-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MTbiVpU+fMqK6Z2JuZ7MWGJElF3ES6644HkTXfnXrKUij7DHnBnHIZ1nPoE0l/yz XPf8rhKamziUk4afV7PpOA== 0000884939-98-000022.txt : 19981109 0000884939-98-000022.hdr.sgml : 19981109 ACCESSION NUMBER: 0000884939-98-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNAPTIC PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000884939 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 222859704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27324 FILM NUMBER: 98739678 BUSINESS ADDRESS: STREET 1: 215 COLLEGE RD CITY: PARAMUS STATE: NJ ZIP: 07652 BUSINESS PHONE: 2012611331 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Mark One: [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-27324 SYNAPTIC PHARMACEUTICAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 22-2859704 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 215 College Road Paramus, NJ 07652 (Address of principal executive offices) (Zip Code) (201) 261-1331 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of November 2, 1998, there were 10,699,419 shares of the registrant's Common Stock outstanding. SYNAPTIC PHARMACEUTICAL CORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements 1 Balance Sheets at September 30, 1998 and December 31, 1997 1 Statements of Operations and Comprehensive Income (Loss) for the three months ended September 30, 1998 and 1997, and for the nine months ended September 30, 1998 and 1997 2 Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 3 Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 9 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 (i) PART I. FINANCIAL INFORMATION Item 1. Financial Statements SYNAPTIC PHARMACEUTICAL CORPORATION BALANCE SHEETS (in thousands, except share information) ASSETS September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) (Audited) Current assets: Cash and cash equivalents $13,765 $23,113 Restricted cash 600 600 Marketable securities--current maturities 14,423 10,010 Revenue receivable under collaborative agreement 160 40 Other current assets 1,188 674 ------- ------- Total current assets 30,136 34,437 Property and equipment, net 5,358 4,682 Marketable securities 30,990 28,977 Patent and patent application costs, net of accumulated amortization 1,047 1,306 ------- ------- $67,531 $69,402 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 989 $ 811 Accrued liabilities 648 547 Accrued compensation 360 340 ------- ------- Total current liabilities 1,997 1,698 Stockholders' equity: Preferred Stock, $.01 par value; authorized-- 1,000,000 shares; issued--none -- -- Common Stock, $.01 par value; authorized-- 25,000,000 shares; issued and outstanding-- 10,699,169 shares in 1998 and 10,526,585 shares in 1997; 107 105 Additional paid-in capital 98,406 97,049 Deferred compensation (80) (160) Accumulated deficit (33,138) (29,316) Accumulated other comprehensive income-- net unrealized gains on securities 239 26 ------- ------- Total stockholders' equity 65,534 67,704 ------- ------- $67,531 $69,402 ======= ======= See notes to financial statements. 1 SYNAPTIC PHARMACEUTICAL CORPORATION STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except share and per share information) (Unaudited) For the three months For the nine months ended September 30, ended September 30, 1998 1997 1998 1997 ------- ------- ------- ------- Revenues: Contract revenue $ 1,598 $ 2,267 $ 5,911 $ 7,577 License revenue -- -- 2,000 -- Grant revenue -- 140 150 382 ------- ------- ------- ------- Total revenues 1,598 2,407 8,061 7,959 Expenses: Research and development 3,908 3,529 11,420 10,220 General and administrative 1,015 998 3,183 2,920 ------- ------- ------- ------- Total expenses 4,923 4,527 14,603 13,140 ------- ------- ------- ------- Loss from operations (3,325) (2,120) (6,542) (5,181) Other income, net: Interest income 849 487 2,720 1,457 Interest expense -- (1) -- (5) ------- ------- ------- ------- Other income, net 849 486 2,720 1,452 ------- ------- ------- ------- Net loss $(2,476) $(1,634) $(3,822) $(3,729) ======= ======= ======= ======= Comprehensive loss: Net loss $(2,476) $(1,634) $(3,822) $(3,729) Other comprehensive income--unrealized holding gains arising during period 189 24 213 30 ------- ------- ------- ------- Comprehensive loss $(2,287) $(1,610) $(3,609) $(3,699) ======= ======= ======= ======= Basic and diluted net loss per share $(0.23) $(0.21) $(0.36) $(0.49) ====== ====== ====== ====== Shares used in computation of basic and diluted net loss per share 10,698,692 7,648,249 10,678,768 7,643,081 ========== ========= ========== ========= See notes to financial statements. 