<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB
Quarterly or Transitional Report
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1995
--------------------------------------------------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-13789
NASTECH PHARMACEUTICAL COMPANY INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2658569
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
45 Davids Drive, Hauppauge, New York 11788
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 273-0101
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- ----------------
<S> <C>
Common Stock, $.002 par value Nasdaq Small-Cap Market
</TABLE>
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- ---------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
DATE CLASS SHARES OUTSTANDING
---- ----- ------------------
<S> <C> <C>
9/30/95 Common stock - $.006 par value 3,221,447
</TABLE>
<PAGE> 2
NASTECH PHARMACEUTICAL COMPANY INC.
SEPTEMBER 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION: PAGE NO.
<S> <C>
ITEM 1. Balance Sheets as of September 30, 1995
and June 30, 1995 3
Statements of Operations
Three Months Ended
September 30, 1995 and
September 30, 1994 4
Statement of Stockholders' Equity
Years Ended June 30, 1995 and 1994
and the Three Months ended
September 30, 1995 5
Statement of Cash Flows
Three Months Ended September 30, 1995
and September 30, 1994 6
Notes to Financial Statements 7 - 8
ITEM 2. Management's Discussion and 9 - 11
Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION:
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities 12
ITEM 3. Defaults Upon Senior Securities 12
ITEM 4. Submission of Matters to a Vote 12
of Security Holders
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE> 3
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEET (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1995
(UNAUDITED) (*)
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $706,276 $819,985
Short-Term investments 4,196,210 4,198,869
Royalties receivable 814,877 759,349
Prepaid expenses and sundry 33,950 63,670
-------------- -------------
5,751,313 5,841,873
-------------- -------------
PROPERTY AND EQUIPMENT 302,004 219,283
Less: Accumulated depreciation and amortization 60,720 45,857
-------------- -------------
241,284 173,426
-------------- -------------
OTHER ASSETS:
Security deposits 19,613 19,613
-------------- -------------
$6,012,210 $6,034,912
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $727,140 565,185
Royalties payable 390,985 368,630
Notes payable 23,297 40,942
Accrued interest payable 11,263 42,966
Accrued expenses and sundry
liabilities 179,286 218,856
Current maturities of long-term debt 194,811 161,186
-------------- -------------
1,526,782 1,397,765
-------------- -------------
LONG-TERM DEBT - NET OF CURRENT MATURITIES 174,894 348,965
-------------- -------------
STOCKHOLDERS' EQUITY
Common stock - par value $.006 per share,
authorized 6,000,000 shares, issued and
outstanding 3,221,447 shares at September 30, 1995
and June 30, 1995, respectively 19,329 19,329
Additional paid-in capital 10,575,159 10,575,159
Accumulated deficit (6,283,954) (6,306,306)
-------------- -------------
4,310,534 4,288,182
-------------- -------------
$6,012,210 $6,034,912
============== =============
</TABLE>
* The Balance Sheet as of June 30, 1995 has been summarized from the Company's
audited Balance Sheet as of that date.
