UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to __________
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.
3260 Blume Drive Suite 500, Richmond, California 94806
(Address of principal executive offices)
(510) 262-1730
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common stock, $.001 Par Value
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 S-B contained in this form, and no disclosure will be
contained, to the best of 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. [ ]
The issuer had no revenue for its most recent fiscal year.
As of September 1, 2000, the issuer had 16,311,278 shares of common
stock, $.001 par value, outstanding, and the aggregate market value of the
shares of common stock held by non-affiliates on that date was $97,901,730 based
upon the last sale price of the issuer's common stock reported on the Nasdaq
SmallCap Market on that date.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Item 9 and Items 10 and 11 of Part III incorporate by
reference information from the issuer's Proxy Statement for the Annual Meeting
of Stockholders to be held on November 21, 2000 (the "Proxy Statement").
PART I.
ITEM 1. BUSINESS
Statements in this Business section and other parts of this Annual
Report on Form 10-KSB 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 Our Business,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Form 10-KSB.
OVERVIEW
Neurobiological Technologies, Inc. ("NTI(R)" or the "Company) is an
emerging drug development company focused on the clinical development and
regulatory approval of neuroscience drugs. We develop neuroprotective and
neuromodulatory agents to treat progressive neurological impairments
characteristic of various nervous system disorders, including diabetic
neuropathy, brain cancer, and AIDS dementia syndrome.
Our strategy is to in-license and develop early stage drug candidates
that target major medical needs and that can be rapidly commercialized. Our
experienced management team oversees the human clinical trials necessary to
establish preliminary evidence of efficacy and seeks partnerships with
pharmaceutical and biotechnology companies for late-stage development and
marketing of our product candidates.
In May 2000, we presented results of our placebo-controlled Phase IIB,
dose ranging human clinical trial of Memantine, an orally available compound
which appears to restore the function of impaired neurons by modulation activity
of the N-methyl-D-aspartate or NMDA receptor, integral to the membranes of such
cells. Such restoration of function appears to inhibit 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-related dementia. Results of the 421 patient Phase IIB clinical trial of
Memantine as a treatment for painful diabetic neuropathy showed that 44% of the
patients receiving 40mg dosages experienced a 50% pain reduction, compared to
29% in the placebo group at the end of eight weeks. Although positive trends
were seen in the groups treated with 20mg of Memantine compared to placebo, no
statistical significance was observed.
In April 2000, our alliance partner, Merz + Co. GmbH & Co. of
Frankfurt, Germany, announced promising results in patients suffering from mild
to moderate vascular dementia. Of a total of 900 patients investigated in two
Phase III clinical trial studies, the Memantine treated patients showed
significant improvements in cognitive abilities compared to the patients who
received a placebo as demonstrated by two independent performance-based
assessments. Patients who had more severe disease showed the most improvement,
according to Gordon Wilcock, M.D., of Frenchay Hospital in Bristol, England,
lead investigator for the U.K. trial.
In February 2000, we announced that Merz had reported significant
positive results from a U.S. Phase III trial of Memantine in patients with
advanced Alzheimer's disease. This randomized, 6-month placebo-controlled,
double-blind
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multicenter trial aimed at functional improvement of patients with moderate to
severe Alzheimer's disease, enrolled 252 patients in the United States and was
jointly managed by Quintiles CNS Therapeutics. These clinical trial results
confirmed the findings of the previously conducted Phase III clinical studies
Merz conducted for registration requirements in Europe and the United States.
In January 2000, we announced completion of patient enrollment in a
double-blind, placebo-controlled Phase II human clinical trial to evaluate
Memantine's ability to reduce symptoms of dementia and neuropathic pain in
patients with AIDS. This trial is funded by the National Institute of Allergy
and Infectious Diseases (NIAID) of the National Institutes of Health and
conducted by the AIDS Clinical Trials Group (ACTG), a clinical trials consortium
funded by the NIAID. We are supplying the Memantine for the trial and will have
the right to use the resulting data for the commercial development of Memantine
for that indication. We expect results of this trial to be reported by the end
of calendar 2000.
In June 2000, Merz entered into an agreement with Forest Laboratories,
Inc. for the development and marketing of Memantine in the United States for the
treatment of Alzheimer's disease, neuropathic pain and AIDS-related dementia.
Under our 1998 strategic research and marketing cooperation agreement with Merz,
we expect to receive a share of the payments Forest Laboratories, Inc. will be
providing Merz.
Subsequent to fiscal year end, in August 2000, Merz entered into a
strategic license and cooperation agreement with H. Lundbeck A/S, of Copenhagen,
Denmark for the further development and marketing of Memantine for the treatment
of Alzheimer's disease, neuropathic pain and AIDS-related dementia. Lundbeck
will acquire exclusive rights to certain European markets and in Canada,
Australia and South Africa and semi-exclusive rights to co-market with Merz in
other markets worldwide, not including the United States and Japan. Japan is
being developed by Merz' collaborative partner, Suntory Ltd. Under our 1998
strategic research and marketing cooperation agreement with Merz, we expect to
receive a share of the payments Lundbeck will be providing Merz.
Memantine has been marketed by Merz in Germany since 1989 with the
labeling "dementia syndrome." NTI and Merz are currently assisting each other to
advance our respective clinical development programs by sharing scientific
information and clinical trial data.
We are also developing XERECEPT(TM), a synthetic preparation of the
natural human peptide Corticotropin-Releasing Factor, as a treatment for brain
swelling due to brain tumors (peritumoral brain edema). XERECEPT received orphan
drug designation for this indication by the FDA.
Since 1987 when NTI was founded, we have applied a substantial portion
of our resources to our research and development programs. We are a development
stage company, have not received any revenue from the sale of products, and do
not anticipate receiving revenue from the sale of products in the near future.
We have incurred losses since our inception and expect to incur substantial,
increasing losses due to ongoing and planned research and development efforts.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<TABLE>
PRODUCT CANDIDATES
<CAPTION>
Product/Indication Development Status Primary Benefit Sought
---------------------------------- ----------------------------------- --------------------------
<S> <C> <C>
MEMANTINE
Diabetic Neuropathic Pain Phase IIB trial completed by NTI. Analgesia.
Results show statistically
significant improvement of 40mg of
Memantine over placebo in reducing
chronic nighttime pain at the end of
eight weeks.
Mild to Moderate Vascular Dementia Phase III trials completed by Merz Cognitive improvement.
in the United Kingdom and France.
Results showed significantly
improved cognitive abilities
compared to patients who received
placebo as demonstrated by the
Activities of Daily Living and
cognitive performance evaluations.
Moderate to Severe Dementia and Phase III trial completed by Merz in Functional and/or cognitive
Alzheimer's Disease the United States. Improvement in improvement.
functional independence and
reduction in required level of care.
AIDS-Related Dementia and Phase II trial in progress by NTI. Improvement in neurological
Neuropathic Pain Patient enrollment completed in function and peripheral
January 2000. Results expected by neuropathy.
the end of calendar 2000.
XERECEPT(TM) (CORTICOTROPIN-RELEASING FACTOR)
Peritumoral Brain Edema Phase II trial enrollment closed at Stabilization or improvement of
33 patients. Results confirmatory neurological function.
but not definitive.
-----------------------------------
</TABLE>
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SCIENTIFIC BACKGROUND
Our therapeutic focus is neuroprotection and neuromodulation: the
prevention and treatment of neurological impairment by preserving or restoring
neurological function of damaged neurons. We are developing neuroprotective and
neuromodulatory agents which may slow or reverse the progressive neurological
impairment associated with multiple nervous system disorders, including diabetic
neuropathy, brain cancer, and AIDS-Dementia Complex.
Because neuronal impairment contributes significantly to functional
impairment in many nervous system disorders, scientists believe that
neuroprotective compounds are potentially powerful and flexible therapeutic
agents. There has been much interest in the business and academic communities to
develop such agents.
Mechanisms common to progressive neuronal impairment in various medical
conditions are thought to result in multiple neurologic symptoms such as chronic
pain, motor difficulties, memory loss and other cognitive deficits. By
modulating such mechanisms, neuroprotective agents may prevent or restore loss
of neurological function. Our current scientific focus is on two mechanisms
contributing to progressive neuronal impairment: excitotoxicity and edema. There
is evidence that Memantine prevents or reduces excitotoxicity, a cascade of
neuronal cell injury and death associated with the release of abnormal levels of
excitatory neurotransmitters. XERECEPT has the potential to prevent the
progressive neuronal impairment resulting directly from cerebral edema (swelling
of the brain), damage that more frequently results in clinical impairment than
the damage resulting from the presence of a tumor.
PRODUCTS IN DEVELOPMENT
Memantine
Memantine is an orally-available neuromodulatory agent that has been
marketed in Germany by Merz since 1989 with the labeling "dementia syndrome." It
is one of a class of agents referred to as NMDA-receptor antagonists. Scientific
research has indicated that modulating the NMDA receptor may protect against the
neuronal impairment and death associated with a number of medical conditions.
