SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
[] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
[ X ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from October 1, 1995 to December 31, 1995
Commission File Number 0-19874
- --------------------------------------------------------------------------------
Neurex Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 77-0128552
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3760 Haven Avenue, Menlo Park, California 94025-1012
(Address of principal executive offices)
(415) 853-1500
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b)of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $ .01 par value NASDAQ National Market System
Securities registered pursuant to Section 12(g)of the Act:
None
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
filing requirements for the past 90 days. Yes X No _____
The number of shares of Common Stock outstanding at August 15, 1996
was 21,952,984 shares.
This report on Form 10-Q contains 12 pages.
================================================================================
<PAGE>
NEUREX CORPORATION
INDEX
Page
Item Part I. Financial Information Number
-------------
-------------
1. Financial Statements (unaudited):
a. Consolidtated Balance Sheets-December 31 1995 and
September 30, 1995......................................................3
b. Consolidated Statements of Operations-Three Months Ended
December 31, 1995 and 1994..............................................4
c. Condensed Consolidated Statements of Cash Flows-Three Months Ended
December 31, 1995 and 1994..............................................5
d. Notes to Condensed Consolidated Financial Statements..................6-7
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................8-9
Part II. Other Information
1. Legal Proceedings.........................................................10
2. Changes in Securities.....................................................10
3. Defaults Upon Senior Securities...........................................10
4. Submission of Matters to a Vote of Security Holders.......................10
5. Other Information.........................................................10
6. Exhibits and Reports on Form 8-K..........................................10
Signatures................................................................11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEUREX CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
ASSETS
<CAPTION>
December 31, September 30,
1995 1995
------------ ------------
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents ..................................................................... $ 2,655,116 $ 9,794,387
Short-term investments ........................................................................ 22,055,837 2,959,070
Receivable - Warner-Lambert ................................................................... 494,654 2,510,377
Prepaid expenses and other .................................................................... 222,654 273,265
------------ ------------
------------ ------------
Total current assets ........................................................................ 25,428,261 15,537,099
Property and equipment, net ...................................................................... 1,629,010 1,660,865
Note receivable from officer ..................................................................... 112,928 110,493
Other assets, net ................................................................................ 142,050 308,931
------------ ------------
$ 27,312,249 $ 17,617,388
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................................. $ 346,491 $ 655,962
Accrued wages and benefits .................................................................... 160,475 331,632
Accrued payables to related parties ........................................................... 85,891 361,410
Accrued clinical and preclinical testing ...................................................... 951,942 718,097
Product acquisition payable - related party ................................................... -- 650,000
Other accrued liabilities ..................................................................... 522,559 570,478
Deferred revenue - Warner-Lambert ............................................................. 2,242,000 2,400,000
Note payable to stockholder ................................................................... 288,513 288,513
Current portion of capital lease obligations .................................................. 194,879 191,611
------------ ------------
Total current liabilities ................................................................... 4,792,750 6,167,703
Long-term capital lease obligations .............................................................. 516,800 566,960
Convertible note payable to Medtronic, Inc., a stockholder ....................................... -- 7,594,117
Prepaid milestone repayable to Medtronic, Inc., a stockholder .................................... 1,468,228 --
Commitments
Stockholders' equity:
Convertible preferred stock, $ .01 par value; authorized: 15,000,000 shares;
none outstanding ...................................................................... -- --
Common stock, $ .01 par value; authorized: 45,000,000 shares; issued and
outstanding: 18,209,097 shares at December 31, 1995 and 13,404,147
shares at September 30, 1995 .................................................................. 182,091 134,042
Additional paid-in capital .................................................................... 79,909,713 59,782,154
Deferred compensation ......................................................................... (219,739) (288,101)
Unrealized losses on investments .............................................................. (2,684) (30,225)
Accumulated deficit ........................................................................... (59,334,910) (56,309,262)
------------ ------------
Total stockholders' equity ....................................................................... 20,534,471 3,288,608
------------ ------------
============ ============
$ 27,312,249 $ 17,617,388
============ ============
</TABLE>
See accompanying notes.