<PAGE> 4
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
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<S> <C> <C>
REVENUES
License Fee, Royalty and
Research Income $818,459 $654,188
Interest Income 63,051 54,048
------------- -------------
881,510 708,236
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COSTS AND EXPENSES
Research and Development 283,259 139,982
Royalties 391,191 296,969
------------- -------------
674,450 436,951
General and Administrative 168,602 158,731
Interest Expense 13,106 11,232
------------- -------------
856,158 606,914
------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 25,352 101,322
PROVISION FOR INCOME TAXES 3,000 5,000
NET INCOME $22,352 $96,322
============= =============
NET INCOME PER COMMON
AND COMMON EQUIVALENT
SHARE $0.01 $0.03
============= =============
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES 3,849,776 3,242,876
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
and the Three Months Ended September 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------------ ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE - June 30, 1993 1,428,723 $8,572 $5,691,150 ($6,434,508) ($734,786)
Stock issued in connection
with private placement 200,000 1,200 203,814 205,014
at $1.20 per share
Additional shares issued in
connection with public
offering at $3.75 per
share 1,485,000 8,910 4,627,242 4,636,152
Fractional shares redeemed
in connection with reverse
stock split (2,038) (12) (4,988) (5,000)
----------- ----------- ----------- ----------- -----------
Net income 207,647 207,647
BALANCE JUNE 30, 1994 3,111,685 18,670 10,517,218 (6,226,861) 4,309,027
Stock issued in connection
with exercise of 109,999 660 57,940 58,600
stock options
Fractional shares redeemed
in connection with
reverse stock split (237) (1) 1
Net loss (79,445) (79,445)
----------- ----------- ----------- ----------- -----------
BALANCE JUNE 30, 1995 3,221,447 19,329 10,575,159 (6,306,306) 4,288,182
----------- ----------- ----------- ----------- -----------
Net income-Three Months Ended
September 30, 1995 22,352 22,352
----------- ----------- ----------- ----------- -----------
3,221,447 $19,329 $10,575,159 ($6,283,954) $4,310,534
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to Financial Statements
<PAGE> 6
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $22,352 $96,322
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,863 5,681
Changes in assets and liabilities:
Royalties receivable (55,528) 101,471
Prepaid expenses and sundry 29,720 6,754
Accounts payable 161,955 (29,389)
Royalties payable 22,355 (51,120)
Accrued interest payable (31,703) (18,990)
Accrued expenses and sundry liabilities (39,570) (9,550)
------------ ------------
Net cash provided by operating
activities 124,444 101,179
------------ ------------
INVESTING ACTIVITIES:
Property, plant and equipment (82,721) (11,321)
Short-term investments - net 2,659 724,509
Deferred Charges --- ---
------------ ------------
Net cash provided (used) by investing activities (80,062) 713,188
FINANCING ACTIVITIES:
Repayment of debt (158,091) (110,168)
NET INCREASE (Decrease) (113,709) 704,199
CASH AND CASH EQUIVALENTS - BEGINNING 819,985 3,214,929
------------ ------------
CASH AND CASH EQUIVALENTS - ENDING $706,276 $3,919,128
============ ============
Supplemental Cash Flow Information:
Interest paid $42,946 $29,925
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 7
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
(1) General
The accompanying financial information should be read in conjunction
with the financial statements, including the notes thereto, for the
year ended June 30, 1995.
The information furnished in this report reflects all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair statement of the results
for the interim periods.
(2) Reverse Stock Split and Increase in Authorized Shares
On November 8, 1993 shareholders approved a one for three reverse
split of the common stock of the Company and an increase in the newly
authorized shares to 6,000,000. Numbers of shares and per share data
disclosed herein have been retroactively adjusted to reflect the stock
split for all periods presented.
(3) Public Offering and Private Placement
The Company completed a Public Offering of 742,500 units of common
stock and warrants in Fiscal 1994. The units in the aggregate
consisted of 1,485,000 shares of common stock and 1,485,000 common
stock warrants.
Each Warrant entitles the holder to purchase one share of Common Stock
at a price of $5.50 at any time through December 7, 1996. The
Warrants are subject to redemption by the Company at $.05 per Warrant
on 30 days' prior written notice if the closing bid price for the
Common Stock, as reported on NASDAQ is in excess of $5.63 for 20
consecutive trading days ending within 10 days of the notice of
redemption of the Warrants.
The Company sold to the representative of the underwriter for the
offering at a price of $67.50, warrants to purchase one unit for every
ten units sold in the offering up to an aggregate of 67,500 units at
an exercise price per warrant of $8.25 per Unit (110% of the initial
public offering price per unit), exercisable for a period of four
years commencing December 7, 1994.
The Company had a private placement of 200,000 shares of common stock
on September 14, 1993 resulting in net proceeds to the Company of
$205,000. The proceeds were used to provide funding for the costs
incurred related to the public offering.
7
<PAGE> 8
The Company is authorized to issue up to 100,000 shares of Preferred
Stock the designations, powers, preferences and rights of which may be
determined, from time to time, by the Company's Board of Directors.
In accordance with its agreement with Basil, the Company may not
declare or pay any dividends.
(4) Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share are calculated using
the weighted average number of common shares outstanding during the
period and the net additional number of shares which would be issuable
upon the exercise of stock options and warrants, assuming that the
Company used the proceeds received to purchase additional shares at
market value.
