UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES AND EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 0-28150 NEUROCRINE BIOSCIENCES, INC. (Exact name of registrant as specified in its charter) DELAWARE 33-0525145 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 10555 SCIENCE CENTER DRIVE SAN DIEGO, CALIFORNIA 92121 (Address of principal executive offices) (619) 658-7600 (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 The number of outstanding shares of the registrant's Common Stock, par value of $.001, was 18,161,626 as of July 31, 1998.
<TABLE> NEUROCRINE BIOSCIENCES, INC FORM 10-Q INDEX <CAPTION> PAGE <S> <C> <C> PART I. FINANCIAL INFORMATION Item 1: Financial Statements 3 Condensed Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Overview 7 Results of Operations 7 Liquidity and Capital Resources 9 PART II. OTHER INFORMATION Item 2: Changes in Securities and Use of Proceeds 10 Item 4: Submission of Matters to a Vote of Security Holders 10 Item 6: Exhibits and Reports on Form 8-K 13 SIGNATURES 13 </TABLE>
PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS <TABLE> NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS <CAPTION> June 30, December 31, 1998 1997 ------------------- ------------------- (Unaudited) (Note) <S> <C> <C> SETS Current assets Cash and cash equivalents $ 10,643,020 $ 15,771,099 Short-term investments, available-for-sale 54,555,970 59,321,095 Receivables under collaborative agreements 225,302 193,784 Receivables from related parties and other 695,795 940,100 Prepaid expenses 425,268 151,553 ------------------- ------------------- Total current assets 66,545,355 76,377,631 Property and equipment, net 9,853,342 8,846,179 Licensed technology and patent application costs, net 1,076,079 1,185,384 Investment in Neuroscience Pharma, Inc. 3,901,288 3,343,740 Other assets 2,159,877 2,150,451 =================== =================== Total assets $ 83,535,941 $ 91,903,385 =================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 614,357 $ 1,822,173 Accrued expenses, other current liabilities and current portion of long-term debt 2,791,852 5,547,697 ------------------- ------------------- Total current liabilities 3,406,209 7,369,870 Long-term liabilities 1,705,871 1,381,040 Stockholders' equity Preferred Stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding Common stock, $0.001 par value, 100,000,000 shares authorized, issued and outstanding shares - 18,144,225 in 1998 and 17,686,802 in 1997 92,479,580 88,047,176 Accumulated deficit (14,055,719) (4,894,701) ------------------- ------------------- Total stockholders' equity 78,423,861 83,152,475 =================== =================== Total liabilities and stockholders' equity $ 83,535,941 $ 91,903,385 =================== =================== <FN> Note: The balance sheet at December 31, 1997 was derived from the audited financial statements at that date, but does not include all of the disclosures required by generally accepted accounting principals. </FN> </TABLE> See accompanying notes to condensed consolidated financial statements.
<TABLE> NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 <S> <C> <C> <C> <C> Sponsored research $ 1,887,500 $ 2,637,500 $ 3,775,000 $ 5,275,000 Milestones - 1,000,000 1,250,000 6,000,000 Other revenues 403,265 1,163,694 1,402,236 2,380,085 ------------------- ----------------- -------------------- ------------------ Total revenues 2,290,765 4,801,194 6,427,236 13,655,085 Operating expenses Research and development 4,866,448 4,440,251 9,907,484 9,029,329 General and administrative 1,338,838 1,343,901 2,867,318 2,488,450 Special charges 5,509,701 - 5,509,701 - ------------------- ----------------- -------------------- ------------------ Total operating expenses 11,714,987 5,784,152 18,284,503 11,517,779 Income (loss) from operations (9,424,222) (982,958) (11,857,267) 2,137,306 Other income and expenses Interest income 1,000,038 910,037 2,119,511 1,833,268 Interest expense (30,072) (40,785) (64,205) (88,411) Other income 478,404 239,512 640,943 439,025 ------------------- ----------------- -------------------- ------------------ Income (loss) before income taxes (7,975,852) 125,806 (9,161,018) 4,321,188 Income taxes - 22,393 - 76,393 ------------------- ----------------- -------------------- ------------------ Net income (loss) $(7,975,852) $ 103,413 $(9,161,018) $ 4,244,795 =================== ================= ==================== ================== Earnings (loss) per common Share Basic $ (0.45) $ 0.01 $ (0.51) $ 0.25 Diluted $ (0.45) $ 0.01 $ (0.51) $ 0.22 Shares used in the calculation of earnings (loss) per share Basic 17,874,018 16,889,170 17,790,297 16,859,987 Diluted 17,874,018 19,190,139 17,790,297 19,219,160 </TABLE> See accompanying notes to condensed consolidated financial statements.
