SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Mark One:
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-27324
SYNAPTIC PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2859704
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
215 College Road
Paramus, NJ 07652
(Address of principal executive offices) (Zip Code)
(201) 261-1331
(Registrant's telephone number, including area code)
Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Rights to Purchase Series A Junior Convertible Preferred Stock,
par value $.01 per share
(Title of Class)
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, as amended (the "Exchange Act"), 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of the voting and non voting common
equity held by non-affiliates of the registrant was approximately $40,300,000 as
of February 15, 2002, based upon the closing price of the Common Stock as
reported on The Nasdaq Stock Market on such date. For purposes of this
calculation, shares of Common Stock held by directors, officers and stockholders
whose ownership in the registrant is known by the registrant to exceed five
percent have been excluded. This number is provided only for purposes of this
report and does not represent an admission by either the registrant or any such
person as to the status of such person.
As of February 15, 2002, there were 10,969,990 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Synaptic Pharmaceutical Corporation Proxy Statement, to be
filed not later than 120 days after December 31, 2001, in connection with the
registrant's 2002 Annual Meeting of Stockholders, referred to herein as the
"Proxy Statement," are incorporated by reference into Part III of this Report on
Form 10-K.
SYNAPTIC PHARMACEUTICAL CORPORATION
INDEX TO REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2001
Part I
Item 1. Business......................................................1
Item 2. Properties...................................................15
Item 3. Legal Proceedings............................................15
Item 4. Submission of Matters to a Vote of Securityholders...........16
Part II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters.......................................17
Item 6. Selected Financial Data......................................18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................18
Item 8. Financial Statements.........................................36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................55
Part III
Item 10. Directors and Executive Officers of the Registrant..........55
Item 11. Executive Compensation......................................55
Item 12. Security Ownership of Certain Beneficial Owners
and Management...........................................55
Item 13. Certain Relationships and Related Transactions..............55
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..............................................56
(i)
Part I
Item 1. Business
Overview
Synaptic Pharmaceutical Corporation ("Synaptic", the "company" or "we") is
a drug discovery company using its proprietary portfolio of G protein-coupled
receptors ("GPCRs") as the basis for developing new drugs for the treatment of a
variety of human disorders. GPCRs represent a family of human receptors that are
involved with a broad range of physiological functions in the body. Human
receptors are protein molecules that exist on the surface membrane of all cells
and affect cell activity. Human receptors are associated with physiological
functions and, sometimes, disorders. The company and its licensees conduct
research to discover the function of specific GPCRs in the human body and
physiological disorders with which they may be associated. We use this
information to design compounds that bind to and change the function of these
GPCRs. These compounds have the potential to be developed into drugs to treat
disorders with which the GPCRs are associated. Our goal is to develop the
compounds we design into commercially viable drugs.
Since the company's inception in 1987, we have developed significant
expertise in the molecular biology, pharmacology and medicinal chemistry of the
GPCR family. We selected this human receptor family because GPCRs have been
shown to be attractive drug targets. Drugs that work by interacting with GPCRs
are already commercially available for a wide variety of therapeutic
indications. The GPCR family is estimated to include approximately 1,000
distinct human receptors. Of these, approximately 500 receptors are thought to
be useful targets for drug discovery. Accordingly, we believe that there are
substantial opportunities to develop novel drugs by targeting receptors within
the GPCR family.
Since inception, we have based our drug discovery efforts on genomics, the
discovery and cloning of genes, and functional genomics, the technologies
involved in identifying the physiological function of a given receptor. Our
genomics program focuses on genes for GPCRs. Our functional genomics program
enables us to prioritize which targets to pursue in our drug discovery programs
and focus our drug discovery efforts on the targets that are most likely to
produce marketable drugs. We use the biological method, as opposed to the
chemical method, in our functional genomics efforts to identify the
physiological functions of receptors. The biological method involves first
identifying the specific natural chemical, or ligand, with which a receptor
preferentially interacts. We believe that knowing the natural ligand for the
receptor provides a wealth of pharmacological insights that are extremely
important in determining whether a given receptor will be a valuable drug
discovery target.
We believe that our competitive advantage derives from being one of the
first companies involved in genomics and functional genomics, and from our
ability to identify natural ligands for newly discovered receptors. As one of
the first companies in these areas, we have accumulated a significant patent
estate around the more valuable parts of the GPCR family, which provides us with
lead time relative to our competitors for drug targets that we choose to pursue
on our own. As of February 1, 2002, we had been awarded 150 patents relating to
our GPCR efforts. Currently we are pursuing GPCR drug targets that appear to
influence physiological functions related to the therapeutic areas of
depression, obesity, diabetes, and pain. The company's goal is to advance drug
programs into clinical trials thus creating a portfolio of drug development
opportunities. As individual drug development programs enter clinical trials, we
will evaluate whether to develop them on our own or out-license them to other
pharmaceutical or biotechnology companies.
Over the first thirteen years of our existence, we entered into a number of
collaborative or licensing arrangements with pharmaceutical companies. These
arrangements generally provide for
1
milestone payments and royalties, of which
Synaptic will be the beneficiary, as compounds being developed by the
collaborator or licensee move through clinical development and onto the market.
Our business model contemplates a combination of licensed programs being
developed by others and a number of internal drug development programs that we
are pursuing on our own as the best means of creating value for our
shareholders.
Discussions in this report refer to various phases of preclinical testing
and clinical trials. For a description of these phases, see "Government
Regulation" below.
Business Model
Synaptic's business model involves the creation, independently as well as
with our collaborative partners and licensees, of a diversified pipeline of GPCR
discovery and development programs. We employ the following strategies to
achieve our objectives:
Business Strategy: To develop compounds initially through Phase II and
eventually to take products onto the market.
Our goal is to use our GPCR expertise to discover and move drugs through
the clinical development process and onto the market. To achieve that goal, we
select GPCR targets for drug discovery and development programs in areas in
which we believe that time to market and our intellectual property position
provides us with an advantage over our competition.
Research Strategy: To discover and design potential drugs utilizing
Synaptic's large portfolio of proprietary GPCR targets and its small molecule
chemical library.
Our principal research strategy is to discover and design, or to have
collaborative partners and other licensees discover and design, potential drugs
through the use of our GPCR technologies and expertise. The company and its
licensees are using these technologies to identify and optimize drug-like
chemical series for further development. From time to time we may evaluate
opportunities to in-license drug-like chemical series that interact with GPCRs
and that are complementary to our drug development portfolio.
Research Strategy: To develop a broad array of functional genomics
technologies.
Our second research strategy is to use animal models to attempt to
establish the functions, or "proof of concept," of individual GPCRs. We have
developed, and will continue to attempt to develop and integrate, technologies
that facilitate an understanding of the various functions of specific GPCRs in
the body.
Financial Strategy: To utilize the capital markets, the company's patent
estate and its developed technologies as the basis for funding the company's
drug discovery and development programs.
Our primary financial strategy is to access the capital markets as needed
to finance the costs of our research and development efforts until we or our
licensees can bring commercially viable products to market. We create some
revenues by granting licenses to third parties to use portions of our patent
estate and some of the drug discovery technologies we have created, and by
forming collaborative arrangements through which third parties fund some of our
research efforts.
Research and Drug Discovery Programs: Focus on G Protein-Coupled Receptor
Family
2
We use our GPCR technology in a number of different research and drug
discovery programs. We conduct some of these programs independently, and some in
collaboration with other pharmaceutical companies. Some of our licensees pursue
their own programs in which we have no continuing involvement.
Total operating expenses incurred by Synaptic for each of the fiscal years
2001, 2000 and 1999 were $25,610,000, $20,212,000 and $19,652,000, respectively,
of which approximately $1,157,000, $1,021,000 and $1,759,000, respectively, was
funded by our collaborative partners. We incurred research and development
expenses of $17,990,000, $14,360,000 and $14,592,000 for the fiscal years 2001,
2000 and 1999 respectively. For further information about revenues, expenses and
assets, see "Selected Financial Data," in PART II. Item 6, hereof.
Summary of Research and Drug Discovery Programs
Company Programs:
We are currently focusing our internal drug development efforts on five
drug discovery programs. We chose these drug discovery programs because we
believe we have a competitive advantage through our intellectual property
position and/or through our identification of a novel function for the GPCR
targets on which the programs are based. Set forth below is a brief summary of
these programs:
--------------------------------------------------------------------------------
GPCR Targets Therapeutic Indications Status
--------------------------------------------------------------------------------
SCT - 11 Depression Phase I
MCH - 1 Obesity Preclinical
SCT - X Anxiety/Depression Preclinical
SCT - Y Depression Preclinical
Various Urinary Incontinence, Pain, Research
Diabetes and CNS Disorders
--------------------------------------------------------------------------------
Depression
More than 19 million American adults (9.5% of the population) suffer from
depression. Treatment includes medication, short-term psychotherapy, or a
combination of both. Untreated depression can be costly. A RAND Corporation
study concluded that patients with depressive symptoms spend more days in bed
than those with diabetes, arthritis, back problems, lung problems or
gastrointestinal disorders. Estimates of the total annual cost of untreated
depression in 1990 ranged from $30-$44 billion in the United States alone. Of
the $44 billion figure, lost workdays account for close to $12 billion of this
cost. Additionally, more than $11 billion in other costs accrue from decreased
productivity due to symptoms that sap energy, affect work habits or cause
problems with concentration, memory and decision-making.
A number of different pharmacological approaches have been developed to
treat depression. The first generation of drugs shown to be effective in the
treatment of depression, such as the tricyclic antidepressants, lithium and the
monoamine oxidase inhibitors, have side effects that limit their effectiveness.
More recently, selective serotonin reuptake inhibitors (SSRIs), such as
Prozac(R), Zoloft(R), Paxil(R) and Celexa(R), have been
3
shown to be highly
effective in the treatment of many forms of depression. A number of SSRI
compounds are now approved for marketing, and these drugs have captured a
significant market share. However, all of these currently available drugs have
deleterious side effects that may limit their use in many patients. In addition,
these drugs are effective only after a lag period of days to weeks following
initial administration. This lag time can be a serious problem, especially in
the depressed suicidal patient. Furthermore, there are a significant number of
patients who do not adequately respond to any of the currently available drug
therapies.
Our most advanced compound, which utilizes a GPCR target we call SCT-11, is
currently in Phase I clinical trials. Compounds that interact with this receptor
are active in a variety of animal models of depression. Since this novel
approach targets a GPCR rather than a reuptake target, it is possible that
compounds that act through this mechanism may be safer and more efficacious than
existing antidepressants.
Obesity
Current research in obesity indicates that a person's appetite is
controlled by a complex network of signals that are exchanged between the body
and the brain. For over a decade, scientists at Synaptic have been working with
the GPCRs that are key components in this complex network of signals. We
hypothesize that a number of receptors in the GPCR family, including, among
others, the serotonin 2C receptor, the galanin GPCR family, the
melanin-concentrating hormone ("MCH") receptor(s) and additional GPCR's for
which we have not disclosed the ligand, may be potential targets for drug
discovery programs which might be used to treat obesity.
The medications most often used in the management of obesity are commonly
known as "appetite suppressant" medications. Appetite suppressant medications
promote weight loss by decreasing appetite or increasing the feeling of satiety.
These medications decrease appetite by increasing serotonin or
catecholamines--brain chemicals that affect appetite, as well as mood. Most of
the currently available appetite suppressant medications are approved by the
U.S. Food and Drug Administration (FDA) for short-term use, meaning a few weeks
or months. Meridia(R) is the only appetite suppressant medication approved for
longer-term use in significantly obese patients, although its safety and
effectiveness have not been established for use beyond one year.
MCH - A GPCR target the company believes is related to obesity is the MCH-1
receptor. The natural ligand, MCH, stimulates feeding in rats. In addition, rats
lacking the MCH gene are lean. Synaptic identified the gene for the MCH-1
receptor, as well as the natural ligand, by means of its proprietary technology
platform. Synaptic's chemists have designed compounds that have allowed proof of
concept in animal feeding models. This program is currently at the preclinical
stage of development.
Diabetes
Diabetes Mellitus is a significant health problem characterized by
hyperglycemia resulting from impairment in insulin secretion and/or insulin
action. Type II diabetes affects more than 16 million adults in the United
States and places these individuals at high risk for serious damage to the eyes,
nerves, kidneys and cardiovascular system. There is a high incidence of diabetes
in patients who suffer from obesity, and as obesity rates worldwide are
increasing, so too is the prevalence of diabetes. Current therapies for diabetes
include insulin replacement via injections which must be timed and dosed very
carefully, insulin sensitizers such as Rezulin(R), which can cause liver
toxicity, and Avandia(R) and Actos(R), which are very new to the market.
Sulfonylureas and meglitinides such as Prandin(R) can cause hypoglycemia and are
contraindicated in kidney disease. Glucose production blockers such as
Glucophage(R) can cause general intestinal irritation and are not
4
recommended if
liver, kidney or heart disease are present, and alpha glucosidase blockers such
as Precose(R) can cause general intestinal cramping and flatulence.
Scientists at Synaptic, utilizing their expertise in GPCRs, have identified
a novel receptor that is localized predominantly in the human pancreas. Using
the company's proprietary technology, the natural ligand for this receptor was
identified. The localization of this GPCR in the human pancreas, as well as the
biology that is known about the natural ligand, make this receptor a candidate
for the discovery and development of a drug that will stimulate
glucose-dependent insulin release. Preliminary studies at Synaptic have verified
that the ligand for this receptor stimulates the secretion of insulin from
isolated rat pancreatic islets. The program is currently in the research stage
of development.
Trace Amines
Scientists at Synaptic have discovered and cloned a new class of receptors
that are sensitive to "Trace Amines," a family of chemical messengers thought to
play a role in a variety of illnesses including depression, psychosis, migraine,
asthma, and hypertension. We are expanding our drug discovery efforts to include
this new class of GPCRs. Over the last 20 years, several lines of evidence had
pointed to trace amines as neurotransmitters and neuromodulators; however, until
our discovery, researchers had been unable to find Trace Amine receptors in
mammalian systems.
Trace Amines that act on the newly discovered receptors include tyramine,
tryptamine and (beta)-phenyethlamine. Trace Amines are closely related to
biogenic amines, which include the classical neurotransmitters serotonin,
dopamine and norepinephrine. The receptors and transporters for biogenic amines
are the targets for a number of drugs that treat depression, heart disease,
migraine headache, ulcers and allergy. We believe that the similarities between
Trace Amines and biogenic amines make Trace Amine receptors attractive targets
for discovering drugs and developing treatments for a wide variety of disorders.
The company's program in Trace Amine receptors is currently in the research
stage of development.
Joint Research Programs
A key element of Synaptic's business strategy is to leverage resources and
to attempt to generate royalty-based revenues through collaborative and
licensing arrangements with other pharmaceutical companies. We are currently
collaborating with two pharmaceutical companies pursuant to: (i) the Cooperation
Agreement dated January 12, 1998, as amended (the "Grunenthal Agreement"), with
Grunenthal GmbH ("Grunenthal") and (ii) the Collaborative Research and License
Agreement dated January 24, 2000 (the "Kissei Agreement"), with Kissei
Pharmaceutical Co., Ltd. ("Kissei"). At the time that these collaborative
arrangements were established, we granted Grunenthal and Kissei certain rights
with respect to our technology and patent rights. Set forth below is a brief
summary of these collaborative arrangements:
--------------------------------------------------------------------------------
Company Program Primary Indication
--------------------------------------------------------------------------------
Grunenthal Drug Discovery Pain
Kissei Gene Discovery, Cloning
and Proof of Concept Undisclosed
--------------------------------------------------------------------------------
Grunenthal Collaboration
5
In January 1998, we and Grunenthal entered into the Grunenthal Agreement
pursuant to which we and Grunenthal agreed to collaborate in the identification
and development of drugs for the alleviation of pain by using our complementary
technologies. We have cloned the genes for many receptors whose biological
functions are not known, whereas Grunenthal has a broad expertise in various
animal models of pain. As a result, the collaboration involves the coupling of
the company's human receptor-targeted drug design technology with Grunenthal's
expertise in pain-related technology in an attempt first to identify receptors
that could be targets of drugs that alleviate pain. Ultimately, we and
Grunenthal hope to design and develop drugs targeted to these receptors.
Under the terms of the Grunenthal Agreement, we agreed to make available to
Grunenthal, for evaluation, all receptors (to the extent not already licensed
exclusively to a third party) which we first cloned from tissues known to play a
role in the mediation of pain and for which there is currently evidence of a
role in the mediation of pain or whose function has not yet been elucidated. We
further agreed that during the evaluation period applicable to the receptors or
during the period over which activities involving any such receptor are being
jointly conducted with Grunenthal, we would not pursue these receptors,
independently or with any third party, as targets of potential drugs used for
the alleviation of pain.
The terms of the Grunenthal Agreement provide that the companies are
responsible for their own expenses incurred during the research stage of any
project undertaken as part of the collaboration but will each be responsible for
50% of all development costs incurred as part of the project with respect to any
resulting drug candidates up to the commencement of Phase III clinical trials.
Synaptic will retain manufacturing and marketing rights in the United States,
Canada and Mexico with respect to any drug candidates resulting from the
collaboration, while Grunenthal will retain manufacturing and marketing rights
in Europe, Central America (other than Mexico) and South America with respect to
any of these drug candidates. The two companies will share these rights in all
other countries. With respect to each country in its own territories and in the
shared territories in which it desires to market a drug candidate, each of
Synaptic and Grunenthal will be responsible for conducting Phase III clinical
trials, if required, for obtaining any necessary regulatory approval, and for
all associated costs.
Kissei Collaboration
In January 2000, the company and Kissei entered into the Kissei Agreement.
