<PAGE>
As filed with the Securities and Exchange Commission on October 4, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEUROCRINE BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 10555 Science Center Drive 33-0525145
(State of incorporation) San Diego, California 92121 (I.R.S. Employer Identification No.)
(858) 658-7600
</TABLE>
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------
Gary A. Lyons
President, Chief Executive Officer and Director
Neurocrine Biosciences, Inc.
10555 Science Center Drive
San Diego, California 92121
(858) 658-7600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
Copies to:
<TABLE>
<CAPTION>
<S> <C>
John M. Newell, Esq. Peter T. Healy, Esq.
Andrew S. Williamson, Esq. Steven L. Pickering, Esq.
Robert W. Phillips, Esq. Natasha L. Ell, Esq.
Latham & Watkins O'Melveny & Myers LLP
505 Montgomery Street, Suite 1900 Embarcadero Center West
San Francisco, California 94111-2562 275 Battery Street, Suite 2600
(415) 391-0600 San Francisco, California 94111-3305
(415) 984-8700
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Per Aggregate Offering Amount of
Securities to be Registered be Registered Share (1) Price (1) Registration Fee
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001
per share(2).................... 3,450,000 shares $41.97 $144,796,500 $38,226
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</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee, based on the average of the high and low prices for the
common stock as reported on the Nasdaq National Market on October 2, 2000,
in accordance with Rule 457(c) promulgated under the Securities Act of
1933.
(2) Including rights to purchase shares of the Registrant's Series A
Participating Preferred Stock.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus front cover
page: (a) one to be used in connection with an offering in the United States
and Canada and (b) one to be used in connection with a concurrent offering
outside of the United States and Canada. The U.S./Canadian prospectus and the
international prospectus are otherwise identical in all respects. The
international version of the front cover page is included immediately before
Part II of this registration statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and we are not soliciting +
+offers to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 4, 2000
[LOGO OF NEUROCRINE BIOSCIENCES]
3,000,000 Shares
Common Stock
Neurocrine Biosciences, Inc. is offering 3,000,000 shares of its common
stock. Neurocrine Biosciences, Inc.'s common stock is traded on the Nasdaq
National Market under the symbol "NBIX." The last reported sale price of the
common stock on the Nasdaq National Market on October 2, 2000 was $42.00 per
share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Neurocrine Biosciences, Inc......................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Neurocrine Biosciences, Inc. has granted the underwriters a 30-day option to
purchase up to an additional 450,000 shares of common stock to cover over-
allotments.
--------------
Robertson Stephens Salomon Smith Barney Inc.
The date of this prospectus is , 2000.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, the
"company," "Neurocrine," "we," "us," and "our" refer to Neurocrine Biosciences,
Inc., a Delaware corporation.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 19
Price Range of Common Stock.............................................. 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 27
Management............................................................... 47
Principal Stockholders................................................... 49
United States Tax Consequences to Non-U.S. Holders....................... 50
Underwriting............................................................. 53
Legal Matters............................................................ 56
Experts.................................................................. 56
Where You Can Find More Information...................................... 56
Information Incorporated by Reference.................................... 56
</TABLE>
---------------------
"Neurocrine Biosciences" is our trademark. This prospectus also contains
trademarks and tradenames of other companies.
i
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering.
Our Company
Neurocrine Biosciences, Inc. is a product-based biopharmaceutical company
focused on neurologic and endocrine diseases and disorders. Our product
candidates address some of the largest pharmaceutical markets in the world
including insomnia, anxiety, depression, cancer and diabetes. We currently have
15 programs in various stages of research and development, with four projects
in clinical development. An additional four programs are in advanced
preclinical development, three of which we expect to advance into human
clinical trials over the next six months. We also have seven research projects
which we believe will supply clinical development candidates in the future.
While we independently develop the majority of our product candidates, we
utilize collaborators in four of our 15 programs, including Janssen
Pharmaceutica, a subsidiary of Johnson & Johnson, Wyeth-Ayerst, Taisho
Pharmaceuticals and Eli Lilly. These collaborations help fund current product
development, while allowing us to retain North American commercial
participation in addition to milestone payments and royalties on worldwide
product sales.
Our Product Candidates
Our four product candidates in clinical trials address insomnia, cancer,
multiple sclerosis and diabetes:
GABA-A Agonist--Insomnia. Insomnia is a prevalent neurological disorder in
the United States, with up to 62% of the adult population reporting trouble
sleeping a few nights a week or more, according to the National Sleep
Foundation. There were more than $1.1 billion in sedative sales in 1999. Some
popular marketed products typically have side effects, such as amnesia,
hangover-type effects and other adverse effects when combined with alcohol. As
a result, we believe that there is a significant unmet medical need. Our most
advanced clinical candidate, NBI-34060, is in development for the treatment of
insomnia. NBI-34060 is an activator, or agonist, of the brain receptor called
GABA-A, which is involved in inducing sleep. We completed a Phase II placebo-
controlled efficacy trial for NBI-34060 in 228 subjects in November 1999. Our
results demonstrated that NBI-34060 was safe and effective in helping subjects
with transient insomnia achieve rapid sleep onset without these side effects.
The results showed that the mean time to sleep onset, the primary clinical
goal, was 16 minutes with the drug versus 34 minutes with placebo. These
results were highly statistically significant, or what is commonly referred to
as p<0.001.
Based on the positive results from this Phase II trial, we have initiated
multiple Phase II trials, and we expect to enroll an additional 300 subjects by
year-end. We are currently designing pivotal Phase III clinical trials, which
we expect will begin in the second half of 2001.
IL-4 Fusion Toxin--Glioblastoma. Our IL-4 Fusion Toxin program targets
glioblastoma, a very aggressive form of brain cancer. We have been awarded Fast
Track designation by the Food and Drug Administration, or FDA, to expedite
clinical development and regulatory review of NBI-3001. We completed a Phase
I/II clinical trial in February 2000 with 31 patients suffering from recurrent
glioblastoma. We found that IL-4 Fusion Toxin was safe and had acceptable
tolerability for this patient group. In addition, of the 29 patients who
completed therapy, 86%, or 25 patients, showed positive results, including
complete or partial reduction in tumor size or no progression of the disease.
We plan to initiate a confirmatory Phase II trial in the fourth quarter of 2000
to better establish dosing, safety and efficacy. We plan to initiate a Phase
III pivotal trial in mid-2001.
Altered Peptide Ligand--Multiple Sclerosis. Our Altered Peptide Ligand, or
APL, program targets autoimmune diseases in which the body's own immune system
attacks normal tissue. Having completed Phase I and preliminary Phase II trials
for NBI-5788 in patients with relapsing multiple sclerosis, we plan to initiate
a Phase IIb trial to determine the efficacy profile, optimal dosing and
frequency of administration for NBI-5788.
1
<PAGE>
Altered Peptide Ligand--Type I Diabetes. We recently completed a Phase I
safety and dose escalating trial in 20 diabetic patients that showed that our
APL compound for the treatment of Type I diabetes, NBI-6024, is safe and well
tolerated. A multi-dose Phase I clinical trial is currently underway, and we
plan to initiate several Phase II trials in 2001. We recently entered into a
worldwide development collaboration with Taisho Pharmaceuticals.
In addition, we have several projects in preclinical development that we
expect to advance into human clinical trials in the near future:
CRF R\\1\\ Antagonist--Depression and Anxiety. We have developed compounds
that are blockers, or antagonists, of the R\\1\\ brain receptor sites for
corticotropin-releasing factor, or CRF. Our CRF R\\1\\ antagonist program
targets both depression and anxiety. CRF is a hormone believed to be the
central mediator of the body's stress response and has been shown to play an
important role in both depression and anxiety. We have a strong position in the
CRF field based on our intellectual property and our collaborations with
experts in this area. We licensed our first CRF antagonist compounds to Janssen
Pharmaceutica, which then demonstrated efficacy in depression in a Phase II
trial in 1998. Despite this positive result, a reversible toxicity was found in
two patients, which led Janssen to discontinue development of this compound in
favor of another of our earlier-stage backup compounds. We believe Janssen will
move forward with the clinical development of the backup compound shortly. In
addition, we are independently pursuing our own CRF R\\1\\ antagonist compounds
and we expect to enter into clinical trials for anxiety and depression in late
2000 or early 2001.
IL-4 Fusion Toxin--Additional Cancers. We believe our IL-4 Fusion Toxin may
have applications in cancers in addition to glioblastoma, our initial
indication. We plan to initiate a Phase I clinical trial in early 2001 to
investigate the safety and efficacy of our drug in kidney cancer and some types
of lung cancer.
GnRH Antagonist--Prostate Cancer and Endometriosis. We believe there is a
large market potential for an orally administered GnRH antagonist. GnRH is a
hormone that regulates sex steroid production and has been linked to hormone-
dependent diseases such as prostate cancer and endometriosis. We hope to select
a final clinical compound by the end of 2000 and initiate Phase I clinical
trials in the second half of 2001.
In addition to these clinical and preclinical programs, we have several
additional research programs in areas such as neurodegenerative disease,
gastrointestinal disorders, obesity, sleep disorders and eating disorders. Any
of our programs may be delayed or terminated due to unexpected problems.
Our Business Strategy
Our business strategy has six major components:
. We take a portfolio approach to our product pipeline by pursuing a large
and diversified set of product candidates to mitigate overall clinical
and technical risk.
. We target attractive market opportunities that have clear and defined
clinical and regulatory paths to approval.
. We collaborate with global pharmaceutical companies to benefit from their
development, regulatory and commercialization expertise while we
typically retain North American commercial participation and have rights
to receive milestone payments and royalties on worldwide product sales.
We currently have collaborations with Janssen, Wyeth-Ayerst, Taisho
Pharmaceuticals and Eli Lilly.
. We selectively acquire rights to complementary drug candidates in our
areas of expertise.
. We supplement our research capabilities by collaborating with leading
platform technology companies to access their specific skills and tools.
. We outsource capital intensive and non-strategic activities such as
clinical manufacturing to allow us to focus on our core discovery and
development programs.
2
<PAGE>
Corporate Information
We were incorporated in California on January 17, 1992 and were
reincorporated in Delaware in March 1996. Our executive offices are located at
10555 Science Center Drive, San Diego, California 92121, and our telephone
number at that address is (858) 658-7600.
Our Product Pipeline
The following table summarizes our product candidates in clinical or
preclinical development or under research:
<TABLE>
<CAPTION>
Program and Clinical
Compound Targeted Indication Status Commercial Rights
------------------------ ------------------------------ ----------- -----------------------
<S> <C> <C> <C>
Clinical:
GABA-A Agonist, NBI-
34060.................. Insomnia Phase II Neurocrine
IL-4 Fusion Toxin, NBI-
3001................... Glioblastoma Phase II Neurocrine
APL-Multiple Sclerosis,
NBI-5788............... Multiple Sclerosis Phase II Neurocrine
APL-Type I Diabetes,
NBI-6024............... Type I Diabetes Phase I Taisho/Neurocrine
Preclinical:
CRF R\\1\\ Antagonist... Anxiety, Depression Preclinical Neurocrine
CRF R\\1\\ Antagonist... Anxiety, Depression Preclinical Janssen/Neurocrine
IL-4 Fusion Toxin....... Kidney and Lung Cancers Preclinical Neurocrine
GnRH Antagonist......... Prostate Cancer, Endometriosis Development Neurocrine
Research:
Excitatory Amino Acid
Transporters........... Neurodegenerative Diseases Research Wyeth-Ayerst/Neurocrine
CRF R\\1\\ Antagonist... Gastrointestinal Disorders Research Neurocrine
CRF R\\2\\ Antagonist... Eating Disorders Research Neurocrine
Urocortin/CRF R\\2\\
Agonist................ Obesity Research Eli Lilly
Melanocortin Receptor
Agonist................ Obesity Research Neurocrine
Hypocretin
Agonist/Antagonist..... Sleep Disorders Research Neurocrine
Melanin Concentrating
Hormone Antagonist..... Obesity Research Neurocrine
</TABLE>
--------
"Phase II" indicates that the we or our collaborators are conducting
clinical trials on groups of patients afflicted with a specific disease in
order to determine preliminary efficacy, optimal dosages and expanded evidence
of safety.
"Phase I" indicates that we or our collaborators are conducting clinical
trials to determine early safety profile, maximally tolerated dose and
pharmacological properties of the product in human volunteers.
"Preclinical" indicates that a drug candidate is being selected or has been
selected and is undergoing toxicology studies and manufacturing to allow for
Phase I clinical trials.
"Development" indicates that lead compounds have been discovered that meet
certain laboratory and preclinical criteria. These compounds may undergo
structural modification and more extensive evaluation prior to selection for
preclinical development.
"Research" indicates identification and evaluation of compounds in
laboratory and preclinical models.
3
<PAGE>
THE OFFERING
The following summarizes our offering of common stock. Unless otherwise
noted, we are presenting all information in this prospectus as if the
underwriters do not exercise the over-allotment option.
<TABLE>
<C> <S>
Common stock offered by Neurocrine
Biosciences................................. 3,000,000 shares
Common stock to be outstanding after the
offering.................................... 25,050,424 shares
Use of proceeds.............................. Working capital and general
corporate purposes, including
clinical studies, research and
development expenses, general
and administrative expenses,
manufacturing expenses and
potential acquisitions of
companies and technologies that
complement our business, none
of which are being planned or
being negotiated as of the date
of this prospectus.
Nasdaq National Market symbol................ "NBIX"
</TABLE>
The number of shares of our common stock to be outstanding after the
offering is based on 22,050,424 shares outstanding as of September 15, 2000.
Unless otherwise stated, all share information in this prospectus excludes:
. 3,963,443 shares of common stock issuable upon exercise of options and
warrants outstanding on September 15, 2000 at a weighted average exercise
price of $10.56; and
. 573,117 shares of common stock available for awards under our stock
incentive plans as of September 15, 2000.
4
<PAGE>
Summary Consolidated Financial Data
(dollars in thousands, except per share data)
The following table is a summary of our consolidated financial data for the
periods presented. You should read this data along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included in this prospectus, and our consolidated financial statements and
related notes incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Sponsored research and
development........... $ 3,000 $ 9,092 $14,985 $ 8,751 $ 12,171 $ 5,551 $ 3,056
Sponsored research and
development from
related party......... -- -- -- 3,610 491 494 --
Milestones and license
fees.................. 2,750 9,000 10,250 2,500 3,000 750 2,000
Grant income and other
revenues.............. 356 1,124 909 1,176 1,129 566 664
------- ------- ------- -------- -------- ------- --------
Total revenues........ 6,106 19,216 26,144 16,037 16,791 7,361 5,720
Operating expenses:
Research and
development........... 7,740 12,569 18,758 21,803 29,169 13,562 15,905
General and
administrative........ 2,728 3,697 5,664 6,594 7,476 3,705 4,421
Write-off of acquired
in-process research
and development and
licenses.............. -- -- -- 4,910 -- -- --
------- ------- ------- -------- -------- ------- --------
Total operating
expenses............. 10,468 16,266 24,422 33,307 36,645 17,267 20,326
------- ------- ------- -------- -------- ------- --------
Income (loss) from
operations............. (4,362) 2,950 1,722 (17,270) (19,854) (9,906) (14,606)
Interest income, net... 839 2,598 3,931 4,000 2,851 1,586 3,035
Other income........... 177 574 818 504 1,066 481 592
Equity in NPI net
losses and other
adjustments, net...... -- -- (1,130) (7,188) (885) (887) (60)
------- ------- ------- -------- -------- ------- --------
Net income (loss) before
income taxes........... (3,346) 6,122 5,341 (19,954) (16,822) (8,726) (11,039)
Income taxes............ -- 248 214 1 -- -- 200
------- ------- ------- -------- -------- ------- --------
Net income (loss)....... $(3,346) $ 5,874 $ 5,127 $(19,955) $(16,822) $(8,726) $(11,239)
======= ======= ======= ======== ======== ======= ========
Earnings (loss) per
share:
Basic.................. $ (0.29) $ 0.39 $ 0.30 $ (1.10) $ (0.88) $ (0.46) $ (0.51)
Diluted................ $ (0.29) $ 0.36 $ 0.28 $ (1.10) $ (0.88) $ (0.46) $ (0.51)
Shares used in
calculation of earnings
(loss) per share:
Basic.................. 11,684 14,971 16,930 18,141 19,072 18,958 21,834
Diluted................ 11,684 16,127 18,184 18,141 19,072 18,958 21,834
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-------------------
As
Actual Adjusted(1)
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $79,818 $197,763
Working capital........................................... 76,028 193,973
Total assets.............................................. 97,908 215,853
Long-term debt and capital lease obligations, net of
current portion.......................................... 1,627 1,627
Stockholders' equity...................................... 86,853 204,798
</TABLE>
--------
(1) The As Adjusted Consolidated Balance Sheet Data summarized above reflects
the application of the net proceeds from the sale of the 3,000,000 shares
of common stock offered by us at an assumed price of $42.00 per share and
after deducting the underwriting discounts and commissions and our
estimated offering expenses.
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the risks described below, together with the other information in this
prospectus, before you make a decision to invest in our common stock. If any of
the following risks actually occur, our business, operating results, prospects
or financial condition could be materially adversely affected. This could cause
the market price of our common stock to decline, and could cause you to lose
all or part of your investment. References to "partners" or "corporate
partners" do not imply the existence of a legal partnership or any equity
ownership of one entity by the other.
Risks Related to the Company
We have a history of losses and expect to incur substantial losses and negative
operating cash flows for the foreseeable future, and we may never achieve or
maintain profitability.
Since our inception, we have incurred significant net losses, including net
losses of $11.2 million in the period from January 1, 2000 through June 30,
2000. As a result of ongoing operating losses, we had an accumulated deficit of
$52.9 million as of June 30, 2000. We are not currently profitable. Even if we
succeed in developing and commercializing one or more of our drugs, we expect
to incur substantial losses for the foreseeable future and may never become
profitable. We also expect to continue to incur significant operating and
capital expenditures and anticipate that our expenses will increase
substantially in the foreseeable future as we:
.seek regulatory approvals for our product candidates;
.develop, formulate, manufacture and commercialize our drugs;
.implement additional internal systems and infrastructure; and
.hire additional clinical and scientific personnel.
We also expect to experience negative cash flow for the foreseeable future
as we fund our operating losses and capital expenditures. As a result, we will
need to generate significant revenues to achieve and maintain profitability. We
cannot be certain that we will be able to generate such revenues or that we
will ever achieve profitability in the future. Our failure to achieve or
maintain profitability could negatively impact the market price of our common
stock.
We have no FDA-approved products and we cannot assure you that development of
our product candidates will be successful.
All of our product candidates are in research or development. We have not
requested or received regulatory approval to commercialize any product from the
United States Food and Drug Administration, or the FDA, or any other regulatory
body. Any products which may result from our research and development programs
are not expected to be commercially available for the foreseeable future, if at
all.
As an example, in 1999, we completed a clinical study evaluating the
effectiveness of our GABA-A agonist for insomnia. We have subsequently
initiated five additional clinical studies on this compound. We will need to
commit substantial time and resources to conducting further studies before we
can submit a new drug application, or NDA, to the FDA for this product
candidate. Furthermore, we will not be allowed to proceed to the final phase of
clinical trials, Phase III, until we determine appropriate dosages and submit
this information to the FDA. We cannot guarantee that this program will result
in a marketable drug.
6
<PAGE>
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Such reasons include the possibilities that the potential products
may:
.be found ineffective or cause harmful side effects during preclinical
studies or clinical trials;
.fail to receive necessary regulatory approvals;
.be precluded from commercialization by proprietary rights of third
parties;
.be difficult to manufacture on a large scale; or
.be uneconomical or fail to achieve market acceptance.
If any of these potential problems occurs, we may never successfully market
any products.
If we are unable to design, conduct and complete clinical trials successfully,
we will not be allowed to sell any of our drugs and we will not generate any
product revenues.
Conducting clinical trials is a lengthy, time-consuming and expensive
process. In order to obtain FDA approval of any of our product candidates, we
must submit a new drug application to the FDA that demonstrates that the
product candidate is safe for humans and effective for its intended use. This
demonstration requires significant research and animal tests, which are
referred to as preclinical studies, as well as human tests, which are referred
to as clinical trials. Clinical trials are difficult to design and implement
because they are subject to rigorous requirements. We will incur substantial
expense for, and devote a significant amount of time to, preclinical studies
and clinical trials.
In connection with our clinical trials, we face the risks that:
.we or the FDA may suspend the trials;
.harmful side effects may be discovered;
.the results may not replicate the results of earlier, smaller trials;
.the results may not be statistically significant;
.patient recruitment may be slower than expected; and
.patients may drop out of the trials.
Any delay in, or suspension of, our clinical trials will delay the filing of
our new drug applications with the FDA and, ultimately, our ability to
commercialize our drugs and generate product revenues. The clinical trial
process may fail to demonstrate that our product candidates are safe for humans
and effective for their intended uses. Such failure would cause us to abandon a
product candidate. Failure to obtain FDA approval for any of our leading
product candidates will severely undermine our business plan by reducing our
number of saleable products.
If we cannot raise additional funding, we may be unable to complete development
of our product candidates.
We may require additional funding in order to continue our research and
product development programs, including preclinical testing and clinical trials
of our product candidates, for operating expenses, and for the pursuit of
regulatory approvals for product candidates. We also may require additional
funding for establishing manufacturing and marketing capabilities in the
future. We believe that our existing capital resources, together with interest
income and future payments due under strategic alliances, will be sufficient to
satisfy our current and projected funding requirements for at least the next 12
months. However, such resources might be insufficient to conduct research and
development programs as planned. If adequate funds are not available, we
7
<PAGE>
may be required to curtail significantly one or more of our research and
development programs or obtain funds through arrangements with corporate
partners or others that may require us to relinquish rights to certain of our
technologies or product candidates.
