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 September 30, 1999
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 (IRS Employer Identification No.)
incorporation 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 -7,971,040- shares outstanding as of
October 25, 1999
Transitional Small Business Disclosure format Yes [ ] No [X]
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INDEX
NEUROBIOLOGICAL TECHNOLOGIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Balance Sheets - - September 30, 1999 and June 30, 1999
Condensed Statements of Operations - - Three months ended September 30,
1999 and 1998; Period from August 27, 1987 (inception) through September
30, 1999
Condensed Statements of Cash Flows - - Three months ended September 30,
1999 and 1998; Period from August 27, 1987 (inception) through September
30, 1999
Notes to Condensed Financial Statements - - September 30, 1999
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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<TABLE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, June 30,
1999 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 546,830 $ 201,202
Prepaid expenses and other 49,391 43,833
------------ ------------
Total current assets 596,221 245,035
Property and equipment, net 3,468 3,796
------------ ------------
$ 599,688 $ 248,831
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 950,081 $ 934,839
Note payable to shareholder 1,200,000 200,000
------------ ------------
Total current liabilities 2,150,081 1,134,839
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value, 5,000,000
shares authorized, 2,332,000 outstanding at September
30, 1999 and June 30, 1999 1,166,000 1,166,000
Common stock, $.001 par value, 25,000,000 shares
authorized, 7,943,113 outstanding at September 30,
1999 and 7,563,575 at June 30, 1999 30,102,092 29,985,352
Deficit accumulated during development stage (32,818,485) (32,037,360)
------------ ------------
Total stockholders' equity (deficit) (1,550,393) (886,008)
------------ ------------
$ 599,688 $ 248,831
============ ============
<FN>
See accompanying notes
</FN>
</TABLE>
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<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended Period from
September 30, August 27, 1987
--------------------------- (inception) through
1999 1998 September 30, 1999
------------ ------------ ------------------
<S> <C> <C> <C>
REVENUES
License $ -- $ -- $ 2,100,000
Grant -- -- 149,444
------------ ------------ ------------
Total revenue -- -- 2,249,444
EXPENSES
Research and development 535,938 440,573 25,604,624
General and administrative 246,707 222,036 11,643,279
------------ ------------ ------------
Total expenses 782,645 662,609 37,247,903
Operating loss (782,645) (662,609) (34,998,459)
Interest income 1,521 23,008 2,179,975
------------ ------------ ------------
NET LOSS $ (781,124) $ (639,601) $(32,818,484)
============ ============ ============
BASIC AND DILUTED
NET LOSS PER SHARE $ (0.10) $ (0.08)
============ ============
Shares used in basic and diluted
net loss per share calculation 7,690,088 7,553,699
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
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<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended Period from
September 30, August 27, 1987
---------------------------- (inception) through
1999 1998 September 30, 1999
------------ ------------ -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (781,124) $ (639,601) $(32,818,484)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 328 15,718 638,534
Issuance of common stock and warrants
for license rights and services -- -- 139,775
Changes in assets and liabilities:
Prepaid expenses and other (5,558) (2,268) (49,391)
Accounts payable and accrued expenses 15,242 (51,364) 950,081
------------ ------------ ------------
Net cash used in operating activities (771,112) (677,515) (31,139,485)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of investments -- -- (33,839,678)
Sale of investments -- -- 33,839,678
Purchases of property and equipment -- -- (358,940)
Additions to patents and licenses -- -- (283,062)
------------ ------------ ------------
Net cash used in investing activities -- -- (642,002)
FINANCING ACTIVITIES:
Proceeds of short-term borrowings 1,000,000 -- 1,435,000
Issuance of common stock 116,740 -- 22,735,235
Issuance of preferred stock -- -- 8,158,082
------------ ------------ ------------
Net cash provided by financing activities 1,116,740 -- 32,328,317
Increase (decrease) in cash and
cash equivalents 345,628 (677,515) 546,830
Cash and equivalents at beginning of period 201,202 2,020,886 --
------------ ------------ ------------
Cash and equivalents at end of period $ 546,830 $ 1,343,371 $ 546,830
============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
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NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
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 month period ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended June 30, 2000. 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, 1999.
