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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: MARCH 31, 2000 Commission File No. 0-19193
CAMBRIDGE NEUROSCIENCE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3319074
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
ONE KENDALL SQUARE, BUILDING 700
CAMBRIDGE, MA 02139
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(Address of principal executive offices including zip code)
617-225-0600
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(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
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At April 30, 2000, 18,135,964 shares of Common Stock, par value $.001 per share,
were issued and outstanding.
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CAMBRIDGE NEUROSCIENCE, INC.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
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ITEM 1 - FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets
At March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6 - 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 - 9
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 10
PART II - OTHER INFORMATION
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31, December 31,
2000 1999
----------- ------------
ASSETS (Unaudited) (Note)
Current Assets
Cash and cash equivalents $ 3,690 $ 3,333
Marketable securities 5,522 6,489
Receivables from collaboration agreements 63 171
Prepaid expenses and other current assets 519 491
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Total Current Assets 9,794 10,484
Equipment, Furniture and Fixtures, net 254 285
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Total Assets $ 10,048 $ 10,769
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 771 $ 753
Research and development advances - -
--------- ----------
Total Current Liabilities 771 753
Stockholders' Equity
Preferred stock, par value $.01, 10,000
shares authorized; none issued - -
Common stock, par value $.001, 30,000
shares authorized; 18,136 shares issued
and outstanding at March 31, 2000
and at December 31, 1999 18 18
Additional paid-in capital 120,118 120,118
Accumulated deficit (110,859) (110,120)
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Total Stockholders' Equity 9,277 10,016
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Total Liabilities and Stockholders' Equity $ 10,048 $ 10,769
========= =========
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principals for complete
financial statements.
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended March 31,
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2000 1999
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Revenues
Research and development $ 313 $ 382
Operating expenses
Research and development 899 1,239
General and administrative 292 319
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1,191 1,558
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Loss from operations (878) (1,176)
Interest income 139 170
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Net loss $ (739) $ (1,006)
========= =========
Basic and diluted net loss per share $ (0.04) $ (0.06)
========= =========
Shares used in computing basic and diluted net
loss per share 18,136 18,100
========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended March 31,
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2000 1999
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Operating Activities
Net loss $ (739) $ (1,006)
Items not requiring cash:
Depreciation and amortization 39 48
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(700) (958)
Changes in current assets and liabilities:
Receivables from collaboration agreements 108 1,868
Prepaid expenses and other current assets (28) 375
Accounts payable and accrued expenses 18 (675)
Research and development advances -- (250)
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98 1,318
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Cash (used for) provided by operating activities (602) 360
Investing Activities
Purchases of marketable securities (990) (1,840)
Sales of marketable securities 1,957 1,613
Purchase of equipment, furniture and
fixtures, net of disposals (8) --
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Cash provided by (used for) investing activities 959 (227)
Financing Activities
Sale of common stock -- 8
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Cash provided by financing activities -- 8
Net increase in Cash and Cash Equivalents 357 141
Cash and Cash Equivalents at beginning of period 3,333 4,863
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Cash and Cash Equivalents at end of period $ 3,690 $ 5,004
========= ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as
of March 31, 2000 and for the three month periods ended March 31, 2000 and 1999
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
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, the accompanying consolidated 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
period ended March 31, 2000 are not necessarily indicative of the results
expected for the full fiscal year.
This Form 10-Q should be read in conjunction with the Company's 1999 Annual
Report on Form 10-K (file number 0-19193). The condensed consolidated balance
sheet presented as of December 31, 1999 is derived from such Form 10-K.
Cambridge NeuroScience, Inc. (the "Company") is a biopharmaceutical company
engaged in the discovery and development of proprietary pharmaceuticals to
prevent or treat severe disorders of, or injuries to, the nervous system.
2. BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is based on the weighted-average number of common shares
outstanding during each of the periods presented. Common equivalent shares from
stock options are excluded as their effect is antidilutive.
