<PAGE> 1
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: SEPTEMBER 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 October 31, 1996, 14,817,300 shares of Common Stock, par value $.001 per
share, were issued and outstanding.
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CAMBRIDGE NEUROSCIENCE, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
- ------------------------------ ------
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
at September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 1996 and 1995 4 - 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 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 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
2
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS (unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 27,336,831 $ 21,937,450
Prepaid expenses and other current assets 537,113 506,721
------------- ------------
TOTAL CURRENT ASSETS 27,873,944 22,444,171
Equipment, Furniture and Fixtures, net 1,294,832 1,876,473
------------- ------------
$ 29,168,776 $ 24,320,644
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and accrued expenses $ 2,667,972 $ 3,797,308
Research and development advances 5,918,942 995,205
------------- ------------
TOTAL CURRENT LIABILITIES 8,586,914 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; 14,813,682 shares issued
and outstanding at September 30, 1996;
13,539,214 at December 31, 1995 14,814 13,539
Additional paid-in capital 106,125,324 96,169,488
Accumulated deficit (85,558,276) (76,654,896)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 20,581,862 19,528,131
------------- ------------
$ 29,168,776 $ 24,320,644
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
-------------- ------------
Revenues
<S> <C> <C>
Research and development, net $ 150,834 $ 1,278,977
Operating expenses
Research and development 3,381,880 3,676,276
General and administrative 634,721 578,761
------------ ------------
4,016,601 4,255,037
------------ ------------
Loss from operations (3,865,767) (2,976,060)
Interest income 281,995 202,109
------------ ------------
Net loss $ (3,583,772) $ (2,773,951)
============ ============
Net loss per common share $ (0.26) $ (0.23)
============ ============
Number of shares outstanding for purposes of
computing net loss per share 13,914,984 12,068,753
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE> 5
CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
------------ ------------
Revenues
<S> <C> <C>
Research and development, net $ 1,897,135 $ 6,968,644
Government grants -- 63,400
------------ ------------
1,897,135 7,032,044
Operating expenses
Research and development 9,747,856 10,411,694
General and administrative 1,874,568 1,685,229
------------ ------------
11,622,424 12,096,923
------------ ------------
Loss from operations (9,725,289) (5,064,879)
Interest income 821,909 498,670
------------ ------------
Net loss $ (8,903,380) $ (4,566,209)
============ ============
Net loss per common share $ (0.65) $ (0.39)
============ ============
Number of shares outstanding for purposes of
computing net loss per share 13,674,170 11,677,152
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE> 6
CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (8,903,380) $ (4,566,209)
Expenses not requiring cash:
Depreciation and amortization 780,000 884,800
Common stock issued pursuant to an
employee benefit plan 131,809 103,097
------------ ------------
(7,991,571) (3,578,312)
Changes in current assets and liabilities:
Prepaid expenses and other current assets (30,392) (88,781)
Accounts payable and accrued expenses (1,129,336) (18,601)
Research and development advances 4,923,737 922,925
------------ ------------
3,764,009 815,543
------------ ------------
Cash used for operating activities (4,227,562) (2,762,769)
INVESTING ACTIVITIES
Purchase of equipment, furniture and
fixtures, net of disposals (198,359) (232,080)
------------ ------------
Cash used for investing activities (198,359) (232,080)
FINANCING ACTIVITIES
Sales of common stock, net of offering
costs and repurchases 9,825,302 10,064,919
------------ ------------
Cash provided by financing activities 9,825,302 10,064,919
------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 5,399,381 7,070,070
Cash and cash equivalents at beginning of period 21,937,450 6,268,757
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 27,336,831 $ 13,338,827
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
6
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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 September 30, 1996 and for the three and nine month periods ended September
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 September 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 and injuries of the nervous system.
2. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1996
presentation.
3. 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.
4. RESEARCH AND DEVELOPMENT REVENUE, NET
Under the Company's agreement with Boehringer Ingelheim GmbH ("BI"), the
Company is obligated to fund approximately 25% of the development expenses for
CERESTAT(1) in the United States and Europe. Research and development revenue
represents reimbursement of the excess of the Company's expenditures over its
obligation pursuant to the agreement. 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 research and development advances.
7
<PAGE> 8
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. 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.
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 SEPTEMBER 30, 1996 AND 1995
Revenues
Research and development revenue, net, was $151,000 in the third quarter
of 1996, compared to $1.3 million in the same period in 1995. The collaboration
agreement with BI generally provides that BI will fund 75% of the total
development costs incurred by both parties. Revenue recognized represents the
excess of the Company's expenditures over its obligation under the agreement
(see Note 4 to the Condensed Consolidated Financial Statements). The decrease in
revenue in the third quarter of 1996 compared to 1995 reflects a change in the
relative spending of the parties to the agreement, primarily relating to the
commencement of a pivotal stroke trial by BI, and will continue to fluctuate on
a quarterly basis.
Operating Expenses
Total operating expenses for the three month period ended September 30,
1996 were $4.0 million, compared to $4.3 million in the same period in 1995.
Research and development expenses decreased by $294,000, or 8%, to $3.4 million,
compared to $3.7 million in 1995. This reflects a decrease in nonclinical
studies associated with the Company's lead product candidate, CERESTAT, offset
in part by an increase in costs associated with higher headcount, primarily to
support development activities. The Company expects to incur increasing costs
associated with these clinical trials, as patient enrollment accelerates.
General and administrative expenses increased $56,000, or 10%, to
$635,000 in the third quarter of 1996, compared to $579,000 in the same period
in 1995. This increase reflects an increase in headcount and associated costs,
primarily in support of the Company's business development activities.
