UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended December 31, 1999
Commission File Number 0-13789
NASTECH PHARMACEUTICAL COMPANY INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 11-2658569
incorporation or organization) (I.R.S. Employer Identification No.)
45 Davids Drive, Hauppauge, New York
(Address of principal executive 11788
offices) (Zip Code)
Registrant's telephone number, including area code: (631) 273-0101
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 29, 2000 based upon the closing price on that date, on
the Nasdaq National Market, was approximately $25,386,000.
As of February 29, 2000, there were 6,190,485 shares of the registrant's $.006
par value common stock outstanding.
<PAGE>
PART I
ITEM 1 - BUSINESS
Background
Nastech Pharmaceutical Company Inc. researches, develops and manufactures
nasally administered prescription pharmaceuticals. We investigate the commercial
weaknesses of prescription and over-the-counter pharmaceutical products
currently available in oral, injectable or other dosage forms, and we determine
the advantages an alternative drug delivery system would have for the same drug
in the market place. For example, while the oral route of drug delivery is the
most popular and least expensive method of delivery, an oral drug's
effectiveness can be reduced by gastrointestinal and liver metabolism.
Generally, a nasal delivery system will provide faster absorption into the blood
stream than an oral product thereby resulting in faster onset of action. Other
possible advantages of this therapy may include lower drug doses, fewer side
effects, greater safety and efficacy, greater convenience to the patient, better
patient compliance of prescribed drug therapy, and lower overall health care
costs for the patient.
We have a commercial interest in two drugs, both of which are approved for
sale in the U.S. and are marketed by our licensees. Stadol(R) NS(TM)
(Butorphanol Tartrate) is marketed by Bristol-Myers Squibb Company, and
Nascobal(R) (Cyanocobalamin, USP) is marketed by Schwarz Pharma Inc. To our
knowledge, Stadol(R) NS(TM) is the only nasally administered opioid pain relief
medication marketed for the treatment of moderate to severe pain and acute
migraine pain. It provides painless therapy and convenient, patient
self-administration as compared to the competitive injectable product.
Similarly, Nascobal(R), our nasal vitamin B-12 product, provides patient
benefits over the injectable therapy for chronic B-12 deficiency anemia. In
addition to these two drugs, we have six drugs in various stages of drug
research and development, one of which we have licensed to another
pharmaceutical company so that it may develop the drug and eventually sell it in
the United States.
Industry Overview
We participate in the drug delivery industry estimated at $12 billion in
revenues. Conventional methods of drug delivery include oral administration and
injections. Newer delivery methods include improved versions of the above and
other novel systems such as nasal, transdermal and pulmonary systems, among
others. These newer methods of drug delivery often provide greater safety and
efficacy, fewer side effects, improved patient compliance and lower healthcare
costs to the patient.
We believe that the advantages of nasal drug delivery provide significant
market opportunities, particularly against oral and injectable therapy. Nasal
delivery may provide the opportunity to administer lower dosages to achieve the
desired therapeutic effect. In addition, some patients, particularly children
and the elderly and those who suffer from nausea and vomiting, may find oral
tablets or capsules difficult to swallow. Also, the required use of measuring
devices may be difficult for these patients to self-administer liquids or
syrups.
Injectable products, although avoiding gastrointestinal or liver
metabolism found in oral therapy, are oftentimes painful and expensive. These
products often result in patient non-compliance because of patient discomfort
and the required assistance of healthcare professionals or caretakers.
Like injections, the transdermal dosage form avoids gastrointestinal or
liver metabolism but are slow-absorbing in the blood stream and may result in
skin irritation.
Pulmonary drug delivery is widely accepted for the administration of drugs
to treat respiratory conditions such as bronchial asthma. Although this route is
being considered for the systemic delivery of pharmaceuticals, no such products
have been approved in the U.S. at this time. If approved, these products may
require the use of expensive delivery devices and extensive patient and
physician education.
We believe that changes in healthcare have created a greater need for
alternative drug delivery methods, including nasal delivery. Managed care
policies and increased competition, particularly from generic competitors, have
caused large pharmaceutical companies to seek collaborative agreements with drug
delivery specialists. These collaborations seek to improve and differentiate
existing products, expand drug indications and provide proprietary protection
against competition.
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Business Strategy
Our current business strategy is to expand the applications of nasal and
oral drug delivery in the prescription and over-the-counter markets.
Focus Initial Efforts on Approved Drugs. We focus primarily on drugs that
have proven efficacy and safety, are approved for marketing and which we believe
could benefit from a nasal form of delivery. We believe that by focusing our
research and development activities on drugs with demonstrated safety and
efficacy, and with an unaddressed market need, we may reduce the technical and
marketing risk of our projects by decreasing the time period required to bring a
new product to market and expanding the market for certain drugs.
Internally Fund Development Through Later Stages. Historically, we have
used our cash and cash equivalents to fund our research and development and for
other working capital purposes. We believe that internally funding development
until later stages will allow us to retain product rights and enable us (i) to
negotiate more favorable collaborative agreements and (ii) to retain
manufacturing rights on a global basis. Although historically focused on
establishing early stage alliances, we believe we are now able to leverage our
product development experience and broad product pipeline to pursue internally
funded development and commercialization projects, as appropriate. Therefore, we
intend to commit significant financial resources to research and development
with the goal of achieving greater economic benefit from product sales.
Leverage Strategic Alliances. Where appropriate, we seek to establish
domestic and international relationships with major pharmaceutical companies for
the marketing and distribution of certain of our products or technology. This
approach allows us to devote our resources to the further development of our
technology while leveraging the established sales and marketing capabilities of
our collaborative partners. We currently have collaborative agreements with BMS,
Schwarz Pharma Inc. ("Schwarz"), Meda AB ("Meda"), Cambridge Laboratories
("Cambridge"), and Questcor, Inc. ("Questcor"), and will continue to pursue
additional partners where appropriate.
Protect and Expand Intellectual Property. We have and will continue to
seek patent protection for our formulations and other technology in the United
States and key international markets. We have filed U.S. patent applications, as
well as corresponding patent applications outside the United States, relating to
our technology. As specific formulations are developed and clinically tested, we
intend to file for additional patent protection.
Products
The following chart summarizes our current products and product
pipeline:
<TABLE>
<CAPTION>
Traditional
Therapeutic Delivery
Drug Marketed: Category Method Status (1) Partner
<S> <C> <C> <C> <C>
Stadol(R)NS(TM) Opioid Analgesic Injection Global (2) BMS
Nascobal(R) Vitamin/Anti-Anemia Injection U.S. only (2) Schwarz, Meda (4),
Cambridge (4)
Metoclopramide HCl Anti-Nausea/Anti-Emetic Injection/Oral Italy(3) Questcor
Active Development
Status:
Scopolamine HBr Anti-Motion Sickness Patch/Injection NDA Filed (5)
Morphine Sulfate Pain Management Injection/Oral Phase II
Apomorphine HCl Sexual Dysfunction N/A Phase II
Undisclosed Opioid Analgesic Injection/Oral Phase I
Buprenorphine HCl Opioid Analgesic Injection Phase I
Metoclopramide HCl Anti-Nausea/Anti-Emetic Injection/Oral Phase III (2) Questcor
</TABLE>
(1) See "Risk Factors" for a description of the different stages of
development.
(2) All marketing or development activities performed by collaborative partners
and/or licensee.
(3) Approved for marketing in Italy.
(4) Marketing partners for Nascobal(R) excluding U.S.
(5) In February 2000 the FDA refused acceptance of the NDA.
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<PAGE>
Stadol(R) NS(TM) is a trademark of the Bristol-Myers Squibb Company
("BMS"). Stadol NS is an opioid analgesic sublicensed to BMS for marketing
as a prescription pain-reliever. Nascobal(R) is a trademark of Nastech.
Trade names and trademarks of other companies appearing herein are the
property of their respective holders. Metoclopramide development
activities are performed by Questcor.
Approved and Marketable Products
Stadol(R) NS(TM) (Butorphanol Tartrate Nasal Spray) -- Opioid analgesic for
acute pain. Stadol NS is the only transnasal opioid analgesic therapy marketed
for the treatment of moderate to severe pain and the acute pain of migraine.
Prior to Stadol NS, the only acceptable and effective means of delivery for
Butorphanol Tartrate was the injectable form. Transnasal Butorphanol Tartrate
offers significant advantages over injectable formulations of the drug,
including patient self-administration, increased patient compliance, cost
containment, and the additional indication of usage. Because of these
advantages, transnasal Butorphanol Tartrate has enjoyed significant growth in
market size since 1992, as compared to the injectable formulation. Stadol NS is
currently marketed by BMS under an agreement that generates quarterly royalties
to us. The royalty agreement terminates at time of patent expiry in August 2001.
Stadol NS has been classified by the Food and Drug Administration ("FDA") as a
Schedule IV substance under the Controlled Substances Act which has negatively
affected sales by BMS and our royalties.
Nascobal(R) (Cyanocobalamin, USP) Gel for Intranasal Administration -- For
Vitamin B-12 deficiency anemia. Nascobal(R) may replace inconvenient, painful
and often expensive monthly injections by a health care professional for the
maintenance treatment of chronic Vitamin B-12 deficiency anemia. Nascobal(R) is
a more convenient, painless, self-administered weekly therapy, which we believe
will result in improved patient compliance. We independently developed
Nascobal(R) through FDA marketing clearance, and presently manufacture this
product for Schwarz Pharma. In July 1997, we entered into an exclusive licensing
agreement for Nascobal(R) in the U.S. with Schwarz Pharma, and the product was
commercially launched in October, 1997. In 1997 and 1998, we expanded our
licensing arrangements into territories outside the U.S. through agreements with
Meda AB and Cambridge Laboratories. We are awaiting regulatory approval in
Sweden and then in other European countries before commercial shipments are made
to Meda and Cambridge.
Products Under Development
Scopolamine Hydrobromide -- Anti-motion sickness. Scopolamine Hydrobromide
is a naturally occurring tertiary amine antimuscarinic agent with a long history
of oral and parenteral use for central anticholinergic activity, including
prophylaxis of motion sickness. Scopolamine is currently available as a
transdermal patch for the prevention of nausea and vomiting associated with
motion sickness in adults and is marketed under the tradename Transderm Scop(R)
by Novartis. As a patch dosage form, Transderm Scop(R) must be applied to the
skin at least 4 hours before the anti-emetic effect is required and is
programmed to deliver drug over a three day period. We believe that a nasal
dosage form of scopolamine will be a more convenient and safer alternative with
a faster onset of action allowing for both prevention and treatment of motion
sickness. In February 2000 the FDA refused to file our New Drug Application
("NDA") for intranasal scopolamine hydrobromide primarily because we failed to
present adequate safety data. The FDA believes that there were an inadequate
number of patients exposed to our product, inadequate safety analyses, and an
inadequate presentation of adverse events data. We are currently seeking a
collaborative partner for this product to assist us in funding the development
program and in marketing the product.
Morphine Sulfate -- Opioid analgesic. Morphine Sulfate is an opioid
agonist currently marketed in multiple dosage forms including injectable, oral
and rectal. However, the only method currently approved for breakthrough pain is
a transmucosal oral product, which is limited to opioid-tolerant cancer
patients. We believe a nasal dosage form of morphine sulfate will allow for
patient-friendly self-administration and will provide a rapid systemic
absorption of the drug for quick pain relief in a broad patient population.
