-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RYcxU3XZLNQtU7tqRi2e60mUEDrepyMVEE7X0otna8vByViUEsHx15ZJ2r23iR0A Q+dsEgZKdR01tNPgTyteGg== 0000950005-96-000781.txt : 19981229 0000950005-96-000781.hdr.sgml : 19981229 ACCESSION NUMBER: 0000950005-96-000781 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 DATE AS OF CHANGE: 19981228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEUROBIOLOGICAL TECHNOLOGIES INC /CA/ CENTRAL INDEX KEY: 0000918112 STANDARD INDUSTRIAL CLASSIFICATION: 2836 IRS NUMBER: 943049219 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-23280 FILM NUMBER: 96636966 BUSINESS ADDRESS: STREET 1: 1387 MARINA WAY S CITY: RICHMOND STATE: CA ZIP: 94804 BUSINESS PHONE: 5102158000 MAIL ADDRESS: STREET 1: 1387 MARINA WAY SOUTH CITY: RICHMOND STATE: CA ZIP: 94804 10KSB 1 FORM 10KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1996 Commission file number 0-23280 NEUROBIOLOGICAL TECHNOLOGIES, INC. (Name of small business issuer as specified in its charter) Delaware 94-3049219 (State of incorporation) (IRS Employer Identification No.) 1387 Marina Way South Richmond, California 94804 (Address of principal executive offices) (510) 215-8000 (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 $.001 Par Value (Title of class) Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation SB contained herein, and no disclosure will be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X Registrant's revenues for its most recent fiscal year were $506,242. As of June 30, 1996, the Registrant had 6,512,485 shares of Common Stock, $.001 par value, outstanding, and the aggregate market value of the shares held by non-affiliates on that date was $43,145,213 based upon the last sale price of the Issuer's Common Stock reported on the Nasdaq National Market. DOCUMENTS INCORPORATED BY REFERENCE Items 9 through 12 of Part III incorporate by reference information from the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on November 14, 1996. PART I ITEM 1. BUSINESS Overview Neurobiological Technologies, Inc. ("NTI" or the "Company") is a biopharmaceutical company identifying and developing potential therapeutic products based on advances in neuroscience research. NTI's strategy is to in-license drug candidates that target major medical needs, have shown clear evidence of preclinical efficacy and safety, and appear to have a clear path through clinical testing and regulatory approval. NTI's experienced management team then focuses on the drug development and clinical testing necessary to bring its drug candidates to commercialization. The Company is currently evaluating three drug candidates in human clinical trials: Corticotropin-Releasing Factor ("CRF") is a natural human peptide which the Company believes has novel anti-inflammatory properties. CRF is being evaluated for its ability to reduce edema (swelling) resulting from brain tumors, and to reduce the inflammation associated with rheumatoid arthritis. The Company is currently conducting a double blind, placebo-controlled Phase II trial in patients with rheumatoid arthritis. The Company has completed Phase I/II trials of CRF in patients with brain tumors, and expects to begin a follow-on Phase II trial in fiscal 1997. Dynorphin A is a natural human peptide being developed for its ability to provide relief from severe pain. Dynorphin A initially is being evaluated as an adjunct to morphine and other opiates for the management of chronic and acute severe pain. The Company has conducted preliminary studies which showed that Dynorphin A, when administered in conjunction with morphine, lowered the amount of morphine needed to obtain an analgesic effect. An adjunct to morphine allowing lower doses of opioid may also reduce the severity and frequency of opioid-related adverse side effects, including respiratory depression, sedation, and mental confusion. Memantine is being evaluated as a potential neuroprotectant drug therapy for the treatment of injured and dying neurons. Memantine is an orally available compound which acts to modulate the N-methyl-D-aspartate (NMDA) receptor in the central nervous system. Modulating the NMDA receptor may protect against neuronal injury and death associated with a number of conditions, including both chronic conditions of neuropathic pain, dementia, and Alzheimer's disease, as well as acute conditions of traumatic brain injury and stroke. The Company is initially planning to evaluate Memantine for the treatment of neuropathic pain and AIDS dementia and currently is conducting a Phase I pharmacokinetics trial of Memantine in normal volunteers and in AIDS patients. The Company is also sponsoring research by leading neuroscientists to synthesize and test novel neuroprotective compounds. Strategy NEW PRODUCT SOURCING The Company identifies new product opportunities through its network of research scientist collaborators and stockholders. With its Scientific Advisory Board, the Company regularly evaluates new product opportunities which may be useful in a variety of medical applications. Early access to research in the fields of neuropharmacology, endocrinology, and immunology has led to the identification of the Company's lead products and continues to be the Company's primary source of new product opportunities. The compounds selected for further commercialization are those that the Company believes target major medical needs, can be rapidly commercialized, and for which the Company can obtain proprietary rights. PRODUCT DEVELOPMENT After it selects a compound for clinical evaluation, the Company implements a development plan designed to maximize the chances for rapid regulatory approval. The Company combines the drug discovery and development experience of its management team and staff with the expertise of its Scientific Advisory Board to manage product development, relying primarily upon third-party contractors to carry out manufacturing, preclinical, and clinical development. These contractors are selected because they have the experience and qualifications necessary to conduct the required studies to the standards of the Company and the Food and Drug Administration ("FDA"). The Company also intends to establish arrangements for the manufacture, packaging, labeling and distribution of any products approved for marketing. FUTURE COMMERCIALIZATION As the Company continues its product development and commercialization efforts, it is seeking to enter into corporate alliances, which may include the granting of licenses and marketing rights for selected products in certain geographic regions and markets. Through alliances, the Company may seek to secure additional funding for the continued clinical development of its potential products, to secure potential long term revenue through royalty or profit sharing arrangements, to obtain assistance with foreign regulatory approvals and to capitalize on the technical, development, production, and marketing capabilities of its potential collaborators. Although the Company is currently seeking corporate development partners for its drug candidates, there can be no assurance that any alliances will be entered into on terms acceptable to the Company, or if alliances are entered into, that they will be successful. Products in Development ================================================================================ MCORTICOTROPIN-RELEASING FACTORM ================================================================================ CRF is a natural neuroendocrine peptide hormone found both centrally (within the brain) and peripherally (outside the brain). CRF was originally discovered to be a key brain hormone involved in stimulating the release of natural corticosteroids, which modulate the body's immune system and inflammatory response. Much of the ensuing research on CRF has been related to the activity of CRF within the brain. Recently, the importance of CRF receptors outside the brain has also been recognized. Research by an NTI scientist collaborator revealed that CRF inhibited the acute inflammatory response associated with a variety of forms of physical trauma. In response to tissue damage, small blood vessels become permeable, leading to the leakage of fluid, plasma proteins, and white blood cells into the surrounding tissues, which causes swelling, a condition referred to as edema. This fluid leakage is primarily due to the release of inflammatory mediators that appear to facilitate the opening of spaces between the endothelial cells lining the blood vessels. CRF appears to inhibit acute vascular leakage by acting on the endothelial and epithelial cells lining and surrounding the blood vessels near the site of tissue damage. Preclinical studies sponsored by the Company have shown that CRF reduces the leakage of fluids through blood vessels at sites of tissue injury produced by trauma and inhibits the cascade of inflammation in several animal models of inflammatory disease. Specifically, the Company has shown that CRF injected systemically into animals can reduce brain edema after injury, brain edema associated with cancer tumors, inflammation associated with arthritis, and swelling in muscle tissue following surgical incision. A therapeutic agent that inhibits edema associated with inflammation would be valuable in the treatment of many kinds of injury and illnesses, some that are life threatening. These include tumor associated edema, traumatic brain injury, certain forms of stroke, rheumatoid arthritis, cosmetic and reconstructive surgery, neurosurgery, and burns and other wounds. Current therapies for these conditions, including corticosteroids, are in many cases inadequate or have serious adverse side effects. These side effects can include muscle wasting, immunosuppression, osteoporosis, hyperglycemia, glaucoma, and other potentially dose limiting side effects. Although CRF functions naturally to regulate the release of natural corticosteroids, studies sponsored by the Company have shown that CRF exerts its anti-inflammatory action independent of corticosteroid release. The Company believes, based on CRF's pharmacological profile, that CRF may be efficacious without the adverse side effects associated with current therapies. CRF has been safely administered to several hundred healthy volunteers and patients as reported in numerous studies published by third parties. In early human clinical trials sponsored by the Company in over 200 patients, CRF was well tolerated and appeared to be safe. PRODUCT DEVELOPMENT STATUS Based on observations of CRF's action in several animal models of various medical conditions, the Company has commenced clinical trials in a number of indications including cerebral edema, rheumatoid arthritis, and tissue damage from surgical incision. Cerebral Edema Cerebral edema is swelling in the brain, a serious complication commonly associated with a number of medical conditions, including brain tumors, head injury, and stroke. The Company is initially testing CRF for the treatment of cerebral edema caused by brain tumors (peritumoral brain edema). In these patients, the tumor promotes increased permeability of the small blood vessels in the brain, resulting in the leakage of fluids into the brain, swelling of brain tissue, and a consequent loss of neurological function. The Company has completed two Phase I/II pilot trials of CRF in patients with peritumoral brain edema. In these trials, CRF was well tolerated and appeared to improve neurological function by 42% in seven patients who were treated for seven days by continuous infusion. Based on these results, we are in the process of designing a larger Phase II trial planned to begin later this fiscal year. In addition to the current clinical program for peritumoral edema, the Company is also pursuing a pre-clinical research effort to assess CRF's potential to reduce cerebral edema associated with traumatic brain injury. In traumatic brain injury, nerve tissue, blood vessels and the tissues surrounding the brain are damaged. This damage results in swelling, subsequent decreased flow of blood to the brain and decreased brain function. In addition, edema increases pressure inside the skull, which can lead to the fatal rupture of brain tissue through naturally occurring openings at the base of the skull. A stroke occurs when a blood vessel becomes obstructed, restricting blood flow into or within the brain. When brain blood-flow drops below a certain threshold, brain tissue dies and edema occurs. The degree of edema is roughly proportional to the amount of brain tissue affected. As with head injuries, edema following stroke promotes further neurologic damage and may lead to fatal rupture of brain tissue. Rheumatoid Arthritis Rheumatoid arthritis ("RA") is a chronic inflammatory disorder characterized by pain, swelling and damage to the body's joints. The onset of RA may either be acute, resulting in pain, swelling, and redness of multiple joints, or chronic, resulting in gradual onset of symptoms preceding overt arthritis by several months. As the disease progresses, joint pain and swelling result in functional impairment and disability. The currently available therapies are not completely effective and their chronic use is often associated with serious toxicities. The Company's preclinical results demonstrated that CRF has potent anti-inflammatory properties that may be useful for the treatment of RA. The Company believes CRF's ability to inhibit microvascular leakage may limit the migration of inflammatory cells and the flow of inflammatory molecules into the rheumatic joint, and thus reduce the swelling and tissue damage associated with the condition. The Company completed a pilot Phase I/II clinical trial in December 1995. In this trial, CRF was well tolerated and appeared to reduce joint inflammation and pain in the five evaluable patients. In March 1996, the Company announced the start of a 100 patient double-blind placebo-controlled Phase II trial in RA patients. This trial, conducted in several centers throughout the country, is designed to evaluate CRF's potential to reduce joint inflammation. The protocol calls for self administration of CRF or placebo once a day for 14 days. Improvement measures include tender joint count, swollen joint count, and several other criteria defined by the American College of Rheumatology. The Company expects to complete enrollment of patients in this trial in September 1996. Cosmetic and Reconstructive Surgery Tissues injured by surgery may manifest all of the classical aspects of inflammation, including swelling and pain. Such post-surgical symptoms are generally treated with analgesics and occasionally corticosteroids. The Company has completed a Phase I/II trial designed to evaluate the effect of CRF on the swelling associated with blepharoplasty, a cosmetic surgery that removes excess skin and fat from the area around the eyelids. The Company used this indication as a model for the treatment of a number of other potential cosmetic and reconstructive surgical applications. The results of this trial demonstrated that CRF is safe and well tolerated when used as a single-dose treatment for post-surgical facial swelling. In addition, all CRF treatment groups experienced reduced average post-surgical swelling compared to placebo. Due to the relatively small number of subjects tested and the large variability between subjects, statistical significance was not achieved. The Company is seeking a partner before developing this indication further. Additional Indications Because of the anti-inflammatory action of CRF, the Company has in the past investigated various other potential indications. During 1995, the Company initiated two clinical trials of CRF in patients with asthma. The results of these trials showed that there was no statistically significant difference in improvement of asthma symptoms between those who received treatment compared to those who received placebo. The results may have been in part due to the short duration of treatment, and the Company is currently evaluating different treatment regimens in asthma patients. Second Generation Anti-Inflammatory Product The Company is engaged in the synthesis and exploration of a family of small peptide analogues of CRF. The objective of this research is to generate a second generation orally active anti-inflammatory product having CRF's pharmacological activity to expand CRF's clinical and market potential. ================================================================================ MDYNORPHIN AM ================================================================================ Dynorphin A is a natural human peptide being evaluated for its ability to provide analgesia for severe pain. The Company has conducted several clinical trials of Dynorphin A to evaluate its potential to enhance the analgesia provided by opioids (generally morphine) in patients with severe pain. The Company has evaluated Dynorphin A as an adjunct to morphine in both the acute and chronic severe pain settings. In these preliminary trials, patients who were administered Dynorphin A as an adjunct to opioid used substantially less morphine and experienced comparable pain relief. Morphine, first prescribed in the nineteenth century, remains one of the most effective analgesics available, and is the standard by which other opioid analgesics are evaluated. Morphine and other opioids are used as analgesics for relief of both acute and chronic severe pain. However, opioids are associated with adverse side effects which can be dose limiting. Opioid side effects include respiratory depression, nausea, sedation, and constipation. The Company believes that administration of Dynorphin A as an adjunct to morphine in order to lower the amount of opioid needed to provide analgesia may provide significant clinical benefit to patients whose pain is insufficiently relieved by chronic opioid therapy, or who wish to avoid the adverse side effects. In preclinical studies, Dynorphin A has been shown to restore morphine induced analgesia when used in conjunction with morphine in animals tolerant to morphine. In addition, the Company and its collaborators have discovered that certain Dynorphin A peptides can provide analgesia by mechanisms different than those commonly associated with opioids. In animal studies, these peptides provided analgesia when administered systemically in the absence of opioids, with potency similar to that of morphine. The Company has developed a synthetic version of Dynorphin A [Dynorphin A-(1-13)], which has been evaluated in several human clinical trials for its potential analgesic effect. In these trials, Dynorphin A has been well tolerated and has not caused sedation or mental confusion. Chronic Pain Morphine and other opioids are used as long term medications for the relief of chronic pain, such as back pain or pain induced by cancer and cancer therapies. Over time, pain may increase and the body may develop a tolerance to opioids, leading to the need for progressively higher doses to maintain the same degree of pain relief. Drawing on the preclinical data that Dynorphin A restores morphine induced analgesia in animals tolerant to morphine, the Company has conducted three clinical trials in patients with chronic severe pain. During the past year, the Company concluded a pilot Phase II study of Dynorphin A in nine chronic pain patients. In this trial, patients were given 50% of their normal maintenance dose of morphine followed by either Dynorphin A or placebo. Dynorphin A appeared to be more effective than placebo in providing pain relief and extended the period before patients re-medicated with morphine. Acute Pain Opioids are also used as short term analgesics to provide relief of acute pain. However, opioids can produce a number of undesirable central nervous system side effects. The most dangerous side effect is respiratory depression, which may occur in patients following administration for post-surgical pain. An adjunct to opioids that would allow lower doses of opioid while maintaining satisfactory pain relief may have the potential to reduce the frequency and severity of adverse opioid side effects. To evaluate the potential of Dynorphin A to maintain satisfactory analgesia in combination with a reduced use of morphine, the Company has conducted a double-blind, placebo-controlled Phase II trial in patients with post-surgical severe pain. In this trial, Dynorphin A or placebo was administered intravenously to 31 patients four times over a 24-hour period following hip or knee replacement surgery. During the trial, patients were free to self-administer morphine and the amount of morphine used by each patient was recorded. A primary endpoint of the trial was the amount of morphine required to maintain sufficient pain relief. The results of this trial showed that Dynorphin A reduced the amount of morphine required to adequately manage post-operative pain. The median total morphine usage by patients receiving placebo was 44% greater than for patients receiving Dynorphin A. Ongoing research The Company has an active research program to investigate the potential therapeutic uses of Dynorphin A peptides. As a part of this research effort, scientists are investigating the mechanism of action of Dynorphin A. In animal studies, Dynorphin A has been shown to relieve pain as a single agent by mechanisms distinct from morphine and other opioids. The Company continues to evaluate this finding and to search for the receptor associated with Dynorphin A. ================================================================================ MMEMANTINEM ================================================================================ Memantine is a compound in a class of potential neuroprotective agents called NMDA receptor antagonists. Recent research has indicated that modulating the NMDA receptor may protect against neuronal injury and death associated with a number of medical conditions. Increasing evidence from several independent research laboratories indicates that overstimulation of NMDA receptors contributes to the injury and death of neurons in a variety of acute neurological conditions, including traumatic brain injury, hypoxic/ischemic injury secondary to stroke and prolonged open heart or brain surgery, as well as chronic neurodegenerative diseases, including neuropathic pain, dementia, Alzheimer's disease, Huntington's disease, and Amyotrophic Lateral Sclerosis. There are currently no neuroprotective treatments approved for any of the pathologies associated with NMDA receptor overstimulation. Nerve cells in the brain communicate by sending signals to excite