UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-23280
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
Delaware 94-3049219
(State of incorporation) (IRS Employer Identification No.)
1387 Marina Way South, Richmond, California 94804
(Address of principal executive offices)
(510) 215-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock $.001 Par Value
(Title of class)
Check 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 ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB contained herein, and no disclosure will be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
Registrant's revenues for its most recent fiscal year were $407,307.
As of August 29, 1997, the Registrant had 6,540,314 shares of Common Stock,
$.001 par value, outstanding, and the aggregate market value of the shares held
by non-affiliates on that date was $22,073,560 based upon the last sale price of
the Issuer's Common Stock reported on the Nasdaq National Market.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 through 12 of Part III incorporate by reference information from the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on November 4, 1997.
<PAGE>
ITEM 1. BUSINESS
This Business section and other parts of this Annual Report on Form 10-KSB
contain certain forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to a number of risks and uncertainties which could cause
actual results to differ materially from those discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed under the headings "Business," "Risks Associated
with Product Development," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OVERVIEW
Neurobiological Technologies, Inc. ("NTI" or the "Company") is an emerging drug
development company focused on the clinical testing and regulatory approval of
neuroprotective drug candidates. NTI's strategy is to in-license and develop
early stage products that have shown clear evidence of preclinical efficacy and
safety, appear to have a clear path through clinical testing and regulatory
approval, and target major medical needs. NTI's experienced management team
focuses on the drug development activities and the clinical testing necessary to
bring its drug candidates to commercialization. The Company is currently
evaluating two drug candidates in human clinical trials:
Memantine is being evaluated as a potential neuroprotectant drug for the
treatment of injured and dying neurons. Memantine is an orally available
compound that acts to modulate the N-methyl-D-aspartate ("NMDA") receptor in the
central nervous system. Modulating the NMDA receptor may protect against the
neuronal injury and death associated with a number of disorders, including
chronic conditions of neuropathic pain, dementia, and Alzheimer's disease, as
well as acute conditions of traumatic brain injury and stroke. The Company is
currently conducting a Phase II human clinical trial of Memantine to evaluate
the analgesic efficacy and safety of Memantine in patients who experience
neuropathic pain (persistent pain resulting from abnormal signals to the brain).
Patients with peripheral neuropathy due to diabetes mellitus and patients with
post-herpetic neuralgia, a chronic pain condition due to shingles (infection
with the herpes Zoster virus) are being enrolled in the trial. The Company is
also working with the Adult AIDS Clinical Trials Group ("AACTG") to advance
human clinical testing of Memantine for treatment of AIDS-related neurological
conditions. The Company has completed a Phase I safety and pharmacokinetics
trial of Memantine in normal volunteers and in AIDS patients.
Xerecept(TM) is the Company's synthetic preparation of the natural human peptide
Corticotropin-Releasing Factor ("CRF"). In preclinical studies, Xerecept has
been found to be a potent inhibitor of swelling, or edema. Xerecept is being
developed for its ability to reduce cerebral edema (swelling in the brain), a
dangerous condition associated with brain tumors, traumatic brain injury and
stroke. The Company has completed two Phase I/II trials of Xerecept in patients
with brain tumors, and expects to begin a follow-on Phase II trial in similar
patients during fiscal 1998. Based on the results of human clinical trials
completed to date and preclinical studies demonstrating Xerecept's ability to
reduce cerebral edema following traumatic brain injury, the American Brain
Injury Consortium ("ABIC") has agreed to collaborate with the Company to conduct
a separate Phase II human clinical trial of Xerecept in patients suffering from
traumatic brain injury. The ABIC includes 160 centers which benefit from
standardized study procedures. This collaboration is expected to facilitate
trial initiation, enrollment of patients, and trial completion.
<PAGE>
<TABLE>
PRODUCT CANDIDATES
<CAPTION>
Product/Indication Development Status Benefit Sought
- ------------------ ------------------ --------------
<S> <C> <C>
MEMANTINE
Neuropathic Pain Phase II trial in progress Pain Relief
(Diabetes and Shingles)
AIDS-related Dementia Phase II trial in progress Improvement in
and Neuropathic Pain neurological function
and pain relief
XERECEPT (CORTICOTROPIN-RELEASING FACTOR)
Peritumoral Brain Edema Two Phase I/II trials Reduction of edema and
completed improvement in
neurological function
Phase II trial planned to
begin late 1997
Traumatic Brain Injury Phase II trial planned for 1998 Reduction of intracranial
pressure, and recovery
of neurological function
- --------------------------------------------------------------------------------------------
</TABLE>
STRATEGY
DEMONSTRATE PRODUCT EFFICACY AND SAFETY
The Company has prioritized product development activities to maximize the
potential for regulatory approval of its drug candidates. The Company leverages
the experience of its management team and staff to manage product development
tasks, relying primarily upon third-party contractors to meet manufacturing,
preclinical, and clinical development requirements. These contractors are
selected based on their qualifications to complete the required activities to
the standards of the Company and the Food and Drug Administration ("FDA"). The
Company also leverages its relationships with academia, government, and the
medical community to form collaborations to conduct human clinical trials of its
product candidates.
FOCUS PRODUCT DEVELOPMENT
The Company is managing its capital carefully to develop its portfolio of drug
candidates in a focused and prudent manner. A financial strategy has been
designed to concentrate the resources of the Company on key clinical trials of
its drug candidates. Strategic decisions regarding actual and potential drug
development programs are made contingent on funding levels and only programs
evaluating neurological indications are currently being pursued.
ESTABLISH CORPORATE ALLIANCES
As the Company continues its product development and commercialization efforts,
it will seek corporate alliances, which may include the granting of licenses and
marketing rights for selected products in certain geographic regions and
markets. To attract corporate partners, the Company designs and conducts human
clinical trials with sufficient patient enrollment to establish therapeutic
efficacy and pharmacoeconomic viability. The Company also targets major unmet
medical needs for its clinical development programs. Through alliances, the
Company will seek additional funding for the continued clinical development of
its potential products, potential long-term revenue through royalty or
profit-sharing arrangements, assistance with foreign regulatory approvals, as
well as technical, development, production, and marketing capabilities. Although
the Company is currently seeking corporate development partners for its
potential products, there can be no assurance that any alliances will be entered
into on terms acceptable to the Company, or if entered into, that they will be
successful.
<PAGE>
PRODUCTS IN DEVELOPMENT
MEMANTINE
Memantine is a compound in a class of potential neuroprotective agents called
NMDA-receptor antagonists. Recent research has indicated that modulating the
NMDA receptor may protect against the neuronal injury and cellular death
associated with a number of medical conditions. The Company is currently
developing Memantine both as a treatment for neuropathic pain as well as for the
neurological deficits associated with AIDS. The Company estimates that there are
approximately 1,000,000 patients in the United States suffering from intractable
neuropathic pain. As many as one-third of AIDS patients may eventually develop
neurological problems, such as loss of cognition and coordination.
Increasing evidence from several independent research laboratories indicates
that overstimulation of NMDA receptors contributes to the injury and death of
neurons. This occurs in a variety of acute neurological conditions, including
traumatic brain injury, hypoxic/ischemic injury secondary to stroke and
prolonged open heart or brain surgery. It also happens in chronic and
neurodegenerative diseases including neuropathic pain, dementia, Alzheimer's
disease, Huntington's disease, and Amyotrophic Lateral Sclerosis ("ALS"). There
are currently no neuroprotective treatments approved for any of the pathologies
associated with NMDA-receptor overstimulation.
Nerve cells in the brain communicate by sending signals to excite or inhibit
each other. These signals are sent by compounds known as neurotransmitters. The
principal excitatory neurotransmitter is glutamate, which binds to the NMDA
receptor embedded in the cell membrane of the neuron. When glutamate binds to
the receptor, a channel into the neuron opens which allows charged calcium
molecules to flow freely. Normally, the presence of calcium triggers chemical
reactions that cause the neuron to change its electrical charge and fire a
message to neighboring neurons. This basic function of the NMDA receptor is
essential for movement, sensation, memory, and cognition. In certain medical
conditions, glutamate concentrations surrounding neurons are elevated, which has
the effect of overstimulating the NMDA receptor. In these situations, excessive
amounts of calcium enter the neuron, causing it to swell and burst, releasing
internally stored glutamate into the surrounding area. This glutamate further
stimulates NMDA receptors on neighboring neurons, causing a cascade of neuronal
cell death throughout the area.
Scientists are now trying to find a way to prevent the damaging influx of excess
calcium into neurons. One approach is to prevent the NMDA receptor calcium
channel from opening. This can be accomplished by using either a competitive
NMDA-receptor antagonist which prevents glutamate from binding to the receptor,
or a closed NMDA-receptor channel blocker, which binds to the entrance of the
closed channel. However, if such compounds prevent the channel from opening for
too long, they may impede the normal functioning of the NMDA receptor, causing
side effects including hallucinations, paranoia, delirium, and amnesia.
Memantine, on the other hand, is an uncompetitive NMDA receptor antagonist that
appears to interfere relatively little with normal functioning, while reducing
the abnormal signals associated with excessive calcium influx. Rather than
blocking the NMDA receptor calcium channel for long periods of time, Memantine
appears to restore regulation of the channel to near normal activity, permitting
routine neurotransmission.
Product development status
Neuropathic Pain Neuropathic pain is associated with a type of neuronal injury
that produces abnormal pain signals, and it frequently includes persistent pain
in the absence of an obvious stimulus. This condition can result from irritation
or injury to peripheral nerves as a result of diabetes or shingles (infection
with the herpes Zoster virus), as well as chemotherapeutic treatment. Current
treatments for these conditions are limited and may only provide short-term
benefit.