Apomorphine Hydrochloride -- Erectile dysfunction. Apomorphine
Hydrochloride, an emetic, is a centrally acting dopamine agonist. In 1999 a
pharmaceutical company filed an NDA indicating that a sub-lingual form of
apomorphine was effective in the treatment of erectile dysfunction. We believe
that a nasal dosage form of apomorphine will allow for patient-friendly
self-administration and provide a rapid systemic absorption of the drug with
reduced side- effects for the treatment of erectile dysfunction.
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<PAGE>
Buprenorphine Hydrochloride -- Opioid analgesic. Buprenorphine HCl is a
partial opioid agonist analgesic. In its injectable dosage form, it is commonly
known as Buprenex(R), which is marketed by Reckitt and Colman Pharmaceutical,
Inc. The only method currently approved by the FDA for administering
Buprenorphine HCl is by injection. We believe that a nasal dosage form of this
product will allow for patient-friendly self-administration and will provide a
rapid systemic absorption of the drug for quick pain relief.
Metoclopramide Hydrochloride -- Anti-nausea/anti-emetic. Metoclopramide
HCl is an anti-nausea/anti-emetic agent indicated for the treatment of nausea
and vomiting due to emetogenic cancer chemotherapy. In its oral and injectable
dosage forms, it is commonly known as Reglan(R) which is marketed by A. H.
Robins Company Inc. We believe that a self-administered nasal dosage form will
provide a patient friendly alternative to injections, which are inconvenient and
painful, and to oral doses, which are often difficult to swallow when nauseous.
Questcor has conducted Phase III clinical trials under an agreement that
provides for certain minimum royalties to us beginning in 1998, in addition to
royalties based on net sales. Metoclopramide HCl is currently marketed in Italy.
Other Products and Research Activities
In addition to the products contained in our product development pipeline,
we are frequently presented with opportunities to evaluate the feasibility of a
given compound for nasal delivery and to develop new product concepts. In this
regard our ongoing research activities focus on the utilization, optimization or
modification of our core nasal drug delivery technologies for use with specific
drugs or therapies.
We also intend to leverage our core technologies by collaborating with
other pharmaceutical and bio-tech companies which have late stage product
concepts or developed pharmaceuticals that may benefit from nasal delivery. Such
collaborative development projects will be initiated only to the extent that we
believe that (i) the project is feasible, (ii) the potential product resulting
from the development program would have significant market potential, and (iii)
favorable economic arrangements can be obtained. We will seek milestone payments
for the development cycle, payment of certain expenses incurred by us,
manufacturing rights, if applicable, and a royalty.
Strategic Alliances
Our current collaborative arrangements generally provide for a development
project to be followed by commercialization pursuant to a licensing contract.
Our current strategic alliances are as follows:
Bristol-Myers Squibb Company -- In January 1986, we sublicensed to BMS our
development and commercial exploitation rights with respect to our licensed
patent rights for the nasal delivery of Butorphanol Tartrate, (Stadol(R) NS(TM))
in exchange for which BMS agreed to pay us a quarterly royalty equal to 3% of
net sales of this product (the "BMS Agreement"). In December 1991, the FDA
granted marketing clearance to BMS for this product, and the quarterly royalty
payments to us by BMS are continuing. We pay about half of these royalties to
the University of Kentucky Research Foundation ("UKRF") under a separate license
agreement with UKRF. The BMS Agreement, which may be terminated by BMS at any
time upon 60 days written notice to us, is concurrent with our licensed patent
rights to nasal Butorphanol Tartrate from UKRF. The nasal Butorphanol Tartrate
patent expires in August 2001 in the United States, subject to any right of
extension or renewal. Gross royalty payments from BMS were $2.9 million in 1999,
$2.5 million in 1998, and $3.3 million in 1997.
Schwarz Pharma -- In July 1997, we exclusively licensed to Schwarz Pharma
the right to market our Nascobal(R) (Cyanocobalamin, USP) Gel for intranasal
administration in the U.S. We retained worldwide manufacturing rights and the
right to sell this product to other future licensees outside the U.S. There have
been no foreign sales or any upfront or milestone payments to date. According to
the agreement, we are to receive royalty payments from Schwarz Pharma based upon
the net sales of Nascobal(R). The minimum royalty payment in 1998 was $2
million, and the royalty rate for each subsequent year is based, in part, upon
sales volume. We also receive revenues each time Schwarz Pharma purchases
Nascobal from us. We received aggregate sales and royalty payments of $2.5
million in 1998 and $740,000 in 1999. The agreement expires in 2012.
In December 1997, we exclusively licensed to Schwarz Pharma the right to
market our intranasal scopolamine hydrobromide gel in the U.S. Under the terms
of the license agreement, Schwarz Pharma was obligated to make research
milestone payments to us according to our achievement of specific performance
activities as described in the licensing agreement. Through December 1999,
Schwarz Pharma made research milestone payments to us of $3.75 million, of which
$750,000 was recognized in fiscal 1999 and $3 million in fiscal 1998. In
addition, the license
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<PAGE>
agreement provided for royalty and manufacturing payments from Schwarz Pharma
upon commercialization of this product, but the agreement was terminated by the
parties prior to this event.
In December 1999, upon termination of the license agreement, we reacquired
the marketing rights to intranasal scopolamine hydrobromide from Schwarz Pharma.
We made a payment of $250,000 to Schwarz Pharma which has been reflected as an
expense in research and development for the year ended December 31, 1999. We
agreed to pay Schwarz Pharma one-half of any future consideration received by us
in respect to intranasal scopolamine until Schwarz Pharma receives payments
totaling $3.5 million plus an additional amount for interest that will accrue at
a rate of 8.5% per annum. As any payment to Schwarz Pharma is contingent on
whether we will receive any actual cash proceeds from the future sale or license
of intranasal scopolamine, no liability has been recorded for this agreement as
of December 31, 1999. The contract is ongoing until the aggregate $3.5 million
plus interest is repaid. We are seeking a collaborative partner for this
product.
Meda AB -- In September 1997, we entered into an agreement with Meda AB of
Goteborg, Sweden ("Meda"), giving Meda the exclusive right to market Nascobal(R)
in Sweden, Denmark, Norway and Finland. Meda is obligated to file an application
for and obtain regulatory approval to market Nascobal(R) in Sweden, the
repertoire country, for eventual regulatory approval throughout the Nordic
countries and the European Union. The agreement provides that we will receive a
license fee upon the occurrence of certain regulatory approvals and commercial
events in the Nordic countries and revenue from the sale of Nascobal(R) to Meda
following such approvals. No regulatory approvals have been achieved, and no
fees have been paid to date. The contract expires in December 2012.
Cambridge Laboratories -- In July 1998, we entered into an agreement with
Cambridge Laboratories ("Cambridge"), giving Cambridge the exclusive right to
market Nascobal(R) in several European countries, Australia and New Zealand. The
agreement provides that we will receive revenue from the sale of Nascobal(R) to
Cambridge. Cambridge pays no licensing fees, but pays us a higher sales price
for Nascobal(R) than Meda. We are awaiting regulatory approval in Sweden and
then in other European countries before we may make commercial shipments to
Cambridge. To date, there have been no sales of Nascobal(R) to Cambridge. This
contract expires in July 2012 unless extended by the parties.
Questcor, Inc. -- In March 1990, Questcor purchased the Company's
Metoclopramide HCl patent and other related proprietary information (the
"Metoclopramide Agreement"). Questcor now has exclusive worldwide rights to
market Metoclopramide HCl. The Metoclopramide Agreement provides for certain
royalties and other fees to us if and when nasal Metoclopramide HCl is approved
for marketing and commercialized, but does not provide for any milestone
payments. Questcor has a sublicense for nasal Metoclopramide HCl with Crinos
Industria Farmacobiologica SpA in Italy and Prodis Pharma in Spain. In 1998,
Metoclopramide HCl was approved for marketing in Italy. Although sales in Italy
are minor, we received minimum royalty payments of $75,000 in 1999 and $50,000
in 1998. We expect to receive a minimum annual royalty payment of $100,000 per
year beginning in year 2000 and ending upon expiration of the Metoclopramide HCl
patent in the U.S. in 2002.
Patents and Proprietary Rights
Our policy is to obtain patent protection in both the United States and
selected foreign jurisdictions. We have thirteen U.S. patents and nine pending
U.S. patent applications. The primary technology protected by our patent and
proprietary rights relates to the nasal administration of various compositions
and compounds. Generally, both the compositions and compounds and the method of
nasal administration of such compositions and compounds are protected. Our
patents expire throughout various years up to year 2017.
The establishment of a strong proprietary position is an important element
of our strategy, as the pharmaceuticals to which we have proprietary rights for
nasal delivery have been commercially available for many years in traditional
oral, injectable, or transdermal forms.
In June 1983, we entered into an agreement with the University of
Kentucky Research Foundation and Dr. Anwar Hussain ("UKRF Agreement"). We
obtained an exclusive worldwide (except for the Middle East region) license for
the development and commercial exploitation of certain patents, patent
applications and related know-how pertaining to the nasal delivery of certain
opioid antagonists and analgesics. The UKRF Agreement will terminate in year
2001. The UKRF Agreement requires us to pay UKRF 50% of our royalties received
from Bristol-Myers Squibb on product sales of Stadol NS.
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<PAGE>
To protect our proprietary information, we require all employees,
consultants, advisors and others to enter into confidentiality agreements which
prohibit the disclosure of confidential information to third parties and require
disclosure and assignment to us of any developments, inventions or discoveries.
We cannot assure you that these agreements will effectively prevent the
unauthorized use or disclosure of our confidential information.
Government Regulations
Our research and development activities are, and its future business will
be, subject to significant regulation by numerous governmental authorities in
the United States and other countries. Pharmaceutical products intended for
therapeutic use in humans are governed by FDA regulations in the United States
and by comparable regulations in foreign countries. The process of completing
clinical testing and obtaining FDA approval for a new drug product requires the
expenditure of substantial resources over a number of years.
Following initial formulation, the steps required before any new
pharmaceutical product may be marketed in the United States include (i)
preclinical laboratory and animal tests, (ii) the submission to the FDA of an
IND application, (iii) adequate and well-controlled clinical trials to establish
the safety and efficacy of the drug, (iv) the submission of an NDA to the FDA,
and (v) FDA approval of the NDA prior to any commercial sale or shipment of the
drug.
Typically, preclinical studies are conducted in the laboratory and in
animal model systems to gain preliminary information on the drug's
bioavailability or efficacy and to identify any significant safety problems. The
results of these studies are submitted to the FDA as part of the IND
application. Testing in humans may commence 30 days after filing of the IND
unless the FDA issues a "clinical hold". A three phase clinical program is
usually required for FDA approval of a pharmaceutical product.
Phase I clinical trials are conducted to determine the safety and optimal
dosage of the product in normal volunteers who do not have the disease or
condition that the proposed drug is designed to treat. Phase I studies are
conducted at approved institutions at which the absorption and excretion
(pharmacokinetics) of the drug as well as any side effects are closely
monitored.