or inhibit each other. These signals are sent by compounds known as neurotransmitters. The principal excitatory neurotransmitter is glutamate, which binds to the NMDA receptor embedded in the cell membrane of the neuron. When glutamate binds to the receptor, a channel into the neuron opens through which charged calcium molecules flow. Normally, the presence of calcium triggers chemical reactions that cause the neuron to change its electrical charge and fire a message to neighboring neurons. This basic function of the NMDA receptor is essential for movement, sensation, memory, and cognition. In certain medical conditions, glutamate levels surrounding neurons are elevated, which has the effect of overstimulating the NMDA receptor, causing the calcium channel to remain open for too long. In these situations, excessive amounts of calcium enter the neuron, causing it to swell and burst, releasing internal stores of glutamate into the surrounding area. This glutamate further stimulates NMDA receptors on neighboring neurons, causing a cascade of neuronal cell death throughout the area. Scientists are now trying to find a way to prevent the damaging influx of excess calcium into neurons. One approach is to prevent glutamate from binding to the receptor, which can be accomplished by using a blocker, otherwise known as a competitive NMDA receptor antagonist. If such an antagonist interferes with the binding process for too long, it may impede the normal functioning of the NMDA receptor, causing side effects including hallucinations, paranoia, delirium, and amnesia. Memantine, on the other hand, is a non-competitive NMDA receptor antagonist which may interfere relatively little with normal functioning, while reducing the abnormal signals associated with excessive calcium influx. PRODUCT DEVELOPMENT STATUS Neuropathic Pain Neuropathic pain is associated with a type of injury to neurons that produces abnormal pain signals, and frequently includes persistent pain in the absence of an obvious stimulus. The condition includes pain resulting from irritation or injury to peripheral nerves and destruction of terminals of small nerves as a result of diabetes and chemotherapeutic neuropathies. In diabetic patients, high levels of blood sugar may damage nerves which transmit pain signals, leading to the experience of neuropathic pain. Current treatments for this condition are limited, and may only provide short term benefit. NMDA receptor stimulation appears to be an important mechanism contributing to neuropathic pain. Memantine has inhibited abnormal pain signals through its modulation of the NMDA receptor in several animal models of neuropathic pain. Based on the results of these studies, the Company is planning a trial to evaluate Memantine for the treatment of neuropathic pain. AIDS Recent research indicates that infection of the central nervous system with HIV, the virus associated with AIDS, initiates the overstimulation of NMDA receptors, leading to neuronal damage. Such damage may result in an assortment of neurological complications, including loss of cognition, movement and sensation, referred to as AIDS dementia. Approximately one-half of children and one-third of adults with AIDS eventually develop these symptoms. There are currently no therapies specifically directed towards HIV-associated neuronal damage. Many AIDS patients may also experience painful peripheral neuropathies due to overstimulation of the NMDA receptors. A predominantly sensory neuropathy occurs in the later stages of AIDS, which results in a burning pain of the feet and pain from anything that touches the skin. Walking in particular may become extremely difficult. Effective treatments are still unavailable for this incapacitating condition, and anti-retroviral therapy for AIDS may unmask or potentiate this type of neuropathic pain. Memantine has been shown to reduce NMDA receptor-mediated neuronal damage in both in vitro experiments as well as animal models. The neuronal injury caused by AIDS was shown to be modified by antagonists of the NMDA receptor, including Memantine. The Company is now conducting a Phase I clinical trial to verify the safety and pharmacokinetics (serum half-life) of Memantine in AIDS patients and healthy volunteers. In the second quarter of this fiscal year, NTI expects to begin a Phase II clinical trial in collaboration with the Division of AIDS of the National Institutes of Health to evaluate the ability of Memantine to provide relief from dementia and neuropathic pain symptoms in AIDS patients. The trial protocol submitted under our Investigational New Drug application recently allowed by the Food and Drug Administration calls for the enrollment of 120 AIDS patients with painful peripheral neuropathies and symptoms of dementia, all of whom will have been treated with an FDA-approved anti-retroviral drug for at least eight weeks prior to study entry. The Division of AIDS plans to conduct the clinical trial, and the Company will supply Memantine and have the exclusive right to use the resulting data for commercialization. AIDS Dementia The Division of AIDS trial will evaluate Memantine's ability to ameliorate dementia in AIDS patients. Memantine's efficacy in reducing neurological symptoms associated with AIDS dementia will be evaluated by assessing the patients' neuropsychological function and quality of life. Neuroprotection Research Program The Company has initiated a research program directed toward the identification of novel neuroprotective compounds. The Company is sponsoring research by leading neuroscientists to discover novel NMDA receptor antagonists. ================================================================================ MADDITIONAL PRODUCT OPPORTUNITIESM ================================================================================ The Company's network of scientist stockholders and collaborators has been instrumental in identifying new product opportunities for evaluation by NTI. In addition to the current products under clinical development, several other possible product opportunities are being considered by the Company for future development. Patents and Proprietary Technology Patents and other proprietary rights are critical to the Company's business. The Company's policy is to file patent applications seeking to protect technology, inventions and improvements to its inventions that are considered important to the development of its business. The Company has also sought, and intends to continue to seek, to obtain licenses from third parties to patent rights covering the technology, inventions and improvements that the Company considers important to the development of its business. The Company is obligated to pay royalties pursuant to these license agreements and is responsible for the costs of patent prosecution of a number of the patent applications to which it has exclusive licenses. In addition, most of the license agreements can be terminated by the licensor if the Company does not demonstrate diligence in commercializing the licensed rights. The Company may be required to obtain additional licenses from third parties in order to continue to develop its existing product candidates and to expand its product development program. There can be no assurance that such licenses will be available on commercially reasonable terms, if at all. The patent positions of pharmaceutical and biotechnology companies, including NTI, are uncertain and involve complex legal and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before a patent is issued. Consequently, the Company does not know whether any of its patent applications, or the patent applications it has licensed from others, will result in the issuance of patents or if any of the patents which have issued or may issue will provide significant proprietary protection. Since patent applications are maintained in secrecy until patents are issued in the United States or their foreign counterparts, if any, are published, the Company cannot be certain that it or any licensor was the first to file patent applications for such inventions. Moreover, the Company might have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial cost to the Company, even if the eventual outcome were favorable. There can be no assurance that the Company's patents, or the patents which the Company has licensed, will be held valid or enforceable by a court or that a competitor's technology or product would be found to infringe such patents. A number of pharmaceutical and biotechnology companies and research and academic institutions have developed technologies, filed patent applications or received patents on various technologies that may be related to the Company's business. Some of these technologies, applications or patents may conflict with the Company's or any of its licensors' technologies or patent applications. Such conflict could limit the scope of the patents, if any, that the Company may be able to obtain or to which it has a license or result in the denial of the Company's patent applications or the patent applications which the Company has licensed. In addition, if patents that cover the Company's activities have been or are issued to other companies, there can be no assurance that the Company would be able to obtain licenses to these patents, at all, or at a reasonable cost, or be able to develop or obtain alternative technology. In addition to patent protection, the Company relies upon trade secret protection for its confidential and proprietary information. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets or disclose such technology or that the Company can meaningfully protect its trade secrets. CRF The Company has a non-exclusive worldwide license to issued U.S. patents and U.S. patent applications covering the composition of matter of CRF and various CRF analogues, together with the corresponding foreign patents and patent applications. The Company also has exclusive rights to patents and patent applications covering uses of CRF and analogues of CRF. In addition, the Company has an exclusive worldwide license to patents and a patent application covering novel peptide analogues of CRF. The Company is responsible for the costs of prosecuting the patent applications related to CRF for which it has exclusive licenses. In addition to the patents and pending applications the Company has licensed from others, the Company has filed a use patent application related to CRF. Dynorphin A The Company holds licenses to patents covering the composition of matter of Dynorphin A, as well as analogues and fragments of Dynorphin A. The Company also has exclusive licenses to patents covering certain uses of dynorphins and has a pending application for the use of fragments of Dynorphin A in direct peripheral non-opioid pain relief. Memantine The Company has an exclusive license to a series of patents and patent applications relating to certain non-ophthalmic uses of Memantine. Certain of these patents and patent applications cover the use of antagonists of NMDA receptor mediated neuronal damage to treat AIDS-related neuronal damage. Memantine and similar compounds are generally considered to be such compounds. In addition, certain of these patents and patent applications cover the use of Memantine for certain other medical indications, including peripheral neuropathy. The Company also has an option to license exclusively any patentable compounds or combination of compounds discovered in the course of the research the Company is sponsoring at Children's Hospital of Boston, Massachusetts. Manufacturing NTI currently uses outside contractors to manufacture compounds for the Company's preclinical studies and clinical trials. The manufacturers of clinical products have represented to the Company that they are qualified to produce drugs under FDA regulations and that they follow current Good Manufacturing Practice requirements ("cGMP") prescribed by the FDA. The Company performs audits on manufacturers from time to time to assess compliance with the cGMP regulations. Dynorphin A, CRF, and Memantine are manufactured by established methods using chemical synthesis and are manufactured to NTI specifications. Alternative cGMP suppliers of the bulk drugs and of finished dosage form products are available to the Company. The Company currently has no plans to build or develop an in-house manufacturing capability. The Company has agreed in one of its Dynorphin A license agreements that, under certain limited circumstances, it would use a manufacturing facility affiliated with the licensor to manufacture the compounds licensed thereunder. Government Regulation Regulation by governmental authorities in the United States and other countries will be a significant factor in the production and marketing of any products which may be developed by the Company. The nature and the extent to which such regulation may apply to the Company will vary depending on the nature of any such products. All of the Company's products will require regulatory approval prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical and clinical testing and other FDA requirements in the United States and similar health authorities in foreign countries. Various federal and, in some cases, state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, recordkeeping and marketing of such products, including the use, manufacture, storage, handling and disposal of hazardous materials and certain waste products. The process of obtaining these approvals and the subsequent compliance with appropriate federal, state and foreign statutes and regulations require the expenditure of substantial resources. The Company cannot yet accurately predict when it might first submit for approval any products to the FDA or other regulatory review agency. In order to test clinically, produce and market products for diagnostic or therapeutic use, a company must comply with mandatory procedures and safety standards established by the FDA and comparable agencies in foreign countries. Before beginning human clinical testing of an investigational new drug in the United States, a company must file an IND and receive no objection from the FDA. This application contains a summary of the chemistry and manufacturing information and of the preclinical studies which were carried out to characterize the drug, including toxicity and safety, as well as an in-depth discussion of the human clinical studies which are being proposed. The human clinical testing program required for approval by the FDA of an investigational new drug typically involves a time-consuming and costly three-phase process. In Phase I, clinical trials are conducted with a small number of patients or healthy volunteers to determine the early safety profile and the pattern of drug distribution and metabolism. Phase II clinical trials are conducted with groups of patients afflicted with a target disease in order to determine preliminary efficacy, optimal dosage and expanded evidence of safety. When initial human testing is performed in patients afflicted with the disease, rather than healthy volunteers, such studies may provide preliminary evidence of efficacy traditionally obtained in Phase II trials. Such trials are frequently referred to as "Phase I/II" trials. In Phase III, large-scale, multi-center, comparative clinical trials are conducted with patients afflicted with the specific disease in order to provide enough data for statistical proof of efficacy and safety required by the FDA and non-U.S. regulatory agencies. Clinical trials may be sponsored by a company or be "investigator-sponsored." An investigator-sponsored clinical trial is defined as a clinical trial conducted by an investigator under an IND issued in such investigator's own name, rather than in a company's name. The FDA closely monitors the progress of each of the three phases of clinical testing and may, at its discretion, reevaluate, alter, suspend or terminate the testing based on the data which have been accumulated to that point and its assessment of the risk/benefit ratio to the patient. Estimates of the total time required for carrying out such clinical testing vary between two and ten years. Upon completion of such clinical testing, a company typically submits a New Drug Application ("NDA") to the FDA which summarizes and analyzes the results and observations of the clinical trials. The NDA also provides detailed manufacturing information. Based on its review of the NDA, the FDA will decide whether or not to approve the drug. This review process can be quite lengthy, and approval may not be granted at all. Thus, the process of seeking and obtaining approval for the marketing of a new pharmaceutical product can require a number of years and substantial funding. There can be no assurance that any approvals will be granted on a timely basis, if at all. Among the requirements for product approval is the requirement that each domestic manufacturer of the product conform to the FDA's cGMP regulations, which must be followed at all times. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the area of production and quality control to ensure full technical compliance. Once the sale of a product is approved, FDA regulations govern the manufacturing process and marketing activities, and a post-marketing testing and surveillance program may be required to continuously monitor a product's usage and effects. Product approvals may be withdrawn if compliance with regulatory standards is not maintained. Other countries, in which any products developed by the Company may be marketed, impose a similar regulatory process. For marketing outside the United States, the Company also is subject to foreign regulatory requirements governing human clinical trials and marketing approval for drugs. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. Competition Competition in the biopharmaceutical industry is intense and is expected to increase. The development and sale of drugs for the treatment of the therapeutic targets being pursued by the Company is highly competitive. There are existing therapies approved and under development for each of these therapeutic targets. There can be no assurance that the Company will develop products that will be as efficacious or as cost-effective as currently-marketed products. The Company has exclusive licenses to patent rights covering certain uses of CRF, Memantine, and Dynorphin A. However, certain of the Company's licenses for CRF, Memantine, and Dynorphin A are non-exclusive and there is no composition of matter patent in the United States for Memantine. Consequently, others may develop, manufacture and market products that could compete with those being developed by the Company. The Company will be faced with intense competition from pharmaceutical, chemical and biotechnology companies both in the United States and abroad in its attempt to discover, develop and market such drugs. Companies that complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before their competitors may achieve a significant competitive advantage. In addition, significant levels of research in biotechnology and medicine occur in universities and other nonprofit research institutions. These entities have become increasingly active in seeking patent protection and licensing revenues for their research results. The Company believes that its ability to compete successfully will depend on its ability to create and maintain scientifically advanced technology, develop proprietary products, attract and retain scientific personnel, obtain patent or other protection for its products, obtain required regulatory approvals and manufacture and successfully market products either alone or through other parties. Most of the Company's competitors have substantially greater financial, marketing and human resources than those of the Company. Therefore, the Company expects to encounter significant competition. Human Resources As of August 31, 1996, the Company had 25 employees. The Company's scientific staff includes individuals with expertise in clinical medicine, chemistry, biochemistry, cell biology, immunology, pharmacology, neuropharmacology, pharmaceutics and pharmaceutical manufacturing. It is the Company's policy that each employee enter into a confidentiality agreement which contains provisions generally prohibiting the disclosure of confidential information to anyone outside the Company and requiring disclosure to the Company of ideas, developments, discoveries or inventions conceived during employment and assignment to the Company of proprietary rights to such matters related to the business and technology of the Company. Risk Factors Except for the historical information contained herein, this report contains forward looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed in this report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below. The forward looking statements in this report represent the Company's judgement as of the date of this report. The Company disclaims, however, any intent or obligation to update these forward looking statements. Early Stage of Development; Technological Uncertainty NTI is at an early stage of development and currently has no marketed products. All of the Company's potential products are in research, preclinical development or clinical development, and no revenues have been generated from product sales. To date, most of the Company's resources have been dedicated to the research and development of selected candidate pharmaceutical products, and there can be no assurance that the Company will be able to develop a candidate product that will receive required regulatory approvals or be successfully commercialized. The Company is currently evaluating three potential products in early stage clinical trials. Results attained in preclinical studies and in such early stage clinical trials are not necessarily indicative of results that will be obtained upon further human clinical testing. The potential products currently under development by the Company will require significant additional clinical testing prior to submission of any regulatory application for commercial use. Such activities will require substantial resources and will necessitate the raising of substantial additional capital. The Company's potential products are subject to the risks of failure inherent in the development of products based on new technologies. These risks include the possibilities that any or all of the potential products will be found to be unsafe, ineffective or toxic, or otherwise fail to receive necessary regulatory clearances; that