-----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, IixJL8ioJgVe8+3rI1PKS/oBKxHIm0XjSWk0du48K+X5W5fJ9NpqxdsGF+14nscT tl6q2gzeK+VNMWauFc++YQ== 0000950133-00-001245.txt : 20000331 0000950133-00-001245.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950133-00-001245 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NASTECH PHARMACEUTICAL CO INC CENTRAL INDEX KEY: 0000737207 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 112658569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-13789 FILM NUMBER: 584864 BUSINESS ADDRESS: STREET 1: 45 DAVIDS DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162730101 MAIL ADDRESS: STREET 1: 45 DAVIDS DRIVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-K405 1 FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the year ended December 31, 1999 COMMISSION FILE NUMBER 0-13789 NASTECH PHARMACEUTICAL COMPANY INC. (Exact name of registrant as specified in its charter) DELAWARE 11-2658569 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 45 DAVIDS DRIVE, HAUPPAUGE, NEW YORK 11788 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 273-0101 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each exchange Title of each class on which registered ------------------- ------------------- None None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $.006 par value Nasdaq National Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of February 29, 2000 based upon the closing price on that date, on the Nasdaq National Market, was approximately $25,386,000. As of February 29, 2000, there were 6,190,485 shares of the registrant's $.006 par value common stock outstanding. ================================================================================ 2 PART I ITEM 1 - BUSINESS BACKGROUND Nastech Pharmaceutical Company Inc. researches, develops and manufactures nasally-administered prescription pharmaceuticals. We investigate the commercial weaknesses of pharmaceutical products that are already approved by regulatory authorities and administered in alternative dosage forms, such as injectables, oral tablets and capsules. We determine the advantages a nasal delivery system would have for the same drug in the market place. For example, while the oral route of drug delivery is the most popular and least expensive method of delivery, an oral drug's effectiveness can be reduced by gastrointestinal and liver metabolism. Generally, a nasal delivery system would provide faster absorption into the blood stream than an oral product thereby resulting in faster onset of action. Other advantages of this painless therapy include possible lower drug doses, fewer side effects, greater safety and efficacy, convenience to the patient, better patient compliance of prescribed drug therapy, and a possible reduction in overall health care costs for the patient. We have a commercial interest in two drugs that are marketed by our licensees: Stadol NS(TM) (Butorphanol Tartrate) by Bristol-Myers Squibb Company ("BMS") and Nascobal(R) (Cyanocobalamin, USP) by Schwarz Pharma Inc. Stadol NS is the only intranasal opioid analgesic marketed for the treatment of moderate to severe pain and the acute pain of migraine. It provides painless therapy and convenient, patient self-administration as compared to the competitive injectable product. Similarly, our nasal vitamin B-12 product, Nascobal(R), provides patient benefits over the injectable therapy for chronic B-12 deficiency anemia. In addition to these drugs approved in the U.S., we have six drugs in various stages of drug development, including one drug that is being developed by another pharmaceutical company. INDUSTRY OVERVIEW We participate in the drug delivery industry estimated at $12 billion in revenues. Conventional methods of drug delivery include oral administration and injections. Newer delivery methods include improved versions of the above and other novel systems such as nasal, transdermal and pulmonary systems, among others. These newer methods of drug delivery often provide greater safety and efficacy, fewer side effects, improved patient compliance and lower healthcare costs to the patient. We believe that the advantages of nasal drug delivery provide significant market opportunities, particularly against oral and injectable therapy. Nasal delivery may provide the opportunity to administer lower dosages to achieve the desired therapeutic effect. In addition, some patients, particularly children and the elderly and those who suffer from nausea and vomiting, may find oral tablets or capsules difficult to swallow. Also, the required use of measuring devices may be difficult for these patients to self-administer liquids or syrups. Injectable products, although avoiding gastrointestinal or liver metabolism found in oral therapy, are oftentimes painful and expensive. These products often result in patient non-compliance because of patient discomfort and the required assistance of healthcare professionals or caretakers. Like injections, the transdermal dosage form avoids gastrointestinal or liver metabolism but are slow-absorbing in the blood stream