to successfully complete the conditions of the FDA’s Approvable Letter, which
may substantially harm our business*** .





The
Approvable Letter received from the FDA regarding our NDA filed for PHOTREX
requested that we perform an additional confirmatory Phase III clinical trial to
confirm the results of the clinical trial results included in our NDA
submission. This clinical trial requires us to treat a portion of the patients
with a placebo. Since there is already two approved products available for
use in AMD, with the potential for an approval of an additional treatments
during our clinical trial, it may be difficult to recruit patients into our
clinical trial. Additionally, for those patients that are enrolled in our
clinical trial, it may be difficult to keep them enrolled for further treatments
or follow-up, especially if they have other treatment options and/or suspect
that they have received a placebo. This challenge may delay the recruitment of
patients into our clinical trial. Due to this recruitment challenge and
existing products, we have chosen to perform the clinical trial in Central
and Eastern Europe, which may be costly and time consuming. A delay in
completing our required confirmatory Phase III clinical trial would delay the
regulatory approval of our NDA, if approved at all, which would likely require
additional funding and substantially harm our business.




***Even
though we have $15.0 million available to us under the March 2005 Debt
Agreement, raised $10.3 million in April 2004 and entered into a Collaboration
and Securities Purchase Agreement which may provide up to an additional $4.0
million in equity capital to support our cardiovascular program, we will need
additional funds to support the significant costs associated with completing
another clinical trial, and to support our ongoing operations, and if we fail to
obtain additional funding, we may be forced to significantly scale back or cease
operations.***





We are
continuing our scaled-back efforts implemented in 2002 in research and
development and the preclinical studies and clinical trials of our products.
However, the cost of the confirmatory Phase III clinical trial associated with
the NDA filing for PHOTREX, obtaining requisite regulatory approval, and
commencing pre-commercialization and manufacturing activities prior to receiving
regulatory approval, has required and will require substantial expenditures.
Once requisite regulatory approval has been obtained, if at all, substantial
additional financing will likely be required for the manufacture, marketing and
distribution of our product in order to achieve a level of revenues adequate to
support our cost structure.





The
timing and magnitude of our future capital requirements will depend on many
factors, including:





·
    Our
      ability to successfully complete the confirmatory Phase III clinical trial
      for PHOTREX in AMD as outlined by the Approvable Letter from the
      FDA;


·
    Our
      ability to resubmit our NDA and ultimately obtain regulatory approval for
      PHOTREX;


·
    The
      cost of performing a confirmatory Phase III clinical trial and
      pre-commercialization activities;


·
    Our
      ability to establish additional collaborations and/or license PHOTREX or
      our other new products;


·
    Our
      ability to continue our efforts to conserve our use of cash, while
      continuing to advance programs;


·
    Our
      ability to continue to borrow under the March 2005 Debt
      Agreement;


·
    Our
      ability to meet our obligations under the December 2002 Debt Agreement,
      August 2003 Debt Agreement, the Securities Purchase Agreement and
      Collaboration Agreement with Guidant and the March 2005 Debt
      Agreement;


**·**
    Our
      ability to receive future equity investments from Guidant by meeting the
      milestones established under our Collaboration
  Agreement;


·
    The
      viability of PHOTREX for future use;


·
    Our
      ability to raise equity financing or use common stock for employee and
      consultant compensation;


·
    Our
      ability to regain our listing status on Nasdaq or other national stock
      market exchanges;


·
    Our
      ability to file and maintain IND’s for new drug and disease
      indications;


·
    The
      pace of scientific progress and the magnitude of our research and
      development programs;


·
    The
      scope and results of preclinical studies and clinical trials;





48








·
    The
      costs involved in preparing, filing, prosecuting, maintaining and
      enforcing patent claims;


·
    The
      costs involved in any potential litigation;


·
    Competing
      technological and market developments; and


·
    Our
      dependence on others for development and commercialization of our
      potential products.





If we are
able to continue to borrow under the March 2005 Debt Agreement, executive
management believes that as long as our debt is not accelerated, then we have
the ability to conserve cash required for operations through March 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 of borrowings
received under the March 2005 Debt Agreement we may have cash required for
operations through December 31, 2005 assuming the delay or reduction in scope of
one or more of our research and development programs and adjusting, deferring or
reducing salaries of employees and by reducing operating facilities and overhead
expenditures.





We
continue to seek additional capital needed to fund our operations through corporate
collaborations or partnerships, through licensing of PHOTREX or new products and
through public or private equity or debt financings. There can be no assurance
that we will be successful in obtaining additional financing or that financing
will be available on favorable terms. Our inability to obtain additional
financing would adversely affect our business and could cause us to
significantly scale back or cease operations. If we are successful in obtaining
additional equity or convertible debt financing, including from our existing
agreements with Guidant, it is likely to result in significant dilution to our
stockholders. In addition, any new securities issued may have rights,
preferences or privileges senior to those securities held by our current
stockholders.





***Even
if we receive regulatory approval of PHOTREX for the treatment of AMD, PHOTREX
may not be commercially successful.***





Even if
PHOTREX receives regulatory approval, patients and physicians may not readily
accept it, which would result in lower than projected sales and substantial harm
to our business. Acceptance will be a function of PHOTREX being clinically
useful and demonstrating superior therapeutic effect with an acceptable
side-effect profile, as compared to currently existing or future treatments. In
addition, even if PHOTREX does achieve market acceptance, we may not be able to
maintain that market acceptance over time if new products are introduced that
are more favorably received than PHOTREX or render PHOTREX
obsolete.





***We
have limited marketing capability and experience and thus rely heavily upon
third parties in this regard. Additionally, due to our financial condition, we
have performed limited pre-marketing activities which may delay the commencement
of marketing our product, PHOTREX, if approved for immediate
commercialization.***





We have
no direct experience in marketing, distributing and selling our pharmaceutical
or medical device products. We will need to develop a sales force or rely on our
collaborators or licensees or make arrangements with others to provide for the
marketing, distribution and sale of our products. We are currently in discussion
with several companies to market, distribute and sell PHOTREX. However, we have
performed only limited pre-marketing activities, additional pre-marketing may
delay the launch of the commercialization of PHOTREX. Our marketing,
distribution and sales capabilities or current or future arrangements with third
parties for such activities may not be adequate for the initial commercial
launch or the successful commercialization of our products. ****





49








***We
have a history of significant operating losses and expect to continue to have
losses in the future, which may fluctuate significantly and we may never achieve
profitability.***




We have
incurred significant losses since our inception in 1989 and, as of December 31,
2004, had an accumulated deficit of approximately $212.9 million. In each of the
last three years, we have increased our borrowings through the sale of various
debt instruments in order to sustain our business operations. We expect to
continue to incur significant, and possibly increasing, operating losses over
the next few years, and we believe we will be required to obtain substantial
additional debt or equity financing to fund our operations during this time as
we seek to 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.





Our
ability to achieve and sustain profitability depends upon our ability, alone or
with others, to ultimately receive regulatory approval on our NDA filing for
PHOTREX in AMD after we complete the additional confirmatory Phase III clinical
trial and other FDA requirements, to fund and successfully complete the
development of our other 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 for PHOTREX in AMD and our ability to establish a
collaboration with a corporate partner or other sales organization to
commercialize PHOTREX if regulatory approval is received. 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 established a collaborative
partnering agreement, receive regulatory approval and commence commercial
sales.





***We
may rely on third parties to assist us with the regulatory process for the IND’s
and NDA, if needed, and to conduct additional clinical trials on our products,
and if these resources fail, our ability to complete the NDA review process or
successfully complete clinical trials will be adversely affected and our
business will suffer.***





To date,
we have limited experience in conducting clinical trials. We have relied on
Parexel International, a large clinical research organization, or CRO, as well
as numerous other consultants, to assist in preparation of our IND’s and our
NDA, with respect to which the FDA issued an Approvable Letter for PHOTREX that
outlined the conditions for final marketing approval, including a request for an
additional confirmatory Phase III clinical trial. We have selected Kendle
International, Inc., or Kendle, a leading international CRO with locations
throughout Europe, to conduct our confirmatory Phase III clinical trial for
PHOTREX in AMD. Additionally, we relied on Pharmacia, our former corporate
partner, and Inveresk, Inc., formerly ClinTrials Research, Inc., a CRO, to
complete our Phase III AMD clinical trials and we currently rely on a Parexel
International for our Phase II dermatology clinical trials. We will need to rely
on Kendle and other consultants and third parties to complete the conditions of
the Approvable Letter and amend the NDA for submission and review by the
FDA.





***We
face intense competition and our failure to compete effectively, particularly
against larger, more established pharmaceutical and medical device companies,
will cause our business to suffer.***





Many of our competitors have
substantially greater financial, technical and human resources than we do, and
may also have substantially greater experience in developing products,
conducting preclinical studies or clinical trials, obtaining regulatory
approvals and manufacturing and marketing and distribution. Further, the
establishment of patent protection by our competitors could harm our competitive
position. The existing competitors or other companies may succeed in developing
technologies and products that are more safe, effective or affordable than those
being developed by us or that would render our technology and products less
competitive or obsolete.





50








We are
aware that other companies are marketing or developing certain products to
prevent, diagnose or treat diseases for which we are developing PhotoPoint PDT.
These products, as well as others of which we may not be aware, may adversely
affect the existing or future market for our products. Competitive, non-PDT
products include, but are not limited to, Macugen and other drugs designed to
inhibit angiogenesis or otherwise target new blood vessels, and certain medical
devices such as drug-eluting stents in cardiovascular disease.





We are
aware of various competitors involved in the AMD and photodynamic therapy
sectors. We understand that these companies are conducting preclinical studies
and/or clinical trials in various countries and for a variety of disease
indications. Our direct competitors in our sectors include QLT Inc., or QLT,
DUSA Pharmaceuticals, or DUSA, Axcan Pharm Inc., or Axcan, Eyetech
Pharmacueticals Inc., or Eyetech, Pharmacyclics, Genetech, Inc., Alcon, Inc.,
and Allergan, Inc. In AMD, QLT’s drug Visudyne® has received marketing approval
in the United States and certain other countries for the treatment of AMD and
has been commercialized by Novartis. Eyetech received marketing approval for its
Macugen Ò treatment for AMD in December 2004 and expects to begin co-marketing their
product with Pfizer, Inc. in the beginning of 2005. Genetech, Inc. and Alcon,
Inc. are both completing Phase III clinical trials. Other laser, surigical or
pharmaceutical treatments for AMD also may compete against us.





In
photodynamic therapy, Axcan and DUSA have photodynamic therapy drugs, both of
which have received marketing approval in the United States - Photofrin® (Axcan)
for the treatment of certain oncology indications and Levulan® (DUSA
Pharmaceuticals) for the treatment of actinic keratoses, a dermatological
condition. Pharmacyclics has a photodynamic therapy drug that has not received
marketing approval, which is being used in certain preclinical studies and/or
clinical trials for ophthalmology, oncology and cardiovascular indications. We
are aware of other drugs and devices under development by these and other
competitors in additional disease areas for which we are developing PhotoPoint
PDT. These competitors as well as others that we are not aware of, may develop
superior products or reach the market prior to PhotoPoint PDT and render our
products non-competitive or obsolete.





In the
photodynamic therapy sector, we believe that a primary competitive issue will be
the performance characteristics of photoselective drugs, including product
efficacy and safety, as well as availability, treatment price and cost and
patent position, among other issues. As the photodynamic therapy industry
evolves, we believe that for cardiovascular disease and some other disease
indications, new and more sophisticated devices may be required and that the
ability of any group to develop advanced devices will be important to market
position.


******


***Our
products, including PHOTREX and MV9411, may not successfully complete the
clinical trial process and we may be unable to prove that our products are safe
and efficacious.***





All of
our drug and device products currently under development will require extensive
preclinical studies and/or clinical trials prior to regulatory approval for
commercial use, which is a lengthy and expensive process. None of our products
have completed testing for efficacy or safety in humans and none of our
products, including PHOTREX, have been approved for any purpose by the FDA. Some
of the risks and uncertainties related to safety and efficacy testing and the
completion of preclinical studies and clinical trials include:





·
    Our
      ability to demonstrate to the FDA that our products are safe and
      efficacious;


·
    Our
      products may not be as efficacious as our competitors’
      products;


·
    Our
      ability to successfully complete the testing for any of our compounds
      within any specified time period, if at
all;


·
    Clinical
      outcomes reported may change as a result of the continuing evaluation of
      patients;


·
    Data
      obtained from preclinical studies and clinical trials are subject to
      varying interpretations which can delay, limit or prevent approval by the
      FDA or other regulatory authorities;


·
    Problems
      in research and development, preclinical studies or clinical trials that
      will cause us to delay, suspend or cancel clinical trials;
    and





51








·
    As
      a result of changing economic considerations, competitive or new
      technological developments, market approvals or changes, clinical or
      regulatory conditions, or clinical trial results, our focus may shift to
      other indications, or we may determine not to further pursue one or more
      of the indications currently being pursued.








Data already
obtained from our Phase III clinical studies in AMD, and from preclinical
studies and clinical trials of our products under development, do not
necessarily predict the results that will be obtained from future preclinical
studies and clinical trials. A number of companies in the pharmaceutical
industry, including biotechnology companies like us, have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
clinical trials. Moreover, our clinical trials may not demonstrate the
sufficient levels of safety and efficacy necessary to obtain the requisite
regulatory approval or may not result in marketable products. The failure to
adequately demonstrate the safety and effectiveness of a product under
development could delay or prevent regulatory approval of the potential product
and would materially harm our business.





***If
we are not able to maintain and successfully establish new collaborative and
licensing arrangements with others, our business will be harmed.***





Our
business model is based on establishing collaborative relationships with other
parties both to license compounds upon which our products and technologies are
based and to manufacture, market and sell our products. As a development company
we may need access to compounds and technologies to license for further
development. For example, we are party to a License Agreement with the
University of Toledo, the Medical College of Ohio and St. Vincent Medical
Center, of Toledo, Ohio, collectively referred to as Toledo, to license or
sublicense certain photoselective compounds, including PHOTREX. Similarly, we
must also establish relationships with suppliers and manufacturers to build our
medical devices and to manufacture our compounds. Currently we have partnered
with Iridex for the manufacture of certain light sources for use in AMD and have
entered into an agreement with Hospira, Inc. (formerly Fresenius), or Hospira,
for supply of the final dose formulation of PHOTREX. We also have entered into a
collaboration agreement with Guidant for the development of new drugs and
devices in cardiovascular disease through Phase I clinical trials. Due to the
expense of the drug approval process it is beneficial for us to have
relationships with established pharmaceutical companies to offset some of our
development costs in exchange for a combination of manufacturing, marketing and
distribution rights. To commercialize and further develop PHOTREX for AMD or
other indications we likely need to establish a new collaborative relationship
with a corporate partner or a sales organization.





We are
currently at various stages of discussions with companies regarding the
establishment of new collaborations. If we are not successful in establishing
new collaborative partners for the potential development of PHOTREX or our other
molecules, we may not be able to pursue further development of such drugs and/or
may have to reduce or cease our current development programs, which would
materially harm our business. Even if we are successful in establishing new
collaborations, they are subject to numerous risks and uncertainties including
the following:





·
    Our
      ability to negotiate acceptable collaborative
  arrangements;


·
    Future
      or existing collaborative arrangements may not be successful or may not
      result in products that are marketed or
sold;


·
    Collaborative
      partners are free to pursue alternative technologies or products either on
      their own or with others, including our competitors, for the diseases
      targeted by our programs and products;


·
    Our
      partners may fail to fulfill their contractual obligations or terminate
      the relationships described above, and we may be required to seek other
      partners, or expend substantial resources to pursue these activities
      independently; and


·
    Our
      ability to manage, interact and coordinate our timelines and objectives
      with our strategic partners may not be
successful.





52








***We
may fail to adequately protect or enforce our intellectual property rights, our
patents and our proprietary technology, which will make it easier for others to
misappropriate our technology and inhibit our ability to be
competitive.***





Our
success will depend, in part, on our and our licensors’ ability to obtain,
assert and defend our patents, protect trade secrets and operate without
infringing the proprietary rights of others. The exclusive license relating to
various drug compounds, including our leading drug candidate PHOTREX, may become
non-exclusive if we fail to satisfy certain development and commercialization
objectives. The termination or restriction of our rights under this or other
licenses for any reason would likely reduce our future income, increase our
costs and limit our ability to develop additional products.





The
patent position of pharmaceutical and medical device firms generally is highly
uncertain. Some of the risks and uncertainties include:





·
    The
      patent applications owned by or licensed to us may not result in issued
      patents;


·
    Our
      issued patents may not provide us with proprietary protection or
      competitive advantages;


·
    Our
      issued patents may be infringed upon or designed around by
      others;


·
    Our
      issued patents may be challenged by others and held to be invalid or
      unenforceable;


·
    The
      patents of others may prohibit us from developing our products as planned;
      and


·
    Significant
      time and funds may be necessary to defend our
patents.





We are
aware that our competitors and others have been issued patents relating to
photodynamic therapy. In addition, our competitors and others may have been
issued patents or filed patent applications relating to other potentially
competitive products of which we are not aware. Further, our competitors and
others may in the future file applications for, or otherwise obtain proprietary
rights to, such products. These existing or future patents, applications or
rights may conflict with our or our licensors’ patents or applications. Such
conflicts could result in a rejection of our or our licensors’ applications or
the invalidation of the patents.





Further
exposure could arise from the following risks and uncertainties:





·
    We
      do not have contractual indemnification rights against the licensors of
      the various drug patents;


·
    We
      may be required to obtain licenses under dominating or conflicting patents
      or other proprietary rights of others;


·
    Such
      licenses may not be made available on terms acceptable to us, if at all;
      and


·
    If
      we do not obtain such licenses, we could encounter delays or could find
      that the development, manufacture or sale of products requiring such
      licenses is foreclosed.





We also
seek to protect our proprietary technology and processes in part by
confidentiality agreements with our collaborative partners, employees and
consultants. These agreements could be breached and we may not have adequate
remedies for any breach.





The
occurrence of any of these events described above could harm our competitive
position. If such conflicts occur, or if we believe that such products may
infringe on our proprietary rights, we may pursue litigation or other
proceedings, or may be required to defend against such litigation. We may not be
successful in any such proceeding. Litigation and other proceedings are
expensive and time consuming, regardless of whether we prevail. This can result
in the diversion of substantial financial, managerial and other resources from
other activities. An adverse outcome could subject us to significant liabilities
to third parties or require us to cease any related research and development
activities or product sales.





53








***Our
financial condition and cost reduction efforts could result in decreased
employee morale and loss of employees and consultants who are critical to our
success.***





Our
success in the future will depend in large part on our ability to attract and
retain highly qualified scientific, management and other personnel and to
develop and maintain relationships with leading research institutions and
consultants. We are highly dependent upon principal members of our management,
key employees, scientific staff and consultants, which we may retain from time
to time. We
currently have limited cash and capital resources and our ability to raise funds
is questionable, causing our business outlook to be uncertain. Additionally, due
to our ongoing limited cash balances, we try to utilize stock options and stock
awards as a key component of short-term and long-term compensation. However,
given the volatility of our stock and the uncertainty of our long-term
prospects, our ability to use stock options and stock awards as compensation may
be limited. These measures, along with our financial condition, may cause
employees to question our long-term viability and increase our turnover. These
factors may also result in reduced productivity and a decrease in employee
morale causing our business to suffer. We do
not have insurance providing us with benefits in the event of the loss of key
personnel. Our consultants may be affiliated with or employed by others, and
some have consulting or other advisory arrangements with other entities that may
conflict or compete with their obligations to us.





