<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1997
REGISTRATION NO. 333-16507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
NASTECH PHARMACEUTICAL
COMPANY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
11-2658569
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
45 DAVIDS DRIVE
HAUPPAUGE, NEW YORK 11788
TELEPHONE (516) 273-0101
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DR. VINCENT D. ROMEO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NASTECH PHARMACEUTICAL COMPANY INC.
45 DAVIDS DRIVE
HAUPPAUGE, NEW YORK 11788
TELEPHONE (516) 273-0101
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
Copies to:
BRUCE R. THAW, ESQ.
45 BANFI PLAZA
FARMINGDALE, NEW YORK 11735
TELEPHONE (516) 752-1760
DAVID M. CARTER, ESQ.
HUNTON & WILLIAMS
951 EAST BYRD STREET
RICHMOND, VIRGINIA 23219-4074
TELEPHONE (804) 788-8200
------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 22, 1997
1,200,000 SHARES
[NASTECH LOGO]
COMMON STOCK
------------------------
All of the 1,200,000 shares of Common Stock offered hereby are being
offered by Nastech Pharmaceutical Company Inc. (the "Company"). The Common Stock
of the Company is quoted on the Nasdaq SmallCap Market under the symbol "NSTK."
On January 21, 1997, the closing bid price of the Common Stock, as reported on
the Nasdaq SmallCap Market, was $15.75 per share. See "Price Range of Common
Stock and Dividend Policy." The Company has been approved for inclusion of its
Common Stock on the Nasdaq National Market upon official notice of issuance of
the shares of Common Stock offered hereby.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5 THROUGH 9.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
- -----------------------------------------------------------------------------------------------
Total(3)................................. $ $ $
===============================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, payable by the Company, estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
180,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them, and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject any orders in whole or in part. It is expected
that the certificates for the shares of Common Stock will be available for
delivery at the offices of Volpe, Welty & Company, One Maritime Plaza, San
Francisco, California on or about , 1997.
VOLPE, WELTY & COMPANY WHEAT FIRST BUTCHER SINGER
The date of this Prospectus is , 1997.
<PAGE> 3
NASTECH PHARMACEUTICAL COMPANY
CURRENT PRODUCTS AND PIPELINE
[GRAPH]
Stadol(R) NS(TM) is a trademark of the Bristol-Myers Squibb Company ("BMS").
Stadol NS is a narcotic analgesic sublicensed to BMS for marketing as a
prescription pain-reliever. Nascobal(TM) is a trademark of Nastech. Trade names
and trademarks of other companies appearing in this Prospectus are the property
of their respective holders. Metoclopramide and Propranolol development
activities are performed by RiboGene, Inc., ("RiboGene"). Doxylamine development
activities are performed by the Company under an agreement with the Consumer
Health Care Division of Pfizer Inc. ("Pfizer"). Nalbuphine development
activities are performed by The DuPont Merck Pharmaceutical Company ("DuPont
Merck"). Nicotine development activities are performed by the Company under an
agreement with Ciba-Self Medication, Inc., a division of Ciba-Geigy Corporation
("Ciba").
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Unless otherwise indicated, all financial information and
share data in this Prospectus assume no exercise of the Underwriters'
over-allotment option or of options or warrants outstanding as of the date of
this Prospectus. This Prospectus contains various "forward looking statements"
within the meaning of Section 27a of the Securities Act of 1933, as amended (the
"Securities Act"), which represent the Company's intentions, expectations or
beliefs concerning future events. These forward looking statements are qualified
by important factors that could cause actual results to differ materially from
those in the forward looking statements, including, without limitation, those
discussed in "Risk Factors." See "Risk Factors."
THE COMPANY
Nastech Pharmaceutical Company Inc. (the "Company") is engaged in the
research, development, manufacturing and commercialization of nasally
administered forms of prescription and over-the-counter pharmaceuticals that are
currently delivered in oral, injectable or other dosage forms. The nasal
delivery of certain pharmaceuticals enables more rapid systemic absorption,
lower required dosages, quicker onset of desired effect, and painless,
convenient patient self-administration, resulting in improved patient compliance
and pharmacoeconomics. The Company focuses its research activities primarily on
drugs with demonstrated safety and efficacy, which, through current delivery
forms, have certain bioavailability or patient compliance limitations that may
be improved with a novel delivery form. The Company's first commercially
available pharmaceutical is a prescription pain-reliever marketed as Stadol NS
by Bristol-Myers Squibb Company. In addition, on November 5, 1996, the Company
received marketing clearance from the FDA for Nascobal nasal gel used for the
treatment of chronic Vitamin B-12 deficiency anemia. The Company's pipeline
includes nine additional drugs, five of which are being developed under
collaborative agreements with other pharmaceutical companies, including Pfizer,
DuPont Merck and Ciba.
Although oral, injectable, patch and pulmonary delivery forms are accepted
for a variety of systemic pharmaceuticals, the Company believes that nasal
delivery may optimize the delivery of certain of these drugs. As an example,
certain drugs are delivered by injection due to significant liver or
gastrointestinal metabolism associated with oral administration, or due to the
inability of the stomach to absorb the drug properly and without irritation.
However, because of patient discomfort and the required assistance of a health
care professional, an injection is generally inconvenient and expensive for
frequent therapy, often resulting in patient non-compliance. The Company also
targets drugs, such as analgesics, sleep-aids and anti-nausea drugs, for which
quick onset of desired effect is important. For certain of these
pharmaceuticals, patients are seeking more rapid drug absorption than
experienced through currently available delivery forms such as oral or patch
administration. By addressing the limitations of current delivery forms for
certain pharmaceuticals, the Company believes that nasal delivery may expand
these markets through improved bioavailability, pharmacoeconomics and patient
acceptance, as demonstrated by the market growth of Stadol NS.
The Company's objective is to become a leading drug delivery specialist by
leveraging the pharmacoeconomic and therapeutic advantages of nasal delivery
across multiple pharmaceuticals. To accomplish this objective, the Company has
developed a strategy that includes the following elements: (i) focus efforts on
approved drugs; (ii) internally fund development through later stages; (iii)
leverage strategic alliances; (iv) protect and expand intellectual property; and
(v) augment technology through licensing and acquisition.
The Company's offices are located at 45 Davids Drive, Hauppauge, New York
11788, and its telephone number is (516) 273-0101.
3
<PAGE> 5
THE OFFERING
Common Stock offered by the Company... 1,200,000 shares
Common Stock to be outstanding after
the offering.......................... 5,906,250 shares(1)
Use of proceeds....................... For research and development,
including clinical trials; initial
marketing and product launch expenses
with respect to Nascobal; capital
expenditures, principally for
manufacturing; license or acquisition
of products and technologies for
product development; and working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq symbol......................... "NSTK"
- ---------------
(1) Does not include: (i) 459,299 shares of Common Stock reserved for issuance
under the Company's Stock Option Plan and (ii) 270,000 shares of Common
Stock issuable upon the exercise of outstanding warrants expiring on
December 6, 1998.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,(1) SEPTEMBER 30,
STATEMENT OF OPERATIONS --------------------------------------------------------------------- -------------------------
DATA: 1992 1993 1994 1995 1996 1995 1996
--------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.............. $ 314,843 $ 862,651 $2,200,245 $2,937,783 $3,866,913 $ 881,510 $1,161,660
Income (loss) before
provision for income
taxes..................... (409,272) (178,405) 224,647 (79,445) 118,525 25,352 79,536
Net income (loss)........... (409,272) (178,405) 207,647 (79,445) 118,525 22,352 79,536
Net income (loss) per common
share..................... $ (0.35) $ (0.13) $ 0.08 $ (0.03) $ 0.03 $ 0.01 $ 0.02
Average shares
outstanding............... 1,184,388 1,395,390 2,524,432 3,119,718 4,297,536 3,849,776 4,628,238
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(2)
---------- --------------
(UNAUDITED)
<S> <C> <C>
Working capital.............................................................. $7,586,791 $ 29,043,620
Total assets................................................................. 8,733,491 30,190,320
Long-term debt............................................................... 20,881 20,881
Total stockholders' equity................................................... 7,862,479 29,319,308
</TABLE>
- ---------------
(1) Fiscal year references in this Prospectus refer to the Company's fiscal year
ending June 30 in such year.
(2) Adjusted to give effect to (i) the sale of the shares of Common Stock at an
assumed offering price of $15.75 and the application of the estimated net
proceeds therefrom, and (ii) $4,379,829 received from the exercise of
838,245 warrants outstanding at September 30, 1996. See "Use of Proceeds."
4
<PAGE> 6
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing shares of Common Stock offered hereby.
History of Losses; Uncertainty of Profitability. Although the Company
achieved profitability on an annual basis in fiscal 1996, there can be no
assurance that revenue growth or profitability will continue on a quarterly or
annual basis in the future. From inception in March 1983 to September 30, 1996,
the Company has accumulated net losses of approximately $6.1 million. Because
the Company's proposed products will require significant additional clinical
testing and investment prior to commercialization, such losses may increase in
the near-term as the Company expands its research, development and clinical
trials in an effort to seek regulatory approval of such products. The Company
expects its research and development expenses to increase in the foreseeable
future, and as a result it does not expect to be profitable until at least
through fiscal 1998. Further, the Company does not expect to achieve sustained
profitability unless products now under development are commercialized
successfully, of which there can be no assurance. There can be no assurance that
any of the Company's products will meet applicable regulatory standards, obtain
required regulatory approvals, be capable of being produced in commercial
quantities at reasonable costs or be successfully marketed. Consequently, the
Company may incur substantial operating losses unless and until product sales or
royalty payments generate sufficient revenues to fund its continuing operations.
The Company also expects to have quarter-to-quarter fluctuations in revenues and
expenses which may result in fluctuations in operating results.
Dependence on Strategic Alliances. Most of the Company's current revenues
are derived from a collaborative agreement with BMS (the "BMS Agreement"). The
marketing responsibilities pursuant to this agreement have been undertaken by
BMS and are not within the control of the Company. The BMS Agreement does not
provide for minimum royalties and may be terminated by BMS at any time upon 60
days notice. As a result, there is no assurance that the Company will continue
to receive royalty payments in the future or on a consistent basis.
The Company's strategy for research, development and commercialization of
some of its products has been to rely upon various strategic alliances with
licensees, distributors and other third parties in performing preclinical and
clinical testing, obtaining regulatory approval, and performing manufacturing
and marketing functions. There can be no assurance that the Company will be able
to negotiate acceptable collaborative arrangements or that such arrangements
will be successful. Further, the Company cannot predict to what extent new
collaborative agreements, if any, will affect revenue and profitability in
future periods. See "Business -- Strategic Alliances."
Limited Marketing, Sales and Manufacturing Capabilities. The Company may
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 condition that can be treated with
one of the Company's products. The Company has limited experience in marketing,
distributing or selling pharmaceutical products and will have to develop such
expertise or rely on licensees or on arrangements with others to provide for the
marketing, distribution and sales of its products. The Company currently intends
to pursue the marketing of its Nascobal product independently. There can be no
assurance that the Company will be able to establish marketing, distribution and
sales capabilities with respect to Nascobal or any other of its products or make
arrangements with licensees or others to perform such activities. If the Company
is unable to market Nascobal independently, or if it is unable to enter into an
arrangement with a third party to market Nascobal, such inability would have a
material adverse effect on the Company's business or prospects. See "Business --
Strategic Alliances."
Although the Company is producing and formulating small amounts of certain
drug formulations which are the subject of preclinical and clinical trials under
current good manufacturing practices ("GMP"), which are stringent manufacturing
standards prescribed by the FDA, the Company has not yet manufactured or
marketed any products in high-volume commercial quantities, and the current
facilities and equipment of the Company may not be adequate for high-volume
commercial scale production under GMP. The Company
5
<PAGE> 7
intends to manufacture its Nascobal product in commercial quantities in the near
future. To be successful, Nascobal and the Company's other proposed products
must be manufactured in commercial quantities under GMP and at acceptable costs.
Therefore, the Company will need to further develop its own GMP manufacturing
facility or depend on contract manufacturers, licensees or others for the
commercial manufacture of its products. The Company has no experience in such
high-volume commercial manufacturing and no assurance can be given that the
Company will be able to make the transition to commercial production
successfully or at an acceptable cost. In addition, no assurance can be given
that the Company will be able to make arrangements with third parties to
manufacture its products on acceptable terms. See "Business -- Manufacturing."
Management of Growth. The Company has recently experienced significant
growth as total revenues increased 31.6% in fiscal 1996 and 33.5% in fiscal 1995
as compared to prior periods. The Company's recent growth may result in
significant demands on the Company's management, operations and resources,
including working capital. To manage its growth effectively, the Company will be
required to continue to improve its operational, financial and management
information systems, procedures and controls, and to hire and train new
executives and other employees. There can be no assurance that the Company will
be able to manage its growth effectively, and the Company's failure to do so
could have a material adverse affect on the Company's business, research and
development efforts and financial performance.
Government Regulation. The United States Food and Drug Administration
("FDA") and comparable agencies in foreign countries impose requirements on the
introduction of therapeutic pharmaceutical products into the marketplace. Prior
to marketing, any therapeutic product developed by the Company must undergo
rigorous preclinical and clinical testing, as well as an extensive regulatory
approval process mandated by the FDA and foreign regulatory agencies. These
procedures require the expenditure of substantial resources, may take several
years or longer and may vary substantially based upon the type, complexity and
novelty of the pharmaceutical product. Government regulation also affects the
manufacturing, marketing and pricing of pharmaceutical products.
Government regulation may delay or prevent the marketing of the Company's
products or proposed products for a considerable period of time, impose costly
procedures upon the Company's activities and confer a competitive advantage to
larger companies or companies more experienced in regulatory affairs that
compete with the Company. There can be no assurance that FDA or other regulatory
approval for any products developed by the Company will be granted on a timely
basis, or at all. Delay in obtaining or failure to obtain such regulatory
approvals will materially adversely affect the Company's business, liquidity and
capital resources. See "Business -- Government Regulation."