and may result in skin irritation. Pulmonary drug delivery is widely accepted for the administration of drugs to treat respiratory conditions such as bronchial asthma. Although this route is being considered for the systemic delivery of pharmaceuticals, no such products have been approved in the U.S. at this time. If approved, these products may require the use of expensive delivery devices and extensive patient and physician education. We believe that changes in healthcare have created a greater need for alternative drug delivery methods, including nasal delivery. Managed care policies and increased competition, particularly from generic competitors, have caused large pharmaceutical companies to seek collaborative agreements with drug delivery specialists. These collaborations seek to improve and differentiate existing products, expand drug indications and provide proprietary protection against competition. - 1 - 3 BUSINESS STRATEGY Our current business strategy is to expand the applications of nasal drug delivery in the prescription and over-the-counter markets. Focus Initial Efforts on Approved Drugs. We focus primarily on drugs that have proven efficacy and safety, are approved for marketing and which we believe could benefit from a nasal form of delivery. We believe that by focusing our research and development activities on drugs with demonstrated safety and efficacy, and with an unaddressed market need, we may reduce the technical and marketing risk of our projects by decreasing the time period required to bring a new product to market and expanding the market for certain drugs. Internally Fund Development Through Later Stages. Historically, we have used our cash and cash equivalents to fund our research and development and for other working capital purposes. We believe that internally funding development until later stages will allow us to retain product rights and enable us (i) to negotiate more favorable collaborative agreements and (ii) to retain manufacturing rights on a global basis. Although historically focused on establishing early stage alliances, we believe we are now able to leverage our product development experience and broad product pipeline to pursue internally funded development and commercialization projects, as appropriate. Therefore, we intend to commit significant financial resources to research and development with the goal of achieving greater economic benefit from product sales. Leverage Strategic Alliances. Where appropriate, we seek to establish domestic and international relationships with major pharmaceutical companies for the marketing and distribution of certain of our products or technology. This approach allows us to devote our resources to the further development of our technology while leveraging the established sales and marketing capabilities of our collaborative partners. We currently have collaborative agreements with BMS, Schwarz Pharma Inc. ("Schwarz"), Meda AB ("Meda"), Cambridge Laboratories ("Cambridge"), and Questcor, Inc. ("Questcor"), and will continue to pursue additional partners where appropriate. Protect and Expand Intellectual Property. We have and will continue to seek patent protection for our formulations and other technology in the United States and key international markets. We have filed U.S. patent applications, as well as corresponding patent applications outside the United States, relating to our technology. As specific formulations are developed and clinically tested, we intend to file for additional patent protection. PRODUCTS The following chart summarizes our current products and product pipeline:
TRADITIONAL THERAPEUTIC DELIVERY DRUG CATEGORY METHOD STATUS (1) PARTNER - ----------------------- --------------------------- ---------------------- ---------------------- ------------------------ MARKETED: Stadol(R) NS(TM) Opioid Analgesic Injection Global (2) BMS Nascobal(R) Vitamin/Anti-Anemia Injection U.S. only (2) Schwarz, Meda (4), Cambridge (4) Metoclopramide HCl Anti-Nausea/Anti-Emetic Injection/Oral Italy(3) Questcor ACTIVE DEVELOPMENT STATUS: Scopolamine HBr Anti-Motion Sickness Patch/Injection NDA Filed (5) Morphine Sulfate Pain Management Injection/Oral Phase II Apomorphine HCl Sexual Dysfunction N/A Phase II Undisclosed Opioid Analgesic Injection/Oral Phase I Buprenorphine HCl Opioid Analgesic Injection Phase I Metoclopramide HCl Anti-Nausea/Anti-Emetic Injection/Oral Phase III (2) Questcor