Under the agreement Synaptic will conduct both a genomics and functional
genomics program on behalf of Kissei. As part of this program, scientists at
Synaptic are attempting to clone genes that code for G protein-coupled receptors
from tissues selected by Kissei and to identify the ligands for these receptors.
Kissei will attempt to discover and develop compounds that act at these
receptors. The term of the collaboration is three years.
Under the terms of the Kissei Agreement, Kissei will provide the company
with funding to support Synaptic's research. Kissei will have the opportunity to
select up to a specified number of receptors that are discovered by Synaptic
during the course of the collaboration and to receive an exclusive worldwide
license to use the selected receptors to develop, manufacture and market drugs
that act through those receptors. Kissei's license will convert to a
nonexclusive license in all countries except Japan following its achievement of
certain milestones. In consideration for this license, Kissei would be required
to pay the company license fees, milestone payments and royalty payments on any
drug that may reach the marketplace.
Kissei has the right to terminate the Kissei Agreement effective in January
2003 upon at least three months' prior written notice. In the event of this kind
of termination, Kissei will not be required to provide the company with research
funding that has not come due prior to termination.
6
Other Licensees' Programs
In addition to the licenses granted in connection with our ongoing
collaborative arrangements, we have granted licenses to some of our technology
and patent rights to other pharmaceutical companies pursuant to: (A) the
Research, Option and License Agreement dated January 25, 1991, as amended (the
"Lilly Agreement"), with Eli Lilly and company ("Lilly"); (B) the Option and
License Agreement dated March 2, 1998 (the "Glaxo Agreement"), with Glaxo Group
Limited ("Glaxo"); and (C) the License Agreement dated September 29, 2000 (the
"PRI Agreement"), with The R.W. Johnson Pharmaceutical Research Institute, a
Division of Ortho-McNeil Pharmaceutical, Inc. Set forth below is a brief summary
of these arrangements:
--------------------------------------------------------------------------------
Licensee Program Primary Indications
--------------------------------------------------------------------------------
Lilly Serotonin Various
Glaxo Alpha 1a, 1b, 1d Unknown
PRI Alpha 1a, 1b, 1d BPH
--------------------------------------------------------------------------------
Lilly Agreement
The Lilly license was granted concurrently with the establishment of a
collaborative arrangement with Lilly. While this collaboration ended in July
1999, the associated license, which provides for the use of the serotonin
receptors on an exclusive basis, remains in effect. Serotonin is one of the
major neurotransmitters of the body. It affects mood, sleep rhythms, sexual
functions, appetite, temperature control, gastro-intestinal movement and the
cardiovascular, pulmonary and genito-urinary systems. Drugs that inhibit or
enhance the actions of serotonin have proven to be effective in the treatment of
an array of disorders, such as migraine headache, depression and anxiety.
However, many of the serotonergic drugs currently available were designed
without the use of cloned serotonin receptor subtype genes, and some of these
drugs have unacceptable side effect profiles. It is generally believed that the
poor side effect profiles stem from the interaction of these drugs with multiple
serotonin receptor subtypes. The serotonin family is extremely large, comprising
at least 14 receptor subtypes. While each of these receptor subtypes may be
implicated in a physiological function distinct from the other subtypes, all of
the receptor subtypes respond to the neurotransmitter serotonin--and may be
responding to nonsubtype-selective drugs. As a consequence, a
nonsubtype-selective drug intended to exert its effects on one physiological
function may in fact have the unintended consequence of exerting its effects on
other physiological functions, thereby causing the undesirable side effects.
Under the terms of the Lilly Agreement, Lilly received an exclusive
worldwide license to use all but two of Synaptic's existing serotonin drug
discovery systems for the development and commercialization of drugs that affect
serotonergic transmission. We retained the unlimited right to use the remaining
two existing serotonin drug discovery systems and a limited right to use all of
the other serotonin drug discovery systems for cross-reactivity screening of
compounds in nonserotonin drug discovery programs.
The terms of the Lilly Agreement provide that Lilly is responsible for all
development, manufacturing, marketing and sales of drugs resulting from the use
of Synaptic's technology. We will be entitled to receive payments from Lilly
upon the achievement of certain drug development milestones and royalties on
sales of any drugs developed through the use of our technology. Royalties will
be payable in respect of sales in any country over the period commencing with
the date of the first commercial sale of a drug and ending with the expiration
of related patent rights in that country.
7
Glaxo Agreement
In March 1998, Synaptic and Glaxo entered into the Glaxo Agreement pursuant
to which we granted Glaxo a nonexclusive license under our alpha 1 adrenergic
receptor patents to develop and sell alpha-1a selective compounds for
therapeutic applications other than the treatment of BPH. Synaptic will be
entitled to receive royalties on sales of any alpha-1a selective drugs sold by
Glaxo so long as Synaptic has an issued patent relating to an alpha 1 adrenergic
receptor subtype in at least one major market country at that time.
PRI Agreement
In September 2000, Synaptic and The R.W. Johnson Pharmaceutical Research
Institute, a Division of Ortho-McNeil Pharmaceutical, Inc. (PRI), entered into
the PRI Agreement in which Synaptic granted nonexclusive licenses covering
Synaptic's alpha-1 adrenergic receptors and benign prostatic hypertrophy (BPH)
patents. The PRI Agreement provides PRI the freedom to operate under Synaptic's
functional use patents for BPH and Synaptic's alpha-1 adrenergic receptor
patents for all therapeutic indications. In exchange for the nonexclusive
licenses, PRI paid an up-front licensing fee and PRI is required to make
payments to Synaptic upon the achievement of certain drug development milestones
and to pay royalties on the sales of any drugs developed.
Other Agreements
It is Synaptic's practice to meet with pharmaceutical and biotechnology
companies on an on-going basis to discuss possible collaborations on projects of
mutual interest and/or out-licensing of our technology on a non-collaborative
basis. At present, the company is in the early stages of discussing a number of
possible arrangements. There can be no assurance, however, that these
discussions will result in the consummation of collaborative or licensing
arrangements.
Patents, Proprietary Technology and Trade Secrets
Our success depends, in part, on our ability to establish, protect and
enforce our proprietary rights relating to our technology. Our policy is to
seek, when appropriate, protection for our gene discoveries, compound
discoveries and other proprietary technology by filing patent applications in
the United States and other countries. We have filed numerous patent
applications both in the United States and in other countries covering our
inventions.
As of February 1, 2002, we had been issued a total of 150 patents worldwide
relating to various G protein-coupled receptors and chemical compounds. In
addition, as of that date additional patent applications relating to our
receptor gene discoveries had been filed in the United States and in other
countries and were in various stages of prosecution.
In April 1995, we were issued our first functional use patent in the United
States. This patent covers the use of selective alpha-1a antagonists for the
treatment of BPH. As of February 1, 2002, we had been issued a total of nine
patents relating to the same subject matter in the United States and in other
countries. These patents expire between 2012 and 2015. We have filed additional
related or corresponding patent applications in the United States and in other
countries.
In August 1999, we received a functional use patent in the United States
covering the use of selective serotonin 1D agonists for the treatment of
migraine headache. We have filed additional patent applications relating to the
same subject matter in other countries.
We have also filed patent applications in the United States and in other
countries covering our neurotransmitter transporter discoveries. Whereas
receptors are protein molecules that bind to and are activated by certain
ligands, transporters are protein molecules that serve to terminate the action
of certain ligands by carrying them back into the cells from which they are
released. As of February 1, 2002, we had been issued
8
nine patents relating to
six of these transporter discoveries in the United States and in another
country. We have filed additional related or corresponding applications in the
United States and abroad. We are no longer actively working on our transporter
program; however, we are seeking to license our transporter technology to
others.
We have filed additional patent applications covering our compound
discoveries and other inventions in the United States and in other countries and
we expect to file additional patent applications in the future.
We have granted certain rights under several of our patents and patent
applications to Lilly, Novartis, Grunenthal, Glaxo, PRI and Kissei.
Patent law as it relates to inventions in the biotechnology field is still
evolving, and involves complex legal and factual questions. Moreover, the
patentability of our inventions can be affected by the actions of others beyond
our control. Accordingly, there can be no assurance that patents will be granted
with respect to any of our patent applications currently pending in the United
States or in other countries, or with respect to applications filed by us in the
future. The failure to receive patents pursuant to the applications referred to
herein and any future applications could have a material adverse effect on our
business.
There is no clear policy involving the breadth of claims allowed in patents
or the degree of protection afforded thereunder. Accordingly, no firm
predictions can be made regarding the breadth or enforceability of claims
allowed in the patents that have been issued to us or in patents that may be
issued to us in the future, and there can be no assurance that claims in our
patents, either as initially allowed by the United States Patent and Trademark
Office or any of its non-United States counterparts or as subsequently
interpreted by courts inside or outside the United States, will be sufficiently
broad to protect our proprietary rights.
On June 5, 2000, the company filed suit in the United States District Court
for the District of New Jersey against M.D.S. Panlabs, Inc., a Washington
corporation, and Panlabs Taiwan Ltd., a Taiwanese corporation (collectively,
"Panlabs"). The suit alleges that Panlabs has infringed several issued U.S.
Patents owned by the company that relate to cloned human receptors and their use
in binding assays. The suit also alleges that Panlabs has been importing,
selling and offering to sell products of our patented binding assay processes to
pharmaceutical companies and others in the United States, particularly in New
Jersey. See "Legal Proceedings" in PART I, Item 3.
On December 14, 2001, we filed suit in the United States District Court for
the District of New Jersey against Euroscreen, S.A., a Belgian corporation
("Euroscreen"). The suit alleges that Euroscreen has infringed numerous issued
U.S. Patents owned by us, which relate to cloned human receptors and their use
in binding assays. The suit alleges that Euroscreen has been importing, selling
and offering to sell products of our patented binding assay processes to
pharmaceutical companies and others in the United States, particularly in New
Jersey, and that Euroscreen has conspired with Panlabs to infringe our patents.
The suits seek injunctions against the infringing activities of Panlabs and
Euroscreen, awards of damages, the destruction of data obtained by the
infringement of our patents, and other relief. An adverse resolution of the
above matters would not have a material adverse effect on our business.
Our patents or patent applications may be challenged by way of interference
proceedings or opposed by third parties, and we may be required to participate
in interference proceedings or oppose the patents or patent applications of
third parties in order to protect our rights. Interference and opposition
proceedings can be expensive to prosecute and defend.
Further, patents issued to us may be infringed, invalidated or circumvented
by others, and the rights granted thereunder may not be commercially valuable or
provide competitive advantages to us and our present or future collaborative
partners or licensees. Moreover, because patent applications in the United
States are maintained in secrecy until patents issue, because patent
applications in certain other countries generally are
9
not published until more
than eighteen months after they are filed and because publication of
technological developments in the scientific or patent literature often lags
behind the date of these developments, we cannot be certain that we were the
first to invent the subject matter covered by our patents or patent applications
or that we were the first to file patent applications for these inventions.
Our commercial success depends in part on our ability to operate without
infringing patents and proprietary rights of third parties. We are aware of a
large number of patents and patent applications of third parties that contain
claims to genes that code for GPCRs, and/or compounds that interact with GPCRs.
Patents issued to others may preclude us from using or licensing certain of our
receptor discoveries or may preclude us or our collaborative partners and other
licensees from commercializing drugs developed with the use of our technology.
We have acquired a license to use certain technologies covered by a patent owned
by Columbia University. The Columbia University license is a worldwide
nonexclusive license to manufacture, use, sell and sublicense drugs derived from
the use of certain recombinant DNA technology. In consideration for this
license, we agreed to pay royalties on sales of drugs developed through the use
of the license. The term of the license extends until all of the patent rights
covered by the license have expired. We procured licenses to several
technologies that are used in several of our programs. We may be required to
obtain additional licenses to patents or other proprietary rights of other
parties in order to pursue our own technologies. No assurance can be given that
any additional licenses would be made available on terms acceptable to us, if at
all. The failure to obtain licenses could result in delays in our or our
collaborative partners' or licensees' activities, including the development,
manufacture or sale of drugs requiring these licenses, or preclude their
development, manufacture or sale.
In some cases, litigation or other proceedings may be necessary to assert
infringement claims against others, to defend against claims of infringement, to
enforce patents issued to us, to protect trade secrets, know-how or other
intellectual property rights owned by us, or to determine the scope and validity
of the proprietary rights of third parties. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business. There can be no assurance that any of our patents would
ultimately be held valid or that efforts to defend any of our patents, trade
secrets, know-how or other intellectual property rights would be successful. An
adverse outcome in litigation or in a proceeding could subject us to significant
liabilities, require us to cease using the subject technology or require us to
license the subject technology from a third party, all of which could have a
material adverse effect on our business.
In addition to patent protection, we rely on trade secrets, proprietary
know-how and continuing technological advances to develop and maintain our
competitive position. To maintain the confidentiality of our trade secrets and
proprietary information, we require our employees, consultants and collaborative
partners to execute confidentiality agreements upon the commencement of their
relationships with us. In the case of employees, the agreements also provide
that all inventions resulting from work performed by them while in the employ of
the company will be our exclusive property. There can be no assurance, however,
that these agreements will not be breached, that we would have adequate remedies
in the event of a breach or that our trade secrets or proprietary information
will not otherwise become known or developed independently by others.
Competition
Synaptic and our collaborators and licensees are pursuing areas of drug
discovery and development in which we believe there is a potential for extensive
technological innovation in relatively short periods of time. We operate in a
field in which new discoveries occur at a rapid pace. Competitors may succeed in
developing technologies or products that are more effective than ours or in
obtaining regulatory approvals for their drugs more rapidly than we are able to,
which could render our products obsolete or noncompetitive. Competition in the
pharmaceutical industry is intense and is expected to continue to increase. Many
competitors, including
10
biotechnology companies, such as Arena Pharmaceuticals,
7TM Pharma and Norak Biosciences, and pharmaceutical companies, such as Eli
Lilly, Merck, Pfizer, GlaxoSmithKline, Schering-Plough and Bristol-Meyers
Squibb, are actively engaged in research and development in the same areas in
which we are working. Many of our competitors have substantially greater
financial, technical, marketing, and personnel resources. In addition, some of
them have considerable experience in preclinical testing, human clinical trials,
and other regulatory approval procedures. Moreover, certain academic
institutions, governmental agencies, and other research organizations are
conducting research in the same areas in which we are working. These
institutions are becoming increasingly aware of the commercial value of their
findings and are more actively seeking patent protection and licensing
arrangements to collect royalties for the technology that they have developed.
These institutions may also market competitive commercial products on their own
or through joint ventures and will compete with us in recruiting highly
qualified scientific personnel. There can be no assurance that a pharmacological
method of treatment we develop for certain disorders, such as obesity or
depression, will prove to be superior to existing or newly discovered approaches
to the treatment of those disorders.
Government Regulation
The development, manufacturing and marketing of drugs are subject to
regulation by numerous Federal, state and local governmental authorities in the
United States, the principal one of which is the FDA, and by similar agencies in
other countries (each of such Federal, state, local and other authorities and
agencies, a "Regulatory Agency"). Regulatory Agencies impose mandatory
procedures and standards for the conduct of certain preclinical testing and
clinical trials and the production and marketing of drugs for human therapeutic
use. Product development and approval of a new drug are likely to take many
years and involve the expenditure of substantial resources.
The steps required by the FDA before new drugs may be marketed in the
United States include:
o preclinical studies;
o the submission to the FDA of a request for authorization to
conduct clinical trials on an investigational new drug (an "IND");
o adequate and well-controlled clinical trials, including Phase I, Phase
II and Phase III trials, to establish the safety and efficacy of the
drug for its intended use;
o submission to the FDA of a new drug application (an "NDA"); and
o review and approval of the NDA by the FDA.
In the United States, preclinical testing includes both in vitro and in
vivo laboratory evaluation and characterization of the safety and efficacy of a
drug and its formulation. Laboratories involved in preclinical testing must
comply with FDA regulations regarding Good Laboratory Practices. Preclinical
testing results are submitted to the FDA as part of IND applications and are
reviewed by the FDA prior to the commencement of human clinical trials. Unless
the FDA objects to an IND, the IND will become effective 30 days following its
receipt by the FDA. There can be no assurance that submission of an IND will
result in FDA approval for the commencement of human clinical trials.
Clinical trials, which involve the administration of the investigational
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator, are typically conducted in three sequential phases,
although the phases may overlap with one another. Clinical trials must be
conducted in accordance
11
with Good Clinical Practices under protocols that detail
the objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the IND. Further, each clinical study must be conducted under the
auspices of an independent Institutional Review Board (the "IRB") at the
institution where the study will be conducted. The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution. Compounds must be formulated according to the
FDA's Good Manufacturing Practices ("GMP").
A Phase I clinical trial involves the initial administration of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with the targeted disease or disorder. The goal
of Phase I clinical trials is typically to test for safety, dose tolerance,
absorption, bio-distribution, metabolism, excretion and clinical pharmacology
and, if possible, to gain early evidence regarding efficacy.
Phase II clinical trials involve a small sample of the actual intended
patient population and may seek to assess the efficacy of the drug for specific
targeted indications, to determine dose tolerance and the optimal dose range
and/or to gather additional information relating to safety and potential adverse
effects.
Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish further clinical safety and efficacy of the
investigational drug in a broader sample of the general patient population at
geographically dispersed study sites in order to determine the overall
risk-benefit ratio of the drug and to provide an adequate basis for all package
labeling. The results of the research and product development, manufacturing,
preclinical testing, clinical trials and related information are submitted to
the FDA in the form of an NDA for approval of the marketing and shipment of the
drug.
