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 September 30, 1998
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 November 2, 1998, there were 10,699,419 shares of the registrant's Common
Stock outstanding.
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 1
Balance Sheets at September 30, 1998 and December 31, 1997 1
Statements of Operations and Comprehensive Income (Loss) for
the three months ended September 30, 1998 and 1997, and for the
nine months ended September 30, 1998 and 1997 2
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 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
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $13,765 $23,113
Restricted cash 600 600
Marketable securities--current maturities 14,423 10,010
Revenue receivable under collaborative agreement 160 40
Other current assets 1,188 674
------- -------
Total current assets 30,136 34,437
Property and equipment, net 5,358 4,682
Marketable securities 30,990 28,977
Patent and patent application costs,
net of accumulated amortization 1,047 1,306
------- -------
$67,531 $69,402
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 989 $ 811
Accrued liabilities 648 547
Accrued compensation 360 340
------- -------
Total current liabilities 1,997 1,698
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--
10,699,169 shares in 1998 and 10,526,585 shares
in 1997; 107 105
Additional paid-in capital 98,406 97,049
Deferred compensation (80) (160)
Accumulated deficit (33,138) (29,316)
Accumulated other comprehensive income--
net unrealized gains on securities 239 26
------- -------
Total stockholders' equity 65,534 67,704
------- -------
$67,531 $69,402
======= =======
See notes to financial statements.
1
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share information)
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
1998 1997 1998 1997
------- ------- ------- -------
Revenues:
Contract revenue $ 1,598 $ 2,267 $ 5,911 $ 7,577
License revenue -- -- 2,000 --
Grant revenue -- 140 150 382
------- ------- ------- -------
Total revenues 1,598 2,407 8,061 7,959
Expenses:
Research and development 3,908 3,529 11,420 10,220
General and administrative 1,015 998 3,183 2,920
------- ------- ------- -------
Total expenses 4,923 4,527 14,603 13,140
------- ------- ------- -------
Loss from operations (3,325) (2,120) (6,542) (5,181)
Other income, net:
Interest income 849 487 2,720 1,457
Interest expense -- (1) -- (5)
------- ------- ------- -------
Other income, net 849 486 2,720 1,452
------- ------- ------- -------
Net loss $(2,476) $(1,634) $(3,822) $(3,729)
======= ======= ======= =======
Comprehensive loss:
Net loss $(2,476) $(1,634) $(3,822) $(3,729)
Other comprehensive
income--unrealized
holding gains arising
during period 189 24 213 30
------- ------- ------- -------
Comprehensive loss $(2,287) $(1,610) $(3,609) $(3,699)
======= ======= ======= =======
Basic and diluted net loss
per share $(0.23) $(0.21) $(0.36) $(0.49)
====== ====== ====== ======
Shares used in
computation of basic
and diluted net loss
per share 10,698,692 7,648,249 10,678,768 7,643,081
========== ========= ========== =========
See notes to financial statements.
2
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the nine months
ended September 30,
1998 1997
------- -------
Operating activities:
Net loss $(3,822) $(3,729)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,070 897
Amortization of premiums/(discounts) on securities 138 (95)
Amortization of deferred compensation 60 97
Changes in operating assets and liabilities:
Increase in other current assets (514) (956)
Increase in accounts payable, accrued liabilities
and accrued compensation 299 82
(Increase)/decrease in collaborative agreement
revenue receivable (120) 115
Increase in deferred revenue -- 1,137
------- -------
Net cash used in operating activities (2,889) (2,452)
Investing activities:
Sale or maturity of investments 42,000 17,150
Purchase of investments (48,351) (12,527)
Purchases of property and equipment (1,487) (2,116)
------- -------
Net cash (used in) provided by investing activities (7,838) 2,507
Financing activities:
Issuance of common stock, net of repurchases 1,379 29
Payments on capital lease -- (74)
------- -------
Net cash provided by (used in) financing activities 1,379 (45)
------- -------
Net (decrease) increase in cash and cash equivalents (9,348) 10
Cash and cash equivalents at beginning of period 23,113 4,589
------- -------
Cash and cash equivalents at end of period $13,765 $ 4,599
======= =======
See notes to financial statements.
