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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: JUNE 30, 2000 Commission File No. 0-19193
CAMBRIDGE NEUROSCIENCE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3319074
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
333 PROVIDENCE HIGHWAY
NORWOOD, MA 02062
(Address of principal executive offices including zip code)
781-255-6700
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(Registrant's telephone number, including area code)
Former address: One Kendall Square, Cambridge, MA 02139
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At July 31, 2000, 18,149,889 shares of Common Stock, par value $.001 per share,
were issued and outstanding.
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CAMBRIDGE NEUROSCIENCE, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
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ITEM 1 - FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets
at June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2000 and 1999 4-5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 - 12
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 12
PART II - OTHER INFORMATION
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
2
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, December 31,
2000 1999
--------- ------------
ASSETS (Unaudited) (Note)
Current Assets
Cash and cash equivalents $ 2,614 $ 3,333
Marketable securities 5,981 6,489
Receivables from collaboration agreements 30 171
Prepaid expenses and other current assets 726 491
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Total Current Assets 9,351 10,484
Equipment, Furniture and Fixtures, net 233 285
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Total Assets $ 9,584 $ 10,769
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,470 $ 753
--------- ---------
Total Current Liabilities 1,470 753
Stockholders' Equity
Preferred stock, par value $.01, 10,000
shares authorized; none issued -- --
Common stock, par value $.001, 30,000
shares authorized; 18,150 shares issued
and outstanding at June 30, 2000;
18,136 at December 31, 1999 18 18
Additional paid-in capital 120,129 120,118
Accumulated deficit (112,033) (110,120)
--------- ---------
Total Stockholders' Equity 8,114 10,016
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Total Liabilities and Stockholders' Equity $ 9,584 $ 10,769
========= =========
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principals for complete
financial statements.
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended June 30,
---------------------------
2000 1999
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Revenues
Research and development $ 332 $ 490
Operating expenses
Research and development 970 1,195
General and administrative 669 314
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1,639 1,509
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Loss from operations (1,307) (1,019)
Interest income 133 136
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Net loss $(1,174) $ (883)
======= =======
Basic and diluted net loss per share $ (0.06) $ (0.05)
======= =======
Shares used in computing basic and diluted net
loss per share 18,136 18,100
======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Six months ended June 30,
-------------------------
2000 1999
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Revenues
Research and development $ 645 $ 872
Operating expenses
Research and development 1,869 2,434
General and administrative 961 633
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2,830 3,067
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Loss from operations (2,185) (2,195)
Interest income 272 306
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Net loss $(1,913) $(1,889)
======= =======
Basic and diluted net loss per share $ (0.11) $ (0.10)
======= =======
Shares used in computing basic and diluted net
loss per share 18,136 18,100
======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
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CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended June 30,
-------------------------
2000 1999
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Operating Activities
Net loss $(1,913) $(1,889)
Items not requiring cash:
Depreciation and amortization 78 96
Changes in operating assets and liabilities:
Receivables from collaboration agreements 141 1,906
Prepaid expenses and other current assets (235) (54)
Accounts payable and accrued expenses 717 (918)
Research and development advances -- (250)
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Cash used for operating activities (1,212) (1,109)
Investing Activities
Purchases of marketable securities (1,888) (3,782)
Sales of marketable securities 2,396 3,777
Purchases of equipment, furniture and fixtures (26) (9)
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Cash provided by investing activities 482 (14)
Financing Activities
Sale of common stock 11 31
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Cash provided by financing activities 11 31
Net decrease in Cash and Cash Equivalents (719) (1,092)
Cash and Cash Equivalents at beginning of period 3,333 4,863
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Cash and Cash Equivalents at end of period $ 2,614 $ 3,771
======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
6
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CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements as
of June 30, 2000 and for the three and six month periods ended June 30, 2000 and
1999 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying consolidated
financial statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented. The results of
operations for the interim period ended June 30, 2000 are not necessarily
indicative of the results expected for the full fiscal year.
This Form 10-Q should be read in conjunction with the Company's 1999
Annual Report on Form 10-K (file number 0-19193). The condensed consolidated
balance sheet presented as of December 31, 1999 is derived from such Form 10-K.
Cambridge NeuroScience, Inc. (the "Company") is a biopharmaceutical
company engaged in the discovery and development of proprietary pharmaceuticals
to prevent or treat severe disorders of, or injuries to, the nervous system.
