<PAGE> 1
As filed with the Securities and Exchange Commission on September 27, 1996
Registration No. 33-70180
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
POST EFFECTIVE
Amendment No. 4 to
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------
NASTECH PHARMACEUTICAL COMPANY INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
Delaware 7391 11-2658569
<S> <C> <C>
(State or other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
45 Davids Drive
Hauppauge, NY 11788
(516) 273-0101
(Address and Telephone Number of Principal Executive Offices )
Dr. Vincent D. Romeo
President and Chief Executive Officer
NASTECH PHARMACEUTICAL COMPANY INC.
45 Davids Drive
Hauppauge, NY 11788
(516) 273-0101
(Name, address and Telephone Number of Agent for Service)
Copies to:
Bruce R. Thaw, Esq.
45 Banfi Plaza
Farmingdale, NY, 11735
(516) 752-1760
Approximate date of proposed sale to public: As soon after the effective date of
the Registration Statement as is practicable.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box [X].
CALCULATION OF REGISTRATION FEE: Previously Submitted
<PAGE> 2
NASTECH PHARMACEUTICAL COMPANY INC.
Cross Reference Sheet
Pursuant to Rule 404 (a) of Regulation C
<TABLE>
<CAPTION>
Item of Form SB-2 Location in Prospectus
----------------- ----------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus ........................ Facing Page; Cover Page
2. Inside Front and Outside Back Cover Page of Inside Front Cover Page; Outside Back
Prospectus............................................. Cover.Page.
3. Summary Information and Risk Factors ............... Prospectus Summary; Summary Financial
Information; Risk Factors
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price .................... Risk Factors; Cover Page; Description of
Warrants
6. Dilution............................................ Dilution;.Risk Factors
7. Selling Security Holders ........................... Not Applicable
8. Plan of Distribution................................ Cover Page, Underwriting
9. Legal Proceedings................................... Not Applicable
10. Directors, Executive Officers, Promoters and
Control Persons........................................ Management; Principal Stockholders
11. Security Ownership of Certain Beneficial Owners
and Management ........................................ Management; Principal Stockholders
12. Description of Securities Description of Securities; Description of
To Be Registered ...................................... Warrants; Description of Common Stock
13. Interest of Named Experts and Counsel ............. Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ........ Not Applicable
15. Organization Within Last Five Years .............. Not Applicable
16. Description of Business ........................... Business
17. Management's Discussion and Analysis Management's Discussion and Analysis of
or Plan of Operation................................... Financial Condition and Results of
Operations
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item of Form SB-2 Location in Prospectus
----------------- ----------------------
<S> <C>
18. Description of Property......................... Business
19. Certain Relationships and Related
Transactions........................................ Certain.Transactions
20. Market for Common Equity and Related Description of Common Stock; Shares
Stockholder Matters................................. Eligible for Future Sale
21. Executive Compensation.......................... Management
22. Financial Statements............................ Financial Statements
23. Changes in and Disagreements with
Accountants and Financial Disclosure ............... Not Applicable
</TABLE>
<PAGE> 4
NASTECH PHARMACEUTICAL COMPANY INC.
846,177 Shares of Common Stock
Issuable Upon the Exercise of 846,177
Redeemable Common Stock Purchase Warrants
Each Redeemable Common Stock Purchase Warrant (the "Warrants") entitles
the registered holder thereof to purchase, at any time through December 7, 1996,
one share of the Common Stock of the Company, $.006 par value (the "Common
Stock"), at a price of $5.50 (the "Initial Exercise Price"). 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 the
automated quotation system of the National Association of Securities Dealers,
Inc. ("NASDAQ") for 20 consecutive trading days ending within 10 days of the
notice of redemption of the Warrants, is in excess of $5.63 (the "Initial Notice
Price"). Both the Initial Notice Price and the Initial Exercise Price are
subject to adjustment under certain circumstances. See "Description of
Securities."
The Warrants were issued as part of 742,500 Units each consisting of
two shares of Common Stock and two Warrants (the "Units") sold in a public
offering pursuant to a Registration Statement which became effective on December
7, 1993 (the "1993 Offering"). The Warrants became transferable, separate from
the shares of Common Stock on or about December 9 , 1993. Prior to the date of
this Prospectus, 638,823 Warrants which were issued as part of the Units sold in
the 1993 Offering were exercised.
The Company's Common Stock is quoted on the National Association of
Securities Dealers' Automated Quotation (NASDAQ) System under the symbol "NSTK".
On September 5, 1996 the closing bid and asked prices of the Company's Common
Stock was $10.375 and $10.875 respectively.
The Initial Exercise Price of the Warrants and other terms have been
arbitrarily determined by negotiation between the Company and Barber & Bronson
Incorporated (the "Representative") and may bear no relation to the Company's
assets, book value, potential earning capacity or any other recognized criteria
of value. See "Underwriting."
THESE SECURITIES ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK, AND
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. IN ADDITION, PURCHASERS OF THE SHARES WILL SUFFER IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION" ON PAGES 10 AND 17,
RESPECTIVELY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------------------------
The date of this Prospectus is , 1996
<PAGE> 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Exercise Price to Public Underwriting Proceeds to the Company
Commissions (1) (2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Price Per Share on
Exercise of a Warrant.......... $ 5.50 $ .275 $ 5.225
- -----------------------------------------------------------------------------------------------------------
Total (3)...................... $4,653,974 $232,699 $4,421,275
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to retain the Representative to solicit Warrant
exercises. Upon exercise of any Warrants, the Company will pay the
Representative a fee of 5% of the aggregate exercise price if (i) the
market price of the Company's Common Stock on the date the Warrant is
exercised is greater than the exercise price of the Warrants; (ii) the
exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc.; (iii) the Warrant is not held
in a discretionary account; (iv) disclosure of compensation
arrangements was made both at the time of the offering and at the time
of exercise of the Warrant; and (v) the solicitation of exercise of the
Warrant was not in violation of Rule 10b-6 promulgated under the
Exchange Act.
(2) Before deducting expenses in connection with this offering estimated at
$25,000, payable by the Company, not including the selling expenses
described in Note 1 above. The net proceeds to the Company, after
deducting all commissions, selling and other expenses in connection
with the offering, are estimated to be approximately $4,396,275.
(3) Assumes that all of the Warrants are exercised, of which there can be
no assurance.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
The Company furnishes its shareholders annual reports containing
financial statements audited by independent public accountants and will also
furnish its shareholders such interim and other reports as it deems appropriate
or as required by regulation.
2
<PAGE> 6
The Company's nasal delivery technology has been utilized in the product
pictured below. Stadol(R) NS(TM) is nasally delivered butorphanol tartrate, a
narcotic analgesic, sublicensed by the Company to Bristol-Myers Squibb Company.
[ Insert product photograph ]
Stadol(R) NS(TM) is the registered trademark of Bristol-Myers Squibb Company.
3
<PAGE> 7
NASTECH PHARMACEUTICAL COMPANY INC.
846,177 Shares of Common Stock
Issuable Upon the Exercise of 846,177
Redeemable Common Stock Purchase Warrants
Exercise Price - $5.50 per Share
PROSPECTUS
----------------------
, 1996
4
<PAGE> 8
TABLE OF CONTENTS
Page
Glossary 6
Prospectus Summary 7
The Company 7
Summary Financial Information 9
Risk Factors 10
Dilution 17
Use of Proceeds 18
Capitalization 19
Price Range of Common Stock 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 21
Business 24
Management 37
Certain Transactions 43
Principal Shareholders 43
Description of Securities 45
Description of Warrants 45
Description of Common Stock 45
Shares Eligible for Future Sale 49
Legal Matters 50
Experts 50
Additional Information 50
Financial Statements F-1
5
<PAGE> 9
GLOSSARY
The following technical terms are used in this Prospectus and are
related to the Company's business.
Bioavailability. The amount or concentration of an administered drug that can be
determined, by special testing techniques, to be present in the circulating
bloodstream. Synonymous with "blood levels", "plasma levels" and "serum levels"
of the applicable drug.
Food and Drug Administration (FDA). A division of the U.S. Department of Health
and Human Services whose responsibility it is to approve for use in humans, any
new drug, drug application, drug delivery system or medical device.
Notice of Claimed Investigational Exemption for a New Drug (IND). A formal
application to the FDA, containing relevant technical and scientific
documentation, for permission to test a new chemical entity, new route of drug
administration or a new use of an old drug in humans.
Nasal Delivery. A method of administering a drug by application directly into
the nasal cavity. The form of the drug will usually be as a drop, spray or gel.
Nasal Mucosa. The lining of the nasal cavity which, because of its rich blood
supply, allows for the systemic absorption into the blood stream of many drugs
placed in contact with it.
New Drug Application (NDA). A formal application to the Food and Drug
Administration, containing relevant scientific and technical documentation,
requesting permission to begin commercial manufacturing and marketing of newly
developed and tested prescription or over-the-counter (OTC) drugs. NDAs are
submitted to the FDA following the completion and analysis of all required
animal and human testing.
Pharmacologically Active. Bringing about a biological effect.
Side Effect. An effect brought about by a drug other than the desired
therapeutic effect.
Systemic Absorption. The carrying of a drug throughout the entire body by the
bloodstream.
Toxicity. Harmful or unwanted side effects following the administration of a
drug.
6
<PAGE> 10
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by reference to the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus does not give
effect to the exercise of: (i) the Representative's Warrants; or (ii) options
granted or available for grant under the Company's Incentive Stock Option Plan.
THE COMPANY
Nastech Pharmaceutical Company Inc. (the "Company") is engaged in
research and clinical testing activities in an effort to develop nasally
administered forms of pharmaceuticals that are currently available in only oral,
injectable or other dosage forms. The Company believes that advantages
associated with the nasal delivery of certain pharmaceuticals include rapid
systemic absorption, lower required dosages and quicker onset of desired effect.
Nasal delivery may also allow for the systemic administration of drugs that
cannot be administered by the oral route due to significant liver and/or
gastrointestinal metabolism, thereby allowing for a broader based use of
products that are currently restricted in application because of the limitations
of injectable therapy. In addition, nasal delivery may afford a cost effective
alternative to the injectable delivery form for some pharmaceuticals. Potential
side effects, including the possibility of nasal irritation have to be studied
on a drug by drug basis.
Prior to the marketing of any nasally administered form of
pharmaceutical agent in the United States, approval by the United States Food
and Drug Administration ("FDA") must be obtained. A research and development
program is currently in progress with respect to four pharmaceuticals for which
the Company has patent rights for nasal administration.
The Company was originally incorporated under the laws of the State of
New York on March 3, 1983 and was reincorporated in the State of Delaware on
September 23, 1983.
7
<PAGE> 11
THE OFFERING
Securities Offered ................ 846,177 Shares of Common Stock are
offered by the Company, subject to
adjustment, pursuant to the exercise of
the Warrants. The Warrants were issued
as part of 742,500 Units each consisting
of two shares of Common Stock and two
Warrants sold in a public offering
pursuant to a Registration Statement
which became effective on December 7,
1993. 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. Since December 7,
1994, the Warrants have been 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.
Use of Proceeds .................... To fund research and development; and
for working capital and general
corporate purposes. See "Use of
Proceeds."
Risk Factors ......................... The securities of the Company offered
hereby are highly speculative. An
investment herein is not recommended for
investors who do not have sufficient
financial means to be able to sustain
the loss of their entire investment. See
"Risk Factors" on pages 10 through 16
for factors investors should consider
carefully before purchasing the
securities offered hereby.
Common Stock outstanding as of
the date of this Prospectus.......... 3,860,061 shares
Common Stock to be outstanding
after the Offering(1)................ 4,706,238 shares
NASDAQ Symbols (2) Common Stock Warrants
NSTK NSTKW
- --------------------
(1) Does not give effect to an aggregate of up to 270,000 shares of Common Stock
issuable upon exercise of: (i) the Representative's Warrants and (ii) the
Warrants included in the Units issuable upon exercise of the Representative's
Warrants. Also, does not include 373,334 shares of Common Stock reserved for
issuance under the Company's Stock Option Plan (of which options for 255,049
shares are outstanding).
(2) NASDAQ quotation does not imply that a meaningful, sustained market for the
Common Stock or Warrants will develop. If the Company fails to meet certain
maintenance standards imposed by the NASD, delisting of its securities from
NASDAQ is possible. See "Risk Factors."
8
<PAGE> 12
SUMMARY FINANCIAL INFORMATION
The summary financial information presented below for the years ended
June 30, 1996 and 1995 have been derived from the financial statements of the
Company. The financial statements as of June 30, 1996 and 1995 have been audited
by Robbins, Greene, Horowitz, Lester & Co., LLP whose report with respect
thereto appears elsewhere in the Prospectus. The information set forth below is
qualified in its entirety by reference to, and should be read in conjunction
with, the financial statements and related notes contained elsewhere in this
Prospectus.
STATEMENT OF OPERATIONS INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
Revenues $3,866,913 $2,937,783
Net Income (Loss) $ 118,525 $ (79,445)
Income (Loss) Per
Common and Common
Equivalent Share $ .03 $ (.03)
Weighted Average Common
and Common Equivalent
Shares Outstanding 4,297,536 3,119,718
</TABLE>
BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
Actual As Adjusted(1)(2)
------ -----------------
<S> <C> <C>
Current Assets $9,131,533 $13,527,808
Total Assets $9,366,796 $13,763,071
Long-Term Debt $ 135,907 $ 135,907
Stockholders' Equity $7,568,734 $11,965,009
</TABLE>
(1) Does not give effect to the net proceeds of $175,821 received from the
exercise of 33,650 Warrants in the period from July 1, 1996 to the date of this
Prospectus.
(2) Adjusted to give effect to the Shares offered hereby upon the exercise of
the Warrants less warrant solicitation fees and estimated expenses of this
Offering and assuming no exercise of the Representative's Warrants.
9
<PAGE> 13
RISK FACTORS
The shares of Common Stock being offered hereby are speculative in
nature and involve a high degree of risk. Prospective investors should carefully
consider, together with the other information contained in this Prospectus, the
following risk factors inherent in and affecting the business of the Company.
HISTORY OF LOSSES; UNCERTAINTY OF PROFITABILITY. Although the Company
achieved profitability on an annual basis in fiscal 1996, there can be no
assurance that revenue growth or profitability will continue on a quarterly or
annual basis in the future. Since its inception in March 1983, the Company has
accumulated net losses of approximately $6.2 million. Since the Company's
proposed products will require significant additional clinical testing and
investment prior to commercialization, such losses may increase in the near-term
as the Company expands its research, development and clinical trials and seeks
regulatory approval of such products. The Company expects its research and
development expenses to increase in the second half of 1996 and in 1997.
Further, the Company cannot predict to what extent new collaborative agreements,
if any, will affect revenue in future periods. The Company does not expect to
achieve sustained profitability unless products now under development are
commercialized successfully of which there can be no assurance. There can be no
assurance that any of the Company's products will meet applicable regulatory
standards, obtain required regulatory approvals, be capable of being produced in
commercial quantities at reasonable costs or be successfully marketed.
Consequently, the Company may incur substantial operating losses unless and
until product sales and/or royalty payments generate sufficient revenues to fund
its continuing operations. The Company also expects to have quarter-to-quarter
fluctuations in revenues, expenses and losses, some of which could be
significant.
FUTURE CAPITAL NEEDS. The Company's operations to date have consumed
substantial amounts of cash, primarily for research and development. The
Company's future capital requirements will depend upon numerous factors,
including; the progress of the Company's product development programs; the time
required to obtain regulatory approvals; the resources that the Company devotes
to the development of self-funded products; the ability of the Company to obtain
additional collaborative partners; and the demand for its products, if and when
approved. Based upon current expectations for operating losses and capital
expenditures, the Company believes that its existing cash, cash equivalents and
short-term investments, together with the proceeds of this offering, anticipated
future contract revenues from development agreements, interest income and
possible additional equipment financings and borrowings will be sufficient to
meet its operating expenses and capital expenditure requirements through at
least 1998. However, there can be no assurance that the Company will not require
additional financing depending upon future business strategies, results of
clinical trials, management decisions to accelerate certain research and
development programs and other factors. Adequate funds, whether through
financial markets or from other sources, may not be available when needed or on
terms acceptable to the Company. Insufficient funds may require the Company to
delay, scale back or curtail product development activities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
10
<PAGE> 14
MANAGEMENT OF GROWTH. The Company has recently experienced significant
growth as total revenues increased 35% in fiscal 1996 and 27.4% in fiscal 1995
as compared to prior periods. The Company's recent growth is making significant
demands on the Company's management, operations and resources, including working
capital. To manage its growth effectively, the Company will be required to
continue to improve its operational, financial and management information
systems, procedures and controls, to hire and train new executive and other
employees and to manage its current employees. There can be no assurance that
the Company will be able to manage its growth effectively, and the Company's
failure to do so could have a material adverse affect on the Company's business,
research and development efforts and financial performance.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY INFORMATION. The
Company's ability to compete effectively with other companies is materially
dependent upon the proprietary nature of its patents and technologies. The
Company is the exclusive licensee of five patents and has obtained four
additional patents in the United States and corresponding or related foreign
patents all relating to the nasal delivery of specific therapeutic agents and
compositions for such delivery. See "Business - Patents and Proprietary Rights."
The patent positions of pharmaceutical firms generally are highly
uncertain and involve complex legal and factual questions. No consistent policy
has emerged regarding the breadth of claims covered in pharmaceutical or
biotechnology patents. The invalidation of key patents or proprietary rights
owned or licensed by the Company could have an adverse effect on the Company and
on its business prospects. Because of the differences in patent laws and laws
concerning proprietary rights, the extent of protection provided by United
States patents or proprietary rights owned by or licensed to the Company may
differ from those of their foreign counterparts. No assurance can be given that
patents issued to or licensed by the Company will not be challenged, invalidated
or circumvented, or that any rights granted thereunder will provide competitive
advantages to the Company. Further, the Company's existing patents may expire
prior to regulatory approval and commercial development of a proposed
pharmaceutical product. The earliest expiration date of a United States patent
owned by or licensed to the Company is 1998.
The Company could incur substantial costs in defending any patent
infringement suits brought against the Company or in asserting the Company's
patent rights, including those granted by third parties, in a suit against
another party. In addition, the United States Patent and Trademark Office could
institute proceedings against the Company in connection with one or more of the
Company's patents and such proceedings could result in an adverse decision as to
the validity or scope of the patents.
