SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Mark One:
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27324
SYNAPTIC PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2859704
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
215 College Road
Paramus, NJ 07652
(Address of principal executive offices) (Zip Code)
(201) 261-1331
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of July 28, 1997, there were 7,648,447 shares of the registrant's Common
Stock outstanding.
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 1
Balance Sheets at June 30, 1997 and December 31, 1996 1
Statements of Operations for the three months ended
June 30, 1997 and 1996, and for the six months ended
June 30, 1997 and 1996 2
Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 3
Note to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
(i)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYNAPTIC PHARMACEUTICAL CORPORATION
BALANCE SHEETS
(in thousands, except share information)
ASSETS
June 30, December 31,
1997 1996
---------- -----------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 7,332 $ 4,589
Restricted cash 712 --
Marketable securities--current maturities 20,218 21,418
Revenue receivable under collaborative agreement 192 192
Restricted security -- 712
Other current assets 588 458
------- -------
Total current assets 29,042 27,369
Property and equipment, net 3,910 2,664
Marketable securities 3,548 8,677
Patent and patent application costs,
net of accumulated amortization 1,476 1,645
------- -------
$37,976 $40,355
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 45 $ 106
Accounts payable 386 639
Accrued liabilities 301 189
Accrued compensation 204 380
------- -------
Total current liabilities 936 1,314
Stockholders' equity:
Preferred Stock, $.01 par value; authorized--
1,000,000 shares; issued--none -- --
Common Stock, $.01 par value; authorized--
25,000,000 shares; issued and outstanding--7,646,579
shares in 1997 and 7,633,543 shares in 1996 76 76
Additional paid-in capital 63,247 63,231
Net unrealized gains (losses) on securities 5 (1)
Deferred compensation (224) (296)
Accumulated deficit (26,064) (23,969)
------- -------
Total stockholders' equity 37,040 39,041
------- -------
$37,976 $40,355
======= =======
See note to financial statements.
1
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except share and per share information)
(Unaudited)
For the three months For the six months
ended June 30, ended June 30
1997 1996 1997 1996
------- ------- ------- -------
Revenues:
Contract revenue $ 2,755 $ 1,711 $ 5,310 $ 3,422
Grant revenue 102 70 242 140
------- ------- ------- -------
Total revenues 2,857 1,781 5,552 3,562
Expenses:
Research and development 3,343 2,822 6,691 5,484
General and administrative 957 678 1,922 1,364
------- ------- ------- -------
Total expenses 4,300 3,500 8,613 6,848
------- ------- ------- -------
Loss from operations (1,443) (1,719) (3,061) (3,286)
Other income, net:
Interest income 485 457 970 926
Interest expense (1) (6) (4) (11)
Gain on sale of securities -- 212 -- 212
------- ------- ------- -------
Other income, net 484 663 966 1,127
------- ------- ------- -------
Net loss $ (959) $(1,056) $(2,095) $(2,159)
======= ======= ======= =======
Net loss per share $(0.13) $(0.14) $(0.27) $(0.29)
====== ====== ====== ======
Shares used in computation
of net loss per share 7,646,085 7,575,452 7,640,454 7,534,736
========= ========= ========= =========
See note to financial statements.
2
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the six months
ended June 30,
1997 1996
------- -------
Operating activities:
Net loss $(2,095) $(2,159)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 584 481
Amortization of (discounts)/ premiums on securities (72) 9
Amortization of deferred compensation 65 98
Gain on sale of securities -- (212)
Changes in operating assets and liabilities:
Increase in other current assets (130) (367)
Decrease in accounts payable, accrued liabilities
and accrued compensation (317) (362)
Increase in collaborative agreement
revenue receivable -- 129
Decrease in deferred revenue -- 328
------- -------
Net cash used in operating activities (1,965) (2,055)
Investing activities:
Sale or maturity of investments 10,350 6,710
Purchase of investments (3,943) (30,238)
Purchases of property and equipment (1,661) (441)
Increase in patent and patent application costs -- (324)
------- -------
Net cash provided by (used in) investing activities 4,746 (24,293)
Financing activities:
Issuance of common stock, net of repurchases 23 2,968
Payments on capital lease (61) (67)
Payments on notes receivable from stockholders -- 6
------- -------
Net cash (used in) provided by financing activities (38) 2,907
------- -------
Net increase (decrease) in cash and cash equivalents 2,743 (23,441)
Cash and cash equivalents at beginning of period 4,589 27,681
------- -------
Cash and cash equivalents at end of period $ 7,332 $ 4,240
======= =======
See note to financial statements.