Accumulating evidence from various studies indicates that overstimulation of
NMDA receptors contributes to the impairment and death of neurons. This occurs
in a variety of chronic neurodegenerative diseases including neuropathic pain,
dementia, Alzheimer's disease, and Huntington's disease. There are currently no
approved neuroprotective treatments for any of the pathologies associated with
NMDA-receptor overstimulation.
NTI has been developing Memantine both as a treatment for neuropathic
pain as well as for neurological deficits associated with AIDS. Estimates are
that approximately 1,000,000 patients in the United States suffer from
intractable neuropathic pain. In addition, as many as one-third of AIDS patients
eventually develop neurological problems, such as loss of cognition and
coordination.
Nerve cells in the brain communicate by sending signals to excite or
inhibit each other. These signals are initiated by compounds known as
neurotransmitters. The principal excitatory neurotransmitter, glutamate, binds
to the NMDA receptor embedded in the cell membrane of the neuron. When glutamate
binds to the receptor, a channel in the neuron opens which enables charged
calcium molecules to flow freely into the neuron. Normally, the influx 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 normal movement, sensation, memory, and
cognition. In certain medical conditions, glutamate levels surrounding neurons
are elevated, which results in overstimulation of the NMDA receptor. In these
situations, excessive amounts of calcium enter the
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neuron, releasing internally stored glutamate into the surrounding area. This
glutamate further stimulates NMDA receptors on neighboring neurons, causing a
cascade of neuronal cell impairment and/or death throughout the area, referred
to as excitotoxicity.
Neuroscientists have been developing ways to prevent the damaging
influx of excess calcium into neurons. One approach is to prevent glutamate from
binding to the receptor. 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.
Scientists affiliated with Children's Hospital of Boston, Massachusetts
working on understanding the function of the NMDA receptor found Memantine to
modulate the NMDA receptor's calcium ion channel. Memantine binds
uncompetitively to the NMDA receptor and appears to interfere relatively little
with normal functioning, while reducing abnormal signals associated with
excessive calcium influx. Rather than blocking the NMDA receptor for long
periods of time, Memantine appears to restore regulation of the channel to near
normal activity, while permitting routine neurotransmission.
The profound psychotic side effects associated with other NMDA receptor
antagonists previously evaluated by third parties in human clinical trials were
virtually absent with Memantine. Merz has carefully documented Memantine's
history of safe clinical use in Germany over years of post-launch clinical
experience and active surveillance. In a post-marketing surveillance study
sponsored by Merz with 1,420 dementia outpatients treated for up to more than
one year, Memantine was rated as having very good to good tolerability in 93.8%
of the cases at the end of the observation period.
Product Development Status
The Neuropathic Pain of Diabetes
Diabetes mellitus is a chronic disorder that affects an estimated 16
million Americans. One of its most common complications is nerve damage,
particularly damage to peripheral nerves that send sensory signals from the
extremities to the central nervous system or CNS. This condition, referred to as
peripheral diabetic neuropathy or PDN, is a large, unmet medical need. This
condition most frequently damages nerves in the feet, making walking or standing
painful and difficult. We estimate that approximately 800,000 patients in the
United States currently receive treatments for the symptoms of PDN, including
severe, chronic pain known as neuropathic pain (persistent pain in the absence
of an obvious stimulus). As the neuropathy progresses, the sensation of pain may
become more intense, encompass more areas, and become increasingly difficult to
treat with available therapeutic agents.
Peripheral nerve damage disrupts pain pathways in the nervous system,
causing nerves to send abnormal signals that the brain interprets as pain. In
effect, neurons in the CNS are bombarded with abnormal signals until their
ability to process pain signals is compromised. This leads to
hyper-sensitization of neurons to pain impulses and results in progressive
neuronal impairment in the CNS. Although the precise mechanisms of these events
are not completely understood, there is evidence that overactivation of NMDA
receptors in the CNS plays an important role.
Memantine has been shown to inhibit abnormal pain signals by modulating
the NMDA receptor in several animal models of neuropathic pain. Based on the
results of these studies, we sponsored and completed a 122-patient
placebo-controlled Phase IIA human clinical trial of Memantine in patients with
neuropathic pain due to diabetes or post-herpetic neuralgia (a complication of
shingles). No treatment
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benefit was observed in patients with post-herpetic neuralgia. However, trends
indicating efficacy of Memantine were observed in patients with PDN. The
strongest efficacy trend was the reduction of nocturnal pain associated with
PDN. Nocturnal pain is a major problem for these patients, frequently leading to
insomnia and other associated health and psychological problems. After eight
weeks of treatment in our clinical trial, subjects dosing with Memantine
reported a mean nocturnal pain rating of 31.2 millimeters (on a visual analogue
scale of 1-100 millimeters) compared to a mean of 44.4 millimeters for those who
received placebo. The difference between these means indicates that the
Memantine-treated subjects had 42% less nocturnal pain than those treated with
placebo. The results for the other primary variables of daytime pain and pain
relief, although not statistically significant, exhibited consistent trends
representative of analgesic benefit with Memantine compared to placebo.
Based on the results from our Phase IIA trial of Memantine in patients
with neuropathic pain, we initiated a Phase IIB trial of Memantine in the second
quarter of fiscal 1999, exclusively in patients with PDN. In May 2000, we
presented results of our placebo-controlled Phase IIB, dose ranging human
clinical trial of Memantine at the 52nd Annual Meeting of the American Academy
of Neurology in San Diego. Results of this 421 patient Phase IIB clinical trial
of Memantine as a treatment for painful diabetic neuropathy showed that 44% of
the patients receiving 40 mg dosages experienced a 50% pain reduction, compared
to 29% in the placebo group at the end of eight weeks. Although positive trends
were seen in the groups treated with 20 mg of Memantine compared to placebo, no
statistical significance was observed. We expect Merz and Forest to begin to
work with the FDA to design a Phase III study for this indication during the
second quarter of fiscal 2001.
AIDS-Related Dementia and Neuropathic Pain
Recent research indicates that infection of the CNS with HIV, the virus
associated with AIDS, also leads to neuronal impairment. Such impairment may
result in neurological complications, including loss of cognition, movement, and
sensation, referred to as AIDS Dementia Complex. Approximately one-half of
children and one-third of adults with AIDS are expected to develop these
symptoms. There are currently no therapies specifically directed towards
HIV-associated neuronal impairment. Current AIDS therapies, even if effective at
reducing the circulating virus level, do not appear to be effective at
eliminating AIDS-induced impairment to the CNS.
Besides the AIDS-related cognitive impairments, many AIDS patients
experience painful peripheral neuropathies due to overstimulation of 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.
Memantine has been shown to reduce NMDA receptor-mediated neuronal
impairment in both in vitro (outside the body) experiments and in vivo (inside
the body) animal models. Neuronal dysfunction due to HIV infection has been
shown to be mitigated by antagonists of the NMDA receptor, including Memantine.
In December 1996, we announced the initiation of a Phase II clinical
trial of Memantine as a treatment for AIDS-related dementia and neuropathic
pain. This study is funded by the National Institute of Allergy and Infectious
Diseases (NIAID) of the National Institutes of Health and is being conducted by
the AIDS Clinical Trials Group (ACTG), a clinical trials consortium funded by
the NIAID. In December 1999, enrollment was completed at 140 AIDS patients. The
ACTG also implemented a protocol extension permitting open-label dosing for up
to 60 weeks following the blinded phase of the trial. This open-label phase will
provide data on the long-term safety of Memantine. We are supplying Memantine
for the trial and will have the right to use the resulting data to further the
commercial development of
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Memantine for that indication. If positive trial results are reported, we will
need to discuss additional regulatory requirements for this indication,
including future clinical trials, with the FDA. We expect results of this trial
to be reported by the end of calendar 2000.
Agreement with Merz and Additional Indications
In April 1998, we entered into a strategic research and marketing
cooperation agreement with Merz and a new revenue sharing partnership with
Children's Medical Center Corporation to further the clinical development and
commercialization of Memantine. Pursuant to this agreement, Children's Medical
Center Corporation terminated its existing license to NTI for AIDS-related
dementia and neuropathic pain and granted exclusive rights to Merz. NTI and Merz
share scientific, clinical and regulatory information about Memantine,
particularly safety data, to facilitate regulatory review and marketing approval
by the FDA and foreign regulatory authorities. Pursuant to the agreement with
Merz, NTI will share in future revenues from sales of Memantine for all
indications.
In April 2000, Merz announced the results of two major Phase III
clinical trials in the United Kingdom and France using Memantine to treat
vascular dementia. The trials were designed to investigate improvements in
cognition, a major focus of drug therapy for dementia. Of the total of 900
patients investigated in two studies, the Memantine treated patients showed
significant improvements in cognitive abilities compared to the patients who
received a placebo, as demonstrated by two independent performance-based
assessments. Patients who had more severe disease showed the most improvement,
according to Gordon Wilcock, M.D., of Frenchay Hospital in Bristol, England,
lead investigator for the U.K. trial.