The Company also relies on trade secrets, know-how and continuing
technological advancement to maintain its competitive position. The Company has
utilized confidentiality agreements relating to such information with third
parties. No assurances can be given that such obligations of confidentiality
will be honored or that the Company can effectively protect its rights to any
unpatented trade secrets. See "Business - Patents and Proprietary Rights."
GOVERNMENT REGULATION. The FDA and comparable agencies in foreign
countries impose requirements on the introduction of therapeutic pharmaceutical
products into the marketplace. Prior to marketing, any therapeutic product
developed by the Company must undergo rigorous preclinical testing and clinical
trials, as well as an extensive regulatory
11
<PAGE> 15
approval process mandated by the FDA and foreign regulatory agencies. These
procedures require the expenditure of substantial resources, may take several
years or longer and may vary substantially based upon the type, complexity and
novelty of the pharmaceutical product. Government regulation also affects the
manufacturing, marketing and pricing of pharmaceutical products.
Government regulation may delay or prevent the marketing of the
Company's products or proposed products for a considerable period of time,
impose costly procedures upon the Company's activities and confer a competitive
advantage to larger companies or companies more experienced in regulatory
affairs that compete with the Company. 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. Delay in obtaining or failure to obtain
such regulatory approvals will materially adversely affect the Company's
business, liquidity and capital resources. See "Business - Government
Regulation."
HEALTH CARE REIMBURSEMENT. The Company's ability to commercialize
therapeutic nasal pharmaceuticals successfully may depend in part on the extent
to which reimbursement for the cost of such products will be available from
government health administration authorities, private health coverage insurers
and other organizations. The Clinton administration has stated that health care
reform is one of its priorities. Any such measures, if adopted, could adversely
affect the pricing of pharmaceutical products or the amount of reimbursement
from governmental agencies or third party payors, and consequently could be
adverse to the Company. The Company cannot predict the outcome of any reform
initiatives or the impact thereof on the Company's financial position. Further,
significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available for the Company to maintain price levels sufficient
for realization of an appropriate return on its investment in product
development. See "Business Government Regulation."
DEPENDENCE UPON KEY PERSONNEL AND ATTRACTION OF QUALIFIED PERSONNEL.
The Company is highly dependent on the services of its President and Chief
Executive Officer, Dr. Vincent D. Romeo. There is no assurance that, if the
Company should lose the services of Dr. Romeo, a qualified replacement could be
engaged. Although the Company has entered into an employment agreement with Dr.
Romeo, the loss of his services could have a material adverse effect on the
Company's business and prospects. Due to the specialized nature of the Company's
business, the Company is also highly dependent upon its ability to attract and
retain qualified scientific, technical and key management personnel. There is
intense competition for qualified personnel in the areas of the Company's
activities and there can be no assurance that the Company will be able to
locate, attract and retain qualified personnel necessary for the development of
its existing business and its expansion into areas and activities requiring
additional expertise, such as clinical testing, government approvals, production
and marketing. The loss of, or failure to recruit scientific, technical and
managerial personnel could have a material adverse effect on the Company. See
"Business - Employees."
PRODUCT LIABILITY EXPOSURE; LIMITED OF INSURANCE COVERAGE. The testing,
marketing and sale of human health care products entail an inherent risk of
allegations of product liability, and there can be no assurance that substantial
product liability claims will not be asserted against the Company. The Company
currently has only limited product liability insurance coverage in connection
with its clinical trials. The Company intends to obtain additional product
liability
12
<PAGE> 16
insurance if and when its products are commercialized and marketed by the
Company; however there can be no assurance that adequate insurance will be
available at acceptable costs, if at all, or that such insurance will be
sufficient to cover all possible liabilities or that a product liability claim
would not materially adversely affect the business or financial condition of the
Company. Failure to maintain adequate product liability insurance can, in the
event a product liability claim were asserted against the Company, result in the
loss of an investor's entire investment.
LIMITED MANUFACTURING, MARKETING AND SALES CAPABILITY. Although the
Company is producing and formulating small amounts of certain drug formulations
which are the subject of preclinical and clinical trials under current good
manufacturing practices ("GMP"), which are stringent manufacturing standards
prescribed by the FDA, the Company has not yet manufactured or marketed any
products in commercial quantities, and the current facilities and equipment of
the Company may not be adequate for commercial scale production under GMP. To be
successful, the Company's proposed products must be manufactured in commercial
quantities under GMP and at acceptable costs. Therefore, the Company will need
to further develop its own GMP manufacturing facility and/or depend on contract
manufacturers, licensees or others for the commercial manufacture of its
products. The Company has no experience in such commercial manufacturing and no
assurance can be given that the Company will be able to make the transition to
commercial production successfully or at an acceptable cost. In addition, no
assurance can be given that the Company will be able to make arrangements with
third parties to manufacture its products on acceptable terms. See "Business -
Manufacturing."
The Company has no experience in marketing, distributing or selling
pharmaceutical products and will have to develop such expertise and/or rely on
licensees or on arrangements with others to provide for the marketing,
distribution and sales of its products. There can be no assurance that the
Company will be able to establish marketing, distribution and sales capabilities
or make arrangements with licensees or others to perform such activities.
DEPENDENCE ON COLLABORATIVE PARTNERS. Most of the Company's current
revenues are derived from a collaborative agreement with the Bristol-Myers
Squibb Company ("BMS"). The marketing responsibilities pursuant to said
agreement has been undertaken by BMS and is not within the control of the
Company. The agreement with BMS does not provide for minimum royalties, is
subject to cancellation and there is no assurance that the Company will continue
to receive royalty payments in the future or on a consistent basis.
The Company's strategy for research, development and/or
commercialization of some of its products and proposed products, presently and
in the foreseeable future, is to rely upon various strategic agreements with
licensees, distributors and other third parties in performing preclinical and
clinical testing, obtaining regulatory approval, manufacturing and marketing.
There can be no assurance that the Company will be able to negotiate acceptable
collaborative arrangements or that such arrangements will be successful. See
"Business - Collaborative Agreements."
INTENSE COMPETITION. The Company is engaged in the pharmaceutical, drug
delivery systems industry which is characterized by extensive research efforts,
rapid technological progress and intense competition. Competitors of the Company
in the United States and abroad are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions. At the present time, the Company does not know of another
pharmaceutical company engaging exclusively in the development of drugs to be
13
<PAGE> 17
administered nasally for systemic absorption. However, other pharmaceutical
companies which are larger than the Company are known to be engaged in
researching some nasally administered pharmaceuticals, and may be expected to
enter this field if the nasal route ever becomes the method of choice for the
administration of certain classes of drugs.
Further, there can be no assurance that the Company's competitors will
not succeed in developing technologies and products that are more effective than
the nasal technology being developed by the Company or which would render the
Company's technology and products obsolete or noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. Many of the Company's
competitors have greater experience than the Company in conducting preclinical
testing and clinical trials of pharmaceutical products and obtaining FDA and
other regulatory approvals. Accordingly, the Company's competitors may succeed
in obtaining FDA approval for products more rapidly than the Company. If the
Company commences commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in
which it has limited or no experience. See "Business - Competition."
SUBSTANTIAL AMOUNT OF UNALLOCATED PROCEEDS. Approximately $1,400,000
(32%) of the estimated $4,396,275 of net proceeds from the Offering, assuming
the exercise of all of the Warrants, have been allocated by the Company for
working capital and general corporate purposes. Accordingly, the Company's
management will have broad discretion as to the application of such proceeds.
See "Use of Proceeds."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. At the conclusion of
this Offering, the Company's directors, executive officers, certain principal
stockholders and their affiliates will continue to own or control a substantial
portion of the outstanding Common Stock of the Company. Accordingly, management
may remain in a position to exert significant influence over the election of the
Company's Board of Directors and other matters submitted to the Company's
stockholders for approval. The voting power of these holders may discourage or
prevent any proposed change of control of the Company pursuant to a tender offer
or otherwise unless the terms thereof are approved by such holders. See
"Principal Stockholders."
DIVIDENDS UNLIKELY. The Company has neither paid nor declared any cash
or other dividends on its shares of Common Stock since its inception and
management does not presently anticipate that the Board of Directors will
declare dividends on its shares of Common Stock in the foreseeable future. There
can be no assurance that the Company will ever be in a financial position to pay
dividends. See "Dividend Policy" and "Description of Securities."
AUTHORIZATION OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The
Company's Certificate of Incorporation authorizes the issuance of up to 100,000
shares of "blank check" preferred stock in amounts and with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
Preferred Stock, there can be no assurance that the Company will not do so in
the future. In addition, the Company is subject to the anti-takeover provisions
of Section
14
<PAGE> 18
203 of the Delaware General Corporation Law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns 15%
or more of the corporation's voting stock or who is an affiliate or associate of
the corporation and, together with his affiliates and associates, has owned 15%
or more of the corporation's voting stock within three years. See "Description
of Securities."
ARBITRARY DETERMINATION OF OFFERING PRICE. The Initial Exercise Price
of the Warrants was determined by negotiation between the Company and the
Representative, and does not necessarily bear any relation to the Company's
asset value, net worth, or other established criteria of value. In no event
should the Initial Exercise Price be considered any indication of the future
market price of the Common Stock of the Company.
IMMEDIATE AND SUBSTANTIAL DILUTION. A purchaser of the Common Stock
offered hereby upon the exercise of the Warrants will experience immediate and
substantial dilution of net tangible book value per share (approximately $2.94
per share) because the Initial Exercise Price of the Warrants will exceed the
Company's pro forma net tangible book value per share of Common Stock after
giving effect to the Offering. Investors in this Offering will make
approximately 23% of all contributions to the Company's capital and will own
approximately 18% of the Common Stock . See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 3,860,061 shares of Common
Stock outstanding as of the date of this Prospectus, approximately 984,859
shares are "restricted securities" as that term is defined by Rule 144 under the
Securities Act of 1933, as amended, and in the future, may be sold in compliance
with Rule 144. All of the foregoing shares are now eligible to be sold in
compliance with Rule 144. Ordinarily, under Rule 144 a person holding restricted
stock for a period of two years may, every three months, sell in brokerage
transactions an amount equal to the greater of 1% of the Company's outstanding
Common Stock, or, if the Common Stock is quoted on NASDAQ, the average weekly
volume of trading in the Common Stock reported for the preceding four weeks.
After the expiration of three years, stock held by persons not affiliated with
the Company will not be subject to the above limitations.
No prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of such shares for sale will have
on the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of shares of Common Stock may be sold in the public
market may adversely affect prevailing market prices for the shares of Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities. See "Shares Eligible for Future Sale."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED IN
CONNECTION WITH EXERCISE OF WARRANTS. Warrantholders will only be able to
exercise the Warrants if (i) a current prospectus under the 1933 Act relating to
the securities underlying the Warrants is then in effect and (ii) such
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
warrants reside. Although the
15
<PAGE> 19
Company will use its best efforts to maintain the effectiveness of a current
prospectus covering the securities underlying the Warrants, there can be no
assurance that the Company will be able to do so. The value of the Warrants may
be greatly reduced if a current prospectus covering the securities issuable upon
the exercise of the Warrants is not kept effective or if such securities are not
qualified, or exempt from qualification, in the states in which the holders of
Warrants reside. Although the Company may only redeem the Warrants if a current
prospectus is in effect, the Company may redeem the Warrants even if it is
unable to qualify the underlying Common Stock for sale under all applicable
state securities laws. See "Description of Securities - Warrants."
INDEMNIFICATION OF DIRECTORS UNDER DELAWARE LAW. Pursuant to both the
Company's Certificate of Incorporation and Delaware law the Company's directors
are indemnified by the Company or its stockholders for monetary damages for
breach of fiduciary duty, except for liability which arises in connection with
(i) a breach of duty of loyalty, (ii) acts or omissions not made in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
dividend payments or stock repurchases illegal under Delaware law, or (iv) any
transaction in which the director derived an improper personal benefit. The
Company's Certificate of Incorporation does not have any effect on the
availability of equitable remedies (such as injunction or rescission) for breach
of fiduciary duty. However, as a practical matter, equitable remedies may not be
available in particular circumstances. See "Management - Director Liability."
POTENTIAL DILUTIVE EFFECT OF REPRESENTATIVE'S WARRANTS AND POSSIBLE
IMPACT ON FUTURE FINANCINGS; REGISTRATION RIGHTS. Upon completion of its
December, 1993 public offering, the Company sold to the Representative warrants
to purchase up to an aggregate of 67,500 Units, exercisable for a period of four
years commencing December 7, 1994 at an exercise price of $8.25 per Unit or 110%
of the initial offering price per Unit. The holders of the Representative's
Warrants are likely to exercise them when, in all likelihood, the Company could
obtain additional capital on terms more favorable than those provided by such
securities. Further, while such securities are outstanding, the Company's
ability to obtain additional financing on favorable terms may be adversely
affected. In addition, the exercise of such securities would dilute a
prospective investor's investment in the Company. The holders of the
Representative's Warrants will have certain registration rights with respect to
the Warrants and the Units underlying the Warrants which could result in
substantial future expense to the Company and could adversely affect any future
equity or debt financing by the Company.
FORWARD-LOOKING STATEMENTS. Some of the statements made in this
Prospectus are forward-looking in nature, including but not limited to the
Company's business strategy, product development, plans concerning the
commercialization of products, certain financial information and other
statements that are not historical facts. The occurrence of the events
described, and the achievement of the intended results are subject to the future
occurrence of certain events and scientific results, some or all of which are
not predictable or within the Company's control; therefore, actual results may
differ materially from those anticipated in any forward-looking statements.
16
<PAGE> 20
DILUTION
Dilution represents the difference between the public offering price
per share upon exercise of the Warrants and the pro forma net tangible book
value per share of Common Stock after this Offering. Net tangible book value per
share is determined by dividing the net tangible book value of the Common Stock
(total tangible assets less total liabilities) by the number of outstanding
shares of Common Stock.
At June 30, 1996, the net tangible book value of the Company was
$7,568,734 or $1.98 per share of Common Stock. Without taking into account any
changes in net tangible book value after June 30, 1996, other than to give
effect to the issuance of 846,177 shares of Common Stock underlying the Warrants
(less warrant solicitation fees and estimated expenses of this offering and
assuming no exercise of the Representative's Warrants), the adjusted net
tangible book value of the Common Stock as of June 30, 1996 would have been
$11,965,009 or $2.56 per share, representing an immediate increase in net
tangible book value of $.57 per share to existing shareholders and an immediate
dilution of $2.94 per share to the purchasers of the Common Stock offered hereby
upon exercise of the Warrants), as illustrated by the following table:
<TABLE>
<S> <C> <C>
Exercise price per share ................... $5.50
-----
Net tangible book value per share (1)
of Common Stock before exercise
of Warrants .............................. $1.98
Increase in net tangible book
value per share attributable to
cash payments for exercise of
846,177 Warrants .......................... $ .58
-----
Adjusted net tangible book value
per share after the offering ............. $2.56
-----
Dilution per share to exercising
Warrant holders........................... $2.94
-----
</TABLE>
(1) Does not give effect to the net proceeds of $175,821 received from the
exercise of 33,650 Warrants in the period from July 1, 1996 to the date of this
Prospectus.
The following table sets forth on a pro forma basis the differences
between existing shareholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price paid per share, assuming an Initial
Exercise Price of $5.50 per Warrant:
17
<PAGE> 21
<TABLE>
<CAPTION>
% of Outstanding Consideration % of Total Average
No. of Shares Shares Paid Consideration Price/Share
------------- ------ ---- ------------- -----------
<S> <C> <C> <C> <C> <C>
Present
Stockholders 3,860,061 82% $15,299,905 77% $3.96
Exercising
Warrantholders 846,177 18% $ 4,653,974 23% $5.50
</TABLE>
USE OF PROCEEDS
The estimated net proceeds of this offering to the Company assuming the
exercise of all of the 846,177 Warrants, will be approximately $4,396,275
assuming an Initial Exercise Price of $5.50 per share, and after deducting the
Representative's warrant solicitation fee and other expenses of this offering
estimated at approximately $25,000. The Company currently intends to utilize the
net proceeds of this offering as follows: (i) $3 million for costs associated
with research and development of the Company's proposed products, including, but
not limited to, salaries for scientific employees, preclinical and clinical
tests and compliance with regulatory requirements; and (ii) the balance for
working capital and general corporate purposes.
Pending full utilization of the net proceeds of this offering, the
Company intends to make temporary investments in short-term, interest-bearing
investments, such as U.S. Treasury bills.
The foregoing allocations are estimates only and are subject to
revision from time to time to meet the Company's requirements. If any projected
estimate of expenditures is too low, additional sums may be expected to be drawn
from working capital; conversely, if any projected estimate is too high, excess
amounts are expected to be used as general working capital. Furthermore,
allocations may be changed in response to unanticipated developments in the
Company's business. The Company may re-allocate such amounts from time to time
among the categories shown above or to new categories if it believes such to be
in its best interest. The net proceeds may also be used to acquire technology,
products or companies that complement the business of the Company, although the
Company does not currently have any agreements, commitments or arrangements with
respect to any such acquisition transactions.
DIVIDEND POLICY
The Company has not, to date, paid nor declared any cash or other
dividends on its shares of Common Stock since its inception. The Company has no
current plans to pay dividends on its Common Stock and intends to retain
earnings, if any, for working capital purposes. Any future determination as to
the payment of dividends on the Common Stock will depend upon the results of
operations, capital requirements, the financial condition of the Company and
other relevant factors.
18
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996, and as adjusted to give effect to the issuance by the Company of
846,177 shares pursuant to the Offering and the receipt of the estimated net
proceeds thereof. This table should be read in conjunction with the financial
statements of the Company and the notes thereto appearing elsewhere in this
Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
Actual As Adjusted(3)(4)
------ -----------
<S> <C> <C>
Long-term debt, less current portion (1) $ 135,907 $ 135,907
----------- ------------
Stockholders' equity:
Preferred stock, $.01 par value per share
Authorized 100,000 shares, issued and
outstanding, none;
Common stock, $.006 par value per share
Authorized 6,000,000 shares, issued and
outstanding 3,826,433 shares and
4,672,610 shares as adjusted(2)(3)(4) $ 22,959 $ 28,036
Additional paid-in capital $13,733,556 $18,124,754
Accumulated deficit $(6,187,781) $(6,187,781)
----------- ------------
Total stockholders' equity $ 7,568,734 $11,965,009
----------- ------------
Total capitalization $ 7,704,641 $12,100,916
=========== ============
</TABLE>
- ----------------------------
(1) Subject to debt restructure agreement with Basil Properties. See "Certain
Transactions."