<PAGE>
Memantine has been shown to inhibit abnormal pain signals through its modulation
of the NMDA receptor in several animal models of neuropathic pain. Based on the
results of these studies, the Company initiated a 100 patient Phase II human
clinical trial of Memantine in patients experiencing neuropathic pain. The trial
is currently enrolling patients with painful peripheral neuropathy due to
diabetes mellitus or patients with post-herpetic neuralgia, a chronic pain
condition due to shingles. The trial's primary endpoint is reduction in pain
symptoms as determined by both physician and patient assessment according to
standard analgesic measurements.
AIDS: Neuropathic Pain and Dementia Many AIDS patients experience painful
peripheral neuropathies due to overstimulation of the NMDA receptors. This often
occurs in the later stages of AIDS and results in a burning pain of the feet as
well as pain from anything that touches the skin. Walking in particular may
become extremely difficult. Effective treatments are still unavailable for this
incapacitating condition and certain AIDS therapies may aggravate this type of
neuropathic pain.
Recent research indicates that infection of the central nervous system with HIV,
the virus associated with AIDS, also leads to neuronal damage. Such damage may
result in neurological complications, including loss of cognition, movement, and
sensation, referred to as AIDS dementia. Approximately one-half of children and
one-third of adults with AIDS may eventually develop these symptoms. There are
currently no therapies specifically directed towards HIV-associated neuronal
damage.
Memantine has been shown to reduce NMDA receptor-mediated neuronal damage in
both in vitro (outside the body) experiments and animal models. The neuronal
injury caused by AIDS was shown to be modified by antagonists of the NMDA
receptor, including Memantine.
The Company has completed a Phase I clinical trial to verify the safety of
Memantine in AIDS patients and healthy volunteers. In this trial, Memantine was
shown to be safe and well-tolerated.
In December 1996, the Company announced the start of a Phase II clinical trial
conducted by the AACTG, a clinical trials consortium associated with the
Division of AIDS of the National Institutes of Health ("NIH"). The trial is
evaluating Memantine's ability to provide relief from dementia and neuropathic
pain symptoms in AIDS patients. The trial protocol submitted under the Company's
Investigational New Drug ("IND") application calls for the enrollment of 120
AIDS patients with painful peripheral neuropathies and symptoms of dementia, all
of whom will have been treated with an FDA-approved drug for at least eight
weeks prior to trial entry. The Company is supplying Memantine for the trial and
will have the right to use the resulting data to further the commercial
development of Memantine.
Additional Indications Because of the important role played by NMDA-receptor
mediated neuronal injury in a variety of acute and chronic medical conditions,
the Company is also considering the potential for human clinical trials of
Memantine in other indications, such as ALS and stroke. The Company believes
that the positive attributes of Memantine, including its oral availability and
favorable safety profile, may provide a strong therapeutic opportunity,
particularly for chronic conditions. As has been widely reported, other
NMDA-receptor antagonists in human clinical development have recently
encountered delays because of concerns about the risk/benefit ratio for
patients. The profound side effects associated with many other NMDA-receptor
antagonists have not been reported with Memantine, which is approved and
marketed in Germany for neurodegenerative disorders.
<PAGE>
XERECEPT
Xerecept is a synthetic preparation of the human peptide Corticotropin-Releasing
Factor which the Company is developing as a treatment for brain cancer and
traumatic brain injury. The Company believes that Xerecept may reduce the
build-up of fluids in the brain associated with these conditions, thereby
preventing dangerous swelling which can lead to poor patient outcomes. In the
U.S., 500,000 patients with brain injuries require hospitalization each year.
Approximately 30,000 patients in the United States are diagnosed every year with
primary brain tumors.
Xerecept is a natural peptide hormone found both centrally (within the brain)
and peripherally (outside the brain). Xerecept was originally discovered to be a
key brain hormone involved in stimulating the release of natural
corticosteroids. More recently, researchers have discovered novel anti-edema
effects of Xerecept when administered peripherally. Research by NTI scientist
collaborators has revealed that Xerecept significantly reduces edema or swelling
of damaged tissue.
Edema is a condition that often results in swelling after tissue damage when
fluid, plasma proteins, and white blood cells flow from small blood vessels into
the surrounding tissues. The causes of this fluid migration are unknown.
However, recent research has shown that after an injury, the interstitial gel
that surrounds cells may expand and draw fluid from blood vessels. Preclinical
studies sponsored by the Company have shown that Xerecept reduces the flow of
fluid through blood vessels at sites of traumatic tissue injury. Specifically,
the Company has shown that Xerecept injected systemically into animals can
reduce brain edema after traumatic injury, brain edema associated with cancer
tumors, and swelling in muscle tissue following surgical incision.
Product development status
Peritumoral Brain Edema The Company is initially testing Xerecept for the
treatment of cerebral edema caused by brain tumors, referred to as peritumoral
brain edema. In these patients, the tumor promotes increased permeability of the
small blood vessels in the brain resulting in the flow of fluids into the brain,
swelling of brain tissue, and a consequent loss of neurological function.
Current therapies for the treatment of peritumoral brain edema include
corticosteroids, which have serious adverse side effects when administered
chronically. Reactions can include muscle wasting, immunosuppression,
osteoporosis, hyperglycemia, glaucoma, and other potentially dose-limiting side
effects.
Although endogenous Xerecept is involved in stimulating the release of natural
corticosteroids, studies sponsored by the Company have shown that Xerecept
exerts its anti-edema action independent of corticosteroid release when
administered systemically. The Company believes, based on Xerecept's
pharmacological profile, that the compound may be efficacious without the
adverse side effects associated with current therapies. Xerecept has been safely
administered to several hundred healthy volunteers and patients according to
numerous studies published by third parties. In human clinical trials sponsored
by the Company, Xerecept was well tolerated and appeared to be safe when
administered in more than 230 courses of treatment.
The Company has completed two Phase I/II pilot trials of Xerecept in patients
with peritumoral brain edema. In these trials, Xerecept was well tolerated and
appeared to improve neurological function by an average of 42% based on National
Cancer Institute Neurological Exam scores in seven patients who were treated for
seven days by continuous infusion. Based on these results, the Company is
preparing for a larger Phase II trial to evaluate Xerecept's ability to reduce
edema associated with brain tumors which is expected to begin in late 1997.
Traumatic Brain Injury In addition to the current clinical program for
peritumoral edema, the Company also plans to initiate in 1998 a Phase II human
clinical trial of Xerecept in patients with traumatic brain injury. In such
injuries, nerve
<PAGE>
tissue, blood vessels, and the tissues surrounding the brain are damaged. This
damage results in swelling, subsequent decreased flow of blood to the brain, and
decreased brain function. In addition, edema increases pressure inside the
skull, which can lead to the fatal rupture of brain tissue through naturally
occurring openings at the base of the skull. In animal models of traumatic brain
injury, Xerecept significantly reduced brain water content shortly after injury
and significantly improved neurologic recovery during the month following an
injury. Based on these results, the ABIC has agreed to collaborate with NTI to
plan a preliminary Phase II human clinical trial of Xerecept. This trial is
being designed to evaluate Xerecept's ability to reduce the intracranial
pressure associated with cerebral edema and to improve patient's recovery of
neurological function following injury.
Additional Indications Though the Company had previously investigated Xerecept's
anti-inflammatory potential, it is no longer actively developing for these
indications in order to concentrate its efforts on Xerecept as a treatment for
cerebral edema.
The Company previously conducted a Phase II human clinical trial of Xerecept for
the treatment of patients with rheumatoid arthritis ("RA"). As compared to
patients receiving placebo, patients receiving Xerecept did not experience a
statistically significant improvement in clinical parameters as defined by the
American College of Rheumatology, including improvements in painful or swollen
joints. Xerecept-treated patients did show greater improvement in daily living
activities as compared to placebo-treated patients, but the trial results did
not support continued development of Xerecept for RA.
During 1995, the Company initiated two clinical trials of Xerecept in patients
with asthma. The results of these trials showed that there was no statistically
significant difference in reduction of asthma symptoms between those who
received treatment compared to those who received placebo.
In the Company's first human clinical study of Xerecept, the compound was found
to be safe and well tolerated when used as a single-dose treatment for
post-surgical facial swelling. In addition, all Xerecept treatment groups
experienced reduced average post-surgical swelling compared with the placebo
group. Due to the small number of patients and the variability of the condition,
the results from this trial, though positive, were not statistically
significant. The Company currently has no plans to develop Xerecept for
post-surgical edema in order to focus its efforts on cerebral edema.
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are critical to the Company's business. The
Company's policy is to file patent applications seeking to protect technology,
inventions and improvements to its inventions that are considered important to
the development of its business. The Company has also sought to obtain, and
intends to continue to seek, licenses from third parties to patent rights
covering the technology, inventions and improvements that the Company considers
important to the development of its business. The Company is obligated to pay
royalties pursuant to these license agreements and is responsible for the costs
of patent prosecution of a number of the patent applications to which it has
exclusive licenses. In addition, most of the license agreements can be
terminated by the licensor if the Company does not demonstrate diligence in
commercializing the licensed rights.
The Company may be required to obtain additional licenses from third parties in
order to continue to develop its existing product candidates and to expand its
product development program. There can be no assurance that such licenses will
be available on commercially reasonable terms, if at all.
