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, 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)
10555 SCIENCE CENTER DRIVE
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, par value
of $.001, was 18,161,626 as of July 31, 1998.
NEUROCRINE BIOSCIENCES, INC
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements 3
Condensed Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated 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 9
PART II. OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds 10
Item 4: Submission of Matters to a Vote of Security Holders 10
Item 6: Exhibits and Reports on Form 8-K 13
SIGNATURES 13
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NEUROCRINE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------------- -------------------
(Unaudited) (Note)
SETS
Current assets
Cash and cash equivalents $ 10,643,020 $ 15,771,099
Short-term investments, available-for-sale 54,555,970 59,321,095
Receivables under collaborative agreements 225,302 193,784
Receivables from related parties and other 695,795 940,100
Prepaid expenses 425,268 151,553
------------------- -------------------
Total current assets 66,545,355 76,377,631
Property and equipment, net 9,853,342 8,846,179
Licensed technology and patent application costs, net 1,076,079 1,185,384
Investment in Neuroscience Pharma, Inc. 3,901,288 3,343,740
Other assets 2,159,877 2,150,451
=================== ===================
Total assets $ 83,535,941 $ 91,903,385
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 614,357 $ 1,822,173
Accrued expenses, other current liabilities
and current portion of long-term debt 2,791,852 5,547,697
------------------- -------------------
Total current liabilities 3,406,209 7,369,870
Long-term liabilities 1,705,871 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 -
18,144,225 in 1998 and 17,686,802 in 1997 92,479,580 88,047,176
Accumulated deficit (14,055,719) (4,894,701)
------------------- -------------------
Total stockholders' equity 78,423,861 83,152,475
=================== ===================
Total liabilities and stockholders' equity $ 83,535,941 $ 91,903,385
=================== ===================
<FN>
Note: The balance sheet at December 31, 1997 was derived from the audited
financial statements at that date, but does not include all of the disclosures
required by generally accepted accounting principals.
</FN>
See accompanying notes to condensed consolidated financial statements.
NEUROCRINE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Sponsored research $ 1,887,500 $ 2,637,500 $ 3,775,000 $ 5,275,000
Milestones - 1,000,000 1,250,000 6,000,000
Other revenues 403,265 1,163,694 1,402,236 2,380,085
------------------- ----------------- -------------------- ------------------
Total revenues 2,290,765 4,801,194 6,427,236 13,655,085
Operating expenses
Research and development 4,866,448 4,440,251 9,907,484 9,029,329
General and administrative 1,338,838 1,343,901 2,867,318 2,488,450
Special charges 5,509,701 - 5,509,701 -
------------------- ----------------- -------------------- ------------------
Total operating expenses 11,714,987 5,784,152 18,284,503 11,517,779
Income (loss) from operations (9,424,222) (982,958) (11,857,267) 2,137,306
Other income and expenses
Interest income 1,000,038 910,037 2,119,511 1,833,268
Interest expense (30,072) (40,785) (64,205) (88,411)
Other income 478,404 239,512 640,943 439,025
------------------- ----------------- -------------------- ------------------
Income (loss) before income taxes (7,975,852) 125,806 (9,161,018) 4,321,188
Income taxes - 22,393 - 76,393
------------------- ----------------- -------------------- ------------------
Net income (loss) $(7,975,852) $ 103,413 $(9,161,018) $ 4,244,795
=================== ================= ==================== ==================
Earnings (loss) per common
Share
Basic $ (0.45) $ 0.01 $ (0.51) $ 0.25
Diluted $ (0.45) $ 0.01 $ (0.51) $ 0.22
Shares used in the calculation
of earnings (loss) per share
Basic 17,874,018 16,889,170 17,790,297 16,859,987
Diluted 17,874,018 19,190,139 17,790,297 19,219,160
See accompanying notes to condensed consolidated financial statements.