Uncertainty Regarding Patents and Proprietary Information. The Company's
ability to compete effectively with other companies is materially dependent upon
the proprietary nature of its patents and technologies. The Company is the
exclusive licensee of six U.S. patents and presently owns four additional
patents in the United States and corresponding or related foreign patents. All
of such patents relate to the nasal delivery of specific therapeutic agents and
the compositions for such delivery.
The patent positions of pharmaceutical firms are generally uncertain and
involve complex legal and factual questions. The invalidation of key patents or
proprietary rights owned or licensed by the Company could have an adverse effect
on the Company and on its business prospects. Because of differences in patent
laws and laws concerning proprietary rights, the extent of protection provided
by United States patents or proprietary rights owned by or licensed to the
Company may differ from that provided by their foreign counterparts. No
assurance can be given that patents issued to or licensed by the Company will
not be challenged, invalidated or circumvented, or that any rights granted
thereunder will provide competitive advantages to the Company. Further, the
Company's existing patents may expire prior to regulatory approval and
commercial development of a proposed pharmaceutical product. The earliest
expiration date of a United States patent owned by or licensed to the Company is
1999.
The Company could incur substantial costs in defending any patent
infringement suits brought against the Company or in asserting the Company's
patent rights, including those granted by third parties, in a suit against
another party. In addition, proceedings may be instituted by third parties in
the United States Patent
6
<PAGE> 8
and Trademark Office against the Company in connection with one or more of the
Company's patents and such proceedings could result in an adverse decision as to
the validity or scope of the patents.
The Company also relies on trade secrets, know-how and continuing
technological advancement to maintain its competitive position. The Company has
utilized confidentiality agreements relating to such information with third
parties. No assurances can be given that such obligations of confidentiality
will be honored or that the Company can effectively protect its rights to any
unpatented trade secrets. See "Business -- Patents and Proprietary Rights."
Future Capital Needs. The Company's operations to date have consumed
substantial amounts of cash, primarily for research and development. The
Company's future capital requirements will depend upon numerous factors,
including: the progress of the Company's product development programs; the time
required to obtain regulatory approvals; the resources that the Company devotes
to the development of self-funded products; the ability of the Company to obtain
additional collaborative partners; and the demand for its products, if and when
approved. Based upon current expectations for operating losses and capital
expenditures, the Company believes that its existing cash, cash equivalents and
short-term investments, together with the proceeds of this offering and cash
flows generated from planned business operations, will be sufficient to meet its
operating expenses and capital expenditure requirements through at least
mid-1998. However, there can be no assurance that the Company will not require
additional financing depending upon future business strategies, results of
clinical trials, management decisions to accelerate certain research and
development programs and other factors. Adequate funds, whether through
financial markets or from other sources, may not be available when needed or on
terms acceptable to the Company. Insufficient funds may require the Company to
delay, scale back or curtail product development activities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Uncertainty of Health Care Reimbursement. The Company's ability to
commercialize therapeutic nasal pharmaceuticals successfully may depend in part
on the extent to which reimbursement for the cost of such products will be
available from government health administration authorities, private health
coverage insurers and other organizations. The Company believes that the U.S.
Congress may continue to consider health care reform proposals which, if
enacted, would significantly affect health care, pharmaceutical and drug
delivery companies, among others. Any such measures, if adopted, could adversely
affect the pricing of pharmaceutical products or the amount of reimbursement
from governmental agencies or third party payors, and consequently could be
adverse to the Company. Health care reform may adversely affect the Company's
business, particularly to the extent 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. Further,
significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available for the Company to maintain price levels sufficient
for realization of an appropriate return on its investment in product
development. See "Business -- Government Regulation" and "-- Health Care
Reimbursement."
Dependence Upon Key Personnel and Attraction of Qualified Personnel. The
Company is highly dependent on the services of its President and Chief Executive
Officer, Dr. Vincent D. Romeo. There is no assurance that, if the Company should
lose the services of Dr. Romeo, a qualified replacement could be engaged.
Although the Company has entered into an employment agreement with Dr. Romeo,
the loss of his services could have a material adverse effect on the Company's
business and prospects. Due to the specialized nature of the Company's business,
the Company is also highly dependent upon its ability to attract and retain
qualified scientific, technical and key management personnel. There is intense
competition for qualified personnel in the areas of the Company's activities and
there can be no assurance that the Company will be able to locate, attract and
retain qualified personnel necessary for the development of its existing
business and its expansion into areas and activities requiring additional
expertise, such as clinical testing, government approvals, production and
marketing. The loss of, or failure to recruit scientific, technical and
managerial personnel could have a material adverse effect on the Company. See
"Business -- Employees."
7
<PAGE> 9
Product Liability Exposure; Limited Insurance Coverage. The testing,
marketing and sale of human health care products entail an inherent risk of
allegations of product liability, and there can be no assurance that substantial
product liability claims will not be asserted against the Company. The Company
currently has only limited product liability insurance coverage in connection
with its clinical trials. The Company intends to obtain additional product
liability insurance if and when its products are commercialized and marketed by
the Company; however, there can be no assurance that adequate insurance will be
available at acceptable costs, if at all, that such insurance will be sufficient
to cover all possible liabilities, or that a product liability claim would not
have a material adverse effect on the business or financial condition of the
Company. Failure to maintain adequate product liability insurance could, in the
event a product liability claim were asserted against the Company, have a
material adverse impact upon the Company and its business.
Intense Competition. The Company is engaged in the pharmaceutical, drug
delivery systems industry which is characterized by extensive research efforts,
rapid technological progress and intense competition. Competitors of the Company
in the United States and abroad are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions. At the present time, the Company does not know of another
pharmaceutical company engaging exclusively in the development of drugs to be
administered nasally for systemic absorption. However, other pharmaceutical
companies which are larger than the Company are known to be engaged
non-exclusively in researching some nasally administered pharmaceuticals, and
may be expected to enter this field if the nasal route becomes a preferred
method of delivery 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 that 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 these
competitors also 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. As
the Company commences commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and marketing capabilities,
areas in which it has limited or no experience. See "Business -- Competition."
Management's Discretion Regarding Use of Proceeds. The net proceeds of
this offering to be received by the Company have not been allocated to any
specific purpose and will be available to management to use in its sole
discretion to support the Company's operations. Management may decide to use
those proceeds for unspecified investments and acquisitions, the terms of which
will solely be subject to management's discretion. See "Use of Proceeds."
Potential Volatility of Stock Price. The stock market recently has
experienced significant price and volume fluctuations that were often unrelated
to the operating performance of particular companies. The market price of the
Common Stock, as with that of securities of many similar companies, is likely to
be highly volatile. Factors such as the results of pre-clinical studies and
clinical trials by the Company or its competitors, regulatory progress or the
lack thereof with respect to products in the Company's pipeline or those of the
Company's competitors, evidence of the safety, efficacy or market acceptance of
the products of the Company or its competitors, announcements of technological
innovations or new products by the Company or its competitors, changes in
governmental regulation, developments in patent or other proprietary rights of
the Company or its competitors, including litigation, fluctuations in the
Company's operating results and changes in general market conditions for drug
delivery or other pharmaceutical companies could have a significant impact on
the market price of the Common Stock.
Authorization of Preferred Stock; Anti-takeover Provisions. The Company's
Certificate of Incorporation authorizes the issuance of up to 100,000 shares of
"blank check" preferred stock in amounts and with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other
8
<PAGE> 10
rights of the holders of the Company's Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of the Company.
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes mergers, asset
sales and similar transactions between the corporation and the interested
stockholder, and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns 15% or more of the corporation's voting stock or
who is an affiliate or associate of the corporation and, together with his
affiliates and associates, has owned 15% or more of the corporation's voting
stock within three years. See "Description of Capital Stock."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding 5,906,250 shares of Common Stock, assuming (i) no
exercise of 459,299 options outstanding as of the date of this Prospectus, and
(ii) no exercise of outstanding warrants to acquire 270,000 shares of Common
Stock expiring December 6, 1998. On the date of this Prospectus, 4,921,401
shares of Common Stock, including the 1,200,000 shares offered hereby, will be
immediately available for sale without restriction in the public market and
984,859 shares are "restricted securities" as that term is defined by Rule 144
under the Securities Act ("Rule 144"), and are now eligible to be sold in
compliance with Rule 144. Ordinarily, under Rule 144 a person holding restricted
stock for a period of two years may, every three months, sell in brokerage
transactions an amount equal to the greater of 1% of the Company's outstanding
Common Stock, or, if the Common Stock is quoted on Nasdaq, the average weekly
volume of trading in the Common Stock reported for the preceding four weeks.
After the expiration of three years, stock held by persons not affiliated with
the Company will not be subject to the above limitations.
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of shares of Common Stock may be sold in the public
market may adversely affect prevailing market prices for the shares of Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities. See "Shares Eligible for Future Sale."
The availability of shares for sale or actual sales under Rule 144 may have
an adverse effect on the market price of the Common Stock. Sales under Rule 144
also could impair the Company's ability to market additional equity securities.
The Company, each of the Company's directors and officers and certain holders of
the Company's outstanding securities, who hold in the aggregate approximately
20.6% of the outstanding shares of Common Stock prior to this offering, have
agreed not to offer, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock or securities convertible into or exchangeable for, or any
rights to purchase or exchange, respectively, Common Stock for a period of 180
days from the date of this Prospectus without the prior written consent of
Volpe, Welty & Company, except for shares disposed of as bona fide gifts or the
grant or exercise of options pursuant to the Company's Stock Option Plan or the
exercise of outstanding warrants. See "Underwriting."
Forward-Looking Statements. Some of the statements made in this Prospectus
are forward-looking in nature, including but not limited to the Company's
business strategy, product development strategy, plans concerning the
commercialization of products, certain financial information and other
statements that are not historical facts, as well as statements regarding
management's expectations with respect to FDA approval of new products,
technology and product development milestones, the ability of the Company to
leverage its product development and negotiate favorable collaborative
agreements, the commencement of sales and the sufficiency of the Company's cash
flow for the Company's future liquidity and capital resource needs. 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.
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,200,000 shares of Common
Stock offered by the Company hereby are estimated to be approximately $17.1
million (assuming an offering price of $15.75 per share). The Company
anticipates that the net proceeds of this offering will be used for (i) research
and development, including clinical trials, (ii) initial marketing and product
launch expenses with respect to Nascobal, (iii) capital expenditures,
principally for manufacturing, (iv) license or acquisition of products and
technologies for product development and (v) working capital and other general
corporate purposes. The amounts to be expended for each such purpose will depend
upon numerous factors, including the progress of the Company's research and
development programs, the results of pre-clinical and clinical studies, the
timing of regulatory approvals, the status of competitive products, the
availability of products for licensing and the terms of collaborative
agreements, if any, entered into by the Company. Based upon its currently
planned research and development activities and related costs, the Company
anticipates that the net proceeds of this offering will be sufficient to meet
its capital and operational requirements until at least mid-1998. Pending
utilization as described above, the net proceeds of this offering will be
invested in investment-grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is quoted on the Nasdaq SmallCap Market under
the symbol "NSTK." The Company has been approved for inclusion of its Common
Stock on the Nasdaq National Market, upon official notice of issuance of the
shares of Common Stock offered hereby. The following table sets forth the range
of high and low bid prices for the Company's Common Stock as reported by the
Nasdaq Stock Market. 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>
BID PRICE
-------------
FISCAL YEARS HIGH LOW
- ---------------------------------------------------------------------------- ---- ---
<S> <C> <C>
1995
First Quarter............................................................... $ 5 7/8 $ 3 1/8
Second Quarter.............................................................. 6 4 1/2
Third Quarter............................................................... 6 4 3/4
Fourth Quarter.............................................................. 8 4 7/8
1996
First Quarter............................................................... $ 7 7/8 $ 6 7/8
Second Quarter.............................................................. 10 7 3/8
Third Quarter............................................................... 9 7/8 8 1/4
Fourth Quarter.............................................................. 13 8 1/4
1997
First Quarter............................................................... $ 15 $ 9 1/2
Second Quarter.............................................................. 23 1/2 13
</TABLE>
On January 21, 1997, the closing bid and asked price quotations for the
Company's Common Stock were $15 3/4 and $16, 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.
Since its inception, the Company has neither paid nor declared any cash or
other dividends on its shares of Common Stock. 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 factors
that the Board of Directors deems relevant.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 on an actual basis and as adjusted to reflect the sale of the
1,200,000 shares of Common Stock offered hereby at an assumed offering price of
$15.75 per share, after deducting estimated offering expenses and underwriting
discounts, and the application of the net proceeds therefrom. This table should
be read in conjunction with the Company's Financial Statements and Notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(2)
----------- --------------
(UNAUDITED)
<S> <C> <C>
Long-term debt, less current portion.............................. $ 20,881 $ 20,881
----------- --------------
Stockholders' equity:
Preferred stock, $0.01 par value; 100,000 shares authorized;
no shares issued and outstanding, actual and as adjusted.... -- --
Common stock, $0.006 par value; 6,000,000 shares authorized,
3,868,005 shares issued and outstanding, actual; 25,000,000
shares authorized, 5,906,250 shares issued and outstanding,
as adjusted(1).............................................. 23,208 35,438
Additional paid-in capital................................... 13,947,516 35,392,115
Accumulated deficit.......................................... (6,108,245) (6,108,245)
----------- --------------
Total stockholders' equity.............................. 7,862,479 29,319,308
----------- --------------
Total capitalization............................... $ 7,883,360 $ 29,340,189
========== ===========
</TABLE>
- ---------------
(1) Does not include: (i) 459,299 shares of Common Stock reserved for issuance
under the Company's Stock Option Plan and (ii) 270,000 shares of Common
Stock issuable upon exercise of outstanding warrants expiring on December
6, 1998.