3
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
NOTE TO FINANCIAL STATEMENTS
June 30, 1997
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and may not include all
information and footnotes required for a presentation in accordance with
generally accepted accounting principles. In the opinion of the management of
Synaptic Pharmaceutical Corporation (the "Company"), these financial
statements include all normal and recurring adjustments necessary for a fair
presentation of the financial position and the results of operations and cash
flows of the Company for the interim periods presented. For more complete
financial information, these financial statements should be read in
conjunction with the audited financial statements for the fiscal year ended
December 31, 1996, and notes thereto included in the Company's 1996 Annual
Report on Form 10-K. The results of operations for the interim periods ended
June 30, 1997, are not necessarily indicative of the results of operations to
be expected for the full year.
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Synaptic Pharmaceutical Corporation is a biotechnology company engaged
in the development of a broad platform of enabling technology which it calls
"human receptor-targeted drug design technology." It is utilizing this
technology both to discover and clone the genes that code for human receptor
subtypes associated with specific disorders and to design compounds that can
potentially be developed as drugs for treating these disorders. The Company is
engaged in collaborations with four pharmaceutical companies: Eli Lilly and
Company ("Lilly"), Merck & Co., Inc. ("Merck"), Novartis Pharma A.G.
("Novartis"), and The Dupont Merck Pharmaceutical Company ("Dupont Merck").
Since inception, the Company has financed its operations primarily through the
sale of stock and through funds provided by its collaborative partners Lilly,
Merck and Novartis under collaborative agreements.
Under its collaborative agreements, the Company may receive one or two
types of revenue from its collaborative partners: contract revenue and license
revenue. Contract revenue includes research funding to support a specified
number of the Company's scientists and payments upon the achievement of
specified research and development milestones. Research funding revenue is
recognized ratably over the period of the agreement to which it relates and is
based upon predetermined funding requirements. Research milestone payment
revenue is recognized when the related research milestone is achieved. License
revenue represents non-refundable payments for licenses to the Company's
technology and drug discovery systems. Non-refundable payments for licenses
are recognized at such time as they are received or, if earlier, become
guaranteed. In addition to contract revenue and license revenue, if a drug is
developed as a result of any of the collaborative agreements between the
Company and its collaborative partners, the Company is entitled to receive
royalty payments based upon the sale of such drugs.
The Company also receives revenues from government grants under the
Small Business Innovative Research ("SBIR") program of the National Institutes
of Health.
To date, the Company's expenditures have been for research and
development related expenses, general and administrative related expenses,
fixed asset purchases and various patent related expenditures incurred in
protecting the Company's technologies. The Company has been historically
unprofitable and had an accumulated deficit of $26,064,000 at June 30, 1997.
The Company expects to continue to incur operating losses for a significant
number of years and may not become profitable, if at all, until it begins to
receive royalty revenue. To date, the Company has not received any royalty
revenue and does not expect to receive such revenue for a significant number
of years, if at all.
Results of Operations
Comparison of the Three Months Ended June 30, 1997 and 1996
Revenues. The Company recognized revenue of $2,857,000 and $1,781,000
for the three months ended June 30, 1997 and 1996, respectively. The increase
of $1,076,000 was attributable primarily to: an increase in contract revenue
of $1,044,000; and an increase in grant revenue of $32,000. The increase in
contract revenue was primarily due to: the expansion of the Company's
collaborative arrangement with Lilly; an increase in rates charged per full-
time equivalent scientist under all of the collaborative arrangements from
which the Company is receiving funding; and the receipt in the second quarter
of a milestone payment from one of the Company's collaborative partners.
