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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, 1997
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 16,873,761 as of April 30, 1997
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NEUROCRINE BIOSCIENCES, INC
FORM 10-Q
INDEX
PAGE
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Balance Sheets as of March 31, 1997 and December 31, 1996 3
Condensed Statements of Operations for the three months
ended March 31, 1997 and 1996 4
Condensed Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 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 7
Liquidity and Capital Resources 8
PART II OTHER INFORMATION
ITEM 6: a. Exhibits 10
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10.1 Purchase and Sale Agreement and Escrow Instructions
between MS Vickers II, LLC and Neurocrine Biosciences
dated February 13, 1997.
27.1 Financial Data Schedule
SIGNATURES 11
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENT
NEUROCRINE BIOSCIENCES, INC.
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents $ 7,218,310 $ 11,325,361
Short-term investments, available for sale 64,611,999 58,594,853
Receivables under collaborative agreements 3,121,885 1,329,513
Other current assets 1,301,580 840,962
------------ ------------
Total current assets 76,253,774 72,090,689
Furniture, equipment, and leasehold improvements, net 3,783,534 3,546,420
Licensed technology and patent application costs, net 1,397,785 1,443,403
Other assets 1,456,019 876,070
------------ ------------
Total assets $ 82,891,112 $ 77,956,582
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 896,110 $ 800,157
Accrued expenses, other current liabilities, and current
portion of obligations under capital leases 3,610,704 3,267,357
------------ ------------
Total current liabilities 4,506,814 4,067,514
Other long-term liabilities 1,214,428 1,122,100
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 - 16,869,820 shares in 1997
16,776,614 in 1996 83,050,033 82,788,513
Accumulated deficit (5,880,163) (10,021,545)
------------ ------------
Total stockholders' equity 77,169,870 72,766,968
------------ ------------
Total liabilities and stockholders' equity $ 82,891,112 $ 77,956,582
============ ============
Note: The balance sheet at December 31, 1996 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.
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NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1997 1996
------------ ------------
Revenues under collaborative research agreements:
Sponsored research $ 2,637,500 $ 1,625,000
Milestones 5,000,000 --
Other revenue 1,216,391 533,978
------------ ------------
Total revenues 8,853,891 2,158,978
Operating expenses
Research and development 4,589,078 1,794,484
General and administration 1,144,549 570,797
------------ ------------
Total operating expenses 5,733,627 2,365,281
------------ ------------
Income (loss) from operations 3,120,264 (206,303)
Interest income 923,231 259,164
Interest expense (47,626) (71,822)
Other income 199,513 43,627
------------ ------------
Income before income taxes 4,195,382 24,666
Provision for income taxes 54,000 --
Net income $ 4,141,382 $ 24,666
============ ============
Net income per share $ 0.23 --
============ ============
Shares used in computing net income
per share 18,145,102 13,240,248
============ ============
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,
-------------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES
Net income $ 4,141,382 $ 24,666
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Compensation expense recognized for stock options 39,042 24,952
Write-off of licensed technology and patent application costs -- --
Depreciation and amortization 222,031 205,305
Deferred revenue -- 372,991
Deferred rent 110,211 13,819
Change in operating assets and liabilities:
Other current assets (2,252,990) (2,129,500)
Other assets (389,949) (23,401)
Accounts payable and accrued liabilities 456,259 (1,136,281)
------------ ------------
Net cash flows provided by (used in) operating activities 2,325,986 (2,647,449)
INVESTING ACTIVITIES
Purchases of short-term investments (23,407,959) (29,866,339)
Sales/maturities of short-term investments 17,307,653 21,587,231
Purchase of licensed technology and expenditures for
patent application costs -- (105,899)
Purchases of furniture, equipment and leasehold improvements (413,527) (148,286)
------------ ------------
Net cash flows used in investing activities (6,513,833) (8,533,293)
FINANCING ACTIVITIES
Issuance of common stock, net 303,021 5,000,000
Principal payments on obligations under capital leases (224,842) (177,121)
Payments received on notes receivable from stockholders 2,617 2,618
------------ ------------
Net cash flows provided by financing activities 80,796 4,825,497
------------ ------------
Decrease in cash and cash equivalents (4,107,051) (6,355,245)
Cash and cash equivalents at beginning of period 11,325,361 6,392,749
============ ============
Cash and cash equivalents at end of period $ 7,218,310 $ 37,504
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 47,626 $ 71,836
Taxes paid ============ ============
$ 100,000 -
============ ============
See accompanying notes to condensed financial statements.
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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, 1996,
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
2. NET INCOME PER SHARE
Net income 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 below the initial public
offering 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 that date (using the treasury stock method
and the initial public offering price of $10.50 per share). For the three month
periods ended March 31, 1997 and 1996, shares used in computing net income per
share also include common equivalent shares arising from dilutive stock options,
warrants, and convertible preferred shares which were issued more than 12 months
immediately preceding the IPO or subsequent to the IPO, using the treasury stock
method. Income per share on a fully diluted basis was unchanged.