(2) Includes $4,379,829 received from the exercise of 838,245 warrants
outstanding at September 30, 1996.
11
<PAGE> 13
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this
Prospectus. The statement of operations data for the years in the five-year
period ended June 30, 1996 and the balance sheet data as of June 30, 1992, 1993,
1994, 1995 and 1996 are derived from, and are qualified by reference to, the
audited financial statements of the Company. The selected financial data as of
and for the three months ended September 30, 1995 and 1996 have been derived
from unaudited financial statements of the Company which, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of such information as of and for such period.
The results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results of operations to be expected for the
entire year or for any subsequent period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------------------- -------------------------
STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995 1996 1995 1996
--------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fee, royalty and
research income........... $ 298,855 $ 855,590 $2,106,662 $2,683,925 $3,628,735 $ 818,459 $1,059,213
Interest income............. 15,988 7,061 93,583 253,858 238,178 63,051 102,447
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues......... 314,843 862,651 2,200,245 2,937,783 3,866,913 881,510 1,161,660
--------- ---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Research and development.... 407,489 444,095 504,140 882,356 1,164,172 283,259 340,613
Royalties................... 3,000 310,822 1,041,703 1,250,789 1,676,870 391,191 474,294
General and
administrative............ 196,705 203,700 388,898 836,549 864,784 168,602 258,673
Interest expense............ 116,921 82,439 40,857 47,534 42,562 13,106 8,544
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and
expenses............. 724,115 1,041,056 1,975,598 3,017,228 3,748,388 856,158 1,082,124
--------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before provision
for income taxes.............. (409,272) (178,405) 224,647 (79,445) 118,525 25,352 79,536
Provision for income taxes...... -- -- 17,000 -- -- 3,000 --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............... $(409,272) $ (178,405) $ 207,647 $ (79,445) $ 118,525 $ 22,352 $ 79,536
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common
share......................... $ (0.35) $ (0.13) $ 0.08 $ (0.03) $ 0.03 $ 0.01 $ 0.02
========== ========== ========== ========== ========== ========== ==========
Average shares outstanding...... 1,184,388 1,395,390 2,524,432 3,119,718 4,297,536 3,849,776 4,628,238
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------
-------------------------------------------------------------------- 1996
BALANCE SHEET DATA: 1992 1993 1994 1995 1996 -------------
--------- --------- ---------- ---------- ---------- (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit)....... $(199,098) $(222,006) $4,698,540 $4,444,108 $7,469,378 $ 7,586,791
Total assets.................... 494,052 746,319 6,001,963 6,034,912 9,366,796 8,733,491
Long-term debt.................. 600,000 565,556 452,296 348,965 135,907 20,881
Total stockholders' equity
(deficit)..................... (722,685) (734,786) 4,309,027 4,288,182 7,568,734 7,862,479
</TABLE>
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the research, development, manufacturing and
commercialization of nasally administered forms of prescription and
over-the-counter pharmaceuticals that are currently delivered in oral,
injectable or other dosage forms. The nasal delivery of certain pharmaceuticals
can enable more rapid systemic absorption, lower required dosages, quicker onset
of desired effect, and painless, convenient patient self-administration.
In December 1991, BMS received marketing approval from the FDA for a nasal
formulation of Stadol NS, a narcotic analgesic, which was sublicensed to BMS by
the Company pursuant to the BMS Agreement. In 1992, the Company began to
generate revenues from the receipt of royalties in connection with the BMS
Agreement. On November 5, 1996, the Company received FDA marketing clearance for
Nascobal, its Vitamin B-12 nasal gel. The Company's pipeline includes nine
additional drugs, five of which are being developed under collaborative
agreements with other pharmaceutical companies. Through fiscal 1997, the Company
expects revenues to consist principally of revenues from BMS, milestone payments
and research fees. The Company does not expect revenues from its Nascobal
product until fiscal 1998.
In the past, the Company's product development strategy has generally been
to seek strategic alliances in order to minimize the risk, time and cost
typically associated with the early stages of commercializing a family of
pharmaceuticals. The Company believes it is now able to leverage its product
development experience and broad product pipeline to pursue internally funded
development projects. The Company believes that postponing the establishment of
strategic alliances until later stages of product development will allow the
Company to negotiate more favorable collaborative agreements and retain product
rights. Therefore, the Company intends to commit significant financial resources
to research and development with the goal of achieving greater economic benefit
from product sales. As a result of this increased investment in the development
of the Company's product pipeline, the Company does not expect to be profitable
until at least through fiscal 1998.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared To Three Months Ended September
30, 1995
Revenues. Revenues for the three months ended September 30, 1996 increased
by $280,000 to $1.2 million, or 31.8%, over such revenues for the three months
ended September 30, 1995. This increase was due to increases in license fee,
royalty and research income, which for the three months ended September 30, 1996
increased by $241,000 to $1.1 million, or 29.4%, over such income for the three
months ended September 30, 1995. The license fee, royalty and research income
increase primarily was due to royalty income received from BMS pursuant to the
BMS Agreement. The increased revenue associated with the BMS Agreement primarily
was due to increased sales of Stadol NS. Royalty income received from the BMS
Agreement for the current three-month period increased by $171,000 to $966,000,
or 21.5%, over such income for the similar period in fiscal 1996. Interest
income for the current three-month period increased by $39,000 to $102,000, or
62.5%, compared to such income for the similar period in fiscal 1996 due to an
increase in the amount of excess funds invested.
Research and development expense. In the three months ended September 30,
1996, the Company continued to conduct 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 the
three months ended September 30, 1996 increased by $57,000 to $341,000, or
20.2%, over such expense for the three months ended September 30, 1995. Such
increase was due to the execution of the Company's strategy to accelerate
development of its nasal pharmaceutical formulations.
13
<PAGE> 15
Royalties expense. Royalties expense for the three months ended September
30, 1996 increased by $83,000 to $474,000, or 21.2%, over such expense for the
three months ended September 30, 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
the three months ended September 30, 1996 increased by $90,000 to $259,000, or
53.4% over such expense for the three months ended September 30, 1995 due to
increased staffing expense. As a percentage of revenues, general and
administrative expense increased to 22.3% for current three-month period from
19.1% for the similar period in fiscal 1996.
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 BMS, pursuant to the BMS Agreement. The increased revenue
associated with the BMS Agreement primarily was due to increased sales of Stadol
NS. Royalty income received from the BMS Agreement for fiscal 1996 increased by
$883,000 to $3.4 million, or 34.9%, over such income for fiscal 1995. This
increase was offset in part by a decrease for fiscal 1996 of $97,000 to $19,000
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 in the amount of
excess funds invested.
Research and development expense. In fiscal 1996, the Company continued to
conduct pharmaceutical and pharmacological research and assemble the technical
and reference data required to gain marketing approval from the appropriate
regulatory agencies for six new drug products. Preclinical and clinical research
and development expense for fiscal 1996 increased by $282,000 to $1.2 million,
or 31.9%, over such expense for fiscal 1995. Such increase was due to the
execution of the Company's strategy to accelerate development of its nasal
pharmaceutical formulations.
Royalties expense. Royalties expense for fiscal 1996 increased by $426,000
to $1.7 million, or 34.1%, over such expense for fiscal 1995. Such increase was
due to the increase in royalties paid by the Company to the UKRF in connection
with the BMS Agreement.
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 $630,000 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 19.7%, 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 $160,000 to $254,000, or 171.3%, over such income for fiscal 1994.
Such increase was due to the
14
<PAGE> 16
fact that funds from the Company's December 1993 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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's liquidity included cash and cash
equivalents and short-term investments of $7.3 million compared to $8.0 million
at June 30, 1996. These consisted primarily of the funds received from the
recent exercise of warrants outstanding and the net proceeds of the Company's
December 1993 public offering. Royalty income receivable at September 30, 1996,
totaled approximately $1.0 million, which consisted principally of royalty
income received 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 September 30, 1996, the Company had working capital of $7.6 million.
Management anticipates that its current cash position, including the exercise of
remaining warrants and 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, until at least mid-1998. Based
upon the anticipated future financing requirements of the Company, management
expects that the Company may, from time to time, engage in additional financings
of a character and in amounts to be determined.
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward looking statements" within
the meaning of Section 27A of the Securities Act which represent the Company's
intentions, expectations or beliefs concerning future events, including, but not
limited to, statements regarding management's expectations with respect to FDA
approval of new products, technology and product development milestones, the
ability of the Company to leverage its product development and negotiate
favorable collaborative agreements, the commencement of sales and the
sufficiency of the Company's cash flow for the Company's future liquidity and
capital resource needs. These forward looking statements are qualified by
important factors that could cause actual results to differ materially from
those in the forward looking statements, including, without limitation, the
factors discussed in "Risk Factors." See "Risk Factors."
15
<PAGE> 17
BUSINESS
OVERVIEW
The Company is engaged in the research, development, manufacturing and
commercialization of nasally administered forms of prescription and
over-the-counter pharmaceuticals that are currently delivered in oral,
injectable or other dosage forms. The nasal delivery of certain pharmaceuticals
enables more rapid systemic absorption, lower required dosages, quicker onset of
desired effect, and painless, convenient patient self-administration, resulting
in improved patient compliance and pharmacoeconomics. The Company focuses its
research primarily on drugs with demonstrated safety and efficacy, which,
through current delivery forms, have certain bioavailability or patient
compliance limitations that may be improved with a novel delivery form.
The Company's first commercially available pharmaceutical is a prescription
pain reliever marketed as Stadol NS by BMS. Stadol NS is the only transnasal
analgesic therapy marketed for the treatment of moderate to severe pain and the
acute pain of migraine. Stadol NS provides significant advantages over the only
alternative delivery method for this drug, injection, including patient
self-administration, increased patient compliance, cost containment and the
additional indication of usage, migraine headache pain. Similarly, Nascobal, the
Company's nasal Vitamin B-12 product, provides both therapeutic and patient
benefits over injectable therapy for chronic Vitamin B-12 deficiency anemia.
Nascobal, which was independently developed by the Company, was cleared for
marketing by the FDA on November 5, 1996. In addition to these approved drugs,
the Company's pipeline includes nine drugs, five of which are being developed
under collaborative agreements with other pharmaceutical companies.
INDUSTRY OVERVIEW
The Company participates in the drug delivery industry, a subset of the
pharmaceutical industry. Conventional methods of drug delivery include oral
administration and injections. 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, new oral sustained and controlled release delivery
systems, oral mucosal administration, transdermal systems and pulmonary
administration. Among the principal reasons for the development of new methods
of drug delivery is the facilitation of 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 nasal delivery of certain drugs offers significant advantages over
other methods of delivery. These advantages include: (i) rapid systemic
absorption; (ii) lower required dosages, resulting in lower levels of
metabolites and less severe side effects; (iii) more rapid onset of desired
therapeutic effects and more desirable blood profiles; (iv) convenient
self-administration by patient; (v) improved patient compliance; and (vi)
improved pharmacoeconomics. The Company believes that due to these advantages of
nasal delivery, significant opportunities exist to address the limitations of
currently available delivery forms for certain drugs.
Although oral, injectable, patch and pulmonary dosage forms are accepted
for a variety of systemic pharmaceuticals, the Company believes that nasal
delivery may optimize the delivery of certain of these drugs. While the oral
route is the most popular and least expensive method of delivery, it exposes the
drug to liver and gastrointestinal metabolism which may diminish the activity of
a drug prior to its systemic distribution. Therefore, nasal delivery may allow
for administration of lower dosages to achieve the desired therapeutic effect.
In addition, some patients, particularly pediatric and geriatric patients, may
find this route inconvenient due to difficulty in swallowing tablets or
capsules. The oral route of delivery may also require the use of fluids or
measuring devices to allow the patient to self-administer messy liquids or
syrups.
Some pharmaceutical agents are delivered by injection to circumvent
significant liver or gastrointestinal metabolism following oral administration.
However, because of patient discomfort and the required assistance of a health
care professional, injection therapy is generally inconvenient and expensive,
often resulting in patient non-compliance.
16
<PAGE> 18
Like the injectable route, transdermal patches also bypass liver or
gastrointestinal metabolism but generally do not provide rapid systemic
absorption of a drug and may result in local irritation at the site following
prolonged application.
Pulmonary drug delivery is widely accepted for the administration of drugs
locally to the lung or to treat respiratory conditions such as bronchial asthma.
Although this route is being considered for the systemic delivery of
pharmaceuticals, including peptides and proteins, it requires the use of
delivery devices that may be expensive and require extensive patient education.
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. Due to managed care policies and increased
competition from manufacturers of generic drugs, drug companies are faced with
difficulties in raising prices and overall margin pressure. The Company's nasal
drug delivery technology provides traditional large pharmaceutical companies
with a novel delivery method that may improve and differentiate existing
pharmaceutical products, make new indications possible and provide proprietary
protection, thereby reducing competition from manufacturers of generic drugs. As
a result of these industry trends, the Company believes that large
pharmaceutical companies will increasingly seek to establish collaborative
agreements with drug delivery specialists.
BUSINESS STRATEGY
The Company's business strategy is to become a leading drug delivery
specialist by expanding the applications of nasal drug delivery in the
prescription and over-the-counter markets. The Company's strategy incorporates
the following principal elements:
Focus Initial Efforts on Approved Drugs. The Company has focused primarily
on drugs that have proven efficacy and safety, are approved for marketing and
which the Company believes could benefit from a nasal form of delivery. 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 focusing its research and development activities on drugs with demonstrated
safety and efficacy, and with an unaddressed market need, it may reduce the
technical and marketing risk of its projects by decreasing the time period
required to bring a new product to market and expanding the market for certain
drugs.
Internally Fund Development Through Later Stages. The Company believes
that internally funding development until later stages will allow the Company to
retain product rights and enable it (i) to negotiate more favorable
collaborative agreements or (ii) to manufacture and market its products
independently. Although historically focused on establishing early stage
alliances, the Company believes it is now able to leverage its product
development experience and broad product pipeline to pursue internally funded
development and commercialization projects, as appropriate. Therefore, the
Company intends to commit significant financial resources to research and
development with the goal of achieving greater economic benefit from product
sales.