Merz has completed three Phase III clinical trials of Memantine for
moderate to severe dementia in Europe. In February 2000, Merz announced the
results of a 252 patient Phase III trial in the United States for moderately
severe to severe Alzheimer's disease. Severe dementia is characterized by
progressive decline in motor and cognitive skills associated with multiple
central nervous system disorders, chiefly neurodegenerative conditions such as
Alzheimer's disease. According to the NIH, approximately 4 million people are
affected by Alzheimer's disease in the U.S. There are currently no approved
treatments indicating clinical benefits in patients with severe dementia. In a
six month study, patients were assigned to either 20mg Memantine twice a day or
placebo. In these moderately severe to severe Alzheimer's disease patients,
Memantine produced statistically significant results versus placebo in three
major domains: clinical global change, function and cognition. Results indicated
the decline in various endpoints was consistently smaller for the Memantine
treatment group, although both treatment groups worsened during the 28-week
period. These results are consistent with trial results previously published by
Merz for Memantine in a population of severely demented inpatients. Although the
disease process cannot be reversed, the studies show that Memantine can reduce
the clinical decline over a six-month period.
XERECEPT(TM) (Human Corticotropin-Releasing Factor)
XERECEPT(TM) is our synthetic preparation of the human peptide
Corticotropin-Releasing Factor (hCRF) which we are developing as a treatment for
brain swelling due to brain tumors (peritumoral brain edema). There is clinical
evidence that XERECEPT may be a safer treatment than synthetic corticosteroids,
which are associated with serious adverse side effects including muscle wasting,
weight gain, immunosuppression, osteoporosis, hyperglycemia, glaucoma and
psychosis. Results from preclinical studies and pilot human clinical trials
previously sponsored by the Company have demonstrated the compound's potential
to reduce swelling in brain tissue and to be well-tolerated and apparently safe.
Thus, XERECEPT has the potential to significantly improve the quality of life
for brain
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cancer patients with dysfunction due to brain swelling. In the United States,
approximately 30,000 patients are diagnosed every year with brain tumors.
Patients with this condition are in need of a safe alternative to
corticosteroids, which have serious adverse effects at the high, chronic doses
required for efficacy.
The FDA has approved our application for orphan drug designation for
XERECEPT to treat this unmet medical need. Orphan drug designation provides NTI
with seven years market exclusivity and makes us eligible to receive federal
monies for clinical research under the Orphan Drug Grant Program.
CRF is a natural neuroendocrine peptide hormone found in humans both
centrally (within the brain) and peripherally (outside the brain). Researchers
discovered anti-edema affects of CRF through systemic administration. Research
by scientific collaborators of NTI has revealed that XERECEPT significantly
reduces edema or swelling of damaged tissue in animal models. Edema is a
condition characterized by swelling after tissue injury when fluid, plasma
proteins, and white blood cells flow from small blood vessels into the
surrounding tissues, further contributing to the destruction of these tissues.
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, these studies have shown that XERECEPT injected systemically into
animals can reduce brain edema after injury, brain edema associated with cancer
tumors, and swelling in muscle tissue following surgical trauma.
Product Development Status
Peritumoral Brain Edema
We have been initially evaluating XERECEPT for the treatment of
cerebral edema caused by brain tumors. In these patients, the tumor promotes
increased permeability of the small blood vessels in the brain, which result in
the excess flow of fluids into the brain, swelling of brain tissue, and a
consequent impairment of neurological function. Current treatment of peritumoral
brain edema, primarily corticosteroids, results in serious adverse side effects
at the high chronic doses required for efficacy. Reactions can include muscle
wasting, weight gain, immunosuppression, osteoporosis, hyperglycemia, glaucoma,
psychosis and other potentially dose-limiting side effects.
Although endogenous CRF 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 cortisol release when
administered systemically.
Based on the pharmacologic profile of XERECEPT, there is evidence 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 in more than 230 courses of treatment.
Results from pilot human clinical trials previously sponsored by NTI
demonstrated the potential of XERECEPT to reduce swelling of brain tissue and to
be well-tolerated and apparently safe. Based on these results, we initiated a
Phase II human clinical trial in 1997 to evaluate the efficacy of XERECEPT to
stabilize or improve neurological symptoms caused by peritumoral brain edema.
Patients enrolled in this randomized, double-blind, positive-controlled trial
had neurological symptoms requiring stable dosing of synthetic corticosteroids,
the current standard treatment. We 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. However, rigorous statistical
analysis of the data was not meaningful due to the small numbers enrolled.
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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. We are currently having a new batch of
XERECEPT made to initiate a Phase II trial.
SUPPLIERS
Memantine currently is being supplied to NTI by our corporate
collaborator, Merz. We have also contracted with external vendors to manufacture
compounds for our other clinical trials. The manufacturers of clinical products
have represented to us that they are qualified to produce drugs under FDA
regulations and that they follow current Good Manufacturing Practice (cGMP).
XERECEPT has been manufactured by established methods using chemical synthesis
to NTI specifications. We performed audits on our contractors who supplied
XERECEPT to assess compliance with the cGMP regulations. Alternative cGMP
suppliers of the bulk drugs and of finished dosage form products are available
to us. We currently have no plans to build or develop an in-house manufacturing
capability.
We face certain risks by outsourcing manufacturing, including:
o the delay of our preclinical and human clinical testing if our
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 we encounter difficulties in establishing
relationships with manufacturers to produce, package and
distribute our products; and
o adverse effects on FDA pre-market approvals of the products of our
collaborators and contract manufacturers if they do not adhere to
cGMP regulations.
Therefore, our dependence on third parties for the manufacture of
products may adversely affect our results of operations and our ability to
develop and deliver products on a timely and competitive basis.
PATENTS AND PROPRIETARY TECHNOLOGY
In April 1998, in connection with our agreement with Merz, our
exclusive license from Children's Medical Center Corporation to a series of
patents and patent applications relating to certain non-ophthalmic uses of
Memantine was terminated.
We hold non-exclusive worldwide licenses to four issued U.S. patents
covering the composition of matter of XERECEPT and various analogues, together
with certain foreign patents and patent applications. Because of the
non-exclusivity of the four issued U.S. patents, others may develop, manufacture
and market products that could compete with those we develop. However, we also
have exclusive rights to four issued patents and one patent application covering
uses of XERECEPT and analogues. We are responsible for the costs of prosecuting
the patent applications related to XERECEPT for which we have exclusive rights.
In addition to the patents and pending applications we have licensed from
others, we hold U.S. Patent No. 5,870,430 which covers certain liquid
formulations of CRF and CRF-related peptides. In August 2000, we announced that
we had signed an option with the University of California, Berkeley for
Berkeley's patents on corticotropin-releasing hormone analogues. The option
agreement includes a work plan that will encompass in vivo models of the
hormones to screen CRH-analogues in terms of arriving at the optimium
CRH-analogue for clinical purposes.
The patent position of biotechnology firms generally is highly
uncertain because:
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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 our potential products, or design around the claims of any of
our potential patented products.
In addition, because of the time delay in patent approval and the
secrecy afforded United States patent applications, we do not know if other
applications, which might have priority over our applications, have been filed.
Further, because we have non-exclusive licenses to patent rights covering
certain uses of XERECEPT, others may develop, manufacture and market products
that could compete with those we develop.
As a result of all of these factors, there can be no assurance that
patent applications relating to our potential products or processes will result
in patents being issued, or that patents, if issued, will provide protection
against competitors who successfully challenge our patents, obtain patents that
may have an adverse effect on our ability to conduct business, or be able to
circumvent our 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 our business.
Some of these technologies, applications or patents may conflict with our or any
of our licensors' technologies or patent applications. Such conflict could limit
the scope of the patents, if any, that we may be able to obtain or to which we
have a license or result in the denial of our patent applications or the patent
applications for which we have licenses. In addition, if patents that cover our
activities have been or are issued to other companies, there can be no assurance
that we would be able to obtain licenses to these patents at a reasonable cost,
or be able to develop alternative technology.
In addition to patent protection, we rely upon trade secret protection
for our confidential and proprietary information. It is our policy that each
employee enter into a confidentiality agreement which contains provisions
generally prohibiting the disclosure of confidential information to anyone
outside NTI and requiring disclosure to NTI of ideas, developments, discoveries
or inventions conceived during employment and assignment to NTI of proprietary
rights to such matters related to the business and technology of NTI. However,
it is possible that these agreements could be breached. In addition, others may
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose such
technology.
GOVERNMENT REGULATION
In order to clinically test, produce, and market products for
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
A company generally must conduct preclinical testing on laboratory
animals of new pharmaceutical products prior to commencement of clinical studies
involving humans. These studies evaluate the potential efficacy and safety of
the product. The company then submits the results of these studies to the FDA as
part of an investigational new drug application, or IND, which must become
effective before clinical testing in humans can begin.