<PAGE>
NEUREX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended
December 31,
------------
1995 1994
------------ ------------
<S> <C> <C>
Revenues from collaborative agreements and grants (including $158,000 and
$68,200 from a related party in 1995 and 1994,
respectively) ................................................................................... $ 158,000 $ 73,542
Costs and expenses:
Research and development ........................................................................ 2,780,538 2,399,097
General and administrative ...................................................................... 595,103 540,582
------------ ------------
Total costs and expenses ...................................................................... 3,375,641 2,939,679
------------ ------------
------------ ------------
Loss from operations ............................................................................... (3,217,641) (2,866,137)
Interest income .................................................................................... 308,283 82,995
Interest expense ................................................................................... (116,290) (4,548)
------------ ------------
------------ ------------
Net loss ........................................................................................... $ (3,025,648) $ (2,787,690)
============ ============
Net loss per share ................................................................................. $ (0.17) $ (0.23)
============ ============
Shares used in net loss per share computation ...................................................... 17,422,965 12,301,581
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
NEUREX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(unaudited)
<CAPTION>
Three Months Ended
December 31,
------------
1995 1994
<S> <C> <C>
Cash flows used for operating activities:
Net loss ..................................................................................... $ (3,025,648) $ (2,787,690)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization .............................................................. 135,994 81,500
Noncash expenses from stock, debt and warrant issuances .................................... 86,362 43,450
Conversion of interest on debt convertible into common
stock ...................................................................................... 41,206 --
Changes in assets and liabilities:
Receivables ............................................................................ 2,009,433 (36,773)
Prepaid expenses ....................................................................... 54,466 (63,886)
Other long-term assets ................................................................. -- (2,231)
Accounts payable ....................................................................... (309,471) (171,956)
Accrued and other liabilities .......................................................... (725,269) (14,058)
Deferred revenue ....................................................................... (158,000) (20,950)
------------ ------------
------------ ------------
Net cash used for operating activities ................................................. (1,890,927) (2,972,594)
Cash flows from investing activities:
Purchases of property and equipment .......................................................... (80,244) (394,566)
Purchases of short-term investments .......................................................... (46,583,054) (1,045,000)
Maturity of short-term investments ........................................................... 1,971,916 --
Sales of short-term investments .............................................................. 25,541,912 2,626,094
------------ ------------
Net cash provided by (used for) investing activities ................................... (19,149,470) 1,186,528
Cash flows from financing activities:
Sales of common stock ........................................................................ 13,948,018 6,117
Payments of capital lease obligations ........................................................ (46,892) (24,241)
Proceeds from sale and leasebacks ............................................................ -- 343,524
------------ ------------
------------ ------------
Net cash provided by financing activities .............................................. 13,901,126 325,400
------------ ------------
------------ ------------
Net decrease in cash and cash equivalents ....................................................... (7,139,271) (1,460,666)
Cash and cash equivalents at beginning of period ................................................ 9,794,387 1,538,919
------------ ------------
============ ============
Cash and cash equivalents at end of period ...................................................... $ 2,655,116 $ 78,253
============ ============
Supplemental disclosures of noncash financing activities:
Conversion of debt to common stock ........................................................... $ 6,649,370 $ --
============ ============
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ....................................................................... $ 20,000 $ 5,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
NEUREX CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Summary of significant accounting policies
ORGANIZATION
Neurex was incorporated in Delaware on October 15, 1986 to develop
products for the treatment of diseases based upon advances in neuroscience
technology and other therapeutic areas with unmet medical needs.
CHANGE IN YEAR END
In July 1996, the Company changed its fiscal year end from September
30 to December 31, effective with the year ending December 31, 1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Neurex
and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
INTERIM FINANCIAL STATEMENTS
The balance sheet at September 30, 1995 has been derived from audited
financial statements at that date. The information at December 31, 1995, and for
the three month periods ended December 31, 1995 and 1994 is unaudited, but in
the Company's opinion, the accompanying condensed interim financial statements
include all adjustments, consisting only of normal recurring adjustments, which
the Company considers necessary to fairly state the Company's financial position
and the results of operations and cash flows. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The accompanying condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1995. The results of the
Company's operations for any interim period are not necessarily indicative of
the results of the Company's operations for any other interim period or for a
full fiscal year.
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in a separate component of
stockholders' equity. The cost of debt securities in this category is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income or expense. The cost of securities
sold is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income.
<PAGE>
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock options
and warrants are excluded from the computation as their effect is antidilutive.