Leverage Strategic Alliances. Where appropriate, the Company seeks to
establish domestic and international relationships with major pharmaceutical
companies for the marketing and distribution of certain of the Company's
products or technology. This approach allows 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. The Company
currently has collaborative agreements with BMS, RiboGene, Pfizer, DuPont Merck
and Ciba and will continue to pursue additional partners where appropriate.
Protect and Expand Intellectual Property. The Company has and will
continue to seek patent protection for its formulations and other technology in
the United States and key international markets. The Company is the exclusive
licensee of six U.S. patents and owns four additional U.S. patents, all covering
approximately 65 drugs. The Company has filed other U.S. patent applications, as
well as corresponding patent applications
17
<PAGE> 19
outside the United States, relating to the Company's technology. As specific
formulations are developed and clinically tested, the Company intends to file
for additional patent protections.
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 but may lack the capital or regulatory experience necessary to
succeed. The Company believes that large pharmaceutical companies may seek to
establish relationships with drug delivery companies that are able to offer
alternative, multiple or combination delivery methods and are organizationally
and financially stable. Therefore, the Company intends to augment its internal
growth through licensing technology and the acquisition of companies that
provide complementary technology, management and markets. The Company was
recently granted an exclusive license from DynaGen, Inc. ("DynaGen") to develop
a nasal formulation of Lobeline for smoking cessation. No specific acquisition
is currently contemplated.
PRODUCTS
The Company is engaged in the research and commercialization of nasally
administered forms of prescription and over-the-counter pharmaceuticals that are
currently delivered in oral, injectable or other dosage forms. The Company
currently holds or licenses patents covering approximately 65 pharmaceuticals.
The Company leverages its intellectual property and reduces the technical risk
of its projects by focusing its research efforts on the development of drugs
with demonstrated safety and efficacy. In order to address market needs, the
Company targets drugs whose current delivery methods present certain
bioavailability, patient compliance or cost limitations. Based on its research,
the Company believes that advantages of nasal delivery include ease of use,
rapid systemic absorption, lower side-effect profile, improved
cost-effectiveness, lower required dosage and more rapid onset of desired
effect.
The Company's current agreement with BMS provides for the sales and
marketing of its first product, Butorphanol Tartrate, a pain reliever marketed
as Stadol NS. The Company also recently has received marketing clearance from
the FDA for Nascobal, the Company's nasal gel for the treatment of chronic
Vitamin B-12 deficiency anemia. The following chart summarizes the Company's
current products and product pipeline:
NASTECH CURRENT PRODUCTS AND PIPELINE
<TABLE>
<CAPTION>
THERAPEUTIC TRADITIONAL
DRUG CATEGORY DELIVERY METHOD STATUS(1) PARTNER
- ----------------- ------------------------- ---------------- --------------------------- -------------
<S> <C> <C> <C> <C>
Stadol NS Narcotic Analgesic Injection Marketing(2) BMS
Nascobal Vitamin/Anti-Anemia Injection Cleared for Marketing
Metoclopramide Anti-Nausea/Anti-Emetic Injection/Oral Phase III(2) RiboGene
Doxylamine Sleep-Aid Oral Phase I Pfizer
Undisclosed Anti-Motion Sickness Oral Phase I
Propranolol Beta-Blocker/Migraine Injection/Oral Phase I(2) RiboGene
Buprenorphine Narcotic Analgesic Injection Pre-Clinical
Clemastine Antihistamine Oral Pre-Clinical
Chlorpheniramine Antihistamine Oral Pre-Clinical
Nalbuphine Narcotic Analgesic Injection Formulation Development(2) DuPont Merck
Nicotine Smoking Cessation Patch/Gum Formulation Development Ciba
</TABLE>
- ---------------
(1) See "-- Government Regulation" for a description of the different stages of
development.
(2) Marketing or development activities performed by collaborative partners.
18
<PAGE> 20
Approved and Marketable Products
STADOL NS (BUTORPHANOL TARTRATE) -- Narcotic analgesic for acute
pain. Stadol NS is the only transnasal analgesic therapy marketed for the
treatment of moderate to severe pain and the acute pain of migraine. Prior to
Stadol NS, the only acceptable and effective means of delivery for Butorphanol
Tartrate was the injectable form. Transnasal Butorphanol Tartrate offers
significant advantages over injectable formulations of the drug, including
patient self-administration, increased patient compliance, cost containment, and
the additional indication of usage. Because of these advantages, transnasal
Butorphanol Tartrate has enjoyed significant growth in market size since 1993,
as compared to the injectable formulation. Stadol NS is currently marketed by
BMS under an agreement that generates quarterly royalties to the Company.
NASCOBAL (CYANOCOBALAMIN, USP/VITAMIN B-12) -- For Vitamin B-12 deficiency
anemia. Nascobal is intended to replace inconvenient, painful and often
expensive monthly injections by a health care professional for the maintenance
treatment of chronic Vitamin B-12 deficiency anemia. Nascobal is intended to be
a more convenient, painless, self-administered weekly therapy, which the Company
believes may result in improved patient compliance. On November 5, 1996, the
Company received marketing clearance from the FDA for this product. The Company
independently developed Nascobal through FDA marketing clearance, and presently
intends to manufacture and market this product. Accordingly, the Company intends
to retain product rights, thereby receiving greater economic benefit from
product sales.
Products Under Development
All of the pharmaceutical products currently being considered by the
Company for nasal delivery are commercially available and have received 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.
The Company's development efforts focus primarily on chemical compounds
protected by the Company's patents. In selecting compounds to target, the
Company considers drugs which may benefit significantly from the advantages of
transnasal delivery. The Company also targets pharmaceuticals which may benefit
in the form of increased market size as a result of the switch to a transnasal
formulation.
The Company has four active Notices of Claimed Investigational Exemption
for a New Drug ("INDs") for products in the Company's product pipeline of
nasally delivered pharmaceutical agents: Meclizine (anti-nausea/anti-emetic);
Metoclopramide (anti-nausea/anti-emetic); 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.
Products currently under development are as follows:
METOCLOPRAMIDE HCL -- Anti-nausea/anti-emetic. Metoclopramide HCl is an
anti-nausea/anti-emetic agent indicated for the treatment of nausea and vomiting
due to emetogenic cancer chemotherapy. In its oral and injectable dosage forms,
it is commonly known as Reglan(R) which is marketed by Whitehall-Robbins
Company. The Company believes that a self-administered nasal dosage form will
provide a patient friendly alternative to injections, which are inconvenient and
painful, and to oral doses, which are often difficult to swallow when nauseous.
RiboGene has conducted Phase III clinical trials under an agreement that
provides for certain minimum royalties to the Company beginning in 1998, in
addition to royalties based on net sales if and when Metoclopramide HCl is
cleared for marketing.
DOXYLAMINE SUCCINATE -- Sleep-aid. 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. The Company believes that a nasal
dosage form will provide rapid systemic absorption, may minimize side effects
including morning drowsiness and will be convenient for the consumer to
administer. 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. The Company recently entered into an agreement with Pfizer
to continue research and development activities with respect to Doxylamine
Succinate.
19
<PAGE> 21
ANTI-MOTION SICKNESS COMPOUNDS -- Anti-motion sickness. Various nasal
antihistaminic and non-antihistaminic compounds are being evaluated by the
Company for the prevention of motion sickness. The Company is conducting
formulation and pre-clinical work necessary to file the required INDs allowing
for the screening of selected compounds in clinical trials. An IND has been
filed for one of the compounds, Meclizine HCl, for which Phase I clinical trials
have been conducted. The Company believes that the anti-motion sickness market
is underserved by existing pharmaceutical agents which often require patients to
pre-dose or intake oral medication after the condition manifests itself. The
most common route, oral dosage, does not provide rapid absorption and is often
difficult for a patient to administer due to nausea.
PROPRANOLOL HCL -- Beta-blocker/migraine. Propranolol HCl is a
non-selective beta-blocker indicated for the treatment of hypertension, angina
pectoris, cardiac arrhythmias, myocardial infarction and prophylaxis of migraine
headache. In its oral and injectable dosage forms, it is marketed as Inderal(R)
by Wyeth-Ayerst Laboratories. The Company believes that a nasal dosage form
would be rapid acting, effective and convenient to use and carry for
self-administration. RiboGene has conducted Phase I clinical trials under an
agreement that provides for royalties based on net sales if and when Propranolol
HCl is cleared for marketing, in addition to the payment of all patent
maintenance and other fees.
BUPRENORPHINE HCL -- Narcotic analgesic. Buprenorphine HCl is a narcotic
agonist-antagonist analgesic indicated for the relief of moderate to severe
pain. In its injectable dosage form, it is commonly known as Buprenex(R), which
is marketed by Reckitt & Colman Pharmaceutical, Inc. The only method currently
approved by the FDA for administering Buprenorphine HCl is by injection. The
Company believes that a nasal dosage form will allow for patient-friendly
self-administration and will provide a rapid systemic absorption of the drug for
quick pain relief. 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.
CLEMASTINE FUMARATE -- Antihistamine. 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
Pharmaceuticals Corporation ("Sandoz"). The Company believes that a nasal dosage
form will provide rapid systemic absorption as well as local effect for the
relief of symptoms. 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. In March 1996, the Company began a feasibility study under an agreement
with Sandoz, which was terminated in November 1996. The Company intends to
continue to develop this product independently and to pursue discussions with
strategic marketing partners at a later stage.
CHLORPHENIRAMINE MALEATE -- Antihistamine. 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 Corp.
The Company believes that a nasal dosage form will provide rapid systemic
absorption as well as local effect for the relief of symptoms. 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
reproduced in Phase I clinical trials.
NALBUPHINE HCL -- Narcotic analgesic. Nalbuphine HCl is a narcotic
agonist-antagonist analgesic agent indicated for the treatment of moderate to
severe pain. Nalbuphine HCl can also be used as a supplement to balanced
anesthesia, for preoperative and postoperative analgesia, and for obstetrical
analgesia during labor and delivery. The only method currently approved by the
FDA for administering Nalbuphine HCl is by injection, and is currently marketed
as Nubain(R) by DuPont Merck. The Company believes that a nasal dosage form will
allow for patient-friendly self-administration and will provide a rapid systemic
absorption of the drug. Under a sublicense agreement with the Company, DuPont
Merck is currently conducting formulation development work in preparation for
preclinical and clinical testing.
20
<PAGE> 22
NICOTINE -- Smoking cessation. 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 marketed by a number of pharmaceutical
companies including Ciba. Under an agreement with Ciba 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.
STRATEGIC ALLIANCES
The Company's product development strategy had been to focus its attention
and resources in a manner that minimized the risk, time and cost typically
associated with the early stages of commercializing a family of pharmaceuticals.
As the Company has matured in its regulatory experience and as additional
financial resources have been obtained, it has conducted more of the research
and development process internally and independently. The Company intends to
continue this internal development, and accordingly retain product rights until
later stages of the development process. The Company believes that such a
strategy may increase the value of future collaborative agreements and provide
the Company with the option of conducting sales or marketing efforts where
appropriate.
The Company may 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 condition that
can be treated with one of the Company's products. Because the Company has
limited experience in marketing, distributing or selling pharmaceutical
products, it will have to develop adequate sales and marketing capabilities.
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 Company's current collaborative arrangements generally 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.
The Company's current strategic alliances are as follows:
BRISTOL-MYERS SQUIBB COMPANY -- On January 1, 1986, the Company sublicensed
to BMS its development and commercial exploitation rights with respect to its
licensed patent rights for the nasal delivery of Butorphanol Tartrate, in
exchange for which BMS agreed to pay the Company a royalty based on the net
sales of such product pursuant to the BMS Agreement. The Company must pay a
percentage of these royalties to UKRF under the Company's separate license
agreement with UKRF. 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 Tartrate. The nasal
Butorphanol Tartrate 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 clearance to BMS for this product and quarterly royalty payments to
the Company by BMS are continuing.
CIBA SELF-MEDICATION, INC. -- In August 1996, the Company entered into an
agreement with Ciba to develop a nicotine nasal dosage form to assist with
smoking cessation. Ciba markets the Habitrol(TM) transdermal patch. Under the
terms of such agreement, the Company is to perform formulation and related
preclinical research and development up to and including the filing of an IND.
Upon the successful achievement of certain specified milestones, the Company and
Ciba have agreed to negotiate definitive development, manufacturing and
marketing agreements.
THE DUPONT MERCK PHARMACEUTICAL COMPANY -- On June 30, 1994, the Company
exclusively sublicensed to DuPont Merck its development and commercial
exploitation rights with respect to its licensed patent rights for the nasal
delivery of Nalbuphine HCl, in exchange for which DuPont Merck agreed to pay
21
<PAGE> 23
the Company a royalty based on the net sales of such product (the "DuPont Merck
Agreement"). The Company must pay a percentage of these royalties to UKRF under
the Company's separate licensing agreement with UKRF. Nalbuphine HCl 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 HCl in those countries. The nasal Nalbuphine HCl patent expires in
the year 2001 in Canada, subject to any right of extension or renewal. The
Mexican patent for nasal Nalbuphine HCl is currently pending. The DuPont Merck
Agreement may be terminated by DuPont Merck at any time upon 60 days written
notice to the Company.
PFIZER INC. -- On December 30, 1996, the Company entered into an Evaluation
and Option Agreement with Pfizer to conduct a drug delivery feasibility study
with respect to Doxylamine Succinate, one of the Company's nasally delivered
sedating antihistamines (the "Doxylamine Agreement"). In its traditional oral
dosage form, Doxylamine Succinate is currently marketed by Pfizer as Unisom(R).