(2) Does not include 373,334 shares reserved for issuance pursuant to the
Company's 1990 Stock Option Plan of which options for 255,049 shares have been
granted, or the shares issuable upon exercise of (i) the Representative's
Warrants, and (ii) the Warrants included in the Units issuable upon the exercise
of the Representative's Warrants.
(3) Adjusted to give effect to the Shares offered hereby upon the exercise of
the Warrants less warrant solicitation fees and estimated expenses of this
Offering and assuming no exercise of the Representative's Warrants.
(4) Does not give effect to the net proceeds of $175,821 received from the
exercise of 33,650 Warrants in the period from July 1, 1996 to the date of this
Prospectus.
19
<PAGE> 23
PRICE RANGE OF COMMON STOCK
Since December 7, 1993, the Company's Common Stock has been trading on
the Nasdaq Small-Cap Market under the symbol NSTK. Prior to that time the
Company's Common Stock was traded in the over-the counter market. The following
table sets forth the range of high and low closing bid prices for the Company's
Common Stock as reported by the Nasdaq Stock Market for the last two fiscal
years. These quotations represent inter-dealer prices, without adjustment for
retail mark-ups, mark-downs or commissions and do not necessarily represent
actual transactions:
<TABLE>
<CAPTION>
Fiscal Years Bid Price
- ------------ ---------
Low High
--- ----
<S> <C> <C>
1997:
First Quarter through
September 5, 1996 $9.50 $12.37
1996:
Fourth Quarter $8.25 $13.00
Third Quarter $8.25 $ 9.87
Second Quarter $7.37 $ 9.75
First Quarter $6.87 $ 7.62
1995:
Fourth Quarter $4.87 $ 7.75
Third Quarter $4.75 $ 5.75
Second Quarter $4.50 $ 5.75
First Quarter $3.12 $ 5.62
</TABLE>
On September 5, 1996, the closing bid and asked price quotations for
the Company's Common Stock were $10.375 and $10.875, respectively. The Company
believes that its Common Stock is held of record by approximately 17,000
persons, including several brokerage firms holding shares in street name for
beneficial owners.
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and notes thereto
included elsewhere herein. See also "Business."
OVERVIEW
The Company is engaged in research and clinical testing activities in
an effort to develop nasally administered forms of pharmaceuticals that are
currently available only in oral, injectable or other dosage forms. The
Company's objective is to expand the applications of nasal drug delivery in the
over-the-counter ("OTC") and prescription markets and otherwise become a leading
drug delivery specialist. The Company believes that advantages associated with
the nasal delivery of certain pharmaceuticals include rapid systemic absorption,
lower required dosages and quicker onset of desired effect. Prior to the
marketing of any nasally administered form of a pharmaceutical agent in the
United States, Food and Drug Administration ("FDA") approval must be obtained. A
research and development program is currently in progress with respect to four
pharmaceuticals for which the Company has patent rights for nasal
administration.
RESULTS OF OPERATIONS
Year Ended June 30, 1996 Compared To Year Ended June 30, 1995
Revenues. Revenues for fiscal 1996 increased by $929,000 to $3.9
million, or 31.6%, over such revenues for fiscal 1995. This increase was due to
increases in license fee, royalty and research income which for fiscal 1996
increased by $945,000 to $3.6 million, or 35.2%, over such income for fiscal
1995. The license fee, royalty and research income increase primarily was due to
royalty income received from Bristol-Myers Squibb Company ("BMS"), pursuant to a
sublicense agreement (the "BMS" Agreement") for a nasal formulation of Stadol(R)
NS(TM), a narcotic analgesic. The increased revenue associated with the BMS
Agreement primarily was due to increased sales of Stadol NS and improved
wholesale pricing of that product. Royalty income received from the BMS
Agreement for fiscal 1996 increased by $880,000 to $3.4 million, or 34.8% over
such income for fiscal 1995. This increase was offset in part by a decrease for
fiscal 1996 of $97,000 to $19,000 compared to fiscal 1995 for royalty income
received from the marketing of the licensed non-prescription vitamin B-12 nasal
gel by Nature's Bounty, Inc. ("NB"). The Company does not expect any significant
future royalty payments from NB. Interest income for fiscal 1996 decreased by
$16,000 to $238,000, or 6.2%, compared to such income for fiscal 1995 due to
changed interest rates and reduction of excess funds invested.
21
<PAGE> 25
Research and development expense. In fiscal 1996, the Company continued
to conduct the pharmaceutical and pharmacological research and assemble the
technical and reference data required to gain marketing approval from the
appropriate regulatory agencies for six new drug products. Preclinical and
clinical research and development expense for fiscal 1996 increased by $282,000
to $1.2 million, or 31.9%, over such expense for fiscal 1995. Such increase was
due to the execution of the Company's strategy to accelerate development of its
nasal pharmaceutical formulations.
Royalties expense. Royalties expense for fiscal 1996 increased by
$426,000 to $1.7 million, or 34.1%, over such expense for fiscal 1995. Such
increase was due to the increase in royalties paid by the Company to the
University of Kentucky Research Foundation ("UKRF") in connection with the BMS
Agreement. Pursuant to a separate license agreement between the Company and
UKRF, the Company pays UKRF royalties based on royalty income received by the
Company under the BMS Agreement. Accordingly, royalties expense in connection
with the BMS Agreement increases approximately in proportion to royalty income.
General and administrative expense. General and administrative expense
for fiscal 1996 increased by $28,000 to $865,000, or 3.4%, over such expense for
fiscal 1995. As a percentage of revenues, however, general and administrative
expense decreased to 22.4% for fiscal 1996 from 28.5% for fiscal 1995. This
improvement was due to the leveraging of the Company's infrastructure as
revenues increased significantly while general and administrative expenses
increased slightly.
Year Ended June 30, 1995 Compared To Year Ended June 30, 1994
Revenues. Revenues for fiscal 1995 increased by $738,000 to $2.9
million, or 33.5%, over such revenues for fiscal 1994. This increase was due to
increases in license fee, royalty and research income, which for fiscal 1995
increased by $577,000 to $2.7 million, or 27.4%, over such income for fiscal
1994. The license fee, royalty and research income, increase primarily was due
to royalty income received from BMS pursuant to the BMS Agreement. Royalty
income received from the BMS Agreement for fiscal 1995 increased by $629,000 to
$2.5 million, or 33.1%, over such income for fiscal 1994. This increase was
offset in part by a decrease for fiscal 1995 of $28,000 to $116,000, or 19.4%,
compared to fiscal 1994 for royalty income received from the marketing of the
licensed non-prescription vitamin B-12 nasal gel by NB. Interest income for
fiscal 1995 increased by $158,000 to $254,000, or 165.6%, over such income for
fiscal 1994. Such increase was due to the fact that funds from the Company's
December 1993 initial public offering were invested for a full fiscal year as of
June 30, 1995, compared with a partial period in the prior year.
Research and development expense. Preclinical and clinical research and
development expense for fiscal 1995 increased by $378,000 to $882,000, or 75.0%,
over such expense for fiscal 1994. Such increase was due to the execution of the
Company's strategy to accelerate development of its nasal pharmaceutical
formulations.
Royalties expense. Royalties expense for fiscal 1995 increased by
$209,000 to $1.3 million, or 20.1%, over such expense for fiscal 1994. Such
increase was due to the increase in royalties paid by the Company to UKRF in
connection with the BMS Agreement.
22
<PAGE> 26
General and administrative expense. General and administrative expense
for 1995 increased by $448,000 to $837,000, or 115.1%, over such expense for
1994. As a percentage of revenues, general and administrative expense increased
to 28.5% for fiscal 1995 from 17.7% for fiscal 1994. This increase was due to
increased staffing costs, costs associated with the Company's move to larger and
more modern laboratory, manufacturing and office facilities, and consulting
expenses relating to strategic planning.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's primary source of liquidity included
cash and cash equivalents of $4.0 million compared to $820,000 at June 30, 1995.
The cash and cash equivalents consisted primarily of the funds received from the
recent exercise of warrants outstanding from the Company's public offering. The
Company also had short-term investments of $4.0 million at June 30, 1996
compared to $4.2 million at June 30, 1995, which primarily consisted of the net
proceeds of the Company's December, 1993 public offering. Royalty income
receivable at June 30, 1996, totaled $1.1 million, principally royalty income
pursuant to the BMS Agreement.
As a result of the availability of funds provided by increased revenue
as well as the liquidity provided by the Company's December 1993 public offering
and the exercise of the related warrants, the Company has budgeted an increase
in its research and development efforts and related general and administrative
support.
At June 30, 1996, the Company had working capital of $7.5 million.
Management anticipates that the net proceeds of this Offering, together with
cash generated from operations will provide adequate funds for the Company's
anticipated needs, including working capital, for at least the 12 months
following the Offering. Management also believes that cash provided from
operations will be sufficient to satisfy all existing debt obligations as they
mature. Based upon the anticipated future financing requirements of the Company,
management expects that the Company will, from time to time, engage in
additional financings of a character and in amounts to be determined.
23
<PAGE> 27
BUSINESS
GENERAL
Nastech Pharmaceutical Company Inc. (the "Company") was originally
incorporated under the laws of the State of New York on March 3, 1983 and was
reincorporated in the State of Delaware on September 23, 1983.
The Company is engaged in research and clinical testing activities in
an effort to develop nasally administered forms of pharmaceuticals that are
currently available in only oral, injectable or other dosage forms. The Company
believes that advantages associated with the nasal delivery of certain
pharmaceuticals include rapid systemic absorption, lower required dosages and
quicker onset of desired effect. Nasal delivery may also allow for the systemic
administration of drugs that cannot be administered by the oral route due to
significant liver and/or gastrointestinal metabolism, thereby allowing for a
broader based use of products that are currently restricted in application
because of the limitations of injectable therapy. In addition, nasal delivery
may afford a cost effective alternative to the injectable delivery form for some
pharmaceuticals. Potential side effects, including the possibility of nasal
irritation have to be studied on a drug by drug basis.
Prior to the marketing of any nasally administered form of a
pharmaceutical agent in the United States, Food and Drug Administration ("FDA")
approval must be obtained. A research and development program is currently in
progress with respect to four pharmaceuticals for which the Company has patent
rights for nasal administration.
RECENT DEVELOPMENTS
In August, 1996, the Company entered into an agreement with Ciba
Self-Medication, Inc., a division of Ciba-Geigy Corporation, to develop a
nicotine nasal spray to assist with smoking cessation. Ciba Self-Medication,
Inc. markets the Habitrol(TM) transdermal patch.
In March, 1996, the Company executed a memorandum of understanding with
Sandoz Pharmaceuticals Corporation ("Sandoz") to conduct a nasal drug delivery
feasibility study with respect to a presently marketed Sandoz compound. At the
request of Sandoz, the identity of the nasal drug product has not been
disclosed.
As of August 1, 1996, 638,823 of the Company's Common Stock Purchase
Warrants have been voluntarily exercised resulting in net proceeds to the
Company in excess of $3.3 million. The Warrants have an exercise price of $5.50
per share. As of that date the Company's cash and short-term investments
position is in excess of $8 million.
In 1995, the Company appointed Dr. Charan R. Behl, as its Vice
President of Research and Development. Dr. Behl formerly held senior research
and development drug delivery positions with Hoffman-La Roche, Inc. for 14
years. In addition, in 1996 the Company appointed John A. Marinaro as its
Director of Clinical Affairs. Mr. Marinaro has held senior clinical development
positions at Bristol-Myers Squibb Company, Anthra Pharmaceuticals and Sandoz. In
the last year, the Company also hired several other scientific and technical
employees to support its research and development activities.
24
<PAGE> 28
INDUSTRY OVERVIEW
The Company is a drug delivery company, a subset of the pharmaceutical
industry. Conventional methods of drug delivery include simple pills, injections
or liquids. Newer delivery methods or routes of delivery include improved
versions of traditional methods of drug delivery as well as expanded
technologies and systems with novel routes of administration, such as the
Company's nasal delivery. Among the principal reasons for the development of new
methods of drug delivery is to facilitate the introduction of a pharmaceutical
agent into a patient or consumer in a manner that provides greater safety and
efficacy, lower side effect profile, improved patient compliance and greater
economy than conventional methods. The drug delivery industry is highly
competitive and marked by intense research into a number of areas of drug
delivery including new oral sustained and controlled release delivery systems,
oral mucosal administration, transdermal systems and pulmonary administration.
See "Competition."
The Company believes that changes in the economics of healthcare in the
past several years have created a need for alternative drug delivery methods,
including nasal administration. Drug companies are faced with managed care and
overall margin pressure due to increased difficulty in raising prices and
generic competition. The Company's nasal drug delivery technology provides
traditional large pharmaceutical companies with a novel delivery method that may
improve and/or differentiate existing pharmaceutical products, make new
indications possible as well as provide proprietary protection, thereby reducing
generic competition. Due to the foregoing factors, the Company believes that
collaborations between large pharmaceutical companies and drug delivery
specialists may occur with increasing frequency.
BUSINESS STRATEGY
The Company's objective is to expand the applications of nasal drug
delivery in the over-the-counter ("OTC") and prescription markets and otherwise
become a leading drug delivery specialist. The Company's strategy incorporates
the following principal elements:
Accelerate Development of Selected Nasal Drug Formulations. The Company
intends to accelerate the development of its nasal drug delivery technology to
be applicable over a wide range of pharmaceuticals currently delivered by the
injectable and/or oral routes. The Company intends to formulate nasal
pharmaceuticals for applications including antihistamines, analgesics,
anti-emetics and vitamins thereby (i) expanding market penetration for existing
therapeutics currently delivered by injectable, oral or other alternative
routes; and (ii) commercializing new indications by using nasal delivery as a
new route of administration.
Focus Initial Efforts on Approved Drugs. To date, the Company has
focused primarily on drugs that have proven efficacy and safety and are approved
for marketing. In addition, the Company's proprietary nasal formulations utilize
compounds that are generally recognized as safe (GRAS) by the FDA. The Company
believes that by restricting its research and development activities to drugs
with demonstrated safety and efficacy it may reduce the technical risk of its
projects.
25
<PAGE> 29
Pursue Strategic Relationships. The Company seeks to establish domestic
and international relationships with major pharmaceutical companies. The Company
intends to primarily rely on such collaborative partners for the marketing and
distribution of products incorporating the Company's technology. This approach
will allow the Company to devote its resources to the further development of its
technology while leveraging the established sales and marketing capabilities of
such collaborative partners.
Protect Intellectual Property. The Company has sought and intends to
continue to pursue patent protection for its formulations and other technology
in the United States and key international markets. The Company has been granted
four U.S. patents covering a number of pharmaceutical agents and has filed other
applications and provisional applications for additional U.S. patents, as well
as corresponding patent applications outside the United States, relating to the
Company's technology.
Augment Technology Through Licensing and Acquisition. The
pharmaceutical drug delivery systems industry is characterized by a large number
of relatively small organizations which focus on various modalities of drug
delivery and administration including such promising technologies and methods as
controlled release, target organ or site release, pumps, polymers,
microemulsion, monoclonal antibodies, inhalation, ocular, liposomal, implants,
transdermal passive and transdermal electrotransport. The Company believes that
large pharmaceutical companies may seek to do business with drug delivery
companies that are able to offer alternative, multiple or combination delivery
methods and are organizationally and financially stable. Therefore, the Company
seeks to augment its internal growth through licensing technology and/or the
acquisition of companies that provide complementary technology, management and
markets. No specific acquisition is currently contemplated.
PRODUCT DEVELOPMENT
Traditionally, evaluation of any new pharmacologically active chemical
begins with extensive toxicity and efficacy testing in animals. The initial
phase of testing is performed in animals with the purpose of determining
systemic absorption levels of the pharmaceutical and the possibility of
toxicity. If the tests are successful, the results are compiled and a Notice of
Claimed Investigational Exemption for a New Drug ("IND") is submitted to the
FDA. If a "clinical hold" is not issued by the FDA within 30 days of the
submission, the applicant may begin human clinical studies at approved
institutions.
There are three phases of human studies, all of which are designed to
determine the safety and efficacy of the product under evaluation. The FDA must
approve the results of each phase, all of which are included in a New Drug
Application ("NDA"). If the NDA is approved, the applicant will be permitted to
manufacture and market the product commercially. After marketing permission is
granted, the applicant has a continuing obligation to supplement the NDA with
new data discovered with respect to the product.
All of the pharmaceutical products currently being considered by the
Company for nasal delivery are commercially available and have received prior
FDA marketing approval in nonnasal dosage forms. Consequently, preliminary
testing by the Company is designed only to determine the suitability of the drug
for nasal delivery.
26
<PAGE> 30
The Company has filed six INDs for nasally delivered pharmaceutical
agents: vitamin B-12; progesterone (a female hormone); meclizine (antiemetic -
antinauseant); metoclopramide (antiemetic - antinauseant); propranolol (beta
blocker) and doxylamine (antihistamine/sleepaid). The further development and
marketing of metoclopramide and propranolol are subject to collaborative
agreements between the Company and RiboGene, Inc.
In addition, in the last fiscal year the Company began a research and
development effort with respect to nasal clemastine fumarate, an antihistamine
and nasal nicotine for smoking cessation therapy.
The status of the Company's current research and development activities
is as follows:
VITAMIN B-12 - Vitamin B-12, traditionally administered by injection,
is used to treat vitamin B-12 deficiency anemia including pernicious anemia.
Phase III clinical trials with respect to a therapeutic, prescription strength
(500 mcg) vitamin B-12 nasal gel have been performed and the Company has
submitted an NDA with respect to same, which was accepted for filing in February
1989. The FDA, in July, 1994, notified the Company that the NDA was not
approvable at that time due to questions concerning systemic bioavailability and
reproducibility of drug delivery via the unit dose nasal applicator tube used by
the Company at the time. The Company has since completed an additional clinical
study evaluating a new metered dose gel pump and filed a further amendment to
its NDA to address the foregoing issues. Approval by the FDA of the Company's
therapeutic, nasal vitamin B-12 NDA and other new drug products being developed
by the Company cannot be predicted with any certainty and no assurance can be
given that marketing approval will be granted by the FDA.