Subsequent to quarter ending, the Company raised approximately $4.2
million in a private placement and repaid the outstanding principal and interest
on loan from Merz + Co. GmbH & Co. ("Merz") in the aggregate amount of
approximately $1.23 million. The Company believes that its available cash and
cash equivalents of $547,000 as of September 30, 1999, combined with the net
proceeds from the private placement subsequent to the quarter ending, are
adequate to fund its operations through this fiscal year ending June 30, 2000.
The Company will need to raise substantial additional capital to fund subsequent
operations beyond the fiscal year ending June 30, 2000. The Company intends to
seek funding through public or private financings, collaborative or other
arrangements with corporate partners, or from other sources. However, there can
be no assurance that funding will be available on favorable terms from any of
these sources, if at all. If such funding is unavailable, the Company will be
required to delay, scale back, or eliminate one or more of its research,
discovery, or development projects, including clinical trials, and to make
future reductions in workforce. The Company will also need to consider obtaining
funds through entering into arrangements with collaborative partners or others
which may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would not
otherwise relinquish. and other restructuring alternatives, including the
license or sale of certain of its assets and technology, discontinuing
operations or liquidation.
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BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is presented under the requirements of Financial
Accounting Standards Board ("FAS") No. 128, "Earnings per Share". Basic loss per
share is computed based on the average shares of common stock outstanding and
excludes any effects of options, warrants, and convertible securities.
Potentially dilutive securities such as options, warrants, and convertible
preferred stock, have also been excluded from the computation of diluted net
loss per share as their effect is antidilutive.
NOTE 2-NOTES PAYABLE TO SHAREHOLDERS
In April 1999, the Company entered into a $200,000 convertible loan
agreement with Merz. At its option, Merz may convert any amounts borrowed under
the loan agreement, plus interest into common stock of NTI at a price of $1.20
per share. As of September 30, 1999, if Merz exercises this option to convert,
NTI would be obligated to issue Merz approximately 176,667 shares of common
stock.
In August 1999, the Company entered into a convertible loan agreement
with Merz pursuant to which the Company can borrow up to $1,500,000. As of
September 30, 1999, the Company has borrowed $1,000,000 under this agreement. At
its option, Merz may convert any amounts borrowed under the loan agreement, plus
interest into common stock of NTI at a price of $1.05 per share. As of September
30, 1999, if Merz converted all outstanding principal and interest under the
loan, NTI would be obligated to issue Merz approximately 957,143 shares of
common stock.
NOTE 3-SUBSEQUENT EVENTS
In November 1999, the Company raised an additional $4.2 million in a
private financing. Approximately $1.23 million of the proceeds were used to
repay the outstanding principal and interest on loans from Merz.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operation," and else where in this form 10-QSB that are
not historical are forward-looking statements and 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 set forth under "Risks
Associated With Product Development".
OVERVIEW
Neurobiological Technologies, Inc. or NTI(R) ("NTI" or the "Company")
is an emerging drug development company focused on the clinical development and
regulatory approval of neuroscience drugs. NTI is developing neuroprotective and
neuromodulatory agents to treat progressive neurological impairments
characteristic of various nervous system disorders, including diabetic
neuropathy, brain cancer, and AIDS dementia syndrome.
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NTI's strategy is to in-license and develop early stage drug candidates
that target major medical needs and which can be rapidly commercialized. The
Company's experienced management team oversees the human clinical trials
necessary to establish preliminary evidence of efficacy and seeks partnerships
with pharmaceutical and biotechnology companies to complete development of and
market its product candidates.
The Company is developing Memantine, an orally available compound that
appears to restore the function of impaired neurons by modulation of the
N-methyl-D-aspartate (NMDA) receptor, integral to the membranes of such cells.
