FORM 10-QSB
UNITED STATES
SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission file number 0-23280
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(exact name of small business issuer as specified in its charter)
Delaware 94-3049219
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
1387 Marina Way South
Richmond, California 94804
(Address of principal executive offices)
(510) 215-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of the common stock, as of the latest practical date.
Common Stock, $.001 Par Value -7,353,699- shares outstanding as of
March 31, 1998
Transitional Small Business Disclosure format Yes [ ] No [X]
<PAGE>
INDEX
NEUROBIOLOGICAL TECHNOLOGIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Balance Sheets - - March 31, 1998 and June 30, 1997
Condensed Statements of Operations - - Three and nine months ended
March 31, 1998 and 1997; Period from August 27, 1987 (inception)
through March 31, 1998
Condensed Statements of Cash Flows - - Nine months ended March 31, 1998
and 1997; Period from August 27, 1987 (inception) through March 31,
1998
Notes to Condensed Financial Statements - - March 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, June 30,
1998 1997
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 733,775 $ 1,278,402
Short-term investments -- 2,559,911
Prepaid expenses and other 95,148 171,436
------------ ------------
Total current assets 828,923 4,009,749
Property and equipment, net 121,250 197,355
------------ ------------
$ 950,173 $ 4,207,104
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 639,321 $ 996,556
Stockholders' equity:
Common stock, $.001 par value, 25,000,000 shares authorized,
7,353,699 outstanding at March 31, 1998 and
6,540,314 at June 30, 1997 29,885,398 29,382,471
Deficit accumulated during development stage (29,574,546) (26,171,923)
------------ ------------
Total stockholders' equity 310,852 3,210,548
------------ ------------
$ 950,173 $ 4,207,104
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
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NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Period from
Three months ended Nine months ended August 27, 1987
March 31, March 31, (inception)
--------------------------------------------------------------- through
1998 1997 1998 1997 March 31, 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Interest income $ 10,384 $ 89,056 $ 77,658 $ 340,841 $ 2,109,828
Grant income -- -- -- -- 49,900
------------ ------------ ------------ ------------ ------------
Total revenue 10,384 89,056 77,658 340,841 2,159,728
EXPENSES
Research and development 433,121 1,272,211 1,579,018 4,022,171 21,841,753
General and administrative 504,272 533,234 1,901,263 1,569,655 9,892,521
------------ ------------ ------------ ------------ ------------
Total expenses 937,393 1,805,445 3,480,281 5,591,826 31,734,274
------------ ------------ ------------ ------------ ------------
NET LOSS $ (927,009) $ (1,716,389) $ (3,402,623) $ (5,250,985) $(29,574,546)
============ ============ ============ ============ ============
BASIC & DILUTED NET LOSS
PER SHARE
$ (0.14) $ (0.26) $ (0.51) $ (0.80)
============ ============ ============ ============
Shares used in basic &
diluted net loss per share
calculation 6,813,426 6,533,495 6,633,335 6,524,600
============ ============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
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NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine months ended Period from
March 31, August 27, 1987
---------------------------------- (inception) through
1998 1997 March 31, 1998
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,402,623) $ (5,250,985) $(29,574,546)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 76,105 99,701 544,117
Issuance of common stock and warrants
for license rights and services -- -- 99,275
Changes in assets and liabilities:
Prepaid expenses and other 76,288 82,319 (95,148)
Accounts payable and accrued expenses (357,235) (222,930) 639,321
------------ ------------ ------------
Net cash used in operating activities (3,607,465) (5,291,895) (28,386,981)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of investments -- (1,441,150) (33,839,678)
Sale of investments 2,559,911 4,558,465 33,839,678
Purchases of property and equipment -- (21,591) (382,305)
Additions to patents and licenses -- -- (283,062)
------------ ------------ ------------
Net cash (used in) provided by
investing activities 2,559,911 3,095,724 (665,367)
FINANCING ACTIVITIES:
Proceeds of short-term borrowings -- -- 235,000
Issuance of common stock 502,927 43,139 22,559,041
Issuance of preferred stock -- -- 6,992,082
------------ ------------ ------------
Net cash provided by financing activities 502,927 43,139 29,786,123
Increase (decrease) in cash and
cash equivalents (544,627) (2,153,032) 733,775
Cash and equivalents at beginning of period 1,278,402 4,602,815 --
------------ ------------ ------------
Cash and equivalents at end of period $ 733,775 $ 2,449,783 $ 733,775
============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
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NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
March 31, 1998
NOTE 1-BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three and nine month periods ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Company's Form 10-KSB
for the fiscal year ended June 30, 1997.
BASIC AND DILUTED NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which has been adopted by the Company.