DOXYLAMINE SUCCINATE - Doxylamine Succinate is an ethanolamine
derivative antihistamine used as a nighttime sleep aid in the short-term
management of insomnia. In its traditional oral dosage form it is commonly known
as Unisom(R), which is marketed by Pfizer Inc. In June, 1995, the results of
certain pre-clinical studies and additional support documentation were compiled
and submitted with the Company's IND to the FDA. The Company has conducted
initial Phase I human trials to screen formulations for optimal clinical effect.
This clinical study program is continuing to date.
CHLORPHENIRAMINE MALEATE - Chlorpheniramine Maleate is an antihistamine
indicated for the relief of symptoms associated with hay fever and upper
respiratory allergies (allergic rhinitis). In its oral dosage form it is
commonly known as ChlorTrimeton(R), which is marketed by Schering Plough. The
Company has continued its research program to generate the necessary information
and preclinical data for the filing of an IND for the nasal delivery of
chlorpheniramine maleate. A pilot bioavailability study of nasal
chlorpheniramine maleate in animal models demonstrated higher systemic
absorption of the drug following nasal versus oral administration. The Company
intends to conduct a pre-clinical investigation to allow for the submission of
an IND with the FDA. There can be no assurance that these results will be
similar in Phase I clinical trials.
BUPRENORPHINE HYDROCHORIDE - Buprenorphine Hydrochloride is a narcotic
agonistantagonist analgesic indicated for the relief of moderate to severe pain.
The only currently FDA approved method for administering buprenorphine is by
injection. In 1996, the Company continued formulation work in anticipation of a
pre-clinical research program to generate the required data for filing an IND
for the nasal delivery of this pharmaceutical agent.
27
<PAGE> 31
CLEMASTINE FUMARATE - Clemastine Fumarate is an antihistamine indicated
for the treatment of seasonal allergic rhinitis. In its oral dosage form, it is
commonly known as Tavist(R), which is marketed by Sandoz. In the past year, the
Company commenced a research and development program to begin generating the
necessary information and preclinical data for the filing of an IND for the
nasal delivery of this drug product.
NICOTINE- Nicotine is a naturally occurring autonomic drug used as a
temporary adjunct in the cessation of cigarette smoking in conjunction with a
behavior modification program. It is commercially available as a transdermal
patch and chewing gum. In conjunction with an agreement with Ciba
Self-Medication, Inc., to develop a nicotine nasal spray for smoking cessation,
the Company has commenced a research and development program to begin generating
the necessary information and preclinical data for the filing of an IND for the
nasal delivery of this drug product.
COLLABORATIVE AGREEMENTS
The Company's product development strategy has been to focus its
attention and limited resources in a manner that will minimize the risk, time
and cost typically associated with commercializing a family of pharmaceuticals.
The Company has no experience in marketing, distributing or selling
pharmaceutical products and accordingly will have to develop an adequate sales
force and/or rely on its collaborators, licensees or on arrangements with others
to provide for the marketing, distribution and sales of its products.
The Company plans to independently develop and market certain nasal
drug products, such as certain prescription products for which there are a
relatively limited number of clinicians specializing in the treatment of a
disease which can be treated by utilizing one of the Company's products. Other
nasal pharmaceuticals, such as some of the Company's proposed over-the-counter
products may lend themselves to development and marketing in conjunction with
established pharmaceutical companies that can provide the financial means,
marketing and distribution systems to successfully commercialize such a new
nasal pharmaceutical product. The Company also plans to evaluate collaboration
with commercial partners for distribution and marketing of its products in
international markets.
28
<PAGE> 32
The following table summarizes the Company's collaborative agreements:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DRUG PRODUCT THERAPEUTIC CATEGORY PARTNER LICENSE STATUS DATE OF DEVELOPMENT
AGREEMENT STATUS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Butorphanol Narcotic Analgesic Bristol-Myers Licensed North Jan., 1986 Marketing/Sales
Squibb Company America
- -------------------------------------------------------------------------------------------------------------------------------
Propranolol Prevention of Migraine RiboGene, Inc. Licensed North June, 1987 Phase I Clinical
America Trials
- -------------------------------------------------------------------------------------------------------------------------------
Metoclopramide Antinauseant/Antiemetic RiboGene, Inc. Licensed North March, 1990 Phase III
America Clinical Trials
- -------------------------------------------------------------------------------------------------------------------------------
Nalbuphine Narcotic Analgesic Dupont Merck Licensed June, 1994 Formulation
Pharmaceutical Canada,
Co. Mexico
- -------------------------------------------------------------------------------------------------------------------------------
Undisclosed Undisclosed Sandoz Feasibility March, 1996 Formulation
Pharmaceuticals, Study; Option
Corp. to License
- -------------------------------------------------------------------------------------------------------------------------------
Nicotine Smoking Cessation Ciba Self- Feasibility August, 1996 Formulation
Medication, Inc. Study
- -------------------------------------------------------------------------------------------------------------------------------
Antihistamine Sleep-Aid Undisclosed Feasibility Sept., 1996 Phase I Clinical
Study, Option Trials
to License
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's collaborative arrangements typically provide for a
development project to be followed by commercialization pursuant to a licensing
arrangement. If a development project is successful, the collaborative partner
may elect to proceed to commercialize the Company's technology pursuant to a
definitive marketing and license agreement.
Commercialization of the Company's technology requires compliance with
the regulations of the FDA and other regulatory authorities.
BRISTOL-MYERS SQUIBB COMPANY - On January 1, 1986, the Company
sublicensed to Bristol-Myers Squibb Company ("BMS") its development and
commercial exploitation rights with respect to its licensed patent rights for
the nasal delivery of butorphanol, in exchange for which BMS agreed to pay the
Company a royalty based on the net sales of such product (the "BMS Agreement").
BMS has paid the Company an initial licensing fee of $350,000, which was
deducted from royalty payments. The BMS Agreement, which may be terminated by
BMS at any time upon 60 days written notice to the Company, is coextensive with
the Company's licensed patent rights to nasal butorphanol. The nasal butorphanol
patent expires in the year 2001 in the United States, subject to any right of
extension or renewal. In December 1991, the FDA granted marketing approval to
BMS for this product and quarterly royalty payments to the Company by BMS are
continuing.
RIBOGENE, INC. - ("RiboGene," as successor in interest to Rugby
Laboratories Co., Inc., and Darby Pharmaceuticals. Inc.) - On June 26, 1987, the
Company entered into a license agreement with Rugby Laboratories Co., Inc.
("Rugby") and its affiliate Darby Pharmaceuticals, Inc. ("Darby") whereby Rugby
was appointed as the Company's sole and exclusive worldwide licensee for the
manufacture, distribution and marketing of the nasal dosage form of propranolol
29
<PAGE> 33
for the life of the Company's United States patent covering the nasal route of
administration for that drug (the "Propranolol Agreement"). The Company received
$350,000 upon execution of the Propranolol Agreement and, if and when nasal
propranolol is approved for marketing and commercialized, will receive royalties
based upon net sales of the product. In addition, Rugby is obligated to pay all
patent maintenance fees with respect to Propranolol and pay certain other fees
thereunder.
In March 1990, the Company entered into an agreement with Rugby whereby
Rugby purchased the Company's metoclopramide patent and certain proprietary
research information related thereto (the "Metoclopramide Agreement"). The
Metoclopramide Agreement also provided for the termination of a previous
contract between the parties concerning this product. The aggregate purchase
price for the patent, proprietary information and contract termination was
approximately $700,000. The Metoclopramide Agreement also provides for certain
royalties and other fees to the Company if and when nasal metoclopramide is
approved for marketing and commercialized.
In January, 1994, RiboGene acquired certain assets of Darby, including
all rights to the Propranolol Agreement and the Metoclopramide Agreement. In
December, 1994, the Company and RiboGene amended the Propranolol Agreement and
the Metoclopramide Agreement whereby the Company waived its option to repurchase
the exclusive rights to nasal propranolol and metoclopramide in consideration of
a three year right of first refusal to perform dosage-form development work for
both projects. The amended Metoclopramide Agreement also provided for an
increased royalty rate and certain minimum royalties commencing in 1998.
THE DUPONT MERCK PHARMACEUTICAL COMPANY - On June 30, 1994, the Company
sublicensed to The DuPont Merck Pharmaceutical Company ("DuPont Merck") its
development and commercial exploitation rights with respect to its licensed
patent rights for the nasal delivery of nalbuphine, in exchange for which DuPont
Merck agreed to pay the Company a royalty based on the net sales of such product
(the "DuPont Merck Agreement"). Nalbuphine is a synthetic narcotic analgesic
agent indicated for the relief of moderate to severe pain. The DuPont Merck
Agreement is limited to the countries of Canada and Mexico and is coextensive
with the Company's licensed patent rights to nasal nalbuphine in those
countries. The nasal nalbuphine patent expires in the year 2001 in Canada,
subject to any right of extension or renewal. The Mexican patent for nasal
nalbuphine is currently pending. The DuPont Merck Agreement may be terminated by
DuPont Merck at any time upon 60 days written notice to the Company.
SANDOZ PHARMACEUTICALS CORPORATION - In March, 1996, the Company
executed a memorandum of understanding with Sandoz to conduct a nasal drug
delivery feasibility study with respect to a nasal formulation of a compound
currently marketed by Sandoz utilizing another delivery method. At the request
of Sandoz, the identity of the nasal drug product has not been disclosed. The
agreement provides for the Company to determine the feasibility of nasally
delivering this compound. Pursuant to the Agreement, the Company is to conduct a
preclinical research program, including initial formulation development, up to
the filing of an IND and Sandoz shall fund such activities as well as provide
other resources. In the event an IND is filed the Company and Sandoz have agreed
to negotiate a definitive development, manufacturing and marketing agreement.
30
<PAGE> 34
CIBA SELF-MEDICATION, INC. - In August, 1996, the Company entered into
an agreement with Ciba Self-Medication, Inc., a division of Ciba-Geigy
Corporation, ("Ciba") to develop a nicotine nasal dosage form to assist with
smoking cessation. Ciba markets the Habitrol(TM) transdermal patch. Under the
terms of the Agreement, the Company is to perform formulation and related
preclinical research and development up to and including the filing of an IND.
Based on factors, including the successful outcomes of specified milestones, the
Company and Ciba have agreed to negotiate definitive development, manufacturing
and marketing agreements.
PATENTS AND PROPRIETARY RIGHTS
The establishment of a strong proprietary position is an important
element of the Company's strategy as the pharmaceuticals to which the Company
has proprietary rights for nasal delivery have been commercially available in
traditional oral and/or injectable forms for many years and have been approved
for use by those delivery methods by the FDA.
On June 1, 1983, the Company entered into a license agreement with the
University of Kentucky Research Foundation ("UKRF") and Dr. Anwar Hussain (the
"UKRF Agreement"), pursuant to which the Company obtained an exclusive worldwide
(except for the middle east region) license for the development and commercial
exploitation of certain patents, patent applications and related know-how
(collectively the "UKRF Information") pertaining to the nasal delivery of the
following drugs:
Narcotic Antagonists and Analgesics: naloxone, naltrexone,
diprenorphine, nalmexone, cyprenorphine, alazocine, oxilorphan, cyclorphan,
morphine, metopon, desomorphine, dihydromorphine, hydromorphone,
3-hydroxy-N-methylmorphinan, levophenacylmorphan, metazocine, norlevorphanol,
phenomorphan, levorphanol, oxymorphone, buprenorphine, butorphanol, cyclazocine,
phenazocine, pentazocine, nalorphine, levallorphan, nalbuphine.
Beta Blockers: propranolol.
Natural Female Sex Hormones: 17 beta-estradiol and progesterone.
The UKRF Agreement will terminate upon the expiration date of the
latest patent included in the UKRF Information. UKRF United States patents
expire between 1999 and 2001.
The UKRF Agreement requires the Company to pay UKRF the greater of (i)
the minimum annual royalties set forth below, or (ii) royalties based on a
percentage of sales of any product utilizing the UKRF Information (collectively
"UKRF Products"). If the UKRF Product is covered by a patent, royalties are
based on a schedule ranging between 4% and 5% of aggregate net sales. Minimum
royalties are payable commencing one year after FDA approval of an NDA with
respect to a UKRF Product and are $100,000 per year. If the UKRF Product, or any
portion thereof, is not covered by a patent, the Company is required to pay UKRF
one-Half of the greater of the aforementioned minimum annual royalty or
percentage royalty, whichever shall be applicable.
The UKRF Agreement accords the Company the right to grant sublicenses
for UKRF Products. In such event, the royalties payable to UKRF for domestic and
foreign sales thereof will be limited to 50% and 20%, respectively, of revenues
received by the Company therefrom.
31
<PAGE> 35
The Company has granted three sublicenses to date.
The Company pursues a general policy of obtaining patent protection in
both the United States and selected foreign jurisdictions for patentable subject
matter. In 1986 and 1988, United States patents were issued to the Company
describing and claiming nasal delivery of a variety of antihistamine,
anti-nausea and anti-emetic pharmaceutical agents including meclizine and
metoclopramide; as well as nasal compositions containing vitamin B-12 and
caffeine. Corresponding or related patent applications for most of these
pharmaceutical agents were filed in several foreign countries.
United States patents, which expire between 2003 and 2005 have been
issued to the Company for the nasal delivery of the following pharmaceutical
agents:
Antihistamines and/or Anti-nausea/Anti-emetics:
metoclopramide, diphenhydramine, clemastine, dimenhydrinate,
doxylamine, carbinoxamine, phenyltoloxamine, tripelennamine,
pyrilamine, brompheniramine, pheniramine, chlorpheniramine,
dexchlorpheniramine, triprolidine, promethazine, trimeprazine,
propiomazine, methdilazine, cyproheptadine, azatadine, methapyrilene,
diphenylpyraline, phenindamine, hydroxyzine, terfenadine, cimetidine,
ranitidine, cyclizine, chlorcyclizine, meclizine, buclizine,
trimethobenzamide, benzquinamide.
Vitamin: Vitamin B-12.
At present, in addition to the patented drugs licensed from the UKRF,
the Company has four issued United States patents and corresponding or related
foreign patents and applications pending, related to the nasal administration of
various therapeutic agents. All of the Company's patent applications are
directed to compositions for delivering the therapeutic agents by the nasal
route and/or to the use of such compositions for nasal delivery.
The Company can make no assurances that any issued patent, whether
domestic or foreign, will provide commercially significant patent protection.
Further, patent positions of pharmaceutical and biotechnology companies are
highly uncertain and involve complex legal and factual issues. Therefore,
although the Company believes its patents are valid, it cannot predict with any
precision the scope or enforceability of the claims allowed thereunder. In
addition, there can be no assurance that the Company's patent applications will
result in issued patents, that issued patents will provide an adequate measure
of protection against competitive technology which could circumvent such patents
or that issued patents would withstand review and be held valid by a court of
competent jurisdiction. Furthermore, there can be no assurance that any issued
patents will not be infringed or otherwise circumvented by others or that the
Company will be able to fund the cost of litigation against such parties.
The Company depends upon the knowledge, experience and skills of its
key scientific and technical personnel. To protect its rights to its proprietary
information, the Company requires all employees, consultants, advisors and
others to enter into confidentiality agreements which prohibit the disclosure of
confidential information to third parties and require disclosure and assignment
to the Company of developments, inventions and discoveries. There can be no
assurance that these agreements will effectively prevent the unauthorized use or
disclosure of the Company's confidential information.
32
<PAGE> 36
MANUFACTURING
The Company has established internal manufacturing capabilities for
clinical trials and small commercial quantities of its products. All of the
Company's products for clinical and commercial use must be produced under
controlled conditions and under current FDA Good Manufacturing Practices
("GMP"). In August 1995, the Company completed moving its executive offices,
laboratory and manufacturing facilities to a larger, more efficient and modern
facility. The Company's laboratory and manufacturing facilities are registered
to operate by both the FDA and the New York State Board of Pharmacy thereby
enabling the Company to manufacture and test its own pharmaceutical products. In
order to insure continued compliance with GMP requirements, the Company is
required to maintain sufficient technical staff to oversee all production
operations, including quality control, quality assurance, technical support and
manufacturing management. Manufacturing facilities and laboratories are subject
to biennial inspections by the FDA.
In connection with collaborative agreements and if contract
manufacturing arrangements are established with third parties, the Company will
depend upon third parties to produce and deliver products in accordance with
GMP. There can be no assurance that such parties will perform their obligations
in a timely fashion and any failures by such third parties could cause a delay
in clinical trials, commercialization of product, or ability to supply the
market. See "Risk Factors - Manufacturing."
GOVERNMENT REGULATION
The Company's research and development activities are, and its future
business will be, subject to significant regulation by numerous governmental
authorities in the United States and other countries. Pharmaceutical products
intended for therapeutic use in humans are governed by FDA regulations in the
United States and by comparable regulations in foreign countries. The process of
completing clinical testing and obtaining FDA approval for a new drug product
requires a number of years and the expenditure of substantial resources.
Following initial formulation, the steps required before any new
pharmaceutical product may be marketed in the United States include (i)
preclinical laboratory and animal tests, (ii) the submission to the FDA of an
IND application, (iii) adequate and well-controlled clinical trials to establish
the safety and efficacy of the drug, (iv) the submission of an NDA to the FDA,
and (v) FDA approval of the NDA prior to any commercial sale or shipment of the
drug.
Typically, preclinical studies are conducted in the laboratory and in
animal model systems to gain preliminary information on the drugs
bioavailability or efficacy and to identify any significant safety problems. The
results of these studies are submitted to the FDA as part of the IND
application. Testing in humans may commence 30 days after filing of the IND
unless the FDA issues a "clinical hold". A three phase clinical program is
usually required for FDA approval of a pharmaceutical product. Phase I clinical
trials are conducted to determine the safety and optimal dosage of the product
in normal volunteers who do not have the disease or condition that the proposed
drug is designed to treat. Phase I studies are conducted at approved
institutions at which the absorption and excretion (pharmacokinetics) of the
drug as well as any side effects are closely monitored.
