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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
SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number: 0-28310
SIBIA Neurosciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-3616229
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
505 Coast Boulevard South, Suite 300, La Jolla, CA 92037
(Address of principal executive offices) (Zip Code)
(619) 452-5892
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
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
requirement for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at October 22, 1996
----- -------------------------------
<S> <C>
Common Stock, $.001 par value 8,982,472
</TABLE>
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SIBIA Neurosciences, Inc.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
Condensed Balance Sheet as of December 31, 1995
and September 30, 1996 (Unaudited) .........................................................3
Condensed Statement of Operations (Unaudited) for the Three
and Nine Months Ended September 30, 1995 and 1996 ..........................................4
Condensed Statement of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 1995 and 1996 ..............................................5
Notes to Financial Statements (Unaudited) ...................................................6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................................9
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings...........................................................................15
ITEM 2. Changes in Securities ......................................................................15
ITEM 3. Defaults Upon Senior Securities ............................................................15
ITEM 4. Submission of Matters to a Vote of
Security Holders ..........................................................................15
ITEM 5. Other Information ..........................................................................15
ITEM 6. Exhibits and Reports on Form 8-K ...........................................................16
SIGNATURE ..........................................................................................17
</TABLE>
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SIBIA Neurosciences, Inc.
Condensed Balance Sheet
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,274,000 $ 2,974,000
Investment securities 14,214,000 35,881,000
Contracts and accounts receivable 35,000 21,000
Prepaid expenses and other current assets 238,000 1,098,000
------------ ------------
Total current assets 16,761,000 39,974,000
------------ ------------
Property and equipment - net 1,387,000 1,361,000
Other assets 103,000 95,000
------------ ------------
$ 18,251,000 $ 41,430,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,006,000 $ 1,185,000
Accrued liabilities 1,167,000 1,231,000
Deferred revenue 250,000 682,000
------------ ------------
Total current liabilities 2,423,000 3,098,000
------------ ------------
Capital lease obligations 721,000 577,000
------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Convertible preferred stock, $.001 par value, 5,000,000 shares authorized:
Series A - 173,611 shares designated, issued and outstanding as of December
31, 1995. No shares issued and outstanding as of September 30, 1996
Series B - 600,000 shares designated; 22,900 shares issued and outstanding
as of December 31, 1995. No shares issued and outstanding as of September
30, 1996
Series C - 280,000 shares designated, issued and outstanding
as of December 31, 1995. No shares issued and outstanding
as of September 30, 1996
Common stock - $.001 par value, 25,000,000 shares authorized; 4,899,884 and
8,980,742 shares issued and outstanding at
December 31, 1995 and September 30, 1996 5,000 9,000
Additional paid-in capital 31,869,000 59,560,000
Deferred compensation (635,000) (1,187,000)
Notes receivable from stockholders (82,000) (650,000)
Net unrealized gains on investment securities
available for sale 79,000 117,000
Accumulated deficit (16,129,000) (20,094,000)
------------ ------------
Total stockholders' equity 15,107,000 37,755,000
------------ ------------
$ 18,251,000 $ 41,430,000
============ ============
</TABLE>
See accompanying notes.
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SIBIA Neurosciences, Inc.
Condensed Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Contract $ 1,804,000 $ 2,013,000 $4,109,000 $ 6,368,000
License and royalty 4,478,000 10,000 4,878,000 83,000
------------ ------------ ---------- -----------
Total revenue (Note 3) 6,282,000 2,023,000 8,987,000 6,451,000
------------ ------------ ---------- -----------
Expenses:
Research and development 2,267,000 3,246,000 6,531,000 8,902,000
General and administrative 482,000 1,058,000 1,570,000 2,702,000
------------ ------------ ---------- -----------
2,749,000 4,304,000 8,101,000 11,604,000
------------ ------------ ---------- -----------
3,533,000 (2,281,000) 886,000 (5,153,000)
------------ ------------ ---------- -----------
Other income (expense):
Settlement of litigation (100,000) 157,000
Interest income 140,000 605,000 326,000 1,234,000
Interest expense (18,000) (16,000) (54,000) (50,000)
Other (1,000) 18,000 4,000
------------ ------------ ---------- -----------
22,000 588,000 447,000 1,188,000
------------ ------------ ---------- -----------
Net (loss) income $ 3,555,000 $ (1,693,000) $1,333,000 $(3,965,000)
============ ============ ========== ===========
Net (loss) income per common share $ 0.65 $ (0.19) $ 0.24 $ (0.56)
============ ============ ========== ===========
Weighted average number of common
shares outstanding 5,489,787 8,979,713 5,481,982 7,116,130
============ ============ ========== ===========
</TABLE>
See accompanying notes.
