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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-19193
CAMBRIDGE NEUROSCIENCE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 13-3319074
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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ONE KENDALL SQUARE, BUILDING 700, CAMBRIDGE, MA 02139
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 225-0600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.001 per share
(Title of Class)
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non affiliates of the
Registrant as of January 31, 1997, was $83,870,550. At January 31, 1997, there
were issued and outstanding 15,018,814 shares of Common Stock, par value $.001
per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement to be delivered to stockholders
in connection with the Annual Meeting of Stockholders, to be held April 28,
1997, are incorporated by reference into Part III of this Form 10-K.
A list of all Exhibits to this Form 10-K begins on page 42.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Cambridge NeuroScience is a leading neuroscience company engaged in the
development of proprietary pharmaceuticals to treat severe disorders of, or
injuries to, the nervous system. The Company's product candidates and programs
include (i) ion-channel blockers for the treatment and prevention of brain
damage resulting from traumatic brain injury ("TBI"), stroke and surgery, as
well as for the treatment of certain forms of neuropathic pain, and (ii) growth
factors for the treatment of multiple sclerosis ("MS") and peripheral
neuropathies. CERESTAT(1), the Company's most advanced product candidate, is a
small molecule ion-channel blocker currently in Phase III clinical trials for
the treatment of both TBI and stroke.
BACKGROUND
The central nervous system, composed of the brain and spinal cord, controls
cognitive functions, interprets incoming sensory information and organizes body
movements. The peripheral nervous system, composed of nerve fibers leading to
and from the central nervous system, carries encoded information from body
sensory receptors and commands to muscles and glands. Two main cell types are
found throughout the nervous system: nerve cells, which generate and transmit
signals, and glial cells, which provide nutrition and support functions to nerve
cells.
Information in the nervous system travels within individual nerve cells as
electrical signals and is passed from one nerve cell to another by chemical
substances, known as neurotransmitters, which act on cellular receptors to
generate or modify electrical activity of the receiving nerve cell. Electrical
signals of the nervous system are generated by membrane proteins, known as ion
channels, which control the flow of charged ions across nerve cell membranes.
Disorders of the nervous system fall broadly into two categories: those in which
the cellular structure of the nervous system is intact, but the electrical
signals of the cellular network are abnormal; and those in which the
degeneration of nerve or glial cells leads to abnormal function.
Acute central nervous system disorders, such as stroke and traumatic
injuries to the head and spine, often cause a reduction in blood flow (ischemia)
to, and the premature death of, nerve cells, resulting in permanent disorders of
the central nervous system. Nerve cell death following an ischemic event in the
brain is triggered by the excessive release of the excitatory neurotransmitter,
glutamate, from damaged nerve terminals, which in turn stimulates the massive
entry of calcium into nerve cells through activated ion channels. Overloading
nerve cells with calcium ions activates a number of processes that ultimately
result in cell death.
In the ischemic brain, glutamate predominantly activates an ion channel
known as the N-methyl D-aspartate ("NMDA") ion channel. In animal models of
stroke and TBI, NMDA antagonists have been shown to limit the extent of brain
damage when administered after the onset of cerebral ischemia.
Chronic disorders of the nervous system, such as multiple sclerosis,
peripheral neuropathies and other degenerative disorders, are known to result
from the death of nerve or glial cells. In the development of the nervous
system, the proliferation, differentiation and survival of nerve and glial cells
are controlled by a variety of protein growth factors. These growth factors are
produced by cells of the nervous system and by their target cells. Growth
factors, which are normally involved in the development of the nervous system,
also play important roles during the normal regeneration of the nervous system
following damage. Animal studies suggest that one attractive therapeutic
approach to replacing damaged nerve and glial cells is to re-initiate the
processes of early development in the nervous system through the introduction of
protein growth factors. Therefore, protein growth factors offer significant
potential as treatments for a variety of neurological disorders.
(1) CERESTAT is a registered Trademark of Boehringer Ingelheim
International, GmbH.
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CORE TECHNOLOGIES
Cambridge NeuroScience has concentrated its drug discovery and development
efforts in two main programs: ion-channel blockers to modify nerve cell
signaling or to prevent nerve cell death; and protein growth factors to prevent
degeneration of, or to regenerate, nerve and glial cells. To pursue these two
programs, the Company uses its expertise in medicinal and analytical chemistry,
molecular biology, protein chemistry and in vitro and in vivo pharmacology.
ION-CHANNEL BLOCKERS
The Company has focused on the synthesis of small organic molecules, known
as ion-channel blockers, that directly block passage of ions through certain ion
channels which control the activity of nerve cells. The Company has been
synthesizing and evaluating small molecules that block ion channels which
regulate the release of glutamate from nerve cells or the responses of nerve
cells to glutamate. In cerebral ischemia, over-stimulation of the
glutamate-activated NMDA ion channel is primarily responsible for flooding nerve
cells with calcium ions, which results in cell death. The Company is developing
ion-channel blockers that selectively block the NMDA ion channel and limit nerve
cell death during acute cerebral ischemia as a treatment for TBI and stroke.
CERESTAT, the Company's most advanced NMDA ion-channel blocker, is
currently undergoing Phase III clinical trials in both TBI and stroke. The Phase
III clinical trials of CERESTAT are being managed by the Company and its
collaborative partner, Boehringer Ingelheim International GmbH ("BI"). CNS 5161,
the second development compound selected by the Company from its NMDA
ion-channel blockers program, is being advanced towards clinical trials as a
potential treatment to reduce post-surgical neuropathic pain and to limit the
neurological deficits which sometimes result from major cardiac surgeries. The
Company has applied its expertise in discovering and developing NMDA ion-channel
blockers to the synthesis and testing of compounds that selectively block other
ion channels, such as sodium ion channels, which can contribute to abnormal
nerve cell electrical activity. The Company believes that such ion-channel
blockers may have therapeutic utility in a number of acute and chronic
neurological disorders, including spinal cord injury, migraine and epilepsy.
The Company's ion-channel blocker product candidates for the treatment of
acute and chronic neurological disorders are being designed with the following
characteristics:
Rapid Brain Penetration. In animal models of cerebral ischemia, the more
rapidly that drugs intended to prevent nerve cell death can reach the area of
the brain at risk, the greater the degree of protection. Because of their
physical characteristics, the Company's small molecule ion-channel blockers
readily penetrate the blood-brain barrier in animals. The Company believes that
effective brain concentrations of ion-channel blockers can be rapidly achieved
in patients.
Early Intervention in Nerve Cell Death. The massive influx of lethal
levels of calcium into the cell is one of the earliest in a sequence of events
leading to nerve cell death. The Company believes that its ion-channel blockers,
by acting at an early stage in this process, can effectively shut down all
subsequent biochemical processes in this pathway that lead to nerve cell death.
High Potency. Ion-channel blockers can shut down operations of activated
ion channels, regardless of the strength of the naturally occurring stimulus.
Potential products that inhibit the function of an ion channel by other
mechanisms often can be overwhelmed by an increase in the activating stimulus.
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PROTEIN GROWTH FACTORS
Growth factors are known to play an important role in the growth,
differentiation and distribution of nerve cells. They also are crucial to
maintaining the health and function of neurons. The Company has made significant
progress in the development of growth factor proteins as treatments for
disorders of the nervous system.
The Company's most advanced growth factor product candidate is recombinant
human Glial Growth Factor 2 ("rhGGF2"), a potential treatment for degenerative
diseases of the nervous system, including multiple sclerosis and peripheral
neuropathies. Over the past five years, the Company has isolated, cloned,
expressed and produced rhGGF2 and is currently focusing its investigation on the
potential use of rhGGF2 as a therapeutic intervention in the pathological
processes involved in MS.
The Company is also conducting research on two other novel protein growth
factors: Growth/Differentiation Factor-1 ("GDF-1"), a nervous-system-specific
member of the Transforming Growth Factor-SS ("TGF-SS") family, and F-Spondin, a
protein that mediates nerve growth during spinal cord development.
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PRODUCT CANDIDATES
The following table summarizes the primary indications, development status
and holder of commercial rights for each of the Company's ("CNSI") product
candidates. This table is qualified in its entirety by reference to the more
detailed descriptions appearing elsewhere in this document.
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DEVELOPMENT COMMERCIAL
PRODUCT CANDIDATE INDICATIONS STATUS(1) RIGHTS
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ION-CHANNEL BLOCKERS
CERESTAT TBI Phase III CNSI/BI(2)
Stroke Phase III CNSI/BI(2)
CNS 5161 Post-surgical neuropathic pain Pre-IND CNSI
Neurological deficits from cardiac Pre-IND CNSI(3)
surgery
NMDA, sodium and Cerebral ischemia; spinal cord Preclinical CNSI
combination ion-channel injury; migraine; epilepsy
blockers
Glaucoma and other ophthalmic Preclinical CNSI/
disorders Allergan(4)
PROTEIN GROWTH FACTORS
rhGGF2 Multiple sclerosis Pre-IND CNSI
Chemotherapy-induced neuropathy; Preclinical CNSI
diabetic neuropathy
Multiple sclerosis; Research CNSI
GDF-1 neurodegeneration
Spinal cord injuries; nerve Research CNSI
F-Spondin regenration
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(1) "Phase III" indicates that the compound is being tested in a large-scale
clinical trial to obtain the efficacy and safety information required for
marketing approval. "Pre-IND" refers to toxicology and other regulatory
studies for a designated compound in anticipation of human clinical trials.
"Preclinical" refers to safety and efficacy studies conducted in animals.
"Research" refers to scientific activities to identify a specific molecule
or to select a specific clinical indication. See "Government Regulation."
(2) The Company has certain co-promotion rights for CERESTAT in the United
States, and BI has exclusive marketing rights elsewhere in the world. See
"Strategic Alliances."
(3) BI has the right to negotiate a development and marketing agreement for CNS
5161 for this indication. See "Strategic Alliances."
(4) Allergan has the right to develop certain NMDA ion-channel blockers, sodium
ion-channel blockers and combination ion-channel blockers for the treatment
of ophthalmic disorders, including glaucoma. See "Strategic Alliances."
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ION-CHANNEL BLOCKERS
CERESTAT: Background
CERESTAT, the Company's most advanced product candidate, is currently
undergoing a Phase III clinical trial in both TBI and stroke. The Phase III
clinical trials of CERESTAT are being managed by the Company and its
collaborative partner, BI. A coordinated series of Phase I and
Phase II clinical trials was undertaken to ascertain the safety of CERESTAT in
over 400 volunteers and patients. These clinical trials were conducted to
determine the safe and tolerable doses and dosing regimens that result in a
plasma level of the compound equivalent to, or higher than, the minimum plasma
level of the compound ("target plasma level") that is associated with the
limitation of brain damage in animal models of cerebral ischemia. Four studies
were performed in volunteers, including a study in Japan that was conducted by
BI in the second half of 1996 as the initiation of clinical development in that
country. See "Strategic Alliances."
In TBI patients, two studies were conducted to determine a dosing regimen
that would produce a plasma level of CERESTAT three times the target plasma
level. Following the first study in which CERESTAT was administered on a
weight-adjusted basis over a four-hour period, the second study demonstrated
that a non-weight-adjusted dosing regimen could safely maintain such a plasma
level for 72 hours. Non-weight-adjusted dosing regimens are more easily
administered in clinical trials and offer marketing advantages.
In stroke patients, three studies were undertaken to determine a dosing
regimen that would produce a plasma level of CERESTAT equivalent to, or greater
than, the target plasma level. The first was used to determine the safety of
escalating doses of CERESTAT over a four-hour treatment period. The second was a
dose-response trial. In this clinical trial, at 90 days after treatment, the
improvement in neurological function (NIH Stroke Scale) of patients treated with
the highest dose tested was significantly better than that of placebo-treated
patients. A third study determined that a non-weight-adjusted dosing regimen
could safely maintain the target plasma level over a 12-hour period.
The results of these Phase I and Phase II clinical trials were used by the
Company and BI to design the Phase III clinical trials in TBI and stroke
patients described below. There can be no assurance that the results of Phase I
and Phase II clinical trials will be indicative of results in Phase III clinical
trials or that Phase III clinical trials will show that CERESTAT is sufficiently
safe and efficacious for marketing approval by the FDA or other regulatory
authorities.
CERESTAT: Traumatic Brain Injury
It is estimated that approximately 500,000 individuals suffer severe
injuries to the head each year in the United States. Brain damage results from
the trauma associated with these injuries and from subsequent cerebral ischemia.
The annual economic cost of TBI to the United States has been estimated to be
more than $40.0 billion. The current Phase III clinical trial of CERESTAT is
designed to treat a subset of comatose patients with TBI. At present, there are
no FDA-approved treatments that limit or reduce the brain damage associated with
traumatic injuries to the head.
Based on the safety and tolerance findings from the Phase I and Phase II
clinical trials, the Company and its collaborative partner, BI, initiated a
Phase III efficacy trial for CERESTAT in TBI patients in March 1996. The intent
is to enroll 700 patients at approximately 70 centers in the United States,
Canada and certain European countries. Patients enrolled in the trial are
randomized for intravenous treatment with either CERESTAT or placebo. The
primary outcome measure has been defined as the percentage of patients with a
"favorable" outcome on the Glasgow Outcome Scale representing good recovery or
moderate disability six months after the injury. An interim analysis is planned
to be performed on the three-month Glasgow Outcome Scale data of approximately
the first half of the patients. The main purpose of the interim analysis is
administrative, and the trial would be halted only if continuation were futile.
As of December 31, 1996, approximately 190 patients were enrolled in this trial.
This trial is being monitored by an independent safety committee. In TBI
patients, no adverse drug-related effects have been observed to date.
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CERESTAT: Stroke
In 1994, the American Heart Association estimated that there are
approximately 500,000 incidents of stroke in the United States each year and
that approximately 350,000 people survive the event. Currently, there are
approximately three million disabled stroke survivors in the United States, and
the annual economic cost of stroke to the United States has been estimated at
$30.0 billion. In July 1996, the U.S. Food and Drug Administration ("FDA")
approved the use of tissue plasminogen activator ("tPA") for the treatment of
patients who had suffered a stroke within the preceding three hours and for whom
a CT scan showed no evidence of hemorrhage. This action was based on a study
published in the New England Journal of Medicine in 1995, in which the percent
of patients deemed eligible to participate was less than 4% of all patients
screened. Intravenous tPA acts by dissolving blood clots that might have led to
a stroke. To date, there are no FDA-approved treatments for stroke that act by
any mechanism other than dissolving blood clots which limit or reduce the brain
damage associated with the cerebral ischemia.
A Phase III clinical trial of CERESTAT in stroke patients was initiated in
July 1996. The intent is to enroll 900 patients at approximately 110 centers in
the United States, Canada, Australia, South Africa and the United Kingdom.
Patients enrolled in the trial are randomized for intravenous treatment with
either placebo or one of two dosing regimens of CERESTAT. The primary outcome
measure has been defined as the modified Rankin Scale (a measure of disability)
three months after the stroke. An interim analysis is planned to be performed on
the seven day post-stroke NIH Stroke Scale data of the first 300 patients. The
main purpose of the interim analysis is administrative, and the trial would be
halted only if continuation were futile. As of December 31, 1996, 200 patients
were enrolled in this trial. This trial is being monitored by an independent
safety committee.
In stroke patients, the central nervous system side effects of CERESTAT
include sedation, paresthesias (numbness) and occasional episodes of altered
sensorium, including hallucinations. The Company believes that these side
effects are transitory and manageable. Increases in blood pressure have also
been observed and have been controlled, when necessary.
CNS 5161: Post-Surgical Neuropathic Pain and Neurological Deficits From
Cardiac Surgery.
The potential market for prophylaxis against neuropathic pain has been
identified based on approximately 650,000 procedures performed annually in the
United States. Glutamate (particularly NMDA) receptors have been implicated in
the induction and maintenance of such pain in animal models and NMDA antagonists
have been shown to be effective in animal models of persistent pain.
It has been estimated that there were over 600,000 open heart surgery
procedures in the United States in 1993. Neuropsychological deficits are
observed within an eight-day period in up to 70% of patients undergoing such
procedures and in up to 30% of patients one year after the surgery. The Company
believes that these deficits are related to the transient cerebral ischemia that
occurs in some patients undergoing open-heart surgery. The Company believes that
an NMDA ion-channel blocker given prophylactically could attenuate these
undesirable consequences of the surgery.