Pursuant to the Doxylamine Agreement, the Company is to design, undertake and
complete a clinical research program for the nasally delivered product. The
Company will receive certain development milestone payments and has granted
Pfizer an option for an exclusive license for the manufacture and marketing of
the product for a specified evaluation period. In the event an NDA is filed and
Pfizer exercises such option, the parties have agreed to the form of a
definitive licensing agreement.
RIBOGENE, INC. -- (as successor in interest to Rugby Laboratories Co.,
Inc., and Darby Pharmaceuticals, Inc.) -- On June 26, 1987, the Company entered
into a license agreement wherein RiboGene, as successor in interest, is the
Company's sole and exclusive worldwide licensee for the manufacture,
distribution and marketing of the nasal dosage form of Propranolol HCl for the
life of the Company's U.S. patent covering the nasal route of administration for
that drug (the "Propranolol Agreement"). If and when nasal Propranolol HCl is
approved for marketing and commercialized, the Company will receive royalties
based upon net sales of the product. The Company must pay a percentage of these
royalties to UKRF under the Company's separate license agreement with UKRF. In
addition, RiboGene is obligated to pay all patent maintenance fees with respect
to Propranolol HCl and pay certain other fees thereunder. RiboGene can terminate
the Propranolol Agreement at any time.
In March 1990, the Company entered into an agreement whereby RiboGene, as
successor in interest, purchased the Company's Metoclopramide HCl patent and
certain proprietary research information related thereto (the "Metoclopramide
Agreement"). The Metoclopramide Agreement provides for certain royalties and
other fees to the Company if and when nasal Metoclopramide HCl is approved for
marketing and commercialized. RiboGene has a sublicense for nasal Metoclopramide
HCl with Crinos Industria Farmacobiologica SpA in Italy and Prodes in Spain.
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 HCl and Metoclopramide
HCl 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.
PATENTS AND PROPRIETARY RIGHTS
The Company pursues a strong policy of obtaining patent protection in both
the United States and selected foreign jurisdictions. The Company has been
granted five U.S. patents and has two pending U.S. patent applications. One
patent has been assigned to RiboGene for Metoclopramide HCl and another covering
Propranolol HCl has been exclusively licensed to RiboGene. The primary
technology protected by the Company's patent and proprietary rights relates to
the nasal administration of various compositions and compounds. Both the
compositions and compounds and the method of nasal administration of such
compositions and compounds are protected. Approximately 65 compositions and
compounds are covered by U.S. patents and corresponding foreign patents and
applications held by or licensed to the Company. Thirteen additional
compositions are disclosed in pending U.S. patent applications.
22
<PAGE> 24
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 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 the UKRF Agreement with UKRF and
Dr. Anwar Hussain, pursuant to which the Company obtained an exclusive worldwide
(except for the Middle East region) license for the development and commercial
exploitation of certain patents, patent applications and related know-how
(collectively the "UKRF Information") pertaining to the nasal delivery of the
following drugs:
Narcotic Antagonists and Analgesics: naloxone, naltrexone,
diprenorphine, nalmexone, cyprenorphine, alazocine, oxilorphan,
cyclorphan, morphine, metopon, desomorphine, dihydromorphine,
hydromorphone, 3-hydroxy-N-methylmorphinan,
levophenacylmorphan, metazocine, norlevorphanol, phenomorphan,
levorphanol, oxymorphone, buprenorphine, butorphanol,
cyclazocine, phenazocine, pentazocine, nalorphine,
levallorphan, nalbuphine.
Beta Blockers: propranolol.
Natural Female Sex Hormones: 17 beta-estradiol and progesterone.
The UKRF Agreement will terminate upon the expiration date of the latest patent
included in the UKRF Information. UKRF's U.S. 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 6% of aggregate net sales. Minimum
royalties are payable commencing one year after FDA approval of a New Drug
Application ("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 50% 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.
On December 30, 1996, the Company entered into a Development and License
Agreement with DynaGen whereby the Company acquired an exclusive worldwide
license for the development, manufacture, distribution or use of Lobeline via
the nasal membrane for the treatment of nicotine addiction (the "Lobeline
License"). The Lobeline License is subject to the satisfactory completion of
certain milestones set forth in a development program.
At present, in addition to the patented drugs licensed from the UKRF and
DynaGen, the Company owns four issued U.S. 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 or to the use of such compositions for nasal delivery.
The Company pursues a general policy of obtaining patent protection in both
the U.S. and selected foreign jurisdictions for patentable subject matter. In
1986 and 1988, U.S. 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.
23
<PAGE> 25
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: cyanocobalamin/vitamin B-12 (Nascobal).
Stimulant: caffeine.
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 companies are generally 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 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. The
Company intends to manufacture its Nascobal product at its current facilities.
See "Risk Factors -- Limited Manufacturing, Marketing and Sales Capability."
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
24
<PAGE> 26
United States and by comparable regulations in foreign countries. The process of
completing clinical testing and obtaining FDA approval for a new drug product
requires a number of years and the expenditure of substantial resources.
Following initial formulation, the steps required before any new
pharmaceutical product may be marketed in the United States include (i)
preclinical laboratory and animal tests, (ii) the submission to the FDA of an
IND application, (iii) adequate and well-controlled clinical trials to establish
the safety and efficacy of the drug, (iv) the submission of an NDA to the FDA,
and (v) FDA approval of the NDA prior to any commercial sale or shipment of the
drug.
Typically, preclinical studies are conducted in the laboratory and in
animal model systems to gain preliminary information on the drug's
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 drug's
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, various state and
federal environmental protection laws, 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.
25
<PAGE> 27
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. The
Company believes that Congress may continue to consider health care reform
proposals which, if enacted, would significantly affect health care,
pharmaceutical and drug delivery companies, among others. Potential changes
could put pressure on the prices of prescription pharmaceutical products. Health
care reform may adversely affect the Company's business, particularly to the
extent that the Company develops products for prescription drug applications.
The Company is unable to predict, however, when any proposed health care reforms
will be implemented, if ever, or the effect of any implemented reforms on the
Company's business or prospects. See "Risk Factors -- Uncertainty of Health Care
Reimbursement."
COMPETITION
The Company is engaged in the pharmaceutical, drug delivery systems
industry which is characterized by extensive research efforts, rapid
technological progress and intense competition. Competitors of the Company in
the United States and abroad are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions. At the present time, the Company does not know of another
pharmaceutical company engaging exclusively in the development of drugs intended
for nasal administration, but other pharmaceutical companies which are larger
than the Company are known to be engaged in researching non-exclusively some
nasally administered pharmaceuticals, and may be expected to enter this field if
the nasal route ever becomes the method of choice for the administration of
certain classes of drugs.
Further, there can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than the
nasal technology being developed by the Company or which would render the
Company's technology and products obsolete or noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. Many of the Company's
competitors have greater experience than the Company in conducting preclinical
testing and clinical trials of pharmaceutical products and obtaining FDA and
other regulatory approvals. Accordingly, the Company's competitors may succeed
in obtaining FDA approval for products more rapidly than the Company. If the
Company commences commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in
which it has limited or no experience.
The Company believes that direct competition with its patented nasal
delivery products may be difficult because of the Company's patent position.
However, the Company's products must also compete with other modalities of drug
delivery and administration including, but not limited to, such promising
technologies and methods as controlled release, target organ or site release,
pumps, polymers, microemulsion, monoclonal antibodies, inhalation, ocular,
liposomal, implants, transdermal passive and transdermal electrotransport. Other
products using these or other delivery alternatives may be developed that will
be as or more effective than the Company's products and proposed products. There
can be no assurance that the Company will be able to compete effectively with
other commercially available products or that development of other technologies
or methods of drug delivery will not detrimentally affect the Company's
commercial opportunities. See "Risk Factors -- Intense Competition."
26
<PAGE> 28
EMPLOYEES
At December 1, 1996, the Company had 17 full-time employees, of whom 12
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 Research.
The balance of the Company's employees are engaged in administration and support
functions.
None of the Company's employees are covered by a collective bargaining
agreement or are represented by a labor union. The Company considers its
relationship with its employees to be satisfactory.
The development, manufacture and marketing of the Company's products
requires substantial scientific and technical capabilities in several disparate
disciplines, including but not limited to biochemistry, analytical chemistry,
pharmacology, therapeutics, toxicology, pharmacy and statistics. While the
Company believes that the capability and experience of its technical employees
compares favorably with the industry as a whole, there can be no assurance that
it can retain existing employees or attract and hire the highly capable
technical and scientific employees it may need in the future on terms deemed
favorable to the Company, if at all. See "Risk Factors -- Dependence Upon Key
Personnel and Attraction of Qualified Personnel."
PROPERTIES AND FACILITIES
The Company leases approximately 10,000 square feet at 45 Davids Drive,
Hauppauge, New York for its laboratory, manufacturing facility as well as its
corporate and administrative offices. The lease provides for minimum annual rent
of approximately $82,000 and expires in May 2000 with the Company having an
option to renew for an additional five-year term at increased annual rental
rates. The Company is also responsible for all utilities, maintenance, security
and property tax increases. The Company believes this facility is suitable for
its operations for the initial term of the lease, however, it will require
leasehold improvements in order to enable the Company to engage in full-scale
manufacturing of its Nascobal product.
LEGAL PROCEEDINGS
The Company knows of no litigation or proceeding, pending or threatened, to
which the Company is or may become a party.
27
<PAGE> 29
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and senior employees of the Company are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Devin N. Wenig................................ 30 Chairman
Dr. Vincent D. Romeo.......................... 40 President and Chief Executive Officer
Dr. Charan R. Behl............................ 45 Vice President of Research and Development
Andrew P. Zinzi............................... 49 Chief Financial Officer
John Marinaro................................. 48 Director of Clinical Research
Dr. John Wei Xia.............................. 40 Senior Research Scientist
Joel Girsky................................... 57 Director, Secretary, Treasurer
Grant W. Denison, Jr.......................... 47 Director
Dr. Ian R. Ferrier............................ 53 Director
Alvin Katz.................................... 67 Director
John V. Pollock............................... 58 Director
</TABLE>
Devin N. Wenig. Mr. Wenig was appointed Chairman of the Company's Board of
Directors in June 1991. From March 1991 to March 1994, Mr. Wenig was a mergers
and acquisitions attorney with the New York law firm of Cravath, Swaine and
Moore. From March 1994 to the present, Mr. Wenig has served as corporate counsel
to Reuters America Holdings Inc., and serves as a director of several
subsidiaries of Reuters. Mr. Wenig received a B.A. degree from Union College and
a J.D. degree from the Columbia University School of Law.
Dr. Vincent D. Romeo. 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 in
the State of New York 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. He has authored and co-authored several published articles
in the field of drug delivery. Dr. Romeo has also presented his work at various
meetings and conferences sponsored by the American Association of Pharmaceutical
Scientists ("AAPS") and the American College of Clinical Pharmacology. Dr. Romeo
is an active member of the AAPS, the American College of Clinical Pharmacology,
the Rho Chi Pharmaceutical Society, and the New York Academy of Sciences. He is
currently co-chairing the Nasal Drug Delivery Focus Group of the AAPS. Dr. Romeo
has also been appointed as an Adjunct Assistant Professor of Pharmaceutics at
The University of Rhode Island, College of Pharmacy.
Dr. Charan R. Behl. Dr. Behl has been employed by 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, for approximately 14 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. Dr. Behl has authored or coauthored over 100 articles
and major meeting abstracts including many book chapters. Working closely with
his colleagues at the FDA, academia, National Institute of Health 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 the Nasal Drug Delivery Focus Group of the AAPS. Dr.
Behl is an active member of the American Pharmaceutical Association, AAPS and
Controlled Release Society, and is a Fellow of the AAPS.
Andrew P. Zinzi. Mr. Zinzi has been employed by the Company since November
1996 as the Company's Chief Financial Officer. From February 1992 to November
1996, Mr. Zinzi was employed by IVAX Corporation ("IVAX"), a pharmaceutical
company, most recently as Vice President-Finance and
28
<PAGE> 30
Treasurer. From March 1985 to February 1992, Mr. Zinzi held various management
positions in finance and operations with Goldline Laboratories and Bioline
Laboratories, distributors of generic pharmaceutical products, which were
subsequently acquired by IVAX in December 1991. Mr. Zinzi is a CPA, member of
the AICPA and earned a Master of Business Administration degree from New York
University.
John Marinaro. Mr. Marinaro, who joined the Company as Director of
Clinical Research in June 1996, has extensive experience in the clinical
development of drugs for the treatment of cancer, AIDS, nausea/ vomiting,
anxiety and Alzheimer's disease. From 1995 until joining the Company, he was a
self-employed consultant. From 1993 to 1995, Mr. Marinaro, directed the ovarian
cancer clinical program of Anthra Pharmaceuticals. From 1973 to 1993, Mr.
Marinaro was employed in several capacities by BMS, including Project Leader for
Paraplatin(R) and Taxol(R), the two definitive drugs for the treatment of
ovarian cancer. In that position, 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.
Dr. John Wei Xia. Dr. 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, respectively. 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. Dr. Xia is an active member
of the AAPS and Control Release Society.
Joel Girsky. Mr. Girsky has been a Director of the Company since October
1983, and the Company's Secretary and 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.
Grant W. Denison, Jr. Mr. Denison, who was appointed to the Company's
Board of Directors in September 1996, was President, Worldwide Consumer Products
of G.D. Searle & Co. ("Searle") and served in such capacity from 1993 to 1995.
Mr. Denison has also served as Corporate Vice President, Strategic Planning for
Searle's parent company Monsanto Company from 1989 to 1993. In addition, Mr.
Denison also served as President of Searle's U.S. Pharmaceutical Operations from
1987 to 1989. Prior to joining Searle, Mr. Denison was Vice President of
International Operations for Squibb Medical Systems and also held a number of
senior management positions at Pfizer, Inc. Mr. Denison is a member of the board
of directors of Genetronics Inc., a subsidiary of Genetronics Biomedical Ltd. He
has served as national chairman of the President's Council for the American Lung
Association. Mr. Denison holds a Master of Business Administration degree from
Harvard Business School and received a Bachelor's Degree from Colgate
University.