3
<PAGE>
SYNAPTIC PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
Note 1 -- 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, 1997, and
notes thereto included in the Company's 1997 Annual Report on Form 10-K. The
results of operations for the fiscal quarter and nine months ended September 30,
1998, are not necessarily indicative of the results of operations to be expected
for the full year.
Note 2 -- New Accounting Standard
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This pronouncement, which was required to be adopted effective January 1, 1998,
requires the presentation of a statement of comprehensive income. Comprehensive
income (loss) is defined as the change in equity of a business enterprise during
a period resulting from transactions and other events and circumstances from
nonowner sources. Comprehensive loss for the Company, in addition to net loss,
includes unrealized gains and losses on marketable securities held for sale,
currently recorded in stockholders' equity.
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
currently engaged in collaborations with four pharmaceutical companies: Eli
Lilly and Company ("Lilly"), Merck & Co., Inc. ("Merck"), The Warner-Lambert
Company ("Warner- Lambert") and Grunenthal GmbH ("Grunenthal"). In connection
with these collaborations, the Company has granted to these companies licenses
under certain patent rights and to certain technology. The Company had been
engaged in a collaboration with Novartis Pharma AG ("Novartis") and had granted
to Novartis a license under certain patent rights and to certain technology. On
August 3, 1998, the collaboration and related research funding support provided
by Novartis ended in accordance with the terms of the Company's agreements with
Novartis. Novartis continues to have a license under certain patent rights and
to certain technology of the Company. The Company has also granted a license
under certain patent rights, as well as an option to obtain an additional
license under certain patent rights, to Glaxo Group Limited ("Glaxo"). Since
inception, the Company has financed its operations primarily through the sale of
its stock, through funds provided by its collaborative partners Lilly and Merck
and former collaborative partner Novartis under their agreements with the
Company, through funds provided by its licensee, Glaxo, under a license
agreement and through interest income and capital gains resulting from its
investments. The Company also has received revenues from government grants under
the Small Business Innovative Research ("SBIR") program of the National
Institutes of Health.
Under its collaborative and license agreements, the Company may receive
one or more of the following types of revenue: contract revenue, license
revenue, royalty revenue or revenue from the sales of drugs. 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 and development milestone payment revenue is
recognized when the related research or development milestone is achieved.
License revenue represents non-refundable payments for a license to one or more
of the Company's patents and/or a license to the Company's technology.
Non-refundable payments for licenses are recognized at such time as they are
received or, if earlier, become guaranteed. Under its agreements with Lilly,
Merck, Warner-Lambert, Glaxo and Novartis, the Company is entitled to receive
royalty payments based upon the sales of drugs that may be developed using the
Company's technology. Under its agreement with Grunenthal, the Company has
development and marketing rights in certain territories with respect to drugs,
if any, that are jointly identified as part of the collaboration. Accordingly,
the Company may receive revenue from sales in its territories (as defined) of
such drugs if it markets them independently or the Company may receive royalty
payments if it licenses its marketing rights to a third party. To date, the
Company has not received either royalty revenue or revenue from the sales of
drugs and the Company does not expect to receive such revenues for a number of
years, if at all.
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 $33,138,000 at September 30, 1998. The Company
expects to continue to incur operating losses for a number of years and may not
become profitable, if at all, unless and until it receives royalty revenue or
revenue from
5
<PAGE>
sales of drugs that may be developed with the use of its technology or its
patent rights.
Results of Operations
Comparison of the Three Months Ended September 30, 1998 and 1997
Revenues. The Company recognized revenue of $1,598,000 and $2,407,000
for the three months ended September 30, 1998 and 1997, respectively. The
decrease of $809,000 was attributable to: a net decrease in contract revenue of
$669,000 resulting from the contractual termination of the Novartis agreement on
August 3, 1998 as well as the reduction in full-time equivalent scientists being
funded under another of the Company's collaborative arrangements and a decrease
in grant revenue of $140,000.
