-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SCUSiQ5rHj42yjmDMDiJMtQB0yOALNTxUuZvrCO80qxWjLQ/mIKisHkVqLcgiLeC 7Tv64STfXWozgqw0muw+IQ== 0001144204-08-014737.txt : 20080312 0001144204-08-014737.hdr.sgml : 20080312 20080312155553 ACCESSION NUMBER: 0001144204-08-014737 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080312 DATE AS OF CHANGE: 20080312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEXMED INC CENTRAL INDEX KEY: 0001017491 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 870449967 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22245 FILM NUMBER: 08683613 BUSINESS ADDRESS: STREET 1: 350 CORPORATE BLVD CITY: ROBBINSVILLE STATE: NJ ZIP: 08691 BUSINESS PHONE: 6092089688 MAIL ADDRESS: STREET 1: 350 CORPORATE BLVD CITY: ROBBINSVILLE STATE: NJ ZIP: 08691 10-K 1 v106448_10-k.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K
 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2007
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                to                  
 
Commission file number 0-22245
 
NEXMED, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Nevada
87-0449967
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)

89 Twin Rivers Drive, East Windsor, NJ 08520
(Address of Principal Executive Offices) (Zip Code)
 
(609) 371-8123
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
Name of Exchange on Which Registered
Common Stock, par value $.001
The NASDAQ Capital Market
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
 
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 o
 
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. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one): Large accelerated filer o Accelerated filer x Non-accelerated filer o (do not check if a smaller reporting company) Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
 
As of March 10, 2008, 83,108,002 shares of the common stock, par value $.001, of the registrant were outstanding. and the aggregate market value of the common stock held by non-affiliates, based upon the last sale price of the registrant’s common stock on June 30, 2007, was approximately $150 million.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of our Proxy Statement to be delivered to our stockholders in connection with the Company’s 2008 Annual Meeting of Stockholders (the “2007 Proxy Statement”) are incorporated by reference into Part III of this Report.
NEXMED, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 2007
 
ITEMS IN FORM 10-K
 
   
Page
PART I.
    
     
Item 1.
BUSINESS.
3
     
Item 1A.
RISK FACTORS
7
     
Item 1B.
UNRESOLVED STAFF COMMENTS
12
   
 
Item 2.
PROPERTIES.
12
   
 
Item 3.
LEGAL PROCEEDINGS.
12
   
 
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
13
   
 
PART II.
    
   
 
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
 
 
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
13
   
 
Item 6.
SELECTED FINANCIAL DATA.
14
   
 
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 
 
RESULTS OF OPERATIONS.
15
   
 
Item 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
22
   
 
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
22
   
 
Item 9A.
CONTROLS AND PROCEDURES
47
   
 
Item 9B.
OTHER INFORMATION
48
   
 
PART III.
  
   
 
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
48
     
Item 11.
EXECUTIVE COMPENSATION.
48
   
 
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
48
   
 
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
49
     
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
49
   
 
PART IV.
  
 
   
 
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
49
 
2
 
PART I.

ITEM 1.
BUSINESS.

Some of the statements contained in this Report discuss future expectations, contain projections of results of operations or financial condition or state other “forward-looking” information. Those statements include statements regarding the intent, belief or current expectations of the Company and its management team. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. These risks and uncertainties include but are not limited to, those risks and uncertainties set forth under the heading “Factors That Could Affect Our Future Results” in Item 1A of this Report. In light of the significant risks and uncertainties inherent in the forward-looking statements included in this Report, the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

General

We are a Nevada corporation and have been in existence since 1987. Since 1994, we have positioned ourselves as a pharmaceutical and medical technology company with a focus on developing and commercializing therapeutic products based on proprietary delivery systems. We are currently focusing our efforts on new and patented topical pharmaceutical products based on a penetration enhancement drug delivery technology known as NexACT®, which may enable an active drug to be better absorbed through the skin.
 
The NexACT® transdermal drug delivery technology is designed to enhance the absorption of an active drug through the skin, overcoming the skin's natural barrier properties and enabling high concentrations of the active drug to rapidly penetrate the desired site of the skin or extremity. Successful application of the NexACT® technology would improve therapeutic outcomes and reduce systemic side effects that often accompany oral and injectable medications. We have applied the NexACT® technology to a variety of compatible drug compounds and delivery systems, and, on our own or through development partnerships, are in various stages of developing new topical treatments for male and female sexual dysfunction, nail fungus, psoriasis, and other dermatological conditions. We intend to continue our efforts developing topical treatments based on the application of NexACT® technology to drugs: (1) previously approved by the FDA, (2) with proven efficacy and safety profiles, (3) with patents expiring or expired and (4) with proven market track records and potential.

On June 18, 2007, Vivian H. Liu was appointed as our Chief Executive Officer. Ms. Liu succeeded Richard J. Berman, who was elected by the Board to serve as its non-executive Chairman. Mr. Berman was our interim Chief Executive Officer from January 2006 through June 2007 and has served as a Director of NexMed since 2002. At the Annual Meeting of Stockholders on June 18, 2007, Ms. Liu was also elected to serve on the Board of Directors for a three-year term. On November 2, 2007, we announced the appointment of Mr. Hem Pandya to the position of Vice President and Chief Operating Officer. In addition, we have formed a Scientific Advisory Board headed by Dr. David Tierney, who also serves as a Director on the Board of Directors. The focus of the Scientific Advisory Board is to assist us in evaluating our current pipeline consisting of early stage NexACT® based products under development, and also assist us in identifying and evaluating new product development opportunities going forward.  

We have an exclusive global licensing agreement with Novartis International Pharmaceutical Ltd. (“Novartis”), for NM100060, our proprietary nail lacquer treatment for onychomycosis (nail fungal infection). Under the agreement, Novartis acquired the exclusive worldwide rights to NM100060 and has assumed all further development, regulatory, manufacturing and commercialization responsibilities as well as costs. Novartis agreed to pay us up to $51 million in upfront and milestone payments on the achievement of specific development and regulatory milestones, including an initial cash payment of $4 million at signing. In addition, we are eligible to receive royalties based upon the level of sales achieved.

On July 9, 2007, we announced that Novartis had completed patient enrollment for the Phase 3 clinical trials for NM100060. The Phase 3 program for NM100060 consists of two pivotal, randomized, double-blind, placebo-controlled studies. The parallel group studies are designed to assess the efficacy, safety and tolerability of NM100060 in patients with mild to moderate toenail onychomycosis. Approximately 1,000 patients are enrolled in the two studies, which are taking place in the U.S., Europe, Canada and Iceland. The Phase 3 program is expected to be completed in mid-2008.

3
The completion of patient enrollment in the ongoing Phase 3 clinical trials for NM100060 has triggered a $3 million milestone payment from Novartis. Pursuant to the terms of the licensing agreement with Novartis, this payment was due on February 4, 2008, or 7 months after last patient enrolled in the Phase 3 studies. However, the agreement also provides that clinical milestones paid to us by Novartis shall be reduced by 50% until we receive an approved patent claim on the NM100060 patent application which we filed with the U.S. patent office in November 2004. As such, we received $1.5 million from Novartis on March 4, 2008. In January 2008, we received the first Office Action from the U.S. Patent Office. Based on the Office Action received, we expect to receive before the end of the year an approved patent claim which would trigger an additional $2 million patent milestone due from Novartis, and cause Novartis to release to us the balance of $1.5 million remaining from the $3 million patient enrollment milestone. However, there is no certainty that we will receive an approved patent claim for NM100060 this year or at all.

In March 2007, Novartis commenced a comparator study in ten European countries. Over 900 patients with mild to moderate onychomycosis are participating in this open-label study, which is designed to assess the safety and tolerability of NM100060 (terbinafine 10% topical formulation) versus locerylR (amorolfine) 5% nail lacquer, a topical treatment for onychomycosis that is approved in Europe. The comparator study is expected to be completed during the second half of 2008 and the data will be included in the European regulatory application.    

The most advanced of our products under development is our topical alprostadil-based cream treatment intended for patients with erectile dysfunction (“the ED Product”), which was previously known as Alprox-TD®. Our New Drug Application (“NDA”) was filed and accepted for review by the FDA in September and November 2007, respectively. As such, according to the Prescription Drug User Fees Act (“PDUFA”), the FDA’s expected target action dateregarding approval of our NDA is July 19, 2008, assuming the FDA does not require any significant additional studies or information during the review process.

On November 1, 2007, we licensed the U.S. rights of our ED Product to Warner Chilcott Company, Inc. (“Warner”). Warner paid us $500,000 upon signing and agreed to pay us up to $12.5 million on the achievement of specific regulatory milestones and will undertake the manufacturing investment and any other investment for further product development that may be required for product approval, including an estimated $2 million for improvements to our East Windsor manufacturing facility in order for the facility to be ready for commercial manufacturing. Additionally, Warner is responsible for the commercialization of our ED Product. However, should Warner determine that it does not wish to continue the regulatory approval process for our ED Product then the licensing agreement would terminate and all rights would revert back to us.
 
The NDA for our ED Product is based on a formulation that requires refrigeration for stability. We have developed the prototype for a non-refrigerated ED Product. We estimate that $5 million will have to be invested in the scale-up (developing the prototype to production level) of the room temperature version of the ED Product. Pursuant to the Warner contract, Warner would fund the development expenses for the room temperature ED Product if Warner and NexMed jointly decide to switch to the room temperature ED Product for commercialization.

We have taken the position that the safety data of the product, which is based on our clinical database of over 3,000 patients, should be sufficient for filing for marketing approval in the U.S., Canada and Europe and, therefore, we do not need to conduct a 12-month open-label study as indicated by ICH (International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use) guidance.

In terms of the NDA filing in the U.S., there has been no discussion with the FDA concerning our regulatory position that the 3,000 patient clinical data base is sufficient to be accepted in lieu of the ICH guidance for the 12 month open-label study. As such, we will learn whether the FDA agrees with our position as they are reviewing our NDA. We currently estimate the cost to complete a 12 month open-label study to be approximately $8 million. Warner will undertake the investment necessary to complete the 12 month open-label study should it be required by the FDA. Should Warner determine that it does not wish to seek further regulatory approval of our ED Product then the licensing agreement would terminate and all rights would revert back to the Company. There is always the risk that we will not be successful in convincing the FDA to approve the product for marketing.

4
In January 2008, the FDA began and completed the pre-approval inspection (“PAI”) of our facility which is a requirement upon the filing of the NDA for our ED Product. The PAI is conducted by the FDA to ensure that our facility is in compliance with Good Manufacturing Practices (“GMP”) as defined by FDA regulations and to determine if we have the ability to begin commercial manufacturing upon approval of the NDA. The PAI was completed with certain observations made by the FDA and a withhold was placed on the facility, which means that the facility is currently not approved by the FDA for commercial manufacturing. The withhold status does not prevent the FDA from reviewing other components of the NDA for approval of our ED Product. We are currently working with the FDA to assess and respond to their observations in a timely manner in order to ensure that our facility is compliant with GMP well in advance of commercial manufacturing. While Warner intends to manufacture our ED Product in the future, our facility is listed as the manufacturing and quality control laboratory in the NDA and will likely be the initial site for commercial manufacturing of our ED Product upon its approval for commercialization.

On February 21, 2007, the Canadian regulatory authority, Health Canada, informed us that the lack of a completed 12-month open label safety study would not preclude them from accepting and reviewing our New Drug Submission (“NDS”) in Canada which we filed on October 19, 2007. The review and approval process in Canada typically takes about 12 months. Even though we are encouraged by the initial positive feedback from Health Canada, the risk remains that we may not be successful in convincing them to approve our product for marketing.

On April 20, 2007, the United Kingdom regulatory authority, Medicines and Healthcare Products Regulatory Agency (the “MHRA”) also informed us that the safety data that we have compiled to date was sufficient for the Marketing Authorization Application (“MAA”) to be filed and accepted for review in the United Kingdom. We had another guidance meeting with the MHRA in January 2008 and received additional input for the preparation of our MAA. However, the MHRA informed us at that time that due to the backlog of MAA filings, they would not be able to receive and start reviewing our MAA until February 2009. As a result of the MHRA’s backlog, we are evaluating the opportunity to use another reference state for our filing under the mutual recognition system to accelerate the filing in Europe. Even though we are encouraged by the initial positive feedback from the MHRA, the risk remains that we may not be successful in convincing the MHRA and other European regulatory authorities to approve our product for marketing.

We are also developing Femprox®, which is an alprostadil-based cream product intended for the treatment of female sexual arousal disorder. We have completed nine clinical studies to-date, including one 98-patient Phase 2 study in the U.S. for Femprox®, and also a 400-patient study for Femprox® in China, where the cost for conducting clinical studies is significantly lower than in the U.S. We do not intend to conduct additional studies for this product until we have secured a co-development partner, which we are actively seeking.

We have also continued early stage development work for our product pipeline with the goal of focusing our attention on product opportunities that would replicate the model of our licensed anti-fungal nail treatment. Our current efforts are focused on the development of viable topical treatments for psoriasis, a common dermatological condition.
 
Research and Development

Our research and development expenses for the years ended December 31 2007, 2006 and 2005 were $5,022,671, $5,425,137 and $11,222,099, respectively. Since January 1, 1994, when we repositioned ourselves as a medical and pharmaceutical technology company, through December 31, 2007, we have spent $91,492,702 on research and development.

Patents

We have thirteen U.S. patents either acquired or received out of a series of patent applications that we have filed in connection with our NexACT® technology and our NexACT® -based products under development. To further strengthen our global patent position on our proprietary products under development, and to expand the patent protection to other markets, we have filed under the Patent Cooperation Treaty corresponding international applications for our issued U.S. patents and pending U.S. patent applications.

5
The following table identifies our thirteen U.S. patents issued for NexACT® technology and/or our NexACT®-based products under development, and the year of expiration for each patent:

Patent Name
Expiration Date
   
Biodegradable Absorption Enhancers
2008
Biodegradable Absorption Enhancers
2009
Compositions and Methods for Amelioration of Human Female Sexual Dysfunction
2017
Topical Compositions for PGE1 Delivery
2017
Topical Compositions for Non-Steroidal Anti-Inflammatory Drug Delivery
2017
Prostaglandin Composition and Methods of Treatment of Male Erectile Dysfunction
2017
Medicament Dispenser
2019
Crystalline Salts of dodecyl 2-(N, N-Dimethylamino)-propionate *
2019
Topical Compositions Containing Prostaglandin E1
2019
CIP: Topical Compositions Containing Prostaglandin E1
2019
Prostaglandin Composition and Methods of Treatment of Male Erectile Dysfunction
2020
CIP: Prostaglandin Composition and Methods of Treatment of Male Erectile Dysfunction
2020
Topical Stabilized Prostaglandin E Compound Dosage Forms
2023
 
* Composition of matter patent on our NexACT® technology which is included in all of our current products under development
 
The two patents covering the first generation of the NexACT® technology enhancer will expire in 2008 and 2009. However, our current products under development contain the second generation of the NexACT® technology which is protected by a patent that will expire in 2019.
 
While we have obtained patents and have several patent applications pending, the extent of effective patent protection in the U.S. and other countries is highly uncertain and involves complex legal and factual questions. No consistent policy addresses the breadth of claims allowed in or the degree of protection afforded under patents of medical and pharmaceutical companies. Patents we currently own or may obtain might not be sufficiently broad to protect us against competitors with similar technology. Any of our patents could be invalidated or circumvented.

While we believe that our patents would prevail in any potential litigation, the holders of competing patents could determine to commence a lawsuit against us and even prevail in any such lawsuit. Litigation could result in substantial cost to and diversion of effort by us, which may harm our business. In addition, our efforts to protect or defend our proprietary rights may not be successful or, even if successful, may result in substantial cost to us.
 
Segment and Geographic Area Information

You can find information about our business segment and geographic areas of business in Note 15 of the Notes to Consolidated Financial Statements in Item 8.

Employees

As of March 12, 2008, we had 24 full time employees, 3 of whom have a Ph.D degree, 3 of whom are executive management and 17 of whom are engaged in research and development activities. We also rely on a number of consultants. None of our employees is represented by a collective bargaining agreement. We believe that we have a good relationship with our employees.

Executive Officers of the Registrant

The Executive Officers of the Company are set forth below.

Name
Age*
Title
Vivian H. Liu
46
Director, President and Chief Executive Officer and Secretary
Hemanshu Pandya
36
Vice President and Chief Operating Officer
Mark Westgate
38
Vice President and Chief Financial Officer and Treasurer
 
*As of March 1, 2008
6

Vivian H. Liu is, and has been, our President and Chief Executive Officer since June 2007 and Secretary since 1995, and also a Director of the Company since June 2007. Ms. Liu served as the Company’s Executive Vice President and Chief Operating Officer from January 2006 to June 2007, Vice President of Corporate Affairs from September 1995 until December 2005, Acting Chief Executive Officer from December 2005 until January 2006, Chief Financial Officer from January 2004 until December 2005, Acting Chief Financial Officer from 1999 to January 2004 and Treasurer from September 1995 through December 2005. In 1994, while the Company was in a transition period, Ms. Liu served as Chief Executive Officer. From 1985 to 1994, Ms. Liu was a business and investment adviser to the government of Quebec and numerous Canadian companies with respect to product distribution, technology transfer and investment issues. Ms. Liu received her MPA in International Finance from the University of Southern California and her B.A. from the University of California, Berkeley. 

Hemanshu Pandya is, and has been, our Vice President and Chief Operating Officer since October 2007. Mr. Pandya most recently served as Chief Commercial Officer for Putney, Inc., a start-up veterinary pharmaceutical company from March 2007 to July 2007. From August 2005 to December 2006, and prior to its merger with Watson Pharmaceuticals, Inc., Mr. Pandya was Senior Vice President of Business Development and Strategic Alliances for Andrx Pharmaceuticals, Inc., where he managed the licensing and co-development opportunities with strategic global partners. From August 2002 to August 2005, Mr. Pandya served as Vice President of Corporate Development and Commercial Operations for Able Laboratories, Inc. Prior to August 2002, Mr. Pandya served in various senior management positions with Ivax Pharmaceuticals, Inc. and Faulding/Purepac Pharmaceutical Company (subsequently Alpharma, Inc.). He received his Bachelor’s Degree from Rutgers University.

Mark Westgate is, and has been, our Vice President, Chief Financial Officer and Treasurer since December 2005. From March 2002 to December 2005, Mr. Westgate served as our Controller. He has over sixteen years of public accounting and financial management experience. From August 1998 to March 2002, Mr. Westgate served as Controller and Director of Finance for Lavipharm Laboratories Inc, a company specializing in drug delivery and particle design. Prior to joining Lavipharm, he was a supervisor at Richard A. Eisner & Company, LLP where he performed audits and provided tax advice for clients in various industries including biotech. Mr. Westgate is a Certified Public Accountant and a member of the New York State Society of Certified Public Accountants. He holds a B.B.A. in public accounting from Pace University.


WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission, and we have an Internet website address at http://www.nexmed.com. We make available free of charge on our internet website address our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You may also read and copy any document we file at the Securities and Exchange Commission's public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-732-0330 for further information on the operation of such public reference room. You also can request copies of such documents, upon payment of a duplicating fee, by writing to the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain copies of such documents from the Securities and Exchange Commission's website at http://www.sec.gov.

ITEM 1A. RISK FACTORS.

FACTORS THAT COULD AFFECT OUR FUTURE RESULTS

RISKS RELATED TO THE COMPANY

We will need additional funds to continue our operations through 2008.

7
Our cash reserves as of the date of this report are $3.6 million. We received a $1.5 million milestone payment from Novartis on March 4, 2008 pursuant to the terms of the licensing agreement whereby the payment was due seven months after the completion of patient enrollment for the Phase 3 clinical trials for NM100060, which occurred in July 2007. Although the completion of patient enrollment in the ongoing Phase 3 clinical trials for NM100060 triggers a $3 million milestone payment from Novartis, the agreement also provides that clinical milestones paid to us by Novartis shall be reduced by 50% until we receive an approved patent claim on the NM100060 patent application filed with the U.S. patent office in November 2004. Our cash reserves provide us with sufficient cash to fund our operations only through the end of the second quarter of 2008 based on our projected 2008 overhead expenses of approximately $500,000 per month and the anticipated expenditure of approximately $1.2 million in direct expenses budgeted for our early stage products under development and remaining costs related to the NDS in Canada for our ED Product. Upon receiving an approved claim on the NM100060 patent application, we will receive the balance of $1.5 million due from the patient enrollment milestone as well as a $2 million patent milestone from Novartis. These additional milestones, which we expect to receive in 2008, provide sufficient cash reserves to fund our operations through the end of the year. However, there is no certainty that we will receive an approved patent claim for NM100060 this year or at all. Should we not receive an approved patent claim before the second quarter 2008, it will be necessary to obtain additional funding to continue our operations in 2008.

On March 5, 2008 we executed a non-binding term sheet with a potential buyer to close a sale-leaseback transaction on our East Windsor, New Jersey facility in the second quarter at a purchase price of $7 million. The closing of this transaction in the second quarter, along with our current cash reserves, would provide sufficient funding for our operations through 2008. However, there is no assurance that we can agree on terms and close this transaction in the second quarter of 2008 or at all.

We continue to incur operating losses.

Our current business operations began in 1994 and we have a limited operating history. We may encounter delays, uncertainties and complications typically encountered by development stage businesses. We have not marketed or generated revenues in the U.S. from our products under development. We are not profitable and have incurred an accumulated deficit of $134,518,102 since our inception and through December 31, 2007. Our ability to generate revenues and to achieve profitability and positive cash flow will depend on the successful licensing or commercialization of our products currently under development. However, even if we eventually generate revenues from sales of our products currently under development or from licensing fees, we expect to incur significant operating losses over the next several years. Our ability to become profitable will depend, among other things, on our (1) development of our proposed products, (2) obtaining of regulatory approvals of our proposed products on a timely basis and (3) success in licensing, manufacturing, distributing and marketing our proposed products.

Our independent registered public accounting firm has doubt as to our ability to continue as a going concern.

As a result of our losses to date, expected losses in the future, limited capital resources and accumulated deficit, our independent registered public accounting firm has concluded that there is substantial doubt as to our ability to continue as a going concern, and accordingly, our independent registered public accounting firm has modified their report on our December 31, 2007 consolidated financial statements included in our annual report on Form 10-K in the form of an explanatory paragraph describing the events that have given rise to this uncertainty. These factors may make it more difficult for us to obtain additional funding to meet our obligations. Our continuation is dependent upon our ability to generate or obtain sufficient cash to meet our obligations on a timely basis and ultimately to attain profitable operations. We anticipate that we will continue to incur significant losses at least until successful commercialization of one or more of our products, and we may never operate profitably in the future.

We will need partnering agreements and significant funding to continue with our research and development efforts, and they may not be available.

Our research and development expenses for the years ended December 31, 2007, 2006 and 2005 were $5,022,671, $5,425,137 and $11,222,099, respectively. Since January 1, 1994, when we repositioned ourselves as a medical and pharmaceutical technology company, through December 31, 2007 we have spent $91,492,702 on research and development. Given our current level of cash reserves and low rate of revenue generation, we will not be able to fully advance our products under development unless we enter into additional partnering agreements. If we are successful in entering into additional partnering agreements for our products under development, we may receive milestone payments, which will offset some of our research and development expenses.
 
8
We will also need significant funding to pursue our overall product development plans. In general, products we plan to develop will require significant time-consuming and costly research and development, clinical testing, regulatory approval and significant investment prior to their commercialization. Even with funding, research and development activities may not be successful; our products may not prove to be safe and effective; clinical development work may not be completed; and the anticipated products may not be commercially viable or successfully marketed.

We currently have no sales force or marketing organization and will need, but may not be able, to attract marketing partners or afford qualified or experienced marketing and sales personnel.

In order to market our proprietary products under development, we will need to attract additional marketing partner(s) that will need to spend significant funds to inform potential customers, including third-party distributors, of the distinctive characteristics and benefits of our products. Our operating results and long term success will depend, among other things, on our ability to establish (1) successful arrangements with domestic and additional international distributors and marketing partners and (2) an effective internal marketing organization. Consummation of partnering arrangements is subject to the negotiation of complex contractual relationships, and we may not be able to negotiate such agreements on a timely basis, if at all, or on terms acceptable to us.

Pre-clinical and clinical trials are inherently unpredictable. If we or our partners do not successfully conduct these trials, we or our partners may be unable to market our products.

Through pre-clinical studies and clinical trials, our products must be demonstrated to be safe and effective for their indicated uses. Results from pre-clinical studies and early clinical trials may not allow for prediction of results in later-stage testing. Future clinical trials may not demonstrate the safety and effectiveness of our products or may not result in regulatory approval to market our products. Commercial sales in the United States of our products cannot begin until final FDA approval is received. The failure of the FDA to approve our products for commercial sales will have a material adverse effect on our prospects.

We depend on Novartis to realize the potential of NM100060, and, if we successfully enter into similar licensing agreements for other products, we will similarly be dependent upon our other partners.

