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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 1996
Commission File Number 0-19874
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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)
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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 July 15, 1996 was
21,952,984 shares.
This report on Form 10-Q contains 14 pages.
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<PAGE>
NEUREX CORPORATION
INDEX
Page
Item Part I. Financial Information Number
---------------
---------------
1. Financial Statements (unaudited):
a. Consolidated Balance Sheets - June 30, 1996
and September 30, 1995...................... 3
b. Consolidated Statements of Operations -
Three and Nine Months Ended June 30, 1996 and 1995.. 4
c. Condensed Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 1996 and 1995............ 5
d. Notes to Condensed Consolidated Financial Statements.. 6-7
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 8-10
Part II. Other Information
1. Legal Proceedings......................................... 12
2. Changes in Securities..................................... 12
3. Defaults Upon Senior Securities........................... 12
4. Submission of Matters to a Vote of Security Holders....... 12
5. Other Information......................................... 12
6. Exhibits and Reports on Form 8-K.......................... 12
Signatures................................................ 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEUREX CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30, September 30,
1996 1995
----------- -----------
----------- -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................................... $ 52,370,000 $ 9,794,387
Short-term investments .................................................. 40,466,700 2,959,070
Receivable - related party .............................................. 244,654 2,510,377
Prepaid expenses and other .............................................. 342,769 273,265
------------- -------------
------------- -------------
Total current assets .................................................. 93,424,123 15,537,099
Property and equipment, net ................................................ 1,706,720 1,660,865
Note receivable from officer ............................................... 117,959 110,493
Other assets, net .......................................................... 117,800 308,931
------------- -------------
$ 95,366,602 $ 17,617,388
============= =============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable ........................................................ $ 223,736 $ 655,962
Accrued wages and benefits .............................................. 407,372 331,632
Accrued payables to related parties ..................................... 85,427 361,410
Accrued clinical and preclinical testing ................................ 1,539,065 718,097
Product acquisition payable - related party ............................. -- 650,000
Other accrued liabilities ............................................... 721,867 570,478
Deferred revenue - related parties ...................................... 1,271,154 2,400,000
Notes payable to stockholder ............................................ -- 288,513
Current portion of capital lease obligations ............................ 204,971 191,611
------------- -------------
Total current liabilities ............................................. 4,453,592 6,167,703
Long-term capital lease obligations ........................................ 413,026 566,960
Convertible note payable to Medtronic, Inc., a stockholder ................. -- 7,594,117
Prepaid milestone repayable to Medtronic, Inc., a stockholder .............. 1,568,789 --
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 21,952,984 shares at June 30, 1996 and 13,404,147 shares at
September 30, 1995 ...................................................... 219,530 134,042
Additional paid-in capital .............................................. 155,388,841 59,782,154
Deferred compensation ................................................... (133,619) (288,101)
Unrealized loss on investments .......................................... (25,118) (30,225)
Accumulated deficit ..................................................... (66,518,439) (56,309,262)
------------- -------------
Total stockholders' equity ................................................. 88,931,195 3,288,608
------------- -------------
============= =============
$ 95,366,602 $ 17,617,388
============= =============
</TABLE>
See accompanying notes ........................