Research and Development Expenses. The Company incurred research and
development expenses of $3,908,000, and $3,529,000 for the three months ended
September 30, 1998 and 1997, respectively. The increase of $379,000, or 11%, in
research and development expenses was attributable primarily to: an increase of
$200,000 in compensation and fringe benefit expenses; and an increase of $57,000
in facility related costs.
General and Administrative Expenses. The Company incurred general and
administrative expenses of $1,015,000 and $998,000 for the three months ended
September 30, 1998 and 1997, respectively. The increase of $17,000, or 2%, was
attributable primarily to: an increase of $71,000 in compensation and fringe
benefit expenses offset by a net decrease of $54,000 for all other general and
administrative costs.
Other Income, Net. The Company recorded other income of $849,000 and
$486,000 for the three months ended September 30, 1998 and 1997, respectively.
The increase of $363,000 was primarily due to higher interest income as a result
of higher cash, cash equivalent and marketable securities balances during 1998
which resulted from the receipt of net proceeds from a public offering of its
common stock completed in November 1997.
Net Loss and Basic and Diluted Net Loss Per Share. The net loss
incurred by the Company was $2,476,000 ($0.23 per share), and $1,634,000 ($0.21
per share) for the three months ended September 30, 1998 and 1997, respectively.
The increase in net loss per share of $0.02 resulted primarily from the decrease
in revenues and increase in expenses as described above.
Comparison of the Nine Months Ended September 30, 1998 and 1997
Revenues. The Company recognized revenue of $8,061,000 and $7,959,000
for the nine months ended September 30, 1998 and 1997, respectively. The
increase in revenue of $102,000 was attributable primarily to the following: an
increase in license revenue of $2,000,000; offset by a decrease in contract
revenue of $1,666,000 resulting from the contractual termination of the Novartis
agreement on August 3, 1998, as well as a reduction in full-time equivalents
scientists being funded under another of the Company's collaborative
arrangements; and a decrease in grant revenue of $232,000.
Research and Development Expenses. The Company incurred research and
development expenses of $11,420,000, and $10,220,000 for the nine months ended
September 30, 1998 and 1997, respectively. The increase of $1,200,000, or 12%,
in research and development expenses was attributable primarily to: an increase
of $674,000 in compensation and fringe benefit expenses; and an increase of
$268,000 in facility related costs.
General and Administrative Expenses. The Company incurred general and
administrative expenses of $3,183,000 and $2,920,000 for the nine months ended
September 30, 1998 and 1997, respectively. The increase of $263,000, or 9%, was
6
<PAGE>
attributable primarily to: an increase of $195,000 in compensation and fringe
benefit expenses; and an increase of $79,000 in patent costs.
Other Income, Net. The Company recorded other income of $2,720,000 and
$1,452,000 for the nine months ended September 30, 1998 and 1997, respectively.
The increase of $1,268,000 was primarily due to higher interest income as a
result of higher cash, cash equivalent and marketable securities balances during
1998 which resulted from the receipt of net proceeds from a public offering of
its common stock completed in November 1997.
Net Loss and Basic and Diluted Net Loss Per Share. The net loss
incurred by the Company was $3,822,000 ($0.36 per share), and $3,729,000 ($0.49
per share) for the nine months ended September 30, 1998 and 1997, respectively.
The decrease in net loss per share of $0.13 resulted primarily from higher
average outstanding shares during the period. The increase in average
outstanding shares primarily relates to the sale of 2,875,000 shares of common
stock in a public offering in the fourth quarter of 1997 as well as the sale of
137,648 shares of common stock pursuant to the exercise of warrants in January
1998.
Management believes that it has remedied all of its significant
information technology and non-information technology systems that may be
affected by the year 2000 issue. Management is currently making inquiries of its
significant customers, suppliers and vendors as to their readiness for the year
2000 issue. To date the Company has spent less than $50,000 to remedy systems
that may have been affected by the year 2000 issue and does not expect future
expenses to be material, if at all. If it turns out that some of the Company's
systems or its customers, suppliers or vendors' systems are not year 2000
compliant, management believes the most likely worst case scenario would be a
reduced level of productivity. The Company's contingency plan includes, but may
not be limited to, manual workarounds and an increase in the current staffing
level.