CNS 5161 is a blocker of the NMDA ion channel that was synthesized by the
Company's chemists to be chemically distinct from CERESTAT. Based on its method
of action and its pharmacokinetic profile in animals, CNS 5161 is being advanced
toward clinical evaluation for the prevention of post-surgical neuropathic pain
and of neuropsychological deficits that result from transient cerebral ischemia
during major cardiac surgeries, such as coronary artery bypass graft (CABG)
surgery. Studies in animals have shown that CNS 5161 can limit the extent of
brain damage following periods of cerebral ischemia. Other animal studies have
shown that this compound can also prevent the development of a delayed pain
response, which is thought to be related to the development of chronic
neuropathic pain in humans following certain surgeries or trauma. The Company
intends to initiate clinical trials of CNS 5161 in human volunteers by mid-1997.
BI has the right to negotiate a development and marketing agreement for CNS 5161
for the treatment of brain or spinal cord ischemia. See "Strategic Alliances."
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Ion-Channel Blockers for Ophthalmic Disorders
Ion-channel blockers may have utility in certain diseases outside the
central nervous system, such as glaucoma and other ophthalmic indications. To
this end, in November 1996, the Company entered into a collaboration with
Allergan, a pharmaceutical company specializing in ophthalmology. In this
collaboration, the Company's molecules which block NMDA ion channels, sodium ion
channels or both, will be evaluated for their ability to prevent vision loss in
animal models of the degeneration of the retina and optic nerve which occurs in
glaucoma. See "Strategic Alliances."
Other Ion-Channel Blockers for Nervous System Disorders
The Company believes that molecules which block the ion channels of nerve
cells have potential as treatments for a number of nervous system disorders.
Accordingly, the Company continues to synthesize and evaluate molecules for
their ability to block ion channels of therapeutic importance.
To discover new treatments for preventing disorders of the central nervous
system which arise from cerebral or spinal cord ischemia, the Company has
synthesized ion-channel blockers with enhanced potency in the environment of
ischemic tissues relative to their potency in the environment of normal tissues.
The Company believes that such targeted ion-channel blockers could achieve
efficacy with fewer unwanted side effects.
In addition to molecules which block NMDA ion channels, the Company has
created a library of small organic molecules which block the sodium ion channels
of nerve cells. In vitro and in vivo studies have demonstrated that sodium
ion-channel blockers can protect nerve cells from ischemic damage and can exert
other beneficial effects, such as preventing seizure activity, reducing
responses to painful stimuli, limiting the consequences of traumatic damage to
nerve fiber bundles and arresting migraine attacks. The Company believes that
molecules which block neuronal sodium ion channels have potential as treatments
for various forms of acute and chronic disorders of the nervous system,
including stroke, epilepsy, pain and migraine. The Company has recently been
working with the Epilepsy Branch at the National Institutes of Health to explore
the potential of its sodium ion-channel blockers as treatments for epilepsy.
As an extension of its work in NMDA and sodium ion-channel blockers, the
Company has synthesized molecules which have the capacity to block both NMDA ion
channels and sodium ion channels. The Company is currently conducting in vitro
and in vivo studies to test the hypothesis that such combination compounds have
enhanced efficacy in treating neurological disorders when compared to the
efficacy of compounds which block only one of these classes of ion channels.
PROTEIN GROWTH FACTORS
rhGGF2: Multiple Sclerosis
The Company is developing the protein growth factor rhGGF2 for the
treatment of multiple sclerosis. MS is a disease of the central nervous system
that is characterized by chronic inflammation and demyelination at multiple
sites in the brain and spinal cord. Approximately 350,000 people in the United
States suffer from MS. The Company is aware of three therapeutics currently
being marketed to treat MS. Betaseron[R] (Chiron Corporation/Schering AG),
Avonex[R] (Biogen, Inc.) and Copaxone[R] (Teva Pharmaceutical Industries
Ltd./Hoechst Marion Roussel Ltd.) are all based on an immunosuppression approach
to the disease, rather than the growth factor approach being pursued by the
Company.
Cambridge NeuroScience is investigating rhGGF2 in preclinical studies as a
therapeutic intervention in the pathological processes involved in MS. rhGGF2 is
a trophic factor for the glial cells that form and maintain the myelin sheath
insulating nerve axons in the central nervous system. These cells are primary
targets involved early in the pathogenesis of MS. The Company has produced
purified rhGGF2 and is currently examining its efficacy in animal models of MS,
including experimental autoimmune encephalomyelitis ("EAE"). In the acute phase
of this model, rhGGF2 significantly reduced and delayed the clinical symptoms.
In the chronic, relapsing-
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remitting phase of EAE, rhGGF2 significantly reduced the clinical effects of
the disease as well as the number of observed relapses. The Company has
executed an agreement with a contract manufacturer for the production of Good
Manufacturing Practices ("GMP") quantities of rhGGF2 for use in clinical trials.
rhGGF2: Peripheral Neuropathies
The Company believes that rhGGF2 may also be a potential treatment for
peripheral neuropathies as a result of its activity on peripheral glial cells.
Peripheral neuropathies comprise a collection of disorders that are
characterized by the degeneration of sensory and/or motor nerves. This
degeneration may be caused by injury, chemotherapy, diabetes, inherited
disorders and other factors. It was estimated in 1991 that in excess of one
million individuals in the United States suffered from some form of peripheral
neuropathy. The largest segments of this population are those with
chemotherapy-induced neuropathies and those with diabetic neuropathies. There
are, at present, no FDA-approved therapeutic agents for the prevention,
reduction or reversal of the degeneration and atrophy caused by these disorders
and injuries.
The Company is currently testing rhGGF2 in animal models of peripheral
neuropathies, such as cancer-chemotherapy-induced neuropathy. In two different
experimental paradigms (cisplatin-induced and vincristine-induced neuropathies),
rhGGF2 administration protected peripheral nerves from the effects of these
chemotherapies. The Company also believes that rhGGF2 may be a potential
treatment of other degenerative diseases of the peripheral nerves.
rhGGF2: Other Indications
Cambridge NeuroScience continues to explore the therapeutic potential of
rhGGF2 in applications beyond the central nervous system. For example, rhGGF2
has been shown to have survival actions on retinal nerve cells and inner ear
cells. Company scientists continue to monitor these findings and are currently
investigating the therapeutic potential of rhGGF2 in an animal model of hearing
loss.
Small Molecule Discovery Program Related to GGF2
Based on its experience with rhGGF2 and other members of this protein
family, referred to as neuregulins, the Company entered into a collaboration
with ProsCure, Inc. ("ProsCure") in 1995 to identify small molecule compounds
for cancer treatments. As a result of this collaboration, it was discovered that
certain compounds can antagonize the activity of neuregulins. The Company
believes that compounds with such activity may be useful in the treatment of
breast, ovarian, brain and other cancers.
Other Protein Growth Factors
The Company is also conducting research into other growth factors that may
have utility in the treatment of other disorders of the nervous system. GDF-1 is
a member of the TGF-SS superfamily, and is broadly and exclusively expressed in
the nervous system. The Company believes that GDF-1 is likely to play a role in
responses to injury, ischemia and demyelination. Recombinant human GDF-1 is
currently being produced at Cambridge NeuroScience and will be evaluated as a
potential therapeutic for nerve injury or neurological disease. Several members
of the TGF-SS gene family have biological activities that potentially can be
employed for therapeutic effects in the nervous system, including: the promotion
of dopaminergic neuron survival, which may be applicable as a treatment for
Parkinson's disease, the promotion of motor neuron survival, which may be
applicable as a treatment for amyotrophic lateral sclerosis, and
immunosuppression, which may be applicable as a treatment for MS.
F-Spondin is a protein made by an important region of the developing spinal
cord, the floorplate. Since it is related to a protein known to be active in the
sciatic nerve injury model, recombinant F-Spondin will be tested for peripheral
nerve regeneration. The Company believes that F-Spondin is an attractive
candidate molecule for therapeutic situations involving repair of the spinal
cord or peripheral nervous system.
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STRATEGIC ALLIANCES
The Company's strategy includes forming collaborations with pharmaceutical
companies to assist in the development of its potential products, provide
capital for such development and share development risk. The Company is also
interested in broadening its product portfolio and technology base. To this end,
the Company from time to time conducts discussions with selected companies
regarding collaborations, mergers, acquisitions or product-licensing
arrangements. No assurance can be given, however, that any collaborations,
mergers, acquisitions or licensing arrangements will be completed in the
foreseeable future or on terms favorable to the Company.
Boehringer Ingelheim International GmbH
In March 1995, Cambridge NeuroScience and BI entered into an agreement to
collaborate on the worldwide development and commercialization of CERESTAT.
Under the terms of the agreement, BI is obligated to fund 75% of the development
costs for CERESTAT in the United States and Europe and all of the development
costs in Japan. Under the agreement, product development is managed by a Joint
Development Team, with equal representation from both companies. This team is
supervised by a Joint Steering Committee, with two members from each company.
Upon signing the agreement, the Company received $15.0 million, consisting of
$5.0 million for expense reimbursement and $10.0 million for 1,250,000 shares of
Common Stock. In September 1996, and in connection with the commencement of the
pivotal stroke trial by BI, the Company received a milestone payment of $10.0
million for 1,237,624 shares of Common Stock. The Company may receive up to an
additional $18.0 million in cash without the issuance of additional equity after
achieving certain other milestones and will receive royalties on product sales.
Cambridge NeuroScience has an option to co-promote CERESTAT in the United
States with BI and the Company has notified BI of its intent to exercise this
option upon completion of a separate agreement. BI will market the product in
Europe and other geographic regions exclusively and will pay the Company
royalties on sales. Cambridge NeuroScience has retained worldwide manufacturing
rights. BI has an option to acquire the worldwide manufacturing rights in
exchange for increased royalty payments. Under the terms of the agreement, BI
has certain termination rights, including the right to terminate the agreement
upon 90 days written notice to the Company. See "Marketing and Sales" and
"Manufacturing."
Allergan
In November 1996, the Company entered into a collaboration with Vision
Pharmaceuticals L.P. d/b/a Allergan Inc. ("Allergan") to jointly develop NMDA
ion-channel blockers, sodium ion-channel blockers and combination ion-channel
blockers, initially for the treatment of ophthalmic indications, including
glaucoma. Glaucoma is the second leading cause of preventable blindness in the
world, with almost three million patients in the United States alone. The
disease is usually associated with increased pressure within the eye, which can
damage the retina and the optic nerve and eventually lead to blindness. The
Company and Allergan believe that it may be possible to treat glaucoma by
blocking ion channels and thereby protecting the retina and the optic nerve from
damage. This collaboration combines the Company's proprietary technology in the
area of ion-channel blockers and Allergan's expertise in the global marketing of
treatments for eye disease and allows Cambridge NeuroScience to explore
additional areas of clinical need.
Upon signing the agreement, Allergan purchased 175,103 shares of Common
Stock from the Company for $3.0 million. Allergan will provide an additional
$3.0 million in research funding over the next three years, subject to certain
provisions, and has established a $2.0 million line of credit for the Company.
The collaboration is supervised by a Research Management Committee, with equal
representation from both parties. Allergan will be responsible for the
development of potential products and will bear all of the development costs.
Cambridge NeuroScience may receive up to an additional $18.5 million in cash
upon the achievement of certain milestones and will receive a royalty on any
product sales.
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Allergan will manufacture and market products developed under the
collaboration worldwide. Allergan has certain termination rights under the terms
of the agreement. Allergan may terminate the research phase of the collaboration
if the Research Management Committee determines that there is no reasonable
scientific basis for the commercialization of products covered by the
collaboration. Allergan may terminate the agreement at any time after May 1998
upon six months prior written notice. Either party may, in its sole discretion,
terminate the agreement upon 90 days prior written notice of a material breach
by the other party.
The J. David Gladstone Institutes
In December 1996, Cambridge Neuroscience, The J. David Gladstone Institutes
("Gladstone") and The Regents of the University of California (the "University")
entered into a collaboration for the development of treatments for Alzheimer's
disease and certain other neurological diseases, disorders or injuries. The
collaboration will focus on novel pharmaceuticals that inhibit the activity of a
form of apolipoprotein E ("apoE"), a molecule that has been widely linked to
Alzheimer's disease. Alzheimer's disease is a neurodegenerative disorder that
affects approximately four million people in the United States. The disease
destroys neurons in the brain, causing progressive dementia and eventually
death. There are currently no effective therapies that reverse or prevent
this disorder. In connection with the collaboration, the Company formed a
subsidiary, Cambridge NeuroScience Partners, Inc. ("CNPI"). Cambridge
NeuroScience purchased 80% of the outstanding common stock of CNPI and has
made a total capital contribution of $1.25 million in CNPI immediately prior
to the consummation of the collaboration. The University and Gladstone own 5%
and 15%, respectively, of the outstanding shares of CNPI common stock.
Pursuant to the terms of the 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. In the event that CNPI is unable to raise the
required funds to make its research funding payments, Cambridge NeuroScience
will lend CNPI, interest-free, all amounts necessary to enable CNPI to make such
payments. Such debt will be convertible into securities of CNPI under certain
circumstances in accordance with the stockholders' rights agreement. The
University granted CNPI an exclusive three-year option to negotiate an exclusive
worldwide, royalty-bearing license for patentable rights in intellectual
property covered by or arising from the research program within the field,
subject to certain terms and conditions set forth in the option agreement. CNPI
may not exercise the option any earlier than 30 days prior to the second
anniversary of the effective date of the option agreement unless CNPI terminates
the research agreement for breach by Gladstone prior to such date. CNPI paid the
University an initial license option fee and will make additional option fee
payments during the term of the research program and, if applicable, upon
exercise of the option. The final terms of such license have not been determined
but will require ongoing commitments and expenditures, in addition to royalty
payments, by CNPI. There can be no assurance that such commitments and other
terms will be favorable to CNPI and/or the Company. The University and Gladstone
also granted CNPI a right of first negotiation for an exclusive license for
inventions arising from the research program outside of the field. Cambridge
NeuroScience has guaranteed CNPI's obligations with respect to the
collaboration, including CNPI's financial obligations. Each of the research
agreement and option agreement is generally subject to termination upon prior
notice of a material breach by any of the parties thereto.
ProsCure, Inc.
The Company continues to explore the therapeutic potential of rhGGF2 in
applications beyond the nervous system. Toward this end, in November 1995, the
Company entered into a collaboration with ProsCure, a startup biotechnology
company, in an effort to explore the possible development of compounds for
cancer treatments.
11
<PAGE> 12
MARKETING AND SALES
Cambridge NeuroScience does not currently sell any products and therefore
has no marketing, sales, or distribution organization. However, under the terms
of the licensing agreement with BI for developing and commercializing CERESTAT,
Cambridge NeuroScience has an option to co-promote this product in the United
States. The Company has informed BI of its intent to exercise this option. If
the Company exercises this option, and upon completion of a separate
co-promotion agreement, the Company intends either to hire and train a qualified
sales force to perform its promotional activities to prescribing physicians in
the United States or to contract with a third party to perform such activities.
Cambridge NeuroScience believes that, in the case of TBI and stroke
patients, ion-channel blocker treatments would be administered in the context of
emergency medicine. Prophylactic treatments for preventing brain damage from
surgical complications would likely be administered by anesthesiologists. In
addition, treatments for most peripheral neural and muscular disorders will
typically be administered as chronic therapy under the direction of
neurologists. Because all of these drug treatments would be hospital- or
specialty-clinic-based, the Company believes that significant United States
sales of these product candidates could be generated with a moderately sized
sales force, rather than the more expansive sales force which would be necessary
to sell products directly to physicians.
In conjunction with establishing sales and marketing capabilities, the
Company may obtain marketing rights to products in advanced stages of
development or currently on the market which might benefit from the marketing
efforts of an organization focused on disorders of the nervous system. To market
such products, Cambridge NeuroScience will utilize the sales force which may be
developed for CERESTAT or make other distribution arrangements.
MANUFACTURING
Cambridge NeuroScience has no manufacturing facilities and plans to rely
upon outside manufacturers to produce any near- or intermediate-term products.
To date, the Company has contracted with chemical synthesis groups to produce
kilogram quantities of several of its product candidates. The Company intends to
establish and maintain its own quality-control program for each line of
products, including a set of standard operating procedures, designed not only to
assure that the Company's products are manufactured in accordance with GMP
guidelines and other applicable regulations, but also to maintain consistent
product quality. However, no specific arrangements have been made, and there can
be no assurance that the Company will be able to establish such capabilities. BI
has an option to acquire manufacturing rights for CERESTAT in exchange for
increased royalty payments. The Company is in the process of finalizing the
production process to produce gram quantities of rhGGF2 under GMP guidelines and
has secured production arrangements with a contract manufacturer.