2 SYNAPTIC PHARMACEUTICAL CORPORATION STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) For the nine months ended September 30, 1998 1997 ------- ------- Operating activities: Net loss $(3,822) $(3,729) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,070 897 Amortization of premiums/(discounts) on securities 138 (95) Amortization of deferred compensation 60 97 Changes in operating assets and liabilities: Increase in other current assets (514) (956) Increase in accounts payable, accrued liabilities and accrued compensation 299 82 (Increase)/decrease in collaborative agreement revenue receivable (120) 115 Increase in deferred revenue -- 1,137 ------- ------- Net cash used in operating activities (2,889) (2,452) Investing activities: Sale or maturity of investments 42,000 17,150 Purchase of investments (48,351) (12,527) Purchases of property and equipment (1,487) (2,116) ------- ------- Net cash (used in) provided by investing activities (7,838) 2,507 Financing activities: Issuance of common stock, net of repurchases 1,379 29 Payments on capital lease -- (74) ------- ------- Net cash provided by (used in) financing activities 1,379 (45) ------- ------- Net (decrease) increase in cash and cash equivalents (9,348) 10 Cash and cash equivalents at beginning of period 23,113 4,589 ------- ------- Cash and cash equivalents at end of period $13,765 $ 4,599 ======= ======= See notes to financial statements. 3 SYNAPTIC PHARMACEUTICAL CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 1998 Note 1 -- Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and may not include all information and footnotes required for a presentation in accordance with generally accepted accounting principles. In the opinion of the management of Synaptic Pharmaceutical Corporation (the "Company"), these financial statements include all normal and recurring adjustments necessary for a fair presentation of the financial position and the results of operations and cash flows of the Company for the interim periods presented. For more complete financial information, these financial statements should be read in conjunction with the audited financial statements for the fiscal year ended December 31, 1997, and notes thereto included in the Company's 1997 Annual Report on Form 10-K. The results of operations for the fiscal quarter and nine months ended September 30, 1998, are not necessarily indicative of the results of operations to be expected for the full year. Note 2 -- New Accounting Standard In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This pronouncement, which was required to be adopted effective January 1, 1998, requires the presentation of a statement of comprehensive income. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period resulting from transactions and other events and circumstances from nonowner sources. Comprehensive loss for the Company, in addition to net loss, includes unrealized gains and losses on marketable securities held for sale, currently recorded in stockholders' equity. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Synaptic Pharmaceutical Corporation is a biotechnology company engaged in the development of a broad platform of enabling technology which it calls "human receptor-targeted drug design technology." It is utilizing this technology both to discover and clone the genes that code for human receptor subtypes associated with specific disorders and to design compounds that can potentially be developed as drugs for treating these disorders. The Company is currently engaged in collaborations with four pharmaceutical companies: Eli Lilly and Company ("Lilly"), Merck & Co., Inc. ("Merck"), The Warner-Lambert Company ("Warner- Lambert") and Grunenthal GmbH ("Grunenthal"). In connection with these collaborations, the Company has granted to these companies licenses under certain patent rights and to certain technology. The Company had been engaged in a collaboration with Novartis Pharma AG ("Novartis") and had granted to Novartis a license under certain patent rights and to certain technology. On August 3, 1998, the collaboration and related research funding support provided by Novartis ended in accordance with the terms of the Company's agreements with Novartis. Novartis continues to have a license under certain patent rights and to certain technology of the Company. The Company has also granted a license under certain patent rights, as well as an option to obtain an additional license under certain patent rights, to Glaxo Group Limited ("Glaxo"). Since inception, the Company has financed its operations primarily through the sale of its stock, through funds provided by its collaborative partners Lilly and Merck and former collaborative partner Novartis under their agreements with the Company, through funds provided by its licensee, Glaxo, under a license agreement and through interest income and capital gains resulting from its investments. The Company also has received revenues from government grants under the Small Business Innovative Research ("SBIR") program of the National Institutes of Health. Under its collaborative and license agreements, the Company may receive one or more of the following types of revenue: contract revenue, license revenue, royalty revenue or revenue from the sales of drugs. Contract revenue includes research funding to support a specified number of the Company's scientists and payments upon the achievement of specified research and development milestones. Research funding revenue is recognized ratably over the period of the agreement to which it