The Company does not believe that inflation has had a material impact
on its results of operations.
Liquidity and Capital Resources
At September 30, 1998 and December 31, 1997, cash, cash equivalents and
marketable securities aggregated $59,178,000 and $62,100,000, respectively. The
decrease in cash, cash equivalents and marketable securities resulted from the
use of cash to fund operating activities and purchase property and equipment,
both of which were offset by cash provided by the issuance of common stock.
To date, the Company has met its cash requirements through the sale of
its stock, through contract and license revenue, through SBIR grants and through
interest income and gains resulting from its investments. As of September 30,
1998, the Company had received: $97,700,000 from the sale of its stock;
$55,000,000 in licensing fees, research funding and milestone payments under its
collaborative and license agreements; $3,500,000 in SBIR grants; and $9,000,000
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.
During the period from January 1, 1998 through September 30, 1998, the
Company received research funding under three of its collaborative arrangements.
During the period from October 1, 1998 through December 31, 1998, the Company
expects to receive $1,400,000 in the aggregate under two of its collaborations.
Research funding under the Merck collaboration is scheduled to expire on
November 30, 1998. Research funding under the Lilly collaboration is scheduled
to expire on December 31, 1998. Research funding under the Novartis
collaboration ended on August 3, 1998 in accordance with the terms of the
underlying agreements.
7
<PAGE>
At September 30, 1998, the Company had invested an aggregate of
$9,934,000 in property and equipment. The Company leases laboratory and office
facilities under an agreement expiring on December 31, 2015. The minimum annual
payment under the lease is currently $674,000.
At September 30, 1998 the Company had $59,178,000 in cash, cash
equivalents and marketable securities. The Company intends to utilize these
funds primarily to conduct its current and future research programs, for patent
related expenditures, for general corporate purposes and to make leasehold
improvements to its facilities beyond the level which existed on September 30,
1998. The Company expects to continue to incur operating losses for a number of
years and will require the use of cash to finance its operations and to purchase
property and equipment. The Company believes that its cash on hand, together
with the funds that it expects to receive from its collaborative partners and
interest income, will be sufficient to fund through the year 2000: an increased
operating expense level; the Company's portion of its shared costs of certain
development activities under its collaboration with Grunenthal; and an increased
level of capital spending.
This Report on Form 10-Q contains "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934. Such 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 statements involve
risks and uncertainties, including, but not limited to, those risks and
uncertainties detailed under the captions "Patents, Proprietary Technology and
Trade Secrets," "Competition" and "Government Regulation" in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the
"1997 Form 10-K") as well as those risks and uncertainties disclosed under the
captions "Early Stage of Product Development; Technological Uncertainty,"
"Dependence on Collaborative Partners and Licensees for Development, Regulatory
Approvals, Manufacturing, Marketing and Other Resources" and "Uncertainties
Related to Clinical Trials" as "Cautionary Statements" in the 1997 Form 10-K or
detailed from time to time in filings the Company makes with the SEC. 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. The Company expressly disclaims
any obligation or undertaking to disseminate any updates or revisions to any
forward looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
8
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Securities Act Rule 229.463 ("Rule 463") required issuers to report on
Form SR their use of proceeds, following an initial public offering, within ten
days of the first three months following the effective date of the registration
statement, and every six months thereafter, until the application of all such
proceeds was complete. Effective September 2, 1997, pursuant to Release No.
34-38850, the Securities and Exchange Commission ("SEC") amended Rule 463 to
eliminate Form SR and now requires a first-time registrant to report the
application of proceeds in each of its periodic reports filed pursuant to the
requirements under the Exchange Act until the application of such proceeds is
complete. Prior to September 2, 1997, the Company utilized Form SR to report the
application of proceeds received by the Company following its initial public
offering.