<PAGE>
<TABLE>
<CAPTION>
NEUREX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
Revenues from collaborative agreements
and grants:
<S> <C> <C> <C> <C>
Related parties .............. $ 732,085 $ 521,171 $ 1,235,505 $ 909,204
Other ........................ 702 1,705,253 20,702 1,726,101
------------ ------------ ------------ ------------
732,787 2,226,424 1,256,207 2,635,305
Costs and expenses:
Research and development ..... 4,770,141 2,801,482 10,690,836 8,250,859
General and administrative ... 697,675 450,677 2,019,609 1,508,102
------------ ------------ ------------ ------------
Total costs and expenses ... 5,467,816 3,252,159 12,710,445 9,758,961
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Loss from operations ............ (4,735,029) (1,025,735) (11,454,238) (7,123,656)
Interest income ................. 869,234 17,302 1,490,731 149,518
Interest expense ................ (61,939) (18,263) (245,670) (32,037)
------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss ........................ $ (3,927,734) $ (1,026,696) $(10,209,177) $ (7,006,175)
============ ============ ============ ============
Net loss per share .............. $ (0.19) $ (0.08) $ (0.55) $ (0.57)
============ ============
============ ============ ============ ============
Shares used in net loss per share
computation .................. 20,460,152 12,316,219 18,699,993 12,310,109
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
NEUREX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(unaudited)
Nine Months Ended
June 30,
--------------------------------------
1996 1995
------------------ -------------------
<C> <C> <C>
Cash flows used for operating activities:
Net loss ...................................................... $ (10,209,177) $ (7,006,175)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization ........................... 393,624 311,458
Noncash expenses from stock, debt and warrant issuances . 271,154 176,082
Conversion of interest on debt convertible into common
stock ................................................... 41,206 --
Changes in assets and liabilities:
Receivables ............................................. 2,270,446 (82,051)
Prepaid expenses ........................................ (81,693) 328,170
Other long-term assets .................................. -- (6,843)
Accounts payable ........................................ (432,226) (250,013)
Accrued and other liabilities ........................... 271,484 299,660
Deferred revenue ........................................ (1,128,846) (520,950)
------------- -------------
------------- -------------
Net cash used for operating activities .................. (8,604,028) (6,750,661)
Cash flows from investing activities:
Purchase of property and equipment ............................ (391,334) (585,759)
Purchases of short-term investments ........................... (158,519,742) (5,044,836)
Maturities of short-term investments .......................... 75,228,337 998,836
Sales of short-term investments ............................... 45,788,882 11,158,187
Payment of notes payable to stockholder ....................... (288,513) --
------------- -------------
Net cash provided by (used for) investing activities .... (38,182,370) 6,527,428
Cash flows from financing activities:
Sales of common stock ......................................... 89,502,585 12,366
Payments of capital lease obligations ......................... (140,574) (97,827)
Proceeds from capital lease obligations ....................... -- 664,395
------------- -------------
------------- -------------
Net cash provided by financing activities ............... 89,362,011 578,934
------------- -------------
------------- -------------
Net increase in cash and cash equivalents ........................ 42,575,613 355,701
Cash and cash equivalents at beginning of period ................. 9,794,387 1,538,916
------------- -------------
============= =============
Cash and cash equivalents at end of period ....................... $ 52,370,000 $ 1,894,620
============= =============
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 ........................................ $ 60,000 $ 32,000
============= =============
</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.
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 June 30, 1996, and for the
three and nine month periods ended June 30, 1996 and 1995 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 and accretion is included in interest income and expense. 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.
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
<PAGE>
2. AVAILABLE-FOR-SALE SECURITIES
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 $25,467,275 and corporate debt securities of
$67,227,355 at June 30, 1996. At June 30, 1996, securities had contractual
maturities of one year or less. The gross realized losses on sales of
available-for-sale securities were insignificant in the nine months ended June
30, 1996 and 1995.
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 by April 30, 1998,
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 was made on March 29, 1996 for
75,263 shares.
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.
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 June 30, 1996,
the Company's cumulative net loss was $66,518,000. 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 and expense reimbursement
payments from a collaborative research and development agreement with
Warner-Lambert, license fees from Grunenthal, interest income, lease financings,
and research grants. The Company has not generated any product revenues.
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 June 30, 1996 and 1995
Revenues were $733,000 and $2,226,000 for the three months ended June
30, 1996 and 1995, respectively. Revenues from related parties were $732,000 and
$521,000 for the respective periods and consisted primarily of the recognition
of prepaid milestone in the prior year period and collaborative research and
development funding in the current year period. Other revenue consisted
primarily of a prepaid royalty from Grunenthal received in June, 1995. An
additional Grunenthal payment was received on July 1, 1996 and will be reflected
as revenue in the quarter ended September 30, 1996.
Research and Development expenses increased by $1,969,000 or 70.3% to
$4,770,000 for the three months ended June 30, 1996 compared to $2,801,000 in
the earlier period. The increase was due primarily to increased clinical study
expenses related to the Company's Phase III clinical studies for CORLOPAM(R),
Phase III clinical studies of SNX-111 for the prevention of pain in cancer and
AIDS patients and Phase II clinical studies of SNX-111 for the prevention of
brain damage following closed head trauma and CABG surgery, toegether with
higher expenditures for clinical supplies/materials. The Company expects
research and development expenses to increase significantly over the next
several years.