11
<PAGE>
Typically, human clinical evaluation involves a time-consuming and
costly three-phase process:
o In Phase I, a company conducts clinical trials with a small
number of subjects to determine a drug's early safety profile and
its pharmacokinetic pattern.
o In Phase II, a company conducts clinical trials with groups of
patients afflicted with a specific disease in order to determine
preliminary effectiveness, optimal dosages and further evidence
of safety.
o In Phase III, a company conducts large-scale, multi-center,
comparative trials with patients afflicted with a target disease
in order to provide enough data to demonstrate the effectiveness
and safety required by the FDA prior to commercialization.
The FDA closely monitors the progress of each phase of clinical
testing. The FDA may, at its discretion, re-evaluate, alter, suspend, or
terminate testing based upon the data accumulated to that point and the FDA's
assessment of the risk/benefit ratio to patients.
The results of the preclinical and clinical testing are submitted to
the FDA in the form of a new drug application, or NDA, for approval prior to
commercialization. In responding to an NDA, the FDA may grant marketing
approval, request additional information, or deny the application. Failure to
receive approval for any of our potential products would have a material adverse
effect on NTI. Among the requirements for product approval is the requirement
that each domestic manufacturer of the product conform to the FDA's current Good
Manufacturing Practice regulations, which must be followed at all times.
Compliance with the cGMP regulations requires that manufacturers 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 continue to
govern the manufacturing process and marketing activities. A post-marketing
testing and surveillance program may be required to continuously monitor a
product's usage and effects in patients. Product approvals may be suspended or
withdrawn if compliance with regulatory standards is not maintained.
Foreign regulatory approval of a product must also be obtained prior to
marketing the product internationally. Foreign approval procedures vary from
country to country. The time required for approval may delay or prevent
marketing in certain countries. In certain instances, the Company or its
collaborative partners may seek approval to market and sell certain products
outside of the United States before submitting an application for United States
approval to the FDA. The clinical testing requirements and the time required to
obtain foreign regulatory approvals may differ from those required for FDA
approval.
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 we may develop; and/or
o impose costly procedures upon our activities.
Either of these effects of government regulation may provide an advantage to our
competitors.
12
<PAGE>
There can be no assurance that FDA or other regulatory approval for any
products developed by NTI 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 our proposed products and our 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 our potential products. Additional government regulations
that might result from future legislation or administrative action cannot be
predicted.
EMPLOYEES
As of June 30, 2000, the Company employed 11 people, 6 of whom are
full-time employees.
ITEM 2. PROPERTIES
Our executive offices are located in Richmond, California. We entered
into a sublease dated May 1, 2000 for approximately 4,333 square feet of space.
The master lease under which we sublease the property is scheduled to expire in
July 2002. Rental payments are approximately $7,600 per month over the term of
the sublease.
We believe that our facilities are adequate for our current needs and
that, if required, we will be able to lease suitable alternative or additional
space on commercially acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
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, 2000.
PART II.
ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
From February 1998 to July 2000, the Company's common stock was traded
on the Nasdaq Stock Market's Over-the-Counter (OTC) Bulletin Board(R). Since
July 2000, the Company's common stock has been quoted on The Nasdaq SmallCap
System under the symbol NTII.
As of June 30, 2000 there were approximately 265 holders of record of
the Company's common stock and 15,647,397 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.
High and low prices given here refer to the high and low bid quoted on
the OTC Bulletin Board, where our common stock traded until July 2000. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
Fiscal 1999 High Low
----------- ---- ---
13
<PAGE>
First Quarter ..................... $1.06 $0.38
Second Quarter .................... $0.69 $0.41
Third Quarter...................... $0.66 $0.47
Fourth Quarter..................... $1.44 $0.50
Fiscal 2000 High Low
----------- ---- ---
First Quarter ..................... $1.53 $0.84
Second Quarter .................... $3.75 $0.84
Third Quarter...................... $9.28 $2.81
Fourth Quarter..................... $8.50 $3.88
Recent Sales of Unregistered Securities
In April 2000, the Company sold 1,200,000 shares of common stock for an
aggregate consideration of $6,360,000 in a private placement to accredited
investors under Regulation D. The purchase price was $5.30 per share.
From August through November 1999, the Company sold 1,086,940 units of
its securities for an aggregate consideration of approximately $4.3 million in
private placements to accredited investors under Regulation D. The purchase
price was $4.00 per unit. Each unit consisted of five shares of common stock and
one warrant (exercisable for 5 years from the date of issuance) to purchase two
shares of common stock at an exercise price of $1.75 per share.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
NTI 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 Complex. The Company's
strategy is to in-license and develop early-stage drug candidates that target
major medical needs and that may be rapidly commercialized.
NTI currently has two product candidates that have completed or are in
Phase II human clinical testing. One of these, the orally-dosed compound
Memantine, appears to restore the function of impaired neurons by modulating the
NMDA receptor, integral to the membranes of such cells. In the second quarter of
fiscal 1999, the Company initiated a 375-patient placebo-controlled Phase IIB
human clinical trial to evaluate the ability of Memantine to relieve chronic
pain due to painful diabetic neuropathy. The 8-week trial compared two dosage
levels of Memantine, 20mg and 40mg, with placebo. Enrollment was closed at 421
patients in September 1999. In the 40mg group, 44% of the patients experienced a
50% pain reduction, compared to 29% in the placebo group. There was no
significant difference between the 20mg dose and the placebo. The results of the
study were presented at the annual meeting of the American Academy of Neurology
in May 2000.
The ability of Memantine to reduce symptoms of dementia and neuropathic
pain in AIDS patients is currently being evaluated in a Phase II human clinical
trial sponsored by the AIDS Clinical Trials
14
<PAGE>
Group of the NIH. NTI is supplying Memantine for the trial and will have the
right to use the resulting data to further the commercial development of
Memantine for that indication.
NTI is also developing a second product, XERECEPT(TM), a synthetic
preparation of the natural human peptide (hCRF). NTI sponsored and completed a
Phase II human clinical trial to evaluate the efficacy of XERECEPT to stabilize
or improve neurological symptoms caused by peritumoral brain edema (PBE). The
results of this trial were presented at the annual American Academy of Neurology
in May 2000. In a randomized, double-blind, positive controlled, triple dummy,
dose-ranging study in which two different doses of hCRF and a dexamethasone
control group were compared, responders were found in the higher dose, 1mg hCRF
group, compared to the dexamethasone control. No major safety concerns were
identified in either of the hCRF groups. Since the number of patients enrolled
was small (a total of 33 patients), no rigorous statistical analysis could be
performed. However, 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. We are currently
having a new batch of XERECEPT made to initiate a Phase II trial.
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 any revenue from the sales of
products in the near future. The Company has incurred losses since its inception
and expects to incur substantial, increasing losses due to ongoing and planned
research and development efforts.
RESULTS OF OPERATIONS
NTI's research and development expenses decreased to $1,896,000 in
fiscal 2000 from $2,780,000 in fiscal 1999. The decrease in fiscal 2000 was
primarily due to the completion of our Phase IIB human clinical trial to
evaluate Memantine as a treatment for peripheral diabetic neuropathy.
General and administrative expenses increased to $1,380,000 in fiscal
2000 from $1,058,000 in fiscal 1999. The increase in fiscal 2000 was primarily
due to increased expenditure in activities relating to seeking financing and
corporate partnerships and relisting our common stock on the Nasdaq SmallCap
Market.
In fiscal 2000 NTI had no revenue. In fiscal 1999 we had revenue of
$99,544 from a Small Business Innovative Research grant awarded by the NIH.
Interest income increased from $47,000 in fiscal 1999 to $161,000 in
fiscal 2000, primarily due to changes in average cash balances.
LIQUIDITY AND CAPITAL RESOURCES
15
<PAGE>
Since 1987 when NTI was founded, we have applied a majority of our
resources to our research and development programs. We are a development stage
company and have not received any revenue from the sale of products. We have
incurred losses since our inception and expect to incur substantial, increasing
losses due to ongoing and planned research and development efforts.
In January 1999, NTI received a loan of $200,000 from Merz. In August
1999, we entered into an agreement with Merz pursuant to which we could borrow
up to $1.5 million to support our Phase IIB trial of Memantine for neuropathic
pain. In November 1999, we repaid the outstanding principal and interest on both
loans.
We believe that our available cash and cash equivalents of $7,387,000
as of June 30, 2000 are adequate to fund our operations through at least the
next twelve months. In the course of our development activities, we have
incurred significant losses and expect additional losses in the year ending June
30, 2001. We expect to incur costs in fiscal 2001 primarily for Phase II
clinical trials of XERECEPT and related administrative support. All future
development costs of Memantine will be paid by Merz's marketing partners.