(5) Income Taxes
At September 30, 1995, the Company has net operating loss
carryforwards of approximately $4,400,000 for income tax purposes,
available to reduce future taxable income, expiring from 1998 through
2010.
Federal income taxes normally provided for the income have been offset
by the effect of the use of the loss carryforwards at September 30,
1995 and 1994. The income tax provisions for the three months ended
September 30, 1995 and 1994 represents the New York State minimum tax
on income which does not allow a deduction for the net operating loss
carryforward.
8
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1994
During the three months ended September 30, 1995, the Company
continued to conduct the pharmacological research and/or assemble the technical
and reference data required to gain marketing approval from the appropriate
regulatory agencies for four new drug products. The Company conducted
bioavailability and toxicity studies in animals with respect to its nasal
formulation of doxylamine. The drug demonstrated higher systemic absorption
following nasal versus oral administration with no evidence of local nasal
toxicity. The results of the pre-clinical studies and additional support
documentation were compiled and submitted with the Company's IND to the FDA.
The company also has been generating preclinical data in preparation for the
submission of an IND for its nasal formulation of chlorpheniramine. A pilot
bioavailability study of nasal chlorpheniramine in animal models demonstrated
higher systemic absorption of the drug following nasal versus oral
administration. The Company is presently preparing to conduct a full
preclinical investigation to allow for the submission of an IND with the FDA.
In August 1993, the Company submitted a supplemental clinical study to
the FDA and requested approval of its NDA for the nasal vitamin B-12, which was
originally accepted for filing in February, 1989. The FDA, in a letter dated
July 21, 1994, notified the Company that the NDA was not approvable at that
time due to questions concerning systematic bioavailability and reproducibility
of drug delivery via the unit dose nasal applicator tube used by the Company at
the time. In the past year, the Company completed its evaluation of a new
metered dose delivery system by conducting an additional clinical study
utilizing this new delivery system and anticipates filing a further amendment
to its NDA to address the foregoing issues. Approval by the FDA of the
Company's therapeutic, intranasal vitamin B12 NDA and other new drug products
being developed by the Company cannot be predicted with any certainty and
unless and until the Company received regulatory approval to market its drugs
from the appropriate governmental authorities, it anticipates having limited
operating revenues.
In the three months ended September 30, 1995, the Company has expended
$283,259 for its preclinical and clinical research and development. This
compares with $139,982 expended in the corresponding prior year period. This
increase in research and development activity reflects the Company's commitment
to accelerate its efforts to develop its nasal pharmaceutical formulations and
should be expected to continue.
Proceeds from the sale of the Company's research, and licensing of its
proprietary technology, have significantly increased in the last fiscal year
compared to the prior year. Revenue of $818,459 was earned by the Company in
the current three month period as a result of licensing, royalty and
9
<PAGE> 10
research income. This revenue level reflects a 25.1% increase from revenues of
$654,188 in the corresponding prior year period. Interest income earned in the
three months ended September 30, 1995 was $63,501, compared to $54,048 earned
in the three months ended September 30, 1994. The increase is attributable to
changes interest rates and amounts of excess funds invested. Total revenue was
$881,510 and $708,236 for the three months ended September 30, 1995 and 1994,
respectively.
The Company earned revenues of $795,000 from royalties received from
the Bristol-Myers Squibb Company ("BMS") for the three months ended September
30, 1995 ($594,000 in the corresponding period in fiscal 1995) pursuant to a
sublicense agreement (the "BMS Agreement") for a nasal formulation of
butorphanol, a narcotic analgesic. BMS received marketing approval from the
FDA for butorphanol, which its markets as Stadol NS, in December, 1991.
Management anticipates that a significant portion of its revenues for the
current fiscal year and some additional periods will be derived from expected
royalties from the BMS Agreement. Royalties from the BMS Agreement commenced
in the quarter ended December 31, 1992 and have increased since that time based
upon sales by BMS of Stadol NS. However, there is no assurance that such sales
will continue to increase or be maintained and therefore, there is no assurance
of any future minimum royalties.
The Company recognized no earnings from the continued marketing of the
Company's non-prescription vitamin B12 nasal gel by Nature's Bounty, Inc.
