1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES AND
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ____________________
Commission file number 0-28150
NEUROCRINE BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0525145
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3050 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices)
(619) 658-7600
(Registrant's telephone number, including area code)
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
The number of outstanding shares of the registrant's Common Stock, no par
value, was 17,721,805 as of April 30, 1998.
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NEUROCRINE BIOSCIENCES, INC
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements......................................................... 3
Condensed Balance Sheets as of March 31, 1998 and December 31, 1997.......... 3
Condensed Statements of Operations for the three months ended
March 31, 1998 and 1997...................................................... 4
Condensed Statements of Cash Flows for the three months
ended March 31, 1998 and 1997................................................ 5
Notes to Condensed Financial Statements...................................... 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 7
Overview..................................................................... 7
Results of Operations........................................................ 7
Liquidity and Capital Resources.............................................. 8
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K............................................. 9
27.1 Financial Data Schedule - 1998
27.2 Financial Data Schedule - 1997 (Restated)
SIGNATURES.................................................................................. 10
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NEUROCRINE BIOSCIENCES, INC.
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED) (NOTE)
ASSETS
Current assets
Cash and cash equivalents $ 14,136,961 $ 15,771,099
Short-term investments, available-for-sale 54,761,587 59,321,095
Receivable under collaborative agreements 1,967,755 193,784
Other current assets 2,283,210 1,091,653
------------ ------------
Total current assets 73,149,513 76,377,631
Property and equipment, net 8,947,805 8,846,179
Licensed technology and patent application costs, net 1,130,733 1,185,384
Investment in NPI 2,943,817 3,343,740
Other assets 2,090,031 2,150,451
============ ============
Total assets $ 88,261,899 $ 91,903,385
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 488,101 $ 1,822,173
Accrued expenses, other current liabilities and current
portion of long-term debt 4,332,859 5,547,697
------------ ------------
Total current liabilities 4,820,960 7,369,870
Long-term liabilities 1,242,008 1,381,040
Stockholders' equity
Preferred Stock, $0.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding
Common stock, $0.001 par value, 100,000,000 shares authorized,
issued and outstanding shares - 17,708,815 in 1998
and 17,686,802 in 1997 88,278,798 88,047,176
Accumulated deficit (6,079,867) (4,894,701)
------------ ------------
Total stockholders' equity 82,198,931 83,152,475
============ ============
Total liabilities and stockholders' equity $ 88,261,899 $ 91,903,385
============ ============
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date, but does not include all of the disclosures
required by generally accepted accounting principals.
See accompanying notes to condensed financial statements.
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NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------ ------------
Revenues under collaborative research agreements
Sponsored research $ 1,887,500 $ 2,637,500
Milestones 1,250,000 5,000,000
Other revenues 998,971 1,216,391
------------ ------------
Total revenues 4,136,471 8,853,891
Operating expenses
Research and development 5,041,036 4,589,078
General and administrative 1,528,480 1,144,549
------------ ------------
Total operating expenses 6,569,516 5,733,627
Income (loss) from operations (2,433,045) 3,120,264
Interest income 1,119,472 923,231
Interest expense (34,133) (47,626)
Other income 162,540 199,513
------------ ------------
Income (loss) before income taxes (1,185,166) 4,195,382
Provision for income taxes -- 54,000
------------ ------------
Net income (loss) $ (1,185,166) $ 4,141,382
============ ============
Earnings (loss) per common share
Basic $ (0.07) $ 0.25
Diluted $ (0.07) $ 0.22
Shares used in the calculation of earnings (loss) per share
Basic 17,706,576 16,830,804
Diluted 17,706,576 19,248,181
See accompanying notes to condensed financial statements.
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NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (1,185,166) $ 4,141,382
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 377,260 222,031
Research and development expense related to NPI 399,923 --
Deferred revenue (875,000) --
Deferred rent 85,357 110,211
Deferred compensation expenses 96,706 39,042
Change in operating assets and liabilities:
Receivables under collaborative agreements (1,773,971) (1,792,372)
Other current assets (1,262,231) (460,618)
Other assets 131,090 (389,949)
Accounts payable and accrued liabilities (1,665,703) 456,259
------------ ------------
Net cash flows (used in) provided by operating activities (5,671,735) 2,325,986
Cash flows from investing activities:
Purchases of short-term investments (15,082,101) (23,407,959)
Sales/maturities of short-term investments 19,658,681 17,307,653
Purchases of property and equipment, net (424,235) (413,527)
------------ ------------
Net cash flows provided by (used in) investing activities 4,152,345 (6,513,833)
Cash flows from financing activities:
Issuance of Common Stock, net 134,550 303,021
Principal payments on obligations under capital leases and note payable (249,298) (224,842)
Payments received on notes receivable from stockholders -- 2,617
------------ ------------
Net cash flows (used in) provided by financing activities (114,748) 80,796
Net decrease in cash and cash equivalents (1,634,138) (4,107,051)
Cash and cash equivalents at beginning of period 15,771,099 11,325,361
------------ ------------
Cash and cash equivalents at end of period $ 14,136,961 $ 7,218,310
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 34,133 $ 47,626
============ ============
Taxes paid $ 10,000 $ 100,000
============ ============
See accompanying notes to condensed financial statements.