the products, if safe and effective, will be difficult to manufacture on a large scale or uneconomical to market; that proprietary rights of third parties will preclude the Company from marketing products, or that third parties market or will market superior or equivalent products. There can be no assurance that the Company's development activities will result in any commercially viable products. The Company does not expect to be able to commercialize any products for a number of years, if at all. Future Capital Needs; Uncertainty of Additional Funding The Company will require substantial additional funds to conduct the research and development and preclinical and clinical testing of its potential products and to market any products that may be developed. Although the Company currently plans to contract with third parties to manufacture clinical and commercial scale quantities of its potential products, to the extent the Company subsequently determines to establish its own manufacturing facilities, the Company will require substantial additional capital. The Company's capital requirements depend on numerous factors, including the progress of its research, preclinical development and clinical development programs, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights, competing technological and market developments, changes in the Company's existing research relationships, the ability of the Company to establish collaborative relationships, the development of commercialization activities and arrangements and the purchase of additional capital equipment. The Company believes that its available cash and investments will be sufficient to fund its operations through the end of fiscal 1997. Thereafter, the Company will need to raise substantial additional capital to fund its operations. The Company intends to seek such additional funding through public or private financings, collaborative or other arrangements with corporate partners, or from other sources. There can be no assurance that additional financing will be available from any of these sources, or, if available, that it will be available on acceptable terms. The Company may seek to raise additional funds whenever market conditions so permit. If additional funds are raised by issuing equity securities, further significant dilution to existing stockholders may result. If adequate funds are not available, the Company may be required to delay, scale back, or eliminate one or more of its research, discovery, or development funds or to obtain funds through entering into arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would not otherwise relinquish. Dependence on Third Parties The Company has only limited internal resources and thus the Company has relied and will continue to rely heavily on others for research, development, manufacturing and commercialization of its potential products. The Company has entered into various arrangements (many of which are non-exclusive) with consultants, academic collaborators, licensors, licensees, contractors and others, and it is dependent upon the level of commitment and subsequent success of these outside parties in performing their responsibilities. Certain of these agreements place responsibility for preclinical testing and human clinical trials and for preparing and submitting submissions for regulatory approval for potential products on the collaborator, licensor or contractor. Should such collaborator, licensor or contractor fail to perform, the Company's operating results may be adversely affected. The Company has entered into certain agreements and licenses with third parties, a number of which require the Company to pay royalties. The Company has relied on scientific, technical, clinical, commercial and other data supplied and disclosed by others in entering into these agreements and will rely on such data in support of applications to enter human clinical trials for its potential products. Although the Company has no reason to believe that this information contains errors or omissions of fact, there can be no assurance that there are no errors or omissions of fact that would change materially the Company's view of the future likelihood of FDA approval or commercial viability of these potential products. Government Regulation and Product Approval The FDA and state and local agencies, and comparable agencies and entities in foreign countries impose substantial requirements on the manufacturing and marketing of human therapeutics through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time consuming procedures. Satisfaction of these requirements typically takes many years and varies substantially based on the type, complexity, and novelty of the drug. The effect of government regulation may be to delay for a considerable period of time or prevent the marketing of any product that the Company may develop and/or to impose costly procedures upon the Company's activities, the result of which may be to furnish an advantage to its competitors. There can be no assurance that FDA or other regulatory approval for any products developed by the Company will be granted on a timely basis or at all. Any such delay in obtaining or failure to obtain such approvals would adversely affect the marketing of the Company's proposed products and its ability to earn product revenues or royalties. In addition, success in preclinical or early stage clinical trials does not assure success in later stage clinical trials. As with any regulated product, additional government regulations may be promulgated which could delay regulatory approval of the Company's potential products. Adverse government regulation which might arise from future legislation or administrative action cannot be predicted. Uncertainty of Protection of Patents and Proprietary Rights The Company's success will depend, in large part, on its ability to obtain or license patents, protect trade secrets and operate without infringing upon the proprietary rights of others. A substantial number of patents have been issued to other pharmaceutical, biotechnology and biopharmaceutical companies. Moreover, other competitors may have filed patent applications for, or may have been issued patents or may obtain additional patents and proprietary rights relating to, products or processes competitive with those of the Company. There can be no assurance that any of the patent applications licensed to the Company will be approved, that the Company will develop proprietary products that are patentable, that any issued patents licensed to the Company will provide the Company with adequate protection for its inventions or will not be challenged by others, or that the patents of others will not impair the ability of the Company to do business. The patent position of biotechnology firms generally is highly uncertain, involving complex legal and factual questions, and has recently been the subject of much litigation. No consistent policy has emerged from the United States Patent and Trademark Office regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. Finally, there can be no assurance that others will not independently develop similar products, duplicate any of the Company's potential products, or design around any potential patented products of the Company. As a result, there can be no assurance that patent applications relating to the Company's potential products or processes will result in patents being issued, or that patents, if issued, will provide protection against competitors who successfully challenge the Company's patents, obtain patents that may have an adverse effect on the Company's ability to conduct business, or be able to circumvent the Company's patent position. In view of the time delay in patent approval and the secrecy afforded United States patent applications, the Company does not know if other applications that would have priority over the Company's applications have been filed. Manufacturing Limitations The Company currently does not have its own manufacturing facilities to manufacture products under cGMP. The Company has established arrangements with contract manufacturers to supply potential products for preclinical and clinical trials and intends to establish similar arrangements for the manufacture, packaging, labeling and distribution of products, if approved for marketing. If the Company's contractors are unable to supply sufficient quantities of product candidates manufactured in accordance with cGMP on acceptable terms, the Company's preclinical and human clinical testing schedule would be delayed. If the Company should encounter delays or difficulties in establishing relationships with manufacturers to produce, package and distribute its products, market introduction and subsequent sales of such products would be adversely affected. Moreover, contract manufacturers that the Company may use must adhere to cGMP regulations enforced by the FDA through its facilities inspection program. If these facilities cannot pass a pre-approval plant inspection, the FDA pre-market approval of the products would be adversely affected. The Company's dependence on third parties for the manufacture of products may adversely affect the Company's results of operations and its ability to develop and deliver products on a timely and competitive basis. Risk of Product Liability Clinical trials or marketing of any of the Company's potential products may expose the Company to liability claims from the use of such products. The Company's product liability insurance does not cover commercial sales of products. The Company has a limited amount of product liability insurance to cover liabilities arising from clinical trials. There can be no assurance that the Company's insurance will be adequate to cover any liabilities arising from the Company's clinical trials, that the Company will be able to obtain product liability insurance covering commercial sales or, if obtained, that sufficient coverage can be acquired at a reasonable cost. An inability to obtain insurance at acceptable cost or otherwise protect against potential product liability claims could prevent or inhibit commercialization of any products developed by the Company. Dependence on Qualified Personnel and Advisors The Company is highly dependent upon its scientific and management staff and on consultants and advisors, the loss of whose services might significantly delay the achievement of planned development objectives. In addition, the Company is dependent on collaborators at research institutions. Recruiting and retaining qualified personnel, collaborators, advisors and consultants will be critical to the Company's success. There is intense competition for such qualified personnel in the area of the Company's activities, and there can be no assurance that the Company will be able to continue to attract and retain the personnel necessary for the development of the Company's business. The Company's planned activities will require additional expertise in areas such as clinical trial management, regulatory affairs, manufacturing, and marketing. Such activities will require the addition of new personnel including management and the development of additional expertise by existing management personnel. The inability to acquire such services or to develop such expertise could have a material adverse effect on the Company's operating results. Possible Enforcement Proceedings In late January 1996, two executive officers of the Company purchased an aggregate of 1,600 shares of the Company's Common Stock prior to the Company's proposed public offering of common stock. After these officers informed the Company's outside legal counsel of such purchases, such counsel advised the Company that such purchases constituted a violation of Rule 10b-6 under the Securities and Exchange Act of 1934, as amended. Rule 10b-6 prohibits, among other things, bids or purchases of an issuer's stock by executive officers of an issuer on whose behalf a distribution is being made for a certain period before commencement of offers or sales of the issuer's stock. The SEC has instituted a voluntary informal inquiry into this matter. It is possible that the SEC may seek enforcement action against the Company and/or the officers who made the purchases. Given the preliminary stage of the inquiry, there can be no assurance as to what action, if any, the SEC will take, or the effect of such action on the Company. Any actions taken by the SEC with respect to the matter may have a material adverse effect on the Company's financial position and results of operations. Volatility of Stock Price; Limited Market Capitalization The market price of the shares of Common Stock, like that of the common stock of many other biotechnology companies, has been and is likely to continue to be, highly volatile. Factors such as the results of preclinical studies and clinical trials by the Company, or its competitors, other evidence of the safety or efficacy of products of the Company or its competitors, announcements of technological innovations or new therapeutic products by the Company or its competitors, government regulation, health care legislation, developments in patent or other proprietary rights of the Company or its competitors including litigation, fluctuations in the Company's operating results, and market conditions for life sciences stocks in general could have a significant adverse impact on the future price of the Common Stock. In addition, the average daily trading volume of the Company's Common Stock since public trading of the Common Stock commenced has been relatively low compared to that of other biopharmaceutical companies. To the extent this trading pattern continues, the price of the Common Stock may fluctuate significantly as a result of changes in demand for such shares and sales of stock by stockholders. ITEM 2. PROPERTIES NTI's executive offices are located in Richmond, California. NTI leases a 12,500 square foot facility. The lease is for five years starting April 1995. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended June 30, 1996. PART II ITEM 5. MARKET PRICE OF NTI COMMON STOCK; DIVIDENDS NTI's common stock is traded on the Nasdaq National Market under the symbol "NTII." As of June 30, 1996, there were approximately 250 holders of record of the Company's common stock and 6,512,485 shares of common stock outstanding. No dividends have been paid on the common stock since the Company's inception, and the Company does not anticipate paying any dividends in the foreseeable future. The price range of the Company's common stock for the past two fiscal years is shown below. FISCAL 1995 HIGH LOW --------------------------------------------------------------- First Quarter $9.50 $4.75 Second Quarter $4.75 $2.50 Third Quarter $5.25 $2.88 Fourth Quarter $4.50 $3.00 FISCAL 1996 HIGH LOW --------------------------------------------------------------- First Quarter $6.00 $4.00 Second Quarter $5.75 $3.12 Third Quarter $5.25 $3.00 Fourth Quarter $9.00 $4.25 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Neurobiological Technologies, Inc. ("NTI" or the "Company") is a biopharmaceutical company identifying and developing potential therapeutic products based on advances in neuroscience research. NTI's strategy is to in-license drug candidates that target major medical needs, have shown clear evidence of preclinical efficacy and safety, and appear to have a clear path through clinical testing and regulatory approval. NTI's experienced management team then focuses on the drug development and clinical testing necessary to bring its drug candidates to commercialization. The Company is currently advancing three product candidates through human clinical trials. NTI is developing Corticotropin-Releasing Factor (CRF), a human peptide for reduction of edema and inflammation in patients with brain tumors and rheumatoid arthritis. NTI has also licensed and is developing Dynorphin A, a natural analgesic peptide, for use with morphine in managing severe pain. NTI is also developing Memantine, an orally available NMDA receptor antagonist, which has potential as a neuroprotective agent. Memantine is initially being developed for treatment of neuropathic pain and AIDS-related dementia. Significant additional preclinical testing and clinical testing will be required prior to submission of any regulatory application for the commercial use of these products. There can be no assurance that future clinical trials will demonstrate an adequate level of safety or efficacy for commercialization. Since 1987 when the Company was founded, NTI has applied substantially all of its resources to its research and development programs. The Company is a development stage company, has not received any revenue from the sale of products, and does not anticipate receiving revenue from the sale of products in the near future. The Company has incurred losses since its inception and expects to incur substantial, increasing losses over the next several years due to the ongoing and planned research and development efforts. Results of Operations The Company's research and development expenses increased from $2,645,000 in fiscal 1994 to $4,452,000 in fiscal 1995 and decreased to $4,321,000 in fiscal 1996. The decrease in fiscal 1996 was due to lower non-clinical development activity, including toxicology studies, as compared to the prior year. The increase from 1994 to 1995 was primarily due to expansion of the Company's preclinical studies, funding of clinical trials and the hiring of technical personnel. General and administrative expenses increased from $1,261,000 in fiscal 1994 to $1,512,000 in fiscal 1995 and decreased to $1,397,000 in fiscal 1996 primarily due to changes in use of legal and other professional services. Interest income increased from $236,000 in fiscal 1994 to $633,000 in fiscal 1995 and decreased to $506,000 in fiscal 1996, primarily due to changes in average cash balances. The Company expects to incur substantial additional costs in fiscal 1997 primarily for preclinical studies and clinical trials for its development programs and related administrative support. The Company expects that its expenditures will continue to increase as its products move through Phase II and potentially, Phase III clinical trials. Liquidity and Capital Resources The Company expects its cash requirements to increase significantly in future periods. Future cash requirements will depend on numerous factors, including: the progress on research and clinical development programs; the in-licensing of potential drug candidates; the time and costs involved in obtaining regulatory approvals; the ability of the Company to establish collaborative arrangements; product commercialization activities; and the acquisition of manufacturing or laboratory facilities. Since NTI uses qualified third-party contractors to conduct preclinical studies and clinical trials, and to manufacture clinical quantities of its products, the Company does not anticipate incurring significant capital expenditures during fiscal 1997. Over the same period, the number of employees is not expected to grow significantly from current levels. During the 1996 fiscal year, the Company completed a public offering of stock, raising $7.1 million in net proceeds. From inception through June 30, 1996, the Company has raised a total of $29.2 million in net proceeds from the sale of common and preferred stock. The Company believes that its available cash, cash equivalents and investments of $10.8 million as of June 30, 1996 are adequate to fund its operations through the end of fiscal 1997. NTI will need to raise substantial additional capital to fund subsequent operations. The Company intends to seek such funding through public or private financings, arrangements with corporate partners, or from other sources. The Company may seek to raise additional funds whenever market conditions permit. However there can be no assurance that funding will be available on favorable terms from any of these sources, if at all. ITEM 7. FINANCIAL STATEMENTS Report of Independent Auditors The Board of Directors and Stockholders Neurobiological Technologies, Inc. We have audited the accompanying balance sheets of Neurobiological Technologies, Inc. (a development stage company) as of June 30, 1996 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1996, and for the period from August 27, 1987 (inception) through June 30, 1996. 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 generally accepted auditing standards. 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 Neurobiological Technologies, Inc. at June 30, 1996 and 1995, and the result of its operations and its cash flows for each of the three years in the period ended June 30, 1996, and for the period from August 27, 1987 (inception) through June 30, 1996, in conformity with generally accepted accounting principles. Ernst & Young LLP San Francisco, California August 30, 1996 NEUROBIOLOGICAL TECHNOLOGIES, INC. (A development stage company) BALANCE SHEETS
June 30, June 30, 1996 1995 - - --------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 4,602,815 $ 2,181,880 Short-term investments 4,642,153 6,569,835 Prepaid expenses and other 337,422 184,828 - - --------------------------------------------------------------------------------------------------------------------------- Total current assets 9,582,390 8,936,543 Long-term investments 1,515,490 -- Property and equipment, net 229,267 197,103 Patents and licenses, net 65,216 130,436 - - --------------------------------------------------------------------------------------------------------------------------- $ 11,392,363 $ 9,264,082 - - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 198,205 $ 78,948 Accrued expenses 694,947 711,866 - - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 893,152 790,814 Stockholders' equity: Preferred stock, $.001 par value, 5,000,000 shares authorized, none outstanding -- -- Common stock, $.001 par value, 25,000,000 shares authorized, 6,512,485 shares issued and outstanding at June 30, 1996 and 3,948,132 shares at June 30, 1995 at amounts paid in 29,302,546 22,065,160 Deficit accumulated during development stage (18,803,335) (13,591,892) - - --------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 10,499,211 8,473,268 - - --------------------------------------------------------------------------------------------------------------------------- $ 11,392,363 $ 9,264,082 - - --------------------------------------------------------------------------------------------------------------------------- See accompanying notes.