3. RESEARCH AND DEVELOPMENT REVENUE
Research and development revenue represents reimbursements by third parties
of the Company's expenditures pursuant to collaboration and license agreements
and government grants. Monies received or receivable with respect to such
agreements are deemed recognizable as revenue and recorded as such when all of
the following have occurred: all obligations of the Company relating to the
revenue have been met; monies received or receivable are not refundable
irrespective of research results; and there are no future obligations or future
milestones to be met by the Company with respect to such monies. Revenue from
government grants is recorded based on the performance requirements of each
respective grant. Expenses relating to collaboration and license agreements and
to the performance of government grants are recorded as research and development
expenses.
Cash received in advance of research and development revenue pursuant to
the Company's research and development agreements is designated as research and
development advances and is included in current liabilities.
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CAMBRIDGE NEUROSCIENCE, INC.
4. NEW ACCOUNTING PRINCIPLE
In April 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB No. 25." The Interpretation will be
applied prospectively to new awards, modifications to outstanding awards, and
changes in employee status on or after July 1, 2000, except in certain
circumstances. The Company believes the adoption of this new accounting standard
will not have a significant effect on its financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion contained in this section as well as elsewhere in this
Quarterly Report on Form 10-Q may contain forward-looking statements based on
the current expectations of the Company's management. The Company cautions
readers that there can be no assurance that actual results or business
conditions will not differ materially from those projected or suggested in the
forward-looking statements as a result of various factors, including, but not
limited to, the following: uncertainties relating to the Company's product
candidates; uncertainties as to the Company's ability to continue operations and
achieve profitability; the early stage of development of all of the Company's
product candidates; the Company's reliance on current and prospective
collaborative partners to supply funds for research and development and to
commercialize its products; technical risks associated with the development of
new products; the competitive environment of the biotechnology and
pharmaceutical industries, and the Company's ability to resolve potential year
2000 problems on a timely basis. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues
- --------
Research and development revenues in the three months ended March 31, 2000
decreased by $69,000 compared to the same period of 1999. Total revenue in the
first quarter of this year was solely comprised of research funding by Allergan,
Inc. (Allergan) under a collaboration in the area of eye disorders. Revenue
pursuant to this collaboration was $63,000 higher than in last year's first
quarter. This was the result of an increase in annual funding from $1.0 million
per year or $250,000 per quarter, for the twelve month period ended November
1999, to $1.25 million per year or $313,000 per quarter, which is the funding
rate for the twelve month period ending November 2000.
Revenue in the first quarter of last year was comprised of $250,000 in
research funding under the Allergan collaboration and $132,000 in research
funding from Bayer AG (Bayer), the Company's collaborator for Glial Growth
Factor 2 (GGF2). The Bayer revenue represented reimbursement of
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CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
the Company's costs under a research protocol covered by the agreement. Such
reimbursement totaled $1.0 million, and was received in full as of December 31,
1999. As of that date, the Company had completed its performance obligations
with respect to this collaboration (i.e. the research protocol), and will
therefore receive no further research funding from Bayer.
Operating Expenses
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Total operating expenses in the three months ended March 31, 2000 decreased
by $367,000 compared to the same period in 1999, a decrease of 24%. This
decrease was primarily due to lower research and development costs, by $340,000,
primarily in the area of Alzheimer's disease. During 1999, the Company incurred
$1.25 million, or $313,000 per quarter in research costs associated with a
collaboration with the J. David Gladstone Institutes (Gladstone) for research in
Alzheimer's disease. At December 31, 1999, the Company had completed its funding
obligations with respect to such research, and opted to conclude its research
and collaboration in this program.
Interest Income
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Interest income for the quarter ended March 31, 2000 decreased by $31,000
compared to the same period in 1999, as a result of lower cash, cash equivalents
and marketable securities available for investment, due to the use of cash for
operating purposes.
Net Loss Per Share
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For the quarter ended March 31, 2000, the Company's net loss was lower by
$267,000 than that of the same period last year. This difference was primarily
the result of lower research and development expenses, as described above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash, cash equivalents and marketable
securities of $9.2 million, compared to $9.8 million at December 31, 1999, a
decrease of $600,000. The decrease was primarily due to the use of cash for
operating activities.
In December 1998, the Company and Bayer entered into an agreement whereby
Bayer licensed the Company's rights to GGF2, initially for the treatment of
multiple sclerosis. In exchange, the Company received an upfront license fee of
$1.0 million, and during 1999 received $1.0 million for reimbursement of
research costs under a research protocol covered by the agreement.