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SIBIA Neurosciences, Inc.
Condensed Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ 1,333,000 $ (3,965,000)
Adjustments to reconcile net (loss) income to net cash
(used) provided by operating activities:
Depreciation and amortization 352,000 426,000
Compensation from issuance of common stock options 559,000
Net gain on disposal of property (18,000) (1,000)
Net amortization of premium and discount on
investment securities (139,000) (410,000)
Increase (decrease) in cash resulting from changes in:
Contract and accounts receivable 221,000 14,000
Prepaid expenses and other assets 47,000 (863,000)
Accounts payable (109,000) 179,000
Accrued liabilities and other (30,000) 22,000
Deferred revenue 555,000 432,000
--------------- ---------------
Net cash (used) provided by operating activities 2,212,000 (3,607,000)
--------------- ---------------
Cash flows from investing activities:
Purchases of investment securities available-for-sale (38,044,000)
Maturities of investment securities available-for-sale 2,800,000
Principal payments received on investment securities
available-for-sale 77,000 32,000
Purchases of investment securities held-to-maturity (4,621,000)
Maturities of investment securities held-to-maturity 5,595,000 13,992,000
Proceeds from disposal of property and equipment 25,000 5,000
Acquisition of property and equipment (28,000) (156,000)
--------------- ---------------
Net cash (used) provided by investing activities 1,048,000 (21,371,000)
--------------- ---------------
Cash flows from financing activities:
Proceeds from exercise of stock options 19,000 149,000
Proceeds from payment on notes receivable 26,000
Proceeds from issuance of stock 6,930,000 25,845,000
Principal payments on capital lease obligations (275,000) (342,000)
--------------- ---------------
Net cash provided by financing activities 6,674,000 25,678,000
--------------- ---------------
Net increase in cash and cash equivalents 9,934,000 700,000
Cash and cash equivalents at beginning of period 1,948,000 2,274,000
--------------- ---------------
Cash and cash equivalents at end of period $ 11,882,000 $ 2,974,000
=============== ===============
</TABLE>
See accompanying notes.
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SIBIA Neurosciences, Inc.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the rules and regulations of the Securities and Exchange Commission.
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, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1995, included
in SIBIA Neurosciences, Inc.'s ("SIBIA" or the "Company") prospectus dated May
9, 1996 contained in the Company's Registration Statement on Form S-1 (File No.
333-2588) filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures as of the date of the financial statements. Actual results
could differ from such estimates.
Certain prior quarter amounts have been reclassified to conform to current
presentation.
2. NET (LOSS) INCOME PER COMMON SHARE
Net (loss) income per common share is computed using the weighted average
number of common shares outstanding during the periods presented. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, the shares
outstanding for the three and nine month periods ended September 30, 1995 have
been adjusted to reflect shares of Common Stock and Common Stock equivalents
issued within one year prior to the Company's initial public offering ("IPO")
at prices below the IPO price (using the treasury stock method). All Common
Stock share and per share information has been adjusted for the 2.35-for-1
stock split (Note 5) of the outstanding shares of Common Stock for all periods
presented.
3. SIGNIFICANT COLLABORATIVE AGREEMENTS
Total costs incurred under the Company's various collaborative agreements for
the three and nine month periods ended September 30, 1995, including certain
administrative costs, aggregated $1,146,000 and $3,009,000, respectively. For
the corresponding periods in 1996, such costs aggregated $1,459,000 and
$4,344,000, respectively.
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Total revenue for the three and nine months ended September 30, 1996 included
$1,519,000 and $5,047,000, respectively, from two stockholders owning a combined
19% interest in the Company as of September 30, 1996.
4. STATEMENT OF CASH FLOWS
Non-cash financing activities were comprised of capital lease obligations of
$277,000 and $240,000, respectively, in the nine-month periods ended September
30, 1995 and 1996.
