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 JUNE 30, 1996
OR
[__] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period ________________________ to _______________________
from
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 16,763,114 as of June 30, 1996
NEUROCRINE BIOSCIENCES, INC
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
--------------------
Condensed Balance Sheets as of June 30, 1996 and December 31, 1995 3
Condensed Statements of Operations for the
three months and six months ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 5
Notes to Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Overview 7
Results of Operations 9
Liquidity and Capital Resources 9
PART II OTHER INFORMATION
ITEM 6: Exhibits 11
--------
SIGNATURES 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEUROCRINE BIOSCIENCES, INC.
CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
-------------- -------------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents $ 21,654,748 $ 6,392,749
Short-term investments, available for sale 40,423,703 12,303,460
Receivables under collaborative agreements 5,450,817 1,000,000
Other current assets 916,284 234,334
-------------- -------------
Total current assets 68,445,552 19,930,543
Furniture, equipment, and leasehold improvements, net 3,075,175 2,772,844
Licensed technology and patent application costs, net 1,265,536 919,049
Other assets 607,949 389,296
-------------- -------------
Total assets $ 73,394,212 $ 24,011,732
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,073,563 $ 820,883
Accrued expense, other current liabilities, and current
portion of obligations under capital leases 2,346,938 2,120,581
-------------- -------------
Total current liabilities 3,420,501 2,941,464
Other long-term liabilities 1,461,117 1,845,329
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding
Common stock, no par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 16,763,114 shares in 1996 83,176,376 35,597,941
11,723,101 in 1995
Additional paid-in capital (550,431) (477,537)
Accumulated deficit (14,113,351) (15,895,465)
-------------- -------------
Total stockholders' equity 68,512,594 19,224,939
-------------- -------------
Total liabilities and stockholders' equity $ 73,394,212 $ 24,011,732
============== =============
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date, but does not include all of the
disclosures required by generally accepted accounting principles.
See accompanying notes to condensed financial statements.
3
NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Revenues under collaborative research
agreements:
Sponsored research $ 1,625,000 $ 875,000 $ 3,250,000 $ 1,500,000
Milestones 3,000,000 750,000 3,000,000 750,000
License fees - - - 2,000,000
Other revenue 886,416 23,022 1,420,394 149,803
------------ ------------ ------------ ------------
Total revenues 5,511,416 1,648,022 7,670,394 4,399,803
Operating expenses
Research and development 3,512,469 1,958,092 5,306,953 3,806,483
General and administration 724,387 701,838 1,295,184 1,438,660
------------ ------------ ------------ ------------
Total operating expenses 4,236,856 2,659,930 6,602,137 5,245,143
------------ ------------ ------------ ------------
Income (loss) from operations 1,274,560 (1,011,908) 1,068,257 (845,340)
Interest income 489,051 339,518 748,215 633,958
Interest expense (66,117) (73,894) (137,939) (148,310)
Other income 59,954 3,735 103,581 30,735
------------ ------------ ------------ ------------
Net income (loss) $ 1,757,448 $ (742,549) $ 1,782,114 $ (328,957)
============ ============ ============ ============
Net income (loss) per share $ 0.11 $ (0.06) $ 0.12 $ (0.03)
============ ============ ============ ============
Shares used in computing net income
(loss) per share 15,412,571 11,974,694 14,422,918 11,906,973
See accompanying notes to condensed financial statements
4
NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
--------------------------------
1996 1995
--------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (loss) $ 1,782,114 $ (328,957)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Compensation expense recognized for stock options 27,989 12,322
Depreciation and amortization 433,491 332,695
Deferred revenue 326,616 -
Deferred rent 27,638 168,780
Change in operating assets and liabilities:
Other current assets (5,132,770) (1,326,619)
Other assets (218,653) (254,082)
Accounts payable and accrued liabilities 100,520 949,717
-----------------------------
Net cash flows used in operating activities (2,653,055) (446,144)
INVESTING ACTIVITIES
Purchases of short-term investments (51,111,011) (17,623,995)
Sales/maturities of short term investments 22,955,598 11,756,664
Purchase of licensed technology and expenditures for (405,296) (104,416)
patent application costs
Purchases of furniture, equipment and leasehold improvements (677,013) (208,297)
------------- -------------
Net cash flows used in investing activities (29,237,722) (6,180,043)
FINANCING ACITIVITIES
Issuance of common stock, net 47,507,488 3,730,000
Principal payments on obligations under capital leases (359,949) (260,266)
Payments received on notes receivable from stockholders 5,237 4,973
------------- ------------
Net cash flows provided by financing activities 47,152,776 3,474,707
------------- ------------
Increase (decrease) in cash and cash equivalents 15,261,999 (3,151,480)
Cash and cash equivalents at beginning of period 6,392,749 4,716,052
------------ -------------
Cash and cash equivalents at end of period $ 21,654,748 $ 1,564,572
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 137,939 $ 148,310
============ ============
See accompanying notes to condensed financial statements
5
NEUROCRINE BIOSCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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, 1995, and
the unaudited financial statements and notes for the three month period ended
March 31, 1996 included in the Company's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission and effective on May 22, 1996.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of shares of common stock outstanding during each period. Common stock
equivalent shares from stock options, warrants, and convertible preferred shares
are excluded from the computation when their effect is antidilutive, except
that, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued at prices substantially
below the public price during the 12-month period prior to the filing of the
initial public offering have been included in the calculation as if they were
outstanding for all periods through June 30, 1996 (using the treasury stock
method and the initial public offering price of $10.50 per share). For the
three and six month periods ended June 30, 1996 shares used in computing net
income per share also includes common equivalent shares arising from dilutive
stock options, warrants, and convertible preferred shares which were issued more
than 12 months immediately preceding the IPO, using the treasury stock method.