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NEUROCRINE BIOSCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim unaudited condensed financial statements contained herein have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements include all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial position, results of operations, and cash flows
for the periods presented. The results of operations for the interim periods
shown in this report are not necessarily indicative of results expected for the
full year. The financial statements should be read in conjunction with the
audited financial statements and notes for the year ended December 31, 1997,
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
2. NET INCOME PER SHARE
In accordance with Financial Accounting Standards Board Statement No. 128,
"Earnings per Share" ("SFAS 128"), basic earnings per share is calculated by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the Company such as common stock
which may be issuable upon exercise of outstanding common stock options,
warrants and preferred stock. These shares are excluded when their effects are
antidilutive. As required by SFAS 128, the Company has restated the March 31,
1997 earnings per share presentation.
3. COMPREHENSIVE INCOME
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Comprehensive Income" ("SFAS 130"),
which applies to financial statements issued for periods beginning after
December 15, 1997. SFAS 130 requires the disclosure of all components of
comprehensive income, including net income and other comprehensive income.
Comprehensive income includes changes in equity during a period from
transactions and other events and circumstances generated from nonowner sources.
For the periods ended March 31, 1998 and 1997, comprehensive income is
calculated as follows:
Quarter ended March 31,
----------------------------
1998 1997
------------ ------------
Net income (loss) $ (1,185,166) $ 4,141,382
Other comprehensive income (loss)
Net change in unrealized gains/(losses) on investments 17,072 (83,160)
============ ============
Comprehensive income (loss) $ (1,168,094) $ 4,058,222
============ ============
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations of Neurocrine Biosciences, Inc. ("Neurocrine" or the
"Company") contain forward-looking statements which involve risks and
uncertainties, pertaining generally to the expected continuation of the
Company's collaborative agreements, the receipt of research payments thereunder,
the future achievement of various milestones in product development and the
receipt of payments related thereto, the potential receipt of royalty payments,
pre-clinical testing and clinical trials of potential products, the period of
time the Company's existing capital resources will meet its funding
requirements, and financial results and operations. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those set forth below and those outlined in
the Company's 1997 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
OVERVIEW
Since the founding of the Company in January 1992, Neurocrine has been
engaged in the discovery and development of novel pharmaceutical products for
diseases and disorders of the central nervous and immune systems. To date,
Neurocrine has not generated any revenues from the sale of products, and does
not expect to generate any product revenues in the foreseeable future. The
Company's revenues are expected to come from its strategic alliances. The
Company expects to generate further net losses as its operating expenses are
anticipated to rise significantly in future periods as products are advanced
through the various stages of clinical development. Neurocrine has incurred a
cumulative deficit of approximately $6.1 million as of March 31, 1998 and
expects to incur operating losses in the future, which are potentially greater
than losses in prior years.
RESULTS OF OPERATIONS
Revenues for the first quarter of 1998 were $4.1 million compared to $8.9
million for the comparable period last year. Sponsored research revenues were
lower due to the successful completion of the research phase of the Janssen
Collaboration, which has resulted in a clinical compound (R121919). Janssen is
currently conducting Phase I trials with R121919 for anxiety/depression. In
addition, revenues were higher for the first quarter of 1997 due to the initial
milestone payment received pursuant to the Company's collaboration with Eli
Lilly.
Research and development expenses increased to $5.0 million for the first
quarter of 1998 compared to $4.6 million for the same period in 1997. This
increase reflects higher costs associated with increased scientific personnel
and related support expenditures as the Company increased its development
activities.
General and administrative expenses increased to $1.5 million during 1998
compared to $1.1 million for the same period last year. This increase resulted
from additional administrative personnel, patent costs and related expenses to
support the increased research and clinical efforts.
Interest income increased to $1.1 million during the first quarter of 1998
compared to $923,000 for the same period last year. This increase was due to
higher effective interest yields on the Company's investment portfolio during
the first quarter of 1998.
Net losses for the first quarter of 1998 were $1.2 million or $0.07 per
share compared to net income of $4.1 million or $0.25 per share ($0.22 per share
assuming dilution) for the same period in 1997. The decrease in net earnings and
earnings per share was primarily attributable to the decreased revenues under
the Company's collaborations.
To date, the Company's revenues have come from funded research and
achievements of milestones under corporate collaborations. The nature and amount
of these revenues from period to period may lead to substantial fluctuations in
the results of quarterly revenues and earnings. Accordingly, results and
earnings of one period are not predictive of future periods.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's cash, cash equivalents, and short-term
investments totaled $68.9 million. Cash held by the Company excludes $2.0
million due from corporate collaborators of which $1.7 million was collected in
April 1998. Total cash, cash equivalents, and short-term investments also
excludes approximately $7.3 million held by Neuroscience Pharma ("NPI") Inc.,
which is available to fund certain of the Company's research and development
activities.