If the Phase I testing data is positive and there are no adverse
reactions, a Phase II clinical trial is conducted to gain preliminary evidence
as to the safety and efficacy of the product in a selected patient population. A
Phase III clinical trial is conducted on a more complex patient population
including patients with multiple disease states and taking one or more
medications to provide sufficient data for the statistical proof of safety and
efficacy. Phase II and III studies are usually multi-center trials in order to
achieve greater statistical validity. A clinical trial may combine the elements
of more than one phase.
Upon completion of clinical testing which demonstrates that the product is
safe and effective for a specific indication, an NDA may be filed with the FDA.
This application includes details of the testing processes, preclinical studies,
clinical trials, as well as chemical, analytical, manufacturing, packaging and
labeling information. FDA approval of the application is required before the
applicant may market the new drug product.
Recent user-fee legislation establishes specific time frames for
completion of FDA regulatory reviews. While this program provides some measure
of assurance that the FDA's review is conducted in a timely fashion, there is no
guarantee that the time periods will be met in all cases or that the review will
provide positive results. Even after initial FDA approval has been obtained, the
NDA must be supplemented with any new data subsequently obtained with respect to
the drug's safety and efficacy. Further studies may be required to provide
additional data on safety or to gain approval for the use of a product as a
treatment in clinical indications other than those for which the product was
initially tested. The FDA may also require post-marketing testing and
surveillance programs or Phase IV post-approval trials to monitor the drug's
effects. Side effects resulting from the use of pharmaceutical products may
prevent or limit the further marketing of products.
In addition to regulations enforced by the FDA, we are subject to
regulations under the Occupational Safety and Health Act, various state and
federal environmental protection laws, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other similar federal, state and
local regulations governing permissible laboratory activities, waste disposal
and other matters.
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<PAGE>
For marketing outside of the United States, we will be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs. The requirements relating to the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country.
Employees
At February 29, 2000, we had 53 full-time employees, of whom 40 were
engaged in research and development, including our Chief Executive Officer and
Executive Vice President of Research and Development, both of whom hold Ph.D.
degrees in pharmaceutical sciences. The balance of our employees are engaged in
administration, production and support functions.
None of our employees are covered by a collective bargaining agreement or
are represented by a labor union. We consider our relationship with our
employees to be satisfactory.
RISK FACTORS
Investing in our common stock involves several risks, some of which are
beyond our control. You should carefully consider the following highlights of
some of the risks we face. Certain "forward-looking" statements are made
according 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 our actual results in future periods to
differ materially from forecasted results.
Because of Significant R&D and Other Costs, We Have Never Been Profitable, We Do
Not Expect To Become Profitable in the Foreseeable Future, and We May Never
Become Profitable
We have incurred losses in each of the last three years. We incurred a net
loss of $4,546,000 for fiscal year 1997, a net loss of $876,000 for fiscal year
1998, and a net loss of $8,350,000 for fiscal year 1999. We expect to report a
net loss for fiscal year 2000, and we expect to report net losses for the
foreseeable future. The process of developing our products requires significant
research and development, including basic research, pre-clinical and clinical
development, as well as regulatory approval by the Food and Drug Administration.
These activities, together with our sales, marketing, general and administrative
expenses, have resulted in operating losses in the past, and we expect these
losses to continue for the foreseeable future. We may never achieve
profitability.
Because Our Operating Results Are Subject To Significant Fluctuations and
Uncertainties, We May Not Be Able to Meet All of Our Future Expense Obligations,
and Our Failure to Meet Public Market Analysts or Investors' Expectations
Regarding Earnings May Cause Our Stock Price To Decline
Our operating results are subject to significant fluctuations and
uncertainties due to a number of factors including, among others:
o the timing and achievement of licensing transactions, including
milestones and other performance factors associated with these
contracts
o the time and costs involved in patent research and development of
our proprietary position
o continued scientific progress and level of expenditures in our
research and development programs
o the cost of manufacturing scale-up and production batches, including
vendor provider activities and costs
o the time and costs involved in obtaining regulatory approvals
o changes in general economic conditions and drug delivery
technologies
o introduction of new products and product enhancements by us or our
competitors
As a result of these factors and other uncertainties, our operating
results have fluctuated significantly over the last three years, from a net loss
of $4.5 million in 1997 to a net loss of $876,000 in 1998 and a net loss of $8.4
million in 1999. Over the past four quarters, our operating results have
increased by as much as 53% and have decreased by as much as 36% from one
quarter to another. A larger than expected loss in the future during any single
quarter could affect our ability to meet all of our expense obligations or may
require us to prioritize, modify or cease some of our development programs.
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Our revenues and operating results, particularly those reported on a
quarterly basis, may continue to fluctuate significantly. This makes it
difficult to forecast our operating results. Therefore, we believe that
quarterly comparisons of our operating results will not be meaningful, and you
should not rely on them as an indication of our future performance. Also, our
operating results in a future quarter or quarters may fall below the
expectations of public market analysts or investors. If this were to occur, the
price of our stock could decline.
If We Are Unable to Adequately Protect Our Proprietary Technology from Legal
Challenges, Infringement or Alternative Technologies, Our Competitive Position
May Be Hurt
We specialize in the nasal delivery of pharmaceutical products and rely on
the issuance of patents, both in the U.S. and internationally, for protection
against nasal product competition. Although we believe that we exercise the
necessary due diligence in our patent filings, our proprietary position is not
established until the appropriate regulatory authorities actually issue a
patent, which may take up to two or three years after initial filing.
Moreover, even the established patent positions of pharmaceutical
companies are generally uncertain and involve complex legal and factual issues.
Although we believe our issued patents are valid, it is possible that our issued
patents may nevertheless be challenged and will not withstand review and will be
held invalid by a court of competent jurisdiction. Furthermore, it is possible
that our issued patents will be infringed or otherwise circumvented by others
and that we will be unable to fund the cost of litigation against them.
In addition, we may not be able to protect our established and pending
patent positions from competitive drug delivery technologies, which may provide
more effective therapeutic benefit to patients and which may therefore make our
products, technology and/or proprietary position obsolete.
If we are unable to adequately protect our proprietary technology from
legal challenges, infringement or alternative technologies, we may not be able
to compete in the pharmaceutical delivery business.
Because the Commercial Opportunity for Nasally-Administered Products May Be
Limited, Our Anticipated Future Revenue Growth Could Be Impacted
The physical and chemical properties of a drug affect our ability to
develop a method of delivering it intranasally. Although we continue to explore
the feasibility of nasally delivering drugs that are large, more complex
molecules, we have more expertise in nasal delivery of smaller, less complex
molecules. The universe of nasal products that qualify as small molecules and
are available for commercialization may be limited. Accordingly, we may be
subject to intense competition in these potential products, which can affect our
anticipated future revenue growth. Although we need to accelerate our research
of larger molecules, it is possible that we will not be successful in these
areas. If we are not successful in these areas, our future revenue may not grow
at all or as quickly as anticipated.
We May Require Additional Financing in the Future, and If Additional Capital Is
Not Available, We May Have To Curtail or Cease Operations
Subject to the success of our development programs and potential licensing
transactions, we may require an additional infusion of capital to complete our
research and development activities currently contemplated and to commercialize
our proposed products. We may need to raise additional capital to fund more
rapid expansion, to develop new products and to enhance existing services to
respond to competitive pressures, and to acquire complementary businesses or
technologies. Our future capital needs depend on many factors, including:
o the scope, duration and expenditures associated with our current
research and development programs
o continued scientific progress in these programs
o the outcome of potential licensing transactions, if any
o competing technological developments
o our proprietary patent position, if any, in our products o the
regulatory approval process for our products
o other factors which may not be within our control
- 9 -
<PAGE>
Subject to projected cash flow, we may seek additional financing when
market conditions allow but we cannot assure you that capital will be available
at that time. Without additional funding, we may have to delay, reduce or
eliminate one or more research or development programs and reduce overall
overhead expenses. This action may reduce the market price of our common stock.
If We Fail To Obtain Regulatory Approvals For Our Products, We Will Be Prevented
From Marketing Our Products and We Will Incur Substantial Losses
We embark on specific research or development projects that address unmet
medical needs. These projects are subject to significant regulation by numerous
governmental authorities in the United States and other countries, including the
filing of a New Drug Application with the Food and Drug Administration. The
process of completing clinical testing and obtaining FDA approval for a new drug
product requires substantial resources over a number of years. If we do not
receive the necessary regulatory approvals along the way, we will not be able to
progress clinically in our projects and may be forced to abandon projects after
incurring substantial costs. For example, the FDA recently rejected the New Drug
Application for our nasally administered scopolamine product primarily because
we failed to present adequate safety data. This action resulted in an indefinite
delay in our New Drug Application filing program and uncertain costs of
additional development until we meet with the FDA and agree to future clinical
studies. The magnitude of the costs associated with these studies and the
refiling of the New Drug Application may also result in a deferral of our
program until a collaborative partner is found to share the future development
risk. Moreover, other factors, such as a periodic reassessment of the ranking of
projects within our portfolio, may create further uncertainty of the continuing
viability of any project in process, including nasally administered scopolamine.
Finally, we may encounter significant delays or excessive costs in our efforts,
even if we are eventually successful in achieving regulatory approval. If we
cannot obtain regulatory approval of our products, we will not be able to
generate revenues and become profitable.
Because We Have No Experience in Marketing or Selling Our Proposed Products,
These Products May Never Be Successful
Even if we are able to develop our products and obtain necessary
regulatory approvals, we have no experience in marketing or commercializing any
of our proposed products. We are dependent on our ability to find collaborative
marketing partners for commercial sale of our products. Even if we find a
potential marketing partner, we may not be able to negotiate a licensing
contract on favorable terms to justify our investment or achieve adequate
revenues. In addition, a licensing transaction with a marketing partner does not
assure a product's success, which is dependent upon market acceptance by
patients, physicians or third-party payors.
Our products may prove to be unsuccessful as a result of lack of
acceptance by government health administration authorities, private health care
insurers and other health care payers, such as health maintenance organizations
and self-insured employee plans that determine reimbursement to the consumer. We
cannot assure you that reimbursement will be available at all or at levels
sufficient to allow our marketing partners to achieve profitable price levels
for our products. If we fail to achieve adequate reimbursement levels, patients
may not purchase our products and sales of these products will be reduced.
Because We Will Face Intense Competition, Our Ability To Achieve Profitability
May Be Limited
Our competitors are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions. Our competitors may succeed in developing technologies and
products that are more effective than the nasal technology we are developing or
that will cause our technology or products to become obsolete or noncompetitive.
Many of our competitors have substantially greater financial and technical
resources and production and marketing capabilities than we have. They also may
have greater experience in conducting preclinical testing and clinical trials of
pharmaceutical products and obtaining FDA and other regulatory approvals.
Therefore, our competitors may succeed in obtaining FDA approval for products
faster than we could. Even if we commence commercial sales of our products, we
will also be competing against their manufacturing efficiency and marketing
capabilities, areas in which we have limited or no experience.
Although we believe that our ownership of patents for our nasal delivery
products will limit direct competition with these products, we must also compete
with other promising technologies such as controlled release, target organ or
- 10 -
<PAGE>
site release, pumps, polymers, microemulsion, monoclonal antibodies, inhalation,
ocular, liposomal, implants, transdermal passive and transdermal
electrotransport. Other products using these or other delivery alternatives may
be developed that may be as or more effective than our products and proposed
products. We may not be able to compete effectively with other commercially
available products or drug delivery technologies.