(1) See "Risk Factors" for a description of the different stages of development. (2) All marketing or development activities performed by collaborative partners and/or licensee. (3) Approved for marketing in Italy. (4) Marketing partners for Nascobal(R) excluding U.S. (5) In February 2000 the FDA refused acceptance of the NDA. Stadol(R) NS(TM) is a trademark of the Bristol-Myers Squibb Company ("BMS"). Stadol NS is an opioid analgesic sublicensed to BMS for marketing as a prescription pain-reliever. Nascobal(R) is a trademark of Nastech. Trade names and trademarks - 2 - 4 of other companies appearing herein are the property of their respective holders. Metoclopramide development activities are performed by Questcor. Approved and Marketable Products STADOL(R) NS(TM) (BUTORPHANOL TARTRATE NASAL SPRAY) -- Opioid analgesic for acute pain. Stadol NS is the only transnasal opioid analgesic therapy marketed for the treatment of moderate to severe pain and the acute pain of migraine. Prior to Stadol NS, the only acceptable and effective means of delivery for Butorphanol Tartrate was the injectable form. Transnasal Butorphanol Tartrate offers significant advantages over injectable formulations of the drug, including patient self-administration, increased patient compliance, cost containment, and the additional indication of usage. Because of these advantages, transnasal Butorphanol Tartrate has enjoyed significant growth in market size since 1992, as compared to the injectable formulation. Stadol NS is currently marketed by BMS under an agreement that generates quarterly royalties to us. The royalty agreement terminates at time of patent expiry in August 2001. Stadol NS has been classified by the Food and Drug Administration ("FDA") as a Schedule IV substance under the Controlled Substances Act which has negatively affected sales by BMS and our royalties. NASCOBAL(R) (CYANOCOBALAMIN, USP) GEL FOR INTRANASAL ADMINISTRATION - -- For Vitamin B-12 deficiency anemia. Nascobal(R) may replace inconvenient, painful and often expensive monthly injections by a health care professional for the maintenance treatment of chronic Vitamin B-12 deficiency anemia. Nascobal(R) is a more convenient, painless, self-administered weekly therapy, which we believe will result in improved patient compliance. We independently developed Nascobal(R) through FDA marketing clearance, and presently manufacture this product for Schwarz Pharma. In July 1997, we entered into an exclusive licensing agreement for Nascobal(R) in the U.S. with Schwarz Pharma, and the product was commercially launched in October, 1997. In 1997 and 1998, we expanded our licensing arrangements into territories outside the U.S. through agreements with Meda AB and Cambridge Laboratories. Products Under Development SCOPOLAMINE HYDROBROMIDE -- Anti-motion sickness. Scopolamine Hydrobromide is a naturally occurring tertiary amine antimuscarinic agent with a long history of oral and parenteral use for central anticholinergic activity, including prophylaxis of motion sickness. Scopolamine is currently available as a transdermal patch for the prevention of nausea and vomiting associated with motion sickness in adults and is marketed under the tradename Transderm Scop(R) by Novartis. As a patch dosage form, Transderm Scop(R) must be applied to the skin at least 4 hours before the anti-emetic effect is required and is programmed to deliver drug over a three day period. We believe that a nasal dosage form of scopolamine will be a more convenient and safer alternative with a faster onset of action allowing for both prevention and treatment of motion sickness. In February 2000 the FDA refused acceptance of our New Drug Application ("NDA") and may require us to conduct additional safety studies. MORPHINE SULFATE -- Opioid analgesic. Morphine Sulfate is an opioid agonist currently marketed in multiple dosage forms including injectable, oral and rectal. However, the only method currently approved for breakthrough pain is a transmucosal oral product, which is limited to opioid-tolerant cancer patients. We believe a nasal dosage form of morphine sulfate will allow for patient-friendly self-administration and will provide a rapid systemic absorption of the drug for quick pain relief in a broad patient population. APOMORPHINE HYDROCHLORIDE -- Sexual dysfunction. Apomorphine Hydrochloride, an emetic, is a centrally acting dopamine agonist. In 1999 a pharmaceutical company filed an NDA indicating that a sub-lingual form of apomorphine was effective in the treatment of erectile dysfunction. We believe that a nasal dosage form of apomorphine will allow for patient-friendly self-administration and provide a rapid systemic absorption of the drug with reduced side- effects for the treatment of erectile dysfunction. BUPRENORPHINE HYDROCHLORIDE -- Opioid analgesic. Buprenorphine HCl is a partial opioid agonist analgesic. In its injectable dosage form, it is commonly known as Buprenex(R), which is marketed by Reckitt and Colman Pharmaceutical, Inc. The only method currently approved by the FDA for administering Buprenorphine HCl is by injection. We believe that a nasal dosage form of this product will allow for patient-friendly self-administration and will provide a rapid systemic absorption of the drug for quick pain relief. METOCLOPRAMIDE HYDROCHLORIDE -- Anti-nausea/anti-emetic. Metoclopramide HCl is an anti-nausea/anti- emetic agent indicated for the treatment of nausea and vomiting due to emetogenic cancer chemotherapy. In its oral and injectable dosage forms, it is commonly known as Reglan(R) which is marketed by A. H. Robins Company Inc. We believe that a self-administered nasal dosage form will provide a patient friendly alternative to injections, which are - 3 - 5 inconvenient and