***We
have limited manufacturing capability and experience and thus rely heavily upon
third parties in this area. If we are unable to maintain and develop our past
manufacturing capability, or if we are unable to find suitable third party
manufacturers our operating results could suffer.***


**





Prior to
supplying drugs or devices for commercial use, our manufacturing facilities, as
well as the Iridex and Hospira manufacturing facilities, must be inspected and
approved by the FDA for current Good Manufacturing Practices, or cGMP,
compliance. Any drugs and devices manufactured by us or our suppliers for
prospective commercial use must be withheld from distribution until FDA
approvals are obtained, if at all. In addition, if we elect to outsource
manufacturing to other third-party manufacturers, these facilities must satisfy
FDA requirements.





We
currently have the capacity, in conjunction with our manufacturing suppliers
Hospira and Iridex, to manufacture products at certain commercial levels and we
believe we will be able to do so under cGMPs with subsequent FDA approval. If we
receive FDA or other regulatory approval, we may need to expand our
manufacturing capabilities and/or depend on our collaborators, licensees or
contract manufacturers for the expanded commercial manufacture of our products.
If we expand our manufacturing capabilities, we may need to expend substantial
funds, hire and retain additional personnel and comply with extensive
regulations. We may not be able to expand successfully or we may be unable to
manufacture products in increased commercial quantities for sale at competitive
prices. Further, we may not be able to enter into future manufacturing
arrangements with collaborators, licensees, or contract manufacturers on
acceptable terms or at all. If we are not able to expand our manufacturing
capabilities or enter into additional commercial manufacturing agreements, our
commercial product sales, as well as our overall business growth could be
limited, which in turn could prevent us from becoming profitable or viable as a
business.





We are
currently the sole manufacturer of bulk API for PHOTREX, Hospira is the sole
manufacturer of the final dose formulation of PHOTREX and Iridex is currently
the sole supplier of the light producing devices used in our AMD clinical
trials. All currently have commercial quantity capabilities. At this time, we
have no readily available back-up manufacturers to produce the bulk API for
PHOTREX, or the final formulation of PHOTREX at commercial levels or back-up
suppliers of the light producing devices. If Hospira could no longer manufacture
for us or Iridex was unable to supply us with devices, we could experience
significant delays in production or may be unable to find a suitable
replacement, which would reduce our revenues and harm our ability to
commercialize our products and become profitable.





54








***As
a result of our shares being delisted from trading on Nasdaq, our ability to
raise additional capital may be limited or impaired.***





We were
delisted by Nasdaq on July 11, 2002 and our Common Stock began trading on the
Over-The-Counter Bulletin Board®, or OTCBB, effective as of the opening of
business on July 12, 2002. Our management
continues to review our ability to regain our listing status with Nasdaq or
other national stock market exchanges, however, we cannot guarantee we will
be able to meet the relisting requirements for the Nasdaq National Market or the
Nasdaq Small Cap Market or other national stock market exchanges on a timely
basis, if at all, and there is no guarantee that any of the stock market
exchanges would approve our relisting request even if we met all the listing
requirements. Our
ability to obtain additional funding, beyond our current funding agreements is
impeded by a number of factors including that fact that our Common Stock is
currently being traded on the OTCBB a nd may
prevent us from obtaining additional financing as required in the near term on
favorable terms or at all.





***Our
ability to establish and maintain agreements with outside suppliers may not be
successful and our failure to do so could adversely affect our
business.***





We depend
on outside suppliers for certain raw materials and components for our products.
Although most of our raw materials and components are available from various
sources, such raw materials or components may not continue to be available to
our standards or on acceptable terms, if at all, and alternative suppliers may
not be available to us on acceptable terms, if at all. Further, we may not be
able to adequately produce needed materials or components in-house **.** We are
currently dependent on single, contracted sources for certain key materials or
services used by us in our drug development, light producing and light delivery
device development and production operations. We are seeking to establish
relationships with additional suppliers, however, we may not be successful in
doing so and may encounter delays or other problems. If we are unable to produce
our potential products in a timely manner, or at all, our sales would decline,
our development activities could be delayed or cease and as a result we may
never achieve profitability.





***Our
products may exhibit adverse side effects that prevent their widespread adoption
or that necessitate withdrawal from the market.***





Our
PhotoPoint PDT drug and device products may exhibit undesirable and unintended
side effects that may prevent or limit their commercial adoption and use. One
such side effect upon the adoption of our PhotoPoint PDT drug and device
products as potential therapeutic agents may be a period of photosensitivity for
a certain period of time after receiving PhotoPoint PDT. This period of
photosensitivity is generally dose dependent and typically declines over time.
Even upon receiving approval by the FDA and other regulatory authorities, our
products may later exhibit adverse side effects that prevent widespread use or
necessitate withdrawal from the market. The manifestation of such side effects
could cause our business to suffer.





***All
of our products, except PHOTREX, MV2101 and MV9411, are in an early stage of
development and all of our products, including PHOTREX, MV2101 and MV9411, may
never be successfully commercialized.***


******


Our
products, except PHOTREX, MV2101 and MV9411, are at an early stage of
development and our ability to successfully commercialize these products,
including PHOTREX, MV2101 and MV9411, is dependent upon:





·
    Successful
      completion of our research or product development efforts or those of our
      collaborative partners;


·
    Successfully
      transforming our drugs or devices currently under development into
      marketable products;


·
    Obtaining
      the required regulatory approvals;


·
    Manufacturing
      our products at an acceptable cost and with appropriate
      quality;


·
    Favorable
      acceptance of any products marketed; and


·
    Successful
      marketing and sales efforts of our corporate
partner(s).





55








We may
not be successful in achieving any of the above, and if we are not successful,
our business, financial condition and operating results would be adversely
affected. The time frame necessary to achieve these goals for any individual
product is long and uncertain. Most of our products currently under development
will require significant additional research and development and preclinical
studies and clinical trials, and all will require regulatory approval prior to
commercialization. The likelihood of our success must be considered in light of
these and other problems, expenses, difficulties, complications and delays.





***The
price of our Common Stock has been and may continue to be
volatile.***





From time
to time and in particular from January 1, 2004 through December 31, 2004, the
price of our Common Stock has been highly volatile. These fluctuations create a
greater risk of capital losses for our stockholders as compared to less volatile
stocks. From January 1, 2004 to December 31, 2004, our Common Stock price, per
OTCBB closing prices, has ranged from a high of $4.10 to a low of $0.90.





The
market prices for our Common Stock, and the securities of emerging
pharmaceutical and medical device companies, have historically been highly
volatile and subject to extreme price fluctuations, which may reduce the market
price of the Common Stock. Extreme price fluctuations in the future could be the
result of any number of factors, including:





·
    Our
      ability and the cost to successfully complete the conditions required by
      the FDA which includes an additional confirmatory Phase III clinical
      trial;


·
    Announcements
      concerning Miravant or our collaborators, competitors or
      industry;


·
    Our
      ability to successfully establish new collaborations and/or license
      PHOTREX or our other new products;


·
    The
      impact of dilution from past or future equity or convertible debt
      financings;


·
    Our
      ability to meet the milestones and covenants established under our
      collaboration agreement with Guidant;


·
    The
      results of our testing, technological innovations or new commercial
      products;


·
    The
      results of preclinical studies and clinical trials by us or our
      competitors;


·
    Technological
      innovations or new therapeutic products;


·
    Our
      ability to regain our listing status on Nasdaq or other national stock
      market exchanges;


·
    Public
      concern as to the safety, efficacy or marketability of products developed
      by us or others;


·
    Comments
      by securities analysts;


·
    The
      achievement of or failure to achieve certain milestones;


·
    Litigation,
      such as from stockholder lawsuits or patent infringement;
    and


·
    Governmental
      regulations, rules and orders, or developments concerning safety of our
      products.





In
addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many emerging pharmaceutical and medical device companies for
reasons frequently unrelated or disproportionate to the
performance of the specific companies. If these broad market fluctuations cause
the trading price of our Common Stock to decline further, we may be
unable to obtain additional capital that we may need through
public or private financing
activities and our stock may not
be relisted on Nasdaq, further
exacerbating our
ability to raise funds and
limiting our stockholders’ ability to sell their shares . Because
outside financing is critical to our future success, large fluctuations in our
share price that harm our financing activities could cause us to significantly
alter our business plans or cease operations altogether.








56








We will
either need to rely on third parties, including our collaborative partners, to
design and conduct any required clinical trials or expend resources to hire
additional personnel or engage outside consultants or contract research
organizations to administer current and future clinical trials. We may not be
able to find appropriate third parties to design and conduct clinical trials or
we may not have the resources to administer clinical trials in-house. The
failure to have adequate resources for completing the review process of the NDA,
and conducting and managing clinical trials will have a negative impact on our
ability to develop marketable products and would harm our business. Other CROs
may be available in the event that our current CROs fail; however there is no
guarantee that we would be able to engage another organization in a timely
manner, if at all. This could cause delays in our clinical trials and our
development programs, which could materially harm our business.





***We
rely on patient enrollment to conduct clinical trials, and our inability to
continue to attract patients to participate will have a negative impact on our
clinical trial results.***





Our
ability to complete clinical trials is dependent upon the rate of patient
enrollment. Patient enrollment is a function of many factors
including:





·
    The
      nature of our clinical trial protocols;
 ·
    Existence
      of competing protocols or treatments;
 ·
    Size
      and longevity of the target patient population;
 ·
    Proximity
      of patients to clinical sites; and
 ·
    Eligibility
      criteria for the clinical trials.


We cannot
make assurances that we will obtain or maintain adequate levels of patient
enrollment in current or future clinical trials. Delays in planned patient
enrollment may result in increased costs, delays or termination of clinical
trials, which could result in slower introduction of our potential products, a
reduction in our revenues and may prevent us from becoming profitable. In
addition, the FDA may suspend clinical trials at any time if, among other
reasons, it concludes that patients participating in such trials are being
exposed to unacceptable health risks. F ailure to
obtain and keep patients in our clinical trials will delay or completely impede
test results, which will negatively impact the development of our products and
prevent us from becoming profitable.




***Acceptance
of our products in the marketplace is uncertain, and failure to achieve market
acceptance will harm our business.***





Even if
approved for marketing, our products may not achieve market acceptance. The
degree of market acceptance will depend upon a number of factors,
including:





·
    The
      establishment and demonstration in the medical community of the safety and
      clinical efficacy of our products and their potential advantages over
      existing therapeutic products and diagnostic and/or imaging techniques.
      For example, if we are able to eventually obtain approval of our drugs and
      devices to treat cardiovascular restenosis we will have to demonstrate and
      gain market acceptance of this as a method of treatment over use of drug
      coated stents and other restenosis treatment options;


·
    Pricing
      and reimbursement policies of government and third-party payors such as
      insurance companies, health maintenance organizations and other plan
      administrators; and


·
    The
      possibility that physicians, patients, payors or the medical community in
      general may be unwilling to accept, utilize or recommend any of our
      products.





If our
products are not accepted due to these or other factors our business will not
develop as planned and may be harmed.





57








***We
may not have adequate protection against product liability or recall, which
could subject us to liability claims that could materially harm our
business.***





The
testing, manufacture, marketing and sale of human pharmaceutical products and
medical devices entail significant inherent, industry-wide risks of allegations
of product liability. The use of our products in clinical trials and the sale of
our products may expose us to liability claims. These claims could be made
directly by patients or consumers, or by companies, institutions or others using
or selling our products. The following are some of the risks related to
liability and recall:





·
    We
      are subject to the inherent risk that a governmental authority or third
      party may require the recall of one or more of our products;


·
    We
      have not obtained product liability insurance that would cover a claim
      relating to the clinical or commercial use or recall of our
      products;


·
    In
      the absence of product liability insurance, claims made against us or a
      product recall could result in our being exposed to large damages and
      expenses;


·
    If
      we obtain product liability insurance coverage in the future, this
      coverage may not be available at a reasonable cost and in amounts
      sufficient to protect us against claims that could cause us to pay large
      amounts in damages; and


·
    Liability
      claims relating to our products or a product recall could negatively
      affect our ability to obtain or maintain regulatory approval for our
      products.





We may
need to obtain product liability insurance for our confirmatory Phase III
clinical trial. If we are not required to have product liability insurance then
we do not expect to obtain it until we have an approved product and begin
distributing the product for commercial use. We plan to obtain product liability
insurance to cover our indemnification obligations to Iridex for third party
claims relating to any of our potential negligent acts or omissions involving
our PHOTREX drug technology or PhotoPoint PDT light device technology. A
successful product liability claim could result in monetary or other damages
that could harm our business, financial condition and additionally cause us to
cease operations.





***We
rely on the availability of certain unprotected intellectual property rights,
and if access to such rights becomes unavailable, our business could
suffer.***








Our trade
secrets may become known or be independently discovered by competitors.
Furthermore, inventions or processes discovered by our employees will not
necessarily become our property and may remain the property of such persons or
others.





In
addition, certain research activities relating to the development of certain
patents owned by or licensed to us were funded, in part, by agencies of the
United States Government. When the United States Government participates in
research activities, it retains certain rights that include the right to use the
resulting patents for government purposes under a royalty-free license.





We also
rely upon unpatented trade secrets, and no assurance can be given that others
will not independently develop substantially equivalent proprietary information
and techniques, or otherwise gain access to our trade secrets or disclose such
technology, or that we can meaningfully protect our rights to our unpatented
trade secrets and know-how.





In the
event that the intellectual property we do or will rely on becomes unavailable,
our ability to be competitive will be impeded and our business will
suffer.





58








***Our
business could suffer if we are unsuccessful in integrating business
combinations and strategic alliances.***





We may
expand our operations and market presence by entering into business
combinations, joint ventures or other strategic alliances with other companies.
These transactions create risks, such as:





·
    The
      difficulty assimilating the operations, technology and personnel of the
      combined companies;


·
    The
      disruption of our ongoing business, including loss of management focus on
      existing businesses and other market developments;


·
    Problems
      retaining key technical and managerial personnel; expenses associated with
      the amortization of goodwill and other purchased intangible assets;


·
    Additional
      operating losses and expenses of acquired businesses;


·
    The
      impairment of relationships with existing employees, customers and
      business partners; and


·
    Additional
      losses from any equity investments we might
make.





We may
not succeed in addressing these risks, and we may not be able to make business
combinations and strategic investments on terms that are acceptable to us. In
addition, any businesses we may acquire may incur operating losses.





***Our
Preferred Stockholder Rights Plan makes effecting a change of control of
Miravant more difficult, which may discourage offers for shares of our Common
Stock.***





Our Board
of Directors has adopted a Preferred Stockholder Rights Plan, or Rights Plan.
The Rights Plan may have the effect of delaying, deterring, or preventing
changes in our management or control of Miravant, which may discourage potential
acquirers who otherwise might wish to acquire us without the consent of the
Board of Directors. Under the Rights Plan, if a person or group acquires 20% or
more of our Common Stock, all holders of rights (other than the acquiring
stockholder) may, upon payment of the purchase price then in effect, purchase
Common Stock having a value of twice the purchase price. The Rights Plan, as
amended, provides that the trigger percentage of 20% will not apply to Pharmacia
with regard to certain shares acquired by Pharmacia, St. Cloud Investments, Ltd,
or any other person or entity who acquires shares in a financing transaction
with us which generates net proceeds not less than $5.0 million, and has been
approved by our Board of Directors. In the event that we are involved in a
merger or other similar transaction where we are not the surviving corporation,
all holders of rights (other than the acquiring stockholder) shall be entitled,
upon payment of the then in effect purchase price, to purchase Common Stock of
the surviving corporation having a value of twice the purchase price. The rights
will expire on July 31, 2010, unless previously redeemed.





***Our
charter and bylaws contain provisions that may prevent transactions that could
be beneficial to stockholders.***





Our
charter and bylaws restrict certain actions by our stockholders. For
example:





·
    Our
      stockholders can act at a duly called annual or special meeting but they
      may not act by written consent;


·
    Special
      meetings of stockholders can only be called by our chief executive
      officer, president, or secretary at the written request of a majority of
      our Board of Directors; and


·
    Stockholders
      also must give advance notice to the secretary of any nominations for
      director or other business to be brought by stockholders at any
      stockholders’ meeting.





Some of
these restrictions can only be amended by a super-majority vote of members of
the Board and/or the stockholders. These and other provisions of our charter and
bylaws, as well as certain provisions of Delaware law, could prevent changes in
our management and discourage, delay or prevent a merger, tender offer or proxy
contest, even if the events could be beneficial to our stockholders. These
provisions could also limit the price that investors might be willing to pay for
our Common Stock.





59








In
addition, our charter authorizes our Board of Directors to issue shares of
undesignated preferred stock without stockholder approval on terms that the
Board may determine. The issuance of preferred stock could decrease the amount
of earnings and assets available for distribution to our other stockholders or
otherwise adversely affect their rights and powers, including voting rights.
Additionally, pursuant to the certificate of designation for our Series A-1
Preferred Stock, we are restricted from taking certain actions without obtaining
the prior approval of at least two-thirds (2/3) of the then outstanding shares
of Series A-1 Preferred Stock voting together as a separate class. These
restrictions include, but are not limited to, limitations on our ability to make
repurchases of our capital stock, limitations on our ability to declare
dividends or pay distributions, and limitations on our ability to enter into a
business combination transaction. Moreover, the issuance of additional preferred
stock may make it more difficult or may discourage another party from acquiring
voting control of us.





***We
are exposed to risks from recent legislation requiring companies to evaluate and
maintain internal controls over financial reporting.***





Section
404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and
our independent auditors to attest to, the effectiveness of our internal control
structure and procedures for financial reporting, beginning in fiscal year 2006,
based on our current aggregate market value of voting stock held by
non-affiliates, as measured on June 30, 2004. As a result, we expect to incur
increased expense and to devote additional management resources to Section 404
compliance. In addition, it is difficult for management or our independent
auditors to predict how long it will take to complete the assessment of the
effectiveness of our internal control over financial reporting. This results in
a heightened risk of unexpected delays to completing the project on a timely
basis. In the event that our chief executive officer, chief financial officer or
independent auditors determine that our internal controls over financial
reporting are not effective as defined under Section 404, investor perceptions
of Miravant may be adversely affected and could cause a decline in the market
price of our stock.





***Recent
changes in the accounting treatment of stock options could have a negative
impact on our financial statements and possibly cause our stock price to
decline.*** **





On
December 16, 2004, the Financial Accounting Standards Board, or FASB, issued
FASB Statement No. 123(R), Share-Based Payment, or Statement No. 123(R), which
includes proposed rule changes requiring companies to expense the fair value of
employee stock options and other forms of stock-based compensation. Currently,
we include such expenses on a pro forma basis in the notes to our annual
financial statements in accordance with accounting principles generally accepted
in the United States, but do not record a charge for employee stock option
expense in the reported financial statements. Once we are required to comply
with Statement No. 123(R), as of July 1, 2005 our financial results will be
negatively impacted, which could in turn lead to a decline in our stock price.





**RISKS
RELATED TO OUR INDUSTRY**





***We
are subject to uncertainties regarding health care reimbursement and
reform.***





Our
products may not be covered by the various health care providers and third party
payors. If they are not covered, our products may not be purchased or sold as
expected. Our ability to commercialize our products successfully will depend, in
part, on the extent to which reimbursement for these products and related
treatment will be available from government health administration authorities,
private health insurers, managed care entities and other organizations. These
payers are increasingly challenging the price of medical products and services
and establishing protocols and formularies, which effectively limit physicians’
ability to select products and procedures. Uncertainty exists as to the
reimbursement status of health care products, especially innovative
technologies. Additionally, reimbursement coverage, if available, may not be
adequate to enable us to achieve market acceptance of our products or to
maintain price levels sufficient for realization of an appropriate return on our
products.