<PAGE>
The patent positions of pharmaceutical and biotechnology companies, including
NTI, are uncertain and involve complex legal and factual questions. In addition,
the coverage claimed in a patent application can be significantly reduced before
a patent is issued. Consequently, the Company does not know whether any of its
patent applications, or the patent applications it has licensed from others,
will result in the issuance of patents or if any of the patents which have
issued or may issue will provide significant proprietary protection. Since
patent applications are maintained in secrecy until patents issue in the United
States or their foreign counterparts, if any, are published, the Company cannot
be certain that it or any licensor was the first to file patent applications for
such inventions. Moreover, the Company might have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office to determine
priority of invention, which could result in substantial cost to the Company,
even if the eventual outcome were favorable. There can be no assurance that the
Company's patents, or the patents which the Company has licensed, will be held
valid or enforceable by a court or that a competitor's technology or product
would be found to infringe such patents.
A number of pharmaceutical and biotechnology companies and research and academic
institutions have developed technologies, filed patent applications or received
patents on various technologies that may be related to the Company's business.
Some of these technologies, applications or patents may conflict with the
Company's or any of its licensors' technologies or patent applications. Such
conflict could limit the scope of the patents, if any, that the Company may be
able to obtain or to which it has a license or result in the denial of the
Company's patent applications or the patent applications that the Company has
licensed. In addition, if patents that cover the Company's activities have been
or are issued to other companies, there can be no assurance that the Company
would be able to obtain licenses to these patents, at all, or at a reasonable
cost, or be able to develop or obtain alternative technology.
In addition to patent protection, the Company relies upon trade secret
protection for its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology or that the Company can meaningfully
protect its trade secrets.
Memantine The Company has an exclusive license to a series of patents and patent
applications relating to certain non-ophthalmic uses of Memantine. Certain of
these patents and patent applications cover the use of antagonists of NMDA
receptor mediated neuronal damage to treat AIDS-related neuronal damage.
Memantine and similar compounds are generally considered to be such compounds.
In addition, certain of these patents and patent applications cover the use of
Memantine for certain other medical indications, including peripheral
neuropathy. The Company also has an option to license exclusively any patentable
compounds or combination of compounds discovered in the course of the research
the Company is sponsoring.
Xerecept The Company has a non-exclusive worldwide license to four issued U.S.
patents and one U.S. patent application covering the composition of matter of
Xerecept and various analogues, together with the corresponding foreign patents
and patent applications. The Company also has exclusive rights to four issued
patents and two patent applications covering uses of Xerecept and analogues. In
addition, the Company has an option to obtain an exclusive worldwide license to
a patent and patent application covering novel small peptide analogues of
Xerecept. The Company is responsible for the costs of prosecuting the two patent
applications related to Xerecept for which it has exclusive licenses. In
addition to the patents and pending applications the Company has licensed from
others, the Company has filed one formulation patent application related to
Xerecept.
<PAGE>
MANUFACTURING
NTI currently uses outside contractors to manufacture compounds for the
Company's preclinical studies and clinical trials. The manufacturers of clinical
products have represented to the Company that they are qualified to produce
drugs under FDA regulations and that they follow current Good Manufacturing
Practice ("cGMP"). The Company performs audits on manufacturers from time to
time to assess compliance with the cGMP regulations. Memantine and Xerecept are
manufactured by established methods using chemical synthesis and are
manufactured to NTI specifications. Alternative cGMP suppliers of the bulk drugs
and of finished dosage form products are available to the Company. The Company
currently has no plans to build or develop an in-house manufacturing capability.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other countries
will be a significant factor in the production and marketing of any products
which may be developed by the Company. The nature and the extent to which such
regulation may apply to the Company will vary depending on the nature of any
such products. All of the Company's products will require regulatory approval
prior to commercialization. In particular, human therapeutic products are
subject to rigorous preclinical and clinical testing and other FDA requirements
in the United States and similar health authorities in foreign countries.
Various federal and, in some cases, state statutes and regulations also govern
or influence the manufacturing, safety, labeling, storage, recordkeeping and
marketing of such products, including the use, manufacture, storage, handling
and disposal of hazardous materials and certain waste products. The process of
obtaining these approvals and the subsequent compliance with appropriate
federal, state and foreign statutes and regulations require the expenditure of
substantial resources. The Company cannot yet accurately predict when it might
first submit for approval any products to the FDA or other regulatory review
agency.
In order to clinically test, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of an investigational new drug in the
United States, a company must file an IND and receive no objection from the FDA.
This application is a summary of the preclinical studies that were carried out
to characterize the drug, including toxicity, efficacy and safety, as well as an
in-depth discussion of the human clinical studies which are being proposed.
The human clinical testing program required for approval by the FDA of an
investigational new drug typically involves a time-consuming and costly
three-phase process. In Phase I, clinical trials are conducted with a small
number of patients or healthy volunteers to determine the early safety profile
and the pattern of drug distribution and metabolism. Phase II clinical trials
are conducted with groups of patients afflicted with a target disease in order
to determine preliminary efficacy, optimal dosage and expanded evidence of
safety. When initial human testing is performed in patients afflicted with the
disease, rather than healthy volunteers, such studies may provide preliminary
evidence of efficacy traditionally obtained in Phase II trials. Such trials are
frequently referred to as "Phase I/II" trials. In Phase III, large-scale,
multi-center, comparative clinical trials are conducted with patients afflicted
with the specific disease in order to provide enough data for statistical proof
of efficacy and safety required by the FDA and non-U.S. regulatory agencies.
Clinical trials may be sponsored by the Company or be "investigator-sponsored."
An investigator-sponsored clinical trial is defined as a clinical trial
conducted by an investigator under an IND issued in such investigators own name,
rather than in the Company's name.
<PAGE>
The FDA closely monitors the progress of each of the three phases of clinical
testing and may, at its discretion, reevaluate, alter, suspend or terminate the
testing based on the data that has been accumulated to that point and its
assessment of the risk/benefit ratio to the patient. Estimates of the total time
required for carrying out such clinical testing vary between two and ten years.
Upon completion of such clinical testing, a company typically submits a New Drug
Application ("NDA") to the FDA that summarizes and analyzes the results and
observations of the clinical trials. The NDA also provides detailed
manufacturing information. Based on its review of the NDA, the FDA will decide
whether or not to approve the drug. This review process can be quite lengthy,
and approval may not be granted at all. Thus, the process of seeking and
obtaining approval for the marketing of a new pharmaceutical product can require
a number of years and substantial funding. There can be no assurance that any
approvals will be granted on a timely basis, if at all. Among the requirements
for product approval is the requirement that each domestic manufacturer of the
product conform to the FDA's cGMP regulations, which must be followed at all
times. In complying with standards set forth in these regulations, manufacturers
must continue to expend time, money and effort in the area of production and
quality control to ensure full technical compliance.
Once the sale of a product is approved, FDA regulations govern the manufacturing
process and marketing activities, and a post-marketing testing and surveillance
program may be required to continuously monitor a product's usage and effects.
Product approvals may be withdrawn if compliance with regulatory standards is
not maintained. Other countries, in which any products developed by the Company
may be marketed, impose a similar regulatory process. For marketing outside the
United States, the Company also is subject to foreign regulatory requirements
governing human clinical trials and marketing approval for drugs. The
requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country.
COMPETITION
Competition in the biopharmaceutical industry is intense and is expected to
increase. The development and sale of drugs for the treatment of the therapeutic
targets being pursued by the Company is highly competitive. There are existing
therapies approved and under development for each of these therapeutic targets.
There can be no assurance that the Company will develop products that will be as
efficacious or as cost-effective as currently marketed products. The Company has
exclusive licenses to patent rights covering certain uses of Memantine and
Xerecept. However, certain of the Company's licenses for Memantine and Xerecept
are non-exclusive and there is no composition of matter patent in the United
States for Memantine. Consequently, others may develop, manufacture and market
products that could compete with those being developed by the Company.
The Company will be faced with intense competition from pharmaceutical, chemical
and biotechnology companies both in the United States and abroad in its attempt
to discover, develop and market its products. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. In addition, significant levels of research in biotechnology and
medicine occur in universities and other nonprofit research institutions. These
entities have become increasingly active in seeking patent protection and
licensing revenues for their research results.
The Company believes that its ability to compete successfully will depend on its
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for its products, obtain required regulatory approvals and
manufacture and successfully market products either alone or
<PAGE>
through other parties. Most of the Company's competitors have substantially
greater financial, marketing and human resources than those of the Company.
Therefore, the Company expects to encounter significant competition.
HUMAN RESOURCES
As of June 30, 1997, the Company had 22 full time employees. The Company's
scientific staff includes individuals with expertise in chemistry, biochemistry,
cell biology, immunology, pharmacology, neuropharmacology, pharmaceutics and
pharmaceutical manufacturing.
It is the Company's policy that each employee enter into a confidentiality
agreement which contains provisions generally prohibiting the disclosure of
confidential information to anyone outside the Company and requiring disclosure
to the Company of ideas, developments, discoveries or inventions conceived
during employment and assignment to the Company of proprietary rights to such
matters related to the business and technology of the Company.
RISKS ASSOCIATED WITH PRODUCT DEVELOPMENT
Except for the historical information contained herein, this report contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed in this report.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below. The forward-looking statements in this report
speak only as of the date of this report. The Company disclaims, however, any
intent or obligation to update these forward-looking statements.