<TABLE> NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <CAPTION> Six Months Ended June 30, 1998 1997 ------------------ ------------------- <S> <C> <C> Cash flow from operating activities: Net income (loss) $(9,161,018) $ 4,244,795 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Non-cash portion of special charges 4,799,984 - Depreciation and amortization 780,837 559,185 Deferred revenues (1,750,000) 1,750,000 Deferred expenses 241,303 272,639 Change in operating assets and liabilities: Other current assets (60,928) (6,810,888) Other non-current assets (566,974) (3,718,032) Accounts payable and accrued liabilities (2,066,403) (83,934) ------------------ ------------------- Net cash flows used in operating activities (7,783,199) (3,786,235) Cash flow from investing activities: Purchases of short-term investments (27,062,723) (38,986,324) Sales/maturities of short-term investments 31,832,942 56,870,228 Purchases of property and equipment, net (1,678,695) (2,437,681) ------------------ ------------------- Net cash flows provided by investing activities 3,091,524 15,446,223 Cash flow from financing activities: Issuance of Common Stock, net 109,320 365,781 Principal payments on long term (546,772) (410,898) Notes receivable payments from stockholders 1,048 5,237 ------------------ ------------------- Net cash flows used in financing activities (436,404) (39,880) ------------------ ------------------- Net (decrease) increase in cash and cash equivalents (5,128,079) 11,620,108 Cash and cash equivalents at beginning of the period 15,771,099 11,325,361 ------------------ ------------------- Cash and cash equivalents at end of the period $10,643,020 $22,945,469 ================== =================== <FN> Supplemental schedule of non-cash investing and financing activities: During 1998, the Company recorded non-cash items of $1.4 million relating to the conversion of a note receivable to an investment in NPI and $4.2 million for the acquisition of NNL. </FN> </TABLE> See accompanying notes to condensed consolidated financial statements.
NEUROCRINE BIOSCIENCES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The condensed consolidated financial statements included herein are unaudited. These financial statements include the accounts of Neurocrine Biosciences, Inc. and Northwest NeuroLogic, Inc., a wholly owned subsidiary since its acquisition on May 28, 1998. All significant intercompany transactions were eliminated in consolidation. The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of results expected for the full year. The financial statements should be read in conjunction with the audited financial statements and notes for the year ended December 31, 1997, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. 2. NET INCOME PER SHARE In accordance with Financial Accounting Standards Board Statement No. 128, "Earnings per Share" ("SFAS 128"), basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of the Company such as common stock which may be issuable upon exercise of outstanding common stock options, warrants and preferred stock. These shares are excluded when their effects are antidilutive. As required by SFAS 128, the Company has restated the earnings per share presentations for the periods ended June 30, 1997. 3. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 130, "Comprehensive Income" ("SFAS 130"), which applies to financial statements issued for periods beginning after December 15, 1997. SFAS 130 requires the disclosure of all components of comprehensive income, including net income and other comprehensive income. Comprehensive income includes changes in equity during a period from transactions and other events and circumstances generated from non-owner sources. For the three and six months ended June 30, 1998 and 1997, comprehensive income is calculated as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---------------------------------- ---------------------------------- <S> <C> <C> <C> <C> Net income (loss) $(7,975,852) $ 103,413 $(9,161,018) $4,244,795 Unrealized gains (losses) on investments (11,978) 3,482 5,094 (79,678) ----------------- ---------------- ----------------- --------------- Comprehensive income (loss) $(7,987,830) $ 106,895 $(9,155,924) $4,165,117 ================= ================ ================= =============== </TABLE> 4. ACCOUNTING FOR PENSIONS AND HEDGING ACTIVITIES In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 132, "Employee's Disclosures about Pension and Other Post-retirement Benefits", which is effective for periods beginning after December 15, 1997 ("SFAS 132"). SFAS 132 revises disclosures about pension and other post-retirement benefit plans. The Company believes this statement will have no material impact on its financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999 ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company is currently evaluating the impact SFAS No. 133 will have on its financial statements, if any. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations of Neurocrine Biosciences, Inc. ("Neurocrine" or the "Company") contains forward-looking statements which involve risks and uncertainties, pertaining generally to the expected continuation of the Company's collaborative agreements, the receipt of research payments thereunder, the future achievement of various milestones in product development and the receipt of payments related thereto, the potential receipt of royalty payments, pre-clinical testing and clinical trials of potential products, the period of time the Company's existing capital resources will meet its funding requirements, and financial results and operations. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below and those outlined in the Company's 1997 Annual Report on Form 10-K filed with the Securities and Exchange Commission. OVERVIEW Since the founding of the Company in January 1992, Neurocrine has been engaged in the discovery and development of novel pharmaceutical products for diseases and disorders of the central nervous and immune systems. To date, Neurocrine has not generated any revenues from the sale of products, and does not expect to generate any product revenues in the foreseeable future. The Company's revenues are expected to come from its strategic alliances. The Company expects to generate further net losses as its operating expenses are anticipated to rise significantly in future periods as products are advanced through the various stages of clinical development. Neurocrine has incurred a cumulative deficit of approximately $14.1 million as of June 30, 1998 and expects to incur operating losses in the future, which are potentially greater than losses in prior years. RESULTS OF OPERATIONS Three months ended June 30, 1998 compared with three months ended June 30, 1997 Revenues for the second quarter of 1998 were $2.3 million compared to $4.8 million for the comparable period in 1997. The decline of $2.5 million in revenues resulted from the completion of sponsored research under the Janssen collaboration and milestone payments received under the Novartis collaboration during 1997. The research completed under the Janssen collaboration resulted in a clinical compound (R121919). Janssen is currently conducting Phase I trials with R121919 for anxiety/depression and is expected to progress to Phase II trials near the end of the third quarter of 1998. Phase II trials for multiple sclerosis under the Novartis collaboration is currently in progress. Research and development expenses increased to $4.9 million for the second quarter of 1998 compared to $4.4 million for the same period in 1997. This increase reflects higher costs associated with increased scientific personnel and related support expenditures as the Company broadens its research and clinical development pipeline. General and administrative expenses remained constant at $1.3 million during the second quarter of 1998 compared to the same period in 1997. Special charges for the second quarter of 1998 consisted of $4.2 million related to the acquisition of Northwest Neurologic, Inc. ("NNL"), $1.3 million related to the in-licensing of two chemical compounds for insomnia and glioblastoma, and additional investment in the Company's Canadian affiliate. Interest income increased to $1.0 million during the second quarter of 1998 compared to $910,000 for the same period last year. This increase was due to higher effective interest yields on the Company's investment portfolio during the second quarter of 1998. Net losses for the second quarter of 1998 were $8.0 million or $0.45 per share ($0.14 per share excluding special charges) compared to net income of $103,000 or approximately $0.01 per share for the same period in 1997. The decrease in net earnings and earnings per share resulted primarily from non-recurring collaborative revenues of $2.5 million reported in 1997 and special charges of $5.5 million reported during the second quarter of 1998. To date, the Company's revenues have come from funded research and achievements of milestones under corporate collaborations. The nature and amount of these revenues from period to period may lead to substantial fluctuations in the results of quarterly revenues and earnings. Accordingly, results and earnings of one period are not predictive of future periods. Six months ended June 30, 1998 compared with six months ended June 30, 1997 Revenues for the first half 1998 were $6.4 million compared to $13.7 million for the comparable period in 1997. The decline in revenues of $7.3 million resulted from the completion of sponsored research under Janssen collaboration, milestone payments received under the Novartis collaboration and a $5.0 million research support payment received under the Eli Lilly collaboration during 1997. The research completed under the Janssen collaboration resulted in a clinical compound (R121919). Janssen is currently conducting Phase I trials with R121919 for anxiety/depression and is expected to progress to Phase II trials near the end of the third quarter of 1998. Phase II trials for multiple sclerosis under the Novartis collaboration is in progress. Research and development expenses increased to $9.9 million for the first half of 1998 compared with $9.0 million for the same period in 1997. This increase reflects higher costs associated with increased scientific personnel and related support expenditures as the Company broadens its research and clinical development pipeline. General and administrative expenses increased to $2.9 million during the first half of 1998 compared to $2.5 million for the same period in 1997. The increase resulted primarily from additional administrative personnel, business development and professional service expenses to support the expanded research and clinical development efforts. Special charges for the first half of 1998 consisted of $4.2 million