Basic and diluted 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, which would be included using the dilutive method,
are excluded from the computation because their effect is antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income" ("FAS 130"), and Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these statements in fiscal year 1999.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these statements is expected to have
no impact on the Company's consolidated financial position, results of
operations or cash flows.
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ITEM 2. 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.
On April 16, 1998, NTI announced a strategic research and marketing
alliance with Merz + Co. GmbH & Co. of Frankfurt, Germany and a new revenue
sharing partnership with Children's Medical Center Corporation of Boston,
Massachusetts, to further the development and commercialization of Memantine.
This research collaboration and revenue sharing alliance is a significant
milestone for NTI. Pursuant to this new collaboration, Children's Medical Center
Corporation terminates its existing license to NTI for AIDS-related dementia and
neuropathic pain and granted exclusive rights to Merz. In exchange, NTI received
an up-front payment of $2.1 million from Merz. NTI and Children's Medical Center
Corporation will share in future revenue from sales of Memantine for treatment
of dementia, Alzheimer's and neuropathic pain, indications which Merz is
developing. Merz has marketed Memantine in Germany since 1989 for various
neurological disorders. Merz is also currently conducting a series of advanced
clinical trials for dementia and Alzheimer's disease. Merz has completed a
positive pivotal Phase III trial in dementia in Europe, has two Phase III trials
in process and will institute a Phase III trial in the United States in the near
future. Merz has developed extensive clinical and pre-clinical data which, in
combination with NTI's clinical data, the companies believe will constitute a
strong regulatory package.
NTI is developing Memantine, an orally available compound which acts to
modulate the N-methyl-D aspartate (NMDA) receptor in the central nervous system.
Modulating the NMDA receptor may protect against neuronal injury associated with
a number of neurodegenerative conditions including dementia, Alzheimer's
disease, neuropathic pain, and AIDS. There are currently no approved
neuroprotective treatments for any of the pathologies associated with
NMDA-receptor overstimulation. The Company completed a controlled human clinical
trial of Memantine in patients with neuropathic pain due to diabetes or
post-herpetic neuralgia (a complication of shingles). The results of NTI's Phase
IIA trial announced during the quarter indicated Memantine to be potentially
effective in relieving diabetic neuropathic pain. Although reduction in pain
symptoms was not seen in post-herpetic patients, the diabetic neuropathy
patients taking Memantine showed significantly less nocturnal pain compared to
the placebo group, as well as a trend for greater pain relief and less daytime
pain. This positive data supports further clinical development of Memantine in
diabetic patients with neuropathy. It
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confirms the Company's belief that Memantine is well-suited to treat this
chronic pain because of its favorable side effect profile and oral availability.
This trial data has been presented to potential corporate partners, and played
an important role in securing NTI's partnership with Merz.
By collaborating, instead of competing with Merz, NTI and Merz will
help one another advance their respective clinical development programs for
neuropathic pain and dementia by sharing their scientific information and
commercial expertise, including preclinical and clinical trial data, and bring
Memantine as rapidly as possible to patients in need.
Memantine is also currently being evaluated as a treatment for AIDS
related dementia patients in a Phase II human clinical trial funded by the
National Institutes of Health ("NIH"). NTI is supplying the drug for the trial
and will have the right to use the resulting data to further the commercial
development of Memantine.
In addition, NTI continues to develop Xerecept(TM), a synthetic
preparation of the human peptide Corticotropin-Releasing Factor (CRF), as a
treatment for brain swelling due to brain tumors (peritumoral brain edema).
During the quarter, the Company announced the publication of clinical data from
its open-label pilot Phase I/II trials of Xerecept in patients with peritumoral
brain edema. The data was presented in the January 1998 issue of the
peer-reviewed journal "Annals of Oncology". In these pilot trials, 10 of 15
patients treated with Xerecept experienced clinical improvement in neurological
symptoms such as seizures, muscle weakness, loss of coordination, and double
vision.
During the quarter, NTI added two new clinical trial centers to its
ongoing Phase II trial to evaluate Xerecept's ability to control neurological
symptoms of brain swelling. The patients will be randomized to receive Xerecept
or synthetic corticosteroids, the standard treatment for this condition. The
Company believes that Xerecept may prove a safer treatment than synthetic
corticosteroids, which are associated with serious adverse side effects
including muscle wasting, osteoporosis, hyperglycemia, vision problems, and
psychosis. Results from preclinical studies and pilot human clinical trials
previously sponsored by the Company have demonstrated the compound's potential
to prevent swelling of brain tissue while being well tolerated and also
appearing to be safe, with the potential to significantly improve the quality of
life for brain cancer patients with brain swelling.
