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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 SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 0-13789
NASTECH PHARMACEUTICAL COMPANY INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<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)
</TABLE>
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:
<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
------------------- -------------------------
Common Stock, $.006 par value Nasdaq National Market
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
DATE CLASS SHARES OUTSTANDING
<S> <C> <C>
09/30/98 Common stock - $.006 par value 6,378,020
</TABLE>
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NASTECH PHARMACEUTICAL COMPANY INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS Page
<S> <C>
Balance Sheets as of September 30, 1998 (unaudited) and December 31,1997.............................................1
Statements of Operations for the nine months ended September 30, 1998 (unaudited) and 1997 (unaudited)
and the three months ended September 30, 1998 (unaudited) and 1997 (unaudited).......................................2
Statements of Stockholders' Equity for the nine months ended September 30, 1998 (unaudited) and the
year ended December 31,1997..........................................................................................3
Statements of Cash Flows for the nine months ended September 30, 1998 (unaudited) and 1997 (unaudited)..............4
Notes to Financial Statements......................................................................................5-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................7-9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.................................................................................10
SIGNATURES.......................................................................................................11
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,257 $ 25,294
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 482
Royalties and fees receivable . . . . . . . . . . . . . . . . . . . . . . . . 2,873 455
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353 370
Prepaid expenses and sundry . . . . . . . . . . . . . . . . . . . . . . . . . 233 47
------------- -----------
Total current assets 27,716 26,648
------------- -----------
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,549 1,010
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . 524 302
------------- -----------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . 1,025 708
------------- -----------
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 15
------------- -----------
Total assets $ 28,756 $ 27,371
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,173 $ 1,497
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 191
Accrued expenses and sundry liabilities . . . . . . . . . . . . . . . . . . . 629 754
------------- -----------
Total current liabilities 2,088 2,442
------------- -----------
Stockholders' equity:
Common stock, $.006 par value; authorized: 25,000,000 shares; issued and
outstanding: 6,378,020 shares at September 30, 1998 and 6,101,020 shares at
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 37
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 37,426 35,978
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,796) (11,086)
------------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 26,668 24,929
------------- -----------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 28,756 $ 27,371
============= ===========
</TABLE>
See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------------
1998 1997 1998 1997
---------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales . . . . . . . . . . . . . . . . $ 506 $ -- $ 69 $ --
License fee, royalty and research income . . . 6,493 2,972 2,062 1,026
Interest income . . . . . . . . . . . . . . . . 1,095 1,079 385 382
---------- ----------- -------------- -------------
Total revenues . . . . . . . . . . . . . . . 8,094 4,051 2,516 1,408
---------- ----------- -------------- -------------
Costs and expenses:
Cost of product sales . . . . . . . . . . . . . 587 -- 84 --
Research and development . . . . . . . . . . . . 4,213 2,785 1,790 1,261
Royalties . . . . . . . . . . . . . . . . . . . 941 1,394 278 449
Sales and marketing . . . . . . . . . . . . . . 623 1,249 161 492
General and administrative . . . . . . . . . . . 1,440 1,173 386 484
---------- ----------- -------------- -------------
Total costs and expenses . . . . . . . . . . 7,804 6,601 2,699 2,686
---------- ----------- -------------- -------------
Net income (loss) . . . . . . . . . . . . . . . . . $ 290 $(2,550) $ (183) $(1,278)
========== =========== ============== =============
Net income (loss) per common share-Basic . . . . . $ .05 $ (.43) $ (.03) $ (.21)
========== =========== ============== =============
Net income (loss) per common share-Diluted . . . . $ .04 $ (.43) $ (.03) $ (.21)
========== =========== ============== =============
Weighted average common shares outstanding-Basic . 6,271 5,937 6,378 6,090