related to the acquisition of Northwest Neurologic, Inc. ("NNL"), $1.3 million related to the in-licensing of two chemical compounds for insomnia and glioblastoma, and additional investment in the Company's Canadian affiliate. Interest income increased to $2.1 million during the first half of 1998 compared to $1.8 million for the same period last year. This increase primarily resulted from higher effective interest yields on the Company's investment portfolio during 1998. Net losses for the first half of 1998 were $9.2 million or $0.51 per share ($0.21 per share excluding special charges) compared to net income of $4.2 million or $0.25 per share ($0.22 per share assuming dilution) for the same period in 1997. The decrease of $13.4 million in net earnings resulted primarily from $7.3 million of non-recurring collaborative revenues recorded in 1997, including a $5.0 million research support payment received from Eli Lilly, and special charges of $5.5 million reported in 1998. To date, the Company's revenues have come from funded research and achievements of milestones under corporate collaborations. The nature and amount of these revenues from period to period may lead to substantial fluctuations in the results of year-to-date revenues and earnings. Accordingly, results and earnings of one period are not predictive of future periods. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998, the Company's cash, cash equivalents, and short-term investments totaled $65.2 million. Cash held by the Company excludes approximately $5.9 million held by NPI, which is available to fund certain of the Company's research and development activities. Cash used in operating activities during 1998 was $7.8 million compared to net cash provided of $2.3 million for the same period in 1997. The increase in cash used in operating activities during 1998 was primarily the result of the recognition of deferred revenues, decreased revenues under the Company's collaborations and payment of current liabilities. Cash provided by investing activities during 1998 was $3.1 million compared to net cash used of $6.5 million during the same period in 1997. The increase in cash provided was primarily the result of timing differences in investment purchases and sales/maturities and fluctuations in the Company's portfolio mix between cash equivalent and short-term investment holdings. Cash used in financing activities during 1998 was $436,000 compared to net cash provided of $81,000 for the same period in 1997. The increase in net cash used was primarily due to principal payments on long-term obligations. The Company believes that its existing capital resources, together with interest income and future payments due under the strategic alliances, will be sufficient to satisfy its current and projected funding requirements at least through the year 2000. However, no assurance can be given that such capital resources and payments will be sufficient to conduct its research and development programs as planned. The amount and timing of expenditures will vary depending upon a number of factors, including progress of the Company's research and development programs. OTHER EVENTS The Company entered into a patent license agreement with David Fitzgerald and Ira Pastan on April 28, 1998, and with the National Institutes of Health on May 7, 1998 (collectively the "Patent Agreements"). Under the Patent Agreements, the Company obtained an exclusive license covering the therapeutic application of an anti-cancer compound referred to as IL-4(38-37)-PE38KDEL (IL-4 Fusion Toxin). The Company is obligated to make milestone payments upon attainment of certain clinical development and regulatory accomplishments and royalty payments based upon sales by the Company of products developed under the Patent Agreements. During the quarter ended June 30, 1998, the Company initiated Phase I human clinical trials with the anti-cancer compound in patients with malignant brain tumors. On May 28, 1998, the Company acquired Northwest NeuroLogic, Inc., an Oregon corporation ("NNL"). The Company purchased all of the outstanding capital stock of NNL and assumed all of its outstanding stock options in exchange for 392,608 shares of the Company's Common Stock and options to purchase 105,414 shares of Common Stock. The acquisition was accounted for as a purchase transaction. The aggregate purchase price of $4.2 million was allocated to the fair value of the net assets acquired, the majority of which was acquired in-process research and development. There can be no assurance that the Company will be successful in developing these compounds, that they will receive necessary FDA approvals to proceed to the next phase of clinical testing, or that they will ultimately be developed into commercially viable products. The Company's results of operations include NNL's results of operations from the date of acquisition. There can be no assurance that the Company will not incur additional charges in subsequent quarters to reflect costs associated with the transaction or that the Company will be successful in its efforts to integrate the operations of NNL into those of the Company. The Company may make further acquisitions and investments and enter into further collaborations, joint ventures and strategic alliances, some of which may be material, when it believes such transactions will complement its overall business strategy. However, such transactions, and