painful, and to oral doses, which are often difficult to swallow when nauseous. Questcor has conducted Phase III clinical trials under an agreement that provides for certain minimum royalties to us beginning in 1998, in addition to royalties based on net sales. Metoclopramide HCl is currently marketed in Italy. Other Products and Research Activities In addition to the products contained in our product development pipeline, we are frequently presented with opportunities to evaluate the feasibility of a given compound for nasal delivery and to develop new product concepts. In this regard our ongoing research activities focus on the utilization, optimization or modification of our core nasal drug delivery technologies for use with specific drugs or therapies. We also intend to leverage our core technologies by collaborating with other pharmaceutical and bio-tech companies which have late stage product concepts or developed pharmaceuticals that may benefit from nasal delivery. Such collaborative development projects will be initiated only to the extent that we believe that (i) the project is feasible, (ii) the potential product resulting from the development program would have significant market potential, and (iii) favorable economic arrangements can be obtained. We will seek milestone payments for the development cycle, payment of certain expenses incurred by us, manufacturing rights, if applicable, and a royalty. STRATEGIC ALLIANCES Our current collaborative arrangements generally provide for a development project to be followed by commercialization pursuant to a licensing contract. Our current strategic alliances are as follows: BRISTOL-MYERS SQUIBB COMPANY -- In January 1986, we sublicensed to BMS our development and commercial exploitation rights with respect to our licensed patent rights for the nasal delivery of Butorphanol Tartrate, (Stadol(R) NS(TM)) in exchange for which BMS agreed to pay us a royalty based on the net sales of this product (the "BMS Agreement"). In December 1991, the FDA granted marketing clearance to BMS for this product and quarterly royalty payments to us by BMS are continuing. We pay a percentage of these royalties to the University of Kentucky Research Foundation ("UKRF") under a separate license agreement with UKRF. The BMS Agreement, which may be terminated by BMS at any time upon 60 days written notice to us, is concurrent with our licensed patent rights to nasal Butorphanol Tartrate. The nasal Butorphanol Tartrate patent expires in the year 2001 in the United States, subject to any right of extension or renewal. SCHWARZ PHARMA -- In July 1997, we exclusively licensed to Schwarz Pharma the right to market our Nascobal(R) (Cyanocobalamin, USP) Gel for Intranasal Administration in the U.S. We retained worldwide manufacturing rights and the agreement provided for a fixed manufacturing transfer price to Schwarz Pharma. According to the agreement we are to receive royalty payments from Schwarz Pharma based upon the net sales of Nascobal(R). The royalty rate is, in part, dependent upon sales volume, with a minimum royalty of $2 million in 1998. The term of the agreement is for the later of 15 years or the expiration of the applicable patent which expires in 2005. In December 1997, we exclusively licensed to Schwarz Pharma the right to market our intranasal scopolamine hydrobromide gel in the U.S. Under the terms of the agreement, we were to receive royalty and manufacturing payments from Schwarz Pharma. In addition, Schwarz Pharma made research milestone payments to us of $3,750,000 through December 1999 of which $750,000 and $3,000,000 was recognized in fiscal 1999 and 1998, respectively. In December 1999, we reacquired the marketing rights to intranasal scopolamine hydrobromide from Schwarz Pharma. We made a payment of $250,000 to Schwarz Pharma which has been reflected as an expense in research and development for the year ended December 31, 1999. We agreed to pay Schwarz Pharma one-half of any future consideration received by us in respect to intranasal scopolamine until Schwarz Pharma receives payments totaling $3,500,000 plus an additional amount for interest that will accrue at a rate of 8.5% per annum. As any payment to Schwarz Pharma is contingent on whether we will receive proceeds from the future sale or license of intranasal scopolamine, no liability has been recorded for this agreement as of December 31, 1999. MEDA AB -- In September 1997, we entered into an Agreement with Meda AB of Goteborg, Sweden ("Meda"), giving Meda the exclusive right to market Nascobal(R) in Sweden, Denmark, Norway and Finland. The agreement provides that we will receive revenue from the sale of Nascobal(R) to Meda and a license fee upon the occurrence of certain regulatory approvals and commercial events in the Nordic countries. - 4 - 6 CAMBRIDGE LABORATORIES - In July 1998, we entered into an Agreement with Cambridge Laboratories ("Cambridge"), giving Cambridge the exclusive right to market Nascobal(R) in several European countries, Australia and New Zealand. The agreement provides that we will receive revenue from