Timetables for the various phases of clinical trials and NDA approval
cannot be predicted with any certainty. The company, its collaborative partners
or other licensees or the FDA may suspend clinical trials at any time if it is
believed that individuals participating in trials are being exposed to
unacceptable health risks. Even assuming that clinical trials are completed and
that an NDA is submitted to the FDA, there can be no assurance that the NDA will
be reviewed by the FDA in a timely manner or that once reviewed, the NDA will be
approved. The approval process is affected by a number of factors, including the
severity of the targeted indications, the availability of alternative treatments
and the risks and benefits demonstrated in clinical trials. The FDA may deny an
NDA if applicable regulatory criteria are not satisfied, or may require
additional testing or information with respect to the investigational drug. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations that could also delay, limit or prevent Regulatory Agency
approval. Even if initial FDA approval is obtained, further studies, including
post-market studies, may be required in order to provide additional data on
safety and will be required in order to gain approval for the use of a product
as a treatment for clinical indications other than those for which the product
was initially tested. The FDA will also require post-market reporting and may
require surveillance programs to monitor the side effects of the drug. Results
of post-marketing programs may limit or expand the further marketing of the
drug. Further, if there are any modifications to the drug, including changes in
indication, manufacturing process or labeling, an NDA supplement may be required
to be submitted to the FDA. Finally, delays or rejections may be encountered
based upon changes in Regulatory Agency policy during the period of drug
development and/or the period of review of any application for Regulatory Agency
approval for a compound. Moreover, we do not generally have the ability to
obtain, or control the timing of, regulatory approvals of drugs being developed
through collaborative programs or license arrangements, where our collaborative
partners and other licensees are generally responsible for preclinical testing,
clinical trials, regulatory approvals, manufacturing and commercialization of
drugs. There can be no assurance that the regulatory framework described above
will not change or that additional regulations will not arise that may affect
approval of potential drugs.
12
Each manufacturing establishment for new drugs is required to receive some
form of approval by the FDA. Among the conditions for approval is the
requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to GMP, which must be followed at all times. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance. Manufacturing establishments, both
foreign and domestic, are also subject to inspections by or under the authority
of the FDA and may be subject to inspections by foreign and other Federal, state
or local agencies.
Prior to the commencement of marketing a product in other countries,
approval by the regulatory agencies is required, regardless of whether FDA
approval has been obtained for such product. The requirements governing the
conduct of clinical trials and product approvals vary widely from country to
country, and the time required for approval may be longer or shorter than the
time required for FDA approval. Although there are some procedures for unified
filings for certain European countries, in general, each country has its own
procedures and requirements.
Delays in obtaining Regulatory Agency approvals could adversely affect the
marketing of any drugs developed by us or our collaborative partners or other
licensees, impose costly procedures upon us or our collaborative partners' or
other licensees' activities, diminish any competitive advantages that we or our
collaborative partners or other licensees may attain and adversely affect our
ability to receive revenues or royalties. There can be no assurance that, even
after these delays and expenditures, Regulatory Agency approvals will be
obtained for any compounds developed by, in collaboration with or pursuant to
licenses from the company. Moreover, even if Regulatory Agency approval for a
compound is granted, this approval may entail limitations on the indicated uses
for which it may be marketed. Further, approved drugs and their manufacturers
are subject to continual review, and discovery of previously unknown problems
with a drug or its manufacturer may result in restrictions on such drug or
manufacturer, including withdrawal of the drug from the market. Regulatory
Agency approval of prices is required in many countries and may be required for
the marketing of any drug developed by us or our collaborative partners or other
licensees.
As with many biotechnology and pharmaceutical companies, our activities
involve the use of radioactive compounds. We are subject to local, state and
Federal laws and regulations relating to occupational safety, laboratory
practices, the use, handling and disposition of radioactive materials,
environmental protection and hazardous substance control. Although we believe
that our safety procedures for handling and disposing of radioactive compounds
used in our research and development activities comply with the standards
prescribed by Federal, state and local regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of an accident, we could be held liable for damages or be subject to
sanctions that cause us to delay or discontinue some or all of our operations.
Employees
As of February 28, 2002, we had 101 full-time employees, 34 of whom hold
Ph.D. or M.D. degrees. Of our full-time employees, 85 were engaged directly in
scientific research and 16 were engaged in general and administrative functions.
Our research staff members have diverse experience and expertise in molecular
and cell biology, biochemistry, molecular pharmacology, medicinal, structural,
combinatorial and computer-assisted chemistry, information systems and drug
development.
All employees have entered into agreements with us that prohibit them from
disclosing to third parties our proprietary information and assign to us all
rights to inventions made by them during their employment with the company.
13
Our employees are not covered by a collective bargaining agreement, and we
believe that our relationship with our employees is good.
Item 2. Properties
We lease a total of 83,843 square feet of laboratory and office space in a
facility at 215 College Road in Paramus, New Jersey. The lease will expire on
December 31, 2015. We sublease 23,008 square feet of our premises to a
non-affiliated third party under an agreement expiring in 2010. We sublease
another 2,500 square feet of our premises to a non-affiliated third party on a
month-to-month basis. We believe that the 55,335 square feet of space that we
currently occupy is adequate to accommodate our anticipated research and
administrative needs for the foreseeable future.
Item 3. Legal Proceedings
On June 5, 2000, we filed suit in the United States District Court for the
District of New Jersey against M.D.S. Panlabs, Inc., a Washington corporation,
and Panlabs Taiwan Ltd., a Taiwanese corporation (collectively, "Panlabs"). The
suit alleges that Panlabs has infringed several issued U.S. Patents owned by
Synaptic that relate to cloned human receptors and their use in binding assays.
The suit also alleges that Panlabs has been importing, selling and offering to
sell products of our patented binding assay processes to pharmaceutical
companies and others in the United States, particularly in New Jersey.
On December 14, 2001, we filed a suit in the United States District Court
for the District of New Jersey against Euroscreen, S.A., a Belgian corporation
("Euroscreen"). The suit alleges that Euroscreen has infringed numerous issued
U.S.Patents owned by us, which relate to cloned human receptors and their use in
binding assays. The suit alleges that Euroscreen has been importing, selling and
offering to sell products of our patented binding assay processes to
pharmaceutical companies and others in the United States, particularly in New
Jersey, and that Euroscreen has conspired with Panlabs to infringe our patents.
The suits seek injunctions against the infringing activities of Euroscreen
and Panlabs, damages, the destruction of data obtained by the infringement of
patents, and other relief.
We believe that our complaint against Panlabs and Euroscreen is well
founded and necessary to protect the value of our intellectual property assets.
An adverse resolution of the above matters would not have a material
adverse effect on our business.
Item 3. Submission of Matters to a Vote of Securityholders
We did not submit any matters to a vote of our securityholders during the
fourth quarter of the fiscal year ended December 31, 2001.
14
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Our common stock trades on The Nasdaq Stock Market under the symbol SNAP.
As of February 22, 2002, there were approximately 2,565 holders of record of our
common stock. We have never paid any dividends on our common stock, and we do
not currently intend to declare or pay any dividends for the foreseeable future.
The following tables set forth the high and low last trade prices for our
common stock as reported by The Nasdaq Stock Market for the periods indicated
below.
2001 Fiscal Year
High Low
------ ------
1st Quarter 2001 6.7500 3.6875
2nd Quarter 2001 6.8000 3.8125
3rd Quarter 2001 6.4000 4.4600
4th Quarter 2001 6.0400 4.4000
2000 Fiscal Year
High Low
------ ------
1st Quarter 2000 16.50000 5.81250
2nd Quarter 2000 8.00000 4.50000
3rd Quarter 2000 7.37500 5.09375
4th Quarter 2000 7.37500 5.00000
15
Item 6. Selected Financial Data
The following table presents selected information relating to our financial
condition and results of operations for the past five years. The following data
should be read in conjunction with our financial statements.
(In thousands, except per share information)
2001 2000 1999 1998 1997
--------------------------------------------------------------------------------
Total revenues $ 1,407 $ 3,836 $ 1,855 $ 9,352 $ 10,307
Total expenses $ 25,610 $ 20,212 $ 19,652 $ 19,576 $ 17,853
Other income, net $ 2,000 $ 2,110 $ 2,676 $ 3,731 $ 2,200
Net loss applicable
to common stockholders $(26,118) $(13,859) $(15,121) $ (6,493) $ (5,346)
Basic and diluted net
loss per share applicable
to common stockholders $ (2.39) $ (1.28) $ (1.41) $ (0.61) $ (0.66)
Total assets $ 54,833 $ 37,571 $ 48,750 $ 64,696 $ 69,402
Accumulated deficit $(86,605) $(64,789) $(50,930) $(35,809) $(29,316)
Stockholders' equity $ 12,967 $ 34,529 $ 47,106 $ 62,676 $ 67,704
--------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Synaptic is a drug discovery company using GPCRs as the basis for
developing new drugs for the treatment of a variety of human disorders.
We currently collaborate with Grunenthal GmbH ("Grunenthal") and Kissei
Pharmaceutical Co., Ltd. ("Kissei"). In connection with our collaborative
arrangement with Grunenthal, we have licensed some of our technology and patent
rights to them. We have also granted licenses to some of our technology and
patent rights to other pharmaceutical companies.
Since our inception, we have financed our operations primarily through the
sale of our stock, through contract and license revenue under license
agreements, and through interest income and capital gains resulting from the
investment of the proceeds of our financing activities pending use of these
funds for operational activities. We have also received funds through government
grants under the Small Business Innovative Research ("SBIR") program of the
National Institutes of Health and through the sale of our New Jersey state tax
net operating loss ("NOL") carryforwards.
To date, our expenditures have been for research and development related
expenses, general and administrative related expenses, fixed asset purchases and
various patent related expenditures incurred in protecting our technologies.
Historically, we have not been profitable, and at December 31, 2001 we had an
accumulated deficit of $86,605,000. We incurred net losses applicable to common
stockholders of $26,118,000, $13,859,000 and $15,121,000 for the fiscal years
ended 2001, 2000 and 1999, respectively. We expect to continue to incur
operating losses for a number of years, and we will not become profitable unless
and until we receive royalty revenue or revenue from sales of drugs developed
with the use of our technology or patent rights.
16
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States that require us to make
estimates and assumptions. We believe that of our significant accounting
policies (see Note 1 to the financial statements), the following may involve a
higher degree of judgment and complexity:
Revenue
-------
Revenues that we receive, or may receive, are derived from either
multi-element revenue arrangements or from research services that we perform.
Historically, virtually all revenue that has been recorded has been under
multi-element revenue arrangements. Generally, revenue is realized or realizable
and earned when all of the following criteria are met: (1) an arrangement
exists, (2) services have been rendered, (3) prices of services are fixed or
determinable and (4) collectibility is reasonably assured. As the structures of
our arrangements are unique and may contain several different revenue
components, each is reviewed on a case-by-case basis in order to determine the
appropriate amount and term over which to recognize revenues.
Under these multi-element revenue arrangements, we may receive one or more
of the following types of revenue: license revenue, research funding revenue,
milestone revenue, royalty revenue and revenue derived from sales of drugs.
License revenue represents non-refundable payments for a license to one or
more of our patents and/or a license to our technology. Payments for licenses
are recognized as they are received or, if earlier, when they become guaranteed,
provided they are independent of any continuing research activity on the related
project. Otherwise, they are recognized pro-rata during the term of the related
research agreement in accordance with Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements."
Research funding revenue includes payment to support a specified number of
Synaptic's scientists. Such revenue is recognized ratably over the period in
which the research is performed.
Milestone revenue represents non-refundable payments for the achievement of
a specified milestone under either an existing arrangement or under a license
that has been granted to one or more of our patents and/or our technology. Such
payments typically coincide with the achievement of a substantial element in a
multi-element arrangement or measure substantive stages of progress toward
completion under a long-term contract. The recognition of such payments as
revenue is determined based upon the nature of the underlying arrangement.
Milestone payments received under contracts where the company is performing
related ongoing research, and which are deemed to have multi-element financial
arrangements, will be recognized as revenue over the remaining life of the
contract. Milestone payments received under license agreements are recognized as
revenue as they are received or, if earlier, when they become guaranteed,
provided they are independent of any research activity.
Royalty revenue represents payments that may be received from the sales of
drugs that may be developed using the technology or the patent rights that have
been licensed. We are entitled to receive royalty payments under most of our
license agreements. To date, we have not received royalty payments and we do not
expect to receive such payments for a number of years, if at all.
Revenue derived from the sales of drugs would be recognized if the company
markets drugs. The company may develop drugs on its own or in partnership with
others. As part of the agreement with Grunenthal, we have development and
marketing rights in certain geographical areas with respect to any drugs that
are jointly identified under the agreement. Accordingly, we may receive revenue
from sales of drugs in our designated geographical areas if we market them
independently, or we may receive royalty payments if we
17
license our marketing
rights to a third party. To date, we have not received revenue from the sales of
drugs and we do not expect to receive such revenues for a number of years, if at
all.
Income Taxes
------------
We account for income taxes using the liability method. Under this method,
deferred income tax assets and liabilities reflect tax carryforwards and the net
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes, as determined under
currently enacted tax rates. Deferred tax assets are recorded if future
realization is more likely than not.
Deferred taxes are recorded primarily for Federal and state net operating
loss carryforwards, research and development credit carryforwards and
depreciation and amortization, which are reported in different periods for
Federal income tax purposes than for financial reporting purposes. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amounts expected to be realized.
In January 2002, we received approval for the sale of $3,682,400 of New
Jersey net operating loss carryforwards, pursuant to the Technology Business Tax
Certificate Program. This program allows for the sales of New Jersey net
operating loss carryforwards to profitable New Jersey corporations. Cash in the
amount of $256,000 was received from this sale resulting in a reduction in the
valuation allowance for deferred tax assets by such amount at December 31, 2001.
At December 31, 2001, we had approximately $29,625,000 of Federal and state
net operating loss carryforwards and approximately $1,610,000 research and
development credit carryforwards. We have a history of operating losses and
expect these losses to increase as a result of our strategy of increasing our
internal drug development efforts. These losses would remain available to us on
a carryforward basis to offset any future earnings; however, deferred tax assets
attributable to these net operating losses have been fully offset by a valuation
allowance in the financial statements, as their future realization is uncertain.
Research and Development
We perform research for ourselves and for our current collaborators, Kissei
and Grunenthal. As this research progresses, we designate some projects for
preclinical and clinical development. Until a lead compound is chosen for
development, all costs associated with that compound are considered to be
research expense. Costs incurred during the research phase are not separately
identifiable by project. At this preliminary or investigational stage, research
is performed within a broad family of receptors with the objective of
identifying lead compounds. Once a lead compound enters the preclinical
development stage, costs are accumulated for each project associated with that
compound. Currently, the only project for which a lead compound has been chosen
is the company's depression program. The lead compound in this program was
selected during the second quarter of 2000. Costs incurred on the depression
program for the twelve-month and inception-to-date periods ended December 31,
2001 approximated $2,350,000 and $2,550,000. Total research costs for the
twelve-month period ended December 31, 2001 amounted to $17,990,000.
In general, from the time a lead compound is chosen until that compound
reaches the market, many years may elapse. During this time, the compound must
undergo clinical trials that include Phase I, Phase II and Phase III trials, the
results of which are subject to review and approval by the U.S. Food & Drug
Administration and other regulatory agencies. Successful completion of each
trial carries its own set of risks and may cost many millions of dollars. At
this stage of Phase I clinical development of the depression program, completion
costs and dates cannot be estimated.
18
Net Loss Applicable to Common Stockholders
During the third quarter of 2001, we sold shares of two series of senior
redeemable convertible preferred stock the Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock, in a private equity placement. In
connection with these issuances, we recorded an adjustment to net loss
applicable to common stockholders of approximately $4,226,000 relating to the
beneficial conversion feature inherent in the issuances of the Series B
Convertible Preferred Stock. This amount was determined based upon the excess of
the fair value of the company's common stock into which the Series B Convertible
Preferred Stock was immediately convertible less the initial conversion price of
$4.3358 per share in accordance with Emerging Issues Task Force No. 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios." We also recorded an adjustment to
net loss applicable to common stockholders of approximately $76,000 representing
the accretion of the Series B and Series C Convertible Preferred Stock to their
respective redemption values.
Results of Operations
Comparison of Fiscal Years Ended December 31, 2001, 2000 and 1999
Revenues. We recognized revenue of $1,407,000, $3,836,000 and $1,855,000
for the fiscal years of 2001, 2000 and 1999, respectively. The decrease in
revenue of $2,429,000 from 2000 to 2001 resulted primarily from the grant of a
non-exclusive license to certain of our technology and patent rights in the
third quarter of 2000, with no similar license revenue in 2001.
The increase of $1,981,000 from 1999 to 2000 was attributable to an
increase in license revenue of $2,750,000 resulting primarily from the grant of
a non-exclusive license to certain of Synaptic's technology and patent rights,
offset by a reduction in contract revenue of $769,000 resulting from the net
reduction in the number of scientists being funded under collaborative
arrangements.
Research and Development Expenses. We incurred research and development
expenses of $17,990,000, $14,360,000 and $14,592,000 for the fiscal years of
2001, 2000 and 1999, respectively. The increase of $3,630,000, or 25%, from 2000
to 2001 was attributable primarily to increases in preclinical and clinical
testing costs of $2,281,000 related to our depression program, $677,000 in
research costs associated with advancing additional projects to the stage at
which a lead compound can be chosen and an increase of $328,000 in compensation
related expenses.
The decrease of $232,000, or 2%, from 1999 to 2000 was attributable
primarily to a net decrease in headcount and a corresponding decrease in
supplies that were partially offset by an increase in preclinical testing costs.
General and Administrative Expenses. We incurred general and administrative
expenses of $7,620,000, $5,852,000 and $5,060,000 for the fiscal years of 2001,
2000 and 1999, respectively. The increase of $1,768,000, or 30%, from 2000 to
2001 was attributable primarily to $711,000 in legal expenses related to a
patent infringement lawsuit, $462,000 in other patent related expenditures and
an increase of $239,000 in compensation related expenses.