NEUROBIOLOGICAL TECHNOLOGIES, INC. (A development stage company) STATEMENTS OF OPERATIONS
Period from August 27, 1987 (inception) Years ended June 30, through 1996 1995 1994 June 30,1996 - - --------------------------------------------------------------------------------------------------------------------------- REVENUES Interest income $ 506,242 $ 632,715 $ 236,320 $ 1,624,863 Grant income -- 49,900 -- 49,900 - - --------------------------------------------------------------------------------------------------------------------------- Total revenue 506,242 682,615 236,320 1,674,763 EXPENSES Research and development 4,321,059 4,452,482 2,645,002 14,785,231 General and administrative 1,396,626 1,511,787 1,261,405 5,692,867 - - --------------------------------------------------------------------------------------------------------------------------- Total expenses 5,717,685 5,964,269 3,906,407 20,478,098 - - --------------------------------------------------------------------------------------------------------------------------- NET LOSS $ (5,211,443) $ (5,281,654) $ (3,670,087) $ (18,803,335) - - --------------------------------------------------------------------------------------------------------------------------- NET LOSS PER SHARE $ (1.05) $ (1.35) $ (1.55) - - --------------------------------------------------------------------------------------------------------------------------- Shares used in net loss per share calculation 4,985,229 3,913,028 2,362,150 - - --------------------------------------------------------------------------------------------------------------------------- See accompanying notes.
NEUROBIOLOGICAL TECHNOLOGIES, INC. (A development stage company) STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit Accumulated Preferred Common Stock in Development Stock Shares Amount Stage Total - - --------------------------------------------------------------------------------------------------------------------------- Period from August 27, 1987 (inception) through June 30, 1993 Issuance of common stock $ -- 740,863 $ 1,616,706 $ -- $ 1,616,706 Issuance of common stock for services -- 72,428 84,500 -- 84,500 Issuance of common stock for license rights -- 10,820 12,625 -- 12,625 Issuance of warrants to purchase 179,786 shares of common stock -- -- 2,790 -- 2,790 Exercise of warrants -- 137,143 64,000 -- 64,000 Exercise of options -- 41,544 135,313 -- 135,313 Issuance of 5,691,000 shares of Series A preferred stock, net of issuance costs 5,573,194 -- -- -- 5,573,194 Net loss -- -- -- (4,640,151) (4,640,151) - - --------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1993 5,573,194 1,002,798 1,915,934 (4,640,151) 2,848,977 Exercise of options -- 548 3,450 -- 3,450 Issuance of common stock under employee stock purchase plan -- 3,980 16,915 -- 16,915 Issuance of 2,657,881 shares of Series B preferred stock, net of issuance costs 1,653,888 -- -- -- 1,653,888 Issuance of common stock at $8.00 per share in connection with initial public offering, net of issuance costs -- 1,840,000 12,817,000 -- 12,817,000 Conversion of preferred stock in connection with the initial public offering (7,227,082) 1,046,912 7,227,082 -- -- Net loss -- -- -- (3,670,087) (3,670,087) - - --------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1994 -- 3,894,238 21,980,381 (8,310,238) 13,670,143 Exercise of warrants -- 5,357 6,252 -- 6,252 Exercise of options -- 31,435 36,791 -- 36,791 Issuance of common stock under employee stock purchase plan -- 17,102 41,736 -- 41,736 Net loss -- -- -- (5,281,654) (5,281,654) - - --------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1995 -- 3,948,132 22,065,160 (13,591,892) 8,473,268 Exercise of options -- 13,093 40,284 -- 40,284 Issuance of common stock under employee stock purchase plan -- 21,260 53,823 -- 53,823 Issuance of common stock at $3.25 per share in connection with public offering, net of issuance costs -- 2,530,000 7,143,279 -- 7,143,279 Net loss -- -- -- (5,211,443) (5,211,443) - - --------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1996 $ -- 6,512,485 $ 29,302,546 $ (18,803,335) $10,499,211 - - --------------------------------------------------------------------------------------------------------------------------- See accompanying notes.
NEUROBIOLOGICAL TECHNOLOGIES, INC. (A development stage company) STATEMENTS OF CASH FLOWS
Period from August 27, 1987 (inception) Years ended June 30, through 1996 1995 1994 June 30, 1996 - - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net loss $ (5,211,443) $ (5,281,654) $ (3,670,087) $ (18,803,335) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 123,095 95,697 37,531 345,239 Issuance of common stock and warrants for license rights and services -- -- -- 99,275 Changes in assets and liabilities: Prepaid expenses and other (152,594) (162,832) (98,496) (337,422) Accounts payable and accrued expenses 102,338 430,791 168,460 893,152 - - --------------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (5,138,604) (4,917,998) (3,562,592) (17,803,091) INVESTING ACTIVITIES Purchase of investments (11,263,339) (5,950,413) (11,385,720) (32,376,955) Maturity of investments 11,675,531 10,848,225 756,762 26,219,312 Purchases of property and equipment (90,039) (147,620) (15,380) (356,660) Additions to patents and licenses -- -- -- (283,062) - - --------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities 322,153 4,750,192 (10,644,338) (6,797,365) FINANCING ACTIVITIES Proceeds of short-term borrowings -- -- -- 235,000 Issuance of common stock 7,237,386 84,780 12,837,365 21,976,189 Issuance of preferred stock -- -- 1,653,888 6,992,082 - - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 7,237,386 84,780 14,491,253 29,203,271 Increase (decrease) in cash and cash equivalents 2,420,935 (83,026) 284,323 4,602,815 Cash and equivalents at beginning of period 2,181,880 2,264,906 1,980,583 -- - - --------------------------------------------------------------------------------------------------------------------------- Cash and equivalents at end of period $ 4,602,815 $ 2,181,880 $ 2,264,906 $ 4,602,815 - - --------------------------------------------------------------------------------------------------------------------------- Conversion of short-term borrowings to Series A preferred stock $ -- $ -- $ -- $ 235,000 - - --------------------------------------------------------------------------------------------------------------------------- Conversion of preferred stock to common stock $ -- $ -- $ 7,227,082 $ 7,227,082 - - --------------------------------------------------------------------------------------------------------------------------- See accompanying notes.
Notes to Financial Statements Neurobiological Technologies, Inc. (a development stage company) NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Neurobiological Technologies, Inc. ("NTI" or the "Company") is a biopharmaceutical company identifying and developing potential therapeutic products based on advances in neuroscience research. NTI's strategy is to in-license drug candidates that target major medical needs, have shown clear evidence of preclinical efficacy and safety, and appear to have a clear path through clinical testing and regulatory approval. NTI's experienced management team then focuses on the drug development and clinical testing necessary to bring its drug candidates to commercialization. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and investments Cash and cash equivalents include investments with original maturities of 90 days or less. Short-term investments consist of investments with original maturities of greater than 90 days but less than a year, while long-term investments are those that mature greater than one year from the balance sheet date. The Company has not realized any losses on its investments, which are highly liquid and subject to little risk. Furthermore, the Company reduces its credit risk by limiting the amount of credit exposure to any one financial institution. In fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Adoption of this statement had no effect on the Company's financial position or results of operations. All of the Company's investment securities are classified as available for sale and are stated at amounts which approximate fair market value. The Company did not have any material realized or unrealized gains or losses on its investments. Realized gains or losses, amortization of premiums, accretion of discounts and earned interest are included in investment income. The following is a summary of available-for-sale securities at fair market value, which approximates amortized cost, at June 30, 1996 and 1995: 1996 1995 - - ------------------------------------------------------------------------------- US Government obligations $233,862 $1,007,500 Corporate obligations 8,041,959 5,480,407 Commercial paper 2,346,545 1,586,549 Accrued interest 115,684 74,638 Total $10,738,050 $8,149,094 - - ------------------------------------------------------------------------------- Such available-for-sale securities have been recorded at June 30, 1996 as cash and cash equivalents ($4,580,407), short-term investments ($4,642,153) and long-term investments ($1,515,490). By policy, the Company does not invest in securities that mature in more than 18 months. At June 30, 1996, all securities in the investment portfolio are scheduled to mature in less than 14 months. Property and equipment Property and equipment is stated at cost. Depreciation is calculated using the straight-line method based on estimated useful lives of 5 to 7 years. The balances at June 30, 1996 and 1995 consisted of the following: 1996 1995 - - -------------------------------------------------------------------------------- Machinery and Equipment $190,882 $132,319 Furniture and fixtures 165,778 134,302 - - -------------------------------------------------------------------------------- 356,660 266,621 Less Accumulated depreciation (127,393) (69,518) $229,267 $ 197,103 - - -------------------------------------------------------------------------------- Patents and licenses Patents and licenses consist of the costs relating to license agreements covering certain patent rights to the Company's products. The costs are amortized using the straight-line method over the shorter of the life of the patent or its economic useful life. Accumulated amortization at June 30, 1996 and 1995 was $217,846 and $152,626, respectively. Net loss per share Net loss per share is computed using the weighted average number of shares of common stock outstanding. Common equivalent shares from stock options and warrants are excluded from the computation as their effect is anti-dilutive, except that, pursuant to Securities and Exchange Commission Staff Accounting Bulletins, common equivalent shares from stock, stock options and warrants issued at prices below the public offering price during the 12-month period prior to the initial public offering have been included in the calculation as if they were outstanding for all the periods presented through December 31, 1993 (using the treasury stock method and the initial public offering price of $8 per share for common stock, stock options and warrants, and the as-if-converted method for preferred stock). All shares in the accompanying financial statements have been retroactively adjusted to reflect the 9.333-for-one reverse stock split that occurred in February 1994. NOTE 2. LEASE The Company leases its current premises in Richmond, California through April 2000. Rent expense for the years ended June 30, 1996, 1995, and 1994 was $143,000, $81,000 , and $64,000, respectively. At June 30, 1996, future minimum payments under leases with initial terms of one year or more consisted of the following: 1997 $132,000 1998 132,000 1999 132,000 2000 110,000 $506,000 - - ------------------------------------------------------------------------------- NOTE 3. STOCKHOLDERS' EQUITY Effective with the closing of the Company's initial public offering in February 1994, the Board of Directors authorized 25,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of preferred stock, $.001 par value. Preferred stock At June 30, 1993, preferred stock consisted of 5,691,000 shares of series A preferred stock. Each share converted into 1.25 shares of series B preferred stock upon the consummation of the series B preferred stock financing. In December 1993, the Company issued 2,657,881 shares of Series B preferred stock. In February 1994, all preferred stock automatically converted into common stock and the Company effected a 9.333-for-1 reverse split. Warrants to purchase common stock At June 30, 1996, warrants to purchase 798,393 shares of common stock were outstanding at a weighted average exercise price of $6.83 per share. Of these, 37,286 shares of common stock at a price of $5.60 were issued for licensing rights and consulting services and have expiration dates through June, 2001; warrants to purchase 381,107 shares at $7.47 per share were issued in connection with the Series A preferred offering and expire on April 9, 1997; and warrants to purchase 160,000 shares at $9.60 per share and 220,000 shares at $3.90 per share were issued to the underwriters of the initial public offering and the 1996 public offering, respectively, and expire on February 15, 1999 and 2001, respectively. Stock option plan Under the Company's 1993 Stock Plan, 1,500,000 shares of common stock have been reserved for issuance. In general, options are granted at fair market value on the date of the grant, have a term of 10 years and become exercisable over a period of up to 48 months. However, 90,000 options outstanding, of which 13,000 are exercisable at June 30, 1996, are subject to accelerated vesting based on the achievement of certain performance-based milestones. Information as to activity under the plan is as follows: Number of Shares Exercise Price Subject to Options per Share - - ------------------------------------------------------------------------------ Balance at June 30, 1993 269,841 $1.17-$7.00 Options granted 751,361 $3.73-$8.50 Options canceled (244,595) $3.73-$8.50 Options exercised (548) $3.73-$7.00 - - ------------------------------------------------------------------------------ Balance at June 30, 1994 776,059 $1.17-$8.00 Options granted 182,668 $2.88-$5.00 Options canceled (19,906) $1.17-$8.00 Options exercised (31,435) $1.17-$3.73 - - ------------------------------------------------------------------------------ Balance at June 30, 1995 907,386 $2.88-$8.00 Options granted 73,760 $3.50-$6.63 Options canceled (34,225) $2.88-$6.75 Options exercised (21,376) $2.88-$3.73 - - ------------------------------------------------------------------------------ Balance at June 30, 1996 925,545 $2.88-$8.00 - - ------------------------------------------------------------------------------ At June 30, 1996, options to purchase 521,516 shares of common stock remained available for grant, and options to purchase 582,273 shares of common stock were exercisable at prices ranging from $2.88 to $8.00 Stock purchase plan Effective February 1994, the Company established an employee stock purchase plan (the "Plan") under which the employees may purchase common stock at 85% of the lower of the share price at the beginning or end of a designated period. Under the Plan, 50,000 shares have been reserved for issuance of which 42,342 have been issued through June 30, 1996. NOTE 4. INCOME TAXES The Company uses the liability method to account for income taxes as required by FASB Statement No.109, "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 enacted tax rules and laws that will be in effect when the differences are expected to reverse. Significant components of the Company's deferred tax assets (in thousands) are as follows at June 30, 1996 and 1995: 1996 1995 - - ------------------------------------------------------------------------------- Net operating loss carryforwards $ 6,500 $ 4,950 Research and development credit carryforward 700 690 Capitalized research and development 450 -- - - ------------------------------------------------------------------------------- Gross deferred tax assets 7,650 5,640 Valuation allowance (7,650) (5,640) Net deferred tax assets $ -- $ -- - - ------------------------------------------------------------------------------- The valuation allowance increased by $2,010,000 and $2,400,000 in fiscal 1996 and 1995, respectively. At June 30, 1996, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $18,000,000 and $5,000,000 respectively, which expire in the tax years 1996 through 2010. The Company has federal tax credit carryforwards of approximately $4,000,000 which expire in the tax years 2006 through 2010. During the years ended June 30, 1991 and 1994, the Company experienced a "change of ownership" as defined in Section 382 of the Internal Revenue Code. As a result, utilization of the company's net operating loss and credit carryforwards incurred prior to the "change of ownership" may be subject to an annual limitation. If an additional "change of ownership" occurs, the availability of the Company's net operating loss and credit carryforwards incurred subsequent to the 1994 "change of ownership" may also be subject to an annual limitation. NOTE 5. POSSIBLE ENFORCEMENT PROCEEDINGS In late January 1996, two executive officers of the Company purchased an aggregate of 1,600 shares of the Company's Common Stock prior to the Company's proposed public offering of common stock. After these officers informed the Company's outside legal counsel of such purchases, such counsel advised the Company that such purchases constituted a violation of Rule 10b-6 under the Securities and Exchange Act of 1934, as amended. Rule 10b-6 prohibits, among other things, bids or purchases of an issuer's stock by executive officers of an issuer on whose behalf a distribution is being made for a certain period before commencement of offers or sales of the issuer's stock. The SEC has instituted a voluntary informal inquiry into this matter. It is possible that the SEC may seek enforcement action against the Company and/or the officers who made the purchases. Given the preliminary stage of the inquiry, there can be no assurance as to what action, if any, the SEC will take, or the effect of such action on the Company. Any actions taken by the SEC with respect to the matter may have a material adverse effect on the Company's financial position and results of operations. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors and executive officers is hereby incorporated by reference to the section entitled "Election of Directors" in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company's 1996 Annual Meeting of Stockholders (the "Proxy Statement"). ITEM 10. EXECUTIVE COMPENSATION The information required by this item is hereby incorporated by reference to the section entitled "Executive Compensation" in the Proxy Statement. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is hereby incorporated by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is hereby incorporated by reference to the section entitled "Certain Transactions" in the Proxy Statement. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS The following are incorporated herein by reference to the financial statements included under Part II. Report of Independent Auditors Balance Sheets at June 30, 1996 and 1995 Statements of Operations for each of the three years in the period ended June 30, 1996 and for the period from August 27, 1987 (inception) through June 30, 1996 Statement of Stockholders' Equity for each of the three years in the period ended June 30, 1996 and for the period from August 27, 1987 (inception) through June 30, 1996 Statement of Cash Flows for each of the three years in the period ended June 30, 1996 and for the period for August 27, 1987 (inception) through June 30, 1996 Notes to Financial Statements Schedules have been omitted because they are not applicable or not required or because the information is included elsewhere in the financial statements or notes thereto. (B) REPORTS ON FORM 8-K None. (C) EXHIBITS The following exhibits are incorporated by reference or filed as part of this report.
EXHIBIT NUMBER DESCRIPTION - - --------------------------------------------------------------------------------------------------------------------------- 3.5* Restated Certificate of Incorporation of Registrant. 3.2* Bylaws of Registrant. 4.1* Form of Common Stock Certificate. 4.2* Form of Warrant issued to Van Kasper & Co. 4.3* Form of Warrant issued to Van Kasper & Co. and Gerard Klauer Mattison & Co., LLC. 10.2* 1993 Stock Plan of Neurobiological Technologies, Inc.*** 10.3* Employee Stock Purchase Plan of Neurobiological Technologies, Inc.*** 10.4* Form of Indemnity Agreement between the Registrant and its directors and officers.*** 10.5* Series B Preferred Stock Purchase and Exchange Agreement dated as of December 6, 1993. 10.6* License Agreement between the Registrant and Research Corporation Technologies, Inc. dated May 30, 1990.** 10.7* License Agreement among the Registrant, Dynorphin Partnership, Nancy M. Lee and Horace C. Loh dated April 1, 1989, as amended.** 10.8* License Agreement between the Registrant and ImmunoDynorphin Partnership dated October 1, 1990.** 10.9* License Agreement between the Registrant and des-Tyr Dynorphin Partnership dated December 20, 1992.** 10.10* License Agreement between the Registrant and DUZ Partnership dated December 20, 1992.** 10.11* License Agreement between the Registrant and The Salk Institute for Biological Studies dated March 31, 1989, as amended.** 10.12* License Agreement between the Registrant and the Regents of the University of California dated June 13, 1990, as amended.** 10.13* Option Agreement between the Registrant and the Regents of the University of California dated December 1, 1992.** 10.14**** Lease dated August 22, 1994 between Registrant and Marina Westshore Partners, a California limited partnership. 10.15** License Agreement between the Registrant and Children's Hospital effective September 11, 1995, as amended on March 11, 1996. 10.16*** Employment Agreement between the Registrant and Michael S. Ostrach dated June 22, 1996. 24.1 Power of Attorney. *Previously filed as an exhibit to the Company's Registration Statement on Form SB-2 (Registration No. 33-74118-LA) and incorporated herein by reference. **Confidential treatment has been requested with respect to certain portions of these agreements. ***This exhibit is a management contract or compensatory plan or arrangement. **** Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended June, 30, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: September 25, 1996 Neurobiological Technologies, Inc. /s/ Jeffrey S. Price --------------------- President, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey S. Price his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute may lawfully do or cause to be done by virtue hereof.
Signature Title Date ---------------------------------------------------------------------------------------- /s/ Jeffrey S. Price President, Chief Executive Officer September 25, 1996 -------------------- Jeffrey S. Price (Principal Executive Officer) and Director /s/ Michael S. Ostrach Executive Vice President September 25, 1996 ---------------------- Michael S. Ostrach Chief Operating Officer and Director /s/ Shawn K. Johnson Director of Finance, September 25, 1996 -------------------- Shawn K. Johnson Principal Accounting Officer /s/ Abraham E. Cohen Chairman of the Board September 25, 1996 -------------------- Abraham E. Cohen /s/ Enoch Callaway Director September 25, 1996 ------------------ Enoch Callaway /s/ Theodore L. Eliot, Jr. Director September 25, 1996 -------------------------- Theodore L. Eliot, Jr. /s/ Lawrence G. Mohr Jr. Director September 25, 1996 ------------------------ Lawrence G. Mohr, Jr. /s/ John B. Stuppin Director September 25, 1996 ------------------- John B. Stuppin
EX-10.15 2 LICENSE AGREEMENT DATED SEPT. 11, 1995 [CERTAIN INFORMATION HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER 24b-2. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION] EXCLUSIVE LICENSE AGREEMENT BETWEEN CHILDREN'S MEDICAL CENTER CORPORATION AND NEUROBIOLOGICAL TECHNOLOGIES, INC. CMCC 314 TABLE OF CONTENTS Articles Page(s) ------- I. DEFINITIONS......................................................1 II. GRANT............................................................4 III. DUE DILIGENCE....................................................6 IV. ROYALTIES AND OTHER PAYMENTS.....................................8 V. REPORTS AND RECORDS............................................ 11 VI. PATENT PROSECUTION............................................. 13 VII. INFRINGEMENT................................................... 13 VIII. INDEMNIFICATION AND INSURANCE PROVISIONS....................... 15 IX. EXPORT CONTROLS................................................ 16 X. NON-USE OF NAMES............................................... 17 XI. ASSIGNMENT..................................................... 17 XII. DISPUTE RESOLUTION AND ARBITRATION............................. 18 XIII. TERM AND TERMINATION........................................... 19 XIV. PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS.................... 20 XV. COMMERCIAL DEVELOPMENT......................................... 20 XVI. GENERAL PROVISIONS............................................. 21 -i- EXCLUSIVE LICENSE AGREEMENT THIS AGREEMENT is made and entered into as of the date last written below (the "Effective Date"), by and between CHILDREN'S MEDICAL CENTER CORPORATION, a charitable corporation duly organized and existing under the laws of the Commonwealth of Massachusetts and having its principal office at 300 Longwood Avenue, Boston, Massachusetts, 021 15, U.S.A. (hereinafter referred to as "CMCC"), and NEUROBIOLOGICAL TECHNOLOGIES, INC., a business corporation organized and existing under the laws of the state of Delaware and having its principal office at 1387 Marina Way South, Richmond, California 94804 (hereinafter referred to as "Licensee"). WHEREAS, CMCC is the owner (or co-owner with the President and Fellows of Harvard College ("Harvard")) of certain Patent Rights (as that term shall be defined hereinafter) and has the right to grant exclusive licenses under said Patent Rights, subject only to a royalty-free, nonexclusive license heretofore granted to the United States Government for those patents developed with U.S. Government funding; and WHEREAS, CMCC desires to have the Patent Rights utilized in the public interest and is willing to grant a license thereunder on the terms and conditions described herein; and WHEREAS, Licensee has represented to CMCC that Licensee is ready, willing and able to engage in the commercial development, production, manufacture, marketing and sale of Licensed Products (as that term shall be defined hereinafter) and/or the use of Licensed Processes (as that term shall be defined hereinafter) and that it shall commit itself to a thorough, vigorous and diligent program of exploiting the Patent Rights in accordance with the terms and conditions described herein so that public utilization shall result therefrom; and WHEREAS, Licensee desires to obtain an exclusive license under the Patent Rights on the terms and conditions of this Agreement: NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: ARTICLE I. DEFINITIONS For the purpose of this Agreement, the following words and phrases shall have the meanings set forth below: A. "Affiliate" shall mean any company or other legal entity controlling, controlled by or under common control with Licensee. For purposes of the definition of "Affiliate" the term "control" shall mean: (i) in the case of a corporate entity, the -1- direct or indirect ownership of at least a majority of the stock or participating shares entitled to vote for the election of directors of that entity; (ii) in the case of a partnership, the power customarily held by a general partner to direct the management and policies of such partnership; or (iii) in the case of a joint venture, whether in corporate, partnership or other legal form, a more than nominal economic interest and managerial role. NewCo, defined below, shall be considered an Affiliate for the purposes of this Agreement. B. "Combination Product(s) or Process(es)" shall mean a product or process that includes a Licensed Product or Licensed Process sold in combination with another component(s) whose manufacture, use or sale by an unlicensed party would not constitute an infringement of the Patent Rights. C. "Field of Use" shall mean the treatment and diagnosis of all diseases and conditions in humans and animals except ophthalmologic diseases and conditions. D. "First Commercial Sale" shall mean with respect to each country: (i) the first sale of any Licensed Product or Licensed Process by Licensee, following approval of such Licensed Product's or Licensed Process's marketing by the appropriate governmental agency, if any such approval is necessary, for the country in which the sale is to be made; or (ii) when governmental approval is not required, the first sale in that country of the Licensed Product or Licensed Process. E. "Licensed Product" shall mean with respect to each country any product or part thereof: 1. The manufacture, use or sale of which would infringe any one of the issued, valid, enforceable, unexpired claim(s) or any one of the pending claim(s) contained in the Patent Rights in that country. 2. The manufacture of which uses a "Licensed Process" as that term shall be defined hereinafter. F. "Licensed Process" shall mean with respect to each country any process that would infringe any one of the issued, valid, enforceable, unexpired claim(s) or any one of the pending claim(s) contained in the Patent Rights in that country. G. "Licensee" shall mean Licensee and/or its successor(s) or assignee(s) and/or its Affiliates. H. "Net Sales" shall mean gross receipts received by Licensee for Licensed Products and Licensed Processes, less the sum of the following: 1. Discounts allowed in amounts customary in the trade. -2- 2. Sales taxes, tariff duties and/or use taxes directly imposed and with reference to particular sales. 3. Outbound transportation and delivery charges (including insurance premiums related to transportation and delivery) prepaid or allowed. 4. Amounts allowed or credited on returns. No deductions shall be made for commissions paid to individuals whether they are with independent sales agencies or regularly employed by Licensee and on its payroll or for the cost of collections. Licensed Products and Licensed Processes shall be considered "sold" when billed out or invoiced. Notwithstanding anything herein to the contrary, the following shall not be considered a sale of a Licensed Product or Licensed Process under this Agreement: (i) the transfer of a Licensed Product or Licensed Process to an Affiliate for sale by the Affiliate in a transaction that will be royalty bearing; (ii) the transfer of a Licensed Product or Licensed Process to a third party without consideration to Licensee in connection with the development or testing of a Licensed Product or Licensed Process; or (iii) the transfer of a Licensed Product or Licensed Process to a third party without consideration in connection with the marketing or promotion of the Licensed Product or Licensed Process. I. "Patent Rights" shall mean all of the following intellectual property which CMCC owns or has rights to during the term of this Agreement: 1. The United States and foreign patents and/or patent applications listed in Appendix 1 attached hereto and incorporated herein by reference and divisionals and continuations thereof, including any patents or patent applications and divisionals and continuations thereof that may be added to Appendix 1 subsequent to the effective date of this Agreement in accordance with the terms of any sponsored research agreement that be executed between Licensee and CMCC or between Licensee and Children's Hospital. 2. The United States and foreign patents issued from the applications listed in Appendix 1 and from divisionals and continuations of those applications. 3. Claims of United States and foreign continuation-in-part applications, and of the resulting patents, which relate to subject matter specifically described in the United States and foreign patent applications described in Appendix 1. 