SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
For the fiscal year ended December 31, 1997 Commission file number 0-19874
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Neurex Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 77-0128552
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3760 Haven Avenue, Menlo Park, California
94025-1012 (Address of principal executive
offices)
(650) 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 _____
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. [X]
The aggregate market value of the Common Stock of the registrant held
by non-affiliates as of March 5, 1998, was $405,206,425.
The number of shares of Common Stock outstanding at March 5, 1998,
was 22,350,051.
DOCUMENTS INCORPORATED BY REFERENCE
(To the extent indicated herein)
Registrant's definitive Proxy Statement which will be filed with the
Securities and Exchange Commission in connection with Registrant's annual
meeting of stockholders to be held on May 7, 1998, is incorporated by reference
into Part III of the Report.
<PAGE>
This report on Form 10-K, including all exhibits, contains 66 pages. The exhibit
index is located on pages 60-62 of the Report.
PART 1
Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K for Neurex Corporation ("Neurex" or the
"Company") contains forward-looking statements including, among other things:
(i) descriptions of the expected therapeutic indications for the Company's
potential products; (ii) the Company's product development and commercialization
timetables; and (iii) various statements concerning the markets in which the
Company's potential products will compete and how the Company plans to address
these markets. All such forward-looking statements are necessarily only
estimates and are subject to a number of risks and uncertainties which may cause
actual results to differ materially from stated expectations. These risks and
uncertainties include, but are not limited to: (i) the Company's ability to
complete clinical development of its products and obtain timely regulatory
approval; (ii) decisions made by regulatory agencies regarding therapeutic
indications for the Company's products; (iii) technological uncertainties; (iv)
the accuracy of the Company's estimates of the size and characteristics of the
markets being addressed and to be addressed by its products and the impact of
competitive products and pricing on market success; (v) complexities involving
third party product reimbursement; (vi) reliance on collaborative partners for
product development and sales; (viii) complexities and uncertainties arising
from the Company's biotechnology patents; and (ix) other factors and risks
including, but not limited to, those described hereunder in "Item 1., Business"
and "Item 7., Management's Discussion and Analysis of Financial Condition and
Results of Operations", and elsewhere in this Annual Report.
ITEM 1. BUSINESS
Overview
Neurex has developed and is developing biopharmaceutical products
principally for pain management and the treatment of cardiorenal and
neurological diseases. The Company's two lead products are CORLOPAM(R)
(fenoldopam, mesylate) and ziconotide (SNX-111). CORLOPAM was approved for
commercialization in September 1997 and commercially launched in January 1998.
Ziconotide is in advanced stage clinical trials. Both CORLOPAM and ziconotide
have potential in multiple indications. In addition, the Company conducts active
research and licensing program to expand its product portfolio. The Company's
strategy is (i) to develop and directly market its products for acute care
treatment in hospital settings, such as emergency rooms, intensive care units
and pain clinics, in the United States; and (ii) to enter into collaborative
relationships to develop and market its chronic treatment products in the United
States, and all of its products outside the United States.
On September 24, 1997, the Food and Drug Administration ("FDA")
approved for commercialization, Neurex' first product, CORLOPAM, which is an
intravenously administered product for the management of high blood pressure in
patients in the hospital setting. CORLOPAM is the first of a new pharmacological
class of cardiovascular drugs with a novel mechanism of action. The product
label states: "CORLOPAM is indicated for the in-hospital, short term (up to 48
hours) management of severe hypertension when rapid, but quickly reversible,
emergency reduction of blood pressure is clinically indicated, including
malignant hypertension with deteriorating end-organ function. Transition to oral
therapy with another agent can begin at any time after blood pressure is stable
during CORLOPAM infusion." The Company intends to further develop intravenous
CORLOPAM in a number of potential therapeutic indications and is evaluating a
transdermal form for the treatment of acute or chronic renal failure and
congestive heart failure.
Ziconotide, formulated for intrathecal (directly into the spinal canal)
administration, is in final stages of Phase III clinical development for the
treatment of severe pain in terminally ill patients suffering from AIDS and
cancer, and patients who have chronic intractable neuropathic pain caused by a
variety of underlying pathologies. Enrollment in the neuropathic pain study has
been completed with over 250 patients enrolled and the malignant pain trial has
surpassed its interim goal of 100 patients. In addition to the short-term double
blinded studies, a long-term safety study is ongoing, which focuses on the
safety of ziconotide when used over an extended time period. The results of the
completed neuropathic pain trial coupled with the interim results from the
malignant
<PAGE>
pain trial are expected to be supportive of an new drug application ("NDA")
filing during 1998. The Company believes that the emerging clinical profile of
ziconotide in the treatment of pain suggests that it may be useful in patients
resistant to opiate therapy, patients intolerant to opiate therapy and in
patients with neuropathic pain for which there is no existing specific and
effective therapy. Phase II studies are also being conducted to investigate the
efficacy of ziconotide for acute post surgical pain. See "Uncertainty Related to
Clinical Trial Results" and "Government Regulation and Associated Risk Factors."
On January 13, 1998, the Company announced that is has completed
interim analysis of data from patients enrolled in its Phase III neuropathic
pain trial of ziconotide. The blinded interim analysis was performed, as
planned, by an independent third party to review if there were sufficient
numbers of patients enrolled to demonstrate a significant difference between the
ziconotide and placebo groups. This analysis, which included over 100 patients,
revealed that the difference in pain reduction between the two groups was
substantial with a reduction in pain scores of approximately 40% in one group to
no change in the other.
Neurex has entered into a collaborative alliance with Medtronic, Inc.
("Medtronic") for the development and commercialization of ziconotide for the
intrathecal treatment of chronic pain with Medtronic's implantable pump. The
Company received $2,000,000 from Medtronic upon executing the collaboration
agreement and in August 1995, Neurex issued an $8,000,000 note, (the "Medtronic
Note") to Medtronic. In connection with the completion of a directed public
offering, $6,500,000 of the Medtronic Note, plus interest, converted into common
stock at $4.625 per share, and the remaining $1,500,000 converted into a prepaid
development milestone which, if not earned by April 30, 1998, will be repaid
with interest. In connection with the Medtronic Note, the Company issued
Medtronic a warrant valued at $460,000, exercisable immediately for 169,646
shares of the Company's common stock at $4.625 per share. Upon the conversion of
the Medtronic Note, the Company issued to Medtronic a warrant to purchase
500,000 shares of common stock at an exercise price of $5.40 per share.
Ziconotide is also being developed, under a collaborative alliance,
with Warner-Lambert Company ("Warner-Lambert"), for intravenous administration
for the treatment of brain damage following closed head trauma and stroke. In
accordance with the terms of the collaboration, Warner-Lambert initiated: (i)
Phase III clinical trials of ziconotide for the treatment of head trauma, and
(ii) feasibility studies in stroke during 1997. Under this collaboration for the
prevention of ischemic damage in these indications, Warner-Lambert and Neurex
share development expenses, product costs and certain marketing rights.
Warner-Lambert purchased $7,000,000 of the Company's common stock on September
22, 1993, at the time of the Company's initial public offering, $1,500,000 on
November 13, 1995, at $4.50 per share, and an additional $1,500,000 on March 29,
1996, at $19.93 per share.
The Company focuses its research efforts primarily on the discovery of
new therapeutics which modulate the function of the central and peripheral
nervous systems by regulating nerve cell communication. The Company also
conducts research in (i) programmed cell death (apoptosis) and its link to
neurodegenerative diseases; (ii) the role of potassium channels in demyelinating
diseases such as multiple sclerosis; and (iii) vesicle exocytosis, the
controlled process by which neurotransmitters are released from the nerve
terminal and its role in psychiatric disorders. The Company has also expanded
its interests in the treatment of pain through focusing on a number of programs
including the use of sodium channels.
The Company was incorporated in California in 1983 and changed its
state of incorporation to Delaware in 1986, when it commenced operations. The
Company's executive offices and its research and development facility are
located at 3760 Haven Avenue, Menlo Park, California 94025, and its telephone
number is (650) 853- 1500.
Company Strategy
Neurex is developing biopharmaceutical products principally for pain
management and the treatment of cardiorenal and neurological diseases. The
Company's strategy is: (i) to develop and directly market its products for acute
care treatment in hospital settings, such as emergency rooms, intensive care
units and pain clinics, in the United States; and (ii) to enter into
collaborative relationships to develop and market its chronic treatment products
in the United States, and all of its products outside the United States. The
Company believes that focusing its resources on developing products for acute
care affords the following significant advantages:
<PAGE>
Time to Market. Development of acute care products generally takes less
time than chronic products because the relatively brief clinical
treatment time allows preclinical and clinical studies to be completed
in a shorter period of time.
Cost Savings. The overall cost savings of effective intervention in
acute conditions are more easily demonstrated due to the high cost
setting in which such patients are treated. Products that enable health
care providers to discharge patients from intensive care units faster
or reduce the need for long-term hospital care, offer significant cost
benefits.
Licensing Opportunities. The profile of compounds in large
pharmaceutical company portfolios may become limited to acute care
indications, as the product advances through clinical development.
Consequently, they may fail to meet minimum revenue requirements for
commercialization and become available for in-licensing.
There are a number of important criteria that the Company uses in
identifying potential in-licensing candidates including, among other things, a
unique profile or mechanism of action that offers a potential advance in
treatment, appropriate patent or proprietary protection, and administration of
the product candidate in the hospital setting.
Using this strategy, the Company believes it will be able to build a
product portfolio in various therapeutic areas and to focus its resources on
development and commercialization of products for specialized acute care
markets. The Company continues to review all product development and
commercialization opportunities and strategies to optimize the return on each of
its assets.
With the marketing approval of CORLOPAM in September 1997, Neurex hired
a 35 person sales force to market the drug in the United States. The Company is
investing significant resources and management time in developing its sales and
marketing organization. Outside of the United States, the Company's strategy is
to market its products in conjunction with corporate partners, such as the
Company's corporate partnership relationship with Beaufour Ipsen. Neurex intends
to use a contract manufacturer for the commercial scale production of its
products, thus deferring the need to invest in manufacturing infrastructure in
the near-term while retaining future flexibility.
Neurex Product Development Programs
The following table summarizes the potential applications and status of
Neurex product development programs and is qualified by reference to the more
detailed descriptions elsewhere. There can be no assurance that any of these
programs will progress beyond its current status. It is possible that no
additional products will become commercially available for sale for more than a
year, if at all.
<TABLE>
<CAPTION>
Stage of
Program Indication Development (1) Commercial Rights
- -------------------------------- --------------------------------- ------------------------ -------------------------
<S> <C> <C> <C>
CORLOPAM Control of High Blood Commercialized Neurex (4)
Pressure
Malignant Hypertension Commercialized Neurex (4)
Fenoldopam Transdermal Acute & Chronic Renal Preclinical Neurex
Failure
Congestive Heart Failure Preclinical Neurex
Ziconotide for Pain (2) Chronic Malignant Pain Phase III Medtronic/Neurex
Chronic Neuropathic Pain Phase III Medtronic/Neurex
Acute Pain Phase II Neurex
Ziconotide for Ischemia (2) Closed Head Trauma Phase III Warner-Lambert/ Neurex(3)
Stroke Phase II Warner-Lambert (3)
</TABLE>
1 "Preclinical" indicates that the Company has selected a specific compound
to undergo formulation optimization and stability studies, scale-up and
process chemistry, current Good Manufacturing Practices ("cGMP")
manufacturing of bulk drug, in vivo pharmacology, toxicology,
pharmacokinetic and
<PAGE>
pharmacodynamic studies or other appropriate ex vivo and in vivo laboratory
studies leading to the filing of an investigational new drug application
("IND").
"Phase I" traditionally indicates the earliest human trials with an
investigational drug, are conducted in a small number of healthy volunteers
to determine the safety, tolerability and pharmacokinetics of the compound.
"Phase II" designates trials conducted in patients already afflicted with
the target disease or condition and, typically, are proof-of-principle
studies which yield certain data concerning the safety and efficacy profile
of the investigational drug.
"Phase III" designates late-stage human studies which are the final studies
conducted in a large population of patients afflicted with the target
disease or condition prior to filing a new drug application ("NDA").
(2) With certain limited exceptions, all compounds derived from the Company's
neuron-specific calcium channel technology, including ziconotide, are
subject to the Warner-Lambert or Medtronic collaborations; however, Neurex
has retained rights for ziconotide for the intrathecal, epidural and local
treatment of acute pain and the non-intrathecal treatment of chronic pain.
See "Strategic Alliances."
(3) Neurex retains certain co-promotion rights for all products developed
in collaboration with Warner-Lambert.
(4) Neurex has licensed the commercial rights in Europe to Beaufour Ipsen. See
"Strategic Alliances and Associated Risks."
CORLOPAM(R)
Neurex licensed CORLOPAM (fenoldopam, mesylate) worldwide from
SmithKline Beecham Corporation ("SmithKline"). CORLOPAM, a potent and specific
DA1 agonist, produces systemic and renal dilation through a unique mechanism of
action. On September 24, 1997, the Food and Drug Administration ("FDA") approved
for commercialization, Neurex' first product, CORLOPAM which is an intravenously
administered product for the management of high blood pressure in patients in
the hospital setting. CORLOPAM is the first of a new pharmacological class of
cardiovascular drugs with a novel mechanism of action. The product label states:
"CORLOPAM is indicated for the in-hospital, short term (up to 48 hours)
management of severe hypertension when rapid, but quickly reversible, emergency
reduction of blood pressure is clinically indicated, including malignant
hypertension with deteriorating end-organ function. Transition to oral therapy
with another agent can begin at any time after blood pressure is stable during
CORLOPAM infusion." The Company intends to further develop intravenous CORLOPAM
in a number of different therapeutic indications and is evaluating a transdermal
form for the treatment of acute or chronic renal failure and congestive heart
failure. There can, however, be no assurance that these studies will be
successfully completed or, if completed, that the Company will receive approval
from the FDA to market CORLOPAM for these additional indications.
Control of Blood Pressure in Hospitalized Patients
CORLOPAM is indicated for the in-hospital treatment (up to 48 hours) of
severe hypertension when rapid, but quickly reversible, emergency reduction of
blood pressure is clinically indicated, including malignant hypertension with
deteriorating end-organ function. Intravenous antihypertensives are routinely
prescribed in the emergency room, operating room and critical care units to
control severe or life threatening elevations in blood pressure. There are
approximately 2.4 million patient treatments with an intravenous ("IV")
antihypertensive in the hospital setting. See "Marketing and Associated Risks."
These treatments consist of vasodilators, calcium channel blockers, beta
blockers, alpha-beta blockers. Most products in this market have clinical
deficiencies which limit the use making for the introduction of a new agent
desirable. CORLOPAM's major competition is sodium nitroprusside, a rapid-acting
potent vasodilator accounting for approximately 500,000 of the total patients
treated with an IV antihypertensive. While sodium nitroprusside's
pharmacodynamic properties make it the gold-standard for severe hypertension,
the drug's potential for cyanide toxicity, need for invasive hemodynamic
monitoring, special handling requirements and it's unpredictability make an
alternative such as CORLOPAM and extremely attractive therapeutic alternative.
See "Competition and Associated Risks." In clinical studies, CORLOPAM has
consistently demonstrated a strong profile of safety and efficacy in both
healthy and severely compromised patients in comparison to sodium nitroprusside.
CORLOPAM has been associated with an increase or maintenance
<PAGE>
of renal function, which has not been demonstrated by sodium nitroprusside. In
fact, sodium nitroprusside has been associated with deterioration in renal,
cerebral and cardiac function.
Risk Factors Specifically Associated with CORLOPAM Product Development and
Commercialization
While CORLOPAM for intravenous administration in patients who require
blood pressure control during and after surgery and for the treatment of
hypertension in patients where the administration of oral medication is not
feasible or desirable was approved for commercialization by the FDA in September
1997, there can be no assurance that the FDA will act promptly on future
applications for other indications for CORLOPAM or, that if it acts, its
response will be favorable or that the general risks described elsewhere in this
report will not negatively impact the development of CORLOPAM. The standards and
procedures used by the FDA to approve the marketing of pharmaceuticals has
changed over time and has proven to be challenging for biopharmaceutical
companies to accurately predict. After approval, further studies may be required
to obtain approval for other uses of CORLOPAM. Approvals already granted or to
be received may also be withdrawn if compliance with regulatory standards is not
maintained or if problems with the pharmaceutical product occur following
approval. See the section entitled "Government Regulation and Associated Risks"
below for discussion of additional risk factors which could effect government
approval and marketing of CORLOPAM. See "Government Regulation and Associated
Risk Factors."
While approved for marketing, there can be no assurance that CORLOPAM
will achieve market acceptance. There also can be no assurance that physicians,
patients and payors, or the medical community in general, will accept or utilize
CORLOPAM as anticipated by the Company. In order to be successful, CORLOPAM must
replace existing therapies, both in the United States and Europe and users of
existing therapies may be resistant to change. In addition, resistance is
possible from third party payors who must review and approve products prior to
the time reimbursement can be obtained. See the section entitled "Competition
and Associated Risks" and "Marketing and Associated Risk Factors."
Fenoldopam Transdermal
Originally, SmithKline intended to develop oral CORLOPAM for the
treatment of chronic renal failure and congestive heart disease based upon its
pharmacological profile. However, it was discovered during clinical testing, in
over 4,000 patients, that orally administered CORLOPAM undergoes extensive first
pass metabolism upon absorption from the gastrointestinal ("GI") system into the
blood stream and is rapidly eliminated from the body in both animals and humans.
In order to compensate for these shortcomings, large oral dosages of fenoldopam
were required to achieve short-lived therapeutic blood levels.
In order to provide adequate therapy over the long periods of time
required to treat chronic renal failure, the Company is working to develop
chronic bioavailable formulation and is evaluating a transdermal formulation
which could provide a prolonged period of blood circulation.
Acute Renal Failure
The Company believes that CORLOPAM, based on its direct effect on the
kidneys, may be useful in the treatment of renal failure by improving renal
blood flow, inducing urine production and increasing sodium excretion. In Phase
II studies, CORLOPAM delivered intravenously was shown to improve urine flow,
sodium excretion and creatinine clearance in patients with renal impairments.
The Company plans to develop CORLOPAM in the IV or transdermal form for this
indication. It is estimated that approximately 275,000 patients each year in the
United States have an elevated risk of acute renal failure as a result of trauma
and post-surgical complications. See "Uncertainty Related to Clinical Trial
Results."
Chronic Renal Failure
In preclinical animal studies, a fenoldopam prodrug has shown a
sustained increase in fenoldopam concentrations over a period of several hours,
and sustained improvements in kidney function, as compared to minutes following
orally administered CORLOPAM. In animal studies designed to mimic drug induced
renal toxicity, a fenoldopam prodrug showed improved renal function and
significantly reduced morphological changes in the kidney in treated animals as
compared to control animals. A prodrug is an inactive precursor drug which
<PAGE>
releases an active form of a drug through a simple chemical reaction upon
absorption into the blood stream from the GI tract. These results represent a
significant opportunity in the treatment of chronic renal failure and congestive
heart failure where prolonged administration, either transdermally or via a
prodrug of CORLOPAM, is desirable.
Congestive Heart Failure
The Company believes that CORLOPAM, through a combination of systemic
and renal effects, may be able to reduce the workload of the heart, an important
therapeutic objective in treating congestive heart failure. In initial Phase II
studies evaluating CORLOPAM in the acute treatment of advanced congestive heart
failure, CORLOPAM was shown to improve cardiac function, including cardiac
output. Although no clinical development is ongoing currently, the Company plans
to further explore the properties of CORLOPAM for this indication. Severe
congestive heart failure occurs in approximately 2.5 million patients per year
in the United States. See "Uncertainty Related to Clinical Trial Results."
