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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 JUNE 30, 2000
COMMISSION FILE NUMBER 0-13789
NASTECH PHARMACEUTICAL COMPANY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2658569
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
45 DAVIDS DRIVE, HAUPPAUGE, NEW YORK 11788
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 273-0101
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.006 par value Nasdaq National Market
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>
06/30/00 Common stock - $.006 par value 6,200,485
</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 June 30, 2000 (unaudited) and December 31, 1999.....................................1
Statements of Operations for the six months and three months ended June 30, 2000 (unaudited) and
1999 (unaudited).........................................................................................2
Statements of Stockholders' Equity for the six months ended June 30, 2000 (unaudited) and the
year ended December 31,1999..............................................................................3
Statements of Cash Flows for the six months ended June 30, 2000 (unaudited) and 1999 (unaudited).........4
Notes to Financial Statements ...........................................................................5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................6
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............................................7
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS........................................................................................8
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS................................................................8
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES..........................................................................8
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................8
ITEM 5 - OTHER INFORMATION........................................................................................8
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.........................................................................8
SIGNATURES...............................................................................................9
</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>
JUNE 30, DECEMBER 31,
2000 1999
------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $9,654 $10,652
Short-term investments........................................... --- 3,986
Accounts receivable................................................ 7 25
Royalties and fees receivable...................................... 682 1,011
Inventories........................................................ 237 279
Prepaid expenses and sundry assets................................. 159 533
------- -------
Total current assets........................................ 10,739 16,486
------- -------
Property and equipment................................................ 5,138 4,666
Less: Accumulated depreciation and amortization.................... 1,346 986
------- -------
Property and equipment, net................................. 3,792 3,680
------- -------
Other assets.......................................................... 49 33
------- -------
Total assets................................................ $14,580 $20,199
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $1,058 $2,059
Royalties payable.................................................. 270 664
Accrued expenses and sundry liabilities............................ 1,061 851
------- -------
Total current liabilities................................... 2,389 3,574
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized: 100,000 shares;
issued and outstanding: none --- ---
Common stock, $0.006 par value; authorized: 25,000,000 shares; issued:
6,277,485 shares at June 30, 2000 and 6,267,485 shares at
December 31, 1999, respectively............................. 38 38
Additional paid-in capital......................................... 37,042 37,050
Accumulated deficit................................................ (24,738) (20,312)
------- -------
12,342 16,776
Less: Treasury stock, at cost, 77,000 shares................... 151 151
------- -------
Total stockholders' equity................................ 12,191 16,625
------- -------
Total liabilities and stockholders' equity................ $14,580 $20,199
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</TABLE>
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales............... $ 209 $ 170 $ 125 $ 137
License fee and royalty income ...... 1,488 2,339 690 987
Interest income...................... 366 575 165 277
------------ ------------ ------------- ------------
Total revenues................... 2,063 3,084 980 1,401
------------ ------------ ------------- ------------
Costs and expenses:
Cost of product sales................ 163 139 94 113
Research and development............. 4,132 4,547 2,004 1,529
Royalties............................ 608 772 263 441
Sales and marketing.................. 484 447 224 339
General and administrative........... 1,102 832 647 397
------------ ------------ ------------- ------------
Total costs and expenses......... 6,489 6,737 3,232 2,819
------------ ------------ ------------- ------------
Net loss................................ $ (4,426) $ (3,653) $ (2,252) $ (1,418)
============ ============ ============= ============
Net loss per common share-basic
and diluted ............................ $ ( .71) $ (.57) $ ( .36) $ (.22)
============ ============ ============= ============
Average shares outstanding-basic ....
and diluted 6,194 6,381 6,199 6,381
============ ============ ============= ============
</TABLE>
See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
----------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998............. 6,376,915 $ 38 $ 37,426 $ (11,962) --- $ 25,502
Redemption of shares in connection with (110,736) --- (395) --- --- (395)
reverse/forward stock split.............
Shares issued in connection with 5,000 --- 19 --- --- 19
exercise of stock options.............