5
<PAGE>
Research and Development Expenses. The Company incurred research and
development expenses of $3,343,000, and $2,822,000 for the three months ended
June 30, 1997 and 1996, respectively. The increase of $521,000, or 18%, in
research and development expenses was attributable primarily to: an increase
of $254,000 in compensation expense resulting from a net average headcount
increase of 22 research personnel and an associated increase in fringe benefit
expenses as well as annual salary increases for the scientific staff; an
increase of $134,000 in research supply costs; and an increase of $120,000 in
facility related costs.
General and Administrative Expenses. The Company incurred general and
administrative expenses of $957,000 and $678,000 for the three months ended
June 30, 1997 and 1996, respectively. The increase of $279,000, or 41%, was
attributable primarily to $170,000 in patent and patent related expenses for
the quarter ended June 30, 1997 resulting from a change in the Company's
accounting estimate, effective October 1, 1996, regarding the expensing of all
patent and patent application costs as incurred; and $79,000 in compensation
expense resulting from a net average headcount increase of 3 administrative
personnel and an associated increase in fringe benefit expense as well as
annual salary increases for the administrative staff.
Other Income, Net. The Company recorded other income, net of interest
expense, of $484,000 and $663,000 for the three months ended June 30, 1997 and
1996, respectively. The decrease of $179,000 was primarily attributable to
the recognition in May of 1996 of a gain on sale of securities of $212,000.
Net Loss and Net Loss Per Share. The net loss incurred by the Company
was $959,000 ($0.13 per share), and $1,056,000 ($0.14 per share) for the three
months ended June 30, 1997 and 1996, respectively.
Comparison of the Six Months Ended June 30, 1997 and 1996
Revenues. The Company recognized revenue of $5,552,000 and $3,562,000
for the six months ended June 30, 1997 and 1996, respectively. The increase
of $1,990,000 was attributable primarily to: an increase in contract revenue
of $1,888,000; and an increase in grant revenue of $102,000. The increase in
contract revenue was primarily due to: the expansion of the Company's
collaborative arrangement with Lilly; an increase in rates charged per full-
time equivalent scientist under all of the collaborative arrangements from
which the Company is receiving funding; and the receipt in the second quarter
of a milestone payment from one of the Company's collaborative partners.
Research and Development Expenses. The Company incurred research and
development expenses of $6,691,000, and $5,484,000 for the six months ended
June 30, 1997 and 1996, respectively. The increase of $1,207,000, or 22%, in
research and development expenses was attributable primarily to: an increase
of $566,000 in compensation expense resulting from a net average headcount
increase of 21 research personnel and an associated increase in fringe benefit
expenses as well as annual salary increases for the scientific staff; an
increase of $399,000 in research supply costs; and an increase of $155,000 in
facility related costs.
General and Administrative Expenses. The Company incurred general and
administrative expenses of $1,922,000 and $1,364,000 for the six months ended
June 30, 1997 and 1996, respectively. The increase of $558,000, or 41%, was
attributable primarily to $478,000 in patent and patent related expenses for
the six months ended June 30, 1997 resulting from a change in the Company's
accounting estimate, effective October 1, 1996, regarding the expensing of all
patent and patent application costs as incurred.
Other Income, Net. The Company recorded other income, net of interest
expense, of $966,000 and $1,127,000 for the six months ended June 30, 1997 and
1996, respectively. The decrease of $161,000 was primarily attributable to
the recognition in May of 1996 of a gain on sale of securities of $212,000.
6
<PAGE>
Net Loss and Net Loss Per Share. The net loss incurred by the Company
was $2,095,000 ($0.27 per share), and $2,159,000 ($0.29 per share) for the six
months ended June 30, 1997 and 1996, respectively.
