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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
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)
10555 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices)
(858) 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, par value
of $0.001, was 25,453,423 as of April 27, 2001.
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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, 2001
and December 31, 2000....................................... 3
Condensed Statements of Operations for the three months
ended March 31, 2001 and 2000............................... 4
Condensed Statements of Cash Flows for three months
ended March 31, 2001 and 2000............................... 5
Notes to the Condensed Financial Statements...................... 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk....... 9
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K................................. 10
SIGNATURES....................................................... 10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEUROCRINE BIOSCIENCES, INC.
CONDENSED BALANCE SHEETS
(unaudited in thousands)
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March 31, December 31,
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents ............................ $ 27,320 $ 21,078
Short-term investments, available-for-sale ........... 128,369 143,592
Receivables under collaborative agreements ........... 1,243 5,974
Other current assets ................................. 1,952 1,761
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Total current assets .............................. 158,884 172,405
Property and equipment, net .......................... 11,510 11,300
Licensed technology and patent applications costs, net 323 362
Other assets ......................................... 2,120 1,895
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Total assets ...................................... $ 172,837 $ 185,962
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 658 $ 1,065
Accrued liabilities .................................. 8,242 11,135
Deferred revenues .................................... 1,645 1,172
Current portion of long-term debt .................... 149 149
Current portion of capital lease obligations ......... 1,399 1,438
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Total current liabilities ......................... 12,093 14,959
Long-term debt, net of current portion ............... 125 162
Capital lease obligations, net of current portion .... 1,851 2,121
Deferred rent ........................................ 1,792 1,646
Deferred revenues .................................... 2,681 2,890
Other liabilities .................................... 1,003 976
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Total liabilities ................................. 19,545 22,754
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding ...... - -
Common Stock, $0.001 par value; 50,000,000 shares
authorized; issued and outstanding shares were
25,440,683 in 2001 and 25,314,470 in 2000 ........ 25 25
Additional paid in capital ........................... 235,354 233,565
Deferred compensation ................................ (44) (59)
Stockholder notes .................................... (104) (104)
Accumulated other comprehensive income ............... 4 261
Accumulated deficit .................................. (81,943) (70,480)
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Total stockholders' equity ........................ 153,292 163,208
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Total liabilities and stockholders' equity ........ $ 172,837 $ 185,962
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See accompanying notes to the condensed financial statements.
NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited; in thousands except loss per share data)
Three Months Ended
March 31,
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2001 2000
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Revenues:
Sponsored research and development ............. $ 2,965 $ 1,522
License and option fees ........................ 229 1,000
Grant income and other revenues ................ 294 256
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Total revenues .............................. 3,488 2,778
Operating expenses:
Research and development ....................... 15,190 7,771
General and administrative ..................... 2,377 2,233
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Total operating expenses .................... 17,567 10,004
Loss from operations ............................... (14,079) (7,226)
Other income and (expenses):
Interest income ................................ 2,605 1,572
Interest expense ............................... (72) (58)
Other income and expenses, net ................. 83 (135)
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Loss before taxes .................................. (11,463) (5,847)
Income taxes ....................................... - 200
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Net loss ........................................... $ (11,463) $ (6,047)
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Loss per common share:
Basic & Diluted ................................ $ (0.45) $ (0.28)
Shares used in the calculation of
loss per common share:
Basic & Diluted ................................ 25,407 21,771
See accompanying notes to the condensed financial statements.
NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Three Months Ended
March 31,
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2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES
Net loss ............................................... $ (11,463) $ (6,047)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Loss on asset disposal ........................... 51 -
Depreciation and amortization .................... 593 519
Deferred revenues ................................ 264 1,578
Deferred expenses ................................ 174 445
Compensation expenses for stock options .......... 640 834
Change in operating assets and liabilities:
Accounts receivable and other current assets 4,540 1,446
Other non-current assets .................... (142) 59
Accounts payable and accrued liabilities .... (2,874) (799)
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Net cash flows used in operating activities ............ (8,217) (1,965)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of short-term investments .................... (15,976) (24,988)
Sales/maturities of short-term investments ............. 30,942 17,000
Purchases of property and equipment .................... (898) (548)
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Net cash flows provided by/(used in) investing activities 14,068 (8,536)
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Common Stock ............................... 737 1,463
Principal payments on long-term obligations ............ (346) (239)
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Net cash flows provided by financing activities ........ 391 1,224
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Net increase/(decrease) in cash and cash equivalents ... 6,242 (9,277)
Cash and cash equivalents at beginning of the period ... 21,078 21,265
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Cash and cash equivalents at end of the period ......... $ 27,320 $ 11,988
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See accompanying notes to the condensed financial statements
NEUROCRINE BIOSCIENCES, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The condensed financial statements included herein are unaudited. Certain
reclassifications have been made to prior year amounts to conform to the
presentation for the three months ended March 31, 2001. These statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions of the Securities and
Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, these 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, 2000, included in our Annual Report on
Form 10-K filed with the SEC.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
3. LOSS PER COMMON SHARE
Basic net loss per common share is calculated using the weighted average
number of common shares outstanding during the period. Diluted net loss per
common share is calculated by adding the total incremental number of common
share equivalents and the weighted average number of common shares outstanding
during the period. For the periods presented, incremental shares of the common
share equivalents were excluded from the calculation of diluted net loss per
share as their effects were antidilutive.