In September 2005, we announced a global licensing agreement with Novartis, pursuant to which Novartis acquired the exclusive worldwide rights to NM100060, our topical anti-fungal nail treatment product, and agreed to pay us up to $51 million on the achievement of specific development and regulatory milestones and assume all costs and responsibilities related to NM100060. In addition, Novartis agreed to pay us royalties based upon the level of sales achieved. To date, we have received $4 million from Novartis. In order to realize the full potential of NM100060, we will depend upon Novartis for the development, manufacturing and commercialization of NM100060 and for obtaining regulatory approval of NM100060. In addition, many of the milestones upon which the Company would receive payment are based upon the satisfaction of criteria set by Novartis and the determination by Novartis to seek regulatory approval for the drug. Novartis may terminate the licensing agreement, in its entirety or on a country-by-country basis, by providing the Company up to 180 days notice. However, in such case Novartis would be obligated to complete the first Phase 3 clinical trial for the product and the rights to NM100060 would revert back to NexMed. Since we intend to pursue similar licensing arrangements for other products, we will similarly be dependent on our partners to realize the full potential of such products.

We depend on Warner Chilcott to realize the potential of our ED Product in the United States.

In November 2007, we announced a U.S. licensing agreement with Warner pursuant to which Warner acquired the exclusive U.S. rights to our ED Product, and agreed to pay us up to $12.5 million on the achievement of specific regulatory milestones and assume all costs and responsibilities related to the development, manufacturing and commercialization of our ED Product. In addition, Warner agreed to pay us royalties based upon the level of sales achieved. In order to realize the full potential of our ED Product in the U.S., we will depend upon Warner for the development, manufacturing and commercialization of our ED Product. However, should Warner determine that it does not wish to continue to seek regulatory approval of our ED Product then the licensing agreement would terminate and all rights would revert back to the Company.
 
9
Patents and intellectual property rights are important to us but could be challenged.

Proprietary protection for our pharmaceutical products is of material importance to our business in the U.S. and most other countries. We have sought and will continue to seek proprietary protection for our products to attempt to prevent others from commercializing equivalent products in substantially less time and at substantially lower expense. Our success may depend on our ability to (1) obtain effective patent protection within the U.S. and internationally for our proprietary technologies and products, (2) defend patents we own, (3) preserve our trade secrets, and (4) operate without infringing upon the proprietary rights of others. In addition, we have agreed to indemnify our partners for certain liabilities with respect to the defense, protection and/or validity of our patents and would also be required to incur costs or forego revenue if it is necessary for our partners to acquire third party patent licenses in order for them to exercise the licenses acquired from us.

We have thirteen U.S. patents either acquired or received out of a series of patent applications that we have filed in connection with our NexACT® technology and our NexACT-based products under development. To further strengthen our global patent position on our proprietary products under development, and to expand the patent protection to other markets, we have filed under the Patent Cooperation Treaty corresponding international applications for our issued U.S. patents and pending U.S. patent applications. The two patents covering the first generation of the NexACT® technology enhancer will expire in 2008 and 2009. However, our products under development contain the second generation of the NexACT® technology which is protected by a patent that will expire in 2019. While we believe there are significant disadvantages to using the permeation enhancers that are covered by the two patents expiring in 2008 and 2009, including the difficulty of formulation, there is always a risk that once our enhancers are off patent, they can be used by other parties to develop competitive products.

While we have obtained patents and have several patent applications pending, the extent of effective patent protection in the U.S. and other countries is highly uncertain and involves complex legal and factual questions. No consistent policy addresses the breadth of claims allowed in or the degree of protection afforded under patents of medical and pharmaceutical companies. Patents we currently own or may obtain might not be sufficiently broad to protect us against competitors with similar technology. Any of our patents could be invalidated or circumvented.

While we believe that our patents would prevail in any potential litigation, the holders of competing patents could determine to commence a lawsuit against us and even prevail in any such lawsuit. Litigation could result in substantial cost to and diversion of effort by us, which may harm our business. In addition, our efforts to protect or defend our proprietary rights may not be successful or, even if successful, may result in substantial cost to us.

We and our licensees depend upon third party manufacturers for chemical manufacturing supplies.

We and our licensees are dependent on third party chemical manufacturers for the active drugs in our NexACT®-based products under development, and for the supply of our NexACT® enhancers that are essential in the formulation and production of our topical products on a timely basis and at satisfactory quality levels. If our validated third party chemical manufacturers fail to produce quality products on time and in sufficient quantities, our results would suffer, as we or our licensees would encounter costs and delays in revalidating new third party suppliers.

We face severe competition.

We are engaged in a highly competitive industry. We and our licensees can expect competition from numerous companies, including large international enterprises, and others entering the industry with regard to our products. Most of these companies have greater research and development, manufacturing, marketing, financial, technological, personnel and managerial resources. Acquisitions of competing companies by large pharmaceutical or healthcare companies could further enhance such competitors' financial, marketing and other resources. Competitors may complete clinical trials, obtain regulatory approvals and commence commercial sales of their products before we could enjoy a significant competitive advantage. Products developed by our competitors may be more effective than our products.

10
We may be subject to potential product liability and other claims, creating risks and expense.

We are also exposed to potential product liability risks inherent in the development, testing, manufacturing, marketing and sale of human therapeutic products. Product liability insurance for the pharmaceutical industry is extremely expensive, difficult to obtain and may not be available on acceptable terms, if at all. We currently have liability insurance to cover claims related to our products that may arise from clinical trials, with coverage of $1 million for any one claim and coverage of $3 million in total, but we do not maintain product liability insurance for marketed products as our products have yet to be commercialized. We may need to acquire such insurance coverage prior to the commercial introduction of our products. If we obtain such coverage, we have no guarantee that the coverage limits of such insurance policies will be adequate. A successful claim against us if we are uninsured, or which is in excess of our insurance coverage, if any, could have a material adverse effect upon us and on our financial condition.

 
INDUSTRY RISKS

We are vulnerable to volatile market conditions.

The market prices for securities of biopharmaceutical and biotechnology companies, including ours, have been highly volatile. The market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. In addition, future announcements, such as the results of testing and clinical trials, the status of our relationships with third-party collaborators, technological innovations or new therapeutic products, governmental regulation, developments in patent or other proprietary rights, litigation or public concern as to the safety of products developed by us or others and general market conditions, concerning us, our competitors or other biopharmaceutical companies, may have a significant effect on the market price of our Common Stock.

We and our licensees are subject to numerous and complex government regulations which could result in delay and expense.

Governmental authorities in the U.S. and other countries heavily regulate the testing, manufacture, labeling, distribution, advertising and marketing of our proposed products. None of our proprietary products under development has been approved for marketing in the U.S. Before any products we develop are marketed, FDA and comparable foreign agency approval must be obtained through an extensive clinical study and approval process.

The studies involved in the approval process are conducted in three phases. In Phase 1 studies, researchers assess safety or the most common acute adverse effects of a drug and examine the size of doses that patients can take safely without a high incidence of side effects. Generally, 20 to 100 healthy volunteers or patients are studied in the Phase 1 study for a period of several months. In Phase 2 studies, researchers determine the drug's efficacy with short-term safety by administering the drug to subjects who have the condition the drug is intended to treat, assess whether the drug favorably affects the condition, and begin to identify the correct dosage level. Up to several hundred subjects may be studied in the Phase 2 study for approximately 6 to 12 months, depending on the type of product tested. In Phase 3 studies, researchers further assess efficacy and safety of the drug. Several hundred to thousands of patients may be studied during the Phase 3 studies for a period from 12 months to several years. Upon completion of Phase 3 studies, a New Drug Application is submitted to the FDA or foreign governmental regulatory authority for review and approval.

The failure to obtain requisite governmental approvals for our products under development in a timely manner or at all would delay or preclude us and our licensees from marketing our products or limit the commercial use of our products, which could adversely affect our business, financial condition and results of operations.
 
Because we intend that our products will be sold and marketed outside the U.S., we and/or our licensees will be subject to foreign regulatory requirements governing the conduct of clinical trials, product licensing, pricing and reimbursements. These requirements vary widely from country to country. The failure to meet each foreign country's requirements could delay the introduction of our proposed products in the respective foreign country and limit our revenues from sales of our proposed products in foreign markets.

11
Successful commercialization of our products may depend on the availability of reimbursement to the consumer from third-party healthcare payers, such as government and private insurance plans. Even if one or more products is successfully brought to market, reimbursement to consumers may not be available or sufficient to allow the realization of an appropriate return on our investment in product development or to sell our products on a competitive basis. In addition, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to governmental controls. In the U.S., federal and state agencies have proposed similar governmental control and the U.S. Congress has recently considered legislative and regulatory reforms that may affect companies engaged in the healthcare industry. Pricing constraints on our products in foreign markets and possibly in the U.S. could adversely affect our business and limit our revenues.

RISKS RELATED TO OWNING OUR COMMON STOCK

We do not expect to pay dividends on our common stock in the foreseeable future.

Although our shareholders may receive dividends if, as and when declared by our board of directors, we do not intend to declare dividends on our Common Stock in the foreseeable future. Therefore, you should not purchase our Common Stock if you need immediate or future income by way of dividends from your investment.

We may issue additional shares of our capital stock that could dilute the value of your shares of common stock.

We are authorized to issue 130,000,000 shares of our capital stock, consisting of 120,000,000 shares of our Common Stock and 10,000,000 shares of our preferred stock of which 1,000,000 are designated as Series A Junior Participating Preferred Stock, 800 are designated as Series B 8% Cumulative Convertible Preferred Stock and 600 are designated as Series C 6% Cumulative Convertible Preferred Stock. As of March 10, 2008, 83,108,002 shares of our Common Stock were issued and outstanding and 15,909,795 shares of our Common Stock were issuable upon the exercise or conversion of outstanding options and warrants. As of March 10, 2008, there were no shares of Series A, Series B or Series C Preferred Stock outstanding. In light of our possible future need for additional financing, we may issue authorized and unissued shares of Common Stock at below current market prices or additional convertible securities that could dilute the earnings per share and book value of your shares of our Common Stock.

In addition to provisions providing for proportionate adjustments in the event of stock splits, stock dividends, reverse stock splits and similar events, certain warrants, provide (with certain exceptions) for an adjustment of the exercise price if we issue shares of Common Stock at prices lower than the then exercise or conversion price or the then prevailing market price. This means that if we need to raise equity financing at a time when the market price for our Common Stock is lower than the exercise or conversion price, or if we need to provide a new equity investor with a discount from the then prevailing market price, then the exercise price will be reduced and the dilution to shareholders increased.

ITEM 1B.
UNRESOLVED STAFF COMMENTS.

None.


ITEM 2.
PROPERTIES.

We currently have our principal executive offices, laboratories and pilot manufacturing plant in a 31,500 square foot facility in East Windsor, NJ, which we own. We have invested approximately $9.4 million for the land, building and upgrade.

NexMed International Limited subleased 1,000 square feet of office space in Hong Kong for approximately $3,000 per month pursuant to a month-to-month arrangement. In September 2007, the Company ceased all operations in Hong Kong.  
 
ITEM 3.
LEGAL PROCEEDINGS.
 
We are subject to certain legal proceedings in the ordinary course of business. We do not expect any such items to have a significant impact on our financial position.
 
12
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth quarter of 2007.


PART II.

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our Common Stock is traded on the NASDAQ Capital Market System (“NASDAQ”) under the symbol “NEXM.”

On March 10, 2008, the last reported sales price for our Common Stock on NASDAQ was $1.45 per share, and we had 215 holders of record of our Common Stock.


The following table sets forth the range of the high and low sales prices as reported by NASDAQ for each quarter from January 1, 2006 to December 31, 2007.
 
 
Price of Common Stock ($)
 
High
  
Low
2007
      
First Quarter
1.54
  
0.72
Second Quarter
2.05
  
1.24
Third Quarter
1.90
  
1.47
Fourth Quarter
1.71
  
1.34
       
2006
      
First Quarter
1.15
  
0.65
Second Quarter
0.90
  
0.47
Third Quarter
0.91
  
0.60
Fourth Quarter
0.84
  
0.48

Dividends
 
We have never paid cash dividends on our common stock and do not have any plans to pay cash dividends in the foreseeable future. Our board of directors anticipates that any earnings that might be available to pay dividends will be retained to finance our business.
 
Performance comparison of total return of NexMed, Inc., the U.S. NASDAQ Stock market and NASDAQ Pharmaceuticals stocks
 
The following graph shows the yearly change in cumulative total stockholder return on NexMed Common Stock compared to the cumulative total return on the Nasdaq Stock Market (U.S.) and Nasdaq Pharmaceutical Stocks for the past 5 fiscal years (assuming a $100 investment on December 31, 2002 and quarterly reinvestment of dividends during the period).

13
 
 
* $100 invested on 12/31/02 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
    
  
  
12/02
12/03
12/04
12/05
12/06
12/07
 
 
 
 
 
 
 
 
NexMed, Inc.
 
100.00
561.97
211.27
108.45
94.37
200.00
NASDAQ Composite
 
100.00
149.34
161.86
166.64
186.18
205.48
NASDAQ Pharmaceutical
 
100.00
144.23
159.47
159.95
162.76
152.73
 
 
Unregistered sales of equity securities and use of proceeds
 
None.

 
ITEM 6.
SELECTED FINANCIAL DATA.

The following selected financial information is qualified by reference to, and should be read in conjunction with, the Company’s consolidated financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere herein.
 
14
 
Income Statement Data
      
   
2007
  
2006
  
2005
  
2004
  
2003
  
Revenue
                                
Product sales and royalties
  
$
4,036
  
$
7,243
  
$
9,702
  
$
9,519
  
$
6,206
  
Licensing and research and development fees
  
$
1,266,331
  
$
1,859,684
  
$
2,389,459
  
$
349,850
  
$
104,537
  
Total Expenses, net
  
$
(10,057,595
)
$
(9,910,180
)
$
(17,841,599
)
$
(17,383,017
)
$
(17,344,309
)
Net Loss
 
$
(8,787,228
)
$
(8,043,253
)
$
(15,442,438
)
$
(17,023,648
)
$
(17,233,566
)
Basic and Diluted Loss per Share
  
$
(0.11
)
$
(0.12
)
$
(0.32
)
$
(0.39
)
$
(0.60
)
Weighted Average Common Shares Outstanding Used for Basic and Diluted Loss per Share
    
82,015,909
    
66,145,807
    
52,528,345
    
43,603,546
    
33,649,774
  
 
Balance Sheet Data
  
 December 31,
 
 December 31,
 
 December 31,
 
 December 31,
 
 December 31,
 
 
 
 2007
 
 2006
 
 2005
 
 2004
 
 2003
  
Total Assets
  
$
10,672,706
  
$
19,933,634
  
$
13,331,943
  
$
20,272,661
  
$
23,133,679
  
Total Long Term Liabilities
  
$
3,538,051
  
$
1,058,098
  
$
4,122,997
  
$
6,801,826
  
$
7,335,877
  
Stockholders’ Equity
  
$
4,804,757
  
$
11,504,475
  
$
640,354
  
$
11,401,285
  
$
12,723,408
  
 
We do not have any off-balance sheet arrangements.    


ITEM 7.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

General
 
We are currently focusing our efforts on new and patented topical pharmaceutical products based on a penetration enhancement drug delivery technology known as NexACT®, which may enable an active drug to be better absorbed through the skin.

We have applied the NexACT® technology to a myriad of drug compounds and delivery systems, and are in various stages of developing new topical treatments for sexual dysfunction, nail fungus, psoriasis, and other dermatological conditions.

We intend to pursue our research, development, and execute a business strategy with the goal of achieving a level of development sufficient to enable us to attract potential strategic partners with resources sufficient to further develop and market our proprietary products both domestically and internationally.
 
Liquidity, Capital Resources and Financial Condition.

 
We have experienced net losses and negative cash flows from operations each year since our inception. Through December 31, 2007, we had an accumulated deficit of $134,518,102. Our operations have principally been financed through private placements of equity securities and debt financing. Funds raised in past periods should not be considered an indication of our ability to raise additional funds in any future periods.

15
On October 26, 2007 we issued a note in a principal amount of $3 million (the “2007 Note”). The 2007 Note is due June 30, 2009 and accretes interest at a rate of 8% per annum as discussed in Note 7 of the consolidated financial statements in Item 8. We used approximately $2.1 million of the 2007 Note proceeds to pay in full the principal amount of the $2 million note that was due on December 31, 2007, plus accrued interest as discussed in Note 6 of the consolidated financial statements in Item 8. The approximately $900,000 remaining was added to our current cash reserves along with the $500,000 up front payment received from Warner as discussed in Note 3 of the consolidated financial statements. Additionally, we received a $1.5 million milestone payment from Novartis on March 4, 2008 pursuant to the terms of the licensing agreement whereby the payment was due seven months after the completion of patient enrollment for the Phase 3 clinical trials for NM100060, which occurred in July 2007. Although the completion of patient enrollment in the ongoing Phase 3 clinical trials for NM100060 triggers a $3 million milestone payment from Novartis, the agreement also provides that clinical milestones paid to us by Novartis shall be reduced by 50% until we receive an approved patent claim on the NM100060 patent application filed with the U.S. patent office in November 2004. Our cash reserves of $3.6 million as of the date of this report provides us with sufficient cash reserves to fund our operations through the end of the second quarter of 2008 based on our projected 2008 monthly overhead costs of approximately $500,000 and the anticipated expenditure of approximately $1.2 million in direct expenditures budgeted for our early stage products under development and remaining costs related to the NDS in Canada for our ED Product. Upon receiving an approved claim on the NM100060 patent application we will receive the balance of $1.5 million due from the patient enrollment milestone as well as a $2 million patent milestone from Novartis. These additional milestones, which we expect to receive in 2008, provide sufficient cash reserves to fund our operations through the end of the year. However, there is no certainty that we will receive an approved patent claim for NM100060 this year or at all. Should we not receive an approved patent claim before the second quarter 2008, it will be necessary to obtain additional funding to continue our operations in 2008.

On March 5, 2008 we executed a non-binding term sheet with a potential buyer to close a sale-leaseback transaction on our East Windsor, New Jersey facility in the second quarter at a purchase price of $7 million. The closing of this transaction in the second quarter, along with our current cash reserves, would provide sufficient funding for our operations through 2008. However, there is no assurance that we can agree on terms and close this transaction in the second quarter of 2008 or at all.

As a result of our losses to date, expected losses in the future, limited capital resources and accumulated deficit, our independent registered public accounting firm has concluded that there is substantial doubt as to our ability to continue as a going concern for a reasonable period of time, and have modified their report in the form of an explanatory paragraph describing the events that have given rise to this uncertainty. These factors may make it more difficult for us to obtain additional funding to meet our obligations. Our continuation is based on our ability to generate or obtain sufficient cash to meet our obligations on a timely basis and ultimately to attain profitable operations. We anticipate that we will continue to incur significant losses at least until successful commercialization of one or more of our products. There can be no assurance that we can operate profitably in the future.

At December 31, 2007 we had cash and cash equivalents and short term investments of approximately $3.5 million as compared to $12.1 million at December 31, 2006. Our net decrease in cash in 2007 is the result of our average fixed monthly overhead costs of approximately $450,000 per month, direct costs of approximately $1.5 million related to the preparation of the regulatory filings for our ED Product, the repayment of the $3 million convertible notes and $2 million note payable as discussed in Notes 6 and 7 of the consolidated financial statements in Item 8. The repayment of the notes was partially funded by the $2.8 million in net proceeds received from the 2007 Note as discussed above and in Note 7 of the consolidated financial statements. Additionally, the $500,000 up-front payment received from Warner as discussed above and in Note 3 of the consolidated financial statement partially offset our reduction in cash in 2007.

At December 31, 2007 we had other receivable of $0 as compared to $183,700 at December 31, 2006. The other receivable consists of amounts billed to Novartis in connection with the exclusive global licensing agreement for our NM100060 nail lacquer. Pursuant to the terms of the agreement, Novartis has agreed to reimburse us for related patent expenses as well as the remaining costs for completion of preclinical studies that we had begun prior to the signing of the agreement. On February 16, 2007, the Novartis agreement was amended. Pursuant to the amendment, the Company is no longer obligated to complete the remaining preclinical studies for NM100060. Novartis has taken over all responsibilities related to the remaining preclinical studies. As such, we did not bill Novartis for any preclinical reimbursement costs in the remainder of 2007 and will not be billing Novartis for such costs in any future periods.

At December 31, 2007, we had $693,774 in payroll related liabilities as compared to $156,567 at December 31, 2006. The increase is attributable to the payment of 2006 bonuses in 2006 whereas in 2007 our bonuses were accrued in 2007 but are not being paid until the first quarter of 2008.

At December 31, 2007 we had convertible notes of $0 as compared to $3,000,000 at December 31, 2006. The notes were due and paid in cash on May 31, 2007. Therefore, at December 31, 2007, there is no remaining balance due to the holders of the convertible notes.
 
16
For the year ended December 31, 2007 we incurred loss on disposal of fixed assets (included in general and administrative expenses in our consolidated statement of operations) of $10,121 as compared to $473,312 in 2006. The loss on disposal of fixed assets resulted from the consolidation of our operations in 2006 into our East Windsor facility. In consolidating our facilities and reducing staff in 2006 we determined that we had excess laboratory equipment. We wrote off obsolete equipment and sold many pieces of equipment.

Since 2000, we have spent approximately $9.4 million in total for the land, building, manufacturing and lab equipment, related to our East Windsor facility which we are currently occupying.
 
 
  
 
  
Less than
  
1-3
  
3-5
  
More than
  
Comtractual Obligations  
Total
  
1 year
  
years
  
years
  
5 years
  
Long-term debt*   $ 3,360,000   $ 240,000   $ 3,120,000   $ 0   $ 0  
Purchase obligations**     4,182,700     3,346,160     836,540     0     0  
Other long- term liabilities***     1,428,700     109,900     329,700     329,700     659,400  
                                 
    $ 8,971,400   $ 3,696,060   $ 4,286,240   $ 329,700   $ 659,400  
 
*
Long-term debt consists of one note totaling $3 million plus all related interest.
**
Purchase obligations consist of a clinical research agreement that can be cancelled at any time on thirty days prior written notice.
The Penalty for our cancellation of this agreement totaling $4,182,700 is approximately $1.1 million if cancelled prior to 50% completion or 10% of outstanding contract amount at the time of cancellation if cancelled after the study is 50% complete.
***
Represents payments to be made according to a deferred compensation agreement. The present value of these payments is recorded on the balance sheet under deferred compensation in the amount of $1,060,274.
 
The following table summarizes our contractual obligations and the periods in which payments are due as of December 31, 2007:


Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.


Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Note 2 in the Notes to the Consolidated Financial Statements, includes a summary of the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. Actual results could differ from these estimates. The following is a brief description of the more significant accounting policies and related estimate methods that we follow:

Income Taxes - In preparing our financial statements, we make estimates of our current tax exposure and temporary differences resulting from timing differences for reporting items for book and tax purposes. We recognize deferred taxes by the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

17
Critical Estimate: In consideration of our accumulated losses and lack of historical ability to generate taxable income to utilize our deferred tax assets, we have estimated that we will not be able to realize any benefit from our temporary differences and have recorded a full valuation allowance. If we become profitable in the future at levels which cause management to conclude that it is more likely than not that we will realize all or a portion of the net operating loss carry-forward, we would immediately record the estimated net realized value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to our combined federal and state effective rates, which would be approximately 40% under current tax laws. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period.

Long-lived assets -- We review for the impairment of long-lived assets whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. If such assets are considered impaired, the amount of the impairment loss recognized is measured as the amount by which the carrying value of the asset exceeds the fair value of the asset, fair value being determined based upon discounted cash flows or appraised values, depending on the nature of the asset. We have not identified any such impairment losses.

Critical Estimate: Estimated undiscounted future cash flows are based on revenue projections for our products under development for which the long-lived assets are used. In 2005 and 2004, we performed a review for impairment of our manufacturing facility based on projections of sales of our product candidates. Overestimating the future cash flows resulting from the commercialization of our ED Product may lead to overstating the carrying value of the manufacturing facility by not identifying an impairment loss.

Revenue recognition -- Revenues from product sales are recognized upon delivery of products to customers, less allowances for returns and discounts. Royalty revenue is recognized upon the sale of the related products as reported to us by our distribution partner, provided the royalty amounts are fixed or determinable and the amounts are considered collectible. Revenues earned under license and research and development contracts are recognized in accordance with the cost-to-cost method outlined in Staff Accounting Bulletin No. 101, as amended, whereby the extent of progress toward completion is measured on the cost-to-cost basis; however, revenue recognized at any point will not exceed the cash received. If the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract would be made. All costs related to these agreements are expensed as incurred and classified within “Research and development” expenses in the Consolidated Statements of Operations and Comprehensive Loss. Research and development expenses include costs directly attributable to the conduct of our research and development, including salaries, payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, costs related to research and development fee agreements, the cost of services provided by outside contractors, including services related to our clinical trials, clinical trial expenses, the full cost of manufacturing drugs for use in research, pre-clinical and clinical development, and the allocable portion of facility costs.

Also, licensing agreements typically include several elements of revenue, such as up-front payments, milestones, royalties upon sales of product, and the delivery of product and/or research services to the licensor. We follow the accounting guidance of SEC Staff Accounting Bulletin No. 104 (which superseded SEC Staff Accounting Bulletin No. 101), and EITF No. 91-6 and EITF No. 00-21 (which became effective for contracts entered into after June 2003). Non-refundable license fees received upon execution of license agreements where we have continuing involvement are deferred and recognized as revenue over the estimated performance period of the agreement. This requires management to estimate the expected term of the agreement or, if applicable, the estimated life of its licensed patents.