5. STOCKHOLDERS' EQUITY
In February 1996, the Company issued options to purchase 180,667 shares of
Common Stock with an exercise price of $1.91 per share resulting in deferred
compensation of $1,046,062, which is being recognized as expense over the
related two to four-year vesting periods.
In March 1996, the Board of Directors authorized a 2.35-for-1 stock split and
increased the total authorized shares of Common Stock outstanding to 25,000,000.
The Convertible Preferred Stock conversion rate was also changed to 2.35-for-1.
The 1995 stockholders' equity accounts have been restated to give effect to the
Common Stock split and increased share authorization. All earnings per share and
other data presented have also been restated to give effect to the stock split.
In March 1996, options to purchase 120,200 shares of Series B Convertible
Preferred Stock (convertible at 2.35-for-1) were exercised at $5.00 per share in
exchange for notes receivable in the amount of $588,980 that bear interest at 7%
per annum. Of these shares, 110,600 shares were converted into 259,910 shares of
Common Stock.
The Company completed an IPO of its Common Stock on May 15, 1996. The Company
issued 2,100,000 shares of Common Stock in the IPO for $11.00 per share
resulting in proceeds of $20,845,000, net of underwriters' discount and offering
costs. Concurrently with the closing of the IPO, the Company issued 454,545
shares of Common Stock, for $11.00 per share, in a private placement to
CIBA-GEIGY Limited ("Ciba"), one of the Company's collaborative partners and an
existing stockholder, resulting in $5,000,000 in proceeds. The IPO and Ciba
Common Stock issuance resulted in Ciba's ownership of 12% of the Company's
outstanding Common Stock.
6. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation with Cadus Pharmaceutical
Corporation. See further discussion of this matter at Item 1 in Part II of this
Form 10-Q.
7. SUBSEQUENT EVENTS
In October 1996, Cephalon, Inc. exercised its option to expand its license for
certain proprietary technologies related to the development and production of
recombinant insulin-like growth factor (IGF-1) for non-neurological
applications. Cephalon and the Company had previously entered into a license
agreement granting Cephalon worldwide rights to these technologies for the
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production of IGF-1 for neurological applications. Under the terms of the
expanded license agreement, the Company will receive royalty payments on
Cephalon's sales of products synthesized using licensed technology for both
neurological and non-neurological applications. The royalty rate for
non-neurological applications will be more than that for neurological
applications, since Cephalon previously exercised its option to buy-down the
royalty percentage for neurological applications. The Company also received a
payment from Cephalon in connection with the exercise of the option.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Except for the historical information contained herein, the discussion in this
report contains forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from those discussed in
this report. Factors that could cause or contribute to such differences include,
without limitation, those discussed in the section entitled "Liquidity and
Capital Resources" herein as well as those discussed in the Company's prospectus
dated May 9, 1996 contained in the Registration Statement on Form S-1 (File No.
333-2588) filed with the Securities and Exchange Commission.
SIBIA is engaged in the discovery and development of novel, small molecule
therapeutics for central nervous system ("CNS") disorders based on the Company's
unique approach to characterizing the molecular processes involved in such
disorders. SIBIA is focusing its efforts on developing compounds for the
treatment of Parkinson's disease, Alzheimer's disease, stroke, head trauma,
epilepsy, chronic pain, schizophrenia and other neurological, psychiatric and
neurodegenerative disorders, many of which have large patient populations and
represent critical unmet medical needs.
The Company has no products available for sale and does not expect to have any
products resulting from its research efforts, including its collaborations with
others, commercially available for at least several years, if at all. Except for
1995, the Company has incurred net losses every year since shifting its area of
therapeutic focus to the central nervous system in 1991. The Company is
continuing to incur losses and expects to incur increasing operating losses over
the next several years as the Company's research and development expenditures
increase. The Company's revenue for the next several years will be limited to
payments under its collaborative agreements, license fees, interest income and
other miscellaneous income. As of September 30, 1996, the Company's accumulated
deficit was approximately $20,094,000.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 Compared to Three Months Ended September
30, 1996
Revenue
Total revenue decreased by 68%, from $6,282,000 in the third quarter 1995 to
$2,023,000 in the third quarter 1996. The decrease was due primarily to the
recognition in 1995 of an up-front license fee received from Bristol-Myers
Squibb Company ("Bristol-Myers Squibb") for an exclusive commercialization
license to use certain proprietary technologies related to amyloid precursor
protein, a one-time payment related to Cephalon, Inc.'s buy-down of its royalty
percentage due on sales of an IGF-1 product within the neurology field, and
revenue related to Ciba's purchase of certain equipment. Such decrease was
partially offset by a net increase in 1996 contract revenue that was primarily
attributable to the Company's collaborative agreement with Bristol-Myers Squibb.