Income per share on a fully diluted basis was unchanged.
3. NEUROSCIENCE PHARMA (NPI) INC.
In March 1996, the Company established Neuroscience Pharma (NPI) Inc.
("NPI"), a subsidiary of the Company in Canada. The Company owns 49% of the
outstanding shares of NPI's Common Stock. The remaining 51% is owned by a group
of Canadian institutional investors. Since the Company does not have a majority
interest in NPI, NPI is not consolidated. As of June 30, 1996, NPI had total
assets consisting entirely of cash and cash equivalents of $9.2 million, stated
in U.S dollars. Such assets are available to fund additional research and
clinical development of certain of the Company's research programs.
6
ITEM 2. MANAGEMENT DISCUSSION AND ANAYLSIS
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. 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/or outlined in "Risk Factors" and elsewhere in the Company's
registration statement on Form S-1 and the related prospectus, dated May 23,
1996, constituting a part thereof.
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 for the foreseeable future. The
Company's revenues, if any, are expected to come from its strategic alliances.
Neurocrine has incurred a cumulative deficit of $14.1 million as of June 30,
1996 and expects to incur substantial additional operating losses, potentially
greater than losses in prior years, in the future.
Neurocrine has primarily financed its operations through the sale of Common
Stock. In February 1994, the Company completed the sale of Common Stock in a
private placement offering resulting in gross proceeds of $30.0 million. In
connection with the its strategic alliance with Janssen Pharmaceutica, N.V.
("Janssen"), Johnson and Johnson Development Corporation ("JJDC") purchased $2.5
million of Common Stock in January 1995 and purchased an additional $2.5 million
of Common Stock concurrent with the Company's initial public offering in May
1996. In January 1996, the Company sold $5.0 million of Common Stock to Ciba-
Geigy Limited ("Ciba-Geigy) in connection with the Ciba-Geigy strategic
alliance. Ciba-Geigy also purchased an additional $5.0 million of Common Stock
concurrent with the Company's initial public offering in May 1996. In addition
to the shares sold to JJDC and Ciba-Geigy, Neurocrine sold 3.5 million shares of
Common Stock pursuant to its initial public offering in May 1996.
In February 1995, the Company entered into a three to five year strategic
alliance with Janssen for the development of CRF receptor antagonists for the
treatment of anxiety, depression and substance abuse. Pursuant to the agreement,
Janssen has paid the Company $4.5 million through June 30, 1996 and is obligated
to pay the Company an additional $5.0 million in sponsored research payments
through 1997, as well as $6.0 million for two additional years should Janssen
exercise its option to extend the collaboration. The Company could also receive
milestone payments of up to $10.0 million for the indications of anxiety,
depression and substance abuse, and up to $9.0 million for other indications, if
certain development and regulatory milestones are achieved. In addition, Janssen
paid a $1.0 million license fee in 1995 and an additional $1.0 million license
fee in July of 1996. In return, Janssen received worldwide manufacturing and
marketing rights to the compounds developed during this collaboration, and is
required to pay the Company royalties on net sales and the costs associated with
establishing a North American sales force should Neurocrine exercise its option
to co-promote.
In January 1996, the Company entered into an agreement with Ciba-Geigy to
develop altered peptide ligands for the treatment of multiple sclerosis.