If We Are Unable To Attract And Retain Qualified Employees, Our Ability To
Conduct Research and Development Will Be Impaired
We depend upon the knowledge, experience and skills of our management and
research and development personnel. In addition, we rely on consultants to
assist us in our business. The loss of any key employee or consultant could have
a material adverse effect on our business.
Recruiting and retaining qualified technical and managerial personnel is
vital to our success. We cannot assure you that we will be successful in
attracting or retaining key personnel who generally are in high demand in the
pharmaceutical industry. In addition, the location of our facilities may limit
the pool of technical talent available to us.
If We Have a Problem With Our Manufacturing Facility, or If We or Our Suppliers
Fail to Comply with Applicable Regulations, We May Not Be Able To Market Our
Products or Conduct Clinical Trials
We manufacture all of our products for clinical and commercial use at our
principal manufacturing facility located in Hauppauge, New York. We must produce
all of these products in compliance with federal and state regulations. Our
facilities are also subject to inspection by these authorities. In addition,
certain key suppliers, are also subject to regulatory compliance. If we have a
problem at our manufacturing facility, or if we or our suppliers fail to comply
with federal and state regulations or otherwise fail to perform our respective
obligations in a timely fashion, these problems or failure by us or any supplier
could cause a delay in clinical trials or the supply of product to market. Any
significant delay could also jeopardize our performance contracts with
collaborative partners and result in material penalties to us.
Changes in the Health Care Industry That Are Beyond Our Control May Be
Detrimental To Our Business
The health care industry is changing rapidly as the public, government,
medical professionals and the pharmaceutical industry examine ways to broaden
medical coverage while controlling the increase in health care costs. Potential
changes could put pressure on the prices of prescription pharmaceutical products
and reduce our business or prospects. We cannot predict when, if any, proposed
health care reforms will be implemented, and these changes are beyond our
control.
ITEM 2 - PROPERTIES
We lease approximately 28,000 square feet for our research and development
activities and 10,000 square feet for our manufacturing and corporate and
administrative offices. The R&D site is in proximity to the corporate offices in
Hauppauge, New York. The leases provide for minimum annual rent of approximately
$210,000 which escalates to $410,000 in 2008 with our having an option to renew
the R&D site lease for an additional five-year term at increased annual rental
rates. The corporate office lease expires June 30, 2005 and the R&D site lease
expires October 31, 2009. We are also responsible for all utilities,
maintenance, security and property tax increases.
ITEM 3 - LEGAL PROCEEDINGS
We know of no material litigation or proceeding, pending or threatened, to
which we are or may become a party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the vote of security holders through
the solicitation of proxies or otherwise, during the last quarter of the fiscal
period covered by this report.
- 11 -
<PAGE>
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the NASDAQ National Market (prior to
January 27, 1997 it traded on the NASDAQ Small Cap Market) under the symbol
NSTK. The following table sets forth the range of high and low closing bid
prices for the Company's common stock as reported by the NASDAQ Stock Market for
the last two years. These quotations represent inter-dealer prices, without
adjustment for retail mark-ups, mark-downs or commissions and do not necessarily
represent actual transactions.
Sale Price
Years Low High
----- --- ----
1999 Quarter ended:
-------------------
December 31, 1999 $1.56 $3.63
September 30, 1999 2.75 4.44
June 30, 1999 2.56 3.63
March 31, 1999 3.00 6.25
1998 Quarter ended:
-------------------
December 31, 1998 $3.00 $5.50
September 30, 1998 3.75 8.25
June 30, 1998 7.63 12.50
March 31, 1998 10.38 15.38
-------------------------------------
The Company believes that its common stock is held of record by
approximately 5,000 persons, including several brokerage firms holding shares in
street name for beneficial owners.
Dividend Policy
Since its inception, the Company has neither paid nor declared any cash or
other dividends on its shares of common stock. The Company has no current plans
to pay dividends on its common stock and intends to retain earnings, if any, for
working capital purposes. Any future determination as to the payment of
dividends on the common stock will depend upon the results of operations,
capital requirements, the financial condition of the Company and other factors
that the Board of Directors deems relevant.
- 12 -
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and notes thereto. The statement of operations data for
the years ended December 31, 1999, 1998 and 1997, for the six months ended
December 31, 1996 and each of the years in the two-year period ended June 30,
1996 and the balance sheet data as of December 31, 1999, 1998, 1997 and 1996 and
June 30, 1996 and 1995 are derived from the audited financial statements of the
Company. The selected financial data for the year ended December 31, 1996 and
the six months ended December 31, 1995 has been derived from unaudited financial
statements of the Company which, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of such information for such period. The Company changed its year
end from June 30 to December 31 commencing with the six month period ended
December 31, 1996.
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Year Ended
December 31
Statement of Operations Data: 1999 1998 1997(1) 1996
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product sales .............................. $325 $516 $ 482 $---
License fee, royalty and research income ...... 4,222 7,632 3,647 3,987
Interest income ............................... 1,084 1,442 1,393 344
Total revenues ................................ 5,631 9,590 5,522 4,331
--------------------------------------------------------
Costs and expenses:
Cost of product sales...................... 268 589 454 --
Research and development ...................... 9,649 6,014 4,600 1,494
Royalties ..................................... 1,436 1,251 1,586 1,649
Sales and marketing ........................... 1,051 875 1,723 169
General and administrative .................... 1,577 1,737 1,705 1,073
--------------------------------------------------------
Total costs and expenses ...................... 13,981 10,466 10,068 4,385
--------------------------------------------------------
Income (loss) before provision for income taxes (8,350) (876) (4,546) (54)
Provision for income taxes .................... -- -- -- --
--------------------------------------------------------
Net income (loss).............................. $(8,350) $(876) $(4,546) $(54)
=========================================================
Net income (loss) per common share-basic....... $(1.32) $(.14) $(.76) $(.01)
Net income (loss) per common share-diluted .... $(1.32) $(.14) $(.76) $(.01)
Average shares outstanding basic .............. 6,335,112 6,296,019 5,978,121 3,706,529
Average shares outstanding diluted ............ 6,335,112 6,296,019 5,978,121 3,706,529
<CAPTION>
Six Months Ended
Year Ended June 30 December 31
1996 1995 1996 1995
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product sales .............................. $--- $--- $--- $---
License fee, royalty and research income ...... 3,629 2,684 1,880 1,522
Interest income ............................... 238 254 231 125
Total revenues ................................ 3,867 2,938 2,111 1,647
--------------------------------------------------------
Costs and expenses:
Cost of product sales....................... -- -- -- --
Research and development ...................... 1,164 882 1,035 705
Royalties ..................................... 1,677 1,251 710 738
Sales and marketing ........................... 128 50 76 35
General and administrative .................... 780 834 643 349
--------------------------------------------------------
Total costs and expenses ...................... 3,749 3,017 2,464 1,827
--------------------------------------------------------
Income (loss) before provision for income taxes 118 (79) (353) (180)
Provision for income taxes .................... -- -- -- --
--------------------------------------------------------
Net income (loss)............................. $118 $(79) $(353) $ (180)
========================================================
$.04 $(.03) $(.08) $(.06)
Net income (loss) per common share-basic.......
Net income (loss) per common share-diluted .... $.03 $(.03) $(.08) $(.06)
Average shares outstanding basic .............. 3,221,447 3,119,718 4,191,600 3,221,447
Average shares outstanding diluted ............ 4,297,536 3,119,718 4,191,600 3,221,447
<CAPTION>
December 31
Balance Sheet Data 1999 1998(2) 1997(2) 1996(2)
<S> <C> <C> <C> <C>
Working capital ............................... $12,912 $24,454 $24,206 $11,342
Total assets .................................. 20,199 27,518 27,371 12,894
Total stockholders' equity .................... 16,625 25,502 24,929 11,813
<CAPTION>
June 30 December 31
Balance Sheet Data 1996(2) 1995 1996 1995
(unaudited)
<S> <C> <C> <C> <C>
Working capital ............................... $7,469 $4,444 $11,342 $4,045
Total assets .................................. 9,367 6,035 12,894 5,616
Total stockholders' equity .................... 7,569 4,288 11,813 4,108
</TABLE>
-------------
(1) During fiscal 1997, the Company began making shipments of Nascobal(R)
to Schwarz Pharma (see note 8 to the Company's financial statements).
(2) During fiscal 1997, the Company completed a public offering of
1,380,000 shares of common stock. For the periods ended December 31, 1998 and
1996 and June 30, 1996, the Company received net proceeds of $1.4 million, $4.6
million and $3.2 million, December 31 June 30 December 31 Balance Sheet Data:
1999 19982 19972 19962 19962 1995 1996 1995 (unaudited) respectively, from the
exercise of the warrants.
- 13 -
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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. (See Item 1, "Risk Factors".)
The Company is engaged in the research, development, manufacturing and
commercialization of nasally administered forms of prescription 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(R). Stadol(R) NS(TM) is an opioid analgesic which
is used for the treatment of moderate to severe pain and the acute pain of
migraine. The product is currently marketed by Bristol-Myers Squibb Co. (BMS)
under an agreement that generates quarterly royalties to the Company. Royalties
from BMS are scheduled to terminate at time of patent expiry in August 2001.
In 1997, Stadol(R) NS(TM) was classified as a Schedule IV substance by the
federal government. "Schedules" are used by the federal government to classify
certain narcotic prescription products depending on the potency and potential
abuse liability. Schedule I narcotics require the greatest amount of control by
manufacturers, distributors, physicians and others in various channels of
distribution, including import and export restrictions, and Schedule V
substances require the least amount of control. Prior to 1997, Stadol(R) NS(TM)
had not been classified and had peak sales in 1996 of $112 million. After the
classification of Stadol(R) NS(TM) as a Schedule IV substance in 1997, sales by
BMS declined to $108 million in 1997, $86 million in 1998, and $98 million in
1999. We believe that the classification of Stadol(R) NS(TM) as a Schedule IV
substance, and the resulting increased controls and regulations imposed on BMS
to prevent potential abuse liability, played a significant role in the downward
trend in sales, and we estimate that the Schedule IV classification will result
in annual sales of no more than $100 million through patent expiry in year 2001.
In July 1997, the Company entered into an exclusive licensing agreement
for Nascobal(R) in the U.S. with Schwarz Pharma and commercially launched the
product in October 1997. Under the agreement, the Company received minimum
royalties of $2 million in 1998 and retains global manufacturing rights. The
minimum royalty expired in December 1998. Sales re-orders of Nascobal(R) in 1999
and 1998 were below expectations as a result of a marketing issue which required
a change in the packaging configuration of the product. The Company shipped the
new package configuration to Schwarz Pharma beginning in the second quarter of
1999. Schwarz Pharma has reported an increase in units sold to distributors
during the second half of 1999.
In December 1999, we reacquired the marketing rights to intranasal
scopolamine hydrobromide from Schwarz Pharma. We made a payment of $250,000 to
Schwarz Pharma which has been reflected as an expense in research and
development for the year ended December 31, 1999. We agreed to pay Schwarz
Pharma one-half of any future consideration received by Nastech in respect to
intranasal scopolamine until Schwarz Pharma receives payments totaling
$3,500,000 plus an additional amount for interest that will accrue at a rate of
8.5% per annum. As any payment to Schwarz Pharma is contingent on whether we
will receive proceeds from the future sale or license of intranasal scopolamine,
no liability has been recorded for this agreement as of December 31, 1999. The
Company is currently seeking a marketing partner for this product.