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Expenses
Total expenses increased by 57%, from $2,749,000 in the third quarter 1995 to
$4,304,000 in the third quarter 1996. The increase in total expenses was
primarily attributable to an increase in research and development expenses of
43%, from $2,267,000 in the third quarter 1995 to $3,246,000 in the third
quarter 1996. This was the result of an increase in research and development
personnel and related costs for the collaborative agreement with Bristol-Myers
Squibb and expanded programs in drug discovery, an increase in outside
preclinical expenses, increased occupancy costs, and compensation expense
relating to stock option grants. Partially offsetting the above increases was a
decrease in costs related to Ciba's purchase of certain equipment. General and
administrative expenses increased by 120%, from $482,000 in the third quarter of
1995 to $1,058,000 in the third quarter of 1996. The increase in general and
administrative expenses was primarily due to legal fees related to various
general and litigation matters, compensation expense related to stock option
grants, increases in salaries and fringe benefit expenses due to an increased
number of employees, and other expenses related to being a publicly traded
company.
Other Income
Other income during the third quarter of 1996 increased by $566,000, as compared
to the third quarter of 1995, primarily due to an increase in interest income
and a decrease in legal fees related to litigation settlements in 1995.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1996
Revenue
Total revenue decreased by 28%, from $8,987,000 for the first nine months of
1995 to $6,451,000 for the first nine months of 1996. This decrease was due
primarily to the recognition in 1995 of an up-front license fee received from
Bristol-Myers Squibb for an exclusive commercialization license to use certain
proprietary technologies related to amyloid precursor protein, a one-time
payment related to Cephalon, Inc.'s buy-down of its royalty percentage due on
sales of an IGF-1 product within the neurology field, and revenue recognized
related to Ciba's purchase of certain equipment. Such decrease was partially
offset by a net increase in 1996 contract revenue that was primarily
attributable to the Company's collaborative agreement with Bristol-Myers Squibb,
and the reimbursement of additional costs and fees in the aggregate amount of
$475,000 from Ciba, pursuant to the terms of the extension of a collaborative
agreement.
Expenses
Total expenses increased by 43%, from $8,101,000 for the first nine months of
1995 to $11,604,000 for the first nine months of 1996. The increase in total
expenses was primarily attributable to an increase in research and development
expenses of 36%, from $6,531,000 for the first nine months of 1995 to $8,902,000
for the first nine months of 1996. This was the result of an increase in
research and development personnel and related costs for the collaborative
agreement with Bristol-Myers Squibb and expanded programs in drug discovery, an
increase in
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outside preclinical expenses, increased occupancy costs, and compensation
expense relating to stock option grants. Partially offsetting the above
increases was a decrease in costs related to Ciba's purchase of certain
equipment. General and administrative expenses increased by 72%, from $1,570,000
for the first nine months of 1995 to $2,702,000 for the first nine months of
1996. The increase in general and administrative expenses was primarily due to
legal fees related to various general and litigation matters, compensation
expense relating to stock option grants, increases in salaries and fringe
benefit expenses due to an increased number of employees, and other expenses
related to being a publicly traded company.
Other Income
Other income during the first nine months of 1996 increased by 166%, or
$741,000, as compared to the first nine months of 1995, primarily due to an
increase in interest income in 1996 and non-recurring net revenue recognized in
1995 from the settlement of certain litigation.
The Company expects that results of operations in the future will fluctuate
significantly from period to period. Such fluctuations may result from numerous
factors, including the amount and timing of future license agreements, the
timing of revenues earned under existing or future corporate collaborations or
joint ventures, if any, technological advances and determinations as to the
commercial potential of proposed compounds, the progress of the Company's drug
discovery and development programs, the receipt of necessary regulatory
approvals, the cost of preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims and other intellectual property rights, the status
of competitive products and technologies and the timing and availability of
financing for the Company, including existing or future strategic alliances and
joint ventures with third parties. In addition, because the Company is in the
early stage of development with respect to its CNS technologies and due to the
one-time nature of certain payments the Company has received, comparisons of its
historical results may not be meaningful.