The increase of $792,000, or 16%, from 1999 to 2000 was attributable
primarily to an increase in rent expense, an increase in consulting and finder's
fees associated with business development activities, and an increase in legal
and patent costs.
Other Income, Net. We recorded other income of $2,000,000, $2,110,000 and
$2,676,000 for the fiscal years of 2001, 2000 and 1999, respectively. The
decrease of $110,000 from 2000 to 2001 in other income was
19
primarily due to
lower weighted average cash, cash equivalent and marketable securities balances
during 2001 as a result of the utilization of these resources to fund
operations, partially offset by an increase in rental income from our
sublessees.
The decrease of $566,000 from 1999 to 2000 in other income was primarily
due to lower average cash, cash equivalent and marketable securities balances
during 2000 as a result of the utilization of these resources to fund our
operations.
Income Tax Benefit. In December 2001, we recognized $387,000 from the sale
of a portion of our state research and development tax credits. In November
2000, we recognized $407,000 from the sale of a portion of our state net
operating loss carryforwards.
Net Loss Applicable to Common Stockholders. We incurred a net loss
applicable to common stockholders of $26,118,000 ($2.39 per share), $13,859,000
($1.28 per share) and $15,121,000 ($1.41 per share) for the fiscal years of
2001, 2000 and 1999, respectively. The increase of $1.11 in net loss per share
resulted primarily from the items described above in "Results of Operations."
The decrease of $0.13 in net loss per share applicable to common
stockholders from 1999 to 2000 resulted primarily from the items described above
in "Results of Operations."
Operating Trends. Our revenues may vary from period to period depending on
numerous factors, including the timing of revenue earned under license
agreements and revenue that may be earned under future collaborative and/or
license agreements. During 2001 we recognized revenue under our research and
licensing agreement with Kissei Pharmaceutical Co., Ltd. and expect to recognize
additional revenues under this agreement during 2002. Under the terms of some of
our license agreements, revenues may be recognized if specified milestones are
achieved. We continue to assess the opportunity for obtaining additional funding
under new collaborative and/or license agreements. During the third quarter
2001, we sold to investors $41 million in preferred stock. Net proceeds, after
giving effect to placement fees and offering expenses, were approximately
$37,745,000. We continue to monitor our spending level in order to ensure that
we have enough cash to last at least through the second quarter of 2003.
Since late 2000, we have been pursuing a new business strategy of
increasing our internal drug development efforts. This new strategy requires us
to hire additional employees with drug development expertise and to incur
additional preclinical expenses as well as expenses associated with clinical
trials.
Legal expenses are expected to continue to be a significant expense as a
result of a suit filed by the company. See "Legal Proceedings" in PART I, Item
3.
Other income, net is expected to decrease in 2002 because of less favorable
short-term interest rates. This decrease will, however, be somewhat mitigated by
an increase in rental income that we expect to recognize under our existing
sublease agreements.
We are pursuing further sales of our state tax NOL carryforwards and our
state research and development credits under the State of New Jersey's
Technology Business Tax Certificate Transfer Program (the "Program"). No
assurance can be given, however, as to the amount of NOL carryforwards that may
be sold under the Program in any one year. External factors that may have an
effect on future NOL sales include limitations imposed by State law and
availability of buyers and related demand.
Property and equipment spending may vary from period to period depending on
numerous factors, including the level of drug development efforts, the number of
collaborations in which we are involved at any
20
given time, and replacement due
to normal wear and obsolescence. Equipment spending in 2002 is expected to
increase from that of 2001.
At December 31, 2001, we held marketable securities with an estimated fair
value of $4,098,000. Our primary interest rate exposure results from changes in
short-term interest rates. We do not purchase financial instruments for trading
or speculative purposes. All of the marketable securities we hold are classified
as available-for-sale securities. The following table provides information about
marketable securities that we held at December 31, 2001:
Principal Amount and Weighted Average Stated Rate by Estimated Fair
Expected Maturity Value
------------------------------------------------------------- ---------------
(000's) 2002 2003 Total (000's)
------------------------------------------------------------- ---------------
Principal $2,500 $1,500 $4,000 $4,098
Weighted
Average
Stated Rates 6.50% 6.20% 6.39% --
------------------------------------------------------------- ---------------
The stated rates of interest expressed in the above table may not
approximate the actual yield of the securities that Synaptic currently holds
since we have purchased some marketable securities at other than face value.
Additionally, the securities represented in the above table may be called or
redeemed, at the option of the issuer, prior to their expected due dates. If
early redemptions occur, we may reinvest the proceeds realized on such calls or
redemptions in marketable securities with stated rates of interest or yields
that are lower than those of current holdings, affecting both future cash
interest streams and future earnings.
In addition to investments in marketable securities, we place some of our
cash in money market funds in order to keep cash available to fund operations
and to hold cash pending investments in marketable securities. Fluctuations in
short term interest rates will affect the yield on monies invested in such money
market funds. Such fluctuations can have an impact on future cash interest
streams and future earnings, but the impact of such fluctuations are not
expected to be material.
We do not believe that inflation has had a material impact on our results
of operations.
Liquidity and Capital Resources
At December 31, 2001 and December 31, 2000, cash, cash equivalents and
marketable securities aggregated $49,650,000 and $31,602,000, respectively. This
increase was primarily the result of the sale of $41 million of preferred stock
sold to investors in the third quarter of 2001 partially offset by the
utilization of these resources to fund our operations. We intend to utilize our
cash primarily for research, preclinical and clinical development costs, for
patent related expenditures, for general corporate purposes, for leasehold
improvements to our facilities and for the purchase of property and equipment.
We expect to continue to incur operating losses for a number of years. We
believe that cash, cash equivalents and marketable securities on hand, and cash
that we expect to receive through existing license arrangements and interest
payments on investments, will be sufficient to fund operations, as well as to
support our share of certain development costs under the Grunenthal Agreement,
if any, at least through the second quarter of 2003.
To date, we have met our cash requirements through the sale of our stock,
through contract and license revenue, through interest income and gains
resulting from our investments, through SBIR grants and through sales of
portions of our state research and development credits and state NOL
carryforwards.
21
As of December 31, 2001, we had NOL carryforwards of approximately
$76,000,000 for Federal income tax purposes that will expire principally in the
years 2002 through 2021. In addition, we had Federal research and development
credit carryforwards of approximately $1,610,000 that will expire principally in
2002 through 2018. Also at December 31, 2001, we had NOL carryforwards of
approximately $61,000,000 for state income tax purposes and state research and
development credit carryforwards of $311,000. For financial reporting purposes,
a valuation allowance has been recognized to offset the deferred tax assets
related to these carryforwards.
We lease laboratory and office facilities under an agreement expiring on
December 31, 2015. The minimum annual payment under the lease is currently
$1,835,000. The lease provides for fixed escalations in rent payments in the
years 2005 and 2010.
22
RISK FACTORS
An investment in our securities involves a high degree of risk. You should
carefully consider the risks and uncertainties and other information in this
report and in the documents incorporated by reference in this report before
making any decision with respect to an investment in our securities. Our
business, financial condition and results of operations could be harmed were any
the following risks or uncertainties to develop into actual events. In such
case, the value of our securities could decline and you might lose all or part
of your investment.
Our products are in an early stage of development, and we may never develop
any commercially viable products.
It generally takes at least twelve years to discover and develop a new
drug. To date, neither we nor any of our licensees have developed any drugs
using our technology. We currently have approximately 30 GPCRs in various stages
of research or pre-clinical testing. We plan to initiate clinical testing, on
average, of one new compound each year commencing in the first quarter of 2002,
when we began Phase I clinical trials in our depression program. We believe that
it will take a minimum of five years from the beginning of clinical trials for
any program to develop an approved drug, assuming the clinical trials produce
favorable results. We have no means of predicting when, or if, any of our
licensees will develop commercially available drugs using our GPCRs; however, to
our knowledge, none of our licensees are currently engaged in clinical trials on
any compounds developed with our technology.
Numerous factors may preclude any of our products from being developed into
marketable drugs or any drugs we do develop from being commercially successful.
Any of these factors could require us to abandon any particular product at any
stage of development, notwithstanding the expenditure of large amounts of time
and money on the product. These factors include the following:
Inconclusive or Negative Preclinical and Clinical Test Results. Research
may show that a product is ineffective or that it has harmful side effects
during either pre-clinical testing or clinical trials. The safety and efficacy
of a therapeutic product under development must be supported by extensive data
from clinical trials. The results of preclinical studies and initial clinical
trials are not necessarily predictive of results that will be obtained from
later large-scale clinical trials, and there can be no assurance that clinical
trials of any product under development will demonstrate the safety and efficacy
of the product or will result in a marketable product.
Manufacturing Difficulties. Because the products that we and our licensees
are attempting to develop are at a very early stage of development, we cannot
now predict whether they can be manufactured at a cost or in quantities
necessary to support all of our future development efforts or to achieve
commercial viability. We have no manufacturing facilities and rely on third
parties to produce compounds for development, preclinical and clinical purposes.
Because each compound is unique, the cost and difficulty of producing any
particular compound can only be determined on a case-by-case basis for each
stage of development. If we are unable to contract for a sufficient supply of
compounds on acceptable terms, or if we should encounter difficulties in our
relationships with third party manufacturers, our preclinical and clinical
testing schedule would be delayed. If clinical trials of a product were
successful, we might consider shifting production of that product from a
contract manufacturer to a large pharmaceutical company for mass production.
Such a transfer would entail numerous technical difficulties, and, because none
of our potential products are sufficiently developed to consider mass
production, we cannot be certain that such a transfer could be arranged
successfully or on terms acceptable to the company.
23
Marketing and Sales Capacity. Although we do not currently have any
marketable products, our ability to produce revenue ultimately depends on our or
our licensees' ability to sell our products if and when the FDA approves them.
We currently have no marketing experience, sales force or distribution
capabilities. If we are unable to establish direct or indirect sales and
distribution capabilities, or are unsuccessful in gaining market acceptance for
licensing arrangements, we will not be able to generate revenue from our
products, even if they prove to be effective. If we enter into co-promotion or
licensing arrangements, our revenues will be dependent on the efforts of third
parties, and, at this early stage of our product development, we cannot predict
whether any of these arrangements would be obtainable on acceptable terms or
would be successful.
Acceptance by Health Care Community. Any product that we may develop will
be successful only if the health care community accepts it. The degree of
acceptance of any product we develop by the health care community will depend on
a variety of factors, including the following:
o our establishment and demonstration to the medical community of the
clinical efficacy and safety of the product;
o our ability to demonstrate that the product is superior to alternatives
then on the market; and
o the reimbursement policies of government and third-party payers with
respect to the product.
We have a history of operating losses and we expect our losses to increase
as a result of our strategy of increasing our internal drug development efforts.
We have incurred significant operating losses since our inception in
January 1987. At December 31, 2001, our accumulated deficit was $86,605,000. We
incur losses because our research and development and general and administrative
expenses exceed the revenue we generate from our operating activities and
investments. Our net loss applicable to common stockholders for the last three
fiscal years, in thousands of dollars, was as follows:
Year Ended December 31,
2001 2000 1999
---- ---- ----
$26,118 $13,859 $15,121
The rate at which we incur losses has increased over the past year as we
have increased our internal drug development efforts. We expect our rate of loss
to increase further as these efforts continue to result in increased expenses
from pre-clinical and clinical testing and reduced revenues from collaborative
arrangements. Our research and development expenses increased by $3,630,000 for
the year ended December 31, from $14,360,000 in 2000 to $17,990,000 in 2001, due
primarily to increases in pre-clinical testing costs associated with our
depression program. Costs for this program may increase further as it moved into
clinical trials in February 2002, and costs for other programs will also
increase as we accelerate our development efforts. At this stage of product
development, we cannot accurately predict how large these increases will be, but
we expect that they will be at least as much as, and probably more than, the
increases seen to date in our depression program.
To date, our only material sources of operating revenue have been license
revenue that generally has come in the form of one-time payments, and contract
revenue, which comes from collaborative arrangements.
24
License revenue is
unpredictable, as it depends on the research activities and needs of potential
third party licensees, about which we have little knowledge. We have not
included any material increase in contract revenue in our current forecasts. The
table below shows our license and contract revenue, in thousands of dollars, for
the past three fiscal years:
Year Ended December 31,
-----------------------
2001 2000 1999
------- ------- -------
Contract Revenue $1,157 $1,086 $1,855
License Revenue $ 250 $2,750 --
We don't expect to achieve sufficient revenue to become profitable unless
and until we realize revenues from the sale of commercially successful new
drugs. This will not happen unless we or our licensees successfully complete
clinical trials with respect to a drug candidate, obtain regulatory approval for
that drug candidate and commercialize the resulting drug. As discussed above in
the preceding risk factor, this will not occur for a significant number of years
and may never occur.
If we are unable to obtain additional financing in the future, we may not
be able to sustain our business.
As discussed above, we must expend capital to fund our operations, and we
expect our rate of capital expenditure to increase in the future. As of December
31, 2001, we had $49,650,000 in cash, cash equivalents and marketable
securities, which we believe will be sufficient to fund operations through the
second quarter of the year 2003. However, it is likely that we will need to
raise additional capital to fund our operations beyond that time. Because of the
uncertainties inherent in capital markets, we cannot be sure that additional
funds will be available on favorable terms or at all, or whether any funds
raised would be sufficient to permit us to continue to conduct our operations or
achieve profitability. Any further equity financing we do obtain could result in
additional dilution to our then existing stockholders. If adequate funds are not
available when we need them, we may never become profitable and we may be
required to curtail significantly or eliminate one or more of our drug
development programs, or to discontinue our operations all together.
If we are unable to obtain and maintain patent protection for our
intellectual property, we may be unable to grow our business or become
profitable.
Our success depends, in part, on our ability to establish, protect and
enforce our proprietary rights relating to our intellectual property. Our policy
is to seek, when appropriate, protection for our gene and compound discoveries
and other proprietary technology by filing patent applications in the United
States and in other countries. As of February 15, 2002, we had been granted 150
patents. Patent law as it relates to inventions in the biotechnology field is
still evolving, and involves complex legal and factual questions. Moreover, the
patentability of our inventions can be affected by the actions of others beyond
are control. Accordingly, we cannot be certain that patents will be granted with
respect to any of our patent applications currently pending in the United States
or in other countries, or with respect to applications filed by us in the
future. If we do not receive patents on the genes, compounds or methods we
develop, if we are unable to enforce the patents we have been granted or if
practicing our inventions infringes a third party's patents, then our ability to
profit from these developments may be materially diminished.
There is no clear policy regarding the breadth of claims allowed in patents
or the degree of protection they afford. We therefore cannot predict the breadth
or enforceability of claims allowed in the patents that have been issued to us
or in patents that may be issued to us in the future, nor can we be sure that
claims in our patents, either as initially allowed by the United States Patent
and Trademark Office or any of its non-United States
25
counterparts or as
subsequently interpreted by courts inside or outside the United States, will be
sufficiently broad to allow us to profit from the genes and compounds we
discover.
Patents issued to us may be infringed, invalidated or circumvented by
others, or the rights granted under our patents may not be commercially valuable
or provide competitive advantages to us or our licensees. A number of
pharmaceutical companies, biotechnology companies, universities and research
institutions have significantly expanded their gene discovery efforts in recent
years and have filed patent applications or received patents covering their gene
discoveries. Some of these applications or patents may be competitive with our
applications or conflict in certain respects with claims made under our
applications. We cannot predict whether, in the event of any conflict, we will
be in a priority position with respect to inventorship on any of these
applications. If we are not, then our ability to exploit the patents subject to
the conflict would be materially diminished.
Our patents and patent applications may be challenged by way of
interference proceedings or opposed by third parties, and we may need to
participate in interference proceedings or oppose the patents or patent
applications of third parties in order to protect our rights. Interference and
opposition proceedings can be expensive to prosecute and defend.
In some cases, litigation or other proceedings may be necessary to assert
infringement claims against others, to defend against claims of infringement, to
enforce patents issued to us, to protect trade secrets, our know-how or other
intellectual property rights, or to determine the scope and validity of the
proprietary rights of third parties. An adverse outcome in any litigation or
proceeding could subject us to significant liabilities, require us to cease
using the subject technology or require us to license the subject technology
from a third party, all of which could cause our costs to increase and our
revenues or potential revenues to decline. Any litigation could result in
substantial costs and divert our resources from drug development activities.
On June 5, 2000, the company filed suit in the United States District Court
for the District of New Jersey against M.D.S. Panlabs, Inc., a Washington
corporation, and Panlabs Taiwan Ltd., a Taiwanese corporation (collectively,
"Panlabs"). The suit alleges that Panlabs has infringed several issued U.S.
Patents owned by the company that relate to cloned human receptors and their use
in binding assays. The suit also alleges that Panlabs has been importing,
selling and offering to sell products of our patented binding assay processes to
pharmaceutical companies and others in the United States, particularly in New
Jersey. See "Legal Proceedings" in PART I, Item 3.
On December 14, 2001, we filed suit in the United States District Court for
the District of New Jersey against Euroscreen, S.A., a Belgian corporation
("Euroscreen"). The suit alleges that Euroscreen has infringed numerous issued
U.S. Patents owned by us, which relate to cloned human receptors and their use
in binding assays. The suit alleges that Euroscreen has been importing, selling
and offering to sell products of our patented binding assay processes to
pharmaceutical companies and others in the United States, particularly in New
Jersey, and that Euroscreen has conspired with Panlabs to infringe our patents.
The suits seek injunctions against the infringing activities of Panlabs and
Euroscreen, awards of damages, the destruction of data obtained by the
infringement of our patents, and other relief. An adverse resolution of the
above matters would not have a material adverse effect on our business.