NEUROCRINE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1998 1997
------------------ -------------------
Cash flow from operating activities:
Net income (loss) $(9,161,018) $ 4,244,795
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Non-cash portion of special charges 4,799,984 -
Depreciation and amortization 780,837 559,185
Deferred revenues (1,750,000) 1,750,000
Deferred expenses 241,303 272,639
Change in operating assets and liabilities:
Other current assets (60,928) (6,810,888)
Other non-current assets (566,974) (3,718,032)
Accounts payable and accrued liabilities (2,066,403) (83,934)
------------------ -------------------
Net cash flows used in operating activities (7,783,199) (3,786,235)
Cash flow from investing activities:
Purchases of short-term investments (27,062,723) (38,986,324)
Sales/maturities of short-term investments 31,832,942 56,870,228
Purchases of property and equipment, net (1,678,695) (2,437,681)
------------------ -------------------
Net cash flows provided by investing activities 3,091,524 15,446,223
Cash flow from financing activities:
Issuance of Common Stock, net 109,320 365,781
Principal payments on long term (546,772) (410,898)
Notes receivable payments from stockholders 1,048 5,237
------------------ -------------------
Net cash flows used in financing activities (436,404) (39,880)
------------------ -------------------
Net (decrease) increase in cash and cash equivalents (5,128,079) 11,620,108
Cash and cash equivalents at beginning of the period 15,771,099 11,325,361
------------------ -------------------
Cash and cash equivalents at end of the period $10,643,020 $22,945,469
================== ===================
<FN>
Supplemental schedule of non-cash investing and financing activities:
During 1998, the Company recorded non-cash items of $1.4 million relating
to the conversion of a note receivable to an investment in NPI and $4.2
million for the acquisition of NNL.
</FN>
See accompanying notes to condensed consolidated financial statements.
NEUROCRINE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein are
unaudited. These financial statements include the accounts of Neurocrine
Biosciences, Inc. and Northwest NeuroLogic, Inc., a wholly owned subsidiary
since its acquisition on May 28, 1998. All significant intercompany transactions
were eliminated in consolidation.
The condensed consolidated financial statements 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 earnings per
share presentations for the periods ended June 30, 1997.
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 non-owner
sources. For the three and six months ended June 30, 1998 and 1997,
comprehensive income is calculated as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------------------------------- ----------------------------------
Net income (loss) $(7,975,852) $ 103,413 $(9,161,018) $4,244,795
Unrealized gains (losses) on investments (11,978) 3,482 5,094 (79,678)
----------------- ---------------- ----------------- ---------------
Comprehensive income (loss) $(7,987,830) $ 106,895 $(9,155,924) $4,165,117
================= ================ ================= ===============
4. ACCOUNTING FOR PENSIONS AND HEDGING ACTIVITIES
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 132, "Employee's Disclosures about Pension
and Other Post-retirement Benefits", which is effective for periods beginning
after December 15, 1997 ("SFAS 132"). SFAS 132 revises disclosures about pension
and other post-retirement benefit plans. The Company believes this statement
will have no material impact on its financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999 ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company is currently evaluating the impact SFAS No. 133 will
have on its financial statements, if any.
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") contains 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 $14.1 million as of June 30, 1998 and
expects to incur operating losses in the future, which are potentially greater
than losses in prior years.
RESULTS OF OPERATIONS
Three months ended June 30, 1998 compared with three months ended
June 30, 1997
Revenues for the second quarter of 1998 were $2.3 million compared to $4.8
million for the comparable period in 1997. The decline of $2.5 million in
revenues resulted from the completion of sponsored research under the Janssen
collaboration and milestone payments received under the Novartis collaboration
during 1997.
The research completed under the Janssen collaboration resulted in a
clinical compound (R121919). Janssen is currently conducting Phase I trials with
R121919 for anxiety/depression and is expected to progress to Phase II trials
near the end of the third quarter of 1998. Phase II trials for multiple
sclerosis under the Novartis collaboration is currently in progress.
Research and development expenses increased to $4.9 million for the second
quarter of 1998 compared to $4.4 million for the same period in 1997. This
increase reflects higher costs associated with increased scientific personnel
and related support expenditures as the Company broadens its research and
clinical development pipeline. General and administrative expenses remained
constant at $1.3 million during the second quarter of 1998 compared to the same
period in 1997.