Future capital needs; uncertainty of additional funding
The Company anticipates that it will be able to meet its capital and operational
requirements at least through the second quarter of fiscal 1998. The Company
will require substantial additional funds to conduct the research and
development and preclinical and clinical testing of its potential products and
to market any products that may be developed. Although the Company currently
plans to contract with third parties to manufacture clinical and commercial
scale quantities of its potential products, to the extent the Company
subsequently determines to establish its own manufacturing facilities, the
Company will require substantial additional capital. The Company's capital
requirements depend on numerous factors, including the progress of its research,
preclinical development and clinical development programs, the time and cost
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending, and enforcing patent claims and other intellectual property rights,
competing technological and market developments, changes in the Company's
existing research relationships, the ability of the Company to establish
collaborative relationships, the development of commercialization activities and
arrangements and the purchase of additional capital equipment. Thereafter, the
Company will need to raise substantial additional capital to fund its
operations. The Company intends to seek such additional funding through public
or private financings, collaborative or other arrangements with corporate
partners, or from other sources. There can be no assurance that additional
financing will be available from any of these sources, or, if available, that it
will be available on acceptable terms. The Company may seek to raise additional
funds whenever market conditions so permit. If additional funds are raised by
issuing equity securities, further significant dilution to existing shareholders
may result. If adequate funds are not available, the Company may be required to
delay, scale back, or eliminate one or more of its research, discovery, or
development funds or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would not otherwise relinquish.
<PAGE>
Going concern disclosure in independent auditors' report
The report of the Company's independent auditors with respect to the Company's
financial statements included in this Form 10-KSB includes a going concern
modification, indicating that the Company's losses and deficits in working
capital and stockholders' equity raise substantial doubt about the Company's
ability to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Notes to
Financial Statements."
Possible delisting of stock
As of June 30, 1997, the Company failed to satisfy the continued listing
requirements of the Nasdaq National Market. If the Company were to be delisted
from the Nasdaq National Market, it could adversely affect the trading volume
and price volatility of the Company's common stock.
Early stage of development; technological uncertainty
NTI is at an early stage of development and currently has no marketed products.
All of the Company's potential products are in research, preclinical development
or clinical development, and no revenues have been generated from product sales.
To date, most of the Company's resources have been dedicated to the research and
development of selected candidate pharmaceutical products, and there can be no
assurance that the Company will be able to develop a candidate product that will
receive required regulatory approvals or be successfully commercialized. The
Company is currently evaluating two potential products in early stage clinical
trials. Results attained in preclinical studies and in such early stage clinical
trials are not necessarily indicative of results that will be obtained upon
further human clinical testing. The potential products currently under
development by the Company will require significant additional clinical testing
prior to submission of any regulatory application for commercial use. Such
activities will require substantial resources and will necessitate the raising
of substantial additional capital.
The Company's potential products are subject to the risks of failure inherent in
the development of products based on new technologies. These risks include the
possibilities that any or all of the potential products will be found to be
unsafe, ineffective or toxic, or otherwise fail to receive necessary regulatory
clearances; that the products, if safe and effective, will be difficult to
manufacture on a large scale or uneconomical to market; that proprietary rights
of third parties will preclude the Company from marketing products; or that
third parties market or will market superior or equivalent products. There can
be no assurance that the Company's development activities will result in any
commercially viable products. The Company does not expect to be able to
commercialize any products for a number of years, if at all.
Dependence on third parties
The Company has only limited internal resources and thus the Company has relied
and will continue to rely heavily on others for research, development,
manufacture and commercialization of its potential products. The Company has
entered into various arrangements (many of which are non-exclusive) with
consultants, academic collaborators, licensors, licensees, contractors and
others, and it is dependent upon the level of commitment and subsequent success
of these outside parties in performing their responsibilities. Certain of these
agreements place responsibility for preclinical testing and human clinical
trials and for preparing and submitting submissions for regulatory approval for
potential products on the collaborator, licensor or contractor. Should such
collaborator, licensor or contractor fail to perform, the Company's business may
be adversely affected.
The Company has entered into certain agreements and licenses with third parties,
a number of which require the Company to pay royalties. The Company has relied
on scientific, technical, clinical, commercial and other data supplied and
disclosed by others in entering into these agreements and will rely on such data
in support of applications to enter human clinical trials for its potential
products. Although the Company has no reason to believe that this information
contains errors or omissions of fact, there can be no assurance that there are
no errors or omissions of fact that would change materially the Company's view
of the future likelihood of FDA approval or commercial viability of these
potential products.
<PAGE>
Government regulation and product approval
The FDA and state and local agencies, and comparable agencies and entities in
foreign countries impose substantial requirements on the manufacturing and
marketing of human therapeutics through lengthy and detailed laboratory,
preclinical animal studies and clinical testing procedures, sampling activities
and other costly and time consuming procedures. Satisfaction of these
requirements typically takes many years and varies substantially based on the
type, complexity, and novelty of the drug. The effect of government regulation
may be to delay for a considerable period of time or prevent the marketing of
any product that the Company may develop and/or to impose costly procedures upon
the Company's activities, the result of which may be to furnish an advantage to
its competitors. There can be no assurance that FDA or other regulatory approval
for any products developed by the Company will be granted on a timely basis or
at all. Any such delay in obtaining or failure to obtain such approvals would
adversely affect the marketing of the Company's proposed products and its
ability to earn product revenues or royalties. In addition, success in
preclinical or early stage clinical trials does not assure success in later
stage clinical trials. As with any regulated product, additional government
regulations may be promulgated which could delay regulatory approval of the
Company's potential products. Adverse government regulation which might arise
from future legislation or administrative action cannot be predicted.
Uncertainty of protection of patents and proprietary rights
The Company's success will depend, in large part, on its ability to obtain or
license patents, protect trade secrets and operate without infringing upon the
proprietary rights of others. A substantial number of patents have been issued
to other pharmaceutical, biotechnology and biopharmaceutical companies.
Moreover, other competitors may have filed patent applications for, or may have
been issued patents or may obtain additional patents and proprietary rights
relating to, products or processes competitive with those of the Company.
There can be no assurance that any of the patent applications licensed to the
Company will be approved, that the Company will develop proprietary products
that are patentable, that any issued patents licensed to the Company will
provide the Company with adequate protection for its inventions or will not be
challenged by others, or that the patents of others will not impair the ability
of the Company to do business. The patent position of biotechnology firms
generally is highly uncertain, involving complex legal and factual questions,
and has recently been the subject of much litigation. No consistent policy has
emerged from the United States Patent and Trademark Office regarding the breadth
of claims allowed or the degree of protection afforded under biotechnology
patents. Finally, there can be no assurance that others will not independently
develop similar products, duplicate any of the Company's potential products, or
design around any potential patented products of the Company. As a result, there
can be no assurance that patent applications relating to the Company's potential
products or processes will result in patents being issued, or that patents, if
issued, will provide protection against competitors who successfully challenge
the Company's patents, obtain patents that may have an adverse effect on the
Company's ability to conduct business, or be able to circumvent the Company's
patent position. In view of the time delay in patent approval and the secrecy
afforded United States patent applications, the Company does not know if other
applications that would have priority over the Company's applications have been
filed.
Manufacturing limitations
The Company currently does not have its own manufacturing facilities to
manufacture products under the cGMP requirements prescribed by the FDA. The
Company has established arrangements with contract manufacturers to supply
potential products for clinical trials and intends to establish similar
arrangements for the manufacture, packaging, labeling and distribution of
products, if approved for marketing. If the Company's contractors are unable to
supply sufficient quantities of
<PAGE>
product candidates manufactured in accordance with cGMP on acceptable terms, the
Company's human clinical testing schedule would be delayed. If the Company
should encounter delays or difficulties in establishing relationships with
manufacturers to produce, package and distribute its products, market
introduction and subsequent sales of such products would be adversely affected.
Moreover, contract manufacturers that the Company may use must adhere to cGMP
regulations enforced by the FDA through its facilities inspection program. If
these facilities cannot pass a pre-approval plant inspection, the FDA pre-market
approval of the products would be adversely affected. The Company's dependence
on third parties for the manufacture of products may adversely affect the
Company's results of operations and its ability to develop and deliver products
on a timely and competitive basis.
Risk of product liability
Clinical trials or marketing of any of the Company's potential products may
expose the Company to liability claims from the use of such products. The
Company's product liability insurance does not cover commercial sales of
products. The Company has a limited amount of product liability insurance to
cover liabilities arising from clinical trials. There can be no assurance that
the Company's insurance will be adequate to cover any liabilities arising from
the Company's clinical trials, that the Company will be able to obtain product
liability insurance covering commercial sales or, if obtained, that sufficient
coverage can be acquired at a reasonable cost. An inability to obtain insurance
at acceptable cost or otherwise protect against potential product liability
claims could prevent or inhibit commercialization of any products developed by
the Company.
Dependence on qualified personnel and advisors
The Company is highly dependent upon its scientific and management staff and on
consultants and advisors, the loss of whose services might significantly delay
the achievement of planned development objectives. In addition, the Company is
dependent on collaborators at research institutions. Recruiting and retaining
qualified personnel, collaborators, advisors and consultants will be critical to
the Company's success. There is intense competition for such qualified personnel
in the area of the Company's activities, and there can be no assurance that the
Company will be able to continue to attract and retain the personnel necessary
for the development of the Company's business. The Company's planned activities
will require additional expertise in areas such as clinical trial management,
regulatory affairs, manufacturing, and marketing. Such activities will require
the addition of new personnel including management and the development of
additional expertise by existing management personnel. The inability to acquire
such services or to develop such expertise could have a material adverse effect
on the Company's operations.
