-----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, TfYtpgkd1qU4wIrS7EL9S85SUBRfcOWdLy1EusxBmVnBFA0e2W1uvnVogNg8s4BO eucFiPr6roGpHYcusWqNLQ== 0000912057-96-025849.txt : 19961115 0000912057-96-025849.hdr.sgml : 19961115 ACCESSION NUMBER: 0000912057-96-025849 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COCENSYS INC CENTRAL INDEX KEY: 0000895034 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 330538836 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20954 FILM NUMBER: 96660397 BUSINESS ADDRESS: STREET 1: 213 TECHNOLOGY DR CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7147536100 MAIL ADDRESS: STREET 2: 213 TECHNOLOGY DRIVE CITY: IRVINE STATE: CA ZIP: 92718 10-Q 1 FORM 10Q UNITED STATES 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 quarterly period ended September 30, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-20954 COCENSYS, INC. (Exact name of registrant as specified in its charter) Delaware 33-0538836 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 213 Technology Drive, Irvine, CA 92618 (Address of principal executive offices including zip code) (714) 753-6100 (Registrant's telephone number, including area code) _____________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) 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 ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock $.001 par value 22,014,656 - -------------------------------------------------------------------------------- (Class) (Outstanding at November 1, 1996) COCENSYS, INC. TABLE OF CONTENTS PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 1996 and 1995 and the period from inception (February 15, 1989) through September 30, 1996 4 Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 1996 and 1995 and the period from inception (February 15, 1989) through September 30, 1996 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 9 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 13 SIGNATURES 14 2 COCENSYS, INC. (A development stage company) CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and par value amounts)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,939 $ 6,895 Short-term investments 16,854 6,554 Other current assets 630 455 --------- --------- TOTAL CURRENT ASSETS 25,423 13,904 Property and equipment, net 2,774 2,777 Notes receivable from officers 339 264 Deferred patent costs, net 108 394 Deferred sales organization costs, net 163 650 Other assets, net 104 212 --------- --------- $ 28,911 $ 18,201 --------- --------- --------- --------- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,179 $ 880 Other accrued liabilities 1,620 2,418 Advances from corporate partners 4,342 3,144 Capital lease obligation - current portion 476 709 --------- --------- TOTAL CURRENT LIABILITIES 7,617 7,151 Capital lease obligation, less current portion 263 357 Other liabilities 43 49 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value Authorized shares -- 5,000,000 Issued and outstanding shares - 100,000 at September 30, 1996 and none at December 31, 1995 7,000 - Common stock, $.001 par value Authorized shares -- 75,000,000 Issued and outstanding shares - 22,005,406 at September 30, 1996 and 19,395,341 at December 31, 1995 91,027 76,296 Deficit accumulated during the development stage (76,723) (64,674) Deferred compensation (287) (956) Unrealized loss on investments (29) (22) --------- --------- TOTAL STOCKHOLDERS' EQUITY 20,988 10,644 --------- --------- $ 28,911 $ 18,201 --------- --------- --------- ---------
See accompanying notes. 3 COCENSYS, INC. (A development stage company) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited)
PERIOD FROM INCEPTION (FEBRUARY 15, THREE MONTHS ENDED NINE MONTHS ENDED 1989) TO SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------------- ------------------- 1996 1995 1996 1995 1996 ------ ------ ------ ------ ------ REVENUES Co-promotion revenues from corporate partners $ 845 $ 1,969 $ 4,856 $ 3,518 $ 22,672 Co-development revenues from corporate partners 450 706 4,999 1,301 6,969 ---------- ---------- ---------- ---------- ---------- Total revenues 1,295 2,675 9,855 4,819 29,641 ---------- ---------- ---------- ---------- ---------- OPERATING EXPENSES Research and development 3,742 4,663 12,278 11,747 55,730 General and administrative 1,390 1,178 4,155 2,801 15,694 Sales and marketing 2,290 2,240 6,362 7,275 22,362 Acquired research and development - - - - 14,879 ---------- ---------- ---------- ---------- ---------- Total operating expenses 7,422 8,081 22,795 21,823 108,665 ---------- ---------- ---------- ---------- ---------- OPERATING LOSS (6,127) (5,406) (12,940) (17,004) (79,024) Interest income 375 269 1,004 519 3,255 Interest expense (55) (30) (113) (144) (954) ---------- ---------- ---------- ---------- ---------- NET LOSS $ (5,807) $ (5,167) $ (12,049) $ (16,629) $ (76,723) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net loss per share $ (0.26) $ (0.27) $ (0.55) $ (1.00) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Shares used in computing net loss per share 22,003,337 19,033,127 21,714,243 16,651,013 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes. 4 COCENSYS, INC. (A development stage company) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
