<PAGE>
UNITED STATES
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 quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-20954
COCENSYS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0538836
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer of
incorporation or organization) Identification No.)
213 Technology Drive, Irvine, CA 92618
(Address of principal executive offices including zip code)
(714) 753-6100
(Registrant's telephone number, including area code)
_____________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock $.001 par value 22,014,656
- --------------------------------------------------------------------------------
(Class) (Outstanding at November 1, 1996)
<PAGE>
COCENSYS, INC.
TABLE OF CONTENTS
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Operations for the three and nine-month
periods ended September 30, 1996 and
1995 and the period from inception
(February 15, 1989) through
September 30, 1996 4
Condensed Consolidated Statements of
Cash Flows for the nine-month periods
ended September 30, 1996 and 1995 and
the period from inception (February 15,
1989) through September 30, 1996 5
Notes to Condensed Consolidated
Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 13
SIGNATURES 14
2
<PAGE>
COCENSYS, INC.
(A development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,939 $ 6,895
Short-term investments 16,854 6,554
Other current assets 630 455
--------- ---------
TOTAL CURRENT ASSETS 25,423 13,904
Property and equipment, net 2,774 2,777
Notes receivable from officers 339 264
Deferred patent costs, net 108 394
Deferred sales organization costs, net 163 650
Other assets, net 104 212
--------- ---------
$ 28,911 $ 18,201
--------- ---------
--------- ---------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,179 $ 880
Other accrued liabilities 1,620 2,418
Advances from corporate partners 4,342 3,144
Capital lease obligation - current portion 476 709
--------- ---------
TOTAL CURRENT LIABILITIES 7,617 7,151
Capital lease obligation, less current portion 263 357
Other liabilities 43 49
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized shares -- 5,000,000
Issued and outstanding shares -
100,000 at September 30, 1996
and none at December 31, 1995 7,000 -
Common stock, $.001 par value
Authorized shares -- 75,000,000
Issued and outstanding shares -
22,005,406 at September 30, 1996
and 19,395,341 at December 31, 1995 91,027 76,296
Deficit accumulated during the development stage (76,723) (64,674)
Deferred compensation (287) (956)
Unrealized loss on investments (29) (22)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 20,988 10,644
--------- ---------
$ 28,911 $ 18,201
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
3
<PAGE>
COCENSYS, INC.
(A development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 15,
THREE MONTHS ENDED NINE MONTHS ENDED 1989) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1996 1995 1996 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
REVENUES
Co-promotion revenues from corporate partners $ 845 $ 1,969 $ 4,856 $ 3,518 $ 22,672
Co-development revenues from corporate partners 450 706 4,999 1,301 6,969
---------- ---------- ---------- ---------- ----------
Total revenues 1,295 2,675 9,855 4,819 29,641
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Research and development 3,742 4,663 12,278 11,747 55,730
General and administrative 1,390 1,178 4,155 2,801 15,694
Sales and marketing 2,290 2,240 6,362 7,275 22,362
Acquired research and development - - - - 14,879
---------- ---------- ---------- ---------- ----------
Total operating expenses 7,422 8,081 22,795 21,823 108,665
---------- ---------- ---------- ---------- ----------
OPERATING LOSS (6,127) (5,406) (12,940) (17,004) (79,024)
Interest income 375 269 1,004 519 3,255
Interest expense (55) (30) (113) (144) (954)
---------- ---------- ---------- ---------- ----------
NET LOSS $ (5,807) $ (5,167) $ (12,049) $ (16,629) $ (76,723)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net loss per share $ (0.26) $ (0.27) $ (0.55) $ (1.00)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in computing net loss per share 22,003,337 19,033,127 21,714,243 16,651,013
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
4
<PAGE>
COCENSYS, INC.