Our future capital requirements will depend on many factors, including:
. continued scientific progress in our research and development programs;
. the magnitude of our research and development programs;
. progress with preclinical testing and clinical trials;
. the time and costs involved in obtaining regulatory approvals;
. the costs involved in filing and pursuing patent applications and
enforcing patent claims;
. competing technological and market developments;
. the establishment of additional strategic alliances;
. the cost of manufacturing facilities and of commercialization activities
and arrangements; and
. the cost of product in-licensing and any possible acquisitions.
We intend to seek additional funding through strategic alliances, and may
seek additional funding through public or private sales of our securities,
including equity securities. In addition, we have leased equipment and may
continue to pursue opportunities to obtain additional debt financing in the
future. However, additional equity or debt financing might not be available on
reasonable terms, if at all, and any additional equity financings will be
dilutive to our stockholders.
We depend on continuing our current strategic alliances and on developing
additional strategic alliances to develop and commercialize our compounds.
We depend upon our corporate partners to provide adequate funding for a
number of our programs. Under these arrangements, our corporate partners are
responsible for:
. selecting compounds for subsequent development as drug candidates;
. conducting preclinical studies and clinical trials and obtaining
required regulatory approvals for such drug candidates; and
. manufacturing and commercializing any resulting drugs.
Our strategy for developing and commercializing our products is dependent
upon maintaining our current arrangements and establishing new arrangements
with research collaborators, corporate partners and others. We currently have
collaborations with Janssen Pharmaceutica, Wyeth-Ayerst, Taisho Pharmaceuticals
and Eli Lilly. Because we rely heavily on our corporate partners, our
development of our projects would be substantially delayed if our
collaborators:
. fail to select a compound we have discovered for subsequent development
into marketable products;
. fail to gain the requisite regulatory approvals of these products;
. do not successfully commercialize products that we originate;
. do not conduct their collaborative activities in a timely manner;
. do not devote sufficient time and resources to our partnered programs or
potential products;
. terminate their alliances with us;
. develop, either alone or with others, products that may compete with our
products;
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. dispute our respective allocations of rights to any products or
technology developed during our collaborations; or
. merge with a third party that may wish to terminate the collaboration.
These issues and possible disagreements with our corporate partners could
lead to delays in the collaborative research, development or commercialization
of many of our product candidates. Furthermore, disagreements with these
parties could require or result in litigation or arbitration, which would be
time-consuming and expensive. If any of these issues arise, it may delay the
filing of our new drug applications and, ultimately, our generation of product
revenues.
If clinical investigators fail to devote sufficient time and resources to our
drug development programs, or if their performance is substandard, the approval
of our FDA applications and our product introductions may be delayed.
We depend on independent clinical investigators to conduct our clinical
trials under their agreements with us. These investigators are not our
employees and we cannot control the amount or timing of resources that they
devote to our programs. These investigators may not assign a high priority to
our programs or pursue them as diligently as we would if we were undertaking
such programs ourselves. If independent investigators fail to devote sufficient
time and resources to our drug development programs, or if their performance is
substandard, the approval of our FDA applications and our introductions of new
drugs will be delayed. These investigators may also have relationships with
other commercial entities, some of which may compete with us. If independent
investigators assist our competitors at our expense, it could harm our
competitive position.
We have no manufacturing capabilities. If third-party manufacturers of our
product candidates fail to devote sufficient time and resources to our
concerns, or if their performance is substandard, our clinical trials and
product introductions may be delayed and our costs may rise.
We have in the past utilized, and intend to continue to utilize, third-party
manufacturing to produce the drug compounds we use in our clinical trials and
for the potential commercialization of our future products. We have no
experience in manufacturing products for commercial purposes and do not have
any manufacturing facilities. Consequently, we are solely dependent on contract
manufacturers for all production of products for development and commercial
purposes. In the event that we are unable to obtain or retain third-party
manufacturers, we will not be able to commercialize our products. The
manufacture of our products for clinical trials and commercial purposes is
subject to specific FDA regulations. We cannot assure you that our third-party
manufacturers will comply with these regulations or other regulatory
requirements now or in the future. In addition, our reliance on contract
manufacturers exposes us to the following risks:
. Contract manufacturers may encounter difficulties in achieving volume
production, quality control and quality assurance, and also may
experience shortages in qualified personnel. As a result, our contract
manufacturers might not be able to meet our clinical schedules.
. Switching manufacturers may be difficult because the number of potential
manufacturers is limited. It may be difficult or impossible for us to
find a replacement manufacturer quickly on acceptable terms, or at all.
. Our contract manufacturers may not perform as agreed or may not remain
in the contract manufacturing business for the time required to
successfully produce, store and distribute our products.
. Drug manufacturers are subject to ongoing periodic unannounced
inspection by the FDA, the United States Drug Enforcement Agency, or
DEA, and corresponding state agencies to ensure strict compliance with
good manufacturing practice and other government regulations and
corresponding foreign standards. We do not have control over third-party
manufacturers' compliance with these regulations and standards.
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Our current dependence upon third parties for the manufacture of our
products may harm our profit margin, if any, on the sale of our future products
and our ability to develop and deliver products on a timely and competitive
basis.
We have no marketing experience, sales force or distribution capabilities and,
if our products are approved, we may not be able to commercialize them
successfully.
We have retained some marketing or co-promotion rights in North America to
the products in our corporate collaborations and, if these or any of our other
product candidates receive FDA approval, we plan to establish our own North
American marketing and sales organization. However, we currently have no
experience in marketing or selling pharmaceutical products and we do not have a
marketing and sales staff or distribution capabilities. In order to achieve
commercial success for any product candidate approved by the FDA, we must
either develop a marketing and sales force or enter into arrangements with
third parties to market and sell our products.
We cannot assure you that we will successfully develop such experience or
that we will be able to enter into marketing and sales agreements with others
on acceptable terms, if at all. If we develop our own marketing and sales
capabilities, we will compete with other companies that currently have
experienced and well-funded marketing and sales operations. To the extent that
we enter into co-promotion or other marketing and sales arrangements with other
companies, any revenues we receive will be dependent on these companies'
efforts, and such efforts may be unsuccessful. If we fail to establish
successful marketing and sales capabilities or fail to enter into successful
marketing arrangements with third parties, our product revenues will suffer.
Our potential products may be subject to sales and pharmaceutical pricing
controls that could limit our product revenues and delay profitability.
Our potential revenues may be reduced by the continuing efforts of
government and third-party payors to contain or reduce the costs of health care
through various means. For example, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to government control.
In the United States, there have been, and we expect that there will continue
to be, a number of federal and state proposals to implement similar government
control. In addition, an increasing emphasis on managed care in the United
States has and will continue to put pressure on pharmaceutical pricing. Such
initiatives and proposals, if adopted, could decrease the price that we receive
for any products we may develop and sell in the future. Further, to the extent
that such proposals or initiatives have negatively impacted our collaborators
or prospective collaborators for certain of our potential products, the
royalties we receive on potential products may be reduced or eliminated.
Our ability to commercialize pharmaceutical products may depend in part on
the extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health insurers and other third-party payors. Significant uncertainty
exists as to the reimbursement status of newly approved health care products,
and third-party payors are increasingly challenging the prices charged for
medical products and services. Third-party insurance coverage may not be
available to patients for any products we develop. Government and other third-
party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products, and by refusing, in some cases, to provide coverage for off-label
uses of approved products, that is, for disease indications for which the FDA
has not granted marketing approval. If government and third-party payors do not
provide adequate coverage and reimbursement levels for our products, or if
price controls are enacted, our product revenues could be limited.
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The development of our product candidates is subject to a substantial degree of
technological uncertainty, and we may be forced to abandon development of one
or more compounds after further testing.
Only a small number of research and development programs ultimately result
in commercially successful drugs. A number of our drug targets, including
EAATs, melanocortins, melanin concentrating hormone and hypocretin, have not
been validated as therapeutic targets in human clinical trials nor has the
mechanism of use of a CRF antagonist or an altered peptide ligand as a
therapeutic been validated through late stage clinical trials. Significant
additional research and development is necessary to validate these targets and
demonstrate safety in human clinical trials. We cannot guarantee that the
laboratory and preclinical models we use will be predictive of human
therapeutic activity.
If our products do not achieve market acceptance from physicians and patients,
we may not recover our investment.
The commercial success of our products, if they are approved for marketing,
will depend upon their acceptance by the medical community as being safe and
effective. The market acceptance of our products could be affected by a number
of factors, including:
. the timing of receipt of marketing approvals;
. the safety and efficacy of the products;
. the emergence of equivalent or superior products; and
. the cost-effectiveness of the products.
If we are unable to commercialize our products for these or any other
reasons, our business will be harmed.
Our development efforts will be delayed if we are unable to retain and recruit
qualified scientists or if any of our key senior executives discontinue their
employment with us.
We are highly dependent on the principal members of our management and
scientific staff. The loss of any of these people could impede the achievement
of our development objectives. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future
will also be critical to our success. We might be unable to attract and retain
personnel on acceptable terms given the competition among biotechnology,
pharmaceutical and health care companies, universities and non-profit research
institutions for experienced scientists. In addition, we rely on members of our
Scientific Advisory Board and a significant number of consultants to assist us
in formulating our research and development strategy. All of our consultants
and members of the Scientific Advisory Board are employed by employers other
than us. They may have commitments to, or advisory or consulting agreements
with, other entities that may limit their availability to us.
Risks Related to Our Industry
We face intense competition and if we are unable to compete effectively, the
demand for our products, if any, may be reduced.
The biotechnology and pharmaceutical industries are subject to rapid and
intense technological change. We face, and will continue to face, competition
in the development and marketing of our product candidates from academic
institutions, government agencies, research institutions and biotechnology and
pharmaceutical companies. Competition may also arise from, among other things:
. other drug development technologies;
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. methods of preventing or reducing the incidence of disease, including
vaccines; and
. new small molecule or other classes of therapeutic agents.
Developments by others may render our product candidates or technologies
obsolete or noncompetitive.
We are performing research on or developing products for the treatment of
several disorders including anxiety, depression, insomnia, glioblastoma, other
forms of cancer and multiple sclerosis.
In the area of anxiety disorders, our product candidates will compete with
well-established products such as Valium(R), marketed by Hoffman-La Roche,
Xanax(R), marketed by Pharmacia, Buspar(R), marketed by Bristol-Myers-Squibb,
and others.
We are also developing products for depression, which will compete with
well-established products in the anti-depressant class, including Prozac(R),
marketed by Eli Lilly, Zoloft(R), marketed by Pfizer, and Paxil(R), marketed
by SmithKline Beecham. Certain technologies under development by other
pharmaceutical companies could result in additional commercial treatments for
depression and anxiety. In addition, a number of companies are also conducting
research on molecules to block CRF, which is the same mechanism of action
employed by our compounds.
We are also developing a GABA-A agonist, NBI-34060, for the treatment of
insomnia. Ambien(R) and Sonata(R) are already marketed for the treatment of
insomnia by Searle/Synthelabo and American Home Products, respectively.
Guilford Pharmaceuticals, Inc. sells Gliadel(R), which has been approved
for use in a subset of brain cancers known as glioblastoma. It will
potentially compete with our IL-4 Fusion Toxin product, NBI-3001, if our
product is approved by the FDA. Temozolomide(R), marketed by Schering Plough,
is approved in Europe only for recurrent glioblastoma, where it may also
compete with NBI-3001.
We are also pursuing development of NBI-3001 for the treatment of
peripheral solid tumors, such kidney cancer and non-small cell lung cancer.
Proleukin(R) is marketed by Chiron for the treatment of kidney cancer, and
drug treatments for non-small cell lung cancer include Platinol(R) and
Taxol(R), which are marketed by Bristol-Myers Squibb, and Gemzar(R), which is
marketed by Eli Lilly & Co.
Products that may be competitive with NBI-5788 APL for multiple sclerosis
include Betaseron(R) and Avonex(R), similar forms of beta-interferon marketed
by Berlex BioSciences and Biogen, respectively. Copaxone(R), a peptide polymer
marketed by Teva, has also been approved for the marketing in the United
States and certain other countries for the treatment of multiple sclerosis.
There are a number of competitors to products in our research pipeline.
Lupron Depot(R), marketed by Takeda-Abbott Pharmaceuticals, Zoladex(R),
marketed by and AstraZeneca, and Synarel(R), marketed by Pharmacia, are
gonadotropin releasing hormone, or GnRH, peptide agonists that have been
approved for the treatment of prostate cancer and diseases and disorders
affecting women, such as endometriosis, infertility and breast cancer, and
central precocious puberty. In addition, GnRH peptide antagonists, including
Abarelix(R) and Antagon Injection(R) are under development by Amgen and
Organon for these indications. These drugs may compete with any small molecule
GnRH antagonists we develop for these indications. Anti-obesity therapeutics
currently available include Xenical(R) from Roche Laboratories and Meridia(R)
from Knoll Pharmaceuticals. If one or more of these products and/or programs
are successful, the market for our products may be reduced or eliminated.
Compared to us, many of our competitors and potential competitors have
substantially greater:
. capital resources;
. research and development resources, including personnel and technology;
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. regulatory experience;
. preclinical study and clinical testing experience;
. manufacturing and marketing experience; and
. production facilities.
Any of these competitive factors could reduce demand for our products.
If we are unable to protect our intellectual property, our competitors could
develop and market products based on our discoveries, which may reduce demand
for our products.
Our success will depend on our ability to, among other things:
. obtain patent protection for our products;
. preserve our trade secrets;
. prevent third parties from infringing upon our proprietary rights; and
. operate without infringing upon the proprietary rights of others, both in
the United States and internationally.
Because of the substantial length of time and expense associated with
bringing new products through the development and regulatory approval processes
in order to reach the marketplace, the pharmaceutical industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Accordingly, we intend to seek patent
protection for our proprietary technology and compounds. However, we face the
risk that we may not obtain any such patents and that the breadth of claims we
obtain, if any, may not provide adequate protection of our proprietary
technology or compounds. Two of our European patents are subject to opposition
proceedings which, if successful, could reduce the breadth of some of our
proprietary rights. We cannot guarantee that we will be able to adequately
enforce any of our patents to protect our proprietary technology and compounds.
Because patent applications in the United States are confidential until the
patents issue, and publication of discoveries in the scientific or patent
literature tend to lag behind actual discoveries by several months, we cannot
assure you that we were the first creators of inventions covered by pending
patent applications or that we were the first to file patent applications for
such inventions and compounds. Either of these problems may result in our
patent applications being denied or, if they are granted, may allow third
parties to successfully challenge our patents' validity. Litigation, which
could result in substantial cost, may be necessary to enforce our patent and
license rights.
The degree of patent protection afforded to pharmaceutical inventions is
uncertain and any patents that may issue with regard to our potential products
will be subject to this uncertainty. Our competitors may develop competitive
products outside the protection that may be afforded by the claims of our
patents. Other potential products that we may develop may not be novel and
therefore would not be eligible for composition of matter patent claims.
We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to develop and maintain our
competitive position, which we seek to protect, in part, by confidentiality
agreements with our commercial partners, collaborators, employees and
consultants. We also have invention or patent assignment agreements with our
employees and some, but not all, commercial partners and consultants. However,
these agreements may be breached, we may not have adequate remedies for any
such breach, and our trade secrets may otherwise become known or independently
discovered by our competitors.
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We may face disputes with third parties regarding the validity of our patents
or our alleged infringement of third parties' patents, which could prevent or
delay commercialization of our product candidates.
Research has been conducted for a number of years on G-protein coupled
receptors and many of our other primary areas of interest. This research has
resulted in a number of issued patents and an even larger number of patent
applications. In addition, there may be applications pending which have yet to
publish and so may impact our research programs but which are unknown to us at
this time.
The technologies we use in our research as well as the drug targets we
select may unintentionally infringe the patents or violate the proprietary
rights of third parties. In that case, we may be required to obtain licenses to
patents or proprietary rights of others in order to continue with the
commercialization of our products. We are aware of pending and issued patent
claims to melanin concentrating hormone ligand and receptor, the hypocretin
ligand and receptor and certain uses of MC-4 agonists. In addition, we are
aware of two U.S. patents relating to IL-4 proteins that are controlled by
other entities. We do not believe that our research and development activities
as currently conducted infringe any valid issued patents. However, the two U.S.
patents relating to IL-4 proteins include unusually broad claims that, if they
are valid, may prevent us from commercializing our IL-4 Fusion Toxin products
in the United States unless we obtain a license, which may not be available on
commercially reasonable terms, or at all.
NBI-34060, our GABA-A agonist compound, is covered generically in an issued
U.S. patent, which we licensed from DOV Pharmaceuticals. It is not currently
covered by any foreign patents of which we are aware. The term of the U.S.
patent is due to expire in June 2003. We intend to seek additional protection
of this compound in three ways. First, patent term extension under the
Hatch/Waxman Patent Term Extension Act may add patent life in the U.S. beyond
the June 2003 expiration, depending on the length of clinical trials and other
factors involved in the filing of a new drug application. Second, we have filed
seven U.S. and foreign patent applications on NBI-34060, its synthesis and
formulations, which could extend patent protection to the year 2020. We face
the risk that these patents may not issue, or may subsequently be challenged
successfully. Third, in addition to this potential patent protection, the
United States, the European Union and Japan all provide data protection for new
medicinal compounds. If this protection is available, no competitor may use the
original applicant's data as the basis of a generic marketing application
during the period of data protection. This period of exclusivity is five years
in the U.S., six years in Japan and six to 10 years in the European Union,
measured from the date of FDA, or corresponding foreign, approval.
As the biotechnology industry expands and more patents are issued, the risk
increases that our potential product may require licenses of third party
technologies. However, any licenses required under any patents or proprietary
rights of third parties may not be made available on acceptable terms, or at
all. If we do not obtain those licenses, we could encounter delays in product
introductions while we attempt to design around those patents, or we could find
that the development, manufacture or sale of products requiring those licenses
could be foreclosed. Litigation may be necessary to defend against or assert
infringement claims to enforce our issued patents and to protect our trade
secrets or know-how, or to determine the scope and validity of the proprietary
rights of others. In addition, interference proceedings declared by the United
States Patent and Trademark Office may be necessary to determine the priority
of inventions with respect to our patent applications or those of our
licensors. Litigation or interference proceedings may fail and, even if
successful, may result in substantial costs and be a distraction to management.
From time to time, disputes arise when we decide not to pursue further
development of compounds that we have licensed from third parties. Currently,
such terminated licensors are demanding payments from us that total less than
$1.0 million in the aggregate. Although we believe this risk is remote and that
we have meritorious defenses to these demands, to the extent that we are
required to make these payments, our cash available to fund our research and
development efforts will be reduced.
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We may be subject to claims that we or our employees have wrongfully used or
disclosed alleged trade secrets of their former employers.
As is commonplace in the biotechnology industry, we employ individuals who
were previously employed at other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. We may be subject to claims
that these employees and/or we have inadvertently or otherwise used or
disclosed trade secrets or other proprietary information of their former
employers. Litigation may be necessary to defend against these claims. Even if
we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management.
Our development efforts and potential products are subject to strict government
regulation. Compliance with these regulations is costly and time-consuming.
Regulation by government authorities in the United States and foreign
countries is a significant factor in the development, manufacture and marketing
of our proposed products and in our ongoing research and product development
activities. All of our products will require regulatory approval by government
agencies prior to commercialization. In particular, human therapeutic products
are subject to rigorous preclinical testing and clinical trials and other
approval procedures of the FDA and similar regulatory authorities in foreign
countries. Various federal and state statutes and regulations also govern or
influence testing, manufacturing, safety, labeling, storage and record-keeping
related to such products and their marketing. The process of obtaining these
approvals and the subsequent substantial compliance with appropriate federal
and state statutes and regulations require the expenditure of substantial time
and financial resources. If we fail or our collaborators or licensees fail to
obtain, or encounter delays in obtaining or maintaining, regulatory approvals
it could adversely affect the marketing of any products we develop, our ability
to receive product or royalty revenues and our liquidity and capital resources.
Preclinical studies are generally conducted in laboratory animals to
evaluate the potential safety and the efficacy of a product. The results of
these studies are submitted to the FDA as a part of an investigative new drug
application, which must be approved before clinical trials in humans can begin.
Typically, clinical evaluation involves a time consuming and costly three-phase
process:
<TABLE>
<C> <S>
Phase I.... Clinical trials are conducted with a small number of subjects to
determine the early safety profile, maximum tolerated dose and
pharmacokinetics of the product in human volunteers.
Phase II... Clinical trials are conducted with groups of patients afflicted
with a specific disease in order to determine preliminary
efficacy, optimal dosages and expanded evidence of safety.
Phase III.. Large-scale, multi-center, comparative trials are conducted with
patients afflicted with a target disease in order to provide
enough data to demonstrate with substantial evidence the
efficacy and safety required by the FDA.
</TABLE>
The FDA closely monitors the progress of each of the three phases of
clinical trials and may, at its discretion, reevaluate, alter, suspend or
terminate the testing based upon the data which have been accumulated to that
point and its assessment of the risk/benefit ratio to the patient.
The results of preclinical studies and clinical trials are submitted to the
FDA in the form of an new drug application or biologics license application for
approval to commence commercial sales. In responding to an new drug application
or biologics license application, the FDA may grant marketing approval, request
additional information or deny the application if the FDA determines that the
application does not satisfy its regulatory approval criteria. FDA approvals
may not be granted on a timely basis, or at all. Furthermore, FDA approval may
not allow us to market the product under a label for our desired indications,
which may impair commercialization of the product. We must also comply with
similar regulatory procedures in countries outside the United States.