COMPETITION
The fields in which Cambridge NeuroScience is involved are characterized by
rapid technological progress. New developments are expected to continue at a
rapid pace in both industry and academia. There are many companies, both public
and private, including large pharmaceutical companies, chemical companies and
specialized genetic engineering companies, engaged in developing products
competitive with products under development by the Company. Many of these
companies have greater capital, human resources and research and development,
manufacturing and marketing experience than Cambridge NeuroScience. Such
companies may succeed in developing products that are more effective or less
costly than any that may be developed by Cambridge NeuroScience and may also
prove to be more successful than Cambridge NeuroScience in production and
marketing. Competition may increase further as a result of potential advances in
the commercial applicability of biotechnology and greater availability of
capital for investment in these fields. In addition, academic, government and
industry-based research is intense, resulting in considerable competition in
obtaining qualified research personnel, submitting patent filings for protection
of intellectual property rights and establishing corporate strategic alliances.
There can be no assurance that research, discoveries and commercial developments
by others will not render any of the Company's programs or potential products
noncompetitive.
12
<PAGE> 13
In July 1996, the FDA approved the use of tPA for the treatment of patients
who had suffered a stroke within the preceding three hours and for whom a CT
scan showed no evidence of hemorrhage. Intravenous tPA acts by dissolving blood
clots that might have led to a stroke. In addition, a number of companies are
developing other drugs to treat TBI and/or stroke. The Company believes that the
most significant competition for CERESTAT will come from other inhibitors of
responses mediated via specific ion channels. In particular, Sandoz AG is
prepared to conduct a Phase III clinical trial in the U.S. of D-CPPene, which
acts through a mechanism similar to, but distinct from, that of CERESTAT, and is
being developed for TBI only. A Phase III trial of D-CPPene has been running in
Europe. Lubeluzole (Janssen Pharmaceutica, N.V., a subsidiary of Johnson &
Johnson), currently in Phase III clinical trials, is being developed for stroke.
Fosphenytoin (Warner-Lambert Company), currently in Phase III clinical trials,
and SNX-111 (Neurex Corporation), planned for Phase III clinical trials, are
being developed for TBI. Lubeluzole, Fosphenytoin and SNX-111 have actions on
ion channels and are claimed to be neuroprotective, but act through mechanisms
other than the NMDA ion-channel complex. Some compounds under development act at
different stages in the nerve cell death cascade. The Company believes that,
even if these compounds prove to be efficacious, those that act at other stages
in the cascade will be synergistic, rather than competitive with CERESTAT.
Citicoline[R] (Interneuron Pharmaceuticals, Inc.), currently in a Phase III
clinical trial, and enlimomab (Boehringer Ingelheim), currently in a Phase III
clinical trial, are being developed for stroke. The Company believes that
Citicoline[R] and enlimomab do not act on ion channels but on other aspects
of the nerve cell death cascade. The Company is aware of three therapeutics
currently being marketed to treat MS. Betaseron[R] (Chiron Corporation/Schering
AG), Avonex[R] (Biogen, Inc.) and Copaxone[R] (Teva Pharmaceuticals
Industries Ltd./Hoechst Marion Roussel Ltd.) are all based on an
immunosuppression approach to the disease, rather than the growth factors
approach being pursued by the Company. There can be no assurance that the
introduction of these or other products that the Company is unaware of will not
have an adverse affect on the Company's business, financial condition and
results of operations.
The Company will, for the foreseeable future, rely on its strategic
partners for certain preclinical evaluation and clinical development of its
product candidates and manufacturing and marketing of any products. In addition,
the Company relies on its strategic partners, in part, for support in its drug
discovery operations. The pharmaceutical companies with which the Company has
collaborations are in some cases attempting to develop other products to treat
diseases within the fields of the collaborations with the Company. Generally,
the Company's agreements with its strategic partners do not prohibit the
strategic partners from engaging in competitive activities with the Company. Any
product candidate of the Company, therefore, may be subject to competition with
a potential product under development by the pharmaceutical company with which
the Company is collaborating in connection with such product candidate.
Biotechnology and related pharmaceutical technology have undergone rapid
and significant change. The Company expects the technology associated with the
Company's research and development will continue to develop rapidly, and the
Company's future success will depend in large part on its ability to maintain a
competitive position with respect to this technology. Rapid technological
development by the Company or others may result in compounds, products or
processes becoming obsolete before the Company recovers any expenses it incurs
in connection with developing such products.
PATENTS AND PROPRIETARY TECHNOLOGY
Proprietary protection for the Company's products, technology and processes
is essential to its business. The Company's policy is to protect its technology
by, among other things, filing or causing to be filed patent applications for
technology that it considers important to the development of its business. As of
December 31, 1996, Cambridge NeuroScience had licensed or owned rights in 22
issued U.S. patents. Research and development efforts by the Company and its
collaborators led to the issuance of six U.S. patents and the allowance of 12
others in 1996. In addition, 17 U.S. patent applications were filed in 1996 on
behalf of the Company and its collaborators, bringing the total number of
pending U.S. applications to 71. These U.S. filings have corresponding patent
filings in other countries as well. Of the nine issued U.S. patents covering the
NMDA ion-channel blockers and their use, none will expire prior to 2007. The
Company is awaiting action on various patent applications that have either been
filed by it or by academic institutions with which it collaborates.
13
<PAGE> 14
The Company intends to file, or cause to be filed, additional patent
applications, where appropriate, relating to new product discoveries or
improvements. The use of patents to protect proprietary positions for synthetic
chemicals is well established within the pharmaceutical industry. While the
precedents for gaining patent protection for biologically derived or produced
products through recombinant DNA technology are not as well developed, many
patents have been issued for products of this technology. There can be no
assurance, however, that patents will provide meaningful proprietary protection
to the Company, given the uncertain and complex legal and factual questions
relating to their breadth and enforceability.
There are patents held by third parties that relate to the manufacture,
development and use of the Company's product candidates for which the Company
has licenses. There can be no assurance that the Company will not in the future
require licenses to additional patents, that such licenses will be available on
commercially reasonable terms, if at all, that existing or future licenses will
not be terminated or that any such termination or failure to obtain a license
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company has licensed rights to inventions relating to rhGGF2 which are
covered by one issued U.S. patent, several allowed U.S. patent applications and
other pending patent applications in the United States and foreign countries.
The Company believes that its employees and those of its licensor are the
original inventors and that the Company and its licensor are entitled to patent
protection in the United States, but the Company is aware of a third-party
patent and pending patent applications in the United States and corresponding
patent applications pending in some foreign countries that, if issued and valid,
may be construed to cover aspects of the Company's rhGGF2 product candidates.
There can be no assurance that the claims of the U.S. patent issued to the third
party are not infringed, and that the claims of future patents issuing from the
third-party patent applications, if any, will not be infringed by the Company's
proposed manufacture, use or sale of products based on the rhGGF2 technology.
There can be no assurance that Cambridge NeuroScience would prevail in any legal
action seeking damages or injunctive relief for infringement of the existing
third-party patent or any patent that might issue from such third-party
applications or that any license required under such patent would be available
or, if available, would be available on commercially reasonable terms. Failure
to obtain a required license or to successfully establish non-infringement of,
or the invalidity or unenforcability of, such third-party patents could preclude
the manufacture, sale and use of the Company's products based on such rhGGF2
technology.
Patents granted to the Company in any areas of the Company's technology may
be subject to interference proceedings in the United States or opposition
proceedings in foreign countries brought by third parties. There can be no
assurance that the Company would prevail in any such proceedings or that such
proceedings would not result in a material adverse effect on the Company's
business, financial condition or results of operations. An unfavorable decision
in an interference or opposition proceeding may have a material adverse effect
on the business, financial condition and results of operations of the Company.
The Company also relies upon trade secrets, know-how and continuing
technological advances to develop and maintain its competitive position. To
maintain the confidentiality of trade secrets and proprietary information, the
Company maintains a policy of requiring employees, Science Advisory Board
members, consultants and collaborators to execute confidentiality and invention
assignment agreements upon commencement of a relationship with the Company.
These agreements are designed both to enable the Company to protect its
proprietary information by controlling the disclosure and use of technology to
which it has rights and to provide for ownership in the Company of proprietary
technology developed at the Company. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets in the event of unauthorized use or disclosure of such information. In
addition, whenever the U.S. government funds research programs, it may obtain
nonexclusive rights to patented subject matter otherwise subject to exclusive
rights.
14
<PAGE> 15
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials, as well as to the
manufacture and marketing of pharmaceutical products. Pharmaceutical
manufacturing facilities are also regulated by state, local and other
authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess a drug's efficacy and
to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an Investigational New Drug ("IND") application,
which must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process. Phase I clinical
trials are conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II clinical trials are designed to provide additional information on dosing and
safety in a limited patient population; on occasion, they may provide evidence
of product efficacy. Phase III clinical trials are large-scale studies designed
to provide statistically valid proof of efficacy as well as safety in the target
patient population. The results of the preclinical testing and clinical trials
of a pharmaceutical product are then submitted to the FDA in the form of
a New Drug Application ("NDA"), or for a biological product in the form of a
Product License Application ("PLA"), for approval to commence commercial sales.
Preparing such applications involves considerable data collection, verification,
analysis, and expense. In responding to an NDA or a PLA, the FDA may grant
marketing approval, request additional information, or deny the application if
it determines that the application does not satisfy its regulatory approval
criteria.
Prior to marketing, any product developed by Cambridge NeuroScience must
undergo an extensive regulatory approval process, which includes preclinical
testing and clinical trials of such product to demonstrate safety and efficacy.
This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from preclinical testing and clinical
trials are subject to varying interpretations, which can delay, limit, or
prevent FDA approval. In addition, changes in FDA approval policies or
requirements may occur or new regulations may be promulgated which may result in
delay or failure to receive FDA approval. Similar delays or failures may be
encountered in foreign countries. Delays and costs in obtaining regulatory
approvals would have a material adverse effect on the Company's business,
financial condition and results of operations.
Among the conditions for NDA or PLA approval is the requirement that the
prospective manufacturer's quality-control and manufacturing procedures conform
on an ongoing basis with GMP. In complying with GMP, manufacturers must continue
to expend time, money, and effort in the area of production and quality control
to ensure full technical compliance. After the establishment is licensed, it is
subject to periodic inspections by the FDA.
The requirements, which the Company must satisfy to obtain regulatory
approval by governmental agencies in other countries prior to commercialization
of its products in such countries, can be as rigorous and costly as those
described above.
The Company is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, the
experimental use of animals, and the use and disposal of hazardous or
potentially hazardous substances, including radioactive compounds and infectious
disease agents used in connection with the Company's research. Compliance with
laws and regulations relating to the protection of the environment has not had a
material effect on capital expenditures or the competitive position of the
Company. However, the extent of government regulation which might result from
any legislative or administrative action cannot be accurately predicted.
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<PAGE> 16
REIMBURSEMENT
The Company's ability to commercialize pharmaceutical products may depend
in part on the extent to which reimbursement for the costs of such products and
related treatments will be available from government health administration
authorities, private health insurers and other third-party payors. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and third-party payors are increasingly challenging the prices charged
for medical products and services. There can be no assurance that any
third-party insurance coverage will be available to patients for any products
developed by the Company. Government and other third-party payors are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new therapeutic products, and by refusing, in
some cases, to provide coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. In particular,
the Company anticipates that a large percentage of patients who receive CERESTAT
for the treatment of stroke will be covered by Medicare and be subject to
limitations on reimbursement. If adequate coverage and reimbursement levels are
not provided by government and third-party payors for the Company's products,
the market acceptance of these products would be adversely affected.
The Company's business may be materially adversely affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, an increasing
emphasis on managed care in the United States has and will continue to put
pressure on pharmaceutical pricing. Such initiatives and proposals, if adopted,
could decrease the price that the Company receives for any products it may
develop and sell in the future and thereby have a material adverse effect on the
Company's business, financial condition and results of operations. Further, to
the extent that such proposals or initiatives have a material adverse effect on
other pharmaceutical companies that are collaborators or prospective
collaborators for certain of the Company's potential products, the Company's
ability to commercialize its potential products may be adversely affected.
EMPLOYEES
As of December 31, 1996, the Company had 73 full-time employees, of whom 57
were engaged in research and development and 16 in administration and finance.
Doctorates or other advanced degrees are held by 41 of the Company's employees.
Each of the Company's employees has signed a confidentiality agreement. The
Company's employees are not covered by a collective bargaining agreement. The
Company considers its employee relations to be good.
16
<PAGE> 17
ITEM 1 (A). EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------
<S> <C> <C>
Elkan R. Gamzu....................... 54 President; Chief Executive Officer;
Director
Robert N. McBurney................... 49 Senior Vice President, Research;
Chief Scientific Officer
Harry W. Wilcox, III................. 42 Senior Vice President, Finance and
Business Development; Chief
Financial Officer; Treasurer;
Assistant Secretary
Ross S. Gibson....................... 38 Chief Administrative Officer;
Assistant Secretary
</TABLE>
ELKAN R. GAMZU, PH.D., joined the Company as Vice President of Development
in October 1989. Dr. Gamzu served as President, Chief Operating Officer, and
Director of the Company from June 1990 through December 1993, at which time he
became Chief Executive Officer. Prior to joining the Company, Dr. Gamzu held a
number of positions at the Parke-Davis Pharmaceutical Research Division of
Warner-Lambert Company from 1985 to 1989, most recently as Vice President, Drug
Development. Prior thereto, he held various positions at Hoffmann-LaRoche, Inc.,
from 1971 to 1985. Dr. Gamzu's industry experience includes efforts to develop
products to treat severe neurological and psychiatric disorders such as
Alzheimer's disease, epilepsy, schizophrenia, and depression. While at
Warner-Lambert Company, he focused on the development of tacrine (Cognex[R], the
first drug approved in the United States for use in the treatment of Alzheimer's
disease, and gabapentin (Neurontin[R] for use in the treatment of epilepsy. Dr.
Gamzu earned a B.A. degree in Psychology and Sociology from Hebrew University
(Jerusalem, Israel), and M.A. and Ph.D. degrees in Psychology from the
University of Pennsylvania.
ROBERT N. MCBURNEY, PH.D., joined the Company as Director of
Electrophysiology and Cell Biophysics in December 1987, and served as Vice
President, Research from June 1990 through December 1993, at which time he
became Senior Vice President, Research and Chief Scientific Officer. Prior to
joining Cambridge NeuroScience, Dr. McBurney served from 1984 to 1987 as the
Assistant Director of the Medical Research Council Neuroendocrinology Unit in
Newcastle upon Tyne, England. Dr. McBurney earned B.Sc. and Ph.D. degrees in
Physiology from the University of New South Wales, and conducted postdoctoral
studies in Neurophysiology at Cambridge University and the National Institutes
of Health. Dr. McBurney has had numerous articles published on neurophysiology
in various scientific journals.
HARRY W. WILCOX, III, joined the Company as Senior Vice President, Finance
and Business Development and Chief Financial Officer in December 1995. Prior to
joining Cambridge NeuroScience, Mr. Wilcox served as Vice President, Finance and
Chief Financial Officer of Cellcor, Inc., a biotechnology company, since 1990.
While at Cellcor, Mr. Wilcox was also named Treasurer and Senior Vice President
of Business Development. From 1988 to 1990, he was a founder and general partner
and Chief Financial Officer of Highland Capital Partners, L.P., a venture
capital firm. From 1983 to 1987, Mr. Wilcox was Controller, Vice President of
Finance and Chief Financial Officer at Charles River Ventures, Inc. a venture
capital firm. Mr. Wilcox earned an M.B.A. degree from Boston University and a
B.A. degree in Finance from the University of Arizona. Mr. Wilcox is a Certified
Public Accountant.
ROSS S. GIBSON joined the Company as Manager, Human Resources in April
1992, and served as Director of Human Resources from September 1992 to April
1994, and as Senior Director of Corporate Resources from April 1994 to March
1995, at which time he was appointed as Chief Administrative Officer. Prior to
joining the Company, Mr. Gibson served from 1989 to 1992 as Manager, Human
Resources, at Lifeline Systems, Inc., a personal emergency response systems
company, and prior thereto he served for two years as
- ---------------
Cognex[R] and Neurontin[R] are registered trademarks of the Warner-Lambert
Company.
