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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-KSB
ANNUAL OR TRANSITIONAL REPORT
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-13789
NASTECH PHARMACEUTICAL COMPANY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2658569
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
45 DAVIDS DRIVE, HAUPPAUGE, NY 11788
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 273-0101
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Name of each exchange on
Title of each class which registered
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Common Stock, $.006 par value Nasdaq Small-Cap Market
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Revenues for the most recent fiscal year were $3,866,913.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 5, 1996, based upon the average bid and asked prices
of such stock on that date was $28,802,048.
The number of shares of the registrant's Common Stock outstanding as of
September 5, 1996 was 3,860,061.
Transitional Small Business Disclosure Format Yes No X
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PART I
ITEM 1 - 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 only in 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 six 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.
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FORWARD-LOOKING STATEMENTS
Some of the statements made in this Form 10-KSB 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.
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.
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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.
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 non-nasal dosage forms. Consequently, preliminary
testing by the Company is designed only to determine the suitability of the drug
for nasal delivery.
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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/sleep-aid). 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
agonist-antagonist 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.
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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.
The following table summarizes the Company's collaborative agreements:
<TABLE>
<CAPTION>
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DRUG PRODUCT THERAPEUTIC CATEGORY PARTNER LICENSE STATUS DATE OF DEVELOPMENT
AGREEMENT STATUS
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<S> <C> <C> <C> <C> <C>
Butorphanol Narcotic Analgesic Bristol-Myers Licensed North Jan., 1986 Marketing/Sales
Squibb Company America
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Propranolol Prevention of Migraine RiboGene, Inc. Licensed North June, 1987 Phase I Clinical
America Trials
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Metoclopramide Antinauseant/Antiemetic RiboGene, Inc. Licensed North March, 1990 Phase III
America Clinical Trials
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Nalbuphine Narcotic Analgesic Dupont Merck Licensed June, 1994 Formulation
Pharmaceutical Canada,
Company Mexico
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Undisclosed Undisclosed Sandoz Feasibility March, 1996 Formulation
Pharmaceuticals, Study; Option
Corporation to License
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Nicotine Smoking Cessation Ciba Self- Feasibility August, 1996 Formulation
Medication, Inc. Study
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</TABLE>
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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
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.
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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.
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.
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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. 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.
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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.
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.
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.
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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.
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.
11
<PAGE> 12
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 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.
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.
12
<PAGE> 13
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.
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.
ITEM 2 - DESCRIPTION OF PROPERTY
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.
ITEM 3 - LEGAL PROCEEDINGS
The Company knows of no litigation or proceeding, pending or
threatened, to which the Company is or may become a party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the vote of security holders through
the solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year covered by this report.
13
<PAGE> 14
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq Small-Cap Market under
the symbol NSTK. 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.
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.
14
<PAGE> 15
ITEM 6 - 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.
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.
15
<PAGE> 16
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.
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.
16
<PAGE> 17
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.
17
<PAGE> 18
ITEM 7 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report 19
Balance Sheets as at June 30, 1996 and 1995 20
Statements of Operations for the years ended June 30, 1996
and 1995 21
Statements of Stockholders' Equity for the years ended
June 30, 1996 and 1995 22
Statements of Cash Flows for the years ended June 30, 1996 and 1995 23
Notes to Financial Statements 24-34
18
<PAGE> 19
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
19
<PAGE> 20
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.
20
<PAGE> 21
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.
21
<PAGE> 22
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.
22
<PAGE> 23
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
23
<PAGE> 24
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.
24
<PAGE> 25
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.
25
<PAGE> 26
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).
26
<PAGE> 27
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 royalties 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.
27
<PAGE> 28
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.
28
<PAGE> 29
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>
29
<PAGE> 30
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> <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.
30
<PAGE> 31
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.
31
<PAGE> 32
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.
32
<PAGE> 33
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.
33
<PAGE> 34
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.
34
<PAGE> 35
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The 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.
35
<PAGE> 36
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 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
36
<PAGE> 37
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.
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.
37
<PAGE> 38
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.
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.
The Company's Certificate of Incorporation contains provisions
indemnifying its officers, directors, employees and agents against certain
liabilities.
ITEM 10 - 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:
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 $125,000 -- 25,000 --
</TABLE>
38
<PAGE> 39
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock during the fiscal year
ended June 30, 1996, to the person named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Individual Grant in Last Fiscal Year
----------------------------------------------------------
% of Total
Options
Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (Shares) (1) Year ($/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.