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The results from preclinical studies and early clinical trials may not be
predictive of results obtained in later clinical trials. As a result, clinical
trials we or our corporate partners conduct may not demonstrate sufficient
safety and efficacy to obtain the requisite regulatory approvals or will result
in marketable products or marketable indications. In addition, late stage
clinical trials are often conducted with patients having the most advanced
stages of disease. During the course of treatment, these patients can die or
suffer other adverse medical effects for reasons that may not be related to the
pharmaceutical agent being tested but which can nevertheless adversely affect
clinical trial results. A number of companies in the biotechnology and
pharmaceutical industries have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. If our drug
candidates are not shown to be safe and effective in clinical trials, the
resulting delays in developing other compounds and conducting related
preclinical studies and clinical trials, as well as the potential need for
additional financing, would have a material adverse effect on our business,
financial condition and results of operations.
The rate of completion of clinical trials we or our corporate partners
conduct may be delayed by many factors, including slower than expected patient
recruitment or unforeseen safety issues. Any delays in, or termination of, the
clinical trials for our products would have a material adverse effect on our
business, financial condition and results of operations.
We face potential product liability exposure far in excess of our limited
insurance coverage.
The use of any of our potential products in clinical trials, and the sale of
any approved products, may expose us to liability claims. These claims might be
made directly by consumers, health care providers, pharmaceutical companies or
others selling our products. We have obtained limited product liability
insurance coverage for our clinical trials in the amount of $5 million per
occurrence and $5 million in the aggregate. We intend to expand our insurance
coverage to include the sale of commercial products if marketing approval is
obtained for product candidates in development. However, insurance coverage is
becoming increasingly expensive, and we might not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. We may be unable to obtain commercially reasonable
product liability insurance for any products approved for marketing. On
occasion, juries have awarded large judgments in class action lawsuits based on
drugs that had unanticipated side effects. A successful product liability claim
or series of claims brought against us could harm our business and cause our
stock price to fall.
Our activities involve hazardous materials and we may be required to pay for
any resulting contamination or injuries.
Our research activities involve the controlled use of hazardous materials.
We cannot eliminate the risk of accidental contamination or injury from these
materials. In the event of an accident, we may be held liable for any resulting
damages which may reduce our cash reserves and force us to seek additional
financing.
Risks Related to this Offering
The price of our common stock is volatile.
The market prices for securities of biotechnology and pharmaceutical
companies have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. The market
price of our common stock may fluctuate in response to many factors, including:
. the results of our clinical trials;
. developments concerning our strategic alliance agreements;
. announcements of technological innovations or new therapeutic products
by us or others;
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. developments in patent or other proprietary rights;
. future sales of our common stock by existing stockholders;
. comments by securities analysts and general market conditions;
. fluctuations in our operating results;
. government regulation; and
. public concern as to the safety of our drugs.
The realization of any of the risks described in these Risk Factors could
cause our stock price to fall dramatically and may expose us to class action
securities lawsuits which, even if unsuccessful, would be costly to defend and
a distraction to management.
We have broad discretion in how we use the net proceeds of this offering, and
we may not use these proceeds effectively.
We have not designated the amount of net proceeds we will use for any
particular purpose. Accordingly, our management will have broad discretion as
to the application of the net proceeds and could use them for purposes other
than those contemplated at the time of this offering. Our stockholders may not
agree with the manner in which our management chooses to allocate and spend the
net proceeds. Moreover, our management may use the net proceeds for corporate
purposes that may not increase our profitability or our market value. As of the
date of this prospectus, we plan to use the net proceeds from this offering for
working capital and general corporate purposes, including clinical trials,
research and development expenses, general and administrative expenses,
manufacturing expenses and potential acquisitions of companies and technologies
that complement our business, none of which are being planned or being
negotiated as of the date of this prospectus.
Provisions of our charter documents and shareholder rights plan may discourage
potential acquisition bids that our stockholders may view as desirable and the
price of our common stock may decline as a result.
Our certificate of incorporation provides for staggered terms for the
members of our board of directors and does not provide for cumulative voting in
the election of directors. In addition, our board of directors has the
authority, without further action by the stockholders, to fix the rights and
preferences of, and issue shares of, preferred stock. In April 1997, we adopted
a stockholder rights plan, commonly referred to as a "poison pill." We are also
subject to Section 203 of the Delaware General Corporation Law which, subject
to certain exceptions, restricts certain transactions and business combinations
between a corporation and a stockholder owning 15% or more of the corporation's
outstanding voting stock for a period of three years from the date the
stockholder becomes an interested stockholder. Our stockholder rights plan,
staggered board terms, lack of cumulative voting, preferred stock provisions
and other provisions of our charter and Delaware corporate law may discourage
certain types of transactions involving an actual or potential change in
control of our company.
FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference contain
forward-looking statements that involve a number of risks and uncertainties.
Although our forward-looking statements reflect the good faith judgment of our
management, these statements can only be based on facts and factors currently
known by us. Consequently, forward-looking statements are inherently subject to
risks and uncertainties, and actual results and outcomes may differ materially
from results and outcomes discussed in the forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking
words such as "believes," "expects," "hopes" "may," "will," "plan," "intends,"
"estimates," "could," "should," "would,"
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"continue," "seeks," "pro forma" or "anticipates," or other similar words
(including their use in the negative), or by discussions of future matters such
as the development of new products, technology enhancements, possible changes
in legislation and other statements that are not historical. These statements
include but are not limited to statements under the captions "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as other sections in this prospectus. A
number of factors could cause results to differ materially from those
anticipated by the forward-looking statements, including those discussed under
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." You should be aware that the occurrence of any of
the events discussed under "Risk Factors" and elsewhere in this prospectus
could substantially harm our business, results of operations and financial
condition and that upon the occurrence of any of these events, the trading
price of our common stock could decline and you could lose all or a part of the
value of your shares of our common stock.
The cautionary statements made in this prospectus are intended to be
applicable to all related forward-looking statements wherever they may appear
in this prospectus. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this prospectus
or the dates of the incorporated documents, as applicable.
18
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock offered hereby are
estimated to be $117.9 million, based on the assumed public offering price of
$42.00 per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.
We intend to use the net proceeds of this offering for working capital and
general corporate purposes, including:
. clinical trials;
. research and development expenses;
. general and administrative expenses;
. manufacturing expenses; and
. potential acquisitions of companies and technologies that complement our
business, none of which are planned or being negotiated as of the date
of this prospectus.
The amounts and timing of our actual expenditures will depend significantly
upon a number of factors, including future revenue growth, if any, from
licensing and corporate collaborations. As a result, we will retain broad
discretion in determining how we will allocate the net proceeds from this
offering. Pending these uses, we intend to invest the net proceeds in interest-
bearing, investment-grade corporate and government securities.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"NBIX." The following table sets forth, for the periods indicated, the high and
low sales prices per share of our common stock as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
Price Range
of Common
Stock
-------------
High Low
------ ------
<S> <C> <C>
Year Ended December 31, 1998:
First Quarter.................................................. $10.13 $ 7.56
Second Quarter................................................. 9.06 7.38
Third Quarter.................................................. 8.13 4.00
Fourth Quarter................................................. 8.00 4.13
Year Ended December 31, 1999:
First Quarter.................................................. $ 7.50 $ 4.88
Second Quarter................................................. 5.88 4.00
Third Quarter.................................................. 5.94 3.75
Fourth Quarter................................................. 29.63 5.38
Year Ended December 31, 2000:
First Quarter.................................................. $47.50 $20.75
Second Quarter................................................. 39.70 13.94
Third Quarter.................................................. 46.00 29.13
Fourth Quarter (through October 2, 2000)....................... 44.44 39.50
</TABLE>
On October 2, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $42.00 per share. As of September 29, 2000, there
were approximately 4,500 stockholders of record of the common stock.
DIVIDEND POLICY
We have not declared or paid any cash dividends since our inception. We
currently intend to retain our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
19
<PAGE>
CAPITALIZATION
The following table sets forth:
. our capitalization at June 30, 2000; and
. our capitalization as adjusted to give effect to the sale of 3,000,000
shares of common stock offered hereby at an assumed offering price of
$42.00 per share and the application of the estimated net proceeds.
<TABLE>
<CAPTION>
June 30, 2000
-------------------------
Actual As Adjusted
----------- ------------
(dollars in thousands)
<S> <C> <C>
Long-term debt, net of current portion............... $ 1,627 $ 1,627
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding...... -- --
Common Stock, $0.001 par value, 100,000,000 shares
authorized; 21,927,727 shares issued and
outstanding actual; 24,927,727 shares issued and
outstanding as adjusted........................... 22 25
Additional paid-in capital......................... 140,753 258,695
Deferred compensation and notes receivable from
stockholders...................................... (188) (188)
Accumulated other comprehensive income/loss........ (823) (823)
Accumulated deficit................................ (52,911) (52,911)
----------- -----------
Total stockholders' equity........................... 86,853 204,798
----------- -----------
Total capitalization................................. $ 88,480 $ 206,425
=========== ===========
</TABLE>
This information excludes:
. 3,630,350 shares of common stock reserved for the exercise of options
outstanding as of June 30, 2000 at a weighted average exercise price of
$10.23 per share;
. 355,504 shares of common stock reserved for the exercise of warrants
outstanding as of June 30, 2000 at a weighted average exercise price of
$10.50 per share;
. 233,778 shares of common stock reserved for issuance under our Employee
Stock Purchase Plan; and
. 604,995 shares of common stock reserved for issuance under our other
stock incentive plans but not subject to awards as of June 30, 2000.
Subsequent to June 30, 2000, we issued 122,697 shares upon the exercise of
options and under the employee stock purchase plan at a weighted average price
of $6.00 and 50,800 options at a weighted average exercise price of $37.49.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in, or incorporated by reference into, this
prospectus. The selected consolidated statement of operations and balance sheet
data for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 are
derived from our audited consolidated financial statements. The selected
consolidated statement of operations data for the six months ended June 30,
1999 and 2000 and the selected consolidated balance sheet data as of June 30,
2000 are derived from our unaudited consolidated financial statements. In the
opinion of our management, our unaudited consolidated financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of this information. The operating results for the six
months ended June 30, 2000 are not necessarily indicative of results that may
be expected for the year ended December 31, 2000 or any other interim period or
future year.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Sponsored research and
development........... $ 3,000 $ 9,092 $14,985 $ 8,751 $ 12,171 $ 5,551 $ 3,056
Sponsored research and
development from
related party......... -- -- -- 3,610 491 494 --
Milestones and license
fees.................. 2,750 9,000 10,250 2,500 3,000 750 2,000
Grant income and other
revenues.............. 356 1,124 909 1,176 1,129 566 664
------- ------- ------- -------- -------- ------- --------
Total revenues....... 6,106 19,216 26,144 16,037 16,791 7,361 5,720
Operating expenses:
Research and
development........... 7,740 12,569 18,758 21,803 29,169 13,562 15,905
General and
administrative........ 2,728 3,697 5,664 6,594 7,476 3,705 4,421
Write-off of acquired
in-process research
and development and
licenses.............. -- -- -- 4,910 -- -- --
------- ------- ------- -------- -------- ------- --------
Total operating
expenses............ 10,468 16,266 24,422 33,307 36,645 17,267 20,326
------- ------- ------- -------- -------- ------- --------
Income (loss) from
operations............. (4,362) 2,950 1,722 (17,270) (19,854) (9,906) (14,606)
Interest income, net... 839 2,598 3,931 4,000 2,851 1,586 3,035
Other income........... 177 574 818 504 1,066 481 592
Equity in NPI net
losses and other
adjustments, net...... -- -- (1,130) (7,188) (885) (887) (60)
------- ------- ------- -------- -------- ------- --------
Net income (loss) before
income taxes........... (3,346) 6,122 5,341 (19,954) (16,822) (8,726) (11,039)
Income taxes............ -- 248 214 1 -- -- 200
------- ------- ------- -------- -------- ------- --------
Net income (loss)....... $(3,346) $ 5,874 $ 5,127 $(19,955) $(16,822) $(8,726) $(11,239)
======= ======= ======= ======== ======== ======= ========
Earnings (loss) per
share:
Basic.................. $ (0.29) $ 0.39 $ 0.30 $ (1.10) $ (0.88) $ (0.46) $ (0.51)
Diluted................ $ (0.29) $ 0.36 $ 0.28 $ (1.10) $ (0.88) $ (0.46) $ (0.51)
Shares used in
calculation of earnings
(loss) per share:
Basic.................. 11,684 14,971 16,930 18,141 19,072 18,958 21,834
Diluted................ 11,684 16,127 18,184 18,141 19,072 18,958 21,834
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
June 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term
investments $ 18,696 $ 69,920 $ 75,092 $ 62,670 $ 91,098 $ 79,818
Working capital......... 16,989 68,023 69,362 60,064 86,168 76,028
Total assets............ 24,012 77,957 91,903 80,529 109,222 97,908
Long-term debt and
capital lease
obligations............ 1,631 847 722 2,247 2,139 1,627
Accumulated deficit..... (15,895) (10,022) (4,895) (24,850) (41,672) (52,911)
Total stockholders'
equity................. 19,225 72,767 83,152 71,958 96,354 86,853
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations section contains forward-looking statements which
involve risks and uncertainties, pertaining generally to the expected
continuation of our collaborative agreements, the receipt of research payments
thereunder, the future achievement of various milestones in product development
and the receipt of payments related thereto, the potential receipt of royalty
payments, preclinical testing and clinical trials of potential products, the
period of time that our existing capital resources will meet our funding
requirements, and our financial results and operations. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth below and
those outlined in our 1999 Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Overview
Since we were founded in January 1992, we have been engaged in the discovery
and development of novel pharmaceutical products for diseases and disorders of
the central nervous and immune systems. To date, we have not generated any
revenues from the sale of products, and we do not expect to generate any
product revenues in the foreseeable future. We have funded our operations
primarily through private and public offerings of common stock and payments
under research and development agreements. We are developing a number of
products with corporate collaborators and will rely on existing and future
collaborators to meet funding requirements. We expect to generate future net
losses in anticipation of significant increases in operating expenses as
products are advanced through the various stages of clinical development. As of
June 30, 2000, we have incurred a cumulative deficit of $52.9 million and we
expect to incur operating losses in the future, which may be greater than
losses in prior years.
Results of Operations
Six Months ended June 30, 2000 and 1999
Revenues for the six months ended June 30, 2000 were $5.7 million compared
with $7.4 million in 1999. The decline in revenues resulted primarily from the
completion of the sponsored research portion of our collaboration with Eli
Lilly in October 1999 and the reacquisition of the multiple sclerosis compound
in January 2000. This compound was previously licensed to Novartis in
connection with a 1996 collaboration agreement. Absence of revenues from these
collaborations during 2000 was partially offset by option fees received from
Taisho. Taisho paid us $2.0 million for an exclusive six-month option to
negotiate a collaborative agreement on our altered peptide ligand for diabetes.
This fee was deferred and recognized as revenue over the six-month option
period. Revenues for the remainder of 2000 are expected to increase slightly
over the first half of the year in connection with the Taisho collaboration
signed on July 21, 2000.
For the six months ended June 30, 2000 and 1999, research and development
expenses were $15.9 million and $13.6 million, respectively. The increase in
expenses reflects higher costs associated with expanding development
activities, adding scientific personnel and non-cash charges associated with
stock compensation for employees and consultants. These expenses are expected
to rise significantly over the balance of 2000 as clinical trials are expanded
on current compounds and new compounds advance to the clinical development
stages.
For the six months ended June 30, 2000 and 1999, general and administrative
expenditures totaled $4.4 million and $3.7 million, respectively. Business
development consulting and non-cash charges associated with stock compensation
for employees and consultants were primarily responsible for the increase in
expenses. These expenses are expected to continue to rise over the last half of
2000.
Interest income increased to $3.0 million during the six months ended June
30, 2000 compared to $1.6 million for the same period last year. The increase
was primarily due to higher investment balances
22
<PAGE>
generated by our private placement of common stock. A private placement was
completed in December 1999 and generated net proceeds of $39.3 million. We
anticipate interest earnings for the remainder of the 2000 to decline from
quarter-to-quarter as cash reserves will be needed to fund progressive clinical
trials.
Net loss for the first six months of 2000 was $11.2 million or $0.51 per
share compared to $8.7 million or $0.46 per share for the same period in 1999.
The increase in net loss resulted from a decline in revenues of $1.6 million
and an increase in operating expenses of $3.0 million, partially offset by an
increase in interest income of $1.4 million. Net losses are expected to
increase this year due to higher operating costs associated with the
advancement of our compounds through progressive clinical development.
To date, our revenues have come from funded research and achievements of
milestones under corporate collaborations. The nature and amount of these
revenues from period to period may lead to substantial fluctuations in the
results of quarterly revenues and earnings. Accordingly, results and earnings
of one period are not predictive of future periods.
Years ended December 31, 1997, 1998 and 1999
Our revenues for the year ended December 31, 1999 were $16.8 million
compared with $16.0 million in 1998, and $26.1 million in 1997. Although
similar in amount, revenues for 1999 and 1998 had a different composition
resulting from several significant events. During 1999, we entered into a
collaborative agreement with Wyeth-Ayerst and agreed to a two-year extension of
our 1995 collaboration with Janssen Pharmaceutica. Revenues received in 1999
under the new agreements consisted of $5.4 million of sponsored research and
development funding and $3.0 million in milestone achievements.
The increase in 1999 revenues generated by the new agreements was offset by
a decline in revenues received under the Eli Lilly, Novartis and Neuroscience
Pharma (NPI), Inc. collaborations that were concluded during the year. Revenues
in 1998 for sponsored research and development funding and milestone
achievements under these agreements were $5.0 million and $2.3 million,
respectively.
Revenues recorded during 1997 included the initiation of the Eli Lilly
collaboration and the final year of sponsored research funding under the 1995
Janssen agreement. Revenues in 1997 for sponsored research and development
funding and milestone achievements under these and the Novartis agreements were
higher than those recorded in 1999 by $12.2 million and $5.3 million,
respectively.
Research and development expenses increased to $29.2 million during 1999
compared with $21.8 million in 1998 and $18.8 million in 1997. Increased
expenses reflect advancement of our drug candidates through progressive
clinical development phases. We expect to incur significant increases in future
periods as later phases of development typically involve an increase in the
scope of studies and number of patients treated.
General and administrative expenses increased to $7.5 million during 1999
compared with $6.6 million in 1998 and $5.7 million in 1997. Increased expenses
resulted from additional professional services, including patent and legal
services, to support our expanded clinical development efforts. We anticipate
similar increases in general and administrative expenses in the future as these
efforts continue.
During 1998, we wrote-off acquired in-process research and development costs
of $4.9 million. This amount included the acquisition of Northwest NeuroLogic
and the in-licensing of drug candidates for our insomnia and glioblastoma
programs. Both of the in-licensed programs are currently under clinical
development.
Interest income decreased to $3.1 million during 1999 compared with $4.2
million for 1998 and $4.1 million in 1997. The decrease in 1999 compared with
1998 and 1997 primarily resulted from lower investment balances. Management
anticipates an increase in interest income during future periods resulting from
cash reserves generated by the sale of our common stock in December 1999 and
increased revenues from anticipated collaborations.
23
<PAGE>
In December 1999, we sold our investment in NPI. Our proportionate share of
NPI operating losses during 1999, 1998 and 1997 were $764,000, $3.4 million and
$1.1 million, respectively. In addition, we recorded a write-down in the
investment value of $646,000 during 1999 and $3.8 million during 1998 relating
to the decline in cash redemption value of the NPI preferred shares.
Net loss for 1999 was $16.8 million or $0.88 per share compared to net loss
of $20.0 million or $1.10 per share for 1998 and net income of $5.1 million or
$0.30 per share for 1997. Management expects to incur similar operating losses
in the next two to three years as our clinical development efforts continue to
grow.
To date, our revenues have come principally from funded research and
achievements of milestones under corporate collaborations. The nature and
amount of these revenues from period to period may lead to substantial
fluctuations in the results of year-to-year revenues and earnings. Accordingly,
results and earnings of one period are not predictive of future periods.
Liquidity and Capital Resources
At June 30, 2000, our cash, cash equivalents, and short-term investments
totaled $79.8 million compared with $91.1 million and $62.7 million at December
31, 1999 and 1998, respectively. The increase in cash balances at December 31,
1999 resulted from the private placement of our common stock which resulted in
net cash proceeds of $39.2 million. The decline in cash balances from December
31, 1999 to June 30, 2000 reflects the funding of progressive clinical
development programs and the addition of scientific personnel.
Net cash used in operating activities during the first six months of 2000
was $10.8 million compared with $8.6 million for the same period last year. The
increase in net cash used during 2000 resulted primarily from the addition of
scientific personnel and the funding of clinical development programs. We
expect cash usage to continue during the year as clinical trial efforts are
expanded. Net cash used by operating activities during fiscal year 1999 was
$10.3 million compared with $10.7 million in fiscal year 1998 and net cash
provided of $11.0 million in fiscal year 1997. The decrease in cash used in
operations during 1999 compared with 1998, resulted primarily from increased
sponsored research and milestone revenues received under our collaborations
during 1999. The increase in cash used during 1998 compared with 1997, resulted
primarily from higher sponsored research and milestone revenues received under
our collaborations during 1997, which included a $5.0 million lump sum payment
from Eli Lilly, in addition to lower operating expenses.