33
<PAGE> 37
If the Phase I testing data is positive and there are no adverse
reactions, a Phase II clinical trial is conducted to gain preliminary evidence
as to the safety and efficacy of the product in a selected patient population. A
Phase III clinical trial is conducted on a more complex patient population
including patients with multiple disease states and taking one or more
medications to provide sufficient data for the statistical proof of safety and
efficacy. Phase II and III studies are usually multi-center trials in order to
achieve greater statistical validity. A clinical trial may combine the elements
of more than one phase. Upon completion of clinical testing which demonstrates
that the product is safe and effective for a specific indication, an NDA may be
filed with the FDA. This application includes details of the testing processes,
preclinical studies, clinical trials, as well as chemical, analytical,
manufacturing, packaging and labeling information. FDA approval of the
application is required before the applicant may market the new drug product.
Recent user-fee legislation establishes specific time frames for
completion of FDA regulatory reviews. While this program provides some measure
of assurance that the FDA's review is conducted in a timely fashion, there is no
guarantee that the time periods will be met in all cases or that the review will
provide positive results. Even after initial FDA approval has been obtained, the
NDA must be supplemented with any new data subsequently obtained with respect to
the drug's safety and efficacy. Further studies may be required to provide
additional data on safety or to gain approval for the use of a product as a
treatment in clinical indications other than those for which the product was
initially tested. The FDA may also require post-marketing testing and
surveillance programs or Phase IV post-approval trials to monitor the drugs
effects. Side effects resulting from the use of pharmaceutical products may
prevent or limit the further marketing of products.
In addition to regulations enforced by the FDA, the Company is subject
to regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other similar federal, state and local regulations governing
permissible laboratory activities, waste disposal and other matters.
For marketing outside of the United States, the Company will be subject
to foreign regulatory requirements governing human clinical trials and marketing
approval for drugs. The requirements relating to the conduct of clinical trials,
product licensing, pricing and reimbursement vary widely from country to
country.
HEALTH CARE REIMBURSEMENT
The Company's ability to achieve a competitive position with respect to
prescription pharmaceutical product applications will depend in part upon the
extent to which reimbursement for the cost of such products and related
treatments will be available to health care consumers from government health
administration authorities, private health care insurers and other health care
payers, such as health maintenance organizations and self-insured employee
plans. There can be no assurance that such reimbursement will be available at
all or at levels sufficient to allow the Company and its collaborative partners
to maintain profitable price levels for products incorporating the Company's
technology. If adequate reimbursement levels are not provided by government and
third-party payers for products incorporating the Company's technology, sales of
these products would be adversely affected.
The health care industry is changing rapidly as the public, government,
medical professionals and the pharmaceutical industry examine ways to broaden
medical coverage while
34
<PAGE> 38
controlling the increase in health care costs. In 1993, the Clinton
administration announced a series of legislative and regulatory proposals which,
if enacted, would have significantly affected health care, pharmaceutical and
drug delivery companies, among others. Although these proposals have not been
implemented by Congress to date, the Company believes that Congress will
continue to consider health care reform proposals. Potential changes could put
pressure on the prices of prescription pharmaceutical products. Health care
reform may adversely affect the Company's business, particularly to the extent
that the Company develops products for prescription drug applications. The
Company is unable to predict, however, when any proposed health care reforms
will be implemented, if ever, or the effect of any implemented reforms on the
Company's business or prospects. See "Risk Factors - Health Care Reimbursement."
COMPETITION
The Company is engaged in the pharmaceutical, drug delivery systems
industry which is characterized by extensive research efforts, rapid
technological progress and intense competition. Competitors of the Company in
the United States and abroad are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions. At the present time, the Company does not know of another
pharmaceutical company engaging exclusively in the development of drugs intended
for nasal administration, but other pharmaceutical companies which are larger
than the Company are known to be engaged in researching some nasally
administered pharmaceuticals, and may be expected to enter this field if the
nasal route ever becomes the method of choice for the administration of certain
classes of drugs.
Further, there can be no assurance that the Company's competitors will
not succeed in developing technologies and products that are more effective than
the nasal technology being developed by the Company or which would render the
Company's technology and products obsolete or noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. Many of the Company's
competitors have greater experience than the Company in conducting preclinical
testing and clinical trials of pharmaceutical products and obtaining FDA and
other regulatory approvals. Accordingly, the Company's competitors may succeed
in obtaining FDA approval for products more rapidly than the Company. If the
Company commences commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in
which it has limited or no experience.
The Company believes that direct competition with its patented nasal
delivery products may be difficult because of the Company's patent position.
However, the Company's products must also compete with other modalities of drug
delivery and administration including, but not limited to, such promising
technologies and methods as controlled release, target organ or site release,
pumps, polymers, microemulsion, monoclonal antibodies, inhalation, ocular,
liposomal, implants, transdermal passive and transdermal electrotransport. Other
products using these or other delivery alternatives may be developed that will
be as or more effective than the Company's products and proposed products. There
can be no assurance that the Company will be able to compete effectively with
other commercially available products or that development of other technologies
or methods of drug delivery will not detrimentally affect the Company's
commercial opportunities. See "Risk Factors - Intense Competition."
35
<PAGE> 39
EMPLOYEES
At June 30, 1996, the Company had 16 full time employees, of whom 9
were engaged in research and development, including the Company's President and
Vice President of Research and Development both of whom hold Ph.D. degrees in
pharmaceutical sciences, as well as the Company's Director of Clinical Affairs.
The balance of the Company's employees are engaged in administration and support
functions.
None of the Company's employees are covered by a collective bargaining
agreement or are represented by a labor union. The Company considers its
relationship with its employees to be satisfactory.
The development, manufacture and marketing of the Company's products
requires substantial scientific and technical capabilities in several disparate
disciplines, including but not limited to biochemistry, analytical chemistry,
pharmacology, therapeutics, toxicology, pharmacy and statistics. While the
Company believes that the capability and experience of its technical employees
compares favorably with the industry as a whole, there can be no assurance that
it can retain existing employees or attract and hire the highly capable
technical and scientific employees it may need in the future on terms deemed
favorable to the Company, if at all. See "Risk Factors - Dependence Upon Key
Personnel and Attraction of Qualified Personnel."
PROPERTIES AND FACILITIES
The Company leases approximately 10,000 square feet at 45 Davids Drive,
Hauppauge, New York for its laboratory, manufacturing facility as well as its
corporate and administrative offices. The lease provides for minimum annual rent
of approximately $82,000 and expires in May, 2000 with the Company having an
option to renew for an additional five year term. The Company is also
responsible for all utilities, maintenance, security and property tax increases.
The Company believes this facility in its present condition is suitable for its
operations for the initial term of the lease.
LEGAL PROCEEDINGS
The Company knows of no litigation or proceeding, pending or
threatened, to which the Company is or may become a party.
36
<PAGE> 40
MANAGEMENT
DIRECTORS AND OFFICERS
The directors, executive officers and senior employees of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Devin N. Wenig 29 Chairman
Dr. Vincent D. Romeo 39 President and Chief
Executive Officer
Joel Girsky 57 Director, Secretary,
Treasurer
Bruce R. Thaw 43 Director
Dr. Ian R. Ferrier 53 Director
Grant W. Denison, Jr. 47 Director
Alvin Katz 66 Director
John V. Pollock 58 Director
Dr. Charan R. Behl 45 Vice President of Research
and Development
John Marinaro 48 Director of Clinical Research
Dr. John Wei Xia 39 Senior Research Scientist
</TABLE>
All directors hold office until the next annual meeting of shareholders
or until their successors are elected and qualify. Executive officers hold
office until their successors are chosen and qualify, subject to earlier removal
by the Board of Directors.
Set forth below is a biographical description of each director,
executive officer and senior employee of the Company based on information
supplied by each of them.
Mr. Wenig was appointed Chairman of the Company's Board of Directors in
June 1991. Mr. Wenig received a B.A. degree from Union College and a J.D. degree
from the Columbia University School of Law. From May 1991 to May 1994 Mr. Wenig
was a corporate associate with the firm of Cravath, Swaine and Moore. Mr. Wenig
is currently a practicing corporate attorney in New York City, New York.
Dr. Romeo has been employed by the Company since 1985 as Director of
Research and was appointed President and Chief Executive Officer of the Company
in August 1991. Dr. Romeo is a registered pharmacist and received a Ph.D. degree
from St. John's University College of Pharmacy and Allied Health Professions in
Pharmaceutical Sciences in 1984, with a specialty in pharmacology. He continues
at St. John's as an Adjunct Professor of Pharmacology, Graduate
37
<PAGE> 41
Division, College of Pharmacy and Allied Health Professions. Dr. Romeo has
devoted a significant amount of his time with the Company formulating drugs for
nasal delivery, developing animal models for nasal drug testing, and designing
clinical efficacy and safety studies. He has authored and co-authored several
published articles in the field. Dr. Romeo has also presented his work at
various meetings and conferences sponsored by the American Association of
Pharmaceutical Scientists and the American College of Clinical Pharmacology. Dr.
Romeo is an active member of the American Association of Pharmaceutical
Scientists, the American College of Clinical Pharmacology, the Rho Chi
Pharmaceutical Society, and the New York Academy of Sciences. Dr. Romeo has also
been appointed as an Adjunct Assistant Professor of Pharmaceutics at The
University of Rhode Island, College of Pharmacy.
Mr. Girsky has been a Director of the Company since October 1983, and
the Company's Secretary/Treasurer since April 1986. From 1961 to the present,
Mr. Girsky has been President and Chairman of the Board of Jaco Electronics,
Inc., Hauppauge, New York, a publicly held company engaged in the distribution
of electronic components. Mr. Girsky received a degree in Marketing from
Brooklyn College in 1957.
Mr. Thaw has been a Director of the Company since June 1991. From 1984
to the present, Mr. Thaw has been a principal in a law firm, which serves as
general counsel to the Company. Mr. Thaw was admitted to the bar of the State of
New York in 1978 and the California State Bar in 1983. Mr. Thaw is also a
director of Information Resource Engineering, Inc., a publicly traded company
engaged in the computer network security industry and Amtech Systems, Inc. a
publicly traded company engaged in the semi-conductor industry.
Dr. Ferrier, who was appointed to the Company's Board of Directors in
January 1995, is the founder, President and Chief Executive Officer of Bogart
Delafield Ferrier Inc., and has served in such capacity since its inception in
1982. Trained in medicine and pharmacology, Dr. Ferrier has managed and directed
pharmaceutical programs and guided the growth of several multinational
companies. He has served on the Board of Directors of a number of health care
and biotechnical firms, as well as serving as consultant to many of the worlds
major pharmaceutical companies. From 1982 to 1987, Dr. Ferrier served as
President of McCann Healthcare Inc. From 1982 to 1983, Dr. Ferrier served as
Chairman of The Covington Group of Companies; in 1982 as Executive Vice
President of TechAmerica Group and from 1979 to 1982, as Vice President of
Kalipharma Inc. From 1975 to 1979 Dr. Ferrier served as Chief Executive Officer
of the Monadnock Medical Center. Dr. Ferrier received a BSc in Pharmacology from
the University of Edinburgh, Edinburgh Scotland; served his residency training
in nephrology/clinical pharmacology at Southmead General Hospital, University of
Bristol Associated Hospitals, Bristol, England; and his post-graduate internship
at the Western General Hospital of the University of Edinburgh Associated
Hospitals, Edinburgh, Scotland.
Mr. Denison, who was appointed to the Company's Board of Directors in
September 1996, is the President, Worldwide Consumer Products of G.D. Searle &
Co. ("Searle") and has served in such capacity since 1993. Mr. Denison has also
served as Corporate Vice President, Strategic Planning for Searle's parent
company Monsanto from 1989 to 1993. In addition, Mr. Denison also served as
President of Searle's U.S. Pharmaceutical Operations from 1987 to 1989. Prior to
joining Searle, Mr. Denison was Vice President of International Operations for
Squibb Medical Systems and also held a number of senior management positions at
Pfizer, Inc. Mr. Denison is a member of the board of directors of Genetronics
Inc., a subsidiary of Genetronics Biomedical Ltd. He has served as national
chairman of the President's Council for the American Lung Association and is an
Executive Committee member of the New York Cancer Society. Mr. Denison holds a
master of business administration degree from Harvard Business School and
received a bachelor's degree from Colgate University.
38
<PAGE> 42
Mr. Katz was appointed to the Company's Board of Directors in September
1993. Mr. Katz was formerly Chief Executive Officer of Odessa Engineering Corp.,
a company engaged in the manufacturing of pollution monitoring equipment. From
1957 to 1976, Mr. Katz was employed by United Parcel Service holding various
managerial positions, including District Manager and Corporate Manager of
Operations, Planning, Research and Development. Mr. Katz serves on the Board of
Directors of several publicly held companies including Miller Industries, a
manufacturer of windows and doors; Blimpie International, Inc., which is engaged
in the franchising and marketing of quick service sandwich restaurants; Amtech
Systems, Inc., which is engaged in the semi-conductor industry; and Foremost
Industries which is engaged in the distribution and repair of commercial
refrigeration. He is also a director of Aromatics Incorporated, a manufacturer
of car wash equipment. Mr. Katz holds a B.S. in Business Administration degree
from New York University and has done graduate work at C.U.N.Y.-Baruch School.
Mr. Pollock was appointed to the Company's Board of Directors in
September 1993. From 1991 to the present Mr. Pollock has served as a director of
Frank E. Basil, Inc., a worldwide provider of facilities maintenance,
engineering and operations management services. Mr. Pollock also serves as a
consultant to the partners of Basil Properties and has served as the President
of Nastech-Basil International, Inc. From 1975 to 1991 Mr. Pollock was a senior
banking executive in the Washington, D.C. area, serving as President and Chief
Executive Officer of Dominion Bank of Washington and the John Hanson Savings
Bank.
Dr. Charan R. Behl, Ph.D. (Univ. of Mich., 1979) has been employed with
the Company since January 1995 as Vice President of Research and Development.
Dr. Behl previously held senior research positions in the Pharmaceutical
Research and Development Department of Hoffmann La-Roche, Inc, Nutley, NJ for
about fourteen years. During his tenure at Roche and as a research faculty
member at the University of Michigan, he has done extensive research and product
development on various drug delivery systems. Dr. Behl has worked on the
optimization of drug delivery via different routes including nasal, enteral,
transdermal (local and systemic), rectal, vaginal and trans-nail. Most of his
research has been focused on the optimization of absorption and stability of
"difficult" drugs. Dr. Behl has authored/coauthored well over one hundred
articles and major meeting abstracts including many book chapters. One of his
co-authored articles was awarded the Ebert Prize for best publication in
1989/1990 by the American Pharmaceutical Association (AphA). Working closely
with his colleagues at the FDA, academia, NIH and other companies, Dr. Behl has
been instrumental in organizing international workshops, conferences and
meetings to address crucial issues pertaining to drug delivery. Currently he is
co-chairing a Nasal Drug Delivery Focus Group at the American Association of
Pharmaceutical Scientists (AAPS). Dr. Behl is an active member of the AphA, AAPS
and Controlled Release Society. He is a Fellow of the AAPS.
Mr. Marinaro, who joined the Company as Director of Clinical Research
in June of 1996, has extensive experience in the clinical development of drugs
for the treatment of Cancer, AIDS, Nausea/Vomiting, Anxiety and Alzheimer's
disease. Prior to joining the Company, he directed the ovarian cancer clinical
program of Anthra Pharmaceuticals since 1993. He began his career, in 1973, as a
Biostatistician for Bristol-Myers Squibb and soon advanced to direct their
Biometrics Department. In 1982, he was appointed Clinical Manager in Central
Nervous System and later Cancer Research. As Project Leader for Paraplatin(R)
and Taxol(R), the two definitive drugs for the treatment of ovarian cancer, he
coordinated the international clinical program that led to FDA approval of these
drugs. Mr. Marinaro is a graduate of Drew University and holds a Master of
Science degree in biology from Seton Hall University.
39
<PAGE> 43
Dr. Wei J. Xia has been employed by the Company since April, 1996 as a
Senior Research Scientist. Dr. Xia received his Ph.D. degree from The University
of Illinois at Chicago, College of Pharmacy in Pharmaceutical Sciences in 1996.
Dr. Xia also has a M.S. degree in Immunology and a bachelor degree in Medicine
which he received from The University of Chinese Medicine of Shanghai in 1987
and 1984. Dr. Xia had worked as a Physician and as a Research Associate in The
Department of Immunology, Research Institute of Chinese Medicine of Shanghai
before his Ph.D. study. His responsibility at the company is the research and
development of nasal drug delivery focusing on pre-formulation and formulation
design. Dr. Xia is an active member of American Association of Pharmaceutical
Scientists and Control Release Society.
COMMITTEES OF THE BOARD
The Company's Board of Directors has established a Compensation
Committee which is comprised of Devin N. Wenig, Joel Girsky and John V. Pollock.
The purpose of this Committee is to review and approve the compensation of the
Company's officers and to administer and/or interpret the Company's stock option
plan. The Audit Committee of the Company's Board of Directors is comprised of
Alvin Katz, Joel Girsky and John V. Pollock. The purpose of this Committee is to
review with the Company's independent auditor, Robbins, Greene, Horowitz, Lester
& Co., LLP, the financial controls and practices of the Company and the plans
for and results of the audit engagement.
DIRECTOR LIABILITY
The Delaware General Corporation Law permits Delaware corporations to
include in their certificates of incorporation a provision eliminating or
limiting the personal liability of directors of the corporation for damages
arising from certain breaches of fiduciary duty. The Company's Certificate of
Incorporation includes a provision eliminating the personal liability of
directors to the Company and its stockholders for damages to the maximum extent
permitted by Delaware law, including exculpation for acts of omissions in
violation of directors' fiduciary duty of care. Under current Delaware law,
liability is not eliminated in the case of a breach of a director's duty of
loyalty (i.e., the duty to refrain from transactions involving improper
conflicts of interest) to the Company or its stockholders, the failure to act in
good faith, the knowing violation of law or the obtainment of an improper
personal benefit. The Company's Certificate of Incorporation does not have any
effect on the availability of equitable remedies (such as an injunction or
rescission) for breach of fiduciary duty. However, as a practical matter,
equitable remedies may not be available in particular circumstances. See "Risk
Factors."