Special charges for the second quarter of 1998 consisted of $4.2 million
related to the acquisition of Northwest Neurologic, Inc. ("NNL"), $1.3 million
related to the in-licensing of two chemical compounds for insomnia and
glioblastoma, and additional investment in the Company's Canadian affiliate.
Interest income increased to $1.0 million during the second quarter of 1998
compared to $910,000 for the same period last year. This increase was due to
higher effective interest yields on the Company's investment portfolio during
the second quarter of 1998.
Net losses for the second quarter of 1998 were $8.0 million or $0.45 per
share ($0.14 per share excluding special charges) compared to net income of
$103,000 or approximately $0.01 per share for the same period in 1997. The
decrease in net earnings and earnings per share resulted primarily from
non-recurring collaborative revenues of $2.5 million reported in 1997 and
special charges of $5.5 million reported during the second quarter of 1998.
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.
Six months ended June 30, 1998 compared with six months ended
June 30, 1997
Revenues for the first half 1998 were $6.4 million compared to $13.7 million
for the comparable period in 1997. The decline in revenues of $7.3 million
resulted from the completion of sponsored research under Janssen collaboration,
milestone payments received under the Novartis collaboration and a $5.0 million
research support payment received under the Eli Lilly collaboration during 1997.
The research completed under the Janssen collaboration resulted in a
clinical compound (R121919). Janssen is currently conducting Phase I trials with
R121919 for anxiety/depression and is expected to progress to Phase II trials
near the end of the third quarter of 1998. Phase II trials for multiple
sclerosis under the Novartis collaboration is in progress.
Research and development expenses increased to $9.9 million for the first
half of 1998 compared with $9.0 million for the same period in 1997. This
increase reflects higher costs associated with increased scientific personnel
and related support expenditures as the Company broadens its research and
clinical development pipeline.
General and administrative expenses increased to $2.9 million during the
first half of 1998 compared to $2.5 million for the same period in 1997. The
increase resulted primarily from additional administrative personnel, business
development and professional service expenses to support the expanded research
and clinical development efforts.
Special charges for the first half of 1998 consisted of $4.2 million related
to the acquisition of Northwest Neurologic, Inc. ("NNL"), $1.3 million related
to the in-licensing of two chemical compounds for insomnia and glioblastoma, and
additional investment in the Company's Canadian affiliate.
Interest income increased to $2.1 million during the first half of 1998
compared to $1.8 million for the same period last year. This increase primarily
resulted from higher effective interest yields on the Company's investment
portfolio during 1998.
Net losses for the first half of 1998 were $9.2 million or $0.51 per share
($0.21 per share excluding special charges) compared to net income of $4.2
million or $0.25 per share ($0.22 per share assuming dilution) for the same
period in 1997. The decrease of $13.4 million in net earnings resulted primarily
from $7.3 million of non-recurring collaborative revenues recorded in 1997,
including a $5.0 million research support payment received from Eli Lilly, and
special charges of $5.5 million reported in 1998.
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 year-to-date revenues and earnings. Accordingly, results and
earnings of one period are not predictive of future periods.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's cash, cash equivalents, and short-term
investments totaled $65.2 million. Cash held by the Company excludes
approximately $5.9 million held by NPI, which is available to fund certain of
the Company's research and development activities.
Cash used in operating activities during 1998 was $7.8 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 1998 was primarily the result of the
recognition of deferred revenues, decreased revenues under the Company's
collaborations and payment of current liabilities.
Cash provided by investing activities during 1998 was $3.1 million compared
to net cash used of $6.5 million during 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 1998 was $436,000 compared to net
cash provided of $81,000 for the same period in 1997. The increase in net cash
used was primarily due to 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.
