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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ____________________
Commission file number 0-28150
NEUROCRINE BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0525145
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
10555 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices)
(858) 658-7600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
The number of outstanding shares of the registrant's Common Stock, par
value of $0.001, was 21,898,404 as of April 30, 2000.
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<PAGE>
Page 5
NEUROCRINE BIOSCIENCES, INC
FORM 10-Q INDEX
PAGE
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements ...................................... 3
Condensed Balance Sheets as of March 31, 2000
and December 31, 1999 ................................ 3
Condensed Statements of Operations for the three months
ended March 31, 2000 and 1999 ........................ 4
Condensed Statements of Cash Flows for three months
ended March 31, 2000 and 1999 ........................ 5
Notes to the Condensed Financial Statements ............... 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................ 7
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 10
PART II OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K .......................... 10
SIGNATURES ................................................ 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEUROCRINE BIOSCIENCES, INC.
CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
2000 1999
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 11,988 $ 21,265
Short-term investments, available-for-sale ...... 77,763 69,833
Receivables under collaborative agreements ...... 722 1,458
Other current assets ............................ 1,547 2,257
--------- ---------
Total current assets .......................... 92,020 94,813
Property and equipment, net ..................... 11,195 11,181
Other assets .................................... 3,184 3,228
--------- ---------
Total assets .................................. $ 106,399 $ 109,222
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ 1,741 $ 2,447
Accrued liabilities ............................. 5,466 5,069
Deferred revenues ............................... 1,733 155
Current portion of long-term debt ............... 149 149
Current portion of capital lease obligations .... 841 825
--------- ---------
Total current liabilities ..................... 9,930 8,645
Long-term debt .................................. 274 312
Capital lease obligations ....................... 1,610 1,827
Deferred rent ................................... 1,179 1,005
Other liabilities ............................... 1,368 1,079
--------- ---------
Total liabilities ............................. 14,361 12,868
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; issued and outstanding
shares were 21,853,177 in 2000
and 21,608,011 in 1999 .......... ............. 22 22
Additional paid in capital ...................... 140,263 138,798
Deferred compensation and shareholder notes ..... (206) (530)
Accumulated other comprehensive loss ............ (322) (264)
Accumulated deficit ............................. (47,719) (41,672)
--------- ---------
Total stockholders' equity .................... 92,038 96,354
--------- ---------
Total liabilities and stockholders' equity .... $ 106,399 $ 109,222
========= =========
See accompanying notes to the condensed financial statements.
<PAGE>
NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited; in thousands except loss per share data)
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
Revenues:
Sponsored research and development ............... $ 1,522 $ 2,789
Sponsored research and development
from related party -- 494
Option Fees ...................................... 1,000 --
Milestones ....................................... -- --
Grant income and other revenues .................. 256 268
-------- --------
Total revenues ................................ 2,778 3,551
Operating expenses:
Research and development ......................... 7,771 6,371
General and administrative ....................... 2,233 1,706
-------- --------
Total operating expenses ...................... 10,004 8,077
Loss from operations ................................. (7,226) (4,526)
Other income and (expenses):
Interest income .................................. 1,572 892
Interest expense ................................. (58) (46)
Other income and expenses, net ................... (335) (409)
-------- --------
Loss before taxes .................................... (6,047) (4,089)
Income taxes ......................................... -- --
-------- --------
Net loss ............................................. $ (6,047) $ (4,089)
======== ========
Loss per common share:
Basic & Diluted .................................. $ (0.28) $ (0.22)
Shares used in the calculation of
loss per common share:
Basic & Diluted .................................. 21,771 18,955
See accompanying notes to the condensed financial statements.
<PAGE>
NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss ............................................... $ (6,047) $ (4,089)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in NPI losses and other adjustments ....... -- 749
Depreciation and amortization .................... 519 632
Deferred revenues ................................ 1,578 525
Deferred rent .................................... 174 197
Compensation expenses for stock options .......... 326 31
Change in operating assets and liabilities:
Accounts receivable and other current assets 1,446 480
Other non-current assets .................... 59 (147)
Accounts payable and accrued liabilities .... (20) (2,412)
-------- --------
Net cash flows used in operating activities ............ (1,965) (4,034)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of short-term investments .................... (24,988) (5,851)
Sales/maturities of short-term investments ............. 17,000 5,000
Purchases of property and equipment .................... (548) (560)
-------- --------
Net cash flows used in investing activities ............ (8,536) (1,411)
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Common Stock ............................... 1,463 125
Principal payments on long-term obligations ............ (239) (228)
-------- --------
Net cash flows provided by (used in)financing activities 1,224 (103)
-------- --------
Net decrease in cash and cash equivalents .............. (9,277) (5,548)
Cash and cash equivalents at beginning of the period ... 21,265 11,708
-------- --------
Cash and cash equivalents at end of the period ......... $ 11,988 $ 6,160
======== ========
See accompanying notes to the condensed financial statements.