Risk Factors Associated with Fenoldopam Prodrug Product Development
A transdermal or prodrug formulation of fenoldopam has not been
administered to human beings. Many products which are administered to animals
and successfully pass preclinical trials to begin administration in human
clinical trials after the filing of an IND, fail to prove either safe of
efficacious in human beings. Previous prodrug versions of fenoldopam have failed
to make it through the preclinical process to human clinical trials and there is
no assurance that any transdermal or prodrug formulation will be successful in
the future. Until such trials are held, there can be no assurance that such
formulations of fenoldopam will prove to be safe and efficacious for use by
humans. See "Technological Uncertainty," "Uncertainty Related to Clinical Trial
Results" and "Government Regulation and Associated Risk Factors" below.
Ziconotide for Pain
Ziconotide, formulated for intrathecal (directly into the spinal canal)
administration, is in final stages of Phase III clinical development for the
treatment of severe pain in terminally ill patients suffering from AIDS and
cancer, and patients who have chronic intractable neuropathic pain caused by a
variety of underlying pathologies. Enrollment in the neuropathic pain study has
been completed with over 250 patients enrolled and the malignant pain trial is
at its interim goal of 100 patients. In addition to the short-term studies, a
long-term safety study is ongoing, which focuses on the safety of ziconotide
when used over an extended time period. The results of the completed neuropathic
pain trial coupled with the interim results from the malignant pain trial are
expected to be supportive of an NDA filing during 1998. The Company believes
that the emerging clinical profile of ziconotide in the treatment of pain
suggests that it may be useful in patients resistant to opiate therapy, patients
intolerant to opiate therapy and in patients with neuropathic pain for which
there is no existing specific and effective therapy. See "Uncertainty Related to
Clinical Trial Results" and "Government Regulation and Associated Risk Factors."
Neurex has entered into a collaborative alliance with Medtronic for the
development of ziconotide for the intrathecal treatment of chronic pain with
Medtronic's implantable pump. Medtronic holds exclusive commercial rights to
ziconotide for intrathecal spinal administration in the United States and
non-exclusive commercial rights in Europe. Neurex is therefore, free to seek a
corporate partner in Europe for ziconotide in pain indications. Neurex has
retained rights to develop ziconotide for acute analgesic indications, including
applications using local administration. Early preclinical studies indicated
that Neurex' compounds bind specifically to the area of the spinal cord that
receives input from the nerves responsible for the transmission of pain signals
from the peripheral nervous system to the brain. Neurex discovered that
ziconotide is a potent analgesic agent when administered either intrathecally or
locally to injured peripheral nerves. It has been estimated that approximately
134,000 patients annually are treated using spinal catheters in hospital
settings alone.
The Company is developing ziconotide for the treatment of three
different types of pain: (i) severe chronic malignant pain associated with
cancer and AIDS, (ii) chronic neuropathic pain, and (iii) acute pain.
Neuropathic pain, which may be acute or chronic in nature, occurs when the
nervous system becomes disordered and starts firing automatically. This is seen
in such syndromes as shingles (post-herpetic neuropathy), diabetic neuropathy,
reflex sympathetic dystrophy, complex regional pain syndrome ("CRPS"), and even
post-surgery. In
<PAGE>
acute pain, there is a noxious stimulus which may be caused by trauma or surgery
and is a physiologic response to a particular stimulus outside the nervous
system.
In various preclinical models, ziconotide, when administered directly
into the spinal canal, has been shown to be highly effective in suppressing pain
in various models of severe malignant, chronic neuropathic, and acute pain.
Moreover, local administration of ziconotide around a nerve associated with
neuropathic pain has also been effective in a relevant animal model. In
preclinical studies, tolerance to the analgesic effects of ziconotide does not
develop over a seven-day period, and, to date, has not been shown to occur in
clinical studies. If this profile can be confirmed in clinical trials,
ziconotide may offer a significant advantage over current therapies in the
treatment of neuropathic pain. See "Uncertainty Related to Clinical Trial
Results."
The unique mode of action of ziconotide may offer a viable alternative
to other types of analgesics including opiates which, although potent, have
significant disadvantages including tolerance, dose-limiting side effects and
the potential for dependence. Nonsteroidal anti-inflammatory drugs and
salicylates, while providing moderate pain relief, do not compare in their
profile to morphine and its analogues in patients with severe and intractable
pain. Moreover, it is generally recognized that there are no selective and
effective treatments for neuropathic pain, which remains an unmet medical need.
See "Competition and Associated Risk Factors."
Neuropathic Pain
A Phase I/II study was completed by the end of 1995. Entry criteria
were initially limited by the FDA to terminally ill cancer and AIDS patients
with intrathecal catheters already in place, who had a life expectancy of no
more than four months and who had become resistant to opiate therapy. After
results for the first nine patients were discussed with the FDA, the entry
criteria were expanded to include non-cancer patients with neuropathic pain. In
this study, the patients were subjected to dose escalation until efficacy was
reached, as evaluated using standard pain analog scales. In addition, those
patients who responded to therapy were allowed to enter a long-term treatment
protocol. Of the 25 patients who were evaluable, 21 had responded favorably with
partial to complete pain relief. The investigators observed relief of symptoms
of chronic and neuropathic pain and a concomitant reduction of other pain
medications. In the long-term protocol, patients were treated for up to 36 weeks
and remained essentially pain-free during such therapy. The Company is currently
conducting two multi- center pivotal Phase III studies for the treatment of
chronic malignant pain in cancer and AIDS patients, and for the treatment of
chronic intractable neuropathic pain. These studies have a double blind
crossover design to measure the efficacy of ziconotide in giving symptomatic
relief and a long-term extension protocol to access safety and efficacy.
Enrollment in the neuropathic pain study has been completed with over 250
patients enrolled and the malignant pain study is at its interim goal of 100
patients. However, there can be no assurance that further studies will not be
required. The Company is developing this therapy with its corporate partner,
Medtronic.
On January 13, 1998, the Company announced that is has completed
interim analysis of data from patients enrolled in its Phase III neuropathic
pain trial of ziconotide. The blinded interim analysis was performed, as
planned, by an independent third party to review if there were sufficient
numbers of patients enrolled to demonstrate a significant difference between the
ziconotide and placebo groups. This analysis, which included over 100 patients,
revealed that the difference in pain reduction between the two groups was
substantial with a reduction in pain scores of approximately 40% in one group to
no change in the other.
Neuropathic pain syndromes, including reflex sympathetic dystrophy,
phantom limb syndrome and post- herpetic neuralgia (shingles) are poorly treated
by currently available therapies. Many chronic pain syndromes have a significant
neuropathic component that prevents complete pain relief with currently
available analgesics. The neuropathic pain syndromes are particularly difficult
to treat and traditional therapies such as minor analgesics, anti-inflammatory
drugs and major analgesics, including opioid drugs, do not provide adequate
symptomatic relief for most patients. In serious cases, local anesthetics, such
as bupivacaine, are used to give symptomatic relief. However, these local
anesthetics also lead to sensory deprivation which can affect motor functions
and, as a result, are seen as a treatment of last resort. It is estimated that
more than 6,600,000 patients suffer from neuropathic pain each year in the
United States, of which, approximately 700,000 have intractable pain, requiring
ongoing out-patient care. See "Marketing and Associated Risk Factors" and
"Competition and Associated Risk Factors."
<PAGE>
Malignant Pain
Data from the Company's initial Phase I/II study for treatment of
chronic intractable pain indicate ziconotide had a favorable effect on malignant
pain. Based on the results of this study, a Phase III study in this patient
population was initiated in June 1996 and enrollment was completed in March
1998.
A publication of the National Cancer Institute indicates that
approximately 1,000,000 cancer patients per year in the United States suffer
severe or intractable pain, and the Company estimates that approximately 10% or
100,000 of these patients receive intrathecal or epidural therapy. See
"Uncertainty Related to Clinical Trial Results" and "Marketing and Associated
Risk Factors" below.
Acute Pain
In preclinical models of acute pain in small animals, ziconotide has
been shown to be highly effective. The Company has completed a Phase II study
with ziconotide being delivered intrathecally. The Company is currently
performing a Phase II study in which ziconotide is delivered epidurally to
determine the required dose adjustment, if any, that would be required to
provide pain relief under this more commonly used method of drug administration.
Although the studies remain blinded, early results are promising in severe
post-surgical pain. Recently there has been an increased recognition of the
value of intrathecal opioids in the anesthetic/analgesic management of patients
undergoing major thoracic and abdominal surgery. This approach is designed to
enable patients to be mobilized as quickly as possible following surgery while
providing significant pain relief. The Company intends to evaluate ziconotide in
such cases and evaluate the market opportunities for intraoperative and
post-operative pain management. There are in excess of 16,000,000 surgical
procedures in the United States each year. The Company believes ziconotide may
be useful in a significant portion of these surgeries. Initial studies are
focusing on major abdominal and orthopedic procedures. The Company retains all
rights to this indication. See "Competition and Associated Risk Factors" and
"Marketing and Associated Risk Factors."
Ziconotide for Ischemia
Ziconotide, for intravenous administration, completed Phase II studies
for the treatment of brain damage following head trauma and CABG surgery in
1996. Neurex is engaged in a collaborative alliance with Warner- Lambert for the
development of ziconotide for the prevention of ischemic damage. Under the terms
of the collaboration, Neurex was responsible for conducting Phase I and II
studies while Warner-Lambert is responsible for Phase III studies in these
ischemic indications. A Phase III study in head trauma patients which began in
the second half of 1997 is being performed by Warner-Lambert. In addition,
Warner-Lambert commenced Phase II feasibility studies in stroke patients in late
1997. Feasibility studies using ziconotide in the treatment of stroke are
currently underway. Warner-Lambert will fund approximately two-thirds of the
cost of all these clinical trials.
Neurex selected ziconotide for development because of its ability in
special brain cell preparations to reduce calcium flow into nerve cells and
inhibit neurotransmitter release. Ziconotide is the only compound known to the
Company to provide neuroprotection when given up to 24 hours after an ischemic
injury, as demonstrated in preclinical studies. These results are of clinical
importance because delays between the original ischemic injury and the time
neuroresuscitation treatment is initiated in the emergency room are likely. In
stroke, for example, an average of eight hours elapse between the original
ischemic event and the eventual diagnosis that leads to the initiation of
therapy. A shorter, but significant, delay in neuroresuscitation treatment can
also be anticipated when cardiac arrest or head trauma occurs outside of the
hospital.
Ischemia occurs in the brain as a consequence of a number of different
clinical conditions. Global ischemia occurs when there is generalized reduction
of blood flow and oxygen delivery to the brain and is caused by events such as
cardiac arrest (when the heart stops beating), closed head injury (when swelling
and other factors reduce blood flow) or drowning. Focal ischemia occurs
following a stroke (when blood flow and oxygen delivery to an isolated segment
of the brain are blocked). In addition, it has now been recognized that global
and focal ischemia can occur as the result of CABG surgery with cardiopulmonary
bypass, which may generate emboli which pass to the brain during the procedure.
Following global or focal ischemia, a series of biochemical events is
set in motion which leads to the progressive death of neurons, which can result
in brain damage and death regardless of whether normal blood flow
<PAGE>
has been restored. Neurological deficits observed following these chemical
events are thought to result from the progressive spreading of neuronal damage
through a "biochemical cascade" in which the lack of oxygen leads to
destabilization of the nerve cell membrane, resulting in the excessive influx of
calcium through the NSCC. This influx of calcium leads to the inappropriate
release of certain neurotransmitters, which in turn stimulates adjacent neurons,
causing further influx of calcium. This process apparently continues for periods
of hours to days following the initial ischemic insult and may ultimately lead
to cell death, brain damage and patient disability or death.
Closed Head Trauma
In November 1996, the Company completed a Phase II clinical trial with
ziconotide for the prevention of neurological damage after closed head trauma.
There are several components that lead to neuronal damage and cell death,
including nerve cell damage directly following mechanical injury, a generalized
destabilization of neuronal membranes, metabolic dysfunction due to excessive
calcium flow into the nerve cells, and damage due to primary and secondary
global and focal ischemic events.
In a double-blind Phase II study, a range of doses was tested to assess
the safety, feasibility and preliminary efficacy of ziconotide in patients who
suffered significant head trauma and were comatose. The protocol treatment
consisted of a 72-hour infusion of ziconotide initiated within sixteen hours of
the injury. In addition to comprehensive safety monitoring, a primary efficacy
endpoint was assessed using the Glasgow Coma Score, a 15-point scale of
neurological competence and the Glasgow Outcome score. Three different dose
levels were tested in these studies.
In July 1997, Phase III studies were initiated by Warner-Lambert. On
July 29, 1997, it was announced that Neurex and Warner-Lambert had paused
enrollment in the head trauma trial in order to evaluate additional clinical
data from the earlier trials and specifically to evaluate the relative risk in
relation to the benefit of administering ziconotide in accordance with the
existing protocol. Several weeks later, Neurex announced that the Phase III
studies had been restarted with no changes in the study design. The decision to
restart the study was based on a review of the data from the earlier studies by
the two companies, the Data Safety Monitoring Committee, the American Brain
Injury Consortium, and the FDA. The double blind Phase III study currently being
conducted by Warner-Lambert is targeting a total of 800,000 patients in 65
centers in the United States and Europe. An interim analysis to review safety
and efficacy is planned following the enrollment of 200-300 patients.
The Company estimates that, of the more than 500,000 closed head
injuries in the United States each year, more than 150,000 patients suffer
significant neurological damage following the original injury. See "Uncertainty
Related to Clinical Trial Results."
CABG Surgery
In November 1996, the Company completed Phase II clinical trials to
evaluate its safety and efficacy in patients who have undergone CABG surgery
with cardiopulmonary bypass. During the study, patients received an intravenous
infusion of ziconotide or placebo during the surgery for approximately five
hours.
The National Institutes of Health ("NIH") statistics indicate that
there are approximately 350,000 CABG surgical procedures performed annually in
the United States. Following CABG surgery, certain studies have indicated that
between 20% and 60% of patients suffer a measurable neuropsychological deficit,
which in many patients persists, leading to either physical or mental
disability. In addition, a small proportion of patients suffer from stroke. It
is believed that both global and focal ischemic events contribute to these
neurological deficits that occur as the result of CABG surgery, and it is
recognized that cardiopulmonary bypass generates many small emboli that pass to
the brain, causing multifocal infarcts. At present, no trials are underway or
anticipated in the near-term using ziconotide in CABG surgery patients.
Stroke
Studies by three independent investigators have shown ziconotide to be
neuroprotective in different small animal models of focal ischemia that simulate
the events that follow human stroke. In these studies, significant reductions of
approximately 45% or more in infarct size were demonstrated compared to
controls. Earlier small
<PAGE>
animal studies demonstrated protection from damage to the cerebral cortex, the
primary site of injury in stroke, when ziconotide was given six hours after the
ischemic insult. A Phase II feasibility study in patients was initiated by
Warner-Lambert in late 1997. NIH publications indicate that more than 150,000 of
the 500,000 stroke patients per year in the United States suffer severe and
permanent neurological damage.
Risks Factors Associated with Ziconotide Product Development and
Commercialization
Patient Accession
In order to complete clinical trials for all applications of
ziconotide, including analgesia, the drug must be administered in a sufficient
number of patients to determine its safety and efficacy profile. The Company has
had greater difficulty than anticipated in registering patients in its human
trials of ziconotide for pain. Cancer centers which traditionally have managed
the pain and discomfort of their patients, particularly in the latter stages of
life, have proved resistant to referring patients to the pain clinics where the
Company's ziconotide is being tested. The Company plans to file an NDA for
ziconotide for chronic intractable pain based upon the completed neuropathic
pain study coupled with an interim review of data from the first approximately
100 patients in the malignant pain trial. The Company expects to be required to
enroll an additional 65 evaluable patients to reach its overall enrollment goal.
The FDA may require data from the additional 65 patients prior to approving
ziconotide for commercialization. While the Company has taken significant action
to address this slow enrollment issue, patient accession continues to be a
problem and there can be no assurance that enough patients can be registered to
complete the trials in a timely manner in order to avoid a potential approval
delay or at all. See "Uncertainty Related to Clinical Trial Results."
Additional Problems in Designing Clinical Trials
The application of ziconotide to conditions other than analgesia, such
as closed head injury, presents a problem for the design of clinical trials.
Using experimental drugs in emergency situations, such as is generally the case
in the event of closed head injury, can prove difficult and is inherently
impossible to schedule and control. There can be no assurance that the Company
will be successful in designing trials which will satisfy the FDA or achieve
acceptance in the marketplace, although the Company has designed a number of
plans to address these issues. See "Uncertainty Related to Clinical Trial
Results."
<PAGE>
Neurex' Research Programs
NSCC Blocking Compounds
Calcium plays an essential role in the function and dysfunction of
nerve cells by regulating their metabolism and their communication with each
other through its regulation of neurotransmitter release. The entry of calcium
into cells is controlled by calcium channels and can be inhibited by calcium
channel blockers. The classical calcium channel blockers developed and
successfully commercialized for the treatment of cardiovascular diseases, such
as hypertension and angina, have been found to be ineffective in treating most
nervous system disorders. This was explained by the discovery that nerve cells
contain additional classes of neuron-specific calcium channels, or NSCCs, that
are distinct from calcium channels present in cardiac and smooth muscle cells.
Neurex has developed highly selective peptides, such as ziconotide,
that have been shown in preclinical studies to bind to discrete NSCC classes in
different regions of the brain and elsewhere in the nervous system, and thereby
regulate nerve cell metabolism and communication. At least six classes of
calcium channels are located in the nervous system where they have distinct and
different functions. Neurex' compounds directly and selectively affect the
release of specific neurotransmitters, including norepinephrine, glutamate,
dopamine, serotonin and acetylcholine, by regulating calcium influx through
specific NSCCs.
Phase II and Phase III clinical studies have confirmed pre-clinical
experiments that show that Neurex' highly potent and selective N-type NSCC
blocker, ziconotide, is a potent analgesic and can protect neurons from death
following injury to the brain. Ziconotide is currently completing several Phase
III clinical trials for analgesia and is in the midst of Phase III trials for
neuroprotection following severe head trauma. Neurex is collaborating with
Warner-Lambert to discover second generation small-molecule N-type NSCC blockers
to follow ziconotide in treating various neurological and psychiatric disorders.
Beyond the N-type NSCC, as a therapeutic target, of specific interest is the
R-type NSCC which is found in particular areas of the central nervous system.
The Company has discovered SNX-482, a potent and specific blocker of this
channel, and is currently evaluating the pharmacological effects of blocking
this channel both in vitro and in vivo to identify the most promising
neurological or neuropsychiatric diseases to pursue. Preliminary studies in
animal models indicate that SNX-482 may possess potent anti-seizure activity.
Apoptosis
Neurex has established a research program in brain apoptosis
(programmed cell death) to discover novel drugs which may have applications in
the prevention and therapy of neuronal degeneration for both acute indications,
such as neurodegeneration due to stroke, cardiac arrest, and head trauma, and
chronic indications, such as amyotrophic lateral sclerosis ("Lou Gehrig's
disease") and Alzheimer's disease.
The Company has demonstrated in animal models that apoptosis greatly
contributes to the death of neurons following both focal and global ischemia.
The research program is currently focused on two drug discovery efforts: (i)
Identifying and evaluating the role of several genes expressed in the brain and
known to be involved in apoptosis associated with neurodegeneration and on
defining and modulating the mechanisms that control the process, (ii) High
throughput screening of compound libraries for anti-apoptotic agents. The
Company has identified a number of compounds that block apoptosis and has
demonstrated in preclinical models that these compounds have neuroprotective
properties. Neurex has received two Phase I research grants totaling $150,000
from the NIH to study the molecular mechanisms underlying neuronal apoptosis.
Potassium Channels
Potassium (K+) channels are the largest known family of ion channels
and are ubiquitous regulators of the excitability of many tissues, including the
central nervous system, heart, vasculature, and bronchial smooth muscle. Neurex
researchers have undertaken a discovery program to develop new classes of
therapeutic compounds to treat diseases of the central and peripheral nervous
system based on identifying and isolating genes encoding novel K+ channels.