Acquisition of treasury stock........... --- --- --- --- (151) (151)
Fractional shares redeemed in
connection with reverse stock split (3,694) --- --- --- ---
Net loss year ended December 31, 1999 --- --- --- (8,350) --- (8,350)
---------- ----------- ---------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1999.............. 6,267,485 $ 38 $ 37,050 $ (20,312) $ (151) $ 16,625
Costs related to equity financing....... --- --- (75) --- --- (75)
Compensation related to stock options... --- --- 34 --- --- 34
Shares issued in connection with
exercise of stock options............... 10,000 --- 33 --- --- 33
Net loss six months ended June 30,
2000 (unaudited)........................ --- --- --- $ (4,426) --- $ (4,426)
---------- ----------- ---------- ----------- ---------- ----------
BALANCE, JUNE 30, 2000 (UNAUDITED)...... 6,277,485 $ 38 $ 37,042 $ (24,738) $ (151) $ 12,191
========== =========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
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NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
2000 1999
-------------- ----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss...................................................................... $ (4,426) $ (3,653)
Adjustments to reconcile net loss to net cash used in operating activities:
Compensation related to stock options....................................... 34 ---
Depreciation and amortization............................................... 360 198
Changes in assets and liabilities:
Accounts and other receivables.............................................. 347 1,067
Inventories................................................................. 42 19
Prepaid expenses and sundry assets.......................................... 358 (13)
Accounts payable............................................................ (1,001) 195
Royalties payable........................................................... (394) (156)
Accrued expenses and sundry liabilities..................................... 210 (31)
-------------- ------------
Net cash used in operating activities............................................. (4,470) (2,374)
-------------- ------------
INVESTING ACTIVITIES:
Property and equipment......................................................... (472) (749)
Short-term investments-redemptions............................................. 3,986 ---
-------------- ------------
Net cash provided by (used in) investing activities............................... 3,514 (749)
-------------- ------------
FINANCING ACTIVITIES:
Costs related to equity financing............................................. (75) ---
Exercise of stock options..................................................... 33 19
-------------- ------------
Net cash (used in) provided by financing activities............................... (42) 19
-------------- ------------
Net decrease in cash and cash equivalents......................................... (998) (3,104)
Cash and cash equivalents--beginning.............................................. 10,652 23,515
-------------- ------------
Cash and cash equivalents--ending................................................. $9,654 $20,411
============== ============
</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, 1999, included in the Company's 1999 annual
report filed on Form 10-K.
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 LOSS PER COMMON SHARE
Basic and diluted net loss per common share is computed by dividing the
net loss by the weighted average number of common shares outstanding during the
periods. The diluted loss per common share presented excludes the common stock
equivalents (stock options and warrants), since such inclusion in the
computation would be antidilutive.
Employee stock options that are in-the-money totaling 265,050 at June
30, 2000 were not included in the net loss per share calculation because their
effect would have been anti-dilutive.
NOTE 3 -- INCOME TAXES
At June 30, 2000, the Company has available net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $23.5 million and has available research and development credit
carryforwards for federal income tax reporting purposes of approximately $1
million which are available to offset future taxable income, if any. These
carryforwards expire beginning in 2000 through 2019. 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. In addition, 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 -- CONTINGENCIES
During the second quarter, the Company received correspondence from the
FDA that indicates the probable requirement for the Company to conduct
additional safety studies in certain patient populations for its intranasal
scopolamine product. The execution of an additional safety study was agreed to
by the Company in an April 2000 meeting with the FDA. Subsequently, the Company
has requested further clarification from the FDA concerning the scope of such
studies and has postponed proceeding with additional clinical trials pending the
outcome of its discussions with the FDA.
NOTE 5 -- MANAGEMENT
In May 2000 the Company's President and Chief Executive Officer died.
Pending the appointment of a successor, the Company's Executive Committee
assumed the responsibilities associated with the executive position in
accordance with the Company's management succession plan. The Company has
incurred approximately $284,000 of contractual obligations payable to the estate
of the deceased CEO, including $34,000 as a result of accelerating the vesting
of certain stock options, and classified this amount in general and
administrative expenses.
NOTE 6 -- SUBSEQUENT EVENT -- EQUITY FINANCING AGREEMENT
In July 2000, the Company obtained an equity line of credit pursuant to
which the Company has the option, at its discretion, to issue during a 3-year
term up to 1.2 million shares of its common stock to a private investor at
prices that are discounted from the fair market value on the date of issuance.
In connection with the signing of the agreement the Company issued 50,000
warrants to purchase the Company's common stock at a factor of 1.20 applied to
the fair market value on the date of grant and another 50,000 warrants may be
issued in conjunction with the issuance of common stock related to future
utilization of the equity line of credit.