LIQUIDITY AND CAPITAL RESOURCES
SIBIA has financed its operations primarily through the sale of Convertible
Preferred Stock, Common Stock and through funds provided by its partners under
collaborative agreements. The Company has also received funds from the sale of
its interest in its SISKA Diagnostics, Inc. joint venture and the settlement of
certain litigation. The funds received were invested in investment securities
and are being used to finance its operations. The Company receives payments
under collaborative agreements primarily in the form of contract revenue. Such
agreements also provide for milestone payments, if milestones are achieved, and
royalties, if products are commercialized.
On May 9, 1996, SIBIA completed an initial public offering of 2,100,000 shares
of Common Stock and concurrently, in a private placement, the Company sold
454,545 shares to Ciba, one of the Company's collaborative partners and an
existing stockholder. The share price for both the IPO and private placement was
$11.00 per share resulting in total gross proceeds of $28,100,000, before
expenses of $2,255,000.
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SIBIA expects to receive royalties on sales of Myotrophin, a product based on
the insulin-like growth factor-1 ("IGF-1") molecule being developed by Cephalon,
Inc. ("Cephalon"), if it receives FDA approval, although there can be no
assurances that Myotrophin will receive such approval. With the exception of
Myotrophin, the Company does not expect to receive royalties based upon net
sales of drugs that may be developed for a significant number of years, if at
all.
To date, the majority of the Company's expenditures have been for research and
development activities. The Company expects to incur substantial research and
development expenses as its discovery and development programs progress,
including continued increases in personnel costs and costs related to
preclinical testing and clinical trials, if any. General and administrative
expenses necessary to support such expanded programs are also expected to
increase over the next several years. The Company believes that the cash, cash
equivalents and investment securities balance of $38,855,000 as of September 30,
1996 will be used primarily to support continued research and development of its
technologies and general and administrative expenses and for other general
corporate purposes.
The Company leases laboratory and office facilities under an agreement expiring
on December 31, 1997. The minimum annual payment under the lease is
approximately $1,290,000, before consideration of sublease income. The Company
believes that its present facility will be adequate to conduct its research
activities through December 1997 and that it should be able to secure additional
space at commercially reasonable rates if necessary. The Company has an option
to extend its lease for an additional five years. The Company recently
contracted for a fully automated functional high throughput screening system and
related equipment with an expected cost of approximately $750,000, of which
$500,000 has been provided by Ciba (which may be credited against future
milestone payments) in accordance with the collaborative agreement.
SIBIA is an early-stage biotechnology company. The Company has no products
available for sale and does not expect to have any products resulting from its
research efforts, including its collaborations with others, commercially
available for at least several years, if at all. There can be no assurance that
any products will be successfully discovered or developed by the Company or its
collaborative partners, be approved for clinical trials, prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards, be capable
of being produced in commercial quantities at acceptable costs or be marketed
successfully. The failure of the Company or its collaborative partners to
discover or develop commercially viable products or successfully market such
products would have a material adverse effect on the Company's business.
The Company will require substantial additional funds to conduct research and
development and preclinical and clinical testing of its compounds and patented
products. There can be no assurance that the Company will generate a positive
internal cash flow for several years, due to substantial additional research and
development costs. The Company believes that the net proceeds from the IPO and
the sale of the Ciba shares, together with its available cash reserves and funds
from collaborative agreements, should be adequate to satisfy its capital
requirements through the end of 1998. The Company's future capital needs will be
dependent upon many factors, including progress in its research and development
activities, the magnitude and scope of these activities, progress with
preclinical and clinical trials, the cost of preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in or
terminations of existing
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collaborative arrangements, the establishment of additional collaborative
arrangements, and the cost of manufacturing scale-up and development of
marketing activities, if undertaken by the Company. The Company intends to seek
additional funding through research and development relationships with suitable
corporate collaborators or through public or private financing. There can be no
assurance that the Company will be successful in its efforts to collaborate with
additional partners or that additional financing from other sources will be
available on favorable terms, if at all. If adequate funds are not available,
the Company may be required to curtail significantly or eliminate one or more of
its research, discovery or development programs or obtain funds through
additional arrangements with corporate partners or others which may require the
Company to relinquish rights to certain of its technologies or product
candidates that the Company would not otherwise relinquish, which could have a
material adverse effect on the Company's business.