relates and is based upon predetermined funding requirements. Research and development milestone payment revenue is recognized when the related research or development milestone is achieved. License revenue represents non-refundable payments for a license to one or more of the Company's patents and/or a license to the Company's technology. Non-refundable payments for licenses are recognized at such time as they are received or, if earlier, become guaranteed. Under its agreements with Lilly, Merck, Warner-Lambert, Glaxo and Novartis, the Company is entitled to receive royalty payments based upon the sales of drugs that may be developed using the Company's technology. Under its agreement with Grunenthal, the Company has development and marketing rights in certain territories with respect to drugs, if any, that are jointly identified as part of the collaboration. Accordingly, the Company may receive revenue from sales in its territories (as defined) of such drugs if it markets them independently or the Company may receive royalty payments if it licenses its marketing rights to a third party. To date, the Company has not received either royalty revenue or revenue from the sales of drugs and the Company does not expect to receive such revenues for a number of years, if at all. To date, the Company's expenditures have been for research and development related expenses, general and administrative related expenses, fixed asset purchases and various patent related expenditures incurred in protecting the Company's technologies. The Company has been historically unprofitable and had an accumulated deficit of $33,138,000 at September 30, 1998. The Company expects to continue to incur operating losses for a number of years and may not become profitable, if at all, unless and until it receives royalty revenue or revenue from 5 sales of drugs that may be developed with the use of its technology or its patent rights. Results of Operations Comparison of the Three Months Ended September 30, 1998 and 1997 Revenues. The Company recognized revenue of $1,598,000 and $2,407,000 for the three months ended September 30, 1998 and 1997, respectively. The decrease of $809,000 was attributable to: a net decrease in contract revenue of $669,000 resulting from the contractual termination of the Novartis agreement on August 3, 1998 as well as the reduction in full-time equivalent scientists being funded under another of the Company's collaborative arrangements and a decrease in grant revenue of $140,000. Research and Development Expenses. The Company incurred research and development expenses of $3,908,000, and $3,529,000 for the three months ended September 30, 1998 and 1997, respectively. The increase of $379,000, or 11%, in research and development expenses was attributable primarily to: an increase of $200,000 in compensation and fringe benefit expenses; and an increase of $57,000 in facility related costs. General and Administrative Expenses. The Company incurred general and administrative expenses of $1,015,000 and $998,000 for the three months ended September 30, 1998 and 1997, respectively. The increase of $17,000, or 2%, was attributable primarily to: an increase of $71,000 in compensation and fringe benefit expenses offset by a net decrease of $54,000 for all other general and administrative costs. Other Income, Net. The Company recorded other income of $849,000 and $486,000 for the three months ended September 30, 1998 and 1997, respectively. The increase of $363,000 was primarily due to higher interest income as a result of higher cash, cash equivalent and marketable securities balances during 1998 which resulted from the receipt of net proceeds from a public offering of its common stock completed in November 1997. Net Loss and Basic and Diluted Net Loss Per Share. The net loss incurred by the Company was $2,476,000 ($0.23 per share), and $1,634,000 ($0.21 per share) for the three months ended September 30, 1998 and 1997, respectively. The increase in net loss per share of $0.02 resulted primarily from the decrease in revenues and increase in expenses as described above. Comparison of the Nine Months Ended September 30, 1998 and 1997 Revenues. The Company recognized revenue of $8,061,000 and $7,959,000 for the nine months ended September 30, 1998 and 1997, respectively. The increase in revenue of $102,000 was attributable primarily to the following: an increase in license revenue of $2,000,000; offset by a decrease in contract revenue of $1,666,000 resulting from the contractual termination of the Novartis agreement on August 3, 1998, as well as a reduction in full-time equivalents scientists being funded under another of the Company's collaborative arrangements; and a decrease in grant revenue of $232,000. Research and Development Expenses. The Company incurred research and development expenses of $11,420,000, and $10,220,000 for the nine months ended September 30, 1998 and 1997, respectively. The increase of $1,200,000, or 12%, in research and development expenses was attributable primarily to: an increase of $674,000 in compensation and fringe benefit