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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 June 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.
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(Exact name of registrant as specified in its charter)
Delaware 95-3616229
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
505 Coast Boulevard South, Suite 300, La Jolla, CA 92037
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(Address of principal executive offices) (Zip Code)
(619) 452-5892
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(Registrant's telephone number, including area code)
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(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.
Class Outstanding at July 31, 1996
----- ----------------------------
Common Stock, $.001 par value 8,978,213
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SIBIA Neurosciences, Inc.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
Condensed Balance Sheet as of December 31, 1995
and June 30, 1996 (Unaudited) .....................................3
Condensed Statement of Operations (Unaudited) for the Three
and Six Months Ended June 30, 1995 and 1996 .......................4
Condensed Statement of Cash Flows (Unaudited) for the Three
and Six Months Ended June 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..........................................8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................14
ITEM 2. Changes in Securities .............................................14
ITEM 3. Defaults Upon Senior Securities ...................................14
ITEM 4. Submission of Matters to a Vote of Security Holders ...............14
ITEM 5. Other Information .................................................14
ITEM 6. Exhibits and Reports on Form 8-K ..................................15
SIGNATURE ..................................................................16
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PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
SIBIA Neurosciences, Inc.
Condensed Balance Sheet
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,274,000 $ 14,649,000
Investment securities 14,214,000 26,750,000
Contracts and accounts receivable 35,000 131,000
Prepaid expenses and other current assets 238,000 453,000
----------- ------------
Total current assets 16,761,000 41,983,000
----------- ------------
Property and equipment - net 1,387,000 1,396,000
Other assets 103,000 73,000
----------- ------------
$18,251,000 $ 43,452,000
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,006,000 $ 1,245,000
Accrued liabilities 1,167,000 1,127,000
Deferred revenue 250,000 1,235,000
----------- ------------
Total current liabilities 2,423,000 3,607,000
----------- ------------
Capital lease obligations 721,000 626,000
----------- ------------
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 June 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
June 30, 1996.
Series C - 280,000 shares designated,
issued and outstanding as of
December 31, 1995. No shares issued
and outstanding as of June 30, 1996.
Common stock - $.001 par value,
25,000,000 shares authorized;
4,899,884 and 8,978,213 shares issued
and outstanding at December 31, 1995
and June 30, 1996. 5,000 9,000
Additional paid-in capital 31,869,000 59,556,000
Deferred compensation (635,000) (1,350,000)
Notes receivable from stockholders (82,000) (667,000)
Net unrealized gains on investment
securities available for sale 79,000 72,000
Accumulated deficit (16,129,000) (18,401,000)
----------- ------------
Total stockholders' equity 15,107,000 39,219,000
----------- ------------
$18,251,000 $43,452,000
=========== ============
</TABLE>
See accompanying notes.
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SIBIA Neurosciences, Inc.
Condensed Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1996 1995 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Contract $ 1,188,000 $ 2,029,000 $ 2,305,00O $ 4,356,000
License and royalty 343,000 15,000 400,000 72,000
----------- ----------- ----------- -----------
Total revenue (Note 3) 1,531,000 2,044,000 2,705,000 4,428,000
----------- ----------- ----------- -----------
Expenses:
Research and development 2,153,000 2,981,000 4,264,000 5,656,000
General and administrative 689,000 792,000 1,386,000 1,644,000
----------- ----------- ----------- -----------
2,842,000 3,773,000 5,650,000 7,300,000
----------- ----------- ----------- -----------
(1,311,000) (1,729,000) (2,945,000) (2,872,000)
----------- ----------- ----------- -----------
Other income (expense):
Settlement of litigation 555,000
Interest income 92,000 404,000 186,000 629,000
Interest expense (18,000) (17,000) (36,000) (34,000)
Other 5,000 18,000 5,000
----------- ----------- ----------- -----------
74,000 392,000 723,000 600,000
----------- ----------- ----------- -----------
Net loss $(1,237,000) $(1,337,000) $(2,222,000) $(2,272,000)
=========== =========== =========== ===========
Net loss per common share $ (0.23) $ (0.18) $ (0.41) $ (0.37)
=========== =========== =========== ===========
Weighted average number of common shares outstanding 5,479,314 7,366,319 5,478,016 6,174,100
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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SIBIA Neurosciences, Inc.