In September 1997, the Company filed an application for orphan drug
designation of Xerecept as a treatment for peritumoral brain edema. Patients
with this condition are in need of a safe alternative to corticosteroids, that
result in serious adverse effects at the high, chronic doses required for
efficacy. Subsequent to the quarter's end, the FDA, recognizing Xerecept's
potential to treat this unmet medical need, approved the Company's application
for orphan drug status.
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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 NTI was founded, the Company has applied a majority of
its resources to its research and development programs. The Company is a
development stage company and has not received any revenue from the sale of
products. The Company has incurred losses since its inception and expects to
incur substantial, increasing losses due to ongoing and planned research and
development efforts. As part of the strategic planning process, the Company has
limited current expenditure to only two drug candidates. The Company will need
to obtain additional financing to continue operations beyond the first quarter
of fiscal 1999.
IMPACT OF YEAR 2000 ISSUE
The Company has completed an assessment of its computer systems and
believes that such systems will function properly with respect to dates in the
year 2000 and thereafter.
The Company is assessing the possible effects on the Company's
operations of the year 2000 readiness of key subcontractors; however the
potential impact and related costs are not known at this time.
RESULTS OF OPERATIONS
The Company's research and development expenses decreased to
approximately $433,000 in the three months ended March 31, 1998 from
approximately $1,272,000 in the same period of the prior year. The decrease was
primarily due to the Company narrowing its clinical focus to the development of
two product candidates. General and administrative expenses decreased to
approximately $504,000 in the three months ended March 31, 1998 from $533,000 in
the three months ended March 31, 1997. The decrease was due to a reduction in
workforce in the three months ended March 31, 1998 as compared to the same
period of the prior year. Interest income decreased to $10,000 in the three
months ended March 31, 1998 compared to revenues of $89,000 in the same period
of the prior year due to lower average cash balances.
As part of the strategic planning process, the Company has limited
expenditures to only two drug candidates and eliminated unnecessary programs.
The Company reduced its workforce to 13 individuals, many of whom now work part
time, as compared to 22 employees during the same quarter a year ago. Without
damaging the Company's core expertise in clinical trial management, these
workforce reductions improve the Company's efficiency.
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LIQUIDITY AND CAPITAL RESOURCES
The alliance with Merz is the first corporate partnership in NTI's
history. It provides the Company with substantial resources to accelerate the
clinical development of Memantine. Following up on the Company's completed Phase
IIA trial of Memantine for neuropathic pain, the Company will initiate a Phase
IIB trial exclusively in diabetic patients by the end of summer 1998. In
collaboration with Merz, the Company will seek to secure a global marketing
partnership for Memantine by early 1999. Also in 1999, NTI expects trial
enrollment to be completed in the NIH-sponsored Phase II human trial of
Memantine in patients with AIDS related dementia. Finally, NTI expects to
complete the Phase II trial of Xerecept for peritumoral brain edema in 1998, and
to continue to develop Xerecept as an orphan drug. If results from current Phase
II trial are positive, NTI will prepare to move quickly to complete a pivotal
human clinic trial for this condition.
Despite the alliance with Merz, the Company will need to secure an
additional infusion of capital to complete its ongoing clinical trials and
initiate future pivotal trials. Current capital resources, including the Merz
payment, will be adequate to fund the Company's operations only through the
first quarter of fiscal 1999. Future cash requirements will depend on numerous
factors, including: the in-licensing of potential drug candidates; the progress
of development programs; the time and costs involved in seeking to obtain
regulatory approval; the ability of the Company to establish collaborative
arrangements; product commercialization activities; and the acquisition of
manufacturing or laboratory facilities. NTI's focus will continue to be on
securing funding by means of additional corporate partnerships.
From inception through March 31, 1998, the Company has raised a total
of $29.9 million in net proceeds from the sale of common and preferred stock.
During the quarter, the Company raised approximately $500,000 through a private
sale of stock to a small group of existing stockholders.
GOING CONCERN DISCLOSURE AND REPORT OF INDEPENDENT AUDITORS
The report of the Company's independent auditors with respect to the
Company's financial statements included in Form 10-KSB for the year ended June
30, 1997 includes a "going concern" modification, indicating that the Company's
recurring losses and deficits in working capital and stockholders' equity raise
substantial doubt about the Company's ability to continue as a going concern.
Additionally, such reports state that the financial statements do not include
any adjustments that may result from the outcome of this uncertainty. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Notes to Condensed Financial Statements."
DELISTING OF STOCK
The Company's common stock was delisted from The Nasdaq Stock Market
effective the close of business, February 3, 1998 because the Company failed to
meet the
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financial conditions necessary to remain listed. The delisting could adversely
affect the trading volume and price volatility of the Company's stock. NTI's
common stock is now quoted on the OTC-Bulletin Board(R) under the symbol NTII.