In addition, EITF No. 00-21 requires a company to evaluate its arrangements under which it will perform multiple revenue-generating activities. For example, a license agreement with a pharmaceutical company may involve a license, research and development activities and/or contract manufacturing. Management is required to determine if the separate components of the agreement have value on a standalone basis and qualify as separate units of accounting, whereby consideration is allocated based upon their relative “fair values” or, if not, the consideration should be allocated based upon the “residual method.” Accordingly, up-front and development stage milestone payments are and will be deferred and recognized as revenue over the performance period of such license agreement.

18

Critical Estimate: In calculating the progress made toward completion of a research contract or licensing agreement, we must compare costs incurred to date to the total estimated cost of the project and/or estimate the performance period. We estimate the cost and/or performance period of any given project based on our past experience in product development as well as the past experience of our research staff in their areas of expertise. Underestimating the total cost and/or performance period of a research contract or licensing agreement may cause us to accelerate the revenue recognized under such contract. Conversely, overestimating the cost may cause us to delay revenue recognized.

Stock based compensation - In preparing our financial statements, we must calculate the value of stock options issued to employees, non-employee contractors and warrants issued to investors. The fair value of each option and warrant is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model is a generally accepted method of estimating the value of stock options and warrants.

Critical Estimate: The Black-Scholes option pricing model requires us to estimate the Company’s dividend yield rate, expected volatility and risk free interest rate over the life of the option. Inaccurately estimating any one of these factors may cause the value of the option to be under or over estimated. See Note 2 of the Consolidated Financial Statements for the current estimates used in the Black -Scholes pricing model. We adopted the provisions of SFAS 123R commencing January 1, 2006.

Comparison of Results of Operations between the Years Ended December 31, 2007 and 2006

Revenues. We recorded revenues of $1,270,367 during 2007 as compared to $1,866,927 during 2006. The decrease in revenue in 2007 is primarily attributable to the method used to recognize revenue from the $4 million up-front payment received in 2005 from Novartis under the licensing agreement for NM100060. As discussed in Note 3 to the Consolidated Financial Statements, the Novartis agreement was amended in February 2007 such that beginning with the first quarter of 2007 we are recognizing the initial up-front payment and preclinical reimbursement revenue from this agreement based on a straight-line basis over the 18 month period ended June 30, 2008 rather than the cost-to-cost method over the 32-month period estimated to complete the remaining preclinical studies for NM100060. Accordingly, the Company recognized significantly more revenue in the first quarter of 2006 because the high costs to initiate the preclinical studies in 2005 and early 2006 resulted in a larger portion of revenue recognized under the cost-to-cost method in 2006. This decrease in revenue is partially offset by the $111,000 in revenue recognized in 2007 attributable to the up-front payment received in November 2007 from Warner as discussed in Note 3 of the Consolidated Financial Statements.

Research and Development Expenses. Our research and development expenses decreased from $5,425,137 in 2006 to $5,022,671 in 2007. Research and development expenses in 2007 included approximately $2 million attributable to our ED Product and the balance attributable to other NexACT® technology based products and indirect overhead related to research and development, as compared to approximately $940,000 for NM100060 and $997,000 for our ED Product during 2006. The majority of our expenses in 2007 were related to the filing of the NDA and NDS for our ED Product in 2007. We no longer have research and development expenses related to NM100060, as we are no longer obligated to complete the remaining preclinical studies for NM100060. Novartis has taken over all responsibilities related to the remaining preclinical studies whereas in 2006, we incurred the preclinical study costs and were reimbursed by Novartis. In 2008, we anticipate minimal expenses related to the European regulatory filing for our ED Product. A large portion of our 2008 research and development expenses will be for the other NexACT® technology based products under development.

General and Administrative Expenses. Our general and administrative expenses have increased from $5,570,765 in 2006 to $5,634,479 in 2007. The modest increase in 2007 is primarily due to New Jersey State sales tax paid of approximately $257,000 as a result of a sales tax audit covering the period from 2000 to 2007, approximately $175,000 in consulting fees for business development and market research activities related to identifying potential commercial partners for our ED product and an increase of approximately $300,000 in legal fees related to the national filings of patent applications for our ED Product as well as legal fees in connection with a patent lawsuit in which we are the plaintiff suing for patent infringement of our herpes treatment medical device. In 2006 we recorded a loss on disposal of equipment of approximately $473,000 as a result of the consolidation of our operations in that year.

19
Interest Expense. We recognized $481,862 and $380,860 in interest expense in 2007 and 2006 respectively. The increase is primarily due to the $3 million mortgage note executed in October 2007 as discussed in Note 7 of the Consolidated Financial Statements whereby we began amortizing $51,255 of the note discount in 2007. Additionally, as discussed in Note 7 of the Consolidated Financial Statements, in 2007 we incurred ten months of interest expense on the $2 million Note that was repaid in October 2007 as compared to only one month of interest in 2006.

Other income. Other income was $0 in 2007 as compared to $627,455 in 2006. The 2006 other income consisted of a one-time payment received when Schering elected to terminate the supply and distribution agreement for our ED Product without cause. Pursuant to the agreement, Schering was obligated to pay a termination fee of 500,000 Euros or $627,455.

Net Loss. The net loss was $8,787,228 and $8,043,253 in 2007 and 2006, respectively. The increase is primarily attributable to the decrease in revenues primarily attributable to the method used to recognize revenue from the $4 million up-front payment received in 2005 from Novartis under the licensing agreement for NM100060. As discussed in Note 3 to the Consolidated Financial Statements, the Novartis agreement was amended in February 2007 such that beginning with the first quarter of 2007 we are recognizing the initial up-front payment and preclinical reimbursement revenue from this agreement based on a straight-line basis over the 18 month period ended June 30, 2008 rather than the cost-to-cost method over the 32-month period estimated to complete the remaining preclinical studies for NM100060. Accordingly, the Company recognized significantly more revenue in 2006 as the preclinical studies were initiated because the high costs to initiate the preclinical studies in 2005 and early 2006 resulted in a larger portion of revenue recognized under the cost-to-cost method in 2006.

Net Loss applicable to Common Stock. The net loss applicable to common stock was $8,787,228 or $0.11 per share as compared to $8,108,414 or $0.12 per share for 2006. The increase in net loss applicable to common stock is primarily attributable to the decrease in revenue as discussed above.

Comparison of Results of Operations between the Years Ended December 31, 2006 and 2005

Revenues. We recorded revenues of $1,866,927 during 2006 as compared to $2,399,161 in 2005. The revenue consisted of $7,243 and $9,702, respectively, of royalties received from our Asian licensee on sales of Befar® in Hong Kong and China. and $1,859,684 and $2,389,459, respectively, of revenue recognized on our Novartis licensing agreement.

Research and Development Expenses. Our research and development expenses decreased from $11,222,099 in 2005 to $5,425,137 in 2006. Research and development expenses in 2006 included approximately $997,000 attributable to Alprox-TD® and $940,000 attributable to NM100060, $233,000 attributable to severance pay related to our restructuring program initially implemented in December 2005 and the balance of approximately $3.1 million attributable to other NexACT® technology based products and indirect overhead related to research and development including costs to consolidate our three research and development labs into our one location in East Windsor, as compared to approximately $2.2 million attributable to Alprox-TD®, and $3.2 million attributable to NM100060 with the balance attributable to other NexACT® technology based products and indirect overhead related to research and development in 2005. Research and development expenses related to NM100060 was a net zero in 2006 as Novartis has taken over all development costs and reimbursed us for our remaining preclinical studies. Such reimbursement is shown as licensing fee revenue in the consolidated statements of operations. Additionally, total research and development expenses for the full year 2006 were lower as compared to 2005 expenses as we have significantly reduced the research and development staff and consolidated our facilities in 2006.
 
General and Administrative Expenses. Our general and administrative expenses have decreased from $6,878,335 in 2005 to $5,570,765 in 2006. The decrease is primarily due to a decrease in overhead, including rent, insurance and utilities, of approximately $506,000 as a result of the completion of our consolidation of facilities in April 2006. We had a decrease in general and administrative salaries of approximately $1,665,000 as a result of 2005 accrued severance and deferred compensation in connection with our restructuring program initially implemented in December 2005 which reduced our total staff for 2006. There was also a decrease in legal expenses of approximately $390,000 due to the fact that we had no active lawsuits pending in 2006 whereas we had one outstanding lawsuit in 2005. We also had a decrease in legal fees related to patents of approximately $410,000 as a result of our decision to reduce the number of national patent filings we would pursue on early stage pipeline products. These decreases were partially offset by an increase in compensation expense of $1,127,603 as a result of adopting SFAS 123R on January 1, 2006 which requires the recognition of compensation expense for all stock-based awards made to employees and directors. Additionally, in 2006 we recognized a loss on the disposal of equipment of approximately $473,000 as a result of the consolidation of our operations into our East Windsor facility.

20
Interest Expense. We recognized $380,860 in interest expense in 2006 as compared to $344,352 in interest expense in 2005. The increase is primarily due to imputed interest expense related to approximately $110,000 in deferred compensation payments made to Dr. Joseph Mo, former CEO, pursuant to the deferred compensation agreement as discussed in Note 5 of the Consolidated Financial Statements.

Other income. Other income was $627,455 in 2006 as compared to zero during the same period in 2005. The 2006 other income consisted of a one-time payment received when Schering elected to terminate the supply and distribution agreement for our ED Product without cause. Pursuant to the agreement, Schering was obligated to pay a termination fee of 500,000 Euros or $627,455.

Net Loss. The net loss was $8,043,253 and $15,442,438 in 2006 and 2005, respectively. The decrease is mostly due to our restructuring program initially implemented in December 2005 whereby we significantly reduced our research and development project expenditures and staff and reduced our overhead by consolidating our facilities in 2006.

Net Loss applicable to Common Stock. The net loss applicable to common stock was $8,108,414 or $0.12 per share for 2006 as compared to $16,550,479 or $0.32 per share for 2005. The decrease in net loss applicable to common stock is primarily attributable to our restructuring program initially implemented in December 2005 whereby we significantly reduced our research and development project expenditures and staff and reduced our overhead by consolidating our facilities in 2006. The decrease also resulted from the large deemed dividend to preferred shareholders in the second and third quarters of 2005 as discussed in Note 9 of the Consolidated Financial Statements.
  

Quarterly Results

The following table sets forth selected unaudited quarterly financial information for the years ended December 31, 2007 and 2006. The operating results are not necessarily indicative of results for any future period.

For the Three Months Ended
 
   
March 31, 2007
  
June 30, 2007
  
September 30, 2007
  
December 31, 2007
  
Total Revenues
  
$
286,959
  
$
283,417
  
$
296,390
  
$
403,601
  
Loss from Operations
    
($2,023,819
)
  
($1,975,228
)
  
($2,007,823
)
  
($3,379,913
)
Net Loss
    
($2,039,309
)
  
($1,991,021
)
  
($2,026,378
)
  
($2,730,520
)
Basic & Diluted Loss Per Share
  
$
(0.03
)
$
(0.02
)
$
(0.02
)
$
(0.03
)
 
   
March 31, 2006
  
June 30, 2006
  
September 30, 2006
  
December 31, 2006
  
Total Revenues
  
$
453,947
  
$
533,655
  
$
446,268
  
$
433,057
  
Loss from Operations
    
($2,886,199
)
  
($1,628,263
)
  
($1,965,890
)
  
($2,648,623
)
Net Loss
    
($2,906,293
)
  
($1,022,851
)
  
($1,987,835
)
  
($2,126,274
)
Basic & Diluted Loss Per Share
  
$
(0.05
)
$
(0.02
)
$
(0.03
)
$
(0.03
)
 
21
 
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We do not hold derivative financial investments, derivative commodity investments, engage in foreign currency hedging or other transactions that expose us to material market risk. The interest rates on our existing debt are fixed.

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

 
PAGE
Report of Independent Registered Public Accounting Firm 2006 and 2007
23
Report of Independent Registered Public Accounting Firm 2005
24
Financial Statements
25
Consolidated Balance Sheets - December 31, 2007 and 2006
25
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2007, 2006 and 2005
26
Consolidated Statements of Changes in Stockholders' Equity for years ended December 31, 2007, 2006 and 2005
27
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
28
Notes to the Consolidated Financial Statements
29
Schedule II - Valuation of Qualifying Accounts
50
 
 
22
 
NexMed, Inc.
Consolidated Balance Sheets
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Stockholders of NexMed, Inc 

We have audited the accompany consolidated balance sheets of NexMed, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2007 and 2006. Our audits also include the financial statement schedule included in Item 15. We also have audited NexMed, Inc.‘s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). NexMed, Inc.‘s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made my management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements and financial statement schedule referred to above present fairly, in all material respects, the financial position of NexMed, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, NexMed, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Internal Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations and expects to incur future losses that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 13 to the consolidated financial statements, effective January 1, 2007, the Company adopted the provisions of Financial Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes-An Interpretation of Financial Accounting Standards No. 109. Also, as discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, the Company changed its method of accounting for “stock-based compensation”.


/s/ Amper, Politziner & Mattia, PC
 
March 10, 2008
Edison, New Jersey
23
 
NexMed, Inc.
Consolidated Balance Sheets
 
Report of Independent Registered Public Accounting Firm
 

To the Board of Directors and Stockholders of NexMed, Inc.:


In our opinion, the consolidated statement of operations and comprehensive loss, stockholders' equity, and cash flows for the year ended December 31, 2005 present fairly, in all material respects, the results of operations and cash flows of NexMed, Inc. and its subsidiaries for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2005 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



PricewaterhouseCoopers LLP
New York, New York
March 15, 2006
 
The accompanying notes are an integral part of these consolidated financial statements.
24
NexMed, Inc.
Consolidated Balance Sheets

   
December 31,
  
Assets
  
2007
 
2006
 
Current assets
              
Cash and cash equivalents
  
$
2,735,940
  
$
11,069,133
  
Short term investments
    
750,000
   
1,000,000
 
Other receivable
    
-
   
183,700
 
Debt issuance cost, net of accumulated amortization of $7,565 and $11,742
   
68,081
   
27,803
 
Prepaid expenses and other current assets
    
127,659
   
164,898
 
               
Total current assets
    
3,681,680
   
12,445,534
 
               
Fixed assets, net
    
6,956,986
   
7,488,100
 
Debt issuance cost, net of accumulated amortization of $3,782
    
34,040
   
-
 
               
Total assets
  
$
10,672,706
  
$
19,933,634
  
               
Liabilities and Stockholders' Equity
              
Current liabilities
              
Accounts payable and accrued expenses
  
$
621,668
  
$
587,750
  
Payroll related liabilities
    
693,774
   
156,567
 
Deferred revenue
    
953,528
   
1,693,917
 
Deferred compensation - current portion
    
60,929
   
60,212
 
Note payable, net of debt discount of $127,385
    
-
   
1,872,615
 
Convertible notes payable - current portion
    
-
   
3,000,000
 
               
Total current liabilities
    
2,329,899
   
7,371,061
 
               
Long term liabilities
              
Note payable, net of debt discount of $461,295
    
2,538,705
   
-
 
Deferred compensation
    
999,345
   
1,058,098
 
               
Total liabilities
    
5,867,949
   
8,429,159
 
               
               
Commitments and contingincies (Note 14)
             
               
Stockholders' equity:
              
Common stock, $.001 par value, 120,000,000 shares authorized,
              
83,063,002 and 80,285,905 shares issued and outstanding, respectively
    
83,065
   
80,287
 
Additional paid-in capital
    
139,239,794
   
137,164,658
 
Accumulated other comprehensive loss
    
-
   
(9,596
)
Accumulated deficit
    
(134,518,102
)
  
(125,730,874
)
               
Total stockholders' equity
    
4,804,757
   
11,504,475
 
               
Total liabilities and stockholders' equity
  
$
10,672,706
  
$
19,933,634
  
 
The accompanying notes are an integral part of these consolidated financial statements.
25
NexMed, Inc.
Consolidated Statements of Operations

   
For the Year Ended
 
 
 
December 31,
 
 
 
2007
 
2006
 
2005
  
               
Revenues, principally license fee revenue
    
1,270,367
   
1,866,927
   
2,399,161
 
                     
Costs and expenses
                    
Research and development
    
5,022,671
   
5,425,137
   
11,222,099
 
General and administrative
    
5,634,479
   
5,570,765
   
6,878,335
 
                     
Total costs and expenses
    
10,657,150
   
10,995,902
   
18,100,434
 
                     
Loss from operations
    
(9,386,783
)
  
(9,128,975
)
  
(15,701,273
)
                     
Other income (expense)
                    
Other income
    
-
   
627,455
   
-
 
Interest income
    
275,508
   
271,730
   
122,071
 
Interest expense
    
(481,862
)
  
(380,860
)
  
(344,352
)
Total other income (expense)
    
(206,354
)
  
518,325
   
(222,281
)
                     
Loss before benefit from income taxes
    
(9,593,137
)
  
(8,610,650
)
  
(15,923,554
)
                     
Benefit from income taxes
    
805,909
   
567,397
   
481,116
 
                     
Net loss
    
(8,787,228
)
  
(8,043,253
)
  
(15,442,438
)
                     
Deemed dividend to preferred shareholders
                    
from beneficial conversion feature
    
-
   
(49,897
)
  
(984,715
)
Preferred dividend
    
-
   
(15,264
)
  
(123,326
)
                     
Net loss applicable to common stock
    
(8,787,228
)
  
(8,108,414
)
  
(16,550,479
)
                     
Other comprehensive loss
                    
Foreign currency translation adjustments
    
-
   
-
   
592
 
                     
Comprehensive loss
  
$
(8,787,228
)
$
(8,043,253
)
$
(15,441,846
)
                     
Basic and diluted loss per share
  
$
(.11
)
$
(.12
)
$
(.32
)
                     
Weighted average common shares outstanding
                    
used for basic and diluted loss per share
    
82,015,909
   
66,145,807
   
52,528,345
 
 
The accompanying notes are an integral part of these consolidated financial statements.
26
NexMed, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
 
                    
Foreign
  
  
  
 
  
Common
  
Common
  
 Additional
  
 
  
Currency
  
 Total
  
 
  
Stock
  
Stock
  
 Paid-In
  
Accumulated
  
translation
  
 Stockholders'
  
 
  
(Shares)
  
(Amount)
  
 Capital
  
Deficit
  
 
  
 Equity
  
                             
Balance at January 1, 2005
    
51,687,046
 
$
51,688
  
$
113,604,968
    
($102,245,183
)
  
($10,188
)
$
11,401,285
  
                                       
Issuance of common stock upon exercise of stock options and warrants
    
578,286
   
578
   
833,848
   
-
   
-
   
834,426
 
Issuance of compensatory options and warrants to consultants
    
-
   
-
   
82,210
   
-
   
-
   
82,210
 
Issuance of common stock in payment of interest on convertible notes
    
218,545
   
218
   
303,948
   
-
   
-
   
304,166
 
Amortization of beneficial conversion feature, discount and issuance costs related to preferred stock
    
-
   
-
   
(1,032,391
)
  
-
   
-
   
(1,032,391
)
Issuance of common stock upon conversion of preferred stock, including dividends paid in stock
    
3,215,590
   
3,216
   
3,479,758
   
-
   
-
   
3,482,974
 
Discount on preferred stock, including beneficial conversion features and fair value of detachable warrants
    
-
   
-
   
1,009,530
               
1,009,530
 
Cumulative translation adjustment
                            
592
   
592
 
Net loss
                      
(15,442,438
)
        
(15,442,438
)
                                       
Balance at December 31, 2005
    
55,699,467
   
55,700
   
118,281,871
   
(117,687,621
)
  
(9,596
)
  
640,354
 
                                       
Issuance of common stock upon exercise of stock options and warrants, net
    
208,095
   
208
   
97,108
   
-
   
-
   
97,316
 
Issuance of compensatory options to employees and consultants
    
-
   
-
   
1,214,403
   
-
   
-
   
1,214,403
 
Issuance of common stock in payment of interest on convertible notes
    
392,467
   
393
   
303,774
   
-
   
-
   
304,167
 
Issuance of compensatory stock to the board of directors
    
197,264
   
197
   
143,804
   
-
   
-
   
144,001
 
Issuance of common stock from private placement, net of offering costs
    
22,664,191
   
22,664
   
16,318,993
   
-
   
-
   
16,341,657
 
Issuance of common stock upon conversion of preferred stock, including dividends paid in stock
    
1,124,421
   
1,125
   
873,875
   
-
   
-
   
875,000
 
Amortization of beneficial conversion feature, discount and issuance costs related to preferred stock
                
(207,170
)
  
-
   
-
   
(207,170
)
Discount on Note payable for issuance of warrants
                
138,000
   
-
   
-
   
138,000
 
Net loss
    
-
   
-
   
-
   
(8,043,253
)
  
-
   
(8,043,253
)
     
80,285,905
 
$
80,287
  
$
137,164,658
    
($125,730,874
)
  
($9,596
)
$
11,504,475
  
Balance at December 31, 2006
                                      
                                       
Issuance of common stock upon exercise of stock options and warrants, net
    
1,717,943
   
1,718
   
219,175
   
-
   
-
   
220,893
 
Issuance of compensatory options to employees and consultants
    
-
   
-
   
776,835
   
-
   
-
   
776,835
 
Issuance of compensatory stock to employees and consultants
    
609,000
   
609
   
89,391
   
-
   
-
   
90,000
 
Issuance of common stock in payment of interest on notes
    
145,614
   
146
   
190,602
   
-
   
-
   
190,748
 
Issuance of compensatory stock to the board of directors
    
304,540
   
305
   
288,693
   
-
   
-
   
288,998
 
Net offering costs from issuance of common stock
    
-
   
-
   
(2,110
)
  
-
   
-
   
(2,110
)
Discount on Note payable for issuance of warrants
    
-
   
-
   
512,550
   
-
   
-
   
512,550
 
Realized gain on foreign currency exchange
                            
9,596
   
9,596
 
Net loss
    
-
   
-
   
-
   
(8,787,228
)
  
-
   
(8,787,228
)
                                       
Balance at December 31, 2007
    
83,063,002
 
$
83,065
  
$
139,239,794
    
($134,518,102
)
  
-
 
$
4,804,757
  
 
The accompanying notes are an integral part of these consolidated financial statements.
27
NexMed, Inc.
Consolidated Statements of Cash Flows
 
   
For the Year Ended
  
   
December 31,
  
   
2007
 
2006
 
2005
  
Cash flows from operating activities
                    
Net loss
  
$
(8,787,228
)
$
(8,043,253
)
$
(15,442,438
)
Adjustments to reconcile net loss to net cash
                    
used in operating activities
                    
Depreciation and amortization
    
621,869
   
842,087
   
953,051
 
Non-cash interest, amortization of debt discount and
                    
deferred financing costs
    
408,538
   
328,050
   
315,512
 
Non-cash compensation expense
    
1,155,832
   
1,358,403
   
82,210
 
Net gain on foreign currency exchange
    
9,596
   
-
   
-
 
Loss on disposal of property and equipment
    
10,121
   
473,312
   
16,371
 
Changes in assets and liabilities
                    
Decrease (increase) in other receivable
    
183,700
   
(183,700
)
  
(582,440
)
Decrease in prepaid expense and other assets
    
37,239
   
791,477
   
1,025,579
 
(Decrease) increase in deferred revenue
    
(740,389
)
  
(1,091,884
)
  
2,785,801
 
Increase in payroll related liabilities
    
537,207
   
156,567
   
858,011
 
(Decrease) increase in deferred compensation
    
(58,036
)
  
(59,889
)
  
610,199
 
Increase (decrease) in accounts payable and accrued expenses
    
33,918
   
(1,238,184
)
  
(457,577
)
Net cash used in operating activities
    
(6,587,633
)
  
(6,667,014
)
  
(9,835,721
)
Cash flows from investing activities
                    
Proceeds from sale of fixed assets
    
-
   
178,769
   
-
 
Capital expenditures
    
(100,875
)
  
(76,553
)
  
(160,694
)
Proceeds from collection of note receivable
    
-
   
-
   
-
 
Purchases of short term investments
    
(3,000,000
)
  
(6,000,000
)
  
(1,500,000
)
Proceeds from sale of short term investments
    
3,250,000
   
5,500,000
   
2,384,000
 
Net cash provided by (used in) investing activities
    
149,125
   
(397,784
)
  
723,306
 
Cash flows from financing activities
                    
Issuance of common stock, net of offering costs
    
(2,110
)
  
16,341,657
   
-
 
Proceeds from exercise of stock options and warrants
    
220,893
   
97,316
   
834,426
 
Issuance of preferred stock, net of offering costs
    
-
   
-
   
4,219,969
 
Redemption of preferred stock
    
-
   
-
   
(92,027
)
Issuance of notes payable, net of debt issue costs
    
2,886,532
   
1,975,000
   
-
 
Repayment of notes payable
    
(2,000,000
)
            
Repayment of convertible notes payable
    
(3,000,000
)
  
(3,000,000
)
  
-
 
Principal payments on capital lease obligations
    
-
   
(233,823
)
  
(644,049
)
Net cash (used in) provided by financing activities
    
(1,894,685
)
  
15,180,150
   
4,318,319
 
Effect of foreign exchange on cash
     -    
-
   
592
 
Net increase (decrease) in cash and cash equivalents
    
(8,333,193
)
  
8,115,352
   
(4,793,504
)
Cash and cash equivalents
                    
Beginning of year
    
11,069,133
   
2,953,781
   
7,747,285
 
End of year
  
$
2,735,940
  
$
11,069,133
  
$
2,953,781
  
                     
Cash paid for interest
  
$
119,307
  
$
91,912
  
$
40,185
  
                     
Supplemental disclosure of non-cash investing and financing activities:
                    
Payment of interest in common stock
    
190,748
   
304,167
   
304,166
 
Amortization of debt discount
   
178,640
   
10,615
   
-
 
Conversion of preferred stock to common stock
    
-
   
859,736
   
3,359,648
 
Deemed dividend to preferred shareholders
    
-
   
-
   
984,715
 
Preferred stock dividend paid in common stock
    
-
   
15,264
   
123,326
 
 
The accompanying notes are an integral part of these consolidated financial statements.
28
NexMed, Inc.
Notes to Consolidated Financial Statements
 
1.
Organization and Basis of Presentation
 
The Company was incorporated in Nevada in 1987. In January 1994, the Company began research and development of a device for the treatment of herpes simplex. The Company, since 1995, has conducted research and development both domestically and abroad on proprietary pharmaceutical products, with the goal of growing through acquisition and development of pharmaceutical products and technology.
 