Volatility of stock price; limited market capitalization
The market price of the shares of Company common stock, like that of the common
stock of many other biotechnology companies, has been and is likely to continue
to be, highly volatile. Factors such as the results of preclinical studies and
clinical trials by the Company, or its competitors, other evidence of the safety
or efficacy of products of the Company or its competitors, announcements of
technological innovations or new therapeutic products by the Company or its
competitors, government regulation, health care legislation, developments in
patent or other proprietary rights of the Company or its competitors including
litigation, fluctuations in the Company's operating results, and market
conditions for life sciences stocks in general could have a significant adverse
impact on the future price of the common stock. In addition, the average daily
trading volume of the Company's common stock since public trading of the common
stock commenced has been relatively low compared to that of other
biopharmaceutical companies. To the extent this trading pattern continues, the
price of the common stock may fluctuate significantly as a result of changes in
demand for such shares and sales of stock by stockholders.
<PAGE>
Possible enforcement proceedings
In late January 1996, two executive officers of the Company purchased an
aggregate of 1,600 shares of the Company's common stock prior to the Company's
proposed public offering of common stock. After these officers informed the
Company's outside legal counsel of such purchases, such counsel advised that
such purchases constituted a violation of Rule 10b-6 under the Securities and
Exchange Act of 1934, as amended. The SEC instituted a voluntary informal
inquiry into this matter and may seek enforcement action against the officers
who made the purchases, both of whom have since left the employ of the Company.
The SEC has indicated that it has no present intention to seek enforcement
action against the Company. Any action taken by the SEC with respect to the
matter may have a material adverse effect on the Company's financial position
and results of operations.
ITEM 2. PROPERTIES
NTI's executive offices are located in Richmond, California. NTI leases a 12,500
square foot facility. The lease started in April 1995 and is for a term of five
years.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended June 30, 1997.
PART II.
ITEM 5. MARKET PRICE OF NTI COMMON STOCK; DIVIDENDS
NTI's common stock is traded on the Nasdaq National Market under the symbol
"NTII."
As of June 30, 1997 there were approximately 250 holders of record of the
Company's common stock and 6,540,314 shares of common stock outstanding. No
dividends have been paid on the common stock since the Company's inception, and
the Company does not anticipate paying any dividends in the foreseeable future.
The price range of the Company's common stock during the past two fiscal years
is shown below.
Fiscal 1996 High Low
- --------------------------------------------------------------------------------
First Quarter $5.75 $4.00
Second Quarter $5.38 $3.12
Third Quarter $5.25 $3.25
Fourth Quarter $8.50 $4.25
Fiscal 1997 High Low
- --------------------------------------------------------------------------------
First Quarter $7.00 $3.62
Second Quarter $5.12 $3.37
Third Quarter $3.62 $1.62
Fourth Quarter $2.75 $1.56
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Neurobiological Technologies, Inc. ("NTI" or the "Company") is an emerging drug
development company focused on the clinical testing and regulatory approval of
neuroscience drugs. NTI's strategy is to in-license and develop early stage drug
candidates that target major medical needs and which can be rapidly
commercialized. Drawing upon the experience of the Company's management in drug
discovery, development, and clinical testing, NTI's efforts are focused on
developing its licensed drug candidates for commercialization.
The Company currently has two products in human clinical trials. NTI is
developing Memantine, an orally available NMDA receptor antagonist, which has
potential as a neuroprotective agent for a broad range of neurodegenerative
conditions. Memantine is initially being developed for AIDS dementia and
neuropathic pain. The Company is also developing Xerecept, a synthetic
preparation of the human peptide Corticotropin-Releasing Factor, which the
Company believes has novel anti-edema properties. Significant additional
preclinical testing and clinical testing will be required prior to submission of
any regulatory application for the commercial use of these products. There can
be no assurance that future clinical trials will demonstrate an adequate level
of safety or efficacy for commercialization.
Since 1987 when the Company was founded, NTI has applied substantially all of
its resources to its research and development programs. The Company is a
development stage company, has not received any revenue from the sale of
products, and does not anticipate receiving revenue from the sale of products in
the near future. The Company has incurred losses since its inception and expects
to incur substantial, increasing losses over the next several years due to the
ongoing and planned research and development efforts.
RESULTS OF OPERATIONS
The Company's research and development expenses decreased from $4,452,000 in
fiscal 1995 to $4,321,000 in fiscal 1996 and increased to $5,478,000 in fiscal
1997. The increase in fiscal 1997 was primarily due to expansion of the
Company's preclinical studies and clinical trials as well as increased funding
of the Company's neuroprotection research program. The decrease in fiscal 1996
was due to lower non-clinical development activity, including toxicology
studies, as compared to the prior year.
General and administrative expenses decreased from $1,512,000 in fiscal 1995 to
$1,397,000 in fiscal 1996 and increased to $2,298,000 in fiscal 1997. The
increase in fiscal 1997 was due to additional business development expenses as
well as increased professional fees. The decrease in fiscal 1996 was primarily
due to changes in legal and other professional services received by the Company.
Interest income decreased from $633,000 in fiscal 1995 to $506,000 in fiscal
1996, and decreased further to $407,000 in fiscal 1997 primarily due to changes
in cash balances.
The Company expects to incur substantial costs in fiscal 1998 primarily for
Phase II clinical trials for its development programs and related administrative
support. The Company expects that its expenditures will continue to increase as
its products move through Phase II and potentially, Phase III clinical trials.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its cash requirements to be significant in future periods.
Future cash requirements will depend on numerous factors, including: the
progress on research and clinical development programs; the in-licensing of
potential drug candidates; the time and costs involved in obtaining regulatory
approvals; the ability of the Company to establish collaborative arrangements;
product commercialization activities; and the acquisition of manufacturing or
laboratory facilities. Since NTI uses qualified third-party contractors to
conduct preclinical studies and clinical trials, and to manufacture clinical
quantities of its products, the Company does not anticipate incurring
significant capital expenditures during fiscal 1998. Over the same period, the
number of employees is not expected to grow significantly from current levels.
From inception through June 30, 1997, the Company has raised a total of $29.4
million in net proceeds from the sale of common and preferred stock.
The Company believes that its available cash, cash equivalents and short-term
investments of $3.8 million as of June 30, 1997 are adequate to fund its
operations through the second quarter of fiscal 1998. NTI will need to raise
substantial additional capital to fund subsequent operations. The Company
intends to seek such funding through public or private financings, arrangements
with corporate partners, or from other sources. The Company may seek to raise
additional funds whenever market conditions permit. However, there can be no
assurance that funding will be available on favorable terms from any of these
sources, if at all.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Neurobiological Technologies, Inc.
We have audited the accompanying balance sheets of Neurobiological Technologies,
Inc. (a development stage company) as of June 30, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flow for each of the
three years in the period ended June 30, 1997, and for the period from August
27, 1987 (inception) through June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Neurobiological Technologies,
Inc. at June 30, 1997 and 1996, and the result of its operations and its cash
flows for each of the three years in the period ended June 30, 1997, and for the
period from August 27, 1987 (inception) through June 30, 1997, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
Neurobiological Technologies, Inc. will continue as a going concern. As more
fully described in Note 1 to the financial statements, the Company has incurred
recurring losses during the development stage. In order to complete the research
and development and other activities necessary to commercialize its products,
additional financing will be required. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Francisco, California
July 25, 1997
<PAGE>
<TABLE>
Neurobiological Technologies, Inc. (A development stage company)
BALANCE SHEETS
<CAPTION>
June 30, June 30,
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,278,402 $ 4,602,815
Short-term investments 2,559,911 4,642,153
Prepaid expenses and other 171,436 337,422
------------------------------
Total current assets 4,009,749 9,582,390
Long-term investments -- 1,515,490
Property and equipment, net 197,355 229,267
Patents and licenses, net -- 65,216
------------------------------
$ 4,207,104 $ 11,392,363
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 258,673 $ 198,205
Accrued expenses 737,883 694,947
------------------------------
Total current liabilities 996,556 893,152
Stockholders equity:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
none outstanding -- --
Common stock, $.001 par value, 25,000,000 shares
authorized, 6,540,314 outstanding at June 30,
1997 and 6,512,485 at June 30, 1996 29,382,471 29,302,546
Deficit accumulated during development stage (26,171,923) (18,803,335)
------------------------------
Total stockholders' equity 3,210,548 10,499,211
------------------------------
$ 4,207,104 $ 11,392,363
<FN>
==============================
See accompanying notes
</FN>
</TABLE>
<PAGE>
<TABLE>
Neurobiological Technologies, Inc. (A development stage company)
STATEMENTS OF OPERATIONS
<CAPTION>
Period from
August 27, 1987
Year ended June 30, (inception) through
-------------------------------------------- June 30,1997
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Interest income $ 407,307 $ 506,242 $ 632,715 $ 2,032,170
Grant income -- -- 49,900 49,900
-------------------------------------------------------------------
Total revenues 407,307 506,242 682,615 2,082,070
EXPENSES
Research and development 5,477,504 4,321,059 4,452,482 20,262,735
General and administrative 2,298,391 1,396,626 1,511,787 7,991,258
-------------------------------------------------------------------
Total expenses 7,775,895 5,717,685 5,964,269 28,253,993
-------------------------------------------------------------------
NET LOSS $ (7,368,588) $ (5,211,443) $ (5,281,654) $(26,171,923)
===================================================================
NET LOSS PER SHARE $ (1.13) $ (1.05) $ (1.35)
===================================================================
Shares used in net
loss per share calculation 6,527,392 4,985,229 3,913,028