Such restoration of function inhibits injured or damaged neurons from firing
abnormally, a pathological process associated with many neurological conditions,
including dementia, Alzheimer's disease, neuropathic pain (persistent pain
resulting from abnormal signals to the brain), and AIDS dementia.
In October 1999, NTI announced that its alliance partner, Merz + Co.
GmbH & Co. (Merz), concluded two major Phase III trials in vascular dementia
with Memantine and that the initial results look promising. A total of 900
patients were enrolled in multiple sites in the UK and France. The trial was
designed to investigate improvements in cognition, a major focus of drug therapy
for dementia. Merz plans to disclose data from the trials at the International
Stockholm/Springfield Symposium on Advances in Alzheimer's Therapy Conference to
be held in Stockholm in April 2000.
Merz's Phase III program for Memantine as a treatment for Alzheimer's
disease in the United States is continuing. NTI recently announced the
completion of enrollment of the 421 patient Phase IIB Memantine trial in
diabetic neuropathy. The results of this trial are currently being analyzed and
will be announced in December 1999.
In August 1999, the Company entered into an agreement with Merz
pursuant to which the Company can borrow up to $1.5 million to support the Phase
IIB trial of Memantine for neuropathic pain. As of September 30, 1999 the
Company has received two installments totaling $1 million pursuant to this
agreement. In November 1999, the Company repaid the outstanding principal and
interest on the Merz loan.
The Company evaluated XERECEPT(TM), a synthetic preparation of the
natural human peptide, Corticotropin-Releasing Factor in a randomized,
double-blind, positive-controlled Phase II human clinical trial for peritumoral
brain edema (swelling of the brain caused by a tumor). The Company closed
enrollment for this trial at 33 patients (one third of projected enrollment) in
order to provide expedited but abbreviated analysis of the data. All responders,
as defined by the trial protocol, were in the XERECEPT treatment groups.
Rigorous statistical analysis of the data was not meaningful due to the small
numbers enrolled. The clinical study should be regarded as confirmatory but not
definitive with regard to neurologic improvements that may be attained with
XERECEPT in symptomatic brain tumor patients. XERECEPT has been granted orphan
drug designation by the FDA.
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, 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
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and expects to incur substantial, increasing losses due to ongoing and planned
research and development efforts.
During the quarter ending September 30, 1999, the Company raised
$116,760 through the sale of 29,190 units of the Company's securities in a
private placement at $4.00 per unit. In October 1999 the Company sold an
additional 10,000 units bringing the gross proceeds of the private placement to
$156,760. In November 1999, the Company raised an additional $4.2 million. Each
unit consists of five shares of common stock and a five-year warrant to purchase
two shares of common stock exercisable at $1.75 per share. The Company has
agreed to file a registration statement of Form S-3 with the SEC for the common
stock that were sold and that are issuable upon exercise of the warrants.
Approximately $1.23 million of the proceeds were used to repay outstanding
principal and interest on loans from Merz. The remainder of the proceeds will be
used for working capital and general corporate purposes. The Company will need
to obtain additional financing to continue operations beyond the fiscal year
ending June 30, 2000.
RESULTS OF OPERATIONS
The Company's research and development expenses increased to
approximately $536,000 in the three months ended September 30, 1999 from
approximately $441,000 in the same period of the prior year. The increase was
primarily due to the initiation of a Phase IIB human clinical trial to evaluate
Memantine as a treatment for peripheral diabetic neuropathy. General and
administrative expenses increased to approximately $247,000 in the three months
ended September 30, 1999 from $222,000 in the three months ended September 30,
1998. The increase was primarily due to increased expenditures in activities
relating to seeking financing and corporate partnerships. Interest income
decreased to $2,000 in the three months ended September 30, 1999 from $23,000 in
the same period of the prior year primarily due to lower average cash balances.
The Company expects to incur substantial ongoing costs 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, if the Phase II trials are successful,
Phase III clinical trials.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its cash requirements to increase significantly in
future periods. Future cash requirements will depend on numerous factors,
including: the in-licensing of potential drug candidates; the progress on
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.