17
<PAGE> 18
Senior Benefits Specialist at Lotus Development Corp., a computer company Mr.
Gibson earned his M.A. degree in Management from Brandeis University and a
B.A. degree in Social-Psychology from Tufts University.
ITEM 2. PROPERTIES
As of December 31, 1996, the Company has facilities in Cambridge,
Massachusetts, where it leases and occupies a total of approximately 42,000
square feet of space, which includes approximately 33,000 square feet of
research laboratories. The description of the lease terms is incorporated by
reference from Note G to the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor either of its subsidiaries is a party to any legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.001 par value ("Common Stock"), is traded on
the over-the-counter market under the symbol "CNSI" and is included in the
Nasdaq National Market System. The following table sets forth the high and low
sales prices for the Company's Common Stock on the Nasdaq National Market System
for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
January 1 - March 31, 1995..................... 6 4
April 1 - June 30, 1995........................ 6 5/8 4 3/8
July 1 - September 30, 1995.................... 14 5 1/2
October 1 - December 31, 1995.................. 10 3/4 7 1/8
January 1 - March 31, 1996..................... 14 3/4 8 1/2
April 1 - June 30, 1996........................ 13 1/2 7 3/8
July 1 - September 30, 1996.................... 9 1/4 6 3/4
October 1 - December 31, 1996.................. 15 1/4 8 1/2
</TABLE>
There were approximately 180 holders of record of Common Stock and
approximately 3,000 beneficial owners as of December 31, 1996. The Company has
never declared nor paid any cash dividends on its capital stock. The Company
does not anticipate paying any cash dividends in the foreseeable future.
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<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The following selected financial data are derived from the consolidated
financial statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. The selected financial data set forth below should be
read in conjunction with the consolidated financial statements of the Company
and related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this document.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 647 $ 417 $ 299 $ 8,218 $ 2,396
Operating expenses:
Research and development........ 12,193 12,763 12,722 13,850 13,978
General and administrative...... 3,047 3,488 2,863 2,158 2,585
-------- -------- -------- ------- --------
Total operating expenses............. 15,240 16,251 15,585 16,008 16,563
-------- -------- -------- ------- --------
Loss from operations................. (14,593) (15,834) (15,286) (7,790) (14,167)
Interest income, net................. 1,153 365 401 736 1,178
-------- -------- -------- ------- --------
Net loss............................. $(13,440) $(15,469) $(14,885) $(7,054) $(12,989)
======== ======== ======== ======= ========
Net loss per share (1)............... $ (1.56) $ (1.79) $ (1.46) $ (0.59) $ (0.93)
======== ======== ======== ======= ========
Weighted average shares
outstanding........................ 8,618 8,634 10,230 11,927 13,980
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 25,077 $ 7,907 $ 6,269 $21,937 $ 26,664
Working capital...................... 21,885 4,814 3,493 17,651 18,362
Total assets......................... 28,455 11,159 9,330 24,321 29,220
Total liabilities.................... 5,485 3,515 3,149 4,793 9,573
Accumulated deficit.................. (39,248) (54,716) (69,601) (76,655) (89,644)
Stockholders' equity................. 22,970 7,644 6,181 19,528 19,647
</TABLE>
- ---------------
(1) See Note A of Notes to the Consolidated Financial Statements.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Since inception, the Company has been primarily engaged in research and
development. To date, Cambridge NeuroScience has not received any revenue from
the sale of products. The Company has not been profitable since inception and
expects to incur substantial operating losses for at least the next several
years.
Cambridge NeuroScience has financed its operations through proceeds from an
initial public offering and a follow-on public offering in 1991, various private
placements of preferred equity securities prior to the initial public offering,
a private placement of Common Stock to institutional investors in 1994, its
collaboration with BI which commenced in March 1995, two directed public
offerings in 1995, its collaboration with Allergan which commenced in November
1996, research grants and investment income earned on its cash balances and
short-term investments.
In 1995, the Company entered into a collaboration with BI for the
development and commercialization of CERESTAT. The Company received $15.0
million upon signing the agreement, consisting of $5.0 million in the form of an
expense reimbursement and $10.0 million for 1,250,000 shares of the Company's
Common Stock. In September 1996, pursuant to the agreement, BI purchased an
additional 1,237,624 shares of the Company's Common Stock for $10.0 million.
Pursuant to the collaboration, BI will fund 75% of the development costs for
CERESTAT in the United States and Europe and all of the development costs in
Japan, and the Company is entitled to receive royalties on product sales. The
Company has the option to co-promote in the United States. Any co-promotion
activities by the Company will result in increased sales and marketing and
general and administrative expenditures.
In November 1996, the Company entered into a collaboration with Allergan
for the development of NMDA ion-channel blockers, sodium ion-channel blockers
and combination ion-channel blockers for the treatment of ophthalmic disorders,
including glaucoma. In conjunction with the signing of this agreement, the
Company received $3.0 million for 175,103 shares of the Company's Common Stock.
Allergan will bear all of the development costs for potential products arising
from the collaboration, and the Company is entitled to receive royalties on any
product sales.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues
Research and development revenue decreased to $2.4 million for the year
ended December 31, 1996 from $8.2 million for the year ended December 31, 1995,
a decrease of $5.8 million. Revenue in 1995 included the receipt of $5.0 million
in March 1995 upon the signing of the collaboration agreement with BI,
representing reimbursement of previously incurred CERESTAT costs. Of the total
research and development revenue under the BI agreement, revenue relating to
current period spending was $2.3 million in 1996, compared to $3.5 million in
1995, a decrease of $1.2 million. This decrease was due to an increase in
spending by BI relative to the amount spent in the fiscal period by both
companies. The Company recognizes revenue from the BI collaboration in the
amount that its CERESTAT development expenses exceed 25% of the CERESTAT
development expenses of the Company and BI combined.
In November 1996, the Company entered into a collaboration agreement with
Allergan for the development of treatments for ophthalmic disorders, including
glaucoma. Revenue in 1996 includes $114,000 received pursuant to the Allergan
collaboration.
20
<PAGE> 21
Operating Expenses
Operating expenses increased to $16.6 million for the year ended December
31, 1996, from $16.0 million for the same period in 1995, an increase of
$600,000. Research and development expenses of $14.0 million in 1996 were
comparable to those incurred in 1995. During 1996, the Company began a Phase III
clinical trial of CERESTAT in TBI. It is expected that as more patients enroll
in this trial and the Phase III stroke trial being conducted by BI, total costs
borne by the Company will increase. The Company expects to incur significant
expenses related to these trials in 1997 and thereafter, subject to the terms of
the cost sharing arrangement with BI. In addition, continued activity relating
to the development of the Company's other product development programs is
expected to contribute to an increase in research and development expenses.
Research and development expenses were 84% of total operating expense in 1996,
compared to 87% in 1995.
General and Administrative expenses increased to $2.6 million in the year
ended December 31, 1996, from $2.2 million in the same period in 1995, an
increase of $400,000. This increase is due to the costs associated with higher
headcount in 1996, primarily in support of the Company's business development
and investor relations activities.
Interest Income
Interest income was $1.2 million for the year ended December 31, 1996,
compared to $736,000 in the same period in 1995, an increase of $464,000. This
increase reflects the higher cash balances available for investment during 1996,
primarily due to the proceeds from issuances of Common Stock in the fourth
quarter of 1995 and the proceeds received in 1996 pursuant to the second equity
investment by BI.
Net loss Per Share
The net loss for the year ended December 31, 1996 increased to $13.0
million, or $0.93 per share, from $7.1 million, or $0.59 per share, for the same
period in 1995. This increase in net loss per share was due primarily to the
decrease in research and development revenue, offset in part by an increase in
the weighted average shares outstanding from 11.9 million for the year ended
December 31, 1995 to 14.0 million for the same period in 1996.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues
Research and development revenue was $8.2 million for the year ended
December 31, 1995. The Company had no research and development revenue for the
year ended December 31, 1994. The revenue in 1995 was received in connection
with the Company's collaboration with BI and included a one-time reimbursement
of $5.0 million for previously incurred CERESTAT research and development costs.
Revenue from government grants decreased to $63,000 from $299,000 for the year
ended December 31, 1994, a decrease of $236,000, due to the expiration of a
grant in March 1995.
Operating Expenses
Total operating expenses increased to $16.0 million for the year ended
December 31, 1995, from $15.6 million for the year ended December 31, 1994.
Research and development expenses increased to $13.8 million for the year ended
December 31, 1995 from $12.7 million for the year ended December 31, 1994. Costs
associated with CERESTAT preclinical studies and clinical trials increased to
$4.7 million for the year ended December 31, 1995 from $2.0 million for the year
ended December 31, 1994, an increase of $2.7 million. Partially offsetting this
increase were lower costs associated with a decrease in workforce as part of a
cost-reduction program implemented in January 1995 as well as lower external
costs associated with the Company's other research and development programs.
Research and development expenses were 87% of total operating expenses for the
year ended December 31, 1995, compared to 82% for the year ended December 31,
1994.
21
<PAGE> 22
General and Administrative expenses decreased to $2.2 million in the year
ended December 31, 1995 from $2.9 million for the year ended December 31, 1994,
a decrease of $700,000. This decrease is due primarily to cost savings
associated with the reduction in workforce in January 1995 as well as to a
decrease in expenses relating to the use of outside consultants for business
development purposes.
Interest Income
Interest income increased to $736,000 for the year ended December 31, 1995
from $401,000 for the year ended December 31, 1994, an increase of $335,000.
This was due to an increase in the rate of return earned on the Company's
investments as well as to higher cash balances available for investment in 1995.
Net loss Per Share
The net loss for the year ended December 31, 1995 was $7.1 million, or
$0.59 per share, compared to $14.9 million, or $1.46 per share, for the year
ended December 31, 1994. The decrease in the net loss is primarily due to
increased research and development revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $26.7 million at December 31,
1996, compared to $21.9 million at December 31, 1995. Pursuant to the terms of
the collaboration agreement with BI 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. In addition, in 1996 the
Company received $6.8 million in advances against reimbursable expenses pursuant
to the BI collaboration, of which $2.3 million was recognized as research and
development revenue in 1996. The difference between advances received and
revenue recognized is recorded as research and development advances and may be
subject to repayment to BI.
In November 1996, the Company entered into a collaboration agreement with
Allergan for the development of treatments for ophthalmic disorders, including
glaucoma. Upon signing the agreement, the Company received $3.0 million in
exchange for 175,103 shares of the Company's Common Stock. At December 31, 1996,
the Company had received $364,000 from Allergan, pursuant to the funding
agreement, of which $114,000 was recognized as revenue in 1996. In 1996, the
Company used $7.7 million for operating purposes and $467,000 for the purchase
of equipment, furniture and fixtures.
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 Company and BI 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 is
uncertain. 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. It is
expected that as more patients enroll in these trials, total costs and the costs
borne by the Company will increase. There can be no assurance, therefore, that
the Company will receive further advances from BI in accordance with the cost
sharing arrangement. The Company expects to incur significant expense related to
these trials in 1997 and thereafter, subject to the cost sharing arrangement
discussed above.
22
<PAGE> 23
Pursuant to the collaboration agreement with Allergan, the Company may
receive an additional $3.0 million in research and development funding over the
next three years. At December 31, 1996, the Company had received $364,000
pursuant to this funding arrangement, of which $114,000 was recognized as
revenue in 1996.
In December 1996, the Company formed a subsidiary, Cambridge NeuroScience,
Partners, Inc. ("CNPI"), which will pursue the development of treatments for
Alzheimer's disease and other neurological diseases, disorders or injuries. CNPI
has entered into a collaboration with the J. David Gladstone Institutes
("Gladstone"). Pursuant to this collaboration agreement, 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.
In February 1997, the Company received $28.5 million in proceeds, before
related costs of $400,000, from a public offering of 2,760,000 shares of Common
Stock at $11.00 per share.
The Company believes that the existing cash and cash equivalents available
at December 31, 1996 together with the net proceeds from the public offering
will be sufficient to maintain operations at least through mid 1998. The BI and
Allergan collaborations 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, pursuing regulatory clearances,
establishing production, sales and marketing capabilities and 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. 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
Annual Report on Form 10-K 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. See "Important Factors Regarding
Forward-Looking Statements" attached hereto as Exhibit 99.1 and incorporated by
reference into this Form 10-K. 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.
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages F-2 through F-13
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "Executive
Officers of the Company" in Part I, Item 1(a) hereof, and the remainder is
incorporated herein by reference from the discussion responsive thereto under
the caption "Election of Directors" in the Company's Proxy Statement relating to
the 1997 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Executive Compensation" in the
Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Principal Stockholders" in the
Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Employment Agreements" in
the Company's Proxy Statement relating to the 1997 Annual Meeting of
Stockholders.
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following Financial Statements of the Company are included in response
to Item 8 of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Consolidated Financial Statements................................... F-1
Report of Independent Auditors............................................... F-2
Consolidated Balance Sheets.................................................. F-3
Consolidated Statements of Operations........................................ F-4
Consolidated Statements of Cash Flows........................................ F-5
Consolidated Statement of Changes in Stockholders' Equity.................... F-6
Notes to Consolidated Financial Statements................................... F-7
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are included since they are either not
required, not applicable, or the information is otherwise included.
(a)(3) EXHIBITS
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant. Filed as Exhibit 4.1 to
Registration Statement on Form S-8, File No. 33-42933, and incorporated herein by
reference.
3.3 By-laws of Registrant. Filed as Exhibit 4.2 to Registration Statement on Form S-8,
File No. 33-42933, and incorporated herein by reference.
4.1 Specimen Stock Certificate for Common Stock, $.001 par value. Filed as Exhibit 4.1
to Registration Statement on Form S-1, File No. 33-40078, and incorporated herein
by reference.
10.1 Stockholders' Agreement dated December 29, 1988 among the Company and certain
investors, as amended by Waiver and Consent dated as of February 5, 1991. Filed as
Exhibit 10.3 to Registration Statement on Form S-1, File No. 33-40078, and
incorporated herein by reference.
10.2 Scientific Advisor Agreement dated September 10, 1986 and amendment dated December
6, 1986 between the Company and Dr. Joseph Martin. Filed as Exhibit 10.5 to
Registration Statement on Form S-1, File No. 33-40078, and incorporated herein by
reference.
10.3 Form of Stockholders' Agreement dated March 19, 1987 among the Company and certain
stockholders. Filed as Exhibit 10.6 to Registration Statement on Form S-1, File
No. 33-40078, and incorporated herein by reference.
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C>
10.4 Form of Restricted Stock Purchase Agreement with a certain Director and executive
officers. Filed as Exhibit 10.8 to Registration Statement on Form S-1, File No.
33-40078, and incorporated herein by reference.
10.5 Common Stock Purchase Warrant dated February 15, 1991 with Aeneas Venture
Corporation. Filed as Exhibit 10.9 to Registration Statement on Form S-1, File No.
33-40078, and incorporated herein by reference.
10.6 Form of Waiver, Consent and Agreement dated as of April 22, 1991 between the
Company and certain investors. Filed as Exhibit 10.10 to Registration Statement on
Form S-1, File No. 33-40078, and incorporated herein by reference.
10.9* Letter Agreement dated June 5, 1990 between the Company and Elkan R. Gamzu, Ph.D.
Filed as Exhibit 10.13 to Registration Statement on Form S-1, File No. 33-40078,
and incorporated herein by reference.
10.11* 1991 Equity Incentive Plan, as amended. Filed as Exhibit 99.1 to the Registration
Statement on Form S-8, File No. 333-05431, as filed with the Commission on June 7,
1996, and incorporated herein by reference.
10.12* 1992 Director Stock Option Plan. Filed as Exhibit 10.12 to the Annual Report on
Form 10-K for the period ended December 31, 1992, as filed with the Commission on
March 28, 1993, and incorporated herein by reference.
10.13 Lease for One Kendall Square dated July 16, 1992 between the Company and the
Trustees of Old Kendall Realty Trust and addendum dated as of September 22, 1992
(the "Lease"). Filed as Exhibit 10.13 to the Annual Report on Form 10-K for the
period ended December 31, 1992, as filed with the Commission on March 28, 1993,
and incorporated herein by reference. Addendum dated September 22, 1993, filed as
Exhibit 10.13 to the Annual Report on Form 10-K for the period ended December 31,
1993, as filed with the Commission on February 14, 1994, and incorporated herein
by reference. Addendum dated March 11, 1996. Filed herewith.