===================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Neurobiological Technologies, Inc. (A development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Deficit Total
Preferred ------------------------- Accumulated During Stockholder
Stock Shares Amount Development Stage Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period from August 27, 1987
(inception) through June 30, 1994
Issuance of common stock $ -- 740,863 $ 1,616,706 $ -- $ 1,616,706
Issuance of common stock for services -- 72,428 84,500 -- 84,500
Issuance of common stock for license rights -- 10,820 12,625 -- 12,625
Issuance of warrants to purchase
179,786 shares of common stock -- -- 2,790 -- 2,790
Exercise of warrants -- 137,143 64,000 -- 64,000
Exercise of options -- 42,092 138,763 -- 138,763
Issuance of common stock under
employee stock purchase plan -- 3,980 16,915 -- 16,915
Issuance of 5,691,000 shares of Series A
preferred stock, net of issuance costs 5,573,194 -- -- -- 5,573,194
Issuance of 2,657,881 shares of Series B
preferred stock, net of issuance costs 1,653,888 -- -- -- 1,653,888
Conversion of preferred stock in
connection with the initial public offering (7,227,082) 1,046,912 7,227,082 -- --
Issuance of common stock at $8.00
per share in connection with initial
public offering, net of issuance costs -- 1,840,000 12,817,000 -- 12,817,000
Net loss -- -- -- (8,310,238) (8,310,238)
-------------------------------------------------------------------------
Balances at June 30, 1994 -- 3,894,238 21,980,381 (8,310,238) 13,670,143
Exercise of warrants -- 5,357 6,252 -- 6,252
Exercise of options -- 31,435 36,791 -- 36,791
Issuance of common stock under
employee stock purchase plan -- 17,102 41,736 -- 41,736
Net loss -- -- -- (5,281,654) (5,281,654)
-------------------------------------------------------------------------
Balances at June 30, 1995 -- 3,948,132 22,065,160 (13,591,892) 8,473,268
Exercise of options -- 13,093 40,284 -- 40,284
Issuance of common stock under
employee stock purchase plan -- 21,260 53,823 -- 53,823
Issuance of common stock at $3.25 per
share in connection with public
offering, net of issuance costs -- 2,530,000 7,143,279 -- 7,143,279
Net loss -- -- -- (5,211,443) (5,211,443)
-------------------------------------------------------------------------
Balances at June 30, 1996 -- 6,512,485 29,302,546 (18,803,335) 10,499,211
Issuance of common stock for services -- 5,000 23,750 -- 23,750
Exercise of options -- 2,999 10,331 -- 10,331
Issuance of common stock under
employee stock purchase plan -- 19,830 45,844 -- 45,844
Net loss -- -- -- (7,368,588) (7,368,588)
-------------------------------------------------------------------------
Balances at June 30, 1997 $ -- 6,540,314 $29,382,471 $(26,171,923) $ 3,210,548
=========================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Neurobiological Technologies, Inc. (A development stage company)
STATEMENTS OF CASH FLOWS
<CAPTION>
Period from
Year ended June 30, August 27, 1987
-------------------------------------------- (inception) through
1997 1996 1995 June 30,1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,368,588) $ (5,211,443) $ (5,281,654) $(26,171,923)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 122,773 123,095 95,697 468,012
Issuance of common stock and warrants
for license rights and services -- -- -- 99,275
Changes in assets and liabilities:
Prepaid expenses and other 165,986 (152,594) (162,832) (171,436)
Accounts payable and
accrued expenses 103,404 102,338 430,791 996,556
----------------------------------------------------------------
Net cash used in
operating activities (6,976,425) (5,138,604) (4,917,998) (24,779,516)
INVESTING ACTIVITIES
Purchase of short-term
investments (1,462,723) (11,263,339) (5,950,413) (33,839,678)
Maturity of short-term investments 5,060,455 11,675,531 10,848,225 31,279,767
Purchases of property
and equipment (25,645) (90,039) (147,620) (382,305)
Additions to patents and licenses (283,062)
----------------------------------------------------------------
Net cash provided by (used in)
investing activities 3,572,087 322,153 4,750,192 (3,225,278)
FINANCING ACTIVITIES
Proceeds of short-term borrowings 235,000
Issuance of common stock 79,925 7,237,386 84,780 22,056,114
Issuance of preferred stock 6,992,082
----------------------------------------------------------------
Net cash provided by financing activities 79,925 7,237,386 84,780 29,283,196
Increase (decrease) in cash and
cash equivalents (3,324,413) 2,420,935 (83,026) 1,278,402
Cash and equivalents at
beginning of period 4,602,815 2,181,880 2,264,906 --
----------------------------------------------------------------
Cash and equivalents at
end of period $ 1,278,402 $ 4,602,815 $ 2,181,880 $ 1,278,402
================================================================
SUPPLEMENTAL DISCLOSURES:
Conversion of short-term borrowings
to Series A preferred stock $ -- $ -- $ -- $ 235,000
================================================================
Conversion of preferred stock
to common stock $ -- $ -- $ -- $ 7,227,082
================================================================
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neurobiological Technologies, Inc. (a development stage company)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Neurobiological Technologies, Inc. ("NTI" or the "Company") is a
biopharmaceutical company developing potential products based on advances in
neuroscience research. NTI's strategy is to in-license and develop drug
candidates that target major medical needs and which can be rapidly
commercialized. Drawing upon the experience of the Company's management in drug
discovery, development, and clinical testing, NTI's efforts are focused on
developing its licensed drug candidates for commercialization.
Basis of presentation
In the course of its development activities, the Company has incurred
significant losses and expects additional losses in the fiscal year ending June
30, 1998. The Company plans to finance its operations with available cash
resources, and through the issuance of equity and/or debt securities. The
Company's ability to continue as a going concern is dependent upon obtaining
additional financing. The Company believes that its available cash, cash
equivalents and short-term investments of $3.8 million as of June 30, 1997 are
adequate to fund its operations through the second quarter of fiscal 1998. NTI
will need to raise substantial additional capital to fund subsequent operations.
The Company intends to seek such funding through public or private financings,
arrangements with corporate partners, or from other sources. The Company may
seek to raise additional funds whenever market conditions permit. However, there
can be no assurance that funding will be available on favorable terms, if at
all. The accompanying financial statements have been prepared assuming the
Company is a going concern, and do not include any adjustments that might result
from the outcome of this uncertainty.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reported period. Actual results could
differ from those estimates.
Cash and investments
Cash and cash equivalents include investments with original maturities of 90
days or less. Short-term investments consist of investments with original
maturities of greater than 90 days but less than one year, while long-term
investments are those that mature greater than one year from the balance sheet
date. The Company has not realized any losses on its investments, which are
highly liquid and subject to little risk. Furthermore, the Company reduces its
credit risk by limiting the amount of credit exposure to any one financial
institution.
<PAGE>
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). All of the Company's investment
securities are classified as available for sale and are stated at fair market
value which approximates amortized cost. The Company did not have any material
realized or unrealized gains or losses on its investments. Realized gains or
losses, amortization of premiums, accretion of discounts and earned interest are
included in investment income.
The following is a summary of available for sale securities at fair market
value, which approximates amortized cost, at June 30, 1997 and 1996:
1997 1996
----------- -----------
Corporate obligations $ 2,501,705 $ 8,041,959
Commercial paper 1,197,836 2,346,545
US Government obligations 39,241 233,862
Accrued interest 58,480 115,684
----------- -----------
Total $ 3,797,262 $10,738,050
=========== ===========
Included in cash and cash equivalents at June 30, 1997 and 1996 are available
for sale securities of $1,237,351 and $4,580,407, respectively. Included in
short-term investments at June 30, 1997 and 1996 are available for sale
securities of $2,559,911 and $4,642,153, respectively. Included in long-term
investments at June 30, 1996 are available for sale securities of $1,515,490. By
policy, the Company does not invest in securities that mature in more than 18
months. At June 30, 1997, all securities in the investment portfolio are
expected to mature in less than 12 months.
Property and equipment
Property and equipment is stated at cost. Depreciation is calculated using the
straight line method based on estimated useful lives of 2 to 7 years. The
balances at June 30, 1997 and 1996 consisted of the following:
1997 1996
--------- ---------
Machinery and equipment $ 216,527 $ 190,882
Furniture and fixtures 165,778 165,778
--------- ---------
382,305 356,660
Less accumulated depreciation (184,950) (127,393)
--------- ---------
$ 197,355 $ 229,267
========= =========
Patents and licenses
Patents and licenses consist of the costs relating to license agreements
covering certain patent rights to the Company's products. The costs are
amortized using the straight line method over the shorter of the life of the
patent or its economic useful life. Accumulated amortization at June 30, 1997
and 1996 was $283,062 and $217,846, respectively.
Net loss per share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
<PAGE>
Effective December 31, 1997, the Company will adopt SFAS No. 128, "Earnings per
Share." The new requirements will include a calculation of basic earnings per
share, from which the dilutive effect of stock options and warrants will be
excluded. The calculation of basic earnings per share will not differ from the
net loss per share amounts previously reported by the Company. A calculation of
diluted earnings per share will also be required; however, this is not expected
to differ from the Company's reported net loss per share.
Stock-Based compensation The Company has adopted SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") which establishes the fair value method
of accounting for stock based compensation plans. The Company accounts for
employee stock options in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees ("APB 25") and has adopted the
"disclosure only" alternative described in SFAS 123.
NOTE 2. LEASE
The Company's lease for its premises in Richmond, California expires in April
2000. Rent expense for the years ending June 30, 1997, 1996, and 1995 was
$157,000, $143,000, and $81,000, respectively. Future minimum payments at June
30, 1997 consisted of the following:
Fiscal year ended June 30,
--------------------------
1998 $132,000
1999 132,000
2000 110,000
NOTE 3. STOCKHOLDERS EQUITY
Warrants to purchase common stock
At June 30, 1997, warrants to purchase 417,286 shares of common stock were
outstanding at a weighted average exercise price of $6.24 per share. Of these,
37,286 shares of common stock at a price of $5.60 were issued for licensing
rights and consulting services and have expiration dates through June 30, 2001;
warrants to purchase 160,000 and 220,000 shares were issued to the underwriters
of the initial public offering and the 1996 public offering at prices of $9.60
and $3.90, respectively, and expire on February 15, 1999 and 2001, respectively.