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three fiscal
years to the Company's Chief Executive Officer and to each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during the fiscal year ended June 30, 1996:
40
<PAGE> 44
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Name and Principal ------------------- Options All other
Position Year Salary Bonus (Shares) Compensation
-------- ---- ------ ------ -------- ------------
<S> <C> <C> <C> <C> <C>
Dr. Vincent D. Romeo, 1996 $160,000 -- -- --
President/Chief Executive 1995 $156,000 -- 25,000 --
Officer 1994 $125,000 -- 25,000 --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock during the fiscal year
ended June 30, 1996, to the person named in the Summary Compensation Table:
Individual Grant in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total
Options
Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (Shares)(1) Year ($/Sh)(2) Date
- ---- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Dr. Vincent
D. Romeo None -- -- --
</TABLE>
- ------------------------------
(1) The options to be granted under the Plan are designated as
incentive stock options or non-incentive stock options by the Board of Directors
which also has discretion as to the persons to be granted options, the number of
shares subject to the options and the terms of the option agreements. The Plan
provides that options granted thereunder shall be exercisable during a period of
no more than ten years (five years in the case of 10% stockholders) from the
date of grant, depending upon the specific stock option agreement, and that,
with respect to incentive stock options, the option exercise price shall be at
least equal to 100% of the fair market value of the Common Stock at the time of
grant (110% in the case of 10% stockholders). All outstanding options are
subject to optionee's continuous employment or association with the Company.
Under the Stock Option Plan, the Board retains discretion to modify the terms of
outstanding options, subject to the provisions of the Plan.
(2) All options were granted at market value on the date of grant.
41
<PAGE> 45
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information related to the number and
value of stock options and stock appreciation rights held at fiscal year end by
the named executive officer:
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the Money
Options at June 30, 1996 Options at June 30, 1996
------------------------ ------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Vincent D. Romeo 58,333 $627,080
</TABLE>
COMPENSATION OF DIRECTORS
The Company has not paid and does not presently propose to pay
compensation to any director for acting in such capacity, except for nominal
sums for attending Board of Directors meetings and reimbursement for reasonable
expenses in attending those meetings.
Devin N. Wenig, the Company's Chairman, was paid approximately $30,000
in the Company's fiscal year ended June 30, 1996 for acting in an executive
capacity at the request of the Company's Board of Directors.
EMPLOYMENT AGREEMENTS
In August 1994, the Company and Dr. Romeo entered into a three year
employment agreement. Pursuant to this agreement, Dr. Romeo receives
compensation of $160,000 per year. Upon completion of Phase II studies for two
of the Company's proposed products such compensation will be increased to
$175,000 per year. Dr. Romeo is also entitled to a $20,000 incentive bonus if
and when the Company's prescription Vitamin B-12 nasal formulation is approved
for marketing by the FDA and a $20,000 bonus each time an NDA for one of the
Company's proposed products is accepted for filing by the FDA. In addition, Dr.
Romeo received an additional incentive stock option to acquire 25,000 shares of
the Company's Common Stock in accordance with the terms and conditions of the
Company's Stock Option Plan.
STOCK OPTION PLAN
Under the Company's Stock Option Plan (the "Plan") options to purchase
a maximum of 483,333 shares of Common Stock of the Company (subject to
adjustment in the event of stock splits, stock dividends, recapitalizations and
other capital adjustments) may be granted to employees, officers and directors
of the Company and other persons who provide services to the Company. Options
for 109,999 shares have been exercised, and currently there are 255,049 such
options granted and outstanding. The options to be granted under the Plan are
designated as incentive stock options or non-incentive stock options by the
Board of Directors which also has discretion as to the persons to be granted
options, the number of shares subject to the options and the terms of the option
agreements. Only employees, including officers and part-time employees of the
Company may be granted incentive stock options. The options are intended to
receive incentive stock option tax treatment pursuant to Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code").
42
<PAGE> 46
The Plan provides that options granted thereunder shall be exercisable
during a period of no more than ten years (five years in the case of 10%
shareholders) from the date of grant, depending upon the specific stock option
agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair market value of the
Common Stock at the time of grant (110% in the case of 10% shareholders).
Pursuant to the provisions of the Plan, the aggregate fair market value
(determined on the date of grant) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an employee during
any calendar year shall not exceed $100,000.
The purpose of the Plan is to increase the ability of the Company to
attract and retain individuals of exceptional skill upon whom, in large measure,
its sustained progress, growth and ultimate profitability depend. In addition,
the Plan is intended to advance the interests of the Company by enabling its
directors, officers and employees to acquire a financial interest in the Company
through grants of options to acquire the Company's Common Stock. The Plan is
intended to provide an increased incentive to these individuals, thereby
providing such persons with an added incentive to continue in the employ or
service of the Company and to stimulate their efforts in promoting the growth,
efficiency and profitability of the Company.
CERTAIN TRANSACTIONS
In December 1992 the Company entered into a debt restructure agreement
with Basil Properties ("Basil") which amended the terms of a $600,000 loan by
Basil to the Company in May 1989 (the "Restructuring Agreement"). Pursuant to
the Restructuring Agreement, the Company is required to make annual principal
curtailments commencing September 30, 1993 equal to 5% of the Company's total
revenue for the preceding fiscal year ended June 30th, subject to an annual
minimum payment of $25,000. Should the Company's total revenue exceed $5,000,000
in any fiscal year, the remaining unpaid principal balance shall become due and
payable the following September 30th. Basil has the option to convert any
outstanding portion of the principal balance of the loan into shares of the
Company's Common Stock. The conversion prices based upon the year of conversion
are as follows: 1996 - $20.55 per share; and 1997 - $25.68 per share. Any
remaining unpaid principal balance is due and payable January 1, 1998.
Mr. Bruce R. Thaw, a director of the Company, billed the Company
approximately $58,000 for legal fees for representing the Company in connection
with certain legal and regulatory matters in fiscal 1996. Mr. Thaw continues to
represent the Company for which he will be paid customary legal fees.
Dr. Ian Ferrier, a director of the Company, is the Chief Executive
Officer of Bogart Delafield Ferrier Inc. ("BDF") and is an affiliate of Mazier
Partners LLC ("MP"). BDF and MP provided consulting services to the Company in
areas of strategic planning, market planning and research and development
prioritization. For its fiscal year ended June 30, 1996, the Company expensed
fees of $40,000 and $62,000, for BDF and MP, respectively.
PRINCIPAL SHAREHOLDERS
Set forth below is information concerning the Common Stock ownership as
of September 5, 1996 by (i) each person who is known by the Company to own
beneficially 5% or more of its outstanding Common Stock, (ii) each director, and
(iii) all directors and officers of the Company as a group:
43
<PAGE> 47
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding Shares
Name of Beneficial Owner(1) Ownership(2) Owned(3)
- ---------------------------- ----------- --------
<S> <C> <C>
Devin N. Wenig(4) 369,733 9.5 %
Basil Properties(5)(10) 283,537 7.3 %
Bruce R. Thaw(6) 155,041 3.9 %
Alvin Katz(7) 117,000 3.0 %
Carol Wenig(8) 93,041 2.4 %
Vincent D. Romeo(9) 68,845 1.8 %
Ian Ferrier(11) 25,000 (13)
Joel Girsky(7) 18,750 (13)
John V. Pollock(7)(10) 18,333 (13)
Grant W. Denison, Jr. -- (13)
All Officers and
Directors as a Group
(9 persons)(12) 1,149,280 28.1 %
</TABLE>
- -------------------------------------
(1) The addresses of all persons other than Messrs. Bruce R. Thaw, Basil
Properties, Alvin Katz and John V. Pollock is c/o the Company. The
address of Bruce R. Thaw is 45 Banfi Plaza, Farmingdale, NY; the
address of Basil Properties and John V. Pollock is 1510 H Street, N.W.,
Washington D.C.; and the address of Alvin Katz is 301 N. Birch Rd.,
Fort Lauderdale, FL.
(2) All shares are owned beneficially and of record unless indicated
otherwise. Includes 178,333 shares issuable pursuant to outstanding
stock options with the Company and 26,000 Warrants, which may be
exercised within 60 days of the date of this Report.
(3) Does not give effect to (i) the exercise of the Representative's
Warrant and (ii) 305,000 shares of Common Stock reserved for issuance
under the Company's stock option plan.
(4) Devin N. Wenig is the son of Carol Wenig. Devin N. Wenig's shares, as
indicated above, include 25,000 shares issuable pursuant to outstanding
stock options with the Company, which may be exercised within 60 days
of the date of this Report, 166 shares held by Mr. Wenig's wife and
6,666 shares held in a trust for which Carol Wenig serves as the
trustee.
(5) Includes 40,000 shares held by Mrs. Sophie Basil a general partner of
Basil Properties.
(6) Includes 25,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60 days of the date of
this Report. Also includes 26,000 shares and 26,000 Warrants owned by
Mr. Thaw's wife.
(7) Includes 10,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60 days of the date of
this Report.
(8) The amount indicated herein includes 5,000 shares issuable to Carol
Wenig pursuant to outstanding stock options with the Company, which may
be exercised within 60 days of the date of this Report.
(9) Includes 58,333 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60 days of the date of
this Report.
(10) John V. Pollock is a managing director of Basil Properties and its
nominee to the Company's Board of Directors.
(11) Includes 25,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60 days of the date of
this Report.
(12) Includes shares held by Basil Properties and Carol Wenig. See notes
(5), (8) and (10) above.
(13) Represents less than 1% of the outstanding shares of the Company's
Common Stock.
44
<PAGE> 48
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 6,000,000
shares of Common Stock, par value $.006 and 100,000 shares of Preferred Stock,
par value $.01. As of September 5, 1996 there were 3,860,061 shares of Common
Stock outstanding, and no shares of Preferred Stock outstanding.
COMMON STOCK
All the issued and outstanding shares of Common Stock are validly
issued, fully paid and non-assessable.
Voting Rights
Each outstanding share of Common Stock has one vote on all matters
requiring a vote of the shareholders. There is no right to cumulative voting;
thus, the holders of fifty percent or more of the shares outstanding can, if
they choose to do so, elect all of the directors of the Company.
Liquidation Rights
In the event of a voluntary or involuntary liquidation of the Company,
all shareholders are entitled to a pro rata distribution after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock.
Preemptive Rights
The holders of the Common Stock have no preemptive rights with respect
to the Company's offerings of shares of its Common Stock.
Dividend Rights
Holders of Common Stock are entitled to dividends if, as and when
declared by the Board of Directors out of the funds legally available therefor.
It is the present intention of the Company to retain earnings, if any, for use
in its business. Dividends are, therefore, unlikely in the foreseeable future.
Transfer Agent
The Transfer Agent for the Common Stock of the Company is the American
Stock Transfer and Trust Company, 40 Wall Street, New York, NY 10005.
WARRANTS
The following is a brief summary of certain provisions of the Warrants,
but such summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the Warrant Agreement between the
Company and American Stock Transfer & Trust Company (the "Transfer and Warrant
Agent"). A copy of the Warrant Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
45
<PAGE> 49
Exercise Price and Terms. Each Warrant entitles the holder thereof to
purchase, at any time through December 7, 1996, one share of Common Stock at a
price of $5.50 per share (the "Initial Exercise Price"), provided that at such a
time a current prospectus relating to the Common Stock is then in effect and the
Common Stock is qualified for sale or exempt from qualification under applicable
state securities laws. The holder of any Warrant may exercise such Warrant by
surrendering the certificate representing the Warrant to the Transfer and
Warrant Agent, with the subscription form on the reverse side of such
certificate properly completed and executed, together with payment of the
exercise price. No fractional shares will be issued upon the exercise of the
Warrants.
Since December 7, 1994, the Warrants have been subject to redemption at
$.05 per Warrant on 30 days' prior written notice provided that the closing bid
price of the Company's Common Stock as reported on NASDAQ for 20 consecutive
days, ending within 10 days of the notice of redemption, is in excess of $5.63
(the "Initial Notice Price"). In the event the Company exercises the right to
redeem the Warrants, such Warrants will be exercisable at the Initial Exercise
Price until the close of business on the date fixed for redemption in such
notice. If any Warrant called for redemption is not exercised by such time, it
will cease to be exercisable and the holder will be entitled only to the
redemption price. All Warrants redeemed by the Company will be canceled.
The Initial Exercise Price of the Warrants was determined by
negotiation between the Company and the Representative prior to the Company's
public offering in December, 1993. Among the factors considered in such
negotiations, at that time, were the state of the Company's development, the
Company's financial condition, the future prospects of the Company, an
assessment of management, the general condition of the securities market, the
demand for securities of comparable companies and other factors deemed relevant.
The Initial Exercise Price of the Warrants bears no relation to any objective
criteria of value, may be deemed to be arbitrarily determined and should in no
event be regarded as an indication of any future market price of the securities
offered hereby.
The Company has agreed to retain the Representative to solicit Warrant
exercises. Upon exercise of any Warrants, the Company will pay the
Representative a fee of 5% of the aggregate exercise price if (i) the market
price of the Company's Common Stock on the date the Warrant is exercised is
greater than the exercise price of the Warrants; (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc.; (iii) the Warrant is not held in a discretionary account; (iv)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; and (v) the solicitation of
exercise of the Warrant was not in violation of Rule 10b-6 promulgated under the
Exchange Act.
Rule 10b-6 may prohibit the Representative from engaging in any market
making activities with regard to the Company's securities for the period from
nine business days (or such other applicable period as Rule 10b-6 may provide)
prior to any solicitation by the Representative of the exercise of the Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Representative may
have to receive a fee for the exercise of Warrants following such solicitation.
As a result, the representative may be unable to continue to provide a market
for the Company's securities during certain periods while the Warrants are
exercisable.
Adjustments. The Initial Exercise Price and the number of shares of
Common Stock purchasable upon the exercise of the Warrants are subject to
adjustment upon the occurrence of
46
<PAGE> 50
certain events, including stock dividends, stock splits, combinations or
reclassifications of the Common Stock, or sale by the Company of shares of its
Common Stock at a price below the then applicable exercise price of the
Warrants. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation or sale of all or substantially all of
the assets of the Company in order to enable Warrant holders to acquire the kind
and number of shares of Common Stock that might otherwise have been purchased
upon the exercise of the Warrants. No adjustments will be made until the
cumulative adjustments in the exercise price per share amount to $.10 or more.
No adjustment to the Initial Exercise Price will be made for dividends (other
than stock dividends), if any, paid on the Common Stock or for securities issued
pursuant to the Company's Stock Option Plan or other employee benefit plans of
the Company, or upon exercise of the Warrants, the representative's Warrant or
any other options or warrants outstanding as of the date of this Prospectus.
Transfer, Exchange and Exercise. The Warrants are in registered form
and may be presented to the Transfer and Warrant Agent for transfer, exchange or
exercise at any time prior to their expiration on December 7, 1996, at which
time the Warrants become wholly void and of no value. If a market for the
warrants develops, the holder may sell the Warrants instead of exercising them.
There can be no assurance, however, that a market for the warrants will develop
or continue. If the Company is unable to qualify the Common Stock underlying the
Warrants for sale in particular states, holders of the Warrants residing in such
states and desiring to exercise the Warrants will have no choice but to sell
such Warrants or allow them to expire. See "Risk Factors - Current Prospectus
and State Blue Sky Registration Required in Connection with Exercise of
Warrants."
Warrantholder Not a Stockholder. The Warrants do not confer upon
holders any voting or any other rights as stockholders of the Company.
TAX CONSIDERATIONS OF WARRANTS.
General. The following section summarizes certain provisions of United
States income tax law that may affect (i) the Company, and (ii) shareholders of
the Company. This summary does not purport to discuss all of the relevant income
tax consequences of an investment in the Shares or Warrants, nor will it apply
to the same extent or in the same way to all investors. It is based, among other
things, on provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and published decisions, regulations and rulings thereunder as in
effect on the date of this Prospectus, and the assumption that the Company will
continue to be structured and to operate its business in the manner prescribed
in this Prospectus. No information is provided herein with respect to the effect
of any state or local tax law, rule or regulation nor is any information
provided as to the effect of any foreign tax law or any provisions of United
States tax law other than United States income tax law.
Taxation of the Company. No gain or loss will be recognized by the
Company upon receipt of payment for Shares, upon exercise of Warrants,
redemption of Warrants or expiration of Warrants.
Taxation of Shareholders. No gain or loss will be recognized by the
holder of a Warrant upon exercise of a Warrant. The cost basis of the Common
Stock so acquired will be the cost basis of the Warrant plus any additional
amount paid upon the exercise of the Warrant. Gain or loss will be recognized,
however, upon the subsequent sale or exchange of the Common Stock
47
<PAGE> 51
acquired by the exercise of the Warrant, measured by the difference between the
amount realized upon such sale or exchange and the cost basis of the Common
Stock.
If a Warrant is sold by the holder or redeemed by the Company, gain or
loss will be recognized upon such event, measured by the difference between the
amount realized by the holder of the Warrant as a result of the sale or
redemption and the cost basis of the Warrant.
If a Warrant is allowed to expire, the Warrant will be deemed to be
sold or exchanged on the date of expiration. In such event, the holder of the
Warrant will recognize a loss to the extent of the cost basis of the Warrant.
Generally, any gain or loss recognized as a result of the foregoing
will be capital gain or loss and will either be long-term or short-term
depending upon the period of time the Common Stock sold or exchanged or the
Warrant sold, exchanged, redeemed, or allowed to expire, as the case may be, was
held. A holding period of more than one year results in long-term capital gain
or loss treatment. If a Warrant is exercised, the holding period of the Common
Stock so acquired will not include the period during which the Warrant was held.
Under Section 305 of the Code and regulations promulgated under the
Code, there is no assurance that a subsequent adjustment in the exercise price
of the Warrants or the number of shares purchasable upon exercise as a result of
the anti-dilution provisions applicable to the Warrants, will not be deemed a
constructive distribution that may be taxable as a dividend to the holders of
the Warrants.
ALTHOUGH THE COMPANY BELIEVES THE FOREGOING TO BE AN ACCURATE SUMMARY
OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS ATTRIBUTABLE TO THE WARRANTS, IT
DOES NOT PURPORT TO BE A FULL DESCRIPTION OF THE FEDERAL, STATE OR LOCAL TAX
CONSIDERATIONS APPLICABLE TO THE WARRANTS OR THE UNDERLYING SHARES OF COMMON
STOCK. EACH HOLDER OF THE WARRANTS SHOULD SEEK THE ADVICE OF HIS OR HER OWN TAX
ADVISOR REGARDING THE EFFECTS THAT AN INVESTMENT IN THE WARRANTS WILL HAVE ON
HIS OR HER INDIVIDUAL TAX SITUATION.