Condensed Statement Of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,222,000) $ (2,272,000)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 230,000 284,000
Compensation from issuance of common stock options 397,000
Net gain on disposal of property (18,000) (1,000)
Net amortization of premium and discount on
investment securities (98,000) (288,000)
Increase (decrease) in cash resulting from changes in:
Contract and accounts receivable 113,000 (96,000)
Prepaid expenses and other assets (286,000) (195,000)
Accounts payable 40,000 239,000
Accrued liabilities and other 420,000 (66,000)
Deferred revenue (31,000) 985,000
----------- ------------
Net cash used by operating activities (1,852,000) (1,013,000)
----------- ------------
Cash flows from investing activities:
Purchases of investment securities held-to-maturity (1,973,000) (25,974,000)
Maturities of investment securities held-to-maturity 3,565,000 13,692,000
Principal payments received on investment securities
available-for-sale 62,000 26,000
Proceeds from disposal of property and equipment 25,000 5,000
Acquisition of property and equipment (24,000) (137,000)
----------- ------------
Net cash (used) provided by investing activities 1,655,000 (12,388,000)
----------- ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 4,000 145,000
Proceeds from payment on notes receivable 9,000
Proceeds from issuance of stock 25,845,000
Principal payments on capital lease obligations (178,000) (223,000)
----------- ------------
Net cash (used) provided by financing activities (174,000) 25,776,000
----------- ------------
Net (decrease) increase in cash and cash equivalents (371,000) 12,375,000
Cash and cash equivalents at beginning of period 1,948,000 2,274,000
----------- ------------
Cash and cash equivalents at end of period $ 1,577,000 $ 14,649,000
=========== ============
</TABLE>
See accompanying notes.
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SIBIA Neurosciences, Inc.
NOTES TO THE FINANCIAL STATEMENTS
June 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 six month periods ended June 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 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 year amounts have been reclassified to conform to current year
presentation.
2. NET LOSS PER COMMON SHARE
Net loss 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 six month periods ended June 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). Other common stock equivalents are
antidilutive and are excluded from the computation of net loss per common share.
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 six month periods ended June 30, 1995, including certain
administrative costs, aggregated $943,000 and $1,863,000, respectively. For the
corresponding periods in 1996, such costs aggregated $1,400,000 and $2,885,000,
respectively.
Total revenue for the three and six months ended June 30, 1996 included
$1,578,000 and $3,452,000, respectively, from two stockholders owning a combined
19% interest in the Company as of June 30, 1996.
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4. STATEMENT OF CASH FLOWS
Non-cash financing activities were comprised of capital lease obligations of
$204,000 and $154,000, respectively, in the six-month periods ended June 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
Subsequent to June 30, 1996 the Company became 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.
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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 under the heading "Risk Factors".
SIBIA is engaged in the discovery and development of novel, small molecule
therapeutics for 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 June 30, 1996, the Company's accumulated
deficit was approximately $18,401,000.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1995 Compared to Three Months Ended June 30, 1996
Revenue
Total revenue increased by 34%, from $1,531,000 in the second quarter 1995 to
$2,044,000 in the second quarter 1996. The increase in total revenue was
primarily the result of an $875,000 increase in contract revenues recognized
pursuant to a new collaborative agreement with Bristol-Myers Squibb.