Net cash used in investing activities during the first six months of 2000
was $9.4 million compared with net cash provided of $8.6 million during the
same period in 1999. The increase in cash used resulted primarily from the
timing differences in the investment purchases and sales/maturities and the
fluctuations in our portfolio mix between cash equivalents and short-term
holdings. We expect similar fluctuations to continue throughout the year. Net
cash used by investing activities during fiscal year 1999 was $21.2 million
compared with net cash provided of $4.7 million in fiscal year 1998 and net
cash used of $7.2 million in fiscal year 1997. The fluctuations in cash used
resulted primarily from the timing differences in the investment purchases and
sales/maturities and the fluctuations in our portfolio mix between cash
equivalents and short-term investment holdings. Capital equipment purchases are
expected to be $2.4 million of which $2.0 million will be financed through
leasing arrangements. We expect similar fluctuations to continue in future
periods.
Net cash provided by financing activities during 2000 was $1.3 million
compared to $233,000 during 1999. Proceeds from the issuance of common stock
provided cash during 2000, while proceeds from capital leases and issuances of
common stock provided cash in 1999. Management anticipates an increase in
proceeds from capital leasing during the last half of 2000. Net cash provided
by financing activities during fiscal year 1999 was $41.0 million compared with
$1.9 million and $659,000 during fiscal years 1998 and 1997, respectively. Cash
provided during 1999 resulted from net proceeds received from the private sale
of our common stock and exercise of employee stock options. Cash provided
during 1998 resulted from capital lease financing of equipment purchases. Cash
provided during 1997 resulted from the issuance of our common stock
24
<PAGE>
upon the exercises of stock options and warrants and proceeds received from a
note payable used to finance the purchase of land.
On July 21, 2000, we signed an exclusive agreement with Taisho
Pharmaceutical Co., Ltd. The agreement provides Taisho the exclusive rights to
NBI-6024, our altered peptide ligand for diabetes in Europe and Asia. The
collaboration includes licensing and option fees, payments for certain
development and regulatory milestones, and significant reimbursement of the
worldwide development expenses. In addition, we will receive payments based on
sales upon commercialization of products in Europe and Japan. We have retained
all rights to NBI-6024 in North America, but Taisho has exercised its option to
negotiate with respect to these rights and we are in currently in negotiations
with Taisho. As of June 30, 2000, we have received $2.0 million in option fees
related to this collaboration.
In September 1999, we signed an amendment to our 1995 agreement with Janssen
Pharmaceutica, N.V. The amendment provides for a new sponsored research period
designed to identify new corticotropin-releasing factor, or CRF, receptor
antagonists which will be subject to the terms of the original agreement signed
in 1995. The term of the amendment is from April 1999 through February 2001.
Under the agreement, we will receive $5.0 million in sponsored research
funding, up to $3.5 million in milestone achievements, $500,000 for research
already conducted under this certain technology and reimbursement of all
outside and third-party costs associated with the project. As of June 30, 2000,
we have received $3.3 million in sponsored research and the $500,000 payment
for prior research.
In March 1999, we entered into an agreement with Wyeth-Ayerst Laboratories,
the pharmaceutical division of American Home Products Corporation, on the
research, development and commercialization of compounds, which modulate EAATs
for the treatment of neurodegenerative and psychiatric diseases.
The Wyeth-Ayerst agreement includes sharing proprietary technologies,
funding for research, payments for milestones reached, plus royalties on sales
from products resulting from the collaboration. Under the terms of the
agreement, we expect to receive three to five years of funding for research and
development as well as worldwide royalties on commercial sales of products that
result from the collaboration. Wyeth-Ayerst will also provide us with access to
chemical libraries for screening within the collaborative field. As of June 30,
2000, we have received $4.5 million in sponsored research payments and $3.0
million for the achievement of four milestones.
We believe that our existing capital resources, together with interest
income and future payments due under the strategic alliances, will be
sufficient to satisfy our current and projected funding requirements at least
for the next 12 months. However, we cannot assure you that such capital
resources and payments will be sufficient to conduct our research and
development programs as planned. The amount and timing of expenditures will
vary depending upon a number of factors, including progress of our research and
development programs.
We will require additional funding for the continuation of our research and
product development programs, for progress with preclinical studies and
clinical trials, for operating expenses, for the pursuit of regulatory
approvals for our product candidates, for the costs involved in filing and
prosecuting patent applications and enforcing or defending patent claims, if
any, the cost of product in-licensing and any possible acquisitions, and we may
require additional funding for establishing manufacturing and marketing
capabilities in the future. We may seek to access the public or private equity
markets whenever conditions are favorable. We may also seek additional funding
through strategic alliances and other financing mechanisms, potentially
including off-balance sheet financing. We cannot assure you that adequate
funding will be available on terms acceptable to us, if at all. If adequate
funds are not available, we may be required to curtail significantly one or
more of our research or development programs or obtain funds through
arrangements with collaborative partners or others. This may require us to
relinquish rights to certain of our technologies or product candidates.
We expect to incur operating losses over the next several years as our
research, development, preclinical studies and clinical trial activities
increase. To the extent that we are unable to obtain third-party funding for
25
<PAGE>
such expenses, we expect that increased expenses will result in increased
losses from operations. We cannot assure you that our products under
development will be successfully developed or that our products, if
successfully developed, will generate revenues sufficient to enable us to earn
a profit.
Interest Rate Risk
We are exposed to interest rate risk on our short-term investments and on
our long-term debt. The primary objective of our investment activities is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, we invest in highly
liquid and high quality government and other debt securities. To minimize the
exposure due to adverse shifts in interest rates, we invest in short-term
securities with maturities of less than 44 months. If a 10% change in interest
rates were to have occurred on June 30, 2000, such a change would not have had
a material effect on the fair value of our investment portfolio as of that
date. Due to the short holding period of our investments, we have concluded
that we do not have a material financial market risk exposure.
Interest risk exposure on long-term debt relates to our note payable, which
bears a floating interest rate of prime plus one quarter percent (9.75% at June
30, 2000, 8.75% at December 31, 1999 and 8.00% at December 31, 1998). At June
30, 2000, December 31, 1999 and 1998, the note balance was $386,000, $461,000
and $610,000, respectively. This note is payable in equal monthly installments
through January 2003. Based on the balance of our long-term debt, we have
concluded that we do not have a material financial market risk exposure.
Cautionary Note on Forward-Looking Statements
Our business is subject to significant risks, including but not limited to,
the risks inherent in our research and development activities, including the
successful continuation of our strategic collaborations, the successful
completion of clinical trials, the lengthy, expensive and uncertain process of
seeking regulatory approvals, uncertainties associated both with the potential
infringement of patents and other intellectual property rights of third
parties, and with obtaining and enforcing our own patents and patent rights,
uncertainties regarding government reforms and of product pricing and
reimbursement levels, technological change and competition, manufacturing
uncertainties and dependence on third parties. Even if our product candidates
appear promising at an early stage of development, they may not reach the
market for numerous reasons. Such reasons include the possibilities that the
product will be ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. See the section "Risk
Factors" beginning on page 6.
New Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." SAB 101 provides guidance in applying
generally accepted accounting principles to revenue recognition in financial
statements, including the recognition of nonrefundable up-front fees received
in conjunction with a research and development arrangement. We are required to
adopt the pronouncement during the fourth quarter of 2000. We do not expect SAB
101 to have a material effect on our financial statements.
26
<PAGE>
BUSINESS
The following section contains forward-looking statements which involve
risks and uncertainties. Such statements are often preceded by words such as
"intend," "anticipate," "believe," "expect" and similar words. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under the
section "Risk Factors" and elsewhere in this prospectus.
Neurocrine Biosciences, Inc. is a product-based biopharmaceutical company
focused on neurologic and endocrine diseases and disorders. Our product
candidates address some of the largest pharmaceutical markets in the world
including insomnia, anxiety, depression, cancer, and diabetes. We currently
have 15 programs in various stages of research and development, with four
projects in clinical development. An additional four programs are in advanced
preclinical development, three of which we expect to advance into human
clinical trials over the next six months. We also have seven research projects
which we believe will help supply clinical development candidates in the
future. While we independently develop the majority of our product candidates,
we utilize collaborators in four of our 15 programs, including Janssen
Pharmaceutica, a subsidiary of Johnson & Johnson, Wyeth-Ayerst, Taisho
Pharmaceuticals and Eli Lilly. These collaborations help fund current product
development, while we retain North American commercial participation in
addition to milestone payments and royalties on worldwide product sales.
Our Business Strategy
Our goal is to become the leading therapeutic product-based
biopharmaceutical company focused on neurological and endocrine diseases and
disorders. There are six key elements to our business strategy:
Build a Large and Diversified Product Portfolio. We believe that by building
a large and diverse product pipeline, we can mitigate some of the risks
associated with drug development. We currently have 15 programs in various
stages of research and development with four projects in clinical development,
four programs in preclinical development which we expect to advance into the
clinic over the next six months, and seven research projects to supply clinical
compounds for the future. We take a porfolio approach to managing our pipeline
that balances the size of the market opportunities with clear and defined
clinical and regulatory paths to approval. We do this to ensure that we focus
our internal development resources on innovative therapy with high
probabilities of technical and commercial success.
Identify Novel Drug Targets for the Development of Innovative Therapeutics
to Address Large Unmet Market Opportunities. We utilize a multidisciplinary
research approach to identify and validate novel drug targets for internal
development or collaborations. For example, CRF may represent the first new
breakthrough for anxiety and depression in over 20 years. GnRH antagonists may
represent the first novel non-injectible means of treatment of female health
disorders and prostate cancer. Melanocortin and hypocretin modulators build
upon our franchise and expertise in obesity and sleep disorders. The creativity
and productivity of our discovery research group will continue to be a critical
component for our continued success. Our team of approximately 100 biologists
and chemists have a goal of delivering three innovative clinical compounds over
the next five years to fuel our research and development pipeline.
Establish Corporate Collaborations with Global Pharmaceutical Companies to
Assist in the Development of our Products and Mitigate Financial Risk While
Retaining Significant Commercial Upside. We leverage the development,
regulatory and commercialization expertise of our corporate partners to
accelerate the development of our potential products while typically retaining
commercial or co-promotional rights in North America. We intend to further
leverage our resources by continuing to enter into strategic alliances to
enhance our internal development and commercialization capabilities. To date,
we have entered into strategic alliances with:
. Janssen, to focus on CRF receptor antagonists to treat anxiety and
depression;
27
<PAGE>
. Wyeth-Ayerst, to research, develop and commercialize compounds which
modulate excitatory amino acid tranmitters, or EAATs, for the treatment
of neurodegenerative and psychiatric diseases;
. Taisho, to develop NBI-6024 for the treatment of Type I diabetes; and
. Eli Lilly, to collaborate in the discovery, development and
commercialization of CRF R\\2\\ agonists for the treatment of central
nervous system disorders, including obesity.
Acquire Rights to Complementary Drug Candidates. We plan to continue to
selectively acquire rights to products in various stages of development to take
advantage of our drug development capabilities. In May 1998, we licensed from
the National Institutes of Health an IL-4 Fusion Toxin which is currently in
Phase I/II clinical trials for recurrent glioblastoma. In May 1998, we acquired
Northwest NeuroLogic, Inc. and thereby considerably expanded our research
pipeline. Through this acquisition, we acquired the technology and intellectual
property rights surrounding EAATs, a portion of which is now in collaboration
with Wyeth-Ayerst. We also acquired from Northwest NeuroLogic melanocortin
technology and other intellectual property that is being developed internally.
In June 1998, we exclusively licensed worldwide commercial rights for NBI-
34060, our compound for the treatment of insomnia, from DOV Pharmaceuticals and
have since moved this compound into advanced clinical development.
Supplement our Internal Technology Capabilities by Collaborating with
Leading Platform Technology Companies. We believe we can complement our
multidisciplinary research process by selectively accessing new technologies
from platform technology companies. Through creative collaborations with
technology leaders, we believe we can accelerate and expand our internal
discovery efforts. We have entered into a number of alliances with other
platform technology companies to enhance our drug discovery and development
capabilities. These alliances include:
. our alliance with Rigel, Inc. to use Rigel's intellectual property and
expertise pertaining to molecular targets associated with signal
transduction pathways to discover novel protein targets involved in glial
cell and macrophage activation;
. our alliance with Arena Pharmaceuticals involving the application of
Arena's constitutive activation technology to our orphan G protein-
coupled receptors;
. our collaboration with Array Biopharma, Inc. to design and synthesize a
focused library of small molecules targeting the G protein-coupled
receptor superfamily; and
. our alliance with Caliper Technologies Corp. to utilize Caliper's
proprietary microfluidics technology to screen against our targets.
Outsource Capital Intensive and Non-Strategic Activities. We intend to focus
our resources on research and development activities by outsourcing our
requirements for clinical drug supply and certain preclinical studies and
clinical monitoring activities. We believe the availability of skilled contract
manufacturers and contractors will allow us to cost effectively meet these
needs and thereby allow us to concentrate our full attention and resources on
our core discovery and development programs to generate additional product
opportunities.
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<PAGE>
Products Under Development
The following table summarizes our most advanced products currently in
preclinical or clinical development, and is followed by detailed descriptions
of each program:
<TABLE>
<CAPTION>
Program Compound Targeted Indication Status Commercial Rights
------------------------ --------- ------------------- ----------- ------------------
<S> <C> <C> <C> <C>
GABA-A Agonist.......... NBI-34060 Insomnia Phase II Neurocrine
CRF R\\1\\ Antagonist... Anxiety, Depression Preclinical Janssen/Neurocrine
CRF R\\1\\ Antagonist... Anxiety, Depression Preclinical Neurocrine
IL-4 Fusion Toxin....... NBI-3001 Glioblastoma Phase II Neurocrine
IL-4 Fusion Toxin....... NBI-3001 Additional Cancers Preclinical Neurocrine
(kidney cancer,
lung cancer)
Altered Peptide Ligand.. NBI-5788 Multiple Sclerosis Phase II Neurocrine
Altered Peptide Ligand.. NBI-6024 Diabetes Phase I Taisho/Neurocrine
</TABLE>
--------
"Phase II" indicates that the we or our collaborators are conducting
clinical trials on groups of patients afflicted with a specific disease in
order to determine preliminary efficacy, optimal dosages and expanded evidence
of safety.
"Phase I" indicates that we or our collaborators are conducting clinical
trials to determine early safety profile, maximally tolerated dose and
pharmacological properties of the product in human volunteers.
"Preclinical" indicates that a drug candidate is being selected or has been
selected and is undergoing toxicology studies and manufacturing to allow for
Phase I clinical trials.
GABA-A Agonist
Insomnia is the most prevalent neurological disease in the United States,
with up to 62% of the population reporting trouble sleeping a few nights a week
or more, according to the National Sleep Foundation. Despite this widespread
prevalence, insomnia remains a disease state with high unmet medical needs,
including the ability to maintain sleep throughout the night without next-day
residual effects. The fact that only 10% of those reporting insomnia seek drug
intervention demonstrates the impressive size of the market opportunity for a
safe sedative with improved effectiveness over currently marketed therapeutics.
Ambien(R) is the current leader in this area with $558 million of sales in
1999.
During the 1980s, a class of drugs that targets the GABA-A receptor, known
as benzodiazepines, were used as sedatives to treat insomnia. The most well-
known of the benzodiazepines is Valium(R). This class of drugs produced several
undesirable side effects, including negative interactions with other central
nervous system depressants, such as alcohol, the development of tolerance upon
repeat dosing, insomnia following discontinuation of dosing, hangover effects
the next day, and impairment of coordination and memory. Memory impairment,
which can include amnesia for events occurring prior to and after drug
administration, is of particular concern in the elderly whose cognitive
function may already be impaired by the aging process. During the late 1980s, a
class of drugs targeting a specific site on the GABA-A receptor subtype, known
as non-benzodiazepines, were developed. The most popular of the non-
benzodiazepines are marketed as Ambien(R) and Sonata(R). The non-
benzodiazepines involve fewer side effects than benzodiazepines.
Our GABA-A agonist for the treatment of insomnia, NBI-34060, a non-
benzodiazepine, acts on a specific site on the GABA-A receptor subtype. It is
through this mechanism that the currently marketed non-benzodiazepine
therapeutics also produce their sleep-promoting effects. However, NBI-34060 is
more potent and has a better absorption, distribution and metabolism profile
than the non-benzodiazepines and is more selective for the specific subtype of
receptors within the brain believed to be responsible for promoting sleep than
the benzodiazepines. We believe that this improved profile and more selective
drug targeting will reduce the side effects characteristic of the currently
marketed products. We believe that receptor binding studies and preclinical
studies on NBI-34060 indicate that it is a highly potent GABA-A receptor
agonist that acts very specifically on the targeted subtype known as BZ1
receptors. NBI-34060 also appears to be devoid of next day
29
<PAGE>
hangover effects and is expected to have a considerably reduced amnestic
potential. The elderly population, which represents a large portion of the
insomnia market, would especially benefit from a novel therapeutic with an
improved safety profile, rapidity of onset, and decrease in memory impairment.
The first Phase I clinical trial conducted on NBI-34060 was designed to
determine the safety and tolerance of NBI-34060, and provide a preliminary
evaluation of the sedative potential in 42 normal volunteers as reflected in
self-ratings of drowsiness, disruption of memory, and impairment of
coordination. In this trial, NBI-34060 was well tolerated, with no serious or
unexpected adverse events reported. The subjects consistently reported
drowsiness, indicating strong potential for the sedative properties of the
compound. Subsequently, in the first quarter of 1999, we completed a Phase Ib
clinical trial in 30 healthy volunteers to further explore the safety and
kinetic profile of NBI-34060. As demonstrated in the first Phase I trial, NBI-
34060 demonstrated a very good safety profile.
In 1999, we completed a Phase II placebo-controlled multi-center clinical
trial evaluating the efficacy of NBI-34060 in 228 subjects with transient
insomnia. Transient insomnia means occasional sleeplessness caused by
environmental factors, such as jetlag. The trial was conducted in a sleep
laboratory setting employing objective assessments. The results indicated that
NBI-34060 is safe and effective in helping subjects with transient insomnia
achieve rapid sleep without the next day residual effects associated with most
currently marketed sedatives. The results showed that the primary clinical
endpoint and the required regulatory endpoint for approval, time to sleep
onset, was reached at a statistically significant level. In this trial, those
subjects receiving NBI-34060 took 16 minutes to progress to sleep onset versus
a mean time of 34 minutes in the placebo group. These results were
statistically significant at the 99.9% or greater level, or what is commonly
referred to as p < 0.001. This means that applying widely used statistical
methods, the chance that these results could have occurred by accident was less
than one in 1,000. In addition, the data indicated that a majority of subjects
in the treated group fell asleep within 9 minutes as indicated by the median
time to sleep onset as compared to 23 minutes in the placebo group.
Based on the results from our Phase II trial, we have moved to expand
clinical development of NBI-34060. So far this year we have initiated five
clinical trials to evaluate various formulations and patient subgroups and we
expect to initiate or complete up to nine additional clinical trials involving
an additional 300 subjects by year-end. Among other research goals, we intend
to determine whether NBI-34060 is effective in treating chronic insomnia, which
is sleeplessness not caused by environmental factors. We are developing a
formulation of NBI-34060 to treat chronic insomnia. We are also designing a
large scale pivotal Phase III program, which we currently expect will begin in
the second half of 2001.
We cannot assure you that the side effects and efficacy profile of NBI-34060
seen in our Phase I and II trials will be confirmed in additional clinical
trials or that the results of future trials will warrant further trials.
Corticotropin Releasing Factor
In the U.S. alone, 3.8% of the population experience a major depressive
disorder each year, and another 11.4% of the population has generalized anxiety
disorder. Existing anti-depressant and anti-anxiety therapeutics are expected
to sell in excess of $13 billion worldwide in the year 2000. However, there
remain significant unmet medical needs. The leading drug class comprising the
selective serotonin reuptake inhibitors, or SSRIs, are not effective in one-
third of patients. These drugs frequently require as long as three weeks to
take effect, and have significant adverse side effects such as sexual
dysfunction. Therefore, a rapid acting anti-depressant with fewer side effects
would represent a major advance in the treatment of depression. CRF antagonists
may provide such an advance in anti-depressant therapy through a specific
mechanism for combating the hormonal abnormalities associated with depression.
Corticotropin-releasing factor, or CRF, is believed to be the central
mediator of the body's stress responses or stress-induced disorders, and is
overproduced in clinically depressed patients and individuals with anxiety
disorders. Current research indicates that clinically depressed patients and
patients with anxiety experience
30
<PAGE>
dysfunction of the hypothalamic-pituitary-adrenal, or HPA, axis, which is the
system that manages the body's overall response to stress. When a threat to
physical or psychological well-being is detected, the region of the brain
called the hypothalamus amplifies production of CRF, which induces the physical
effects that are associated with stress, which can lead to depression or
anxiety.
The novelty and specificity of the CRF mechanism of action and the prospect
of improving upon SSRI therapy is a topic of interest throughout the
psychiatric community and pharmaceutical industry, representing a market
opportunity both to better serve patients and expand overall treatment for this
life threatening disease.
We have a strategic position in the CRF field through our intellectual
property portfolio and relationship with experts in the neuropsychiatric field.
Wylie Vale, Ph.D., our co-founder and Chief Scientific Advisor, is considered
to be a leader in CRF research.We have further characterized the CRF receptor
system and have identified additional members of the CRF receptor family. We
have issued patents on CRF R\\1\\ and CRF R\\2\\ receptors and pending patent
applications on small molecule organic compounds modulating the CRF receptors.
Depression. Depression is one of a group of neuropsychiatric disorders that
is characterized by extreme feelings of elation and despair, loss of body
weight, decreased aggressiveness and sexual behavior, and loss of sleep.