We may seek to raise additional funds whenever market conditions
permit. Our future capital requirements will depend on a number of factors,
including:
o the amount of front-end and milestone payments received from
marketing agreements for Memantine;
o the amount of royalties received from Merz for future sales of
Memantine;
o the progress of our 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 our ability to establish collaborative relationships; and
o the development of commercialization activities and arrangements.
RISKS ASSOCIATED WITH OUR BUSINESS
You should consider carefully the following risk factors, along with
the other information contained or incorporated by reference in this Annual
Report on Form 10-KSB. These factors, among others, may cause actual results,
events or performance to differ materially from those expressed in any
forward-looking statements we make in this Annual Report or our other reports
and prospectuses filed with the Securities and Exchange Commission.
Because all our potential products are in clinical development, we may not
develop a candidate product that will receive required regulatory approval or be
successfully commercialized.
We are still in the development stage and have no marketable products.
As a result, we have no revenues from product sales, and most of our resources
are dedicated to the development of selected
16
<PAGE>
candidate pharmaceutical products. The results of our 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. It is
possible that none of our candidate products will receive regulatory approval or
be successfully commercialized.
Our potential products are subject to the risks of failure inherent in the
development of products based on new technologies.
Our 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;
o if approved, be difficult to manufacture on a large scale or
uneconomical to market;
o be precluded from marketing by us due to the proprietary rights
of third parties; and
o not be successful because third parties market or may market
superior or equivalent products.
Further, our development activities may not result in any commercially
viable products. We do not expect to be able to commercialize any products for a
number of years, if at all.
We are dependent on Merz and its marketing partners, Forest and Lundbeck, for
the successful commercialization of Memantine.
The only revenues that we will receive in the future for Memantine are
royalties on product sales by Merz or its marketing partners and our share of
front-end and milestone payments received by Merz from its partners. Under
certain circumstances, Merz can terminate its agreement with us upon six months
notice. The termination of our agreement with Merz or any failure by Merz or its
partners to successfully commercialize Memantine after its development would
have a material adverse effect on our business, financial conditions and results
of operations.
We have relied and will continue to rely on others for research, development,
manufacture and commercialization of our potential products.
We have entered into various contractual arrangements (many of which
are non-exclusive) with consultants, academic collaborators, licensors,
licensees and others, and we are 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, our business, financial conditions and results may
be adversely affected.
We have also relied on scientific, mechanical, clinical, commercial and
other data supplied and disclosed by others in entering into these agreements.
We have relied on this data in support of applications for human clinical trials
for our potential products. Although we have 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 to our view of the
future likelihood of FDA approval or commercial viability of these potential
products.
We have agreements and licenses with third parties that require us to
pay royalties and make other payments to such parties. Our failure to make such
payments could cause us to lose rights to technology or data under these
agreements.
17
<PAGE>
Clinical trials or marketing of any of our potential products may expose us to
liability claims from the use of such products which our insurance may not
cover.
We currently have a limited amount of product liability insurance only
to cover liabilities arising from clinical trials. Our product liability
insurance may not be adequate to cover liabilities arising from our clinical
trials.
Our current product liability insurance does not cover commercial sales
of products. We can not be sure that we 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 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 we
develop.
Further reductions in our staff might delay the achievement of planned
development objectives.
Each person currently employed by us serves an essential function. We
currently employ five persons full-time and five persons part-time. Any further
reduction in force could impair our ability to manage ongoing clinical trials
and may have a material adverse effect on our operations.
The market price of the shares of our common stock has been, and is likely to
continue to be, highly volatile.
The average daily trading volume of our common stock during fiscal 2000
has been low compared to that of other biopharmaceutical companies. Our common
stock was delisted from The Nasdaq Stock Market in February 1998 because we
failed to meet the financial conditions necessary to remain listed. In July 2000
we were approved for listing on The Nasdaq SmallCap Market. However, there can
be no assurance that we will continue to qualify for listing on that market.
Factors that may cause volatility in our stock price include:
o the results of preclinical studies and clinical trials by the
Company, Merz or its marketing partners or our competitors;
o other evidence of the safety or efficacy of products of the
Company, Merz or its marketing partners or our competitors;
o announcements of technological innovations or new therapeutic
products by the Company or our competitors;
o developments in patent or other proprietary rights of the Company
or our competitors, including litigation;
o fluctuations in our operating results;
o government regulation and health care legislation; and
18
<PAGE>
o market conditions for life science companies' stocks in general.
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, 2000 and 1999,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the two years in the period ended June 30, 2000, and for
the period from August 27, 1987 (inception) through June 30, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the results of its operations
and its cash flows for each of the two years in the period ended June 30, 2000,
and for the period from August 27, 1987 (inception) through June 30, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Palo Alto, California
August 18, 2000
19
<PAGE>
<TABLE>
Neurobiological Technologies, Inc.
(A development stage company)
BALANCE SHEETS
<CAPTION>
June 30,
----------------------------
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,387,076 $ 201,202
Short-term investments 1,225,592 --
Prepaid expenses and other current assets 42,297 43,833
------------ ------------
Total current assets 8,654,965 245,035
Property and equipment, net 27,778 3,796
------------ ------------
$ 8,682,743 $ 248,831
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 243,541 $ 447,124
Accrued expenses 525,852 487,715
Note payable to shareholder -- 200,000
------------ ------------
Total current liabilities 769,393 1,134,839
Commitments:
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value,
5,000,000 shares authorized, 2,332,000 issued in
series, 2,282,000 outstanding at June 30, 2000 and
2,332,000 at June 30, 1999 (aggregate liquidation
preference of $1,141,000 at June 30, 2000) 1,141,000 1,166,000
Common stock, $.001 par value, 25,000,000 shares
authorized, 15,647,397 outstanding at June 30, 2000
and 7,563,575 at June 30, 1999 42,170,818 29,985,352
Deferred compensation (246,376) --
Deficit accumulated during development stage (35,152,092) (32,037,360)
------------ ------------
Total stockholders' equity (deficit) 7,913,350 (886,008)
------------ ------------
$ 8,682,743 $ 248,831
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
20
<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,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
License $ -- $ -- $ 2,100,000
Grant -- 99,544 149,444
------------ ------------ ------------
Total revenue -- 99,544 2,249,444
EXPENSES
Research and development 1,896,023 2,780,305 26,964,709
General and administrative 1,379,708 1,058,421 12,776,280
------------ ------------ ------------
Total expenses 3,275,731 3,838,726 39,740,989
------------ ------------ ------------
Operating loss (3,275,731) (3,739,182) (37,491,545)
Interest income 160,999 46,949 2,339,453
------------ ------------ ------------
NET LOSS $ (3,114,732) $ (3,692,233) $(35,152,092)
============ ============ ============
BASIC AND DILUTED NET
LOSS PER SHARE $ (0.27) $ (0.49)
============ ============
Shares used in basic and diluted net
loss per share calculation 11,460,599 7,554,522
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
21
<PAGE>
<TABLE>
Neurobiological Technologies, Inc.
