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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: JUNE 30, 1996 Commission File No. 0-19193
CAMBRIDGE NEUROSCIENCE, INC.
----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3319074
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
ONE KENDALL SQUARE, BUILDING 700
CAMBRIDGE, MA 02139
-------------------
(Address of principal executive offices including zip code)
617-225-0600
------------
(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
---
At July 31, 1996, 13,571,327 shares of Common Stock, par value $.001 per share,
were issued and outstanding.
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CAMBRIDGE NEUROSCIENCE, INC.
INDEX
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PAGE
PART I - FINANCIAL INFORMATION NUMBER
- ------------------------------ ------
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
at June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 1996 and 1995 4 - 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7 - 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 - 11
PART II - OTHER INFORMATION
- ---------------------------
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
ASSETS (unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 18,613,906 $ 21,937,450
Prepaid expenses and other current assets 668,039 506,721
------------ ------------
TOTAL CURRENT ASSETS 19,281,945 22,444,171
EQUIPMENT, FURNITURE AND FIXTURES, NET 1,479,544 1,876,473
------------ ------------
$ 20,761,489 $ 24,320,644
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and accrued expenses $ 2,586,422 $ 3,797,308
Deferred Revenue 3,795,769 995,205
------------ ------------
TOTAL CURRENT LIABILITIES 6,382,191 4,792,513
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01, 10,000,000
shares authorized; none issued - -
Common stock, par value $.001, 30,000,000
shares authorized; 13,564,494 shares issued
and outstanding at June 30, 1996;
13,539,214 at December 31, 1995 13,564 13,539
Additional paid-in capital 96,340,238 96,169,488
Accumulated deficit (81,974,504) (76,654,896)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 14,379,298 19,528,131
------------ ------------
$ 20,761,489 $ 24,320,644
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
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4
CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
----------- -----------
Revenues
Research and development, net $ 675,753 $ 1,023,000
----------- -----------
675,753 1,023,000
Operating expenses
Research and development 3,289,729 3,744,322
General and administrative 591,653 563,902
----------- -----------
3,881,382 4,308,224
----------- -----------
Loss from operations (3,205,629) (3,285,224)
Interest income 256,962 225,082
----------- -----------
Net loss $(2,948,667) $(3,060,142)
=========== ===========
Net loss per common share $ (0.22) $ (0.25)
=========== ===========
Number of shares outstanding for purposes of
computing net loss per share 13,561,847 12,040,151
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
----------- -----------
Revenues
Research and development, net $ 1,746,301 $ 5,689,667
Government grants - 63,400
----------- -----------
1,746,301 5,753,067
Operating expenses
Research and development 6,365,976 6,735,418
General and administrative 1,239,847 1,106,468
----------- -----------
7,605,823 7,841,886
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Loss from operations (5,859,522) (2,088,819)
Interest income 539,914 296,561
----------- -----------
Net loss $(5,319,608) $(1,792,258)
=========== ===========
Net loss per common share $ (0.39) $ (0.16)
=========== ===========
Number of shares outstanding for purposes of
computing net loss per share 13,553,762 11,480,437
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1995
----------- -----------
OPERATING ACTIVITIES
Net loss $(5,319,608) $(1,792,258)
Expenses not requiring cash:
Depreciation and amortization 522,000 596,800
Common stock issued pursuant to an
employee benefit plan 76,475 67,908
----------- -----------
(4,721,133) (1,127,550)
Changes in current assets and liabilities:
Prepaid expenses and other current assets (161,318) (447,929)
Accounts payable and accrued expenses (1,210,886) 215,495
Deferred revenue 2,800,564 942,150
----------- -----------
1,428,360 709,716
----------- -----------
Cash used for operating activities (3,292,773) (417,834)
INVESTING ACTIVITIES
Purchase of equipment, furniture and
fixtures, net of disposals (125,071) (66,367)
----------- -----------
Cash used for investing activities (125,071) (66,367)
FINANCING ACTIVITIES
Sales of common stock, net of offering
costs and repurchases 94,300 9,359,048
----------- -----------
Cash provided by financing activities 94,300 9,359,048
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,323,544) 8,874,847
Cash and cash equivalents at beginning of period 21,937,450 6,268,757
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $18,613,906 $15,143,604
=========== ===========
The accompanying notes are an integral part of the 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 June 30, 1996 and for the three and six month periods ended June 30, 1996 and
1995 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 financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial condition, results of operations and
cash flows for the periods presented. The results of operations for the interim
period ended June 30, 1996 are not necessarily indicative of the results
expected for the full fiscal year.