in particular the acquisitions of research and development companies, are inherently risky and there can be no assurance that the recently completed acquisition or any such future transactions or joint ventures will be successful and will not adversely affect the Company's business, operating results, or financial condition. On June 30, 1998, the Company entered into a Sublicense and Development Agreement (the "Sublicense Agreement") with DOV Pharmaceutical, Inc. ("DOV"). Under the Sublicense Agreement, the Company obtained an exclusive sublicense to the patent rights and know-how relating to NBI-34060, a compound in clinical development, for the treatment of insomnia and all therapeutic indications. Under the Sublicense Agreement, the Company will be responsible for worldwide development and commercialization of this compound. In conjunction with the Sublicense Agreement, the Company made an equity investment in DOV and will make milestone payments based upon the attainment of certain clinical development and regulatory accomplishments. DOV will also receive royalties on the worldwide sales by the Company of approved products resulting from the collaboration. In addition, the Company issued warrants (the "Warrants") exercisable for an aggregate of 75,000 shares of Common Stock at an exercise price of approximately $8.04 per share upon the occurrence of certain events. YEAR 2000 COMPLIANCE Although the Company believes its key financial, information and operational systems are Year 2000 compliant, there can be no assurances that other defects will not be discovered in the future. The Company is unable to control whether the firms and vendors it does business with currently, and in the future, will have systems which are Year 2000 compliant. The Company has not yet verified that the parties it conducts business with are Year 2000 Compliant. The Company's operations could be affected to the extent that firms and vendors would be unable to provide services or ship products. However, management does not believe the Year 2000 changes will have a material impact on its business, financial condition or results of operations. CAUTION ON FORWARD-LOOKING STATEMENTS The Company's business is subject to significant risks, including but not limited to, the risks inherent in its research and development activities, including the successful continuation of the Company's strategic collaborations, the successful completion of clinical trials, the lengthy, expensive and uncertain process of seeking regulatory approvals, uncertainties associated both with obtaining and enforcing its patents and patent rights of others, uncertainties regarding government reforms and of product pricing and reimbursement levels, technological change and competition, manufacturing uncertainties and dependence on third parties. Even if the Company's product candidates appear promising at an early stage of development, they may not reach the market for numerous reasons. Such reasons include the possibilities that the product will be ineffective or unsafe during clinical trials, will fail to receive necessary regulatory approvals, will be difficult to manufacture on a large scale, will be uneconomical to market or will be precluded from commercialization by proprietary rights of third parties. Neurocrine will require additional funding for the continuation of its research and product development programs, for progress with preclinical testing and clinical trials, for operating expenses, for the pursuit of regulatory approvals for its product candidates, for the costs involved in filing and prosecuting patent applications and enforcing patent claims, if any, the cost of product in-licensing and any possible acquisitions, and may require additional funding for establishing manufacturing and marketing capabilities in the future. The Company may seek to access the public or private equity markets whenever conditions are favorable. The Company may also seek additional funding through strategic alliances and other financing mechanisms, potentially including off-balance sheet financing. There can be no assurance that adequate funding will be available on terms acceptable to the Company, if at all. If adequate funds are not available, the Company may be required to curtail significantly one or more of its research or development programs or obtain funds through arrangements with collaborative partners or others. This may require the Company to relinquish rights to certain of its technologies or product candidates. Continued profitability is not expected as the Company's operating expenses are anticipated to rise significantly in future periods as products are advanced through the various development and clinical stages. Neurocrine expects to incur additional operating expenses over the next several years as its research, development, preclinical testing and clinical trial activities increase. To the extent that the Company is unable to obtain third party funding for such expenses, the Company expects that increased expenses will result in increased losses from operations. There can be no assurance that the Company's products under development will be successfully developed or that its products, if successfully developed, will generate revenues sufficient to enable the Company to earn a profit. PART II. OTHER INFORMATION Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On May 28, 1998, the Company acquired