Our drug development and commercialization efforts may be impaired by the
intellectual property rights of third parties.
Our future success depends, in part, on our ability to operate without
infringing patents and proprietary rights of third parties. We are aware of a
large number of patents and patent applications of third parties that contain
claims to genes that code for G protein-coupled receptors or compounds that
interact with G protein-coupled receptors.
26
Patents issued to others may preclude
us from using or licensing our technology or may preclude us and our licensees
from commercializing drugs developed with our technology. We have acquired
licenses to use certain technologies covered by a patent owned by Columbia
University, and may be required to obtain additional licenses to patents or
other proprietary rights of other parties in order to pursue our own
technologies. We cannot be sure that, if required, we would be able to obtain
any additional licenses on acceptable terms, if at all. The failure to obtain
needed licenses could result in delays in our development efforts or those of
our licensees, or could preclude the development, manufacture or sale of some
products.
Our competitive position will be impaired if we are unable to maintain the
confidentiality of our trade secrets and other proprietary information.
We rely upon trade secrets, proprietary know-how and continuing
technological advances to develop and maintain our competitive position. Our
business strategy requires us to share this information among our employees and
those of our licensees. If this confidential information becomes known to third
parties, whether through inadvertent disclosure or breach of a confidentiality
agreement or otherwise, the value of the information to us may be diminished as
well as our ability to develop competitive processes and products.
We face substantial competition from many companies that have significantly
greater resources than we do.
We operate in a field in which new developments occur and are expected to
continue to occur at a rapid pace. Competition from biotechnology and
pharmaceutical companies, joint ventures, academic and other research
institutions and others is intense, and we expect it to increase. Because the
research and pre-clinical stages of the drug developmental process are highly
secretive processes, we cannot be certain of who our competitors are or where
our drug discoveries stand in relation to theirs; however, we believe many other
pharmaceutical and biotechnology companies, including Merck, Pfizer, and Eli
Lilly, currently employ elements of our human receptor-targeted drug design
technology in their drug discovery efforts. We are aware that many
pharmaceutical and biotechnology companies, including Arena Pharmaceuticals, 7TM
Pharma and Norak Biosciences, are engaged in efforts to develop compounds that
interact with G protein-coupled receptor subtypes, including receptor subtypes
with which we are working. Our competitors include large biotechnology companies
and multinational pharmaceutical companies, including, in addition to those
identified above, GlaxoSmithKline, Schering-Plough, and Bristol-Myers Squibb,
who may gain a competitive advantage over us because they employ greater
financial and other resources, including larger research and development staffs
and more extensive marketing and manufacturing organizations, than are available
to us. We expect our competition to increase, as many large pharmaceutical
companies are now routinely performing the types of research and services that
have historically been performed by smaller companies such as ours.
We believe that every major pharmaceutical company, and numerous other drug
development companies, is attempting to develop drugs to treat the disorders for
which we are attempting to develop drugs. For example, Eli Lilly, Merck, and
Pfizer have announced that they are attempting to develop drugs to combat
obesity, depression, incontinence and diabetes. We believe that many of these
companies have products that are closer to market than ours. For example, Merck
has announced the commencement of clinical trials on a drug, which if
successful, will be used to treat depression. Our competitors will achieve a
significant competitive advantage if they complete clinical trials, obtain
required regulatory approvals or commence commercial sales of their drugs before
we achieve that stage of development with our products. Moreover, our
competitors may be able to develop technologies that circumvent our technology
or that are more effective than those that we develop or that render our
technology or drugs less competitive or obsolete. Our competitors may also be
able to obtain patent protection or other intellectual property rights that
would limit our ability to use or license our own technology or commercialize
the drugs we or our licensees develop.
27
The stringent regulatory approval process for new drugs creates significant
expenses and makes it uncertain whether any drugs we or our licensees may
develop would be approved for commercial use.
The development, manufacturing and marketing of drugs are subject to
regulation by numerous Federal, state and local governmental authorities in the
United States, the principal one of which is the FDA, and by similar agencies in
other countries in which we may test and market the drugs we develop. The FDA
and comparable regulatory agencies in other countries impose mandatory
procedures and standards for the conduct of preclinical testing and clinical
trials and the production and marketing of drugs for human therapeutic use.
Product development and approval of a new drug are likely to take many years and
involve the expenditure of substantial resources.
The steps required by the FDA before new drugs may be marketed in the
United States include:
o preclinical studies;
o the submission to the FDA of a request for authorization to
conduct clinical trials on an investigational new drug (IND) application;
o adequate and well-controlled clinical trials, including Phase I, Phase II
and Phase III trials, to establish the safety and efficacy of the drug
for its intended use;
o submission to the FDA of a New Drug Application (NDA); and
o review and approval of the NDA by the FDA before the drug may be shipped
or sold commercially.
In the United States in particular, timetables for the various phases of
clinical trials and NDA approval cannot be predicted with any certainty. We, our
licensees or the FDA may suspend clinical trials at any time if it is believed
that individuals participating in the trials are being exposed to unacceptable
health risks. Even assuming that clinical trials are completed and that an NDA
is submitted to the FDA, there can be no assurance that the NDA will be reviewed
by the FDA in a timely manner or that once reviewed, the NDA will be approved.
The approval process is affected by numerous factors, including the severity of
the targeted indications, the availability of alternative treatments and the
risks and benefits demonstrated in clinical trials. The FDA may deny an NDA if
applicable regulatory criteria are not satisfied, or may require additional
testing or information with respect to the investigational drug. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations that could also delay, limit or prevent regulatory agency
approval. Even if initial FDA approval is obtained, further studies, including
post-market studies, may be required in order to provide additional data on
safety and will be required in order to gain approval for the use of a product
as a treatment for clinical indications other than those for which the product
was initially tested. The FDA will also require post-market reporting and may
require surveillance programs to monitor the side effects of the drug. Results
of post-marketing programs may limit further marketing of the drug. Further, if
there are any modifications to the drug, including changes in indication,
manufacturing process or labeling, an NDA supplement may be required to be
submitted to the FDA. Finally, delays or rejections may be encountered based
upon changes in regulatory agency policy during the period of drug development
or the period of review of any application for regulatory agency approval of a
drug. Moreover, because our present licensees are, and future licensees may be,
responsible for preclinical testing, clinical trials, regulatory approvals,
manufacturing and commercialization of some drugs, the ability to obtain and the
timing of regulatory approvals for these drugs may not always be within our
control.
28
Prior to the commencement of marketing a product in any other country,
approval by regulatory agencies in that country is required, regardless of
whether FDA approval has been obtained for the product. The requirements
governing the conduct of clinical trials and product approvals vary widely from
country to country, and the time required for approval may be longer or shorter
than the time required for FDA approval. Although there are procedures for
unified filings for some European countries, in general each country has its own
procedures and requirements.
Delays in obtaining regulatory agency approvals could adversely affect the
marketing of any drugs we or our licensees develop, impose costly procedures
upon our activities, diminish any competitive advantages that we may attain and
adversely affect our ability to receive revenues or royalties. Because there are
numerous reasons that regulatory approval of any given product may be denied at
any stage of the development process, there is a material risk that, even after
the expenditure of significant time and money on a product, we will not obtain
all required regulatory agency approvals for that product. Moreover, even if
regulatory agency approval for a product is granted, the approval may entail
limitations on the indicated uses for which the product may be marketed.
Further, approved drugs and their manufacturers are subject to continual review,
and discovery of previously unknown problems with a drug or its manufacturer may
result in restrictions on the drug or manufacturer, including withdrawal of the
drug from the market. Regulatory agency approval of prices is required in many
countries and could limit the revenues that we are able to realize from any
particular product.
At present, only one of our compounds has progressed beyond pre-clinical
studies. We submitted an IND application to the FDA for our depression program
in the fourth quarter of 2001 and began Phase I clinical trials on this program
in February 2002. This study is currently underway.
We could face product liability claims that exceed our ability to pay them.
Product liability risks are inherent in the testing, manufacturing and
marketing of human therapeutic products. The compounds we and our licensees are
investigating could prove to be injurious to humans. We are covered by clinical
trial insurance coinciding with the commencement of Phase I clinical trials of
our depression compound. If we are unable to obtain appropriate liability
insurance coverage for drugs developed by us or our licensees, we may be exposed
to product liability claims that we do not have the resources to pay. Large
liability claims could result in substantial losses and potentially force us to
discontinue operations.
We will not be successful if we are unable to attract and retain sufficient
qualified personnel.
We rely on our management and scientific staff. We face intense competition
for personnel from, among others, biotechnology and pharmaceutical companies, as
well as academic and other research institutions. In addition, our new business
strategy requires us to hire employees with drug development expertise and to
manage aspects of the drug development process that we formerly relied on our
licensees to manage. If we lose the services of any key personnel, or are unable
to hire additional personnel with the right knowledge and skills, then our drug
development efforts may be delayed or disrupted.
Robert L. Spence, our Chief Financial Officer for the past twelve years,
retired from the company effective January 2, 2002. Edmund M. Caviasco,
C.P.A., the Company's Controller, has assumed the responsibilities of principal
accounting officer from Mr. Spence.
In November 2001, our board of directors implemented a CEO succession plan
pursuant to which it appointed a special committee to recruit a new President
and Chief Executive Officer. Kathleen P. Mullinix, a founder of the company,
resigned as Chairman of the Board and will retire as President, Chief Executive
Officer and a Director upon the hiring of her successor.
29
Our business may experience some disruptions as we seek to hire and
transition to new senior management.
Our use of radioactive materials exposes us to potential liabilities and
sanctions that could disrupt our operations.
Our activities involve the controlled use of radioactive compounds. We are
subject to local, state and Federal laws and regulations relating to
occupational safety, laboratory practices, the use, handling and disposition of
radioactive materials, environmental protection and hazardous substance control.
While complying with these requirements does not represent a material cost, we
do not maintain insurance for this particular risk and, despite compliance with
these requirements, we can not completely eliminate the risk of accidental
contamination or injury from the use, storage, handling or disposal of
radioactive compounds. Any accidental contamination or injury from these
materials could expose us to liability for damages or result in sanctions that
require us to delay or discontinue some or all of our operations.
Our stock price is highly volatile, and you could lose money investing in
our stock even if we meet our performance goals.
Historically, the market price for our common stock has been highly
volatile and subject to significant fluctuations both related and unrelated to
our operating performance. Relatively small purchases or sales of our common
stock can result in relatively large fluctuations in our stock price. In
addition, future announcements or events concerning us or our industry may have
a significant impact on the market price of our stock. Such announcements and
events could include, but are not limited to, the following:
o the results of research, development testing, or technological innovations,
either by us or others,
o the introduction of new commercial products, whether by us or others,
o new government regulations or enforcement actions,
o developments in the protection of proprietary rights,
o litigation or the results of litigation,
o public concern as to the safety of our products or those of others in our
industry,
o the failure of operating results to meet expectations of investors or
public market analysts,
o fluctuations in our results of operations,
o changes in health care policy in the United Sates or other countries,
o changes in analysts' recommendations regarding our stock, and
o changes in the pharmaceutical or biotechnology industry generally.
The tables in PART II, Item 5, hereof, "Market For Registrant's Common
Equity and Related Stockholder Matters", set forth the high and low last trade
prices for our common stock as reported by The Nasdaq Stock Market.
30
Our rights plan and provisions in our charter make it difficult for
stockholders to replace our existing board, which could prevent a sale of our
company that is desirable to our stockholders.
In November 1995, we adopted a stockholders' rights plan pursuant to which
one right to purchase 1/1000th of a share of our Series A Junior Participating
Preferred Stock is attached to each share of outstanding common stock. The
rights detach from the common stock and become exercisable on the tenth business
day following (i) the acquisition by a person or group of 15% or more of our
outstanding common stock or (ii) the announcement by a person or group of an
intention to acquire through tender or exchange offer 15% or more of our
outstanding common stock, in either case without the approval of our board of
directors. The Board of Directors has granted two groups of shareholders
exemptions from the 15% threshold in the Rights Plan. Warburg Pincus may
beneficially own up to 41% of our outstanding common stock, and BVF, Inc. and
its affiliates may beneficially own up to 16.4% of the outstanding common stock,
without triggering the plan.
Our certificate of incorporation provides for our board of directors to be
divided into three classes of approximately equal size, with each class to be
elected for a three-year term at the annual meeting of stockholders at which
that class of directors term expires. Directors can be removed by the
stockholders only for cause and only with a vote of 60% of the outstanding
voting power. Accordingly, it would require two years to replace a majority of
the board of directors without cause. Any amendment or repeal of any of the
provisions of the certificate of incorporation that relate to the classified
board of directors or the removal of directors requires the affirmative vote of
at least 80% of the outstanding voting power of our stock and a majority of our
board of directors.
Our certificate of incorporation and by-laws require approval of a majority
of the board of directors to call a special meeting of stockholders, prohibit
the stockholders from taking action by written consent and require advance
notice by stockholders of an intention to nominate persons for election to the
board of directors. In addition, the board of directors is authorized to issue
preferred stock without stockholder approval with whatever rights and
preferences the board may determine to be appropriate. The rights of the holders
of common stock will be subject to, and could be adversely affected by, the
rights of the holders of any preferred stock issued in the future.
Our rights plan has the effect of making an acquisition of the company
prohibitively expensive for any potential acquirer not approved by the board of
directors. Under Delaware law, the board of directors has broad discretion in
determining whether or not to sell the company, even in circumstances where
stockholders consider a sale to be desirable. Thus, an acquirer not approved by
the board could be prevented from acquiring the company unless a majority of the
company's stockholders voted to replace a majority of the board with directors
that did approve the acquisition. As discussed above, it would take two years to
replace a majority of the board of directors without cause. It would therefore
be very difficult for any third party to acquire our company without the consent
of our board, even in a transaction that stockholders believe to be favorable.
This could have the effect of depriving the owners of our common stock of the
opportunity to sell their shares at a premium over prevailing market prices in a
transaction proposed by a third party, where our board favors an alternative
transaction or believes that a sale of the company is not desirable.
Warburg Pincus, whose interests may differ from yours, exercises
substantial influence over our management and policies and could prevent a sale
of the company.
Warburg Pincus Private Equity VIII, LP, our largest shareholder, holds
approximately 34.6% of the voting power of our outstanding capital stock.
Warburg Pincus has the right to appoint two of the nine members of our board of
directors and to approve the selection of a third member in consultation with
company management and the rest of the board. Warburg Pincus' interests may
differ from your interests, and they may be in a position to influence us to act
in a way that is inconsistent with the interests of the public
31
holders of our
common stock. Because of its large equity position, it is unlikely that any
transaction requiring shareholder approval, such as a sale of the company or its
assets or the election of directors, would be approved without Warburg Pincus'
consent. As the holder of a majority of our outstanding Series B and Series C
Convertible Preferred Stock, Warburg Pincus also has the right to veto any
future issuance of preferred stock that is senior to or at parity with our
Series B and Series C Preferred Stock. This could give them the ability to
prevent us from raising capital in a private financing on terms favorable to the
holders of common stock.
The sale of shares by selling shareholders could cause a decline in the
market price of our common stock.
Sales or the potential for sales of a substantial number of shares of our
common stock in the public market could adversely affect its market price. With
the effectiveness of a registration statement on February 14, 2002, there are no
restrictions on the right of the investors who acquired our preferred stock in
August and September of 2001, to convert their preferred stock to common stock
and sell it in the open market. If all shares of our outstanding Series B and
Series C Convertible Preferred Stock were converted to common stock, we would
have 18,517,187 shares of common stock outstanding, of which these shareholders
would hold 7,564,584 shares, or approximately 41%.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used
in this report, or in the documents incorporated by reference into this report,
the words "anticipate," "believe," "estimate," "intend" and "expect" and similar
expressions are intended to identify such forward-looking statements. These
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that may cause our actual results, performance,
achievements, plans and objectives to differ materially from any future results,
performance, achievements, plans and objectives expressed or implied by these
forward-looking statements. Such risks, uncertainties and other factors include
those described under the captions "Risk Factors," "Patents, Proprietary
Technology and Trade Secrets," "Competition," and "Government Regulation."
You should not place undue reliance on any forward-looking statements
contained in this report. Further, any forward-looking statement speaks only as
of the date on which it is made. New factors emerge from time to time, and it is
not possible for us to predict what factors will arise or when. In addition, we
cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
For a discussion of important risks of an investment in our securities,
including factors that could cause actual results to differ materially from
results referred to in the forward-looking statements, see "Risk Factors." You
should carefully consider the information set forth under the caption "Risk
Factors." In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in or incorporated by reference in this report
might not occur.