(A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Deficit
Common Stock Deferred Accumulated Total
Preferred ---------------------- Stock in Development Stockholders'
Stock Shares Amount Compensation Stage Equity
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Period from August 27, 1987
(inception) through June 30, 1997
Issuance of common stock $ -- 740,863 $ 1,616,706 $ -- $ -- $ 1,616,706
Issuance of common stock for services -- 77,428 108,250 -- -- 108,250
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 -- 142,500 70,252 -- -- 70,252
Exercise of options -- 89,619 226,169 -- -- 226,169
Issuance of common stock under
employee stock purchase plan -- 62,172 158,318 -- -- 158,318
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
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 and comprehensive loss -- -- -- -- (26,171,923) (26,171,923)
---------------------------------------------------------------------------------------------
Balances at June 30, 1997 -- 6,540,314 29,382,471 -- (26,171,923) 3,210,548
Issuance of warrants to purchase
125,000 shares of common stock -- -- 40,500 -- -- 40,500
Issuance of common stock and
warrants at $0.55 per unit -- 1,010,410 555,725 -- -- 555,725
Issuance of common stock under
employee stock purchase plan -- 2,975 2,202 -- -- 2,202
Net loss and comprehensive loss -- -- -- -- (2,173,204) (2,173,204)
---------------------------------------------------------------------------------------------
Balances at June 30, 1998 -- 7,553,699 29,980,898 -- (28,345,127) 1,635,771
Issuance of common stock under
employee stock purchase plan -- 9,876 4,454 -- -- 4,454
Issuance of 2,332,000 shares of
Series A preferred stock and
warrants at $2.50 per unit,
net of issuance costs 1,166,000 -- -- -- -- 1,166,000
Net loss and comprehensive loss -- -- -- -- (3,692,233) (3,692,233)
---------------------------------------------------------------------------------------------
Balances at June 30, 1999 1,166,000 7,563,575 29,985,352 -- (32,037,360) (886,008)
22
<PAGE>
Issuance of common stock and
warrants at $4.00 per unit,
net of issuance costs -- 5,434,700 4,051,898 -- -- 4,051,898
Issuance of common stock at
$5.30 per unit, net of
issuance costs -- 1,200,000 5,727,400 -- -- 5,727,400
Exercise of warrants -- 752,321 499,750 -- -- 499,750
Exercise of options -- 604,957 1,517,885 -- -- 1,517,885
Issuance of options to non
employees for services
rendered -- -- 70,200 -- -- 70,200
Deferred stock compensation -- -- 273,750 (273,750) -- --
Amortization of deferred stock
compensation -- -- -- 27,374 -- 27,374
Conversion of preferred stock (25,000) 50,000 25,000 -- -- --
Issuance of common stock under
employee stock purchase plan -- 41,844 19,583 -- -- 19,583
Net loss and comprehensive loss -- -- -- -- (3,114,732) (3,114,732)
---------------------------------------------------------------------------------------------
Balances at June 30, 2000 $1,141,000 15,647,397 $42,170,818 $(246,376) $(35,152,092) $ 7,913,350
=============================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
23
<PAGE>
<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
STATEMENTS OF CASH FLOWS
<CAPTION>
Period from
August 27, 1987
Year ended June 30, (inception)
--------------------- through
2000 1999 June 30, 2000
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,114,732) $ (3,692,233) $(35,152,092)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 6,018 41,792 644,224
Amortization of deferred stock
compensation 27,374 -- 27,374
Issuance of common stock, options and
warrants for license rights and services 70,200 -- 209,975
Changes in assets and liabilities:
Prepaid expenses and other 1,536 15,183 (42,297)
Accounts payable and accrued expenses (165,446) 437,261 769,393
----------------------------------------------
Net cash used in operating activities (3,175,050) (3,197,997) (33,543,423)
INVESTING ACTIVITIES
Purchase of investments (1,225,592) -- (35,065,270)
Maturity of investments -- -- 33,839,678
Purchases of property and equipment (30,000) 7,859 (388,940)
Additions to patents and licenses -- -- (283,062)
----------------------------------------------
Net cash provided by (used in)
investing activities (1,255,592) 7,859 (1,897,594)
FINANCING ACTIVITIES
Payment of note payable (200,000) -- (200,000)
Proceeds of short-term borrowings -- 200,000 435,000
Issuance of common stock, net 11,816,516 4,454 34,435,011
Issuance of preferred stock, net -- 1,166,000 8,158,082
----------------------------------------------
Net cash provided by financing activities 11,616,516 1,370,454 42,828,093
Increase (decrease) in cash and
cash equivalents 7,185,874 (1,819,684) 7,387,076
Cash and equivalents at beginning of period 201,202 2,020,886 --
----------------------------------------------
Cash and equivalents at end of period $ 7,387,076 $ 201,202 $ 7,387,076
==============================================
SUPPLEMENTAL DISCLOSURES:
Conversion of short-term-borrowings to
Series A preferred stock $ -- $ -- $ 235,000
==============================================
Conversion of preferred stock to
common stock $ 25,000 $ -- $ 7,252,082
==============================================
Deferred stock compensation related to
options granted $ 273,750 $ -- $ 273,750
==============================================
<FN>
See accompanying notes
</FN>
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neurobiological Technologies, Inc.
(a development stage company)
Note 1. Organization And Significant Accounting Policies
Organization
Neurobiological Technologies, Inc. ("NTI(R)" or the "Company") is an
emerging drug development company focused on the clinical evaluation and
regulatory approval of neuroscience drugs. The Company'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 and marketing of its product
candidates.
Basis of Presentation
The Company's principal activities to date involved research and
development of drug delivery systems using proprietary technology, in-licensing
of a product candidate, recruiting key personnel, establishing a manufacturing
process and raising capital to finance its development operations. The Company
is classified as a development stage company.
In the course of its development activities, the Company has incurred
significant losses and expects additional losses in the year ending June 30,
2001. The Company may seek to raise additional funds whenever market conditions
permit. However, there can be no assurance that funding will be available from
any of these sources, or, if available, that it will be available on acceptable
terms. If the Company is not able to raise adquate 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.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Grant Revenue
The Company received a grant for research related activities from the
National Institutes of Health. The Company recorded revenue as the grantor
reimbursed expenditures.
Key Supplier
The Company is dependent on one party for the manufacturing and supply
of one of its drugs for the human clinical trials and for the successful
commercialization of the related product. Any failure on the part of the
Company's sole supplier in this regard could adversely affect its business and
results of operations.
Cash and Investments
Cash and cash equivalents, which consist of cash and highly liquid
short-term investments with insignificant interest rate risk and original
maturities of three months or less at date of purchase, are stated at cost,
which approximates fair value.
Short-term investments consist of investments with original maturities
of greater than 90 days. 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. By policy, the Company does not invest in
securities that mature in more than 18 months.
The Company accounts for its investments in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." All of the Company's investment
securities are classified as available for sale and are stated at amounts which
approximate fair market value. 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
25
<PAGE>
earned interest are included in investment income. The following is a summary of
available for sale securities at June 30, 2000:
Corporate Obligations $ 931,000
Commercial Paper 295,000
----------
$1,226,000
==========
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, 2000 and 1999 consisted of the following:
2000 1999
----------- -----------
Machinery and equipment $176,756 $176,756
Furniture and fixtures 145,426 115,426
----------- -----------
322,182 292,182
Less accumulated depreciation (294,404) (288,386)
----------- -----------
$ 27,778 $ 3,796
=========== ===========
26
<PAGE>
Net Loss per Share
Net loss per share is presented under the requirements of FAS No. 128,
"Earnings per Share" ("FAS 128"). Basic earnings per share computed is based on
the average shares of common stock outstanding and excludes any dilutive 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.
Stock-Based Compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" 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.
Comprehensive Income (Loss)
The Company has no items of other comprehensive income, and,
accordingly, its net loss is equal to its comprehensive loss.
Enterprise Segments
The Company operates in a single operating segment and therefore no
additional segment disclosures have been provided.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133"), as amended by SFAS 137 and
SFAS 138, which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. SFAS 133 is
effective for fiscal years beginning after June 15, 2000 and is not anticipated
to have an impact on the Company's results of operations or financial condition
when adopted as the Company holds no derivative financial instruments and does
not currently engage in hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition. The
adoption of SAB 101 had no significant impact on the Company's revenue
recognition policy or results of operations.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44").
"Accounting for Certain Transactions Involving Stock compensation--an
Interpretation of APB 25." This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. The Adoption of FIN 44 does not have a material impact on the
Company's financial statements.
Note 2. Operating Lease Commitments
The Company's lease for its former premises expired April 2000.
Effective May 1, 2000, the Company entered into a sublease of its new executive
offices. The sublease will expire in July 2002. Rent expense for the years
ending June 30, 2000 and 1999 was $52,000 and $47,000, respectively. Future
minimum annual payments are approximately $91,000 for the periods ending June
30, 2001 and 2002 and $7,600 for the period ending June 30, 2003. The Company
received sublease income on its former premises of $26,000 and $8,000 for the
years ending June 30, 2000 and 1999, respectively.
Note 3. Stockholders' Equity
Preferred Stock
At June 30, 2000, the Company has 2,282,000 shares of Series A
convertible preferred stock outstanding. The holders of the Series A convertible
preferred stock are entitled to receive annual
27
<PAGE>
noncumulative dividends of 8% per share per annum, when and if declared by the
Board of Directors. These dividends are in preference to any declaration or
payment of any dividend on the common stock of the Company. As of June 30, 2000,
no dividends had been declared.
Each share of Series A preferred stock is convertible, at the holder's
option, subject to antidilution provisions, into one share of common stock.
Additionally, each share of the preferred stock will be automatically converted
into one share of common stock upon the election of more than 50% of the Series
A preferred stock to convert into common stock. The holders of preferred stock
are entitled to the number of votes equal to the number of shares of common
stock into which their preferred stock is convertible.
In the event of any liquidation, dissolution, or winding up of the
Company, the holders of the Series A preferred stock have a liquidation
preference of $0.50 per share, over holders of common stock plus any declared
but unpaid dividends. After payment has been made to the holders of Series A
preferred stock, the entire remaining assets and funds of the Company legally
available for distribution, if any, would be distributed ratably among the
holders of common stock.