60








The
efforts of governments and third-party payors to contain or reduce the cost of
healthcare will continue to affect our business and financial condition as a
biotechnology company. In foreign markets, pricing or profitability of medical
products and services may be subject to government control. In the United
States, we expect that there will continue to be federal and state proposals for
government control of pricing and profitability. In addition, increasing
emphasis on managed healthcare has increased pressure on pricing of medical
products and will continue to do so. These cost controls may prevent us from
selling our potential products profitability, may reduce our revenues and may
affect our ability to raise additional capital.





In
addition, cost control initiatives could adversely affect our business in a
number of ways, including:





·
    Decreasing
      the price we, or any of our partners or licensees, receive for any of our
      products;


·
    Preventing
      the recovery of development costs, which could be substantial; and


·
    Minimizing
      profit margins.





Further,
our commercialization strategy depends on our collaborators. As a result, our
ability to commercialize our products and realize royalties may be hindered if
cost control initiatives adversely affect our collaborators.





***Failure
to obtain product approvals or comply with ongoing governmental regulations
could adversely affect our business.***





The
production and marketing of our products and our ongoing research and
development, preclinical studies and clinical trial activities are subject to
extensive regulation and review by numerous governmental authorities in the
United States, including the FDA, and in other countries. All drugs and most
medical devices we develop must undergo rigorous preclinical studies and
clinical trials and an extensive regulatory approval process administered by the
FDA under the Food, Drug and Cosmetic Act, or FDC Act, and comparable foreign
authorities, before they can be marketed. These processes involve substantial
cost and can often take many years. We have limited experience in, and limited
resources available for regulatory activities and we rely on our collaborators
and outside consultants. Failure to comply with the applicable regulatory
requirements can, among other things, result in non-approval, suspensions of
regulatory approvals, fines, product seizures and recalls, operating
restrictions, injunctions and criminal prosecution. To date, none of our product
candidates being developed have been submitted for approval or have been
approved by the FDA or any other regulatory authority for marketing.





Some of
the risks and uncertainties relating to United States Government regulation
include:








·
    Delays
      in obtaining approval or rejections due to regulatory review of each
      submitted new drug, device or combination drug/device application or
      product license application, as well as changes in regulatory policy
      during the period of product development;


·
    If
      regulatory approval of a product is granted, such approval may entail
      limitations on the uses for which the product may be
    marketed;


·
    If
      regulatory approval is obtained, the product, our manufacturer and the
      manufacturing facilities are subject to continual review and periodic
      inspections;


·
    If
      regulatory approval is obtained, such approval may be conditional on the
      satisfaction of the completion of clinical trials or require additional
      clinical trials;


·
    Later
      discovery of previously unknown problems with a product, manufacturer or
      facility may result in restrictions on such product or manufacturer,
      including withdrawal of the product from the market and litigation;
      and


·
    Photodynamic
      therapy products have been categorized by the FDA as combination
      drug-device products. If current or future photodynamic therapy products
      do not continue to be categorized for regulatory purposes as combination
      products, then:





61








-  The FDA
may require separate drug and device submissions; and


-
    The
      FDA may require separate approval by regulatory
    authorities.





Some of
the risks and uncertainties of international governmental regulation
include:





·
    Foreign
      regulatory requirements governing testing, development, marketing,
      licensing, pricing and/or distribution of drugs and devices in other
      countries;


·
    Our
      drug products may not qualify for the centralized review procedure or we
      may not be able to obtain a national market application that will be
      accepted by other European Union, or EU, member states;


·
    Our
      devices must also meet the European Medical Device Directive effective in
      1998. The Directive requires that our manufacturing quality assurance
      systems and compliance with technical essential requirements be certified
      with a CE Mark authorized by a registered notified body of an EU member
      state prior to free sale in the EU; and


***·***
    Registration
      and approval of a photodynamic therapy product in other countries, such as
      Japan, may include additional procedures and requirements, preclinical and
      clinical studies, and may require the assistance of native corporate
      partners.





***We
may not be able to keep up with rapid changes in the biotechnology and
pharmaceutical industries that could make some or all of our products
non-competitive or obsolete. Competing products and technologies may make some
or all of our programs or potential products noncompetitive or
obsolete.***





Our
industry is subject to rapid, unpredictable and significant technological
change. Competition is intense. Well-known pharmaceutical, biotechnology, device
and chemical companies are marketing other therapies for the treatment of AMD.
Doctors may prefer familiar methods that they are comfortable using rather than
try our products. Many companies are also seeking to develop new products and
technologies for medical conditions for which we are developing treatments. Our
competitors may succeed in developing products that are safer or more effective
than ours and in obtaining regulatory marketing approval of future products
before we do. We anticipate that we will face increased competition as new
companies enter our markets and as the scientific development of PhotoPoint PDT
evolves.





We expect
that our principal methods of competition with other ophthalmology and
photodynamic therapy companies will be based upon such factors as:





·
    The
      ease of administration of our photodynamic
therapy;


·
    The
      degree of generalized skin sensitivity to
light;


·
    The
      number of required doses;


·
    The
      safety and efficacy profile;


·
    The
      selectivity of our drug for the target lesion or tissue of
      interest;


·
    The
      type, cost and price of our light systems;


·
    The
      cost and price of our drug; and


·
    The
      amount reimbursed for the drug and device treatment by third-party
      payors.





We cannot
give any assurance that new drugs or future developments in photodynamic therapy
or in other drug technologies will not harm our business. Increased competition
could result in:





·
    Price
      reductions;


·
    Lower
      levels of third-party reimbursements;


·
    Failure
      to achieve market acceptance; and


·
    Loss
      of market share.





62








Any of
the above could have an adverse effect on our business. Further, we cannot give
any assurance that developments by our competitors or future competitors will
not render our technology obsolete.





***Our
industry is subject to technological uncertainty, which may render our products
and developments obsolete and our business may
suffer.***





The
pharmaceutical industry is subject to rapid and substantial technological
change. Developments by others may render our products under development or our
technologies noncompetitive or obsolete, or we may be unable to keep pace with
technological developments or other market factors. Technological competition in
the industry from pharmaceutical, biotechnology and device companies,
universities, governmental entities and others diversifying into the field is
intense and is expected to increase. These entities represent significant
competition for us. Acquisitions of, or investments in, competing pharmaceutical
or biotechnology companies by large corporations could increase such
competitors’ financial, marketing, manufacturing and other
resources.





We are
engaged in the development of novel therapeutic technologies, specifically
photodynamic therapy. As a result, our resources are limited and we may
experience technical challenges inherent in such novel technologies. Competitors
have developed or are in the process of developing technologies that are, or in
the future may be, the basis for competitive products. Some of these products
may have an entirely different approach or means of accomplishing similar
therapeutic, diagnostic and imaging effects compared to our products. We are
aware that three of our competitors in the market for photodynamic therapy drugs
have received marketing approval of their product for certain uses in the United
States or other countries. Our competitors may develop products that are safer,
more effective or less costly than our products and, therefore, present a
serious competitive threat to our product offerings.





The
widespread acceptance of therapies that are alternatives to ours may limit
market acceptance of our products even if commercialized. The diseases for which
we are developing our therapeutic products can also be treated, in the case of
cancer, by surgery, radiation and chemotherapy, and in the case of restenosis,
by surgery, angioplasty, drug therapy and the use of devices to maintain and
open blood vessels. These treatments are widely accepted in the medical
community and have a long history of use. The established use of these
competitive products may limit the potential for our products to receive
widespread acceptance if commercialized.





Our
understanding of the market opportunities for our PhotoPoint PDT is derived from
a variety of sources, and represents our best estimate of the overall market
sizes presented in certain disease areas. The actual market size and market
share which we may be able to obtain may vary substantially from our estimates,
and is dependent upon a number of factors, including:





·
    Competitive
      treatments or diagnostic tools, either existing or those that may arise in
      the future;


·
    Performance
      of our products and subsequent labeling claims;
and


·
    Actual
      patient population at and beyond product
launch.





***Our
products are subject to other state and federal laws, future legislation and
regulations subjecting us to compliance issues that could create significant
additional expenditures and limit the production and demand for our potential
products.***





In
addition to the regulations for drug or device approvals, we are subject to
regulation under state, federal or other law, including regulations for worker
occupational safety, laboratory practices, environmental protection and
hazardous substance control. We continue to make capital and operational
expenditures for protection of the environment in amounts which are not
material. Some of the risks and uncertainties related to laws and future
legislation or regulations include:





63








·
    Our
      future capital and operational expenditures related to these matters may
      increase and become material;


·
    We
      may also be subject to other present and possible future local, state,
      federal and foreign regulation;


·
    Heightened
      public awareness and concerns regarding the growth in overall health care
      expenditures in the United States, combined with the continuing efforts of
      governmental authorities to contain or reduce costs of health care, may
      result in the enactment of national health care reform or other
      legislation or regulations that impose limits on the number and type of
      medical procedures which may be performed or which have the effect of
      restricting a physician’s ability to select specific products for use in
      certain procedures;


·
    Such
      new legislation or regulations may materially limit the demand and
      manufacturing of our products. In the United States, there have been, and
      we expect that there will continue to be, a number of federal and state
      legislative proposals and regulations to implement greater governmental
      control in the health care industry;


·
    The
      announcement of such proposals may hinder our ability to raise capital or
      to form collaborations; and


·
    Legislation
      or regulations that impose restrictions on the price that may be charged
      for health care products or medical devices may adversely affect our
      results of operations.





We are
unable to predict the likelihood of adverse effects which might arise from
future legislative or administrative action, either in the United States or
abroad.





***Our
business is subject to environmental protection laws and regulations, and in the
event of an environmental liability claim, we could be held liable for damages
and additional significant unexpected compliance costs, which could harm our
financial condition and results of operations.***





We are
subject to federal, state, county and local laws and regulations relating to the
protection of the environment. In the course of our business, we are involved in
the handling, storage and disposal of materials that are classified as
hazardous. Our safety procedures for the handling, storage and disposal of such
materials are designed to comply with applicable laws and regulations. However,
we may be involved in contamination or injury from these materials. If this
occurs, we could be held liable for any damages that result, and any such
liability could cause us to pay significant amounts of money and harm our
business. Further, the cost of complying with these laws and regulations may
increase materially in the future.








64











**ITEM
7A.****QUALITATIVE
AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK**





Our
market risk disclosures involve forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements. We are
exposed to market risk related to changes in interest rates. The risks related
to foreign currency exchange rates are immaterial and we do not use derivative
financial instruments.





From time
to time, we maintain a portfolio of highly liquid cash equivalents maturing in
three months or less as of the date of purchase. Given the short-term nature of
these investments we are not subject to significant interest rate risk related
to these investments.





The
convertible notes issued under the December 2002 and August 2003 Debt Agreements
have fixed interest rates of 9.4% and 8%, respectively, which are payable
quarterly in cash or in Common Stock. The principal amounts of the 2002 and 2003
Notes will be due December 31, 2008 and August 28, 2006, respectively, and these
notes can be converted to Common Stock at the option of the holder. The Company
believes it is not subject to significant interest rate risk due to the fixed
rates on its debt.











**ITEM
8.**  **FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA**





All
information required by this item is included on pages 66 - 93 in Item 15. of
Part IV of this Report and is incorporated into this item by
reference.





























65














REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board
of Directors and Stockholders


Miravant
Medical Technologies





We have
audited the accompanying consolidated balance sheets of Miravant Medical
Technologies as of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders’ equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Miravant Medical
Technologies at December 31, 2004 and 2003 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States.





The
accompanying financial statements have been prepared assuming that Miravant
Medical Technologies will continue as a going concern. As more fully described
in Note 1, the Company has incurred recurring operating losses, which have
resulted in a working capital deficit, an accumulated deficit and a deficit in
stockholders’ equity. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments to reflect possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.





/S/ ERNST
& YOUNG LLP








Woodland
Hills, California


March 8,
2005





66




**CONSOLIDATED
      BALANCE SHEETS****December
      31,****2004**
    
    **2003****Assets**Current
      assets:Cash
      and cash equivalents
    
    $
    3,112,000
    
    $
    1,030,000Marketable
      securities
    
    
    2,987,000
    
    
    —Prepaid
      expenses and other current assets
    
    
    314,000
    
    
    298,000Total
      current assets
    
    
    6,413,000
    
    
    1,328,000Property,
      plant and equipment:Vehicles
    
    
    28,000
    
    
    28,000Furniture
      and fixtures
    
    
    1,393,000
    
    
    1,393,000Equipment
    
    
    4,525,000
    
    
    5,200,000Leasehold
      improvements
    
    
    2,720,000
    
    
    2,720,0008,666,000
    
    
    9,341,000Accumulated
      depreciation
    
    
    (8,541,000
    )
    
    (9,125,000
    )125,000
    
    
    216,000Patents,
      net
    
    
    898,000
    
    
    707,000Other
      assets
    
    
    73,000
    
    
    154,000Total
      assets
    
    $
    7,509,000
    
    $
    2,405,000**Liabilities
      and stockholders’ equity (deficit)**Current
      liabilities:Accounts
      payable
    
    $
    1,352,000
    
    $
    1,456,000Accrued
      payroll and expenses
    
    
    506,000
    
    
    536,000Total
      current liabilities
    
    
    1,858,000
    
    
    1,992,000Long-term
      liabilities:Convertible
      debt:Face
      value of convertible debt
    
    
    10,317,000
    
    
    12,916,000Deferred
      financing costs and beneficial conversion value
    
    
    (2,684,000
    )
    
    (5,476,000
    )Total
      long-term liabilities
    
    
    7,633,000
    
    
    7,440,000Stockholders’
      equity (deficit):Preferred
      stock, 30,000,000 shares authorized; 1,112,966 and no shares issued and
      outstanding at December 31, 2004 and 2003, respectively;liquidation
      preference of $2.70 per share over common stockholders
    
    
    2,924,000
    
    
    —Common
      stock, 75,000,000 shares authorized; 36,718,605 and 25,564,904 shares
      issued and outstanding at December 31, 2004 andDecember
      31, 2003, respectively
    
    
    208,508,000
    
    
    190,586,000Notes
      receivable from officers
    
    
    (524,000
    )
    
    (603,000
    )Deferred
      compensation
    
    
    —
    
    
    (16,000
    )Accumulated
      deficit
    
    
    (212,890,000
    )
    
    (196,994,000
    )Total
      stockholders’ equity (deficit)
    
    
    (1,982,000
    )
    
    (7,027,000
    )Total
      liabilities and stockholders’ equity (deficit)
    
    $
    7,509,000
    
    $
    2,405,000


*See
accompanying notes.*


67








**CONSOLIDATED
      STATEMENTS OF OPERATIONS****Year
      ended December 31,****2004**
    
    **2003**
    
    **2002**Revenues:License
      - contract research and development
    
    
    
    
    $
    —
    
    $
    —
    
    $
    20,000Bulk
      active pharmaceutical ingredient sales
    
    
    
    
    
    —
    
    
    —
    
    
    479,000Royalties
    
    
    
    
    
    —
    
    
    —
    
    
    —Total
      revenues
    
    
    
    
    
    —
    
    
    —
    
    
    499,000Costs
      and expenses:Cost
      of goods sold
    
    
    
    
    
    —
    
    
    —
    
    
    479,000Research
      and development
    
    
    
    
    
    7,637,000
    
    
    7,616,000
    
    
    9,549,000General
      and administrative
    
    
    
    
    
    5,416,000
    
    
    4,620,000
    
    
    5,726,000Total
      costs and expenses
    
    
    
    
    
    13,053,000
    
    
    12,236,000
    
    
    15,754,000Loss
      from operations
    
    
    
    
    
    (13,053,000
    )
    
    (12,236,000
    )
    
    (15,255,000
    )Interest
      and other income (expense):Interest
      and other income
    
    
    
    
    
    121,000
    
    
    76,000
    
    
    169,000Interest
      expense
    
    
    
    
    
    (3,038,000
    )
    
    (5,649,000
    )
    
    (286,000
    )Gain
      on sale of assets
    
    
    
    
    
    74,000
    
    
    62,000
    
    
    10,000Gain
      on sale of investment in affiliate
    
    
    
    
    
    —
    
    
    1,196,000
    
    
    —Gain
      on retirement of debt
    
    
    
    
    
    —
    
    
    9,086,000
    
    
    —Non-cash
      loss in investment in affiliate
    
    
    
    
    
    —
    
    
    —
    
    
    (598,000
    )Total
      net interest and other income (expense)
    
    
    
    
    
    (2,843,000
    )
    
    4,771,000
    
    
    (705,000
    )Net
      loss
    
    
    
    
    $
    (15,896,000
    )
    $
    (7,465,000
    )
    $
    (15,960,000
    )Net
      loss per share - basic and diluted
    
    
    
    
    $
    (0.48
    )
    $
    (0.30
    )
    $
    (0.78
    )Shares
      used in computing net loss per share
    
    
    
    
    
    32,986,422
    
    
    24,703,543
    
    
    20,581,214





*See
accompanying notes.*


68





**CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)** ****


**Notes**
    
    
    
    **Accumulated****Receivable**
    
    
    
    **Other****Preferred
      Stock**
    
    **Common
      Stock**
    
    **from**
    
    **Deferred**
    
    **Comprehensive**
    
    **Accumulated****Shares**
    
    **Amount**
    
    **Shares**
    
    **Amount**
    
    **Officers**
    
    **Compensation**
    
    **Loss**
    
    **Deficit**
    
    **Total**Balance
      at January 1, 2002
    
    
    3⁄4
    
    $
    3⁄4
    
    
    18,876,075
    
    $
    161,496,000
    
    $
    (822,000
    )
    $
    (547,000
    )
    $
    (356,000
    )
    $
    (173,569,000
    )
    $
    (13,798,000
    )Comprehensive
      loss:Net
      loss
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    (15,960,000
    )
    
    (15,960,000
    )Net
      change in accumulated other comprehensive loss
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    356,000
    
    
    3⁄4
    
    
    356,000Total
      comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,604,000
    )Issuance
      of stock at $0.50 per share
      (net
      of approximately $81,000
      of
      offering costs)
    
    
    3⁄4
    
    
    3⁄4
    
    
    5,000,000
    
    
    2,419,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    2,419,000Issuance
      of stock awards and ESOP
      matching
      contributions
    
    
    3⁄4
    
    
    3⁄4
    
    
    349,014
    
    
    78,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    78,000Non-cash
      contributions by Pharmacia Corporation:Lease
      payments
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    40,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    40,000Debt
      restructuring
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    15,393,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    15,393,000Officer
      notes and non-cash interest
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    (248,000
    )
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    (248,000
    )Reserve
      for officer notes
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    500,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    500,000Deferred
      compensation and deferred interest related to warrants
    granted
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    829,000
    
    
    3⁄4
    
    
    (534,000
    )
    
    3⁄4
    
    
    3⁄4
    
    
    295,000Amortization
      of deferred compensation
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    815,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    815,000Balance
      at December 31, 2002
    