32
Item 8. Financial Statements
SYNAPTIC PHARMACEUTICAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors........................................ 34
Balance Sheets at December 31, 2001 and 2000.......................... 35
Statements of Operations and Comprehensive Income (Loss)
for the years ended December 31, 2001, 2000 and 1999................. 36
Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999..................................... 37
Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999..................................... 38
Notes to Financial Statements......................................... 39
33
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
SYNAPTIC PHARMACEUTICAL CORPORATION
We have audited the accompanying balance sheets of Synaptic Pharmaceutical
Corporation as of December 31, 2001 and 2000, and the related statements of
operations and comprehensive income (loss), stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Synaptic Pharmaceutical
Corporation at December 31, 2001 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
MetroPark, New Jersey
February 15, 2002
34
SYNAPTIC PHARMACEUTICAL CORPORATION
BALANCE SHEETS
(in thousands, except share and per share information)
December 31, 2001 and 2000
Assets 2001 2000
--------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 45,552 $ 2,037
Marketable securities--current maturities 2,553 20,627
Deferred tax assets 256
Other current assets 431 814
--------------------------------------------------------------------------------
Total current assets 48,792 23,478
Property and equipment, net 4,268 4,781
Marketable securities 1,545 8,938
Patent and patent application costs, net -- 227
Other assets 228 147
--------------------------------------------------------------------------------
$ 54,833 $ 37,571
================================================================================
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity
--------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,441 $ 1,128
Accrued liabilities 1,104 648
Accrued compensation 550 348
Deferred revenue 107 354
--------------------------------------------------------------------------------
Total current liabilities 3,202 2,478
Deferred rent obligation 845 564
Series B senior redeemable convertible preferred
stock; authorized, issued and outstanding--11,056
shares in 2001, liquidation preference--$11,056,000 10,206 --
Series C senior redeemable convertible preferred
stock; authorized, issued and outstanding--29,944
shares in 2001, liquidation preference--$29,944,000 27,613 --
Stockholders' equity:
Series A preferred stock, $.01 par value;
authorized--1,000,000 shares -- --
Common Stock, $.01 par value; authorized--25,000,000
shares issued and outstanding--10,953,353 shares
in 2001 and 10,935,772 shares in 2000 109 109
Additional paid-in capital 99,376 99,392
Accumulated other comprehensive income--net
unrealized gains (losses) on securities 87 (183)
Accumulated deficit (86,605) (64,789)
--------------------------------------------------------------------------------
Total stockholders' equity 12,967 34,529
--------------------------------------------------------------------------------
$ 54,833 $ 37,571
================================================================================
See notes to financial statements.
35
SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share information)
For the years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
--------------------------------------------------------------------------------
Revenues:
Contract revenue $ 1,157 $ 1,086 $ 1,855
License revenue 250 2,7500 --
--------------------------------------------------------------------------------
Total revenues 1,407 3,836 1,855
Expenses:
Research and development 17,990 14,360 14,592
General and administrative 7,620 5,852 5,060
--------------------------------------------------------------------------------
Total expenses 25,610 20,212 19,652
--------------------------------------------------------------------------------
Loss from operations (24,203) (16,376) (17,797)
Other income, net:
Interest income 1,505 2,106 2,674
Gain on sale of securities -- -- 2
Other 495 4 --
--------------------------------------------------------------------------------
Other income, net 2,000 2,110 2,676
--------------------------------------------------------------------------------
Net loss before benefit from income taxes (22,203) (14,266) (15,121)
Income tax benefit 387 407 --
--------------------------------------------------------------------------------
Net loss (21,816) (13,859) (15,121)
Beneficial conversion feature and
accretion of redemption value of
mandatorily redeemable convertible
preferred stock (4,302) -- --
--------------------------------------------------------------------------------
Net loss applicable to common
stockholders $(26,118) $(13,859) $(15,121)
================================================================================
Comprehensive loss:
Net loss $(21,816) $(13,859) $(15,121)
Unrealized gains (losses) arising
during period 270 608 (702)
Less: reclassification adjustment
for gains included in net income -- -- (12)
--------------------------------------------------------------------------------
Comprehensive loss $(21,546) $(13,251) $(15,835)
================================================================================
Basic and diluted net loss per share
applicable to common stockholders $ (2.39) $ (1.28) $ (1.41)
================================================================================
Shares used in computation of net loss
per share applicable to common stockholders 10,942,023 10,850,262 10,742,296
================================================================================
See notes to financial statements.
36
SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share information)
(in thousands, except share information)
Net
Unrealized
Gains Total
Additional (Losses) Deferred Accumu- Stock-
Common Stock Paid-In on Compen- lated holders'
Shares Amount Capital Securities sation Deficit Equity
------ ------ ------- ---------- ------ ------- ------------
Balance at January 1, 1999 10,711,374 $ 107 $ 98,516 $ (77) $ (61) $ (35,809) $ 62,676
Forfeiture of Deferred
Compensation related to
Stock Incentive Plan -- -- (11) -- 11 -- --
Amortization of Deferred
Compensation -- -- -- -- 50 -- 50
Issuance of 53,287, shares
of common stock pursuant
to exercise of stock options 53,287 1 214 -- -- -- 215
Adjustment to reflect net
unrealized loss on
securities -- -- -- (714) -- -- (714)
Net loss for the year ended
December 31, 1999 -- -- -- -- -- (15,121 (15,121)
---------- ----- --------- ---------- -------- --------- -----------
Balance at December 31, 1999 10,764,661 $ 108 $ 98,719 $ (791) $ (--) $ (50,930 $ 47,106
Issuance of 171,111, shares
of common stock pursuant
to exercise of stock options 171,111 1 673 -- -- -- 674
Adjustment to reflect net
unrealized gain on
securities -- -- -- 608 -- -- 608
Net loss for the year ended
December 31, 2000 -- -- -- -- -- (13,859 (13,859)
---------- ----- --------- ---------- -------- --------- -----------
Balance at December 31, 2000 10,935,772 $ 109 $ 99,392 $ (183) $ (--) $ (64,789 $ 34,529
Issuance of 17,581, shares
of common stock pursuant
to exercise of stock options 17,581 -- 58 -- -- -- 58
Adjustment to reflect net
unrealized gain on
securities -- -- -- 270 -- -- 270
Sale of redeemable convertible
preferred stock -- -- 4,228 -- -- -- 4,228
Beneficial conversion feature
and accretion of redemption
value of redeemable
convertible preferred stock -- -- (4,302) -- -- -- (4,302)
Net loss for the year ended
December 31, 2001 -- -- -- -- -- (21,816 (13,859)
---------- ----- --------- ---------- -------- --------- -----------
Balance at December 31, 2001 10,953,353 $ 109 $ 99,376 $ 87 -- $ (86,605 $ 12,967)
========== ===== ========= ========== ======== ========= ===========
See notes to financial statements.
37
SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
--------------------------------------------------------------------------------
Operating activities:
Net loss $(21,816) $(13,859) $(15,121)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and patent amortization 1,308 1,626 1,609
Amortization of premiums (discounts) on
securities 297 463 479
Deferred income taxes (256) - -
Amortization of deferred compensation - - 50
Gain on sales of securities - - (2)
Writedown / loss on sale of equipment 19 100 32
Deferred rent 281 270 247
Changes in operating assets and liabilties:
Decrease in other current assets 383 33 817
Increase (decrease) in accounts payable,
accrued liabilities and accrued compensation 971 727 (540)
Increase in other assets (81) (100) -
(Decrease) increase in deferred revenue (247) 354 (83)
--------------------------------------------------------------------------------
Net cash used in operating activities (19,141) (10,386) (12,512)
Investing activities:
Proceeds from sale or maturity of investments 27,440 6,487 19,039
Purchases of investments (2,000) - (16,349)
Proceeds from sales of equipment 16 70 80
Reimbursement for leasehold improvements - 129 -
Purchases of property and equipment (603) (1,173) (827)
--------------------------------------------------------------------------------
Net cash provided by investing activities 24,853 5,513 1,943
Financing activities:
Issuance of common stock 58 674 215
Issuance of preferred stock 37,745 - -
--------------------------------------------------------------------------------
Net cash provided by financing activities 37,803 674 215
--------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 43,515 (4,199) (10,354)
Cash and cash equivalents at beginning of period 2,037 6,236 16,590
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 45,552 $ 2,037 $ 6,236
--------------------------------------------------------------------------------
See notes to financial statements.
38
SYNAPTIC PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
Note 1-- Summary of Significant Accounting Policies
Organization. Synaptic Pharmaceutical Corporation ("Synaptic" or the
"company") is a drug discovery company using its patented portfolio of G
protein-coupled receptors ("GPCRs") as the basis for developing new drugs for
the treatment of a variety of human disorders. GPCRs represent a class of human
receptors that are involved with a broad range of physiological functions in the
body. Human receptors are protein molecules that exist on the surface membrane
of all cells and affect cell activity. They are associated with physiological
functions and, sometimes, disorders. Synaptic and its licensees conduct research
to discover the function of specific GPCRs in the human body and physiological
disorders with which they may be associated. The company uses this information
to design compounds that attach to and change the function of these GPCRs and
that have the potential to be developed into drugs to treat disorders with which
the GPCRs are associated. The company's goal is to develop the compounds it
designs into commercially viable drugs.
Basic and Diluted Net Loss Per Share Applicable to Common Stockholders. Net
loss per share applicable to common stockholders is computed using the weighted
average number of shares of common stock outstanding. As a result of the
company's operating losses and the anti-dilutive effect of stock options and
convertible preferred stock, these instruments are excluded from the computation
of diluted net loss per share.
Revenue Recognition. Revenues that the company receives, or may receive,
are derived from either multi-element revenue arrangements or from research
services that the company performs. Historically, virtually all revenue that has
been recorded has been under multi-element revenue arrangements. Generally,
revenue is realized or realizable and earned when all of the following criteria
are met: (1) an arrangement exists, (2) services have been rendered, (3) prices
of services are fixed or determinable and (4) collectibility is reasonably
assured. As the structures of these arrangements are unique and may contain
several different revenue components, each is reviewed on a case-by-case basis
in order to determine the appropriate amount and term over which to recognize
revenues.
Under these multi-element revenue arrangements, the company may receive one
or more of the following types of revenue: license revenue, research funding
revenue, milestone revenue, royalty revenue and revenue derived from sales of
drugs.
License revenue represents non-refundable payments for a license to one or
more of the company's patents and/or a license to its technology. Payments for
licenses are recognized as they are received or, if earlier, when they become
guaranteed, provided they are independent of any continuing research activity on
the related project. Otherwise, they are recognized pro-rata during the term of
the related research agreement in accordance with Staff Accounting Bulletin No.
101 "Revenue Recognition in Financial Statements."
Research funding revenue includes payment to support a specified number of
Synaptic's scientists. Such revenue is recognized ratably over the period in
which the research is performed.
Milestone revenue represents non-refundable payments for the achievement of
specified milestones under either an existing arrangement or under a license
that has been granted to one or more of the company's patents and/or its
technology. Such payments typically coincide with the achievement of a
substantial element in a multi-element arrangement or measure substantive stages
of progress toward completion under a long-term contract. The recognition of
such payments as revenue is determined based upon the nature of the underlying
39
arrangement. Milestone payments received under contracts where the company is
performing related ongoing research, and which are deemed to have multi-element
financial arrangements, will be recognized as revenue over the remaining life of
the contract. Milestone payments received under license agreements are
recognized as revenue as they are received or, if earlier, when they become
guaranteed, provided they are independent of any research activity.
Royalty revenue represents payments that may be received from the sales of
drugs that may be developed using the technology or the patent rights that have
been licensed. The company is entitled to receive royalty payments under most of
its license agreements. To date, the company has not received royalty payments
and does not expect to receive such payments for a number of years, if at all.
Revenue derived from the sales of drugs would be recognized if the company
markets drugs. The company may develop drugs on its own or in partnership with
others. As part of the agreement with Grunenthal, the company has development
and marketing rights in certain geographical areas with respect to any drugs
that are jointly identified under the agreement. Accordingly, Synaptic may
receive revenue from sales of drugs in designated geographical areas if it
markets them independently, or the company may receive royalty payments if it
licenses its marketing rights to a third party. To date, Synaptic has not
received revenue from the sales of drugs and does not expect to receive such
revenues for a number of years, if at all.
Cash Equivalents. Cash equivalents consist of highly liquid investments
with maturities of three months or less when purchased. Included in cash
equivalents at December 31, 2001, is approximately $45,415,000 related to
investments in money market funds. At December 31, 2000, this amount totaled
$1,651,000.
Marketable Securities. All of Synaptic's marketable securities are
classified as available-for-sale securities and are carried at fair value, with
the unrealized gains and losses reported as a separate component of
stockholders' equity. The cost of debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity. This amortization is
included in interest income. Realized gains and losses and declines in value
judged to be other than temporary, if any, are included in other income. The
cost of securities sold is based on the specific identification method.
Investments held as of December 31, 2001 consist primarily of U.S. corporate
debt securities. These investments mature on August 1, 2002 and March 30, 2003.
The Company has established guidelines relative to diversification, credit
ratings and maturities to maintain safety and liquidity. The guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Scientific equipment, office equipment and furniture
and fixtures are depreciated over a life of 7 years. Leasehold improvements are
depreciated principally over the life of the facility lease, which is currently
14 years. Software is depreciated over a life of 3 years.
Patents. Prior to October 1, 1996, patent and patent application costs were
capitalized and amortized over 7 years or the estimated life of the patent, if
less, using the straight-line method. Capitalized costs through October 1, 1996
were amortized over the remaining portions of their seven-year lives. Effective
October 1, 1996, patent and patent application costs are expensed as incurred.
Accrued Liabilities. Included in accrued liabilities at December 31, 2001
and 2000 are accrued professional fees totaling $472,000 and $340,000,
respectively.
40
Stock-Based Compensation. The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), in accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized only when the exercise price of options is
below the market price of the underlying stock on the date of grant. This
expense is recognized ratably over the vesting period.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these
estimates.
Comprehensive Income (Loss). Comprehensive income (loss) is defined as the
change in equity of a business enterprise during a period resulting from
transactions and other events and circumstances from nonowner sources.
Comprehensive loss for Synaptic, in addition to net loss, includes unrealized
gains and losses on marketable securities held for sale, currently recorded in
stockholders' equity.
Note 2 -- Marketable Securities
The following is a summary of all of Synaptic's marketable securities. All
of these securities are classified as available-for-sale securities.
Determination of estimated fair value is based on quoted market prices:
Gross Gross
Unrealized Unrealized Estimated
Cost Gains (Losses) Fair Value
--------------------------------------------------------------------------------
December 31, 2001
U.S. corporate debt securities 4,011,000 87,000 -- 4,098,000
--------------------------------------------------------------------------------
$ 4,011,000 $87,000 $ -- $ 4,098,000
================================================================================
December 31, 2000
U.S. Treasury obligations and $ 8,000,000 $ -- $ (57,000) $ 7,943,000
obligations of U.S.
Government agencies
U.S. corporate debt securities 21,748,000 -- (126,000) 21,622,000
--------------------------------------------------------------------------------
$29,748,000 $ -- $(183,000) $29,565,000
================================================================================
The gross realized gains on sale of available-for-sale securities for the
years ending December 31, 2001, 2000 and 1999 totaled $0, $0 and $2,000,
respectively. There were no gross realized losses during 2001, 2000 and 1999.
The net adjustment to unrealized gains (losses) on available-for-sale securities
included as a separate component of stockholders' equity totaled $270,000 in
2001, $608,000 in 2000 and $(714,000) in 1999.
Note 3-- Collaborative and Licensing Arrangements
At December 31, 2001, Synaptic was engaged in collaborations with Kissei
Pharmaceutical Co., Ltd. ("Kissei") and Grunenthal GmbH ("Grunenthal"). The
company has licensed technology and patent rights to
41
other pharmaceutical
companies in addition to these ongoing collaborative arrangements. Details of
these arrangements are set forth below:
Kissei Pharmaceutical Co., Ltd. Synaptic and Kissei are parties to a
research and licensing agreement to identify novel receptors utilizing the
company's genomics and functional genomics discovery technologies. Under the
term of the three-year agreement, Kissei will provide funding to Synaptic to
support research that is aimed at discovering novel receptors through the use of
the company's proprietary technologies. In addition to the research funding, the
agreement provides for a license fee, milestone payments and royalty payments to
the company on sales of any products. In return, Synaptic granted Kissei
worldwide exclusive rights to use selected receptors resulting from the
collaboration to discover, develop, manufacture and market drugs that act
through these receptors.
During 2001 and 2000, the Company recognized $1,407,000 and $1,271,000,
respectively, in revenue under this agreement. Revenues that have been
recognized are not subject to repayment.
At December 31, 2001, the company had recorded $107,000 in deferred revenue
representing advance funding for research, which will be recognized in 2002. At
December 31, 2000, the company had recorded $354,000 in deferred revenue
representing advance funding for research and license revenue that was
recognized during 2001.
Grunenthal GmbH. Synaptic and Grunenthal are parties to a collaborative and
licensing agreement pursuant to which they are collaborating to discover and
develop drugs for the treatment of pain. Synaptic is using its receptor-targeted
drug design technology to identify compounds of interest and Grunenthal is using
its expertise to evaluate the compounds in pain model systems and to conduct
preclinical studies. Grunenthal will conduct clinical studies with promising
compounds. The companies will each be responsible for their own research costs
and equally share the development costs through Phase IIa clinical trials.
Synaptic will retain manufacturing and marketing rights in the U.S., Canada and
Mexico and share these rights in countries outside of Europe, South and Central
America where Grunenthal retains these rights. To date, the company has not
recognized any revenue under this collaboration.
The R.W. Johnson Research Pharmaceutical Research Institute. Synaptic and
The R.W. Johnson Pharmaceutical Research Institute ("PRI") are parties to a
licensing agreement under which PRI was granted nonexclusive licenses under the
company's alpha 1 adrenergic receptor patents and benign prostatic hyperplasia
functional use patent to develop and sell alpha-1a selective compounds for all
therapeutic applications. PRI is required to make payments upon the achievement
of certain milestones and to pay royalties on sales of products, if any.
During 2000, the company recognized $2,500,000 in revenue under this
licensing arrangement. Revenue that has been recognized is not subject to
repayment.
Eli Lilly and Company. Synaptic and Eli Lilly and Company ("Lilly") are
parties to a collaborative and licensing agreement under which the company
granted Lilly an exclusive license to use all but two of the company's serotonin
drug discovery systems to promote the discovery and development of receptor
subtype-selective drugs for the treatment of serotonin-related disorders.
Through July 1999, Lilly provided funding to Synaptic to support a specified
number of company scientists who conducted research as part of the
collaboration. Under the terms of the agreement, the collaboration and
associated research funding ended on July 30, 1999. Lilly is required to pay
royalties on sales of any products developed through the use of the company's
technology and is required to make payments upon the achievement of certain
milestones.