Pursuant to the agreement, Ciba-Geigy is obligated to provide Neurocrine with
$12.0 million in license fees and research and development funding during the
first two years of the agreement, and up to $15.5 million in further research
and development funding thereafter, unless the agreement is sooner terminated.
Ciba-Geigy has the right to terminate the agreement after December 30, 1997. In
addition, the Company could also receive milestone payments if certain
development and regulatory milestones are achieved. In return, Ciba-Geigy
received manufacturing and marketing rights outside of North America and will
receive a percentage of profits on sales in North America. The Company
will receive royalties for all sales outside North America and a percentage of
profits on sales in North America, which the Company may at its option convert
to a right to receive royalties on product sales. Neurocrine is obligated to
repay a portion of the development costs for potential products developed in
such collaboration unless the Company elects to convert to the right to receive
royalty payments.
7
ITEM 2. MANAGEMENT DISCUSSION AND ANAYLSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In March 1996, the Company completed the formation of a research and
development subsidiary, Neuroscience Pharma (NPI), Inc. ("NPI"), with a group of
Canadian investors. The investors purchased a 51% equity interest of NPI for
approximately $9.5 million. The Company licensed certain technology and
transferred to NPI the Canadian marketing rights related to its Neurosteroid
program and Canadian marketing rights to products developed in the Company's
Neurogenomics program. Along with certain Canadian government incentives, such
funds are expected to fund the early clinical trials of DHEA and research
activities in the Neurogenomics program. At the option of the investors, the
investors may convert and relinquish the marketing rights upon conversion of NPI
Preferred Stock into the Company's Common Stock at a conversion price of $7.45
per share. In connection with their investment in NPI, such investors also
received warrants exercisable for shares of Common Stock at an exercise price of
the stock sold in the Company's initial public offering ($10.50) and are
eligible to receive additional future warrants exercisable at the then
prevailing market price in the event that NPI receives certain Canadian
government incentives for research activities, if any. The Company may at its
option, repurchase the marketing rights at a predetermined price.
In May of 1996 the Company sold 3.5 million shares of Common Stock in an
initial public offering resulting in net proceeds to the Company of $34.2
million (excluding offering expenses). Concurrent with this offering the Company
sold 714,286 shares of Common Stock to JJDC and Ciba-Geigy in accordance with
the provisions of their respective collaboration agreements. These transactions
resulted in aggregate net proceeds to the Company of $7.2 million. In June of
1996, the Company sold an additional 180,000 shares of Common Stock to the
underwriters of the initial public offering to cover over-allotments. This
transaction resulted in net proceeds to the Company of $1.8 million.
There can be no assurance that the Company and its corporate partners will
be successful commercializing any potential products. As a result, there can be
no assurance that any product development milestone, royalties, or profit
sharing payments will be made. The Company is dependent upon its corporate
partners to provide adequate funding for its research and development programs.
Under these arrangements, the Company's corporate partners are responsible for
(i) selecting compounds for subsequent development as drug candidates, (ii)
conducting preclinical testing and clinical trials and obtaining required
regulatory approvals for such drug candidates, and (iii) manufacturing and
commercializing any resulting drugs. Failure of these partners to select a
compound discovered by the Company for subsequent development into marketable
products, gain the requisite regulatory approvals or successfully commercialize
products, would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's strategy for
development and commercialization of certain of its products is dependent upon
entering into additional arrangements with research collaborators, corporate
partners and others and upon the subsequent success of these third parties in
performing their obligations. There can be no assurance that the Company will
be able to enter into additional strategic alliances on terms favorable to the
Company, or at all. Failure of the Company to enter into additional strategic
alliances would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's strategic
alliances with Janssen and Ciba-Geigy are subject to termination by Janssen or
Ciba-Geigy, respectively. There can be no assurance that Janssen or Ciba Geigy
will not elect to terminate its strategic alliance with the Company prior to its
scheduled expiration.
The Company expects its research and development expenditures to increase
substantially over the next several years as the Company expands its research
and development efforts and undertakes preclinical testing and clinical trials
with respect to certain of its programs. In addition, general and administrative
expenses are expected to increase as the Company expands its operations, and
incurs the additional expenses associated with operating as a public company.
8
ITEM 2. MANAGEMENT DISCUSSION AND ANAYLSIS
OF FINANCIAL CONDITION AND 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 clinical trials, uncertainties associated both with obtaining and
enforcing its patents and with patent rights of others, the lengthy, expensive
and uncertain process of seeking regulatory approvals, 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.