    
    3⁄4
    
    $
    3⁄4
    
    
    24,225,089
    
    $
    180,255,000
    
    $
    (570,000
    )
    $
    (266,000
    )
    $
    3⁄4
    
    $
    (189,529,000
    )
    $
    (10,110,000
    )Comprehensive
      loss:Net
      loss
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    (7,465,000
    )
    
    (7,465,000
    )Total
      comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,465,000
    )Issuance
      of restricted shares, stock awards, stock option exercises and ESOP
      matching contributions
    
    
    3⁄4
    
    
    3⁄4
    
    
    949,815
    
    
    87,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    87,000Beneficial
      conversion value
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    4,982,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    4,982,000Issuance
      of stock to Pharmacia and related stock and warrant
    valuation
    
    
    3⁄4
    
    
    3⁄4
    
    
    390,000
    
    
    537,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    537,000Value
      of warrants and options issued to employees
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    4,725,000
    
    
    3⁄4
    
    
    (53,000
    )
    
    3⁄4
    
    
    3⁄4
    
    
    4,672,000Non-cash
      interest on officer notes
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    (61,000
    )
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    (61,000
    )Repayments
      on officer notes, net of reserve for officer notes
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    28,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    28,000Amortization
      of deferred compensation
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    303,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    303,000Balance
      at December 31, 2003
    
    
    3⁄4
    
    $
    3⁄4
    
    
    25,564,904
    
    $
    190,586,000
    
    $
    (603,000
    )
    $
    (16,000
    )
    **$******
    ******3⁄4**
    
    $
    (196,994,000
    )
    $
    (7,027,000
    )Comprehensive
      loss:Net
      loss
    
    
    **3⁄4**
    
    
    **3⁄4**
    
    
    **3⁄4**
    
    
    **3⁄4**
    
    
    **3⁄4**
    
    
    **3⁄4**
    
    
    **3⁄4**
    
    
    (15,896,000
    )
    
    (15,896,000
    )Total
      comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,896,000
    )Issuance
      of shares for restricted shares, stock awards and stock option and warrant
      exercises
    
    
    3⁄4
    
    
    3⁄4
    
    
    822,571
    
    
    954,000
    
    
    ******3⁄4**
    
    
    ******3⁄4**
    
    
    3⁄4
    
    
    3⁄4
    
    
    954,000Issuance
      of stock at $2.25 per share
    
    
    3⁄4
    
    
    3⁄4
    
    
    4,564,000
    
    
    10,269,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    10,269,000Issuance
      of preferred stock at $2.70 per share (net of issuance
    costs)
    
    
    1,112,966
    
    
    2,924,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    2,924,000Beneficial
      conversion value
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    300,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    300,000Issuance
      of stock related to debt conversions, warrant exercises and interest
      payments on debt, net of deferred financing costs
    
    
    3⁄4
    
    
    3⁄4
    
    
    5,590,380
    
    
    5,983,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    5,983,000Value
      of warrants and stock awards issued to consultants
    
    
    3⁄4
    
    
    3⁄4
    
    
    176,750
    
    
    416,000
    
    
    3⁄4
    
    
    (73,000
    )
    
    3⁄4
    
    
    3⁄4
    
    
    343,000Non-cash
      interest on officer notes
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    (50,000
    )
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    (58,000
    )Repayments
      on officer notes, net of reserve for officer notes
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    129,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    137,000Amortization
      of deferred compensation
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4
    
    
    89,000
    
    
    3⁄4
    
    
    3⁄4
    
    
    89,000Balance
      at December 31, 2004
    
    
    1,112,966
    
    $
    2,924,000
    
    
    36,718,605
    
    $
    208,508,000
    
    $
    (524,000
    )
    $
    3⁄4
    
    $
    3⁄4
    
    $
    (212,890,000
    )
    $
    (1,982,000
    )


** **


*See
accompanying notes.*


69
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**


**Operating
      activities:**
    
    **2004**
    
    **2003**
    
    **2002**Net
      loss
    
    $
    (15,896,000
    )
    $
    (7,465,000
    )
    $
    (15,960,000
    )Adjustments
      to reconcile net loss to net cash usedby
      operating activities:Gain
      on retirement of debt
    
    
    —
    
    
    (9,086,000
    )
    
    —Depreciation
      and amortization
    
    
    257,000
    
    
    543,000
    
    
    887,000Amortization
      of deferred compensation
    
    
    89,000
    
    
    303,000
    
    
    815,000Gain
      on sale of investment in affiliate
    
    
    —
    
    
    (1,196,000
    )
    
    —Non-cash
      loss in investment in affiliate
    
    
    —
    
    
    —
    
    
    598,000Gain
      on sale of property, plant and equipment
    
    
    (74,000
    )
    
    (61,000
    )
    
    (10,000
    )Stock
      awards and ESOP matching contribution
    
    
    1,116,000
    
    
    79,000
    
    
    78,000Non-cash
      interest and amortization of deferred financing costs on
    debt
    
    
    3,065,000
    
    
    5,521,000
    
    
    319,000Reserve
      and abandonment for patents
    
    
    34,000
    
    
    363,000
    
    
    81,000Provision for employee and officer loans, net of non-cash interest on
      related loan
    
    
    (50,000
    )
    
    (70,000
    )
    
    802,000Changes in operating assets and liabilities:Accounts
      receivable
    
    
    —
    
    
    —
    
    
    5,030,000Prepaid
      expenses, inventories and other assets
    
    
    65,000
    
    
    253,000
    
    
    122,000Accounts
      payable and accrued payroll
    
    
    (134,000
    )
    
    (12,000
    )
    
    (1,332,000
    )Net
      cash used in operating activities
    
    
    (11,528,000
    )
    
    (10,828,000
    )
    
    (8,570,0000
    )**Investing
      activities:**Purchases
      of marketable securities
    
    
    (2,987,000
    )
    
    —
    
    
    (28,679,000
    )Sales
      of marketable securities
    
    
    —
    
    
    —
    
    
    33,333,000Proceeds
      from sale of investment in affiliate
    
    
    —
    
    
    1,589,000
    
    
    —Purchases
      of property, plant and equipment
    
    
    —
    
    
    (120,000
    )
    
    —Sublease
      security deposits
    
    
    (96,000
    )
    
    (94,000
    )
    
    —Proceeds
      from sale of property, plant and equipment
    
    
    102,000
    
    
    122,000
    
    
    71,000Purchases
      of patents
    
    
    (323,000
    )
    
    (186,000
    )
    
    (154,000
    )Net
      cash (used in) provided by investing activities
    
    
    (3,304,000
    )
    
    1,311,000
    
    
    4,571,000**Financing
      activities:**Proceeds
      from issuance of Common Stock, less issuance costs
    
    
    10,269,000
    
    
    8,000
    
    
    2,419,000Proceeds
      from issuance of Preferred Stock, less issuance costs
    
    
    2,924,000
    
    
    —
    
    
    —Proceeds
      from stock option and warrant exercises
    
    
    1,613,000
    
    
    —
    
    
    —Proceeds
      from convertible note arrangements
    
    
    2,000,000
    
    
    11,300,000
    
    
    1,000,000Repayment
      of long-term debt
    
    
    —
    
    
    (1,170,000
    )
    
    —Payments
      of deferred financing costs
    
    
    (21,000
    )
    
    (351,000
    )
    
    —Repayments
      (advances) of notes to officers
    
    
    129,000
    
    
    37,000
    
    
    (155,000
    )Net
      cash provided by financing activities
    
    
    16,914,000
    
    
    9,824,000
    
    
    3,264,000Net
      increase (decrease) in cash and cash equivalents
    
    
    2,082,000
    
    
    307,000
    
    
    (735,000
    )Cash
      and cash equivalents at beginning of period
    
    
    1,030,000
    
    
    723,000
    
    
    1,458,000Cash
      and cash equivalents at end of period
    
    $
    3,112,000
    
    $
    1,030,000
    
    $
    723,000**Supplemental
      disclosures:**State
      taxes paid
    
    $
    4,000
    
    $
    4,000
    
    $
    4,000Interest
      paid
    
    $
    —
    
    $
    104,000
    
    $
    —
 **
 *See
accompanying notes*


70





**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.** **Summary
of Significant Accounting Policies**





Description
of Business, Basis of Presentation and Going Concern:





Miravant
Medical Technologies, or Miravant or the Company, is engaged in the research and
development of drugs and medical device products for use in
PhotoPoint âPDT, the Company’s proprietary technologies for
photodynamic therapy. The Company is located in Santa Barbara, California.





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company’s assets and the satisfaction of its liabilities in
the normal course of business. Through December 31, 2004, the Company had an
accumulated deficit of $212.9 million and expects to continue to incur
substantial, and possibly increasing, operating losses for the next few years due to
continued spending on research and development programs, the costs associated
with an additional confirmatory Phase III clinical trial related to the
Company’s New Drug Application, or NDA, for PHOTREXTM
(formerly known as PhotoPoint® SnET2) for the treatment of wet age-related
macular degeneration, or AMD, the
funding of preclinical studies, clinical trials and regulatory activities and
the costs of manufacturing and administrative activities. The
Company also
expects these operating losses to fluctuate relative to its ability to fund the
research and development programs as well as the operating expenses of the
Company.





The
Company is continuing its scaled-back efforts, implemented in 2002, in research
and development and the preclinical studies and clinical trials of its products.
The cost of an additional confirmatory Phase III clinical trial and any other
requirements the Company will need to complete to satisfy the conditions of the
Approvable Letter from the U.S. Food and Drug Administration, or FDA, amending
the NDA and obtaining related requisite regulatory approval, commencing
pre-commercialization activities prior to receiving regulatory approval, and
successfully completing the development of the Company’s cardiovascular program
under its Guidant collaboration, will require substantial expenditures. If
requisite regulatory approval is obtained, then substantial additional financing
will be required for the manufacture, marketing and distribution of its product
in order to achieve a level of revenues adequate to support the Company’s cost
structure. If the Company is able to continue to borrow under the Note and
Warrant Purchase Agreement, or the March 2005 Debt Agreement (see Note 12),
executive management believes that as long as its debt is not accelerated, then
the Company has the ability to conserve cash required for operations through
March 31, 2006. If the funding from the March 2005 Debt Agreement and/or
additional funding is not available when needed, the Company believes that
depending on the amount borrowed under the March 2005 Debt Agreement, it may
have cash required for operations through December 31, 2005 assuming the delay
or reduction in scope of one or more of its research and development programs
and adjusting, deferring or reducing salaries of employees and by reducing
operating facilities and overhead expenditures. The Company believes it 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 it will be
successful in obtaining additional financing or that financing will be available
on favorable terms.





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and the accompanying notes. Actual results may differ from
those estimates and such differences may be material to the consolidated
financial statements.





Certain
reclassifications of prior year amounts have been made for purposes of
consistent presentation.

















71








Principles
of Consolidation:





The
consolidated financial statements include the accounts of Miravant Medical
Technologies and its wholly owned subsidiaries, Miravant Systems, Inc.,
Miravant Pharmaceuticals, Inc. and Miravant Cardiovascular, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.





Cash
Equivalents:





The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.





Marketable
Securities





Marketable
securities in 2004 consist of short-term, interest-bearing corporate bonds.
There were no marketable security balances as of December 31, 2003. The Company
has established investing guidelines relative to concentration, maturities and
credit ratings that maintain safety and liquidity.





In
accordance with Statement of Financial Accounting Standards, or SFAS, No. 115,
“Accounting for Certain Investments in Debt and Equity Securities,” the Company
determines the appropriate classification of debt and equity securities at the
time of purchase and re-evaluates such designation as of each balance sheet
date. As of December 31, 2004, all marketable securities were classified as
“available-for-sale.” Available-for-sale securities and investments are carried
at fair value with unrealized gains and losses reported as a separate component
of stockholders’ equity. Realized gains and losses on investment transactions
are recognized when realized based on settlement dates and recorded as interest
income. Interest and dividends on securities are recognized when earned.
Declines in value determined to be other-than-temporary on available-for-sale
securities are listed separately as a non-cash loss in investment in the
consolidated financial statements.





Investments
in Affiliates:





Investments
in affiliates owned more than 20% but not in excess of 50%, where the Company is
deemed to be able to exercise significant influence, are recorded under the
equity method. Investments in affiliates, owned less than 20%, where the Company
is not deemed to be able to exercise significant influence, are recorded under
the cost method. Under the equity method, investments are carried at acquisition
cost and generally adjusted for the proportionate share of the affiliates’
earnings or losses. Under the cost method, investments are recorded at
acquisition cost and adjusted to fair market value based on the investment
classification.





In
December 1996, the Company purchased an equity interest in Ramus Medical
Technologies, or Ramus, for $2.0 million. The investment was accounted for under
the equity method because the investment was more than 20% but not in excess of
50% of Ramus’ outstanding common stock. As the Company was the main source of
financing for Ramus, the Company recorded 100% of Ramus’ loss to the extent of
the investment made by the Company. The investment in Ramus has been fully
reserved for as of December 31, 2004 and 2003, respectively.




In June
1998, the Company purchased an equity interest in Xillix Technologies Corp., or
Xillix. The Company received 2,691,904 shares of Xillix common stock, in
exchange for $3.0 million in cash and 58,909 shares of Miravant Common Stock. In
December 2003, the Company sold its investment in Xillix for net proceeds of
approximately $1.6 million. The investment had previously been accounted for
under the cost method and classified as available-for-sale. See Note 10 for
further discussion on the Company’s investment in Xillix.







72












Equipment
and Leasehold Improvements:





Equipment
is stated at cost with depreciation provided over the estimated useful lives of
the respective assets on the straight-line basis. Leasehold improvements are
stated at cost with amortization provided on the straight-line basis. The
estimated useful lives of the assets are as follows:





Furniture
      and fixtures
    5
      yearsEquipment
    3 -
      5 yearsLeasehold
      improvements
    5
      years or the remaining life of the lease term, whichever is
      shorter





Patents:





Costs of
acquiring patents are capitalized and amortized on the straight-line basis over
the estimated useful life of the patents, generally seventeen years. Costs of
patents filed or in the filing process, or patents pending, are capitalized as
prepaid patents and are not amortized until the patent is issued. Accumulated
amortization was $608,000 and $524,000 at December 31, 2004 and 2003,
respectively, and reserves recorded for patents amounted to $767,000 at December
31, 2004 and 2003. The cost of servicing the Company’s patents are expensed as
incurred. The weighted average amortization period for the Company’s patents is
approximately 9.61 years. Amortization expense related to patents amounted to
$98,000, $94,000 and $76,000 for the years ended December 31, 2004, 2003 and
2002, respectively. The
estimated amortization expense related to patents for the next five years ended
December 31, is as follows:





2005
    $
      100,0002006
    $
      100,0002007
    $
      100,0002008
    $
      100,0002009
    $
      100,000





Long-Lived
Assets:





The
Company reviews for the impairment of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company periodically
reviews the carrying value of its patents and provides reserves for any patents
which are not actively being researched or marketed. During the years ended
December 31, 2004, 2003 and 2002, the Company increased the patent reserve by
zero, $200,000 and $81,000, respectively, which is
included in research and development expenses in the consolidated statements of
operations . No
other impairment losses have been recorded by the Company. An impairment loss
would be recognized when the estimated future cash flows expected to result from
the use of the asset and its eventual disposition is less than its carrying
amount.





Stock-Based
Compensation:





Statement of Financial Accounting
Standard, or SFAS, No. 123, “Accounting for Stock-Based Compensation,”
encourages, but does not require, companies to record compensation expense for
stock-based employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion, or APB Opinion, No. 25
and related interpretations including Financial Interpretation No. 44,
“Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB Opinion No. 25” in accounting for its stock option
plans.





73








The
Company also has granted and continues to grant stock, warrants and options to
various consultants of the Company. These stock payments, warrants and options
are generally in lieu of cash compensation and, as such, deferred compensation
is recorded related to these grants. Deferred compensation for stock, warrants
and options granted to non-employees has been determined in accordance with SFAS
No. 123 and Emerging Issues Task Force, or EITF, 96-18, as the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. Deferred compensation is amortized over the
consulting or vesting period.





Revenue
Recognition:





The
Company recognizes revenues from product sales based on when ownership of the
product transfers to the customer and when collectibility is reasonably assured.
Sales of bulk active pharmaceutical ingredient, or bulk API, to a former
collaborative partner were recorded as revenue in the period when the product
was received by the former collaborative partner at their facility. Licensing
revenues to date have represented reimbursements from a former collaborative
partner for out-of-pocket expenses incurred in preclinical studies and clinical
trials for the PHOTREX PhotoPoint PDT treatment for AMD. These licensing
revenues were recognized in the period when the reimbursable expenses were
incurred. Grant income is recognized in the period in which the grant related
expenses are incurred and royalty income is recognized in the period in which
the royalties are earned.





Research
and Development Expenses:





Research
and development costs are expensed as incurred. Research
and development expenses are comprised of the following types of costs incurred
in performing research and development activities: salaries and benefits,
allocated overhead and facility costs, preclinical study costs, clinical trial
and related clinical device and drug manufacturing costs, contract services and
other outside costs. The
acquisition of technology rights for research and development projects and the
value of equipment and drug product for specific research and development
projects, with no or low likelihood of alternative future use, are also included
in research and development expenses.





Segment
Reporting:





The
Company is engaged principally in one line of business, the research and
development of drugs and medical device products for the use in the Company’s
proprietary technologies for photodynamic therapy.





Comprehensive
Loss:





The
Company has elected to report other comprehensive loss in the consolidated
statements of stockholders’ equity (deficit) with the change in accumulated
other comprehensive loss consisting of the following:





**2004**
    
    **2003**
    
    **2002**Unrealized
      holding gains (losses) arising from available-for-sale
      securities
    
    $
    —
    
    $
    1,196,000
    
    $
    (242,000
    )Reclassification
      adjustment for other-than-temporary non-cash (gain) loss in
      investment
    
    
    —
    
    
    (1,196,000
    )
    
    598,000Net
      decrease in accumulated other comprehensive loss
    
    $
    —
    
    $
    —
    
    $
    356,000








74








Net
Loss Per Share:





The
Company calculates earnings per share in accordance with SFAS No. 128, “Earnings
per Share.” Basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted to common stock. Common stock
equivalent shares from all stock options, warrants and convertible securities
for all years presented have been excluded from this computation as their effect
is anti-dilutive.





Basic
loss per common share is computed by dividing the net loss by the weighted
average shares outstanding during the period in accordance with SFAS No. 128.
Since the effect of the assumed exercise of common stock options and other
convertible securities was anti-dilutive, basic and diluted loss per share as
presented on the consolidated statements of operations are the
same.





Recent
Accounting Pronouncements:





On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), Share-Based Payment (Statement No. 123(R)),
which is a revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation. Statement No. 123(R) supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash
Flows. Generally, the approach in Statement No. 123(R) is similar to the
approach described in Statement No. 123. However Statement No. 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the statement of operations based on their fair
values. Proforma disclosure is no longer an alternative. Statement No. 123(R)
must be adopted no later than July 1, 2005. Early adoption will be permitted in
periods in which financial statements have not yet been issued. The Company
expects to adopt Statement No. 123(R) on July 1, 2005.





Statement
No. 123(R) permits companies to adopt its requirements using one of two methods.
The first method is a modified prospective transition method whereby a company
would recognize share-based employee costs from the beginning of the fiscal
period in which the recognition provisions are first applied as if the
fair-value-based accounting method had been used to account for all employee
awards granted, modified, or settled after the effective date and to any awards
that were not fully vested as of the effective date. Measurement
and attribution of compensation cost for awards that are nonvested as of the
effective date of Statement No. 123(R) would be based on the same estimate of
the grant-date fair value and the same attribution method used previously under
Statement No. 123.