The accompanying consolidated financial statements have been prepared on a basis which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has an accumulated deficit of $134,518,102 at December 31, 2007 and expects that it will incur additional losses in the future completing the research, development and commercialization of its technologies. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Management anticipates that the Company will require additional financing, which it is actively pursuing, to fund operations, including continued research, development and clinical trials of the Company’s product candidates. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining financing on terms acceptable to the Company. If the Company is unable to obtain additional financing, operations will need to be discontinued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
2.
Summary of Significant Accounting Principles
 
Significant accounting principles followed by the Company in preparing its financial statements are as follows:
 
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
 
Cash and cash equivalents
For purposes of the balance sheets and the statements of cash flows, cash equivalents represent all highly liquid investments with an original maturity date of three months or less.
 
Short term investments
A significant amount of our short term investments are comprised of investment grade variable rate debt obligations, which are asset-backed and categorized as available-for-sale. Accordingly, our investments in these securities are recorded at cost, which approximates fair value due to their variable interest rates, which typically reset every 28 days. Despite the long-term nature of their contractual maturities, we have the ability and intent to liquidate these securities within one year. As a result of the resetting variable rates, we had no cumulative gross unrealized or realized holding gains or losses from these investments. All income generated from these investments was recorded as interest income.
 
Fair value of financial instruments
The carrying value of cash and cash equivalents, convertible notes payable, accounts payable and accrued expenses and deferred compensation approximates fair value due to the relatively short maturity of these instruments.
 
29
NexMed, Inc.
Notes to Consolidated Financial Statements
 
Fixed assets
Property and equipment are stated at cost less accumulated depreciation. Depreciation of equipment and furniture and fixtures is provided on a straight-line basis over the estimated useful lives of the assets, generally three to ten years. Depreciation of buildings is provided on a straight-line basis over the estimated useful life of 31 years. Amortization of leasehold improvements is provided on a straight-line basis over the shorter of their estimated useful life or the lease term. The costs of additions and betterments are capitalized, and repairs and maintenance costs are charged to operations in the periods incurred.
 
Long-lived assets
The Company reviews for the impairment of long-lived assets whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. If such assets are considered impaired, the amount of the impairment loss recognized is measured as the amount by which the carrying value of the asset exceeds the fair value of the asset, fair value being determined based upon discounted cash flows or appraised values, depending on the nature of the asset. No such impairment losses have been recorded by the Company during 2007, 2006 or 2005.
 
Revenue recognition
Revenues from product sales are recognized upon delivery of products to customers, less allowances for estimated returns and discounts. Royalty revenue is recognized upon the sale of the related products, provided the royalty amounts are fixed or determinable and the amounts are considered collectible.
 
Revenues earned under licensing and research and development contracts are recognized in accordance with the cost-to-cost method whereby the extent of progress toward completion is measured on the cost-to-cost basis; however, revenue recognized at any point will not exceed the cash received. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is made in the period which it becomes probable. All costs related to these agreements are expensed as incurred and classified within “Research and development” expenses in the Consolidated Statement of Operations.
 
Also, licensing agreements typically include several elements of revenue, such as up-front payments, milestones, royalties upon sales of product, and the delivery of product and/or research services to the licensor. We follow the accounting guidance of SEC Staff Accounting Bulletin No. 104 (which superseded SEC Staff Accounting Bulletin No. 101) and EITF No. 91-6 and EITF No. 00-21 (which became effective for contracts entered into after June 2003). Non-refundable license fees received upon execution of license agreements where we have continuing involvement are deferred and recognized as revenue over the estimated performance period of the agreement. This requires management to estimate the expected term of the agreement or, if applicable, the estimated life of its licensed patents.
 
In addition, EITF No. 00-21 requires a company to evaluate its arrangements under which it will perform multiple revenue-generating activities. For example, a license agreement with a pharmaceutical company may involve a license, research and development activities and/or contract manufacturing. Management is required to determine if the separate components of the agreement have value on a standalone basis and qualify as separate units of accounting, whereby consideration is allocated based upon their relative “fair values” or, if not, the consideration should be allocated based upon the “residual method.” Accordingly, up-front and development stage milestone payments will be deferred and recognized as revenue over the performance period of such license agreement.
 
30
NexMed, Inc.
Notes to Consolidated Financial Statements
 
Research and development
Research and development costs are expensed as incurred and include the cost of salaries, building costs, utilities, allocation of indirect costs, and expenses to third parties who conduct research and development, pursuant to development and consulting agreements, on behalf of the Company.
 
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized.
 
Loss per common share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an antidilutive effect on per share amounts.
 
At December 31, 2007, 2006 and 2005, outstanding options to purchase 3,469,841, 3,663,421, and 5,018,880 shares of common stock, respectively, with exercise prices ranging from $0.55 to $16.25 have been excluded from the computation of diluted loss per share as they are antidilutive. At December 31, 2007, 2006 and 2005, outstanding warrants to purchase 12,439,954, 20,125,027, and 11,030,550 shares of common stock, respectively, with exercise prices ranging from $0.55 to $4.04 have also been excluded from the computation of diluted loss per share as they are antidilutive. Promissory notes convertible into 600,000 shares of common stock in 2006 and 1,200,000 shares of common stock (see Note 6) in 2005 have also been excluded from the computation of diluted loss per share, as they are antidilutive. Series C 6% cumulative convertible preferred stock (see Note 9) convertible into 643,382 shares of common stock in 2005 have also been excluded from the computation of diluted loss per share, as it is antidilutive.
 
Accounting for stock based compensation
 
Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”, which establishes the financial accounting and reporting standards for stock-based compensation plans. SFAS 123R requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options. Under the provisions of SFAS 123R, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period of the entire award (generally the vesting period of the award). The Company adopted the provisions of SFAS 123R as of January 1, 2006 using the modified prospective transition method. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes expense for all equity awards granted during the year ended December 31, 2006 and prior, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” Also in accordance with the modified prospective transition method, prior interim and annual periods have not been restated and do not reflect the recognition of stock-based compensation cost under SFAS 123R. Since the adoption of SFAS 123R, there have been no changes to the Company’s stock compensation plans or modifications to outstanding stock-based awards which would increase the value of any awards outstanding. Compensation expense for all stock-based compensation awards granted subsequent to January 1, 2006 was based on the grant-date fair value determined in accordance with the provisions of SFAS 123R.
 
31
NexMed, Inc.
Notes to Consolidated Financial Statements
 
The Company accounts for stock options granted to non-employees on a fair value basis in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." Any options issued to non-employees are recorded in the consolidated financial statements in deferred expenses in stockholders' equity using the fair value method and then amortized to expense over the applicable service periods (See Note 8). As a result, the non-cash charge to operations for non-employee options with vesting or other performance criteria is valued each reporting period based upon changes in the fair value of the Company's common stock.
 
As a result of adopting SFAS 123R, the Company’s net loss and its non cash compensation expense as shown in the Consolidated Statements of Operations for the years ended December 31, 2007 and 2006 is $1,095,834 and $1,358,403 more, respectively, than if the Company had continued to account for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and its related interpretations. Basic and diluted net loss per share for the years ended December 31, 2007 and 2006 of $(0.11) and $(0.12), respectively, is $0.01 and $0.02 more than if the Company had not adopted SFAS 123R.
 
Prior to January 1, 2006, the Company accounted for stock-based compensation in accordance with APB 25 and also followed the disclosure requirements of SFAS 123. Under APB 25, the Company accounted for stock-based awards to employees and directors using the intrinsic value method as allowed under SFAS 123. Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Statement of Operations because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant. The following table sets forth the computation of basic and diluted loss per share for year ended December 31, 2005 and illustrates the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of SFAS 123 to its stock plans:
 
32
NexMed, Inc.
Notes to Consolidated Financial Statements
 
   
2005
  
       
Net loss applicable to common stock, as reported
  
$
(16,550,479
)
Add: Stock-based compensation expense included
        
      in reported net loss
    
82,210
 
Deduct: Total stock-based compensation expense determined
        
           under fair-value based method for all awards
    
(1,147,979
)
Proforma net loss applicable to common stock
  
$
(17,616,248
)
         
Basic and diluted loss per share:
        
As reported
  
$
(0.32
)
Proforma
  
$
(0.34
)
 
The following table indicates where the total stock-based compensation expense resulting from stock options and awards appears in the Statement of Operations:
 
   
Year Ended
 
 
 
December 31, 2007
 
December 31, 2006
  
Research and development
    
111,108
   
122,800
 
General and administrative
  
$
1,044,724
  
$
1,235,603
  
               
Total stock-based compensation expense
 
$
1,155,832
  
$
1,358,403
  
 
The stock-based compensation expense has not been tax-effected due to the recording of a full valuation allowance against U.S. net deferred tax assets.
 
The fair value of each stock option grant is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used for the years ended December 31, 2007 and 2006:

Dividend yield
0.00%
Risk-free yields
1.35% - 5.02%
Expected volatility
80% - 103.51%
Expected option life
1 - 6 years
Forfeiture rate
6.41%
 
33
NexMed, Inc.
Notes to Consolidated Financial Statements
 
Expected Volatility. The Company uses analysis of historical volatility to compute the expected volatility of its stock options.
 
Expected Term. The expected term is based on several factors including historical observations of employee exercise patterns during the Company’s history and expectations of employee exercise behavior in the future giving consideration to the contractual terms of the stock-based awards.
 
Risk-Free Interest Rate. The interest rate used in valuing awards is based on the yield at the time of grant of a U.S. Treasury security with an equivalent remaining term.
 
Dividend Yield. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend yield.
 
Pre-Vesting Forfeitures. Estimates of pre-vesting option forfeitures are based on Company experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods. The cumulative effect resulting from initially applying the provisions of SFAS 123R to nonvested equity awards was not significant.
 
Additional disclosures required under SFAS 123R are presented in Note 8.
 
Concentration of credit risk
From time to time, the Company maintains cash in bank accounts that exceed the FDIC insured limits. The Company has not experienced any losses on its cash accounts.
 
Comprehensive loss
The Company has recorded comprehensive loss in accordance with Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” , which requires the presentation of the components of comprehensive loss in the Company’s financial statements. Comprehensive loss is defined as the change in the Company’s equity during a financial reporting period from transactions and other circumstances from non-owner sources (including cumulative translation adjustments and unrealized gains/losses on available for sale securities). Accumulated other comprehensive loss included in the Company’s balance sheet is comprised of translation adjustments from the Company’s foreign subsidiaries and unrealized gains and losses on investment in marketable securities.
 
Accounting estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s most significant estimates relate to the valuation of its long-lived assets, estimated cost to complete under its research contracts, and valuation allowances for its deferred tax benefit. Actual results may differ from those estimates.
 
34

Recent accounting pronouncements
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" . FAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. FAS 159 is effective for us beginning in the first quarter of fiscal year 2009, although earlier adoption is permitted. The Company is currently evaluating the impact of adopting FAS 159 on our consolidated financial statements.
 
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" , which replaces FASB Statement No. 141. FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. FAS 141R is effective as of the beginning of an entity's fiscal year that begins after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of FAS 141R on our consolidated financial position, results of operations and cash flows.
 
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51" ("FAS 160"), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. FAS 160 is effective as of the beginning of an entity's fiscal year that begins after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of FAS 160 on our consolidated financial position, results of operations and cash flows.
 
In December 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-1, “Accounting for Collaborative Arrangements.” EITF 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue; how costs incurred and revenue generated on sales to third parties should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. The provisions of EITF 07-1 will be adopted in 2009. The Company is in the process of evaluating the impact, if any, of adopting EITF 07-1 on our financial statements.
 
3.
Licensing and Research and Development Agreements
 
On November 1, 2007, the Company signed an exclusive licensing agreement with Warner Chilcott Company, Inc., (“Warner”) for its topical alprostadil-based cream treatment for erectile dysfunction (“ED Product”). Under the agreement, Warner acquired the exclusive rights in the United States to the ED Product and will assume all further development, manufacturing, and commercialization responsibilities as well as costs. Warner agreed to pay the Company an up front payment of $500,000 and up to $12.5 million in milestone payments on the achievement of specific regulatory milestones. In addition, the Company is eligible to receive royalties in the future based upon the level of sales achieved by Warner, assuming the product is approved by the FDA.
 
35
NexMed, Inc.
Notes to Consolidated Financial Statements
 
The Company is recognizing the initial up-front payment as revenue on a straight line basis over the estimated 9 month period ending July 31, 2008 which is the remaining anticipated review time by the FDA for the Company’s new drug application filed in September 2007 for the ED Product. Pursuant to the agreement, NexMed is responsible for the regulatory approval of the ED Product. Accordingly, for the year ended December 31, 2007, the Company recognized licensing revenue of $111,111 related to the Warner agreement.
 
On September 15, 2005, the Company signed an exclusive global licensing agreement with Novartis International Pharmaceutical Ltd., (“Novartis”) for its anti-fungal product, NM100060. Under the agreement, Novartis acquired the exclusive worldwide rights to NM100060 and would assume all further development, regulatory, manufacturing and commercialization responsibilities as well as costs. Novartis agreed to pay the Company up to $51 million in upfront and milestone payments on the achievement of specific development and regulatory milestones, including an initial cash payment of $4 million at signing. In addition, the Company is eligible to receive royalties based upon the level of sales achieved and is entitled to receive reimbursements of third party preclinical study costs up to $3.25 million. The Company began recognizing the initial up front and preclinical reimbursement revenue from this agreement based on the cost-to-cost method over the 32-month period estimated to complete the remaining preclinical studies for NM100060. On February 16, 2007, the Novartis agreement was amended. Pursuant to the amendment, the Company is no longer obligated to complete the remaining preclinical studies for NM100060. Novartis has taken over all responsibilities related to the remaining preclinical studies. As such, the balance of deferred revenue of $1,693,917 at December 31, 2006 is being recognized as revenue on a straight line basis over the 18 month period ended June 30, 2008 which is the estimated performance period for Novartis to complete the remaining preclinical studies. Accordingly, for the year ended December 31, 2007, the Company recognized licensing revenue of $846,960 related to the Novartis agreement.
 
On July 1, 2004, the Company entered into a license, supply and distribution agreement with Schering AG, Germany (“Schering”). This agreement provided Schering with exclusive commercialization rights to Alprox-TD® in approximately 75 countries outside of the U.S. On June 20, 2006, Schering elected to terminate the agreement without cause. Pursuant to the agreement, Schering was obligated to pay the Company a termination fee of 500,000 Euros or approximately $627,000. This amount was received in August 2006 and is recorded as other income in the Consolidated Statements of Operations for the year ended December 31, 2006.

In October 2005, the Company entered into an agreement with a Japanese pharmaceutical company whereby NexMed would provide contract development services for a tape/patch treatment for chronic pain. The Company received $100,000 as a signing payment. In December 2005, the Company ceased all development work on this project. The $100,000 signing payment which was recorded as deferred revenue in the December 31, 2005 Consolidated Balance Sheet was recognized as revenue in 2006 when the Japanese partner agreed to and the Company completed the technology transfer of development work done to date.
 
4.
Fixed Assets
 
Fixed assets at December 31, 2007 and 2006 were comprised of the following:
 
36
NexMed, Inc.
Notes to Consolidated Financial Statements
 
   
2007
  
2006
  
           
Land
  
$
363,909
  
$
363,909
  
Building
    
7,371,607
   
7,317,865
 
Machinery and equipment
    
2,630,155
   
2,642,030
 
Computer software
    
600,167
   
596,605
 
Furniture and fixtures
    
188,935
   
196,027
 
     
11,154,773
   
11,116,436
 
               
Less: accumulated depreciation
    
(4,197,787
)
  
(3,628,336
)
               
   
$
6,956,986
  
$
7,488,100
  
 
Depreciation and amortization expense was $621,870, $842,087, and $953,051 for 2007, 2006 and 2005 respectively, of which $0, $188,825, and $378,789 related to capital leases for the respective years.
 
5.
Deferred Compensation
 
On February 27, 2002, the Company entered into an employment agreement with Y. Joseph Mo, Ph.D., that had a constant term of five years, and pursuant to which Dr. Mo served as the Company's Chief Executive Officer and President. Under the employment agreement, Dr. Mo is entitled to deferred compensation in an annual amount equal to one sixth of the sum of his base salary and bonus for the 36 calendar months preceding the date on which the deferred compensation payments commence subject to certain limitations, including a vesting requirement through the date of termination, as set forth in the employment agreement. The deferred compensation is payable monthly for 180 months commencing on termination of employment. Dr. Mo’s employment was terminated as of December 15, 2005. The monthly deferred compensation payment through May 15, 2021 will be $9,158. As of December 31, 2007 and 2006, the Company has accrued $1,060,274 and $1,118,310 respectively, which is included in deferred compensation, based upon the estimated present value of the vested portion of the obligation.
 
6.
Convertible Notes Payable
 
On December 12, 2003, the Company issued convertible notes in an aggregate principal amount of $6 million. The notes were payable in two installments of $3 million on November 30, 2006 and May 31, 2007 and were collateralized by the Company’s facility in East Windsor, New Jersey which has a carrying value of approximately $6.9 million. The notes were convertible into shares of the Company’s common stock at a conversion price initially equal to $6.50 per share (923,077 shares). Pursuant to the terms of the Notes, the conversion price was adjusted on June 14, 2004 to the greater of (i) the volume weighted average price of the Company’s stock over the six-month period ending on such date and (ii) $5.00. Since the volume weighted average price of the Company’s stock during this period was below $5.00, the conversion price was adjusted to $5.00 (1,200,000 shares). Interest accreted on the notes on a semi-annual basis at a rate of 5% per annum, and the Company could pay such amounts in cash or by effecting the automatic conversion of such amount into the Company’s common stock at a 5% premium to the then average market prices.
 
37
NexMed, Inc.
Notes to Consolidated Financial Statements
 
In April and October 2006, respectively, the Company issued 164,855 shares and 227,612 shares of its common stock as payment of an aggregate of $304,167 in interest on the notes. During 2005 and 2004, the Company issued 218,545 and 130,673 shares of its common stock as payment of $304,167 in interest on the notes.
 
On November 30, 2006, the Company paid in cash the $3 million installment due plus accrued interest of $25,417. The remaining $3 million balance plus accrued interest of $25,417 on the note was paid on May 31, 2007 such that no amounts remain outstanding at December 31, 2007.
 
For the years ended December 31, 2006 and 2005, the Company recorded amortization of the debt issuance costs of $11,345 in each year.
 
7.
Notes Payable
 
October 2007 Note
 
On October 26, 2007 the Company issued a note in a principal amount of $3 million. The note is payable on June 30, 2009 and can be prepaid by the Company at any time without penalty. Interest accretes on the note on a quarterly basis at a rate of 8.0% per annum. The note is collateralized by the Company’s facility in East Windsor, New Jersey.
 
The Company also issued to the noteholder a 5-year detachable warrant to purchase 450,000 shares of common stock at an exercise price of $1.52. Of the total warrants issued, 350,000 warrants vest immediately and the remaining 100,000 warrants will vest if the note remains outstanding on October 26, 2008. The Company valued the warrants using the Black-Scholes pricing model. The Company allocated a relative fair value of $512,550 to the warrants. The relative fair value of the warrants is allocated to additional paid in capital and treated as a discount to the note that is being amortized over the 20-month period ended June 30, 2009.
 
For the year ended December 31, 2007, the Company recorded $51,255 of amortization related to the note discount.
 
November 2006 Note
 
On November 30, 2006, the Company issued a note in the principal amount of $2 million. The note was payable on the earlier of December 31, 2007 or the closing by the Company on the sale of the Company’s facility in East Windsor, New Jersey. Interest accreted on the note on a quarterly basis at a rate of 7.5% per annum provided, however, if the Company had not entered into a contract of sale of the East Windsor property on or prior to May 31, 2007, and the note had not be repaid by such date, the interest rate would increase to 8.5%. As such, on May 31, 2007, the interest rate increased to 8.5%.
 
On February 28, 2007, the Company issued 28,809 shares of its common stock as payment of an aggregate of $25,000 in interest on the note.
 
On May 1, 2007, the Company issued 30,711 shares of its common stock as payment of an aggregate of $37,500 in interest on the note.
 
38
NexMed, Inc.
Notes to Consolidated Financial Statements
 
On August 1, 2007 the Company issued 26,518 shares of its common stock as payment of an aggregate of $40,833 in interest on the note.
 
The Company also issued the noteholder a 4-year detachable warrant to purchase 500,000 shares of common stock at an exercise price of $0.5535. The Company valued the warrants using the Black-Scholes pricing model. The Company allocated a relative fair value of $138,000 to the warrants. The relative fair value of the warrants was allocated to additional paid in capital and treated as a discount to the note that was being amortized through the October 2007 repayment date.
 
This note was paid on October 29, 2007 with the proceeds from the issuance of the $3 million note referred to above. The Company paid in cash the $2 million balance on the Note plus accrued interest of $42,028.
 
For the year ended December 31, 2007, the Company recorded $127,385 of amortization related to the note discount.
 
8.
Stock Options and Restricted Stock
 
During December 1996, the Company adopted The NexMed, Inc. Stock Option and Long-Term Incentive Compensation Plan (“the Incentive Plan”) and The NexMed, Inc. Recognition and Retention Stock Incentive Plan (“the Recognition Plan”). A total of 2,000,000 shares were set aside for these two plans. In May 2000, the Stockholders’ approved an increase in the number of shares reserved for the Incentive Plan and Recognition Plan to a total of 7,500,000. During June 2006, the Company adopted the NexMed, Inc. 2006 Stock Incentive Plan. A total of 3,000,000 shares were set aside for the plan. Options granted under the Company’s plans generally vest over a period of one to five years, with exercise prices of currently outstanding options ranging between $0.55 to $16.25. The maximum term under these plans is 10 years.
 
The following table summarizes information about options outstanding at December 31, 2007:
 
39
NexMed, Inc.
Notes to Consolidated Financial Statements
 
A summary of stock option activity is as follows:
 
 
 
 
 
Weighted
 
Weighted
 
Total
 
 
 
 
 
Average
 
Average Remaining
 
Aggregate
 
 
 
Number of
 
Exercise
 
Contractual
 
Intrinsic
 
 
 
Shares
 
Price
 
Life
 
Value
  
                   
Outstanding at January 1, 2005
    
5,215,081
 
$
2.91
              
Granted 
    
400,650
   
1.03
             
Exercised 
    
(106,400
)
  
1.08
             
Cancelled 
    
(490,451
)
  
2.62
             
Outstanding at December 31, 2005
    
5,018,880
 
$
2.83
              
Granted 
    
1,993,750
   
0.78
             
Exercised 
    
(354,666
)
  
0.71
             
Cancelled 
    
(2,994,543
)
  
3.28
             
Outstanding at December 31, 2006
    
3,663,421
 
$
1.52
              
Granted 
    
202,100
   
1.41
             
Exercised 
    
(78,480
)
  
1.07
             
Cancelled 
    
(317,200
)
  
2.82
             
                           
Outstanding at December 31, 2007
    
3,469,841
 
$
1.41
    
7.14 years
  
$
1,653,679
  
                           
Vested or expected to vest at
                          
December 31, 2007
    
3,247,424
 
$
1.41
    
7.14 years
  
$
1,578,078
  
                           
Exercisable at December 31, 2007
    
3,122,740
 
$
1.43
    
6.93 years
  
$
1,578,078
  
Exercisable at December 31, 2006
    
2,395,897
 
$
1.83
              
Exercisable at December 31, 2005
    
4,443,730
 
$
2.94
              
                           
Options available for grant at December 31, 2007
    
52,278
                   
 
The weighted average grant date fair value of options granted during 2007, 2006 and 2005 was $1.41, $0.78, and $1.03, respectively. The intrinsic value of options exercised during the year ended December 31, 2007 was $110,556.
 