Dr. Ian R. Ferrier. 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 world's 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.
Alvin Katz. Mr. Katz was appointed to the Board of Directors of the
Company in September 1993. Since 1981, he has served as an adjunct professor of
business management at Florida Atlantic University. In
29
<PAGE> 31
1991, Mr. Katz was appointed Chief Executive Officer of Odessa Engineering
Corp., a company engaged in the manufacturing of pollution monitoring equipment.
He held this position until that company was sold in September 1992. Mr. Katz
also serves on the Board of Directors of Amtech Systems Inc. which is engaged in
the manufacture of capital equipment in the computer chip manufacturing
business; BCT International, Inc., a franchisor of thermo graphic printing
plants; Micron Instruments Inc., a manufacturer of infrared temperature
measuring instruments; Ozo Diversified Inc., a manufacturer of depaneling
equipment for the computer chip manufacturing industry; and Blimpie
International, Inc., which is engaged in fast food franchising. 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.
John V. Pollock. 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.
COMMITTEES OF THE BOARD
The Company's Board of Directors has established a Compensation Committee
which is comprised of Dr. Ian R. Ferrier, 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 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 auditors the financial controls and
practices of the Company and the plans for and results of the audit engagement.
30
<PAGE> 32
PRINCIPAL STOCKHOLDERS
Set forth below is information concerning the Common Stock ownership on
December 1, 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
named executive officer, and (iii) all directors and named executive officer of
the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(3)
AMOUNT AND NATURE OF -----------------------------------
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) PRIOR TO OFFERING AFTER OFFERING
- ----------------------------------------------- ----------------------- ----------------- --------------
<S> <C> <C> <C>
Devin N. Wenig(4).............................. 383,066 8.1% 6.4%
Basil Properties(5)(8)......................... 283,537 6.0 4.8
Alvin Katz(6).................................. 127,000 2.7 2.1
Vincent D. Romeo(7)............................ 93,845 2.0 1.6
Ian Ferrier(9)................................. 50,000 1.1 *
Joel Girsky(6)................................. 28,749 * *
John V. Pollock(6)(8).......................... 28,333 * *
Grant W. Denison, Jr.(10)...................... 25,000 * *
All Directors and Named Executive Officer as a
Group (7 persons)(11)........................ 1,019,530 20.6% 16.6%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock.
(1) The address of all persons other than Basil Properties, Messrs. Alvin Katz
and John V. Pollock is c/o the Company. 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 253,333 shares issuable pursuant to outstanding stock options with
the Company.
(3) Does not give effect to (i) 270,000 shares issuable upon exercise of
warrants that expire on December 6, 1998 and (ii) 336,668 shares of Common
Stock reserved for issuance under the Company's Stock Option Plan.
(4) Devin N. Wenig's shares, as indicated above, include 35,000 shares issuable
pursuant to outstanding stock options with the Company, which may be
exercised within 60 days of the date of this table, 166 shares held by Mr.
Wenig's wife and 6,666 shares held in a trust for which Carol Wenig, his
mother, serves as the trustee.
(5) Includes 40,000 shares held by Mrs. Sophie Basil, a general partner of
Basil Properties.
(6) Includes 20,000 shares issuable pursuant to outstanding stock options with
the Company, which may be exercised within 60 days of the date of this
table.
(7) Includes 83,333 shares issuable pursuant to outstanding stock options with
the Company, which may be exercised within 60 days of the date of this
table.
(8) John V. Pollock is a managing director of Basil Properties.
(9) Includes 50,000 shares issuable pursuant to outstanding stock options with
the Company, which may be exercised within 60 days of the date of this
table.
(10) 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
table.
(11) Includes shares held by Basil Properties. See notes (5) and (8) above.
31
<PAGE> 33
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company presently consists of
25,000,000 shares of Common Stock, par value $0.006 and 100,000 shares of
Preferred Stock, par value $0.01. As of September 30, 1996 there were 3,868,005
shares of Common Stock outstanding, and no shares of preferred stock
outstanding. As of September 30, 1996, there were approximately 17,000 holders
of the Company's capital stock.
COMMON STOCK
All the issued and outstanding shares of Common Stock are validly issued,
fully paid and non-assessable.
Voting Rights
Each outstanding share of Common Stock has one vote on all matters
requiring a vote of the shareholders. There is no right to cumulative voting;
thus, the holders of fifty percent or more of the shares outstanding can, if
they choose to do so, elect all of the directors of the Company.
Liquidation Rights
In the event of a voluntary or involuntary liquidation of the Company, all
shareholders are entitled to a pro rata distribution after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock.
Preemptive Rights
The holders of the Common Stock have no preemptive rights with respect to
the Company's offerings of shares of its Common Stock.
Dividend Rights
Holders of Common Stock are entitled to dividends if, as and when declared
by the Board of Directors out of the funds legally available therefor. It is the
present intention of the Company to retain earnings, if any, for use in its
business. Dividends are, therefore, unlikely in the foreseeable future.
Transfer Agent
The Transfer Agent for the Common Stock of the Company is the American
Stock Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
Warrants
In connection with its 1993 public offering, the Company issued to the
representatives of the underwriters in such offering, warrants to purchase
135,000 shares of Common Stock at an exercise price of $4.13 per share and
warrants to purchase 135,000 shares of Common Stock at an exercise price of
$5.50 per share, exercisable at any time through December 6, 1998. All of these
warrants are currently outstanding.
PREFERRED STOCK
Pursuant to its Certificate of Incorporation, the Company's Board of
Directors is authorized to issue, without any action on the part of its
stockholders, an aggregate of 100,000 shares of preferred stock. The Board of
Directors has authority to divide the preferred stock into one or more series
and has broad authority to fix and determine the relative rights and
preferences, including the voting rights of the shares of each series.
Such preferred stock could also be used to delay, defer or prevent a change
in control of the Company or be used to resist takeover offers opposed by
management. Under certain circumstances, the Board of Directors
32
<PAGE> 34
could create impediments to or frustrate persons seeking to effect a takeover or
otherwise gain control of the Company by causing shares of preferred stock with
voting or conversion rights to be issued to a holder or holders who might side
with the Board of Directors in opposing a takeover bid that the Board of
Directors determines to be not in the best interest of the Company and its
stockholders. In addition, the Company's ability to issue such shares of
preferred stock with voting or conversion rights could dilute the stock
ownership of such person or entity.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law") generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not to be governed by the Delaware
anti-takeover law (the Company has not made such an election) (ii) prior to such
date the Board of Directors of the corporation approved either the business
combination or the transaction in which the person became an interested
stockholder, (iii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation excluding shares
owned by directors who are also officers of the corporation and by certain
employee stock plans, (iv) on or after such date the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote of at least 2/3% of the outstanding voting stock of the corporation that is
not owned by the interested stockholder, or (v) the majority of the
corporation's stockholders adopt an amendment to the corporation's certificate
of incorporation electing not to be governed by the Delaware anti-takeover law,
such amendment not being effective for 12 months following its adoption and not
applicable to any business combination between the corporation and a stockholder
who became an interested stockholder after its adoption. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his affiliates and associates, has owned 15% or
more of the corporation's voting stock within three years.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
5,906,250 shares of Common Stock, assuming (i) no exercise of 459,299 options
outstanding as of the date of this Prospectus and (ii) no exercise of
outstanding warrants to acquire 270,000 shares of Common Stock expiring December
6, 1998. On the date of this Prospectus, 4,921,401 shares of Common Stock,
including the 1,200,000 shares offered hereby, will be immediately available for
sale without restriction in the public market and 984,859 shares are "restricted
securities" as that term is defined by Rule 144 and are now eligible to be sold
in compliance with Rule 144. Ordinarily, under Rule 144 a person holding
restricted stock for a period of two years may, every three months, sell in
brokerage transactions an amount equal to the greater of 1% of the Company's
outstanding Common Stock, or, if the Common Stock is quoted on Nasdaq, the
average weekly volume of trading in the Common Stock reported for the preceding
four weeks. After the expiration of three years, stock held by persons not
affiliated with the Company will not be subject to the above limitations.
The availability of shares for sale or actual sales under Rule 144 may have
an adverse effect on the market price of the Common Stock. Sales under Rule 144
also could impair the Company's ability to market additional equity securities.
The Company, each of the Company's directors and officers and certain holders of
the Company's outstanding securities, who hold in the aggregate approximately
20.6% of the outstanding shares of Common Stock prior to this offering, have
agreed not to offer, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock or securities convertible into or exchangeable for, or any
rights to purchase or exchange, respectively, Common Stock for a period of 180
days from the date of this Prospectus without the prior written consent of
Volpe, Welty & Company, except for shares disposed of as bona fide gifts or the
grant or exercise of options pursuant to the Company's Stock Option Plan or the
exercise of outstanding warrants.
33
<PAGE> 35
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Volpe, Welty & Company
and Wheat, First Securities, Inc. are acting as representatives (together, the
"Representatives"), has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------- ----------
<S> <C>
Volpe, Welty & Company...................................................
Wheat, First Securities, Inc. ...........................................
----------
Total............................................................... 1,200,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates and opinions from the Company and its counsel. The nature
of the Underwriters' obligation is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession of not in excess of $ per share, of which $ may be
reallocated to other dealers. After the offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an option for 30 days after the
date of this Prospectus to purchase, at the offering price, less the
underwriting discounts and commissions as set forth on the cover page of this
Prospectus, up to 180,000 additional shares of Common Stock at the same price
per share as the Company receives for the 1,200,000 shares of Common Stock
offered hereby, solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the foregoing table, bears to the 1,200,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
the over-allotments in connection with the sale of the 1,200,000 shares of
Common Stock offered hereby.
The Company has agreed to issue to the Representatives warrants to purchase
in the aggregate up to 69,000 shares of Common Stock (the "Representatives'
Warrants") at an exercise price per share equal to 120% of the public offering
price per share for the shares of Common Stock offered hereby. The
Representatives' Warrants are exercisable for a period of four years commencing
one year from the date of this Prospectus. The holders of the Representatives'
Warrants will have no voting, dividend or other stockholder rights until the
Representatives' Warrants are exercised. The Company has granted the
Representatives certain registration rights related to the Representatives'
Warrants.
34
<PAGE> 36
The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The Underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
The Company, each of the Company's directors and officers, and certain
holders of the Company's outstanding securities, have agreed not to offer, sell,
contract to sell or otherwise dispose of Common Stock or securities convertible
into or exchangeable for, or any rights to purchase or acquire, shares of Common
Stock for a period of 180 days following the date of this Prospectus, without
the prior written consent of Volpe, Welty & Company, except for shares disposed
of as bona fide gifts or the grant or exercise of options pursuant to the
Company's Stock Option Plan or the exercise of outstanding warrants. Volpe,
Welty & Company, in its discretion, may waive the foregoing restrictions in
whole or in part, with or without a public announcement of such action.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Common Stock during the "cooling off" period immediately
preceding the commencement of sales in the offering. The Commission has,
however, adopted exemptions from these rules that permit passive market making
under certain conditions. These rules permit an underwriter to continue to make
a market subject to the conditions, among others, that its bid not exceed the
highest bid by a market maker not connected with the offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to these
exemptions, certain Underwriters, selling group members (if any) or their
respective affiliates may engage in passive market making in the Company's
Common Stock during the cooling off period.
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with this offering, including
liabilities under the Securities Act, or to contribute payments that the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bruce R. Thaw, Esquire, Farmingdale, New York. Certain
legal matters will be passed upon for the Underwriters by Hunton & Williams,
Richmond, Virginia. Mr. Thaw was formerly a director of the Company and owns
78,041 shares and has options to acquire 50,000 shares of the Common Stock of
the Company.
EXPERTS
The financial statements of the Company as of June 30, 1995 and 1996 and
for each of the three years in the period ended June 30, 1996, included in this
Prospectus have been audited by Robbins, Greene, Horowitz, Lester & Co., LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the Registration Statement, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
On January 2, 1997, the appointment of Robbins, Greene, Horowitz, Lester &
Co., LLP as independent auditors for the Company was terminated by the Company
and KPMG Peat Marwick LLP was engaged as independent auditors. The decision to
change independent auditors was approved by the Audit Committee and Board of
Directors of the Company. During the fiscal years ended June 30, 1995 and 1996,
and the subsequent interim period through January 2, 1997, there were no
disagreements between the Company and Robbins, Greene, Horowitz, Lester & Co.,
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which disagreements if not resolved
to the satisfaction of Robbins, Greene, Horowitz, Lester & Co., LLP would have
caused them to make reference to the subject matter of the disagreement in
connection with their report. The audit reports of Robbins, Greene, Horowitz,
Lester & Co., LLP on the Company's financial statements as of and for the years
ended June 30, 1995 and 1996 did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.
35
<PAGE> 37
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-2 under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules filed as part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and, in each such
instance, reference is hereby made to the copy of the contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by this reference thereto.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the SEC. The Registration Statement and exhibits and schedules thereto, as well
as such reports, proxy statements and other information, may be inspected and
copied at the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 75
Park Place, New York, New York 10007. Copies of all or any part of such
materials may be obtained from any such office upon payment of the fees
prescribed by the SEC. Copies of such material may be obtained at prescribed
rates by mail from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of each document may also be obtained
through the SEC's Internet address at http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the SEC by the Company and are
hereby incorporated by reference into this Prospectus: (i) the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1996 (File No. 0-13789) and
(ii) the Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 1996.
Any statement contained in a document incorporated or deemed incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document that is also deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any document incorporated herein by reference (not including exhibits to
documents that have been incorporated herein by reference unless such exhibits
are specifically incorporated by reference in the document which this Prospectus
incorporates). Requests should be directed to Dr. Vincent D. Romeo, Nastech
Pharmaceutical Company Inc., 45 Davids Drive, Hauppauge, New York 11788,
telephone: (516) 273-0101.