the sale of Nascobal(R) to Cambridge. QUESTCOR, INC. -- In March 1990 Questcor purchased the Company's Metoclopramide HCl patent and other related proprietary information (the "Metoclopramide Agreement"). The Metoclopramide Agreement provides for certain royalties and other fees to us if and when nasal Metoclopramide HCl is approved for marketing and commercialized. Questcor has a sublicense for nasal Metoclopramide HCl with Crinos Industria Farmacobiologica SpA in Italy and Prodis Pharma in Spain. In 1998, Metoclopramide HCl was approved for marketing in Italy. PATENTS AND PROPRIETARY RIGHTS Our policy is to obtain patent protection in both the United States and selected foreign jurisdictions. We have thirteen U.S. patents and nine pending U.S. patent applications. The primary technology protected by our patent and proprietary rights relates to the nasal administration of various compositions and compounds. Generally, both the compositions and compounds and the method of nasal administration of such compositions and compounds are protected. Our patents expire throughout various years up to year 2017. The establishment of a strong proprietary position is an important element of our strategy, as the pharmaceuticals to which we have proprietary rights for nasal delivery have been commercially available for many years in traditional oral, injectable, or transdermal forms. In June 1983, we entered into an agreement with the University of Kentucky Research Foundation and Dr. Anwar Hussain ("UKRF Agreement"). We obtained an exclusive worldwide (except for the Middle East region) license for the development and commercial exploitation of certain patents, patent applications and related know-how pertaining to the nasal delivery of certain opioid antagonists and analgesics. The UKRF Agreement will terminate in year 2001. The UKRF Agreement requires us to pay UKRF 50% of our royalties received from Bristol-Myers Squibb on product sales of Stadol NS. To protect our proprietary information, we require all employees, consultants, advisors and others to enter into confidentiality agreements which prohibit the disclosure of confidential information to third parties and require disclosure and assignment to us of any developments, inventions or discoveries. We cannot assure you that these agreements will effectively prevent the unauthorized use or disclosure of our confidential information. GOVERNMENT REGULATIONS Our research and development activities are, and its future business will be, subject to significant regulation by numerous governmental authorities in the United States and other countries. Pharmaceutical products intended for therapeutic use in humans are governed by FDA regulations in the United States and by comparable regulations in foreign countries. The process of completing clinical testing and obtaining FDA approval for a new drug product requires the expenditure of substantial resources over a number of years. Following initial formulation, the steps required before any new pharmaceutical product may be marketed in the United States include (i) preclinical laboratory and animal tests, (ii) the submission to the FDA of an IND application, (iii) adequate and well-controlled clinical trials to establish the safety and efficacy of the drug, (iv) the submission of an NDA to the FDA, and (v) FDA approval of the NDA prior to any commercial sale or shipment of the drug. Typically, preclinical studies are conducted in the laboratory and in animal model systems to gain preliminary information on the drug's bioavailability or efficacy and to identify any significant safety problems. The results of these studies are submitted to the FDA as part of the IND application. Testing in humans may commence 30 days after filing of the IND unless the FDA issues a "clinical hold". A three phase clinical program is usually required for FDA approval of a pharmaceutical product. Phase I clinical trials are conducted to determine the safety and optimal dosage of the product in normal volunteers who do not have the disease or condition that the proposed drug is designed to treat. Phase I studies are conducted at approved institutions at which the absorption and excretion (pharmacokinetics) of the drug as well as any side effects are closely monitored. - 5 - 7 If the Phase I testing data is positive and there are no adverse reactions, a Phase II clinical trial is conducted to gain preliminary evidence as to the safety and efficacy of the product in a selected patient population. A Phase III clinical trial is conducted on a more complex patient population including patients with multiple disease states and taking one or more medications to provide sufficient data for the statistical proof of safety and efficacy. Phase II and III studies are usually multi-center trials in order to achieve greater statistical validity. A clinical trial may combine the elements of more than one phase. Upon completion of clinical testing which demonstrates that the product is safe and effective for a specific indication, an NDA may be filed with the FDA. This application includes