<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: MARCH 31, 1997 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 April 30, 1997, 17,786,692 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 March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6 - 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 - 9
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
2
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CAMBRIDGE NEUROSCIENCE, INC.
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 50,617 $ 26,664
Prepaid expenses and other current assets 713 1,271
-------- --------
TOTAL CURRENT ASSETS 51,330 27,935
Equipment, Furniture and Fixtures, net 1,098 1,285
-------- --------
$ 52,428 $ 29,220
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,476 $ 3,789
Research and development advances 4,691 5,784
-------- --------
TOTAL CURRENT LIABILITIES 8,167 9,573
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01,
10,000 shares authorized; none issued -- --
Common stock, par value $.001,
30,000 shares authorized; 17,785 shares
issued and outstanding at March 31, 1997;
15,010 at December 31, 1996 17 15
Additional paid-in capital 137,538 109,276
Accumulated deficit (93,294) (89,644)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 44,261 19,647
-------- --------
$ 52,428 $ 29,220
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
CAMBRIDGE NEUROSCIENCE, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Revenues
Research and development $ 1,094 $ 1,070
Operating expenses
Research and development 4,539 3,076
General and administrative 734 648
------- -------
5,273 3,724
------- -------
Loss from operations (4,179) (2,654)
Interest income 529 283
------- -------
Net loss $(3,650) $(2,371)
======= =======
Net loss per common share $ (0.22) $ (0.18)
======= =======
Number of shares outstanding for
purposes of computing net loss per share
16,614 13,547
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
CAMBRIDGE NEUROSCIENCE, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,650) $(2,371)
Expenses not requiring cash:
Depreciation and amortization 222 261
Common stock issued pursuant to
an employee benefit plan 66 50
------- -------
(3,362) (2,060)
Changes in current assets and liabilities:
Prepaid expenses and other current assets 558 (43)
Accounts payable and accrued expenses (313) (941)
Research and development advances (1,093) 1,203
------- -------
(848) 219
------- -------
Cash used for operating activities (4,210) (1,841)
INVESTING ACTIVITIES
Purchase of equipment, furniture and
fixtures, net of disposals (35) (41)
------- -------
Cash used for investing activities (35) (41)
FINANCING ACTIVITIES
Sales of common stock, net of offering
costs and repurchases 28,198 33
------- -------
Cash provided by financing activities 28,198 33
------- -------
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS 23,953 (1,849)
Cash and cash equivalents at beginning of period 26,664 21,937
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $50,617 $20,088
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements as
of March 31, 1997 and for the three month periods ended March 31, 1997 and 1996
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial condition, results of operations and
cash flows for the periods presented. The results of operations for the interim
period ended March 31, 1997 are not necessarily indicative of the results
expected for the full fiscal year.
The consolidated financial statements presented as of December 31, 1996 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. 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.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share (FAS 128), which will be adopted on December 31,
1997. FAS 128 requires companies to change the method currently used to compute
earnings per share and to restate all prior periods for comparability. The
adoption of FAS 128 is not expected to have any impact on the Company's earnings
per share due to the fact that the Company continues to be in a net loss
position and, consequently, common equivalent shares from stock options are
excluded as their effect is antidilutive.
3. RESEARCH AND DEVELOPMENT REVENUE
--------------------------------
The Company recognizes research and development revenue as earned and such
revenue represents reimbursement of the Company's expenditures pursuant to the
terms of two collaboration agreements. Pursuant to the Company's agreement with
Boehringer Ingelheim International GmbH ("BI"), the Company is obligated to fund
approximately 25% of the development expenses for CERESTAT(1) in the United
States and Europe. Revenue earned pursuant to this agreement represents
reimbursement by BI of expenditures by the Company in excess of the 25% required
under the agreement. The Company accounts for research and development revenue
from BI 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.
6
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CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. RESEARCH AND DEVELOPMENT REVENUE, CONTINUED
-------------------------------------------
As a result, revenue earned by the Company may fluctuate on a quarterly basis.
Cash received in advance of research and development performed is designated as
a research and development advance.
In November 1996, the Company entered into a collaboration agreement with
Allergan, Inc. ("Allergan") for the development of treatments for ophthalmic
disorders, including glaucoma. Pursuant to this agreement, Allergan will provide
$1.0 million in research funding per year for the next three years. Revenue
pursuant to this agreement is recognized as payments are received, on a
quarterly basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenues
Research and development revenues were $1.1 million for the three month
period ended March 31, 1997 and were comparable to research and development
revenues earned in the same period in 1996. Research and development revenues in
the first quarter of 1997 included $844,000 pursuant to the collaboration
agreement with BI, compared to $1.1 million in the same period in 1996. This
decrease reflects an increase in total costs associated with the ongoing
clinical trials of CERESTAT as well as a shift in the costs incurred by BI
relative to the total costs incurred by both partners. Revenue pursuant to this
collaboration agreement represents reimbursement of the excess of the Company's
expenditures over its funding obligation under the agreement (see Note 3 to the
Condensed Consolidated Financial Statements) and may fluctuate on a quarterly
basis. In November 1996, the Company entered into a collaboration agreement with
Allergan. Pursuant to this agreement, $250,000 was included in research and
development revenues for the first quarter of 1997.
Operating Expenses
Total operating expenses were $5.3 million in the first quarter of 1997,
compared to $3.7 million in the same period in 1996, an increase of $1.6
million. Research and development expenses increased by $1.4 million to $4.5
million in the three months ended March 31, 1997, from $3.1 million in 1996 due
primarily to costs associated with the increasing patient enrollment in the
Phase III clinical trial of CERESTAT in traumatic brain injury, which commenced
in the first quarter of 1996. The Company is also incurring increasing costs
associated with preclinical studies of certain of its other product development
programs, as they progress toward clinical trials.
