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 March 31, 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 May 1, 1997, there were 7,646,354 shares of the registrant's Common Stock
outstanding.
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 1
Balance Sheets at March 31, 1997 and December 31, 1996 1
Statements of Operations for the three months ended
March 31, 1997 and 1996 2
Statements of Cash Flows for the three months ended
March 31, 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 6. Exhibits and Reports on Form 8-K 8
Signatures 9
(i)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYNAPTIC PHARMACEUTICAL CORPORATION
BALANCE SHEETS
(in thousands, except share information)
ASSETS
March 31, December 31,
1997 1996
---------- -----------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 3,717 $ 4,589
Restricted cash 712 --
Marketable securities--current maturities 20,228 21,418
Revenue receivable under collaborative agreement 192 192
Restricted security -- 712
Other current assets 663 458
------- -------
Total current assets 25,512 27,369
Property and equipment, net 3,533 2,664
Marketable securities 8,641 8,677
Patent and patent application costs,
net of accumulated amortization 1,561 1,645
------- -------
$39,247 $40,355
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 84 $ 106
Accounts payable 609 639
Accrued liabilities 342 189
Accrued compensation 102 380
------- -------
Total current liabilities 1,137 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--7,635,756 shares in
1997 and 7,633,543 shares in 1996; outstanding--
7,635,443 shares in 1997 and 7,633,543 shares in 1996 76 76
Additional paid-in capital 63,229 63,231
Net unrealized gains on securities 168 (1)
Deferred compensation (257) (296)
Accumulated deficit (25,105) (23,969)
------- -------
38,111 39,041
Less: Treasury stock, at cost (1) --
------- -------
Total stockholders' equity 38,110 39,041
------- -------
$39,247 $40,355
======= =======
See note to financial statements.
1
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SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except share and per share information)
(Unaudited)
For the three months
ended March 31,
1997 1996
------- -------
Revenues:
Contract revenue $ 2,555 $ 1,711
Grant revenue 140 70
------- -------
Total revenues 2,695 1,781
Expenses:
Research and development 3,348 2,663
General and administrative 965 685
------- -------
Total expenses 4,313 3,348
------- -------
Loss from operations (1,618) (1,567)
Other income, net:
Interest income 485 469
Interest expense (3) (6)
------- -------
Other income, net 482 463
------- -------
Net loss $(1,136) $(1,104)
======= =======
Net loss per share $(0.15) $(0.15)
====== ======
Shares used in computation of net loss
per share 7,634,760 7,494,020
========= =========
See note to financial statements.
2
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the three months
ended March 31,
1997 1996
------- -------
Operating activities:
Net loss $(1,136) $(1,104)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 270 242
Amortization of (discounts)/ premiums on securities (50) 10
Amortization of deferred compensation 33 37
Changes in operating assets and liabilities:
Increase in other current assets (917) (102)
Decrease in accounts payable, accrued liabilities
and accrued compensation (155) (420)
Increase in collaborative agreement
revenue receivable -- (387)
Decrease in deferred revenue -- (821)
------- -------
Net cash used in operating activities (1,955) (2,545)
Investing activities:
Sale or maturity of investments 4,400 2,000
Purchase of investments (2,243) --
Purchases of property and equipment (1,055) (129)
Increase in patent and patent application costs -- (145)
------- -------
Net cash provided by investing activities 1,102 1,726
Financing activities:
Issuance of common stock, net of repurchases 3 2,476
Payments on capital lease (22) (33)
Payments on notes receivable from stockholders -- 6
------- -------
Net cash (used in) provided by financing activities (19) 2,449
------- -------
Net (decrease) increase in cash and cash equivalents (872) 1,630
Cash and cash equivalents at beginning of period 4,589 27,681
------- -------
Cash and cash equivalents at end of period $ 3,717 $29,311
======= =======
See note to financial statements.
3
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
NOTE TO FINANCIAL STATEMENTS
March 31, 1996
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 fiscal quarter ended March 31, 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 $25,105,000 at March 31, 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 March 31, 1997 and 1996
Revenues. The Company recognized revenue of $2,695,000 and $1,781,000
for the three months ended March 31, 1997 and 1996, respectively. The increase
of $914,000 was attributable primarily to: an increase in contract revenue of
$844,000; and an increase in grant revenue of $70,000. The increase in contract
revenue was primarily due to: the expansion of the Company's collaborative
arrangement with Lilly; and an increase in rates charged per full-time
equivalent scientist under all of the collaborative arrangements from which the
Company is receiving funding.