The Company's strategy for the development, clinical testing, manufacturing and
commercialization of certain of its compounds includes entering into various
collaborations with corporate partners, licensors, licensees and others. The
Company has entered into collaborative arrangements with Eli Lilly and Company
("Lilly"), Ciba and Bristol-Myers Squibb and intends to enter into additional
collaborations. These collaborators have agreed to fund the research and
development of compounds discovered under their respective agreements, conduct
clinical testing of lead compounds, prepare and file submissions for regulatory
approval, make milestone payments to SIBIA upon the achievement of certain goals
and pay royalties on any resulting products. There can be no assurance that
these collaborations will continue or be successful or that any products will be
developed. There can be no assurance that the Company will ever receive any
milestone or royalty payments under these agreements.
Each of the Company's collaborative partners has the right to terminate its
respective collaboration under certain circumstances. Furthermore, Lilly can
terminate its collaboration with the Company upon six months' prior written
notice, which may be given at anytime, and Ciba can terminate its collaboration
with the Company upon six months' prior written notice, which may be given at
anytime beginning March 1997. There can be no assurance that collaborators will
not terminate their respective collaborations. In addition, there can be no
assurance that collaborators will not pursue alternative technologies to develop
treatments for the diseases targeted by the respective collaborative programs.
If any of the Company's collaborative partners terminates or breaches its
agreement with the Company or fails to devote adequate resources to or to
conduct in a timely manner its collaborative activities, the research program
under the applicable collaborative agreement or the development and
commercialization of drug candidates subject to such collaboration would be
materially adversely affected, which would have a material adverse effect on the
Company's business. In addition, because the Company's collaborative agreements
have accounted for 24% and 42% of total revenues for the three months and nine
months ended September 30, 1995 and 100% and 99% of total revenues for the three
months and nine months ended September 30, 1996, such a termination or breach
could materially adversely affect the Company's results of operations and
financial condition.
The Company is in discussions with Lilly regarding a proposed amendment of its
agreement with Lilly. As currently in effect, the Company's agreement with Lilly
expires pursuant to its terms in May 1997. Among the possible terms being
discussed is an amendment to the current agreement that would reduce the level
of funding but may extend the term of support one or more years.
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There can be no assurance that the Company and Lilly will amend their current
agreement or that they will amend it as indicated above.
The Company's success will depend in part on its ability to obtain patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others, both in the United States and other countries. The patent positions
of biotechnology and pharmaceutical companies can be highly uncertain and
involve complex legal and factual questions, and therefore, the breadth of
claims allowed in biotechnology and pharmaceutical patents cannot be predicted.
There can be no assurance that patents issued to or licensed by the Company will
not be infringed or will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide proprietary protection to the
Company's technology or products that the Company may develop or other
competitive advantages to the Company.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce any patents issued to the Company or to determine the scope
and validity of third-party proprietary rights. Moreover, if competitors of the
Company prepare and file patent applications in the United States that claim
technology also claimed by the Company, the Company may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office ("PTO") to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company. Similarly, the Company may have to participate in opposition
proceedings with respect to granted European patents. The Company is aware of a
third-party patent application that may elicit an interference proceeding with
one of the Company's patent applications in the PTO. In addition, the Company
believes that certain claims in three of its other patent applications may
elicit such proceedings. There can be no assurance that the Company will prevail
in these proceedings. Also, there can be no assurance that the validity of the
Company's patents, if issued, would be upheld by a court of competent
jurisdiction. An adverse outcome in patent prosecution or in litigation with
respect to the validity of any of the Company's patents could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease using such
technology, any of which could have a material adverse effect on the Company's
business. The Company is currently involved in certain litigation with Cadus
Pharmaceutical Corporation. See further discussion of this matter at Item I in
Part II of this Form 10-Q.
The production and marketing of products that the Company may develop and its
ongoing research and development activities are subject to extensive regulation
by numerous governmental authorities in the United States and other countries.
Satisfaction of such regulatory requirements, which includes demonstrating to
the satisfaction of the FDA that the product is both safe and effective,
typically takes several years or more depending upon the type, complexity and
novelty of the product and requires the expenditure of substantial resources.