(A development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 15,
NINE MONTHS ENDED 1989) TO
SEPTEMBER 30, SEPTEMBER 30,
-------------------
1996 1995 1996
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (12,049) $ (16,629) $ (76,723)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,517 1,413 5,334
Amortization of deferred compensation 547 556 3,205
Issuance of stock and warrants for services - - 129
Loss on sale of fixed assets - - 26
Acquired research and development - - 12,279
Increase in other current assets (175) (467) (702)
Decrease in receivable from corporate partner - 535 -
Increase (decrease) in accounts payable and other
accrued liabilities (689) (890) 2,383
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES (10,849) (15,482) (54,069)
-------- -------- --------
INVESTING ACTIVITIES
Increase in short-term investments (10,306) (6,206) (16,885)
Purchase of property and equipment (636) (361) (5,449)
Decrease (increase) in other assets and
notes receivable from officers (73) 62 (580)
Cash received on sale of fixed assets - - 19
Increase in deferred sales organization costs - - (1,571)
Increase in deferred patent costs - - (904)
Acquisition of Acea Pharmaceuticals, net of
cash acquired - - (62)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (11,015) (6,505) (25,432)
-------- -------- --------
FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock 15,036 16,940 58,548
Net cash proceeds from issuance of preferred stock 7,000 - 23,381
Advances from corporate partners 1,198 5,435 4,342
Proceeds from sale/leaseback of fixed assets
and notes payable 621 201 4,205
Payments on capital lease obligations and notes payable (947) (663) (3,036)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,908 21,913 87,440
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,044 (74) 7,939
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,895 6,939 -
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,939 $ 6,865 $ 7,939
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 113 $ 99 $ 786
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
5
<PAGE>
COCENSYS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim financial information for the three and nine-month periods
ended September 30, 1996 and 1995 is unaudited but includes all adjustments
(consisting only of normal recurring entries) which CoCensys, Inc.'s
(the "Company's") management believes to be necessary for the fair
presentation of the financial position, results of operations and cash
flows for the periods presented. The accompanying interim financial
statements should be read in conjunction with the financial statements and
related notes included in the Company's 1995 Annual Report on Form 10-K for
the year ended December 31, 1995. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission's
rules and regulations. Interim results of operations for the three and
nine-month periods ended September 30, 1996, are not necessarily indicative
of operating results to be expected for the full year.
REVENUE AND EXPENSE RECOGNITION
See Notes 2, 3, 4 and 5 for revenue recognition policies related to
co-promotion and co-development revenues from corporate partners. The
initial costs incurred in establishing the sales and marketing organization
were deferred until initiation of the Company's sales efforts on August 1,
1994. Such costs are being amortized over the contract term of the Ciba
Promotion Agreement (through December 31, 1996).
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding during the periods.
2. MARKETING AND DEVELOPMENT COLLABORATION WITH CIBA-GEIGY LIMITED
In May 1994, the Company entered into a marketing and development
collaboration with Ciba-Geigy Limited (Ciba Basel) and its U.S. affiliate
Ciba-Geigy Corporation (Ciba U.S.) for the co-promotion by the Company of
certain Ciba U.S. products and the development and
6
<PAGE>
COCENSYS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MARKETING AND DEVELOPMENT COLLABORATION WITH CIBA-GEIGY LIMITED (CONTINUED)
commercialization of ACEA 1021, a compound being developed by the Company.
This collaboration consists of the Ciba Promotion Agreement with Ciba U.S.
and the Ciba Research and Development Agreement with Ciba Basel. Pursuant
to the Ciba Promotion Agreement, CoCensys established a sales force to
co-promote and market certain Ciba U.S. products in the United States,
initially to psychiatrists. CoCensys realizes co-promotion revenues from
its share of sales of the Ciba U.S. products above certain baseline levels
specified in the contract. In the event sales levels are insufficient to
cover any advanced expenses in a given year, CoCensys will have an
obligation for repayment. The Ciba Promotion Agreement is scheduled to
terminate at the end of 1996.
Under the Ciba Research and Development Agreement, each party is obligated
to pay one-half of the U.S. development costs of ACEA 1021. The parties
will co-promote ACEA 1021 in the United States, while Ciba Basel will have
the exclusive right to develop and market the compound in the rest of the
world, subject to specified royalty payments to the Company.
3. MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY
In October 1995, the Company entered into a collaboration with
Warner-Lambert Company and its Parke-Davis division to develop and market
therapeutic drugs for the treatment of certain CNS disorders. This
arrangement consists of the Research, Development and Marketing
Collaboration Agreement (the Warner Collaboration Agreement), for the
development and commercialization of a new class of neurological and
psychiatric drugs, termed subtype selective NMDA receptor antagonists
("SSNRAs"), and the Parke-Davis Promotion Agreement, pursuant to which the
Company co-promotes Parke-Davis' CNS drug, Cognex-Registered Trademark-, to
U.S. neurologists for the treatment of Alzheimer's disease.