RESULTS OF OPERATIONS
Revenues increased to $5.5 million for the second quarter and $7.7 million
for the six month period ended June 30, 1996, compared with $1.6 million and
$4.4 million, respectively, for the same periods in 1995. These increases were
primarily due to increased sponsored research revenues and milestone revenues
recognized under the collaboration with Ciba-Geigy.
Research and development expenses increased to $3.5 million for the second
quarter and $5.3 million for the six month period ended June 30, 1996, compared
with $2.0 million and $3.8 million, respectively, for the same periods in 1995.
These increases reflect continued additions to scientific personnel and related
support expenditures as the Company increased its research activities primarily
in the CRF and Altered Peptide Ligand programs.
General and administrative expenses increased slightly to $724,000 for the
second quarter and decreased to $1.3 million for the six month period ended June
30, 1996 compared with $701,000 and $1.4 million, respectively, for the same
periods in 1995. The decrease for the six month period in 1996 was largely
attributable to non-recurring timing differences of certain expenses which
occurred in the first quarter of 1996.
Net interest income increased to $423,000 for the second quarter and
$610,000 for the six month period ended June 30, 1996, compared with $266,000
and $486,000, respectively, for the same periods in 1995. These increases were
due to increased investment income attributable to increased cash and short term
investments purchased with proceeds from the Company's initial public offering
in May 1996.
Net income increased to $1.8 million or $.11 per share for the second
quarter and $1.8 million or $.12 per share for the six month period ended June
30, 1996, compared with a net loss of $743,000 or $.06 per share and $329,000 or
$.03 per share, respectively, for the same periods in 1995. The increased net
income was primarily attributable to the increased revenues earned under the
Ciba-Geigy corporate collaboration. Net income per share increased also as a
result of these revenues and was partially offset by the inclusion of dilutive
common stock equivalents in the calculation of weighed average shares used in
computing net income per share in accordance with generally accepted accounting
principles.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1996 the Company's cash, cash equivalents, and short-term
investments totaled $62.1 million. This excludes approximately $9.2 million
held by NPI which is available to fund certain of the Company's research and
development activities.
9
ITEM 2. MANAGEMENT DISCUSSION AND ANAYLSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In May of 1996, the Company sold 3.5 million shares of Common Stock in an
initial public offering resulting in net proceeds to the Company of $34.2
million (excluding offering expenses). Concurrent with this offering the Company
sold 714,286 shares of Common Stock to JJDC and Ciba-Geigy in accordance with
the provisions of their respective collaboration agreements. These transactions
resulted in aggregate net proceeds to the Company of $7.2 million. In June of
1996 the Company sold an additional 180,000 shares of Common Stock to the
underwriters of the initial public offering to cover over-allotments. This
transaction resulted in net proceeds to the Company of $1.8 million.
Cash used by operating activities during the six month period ended June
30, 1996 increased to $2.6 million compared with $446,000 for the same period in
1995. The increase was the result of timing differences associated with
sponsored research, development, and milestone payments under corporate
collaborations and increased cash outflows attributable to increased research
and development expenditures associated with the Company's CRF and Altered
Peptide Ligand programs.
Cash used by investing activities during the six month period ended June
30, 1996 increased to $29.2 million compared with $6.2 million for the same
period in 1995. This increase was the result of the purchase of additional
short-term investments with proceeds from the Company's initial public offering
and the sale of Common Stock to corporate collaborators in May of 1996.
Cash provided by financing activities during the six month period ended
June 30, 1996 increased to $47.2 million compared with $3.5 million for the same
period in 1995. This increase was the result of proceeds received from the
Company's initial public offering and the sale of Common Stock to corporate
collaborators in May of 1996.
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 1998. 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, conducting preclinical testing and clinical trials, developing
regulatory submissions, the costs associated with protecting its patents and
other proprietary rights, developing marketing and sales capabilities, the
availability of third-party funding, technological advances, changing
competitive conditions and the commercial potential of the Company's proposed
products, if any.
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 such
funding will be available on terms acceptable to the Company, if at all. If
adequate funds are not available, the Company 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.
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
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: August 13, 1996 /s/ PAUL W. HAWRAN
-------------------------------------------
PAUL W. HAWRAN
Senior Vice President and Chief Financial
Officer
12
5
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
21,654,748
40,423,703
5,450,817
0
0
68,445,552
3,075,175
0
73,394,212
3,420,501
0
0
0
83,176,376
0
73,394,212
0
7,670,394
0
6,602,137
(103,581)
0
137,939
1,782,114
0
0
0
0
0
1,782,114
.12
.12