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. The accompanying information should be read in conjunction with the
Company's 1999 annual report filed on Form 10K.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30,
1999
Revenues decreased by $1 million, or 33%, to $2.1 million primarily as
a result of the discontinuance of milestone payments on intranasal scopolamine.
Total revenues from Schwarz Pharma on Nascobal(R) were $432,000 compared to
$339,000 in 1999. No milestone payments on scopolamine were received in the
current six months as compared to $500,000 in 1999. Royalty income received from
BMS on sales of Stadol(R)NS(TM) decreased $329,000, or 21%, to $1,250,000.
Total costs and expenses decreased by $248,000 or 4%, to $6.5 million
in 2000. The details of the decrease follow:
Research and development expense decreased by $415,000, or 9%, to $4.1
million primarily as a result of a reduction in the Company's clinical program
for intranasal scopolamine, offset by increased costs associated with a new
research and development facility, personnel costs and multiple development
programs.
Royalties expense decreased by $164,000, or 21%, to $608,000 as a
result of the decrease 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.
As a percentage of total revenues, sales and marketing and general and
administrative expenses increased to 77% in 2000 as compared to 41% in 1999 as a
result of the decline in revenues.
Additionally, general and administrative expense increased $270,000
principally as a result of the $284,000 of compensation expense incurred in
conjunction with the contractual obligations with the estate of the deceased
CEO.
Three Months Ended June 30, 2000 Compared to Three Months Ended June
30, 1999
Revenues decreased by $421,000 or 30%, to $980,000 primarily as a
result of a decline in royalty income from BMS on sales of Stadol NS. Total
revenues from Schwarz Pharma on Nascobal(R) were $249,000 compared to $215,000
in 1999. Royalty income received from BMS on sales of Stadol NS, based upon a
preliminary report received from BMS, decreased $342,000, or 38%, to $559,000.
Total costs and expenses increased by $413,000 or 15%, to $3.2
million in 2000. The details of the increase follow:
Research and development expense increased by $475,000, or 31%, to $2.0
million primarily as a result of increased costs associated with a new research
and development facility, personnel costs and multiple development programs.
Royalties expense decreased by $178,000, or 40%, to $263,000 as a
result of the decrease 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.
As a percentage of total revenues, sales and marketing and general and
administrative expenses increased to
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89% in 2000 as compared to 53% in 1999 as a result of the decline in revenues.
Additionally, general and administrative expense increased $250,000
principally as a result of the $284,000 of compensation expense incurred in
conjunction with the contractual obligations with the estate of the deceased
CEO.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company's liquidity included cash and cash
equivalents of $9.7 million compared to $14.6 million of cash and cash
equivalents and short-term investments at December 31, 1999. Account, royalties
and fee receivables at June 30, 2000 consist principally of receivables pursuant
to the BMS and Schwarz Pharma agreements.
At June 30, 2000, the Company had working capital of $8.4 million.
Management anticipates that it may require an additional infusion of capital in
year 2000 in order to provide adequate funds for the Company's anticipated
needs, including working capital. In connection therewith the Company entered
into an equity financing agreement in July 2000.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company knows of no material litigation or proceedings, pending or
threatened, to which the Company is or may become a party.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In June 2000, the shareholders of the Company approved the following
proposals:
1) Election of seven (7) directors, each to hold office for a
term of one (1) year or until their respective successors have
been duly elected or appointed; and
2) Appointment of KPMG LLP as the Company's independent auditors
for the year ending December 31, 2000.
ITEM 5 - OTHER INFORMATION
On May 1, 2000, the Company's President and Chief Executive Officer,
Vincent D. Romeo, Ph.D., died. The responsibilities associated with his
position have been assumed by the Company's Executive Committee in
accordance with the Company's succession plan.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
In July 2000, the Company filed a Form 8-K in connection with new
financing of an equity line of credit.
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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 August 7,
2000.
NASTECH PHARMACEUTICAL COMPANY INC.
By: /s/ Bruce R. Thaw
---------------------------
Bruce R. Thaw
Director
Member of Executive Committee
By: /s/ Andrew Zinzi
---------------------------
Andrew Zinzi
Chief Financial Officer
(Principal Financial and Accounting Officer)
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