The Company does not believe that inflation has had a material impact
on its results of operations for either the three month period or the six month
period which ended June 30, 1997.
Liquidity and Capital Resources
At June 30, 1997 and December 31, 1996, cash, cash equivalents and
marketable securities were in the aggregate $31,098,000 and $34,684,000,
respectively. The decrease of $3,586,000 was attributable primarily to the net
loss for the six months of $2,095,000 and the purchase of capital equipment
and leasehold improvements of $1,661,000. In addition to the cash, cash
equivalents and marketable securities described above, the Company had
$712,000 in restricted cash recorded in its balance sheet at June 30, 1997.
This restricted cash is held in one of the Company's investment accounts and
secures lease payments to the Company's landlord for one full year and secures
the outstanding balance due on an equipment lease.
To date, the Company has met its cash requirements through the sale of
its stock, through licensing fees, research funding and milestone payments
received under the collaborative agreements with Lilly, Merck and Novartis,
through SBIR grants and through interest earned on its investments. As of
June 30, 1997, the Company had received: approximately $62,000,000 from the
sale of its stock; approximately $43,000,000 in licensing fees, research
funding and milestone payments under its collaborative arrangements;
approximately $2,900,000 in SBIR grants; and approximately $5,400,000 in other
income, net. To date, the portion of these funds that has been expended by
the Company has been used principally to fund research and development, to
purchase fixed assets used primarily in its research activities, to create its
patent estate and to pay general and administrative support costs.
At June 30, 1997, the Company was involved in collaborative
arrangements with Lilly, Merck, Novartis and Dupont Merck. Lilly, Merck and
Novartis are providing research funding to the Company during 1997 and Lilly
and Novartis are expected to provide research funding to the Company during
1998. The aggregate amount of research funding under these arrangements which
the Company expects to receive during the remainder of 1997 and during 1998 is
approximately $4,600,000 and $6,700,000, respectively. The Company's
collaborative arrangement with DuPont Merck does not provide for any research
funding. Research funding under the Lilly agreement is scheduled to expire
on December 31, 1998. Research funding under the Merck agreement is scheduled
to expire on November 30, 1997 but Merck has the right to terminate the
collaboration earlier by giving 90 days' prior written notice. Research
funding under the Novartis agreements is scheduled to expire on August 3,
1998. The research collaboration with DuPont Merck is scheduled to expire on
February 5, 1998.
At June 30, 1997, the Company had invested an aggregate of $7,220,000
in property and equipment. The Company leases laboratory and office facilities
under an agreement expiring on December 31, 1999. The minimum annual payment
under the lease is $691,000.
During the first six months of 1997, the Company spent approximately
$1,660,000 on capital improvements. Of this amount, approximately $1,400,000
related to the expansion of laboratory space and improvements to the Company's
assay screening systems and was committed in the fourth quarter of 1996. The
remaining $260,000 in property and equipment purchases that occurred during
the first six months of 1997 related to ongoing capital expenditures. At June
30, 1997, the Company had committed approximately $250,000 for capital costs
relating to improvements in its assay screening and data base management
systems.
7
<PAGE>
At June 30, 1997 the Company had available funds of $31,098,000. The
Company expects to continue to incur operating losses for a significant number
of years. In addition, the Company continues to convert currently
underutilized space into laboratory facilities beyond the level which existed
at June 30, 1997. The Company believes that its cash on hand, together with
the funds it will receive from its collaborative partners, interest income and
funds received under SBIR grants, will be sufficient to fund an increased
operating expense level through June 30, 1999.
This management discussion and analysis of financial condition and
results of operations includes "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These forward looking
statements include, but are not limited to, those relating to future cash and
spending plans, amounts of future research funding, and any other statements
regarding future growth, future cash needs, future operations, business plans
and financial results, and any other statements which are not historical
facts. When used in this document, the words "expect," "may," "believes," and
similar expressions are intended to be among the words that identify forward
looking statements. Such forward looking statements involve risks and
uncertainties, including, but not limited to those risks and uncertainties and
other factors set forth as "Cautionary Statements" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 or detailed from time
to time in filings that the company makes with the Securities and Exchange
Commission. The forward looking statements included herein are qualified in
their entirety by the Cautionary Statements. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary from those indicated. Although the
Company believes that the expectations reflected in the forward looking
statements contained herein are reasonable, it can give no assurance that such
expectations will prove to be correct.
