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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 0-13789
NASTECH PHARMACEUTICAL COMPANY INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 11-2658569
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
45 DAVIDS DRIVE, HAUPPAUGE, NEW YORK 11788
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 273-0101
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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Name of each exchange
Title of each class on which registered
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Common Stock, $.006 par value Nasdaq National Market
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
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<S> <C> <C>
DATE CLASS SHARES OUTSTANDING
03/31/97 Common stock - $.006 par value 6,086,158
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NASTECH PHARMACEUTICAL COMPANY INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
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ITEM 1 - FINANCIAL STATEMENTS
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Balance Sheets as of March 31, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations for the three months ended March 31, 1997 and 1996 . . . . . . . . . . . . . . 2
Statements of Stockholders' Equity for the three months ended March 31, 1997,
six months ended December 31, 1996 and 1995, years ended June 30, 1996 and 1995 . . . . . . . . . . 3
Statements of Cash Flows for the three months ended March 31, 1997 and 1996 . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7
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PART II - SIGNATURES
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PART I
ITEM 1 - FINANCIAL STATEMENTS
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 23,309 $ 4,494
Short-term investments...................................................... 5,077 7,025
Royalties and fees receivable............................................... 829 798
Inventories................................................................. 199 -
Prepaid expenses and sundry................................................. 239 80
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Total current assets................................................ 29,653 12,397
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Property and equipment......................................................... 803 513
Less: Accumulated depreciation and amortization............................. 163 128
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Property and equipment, net......................................... 640 385
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Other assets:
Deferred offering costs..................................................... - 98
Security deposits........................................................... 15 14
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Total other assets.................................................. 15 112
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Total assets........................................................ $ 30,308 $ 12,894
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 671 $ 587
Royalties payable........................................................... 405 236
Accrued expenses and sundry liabilities..................................... 276 216
Current maturities of long-term debt........................................ 14 15
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Total current liabilities........................................... 1,366 1,054
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Long-term debt, net of current maturities...................................... 24 27
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Stockholders' equity:
Common stock, $.006 par value; authorized: 25,000,000 shares; issued and
outstanding: 6,086,158 shares at March 31, 1997 and 4,706,158 shares
at December 31, 1996..................................................... 37 28
Additional paid-in capital.................................................. 35,785 18,325
Accumulated deficit......................................................... (6,904) (6,540)
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Total stockholders' equity.......................................... 28,918 11,813
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Total liabilities and stockholders' equity.......................... $ 30,308 $ 12,894
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</TABLE>
See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
1997 1996
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Revenues
License fee, royalty and research income......................... $ 838 $ 1,009
Interest income.................................................. 302 56
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Total revenues.............................................. 1,140 1,065
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Costs and expenses:
Research and development......................................... 589 254
Royalties........................................................ 404 418
Sales and marketing.............................................. 170 24
General and administrative....................................... 339 166
Interest expense................................................. 2 9
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Total costs and expenses.................................... 1,504 871
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Net income (loss)................................................... $ (364) $ 194
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Net income (loss) per common share.................................. $ (.06) $ .05
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Average shares outstanding.......................................... 5,630,825 3,989,284
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</TABLE>
See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997, SIX MONTHS ENDED DECEMBER 1996 AND 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
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BALANCE, JUNE 30, 1994.................................. 3,111,685 $ 18 $ 10,517 $ (6,227) $ 4,308
Shares issued in connection with exercise of stock
options................................................ 109,999 1 58 --- 59
Fractional shares redeemed in connection with reverse
stock split............................................ (237) --- --- --- ---
Net loss................................................ --- --- --- (79) (79)
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BALANCE, JUNE 30, 1995.................................. 3,221,447 19 10,575 (6,306) 4,288