<PAGE>
Neurex molecular geneticists have recently cloned a new member of an
emerging and apparently large family of K+ channel subtypes that appear to
mediate "background" or "baseline" K+ currents. Background K+ currents are
thought to be important for setting the level of electrical and synaptic
activity of neurons and other cells. The Company's scientists plan to use their
newly discovered K+ channels to screen compound libraries for drugs that
modulate the activity of these channels and thereby develop treatments for
diseases such as cerebral vasospasm, epilepsy, cardiac arrhythmias, congestive
heart failure, peripheral vascular disease, and asthma.
Exocytosis
Nerve cells communicate with each other and with the muscles and glands
they control by releasing chemical transmitters. This process is known as
exocytosis.
Neurex is focusing on several of the newly discovered proteins that
constitute the molecular machinery underlying the process of exocytosis to
screen for and develop compounds that modulate (either inhibit or stimulate) the
release of chemical transmitters. The Company has concentrated its research
program on the discovery of novel agents that interfere with the specific
interactions among a selected set of several key exocytotic proteins in nerve
cells. Therapeutic targets include treatments for conditions such as
schizophrenia, Parkinson's disease, depression, and anxiety.
Other cell types outside the nervous system use a set of similar but
distinct proteins to trigger the release of hormones, growth factors,
immunomodulators and other substances that regulate nearly every aspect of the
body's functions. Here, as in nerve cells, the goal is to discover
pharmacological agents that selectively interfere with the protein-protein
interactions that promote the release of these substances. Neurex' current
research effort is aimed at inhibiting secretion from cells of the immune system
that mediate inflammatory and/or allergic processes.
Glutaminase
Excess levels in the brain of the excitatory neurotransmitter,
glutamate, are known to be an important cause of neuronal injury in acute and
chronic neurodegenerative disorders. Excess glutamate over-stimulates glutamate
receptor channels, which provokes a flood of toxic ions, such as calcium, to
enter neurons. Glutamate receptor antagonists have been under development by
several pharmaceutical companies as neuroprotective treatments, but serious side
effects have blocked advancement to market, thus far. Although much is known of
the pathological consequences of production of excess glutamate in the brain,
little is known of the cellular sources of this excess in brain disease.
Neurex researchers have shown that neuronal death causes a dramatic
increase in the production of extra cellular glutamate from the amino acid,
glutamine (which is abundant in the brain's extra cellular fluid), resulting in
a further substantial increase in neuronal death. They also have shown that this
increase in glutamate is due to the exposure, to the extra cellular fluid, of
the enzyme, glutaminase, from degenerating neurons. They have further shown that
the damaging enzymatic activity - but not the normal activity in healthy cells -
is selectively inhibited by a membrane impermeant inhibitor, resulting in
protection of neurons from further degeneration. These results suggest that
selective block of pathological glutamate production will be neuroprotective in
human patients, while the side effects inherent in glutamate receptor
antagonists can be avoided.
The Company has mounted a drug discovery effort with inhibition of
glutaminase as the molecular target and neurodegenerative diseases as the
therapeutic target. The early stage of this work was partially supported by a
Phase I Small Business Innovative Research grant from the NIH.
Risk Factors Associated with Neurex Research
The essential nature of research is that the outcome is uncertain.
There can be no assurance that any of the Company's programs will be successful
or be continued. The Company continually reevaluates its research programs and
adjusts or allocates its resources as necessary. For instance, Walk-through
Mutagenesis, which was a Research Program, is now a research tool used to
facilitate other projects. The Company also endeavors to complete its research
programs in collaboration with corporate partners. These partners are generally
necessary for the full exploitation of any of the Company's technologies should
they prove to be successful. There can be no
<PAGE>
assurance that such collaborations will be available for any of the Company's
research projects, or that any benefits to the Company will result from these
collaborations. See "Strategic Alliances and Associated Risks."
<PAGE>
Research Committee
The Company's Research Committee oversees the scientific direction,
priorities, and resource allocation of its research programs. The Committee
includes outside experts in scientific areas of interest and members of the
Company's management:
<TABLE>
<S> <C>
Dr. Richard Aldrich Professor of Molecular and Cellular Physiology
at Stanford University
Dr. Brian B. Hoffman Associate Professor of Medicine and Pharmacology,
Geriatric Research, Education and Clinical Center
at VA Medical Center
Dr. Robert R. Luther Executive Vice President of Development of Neurex
Dr. George Miljanich Senior Director, Biochemistry and Assay
Development of Neurex
Dr. Richard Scheller Professor of Molecular and Cellular Physiology at
Stanford University
Dr. Richard Tsien Smith Professor and former Chairman of the
Department of Molecular and Cellular Physiology
at Stanford University
</TABLE>
In addition, Neurex' senior scientists as well as invited key
consultants participate on this Committee.
<PAGE>
Strategic Alliances and Associated Risks
Warner-Lambert Company
Pursuant to the terms of the 1993 Researh and Development Collaboration
agreement (the "Agreement"), Neurex has entered into a collaborative
relationship with Warner-Lambert for the discovery, development and
commercialization of ziconotide and other compounds that block NSCCs. Under the
agreement, Warner-Lambert is obligated to make milestone payments to Neurex upon
the achievement of certain development objectives with respect to ziconotide. In
fiscal 1994, the Company received a total of $1,000,000 in connection with
initiation of Phase II studies of ziconotide for the treatment of head trauma
and CABG surgery. Under the Agreement, Warner- Lambert also has exclusive
worldwide rights to commercialize NSCC compounds, subject to the following:
Neurex has retained the right to: (i) commercialize its compounds in Japan and
East Asia; (ii) co-promote products resulting from the collaboration in the
United States, the United Kingdom and one other European country to be
designated later; and (iii) commercialize ziconotide for intrathecal or local
administration for analgesic indications. Neurex and Warner-Lambert will share
profits from the sales of co-promoted products, subject to certain limitations
on the portion of such profits to be paid to Neurex. Products marketed only by
Warner-Lambert, or co- promoted products marketed by Warner-Lambert outside of
the co-promotion territory, will be subject to royalty payments to Neurex, and
products marketed only by Neurex will be subject to royalty payments to Warner-
Lambert. Neurex is therefore dependent upon the promotion efforts of
Warner-Lambert for a portion of its profits with respect to sales of co-promoted
products in the co-promotion territory and for royalties on the sales of other
products under the collaboration. The development costs of the products to be
co-promoted will be shared one-third by Neurex and two-thirds by Warner-Lambert.
Warner-Lambert and Neurex will commit 12 full-time and 7 full-time employees,
respectively, to the research collaboration. Warner-Lambert has the right to
terminate its relationship with Neurex in its sole discretion upon appropriate
notice to Neurex. Warner-Lambert purchased $7,000,000 worth of the Company's
common stock on September 22, 1993, at the time of the Company's initial public
offering, $1,500,000 on November 13, 1995 at $4.50 per share, and $1,500,000 on
March 29, 1996 at $19.93 per share. Warner-Lambert has indicated that it does
not hold these shares as a long-term investor or collaborating partner, but as
an investment to be held or disposed of as a function of portfolio management.
Warner-Lambert has also paid Neurex a total of $1,500,000 in 1995 and $1,000,000
in 1996 in lieu of milestone payments described in a former agreement between
the companies. These amounts received in lieu of milestone payments may offset
future royalties, if any, due to Neurex from Warner-Lambert resulting in a
royalty-free period on the commencement of product sales.
In an amendment dated September 25, 1996, the Company and
Warner-Lambert extended the Agreement for three additional years beginning
September 30, 1996. The amendment further provides for up to $2,500,000 in
additional milestone payments to the Company for the achievement of research
milestones in the calcium channel project. In addition, Warner-Lambert will pay
the Company approximately $1,200,000 per year for support of the employees at
Neurex committed to the collaborative project.
Medtronic, Inc.
The Company has entered into a collaborative agreement with Medtronic
to develop and commercialize ziconotide or backup peptide compounds for the
chronic treatment of pain when the drug is administered intrathecally. The
Company retains exclusive rights to acute pain indications when administered
intrathecally and to all applications for local and epidural administration.
Neurex and Medtronic will share the costs of the development of the compound in
pivotal studies which involve the use of the Medtronic implantable pump.
Accordingly, Neurex is dependent upon Medtronic's marketing efforts and its
implantable pump technology in order to generate product sales under the
collaboration. Medtronic has exclusive rights to distribute the drug in the
United States and non-exclusive rights outside the United States. Neurex has
retained manufacturing rights for the compound upon certain enumerated terms.
The Company received $2,000,000 from Medtronic upon executing the collaboration
agreement and in August 1995, Neurex issued the Medtronic Note to Medtronic. In
connection with the completion of a directed offering, $6,500,000 of the
Medtronic Note, plus interest, converted into common stock at $4.625 per share,
and the remaining $1,500,000 converted into a prepaid development milestone
which, if not earned by April 30, 1998, will be repaid with interest. In
connection with the Medtronic Note, the Company issued Medtronic a warrant
valued at $460,000, exercisable immediately for 169,646 shares of the Company's
<PAGE>
common stock at $4.625 per share. Upon the conversion of the Medtronic Note, the
Company issued to Medtronic a warrant to purchase 500,000 shares of common stock
at an exercise price of $5.40 per share.
Grunenthal and VascularLaboratories, Inc.
In Europe, the Company has licensed certain rights under its Pro-UK
patents to Grunenthal, GmbH ("Grunenthal"), which is finalizing a license
application for marketing approval in Europe. Under the terms of the license,
Neurex received $1,667,241 on June 22, 1995, and $1,580,733 on July 2, 1996. In
addition to the licensing fees, the Company was to receive royalties on product
sales, if any.
Through a collaborative agreement with Vascular Research Laboratories
("VRL"), Neurex had an option to acquire exclusive rights to certain technology
discovered at VRL in exchange for continued reimbursement of research and
development expenses incurred by VRL for up to ten years. These expenses had
been covered by annual license fees received from Grunenthal. In accordance with
the agreement, Neurex negotiated the termination of the agreement, which was
cancelable at the discretion of Neurex. With Neurex' cancellation of the
collaborative agreement, all future payments from sublicensees, including
Grunenthal, revert to VRL and the option was terminated.
Beaufour Ipsen
On November 12, 1996, the Company signed a license and supply agreement
with Beaufour Ipsen of Paris, France, a European-based pharmaceutical company.
The license, which is for the intravenous delivery form of the Company's
proprietary drug CORLOPAM, provides Beaufour the exclusive right to market and
sell the product (excluding prodrugs) in the world excluding Japan and the
Americas. Under the terms of the agreement, Beaufour will pay royalties to
Neurex based on a percentage of sales. The Company will supply and sell CORLOPAM
to Beaufour at a price which allows Beaufour to achieve certain minimum product
gross margins. In accordance with the agreement, the Company received on
December 6, 1996, a $1,000,000 refundable signing fee. This signing fee becomes
non-refundable upon the earlier of three years from the date of the agreement or
the achievement of three different European country pricing approvals. The
Company may also receive up to $1,000,000 in additional milestone payments and
$3,000,000 in advanced royalties when marketing approvals and achievement of
certain minimum price targets are obtained in certain European countries.
Under the agreement, Beaufour also obtained an exclusive option to
license CORLOPAM for the treatment of acute renal failure and retrogenic
nephrotoxicity, which would require Beaufour to pay the Company $500,000 at the
time of the option exercise and $2,000,000 when a number of marketing approvals
are obtained in certain European countries. The agreement also grants Beaufour
the right to negotiate with the Company to participate in the commercial
development of CORLOPAM prodrugs in most European and Far East countries
(excluding Japan). The Company is dependent on the marketing success of Beaufour
for the success of CORLOPAM in these territorial areas.
There can be no assurance that any of the above collaborations will
continue, be renewed or be successful. The Company granted to its collaborative
partners certain exclusive rights to commercialize the products covered by these
collaborative agreements. In some cases, the Company is relying on its
collaborative partners to conduct clinical trials, to compile and analyze the
data received from such trials, to obtain regulatory approvals and, if approved,
to manufacture and market these licensed products. As a result, the Company
often has little or no control over the development of these potential products
and little or no opportunity to review clinical data prior to or following
public announcement. In addition, the Company's strategy for the research,
development and commercialization of its product candidates will require the
Company to enter into various arrangements with corporate and academic
collaborators, licensors, licensees and others. Neurex intends to enter into
additional collaborative relationships when it believes it is advantageous to
obtain access to appropriate product candidates, specific technical approaches
and capabilities or geographic or therapeutic markets which it does not have
sufficient resources to develop independently. There can be no assurance that
the Company will be able to enter into collaborative arrangements or license
agreements that the Company deems necessary or appropriate to develop and
commercialize its product candidates, or that any or all of the potential
benefits from such collaborative arrangements or licenses will be realized.
There can be no assurance that the Company will be able to enter into such
collaborative arrangements or license agreements on acceptable terms, or at all,
and failure to obtain such collaborative arrangements or license agreements
could result in delays in marketing the Company's proposed
<PAGE>
products or the inability to proceed with the development, manufacture or sale
of products requiring such license agreements. In the event the Company enters
into additional collaborative arrangements, it will be dependent upon the
efforts of its collaborators in performing their responsibilities under the
collaboration. Certain of the collaborative arrangements that the Company may
enter into in the future may place responsibility on the collaborative partner
for preclinical testing and clinical trials, for preparation and submission of
applications for regulatory approval and for commercialization of potential
products. Should a collaborative partner fail to develop or commercialize
successfully any product candidate to which it has rights, the Company's
business may be materially adversely affected. There can be no assurance that
collaborators will not pursue alternative technologies or product candidates
either on their own or in collaboration with others, including the Company's
competitors, as a means for developing treatments for the diseases or disorders
targeted by the Company's collaborative programs.
The Company's collaborative research agreements are generally
terminable by its partners on short notice. Suspension or termination of certain
of the Company's current collaborative research agreements could have a material
adverse effect on the Company's operations and could significantly delay the
development of the affected products and have a material adverse effect on the
Company. Continued funding and participation by collaborative partners will
depend not only on the timely achievement of research and development objectives
by the Company and the successful achievement of clinical trial goals, neither
of which can be assured, but also on each collaborative partner's own financial,
competitive, marketing and strategic considerations. Such considerations
include, among other things, the commitment of management of the collaborative
partners to the continued development of the licensed products, the
relationships among the individuals responsible for the implementation and
maintenance of the collaborative efforts, the relative advantages of alternative
products being marketed or developed by the collaborators or by others,
including their relative patent and proprietary technology positions, and their
ability to manufacture potential products successfully. The Company may
experience difficulty in its relationships with its collaborators due to a
number of factors, including disagreements regarding the timing of the
initiation and design of certain proposed clinical trials and cost sharing.
These disagreements, if they occur, may have a material adverse effect on the
Company's operations.
In addition, Neurex partners may be developing competitive products
that may result in delay or a relatively smaller resource commitment to product
launch and support efforts than might otherwise be obtained if the potentially
competitive product were not under development or being marketed. For example,
Warner- Lambert controls the development of ziconotide for prevention of
ischemic damage and Medtronic is responsible for the marketing and sales of
ziconotide for intrathecal treatment of chronic pain. The Company is dependent
upon the resources and activities of Warner-Lambert and Medtronic to pursue
commercialization of ziconotide in order for the Company to achieve milestones
or royalties from the development of this product. There can be no assurance
that either Warner-Lambert or Medtronic will proceed to bring products to market
in a rapid and timely manner, if at all, or if marketed, that other
independently development products of Warner-Lambert and Medtronic or others
will not compete with or prevent ziconotide from achieving meaningful sales.
Also, Warner-Lambert has stated that it plans to conduct or support other
clinical trials of ziconotide in ischemic indications. There can be no assurance
that Warner-Lambert will continue or pursue additional clinical trials in these
indications or that, even if the additional clinical trials are completed,
ziconotide will be shown to be safe and efficacious, or that the trials will
result in approval to market ziconotide in these indications. Any adverse
announcement related to ziconotide would have a material adverse effect on the
business and financial condition of the Company.
Uncertainty Related to Clinical Trial Results
Before obtaining regulatory approval for the commercial use of any of
its potential products, the Company must demonstrate through preclinical studies
and clinical trials that the product is safe and efficacious for use in the
clinical indication for which approval is sought. There can be no assurance that
the Company will be permitted to undertake or continue clinical trials for any
of its potential products or, if permitted, that such products will be
demonstrated to be safe and efficacious. Moreover, the results from preclinical
studies and early clinical trials may not be predictive of results that will be
obtained in later-stage clinical trials. Thus there can be no assurance that the
Company's present or future clinical trials will demonstrate the safety and
efficacy of any potential products or will result in regulatory approval to
market these products.
In advanced clinical development, numerous factors may be involved that
may lead to different results in larger, later-stage trials from those obtained
in earlier stage trials. For example, early stage trials usually involve a small
number of patients and thus may not accurately predict the actual results
regarding safety and efficacy that
<PAGE>
may be demonstrated with a large number of patients in a later-stage trial.
Also, differences in the clinical trial design between an early-stage and
late-stage trial may cause different results regarding the safety and efficacy
of a product to be obtained. In addition, many early stage trials are unblinded
and based on qualitative evaluations by clinicians involved in the performance
of the trial, whereas later stage trials are generally required to be blinded in
order to provide more objective data for assessing the safety and efficacy of
the product. The Company may, at times, elect to aggressively enter potential
products into Phase I/II trials to determine preliminary efficacy in specific
indications.
The Company has conducted only a limited number of clinical trials to
date. There can be no assurance that the Company will be able to successfully
commence and complete all of its planned clinical trials without significant
additional resources and expertise. In addition, there can be no assurance that
the Company will meet its contemplated development schedule for any of its
potential products. The inability of the Company or its collaborative partners
to commence or continue clinical trials as currently planned, to complete the
clinical trials on a timely basis or to demonstrate the safety and efficacy of
its potential products, would have a material adverse effect on the business and
financial condition of the Company.
The timing of completion of the Company's or its collaborators'
clinical trials is significantly dependent upon, among other factors, the rate
of patient enrollment. Patient enrollment is a function of many factors,
including, among others, the size of the patient population, perceived risks and
benefits of the drug under study, availability of competing therapies, access to
reimbursement from insurance companies or government sources, design of the
protocol, proximity of and access by patients to clinical sites, patient
referral practices, eligibility criteria for the study in question and efforts
of the sponsor of and clinical sites involved in the trial to facilitate timely
enrollment in the trial. Delays in the planned rate of patient enrollment may
result in increased costs and expenses in completion of the trial or may require
the Company to undertake additional studies in order to obtain regulatory
approval if the applicable standard of care changes in the therapeutic
indication under study. For example, patient accrual in the Company's ongoing
Phase III trial of ziconotide has been negatively impacted by changes in
referral patterns between oncologists and pain centers, and patients were not
being referred by oncologists to pain centers where the Company's trials are
being conducted. There can be no assurance that any actions by the Company to
accelerate accrual in this trial will be successful or, to the extent that they
involve modifications in the design of the trial, will not cause that trial to
be considered a Phase II clinical trial and thereby require one or more
additional potentially pivotal trials to be conducted.
While the blinded interim analysis of data from patients enrolled in
the Phase III neuropathic pain trial of ziconotide suggested that the difference
in pain reduction between the ziconotide and placebo groups was substantial,
there can be no assurance that the preliminary results will be predictive of the
final results of the neuropathic pain trial of ziconotide. There can be no
assurance that the Company will successfully complete development of CORLOPAM in
indications beyond the initial indication approved, ziconotide, or any other
product or indication. There also can be no assurance that the Company will
receive marketing approval of these product candidates on a timely basis, if at
all. Failure to complete development or obtain marketing approval of the
Company's product candidates would have a material adverse affect on the
Company's business, financial condition and results of operations. Certain of
the Company's product development efforts are based on novel alternative
therapeutic approaches (including novel routes of administration) and new
technologies, including prevention of neuronal damage due to ischemia, head
trauma and other toxic insults, and the treatment of certain types of pain,
which although widely studied, are not well understood. There is substantial
risk that the Company's approaches and technologies will prove to be
unsuccessful. The development of products by the Company will require the
commitment of substantial resources to continue research, preclinical
development and clinical trials necessary to bring such products to market and
to establish production and marketing capabilities. Drug research and
development by its nature is uncertain; there is a risk of failure at any stage
and the time required and cost involved in successfully accomplishing the
Company's objectives cannot be predicted. There can be no assurance that the
Company will be successful in addressing these technological challenges or
others that might arise during product development.