As of December 31, 2007, there was $1,626,004 of total unrecognized compensation cost related to non-vested stock and stock options. That cost is expected to be recognized over a weighted-average period of 1.66 years.
 
Compensatory Share Issuances
 
The value of restricted stock grants is calculated based upon the closing stock price of the Company’s common stock on the date of the grant. The value of the grant is expensed over the vesting period of the grant in accordance with FAS123R as discussed in Note 2.
 
Principal employee based compensation transactions for the year ended December 31, 2007 were as follows:
 
On January 24, 2007, the Company issued awards of restricted shares of the Company’s common stock to Richard Berman, Chief Executive Officer, Vivian Liu, Chief Operating Officer, and Mark Westgate, Chief Financial Officer. Mr. Berman’s award of 60,000 shares were to vest in four equal installments on March 31, June 30, September 30, and December 31, 2007, assuming continuous and uninterrupted service as Chief Executive Officer of the Company. Mr. Berman’s 30,000 unvested shares at June 30, 2007 were cancelled upon his resignation as CEO and the appointment of Ms. Liu to the position of CEO. Ms. Liu and Mr. Westgate received awards of 150,000 and 75,000 restricted shares, respectively. Ms. Liu and Mr. Westgate’s awards vest in three equal installments on December 31, 2007, 2008 and 2009, assuming continuous and uninterrupted service with the Company.

40
NexMed, Inc.
Notes to Consolidated Financial Statements
 
Also on January 24, 2007, the Company issued awards of shares of the Company’s common stock to Board members Leonard Oppenheim, Martin Wade and Arthur Emil for their services during their 2006 - 2007 terms. Mr. Oppenheim received an award of 20,000 shares for his service as Chairman of the Board of Directors and 5,000 shares for his services as Chairman of the Finance Committee. Mr. Wade received an award of 10,000 shares for his service as Chairman of the Audit Committee and Compensation Committee of the Board of Directors. Mr. Emil received an award of 5,000 shares for his service as Chairman of the Corporate Governance/Nominating Committee of the Board of Directors.  There were no such shares issued in 2006 and 2005 for director services as chairman of Board Committees.

Additionally, on April 1, June 28, September 28, and December 31, 2007 the Company issued awards of shares of the Company’s common stock to each independent director as compensation for his services during the quarters ended March 31, June 30, 2007, September 30, 2007 and December 31, 2007. Each independent director received 10,227 shares of common stock for a total of 51,135 shares issued on each April 1, June 28, and September 28, 2007 and December 31, 2007. In 2006, the Company issued each independent director 12,329 shares of common stock for a total of 49,316 shares issued each calendar quarter for his services in 2006. In 2005 no such shares were issued as each of the directors was compensated in cash at $1,500 per month.

The Company appointed Dr. David S. Tierney to the Board of Directors on January 24, 2007. In connection with his appointment to the Board, the Company issued an award of restricted shares of the Company’s common stock as compensation for his services as a member of the Board of Directors. The restricted stock award of 30,000 shares vests in three equal installments on February 1, 2007 and on the dates of the Annual Meeting of Stockholders in 2007 and 2008 assuming continuous and uninterrupted service with the Company.
 
On September 12, 2007, the Company issued awards of shares of the Company’s common stock to Board members Leonard Oppenheim, Martin Wade, Arthur Emil and David Tierney for their services during their 2007 - 2008 terms. Mr. Oppenheim received an award of 5,000 shares for his service as Chairman of the Finance Committee of the Board of Directors. Mr. Wade received an award of 10,000 shares for his service as Chairman of the Audit Committee and Compensation Committee of the Board of Directors. Mr. Emil received an award of 5,000 shares for his service as Chairman of the Corporate Governance/Nominating Committee of the Board of Directors. Dr. Tierney received an award of 20,000 shares for his service as Chairman of the Company’s Scientific Advisory Board.
 
On October 3, 2007, the Company issued an award of 850,000 shares of the Company’s common stock to Vivian Liu for her services as CEO. 100,000 shares vested immediately while the remaining 750,000 shares will vest in three equal installments of 250,000 shares on June 18, 2008, 2009 and 2010 assuming continuous and uninterrupted service as CEO of the Company.
 
On October 31, 2007, the Company hired Hemanshu Pandya as its Vice President and Chief Operating Officer. In connection with his employment agreement, Mr. Pandya was issued an award of 125,000 shares of the Company’s common stock. 75,000 shares will vest in three equal installments of 25,000 shares on October 31, 2008, 2009 and 2010 assuming continuous and uninterrupted service with the Company. 50,000 shares will vest upon the execution of a licensing/development agreement brought to the Company by Mr. Pandya valued at over $5 million on or before April 30, 2009. Additionally, the Company awarded Mr. Pandya a grant of options to purchase at $1.43 per share an aggregate of 175,000 shares of the Company’s common stock. The stock options vest in three installments as follows: 25,000 on October 31, 2008, 50,000 shares on October 31, 2009 and 100,000 shares on October 31, 2010 assuming continuous and uninterrupted service with the Company.
 
41
NexMed, Inc.
Notes to Consolidated Financial Statements
 
9.
Series C 6% Cumulative Convertible Preferred Stock
 
On May 17, 2005, the Company sold an aggregate of 445 shares of its Series C 6% cumulative convertible preferred stock and raised gross proceeds of $4,450,000 ($10,000 liquidation preference per share). Each preferred share of the Series C Stock was initially convertible at the holder’s option into approximately 7,353 shares of common stock (total of 3,272,059 shares). Each investor also received for each share of Series C Stock purchased, 4-year detachable warrants to purchase 2,672 shares of common stock (total of 1,188,931 warrants) at an exercise price of $1.43 per share. The Series C Stock could be converted at any time, at the holder’s option, into shares of the Company’s common stock at an initial conversion value of $1.36.
 
For the years ended December 31, 2006 and 2005 pursuant to the terms of the Series C Stock, the Company recorded dividends in the amount of $15,264 and $123,326, respectively, as a dividend to preferred shareholders in the Consolidated Statements of Operations.
 
For the years ended December 31, 2006 and 2005, the Company recorded a deemed dividend of $49,897 and $984,715, respectively. This deemed dividend represents the sum of the beneficial conversion feature, amortization of the contingent beneficial conversion feature, and amortization of preferred stock issuance costs.
 
During 2005, the Company converted 357.5 shares of the Series C Stock and accrued dividends into 3,215,590 shares of its common stock with an aggregate value of $3,482,974. During the first half of 2006, the Company converted 72 shares of the Series C Stock and accrued dividends into 880,308 shares of its common stock with a value of $715,388.
 
On June 30, 2006, pursuant to the terms of the Series C Stock, the Company converted the remaining 15.5 preferred shares and accrued dividends through June 30, 2006 of $159,612 at a price of $0.65 per share. Upon conversion, the Company issued a total of 244,113 shares of common stock. As of December 31, 2007 and 2006, no shares of the Series C Stock remained outstanding.
 
10.
Common Stock
 
Pursuant to a Common Stock and Warrant Purchase Agreement dated December 20, 2006, the Company closed a private placement of its securities and raised over $8.65 million in gross proceeds. The Company sold 13,317,000 shares of its common stock at $0.6501 per share. The investors also received four-year warrants to purchase 5,326,800 shares of common stock, exercisable beginning six months after closing at a price of $0.79 per share. The warrants will be redeemable by the Company at $0.01 per share if the closing sales price of its common stock is above $5 for ten consecutive trading days as reported on the Nasdaq Capital Market or other principal exchange.
 
On January 23, 2006, the Company closed a private placement of its securities and raised over $8.3 million in gross proceeds. The Company sold 9,347,191 shares of its common stock at $0.89 per share. The investors also received four-year warrants to purchase 3,738,876 shares of common stock, exercisable beginning six months after closing at a price of $1.11 per share. The warrants will be redeemable by the Company at $0.01 per share if the closing sales price of its common stock is above $5 for ten consecutive trading days as reported on the Nasdaq Capital Market or other principal exchange.
 
42
NexMed, Inc.
Notes to Consolidated Financial Statements
 
11.
Stockholder Rights Plan
 
On April 3, 2000, the Company declared a dividend distribution of one preferred share purchase Right for each outstanding share of the Company's common stock to shareholders of record at the close of business on April 21, 2000. One Right will also be distributed for each share of Common Stock issued after April 21, 2000, until the Distribution Date described in the next paragraph. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredths of a share (a Unit) of Series A Junior Participating Preferred Stock, $.001 par value per share , at a Purchase Price of $100.00 per Unit, subject to adjustment. Under the Rights Plan, 1,000,000 shares of the Company’s preferred stock have been set-aside.
 
Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificates will be distributed. The Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) ten (10) business days following a public announcement that a person or group of affiliated or associated persons (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock , or (ii) ten (10) business days following the public announcement of a tender offer or exchange offer that would, if consummated, result in a person or group beneficially owning 15% or more of such outstanding shares of Common Stock, subject to certain limitations.
 
Under the terms of the Rights Agreement, Dr. Y. Joseph Mo, the Company’s former CEO, will be permitted to increase his ownership to up to 25% of the outstanding shares of Common Stock, without becoming an Acquiring Person and triggering a Distribution Date.
 
On January 16, 2007 the Rights Agreement was amended to exempt Southpoint Master Fund, LP and its affiliates from becoming an Acquiring Person within the meaning of the Rights Agreement, provided that Southpoint’s aggregate beneficial ownership of the Company’s common stock is less than 20% of the shares of common stock then outstanding.
 
12.
Warrants
 
A summary of warrant activity is as follows:
 
43
NexMed, Inc.
Notes to Consolidated Financial Statements
 
       
Weighted
  
Weighted
 
 
 
Common Shares
 
Average
 
Average
 
 
 
Issuable upon
 
Exercise
 
Contractual
 
 
 
Exercise
 
Price
 
Life
  
               
Outstanding at January 1, 2005
    
11,436,691
   
1.91
       
Issued (Note 9) 
    
1,188,938
   
1.43
       
Redeemed 
    
(471,883
)
  
1.53
       
Cancelled 
    
(1,123,196
)
  
1.99
       
Outstanding at December 31, 2005
    
11,030,550
   
1.83
       
Issued (Notes 7 and 10) 
    
9,565,676
   
0.90
       
Redeemed 
    
-
   
-
       
Cancelled 
    
(471,199
)
  
1.82
       
Outstanding at December 31, 2006
    
20,125,027
 
$
1.33
        
Issued (Note 7) 
    
450,000
 
$
1.52
        
Exercised 
    
(2,790,495
)
$
1.83
        
Cancelled 
    
(5,344,578
)
$
1.40
          
Outstanding at December 31, 2007
    
12,439,954
 
$
1.23
    
2.43 years
  
Exercisable at December 31, 2007
    
12,339,954
 
$
1.23
    
2.41 years
  
 
13.
Income Taxes
 
The Company has incurred losses since inception, which have generated net operating loss carryforwards of approximately $84 million for federal and state income tax purposes. These carryforwards are available to offset future taxable income and expire beginning in 2014 through 2026 for federal income tax purposes. In addition, the Company has general business and research and development tax credit carryforwards of approximately $2.1 million. Internal Revenue Code Section 382 places a limitation on the utilization of federal net operating loss carryforwards when an ownership change, as defined by tax law, occurs. Generally, an ownership change, as defined, occurs when a greater than 50 percent change in ownership takes place during any three-year period. The actual utilization of net operating loss carryforwards generated prior to such changes in ownership will be limited, in any one year, to a percentage of fair market value of the Company at the time of the ownership change. Such a change may have already resulted from the additional equity financing obtained by the Company since its formation.
 
In 2005, 2006 and 2007, the Company was approved by the State of New Jersey to sell a portion of its state tax credits pursuant to the Technology Tax Certificate Transfer Program. The Company has approximately $1.9 million in NJ tax credit benefits left available to sell at December 31, 2007, and was approved to sell net operating loss tax benefits of $905,515 in 2007, $637,525 in 2006, and $540,580 in 2005. The Company received net proceeds of $805,909, $567,397, and $481,116 in 2007, 2006, and 2005, respectively, as a result of the sale of the tax credits, which has been recognized as received as an income tax benefit in the Consolidated Statements of Operations. There can be no assurance that this program will continue in future years.
 
The net operating loss carryforwards and tax credit carryforwards resulted in a noncurrent deferred tax benefit at December 31, 2007, 2006 and 2005 of approximately $39.2 million, $35.6 million and $32.8 million, respectively. In consideration of the Company’s accumulated losses and the uncertainty of its ability to utilize this deferred tax benefit in the future, the Company has recorded a valuation allowance of an equal amount on such date to fully offset the deferred tax benefit amount.
In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”) which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition and defines the criteria that must be met for the benefits of a tax position to be recognized. The cumulative effect of the change in accounting principle must be recorded as an adjustment to opening retained earnings. Effective January 1, 2007, the Company adopted FIN No. 48 and determined that such adoption did not have a material impact on its financial statements.
 
 
44
NexMed, Inc.
Notes to Consolidated Financial Statements
 
The reconciliation of income taxes computed using the statutory U.S. income tax rate and the provision (benefit) for income taxes for the years ended December 31, 2007, 2006 and 2005 are as follows:
 
   
For the years ended
  
   
December 31,
  
   
2007
 
2006
 
2005
  
               
Federal statutory tax rate
    
(35%)
 
  
(35%)
 
  
(35%)
 
State taxes, net of federal benefit
    
(6%)
 
  
(6%)
 
  
(6%)
 
Valuation allowance
    
41%
 
  
41%
 
  
41%
 
Sale of state net operating losses
    
(8.40%)
 
  
(6.59%)
 
  
(3.02%)
 
                     
Provision (benefit) for income taxes
    
(8.40%)
 
  
(6.59%)
    
(3.02%)
 
 
For the years ended December 31, 2007, 2006 and 2005, the Company’s effective tax rate differs from the federal statutory rate principally due to net operating losses and other temporary differences for which no benefit was recorded, state taxes and other permanent differences.
 
14.
Commitments and Contingencies
 
The Company is a party to clinical research agreements amended in October 2005 such that the total commitment was reduced to approximately $4.2 million. These agreements provide that if the Company cancels them prior to 50% completion, the Company will owe the higher of 10% of the outstanding contract amount prior to the amendment or 10% of the outstanding amount of the amended contract at the time of cancellation. At December 31, 2007, this amounts to approximately $1.1 million. The Company anticipates that the clinical research in connection with the agreements will be completed in 2008.
 
The Company is a party to several short-term consulting and research agreements that, generally, can be cancelled at will by either party.
 
We are subject to certain legal proceedings in the ordinary course of business. We do not expect any such items to have a significant impact on our financial position.
 
15.
Segment and Geographic Information
 
The Company is active in one business segment: designing, developing, manufacturing and marketing pharmaceutical products. The Company maintained development and business development operations in the United States and Hong Kong in 2005, 2006. In September 2007, the Company ceased all operations in Hong Kong.  
 
Geographic information as of December 31, 2007, 2005 and 2005 are as follows:
 
45
NexMed, Inc.
Notes to Consolidated Financial Statements
 
 
 
 For the years ended December 31,
 
 
 
 2007
 
2006
 
2005
  
Net revenues
                    
United States
  
$
775,894
  
$
758,207
  
$
1,062,550
  
Hong Kong
    
494,473
   
1,108,720
   
1,336,611
 
   
$
1,270,367
  
$
1,866,927
  
$
2,399,161
  
                     
 
   
 December 31,
 
 
 
 2007
 
2006
 
2005
  
Long-lived assets
                    
United States
  
$
6,956,986
  
$
7,488,100
  
$
8,905,716
  
Hong Kong
    
-
   
-
   
-
 
   
$
6,956,986
  
$
7,488,100
  
$
8,905,716
  
 
 
 
 
46
 
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 
None.


ITEM 9A.
CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company’s management carried out an evaluation with participation of the Company’s Chief Executive Officer and Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of the end of the period covered by this report that the Company’s disclosure control and procedures are effective. There were no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation by the Chief Executive Officer and Chief Financial Officer that occurred during the Company’s fourth quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under such framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.

47
The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by Amper, Politziner & Mattia, PC, an independent registered public accounting firm, as stated in their report which is included herein.

ITEM 9B.
OTHER INFORMATION

None.
 
PART III.

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Other than as set forth below, information called for by Item 10 is set forth under the heading “Election of Directors” and “Committees of the Board” in our 2008 Proxy Statement, which is incorporated herein by reference, and “Executive Officers of the Registrant” of Part I of this Report.

The Company has adopted a code of ethics that applies to its Chief Executive Officer, Chief Financial Officer, and to all of its other officers, directors and employees. The code of ethics is available at the Corporate Governance section of the Investors page on the Company’s website at http://www.nexmed.com. The Company intends to disclose future amendments to, or waivers from, certain provisions of its code of ethics, if any, on the above website within four business days following the date of such amendment or waiver.


ITEM 11.
EXECUTIVE COMPENSATION.

Information called for by Item 11 is set forth under the headings “Executive Compensation” and “Directors Compensation” in our 2008 Proxy Statement, which is incorporated herein by reference.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Other than as set forth below, information called for by Item 12 is set forth under the heading “Security Ownership of Certain Beneficial Owners and Management” in our 2008 Proxy Statement, which is incorporated herein by reference.

EQUITY COMPENSATION PLAN INFORMATION

The following table gives information as of December 31, 2007, about shares of our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans (together, the "Equity Plans"):
 
48
 
   
(a)
 
(b)
 
(c)
 
Plan category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
Equity compensation plans approved by security holders
   
3,469,841 (1
)
$
1.41
    
52,278 (2
)
Equity compensation plans not approved by security holders
                      
Total
   
3,469,841
  
$
1.41
    
52,278
  

(1) Consists of options outstanding at December 31, 2007 under The NexMed Inc. Stock Option and Long Term Incentive Plan (the "Incentive Plan") and The NexMed, Inc. 2006 Stock Incentive Plan (the "2006 Plan").

(2) Consists of zero and 52,278 shares of common stock that remain available for future issuance, at December 31, 2007, under the Incentive Plan and 2006 Plan, respectively.

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Information called for by Item 13 is set forth under the headings “Transactions with Related Persons, Promoters and Certain Control Persons” and “Corporate Governance” in our 2008 Proxy Statement, which is incorporated herein by reference.


ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Information called for by item 14 is set forth under the heading “Principal Accountant Fees and Services” in our 2008 Proxy Statement, which is incorporated herein by reference.
 
PART IV.
 
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
            (a) 1. 
Financial Statements:

The information required by this item is included in Item 8 of Part II of this Form 10-K.

 
2.
Financial Statement Schedules
 
Schedule II - Valuation of Qualifying Accounts
 
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule for the years ended December 31, 2007 and 2006 (contained in Report of Independent Registered Public Accounting Firm 2006 and 2007 included in Item 8 of Part II of this Form 10-K).
 
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule for the year ended December 31, 2005 (contained in Report of Independent Registered Public Accounting Firm 2005 included in Item 8 of Part II of this Form 10-K).
 
49
SCHEDULE II

 
NEXMED, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
 
Description
  
Balance at
Beginning
of Year
  
Charged to
Costs and
Expenses
  
Charged to
Other
Accounts
  
Deductions
  
Balance at
End of Year
  
Year ended December 31, 2007
                                
Valuation allowance - deferred tax asset
  
$
35,642,110
  
$
3,632,017
    
--
    
--
  
$
39,274,127
  
                                 
Year ended December 31, 2006
                               
Valuation allowance - deferred tax asset
  
$
32,859,672
   $ 3,682,438     --     --   $ 35,642,110  
                                 
Year ended December 31, 2005
                                
Valuation allowance - deferred tax asset
  
$
28,520,370
  
$
4,339,302
    
--
    
--
  $ 32,859,672  
 
All other schedules have been omitted because the information is not applicable or is presented in the Financial Statements or Notes thereto.
 
3.
Exhibits  
 
EXHIBITS
NO.
DESCRIPTION
   
3.1
Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 2.1 filed with the Company's Form 10-SB filed with the Securities and Exchange Commission on March 14, 1997).
   
3.2
Amended and Restated By-laws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 14, 2003).
   
3.3
Certificate of Amendment to Articles of Incorporation of the Company, dated June 22, 2000 (incorporated herein by reference to Exhibit 3.2 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2003).
   
3.4
Certificate of Amendment to the Company’s Articles of Incorporation, dated June 14, 2005. (incorporated herein by reference to Exhibit 3.4 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 16, 2006)
   
4.1
Form of Common Stock Certificate (incorporated herein by reference to Exhibit 3.1 filed with the Company's Form 10-SB filed with the Securities and Exchange Commission on March 14, 1997).
   
4.2
Rights Agreement and form of Rights Certificate (incorporated herein by reference to Exhibit 4 to our Current Report on Form 8-K filed with the Commission on April 10, 2000).
   
4.3
Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4 to our Current Report on Form 8-K filed with the Commission on April 10, 2000).
   
4.5
Form of Warrant dated April 21, 2003 (incorporated herein by reference to Exhibit 4.2 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 14, 2003).
   
4.6
Form of Common Stock Purchase Warrant dated July 2, 2003 (incorporated herein by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on July 17, 2003).
   
4.7
Form of Warrant dated June 18, 2004 (incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 25, 2004).
 
50
 
4.8
Form of Common Stock Purchase Warrant A, dated December 17, 2004 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2004).
   
4.10
Form of Warrant, dated May 17, 2005 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 19, 2005).
   
4.11
Form of Warrant, dated January 23, 2006 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2006).
   
4.12
Form of Warrant, dated November 30, 2006 (incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 4, 2006).
   
4.14
Form of Warrant, dated December 20, 2006 (incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 21, 2006).
   
4.15
Amendment No. 1 to Rights Agreement, dated as of January 16, 2007 (incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 22, 2007).
   
4.16
Form of Warrant, dated October 26, 2007 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2007).
   
10.1*
Amended and Restated NexMed, Inc. Stock Option and Long-Term Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.1 filed with the Company's Form 10-Q filed with the Securities and Exchange Commission on May 15, 2001).
   
10.2*
The NexMed, Inc. Recognition and Retention Stock Incentive Plan (incorporated herein by reference to Exhibit 99.1 filed with the Company's Form 8-K filed with the Securities and Exchange Commission on May 28, 2004).
   
10.3
 
License Agreement dated March 22, 1999 between NexMed International Limited and Vergemont International Limited (incorporated herein by reference to Exhibit 10.7 of the Company’s Form 10-KSB filed with the Securities and Exchange Commission on March 16, 2000).
   
10.4*
The NexMed, Inc. Non-Qualified Stock Option Plan (incorporated herein by reference to Exhibit 6.6 filed with the Company's Form 10-SB/A filed with the Securities and Exchange Commission on June 5, 1997).
   
10.5*
Employment Agreement dated February 26, 2002 by and between NexMed, Inc. and Dr. Y. Joseph Mo (incorporated herein by reference to Exhibit 10.7 of the Company's Form 10-K filed with the Securities and Exchange Commission on March 29, 2002).
   
10.6
Registration Rights Agreement between the Company and The Tailwind Fund Ltd. and Solomon Strategic Holdings, Inc. dated June 11, 2002 (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q filed with the Securities and Exchange Commission on August 14, 2002).
   
10.7
Investor Rights Agreement, dated as of April 21, 2003, between the Company and the Purchasers identified on Schedule 1 to the Investor Rights Agreement (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 14, 2003).
 
51
 
10.8
Investor Rights Agreement, dated as of July 2, 2003, between the Company and the Purchasers identified on Schedule 1 to the Investor Rights Agreement (incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on July 17, 2003).
   
10.9*
Amendment dated September 26, 2003 to Employment Agreement by and between Dr. Y. Joseph Mo and NexMed, Inc. dated February 26, 2002 (incorporated herein by reference to Exhibit 10.4 to the Company's Form 10-Q filed with the Securities and Exchange Commission on November 12, 2003).
   
10.10
Registration Rights Agreement, dated as of December 12, 2003, between the Company and the Purchasers named therein (incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on January 13, 2004).
   
10.11
Form of 5% Convertible Note due May 31, 2007 (incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on January 13, 2004).
   
10.12
Investor Rights Agreement, dated as of June 18, 2004, between the Company and the Purchasers identified on Schedule 1 thereto (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 25, 2004).
   
10.13*
Stock Option Grant Agreement between the Company and Leonard A. Oppenheim dated November 1, 2004 (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on November 9, 2004).
   
10.14*
Form of Stock Option Grant Agreement between the Company and its Directors (incorporated herein by reference to Exhibit 10.29 of the Company’s Form 10-K filed with the Securities and Exchange Commission on March 16, 2006).
   
10.15
Investor Rights Agreement, dated as of December 17, 2004, between the Company and the Purchasers named therein (incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2004).
   
10.16
Preferred Stock and Warrant Purchase Agreement, dated as of May 16, 2005, between the Company and the Purchasers named therein (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 19, 2005).
   
10.17
Investor Rights Agreement, dated as of May 16, 2005, between the Company and the Purchasers named therein (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2004).
   
10.18+
License Agreement, dated September 13, 2005, between NexMed, Inc., NexMed International Limited and Novartis International Pharmaceutical Ltd.(incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 15, 2005).
   
10.19
Common Stock and Warrant Purchase Agreement, dated as of January 23, 2006, between the Company and the Purchasers named therein (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2006).
   