36
<PAGE> 38
NASTECH PHARMACEUTICAL COMPANY INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheet at June 30, 1995 and 1996 and September 30, 1996 (unaudited)............ F-3
Statement of Operations for the years ended June 30, 1994, 1995 and 1996 and
for the three months ended September 30, 1995 and 1996 (unaudited).................. F-4
Statement of Stockholders' Equity for the years ended June 30, 1994, 1995 and 1996 and
for the three months ended September 30, 1996 (unaudited)........................... F-5
Statement of Cash Flows for the years ended June 30, 1994, 1995 and 1996 and
for the three months ended September 30, 1995 and 1996 (unaudited).................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors
Nastech Pharmaceutical Company Inc.
We have audited the accompanying balance sheet of Nastech Pharmaceutical
Company Inc. as of June 30, 1995 and 1996 and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based 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 of June 30, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
August 15, 1996
New York, New York
F-2
<PAGE> 40
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER
-------------------------- 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 819,985 $ 4,031,252 $ 1,327,143
Short-term investments........................... 4,198,869 3,954,945 5,958,156
Royalties receivable............................. 759,349 1,089,966 1,049,031
Prepaid expenses and sundry...................... 63,670 55,370 102,592
----------- ----------- -----------
Total current assets........................ 5,841,873 9,131,533 8,436,922
----------- ----------- -----------
Property and equipment................................ 219,283 321,154 397,683
Less: accumulated depreciation and
amortization................................... 45,857 100,391 115,614
----------- ----------- -----------
Property and equipment, net................. 173,426 220,763 282,069
----------- ----------- -----------
Other assets:
Security deposits................................ 19,613 14,500 14,500
----------- ----------- -----------
Total assets................................ $ 6,034,912 $ 9,366,796 $ 8,733,491
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 565,185 $ 499,815 $ 212,215
Royalties payable................................ 368,630 521,127 474,294
Note payable..................................... 40,942 32,000 20,109
Accrued interest payable......................... 42,966 33,216 --
Accrued expenses and sundry liabilities.......... 218,856 359,389 119,888
Current maturities of long-term debt............. 161,186 216,608 23,625
----------- ----------- -----------
Total current liabilities................... 1,397,765 1,662,155 850,131
----------- ----------- -----------
Long-term debt-net of current maturities.............. 348,965 135,907 20,881
----------- ----------- -----------
Stockholders' equity:
Common stock -- $0.006 par value; 6,000,000
shares authorized; 3,221,447 shares, 3,826,433
shares and 3,868,005 shares issued and
outstanding at June 30, 1995 and 1996 and
September 30, 1996, respectively............... 19,329 22,959 23,208
Additional paid-in capital....................... 10,575,159 13,733,556 13,947,516
Accumulated deficit.............................. (6,306,306) (6,187,781) (6,108,245)
----------- ----------- -----------
Total stockholders' equity.................. 4,288,182 7,568,734 7,862,479
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................... $ 6,034,912 $ 9,366,796 $ 8,733,491
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 41
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------- -----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fee, royalty and research
income........................... $2,106,662 $2,683,925 $3,628,735 $ 818,459 $1,059,213
Interest income..................... 93,583 253,858 238,178 63,051 102,447
---------- ---------- ---------- --------- ----------
Total revenues................. 2,200,245 2,937,783 3,866,913 881,510 1,161,660
---------- ---------- ---------- --------- ----------
Costs and expenses:
Research and development............ 504,140 882,356 1,164,172 283,259 340,613
Royalties........................... 1,041,703 1,250,789 1,676,870 391,191 474,294
General and administrative.......... 388,898 836,549 864,784 168,602 258,673
Interest expense.................... 40,857 47,534 42,562 13,106 8,544
---------- ---------- ---------- --------- ----------
Total costs and expenses....... 1,975,598 3,017,228 3,748,388 856,158 1,082,124
---------- ---------- ---------- --------- ----------
Income (loss) before provision for
income taxes.......................... 224,647 (79,445) 118,525 25,352 79,536
Provision for income taxes.............. 17,000 -- -- 3,000 --
---------- ---------- ---------- --------- ----------
Net income (loss)....................... $ 207,647 $ (79,445) $ 118,525 $ 22,352 $ 79,536
=========== =========== =========== ========== ===========
Net income (loss) per common share...... $ 0.08 $ (0.03) $ 0.03 $ 0.01 $ 0.02
=========== =========== =========== ========== ===========
Average shares outstanding.............. 2,524,432 3,119,718 4,297,536 3,849,776 4,628,238
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 42
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY
--------- ------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993................ 1,428,723 $ 8,572 $ 5,691,150 $(6,434,508) $ (734,786)
Stock issued in connection with
private placement at $1.20 per
share............................... 200,000 1,200 203,814 -- 205,014
Additional shares issued in connection
with public offering at $3.75 per
share............................... 1,485,000 8,910 4,627,242 -- 4,636,152
Fractional shares redeemed in
connection with reverse stock
split............................... (2,038) (12) (4,988) -- (5,000)
Net income............................ -- -- -- 207,647 207,647
--------- ------- --------------- ----------- -------------
Balance, June 30, 1994................ 3,111,685 18,670 10,517,218 (6,226,861) 4,309,027
Stock issued in connection with
exercise of 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
Stock issued in connection with
exercise of warrants (unaudited).... 41,572 249 213,960 -- 214,209
Net income three months ended
September 30, 1996 (unaudited) ..... -- -- -- 79,536 79,536
--------- ------- --------------- ----------- -------------
Balance September 30, 1996
(unaudited)......................... 3,868,005 $23,208 $13,947,516 $(6,108,245) $ 7,862,479
========== ======== ============== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 43
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------------------------------- --------------------------
1994 1995 1996 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)................. $ 207,647 $ (79,445) $ 118,525 $ 22,352 $ 79,536
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization... 22,040 27,395 54,534 14,863 15,223
Amortization of deferred
charges....................... 10,000 -- -- -- --
Abandonment of property and
equipment..................... -- 3,376 -- -- --
Changes in assets and liabilities:
Royalties receivable.............. (371,986) (5,242) (330,617) (55,528) 40,935
Prepaid expenses and sundry....... (9,272) (49,460) 8,300 29,720 (47,222)
Accounts payable.................. 50,797 62,208 (65,370) 161,955 (287,600)
Royalties payable................. 178,090 20,540 152,497 22,355 (46,833)
Note payable...................... -- 40,942 (8,942) -- (11,891)
Accrued interest payable.......... 8,168 13,798 (9,750) (31,703) (33,216)
Accrued expenses and sundry
liabilities..................... 21,692 (28,817) 140,533 (39,570) (239,501)
----------- ------------ ------------ ----------- -----------
Net cash provided (used) by
operating activities.......... 117,176 5,295 59,710 124,444 (530,569)
----------- ------------ ------------ ----------- -----------
Investing activities:
Property, plant and equipment..... (42,047) (85,327) (90,796) (82,721) (76,529)
Short-term
investments -- acquisitions..... (8,804,029) (11,172,459) (10,290,174) (2,236,590) (5,958,156)
Short-term
investments -- redemptions...... 6,848,095 8,929,524 10,534,098 2,239,249 3,954,945
Other assets...................... -- (14,000) 5,113 -- --
----------- ------------ ------------ ----------- -----------
Net cash provided (used) by
investing activities.......... (1,997,981) (2,342,262) 158,241 (80,062) (2,079,740)
Financing activities:
Repayment of debt................. (46,916) (116,577) (168,711) (158,091) (308,009)
Exercise of stock options......... -- 58,600 -- -- --
Exercise of warrants.............. -- -- 3,162,027 -- 214,209
Redemption of fractional shares... (5,000) -- -- -- --
Proceeds from sale of common
stock........................... 4,841,166 -- -- -- --
----------- ------------ ------------ ----------- -----------
Net cash provided (used) by
financing activities.......... 4,789,250 (57,977) 2,993,316 (158,091) (93,800)
----------- ------------ ------------ ----------- -----------
Net increase (decrease)............. 2,908,445 (2,394,944) 3,211,267 (113,709) (2,704,109)
Cash and cash
equivalents -- beginning.......... 306,484 3,214,929 819,985 819,985 4,031,252
----------- ------------ ------------ ----------- -----------
Cash and cash
equivalents -- ending............. $ 3,214,929 $ 819,985 $ 4,031,252 $ 706,276 $ 1,327,143
============ ============= ============= ============ ============
Supplemental cash flow information:
Interest paid....................... $ 32,689 $ 33,736 $ 46,796 $ 42,946 $ 41,713
Capital expenditures and proceeds
from loans have been reduced by
additions financed of............. -- 61,700 11,075 -- --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 44
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
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 ("UKRF"), 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 one year or less. There were no material
unrealized holding gains or losses.
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 U.S. 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.
F-7
<PAGE> 45
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
Recognition of Income
The Company recognizes 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 Share
Net income (loss) per common 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.
Reverse Stock Split and Increase in Authorized Shares
On November 8, 1993, stockholders approved a one-for-three reverse split of
the common stock of the Company and an increase in the newly authorized shares
to 6,000,000. Numbers of shares and per share data disclosed herein have been
retroactively adjusted to reflect the stock split for all periods presented.
NOTE 3 -- ROYALTIES RECEIVABLE
Royalties receivable at June 30, 1995 and 1996 principally represent
amounts due from licensees of the Company's patents for the three months ended
June 30, 1995 and 1996.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- SEPTEMBER 30,
1995 1996 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures........................ $ 64,066 $ 71,424 $ 74,262
Machinery and equipment....................... 74,916 118,509 188,049
Computer equipment............................ 20,777 29,828 29,828
Leasehold improvements........................ 59,524 101,393 105,544
-------- -------- -------------
219,283 321,154 397,683
Less: accumulated depreciation and
amortization................................ 45,857 100,391 115,614
-------- -------- -------------
Net...................................... $173,426 $220,763 $ 282,069
======== ======== ===========
</TABLE>
F-8
<PAGE> 46
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT (CONTINUED)
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:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- SEPTEMBER 30,
1995 1996 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Loan payable -- Basil Properties................... $446,867 $299,978 $ --
Other: equipment loans............................. 63,284 52,537 44,506
-------- -------- -------------
510,151 352,515 44,506
Less: amount payable within one year............... 161,186 216,608 23,625
-------- -------- -------------
Total......................................... $348,965 $135,907 $20,881
======== ======== ===========
</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, prior to the
repayment on September 30, 1996 of the $299,978 debt to Basil. On May 3, 1989,
Basil Properties ("Basil") made a loan to the Company of $600,000. The loan was
secured by the Company's right to receive royalties, with respect to any
products related to the nasal administration of vitamin B-12 gel. Additionally,
Basil was given the option to convert any outstanding portion of the principal
balance of the $600,000 loan to the Company's common stock. 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,
1994, 1995 and 1996 the prime interest rate ranged from 6% to 7.25%, 7.25% to
9%, and 8.25% to 9%, respectively. The year-end prime rates at June 30, 1995 and
1996 were 7.25% and 8.25%, respectively. As of June 30, 1996, 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, 1994, 1995 and 1996 amounted to $40,312, $42,946
and $33,216, respectively.
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 $0.05 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 and September 30, 1996,
605,173 and 646,745 warrants, respectively, have been exercised with net
proceeds to the Company of $3,162,027 and $3,379,243, respectively.
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.
F-9
<PAGE> 47
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- STOCKHOLDERS' EQUITY (CONTINUED)
The Company had a private placement of 200,000 shares of common stock on
September 14, 1993 resulting in net proceeds to the Company of $205,000. The
proceeds were used to provide funding for the costs incurred related to the
public offering.
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.
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 $0.51
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 $0.56 and 59,999 shares at $0.51 were
exercised. No options were exercised during the years ended June 30, 1994 and
1996 and for the three months ended September 30, 1996.
Data relating to this plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------ THREE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1996
------- -------- ------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... 124,998 174,998 214,749 244,249
Granted................................. 50,000 149,750 34,500 10,800
Exercised............................... -- (109,999) -- --
Terminated.............................. -- -- (5,000) --
------- -------- ------- ----------
Outstanding at end of period............ 174,998 214,749 244,249 255,049
======= ======== ======= ==============
</TABLE>
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,
F-10
<PAGE> 48
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES (CONTINUED)
expiring from 2000 through 2010. The net operating loss carryforward may be used
to reduce taxable income by approximately $300,000 per year.
The approximate amounts of net operating loss carryforward and the year of
expiration are as follows:
<TABLE>
<CAPTION>
AMOUNT YEAR OF EXPIRATION
------------------------------------------------------------ ------------------
<S> <C>
$ 490,000................................................... 2000
1,150,000.................................................. 2001
820,000.................................................. 2002
320,000.................................................. 2003
320,000.................................................. 2004
320,000.................................................. 2005
320,000.................................................. 2006
320,000.................................................. 2007
170,000.................................................. 2008
70,000.................................................. 2010
</TABLE>
Federal income taxes normally provided for the income have been offset by
the effects of the reduction of the valuation allowance at June 30, 1994, June
30, 1996, September 30, 1995 and September 30, 1996. The income tax provisions
for the year ended June 30, 1994 and for the three months ended September 30,
1995 represent the New York State minimum tax on income which formerly did not
allow a deduction for the net operating loss carryforward.
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 is also entitled to 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.
B) Minimum Royalty Payments:
In connection with the license agreement with the UKRF, the Company
agreed 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.
F-11
<PAGE> 49
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
--------
Total............... $323,250
========
</TABLE>
Rental expense for real property aggregated approximately $43,000,
$78,000 and $83,000 for the years ended June 30, 1994, 1995 and 1996,
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 Company ("BMS") is owned 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.