PERIOD FROM INCEPTION (FEBRUARY 15, NINE MONTHS ENDED 1989) TO SEPTEMBER 30, SEPTEMBER 30, ------------------- 1996 1995 1996 ------ ------ ------ OPERATING ACTIVITIES Net loss $ (12,049) $ (16,629) $ (76,723) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,517 1,413 5,334 Amortization of deferred compensation 547 556 3,205 Issuance of stock and warrants for services - - 129 Loss on sale of fixed assets - - 26 Acquired research and development - - 12,279 Increase in other current assets (175) (467) (702) Decrease in receivable from corporate partner - 535 - Increase (decrease) in accounts payable and other accrued liabilities (689) (890) 2,383 -------- -------- -------- NET CASH USED IN OPERATING ACTIVITIES (10,849) (15,482) (54,069) -------- -------- -------- INVESTING ACTIVITIES Increase in short-term investments (10,306) (6,206) (16,885) Purchase of property and equipment (636) (361) (5,449) Decrease (increase) in other assets and notes receivable from officers (73) 62 (580) Cash received on sale of fixed assets - - 19 Increase in deferred sales organization costs - - (1,571) Increase in deferred patent costs - - (904) Acquisition of Acea Pharmaceuticals, net of cash acquired - - (62) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (11,015) (6,505) (25,432) -------- -------- -------- FINANCING ACTIVITIES Net cash proceeds from issuance of common stock 15,036 16,940 58,548 Net cash proceeds from issuance of preferred stock 7,000 - 23,381 Advances from corporate partners 1,198 5,435 4,342 Proceeds from sale/leaseback of fixed assets and notes payable 621 201 4,205 Payments on capital lease obligations and notes payable (947) (663) (3,036) -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 22,908 21,913 87,440 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,044 (74) 7,939 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,895 6,939 - -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,939 $ 6,865 $ 7,939 -------- -------- -------- -------- -------- -------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 113 $ 99 $ 786 -------- -------- -------- -------- -------- --------
See accompanying notes. 5 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The interim financial information for the three and nine-month periods ended September 30, 1996 and 1995 is unaudited but includes all adjustments (consisting only of normal recurring entries) which CoCensys, Inc.'s (the "Company's") management believes to be necessary for the fair presentation of the financial position, results of operations and cash flows for the periods presented. The accompanying interim financial statements should be read in conjunction with the financial statements and related notes included in the Company's 1995 Annual Report on Form 10-K for the year ended December 31, 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. Interim results of operations for the three and nine-month periods ended September 30, 1996, are not necessarily indicative of operating results to be expected for the full year. REVENUE AND EXPENSE RECOGNITION See Notes 2, 3, 4 and 5 for revenue recognition policies related to co-promotion and co-development revenues from corporate partners. The initial costs incurred in establishing the sales and marketing organization were deferred until initiation of the Company's sales efforts on August 1, 1994. Such costs are being amortized over the contract term of the Ciba Promotion Agreement (through December 31, 1996). NET LOSS PER SHARE Net loss per share is computed using the weighted average number of shares of common stock outstanding during the periods. 2. MARKETING AND DEVELOPMENT COLLABORATION WITH CIBA-GEIGY LIMITED In May 1994, the Company entered into a marketing and development collaboration with Ciba-Geigy Limited (Ciba Basel) and its U.S. affiliate Ciba-Geigy Corporation (Ciba U.S.) for the co-promotion by the Company of certain Ciba U.S. products and the development and 6 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. MARKETING AND DEVELOPMENT COLLABORATION WITH CIBA-GEIGY LIMITED (CONTINUED) commercialization of ACEA 1021, a compound being developed by the Company. This collaboration consists of the Ciba Promotion Agreement with Ciba U.S. and the Ciba Research and Development Agreement with Ciba Basel. Pursuant to the Ciba Promotion Agreement, CoCensys established a sales force to co-promote and market certain Ciba U.S. products in the United States, initially to psychiatrists. CoCensys realizes co-promotion revenues from its share of sales of the Ciba U.S. products above certain baseline levels specified in the contract. In the event sales levels are insufficient to cover any advanced expenses in a given year, CoCensys will have an obligation for repayment. The Ciba Promotion Agreement is scheduled to terminate at the end of 1996. Under the Ciba Research and Development Agreement, each party is obligated to pay one-half of the U.S. development costs of ACEA 1021. The parties will co-promote ACEA 1021 in the United States, while Ciba Basel will have the exclusive right to develop and market the compound in the rest of the world, subject to specified royalty payments to the Company. 3. MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY In October 1995, the Company entered into a collaboration with Warner-Lambert Company and its Parke-Davis division to develop and market therapeutic drugs for the treatment of certain CNS disorders. This arrangement consists of the Research, Development and Marketing Collaboration Agreement (the Warner Collaboration Agreement), for the development and commercialization of a new class of neurological and psychiatric drugs, termed subtype selective NMDA receptor antagonists ("SSNRAs"), and the Parke-Davis Promotion Agreement, pursuant to which the Company co-promotes Parke-Davis' CNS drug, Cognex-Registered Trademark-, to U.S. neurologists for the treatment of Alzheimer's disease. Under the Parke-Davis Promotion Agreement, the Company realizes co-promotion revenues from its share of sales of Cognex above certain baseline levels specified in the contract. The agreement provides that funds will be advanced to the Company to cover expenses incurred by the CoCensys sales force to promote Cognex. In the event sales are insufficient to cover the advances, the Company is obligated to repay the advances. Under the Warner Collaboration Agreement, both companies will share technology and resources to develop SSNRA candidates. The parties are obligated to make specified contributions to development costs with respect to any development candidates. Upon achievement of certain clinical development and regulatory milestones, Warner-Lambert will be obligated to make certain milestone payments for each development compound. 7 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. PROMOTION AGREEMENT WITH SOMERSET PHARMACEUTICALS, INC. In January 1996, the Company and Somerset Pharmaceuticals, Inc. (Somerset) entered into the Somerset Promotion Agreement, pursuant to which the Company promotes Somerset's drug Eldepryl-Registered Trademark- to neurologists in the United States for the treatment of Parkinson's disease. The initial term of the Somerset Promotion Agreement expires December 31, 1997, subject to certain provisions for early termination and renewal. Under the Somerset Promotion Agreement, CoCensys has the exclusive right to detail Eldepryl to neurologists in the United States. During the term of the Somerset Promotion Agreement, CoCensys realizes co-promotion revenues based upon the number of details undertaken for Eldepryl, new prescriptions written and sales. 5. DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH G.D. SEARLE & CO. In May 1996, the Company entered into an agreement with G.D. Searle & Co. (Searle) to co-develop and co-promote the Company's lead compound for the treatment of insomnia along with its back-up compounds. Pursuant to the agreement, Searle paid a $3.0 million license fee (which was recognized as co-development revenue in the second quarter of 1996) and purchased 100,000 shares of the Company's Series B Convertible Preferred Stock for $7.0 million. The preferred stock is convertible to common stock on May 18, 1998, or earlier at the Company's discretion. The number of shares issuable upon conversion shall be equal to $7.0 million divided by the then current common stock price (subject to certain minimum and maximum limits). Under the agreement, both companies are obligated to pay a portion of the development costs of the compound and its back-up compounds. In addition, the Company will receive nonrefundable milestone payments upon the occurrence of certain events in the development of the compound. The parties will co-promote any products derived from the collaboration in the United States, while Searle will have the right to develop, register and market the products in the rest of the world, subject to specified royalty payments. 6. EQUITY FINANCING In January 1996, the Company completed a public offering of common stock, obtaining net proceeds of $14.6 million through the sale of 2.4 million shares at $6.50 per share. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE COMPANY'S 1995 ANNUAL REPORT ON FORM 10-K. OVERVIEW Since its inception in February 1989, the Company has devoted substantially all of its resources to the discovery and development of neuropharmaceutical products for the treatment of disorders affecting the central nervous system. The Company has incurred losses since inception and expects losses to continue for the foreseeable future, primarily due to the expansion of programs for research and development. Operating results are expected to fluctuate as a result of uncertainty in the timing and amount of revenues to be earned from product sales and from achievement of research and development milestones, and uncertainty in the timing and amount of expenses for product development, including clinical trials. As of September 30, 1996, the Company's accumulated deficit was approximately $76.7 million. RESULTS OF OPERATIONS In connection with the Company's promotion agreements, co-promotion revenues were $0.8 million and $4.9 million for the three and nine-month periods ended September 30, 1996, respectively. Co-promotion revenues for the comparable periods in 1995 were $2.0 million and $3.5 million, respectively. In the second quarter of 1996, the Company recognized $2.3 million of co-promotion revenues related to 1994 and 1995 co-promotion activities, the determination of which was agreed between the Company and Ciba U.S. in June of 1996. The quarter and year-to-date co-promotion revenues decreased over the comparable prior year periods as the Company has deferred the recognition of revenues related to 1996 co-promotion activities until the conclusion of the Ciba Promotion Agreement. Effective January 1, 1997, there will be no co-promotion activities under the agreement. In connection with its development agreements, the Company recognized $0.5 million and $5.0 million in co-development revenues for the three and nine-month periods ended September 30, 1996, respectively, as compared to $0.7 million and $1.3 million for the same periods in 1995, respectively. The increase for the nine-month period is partially attributable to the recognition of $3.0 million in the second quarter of 1996 related to the one-time license fee received pursuant to the Searle Development and Commercialization Agreement. Research and development ("R&D") expenses were $3.7 million and $12.3 million for the three and nine-month periods ended September 30, 1996, respectively, as compared to $4.7 million and $11.7 million during the same periods in 1995, respectively. Costs for the comparable three-month periods were lower in 1996 due to higher outsourced study costs incurred in 1995 related to the development 9 of CCD 1042. The increase for the nine-month period ended September 30, 1996, resulted from continuing progress of the Company's products in clinical development and the costs needed to support these activities. General and administrative expenses increased to $1.4 million and $4.2 million for the three and nine-month periods ended September 30, 1996, respectively, from $1.2 million and $2.8 million during the same periods in 1995. Such increase was primarily due to additional staffing and related expenses to support increased R&D activities, as well as higher legal, accounting and other expenses in support of expanded levels of business development. Sales and marketing expenses were $2.3 million and $6.4 million for the three and nine-month periods ended September 30, 1996, respectively, as compared to $2.2 million and $7.3 million during the same periods in 1995. The decrease in the nine-month period relates to changes in the co-promotion agreements, whereby the Company no longer undertakes certain promotional activities. Interest income increased to $375,000 and $1.0 million for the three and nine-month periods ended September 30, 1996, respectively, from $269,000 and $519,000 for the same periods in 1995. The increase was due to higher cash and short-term investment balances in 1996. LIQUIDITY AND CAPITAL RESOURCES From its inception in February 1989 through September 30, 1996, the Company has financed its operations primarily through private and public offerings of its equity securities, raising net proceeds of approximately $82.5 million through sales of these securities. In May 1996, the Company issued $7.0 million in Convertible Preferred Stock to G.D. Searle & Co. in conjunction with the Searle Development and Commercialization Agreement. In January 1996, the Company completed a registered direct public offering, obtaining net proceeds of $14.6 million through the sale of 2.4 million shares of common stock at $6.50 per share. As of September 30, 1996, the Company's balance of cash, cash equivalents and short-term investments totaled $24.8 million, compared to $13.4 million at December 31, 1995. As of September 30, 1996, the Company had invested $5.4 million in leasehold improvements, laboratory and computer equipment and office furnishings and equipment. The Company has financed $2.9 million of these capital additions through capital lease lines. In addition, the Company leases its laboratory and office facilities under operating leases. Additional equipment will be needed as the Company increases its research and development activities. The Company has no material commitments for the acquisition of property and equipment. Pursuant to the Ciba Promotion Agreement, the Company co-promotes and markets the Ciba Products in the United States. Under the agreement, funds are advanced to the Company to cover a portion of sales expenses incurred to co-promote the Ciba Products. The Company is obligated to reimburse Ciba U.S. for these advances. CoCensys realizes co-promotion revenues from its share of 10 sales of the Ciba Products above certain baseline levels specified in the contract. Sales of the Ciba Products are the primary source of cash the Company intends to use to meet its reimbursement obligation to Ciba U.S. Although product sales were more than sufficient to cover the Company's reimbursement obligation in 1995 and 1994, there can be no assurance that they will be in 1996, the final year of the contract. Pursuant to the Ciba Research and Development Agreement, Ciba Basel is obligated to pay one-half of the development costs of ACEA 1021 for the United States market and all incremental development costs for the rest of the world, along with additional payments upon the achievement of certain milestones. The agreement also provides that Ciba Basel will make available to CoCensys, under certain circumstances, a revolving line of credit of up to $7 million to fund the Company's share of the development costs for ACEA 1021. Repayment of amounts advanced will be secured by future milestone payments. No amounts are currently outstanding. Pursuant to the Warner Collaboration Agreement, Warner-Lambert is also obligated to make certain milestone payments for each compound selected for development, as well as pay for its share of development costs. Warner is obligated to purchase $2.0 million of CoCensys Common Stock in the first quarter of 1997. Pursuant to the Parke-Davis Promotion Agreement, the Company promotes Parke-Davis' CNS drug, Cognex-Registered Trademark-, to neurologists in the United States. Funds are advanced to the Company quarterly to cover the training and operating expenses incurred by the Company's sales force in promoting Cognex. The Company is obligated to reimburse Parke-Davis for these