The
second adoption method is a modified retrospective transition method whereby a
company would recognize employee compensation cost for periods presented prior
to the adoption of Statement No. 123(R) in accordance with the original
provisions of Statement No. 123; that is, an entity would recognize employee
compensation cost in the amounts reported in the pro forma disclosures provided
in accordance with Statement No. 123. A company would not be permitted to make
any changes to those amounts upon adoption of Statement No. 123(R) unless those
changes represent a correction of an error. For periods after the date of
adoption of Statement No. 123(R), the modified prospective transition method
described above would be applied.





The
Company currently expects to adopt Statement No. 123(R) using the modified
prospective transition method, and expects the adoption to have an effect on its
results of operations similar to the amounts reported historically in the
Company’s footnotes (see Note 3) under the pro forma disclosure provisions of
Statement No. 123.





75












**2. Credit
Arrangements and Collaborative Funding**




February
2004 Convertible Debt Agreement





In February
2004, the Company entered into an Unsecured Convertible Debenture Purchase
Agreement, or the February 2004 Debt Agreement, with certain private accredited
investors, or the February 2004 Lenders. Under the February 2004 Debt Agreement
the Company issued $2.0 million worth of convertible debentures convertible at
$2.00 per share. The convertible debentures issued mature on February 5, 2008,
if not previously converted, with interest accruing at 8% per year, due and
payable quarterly, with the first interest payment due on April 1, 2004. At the
Company’s option, and subject to certain restrictions, the Company may make
interest payments in cash or in shares of its Common Stock, or the interest can
be added to the outstanding principal of the note. Each convertible debenture
issued pursuant to the February 2004 Debt Agreement is convertible at the
holder’s option into shares of the Company’s Common Stock. As of December 31,
2004, all $2.0 million of the Notes issued have been converted into 1.0 million
shares of Common Stock. Interest payments for the year ended December 31, 2004
was $109,000 and were paid in the form of Common Stock in the amount of 56,075
shares.




Additionally,
under the Emerging Issues Task Force, or EITF, No. 98-5, the Company was
required to determine the beneficial conversion value for the notes related to
the February 2004 Debt Agreement, or the 2004 Notes. The beneficial conversion
value represents the difference between the fair value of the Company’s 2004
Notes as of the date of issuance and the intrinsic value, which is the value of
the 2004 Notes as converted, as described above. If the intrinsic value of the
2004 Notes exceeds the fair value of the 2004 Notes, then a beneficial
conversion value is determined to have been received by the securityholders. Any
beneficial conversion value determined is recorded as equity and a reduction to
the convertible debt outstanding, which is subsequently amortized to interest
expense. The beneficial conversion value was calculated as follows:





Fair
      value on February 5, 2004 of the February 2004 Debt convertible to Common
      Stock at $2.30 per share, a 10% discount from the fair value of the Common
      Stock on the date of issuance as the underlying shares are
      unregistered
    
    $
    2,300,000Less:
      Intrinsic value of the February 2004 Debt convertible to Common Stock at$2.00
      per share
    
    
    (2,000,000
    )Beneficial conversion value
    
    $
    300,000








The
beneficial conversion value for the 2004 Notes was amortized over the period
from the date of note issuance to the period of first available note conversion
which was March 25, 2004, therefore the $300,000 of beneficial conversion value
was amortized during the quarter ended March 31, 2004 and is included in
interest expense in the consolidated statements of operations.







76







Pharmacia
Debt Settlement





On August 28,
2003, the Company entered into a Termination and Release Agreement with
Pharmacia AB, a wholly owned subsidiary of Pfizer, Inc., or Pharmacia, that
provides, among other things, for the retirement of the $10.6 million debt owed
by the Company to Pharmacia and the release of the related security collateral,
in exchange for a $1.0 million cash payment, 390,000 shares of the Company’s
Common Stock and the adjustment of the exercise price of Pharmacia’s outstanding
warrants to purchase shares of the Company’s Common Stock. Additionally, the
Company has extended the expiration date of the warrants to December 31, 2005.
As a result, Pharmacia has warrants to purchase an aggregate of 360,000 shares
of the Company’s Common Stock at an exercise price of $1.00 per share. For the
year ended December 31, 2003, the Company recorded a net gain on retirement of
debt in the consolidated statements of operations as part of interest and other
income/(expense) as follows:





Outstanding debt as of August 28, 2003
    
    $
    10,623,000Less:
      Fair market value of 390,000 shares of Common Stock (issued at $0.99 per
      share, or the fair market value on August 28, 2003)
    
    
    (386,000
    )Repriced
      warrant valuation (using a Black-Scholes model value of $0.42 per share
      for the purchase of 360,000 shares at $1.00 per share)
    
    
    (151,000
    )Cash
      payment to Pharmacia
    
    
    (1,000,000
    )Net
      gain on retirement of debt in the year ended December 31,
    2003
    
    $
    9,086,000





Prior
Pharmacia Agreements





In March
2002, the Company’s prior agreements with Pharmacia were significantly modified
or terminated by the Contract Modification and Termination Agreement. This
agreement modified the credit agreement between the Company and Pharmacia, or
the 2001 Credit Agreement. The outstanding debt that the Company owed to
Pharmacia of approximately $26.8 million was reduced to $10.0 million plus
accrued interest. Additionally, early repayment provisions and many of the
covenants were eliminated or modified. In exchange or these changes and the
rights to PHOTREX, the Company terminated its right to receive a $3.2 million
loan that was available under the 2001 Credit Agreement. This agreement was
superceded by the Termination and Release Agreement entered into in August
2003.







In
accordance with SFAS No. 15, “Accounting by Debtors and Creditors for Troubled
Debt Restructurings,” the Company permanently reduced the debt due to Pharmacia
to the total future cash payments of the debt, including amounts designated as
interest and principal. The total future cash payments, at the then current
interest rates, was estimated to be $10.8 million. The difference between the
total debt outstanding of $26.2 million (net of the unamortized deferred
financing costs of approximately $900,000) and the total future cash payments of
the restructured debt of $10.8 million was recorded as an increase to
stockholders’ equity due to Pharmacia being a greater than 10% stockholder in
the Company at the time. Therefore, the Company recorded a $15.4 million
increase to stockholders’ equity in the first quarter of 2002.





In
connection with the Contract Modification and Termination Agreement, the Company
paid Pharmacia a total of $250,000 consisting of interest due through March 5,
2003 and an extension fee of $21,000 for the extension of the payment date in
the year ended December 31, 2003. The Contract Modification and Termination
Agreement also provided for the transfer of ownership of several assets back to
the Company, which were previously sold to Pharmacia under the May 2001
Manufacturing Facility Asset Purchase Agreement, or the Asset Purchase
Agreement, including the lasers utilized in the Phase III AMD clinical trials,
the bulk active pharmaceutical ingredient or bulk API, and finished dose
formulation, or FDF, inventories and the bulk API manufacturing equipment used
to manufacture PHOTREX. The Company recorded the transfer of ownership of the
bulk API manufacturing equipment at its net carrying value prior to sale to
Pharmacia, which was $277,000. Under generally accepted accounting principles,
there was no value recorded on the balance sheet for the transfer of ownership
of the lasers, and the bulk API and FDF inventory, since these assets, according
to the Company’s accounting policies, had been expensed as research and
development costs in prior years.





77








Under the Asset Purchase Agreement
entered into in May 2001, Pharmacia issued a purchase order to buy the Company’s
existing PHOTREX bulk API inventory at cost for $2.2 million. The existing bulk
API inventory had been previously expensed in research and development costs in
prior periods. Pharmacia also committed to buy up to an additional $2.8 million
of the bulk API which would be manufactured by the Company through March 2002.
Sales of bulk API manufactured and shipped through December 31, 2001, were paid
by Pharmacia directly into an inventory escrow account, which, through the
Contract Modification and Termination Agreement, was released to the Company in
full in January 2002.





The Company has issued an aggregate of
360,000 warrants to purchase Miravant Common Stock upon draws on the 2001 Credit
Agreement. These warrants, which had been valued at $1.7 million using the
Black-Scholes valuation model, had been recorded as deferred financing costs on
the balance sheet and were being amortized as interest expense over the life of
the credit agreement. As noted above, the deferred financing costs were
eliminated in the permanent reduction of the debt owed to Pharmacia under the
accounting for the Contract Modification and Termination Agreement.





August
2003 Convertible Debt Agreement





In August
2003, the Company entered into a Convertible Debt and Warrant Purchase
Agreement, or the August 2003 Debt Agreement, pursuant to which the Company
issued securities to the investors, or the 2003 Lenders, in exchange for gross
proceeds of $6.0 million. Under the August 2003 Debt Agreement, at the option of
the 2003 Lenders, the debt can be converted at $1.00 per share into the
Company’s Common Stock. The Company issued separate convertible promissory
notes, which are referred to as the 2003 Notes, to each holder and the 2003
Notes earn interest at 8% per annum and are due August 28, 2006, unless
converted earlier or paid early under the prepayment or default provisions. The
interest on each 2003 Note is due quarterly beginning October 1, 2003 and can be
paid in cash or in shares of the Company’s Common Stock at the Company’s option.
Under certain circumstances each 2003 Note can be prepaid by the Company prior
to the maturity date or prior to conversion. The 2003 Notes also have certain
default provisions which can cause the 2003 Notes to become accelerated and due
immediately upon notice by the 2003 Lenders. From the proceeds of the August
2003 Debt Agreement, in September 2003 the Company repaid $250,000 in a
short-term bridge loan and $1.0 million to retire the Pharmacia debt, as
described above. Interest payments for the year ended December 31, 2004 totaled
$207,000 and was paid in the form of Common Stock in the amount of 97,775
shares. Interest payments for the year ended December 31, 2003 totaled $167,000
and was paid partially in cash of $44,000 and the remaining amount of $123,000
in the form of Common Stock in the amount of 103,787 shares. Accrued interest at
December 31, 2004 was $70,000 and was paid subsequent to year end in the form of
Common Stock in the amount of 69,511 shares.





In
connection with the August 2003 Debt Agreement, during the first quarter of
2004, certain of the 2003 Lenders converted their Notes into shares of the
Company’s Common Stock. As of December 31, 2004, $2.6 million of the $6.0
million face value of the 2003 Notes outstanding had been converted into 2.6
million shares of Common Stock. The $2.6 million converted was net of $1.1
million of deferred financing costs. As of December 31, 2004, $3.4 million of
the $6.0 million face value 2003 Notes were outstanding.











78








In connection
with the 2003 Notes, the Company also issued to the 2003 Lenders warrants to
purchase an aggregate of 4,500,000 shares of the Company’s Common Stock. Each
holder received two warrants. The first warrant is for the purchase of one-half
(1/2) of a share of the Company’s Common Stock for every $1.00 of principal
under the 2003 Debt Agreement. The second warrant is for the purchase of
one-quarter (1/4) of a share of the Company’s Common Stock for every $1.00 of
principal under the 2003 Debt Agreement. The exercise price of each warrant is
$1.00 per share and the warrants will terminate on August 28, 2008, unless
amended as noted below or unless previously exercised. The Company can force the
exercise of the one-quarter (1/4) share warrant under certain circumstances. As
of December 31, 2004, of the warrants to purchase 4.5 million shares of Common
Stock, 1,425,000 warrants had been exercised, resulting in proceeds to the
Company of $1.4 million.





In connection
with the closing of the March 2005 Debt Agreement  (see Note 12 for further
details), of the 3,025,000 unexercised warrants issued under the August 2003
Debt Agreement, 1,875,000 warrants issued to a certain 2003 Lender were extended
to December 31, 2013 from the original expiration date of August 28,
2008.





The warrants
issued related to the August 2003 Debt Agreement were valued using the
Black-Scholes valuation model. The value of these warrants were determined to be
$2.8 million which were recorded as deferred financing costs and are being
amortized over the term of the underlying convertible promissory notes, which is
three years. In addition, during the first quarter of 2004, certain of the 2003
Lenders converted their Notes into shares of the Company’s Common Stock, as such
deferred financing costs related to the warrants was adjusted accordingly from
$2.8 million to $1.6 million and the Company is amortizing the adjusted deferred
financing costs over the term of the underlying promissory notes, or August 28,
2006. For the years ended December 31, 2004 and 2003, the Company recorded
amortization expense of $624,000 and $308,000 related to the deferred financing
costs associated with the warrant valuation, which is included in interest
expense in the consolidated statement of operations.





Additionally,
under EITF No. 98-5, the Company was required to determine the beneficial
conversion value of the 2003 Notes and related warrants issued. The beneficial
conversion value represents the difference between the fair value of the
Company’s 2003 Notes as of the date of issuance and the intrinsic value, which
is the value of the 2003 Notes on an as converted basis and the value of the
detachable warrants issued, as described above. If the intrinsic value of the
2003 Notes exceeds the fair value of the 2003 Notes, then a beneficial
conversion value is determined to have been received by the securityholders. Any
beneficial conversion value determined is recorded as equity and a reduction to
the convertible debt outstanding, which is subsequently amortized to interest
expense. The beneficial conversion value was calculated as follows:





Intrinsic
      value of the 2003 Notes converted to Common Stock at $1.00 per
      share
    
    $
    6,000,000Detachable
      warrant valuation (using a Black-Scholes model value of $0.616 per share
      for the purchase of 4,500,000 shares at $1.00 per share)
    
    
    2,772,000Intrinsic value of the 2003 Notes and detachable warrants
    
    
    8,772,000Less: Fair value of the 2003 Notes
    
    
    (6,000,000
    )Beneficial conversion value
    
    $
    2,772,000





The
beneficial conversion value was amortized over the period from the date of note
issuance to the period of first available note conversion. Since approximately
75% of the 2003 Notes can be converted into registered Common Stock, the Company
expensed $2.1 million of the beneficial conversion value to interest expense as
of December 31, 2003. The remaining 25% of the 2003 Notes were not convertible
until June 2004, as such, the remaining $416,000 of the beneficial conversion
value was amortized through June 30, 2004. Therefore, for the period ended
December 31, 2004 and 2003, the Company recorded total amortization expense of
$416,000 and $2.4 million, respectively, related to the beneficial conversion
value of the 2003 Notes, which is included in interest expense in the
consolidated statement of operations.





79








In connection
with the execution of the August 2003 Debt Agreement, certain of the 2002
Lenders, to whom the Company issued notes under the December 2002 Debt
Agreement, agreed to subordinate their debt security position to that of the
2003 Lenders. In exchange for the subordinated security position, the 2002
Lenders received additional warrants to purchase an aggregate of 1,575,000
shares of the Company’s Common Stock at an exercise price of $1.00 per share,
and these additional warrants will terminate, as amended (see below), on
December 31, 2013, unless previously exercised. Additionally, under the
anti-dilution provision of the December 2002 Debt Agreement, the conversion
price of the five notes issued thereunder to the 2002 Lenders during the period
February 2003 through July 2003 was reduced to $1.00 and the exercise price of
the related warrants issued to the 2002 Lenders during the same period was
reduced to $1.00 per share. The Company determined the value of these additional
warrants to be $970,000, using the Black-Scholes valuation model, and is
amortizing these deferred financing costs over the term of the underlying
promissory notes, or December 31, 2008. For the
periods ended December 31, 2004 and 2003, the Company recorded total
amortization expense of $182,000 and $61,000, respectively, related to deferred
financing costs associated with the warrant valuation, which is included in
interest expense in the consolidated statement of operations.





In connection
with the closing of the March 2005 Debt Agreement (see Note 12 for further
details), the 1,575,000 warrants issued to the 2002 Lenders under the
August 2003 Debt Agreement, were extended to December 31, 2013 from the original
expiration date of August 28, 2008.





In addition,
since additional warrants were issued to the 2002 Lenders, the conversion price
of the 2002 Notes was lowered to $1.00 and the exercise price of the existing
warrants related to the 2002 Notes was also lowered to $1.00 per share, there
was a beneficial conversion value for the December 2002 Debt Agreement, measured
upon the closing of the August 2003 Debt Agreement. The beneficial conversion
value was calculated as follows:





Intrinsic
      value of the 2002 Notes converted to Common Stock at $1.00 per
      share
    
    $
    6,300,000Detachable
      warrant valuation (using a Black-Scholes model value of $0.616 per share
      for the purchase of 1,575,000 shares at $1.00 per share plus the net book
      value of the existing repriced warrants for the purchase of 1,825,000
      shares)
    
    
    2,210,000Intrinsic
      value of the 2002 Notes and detachable warrants
    
    
    8,510,000Less:
      Fair value of the 2002 Notes
    
    
    (6,300,000
    )Beneficial
      conversion value
    
    $
    2,210,000


The
beneficial conversion value is being amortized over the period from the date of
note issuance to the period of first available note conversion. Since
approximately 80% of the 2002 Notes could be converted into registered Common
Stock as of December 31, 2003, the Company expensed $1.8 million of the
beneficial conversion value to interest expense for the year ended December 31,
2003. The remaining 20% of the 2002 Notes were not convertible until June 2004,
as such, the remaining $442,000 of the beneficial conversion value was amortized
through June 30, 2004. Therefore, for the year ended December 31, 2004 and 2003,
the Company recorded total amortization expense of $265,000 and $1.9 million,
respectively, related to the beneficial conversion value of the 2002 Notes,
which is included in interest expense in the consolidated statement of
operations.





December
2002 Convertible Debt Agreement





In December
2002, the Company entered into the December 2002 Debt Agreement with the 2002
Lenders. The maximum aggregate loan amount under the December 2002 Debt
Agreement was $12.0 million with the last available borrowing in June 2004, as
amended. In May 2004, the Company and the 2002 Lenders agreed to terminate the
available borrowing provisions of the December 2002 Debt Agreement, which were
to expire by June 30, 2004. As of December 31, 2004, the Company had borrowed
$6.3 million which is convertible into 6,361,856 shares of the Company’s Common
Stock, as adjusted.





80





In
connection with the December 2002 Debt Agreement, the 2002 Lenders withheld from
each borrowing a 3% drawdown fee and the Company issued to the 2002 Lenders a
warrant to purchase one-quarter (1/4) of a share of the Company’s Common Stock
for every $1.00 borrowed, as amended. The drawdown fees and legal costs in the
amount of $244,000 have been capitalized and are being amortized over the life
of the December 2002 Debt Agreement resulting in amortization expense of $39,000
and $37,000 **** included
in interest expense in the consolidated statement of operations for the years
ended December 31, 2004 and 2003, respectively. The exercise price of each
warrant is $1.00 per share. Based on the borrowings of $6.3 million, the Company
issued warrants to purchase 1,575,000 shares of the Company's Common Stock.
 In addition, upon execution of the December 2002 Debt Agreement, the
Company issued to the 2002 Lenders a warrant to purchase 250,000 shares of the
Company’s Common Stock, with an exercise price of $0.50 per share. Each warrant
will terminate on, as amended see below, December 31, 2013, unless previously
exercised.





In connection
with the closing of the March 2005 Debt Agreement (see Note 12 for further
details), the 1,825,000 warrants issued to the 2002 Lenders under the December
2002 Debt Agreement, were extended to December 31, 2013 from the original
expiration date of December 31, 2008.