42
During 1999, the company recognized $1,676,000 in revenue under this
agreement. Revenues that have been recognized are not subject to repayment.
Glaxo Group Limited. Synaptic and Glaxo Group Limited of the United Kingdom
("Glaxo") are parties to a licensing agreement under which Glaxo currently holds
a nonexclusive license under the company's alpha 1 adrenergic receptor patents
to develop and sell alpha-1a selective compounds for therapeutic applications
other than the treatment of BPH. Synaptic is entitled to receive royalties on
sales of all alpha-1a selective drugs sold by Glaxo, if any, so long as Synaptic
has an issued patent relating to an alpha 1 adrenergic receptor subtype in at
least one major market country.
Merck & Co., Inc. Synaptic and Merck & Co., Inc. ("Merck") were parties to
a collaborative and licensing agreement. Synaptic had granted Merck licenses
that were subsequently relinquished.
During 1999, the company recognized $83,000 in revenue under this
agreement. Revenues that have been recognized are not subject to repayment.
Note 4-- Property and Equipment
Property and equipment consists of the following as of December 31, 2001
and 2000:
2001 2000
--------------------------------------------------------------------------------
Scientific equipment $ 8,157,000 $ 7,943,000
Furniture and fixtures 192,000 192,000
Office equipment 575,000 533,000
Leasehold improvements 2,365,000 2,352,000
Software 1,077,000 1,035,000
--------------------------------------------------------------------------------
12,366,000 12,055,000
Accumulated depreciation and amortization (8,098,000) (7,274,000)
--------------------------------------------------------------------------------
$ 4,268,000 $ 4,781,000
================================================================================
Note 5 -- Stockholders' Equity
Common Stock. At December 31, 2001, a total of 10,953,353 shares of common
stock were outstanding.
Stockholders' Rights Plan. In November 1995, Synaptic's Board of Directors
approved the adoption of a stockholders' rights plan (the "Rights Plan"). The
Rights Plan provides for the distribution of one right (a "Right") with respect
to each share of outstanding common stock and any new issuances of common stock.
Upon completion of the initial public offering in December 1995, the Board of
Directors designated Series A Junior Participating Preferred Stock and declared
a dividend of one Right with respect to each share of common stock outstanding.
Each Right will become exercisable to purchase from the company, at an exercise
price of $160.00, 1/1000th of a share of Series A Junior Participating Preferred
Stock or that number of shares of common stock having a market value equal to
two times the exercise price of the Right. The Rights generally become
exercisable for the Series A Junior Participating Preferred Stock ten days
following the announcement by any person or group of an intention to make a
tender offer or exchange offer, the consummation of which would cause a person
or group to become the beneficial owner of 15% or more of the outstanding common
stock, and generally become exercisable for common stock ten days following the
acquisition by any person or group of beneficial ownership of more than 15% of
the outstanding common stock, except, in either case, where the acquirer or
potential acquirer has been approved by the Board of Directors.
43
The Board of
Directors has granted two groups of shareholders exemptions from the 15%
threshold in the Rights Plan. Warburg Pincus may beneficially own up to 41% of
the outstanding common stock, and BVF, Inc. and its affiliates may own up to
16.4% of the outstanding common stock, without triggering the plan. The Rights
will expire in the year 2005. The Rights Plan may discourage certain types of
transactions involving an actual or potential change in control of the company.
Each 1/1000th of a share of Series A Junior Participating Preferred Stock
will have one vote and will be entitled to a preferential quarterly dividend per
share equal to the larger of (i) an amount equal to any dividend declared on the
common stock and (ii) $.000025. Additionally, in the event of a liquidation,
each 1/1000th of a share of the Series A Junior Participating Preferred Stock
would be entitled to a preferential liquidation payment equal to $0.01 plus an
amount equal to the amount that would be distributed with respect to each share
of common stock.
Preferred Stock. Synaptic is authorized to issue up to 1,000,000 shares of
preferred stock, 200,000 of which is designated as Series A Junior
Participating, 11,056 which is designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock"), 29,944 which is designated as Series C
Convertible Preferred Stock (the "Series C Preferred Stock" and together with
the Series B Preferred Stock, the "Preferred Stock"), and 759,000 of which is
undesignated. The Board of Directors is authorized to provide for the issuance
of preferred stock in one or more classes or series and to fix the number of
shares constituting any such class or series, and the voting powers,
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including the
dividend rights, dividend rate, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
class or series, without any further vote or action by the shareholders of the
company.
Senior Redeemable Convertible Preferred Stock. On August 3, 2001, the
company sold to investors (the "purchasers"), 9,438 shares of Series B Preferred
Stock in a private placement for $9,438,000. On September 26, 2001, the company
sold 1,618 shares of Series B Preferred Stock and 29,944 shares of Series C
Preferred Stock for $31,562,000. Net proceeds, after giving effect to placement
fees and offering expenses, were approximately $37,745,000. The purchasers were
granted certain subscription and registration rights in connection with their
acquisition of the Preferred Stock.
The Series B and Series C Convertible Preferred Stock (the "Preferred
Stock") are two series of senior redeemable convertible preferred stock having
identical terms, except that the Series B Preferred Stock has an initial
conversion price of $4.3358 and the Series C Preferred Stock has an initial
conversion price of $5.9713. Each share of Preferred stock may be converted at
any time at the option of the holder thereof into a number of shares of common
stock determined by dividing $1,000 by the conversion price, as appropriately
adjusted for any stock splits, stock dividends, combinations or similar events.
All shares of Preferred Stock shall automatically be converted into common stock
upon the vote to so convert of holders of a majority of the Preferred Stock then
outstanding, voting together as a separate class. The Preferred Stock is
currently convertible into an aggregate of 7,564,584 shares of common stock.
Holders of Preferred Stock are entitled to receive dividends on a pari
passu basis, if and when dividends are declared on the common stock, in an
amount equal to the dividends that would have been payable had their shares been
converted to common stock immediately prior to the record date for the dividend.
Upon any liquidation of the company, each holder of Preferred Stock is
entitled to receive $1,000, plus declared but unpaid dividends, if any, for each
share held, prior to the holders of any common stock or junior preferred stock
receiving any assets of the company available for distribution.
44
Holders of Preferred Stock, voting together as a separate class, are
entitled to elect two members of the board of directors, as long as 60% of the
Preferred Stock issued and outstanding as of September 26, 2001 remains
outstanding.
The holders of the Preferred Stock are entitled to vote together with the
holders of the common stock on all matters presented to our stockholders for
consideration, except that as long as the holders of the Preferred Stock are
entitled to vote as a separate class to elect members of the board of directors,
they will not be entitled to vote for the remaining directors. Each share of
Preferred Stock has a number of votes equal to the number of shares of common
stock into which it may then be converted.
The company may redeem all outstanding shares of Preferred Stock at any
time after August 3, 2003, provided that the company can redeem these shares
prior to August 3, 2009, only if the market price of the common stock is at
least 200% of the conversion price then in effect for any 20 consecutive trading
days ending within 10 trading days of the redemption date. The company must
redeem all outstanding shares of Preferred Stock in two annual installments
beginning on August 3, 2009. On any redemption, the redemption price will be
$1,000 per share, as appropriately adjusted for any stock splits, stock
dividends, combinations or similar events, plus declared but unpaid dividends.
The company recorded an adjustment to net loss applicable to common
stockholders of $4,226,000 relating to the beneficial conversion feature
inherent in the issuances of the Series B Preferred Stock. This amount was
determined based upon the excess of the fair value of the company's common stock
into which the Series B Preferred Stock was immediately convertible less the
initial conversion price of $4.3358 per share in accordance with Emerging Issues
Task Force No. 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios." The company
also recorded an adjustment to net loss applicable to common stockholders of
approximately $76,000 representing the accretion of the Series B Preferred Stock
and Series C Preferred Stock to their respective redemption values.
Note 6 -- Incentive/Stock Plans
Synaptic currently has three stock incentive plans: the 1996 Incentive Plan
(the "1996 Plan"), the 1988 Amended and Restated Incentive Plan (the "1988 Plan"
and, together with the 1996 Plan, the "Incentive Plans") and the 1996
Nonemployee Director Stock Option Plan (the "Director Plan").
The company has elected to follow APB No. 25 in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided for under Financial Accounting Standards Board Statement No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123") requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, compensation expense is required to be
recognized when the exercise price of the company's employee stock options is at
a price below the market price of the underlying stock on the date of grant.
Incentive Plans. The 1996 Plan and the 1988 Plan were adopted in October
1995 and June 1988, respectively. In May 1998, the company's stockholders
approved an amendment to the 1996 Plan that increased the maximum number of
shares available for awards under the 1996 Plan from 1,100,000 to 2,100,000. In
September 2001, the company's stockholders approved another amendment to the
1996 Plan that increased the maximum number of shares available for awards under
the 1996 Plan to 3,600,000. Effective as of January 1, 1996, the 1996 Plan
replaced the 1988 Plan with respect to all future stock and option awards by the
company to its employees and consultants. A committee of the company's Board of
Directors (the "Committee") approves the sale of shares and the granting of
nonstatutory or incentive stock options. In addition, under the 1996 Plan, the
Committee may grant stock appreciation rights to employees and consultants of
the company. The purchase price for shares and the exercise price of options are
determined by the Committee (although, the exercise price of incentive stock
options may be no less than the fair market value of the common stock on the
date of grant).
45
In general, options granted under the Incentive Plans vest over either a
two-year or a four-year period. Unvested options are forfeited upon termination
of the employee or consulting relationship. Vested options, if not exercised
within a specified period of time following the termination of the employment or
consulting relationship, are also forfeited. Options generally expire 10 years
from the date of grant. Shares of common stock sold under the Incentive Plans
are also generally subject to vesting. Options granted and shares sold to
employees under the Incentive Plans generally become fully vested upon the
occurrence of a change in control of the company (as defined) if the holders
thereof are terminated in connection with such change in control other than for
cause (as defined). At December 31, 2001, 1,687,014 shares remain available for
future awards under the 1996 Plan. As of December 31, 2001, no stock
appreciation rights had been awarded under the 1996 Plan.
Director Plan. The Director Plan was adopted by the Board of Directors in
March 1996 and approved by the stockholders in June 1996. In general, under the
Director Plan, each nonemployee director of the company is automatically granted
an option on the date that he or she first becomes a member of the Board of
Directors. In addition, on June 1 of each year, commencing in 1997, each
nonemployee director is granted an additional option to purchase 2,500 shares of
common stock at an exercise price equal to the fair market value on the date of
grant. The maximum number of shares subject to the Director Plan is 250,000. In
general, options granted under the Director Plan become exercisable as to 1/24th
of the total number of shares subject to the option for each calendar month
elapsed after the date of the option grant. In the event of a change in control
of the company (as defined) or the death or disability of the optionee, any
unvested portion of the options will become exercisable in full. Options granted
under the Director Plan will expire upon the earliest to occur of the following:
(a) the expiration of ten years from the date of grant of the option, (b) one
year after the optionee ceases to be a director of the company by reason of
death or disability of the optionee, or (c) three months after the date the
optionee ceases to be a director of the company for any reason other than death
or disability.
46
Option activities under the Incentive Plans and the Director Plan are
detailed in the following table:
Weighted
Average
Option
1996 1988 Director Price
Plan Plan Plan Per Share
--------------------------------------------------------------------------------
Outstanding at January 1, 1999 1,125,235 217,864 45,000 $11.39
Granted 432,100 - 20,000 $ 4.92
Exercised (22,542) (30,745) - $ 4.03
Canceled/Forfeited (158,516) (625) - $12.86
--------------------------------------------------------------------------------
Outstanding at December 31, 1999 1,376,277 186,494 65,000 $ 9.69
Granted 145,750 - 15,000 $ 5.79
Exercised (36,363) (134,748) - $ 3.94
Canceled/Forfeited (166,092) - (22,500) $ 0.74
--------------------------------------------------------------------------------
Outstanding at December 31, 2000 1,319,572 51,746 57,500 $ 9.80
Granted 655,600 - 17,500 $ 5.97
Exercised (9,600) (7,981) - $ 3.33
Canceled/Forfeited (128,669) - - $ 8.84
--------------------------------------------------------------------------------
Outstanding at December 31, 2001 1,836,903 43,765 75,000 $ 8.60
================================================================================
Exercisable at December 31, 2001 786,113 43,765 58,332 $ 0.94
================================================================================
Exercisable at December 31, 2000 487,699 51,746 44,687 $ 2.32
================================================================================
Exercisable at December 31, 1999 345,592 186,494 46,562 $ 9.90
================================================================================
The following table discloses at December 31, 2001, for each of the
following classes of options as determined by range of exercise price, the
information regarding weighted-average exercise price and weighted-average
remaining contractual life of each said class:
Weighted Weighted
Weighted Average Average
Average Remaining Exercise
Exercise Contractual Number Of Price of
Number Of Price of Life Of Options Options
Options Outstanding Outstanding Currently Currently
Option Class Outstanding Options Options Exercisable Exercisable
------------ ----------- ------- ------- ----------- -----------
Prices ranging
from
$1.76-$2.00 43,765 $ 1.81 2.2 years 43,765 $ 1.81
Prices ranging
from
$4.25-$6.875 1,131,550 $ 5.56 9.0 years 202,757 $ 4.85
Prices ranging
from
$8.4375-$10.125 15,900 $10.07 4.8 years 15,525 $10.11
Prices ranging
from
$11.3125-$13.125 475,411 $12.46 6.1 years 346,746 $12.33
Prices ranging
from
$14.125-$15.25 189,042 $14.32 5.9 years 181,167 $14.32
Prices ranging
from
$16.50-$17.75 100,000 $16.62 4.4 years 98,250 $16.60
47
Other Disclosures. During 2001, 2000 and 1999, all options were granted
with an exercise price equal to the market price of the common stock on the date
of grant. Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the company had been
accounting for its employee stock options under the fair value method of SFAS
No. 123. The weighted-average fair value of options granted during 2001, 2000
and 1999 approximated $3.85, $4.07 and $3.19, respectively. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions for 2001, 2000 and 1999,
respectively: weighted average risk-free interest rates of 4.64%, 5.43% and
6.13%; no dividends; and a weighted-average expected life of the options of 5
years. Weighted average volatility factors of the expected market price of the
company's common stock of .838, .852 and .741, were used for 2001, 2000 and
1999, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma net loss disclosures, the estimated fair value of
options granted subsequent to 1994 is amortized to expense over the options'
vesting period. The company's pro forma net loss information is as follows:
2001 2000 1999
--------------------------------------------------------------------------------
Pro forma net loss
applicable to common stockholders $(28,386,000) $(15,814,000) $(16,801,000)
Pro forma net loss per share
applicable to common stockholders $ (2.59) $ (1.46) $ (1.56)
--------------------------------------------------------------------------------
For certain options granted prior to 1997, the company recorded pursuant to
APB No. 25 deferred compensation expense representing the difference between the
exercise price thereof and the market value of the common stock as of the date
of grant. This compensation expense was being amortized over the vesting period
of each option granted. Amortization of deferred compensation under the
Incentive Plans amounted to approximately $50,000 during 1999. In addition,
approximately $11,000 of deferred compensation, as it relates to the Incentive
Plans was reversed during 1999 due to the forfeiture of the unvested options. At
December 31, 1999, this deferred compensation had been amortized.
Note 7 -- Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
At December 31, 2001 and 2000, the company had net operating loss ("NOL")
carryforwards of $76,000,000 and $57,000,000, respectively, for Federal income
tax purposes that will expire principally in the years 2002 through 2021. In
addition, Synaptic had research and development credit carryforwards of
approximately $1,610,000 that will expire principally in 2002 through 2018. For
financial reporting purposes, a valuation allowance has been recognized to
offset the deferred tax assets related to these carryforwards.
48
At December 31, 2001, the company had NOL carryforwards of $61,000,000 and
research and development credits of $311,000 for State income tax purposes. In
December 2001, $164,000 in research and development credits was sold under the
State of New Jersey's Technology Business Tax Certificate Transfer Program (the
"Program"). The Program allows qualified technology and biotechnology businesses
in New Jersey to sell unused amounts of NOL carryforwards and defined research
and development credits for cash. The tax value sold was $164,000 and the
proceeds received by the company were $131,000, which was recorded as an income
tax benefit in the statement of operations. In January 2002, gross state NOL
carryforwards totaling $3,682,000 were sold. The tax value sold was $331,000 and
the proceeds received by the company were $256,000. Accordingly, the company
reduced its valuation allowance by $256,000 at December 31, 2001. In November
2000, gross state NOL carryforwards totaling $5,650,000 were sold. The tax value
sold was $509,000 and the proceeds received by the company were $407,000.
A reconciliation of the company's income tax expense (benefit) at U.S.
federal statutory tax rates to recorded income tax provision is as follows:
2001 2000 1999
--------------------------------------------------------------------------------
Tax at U.S. statutory rates $(7,549,000) $(4,713,000) $(5,141,000)
State income taxes (1,319,000) (823,000) (898,000)
Sale/expiration of state NOL's 440,000 (71,000) 248,000
Other - (30,000) (16,000)
Valuation allowance recorded 8,041,000 5,230,000 5,807,000
--------------------------------------------------------------------------------
Recorded tax provision (benefit) $ (387,000) $ (407,000) $ -
================================================================================
Significant components of the company's federal deferred tax assets as of
December 31, 2001 and 2000 are as follows:
2001 2000
--------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $29,625,000 $21,930,000
Research and development credit carryforwards 1,610,000 1,610,000
Book over tax amortization 2,773,000 2,171,000
--------------------------------------------------------------------------------
Total deferred tax assets 34,008,000 25,711,000
Valuation allowance (33,752,000) (25,711,000)
--------------------------------------------------------------------------------
Net deferred tax assets $ 256,000 $ -
--------------------------------------------------------------------------------
Note 8 -- Commitments
Synaptic leases facilities under an agreement expiring on December 31, 2015
(the "lease").