8
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 15, 1997, the Company held its annual meeting of stockholders
for the following purposes: (i) to elect two Class I directors to the Board of
Directors (Proposal No. 1); and (ii) to ratify the appointment by the Board of
Directors of Ernst & Young LLP as the independent auditors of the Company for
the fiscal year ending December 31, 1997 (Proposal No. 2).
The stockholders elected the persons named below, the Company's
nominees for director, as Class I directors of the Company, casting votes for
such nominees or withholding votes as indicated:
VOTES FOR VOTES WITHHELD
Sandra Panem 5,092,638 71,263
Alison Taunton-Rigby 5,092,638 71,263
The stockholders approved Proposal No. 2 as follows:
VOTES FOR VOTES AGAINST VOTES ABSTAINED BROKER NON-VOTES
5,160,003 2,310 1,588 0
9
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
- ------- -----------
11 Statement Regarding Computation of Per Share Earnings (Loss)
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the fiscal
quarter ended June 30, 1997.
10
<PAGE>
SIGNATURE PAGE
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.
SYNAPTIC PHARMACEUTICAL CORPORATION
(Registrant)
Date: August 8, 1997 By:/s/ Kathleen P. Mullinix
-----------------------------
Name: Kathleen P. Mullinix
Title: Chairman, President &
Chief Executive Officer
By:/s/ Robert L. Spence
-----------------------------
Name: Robert L. Spence
Title: Senior Vice President,
Chief Financial Officer &
Treasurer
11
<PAGE>
EXHIBIT 11
SYNAPTIC PHARMACEUTICAL CORPORATION
Computation of Primary Net Loss Per Share
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Weighted average common
shares outstanding 7,646,085 7,575,452 7,640,454 7,534,736
========== ========== ========== ==========
Net loss ($ 959,000) ($1,056,000) ($2,095,000) ($2,159,000)
========== ========== ========== ==========
Net loss per share $(0.13) ($0.14) $(0.27) ($0.29)
==== ==== ==== =====
<PAGE>
EXHIBIT 11
SYNAPTIC PHARMACEUTICAL CORPORATION
Computation of Fully Diluted Net Loss Per Share
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Weighted average common
shares outstanding 7,646,085 7,575,452 7,640,454 7,534,736
Shares underlying common
stock options outstanding
considered exercised,
based on the treasury
stock method 273,789 310,066 285,681 308,414
Shares underlying 1993
Warrants outstanding
considered exercised,
based on the treasury
stock method 39,866 52,024 41,486 55,145
---------- ---------- ---------- ----------
Shares used in computation
of net loss per share 7,959,740 7,937,542 7,967,621 7,898,295
========== ========== ========== ==========
Net loss ($ 959,000) ($1,056,000) ($2,095,000) ($2,159,000)
========== ========== ========== ==========
Net loss per share ($0.12) ($0.13) ($0.26) ($0.27)
===== ===== ===== =====
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,332,000
<SECURITIES> 23,766,000
<RECEIVABLES> 192,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,042,000
<PP&E> 7,220,000
<DEPRECIATION> 3,310,000
<TOTAL-ASSETS> 37,976,000
<CURRENT-LIABILITIES> 936,000
<BONDS> 0
0
0
<COMMON> 76,000
<OTHER-SE> 36,964,000
<TOTAL-LIABILITY-AND-EQUITY> 37,976,000
<SALES> 0
<TOTAL-REVENUES> 5,552,000
<CGS> 0
<TOTAL-COSTS> 8,613,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> (2,095,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,095,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,095,000)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> 0
</TABLE>