Research and Development Expenses. The Company incurred research and
development expenses of $3,348,000, and $2,663,000 for the three months ended
March 31, 1997 and 1996, respectively. The increase of $685,000, or 26%, in
5
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research and development expenses was attributable primarily to: an increase of
$319,000 in compensation and recruiting expenses resulting from a net average
headcount increase of 20 research personnel and an associated increase in fringe
benefit expenses as well as annual salary increases for the scientific staff; an
increase of $265,000 in research supply costs resulting from the higher
headcount as well as increased assays performed under the Lilly collaboration;
and a net increase of $101,000 in all other research and development expense
items.
General and Administrative Expenses. The Company incurred general and
administrative expenses of $965,000 and $685,000 for the three months ended
March 31, 1997 and 1996, respectively. The increase of $280,000, or 41%, was
attributable primarily to $240,000 in patent and patent related expenses for the
quarter ended March 31, 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 $482,000 and $463,000 for the three months ended March 31, 1997 and
1996, respectively.
Net Loss and Net Loss Per Share. The net loss incurred by the Company
was $1,136,000 ($0.15 per share), and $1,104,000 ($0.15 per share) for the three
months ended March 31, 1997 and 1996, respectively.
The Company does not believe that inflation has had a material impact
on its results of operations.
Liquidity and Capital Resources
At March 31, 1997 and December 31, 1996, cash, cash equivalents and
marketable securities were in the aggregate $32,586,000 and $34,684,000,
respectively. The decrease of $2,098,000 was attributable primarily to the net
loss for the quarter of $1,136,000 and the purchase of capital equipment and
leasehold improvements of $1,055,000. 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 March 31, 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
balances due on two equipment leases. At March 31, 1997, the Company had
committed approximately $800,000 for capital costs relating to improvements in
its assay screening and data base management systems.
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 March
31, 1997, the Company had received: approximately $62,000,000 from the sale of
its stock; approximately $40,500,000 in licensing fees, research funding and
milestone payments under its collaborative arrangements; approximately
$2,700,000 in SBIR grants; and approximately $5,200,000 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 March 31, 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 $6,900,000 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
6
<PAGE>
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.
At March 31, 1997, the Company had invested an aggregate of $6,614,000
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.
At March 31, 1997 the Company had available funds of $32,586,000. 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 March 31,
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, the possible early termination of one or more of
the Company's collaborative agreements, and other risks, 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.
7
<PAGE>
PART II. OTHER INFORMATION
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 March 31, 1997.
8
<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: May 9, 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
9
<PAGE>
EXHIBIT 11
SYNAPTIC PHARMACEUTICAL CORPORATION
Computation of Primary Net Loss Per Share
Three Months Ended March 31,
1997 1996
---------- ----------
Weighted average common shares outstanding 7,634,760 7,494,020
========== ==========
Net loss ($1,136,000) ($1,104,000)
========== ==========
Net loss per share $(0.15) ($0.15)
==== =====
EXHIBIT 11
SYNAPTIC PHARMACEUTICAL CORPORATION
Computation of Fully Diluted Net Loss Per Share
Three Months Ended March 31,
1997 1996
--------- ---------
Weighted average common shares outstanding 7,634,760 7,494,020
Shares underlying common stock
options outstanding considered exercised,
based on the treasury stock method 302,413 338,546
Shares underlying 1993 Warrants outstanding
considered exercised, based on the treasury
stock method 45,080 101,040
--------- ---------
Shares used in computation of net loss per share 7,982,253 7,933,606
========= =========
Net loss ($1,136,000) ($1,104,000)
========== ==========
Net loss per share ($0.14) ($0.14)
===== =====
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<PERIOD-END> MAR-31-1997
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<SECURITIES> 28,869,000
<RECEIVABLES> 192,000
<ALLOWANCES> 0
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<CURRENT-ASSETS> 25,512,000
<PP&E> 6,614,000
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<COMMON> 76,000
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