General and administrative expenses increased $247,000 or 54.8% to
$698,000 for the three months ended June 30, 1996 compared to $451,000 in the
earlier period primarily due to higher legal and patent expenses, computer
maintenance and upgrade expenses and employment related expenses. The Company
expects general and administrative expenses to increase over the next several
years.
Interest income increased to $869,000 for the three months ended June
30, 1996 compared to $17,000 in the earlier period. The increase was due to the
increase in cash available for investments as the result of the successful
completion of public offerings in October 1995 and May 1996.
Interest expense increased to $62,000 for the three months ended June
30, 1996 compared to $18,000 in the earlier period primarily due to interest
expense related to the prepaid milestone repayable with interest to Medtronic.
Nine Months Ended June 30, 1996 and 1995
Revenues were $1,256,000 and $2,635,000 for the nine months ended June
30, 1996 and 1995, respectively. Revenues from related parties were $1,236,000
and $909,000 for the respective periods and consisted primarily of the
recognition of prepaid milestones in the prior year period and collaborative
research and development funding in the current year period. Other revenue
consisted primarily of a prepaid royalty from Grunenthal received in June, 1995.
An additional Grunenthal payment was received on July 1, 1996 and will be
reflected as revenue in the quarter ended September 30, 1996.
Research and Development expenses increased by $2,440,000 or 29.6% to
$10,691,000 for the nine months ended June 30, 1996 compared to $8,251,000 in
the earlier period. The increase was due primarily to increased clinical study
expenses related to the Company's Phase III programs for CORLOPAM(R), Phase III
clinical studies of SNX-111 for the prevention of pain in cancer and AIDS
patients, Phase II clinical studies of SNX-111 for the prevention of brain
damage following closed head trauma and coronary artery bypass graft (CABG)
surgery and higher employment related expenses. The Company expects research and
development expenses to increase significantly over the next several years.
General and administrative expenses increased $512,000 or 33.9% to
$2,020,000 for the nine months ended June 30, 1996 compared to $1,508,000 in the
earlier period primarily due to higher legal and patent and business development
expenses, computer maintenance and upgrade expenses and employment related
expenses. The Company expects general and administrative expenses to increase
over the next several years.
Interest income increased to $1,491,000 for the nine months ended June
30, 1996 compared to $150,000 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 public offerings in October 1995 and May 1996.
Interest expense increased to $246,000 for the nine months ended June
30, 1996 compared to $32,000 in the earlier period due primarily to the
convertible note payable to Medtronic which was converted to equity in October
1995 and the interest expense related to the prepaid milestone repayable with
interest to Medtronic.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended June 30, 1996, cash expenditures for
operating activities and additions to capital equipment were $8,995,362. The
Company anticipates that these expenditures will increase significantly in
future periods.
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.
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., a stockholder, 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 Medtronic Note converted into a prepaid milestone fee, which,
if not earned by April 30, 1998, 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 was
made on March 29, 1996 for 75,263 shares.
The Company had available cash, cash equivalents and short-term
investments of $92,837,000 at June 30, 1996. 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.
<PAGE>
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
None.
<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 9, 1996 Neurex Corporation
----------------------------
By: /s/ Paul Goddard By: /s/ John Ames
- ----------------------------- -------------------------------------
- ----------------------------- -------------------------------------
Paul Goddard, Ph.D. John Ames
Chairman and Chief Executive Officer Vice President, Finance and Chief
Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary contains financial information extracted
from financial statements for the three month period ending June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Sep-30-1995
<PERIOD-START> Oct-1-1995
<PERIOD-END> Jun-30-1996
<EXCHANGE-RATE> 1.00
<CASH> 52,370,000
<SECURITIES> 40,466,700
<RECEIVABLES> 244,654
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 93,424,123
<PP&E> 4,485,457
<DEPRECIATION> 2,778,737
<TOTAL-ASSETS> 95,366,602
<CURRENT-LIABILITIES> 4,453,592
<BONDS> 0
0
0
<COMMON> 219,530
<OTHER-SE> 88,711,665
<TOTAL-LIABILITY-AND-EQUITY> 95,366,602
<SALES> 0
<TOTAL-REVENUES> 1,256,207
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,710,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,245,061)
<INCOME-PRETAX> (10,209,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,927,754)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.50)
</TABLE>