========== =========== ============== =============
Weighted average common shares outstanding-Diluted 6,493 5,937 6,378 6,090
========== =========== ============== =============
</TABLE>
See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 (UNAUDITED) AND FOR THE
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 . . . . . . . . . . . . . . 4,706,158 $28 $18,325 $ (6,540) $11,813
Additional shares issued in connection with public
offering at $14 per share, net of issuance costs . . 1,380,000 9 17,460 --- 17,469
Shares issued in connection with exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . 14,999 --- 18 --- 18
Compensation related to stock options . . . . . . . . . --- --- 175 --- 175
Fractional shares redeemed in connection with reverse
stock split . . . . . . . . . . . . . . . . . . . . (137) --- --- --- ---
Net loss for year ended December 31, 1997 . . . . . . . --- --- --- (4,546) (4,546)
--------- -------- ---------- ------------ -------------
BALANCE, DECEMBER 31, 1997 . . . . . . . . . . . . . . 6,101,020 37 35,978 (11,086) 24,929
Shares issued in connection with exercise of
underwriters warrants . . . . . . . . . . . . . . . 270,000 1 1,402 --- 1,403
Shares issued in connection with exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . 7,000 --- 46 --- 46
Net income nine months ended September 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . --- --- --- 290 290
--------- -------- ---------- ------------ -------------
BALANCE, SEPTEMBER 30, 1998 (UNAUDITED) . . . . . . . 6,378,020 $38 $37,426 $(10,796) $26,668
========= ======== ========== ============ =============
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 290 $(2,550)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 222 161
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 482 ---
Royalties and fees receivable . . . . . . . . . . . . . . . . . . . . . (2,418) (129)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (592)
Prepaid expenses and sundry . . . . . . . . . . . . . . . . . . . . . . (186) (66)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (324) 348
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 213
Accrued expenses and sundry liabilities . . . . . . . . . . . . . . . . (125) 230
--------- ---------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . (1,947) (2,385)
--------- ---------
INVESTING ACTIVITIES:
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . (539) (530)
Short-term investments -- acquisitions . . . . . . . . . . . . . . . . . . --- (969)
Short-term investments -- redemptions . . . . . . . . . . . . . . . . . . --- 7,994
--------- ---------
Net cash (used in) provided by investing activities . . . . . . . . . . . . . (539) 6,495
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from sale of common stock . . . . . . . . . . . . . . . . . . --- 17,566
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . 46 3
Proceeds from exercise of warrants . . . . . . . . . . . . . . . . . . . . 1,403 ---
--------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 1,449 17,558
--------- ---------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . (1,037) 21,668
--------- ---------
Cash and cash equivalents--beginning . . . . . . . . . . . . . . . . . . . . 25,294 4,494
--------- ---------
Cash and cash equivalents--ending . . . . . . . . . . . . . . . . . . . . . . $24,257 $26,162
========= =========
</TABLE>
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 year ended December 31, 1997.
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 -- NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated using the
weighted average number of common shares outstanding during the period.
Diluted income (loss) per share is calculated by including all dilutive
potential common shares such as stock options and warrants. A reconciliation
between the numerators and denominators of the basic and diluted net income per
common share is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended Three Months Ended
--------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net income (loss) (numerator for basic and
diluted net income (loss) per common share) $ 290 $(2,550) $ (183) $(1,278)
========== ========== ========== ===========
Weighted average common shares
(denominator for basic net income (loss) per
common share) 6,271 5,937 6,378 6,090
Employee stock options 222 --- --- ----
---------- ---------- ---------- -----------
Effect of dilutive securities:
common shares outstanding (denominator for
diluted income (loss) per common share) 6,493 5,937 6,378 6,090
========== ========== ========== ===========
Net income (loss) per common share-Basic $ .05 $ (.43) $ (.03) $ (.21)
========== ========== ========== ===========
Net income (loss) per common share-Diluted $ .04 $ (.43) $ (.03) $ (.21)
========== ========== ========== ===========
</TABLE>
Employee stock options and stock warrants totaling 1,052,350 and
1,116,049 for the quarters ended September 30, 1998 and 1997, respectively,
were not included in the net earnings per share calculation because their
effect would have been anti-dilutive.