2. INVESTMENTS
The Company has classified as available-for-sale its entire investment
portfolio, which consists primarily of U.S. Treasury Notes and other U.S.
government securities of $11,328,000 and corporate debt securities of
$11,264,000 at December 31, 1995. At December 31, 1995, securities had
contractual maturities of less than one year. The gross realized losses on sales
of available-for-sale securities were insignificant in the three months ended
December 31, 1995 and 1994.
3. STOCKHOLDERS' EQUITY
On October 16, 1995, the Company completed the sale of 3,000,000 shares
of common stock at $4.50 per share in a directed public offering. The offering
triggered the conversion of $6,500,000 of the convertible note payable to
Medtronic, Inc., plus related interest of $190,576 through October 16, 1995,
into common stock at a conversion price of $4.625 per share and the transfer of
approximately $320,000 of the unamortized discount on the note to additional
paid-in capital on the note conversion. The remaining $1,500,000 of the note
converted into a prepaid milestone fee, which, if not earned, will be repaid
with interest. Further on the note conversion, Neurex issued to Medtronic, Inc.
a warrant to purchase 500,000 shares of common stock at $5.40 per share,
exercisable through October 16, 2001. The offering triggered the obligation of
Warner-Lambert to purchase $3,000,000 of additional equity in the Company. The
first purchase of $1,500,000 was made on November 13, 1995 for 333,334 shares.
The second purchase of $1,500,000 will be made by March 30, 1996 at a market
average price.
See Subsequent Events (Note 4).
4. SUBSEQUENT EVENTS
On February 6, 1996, the stockholders approved an increase in the
number of shares which may be granted under the 1988 Employee and Consultant
Stock Option Plan to 3,311,111 from 2,561,111.
On March 29, 1996, Warner-Lambert purchased 75,263 shares of common
stock at a price of $19.93 per share under an investment agreement with the
Company.
On May 6, 1996, the Company completed the sale of 3,000,000 shares of
common stock at $22.75 per share in a public offering. On May 16, 1996, the
underwriters exercised their right to purchase an additional 450,000 shares of
common stock at the public offering price.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION IN THIS SECTION "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS TREND
ANALYSIS AND OTHER FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET
FORTH BELOW AND ELSEWHERE IN THIS FORM 10-Q.
OVERVIEW
Since commencement of operations in October 1986, Neurex has devoted
substantially all of its resources to its research and development programs. The
Company has been unprofitable since inception and expects to incur significant
and increasing losses over at least the next several years. As of December 31,
1995, the Company's cumulative net loss was $59,335,000. The Company's principal
sources of working capital have been public and private equity financings,
convertible notes payable, proceeds from a collaborative research agreement with
Ono Pharmaceutical Co., Ltd. ("Ono"), milestone, equity and other payments from
investment and collaborative research and development agreement with
Warner-Lambert and Medtronic, license fees from Grnenthal, interest income,
lease financings, and research grants. The Company has not generated any product
sales.
The Company's business is subject to significant risks, including but
not limited to the success of its research and development and fund raising
efforts, uncertainties associated with obtaining and enforcing patents important
to the Company's business and with the lengthy and expensive regulatory process,
and possible competition from other products. Even if the Company's products
appear promising at an early stage of development, they may not reach the market
for a number of reasons. Such reasons include, but are not limited to, the
possibilities that the potential products will be found ineffective during
clinical trials, fail to receive the necessary regulatory approvals, be
difficult to manufacture on a large scale, be uneconomical to market or be
precluded from commercialization by the proprietary rights of third parties.
Additional expenses, delays and losses of opportunities that may arise out of
these and other risks could have a material adverse impact on the Company's
financial condition, results of operations, and cash flows.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1995 and 1994
Revenues were $158,000 and $74,000 for the three months ended December
31, 1995 and 1994, respectively. Revenues in both periods consisted primarily of
expense reimbursement from a related party.
Research and Development expenses increased by $381,000 or 15.9 % to
$2,781,000 for the three months ended December 31, 1995 compared to $2,399,000
in the earlier period. The increase was due primarily to increased clinical
study expenses related to the Company's Phase III clinical studies for
CORLOPAMAE. The Company expects research and development expenses to increase
significantly over the next several years.
General and administrative expenses increased $55,000 or 10.1% to
$595,000 for the three months ended December 31, 1995 compared to $541,000 in
the earlier period primarily due to higher employment related expenses. The
Company expects general and administrative expenses to increase over the next
several years.