The financial statements presented as of December 31, 1995 are derived
from the audited financial statements and footnotes included in the Company's
Annual Report on Form 10-K (file number 0-19193).
Cambridge NeuroScience, Inc. (the "Company") is engaged in the
development of proprietary pharmaceuticals to prevent, reduce or reverse damage
caused by severe disorders of the nervous system.
2. LOSS PER COMMON SHARE
---------------------
Net loss per common share is based on the weighted-average number of
common shares outstanding during each of the periods. Common equivalent shares
from stock options are excluded as their effect is antidilutive.
3. RESEARCH AND DEVELOPMENT REVENUE, NET
-------------------------------------
Research and development revenue represents reimbursement of the excess
of the Company's expenditures over its obligations pursuant to the collaboration
agreement with Boehringer Ingelheim ("BI"). The Company accounts for research
and development revenue using the percentage of completion method, based on the
relationship between estimated costs incurred to date compared with total
estimated costs for the year. Total estimated costs for the year are reviewed
quarterly and revenue earned in the current period is adjusted for the impact of
revisions to the estimated reimbursable costs. Therefore, revenue earned may
fluctuate on a quarterly basis. Payments received in advance of research and
development performed are designated as deferred revenue.
4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
The Company has adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS 121 had no impact on the financial position or results of
operations of the Company as no indicators of impairment currently exist.
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CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED
----------------------------------------------------
The Company has elected to adopt the disclosure provisions only of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, and will continue to follow APB 25 and related interpretations in
accounting for its employee stock plans.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues
Research and development revenue, arising from the Company's
collaboration with BI was $676,000 for the second quarter of 1996, compared to
$1 million in the same period in 1995. The agreement generally provides that BI
will fund at least 75% of the development costs incurred by both parties.
Revenue recognized represents reimbursement of the excess of the Company's
expenditures over its obligation under the agreement (see Note 3 to the
Condensed Consolidated Financial Statements). The decrease in revenue in the
second quarter of 1996 compared to 1995 reflects a change in the relative
spending of the parties to the collaboration agreement and may fluctuate on a
quarterly basis.
Total operating expenses for the three month period ended June 30, 1996
were $3.9 million, compared to $4.3 million in the same period in 1995. Research
and development expenses decreased by $455,000, or 12%, to $3.3 million for the
second quarter of 1996, compared to $3.7 million in the same period in 1995.
This decrease reflects lower pre-clinical and clinical trial costs associated
with the Company's lead product candidate, CERESTAT(1). In the second quarter of
1995, the Company was conducting two Phase II clinical trials of CERESTAT, which
have since completed enrollment. External development expenses in the second
quarter of 1996 reflect costs associated with a pivotal trial of CERESTAT in
patients with traumatic brain injury ("TBI"), which began enrolling patients in
March 1996. Enrollment for the pivotal stroke trial, which is being managed by
BI, began in July 1996. The cost of these trials will be shared by both partners
in accordance with the terms of the agreement: 75% by BI and 25% by the Company.
General and administrative expenses were $592,000 in the second quarter
of 1996, compared to $564,000 for the same period in 1995, an increase of
$28,000 or 5%.