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
- 14 -
<PAGE>
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 anticipates operating losses in the foreseeable future.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues decreased by $4.0 million, or 41%, to $5.6 million primarily as a
result of a decline in product sales and royalty income of Nascobal(R) and
milestone payments on intranasal scopolamine. Total revenues from Schwarz Pharma
on Nascobal(R) were $740,000 compared to $2.5 million in 1998. The revenue for
the year ended December 31, 1998 included $2 million as a minimum royalty from
Schwarz Pharma on Nascobal(R). Sales re-orders of Nascobal(R) were below
expectation as a result of the marketing issue noted above. Accordingly, royalty
income on sales of Nascobal(R) decreased $1.6 million, or 79%, to $415,000.
Total milestone payments on scopolamine decreased $2.2 million or 75% to
$750,000. Royalty income received from BMS on sales of Stadol NS increased
$374,000, or 15%, to $2.9 million.
Total costs and expenses increased by $3.5 million or 34%, to $14 million
in 1999. The details of the increase follow:
Research and development expense increased by $3.6 million, or 60%, to
$9.6 million primarily as a result of the Company's clinical programs for
intranasal scopolamine, morphine and apomorphine. Included in the increase is
the $250,000 initial buyback amount paid to Schwarz Pharma. In September 1998,
the Company also entered into an operating lease for a larger R&D facility and
intends to pursue additional internally funded projects in the future.
Royalties expense increased by $185,000, or 15%, to $1.4 million as a
result of the increase 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 costs increased by $176,000 or 20% from 1998 and
arises from an increase in market research and consulting fees.
As a percentage of total revenues, sales and marketing and general and
administrative expenses increased to 47% in 1999 as compared to 27% in 1998 as a
result of the decline in revenues.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues increased by $4.1 million, or 73.7%, to $9.6 million primarily as
a result of manufactured product sales and royalty income from the sales of
Nascobal(R) of $2 million and the achievement of milestones of $3 million on the
intranasal motion sickness product, scopolamine, under its collaborative
licensing agreements with Schwarz Pharma. Royalty income received from BMS on
sales of Stadol NS decreased $675,000 or 21%, to $2.6 million.
Total costs and expenses increased by $398,000 to $10.5 million in 1998.
The details of the increase follow:
Research and development expense increased by $1.4 million, or 31% to $6.0
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.
In connection with the manufacture of Nastobal(R), the Company entered
into a filling and packaging agreement with a third party. In 1998, the Company
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
$589,000 in 1998.
Royalties expense decreased by $335,000 or 21% to $1.3 million 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
- 15 -
<PAGE>
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 $848,000, or 49%, to $875,000.
The Company eliminated its marketing costs associated with the product,
Nastobal(R), as a result of the licensing agreement entered into with Schwarz
Pharma in 1997.
As a percentage of total revenues, general and administrative expenses
decreased to 18% in 1998 as compared to 31% in 1997.
Liquidity and Capital Resources
At December 31, 1999, the Company's liquidity included cash and cash
equivalents and short-term investments of $14.6 million compared to $23.5
million at December 31, 1998. Accounts, royalties and fee receivables at
December 31, 1999 consist principally of receivables pursuant to the BMS and
Schwarz Pharma agreements.
In July 1999, the shareholders of the Company approved a 1:100 reverse
split of its common stock followed immediately by a 100:1 forward split. The
Company effectuated these transactions on August 17, 1999. The purpose of these
transactions is to enable a redemption of odd-lot shares and reduce certain
related administrative costs incurred annually by the Company. As of December
31, 1999 the Company has redeemed 110,736 of such shares at a cost of $395,000.
In addition, on October 29, 1999, the Company's Board of Directors authorized
the Company to effect open market purchases of up to 500,000 shares of its
common stock. As of December 31, 1999 the Company made purchases of 77,000 of
its shares of common stock at a cost of $151,000.
At December 31, 1999, the Company had working capital of $12.9 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. As of December 31, 1999 the Company has
invested approximately $3.0 million in equipment and leasehold improvements in
connection with its new R&D facility.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity." This statement establishes comprehensive
accounting and reporting standards for derivative instruments and hedging
activities. In June 1999, the FASB issued SFAS No. 137, deferring the required
implementation of SFAS No. 133. This SFAS will be adopted by the Company in the
first quarter of fiscal 2001. Implementation of this statement is not expected
to affect the Company's financial position or results of operations.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
- 16 -
<PAGE>
ITEM 8 - INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT .............................................................. 18
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............................................... 19
Balance Sheets at December 31, 1999 and 1998............................................ 19
Statements of Operations for the years ended December 31, 1999, 1998 and 1997 .......... 20
Statements of Stockholders' Equity for the years ended December 31, 1999, 1998, and 1997 21
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 .......... 22
Notes To Financial Statements .......................................................... 23
</TABLE>
- 17 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Nastech Pharmaceutical Company Inc.
We have audited the accompanying balance sheets of Nastech Pharmaceutical
Company Inc. (the Company) as of December 31, 1999 and 1998 and related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nastech Pharmaceutical Company
Inc. as of December 31, 1999 and 1998 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Melville, New York
February 28, 2000
- 18 -
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents ........................ $ 10,652 $ 23,515
Short-term investments ........................... 3,986 --
Accounts receivable .............................. 25 20
Royalties and fees receivable .................... 1,011 2,265
Inventories ...................................... 279 390
Prepaid expenses and sundry assets ............... 533 280
Total current assets ........................ 16,486 26,470
Property and equipment ............................. 4,666 1,635
Less: Accumulated depreciation and amortization . 986 602
-----------------------
Property and equipment, net ................. 3,680 1,033
Other assets ....................................... 33 15
Total assets ................................ $ 20,199 $ 27,518
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 2,059 $ 625
Royalties payable ................................ 664 597
Accrued expenses and sundry liabilities .......... 851 794
Total current liabilities ................... 3,574 2,016
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:
6,267,485 and 6,376,915 shares at December 31,
1999 and 1998, respectively ................... 38 38
Additional paid-in capital ....................... 37,050 37,426
Accumulated deficit .............................. (20,312) (11,962)
-----------------------
16,776 25,502
Less: Treasury stock, at cost, 77,000 shares ..... 151 --
-----------------------
Total stockholders' equity .................. 16,625 25,502
-----------------------
Total liabilities and stockholders' equity... $ 20,199 $ 27,518
=======================
</TABLE>
See accompanying notes to financial statements.
- 19 -
<PAGE>
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
Years Ended
Dec. 31, Dec. 31, Dec. 31,
1999 1998 1997
Revenues:
Product sales ...................... $ 325 $ 516 $ 482
License fee, royalty and research
income .......................... 4,222 7,632 3,647
Interest income .................... 1,084 1,442 1,393
Total revenues .................. 5,631 9,590 5,522
Costs and expenses:
Cost of product sales .............. 268 589 454
Research and development ........... 9,649 6,014 4,600
Royalties .......................... 1,436 1,251 1,586
Sales and marketing ................ 1,051 875 1,723
General and administrative ......... 1,577 1,737 1,705
------------------------------------
Total costs and expenses ........ 13,981 10,466 10,068
Net loss ............................. $ (8,350) $ (876) $ (4,546)
Net loss per common share-basic
and diluted .......................... $ (1.32) $ (.14) $ (.76)
Average shares outstanding-basic
and diluted .......................... 6,335 6,296 5,978
See accompanying notes to financial statements.
<PAGE>
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
(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>
Balance, December 31, 1996 4,706,158 $28 $ 18,325 $ (6,540) -- $ 11,813
Additional shares issued
in connection with
public offering 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 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 underwriter's
warrants .......................... 270,000 1 1,402 -- -- 1,403
Shares issued in
connection with
exercise of stock
options ........................... 6,000 -- 46 -- -- 46
Fractional shares
redeemed in connection
with reverse stock
split ............................. (105) -- -- -- -- --
Net loss year ended
December 31, 1998 ................. -- -- -- (876) -- (876)
Balance, December 31, 1998 .......... 6,376,915 $38 $ 37,426 $ (11,962) -- $ 25,502
Redemption of shares in
connection with
reverse/forward stock
split.............................. (110,736) -- (395) -- -- (395)
Shares issued in
connection with
exercise of stock
options ........................... 5,000 -- 19 -- -- 19
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
========= ========== ========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
- 21 -
<PAGE>
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Years Ended
Dec. 31, Dec. 31, Dec. 31,
1999 1998 1997
<S> <C> <C> <C>
Operating activities:
Net loss ....................................................................... $ (8,350) $ (876) $ (4,546)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensation related to stock options ...................................... -- -- 175
Depreciation and amortization .............................................. 384 300 262
Changes in assets and liabilities:
Accounts and other receivables ............................................. 1,249 (1,348) (139)
Inventories ................................................................ 111 (20) (370)
Prepaid expenses and sundry assets ......................................... (271) (233) 33
Accounts payable ........................................................... 1,434 (872) 910
Royalties payable .......................................................... 67 406 (45)
Accrued expenses and sundry liabilities .....,.............................. 57 40 497
--------
Net cash used in operating activities .............................................. (5,319) (2,603) (3,223)
Investing activities:
Property and equipment ......................................................... (3,031) (625) (585)
Short-term investments-acquisitions ............................................ (3,986) -- (968)
Short-term investments-redemptions ............................................. -- -- 7,992
-------- -------- --------
Net cash provided by (used in) investing activities ................................ (7,017) (625) 6,439
Financing activities:
Redemption of common shares .................................................... (395) -- --
Acquisition of treasury stock ................................................. (151) -- --
Exercise of stock options ...................................................... 19 46 18
Exercise of warrants ........................................................... -- 1,403 --
Proceeds from sale of common stock ............................................. -- -- 17,566
-------- -------- --------
Net cash provided by (used in) financing activities ................................ (527) 1,449 17,584
Net increase (decrease) in cash and cash equivalents ............................... (12,863) (1,779) 20,800
Cash and cash equivalents--beginning ............................................... 23,515 25,294 4,494
-------- -------- --------
Cash and cash equivalents--ending .................................................. $ 10,652 $ 23,515 $ 25,294
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
- 22 -
<PAGE>
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Years Ended December 31, 1999
Note 1 -- Business and Basis of Presentation
Business
The Company operates in a single segment which is engaged in the research,
development, manufacturing and commercialization of nasally administered forms
of prescription pharmaceuticals.
Note 2 -- Summary of Significant Accounting Policies and Related Matters
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and temporary investments of
highly-rated investment grade commercial paper with maturities of three months
or less when purchased. At December 31, 1999 and 1998, cash equivalents totaled
$10.6 million and $23.2 million, respectively.
Investments
Short-term investments consist of highly-rated investment grade commercial
paper having original maturities greater than three months and up to one year.
There were no material unrealized holding gains or losses at December 31, 1999.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market and consist principally of raw materials.
Patents
The cost of acquired patents is capitalized and amortized over the
remaining legal life of the patents at acquisition or their useful life,
whichever is shorter. Legal costs and fees related to patent applications
developed by the Company are charged to expense as incurred.
Property and Equipment
Property and equipment are carried at cost and depreciated using
accelerated methods over estimated useful lives ranging from 5 to 7 years.