4. Claims of all later filed foreign patent applications, and of the resulting patents, which relate to subject matter specifically described in the United States patent and/or patent applications described in subparagraphs 1, 2 or of this Article I, Paragraph I. -3- 5. Any reissues, divisions, amendments or extensions of the United States or foreign patents described in subparagraphs 1, 2, 3 or 4 of this Article I, paragraph I. J. "Sublicensee" shall mean a person or entity unaffiliated with Licensee to whom Licensee has granted am arm's length sublicense under this Agreement. K. "NewCo" shall mean a subsidiary formed by NTI for the purpose of holding and commercializing the Patent Rights. L. "ACTG Trial" shall mean the AIDS Clinical Trial Group clinical trial #301. M. "Ophthalmologic Licensee" shall mean the company to which CMCC has licensed, or will license, the Patent Rights for the field of use of treatment of ophthalmologic disease. N. "Strategic Partnership" shall mean a contractual relationship related to the commercial development of Licensed Products and Licensed Processes between Licensee and the Ophthalmologic Licensee other than the relationship defined in Section XV. [CONFIDENTIAL TREATMENT REQUESTED] ARTICLE II. GRANT A. CMCC hereby grants to Licensee the worldwide right and exclusive license to make, have made, use, lease and sell the Licensed Products and to practice the Licensed Processes for the Field of Use to the expiration of the last Patent Rights, unless sooner terminated as provided in this Agreement. Upon expiration of the last-to-expire Patent Right in a country, CMCC grants to Licensee a fully-paid-up, royalty-free license to make, have made, use, lease and sell the Licensed Products and to practice the Licensed Processes for the Field of Use in that country. B. Notwithstanding anything above to the contrary, each of CMCC and Harvard shall retain a royalty-free, nonexclusive, irrevocable license of practice, and to sublicense other non-profit research organizations to practice, the Patent Rights it owns for noncommercial research purposes only. C. Notwithstanding anything above to the contrary, the license granted hereunder shall be subject to the rights of the United States government, if any, under Public Laws 96-517, 97-226, and 98-620, codified at 35 U.S.C. secs. 200-212 and any regulations promulgated thereunder. -4- D. Licensee agrees that Licensed Products leased or sold in the United States shall be manufactured substantially in the United States. E. In order to establish exclusivity for Licensee, CMCC hereby agrees that it shall not, without Licensee's prior written consent, grant to any other commercial party a license to make, have made, use, lease and/or sell Licensed Products or to use the Licensed Processes in the Field of Use during the period of time in which this Agreement is in effect, except as otherwise specified in this Agreement or as required by law to grant rights to the United States Government. F. Licensee shall have the right to enter into sublicensing agreements with respect to any of the rights, privileges, and licenses granted hereunder, subject to the terms and conditions hereof. Such sublicenses will terminate upon the termination of Licensee's rights granted herein unless events of default are cured by Licensee or Sublicensee within thirty (30) days of notification by CMCC of default and/or as provided by the terms of this Agreement. G. Licensee agrees that any sublicense granted by it shall provide that the obligations to CMCC of Articles II (Grant), V (Reports and Records), VII (Infringement), VIII (Insurance and Indemnification), IX (Export Controls), X (Non-Use of Names), XI (Assignment), XII (Dispute Resolution), XIII (Term and Termination) and XV (Miscellaneous Provisions) of this Agreement shall be binding upon the sublicensee as if it were a party to this Agreement. Licensee further agrees to attach a copy of this Agreement to all sublicense agreements, deleting economic terms when and as appropriate. H. Licensee agrees to provide to CMCC notice of any sublicense granted hereunder and to forward to CMCC a copy of any and all fully executed sublicense agreements. Licensee further agrees to forward to CMCC annually a copy of such reports received by Licensee from its sublicensees during the preceding twelve (12) month period as shall be pertinent to a royalty accounting under the applicable sublicense. I. Licensee shall advise CMCC in writing of any consideration received from sublicensees. Licensee shall not accept from any sublicensee anything of value in lieu of cash payments to discharge sublicensee's payment obligations under any sublicense granted under this Agreement, without the express written permission of CMCC, which permission shall not be unreasonably withheld. J. CMCC agrees that if Licensee has provided to CMCC notice that Licensee has granted a sublicense to a sublicensee under this Agreement, then in the event CMCC terminates this Agreement for any reason provided hereinafter, CMCC shall provide to such sublicensee no less than thirty (30) days prior to the effective date of said termination, written notice of said termination at the address specified by Licensee to CMCC in Licensee's notice to CMCC under Paragraph H of this Article II. CMCC agrees that upon the sublicensee's notice as described below -5- and provided the sublicensee is not in breach of its sublicense, CMCC shall grant to such sublicensee license rights and terms equivalent to the sublicense rights and terms which the sublicense shall have granted to said sublicensee; provided that the sublicensee shall remain a sublicensee under this Agreement for a period of at least sixty (60) days following receipt of notice from CMCC. Sublicensee shall during said sixty (60) day period provide to CMCC notice wherein the sublicensee: (i) reaffirms the terms and conditions of this Agreement as it relates to the rights the sublicensee has been granted under the sublicensee; (ii) agrees to abide by all of the terms and conditions of this Agreement applicable to sublicensees and to discharge directly all pertinent obligations of Licensee which Licensee is obligated hereunder to discharge; and (iii) acknowledges that CMCC shall have no obligations to the sublicensee other than its obligations set forth in this Agreement with regard to Licensee. K. The license granted hereunder shall not be construed to confer any rights upon Licensee by implication, estoppel or otherwise as to any technology not described in the Patent Rights. L. As a result of an agreement dated December 7, 1994, and existing prior to this Agreement, CMCC has agreed not to assert, and Licensee hereby agrees not to assert, any of the Patent Rights resulting from U.S. patent application [CONFIDENTIAL TREATMENT REQUESTED], its continuations, or foreign counterparts (further described in Appendix 2) against [CONFIDENTIAL TREATMENT REQUESTED], or its sublicensees or assignees with regard to the following fields of use: any manufacture, use or sale of [CONFIDENTIAL TREATMENT REQUESTED]. The obligations of this Paragraph L shall expire with the expiration or termination of the December 7 agreement. ARTICLE III. DUE DILIGENCE A. Licensee shall use its good faith and diligent efforts to bring one or more Licensed Products and/or Licensed Processes to market as soon as reasonably practicable, consistent with sound and reasonable business practices and judgment, through a thorough, vigorous and diligent commercial development program. Thereafter, Licensee agrees that until expiration or termination of this Agreement, Licensee shall continue active and diligent efforts to keep Licensed Products and/or Licensed Processes reasonably available to the public. In the event Licensee decides not to practice under a licensed Patent Right, it shall promptly inform CMCC in writing and shall surrender to CMCC its license to that Patent Right. B. As part of its Due Diligence, Licensee shall cause the formation of NewCo within three (3) months of the Effective Date of this Agreement, shall assign rights under this Agreement to NewCo in accordance with the provisions of Article XI Paragraph e, and shall obtain financing of at least [CONFIDENTIAL TREATMENT REQUESTED] for NewCo within twelve (12) months of the Effective Date of this Agreement. -6- C. Within sixty (60) days of the Effective Date Licensee shall provide to CMCC a written commercialization development plan reasonably acceptable to CMCC ("Development Plan") setting forth the initial indications and markets for Licensed Products and Licensed Processes, including to the extent practicable: (i) time-delimited targets for pre-clinical development, clinical trials, regulatory approval, manufacturing and marketing that represent reasonable efforts, consistent with industry norms for similar technology and applications, to bring Licensed Products and Licensed Processes to the marketplace; and (ii) actual or projected financial resources and/or strategic alliances that will be required to implement the Development Plan. The Development Plan shall be attached hereto as Appendix 3 and shall be incorporated herein by reference. D. Licensee shall use good faith and diligent efforts to accomplish the milestones set forth in the Development Plan and to manufacture and distribute Licensed Products and Licensed Processes. E. Notwithstanding anything above to the contrary, CMCC shall not unreasonably withhold its assent to any revision of the objective(s) set forth in the Development Plan when requested in writing by Licensee and supported by evidence reasonably acceptable to CMCC: (i) of technical difficulties or delays in the clinical studies or regulatory process that Licensee could not have reasonably avoided; or (ii) that Licensee, its Affiliates and/or sublicensees have expended good faith and diligent efforts and adequate resources to meet said objective. F. In the event CMCC reasonably believes that Licensee is not diligently seeking to achieve the objectives set forth in the Development Plan in a timely manner, CMCC shall so notify Licensee in writing. Licensee shall have the option, exercisable by written notice to CMCC provided within ten (10) days after receipt of any such notice, to either: (i) receive a three (3) month grace period to establish to CMCC's reasonable satisfaction that Licensee is expending its good faith and diligent efforts and adequate resources to achieve said objectives; or (ii) agree to CMCC's termination of this Agreement as provided hereinafter. In the event Licensee agrees to termination of this Agreement, CMCC shall immediately terminate the license granted to License under this Agreement. In the event Licensee fails to establish its diligence to CMCC's reasonable satisfaction as provided above prior to expiration of the three (3) month grace period, CMCC shall have the right to terminate the license granted to Licensee under this Agreement or to convert the license granted to Licensee hereunder to a non-exclusive license on financial terms and conditions mutually agreed to by CMCC and Licensee. G. In the event Licensee fails to meet the objective(s) set forth in the Development Plan in a timely manner, CMCC shall notify Licensee thereof in writing, and Licensee shall have thirty (30) days following such notification to establish to the reasonable satisfaction of CMCC that (i) it has met such objective(s); or (ii) a revision to the Development Plan is necessary and appropriate as contemplated above. In the event Licensee fails to establish the same to CMCC's reasonable satisfaction, -7- CMCC shall have the right in its discretion to terminate the license granted to Licensee under this Agreement or to convert the license granted to Licensee hereunder to a nonexclusive license on financial terms and conditions mutually agreed to by CMCC and Licensee. ARTICLE IV. ROYALTIES AND OTHER PAYMENTS A. For the rights, privileges and exclusive licenses granted hereunder, Licensee shall pay to CMCC the following amounts in the manner hereinafter provided until the end of the term of the last to expire Patent Right, unless this Agreement shall be sooner terminated as hereinafter provided: 1. A license issue fee of (a) [CONFIDENTIAL TREATMENT REQUESTED] (b) [CONFIDENTIAL TREATMENT REQUESTED], payable upon commencement of the ACTG Trial provided that Licensee is chosen to be the supplier of the drug for said trial (c) [CONFIDENTIAL TREATMENT REQUESTED] upon receipt from [CONFIDENTIAL TREATMENT REQUESTED] of the memantine preparation previously provided to [CONFIDENTIAL TREATMENT REQUESTED] by [CONFIDENTIAL TREATMENT REQUESTED], provided that such memantine is provided in a form, quality (including appropriate documentation) and timeliness sufficient to initiate and conduct the ACTG Trial. 2. As further consideration for granting this License Agreement, upon formation of NewCo, CMCC shall be granted an option to obtain an equity interest of [CONFIDENTIAL TREATMENT REQUESTED] anti-dilution provisions such that CMCC's equity interest will be [CONFIDENTIAL TREATMENT REQUESTED] until NewCo has received at least [CONFIDENTIAL TREATMENT REQUESTED] in equity financing. 3. Licensee shall make, or induce NewCo to make, the following milestone payments to CMCC, in cash, or in stock if both parties agree, upon the occurrence of the following events ("Milestones"): # Milestone Payment ($) - - ----------- ----------- -8- (i) Licensee's decision to proceed with clinical [CONFI- development of memantine following completion of DENTIAL ACTG Trial TREATMENT REQUESTED] (ii) Initiation of the first clinical trial sufficient [CONFI- to support an NDA for memantine DENTIAL TREATMENT REQUESTED] (iii) Filing an NDA for memantine (iv) First commercial sale of a Licensed Product in [CONFI- [CONFIDENTIAL TREATMENT REQUESTED] DENTIAL TREATMENT REQUESTED] (v) Licensee's receipt of [CONFIDENTIAL TREATMENT [CONFI- REQUESTED] as an up-front cash payment from CMCC's DENTIAL Ophthalmologic Licensee for a Strategic TREATMENT Partnership REQUESTED] Notwithstanding the foregoing, if Licensee has provided funding for sponsored research to be conducted in Dr. Stuart Lipton's laboratory, up to [CONFIDENTIAL TREATMENT REQUESTED] of such funding for work to be conducted during the period beginning September 1, 1995 and ending December 31, 1996 may be credited against payment of Milestone (ii) above, and up to [CONFIDENTIAL TREATMENT REQUESTED] of such funding for work to be conducted during the period beginning January 1, 1997 and ending December 31, 1997 may be credited against payment of Milestone (iii) above. 4. Licensee shall pay CMCC a [CONFIDENTIAL TREATMENT REQUESTED] royalty on Net Sales of Licensed Products or Licensed Processes used, leased or sold by and/or for Licensee and/or its Affiliates, provided that (a) The royalty rate will be reduced by [CONFIDENTIAL TREATMENT REQUESTED] during any period in any country in which Licensee can demonstrate there is significant unlicensed competition in sales in the Field of Use (i.e., [CONFIDENTIAL TREATMENT REQUESTED] or more of sales in the Field of Use of products or processes that infringe upon the Patent Rights by third parties other than the Ophthalmologic Licensee), and (b) The license issuance fees paid by Licensee under Paragraph 1 of this Section IV.A and the milestone payments paid by Licensee under Paragraph 3 of this Section IV.A may be credited -9- against royalty payments up to a limit of [CONFIDENTIAL TREATMENT REQUESTED] of the royalty due in a given payment period. 5. In the event Licensee has granted sublicenses under this Agreement, [CONFIDENTIAL TREATMENT REQUESTED] of any and all payments received by Licensee from said sublicensees in consideration of permitting the sublicensee to practice the Patent Rights, including but not limited to sublicense issue fees, any lump sum payments, milestone payments, technology transfer payments or other similar fees, and royalties, but not including any payments designated and actually used for research, development or commercialization of Licensed Products or Licensed Processes; provided that with respect to running royalties in connection with a sublicensee's sales of Licensed Products or Licensed Processes, if the product is covered by a composition of matter patent, Licensee shall pay to CMCC hereunder an amount equal to the royalty CMCC would have received from Licensee if such sales had been made by Licensee. B. No multiple royalties shall be payable because any Licensed Product or Licensed Process, its manufacture, use, lease or sale are or shall be covered by more than one Patent Rights patent application or Patent Rights patent licensed under this Agreement. C. To the extent that Licensee obtains subsequent to the date of this Agreement licenses to third party patents or other intellectual property that are necessary to produce or sell Licensed Products or Licensed Processes, Licensee may deduct from the royalty due to CMCC [CONFIDENTIAL TREATMENT REQUESTED] of the royalties due on such third party patents or intellectual property up to an amount equal to [CONFIDENTIAL TREATMENT REQUESTED] of royalties hereunder. D. For purposes of calculating royalties, in the event that a Licensed Product or Licensed Process includes both component(s) covered by a valid claim of a Patent Right ("Patented Component") and a component which is diagnostically usable or therapeutically active alone or in a combination which does not require the Patented Component, and such component is not covered by a valid claim of a Patent Right ("Unpatented Component"), then Net Sales of the Combination Product or Combination Process shall be calculated using one of the following methods; provided that in no event shall royalties payable to CMCC hereunder by reduced to less than [CONFIDENTIAL TREATMENT REQUESTED] of those otherwise due hereunder: 1. By multiplying the Net Sales of the Combination Product or Combination Process during the applicable royalty accounting period ("accounting period") by a fraction, the numerator of which is the aggregate gross selling price of the Patented Component(s) contained -10- in the Combination Product or Combination Process if sold separately, and the denominator of which is the sum of the gross selling price of both the Patented Component(s) and the Unpatented Component(s) contained in the Combination Product or Combination Process if sold separately; or 2. In the event that no such separate sales are made of the Patented Component(s) or the Unpatented Components during the applicable accounting period, Net Sales for purposes of determining royalties payable hereunder shall be calculated by multiplying the Net Sales of the Combination Product or Combination Process by a fraction, the numerator of which is the fully allocated production cost of the Patented Component(s) and the denominator of which is the sum of the fully allocated production costs of the Patented Component(s) and the Unpatented Component(s) contained in the Combination Product or Combination Process. Such fully allocated costs shall be determined by using Licensee's standard accounting procedures, which procedures must conform to standard cost accounting procedures. E. Royalty payments shall be paid in United States dollars in Boston, Massachusetts, or at such other place as CMCC may reasonably designate consistent with the laws and regulations controlling in any foreign country. If the currency conversion shall be required in connection with the payments of royalties or other amounts hereunder, the conversion shall be made by using the exchange rate prevailing at the Bank of Boston on the last business day of the calendar quarterly reporting period to which such royalty payments relate. F. The royalty payments set forth in this Agreement shall, if overdue, bear interest until payment at a per annum rate of four percent (4%) above the prime rate in effect at the Bank of Boston on the due date. The payment of such interest shall not foreclose CMCC from exercising any other rights it may have as a consequence of the lateness of any payment. ARTICLE V. REPORTS AND RECORDS A. Licensee shall keep, and shall require its Affiliates and sublicensees to keep, full, true and accurate books of account in accordance with generally accepted accounting principles and containing sufficient detail to enable CMCC to determine the royalty and other amounts payable to CMCC under this Agreement. Said books of account shall be kept at Licensee's principal place of business or the principal place of business of the appropriate division of Licensee to which this Agreement relates. Said books and the supporting data shall be retained for at least five (5) years following the end of the calendar year to which they pertain. B. CMCC shall have the right to audit the books of account described above from time to time to the extent necessary to verify the reports provided for -11- herein or compliance in other respects with this Agreement. CMCC or its agents shall perform these audits at CMCC's expense during Licensee's regular business hours. C. Licensee shall deliver to CMCC true and accurate reports by March 31, for the period July 1 through December 31 of the previous year, and on September 30, for the period January 1 through June 30 of the current year, giving such particulars of the business conducted by Licensee, its Affiliates and its sublicensees under this Agreement as shall be pertinent to a royalty accounting hereunder and to verify Licensee's activities with respect to achieving the objectives of the Development Plan described in Article III above. These reports shall include at least the following: 1. Number of Licensed Products and Licensed Processes manufactured and sold. 2. Aggregate billings for Licensed Products and Licensed Processes sold. 3. Accounting for all Licensed Products and Licensed Processes sold. 4. Applicable deductions. 