For the
months of December 2002 and January 2003, the Company received borrowings
totaling $2.0 million and issued related notes with a conversion price of $0.97.
For the months of February through July 2003, the Company received borrowings
totaling $4.3 million and issued related notes with a conversion price of $1.00,
as adjusted. The Company also issued six warrants for the purchase of 250,000
shares per warrant with an exercise price of $1.00, as adjusted, and one warrant
for the purchase of 75,000 with an exercise price of $1.00, as adjusted. As of
December 31, 2004, the Company has borrowed a total of $6.3 million and had
accrued interest of $548,000, which is also convertible at $1.00 per share.
Interest payments made during 2004 totaled $586,000 and were paid in the form of
Common Stock in the amount of 298,704 shares. For the years ended December 31,
2004 and 2003, the Company has recorded amortization expense of $198,000 and
$180,000, respectively, related to the deferred financing costs for these
warrants related to the December 2002 Debt Agreement, which is included in
interest expense in the consolidated statement of operations.





A
separate convertible promissory note, or Note, has been issued for each
borrowing request received and such Notes will earn interest at 9.4% per annum
and be due December 31, 2008. At the Company’s option, the interest on each Note
can be accrued and added to the existing Notes.





Summary
of Deferred Financing Costs and Beneficial Conversion Value:




As of
December 31, 2004 and 2003, deferred financing costs and beneficial conversion
value consisted of the following:





**2004**
    
    **2003**Unamortized
      value of warrants issued for 2003 Notes
    
    $
    873,000
    
    $
    2,464,000Unamortized
      value of warrants issued for 2002 Notes
    
    
    1,573,000
    
    
    1,954,000Beneficial
      Conversion value of the 2003 Notes
    
    
    —
    
    
    416,000Beneficial
      Conversion value of the 2002 Notes
    
    
    —
    
    
    265,000Other
      deferred financing
    
    
    238,000
    
    
    377,000Total
      deferred financing costs and beneficial conversion value
    
    $
    2,684,000
    
    $
    5,476,000








Maturities
of Convertible Notes:





Principal
payments on the convertible notes obligations, including interest added to
principal in the form of additional notes and assuming no conversion prior to
maturity, are due in the amounts of $3.5 million in fiscal 2006 and $6.8 million
in fiscal 2008.





81







**3. Stockholders'
Equity**




Preferred
Stock





The Board
of Directors has authorized 30,000,000 shares of preferred stock. The Board of
Directors has the authority to fix the rights, preferences, privileges and
restrictions, including voting rights of these shares of preferred stock without
any future vote or action by the stockholders. As of December 31, 2004, there
were 1,112,966 shares of preferred stock outstanding and as of December 31, 2003
and 2002, there were no shares of preferred stock outstanding.





Collaboration
Agreement ****





In July
2004, the Company entered into a Collaboration Agreement and a Securities
Purchase Agreement with Advanced Cardiovascular Systems, Inc., a wholly owned
subsidiary of Guidant Corporation, or Guidant. The Securities Purchase Agreement
provides for Guidant to invest up to $7.0 million in non-cumulative convertible
Series A Preferred Stock of the Company. The Series A Preferred Stock has voting
rights and liquidation preferences of $2.70 per share over the common
stockholders. The investments will be made upon the completion of certain
milestones through the completion of Phase I clinical trials with the first
investment of $3.0 million made upon the signing of the agreements. The first
Series A Preferred Stock investment is convertible into the Company’s Common
Stock at $2.70 per share or 1,112,966 shares. The remaining preferred stock
investments, if made, will be convertible into the Company’s Common Stock based
on a ten (10) trading day average price prior to the investment date. The
Company is required to provide additional funding of at least $5.0 million over
the period of the collaboration and the funds invested by Guidant must be spent
on specified cardiovascular programs. The Company also granted Guidant
registration rights with respect to the shares of Common Stock into which the
Series A Preferred Stock is convertible. The agreements also contain various
covenant and termination provisions as defined by the agreements.





Private
Placements





In April
2004, the Company entered into a Securities Purchase Agreement with a group of
institutional investors, pursuant to which it sold 4,564,000 shares of Common
Stock at $2.25 per share, resulting in proceeds to the Company of approximately
$10.3 million. No warrants were issued in connection with this
transaction.





In August
2002, the Company completed a private placement financing which consisted of the
sale of 5.0 million unregistered shares of Common Stock for gross proceeds
of $2.5 million at $0.50 per share, based on a premium of approximately 20% of
the average closing price for the prior 10 trading days. For every two common
shares acquired, the equity purchase included a warrant to purchase one share of
Common Stock at a price of $0.50 per share that expire on December 31, 2013, as
amended see below. In addition, an origination warrant was issued to purchase
300,000 shares of Common Stock at $0.50 per share.





In connection
with the closing of the March 2005 Debt Agreement (see Note 12 for further
details), the 2,800,000 warrants issued under the August 2002 Equity Agreement,
were extended to December 31, 2013 from the original expiration date of August
28, 2007.





Preferred
Stockholder Rights Plan





On July 13,
2000, the Board of Directors of the Company adopted a Preferred Stockholder
Rights Plan, or the Rights Plan. Under the Rights Plan, Miravant has issued a
dividend of one right for each share of its Common Stock held after the close of
business on July 31, 2000. The Rights Plan is designed to assure stockholders’
fair value in the event of a future unsolicited business combination or similar
transaction involving the Company. This Rights Plan was not adopted in response
to any attempt to acquire the Company, and Miravant is not aware of any such
efforts.





82





The
rights will become exercisable only if a person or group (i) acquires 20% or
more of Miravant’s Common Stock, or (ii) announces a tender offer that would
result in ownership of 20% or more of the Common Stock. The
Rights Plan, as amended, provides that the trigger percentage of 20% will not
apply to Pharmacia with regard to certain shares acquired by Pharmacia, St.
Cloud Investments, Ltd, or any other person or entity who acquires shares in a
financing transaction with the Company which generates net proceeds not less
than $5.0 million, and has been approved by the Company’s Board of Directors. Each
right would entitle a stockholder to buy a fractional share of the Company’s
preferred stock. Each right has an initial exercise price of $180.00. Once the
acquiring person or group has acquired 20% or more of the outstanding Common
Stock of Miravant, each right shall entitle its holder (other than the acquiring
person or group) to acquire shares of the Company or of the third party acquirer
having a value of twice the right’s then-current exercise price.





The
rights are redeemable at the option of the Board of Directors up until ten days
after public announcement that any person or group has acquired 20% or more of
Miravant’s Common Stock. The redemption price is $0.001 per right. The rights
will expire on July 31, 2010, unless redeemed prior to that date. Distribution
of the rights is not taxable to stockholders.





Notes
Receivable from Officers





In
October 1996, the Board of Directors approved personal loans to the Chief
Executive Officer, President and Chief Financial Officer. As of December 31,
2003 the total balance of these loans including accrued interest was $70,000. As
of December 31, 2004, the balance of these loans were zero, as these loans were
fully repaid during 2004.





In
December 1997, the Compensation Committee of the Board of Directors recommended,
and subsequently approved, non-recourse equity loans in varying amounts for the
Company’s Chief Executive Officer, President and Chief Financial Officer. The
notes, which accrue interest at a fixed rate of 5.8%, were provided specifically
for the purpose of exercising options to acquire the Company’s Common Stock and
for paying the related option exercise price and payroll taxes. The notes are
collateralized by the underlying shares acquired upon exercise. During 2004,
partial repayments of these loans were made in the amount of $58,000. As of
December 31, 2004 and 2003, the total balance of these loans including accrued
interest were $115,000 and $165,000, respectively.





Additionally,
from 1998 through 2002, the Board of Directors has approved other secured loans
made to the Company’s Chief Executive Officer and President; these loans accrue
interest at fixed rates between 4.7% and 5.9% and as of December 31, 2004 and
2003, had a total balance of $1.0 million and $961,000, respectively. No future
loans to executive officers have been approved after June 2002.





The loans
the Company has made to officers and certain loans made to employees over the
years are either unsecured, or secured by stock or stock options. The value of
the stock and options securing these notes has declined significantly from the
date of loan issuance due to declines in the Company’s stock price. Due to the
decline in stock and option value and due to certain other factors affecting the
collectability of these loans, the Company maintained a reserve for these loans
to officers and employees in the amount of $709,000, $801,000 and $872,000
during the years ended December 31, 2004, 2003 and 2002, respectively. During
2004, the reserve was reduced by $92,000 to reflect officer and employee
repayments of $290,000 in loans that were previously partially reserved for.
During 2003 the reserve was reduced by $150,000 due to the write-off of an
employee loan specifically reserved for with a further reduction of $10,000 due
to the repayment of certain amounts related to other loans previously reserved
for. Research and development expenses included net changes related to these
reserves of ($94,000), $5,000 and $272,000 in 2004, 2003 and 2002, respectively.
General and administrative expenses included net changes related to these
reserves of $2,000, ($15,000) and $650,000 in 2004, 2003 and 2002, respectively.
As of December 31, 2004 and 2003, the aggregate balance of these loans to
officers and employees, net of reserves, is $524,000 and $662,000, respectively,
of which $59,000 is included in other assets at December 31, 2003, with the
remaining balances of $524,000 and $603,000 included in notes receivable from
officers at December 31, 2004 and 2003, respectively.





83








Stock
Option Plans





The
Company has six stock-based compensation plans which are described below: the
1989 Plan, the 1992 Plan, the 1994 Plan, the 1996 Plan or, as a group, the Prior
Plans, the Miravant Medical Technologies 2000 Stock Compensation Plan or the
2000 Plan and the Non-Employee Directors Stock Option Plan or the Directors’
Plan. As disclosed in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans.





The Prior
Plans provided for the grant of both incentive stock options and non-statutory
stock options. Stock options were granted under these plans to certain
employees, corporate officers, non-employee directors and consultants. Effective
June 14, 2000, the Prior Plans were superseded with the adoption of the 2000
Plan except to the extent of options outstanding under the Prior Plans. No
further grants will be issued from the Prior Plans.





The 2000
Plan provides for awards which include incentive stock options, non-qualified
stock options, restricted shares, stock appreciation rights, performance shares,
stock payments and dividend equivalent rights. Included in the 2000 Plan is an
employee stock purchase program which has not yet been implemented. Officers,
key employees, directors and independent contractors or agents of the Company
may be eligible to participate in the 2000 Plan, except that incentive stock
options may only be granted to employees of the Company. The 2000 Plan
supersedes and replaces the Prior Plans and the Directors’ Plan, except to the
extent of options outstanding under those plans. The purchase price for awards
granted from the 2000 Plan may not be less than the fair market value at the
date of grant. The maximum amount of shares that could be awarded under the 2000
Plan over its term is 10,000,000 shares, of which approximately 8,306,086 shares
have been granted or issued and 1,383,535 shares have been cancelled netting
6,922,551 shares, which were outstanding under the 2000 Plan as of December 31,
2004. Awards granted under the 2000 Plan expire on the date determined by the
Plan Administrators as evidenced by the award agreement, but shall not expire
later than ten years from the date the award is granted except for grants of
restricted shares which expire at the end of a specified period if the specified
service or performance conditions have not been met.








84








Stock
Option Summary:





In
connection with certain employment agreements and/or related to service
performance, the Company has granted its executives, directors and eligible
employees and consultants, non-qualified and incentive stock options to purchase
shares of Common Stock. The options generally become exercisable in equal
installments over four years beginning one year from the grant date and expire
ten years from the original grant date. The following table summarizes all stock
option activity:





**Exercise
      Price**
      **per
      Share**
    
    **Weighted
      Average Exercise Price**
    
    **Stock**
      **Options**Outstanding
      at January 1, 2002
    
    $
    1.00
      - 55.50
    
    $
    14.60
    
    
    4,559,112Granted
    
    
    0.51
      -   1.35
    
    
    0.83
    
    
    3,272,710Cancelled
    
    
    0.91
      - 40.75
    
    
    15.73
    
    
    (3,358,489
    )Outstanding
      at December 31, 2002
    
    
    0.50
      - 55.50
    
    
    3.69
    
    
    4,473,333Granted
    
    
    1.08
      -   1.35
    
    
    0.83
    
    
    195,803Exercised
    
    
    0.51
      -   0.91
    
    
    0.84
    
    
    (9,063
    )Cancelled
    
    
    0.51
      - 30.75
    
    
    11.31
    
    
    (443,226
    )Outstanding
      at December 31, 2003
    
    
    0.44
      - 55.50
    
    
    3.06
    
    
    4,216,847Granted
    
    
    1.08
      -   1.35
    
    
    0.83
    
    
    1,201,500Exercised
    
    
    0.51
      -   0.91
    
    
    0.84
    
    
    (162,065
    )Cancelled
    
    
    0.51
      - 30.75
    
    
    11.31
    
    
    (228,028
    )Outstanding
      at December 31, 2004
    
    $
    0.44
      - 55.50
    
    $
    2.58
    
    
    5,028,254Options
      outstanding by price range at December 31, 2004
    
    $
    0.44
      -   0.51
    
    $
    0.51
    
    
    639,085$
    0.91
      -  0.91
    
    $
    0.91
    
    
    1,647,765$
    1.00
      -  1.24
    
    $
    1.15
    
    
    1,213,250$
    1.28
      -  9.28
    
    $
    3.51
    
    
    1,125,000$
    9.31
      - 55.50
    
    $
    14.39
    
    
    403,154Exercisable
      at:December
      31, 2002
    
    $
    0.51
      - 55.50
    
    $
    6.24
    
    
    2,117,521December
      31, 2003
    
    $
    0.44
      - 55.50
    
    $
    3.47
    
    
    3,351,150December
      31, 2004
    
    $
    0.44
      - 55.50
    
    $
    2.58
    
    
    3,859,004


In
January 1998, the Company issued loans to the Chief Executive Officer, President
and Chief Financial Officer for the purpose of exercising stock options. In
accordance with the accounting guidance for these types of loans, the Company
recorded deferred compensation of $2.7 million related to these loans. The
Company recorded the final compensation expense of $538,000 related to these
loans for the year ended December 31, 2002 and as such, no further future
amortization expense has been incurred.





In
November 2002, the Board of Directors approved a stock option exchange program
for certain key employees. The program allowed these employees to exchange each
fully vested stock option with an exercise price of greater than $5.00 for
one-half share of restricted Common Stock. The restricted Common Stock has been
fully vested as of December 31, 2003. The total number of stock options
exchanged and canceled under this program was 2,253,750 shares and the total
number of restricted Common Stock issued was 1,126,875 shares. In accordance
with the accounting guidance for this type of transaction, the Company recorded
deferred compensation of $507,000, which was amortized over the vesting period.
For the years ended December 31, 2003 and 2002, the Company recorded
amortization expense related to the restricted stock of $253,000 and $254,000
respectively. As of December 31, 2003, the $507,000 of deferred compensation
related to these restricted shares was fully amortized, as such no amortization
expense was recorded for the year ended December 31, 2004.











85








SFAS
No. 123 Pro Forma Disclosure





If the
Company had elected to recognize stock compensation expense based on the fair
value of the options granted at grant date for its stock-based compensation
plans consistent with the method of SFAS No. 123, the Company’s net loss and
loss per share would have been increased to the pro forma amounts indicated
below:





**2004**
    
    **2003**
    
    **2002**Net
      lossAs
      reported
    
    $
    (15,896,000
    )
    $
    (7,465,000
    )
    $
    (15,960,000
    )Stock-based
      employee cost included in reported net loss
    
    
    —
    
    
    —
    
    
    538,000Pro
      forma stock-based employee compensation cost under SFAS No.
      123
    
    
    (713,000
    )
    
    (814,000
    )
    
    (2,701,000
    )Pro
      forma
    
    $
    (16,609,000
    )
    $
    (8,279,000
    )
    $
    (18,123,000
    )Loss
      per share - basic and diluted:As
      reported
    
    $
    (0.48
    )
    $
    (0.30
    )
    $
    (0.78
    )Pro
      forma
    
    $
    (0.50
    )
    $
    (0.34
    )
    $
    (0.88
    )





The fair
value of each option grant was estimated using the Black-Scholes option pricing
model using the Multiple Option approach whereby a separate fair value is
computed for each vesting increment of an option. The following assumptions were
used:





**2004**
    
    **2003**
    
    **2002**Expected
      dividend yield
    
    0%
    
    0%
    
    0%Expected
      stock price volatility
    
    75%
    
    75%
    
    75%Risk-free
      interest rate
    
    1.57%
      - 4.56%
    
    2.95%
      - 4.10%
    
    3.10%
      - 5.00%Expected
      life of options
    
    2 -
      4 years
    
    2 -
      4 years
    
    2 -
      4 years





Under
these assumptions, the weighted average fair value of the stock option grants
during the years ended December 31, 2004, 2003 and 2002 were $1.65, $2.69 and
$0.48, respectively. These assumptions are highly subjective, in particular the
expected stock price volatility of the underlying stock. Because changes in
these subjective input assumptions can materially affect the fair value
estimate, in management’s opinion, the existing models do not provide a reliable
single measure of the fair value of its stock options.





The
weighted average remaining contractual life of options outstanding at December
31, 2004, 2003 and 2002 was 6.6 years, 6.7 years and 7.3 years, respectively.





Warrants





From time
to time warrants are issued to consultants of the Company or will be issued in
connection with an equity investment in the Company or in connection with other
private placements. The following is a description of the significant warrants
that have been issued over time:





Consultant
Warrants





The
Company has issued warrants to various consultants in connection with consulting
agreements and a co-development agreement over the years. As of December 31,
2004, warrants granted from 1998 through 2003 to purchase a total of 360,750
shares of Common Stock remained outstanding. These warrants were priced at the
fair market value on the date of grant and the exercise prices ranging from
$0.75 to $1.00 per share with expiration dates ranging from January 2006 through
February 2012. During 2004, the Company issued warrants to purchase 10,000
shares of Common Stock to a consultant with an exercise price of $1.24 and
expiration date of January 2008.





86








The
consulting agreements can be terminated by the Company at any time and only
those warrants vested as of the date of termination are exercisable. During
2004, warrants to purchase 68,000 shares of Common Stock were exercised with
proceeds to the Company of $66,000. None of the above warrants were exercised in
2003 and 2002. As of December 31, 2004, total warrants to purchase 370,750
shares of Common Stock related to consulting agreements were outstanding with an
average exercise price of $0.95 and expiration dates ranging from January 2006
to February 2012.





In
connection with the consulting warrants, the Company is required to record
deferred compensation expense based on a Black-Scholes valuation model and
amortized over the vesting period of the warrant. As of December 31, 2004 and
2003, the Company had deferred compensation balances of zero and $16,000,
respectively. The Company recorded an increase to deferred compensation
associated with the change in the value of these warrants of $73,000 and $53,000
for the years ended December 31, 2004 and 2003, respectively. The fluctuations
in deferred compensation are a result of variable accounting combined with a
fluctuating stock price from period to period. The Company recorded compensation
expense of $89,000, $49,000 and $24,000 for the years ended December 31, 2004,
2003 and 2002, respectively.





Pharmacia
Warrants





In connection
with the August 2003 Debt Agreement, the Company entered into a Termination and
Release Agreement with Pharmacia. Under this agreement, the 360,000 warrants to
purchase Common Stock previously issued in 1999 and 2000 to Pharmacia, were
amended. The exercise price of Pharmacia’s outstanding warrants to purchase
360,000 shares of the Company’s Common Stock was reduced to $1.00 from an
average exercise price of $15.77, and the expiration date of those warrants was
extended to December 31, 2005 from expiration dates ranging from May 2004 to May
2005.





2002
Private Placement





In August
2002, in connection with a private equity placement as previously discussed, the
Company issued warrants to purchase 2,800,000 shares of Common Stock with an
exercise price of $0.50 per share expiring on December 31, 2013, as amended (see
Note 12 for further details).