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
------------------------ ------------------------
<S> <C> <C> <C> <C>
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Dr. Vincent D. Romeo 58,333 $627,080
</TABLE>
39
<PAGE> 40
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 as Chairman of the
Executive Committee of the Company's Board of Directors.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee presently consists of Devin N.
Wenig, the Company's Chairman, Joel Girsky and John V. Pollock, both outside
directors of the Company. The Compensation Committee is responsible for
reviewing and approving the compensation of the President, other officers of the
Company and administering and/or interpreting the Company's stock option plan.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's Compensation Committee made no discretionary
recommendations regarding executive compensation in the last fiscal year as the
compensation of the Company's President was determined by contract.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such persons.
40
<PAGE> 41
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that all such filing requirements were complied with.
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").
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.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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:
41
<PAGE> 42
<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.
42
<PAGE> 43
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED 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.
43
<PAGE> 44
ITEM 13 - EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) 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>
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)
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 with Rugby
Laboratories, Inc. I/B/R
10E 1995 Agreement with 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
10H Stock Option Agreements I/B/R
10I License Agreement with The DuPont Merck
Pharmaceutical Company I/B/R(3)
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C> <C>
10J Agreement with Ciba Self-Medication, Inc.
10K Agreement with Sandoz Pharmaceuticals Corporation
22 Report Regarding Matters Submitted
to Vote of Security-Holders None
</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) or a post-effective amendment thereof of the Registrant
and incorporated herein by reference.
(b) Reports on Form 8-K: None
45
<PAGE> 46
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, 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 Exchange Act of 1934,
this report 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/ Alvin Katz Director September 24, 1996
- --------------------------
ALVIN KATZ
/s/ John V. Pollock Director September 24, 1996
- --------------------------
JOHN V. POLLOCK
/s/Dr. Ian Ferrier Director September 24, 1996
- --------------------------
DR. IAN FERRIER
</TABLE>
46
<PAGE> 47
Index To Exhibits
Exhibit No. Description
- ----------- -----------
10J Agreement with Ciba Self-Medication, Inc.
10K Agreement with Sandoz Pharmaceuticals Corporation
47
<PAGE> 1
Exhibit 10J
Agreement with Ciba Self Medication, Inc.
48
<PAGE> 2
[NASTECH LETTERHEAD]
July 29, 1996
Mr. Theodore Clemente, Jr.
Assistant Director
Pharmaceutical Technology
Ciba Self-Medication, Incorporated
Mack Woodbridge II
581 Main Street
Woodbridge, NJ 07095
Dear Mr. Clemente:
Further to your short term costs/timing proposal, this letter agreement sets
forth the basic terms of our continued collaboration on the proposed nasal
nicotine project.
1. Nastech Pharmaceutical Company Incorporated ("Nastech") and Ciba
Self-Medication, Inc. and its affiliates ("CSM") have previously
executed a letter of intent dated October 17, 1995 (the "LOI") wherein
the parties have proposed a collaboration in order to develop a
nicotine nasal spray product to be marketed in conjunction with the
CSM Habitrol(R)/Nicotinell(R) transdermal patch (the "Product").
2. Nastech and CSM by this letter agreement wish to extend the
development program according to the terms set forth herein, for the
balance of the present calendar year in accordance with the milestone
goals set forth in Schedule "A" annexed hereto and made a part hereof.
To the extent there is any inconsistency between this letter agreement
and the LOI, this letter shall prevail.
3. Prior to entering into a definitive agreement concerning the
manufacturing and marketing of the Product, Nastech and CSM wish to
execute this letter agreement with respect to the short-term
development activities which are necessary in order to determine the
technical feasibility of the Product and to set forth their respective
rights and responsibilities up to and including the filing of an IND.
<PAGE> 3
Page 2
Mr. Theodore Clement, Jr.