Manufacturing and Associated Risk Factors
The Company currently has no manufacturing facilities for late stage
preclinical, clinical or commercial production of either the bulk drug substance
or the final dosage form of any of its compounds. For quantities required for
preclinical and clinical testing as well as commercial supply, the Company
expects to continue to rely,
<PAGE>
for the immediate future, on third parties to manufacture its products,
including ziconotide, which can be made by solid-phase synthesis.
Under the terms of the contract with SmithKline, the Company received
275 kg of the raw material of CORLOPAM (fenoldopam mesylate), which has been
manufactured to cGMP quality. The Company believes that this will provide
sufficient supplies for both clinical trials and initial commercial quantities
of CORLOPAM. The Company must contract for the processing of this bulk drug
substance into finished pharmaceutical form and for any further compound
quantities. There can be no assurance that Neurex will be successful in
obtaining a third party manufacturer of CORLOPAM bulk drug substance, if
necessary. There can be no assurance that the current supply of bulk drug
substance will continue to be of sufficient quality to allow distribution for
sale.
On October 24, 1996, the Company entered into an approximately three
year manufacturing agreement with Mallinckrodt Chemicals, Inc. ("Mallinckrodt")
pursuant to which Mallinckrodt will be the principal manufacturer and supplier
of the Company's Analgesia requirements of ziconotide for the U.S. market. The
agreement may, at the discretion of the Company, be renewed for an additional
two year term, provided the manufacturing price can be adjusted to reflect
increased production costs. Under terms of the agreement, the Company is
required to purchase its forecasted six months requirements and Mallinckrodt is,
subject to certain quantity maximums, required to supply the Company with its
forecasted six months requirements of ziconotide. The Company has agreed to
indemnify Mallinckrodt against certain potential liabilities associated with the
manufacture of ziconotide. Mallinckrodt has manufactured, on behalf of the
Company, sufficient quantities of ziconotide for preclinical and clinical
requirements to date. The Company has in the past experienced batch failures in
the manufacturing process for ziconotide. Any batch failures in the future could
result in a material increase in cost of goods sold or in the Company's ability
to deliver ziconotide in a timely manner. In addition, the Company may be unable
to obtain sufficient contract manufacturing capacity due to the competing
demands on the contract manufacturers capacity or other reasons. Although
Mallinckrodt has synthesized sufficient quantities for clinical trials,
there can be no assurance that Mallinckrodt will be successful in
manufacturing commercial quantities of ziconotide necessary for marketing or
that the Company will be able to secure a second source of supply.
The manufacturing of sufficient quantities of new drugs is a time
consuming, complex and unpredictable process. If the Company is unable to
maintain contract manufacturing arrangements or to develop its own manufacturing
capabilities on acceptable terms, the Company's ability to conduct preclinical
and clinical testing as well as supply commercial materials would be adversely
affected. This would result in the delay of submission of products for
regulatory approval and initiation of new development programs. This delay could
in turn materially impair the Company's competitive position and the possibility
of the Company achieving profitability. The compounds which the Company is
presently developing have never been manufactured on a commercial scale. There
can be no assurance that such compounds can be manufactured by the Company or
any other party at a cost or in quantities necessary to make commercially viable
products.
Neurex has no experience in manufacturing commercial quantities of its
potential products and currently does not have the capacity to manufacture any
of its potential products on a commercial scale. In order to obtain regulatory
approvals and to develop its own capacity to produce its products for commercial
sale at an acceptable cost, Neurex would need to construct and staff
manufacturing capabilities, including demonstration to the FDA of its ability to
manufacture its products using controlled, reproducible processes in a cGMP
validated environment. The Company has evaluated plans to develop its own
manufacturing facility. Such plans, if instituted, would result in substantial
costs to the Company. There can be no assurance that construction delays would
not occur if Neurex were to do this, and any such delays could impair the
Company's ability to produce adequate supplies of its potential products for
clinical use or commercial sale on a timely basis. There can be no assurance
that Neurex will successfully conduct its manufacturing collaborations or
develop its own manufacturing capability to produce adequate commercial supplies
of its potential products on a timely basis. Failure to do so could delay
commercialization of such products and impair their competitive position, which
could have a material adverse effect on the business and or financial condition
of the Company.
Manufacturing of ziconotide in compliance with regulatory requirements
is a complex, time-consuming and expensive process. While the Company has
obtained third party manufacturing support, there can be no assurance that the
drug will be successfully and timely manufactured in the quantities required for
the Company's commercialization plans. Furthermore, if changes are made in the
manufacturing process, it may be necessary to demonstrate to the FDA that the
changes have not caused the resulting drug material to differ significantly from
the
<PAGE>
drug material previously produced. Depending upon the type and degree of
differences between the newer and older drug material, various studies could be
required to demonstrate that the newly produced drug material is sufficiently
similar to the previously produced drug material, possibly requiring additional
animal studies or human clinical trials. Manufacturing changes may be made for
the production of Neurex' products currently in clinical development. There can
be no assurance that such changes will not result in delays in development or
regulatory approvals or, if occurring after regulatory approval, in reduction or
interruption of commercial sales. Such delays could have an adverse effect on
the competitive position of those products and could have a material adverse
effect on the business and or financial condition of the Company.
Dependence on Suppliers
The Company is dependent on outside vendors for the supply of raw
materials used to produce its product candidates. The Company currently
qualifies only one or a few vendors for its source of certain raw materials.
Therefore, once a supplier's materials have been selected for use in the
Company's manufacturing process, the supplier could, in effect, become a sole or
limited source of such raw materials to the Company due to the extensive
regulatory compliance procedures governing changes in manufacturing processes.
Although the Company believes it could qualify alternative suppliers, there can
be no assurance that the Company would not experience a disruption in
manufacturing if it experienced a disruption in supply from any of these
sources. Any significant interruption in the supply of any of the raw materials
currently obtained from such sources, or the time and expense necessary to
transition a replacement supplier's product into the Company's manufacturing
process, could disrupt its operations and have a material adverse effect on the
business and financial condition of the Company. A problem or suspected problem
with the quality of raw materials supplied could result in a suspension of
clinical trials, notification of patients treated with products or product
candidates produced using such materials, potential product liability claims, a
recall of products or product candidates produced using such materials, and an
interruption of supplies, any of which could have a material adverse effect on
the business or and financial condition of the Company.
Patents and Proprietary Rights and Associated Risk Factors
Proprietary protection for the Company's products, product candidates,
processes and know-how is important to its business, and the Company plans to
prosecute and defend its patents and proprietary technology aggressively. The
Company's policy is to file patent applications to protect its technology,
inventions and improvements as soon as practicable after any discovery is made.
The Company also relies upon trade secrets, know-how, continuing technological
innovation and licensing opportunities to develop and maintain its competitive
position.
There has been increasing litigation in the biomedical, biotechnology
and pharmaceutical industries with respect to the manufacture, use and sale of
new therapeutic products that are the subject of conflicting patent rights. A
substantial number of patents relating to neurological compounds and treatment
methods have been issued to, or are controlled by, other public and private
entities, including academic institutions. In addition, others, including
competitors of Neurex, may have filed applications for, or may have been issued
patents or may obtain additional patents and proprietary rights relating to
products or processes competitive with those of Neurex. The patent positions of
pharmaceutical, biopharmaceutical, biotechnology and drug delivery companies,
including Neurex, are uncertain and involve complex legal and factual issues.
Additionally, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. As a consequence, the Company does not know
whether any of its patent applications will result in the issuance of patents or
whether any of the Company's existing patents will provide significant
proprietary protection or will be circumvented or invalidated. 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 inventor of inventions covered by its pending patent applications or
that it was the first to file patent applications for such inventions. Moreover,
the Company may have to participate in interference proceedings to determine
priority of invention, which could result in substantial cost to the Company,
even if the eventual outcome is favorable to the Company. There can be no
assurance that any patents owned or controlled by the Company will protect
Neurex against infringement litigation or afford commercially significant
protection of the Company's technology. None of the Company's patents has been
tested in court to determine their validity and scope. Moreover, the patent laws
of foreign countries differ from those of the United States and the degree of
protection, if any, afforded by foreign patents may, therefore, be different.
<PAGE>
Under the Company's license from SmithKline for CORLOPAM, the Company
has acquired rights to United States patents. The patent containing claims to
CORLOPAM as a composition of matter expired in April, 1997. However, the Company
believes it would be entitled, under Sections 505(j) and 505(b)(2) of the
Federal Food, Drug and Cosmetic Act, to marketing exclusivity over other parties
filing abbreviated NDAs for a period of time from the date of FDA approval of
the CORLOPAM NDA (September 24, 1997), although there can be no assurance that
such exclusivity will be granted. In addition, the Company may be able to extend
the composition of matter patent for CORLOPAM under the patent terms extension
provisions of 35 U.S.C. 155. The Company also plans to file new applications on
its other CORLOPAM formulations. If generic products are marketed following the
expiration of the CORLOPAM composition of matter patent, sales of CORLOPAM would
be materially and adversely affected.
In addition to the CORLOPAM patents, the Company currently owns United
States patents covering compositions and methods in the field of
neuroprotection, analgesia, appetite suppression and drug discovery technology.
In neuroprotection, patents were issued covering methods of treating
ischemia-related neuronal conditions with the Company's NSCC blocking compounds,
and covering Neurex' screening technology for discovery of small molecules that
mimic peptide NSCC blockers. One patent covering a method of producing analgesia
by the Company's NSCC compounds also has been issued. The Company has filed
additional patent applications relating to compositions of matter and methods of
treatment for compounds which block NSCCs. The Company has also filed
commercially relevant foreign patent applications with respect to its issued
patents and patent applications in the United States, and patents covering the
use of the Company's NSCC compounds have been granted in the EPO and Australia.
The Company's patent position in Japan with respect to certain aspects of
treating pain may not be as strong as in the United States, and there can be no
assurance that it will prove attractive to any potential strategic partner in
that country.
Litigation, which could result in substantial cost to the Company, may
be necessary to enforce any patents issued to the Company or to determine the
scope and validity of third-party proprietary rights. It is uncertain whether
any third-party patents will require the Company to alter its products or
processes, obtain licenses or cease certain activities. If any licenses are
required, there can be no assurance that the Company will be able to obtain any
such license on commercially favorable terms, if at all. Failure by the Company
to obtain a license to any technology that it may require to commercialize its
products may have a material adverse effect on the Company.
The Company requires its employees, consultants, members of its
Research Committee, outside scientific collaborators and sponsored researchers
and other advisors to execute confidentiality agreements upon the commencement
of employment or consulting relationships with the Company. These agreements
provide that all confidential information developed or made known to the
individual during the course of the individual's relationship with Neurex is to
be kept confidential and not disclosed to third parties, except in limited
circumstances. All of the Company's agreements with its employees and agreements
with most consultants provide that all inventions conceived by the individuals
shall be the exclusive property of the Company. There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for the Company's trade secrets in the event of unauthorized use or
disclosure of such information.
Marketing and Associated Risk Factors
In connection with the September 23, 1997, approval by the FDA of
CORLOPAM, the Company hired and is training a direct sales force of acute care
specialists in the United States. This group currently consists of 35 sales
representatives and 3 regional directors who will call directly on physicians,
hospitals, clinics, pharmacies and other health care providers involved in the
treatment of patients with hypertension. CORLOPAM will be sold by Neurex to
wholesalers and specialty distributors, who in turn sell the product to
hospitals, pharmacies and other health care providers. Neurex' sales force is
supplemented by a marketing and sales staff of approximately 7 people based at
the Company's headquarters in Menlo Park, California.
The Company has limited experience in marketing and selling its
products. The Company's ability to generate future revenues in the United States
is dependent upon the success of its direct sales team in marketing CORLOPAM.
Future development of its marketing and sales organization may require
significant additional expenditures, management resources and time. In addition,
the loss of certain key sales personnel could adversely affect the sales effort
and have a material adverse effect on the Company's business, financial
condition and results
<PAGE>
of operations. Several biotechnology and pharmaceutical companies have recently
expanded their sales force, which has increased the competition for experienced
personnel. If the Company enters into co-promotion or other marketing or
licensing arrangements with established pharmaceutical companies, the Company's
revenues will be subject to the payment provisions of such arrangements and
dependent on the efforts of third parties. There can be no assurance that the
Company's collaborators will effectively market any of the Company's potential
products, and the inability of the Company or its collaborators to do so could
have a material adverse effect on the business and financial condition of the
Company.
Under its collaboration with Warner-Lambert, the Company plans to
co-promote certain products with Warner-Lambert in the United States, United
Kingdom and one other European country to be designated later. The level of
Neurex profit derived from this collaboration will be dependent, in part, on
Warner-Lambert's promotion efforts and upon the level of direct costs associated
with Neurex' sales force in co-promotion countries, which is not a shared cost
under this collaboration. Products developed under the collaboration with
Medtronic will be marketed by the Medtronic sales force. There can be no
assurance that the marketing efforts of Warner- Lambert or Medtronic will be
successful. Neurex may require the assistance of other pharmaceutical companies
for the development and/or commercialization of products outside of the
Warner-Lambert and Medtronic collaborations. Under such arrangements, the
Company would conduct the primary research while the corporate partner would, in
whole or in part, be responsible for development, manufacturing, the conducting
of clinical trials, regulatory approvals and sales and marketing. The Company
intends to market and distribute its products outside the United States through
third party collaborations, such as the current collaboration with Beaufour in
Europe. There can be no assurance that such collaborations can be entered into
on satisfactory terms, if at all, or, if entered into, will be successful.
There can be no assurance that, if approved for marketing, CORLOPAM,
ziconotide or any of the Company's other products under development will achieve
market acceptance. The existence and degree of market acceptance will depend
upon a number of factors, including the receipt of regulatory approvals, the
establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company's product candidates and their potential
advantages over existing treatment methods and reimbursement policies of
government and third-party payors. There is no assurance that physicians,
patients, payors or the medical community in general will accept or utilize any
products that may be developed by the Company. See "Business-- Neurex' Product
Development Programs."
Government Regulation and Associated Risk Factors
The Company's preclinical studies and clinical trials, as well as the
manufacturing and marketing of its potential products, are subject to extensive
regulation by numerous federal, state and local government authorities in the
United States, including the FDA. The Company will similarly be subject to
regulation by comparable regulatory agencies in other countries where the
Company and its collaborators may test and market its products. For marketing of
pharmaceutical products outside the U.S., Neurex is subject to foreign
regulatory requirements governing marketing approval, and FDA and other U.S.
export provisions should the pharmaceutical product be manufactured in the U.S.
Requirements relating to the manufacturing, conduct of clinical trials, product
licensing, promotion, pricing and reimbursement vary widely in different
countries. Difficulties or unanticipated costs or price controls may be
encountered by Neurex, its licensees or marketing partners in their respective
efforts to secure necessary governmental approvals to market the potential
pharmaceutical products, which could delay or preclude the marketing of
potential pharmaceutical products. The steps required by the FDA regulatory
approval process include preclinical studies in animal models to assess the
drug's efficacy and to identify any potential safety problems. The results of
these studies are submitted to the FDA as part of an IND which is filed to
comply with FDA regulations prior to beginning clinical testing. In the event
that no appropriate animal models are available, an IND application will be
based on in vitro testing. The IND must be approved before human clinical trials
may commence. Typically, clinical trials involve a three phase process. In Phase
I, clinical trials are conducted with a small number of subjects to determine
the early safety profile and the pattern of drug distribution and metabolism. In
Phase II, clinical trials are conducted with groups of patients afflicted with a
specified disease in order to determine efficacy, optimal dosages, and expanded
evidence of safety. In Phase III, large scale, multi- center comparative
clinical trials are conducted with patients afflicted with a target disease in
order to provide sufficient data to demonstrate the statistical proof of
efficacy and safety required by the FDA and others. The human trials must be
adequate and well controlled to establish the safety and efficacy of the drug
for its intended use. The results of the preclinical testing and clinical trials
are then submitted to the FDA for a pharmaceutical
<PAGE>
product in the form of an NDA, for approval to commence commercial sales. The
FDA reviews the results of the trials and may discontinue them at any time for
safety reasons or other reasons if they were deemed to be non- compliant with
FDA regulations. There can be no assurance that Phase I, II or III clinical
trials will be completed successfully within any specific time period, if at
all, with respect to any of the Company's or its collaborators' pharmaceutical
products, each of which is subject to such testing requirements. In responding
to an NDA, 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. There can be no assurance that approvals will
be granted on a timely basis, if at all. Preparing an NDA involves considerable
data collection, verification, analysis and expense. In addition to obtaining
FDA approval for each product, each manufacturing establishment for new drugs
must receive approval by the FDA. Manufacturing establishments, both foreign and
domestic, are subject to inspections by or under the authority of the FDA and by
other federal, state or local agencies and must comply with the FDA's current
cGMP regulations.
The regulatory process, which includes preclinical studies and clinical
trials of each compound to establish its safety and efficacy, takes many years
and requires the expenditure of substantial resources. The Company has limited
resources in the areas of product testing and regulatory compliance, and thus
will have to expand capital to acquire and expand such capabilities or reach
collaborative arrangements or contract with third parties to provide these
capabilities in order to advance the Company's products through the necessary
regulatory approvals and prepare its products for commercialization and
marketing. Moreover, if regulatory approval of a drug is granted, such approval
may entail limitations on the indicated uses for which it may be marketed.
Failure to comply with applicable regulatory requirements can, among other
things, result in fines, suspension of regulatory approvals, product recalls,
seizure of products, operating restrictions and criminal prosecutions. Further,
FDA policy may change and additional government regulations may be established
that could prevent or delay regulatory approval of the Company's potential
products. There can be no assurance that the Company will be able to submit NDAs
for any product other than CORLOPAM for its initial indication, and, if any such
NDAs are submitted, that such potential products will be approved for marketing
in any country. In addition, a marketed drug and its manufacturer are subject to
continual review, and later discovery of previously unknown problems with a
product or manufacturer may result in restrictions on the product, or
manufacturer, including withdrawal of the product from the market.
In addition to the requirement for FDA approval of each pharmaceutical
product, each pharmaceutical product manufacturing facility must be audited and
approved by the FDA. The manufacturing and quality control procedures must
conform to cGMP in order to receive FDA approval. Pharmaceutical product
manufacturing establishments are subject to inspections by the FDA and local
authorities as well as inspections by authorities of other countries. In order
to supply pharmaceutical products for use in the U.S., foreign manufacturing
establishments must comply with cGMP and are subject to periodic inspection by
the FDA or by corresponding regulatory agencies in such countries under
reciprocal agreements with the FDA. Moreover, pharmaceutical product
manufacturing facilities may also be regulated by state, local and other
authorities.
Both before and after approval is obtained, a pharmaceutical product,
its manufacturer and the holder of the NDA for the pharmaceutical product are
subject to comprehensive regulatory oversight. The FDA may deny an NDA if
applicable regulatory criteria are not satisfied, require additional testing or
information, or require postmarketing testing and surveillance to monitor the
safety or efficacy of the pharmaceutical product. Moreover, even if regulatory
approval is granted, such approval may be subject to limitations on the
indicated uses for which the pharmaceutical product may be marketed. Further,
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems with the pharmaceutical product occur following
approval. Among the conditions for NDA approval is the requirement that the
manufacturer of the pharmaceutical product comply with cGMP. In addition, under
an NDA, the manufacturer continues to be subject to facility inspection and the
applicant must assume responsibility for compliance with applicable
pharmaceutical product and establishment standards. Violations of regulatory
requirements at any stage may result in various adverse consequences, including
FDA refusal to accept a license application, total or partial suspension of
license, delay in approval or refusal to approve the pharmaceutical product or
pending marketing approval applications, warning letters, fines, injunctions,
withdrawal of the previously approved pharmaceutical product or marketing
approvals and/or the imposition of criminal penalties against the manufacturer
and/or NDA holders. In addition, later discovery of previously unknown problems
may result in new restrictions on such pharmaceutical product, manufacturer
and/or NDA holders, including withdrawal of the pharmaceutical product or
marketing approvals and pharmaceutical product recalls or seizures. The Company
is dependent upon third party manufacturers to supply its products. The
<PAGE>
failure of any of these manufacturers to meet the conditions described above
could have a material adverse effect on the business and or financial condition
of the Company.