NOTE 10 -- CONTRACTUAL AGREEMENTS
On January 1, 1986, the Company sublicensed to BMS (the "BMS Agreement")
its development and commercial exploitation rights with respect to its licensed
patent rights for the nasal delivery of Butorphanol Tartrate, in exchange for
which BMS agreed to pay the Company a royalty based on the net sales of such
product pursuant to the BMS Agreement, which resulted in license fee income of
approximately $1,901,000, $2,530,000 and $3,410,000 for the years ended June 30,
1994, 1995 and 1996, respectively. The Company must pay a percentage of these
royalties to UKRF under the Company's separate license agreement with UKRF. 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 Tartrate. The nasal Butorphanol Tartrate 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 clearance to BMS for this
product, and quarterly royalty payments to the Company by BMS are continuing.
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 wherein RiboGene, as successor in interest, is the Company's sole and
exclusive worldwide licensee for the manufacture, distribution and marketing of
the nasal dosage form of Propranolol HCl for the life of the Company's U.S.
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 HCl is approved for
marketing and commercialized, the Company will receive royalties based upon net
sales of the product. The Company must pay a percentage of these royalties to
UKRF under the Company's separate license agreement with UKRF. In addition,
RiboGene is obligated to pay all patent maintenance fees with respect to
Propranolol HCl and pay certain other fees
F-12
<PAGE> 50
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- CONTRACTUAL AGREEMENTS (CONTINUED)
thereunder. RiboGene can terminate the Propranolol Agreement at any time. The
Company receives an annual licensing fee with respect to Propranolol and pays
certain other fees thereunder. The Company receives an annual licensing fee of
$32,000 payable quarterly. During each of the years ended June 30, 1994, 1995
and 1996, the Company received $32,000, and during the three months ended
September 30, 1996, the Company received $8,000 license fee income on this
contract.
In March 1990, the Company entered into an agreement whereby RiboGene, as
successor in interest, purchased the Company's Metoclopramide HCl patent and
certain proprietary research information related thereto (the "Metoclopramide
Agreement"). The aggregate purchase price for the patent, proprietary
information and contract termination was approximately $700,000. The
Metoclopramide Agreement provides for certain royalties and other fees to the
Company if and when nasal Metoclopramide HCl is approved for marketing and
commercialized. RiboGene has a sublicense for nasal Metoclopramide HCl with
Crinos Industria Farmacobiologica SpA in Italy and Prodes in Spain.
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 HCl and Metoclopramide
HCl 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"), which provided that NB 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, 1994, 1995 and 1996, and the
three months ended September 30, 1996, the Company earned royalties of $144,000,
$116,000, $19,000 and $0, 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 NB.
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. The agreement provided that the Company 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.
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 such agreement, the Company
is to perform formulation and related preclinical research and development up to
and including the filing of an IND. Upon the successful achievement of certain
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 enty into this agreement.
The Company also received $82,800 for the three months ended September 30, 1996
in connection with this agreement.
F-13
<PAGE> 51
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- CONTRACTUAL AGREEMENTS (CONTINUED)
On June 30, 1994, the Company exclusively sublicensed to The DuPont Merck
Pharmaceutical Company its development and commercial exploitation rights with
respect to its licensed patent rights for the nasal delivery of Nalbuphine HCl,
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"). The Company must
pay a percentage of these royalties to UKRF under the Company's separate
licensing agreement with UKRF. Nalbuphine HCl 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 HCl in those
countries. The nasal Nalbuphine HCl patent expires in the year 2001 in Canada,
subject to any right of extension or renewal. The Mexican patent for nasal
Nalbuphine HCl is currently pending. The DuPont Merck Agreement may be
terminated by DuPont Merck at any time upon 60 days written notice to the
Company.
F-14
<PAGE> 52
[Photo of Stadol NS]
The Company's nasal delivery technology has been utilized in the products
pictured. Stadol NS is nasally delivered Butorphanol Tartrate, a narcotic
analgesic sublicensed by the Company to Bristol-Myers Squibb Company; Nascobal
(Cyanocobalamin, USP/Vitamin B-12) nasal gel is used for the maintenance
treatment of chronic Vitamin B-12 deficiency anemia. The Company received
marketing clearance from the FDA for Nascobal on November 5, 1996.
[Photo of Nascobal]
<PAGE> 53
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY UNDERWRITER OR BY ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 5
Use of Proceeds.................... 10
Price Range of Common Stock and
Dividend Policy.................. 10
Capitalization..................... 11
Selected Financial Data............ 12
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 13
Business........................... 16
Management......................... 28
Principal Stockholders............. 31
Description of Capital Stock....... 32
Shares Eligible for Future Sale.... 33
Underwriting....................... 34
Legal Matters...................... 35
Experts............................ 35
Additional Information............. 36
Incorporation of Certain
Information By Reference......... 36
Index to Financial Statements...... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,200,000 SHARES
[NASTECH LOGO]
COMMON STOCK
------------------------
PROSPECTUS
, 1997
------------------------
VOLPE, WELTY & COMPANY
WHEAT FIRST BUTCHER SINGER
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 54
P A R T I I
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the Registrant
in connection with the issuance and distribution of the securities being
registered hereby other than underwriting discounts and commissions. All
expenses other than the SEC registration fee, the NASD filing fee and the Nasdaq
listing fee are estimated.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 13,853
NASD filing fee................................................... 5,072
Nasdaq National Market listing fee................................ 35,991
Transfer agent's fee and expenses................................. 20,000
Accounting fees and expenses...................................... 50,000
Legal fees and expenses........................................... 150,000
Costs of printing and engraving................................... 150,000
Miscellaneous..................................................... 75,084
--------
Total................................................... $500,000
========
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law, as amended, provides for the
indemnification of the Company's officers, directors and corporate employees and
agents under certain circumstances as follows:
DEL. CODE ANN. TITLE 8
SEC. 145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE
a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees), actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
II-1
<PAGE> 55
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
d) Any indemnification under subsection (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceedings, or (2)
if such a quorum is not obtainable, or, even, if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
II-2
<PAGE> 56
j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Certificate of Incorporation of the Company provides that the
indemnification provisions of Sections 102(b)(7) and 145 of the Delaware
Corporation Law shall be utilized to the fullest extent possible. Further, the
Certificate of Incorporation contains provisions to eliminate the liability of
the Company's directors to the Company or its stockholders to the fullest extent
permitted by Section 102(b)(7) of the Delaware General Corporation Law, as
amended from time to time.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, is permitted to directors, officers or controlling persons
of the Registrant, pursuant to the above mentioned statutes or otherwise, the
Registrant understands that the Securities and Exchange Commission is of the
opinion that such indemnification may contravene federal public policy, as
expressed in said Act, and therefore, may be unenforceable. Accordingly, in the
event that a claim for such indemnification is asserted by any director, officer
or a controlling person of the Company, and the Commission is still of the same
opinion, the Registrant (except insofar as such claim seeks reimbursement by the
Registrant of expenses paid or incurred by a director, officer of controlling
person in successful defense of any action, suit or proceeding) will, unless the
matter has theretofore been adjudicated by precedent deemed by counsel for the
Registrant to be controlling, submit to a court of appropriate jurisdiction the
question whether or not indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue. The Underwriting and Selected Dealers agreements provide for reciprocal
indemnification and such provisions are incorporated by reference herein.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Registrant, as amended and filed with the Secretary
of State of Delaware on November 8, 1993. (Filed as Exhibit 3A to the Company's
Registration Statement on Form SB-2, as amended (Commission File No. 33-70180),
filed on October 12, 1993, and incorporated herein by reference.)
3.2 Amended By-Laws of Registrant. (Filed as Exhibit 3B to the Company's Registration
Statement on Form SB-2, as amended (Commission File No. 33-70180), filed on
October 12, 1993, and incorporated herein by reference.)
3.3 Certificate of Amendment of Certificate of Incorporation of Registrant, as filed
with the Secretary of State of Delaware on December 30, 1996.
4.1 Form of Representatives' Warrant.
5.1 Opinion of Bruce R. Thaw, counsel to the Company, as to the legality of
securities being registered.
10.1 Licensing Agreement with UKRF. (Filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-18, as amended (Commission File No. 2-88605-NY),
filed on December 23, 1983, and incorporated herein by reference.)
10.2 Lease for facilities at 45 Davids Drive, Hauppauge, NY. (Filed as Exhibit 10B to
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995
(Commission File No. 0-13789), and incorporated herein by reference.)
10.3 Sublicense Agreement with Bristol-Myers Squibb Co. (Filed as Exhibit 10E to the
Company's Registration Statement on Form S-1, as amended (Commission File No.
33-5717), filed on May 15, 1986, and incorporated herein by reference.)
10.4 Agreements between Registrant, and RiboGene, Inc. (as successor in interest to
Rugby Laboratories, Inc., and Darby Pharmaceuticals, Inc.) (Filed as Exhibit 10D
to the Company's Registration Statement on Form S-1, as amended (Commission File
No. 33-5717), filed on May 15, 1986, and incorporated herein by reference.)
</TABLE>
II-3
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
10.5 1995 Agreement between the Registrant and RiboGene, Inc. (Filed as Exhibit 10F to
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995
(Commission File No. 0-13789), and incorporated herein by reference.)
10.6 Employment Agreement with Dr. Vincent D. Romeo. (Filed as Exhibit 10O to the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1991
(Commission File No. 0-13789), and incorporated herein by reference.)
10.7 Stock Option Agreements. (Filed as Exhibit 10M to the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1995 (Commission File No. 0-13789), and
incorporated herein by reference.)
10.8 License Agreement with The DuPont Merck Pharmaceutical Company. (Filed as Exhibit
10N to the Company's Registration Statement on Form SB-2, as amended (Commission
File No. 33-70180), filed on October 12, 1993, and incorporated herein by
reference.)
10.9 Nasal Drug Evaluation and Option Agreement. (Filed as Exhibit 10K to the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1996.
(Commission File No. 0-13789), and incorporated herein by reference.)
10.10 Agreement with Ciba Self-Medication, Inc. (Filed as Exhibit 10J to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1996 (Commission File
No. 0-13789), and incorporated herein by reference.)
10.11 Employment Agreement with Andrew P. Zinzi.
10.12 Evaluation and Option Agreement with the Consumer Health Care Division of Pfizer
Inc.
10.13 Development and License Agreement with DynaGen, Inc.
23.1 Consent of Bruce R. Thaw, counsel to the Company (included in Exhibit 5.1)
23.2 Consent of Robbins, Greene, Horowitz, Lester & Co., LLP Certified Public
Accountants
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York, New York, on
January 21, 1997.
NASTECH PHARMACEUTICAL COMPANY INC.
By: /s/ DEVIN N. WENIG
---------------------------------------
DEVIN N. WENIG
CHAIRMAN
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on January 21, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ DEVIN N. WENIG Chairman of the Board
- ---------------------------------------------
DEVIN N. WENIG
/s/ DR. VINCENT D. ROMEO* President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
DR. VINCENT D. ROMEO
/s/ JOEL GIRSKY* Director, Secretary and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
JOEL GIRSKY
/s/ DR. IAN FERRIER* Director
- ---------------------------------------------
DR. IAN FERRIER
/s/ ALVIN KATZ* Director
- ---------------------------------------------
ALVIN KATZ
/s/ JOHN V. POLLOCK* Director
- ---------------------------------------------
JOHN V. POLLOCK
/s/ GRANT W. DENISON, JR.* Director
- ---------------------------------------------
GRANT W. DENISON, JR.
*By: /s/ DEVIN N. WENIG
---------------------------------------
DEVIN N. WENIG
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<C> <S>
5.1 Opinion of Bruce R. Thaw, counsel to the Company, as to the legality of the
securities being registered.
23.2 Consent of Robbins, Greene, Horowitz, Lester & Co., LLP Certified Public
Accountants.
</TABLE>
II-6
<PAGE> 1
Exhibit 5.1
Law offices of
BRUCE R. THAW
45 Banfi Plaza
Farmingdale, NY 11735
January 21, 1997
Nastech Pharmaceutical Company, Inc.
45 Davids Drive
Hauppauge, NY 11788
Gentlemen:
We have acted as counsel for Nastech Pharmaceutical Company Inc., a
Delaware corporation (the "Company") in connection with the proposed issue and
sale by the Company of 1,200,000 Shares of Common Stock, $.006 par value (the
"Common Stock"). In the event the Underwriters' over-allotment option is
exercised in full, the issuance and sale by the Company shall be 1,380,000
shares.
As counsel to the Company, we have examined the minute books of the
Company, together with copies of its certificate of incorporation, as amended,
and by-laws. We have also examined the proposed Registration Statement on Form
S-2 (Securities and Exchange Commission File No. 333-16507), and the exhibits to
said Registration Statement. Based upon the foregoing, and our examination of
such other documents as we deemed pertinent, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing and
in good standing under and by virtue of the laws of the State of Delaware.
2. The authorized capital of the Company consists of (i) 100,000 shares
of Preferred Stock, par value $.01 per share, of which no shares of Preferred
Stock are presently issued and outstanding, and (ii) 25,000,000 shares of Common
Stock, par value $.006 per share, of which 3,868,005 shares are issued and
outstanding, fully paid and non-assessable shares of Common Stock of the Company
as of September 30, 1996.
3. The 1,200,000 shares of Common Stock being offered by the Company
(1,380,000 shares in the event the Underwriters' over-allotment option is
exercised in full) and which are the subject of the Registration Statement have
been duly authorized and the shares when issued and delivered against payment
therefor will be legally issued and outstanding, fully paid and non-assessable.
We hereby consent to be named in the Registration Statement, as
attorneys, who will pass upon legal matters for the Registrant in connection
with the sale of the shares of Common Stock of the Registrant.
Very truly yours,
/s/ Bruce R. Thaw
BRUCE R. THAW
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Nastech Pharmaceutical Company, Inc.
We consent to the use of our report included herein and to the reference to
our Firm under the heading "Experts" in the Prospectus.
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
January 21, 1997
New York, New York