Warrants to Purchase Common Stock
At June 30, 2000, warrants to purchase an aggregate of 3,360,259 shares
of common stock were outstanding at a weighted average exercise price of $1.74
per share. In connection with a private equity financing completed in November
1999, the Company issued warrants to purchase common stock at a price per share
of $1.75, of which warrants to purchase 2,036,280 shares remain outstanding at
June 30, 2000. These warrants expire in November 2004. In connection with a
private equity financing completed in April 1999, the Company issued warrants to
purchase common stock at a price per share of $1.00, of which warrants to
purchase 691,200 shares remain outstanding at June 30, 2000. These warrants
expire in April 2004. In connection with a private financing completed in March
1998, the Company issued warrants to purchase common stock, of which warrants to
purchase 125,000 and 140,000 shares at a price per share of $0.75 and $1.50,
respectively, remain outstanding at June 30, 2000. These warrants expire in
March 2001. In April 1998, in connection with the termination of a licensing
agreement, the Company issued warrants to purchase common stock, of which
warrants to purchase 100,000 and 25,000 shares at a price per share of $1.25 and
$3.00, respectively, remain outstanding at June 30, 2000. These warrants expire
in April 2001. The Company issued warrants to purchase common stock price per
share of $3.90 to the underwriters of its 1996 public offering, of which
warrants to purchase 220,000 shares remain outstanding at June 30, 2000. These
warrants expire on February 15, 2001. The Company issued warrants to purchase
common stock between June 1990 and July 1991 at a price per share of $5.60 for
licensing rights and consulting services, of which warrants to purchase 22,779
shares remain outstanding at June 30, 2000. These warrants have expiration dates
through June 30, 2001.
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 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, as amended and restated. The Company reserved 2,500,000 shares of
common stock for issuance under the 1993 Stock Plan. 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.
28
<PAGE>
A summary of the Company's stock option activity, and related
information for the two years ended June 30, 2000 follows (all repricing
activity is reflected as cancellations and subsequent grants):
Number of Shares Weighted Average
Subject to Options Exercise Price
-------------------- ------------------
Balance at June 30, 1998 1,575,081 2.42
Options granted 488,500 0.65
Options canceled (259,783) 2.51
------------------
Balance at June 30, 1999 1,803,798 1.93
Options granted 553,500 3.96
Options canceled (36,349) 2.66
Options exercised (604,957) 2.51
------------------
Balance at June 30, 2000 1,715,992 2.38
At June 30, 2000, options to purchase 123,241 shares of common stock
remained available for grant, and options to purchase 762,160 shares of common
stock were exercisable. The weighted average exercise price of options
exercisable at June 30, 2000 was $1.95. The weighted average fair value of
options granted during 2000 and 1999 were $3.23 and $0.37, respectively.
<TABLE>
The following table summarizes information concerning currently
outstanding and exercisable options:
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------- --------------------------------
Weighted Average
Remaining
Range of Exercise Shares Contractual Life Weighted Average Weighted Average
Prices Outstanding (years) Exercise Price Shares Exercisable Exercise Price
---------------- ---------------- ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.01 - 1.99 972,080 8.21 $0.83 422,175 $0.97
2.00 - 3.99 411,444 6.13 2.94 298,817 2.78
4.00 - 5.99 7,768 3.79 4.21 6,468 4.16
6.00 - 8.00 324,700 9.84 6.20 34,700 6.30
------------ -----------
1,715,992 762,160
============ ===========
</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
29
<PAGE>
following weighted average assumptions used for 1999 and 2000: 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 6.5 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.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
information follows (in thousands, except per share amounts):
Year ended June 30,
-----------------------
2000 1999
--------- --------
Net loss - as reported $(3,115) $(3,692)
Net loss - pro forma (3,363) (3,940)
Basic and diluted net loss per share - as reported (0.27) (0.49)
Basic and diluted net loss per share - pro forma (0.29) (0.52)
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. In November 1999 the amount of shares were
increased an additional 50,000 to 150,000. Under the plan, 33,133 shares remain
available for issuance at June 30, 2000.
Note 4. Income Taxes
The Company uses the liability method to account for income taxes as
required by FASB Statement No. 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.
30
<PAGE>
Significant components of the Company's deferred tax assets (in
thousands) are as follows:
June 30,
----------------------
2000 1999
-------- --------
Net operating loss carryforward $ 12,229 $ 11,500
Research and development carryforward 2,275 1,130
Capitalized research and development 233 290
-------- --------
Gross deferred tax assets 14,737 12,920
Valuation allowance (14,737) (12,920)
-------- --------
Net deferred tax assets $ -- $ --
-------- --------
The valuation allowance increased by $1,817,000 and $1,320,000 in
fiscal years 2000 and 1999, respectively.
At June 30, 2000, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $34,000,000, which expire in tax
years 2001 through 2020. The Company has federal tax credit carryforwards of
approximately $1,200,000 which expire in tax years 2006 through 2015.
Because of the "change in ownership" provisions of the Tax Reform Act
of 1986, a portion of the Company's net operating loss carryforwards and tax
credit carryforwards may be subject to an annual limitation regarding their
utilization against taxable income in future periods.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE>
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, their ages and
positions as of September 12, 2000 are as follows:
Name Age Position
---- --- --------
Paul E. Freiman 66 President and Chief Executive Officer
and Director
Lisa U. Carr, M.D., Ph.D. 45 Vice President, Medical Affairs
Abraham E. Cohen 64 Chairman of the Board of Directors
Enoch Callaway, M.D. 76 Director
Theodore L. Eliot, Jr. 72 Director
Abraham D. Sofaer 62 Director
John B. Stuppin 67 Director
Paul E. Freiman 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- and was responsible for moving the
product to over-the-counter status, marketed by Proctor & Gamble as Aleve. Mr.
Freiman currently serves as chairman of the boards of Digital GeneTechnologies,
Inc., a private genomics company, and SciGen Pte. Ltd. Mr. Freiman currently
serves on the boards of Penwest Pharmaceutical Co., Calypte Biomedical
Corporation, Omware, Inc., PHYTOS Inc., and Otsuka America Pharmaceuticals, Inc.
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. Mr. Freiman
holds a B.S. degree from Fordham University and an honorary doctorate from the
Arnold & Marie Schwartz College of Pharmacy.
Lisa U. Carr, M.D., Ph.D. was appointed Vice President of Medical
Affairs in September 1998. Prior to joining the Company in June 1998 as Director
of Medical Affairs, Dr. Carr was Associate Medical Director at the Institute of
Clinical Immunology and Infectious Diseases at Syntex Development Research in
Palo Alto, California. Dr. Carr has more than 8 years of international industry
experience in conducting clinical drug trials in immunosuppression, nephrology,
neurology, gastroenterology and cardiovascular disorders. She was Lead Clinical
Research Physician at Syntex, directing a pivotal clinical trial of
mycophenolate mofetil (IND and NDA approved for solid organ transplantation).
Dr. Carr holds a medical degree and a Ph.D. magna cum laude degree from the
University of Munich in Germany.
Abraham E. Cohen 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 was a director
of Agouron Pharmaceuticals, Inc. until its merger with Warner-Lambert Company.
He is currently a director of seven other public companies: Akzo Nobel N.V.,
Axonyx, Inc., Chugai Pharmaceutical Co., Pharmaceutical Product Development,
Inc., Smith Barney Mutual Funds,
32
<PAGE>
Teva Pharmaceutical Industries, Ltd. and Vasomedical, Inc. Additionally, he
serves as a Trustee on The Population Council.
Enoch Callaway, M.D. is a founder and former employee 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 of the Company from
November 1990 until August 1993, as Vice President of the Company from September
1988 until August 1993 and as Secretary of the Company 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
1986. Dr. Callaway was Staff Psychiatrist, SFVAMC, 1996-1997. He is a member of
the IRB for SAM Technologies, Inc. and Abratek, Inc. Dr. Callaway is a Director
of Phytos, Inc. He holds A.B. and M.D. degrees from Columbia University.
Theodore L. Eliot, Jr. has served as a director of the Company since
August 1992. Previously, he served as a director of the Company from September
1988 until April 1992, and as a Vice President of the Company from September
1988 until September 1991. Mr. Eliot retired from the United States Department
of State in 1978, after a 30-year career in which he held senior posts in
Washington and was Ambassador to Afghanistan. He was Dean of the Fletcher School
of Law and Diplomacy from 1978 to 1985 and a Director of Raytheon Co. from 1983
to 1998. He is currently a director of Fiberstars, Inc. and of several
non-profit organizations. Mr. Eliot holds B.A. and M.P.A. degrees from Harvard
University.
Abraham D. Sofaer 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. He has
also been a Professor of Law (by courtesy) at Stanford Law School since 1997.
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
international disputes. From 1979 to 1985, he served as a federal judge in 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), a leading
organization in the area of resolution of disputes outside litigation. He has
mediated major commercial cases. Additionally, he acts regularly as an
arbitrator in merger-acquisition disputes, commercial cases involving valuation
of technology, and securities class action suits. Mr. Sofaer is on the
International Advisory Board of Chugai Biopharmaceuticals, Inc., a director of
Koret Israel Economic Development Fund and a Trustee of the National Museum of
Jazz. Mr. Sofaer holds a B.A. degree from Yeshiva College and a L.L.B. from New
York University.
John B. Stuppin is a founder and employee of the Company and has served
as a director of the Company since September 1988. 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, from October 1990 until
September 1991 as Executive Vice President, and from April 1991 until July 1994
as Treasurer. He also served as 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 chairman of the board of Fiberstars,
Inc. Mr. Stuppin holds an A.B. degree from Columbia College.