Depression is believed to result from a combination of environmental factors,
including stress, as well as an individual's biochemical vulnerability, which
is genetically predetermined. The biochemical basis of depression is thought to
involve elevated secretion of CRF and abnormally low levels of other
neurotransmitters in the brain such as serotonin. The most frequently
prescribed antidepressant therapies SSRIs such as Prozac(R), Zoloft(R),
Paxil(R) and Celexa(R) which act to increase the levels of serotonin and
several other chemicals in the brain. Because these drugs affect a wide range
of neurotransmitters, they have been associated with a number of adverse side
effects. While newer, more selective drugs offer some safety improvement, side
effects remain problematic. In addition, one of the biggest limitations of most
existing antidepressant therapies is their slow onset of action.
In our CRF R\\1\\ antagonist program, our corporate collaborator, Janssen
Pharmaceutica, selected a CRF R\\1\\ receptor antagonist drug candidate, NBI-
30775, for preclinical studies in 1996, commenced and completed a number of
Phase I clinical trials on the compound in late 1998 and initiated a Phase IIa
open label trial in 1999. Results from this trial indicated that NBI-30775 was
safe and well tolerated and demonstrated anti-depressant activity as defined in
a widely-accepted depression scale known as the Hamilton Depression Scores. In
this trial, NBI-30775 was administered to 20 patients with major depressive
disorders. Results from the trial, as reported in the Journal of Psychiatric
Research, showed that treatment response, as defined by more than a 50%
reduction in Hamilton Depression Scores, was seen in 50% of the patients in the
low dose group and 80% of the patients in the higher dose group. We were
strongly encouraged by these results, which we believe support the hypothesized
mechanism of action. While NBI-30775 was found to be safe in this trial,
reversible increases in liver enzymes were observed in two volunteers in an
expanded safety study. As a result, Janssen announced its decision to
discontinue development of NBI-30775. However, because of the positive efficacy
results for NBI-30775, Janssen decided to proceed with a back-up compound
identified from its research relationship with us. We expect Janssen to select
a back-up compound soon, and to begin preclinical studies thereafter.
In addition to our CRF program with Janssen, we are conducting an
independent CRF R\\1\\ antagonist program focused on a series of chemical
compounds that are proprietary to us. Several lead candidates have been
selected in this program and we expect to enter Phase I clinical trials in late
2000 or early 2001.
We cannot assure you that CRF R\\1\\ antagonist compounds will be effective
and safe therapeutics for the treatment of depression or any other conditions.
In addition, we or Janssen may decide not to initiate Phase I clinical testing
or progress to later clinical trials in a timely manner, if at all.
Anxiety. Anxiety is among the most commonly observed group of central
nervous system disorders, which includes phobias or irrational fears, panic
attacks, obsessive-compulsive disorders and other fear and
31
<PAGE>
tension syndromes. Estimates by the National Institute of Mental Health suggest
that anxiety disorders affect 12% of the United States population. Of the
pharmaceutical agents that are currently marketed for the treatment of anxiety
disorders, benzodiazepines, such as Valium(R), are the most frequently
prescribed. Several side effects, however, limit the utility of these anti-
anxiety drugs. Most problematic among these are drowsiness, the inability to
stand up, amnesia, drug dependency and withdrawal reactions following the
termination of therapy. Despite these adverse effects associated with
benzodiazepines, total sales of benzodiazepines were approximately $800 million
in 1999. In view of significant evidence implicating CRF in anxiety-related
disorders, we are developing small molecule CRF R\\1\\ receptor antagonists as
anti-anxiety agents that block the effects of overproduction of CRF. We believe
that these compounds represent a class of molecules that are based on a novel
mechanism of action that may offer the advantage of being more selective,
thereby providing increased efficacy with reduced side effects as compared to
the benzodiazepines.
With our corporate collaborator, Janssen, and in our independent CRF R\\1\\
antagonist program, we are developing small molecule therapeutics to block the
effects of overproduction of CRF in anxiety. As a co-examined variable in the
Janssen open label Phase IIa clinical trial for depression described above, the
anti-anxiety effects of the CRF R\\1\\ receptor antagonist NBI-30775 were
analyzed using the Hamilton Anxiety Scores. A reduction in Hamilton Anxiety
Scores from baseline was observed in both treatment groups at all times after
dosing. In addition, in preclinical studies used to evaluate anti-anxiety
drugs, our scientists have demonstrated with statistical significance the
efficacy of clinical compound candidates from our independent CRF R\\1\\
antagonist program following oral administration. No evidence of clinically
relevant side effects were observed. These results are encouraging because they
suggest that compounds blocking the CRF R\\1\\ receptor may be effective in
treating anxiety-related disorders. Despite these early results, we or Janssen
may decide not to initiate clinical testing of CRF R\\1\\ antagonist compounds
for anxiety. Even if those trials are conducted, the data may not support
continuation of the program and additional clinical trials.
IL-4 Fusion Toxin
IL-4 receptors appear to be highly expressed in malignant brain tumors as
well as in some cancers of the kidney and lung. Targeted toxins are a novel
form of anticancer therapy under investigation in a variety of clinical
settings. Targeted toxin therapeutics are designed to carry a bacterial toxin
to a target site on the cancer cells and subsequently kill the cancer cell.
Targeted toxins are believed to have several potential advantages over
conventional chemotherapy in that they are more selective and effective in
chemotherapy-resistant cancer cells.
In 1998, we exclusively licensed from the National Institutes of Health a
targeted toxin compound, IL-4 Fusion Toxin, which we call NBI-3001. IL-4 Fusion
Toxin was designed as a result of collaboration between the FDA and the
National Cancer Institute. IL-4 Fusion Toxin is a combination protein in which
interleukin 4, or IL-4, a cell growth factor, has been joined together with
Pseudomonas exotoxin, a bacterial toxin that can kill cells. The IL-4 portion
of the Fusion Toxin preferentially binds to human cancer cells because the
cancer cells express elevated levels of receptors for IL-4 on their surface,
while IL-4 receptor expression is absent or undetectable in normal brain
tissue. Once the IL-4 portion of the IL-4 Fusion Toxin targets the toxin to the
cancer cells, the toxin portion of the molecule preferentially kills the cancer
cells.
Glioblastoma. Malignant brain tumors are a significant cause of cancer
death. Despite current therapeutic options such as surgery, radiation, and
chemotherapy, the median survival rate for malignant brain cancer is only in
the range of nine to 12 months. Approximately 17,400 new cases of primary brain
cancer are diagnosed in the United States each year, with comparable incidence
numbers in Europe. Glioblastoma is the most common primary malignant brain
tumor. These tumors arise within the brain and generally remain confined to the
brain. The clinical course of glioblastoma is characterized by relentless loss
of vital neurological functions and death within approximately twelve months.
In 1999 we initiated a Phase I/II trial of NBI-3001 in patients with
recurrent glioblastoma in which the primary endpoints were safety and tumor
regression. This trial was completed in February 2000. A total of 31 patients
with end-stage recurrent glioblastoma unresponsive to surgery and radiotherapy
were enrolled in the trial. Patients were treated with intratumoral infusions
of NBI-3001 for up to four days. In this trial, NBI-3001
32
<PAGE>
was found to be safe and to have an acceptable degree of tolerability in this
patient population. While approximately one-third of the patients exhibited
side effects during or immediately following therapy, these effects were
consistent with marked tumor cell death and the subsequent inflammatory
response to this tumor cell death. No significant peripheral drug-related
toxicities were observed. Of the 29 patients who completed therapy:
. four patients, or 13%, were reported as having complete remissions, which
was no evidence of viable tumor;
. 14 patients, or 48%, experienced a partial response, which was greater
that 50% reduction in tumor mass;
. seven patients, or 24%, were rated as having stable disease; and
. four patients, or 13%, experienced progressive disease.
In addition, the six-month median survival and tumor progression data showed
trends toward efficacy. We expect to initiate an additional confirmatory Phase
IIa trial to further establish dosing regiment, safety and efficacy in the
fourth quarter of 2000.
In October 1999, the FDA granted us Fast Track Designation for NBI-3001.
Fast Track Designation allows us to accelerate our clinical program for NBI-
3001 and expedite receipt of regulatory approvals. In April 2000, we were
awarded Orphan Drug designation for NBI-3001 for glioblastoma. Orphan Drug
designation may be obtained for drugs that treat a disease or condition that
affects fewer than 200,000 people in the United States per year. Orphan Drug
designation provides us with seven years of marketing exclusivity following
approval, tax incentives and access to grant funding. We face the risk that we
will not successfully complete clinical testing or progress to later clinical
trials in a timely manner, or at all.
Additional Cancers. In conjunction with our clinical trials in malignant
glioma, the IL-4 Fusion Toxin is the subject of a collaborative research and
development agreement with the FDA to investigate the safety and efficacy of
IL-Fusion Toxin in laboratory models of different cancers and by different
routes of administration. Research teams from the FDA and NIH have published
results with IL-4 Fusion Toxin demonstrating a high level of binding and
destruction of specific types of cancers. We are conducting preclinical
research to support the application of NBI-3001 to peripheral solid tumors and
have shown that IL-4 Fusion Toxin can be safely administered intravenously in
preclinical models. We plan to initiate a Phase I clinical trial in the first
quarter of 2001 to first investigate the safety and efficacy of NBI-3001
against kidney and small-cell lung cancers. We face the risk that the
effectiveness of NBI-3001 seen in our laboratory models, or the safety profile
of NBI-3001 seen in our preclinical models may not be confirmed in clinical
trials or that the results of future clinical trials may not warrant further
development in any of these settings or that the trial results may not support
initiating clinical trials in cancers other than glioblastoma.
Altered Peptide Ligands
In the United States over 50 million people suffer from autoimmune diseases
such as multiple sclerosis, rheumatoid arthritis, Type I diabetes, systemic
lupus erythematosus, and thyroiditis. These diseases are thought to be caused
by the body's immune system. The immune system protects an individual from
disease agents, such as viruses, by recognizing and destroying those foreign
substances using specialized blood cells, called lymphocytes. Occasionally,
however, certain lymphocytes arise that inappropriately recognize the body's
own tissues as an invader and begin to attack normal healthy tissue, resulting
in an autoimmune disease like Type I diabetes. While the mechanism through
which the lymphocyte initiates the autoimmune disease is still unknown, the
development of drugs that specifically suppress the action of self-reactive
lymphocytes or restore the function of regulatory cells may prove advantageous
for the prevention, cure or treatment of an autoimmune disease.
One type of lymphocyte involved in the immune response to self or foreign
substances is the T cell. T cells detect antigens, which are foreign
substances, such as viruses, bacterias or other proteins the T cell recognizes
as foreign. T cells recognize these antigens and destroy them. Experiments
conducted by our
33
<PAGE>
scientists determined that specific amino acid residues within a peptide
sequence of an antigen, are required for T cell recognition and subsequent
cellular activation. The structure of such a peptide fragment can be
specifically altered, such that it will not properly activate the T cell. This
altered peptide ligand, or APL, can thus prevent the T cell from destroying its
target, or in the case of an autoimmune reaction, it will prevent the T cell
from destroying the healthy tissue.
Multiple Sclerosis. Multiple sclerosis, or MS, is a chronic autoimmune
disease characterized by recurrent attacks of neurologic dysfunction due to
damage in the central nervous system. The classic clinical features of MS
include impaired vision and weakness or paralysis of one or more limbs.
Patients develop a slow, steady deterioration of neurologic function over an
average duration of approximately 30 years. According to the National Multiple
Sclerosis Society, there are an estimated 350,000 cases of multiple sclerosis
in the United States and an equal number of patients in Europe with
approximately 20,000 new cases diagnosed worldwide each year. Currently
available treatments for MS offer only limited efficacy. Steroids have been
used to reduce the severity of acute flare-ups and speed recovery. Experimental
therapy with other immune-suppressive agents has shown limited success.
Our co-founder, Dr. Lawrence Steinman, identified one of the dominant
destructive T cell types in the brains of patients who had died of MS. Dr.
Steinman further identified one of the dominant antigens on the normal cell to
which the autoreactive T cells were targeted, a peptide from a brain protein
know as myelin basic protein. We designed a novel APL based on myelin basic
protein that would target these autoreactive T cells that cause neurological
damage in MS. Together with Novartis Pharmaceuticals Corporation, our former
collaborative partner for this program, we filed an investigational new drug
application with the FDA and received approval in 1996 to commence clinical
trials. We subsequently completed Phase I clinical trials, and initiated two
Phase II clinical trials of our altered peptide ligand for the treatment of MS,
NBI-5788, in 1999.
The first, in collaboration with the National Institutes of Health involved
an open-label, unblinded, non-placebo control trial in eight patients, seven of
whom received multiple injections of 50 mg weekly while the final subject
received 5 mg. In this trial, published in Nature Medicine, the authors
observed a higher incidence of new brain lesions in two patients who received
50 mg doses and the one patient who received 5 mg doses. As a result, the trial
was stopped. However, the authors did not provide direct evidence that NBI-5788
triggered the lesions.
The second Phase II trial was a multi-center, placebo controlled, randomized
parallel group design involving three doses of the APL--5, 20, and 50 mg weekly
for four months--in 13 centers in North America and Europe. In July 1999 while
the Phase II trials were underway, Novartis exercised its right to terminate
the collaboration effective January 2000. Subsequently, the Data and Safety
Monitoring Board for the trial recommended, and we agreed, that administration
of the trial drug be discontinued based on reports of adverse allergic
reactions. We continued to evaluate all of the enrolled patients in the study
through December 1999 in accordance with the study protocol. We reacquired all
rights to the program from Novartis on January 7, 2000 and initiated data
analysis. In the final data analysis from the multi-center trial, no increases
were noted in either clinical relapses or in new lesions in all patients, even
those with allergic reactions. Of the patients completing the double-blind
phase of the study, the total volume of enhancing lesions was reduced in the 5
mg dose group compared to the placebo-control patents (p<0.03 Mann Whitney for
two treatments). This same secondary analysis could not be conducted in the 20
mg or 50 mg groups, as there were insufficient numbers of patients with
positive scans to evaluate the magnetic resonance imaging changes. Moreover,
57% of the patients in the 5 mg group experienced reductions in the volume of
new enhancing lesions compared to 25% in the placebo group. Because of these
factors, we believe that for this compound, optimal dosing may be at lower
levels, and we are currently planning a Phase IIb trial to establish the
efficacy profile and optimum dosing regiment for NBI-5788. Future trials will
be aimed at further establishing the benefit of altered peptide ligand therapy
in patients with multiple sclerosis. We cannot assure you that we will initiate
or complete additional clinical trials or that results of any such studies will
warrant additional clinical development of potential products.
34
<PAGE>
Type I Diabetes. Utilizing our experience in the development of APL for
multiple sclerosis, we have extended this approach to Type I or juvenile-onset
diabetes. Like MS, in Type I diabetes the immune system has erroneously
targeted healthy tissue, in this case the pancreatic cells responsible for the
production of insulin. Type I diabetes is one of the most prevalent chronic
childhood conditions in North America, afflicting approximately one million
patients in 1999. Diabetics often suffer from a number of complications of the
disease including heart disease, circulatory problems, kidney failure,
neurologic disorders and blindness. Current therapy for Type I diabetes
consists of daily insulin injections to regulate blood glucose levels.
We believe that an altered peptide ligand specific for autoimmune T cells
involved in diabetes may stop the destruction of the insulin-secreting cells in
pre-diabetic patients, thus allowing them to delay or avoid chronic insulin
therapy. Working with leading diabetologists at the Barbara Davis Center for
Childhood Diabetes at the University of Colorado, our scientists have
engineered an APL that affects immune cells targeting the pancreas. In
preclinical studies, this APL, NBI-6024, was capable of eliciting a protective
immune response and reducing the incidence of diabetes. In addition,
experiments using immune cells derived from the blood of Type 1 diabetes
patients indicate that NBI-6024 is recognized by patients' immune cells. This
suggests that NBI-6024 may have the potential to intervene in the disease
process in humans. We have completed an NBI-6024 Phase I safety and dose
escalating clinical program in diabetic patients. This trial included 20 Type I
diabetic patients in a single dose, dose escalation trial. Data from this trial
indicates that NBI-6024 is safe and well tolerated. We have initiated an
additional Phase I multi-dose trial and we expect to initiate Phase II trials
in 2001 to assess the safety and biological activity of multiple doses of NBI-
6024 in adult, adolescent and pediatric patients with Type I diabetes.
In January 2000, we entered into an agreement with Taisho Pharmaceuticals
Co., Ltd. providing Taisho with an exclusive option to obtain European, Asian
and North American rights to NBI-6024, our APL product for Type 1 diabetes. In
July 2000, Taisho exercised the option as to European and Asian rights, and has
been granted exclusive rights to NBI-6024 in those regions. Under the
collaboration agreement, we will receive licensing and option fees, payments
for certain development and regulatory milestones, significant reimbursement of
worldwide development expenses and payments based on sales upon
commercialization. We currently retain all rights to NBI-6024 in North America,
but in July 2000, Taisho exercised its option to negotiate with respect to
these rights and we are currently in negotiations with Taisho.
We face the risk that our preclinical studies in animals and cells derived
from Type I diabetes patients or our Phase I trials will not be predictive of
the results we will see treating Type I diabetes patients.
Research and Discovery
The following table summarizes our most advanced products currently in
research and discovery, and is followed by detailed descriptions of each
program.
<TABLE>
<CAPTION>
Targeted
Program Indication Status Commercial Rights
------------------------ ---------- ------ -----------------
<S> <C> <C> <C>
GnRH Antagonist......... Endometriosis, Development Neurocrine
Prostate Cancer
Excitatory Amino Acid
Transporters........... Neurodegenerative Research Wyeth-Ayerst/Neurocrine
Diseases
CRF R\\1\\ Antagonist... Gastrointestinal Research Neurocrine
Disorders
CRF R\\2\\ Antagonist... Eating Disorders Research Neurocrine
Urocortin/CRF R\\2\\
Agonist................ Obesity Research Eli Lilly
Melanocortin Receptor
Agonist................ Obesity Research Neurocrine
Hypocretin Agonist/
Antagonist............. Sleep Disorders Research Neurocrine
Melanin Concentrating
Hormone Antagonist..... Obesity Research Neurocrine
</TABLE>
--------
"Development" indicates that lead compounds have been discovered that meet
certain laboratory and preclinical criteria. These compounds may undergo
structural modification and more extensive evaluation prior to selection for
preclinical development.
"Research" indicates identification and evaluation of compounds in
laboratory and preclinical models.
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Gonadotropin-Releasing Hormone Receptor
Gonadotropin-releasing hormone, or GnRH, is a brain peptide that stimulates
the secretion of the pituitary hormones that are responsible for sex steroid
production and normal reproductive function. Chronic administration of GnRH
agonists has been found to reversibly shut down this transmitter pathway and
has proven clinically useful in treating hormone-dependent diseases such as
prostate cancer and endometriosis. Several peptide drugs have been developed on
this principle, such as Lupron(R) and Zoladex(R), which now have an estimated
market size in excess of $1.5 billion annually. These drugs are peptides and
therefore must be injected rather than taken orally. In addition, these types
of agonists take up to several weeks to exert their effect, a factor not seen
with direct GnRH antagonists and until they exert their effects, they have
shown a tendency to exacerbate the condition.
We believe that there is a large market potential for an orally delivered
GnRH antagonist that does not have the tendency to initially exacerbate the
patient's condition. We have screened our small molecule library and conducted
structure activity studies to produce small molecule orally-active GnRH
antagonists. We have identified several series of small molecule compounds and
are conducting additional studies to select a final clinical candidate. We hope
to select a lead clinical candidate by year end and expect to initiate Phase I
clinical trials in the second half of 2001. We face the risk that our work in
this area will not lead to clinical candidates or that no clinical candidates
will be found to be safe and effective.
We plan to focus our clinical efforts on prostate cancer and in the area of
women's health, including endometriosis, uterine fibroids, and infertility. In
the U.S. alone, more than five million women are affected by chronic
endometriosis, representing approximately 15% prevalence in reproductive age
women. Of those afflicted, more than 500,000 patients are treated with surgery
in a hospital setting. We believe that the availability of an oral treatment
lacking the side effect profile of the currently available peptide agonists may
allow for substitution of surgery and encourage a higher treatment rate. An
alternative indication, prostate cancer, has over 180,000 new cases per year in
the U.S.
Excitatory Amino Acid Transporters
Some of the most successful central nervous system drugs, including SSRIs
such as Prozac(R), selectively target brain amino acid transporters. Similarly,
we are targeting the excitatory amino acid transporters, or EAATs, to
selectively control the levels of a brain chemical called glutamate to produce
a therapeutic benefit in disorders where glutamate levels are abnormal such as
head trauma, schizophrenia, Lou Gehrig's Disease and some other
neurodegenerative and psychiatric disorders.
We are collaborating with American Home Products Corporation, through its
Wyeth-Ayerst Laboratories Division, to control glutamate transporter function
as a novel strategy for the treatment of neurodegenerative and psychiatric
disorders. Our collaboration includes basic research to understand the function
and regulation of the transporters, along with the identification and
characterization of chemical and biological leads. We cannot assure you that we
will be successful in demonstrating that these EAATs are therapeutic targets or
that any product candidates will be identified for preclinical or subsequent
clinical development.
In 2000 we expanded our EAATs research and initiated a research program
focused on retinal cell death associated with damage from low blood flow. We
were awarded an NIH research grant to fund our work to identify novel compounds
for the alleviation of neuronal cell death in response to a wide range of
conditions including diabetic induced nerve damage, glaucoma and other
circulatory conditions of the eye. This work is independent of our
collaboration with Wyeth-Ayerst.