Under the Parke-Davis Promotion Agreement, the Company realizes
co-promotion revenues from its share of sales of Cognex above certain
baseline levels specified in the contract. The agreement provides that
funds will be advanced to the Company to cover expenses incurred by the
CoCensys sales force to promote Cognex. In the event sales are
insufficient to cover the advances, the Company is obligated to repay the
advances.
Under the Warner Collaboration Agreement, both companies will share
technology and resources to develop SSNRA candidates. The parties are
obligated to make specified contributions to development costs with respect
to any development candidates. Upon achievement of certain clinical
development and regulatory milestones, Warner-Lambert will be obligated to
make certain milestone payments for each development compound.
7
<PAGE>
COCENSYS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROMOTION AGREEMENT WITH SOMERSET PHARMACEUTICALS, INC.
In January 1996, the Company and Somerset Pharmaceuticals, Inc. (Somerset)
entered into the Somerset Promotion Agreement, pursuant to which the
Company promotes Somerset's drug Eldepryl-Registered Trademark- to
neurologists in the United States for the treatment of Parkinson's disease.
The initial term of the Somerset Promotion Agreement expires December 31,
1997, subject to certain provisions for early termination and renewal.
Under the Somerset Promotion Agreement, CoCensys has the exclusive right to
detail Eldepryl to neurologists in the United States. During the term of
the Somerset Promotion Agreement, CoCensys realizes co-promotion revenues
based upon the number of details undertaken for Eldepryl, new prescriptions
written and sales.
5. DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH G.D. SEARLE & CO.
In May 1996, the Company entered into an agreement with G.D. Searle & Co.
(Searle) to co-develop and co-promote the Company's lead compound for the
treatment of insomnia along with its back-up compounds. Pursuant to the
agreement, Searle paid a $3.0 million license fee (which was recognized as
co-development revenue in the second quarter of 1996) and purchased 100,000
shares of the Company's Series B Convertible Preferred Stock for $7.0
million. The preferred stock is convertible to common stock on May 18,
1998, or earlier at the Company's discretion. The number of shares
issuable upon conversion shall be equal to $7.0 million divided by the then
current common stock price (subject to certain minimum and maximum limits).
Under the agreement, both companies are obligated to pay a portion of the
development costs of the compound and its back-up compounds. In addition,
the Company will receive nonrefundable milestone payments upon the
occurrence of certain events in the development of the compound.
The parties will co-promote any products derived from the collaboration in
the United States, while Searle will have the right to develop, register
and market the products in the rest of the world, subject to specified
royalty payments.
6. EQUITY FINANCING
In January 1996, the Company completed a public offering of common stock,
obtaining net proceeds of $14.6 million through the sale of 2.4 million
shares at $6.50 per share.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE COMPANY'S 1995 ANNUAL
REPORT ON FORM 10-K.
OVERVIEW
Since its inception in February 1989, the Company has devoted substantially
all of its resources to the discovery and development of
neuropharmaceutical products for the treatment of disorders affecting the
central nervous system. The Company has incurred losses since inception
and expects losses to continue for the foreseeable future, primarily due to
the expansion of programs for research and development. Operating results
are expected to fluctuate as a result of uncertainty in the timing and
amount of revenues to be earned from product sales and from achievement of
research and development milestones, and uncertainty in the timing and
amount of expenses for product development, including clinical trials. As
of September 30, 1996, the Company's accumulated deficit was approximately
$76.7 million.
RESULTS OF OPERATIONS
In connection with the Company's promotion agreements, co-promotion
revenues were $0.8 million and $4.9 million for the three and nine-month
periods ended September 30, 1996, respectively. Co-promotion revenues for
the comparable periods in 1995 were $2.0 million and $3.5 million,
respectively. In the second quarter of 1996, the Company recognized $2.3
million of co-promotion revenues related to 1994 and 1995 co-promotion
activities, the determination of which was agreed between the Company and
Ciba U.S. in June of 1996. The quarter and year-to-date co-promotion
revenues decreased over the comparable prior year periods as the Company
has deferred the recognition of revenues related to 1996 co-promotion
activities until the conclusion of the Ciba Promotion Agreement. Effective
January 1, 1997, there will be no co-promotion activities under the
agreement.
In connection with its development agreements, the Company recognized $0.5
million and $5.0 million in co-development revenues for the three and
nine-month periods ended September 30, 1996, respectively, as compared to
$0.7 million and $1.3 million for the same periods in 1995, respectively.