10.20
Investor Rights Agreement, dated as of January 23, 2006, between the Company and the Purchasers named therein( (incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2006).
 
52
 
10.21*
Employment Agreement dated December 21, 2005 by and between NexMed, Inc. and Vivian H. Liu.
   
10.22*
Employment Agreement dated December 21, 2005 by and between NexMed, Inc. and Mark Westgate.
   
10.23
Common Stock and Warrant Purchase Agreement, dated January 23, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 27, 2006).
   
10.24*
NexMed, Inc. 2006 Stock Incentive Plan (incorporated herein by reference to Annex A of the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on April 6, 2006).
   
10.25
Securities Purchase Agreement, dated November 30, 2006, between NexMed, Inc., NexMed (U.S.A.), Inc. and Metronome LPC 1, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 4, 2006).
   
10.26
Senior Secured Note, dated November 30, 2006, in favor of Metronome LPC 1, Inc. (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 4, 2006).
   
10.27
Common Stock and Warrant Purchase Agreement, dated December 20, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 21, 2006).
   
10.28
Registration Rights Agreement, dated December 20, 2006 (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 21, 2006).
   
10.29
Amendment, effective as of February 13, 2007, to License Agreement between Novartis International Pharmaceutical Ltd., NexMed, Inc. and NexMed International Limited, dated September 13, 2005 (incorporated herein by reference to Exhibit 99.1 of the Company’s Form 8-K filed with the Securities and Exchange Commission on February 23, 2007).
   
10.30*
Employment Agreement dated October 31, 2007 between NexMed, Inc. and Hemanshu Pandya (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the Securities and Exchange Commission on November 5, 2007).
   
10.31+
License Agreement dated November 1, 2007 between NexMed, Inc. and Warner Chilcott Company, Inc.
   
10.32
Securities Purchase Agreement, dated October 26, 2007, between NexMed, Inc. and Twin Rivers Associates LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2007).
   
10.33
Senior Secured Note, dated October 26, 2007, between NexMed, Inc. and Twin Rivers Associates LLC (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2007).
   
10.34 Registration Rights Agreement, dated October 26, 2007, between NexMed, Inc. and Twin Rivers Associates LLC (incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2007).
   
21
Subsidiaries.
   
23.1
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
   
23.2
Consent of Amper, Politziner & Mattia P.C., independent registered public accounting firm.
   
31.1
Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2
Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1
Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2
Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
*Management compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(c) of Form 10-K.
 
+ Portions of this exhibit have been omitted pursuant to a request for confidential treatment with the Securities and Exchange Commission. Such portions have been filed separately with the Securities and Exchange Commission.

53
 
 
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
NEXMED, INC.
     
     
Dated: March 12, 2008
 By:  
/s/ Vivian Liu
 
Vivian Liu
 
President and Chief Executive Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
SIGNATURE
TITLE
DATE
     
/s/ Vivian H. Liu
VIVIAN H. LIU
Director, President and Chief Executive Officer
March 12, 2008
     
/s/ Mark Westgate
MARK WESTGATE
Vice President, Chief Financial Officer and principal accounting officer
March 12, 2008
     
/s/ Richard J. Berman
RICHARD J. BERMAN
Chairman of the Board of Directors
March 12, 2008
     
/s/ Arthur D. Emil
ARTHUR D. EMIL
 
Director
 
March 12, 2008
     
 /s/ Leonard A. Oppenheim
LEONARD A. OPPENHEIM
 
Director
 
March 12 2008
     
/s/ David S. Tierney, M.D.
DAVID S. TIERNEY
 
Director
 
March 12, 2008
     
/s/ Martin Wade III
MARTIN WADE III
 
Director
 
March 12, 2008
 
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Exhibit 10.31


LICENSE AGREEMENT

This License Agreement (this “Agreement”) is made effective as of November 1, 2007 (the “Effective Date”) by and between NexMed Inc., a Nevada corporation (“NexMed”), and Warner Chilcott Company, Inc., a Puerto Rico corporation (“Warner”). NexMed and Warner are each hereinafter referred to individually as a “Party” and together as the “Parties.”

WHEREAS, NexMed Controls (as that term is hereafter defined) certain proprietary patent, know-how and technology rights related to a pharmaceutical formulation containing alprostadil for the treatment of erectile dysfunction; and

WHEREAS, Warner desires to obtain a license from NexMed to develop and commercialize the Licensed Products (as hereafter defined); and

WHEREAS, NexMed desires to grant such license to Warner on the terms and subject to the conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:
 
1. DEFINITIONS

Whenever used in this Agreement with an initial capital letter, the terms defined in this Section 1 shall have the meanings specified.
 
1.1. “Affiliate” shall mean any corporation, firm, limited liability company, partnership or other entity that controls or is controlled by or is under common control with a Party to this Agreement. For purposes of this Section 1.1, “control” means ownership, directly or indirectly through one or more Affiliates, of fifty percent (50%) or more of the shares of stock entitled to vote for the election of directors, in the case of a corporation, or fifty percent (50%) or more of the equity interests in the case of any other type of legal entity, status as a general partner in any partnership, or any other arrangement whereby a person or entity controls or has the right to control the board of directors or equivalent governing body of a corporation or other entity, or otherwise has the ability to direct the affairs or operations of such person.
 
1.2. “API” shall mean alprostadil.

1.3. “Approval” shall mean, with respect to any Licensed Product, approval from the FDA (as hereafter defined) for the marketing, use and sale of the Licensed Product in the Territory.

1.4. “Commercially Reasonable Efforts” means, with respect to a Party, efforts and resources comparable to those undertaken by pharmaceutical companies of similar size and scope as such Party, as applicable, to pursue intellectual property protection for, Develop, manufacture, market, sell and distribute a pharmaceutical product owned by it or to which it has rights, which is of similar overall market potential at a similar stage in its product lifecycle, taking into account, inter alia, the competitiveness of the marketplace, the proprietary position of the product, the profitability of the product and other relevant factors.
 
 
1.5. “Confidential Information” shall mean with respect to a Party all trade secrets, processes, formulae, data, know-how, improvements, inventions, chemical materials, assays, techniques, marketing plans, strategies, customer lists, or other information that has been created, discovered, or developed by such Party, or has otherwise become known to such Party, or to which rights have been assigned or licensed to such Party, as well as any other information and materials that are deemed confidential or proprietary to or by such Party (including, without limitation, all information and materials of such Party’s customers and any other Third Party and their consultants), in each case that are disclosed by such Party to the receiving Party, whether orally, visually, in writing or by way of any other media, that if disclosed in tangible form is marked “confidential,” or if disclosure is not in tangible form, the disclosing Party has notified the receiving Party at the time of disclosure that such disclosure is confidential and summarized such disclosure in writing, marking the summary “confidential” and submitting it to the receiving Party (or, if applicable, to such of the receiving Party’s Affiliates or sublicensees to whom disclosure has been made) within thirty (30) days of the disclosure. Confidential Information shall not include any such information, data or materials to the extent that the receiving Party can demonstrate that such information, (a) as of the date of disclosure is known to the receiving Party or its Affiliates other than by virtue of a prior confidential disclosure to the receiving Party or its Affiliates; (b) as of the date of disclosure is, or subsequently becomes, publicly known, through no fault or omission of the receiving Party or its Affiliates; (c) is obtained from a Third Party having a lawful right to make such disclosure free from any obligation of confidentiality to the disclosing Party; or (d) is independently developed by or for the receiving Party or its Affiliates without reference to or reliance upon any Confidential Information of the disclosing Party.

1.6. “Contract Year” shall mean each successive period of four consecutive calendar quarters, with the first such Contract Year beginning on the first day of the first full calendar quarter that begins after the Effective Date.

1.7. “Control” or “Controlled” shall mean with respect to any Technology or Patent Rights (as such terms are defined hereunder), the ownership of the intellectual property rights in and to such Technology or Patent Rights, or the possession by a Party of rights under such Technology or Patent Rights sufficient to permit it to grant licenses or sublicenses to such Technology or Patent Rights as provided for herein, in each case without violating the terms of any legally binding agreements between such Party and any Third Party.

1.8. “Development” or “Develop” means, with respect to a Licensed Product, all clinical and other development activities undertaken to obtain Approval of such Licensed Product in accordance with this Agreement. When used as a verb, “Developing” means to engage in Development and “Developed” shall have a corresponding meaning.
 
1.9. “Divided Patent Rights” shall mean the Patent Rights set forth on Exhibit B hereto and any Licensed Patent Rights other than the Undivided Patent Rights.

1.10. “FDA” shall mean the United States Food and Drug Administration and any successor agency or authority thereto. 
 
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1.11. “Field” shall mean the topical treatment of erectile dysfunction.
 
1.12. “First Commercial Sale” shall mean the date of the first arm’s length transaction, transfer or disposition for value to a Third Party of a Licensed Product by or on behalf of Warner or any Affiliate or Sublicensee of Warner. 

1.13. “Generic Product” shall mean any Third Party product that contains the API, is identical to the Licensed Product in strength, dosage form and route of administration, is bioequivalent to the Licensed Product and is approved by the FDA as an AB-rated equivalent (as defined in the 27nd edition of Approved Drug Products with Therapeutic Equivalence Evaluations issued by the United States Department of Health and Human Services) to the Licensed Product.

1.14. “Licensed Know-How” shall mean any Technology (as hereafter defined) that is Controlled by NexMed as of the Effective Date or at any time thereafter that is necessary or useful for Warner to Develop, have Developed, make, have made, use, have used, sell, distribute for sale, have distributed for sale, offer for sale, have sold, import or have imported the Licensed Products and any NexMed Improvements.
 
1.15. “Licensed Patent Rights” shall mean any Patents Rights under the Control of NexMed as of the Effective Date, or at any time thereafter, that cover Licensed Product or any NexMed Improvements.
 
1.16. “Licensed Product” shall mean any form or dosage of a pharmaceutical product for use in the Field that contains the API as an active ingredient.
 
1.17. “NDA” shall mean a new drug application (as defined in Title 21 of the United States Code of Federal Regulations, as amended from time to time), or supplement thereto, filed with the FDA, seeking regulatory approval to market and sell any Licensed Product in the Territory in the Field.

1.18. “Net Sales” shall mean the gross invoiced sales price for all Licensed Products sold by Warner, its Affiliates or Sublicensees to Third Parties throughout the Territory during a reporting period, less the following amounts actually incurred or paid by Warner or its Affiliates or Sublicensees during such reporting period with respect to sales of Licensed Products: (a) allowances for normal and customary trade, quantity and cash discounts, rebates, chargebacks; (b) fees, reimbursements or similar payments or adjustments granted or paid to wholesalers or other distributors, buying groups, healthcare insurance carriers or other similar persons; (c) transportation, shipping, customs duties, insurance and postage charges included in the billing amount, if paid by Warner, any Warner Affiliate or any Sublicensee; (d) credits or allowances actually granted for damaged goods, recalls, returns or rejections (including, but not limited to, wholesaler, distributor and retailer returns) of Licensed Products or for retroactive price reductions; (e) any payment, allowance or credit to any governmental entity, including Federal or state Medicaid, Medicare or similar program; (f) actual write-offs for bad debts and (g) sales, use, excise, value-added and other taxes (other than income taxes) or governmental charges included in the billing amount, in each case, determined in accordance with United States generally accepted accounting principles (“GAAP”).
 
3
 
If any Licensed Products are sold to Third Parties in transactions that are not at arm’s length between the buyer and seller, or for consideration other than cash, then the gross amount to be included in the calculation of Net Sales for such sales shall be the amount that would have been invoiced had the transaction been conducted at arm’s length, which amount shall be determined, whenever possible, by reference to the average selling price of the relevant Licensed Product in arm's-length transactions at the time of sale. If Warner or its Affiliates or Sublicensees sell Licensed Products to a Third Party who also purchases other products or services from Warner or its Affiliates or Sublicensees, Warner shall not, and shall require its Affiliates and Sublicensees not to, (i) bundle or include any Licensed Product as part of any incentive programs, chargebacks, disease management programs or similar programs based on multiple product offerings or (ii) discount or price any Licensed Product, in the case of either of the foregoing clauses (i) or (ii), such that the applicable rebate, discount, other form of reimbursement for, or the price of, such Licensed Product in such arrangement is inconsistent with the rebate, discount, or other form of reimbursement for, or price of, such Licensed Product when sold separately to such Third Party from any such other products or services sold to such Third Party.

1.19. “NexMed Improvement” shall mean any change in the formulation, ingredients, preparation, presentation, means of delivery, dosage, package of, manufacture, or any new or expanded uses of the Licensed Product in the Field developed during the term of this Agreement by or on behalf of NexMed.
 
1.20. “OTC Product” shall mean a Licensed Product for sale over-the-counter.

1.21. “Patent Rights” shall mean all rights arising under patents or patent applications (including any patents issuing therefrom), as well as any substitutions, continuations, continuations-in-part, divisionals and all reissues, renewals, reexaminations, extensions, supplementary protection certificates, confirmations, revalidations, registrations or patents of addition in connection with any of the foregoing.

1.22. “Pre-Notification Room Temperature Formulation Development Activities” shall mean all Development activities conducted by NexMed during the period from the Effective Date until the Room Temperature Formulation Notification Date with respect to the Room Temperature Formulation.

1.23. “Refrigerated Formulation” shall mean a formulation of the Licensed Product that is manufactured, distributed, stored and sold under refrigeration.

1.24. “Refrigerated Formulation NDA” shall mean an NDA with respect to the Refrigerated Formulation.

1.25. “Room Temperature Formulation” shall mean a formulation of the Licensed Product that is manufactured, distributed, stored and sold at room temperature.

1.26. “Room Temperature Formulation NDA” shall mean an NDA with respect to the Room Temperature Formulation.
 
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1.27. “Sublicense” shall mean each sublicense agreement entered into by Warner pursuant to Section 2.2 with respect to a Licensed Product. 
 
1.28. “Sublicensee” shall mean any Third Party or Affiliate of Warner to whom Warner grants a Sublicense of the rights granted to Warner under this Agreement, as provided under Section 2.2.
 
1.29. “Technology” shall mean and include, whether or not patentable, any and all proprietary ideas, inventions, discoveries, Confidential Information, biologic materials, data, results, formulae, designs, specifications, methods, processes, formulations, techniques, ideas, know-how, technical information (including, without limitation, structural and functional information), process information, pre-clinical information, clinical information, and any and all proprietary biological, chemical, pharmacological, toxicological, pre-clinical, clinical, assay, control and manufacturing data and materials.
 
1.30. “Term” shall have the meaning set forth in Section 9 hereof.
 
1.31. “Territory” shall mean the United States of America, including its possessions and territories.
 
1.32. “Third Party” shall mean any person or entity other than Warner, NexMed and their respective Affiliates.
 
1.33. “Undivided Patent Rights” shall mean the Patent Rights set forth on Exhibit C hereto and any Licensed Patent Rights that relate solely to the Licensed Products.

1.34. “Valid Claim” shall mean a claim that has been allowed or is contained in an issued patent or pending patent application, which claim has not lapsed, been canceled, or become abandoned and which claim has not been declared invalid or unenforceable by an unappealable decision of a court of competent jurisdiction.

1.35. “Warner Improvement” shall mean any change in the formulation, ingredients, preparation, presentation, means of delivery, dosage, package of, manufacture, or any new or expanded uses of the Licensed Product in the Field developed during the term of this Agreement by or on behalf of Warner.
 
2. GRANT OF RIGHTS
 
2.1. License to Warner. Subject to the terms and conditions of this Agreement, NexMed grants to Warner an exclusive (even as to NexMed and its Affiliates but subject to Section 2.5) license under the Licensed Know-How and Licensed Patent Rights to Develop, have Developed, make, have made, use, have used, sell, distribute for sale, have distributed for sale, offer for sale, have sold, import or have imported Licensed Products in the Field in the Territory.

2.2. License to NexMed. Warner hereby grants to NexMed a fully paid-up, exclusive license under any Warner Improvements and Joint Inventions to develop, manufacture, use, sell, offer for sale and import products including Licensed Products (i) outside the Territory and (ii) inside the Territory outside the Field, including the right to grant sublicenses.
 
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2.3. Right to Sublicense. Warner shall have the right to grant sublicenses under the exclusive license granted pursuant to Section 2.1 to an Affiliate of Warner. In the event Warner intends to grant to a Third Party a sublicense of the rights granted hereunder, it shall provide written notice to NexMed of its intention to appoint or designate a sublicensee, including a reasonably detailed description of the scope and nature of such sublicense. In connection with the grant of any permitted sublicense hereunder, Warner shall ensure that each of its Affiliates and Sublicensees accepts and complies with all of the terms and conditions of this Agreement as if such Affiliates or Sublicensees were a party to this Agreement and Warner shall guarantee and remain obligated for the performance (or failure of performance) of any Affiliate or Sublicensee hereunder, including by way of example only and not limitation, for the payment to NexMed of its milestone and royalty obligations as described in Section 5 hereof.

2.4. Non-Compete. During the Term, except as contemplated by this Agreement, neither Party nor their respective Affiliates, directly or indirectly or with or through a Third Party, shall develop, make, use, promote, distribute or sell a pharmaceutical product in the Field in the Territory.

2.5. Retained Rights and License to NexMed. Except as expressly provided hereunder, NexMed reserves all other rights in and to the Licensed Know-How and Licensed Patent Rights. Warner hereby grants NexMed a non-exclusive, worldwide, royalty-free license under the Licensed know-How and Licensed Patent Rights solely to the extent necessary to allow NexMed to fulfill its obligations to Develop, manufacture and supply Licensed Products under this Agreement.

2.6. Right of Reference. Each Party and its Affiliates will, upon reasonable request, provide the other Party with a right of reference to any filings with the FDA related to the Licensed Product including, but not limited to, drug master files.

2.7. OTC Product. If at any time during the Term the JSC determines in good faith that it is reasonably likely that an OTC Product could be (i) manufactured under a commercially viable manufacturing process and (ii) sold in compliance with applicable law then Warner shall notify NexMed within ninety (90) days of such determination if it intends to Develop and commercialize such OTC Product (such notice, the “OTC Commercialization Notice”). Following delivery of the OTC Commercialization Notice, Warner shall use Commercially Reasonable Efforts to Develop and commercialize the OTC Product as promptly as practicable. Notwithstanding the foregoing, if Warner fails to provide the OTC Commercialization Notice within the period described in this Section 2.7, the rights granted to Warner to Develop and commercialize the OTC Product in the Field and in the Territory under this Agreement shall revert to NexMed and NexMed shall thereafter have the unencumbered right to grant one or more Third Parties the right to develop and commercialize the OTC Product.
 
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3. DEVELOPMENT, REGULTORY APPROVAL AND COMMERCIALIZATION OF LICENSED PRODUCTS.
 
3.1. Regulatory Approval for Refrigerated Formulation NDA. NexMed will use Commercially Reasonable Efforts to obtain Approval of the Refrigerated Formulation NDA as promptly as practicable following the Effective Date. In the event the Parties determine that additional Development is required following submission of the Refrigerated Formulation NDA to the FDA in order to obtain Approval of such submission, such Development shall be conducted by NexMed at the direction of the JSC (as hereafter defined) in accordance with Section 3.2 and Warner shall reimburse NexMed for all costs and expenses (other than any FDA filing fees with respect to the Refrigerated Formulation NDA) relating to such Development, including any amounts paid to a contract research organization engaged by NexMed to perform such Development. Warner shall determine the nature and extent of any improvements, upgrades, personnel changes or other modifications that are necessary to enable the NexMed manufacturing facility to receive all required approvals relating to the FDA pre-approval inspection (the “PAI”) conducted in connection with obtaining Approval of the Refrigerated Formulation NDA (collectively, the “PAI Upgrades”). Warner shall use Commercially Reasonable Efforts to timely conduct such PAI Upgrades in advance of the PAI and NexMed shall provide reasonable assistance and cooperation to facilitate the PAI Upgrades. Warner shall bear the cost of the PAI Upgrades.

3.2. Development.

3.2.1.  JSC. All Development (other than that Pre-Notification Room Temperature Formulation Development Activities) with respect to the Licensed Products shall be conducted at the direction of a joint steering committee (the “JSC”) that shall be established by the Parties as promptly as practicable after the Effective Date. The JSC shall (i) oversee all Development in connection with obtaining Approval of the Refrigerated Formulation NDA and (ii) in the event Warner determines to proceed with the Development of the Room Temperature Formulation in accordance with Section 3.2.3, prepare a Development plan with respect to the Room Temperature Formulation and oversee the Development thereof and the preparation and filing of the Room Temperature Formulation NDA. The JSC shall consist of six (6) members, three (3) nominated by each Party. Each Party may designate a substitute for a member nominated by it, who is unable to be present at a meeting. Meetings of the JSC shall be held on a quarterly basis, or at such other interval as may be agreed between the Parties. The JSC will be chaired by one of the Warner designated representatives (the “Chair”). Meetings shall be held alternately at the offices of Warner or NexMed. The JSC may be convened, polled or consulted from time to time by means of telecommunication or correspondence. The meetings of the JSC shall be documented in written minutes to be approved by both Parties. Each Party shall bear its own costs for participation in the JSC. At each JSC meeting the NexMed representatives shall provide an update with respect to all material aspects of any ongoing Development and regulatory filings. If there is a material change with respect to such updates after any such meeting, NexMed will promptly notify Warner thereof.

3.2.2. JSC Decisions. The JSC members shall use reasonable efforts to reach agreement on any and all matters. In the event that, despite such reasonable efforts, agreement on a particular matter cannot be reached by the JSC, then the Chair of the JSC shall have the right to make the final decision on such matter, but shall only exercise such right in good faith after full consideration of the positions of both Parties; provided, however, that NexMed shall not be required to provide resources or expertise beyond its reasonable capabilities, notwithstanding the fact that Warner is required to reimburse NexMed for such Development costs and expenses.
 
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3.2.3. Room Temperature Formulation.

3.2.3.1.  NexMed shall provide Warner with reasonably detailed summaries of all Pre-Notification Room Temperature Formulation Development Activities at such times as Warner shall reasonably request.

3.2.3.2.  In the event Warner determines, in its sole discretion, to proceed with the Development and commercialization of the Room Temperature Formulation, Warner shall notify NexMed in writing (such notice, the “Room Temperature Formulation Development Notice”) on or prior to the date that is 30 days following Approval of the Refrigerated Formulation NDA (such date, the “Room Temperature Formulation Notification Date”). Thereafter, the Parties shall promptly enter into good faith discussions in order to determine mutually acceptable product labeling with respect to the Room Temperature Formulation NDA. Following receipt of the Room Temperature Formulation Development Notice, NexMed shall provide Warner with reasonably detailed documentation of all expenses incurred by NexMed relating to Pre-Notification Room Temperature Formulation Development Activities and Warner shall promptly reimburse NexMed for all costs and expenses relating to such Development, including any amounts paid to a contract research organization engaged by NexMed to perform such Development. Following receipt of the Room Temperature Formulation Development Notice (i) all Development thereafter conducted with respect to the Room Temperature Formulation shall be conducted by NexMed at the direction of the JSC in accordance with Section 3.2 and Warner shall reimburse NexMed for (A) all costs and expenses relating to such Development, including any amounts paid to a contract research organization engaged by NexMed to perform such Development and (B) any filing fees paid to the FDA with respect to the Room Temperature Formulation NDA and (ii) at the direction of the JSC in accordance with Section 3.2, NexMed will use commercially reasonable efforts to prepare, submit and obtain Approval of a Room Temperature Formulation NDA that reflects the labeling agreed by the Parties, as promptly as practicable. For the avoidance of doubt, it is understood that Warner shall only be responsible to reimburse NexMed for Pre-Notification Room Temperature Formulation Development Activities if Warner delivers the Room Temperature Formulation Development Notice and in no instance shall Warner be responsible to reimburse NexMed for Development conducted prior to the Effective Date. The Party manufacturing the Room Temperature Formulation shall be responsible for payment to the FDA of any annual fees on establishments under the Prescription Drug User Fee Act (“PDUFA”) with respect to such Party’s manufacturing facility for so long as such Party manufactures the Room Temperature Formulation.

3.3. FDA Meetings and Submissions. NexMed shall own all regulatory filings and Approvals for all Licensed Products in the Territory and NexMed shall be responsible for and shall control the regulatory strategy and interactions with regulatory authorities for all Licensed Products in the Territory and shall be the designated point of contact with such regulatory authorities, it being understood that NexMed shall consult with Warner with respect to such strategy and interactions and will consider in good faith any Warner recommendations relating thereto. Warner shall be entitled to participate in all meetings and discussions with the FDA relating to the Licensed Products. Prior to submitting any correspondence or other information relating to the Licensed Products to the FDA (an “FDA Submission”), NexMed shall (i) provide Warner with a copy of the FDA Submission and (ii) in the case of a material FDA Submission, provide Warner with a reasonable opportunity to review such FDA Submission and NexMed shall consider and discuss in good faith any comments or proposed changes to such submission by Warner. NexMed shall be responsible for pursuing, compiling and submitting all regulatory documents, and for interacting with the FDA. Nexmed shall be responsible for all product renewal fees payable to the FDA with respect to any Licensed Product under PDUFA.
 
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3.4. Commercialization.