advances. Pursuant to the Somerset Promotion Agreement, the Company promotes Somerset's drug Eldepryl-Registered Trademark- to neurologists in the United States. Funds are advanced to the Company quarterly to cover a portion of the training and operating expenses incurred by the Company's sales force in promoting Eldepryl. The Company is obligated to reimburse Somerset for these advances. Revenues from co-promotion activities are the primary source of cash the Company intends to use to meet related reimbursement obligations. In the event revenues are not sufficient to meet these obligations, advances must be repaid out of other cash reserves of the Company. Pursuant to the Searle Development and Commercialization Agreement, Searle is obligated to pay for a portion of the product development costs, its backup compounds, as well as additional payments upon the achievement of certain milestones. CoCensys' operations to date have consumed substantial amounts of cash. The negative cash flow from operations is expected to continue and will likely increase over the foreseeable future, subject to the Company's ability to offset such negative cash flows by revenues, if any, derived from the sale of products from current and potential future marketing collaborations. The Company anticipates that its existing capital resources, including funding expected to be available through current partner collaborations (including milestone payments and co-promotion revenues), will be adequate to 11 satisfy its capital needs through at least 1997. There can be no assurance that milestone-based payments or co-promotion revenues will be sufficient to meet the Company's future capital requirements. The Company will need to obtain substantial additional funds to conduct the costly and time-consuming research, preclinical development and clinical trials necessary to bring its products to market. The Company intends to seek funding through new research and development collaborations, through additional marketing collaborations to increase revenues generated from sales of products and/or through public or private financing. There can be no assurance that financings or suitable collaborations will be available on favorable terms, if at all. Insufficient funds may require the Company to delay, scale back or eliminate some or all of its research and product development programs or to license third parties to commercialize products or technologies that the Company would otherwise seek to develop itself. The Company's future capital requirements will depend on many factors, including the progress of the Company's research and development programs, the level of co-promotion revenues, the scope and results of preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the rate of technological advances, the determinations as to the commercial potential of the Company's products under development, the status of competitive products, the expansion of sales and marketing capabilities, the establishment of third-party manufacturing arrangements and the establishment of additional collaborative relationships. ADDITIONAL RISKS The Company's products are in an early stage of development and face a high degree of technological, regulatory and competitive risks. Drug discovery and development are capital-intensive activities, and there can be no assurance the Company will be able to raise the additional capital necessary to develop and commercialize products. Human clinical trials require considerable time and funding, and results from any stage of testing may not predict results of later stages. In addition, if results of any clinical trial fail to meet the Company's requirements, the study plan for such compound may be adjusted or another compound may be substituted, either of which may result in delays in future clinical studies. Unfavorable clinical trials could result in cancellation of future clinical studies. The Company has established relationships to manufacture the limited quantities of its products required for human clinical trials. However, the Company will need to finance and construct manufacturing facilities or find other means of securing adequate production capacity before any product approved for marketing may be launched. No assurance can be given that the Company can successfully develop any of its products for marketing or that it can successfully manufacture commercial quantities of any products that are approved for marketing. Inherent in the fact that CoCensys is an early stage biopharmaceutical company are a range of additional risks, including the Company's history of losses, the risk of technological and commercial competition, uncertainties associated with obtaining and enforcing patents and protecting proprietary technology and the risk of regulatory change, among others. 12 COCENSYS, INC. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule. (b) No reports on Form 8-K were filed during the quarter ended September 30, 1996. 13 COCENSYS, INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. CoCensys, Inc. Date: November 13, 1996 By: /s/ Peter E. Jansen --------------------- ------------------------------ Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 14 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 7,939 16,854 0 0 0 23,423 5,623 2,849 28,911 7,617 263 0 7,000 91,027 (77,039) 28,911 0 9,855 0 0 0 0 113 (12,049) 0 (12,049) 0 0 0 (12,049) (0.55) (0.55)
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