Interest income increased to $308,000 for the three months ended
December 31, 1995 compared to $83,000 in the earlier period. The increase was
due to the increase in cash available for investments as the result of the
successful completion of the directed public offering on October 16, 1995.
Interest expense increased substantially to $116,000 for the three
months ended December 31, 1995 compared to $5,000 in the earlier period
primarily due to the convertible note payable to Medtronic which was issued in
August 1995.
As of September 30, 1995, the Company had federal net operating loss
carryforwards of approximately $33,000,000. The net operating loss carryforwards
will expire at various dates beginning in 2001 through 2010, if not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the change in ownership in provisions of the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses before utilization.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended December 31, 1995, cash expenditures for
operating activities and additions to capital equipment were $1,971,000. The
Company anticipates that these expenditures will increase significantly in
future periods.
The Company had available cash, cash equivalents and short-term
investments of $24,711,000 at December 31, 1995 compared to $12,753,457 at
September 30, 1995. This increase is primarily the result of the sale of
3,000,000 shares of common stock at $4.50 per share in a directed pubic offering
on October 16, 1995. Cash in excess of immediate requirements is invested
according to the Company's investment policy, which provides guidelines with
regard to liquidity and return and, wherever possible, seeks to minimize the
potential effects of concentration and degrees of risk.
In May 1996, the Company completed the sale of 3,450,000 shares
of common stock at $22.75 per share which raised approximately $74,000,000,
net of commissions.
The Company expects to continue to incur substantial additional
operating losses from costs related to continuation and expansion of research
and development, including clinical studies and increased administrative
activities over at least the next several years. The Company anticipates that
its existing capital resources and interest earned thereon will enable it to
maintain its current and planned operations at least through mid 1998. However,
the Company's requirements may change depending on numerous factors, including,
but not limited to, the progress of the Company's research and development
programs, the results of clinical studies, the number and nature of the
indications the Company pursues in clinical studies, the timing of regulatory
approvals, technological advances, determinations as to the commercial potential
of the Company's products and the status of competitive products. In addition,
expenditures will be dependent on the establishment of collaborative
relationships with other companies, the availability of financing and other
factors. The Company will need to raise substantial additional funds in the
future, and there can be no assurance that such funds will be available on
favorable terms, if at all. The Company plans to continue to fund its short and
long-term operations using a combination of public and private equity and debt
offerings, and payments from the licensing, sublicensing and/or sales of its
intellectual property rights. If such funds are not obtained, the Company may
need to delay or curtail its research and development activities to a
significant extent.
<PAGE>
PART II - OTHER INFORMATION
NEUREX CORPORATION
1. LEGAL PROCEEDINGS
None.
2. CHANGES IN SECURITIES
None.
3. DEFAULTS UPON SENIOR SECURITIES
None.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
5. OTHER INFORMATION
None.
6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
On July 26, 1996 the Company filed with the Commission a a current report
on Form 8-K for the purpose of reporting: (1) the retirement of its Chief
Financial Officer and Vice-President of Finance, Bradford M. Wait and the
appointment of John M. Ames as the Company's new Chief Financial Officer and
Vice-President of Finance; (2) the election of Robert Luther as a new member of
the Company's Board of Directors; (3) the adoption of a form Indemnification
Agreement and a Systematic Stock Sales Program; and (4) the Company's
determination to change its fiscal year end from September 30 to December 31
effective with the year ending December 31, 1996.
<PAGE>
NEUREX CORPORATION
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.
Date: August 23, 1996 Neurex Corporation
----------------------------
By:/s/Paul Goddard, Ph.D.
======================
Paul Goddard, Ph.D.
Chairman and Chief Executive Officer
By:/s/John M. Ames
======================
John M. Ames
Vice President, Finance and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000884065
<NAME> Neurex Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.00
<CASH> 2,655,116
<SECURITIES> 22,055,837
<RECEIVABLES> 494,654
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,428,261
<PP&E> 4,174,367
<DEPRECIATION> 2,545,357
<TOTAL-ASSETS> 27,312,249
<CURRENT-LIABILITIES> 4,792,750
<BONDS> 0
0
0
<COMMON> 102,091
<OTHER-SE> 20,352,380
<TOTAL-LIABILITY-AND-EQUITY> 27,312,249
<SALES> 0
<TOTAL-REVENUES> 158,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,375,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (116,290)
<INCOME-PRETAX> (3,025,648)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,025,648)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,025,648)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