The information provided below represents a reasonable estimate of the
application the net proceeds of $25,194,000 which were received following the
Company's initial public offering on December 13, 1995:
Construction of plant, building and facilities $ 501,000
Purchase and installation of machinery and equipment $ 4,281,000
Working capital used to fund operations $20,412,000
Except for payments described in the following sentence, the cumulative
application of the net offering proceeds listed above represents direct payments
to others. No payments were made to directors or officers or to their associates
except for payments made in the ordinary course of business which include, but
may not be limited to, the payment of officer salaries, fringe benefits, and
expense reimbursements or compensation paid to directors for their attendance at
board meetings or for their services provided to the Company under consulting
arrangements, if any.
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
- ------- -----------
10.1 Amendment No. 1 To Cooperation Agreement between the Company and
Grunenthal GMBH (filed herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K
On July 16, 1998, the Company filed a Current Report on Form 8-K summarizing the
status of the clinical trials being conducted by Lilly with respect to a
compound identified as part of the Company's collaboration with Lilly.
On August 3, 1998, the Company filed a Current Report on Form 8-K announcing the
expiration of the term of its collaboration with Novartis and describing certain
of the consequences of the expiration.
On September 21, 1998, the Company filed a Current Report on Form 8-K
summarizing the status of certain drug discovery programs which are part of the
Company's collaboration with Lilly.
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: November 6, 1998 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
AMENDMENT NO. 1 TO
COOPERATION AGREEMENT
---------------------
Amendment No. 1
dated and effective as of
August 10, 1998, between
SYNAPTIC PHARMACEUTICAL
CORPORATION, a corporation
organized under the laws of
the State of Delaware
("SYNAPTIC"), and
GRUNENTHAL GMBH, a
corporation organized under
the laws of the Federal
Republic of Germany
("GRUNENTHAL").
Witnesseth
----------
WHEREAS, SYNAPTIC and GRUNENTHAL are parties to a Cooperation Agreement
dated as of January 12, 1998 (the "Agreement"). Capitalized terms used and not
defined in this Amendment No. 1 shall have the meanings ascribed to them in the
Agreement;
WHEREAS, under Section 2.6.4 of the Agreement, SYNAPTIC is permitted to
use COMPOUNDS provided by GRUNENTHAL for purposes other than the cooperation,
and to commercialize any product resulting from such use, without obligation to
GRUNENTHAL, financial or otherwise, unless such product incorporates a compound
covered by an issued GRUNENTHAL PATENT RIGHT, in which case GRUNENTHAL is
entitled to receive compensation as provided in Section 2.6.4;
WHEREAS, the parties have determined that it may be in the best
interests of the cooperation for GRUNENTHAL to send certain compounds to
SYNAPTIC for screening and/or other testing promptly following their synthesis
and prior to the preparation and filing by GRUNENTHAL of a patent application
covering such compounds;
WHEREAS, the parties recognize that inventions may result from
SYNAPTIC's use of such COMPOUNDS and that SYNAPTIC may desire to prepare and
file patent applications covering such inventions;
WHEREAS, the parties have determined that, with respect to certain of
such inventions, GRUNENTHAL should be entitled to receive compensation as
provided in Section 2.6.4, notwithstanding that such inventions are not covered
by an issued GRUNENTHAL PATENT RIGHT, as currently defined in the Agreement,
and, accordingly, desire to amend the Agreement to provide for such compensation
and to make certain changes relating thereto;
1
<PAGE>
WHEREAS, the Agreement contemplates that SYNAPTIC and GRUNENTHAL will
from time to time evaluate AVAILABLE TARGETS for the purpose of assessing the
desirability of initiating new PROJECTS which have as their focus one or more of
such AVAILABLE TARGETS;
WHEREAS, in connection with and in order to facilitate any such
evaluation, SYNAPTIC may provide to GRUNENTHAL biological materials comprising
or relating to an AVAILABLE TARGET; and
WHEREAS, the parties desire to amend the Agreement to further define
their rights and obligations as they relate to any such biological materials.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. SYNAPTIC's Use of COMPOUNDS Provided by GRUNENTHAL. Section 2.6.4 of
the Agreement is hereby amended to read in its entirety as follows:
"2.6.4 SYNAPTIC's Use of COMPOUNDS Provided by GRUNENTHAL.