PREFERRED STOCK
Pursuant to its Certificate of Incorporation, the Company's Board of
Directors is authorized to issue, without any action on the part of its
stockholders, an aggregate of 100,000 shares of preferred stock. The Board of
Directors has authority to divide the preferred stock into one or more series
and has broad authority to fix and determine the relative rights and
preferences, including the voting rights of the shares of each series.
Such preferred stock could also be used to delay, defer or prevent a
change in control of the Company or be used to resist takeover offers opposed by
management. Under certain circumstances, the Board of Directors could create
impediments to or frustrate persons seeking to effect a takeover or otherwise
gain control of the Company by causing shares of preferred stock with voting or
conversion rights to be issued to a holder or holders who might side with the
Board of Directors in opposing a takeover bid that the Board of Directors
determines to be not in the best interest of the Company and its shareholders.
In addition, the Company's ability to issue such shares of preferred stock with
voting or conversion rights could dilute the stock ownership of such person or
entity.
48
<PAGE> 52
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law") generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not to be governed by the Delaware
anti-takeover law (the Company has not made such an election) (ii) prior to such
date the Board of Directors of the corporation approved either the business
combination or the transaction in which the person became an interested
stockholder, (iii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation excluding shares
owned by directors who are also officers of the corporation and by certain
employee stock plans, (iv) on or after such date the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote of at least 662/3% of the outstanding voting stock of the corporation that
is not owned by the interested stockholder, or (v) the majority of the
corporation's stockholders adopt an amendment to the corporation's certificate
of incorporation electing not to be governed by the Delaware anti-takeover law,
such amendment not being effective for 12 months following its adoption and not
applicable to any business combination between the corporation and a stockholder
who became an interested stockholder after its adoption. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his affiliates and associates, has owned 15% or
more of the corporation's voting stock within three years.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 4,706,238
shares of Common Stock outstanding. In addition, the Company has reserved for
issuance 373,334 shares upon the exercise of options granted under the Company's
Stock Option Plan and 270,000 shares issuable upon exercise of the
Representative's Warrants and Warrants included in the Units issuable upon
exercise of the Representative's Warrants. Of the shares of Common Stock to be
issued and outstanding after this offering, the 846,177 shares of Common Stock
offered hereby will be freely tradeable without restriction or further
registration under the Securities Act, except for shares purchased or held by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company) which will be subject to the limitations of Rule 144 adopted
under the Securities Act ("Rule 144"). Of the remaining approximately 3,860,061
shares of Common Stock approximately 967,742 shares may be deemed to be
"restricted securities" as that term is defined under Rule 144, and may not be
sold unless registered under the Securities Act or exempted therefrom. All of
the foregoing shares are now eligible to be sold in accordance with the
exemptive provisions of Rule 144. Therefore, sales of the Company's Common Stock
by certain of the present shareholders in the future, under Rule 144, may have a
depressive effect on the price of the Company's Common Stock.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an "affiliate" of
the Company, (or persons whose shares are aggregated), who for at least two
years has beneficially owned restricted securities acquired directly or
indirectly from the Company or an affiliate of the Company in a private
transaction is
49
<PAGE> 53
entitled to sell in brokerage transactions within any three-month period, a
number of shares that does not exceed the greater of (i) 1% of the total number
of outstanding shares of the same class, or (ii) if the stock is quoted on
Nasdaq, the average weekly trading volume in the stock during the four calendar
weeks preceding the day notice is given to the Securities and Exchange
Commission with respect to such sale. A person (or persons whose shares are
aggregated) who is not an affiliate and has not been an affiliate of the Company
for at least three months immediately preceding the sale and who has
beneficially owned restricted securities for at least three years is entitled to
sell such shares pursuant to subparagraph (k) of Rule 144 without regard to any
of the limitations described above.
LEGAL MATTERS
The validity of the issuance of Shares offered hereby will be passed
upon for the Company by The Law Offices of Bruce R. Thaw, 45 Banfi Plaza,
Farmingdale, NY 11735. Bruce R. Thaw is a Director of the Company and owns
103,041 shares of the Company's Common Stock, inclusive of 25,000 shares
issuable pursuant to outstanding stock options with the Company.
EXPERTS
The financial statements of the Company as of June 30, 1996 and 1995
and for the years then ended, included herein and elsewhere in the Registration
Statement, have been included herein and in the Registration Statement in
reliance upon the report of Robbins, Greene, Horowitz, Lester & Co., LLP
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, with respect to the securities being offered hereby. This
Prospectus does not contain all the information contained in such Registration
Statement. For further information with respect to the Company and the
securities offered hereby, reference is made to such Registration Statement and
exhibits filed as part thereof, which may be examined and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material may be obtained at prescribed
rates by mail from the Public Reference Section of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete. In each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 75 Park
Place, New York, NY 10007; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, IL 60661- 2511. Copies of such material may be obtained at
prescribed rates by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549.
50
<PAGE> 54
To the Stockholders and
Board of Directors
Nastech Pharmaceutical Company Inc.
Independent Auditors' Report
We have audited the accompanying balance sheet of Nastech
Pharmaceutical Company Inc. as at June 30, 1996 and 1995 and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the management of
Nastech Pharmaceutical Company Inc. Our responsibility is to express an opinion
on these financial statements based upon 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 aforementioned financial statements present fairly,
in all material respects, the financial position of Nastech Pharmaceutical
Company Inc. as at June 30, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
August 15, 1996
New York, New York
F - 1
<PAGE> 55
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEET
AS AT JUNE 30,
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,031,252 $ 819,985
Short-term investments 3,954,945 4,198,869
Royalties receivable 1,089,966 759,349
Prepaid expenses and sundry 55,370 63,670
----------- -----------
9,131,533 5,841,873
----------- -----------
PROPERTY AND EQUIPMENT 321,154 219,283
Less: Accumulated depreciation
and amortization 100,391 45,857
----------- -----------
220,763 173,426
----------- -----------
OTHER ASSETS:
Security deposits 14,500 19,613
----------- -----------
$ 9,366,796 $ 6,034,912
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 499,815 $ 565,185
Royalties payable 521,127 368,630
Note payable 32,000 40,942
Accrued interest payable 33,216 42,966
Accrued expenses and sundry
liabilities 359,389 218,856
Current maturities of long-term debt 216,608 161,186
----------- -----------
1,662,155 1,397,765
----------- -----------
LONG-TERM DEBT - NET OF CURRENT
MATURITIES 135,907 348,965
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - par value $.006
per share, authorized 6,000,000
shares, issued and outstanding
3,826,433 shares and 3,221,447
shares at June 30, 1996 and
1995, respectively 22,959 19,329
Additional paid-in capital 13,733,556 10,575,159
Accumulated deficit (6,187,781) (6,306,306)
----------- -----------
7,568,734 4,288,182
----------- -----------
$ 9,366,796 $ 6,034,912
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F - 2
<PAGE> 56
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
REVENUES:
License fee,
royalty and
research income $3,628,735 $2,683,925
Interest income 238,178 253,858
---------- ----------
3,866,913 2,937,783
---------- ----------
COSTS AND EXPENSES:
Research and
development 1,164,172 882,356
Royalties 1,676,870 1,250,789
---------- ----------
2,841,042 2,133,145
General and
administrative 864,784 836,549
Interest expense 42,562 47,534
---------- ----------
3,748,388 3,017,228
---------- ----------
NET INCOME (LOSS) $ 118,525 $ (79,445)
========== ==========
NET INCOME (LOSS) PER
COMMON AND COMMON
EQUIVALENT SHARE $ .03 $ (.03)
========== ==========
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,297,536 3,119,718
========== ==========
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE> 57
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
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 stock
options 109,999 660 57,940 58,600
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
Stock issued in connection
with exercise of warrants 605,173 3,631 3,158,396 3,162,027
Fractional shares redeemed
in connection with reverse
stock split (187) (1) 1
Net income 118,525 118,525
--------- -------- ----------- ----------- ----------
BALANCE - JUNE 30, 1996 3,826,433 $ 22,959 $13,733,556 $(6,187,781) $7,568,734
========= ======== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE> 58
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 118,525 $ (79,445)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and amortization 54,534 27,395
Abandonment of property and equipment 3,376
Changes in assets and liabilities:
Royalties receivable (330,617) (5,242)
Prepaid expenses and sundry 8,300 (49,460)
Accounts payable (65,370) 62,208
Royalties payable 152,497 20,540
Note payable (8,942) 40,942
Accrued interest payable (9,750) 13,798
Accrued expenses and sundry
liabilities 140,533 (28,817)
------------ ------------
Net cash provided
by operating activities 59,710 5,295
------------ ------------
INVESTING ACTIVITIES:
Property, plant and equipment (90,796) (85,327)
Short-term investments - acquisitions (10,290,174) (11,172,459)
Short-term investments - redemptions 10,534,098 8,929,524
Other assets 5,113 (14,000)
------------ ------------
Net cash provided (used)
by investing activities 158,241 (2,342,262)
------------ ------------
FINANCING ACTIVITIES:
Repayment of debt (168,711) (116,577)
Exercise of stock options 58,600
Exercise of warrants 3,162,027
------------ ------------
Net cash provided (used)
by financing activities 2,993,316 (57,977)
------------ ------------
NET INCREASE (DECREASE) 3,211,267 (2,394,944)
CASH AND CASH EQUIVALENTS - BEGINNING 819,985 3,214,929
------------ ------------
CASH AND CASH EQUIVALENTS - ENDING $ 4,031,252 $ 819,985
============ ============
Supplemental Cash Flow Information:
Interest paid $ 46,796 $ 33,736
Capital expenditures and proceeds
from loans have been reduced by
additions financed of $ 11,075 $ 61,700
</TABLE>
See accompanying notes to financial statements.
F - 5
<PAGE> 59
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Nastech Pharmaceutical Company Inc. (the "Company") was incorporated
under the laws of the State of New York on March 3, 1983 and
reincorporated under the laws of the State of Delaware on September
23, 1983. Through exclusive and nonexclusive licensing agreements
with the University of Kentucky Research Foundation, and special
technical agreements with the University of Kentucky College of
Pharmacy, the Company is engaged in the business of developing
pharmacologically active agents that are effective in humans when
administered through the nasal route.
In addition to the Company's licensing arrangements with the
University of Kentucky Research Foundation, the Company has
researched a number of drugs independently, for which patents have
been applied and granted.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less when purchased to be cash
equivalents.
Short-Term Investments
Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation
as of each balance sheet date. Debt securities are classified as
held-to-maturity. Short-term investments are classified as
held-to-maturity only if management has the positive intent and
ability to hold those securities to maturity. The amortized cost of
debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in
interest income.
Short-term investments consist of highly liquid United States
Treasury Bills having original maturities of six months. There were
no material unrealized holding gains or losses.
F - 6
<PAGE> 60
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed
using accelerated methods. Leasehold improvements are amortized over
the life of the lease. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized in the
period. The cost of maintenance and repairs is charged to income as
incurred and significant renewals and betterments are capitalized.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash, investments and royalty
receivables. The Company places its investments in highly rated US
Treasury obligations which limits the amount of credit exposure. The
Company has royalty agreements with highly rated pharmaceutical
companies. Historically, the Company has not experienced significant
losses related to investments or royalty receivables.
Recognition of Income
The Company recognized income from royalties based upon the sale of
licensed products as reported by licensees. Income from license fees
and research income are not significant and are recognized as earned.
Net Income (Loss) Per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is
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. For the year ended June
30, 1995 the effect of stock options and warrants is not included
because it would be anti-dilutive. The conversion of convertible debt
to Basil Properties has not been considered in the calculation of
income per share because it would be anti-dilutive or immaterial due
to the conversion price being significantly in excess of the market
value.
Income Taxes
The Company accounts for income taxes under the provisions of
Statement 109, Accounting for Income Taxes issued by the Financial
Accounting Standards Board. Under such statement, the tax benefits of
tax operating loss carryforwards are recorded to the extent available
less a valuation allowance if it is more likely than not that some
portion of the deferred tax asset will not be realized. At June 30,
1996 the approximately $1,500,000 of available tax benefits of the
loss carryforwards are offset by a corresponding amount of valuation
allowance.
F - 7
<PAGE> 61
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 3 - ROYALTIES RECEIVABLE
Royalties receivable at June 30, 1996 and 1995 principally represent
amounts due from licensees of the Company's patents for the three
months ended June 30, 1996 and 1995.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Furniture and fixtures $ 71,424 $ 64,066
Machinery and equipment 118,509 74,916
Computer equipment 29,828 20,777
Leasehold improvements 101,393 59,524
-------- --------
321,154 219,283
Less: accumulated depreciation
and amortization 100,391 45,857
-------- --------
Net $220,763 $173,426
======== ========
</TABLE>
Property and equipment having a net book value of $57,973 at June 30,
1996 has been pledged to secure related liabilities.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Loan payable - Basil Properties $299,978 $446,867
Other: equipment loans 52,537 63,284
-------- --------
352,515 510,151
Less: amount payable within
one year 216,608 161,186
-------- --------
$135,907 $348,965
======== ========
</TABLE>
Maturities of long-term debt are $216,608, $117,632, $11,000, $7,275
for the years ending June 30, 1997, 1998, 1999 and 2000,
respectively. The maturities prior to January 1, 1998 will increase
to the extent that total revenues exceed $500,000 per annum (see
Basil loan repayment terms below).
F - 8
<PAGE> 62
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 5 - LONG-TERM DEBT (CONTINUED)
On May 3, 1989, Basil Properties ("Basil") made a loan to the Company
of $600,000.
The loan is secured by the Company's right to receive royal ties
under its agreement with Nature's Bounty, Inc. and its interest in
the manufacture, production, licensing or distribution of any
products related to the nasal administration of Vitamin B-12 gel.
On December 14, 1992 the Company entered into an agreement with Basil
restructuring the $600,000 loan. The Company is to make annual
principal payments beginning September 30, 1993 equal to 5% of total
revenue for the preceding fiscal year ended June 30 subject to an
annual minimum of $25,000. Should the Company's total revenue exceed
$5,000,000 in any fiscal year, the remaining unpaid principal balance
shall become due the following September 30. The remaining unpaid
principal balance is due and payable January 1, 1998.
Additionally, Basil has been given the option to convert any
outstanding portion of the principal balance of the $600,000 loan to
the Company's common stock. The conversion prices, based on a
calendar year are as follows: 1995- $16.44, 1996- $20.55, 1997-
$25.68.
The conversion of convertible debt to Basil Properties has not been
considered in the calculation of income per share because it would be
anti-dilutive or not material because the conversion price was
significantly greater than the market price of the stock at all
times.
Effective January 1, 1993 interest shall accrue on the unpaid
principal balance at a rate of prime plus 1% and is due and payable
each September 30. For the years ended June 30, 1996 and 1995 the
prime interest rate ranged from 8.25% to 9% and 7.25% to 9%,
respectively. The year-end prime rates at June 30, 1996 and 1995 were
8.25% and 7.25%, respectively.
Basil is a 7.4% shareholder of the Company, assuming the debt is not
converted into common stock, and has representation on the Board of
Directors. Interest on this debt for the years ended June 30, 1996
and 1995 amounted to $33,216 and $42,946, respectively.
F - 9
<PAGE> 63
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 6 - STOCKHOLDERS' EQUITY
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. At June 30, 1996, 605,173 warrants have
been exercised with net proceeds to the Company of $3,162,027.
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 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.
F - 10
<PAGE> 64
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 7 - STOCK OPTION PLAN
Under the Company's Stock Option Plan (the "Plan") options to
purchase a maximum of 483,333 shares of common stock (subject to
adjustment in the event of stock splits, stock dividends,
recapitalization and other capital adjustments) may be granted to
employees, officers and directors of the Company and other persons
who provide services to the Company. The options to be granted under
the Plan are designated as incentive stock options or non-incentive
stock options by the Board of Directors which also has discretion as
to the person to be granted options, the number of shares subject to
the options and the terms of the option agreements. Only employees,
including officers and part-time employees of the Company may be
granted incentive stock options. The options are intended to receive
incentive stock option tax treatment pursuant to Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code").
The Plan provides that options granted thereunder shall be
exercisable during a period of no more than ten years (five years in
the case of 10% shareholders) from the date of grant, depending upon
the specific stock option agreement, and that, with respect to
incentive stock options, the option exercise price shall be at least
equal to 100% of the fair market value of the Common Stock at the
time of grant (110% in the case of 10% shareholders). Pursuant to the
provisions of the Plan, the aggregate fair market value (determined
on the date of grant) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an
employee during any calendar year shall not exceed $100,000. The Plan
is in lieu of all prior option and incentive plans and is
administered by the Company's Board of Directors. Options outstanding
at June 30, 1996 are at prices ranging from $.51 to $12.875 per
share, the fair market value on the date of grant, and expire at
various dates to June 24, 2001. During the year ended June 30, 1995,
options to acquire 50,000 shares of stock at $.56 and 59,999 shares
at $.51 were exercised. No options were exercised during the year
ended June 30, 1996.
Data relating to this plan is as follows:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Outstanding at beginning of year 214,749 174,998
Granted 34,500 149,750
Exercised (109,999)
Terminated (5,000)
------- --------
Outstanding at end of year 244,249 214,749
======= =======
</TABLE>
F - 11
<PAGE> 65
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 8 - INCOME TAXES
Internal Revenue Service regulations require that limitations be
placed on the Company's use of its net operating loss carryforward as
a result of the change in ownership created by the December, 1993
public offering of the Company's common stock. As a result, at June
30, 1996, the estimated maximum amount of the net operating loss
carryforward available to reduce future taxable income is
approximately $4,300,000, expiring from 2000 through 2010. The net
operating loss carryforward may be used to reduce taxable income by
approximately $300,000 per year.
The approximate amounts of net operating loss carryforward and the
year of expiration are as follows:
<TABLE>
<CAPTION>
Amount Year of Expiration
------ ------------------
<S> <C>
$ 490,000 2000
1,150,000 2001
820,000 2002
320,000 2003
320,000 2004
320,000 2005
320,000 2006
320,000 2007
170,000 2008
70,000 2010
</TABLE>
Federal income taxes normally provided on the 1996 income have been
offset by the effects of the reduction of the valuation allowance.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
A) Employment Agreement:
The Company and Dr. Vincent Romeo, its president, have an employment
agreement expiring August 1, 1997. Pursuant to this agreement, Dr.