3.4.1. Responsibility. From and after the Effective Date, Warner, subject to the terms and conditions of this Agreement, shall be fully responsible for and shall have full control and authority over the commercialization of Licensed Products in the Field in the Territory, including without limitation, (a) subject to Section 4.2.2, all activities relating to manufacture and supply of all Licensed Products, and (b) all marketing, promotion, sales and distribution activities relating to any Licensed Product.

3.4.2. Diligence. Warner will exercise Commercially Reasonable Efforts to commercialize Licensed Products in the Field in the Territory. For the avoidance of doubt, Warner shall be deemed to have satisfied its obligations under this Section 3.4.2 so long as it is exercising Commercially Reasonable Efforts to commercialize the Refrigerated Formulation, the Room Temperature Formulation or the OTC Product.

3.4.3. Warner Responsibilities. In addition to and without limiting, defining or otherwise qualifying the standards of conduct set forth elsewhere in this Agreement, Warner shall:

3.4.3.1. launch the Licensed Product within six (6) months following receipt of Approval of the Licensed Product in the Territory;

3.4.3.2. perform pre-commercialization analysis, planning, market preparation, and related marketing activities for the Territory;

3.4.3.3. conduct phase IV clinical trials and marketing studies as Warner deems necessary or useful for commercialization of Licensed Product;

3.4.3.4. conduct the commercialization of Licensed Product in compliance in all material respects with all requirements of applicable laws; and

3.4.3.5. consult with and keep NexMed and the JSC informed, through regular, periodic written reports, in accordance with Section 3.4.5.

3.4.4. Commercialization Expenses. Warner shall be responsible and pay for one hundred percent (100%) of all costs and expenses incurred in connection with the distribution, marketing, sale or other commercialization of the Licensed Product in the Territory.
 
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3.4.5. Updates and Reports. In addition to royalty information reports to be provided by Warner pursuant to Section 5.5 hereof, no later than sixty (60) days prior to the expected date of Approval of each Licensed Product,Warner shall provide NexMed a preliminary written commercialization plan and budget for such Licensed Product for review and comment by NexMed (each, a “Commercialization Plan”). Warner shall consider all of NexMed’s comments in good faith. Each Commercialization Plan shall be developed by Warner in good faith in accordance with usual pharmaceutical industry practices and, at a minimum, shall contain: (a) a quarterly Net Sales forecast (dollars and units) and associated pricing and market share assumptions for at least the four (4) consecutive calendar quarters after the forecasted First Commercial Sale of such Licensed Product; (b) the out-of-pocket expense budgets for promotional activities including but not limited to advertising and public relations and any other relevant promotional activities; and (c) a description of the sales force efforts, including the number, type and allocation of pharmaceutical sales representatives beginning with pre-launch activities through and including the 4th quarter of the Net Sales forecast. Warner shall amend and update each Commercialization Plan annually after the first such plan is prepared for each Licensed Product and shall promptly provide a copy of such updated Commercialization Plan to NexMed. Warner shall provide NexMed with oral updates as reasonably requested by NexMed with respect to any Commercialization Plan. All such Commercialization Plans and updates shall be considered Confidential Information of Warner, subject to the terms of Section 6 hereof.

3.4.6. Pharmacovigilance. Warner shall be responsible for all processing of information related to any adverse events, including, without limitation, any information regarding such adverse events that is received from a Third Party with respect to Licensed Product in the Territory. As soon as reasonably practicable following the date of this Agreement, the pharmacovigilance departments of each of NexMed and Warner shall meet and determine the approach to be taken for the collection, review, assessment, tracking and filing of information related to adverse events associated with Licensed Product, consistent with the provisions of this Section 3.4.6. Such approach shall be documented in a separate and appropriate written pharmacovigilance agreement between each of NexMed and Warner. Each Party agrees to share relevant information it receives (either directly or indirectly) with the other Party in a timely manner so as to allow each Party to comply with its responsibility to report pharmacovigilance information.
 
4. LICENSED PRODUCT MANUFACTURE AND SUPPLY

4.1. Licensed Product Manufacture by Warner. Subject to Section 4.2, Warner shall have the sole obligation and responsibility for the manufacture of the Licensed Products for commercial sale during the Term.

4.2. Option for Licensed Product Manufacture by NexMed. In the event Warner notifies NexMed that it desires NexMed to manufacture the Refrigerated Formulation, the Parties shall promptly negotiate in good faith and execute the necessary manufacturing and supply agreement (the “Manufacturing Agreement”); provided that it is understood that in the event the parties agree to enter into the Manufacturing Agreement, Warner shall retain responsibility for the manufacture and supply of Licensed Product until such time as NexMed is able to qualify and validate a facility for the manufacture of Licensed Product for the Territory. The Manufacturing Agreement shall provide that NexMed shall be exclusively responsible for the manufacture of and supply to Warner, and Warner shall exclusively purchase from NexMed, all requirements of the Refrigerated Formulation for a period of three years commencing on the date of Approval of the Refrigerated Formulation NDA (the “Manufacturing Term”), it being understood that the Manufacturing Agreement shall also provide that NexMed shall manufacture quantities of the Refrigerated Formulation necessary to adequately supply the trade in anticipation of the commercial launch of the Refrigerated Formulation. Warner shall be responsible for the cost of any initial plant and equipment improvements with respect to NexMed’s manufacturing facility that are necessary to enable NexMed to meet its supply obligations under the Manufacturing Agreement (the “Manufacturing Improvements”), it being understood that the Manufacturing Improvements shall not include personnel and Warner shall have no obligation with respect to costs associated with personnel. Warner shall be responsible for determining the Manufacturing Improvements that are necessary and a process for conducting such improvements. Warner will oversee the implementation of the Manufacturing Improvements and NexMed shall reasonably cooperate to allow such improvements to be completed in a timely manner. The price for the Refrigerated Formulation supplied to Warner under the Manufacturing Agreement shall be NexMed’s fully-loaded cost of supply with respect to such Refrigerated Formulation. The Party manufacturing the Refrigerated Formulation shall be responsible for payment to the FDA of any annual fees on establishments under PDUFA with respect to such Party’s manufacturing facility for so long as such Party manufactures the Refrigerated Formulation.
 
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4.3. Transfer of Manufacturing Know-How

4.3.1. Upon the reasonable request of Warner, for a period of time from the Effective Date until twelve (12) months after Approval, NexMed shall provide to Warner the assistance of NexMed’s employees and access to NexMed’s other internal resources to provide Warner with a reasonable level of technical assistance and consultation with respect to the transfer from NexMed to Warner, or any Third Party manufacturer designated by Warner of the manufacture of the Refrigerated Formulation. After such initial twelve (12) month period, Warner shall pay NexMed $600 per day per full time equivalent for the provision of such assistance.

4.3.2. Upon the reasonable request of Warner, for a period of time from the Effective Date until twelve (12) months after Approval, NexMed shall provide to Warner the assistance of NexMed’s employees and access to NexMed’s other internal resources to provide Warner with a reasonable level of technical assistance and consultation with respect to the transfer to Warner of any expertise or know-how that NexMed has developed relating to the manufacture of Room Temperature Formulation. After such initial twelve (12) month period, Warner shall pay NexMed $600 per day per full time equivalent for the provision of such assistance.
 
5. PAYMENTS AND ROYALTIES.
 
5.1. Upfront License Fee. In consideration of the grant of the licenses described in Section 2 hereof, Warner hereby shall pay NexMed on the Effective Date a nonrefundable, non-creditable license fee in the amount of Five Hundred Thousand Dollars ($500,000.00 US).
 
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“**** indicates where a confidential portion has been omitted and filed separately with the Commission.”
 
5.2. Milestone Payments. Additionally, Warner shall pay to NexMed the following amounts:

5.2.1. **** Two Million Five Hundred Thousand Dollars ($2,500,000 US). ****

5.2.2. **** Two Million Dollars (US $2,000,000 US). ****

5.2.3. **** Two Million Dollars ($2,000,000 US) ****

5.2.4. **** Six Million Dollars ($6,000,000 US). ****

“**** indicates where a confidential portion has been omitted and filed separately with the Commission.”

5.3. Royalty Rates; Payment. 

5.3.1. Royalty Payment.  In further consideration of the grant of the licenses by NexMed hereunder, and subject to the other terms of this Agreement, commencing on the date of the First Commercial Sale of a Licensed Product and continuing until the last to expire Valid Claim included in the Licensed Patent Rights covering such Licensed Product:

5.3.1.1. with respect to Net Sales of Licensed Product during the period from the date of the First Commercial Sale of the Licensed Product until the end of the first full calendar year thereafter (“Year 1”), Warner shall pay to NexMed a royalty payment equal to (i) ****% of the first $150 million of Net Sales, (ii) ****% of Net Sales in excess of $150 million and up to $300 million and (iii) ****% of Net Sales in excess of $300;

5.3.1.2. with respect to Net Sales of Licensed Product during the 12 month period following Year 1 (“Year 2”), Warner shall pay to NexMed a royalty payment equal to (i) ****% of the first $150 million of Net Sales, (ii) ****% of Net Sales in excess of $150 million and up to $300 million and (iii) ****% of Net Sales in excess of $300 million; and

5.3.1.3. with respect to Net Sales of Licensed Product during the 12 month period following Year 2 (“Year 3”) and thereafter until the expiration of the Term, Warner shall pay to NexMed a royalty payment equal to (i) ****% of the first $150 million of Net Sales, (ii) ****% of Net Sales in excess of $150 million and up to $300 million and (iii) ****% of Net Sales in excess of $300 million.

5.3.2. Generic Competition. The royalties payable by Warner, its Affiliates and Sublicensees under Section 5.3.1 shall be reduced by fifty percent (50%) for any period during which one or more Generic Products that have received Approval in the Field are sold by one or more Third Parties in the Territory during the Term provided there is a reduction in the market share of the Licensed Product in the Territory of at least twenty percent (20%), as measured by unit sales (as determined by IMS International, or if such data is not available, a reliable source of data as reasonably agreed by the Parties) from the calendar quarter immediately prior to such first Generic Product sale. Notwithstanding anything in this Section to the contrary, no adjustment for Generic Product competition will be due in the event Warner, its Affiliates and Sublicensees fail to use Commercially Reasonable Efforts to promote and market Licensed Product.
 
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5.4. Payment. All payments to be made by Warner hereunder shall be made in United States Dollars by wire transfer of immediately available funds to such United States bank account as shall be designated by NexMed. Late payments shall bear interest at the rate of 1% of the outstanding balance per month as prorated, or the maximum amount permitted by law, whichever is less.

5.5. Sales Reports and Royalty Payments. After the First Commercial Sale of a Licensed Product and during the Term, Warner shall furnish to NexMed a written report, within thirty (30) days after the end of each calendar quarter (or portion thereof, if this Agreement terminates during a calendar quarter), showing the amount of royalty payments due for the immediately preceding calendar quarter (or portion thereof). Royalty payments for each calendar quarter shall be due at the same time as such written reports. Each written report shall contain the following information:

5.5.1. the gross sales and quantity of each Licensed Product sold by Warner, its Affiliates, and Sublicensees in the preceding calendar quarter;

5.5.2. the calculation of Net Sales from such gross sales; and

5.5.3. the royalties payable in United States Dollars which shall have accrued hereunder in respect of such Net Sales.

If no royalty payment is due for any royalty period hereunder, Warner shall so report.

5.6. Tax Withholding; Restrictions on Payment. All payments hereunder shall be made free and clear of any taxes, duties, levies, fees or charges, except for withholding taxes (to the extent mandated by applicable law). Warner shall make any applicable withholding payments due on behalf of NexMed and shall provide NexMed upon request with such written documentation regarding any such payment as is available to Warner.

5.7. Sales Record Audit. Warner shall keep, and shall cause each of its Affiliates, and Sublicensees, if any, to keep, full and accurate books of accounting in accordance with GAAP as may be reasonably necessary for the purpose of calculating the royalties payable to NexMed. Such books of accounting (including, without limitation, those of Warner’s Affiliates, and Sublicensees, if any) shall be kept at their principal place of business and, with all necessary supporting data, shall during all reasonable times for the three (3) years next following the end of the calendar year to which each shall pertain, be open for inspection at reasonable times upon written notice by NexMed, no more than once per year, by a nationally recognized independent certified accountant selected by NexMed (reasonably acceptable to Warner), for the purpose of verifying royalty statements for compliance with this Agreement. Such accountant must have agreed in writing to maintain all information learned in confidence, except as necessary to disclose to NexMed such compliance or noncompliance by Warner. The results of each inspection, if any, shall be binding on both Parties. NexMed shall pay for such inspections, except that in the event there is any upward adjustment in aggregate royalties payable for the period of such inspection of more than five percent (5%) of the amount actually paid to NexMed, Warner shall pay for the reasonable out-of-pocket costs of such audit. Any underpayments shall be paid by Warner within thirty (30) days of notification of the results of such inspection plus interest as calculated in accordance with Section 5.4. Any overpayments shall be fully creditable against amounts payable in subsequent payment periods or, if no such amounts become payable within ninety (90) days after notification of such results, shall be refunded.
 
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5.8. Minimum Royalties. If at any time after the completion of Year 3 Warner fails to generate at least $25 million of Net Sales in each of two consecutive Contract Years (the “Net Sales Minimums”), upon the written request of NexMed, the Parties shall enter into a co-promotion agreement on commercially reasonable terms with respect to the Licensed Products pursuant to which NexMed will have the right to co-promote the Licensed Products. Notwithstanding the foregoing, if Warner, in its sole discretion, makes a payment to NexMed within thirty (30) days of receipt of such request equal to difference between (i) the amount of the royalty that NexMed would have received under Section 5.3.1.3 if Warner had generated $25 million of Net Sales in each of such two consecutive Contract Years and (ii) the amount of the royalty actually paid to NexMed with respect to such periods, then NexMed shall have no co-promotion rights hereunder as a result of Warner’s failure to meet such Net Sales Minimums.
 
6. TREATMENT OF CONFIDENTIAL INFORMATION
 
6.1. Confidentiality Obligations. Each of NexMed and Warner agree that during the Term and for ten (10) years thereafter, it will keep confidential, and will cause its employees, consultants, Affiliates, agents, subcontractors, and Sublicensees to keep confidential, all Confidential Information of the other Party. Neither NexMed nor Warner nor any of their employees, consultants, Affiliates, agents, subcontractors, or Sublicensees shall use Confidential Information of the other Party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder. Without limiting the foregoing, each Party may disclose information to the extent such disclosure is reasonably necessary to (a) file and prosecute patent applications and/or maintain patents which are filed or prosecuted in accordance with the provisions of this Agreement, or (b) file, prosecute or defend litigation in accordance with the provisions of this Agreement or (c) comply with applicable laws, regulations or court orders; provided, however, that if a Party is required to make any such disclosure of the other Party’s Confidential Information in connection with any of the foregoing, it will give reasonable advance notice to the other Party of such disclosure requirement and will use reasonable efforts to assist such other Party in efforts to secure confidential treatment of such information required to be disclosed.

6.2. Limited Disclosure and Use. NexMed and Warner each agree that any disclosure of the other Party’s Confidential Information to any of its employees, consultants, Affiliates, agents, subcontractors, or sublicensees shall be made only if and to the extent necessary to carry out its rights and responsibilities under this Agreement, shall be limited to the maximum extent possible consistent with such rights and responsibilities, and shall only be made to the extent any such persons are bound by confidentiality obligations to maintain the confidentiality thereof and not to use such Confidential Information except as expressly permitted by this Agreement. NexMed and Warner each further agree not to disclose or transfer the other Party’s Confidential Information to any Third Parties under any circumstance without the prior written approval from the other Party, except as otherwise required by law, and except as otherwise expressly permitted by this Agreement. Each Party shall take such action, and shall cause its employees, consultants, Affiliates, agents, subcontractors, and sublicensees to take such action, to preserve the confidentiality of each other Party’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information. In connection with the termination of this Agreement, upon the request of the other Party, each Party will return all the Confidential Information disclosed or transferred to it by the other Party pursuant to this Agreement, including all copies and extracts of documents and all manifestations of Confidential Information in any form, within sixty (60) days of such request; provided however, that a Party may retain (a) any Confidential Information of the other Party relating to any license which expressly survives such termination and (b) one (1) copy of all other Confidential Information in inactive archives solely for the purpose of maintaining a record of information and materials deemed to be Confidential Information hereunder.
 
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6.3. Publicity. Neither Party may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party; provided, however, that either Party may make such a disclosure (a) to the extent required by law or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded, or (b) to any actual or prospective sublicensees, investors, lenders, other financing sources, acquirors, or companies being acquired by such Party who are obligated to keep such information confidential. The Party desiring to make any such public announcement or disclosure shall inform the other Party of the proposed announcement or disclosure in reasonably sufficient time prior to public release and shall provide the other Party with a written copy thereof. Each Party agrees that it shall cooperate fully with the other with respect to all disclosures regarding this Agreement to the Securities Exchange Commission and any other governmental or regulatory agencies, including, without limitation, requests for confidential treatment of proprietary information of either Party included in such disclosure.
 
7. PROVISIONS CONCERNING THE FILING, PROSECUTION AND  MAINTENANCE OF LICENSED PATENT RIGHTS
 
7.1. Ownership of Inventions.

7.1.1. Sole Inventions. Subject to Section 7.1.3, each Party shall exclusively own all inventions conceived by such Party, its employees, agents and consultants during the Term without the use in any material respect of any Technology owned by the other Party (“Sole Inventions”). Sole Inventions conceived solely by NexMed, its employees, agents and consultants are referred to herein as “NexMed Sole Inventions”. Sole Inventions conceived solely by Warner, its employees, agents and consultants are referred to herein as “Warner Sole Inventions.”

7.1.2. Joint Inventions. Subject to Section 7.1.3, the Parties shall jointly own all inventions (a) conceived or first reduced to practice jointly by or on behalf of both Warner (or any of its Affiliates) and NexMed (or any of its Affiliates) or (b) conceived or first reduced to practice by or on behalf of one Party or any of its Affiliates as a result of its use in any material respect of the Technology of the other Party, on the basis of each Party having an undivided interest in the whole (collectively “Joint Inventions”).
 
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7.1.3. Permeation Inventions. Notwithstanding Section 7.1.1 or Section 7.2.2, in the event a Joint Invention is a discovery, invention, improvement or new use of permeation enhancing excipient technology (a “Permeation Invention”), such Permeation Invention shall be the sole and exclusive property of NexMed, and Warner agrees to assign, and hereby does assign, its entire right, title and interest in and to such Permeation Invention to NexMed. Thereafter, all assigned Permeation Inventions shall be part of the “Licensed Know-How” under this Agreement.

7.1.4. Inventorship. For purposes of determining whether an invention is a NexMed Sole Invention, a Warner Sole Invention or a Joint Invention, questions of inventorship shall be resolved in accordance with United States patent laws.

7.2. Cooperation. Warner agrees to cooperate with all reasonable requests of NexMed in the filing and prosecution of the Licensed Patent Rights.
 
7.3. Patent Filing, Prosecution and Maintenance. Subject to the other terms of this Section 7, NexMed, at its cost, shall use Commercially Reasonable Efforts to diligently prepare, file, prosecute, and maintain, the Licensed Patent Rights in the Territory. NexMed shall timely provide to Warner, prior to filing, any patent applications or filings with respect to the Licensed Patent Rights in the Territory and shall consider in good faith any comments by Warner thereon. NexMed will keep Warner informed of the status of filing, prosecution and maintenance of all Licensed Patent Rights in the Territory and shall provide Warner with copies of all material documents relating thereto. NexMed also shall promptly notify Warner in the event it determines to abandon or permit the expiration of any Patent Rights included in the Licensed Patent Rights in the Territory (other than any expiration of the natural life of such Patent Right(s)), which notice shall, to the extent practical, be delivered no less than thirty (30) days prior to such action or inaction, in order to permit Warner, in Warner’s reasonable judgment and at Warner’s cost and expense, to prosecute or maintain such Licensed Patent Right(s), provided, however, that any such action does not violate the terms of any judgment, settlement, compromise or other resolution binding upon NexMed.
 
7.4. Notice of Infringement. If, during the Term, either Party learns of any actual, alleged or threatened infringement by a Third Party of any Licensed Patent Rights in the Territory, such Party shall notify the other Party within fifteen (15) days of becoming aware of such infringement and shall provide such other Party with available evidence of such infringement.
 
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7.5. Infringement of Licensed Patent Rights. NexMed shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of the Divided Patent Rights in the Territory. Warner shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of the Undivided Patent Rights in the Territory. Each Party shall have the right, at its own expense, to be represented in any such action brought by the other by counsel of such Party’s own choice; provided, however, that under no circumstances shall the foregoing affect the right of the other Party to control the suit as described in this Section 7.5. Notwithstanding the foregoing, neither Party shall settle, compromise or otherwise resolve any such suit that (i) in the case of a settlement by NexMed, materially restricts or waives rights under the Licensed Patent Rights granted to Warner hereunder and (ii) in the case of a settlement by Warner, materially restricts or waives any rights under the Licensed Patents, in each case without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed. If the Party having the first right to bring suit does not file any action or proceeding against any such infringement within thirty days after the earliest of notice under Section 7.4, or a written request from the other to take action with respect to such infringement, then other Party shall have the right (but not the obligation), at its own expense, to bring suit (or take other appropriate legal action) against such actual, alleged or threatened infringement, with legal counsel of its own choice, but shall not be permitted to settle, compromise or otherwise resolve any such suit without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed. Any damages, monetary awards or other amounts recovered by a Party, whether by judgment or settlement, pursuant to any suit, proceeding or other legal action taken under this Section 7.5, shall be applied as follows:

7.5.1. first, to reimburse the Parties for their respective out-of- pocket costs and expenses (including reasonable attorneys’ fees and costs) incurred in prosecuting such enforcement action; and

7.5.2. second, any remaining balance that (i) represents compensation for lost sales, royalty or profits, or any other damages as result of impairment of Warner’s rights hereunder resulting from the infringement (collectively, “Infringement Damages”), shall be retained by or paid to Warner; provided, such Infringement Damages shall be deemed Net Sales and subject to royalty payments as set forth in Section 5.3.1 and (ii) represents punitive and exemplary damages shall be shared equally by Warner and NexMed.
 
If a Party brings any such action or proceeding hereunder, the other Party agrees to be joined as Party plaintiff if necessary to prosecute such action or proceeding, and to give the Party bringing such action or proceeding reasonable assistance and authority to file and prosecute the suit; provided, however, that neither Party shall be required to transfer any right, title or interest in or to any property to the other Party or any Third Party to confer standing on a Party hereunder.
 
7.6. Defense of Claims. In the event that any action, suit or proceeding is brought against NexMed or Warner or any Affiliate or Sublicensee of either Party alleging the infringement of the Technology or intellectual property rights of a Third Party by reason of the development, manufacture, use, sale, importation or offer for sale of a Licensed Product in the Territory (a “Third Party Action”) then Warner shall have the first right to defend itself and NexMed in such Third Party Action. In such case, NexMed shall have the right to be represented by independent counsel at NexMed’s own expense. If either Warner refuses to accept control of the defense of a Claim by a Third Party for which it has the first right to control defense hereunder within thirty (30) days after receiving or giving notice thereof, then the other NexMed shall have the right to defend against such Third Party Action. The Parties and their respective Affiliates shall cooperate with each other in the defense of any Third Party Action. The Parties will give each other prompt written notice of the commencement of any Third Party Action and will furnish each other a copy of each communication relating to the alleged infringement. Warner shall not compromise, settle or otherwise dispose of any Third Party Action without NexMed’s advice and prior consent if such compromise, settlement or other disposition would impair the use of such Technology or Patent Rights, provided that such consent shall not be unreasonably withheld. The Parties shall each be responsible for fifty percent (50%) of the amount of any settlement, judgment or legal expenses arising out of such Third Party Action.
 
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8. REPRESENTATIONS AND WARRANTIES
 
8.1. NexMed Representations. NexMed represents and warrants to Warner that: 

8.1.1. the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate NexMed corporate action;

8.1.2. this Agreement is a legal and valid obligation binding upon NexMed and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by NexMed does not conflict with any agreement, instrument or understanding to which NexMed is a Party or by which it is bound;

8.1.3. To the knowledge of NexMed, NexMed has not provided to Warner any written information concerning the Licensed Know-How which is materially inaccurate or misleading and has not failed to provide to Warner any written information in its possession or under its Control which is materially inconsistent with the written information provided to Warner by NexMed as of the Effective Date;

8.1.4. NexMed is the owner of the Licensed Patent Rights and Licensed Know-How and has the requisite rights to grant to Warner the licenses granted herein to Warner, and, to the knowledge of NexMed, no right or license of any Third Party is required to permit NexMed to perform its obligations under this Agreement in accordance with the terms of this Agreement;

8.1.5. to the knowledge of NexMed no Third Party patent, patent application or other intellectual property rights would be infringed by practicing any process or method or by making, using or selling any composition which is claimed or disclosed in the Licensed Patent Rights, or which constitutes Licensed Know-How;

8.1.6. there is no litigation pending or, to the knowledge of NexMed, threatened, against NexMed with respect to the Licensed Patent Rights existing as of the Effective Date; and

8.1.7. NexMed is not aware of any infringement or misappropriation by a Third Party of the Licensed Patent Rights or Licensed Know-How.
 