Leasehold improvements are carried at cost and amortized using the straight-line
method over the lesser of the estimated useful life or the remaining lease term.
When assets are sold or retired, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is recognized in
the period. Expenditures for maintenance and repairs are charged to expense as
incurred.
License Fee, Royalty and Research Income
The Company has entered into various collaborative arrangements and
licensing contracts with other pharmaceutical companies. Under these
arrangements and contracts, we generally recognize income from royalties based
upon the sale of licensed products as reported by licensees, and from upfront
payments and milestone payments upon the achievement of performance-based
activities as agreed to with our licensees. We have not, however, received any
upfront payments from licensees during the three years ended December 31, 1999.
Upfront payments are generally
- 23 -
<PAGE>
recognized over the term of the license agreements. Milestone payments, which
reduce the development risk associated with a product and are determinable based
on the terms of the license agreement, are typically progress payments for
specific events of development, such as completion of pre-clinical or clinical
activities, regulatory submission or approval, or manufacturing objectives prior
to commercialization of a product. Milestone payments are generally
non-refundable and are recognized upon completion of a milestone activity. A
substantial portion of the Company's revenues is derived from licensing
agreements with Bristol-Myers Squibb and Schwarz Pharma, Inc.
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
period. The effect of employee stock options and warrants totaling 1,239,512,
1,054,750 and 1,014,650 at December 31, 1999, 1998 and 1997, respectively, were
not included in the net loss per share calculation because their effect would
have been anti-dilutive
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Long-Lived Assets
The Company reviews its long-lived assets (property and equipment) for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. If the sum of the expected cash flows,
undiscounted and without interest, is less than the carrying amount of the
asset, an impairment loss is recognized as the amount by which the carrying
amount of the asset exceeds its fair value. The fair value of an asset is the
amount at which the asset could be bought or sold in a current transaction
between willing parties. An estimate of fair value would consider prices for
similar assets and the results of valuation techniques to the extent available.
All assets are currently in use and, based on prevailing market prices,
management estimates that the net carrying amount, i.e., cost less accumulated
depreciation, approximates fair value. There was no significant impact on the
Company's results of operations or financial position as a result of the
adoption of SFAS No. 121.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method in accordance with APB No. 25, "Accounting for Stock Issued to
Employees." Effective July 1, 1996, the Company adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", which
requires the disclosure of pro forma net income and earnings per share as if the
Company adopted the fair value-based method in measuring compensation expense as
of the beginning of fiscal 1996 (see Note 9).
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 130 requires that all items
recognized under accounting standards as components of comprehensive income be
reported in an annual financial statement that 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. The Company's operations did not give rise to items
includible in comprehensive income which were not already included in net
income. Accordingly, the Company's comprehensive income is the same as its net
income for all periods presented.
- 24 -
<PAGE>
Fair Value Financial Instruments
The Company considers the fair value of all financial instruments to not
be materially different from their carrying value at year-end as all financial
instruments are highly rated investment grade commercial paper having short term
maturities.
Note 3 -- Property and Equipment
Property and equipment consist of the following:
December 31,
1999 1998
------ ------
(In thousands)
Furniture and fixtures....... $335 $131
Machinery and equipment...... 2,027 962
Computer equipment........... 316 211
Leasehold improvements....... 1,988 331
------ ------
4,666 1,635
Less accumulated depreciation
and amortization............ 986 602
------ ------
Net property and equipment... $3,680 $1,033
========= ========
Note 4 -- Stockholders' Equity
The Company completed a public offering of 1,380,000 shares of common
stock at $14.00 per share in February, 1997. 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 issued 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.
In connection with a public offering of common stock and warrants in 1994,
underwriter's warrants were exercised during 1998 resulting in proceeds to the
Company of $1,403,000.
In July 1999, the shareholders of the Company approved a 1:100 reverse
split of its common stock followed immediately by a 100:1 forward split. The
Company effectuated these transactions on August 17, 1999. The purpose of these
transactions is to enable a redemption of odd-lot shares and reduce certain
related administrative costs incurred annually by the Company. As of December
31, 1999, the Company has redeemed 110,736 of such shares at a cost of $395,000
and subsequently retired. The Company also acquired 77,000 shares of its common
stock in 1999 at an aggregate cost of $151,000. These shares are being held as
treasury stock.
The Company is authorized to issue up to 100,000 shares of preferred
stock, the designations, powers, preferences and rights of which may be
determined, from time to time, by the Company's Board of Directors.
Note 5 -- Stock Option Plan
Under the Company's amended Stock Option Plan (the "Plan") options to
purchase a maximum of 1,500,000 shares of common stock (subject to adjustment in
the event of stock splits, stock dividends, recapitalization and other capital
adjustments) may be granted to employees, officers and directors of the Company
and other persons who provide services to the Company. The options to be granted
under the Plan are designated as incentive stock options or non-incentive stock
options by the Board of Directors which also has discretion as to the person to
be granted options, the number of shares subject to the options and the terms of
the option agreements. Only employees, including officers and part-time
employees of the Company may be granted incentive stock options. The options are
intended to receive
- 25 -
<PAGE>
incentive stock option tax treatment pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The Plan provides that options granted thereunder shall be exercisable
during a period of no more than ten years (five years in the case of 10%
shareholders) from the date of grant, depending upon the specific stock option
agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair market value of the
common stock at the time of grant (110% in the case of 10% shareholders).
Pursuant to the provisions of the Plan, the aggregate fair market value
(determined on the date of grant) of the common stock with respect to which
incentive stock options are exercisable for the first time by an employee during
any calendar year shall not exceed $100,000. The Plan is administered by the
Company's Board of Directors.
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 (786,350) with an exercise
price greater than $5.63 per share were eligible for this program and were
exchanged during 1998. No charge was recorded to earnings as the new exercise
price was in excess of the market value on the date of the exchange.
Data relating to these plans are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 985,750 $ 5.49 878,150 459,299
$10.47 $ 9.97
Granted................................. 429,050 3.29 903,650 5.91 461,902 10.94
Exercised............................... (5,000) 3.72 (6,000) 7.73 (14,999) 1.21
Expired................................. (25,000) 3.72 -- -- -- --
Canceled................................ -- -- (786,350) 11.18 (10,000) 22.75
Terminated.............................. (214,288) 3.92 (3,700) 9.96 (18,052) 9.83
--------- ------- --------- ------ ------- --------
Outstanding at end of period............ 1,170,512 $ 4.84 985,750 $5.49 878,150 $ 10.47
</TABLE>
The following table summarizes the information on stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------------- ---------------------------------
Weighted-average Weighted
Range of Number remaining average exercise Number Weighted-average
exercise prices outstanding contractual life price exercisable exercisable price
--------------- ----------- ------------------ ---------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
$1.94 - $3.75 242,650 4.51 $2.84 100,800 $3.20
$4.13 - $5.13 291,900 2.50 $4.77 226,000 $4.78
$5.63 635,962 3.67 $5.63 554,693 $5.63
--------- -------
1,170,512 881,493
========= =======
</TABLE>
Note 6 -- Income Taxes
The Company's net deferred tax assets as of December 31, 1999 and 1998,
are estimated as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 7,798,000 $ 3,546,000
Federal and State tax credits.............................. 1,106,000 637,000
Depreciation............................................... 263,000 56,000
Other...................................................... 131,000 59,000
Total deferred tax assets ........................... $ 9,298,000 $ 4,298,000
Valuation allowance........................................ (9,298,000) (4,298,000)
Net deferred taxes ........................................ $ --- $ ---
==================== =================
</TABLE>
- 26 -
<PAGE>
A valuation allowance for 1999 and 1998 has been applied to offset the
respective deferred tax assets in recognition of the uncertainty that such tax
benefits will be realized.
At December 31, 1999, the Company has available net operating loss
carryforwards for Federal and State income tax reporting purposes of
approximately $19,100,000, and has available Federal and State tax credits of
approximately $1,106,000, which are available to offset future taxable income,
if any. These carryforwards expire beginning in 2000 through 2019. The Company's
ability to use such net operating loss and Federal and State tax credit
carryforwards is limited by change of control provisions under Section 382 of
the Internal Revenue Code.
Note 7 -- Commitments
(a) Employment Agreements and Accrued Compensation
Certain officers of the Company have employment agreements that provide
base compensation and annual incentive compensation. The Company's Chief
Executive Officer has an employment agreement expiring December 31, 2000, from
which he receives base compensation of $230,000 per year, and annual incentive
compensation of up to 50% of base salary based on the achievement of certain
business objectives of the Company.
The Company's agreement with its former President terminated January 1,
1999. As part of the termination agreement the former President received a
severance payment of $107,500 which was accrued as of December 31, 1998 and a
monthly retainer of $10,000 for the initial six month term of a consulting
arrangement. Participation in the Company's stock option plan expired December
31, 1999.
As of December 31, 1999 and 1998, accrued expenses and sundry liabilities
include accrued compensation and benefits of $331,000 and $439,000,
respectively.
(b) Leases:
The Company leases space for its research and development activities under
a lease expiring October 31, 2009 and leases office and manufacturing space
under a lease expiring on June 30, 2005. The lease for the research and
development facility has a 5 year renewal option. The following is a schedule of
future minimum lease payments:
2000..................................... $ 290,000
2001..................................... 313,000
2002..................................... 333,000
2003..................................... 361,000
2004..................................... 391,000
Thereafter............................... 1,851,000
Total............................ $ 3,538,000
=================
Rental expense for the aforementioned space aggregated approximately
$418,000, $173,000, and $95,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
Note 8 -- Contractual Agreements
In January 1986, the Company sublicensed to BMS its development and
commercial exploitation rights with respect to its licensed patent rights for
the nasal delivery of Butorphanol Tartrate, in exchange for which BMS agreed to
pay the Company a royalty based on the net sales of such product (the "BMS
Agreement"). The Company must pay a percentage of these royalties to University
of Kentucky Research Foundation ("UKRF") under the Company's separate license
agreement with UKRF. The BMS Agreement, which may be terminated by BMS at any
time upon 60 days written notice to the Company, is concurrent with the
Company's licensed patent rights to nasal Butorphanol Tartrate.
- 27 -
<PAGE>
The nasal Butorphanol Tartrate patent expires in the year 2001 in the United
States, subject to any right of extension or renewal. In December 1991, the FDA
granted marketing clearance to BMS for this product, which is marketed by BMS as
Stadol NS and quarterly royalty payments to the Company by BMS are continuing.
During 1997, Stadol NS was classified by the FDA as a Schedule IV substance
under the Controlled Substances Act which has negatively affected sales by BMS
and royalties to the Company.
In July 1997, the Company exclusively licensed to Schwarz Pharma the right
to market the Company's Nascobal(R) (Cyanocobalamin, USP) Gel in the U.S. The
Company retained worldwide manufacturing rights and the agreement provided for a
fixed manufacturing transfer price to Schwarz Pharma. Pursuant to the agreement
the Company will receive royalty payments from Schwarz Pharma based upon the net
sales of Nascobal(R). The royalty rate is, in part, dependent upon sales volume,
with a minimum royalty of $2 million in 1998. The term of the agreement is for
the later of 15 years or the expiration of the applicable patent which expires
in 2005.