Net loss six months ended December 31, 1995............. --- --- --- (180) (180)
----------- ---------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1995.............................. 3,221,447 19 10,575 (6,486) 4,108
Shares issued in connection with exercise of warrants... 605,173 4 3,158 --- 3,162
Fractional shares redeemed in connection with reverse
stock split.......................................... (187) --- --- --- ---
Net income six months ended June 30, 1996............... --- --- --- 298 298
----------- ---------- ----------- ------------ ------------
BALANCE, JUNE 30, 1996.................................. 3,826,433 23 13,733 (6,188) 7,568
Shares issued in connection with exercise of warrants... 879,817 5 4,592 --- 4,597
Fractional shares redeemed in connection with reverse
stock split.......................................... (92) --- --- --- ---
Net loss six months ended December 31, 1996............. --- --- --- (352) (352)
----------- ---------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1996.............................. 4,706,158 28 18,325 (6,540) 11,813
Additional shares issued in connection with public
offering at $14.00 per share, net of issuance costs.... 1,380,000 9 17,460 --- 17,469
Net loss three months ended March 31, 1997.............. --- --- --- (364) (364)
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BALANCE, MARCH 31, 1997................................. 6,086,158 $ 37 $ 35,785 $ (6,904) $ 28,918
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</TABLE>
See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
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1997 1996
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OPERATING ACTIVITIES:
Net income (loss).................................................... $ (364) $ 194
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization..................................... 46 15
Changes in assets and liabilities:
Royalties and fees receivable..................................... (31) (243)
Prepaid expenses and sundry....................................... (159) 3
Inventories....................................................... (199) ---
Accounts payable.................................................. 84 (87)
Royalties payable................................................. 169 71
Accrued expenses and sundry liabilities........................... 60 (26)
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Net cash used in operating activities................................... (394) (73)
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INVESTING ACTIVITIES:
Property, plant and equipment........................................ (301) (12)
Short-term investments -- acquisitions............................... (969) (3,199)
Short-term investments -- redemptions................................ 2,917 3,197
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Net cash provided by (used in) investing activities..................... 1,647 (14)
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FINANCING ACTIVITIES:
Repayment of debt................................................... (4) (15)
Net proceeds from sale of common stock.............................. 17,566 ---
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Net cash provided by (used in) financing activities..................... 17,562 (15)
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Net increase (decrease) in cash and cash equivalents.................... 18,815 (102)
Cash and cash equivalents--beginning.................................... 4,494 420
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Cash and cash equivalents--ending....................................... $ 23,309 $ 318
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See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- GENERAL
The accompanying financial information should be read in conjunction
with the audited financial statements, including the notes thereto, as of and
for the six months ended December 31, 1996.
The information furnished in this report reflects all adjustments
(consisting of only normal recurring accruals) which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods.
NOTE 2 -- PUBLIC OFFERING
The Company completed a public offering of 1,380,000 shares of common
stock at $14.00 per share in the current period. The proceeds to the Company
of $17,469,000 was net of direct expenses of the offering totaling $1,851,000.
In connection with this public offering, the Company has agreed to issue to the
representatives of the underwriters 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. The
Representatives' Warrants are exercisable for a period of four years commencing
January 24, 1998. 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.
NOTE 3 -- INVENTORIES
At March 31, 1997, raw material inventories are stated at the lower of
cost (first- in first- out basis) or market value.
NOTE 4 -- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share are calculated
using the weighted average number of common shares outstanding during the
period and the net additional number of shares which would be issuable upon the
exercise of stock options and warrants, assuming that the Company used the
proceeds received to purchase additional shares at market value. For the three
months ending March 31, 1997, the effect of stock options and warrants is not
included because it would be antidilutive.
NOTE 5 -- INCOME TAXES
At March 31, 1997, the Company has net operating loss carryforwards of
approximately $4,400,000 for income tax purposes, available to reduce future
taxable income, expiring from 2000 through 2011. Federal income taxes normally
provided for income have been offset by the effects of the reduction of the
valuation allowance for the three months ended March 31, 1996.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Except for historical information contained herein, the statements in
this Item are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. Those include, among others, risks
associated with the Company's business strategy, product development, plans
concerning the commercialization of products, certain financial information and
other statements that are not historical facts.
The 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, Bristol-Meyers Squibb Company ("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(TM), 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 at least June 30, 1997, the Company expects
revenues to consist principally of revenues from BMS. The Company does not
expect revenues from its Nascobal(TM) product until after September 1, 1997.