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8.2. Warner Representations. Warner represents and warrants to NexMed that: 

8.2.1. the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Warner corporate action; and

8.2.2. this Agreement is a legal and valid obligation binding upon Warner and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Warner does not conflict with any agreement, instrument or understanding to which Warner is a Party of or by which it is bound.
 
8.3. No Warranties. Except as expressly set forth in this Agreement, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, AND EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ALL SUCH WARRANTIES ARE HEREBY DISCLAIMED, INCLUDING, WITHOUT LIMITATION, WARRANTIES ARISING BY COURSE OF DEALING, PERFORMANCE, CUSTOM OR USAGE IN THE TRADE, AND IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

8.4. Indemnification.

8.4.1. Warner Indemnity. Warner shall indemnify, defend and hold harmless NexMed, its Affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “NexMed Indemnitees”) from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such NexMed Indemnitees, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments, including, without limitation, product liability matters, to the extent arising (i) as a consequence of a breach by Warner of its representations, warranties, covenants or agreements, hereunder or (ii) out of the manufacture, sale or use by any person of any Licensed Product manufactured or sold by Warner or any Affiliate or Sublicensee under this Agreement, in each case, except to the extent of NexMed’s responsibility therefore under Section 8.4.2, or arising from the negligence or willful misconduct of NexMed.

8.4.2. NexMed Indemnity. NexMed shall indemnify, defend and hold harmless Warner, its Affiliates and their respective directors, officers, employees, and agents, and their respective successors, heirs and assigns (the “Warner Indemnitees”), from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such Warner Indemnitees, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments, arising as a result of (i) a breach by NexMed of its representations, warranties, covenants or agreements hereunder, in each case, except to the extent of Warner’s responsibility therefore under Section 8.4.1, or arising from the negligence or willful misconduct of Warner or (ii) the manufacture by NexMed of any Licensed Product.
 
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8.4.3. Indemnification Procedures. In the event that any Indemnitee is seeking indemnification under Section 8.4 above from a Party (the “Indemnifying Party”), the other Party shall notify the Indemnifying Party of such claim with respect to such Indemnitee as soon as reasonably practicable after the Indemnitee receives notice of the claim, and the Party (on behalf of itself and such Indemnitee) shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration) and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim. The indemnification obligations under Section 8 shall not apply to any harm suffered as a direct result of any delay in notice to the Indemnifying Party hereunder or to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the consent of the Indemnifying Party, which consent shall not be withheld or delayed unreasonably. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnifying Party and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by Section 8.4.
 
8.5. LIMITATION OF LIABILITY.

8.5.1. EXCEPT FOR EACH PARTY’S OBLIGATION OF INDEMNITY UNDER SECTION 8.4, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY LOST PROFITS OR FOR ANY INDIRECT, EXEMPLARY, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES OF ANY KIND, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, EXCEPT FOR A BREACH OF EITHER PARTY’S OBLIGATIONS WITH RESPECT TO SECTION 6 (“TREATMENT OF CONFIDENTIAL INFORMATION”).

8.5.2. THE LIMITATIONS OF LIABILITY CONTAINED IN THIS AGREEMENT ARE A FUNDAMENTAL PART OF THE BASIS OF EACH PARTY’S BARGAIN HEREUNDER, AND NEITHER PARTY WOULD ENTER INTO THIS AGREEMENT ABSENT SUCH LIMITATION OF LIABILITY.

8.6. Insurance. Each Party will obtain and maintain, during the term of this Agreement, at its own cost and expense, with reputable and financially sound insurance carriers, comprehensive commercial general liability insurance, product liability insurance, to cover such Party’s indemnification obligations hereunder, or self-insurance, in amounts consistent with such Party’s normal business practices. Each Party will name the other Party as an additional insured on each such insurance policy. Each such policy or self-insurance shall be in types and amount that are reasonable and customary in the pharmaceutical industry for companies engaged in similar business and operations and amounts that meet all contractual requirements of each Party’s vendors, distributors or other contractors. Maintenance of such insurance coverage will not relieve a Party of any responsibility under this Agreement for Losses in excess of such insurance limits or otherwise. Each Party will provide the other Party, upon reasonable request, with a certificate from the insurer(s) evidencing such insurance coverage.
 
9. TERM AND TERMINATION
 
9.1. Term; Expiration. Unless earlier terminated as provided herein, the term of this Agreement (“Term”) shall commence on the Effective Date and continue until expiration of the last to expire of the Licensed Patent Rights. Upon the expiration of the last payment obligation to NexMed hereunder (other than a termination for cause), Warner shall have a fully paid-up, irrevocable and sublicensable (subject to the terms of Section 2.2) license in the Territory and the Field under the Licensed Know-How to make, have made, use, have used, sell, distribute for sale, have distributed for sale, offer for sale, have sold, import or have imported Licensed Products in the Territory.
 
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9.2. Termination by NexMed.

9.2.1. Insolvency. NexMed shall have the right to terminate this Agreement with respect to any or all licenses granted to Warner pursuant to Section 2 of this Agreement, at NexMed’ sole discretion, upon delivery of written notice to Warner upon the filing by Warner in any court or agency pursuant to any statute or regulation of the United States or any other jurisdiction of a petition in bankruptcy or insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of Warner or its assets, or if Warner is served with an involuntary petition against it in any insolvency proceeding, upon the ninety-first (91st) day after such service if such involuntary petition has not previously been stayed or dismissed, or upon the making by Warner of an assignment of substantially all of its assets for the benefit of its creditors.

9.2.2. Material Breach. NexMed shall have the right to terminate this Agreement with respect to any or all licenses granted to Warner pursuant to Section 2 of this Agreement by giving thirty (30) days written notice to Warner in the event of any breach by Warner of any material terms and conditions of this Agreement, provided that such breach has not been cured within sixty (60) days after written notice thereof is given by NexMed to Warner specifying the nature of the alleged breach.

9.2.3. Termination for Convenience. NexMed may terminate this Agreement upon delivery of written notice to Warner if Warner (i) has not delivered the Room Temperature Formulation Development Notice and (ii)(A) the 45 day period set forth in Section 5.2.1 has expired and Warner has not made a payment to NexMed thereunder or (B) the 30 day period set forth in Section 5.2.2 has expired and Warner has not made a payment to NexMed thereunder.

9.2.4. Patent Challenge. NexMed will be permitted to terminate this Agreement by written notice effective upon receipt if Warner or its Affiliates directly, or indirectly through assistance granted to a Third Party, commence any interference or opposition proceeding, challenge the validity or enforceability of (other than in defense of an action for infringement of a Patent Controlled by Warner), or oppose any extension of or the grant of a supplementary protection certificate with respect to, any Licensed Patent Right (each such action, a “Patent Challenge”). Warner will include provisions in all agreements granting sublicenses of Warner’s rights hereunder providing that if the Sublicensee or its Affiliates undertake a Patent Challenge with respect to any NexMed Patent under which the sublicensee is sublicensed, Warner will be permitted to terminate such sublicense agreement. If a sublicensee of Warner (or an Affiliate of such sublicensee) undertakes a Patent Challenge of any such Licensed Patent Right under which such Sublicensee is sublicensed, then Warner upon receipt of notice from NexMed of such Patent Challenge will terminate the applicable sublicense agreement. If Warner fails to so terminate such sublicense agreement, NexMed may terminate Warner’s right to sublicense and any sublicenses previously granted to such sublicensee shall automatically terminate. In connection with such sublicense termination, Warner shall cooperate with NexMed’s reasonable requests to cause such a terminated sublicensee to discontinue activities with respect to the Licensed Product.
 
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9.3. Termination by Warner.

9.3.1. Insolvency. Warner shall have the right to terminate this Agreement at Warner’s sole discretion, upon delivery of written notice to NexMed upon the filing by NexMed in any court or agency pursuant to any statute or regulation of the United States or any other jurisdiction of a petition in bankruptcy or insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of NexMed or its assets, or if NexMed is served with an involuntary petition against it in any insolvency proceeding, upon the ninety-first (91st) day after such service if such involuntary petition has not previously been stayed or dismissed, or upon the making by NexMed of an assignment of substantially all of its assets for the benefit of its creditors.

9.3.2. Material Breach. In addition, Warner may terminate this Agreement by giving thirty (30) days written notice to NexMed in the event of any breach by NexMed of any material terms and conditions of this Agreement, provided that such breach has not been cured within sixty days (60) days after written notice thereof is given by Warner to NexMed specifying the nature of the alleged breach.

9.3.3. Termination for Convenience. Warner may terminate this Agreement upon delivery of written notice to NexMed following:

9.3.3.1.  receipt of (i) Ninety Day Conference Comments sufficient to commence the 45 day period under Section 5.2.1 hereof or (ii) all material FDA comments provided to NexMed in connection with the process of obtaining Approval of the Refrigerated Formulation NDA if such Ninety Day Comments are not received; provided Warner delivers such notice within forty five (45) days of receipt of such comments;

9.3.3.2.  receipt of Approval of the Refrigerated Formulation NDA, if such NDA, as approved, (i) contains labeling that is not materially consistent with the labeling set forth in Exhibit A or (ii) in Warner’s reasonable determination, will not allow it to launch a commercially viable Licensed Product; provided Warner delivers such notice within thirty (30) days of receipt of such Approval; or

9.3.3.3.  receipt of Approval of the Room Temperature Formulation Supplement, if such NDA, as approved, contains labeling that is not materially consistent with the labeling agreed by the Parties in accordance with Section 3.2.3.2; provided Warner delivers such notice within thirty (30) days of receipt of such Approval.

For the avoidance of doubt, if Warner exercises its termination right under this Section 9.3.3 it shall have no obligation to make any milestone payment with respect to the milestone event resulting in such termination.

9.4. Effect of Termination. Upon termination of this Agreement or any right or license pursuant to Sections 9.2 or 9.3, the rights and obligations of the Parties hereunder, and all licenses granted to Warner hereunder shall immediately cease.
 
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9.4.1. Payments. Subject to Section 9.3.3, all amounts due or payable to NexMed prior to the effective date of termination shall remain due and payable, but (except as otherwise expressly provided herein) no additional amounts shall be payable.

9.4.2. Inventory. Should Warner have any inventory of any Licensed Product approved and allocated for commercial sale prior to termination other than upon the occurrence of a material breach by NexMed pursuant to Section 9.3.2, Warner shall have twelve (12) months thereafter in which to dispose of such inventory (subject to the payment to NexMed of any royalties due hereunder thereon). In the event that, at the end of such twelve-month period, Warner has unsold inventory of Licensed Product remaining, Warner shall offer to sell such Licensed Products to NexMed at Warner's fully loaded manufacturing cost (but NexMed shall be under no obligation to purchase same unless it agrees to do so in writing at such time). If NexMed terminates this Agreement pursuant to Section 9.2.1 or 9.2.2, Warner and its Affiliates and Sublicensees shall immediately cease all sales of Licensed Product.

9.4.3. Assignments. Warner will promptly (and in each case within sixty (60) days of receipt of NexMed’s request) and at no cost to NexMed:

9.4.3.1. following any termination of this Agreement other than a termination under Section 9.3.1 or 9.3.2:

9.4.3.1.1. upon NexMed’s request, assign to NexMed all of Warner’s right, title and interest in and to any agreements between Warner and Third Parties that are freely assignable by Warner and that relate to the commercialization of Licensed Product;

9.4.3.1.2. Warner, if in Warner’s name or possession, agrees to transfer and assign, and hereby does transfer and assign, to NexMed all of Warner’s right, title and interest in and to any and all regulatory filings, regulatory dossiers and Approvals (including the NDA and any foreign equivalents thereto) for Licensed Product;

9.4.3.1.3. assign to NexMed all of Warner’s right, title and interest in and to any trademarks utilized by Warner in connection with the commercialization of Licensed Product (other than any Warner housemarks or logos) (including any goodwill associated therewith), any registrations and design patents for any of the foregoing and any Internet domain name registrations for such trademarks and slogans, all to the extent solely related to Licensed Product;

9.4.3.1.4. to the extent that any agreement or other asset described in this Section 9.4.3 is not assignable by Warner or does not relate solely to Licensed Product, then such agreement or other asset will not be assigned, and upon the request of NexMed, Warner will take such steps as may be necessary to allow NexMed to obtain and to enjoy the benefits of such agreement or other asset in the form of a license or other right to the extent Warner has the right and ability to do so; and

9.4.3.1.5. provide copies of any other books, records, documents and instruments to the extent related to Licensed Product.
 
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9.4.3.2.  following any termination of this Agreement under Section 9.3.1 or 9.3.2, Warner (i) if in Warner’s name or possession, agrees to transfer and assign, and hereby does transfer and assign, to NexMed all of Warner’s right, title and interest in and to any and all regulatory filings, regulatory dossiers and Approvals (including the NDA and any foreign equivalents thereto) for Licensed Product and (ii) will promptly assign to NexMed all of Warner’s right, title and interest in and to any trademarks utilized by Warner in connection with the commercialization of Licensed Product (other than any Warner housemarks or logos) (including any goodwill associated therewith), any registrations and design patents for any of the foregoing and any Internet domain name registrations for such trademarks and slogans, all to the extent solely related to Licensed Product.

9.4.4. Manufacturing. To the extent Warner is then manufacturing Licensed Product, Warner will, upon NexMed’s request, supply NexMed with quantities of Licensed Product for the shorter of (i) the period until NexMed or its designee is able to resume manufacturing Licensed Product or (ii) twelve (12) months from the effective date of such termination; provided, however, that NexMed will reimburse Warner for Warner’s cost of goods, it being understood that in the case of a termination under Section 9.3.1 or 9.3.2 Warner shall have no obligation to supply NexMed with Licensed Product.

9.4.5. Sublicensees. Except for a termination for cause by NexMed arising as a result of a breach by a Sublicensee of the terms, conditions and limitations set forth herein, upon any termination of this Agreement where Warner has designated a non-Affiliate as a Sublicensee as permitted hereunder, such Sublicensee shall be permitted to exercise the rights granted under such Sublicense on the same terms and conditions under which such rights and licenses were granted to such Sublicensee, provided that such Sublicensee (i) is in material compliance with the Sublicense terms; (ii) agrees in writing to be bound by the terms, conditions and limitations relating to the Licensed Patent Rights, Licensed Know-How, Licensed Compounds and Confidential Information as set forth hereunder; and (iii) agrees, to further evidence the continuation of the licenses granted under this Agreement and the Sublicense, execute a document having the same text and meaning as the Sublicense in favor of NexMed but does not include obligations upon NexMed that exceed the obligations of NexMed under this Agreement.
 
9.5. Remedies. Except as otherwise expressly set forth in this Agreement, the termination provisions of this Section 9 are in addition to any other relief and remedies available to either Party at law.
 
9.6. Surviving Provisions. Notwithstanding any provision herein to the contrary, the rights and obligations of the Parties set forth in Sections 5.5, 5.6, 5.7, 8.4, 8.5, 9.4, 11.3 and Articles 1 and 6, as well as any rights or obligations otherwise accrued hereunder (including any accrued payment obligations), shall survive the expiration or termination of the Term for any reason. Without limiting the generality of the foregoing and subject to Section 9.3.3, Warner shall have no obligation to make any milestone or royalty payment to NexMed that has not accrued prior to the effective date of any termination of this Agreement, but shall remain liable for all such payment obligations accruing prior to the effective date of such termination.
 
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10. Jurisdiction. The Parties agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the District of New Jersey or any New Jersey State court, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any cause of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of New Jersey, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. 
 
11. MISCELLANEOUS
 
11.1. Notification. All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving Party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by facsimile transmission (to be followed with written confirmation by the delivering Party), (iii) sent by private courier service providing evidence of receipt, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid. The addresses and other contact information for the Parties are as follows:


If to NexMed:
NexMed, Inc.
89 Twin Rivers Drive
East Windsor, NJ 08520
Attn: Chief Financial Officer
Fax: (609) 426-9116
   
With a copy to:
Morgan, Lewis & Bockius LLP
502 Carnegie Center
Princeton, New Jersey 08540
Attn: Steven M. Cohen
Fax: (609) 919-6701
   
If to Warner:
Warner Chilcott Company, Inc. 
PO Box 1005 
Fajardo, Puerto Rico 00738   
Attn: Director, Business Management  
Fax: (787) 863 5355
   
With a copy to:
Warner Chilcott (US), Inc.
100 Enterprise Drive
Rockaway, New Jersey 07866
Attn: General Counsel
Fax: (973) 442-3310
 
 
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All notices, requests and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving Party at the address of such Party set forth above, (ii) if made by facsimile transmission, at the time that receipt thereof has been acknowledged by the recipient, (iii) if sent by private courier, on the day such notice is delivered to the recipient, or (iv) if sent by registered or certified mail, on the fifth (5th) business day following the day such mailing is made.
 
11.2. Language. This Agreement has been prepared in the English language and the English language shall control its interpretation.
 
11.3. Governing Law. This Agreement will be construed, interpreted and applied in accordance with the laws of the State of New Jersey, excluding its body of law controlling conflicts of law.
 
11.4. Entire Agreement. This Agreement is the entire Agreement between the Parties with respect to the subject matter hereof and supersedes all prior representations, understandings and agreements between the Parties with respect to the subject matter hereof. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties.
 
11.5. Waiver. The terms or conditions of this Agreement may be waived only by a written instrument executed by the Party waiving compliance. The failure of either Party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either Party of any condition or term shall be deemed as a continuing waiver of such condition or term or of another condition or term.
 
11.6. Headings. Section and subsection headings are inserted for convenience of reference only and do not form part of this Agreement.
 
11.7. Assignment. This Agreement shall not be assignable by either Party to any third party without the written consent of the other Party hereto; except either party may assign this Agreement, without such consent, to (i) an Affiliate or (ii) an entity that acquires all or substantially all of the capital stock, business or assets of the Party to which this Agreement pertains, (whether by merger, reorganization, acquisition, sale or otherwise) and agrees in writing to be bound by the terms and conditions of this Agreement. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Any purported assignment in violation of this Section 11.7 shall be void. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the Parties. 
 
11.8. Force Majeure. Except for obligations of payment arising hereunder, neither Party shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes beyond the reasonable control of such Party. In event of such force majeure, the Party affected thereby shall use commercially reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.
 
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11.9. Construction. The Parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement. Neither Party shall challenge the validity or enforceability of the terms, conditions, obligations and covenants hereunder.
 
11.10. Severability. If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the Term hereof, it is the intention of the Parties that the remainder of this Agreement shall not be affected thereby provided that a Party’s rights under this Agreement are not materially affected. The Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid, illegal or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.
 
11.11. Status. Nothing in this Agreement is intended or shall be deemed to constitute a partner, agency, employer-employee, or joint venture relationship between the Parties.

11.12. Section 365(n). All licenses granted under this Agreement are deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined in Section 101 of such Code.
 
11.13. Further Assurances. Each Party agrees to execute, acknowledge and deliver such further instructions, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
 
11.14. Counterparts. This Agreement may be executed simultaneously in one or more counterparts (including by facsimile), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representative.

NEXMED INC.
  
WARNER CHILCOTT COMPANY, INC.
  
           
           
           
By:
/s/ Vivian H. Liu
  
By:
/s/ Max Torres
  
           
Name:
Vivian H. Liu
  
Name:
Max Torres
  
           
Title:
Chief Executive Officer
  
Title:
Senior Director
  
 
28

Exhibit A - Refrigerated Formulation Labeling


In connection with the Approval of the labeling with respect to the Refrigerated Formulation NDA, the FDA shall not require any material adverse revisions to the labeling set forth in the Refrigerated Formulation NDA submitted to the FDA prior to the Effective Date. The initial dose of the Refrigerated Formulation set forth in the Dosage and Administration section of such labeling as approved by the FDA shall be 300 mcg and such labeling shall not require or suggest that a physician titrate from a 200 mcg dose.

In connection with the Approval of the Refrigerated Formulation NDA, the FDA shall not require the implementation of a Risk Evaluation and Mitigation Strategy (REMS) or distribution restrictions
 
EX-A-1

Exhibit B - Divided Patents

DIVIDED - Compositions, Penetration Enhancers and Applicators
 
Patent No.
Appln. No.
Filed
Granted
Title
 
4,980,378
07/201,029
June 1, 1988
December 25, 1990
Biodegradable Absorption Enhancers
 
5,082,866
07/566,758
August 14, 1990
January 21, 1992
Biodegradable Absorption Enhancers
NMD-102
6,046,244
08/964,509
November 5, 1997
April 4, 2000
Topical Compositions For Prostaglandin E1 Delivery
NMD-107
6,118,020
09/314,571
May 19, 1999
September 12, 2000
Crystalline Salts Of Dodecyl 2-(N, N-Dimethylamino)-Propionate
NMD-110
6,224,573
09/232,360
January 15, 1999
May 1, 2001
Medicament Dispenser
NMD-113
6,414,028
09/542,668
April 4, 2000
July 2, 2002
Topical Compositions Containing Prostaglandin E1
NMD-121
7,105,571
10/236,485
September 6, 2002
September 12, 2006
Prostaglandin Compositions And Methods Of Treatment For Male Erectile Dysfunction [Claims to compositions]
NMD-125
6,841,574
10/336,481
January 3, 2003
January 11, 2005
Topical Stabilized Prostaglandin E Compound Dosage Forms


EX-B-1

Exhibit C - Undivided Patents

UNDIVIDED - Methods of Treating Erectile Dysfunction and Suitable Applicator plus Medicament
 
Patent No.
Serial No.
Filed
Granted
Title
NMD-118
6,323,241
09/480,738
January 10, 2000
November 27, 2001
Prostaglandin Compositions And Methods Of Treatment For Male Erectile Dysfunction [Claims to Methods of Treatment]
NMD-123
6,693,135
09/947,617
September 6, 2001
February 17, 2004
Prostaglandin Compositions And Methods Of Treatment For Male Erectile Dysfunction [Claims to Applicator and Medicament]

EX-C-1
 EX-21 4 v106448_ex21.htm
Exhibit 21
 
   SUBSIDIARIES OF NEXMED, INC.
 
1.
NexMed Holdings, Inc., incorporated in Delaware on February 28, 1997.
 
2.
NexMed (U.S.A.), Inc., incorporated in Delaware on June 18, 1997.
 
3.
NexMed International Limited, incorporated in the British Virgin Islands on August 2, 1996.
 
(a) NexMed International (Hong Kong) Ltd. is a wholly-owned subsidiary of NexMed International Limited incorporated in Hong Kong on March 14, 2001.
 
 
 
 
 EX-23.1 5 v106448_ex23-1.htm
Exhibit 23.1

 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Nos. 333-91957, 333-46976, 333-96813, 333-105509, 333-107137, 333-111894, 333-117717, 333-122114, 333-125565, 333-132611 and 333-140110) and Form S-8 (Nos. 333-93435 and 333-138598) of NexMed, Inc. of our report dated March 15, 2006 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.

 
PricewaterhouseCoopers LLP
New York, NY
March 10, 2008

 
 
 
 EX-23.2 6 v106448_ex23-2.htm
Exhibit 23.2

 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
NexMed, Inc.:

We consent to the incorporation by reference in the Registration Statements on Forms S-3 (Nos. 333-148060, 333-107137, 333-122114, 333-117717, 333-125565 and 333-140110) of our report dated March 10, 2008, with respect to the consolidated financial statements, schedule, and the effectiveness of internal control over financial reporting of NexMed, Inc. and Subsidiaries included in the Annual Report on Form 10-K for the year ended December 31, 2007.


/s/ Amper, Politziner & Mattia, P.C.
 

Date: March 10, 2008
Edison, New Jersey

 EX-31.1 7 v106448_ex31-1.htm
Exhibit 31.1
 
 
I, Vivian H. Liu, certify that:

 
1.
I have reviewed this Annual Report on Form 10-K of NexMed, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ACT Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
   
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: March 12, 2008.
 
 
/s/ Vivian H. Liu
Vivian H. Liu
Chief Executive Officer

 
 
 
 EX-31.2 8 v106448_ex31-2.htm
Exhibit 31.2
 
 
I, Mark Westgate, certify that:

 
1.
I have reviewed this Annual Report on Form 10-K of NexMed, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ACT Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
   
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: March 12, 2008.

 
/s/ Mark Westgate
Mark Westgate
Chief Financial Officer

 
 
 
 EX-32.1 9 v106448_ex32-1.htm
Exhibit 32.1

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Vivian H. Liu, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual Report of NexMed, Inc. on Form 10-K for the year ended December 31, 2007, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on 10-K fairly presents in all material respects the financial condition and results of operations of NexMed, Inc.


Date: March 12, 2008.
By: /s/ Vivian H. Liu
Name: Vivian H. Liu
Title: Chief Executive Officer
         
 
 
 
 
 EX-32.2 10 v106448_ex32-2.htm
Exhibit 32.2

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark Westgate, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual Report of NexMed, Inc. on Form 10-K for the year ended December 31, 2007, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on 10-K fairly presents in all material respects the financial condition and results of operations of NexMed, Inc.

 
Date: March 12, 2008.
By: /s/ Mark Westgate
Name: Mark Westgate
Title: Chief Financial Officer
Name: Mark Westgate
Title: Chief Financial Officer
 
 
 
 
 
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