(a) SYNAPTIC shall be permitted to use COMPOUNDS provided
to SYNAPTIC by GRUNENTHAL and to exclusively
commercialize any product developed therefrom by or
on behalf of SYNAPTIC (a "SYNAPTIC PRODUCT"), without
compensation to GRUNENTHAL, financial or otherwise,
so long as the mechanism of action of the active
compound or compounds in such SYNAPTIC PRODUCT
involves:
(i) an EXCLUDED TARGET; or
(ii) an AVAILABLE TARGET and such product is not
useful for the alleviation of PAIN.
(b) Notwithstanding anything to the contrary contained in
paragraph (a) above, if:
(i) the active compound, or the use of such
active compound, in such SYNAPTIC PRODUCT is
claimed in terms of a chemical structure
either as a species or as a member of a
genus in an issued PATENT RIGHT which
GRUNENTHAL owns, solely or jointly with
SYNAPTIC; and
(ii) GRUNENTHAL is not independently of SYNAPTIC
commercializing a product which includes a
different compound claimed in such PATENT
RIGHT for the same therapeutic indication
2
<PAGE>
for which the SYNAPTIC PRODUCT is commer-
cialized, then SYNAPTIC shall pay GRUNENTHAL
a royalty of:
(A) 3% of the NET SALES of such SYNAPTIC
PRODUCT in countries in which such
issued GRUNENTHAL PATENT RIGHT
exists if SYNAPTIC independently
commercializes such SYNAPTIC
PRODUCT; or
(B) 33% of any royalty which SYNAPTIC
receives from a third party in
respect of any such PATENT RIGHT if
SYNAPTIC licenses the issued
GRUNENTHAL PATENT RIGHT to a third
party.
(c) In the event that, as a result of its
commercialization of any SYNAPTIC PRODUCT, SYNAPTIC
would otherwise be required to pay GRUNENTHAL, under
both Section 2.6.2 and this Section 2.6.4, 33% of any
royalty which it receives from a third party in
respect of such SYNAPTIC PRODUCT, then
notwithstanding such sections, SYNAPTIC shall be
required to pay GRUNENTHAL 33% of such royalty only
under this Section 2.6.4."
2. Patent Rights. The section reference "7.1.3" of the Agreement is hereby
renamed "7.1.4" and there is hereby added immediately prior to such
Section 7.1.4 the following new Section 7.1.3:
"7.1.3 Inventions Resulting from SYNAPTIC's Use of Compounds Provided
by GRUNENTHAL.
--------------------------------------------------------------
Notwithstanding the provisions of Sections 7.1.1 and 7.1.2,
GRUNENTHAL and SYNAPTIC agree that PATENT RIGHTS for any
invention which results from SYNAPTIC's use of COMPOUNDS
provided by GRUNENTHAL pursuant to Section 2.6.4 shall be
jointly owned by GRUNENTHAL and SYNAPTIC to the extent that
the PATENT RIGHTS relating to such invention claim in terms of
a chemical structure a compound or the use of a compound
provided to SYNAPTIC by GRUNENTHAL. For purposes of the
preceding sentence, a compound will be considered to be so
claimed if it is claimed either as a species or as a member of
a genus having such chemical structure. SYNAPTIC shall be
responsible for preparing all draft patent applications
encompassed within such PATENT RIGHTS and shall provide such
drafts to GRUNENTHAL for review and comment prior to filing.