From inception through September 30, 1999, the Company has raised a
total of $31.3 million in net proceeds from the sale of common and preferred
stock.
The Company believes that its available cash and cash equivalents of
$547,000 as of September 30, 1999, combined with the net proceeds from the
private placement which was concluded subsequent to the end of the quarter, are
adequate to fund its operations through the fiscal year ending June 30, 2000.
The Company will need to raise substantial additional capital
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to fund operations beyond the fiscal year ending June 30, 2000. The Company
intends to seek funding through public or private financings, collaborative or
other arrangements with corporate partners, or from other sources. However,
there can be no assurance that funding will be available on favorable terms from
any of these sources, if at all. If such funding is unavailable, the Company
will be required to delay, scale back, or eliminate one or more of its research,
discovery, or development projects, including clinical trials, and to make
further reductions in workforce. The Company will also need to consider
obtaining funds through entering into arrangements with collaborative partners
or others which may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would not
otherwise relinquish, and other restructuring alternatives, including the
license or sale of certain of its assets and technology, discontinuing
operations or liquidation.
IMPACT OF YEAR 2000 ISSUE
Year 2000 ("Y2K") exposure is the result of computer programs using two
instead of four digits to represent the year. These computer programs may
erroneously interpret dates beyond the year 1999, which could cause system
failures or other computer errors, leading to disruptions in operations.
The Company has completed an assessment of its computer systems. The
Company utilizes only commercially available software applications and these
have been upgraded to versions that the vendors advertise to be Y2K compliant.
The Company has contacted selected vendors and is in the process of speaking to
additional vendors with regards to their Y2K status. Based upon vendors'
representations to date, the Company understands that they will be able to
supply NTI with its needs in the year 2000.
One single function system at NTI has not been upgraded as yet. The
upgrade will be performed by the Company's internal staff and outside
specialized vendors and contractors as needed. The Company believes it will be
Y2K compliant by December 1999.The cost of effecting the remaining Y2K upgrade
is estimated to be less than $5,000.
The worst-case scenario for Y2K problems for NTI would be to cease
using the affected systems for an indefinite period of time while the Company
attempts to correct the problems. In the event that Y2K issues are not resolved
in a timely manner, the Company will implement alternative methods to carry out
these tasks and services until the affected systems are upgraded. However, this
would not be expected to have a material effect on NTI's operations, liquidity
or financial condition.
NTI has made forward-looking statements regarding its Y2K compliance.
These statements include the expected completion schedule for system upgrades
and the costs to the Company of such upgrades. There are many factors that could
cause actual events or results to differ materially from those stated in the
forward-looking statements. These factors include difficulties in identifying or
upgrading software or hardware systems that are not currently Y2K compliant and
in coordinating these efforts through NTI's internal staff and specialized
contractors. The Company expects to be able to complete these upgrades before
any Y2K problem could arise. Unanticipated problems such as material costs
caused by undetected errors or defects in the technology used in the Company's
internal systems could delay the Company's completion of the upgrades.
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RISKS ASSOCIATED WITH PRODUCT DEVELOPMENT
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.
Since 1987 when NTI was founded, the Company has applied a majority of
its resources to its research and development programs. As part of the strategic
planning process, the Company has limited expenditures to only two drug
candidates, Memantine and XERECEPT.
The Company will need to obtain additional financing to continue
operations beyond June 30, 2000. The Company intends to seek such funding
through public or private financings, collaborative or other arrangements with
corporate partners, or from other sources. There is a risk that the Company may
not be able to obtain the additional financing from any of these sources, or, if
financing is available, that it will be available on acceptable terms. In
addition, the Company may seek to raise additional funds whenever market
conditions permit. Raising additional funds through issuing equity securities
may result in significant dilution to the Company's existing stockholders.
If the Company is not able to raise adequate funds, it may be required
to delay, scale back, or terminate its clinical trials, or to obtain funds
through entering into arrangements with collaborative partners or others. Such
arrangements may require the Company to give up additional rights to its
technology, product candidates or products.
