-----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, I4qubbe80fQpptd3IcwjIcEZI6w44HpXFkVEdcLe422lUyUPgTHEFSmKkKARa2HH u/M8ujwOIn5yHF91vPPM4g== 0000912057-97-017710.txt : 19970515 0000912057-97-017710.hdr.sgml : 19970515 ACCESSION NUMBER: 0000912057-97-017710 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97605745 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 10-Q - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 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 March 31, 1997 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 OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 213 TECHNOLOGY DRIVE, IRVINE, CA 92718 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (714) 753-6100 (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 ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $.001 PAR VALUE 22,517,321 (CLASS OF COMMON STOCK) (OUTSTANDING AT MAY 9, 1997) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COCENSYS, INC. TABLE OF CONTENTS PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Condensed Balance Sheets as of March 31, 1997 and December 31, 1996 3 Condensed Statements of Operations for the three-month periods ended March 31, 1997 and 1996 and the period from inception (February 15, 1989) through March 31, 1997 4 Condensed Statements of Cash Flows for the three-month periods ended March 31, 1997 and 1996 and the period from inception (February 15, 1989) through March 31, 1997 5 Notes to Condensed Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 14 SIGNATURES 15 2 COCENSYS, INC. (A development stage company) CONDENSED BALANCE SHEETS (In thousands, except share and par value amounts) MARCH 31, DECEMBER 31, 1997 1996 ------------ ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,195 $ 1,050 Short-term investments 11,079 16,949 Receivables from corporate partners 632 659 Other current assets 442 556 ------------ ------------- TOTAL CURRENT ASSETS 14,348 19,214 Property and equipment, net 2,656 2,685 Notes receivable from officers 203 126 Other assets, net 26 26 ------------ ------------- $ 17,233 $ 22,051 ------------ ------------- ------------ ------------- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,354 $ 1,437 Other accrued liabilities 1,974 2,556 Advances from corporate partners 99 446 Capital lease obligation - current portion 477 341 ------------ ------------- TOTAL CURRENT LIABILITIES 3,904 4,780 Capital lease obligation, less current portion 275 284 Other liabilities 39 40 Commitments and contingencies Stockholders' equity: Preferred stock - $.001 par value, 5,000,000 shares authorized; 100,000 shares Series B convertible issued and outstanding 7,000 7,000 Common stock - $.001 par value, 75,000,000 shares authorized; 22,495,769 shares issued and outstanding at March 31, 1997 and 22,083,346 at December 31, 1996 95,909 93,986 Deficit accumulated during the development stage (89,243) (83,162) Deferred compensation (639) (905) Unrealized gain (loss) on investments (12) 28 ------------ ------------- TOTAL STOCKHOLDERS' EQUITY 13,015 16,947 ------------ ------------- ------------ ------------- $ 17,233 $ 22,051 ------------ ------------- ------------ ------------- See accompanying notes 3 COCENSYS, INC. (A development stage company) CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
PERIOD FROM INCEPTION THREE MONTHS ENDED (FEBRUARY 15, MARCH 31, 1989) TO -------------------------- MARCH 31, 1997 1996 1997 ----------- ----------- ----------- REVENUES Co-promotion revenues from corporate partners $ 1,123 $ 798 $ 28,024 Co-development revenues from corporate partners 702 833 8,745 ----------- ----------- ----------- Total revenues 1,825 1,631 36,769 ----------- ----------- ----------- OPERATING EXPENSES Research and development 5,432 4,823 73,604 Marketing, general and administrative 2,679 2,663 40,309 Acquired research and development and advances to Acea - - 14,879 ----------- ----------- ----------- Total operating expenses 8,111 7,486 128,792 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING LOSS (6,286) (5,855) (92,023) Interest income 219 272 3,774 Interest expense (14) (30) (994) ----------- ----------- ----------- NET LOSS $ (6,081) $ (5,613) $ (89,243) ----------- ----------- ----------- ----------- ----------- ----------- Net loss per share $ (0.27) $ (0.26) ----------- ----------- ----------- ----------- Shares used in computing net loss per share 22,251 21,193 ----------- ----------- ----------- -----------
See accompanying notes 4 COCENSYS, INC. (A development stage company) CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
PERIOD FROM INCEPTION THREE MONTHS ENDED (FEBRUARY 15, MARCH 31, 1989) TO ------------------------- MARCH 31, 1997 1996 1997 ---------- ---------- ---------- OPERATING ACTIVITIES Net loss $ (6,081) $ (5,613) $ (89,243) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 267 488 6,156 Amortization of deferred compensation 74 201 3,412 Issuance of stock and warrants for services - - 1,917 Loss on sale of fixed assets - - 26 Acquired research and development - - 12,279 Decrease (increase) in other current assets 114 (328) (514) Decrease (increase) in receivable from corporate partner 27 - (632) Increase (decrease) in advances from corporate partners (347) 1,547 99 Increase (decrease) in accounts payable and other accrued liabilities (665) (632) 3,092 ---------- ---------- ---------- NET CASH USED IN OPERATING ACTIVITIES (6,611) (4,337) (63,408) ---------- ---------- ---------- INVESTING ACTIVITIES Decrease (increase) in short-term investments 5,830 (10,297) (11,092) Purchase of property and equipment (238) (264) (5,863) Increase in other assets and notes receivable from officers (77) (6) (385) 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 PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,515 (10,567) (19,858) ---------- ---------- ---------- FINANCING ACTIVITIES Net cash proceeds from issuance of common stock 2,115 14,676 60,900 Net cash proceeds from issuance of preferred stock - - 23,381 Proceeds from sale/leaseback of fixed assets and notes payable 334 253 4,567 Payments on capital lease obligations and notes payable (208) (270) (3,387) ---------- ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,241 14,659 85,461 ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,145 (245) 2,195 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,050 6,895 - ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,195 $ 6,650 $ 2,195 ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 14 $ 30 $ 768 ---------- ---------- ----------