The increase for the nine-month period is partially attributable to the
recognition of $3.0 million in the second quarter of 1996 related to the
one-time license fee received pursuant to the Searle Development and
Commercialization Agreement.
Research and development ("R&D") expenses were $3.7 million and $12.3
million for the three and nine-month periods ended September 30, 1996,
respectively, as compared to $4.7 million and $11.7 million during the same
periods in 1995, respectively. Costs for the comparable three-month
periods were lower in 1996 due to higher outsourced study costs incurred in
1995 related to the development
9
<PAGE>
of CCD 1042. The increase for the nine-month period ended September 30,
1996, resulted from continuing progress of the Company's products in
clinical development and the costs needed to support these activities.
General and administrative expenses increased to $1.4 million and $4.2
million for the three and nine-month periods ended September 30, 1996,
respectively, from $1.2 million and $2.8 million during the same periods in
1995. Such increase was primarily due to additional staffing and related
expenses to support increased R&D activities, as well as higher legal,
accounting and other expenses in support of expanded levels of business
development.
Sales and marketing expenses were $2.3 million and $6.4 million for the
three and nine-month periods ended September 30, 1996, respectively, as
compared to $2.2 million and $7.3 million during the same periods in 1995.
The decrease in the nine-month period relates to changes in the
co-promotion agreements, whereby the Company no longer undertakes certain
promotional activities.
Interest income increased to $375,000 and $1.0 million for the three and
nine-month periods ended September 30, 1996, respectively, from $269,000
and $519,000 for the same periods in 1995. The increase was due to higher
cash and short-term investment balances in 1996.
LIQUIDITY AND CAPITAL RESOURCES
From its inception in February 1989 through September 30, 1996, the Company
has financed its operations primarily through private and public offerings
of its equity securities, raising net proceeds of approximately $82.5
million through sales of these securities. In May 1996, the Company issued
$7.0 million in Convertible Preferred Stock to G.D. Searle & Co. in
conjunction with the Searle Development and Commercialization Agreement.
In January 1996, the Company completed a registered direct public offering,
obtaining net proceeds of $14.6 million through the sale of 2.4 million
shares of common stock at $6.50 per share. As of September 30, 1996, the
Company's balance of cash, cash equivalents and short-term investments
totaled $24.8 million, compared to $13.4 million at December 31, 1995.
As of September 30, 1996, the Company had invested $5.4 million in
leasehold improvements, laboratory and computer equipment and office
furnishings and equipment. The Company has financed $2.9 million of these
capital additions through capital lease lines. In addition, the Company
leases its laboratory and office facilities under operating leases.
Additional equipment will be needed as the Company increases its research
and development activities. The Company has no material commitments for
the acquisition of property and equipment.
Pursuant to the Ciba Promotion Agreement, the Company co-promotes and
markets the Ciba Products in the United States. Under the agreement, funds
are advanced to the Company to cover a portion of sales expenses incurred
to co-promote the Ciba Products. The Company is obligated to reimburse
Ciba U.S. for these advances. CoCensys realizes co-promotion revenues from
its share of
10
<PAGE>
sales of the Ciba Products above certain baseline levels specified in the
contract. Sales of the Ciba Products are the primary source of cash the
Company intends to use to meet its reimbursement obligation to Ciba U.S.
Although product sales were more than sufficient to cover the Company's
reimbursement obligation in 1995 and 1994, there can be no assurance that
they will be in 1996, the final year of the contract.
Pursuant to the Ciba Research and Development Agreement, Ciba Basel is
obligated to pay one-half of the development costs of ACEA 1021 for the
United States market and all incremental development costs for the rest of
the world, along with additional payments upon the achievement of certain
milestones. The agreement also provides that Ciba Basel will make
available to CoCensys, under certain circumstances, a revolving line of
credit of up to $7 million to fund the Company's share of the development
costs for ACEA 1021. Repayment of amounts advanced will be secured by
future milestone payments. No amounts are currently outstanding.
Pursuant to the Warner Collaboration Agreement, Warner-Lambert is also
obligated to make certain milestone payments for each compound selected for
development, as well as pay for its share of development costs. Warner is
obligated to purchase $2.0 million of CoCensys Common Stock in the first
quarter of 1997.