2. ACCOUNTING PRONOUNCEMENTS
-------------------------
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements" which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101A was released on
March 24, 2000 and deferred the effective date to no later than the second
fiscal quarter beginning after December 15, 1999. In June 2000, the SEC issued
SAB 101B which delays the implementation date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB 101
requires companies to report any changes in revenue recognition as a cumulative
change in accounting principle at the time of implementation in accordance with
Accounting Principles Board Opinion No. 20, "Accounting Changes". Based upon a
preliminary analysis, the Company believes this interpretation will not have a
significant effect on its financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB Opinion No. 25." FIN 44 is generally effective for
transactions occurring after July 1, 2000 but applies to repricings and some
other transactions after December 15, 1998. The Company believes this
interpretation will not have a significant effect on its financial statements.
3. BASIC AND DILUTED NET LOSS PER SHARE
------------------------------------
Net loss per share is based on the weighted-average number of common
shares outstanding during each of the periods presented. Common equivalent
shares from stock options are excluded as their effect is antidilutive.
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CAMBRIDGE NEUROSCIENCE, INC.
4. RESEARCH AND DEVELOPMENT REVENUE
--------------------------------
Research and development revenue represents reimbursements by third
parties of the Company's expenditures pursuant to collaboration and license
agreements and government grants. Monies received or receivable with respect to
such agreements are recognizable as revenue and recorded as such when all of the
following have occurred: all obligations of the Company relating to the revenue
have been met; monies received or receivable are not refundable irrespective of
research results; and, the Company has no future performance or financial
obligations with respect to such monies. Revenue from government grants is
recorded based on the performance requirements of each respective grant.
Expenses relating to collaboration and license agreements and to the performance
of government grants are recorded as research and development expenses.
Cash received in advance of research and development revenue pursuant to
the Company's research and development agreements is designated as research and
development advances and is included in current liabilities.
5. BUSINESS DEVELOPMENTS
---------------------
On May 22, 2000, the Company and CeNeS Pharmaceuticals plc, a Scottish
corporation (CeNeS) entered into an Agreement and Plan of Merger (the Merger
Agreement) which provides for among other things, the acquisition of the Company
by CeNeS through a stock merger. The Merger Agreement provides for the merger of
a wholly-owned subsidiary of CeNeS into the Company (the Acquisition). Under the
terms of the Merger Agreement, each Company shareholder will receive a number of
shares of CeNeS ordinary shares equal to the exchange ratio for each share of
Company common stock. The exact exchange ratio will be determined by diving
$2.25 by the average of the closing prices of a share of CeNeS stock on the
London Stock Exchange for ten consecutive full trading days ending two trading
days prior to the closing date (the CeNeS Price). In the event the CeNeS Price
(i) decreases below $.9586 then the exchange ratio shall remain fixed at 2.3472
or (ii) increases above $1.3915 then the exchange ratio will be fixed at 1.6170.
The transaction is expected to be a tax-free exchange to the holders of the
Company common stock. The merger is expected to be completed in the fourth
quarter of 2000. The transaction may be terminated by the Board of Directors of
the Company if the CeNeS price is less than $.6182. The acquisition is subject
to customary conditions, including but not limited to, the approval of CeNeS
shareholders and Company shareholders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion contained in this section as well as elsewhere in this
Quarterly Report on Form 10-Q may contain forward-looking statements based on
the current expectations of the Company's management. The Company cautions
readers that there can be no assurance that actual results or business
conditions will not differ materially from those projected or suggested in the
forward-looking statements as a result of various factors, including, but not
limited to, the following: inability to obtain or meet conditions imposed for
stock exchange and governmental approvals for the CeNeS merger; failure of the
Company's or CeNeS' stockholders to approve the merger; costs related to the
merger; the risk that the Company's and CeNeS' businesses will not be integrated
successfully; uncertainties relating to the Company's product candidates;
uncertainties as to the Company's ability to continue operations and achieve
profitability; the early stage of development of all of the Company's product
candidates; the
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CAMBRIDGE NEUROSCIENCE, INC.