expenses; and an increase of $268,000 in facility related costs. General and Administrative Expenses. The Company incurred general and administrative expenses of $3,183,000 and $2,920,000 for the nine months ended September 30, 1998 and 1997, respectively. The increase of $263,000, or 9%, was 6 attributable primarily to: an increase of $195,000 in compensation and fringe benefit expenses; and an increase of $79,000 in patent costs. Other Income, Net. The Company recorded other income of $2,720,000 and $1,452,000 for the nine months ended September 30, 1998 and 1997, respectively. The increase of $1,268,000 was primarily due to higher interest income as a result of higher cash, cash equivalent and marketable securities balances during 1998 which resulted from the receipt of net proceeds from a public offering of its common stock completed in November 1997. Net Loss and Basic and Diluted Net Loss Per Share. The net loss incurred by the Company was $3,822,000 ($0.36 per share), and $3,729,000 ($0.49 per share) for the nine months ended September 30, 1998 and 1997, respectively. The decrease in net loss per share of $0.13 resulted primarily from higher average outstanding shares during the period. The increase in average outstanding shares primarily relates to the sale of 2,875,000 shares of common stock in a public offering in the fourth quarter of 1997 as well as the sale of 137,648 shares of common stock pursuant to the exercise of warrants in January 1998. Management believes that it has remedied all of its significant information technology and non-information technology systems that may be affected by the year 2000 issue. Management is currently making inquiries of its significant customers, suppliers and vendors as to their readiness for the year 2000 issue. To date the Company has spent less than $50,000 to remedy systems that may have been affected by the year 2000 issue and does not expect future expenses to be material, if at all. If it turns out that some of the Company's systems or its customers, suppliers or vendors' systems are not year 2000 compliant, management believes the most likely worst case scenario would be a reduced level of productivity. The Company's contingency plan includes, but may not be limited to, manual workarounds and an increase in the current staffing level. The Company does not believe that inflation has had a material impact on its results of operations. Liquidity and Capital Resources At September 30, 1998 and December 31, 1997, cash, cash equivalents and marketable securities aggregated $59,178,000 and $62,100,000, respectively. The decrease in cash, cash equivalents and marketable securities resulted from the use of cash to fund operating activities and purchase property and equipment, both of which were offset by cash provided by the issuance of common stock. To date, the Company has met its cash requirements through the sale of its stock, through contract and license revenue, through SBIR grants and through interest income and gains resulting from its investments. As of September 30, 1998, the Company had received: $97,700,000 from the sale of its stock; $55,000,000 in licensing fees, research funding and milestone payments under its collaborative and license agreements; $3,500,000 in SBIR grants; and $9,000,000 in other income, net. To date, the portion of these funds that has been expended by the Company has been used principally to fund research and development, to purchase fixed assets used primarily in its research activities, to create its patent estate and to pay general and administrative support costs. During the period from January 1, 1998 through September 30, 1998, the Company received research funding under three of its collaborative arrangements. During the period from October 1, 1998 through December 31, 1998, the Company expects to receive $1,400,000 in the aggregate under two of its collaborations. Research funding under the Merck collaboration is scheduled to expire on November 30, 1998. Research funding under the Lilly collaboration is scheduled to expire on December 31, 1998. Research funding under the Novartis collaboration ended on August 3, 1998 in accordance with the terms of the underlying agreements. 7 At September 30, 1998, the Company had invested an aggregate of $9,934,000 in property and equipment. The Company leases laboratory and office facilities under an agreement expiring on December 31, 2015. The minimum annual payment under the lease is currently $674,000. At September 30, 1998 the Company had $59,178,000 in cash, cash equivalents and marketable securities. The Company intends to utilize these funds primarily to conduct its current and future research programs, for patent related expenditures, for general corporate purposes and to make leasehold improvements to its facilities beyond the level which existed on September 30, 1998. The Company expects to continue to incur operating losses for a number of years and will require the use of cash to finance its operations and to purchase property and equipment. The Company believes that its cash on hand, together