5. Total royalties due. 6. Names and addresses of all sublicensees of Licensee. 7. Payments received by Licensee from Affiliates and sublicensees. 8. Royalties and Fees received from sublicensees. 9. Licensed Products manufactured and sold to the U.S. Government. No royalty obligations shall arise from sales or use by, for or on behalf of the U.S. Government in view of a royalty free, nonexclusive license that may heretofore have been granted to the U.S. Government. D. Until the First Commercial Sale of a Licensed Product or Licensed Process, Licensee shall provide to CMCC at least annually reasonable detail regarding the activities of Licensee and Licensee's Affiliates and sublicensees relative to achieving the objectives set forth in the Development Plan in a timely manner, including but not limited to, reports of financial expenditures to achieve said objectives, research and development activities, regulatory approvals, strategic alliances and manufacturing, sublicensing and marketing efforts. -12- E. With each such report submitted, Licensee shall pay to CMCC the royalties due and payable under this Agreement. If no royalties shall be due, Licensee shall so report. F. On or before the ninetieth (90th) day following the close of Licensee's fiscal year, Licensee shall provide CMCC with Licensee's certified financial statements for the preceding fiscal year, including at a minimum a balance sheet and an operating statement. ARTICLE VI. PATENT PROSECUTION A. CMCC shall apply for, seek prompt issuance of, and maintain during the term of this Agreement the Patent Rights set forth in Appendix 1. The prosecution, filing and maintenance of all Patent Rights applications and patents shall be the primary responsibility of CMCC. Licensee shall have reasonable opportunities to advise CMCC and shall cooperate with CMCC in the prosecution, filing and maintenance of the Patent Rights. B. Licensee shall reimburse to CMCC the amount of all fees and costs relating to the filing, prosecution and maintenance of the Patent Rights incurred after the date of this Agreement unless any of those Rights are also licensed to a third party in a field of use other than the Field of Use, in which case, Licensee shall reimburse CMCC for half of the costs relating to the filing, prosecution and maintenance of those Patent Rights that are so licensed to said third party. CMCC shall provide to Licensee an itemized invoice of all such fees and Licensee shall pay to CMCC all amounts due under said invoice within ten (10) days of the date of said invoice. C. In the event CMCC elects not to pursue, maintain or retain a particular Patent Right licensed to Licensee hereunder, CMCC shall so notify Licensee in sufficient time for Licensee to assume the filing, prosecution and/or maintenance of such application or patent at Licensee's expense. In such event, CMCC shall provide to Licensee any authorization necessary to permit Licensee to pursue and/or maintain such Patent Right. Licensee shall have no further royalty obligations under this Agreement with respect to any such Patent Right. ARTICLE VII. INFRINGEMENT A. Licensee and CMCC shall each inform the other promptly in writing of any alleged infringement by a third party of the Patent Rights in the Field of Use and of any available evidence thereof. B. During the term of this Agreement, CMCC shall have the right, but shall not be obligated, to prosecute at its own expense any infringement of the Patent Rights and, in furtherance of such right, Licensee hereby agrees that CMCC may include Licensee as a party plaintiff in any such suit, without expense to Licensee. -13- The total cost of any such infringement action commenced or defended solely by CMCC shall be borne by CMCC. CMCC shall keep any recovery or damages for past infringement derived therefrom. C. If within six (6) months after having been notified of any alleged infringement, CMCC shall have been unsuccessful in persuading the alleged infringer to desist and shall not have brought and shall not be diligently prosecuting an infringement action, or if CMCC shall notify Licensee at any time prior thereto of its intention not to bring suit against any alleged infringer then, and in those events only, Licensee shall have the right, but shall not be obligated, to prosecute at its own expense any infringement of the Patent Rights, and Licensee may, for such purposes, use the name of CMCC as party plaintiff; provided, however, that such right to bring such an infringement action shall remain in effect only for so long as the license granted hereunder remains exclusive. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without the consent of CMCC, which consent shall not be unreasonably withheld. Licensee shall indemnify CMCC against any order for costs that may be made against CMCC in such proceedings. D. In the event Licensee shall undertake the enforcement and/or defense of the Patent Rights by litigation, Licensee may withhold up to fifty percent (50%) of the payments otherwise thereafter due to CMCC under Article IV above and apply the same toward reimbursement of up to fifty percent (50%) of Licensee's expenses, including reasonable attorney's fees, in connection therewith. Any recovery of damages by Licensee for each such suit shall be applied first in satisfaction of any unreimbursed expenses and legal fees of Licensee relating to such suit and next toward reimbursement of CMCC for any payments under Article IV past due or withheld and applied pursuant to this Article VII. The balance remaining from any such recovery shall be divided equally between Licensee and CMCC. E. In the event that a declaratory judgment action alleging invalidity or noninfringement of any of the Patent Rights shall be brought against Licensee, CMCC, at its option, shall have the right, within thirty (30) days after commencement of such action, to intervene and participate in the defense of the action at its own expense. F. In any infringement suit which either party may institute to enforce the Patent Rights pursuant to this Agreement, the other party hereto shall, at the request and the expense of the party initiating such suit, cooperate in all reasonable respects and, to the extent reasonably possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like. G. Licensee shall during the exclusive period of this Agreement have the sole right subject to the terms and conditions hereof to sublicense any alleged infringer for future use of the Patent Rights. Any upfront fees paid to Licensee as -14- part of such a sublicense shall be shared equally between Licensee and CMCC. Any other royalties shall be treated as set forth in Article IV, Paragraph 5. ARTICLE VIII. INDEMNIFICATION AND INSURANCE PROVISIONS A. Licensee shall indemnify, defend and hold harmless CMCC and HARVARD, its corporate affiliates, current or future directors, trustees, officers, faculty, medical and professional staff, employees, students and agents and their respective successors, heirs and assigns (the "Indemnitees"), against any liability, damage, loss or expense (including reasonable attorney's fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments arising out of any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) concerning any product, process or service made, used or sold pursuant to any right or license granted under this Agreement. B. Licensee's indemnification under Article VIII, Paragraph A above shall not apply to any liability, damage, loss or expense to the extent that it is directly attributable to the negligent activities, reckless misconduct or intentional misconduct of the Indemnitees. C. Licensee agrees, at its own expense, to provide attorneys reasonably acceptable to CMCC to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. D. Article VIII, Paragraphs A through C shall survive expiration or termination of this Agreement. E. Beginning at the time as any such product, process or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a sublicensee, Affiliate or agent of Licensee, Licensee shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate and naming the Indemnitees as additional insureds. Such commercial general liability insurance shall provide (i) product liability coverage and (ii) contractual liability coverage for Licensee's indemnification under Article VIII, Paragraphs A through C of this Agreement. If Licensee elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate), such self-insurance program must be acceptable to CMCC and the Risk Management Foundation of the Harvard Medical Institutions, Inc. The minimum amount of insurance coverage required under this Article VIII, Paragraph E. shall not be construed to create a limit of Licensee's liability with respect to its indemnification under Article VIII, Paragraphs A through C of this Agreement. -15- F. Licensee shall provide CMCC with written evidence of such insurance upon request of CMCC. Licensee shall provide CMCC with written notice at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance. If Licensee does not obtain replacement insurance providing comparable coverage within such fifteen (15) day period, CMCC shall have the right to terminate this Agreement effective at the end of such fifteen (15) day period without notice of any additional waiting periods. G. Licensee shall maintain such commercial general liability insurance during (i) the period that any such product, process or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a sublicensee, Affiliate or agent of Licensee and (ii) a reasonable period after the period referred to above, which in no event shall be less than fifteen (15) years. H. Article VIII, Paragraphs E through G shall survive expiration or termination of this Agreement. I. OTHER THAN WARRANTIES SET FORTH HEREIN, CMCC MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. J. Licensee shall indemnify defend and hold harmless [CONFIDENTIAL TREATMENT REQUESTED] and their respective corporate affiliates, current or future directors, trustees, officers, faculty, medical and professional staff, employees, students and agents and their respective successors, heirs and assigns (collectively, the "[CONFIDENTIAL TREATMENT REQUESTED]-related Indemnitees") against any claims, liability, damage, loss or expense (including reasonable attorney's fees and expenses of litigation) incurred by or imposed upon the [CONFIDENTIAL TREATMENT REQUESTED]-Related Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments which may ever accrue to [CONFIDENTIAL TREATMENT REQUESTED] or their respective heirs, executors, legal representatives, successors or assigns in any way pertaining to or arising out of [CONFIDENTIAL TREATMENT REQUESTED] activities with respect to memantine or the ACTG Trial or any dealings with the [CONFIDENTIAL TREATMENT REQUESTED]-related Indemnitees. ARTICLE IX. EXPORT CONTROLS It is understood that CMCC is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities (including the Arms Export Control Act, as amended and the -16- Export Administration Act of 1979), and that its obligations hereunder are contingent on compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may require a license from the cognizant agency of the United States Government and/or written assurances by Licensee that Licensee shall not export data or commodities to certain foreign countries without prior approval of such agency. CMCC neither represents that a license shall not be required, nor that if required, it shall be issued. ARTICLE X. NON-USE OF NAMES Licensee shall not use the name of Children's Medical Center Corporation or HARVARD nor the name of any of their respective corporate affiliates or employees, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from CMCC in each case, except that Licensee may state that it is licensed by CMCC under one or more of the patents and/or applications comprising the Patent Rights, and Licensee may comply with disclosure requirements of all applicable laws relating to its business, including United States and state security laws. ARTICLE XI. ASSIGNMENT A. Except as otherwise provided herein, this Agreement is not assignable in whole or in part, and any attempt to do so shall be void and of no force and effect. B. CMCC may assign this Agreement at any time to any corporate affiliate of CMCC without the prior consent of Licensee. C. Except as provided in Article XI, Paragraph D and Paragraph E below, Licensee may assign this Agreement to another entity only with the prior written consent of CMCC, which consent shall not be unreasonably withheld or delayed. D. Notwithstanding anything herein to the contrary, in the event Licensee merges with another entity, is acquired by another entity, or sells all or substantially all of its assets to another entity, Licensee may assign its rights and obligations hereunder to, in the event of a merger or acquisition, the surviving entity, and in the event of a sale, the acquiring entity, without CMCC's consent so long as: (i) Licensee is not then in breach of this Agreement; (ii) the proposed assignee has a net worth at least equivalent to the net worth Licensee had as of the date of this Agreement; (iii) the proposed assignee has available resources and sufficient scientific, business and other expertise comparable to Licensee in order to satisfy its obligations hereunder; (iv) Licensee provides written notice of the assignment to CMCC, together with documentation sufficient to demonstrate the requirements set forth in subparagraphs (i) through (iii) above, at least thirty (30) days prior to the effective date of the assignment; and (v) CMCC receives from the assignee, in writing, at least thirty (30) days prior to the effective date of the assignment: (a) reaffirmation of the terms of this Agreement; (b) an agreement to be bound by the -17- terms of this Agreement; and (c) an agreement to perform the obligations of Licensee under this Agreement. E. Licensee may assign this Agreement to NewCo under terms that are reasonably acceptable to CMCC; such terms shall provide, among other matters, that Licensee shall remain liable for the performance of all obligations under this Agreement. ARTICLE XII. DISPUTE RESOLUTION AND ARBITRATION A. Except for the right of either party to apply to a court of competent jurisdiction for a temporary restraining order, a preliminary injunction, or other equitable relief to preserve the status quo or prevent irreparable harm, any and all claims, disputes or controversies between CMCC and Licensee arising under, out of, or in connection with the Agreement, including any dispute relating to patent validity or infringement, which the parties shall be unable to resolve within sixty (60) days shall be mediated in good faith. The party raising such dispute shall promptly advise the other of such claim, dispute or controversy in writing, describing the dispute in reasonable detail. By no later than five (5) business says after the recipient has received such notice of dispute, each party shall have selected a representative who shall have the authority to bind such party and shall have advised the other party in writing of the name and title of such representative. B. Within fifteen (15) days of receipt of a request for mediation as described above, the parties agree to commence mediation in the City of Boston, Commonwealth of Massachusetts in accordance with the policies and procedures of Endispute, Inc. ("Endispute"), or in the event that Endispute is no longer in operation, in accordance with the policies and procedures of the American Arbitration Association. The parties shall select a mediator acceptable to both of them from a list provided by Endispute. The parties agree to cooperate in good faith in said mediators efforts to assist the parties to resolve the dispute. Each party agrees to pay fifty percent (50%) of the costs of said mediation. If the matter has not been resolved within thirty (30) days of the commencement of mediation, either party may request in writing that the matter be submitted to arbitration in accordance with the following subparagraph. C. Any and all claims, disputes or controversies arising under, out of, or in connection with this Agreement, which have not been resolved by good faith negotiations between the parties or by mediation shall be resolved by final and binding arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association ("AAA") then obtaining and all expenses, in connection therewith, will be shared equally, except for the expense of the parties' respective legal counsels. A single arbitrator shall be mutually agreed upon and if the parties are unable to agree on a mutually acceptable arbitrator, an arbitrator shall be chosen in accordance with AAA rules. Any award rendered in such arbitration shall be final and may be enforced by either party. -18- D. Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement. ARTICLE XIII. TERM AND TERMINATION A. The term of this Agreement shall be not less than [CONFIDENTIAL TREATMENT REQUESTED] years or the life of the last expiring Patent Right, whichever period is the longer term. B. CMCC may terminate this Agreement immediately upon the bankruptcy, insolvency, liquidation, dissolution or cessation of operations of Licensee; or the filing of any voluntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of Licensee; or any assignment by Licensee for the benefit of creditors; or the filing of any involuntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of Licensee which is not dismissed within ninety (90) days of the date on which it is filed or commenced. C. CMCC may terminate this Agreement upon thirty (30) days' prior written notice in the event of Licensee's failure to pay to CMCC royalties due and payable hereunder in a timely manner, unless Licensee shall make all such payments to CMCC within said thirty (30) day period. Upon the expiration of the thirty (30) day period, if Licensee shall not have made all such payments to CMCC, the rights, privileges and licenses granted hereunder shall terminate. D. Except as otherwise provided in Paragraph C above, CMCC may terminate this Agreement upon ninety (90) days' prior written notice in the event of Licensee's breach or default of any material term or condition or warranty contained in this Agreement, unless Licensee shall cure such breach to CMCC's reasonable satisfaction within said ninety (90) day period. Upon the expiration of the ninety (90) day period, if Licensee shall not have cured said breach to the reasonable satisfaction of CMCC, the rights, privileges and license granted hereunder shall terminate. E. Prior to the first offering for sale of a Licensed Product in any country, Licensee may terminate this Agreement upon three (3) months' prior written notice to CMCC without cause or penalty and upon payment by Licensee of all amounts due CMCC through the effective date of termination. If such termination takes place prior to the completion of the ACTG Clinical Trial #301, all information, data and drug material NTI develops in preparing to supply the ACTG Trial will be provided to CMCC. F. After the first offering for sale of a Licensed Product in a country, Licensee may terminate this Agreement in whole or as it pertains to that country upon twelve (12) months' prior written notice to CMCC without cause or penalty and upon payment by Licensee of all amounts due CMCC through the effective date of termination. -19- G. Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. Licensee and any sublicensee thereof may, however, after the effective date of such termination, sell all Licensed Products and complete Licensed Products in the process of manufacture at the time of such termination and sell the same, provided that Licensee shall pay to CMCC the royalties thereon as required under this Agreement and shall submit the reports required under this Agreement on the sales of Licensed Products. H. In the event of termination of this Agreement for any reason, all payments due or made to CMCC by Licensee shall be nonrefundable. ARTICLE XIV. PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS A. All payments, notices, reports and/or other communications made in accordance with this Agreement, shall be sufficiently made or given on the date of the mailing if delivered by hand, by facsimile or sent by first class mail postage prepaid and addressed as follows: In the case of CMCC: Director, Technology Transfer Office of Research Administration Children's Hospital 300 Longwood Avenue Boston, MA 02115 In the case of Licensee: President Neurobiological Technologies, Inc. 1387 Marina Way South Richmond, California 94804 or such other address as either party shall notify the other in writing. ARTICLE XV. COMMERCIAL DEVELOPMENT A. Licensee shall be responsible for all research and development activi- ties required for commercial development of Licensed Products in the Field of Use at Licensee's sole cost. B. All applications required for regulatory approval of Licensed Products (e.g., INDs, NDAs, PLAs, etc.) shall be filed by Licensee, shall be at its sole cost, in its name, and be owned by it. -20- C. Licensee shall be free to source all raw materials needed to pursue the commercialization of Licensed Products from vendors of Licensee's choice. D. Licensee shall be responsible for all sales, marketing, and distribution of all Licensed Products at its sole cost. E. Licensee shall select and register trademarks for brand names for all Licensed Products and such trademarks shall be the sole property of Licensee. F. Licensee acknowledges that CMCC has licensed or intends to license the Patent Rights to CMCC's Other Licensee for fields of use other than the Licensee's Field of Use. It is the intent of CMCC that each of Licensee and CMCC's Other Licensee focus and limit its commercial development efforts to its respective field of use. Licensee has requested that CMCC provide Licensee with the name, address, and description of the field of use of CMCC's Other Licensee and the name and telephone number of the principal contact of the other licensee within thirty (30) days of execution of a definitive agreement with the other licensee. Licensee and CMCC agree that the provisions detailed in Appendix 3 shall govern the interaction and communication between LICENSEE and Other Licensee. CMCC warrants that it will require reciprocal provisions in any agreement with CMCC's Other Licensee. To ensure that each licensee is aware of these reciprocal provisions, copies of the appropriate sections of the respective agreements dealing with matters in this Article and Appendix 3 shall be provided to Licensee and CMCC's Other Licensee. ARTICLE XVI. GENERAL PROVISIONS A. All rights and remedies hereunder will be cumulative and not alterna- tive, and this Agreement shall be construed and governed by the laws of the Commonwealth of Massachusetts. B. This Agreement may be amended only by written agreement signed by the parties. C. It is expressly agreed by the parties hereto that CMCC and Licensee are independent contractors and nothing in this Agreement is intended to create an employer relationship, joint venture, or partnership between the parties. No party has the authority to bind the other. D. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all proposals, negotiations and other communications between the parties, whether written or oral, with respect to the subject matter hereof. E. If any provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired thereby. -21- F. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, but all of which taken together shall constitute but one and the same instrument. G. The failure of either party to assert a right to which it is entitled or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party. H. Licensee agrees to mark any Licensed Products sold in the United States with all applicable United States patent numbers. All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practices of the country of manufacture or sale. I. Each party hereto agrees to execute, acknowledge and deliver such further instruments and do all such further acts as may be necessary or appropriate to carry out the purposes and intent of this Agreement. J. The paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date last written below. CHILDREN'S MEDICAL CENTER LICENSEE CORPORATION By: /s/ William New By: /s/ Michael S. Ostrach ------------------------------- ------------------------------------- Name: William New Name: Michael S. Ostrach ----------------------------- ----------------------------------- Title: Director, Research Affairs Title: Executive Vice President & C.O.O ---------------------------- ---------------------------------- Date: 8/11/95 Date: September 11, 1995 ----------------------------- ----------------------------------- -22- APPENDIX 1 [CONFIDENTIAL TREATMENT REQUESTED] -23- APPENDIX 2 [CONFIDENTIAL TREATMENT REQUESTED] -24- APPENDIX 3 INTERACTION AND COMMUNICATION BETWEEN LICENSEE AND CMCC'S OTHER LICENSEE A. Licensee agrees to establish a Scientific Management Committee (hereinafter "SMC") to allow Licensee and CMCC's Other Licensee to communicate with one another and/or receive information from one another concerning the commercial development of the Patent Rights. The SMC shall consist of four members, two appointed by Licensee and two appointed by CMCC's Other Licensee. The Chairperson of the SMC shall be appointed alternately from the representatives of each licensee and shall hold position for one year. Licensee shall appoint the first Chairperson. CMCC and the Massachusetts Eye and Ear Infirmary shall each have the right to select a representative to participate in the SMC as an observer. In addition, Dr. Stuart Lipton will be provided opportunities to be engaged by Licensee as consultants, as appropriate, for their expertise, advise, and counsel. The SMC will meet as soon as reasonably possible following the execution of this Agreement and notification by CMCC that CMCC has entered into a definitive agreement with CMCC's Other Licensee. The SMC shall meet, thereafter, at six (6) month intervals, or as otherwise agreed between Licensee and CMCC's Other Licensee to communicate progress on research activities and to review and recommend possible research projects for joint sponsorship and funding. Minutes of these meetings shall be taken and distributed to Licensee, CMCC, and CMCC's Other Licensee as a formal record of the proceedings and actions, if any. B. All data and information generated by Licensee's research and development activities with respect to the Patent Rights shall remain the exclusive property of Licensee and all data and information generated by CMCC's Other Licensee's research and development activities with respect to the Patent Rights shall remain the exclusive property of CMCC's Other Licensee. Neither Licensee nor CMCC's Other Licensee shall have the right to use the other's data and information for any purpose without written permission from the other. To the extent that the licensees agree to cosponsor and co-fund certain research activities during their development of the Patent Rights, both parties shall jointly own the resulting data and information and shall both have the right to use the data and information as they see fit. Notwithstanding the above, the licensees shall communicate to one another how they intend to use such joint data and information through the SMC and the SMC shall coordinate the use, and the timing of the use, of such joint data and information by both licensees to ensure that neither licensee is unfairly disadvantaged by such use. C. Licensee and CMCC acknowledge that Licensee and CMCC's Other Licensee may develop, market and sell the same dosage form and strength of the same compound for different indications. It is CMCC's intent that each licensee focus only on its licensed field of use. However, if significant Net Sales of one licensee can be shown to have been made for indications within the other licensee's field of use, a rebate to compensate the other licensee will be provided by the -25- licensee receiving the profits from said sales in the other licensee's field of use. Such a rebate, if any, shall be determined based upon the Net Sales booked by each licensee and the percent of prescriptions attributed to indications and/or the appropriate prescribers within the licensee's field of use as measured by NDTI, PDDA, or other agreed upon prescription audit. Such rebate shall be equal to the profit the other licensee would have received if it had made the sale in its field of use but shall not exceed the profit actually realized by the licensee making the sale. D. CMCC will grant or cause CMCC's Other Licensee to grant a first right of refusal to Licensee to obtain an exclusive royalty-bearing license outside CMCC's Other Licensee's field of use to make, have made, use, and sell any pharmaceutical composition covered under the Patent Rights that is discovered by CMCC's other licensee during the term of this Agreement. E. Licensee agrees CMCC will grant or Licensee will grant a first right of refusal to CMCC's Other Licensee to obtain an exclusive royalty-bearing license within CMCC's Other Licensee's field of use to make, have made, use, and sell any pharmaceutical composition covered under the Patent Rights that is discovered by Licensee during the term of this agreement. F. The provisions of this Appendix 3 may be changed only with the mutual consent of Licensee, CMCC's Other Licensee, and CMCC. CMCC shall not unreasonably withhold or delay consent to any change agreed to by Licensee and CMCC's Other Licensee. -26- [CERTAIN INFORMATION HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER 24b-2. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION] AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT This Amendment to the Exclusive License Agreement (the "License Agreement") made as of September 11, 1995 by and between CHILDREN'S MEDICAL CENTER CORPORATION ("CMCC") and NEUROBIOLOGICAL TECHNOLOGIES INC. ("Licensee") is made as of the first day of March, 1996. WHEREAS, Children's Hospital and Licensee are entering into, as of the date of this Agreement, a Sponsored Research Agreement ("Research Agreement") which provides for funding by Licensee of research at Children's Hospital; WHEREAS, the parties wish to modify the License Agreement provision for crediting the consideration provided under the Research Agreement against Milestone payments due under the License Agreement; NOW, THEREFORE, in consideration of the premises and the execution of the Research Agreement, the parties hereto agree as follows: The last paragraph of Article IV.A.3 of the License Agreement is hereby replaced in its entirety by the following paragraph: "Notwithstanding the foregoing, if Licensee has provided funding or equipment for sponsored research to be conducted in Dr. Stuart Lipton's laboratory, up to [CONFIDENTIAL TREATMENT REQUESTED] of such consideration provided during the period beginning September 1, 1995 and ending December 31, 1996 may be credited against payment of Milestone(ii) above, and up to [CONFIDENTIAL TREATMENT REQUESTED] of such consideration provided during the period January 1, 1997 and ending December 31, 1997, together with any such consideration in excess of [CONFIDENTIAL TREATMENT REQUESTED] in value provided in the previous period, may be credited against payment of Milestone (iii) above. For purposes of this paragraph, amounts paid by Licensee as lease payments for equipment provided to the laboratory or the value of equipment actually purchased -27- shall be deemed to be consideration eligible for the above credit." IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CHILDREN'S MEDICAL CENTER LICENSEE CORPORATION By: /s/ William New By: /s/ Michael S. Ostrach ------------------------------- -------------------------------------- Name: William New Name: Michael S. Ostrach ----------------------------- ------------------------------------ Title: Director, Research Affairs Title: Executive Vice President & C.O.O ---------------------------- ----------------------------------- Date: 3/11/96 Date: 3/5/96 ----------------------------- ------------------------------------ -28- -----END PRIVACY-ENHANCED MESSAGE-----