The weighted average fair value of warrants issued during 1996 was $2.19 per
share.
Stock option plan
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock option awards because, as discussed below, the
alternative fair value accounting provided under SFAS 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the Company's employee stock option equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
The Board of Directors adopted the Company's first stock option plans in 1989.
In November 1993, the Board combined the plans and adopted the 1993 Stock Plan
under which 1,500,000 shares of common stock have been reserved for issuance. In
general, options are granted at fair market value on the date of the grant, have
a term of 10 years and become exercisable over a period of up to 48 months.
<PAGE>
A summary of the Company's stock option activity, and related information for
the three years ended June 30, 1997 follows:
Number of Shares Weighted Average
Subject to Options Exercise Price
-------------------------------------------
Balance at June 30, 1994 776,059 $4.09
Options granted 182,668 3.38
Options canceled (19,906) 4.52
Options exercised (31,435) 1.17
------------------------
Balance at June 30, 1995 907,386 4.04
Options granted 73,760 5.59
Options canceled (34,225) 3.52
Options exercised (21,376) 3.68
------------------------
Balance at June 30, 1996 925,545 4.19
Options granted 338,304 2.58
Options canceled (28,591) 5.61
Options exercised (2,999) 3.44
------------------------
Balance at June 30, 1997 1,232,259 3.72
========================
At June 30, 1997, options to purchase 211,803 shares of common stock remained
available for grant, and options to purchase 851,671 shares of common stock were
exercisable at exercise prices ranging from $1.75 to $8.00. The weighted average
exercise price of options exercisable at June 30, 1997 was $4.18. The weighted
average fair value of options granted during 1997 and 1996 was $1.48 and $4.26,
respectively.
<TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life (years) Price Exercisable Price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - 1.99 120,000 9.85 $ 1.75 20,000 $ 1.75
2.00 - 3.99 807,122 6.59 3.32 579,932 3.61
4.00 - 5.99 130,637 8.01 4.48 85,052 4.46
6.00 - 8.00 174,500 7.37 6.34 166,688 6.32
</TABLE>
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, which requires that the information be determined as if the Company
had accounted for its employee stock options granted subsequent to June 30, 1995
under the fair value method. The fair value of each option grant has been
estimated as of the date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for fiscal years 1996
and 1997: Expected volatility calculations based on historical data (.846), risk
free interest rates based on U.S. government bonds with maturities equal to the
expected option lives of 6 percent, expected option lives of five years, and no
dividend yield.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions including the expected stock price volatility and
expected life of the option. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of employee's
options.
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except per share amounts):
Year ended June 30,
---------------------
1997 1996
--------- ---------
Net loss - as reported $(7,369) $(5,211)
Net loss - pro forma (7,845) (5,742)
Net loss per share - as reported (1.13) (1.05)
Net loss per share - pro forma (1.20) (1.15)
The effects on pro forma disclosures of applying SFAS 123 are not likely to be
representative of the effects on pro forma disclosures in future years.
Stock Purchase Plan
Effective February 1994, the Company established an employee stock purchase plan
under which the employees may purchase common stock at 85% of the lower of the
share price at the beginning or end of a designated period. In November 1996,
the amount of shares reserved for issuance under the plan was increased by
50,000 to 100,000. Under the plan, 37,822 shares remain available for issuance
at June 30, 1997.
NOTE 4. INCOME TAXES
The Company uses the liability method to account for income taxes as required by
SFAS 109, "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on the differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rules and laws that will be in effect when the differences are expected to
reverse.
Significant components of the Company's deferred tax assets are as follows at
June 30, 1997 and 1996 (in thousands):
1997 1996
--------------------------
Net operating loss carryforward $ 9,210 $ 6,500
Research and development carryforward 900 700
Capitalized research and development 700 450
--------------------------
Gross deferred tax assets 10,810 7,650
Valuation allowance (10,810) (7,650)
--------------------------
Net deferred tax assets $ -- $ --
==========================
The valuation allowance increased by $3,160,000 and $2,010,000 in fiscal years
1997 and 1996, respectively.
At June 30, 1997, the Company had net operating loss carryforwards for federal
and state income tax purposes of approximately $25,000,000 and $8,000,000
respectively, which expire in calendar years 1997 through 2011. The Company has
federal tax credit carryforwards of approximately $600,000 which expire in
calendar years 2006 through 2011.
During the years ended June 30, 1991 and 1994, the Company experienced a "change
in ownership" as defined by Section 382 of the Internal Revenue Code. As a
result, utilization of the Company's net operating loss and credit carryforwards
incurred prior to the "change in ownership" may be subject to annual limitation.
If additional "change in ownership" should occur, the availability of the
Company's net operating loss and credit carryforwards incurred subsequent to the
1994 "change in ownership" may also be subject to an annual limitation.
<PAGE>
NOTE 5. POSSIBLE ENFORCEMENT PROCEEDINGS
In late January 1996, two executive officers of the Company purchased an
aggregate of 1,600 shares of the Company's common stock prior to the Company's
proposed public offering of common stock. After these officers informed the
Company's outside legal counsel of such purchases, such counsel advised that
such purchases constituted a violation of Rule 10b-6 under the Securities and
Exchange Act of 1934, as amended. The SEC instituted a voluntary informal
inquiry into this matter and may seek enforcement action against the officers
who made the purchases, both of whom have since left the employ of the Company.
The SEC has indicated that it has no present intention to seek enforcement
action against the Company. Any action taken by the SEC with respect to the
matter may have a material adverse effect on the Company's financial position
and results of operations.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Position
- ---------------------------------------------------------------------------
Paul E. Freiman President and CEO and Director
Ronald Goldblum, M.D. Vice President, Medical Affairs
Jian L. Johnson Vice President, Regulatory Affairs
Shawn K. Johnson Director of Finance
Behzad Khosrovi, Ph.D. Vice President, Pharmaceuticals Development
Calvert Yee Vice President, Operations and Administration
Abraham E. Cohen Chairman of the Board of Directors
Enoch Callaway Director
Theodore L. Eliot, Jr. Director
Abraham D. Sofaer Director
John B. Stuppin Director
PAUL E. FREIMAN, age 63, joined the Company as a director in April 1997, and was
elected President and Chief Executive Officer in May 1997. He is the former
chairman and chief executive officer of Syntex Corporation ("Syntex"), where he
had a long and successful career and was instrumental in the sale of Syntex to
Roche Holdings for $5.3 billion. He is credited with much of the marketing
success of Syntex's lead product Naprosyn(R) and was responsible for moving the
product to over-the-counter status, marketed by Procter & Gamble as Aleve(R).
Mr. Freiman is currently serving on the board of Digital Gene Technologies,
Inc., a private genomics company, and serves on the boards of Penwest Corp.,
LifeScience Economics, Inc., and several other biotechnology companies. He has
been chairman of the Pharmaceutical Manufacturers Association of America
(PhARMA) and has also chaired a number of key PhARMA committees. Mr. Freiman is
also an advisor to Burrill & Co., a San Francisco merchant bank.
RONALD GOLDBLUM, M.D., age 54, has been Vice President, Medical Affairs since he
joined the Company in January 1995. Before joining NTI, Dr. Goldblum was
Director of Clinical Investigation at Syntex Laboratories where he supervised
all Phase IIIB and Phase IV studies. Before joining Syntex Laboratories, he held
various managerial positions as department head and department director at
Syntex Research. Prior to joining Syntex, Dr. Goldblum practiced for twelve
years as a rheumatologist in both hospital and private settings. Dr. Goldblum
holds A.B. and M.D. degrees from Case Western Reserve University.
JIAN L. JOHNSON, age 60, joined the Company in October 1992 as Director of
Clinical and Regulatory Affairs. In August 1995, Ms. Johnson was promoted to
Vice President, Regulatory Affairs. Prior to joining NTI, she spent twenty years
with the Upjohn Company. Three of those years were spent in the area of drug
discovery followed by positions of increasing responsibility in clinical
research and drug registration. Ms. Johnson has extensive experience in drug
development strategy, design of clinical protocols, management of clinical
trials, and preparation of regulatory submissions, including INDs and NDAs. Ms.
Johnson holds a B.S. degree from National Taiwan University and a M.S. degree
from the University of Minnesota.
SHAWN K. JOHNSON, age 30, joined the Company in July 1995 as Controller and was
promoted to Director of Finance in January 1996. Prior to joining NTI, Mr.
Johnson was a financial consultant from August 1992 until June 1995. From August
1989 to August 1992, Mr. Johnson was employed with Cognitive Systems, Inc., a
software company, where he held various
<PAGE>
accounting positions, including Controller from April 1990 to August 1992. He
holds a B.A. degree from the College of Wooster, a B.S. degree from City
University, and a M.B.A. degree from the University of California at Berkeley.
BEHZAD KHOSROVI, Ph.D., age 53, has been Vice President, Pharmaceuticals
Development since he joined the Company in January 1992. From July 1990 to
December 1991, Dr. Khosrovi was a consultant to the pharmaceutical industry.
Prior to July 1990, Dr. Khosrovi was employed 14 years with Cetus Corporation
("Cetus"), where he held various senior management positions, including Vice
President, Development from 1985 until June 1990. At Cetus, Dr. Khosrovi was
responsible for developing and managing Cetus' capability in manufacturing
sciences. His responsibilities included process development, formulation design,
product characterization and manufacture of products for clinical trials. Dr.