General and administrative expenses increased to $734,000 in the first
quarter of 1997, compared to $648,000 in the same period in 1996. This increase
reflects expenses associated with the addition of a director of marketing in the
third quarter of 1996 as well as an increased use of outside consultants to
support the Company's investor relations and business development activities.
7
<PAGE> 8
CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Interest Income
Interest income for the three months ended March 31, 1997 was $529,000,
compared to $283,000 for the same period in 1996. This increase is due to higher
cash balances available for investment as a result of an equity investment by BI
in September 1996 as well as the public offering of the Company's Common Stock
in the first quarter of 1997.
Net Loss Per Share
The net loss for the first quarter of 1997 was $3.7 million or $0.22 per
share, compared to $2.4 million or $0.18 per share for the same period in 1996.
The increase in net loss reflects an increase in research and development
expenses. Partially offsetting the increase in research and development expenses
was an increase in the weighted average shares outstanding as a result of the
sale of 1,237,624 shares of common stock to BI in September 1996 and the public
offering of 2,760,000 shares of Common Stock in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $50.6 million at March 31,
1997, compared to $26.7 million at December 31, 1996. In February 1997, the
Company completed a public offering of 2,760,000 shares of common stock at a
price to the public of $11.00 per share and received net proceeds of $28.1
million. In the first quarter of 1997, the Company used $4.2 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. As of March 31, 1997, over
700 patients were enrolled in these trials. The cost of both trials will be
shared by the Company and BI in accordance with the terms of the collaboration
agreement. It is expected that as the number of patients enrolled in the trials
increases, total costs for the trials and the costs borne by the Company will
increase. The Company is obligated to fund 25% of the development costs incurred
under the collaboration agreement in the United States and Europe. BI is
required to fund the remaining 75% of such costs and all of the development
costs in Japan. Any costs incurred in excess of one party's contractual
obligation will be reimbursed by the other party. The agreement provides that BI
will advance cash to the Company in the event that it is expected that the
Company will spend more than obligated under the agreement. On an annual basis,
actual spending is reconciled with the budget and may result in the Company's
repayment to BI of any excess advances. As of the most recent cost
reconciliation in April 1997, it has been determined that, as of December 31,
1996, the Company had received approximately $4.9 million in advances in excess
of reimbursement earned. The Company has not received any cash advances from BI
to-date in 1997. The Company expects to repay the prior year excess advances to
BI before the end of 1997.
Pursuant to the agreement signed in November 1996 with Allergan, the
Company may receive up to $3.0 million in research funding through 1999, of
which the Company has received $364,000 as of March 31, 1997. Under the
agreement, Allergan is responsible for the development of potential products and
will bear all of the associated costs.
8
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CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
In December 1996, the Company formed a subsidiary, Cambridge NeuroScience
Partners, Inc. (CNPI), to pursue the development of treatments for Alzheimer's
disease and other neurological disorders. CNPI entered into a collaboration
agreement with the J. David Gladstone Institutes (Gladstone). Pursuant to this
collaboration, Gladstone will conduct a research program over a three year
period, for which CNPI will provide at least $1.25 million in funding per year.
The Company owns 80% of the outstanding stock of CNPI and has guaranteed CNPI's
obligations with respect to its collaboration with Gladstone.
The Company believes that the existing cash and cash equivalents available
at March 31, 1997 will be sufficient to maintain operations through 1998. The BI
and Allergan collaboration agreements also provide that the Company may receive
up to an additional $18.0 million and up to an additional $18.5 million,
respectively, upon the achievement of certain milestones. However, there can be
no assurance as to when or if these milestones will be achieved.
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, for pursuing regulatory clearances,
for establishing production, sales and marketing capabilities and for other
operating expenses. Despite the potential future milestone payments under the BI
and Allergan agreements, adequate funds for these purposes may not be available
when needed on terms acceptable to the Company, or at all. 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. Such statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from those projected. 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. The
Company undertakes no obligation to publicly release the result of any revisions
to these forward-looking statements which may be made to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
(1) CERESTAT is a registered trademark of Boehringer Ingelheim International
GmbH.
9
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CAMBRIDGE NEUROSCIENCE, INC.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the interim year-to-date period ended
March 31, 1997 (for electronic filing only)
(b) Reports on Form 8-K
None
10
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CAMBRIDGE NEUROSCIENCE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBRIDGE NEUROSCIENCE, INC.
Date May 1, 1997 /s/ Elkan R. Gamzu
-------------------------- --------------------------------------
Elkan R. Gamzu
President and Chief Executive Officer
(Principal Executive Officer)
Date May 1, 1997 /s/ Harry W. Wilcox, III
-------------------------- --------------------------------------
Harry W. Wilcox, III
Senior Vice President, Finance and
Business Development
(Principal Financial and Accounting
Officer)
11
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CAMBRIDGE NEUROSCIENCE, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule for the interim year-to-date
period ended March 31, 1997 (for electronic
filing only)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10Q FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 50,617
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,330
<PP&E> 7,139
<DEPRECIATION> (6,041)
<TOTAL-ASSETS> 52,428
<CURRENT-LIABILITIES> 8,167
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 44,244
<TOTAL-LIABILITY-AND-EQUITY> 52,428
<SALES> 0
<TOTAL-REVENUES> 1,094
<CGS> 0
<TOTAL-COSTS> 5,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,650)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,650)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,650)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