The Company's future capital requirements will depend on a number of
factors, including:
o the amount of royalties received from Merz for future sales of
Memantine;
o the progress of the Company's clinical development programs;
o the time and cost involved in obtaining regulatory approvals;
o the cost of filing, prosecuting, defending, and enforcing patent claims
and other intellectual property rights;
o competing technological and market developments;
o the ability of the Company to establish collaborative relationships;
o the development of commercialization activities and arrangements; and
o the purchase of additional capital equipment.
The Company's continuing losses raise a going concern issue in the auditor's
report.
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, 1999 includes a paragraph indicating that, as more fully described in the
financial statements, the Company's recurring losses during the development
stage and a working capital deficit and net capital deficiency at September 30,
1999 raise substantial doubt about the Company's ability to continue as a going
concern.
The Company is currently evaluating the results of its Phase IIB
clinical trials of Memantine for peripheral diabetic neuropathy. In addition,
the Company recently announced the conclusion of its abbreviated Phase II
clinical trial for peritumoral brain edema. The results of the Company's
preclinical studies and early stage clinical trials are not necessarily
indicative of those that will be obtained upon further clinical testing in later
stage clinical trials. Although the trial of Memantine completed in January
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1998 indicated potential effectiveness in treating peripheral diabetic
neuropathy, the recently completed Phase IIB clinical trial may not be
successful in confirming Memantine's efficacy for this indication. Further, even
though the results of abbreviated XERECEPT clinical trials confirmed neurologic
improvements, the data were not statistically significant and the status of any
further clinical development for this indication is uncertain.
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 possibility that the potential products may:
o be found to be unsafe, ineffective or toxic;
o fail to receive necessary regulatory clearances; and
o if approved, be difficult to manufacture on a large scale or
uneconomical to market;
o be precluded from marketing by the Company due to the proprietary
rights of third parties; and
o not be successful because third parties market or may market superior
or equivalent products.
The Company's development activities may not 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.
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.
With respect to Memantine, the Company is dependent on Merz for:
o the manufacturing and supply of drug for these and any future human
clinical trials; and
o the successful commercialization of the product to treat neuropathic
pain and AIDS-related dementia.
The only revenues that the Company will receive in the future for Memantine
are royalties received on product sales by Merz or its marketing partner or
partners. Any failure by Merz or its partners to successfully commercialize
Memantine after its development will have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has also entered into various contractual arrangements (many of
which are non-exclusive) with consultants, academic collaborators, licensors,
licensees 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 significant 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. If the collaborator, licensor or
contractor fails to perform, the Company's business may be adversely affected.
The Company has also relied on scientific, technical, clinical, commercial
and other data supplied and disclosed by others in entering into these
agreements. The Company has relied on this 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,
it is possible that there are 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.
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A number of the Company's agreements and licenses with third parties
require the Company to pay royalties and make other payments to such parties.
Failure by the Company to make such payments could cause the Company to lose
rights to technology or data under these agreements.
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 and
clinical testing procedures, sampling activities and other costly and time
consuming procedures.
Fulfillment of regulatory requirements for marketing human therapeutics
typically takes many years and varies substantially based on the type,
complexity, and novelty of the drug for which approval is sought. Government
regulation may:
o delay for a considerable period of time or prevent marketing of any
product that the Company may develop; and/or
o impose costly procedures upon the Company's activities.
Either of these effects of government regulation may provide an advantage
to the Company's 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 delay in obtaining, or failure to obtain, required 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 instituted which could delay regulatory
approval of the Company's potential products. Additional government regulations
that might result from future legislation or administrative action cannot be
predicted.
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.
The patent position of biotechnology firms generally is highly uncertain
because:
o patents involve complex legal and factual issues that have recently
been the subject of much litigation;
o 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; and
o others may independently develop similar products, duplicate any of the
Company's potential products, or design around the claims of any
potential patented products of the Company.
In addition, because of the time delay in patent approval and the secrecy
afforded United States patent applications, the Company does not know if other
applications, that might have priority over the Company's applications, have
been filed.