History of Losses; Future Profitability Uncertain
The Company has a history of operating losses and expects to incur
substantial additional expenses with resulting quarterly losses over at least
the next few years as it continues to develop its potential products and to
devote significant resources to preclinical studies, clinical trials, and
manufacturing. To date, the Company has received regulatory approval to
distribute only a single product, which in itself is not expected to make the
Company profitable. The time and resource commitment required to achieve market
success for any individual product is extensive and uncertain and, in some
cases, controlled by the Company's collaborators. No assurance can be given that
the Company's, or any of its collaborative partners', product development
efforts will be successful, that required regulatory approvals can be obtained,
that potential products can be manufactured at an acceptable cost and with
appropriate quality, or that any approved products can be successfully marketed.
The Company has not generated any material revenues from product sales
or royalties from licenses to the Company's technology. The Company's revenues
to date have consisted principally of research and development funding,
licensing and signing fees and milestone payments from pharmaceutical companies
under collaborative research and development agreements. These revenues may vary
considerably from quarter to quarter and from year to year. Revenues in any
period may not be predictive of revenues in any subsequent period, and
variations may be significant depending on the terms of the particular
agreements. Although the Company anticipates entering into new collaborations
from time to time, the Company presently does not anticipate realizing non-
royalty revenue from its new and proposed collaborations at levels commensurate
with the revenue historically recognized under its older collaborations.
Moreover, the Company anticipates that its operating expenses will continue to
increase significantly as the Company increases its research and development,
manufacturing, preclinical, clinical, administrative and patent activities.
Accordingly, in the absence of substantial revenues from product sales in
addition to CORLOPAM, new corporate collaborations, or other sources, the
Company expects to incur substantial and increased operating losses in the
foreseeable future as ziconotide continues in clinical development, as
additional potential products are selected as clinical candidates for further
development, as the Company invests in additional manufacturing facilities or
capacity, as the Company defends or prosecutes its patents and patent
applications, and as the Company invests in research or acquires additional
technologies, product candidates or businesses. The amount of net losses and the
time required to reach sustained profitability are highly uncertain. To achieve
sustained profitable operations, the Company, alone or with its collaborative
partners, must successfully discover, develop, manufacture, obtain regulatory
approvals for and market its potential products. No assurances can be given that
the Company will be able to achieve or sustain profitability, and results are
expected to fluctuate from quarter to quarter.
Potential Volatility of Stock Price
The market prices for securities of biotechnology companies (including
those of the Company) have been highly volatile, and the stock market from time
to time has experienced significant price and volume fluctuations that may be
unrelated to the operating performance of particular companies. Factors such as
results of clinical trials, delays in manufacturing or clinical trial plans,
fluctuations in the Company's operating results, disputes or disagreements with
collaborative partners, market reaction to announcements by other biotechnology
or pharmaceutical companies, announcements of technological innovations or new
commercial therapeutic products by the Company or its competitors, initiation,
termination or modification of agreements with collaborative partners, failures
or unexpected delays in manufacturing or in obtaining regulatory approvals or
FDA advisory panel recommendations, developments or disputes as to patent or
other proprietary rights, loss of key personnel, litigation, public concern as
to the safety of drugs developed by the Company, regulatory developments in
either the U.S. or foreign countries (such as opinions, recommendations or
statements by the FDA or FDA advisory panels, health care reform measures or
statements by the FDA or FDA advisory panels, health care reform measures or
proposals), and general market conditions could result in the Company's failure
to meet the expectations of securities analysts or investors. In such event, or
in the event that adverse conditions prevail or are perceived to prevail with
respect to the Company's business, the price of Neurex' common stock
will likely drop significantly. In the past, following significant drops
in the price of a company's common stock, securities class action
litigation has often been instituted against such a company. Such litigation
against the Company could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse
effect on the Company's business and financial condition.
Possible Future Requirements for Significant Additional Capital
The Company's operations to date have consumed substantial amounts of
cash. Negative cash flow from operations is expected to increase significantly
beyond current levels over at least the next two years as the Company expects to
spend substantial funds to commercially launch its first product, conduct
clinical trials, expand its research and development programs and to develop and
expand its manufacturing capability. Future capital requirements will depend on
numerous factors, including, among others, the progress of the Company's product
candidates in clinical trials; the continued or additional support by
collaborative partners or other third parties of research and clinical trials;
enhancement of research and development programs; the time required to gain
regulatory approvals; the resources the Company devotes to self-funded products,
manufacturing methods and advanced technologies; third party manufacturing
commitments; the ability of the Company to obtain and retain funding from third
parties under collaborative agreements; the development of internal marketing
and sales capabilities; the demand for the Company's potential products, if and
when approved; potential acquisitions of technology, product candidates or
businesses by the Company; and the costs of defending or prosecuting any patent
opposition or litigation necessary to protect the Company's proprietary
technology. If these factors affect Company expectations, the Company may need
to raise substantial additional funds through equity or debt financings,
collaborative arrangements, the use of sponsored research efforts or other
means. No assurance can be given that such additional financing will be
available on acceptable terms, if at all. Such financing also may only be
available on terms dilutive to existing stockholders. The inability of the
Company to secure adequate funds on a timely basis could result in the delay or
cancellation of programs that the Company might otherwise pursue and, in any
event, could have a material adverse effect on the business and financial
condition of the Company.
Environmental Regulation
The Company is subject to federal, state and local laws and regulations
governing the use, generation, manufacture, storage, discharge, handling and
disposal of certain materials and wastes used in its operations, some of which
are classified as "hazardous." There can be no assurance that the Company will
not be required to incur significant costs to comply with environmental laws,
the Occupational Safety and Health Act, and state, local and foreign
counterparts to such laws, rules and regulations as its manufacturing and
research activities are increased, or that the operations, business and future
profitability of the Company will not be adversely affected by current or future
laws, rules and regulations. The risk of accidental contamination or injury from
hazardous materials cannot be eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company. In any event, the cost of defending
claims arising from such contamination or injury could be substantial. In
addition, the Company cannot predict the extent of the adverse effect on its
business or the financial and other costs that might result from any new
government requirements arising out of future legislative, administrative or
judicial actions.
Uncertainty Related to Health Care Industry
The health care industry is subject to changing political, economic and
regulatory influences that may significantly affect the purchasing practices and
pricing of human therapeutics. Cost containment measures, whether instituted by
health care providers or enacted as a result of government health administration
regulators or new regulations, such as pricing limitations or formulary
eligibility for dispensation by medical providers, could result in greater
selectivity in the availability of treatments. Such selectivity could have an
adverse effect on the Company's ability to sell its products and there can be no
assurance that adequate third-party coverage will be available for the Company
to maintain price levels sufficient to generate an appropriate return on its
investment in product development. Third-party payors are increasingly focusing
on the cost-benefit profile of alternative therapies and prescription drugs and
challenging the prices charged for such products and services. Also, the trend
towards managed health care in the U.S. and the concurrent growth of
organizations such as health maintenance organizations, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices or reduced markets for the
Company's products. The cost containment measures that health care providers and
payors are instituting and the effect of any health care reform could adversely
affect the Company's ability to sell its products and may have a material
adverse effect on the Company. To date, the Company has
<PAGE>
conducted limited marketing studies on certain of its potential products and has
not undertaken any pharmacoeconomic analysis with respect to its products under
development. The cost containment measures and reforms that government
institutions and third party payors are considering instituting could result in
significant and unpredictable changes to the marketing, pricing and
reimbursement practices of biopharmaceutical companies such as the Company. The
adoption of any such measures or reforms could have a material adverse effect on
the business and financial condition of the Company.
Technological Uncertainty
The Company's research and product development efforts are based on
novel alternative therapeutic approaches (including novel routes of
administration) and new technologies, including prevention of neuronal damage
due to ischemia, head trauma and other toxic insults, and the treatment of
certain types of pain, which although widely studied, are not well understood.
There is substantial risk that the Company's approaches and technologies will
prove to be unsuccessful. The development of products by the Company will
require the commitment of substantial resources to continue research,
preclinical development and clinical trials necessary to bring such products to
market and to establish production and marketing capabilities. Drug research and
development, by its nature, is uncertain; there is a risk of failure at any
stage and the time required and cost involved in successfully accomplishing the
Company's objectives cannot be predicted. There can be no assurance that the
Company will be successful in addressing these technological challenges or
others that might arise during product development, or that other companies will
not develop alternative therapies that will make the Company's treatment
obsolete.
Competition and Associated Risks
The biopharmaceutical industry is highly competitive. Competition in
the field of neuroscience is intense and expected to increase as knowledge,
interest and expertise in the treatment of diseases of the nervous system
develop. The field of neuroscience has been subject to rapid and significant
scientific and technological advances in recent years, and the discovery,
development and marketing of new pharmaceuticals for the treatment of
cardiovascular pain and neurological disorders is expensive. The Company faces
competition from other biotechnology companies, large pharmaceutical companies
and academic institutions that have extensive resources and experience in
research, development, process improvement, clinical evaluation, manufacturing,
regulatory affairs, product distribution and sales and marketing. Many of these
entities have significant research, development and marketing activities in the
field of neuroscience. Many of the Company's potential competitors possess
substantially greater research and development, financial, technical and
marketing expertise than the Company and may be better equipped to develop,
manufacture, market and sell products. These companies may discover, develop and
commercialize products competitive with or superior to those developed by
Neurex. CORLOPAM and the Company's potential products are intended to address a
wide variety of disease conditions, including neurological and cardiovascular
conditions. Competition with respect to these disease conditions is intense and
is expected to increase. This competition involves, among other things,
successful research and development efforts, obtaining appropriate regulatory
approvals, establishing and defending intellectual property rights, successful
product manufacturing, marketing, distribution, market and physician acceptance,
patient compliance, price, and potentially securing eligibility for
reimbursement or payment for the use of the Company's product. The Company
believes its most significant competitors may be fully integrated pharmaceutical
companies with substantial expertise in research and development, manufacturing,
testing, obtaining regulatory approvals, marketing and securing eligibility for
reimbursement or payment. These companies also may have substantially greater
financial and other resources than the Company. Smaller companies also may prove
to be significant competitors, particularly through collaborative arrangements
with large pharmaceutical companies. Furthermore, academic institutions,
governmental agencies and other public and private research organizations
conduct research, seek patent protection, and establish collaborative
arrangements for product development, clinical development and marketing. These
companies and institutions also compete with the Company in recruiting and
retaining highly qualified personnel. The biotechnology and pharmaceutical
industries are subject to rapid and substantial technological change. The
Company's competitors may develop and introduce other technologies or approaches
to accomplishing the intended purposes of the Company's products which may
render the Company's technologies and products noncompetitive and obsolete.
The therapeutic areas in which CORLOPAM is being commercialized are
competitive. Competition in the malignant hypertension market includes a variety
of parenterally and orally effective agents, such as sodium nitroprusside,
nicardipine and nifedipine. The Company believes that sodium nitroprusside is
the most widely prescribed agent for perioperative blood pressure control in the
United States. The medical community views sodium nitroprusside, sold by Abbott
Laboratories and other pharmaceutical companies, as an essential tool in
controlling a patient's blood pressure in emergency and perioperative settings.
The Company believes CORLOPAM can be successfully commercialized against the
competition because of the potential advantages offered by CORLOPAM in terms of
safety, predictability of response and ease of use. However, there can be no
assurance that such potential advantages will be recognized in the marketplace
or that a product with a superior safety and efficacy profile will not be
developed by a competitor
Ziconotide is in development for the treatment of (i) severe
intractable opiate resistant chronic pain and acute pain, (ii) and brain
ischemia. Effective pharmacologic interventions do not currently exist. For this
reason,
<PAGE>
the Company believes that, if approved by the FDA, ziconotide can be
successfully commercialized, and competitive products, unless clearly
demonstrated to be superior to ziconotide, should not preclude successful
introduction of the product to the market. However, there can be no assurance
that a product with a superior safety and efficacy profile will not assume a
dominant position in the market.
The basic scientific area in which the Company is involved and the
diseases and disorders it seeks to treat are characterized by extensive research
efforts, rapid technological progress and intense competition from numerous
organizations including pharmaceutical companies, biotechnology companies,
universities, government agencies and nonprofit research organizations. New
developments are expected to continue at a rapid pace in both industry and
academia. Interest in the role of calcium and neurotransmitters has led to the
development of a number of competitive research strategies primarily targeted at
the nerve cell body. The Company believes that these competitive efforts are
focused on classical calcium channels and glutamate receptors. Blockers of the
three known types of glutamate receptors (NMDA, AMPA and kinate) have been
synthesized and serve to block the action of glutamate on the target nerve cell
after the neurotransmitter is secreted. Some of these compounds have entered
clinical studies for neuroprotection following ischemia, and it is possible that
these or other compounds may prove to be efficacious, in which case physicians
may view them to have characteristics which are superior to or complementary
with those of Neurex' compounds. It is uncertain whether a multi-drug approach
may be useful or desirable in the treatment of the Company's target indications,
and what effect the approval of a glutamate receptor blocker would have in the
competitive marketplace. Many of the Company's competitors have significantly
greater research and development, marketing, financial and human resources than
Neurex and represent significant long-term competition. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products which are more effective than those developed by the
Company or which would render the Company's technology and products less
competitive or obsolete.
Any potential product that the Company succeeds in developing and for
which it gains regulatory approval must then compete for market acceptance and
market share. For certain of the Company's potential products, an important
factor will be the timing of market introduction of competitive products.
Accordingly, the relative speed with which the Company and competing companies
can develop products, complete the clinical testing and approval processes, and
supply commercial quantities of the products to the market is expected to be an
important determinant of market success. Other competitive factors include the
capabilities of the Company's collaborative partners, product efficacy and
safety, timing and scope of regulatory coverage, the amount of clinical benefit
of the Company's products relative to their cost, the method of administration,
price and patent protection. There can be no assurance that the Company's
competitors will not develop more efficacious or more affordable products, or
achieve earlier product development completion, patent protection, regulatory
approval or product commercialization than the Company. The occurrence of any of
these events by the Company's competitors could have a material adverse effect
on the business and financial condition of the Company.
Product Liability Claims and Uninsured Risks
The testing, marketing and sale of human pharmaceutical products
involves unavoidable risks. The use of any of the Company's potential products
in clinical trials and the sale of any of its products may expose the Company to
potential liability resulting from the use of such products. Such liability
might result from claims made directly by consumers or by regulatory agencies,
pharmaceutical companies or others selling such products. The Company currently
has clinical trial and product liability insurance coverage. The Company will
seek to maintain and appropriately increase such insurance coverage as clinical
development of its product candidates progresses and if and when its products
are ready to be commercialized. There can be no assurance that the Company will
be able to obtain such insurance or, if obtained, that such insurance can be
acquired at a reasonable cost or in sufficient amounts to protect the Company
against such liability. The obligation to pay any product liability claim in
excess of whatever insurance the Company is able to acquire, or the recall of
any of its products, could have a material adverse effect on the business,
financial condition and future prospects of the Company.
Employees
As of December 31, 1997, Neurex employed 140 individuals full time, 38
of whom hold doctorate degrees. A significant number of the Company's management
and professional employees have had prior experience with pharmaceutical,
biotechnology or medical product companies, as well as university laboratories.
Neurex believes that it has been successful in attracting skilled and
experienced scientific personnel. However, competition for such personnel is
intense and there can be no assurance that the Company will be able to attract
and retaining such personnel on acceptable terms, if at all The Company is
highly dependent upon the principal members of its scientific and management
staff, the loss of
<PAGE>
whose services might impede the achievement of the Company's business
objectives. Furthermore, recruiting and retaining qualified scientific personnel
to perform research and development work in the future will be critical to the
Company's success. Although the Company believes it will be successful in
attracting and retaining skilled and experienced scientific personnel, there can
be no assurance that the Company will be able to attract and retain such
personnel on acceptable terms given the competition among numerous
pharmaceutical and biotechnology companies, universities and other research
institutions for experienced scientists. In addition, Neurex' anticipated growth
and expansion into areas and activities requiring additional expertise in
clinical testing, regulatory approval, manufacturing and marketing are expected
to place increased demands on the Company's resources and management skills.
These demands will require the addition of new management personnel and the
development of additional expertise by existing personnel. The failure to retain
such personnel to develop or acquire this expertise could adversely affect
prospects for the Company's success. The Company maintains keyman insurance
policies on its Chief Executive Officer and Executive Vice President of
Development. None of the Company's employees are covered by collective
bargaining agreements and management considers its relations with its employees
to be good.
ITEM 2. FACILITES
Neurex' executive offices and research and development facilities are
located at 3760 Haven Avenue, Menlo Park, California, 94025, and its telephone
number is (650) 853-1500. The Company occupies a 34,500 square foot facility
under a lease which expires in June 2002. Approximately 22,500 square feet is
laboratory space, 6,600 square feet is administrative space and 5,400 square
feet remains available for laboratory or manufacturing expansion. The facility
contains office space and laboratories designed specifically for the Company's
research.
On December 12, 1996, the Company entered into a one year lease agreement
commencing January 1, 1997 covering approximately 6,315 square feet of
additional office space located in Menlo Park near the Company's headquarters.
On October 29, 1997, the Company exercised its rights under the lease to extend
the term under the existing conditions through April 30, 1998.
On February 27, 1998, the Company entered into a six year lease agreement
commencing March 1, 1998 covering approximately 31,100 square feet of additional
office space located in Menlo Park near the Company's headquarters. The new
leased office space will be for expanded development, clinical research
activities and corporate administrative support.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the Company's fiscal year ended December
31, 1997, no matters were submitted to a vote of security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since the Company's initial public offering of its common stock, $0.01
par value ("Common Stock"), on September 22, 1993, the Company's Common Stock
has been traded on the NASDAQ National Market System under the symbol NXCO. The
closing price of the Company's Common Stock on March 5, 1998 was $18.13 per
share. No cash dividends have been paid to date by the Company on its Common
Stock. The Company does not anticipate the payment of dividends in the
foreseeable future. As of March 5, 1998, there were approximately 4,000
stockholders of record.
The following table sets forth the high and low bid prices of Neurex
Common Stock, as reported by NASDAQ for the calendar periods indicated:
<TABLE>
Calendar Year High Low
- ------------------------- ---------------------------- ---------------------------
<S> <C> <C>
1996
First Quarter $21.75 $7.25
Second Quarter 24.50 16.50
Third Quarter 22.25 13.25
Fourth Quarter 17.75 12.00
1997
First Quarter 17.50 11.88
Second Quarter 17.13 9.88
Third Quarter 16.00 11.63
Fourth Quarter 18.50 13.00
</TABLE>
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
Summary Consolidated Financial Information
(In thousands, except per share data)
<CAPTION>
Years ended
---------------------------------------------------------------------------
Consolidated September 30, December 31,
-------------------------------------------------- ---------------------------------
Statement of Operations Data: 1993 1994(4) 1995 1996 1997
- ------------------------------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ 1,679 $ 2,132 $ 2,662 $ 3,576 $ 2,392
Research and development expenses......... 6,233 8,477 10,607 19,663 28,474
Acquired in-process research and
development(1)............................ -- 10,153 -- -- --
General and administrative expenses....... 2,083 1,933 2,079 3,923 9,686
--------------- --------------- --------------- --------------- ---------------
Loss from operations...................... (6,637) (18,431) (10,024) (20,010) (35,768)
Interest income (expense), net (580) 463 35 3,534 3,888
--------------- --------------- --------------- --------------- ---------------
Net loss.................................. $ (7,217) $ (17,968) $ (9,989) $ (16,476) $ (31,880)
=============== =============== =============== =============== ===============
Basic and diluted loss per share(2)....... $ (5.92) $ (1.70)(3) $ (0.80) $ (0.80) $ (1.44)
=============== =============== =============== =============== ===============
Shares used in net loss per share
computation............................... 1,218 10,548 12,499 20,680 22,147
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
Three months ended December 31,
Consolidated ------------------------------------
Statement of Operations Data: 1994(4) 1995
- ------------------------------------------- ---------------- ----------------
<S> <C> <C>
(unaudited)
Revenues ................................. $ 74 $ 158
Research and development expenses......... 2,399 2,781
General and administrative expenses....... 541 595
---------------- ----------------
Loss from operations...................... (2,866) (3,218)
Interest income, net 78 192
---------------- ----------------
Net loss.................................. $ (2,788) $ (3,026)
================ ================
Basic and diluted loss per share(2)....... $ (0.23) $ (0.17)
================ ================
Shares used in net loss per share
computation............................... 12,302 17,423
</TABLE>
(1) The acquired in-process research and development charges resulted from
the Creagen acquisition in July 1994 ($8.8 million) and the CORLOPAM
licensing fee in April 1994 ($1.4 million).