2002
Convertible Debt Warrants





In connection
with each borrowing under the December 2002 Debt Agreement, the Company issued
to the Lenders a warrant to purchase one-quarter (1/4) of a share of Miravant
Common Stock for every $1.00 borrowed. In addition, upon execution of the
December 2002 Debt Agreement the Company issued the Lenders a warrant to
purchase 250,000 shares of the Company’s Common Stock, with an exercise price of
$0.50 per share. Each warrant will terminate, as amended, on December 31, 2013,
unless previously exercised. As of December 31, 2004, the Company has borrowed
$6.3 million pursuant to the December 2002 Debt Agreement, and issued the
Lenders warrants exercisable for 1,575,000 shares of its Common Stock at $1.00
per share. The Company determined the value of the warrants to be $1.2 million,
using the Black-Scholes valuation model, and is amortizing these deferred
financing costs over the term of the underlying promissory notes, or December
31, 2008.





87
 
 
 In connection
with the execution of the August 2003 Debt Agreement, certain of the 2002
Lenders, to whom the Company issued notes under the December 2002 Debt
Agreement, agreed to subordinate their debt security position to that of the
2003 Lenders. In exchange for the subordinated security position, the 2002
Lenders received additional warrants to purchase an aggregate of 1,575,000
shares of the Company’s Common Stock at an exercise price of $1.00 per share,
and these additional warrants will terminate, as amended, on December 31, 2013,
unless previously exercised. The Company determined the value of these
additional warrants to be $970,000, using the Black-Scholes valuation model, and
is amortizing these deferred financing costs over the term of the underlying
promissory notes, or December 31, 2008.





2003
Convertible Debt Warrants





In connection
with the August 2003 Debt Agreement, the Company issued to the 2003 Lenders
warrants to purchase an aggregate of 4,500,000 shares of the Company’s Common
Stock. Each holder received two warrants. The first warrant is for the purchase
of one-half (1/2) of a share of the Company’s Common Stock for every $1.00 of
principal under the August 2003 Debt Agreement. The second warrant is for the
purchase of one-quarter (1/4) of a share of the Company’s Common Stock for every
$1.00 of principal under the August 2003 Debt Agreement. The exercise price of
each warrant is $1.00 per share and the warrants will terminate on August 28,
2008, unless amended see below or unless previously exercised. The Company can
force the exercise of the one-quarter (1/4) share warrant under certain
circumstances. The Company determined the value of the warrants to be $2.8
million, using the Black-Scholes valuation model, and is amortizing these
deferred financing costs over the term of the underlying promissory notes, or
August 28, 2006. In addition, during the first quarter of 2004, certain of the
2003 Lenders converted their Notes into shares of the Company’s Common Stock, as
such deferred financing costs related to the warrants was adjusted accordingly
from $2.8 million to $1.6 million and the Company is amortizing the adjusted
deferred financing costs over the term of the underlying promissory notes, or
August 28, 2006. As of March 14, 2005, of the 4.5 million warrants issued,
1,425,000 warrants have been exercised, resulting in proceeds to the Company of
$1.4 million.








In connection
with the closing of the March 2005 Debt Agreement (see Note 12 for further
details), the 1,875,000
warrants issued to a certain 2003 Lender under the August 2003 Debt Agreement,
were extended to December 31, 2013 from the original expiration date of August
28, 2008.





Summary
of Warrants:





As of
December 31, 2004, the Company has warrants outstanding to purchase a total of
10,005,750 shares of its Common Stock at an average exercise price of $0.85,
with expiration dates ranging from December 2005 through December
2013. The
following table provides further detail on the warrants outstanding by price
range:





**Exercise
      Price**
      **per
      Share**
    
    **Weighted
      Average Exercise Price**
    
    **Warrant**
      **Shares**Warrants
      outstanding by price range at December 31, 2004
    
    $
    0.01
      - 0.50
    
    $
    0.50
    
    
    3,050,000$
    0.51
      - 0.91
    
    $
    0.83
    
    
    120,750$
    0.92
      - 1.00
    
    $
    1.00
    
    
    6,825,000$
    1.01
      - 1.24
    
    $
    1.24
    
    
    10,000Total
      warrants outstanding at December 31, 2004
    
    $
    0.01
      - 1.24
    
    $
    0.85
    
    
    10,005,750








88








**4.** **Employee
Benefit Plans**





The
Company has available a retirement savings plan for all eligible employees who
have completed three months and 500 hours of service and who are at least 21
years of age. The plan has received Internal Revenue Service approval under
Section 401(a) of the Internal Revenue Code. Participating employees are
100% vested upon entering the plan and no matching contribution is made by the
Company.





In
December 1996, the Board of Directors approved the Miravant Medical Technologies
401(k) - Employee Stock Ownership Plan, or the ESOP, which provides
substantially all employees with the opportunity for long-term benefits. The
ESOP was implemented by management on July 1, 1998 and operates on a calendar
year basis. In conjunction with the ESOP, the Company registered with the
Securities and Exchange Commission 300,000 shares of the Company’s Common Stock
for purchase by the ESOP. The ESOP provides for eligible employees to allocate
pre-tax deductions from payroll which are used to purchase the Company’s Common
Stock at fair market value on a bi-weekly basis. The ESOP also provides for a
discretionary contribution made by the Company based on the amounts contributed
by the participants. The amount to be contributed by the Company is determined
by the Board of Directors prior to the start of each plan year. Company
contributions, which the Board of Directors determined to be 100% for the 2004,
2003 and 2002 plan years, are made on a quarterly basis and vest over a five
year period. Total Company matching contributions for 2004, 2003 and 2002 were
not significant.





**5.** **Income
Taxes**





Deferred
income taxes reflect the net tax effects of net operating loss carryforwards,
credits and temporary differences between the financial statements and tax basis
of assets and liabilities. Significant components of the Company’s deferred tax
assets and liabilities as of December 31 are as follows:





**2004**
    
    **2003****Current**
    
    **Non-current**
    
    **Current**
    
    **Non-current**Deferred
      tax assets:Other
      accruals and reserves
    
    $
    140,000
    
    $
    —
    
    $
    91,000
    
    $
    —Capitalized
      research and development
    
    
    —
    
    
    —
    
    
    —
    
    
    73,000Xillix
      capital loss
    
    
    —
    
    
    1,237,000
    
    
    —
    
    
    —Net
      operating losses and tax credits
    
    
    —
    
    
    83,237,000
    
    
    —
    
    
    77,036,000Total
      deferred tax assets
    
    
    140,000
    
    
    84,474,000
    
    
    91,000
    
    
    77,109,000Deferred
      tax liabilities:Amortization
      and depreciation expense
    
    
    —
    
    
    364,000
    
    
    —
    
    
    104,000Federal
      benefit for state income taxes
    
    
    10,000
    
    
    4,343,000
    
    
    6,000
    
    
    3,863,000Total
      deferred tax liabilities
    
    
    10,000
    
    
    4,706,000
    
    
    6,000
    
    
    3,967,000Net
      deferred tax assets
    
    
    130,000
    
    
    79,768,000
    
    
    85,000
    
    
    73,142,000Less
      valuation reserve
    
    
    (130,000
    )
    
    (79,768,000
    )
    
    (85,000
    )
    
    (73,142,000
    )$
    —
    
    $
    —
    
    $
    —
    
    $
    —
 The Company
has net operating loss carryforwards for federal tax purposes of $192.0 million,
which expire in the years 2006 to 2024. Research credit carryforwards
aggregating $9.6 million are available for federal and state tax purposes and
expire in the years 2004 to 2024. The Company also has a state net operating
loss carryforward of $93.0 million which expires in the years 2005 to 2014. Of
the $93.0 million in state net operating loss carryforwards, $33.0 million will
expire during 2005 and $19.0 million of the state net operating losses expired
during 2006 tax year. Under Section 382 of the Internal Revenue Code, the
utilization of the Company’s tax net operating losses may be limited based on
changes in the percentage of ownership in the Company.





89








**6.** **Commitments
and Contingencies**





The
Company has entered into agreements with various parties to perform research and
development and conduct clinical trials on behalf of the Company. For the
research and development agreements, the Company has the right to use and
license, patent and commercialize any products resulting from these agreements.
The Company does not have any financial commitments with respect to these
agreements and records these expenses as the services and costs are incurred.
The Company has also entered into licensing and OEM agreements to develop,
manufacture and market drugs and devices for photodynamic therapy and other
related uses. The agreements provide for the Company to receive or pay license
fees and/or royalties at various rates. The Company had no royalty income for
the years ended December 31, 2004, 2003 and 2002. Additionally, for the year
ended December 31, 2004, the Company incurred a license fee of $200,000 (see
below) under these agreements. For the years ended December 31, 2003 and 2002,
no license fees or royalties were incurred.





In 2004,
the Company entered into a development and license agreement with Gilead
Sciences Inc., or Gilead, to develop the formulation of one of the Company’s
drugs. In connection with this development agreement, as of December 31, 2004,
the Company incurred $200,000 in license fees and recorded development costs of
$106,000. All costs were recorded as research and development expenses for the
year ended December 31, 2004.





In 1994,
the Company entered into a development and commercial supply agreement with
Pharmacia to receive formulation and packaging services for one of the Company’s
drugs at specified prices. In 1998, the rights and obligations under this
agreement were transferred to Hospira, Inc. (formerly Fresenius AG) ** with
operating terms remaining the same. For the years ended December 31, 2004, 2003
and 2002 the Company paid $97,000, $74,000 and $5,000, respectively, and
recorded as expense of $86,000, $129,000 and $5,000, respectively, primarily for
the cost of drug formulation and development.





Under the
prior License Agreements, Pharmacia has provided the Company with funding and
development for the right to sell and market the funded products once approved.
For the year ended December 31, 2004 and 2003, the Company recorded no license
revenues, and recorded the final license revenues from Pharmacia of $20,000 for
the year ended December 31, 2002 related to the reimbursement of certain
preclinical studies and clinical trial costs. In March 2002, all License
Agreements with Pharmacia were terminated.





The
Company is involved in certain claims and inquiries that are routine to its
business. Legal proceedings tend to be unpredictable and costly. Based on
currently available information, management believes that the resolution of
pending claims, regulatory inquiries, and legal proceedings will not have a
material adverse effect on the Company’s operating results, financial position
or liquidity position.





**7.** **Leases**





The Company’s
main facility lease terminated in August 2003 and the Company is currently on a
month-to-month lease for this main facility of approximately 27,000 square feet
of office, laboratory and manufacturing space in Santa Barbara, California. This
facility currently houses the majority of the Company’s operations and
employees. The Company entered into this lease in August 1996. During the third
quarter of 2003, the Company reduced its occupancy in this building from
approximately 40,000 square feet to 27,000 square feet. This lease provides for
rent to be adjusted annually based on increases in the consumer price index and
the base rent is currently approximately $33,000 per month. The leased property
is located in a business park. The Company has the ability to manufacture its
active drug ingredient, its light producing and light delivery devices for
research and perform research and development of drugs, light delivery and light
producing devices from this facility. At this time the Company will continue to
lease month-to-month until the Company’s financial position supports a
longer-term commitment. In addition, the Company is aware that the lessors can
give the Company a 30-day notice at any time requiring the Company to vacate.





90




In February
2005, the Company entered into a one-year lease agreement for 650 square feet of
office space in Indianapolis, Indiana. The monthly rent is approximately $900
and has a renewal option.





During 2002,
the Company had leases for four buildings for a total average monthly rental
expense of approximately $124,000. One of the leases was assumed by an unrelated
party in its entirety in March 2002. Another lease was sublet in December 1999
to two separate parties and expired in August 2003. Sublease rental income from
these parties was $37,000 per month, which represented most of the Company’s
rental cost. A third lease, which formerly contained the Company’s bulk API
manufacturing operations, has been assumed by an unrelated party from January 1,
2003 through December 31, 2005 and they pay the full cost of the building, of
approximately $26,000, directly to the landlord. The Company will be
responsible for the remainder of the term of the lease from January 1, 2006
through March 2006. The final lease, which currently contains the entire
operations of the Company, expired in August 2003 and continues on a
month-to-month basis as described above. All sublease rental income is netted
against the Company’s rent expense.





In May 2001,
in connection with the Asset Purchase Agreement, Pharmacia agreed to assume
the lease obligations and related building property taxes through December 31,
2003 for the Company’s bulk API manufacturing facility. The total amount of the
rental and property tax payments made by Pharmacia were accounted for as a
capital contribution and rent expense, or as a component of cost of goods sold,
over the lease obligation term. In 2002, Pharmacia paid $40,000 related to the
rent for the bulk API manufacturing facility, of which the Company recorded
$10,000 as rent expense and $30,000 as cost of good sold. In March 2002, the
2001 Credit Agreement was amended and the Company had agreed to reassume the
lease obligations and related property taxes through the remainder of the lease
term, or March 2006. As of January 2003, this facility was subleased through
December 2005 as discussed further above.





Future
minimum operating lease payments, net of sublease rental income, and equipment
lease payments are as follows:





**Minimum****Lease
      Amounts**
    
    **Sublease
      Amounts**
    
    **Net**2005
    
    $
    391,000
    
    $
    333,000
    
    $
    58,0002006
    
    
    126,000
    
    
    —
    
    
    126,0002007
    
    
    3,000
    
    
    —
    
    
    3,0002008
    
    
    3,000
    
    
    —
    
    
    3,0002009
      and thereafter
    
    
    —
    
    
    —
    
    
    —Total
      minimum lease payments
    
    $
    523,000
    
    $
    333,000
    
    $
    190,000





Rent
expense was $587,000, $613,000 and $1.1 million for the years ended December 31,
2004, 2003 and 2002, respectively, net of sublease income of $333,000, $322,000
and $408,000, respectively.





**8.** **Related
Party Transactions**





In April
1998, the Company entered into a $2.0 million revolving credit agreement with
its affiliate, Ramus. Between 1998 and 1999, Ramus borrowed the entire $2.0
million available under the credit agreement. As of December 31, 2004, the
balance of the loan, including principal and accrued interest, was $2.7 million.
The loan was used to fund Ramus’ clinical trials and operating costs. Beginning
in 2002, it was determined that it was probable that the Company would be unable
to collect the amounts due from Ramus under the contractual terms of the loan
agreement. Therefore, the Company has established a reserve for the entire
outstanding balance of the loan receivable and no interest income is being
accrued under the loan. The Company has held discussions with Ramus to
reorganize their outstanding debt and equity.





91








In July
1996, a partner in a law firm used by the Company for outside legal counsel was
elected by the Board of Directors to serve as Secretary of the Company. In
connection with general legal services provided by the law firm, the Company was
billed $96,000, $150,000 and $47,000 for the years ended December 31, 2004, 2003
and 2002, respectively. From 1996 through December 31, 2004, this individual’s
law firm has received stock options to purchase a total of 176,250 shares of
Common Stock with an average exercise price of $11.65 for his services as acting
in-house legal counsel and Secretary of Miravant. In January 2004, of 176,250
stock options issued, 107,500 were cancelled and exchanged for 53,750 shares of
restricted Miravant Common Stock as noted below.





In August
2003, we received a short-term bridge loan of $250,000 from one of our
non-employee board members, who is currently no longer a board member. In
connection with the loan, we issued warrants to purchase 25,000 shares of our
Common Stock. This loan was immediately paid off in September 2003 with the
proceeds from the August 2003 Debt Agreement.





In
January 2004, the Compensation Committee of the Board of Directors approved a
Stock Option Exchange Program for the non-employee directors and the secretary
for Miravant. This program allowed these individuals to exchange stock options
that had an exercise price of greater than $5.00 for restricted Common Stock at
a two for one ratio. The restricted Common Stock was fully vested on the date of
exchange. One
non-employee board member exchanged 70,000 stock options for 35,000 shares of
restricted Common Stock, and the Company’s secretary, and his law firm,
exchanged 107,500 stock options for 53,750 shares of restricted Common Stock.
Due to the exchange the Company recorded $217,000 as general and administrative
expense in its 2004 statement of operations, which represented the fair value of
the restricted stock on the date of grant.


****


**9. Fair Value of
Financial Instruments**





The
following is information concerning the fair value of each class of financial
instrument as of December 31, 2004 and 2003:





Cash
and cash equivalents and marketable securities:





The
carrying amounts of cash and cash equivalents and marketable securities
approximate their fair values. Fair values of cash equivalents and marketable
securities are based on quoted market prices.





Debt:





At
December 31, 2004, the fair value of the Company’s obligations are approximately
$10.3 million estimated based on the Company’s current incremental borrowing
rate for similar types of financing arrangements. At December 31, 2003, the fair
value of the Company’s obligations were approximately $12.9 million estimated
based on the Company’s then current incremental borrowing rate or similar types
of financing arrangements.





**10. Investment in
Affiliate**





In December
2003, the Company sold its investment in Xillix. The Company owned approximately
2.7 million shares of Xillix at an adjusted basis of $393,000 and received net
proceeds of approximately $1.6 million. The Company recorded a gain of $1.2
million in the consolidated statement of operations.





92








Previously
in 2000 and again in 2002, the Company determined that the decline in the value
of its investment in Xillix was other-than-temporary. Since the Company made the
investment in June 1998, the value of the Xillix common stock had decreased by
approximately 70% through 2000 and approximately an additional 20% through 2002
and had been at similar levels for at least nine months prior to the write-down.
In December 2000, the Company recognized a loss write-down totaling $3.5 million
and in December 2002 another $598,000 loss write-down was recorded, to reduce
its investment in Xillix to its estimated current fair value based on quoted
market prices as of December 31, 2002.





**11.**
    **Quarterly Results
      of Operations (Unaudited)**


**Three
      Months Ended****2003:**
    
    March
      31,
    
    June
      30,
    
    
    
    September
      30,
    
    
    
    December
      31,Costs
      and expenses
    
    $
    (3,248,000
    )
    $
    (3,437,000
    )
    
    
    
    $
    (3,623,000
    )
    
    
    
    $
    (1,928,000
    )Net
      interest and other income (expense)
    
    
    (104,000
    )
    
    (286,000
    )
    
    **(1**
    **)**
    
    4,800,000
    
    
    **(2**
    **)**
    
    361,000Net
      income (loss)
    
    $
    (3,352,000
    )
    $
    (3,723,000
    )
    
    
    
    $
    1,177,000
    
    
    
    
    $
    (1,567,000
    )Net
      income (loss) per share - basic
    
    $
    (0.14
    )
    $
    (0.15
    )
    
    **(1**
    **)**
    $
    0.05
    
    
    **(2**
    **)**
    $
    (0.06
    )Net
      income (loss) per share - diluted
    
    $
    (0.14
    )
    $
    (0.15
    )
    
    **(1**
    **)**
    $
    0.01
    
    
    **(2**
    **)**
    $
    (0.06
    )**2004:**Costs
      and expenses
    
    $
    (3,985,000
    )
    $
    (3,234,000
    )
    
    
    
    $
    (3,006,000
    )
    
    
    
    $
    (2,829,000
    )Net
      interest and other income (expense)
    
    
    (1,509,000
    )
    
    (467,000
    )
    
    
    
    
    (438,000
    )
    
    
    
    
    (428,000
    )Net
      income (loss)
    
    $
    (5,494,000
    )
    $
    (3,701,000
    )
    
    
    
    $
    (3,444,000
    )
    
    
    
    $
    (3,257,000
    )Net
      income (loss) per share - basic
    
    $
    (0.20
    )
    $
    (0.11
    )
    
    
    
    $
    (0.10
    )
    
    
    
    $
    (0.09
    )





**(1)**
    During
      the three months period ended September 30, 2003, the Company recognized a
      net gain on the retirement of debt of $9.1 million with Pharmacia and
      non-cash interest charges of $4.0 million related to the beneficial
      conversion valuation as discussed further in Note 3 which is included in
      net interest and other income (expense) in the accompanying table.