<PAGE>
NEUROCRINE BIOSCIENCES, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION
Neurocrine Biosciences, Inc. ("Neurocrine" or the "Company") was
incorporated in California on January 17, 1992 and was reincorporated in
Delaware in March 1996. In May 1998, the Company acquired Northwest NeuroLogic,
Inc. ("NNL"), an Oregon-based research corporation. In December 1999, the NNL
corporate structure was merged with and into the Company. Between March 1996 and
December 1999, the Company owned a minority interest in Neuroscience Pharma,
Inc. ("NPI"), a Canadian based research and development company. Neurocrine is a
neuroscience-based company focused on the discovery and development of novel
therapeutics for neuropsychiatric, neuroinflammatory and neurodegenerative
diseases and disorders. The Company's neuroscience, endocrine and immunology
disciplines provide a unique biological understanding of the molecular
interaction between central nervous, immune and endocrine systems for the
development of therapeutic interventions for anxiety, depression, insomnia,
stroke, malignant brain tumors, multiple sclerosis, obesity and diabetes.
2. BASIS OF PRESENTATION
The condensed financial statements included herein are unaudited. Current
year financial statements include the accounts of the Company. Prior year
financial statements include the Company and its wholly owned subsidiary, NNL.
All significant intercompany transactions were eliminated in consolidation. The
Company's minority ownership interest in NPI was accounted for under the equity
method. Certain reclassifications have been made to prior year amounts to
conform to the presentation for the three months ended March 31, 2000.
The condensed financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions of the Securities and Exchange Commission ("SEC") on Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
these financial statements include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented.
The results of operations for the interim periods shown in this report are
not necessarily indicative of results expected for the full year. The financial
statements should be read in conjunction with the audited financial statements
and notes for the year ended December 31, 1999, included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
4. NET INCOME PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Shares issuable
upon exercise of outstanding stock options and warrants have not been included
in the computation of diluted net loss per share since the effects of their
inclusion would be anti-dilutive. The weighted average of the outstanding
options and warrants at March 31, 2000 and 1999 were 2.5 million shares and
63,000 shares, respectively.
<PAGE>
5. COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") requires
reporting and displaying comprehensive income (loss) and its components which,
for the Company includes net loss and unrealized gains and losses on
investments. In accordance with SFAS 130, the accumulated balance of other
comprehensive income (loss) is disclosed as a separate component of
stockholders' equity.
6. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 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. The Company
will implement the pronouncement upon the effective date as determined by the
SEC. Management believes implementation will not have a material adverse affect
on its results of operations.
ITEM 2: 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 of the Company contain forward-looking statements
which involve risks and uncertainties, pertaining generally to the expected
continuation of the Company's 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, pre-clinical testing and clinical trials of potential
products, the period of time the Company's existing capital resources will meet
its funding requirements, and financial results and operations. 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 the Company's 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
OVERVIEW
Since the founding of the Company in January 1992, Neurocrine has been
engaged in the discovery and development of novel pharmaceutical products for
diseases and disorders of the central nervous and immune systems. To date,
Neurocrine has not generated any revenues from the sale of products, and does
not expect to generate any product revenues in the foreseeable future. The
Company has funded its operations primarily through public offering and payments
under research and development agreements. The Company is developing a number of
products with corporate collaborators and will rely on those collaborators and
new collaborators to meet funding requirements. Revenues are expected to come
from the Company's strategic alliances. The Company expects 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
March 31, 2000, Neurocrine has incurred a cumulative deficit of $47.7 million
and expects to incur operating losses in the future, which may be greater than
losses in prior years.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues were $2.8 million for the first quarter 2000 compared with $3.6
million for the respective period last year. The decline in revenue for this
year compared to last year is primarily a result of the reacquisition of the
NBI-5788 compound for Multiple Sclerosis from Novartis and the completion of the
sponsored research portion of the Eli Lilly ("Lilly") and NPI collaborations.
This decline in revenues was partially off-set in the first quarter of 2000 by
$1.0 million in option fees received from Taisho Pharmaceutical Co, LTD
("Taisho") and $675,000 of sponsored research funding received from Janssen
Pharmaceutica, N.V. ("Janssen"). Revenues received under the Novartis, Lilly and
NPI collaborations during the first quarter of 1999 were $1.0 million, $1.0
million and $494,000, respectively.
Research and development expenses increased to $7.8 million for the first
quarter 2000 compared with $6.4 million for the respective period in 1999.
Increased expenses primarily reflect higher costs associated with increasing
development expenditures and the addition of scientific personnel. The Company
anticipates research and development expenses to increase significantly this
year as it advances its compounds through clinical development and expands its
research efforts.
General and administration expenses increased to $2.2 million for the first
quarter 2000 compared with $1.7 million during the same period last year.
Increased expenses resulted from additional business development and
professional services, including patent and legal services, to support the
Company's expanded clinical development efforts. The Company expects general and
administrative costs to increase moderately this year to provide continued
support on patent matters and collaborative relationships.
Interest income increased to $1.6 million during the first quarter of 2000
compared to $892,000 for the same period last year. The increase was primarily
due to higher investment balances generated by the Company's private placement
of its common stock. The private placement was completed in December 1999 and
generated net proceeds of $39.3 million. The Company anticipates interest
earnings for the remainder of the year to decline slightly from quarter to
quarter as cash reserves will be needed to fund progressive clinical trials.