(2) For a description of the computation of net loss per share, see Note 1 of
Notes to Consolidated Financial Statements.
(3) Net loss per share includes a $0.96 per share charge for acquired
in-process research and development and licensing fees resulting from the
Creagen acquisition and the CORLOPAM licensing fee; loss per share
without these charges would have been $0.77 per share.
(4) The operating results of Creagen, Inc. have been included in the
Company's consolidated results from the date of acquisition, July 15,
1994.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (CONT.)
<PAGE>
<TABLE>
September 30, December 31,
Consolidated -------------------------------------------------- ---------------------------------
Balance Sheet Data: 1993 1994(2) 1995 1996 1997
- ------------------------------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments............................... $ 18,555 $ 11,385 $ 12,753 $ 77,369 $ 51,802
Long-term investments..................... --- --- --- 9,874 5,616
Total assets.............................. 19,774 13,500 17,617 89,571 60,664
Long-term obligations..................... 18 174 8,161 1,964 114
Accumulated deficit ...................... (28,353) (46,320) (56,309) (75,811) (107,691)
Stockholders' equity (1).................. 17,517 9,022 3,289 79,958 48,776
</TABLE>
(1) No dividends have been declared or paid on the common stock.
(2) The operating results of Creagen, Inc. have been included in the
Company's consolidated results from the date of acquisition, July 15,
1994.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED 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 few years in order to continue
clinical development and to commercialize its products. As of December 31, 1997,
the Company's cumulative net loss was $107,691,000. The Company's principal
sources of working capital have been public and private equity financings,
convertible notes payable including the convertible note payable to Medtronic,
Inc., a stockholder (the " Medtronic Note"), milestone and other payments from
collaborative research and development agreements, license fees, 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, development, commercialization,
product acceptance and capital raising efforts, uncertainties associated with
obtaining and enforcing patents important to the Company's business, 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.
In July 1996, the Company changed its fiscal year end from September 30
to December 31, effective with the 12 months ended December 31, 1996. The
information for the three month period ended December 31, 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. 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.
Results of Operations
Years Ended December 31, 1997, 1996 and September 30, 1995
Revenues were $2,392,000, $3,576,000 and $2,662,000 in 1997, 1996 and
1995, respectively. Revenues in 1997 consisted primarily of research and
development expense reimbursement and milestone payments from Warner-Lambert.
Revenues in 1996 consisted primarily of a license fee from Grunenthal of
$1,581,000 and research and development expense reimbursement payments from
Warner-Lambert of $1,730,000. Revenues in 1995 consisted primarily of a license
fee from Grunenthal of $1,667,000, the recognition of a milestone payment from
Medtronic of $500,000 and research and development expense reimbursement
payments from Warner- Lambert. Other revenue in 1997, 1996 and 1995 consisted
primarily of government grants which fluctuate based upon the timing and
performance of the various grants. The Company expects activity under
collaborative agreements and government grants and related revenues to continue
to fluctuate in the future.
Research and development expenses were $28,474,000, $19,663,000 and
$10,607,000 in 1997, 1996 and 1995, respectively. Research and development
expenses in 1997, 1996 and 1995 represent 75%, 83% and 84%, respectively, of
total ongoing operating expenses. Research and development expenses in 1997
increased $8,811,000 or 45% over 1996, due primarily to increased Phase III
clinical study expenses of ziconotide for malignant and non-malignant pain and
increased personnel support. The increase in expenses during 1997 was partially
offset by a reduction of expenses associated with the research agreement with
Vascular Laboratories, Inc. of the New England Deaconess Hospital at Harvard
University. Research and development expenses in 1996 increased $9,056,000 or
85% over 1995, due primarily to increased expenses in clinical study activities
and ziconotide bulk drug procurement expenditures for Phase II/III malignant and
non-malignant pain studies. In addition, increased research and development
expenses in 1995 resulted from the Company's Phase II clinical
<PAGE>
studies for ziconotide in head trauma and CABG surgery, as well as Phase I/II
studies for ziconotide for the treatment of pain. The Company expects research
and development expenses to increase significantly over the next several years.
General and administrative expenses were $9,686,000, $3,923,000 and
$2,079,000 in 1997, 1996 and 1995, respectively. General and administrative
expenses increased by 147% in 1997 as compared to 1996 primarily due to the
Company's efforts to establish marketing and selling capabilities to support the
January 1998 launch of CORLOPAM. General and administrative expenses increased
by 89% in 1996 as compared to 1995 primarily due to higher corporate and patent
legal expenses, other professional fees and employment related expenses. As the
Company continues its clinical development and commercialization of its
products, the Company expects general and administrative expenses to increase
over the next several years.
Net Interest income was $3,888,000, $3,534,000 and $35,000 in 1997,
1996 and 1995, respectively. Net Interest income has increased due to the
Company's higher average cash, cash & equivalent and short-term investment
balances which resulted from the directed public offering in May 1996.
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $81,300,000. The net operating loss carryforwards
will expire at various dates beginning in 2001 through 2012, if not utilized.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the "change in ownership" 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.
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 reimbursements from a related party.
Research and Development expenses increased by $382,000 or 16% 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 CORLOPAM.
General and administrative expenses increased $54,000 or 10% 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.
Net Interest income increased to $192,000 for the three months ended
December 31, 1995 compared to $78,000 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.
Year 2000
Many computer systems experience problems handling dates beyond the
year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The Company is
currently assessing the internal readiness of its computer systems to handle the
year 2000 requirements. The Company expects to implement successfully the
systems and programming changes necessary to address the year 2000 issues, and
does not believe that the cost of such actions will have a material effect on
the Company's results of operations or financial condition. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of such changes, and the Company's inability
to implement such changes could have an adverse effect on future results of
operations.
The Company is also assessing the possible effects on the Company's
operations of the year 2000 readiness of key suppliers and subcontractors. The
Company's reliance on suppliers and subcontractors, and, therefore, on the
proper functioning of their information systems and software, means that their
failure to address the year 2000 issues could have a material impact on the
Company's operations and financial results; however, the potential impact and
related costs are not known at this time.
<PAGE>
Liquidity and Capital Resources
For the years ended December 31, 1997 and 1996, cash expenditures for
operating activities and additions to capital equipment were $30,284,000 and
$12,750,000, respectively. The Company anticipates that these expenditures will
increase significantly in future periods.
The Company had available cash, cash equivalents, short-term and
long-term investments of $57,418,000 and $87,243,000 at December 31, 1997 and
1996, respectively. The decrease during 1997 resulted from funding the Company's
operating loss.
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 Medtronic Note, plus related
interest of $190,576 through October 16, 1995, into common stock at a conversion
price of $4.625 per share. 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. The offering also 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.
In August 1995, the Company completed a private placement of 1,000,000
shares of common stock at $3.50 per share.
The Company expects to continue to incur substantial additional
operating losses from costs related to the commercial product launch activities
of CORLOPAM and the continuation and expansion of research and development,
including clinical studies and increased administrative activities over at least
the next few years. The Company anticipates that its existing capital resources
and interest earned thereon will enable it to maintain its current and planned
operations through the foreseeable future. However, the Company's requirements
may change depending on numerous factors, including, but not limited to, the
Company's timing and cost of commercial
product launch activities of CORLOPAM, 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 domestic and foreign
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 plans to continue to fund its short and long-term
operations using a combination of public and private equity and debt offerings,
payments from the licensing, sublicensing, sales of its intellectual property
rights and sales of CORLOPAM. If such funds are not obtained, the Company may
need to delay or curtail some of its research and development activities.
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<CAPTION>
Page
Number
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................................................... 39
Consolidated Balance Sheets at December 31, 1996 and 1997............................................ 40
Consolidated Statements of Operations for the years ended September 30, 1995 and
December 31, 1996 and 1997................................................................. 41
Consolidated Statements of Operations for the three month periods ended December 31, 1994
(unaudited) and 1995............................................................................ 42
Consolidated Statements of Stockholders' Equity for the years ended September 30, 1995 and
December 31, 1996 and 1997, and for the three month period ended December 31, 1995..............
43
Consolidated statements of Cash Flows for the years ended September 30, 1995 and
December 31, 1996 and 1997 ..................................................................... 44
Consolidated statements of Cash Flows for the three month periods ended December 31, 1994
(unaudited) and 1995............................................................................ 45
Notes to Consolidated Financial Statements........................................................... 46
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Neurex Corporation
We have audited the accompanying consolidated balance sheets of Neurex
Corporation as of December 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended September 30, 1995, December 31, 1996 and 1997, and for the three month
period ended December 31, 1995. 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
Neurex Corporation at December 31, 1996 and 1997, and the consolidated results
of its operations and its cash flows for the years ended September 30, 1995,
December 31, 1996 and 1997, and the three month period ended December 31, 1995,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 5, 1998
<PAGE>
<TABLE>
NEUREX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands, except share data)
December 31, December 31,
1996 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 40,552 $ 11,297
Short-term investments.................................... 36,817 40,505
Other current assets...................................... 381 277
--------------------- -------------------
Total current assets................................ 77,750 52,079
Property and equipment, net............................... 1,748 2,806
Note receivable from officer.............................. 123 94
Long-term investments..................................... 9,874 5,616
Other assets, net......................................... 76 69
--------------------- -------------------
$ 89,571 $ 60,664
===================== ===================
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable ......................................... $ 2,011 $ 1,912
Accrued wages and benefits................................ 458 691
Accrued clinical and preclinical testing 509 5,374
Other accrued liabilities................................. 621 749
Prepaid milestone repayable to Medtronic, Inc., a stockholder -- 1,870
Deferred revenue ......................................... 1,043 1,000
Deferred revenue - Warner Lambert, a stockholder.......... 803 --
Current portion of capital lease obligations.............. 204 178
--------------------- -------------------
Total current liabilities........................... 7,649 11,774
Long-term capital lease obligations....................... 295 114
Prepaid milestone repayable to Medtronic, Inc., a stockholder 1,669 --
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 22,036,080 shares at December 31,
1996 and 22,239,267 shares at December 31, 1997 220 222
Additional paid-in capital............................. 155,599 156,299
Deferred compensation.................................. (41) (5)
Shareholder receivable ................................ -- (48)
Unrealized loss on investments ........................ (9) (1)
Accumulated deficit.................................... (75,811) (107,691)
--------------------- -------------------
Total stockholders' equity................................ 79,958 48,776
--------------------- -------------------
$ 89,571 $ 60,664
===================== ===================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Years ended
-----------------------------------------------------------------
September 30, December 31, December 31,
1995 1996 1997
---------------------- -------------------- ---------------------
<S> <C> <C> <C>
Revenues:
Related parties ....................... $ 897 $ 1,884 $ 2,309
Other ................................. 1,765 1,692 83
---------------------- --------------------- ---------------------
2,662 3,576 2,392
Costs and expenses:
Research and development............... 10,607 19,663 28,474
General and administrative............. 2,079 3,923 9,686
---------------------- --------------------- ---------------------
Total costs and expenses............. 12,686 23,586 38,160
---------------------- --------------------- ---------------------
Loss from operations...................... (10,024) (20,010) (35,768)
Interest income, net...................... 35 3,534 3,888
---------------------- --------------------- ---------------------
Net loss.................................. $ (9,989) $ (16,476) $ (31,880)
====================== ===================== =====================
Basic and diluted loss per share.......... $ (0.80) $ (0.80) $ (1.44)
====================== ===================== =====================
Shares used in basic and diluted loss per
share computation...................... 12,499 20,680 22,147
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
Total
Additional Deferred Unrealized Stock-
Common paid-in compen- Shareholder loss on Accumulated holders'
stock capital sation receivable investments deficit equity
-------- ----------- ---------- ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1994 $ 123 $ 55,738 $ (518) $ -- $ -- $ (46,320) $ 9,023
Issuance of warrant to purchase 169,646
shares of common stock ..................... -- 460 -- -- -- -- 460
Amortization of deferred compensation net of
cancellations .............................. -- (7) 231 -- -- -- 224
Sale of 1,000,000 shares of common stock at
$3.50 per share ............................ 10 3,490 -- -- -- -- 3,500
Issuance of 105,862 shares of common stock.. 1 101 -- -- -- -- 102
Unrealized loss on available-for-sale
investments................................. -- -- -- -- (30) -- (30)
Net loss ................................... -- -- -- -- -- (9,989) (9,989)
-------- ----------- ----------- ----------- ------------ ------------- ---------
Balances at September 30, 1995 134 59,782 (287) -- (30) (56,309) 3,290
Amortization of deferred compensation net of
cancellations .............................. -- (23) 68 -- -- -- 45
Sale of 3,000,000 shares of common stock at
$4.50 per share net of issuance costs of
$1,210...................................... 30 12,260 -- -- -- -- 12,290
Conversion of note payable to Medtronic,
Inc. and related accrued interest to
1,446,610 shares of common stock ........... 14 6,676 -- -- -- -- 6,690
Transfer of unamortized discount on the
conversion of note payable to Medtronic, Inc -- (319) -- -- -- -- (319)
Sale of 333,334 shares of common stock to
Warner-Lambert ............................. 3 1,497 -- -- -- -- 1,500
Net issuances of 25,006 shares of common stock -- 37 -- -- -- -- 37
Unrealized gains on available-for-sale
investments................................. -- -- -- -- 28 -- 28
Net loss ................................... -- -- -- -- -- (3,026) (3,026)
--------- ----------- ----------- ------------ ---------- ---------- ---------
Balance at December 31, 1995 181 79,910 (219) -- (2) (59,335) 20,535
Amortization of deferred compensation net of
cancellations .............................. -- -- 178 -- -- -- 178
Sale of 75,263 shares of common stock to
Warner-Lambert ............................. 1 1,499 -- -- -- -- 1,500
Net issuances of 79,315 shares of common
stock under the stock purchase plan......... 1 317 -- -- -- -- 318
Net issuances of 222,405 shares of common stock 2 335 -- -- -- -- 337
Sale of 3,450,000 shares of common stock at
$22.75 per share net of issuance costs
of $5,008................................... 35 73,538 -- -- -- -- 73,573
Unrealized gains on available-for-sale
investments................................. -- -- -- -- (7) -- (7)
Net loss ................................... -- -- -- -- -- (16,476) (16,476)
--------- ----------- ----------- ------------ ---------- ---------- ---------
Balance at December 31, 1996................ 220 155,599 (41) -- (9) (75,811) 79,958
Amortization of deferred compensation....... -- -- 36 -- -- -- 36
Issuance of 34,886 shares of common stock
under the stock purchase plan............... -- 371 -- -- -- -- 371
Net issuances of 168,301 shares of common
stock on the exercise of stock options...... 2 329 -- -- -- -- 331
Unrealized gains on available-for-sale
investments................................. -- -- -- -- 8 -- 8
Issuance of shareholder receivable for option
exercises to purchase shares of common stock -- -- -- (48) -- -- (48)
Net loss........ ........................... -- -- -- -- -- (31,880) (31,880)
--------- ----------- ----------- ------------ ---------- ---------- ---------
Balance at December 31, 1997................ $ 222 $ 156,299 $ (5) $ (48) $ (1) $(107,691) $48,776
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three
months ended
------------------------------------------
December 31, December 31,
1994 1995
-------------------- ------------------
(unaudited)
<S> <C> <C>
Revenues:
Related parties ....................... $ 68 $ 158
Other ................................. 6 --
--------------------- ------------------
74 158
Costs and expenses:
Research and development............... 2,399 2,781
General and administrative............. 541 595
--------------------- -------------------
Total costs and expenses............. 2,940 3,376
--------------------- -------------------
Loss from operations...................... (2,866) (3,218)
Interest income, net...................... 78 192
-------------------
---------------------
Net loss.................................. $ (2,788) $ (3,026)
===================== ===================
Basic and diluted loss per share.......... $ (0.23) $ (0.17)
===================== =====================
Shares used in basic and diluted loss per
share computation...................... 12,302 17,423
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
<CAPTION>
Years ended
September 30, December 31, December 31,
1995 1996 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Cash flows used for operating activities:
Net loss........................................ $ (9,989) $ (16,476) $ (31,880)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization................... 335 426 688
Noncash expenses from stock,debt and warrant issuances 332 203 61
Changes in assets and liabilities:
Notes receivable from officer........... (9) (10) 29
Other current assets.................... (2,285) 337 103
Accounts payable........................ (359) 1,614 (99)
Accrued and other liabilities........... 195 2,093 3,401
Deferred credit/revenue ................ 1,900 (396) (846)
------------------ ------------------ -----------------
Net cash used for operating activities.......... (9,880) (12,209) (28,543)
------------------ ------------------ -----------------
------------------ ------------------ -----------------
Cash flows from investing activities:
Purchases of property and equipment............. (648) (541) (1,741)
Purchases of short-term investments............. (1,963) (269,426) (243,397)
Sales and maturities of short-term investments.. 8,820 244,786 243,976
Payment of notes payable to stockholder......... -- (289) --
------------------ ------------------ -----------------
Net cash provided by (used for) investing activities 6,209 (25,470) (1,162)
------------------ ------------------ -----------------
------------------ ------------------ -----------------
Cash flows from financing activities:
Sales of common stock (net of repurchases) ..... 3,548 75,727 654
Proceeds from sale and leasebacks .............. 664 -- --
Long-term debt and capital lease repayments..... (143) (213) (207)
Proceeds from issuance of convertible debt ..... 8,000 -- --
Other assets .................................. (143) 62 3
------------------ ------------------ -----------------
------------------ ------------------ -----------------
Net cash provided by financing activities.... 11,926 75,576 450
------------------ ------------------ -----------------
Net increase (decrease) in cash and cash equivalents 8,255 37,897 (29,255)
Cash and cash equivalents at beginning of year..... 1,539 2,655 40,552
------------------ ------------------ -----------------
Cash and cash equivalents at end of year........... 9,794 40,552 11,297
Short and long-term investments at end of year..... 2,959 46,691 46,121
Cash, cash equivalents, short and long-term
investments at end of year ..................... $ 12,753 $ 87,243 $ 57,418
================== ================== =================
================== ================== =================
Supplemental disclosures of cash flow information:
Cash paid for interest.......................... $ 75 $ 58 $ 53
================== ================== =================
</TABLE>
See accompanying notes.