Northwest NeuroLogic, Inc. ("NNL"), pursuant to the Agreement and Plan of Reorganization dated May 1, 1998 (the "Agreement"). In connection with the acquisition of NNL, the Company issued an aggregate of 392,608 shares of the Company's Common Stock (the "Merger Shares") to the existing stockholders of NNL in exchange for all of the outstanding shares of capital stock of NNL. The Merger Shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), afforded by Section 4 (2) thereof. The stockholders of NNL had access to all relevant information regarding the Company necessary to evaluate the investment and represented that the shares were being acquired for investment intent. Additionally, the stockholders of NNL were provided with information statements prior to the vote to approve the transaction. There was no general solicitation or advertising involved in the acquisition, and the Company used reasonable care to assure that the stockholders of NNL were not underwriters. At the closing of the acquisition, the Company assumed the outstanding stock options held by NNL optionees based on an exchange ratio as set forth in the Agreement. The 105,414 shares of Common Stock underlying the options were registered on a Registration Statement on Form S-8 filed with the Commission on June 26, 1998. On June 30, 1998, the Company issued to certain investors warrants (the "Warrants") to purchase shares of Common Stock of the Company in connection with the Sub-License and Development Agreement between the Company and DOV Pharmaceutical, Inc. dated June 30, 1998. The Warrants are exercisable for an aggregate of 75,000 shares of Common Stock at an exercise price of approximately $8.04 per share. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company's Annual Meeting of Stockholders was held on May 27, 1998 (the "Annual Meeting"). (b) The following Class II Directors were elected at the Annual Meeting: Name Position Term Expires ---- -------- ------------ Richard Pops Class II Director 2001 David Robinson Class II Director 2001 The following Class I and III Directors continue to serve their respective terms which expire on the Company's Annual Meeting of Stockholders in the year as noted: Name Position Term Expires ---- -------- ------------ Joseph Mollica Class I Director 2000 Wylie Vale Class I Director 2000 Errol DeSouza Class I Director 2000 Gary Lyons Class III Director 1999 Harry Hixson Class III Director 1999 (c) At the Annual Meeting, stockholders voted on four matters: (i) the election of two Class II directors for a term of three years expiring in 2001, (ii) the amendment of the 1992 Incentive Stock Plan (the "1992 Plan") to increase the number of shares of Common Stock reserved for issuance thereunder from 4,100,000 to 4,700,000 shares, (iii) the amendment of the 1996 Director Option Plan (the "Director Plan") to increase the number of shares of Common Stock reserved for issuance thereunder from 100,000 to 200,000 shares, and (iv) the ratification of the appointment of Ernst & Young LLP as the Company's independent auditors. The matters voted upon at the meeting and the voting results were as follows: (i) The election of Richard Pops and David Robinson as Class II Directors for a term of three years: For 12,404,075, Withhold 51,324. (ii)Approval of amendment to the Company's 1992 Incentive Stock Plan, increasing the number of shares of Common Stock reserved for issuance from 4,100,000 to 4,700,000 Shares: For 11,845,420, Against 581,914, Abstain 28,065. (iii) Approval of amendment to the Company's 1996 Director Option Plan, increasing the number of shares of Common Stock reserved for issuance from 100,000 to 200,000 Shares: For 11,941,921, Against 479,139, Abstain 34,339. (iv)Ratification of the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 1997: For 12,423,485, Against 17,754, Abstain 14,160. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits to this report are listed in the table below. <TABLE> <CAPTION> Exhibit No. Exhibit Description <S> <C> 2.1* Agreement and Plan of Reorganization dated May 1, 1998, between Northwest NeuroLogic, Inc., NBI Acquisition Corp. and the Registrant. 2.2* Registration Rights Agreement dated May 28, 1998, between certain investors and the Registrant. 2.3 Form of Warrant pursuant to the Agreement and Plan of Reorganization dated May 1, 1998. 10.1* Patent License Agreement dated May 7, 1998 between the U.S. Public Health Service and the Registrant. 10.2* Patent License Agreement dated April 28, 1998, between and among Ira Pastan, David Fitzgerald and the Registrant. 10.3* Sub-License and Development Agreement dated June 30, 1998, by and between DOV Pharmaceutical, Inc. and the Registrant. 10.4* Warrant Agreement dated June 30, 1998, between DOV Pharmaceutical, Inc. and the Registrant. 10.5* Warrant Agreement dated June 30, 1998, between Jeff Margolis and the Registrant. 10.6* Warrant Agreement dated June 30, 1998, between Stephen Ross and the Registrant. 27.1 Financial Data Schedule <FN> * Portions of this Exhibit have been omitted pursuant to a confidentiality request filed with the Securities and Exchange Commission. </FN> </TABLE> (b) Reports on Form 8-K. During the quarter ended June 30, 1998, the Company filed no current Reports on Form 8-K.
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEUROCRINE BIOSCIENCES, INC. Dated: 08/14/98 /s/ Paul W. Hawran PAUL W. HAWRAN Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)