10.15* Form of Indemnification agreement between the Company and Directors and executive
officers. Filed as Exhibit 10.15 to the Annual Report on Form 10-K for the period
ended December 31, 1992, as filed with the Commission on March 28, 1993, and
incorporated herein by reference.
10.16+ Stock Purchase Agreement dated as of March 21, 1995 between the Company and
Boehringer Ingelheim International GmbH. Filed as Exhibit 10.16 to the Annual
Report on Form 10-K for the period ended December 31, 1994, as filed with the
Commission on March 31, 1995, and incorporated herein by reference.
10.17+ License Agreement dated as of March 21, 1995 between the Company and Boehringer
Ingelheim International GmbH. Filed as Exhibit 10.17 to the Annual Report on Form
10-K for the period ended December 31, 1994, as filed with the Commission on March
31, 1995, and incorporated herein by reference.
10.18+ Amendment to Stock Purchase Agreement and License Agreement between the Company
and Boehringer Ingelheim International GmbH dated as of August 19, 1996. Filed as
Exhibit 99.4 to Amendment No. 1 to the Current Report on Form 8-K/A dated August
19, 1996, as filed with the Commission on January 29, 1997, and incorporated
herein by reference.
10.19+ Collaborative Research, Development and Marketing Agreement dated as of November
20, 1996 between the Company and Vision Pharmaceuticals L.P. Filed as Exhibit 99.1
to Amendment No. 1 to
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
the Current Report on Form 8-K/A dated August 19, 1996, as
filed with the Commission on January 29, 1997, and incorporated herein by
reference.
10.2+ Stock Purchase Agreement dated as of November 20, 1996 between the Company and
Vision Pharmaceuticals L.P. Filed as Exhibit 99.2 to Amendment No. 1 to the
Current Report on Form 8-K/A dated August 19, 1996, as filed with the Commission
on January 29, 1997, and incorporated herein by reference.
10.21+ Credit Agreement dated as of November 20, 1996 between the Company and Vision
Pharmaceuticals L.P. Filed as Exhibit 99.3 to Amendment No. 1 to the Current
Report on Form 8-K/A dated August 19, 1996, as filed with the Commission on
January 29, 1997, and incorporated herein by reference.
10.22+ Sponsored Research and Collaborative Agreement dated as of December 23, 1996
between Cambridge NeuroScience Partners, Inc. and The J. David Gladstone
Institutes. Filed as Exhibit 99.1 to Amendment No. 1 to the Current Report on Form
8-K/A dated December 23, 1996, as filed with the Commission on January 29, 1997,
and incorporated herein by reference.
10.23+ Option Agreement dated as of December 23, 1996 by and among The Regents of the
University of California, Cambridge NeuroScience Partners, Inc., and the Company.
Filed as Exhibit 99.2 to Amendment No. 1 to the Current Report on Form 8-K/A dated
December 23, 1996, as filed with the Commission on January 29, 1997, and
incorporated herein by reference.
10.24+ Stockholders' Rights Agreement dated as of December 23, 1996 by and among the
Company, Cambridge NeuroScience Partners, Inc., The J. David Gladstone Institutes
and The Regents of the University of California. Filed as Exhibit 99.3 to
Amendment No. 1 to the Current Report on Form 8-K/A dated December 23, 1996, as
filed with the Commission on January 29, 1997, and incorporated herein by
reference.
21.1 Subsidiaries of the Company. Filed herewith.
23.1 Consent of Ernst & Young LLP, independent auditors. Filed herewith.
24.1 Powers of Attorney. Contained on signature page hereto.
99.1 Important Factors Regarding Forward-Looking Statements. Filed herewith.
</TABLE>
- ---------------
* Identifies a management contract or compensatory plan or agreement in which an
executive officer or Director of the Company participates.
+ Confidential information contained in this Exhibit has been omitted and filed
separately with the Securities and Exchange Commission.
(b) REPORTS ON FORM 8-K
August 19, 1996: Collaboration agreements with Allergan, Inc.; Amendment of the
collaboration agreements with Boehringer Ingelheim International, GmbH
November 21, 1996: News release announcing the collaboration with Allergan, Inc.
December 23, 1996: Collaboration agreements with The J. David Gladstone
Institutes and The Regents of the University of California and the formation of
a subsidiary, Cambridge NeuroScience Partners, Inc.
27
<PAGE> 28
CAMBRIDGE NEUROSCIENCE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................... F-2
Consolidated Balance Sheets.................................................. F-3
Consolidated Statements of Operations........................................ F-4
Consolidated Statements of Cash Flows........................................ F-5
Consolidated Statement of Changes in Stockholders' Equity.................... F-6
Notes to Consolidated Financial Statements................................... F-7
</TABLE>
F-1
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CAMBRIDGE NEUROSCIENCE, INC.
We have audited the accompanying consolidated balance sheets of Cambridge
NeuroScience, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cambridge NeuroScience, Inc. at December 31, 1995 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
January 13, 1997, except for
Note H as to which date is February 26, 1997
F-2
<PAGE> 30
CAMBRIDGE NEUROSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents....................................... $ 21,937 $ 26,664
Prepaid expenses and other current assets....................... 507 1,271
-------- --------
Total Current Assets................................................. 22,444 27,935
Equipment, Furniture and Fixtures, net............................... 1,877 1,285
-------- --------
$ 24,321 $ 29,220
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and accrued expenses........................... $ 3,798 $ 3,789
Research and development advances............................... 995 5,784
-------- --------
Total Current Liabilities............................................ 4,793 9,573
Stockholders' Equity
Preferred stock, par value $.01, 10,000 shares authorized; none
issued......................................................... -- --
Common stock, par value $.001, 30,000 shares authorized; 13,539
shares issued and outstanding at December 31, 1995; 15,010 at
December 31, 1996.............................................. 14 15
Additional paid-in capital...................................... 96,169 109,276
Accumulated deficit............................................. (76,655) (89,644)
-------- --------
Total Stockholders' Equity........................................... 19,528 19,647
-------- --------
$ 24,321 $ 29,220
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 31
CAMBRIDGE NEUROSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Revenues
Research and development, net.......................... $ 8,155 $ 2,396
Government grants...................................... $ 299 63 --
-------- ------- --------
299 8,218 2,396
Operating expenses
Research and development............................... 12,722 13,850 13,978
General and administrative............................. 2,863 2,158 2,585
-------- ------- --------
15,585 16,008 16,563
-------- ------- --------
Loss from operations........................................ (15,286) (7,790) (14,167)
Interest income............................................. 401 736 1,178
-------- ------- --------
Net loss.................................................... $(14,885) $(7,054) $(12,989)
-------- ------- --------
Net loss per common share................................... $ (1.46) $ (0.59) $ (0.93)
======== ======= ========
Number of shares outstanding for purposes of computing net
loss per share............................................ 10,230 11,927 13,980
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 32
CAMBRIDGE NEUROSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Operating Activities
Net loss............................................. $(14,885) $(7,054) $(12,989)
Expenses not requiring cash:
Depreciation and amortization................... 1,081 1,134 1,059
Common stock issued pursuant to an employee
benefit plan.................................. 169 141 194
-------- ------- --------
(13,635) (5,779) (11,736)
Changes in current assets and liabilities:
Prepaid expenses and other current assets....... 48 (133) (764)
Accounts payable and accrued expenses........... (365) 648 (9)
Research and development advances............... -- 995 4,789
-------- ------- --------
(317) 1,510 4,016
-------- ------- --------
Cash used for operating activities................... (13,952) (4,269) (7,720)
Investing Activities
Purchase of equipment, furniture and fixtures, net of
disposals.......................................... (939) (323) (467)
-------- ------- --------
Cash used for investing activities................... (939) (323) (467)
Financing Activities
Sales of common stock, net of offering costs of $957
in 1994 and $905 in 1995........................... 13,253 10,927 214
Issuance of common stock pursuant to stock purchase
agreements, net of costs of $667 in 1995 and $300
in 1996............................................ -- 9,333 12,700
-------- ------- --------
Cash provided by financing activities................ 13,253 20,260 12,914
-------- ------- --------
Net Increase (Decrease) in Cash and Cash Equivalents...... (1,638) 15,668 4,727
Cash and Cash Equivalents at Beginning of Year............ 7,907 6,269 21,937
-------- ------- --------
Cash and Cash Equivalents at End of Year.................. $ 6,269 $21,937 $ 26,664
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 33
CAMBRIDGE NEUROSCIENCE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------- ------ ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.......... 8,643 $ 9 $ 62,351 $(54,716) $ 7,644
Sale of common stock, pursuant to
a private placement, net of
offering costs of $957......... 2,100 2 13,216 13,218
Common stock, issued pursuant to
employee benefit plans......... 38 196 196
Repurchase of common stock....... (8)
Exercise of options.............. 1 8 8
Net loss......................... (14,885) (14,885)
------- --- -------- -------- -------
Balance at December 31, 1994.......... 10,774 11 75,771 (69,601) 6,181
Sale of common stock, net of
offering costs of $730......... 1,200 1 8,869 8,870
Sale of common stock, net of
offering costs of $175......... 188 1,325 1,325
Common stock issued pursuant to a
stock purchase agreement, net
of costs of $667............... 1,250 1 9,332 9,333
Common stock, issued pursuant to
employee benefit plans......... 34 1 186 187
Exercise of options.............. 93 686 686
Net loss......................... (7,054) (7,054)
------- --- -------- -------- -------
Balance at December 31, 1995.......... 13,539 14 96,169 (76,655) 19,528
Common stock issued pursuant to
stock purchase agreements, net
of costs of $300............... 1,413 1 12,699 12,700
Common stock, issued pursuant to
employee benefit plans......... 28 243 243
Exercise of options.............. 30 165 165
Net loss......................... (12,989) (12,989)
------- --- -------- -------- -------
Balance at December 31, 1996.......... 15,010 $15 $109,276 $(89,644) $19,647
======= === ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 34
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. Cambridge NeuroScience, Inc. (the "Company") is engaged in the
discovery, development and commercialization of proprietary pharmaceuticals to
prevent, reduce, or reverse damage caused by severe disorders of, or injuries
to, the nervous system. The Company's product candidates and programs include
(i) ion-channel blockers for the treatment and prevention of brain damage
resulting from traumatic brain injury ("TBI"), stroke and surgery, as well as
for the treatment of certain forms of neuropathic pain, and (ii) growth factors
for the treatment of multiple sclerosis and peripheral neuropathies.
CERESTAT[R], the Company's most advanced product candidate, is a small molecule
ion-channel blocker currently in Phase III clinical trials for the treatment of
both TBI and stroke. To date, the Company has funded its operations through
proceeds from public and private offerings of its equity securities and from
payments received pursuant to research and development collaborations.
Principles of Consolidation. The consolidated financial statements include
the accounts of Cambridge NeuroScience, Inc. and its wholly-owned and
majority-owned subsidiaries. All inter-company accounts and transactions have
been eliminated in consolidation. See Note F.
Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Impact of Recently Issued Accounting Standards. In March 1995, the
Financial Accounting Standards Board ("FASB") issued Statement No. 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. Statement No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement No. 121 in the first quarter of 1996. The adoption of this Statement
had no impact on the financial position or results of operations of the Company
as no indicators of impairment currently exist.
Cash and Cash Equivalents. The Company considers all highly liquid
instruments with a maturity of three months or less to be cash equivalents. The
Company's policy regarding investments, pending their use, is to ensure safety,
liquidity, and capital preservation while obtaining a reasonable rate of return.
Accordingly, at December 31, 1995 and 1996, $21.6 million and $26.2 million,
respectively, were invested in a U.S. Government portfolio investment fund that
consists principally of U.S. Government and agency obligations and repurchase
agreements. Given the short-term nature of these investments and their
availability for use in the Company's current operations, these amounts are
classified as "available-for-sale." Management determines the appropriate
classification of its securities at the time of purchase and reevaluates such
classification at each balance sheet date. Available-for-sale securities are
carried at fair market value and unrealized gains or losses are reported as a
separate component of Stockholders' Equity. At December 31, 1995 and 1996, the
cost of these investments approximated fair market value.
Equipment, Furniture and Fixtures. Equipment, furniture and fixtures are
recorded at cost. Depreciation is provided using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Equipment, furniture and fixtures........................................... 3-5 years
Leasehold improvements...................................................... Term of the lease
</TABLE>
F-7
<PAGE> 35
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Based Compensation. The Company accounts for its stock based
compensation arrangements under the provisions of APB 25, "Accounting for Stock
Issued to Employees." See Note E.
Revenue Recognition. Research and development revenue is recognized as
earned and represents reimbursement of the Company's expenditures pursuant to
the terms of two collaboration agreements (see Note F). Revenue from government
grants is recorded, as earned, based on the performance requirements of the
grant. Expenses relating to these collaboration agreements and to the
performance requirements of government grants are recorded as research and
development expenses. Payments received in advance of research and development
performed are designated as research and development advances.
Income Taxes. The liability method is used to account for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities as well as
net operating loss carryforwards and are measured using the enacted tax rates
and laws that will be in effect when the differences reverse. Deferred tax
assets may be reduced by a valuation allowance to reflect the uncertainty
associated with their ultimate realization.
Significant Customers. Revenue in 1995 and 1996 consisted primarily of
revenue arising from collaborative agreements (see Note F). Grants from the U.S.
Government accounted for 100% of total revenues in 1994.
Net loss per share. Net loss per share is computed using the
weighted-average number of common shares outstanding during the period. Common
equivalent shares from stock options are excluded as their effect is
antidilutive.
NOTE B -- EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ ------
<S> <C> <C>
Equipment.............................................. $4,073 $4,397
Furniture and fixtures................................. 435 443
Leasehold improvements................................. 2,134 2,264
------ ------
6,642 7,104
Less accumulated depreciation and amortization......... 4,765 5,819
------ ------
Equipment, furniture and fixtures, net................. $1,877 $1,285
====== ======
</TABLE>
F-8
<PAGE> 36
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ ------
<S> <C> <C>
Accounts payable....................................... $ 974 $ 795
Accrued research and development expenses.............. 1,381 1,394
Accrued other.......................................... 1,443 1,600
------ ------
$3,798 $3,789
====== ======
</TABLE>
NOTE D -- INCOME TAXES
At December 31, 1996, the Company has a potential tax benefit of
approximately $37.3 million, resulting primarily from approximately $88.0
million in net operating loss carryforwards and $3.8 million of tax credits
which expire through 2011. Since the Company has incurred only losses since
inception and due to the degree of uncertainty related to the ultimate use of
the loss carryforwards, the Company has fully reserved this tax benefit.
Additionally, the future utilization of net operating loss carryforwards may be
subject to limitations under the change in stock ownership rules of the Internal
Revenue Code of 1986, as amended.
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards.............. $25,500 $33,450
Tax credits................................... 1,500 3,800
------- -------
Total deferred tax assets.......................... 27,000 37,250
Valuation allowance........................... (27,000) (37,250)
------- -------
Net deferred tax assets............................ $ -- $ --
======= =======
</TABLE>
NOTE E -- STOCKHOLDERS' EQUITY
Preferred Stock. The Board of Directors is authorized to fix designations,
relative rights, preferences and limitations on the preferred stock at the time
of issuance.
Equity Incentive Plans. The Company has a 1991 Equity Incentive Plan (the
"Plan") which provides for the granting of options to purchase 2,100,000 shares
of the Company's Common Stock. The Plan provides for the issuance or award of
incentive stock options at no less than the fair market value at the date of the
grant, non-qualified stock options, stock appreciation rights, performance
shares, restricted Common Stock, and stock units at prices to be determined by
the Board of Directors. All employees and, in the case of awards other than
incentive stock options, consultants to the Company are eligible for awards
under the Plan.
F-9
<PAGE> 37
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company has a 1992 Director Stock Option Plan (the "1992
Plan") pursuant to which non-qualified stock options to purchase 20,000 shares
of the Company's Common Stock are automatically granted to outside directors at
fair market value upon their initial election to the Board of Directors. The
1992 Plan has reserved an aggregate of 100,000 shares for this purpose. In 1996,
the Company granted options to purchase a total of 18,000 shares to three
outside directors, subject to the approval by the shareholders at the next
annual meeting of an amendment to the 1992 Plan. At December 31, 1996, options
to purchase 58,000 shares have been granted under the plan, of which 40,000 are
exercisable.