The Company has no experience in developing a product through the clinical trial
process. The Company intends to establish collaborative relationships to conduct
clinical trials and seek regulatory approvals to market products that it may
develop, although there can be no assurance that the Company will be able to
develop or maintain such relationships or that such approvals will be received
on a timely basis, if at all.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings:
On July 9, 1996, the Company filed an action in the United States District Court
for the Southern District of California, for patent infringement against Cadus
Pharmaceutical Corporation ("Cadus"). The complaint asserts that Cadus' assay
technology infringes the Company's patent, U.S. Patent No. 5,401,629 (the "629
patent"), entitled "Assay Methods and Compositions Useful for Measuring the
Transduction of an Intracellular Signal." Through the complaint, the Company
seeks damages in an unspecified amount and a preliminary and permanent
injunction.
On August 1, 1996, Cadus filed its answer and counterclaim to the Company's
complaint. The counterclaim asserts claims that the 629 patent and the Company's
5,436,128 patent are invalid and/or unenforceable and further asserts claims for
intentional and negligent interference with prospective economic advantage and
unfair competition. The counterclaim seeks compensatory and punitive damages in
an unspecified amount.
Company management believes that its complaint against Cadus is well-founded and
necessary to protect the value of its intellectual property portfolio.
Management believes that Cadus' counterclaim is without merit and intends to
vigorously prosecute its claim of infringement and oppose Cadus' counterclaim.
Management believes that the ultimate resolution of the above matter will not
have a materially adverse impact on the Company's financial position, results of
operations or cash flows.
In addition to the above, the Company is involved in certain legal or
administrative proceedings generally incidental to its normal business
activities. While the outcome of any such proceedings cannot be accurately
predicted, the Company does not believe the ultimate resolution of any such
existing matters will have a material adverse effect on its financial position,
results of operations or cash flows.
ITEM 2. Changes in Securities:
None.
ITEM 3. Defaults Upon Senior Securities:
None.
ITEM 4. Submission of Matters to a Vote of Security Holders:
None.
ITEM 5. Other Information:
None.
15
<PAGE> 16
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
11.1 Statement re: Computation of Loss Per Share
27 Financial Data Schedule. (Exhibit 27 is submitted as
an exhibit in the electronic format of this Quarterly
Report on Form 10-Q submitted to the Securities and
Exchange Commission.)
(b) Reports on Form 8-K
None.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
SIBIA Neurosciences, Inc.
Date: 11-14-96 By: /s/ THOMAS A. REED
------------------------------------------
Thomas A. Reed
Vice President, Finance & Administration,
and Chief Financial Officer
(on behalf of the registrant and as the
registrant's principal financial officer)
17
<PAGE> 1
SIBIA Neurosciences, Inc.
<TABLE>
Exhibit 11.1 - Statement Re: Computation of Net (Loss) Income Per Share (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary (Loss) Income Per Share:
Weighted average common shares outstanding 4,898,607 8,979,713 4,890,802 7,116,130
SAB No. 83 shares (1): 591,180 -- 591,180 --
----------- ----------- ----------- -----------
Total 5,489,787 8,979,713 5,481,982 7,116,130
=========== =========== =========== ===========
Net (loss) income $ 3,555,000 $(1,693,000) $ 1,333,000 $(3,965,000)
=========== =========== =========== ===========
Net (loss) income per common share $ 0.65 $ (0.19) $ 0.24 $ (0.56)
=========== =========== =========== ===========
</TABLE>
(1) In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83, certain equity securities issued within one year of an offering
at less than the offering price are included as outstanding for 1995 for the
purposes of the net income per share computations. Such securities consist of
common stock and stock options computed using the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND UNAUDITED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,974,000
<SECURITIES> 35,881,000
<RECEIVABLES> 21,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,974,000
<PP&E> 1,361,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,430,000
<CURRENT-LIABILITIES> 3,098,000
<BONDS> 0
0
0
<COMMON> 9,000
<OTHER-SE> 37,746,000
<TOTAL-LIABILITY-AND-EQUITY> 41,430,000
<SALES> 0
<TOTAL-REVENUES> 6,451,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,604,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,000
<INCOME-PRETAX> (3,965,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,965,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,965,000)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
</TABLE>