Under terms of the collaboration, Bayer pays the costs of research,
development and manufacturing for GGF2. In addition, Bayer performs all such
activities, with the exception of certain initial research studies, which were
conducted by the Company and were subject to reimbursement by Bayer. These
initial studies were completed by the Company as of December 31, 1999. As of
that date, the Company had received all potential reimbursements, totaling $1.0
million, for such studies, and had no further responsibility to conduct research
studies. As such, it will receive no further research reimbursement from Bayer.
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CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The Company may receive up to $24.0 million in milestone payments, however,
there can be no assurance as to when or if any milestones will be achieved.
Bayer may terminate this agreement at any time upon 120 days written notice.
As discussed in the Company's 1999 Form 10-K filed on March 17, 2000, Bayer
and the Company are in the process of evaluating data from recent studies
performed by Bayer. Based on results of these studies, Bayer has indicated it is
undertaking a comprehensive review of all available options for further
development of GGF2 before finalizing a decision on further development. No
assurance can be given that there will not be a substantial delay in the
development of GGF2 or that Bayer will continue the development of GGF2.
Pursuant to a collaborative agreement with Allergan, the Company received a
total of $3.0 million in research funding, $1.0 million per year, through
November 1999. In December 1999, the research collaboration was renewed for a
one year period through November 2000. Funding for this additional twelve-month
period is at the rate of $1.25 million. Through March 31, 2000, the Company had
received $449,000 of this $1.25 million, and expects to receive the remaining
$801,000 during 2000. Under this agreement, Allergan is responsible for the
development of potential products and will bear all associated costs. The
collaboration also provides that the Company may receive up to an additional
$18.5 million upon the achievement of certain milestones. However, there can be
no assurance as to when or if these milestones will be achieved. Allergan may
terminate this agreement upon six months prior written notice.
In December 1999, the Company completed its funding obligations with
respect to research in the area of Alzheimer's disease. Such research was being
conducted by Gladstone under a collaboration agreement signed in 1996. Pursuant
to this collaboration, Gladstone conducted a research program over a three-year
period for which the Company provided $1.25 million in funding per year. In
December 1999, the Company decided not to pursue further research in this area.
The Company is in the process of preparing for phase II clinical trials of
CNS 5161 for the treatment of chronic pain. The Company hopes to begin
enrollment of patients into a phase II study by the end of 2000. Prior to
enrolling patients, the Company must complete certain manufacturing, safety and
other drug-related studies. The Company anticipates expending approximately $1.0
million during 2000 undertaking this further development of CNS 5161.
The Company is continuing to evaluate alternatives for maximizing
shareholder value, which may include the sale of some or all of the Company's
technology and other assets or a merger with another company.
The Company believes that its cash, cash equivalents and marketable
securities, totaling $9.2 million as of March 31, 2000, will be sufficient to
maintain operations into 2001.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by Item 3 is not provided as the disclosure
requirements are not applicable to the Company pursuant to Item 305(e) of
Regulation S-K.
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CAMBRIDGE NEUROSCIENCE, INC.
PART II - OTHER INFORMATION
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the interim year-to-date period
ended March 31, 2000 (for electronic filing only)
10.29 Lease agreement between the Company and New Providence Realty
Trust dated April 11, 2000 (for electronic filing only).
(b) Reports on Form 8-K
None.
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CAMBRIDGE NEUROSCIENCE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBRIDGE NEUROSCIENCE, INC.
Date May 12, 2000 /s/ Harry W. Wilcox, III
- --------------------------------- ------------------------
Harry W. Wilcox, III
President and Chief Executive Officer
(Principal Executive Officer; Acting
Principal Financial Officer)
Date May 12, 2000 /s/ Glenn A. Shane
- --------------------------------- -------------------------
Glenn A. Shane
(Principal Accounting Officer)
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CAMBRIDGE NEUROSCIENCE, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27.1 Financial Data Schedule for the interim year-to-date period
ended March 31, 2000 (for electronic filing only)
10.29 Lease agreement between the Company and New Providence Realty
Trust dated April 11, 2000 (for electronic filing only).
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