In February 1997, the Financial Accounting Standards Board issued Statment
No. 128, "Earnings per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new method, the dilutive effect of common stock equivalents will be excluded
from "basic" earnings per share, and basic earnings per share for the three
months ended March 31, 1997 and 1996 will be $0.25 and approximately $0.01,
respectively. Under the new method, "diluted" earnings per share will not be
materially different than earnings per share as presented herein.
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 March 31, 1997 NPI had total
assets consisting primarily of cash and cash equivalents of $8.7 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.
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ITEM 2. MANAGEMENT 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, 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 1996 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 for the foreseeable future. The
Company's revenues are expected to come from its strategic alliances. Neurocrine
has incurred a cumulative deficit of approximately $5.9 million as of March 31,
1997 and expects to incur substantial additional operating losses in the future
which are potentially greater than losses in prior years.
RESULTS OF OPERATIONS
Revenues increased to $8.9 million for the quarter ended March 31, 1997
compared with $2.2 million for the same period in 1996. This increase was
primarily due to increased research support milestone revenues recognized under
the collaboration with Eli Lilly.
Research and development expenses increased to $4.6 million for the quarter
ended March 31, 1997 compared with $1.8 million for the same period in 1996.
This increase reflects continued additions to scientific and clinical
development personnel, and related support expenditures as the Company increased
its research and clinical development activities primarily in the CRF and
Altered Peptide Ligand programs.
General and administrative expenses increased to $1.1 million for the
quarter ended March 31, 1997 compared with $571,000 for the same period in 1996.
This increase resulted from additional administrative personnel and related
business development and professional services expenses to support the increased
research and development efforts.
Interest income increased to $924,000 for the quarter ended March 31, 1997
compared with $259,000 for the same period in 1996. This increase was due to
increased investment income attributable to increased cash and short term
investments.
Net income increased to $4.1 million or $.23 per share compared with
$25,000 or approximately $.01 per share for the same period in 1996. The
increase in net income and net income per share was primarily attributable to
the increased revenues earned under the Eli Lilly collaboration.
The Company's revenues to date have come from funded research and
achievement of milestones under corporate collaborations which leads to
substantial fluctuations in the results of quarterly earnings. Accordingly,
results of one quarter are not predictive of future quarters.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 the Company's cash, cash equivalents, and short-term
investments totaled $71.8 million. This excludes approximately $8.0 million held
by NPI which is available to fund certain of the Company's research and
development activities and $3.7 million due from corporate collaborators
expected to be collected by the end of the second quarter of 1997.
Cash provided by operating activities during the quarter ended March 31,
1997 increased to $2.3 million compared with a net use of $2.6 million for the
same period in 1996. The increase was primarily the result of the receipt of a
$5.0 million research support milestone payment under the Eli Lilly
collaboration.
Cash used in investing activities during the quarter ended March 31, 1997
decreased to $6.5 million compared with $8.5 million for the same period in
1996. This decrease was 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 provided by financing activities during the quarter ended March 31,
1997 decreased to $81,000 compared with $4.8 million for the same period in
1996. This decrease was due to the absence of significant equity offerings
during the first quarter of 1997.
Neurocrine has primarily financed its operations through proceeds from the
sale of Common Stock and corporate collaborations. In February 1994, the Company
completed the final closing of a private placement offering which resulted in
net proceeds of approximately $27.6 million. In May 1996, the Company sold 3.5
million shares of Common Stock in an initial public offering resulting in net
proceeds of $34.2 million. Concurrent with this offering the Company sold
714,286 shares of Common Stock to corporate collaborators, resulting in
aggregate net proceeds to the Company of approximately $7.2 million. In June
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 approximately $1.8
million.
In February 1997 the Company entered into an agreement to purchase a parcel
of land in San Diego and made a $250,000 escrow deposit. The Company intends to
sell the property to a developer for the purpose of constructing an expanded
laboratory and office complex which the Company intends to lease back from the
developer under a long-term operating lease. Should the Company cancel the
agreement for reasons other than those provided for in the contract it may
forfeit its $250,000 deposit.
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 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
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
timing of expenditures will vary depending upon a number of factors, including
progress of the Company's research and development programs.
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 with 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 substantial 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.
Neurocrine expects to incur substantial 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.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1 Purchase and Sale Agreement and Escrow Instructions between
MS Vickers II, LLC and Neurocrine Biosciences
dated February 13, 1997.
27.1 Financial Data Schedule
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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: 5/14/97 /s/ Paul Hawran
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PAUL W. HAWRAN
Senior Vice President and Chief Financial Officer
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