Net loss for the first quarter of 2000 was $6.0 million or $0.28 per share
compared to $4.1 million or $0.22 per share for the same period in 1999. The
increase in net loss resulted from a decline in revenues of $773,000 and an
increase in operating expenses of $1.9 million, partially off-set by increase
interest income of $680,000. Net losses are expected to increase this year due
to higher operating costs associated with the advancement of the Company's
compounds through progressive clinical development.
To date, the Company's 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.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company's cash, cash equivalents, and short-term
investments totaled $89.8 million compared with $91.1 million at December 31,
1999. The decline in cash balances during 2000 reflects the increased operating
expenses associated with clinical development programs and the addition of
scientific personnel.
Net cash used in operating activities during the first three months of 2000
was $2.0 million compared with $4.0 million for the same period last year. The
decline in net cash used during 2000 compared with 1999 resulted primarily from
higher accounts payable turnover during the first quarter of 1999. The Company
expects cash usage to continue during the year as clinical trial efforts are
expanded.
<PAGE>
Net cash used by investing activities during the first quarter of 2000 was
$8.5 million compared with $1.4 million during 1999. The increase in cash used
resulted from the timing differences in the investment purchases and
sales/maturities and the fluctuations in the Company's portfolio mix between
cash equivalents and short-term investment holdings. The Company expects similar
fluctuations to continue throughout the year.
Net cash provided by financing activities during 2000 was $1.2 million
compared to net cash used during 1999 of $103,000. Proceeds from the issuance of
Common Stock provided cash during 2000, while payments on long-term debt
resulted in cash used during 1999.
The Company believes that its existing capital resources, together with
interest income and future payments due under the strategic alliances, will be
sufficient to satisfy its current and projected funding requirements at least
through the year 2003. However, no assurance can be given that such capital
resources and payments will be sufficient to conduct its research and
development programs as planned. The amount and timing of expenditures will vary
depending upon a number of factors, including progress of the Company's research
and development programs.
Neurocrine will require additional funding for the continuation of its
research and product development programs, for progress with preclinical testing
and clinical trials, for operating expenses, for the pursuit of regulatory
approvals for its 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 may
require additional funding for establishing manufacturing and marketing
capabilities in the future. The Company may seek to access the public or private
equity markets whenever conditions are favorable. The Company may also seek
additional funding through strategic alliances and other financing mechanisms,
potentially including off-balance sheet financing. There can be no assurance
that adequate funding will be available on terms acceptable to the Company, if
at all. If adequate funds are not available, the Company may be required to
curtail significantly one or more of its research or development programs or
obtain funds through arrangements with collaborative partners or others. This
may require the Company to relinquish rights to certain of its technologies or
product candidates.
Neurocrine expects to incur operating losses over the next several years as
its research, development, preclinical testing and clinical trial activities
increase. To the extent that the Company is unable to obtain third party funding
for such expenses, the Company expects that increased expenses will result in
increased losses from operations. There can be no assurance that the Company's
products under development will be successfully developed or that its products,
if successfully developed, will generate revenues sufficient to enable the
Company to earn a profit.
INTEREST RATE RISK
The Company is exposed to interest rate risk on its short-term investments
and on its long-term debt. The primary objective of the Company's investment
activities is to preserve principal while at the same time maximizing yields
without significantly increasing risk. To achieve this objective, the Company
invests in highly liquid and high quality government and other debt securities.
To minimize the exposure due to adverse shifts in interest rates, the Company
invests in short-term securities with maturities of less than forty-four months.
If a 10% change in interest rates were to have occurred on March 31, 2000, such
a change would not have had a material effect on the fair value of the Company's
investment portfolio as of that date. Due to the short holding period of the
Company's investments, the Company has concluded that it does not have a
material financial market risk exposure.
Interest risk exposure on long-term debt relates to the Company's note
payable, which bears a floating interest rate of prime plus one quarter percent
(9.25% at March 31, 2000 and 8.75% at December 31, 1999). At March 31, 2000 and
December 31, 1999, the note balance was $423,000 and $461,000, respectively.
This note is payable in equal monthly installments through January 2003. Based
on the balance of its long-term debt, the Company has concluded that it does not
have a material financial market risk exposure.
<PAGE>
CAUTION ON FORWARD-LOOKING STATEMENTS
The Company's business is subject to significant risks, including but not
limited to, the risks inherent in its research and development activities,
including the successful continuation of the Company's 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 its 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 the Company's 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.
For a further discussion of the risks associated with an investment in the
Company, please see the section entitled "Risk Factors" in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A discussion of the Company's exposure to, and management of, market risk
appears in Part 1, Item 2 of this Quarterly Report on Form 10-Q under the
heading "Interest Rate Risk".
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits. The following exhibits are filed as part of this report:
27 Financial Data Schedule
(B) Reports on Form 8-K.
Form 8-K was filed on April 6, 2000 reporting Janssen
Pharmaceutica's replacement of R121919 with a back-up compound.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: 05/15/00 /s/ Paul W. Hawran
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Paul W. Hawran
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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