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
<TABLE>
Three
months ended
December 31, December 31,
1994 1995
------------------ ------------------
(unaudited
<S> <C> <C>
Cash flows used for operating activities:
Net loss........................................ $ (2,788) $ (3,026)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization.................. 82 136
Noncash expenses from stock, debt and warrant
issuances.................................... 43 86
Conversion of interest on debt convertible into common
stock........................................ -- 41
Changes in assets and liabilities:
Other current assets.................... (101) 2,063
Other long-term assets.................. (2) --
Accounts payable........................ (172) (309)
Accrued and other liabilities........... (14) (725)
Deferred credit/revenue ................ (21) (158)
------------------ ------------------
Net cash used for operating activities........ (2,973) (1,892)
------------------ ------------------
------------------ ------------------
Cash flows from investing activities:
Purchases of property and equipment............. (394) (80)
Purchases of short-term investments............. (1,045) (46,583)
Sales and maturities of short-term investments.. 2,626 27,515
------------------ ------------------
Net cash provided by (used for) investing activities 1,187 (19,148)
------------------ ------------------
------------------ ------------------
Cash flows from financing activities:
Sales of common stock (net of repurchases) ..... 6 13,948
Proceeds from sale and leasebacks .............. 344 --
Long-term debt and capital lease repayments..... (25) (47)
------------------ ------------------
Net cash provided by financing activities..... 325 13,901
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (1,461) (7,139)
Cash and cash equivalents at beginning of period 1,539 9,794
------------------ ------------------
Cash and cash equivalents at end of period......... 78 2,655
Short and long-term investments at end of period... 8,030 22,056
Cash, cash equivalents, short and long-term
investments at endof period .................... $ 8,108 $ 24,711
================== ===================
================== ===================
Supplemental disclosures of noncash investing and
financing activities:
Conversion of debt to common stock............... $ -- $ 6,372
Supplemental disclosures of cash flow information:
Cash paid for interest.......................... $ 5 $ 20
================== ==================
</TABLE>
See accompanying notes.
<PAGE>
NEUREX CORPORATION
NOTES TO 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 12 months ended December 31, 1996. The
information for the three month period ended December 31, 1994, is unaudited,
but in the Company's opinion, includes 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.
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.
Accounting Estimates
The preparation of 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. Actual
results could differ from these estimates.
Cash , cash equivalents, short-term and long-term investments and
credit risk
Cash and cash equivalents consist of cash held in U.S. banks, time
deposits and other highly liquid investments with a maturity of 90 days or less
from the date of purchase. Cash equivalents are readily convertible into cash
and have insignificant interest rate risk. Short-term and long-term investments
include corporate fixed income obligations and U.S. government notes with a
maximum maturity of three years, short-term investments mature within one year
of the balance sheet date. The Company's investment policy stipulates that a
diversified portfolio be maintained and invested in a manner appropriate for the
Company's primary business operations. The policy defines investment objectives
to provide optimal investment return within constraints to optimize safety and
liquidity.
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. All debt securities 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 or 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.
Property and equipment
<PAGE>
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives, generally five to seven years.
Leasehold improvements and assets under capitalized leases are amortized over
the lease term or the estimated useful life, whichever is shorter.
Revenue recognition
Revenue consists of grants, license fees, research and development
milestone payments and reimbursements for research and development expenses from
collaborative partners. Grant revenues and research and development revenues are
recognized when earned. License fees are recognized when the Company meets all
obligations under the arrangement.
Deferred revenue consists of payments under grants and research
agreements for which the corresponding work has not yet been performed.
Net loss per share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Common equivalent shares from stock options and warrants are
excluded from the diluted computation as their effect is antidilutive. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
"Statements"). The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive
income and its components in annual financial statements. SFAS 131 establishes
standards for reporting financial and descriptive information about an
enterprise's operating segments in its annual financial statements and selected
segment information in interim financial reports. Reclassification or
restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS 130 and SFAS 131,
respectively. Application of the Statements' disclosure requirements will have
no impact on the Company's consolidated financial position, results of
operations or earnings per share data as currently reported.
<PAGE>
2. Joint Research, Development, License and Investment Agreements
A. Investment, Research and Development Agreement with Warner-
Lambert Company
In May 1993, the Company entered into a collaborative agreement with
Warner-Lambert for the discovery, development and commercialization of compounds
that block neuron-specific calcium channels (NSCCs), including ziconotide. Under
this agreement, Warner-Lambert is obligated to make milestone payments to the
Company upon the achievement of certain development objectives with respect to
ziconotide for ischemic indications. Warner-Lambert has exclusive worldwide
rights, except for the Company's peptide compounds in Japan and East Asia, to
commercialize NSCC compounds, subject to the Company's right to co-promote
products in the United States, the United Kingdom and one other European country
to be designated. The Company and Warner-Lambert will share profits from the
sales of co-promoted products, subject to certain limitations on the portion of
such profits to be paid to the Company. Products marketed only by
Warner-Lambert, or co-promoted products which are being marketed by
Warner-Lambert outside of the co-promotion territory, will be subject to royalty
payments to the Company, and products marketed only by the Company will be
subject to royalty payments to Warner-Lambert. The development costs of the
products to be co-promoted will be shared by the Company and Warner-Lambert.
Each party has committed a certain number of full-time employees to the research
collaboration. Warner-Lambert has the right to terminate its relationship with
the Company in its sole discretion upon appropriate notice to the Company. The
collaboration was effective upon the completion of the initial public offering
on September 22, 1993, in which Warner-Lambert purchased 1,459,093 of the
Company's common shares at the offering price to the public less certain selling
commissions.
In September 1995, the Company and Warner-Lambert amended their
agreement to provide that, given net proceeds of at least $12,000,000 in the
Company's next offering of securities to the public, Warner-Lambert would
purchase $1,500,000 of the Company's common stock which it did purchase on
November 13, 1995 at the public offering price of $4.50 per share and $1,500,000
of the Company's common stock which it purchased on March 29, 1996 at a market
average price of $19.93 per share. Warner-Lambert also paid Neurex $1,500,000 on
October 1, 1995, $500,000 on January 1, 1996, $250,000 on April 1, 1996 and
$250,000 on July 1, 1996 in lieu of milestone payments under the original
agreement. These amounts may offset future royalties, if any, due to Neurex from
Warner-Lambert resulting in a royalty-free period on the commencement of product
sales.
In an amendment dated September 25, 1996, the Company and
Warner-Lambert extended the 1993 Research and Development Collaboration
agreement for three additional years beginning September 30, 1996. The amendment
further provides for up to $2,500,000 in additional milestone payments to the
Company for the achievement of research milestones in the calcium channel
project. In addition, Warner-Lambert will pay the Company approximately
$1,200,000 per year for research support. Total development cost reimbursement
payments and milestone payments earned during the years ending September 30,
1995 and December 31, 1996 and 1997, were $396,000, $1,730,000 and $2,169,000,
respectively. Amounts earned in the three months ended December 31, 1994 and
1995 were $68,000 (unaudited) and $143,000, respectively.
B. Investment and License Agreement with Medtronic, Inc.
On April 21, 1994, the Company entered into an Investment Agreement and
a Development and License Agreement with Medtronic, Inc. In consideration for
the Company entering into these agreements, Medtronic paid $2,000,000 to the
Company for the purchase of 359,837 shares of common stock at $5.56 per share
and the right to acquire an additional 119,945 shares of common stock for no
further consideration if certain milestones were not met. The $500,000 value of
these additional shares was recorded as a deferred credit as of September 30,
1994. During the year ended September 30, 1995, the development milestones were
met, resulting in the recognition of the $500,000 as revenue, which accounted
for 19.5% of total revenues. For the years ended December 31, 1996 and 1997,
respectively, the Company received $154,000, or 4.3% of total revenues and
$140,000, or 5.9% of total revenues under a clinical services cost sharing
agreement. No revenues were recognized under this agreement for the years ended
September 30, 1994 and 1995, and for the three month periods ended December 31,
1994 and 1995.
<PAGE>
On August 3, 1995, the Company issued a convertible promissory note to
Medtronic (the "Medtronic Note") in the principal amount of $8,000,000 with
interest at a rate of the prime rate plus 3% per year. In connection with the
Medtronic Note, the Company issued Medtronic a warrant valued at $460,000,
exercisable immediately for 169,646 shares of the Company's common stock at
$4.625 per share. The warrant valuation represents a $460,000 discount on the
note to be amortized to interest expense ratably over the period of the note. As
of September 30, 1995, $54,000 of the discount had been amortized. On October
16, 1995, following a directed public offering, the Company converted $6,500,000
of the convertible note payable plus related interest of $191,000 into common
stock at a conversion price of $4.625 per share and transferred 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. For the three months ended December 31, 1995 and the years
ended December 31, 1996 and 1997, respectively, $19,000, $25,000 and $25,000 of
the discount on the prepaid milestone fee has been amortized and interest of
$37,000, $176,000 and $176,000 has been accrued. In conjunction with the note
conversion, Neurex issued to Medtronic a warrant to purchase 500,000 shares of
common stock at $5.40 per share, exercisable through October 16, 2001. The
agreements provide for additional research and development payments that
aggregate $6,000,000 and are receivable by Neurex on the achievement of specific
research and development milestones.
C. License Agreement with SmithKline Beecham
On April 5, 1994, the Company entered into a license and supply
agreement with SmithKline for the purchase of worldwide marketing rights for
CORLOPAM (fenoldopam). As consideration, the Company paid $350,000 in cash,
issued 100,000 shares of common stock to SmithKline at $4.00 per share, agreed
to pay $650,000 at the time of its next financing and will pay royalties on
future sales. In connection with these payments the Company recorded a
$1,400,000 charge for in-process research and development in April 1994. The
$650,000 was paid in August 1995. In 1996, marketing rights to Germany were
transferred to the Company.
D. Collaboration and Option Agreement with Vascular Laboratories,
Inc.
In Europe, the Company has licensed certain rights under its Pro-UK
patents to Grunenthal, GmbH ("Grunenthal"), which is finalizing a license
application for marketing approval in Europe. Under the terms of the license,
Neurex received $1,667,241 on June 22, 1995, and $1,580,733 on July 2, 1996. In
addition to the licensing fees, the Company was to receive royalties on product
sales, if any.
Through a collaborative agreement with Vascular Laboratories, In.
("VLI"), Neurex had an option to acquire exclusive rights to certain technology
discovered at VLI in exchange for continued reimbursement of research and
development expenses incurred by VLI for up to ten years. These expenses had
been covered by annual license fees received from Grunenthal. In accordance with
the agreement, Neurex negotiated the termination of the agreement, which was
cancelable at the discretion of Neurex. With Neurex' cancellation of the
collaborative agreement, all future payments from sublicensees, including
Grunenthal, revert to VLI and the option was terminated.
Neurex originally sublicensed the rights to Pro-urokinase in Europe to
Grunenthal GmbH. Grunenthal made a payment in December 1993 and was required to
make license payments through December 1996, and to pay royalties on certain
future sales. No payments were made or received during the year ended December
31, 1997. During the year ended December 31, 1996, the Company made payments to
VLI totaling $1,512,000 and received license payments from Grunenthal totaling
$1,581,000, accounting for 44% of revenues. During the year ended September 30,
1995, the Company made payments to VLI totaling $1,325,000 and received license
payments from Grunenthal totaling $1,667,000, accounting for 65% of revenues.
The Company paid to VLI $325,000 (unaudited) and $334,000, for the three month
periods ended December 31, 1994 and 1995, respectively.
E. Licensing Agreement with Beaufour Ipsen
<PAGE>
On November 12, 1996, the Company signed a license and supply agreement with
Beaufour Ipsen of Paris, France, a European-based pharmaceutical company. The
license, which is for the intravenous delivery form of the Company's proprietary
drug CORLOPAM, provides Beaufour the exclusive right to market and sell the
product (excluding fenoldopam prodrugs) in most of the world excluding Japan and
all countries in the Americas. Under the terms of the agreement, Beaufour will
pay royalties to Neurex based on a percentage of sales. The Company will supply
and sell CORLOPAM to Beaufour at a price which allows Beaufour to achieve
minimum product gross margins. In accordance with the agreement, the Company
received on December 6, 1996, a $1,000,000 refundable signing fee. This signing
fee becomes non-refundable upon the earlier of three years from the date of the
agreement or the achievement of three different European country pricing
approvals. The Company may also receive up to $1,000,000 in additional milestone
payments when marketing approvals are obtained in certain European countries.
Under the agreement, Beaufour also obtained an exclusive option to
license CORLOPAM for the treatment of acute renal failure and retrogenic
nephrotoxicity, which would require Beaufour to pay the Company $500,000 at the
time of the option exercise and $2,000,000 when a number of marketing approvals
are obtained in certain European countries. The agreement also grants Beaufour
the right to negotiate with the Company to participate in the commercial
development of CORLOPAM prodrugs in most of the world excluding Japan and all
countries in the Americas.
3. Investments
The Company has classified its short and long-term investments as
available-for-sale. The following is a summary of the Company's investments as
of December 31, 1996 and 1997. (In thousands)
<TABLE>
December 31, 1996:
Amortized Unrealized Unrealized Estimated Fair
Cost Losses Gains Value
------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
U.S. government securities $ 23,540 $ (18) $ 18 $ 23,540
Corporate debt securities 56,890 (19) 10 56,881
------------------- -------------------- ------------------- ---------------------
$ 80,430 $ (37) $ 28 $ 80,421
=================== ==================== =================== =====================
Disclosed as:
Amortized Unrealized Unrealized Estimated Fair
Cost Losses Gains Value
------------------- -------------------- ------------------- ---------------------
Cash and cash equivalents $ 33,735 $ (5) $ -- $ 33,730
Short-term investments 36,828 (31) 20 36,817
Long-term investments 9,867 (1) 8 9,874
------------------- -------------------- ------------------- ---------------------
$ 80,430 $ (37) $ 28 $ 80,421
=================== ==================== =================== =====================
Contractual maturities:
Amortized Unrealized Unrealized Estimated Fair
Cost Losses Gains Value
------------------- -------------------- ------------------- ---------------------
Within one year ................. $ 52,963 $ (35) $ 2 $ 52,930
One to 3 years .................. 27,467 (2) 26 27,491
------------------- -------------------- ------------------- ---------------------
$ 80,430 $ (37) $ 28 $ 80,421
=================== ==================== =================== =====================
December 31, 1997:
Amortized Unrealized Unrealized Estimated Fair
Cost Losses Gains Value
------------------- -------------------- ------------------- ---------------------
U.S. government securities $ 11,791 $ (7) $ 1 $ 11,785
Corporate debt securities 44,537 (7) 12 44,542
------------------- -------------------- ------------------- ---------------------
$ 56,328 $ (14) $ 13 $ 56,327
=================== ==================== =================== =====================
Disclosed as:
Amortized Unrealized Unrealized Estimated Fair
Cost Losses Gains Value
------------------- -------------------- ------------------- ---------------------
Cash and cash equivalents $ 10,209 $ (3) $ -- $ 10,206
Short-term investments 40,500 (6) 11 40,505
Long-term investments 5,619 (5) 2 5,616
------------------- -------------------- ------------------- ---------------------
$ 56,328 $ (14) $ 13 $ 56,327
=================== ==================== =================== =====================
Contractual maturities:
Amortized Unrealized Unrealized Estimated Fair
Cost Losses Gains Value
------------------- -------------------- ------------------- ---------------------
Within one year ................. $ 24,219 $ (6) $ 6 $ 24,219
One to 3 years .................. 32,109 (8) 7 32,108
------------------- -------------------- ------------------- ---------------------
$ 56,328 $ (14) $ 13 $ 56,327
=================== ==================== =================== =====================
</TABLE>
Short-term and long-term investments consist principally of government
or government agency securities, corporate notes and bonds, commercial paper and
certificates of deposit with original maturities ranging from one to 18 months.
Long-term investments have original maturities ranging from one to three years.
The gross realized gains and losses on sales of available-for-sale securities
were immaterial in the years ended September 30, 1995, December 31, 1996 and
1997 and the three months ended December 31, 1994 and 1995.
<PAGE>
4. Property and equipment
<TABLE>
Property and equipment consists of: (In thousands)
<CAPTION>
December 31, December 31,
1996 1997
------------------------ ------------------------
<S> <C> <C>
Laboratory equipment.................................. $ 2,506 $ 2,912
Furniture and fixtures................................ 974 2,310
Leasehold improvements................................ 1,235 1,235
------------------------ ------------------------
4,715 6,457
Accumulated depreciation and amortization............. (2,967) (3,651)
------------------------ ------------------------
Property and equipment, net........................... $ 1,748 $ 2,806
======================== ========================
</TABLE>
5. Commitments
Equipment with a cost of $749,000 (accumulated amortization of $409,000
and $535,000) at December 31, 1996 and 1997, respectively, is leased under
capital leases.
At December 31, 1997, the Company leases facilities for $20,122 per
month under an operating lease which expires in June 2002. The lease agreement
provides for a cost of living adjustment every two years based on the consumer
price index.
Future minimum annual payments under capital and operating leases ar
as follows: (In thousands)
<TABLE>
Capital Operating
leases leases
-------------------- --------------------
<S> <C> <C>
Year ended December 31,
1998.............................................................. $ 206 $ 258
1999.............................................................. 120 241
2000.............................................................. -- 241
2001 ............................................................. -- 241
2002 ............................................................. -- 121
-------------------- --------------------
Total minimum lease payments...................................... 326 $ 1,102
====================
Less amount representing interest................................. (34)
--------------------
Present value of minimum lease payments........................... 292
Current portion................................................... (178)
--------------------
Amounts due after one year........................................ $ 114
====================
</TABLE>
Rent expense was $179,000, $180,000 and $335,000 for the year ended
September 30, 1995, December 31, 1996 and 1997, respectively. In addition, the
Company paid rent expense of $44,055 (unaudited) and $44,055 for the three month
periods ended December 31, 1994 and December 31, 1995, respectively.
6. Stockholders' equity
Preferred Stock
The Board of Directors, without further action by the stockholders, may issue up
to 15,000,000 shares of preferred stock in one or more series and in such
amounts as may be determined from time to time by the Board of Directors who may
fix the designations, powers, preferences, voting rights and other special
rights and the qualifications, limitations and restrictions of each such series
of preferred stock. The rights and preferences of preferred stock may in all
respects be superior and prior to the rights of the common stock.
Common stock
At December 31, 1997, the Company had reserved 3,770,643 shares of
common stock for issuance for options granted under the Employee and Consultant
Stock Option Plan, 424,707 shares of common stock for issuance under the Stock
Purchase Plans and 693,953 shares of common stock for issuance under warrants.
Warrants
At December 31, 1997, the Company had warrants outstanding to purchase
693,953 shares of common stock at exercise prices ranging from $4.625 to $5.40
per share. Warrants to purchase 24,307, 169,646 and 500,000 shares of common
stock are exercisable on or before September 30, 1999, August 3, 1999 and
October 16, 2001, respectively.
1992 Stock purchase plan
In December 1992, the Company adopted the Employee Stock Purchase Plan
under which employees can purchase shares of the Company's common stock based on
a percentage of their compensation. The purchase price per share must equal at
least the lower of 85% of the market value on the date offered or on the date
purchased. As of December 31, 1997, a total of 117,802 shares had been issued
under the Plan.
1997 Stock purchase plan
In May 1997, the Company adopted the 1997 Employee Stock Purchase Plan
under which employees can purchase shares of the Company's common stock based on
a percentage of their compensation. The purchase price per share must equal at
least the lower of 85% of the market value on the offering date or on the date
purchased. A total of 400,000 shares of Common Stock are reserved for issuance
under the Plan. As of December 31, 1997, a total of 11,337 shares had been
issued under the Plan.
Stock option plan
Under the 1988 Employee and Consultant Stock Option Plan, incentive or
nonqualified stock options to purchase shares of common stock may be granted to
key employees, consultants and directors of the Company. Options must be granted
at not less than 85 percent of the fair market value at the date of grant as
determined by the Board of Directors. During 1997, the Stockholders authorized
an increase in shares available for grant under the Plan by 1,000,000 shares so
that, through December 31, 1997, a total of 4,311,111 shares had been authorized
for issuance under the plan.