As a result of all of these factors, 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,
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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.
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 which the Company has
licenses. 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, or at a reasonable cost, or
be able to develop alternative technology.
The Company's potential products will need to be manufactured under the current
Good Manufacturing Practices requirements prescribed by the FDA and the Company
does not have its own manufacturing facilities.
The Company has established arrangements with its corporate
collaborator, Merz, and with contract manufacturers to supply potential products
for preclinical and clinical trials. The Company intends to establish similar
arrangements for the manufacture, packaging, labeling and distribution of its
products if they are approved for marketing.
The Company faces certain risks by outsourcing manufacturing, including:
o the delay of the Company's preclinical and human clinical testing if
the Company's contractors are unable to supply sufficient quantities of
product candidates manufactured in accordance with cGMP on acceptable
terms;
o the delay of market introduction and subsequent sales of such products
if the Company should encounter difficulties in establishing
relationships with manufacturers to produce, package and distribute its
products;
o adverse effects on the FDA pre-market approval of the products if the
Company's collaborators and contract manufacturers do not adhere to
cGMP regulations enforced by the FDA through its facilities inspection
program and if these facilities cannot pass a pre-approval plant
inspection.
Therefore, 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.
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 which the
Company's insurance may not cover.
The Company has a limited amount of product liability insurance to
cover liabilities arising from clinical trials. It is possible that the
Company's current insurance may not be adequate to cover any liabilities arising
from the Company's clinical trials.
The Company's current product liability insurance does not cover
commercial sales of products. The Company can not be sure that it will be able
to obtain product liability insurance covering commercial sales or, if such
insurance is obtained, that sufficient coverage can be acquired at a
14
<PAGE>
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.
Further reductions in the Company's staff might significantly delay the
achievement of planned development objectives.
Each person currently employed by the Company serves an essential
function. During the quarter ending September 30, 1999, the Company reduced its
workforce from 11 to 10 persons. Any further reduction in force could impair the
Company's ability to manage ongoing human clinical trials and have a material
adverse effect on the Company's operations.
The market price of the shares of the Company's common stock, like that of the
common stock of many other biopharmaceutical companies, has been and is likely
to continue to be, highly volatile.
The average daily trading volume of the Company's common stock during
fiscal 1999 has been low compared to that of other biopharmaceutical companies.
The Company's common stock was delisted from The Nasdaq Stock Market in February
1998 because the Company failed to meet the financial conditions necessary to
remain listed. The delisting has adversely affected, and is expected to continue
to adversely affect, the trading volume and price volatility of the Company's
stock. The Company's common stock is now quoted on the OTC-Bulletin Board(R)
under the symbol NTII.
In connection with the private placement concluded in November 1999, the
Company has agreed to file a registration statement on Form S-3 with the SEC for
the shares of common stock that were sold and that are issuable upon exercise of
the warrants. The number of share of the Company's common stock freely tradable
in the open market following the effective date of that registration statement
will increase significantly. If holders of these shares sell large numbers of
their shares in the open market, the market price of the common stock could fall
sharply. In addition, the perception that such shares could occur may cause the
market price of the Company's common stock to remain relatively low
indefinitely.
Other factors causing volatility in the Company's stock price include:
o the results of preclinical studies and clinical trials by the Company
or its competitors;
o other evidence of the safety or efficacy of products of the Company or
its competitors,
o announcements of technological innovations or new therapeutic products
by the Company or its competitors;
o developments in patent or other proprietary rights of the Company or
its competitors including litigation;
o fluctuations in the Company's operating results;
o government regulation, health care legislation; and o market conditions
for life sciences' stocks in general.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27: Financial Data Schedule.
Reports: The Company did not file any reports on Form 8-K during the three
months ended September 30, 1999.
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: November 15, 1999 /s/ Paul E. Freiman
-----------------------------------
Paul E. Freiman
President, Chief Executive Officer
(Principal Executive and Accounting Officer)
and Director
16
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REFERENCE TO SUCH FINANCIAL STATEMENTS
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1,166,000
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