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, development and sales and marketing 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 1998.
On February 11, 1997, the Company changed its year end from June 30 to
December 31.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended
March 31, 1996
Revenues. Revenues for the three months ended March 31, 1997
increased by $75,000 to $1,140,000, or 7%, more than such revenues for the
three months ended March 31, 1996. This increase was due to decreases in
license fee, royalty and research income, which for the three months ended
March 31, 1997 decreased by $171,000 to $838,000, or 17%, less than such income
for the three months ended March 31, 1996, which were more than offset by an
increase in interest income. The license fee, royalty and research income
decrease primarily was due to a decrease in research income of $150,000.
Royalty income received from the BMS Agreement for the current three-month
period decreased by $22,000 to $829,000, or 3%, from such income for the
similar period in 1996. Interest income for the current three-month period
increased by $246,000 to $302,000, or 439%, compared to such income for
the similar period in 1996 due to an increase in the amount of excess funds
invested from proceeds received from the 1997 public offering and exercise of
warrants from the 1993 offering.
Research and development expense. In the three months ended March
31, 1997, 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 nine new drug
products. Preclinical and clinical research and development expense for the
three months ended March 31, 1997 increased by $335,000 to $589,000, or
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132%, over such expense for the three months ended March 31, 1996. 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 the three months ended
March 31, 1997 decreased by $14,000 to $404,000, or 3%, from such expense for
the three months ended March 31, 1996. Such decrease was due to the decrease
in royalties paid by the Company to the 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 or decreases approximately in proportion to
royalty income.
Sales and Marketing. Sales and marketing expense for the three months
ended March 31, 1997 increased by $146,000 to $170,000, or 608%, as compared to
the 1996 period primarily as a result of expenses associated with the planned
launch of the Company's Nascobal(TM) product later this year. Sales and
marketing costs also include expenses incurred related to development of the
Company's collaborative agreements.
General and administrative expense. General and administrative
expense for the three months ended March 31, 1997 increased by $173,000 to
$339,000, or 104% over such expense for the three months ended March 31, 1996
due to increased staffing costs and other support costs associated with the
accelerated development of the Company's nasal pharmaceutical formulations and
strategic planning.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's liquidity included cash and cash
equivalents and short-term investments of $28.4 million compared to $11.5
million at December 31, 1996. These amounts consisted primarily of the funds
received from the recent 1997 public offering and the exercise of warrants
outstanding from the Company's December 1993 public offering. Royalties and
fees receivable at March 31, 1997, consists principally of royalty income
receivable pursuant to the BMS Agreement.
The Company anticipates that the availability of funds provided by
the BMS Agreement as well as the liquidity provided by the public offerings
noted above will be used for (i) research and development, including clinical
trials, (ii) initial marketing and product launch expenses with respect to
Nascobal(TM), (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.
At March 31, 1997, the Company had working capital of $28.3 million.
Management anticipates that its current cash position, together with cash
generated from operations will provide adequate funds for the Company's
anticipated needs, including working capital, through 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, duly authorized, in the City of Hauppauge, State of New York, on
May 13, 1997.
NASTECH PHARMACEUTICAL COMPANY INC.
By: /s/ Vincent D. Romeo, Ph.D.
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Vincent D. Romeo, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Andrew Zinzi
------------------------------------------
Andrew Zinzi
Chief Financial Officer
(Principal Financial and Accounting Officer)
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 23,309
<SECURITIES> 5,077
<RECEIVABLES> 829
<ALLOWANCES> 0
<INVENTORY> 199
<CURRENT-ASSETS> 29,653
<PP&E> 803
<DEPRECIATION> 163
<TOTAL-ASSETS> 30,308
<CURRENT-LIABILITIES> 1,366
<BONDS> 24
0
0
<COMMON> 37
<OTHER-SE> 28,881
<TOTAL-LIABILITY-AND-EQUITY> 30,308
<SALES> 0
<TOTAL-REVENUES> 1,140
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,502
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (364)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (364)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