See accompanying notes 5 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The interim financial information for the three-month periods ended March 31, 1997 and 1996 is unaudited but includes all adjustments (consisting only of normal recurring entries) which 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 1996 Annual Report on Form 10-K for the year ended December 31, 1996. 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 Securities and Exchange Commission rules and regulations. Interim results of operations for the three-month period ended March 31, 1997, 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. NET LOSS PER SHARE Net loss per share is computed using the weighted average number of shares of common stock outstanding during the periods. Common stock equivalents from stock options and warrants are excluded from the calculation as their effect would be antidilutive. RECLASSIFICATIONS Certain reclassifications have been made to the 1996 financial statements to conform to the 1997 presentation. 2. 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 worldwide development and 6 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS 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, to United States neurologists for the treatment of Alzheimer's disease. The original Parke-Davis Promotion Agreement, entered into in October 1995, was terminated on December 31, 1996, when a revised promotion agreement took effect. Under the original Parke-Davis Promotion Agreement, the Company realized co-promotion revenues from its share of sales of Cognex above certain baseline levels specified in the contract. The agreement provided for funds to be prepaid to the Company each quarter to cover training and operating expenses incurred by the CoCensys sales force to promote Cognex. Under the revised Parke-Davis Promotion Agreement, the Company realizes co-promotion revenues based upon the number of prescriptions for Cognex written by certain targeted neurologists and other doctors during each quarter, with a specified minimum payment. The agreement provides that funds equal to the specified minimum payment will be prepaid to the Company each quarter to cover training and operating expenses to be incurred by the CoCensys sales force to promote Cognex. The agreement is scheduled to terminate December 31, 1997. Either party has the right to terminate the Promotion Agreement earlier, without cause. Under the Warner Collaboration Agreement, both companies are sharing technology and resources to develop SSNRA candidates. The parties are obligated to make specified contributions to development costs with respect to any development candidates. Promotion costs of, and profits from any products developed under the agreement will be shared equally in the United States and Japan. Warner-Lambert will have the exclusive right to develop and market any product, at its own cost, for markets outside the United States and Japan, subject to a specified royalty payment to the Company. Warner-Lambert is obligated to pay its specified portion of the development costs and to make certain milestone payments, upon achievement of certain clinical development and regulatory milestones, for each development compound. Payments received under the Warner Collaboration Agreement will be recognized as co-development revenues by the Company. Pursuant to the Warner Collaboration Agreement, Warner-Lambert purchased $2.0 million of CoCensys common stock in October 1995 and an additional $2.0 million of CoCensys common stock in March 1997. 3. 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 to neurologists in the United States for the treatment of Parkinson's disease. Effective January 1, 1997, the initial agreement was superceded by the 1997 Somerset Promotion Agreement which is subject to certain provisions for early termination and renewal. Under the 1997 Somerset Promotion Agreement, CoCensys has the exclusive right to detail Eldepryl to certain neurologists and other physicians in the United States. Under the 1997 Somerset Promotion Agreement, CoCensys is compensated based upon the number of details undertaken and gross sales of Eldepryl. 7 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS Compensation paid to CoCensys is subject to adjustment in the event of governmental or other third-party actions that may materially affect it. To finance a portion of its sales force to promote Eldepryl, CoCensys receives quarterly advances from Somerset, which are subject to repayment on a pro rata basis if specified numbers of details are not undertaken by the Company on behalf of Somerset. 4. 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 and purchased 100,000 shares of the Company's Series B Convertible Preferred Stock for $7.0 million. The license fee was recognized as co-development revenue in 1996. The preferred stock is convertible to common stock on May 17, 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. 