with the funds that it expects to receive from its collaborative partners and interest income, will be sufficient to fund through the year 2000: an increased operating expense level; the Company's portion of its shared costs of certain development activities under its collaboration with Grunenthal; and an increased level of capital spending. This Report on Form 10-Q contains "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Such statements include, but are not limited to, those relating to future cash and spending plans, amounts of future research funding, and any other statements regarding future growth, future cash needs, future operations, business plans and financial results, and any other statements which are not historical facts. When used in this document, the words "expect," "may," "believes," and similar expressions are intended to be among the words that identify forward looking statements. Such statements involve risks and uncertainties, including, but not limited to, those risks and uncertainties detailed under the captions "Patents, Proprietary Technology and Trade Secrets," "Competition" and "Government Regulation" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K") as well as those risks and uncertainties disclosed under the captions "Early Stage of Product Development; Technological Uncertainty," "Dependence on Collaborative Partners and Licensees for Development, Regulatory Approvals, Manufacturing, Marketing and Other Resources" and "Uncertainties Related to Clinical Trials" as "Cautionary Statements" in the 1997 Form 10-K or detailed from time to time in filings the Company makes with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary from those indicated. Although the Company believes that the expectations reflected in the forward looking statements contained herein are reasonable, it can give no assurance that such expectations will prove to be correct. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 8 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds Securities Act Rule 229.463 ("Rule 463") required issuers to report on Form SR their use of proceeds, following an initial public offering, within ten days of the first three months following the effective date of the registration statement, and every six months thereafter, until the application of all such proceeds was complete. Effective September 2, 1997, pursuant to Release No. 34-38850, the Securities and Exchange Commission ("SEC") amended Rule 463 to eliminate Form SR and now requires a first-time registrant to report the application of proceeds in each of its periodic reports filed pursuant to the requirements under the Exchange Act until the application of such proceeds is complete. Prior to September 2, 1997, the Company utilized Form SR to report the application of proceeds received by the Company following its initial public offering. The information provided below represents a reasonable estimate of the application the net proceeds of $25,194,000 which were received following the Company's initial public offering on December 13, 1995: Construction of plant, building and facilities $ 501,000 Purchase and installation of machinery and equipment $ 4,281,000 Working capital used to fund operations $20,412,000 Except for payments described in the following sentence, the cumulative application of the net offering proceeds listed above represents direct payments to others. No payments were made to directors or officers or to their associates except for payments made in the ordinary course of business which include, but may not be limited to, the payment of officer salaries, fringe benefits, and expense reimbursements or compensation paid to directors for their attendance at board meetings or for their services provided to the Company under consulting arrangements, if any. 9 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description - ------- ----------- 10.1 Amendment No. 1 To Cooperation Agreement between the Company and Grunenthal GMBH (filed herewith) 27 Financial Data Schedule (b) Reports on Form 8-K On July 16, 1998, the Company filed a Current Report on Form 8-K summarizing the status of the clinical trials being conducted by Lilly with respect to a compound identified as part of the Company's collaboration with Lilly. On August 3, 1998, the Company filed a Current Report on Form 8-K announcing the expiration of the term of its collaboration with Novartis and describing certain of the consequences of the expiration. On September 21, 1998, the Company filed a Current Report on Form 8-K summarizing the status of certain drug discovery programs which are part of the Company's collaboration with Lilly. 