**(2)**
    During
      the three months period ended December 31, 2003, the Company recognized a
      net gain on the sale of its investment in Xillix of $1.2 million as
      discussed further in Note 10 which is included in net interest and other
      income (expense) in the accompanying table.







**12. Subsequent
Events**





In March
2005, the Company entered into a Note and Warrant Purchase Agreement, or the
March 2005 Debt Agreement, with the March 2005 Lender. The March 2005 Debt
Agreement allows the Company to borrow up to $1.0 million per month, with any
unused monthly borrowings to be carried forward. The maximum aggregate loan
amount under the March 2005 Debt Agreement is $15.0 million with the last
available borrowing in June 2006. The March 2005 Lender obligation to fund each
borrowing request is subject to material conditions described in the March 2005
Debt Agreement. In addition, the March 2005 Lender may terminate its obligations
under the March 2005 Debt Agreement at any time if Miravant, in the reasonable
judgment of the March 2005 Lender, is not meeting its business objectives and is
subject to negative covenants and other restrictions. Each Note and accrued
interest, if any, will be convertible into shares of the Company’s Common Stock
at a conversion price of one hundred ten percent (110%) of the average monthly
closing price of the month preceding the issuance of each Note. The notes earn
interest quarterly at the prime rate plus three percent (3%) and at the
Company’s option and subject to certain restrictions, the Company may make
interest payments in cash or in shares of Common Stock at its option. The
borrowings are secured by the Company’s assets to the extent of the amount
borrowed. In connection with each borrowing under the March 2005 Debt Agreement,
the Company will issue a warrant to purchase one-quarter (1/4) of a share of
Miravant Common Stock for each convertible share of Common Stock issued. The
exercise price of each warrant will be equal to one hundred ten percent (110%)
of the average monthly closing price of the month preceding the issuance of each
Note. Each warrant will terminate on December 31, 2013, unless previously
exercised. The Company has also agreed to provide the March 2005 Lender certain
registration rights in connection with this transaction. Additionally, the
Company agreed to extend all prior warrants issued to the March 2005 Lender to
December 31, 2013. A total of 8,075,000 warrants were extended, with original
expiration dates ranging from August 2007 through December 2008.








93


**ITEM
9.****CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON****ACCOUNTING
AND FINANCIAL DISCLOSURE**
 
 None.
 
 **ITEM
9A.** **CONTROLS
AND PROCEDURES**
 
 *Evaluation of
disclosure controls and procedures* . Our
management evaluated, with the participation of our Chief Executive Officer and
our Chief Financial Officer, the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Annual Report on Form
10-K. Based on this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information we are required to disclose in reports that
we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
 
 *Changes in
internal control over financial reporting.* There was
no change in our internal control over financial reporting that occurred during
the period covered by this Annual Report on Form 10-K that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
 
 **ITEM
9B.** **OTHER
INFORMATION**
 
 None.
  
 94








**PART
III**




**ITEM
10.****DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT**
 
 This
information is incorporated by reference to the Company’s definitive proxy
statement to be filed pursuant to Regulation 14A not later than 120 days after
the end of the Company’s fiscal year.
 
 
 **ITEM
11.** **EXECUTIVE
COMPENSATION**
 
 This
information is incorporated by reference to the Company’s definitive proxy
statement to be filed pursuant to Regulation 14A not later than 120 days after
the end of the Company’s fiscal year.
 
 
 **ITEM
12.** **SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
 
 This
information is incorporated by reference to the Company’s definitive proxy
statement to be filed pursuant to Regulation 14A not later than 120 days after
the end of the Company’s fiscal year.
 
 
 **ITEM
13.** **CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 This
information is incorporated by reference to the Company’s definitive proxy
statement to be filed pursuant to Regulation 14A not later than 120 days after
the end of the Company’s fiscal year.
 
 
 **ITEM
14.** **PRINCIPAL
ACCOUNTING FEES AND SERVICES**
 
 This information is incorporated
by reference to the Company’s definitive proxy statement to be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company’s fiscal
year.

















95








**PART
IV**


****


**ITEM
15.****EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K**


(a)Financial
      Statements(i)
      The following financial statement documents are included as part of Item 8
      to this Form 10-K:**Index
      to Consolidated Financial Statements:**
    **Page**Report
      of Independent Registered Public Accounting Firm
    66Consolidated
      Balance Sheets as of December 31, 2004 and 2003
    67Consolidated
      Statements of Operations for the years ended December 31, 2004, 2003 and
      2002
    68Consolidated
      Statements of Stockholders’ Equity (Deficit) for the years ended December
      31, 2004, 2003 and 2002
    69Consolidated
      Statements of Cash Flows for the years ended December 31, 2004, 2003 and
      2002
    70Notes
      to Consolidated Financial Statements
    71(ii)
      Schedules required by Article 12 of Regulation S-X:All
      schedules are omitted because the required information is not present or
      is not present in amounts sufficient to require submission of the schedule
      or because the information required is given in the consolidated financial
      statements or notes thereto.(b)Index
      to Exhibits:See
      Index to Exhibits on pages 97 to 100.
   
 
 
  96
  
 IncorporatingExhibit
      Number
    Description
    Reference
      (if
      applicable)3.1
    Amended
      and Restated Articles of Incorporation Dated April 21,
    2004.
    [Y][3.1]3.2
    Certificate
      of Designation relating to Series A Preferred Stock dated July 1,
      2004.
    [Z][3.2]4.1
    Specimen
      Certificate of Common Stock.
    [B][4.1]4.2
    Form
      of Convertible Promissory Note.
    [A][4.3]4.3
    Form
      of Indenture.
    [A][4.4]4.4
    Special
      Registration Rights Undertaking.
    [A][4.5]4.5
    Undertaking
      Agreement dated August 31, 1994.
    [A][4.6]4.6
    Letter
      Agreement dated March 10, 1994.
    [A][4.7]4.7
    Form
      of $10,000,000 Common Stock and Warrants Offering Investment
      Agreement.
    [A][4.8]4.8
    Form
      of $35 Amended and Restated Common Stock Purchase Warrant.
    [C][4.1]4.9
    Form
      of Additional $35 Common Stock Purchase Warrant.
    [C][4.2]4.10
    Warrant
      to Purchase 10,000 Shares of Common Stock between the Registrant and
      Charles S. Love.*
    [D][4.12]4.11
    Form
      of $20 Private Placement Warrant Agreement Amendment No.
1.
    [F][4.13]4.12
    Preferred
      Stock Rights Agreement dated July 13, 2000.
    [E][4.1]4.13
    Form
      of Common Stock Purchase Warrant between the Registrant and Purchasers
      dated August 28, 2002.
    [S][10.3]4.14
    Form
      of Note Warrant between the Registrant and the Purchaser dated December
      19, 2002.
    [T][10.4]4.15
    Form
      of Convertible Promissory Note between the Registrant and the Purchaser
      dated August 28, 2003.
    [U][4.1]4.16
    Form
      of 50% Warrant between the Registrant and the Purchaser dated August 28,
      2003.
    [U][4.2]4.17
    Form
      of 25% Warrant between the Registrant and the Purchaser dated August 28,
      2003.
    [U][4.3]4.18
    Registration
      Rights Agreement dated August 28, 2003 between the Registrant and the
      Purchaser.
    [U][4.4]4.19
    Amendment
      to Registration Rights Agreement dated February 18, 1999 between the
      Registrant and Pharmacia.
    [U][4.5]4.20
    Amendment
      to Warrant Agreements dated February 18, 1999 between the Registrant and
      Pharmacia.
    [U][4.6]4.21
    Securities
      Purchase Agreement dated August 28, 2002 between the Registrant and the
      Purchasers.
    [S][10.1]4.22
    Registration
      Rights Agreement dated August 28, 2002 between the Registrant and the
      Purchasers.
    [S][10.2]4.23
    Common
      Stock Warrant Purchase Certificate dated August 28, 2002 between the
      Registrant and the Purchasers.
    [S][10.3]4.24
    Registration
      Rights Agreement dated December 19, 2002 between the Registrant and the
      Purchasers.
    [T][10.2]4.25
    Form
      of Convertible Promissory Note between the Registrant and the
      Purchaser.
    [T][10.3]4.26
    Form
      of Note Warrant between the Registrant and the Purchaser.
    [T][10.4]4.27
    Loan
      Origination Warrant dated December 20, 2002 between the Registrant and the
      Purchaser.
    [T][10.5]4.28
    Registration
      Rights Agreement dated February 5, 2004 between the Registrant and the
      Purchasers.
    [V][4.1]4.29
    Form
      of Convertible Promissory Note between the Registrant and the Purchaser
      dated February 5, 2004.
    [V][4.2]4.30
    Registration
      Rights Agreement dated April 23, 2004 between the Registrant and the
      Purchasers.
    [W][4.1]4.31
    Securities
      Purchase Agreement dated July 1, 2004 between Advanced Cardiovascular
      Systems, Inc., a wholly owned subsidiary of Guidant Corporation, and the
      Registrant. *
    [AA][4.1]4.32
    Registration
      Rights Agreement dated July 1, 2004 between Advanced Cardiovascular
      Systems, Inc., a wholly owned subsidiary of Guidant Corporation, and the
      Registrant.
    [Y][4.2]4.33
    Registration
      Rights Agreement dated March 7, 2005 between the Registrant and the
      Purchaser.
    [BB]
      [4.1]4.34
    Security
      Agreement dated March 7, 2005 between the Registrant and the
      Purchaser.
    [BB]
      [4.2]4.35
    Form
      of Convertible Promissory Note between the Registrant and the
      Purchaser.
    [BB]
      [4.3]
  97
  
 4.36
    Form
      of Note Warrant between the Registrant and the Purchaser.
    [BB]
      [4.4]10.1
    PDT,
      Inc. Stock Option Plan dated September 19, 1989.**
    [A][10.9]10.2
    PDT,
      Inc. Stock Option Plan dated September 3, 1992.**
    [A][10.10]10.3
    PDT,
      Inc. 1994 Stock Option Plan dated December 2, 1994.**
    [A][10.11]10.4
    PDT,
      Inc. Non-Employee Directors’ Stock Option Plan.**
    [A][10.12]10.5
    License
      Agreement dated July 1, 1989 between the Registrant and The University of
      Toledo, The Medical College of Ohio and St. Vincent Medical Center as
      amended.*
    [G][10.17]10.6
    Form
      of Directors’ and Officers’ Indemnification Agreement.
    [A][10.22]10.7
    Amendment
      to PDT, Inc. Stock Option Plan dated September 19, 1989.**
    [H][10.1]10.8
    Amendment
      to PDT, Inc. 1994 Stock Option Plan dated December 2,
    1994.**
    [H][10.2]10.9
    Development
      and Distribution Agreement between Registrant and Iridex
      Corporation.*
    [I][10.1]10.10
    Commercial
      Lease Agreement between Registrant and Santa Barbara Business Park, a
      California Limited Partnership.(1)
    [I][10.2]10.11
    PDT,
      Inc. 1996 Stock Compensation Plan.**
    [J]10.12
    Form
      of Amendment No. 3 to 1989 Stock Option Agreement.**
    [K][10.4]10.13
    Investment
      Agreement dated December 27, 1996 between PDT Cardiovascular, Inc. and
      Ramus Medical Technologies.*
    [L][10.16]10.14
    Co-Development
      Agreement dated December 27, 1996 between PDT Cardiovascular, Inc. and
      Ramus Medical Technologies.
    [L][10.17]10.15
    Series
      A Preferred Stock Registration Rights Agreement dated December 27, 1996
      between PDT Cardiovascular, Inc. and Ramus Medical
      Technologies.*
    [L][10.18]10.16
    Amended
      and Restated 1996 Stock Compensation Plan.**
    [M]10.17
    PDT,
      Inc. 401(k)-Employee Stock Ownership Plan.**
    [N][10.2]10.18
    Credit
      Agreement dated April 1, 1998 between the Registrant and Ramus Medical
      Technologies.*
    [O][10.5]10.19
    Convertible
      Promissory Note dated April 1, 1998 between the Registrant and Ramus
      Medical Technologies.*
    [O][10.6]10.20
    Strategic
      Alliance Agreement dated June 2, 1998 between the Registrant and Xillix
      Technologies Corp.*
    [O][10.7]10.21
    Subscription
      Agreement relating to the Registrant’s Common Stock dated June 2, 1998
      between the Registrant and Xillix Technologies Corp.
    [O][10.8]10.22
    Subscription
      Agreement relating to Xillix’s Common Stock dated June 2, 1998 between the
      Registrant and Xillix Technologies Corp.
    [O][10.9]10.23
    Commercial
      Lease Agreement dated May 27, 1998 between the Registrant and Raytheon
      Company.
    [A][10.4]10.24
    Miravant
      Medical Technologies 2000 Stock Compensation Plan.**
    [P][4.1]10.25
    Amendment
      No. 9 dated as of January 1, 2001 to Employment Agreement between the
      Registrant and Gary S. Kledzik.**
    [Q][10.1]10.26
    Amendment
      No. 14 dated as of January 1, 2001 to Employment Agreement between the
      Registrant and David E. Mai.**
    [Q][10.2]10.27
    Amendment
      No. 6 dated as of January 1, 2001 to Employment Agreement between the
      Registrant and John M. Philpott.**
    [Q][10.3]10.28
    Contract
      Modification and Termination Agreement dated March 5, 2002 between the
      Registrant and Pharmacia Corporation.
    [R][10.1]10.29
    Convertible
      Debt and Warrant Purchase Agreement dated December 19, 2002 between the
      Registrant and the Purchasers.
    [T][10.1]10.30
    Convertible
      Debt and Warrant Purchase Agreement dated August 28, 2003 between the
      Registrant and the Purchaser
    [U][10.1]10.31
    Subordination
      Agreement dated August 28, 2003 between the Registrant and the Purchaser.
    [U][10.2]10.32
    Termination
      and Release Agreement dated August 13, 2003 between the Registrant and
      Pharmacia, AB
    [U[10.3]10.33
    Side
      Letter Agreement dated August 28, 2003 between the Registrant and the
      Purchaser.
    [U][10.4]10.34
    Unsecured
      Convertible Debt Purchase Agreement dated February 5, 2004 between the
      Registrant and the Purchaser.
    [V][10.1]
  98
 10.35
    Securities
      Purchase Agreement dated April 23, 2004 between the Registrant and the
      Purchasers.
    [W][10.1]10.36
    Collaboration
      Agreement dated July 1, 2004 between Advanced Cardiovascular Systems,
      Inc., a wholly owned subsidiary of Guidant Corporation, and the
      Registrant. *
    [AA][10.1]10.37
    Note
      and Warrant Purchase Agreement dated March 7, 2005 between the Registrant
      and the Purchaser.
    [BB]
      [10.1]23.1
    Consent
      of Independent Registered Public Accounting Firm.23.2
    Consent
      of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
      5.1)24.1
    Power
      of Attorney
 ___________________________________________
  [A]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Registration Statement on Form S-1 (File No.
      33-87138).[B]
    Incorporated
      by reference from the exhibit referred to in brackets contained in
      Amendment No. 2 to the Registrant’s Registration Statement on Form S-1
      (File No. 33-87138).[C]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-K dated June 30, 1998 (File No.
    0-25544).[D]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q for the quarter ended March 31, 1998 (File No.
      0-25544).[E]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-A dated July 18, 2000 (File No. 0-25544).[F]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-K for the year ended December 31, 1999 (File No.
      0-25544).[G]
    Incorporated
      by reference from the exhibit referred to in brackets contained in
      Amendment No. 1 to the Registrant’s Registration Statement on Form S-1
      (File No. 33-87138).[H]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q for the quarter ended September 30, 1995 (File No.
      0-25544).[I]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q for the quarter ended June 30, 1996 (File No.
      0-25544).[J]
    Incorporated
      by reference from the Registrant’s 1996 Definitive Proxy Statement filed
      June 18, 1996[K]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q for the quarter ended September 30, 1996 (File No.
      0-25544).[L]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-K for the year ended December 31, 1996 (File No.
      0-25544).[M]
    Incorporated
      by reference from the Registrant’s 1996 Definitive Proxy Statement filed
      April 24, 1997.[N]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q for the quarter ended June 30, 1997 (File No.
      0-25544).[O]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q for the quarter ended June 30, 1998 (File No.
      0-25544).[P]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form S-8 dated August 29, 2000 (File No. 0-25544).[Q]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q for the quarter ended March 31, 2001 (File No.
      0-25544).[R]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-K dated March 11, 2002 (File No.
    0-25544).[S]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-K dated September 3, 2002 (File No.
      0-25544).[T]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-K dated December 19, 2002 (File No.
      0-25544).[U]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-K dated August 28, 2003 (File No.
      0-25544).[V]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-K dated February 12, 2004 (File No.
      0-25544).[W]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-K dated April 28, 2004 (File No.
    0-25544).[X]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Pre-Effective Amendment No. 1 to the Registration Statement
      on Form S-2 filed on April 29, 2004 (File No.
  333-114-698).[Y]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q for the quarter ended June 30, 2004 (File No.
      0-25544).[Z]
    As
      filed with the Commission on November 15, 2004.[AA]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 10-Q/A for the quarter ended June 30, 2004 (File No.
      0-25544).[BB]
    Incorporated
      by reference from the exhibit referred to in brackets contained in the
      Registrant’s Form 8-K dated March 7, 2005 (File No.
    0-25544).**
    Management
      contract or compensatory plan or arrangement.*
    Confidential
      portions of this exhibit have been deleted and filed separately with the
      Commission pursuant to a request for confidential
    treatment.(1)
    The
      material has been filed separately on paper pursuant to a request granted
      by the Commission for a continuing hardship exemption from filing
      electronically.
 99
 
 ****
 **SIGNATURES**
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 
 Miravant
Medical Technologies
 
 
 Date:
    March
      28, 2005
    By:/s/ Gary S. KledzikGary
      S. KledzikChief
      Executive Officer andChairman
      of the Board
 
 **POWER
OF ATTORNEY**
 
 KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Gary S. Kledzik and John M. Philpott his true and
lawful attorney-in-fact and agent, with full power of substitution and, for him
and in his name, place and stead, in any and all capacities to sign any and all
amendments to this Report on Form 10-K, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
 
 Signature
    Title
    Date/S/
      Gary S. Kledzik
      Gary
      S. Kledzik, Ph.D.
    Chairman
      of the Board, Director, and Chief Executive Officer, (Principal Executive
      Officer)
    March
      28, 2005/S/
      David E. Mai
      David
      E. Mai
    Director
      and President
    March
      28, 2005/S/
      John M. Philpott
      John
      M. Philpott
    Chief
      Financial Officer and Treasurer (Principal Financial Officer and Principal
      Accounting Officer)
    March
      28, 2005/S/
      Charles T. Foscue
      Charles
      T. Foscue
    Director
    March
      28, 2005/S/
      Barry Johnson
      Barry
      Johnson
    Director
    March
      28, 2005/S/
      Michael Khoury
      Michael
      Khoury
    Director
    March
      28, 2005/S/
      Robert J. Sutcliffe
      Robert
      J. Sutcliffe
    Director
    March
      28, 2005
 
  100