Interest Income
Interest income for the three months ended June 30, 1996 was $257,000,
compared to $225,000 in the same period in 1995. This increase reflects an
increase in cash available for investments due to the two stock offerings in the
fourth quarter of 1995 and the continued funding by BI of the CERESTAT program.
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CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Net Loss Per Share
The net loss per share for the second quarter of 1996 was $0.22, compared
to $0.25 in 1995. This decrease is due primarily to an increase in the weighted
average shares outstanding during the quarter, as a result of the two stock
offerings in the fourth quarter of 1995, as well as a slight decrease in net
loss for the period.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues
Research and development revenue was $1.7 million in the six months ended
June 30, 1996, compared to $5.7 million in the same period in 1995. Research and
development revenue in 1995 included $4.7 million, representing an up-front
reimbursement of previously-incurred CERESTAT costs, which was received upon the
signing of the BI collaboration agreement in March 1995.
Operating Expenses
Operating expenses for the six months ended June 30, 1996 were $7.6
million, compared to $7.8 million in the same period in 1995. Research and
development expenses for the first half of the year decreased by $369,000 or 5%,
to $6.4 million, compared to $6.7 million in the same period in 1995 as a result
of lower expenses relating to the pre-clinical studies and clinical trials of
CERESTAT. In the first half of 1995, there were two phase II trials being
conducted by the Company. In the same period in 1996, research and development
expenses include costs associated with the pivotal TBI trial, which began
enrollment in March. Enrollment for the pivotal stroke trial, which is being
managed by BI, began in July 1996. The cost of these trials will be shared by
both partners in accordance with the terms of the agreement: 75% by BI and 25%
by the Company.
General and administrative expense for the six month period ended June
30, 1996 increased to $1.2 million, compared to $1.1 million in the same period
in 1995, primarily as a result of an increase in compensation costs. The
increase in compensation costs reflects both a slight increase in headcount, to
support the business development and information systems functions, and the
lifting of the freeze in management salaries which was in place throughout 1995.
Interest Income
Interest income was $540,000 in the first half of 1996, compared to
$297,000 in the same period in 1995. As a result of funding pursuant to the BI
collaboration, which began in March 1995, and the two public offerings in the
fourth quarter of 1995, there was an increase in cash available for investment
compared to 1995.
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CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Net Loss Per Share
The net loss per share for the six month period was $0.39, compared to
$0.16 in 1995. In the first half of 1995, the net loss of $1.8 million reflected
revenue pursuant to the BI collaboration of $5.7 million, including $4.7 million
representing the one-time, up-front reimbursement of previously-incurred
CERESTAT costs. Research and development revenue pursuant to this agreement was
$1.7 million in the first half of 1996. This decrease in revenue offset a
decrease in total operating expenses of $236,000, resulting in a net loss of
$5.3 million, compared to $1.8 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $18.6 million at June 30, 1996, compared
to $21.9 million at December 31, 1995. This decrease in cash reflects a net use
of cash for operating purposes of $3.3 million. To date in 1996, the Company has
received $4.5 million in advances against reimbursable expenses pursuant to the
BI collaboration, of which $1.7 million was recognized as revenue.
The Company believes that the existing cash and cash equivalents
available at June 30, 1996 together with anticipated funding of estimated
reimbursable costs pursuant to the BI collaboration will be sufficient to
maintain operations at least into the second quarter of 1997. The BI
collaboration also provides that the Company may receive up to an additional $28
million in cash, including an equity investment, upon the achievement of certain
milestones. However, there can be no assurance as to when or if these milestones
will be achieved. The collaboration provides for a sharing of certain costs with
BI relating to the development and commercialization of CERESTAT. The Company's
obligation relative to this sharing of costs is generally 25% of total costs
incurred by both parties, excluding development costs for Japan which will be
borne solely by BI, and the Company will be reimbursed for costs incurred in
excess of that amount. The cash and the revenue earned are subject to each
party's relative expenditures and therefore may fluctuate on a quarterly basis.