CRF R\\1\\ Peripheral Uses
Recent reports have suggested that CRF plays a role in the control or
modulation of the gastrointestinal system. Studies have demonstrated that
central administration of CRF acts in the brain to inhibit emptying of
36
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the stomach while stimulating bowel activity, and suggest that overproduction
of CRF in the brain may be a main contributor to stress-related
gastrointestinal disorders.
Irritable bowel syndrome, or IBS, is a gastrointestinal inflammatory disease
that affects up to 15% of Americans, mostly women. IBS can be a lifelong,
intermittent disease. IBS involves chronic or recurrent abdominal pain and
frequent diarrhea or constipation, or both. Some patients with IBS report the
onset of symptoms of the disease following a major life stress event, such as
death in the family, which suggests that the causes of IBS may be related to
stress. In addition most IBS sufferers also experience anxiety and depression.
Since CRF is believed to be the primary mediator of stress, it has been
suggested that CRF R\\1\\ receptor antagonists may provide a treatment for IBS.
We are evaluating our proprietary CRF R\\1\\ antagonists for treatment of IBS.
We cannot assure you that we will initiate clinical testing of these candidates
or that the data will support continuation of the program and additional
clinical trials.
CRF R\\2\\ Antagonists
Our scientists were the first to isolate a second CRF receptor, called CRF
R\\2\\. We believe the distribution of the CRF R\\2\\ receptor in the brain
suggests that CRF R\\2\\ could play a role in some forms of anxiety and some
eating disorders. Administration of a CRF R\\2\\ antagonist has been shown to
reduce measures of anxiety in studies of obsessive compulsive disorder and
conditioned fear. We are also evaluating our proprietary CRF R\\2\\ antagonist
for treatment of a variety of eating disorders. We have screened our small
molecule library and conducted exploratory chemistry to identify a new series
of compounds to undergo further study. There is a risk that our work in this
area will not lead to clinical candidates or that no clinical candidates will
be found to be safe and effective.
CRF R\\2\\ Agonists/Urocortin Agonist
CRF R\\2\\ agonists may represent a therapeutic strategy to elevate CRF and
a related neuropeptide called urocortin. Preliminary data indicates that CRF
and urocortin may act as central regulators of both appetite and metabolism. We
have evaluated CRF R\\2\\ receptor agonists in various models of obesity and
have observed reduced food intake and weight loss. In 1996, in collaboration
with Eli Lilly, we initiated a three-year research collaboration to screen and
optimize CRF R\\2\\ agonists. In October 1999, the funded research portion of
the program was completed as scheduled and Lilly has retained control of the
program and exclusive rights to the compounds. We cannot assure you that Lilly
will successfully identify suitable candidate compounds for development in a
timely manner, or at all.
Melanocortin Receptor Agonists/Antagonists
Melanocortin receptors, or MCRs, are involved in the control of some
endocrine, autonomic and central nervous system function. To date, a family of
five MCR subtypes has been identified. One of the MCR subtypes, MC4, has
recently been identified as an important regulating mechanism for appetite,
body weight and insulin secretion through its activation by melanocyte
stimulating hormone, MSH. When MSH is injected, it reduces food intake and body
weight. Responses have included the apparent increase in basal metabolic rate
and lowering of serum insulin levels. We believe that orally active MC4
agonists may provide a novel approach to the treatment of obesity or diabetes.
We cannot assure you that our melanocortin research will lead to product
candidates.
Melanin Concentrating Hormone Antagonists
Recent studies suggest that melanin concentrating hormone, or MCH, plays a
role in regulating eating behavior. Based on these findings, we believe that
blocking the effect of MCH with a small molecule antagonist may represent a
novel approach to the treatment of obesity. Thus, we have identified the MCH
receptor as a compelling drug target that may be complementary to other
obesity/anorexia drug targets in our drug discovery pipeline. We cannot assure
you that our research in this area will lead to product candidates.
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<PAGE>
Hypocretin
Hypocretins are peptides that have been linked to a variety of activities,
including the control of eating, cardiovascular regulation and water intake.
Recent publications have also reported that they appear to have a critical role
as regulators of sleep. Some studies point to a lack of hypocretin as being
instrumental in the development of narcolepsy and suggest that a small molecule
agonist may be able to offset the lack of hypocretin and provide therapy for
narcolepsy. It is possible that the hypocretin system also contributes to the
regulation of other sleeping disorders such as insomnia, particularly since
administration of excess hypocretin into animals promotes wakefulness. We have
screened our small molecule library to identify agonists and antagonists for
the hypocretin receptors and are in the process of optimizing the compounds
that resulted from these screens. We will be using these compounds to further
characterize the hypocretin system. We cannot assure you that our research in
this area will lead to product candidates
Our Discovery Technology
We utilize a proprietary approach to small molecule drug design that we
refer to as "Multi-Channel Technology."
Our Multi-Channel Technology. Our Multi-Channel approach integrates an array
of medicinal chemistry, computational and combinatorial tools to facilitate the
drug discovery process. At the start of a new project, when relatively little
known about the selected molecular target, we analyze screening data using two-
dimensional descriptors of molecular properties. We have a proprietary method
that allows our chemists to search large virtual libraries of novel, readily
synthesizable compounds and select for parallel synthesis only those which
match the collective properties of the screening hits. Later in the project,
once more robust data becomes available, we combine our proprietary filter with
combined with its more intensive three-dimensional searches. We use these
tools, together with the cumulative knowledge and experience of our medicinal
chemists and detailed pharmacodynamic and pharmacokinetic measurements, to
select compounds that are most likely to proceed through the drug development
process.
In connection with our Multi-Channel Technology, we utilize other advanced
technologies to enhance our drug discovery capabilities and to accelerate the
drug development process. These technologies include:
High-Throughput Screening. We have assembled a chemical library of diverse,
low molecular weight organic molecules for lead compound identification and
implemented robotics screening capabilities linked to our library of compounds
that facilitate the rapid identification of new drug candidates for multiple
drug targets. In addition, given that many of our molecular targets involve G-
protein coupled receptors, we have designed a 10,000-compound library focused
on these receptors. We believe that the utilization of high-throughput
screening and medicinal and peptide chemistry will enable the rapid
identification and optimization of lead molecules.
Molecular Biology. Our scientists utilize novel techniques for examining of
gene expression in a variety of cellular systems. We have developed a
sophisticated technique to evaluate the type and quantity of genes in various
cellular systems prior to the isolation of genes. We have also developed unique
expression vectors and cell lines that allow for the highly efficient protein
expression of specific genes.
Our drug discovery program creates a significant amount of genetic sequence
information. We have developed a bioinformatics system, which we believe will
allow us to identify novel genes, which are involved in neurodegeneration. Data
are collected by automated instruments and stored and analyzed by Neurocrine
using customized computational tools.
Gene Sequencing. We apply integrated automated DNA sequencing and gene
identification technology in our drug discovery program. These systems allow
for extended gene analysis in a rapid, high-throughput format with independent
linkage into a sequence identification database. We have optimized gene
sequencing instrumentation for differential display, a technique that may
facilitate the rapid identification of novel genes.
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Our Strategic Alliances
One of our business strategies is to utilize strategic alliances to enhance
our development and commercialization capabilities. To date, we have formed the
following alliances:
Janssen Pharmaceutica, N.V. In January 1995, we entered into the first of
two research and development agreements with Janssen Pharmaceutica, N.V., an
indirect wholly owned subsidiary of Johnson & Johnson, to collaborate in the
discovery, development and commercialization of small molecule CRF R\\1\\
receptor antagonists for the treatment of anxiety, depression and substance
abuse. The collaboration utilizes our expertise in cloning and characterizing
CRF R\\1\\ receptor subtypes, CRF pharmacology and medicinal chemistry. In 1996
Janssen selected a clinical candidate from the compounds discovered in
connection with the first Janssen agreement and commenced clinical trials in
Europe. The collaborative research portion of the first Janssen agreement was
completed as scheduled in 1997. In September 1999, together with Janssen, we
entered into an amended agreement to expand the collaborative research and
development efforts to identify additional small molecule CRF antagonists for
the treatment of psychiatric disorders. In connection with the amended Janssen
agreement, we received an initial payment and will receive two years of
additional research funding for our scientists working in collaboration with
Janssen.
In connection with this collaboration, Johnson & Johnson Development
Corporation purchased $5.0 million of our common stock. Under both the original
and amended Janssen agreements, we are entitled to receive up to $10.0 million
in milestone payments for the indications of anxiety, depression, and substance
abuse, and up to $9.0 million in milestone payments for other indications, in
each case upon achievement of certain development and regulatory goals. As of
June 30, 2000, we have received $13.6 million in sponsored research, $3.5
million in milestones and $2.0 million in license fees. Janssen is responsible
for funding all clinical development and marketing activities, including
reimbursement to us for our promotional efforts, if any. We have granted
Janssen an exclusive worldwide license to manufacture and market products
developed under these agreements. If our collaboration results in the
development of any commercial products, we are entitled to receive royalties on
Janssen's sale of these products throughout the world. In addition, we have
some rights to co-promote these products in North America.
Taisho Pharmaceutical Co., Ltd. In December 1999, we entered into an
agreement with Taisho Pharmaceutical Co., Ltd. providing to Taisho an exclusive
option to obtain European and Asian development and commercialization rights
for our altered peptide ligand product, NBI-6024, for Type I Diabetes. In June
2000 Taisho exercised its option under the agreement, and we and Taisho formed
a steering committee to oversee the worldwide development of NBI-6024. We will
receive option fees, license fees, milestone payments and reimbursement of 50%
of worldwide development expenses. In addition, we will receive payments on
product sales in Europe and Japan. We have retained all rights to NBI-6024 in
North America, but Taisho has exercised its option to acquire these rights and
we are currently in negotiations with Taisho. As of June 30, 2000 we have
received $2.0 million in option fees in connection with this agreement.
Wyeth-Ayerst Laboratories. Effective January 1999, we entered into a
Collaboration and License Agreement with Wyeth-Ayerst Laboratories, a division
of American Home Products, relating to the research, development and
commercialization of compounds that control EAATs for the treatment of
neurodegenerative and psychiatric diseases. Pursuant to the agreement, Wyeth-
Ayerst will provide us with up to $11.5 million in research and development
funding. The initial term of the funded research will be three years, subject
to earlier termination or extension upon achievement of certain benchmarks or
upon mutual agreement of the parties. We are also entitled to receive up to
$69.2 million in milestone payments upon achievement of certain research,
development and regulatory events. As of June 30, 2000 we had received a total
of $4.5 million in research and development funding and $3.0 million in
milestone payments under the agreement. In addition, under some circumstances
we may have the opportunity to co-promote products with Wyeth-Ayerst in the
United States and Canada.
Eli Lilly and Company. In October 1996, we entered into a research and
license agreement with Eli Lilly and Company to collaborate in the discovery,
development and commercialization of CRF binding protein
39
<PAGE>
ligand inhibitors for the treatment of central nervous system disorders
including obesity and dementias such as Alzheimer's disease and CRF R\\2\\
agonists for central nervous system diseases and disorders. Under the
agreement, we were entitled to receive three years of funded research payments.
In October 1999, the funded portion of the research program concluded as
scheduled, and we are not aware of any specific future development efforts.
Through October 1999, we have received approximately $17.2 million in research
and development payments under the agreement. We have granted Lilly an
exclusive worldwide license to manufacture and market CRF binding protein
ligand antagonists and CRF R\\2\\ agonist products.
Risks Related to Our Collaborators. We cannot assure you that we or any of
the above collaborators will be successful in research and drug discovery, that
any preclinical and clinical drug candidates arising from the collaboration
will generate commercial product candidates that have viable clinical,
regulatory and intellectual property profiles or that any commercial products
arising from any of these collaborations will enjoy market acceptance.
Therefore, we cannot assure you that any milestones or royalty income will be
payable to us under any of our agreements with our collaborators.
Intellectual Property
We seek to protect our lead compounds, compound libraries, expressed
proteins, synthetic organic processes, formulations, assays, cloned targets,
screening technology and other technologies by filing, or by causing to be
filed on our behalf, patent applications in the United States and abroad. We
have 5 issued U.S. patents, approximately 60 pending U.S. applications and
another approximately 105 issued and pending foreign applications. We have
licensed, from institutions such as The Salk Institute, Stanford University,
Oregon Health Sciences University, DOV Pharmaceuticals, and others, the rights
to an additional 30 issued U.S. patents, 20 pending U.S. applications, and 50
issued and pending foreign filings. Two of our European patents are subject to
opposition proceedings. These proceedings relate to the CRF R\\2\\ receptor and
our broad patent covering immune therapeutics in diabetes. If successful, these
opposition proceedings could reduce the breadth of some of our proprietary
rights, but we believe they would not materially impede our commercialization
strategy. We cannot insure the issuance of patents from any of the
aforementioned patent applications or from any future applications. We also
cannot be sure that any such issued patents will provide protection for our
commercially viable products.
The technologies we use in our research as well as the drug targets we
select may unintentionally infringe the patents or violate the proprietary
rights of third parties. In that case, we may be required to obtain licenses to
patents or proprietary rights of others in order to continue with the
commercialization of our products. We are aware of pending and issued patent
claims to melanin concentrating hormone ligand and receptor, the hypocretin
ligand and receptor and certain uses of MC-4 agonists. In addition, we are
aware of two U.S. patents relating to IL-4 proteins that are controlled by
other entities. We do not believe that our research and development activities
as currently conducted infringe any valid issued patents. However, the two U.S.
patents relating to IL-4 proteins include unusually broad claims that, if they
are valid, may prevent us from commercializing our IL-4 Fusion Toxin products
in the United States unless we obtain a license, which may not be available on
commercially reasonable terms, or at all.
NBI-34060, our GABA-A agonist compound, is covered generically in an issued
U.S. patent, which we licensed from DOV Pharmaceuticals. It is not currently
covered by any foreign patents of which we are aware. The term of the U.S.
patent is due to expire in June 2003. We intend to seek additional protection
of this compound in three ways. First, patent term extension under the
Hatch/Waxman Patent Term Extension Act may add patent life in the U.S. beyond
the June 2003 expiration, depending on the length of clinical trials and other
factors involved in the filing of a new drug application. Second, we have filed
seven U.S. and foreign patent applications on NBI-34060, its synthesis and
formulations, which could extend patent protection to the year 2020. We face
the risk that these patents may not issue, or may subsequently be challenged
successfully. Third, in addition to this potential patent protection, the
United States, the European Union and Japan all provide data protection for new
medicinal compounds. If this protection is available, no competitor may use the
40
<PAGE>
original applicant's data as the basis of a generic marketing application
during the period of data protection. This period of exclusivity is five years
in the U.S., six years in Japan and six to 10 years in the European Union,
measured from the date of FDA, or corresponding foreign, approval.
In-Licensed Technology
We have in-licensed the following technologies to complement our ongoing
clinical and research programs. Most of these licenses extend for the term of
the related patent and contain customary royalty, termination and other
provisions.
. In August 1999, we licensed nonexclusive rights to the human GnRH
receptor from Mount Sinai School of Medicine.
. In January 1999, we licensed exclusive worldwide rights to patents
relating to Excitatory Amino Acid Transporters and Melanocortin 1-5 from
Oregon Health Sciences University.
. In December 1998, we licensed nonexclusive rights to technology covering
Melanocortin 4 from the University of Michigan.
. In June 1998, we licensed exclusive worldwide rights to our sedative
compound, NBI-34060, from DOV Pharmaceuticals, Inc.
. In May 1998, we licensed exclusive worldwide rights to patents covering
NBI-3001, our IL-4 Fusion Toxin, from the National Institutes of Health
and inventors Ira Pastan and David Fitzgerald.
. In November 1996, we licensed exclusive worldwide rights to technology
directed to peptide therapeutics for the treatment of autoimmune disease
from Trustees of Dartmouth College.
. In October 1997, we licensed co-exclusive rights to technology relating
to the prevention of diabetes from University Technology Corporation.
. In November 1994, we licensed exclusive worldwide rights to technology
relating to treatment of multiple sclerosis using peptide analogs of
myelin basic protein from Stanford University.
. In November 1993, we licensed exclusive worldwide rights to CRF R\\1\\
from the Salk Institute for Biological Studies.
Manufacturing
We currently rely, and will continue to rely for at least the next few
years, on contract manufacturers to produce sufficient quantities of our
product candidates for use in our preclinical and anticipated clinical trials.
We also rely, and intend to continue to rely, on third parties to provide the
components of these product candidates, such as proteins, peptides,
phospholipids, small molecules and bulk chemical materials.
There is currently a limited supply of some of these components.
Furthermore, the contract manufacturers that we have identified to date only
have limited experience at manufacturing, formulating, analyzing, packaging our
product candidates in quantities sufficient for conducting clinical trials or
for commercialization.
If we are unable to establish and maintain relationships with third parties
for manufacturing sufficient quantities of our product candidates and their
components that meet our planned time and cost parameters, the development and
timing of our clinical trials may be adversely affected.
Marketing and Sales
We currently have no sales, marketing or distribution capabilities. In order
to commercialize any of our product candidates, we must either internally
develop sales, marketing and distribution capabilities or make arrangements
with third parties to perform these services. We intend to sell, market and
distribute some
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<PAGE>
products directly and rely on relationships with third parties to sell, market
and distribute other products. Under our collaboration agreements with Janssen,
Wyeth-Ayerst and Lilly, we may have the opportunity to co-promote our products
in the United States. To market any of our products directly, we must develop a
marketing and sales force with technical expertise and with supporting
distribution capabilities, which we currently do not have.
Government Regulation
Regulation by government authorities in the United States and foreign
countries is a significant factor in the development, manufacture and marketing
of our proposed products and in our ongoing research and product development
activities. All of our products will require regulatory approval by government
agencies prior to commercialization. In particular, human therapeutic products
are subject to rigorous preclinical studies and clinical trials and other
approval procedures of the FDA and similar regulatory authorities in foreign
countries. Various federal and state statutes and regulations also govern or
influence testing, manufacturing, safety, labeling, storage and record-keeping
related to such products and their marketing. The process of obtaining these
approvals and the subsequent substantial compliance with appropriate federal
and state statutes and regulations require the expenditure of substantial time
and financial resources.
Preclinical studies are generally conducted in laboratory animals to
evaluate the potential safety and the efficacy of a product. The results of
these studies are submitted to the FDA as a part of an investigative new drug
application, or IND, which must be approved before clinical trials in humans
can begin. Typically, clinical evaluation involves a time consuming and costly
three-phase process.
<TABLE>
<C> <S>
Phase I..... Clinical trials are conducted with a small number of subjects
to determine the early safety profile, maximum tolerated dose
and pharmacokinetics of the product in human volunteers.
Phase II.... Clinical trials are conducted with groups of patients afflicted
with a specific disease in order to determine preliminary
efficacy, optimal dosages and expanded evidence of safety.
Phase III... Large-scale, multi-center, comparative trials are conducted
with patients afflicted with a target disease in order to
provide enough data to demonstrate with substantial evidence
the efficacy and safety required by the FDA.
</TABLE>
The FDA closely monitors the progress of each of the three phases of
clinical trials and may, at its discretion, reevaluate, alter, suspend or
terminate the testing based upon the data which have been accumulated to that
point and its assessment of the risk/benefit ratio to the patient.
The results of preclinical studies and clinical trials are submitted to the
FDA in the form of a new drug application, or NDA or a biologics licensing
application for approval to commence commercial sales. In responding to an NDA
or a biologics licensing application, the FDA may grant marketing approval,
request additional information or deny the application if the FDA determines
that the application does not satisfy its regulatory approval criteria. FDA
approvals may not be granted on a timely basis, or at all. Furthermore, FDA
approval may not allow us to market the product under a label for our desired
indications, which may impair commercialization of the product. Similar
regulatory procedures must also be complied with in countries outside the
United States.
If the FDA approves the NDA, the drug becomes available for physicians to
prescribe. After approval, periodic reports must be submitted to the FDA,
including descriptions of any adverse reactions reported. The FDA may request
additional studies, Phase IV, to evaluate long-term effects.
In addition to studies requested by the FDA after approval, trials and
studies may be conducted to explore new indications. The purpose of these
trials and studies and related publications is to broaden the application and
use of the drug and its acceptance in the medical community.
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Orphan Drug Designation
The FDA may grant orphan drug designation to drugs intended to treat a
"rare disease or condition," which is generally a disease or condition that
affects fewer than 200,000 individuals in the United States. Orphan drug
designation must be requested before submitting a NDA. After the FDA grants
orphan drug designation, the generic identity of the therapeutic agent and its
potential orphan use are disclosed publicly by the FDA. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the
regulatory review and approval process. If a product that has orphan drug
designation subsequently receives FDA approval for the indication for which it
has such designation, the product is entitled to orphan exclusivity, which
means the FDA may not approve any other applications to market the same drug
for the same indication, except in very limited circumstances, for seven
years. Our IL-4 Fusion Toxin product candidate has received orphan drug
designation from the FDA.
Approvals Outside the United States
Steps similar to those in the United States must be undertaken in virtually
every other country comprising the market for our products before any such
product can be commercialized in those countries. The approval procedure and
the time required for approval vary from country to country and may involve
additional testing. Foreign approvals may not be granted on a timely basis or
at all. In addition, regulatory approval of prices is required in most
countries other than the United States. We face the risk that the resulting
prices would be insufficient to generate an acceptable return to us or our
corporate collaborators.