10 SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNAPTIC PHARMACEUTICAL CORPORATION (Registrant) Date: November 6, 1998 By:/s/ Kathleen P. Mullinix ----------------------------- Name: Kathleen P. Mullinix Title: Chairman, President & Chief Executive Officer By:/s/ Robert L. Spence ----------------------------- Name: Robert L. Spence Title: Senior Vice President, Chief Financial Officer & Treasurer 11 EX-10.1 2 AMENDMENT NO. 1 TO COOPERATION AGREEMENT --------------------- Amendment No. 1 dated and effective as of August 10, 1998, between SYNAPTIC PHARMACEUTICAL CORPORATION, a corporation organized under the laws of the State of Delaware ("SYNAPTIC"), and GRUNENTHAL GMBH, a corporation organized under the laws of the Federal Republic of Germany ("GRUNENTHAL"). Witnesseth ---------- WHEREAS, SYNAPTIC and GRUNENTHAL are parties to a Cooperation Agreement dated as of January 12, 1998 (the "Agreement"). Capitalized terms used and not defined in this Amendment No. 1 shall have the meanings ascribed to them in the Agreement; WHEREAS, under Section 2.6.4 of the Agreement, SYNAPTIC is permitted to use COMPOUNDS provided by GRUNENTHAL for purposes other than the cooperation, and to commercialize any product resulting from such use, without obligation to GRUNENTHAL, financial or otherwise, unless such product incorporates a compound covered by an issued GRUNENTHAL PATENT RIGHT, in which case GRUNENTHAL is entitled to receive compensation as provided in Section 2.6.4; WHEREAS, the parties have determined that it may be in the best interests of the cooperation for GRUNENTHAL to send certain compounds to SYNAPTIC for screening and/or other testing promptly following their synthesis and prior to the preparation and filing by GRUNENTHAL of a patent application covering such compounds; WHEREAS, the parties recognize that inventions may result from SYNAPTIC's use of such COMPOUNDS and that SYNAPTIC may desire to prepare and file patent applications covering such inventions; WHEREAS, the parties have determined that, with respect to certain of such inventions, GRUNENTHAL should be entitled to receive compensation as provided in Section 2.6.4, notwithstanding that such inventions are not covered by an issued GRUNENTHAL PATENT RIGHT, as currently defined in the Agreement, and, accordingly, desire to amend the Agreement to provide for such compensation and to make certain changes relating thereto; 1 WHEREAS, the Agreement contemplates that SYNAPTIC and GRUNENTHAL will from time to time evaluate AVAILABLE TARGETS for the purpose of assessing the desirability of initiating new PROJECTS which have as their focus one or more of such AVAILABLE TARGETS; WHEREAS, in connection with and in order to facilitate any such evaluation, SYNAPTIC may provide to GRUNENTHAL biological materials comprising or relating to an AVAILABLE TARGET; and WHEREAS, the parties desire to amend the Agreement to further define their rights and obligations as they relate to any such biological materials. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties agree as follows: 1. SYNAPTIC's Use of COMPOUNDS Provided by GRUNENTHAL. Section 2.6.4 of the Agreement is hereby amended to read in its entirety as follows: "2.6.4 SYNAPTIC's Use of COMPOUNDS Provided by GRUNENTHAL. (a) SYNAPTIC shall be permitted to use COMPOUNDS provided to SYNAPTIC by GRUNENTHAL and to exclusively commercialize any product developed therefrom by or on behalf of SYNAPTIC (a "SYNAPTIC PRODUCT"), without compensation to GRUNENTHAL, financial or otherwise, so long as the mechanism of action of the active compound or compounds in such SYNAPTIC PRODUCT involves: (i) an EXCLUDED TARGET; or (ii) an AVAILABLE TARGET and such product is not useful for the alleviation of PAIN. (b) Notwithstanding anything to the contrary contained in paragraph (a) above, if: (i) the active compound, or the use of such active compound, in such SYNAPTIC PRODUCT is claimed in terms of a chemical structure either as a species or as a member of a genus in an issued PATENT RIGHT which GRUNENTHAL owns, solely or jointly with SYNAPTIC; and (ii) GRUNENTHAL is not independently of SYNAPTIC commercializing a product which includes a different compound claimed in such PATENT RIGHT for the same therapeutic indication 2 for which the SYNAPTIC PRODUCT is commer- cialized, then SYNAPTIC shall pay GRUNENTHAL a royalty of: (A) 3% of the NET SALES of such SYNAPTIC PRODUCT in countries in which such issued GRUNENTHAL PATENT RIGHT exists if SYNAPTIC independently commercializes such SYNAPTIC PRODUCT; or (B) 33% of any royalty which SYNAPTIC receives from a third party in respect of any such PATENT RIGHT if SYNAPTIC licenses the issued GRUNENTHAL PATENT RIGHT to a third party. (c) In the event that, as a result of its commercialization of any SYNAPTIC PRODUCT, SYNAPTIC would otherwise be required to pay GRUNENTHAL, under both Section 2.6.2 and this Section 2.6.4, 33% of any royalty which it receives from a third party in respect of such SYNAPTIC PRODUCT, then notwithstanding such sections, SYNAPTIC shall be required to pay GRUNENTHAL 33% of such royalty only under this Section 2.6.4." 