Company's reliance on current and prospective collaborative partners to supply
funds for research and development and to commercialize its products; technical
risks associated with the development of new products; the competitive
environment of the biotechnology and pharmaceutical industries, and the
Company's ability to resolve potential year 2000 problems on a timely basis.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Revenues
Research and development revenues in the three months ended June 30, 2000
decreased by $158,000 or 32% compared to the same period of 1999. Revenue in the
second quarter of this year was comprised of research funding by Allergan, Inc.
(Allergan) under a collaboration for glaucoma and revenue pursuant to a
government grant. Revenue pursuant to the Allergan collaboration increased by
$62,000 from last year's second quarter. This was the result of an increase in
annual funding from $1.0 million per year, or $250,000 per quarter, for the
twelve month period ended November 1999, to $1.25 million per year, or $313,000
per quarter, which is the funding rate for the twelve month period ending
November 2000. Grant revenue totaled $20,000 in the second quarter of this year,
and related to a phase I Small Business Innovation Research grant awarded by the
National Institutes of Health in May 2000.
Revenue in the second quarter of last year was comprised of $250,000 in
Allergan research funding, and $240,000 in research funding from Bayer AG
(Bayer), the Company's collaborator for Glial Growth Factor 2 (GGF2). The Bayer
revenue represented reimbursement of the Company's costs under a research
protocol covered by the agreement. Such reimbursement totaled $1.0 million, and
was received in full as of December 31, 1999. As of that date, the Company had
completed its performance obligations with respect to this collaboration (i.e.
the research protocol), and will therefore receive no further research funding
from Bayer. The Company had no government grants in 1999.
Operating Expenses
Total operating expenses in the three months ended June 30, 2000
increased by $130,000 compared to the same period in 1999, an increase of 9%.
This was due to higher general and administrative costs, primarily as a result
of merger-related professional fees and travel. An increase of $355,000 in
general and administrative costs was partly offset by a $225,000 decrease in
research and development costs, primarily in the area of Alzheimer's disease.
Last year, the Company incurred $1.25 million, or $313,000 per quarter in
research costs associated with a collaboration with the J. David Gladstone
Institutes (Gladstone) for research in Alzheimer's disease. At December 31,
1999, the Company had completed its funding obligations with respect to such
research, and opted to conclude its research and collaboration in this program.
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CAMBRIDGE NEUROSCIENCE, INC.
Interest Income
Interest income for the quarter ended June 30, 2000 decreased by $3,000
compared to the same period in 1999.
Net Loss Per Share
For the quarter ended June 30, 2000, the Company's net loss was higher by
$291,000 or $0.01 per share than in the same period last year. This difference
was primarily the result of lower revenue and higher expenses, both as described
earlier.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenues
In the six months ended June 30, 2000, the Company's research and
development revenues decreased by $227,000 as compared to the same period in
1999, a decrease of 26%. This decrease was primarily due to the absence of Bayer
revenue in 2000, partly offset by higher Allergan revenue. During the first six
months of 1999, Bayer revenue totaled $372,000. Allergan revenue increased by
$125,000 as compared to the first half of last year. During the first half of
this year, the Company also had a Small Business Innovation Research Grant,
accounting for $20,000 in revenue, compared to no grant revenue in 1999.
Operating Expenses
In the first half of 2000, the Company's total operating expenses
decreased by $237,000, or 8% as compared to the same period of last year.
Research and development expenses decreased by $565,000 or 23%, partly offset by
an increase of $328,000 in general and administrative expenses or 52% as
compared to the same period of last year. The decrease in research and
development expenses was the result of the Company completing its funding
obligations with respect to Alzheimer's research at the end of 1999, and opting
not to continue in this area. The increase in general and administrative
expenses was attributable primarily to merger-related professional fees and
travel expenses.
Interest Income
Interest income decreased by $34,000, or 11%, compared to the same period
in 1999. This decrease was a result of the decrease in cash and marketable
securities due to the use of cash for operating activities.
Net Loss Per Share
In the first half of 2000, the Company's net loss and net loss per share
were comparable to those of a year ago.
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CAMBRIDGE NEUROSCIENCE, INC.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash, cash equivalents and marketable
securities of $8.6 million, compared to $9.8 million at December 31, 1999, a
decrease of $1.2 million. The decrease was primarily due to the use of cash for
operating activities.