4. COMPREHENSIVE INCOME
Our comprehensive losses consist of net losses and unrealized gains and
losses on investments. The accumulated balances of these components are
disclosed as a separate component of stockholders' equity.
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,"Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 requires the
recognition of all derivative instruments as either assets or liabilities in the
statement of financial position and the measurement of those instruments at fair
value. The Company adopted SFAS 133 in January 2001. The adoption of this
statement did not have a material impact on its results of operations or
financial position.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 140
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities and is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The adoption of SFAS 140 did not have a material
impact on the Company's results of operations or financial position.
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 section contains forward-looking statements which
involve risks and uncertainties, pertaining generally to the expected
continuation of our 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, preclinical testing and clinical trials of potential products, the
period of time that our existing capital resources will meet our funding
requirements, and our financial results and operations. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including those set forth below.
OVERVIEW
We incorporated in California in 1992 and reincorporated in Delaware in
1996. Since we were founded, we have been engaged in the discovery and
development of novel pharmaceutical products for neurologic and endocrine
diseases and disorders. Our product candidates address some of the largest
pharmaceutical markets in the world including insomnia, anxiety, depression,
cancer and diabetes. To date, we have not generated any revenues from the sale
of products, and we do not expect to generate any product revenues in the
foreseeable future. We have funded our operations primarily through private and
public offerings of our common stock and payments received under research and
development agreements. We are developing a number of products with corporate
collaborators and will rely on existing and future collaborators to meet funding
requirements. We expect to generate future net losses in anticipation of
significant increases in operating expenses as products are advanced through the
various stages of clinical development. As of March 31, 2001, we have incurred a
cumulative deficit of $81.9 million and expect to incur operating losses in the
future, which may be greater than losses in prior years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Revenues were $3.5 million for the first quarter 2001 compared with $2.8
million for the respective period last year. The increase in revenues from last
year to this year resulted primarily from revenues received under the Taisho
Pharmaceuticals Co., Ltd. (Taisho) agreement. Under the Taisho agreement, we
received $2.1 million in revenues this quarter compared to $1.0 million in
option fees in the same quarter last year. The option fee totaled $2.0 million
and granted Taisho a six-month exclusive right to negotiate a collaborative
agreement with us. The option fee was deferred and recognized as income over the
option period. In July 2000, a collaborative agreement was reached with Taisho.
The agreement provides for license fees, milestones and sponsored research &
development funding. The increase in revenues from the Taisho agreement was
partially offset by the completion of the sponsored research portion of the 1999
Janssen Pharmaceutica, N.V. (Janssen) agreement. These activities concluded, as
scheduled, in February 2001. Under the Janssen agreement, we received $388,000
during the first quarter of 2001 compared with $675,000 during the first quarter
of 2000.
Research and development expenses increased to $15.2 million for the first
quarter 2001 compared with $7.8 million for the respective period in 2000.
Increased expenses primarily reflect higher costs associated with expanding
development activities and the addition of scientific personnel. Currently, we
have 15 programs in our research and development pipeline. Five of these
programs are in clinical development, three programs are in advanced
pre-clinical development and seven are in various stages of research. We expect
to incur significant increases in future periods as later phases of development
typically involve an increase in the scope of studies, the number of patients
treated and the number of scientific personnel required to manage the trials.
General and administration expenses increased to $2.4 million for the first
quarter 2001 compared with $2.2 million during the same period last year. We
expect general and administrative costs to increase moderately this year to
provide continued support on patent matters and collaborative relationships.
Interest income increased to $2.6 million during the first quarter of 2001
compared to $1.6 million for the same period last year. The increase primarily
resulted from higher investment balances achieved through offerings of our
common stock. In December 2000, we sold 3.2 million shares in a public offering,
which resulted in net proceeds of $90.4 million. Due to the increase in cash
reserves generated from this transaction, we anticipate interest income for this
year will be higher than that of last year.
Net loss for the first quarter of 2001 was $11.5 million, or $0.45 per
share, compared to $6.0 million, or $0.28 per share, for the same period in
2000. The increase in net loss resulted primarily from the expanded testing of
our five clinical programs. Net losses are expected to increase this year as our
programs continue to advance through the various stages of the research and
clinical development processes.