Khosrovi holds an M.A. degree in Natural Sciences from the University of
Cambridge in England and M.Sc. and Ph.D. degrees in Applied Microbiology from
the University of Manchester's Institute of Science and Technology.
CALVERT YEE, age 45, has been Vice President, Operations and Administration of
the Company since February 1991. Prior to joining NTI, Mr. Yee was employed for
15 years with Cetus Corporation, where he held both research and management
positions, serving as Senior Director, Research and Development Administration
and Operations from 1987 until September 1990. Mr. Yee holds a A.B. degree in
bacteriology and a M.B.A. degree from the University of California at Berkeley.
ABRAHAM E. COHEN, age 61, has been a director of the Company since March 1993
and has been Chairman of the Board of Directors since August 1993. From 1982 to
1992, Mr. Cohen served as Senior Vice President of Merck & Co. ("Merck") and
from 1977 to 1988 as President of the Merck Sharp & Dohme International Division
("MSDI"). While at Merck, he played a key role in the development of Merck's
international business, initially in Asia, then in Europe and, subsequently, as
President of MSDI, which manufactures and markets human health products outside
the United States. Since his retirement from Merck and MSDI in January 1992, Mr.
Cohen has been active as an international business consultant. He is a director
of six public companies: Agouron Pharmaceuticals, Inc., Akzo Nobel N.V., Smith
Barney, Teva Pharmaceutical Industries, Ltd., Vion Pharmaceuticals, Inc. and
Vasomedical, Inc.
ENOCH CALLAWAY, M.D., age 73, is a founder of the Company and has served as a
director of the Company since September 1987. Dr. Callaway previously served as
Chairman of the Board of Directors of the Company from September 1987 to
November 1990, as Co-Chairman of the Board from November 1990 until August 1993,
as Vice President from September 1988 until August 1993 and as Secretary from
September 1988 until September 1991. Dr. Callaway has been Emeritus Professor of
Psychiatry at the University of California, San Francisco since 1986, where he
also served as Director of Research at the Langley Porter Psychiatric Institute
from 1959 to 1988. He holds A.B. and M.D. degrees from Columbia University.
THEODORE L. ELIOT, Jr., age 69, served as a director of the Company from
September 1988 until April 1992 and as a Vice President from September 1988
until September 1991. He subsequently has served as a director of the Company
since August 1992. Mr. Eliot retired from the United States Department of State
in 1978 with the rank of Ambassador. He served as the Dean of the Fletcher
School of Law and Diplomacy from 1979 to 1985 and as Secretary General for the
United States of the Bilderberg Meetings from 1981 to October 1993. Mr. Eliot is
a director of two other publicly held companies, Raytheon Company, Inc. and
Fiberstars, Inc. Mr. Eliot holds B.A. and M.P.A. degrees from Harvard
University.
<PAGE>
ABRAHAM D. SOFAER, age 59, has served as a director of the Company since April
1997. Mr. Sofaer is the first George P. Shultz Distinguished Scholar & Senior
Fellow at the Hoover Institution, Stanford University, appointed in 1994. From
1990 to 1994, Mr. Sofaer was a partner at the legal firm of Hughes, Hubbard and
Reed in Washington, D.C., where he represented several major U.S. public
companies. From 1985 to 1990, he served as the Legal Adviser to the United
States Department of State, where he was principal negotiator on several key
international disputes. From 1979 to 1985, he served as Federal Judge for the
Southern District of New York. Mr. Sofaer is registered as a qualified
arbitrator with the American Arbitration Association and is a member of the
National Panel of the Center for Public Resolution of Disputes (CPR), the
leading organization in the area of resolution of disputes outside litigation.
He has mediated or is now mediating merger-acquisition arbitrations, commercial
cases involving valuation of commercial technology, and major securities class
action suits. Mr. Sofaer is on the International Advisory Board of Chugai
Biopharmaceuticals, Inc. and is a director of Inventech, Inc. Mr. Sofaer holds a
B.A. degree from Yeshiva College and a L.L.B. from New York University.
JOHN B. STUPPIN, age 64, is a founder of the Company and has been a director of
the Company since September 1988 and was Treasurer from April 1991 to December
1993. From September 1987 until October 1990, Mr. Stuppin served as President of
the Company, from November 1990 to August 1993, as Co-Chairman of the Board of
Directors and, from October 1990 until September 1991, as Executive Vice
President. He also served as the acting Chief Financial Officer of the Company
from the Company's inception through December 1993. Mr. Stuppin is an investment
banker and a venture capitalist. He has over 25 years experience in the start up
and management of companies active in emerging technologies and has been the
president of a manufacturing company. He is a director of Fiberstars, Inc. Mr.
Stuppin holds a A.B. degree from Columbia College.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the
section entitled Executive Compensation in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1997 Annual Meeting of Stockholders (the "Proxy Statement").
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements
The following are incorporated herein by reference to the financial
statements included under Part II:
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets at June 30, 1997 and 1996
Statements of Operations for each of the three years in the period ended
June 30, 1997 and for the period from August 27, 1987 (inception) through
June 30, 1997
Statement of Stockholders' Equity for each of the three years in the period
ended June 30, 1997 and for the period from August 27, 1987 (inception)
through June 30, 1997
Statement of Cash Flows for each of the three years in the period ended
June 30, 1997 and for the period for August 27, 1987 (inception) through
June 30, 1997
Notes to Financial Statements
(b) Reports on Form 8-K
None.
<PAGE>
(c) Exhibits
The following exhibits are incorporated by reference or filed as part of this
report.
Exhibit
Number Description
- ------ -----------
3.5* Restated Certificate of Incorporation of Registrant.
3.2* Bylaws of Registrant.
4.1* Form of Common Stock Certificate.
4.2* Form of Warrant issued to Van Kasper & Co.
4.3* Form of Warrant issued to Van Kasper & Co. and Gerard Klauer
Mattison & Co., LLC.
10.2* 1993 Stock Plan of Neurobiological Technologies, Inc.***
10.4* Form of Indemnity Agreement between the Registrant and its
directors and officers.***
10.5* Series B Preferred Stock Purchase and Exchange Agreement dated as
of December 6, 1993.
10.6* License Agreement between the Registrant and Research Corporation
Technologies, Inc. dated May 30, 1990.**
10.7* License Agreement among the Registrant, Dynorphin Partnership,
Nancy M. Lee and Horace C. Loh dated April 1, 1989, as amended.**
10.8* License Agreement between the Registrant and Immuno-Dynorphin
Partnership dated October 1, 1990.**
10.9* License Agreement between the Registrant and des-Tyr Dynorphin
Partnership dated December 20, 1992.**
10.10* License Agreement between the Registrant and DUZ Partnership dated
December 20, 1992.**
10.11* License Agreement between the Registrant and The Salk Institute for
Biological Studies dated March 31, 1989, as amended.**
10.12* License Agreement between the Registrant and the Regents of the
University of California dated June 13, 1990, as amended.**
10.13* Option Agreement between the Registrant and the Regents of the
University of California dated December 1, 1992.**
10.14* Lease dated August 22, 1994 between Registrant and Marina Westshore
Partners, a California limited partnership.
10.15* License Agreement between the Registrant and Childrens Hospital
effective September 11, 1995, as amended on March 11, 1996.
10.16**** Amended and restated Neurobiological Technologies, Inc. Employee
Stock Purchase Plan***
23.1 Consent of Ernst & Young LLP, independent auditors.
24.1 Power of Attorney.
27 Financial Data Schecule for the period ended June 30, 1997.
_____________
* Previously filed as an exhibit to Issuers Registration Statement on Form
SB-2 (Registration No. 33-74118-LA) and incorporated herein by reference.
** Confidential treatment has been granted with respect to certain portions
of these agreements.
*** This exhibit is a management contract or compensatory plan or arrangement.
**** Previously filed as an exhibit to Issuer's Registration Statement on Form
S-8 (Registration Number 333-18519) and incorporated herein by reference.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Dated: September 29, 1997 /s/ Paul E. Freiman
Neurobiological Technologies, Inc. President, Chief Executive Officer
POWER OF ATTORNEY
<TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Paul E. Freiman his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute may lawfully do or cause to be done by virtue hereof.
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Paul E. Freiman President, Chief Executive Officer
- -------------------------- (Principal Executive Officer) September 29, 1997
Paul E. Freiman and Director
/s/ Shawn K. Johnson Director of Finance, September 29, 1997
- -------------------------- Principal Accounting Officer
Shawn K. Johnson
/s/ Abraham E. Cohen Chairman of the Board September 29, 1997
- --------------------------
Abraham E. Cohen
/s/ Enoch Callaway Director September 29, 1997
- -------------------------
Enoch Callaway
/s/ Theodore L. Eliot, Jr. Director September 29, 1997
- --------------------------
Theodore L. Eliot, Jr.
/s/ Abraham D. Sofaer Director September 29, 1997
- --------------------------
Abraham D. Sofaer
/s/ John B. Stuppin Director September 29, 1997
- --------------------------
John B. Stuppin
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET
AND INCOME STATEMENTS DATED 6/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,278,402
<SECURITIES> 2,559,911
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,009,749
<PP&E> 382,305
<DEPRECIATION> 184,950
<TOTAL-ASSETS> 4,207,104
<CURRENT-LIABILITIES> 996,556
<BONDS> 0
0
0
<COMMON> 29,382,471
<OTHER-SE> (26,171,923)
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