In December 1997, the Company exclusively licensed to Schwarz Pharma the
right to market the Company's intranasal scopolamine gel in the U.S. Under the
terms of the agreement, the Company was to receive royalty and manufacturing
payments from Schwarz Pharma. In addition, Schwarz Pharma made research
milestone payments to the Company of $3,750,000 through December 1999 of which
$750,000 and $3,000,000 was recognized in the years ended December 31, 1999 and
1998, respectively,
In December 1999, the Company reacquired the marketing rights to
intranasal scopolamine from Schwarz Pharma. The Company made a payment of
$250,000 to Schwarz Pharma, which has been reflected as an expense in research
and development for the year ended December 31, 1999, and agreed to pay one-half
of any future consideration received until Schwarz Pharma receives payments
totaling $3,500,000 plus an additional amount for interest that will accrue at a
rate of 8.5% per annum. As any payment to Schwarz Pharma is contingent on
whether the Company will receive proceeds from the future sale or license of
intranasal scopolamine, no liability has been recorded for this agreement as of
December 31, 1999.
In September 1997, the Company entered into an agreement with Meda AB of
Goteborg, Sweden ("Meda"), giving Meda the exclusive right to market Nascobal(R)
in Sweden, Denmark, Norway and Finland. Pursuant to the agreement, the Company
will receive revenue from the sale of Nascobal(R) to Meda and a license fee upon
the occurrence of certain regulatory approvals and commercial events in the
Nordic countries.
In July 1998, the Company entered into an agreement with Cambridge
Laboratories ("Cambridge"), giving Cambridge the exclusive right to market
Nascobal(R) in several European countries, Australia and New Zealand. Pursuant
to the agreement, the Company will receive revenue from the sale of Nascobal(R)
to Cambridge.
The Company's three largest customers accounted for 97% of total revenues,
excluding interest, in 1999 and 98% in 1998. These revenues by customer were
$2.9 million, $750,000 and $740,000 in 1999 and $3 million, $2.5 million and
$2.5 million in 1998. No other customer accounted for more than 10% of revenues,
excluding interest.
Note 9 -- Stock-Based Compensation
The per share weighted average fair value of stock options granted during
the years ended December 31, 1999, 1998 and 1997, was $1.50, $3.82, and $6.81,
respectively, on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
------------- ------------- ------------
<S> <C> <C> <C>
Expected dividend yield - 0-% - 0-% - 0-%
Risk free interest rate 6.0% 4.75% 5.8%
Expected stock volatility 53% 63% 65%
Expected option life 5 years 5 years 5 years
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock
options and, accordingly, no compensation cost (except in 1997 with the amount
of $175,000 for options granted below market value), has been recognized in the
financial statements for its stock options which have an exercise price equal to
the fair value of the stock on the date of the grant. Had the Company determined
compensation cost based on the fair value at the grant date
- 28 -
<PAGE>
for its stock options under SFAS No. 123, the Company's net loss would have been
reported as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
------------- ------------- -------------
(In thousands, except per share amounts)
Net loss:
<S> <C> <C> <C>
As reported.......... $ (8,350) $(876) $(4,546)
Pro forma............ (9,011) (2,322) (6,515)
Net loss per share:
As reported.......... (1.32) (.14) (.76)
Pro forma............ (1.42) (.37) (1.09)
</TABLE>
Pro forma net income reflects only options granted subsequent to July
1, 1995, the date the Company adopted SFAS No. 123. Accordingly, the pro forma
amounts above do not reflect the full impact of calculating pro forma income
since cost of options issued prior to June 30, 1995, which would be amortized
over the five year vesting period of the options, was not considered.
Note 10 -- Related Party Transactions
In 1999, the Company agreed to provide split-dollar life insurance
for its former Chairman of the Board of Directors in consideration for services
rendered and in lieu of cash remuneration. Over a 10-year period the Company
will pay $397,000 in premiums. At the end of 15 years, the premiums are to be
repaid to the Company; such repayment being secured by the Company's collateral
interest in the insurance policy. For the year ended December 31, 1999, the
Company recognized $24,000 of expense related to this policy.
A member of the Board of Directors provided legal services to the
Company in 1999. Fees earned by this director were $142,000.
Note 11 -- Subsequent Event - Shareholder Rights Plan
In February 2000, the Company adopted a Shareholder Rights Plan,
which is designed to protect shareholders from coercive or unfair takeover
tactics. Under the plan, a dividend of one preferred stock purchase right is
being declared for each common share held of record as of the close of business
on March 17, 2000.
- 29 -
<PAGE>
PART III
ITEM 8 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers, directors and senior employees of the Company are
as follows:
NAME AGE POSITION
---- --- --------
Dr. Vincent D. Romeo 43 President and Chief Executive Officer
Executive Vice President of Research
Dr. Charan R. Behl 48 and Development
Andrew P. Zinzi 53 Chief Financial Officer
Devin N. Wenig 33 Director
Joel Girsky 60 Director, Treasurer
Bruce R. Thaw 47 Director
Grant W. Denison, Jr 50 Director
Dr. Ian R. Ferrier 56 Director
Alvin Katz 70 Director
John V. Pollock 61 Director
Carol Wenig 55 Secretary
All directors hold office until the next annual meeting of shareholders or
until their successors are elected and qualify. Executive officers hold office
until their successors are chosen and qualify, subject to earlier removal by the
Board of Directors.
Set forth below is a biographical description of each director, executive
officer and senior employee of the Company based on information supplied by each
of them.
Dr. Vincent D. Romeo. Dr. Romeo has been employed by the Company since
1985 as Director of Research and was appointed President and Chief Executive
Officer of the Company in August 1991. Dr. Romeo is a registered pharmacist in
the State of New York and received a Ph.D. degree from St. John's University
College of Pharmacy and Allied Health Professions in Pharmaceutical Sciences in
1984, with a specialty in pharmacology. He continues at St. John's as an Adjunct
Professor of Pharmacology, Graduate Division, College of Pharmacy and Allied
Health Professions. He has authored and co-authored several published articles
in the field of drug delivery. Dr. Romeo has also presented his work at various
meetings and conferences sponsored by the American Association of Pharmaceutical
Scientists ("AAPS") and the American College of Clinical Pharmacology. Dr. Romeo
is an active member of the AAPS, the American College of Clinical Pharmacology,
the Rho Chi Pharmaceutical Society, and the New York Academy of Sciences. He is
currently co-chairing the Nasal Drug Delivery Focus Group of the AAPS.
Dr. Charan R. Behl. Dr. Behl has been employed by the Company since
January 1995 as Executive Vice President of Research and Development. Dr. Behl
previously held senior research positions in the Pharmaceutical Research and
Development Department of Hoffmann La-Roche, Inc, for approximately 14 years.
During his tenure at Roche and as a research faculty member at the University of
Michigan, he has done extensive research and product development on various drug
delivery systems. Dr. Behl has worked on the optimization of drug delivery via
different routes including nasal, enteral, transdermal (local and systemic),
rectal, vaginal and trans-nail. Dr. Behl has authored or coauthored over 100
articles and major meeting abstracts including many book chapters. Working
closely with his colleagues at the FDA, academia, National Institute of Health
and other companies, Dr. Behl has been instrumental in
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<PAGE>
in organizing international workshops, conferences and meetings to address
crucial issues pertaining to drug delivery. Currently he is co-chairing the
Nasal Drug Delivery Focus Group of the AAPS. Dr. Behl is an active member of the
American Pharmaceutical Association, AAPS and Controlled Release Society, and is
a Fellow of the AAPS.
Andrew P. Zinzi. Mr. Zinzi has been employed by the Company since November
1996 as the Company's Chief Financial Officer. From February 1992 to November
1996, Mr. Zinzi was employed by IVAX Corporation ("IVAX"), a pharmaceutical
company, most recently as Vice President-Finance and Treasurer. From March 1985
to February 1992, Mr. Zinzi held various management positions in finance and
operations with Goldline Laboratories and Bioline Laboratories, distributors of
generic pharmaceutical products, which were subsequently acquired by IVAX in
December 1991. Mr. Zinzi is a CPA, member of the AICPA and earned a Master of
Business Administration degree from New York University.
Joel Girsky. Mr. Girsky has been a Director of the Company since October
1983, and the Company's Secretary and Treasurer since April 1986. From 1961 to
the present, Mr. Girsky has been President and Chairman of the Board of Jaco
Electronics, Inc., Hauppauge, New York, a publicly held company engaged in the
distribution of electronic components. Mr. Girsky received a degree in Marketing
from Brooklyn College in 1957.
Bruce R. Thaw. Mr. Thaw has been a Director of the Company from June 1991
to January 1997 and was reappointed to the Board in January 1998. From 1984 to
the present, Mr. Thaw has been a principal in a law firm, which serves as
general counsel to the Company. Mr. Thaw was admitted to the bar of the State of
New York in 1978 and the California State Bar in 1983. Mr. Thaw is also a
director of Information Resource Engineering, Inc. a publicly traded company
engaged in the computer network security industry and Amtech Systems, Inc. a
publicly traded company engaged in the semi-conductor industry.
Devin N. Wenig. Mr. Wenig has been Chairman of the Board of Directors of
the Company from June 1991 to March 1999 and currently serves as a director. Mr.
Wenig was appointed Managing Director of Reuters Information (1999 revenue of
$2.5 billion) in February 2000. In this role Mr. Wenig has the responsibility
for both the regional and central marketing functions, product development,
e-commerce, the data groups, and commercial policy for Reuters globally. Mr.
Wenig also retains the position of Executive Vice President of Marketing -
Reuters America responsible for marketing and business development functions in
North and South America. Mr. Wenig serves as a Director of a number of Reuters
subsidiaries and portfolio companies, including Aether Systems, Inc.,
Multex.com, Intralinks, Inc., Loan Pricing Corporation, and FreeEdgar.com.
Before joining the Reuters organization, Mr. Wenig worked with the firm of
Cravath, Swaine and Moore as a Mergers and Acquisitions attorney. There he
managed several of their largest global transactions, including leveraged
buyouts, hostile transactions and cross-border mergers. Mr. Wenig has also
served as Chairman of the Board of Directors for a mid-sized biotechnology
company for the past eight years. Mr. Wenig received a B.A. degree from Union
College and a J.D. degree from the Columbia University School of Law.
Grant W. Denison, Jr. Mr. Denison co-founded BioMarin Pharmaceutical Inc.
in 1997. As Chairman and CEO, he has guided the development of the Company since
its inception. Under his leadership, BioMarin has raised approximately $69.0
million in private financings and $67.3 million in a July 1999 IPO dual listing
of the Company on Nasdaq National Market and Swiss New Market exchanges. He also
formed a joint venture with Genzyme General to develop and commercialize
BioMarin's lead enzyme replacement product, which has completed pivotal clinical
trials. Mr. Denison has 25 years experience in senior management in major
pharmaceutical companies. During his ten years at Monsanto/Searle, he served as
a member of the executive committees of both companies. As President of
Worldwide Consumer Products and Senior Vice President for Business Development
at Searle, he was responsible for the general management of Searle's consumer
products business and all pharmaceutical, diagnostics and consumer licensing and
business development. He also served as Corporate Vice President, Strategic
Planning for Searle's parent company, Monsanto, during a period of major
restructuring and portfolio realignment. In addition, he was President of
Searle's U.S. Pharmaceutical Operations during a period of significant sales and
earnings growth in the late 1980's. Prior to joining Searle, Mr. Denison was
Vice President of International Operations for Squibb Medical Systems and also
held a number of management positions during his 13 years at Pfizer, Inc.,
including Vice President of Pharmaceutical Planning and Business Development
from 1980 to 1985. During the course of his career at Pfizer, he formed numerous
licensing agreements, acquisitions and strategic alliances. Mr. Denison holds an
MBA from Harvard Business School, and he graduated from Colgate University magna
cum laude with a bachelor's degree with High Honors in Mathematical Economics.