In December 1998, the Company and Bayer entered into an agreement whereby
Bayer licensed the Company's rights to GGF2, initially for the treatment of
multiple sclerosis. In exchange, the Company received an upfront license fee of
$1.0 million, and during 1999 received $1.0 million for reimbursement of
research costs under a research protocol covered by the agreement.
Under terms of the collaboration, Bayer pays the costs of research,
development and manufacturing for GGF2. In addition, Bayer performs all such
activities, with the exception of certain initial research studies, which were
conducted by the Company and were subject to reimbursement by Bayer. These
initial studies were completed by the Company as of December 31, 1999, and as of
that date, the Company had received all potential reimbursements, totaling $1.0
million, for such studies. As of December 31, 1999, the Company had no further
responsibility to conduct research studies, and therefore will receive no
further research reimbursement from Bayer.
The Company may receive up to $24.0 million in milestone payments from
Bayer, however, there can be no assurance as to when or if any milestones will
be achieved. Bayer may terminate this agreement at any time upon 120 days
written notice.
As discussed in the Company's 1999 Form 10-K filed on March 17, 2000 and
Form 10Q for the quarter ended March 31, 2000 filed on May 12, 2000, Bayer and
the Company are in the process of evaluating data from Bayer studies completed
in the first quarter of 2000. Based on results of these studies, Bayer has
indicated it is undertaking a comprehensive review of all available options for
further development of GGF2 before finalizing a decision on further development.
No assurance can be given that there will not be a substantial delay in the
development of GGF2 or that Bayer will continue the development of GGF2.
Pursuant to a collaborative agreement with Allergan signed in 1996, the
Company received a total of $3.0 million in research funding, $1.0 million per
year, through November 1999. In December 1999, the research collaboration was
renewed for a one-year period through November 2000. Funding for this additional
twelve-month period is at the rate of $1.25 million. Through June 30, 2000, the
Company had received $762,000 of this $1.25 million, and expects to receive the
remaining $488,000 during 2000. Under this agreement, Allergan is responsible
for the development of potential products and will bear all associated costs.
The collaboration also provides that the Company may receive up to an additional
$18.5 million upon the achievement of certain milestones. However, there can be
no assurance as to when or if these milestones will be achieved. Allergan may
terminate this agreement upon six months prior written notice.
In December 1999, the Company completed its funding obligations with
respect to research in the area of Alzheimer's disease. Such research was being
conducted by Gladstone under a collaboration agreement signed in 1996. Pursuant
to this collaboration, Gladstone conducted a research program over a three-year
period for which the Company provided $1.25 million in funding per year.
In May 2000, the Company signed a definitive merger agreement with CeNeS
Pharmaceuticals plc, a Scottish company, whereby the Company will become a
wholly-owned subsidiary of CeNeS.
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CAMBRIDGE NEUROSCIENCE, INC.
Completion of the merger is subject to approval of the shareholders of the
Company and CeNeS, and other customary conditions. The merger is expected to be
completed during the fourth quarter of 2000. The Company anticipates that
professional fees relating to this merger will total approximately $800,000. As
of June 30, 2000, approximately $400,000 of actual fees have been incurred.
The Company believes that its cash, cash equivalents and marketable
securities, totaling $8.6 million as of June 30, 2000, will be sufficient to
maintain operations into 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by Item 3 is not provided as the disclosure
requirements are not applicable to the Company pursuant to Item 305(e) of
Regulation S-K.
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CAMBRIDGE NEUROSCIENCE, INC.
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the interim year-to-date period ended
June 30, 2000 (for electronic filing only)
(b) Reports on Form 8-K
Report on Form 8-K filed with the Commission on June 6, 2000 (Item 5).
13
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CAMBRIDGE NEUROSCIENCE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBRIDGE NEUROSCIENCE, INC.
Date August 14, 2000 /s/ Robert N. McBurney
-------------------- --------------------------------------
Robert N. McBurney
President and Chief Executive Officer
(Principal Executive Officer; Acting
Principal Financial Officer)
Date August 14, 2000 /s/ Glenn A. Shane
-------------------- --------------------------------------
Glenn A. Shane
(Principal Accounting Officer)
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CAMBRIDGE NEUROSCIENCE, INC.
EXHIBIT INDEX
Exhibit
Number Description
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27.1 Financial Data Schedule for the interim year-to-date period ended
June 30, 2000 (for electronic filing only)
15