Fast Track Designation
The Food and Drug Administration Modernization Act of 1997, or FDAMA, was
enacted, in part, to ensure the timely availability of safe and effective
drugs, biologics and medical devices by expediting the FDA review process for
new products. FDAMA establishes a statutory program for the approval of "fast
track products." The fast track provisions essentially codifies FDA's
Accelerated Approval regulations for drugs and biologics. A "fast track
product" is defined as a new drug or biologic intended for the treatment of a
serious or life-threatening condition that demonstrates the potential to
address unmet medical needs for such a condition. Under the new fast track
program, the sponsor of a new drug or biologic may request the FDA to
designate the drug or biologic as a "fast track product" at any time during
the clinical development of the product. Fast-track designation provides an
expedited review of a product's NDA which accelerates FDA review.
We may seek fast track designation to secure expedited review of
appropriate product candidates. It is uncertain if fast track designation will
be obtained. We cannot predict the ultimate impact, if any, of the new fast
track process on the timing or likelihood of FDA approval of any of our
potential products. Our IL-4 Fusion Toxin has received fast track designation.
Competition
The biotechnology and pharmaceutical industries are subject to rapid and
intense technological change. We face, and will continue to face, competition
in the development and marketing of our product candidates from biotechnology
and pharmaceutical companies, research institutions, government agencies and
academic institutions. Competition may also arise from, among other things:
. other drug development technologies;
. methods of preventing or reducing the incidence of disease, including
vaccines; and
. new small molecule or other classes of therapeutic agents.
Developments by others may render our product candidates or technologies
obsolete or noncompetitive.
We are performing research on or developing products for the treatment of
several disorders including anxiety, depression, insomnia, glioblastoma, other
forms of cancer and multiple sclerosis.
43
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In the area of anxiety disorders, our product candidates will compete with
well-established products such as Valium(R), marketed by Hoffman-La Roche,
Xanax(R), marketed by Pharmacia, Buspar(R), marketed by Bristol-Myers-Squibb,
and others.
We are also developing products for depression, which will compete with
well-established products in the anti-depressant class, including Prozac(R),
marketed by Eli Lilly, Zoloft(R) marketed by Pfizer and Paxil(R) marketed by
Smith Kline Beecham. Certain technologies under development by other
pharmaceutical companies could result in additional commercial treatments for
depression and anxiety. In addition, a number of companies are also conducting
research on molecules to block CRF, which is the same mechanism of action
employed by our compounds.
We are also developing a GABA-A agonist, NBI-34060, for the treatment of
insomnia. Ambien(R) and Sonata(R) are already marketed for the treatment of
insomnia by Searle/Synthelabo and American Home Products, respectively.
Guilford Pharmaceuticals sells Gliadel(R), which has been approved for use
in a subset of brain cancers known as glioblastoma. It will potentially compete
with our IL-4 Fusion Toxin product, NBI-3001, if our product is approved by the
FDA. Temozolomidemarketed by Schering Plough, is approved in Europe only for
recurrent glioblastoma, where it may also compete with NBI-3001.
We are also pursuing development of NBI-3001 for the treatment of peripheral
solid tumors, such kidney cancer and non-small cell lung cancer. Proleukin(R)
is marketed by Chiron for the treatment of kidney cancer, and drug treatments
for non-small cell lung cancer include Platinol(R) and Taxol(R), which are
marketed by Bristol-Myers Squibb, and Gemzar(R), which is marketed by Eli
Lilly.
Products that may be competitive with NBI-5788 APL for multiple sclerosis
include Betaseron(R) and Avonex(R), similar forms of beta-interferon marketed
by Berlex BioSciences and Biogen, respectively. Copaxone(R), a peptide polymer
marketed by Teva, has also been approved for the marketing in the United States
and certain other countries for the treatment of multiple sclerosis.
There are a number of competitors to products in our research pipeline.
Lupron Depot(R), marketed by Takeda-Abbott Pharmaceuticals, Zoladex(R),
marketed by and AstraZeneca, and Synarel(R), marketed by Pharmacia, are
gonadotropin releasing hormone, or GnRH, peptide agonists that have been
approved for the treatment of prostate cancer and diseases and disorders
affecting women, such as endometriosis, infertility and breast cancer, and
central precocious puberty. In addition, GnRH peptide antagonists, including
Abarelix(R) and Antagon Injection(R) are under development by Amgen and
Organon, respectively, for these indications. These drugs may compete with any
small molecule GnRH antagonists we develop for these indications. Anti-obesity
therapeutics currently available include Xenical(R) from Roche Laboratories and
Meridia(R) from Knoll Pharmaceuticals. If one or more of these products and/or
programs are successful, the market for our products may be reduced or
eliminated.
Compared to us, many of our competitors and potential competitors have
substantially greater:
. capital resources;
. research and development resources, including personnel and technology;
. regulatory experience;
. preclinical study and clinical testing experience;
. manufacturing and marketing experience; and
. production facilities.
Any of these competitive factors could harm our business, prospects,
financial condition and results of operations, which could negatively impact
our stock price.
44
<PAGE>
Employees
As of September 30, 2000 we had 164 employees, consisting of 154 full-time
and 10 part-time employees. Of the full-time employees, 60 hold Ph.D., M.D., or
equivalent degrees. None of our employees are represented by a collective
bargaining arrangement, and we believe our relationship with our employees is
good. We are highly dependent on the principal members of our management and
scientific staff. The loss of services of any of these personnel could impede
our achievement of our development objectives. Furthermore, recruiting and
retaining qualified scientific personnel to perform research and development
work in the future will also be critical to our success. There can be no
assurance that we will be able to attract and retain personnel on acceptable
terms given the competition among biotechnology, pharmaceutical and health care
companies, universities and non-profit research institutions for experienced
scientists. In addition, we rely on members of our Scientific Advisory Board
and a significant number of consultants to assist us in formulating our
research and development strategy.
Properties
We lease approximately 93,000 square feet of space at our headquarters, of
which approximately 65% is laboratory space dedicated to research and
development. The facility was constructed in 1998 and is under lease through
August 2013. We have sublet approximately 14,500 square feet of this building
to two separate tenants through February 1 and September 30, 2001,
respectively. Our facilities are located in San Diego, California.
We believe that our property and equipment are generally well maintained, in
good operating condition and adequate for our current needs.
Legal Proceedings
We are currently not subject to any material legal proceedings.
Our Scientific Advisory Board
We have assembled a Scientific Advisory Board that currently consists of 12
individuals. Members of the Scientific Advisory Board are leaders in the fields
of neurobiology, immunology, endocrinology, psychiatry and medicinal chemistry.
Scientific Advisory Board members meet at least yearly to advise us in the
selection, implementation and prioritization of our research programs. Certain
members meet more frequently to advise us with regard to our specific programs.
The Scientific Advisory Board presently consists of the following
individuals:
Susan G. Amara, Ph.D., a Senior Scientist and Professor at the Vollum
Institute for Advanced Biomedical Research, is an expert on the cellular and
molecular biology of neurotransmitter transporters, excitatory amino acid
transporter structure and regulation and signaling roles of neurotransmitter
transporters.
Floyd E. Bloom, M.D., is Chairman of the Department of Neuropharmacology at
The Scripps Research Institute. Dr. Bloom is an internationally recognized
expert in the fields of neuropharmacology and neurobiology.
Michael Brownstein, M.D., Ph.D., is Chief of the Laboratory of Cell Biology
at the National Institute of Mental Health. He is a recognized expert in
molecular pharmacology as it applies to the field of neuroendocrinology, where
he has defined many of the pharmaceutically important neurotransmitter
receptors and transporter systems.
Roger D. Cone, Ph.D., a senior scientist at the Vollum Institute for
Advanced Biomedical Research, is an international expert on the neuroendocrine
system, with particular expertise on the melanocortin system and the
hypothalamic control of energy homeostasis. Dr. Cone is an editor of the
journal, Endocrinology.
Stephen M. Hedrick, Ph.D., is Professor and Chairman of Cell Biology at the
University of California, San Diego. Dr. Hedrick is an expert in T cell
immunology and co-discovered the first T cell receptor genes and identified the
regions responsible for antigen binding. He is an editor for the Journal of
Immunology.
45
<PAGE>
Florian Holsboer, M.D., Ph.D., is Director at the Max Planck Institute fur
Psychiatrie. Dr. Holsboer is an international expert on the role of
glucocorticoids and neuropeptides, particularly CRF, in neuropsychiatric
disorders. He coordinates the efforts of several hundred scientists and
clinicians at the Max Planck Institute, a major European neuropsychiatric
institute.
George F. Koob, Ph.D., is a Member of the Department of Neuropharmacology at
The Scripps Research Institute and an Adjunct Professor in the Departments of
Psychology and Psychiatry at the University of California, San Diego. Dr. Koob
is an internationally recognized behavioral pharmacology expert on the role of
peptides in the central nervous system, the neurochemical basis of addiction
and in the development of preclinical behavioral procedures for the screening
of anxiolytic and antidepressant drugs and memory enhancers.
Charles B. Nemeroff, M.D., Ph.D., is Chairman and Professor of the
Department of Psychiatry and Behavioral Sciences at Emory University School of
Medicine. Dr. Nemeroff is an internationally recognized expert on the effects
of neuropeptides on behavior and their relevance in clinically important
conditions such as depression, anxiety and schizophrenia, and has published
over 400 articles on this subject.
Thomas Roth, Ph.D., is the Head of the Division of Sleep Disorder Research
at the Henry Ford Hospital Research Institute. Dr. Roth is an internationally
recognized expert in the field of sleep research. His areas of specialization
are sleep homeostasis and neuropharmacology of sleep.
Lawrence J. Steinman, M.D., is our Chief Scientific Advisor, Neuroimmunology
and a member of our Founding Board of Scientific and Medical Advisors and our
Executive Committee.
Wylie W. Vale, Ph.D., is our Chief Scientific Advisor, Neuroendocrinology
and a member of our Founding Board of Scientific and Medical Advisors and our
Executive Committee.
Stanley J. Watson, Jr., M.D., Ph.D., is Professor and Associate Chair for
Research in the Department of Psychiatry and Co-Director of the Mental Health
Research Institute at the University of Michigan. Dr. Watson is a recognized
expert in neuropeptides and their receptors and their role in psychiatric
diseases and behavior. Dr. Watson is also a member of the Institute of Medicine
of the National Academy of Sciences.
Each of the members of the Scientific Advisory Board have signed consulting
agreements that contain confidentiality provisions and restrict the members of
the Scientific Advisory Board from competing with us for the term of the
agreement. Each member of the Scientific Advisory Board receives either a per
diem consulting fee or a retainer fee. Each member also has received Neurocrine
stock or stock options, which vest over time. All members of the Scientific
Advisory Board are full-time employees of a university or research institute
that has regulations and policies which limit the ability of such personnel to
act as part-time consultants or in other capacities for any commercial
enterprise, including Neurocrine. A change in these regulations or policies
could adversely affect our relationship with any Scientific Advisory Board
member.
46
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our Executive Officers and Directors are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gary A. Lyons........... 49 President, Chief Executive Officer and Director
Paul W. Hawran.......... 48 Executive Vice President and Chief Financial Officer
D. Bruce Campbell,
Ph.D. ................. 55 Senior Vice President, Development
Margaret E. Valeur-
Jensen, J.D., Ph.D. ... 43 Senior Vice President, General Counsel and Corporate Secretary
Joseph A. Mollica, Ph.D.
(1)(2)................. 59 Chairman of the Board of Directors
Richard F. Pops (1)..... 38 Director
Stephen A. Sherwin,
M.D.(2)................ 52 Director
Wylie W. Vale, Ph.D. ... 59 Director
</TABLE>
--------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Gary A. Lyons has served as President, Chief Executive Officer and a
Director of the Company since joining the Company in February 1993. Prior to
joining the Company, Mr. Lyons held a number of senior management positions at
Genentech including Vice President of Business Development and Vice President
of Sales. At Genentech, he was responsible for international licensing,
acquisitions and partnering. He was also responsible for Genentech's Corporate
Venture Program, which participated in early financing and/or formation of a
number of biotechnology companies. In addition, Mr. Lyons had operating
responsibility for Genentech's two subsidiaries, Genentech Canada, Inc. and
Genentech Limited (Japan). Previously he served as Vice President of Sales and
was responsible for building the marketing and sales organization for the
commercial introduction of Genentech's first two pharmaceutical products,
Protropin (human growth hormone) and Activase (TPA). Mr. Lyons currently serves
on the Board of Directors for Intrabiotics Pharmaceuticals, Inc. and Vical,
Inc. Mr. Lyons holds a B.S. in Marine Biology from the University of New
Hampshire and an M.B.A. from Northwestern University's J.L. Kellogg Graduate
School of Management.
Paul W. Hawran became Executive Vice President and Chief Financial Officer
of the Company in January 2000 after having served as Senior Vice President and
Chief Financial Officer of the Company since February 1996 and Vice President
and Chief Financial Officer from 1993 to 1996. In this capacity, Mr. Hawran
directs strategic planning, finance, investor relations, human resources,
information technologies and operations. Mr. Hawran was employed by SmithKline
Beecham Corporation from July 1984 to May 1993, most recently as Vice President
and Treasurer. Prior to joining SmithKline in 1984, Mr. Hawran held various
financial positions at Warner Communications (now Time Warner) where he was
involved in corporate finance, financial planning and domestic and
international budgeting and forecasting. Mr. Hawran received a B.S. in Finance
from St. John's University and an M.S. in Taxation from Seton Hall University.
He is a Certified Public Accountant and a member of the American Institute of
Certified Public Accountants, California and Pennsylvania Institute of
Certified Public Accountants and the Financial Executives Institute.
D. Bruce Campbell, Ph.D., became Senior Vice President, Development of the
Company in January 2000 after having joined the Company as Vice President,
Development in February 1998. In his capacity, he is responsible for directing
Neurocrine's selection and advancement of drug candidates from research into
clinical development. He joined Neurocrine after 27 years at Servier United
Kingdom (U.K.), a subsidiary of an international pharmaceutical company based
in France, where he served as Director of International Scientific Affairs
since 1991 and was involved in the development and registration of a wide range
of drugs and vaccines. Dr. Campbell is a past Chairman and Board Member of the
Drug Information Association (DIA) in Europe and member of the ICH/EFPIA Safety
Working Party and is a visiting Professor in Pharmacology at Kings College
London. He is recognized as one of the experts on the regulatory aspects of
kinetics and toxicology in new
47
<PAGE>
drug development and has written standard texts on the subject. Dr. Campbell is
also in the editorial board of international journals and a member of many
scientific societies and has published more than 100 papers.
Margaret Valeur-Jensen, J.D., Ph.D., became Senior Vice President, General
Counsel and Corporate Secretary of the Company in January 2000 after having
joined the Company as Vice President, General Counsel and Secretary in October
1998. Dr. Valeur-Jensen has recognized experience in legal transactions for
licensing, corporate partnerships, and product commercialization as well as in
building intellectual property portfolios. She is responsible for all corporate
and patent law practices at Neurocrine, serves as Corporate Secretary and is a
member of the senior management committee. Dr. Valeur-Jensen joined Neurocrine
after almost eight years at Amgen, where she served most recently as Associate
General Counsel. Prior to joining Amgen, Dr. Valeur-Jensen practiced law at
Davis, Polk & Wardwell, a leading corporate law firm. She earned a J.D. degree
with honors from Stanford University, a Ph.D. in Biochemistry and Molecular
Biology from Syracuse University, and was Post-Doctoral Fellow at Massachusetts
General Hospital and Harvard Medical School.
Joseph A. Mollica, Ph.D., has served as a Director of the Company since June
1997 and became Chairman of the Board in April 1998. He currently serves as the
Chairman of the Board of Directors, President and Chief Executive Officer of
Pharmacopeia, Inc., a biopharmaceutical company focusing on combinatorial
chemistry, high throughput discovery, molecular modeling and bioinformatics,
since February 1994. From 1987 to December 1993, Dr. Mollica was employed by
DuPont Company and then by the DuPont Merck Pharmaceutical Company where, from
1991 to 1993, he served as President and CEO and previously as Vice President,
Medical Products for DuPont. At Ciba-Geigy, where he was employed from 1966 to
1986, he served in a variety of positions of increasing responsibility rising
to Senior Vice President of Ciba-Geigy's Pharmaceutical Division. He is
currently on the Boards of Ancile Pharmaceuticals, Biotechnology Council of New
Jersey, Biotechnology Industry Organization, Impath, Inc. and Nexell
Therapeutics, Inc. He received his B.S. from the University of Rhode Island and
his M.S. and Ph.D. from the University of Wisconsin.
Richard F. Pops became a Director of the Company in April 1998. Since 1991,
he has served as Chief Executive Officer of Alkermes, Inc., a publicly traded
company involved in the development of advanced drug delivery systems. Mr. Pops
currently serves on the board of directors of Alkermes, ImmuLogic
Pharmaceutical Corp., the Biotechnology Industry Organization and The Brain
Tumor Society. He is President of the Massachusetts Biotechnology Council. He
received a B.A. degree in Economics from Stanford University in 1983.
Stephen A. Sherwin, M.D., was elected to the Board of Directors on April 22,
1999. Since March 1990, Dr. Sherwin has served as Chief Executive Officer and
Director of Cell Genesys, Inc. In March 1994, he was elected as Chairman of the
Board of Cell Genesys. From 1983 to 1990, Dr. Sherwin held various positions at
Genentech, Inc., a biotechnology company, most recently as Vice President of
Clinical Research. Prior to 1983, Dr. Sherwin held various positions on the
staff of the National Cancer Institute. Dr. Sherwin also serves as a Director
of Abgenix, Inc., Calyx Therapeutic, Inc. and Rigel Pharmaceuticals, Inc. Dr.
Sherwin holds a B.A. from Yale and an M.D. from Harvard Medical School.
Wylie W. Vale, Ph.D., is a Founder and Chairman of the Company's Board of
Scientific and Medical Advisors. Dr. Vale was elected a Director of the Company
in September 1992. He is a Professor and former Chairman of the Faculty at The
Salk Institute for Biological Studies and is the Senior Investigator and Head
of The Clayton Foundation Laboratories for Peptide Biology at The Salk
Institute, where he has been employed for 29 years. He is also an Adjunct
Professor of Medicine at the University of California at San Diego. Dr. Vale is
recognized for his work on the molecular, pharmacological and biomedical
characterization of neuroendocrine factors including somatostatin, growth
hormone releasing factor, gonadotropin releasing hormone activin and the
activin receptor (the first receptor serine kinase), corticotropin releasing
factor, CRF-binding protein, the CRF R1 receptor and urocortin, the native
ligand for the CRF R2 receptor. In recognition of his discoveries, he has
received numerous awards and is a member of the National Academy of Arts and
Sciences and the National Academy of Sciences. He is a past President of the
American Endocrine Society and is the current President of the International
Society of Endocrinology. Dr. Vale received a B.A. in Biology from Rice
University, and a Ph.D. in Physiology and Biochemistry from the Baylor College
of Medicine.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of September 15, 2000 by (i) each of our executive officers, (ii) each of
our directors, (iii) all of our directors and executive officers as a group and
(iv) all persons known to us to be the beneficial owners of more than 5% of our
common stock. A total of 22,050,424 shares of our common stock were issued and
outstanding as of September 15, 2000.
<TABLE>
<CAPTION>
Percent of
Shares Percent of Outstanding
Beneficially Outstanding Shares After
Name and Address of Beneficial Owner(1) Owned(2) Shares This Offering
--------------------------------------- ------------ ----------- -------------
<S> <C> <C> <C>
T. Rowe Price Associates
100 East Pratt Street, Baltimore, MD
21202................................ 1,687,800 7.65% 6.74%
D. Bruce Campbell(3)................... 113,417 * *
Paul W. Hawran(4)...................... 365,053 1.66% 1.46%
Gary A. Lyons(5)....................... 948,519 4.30% 3.79%
Margaret E. Valeur-Jensen(6)........... 67,869 * *
Joseph A. Mollica(7)................... 39,720 * *
Richard F. Pops(8)..................... 14,721 * *
Stephen A. Sherwin(9).................. 11,248 * *
Wylie W. Vale(10)...................... 439,989 2.00% 1.76%
All executive officers and Directors as
a group (8 persons)(11)............... 2,000,536 9.07% 7.99%
</TABLE>
--------
* Represents beneficial ownership of less than one percent (1%) of the
22,050,424 outstanding shares of our common stock as of September 15, 2000.
(1) The address of each individual named is Neurocrine Biosciences, Inc.,
10555 Science Center Drive, San Diego, CA 92121, unless otherwise
indicated.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to stock options and warrants currently exercisable or exercisable
within 60 days of September 15, 2000 are deemed to be outstanding for
computing the percentage ownership of the person holding such options and
the percentage ownership of any group of which the holder is a member, but
are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown
beneficially owned by them.
(3) Includes 112,920 shares issuable pursuant to options exercisable within 60
days of September 15, 2000.
(4) Includes 250,755 shares issuable pursuant to options exercisable within 60
days of September 15, 2000.
(5) Includes 526,163 shares issuable pursuant to options exercisable within 60
days of September 15, 2000.
(6) Includes 61,051 shares issuable pursuant to options exercisable within 60
days of September 15, 2000.
(7) Includes 39,720 shares issuable pursuant to options exercisable within 60
days of September 15, 2000.
(8) Includes 14,721 shares issuable pursuant to options exercisable within 60
days of September 15, 2000.
(9) Includes 11,248 shares issuable pursuant to options exercisable within 60
days of September 15, 2000.
(10) Includes 130,859 shares issuable pursuant to options exercisable within 60
days of September 15, 2000.
(11) Includes an aggregate of 1,147,437 shares issuable pursuant to options
exercisable within 60 days of September 15, 2000.