2. Patent Rights. The section reference "7.1.3" of the Agreement is hereby renamed "7.1.4" and there is hereby added immediately prior to such Section 7.1.4 the following new Section 7.1.3: "7.1.3 Inventions Resulting from SYNAPTIC's Use of Compounds Provided by GRUNENTHAL. -------------------------------------------------------------- Notwithstanding the provisions of Sections 7.1.1 and 7.1.2, GRUNENTHAL and SYNAPTIC agree that PATENT RIGHTS for any invention which results from SYNAPTIC's use of COMPOUNDS provided by GRUNENTHAL pursuant to Section 2.6.4 shall be jointly owned by GRUNENTHAL and SYNAPTIC to the extent that the PATENT RIGHTS relating to such invention claim in terms of a chemical structure a compound or the use of a compound provided to SYNAPTIC by GRUNENTHAL. For purposes of the preceding sentence, a compound will be considered to be so claimed if it is claimed either as a species or as a member of a genus having such chemical structure. SYNAPTIC shall be responsible for preparing all draft patent applications encompassed within such PATENT RIGHTS and shall provide such drafts to GRUNENTHAL for review and comment prior to filing. SYNAPTIC and GRUNENTHAL shall discuss and agree which person or persons should be named as inventor or inventors on such patent applications in accordance with applicable principles of inventorship under U.S. Patent Law. All expenses relating to the preparation, filing, prosecution, extension and maintenance of such jointly-owned 3 patent applications and any patents granted thereon shall be borne by SYNAPTIC. If SYNAPTIC determines: (a) not to file a patent application for such an invention in any of the TERRITORIES; (b) not to continue prosecution or maintenance thereof in any of the TERRITORIES; or (c) not to extend any patent granted thereon in any of the TERRITORIES, then SYNAPTIC shall promptly notify GRUNENTHAL and GRUNENTHAL shall be given the opportunity to seek and pursue patent protection on such invention in such territory at its own expense. In the event GRUNENTHAL pursues such patent protection, ownership of the PATENT RIGHTS for such invention in any such territory shall be assigned to GRUNENTHAL and GRUNENTHAL shall thereafter be the sole owner of such PATENT RIGHTS in such territory." 3. Limitations on Use of Certain Information. There is hereby added immediately following Section 2.6.7 of the Agreement the following new Section 2.7: "2.7 Limitations on Use of Information Resulting from Evaluation of Available Targets. ----------------------------------------------------- In connection with the evaluation by the parties of AVAILABLE TARGETS for purposes of assessing the desirability of initiating new PROJECTS that have as their focus one or more of such AVAILABLE TARGETS, it is contemplated that SYNAPTIC may provide to GRUNENTHAL biological materials comprising or relating to such TARGETS. In the event any biological materials are so provided, GRUNENTHAL acknowledges and agrees that: (a) except to the extent necessary or desirable to perform the evaluation, no right or license under any patent, copyright or trademark of SYNAPTIC is granted, or to be construed as being granted, by implication, estoppel or otherwise, to GRUNENTHAL by the terms of this Agreement; and (b) results or inventions derived, directly or indirectly, from any assays involving the use of such biological materials may be used by GRUNENTHAL solely for purposes of the evaluation and in connection with a PROJECT which has as its focus the AVAILABLE TARGET that is the subject of the evaluation and may not be used by GRUNENTHAL for any other purpose; and 4 (c) it will not develop any compounds identified as agonists or antagonists of such AVAILABLE TARGET pursuant to any assay conducted as part of the evaluation except in connection with a PROJECT which has as its focus such AVAILABLE TARGET." 4. Confidentiality. Section 11.1 of the Agreement is hereby amended by adding at the end thereof the following new sentence: "For purposes of this Article 11, the term "information" shall include all data and other information, whether disclosed orally or in written or graphic form, as well as all biological materials, including, without limitation, eukaryotic expression vectors containing cDNAs encoding receptors, bacterial stocks and cell lines." 5. Effect of Amendment and Supplement. (a) From and after the date first written above, all references in the Agreement to "this AGREEMENT," "hereunder," "hereof," "hereof," "herein," or words of similar import, shall be a reference to the Agreement, as amended by this Amendment No. 1. (b) Except as expressly amended and supplemented by this Amendment No. 1, the Agreement shall remain in full force and effect and unchanged. 5 IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed and delivered as of the date first written above. SYNAPTIC PHARMACEUTICAL CORPORATION By:/s/ Kathleen P. Mullinix ----------------------------- Name: Kathleen P. Mullinix Title: Chairman, President and Chief Executive Officer GRUNENTHAL GMBH. By: /s/ Dr. E. Paques /s/ C. Baguette -------------------------------------- Name: Dr. E. Pacques C. Baguette Title: Managing Director Dir. Bus. Dvlpt. 6 EX-27 3
5 9-MOS DEC-31-1998 SEP-30-1998 13,765,000 45,413,000 160,000 0 0 30,136,000 9,934,000 4,576,000 67,531,000 1,997,000 0 0 0 107,000 65,427,000 67,531,000 0 8,061,000 0 14,603,000 0 0 0 (3,822,000) 0 (3,822,000) 0 0 0 (3,822,000) (0.36) (0.36)
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