NOTE 3 -- INCOME TAXES
At September 30, 1998, the Company has available net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $7.2 million and has available research and development credit
carryforwards for federal income tax reporting purposes of approximately
$300,000, which are available to offset future taxable income, if any. These
carryforwards expire beginning in 1999. A valuation allowance has been applied
to offset the respective deferred tax assets in recognition of the uncertainty
that such tax benefits will be realized. The Company's ability to use such net
operating loss and research and development credit carryforwards is limited by
change of control provisions under Section 382 of the Internal Revenue Code.
NOTE 4 -- NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures
about Segments of an Enterprise and Related Information". SFAS 130 requires
that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that
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is displayed with the same prominence as other annual financial statements.
Other comprehensive income may include foreign currency translation
adjustments, minimum pension liability adjustments and unrealized gains and
losses on marketable securities classified as available-for-sale. SFAS 131
established standards to report information about operating segments and
related discussions about products and services, geographic areas and major
customers. The adoption of SFAS 130 and SFAS 131 had no impact on the
Company's financial statements.
NOTE 5 -- STOCK OPTION PLAN
In August 1998, the Company's Board of Directors approved a stock
option exchange program in which it offered all holders the right to exchange
their options for the same number of new options with a lower exercise price
but with a modified term of vesting. All outstanding options with an exercise
price greater than $5 5/8 per share are eligible for this program. The closing
period for this exchange offering is November 30, 1998.
NOTE 6 -- CONTRACTUAL AGREEMENTS
In October 1998, the Company received a notice of termination from
Pfizer with respect to its licensing agreement for intranasal Doxylamine
Succinate. The termination arose from certain events within Pfizer that
contributed to a change in its priorities. Pursuant to terms of the licensing
agreement, all technology and other rights to Doxylamine Succinate revert to
the Company.
The Company has re-prioritized its research and development activities
to enhance its specialty in certain therapeutic classes associated with the
central nervous system, including pain management and anti-emetics.
Accordingly, certain projects and collaborative agreements in unrelated areas
have been, or will be, terminated.
In September 1998, the Company entered into an eleven year operating
lease for an R&D facility of 28,000 square feet, which has one five-year
renewal option. The lease provides for minimum annual rentals ranging from
$217,000 to $420,000 over the life of the lease. This facility, in proximity
of the Company's headquarters, also provides adequate space for the Company to
consolidate certain warehouse facilities.
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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
that reflect the Company's intentions, expectations or beliefs concerning
future events, including, but not limited to, expectations with respect to FDA
approval of new products, technology and product development milestones, the
ability of the Company to manufacture and meet market demand for its products,
the market acceptance of products under control of the Company's licensees, the
ability of the Company to negotiate favorable collaborative agreements, the
commencement of sales of new products, and the sufficiency of the Company's
cash flow for future liquidity and capital resource needs. These factors,
among others, could cause results to differ materially from those in the
forward-looking statements. In addition, significant fluctuations in quarterly
and fiscal operating results may occur as a result of varying milestone
payments and the timing of costs and expenses related to the Company's research
and development programs.
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 may enable 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, therapeutic or patient compliance limitations that may
be improved with a preferred delivery system.
The Company receives licensing revenues on two commercial products -
Stadol(R)NS(TM) and Nascobal(TM). Stadol NS, an opioid analgesic for the
treatment of moderate to severe pain and the acute pain of migraine, is
currently marketed by Bristol-Myers Squibb Co. (BMS) under an agreement that
generates quarterly royalties to the Company. Stadol NS has been classified by
the FDA as a Schedule IV substance under the Controlled Substances Act which,
among other factors, may negatively affect future sales by BMS and royalties to
the Company. The Company anticipates that this negative effect may continue in
the foreseeable future. In July 1997, the Company entered into an exclusive
licensing agreement for Nascobal(TM) in the U.S. with Schwarz Pharma and
commercially launched the product in October 1997. Under the agreement, the
Company will receive minimum royalty payments in 1998 of $2 million and retains
global manufacturing rights. The minimum royalty expires in December 1998.