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.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, our cash, cash equivalents, and short-term investments
totaled $155.7 million compared with $164.7 million at December 31, 2000. The
decrease in cash balances at March 31, 2001 resulted primarily from the funding
of current period operations.
Net cash used by operating activities during the first quarter of 2001 was
$8.2 million compared with $2.0 million during the same period last year. The
increase in cash used in operations resulted primarily from the increase in
clinical development activities and the addition of scientific personnel.
Net cash provided by investing activities during the first quarter of 2001
was $14.1 million compared to net cash used $8.5 million for the first quarter
of 2000. This fluctuation resulted primarily from the timing differences in the
investment purchases, sales, maturities and the fluctuations in our portfolio
mix between cash equivalents and short-term investment holdings. We expect
similar fluctuations to continue in future periods. Capital equipment purchases
for 2001 are expected to be approximately $4.0 million and will be financed
primarily through leasing arrangements.
Net cash provided by financing activities during the first quarter of 2001
was $391,000 compared with $1.2 million for the respective period last year.
Cash proceeds from the issuance of common stock under option and employee
purchase programs provided the net cash balances in both periods. We expect
similar fluctuations to occur throughout the year, as the amount and frequency
of stock-related transactions are dependent upon the market performance of our
common stock.
We believe that our existing capital resources, together with interest
income and future payments due under our strategic alliances, will be sufficient
to satisfy our current and projected funding requirements for at least the next
12 months. However, we cannot guarantee that these capital resources and
payments will be sufficient to conduct our research and development programs as
planned. The amount and timing of expenditures will vary depending upon a number
of factors, including progress of our research and development programs.
We will require additional funding to continue our research and product
development programs, to conduct preclinical studies and clinical trials, for
operating expenses, to pursue regulatory approvals for our product candidates,
for the costs involved in filing and prosecuting patent applications and
enforcing or defending patent claims, if any, the cost of product in-licensing
and any possible acquisitions, and we may require additional funding to
establish manufacturing and marketing capabilities in the future. We may seek to
access the public or private equity markets whenever conditions are favorable.
We may also seek additional funding through strategic alliances and other
financing mechanisms. We cannot assure you that adequate funding will be
available on terms acceptable to us, if at all. If adequate funds are not
available, we may be required to curtail significantly one or more of our
research or development programs or obtain funds through arrangements with
collaborators or others. This may require us to relinquish rights to certain of
our technologies or product candidates.
We expect to incur operating losses over the next several years as our
research, development, preclinical studies and clinical trial activities
increase. To the extent that we are unable to obtain third party funding for
such expenses, we expect that increased expenses will result in increased losses
from operations. We cannot assure you that we will be successful in the
development of our product candidates, or that, if successful, any products
marketed will generate sufficient revenues to enable us to earn a profit.
INTEREST RATE RISK
We are exposed to interest rate risk on our short-term investments and on
our long-term debt. The primary objective of our investment activities is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, we invest in highly
liquid and high quality government and other debt securities. To minimize our
exposure due to adverse shifts in interest rates, we invest in short-term
securities and ensure that the maximum average maturity of our investments does
not exceed 40 months. If a 10% change in interest rates were to have occurred on
March 31, 2001, this change would not have had a material effect on the fair
value of our investment portfolio as of that date. Due to the short holding
period of our investments, we have concluded that we do not have a material
financial market risk exposure.
Interest risk exposure on long-term debt relates to our note payable, which
bears a floating interest rate of prime plus one quarter percent (8.25% at March
31, 2001 and 9.75% at December 31, 2000). At March 31, 2001 and December 31,
2000, the note balance was $274,000 and $311,000, respectively. This note is
payable in equal monthly installments through January 2003. Based on the balance
of our long-term debt, we have concluded that we do not have a material
financial market risk exposure.
CAUTION ON FORWARD-LOOKING STATEMENTS
Our business is subject to significant risks, including but not limited to,
the risks inherent in our research and development activities, including the
successful continuation of our strategic collaborations, the successful
completion of clinical trials, the lengthy, expensive and uncertain process of
seeking regulatory approvals, uncertainties associated both with the potential
infringement of patents and other intellectual property rights of third parties,
and with obtaining and enforcing our own patents and patent rights,
uncertainties regarding government reforms and of product pricing and
reimbursement levels, technological change and competition, manufacturing
uncertainties and dependence on third parties. Even if our 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 a large
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. For more information
about the risks we face, see "Risk Factors" included in Part I of our Form 10-K
filed with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A discussion of the Company's exposure to, and management of, market risk
appears in Part 1, Item 2 of this Quarterly Report on Form 10-Q under the
heading "Interest Rate Risk".
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits. There are no exhibits filed with this report.
(B) Reports on Form 8-K. There were no current reports on Forms 8-K filed
this quarter.
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.
Dated: May 4, 2001 /s/ Paul W. Hawran
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Paul W. Hawran
Executive Vice President and
Chief Financial Officer