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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, 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>
<S> <C> <C>
DATE CLASS SHARES OUTSTANDING
03/31/98 Common stock - $.006 par value 6,118,816
</TABLE>
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NASTECH PHARMACEUTICAL COMPANY INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 - FINANCIAL STATEMENTS
Page
<S> <C>
Balance Sheets as of March 31, 1998 and December 31,1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations for the three months ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . 2
Statements of Stockholders' Equity for the three months ended March 31, 1998 and the year ended
December 31,1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows for the three months ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $20,741 $25,294
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . 2,984 ---
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 482
Royalties and fees receivable . . . . . . . . . . . . . . . . . . . . . . 1,875 455
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 370
Prepaid expenses and sundry . . . . . . . . . . . . . . . . . . . . . . . 253 47
--------------- ---------------
Total current assets 26,218 26,648
--------------- ---------------
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,104 1,010
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . 358 302
--------------- ---------------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . 746 708
--------------- ---------------
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 15
--------------- ---------------
Total assets $26,979 $27,371
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 792 $ 1,497
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288 191
Accrued expenses and sundry liabilities . . . . . . . . . . . . . . . . . 611 726
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . 14 13
--------------- ---------------
Total current liabilities 1,705 2,427
--------------- ---------------
Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . 11 15
--------------- ---------------
Stockholders' equity:
Common stock, $.006 par value; authorized: 25,000,000 shares; issued and
outstanding: 6,118,816 shares at March 31, 1998 and 6,101,020 shares at
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 37
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 36,076 35,978
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,850) (11,086)
--------------- ---------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 25,263 24,929
--------------- ---------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . $26,979 $27,371
=============== ===============
</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,
---------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
Revenues:
Product sales . . . . . . . . . . . . . . . $ 232 $ ---
License fee, royalty and research income 1,859 838
Interest income . . . . . . . . . . . . . 365 302
--------------- ----------------
Total revenues . . . . . . . . . . . . 2,456 1,140
--------------- ----------------
Costs and expenses:
Cost of product sales . . . . . . . . . . 274 ---
Research and development . . . . . . . . . 1,063 589
Royalties . . . . . . . . . . . . . . . . 288 404
Sales and marketing . . . . . . . . . . . 200 170
General and administrative . . . . . . . . 395 341
--------------- ----------------
Total costs and expenses . . . . . . . 2,220 1,504
--------------- ----------------
Net income (loss) . . . . . . . . . . . . . . $ 236 $ (364)
=============== ================
Net income (loss) per common share-Basic . . $ .04 $ (.06)
=============== ================
Net income (loss) per common share-Diluted . $ .04 $ (.06)
--------------- ----------------
Average shares outstanding-Basic . . . . . . 6,106,246 5,630,825
=============== ================
Average shares outstanding-Diluted . . . . . 6,523,816 5,630,825
=============== ================
</TABLE>
See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31,
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 . . . . . . . . . . . . . . . 10,796 --- 52 --- 52
Shares issued in connection with exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . 7,000 --- 46 --- 46
Net income three months ended March 31, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . --- --- --- 236 236
---------- --------- ------------- ----------- -------------
BALANCE, MARCH 31, 1998 (UNAUDITED) . . . . . . . . . 6,118,816 $ 37 $ 36,076 $ (10,850) $ 25,263
========== ========= ============= =========== =============
</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,
--------------------------
1998 1997
------------ -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 236 $ (364)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 56 46
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 388 ---
Royalties and fees receivable . . . . . . . . . . . . . . . . . . . . . (1,420) (31)
Prepaid expenses and sundry . . . . . . . . . . . . . . . . . . . . . . (206) (159)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 (199)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (705) 84
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 169
Accrued expenses and sundry liabilities . . . . . . . . . . . . . . . . (115) 60
------------ -------------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . (1,570) (394)
------------ -------------
INVESTING ACTIVITIES:
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . (94) (301)
Short-term investments -- acquisitions . . . . . . . . . . . . . . . . . . (2,984) (969)
Short-term investments -- redemptions . . . . . . . . . . . . . . . . . . --- 2,917
------------ -------------
Net cash (used in) provided by investing activities . . . . . . . . . . . . . (3,078) 1,647
------------ -------------
FINANCING ACTIVITIES:
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (4)
Net proceeds from sale of common stock . . . . . . . . . . . . . . . . . --- 17,566
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . 46 ---
Proceeds from exercise of warrants . . . . . . . . . . . . . . . . . . . 52 ---
------------ -------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 95 17,562
------------ -------------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . (4,553) 18,815
------------ -------------
Cash and cash equivalents--beginning . . . . . . . . . . . . . . . . . . . . 25,294 4,494
------------ -------------
Cash and cash equivalents--ending . . . . . . . . . . . . . . . . . . . . . . $ 20,741 $ 23,309
============ =============
</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 -- PUBLIC OFFERING
The Company completed a public offering of 1,380,000 shares of common
stock at $14.00 per share in the prior year. 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
Raw material inventories are stated at the lower of cost (first- in,
first- out basis) or market value.