The term of all stock options granted may not exceed ten years, and vesting
generally is over a four-year period.
The following table presents the combined activity of the two option plans
for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 973,030 $7.73 1,330,080 $6.98 1,258,973 $6.61
Granted...................... 433,750 5.27 374,125 6.30 272,650 8.20
Exercised.................... (1,250) 7.50 (93,368) 10.84 (29,988) 5.50
Canceled..................... (75,450) 6.85 (351,864) 7.48 (7,682) 6.67
--------- ----- --------- ----- --------- -----
Outstanding at end of year... 1,330,080 6.98 1,258,973 6.61 1,493,953 6.92
========= ===== ========= ===== ========= =====
Options exercisable at year
end........................ 556,608 7.93 574,772 7.18 822,347 6.91
========= ===== ========= ===== ========= =====
Weighted average fair
value per share of
options granted during
the year.............. 3.70 4.64
===== =====
</TABLE>
The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ------------------------
-------------------------------------------------------- WEIGHTED
WEIGHTED WEIGHTED AVERAGE
RANGE OF NUMBER AVERAGE REMAINING AVERAGE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE (YRS) EXERCISE PRICE EXERCISABLE PRICE
- ------------------------------ ------------ ----------------------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$4.00 - 6.00................ 428,108 7 $ 4.98 300,421 $ 5.18
6.063 - 9.00................ 916,348 8 7.26 393,396 7.10
9.125 - 12.75................ 149,497 6 10.43 128,530 10.38
--------- -------
1,493,953 822,347
========= =======
</TABLE>
F-10
<PAGE> 38
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Purchase Plan. The 1993 Employee Stock Purchase Plan (the
"ESPP") provides for the grant of rights to eligible employees to purchase up to
250,000 shares of the Company's Common Stock at the lesser of 85% of the fair
market value at the beginning or the end of the established offering period. No
shares were issued under the ESPP in 1993. During 1994, 6,351 shares were issued
at $4.25 per share. During 1995, 12,620 shares were issued at $3.61 per share.
During 1996, 4,068 shares were issued at $4.99 per share and 4,118 were issued
at $7.01 per share. At December 31, 1996, subscriptions were outstanding for
6,170 shares at $6.59 per share.
FAS 123 Disclosures. The Company has adopted the disclosure provisions only
of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-based Compensation ("FAS 123") and will continue to account for its stock
option plans in accordance with the provisions of APB 25, Accounting for Stock
Issued to Employees. Accordingly, no compensation cost has been recognized for
the Stock option plans or the ESPP.
Pursuant to the requirements of FAS 123, the following are the pro forma
net loss and net loss per share for 1995 and 1996, as if the compensation cost
for the option plans and the ESPP had been determined based on the fair value at
the grant date for grants in 1995 and 1996, consistent with the provisions of
FAS 123:
<TABLE>
<CAPTION>
1995 1996
------------------------- ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net loss (in thousands)......................... $(7,054) $(7,346) $(12,989) $(13,784)
Net loss per share.............................. $ (0.59) $ (0.62) $ (0.93) $ (0.99)
</TABLE>
The fair value of options and shares issued pursuant to the ESPP at the
date of grant were estimated using the Black-Scholes model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
OPTIONS ESPP
-------------- --------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected life (years)........................ 4.7 4.5 .5 .5
Interest rate................................ 6.4% 6.6% 5.9% 5.3%
Volatility................................... 68.0% 65.0% 68.0% 65.0%
</TABLE>
The Company has never declared nor paid dividends on any of its capital stock
and does not expect to in the foreseeable future.
The effects on 1995 and 1996 pro forma net loss and net loss per share of
expensing the estimated fair value of stock options and shares issued pursuant
to the ESPP are not necessarily representative of the effects on reporting the
results of operations for future years as the periods presented include only one
and two years, respectively, of option grants under the Company's plans.
Benefit Plans. The Company has an employee savings plan that qualifies
under Section 401(k) of the Internal Revenue Code of 1986, as amended, in which
all eligible employees may participate. For the plan years ended December 31,
1994, 1995 and 1996, the Company matched 100% of all qualified employee
contributions with Company Common Stock. Of the 200,000 shares authorized for
issuance pursuant to this plan, 104,784 were issued and outstanding at December
31, 1996.
The aggregate number of shares of Common Stock reserved and available for
issuance under all stock plans was 893,174 at December 31, 1996.
F-11
<PAGE> 39
NOTE F - COLLABORATIVE AGREEMENTS
Boehringer Ingelheim International GmbH. In March 1995, the Company entered
into a license and stock purchase agreement with Boehringer Ingelheim
International GmbH ("BI") to collaborate on the development and
commercialization of the Company's lead product, CERESTAT. On the signing of
these agreements, the Company received proceeds of $15.0 million, before related
costs of $1.0 million, consisting of $10.0 million for the purchase of 1,250,000
shares of the Company's Common Stock and $5.0 million for the reimbursement of
previously incurred CERESTAT-related costs. Pursuant to the terms of these
agreements 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
Common Stock. The terms of the agreements generally provide that BI will fund at
least 75% of the development costs for the product in the United States and
Europe, and 100% of the development costs in Japan. In addition, the Company may
receive up to an additional $18.0 million in cash upon the achievement of
certain milestones and will receive royalties on product sales. However, there
can be no assurance as to when or if these milestones will be achieved. The
Company has retained the right to co-promote CERESTAT in the United States and
has granted BI exclusive marketing rights in other countries in exchange for
royalties on product sales. BI has an option to acquire the worldwide
manufacturing rights in exchange for increased royalty payments. BI has certain
termination rights including the right at its sole discretion to terminate its
agreement with the Company upon 90 days' written notice.
Allergan. In November 1996, the Company entered into a collaboration
agreement with Allergan Inc. ("Allergan") to develop certain NMDA ion-channel
blockers, sodium ion-channel blockers and combination ion-channel blockers for
the treatment of ophthalmic disorders, including glaucoma. Upon signing the
agreement, Allergan purchased 175,103 shares of the Company's Common Stock for
$3.0 million. Allergan will provide an additional $3.0 million in research
funding over the next three years and has established a $2.0 million line of
credit for the Company. Under the terms of the credit agreement, a loan made to
the Company may be convertible into Common Stock of the Company. Allergan will
be responsible for the development of potential products and will bear all of
the development costs. Allergan will manufacture and market products developed
under the collaboration worldwide. The Company may receive up to an additional
$18.5 million in cash upon the achievement of certain milestones and will
receive a royalty on product sales. There can be no assurance as to when or if
these milestones will be achieved. Allergan has certain termination rights,
including the right, which is shared by the Company, to terminate the agreement
upon 90 days prior written notice of an uncured material breach by the other
party. As of December 31, 1996, Allergan had provided $364,000 to the Company,
pursuant to the funding agreement, of which $114,000 was recognized as revenue
in 1996.
Cambridge NeuroScience Partners, Inc. In December 1996, the Company entered
into a collaboration agreement with The J. David Gladstone Institutes
("Gladstone") and The Regents of the University of California (the "University")
for the development of treatments for Alzheimer's disease and other neurological
diseases, disorders or injuries. In connection with the collaboration, the
Company formed a subsidiary, Cambridge NeuroScience Partners, Inc. ("CNPI").
Cambridge NeuroScience made a $1.25 million equity investment in CNPI upon the
consummation of the collaboration and, as a result, owns 80% of the outstanding
common stock of CNPI, with Gladstone and the University owning 15% and 5%,
respectively, of the remaining outstanding shares of CNPI common stock.
Pursuant to the terms of the 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. In the event that CNPI is unable to raise the
required funds to make its research funding payments, Cambridge NeuroScience
will loan CNPI, interest-free, all amounts necessary to enable CNPI to make such
payments. Such debt will be convertible into securities of CNPI under certain
circumstances in accordance with the stockholders' rights agreement. The Company
has guaranteed CNPI's obligations with respect to the collaboration, including
CNPI's financial obligations. CNPI has a three-year option to acquire an
exlcusive royalty-bearing license to intellectual property developed in the
field of research under the collaboration. Included in research and development
expense in 1996 was $51,000 expense relating to this agreement. The agreement is
generally subject to termination upon 60 days prior written notice of an uncured
material breach.
F-12
<PAGE> 40
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Research and development revenue. Research and development revenue
pursuant to the BI collaboration represents the excess of the Company's
expenditures over its obligations for the year (generally 25% of total spent by
both parties). Under the terms of the agreements, an accounting of annual total
costs incurred by both parties will occur 120 days after year end. Any costs
incurred in excess of one party's contractual obligation will be reimbursed by
the other party. The calculation of revenue for the years ended December 31,
1995 and 1996 was based in part upon an estimate of costs incurred by BI during
the contract period. Research and development revenue in 1996 includes $2.3
million earned pursuant to the BI collaboration. Revenue in 1995 included the
reimbursement by BI of the $5.0 million of costs incurred prior to signing the
agreements, net of related costs of $333,000 (see discussion above), as well as
$3.5 million representing the excess of the Company's expenditures over its
obligation for 1995. During 1995 and 1996, BI remitted to the Company a
predetermined amount, on a quarterly basis, in the form of advances against the
estimated reimbursable costs for that contract period. At December 31, 1995 and
1996, the difference of $995,000 and $5.8 million, respectively, between cash
advances received and revenue recognized is recorded as research and development
advances.
NOTE G -- COMMITMENTS
The Company leases its office and research facilities under the terms of a
five-year agreement, which expires June 1997. The agreement contains an option
to extend the lease for an additional five-year period. In March 1996, the
Company signed an addendum to the lease agreement, extending the lease for one
year, to expire in June 1998. Under the terms of this lease, the Company pays
the property taxes, insurance, maintenance, and expenses related to the leased
property. Minimum future obligations under the terms of the facilities lease are
(in thousands):
<TABLE>
<S> <C>
1997................................................................... $784
1998................................................................... 392
</TABLE>
Total rent expense relating to this lease was approximately $1.1 million in
each of the years ended December 31, 1994, 1995, and 1996.
In connection with the Company's guarantee of the obligations of its
majority-owned subsidiary, CNPI, and an employment agreement with an executive
officer, the Company has total non-cancelable commitments of approximately $3.5
million at December 31, 1996 (see Note F).
NOTE H -- SUBSEQUENT EVENTS
In February 1997, the Company received proceeds from a public offering of
$28.5 million, before related costs of $400,000. Pursuant to this offering, the
Company sold 2,760,000 shares of its Common Stock at a price of $11.00 per
share.
F-13
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 15, 1997
CAMBRIDGE NEUROSCIENCE, INC.
BY: /s/ HARRY W. WILCOX, III
-----------------------------------
Harry W. Wilcox, III
Principal Financial and Accounting
Officer
POWER OF ATTORNEY
We, the undersigned Directors of Cambridge NeuroScience, Inc., hereby
severally constitute and appoint Elkan R. Gamzu, Ross S. Gibson, Robert N.
McBurney, Harry W. Wilcox, III and William T. Whelan and each of them singly,
our true and lawful attorneys, with full power to them and each of them to sign
for us, in our names and in the capacity indicated below, the Annual Report on
Form 10-K of Cambridge NeuroScience, Inc., for fiscal year 1996, and any and all
amendments thereto, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
hereby ratifying and confirming our signatures as they may be signed by said
attorneys to said Annual Report and amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
WITNESS our hands on the dates set forth below:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ---------------
<C> <S> <C>
/s/ ELKAN R. GAMZU Principal Executive Officer March 15, 1997
- ------------------------------------------ and Director
Elkan R. Gamzu
/s/ HARRY W. WILCOX, III Principal Financial and March 15, 1997
- ------------------------------------------ Accounting Officer
Harry W. Wilcox, III
/s/ NANCY S. AMER Director March 15, 1997
- ------------------------------------------
Nancy S. Amer
/s/ BURKHARD BLANK Director March 15, 1997
- ------------------------------------------
Burkhard Blank
/s/ IRA A. JACKSON Director March 15, 1997
- ------------------------------------------
Ira A. Jackson
/s/ S. JOSHUA LEWIS Director March 15, 1997
- ------------------------------------------
S. Joshua Lewis
/s/ JOSEPH B. MARTIN Director March 15, 1997
- ------------------------------------------
Joseph B. Martin
/s/ PAUL C. O'BRIEN Director March 15, 1997
- ------------------------------------------
Paul C. O'Brien
/s/ PETER STALKER, III Director March 15, 1997
- ------------------------------------------
Peter Stalker, III
</TABLE>
41
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant. Filed as Exhibit 4.1 to
Registration Statement on Form S-8, File No. 33-42933, and incorporated herein by
reference.
3.3 By-laws of Registrant. Filed as Exhibit 4.2 to Registration Statement on Form S-8,
File No. 33- 42933, and incorporated herein by reference.
4.1 Specimen Stock Certificate for Common Stock, $.001 par value. Filed as Exhibit 4.1
to Registration Statement on Form S-1, File No. 33-40078, and incorporated herein by
reference.
10.1 Stockholders' Agreement dated December 29, 1988 among the Company and certain
investors, as amended by Waiver and Consent dated as of February 5, 1991. Filed as
Exhibit 10.3 to Registration Statement on Form S-1, File No. 33-40078, and
incorporated herein by reference.
10.2 Scientific Advisor Agreement dated September 10, 1986 and amendment dated December
6, 1986 between the Company and Dr. Joseph Martin. Filed as Exhibit 10.5 to
Registration Statement on Form S-1, File No. 33-40078, and incorporated herein by
reference.
10.3 Form of Stockholders' Agreement dated March 19, 1987 among the Company and certain
stockholders. Filed as Exhibit 10.6 to Registration Statement on Form S-1, File No.
33-40078, and incorporated herein by reference.
10.4 Form of Restricted Stock Purchase Agreement with a certain Director and executive
officers. Filed as Exhibit 10.8 to Registration Statement on Form S-1, File No.
33-40078, and incorporated herein by reference.
10.5 Common Stock Purchase Warrant dated February 15, 1991 with Aeneas Venture
Corporation. Filed as Exhibit 10.9 to Registration Statement on Form S-1, File No.
33-40078, and incorporated herein by reference.
10.6 Form of Waiver, Consent and Agreement dated as of April 22, 1991 between the Company
and certain investors. Filed as Exhibit 10.10 to Registration Statement on Form S-1,
File No. 33-40078, and incorporated herein by reference.
10.9* Letter Agreement dated June 5, 1990 between the Company and Elkan R. Gamzu, Ph.D.
Filed as Exhibit 10.13 to Registration Statement on Form S-1, File No. 33-40078, and
incorporated herein by reference.
10.11* 1991 Equity Incentive Plan, as amended. Filed as Exhibit 99.1 to the Registration
Statement on Form S-8, File No. 333-05431, as filed with the Commission on June 7,
1996, and incorporated herein by reference.
10.12* 1992 Director Stock Option Plan. Filed as Exhibit 10.12 to the Annual Report on Form
10-K for the period ended December 31, 1992, as filed with the Commission on March
28, 1993, and incorporated herein by reference.
</TABLE>
42
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.13 Lease for One Kendall Square dated July 16, 1992 between the Company and the
Trustees of Old Kendall Realty Trust and addendum dated as of September 22, 1992
(the "Lease"). Filed as Exhibit 10.13 to the Annual Report on Form 10-K for the
period ended December 31, 1992, as filed with the Commission on March 28, 1993, and
incorporated herein by reference. Addendum dated September 22, 1993, filed as
Exhibit 10.13 to the Annual Report on Form 10-K for the period ended December 31,
1993, as filed with the Commission on February 14, 1994, and incorporated herein by
reference. Addendum dated March 11, 1996. Filed herewith.
10.15* Form of Indemnification agreement between the Company and Directors and executive
officers. Filed as Exhibit 10.15 to the Annual Report on Form 10-K for the period
ended December 31, 1992, as filed with the Commission on March 28, 1993, and
incorporated herein by reference.
10.16+ Stock Purchase Agreement dated as of March 21, 1995 between the Company and
Boehringer Ingelheim International GmbH. Filed as Exhibit 10.16 to the Annual Report
on Form 10-K for the period ended December 31, 1994, as filed with the Commission on
March 31, 1995, and incorporated herein by reference.