5. MARKETING AND DEVELOPMENT COLLABORATION WITH NOVARTIS PHARMA, A.G. In May 1994, the Company entered into a marketing and development collaboration with Novartis Pharma, A.G. (formerly Ciba-Geigy Limited) for the co-promotion by the Company of certain Novartis products and the development and commercialization of ACEA 1021, a compound being developed by the Company. This collaboration consisted of the Novartis Promotion Agreement and the Novartis Research and Development Agreement. Pursuant to the Novartis Promotion Agreement, CoCensys established a sales force to co-promote and market certain Novartis products in the United States initially to psychiatrists. The agreement provided for the advance of funds to the Company to cover a portion of the expenses incurred by the CoCensys sales force in promoting the Novartis products. CoCensys realized co-promotion revenues from its share of sales of Novartis products above certain baseline levels specified in the contract. The Novartis Promotion Agreement terminated at the end of 1996. In connection with the Novartis Research and Development Agreement, Novartis purchased $7.0 million of CoCensys common stock and agreed to make certain nonrefundable milestone payments in 8 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS connection with specified events in the course of the development of ACEA 1021. Novartis has advised the Company that it will not continue the development of ACEA 1021. The agreement will terminate in October 1997. There can be no assurance that the Company will be able to secure another partner to continue the development of ACEA 1021. 6. SUBSEQUENT EVENT On May 12, 1997, the Company entered into a development and commercialization agreement for Co 2-6749, its lead anxiolytic compound, with Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products Corporation. Under the terms of the agreement, Wyeth-Ayerst will pay CoCensys upfront payments of $5 million in licensing fees and $5 million to purchase convertible preferred stock. Additionally, CoCensys will receive specified milestone payments dependent upon the achievement of key development events and $3 million per year for up to three years to identify back-up compounds. Wyeth-Ayerst will be responsible for the development of Co 2-6749. The Company and Wyeth-Ayerst will co-promote any resulting product in certain market segments in the United States, while Wyeth-Ayerst will have rights to develop, register and market any drugs derived from the collaboration in the rest of the world, subject to royalty payments. The preferred stock will be convertible into common stock after May 12, 1999, into a number of shares of common stock equal to $5 million divided by the conversion price, which will be determined at the time of conversion (subject to certain minimum and maximum limits). 9 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 1996 ANNUAL REPORT ON FORM 10-K. OVERVIEW CoCensys, Inc. is a biopharmaceutical company dedicated to the discovery, development, marketing and sales of small molecule drugs to treat neurological and psychiatric disorders. The Company's product discovery and development programs are focused on the exploration of novel receptors and enzymes and their ligands and inhibitors through three technology platforms: GABA receptor enhancers or Epalons; glutamate antagonists; and ICE-like protease inhibitors. The Company's lead Epalon compound, CCD 1042 (ganaxolone), an anticonvulsant and anti-migraine compound, is in separate Phase II clinical trials for pediatric epilepsy, adult epilepsy and migraine. The Company anticipates that CCD 3693, its lead compound for the treatment of insomnia, will enter Phase I trials in the second quarter of 1997. 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 co-promotion activities 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 March 31, 1997, the Company's accumulated deficit was approximately $89.2 million. RESULTS OF OPERATIONS The Company recognized $1,123,000 in co-promotion revenues for the three-month period ended March 31, 1997, compared to $798,000 during the same period in 1996. This increase is due primarily to higher revenues under the Parke-Davis Promotion Agreement. Due to the nature of its co-promotion agreements, the Company has historically reported a disproportionately large share of its co-promotion revenues during the fourth quarter. The decrease in revenue for the first quarter of 1997 of $3.1 million as compared to the fourth quarter of 1996 is attributable principally to this factor. The Company recognized $702,000 in co-development revenues for the three-month period ended March 31, 1997 compared to $833,000 for the same period of 1996, principally as a result of lower co-development revenue from to the ACEA 1021 program, partially offset by increased funding from Searle related to the development of CCD 3693. 10 Research and development ("R&D") expenses increased to $5.4 million for the three-month period ended March 31, 1997, from $4.8 million in the first quarter of the prior year. This increase resulted primarily from higher product development costs and additional staffing required to support Phase II clinical trials of CCD 1042 in migraine and epilepsy and pre-clinical development of CCD 3693. These increases were partially offset by lower product development costs associated with the ACEA 1021 program. Clinical development of ACEA 1021 was suspended in April 1997 following the decision of the Company's development partner, Novartis Pharma A.G. ("Novartis"), not to continue participation in the development of ACEA 1021. The Company does not intend to resume clinical development of ACEA 1021 until it secures another partner. Marketing, general and administrative expense was $2.7 million