OTHER EVENTS
The Company entered into a patent license agreement with David Fitzgerald
and Ira Pastan on April 28, 1998, and with the National Institutes of Health on
May 7, 1998 (collectively the "Patent Agreements"). Under the Patent Agreements,
the Company obtained an exclusive license covering the therapeutic application
of an anti-cancer compound referred to as IL-4(38-37)-PE38KDEL (IL-4 Fusion
Toxin). The Company is obligated to make milestone payments upon attainment of
certain clinical development and regulatory accomplishments and royalty payments
based upon sales by the Company of products developed under the Patent
Agreements. During the quarter ended June 30, 1998, the Company initiated Phase
I human clinical trials with the anti-cancer compound in patients with malignant
brain tumors.
On May 28, 1998, the Company acquired Northwest NeuroLogic, Inc., an Oregon
corporation ("NNL"). The Company purchased all of the outstanding capital stock
of NNL and assumed all of its outstanding stock options in exchange for 392,608
shares of the Company's Common Stock and options to purchase 105,414 shares of
Common Stock. The acquisition was accounted for as a purchase transaction. The
aggregate purchase price of $4.2 million was allocated to the fair value of the
net assets acquired, the majority of which was acquired in-process research and
development. There can be no assurance that the Company will be successful in
developing these compounds, that they will receive necessary FDA approvals to
proceed to the next phase of clinical testing, or that they will ultimately be
developed into commercially viable products.
The Company's results of operations include NNL's results of operations from
the date of acquisition. There can be no assurance that the Company will not
incur additional charges in subsequent quarters to reflect costs associated with
the transaction or that the Company will be successful in its efforts to
integrate the operations of NNL into those of the Company.
The Company may make further acquisitions and investments and enter into
further collaborations, joint ventures and strategic alliances, some of which
may be material, when it believes such transactions will complement its overall
business strategy. However, such transactions, and in particular the
acquisitions of research and development companies, are inherently risky and
there can be no assurance that the recently completed acquisition or any such
future transactions or joint ventures will be successful and will not adversely
affect the Company's business, operating results, or financial condition.
On June 30, 1998, the Company entered into a Sublicense and Development
Agreement (the "Sublicense Agreement") with DOV Pharmaceutical, Inc. ("DOV").
Under the Sublicense Agreement, the Company obtained an exclusive sublicense to
the patent rights and know-how relating to NBI-34060, a compound in clinical
development, for the treatment of insomnia and all therapeutic indications.
Under the Sublicense Agreement, the Company will be responsible for worldwide
development and commercialization of this compound. In conjunction with the
Sublicense Agreement, the Company made an equity investment in DOV and will make
milestone payments based upon the attainment of certain clinical development and
regulatory accomplishments. DOV will also receive royalties on the worldwide
sales by the Company of approved products resulting from the collaboration. In
addition, the Company issued warrants (the "Warrants") exercisable for an
aggregate of 75,000 shares of Common Stock at an exercise price of approximately
$8.04 per share upon the occurrence of certain events.
YEAR 2000 COMPLIANCE
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 has not yet verified
that the parties it conducts business with 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.
CAUTION ON FORWARD-LOOKING STATEMENTS
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 a
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 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 28, 1998, the Company acquired Northwest NeuroLogic, Inc. ("NNL"),
pursuant to the Agreement and Plan of Reorganization dated May 1, 1998 (the
"Agreement"). In connection with the acquisition of NNL, the Company issued an
aggregate of 392,608 shares of the Company's Common Stock (the "Merger Shares")
to the existing stockholders of NNL in exchange for all of the outstanding
shares of capital stock of NNL. The Merger Shares were issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 4 (2) thereof. The
stockholders of NNL had access to all relevant information regarding the Company
necessary to evaluate the investment and represented that the shares were being
acquired for investment intent. Additionally, the stockholders of NNL were
provided with information statements prior to the vote to approve the
transaction. There was no general solicitation or advertising involved in the
acquisition, and the Company used reasonable care to assure that the
stockholders of NNL were not underwriters. At the closing of the acquisition,
the Company assumed the outstanding stock options held by NNL optionees based on
an exchange ratio as set forth in the Agreement. The 105,414 shares of Common
Stock underlying the options were registered on a Registration Statement on Form
S-8 filed with the Commission on June 26, 1998.