10.17+ License Agreement dated as of March 21, 1995 between the Company and Boehringer
Ingelheim International GmbH. Filed as Exhibit 10.17 to the Annual Report on Form
10-K for the period ended December 31, 1994, as filed with the Commission on March
31, 1995, and incorporated herein by reference.
10.18+ Amendment to Stock Purchase Agreement and License Agreement between the Company and
Boehringer Ingelheim International GmbH dated as of August 19, 1996. Filed as
Exhibit 99.4 to Amendment No. 1 to the Current Report on Form 8-K/A dated August 19,
1996, as filed with the Commission on January 29, 1997, and incorporated herein by
reference.
10.19+ Collaborative Research, Development and Marketing Agreement dated as of November 20,
1996 between the Company and Vision Pharmaceuticals L.P. Filed as Exhibit 99.1 to
Amendment No. 1 to the Current Report on Form 8-K/A dated August 19, 1996, as filed
with the Commission on January 29, 1997, and incorporated herein by reference.
10.2+ Stock Purchase Agreement dated as of November 20, 1996 between the Company and
Vision Pharmaceuticals L.P. Filed as Exhibit 99.2 to Amendment No. 1 to the Current
Report on Form 8-K/A dated August 19, 1996, as filed with the Commission on January
29, 1997, and incorporated herein by reference.
10.21+ Credit Agreement dated as of November 20, 1996 between the Company and Vision
Pharmaceuticals L.P. Filed as Exhibit 99.3 to Amendment No. 1 to the Current Report
on Form 8-K/A dated August 19, 1996, as filed with the Commission on January 29,
1997, and incorporated herein by reference.
10.22+ Sponsored Research and Collaborative Agreement dated as of December 23, 1996 between
Cambridge NeuroScience Partners, Inc. and The J. David Gladstone Institutes. Filed
as Exhibit 99.1 to Amendment No. 1 to the Current Report on Form 8-K/A dated
December 23, 1996, as filed with the Commission on January 29, 1997, and
incorporated herein by reference.
10.23+ Option Agreement dated as of December 23, 1996 by and among The Regents of the
University of California, Cambridge NeuroScience Partners, Inc., and the Company.
Filed as Exhibit 99.2 to Amendment No. 1 to the Current Report on Form 8-K/A dated
December 23, 1996, as filed with the Commission on January 29, 1997, and
incorporated herein by reference.
</TABLE>
43
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.24+ Stockholders' Rights Agreement dated as of December 23, 1996 by and among the
Company, Cambridge NeuroScience Partners, Inc., The J. David Gladstone Institutes
and The Regents of the University of California. Filed as Exhibit 99.3 to Amendment
No. 1 to the Current Report on Form 8-K/A dated December 23, 1996, as filed with the
Commission on January 29, 1997, and incorporated herein by reference.
21.1 Subsidiaries of the Company. Filed herewith.
23.1 Consent of Ernst & Young LLP, independent auditors. Filed herewith.
24.1 Powers of Attorney. Contained on signature page hereto.
99.1 Important Factors Regarding Forward-Looking Statements. Filed herewith.
</TABLE>
- ---------------
* Identifies a management contract or compensatory plan or agreement in which an
executive officer or Director of the Company participates.
+ Confidential information contained in this Exhibit has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 1
Exhibit 10.13
March 11, 1996
Dr. Elkan Gamzu, President
Cambridge NeuroScience, Inc.
One Kendall Square, B700
Cambridge, MA 02139
Re: THIRD ADDENDUM TO BUILDING 700 LEASE
AT ONE KENDALL SQUARE, CAMBRIDGE, MA
Dear Dr. Gamzu:
This letter when, signed by an authorized representative of Cambridge
NeuroScience, Inc., shall constitute a Third Amendment to the Building 700 at
One Kendall Square, Cambridge, MA Lease between Cambridge NeuroScience, Inc.
("Lessee:) and Old Kendall Realty Trust ("Lessor") dated July 16, 1992. The
terms of the lease are hereby amended as follows:
A. The expiration date of the Lease shall be June 30, 1998 (formerly
June 30, 1997).
B. Lessee's Base Rent from July 1, 1997 through June 30, 1998 shall be
$773,065.02 per annum, payable in monthly payments of $64,422.09.
C. Lessee shall have an option to extend the Lease as previously provided in
the Lease, except that the option period shall commence on July 1, 1998
(formerly July 1, 1997).
D. Lessor shall pay a $10,000 commission to Lessee's broker.
E. Except as otherwise set forth herein, the Lease between the parties remains
in full force and effect. To the extent that the Lease and this Third
Amendment conflict, this Third Amendment shall control.
<PAGE> 2
March 11, 1996
Third Addendum to Lease
We look forward to Cambridge NeuroScience, Inc.'s continued tenancy at One
Kendall Square. Thank you.
Sincerely,
/s/ Allan R. Jones
- ------------------
Allan R. Jones
Partner
ARJ:tw
Agreed To By:
CAMBRIDGE NEUROSCINEC, INC.
BY:/S/ ELKAN R. GAMZU /S/ HARRY W. WILCOX
- -------------------------- -------------------
ELKAN R. GAMZU HARRY W. WILCOX
PRESIDENT WITNESS
HEREUNTO DULY AUTHORIZE
OLD KENDALL REALTY TRUST
/S/ ROBERT A. JONES /S/ ELAINE M. GILES
- -------------------------- --------------------------
ROBERT A. JONES, TRUSTEE WITNESS
/S/ GEORGE NAJARIAN /S/ ELAINE M. GILES
- -------------------------- --------------------------
GEORGE NAJARIAN, TRUSTEE WITNESS
<PAGE> 1
Exhibit 22.1
CAMBRIDGE NEUROSCIENCE, INC.
SUBSIDIARIES
Jurisdiction of
Name Incorporation or Organization
---- -----------------------------
1. CNS Investments, Inc. Delaware
2. Cambridge NeuroScience Partners, Inc. Delaware
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Forms S-8 No. 33-42933, 33-76408, 33-76410, 33-76412 and 333-05431) of
Cambridge NeuroScience, Inc. of our report dated January 13, 1997, except for
Note H as to which date is February 26, 1997, with respect to the consolidated
financial statements of Cambridge NeuroScience, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
March 19, 1997
<PAGE> 1
EXHIBIT 99.1
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
From time to time, Cambridge NeuroScience through its management may
make forward-looking public statements, such as statements concerning then
expected future revenues or earnings or concerning projected plans, performance,
product development and commercialization, as well as other estimates relating
to future operations. There are certain key factors that could cause future
results to differ materially from those anticipated by management, including,
but not limited to, the following:
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and effective for use in
each target indication. The results from preclinical studies and early clinical
trials may not be predictive of results that will be obtained in large-scale
clinical trials, and there can be no assurance that clinical trials of the
Company's product candidates will demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals or will result in marketable products.
Clinical trials are often conducted with patients that are critically ill.
During the course of treatment, these patients can die or suffer other adverse
medical effects for reasons that may not be related to the pharmaceutical agent
being tested but which can nevertheless affect clinical trial results. A number
of companies in the pharmaceutical industry have suffered significant setbacks
in advanced clinical trials, even after promising results in earlier trials. If
the Company's lead compound, CERESTAT(1), is not shown to be safe and effective
in clinical trials (including current Phase III clinical trials), the resulting
delays in developing other compounds and conducting related preclinical testing
and clinical trials would have a material adverse effect on the Company's
business, financial condition and results of operations.
The completion of clinical trials of the Company's product candidates may
be delayed by many factors and there can be no assurance that delays or
terminations will not occur. One such factor is the rate of enrollment of
patients, which generally varies throughout the course of a clinical trial and
which depends on the size of the patient population, the number of clinical
trial sites, the proximity of patients to clinical trial sites, the eligibility
criteria for the trial and the existence of competitive clinical trials. The
Company cannot control the rate at which patients present themselves for
enrollment, and there can be no assurance that the rate of patient enrollment
will be consistent with the Company's expectations or be sufficient to enable
clinical trials of the Company's product candidates to be completed in a timely
manner. The Company is aware of several other companies that are currently
conducting or preparing to conduct advanced clinical trials of products for the
treatment of TBI and stroke. To date, the Company has experienced delays in the
planned patient enrollment for its Phase III clinical trials of CERESTAT due, in
part, to the existence of these competing trials. Any continued delays in
patient enrollment may result in increased costs or regulatory filing delays, or
both. Any significant delays in, or termination of, clinical trials of the
Company's product candidates would have a material adverse effect on the
Company's business, financial condition and results of operations.
CERESTAT, is being tested in Phase III clinical trials for the treatment of
Traumatic Brain Injury ("TBI") and stroke. Currently, there are no NMDA
ion-channel blockers approved by the United States Food and Drug Administration
("FDA") for these indications. Several large pharmaceutical companies have
suspended or terminated clinical trials of drug candidates, including NMDA
antagonists, for stroke and TBI indications due to lack of efficacy. The Company
expects that it will be required to conduct an additional Phase III clinical
trial for stroke in addition to the one this is currently underway. There can be
no assurance that additional Phase III clinical trials will not be required for
TBI or stroke. In addition, rhGGF2 is a glial growth factor, and there are no
FDA-approved glial growth factors for the treatment of multiple sclerosis
("MS"). There can be no assurance that significant effects on the outcome
measures
(1) CERESTAT is a registered trademark of Boehringer Ingelheim International,
GmbH.
<PAGE> 2
being used by the Company in clinical trials for CERESTAT or any of the
Company's other product candidates will be acceptable to regulatory authorities,
including the FDA, as the basis for marketing approval. In addition, clinical
trials may be terminated at any time for safety reasons or if little or no
efficacy is demonstrated on an interim basis.
There can be no assurance that regulatory authorities will permit
additional clinical trials for CERESTAT or clinical trials for the Company's
other product candidates. Additional animal studies could be required to obtain
additional safety data prior to commencing clinical trials of NMDA ion-channel
blockers for indications that are less life-threatening than TBI or stroke. If
trials are conducted, there can be no assurance that any of the Company's
product candidates will prove to be safe and efficacious or will receive
regulatory approvals.
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTIES
All of the Company's product candidates are in the research or development
stage, and all revenues to date have been generated from collaborative research
agreements, government grants and financing activities, or from interest income
earned on these funds. No revenues have been generated from product sales. There
can be no assurance that product revenues can be realized on a timely basis, if
ever.
Cambridge NeuroScience has not yet requested or received regulatory
approval for any product from the FDA or any other regulatory authority. There
can be no assurance that Cambridge NeuroScience or its strategic partners will
succeed in the development and marketing of any therapeutic product. To achieve
profitable operations, the Company must, alone or with others, successfully
identify, develop, introduce and market proprietary products. If potential
products are identified, they will require significant additional investment,
development, preclinical testing and clinical trials prior to potential
regulatory approval and commercialization. The Company is devoting its efforts
to the research and development of potential products based on NMDA ion-channel
blockers and other technology platforms. Neither the Company, not to its
knowledge any other company, has successfully obtained marketing approval for a
product based on NMDA ion-channel blockers to treat either TBI or stroke.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found to be ineffective or cause harmful
side effects during preclinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. CERESTAT has not been
proven safe and effective in humans. There can be no assurance that the
Company's product development efforts will be successfully completed, that
required regulatory approvals can be obtained or that any products, if
introduced, will be successfully marketed or achieve customer acceptance.
Commercial availability of any Cambridge NeuroScience products, including
CERESTAT, is not expected for a number of years, if at all.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
As of December 31, 1996, the Company had an accumulated deficit of $89.6
million. The Company anticipates that it will incur substantial losses in the
future, potentially greater than losses incurred in prior years. There can be no
assurance that the Company's product candidates will be successfully developed
or that its products, if successfully developed, will generate revenues
sufficient to enable the Company to earn a profit. Cambridge NeuroScience
expects to incur substantial additional operating expenses over the next several
years as its research, development and clinical trial activities increase. To
the extent that the Company is unable to obtain additional third-party funding
for expenses, the Company expects that increased expenses will result in
increased losses from operations. The Company's ability to achieve profitability
depends in part on the ability of the Company to enter into agreements for the
development and commercialization of the Company's products. There can be no
assurance that
2
<PAGE> 3
Cambridge NeuroScience or its strategic partners will obtain required
regulatory approvals and successfully identify, test, manufacture and market
any product candidates, or that the Company will ever achieve product revenues
or profitability. Cambridge NeuroScience does not expect to generate revenues
from the sale of products, if any, for several years.
DEPENDENCE ON STRATEGIC ALLIANCES; POTENTIAL CONFLICTS OF INTEREST
The Company's strategy for research, development and commercialization of
its product candidates includes the establishment of various corporate
collaborations, licensing agreements and other arrangements. In some cases, the
Company will be dependent upon these outside parties to conduct preclinical
testing and clinical trials and to provide adequate funding for the Company's
development programs. The Company has entered into collaborative arrangements
with Boehringer Ingelheim International GmbH ("BI") for the development and
commercialization of CERESTAT and with Allergan for the development of NMDA
ion-channel blockers, sodium ion-channel blockers and combination ion-channel
blockers for the treatment of ophthalmic diseases, including glaucoma. A
substantial portion of the payments to be received by the Company from BI and
Allergan are dependent on the Company achieving certain program development
milestones. There can be no assurance that such milestones will be achieved on a
timely basis, if ever. There can be no assurance that the Company will be able
to maintain existing collaboration agreements, negotiate collaborative
arrangements in the future on acceptable terms, if at all, or that any such
collaborative arrangements will be successful. To the extent that the Company is
not able to maintain or establish such arrangements, the Company would be
required to undertake product development and commercialization activities at
its own expense, which would increase the Company's capital requirements or
require the Company to limit the scope of its development and commercialization
activities. In addition, the Company may encounter significant delays in
introducing its products into certain markets or find that the development,
manufacture or sale of its products in such markets is adversely affected by the
absence of such collaborative agreements. While the Company believes that BI,
Allergan and other potential strategic partners will have an economic motivation
to succeed in performing their obligations under collaboration arrangements with
the Company, the amount and timing of funds and other resources to be devoted
under such arrangements will be controlled by such other parties and would be
subject to financial or other difficulties that may befall such other parties.
The Company cannot control the amount and timing of resources which its
strategic partners devote to the Company's programs or potential products, which
may vary because of factors unrelated to the potential products. If any of the
Company's strategic partners breach or terminate their agreements with the
Company or otherwise fail to conduct their collaborative activities in a timely
manner, the preclinical or clinical development or commercialization of product
candidates or research programs may be delayed, and the Company will be required
to devote additional resources to product development and commercialization or
terminate certain development programs. Under the Company's collaboration
agreement with BI, BI has certain termination rights including the right in its
sole discretion to terminate its agreement upon 90 days written notice. Allergan
may also terminate its agreement with the Company for breach and under certain
other circumstances upon six months notice. The termination of the BI or
Allergan agreement or of other collaborative arrangements which the Company may
in the future enter into would have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that disputes will not arise in the future with respect to the
ownership of rights to any technology developed with third parties. These and
other possible disagreements between collaborators and the Company could lead to
delays in the collaborative research, development or commercialization of
certain product candidates or could require or result in litigation or
arbitration, which would be time-consuming and expensive, and would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Cambridge NeuroScience's strategic partners may develop, either alone or
with others, products that compete with the development and marketing of the
Company's products. For example, the Company is aware that BI is engaged in
advanced clinical trials of products for the treatment of stroke, including
3
<PAGE> 4
enlimomab and tPA, the latter in conjunction with Genentech, Inc. Competing
products, either developed by the strategic partners or to which the strategic
partners have rights, may result in the Company's partners withdrawing research,
development or marketing support with respect to all or a portion of the
Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operation.
NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
Cambridge NeuroScience will require substantial additional funding in order
to continue research, product development, preclinical testing and clinical
trials of its product candidates. The Company will also require additional
funding for operating expenses, the pursuit of regulatory approvals for its
product candidates and to establish marketing and sales capabilities. The
Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the size
and complexity of these programs, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements, the cost of manufacturing arrangements,
commercialization activities and the cost of product in-licensing and strategic
acquisitions, if any. There can be no assurance that the Company's cash reserves
and other liquid assets and funding that may be received from the Company's
strategic partners and interest income earned thereon, will be adequate to
satisfy its capital and operating requirements.