Romeo receives compensation of $160,000 per year. Upon completion of
Phase II studies for two of the Company's proposed products such
compensation will be increased to $175,000 per year. Dr. Romeo will
also be entitled to a $20,000 incentive bonus if and when the
Company's prescription Vitamin B-12 nasal formulation is approved for
marketing by the FDA and a $20,000 bonus each time an NDA for one of
the Company's proposed products is accepted for filing by the FDA. In
addition, Dr. Romeo received an additional incentive stock option to
acquire 25,000 shares of the Company's common stock in accordance
with the terms and conditions of the Company's stock option plan.
F - 12
<PAGE> 66
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
B) Minimum Royalty Payments:
In connection with the license agreement with the University of
Kentucky Research Foundation ("UKRF"), the Company is to make royalty
payments to UKRF with respect to sales of products covered under the
patents licensed to the Company by UKRF.
Minimum royalty payments begin twelve months after FDA marketing
approval for any product covered under the agreement is received by
the Company. The minimum royalty beginning twelve months after FDA
approval amounts to $100,000 per year.
In the event there are no unexpired patents licensed to the Company
by UKRF covering the manufacture, use or sale of products, then the
Company is to pay one half of such royalties and minimum royalties.
C) Leases:
The Company leases office and laboratory space under a lease
agreement expiring on May 31, 2000, with a 5 year renewal option. The
following is a schedule of future minimum lease payments:
<TABLE>
<S> <C>
Year Ending June 30, 1997 $ 81,083
1998 82,080
1999 83,087
2000 77,000
-------
$323,250
========
</TABLE>
Rental expense for real property aggregated approximately $83,000 and
$78,000 for the years ended June 30, 1996 and 1995, respectively.
D) Insurance:
The Company does not maintain product liability insurance for
commercial products as the Company manufactures no commercial
products. The product marketed by Bristol- Myers Squibb, Co. is owned
by them. The product marketed by Nature's Bounty, Inc. is
manufactured, marketed and distributed by them.
The Company does maintain product liability insurance in connection
with its clinical trial activities.
At the present time the management of the Company has no knowledge of
any claims against the Company. Management of the Company cannot
estimate any range of possible loss with regard to product liability
claims, and no provision has been made in these financial statements
for any possible loss.
F - 13
<PAGE> 67
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 10 - CONTRACTUAL AGREEMENTS
In January, 1986, the Company licensed to Bristol-Myers Squibb, Co.
its patent to administer the drug butorphanol nasally, which resulted
in license fee income of approximately $3,410,000 and $2,530,000 for
the years ended June 30, 1996 and 1995, respectively. FDA approval
was obtained for this product in December, 1991. The nasal
butorphanol patent expires in the year 2001 in the United States
subject to any right of extension or renewal.
The Company has entered into an exclusive agreement with RiboGene,
Inc. ("RiboGene", as successor in interest to Rugby Laboratories Co.,
Inc., and Darby Pharmaceuticals, Inc.). On June 26, 1987, the Company
entered into a license agreement with Rugby Laboratories Co., Inc.
("Rugby") and its affiliate Darby Pharmaceuticals, Inc. ("Darby")
whereby Rugby was appointed as the Company's sole and exclusive
worldwide licensee for the manufacture, distribution and marketing of
the nasal dosage form of propranolol for the life of the Company's
United States patent covering the nasal route of administration for
that drug (the "Propranolol Agreement"). The Company received
$350,000 upon execution of the Propranolol Agreement and, if and when
nasal propranolol is approved for marketing and commercialized, will
receive royalties based upon net sales of the product. In addition,
Rugby is obligated to pay all patent maintenance fees with respect to
Propranolol and pay certain other fees thereunder. The Company
receives an annual licensing fee of $32,000 payable quarterly. During
each of the years ended June 30, 1996 and 1995 and the Company
recorded $32,000 as license fee income on this contract.
In March 1990, the Company entered into an agreement with Rugby
whereby Rugby purchased the Company's metoclopramide patent and
certain proprietary research information related thereto (the
"Metoclopramide Agreement"). The Metoclopramide Agreement also
provided for the termination of a previous contract between the
parties concerning this product. The aggregate purchase price for the
patent, proprietary information and contract termination was
approximately $700,000. The Metoclopramide Agreement also provides
for certain royalties and other fees to the Company if and when nasal
metoclopramide is approved for marketing and commercialized.
F - 14
<PAGE> 68
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 10 - CONTRACTUAL AGREEMENTS (CONTINUED)
In January, 1994, RiboGene acquired certain assets of Darby,
including all rights to the Propranolol Agreement and the
Metoclopramide Agreement. In December, 1994, the Company and RiboGene
amended the Propranolol Agreement and the Metoclopramide Agreement
whereby the Company waived its option to repurchase the exclusive
rights to nasal propranolol and metoclopramide in consideration of a
three year right of first refusal to perform dosage-form development
work for both projects. The amended Metoclopramide Agreement also
provided for an increased royalty rate and certain minimum royalties
commencing in 1998.
During November, 1985, the Company entered into an exclusive
agreement with Nature's Bounty, Inc. ("NB") under which NB will
manufacture, market and sell a nonprescription, nasally administered
vitamin B-12 dietary supplement. The financial arrangements include
the Company receiving a percentage of net sales of the product. For
the years ended June 30, 1996 and 1995 the Company earned royalties
of $19,000 and $116,000, respectively, under the agreement. However,
in March 1995, the FDA was successful in litigation brought against
NB requiring that NB obtain FDA approval in order to market this
product. The Company does not expect any future royalties from
Natures Bounty.
On June 30, 1994, the Company sublicensed to The DuPont Merck
Pharmaceutical Company ("DuPont Merck") its development and
commercial exploitation rights with respect to its licensed patent
rights for the nasal delivery of nalbuphine, in exchange for which
DuPont Merck agreed to pay the Company a royalty based on the net
sales of such product (the "DuPont Merck Agreement"). Nalbuphine is a
synthetic analgesic agent indicated for the relief of moderate to
severe pain. The DuPont Merck Agreement is limited to the countries
of Canada and Mexico and is coextensive with the Company's licensed
patent rights to nasal nalbuphine in those countries. The nasal
nalbuphine patent expires in the year 2001 in Canada, subject to any
right of extension or renewal. The Mexican patent for nasal
nalbuphine is currently pending. The DuPont Merck Agreement may be
terminated by Dupont Merck at any time upon 60 days written notice to
the Company.
F - 15
<PAGE> 69
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 10 - CONTRACTUAL AGREEMENTS (CONTINUED)
In March 1996, the Company executed a memorandum of understanding
with Sandoz Pharmaceuticals Corporation ("Sandoz") to conduct a nasal
drug delivery feasibility study with respect to a nasal formulation
of a compound currently marketed by Sandoz utilizing another delivery
method. At the request of Sandoz, the identity of the nasal drug
product has not been disclosed. The agreement provides for the
Company to determine the feasibility of nasally delivering this
compound. Pursuant to the agreement, the Company is to conduct a
preclinical research program, including initial formulation
development, up to the filing of an IND and Sandoz shall fund such
activities as well as provide other resources. In the event an IND is
filed the Company and Sandoz have agreed to negotiate a definitive
development, manufacturing and marketing agreement. During the year
ended June 30, 1996 the Company recorded $100,000 of income from this
agreement.
On August 8, 1996, the Company entered into an agreement with Ciba
Self-Medication, Inc., a division of Ciba-Geigy Corporation, ("CIBA")
to develop a nicotine nasal spray to assist with smoking cessation.
Ciba markets the Habitrol(TM)transdermal patch. Under the terms of
the agreement, the Company is to perform formulation and related
preclinical research and development up to and including the filing
of an IND. Based on factors, including the successful outcomes of
specified milestones, the Company and Ciba have agreed to negotiate
definitive development, manufacturing and marketing agreements.
During the year ended June 30, 1996 the Company recorded $50,000 of
income related to preliminary nicotine nasal spray formulation
activities prior to the formal entry into this agreement.
F - 16
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law, as amended, provides for the
indemnification of the Company's officers, directors and corporate employees and
agents under certain circumstances as follows:
DEL. CODE ANN. TITLE 8
Sec. 145. Indemnification of officers, directors, employees and agents;
insurance
a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
b) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees),
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
II - 1
<PAGE> 71
c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action suit or proceeding referred to in subsections (a) and (b)
of this section, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
d) Any indemnification under subsection (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such
action, suit or proceedings, or (2) if such a quorum is not obtainable,
or, even, if obtainable a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (3) by the
stockholders.
e) Expenses incurred by an officer or director in defending a civil
or criminal action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the corporation as authorized
in this section. Such expenses incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against
such liability under this section.
h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or
II - 2
<PAGE> 72
merger which, if its separate existence had continued, would have had
power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this
section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed
to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in
this section.
j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
The Certificate of Incorporation of the Company provides that the
indemnification provisions of Sections 102(b)(7) and 145 of the Delaware
Corporation Law shall be utilized to the fullest extent possible. Further, the
Certificate of Incorporation contains provisions to eliminate the liability of
the Company's directors to the Company or its stockholders to the fullest extent
permitted by Section 102(b)(7) of the Delaware General Corporation Law, as
amended from time to time.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, is permitted to directors, officers or controlling
persons of the Registrant, pursuant to the above mentioned statutes or
otherwise, the Registrant understands that the Securities and Exchange
Commission is of the opinion that such indemnification may contravene federal
public policy, as expressed in said Act, and therefore, may be unenforceable.
Accordingly, in the event that a claim for such indemnification is asserted by
any director, officer or a controlling person of the Company, and the Commission
is still of the same opinion, the Registrant (except insofar as such claim seeks
reimbursement by the Registrant of expenses paid or incurred by a director,
officer of controlling person in successful defense of any action, suit or
proceeding) will, unless the matter has theretofore been adjudicated by
precedent deemed by counsel for the Registrant to be controlling, submit to a
court of appropriate jurisdiction the question whether or not indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue. The Underwriting and Selected Dealers
agreements provide for reciprocal indemnification and such provisions are
incorporated by reference herein.
II - 3
<PAGE> 73
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution
of the securities to be registered other than selling expenses are as follows:
<TABLE>
<S> <C>
Accountants' Fees and Services $ 5,000.00
Fees and Expenses of Counsel
for the Registrant $ 15,000.00
Miscellaneous $ 5,000.00
-----------
TOTAL $25,000.00*
</TABLE>
* All items are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three years, the Registrant has sold securities which
were not registered under the Securities Act of 1933, as amended, as follows:
In June 1995, Mr. Bruce R. Thaw exercised stock options, granted in
September 1991, to purchase 50,000 shares of the Company's Common Stock at an
exercise price of $.51 per share; Devin N. Wenig exercised stock options,
granted in September 1991, to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $.56 per share and Joel Girsky exercised stock
options, granted in September 1991, to purchase 6,666 shares of the Company's
Common Stock at an exercise price of $.51 per share.
Such sales did not involve broker transactions. Additionally, none of
such transactions was registered under the Securities Act of 1933, as amended,
in reliance upon the exemption set forth in Section 4(2) of such Act. All
purchasers were either familiar with the business and prospects of the Company,
constituted the management of the Company, and/or had full access to the books
and records of the Company. Each purchaser agreed to purchase his shares for
investment and no further distribution. Appropriate stop transfer instructions
will be given to the Company's Transfer Agent.
II - 4
<PAGE> 74
ITEM 27. EXHIBITS
The following Exhibits, required by Item 601 of Regulation S-B, are
filed as part of this registration statement. Where such filing is made by
incorporation by reference (I/B/R), reference is made to Commission file number
0-13789 unless another statement or report is identified in parentheses.
<TABLE>
<CAPTION>
Official Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
<S> <C> <C>
1A Form of Underwriting Agreement I/B/R (3)
1B Form of Representative's Warrant I/B/R (3)
3A Articles of Incorporation of Registrant, as
amended and filed with the Secretary of
State of Delaware on November 8, 1993 I/B/R (3)
3B Amended By - Laws of Registrant I/B/R (3)
4A Specimen of Common Stock Certificate
of Registrant I/B/R (3)
4B Specimen Warrant Certificate I/B/R (3)
4C Form of Warrant Agreement I/B/R (3)
5 Opinion of Counsel as to the legality
of securities being registered
10A Licensing Agreement with UKRF I/B/R (1)
10B Lease for facilities at 45 Davids
Drive, Hauppauge, NY I/B/R
10C Sublicense Agreement with
Bristol-Myers Squibb Co. I/B/R (2)
10D Agreements between Registrant,
Rugby Laboratories, Inc. I/B/R (2)
10E 1995 Agreement between the Registrant
and RiboGene, Inc. I/B/R
10F Employment Agreement with
Dr. Vincent D. Romeo I/B/R
10G Restructure Agreement with Basil
Properties I/B/R
</TABLE>
II - 5
<PAGE> 75
<TABLE>
<CAPTION>
Official Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
<S> <C> <C>
10H Stock Option Agreements I/B/R
10I License Agreement with The DuPont Merck
Pharmaceutical Company I/B/R (3)
10J Nasal Drug Evaluation and Option Agreement I/B/R
10K Agreement with Ciba Self-Medication, Inc. I/B/R
10L Agreement with Sandoz Pharmaceuticals
Corporation I/B/R
22 Report Regarding Matters Submitted
to Vote of Security-Holders None
23A Consent of Bruce R. Thaw, Counsel to
the Company
23B Consent of Robbins, Greene, Horowitz,
Lester & Co., LLP Certified Public
Accountants.
</TABLE>
- -------------------------------
(1) Filed as an exhibit to the Registration Statement on Form S-18 (File
No. 2-88605-NY) of the Registrant and incorporated herein by reference.
(2) Filed as an exhibit to the Registration Statement on Form S-1 (File No.
33-5717) of the Registrant and incorporated herein by reference.
(3) Filed as an exhibit to the Registration Statement on Form SB-2 (File
No. 33-70180) of the Registrant and incorporated herein by reference.
(b) Financial Statement Schedules
The Financial Statement Schedules of Regulation S-B are omitted because
they are not applicable, not required or because the required information is
included in the Financial Statements and Notes thereto.
II - 6
<PAGE> 76
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10 (a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement or any
material change to such information in the Registration Statement, including
(but not limited to) any addition or deletion of a managing underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to any charge provision, by-law contract,
arrangements statute, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II - 7
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, duly authorized at Hauppauge, New York on the 24 day
of September, 1996.
NASTECH PHARMACEUTICAL COMPANY INC.
By: /s/ Devin N. Wenig
------------------------
DEVIN N. WENIG, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Devin N. Wenig Chairman of the Board September 24, 1996
- --------------------------
DEVIN N. WENIG
/s/ Dr. Vincent D. Romeo President, Chief Executive Officer
- -------------------------- (Principal Executive Officer) September 24, 1996
Dr. VINCENT D. ROMEO
/s/Joel Girsky Director, Secretary/Treasurer
- -------------------------- (Principal Financial and
JOEL GIRSKY Accounting Officer) September 24, 1996
/s/ Bruce R. Thaw Director September 24, 1996
- --------------------------
BRUCE R. THAW
/s/Dr. Ian Ferrier Director September 24, 1996
- --------------------------
DR. IAN FERRIER
/s/ Alvin Katz Director September 24, 1996
- --------------------------
ALVIN KATZ
/s/ John V. Pollock Director September 24, 1996
- --------------------------
JOHN V. POLLOCK
</TABLE>
II - 8
<PAGE> 78
Index To Exhibits
Exhibit No. Description
- ----------- -----------
5 Opinion of Counsel as to the legality of securities being
registered
23A Consent of Bruce R. Thaw, Counsel to the Company
23B Consent of Robbins, Greene, Horowitz, Lester & Co., LLP
Certified Public Accountants.
<PAGE> 1
Exhibit 5
Opinion of Counsel as to the legality
of securities being registered
<PAGE> 2
Exhibit 5
Law offices of
BRUCE R. THAW
45 Banfi Plaza
Farmingdale, NY 11735
September 26, 1996
Nastech Pharmaceutical Company, Inc.
45 Davids Drive
Hauppauge, NY 11788
Gentlemen:
We have acted as counsel for Nastech Pharmaceutical Company Inc., a
Delaware corporation (the "Company") in connection with the proposed issue and
sale by the Company of 846,177 Shares of Common Stock, $.006 par value.
As counsel to the Company, we have examined the minute books of the
Company, together with copies of its certificate of incorporation, as amended,
and by-laws. We have also examined the proposed Post-Effective Registration
Statement on Form SB-2 (Securities and Exchange Commission File No. 33-70180),
and the exhibits to said Registration Statement. Based upon the foregoing, and
our examination of such other documents as we deemed pertinent, we are of the
opinion that:
1. The Company is a corporation duly organized and validly existing and
in good standing under and by virtue of the laws of the State of Delaware.
2. The authorized capital of the Company consists of (i) 100,000 shares
of Preferred Stock, par value $.01 per share, of which no shares of Preferred
Stock are presently issued and outstanding, and (ii) 6,000,000 shares of Common
Stock, par value $.006 per share, of which 3,826,433 shares are issued and
outstanding, fully paid and non-assessable shares of Capital Stock of the
Company as of June 30, 1996.
3. The 846,177 Shares which are the subject of the Registration
Statement have been duly authorized and the shares when issued and delivered
against payment therefor will be legally issued and outstanding, fully paid and
non-assessable.
Very truly yours,
/s/ Bruce R. Thaw
BRUCE R. THAW
<PAGE> 1
Exhibit 23A
Consent of Bruce R. Thaw,
Counsel to the Company
<PAGE> 2
Exhibit 23A
CONSENT OF COUNSEL
We hereby consent to be named in the Registration Statement filed by
Nastech Pharmaceutical Company, Inc., as attorneys, who will pass upon legal
matters for the Registrant in connection with the sale of the Shares of the
Registrant.
Farmingdale, New York
September 26, 1996
Law Offices of
BRUCE R. THAW
/s/ Bruce R. Thaw
-----------------
<PAGE> 1
Exhibit 23B
Consent of Robbins, Greene, Horowitz,Lester & Co., LLP
Certified Public Accountants.
<PAGE> 2
Exhibit 23B
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
use of our report dated August 15, 1996 on the financial statements of Nastech
Pharmaceutical Company Inc. as at June 30, 1996 and for the year then ended
included in, or incorporated by reference in, Registration Statement No. 33-
70180 on Form SB-2 and the related Prospectus.
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
September 26, 1996
New York, New York