for the first quarter in each of 1997 and 1996. Interest income was $219,000 for the three-month period ended March 31, 1997 compared to $272,000 for the same quarter in 1996. The decrease was due to lower cash and short-term investment balances in the first quarter of the current year when compared to the same quarter a year earlier. LIQUIDITY AND CAPITAL RESOURCES From its inception in February 1989 through March 31, 1997, the Company has financed its operations primarily through private and public offerings of its equity securities, raising net proceeds of approximately $84.3 million through sales of these securities. As of March 31, 1997, the Company's balance of cash, cash equivalents and short-term investments totaled $13.3 million, compared to $18.0 million at December 31, 1996. In March 1997, Warner Lambert purchased $2.0 million of the Company's common stock. Subsequent to the end of the first quarter, the Company received $10.7 million from Wyeth-Ayerst and American Home Products, its parent, related to the Co 2-6749 development and commercialization agreement signed on May 12, 1997. As of March 31, 1997, the Company had invested $5.9 million in leasehold improvements, laboratory and computer equipment and office furnishings and equipment. The Company has financed $3.0 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 Parke-Davis Promotion Agreement, the Company promotes Parke-Davis' CNS drug, Cognex-Registered Trademark-, to neurologists in the United States. Funds are prepaid to the Company quarterly to cover the training and operating expenses incurred by the Company's sales force in promoting Cognex. The Company will recognize co-promotion revenues from its share of sales of Cognex above certain base levels specified in the contract. Pursuant to the Warner Collaboration Agreement, Warner-Lambert is obligated to make certain milestone payments for each compound selected for development, as well as pay for its share of 11 development costs. Also pursuant to this contract, Warner-Lambert purchased $2.0 million of CoCensys common stock in October 1995 and an additional $2.0 million of CoCensys common stock in March 1997. Pursuant to the 1997 Somerset Promotion Agreement, the Company promotes Somerset's drug Eldepryl-Registered Trademark- to certain neurologists and other physicians 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. 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 mitigate such negative cash flows with 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 satisfy its capital needs for at least the next 12 months. There can be no assurance that milestone-based payments or co-promotion revenues will be sufficient to meet the Company's 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 additional funding through additional research and development collaborations with suitable corporate partners, 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 additional 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, 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 In addition to those discussed above, the Company is subject to the following risks: The Company's product candidates 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. The Company's strategy for the development, clinical testing and commercialization of its products includes entering into various 12 collaborations with corporate partners, licensors, licensees and others. There can be no assurance that the Company will be able to negotiate further collaborative arrangements on acceptable terms, if at all, or that its current collaborative efforts will be successful. 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. Inherent in the fact that CoCensys is an early stage biopharmaceutical company are a range of additional risks, including those associated with obtaining and enforcing patents and protecting proprietary technology and the risk of regulatory change, among others. The securities markets have from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. In addition, the market prices of the common stock of many publicly traded biopharmaceutical companies have in the past been, and can in the future be expected to be, especially volatile. Announcements of technological innovations or new products by the Company or its competitors, developments or disputes concerning patents or proprietary rights, publicity regarding actual or potential medical results relating to products under development by the Company or its competitors, regulatory developments in both the United States and foreign countries, public concern as to the safety of biotechnology products and economic and other external factors, as well as period-to-period fluctuations in the Company's financial results, may have a significant impact on the market price of the Company's common stock. 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 results of clinical trials results could cause result in cancellation of future clinical studies. 13 COCENSYS, INC. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended March 31, 1997. 14 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: 5-13-97 By: /s/ F. Richard Nichol, Ph.D. - ------------- ------------------------------- F. Richard Nichol, Ph.D. President and Chief Executive Officer (PRINCIPAL EXECUTIVE OFFICER) Date: 5-13-97 By: /s/ Peter E. Jansen - ------------- ------------------------------- Peter E. Jansen Chief Financial Officer (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 15 EX-27 2 FDS
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 2,195 11,079 632 0 0 14,348 6,037 3,381 17,233 3,904 275 0 7,000 95,909 (89,894) 17,233 0 1,825 0 0 0 0 14 (6,081) 0 (6,081) 0 0 0 (6,081) (.27) (.27)
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