July 29, 1996
4. Promptly upon the execution of this letter agreement Nastech will
conduct the formulation and other development activities set forth in
Schedule "A" and CSM shall pay to Nastech the sum of $41,400 per
month, on the last day of each month commencing August 31, 1996
through and including January 31, 1997. Due to the overlapping nature
of the development activities, the entire completion of each milestone
shall not be a condition precedent for such payments. Not
withstanding the foregoing sentence, however, Nastech shall comply
with the Nasal Nicotine R & D Program Outline for IND Filing as
contained in Nastech's letter to CSM dated June 21, 1996. CSM shall,
in addition to the foregoing monthly payments, pay to Nastech $125,000
upon the completion of an animal tox trial and $125,000 upon
completion of the pk analysis. Such animal tox and pk analysis shall
only commence upon receipt by Nastech of the written authorization of
CSM to do so.
5. Except as modified by this letter agreement, all of the other terms
and conditions of the LOI shall remain in full force and effect,
except that the parties shall negotiate and execute the definitive
license agreement, as referred to in the LOI, concerning the balance
of the anticipated development and clinical activities for the Product
as well as the manufacturing and marketing rights to the Product
within 90 days of the completion of the animal tox and pk analysis and
study report.
6. Either party may terminate this letter agreement upon thirty days
written notice to the other party. Upon termination, CSM shall be
liable for only those documented, out-of-pocket costs incurred by
Nastech up through the effective date of such termination.
<PAGE> 4
Page 3
Mr. Theodore Clement, Jr.
July 29, 1996
Please indicate your agreement and acceptance of the terms and conditions of
this further memorandum of understanding by executing this letter in the
designated space below.
Very truly yours,
NASTECH PHARMACEUTICAL COMPANY INC.
By: /s/ VINCENT D. ROMEO
-------------------------------------
Name: Dr. Vincent D. Romeo
Title: President
AGREED TO AND ACCEPTED
CIBA SELF-MEDICATION, INC.
By: /s/ ELIZABETH CULLIGAN
-------------------------------------
Name: Elizabeth Culligan
Title: President
Dated: August 8, 1996
VDR:sms
CC: Ms. Elizabeth Culligan
Dr. Leon J. Lewandowski
<PAGE> 1
Exhibit 10K
Agreement with Sandoz Pharmaceuticals Corporation
49
<PAGE> 2
[NASTECH LETTERHEAD]
March 1, 1996
Mark Gelbert, Ph.D. J.D.
Executive Director, Scientific Affairs
Sandoz Pharmaceuticals Corporation
Consumer Division
59 Route 10
East Hanover, NJ 07936-1080
Dear Dr. Gelbert:
This memorandum of understanding sets forth the basic terms of our
collaboration on the proposed [Nasal Spray] project.
1. Nastech Pharmaceutical Company Inc. ("Nastech") and Sandoz
Pharmaceuticals Corporation ("Sandoz") wish to collaborate in
order to develop a nasal spray product ("Nasal Product"), the
proprietary rights to which are presently owned exclusively by
Nastech.
2. Prior to entering into a definitive agreement concerning the
development, manufacturing, and marketing of [Nasal Product]
Nastech and Sandoz wish to execute this memorandum of
understanding with respect to the initial formulation
development activities which are necessary in order to determine
the technical feasibility of the project and to set forth their
respective rights and responsibilities up to and including the
filing of an IND.
3. Promptly upon the execution of this memorandum of understanding,
Nastech will conduct the initial formulation development
activities set forth as activity nos. 1-6 of the [Nasal
Product] R&D Program Outline, annexed hereto and incorporated
by reference as Schedule "A". Sandoz will provide a proprietary
information packet on [The Compound] with respect to
solubility, stability and other available information that can
assist Nastech during pre-formulation. Upon execution hereof,
Sandoz shall pay to Nastech $100,000.
<PAGE> 3
Mark Gelbert, Ph.D., J.D.
Page Two
March 1, 1996
4. Upon the submission of the active and non-active formulation
candidate(s) by Nastech, Sandoz will conduct analysis of
[The Compound] concentration, microbial challenge, microbial
limits testing and stability testing on each formulation and will
within 45 days from the date of such submittal advise Nastech as
to whether any proposed formulations are acceptable to it.
5. In the event that a formulation has not been accepted by Sandoz
within 180 days from the date hereof, either party may terminate
this memorandum of understanding with no further responsibility
thereunder.
6. Following acceptance of the [Nasal Product] formulation by
Sandoz, Nastech will determine and advise Sandoz as to the
appropriate delivery device in accordance with activity nos. 7-9
of Schedule "A". Sandoz will conduct all APET testing as a
screen prior to further APET testing by Nastech.