Pursuant to the Parke-Davis Promotion Agreement, the Company promotes
Parke-Davis' CNS drug, Cognex-Registered Trademark-, to neurologists in the
United States. Funds are advanced to the Company quarterly to cover the
training and operating expenses incurred by the Company's sales force in
promoting Cognex. The Company is obligated to reimburse Parke-Davis for
these advances.
Pursuant to the Somerset Promotion Agreement, the Company promotes
Somerset's drug Eldepryl-Registered Trademark- to neurologists in the
United States. Funds are advanced to the Company quarterly to cover a
portion of the training and operating expenses incurred by the Company's
sales force in promoting Eldepryl. The Company is obligated to reimburse
Somerset for these advances.
Revenues from co-promotion activities are the primary source of cash the
Company intends to use to meet related reimbursement obligations. In the
event revenues are not sufficient to meet these obligations, advances must
be repaid out of other cash reserves of the Company.
Pursuant to the Searle Development and Commercialization Agreement, Searle
is obligated to pay for a portion of the product development costs, its
backup compounds, as well as additional payments upon the achievement of
certain milestones.
CoCensys' operations to date have consumed substantial amounts of cash.
The negative cash flow from operations is expected to continue and will
likely increase over the foreseeable future, subject to the Company's
ability to offset such negative cash flows by revenues, if any, derived
from the sale of products from current and potential future marketing
collaborations. The Company anticipates that its existing capital
resources, including funding expected to be available through current
partner collaborations (including milestone payments and co-promotion
revenues), will be adequate to
11
<PAGE>
satisfy its capital needs through at least 1997. There can be no assurance
that milestone-based payments or co-promotion revenues will be sufficient
to meet the Company's future capital requirements. The Company will need
to obtain substantial additional funds to conduct the costly and
time-consuming research, preclinical development and clinical trials
necessary to bring its products to market. The Company intends to seek
funding through new research and development collaborations, through
additional marketing collaborations to increase revenues generated from
sales of products and/or through public or private financing. There can be
no assurance that financings or suitable collaborations will be available
on favorable terms, if at all. Insufficient funds may require the Company
to delay, scale back or eliminate some or all of its research and product
development programs or to license third parties to commercialize products
or technologies that the Company would otherwise seek to develop itself.
The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development programs,
the level of co-promotion revenues, the scope and results of preclinical
testing and clinical trials, the time and costs involved in obtaining
regulatory approvals, the rate of technological advances, the
determinations as to the commercial potential of the Company's products
under development, the status of competitive products, the expansion of
sales and marketing capabilities, the establishment of third-party
manufacturing arrangements and the establishment of additional
collaborative relationships.
ADDITIONAL RISKS
The Company's products are in an early stage of development and face a high
degree of technological, regulatory and competitive risks. Drug discovery
and development are capital-intensive activities, and there can be no
assurance the Company will be able to raise the additional capital
necessary to develop and commercialize products. Human clinical trials
require considerable time and funding, and results from any stage of
testing may not predict results of later stages. In addition, if results
of any clinical trial fail to meet the Company's requirements, the study
plan for such compound may be adjusted or another compound may be
substituted, either of which may result in delays in future clinical
studies. Unfavorable clinical trials could result in cancellation of
future clinical studies.
The Company has established relationships to manufacture the limited
quantities of its products required for human clinical trials. However,
the Company will need to finance and construct manufacturing facilities or
find other means of securing adequate production capacity before any
product approved for marketing may be launched. No assurance can be given
that the Company can successfully develop any of its products for marketing
or that it can successfully manufacture commercial quantities of any
products that are approved for marketing. Inherent in the fact that
CoCensys is an early stage biopharmaceutical company are a range of
additional risks, including the Company's history of losses, the risk of
technological and commercial competition, uncertainties associated with
obtaining and enforcing patents and protecting proprietary technology and
the risk of regulatory change, among others.
12
<PAGE>
COCENSYS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
13
<PAGE>
COCENSYS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
CoCensys, Inc.
Date: November 13, 1996 By: /s/ Peter E. Jansen
--------------------- ------------------------------
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,939
<SECURITIES> 16,854
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,423
<PP&E> 5,623
<DEPRECIATION> 2,849
<TOTAL-ASSETS> 28,911
<CURRENT-LIABILITIES> 7,617
<BONDS> 263
0
7,000
<COMMON> 91,027
<OTHER-SE> (77,039)
<TOTAL-LIABILITY-AND-EQUITY> 28,911
<SALES> 0
<TOTAL-REVENUES> 9,855
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (12,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,049)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