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. Although the recently completed
trials of Memantine indicated effectiveness in relieving diabetic neuropathy
pain, larger clinical trials will be required. There can be no assurance that if
the trials are conducted that they will be successful in confirming Memantine's
efficacy.
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.
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, manufacturing 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 and make other
payments.
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Failure to make such payments could cause the Company to lose its rights to
technologies or data under these agreements.
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.
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 or cause the withdrawal of
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. There can be no assurance that any of the
patent applications licensed to the Company will be approved, that the Company
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
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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's potential products will need to be manufactured under the
current Good Manufacturing Practices (cGMP) requirements prescribed by the FDA.
The Company currently does not have its own manufacturing facilities. 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 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.
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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 inability to acquire such services or to develop
such expertise could have a material adverse effect on the Company's operations.
SUBSEQUENT EVENTS
On April 16, 1998, NTI announced the completion of negotiations of a
strategic research and marketing alliance with Merz + Co. GmbH & Co. of
Frankfurt, Germany, and a new revenue sharing partnership with Children's
Medical Center Corporation of Boston, Massachusetts, to further the clinical
development and commercialization of Memantine. These alliances enables Merz,
NTI and Children's Medical Center Corporation to work together to bring
Memantine to market as quickly as possible. NTI and Merz will share their
scientific and commercial expertise, clinical trial data, and knowledge of
worldwide markets. Merz has completed, and NTI has supplemented, an excellent
package of preclinical data, which the companies believe, will be acceptable to
worldwide registration authorities.
Under this new collaboration, Children's Medical Center Corporation
terminated its existing license to NTI for AIDS-related dementia and neuropathic
pain and granted exclusive rights to Merz. In exchange, NTI received an up-front
payment of $2.1 million from Merz, which provided NTI with an infusion of
capital. NTI and Children's Medical Center Corporation will share in future
sales of Memantine for neuropathic pain and AIDS dementia, as well as for
dementia and Alzheimer's, indications which Merz has been developing. Merz
originally developed and marketed Memantine in Germany since 1989 as a treatment
for various neurological disorders.
Merz is a multinational independent company with a strong research
focus on the central nervous system and metabolic diseases. Founded in 1908, it
has established itself in the fields of prescription and OTC drugs on a global
basis.
On April 20, 1998, NTI announced that it has received notification from
the U.S. Food and Drug Administration (FDA) that Xerecept, the Company's
synthetic preparation of human Corticotropin-Releasing Factor (CRF), qualifies
for orphan drug designation. NTI is currently enrolling patients to evaluate
Xerecept's ability to control neurological symptoms caused by peritumoral brain
edema, or brain swelling caused by a tumor. This is a serious condition
affecting approximately 100,000 patients in the U.S. with brain cancer. In these
patients, swelling of brain tissue often impairs neurological functioning
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more than the tumor itself. Symptoms of peritumoral brain edema may include
seizures, difficulty in movement, lack of coordination, and impaired mental
facilities.
Orphan drug designation provides the Company with seven years of market
exclusivity after the drug is approved for market by the FDA, and also makes the
Company eligible to receive federal monies for clinical research under the
Orphan Drug Grant Program. The U.S. Congress enacted the Orphan Drug Act to
promote research and development of therapies for rare diseases affecting fewer
than 200,000 Americans.
During the quarter the Company received about $30,000, representing a
deposit for a potential sublease of a portion of its offices. Subsequent to the
quarter's end, the Company was unable to finalize the negotiations with
agreeable terms, resulting in the deposit being refunded by NTI. The Company
will continue to pursue other subleasing activities.
Note: Except for the historical information contained herein, the matters
discussed in this quarterly report are forward looking statements that involve
risks and uncertainties, including the Company's ability to raise capital;
properly design, implement, and complete planned trials; meet regulatory
requirements; demonstrate safety and efficacy for its product candidates; manage
third party contractors; avoid infringement of third party proprietary rights,
as well as other risks detailed from time to time in the Company's Securities
and Exchange Commission filings. Actual results may differ materially from those
projected. These forward looking statements represent the Company's judgment as
of the date hereof. The Company disclaims, however, any intent or obligation to
update these forward looking statements.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule for the period ended March 31, 1998.
(b) Reports on Form 8-K
On January 9, 1998, the Company announced its common stock was
moved from The Nasdaq National Market to the Nasdaq SmallCap
Market effective December 26, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NEUROBIOLOGICAL TECHNOLOGIES, INC.
Dated: May 13, 1998 /s/ Paul E. Freiman
-----------------------------------------------
Paul E. Freiman
President, Chief Executive Officer
(Principal Executive and Accounting Officer) and Director
16
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