Rent expense for the years ended December 31, 2001, 2000 and 1999
approximated $2,121,000, $1,895,000, and $1,749,000, respectively, and included
executory costs of $713,000, $524,000 and $579,000, respectively and deferred
rent charges of $281,000, $317,000 and $247,000, respectively.
49
As of December 31, 2001, future minimum annual payments under the lease,
inclusive of executory costs, are as follows:
2002 1,835,000
2003 1,835,000
2004 1,660,000
2005 1,912,000
2006 1,912,000
Thereafter 19,216,000
------------
Total $ 28,370,000
============
The company subleases 23,008 square feet of its premises to a
non-affiliated third party under an agreement expiring in 2010. The company also
subleases 2,500 square feet of its premises to a non-affiliated third party on a
month-to-month basis. During 2001 and 2000, the company recognized $495,000 and
$104,000, respectively, in rental income from these subleases, which is included
in other income. Additionally, under the non-cancelable portions of these
agreements, the company expects to recognize an aggregate of $4,556,000 in
rental income, inclusive of executory costs.
The company is party to a license agreement with Columbia University. Under
the terms of this agreement, the company received a worldwide nonexclusive
license under a patent issued in January 1991, which patent expires in 2008. The
company is committed under this agreement to pay royalties on future net sales
of products employing the technology or falling under claims of the patents
covered by this agreement.
Synaptic has a separation agreement with its President and Chief Executive
Officer that provides for severance payments of up to two years of base salary
upon appointment of a successor. Such payment is being accrued over the term of
the agreement. Additionally, upon the appointment of a successor, termination
without cause or fulfillment of the term of the agreement, the agreement calls
for immediate vesting of any unvested stock options then held by this executive,
except that upon termination without cause prior to the appointment of a
successor, an option to acquire 150,000 shares awarded in connection with
entering into the agreement will only vest as to 50% of such shares.
At December 31, 2001, the company had entered into agreements with its Vice
President for Research and its Vice President of Business Development that
provide for severance payments in amounts equal to 50% of annual base salary
upon the occurrence of certain events, including early termination and
termination upon a change in control, as defined. In addition to severance
payments, under certain circumstances, the agreement calls for immediate vesting
of any unvested stock options.
Note 9 -- Employee Benefit Plans
The company established a defined contribution employee retirement plan
(the "Plan") effective January 1, 1990, conforming to Section 401(k) of the
Internal Revenue Code ("IRC"). All eligible employees with six months service
may elect to have a portion of their salary deducted and contributed to the Plan
up to the maximum allowable limitations of the IRC. Synaptic matches 50% of each
participant's contribution up to the first 5% of annual compensation (as
defined) with a maximum employer contribution of 2.5% of a participant's
compensation. The company's matching portion, which amounted to approximately
$110,000, $117,000 and $133,000 for the years ended December 31, 2001, 2000 and
1999, respectively, vests over a six-year period.
50
The company currently provides medical, dental, long-term disability and
life insurance benefits for its full-time employees. The company does not
presently provide any post-retirement health benefits.
Note 10 - Quarterly Data (Unaudited)
The following tables present selected unaudited information relating to the
results of operations of the company for the past eight quarters.
(in thousands, except per share information)
2001
1st 2nd 3rd 4th Year
--------------------------------------------------------------------------------
Total revenues $ 370 $ 373 $ 374 $ 290 $ 1,407
Total expenses 5,803 5,844 6,282 7,681 25,610
Net loss applicable to
common stockholders (4,880) (4,992) (9,791) (6,455) (26,118)
--------------------------------------------------------------------------------
Basic and diluted
net loss per share
applicable to
common stockholders $ (.45) $ (.46) $ (.89) $ (.59) $ (2.39)
--------------------------------------------------------------------------------
2000
--------------------------------------------------------------------------------
Total revenues $ 214 $ 354 $2,903 $ 365 $ 3,836
Total expenses 4,503 5,014 5,306 5,389 20,212
Net loss applicable to
common stockholders (3,704) (4,094) (1,998) (4,063) (13,859)
--------------------------------------------------------------------------------
Basic and diluted
net loss per share
applicable to
common stockholders $ (.34) $ (.38) $ (.18) $ (.37) $ (1.28)
--------------------------------------------------------------------------------
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
51
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by reference
from the information under the captions "ELECTION OF DIRECTORS" and
"COMPENSATION AND OTHER INFORMATION CONCERNING OFFICERS, DIRECTORS AND CERTAIN
STOCKHOLDERS" contained in the Proxy Statement.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference
from the information under the caption "COMPENSATION AND OTHER INFORMATION
CONCERNING OFFICERS, DIRECTORS AND CERTAIN STOCKHOLDERS" contained in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference
from the information under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" contained in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference
from the information under the caption "COMPENSATION AND OTHER INFORMATION
CONCERNING OFFICERS, DIRECTORS AND CERTAIN STOCKHOLDERS" contained in the Proxy
Statement.
52
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
Reference is made to the Index to Financial Statements under Item 8, Part
II hereof.
(2) Financial Statement Schedules
The Financial Statement Schedules have been intentionally omitted either
because they are not required or because the information has been included in
the notes to the Financial Statements included in this Report on Form 10-K.
(3) Exhibits
Exhibit No. Description
----------- -------------------------------------------------------
3.1(a) Amended and Restated Certificate of Incorporation of
the Company, filed December 19, 1995 (incorporated by
reference to Exhibit 3.1(a) to the Company's Quarterly
Report on Form 10-Q filed for the quarter ended June
30, 1996, File Number 0-27324)
3.1(b) Certificate of Designations of Series A Junior
Participating Preferred Stock filed December 19, 1995
(incorporated by reference to Exhibit 3.1(b) to the
Company's Quarterly Report on Form 10-Q filed for the
quarter ended June 30, 1996, File Number 0-27324)
3.1(c) Certificate of Amendment of the Amended and Restated
Certificate of
Incorporation of the Company, filed June 5, 1996
(incorporated by reference to Exhibit 3.1(c) to the
Company's Quarterly Report on Form 10-Q filed for the
quarter ended June 30, 1996, File Number 0-27324)
3.1(d) Certificate of Designations, Number, Voting Powers,
Preferences and Rights of Series B Convertible
Preferred Stock and Series C Convertible Preferred
Stock of Synaptic Pharmaceutical Corporation dated as
of August 3, 2001 (incorporated by reference to Exhibit
3.1 to the Company's Current Report on Form 8-K filed
with the Commission on August 6, 2001, File No.
000-27324)
3.2 Amended and Restated By-Laws of the Company, filed
herewith
4.1 Specimen of Certificate of Common Stock of the Company
(incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form S-1, as
amended (File Number 33-98366), which became effective
on December 13, 1995)
4.2(a) Rights Agreement, dated as of December 11, 1995,
between the Company and Mellon Investor Services, LLC,
as Rights Agent (incorporated by reference to Exhibit
4.2 to the Company's Annual Report on Form 10-K filed
for the fiscal year ended December 31, 1995, File
Number 0-27324)
53
4.2(b) First Amendment to Rights Agreement, dated as of
October 19, 2001, between the Company and Chase Mellon
Shareholder Services, as Rights Agent (incorporated by
reference to Exhibit 4.2 to Amendment No. 2 to the
Company's Registration Statement on Form S-3 filed with
the Commission on February 13, 2002, File Number
333-71026)
*10.1 Research, Option and License Agreement dated as of
January 25, 1991, between the Company and Eli Lilly and
Company, as amended by Addendum dated as of January 1,
1995 (incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1, as
amended (File Number 33-98366), which became effective
on December 13, 1995)
10.2 1988 Amended and Restated Incentive Plan of the Company
(incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-1,as amended
(File Number 33-98366), which became effective on
December 13, 1995)
10.3 Form of Restricted Stock Purchase Agreement under the
1988 Amended and Restated Incentive Plan of the Company
(incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1, as
amended (File Number 33-98366), which became effective
on December 13, 1995)
10.4 Form of Incentive Stock Option Agreement under the 1988
Amended and Restated Incentive Plan of the Company
(incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1, as
amended (File Number 33-98366), which became effective
on December 13, 1995)
10.5 Form of Nonqualified Stock Option Agreement under the
1988 Amended and Restated Incentive Plan of the Company
(incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1, as
amended (File Number 33-98366), which became effective
on December 13, 1995)
10.6 License Agreement dated June 3, 1991, between the
Company and the Trustees of Columbia University in the
City of New York (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form
S-1, as amended (File Number 33-98366), which became
effective on December 13, 1995)
10.7 Employment Agreement dated as of April 6, 1995, between
the Company and Richard L. Weinshank (incorporated by
reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-1, as amended (File
Number 33-98366), which became effective on December
13, 1995)
10.8 Form of Indemnification Agreement between the Company
and each of its executive officers and directors
(incorporated by reference to Exhibit 10.25 to the
Company's Registration Statement on Form S-1, as
amended (File Number 33-98366), which became effective
on December 13, 1995)
54
10.9 1996 Incentive Plan of the Company, as amended and
restated on September 26, 2001 (incorporated by
reference to Annex C to the Company's Proxy Statement
filed on August 17, 2001, with respect to the Special
Meeting of Stockholders held on September 26, 2001,
File Number 000-27324)
10.10 Incentive Stock Option Agreement dated October 1, 1993,
between the Company and Kathleen P. Mullinix
(incorporated by reference to Exhibit 10.28 to the
Company's Registration Statement on Form S-1, as
amended (File Number 33-98366), which became effective
on December 13, 1995)
10.11 Incentive Stock Option Agreement dated as of March 21,
1996, between the Company and Kathleen P. Mullinix
(incorporated by reference to Exhibit 10.25 to the
Company's Quarterly Report on Form 10-Q filed for the
quarter ended March 31, 1996, Commission File Number
0-27324)
10.12 Incentive Stock Option Agreement dated as of March 21,
1996, between the Company and Robert L. Spence
(incorporated by reference to Exhibit 10.26 to the
Company's Quarterly Report on Form 10-Q filed for the
quarter ended March 31, 1996, Commission File Number
0-27324)
10.13 Nonqualified Stock Option Agreement dated as of March
21, 1996, between the Company and Richard L. Weinshank
(incorporated by reference to Exhibit 10.28 to the
Company's Quarterly Report on Form 10-Q filed for the
quarter ended March 31, 1996, Commission File Number
0-27324)
10.14 Form of Incentive Stock Option Agreement under the 1996
Incentive Plan (incorporated by reference to Exhibit
10.29 to the Company's Quarterly Report on Form 10-Q
filed for the quarter ended March 31, 1996, Commission
File Number 0-27324)
10.15 Form of Nonqualified Stock Option Agreement under the
1996 Incentive Plan (incorporated by reference to
Exhibit 10.30 to the Company's Quarterly Report
on Form 10-Q filed for the quarter ended March 31,
1996, Commission File Number 0-27324)
10.16 1996 Nonemployee Director Stock Option Plan of the
Company (incorporated by reference to Exhibit 10.33 to
the Company's Quarterly Report on Form 10-Q filed for
the quarter ended June 30, 1996, Commission File Number
0-27324)
10.17 Form of Stock Option Agreement under the 1996
Nonemployee Director Stock Option Plan of the Company
(incorporated by reference to Exhibit A attached to
Exhibit 10.33 to the Company's Quarterly Report on Form
10-Q filed for the quarter ended June 30, 1996,
Commission File Number 0-27324)
*10.18 Addendum No. 2 to Research, Option and License
Agreement dated as of October 31, 1996, between the
Company and Eli Lilly and Company (incorporated by
reference to Exhibit 10.35 to the Company's Annual
Report on Form 10-K filed for the fiscal year ended
December 31, 1996, Commission File No. 0-27324)
55
10.19 Incentive Stock Option Agreement dated as of December
13, 1996, between the Company and Kathleen P. Mullinix
(incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1996, Commission File
No. 0-27324)
10.20 Form of Incentive Stock Option Agreement dated as of
December 13, 1996, entered into between the Company and
each of Robert L. Spence and Richard L. Weinshank
(incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1996, Commission File
No. 0-27324)
10.21 Executive Employment Agreement effective as of October
1, 1997, between the Company and Dr. Kathleen P.
Mullinix (incorporated by reference to Exhibit 10.34 to
the Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1997, Commission File
No. 0-27324)
10.22 Lease Agreement dated November 19, 1997, between the
Company and ARE-215 College Road, LLC (assignee of
Century Associates), which became effective January 1,
1998 (incorporated by reference to Exhibit 10.35 to the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1997, Commission File
No. 0-27324)
10.23 Amended and Restated Employment Agreement dated as of
January 1, 1998, between the Company and Robert L.
Spence (incorporated by reference to Exhibit 10.37 to
the Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1997, Commission File
No. 0-27324)
*10.24 Cooperation Agreement dated as of January 12, 1998,
between the Company and Grunenthal GmbH (incorporated
by reference to Exhibit 10.38 to the Company's Annual
Report on Form 10-K filed for the fiscal year ended
December 31, 1997, Commission File No. 0-27324)
*10.25 Option and License Agreement dated as of March 2, 1998,
between the Company and Glaxo Group Limited
(incorporated by reference to Exhibit 10.41 to the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1997, Commission File
No. 0-27324)
10.26 Employment Agreement dated as of April 1, 1998, between
the Company and Theresa A. Branchek (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q filed for the quarter ended March
31, 1998, Commission File Number 0-27324)
10.27 Incentive Stock Option Agreement dated as of May 12,
1998, between the Company and Theresa A. Branchek
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q filed for the
quarter ended June 30, 1998, Commission File Number
0-27324)
10.28 Nonqualified Stock Option Agreement dated as of May 12,
1998, between the Company and Theresa A. Branchek
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q filed for the
quarter ended June 30, 1998, Commission File Number
0-27324)
56
10.29 Amendment No. 1 to Cooperation Agreement between the
Company and Grunenthal GmbH (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q filed for the quarter ended September 30,
1998, Commission File Number 0-27324)
10.33 First Amendment to Lease dated as of November 25, 1998,
between ARE-215 College Road, LLC, and the Company
(incorporated by reference to Exhibit 10.45 to the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1998, Commission File
No. 0-27324)
10.31 Addendum No. 3 to Research, Option and License
Agreement effective as of January 1, 1999, between the
Company and Eli Lilly and Company (incorporated by
reference to Exhibit 10.47 to the Company's Annual
Report on Form 10-K filed for the fiscal year ended
December 31, 1998, Commission File No.
0-27324)
10.32 Stock Purchase Agreement dated as of August 2, 2001,
between the Company and each of the purchasers named in
Exhibit A of such Agreement (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form
8K filed with the Commission on August 6, 2001, File
No. 000-27324)
10.33 Separation Agreement, dated as of November 26, 2001,
between the Company and Dr. Kathleen P. Mullinix,
filed herewith
10.34 Nonqualified Stock Option Agreement, dated as of
November 26, 2001, between the Company and Dr. Kathleen
P. Mullinix, filed herewith
23.1 Consent of Independent Auditors, Ernst & Young LLP,
filed herewith
24 Powers of Attorney, filed herewith
* Portions of this Exhibit have been redacted and confidential treatment
thereof has been granted by the Securities and Exchange Commission. An
unredacted copy of this exhibit as been submitted on a confidential basis to the
Commission.
(b) Reports on Form 8-K
On November 27, 2001, we filed a Current Report on Form 8-K stating that we
had issued a press release announcing the implementation of a CEO succession
plan.
Supplemental Information
We will furnish copies of our Proxy Statement and copies of the forms of
proxy to be used at our annual meeting of stockholders to be held on May 9,
2002, to the Securities and Exchange Commission at the time we distribute them
to our stockholders.
Prozac(R) and Actos(R) are registered trademarks of Eli Lilly & Company.
Paxil(R) and Avandia(R) are registered trademarks of Glaxo SmithKline. Zoloft(R)
is a registered trademark of Pfizer. Celexa(R)is the registered trademark of
Forest Pharmaceuticals. Meridia(R) is a registered trademark of Abbott
Laboratories. Rezulin(R) is a registered trademark of Warner Lambert. Prandin(R)
is a registered trademark of Novo Nordisk. Glucophage(R) is a registered
trademark of Bristol-Myers Squibb. Precose(R) is a registered trademark of Bayer
Corporation. All other brand names or trademarks appearing in this report are
the property of their respective owners.
57
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SYNAPTIC PHARMACEUTICAL CORPORATION
Date: March 18, 2002 By: /s/ Kathleen P. Mullinix
----------------------------------------
Name: Kathleen P. Mullinix
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Signature Title Date
--------------------------- -------------------------------- --------------
/s/ Kathleen P. Mullinix President and
--------------------------- Chief Executive Officer March 18, 2002
Kathleen P. Mullinix, Ph.D.
/s/ Edmund M. Caviasco Controller
--------------------------- (Principal Accounting Officer) March 18, 2002
Edmund M. Caviasco
* Director March 18, 2002
---------------------------
Stewart J. Hen
* Director March 18, 2002
---------------------------
Zola P. Horovitz, Ph.D.
* Director March 18, 2002
---------------------------
Jonathan S. Leff
* Director March 18, 2002
---------------------------
John E. Lyons
* Director March 18, 2002
---------------------------
Patrick J. McDonald
* Director March 18, 2002
---------------------------
Alison Taunton-Rigby, Ph.D.
* Director March 18, 2002
---------------------------
Robert L. Zerbe, Ph.D.
* By: /s/ Kathleen P. Mullinix
-------------------------------
Name: Kathleen P. Mullinix, Ph.D.
Title: Attorney-in-Fact
58