SYNAPTIC and GRUNENTHAL shall discuss and agree which person
or persons should be named as inventor or inventors on such
patent applications in accordance with applicable principles
of inventorship under U.S. Patent Law. All expenses relating
to the preparation, filing, prosecution, extension and
maintenance of such jointly-owned
3
<PAGE>
patent applications and any patents granted thereon shall be
borne by SYNAPTIC. If SYNAPTIC determines:
(a) not to file a patent application for such an invention
in any of the TERRITORIES;
(b) not to continue prosecution or maintenance thereof in
any of the TERRITORIES; or
(c) not to extend any patent granted thereon in any of the
TERRITORIES,
then SYNAPTIC shall promptly notify GRUNENTHAL and GRUNENTHAL
shall be given the opportunity to seek and pursue patent
protection on such invention in such territory at its own
expense. In the event GRUNENTHAL pursues such patent
protection, ownership of the PATENT RIGHTS for such invention
in any such territory shall be assigned to GRUNENTHAL and
GRUNENTHAL shall thereafter be the sole owner of such PATENT
RIGHTS in such territory."
3. Limitations on Use of Certain Information. There is hereby added
immediately following Section 2.6.7 of the Agreement the following new
Section 2.7:
"2.7 Limitations on Use of Information Resulting from
Evaluation of Available Targets.
-----------------------------------------------------
In connection with the evaluation by the parties of
AVAILABLE TARGETS for purposes of assessing the
desirability of initiating new PROJECTS that have as
their focus one or more of such AVAILABLE TARGETS, it
is contemplated that SYNAPTIC may provide to
GRUNENTHAL biological materials comprising or
relating to such TARGETS. In the event any biological
materials are so provided, GRUNENTHAL acknowledges
and agrees that:
(a) except to the extent necessary or desirable
to perform the evaluation, no right or
license under any patent, copyright or
trademark of SYNAPTIC is granted, or to be
construed as being granted, by implication,
estoppel or otherwise, to GRUNENTHAL by the
terms of this Agreement; and
(b) results or inventions derived, directly or
indirectly, from any assays involving the
use of such biological materials may be used
by GRUNENTHAL solely for purposes of the
evaluation and in connection with a PROJECT
which has as its focus the AVAILABLE TARGET
that is the subject of the evaluation and
may not be used by GRUNENTHAL for any other
purpose; and
4
<PAGE>
(c) it will not develop any compounds identified
as agonists or antagonists of such AVAILABLE
TARGET pursuant to any assay conducted as
part of the evaluation except in connection
with a PROJECT which has as its focus such
AVAILABLE TARGET."
4. Confidentiality. Section 11.1 of the Agreement is hereby amended by
adding at the end thereof the following new sentence:
"For purposes of this Article 11, the term "information" shall
include all data and other information, whether disclosed
orally or in written or graphic form, as well as all
biological materials, including, without limitation,
eukaryotic expression vectors containing cDNAs encoding
receptors, bacterial stocks and cell lines."
5. Effect of Amendment and Supplement.
(a) From and after the date first written above, all references in
the Agreement to "this AGREEMENT," "hereunder," "hereof,"
"hereof," "herein," or words of similar import, shall be a
reference to the Agreement, as amended by this Amendment No.
1.
(b) Except as expressly amended and supplemented by this Amendment
No. 1, the Agreement shall remain in full force and effect and
unchanged.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be
executed and delivered as of the date first written above.
SYNAPTIC PHARMACEUTICAL CORPORATION
By:/s/ Kathleen P. Mullinix
-----------------------------
Name: Kathleen P. Mullinix
Title: Chairman, President and
Chief Executive Officer
GRUNENTHAL GMBH.
By: /s/ Dr. E. Paques /s/ C. Baguette
--------------------------------------
Name: Dr. E. Pacques C. Baguette
Title: Managing Director Dir. Bus. Dvlpt.
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,765,000
<SECURITIES> 45,413,000
<RECEIVABLES> 160,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,136,000
<PP&E> 9,934,000
<DEPRECIATION> 4,576,000
<TOTAL-ASSETS> 67,531,000
<CURRENT-LIABILITIES> 1,997,000
<BONDS> 0
0
0
<COMMON> 107,000
<OTHER-SE> 65,427,000
<TOTAL-LIABILITY-AND-EQUITY> 67,531,000
<SALES> 0
<TOTAL-REVENUES> 8,061,000
<CGS> 0
<TOTAL-COSTS> 14,603,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,822,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,822,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,822,000)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