Dr. Ian R. Ferrier. Dr. Ferrier, who was appointed to the Company's Board
of Directors in January 1995, is the founder, President and Chief Executive
Officer of Bogart Delafield Ferrier Inc., and has served in such capacity
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<PAGE>
since its inception in 1982. Trained in medicine and pharmacology, Dr. Ferrier
has managed and directed pharmaceutical programs and guided the growth of
several multinational companies. He has served on the Board of Directors of a
number of health care and biotechnical firms, as well as serving as consultant
to many of the world's major pharmaceutical companies. From 1982 to 1987, Dr.
Ferrier served as President of McCann Healthcare Inc. From 1982 to 1983, Dr.
Ferrier served as Chairman of The Covington Group of Companies, in 1982 as
Executive Vice President of TechAmerica Group and from 1979 to 1982, as Vice
President of Kalipharma Inc. From 1975 to 1979, Dr. Ferrier served as Chief
Executive Officer of the Monadnock Medical Center. Dr. Ferrier received a BSc in
Pharmacology from the University of Edinburgh, Edinburgh Scotland; served his
residency training in nephrology/clinical pharmacology at Southmead General
Hospital, University of Bristol Associated Hospitals, Bristol, England; and his
post-graduate internship at the Western General Hospital of the University of
Edinburgh Associated Hospitals, Edinburgh, Scotland.
Alvin Katz. Mr. Katz was appointed to the Board of Directors of the
Company in September 1993. Since 1981, he has served as an adjunct professor of
business management at Florida Atlantic University. In 1991, Mr. Katz was
appointed Chief Executive Officer of Odessa Engineering Corp., a company engaged
in the manufacturing of pollution monitoring equipment. He held this position
until that company was sold in September 1992. Mr. Katz also serves on the Board
of Directors of Amtech Systems Inc. which is engaged in the manufacture of
capital equipment in the computer chip manufacturing business; BCT
International, Inc., a franchisor of thermo graphic printing plants; Micron
Instruments Inc., a manufacturer of infrared temperature measuring instruments;
Ozo Diversified Inc., a manufacturer of depaneling equipment for the computer
chip manufacturing industry; and Blimpie International, Inc., which is engaged
in fast food franchising. Mr. Katz holds a B.S. in Business Administration
degree from New York University and has done graduate work at C.U.N.Y. -- Baruch
School.
John V. Pollock. Mr. Pollock was appointed to the Company's Board of
Directors in September 1993. From 1991 to the present, Mr. Pollock has served as
a director of Frank E. Basil, Inc., a worldwide provider of facilities
maintenance, engineering and operations management services. Mr. Pollock also
serves as a consultant to the partners of Basil Properties and has served as the
President of Nastech-Basil International, Inc., a joint venture between Basil
Properties and the Company which was dissolved in 1993. From 1975 to 1991, Mr.
Pollock was a senior banking executive in the Washington, D.C. area, serving as
President and Chief Executive Officer of Dominion Bank of Washington and the
John Hanson Savings Bank.
Committees Of The Board
The Company's Board of Directors has established a Compensation Committee
which is comprised of Joel Girsky and John V. Pollock. The purpose of this
Committee is to review and approve the compensation of the Company's officers
and to administer and interpret the Company's stock option plan. The Audit
Committee of the Company's Board of Directors is comprised of Alvin Katz, Joel
Girsky and John V. Pollock. The purpose of this Committee is to review with the
Company's independent auditors the financial controls and practices of the
Company and the plans for and results of the audit engagement.
The Company's Certificate of Incorporation contains provisions
indemnifying its officers, directors, employees and agents against certain
liabilities.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10 - EXECUTIVE COMPENSATION
Information with respect to executive compensation is set forth in the
Proxy Statement for the Annual Meeting of Shareholders of the Company under the
caption "Executive Compensation and Other Information", and is incorporated
herein by reference.
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<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is set forth in the Proxy Statement for the Annual Meeting
of Shareholders of the Company under the caption "Security Ownership of Certain
Beneficial Owners and Management", and is incorporated herein by reference.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
is set forth in the Proxy Statement for the Annual Meeting of Shareholders of
the Company under the caption "Certain Relationships and Related Transactions",
and is incorporated herein by reference.
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<PAGE>
PART IV
ITEM 13 - EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of Registrant, as amended and filed with
the Secretary of State of Delaware on November 8, 1993. (Filed as
Exhibit 3A to the Company's Registration Statement on Form SB-2, as
amended (Commission File No. 33-70180), filed on October 12, 1993,
and incorporated herein by reference.)
3.2 Amended By-Laws of Registrant. (Filed as Exhibit 3B to the Company's
Registration Statement on Form SB-2, as amended (Commission File No.
33-70180), filed on October 12, 1993, and incorporated herein by
reference.)
3.3 Certificate of Amendment of Certificate of Incorporation of
Registrant, as filed with the Secretary of State of Delaware on
December 30, 1996. (Filed as Exhibit 3.3 to the Company's
Registration Statement on Form S-2 (Commission File No. 333-16507),
filed on November 20, 1996, and incorporated herein by reference.)
4.1 Form of Representatives' Warrant (Filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-2 (Commission File No.
333-16507), filed on November 20, 1996, and incorporated herein by
reference.)
10.1 Licensing Agreement with UKRF. (Filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-18, as amended
(Commission File No. 2-88605-NY), filed on December 23, 1983, and
incorporated herein by reference.)
10.2 Lease for facilities at 45 Davids Drive, Hauppauge, NY. (Filed as
Exhibit 10B to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1995 (Commission File No. 0-13789), and
incorporated herein by reference.)
10.3 Sublicense Agreement with Bristol-Myers Squibb Co. (Filed as Exhibit
10E to the Company's Registration Statement on Form S-1, as amended
(Commission File No. 33-5717), filed on May 15, 1986, and
incorporated herein as reference.)
10.4 Agreements between Registrant, and RiboGene, Inc. (as successor in
interest to Rugby Laboratories, Inc., and Darby Pharmaceuticals,
Inc.) (Filed as Exhibit 10D to the Company's Registration Statement
on Form S-1, as amended (Commission File No. 33-5717), filed on May
15, 1986, and incorporated herein by reference.)
10.5 1995 Agreement between the Registrant and RiboGene, Inc. (Filed as
Exhibit 10F to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1995 (Commission File No. 0-13789), and
incorporated herein by reference.)
10.6 Stock Option Agreements. (Filed as Exhibit 10M to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1995
(Commission File No. 0-13789), and incorporated herein by
reference.)
10.7 License Agreement with The DuPont Merck Pharmaceutical Company.
(Filed as Exhibit 10N to the Company's Registration Statement on
Form SB-2, as amended (Commission File No. 33-70180), filed on
October 12, 1993, and incorporated herein by reference.)
10.8 Nasal Drug Evaluation and Option Agreement. (Filed as Exhibit 10K to
the Company's Annual Report on Form 10-KSB for the year ended June
30, 1996 (Commission File No. 0-13789), and incorporated herein by
reference.)
10.9 Agreement with Ciba Self-Medication, Inc. (Filed as Exhibit 10J to
the Company's Annual Report on Form 10-KSB for the year ended June
30, 1996 (Commission File No. 0-13789), and incorporated herein by
reference.)
10.10 Employment Agreement with Andrew P. Zinzi. (Filed as Exhibit 10.11
to the Company's Registration Statement on Form S-2 (Commission File
No. 333-16507), filed on November 20, 1996, and incorporated herein
by reference.)
10.11 Employment Agreement with Dr. Vincent D. Romeo. (Filed as Exhibit
10.11 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (Commission File No. 000-13789), and incorporated
herein by reference.)
10.12 Employment Agreement with Robert H. Rosen. (Filed as Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (Commission File No. 000-13789), and incorporated
herein by reference.)
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<PAGE>
10.13 Evaluation and Option Agreement with the Consumer Health Care
Division of Pfizer Inc. (Filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-2 (Commission File No. 333-16507),
filed on November 20, 1996, and incorporated herein by reference.)
10.14 Development and License Agreement with DynaGen, Inc. (Filed as
Exhibit 10.13 to the Company's Registration Statement on Form S-2 as
amended (Commission File No. 333-16507), filed on November 20, 1996,
and incorporated herein by reference.)
10.15 License and Supply Agreement with Schwarz Pharma, Inc. (Filed as
Exhibit 10J to the Company's Financial Report on Form 10Q for the
Quarter Ended June 30, 1997 (Commission File No.000-13789), filed on
August 14, 1997, and incorporated herein by reference.)
10.16 License and Supply Agreement with Schwarz Pharma, Inc. (Filed as
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (Commission File No. 000-13789), and
incorporated herein by reference.)
10.17 License and Supply Agreement with Meda AB. (Filed as Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (Commission File No. 000-13789), and incorporated
herein by reference.)
10.18 License and Supply Agreement with Tzamal Pharma Ltd. (Filed as
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
year ended December 31, 199 (Commission File No. 000-13789), and
incorporated herein by reference.)
10.19 International Distribution Agreement with Cambridge Selfcare
Diagnostics Limited. (Filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (Commission
File No. 000-13789), and incorporated herein by reference.)
10.20 Employment Agreement with Dr. Charan Behl. (Filed as Exhibit 10.20
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission File No. 000-13789), and incorporated
herein by reference.)
10.21 Employment Agreement with Andrew P. Zinzi.
10.22 Termination and Release Agreement with Schwarz Pharma, Inc.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Hauppauge, State of New York, on January 12, 2001.
ASTECH PHARMACEUTICAL COMPANY INC.
By: /s/ Steven C. Quay
-------------------------------------------------
Steven C. Quay, M.D., Ph.D.
President, Chief Executive Officer and Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed by the following persons on behalf of the Registrant and
in the capacities on January 12, 2001.
Signature Title
<TABLE>
<S> <C>
/s/ Steven C. Quay
-------------------------- President, Chief Executive Officer and Chairman of the Board
Steven C. Quay, M.D., Ph.D. Officer (Principal Executive Officer)
/s/ Andrew Zinzi
-------------------------- Chief Financial Officer
Andrew Zinzi (Principal Financial and Accounting Officer)
/s/ Devin N. Wenig Director
--------------------------
Devin N. Wenig
/s/ Bruce R. Thaw Director
--------------------------
Bruce R. Thaw
/s/ Grant W. Denison Director
Grant W. Denison
/s/ Ian R. Ferrier Director
--------------------------
Dr. Ian R. Ferrier
/s/ Joel Girsky Director
--------------------------
Joel Girsky
/s/ Alvin Katz Director
--------------------------
Alvin Katz
/s/ John V. Pollock Director
--------------------------
John V. Pollock
</TABLE>
<PAGE>
Index to Exhibits
Exhibit No. Description
*10.21 Employment Agreement with Andrew P. Zinzi
*10.22 Termination and Release Agreement with Schwarz Pharma, Inc.
------------------
* Previously filed