NOTE 4 -- 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. Potential common
shares are not included for the three months ended March 31, 1997 because they
would be anti-dilutive.
NOTE 5 -- INCOME TAXES
At March 31, 1998, the Company has available net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $8,000,000, and has available research and development credit
carryforwards for federal income tax reporting purposes of approximately
$285,000, which are available to offset future taxable income, if any. These
carryforwards expire beginning in 2000. 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.
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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, a narcotic 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 Company relies on a contract service provider
for the fill and packaging of this product in accordance with current Good
Manufacturing Practice.
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.
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 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
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues increased by $1.3 million, or 115%, to $2,456,000 primarily
as a result of revenue of $732,000 on the Company's product, Nascobal, and the
achievement of milestones of $700,000 on the intranasal motion sickness
product, scopolamine. Royalty income received from BMS on sales of Stadol NS
decreased $235,000, or 28%, to $594,000.
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Total costs and expenses increased by $716,000, or 48%, to $2,220,000
in 1998. The details of the increase follow:
Research and development expense increased by $474,000, or 80%, to
$1.1 million primarily as a result of the Company's clinical program for the
intranasal motion sickness compound, scopolamine, and the research and
development of certain compounds in collaboration with other pharmaceutical
companies. The Company intends to pursue internally funded projects and
anticipates that expenditures for research and development will continue to
increase in 1998.
In connection with the manufacture of Nascobal, 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 $274,000.
Royalties expense decreased by $116,000, or 29%, to $288,000 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, marketing, general and administrative expenses increased by
$84,000, or 16%, to $595,000 as the Company enhanced its support staff and
incurred certain mandatory regulatory costs associated with its facility and
prescription product, Nascobal. As a percentage of total revenues, general and
administrative expense decreased to 16% in 1998 as compared to 30% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's liquidity included cash and
short-term investments of $23.7 million compared to $25.3 million at December
31, 1997. These consisted primarily of the funds related to public offerings.
Accounts and royalties receivable at March 31, 1998, consist principally of
receivables pursuant to the BMS and Schwarz Pharma agreements.
At March 31, 1998, the Company had working capital of $24.5 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.
YEAR 2000 COMPLIANCE
The Company is currently analyzing the potential impact of the Year
2000 on the processing of date sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
an applicable year. The Company's general ledger system is currently Year 2000
compliant. The Company is studying the impact of the Year 2000 problem on
other aspects of its business and as of March 31, 1998 this impact on the
future financial position, operating results, and cash flows of the Company is
not determinable.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
NONE
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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 Hauppauge, State of New York, on May 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)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,741
<SECURITIES> 2,984
<RECEIVABLES> 1,969
<ALLOWANCES> 0
<INVENTORY> 271
<CURRENT-ASSETS> 26,218
<PP&E> 1,104
<DEPRECIATION> 358
<TOTAL-ASSETS> 26,979
<CURRENT-LIABILITIES> 1,705
<BONDS> 11
37
0
<COMMON> 0
<OTHER-SE> 25,226
<TOTAL-LIABILITY-AND-EQUITY> 26,979
<SALES> 232
<TOTAL-REVENUES> 2,456
<CGS> 274
<TOTAL-COSTS> 274
<OTHER-EXPENSES> 1,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 236
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 236
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