The Company and its partner BI began two large clinical trials in 1996.
These trials will involve approximately 1,600 patients and will result in an
increase in the Company's consumption of capital. The cost of both trials will
be shared by the partners in accordance with the terms of the collaboration
agreement. It is expected that as more patients enroll in these trials, total
costs and the portion of these costs borne by the Company will increase. The
Company expects to incur significant expense related to these trials for the
remainder of 1996 and in 1997 and thereafter, subject to the cost sharing
arrangement discussed above.
The Company's primary expenditures are expected to be in the areas of
research and development, general and administrative expenses, and capital
expenditures. The Company will require substantial additional funds for its
research and product development programs, pursuing regulatory clearances,
establishing production, sales and marketing capabilities and other operating
expenses. Despite the potential future milestone payments under the BI
agreements, adequate funds for these purposes may not be available when needed
on terms acceptable to the Company. Insufficient funds may require the Company
to delay, scale back or eliminate certain of its research and product
development programs or to license third parties to commercialize products or
technologies that the Company might otherwise undertake itself.
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CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The Company does not believe that inflation has had a material impact on
its 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. There are certain
important factors that could cause results to differ from those anticipated by
the statements made herein, including, but not limited to: the continued funding
of the Company's development program for CERESTAT by BI pursuant to the BI
collaboration agreement; the rate of enrollment of patients in the Company's
current and future clinical trials; the Company's ability to establish and
maintain collaborative arrangements with third parties; technical risks
associated with the development of new products; and the competitive environment
of the biotechnology industry. Readers are cautioned not to place undue reliance
on these forward looking statements which speak only as of the date hereof.
(1) CERESTAT is a registered trademark of Boehringer Ingelheim International
GmbH.
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CAMBRIDGE NEUROSCIENCE, INC.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of stockholders held on Monday, April
22, 1996, the following individuals were elected directors of the Company:
Votes
-----------------------------------------------------------------------------------
Nominee For Against Abstentions Broker Non-Votes
------- --- ------- ----------- ----------------
Elkan R. Gamzu 11,469,050 9,146 0 2,069,548
Nancy S. Amer 11,469,746 8,450 0 2,069,548
Burkhard Blank 11,468,746 9,450 0 2,069,548
Ira A. Jackson 11,460,746 17,450 0 2,069,548
S. Joshua Lewis 11,467,446 10,750 0 2,069,548
Joseph B Martin 11,344,746 133,450 0 2,069,548
Paul C. O'Brien 11,460,903 17,293 0 2,069,548
Peter Stalker, III 11,468,146 10,050 0 2,069,548
In addition, the stockholders approved an amendment to the Company's
1991 Equity Incentive Plan to increase the number of shares of Common Stock
authorized for issuance under the plan from 1,600,000 to 2,100,000 and to limit
the number of shares that may be granted to any eligible person under the plan
in any fiscal year to 250,000 with a vote of 9,070,202 in favor, 2,385,891
against, 22,103 abstaining and 2,069,548 broker non-votes, out of 13,547,744
shares outstanding and entitled to vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule for the interim year-to-date period
ended June 30, 1996 (for electronic filing only)
(b) Reports on Form 8-K
March 28, 1996: News release discussing the preliminary results
of a Phase II trial of CERESTAT in patients with acute
ischemic stroke
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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 August 9,1996 /s/ Elkan R. Gamzu
----------------------------- -----------------------------------------
Elkan R. Gamzu
President and Chief Executive Officer
(Principal Executive Officer)
Date August 9, 1996 /s/ Harry W. Wilcox, III
----------------------------- -----------------------------------------
Harry W. Wilcox, III
Senior Vice President, Finance and
Business Development
(Principal Financial and Accounting
Officer)
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CAMBRIDGE NEUROSCIENCE, INC.
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
27 Financial Data Schedule for the interim year-to-date period ended 15
June 30, 1996 (for electronic filing only)
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