("NB"). This compares to revenues of $35,000 earned from this product in the
corresponding period of the prior fiscal year. In a regulatory letter dated
February 26, 1987, the FDA advised NB of the FDA's position that the
non-prescription nasal vitamin B-12 dietary supplement is a "new drug",
requiring approval of an NDA for marketing. The FDA requested that NB
discontinue marketing of the product and commenced litigation. In March, 1995,
the United States District Court for the Eastern District of New York ruled
that NB is permanently enjoined from introducing or delivering for introduction
into interstate commerce the vitamin B12 nasal dietary supplement unless there
is in effect an NDA that has been reviewed and approved by the FDA. The
Company has been advised that the decision of the United States District Court
is currently being appealed. The ultimate disposition of this matter is beyond
the control of the Company, as the Company is not a party to the litigation.
The Company has been advised by NB that, pending appeal, it has not withdrawn
the product. As a result of the foregoing litigation, NB has stopped remitting
royalty payments to the Company. In this regard, the Company will not
recognize as income any such royalties until received. Royalties, if any, from
this product are expected to be limited. There can be no assurance that the
matter will be resolved in favor of NB or that it will not be required to
withdraw the product at a later date as a result of this litigation or
subsequent legislation granting the FDA jurisdiction to regulate vitamins and
dietary supplements such as the vitamin B12 nasal dietary supplement. As the
Company has not received any royalties from NB in the three months ended
September 30, 1995, the current earnings have been significantly reduced.
However, the discontinuance of the related royalties has not had a material
adverse impact on capital resources or liquidity.
Royalties expense increased in the three months ended September 30,
1995 to $391,191 from $296,969 in the corresponding period in fiscal 1995 as
the royalties received from BMS are also
10
<PAGE> 11
subject to a separate license agreement between the Company and a third party.
As a result, royalties expense in connection with Stadol NS will increase
approximately in proportion to royalty income. General and administrative
expenses also increased in the current three month period to $168,602 as
compared to $158,731 in the corresponding period of the prior fiscal year.
This increase is attributable to increased staffing; costs associated with the
Company's move to larger and more modern laboratory, manufacturing and office
facilities; and consulting expenses relating to strategic planning.
As a result of the availability of funds provided by increased revenue
as well as the liquidity provided by the December 1993 public offering, the
company has budgeted an increase in its research and development efforts and
related general and administrative support. It is anticipated that as
expenditures for research and development and supporting functions increase,
the Company's net income will be negatively affected.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had cash and cash equivalents of
$706,276 as compared to $819,985 at June 30, 1995. The Company also had
short-term investments of $4,196,210 at September 30, 1995, (compared with
$4,198,869 at June 30, 1995). The combined cash and short- term investments
primarily consisted of the net proceeds of the Company's December, 1993 public
offering. In addition, the Company had royalties receivable of $814,877 at
September 30, 1995 compared to $759,349 at June 30, 1995. The royalties
receivable are principally royalty income from the BMS Agreement..
As of September 30, 1995, the Company had working capital of
$4,224,531. Management believes that the Company has adequate resources to
meet expected needs and to fund its anticipated research and development
efforts for the next eighteen months. The Company has been able to maintain
its operations and its continued liquidity is dependent on its ability to
control its operating costs and the receipt of revenue from Bristol-Myers
Squibb Company as set forth above.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, duly authorized at Hauppauge, New York on the 13th day of
November, 1995.
NASTECH PHARMACEUTICAL COMPANY INC.
BY: /s/ Vincent D. Romeo
------------------------------------
Dr. VINCENT D. ROMEO, President
and Chief Executive Officer
BY: /s/ Carol Wenig
------------------------------------
CAROL WENIG, Assistant Secretary
Treasurer & Assistant Principal
Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 706,276
<SECURITIES> 4,196,210
<RECEIVABLES> 814,877
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,751,313
<PP&E> 302,004
<DEPRECIATION> 60,720
<TOTAL-ASSETS> 6,012,210
<CURRENT-LIABILITIES> 1,526,782
<BONDS> 174,894
<COMMON> 19,329
0
0
<OTHER-SE> 4,291,205
<TOTAL-LIABILITY-AND-EQUITY> 6,012,210
<SALES> 0
<TOTAL-REVENUES> 881,510
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 674,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,106
<INCOME-PRETAX> 25,352
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,352
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