49
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of the principal United States federal
income and estate tax consequences of the acquisition, ownership and
disposition of our common stock by a Non-U.S. Holder. As used in this
prospectus, the term "Non-U.S. Holder" is a person who holds our common stock
other than:
. a citizen or resident of the United States,
. a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision of the United States,
. an estate the income of which is includable in gross income for United
States federal income tax purposes regardless of its source, or
. a trust subject to the primary supervision of a United States court and
the control of one or more United States persons, or a trust (other than
a wholly-owned grantor trust) that was treated as a domestic trust
despite not meeting the requirements described above.
This discussion does not consider:
. state, local or foreign tax consequences,
. specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position in light of their particular
circumstances,
. the tax consequences for the stockholders or beneficiaries of a Non-U.S.
holder,
. special tax rules that may apply to certain Non-U.S. Holders, including
without limitation, partnerships, banks, insurance companies, dealers in
securities and traders in securities, or
. special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion
transaction."
The following discussion is based on provisions of the United States
Internal Revenue Code of 1986, as amended, also known as the Code, applicable
Treasury regulations and administrative and judicial interpretations, all as of
the date of this prospectus, and all of which are subject to change,
retroactively or prospectively. The following discussion assumes that our
common stock is held as a capital asset. The following summary is for general
information. Accordingly, each Non-U.S. Holder should consult a tax advisor
regarding the United States federal, state, local and foreign income and other
tax consequences of acquiring, holding and disposing of shares of our common
stock.
Dividends
We do not anticipate paying cash dividends on our common tock in the
foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of our common stock, dividends paid to a Non-U.S.
Holder of our common stock generally will be subject to withholding of United
States federal income tax at a 30% rate, or such lower rate as may be provided
by an applicable income tax treaty. Non-U.S. Holders should consult their tax
advisors regarding their entitlement to benefits under a relevant income tax
treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States, known as
"United States trade or business income", are generally subject to United
States federal income tax on a net income basis at regular graduated rates, but
are not generally subject to the 30% withholding tax if the Non-U.S. Holder
files the appropriate United States Internal Revenue Service form with the
payor. Any United States trade or business income received by a Non-U.S Holder
that is a corporation may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as specified
by an applicable income tax treaty.
50
<PAGE>
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. For dividends paid after
2000, a Non-U.S. Holder of our common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements.
A Non-U.S. Holder of our common stock that is eligible for a reduced rate of
United States withholding tax under an income tax treaty may obtain a refund or
credit of any excess amounts withheld by filing an appropriate claim for a
refund with the United States Internal Revenue Service.
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of our common stock
unless:
. the gain is United States trade or business income, in which case the
branch profits tax described above may apply to a corporate Non-U.S.
Holder,
. the Non-U.S. Holder is an individual who holds our common stock as a
capital asset within the meaning of Section 1221 of the Code, is present
in the United States for more than 182 days in the taxable year of the
disposition and meets certain other requirements,
. the Non-U.S. Holder is subject to tax pursuant to the provisions of the
United States tax law applicable to certain United States expatriates, or
. we are or have been a "United States real property holding corporation"
for United States federal income tax purposes at any time during the
shorter of the five-year period ending on the date of disposition of the
period that the Non-U.S. Holder held our common stock.
Generally, a corporation is a "United States real property holding
corporation" if the fair market value of its "United States real property
interest," such as interest in real property located in the United States or
the Virgin Islands, and certain interests in other United States real property
holding corporations, equals or exceeds 50% of the sum of the fair market value
of its worldwide real property interests plus its other assets used or held for
use in a trade or business. We believe we have never been, are not currently
and are not likely to become a United States real property holding corporation
for United States federal income tax purposes.
Federal Estate Tax
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
or other treaty provides otherwise.
Information Reporting and Backup Withholding Tax
We must report annually to the United States Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to that holder and the tax
withheld with respect to those dividends. Copies of the information returns
reporting those dividends and withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder is a resident under the
provisions of an applicable income tax treaty or agreement.
Under certain circumstances, United States Treasury Regulations require
information reporting and backup withholding at a rate of 31% on certain
payments on our common stock. Under currently applicable law, Non-U.S. Holders
of our common stock, generally will be exempt from these information reporting
requirements and from backup withholding on dividends paid prior to 2001 to an
address outside the United States. For dividends paid after 2000, however, a
Non-U.S. Holder of our common stock that fails to certify its Non-U.S.
51
<PAGE>
holder status in accordance with applicable United States Treasury Regulations
may be subject to backup withholding at a rate of 31% of dividends.
The payment of the proceeds of the disposition of our common stock by a
holder to or through the United States office of a broker generally will be
subject to information reporting and backup withholding at a rate of 31% unless
the holder either certifies its status as a Non-U.S. Holder under penalties of
perjury or otherwise establishes an exemption. The payment of the proceeds of
the disposition by a Non-U.S. Holder of our common stock to or through a
foreign office of a foreign broker will not be subject to backup withholding or
information reporting unless the foreign broker will not be subject to backup
withholding or information reporting unless the foreign broker is a "United
States related person." In the case of the payment of proceeds from the
disposition of our common stock by or through a foreign office of a broker that
is a United States person or a "United States related person," information
reporting, but currently not backup withholding, on the payment applies unless
the broker receives a statement from the owner, signed under penalty of
perjury, certifying its foreign status or the broker has documentary evidence
in its files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "United States related person"
is:
. a "controlled foreign corporation" for United States federal income tax
purposes,
. a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for such part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a United State trade or business,
. effective after 2000, a foreign partnership if, at any time during the
taxable year, (A) at least 50% of the capital or profits interest in the
partnership is owned by United States persons, or (B) the partnership is
engaged in a United States trade or business, or
. certain U.S. branches of foreign banks or insurance companies.
Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a foreign office or a broker that is a
United States person or a United States related person unless certain
certification requirements are satisfied or an exemption is otherwise
established and the broker has no actual knowledge that the holder is a United
States person. Non-U.S. Holders should consult their own tax advisors regarding
the application of the information reporting and backup withholding rules to
them, including changes to these rules that will become effective after 2000.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded, or credited against the holder's United
States federal income tax liability, if any, provided that the required
information is furnished to the United States Internal Revenue Service.
52
<PAGE>
UNDERWRITING
We are offering the shares of common stock described in this prospectus
through a number of underwriters. Robertson Stephens, Inc. and Salomon Smith
Barney Inc. are the representatives of the underwriters. We will enter into an
underwriting agreement with the representatives. Subject to the terms and
conditions of the underwriting agreement, we will sell to the underwriters, and
each underwriter will separately purchase from us, the number of shares of
common stock listed next to its name below at the public offering price, less
the underwriting discount described on the cover page of this prospectus:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Robertson Stephens, Inc. ..........................................
Salomon Smith Barney Inc. .........................................
<CAPTION>
International Underwriter
-------------------------
<S> <C>
Robertson Stephens International, Ltd. ............................
Salomon Smith Barney Inc. .........................................
---------
Total............................................................ 3,000,000
=========
</TABLE>
The underwriting agreement will provide that the underwriters must buy all
of these shares from us if they buy any of them. The underwriters will sell
these shares to the public when and if the underwriters buy them from us. The
underwriters are offering the common stock subject to a number of conditions,
including:
. the underwriters' receipt and acceptance of the common stock from us; and
. the underwriters' right to reject orders in whole or in part.
The underwriters expect to deliver the shares of common stock to purchasers
on , 2000.
Over-Allotment Option. We will grant the underwriters an option to buy up to
450,000 additional shares of our common stock at the same price per share as
they are paying for the shares shown in the table above. The underwriters may
exercise this option only to the extent that they sell more than the total
number of shares shown in the table above. The underwriters may exercise this
option at any time within 30 days after the date of this prospectus. To the
extent that the underwriters exercise this option, the underwriters will be
obligated to purchase additional shares from us in the same proportions as they
purchased the shares shown in the table above. If purchased, these additional
shares will be sold by the underwriters on the same terms as those on which the
other shares are sold.
Stock Market Listing. Our common stock is quoted on the Nasdaq National
Market under the symbol "NBIX."
Underwriting Discounts and Commissions. The underwriting discount is the
difference between the price the underwriters pay to us and the price at which
the underwriters initially offer the shares to the public. The size of the
underwriting discount is determined through an arms-length negotiation between
us and the representatives. The following table shows the per share and total
underwriting discount we will allow to the underwriters. These amounts are
shown assuming no exercise and full exercise of the underwriters' over-
allotment option described above:
<TABLE>
<CAPTION>
Total
-------------------------
Per No Exercise Full Exercise
Share of Option of Option
----- ----------- -------------
<S> <C> <C> <C>
Public offering price........................ $ $ $
Underwriting discount........................ $ $ $
Proceeds, before expenses, to us............. $ $ $
</TABLE>
53
<PAGE>
The expenses of this offering, not including the underwriting discount, are
estimated to be approximately $495,000 and will be paid by us. Expenses include
the SEC filing fee, the NASD filing fee, Nasdaq listing fees, printing
expenses, legal and accounting fees, transfer agent and registrar fees and
other miscellaneous fees and expenses.
Lock-Up Agreements. We and our executive officers and directors have agreed,
with exceptions, not to sell or transfer any shares of our common stock for 90
days after the date of this prospectus without first obtaining the written
consent of Robertson Stephens, Inc. Specifically, we and these other
individuals have agreed not to, directly or indirectly:
. offer to sell, contract to sell, or otherwise sell or dispose of any
shares of our common stock;
. loan, pledge or grant any rights with respect to any shares of our common
stock;
. engage in any hedging or other transaction that might result in a
disposition of shares of our common stock by anyone;
. execute any short sale, whether or not against the box; or
. purchase, sell or grant any put or call option or other right with
respect to our common stock or with respect to any security other than a
broad-based market basket or index that includes, relates to or derives
any significant part of its value from our common stock.
These lock-up agreements apply to shares of our common stock and also to any
options or warrants to purchase any shares of our common stock or any
securities convertible into or exchangeable for shares of our common stock.
These lock-up agreements apply to all such securities that are owned or later
acquired by the persons executing the agreements, except for securities
acquired on the open market after signing the lock-up agreement. In addition,
we have agreed with Robertson Stephens Inc. that, to the extent that we have
separate market stand-off agreements with our officers and directors, we will
not consent to the stockholders' disposition of any shares subject to those
separate market stand-off agreements prior to the expiration of the lock-up
period. However, Robertson Stephens, Inc. may release any of us from these
agreements at any time during the 90-day period, in its sole discretion and
without notice, as to some or all of the shares covered by these agreements.
Currently, there are no agreements between the representatives and us or any of
our shareholders to release any of us from the lock-up agreements during this
90-day period.
Indemnification of the Underwriters. We will indemnify the underwriters
against some civil liabilities, including liabilities under the Securities Act
and liabilities arising from breaches of our representations and warranties
contained in the underwriting agreement. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be
required to make in respect of those liabilities.
Dealers' Compensation. The underwriters initially will offer our shares to
the public at the price specified on the cover page of this prospectus. The
underwriters may allow to selected dealers a concession of not more than $ per
share. The underwriters may also allow, and any other dealers may reallow, a
concession of not more than $ per share to some other dealers. If all the
shares are not sold at the public offering price, the underwriters may change
the public offering price and the other selling terms. A change in the public
offering price will not affect the amount of proceeds that we receive.
Online Activities. A prospectus in electronic format may be made available
on the internet sites or through other online services maintained by one or
more of the underwriters of this offering, or by their affiliates. In those
cases, prospective investors may view offering terms online and, depending upon
the particular underwriter, prospective investors may be allowed to place
orders online. The underwriters may agree with us to allocate a specific number
of shares for sale to online brokerage account holders. Any such allocation for
online distributions will be made by the representatives on the same basis as
other allocations. Other than the prospectus in electronic format, information
on these web sites is not a part of this prospectus and you should not rely on
other information on these web sites in making a decision to invest in our
shares.
54
<PAGE>
Stabilization and Other Transactions. The rules of the SEC generally
prohibit the underwriters from trading in our common stock on the open market
during this offering. However, the underwriters are allowed to engage in some
open market transactions and other activities during this offering that may
cause the market price of our common stock to be above or below that which
would otherwise prevail in the open market. These activities may include
stabilization, short sales and over-allotments, syndicate covering
transactions and penalty bids.
. Stabilizing transactions consist of bids or purchases made by the lead
representative for the purpose of preventing or slowing a decline in the
market price of our common stock while this offering is in progress.
. Short sales and over-allotments occur when the representatives, on behalf
of the underwriting syndicate, sell more of our shares than they purchase
from us in this offering. "Covered" shorts are short sales made in an
amount not greater than the underwriters' option to purchase additional
shares from us in the offering. The underwriters may close out any
covered short position either by exercising that option to purchase
shares from us or by purchasing shares in the open market. In determining
the source of shares to close out a covered short position, the
underwriters will consider, among other things, the prevailing market
price per share compared to the exercise price per share of their option.
"Naked" shorts are any short sales by the underwriters in excess of their
option. The underwriters must close out any naked short position by
purchasing shares in the open market, potentially including purchases
made as stabilizing transactions. For this reason, a naked short position
is more likely to be created if the underwriters are concerned that there
may be downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who purchase
in the offering.
. Syndicate covering transactions are bids for or purchases of our common
stock on the open market by the representatives on behalf of the
underwriters in order to reduce a short position incurred by the
representatives on behalf of the underwriters. Similar to other purchase
transactions, syndicate covering transactions may have the effect of
raising or maintaining the market price of our common stock or preventing
or retarding a decline in the market price of our common stock. As a
result, the price of our common stock may be higher than the price that
might otherwise exist in the open market.
. A penalty bid is an arrangement permitting the representatives to reclaim
the selling concession that would otherwise accrue to an underwriter if
the common stock originally sold by that underwriter was later
repurchased by the representatives and therefore was not effectively sold
to the public by such underwriter.
If the underwriters commence these activities, they may discontinue them at
any time without notice. The underwriters may carry out these transactions on
the Nasdaq National Market, in the over-the-counter market or otherwise.
Passive Market Making. Prior to the pricing of this offering, and until the
commencement of any stabilizing bid, underwriters and dealers who are
qualified market makers on the Nasdaq National Market may engage in passive
market making transactions. Passive market making is allowed during the period
when the SEC's rules would otherwise prohibit market activity by the
underwriters and dealers who are participating in this offering. Passive
market makers must comply with applicable volume and price limitations and
must be identified as such. In general, a passive market maker must display
its bid at a price not in excess of the highest independent bid for our common
stock; but if all independent bids are lowered below the passive market
maker's bid, the passive market maker must also lower its bid once it exceeds
specified purchase limits. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market maker's average
daily trading volume in our common stock during a specified period and must be
discontinued when such limit is reached. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
Some of the underwriters have in the past and may in the future perform
financial advisory services for us.
55
<PAGE>
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be passed
upon by Latham & Watkins, San Francisco, California, counsel to the Company.
Certain legal matters will be passed upon for the underwriters by O'Melveny &
Myers LLP, San Francisco, California, counsel to the underwriters.
EXPERTS
Our financial statements appearing in our Annual Report on Form 10-K for the
year ended December 31, 1999 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. Accordingly, we file annual, quarterly and special
reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any document that we have filed at
the SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. You can obtain copies of our SEC
filings at prescribed rates from the SEC Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. Our SEC filings are also available to you
free of charge at the SEC's web site at http://www.sec.gov. Information
contained in our web site is not part of the prospectus.
Shares of our common stock are traded as "National Market Securities" on the
Nasdaq National Market. Documents we have filed can be inspected at the offices
of the National Association of Securities Dealers, Inc., Reports Section, 1735
K Street, N.W., Washington, D.C. 20006.
This prospectus is a part of a registration statement on Form S-3 filed by
us with the SEC under the Securities Act of 1933, as amended. This prospectus
does not contain all of the information set forth in the registration
statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. For further information with respect us and the shares
of common stock we are offering hereby, please refer to the registration
statement. The registration statement may be inspected at the public reference
facilities maintained by the SEC at the addresses set forth above. Statements
in this prospectus about any document filed as an exhibit are not necessarily
complete and, in each instance, you should refer to the copy of such document
filed with the SEC. Each such statement is qualified in its entirety by such
reference.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information filed with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we have filed
later with the SEC will automatically update and supersede previously filed
information, including information contained in this prospectus.
We incorporate by reference the documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until this offering has been completed:
. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999 (File No. 000-22705) (including information specifically
incorporated by reference into our Form 10-K from our 2000 Annual Report
to Stockholders and Proxy Statement for our 2000 Annual Meeting of
Stockholders), filed with the SEC on March 30, 2000;
56
<PAGE>
. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000,
filed with the SEC on May 15, 2000;
. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
filed with the SEC on August 11, 2000;
. The description of our common stock contained in the registration
statement on Form 8-A (Registration No. 000-28150), as amended, filed
with the SEC on April 3, 1996; and
. The description of the preferred share purchase rights contained in the
registration statement on Form 8-A (Registration No. 000-22705), as
amended, filed with the SEC on June 16, 1997.
You may request a free copy of these documents by writing to Investor
Relations, Neurocrine Biosciences, Inc., 10555 Science Center Drive, San Diego,
California 92121, or by calling our Investor Relations department at (858) 658-
7600.
You should rely only on the information incorporated by reference or
provided in this prospectus or a prospectus supplement or amendment. We have
not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. Also, this prospectus does not offer to sell any securities other
than the securities covered by this prospectus. You should not assume that the
information in this prospectus or a prospectus supplement or amendment is
accurate as of any date other than the date on the front of the document.
57
<PAGE>
[LOGO OF NEUROCRINE BIOSCIENCES]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and we are not soliciting +
+offers to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 4, 2000
[LOGO OF NEUROCRINE BIOSCIENCES]
3,000,000 Shares
Common Stock
Neurocrine Biosciences, Inc. is offering 3,000,000 shares of its common
stock. Neurocrine Biosciences, Inc.'s common stock is traded on the Nasdaq
National Market under the symbol "NBIX." The last reported sale price of the
common stock on the Nasdaq National Market on October 2, 2000 was $42.00 per
share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Neurocrine Biosciences, Inc. ....................... $ $
</TABLE>
The United States Securities and Exchange Commission has not approved or
disapproved these securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Neurocrine Biosciences, Inc. has granted the underwriters a 30-day option to
purchase up to an additional 450,000 shares of common stock to cover over-
allotments.
--------------
Robertson Stephens Salomon Smith Barney Inc.
International
The date of this prospectus is , 2000.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The Company will pay all expenses incident to the offering and sale to the
public of the shares being registered other than any commissions and discounts
of underwriters, dealers or agents and any transfer taxes. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 38,226
Nasdaq listing fee................................................. 17,500
NASD filing fee.................................................... 14,990
Printing and engraving expenses.................................... 100,000
Legal fees and expenses............................................ 250,000
Accounting fees and expenses....................................... 60,000
Miscellaneous expenses............................................. 14,500
Total............................................................ $495,216
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of
the corporation in related capacities against amounts paid and expenses
incurred in connection with an action or proceeding to which he or she is or is
threatened to be made a party by reason of such position, if such person has
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his or her
conduct was unlawful; provided that, in the case of actions brought by or in
the right of the corporation, no indemnification may be made with respect to
any matter as to which such person has been adjudged to be liable to the
corporation unless and only to the extent that the adjudicating court
determines that such indemnification is proper under the circumstances.
The Registrant's Certificate of Incorporation provides that no director will
be personally liable to the Registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Registrant or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for authorizing the payment of
a dividend or repurchase of stock or (iv) for any transaction in which the
director derived an improper personal benefit.
The Registrant's bylaws provide that the Registrant must indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Registrant) by reason of the fact that he or she is or was a
director or officer of the Registrant, or that such director or officer is or
was serving at the request of the Registrant as a director, officer, employee
or agent of another corporation, partnership, joint venture trust or other
enterprise (collectively "Agent"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement (if such settlement is
approved in advance by the Registrant, which approval may not be unreasonably
withheld) actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Registrant, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
will not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of
II-1
<PAGE>
the Registrant, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
The Registrant's bylaws provide further that the Registrant must indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Registrant to procure a judgment in its favor by reason of the fact that he or
she is or was an Agent against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection with the defense or
settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Registrant, provided that no indemnification may be made in
respect of any claim, issue or matter as to which such person has been adjudged
to be liable to the Registrant unless and only to the extent that the Delaware
Court of Chancery or the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court deems proper.
Pursuant to its bylaws, the Registrant has the power to purchase and
maintain a directors and officers liability policy to insure its officers and
directors against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
5.1* Opinion of Latham & Watkins.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
</TABLE>
--------
* To be filed by amendment.
Item 17. Undertakings.
(i) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(ii) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-2
<PAGE>
(iii) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, California, on this 4th day of October,
2000.
NEUROCRINE BIOSCIENCES, INC.
/s/ Paul W. Hawran
By: _________________________________
Paul W. Hawran,
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Paul W.
Hawran and Gary A. Lyons, jointly and severally, as attorneys-in-fact, each
with the power of substitution, for him or her in any and all capacities, to
sign any amendment to this Registration Statement and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting to said attorneys-in-fact, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact or any of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Gary A. Lyons President, Chief October 4, 2000
______________________________________ Executive Officer and
Gary A. Lyons Director (Principal
Executive Officer)
/s/ Paul W. Hawran Executive Vice President October 4, 2000
______________________________________ and Chief Financial
Paul W. Hawran Officer (Principal
Financial and
Accounting Officer)
Chairman of the Board of October , 2000
______________________________________ Directors
Joseph A. Mollica
Director October , 2000
______________________________________
Stephen A. Sherwin
/s/ Richard F. Pops Director October 4, 2000
______________________________________
Richard F. Pops
/s/ Wylie W. Vale Director October 4, 2000
______________________________________
Wylie W. Vale
</TABLE>
II-4
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
5.1* Opinion of Latham & Watkins.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
</TABLE>
--------
* To be filed by amendment.