Cash used in operating activities during the three months ended March 31,
1998 was $5.7 million compared to net cash provided of $2.3 million for the same
period in 1997. The increase in cash used in operating activities during the
first quarter of 1998 was primarily the result of decreased revenues under the
Company's collaborations, collection of trade and other receivables and payment
of current liabilities.
Cash provided by investing activities during the three months ended March
31, 1998 was $4.2 million compared to net cash used of $6.5 million for the same
period in 1997. The increase in cash provided was primarily the result of timing
differences in investment purchases and sales/maturities and fluctuations in the
Company's portfolio mix between cash equivalent and short-term investment
holdings.
Cash used in financing activities during the three months ended March 31,
1998 was $115,000 compared to net cash provided of $81,000 for the same period
in 1997. The increase in net cash used was primarily due to a decrease in
issuances of the Company's Common Stock and an increase in principal payments on
long-term obligations.
The Company believes that its existing capital resources, together with
interest income and future payments due under the strategic alliances, will be
sufficient to satisfy its current and projected funding requirements at least
through the year 2000. However, no assurance can be given that such capital
resources and payments will be sufficient to conduct its research and
development programs as planned. The amount and timing of expenditures will vary
depending upon a number of factors, including progress of the Company's research
and development programs.
Although the Company believes its key financial, information and
operational systems are Year 2000 compliant, there can be no assurances that
other defects will not be discovered in the future. The Company is unable to
control whether the firms and vendors it does business with currently, and in
the future, will have systems which are Year 2000 compliant. The Company's
operations could be affected to the extent that firms and vendors would be
unable to provide services or ship products. However, management does not
believe the Year 2000 changes will have a material impact on its business,
financial condition or results of operations.
The Company's business is subject to significant risks, including but not
limited to, the risks inherent in its research and development activities,
including the successful continuation of the Company's strategic collaborations,
the successful completion of clinical trials, the lengthy, expensive and
uncertain process of seeking regulatory approvals, uncertainties associated both
with obtaining and enforcing its patents and patent rights of others,
uncertainties regarding government reforms and of product pricing and
reimbursement levels, technological change and competition, manufacturing
uncertainties and dependence on third parties. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
product will be ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
Neurocrine will require additional funding for the continuation of its
research and product development programs, for progress with preclinical testing
and clinical trials, for operating expenses, for the pursuit of regulatory
approvals for its product candidates, for the costs involved in filing and
prosecuting patent applications and enforcing patent claims, if any, the cost of
product in-licensing and any possible acquisitions, and may require additional
funding for establishing manufacturing and marketing capabilities in the future.
The Company may seek to access the public or private equity markets whenever
conditions are favorable. The Company may also seek additional funding through
strategic alliances and other financing mechanisms, potentially including
off-balance sheet financing. There can be no assurance that adequate funding
will be available on terms acceptable to the Company, if at all. If adequate
funds are not available, the Company
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may be required to curtail significantly one or more of its research or
development programs or obtain funds through arrangements with collaborative
partners or others. This may require the Company to relinquish rights to certain
of its technologies or product candidates.
Continued profitability is not expected as the Company's operating expenses
are anticipated to rise significantly in future periods as products are advanced
through the various development and clinical stages. Neurocrine expects to incur
additional operating expenses over the next several years as its research,
development, preclinical testing and clinical trial activities increase. To the
extent that the Company is unable to obtain third party funding for such
expenses, the Company expects that increased expenses will result in increased
losses from operations. There can be no assurance that the Company's products
under development will be successfully developed or that its products, if
successfully developed, will generate revenues sufficient to enable the Company
to earn a profit.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of, or
incorporated by reference into, this report:
27.1 Financial Data Schedule - 1998
27.2 Financial Data Schedule - 1997 (Restated)
(b) On March 13, 1998, the Company filed a Current Report on form 8-K
dated February 27, 1998 to disclose that a letter of intent was
entered into by and between the Company and Northwest Neurologic,
Inc. pursuant to which the Company is expected to acquire all of
the business, assets and obligations of Northwest Neurologic,
Inc.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEUROCRINE BIOSCIENCES, INC.
Dated: 05/14/98 /s/ Paul W. Hawran
-----------------------------------
PAUL W. HAWRAN
Senior Vice President and
Chief Financial Officer
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5
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
14,136,961
54,761,587
1,967,755
0
0
73,149,513
12,286,730
3,338,925
88,261,899
4,820,960
0
0
0
88,278,798
(6,079,867)
88,261,899
0
4,136,471
0
6,569,516
(162,540)
0
34,133
(1,185,166)
0
(1,185,166)
0
0
0
(1,185,166)
(0.07)
(0.07)
5
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
7,218,310
64,611,999
3,121,885
0
0
76,253,774
5,922,635
2,139,101
82,891,112
4,506,814
0
0
0
83,050,033
(5,880,163)
82,891,112
0
8,853,891
0
5,733,627
(199,513)
0
47,626
4,195,382
54,000
4,141,382
0
0
0
4,141,382
0.25
0.22