<PAGE>
<TABLE>
A summary of stock option activity is as follows:
Weighted
Number of Average
shares Exercise
outstanding Exercise Price
Price Aggregate
------------------- -------------------- --------------- --------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1994............ 1,624,213 $ .59 - $ 5.58 $ 5,001,306
Options granted.......................... 1,307,449 $1.50 - $5.00 2,374,837
Options exercised........................ (78,861) $ .59 (48,009)
Options canceled......................... (1,162,030) $1.17 - $5.58 (4,756,985)
------------------- -------------------- --------------------
Balance at September 30, 1995 ........... 1,690,771 $ .59 - $5.58 2,571,149
Options granted.......................... 356,750 $1.50 - $8.13 1,856,944
Options exercised........................ (13,068) $ .88 - $1.17 (11,790)
Options canceled......................... (25,882) $ .88 - $5.58 (111,557)
------------------- -------------------- --------------- --------------------
Balance at December 31, 1995............. 2,008,571 $ .59 - $8.13 $2.14 4,304,746
Options granted.......................... 657,400 $13.00 - $18.50 $16.19 10,645,550
Options exercised........................ (222,405) $ .59 - $5.58 $1.51 (336,741)
Options canceled......................... (45,710) $ .88 - $13.00 $3.16 (144,543)
------------------- -------------------- --------------- --------------------
Balance at December 31, 1996............. 2,397,856 $ .59 - $18.50 $6.03 14,469,012
Options granted.......................... 1,173,768 $11.88 - $17.00 $14.84 17,416,148
Options exercised........................ (168,301) $.59 - $.8.13 $1.94 (331,234)
Options canceled......................... (241,901) $1.17 - $17.75 $11.58 (2,806,143)
------------------- -------------------- --------------- --------------------
Balance at December 31, 1997............. 3,161,422 $.59 - $18.50 $9.09 $ 28,747,783
=================== ====================
</TABLE>
<PAGE>
<TABLE>
Weighted
Average Weighted
Number Remaining Average Number
Range of Outstanding Contractual Exercise Exercisable as
Exercise Prices as of 12/31/97 Life Price of 12/31/97
- ----------------------- --------------------- -------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
$.59 - $1.63 1,155,508 6.25 $1.36 1,155,508
$2.63 - $14.75 1,210,014 8.97 $11.68 1,210,014
$15.12 - $18.50 795,900 9.03 $16.40 795,900
- ----------------------- --------------------- -------------------- ------------------ -----------------------
$.59 - $18.50 3,161,422 7.99 $9.09 3,161,422
===================== =======================
</TABLE>
At December 31, 1997, options to purchase 609,221 shares of common
stock were available for future grant. Options granted are immediately
exercisable and the resulting shares issued to employees and consultants under
the stock option plan are subject to repurchase by the Company, at the
discretion of the Company, upon termination of employment or association, at the
original purchase price. This right expires as determined by the Board of
Directors, generally over four or five years. At December 31, 1997, there were
no shares of common stock subject to repurchase.
<PAGE>
On May 12, 1995, the Board of Directors authorized the repricing of options to
purchase 1,059,274 shares to fair market value at that date which was $1.625.
All repriced options were subject to a new vesting period of 4 years.
Pro forma information regarding net loss is required by SFAS 123,
computed as if the Company had accounted for its employee stock based
compensation granted subsequent to December 31, 1995 under the fair- value-based
accounting method of that Statement. The value for the stock based compensation
was estimated at the date of grant using the Black-Scholes method with the
following weighted-average assumptions:
1996 1997
--------------------- -------------------
Expected dividend yield 0.00% 0.00%
Risk-free interest rate 5.94% 5.35%
Expected life................. 3.0 years 3.5 years
Volatility factor .6121 .60
The weighted average grant-date fair value of the awards granted in 1996 and
1997 was $9.88 and $9.08, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period. Because Statement 123
is applicable only to awards granted subsequent to December 31, 1995, its pro
forma effect will not be fully reflected until 2000. The effect of applying SFAS
123 to the Company's reported net loss and net loss per share is as follows:
1996 1997
---------------------- -------------------
Net loss
As reported.............. ($16,476,000) ($31,880,000)
Pro forma................ ($17,822,000) ($35,349,000)
Net loss per share
As reported.............. $ (0.80) $ (1.44)
Pro forma................ $ (0.86) $ (1.60)
The Company has recorded as deferred compensation the excess of the
deemed value for accounting purposes of the common stock issuable upon exercise
of options over the aggregate exercise price of such options. This deferred
compensation is amortized over the vesting period of the options, generally four
or five years.
7. Income taxes
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $81,300,000. The net operating loss carryforwards
will expire at various dates beginning in 2001 through 2012, if not utilized.
<PAGE>
Significant components of the Company's deferred tax assets for federal and
state income taxes are as follows: (In thousands)
<TABLE>
December 31,
1996 1997
-------------------- ------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 17,400 $ 28,600
Federal and state research credit carryforwards
(expire 2001-2012) ............................. 2,200 3,000
Capitalized research and development costs...... 5,100 7,300
Capitalized licenses............................ 1,900 1,400
Other - net..................................... 600 (1,000)
-------------------- ------------------
Total deferred tax assets....................... 27,200 39,300
Valuation allowance for deferred tax assets... (27,200) (39,300)
-------------------- -------------------
Net deferred tax assets......................... $ -- $ --
==================== ===================
</TABLE>
The valuation allowance increased by $1,998,000, $7,650,000 and
$12,100,000 during the years ended September 30, 1995 and December 31, 1996 and
1997, respectively.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
8. Related party transactions
A note receivable from an officer totaling $123,000 at December 31,
1996, bearing interest of 8.75% per annum was paid in full (including accrued
interest of $7,000) on the maturity date of August 8, 1997.
Additional notes receivable from an officer totaling $110,000 were
issued during 1997 bearing an interest rate of 5.81% per annum, and secured by
the officer's personal equity securities account and personal real property. The
first note totaling $75,000 and bearing an interest rate of 5.81% per annum,
will be forgiven as compensation expense to the officer at a rate of 33% per
year pending the officers continued employment by the Company. An additional
note of $35,000 bears interest at 5.81% per annum and is due in full on February
28, 2000, or immediately if the officer's employment with the Company is
terminated by him or by the Company for cause.
On January 1, 1995, the Company entered into a Consultant Agreement
with Plexus Ventures, Inc. ("Plexus"), a Pennsylvania corporation wholly-owned
by a director of the Company. This agreement was terminated by the Company upon
the successful contract negotiations with Beaufour Ipsen of France for
CORLOPAM(R) for which Plexus assisted. Plexus remains entitled to certain
success fees payable in cash and stock, based upon the total value of certain
future transactions with Beaufour Ipsen. For the year ended December 31, 1996,
the Company incurred expenses from Plexus valued at $4,000 and none in the year
ended December 31, 1997.
On July 18, 1996, the Company entered into a Business Development
Agreement with Plexus to assist the Company in the development, registration and
commercialization of Neurex products in certain Asian countries. Under the terms
of the agreement, Plexus received options to purchase 25,000 shares of common
stock, will receive monthly retainer fees, and is entitled to receive success
fees, based upon the total value of transactions entered into by the Company
with the assistance of Plexus. The term of the agreement was 12 months and
expired
<PAGE>
in July 1997. The Company incurred expenses of approximately $29,000 and
$60,000, for the years ended December 31, 1996 and 1997, respectively.
A director of the Company is a partner with a law firm that rendered
various legal services to the Company. The Company incurred costs from that law
firm of approximately $305,000 for year ended September 30, 1995, and $441,000
and $275,000 for the years ended December 31, 1996 and 1997, respectively. In
addition, the Company incurred costs of $64,000 (unaudited) and $150,000 for the
three month periods ended December 31, 1994 and 1995, respectively.
See Note 2 for a description of related party transactions with
strategic partners.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from
the information under the caption "Election of Directors," with respect to
Directors, and under the caption "Management," with respect to Executive
Officers contained in the Company's Definitive Proxy Statement which will be
filed with the Securities and Exchange Commission in connection with the
solicitation of proxies for the Company's Annual Meeting of Stockholders to be
held on May 7, 1998 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the information under the caption "Executive Compensation" contained in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the information under the caption "Certain Transactions" contained in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents
1. Financial Statements
Reference is made to the Index to Financial Statements under Item 8 of
Part II hereof, where these documents are included.
2. Financial Statement Schedules
All schedules have been omitted because the information required to be
set forth therein is not required or is shown in the financial statements or
notes thereto.
3. Exhibits
The exhibits listed in the following Exhibit Index are filed as part of
this Report.
<PAGE>
<TABLE>
Manner
Exhibit of
Number Description Filing
<S> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of Neurex Corporation, dated
September 27, 1993 ............................................................. (1)
3.2 -- Amended and Restated Bylaws of Neurex Corporation as Adopted by the Board of
Directors and Stockholders on November 6, 1987, as Amended on March 3, 1988,
January 1, 1989, November 16, 1989, and December 8, 1992........................ (2)
10.1 -- Lease, dated July 1, 1982 between Engenics, Inc. and Ronald C. Campbell, at
3760 Haven Avenue, Menlo Park, California, Assignment and Assumption of
Lease between Engenics Inc. and Neurex Corporation, dated January 29, 1988...... (2)
10.1A -- Amendment to the Lease between Ronald C. Campbell and Neurex Corporation,
dated August 6, 1992 ........................................................... (2)
10.2 -- 1988 Employee and Consultant Stock Option Plan and amendments thereto (7)
10.3 -- Employment Agreement between Neurex Corporation and Paul Goddard, Ph.D.,
dated January 8, 1991 .......................................................... (2)
10.3A -- Amendment to Employment Agreement, dated December 21, 1995...................... *
10.4 -- Employment Agreement between Neurex Corporation and Bradford M. Wait,
dated January 14, 1992 ......................................................... (2)
10.4A -- Amendment to Employment Agreement, dated December 21, 1995 *
10.5 -- Employment Agreement between Neurex Corporation and Roberto Crea, Ph.D.,
dated June 29, 1994 ............................................................ (3)
10.5A -- Amendment to Employment Agreement dated December 21, 1995....................... *
10.6 -- Amended and Restated Registration Rights Agreement between Neurex
Corporation and certain purchasers, dated October 16, 1995...................... (8)
10.7 -- Agreement between National Institute of Mental Health and Neurex Corporation
dated June 11, 1991 ............................................................ (2)
10.8 -- Employment Agreement between Neurex Corporation and Robert R. Luther, dated
February 7, 1992 ............................................................... (2)
10.8A -- Amendment to Employment Agreement, dated December 21, 1995...................... *
10.9 -- Agreement between National Institute of Neurological Disorders and Stroke and
Neurex Corporation, dated August 25, 1992 ...................................... (2)
10.10 -- Research and Development Collaboration Agreement between Neurex Corporation
and Warner-Lambert Company, dated as of May 25, 1993............................ (2)+
10.10A -- Amendment to Research and Development Collaboration Agreement between
Neurex Corporation and Warner-Lambert Company, dated September 25, 1996......... *+
10.11 -- Ziconotide License Agreement between Neurex Corporation and Warner-Lambert
Company, dated as of May 25, 1993 .............................................. (2)+
10.11A -- Amendment to ziconotide License Agreement between Neurex Corporation and
Warner-Lambert Company, dated September 13, 1995................................ (7)+
10.12 -- Agreement to Purchase Stock between Neurex Corporation and Warner-Lambert
Company, dated as of May 25, 1993 .............................................. (2)
10.12A -- Amendment to Agreement to Purchase Stock between Neurex Corporation
and Warner-Lambert Company, dated September 13, 1995............................ (7)+
10.13 -- License and Supply Agreement between Neurex Corporation and SmithKline
Beecham Corporation, dated April 5, 1994 ....................................... (3)
10.14 -- Investment Agreement between Neurex Corporation and Medtronic, Inc., dated
April 21, 1994 ................................................................. (4)+
10.14A -- Development and License Agreement between Neurex Corporation and
Medtronic, Inc., dated April 21, 1994 .......................................... (4)+
10.14B -- Amendment to Development and License Agreement between Neurex
Corporation and Medtronic, Inc., dated August 3, 1995........................... (7)+
10.14C -- Investment Agreement between Neurex Corporation and Medtronic, Inc., dated
August 3, 1995 ................................................................. (7)+
10.14C(1) -- Warrant A issued by the Company to Medtronic, Inc., dated August 3, 1995 *
10.14C(2) -- Agreement as to Alternative Dispute Resolution between the Company and
Medtronic, Inc., dated August 3, 1995 .......................................... *
10.14C(3) -- Convertible Promissory Note issued by the Company to Medtronic, Inc., dated
August 3, 1995 (as amended to include certain portions previously redacted)..... *+
10.14C(4) -- Security Agreement between the Company and Medtronic, Inc., dated
August 3, 1995 (as amended to include certain portions previously redacted)..... *+
10.14C(5) -- Warrant B issued by the Company to Medtronic, Inc. dated October 16, 1995....... *
10.14C(6) -- Disclosure Schedules relating to Investment Agreement between the Company
and Medtronic, Inc., dated August 3, 1995 (as amended to include certain portions
previously redacted) ........................................................... *+
10.14C(7) -- Exhibit G to Investment Agreement between the Company and Medtronic, Inc. *+
10.15 -- Agreement and Plan of Reorganization between Neurex Corporation and Creagen,
Inc., dated July 8, 1994 ....................................................... (5)
10.16 -- Collaboration Agreement between Creagen, Inc. and Vascular Laboratories, Inc.,
dated July 8, 1994 ............................................................. (3)+
10.17 -- Option Agreement between Creagen, Inc. and New England Deaconess Hospital,
dated July 8, 1994 ............................................................. (6)+
10.18 -- Promissory Note issued by Roberto Crea, Ph.D. to Neurex Corporation, dated
August 6, 1994 ................................................................. (3)
10.19 -- Development Agreement among Neurex Corporation, Abbott Laboratories and
Warner-Lambert Company, dated October 4, 1994 .................................. (3)+
10.20 -- Cost sharing agreement between Neurex Corporation and Warner-Lambert
Company, dated October 4, 1994 ................................................. (3)
10.21 -- CORLOPAM Consultant Agreement between Neurex Corporation and Plexus
Ventures, Inc., dated January 1, 1995, as amended October 25, 1995.............. *
10.22 -- Consultant Agreement between Neurex Corporation and Plexus Ventures, Inc.,
dated July 18, 1996, involving business development in Asia..................... *
10.23 -- Systematic Stock Sales Program, adopted July 11, 1996........................... (9)
10.23A -- Amendment to Systematic Stock Sales Program, dated August 19,1996............... (10)
10.24 -- Promissory Note issued by John M. Ames to Neurex Corporation, dated August
20, 1996........................................................................ *
10.25 -- Promissory Note issued by John M. Ames to Neurex Corporation, dated August
20, 1996........................................................................ *
10.26 -- Form Indemnification Agreement between Neurex Corporation and its officers,
directors and agents............................................................ (9)
10.27 -- License and Supply Agreement between Neurex Corporation and Beaufour Ipsen,
dated November 11, 1996......................................................... *+
10.28 -- Manufacturing and Supply Agreement Neurex Corporation and Mallinckrodt
Chemicals, Inc., dated October 24, 1996 ........................................ *+
10.29 -- Lease Agreement between Neurex Corporation and WVP Income Plus III, at 4040
Campbell Avenue, Menlo Park, California, dated December 12, 1996................ *
22 -- List of Subsidiaries ........................................................... *
23 -- Consent of Ernst & Young LLP, Independent Auditors.............................. **
27.1 1997 Financial Data Schedule.................................................... **
27.2 1996 Financial Data Schedule.................................................... **
27.3 1995 Financial Data Schedule.................................................... **
28 -- Press release announcing the resignation of John M. Ames as Chief Financial
Officer and Vice-President and the appointment of Bradford M. Wait as Chief
Financial Officer............................................................... *
</TABLE>
==========
* Filed previously
** Filed herewith
+ Confidential treatment of certain portions of these agreements has been
granted by the Securities and Exchange Commission.
(1) Incorporated by Reference from the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (No. 33-45873) declared effective on September 22, 1993.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994.
(4) Incorporated by reference from the Company's Report on Form 8-K dated April
21, 1994.
(5) Incorporated by reference from the Company's Report on Form 8-K dated July
29, 1994.
(6) Incorporated by reference from the Company's Report on Form 8-K dated August
5, 1994.
(7) Incorporated by reference from the Company's Registration Statement on
Form S-1 (No. 33-96840) declared effective October 11, 1995.
(8) Incorporated by reference from the Company's Annual report on Form 10-K
for the fiscal year ended September 30, 1995.
(9) Incorporated by reference from the Company's Report on Form 8-K dated July
26, 1996.
(10)Incorporated by reference from the Company's Report on Form 8-K dated
September 12, 1996.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 1997.
<PAGE>
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.
NEUREX CORPORATION
By /s/ Paul Goddard
-------------------------------------------
Paul Goddard, Ph.D.
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
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.
Date Title & Signature
3/23/1998 By /s/ Paul Goddard
-------------------------------------------
Paul Goddard, Ph.D.
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
3/23/1998 By /s/ Thomas L. Barton
-------------------------------------------
Thomas L. Barton
General Counsel, Secretary and Director
3/23/1998 By /s/ David L. Anderson
-------------------------------------------
David L. Anderson
Director
3/23/1998 By /s/ John F. Chappell
-------------------------------------------
John F. Chappell
Director
3/23/1998 By /s/ John Glynn
-------------------------------------------
John Glynn
Director
3/23/1998 By /s/ Howard E. Greene, Jr.
-------------------------------------------
Howard E. Greene, Jr.
Director
3/23/1998 By /s/ Raymond C. Egan
-------------------------------------------
Raymond C. Egan
Director
3/23/98 By /s/ Gerard N. Burrow
-------------------------------------------
Gerard N. Burrow, M.D.
Director
3/23/1998 By /s/ Robert Luther
-------------------------------------------
Robert Luther, M.D.
Executive Vice President Development and
Director
3/23/1998 By /s/ John Varian
-------------------------------------------
John Varian
Vice President Finance and Administration
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-76976) pertaining to the Neurex Corporation Employee
Stock Purchase Plan and the 1988 Employee and Consultant Stock Option Plan of
Neurex Corporation of our report dated February 5, 1998 with respect to the
consolidated financial statements of Neurex Corporation included in the Annual
Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Palo Alto, California
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
NEUREX CORPORATION FINANCIAL DATA SCHEDULE
ARTICLE 5
This schedule contains summary financial information extracted from
financial statements for the year ending December 31, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY>U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 11,297
<SECURITIES> 40,505
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,079
<PP&E> 6,457
<DEPRECIATION> (3,651)
<CURRENT-LIABILITIES> 7,649
<TOTAL-ASSETS> 60,664
<BONDS> 0
0
0
<COMMON> 222
<OTHER-SE> 48,554
<TOTAL-LIABILITY-AND-EQUITY> 60,664
<SALES> 0
<TOTAL-REVENUES> 2,392
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (252)
<INCOME-PRETAX> (31,880)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,880)
<EPS-PRIMARY> (1.44)
<EPS-DILUTED> (1.44)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.2
NEUREX CORPORATION FINANCIAL DATA SCHEDULE
ARTICLE 5
This schedule contains summary financial information extracted from
financial statements for the year ending December 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY>U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 40,552
<SECURITIES> 36,817
<RECEIVABLES> 46
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,749
<PP&E> 4,715
<DEPRECIATION> 2,967
<CURRENT-LIABILITIES> 11,774
<TOTAL-ASSETS> 89,571
<BONDS> 0
0
0
<COMMON> 220
<OTHER-SE> 79,737
<TOTAL-LIABILITY-AND-EQUITY> 89,571
<SALES> 0
<TOTAL-REVENUES> 3,576
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (186)
<INCOME-PRETAX> (16,476)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,476)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,476)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.3
NEUREX CORPORATION FINANCIAL DATA SCHEDULE
ARTICLE 5
This schedule contains summary financial information extracted from
financial statements for the year ending September 30, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY>U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Sep-30-1995
<PERIOD-END> Sep-30-1995
<EXCHANGE-RATE> 1.00
<CASH> 9,794
<SECURITIES> 2,959
<RECEIVABLES> 2,523
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,537
<PP&E> 4,094
<DEPRECIATION> (2,433)
<TOTAL-ASSETS> 17,617
<CURRENT-LIABILITIES> 6,168
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 3,155
<TOTAL-LIABILITY-AND-EQUITY> 17,617
<SALES> 0
<TOTAL-REVENUES> 2,662
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,686
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (256)
<INCOME-PRETAX> (9,989)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,989)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