Expenses
Total expenses increased by 33%, from $2,842,000 in the second quarter 1995 to
$3,773,000 in the second quarter 1996. The increase in total expenses was
primarily attributable to an increase in research and development expenses of
38%, from $2,153,000 in the second quarter 1995 to $2,981,000 in the second
quarter 1996. This was the result of an increase in research and development
personnel and related costs for a new collaborative agreement with
Bristol-Myers Squibb, expanded programs in drug discovery, and outside
preclinical expenses. General and
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administrative expenses increased by 15%, from $689,000 in the second quarter of
1995 to $792,000 in the second quarter of 1996. The increase in general and
administrative expenses was primarily due to compensation expense relating to
stock option grants and increases in salaries and fringe benefit expenses
related to increased headcount. Such increases were offset by decreased legal
and consulting fees.
Other Income
Other income during the second quarter of 1996 increased by 430%, or $318,000,
as compared to the second quarter of 1995, primarily due to an increase in
interest income.
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1996
Revenue
Total revenue increased by 64%, from $2,705,000 for the first six months of 1995
to $4,428,000 for the first six months of 1996. The increase in total revenue
was primarily the result of a $1,645,000 increase in contract revenues
recognized pursuant to a new 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. Such increases were offset by a $328,000 decrease in license and
royalty revenue, of which $250,000 related to a non-recurring option payment
from Cephalon related to the IGF-1 technology.
Expenses
Total expenses increased by 29%, from $5,650,000 for the first six months of
1995 to $7,300,000 for the first six months of 1996. The increase in total
expenses was primarily attributable to an increase in research and development
expenses of 33%, from $4,264,000 for the first six months of 1995 to $5,656,000
for the first six months of 1996. This was the result of an increase in research
and development personnel and related costs for a new collaborative agreement
with Bristol-Myers Squibb, expanded programs in drug discovery, and outside
preclinical expenses. General and administrative expenses increased by 19%, from
$1,386,000 for the first six months of 1995 to $1,644,000 for the first six
months of 1996. The increase in general and administrative expenses was
primarily due to compensation expense relating to stock option grants and
increases in fringe benefit expenses.
Other Income
Other income during the first six months of 1996 decreased by 17%, or $123,000,
as compared to the first six months of 1995, primarily due to non-recurring
payments received in 1995 from the settlement of certain litigation offset by an
increase in interest income.
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
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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 the 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.
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 $41,399,000 as of June 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. Management believes 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
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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 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.
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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 71% and 82% of total revenues for the three months and six
months ended June 30, 1995 and 99% and 97% of total revenues for the three
months and six months ended June 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. The Company anticipates that an
amendment to the current agreement will be made that would reduce the level of
funding effective in November 1996, but may extend the term of support one or
more years. 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. Further, the Company currently is opposing an issued
patent of a third party in Europe. There can be no
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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 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.
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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.
14
<PAGE> 15
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.
15
<PAGE> 16
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: 8-14-96 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)
16
<PAGE> 1
SIBIA Neurosciences, Inc.
Exhibit 11.1 - Statement Re: Computation of Loss Per Share (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1996 1995 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Primary Loss Per Share:
Weighted average common shares outstanding 4,888,134 7,366,319 4,886,836 6,174,100
SAB No. 83 shares (1): 591,180 - 591,180 -
----------- ----------- ----------- -----------
Total 5,479,314 7,366,319 5,478,016 6,174,100
=========== =========== =========== ===========
Net loss $(1,237,000) $(1,337,000) $(2,222,000) $(2,272,000)
=========== =========== =========== ===========
Net loss per common share $ (0.23) $ (0.18) $ (0.41) $ (0.37)
=========== =========== ========== ===========
</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 (Cheap Stock) 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 JUNE 30, 1996 AND UNAUDITED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,649,000
<SECURITIES> 26,750,000
<RECEIVABLES> 131,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,983,000
<PP&E> 1,396,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,452,000
<CURRENT-LIABILITIES> 3,607,000
<BONDS> 0
0
0
<COMMON> 9,000
<OTHER-SE> 39,210,000
<TOTAL-LIABILITY-AND-EQUITY> 43,452,000
<SALES> 0
<TOTAL-REVENUES> 4,428,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,300,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,000
<INCOME-PRETAX> (2,272,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,272,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,272,000)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