7. Content uniformity and volume of delivery studies will be
conducted at Sandoz at the direction of Nastech. Sandoz will
provide the necessary analytical resources to complete these
studies.
8. Nastech will be responsible for the quality of all product used
in preclinical testing. Sandoz will audit Nastech at the mutual
convenience of the parties and will release all product prior to
stability testing and preclinical pharmacokinetic/toxicology
testing. Upon the acceptance of a formulation for [Nasal
Product], Sandoz will pay to Nastech $100,000. Formulation
acceptance as used herein shall mean the completion of
activities set forth in paragraphs numbered 4, 6, 7 and 8 of
this memorandum of understanding.
9. Within 30 days following acceptance of a formulation by Sandoz,
as set forth in paragraph 8, Sandoz will advise Nastech as to
whether it is prepared to proceed with preclinical testing in
preparation for the filing of an IND. In the event that Sandoz
elects to proceed, it will pay to Nastech $100,000.
10. Once formulated and on stability, upon receipt of a notification
constituting the election to proceed by Sandoz, Nastech will
prepare all GMP and GLP batches of the nasal spray, in bulk and
packaged, for preclinical pharmacokinetic/toxicology testing in
accordance with activity no. 10 of Schedule "A".
<PAGE> 4
Mark Gelbert, Ph.D., J.D.
Page Three
March 1, 1996
11. Preclinical pharmacokinetic/toxicology studies as per article II
of Schedule "A" will be contracted, conducted and monitored by
Nastech with review of all protocols by Sandoz. Sandoz will
provide all necessary bioanalytical methods and resources.
Reference doses of [The Compound] for these studies will be
provided by Sandoz. At the conclusion of the preclinical
testing program, Sandoz will pay Nastech $100,000.
12. Provided that both parties agree after review of the results of
the preclinical research program, such agreement not to be
unreasonably withheld, Nastech shall file an IND for Phase I
testing within 60 days following the completion of the
preclinical testing program. Upon the filing of such IND,
Nastech and Sandoz shall, in good faith, negotiate a definitive
agreement concerning the balance of the anticipated development
and clinical activities for [Nasal Product] as well as the
manufacturing and marketing rights to this proposed product.
For the period from the date of the IND filing and expiring six
months thereafter, Nastech will not (a) solicit or initiate
discussions or engage in negotiations or discussions with any
other person or entity other than Sandoz involving the
manufacturing and/or marketing rights to [Nasal Product], or (b)
provide information to any person or entity (other than Sandoz,
regulatory authorities and otherwise in the ordinary course of
Phase I testing) concerning [Nasal Product]. In the event that
Nastech and Sandoz have not executed such definitive agreement
by the expiration of the six month period, all rights to [Nasal
Product], including the formulation, research and development
results arising from this memorandum of understanding shall
remain the sole property of Nastech.
Nothing in this agreement is meant to convey to either party any rights in the
proprietary information or technology of the other party, including, without
limitation, in the analytical methodology of Sandoz.
<PAGE> 5
Mark Gelbert, Ph.D., J.D.
Page Four
March 1, 1996
Please indicate your agreement and acceptance of the terms and conditions of
this memorandum of understanding by executing this letter in the designated
space below, whereupon this letter shall govern the relationship of the parties
throughout the feasibility study for [Nasal Product] in accordance with the
terms and provisions set forth above and in Schedule "A".
Very truly yours,
NASTECH PHARMACEUTICAL CO. INC.
By: /s/ VINCENT D. ROMEO
-------------------------------------
Vincent D. Romeo, Ph.D.
President and CEO
AGREED TO AND ACCEPTED
SANDOZ PHARMACEUTICALS CORPORATION
By: /s/ MARK GELBERT
--------------------------------------------
Name: Mark Gelbert, Ph.D.
Title: Exec. Dir., Scientific Affairs, Consumer Health
Dated: March 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4031252
<SECURITIES> 3954945
<RECEIVABLES> 1089966
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9131533
<PP&E> 321154
<DEPRECIATION> 100391
<TOTAL-ASSETS> 9366796
<CURRENT-LIABILITIES> 1662155
<BONDS> 135907
0
0
<COMMON> 22959
<OTHER-SE> 7545775
<TOTAL-LIABILITY-AND-EQUITY> 9366796
<SALES> 0
<TOTAL-REVENUES> 3866913
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2841042
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 118525
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<EPS-PRIMARY> .03
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</TABLE>