On June 30, 1998, the Company issued to certain investors warrants (the
"Warrants") to purchase shares of Common Stock of the Company in connection with
the Sub-License and Development Agreement between the Company and DOV
Pharmaceutical, Inc. dated June 30, 1998. The Warrants are exercisable for an
aggregate of 75,000 shares of Common Stock at an exercise price of approximately
$8.04 per share.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on May 27, 1998
(the "Annual Meeting").
(b) The following Class II Directors were elected at the Annual Meeting:
Name Position Term Expires
---- -------- ------------
Richard Pops Class II Director 2001
David Robinson Class II Director 2001
The following Class I and III Directors continue to serve their respective
terms which expire on the Company's Annual Meeting of Stockholders in the year
as noted:
Name Position Term Expires
---- -------- ------------
Joseph Mollica Class I Director 2000
Wylie Vale Class I Director 2000
Errol DeSouza Class I Director 2000
Gary Lyons Class III Director 1999
Harry Hixson Class III Director 1999
(c) At the Annual Meeting, stockholders voted on four matters: (i) the
election of two Class II directors for a term of three years expiring in 2001,
(ii) the amendment of the 1992 Incentive Stock Plan (the "1992 Plan") to
increase the number of shares of Common Stock reserved for issuance thereunder
from 4,100,000 to 4,700,000 shares, (iii) the amendment of the 1996 Director
Option Plan (the "Director Plan") to increase the number of shares of Common
Stock reserved for issuance thereunder from 100,000 to 200,000 shares, and (iv)
the ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors. The matters voted upon at the meeting and the voting
results were as follows:
(i) The election of Richard Pops and David Robinson as Class II Directors
for a term of three years: For 12,404,075, Withhold 51,324.
(ii)Approval of amendment to the Company's 1992 Incentive Stock Plan,
increasing the number of shares of Common Stock reserved for issuance
from 4,100,000 to 4,700,000 Shares: For 11,845,420, Against 581,914,
Abstain 28,065.
(iii) Approval of amendment to the Company's 1996 Director Option Plan,
increasing the number of shares of Common Stock reserved for issuance
from 100,000 to 200,000 Shares: For 11,941,921, Against 479,139,
Abstain 34,339.
(iv)Ratification of the appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending December 31, 1997: For
12,423,485, Against 17,754, Abstain 14,160.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits to this report are listed in the table below.
Exhibit No. Exhibit Description
2.1* Agreement and Plan of Reorganization dated May 1, 1998, between
Northwest NeuroLogic, Inc., NBI Acquisition Corp. and the
Registrant.
2.2* Registration Rights Agreement dated May 28, 1998, between certain investors
and the Registrant.
2.3 Form of Warrant pursuant to the Agreement and Plan of Reorganization dated
May 1, 1998.
10.1* Patent License Agreement dated May 7, 1998 between the U.S. Public Health
Service and the Registrant.
10.2* Patent License Agreement dated April 28, 1998, between and among Ira Pastan,
David Fitzgerald and the Registrant.
10.3* Sub-License and Development Agreement dated June 30, 1998, by and between
DOV Pharmaceutical, Inc. and the Registrant.
10.4* Warrant Agreement dated June 30, 1998, between DOV Pharmaceutical, Inc. and the
Registrant.
10.5* Warrant Agreement dated June 30, 1998, between Jeff Margolis and the
Registrant.
10.6* Warrant Agreement dated June 30, 1998, between Stephen Ross and the
Registrant.
27.1 Financial Data Schedule
<FN>
* Portions of this Exhibit have been omitted pursuant to a confidentiality
request filed with the Securities and Exchange Commission.
</FN>
(b) Reports on Form 8-K. During the quarter ended June 30, 1998, the Company
filed no current Reports on Form 8-K.
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: 08/14/98 /s/ Paul W. Hawran
PAUL W. HAWRAN
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)