Sales re-orders of Nascobal in 1998 are below expectations as a result of a
marketing issue which requires a change in the packaging configuration of the
product. Currently, this is being addressed by the Company. As a result,
Schwarz Pharma has deferred to 1999 its outstanding purchase orders of Nascobal
from the Company. The Company relies on a contract service provider for the
fill and packaging of Nascobal in accordance with current Good Manufacturing
Practice.
In December 1997, the Company entered into an agreement with Schwarz
Pharma for U.S. marketing rights with respect to the Company's planned
intranasal compound, scopolamine, for the prevention and treatment of motion
sickness. The Company has successfully met certain milestones, generating
revenues of $3 million during the nine months ended September 30, and plans to
file an NDA in the near future.
Historically, 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 developing nasal pharmaceuticals.
As part of a revised business strategy, the Company will typically postpone the
establishment of strategic alliances until later stages of development in order
to negotiate more favorable collaborative agreements and retain manufacturing
rights.
In October 1998, the Company received a notice of termination from
Pfizer with respect to its licensing agreement for intranasal Doxylamine
Succinate. The termination arose from certain events within Pfizer that
contributed to a change in priorities. Pursuant to terms of the licensing
agreement, all technology and other rights to Doxylamine Succinate revert to
the Company.
The Company intends to commit significant financial resources in the
future to internally fund certain research and development projects with the
goal of achieving greater economic benefit from product sales. In addition,
the Company's future profitability is primarily affected by, among others, the
success of product sales by its licensees, its
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investment and achievement of milestones in research and development programs,
regulatory uncertainties with respect to its filings with the FDA, and the
success of its financing activities. As a result of the uncertainties
associated with these factors and the increased investment in research and
development, the Company may not be profitable in calendar 1998.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Revenues increased by $4 million, or 100%, to $8.1 million primarily
as a result of manufactured product sales and royalty income from the sales of
Nascobal of $2 million and the achievement of milestones of $3 million on the
intranasal motion sickness product, scopolamine, under its collaborative
research agreement with Schwarz Pharma. Royalty income received from BMS on
sales of Stadol NS decreased $912,000, or 32%, to $1.9 million.
Total costs and expenses increased by $1.2 million, or 18%, to $7.8
million in 1998. The details of the increase follow:
Research and development expense increased by $1.4 million, or 51%, to
$4.2 million primarily as a result of the Company's clinical program for
intranasal scopolamine. The Company has entered into an operating lease for a
larger R&D facility and intends to pursue internally funded projects. The
Company anticipates that expenditures for research and development may continue
to increase in the foreseeable future.
In connection with the manufacture of Nascobal(TM), the Company
entered into a filling and packaging agreement with a third party. The Company
has incurred certain costs associated with its plan to expand its manufacturing
capabilities and reduce its reliance on third parties. The total cost of
product sales, including certain costs associated with this plan of operations,
was $587,000 in 1998.
Royalties expense decreased by $453,000, or 32%, to $941,000 as a
result of the decline in sales of Stadol NS by BMS and the related royalty
payable to the University of Kentucky Research Foundation (UKRF) under a
separate agreement between the Company and UKRF. Royalties expense increases
or decreases approximately in proportion to royalty income associated with
Stadol NS.
Sales and marketing expenses decreased by $626,000, or 50%, to
$623,000. The Company eliminated its marketing costs in 1998 associated with
the product, Nascobal(TM), as a result of the licensing agreement entered into
with Schwarz Pharma. General and administrative costs increased by $267,000,
or 23%, to $1.4 million primarily as a result of certain expenses associated
with mergers and acquisition activity. As a percentage of total revenues,
general and administrative expenses decreased to 18% in 1998 as compared to 29%
in 1997.