Section 16(a) Beneficial Ownership Reporting Compliance
33
<PAGE>
The information required by Item 405 of Regulation S-B is hereby
incorporated by reference to the Section entitled "Section 16(a) Beneficial
Ownership Reporting Compliance of the Securities and Exchange Act of 1934" in
the Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by
reference to the section entitled "Executive Compensation" in 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
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements
The following are included in Item 7 under Part II:
Report of Ernst & Young, LLP Independent Auditors
Balance Sheets at June 30, 2000 and 1999
Statements of Operations for each of the two years in the period
ended June 30, 2000 and for the period from August 27, 1987 (inception)
through June 30, 2000
Statements of Stockholders' Equity (Deficit) for each of the two
years in the period ended June 30, 2000 and for the period from August
27, 1987 (inception) through June 30, 2000
Statements of Cash Flows for each of the two years in the period
ended June 30, 2000 and for the period for August 27, 1987 (inception)
through June 30, 2000
Notes to Financial Statements
(b) Reports on Form 8-K: On January 19, 2000, we filed a Current Report on Form
8-K announcing preliminary results of our Phase IIB Memantine trials.
(c) Exhibits
The following exhibits are incorporated by reference or filed as part
of this report.
Exhibit
Number Description
------- ----------------
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Bylaws of Registrant. (1)
34
<PAGE>
3.3 Certificate of Designations, Preferences and Rights of
Series A Preferred Stock of Registrant. (5)
4.1 Form of Common Stock Certificate. (1)
4.2 Form of Warrant issued to Van Kasper & Co. (1)
4.3 Form of Warrant issued to Van Kasper & Co. and Gerard Klauer
Mattison & Co., LLC. (1)
4.4 Form of Class A Warrant to Purchase Common Stock. (4)
4.5 Form of Class B Warrant to Purchase Common Stock. (4)
4.6 Form of Warrant to Purchase 25,000 Shares of Common Stock.
(4)
4.7 Form of Warrant to Purchase 100,000 Shares of Common Stock.
(4)
4.8 Form of Warrant to Purchase Common Stock. (5)
10.2 1993 Stock Plan of Neurobiological Technologies, Inc. (6)*
10.4 Form of Indemnity Agreement between the Company and its
directors and officers. (1)*
10.5 Series B Preferred Stock Purchase and Exchange Agreement
dated as of December 6, 1993. (1)
10.6 License Agreement between the Company and Research
Corporation Technologies, Inc. dated May 30, 1990. (1)+
10.7 License Agreement among the Company, Dynorphin Partnership,
Nancy M. Lee and Horace C. Loh dated April 1, 1989, as
amended. (1)+
10.8 License Agreement between the Company and Immuno-Dynorphin
Partnership dated October 1, 1990. (1)+
10.9 License Agreement between the Company and des-Tyr Dynorphin
Partnership dated December 20, 1992. (1)+
10.10 License Agreement between the Company and DUZ Partnership
dated December 20, 1992. (1)+
10.11 License Agreement between the Company and The Salk Institute
for Biological Studies dated March 31, 1989, as amended.
(1)+
10.12 License Agreement between the Company and the Regents of the
University of California dated June 13, 1990, as amended.
(1)+
10.13 Option Agreement between the Company and the Regents of the
University of California dated December 1, 1992. (1)+
10.16 Amended and Restated Neurobiological Technologies, Inc.
Employee Stock Purchase Plan. (6)+
10.18 Cooperative Agreement among Company, Merz + Co. GmbH & Co.
and Children's Medical Center Corp., effective as of April
16, 1998. (4)+
10.19 Payment Agreement between the Company and Children's Medical
Center Corp., effective as of April 16, 1998. (4)+
10.21 Retention Agreement between the Company and Dr. Lisa Carr
dated February 1, 1999. (5)*
10.22 Sublease Agreement between the Company and Ladbroke Racing
Corp. dated May 1, 2000.
35
<PAGE>
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. (See signature page)
27 Financial Data Schedule.
------------
(1) This exhibit is filed as an exhibit to Issuer's Registration Statement
on Form SB-2 (Registration No. 33-74118-LA) and is incorporated herein
by reference.
(2) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-KSB for the year ended June 30, 1995 and is incorporated
herein by reference.
(3) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-KSB for the year ended June 30, 1996 and is incorporated
herein by reference.
(4) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-KSB for the year ended June 30, 1998 and is incorporated
herein by reference.
(5) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-KSB for the year ended June 30, 1999 and is incorporated
herein by reference.
(6) This exhibit is filed as an exhibit to Registrant's Registration
Statement on Form S-8 (Registration Number 333-92425) filed December 9,
1999 and is 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.
36
<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 28, 2000 Neurobiological Technologies, Inc.
/s/ Paul E. Freiman
----------------------------------
Paul E. Freiman
President, Chief Executive Officer
<TABLE>
POWER OF ATTORNEY
(Exhibit 24.1)
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 September 28, 2000
--------------------------- (Principal Executive Officer and Principal
Paul E. Freiman Financial Officer and Principal Accounting
Officer) and Director
/s/ Abraham E. Cohen Chairman of the Board September 28, 2000
---------------------------
Abraham E. Cohen
/s/ Enoch Callaway Director September 28, 2000
---------------------------
Enoch Callaway
Director September __, 2000
---------------------------
Theodore L. Eliot, Jr.
37
<PAGE>
Director September __, 2000
---------------------------
Abraham D. Sofaer
/s/ John B. Stuppin Director September 28, 2000
---------------------------
John B. Stuppin
</TABLE>
38
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- ----------------
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Bylaws of Registrant. (1)
3.3 Certificate of Designations, Preferences and Rights of
Series A Preferred Stock of Registrant. (5)
4.1 Form of Common Stock Certificate. (1)
4.2 Form of Warrant issued to Van Kasper & Co. (1)
4.3 Form of Warrant issued to Van Kasper & Co. and Gerard Klauer
Mattison & Co., LLC. (1)
4.4 Form of Class A Warrant to Purchase Common Stock. (4)
4.5 Form of Class B Warrant to Purchase Common Stock. (4)
4.6 Form of Warrant to Purchase 25,000 Shares of Common Stock.
(4)
4.7 Form of Warrant to Purchase 100,000 Shares of Common Stock.
(4)
4.8 Form of Warrant to Purchase Common Stock. (5)
10.2 1993 Stock Plan of Neurobiological Technologies, Inc. (6)*
10.4 Form of Indemnity Agreement between the Company and its
directors and officers. (1)*
10.5 Series B Preferred Stock Purchase and Exchange Agreement
dated as of December 6, 1993. (1)
10.6 License Agreement between the Company and Research
Corporation Technologies, Inc. dated May 30, 1990. (1)+
10.7 License Agreement among the Company, Dynorphin Partnership,
Nancy M. Lee and Horace C. Loh dated April 1, 1989, as
amended. (1)+
10.8 License Agreement between the Company and Immuno-Dynorphin
Partnership dated October 1, 1990. (1)+
10.9 License Agreement between the Company and des-Tyr Dynorphin
Partnership dated December 20, 1992. (1)+
10.10 License Agreement between the Company and DUZ Partnership
dated December 20, 1992. (1)+
10.11 License Agreement between the Company and The Salk Institute
for Biological Studies dated March 31, 1989, as amended.
(1)+
10.12 License Agreement between the Company and the Regents of the
University of California dated June 13, 1990, as amended.
(1)+
10.13 Option Agreement between the Company and the Regents of the
University of California dated December 1, 1992. (1)+
10.16 Amended and Restated Neurobiological Technologies, Inc.
Employee Stock Purchase Plan. (6)+
10.18 Cooperative Agreement among Company, Merz + Co. GmbH & Co.
and Children's Medical Center Corp., effective as of April
16, 1998. (4)+
10.19 Payment Agreement between the Company and Children's Medical
Center Corp., effective as of April 16, 1998. (4)+
10.21 Retention Agreement between the Company and Dr. Lisa Carr
dated February 1, 1999. (5)*
10.22 Sublease Agreement between the Company and Ladbroke Racing
Corp. dated May 1, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. (See signature page)
27 Financial Data Schedule.
------------
(1) This exhibit is filed as an exhibit to Issuer's Registration Statement
on Form SB-2 (Registration No. 33-74118-LA) and is incorporated herein
by reference.
(2) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-KSB for the year ended June 30, 1995 and is incorporated
herein by reference.
(3) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-KSB for the year ended June 30, 1996 and is incorporated
herein by reference.
(4) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-KSB for the year ended June 30, 1998 and is incorporated
herein by reference.
(5) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-KSB for the year ended June 30, 1999 and is incorporated
herein by reference.
(6) This exhibit is filed as an exhibit to Registrant's Registration
Statement on Form S-8 (Registration Number 333-92425) filed December 9,
1999 and is 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.