Cambridge NeuroScience intends to seek additional funding through
arrangements with strategic collaborators and through public or private sales of
the Company's securities, including equity securities. There can be no
assurance, however, that additional funding will be available on reasonable
terms, if at all. Any additional equity financings would be dilutive to the
Company's stockholders. If adequate funds are not available, Cambridge
NeuroScience may be required to curtail significantly or terminate one or more
of its research and development programs and/or obtain funds through
arrangements with collaborative partners or others that may require Cambridge
NeuroScience to relinquish rights to certain of its technologies or product
candidates.
INTENSE COMPETITION AND RISK OF TECHNOLOGICAL CHANGE
The fields in which Cambridge NeuroScience is involved are characterized by
rapid technological progress. New developments are expected to continue at a
rapid pace in both industry and academia. There are many companies, both public
and private, including large pharmaceutical companies, chemical companies and
specialized genetic engineering companies, engaged in developing products
competitive with products under development by the Company. Many of these
companies have greater capital, human resources and research and development,
manufacturing and marketing experience than Cambridge NeuroScience. Such
companies may succeed in developing products that are more effective or less
costly than any that may be developed by Cambridge NeuroScience and may also
prove to be more successful than Cambridge NeuroScience in production and
marketing. Competition may increase further as a result of potential advances in
the commercial applicability of biotechnology and greater availability of
capital for investment in these fields. In addition, academic, government and
industry-based research is intense, resulting in considerable competition in
obtaining qualified research personnel, submitting patent filings for protection
of intellectual property rights and establishing corporate strategic alliances.
There can be no assurance that research, discoveries and commercial developments
by others will not render any of the Company's programs or potential products
noncompetitive.
In July 1996, the FDA approved the use of tissue plasminogen activator
("tPA") for the treatment of patients who had suffered a stroke within the
preceding three hours and for whom a CT scan showed no evidence of hemorrhage.
In addition, a number of companies are developing drugs to treat TBI and/or
stroke. Competition for CERESTAT will come from other inhibitors of responses
mediated via specific ion channels. In particular, Sandoz AG is prepared to
conduct a Phase III clinical trial of D-CPPene,
4
<PAGE> 5
which is being developed for TBI only. A Phase III trial of D-CPPene has been
running in Europe. Lubeluzole (Janssen Pharmaceutica, N.V., a subsidiary of
Johnson & Johnson), currently in Phase III clinical trials, is being developed
for stroke. Fosphenytoin (Warner-Lambert Company), currently in Phase III
clinical trials and SNX-111 (Neurex Corporation), planned for Phase III clinical
trials, are being developed for TBI. Citicoline[R] (Interneuron Pharmaceuticals,
Inc.), currently in a Phase III clinical trial, and enlimomab (Boehringer
Ingelheim), currently in a Phase III clinical trial, are being developed for
stroke. The Company is aware of three therapeutics currently being marketed to
treat MS, which are Betaseron[R] (Chiron Corporation/Schering AG), Avonex[R]
(Biogen, Inc.) and Copaxone[R] (Teva Pharmaceutical Industries Ltd./Hoechst
Marion Roussel Ltd.). There can be no assurance that the introduction of these
or other products that the Company is unaware of will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company will, for the foreseeable future, rely on its strategic
partners for certain preclinical evaluation and clinical development of its
product candidates and manufacturing and marketing f any products. In addition,
the Company relies on its strategic partners, in part, for support in its drug
discovery operations. Generally, the Company's agreements with its strategic
partners do not prohibit the strategic partners from engaging in competitive
activities with the Company. The pharmaceutical companies with which the Company
has collaborations are in some cases attempting to develop other products to
treat diseases within the fields of the collaborations with the Company. Any
product candidate of the Company, therefore, may be subject to competition with
a potential product under development by the pharmaceutical company with which
the Company is collaborating in connection with such product candidate.
Biotechnology and related pharmaceutical technology have undergone rapid
and significant change. The Company expects the technology associated with the
Company's research and development will continue to develop rapidly, and the
Company's future success will depend in large part on its ability to maintain a
competitive position with respect to this technology. Rapid technological
development by the Company or others may result in compounds, products or
processes becoming obsolete before the Company recovers any expenses it incurs
in connection with developing such products.
PATENT AND LICENSE UNCERTAINTIES
Proprietary rights relating to the Company's products will be protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are maintained as trade secrets, and to the
extent that the Company diligently enforces its rights against infringement of
its patent rights and against misappropriation of its trade secrets and
proprietary information. The biotechnology and pharmaceutical industries place
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes, and the Company's success will depend, in
part, on its ability to obtain patent protection for its products and
manufacturing processes, preserve its trade secrets and operate without
infringing the proprietary rights of third parties. Some of the technology that
may be used in the Company's products may not covered by any patent or patent
application. In instances where the Company's products are not covered by valid
and enforceable patents, there can be no assurance that third parties will not
be able to market similar or related products, nor can there be any assurance
that patent or other proprietary rights held by the Company with respect to
these products will afford commercially significant protection. In addition,
there can be no assurance that confidentiality arrangements to which the Company
is a party will be effective in protecting the Company's confidential
information or trade secrets.
There can be no assurance that any patent applications relating to the
Company's products will be filed in the future or that any currently pending
applications will issue on a timely basis, if ever. Since patent applications in
the United States are maintained in secrecy until patents issue and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, the Company cannot be certain that it was the first
to make the inventions covered by each of its pending patent
5
<PAGE> 6
applications or that it was the first to file patent applications for such
inventions. Even if patents are issued, the degree of protection afforded by
such patents will depend upon the scope, validity, enforceability of the claims
obtained in such patents and the Company's willingness and financial ability to
enforce and/or defend them. The patent position of biotechnology and
pharmaceutical firms is often highly uncertain and usually involves complex
legal and factual questions. Moreover, no consistent policy has emerged in the
United States and in many other countries regarding the breadth of claims
allowed in biotechnology patents. The Company could incur substantial costs in
defending itself in suits brought against it by others or in suits in which the
Company may assert its patents against others. If the outcome of any such
litigation is adverse to the Company, the Company's business, financial
condition and results of operations could be adversely affected. 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 be required to
participate in interference proceedings declared by the United States Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to the Company. Patents granted to the Company in certain
foreign countries may be subject to opposition proceedings brought by third
parties. The Company may incur substantial costs defending such proceedings.
There can be no assurance that the Company would prevail in any such proceedings
or that such proceedings would not result in a material adverse effect on the
Company's business, financial condition or results of operations. In addition,
patents blocking the Company's manufacture, use or sale of its products could be
issued to third parties in the United States or foreign countries. The issuance
of blocking patents or an adverse outcome in an interference or opposition
proceeding could subject the Company to significant liabilities to third parties
and require the Company to license disputed rights from third parties or cease
using the technology. There can be no assurance that such license would be
available on commercially acceptable terms, if at all.
There are patents held by third parties that relate to the manufacture,
development and use of the Company's product candidates for which the Company
has licenses. There can be no assurance that the Company will not in the future
require licenses to additional patents, that such licenses will be available on
commercially reasonable terms, if at all, that existing or future licenses will
not be terminated or that any such termination or failure to obtain a license
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company is also aware of third-party patent and pending patent
applications in the United States and corresponding patent applications pending
in some foreign countries that, if issued and valid, may be construed to cover
aspects of the Company's rhGGF2 product candidates. There can be no assurance
that the claims of the issued U.S. patents are not infringed, and that the
claims of future patents issuing from the patent applications, if any, will not
be infringed by the Company's proposed manufacture, use or sale of products
based on the rhGGF2 technology. Furthermore, there can be no assurance that
Cambridge NeuroScience would prevail in any legal action seeking damages or
injunctive relief for infringement of the existing patent or any patent that
might issue from such applications or that any license required under any such
patent would be available or, if available, would be available on commercially
reasonable terms. Failure to obtain a required license or to successfully
establish non-infringement of, or the invalidity or unenforceability of, such
third-party patents could preclude the manufacture, marketing, sale and use of
the Company's products based on such rhGGF2 technology.
NO MANUFACTURING EXPERIENCE; RELIANCE ON THIRD-PARTY MANUFACTURING
The Company has no experience in manufacturing products for commercial
purposes and does not have manufacturing facilities. Consequently, the Company
is dependent on contract manufacturers for the production of products for
development and commercial purposes. In the event that the Company is unable to
obtain or retain third-party manufacturing arrangements, it will not be able to
commercialize its products as planned which would have a material adverse effect
on the Company's business, financial condition and results of operations. The
manufacture of the Company's products for clinical trials and commercial
purposes is subject to current Good Manufacturing Practices ("GMP") regulations
promulgated by the FDA. There can be no assurance that the Company will be able
to enter into
6
<PAGE> 7
agreements for the manufacture of future products with manufacturers whose
facilities and procedures comply with GMP and other regulatory requirements. The
Company does not intend to develop or acquire facilities for the manufacture of
drug products for clinical trials or commercial purposes, and has been, and will
remain, dependent on its strategic partners or third parties for the manufacture
of product candidates for preclinical, clinical and commercial purposes.
Under the terms of its collaboration agreement for CERESTAT with BI, the
Company has retained worldwide manufacturing rights, subject to BI's option to
acquire such rights in exchange for increased royalty payments. Although the
Company has an agreement with a third-party manufacturer to provide quantities
of CERESTAT sufficient to complete the development program for this product, the
Company currently has no agreement for the manufacture of CERESTAT for
commercial purposes. The Company's current dependence upon others for the
manufacture of its products may adversely affect its profit margin, if any, on
the sale of future products and the Company's ability to develop and deliver
products on a timely and competitive basis.
UNCERTAINTIES RELATED TO MARKETING AND SALES
Under its collaboration agreement for CERESTAT with BI, the Company has
granted exclusive marketing rights to BI in Europe and other geographic regions
in return for royalties on product sales. If BI terminates the agreement or
fails to market CERESTAT successfully, the Company's business, financial
condition and results of operations will be adversely affected.
Under its agreement with BI, Cambridge NeuroScience has an option to
co-promote CERESTAT in the United States. The Company has notified BI of its
intent to exercise this option. Co-promotion of CERESTAT would require the
Company to develop its own sales force to promote CERESTAT or make arrangements
with a third party to do so. Cambridge NeuroScience currently has no experience
in marketing or selling pharmaceutical products. In order to achieve commercial
success for any approved product, Cambridge NeuroScience must either develop a
marketing and sales force or, where appropriate or permissible, enter into
arrangements with third parties to market and sell its products. There can be no
assurance that Cambridge NeuroScience will successfully develop marketing and
sales experience or that it will be able to enter into marketing and sales
agreements with others on acceptable terms, if at all. If the Company develops
its own marketing and sales capability, it will compete with other companies
that currently have experienced and well funded marketing and sales operations.
To the extent that the Company enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues to be received by
Cambridge NeuroScience will be dependent on the efforts of others and there can
be no assurance that their efforts will be successful.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Prior to marketing, any product developed by the Company must undergo an
extensive regulatory approval process. This regulatory process, which includes
preclinical testing and clinical trials, and may include post-marketing
surveillance, of each compound to establish its safety and efficacy can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. In
addition, delays or rejections may be encountered based upon changes in FDA
policy for drug approval during the period of product development and FDA
regulatory review of each submitted new drug application ("NDA"). Similar delays
may also be encountered in foreign countries. There can be no assurance that
regulatory approval will be obtained for any products developed by the Company.
Moreover, regulatory approval may entail limitations on the indicated uses
of the drug. Further, even if regulatory approval is obtained, a marketed
product and its manufacturer are subject to continuing review. Discovery of
previously unknown problems with a product or manufacturer may have a material
adverse effect on the Company's business, financial condition and results of
operations, including withdrawal of the product from the market. Violations of
regulatory requirements at any stage of the
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regulatory process may result in various adverse consequences, including the
FDA's delay in approving or its refusal to approve a product, withdrawal of an
approved product from the market and the imposition of criminal penalties
against the manufacturer and NDA-holder. The Company has not had any product
approved for commercialization in the United States or elsewhere. No assurance
can be given that the Company will be able to obtain FDA approval for any
products. Failure to obtain requisite regulatory approvals or failure to obtain
approvals of the scope requested will delay or preclude the Company or its
licensees or strategic partners from marketing the Company's products or limit
the commercial use of the products and will have a material adverse effect on
the Company's business, financial condition and results of operations.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's successful commercialization of its pharmaceutical products
will depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health insurers and other third-party
payors. Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and third-party payors are increasingly
challenging the prices charged for medical products and services. There can be
no assurance that any third-party insurance coverage will be available to
patients for any products developed by the Company. Government and other
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products, and by refusing, in some cases, to provide coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. In particular, the Company anticipates that a large
percentage of patients who receive CERESTAT for the treatment of stroke will be
covered by Medicare and be subject to limitations on reimbursement. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for the Company's products, the market acceptance of these products would
be adversely affected, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's business may be materially adversely affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, an increasing emphasis on
managed care in the United States has and will continue to put pressure on
pharmaceutical pricing. Such initiatives and proposals, if adopted, could
decrease the price that the Company receives for any products it may develop and
sell in the future and thereby have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or initiatives have a material adverse effect on other
pharmaceutical companies that are collaborators or prospective collaborators for
certain of the Company's potential products, the Company's ability to
commercialize its potential products may be adversely affected.
POTENTIAL PRODUCT LIABILITY; UNCERTAINTIES RELATED TO INSURANCE
The use of any of the Company's potential products in clinical trials and
the sale of any approved products, including the testing and commercialization
of CERESTAT, may expose the Company to liability claims resulting from the use
of products or product candidates. These claims might be made directly by
consumers, pharmaceutical companies or others. The Company maintains product
liability insurance coverage for claims arising from the use of its products in
clinical trials in the amount of $5.0 million per occurrence and $5.0 million in
aggregate. However, coverage is becoming increasingly expensive, and no
assurance can be given that the Company will be able to maintain insurance at a
reasonable cost or in sufficient amounts to protect the Company against losses
due to liability that could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to obtain commercially reasonable
product liability insurance for any product approved for marketing in the future
or that insurance coverage and
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the resources of the Company would be sufficient to satisfy any liability
resulting from product liability claims. A successful product liability claim or
series of claims brought against the Company would have a material adverse
effect on its business, financial condition and results of operations.
VOLATILITY OF COMMON STOCK PRICE
The market prices for securities of biotechnology and pharmaceutical
companies, including Cambridge NeuroScience, have historically been highly
volatile, and the market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in the Company's operating
results, announcements of technological innovations or new therapeutic products
by the Company or others, clinical trial results, developments concerning
agreements with collaborators, governmental regulation, developments in patent
or other proprietary rights, public concern as to the safety of products
developed by the Company or others, future sales of substantial amounts of
Common Stock by existing stockholders and general market conditions can have an
adverse effect on the market price of the Common Stock. The realization of any
of the risks described in these "Risk Factors" could have a dramatic and adverse
impact on market price.
CONCENTRATION OF OWNERSHIP
Directors, officers and stockholders affiliated with members of the Board
of Directors of the Company beneficially own approximately 35% of the
outstanding Common Stock. These stockholders effectively would be able to
significantly influence the election of the Company's Board of Directors and
other corporate actions.
DEPENDENCE ON QUALIFIED PERSONNEL
Because of the specialized scientific nature of the Company's business,
Cambridge NeuroScience is highly dependent upon its ability to continue to
attract and retain qualified scientific and technical personnel. There is
intense competition for qualified personnel in the areas of the Company's
activities and there can be no assurance that Cambridge NeuroScience will be
able to continue to attract and retain the qualified personnel necessary for the
development of its business. Loss of the services of, or failure to recruit, key
scientific and technical personnel would be significantly detrimental to the
Company's product development programs, and could have a material adverse effect
on the Company's business, financial condition and results of operations.
ANTITAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, up to 10,000,000 shares of
preferred stock with voting, conversion and other rights and preferences that
could adversely affect the voting power or other rights of the holders of Common
Stock. The issuance of preferred stock or rights to purchase preferred stock
could be used to discourage an unsolicited acquisition proposal. In addition,
the possible issuance of preferred stock could discourage a proxy contest, make
more difficult the acquisition of a substantial block of the Company's Common
Stock or limit the price that investors might be willing to pay for shares and
the Company's Common Stock. In addition, certain provisions of the Delaware
corporate law may have the effect of deterring hostile takeovers or delaying or
preventing changes in the control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over the then current market prices.
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ABSENCE OF DIVIDENDS
The Company has never declared nor paid cash dividends on any of its capital
stock. The Company currently intends to retain its earnings for future growth
and therefore does not anticipate paying cash dividends in the foreseeable
future.