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Revenues increased by $1.1 million, or 79%, to $2.5 million as a
result of manufactured product sales and royalty income from the sales of
Nascobal of $569,000 and the achievement of milestones of $950,000 on the
intranasal motion sickness product, scopolamine. Royalty income received from
BMS on sales of Stadol NS decreased $328,000, or 36%, to $591,000.
Total costs and expenses remained unchanged at $2.7 million for each
period; however, significant component changes were as follows:
Research and development expense increased by $529,000, or 42%, to
$1.8 million primarily as a result of the Company's clinical program for
intranasal scopolamine. The Company has entered into an operating lease for a
larger R&D facility and intends to pursue internally funded projects. The
Company anticipates that expenditures for research and development may continue
to increase in the foreseeable future.
Royalties expense decreased by $171,000, or 38%, to $278,000 as a
result of the decline in sales of Stadol NS by BMS and the related royalty
payable to the UKRF.
Sales and marketing expenses decreased by $331,000, or 67%, to
$161,000 as the Company eliminated its marketing costs in 1998 associated with
the product, Nascobal. General and administrative costs decreased by $98,000,
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<PAGE> 11
or 20%, to $386,000 primarily as a result of relocation costs. As a percentage
of total revenues, general and administrative expenses decreased to 15% in 1998
as compared to 34% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's liquidity included cash and cash
equivalents of $24.3 million compared to $25.3 million at December 31, 1997.
Royalties and fees receivable at September 30, 1998, consist principally of
receivables pursuant to the BMS and Schwarz Pharma agreements. During the nine
months ended September 30, 1998, warrants were exercised which provided the
Company additional cash of $1.4 million.
At September 30, 1998, the Company had working capital of $25.6
million. Management anticipates that its current cash position will provide
adequate funds for the Company's anticipated needs, including working capital,
through 1999. 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.
YEAR 2000 COMPLIANCE
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the Year 2000 issue and, with minor
modifications to its computer systems, the Year 2000 will not pose a
significant operational problem. However, improper or inadequate remediation
of Year 2000 problems by suppliers, customers and financial institutions could
adversely affect the Company's operations, liquidity or financial condition.
The Company is in the process of contacting all significant suppliers,
customers and financial institutions in order to identify potential areas of
concern. It is anticipated that this inquiry will be completed by the second
quarter of 1999. The Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material adverse impact on the
Company.
Based on the results of the above inquiry, the Company may need to
create a contingency plan to identify and document potential business
disruptions and continuity planning procedures. The Company expects this
activity to be an on-going process well into the third quarter of 1999.
The above comments on the Year 2000 issue contain forward-looking
statements relating to the Company's plans, strategies, expectations,
intentions, and resources that should be read in conjunction with the Company's
disclosures on Forward-Looking Statements.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 132 revises disclosures
about pension or other postretirement benefit plans. The adoption of SFAS No.
132 will have no significant effect on previously reported information.
-9-
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
NONE
-10-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, duly authorized, in Hauppauge, State of New York, on November 12,
1998.
NASTECH PHARMACEUTICAL COMPANY INC.
By: /s/ Vincent D. Romeo, Ph.D.
-----------------------------------------------
Vincent D. Romeo, Ph.D.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Andrew Zinzi
------------------------------------------------
Andrew Zinzi
Chief Financial Officer
(Principal Financial and Accounting Officer)
-11-
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,257
<SECURITIES> 0
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<PP&E> 1,549
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0
0
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<SALES> 506
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<CGS> 587
<TOTAL-COSTS> 587
<OTHER-EXPENSES> 7,217
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 290
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
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<NET-INCOME> 290
<EPS-PRIMARY> .05
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