8
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CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Interest Income
Interest income for the third quarter 1996 was $282,000, compared to
$202,000 in 1995. This increase is due to an increase in cash available for
investment as a result of the two stock offerings in the fourth quarter of 1995
and a second equity investment by BI in September 1996.
Net Loss Per Share
The net loss for the third quarter of 1996 was $3.6 million, or $0.26 per
share, compared to $2.8 million, or $0.23 per share, in 1995. The increase in
net loss is due to a decrease in research and development revenue, as noted
above. Offsetting this increase in part, is the increase in weighted average
shares outstanding as a result of the stock offerings in the fourth quarter of
1995 as well as the equity purchase by BI in the beginning of September 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues
Research and development revenue, net, was $1.9 million in the nine
months ended September 30, 1996, compared to $7.0 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. Of the total research and development revenue, revenue relating to current
period spending was $1.9 million in 1996, compared to $2.3 million in 1995. This
decrease of $400,000 is due to the fact that spending by BI is increasing as a
percentage of the total amount spent by both companies.
Operating Expenses
Operating expenses decreased $475,000, or 4%, to $11.6 million for the
nine months ended September 30, 1996, compared to $12.1 million for the same
period in 1995. Research and development expenses decreased $664,000, or 6%, to
$9.7 million, compared to $10.4 million in 1995, primarily as a result of a
decrease in nonclinical development costs associated with CERESTAT. Offsetting
this decrease in part, was an increase in nonclinical study costs associated
with another of the Company's product programs as well as an increase in costs
associated with higher headcount, primarily in support of development
activities.
General and administrative expenses increased by $189,000, or 11%, due to
an increase in costs associated with higher headcount, primarily in support of
the Company's business development activities.
Interest Income
Interest income for the nine month period ended September 30, 1996 was
$822,000, compared to $499,000 in the same period in 1995. This increase
reflects the higher cash balances available for investment primarily as a result
of the two stock offerings in the fourth quarter of 1995 and a second equity
investment by BI in September 1996.
9
<PAGE> 10
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 for the nine month period ended September 30, 1996 was $8.9
million, or $0.65 per share, compared to $4.6 million, or $0.39 per share, in
the same period in 1995. This increase in net loss per share is due primarily to
the decrease in research and development revenue, offset by an increase in
weighted average shares outstanding as a result of the stock offerings in the
fourth quarter of 1995 and the second equity investment by BI in September 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $27.3 million at September 30, 1996,
compared to $21.9 million at December 31, 1995. Pursuant to the terms of the
collaboration agreement and in connection with the commencement of the pivotal
stroke trial by BI, the Company received a milestone payment in September 1996
of $10.0 million, before related costs of $300,000, in exchange for 1,237,624
shares of the Company's common stock. Additionally, in 1996 the Company received
$6.8 million in advances against reimbursable expenses pursuant to the BI
collaboration. In the nine month period ended September 30, 1996, the Company
used $11.0 million for operating purposes.
The Company and BI began two large clinical trials in 1996. These trials
are expected to involve approximately 1,600 patients and are expected to 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. 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. Any costs incurred in excess
of one party's contractual obligation will be reimbursed by the other party. The
cash reimbursement and the revenue earned are subject to each party's relative
expenditures and therefore may fluctuate on a quarterly basis. The agreement
provides that BI will advance cash to the Company on a quarterly basis in the
event that it is expected that the Company will spend more than obligated under
the agreement (25% of total amount spent by both parties). Due to the
uncertainty associated with the annual estimate of spending by both companies
and the timing of the relative spending, the amount and timing of advances from
BI is uncertain. It is expected that as more patients enroll in these trials,
total costs and the costs borne by the Company will increase. The Company
expects to incur significant expenses related to these trials for the remainder
of 1996 and in 1997 and thereafter, subject to the cost sharing arrangement
discussed above.
The Company believes that the existing cash and cash equivalents
available at September 30, 1996 will be sufficient to maintain operations at
least through the third quarter of 1997. The BI collaboration also provides that
the Company may receive up to an additional $18 million in cash upon the
achievement of certain milestones. However, there can be no assurance as to when
or if these milestones will be achieved.
10
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CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The Company's 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.
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule for the interim year-to-date period
ended September 30, 1996 (for electronic filing only)
(b) Reports on Form 8-K
July 16, 1996: News release announcing the initiation of a
pivotal trial of CERESTAT in stroke patients.
August 22, 1996: News release announcing the additional $10
million equity investment by Boehringer Ingelheim.
11
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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 November 7, 1996 /s/ Elkan R. Gamzu
---------------------- -----------------------------------------
Elkan R. Gamzu
President and Chief Executive Officer
(Principal Executive Officer)
Date November 7, 1996 /s/ Harry W. Wilcox, III
---------------------- -----------------------------------------
Harry W. Wilcox, III
Senior Vice President, Finance and
Business Development (Principal Financial and Accounting Officer)
12
<PAGE> 13
CAMBRIDGE NEUROSCIENCE, INC.
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
27.1 Financial Data Schedule for the interim year-to-date period ended 14
September 30, 1996 (for electronic filing only)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,
1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 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> 27,336,831
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,873,944
<PP&E> 6,836,470
<DEPRECIATION> (5,541,638)
<TOTAL-ASSETS> 29,168,776
<CURRENT-LIABILITIES> 8,586,914
<BONDS> 0
0
0
<COMMON> 14,814
<OTHER-SE> 20,567,048
<TOTAL-LIABILITY-AND-EQUITY> 29,168,776
<SALES> 0
<TOTAL-REVENUES> 1,897,135
<CGS> 0
<TOTAL-COSTS> 11,622,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,903,380)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,903,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,903,380)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