details of the testing processes, preclinical studies, clinical trials, as well as chemical, analytical, manufacturing, packaging and labeling information. FDA approval of the application is required before the applicant may market the new drug product. Recent user-fee legislation establishes specific time frames for completion of FDA regulatory reviews. While this program provides some measure of assurance that the FDA's review is conducted in a timely fashion, there is no guarantee that the time periods will be met in all cases or that the review will provide positive results. Even after initial FDA approval has been obtained, the NDA must be supplemented with any new data subsequently obtained with respect to the drug's safety and efficacy. Further studies may be required to provide additional data on safety or to gain approval for the use of a product as a treatment in clinical indications other than those for which the product was initially tested. The FDA may also require post-marketing testing and surveillance programs or Phase IV post-approval trials to monitor the drug's effects. Side effects resulting from the use of pharmaceutical products may prevent or limit the further marketing of products. In addition to regulations enforced by the FDA, we are subject to regulations under the Occupational Safety and Health Act, various state and federal environmental protection laws, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other similar federal, state and local regulations governing permissible laboratory activities, waste disposal and other matters. For marketing outside of the United States, we will be subject to foreign regulatory requirements governing human clinical trials and marketing approval for drugs. The requirements relating to the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. EMPLOYEES At February 29, 2000, we had 53 full-time employees, of whom 40 were engaged in research and development, including our Chief Executive Officer and Executive Vice President of Research and Development, both of whom hold Ph.D. degrees in pharmaceutical sciences. The balance of our employees are engaged in administration, production and support functions. None of our employees are covered by a collective bargaining agreement or are represented by a labor union. We consider our relationship with our employees to be satisfactory. RISK FACTORS Investing in our common stock involves several risks, some of which are beyond our control. You should carefully consider the following highlights of some of the risks we face. Certain "forward-looking" statements are made according to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. WE HAVE A HISTORY OF LOSSES AND MAY INCUR FUTURE LOSSES We have incurred losses in each of the last three years, and we cannot be certain that we will ever achieve and sustain profitability. The process of developing our products requires significant research and development, including basic research, pre-clinical and clinical development, as well as regulatory approval by the Food and Drug Administration ("FDA"). We expect these activities, together with our sales, marketing, general and administrative expenses, to result in operating losses for the foreseeable future. Our ability to achieve profitability is dependent, in part, on our ability to successfully complete development of our projects, obtain regulatory approvals, and manufacture and market our products directly or through licensing partners. - 6 - 8 OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND UNCERTAINTIES A number of factors influence our operating results including, among others: - the timing and achievement of licensing transactions, including milestones and other performance factors associated with these contracts - the time and costs involved in patent research and development of our proprietary position - continued scientific progress and level of expenditures in our research and development programs - the cost of manufacturing scale-up and production batches, including vendor provider activities and costs - the time and costs involved in obtaining regulatory approvals - changes in general economic conditions and drug delivery technologies - introduction of new products and product enhancements by us or our competitors Due to these factors and others, our revenues and operating results, particularly those reported on a quarterly basis, are difficult to forecast. Therefore, we believe that quarterly comparisons of our operating results will not be meaningful, and you should not rely on them as an indication of our future performance. Also, the market price of our common stock could be adversely affected by analysts should actual results differ from their projections or expectations. THERE MAY BE IMPAIRMENT OF OUR PROPRIETARY POSITION AND TECHNOLOGY BASE We specialize in the nasal delivery of pharmaceutical products and rely on the issuance of patents, both in the U.S. and internationally, for protection against nasal product competition. Although we believe that we exercise the necessary due diligence in our patent filings, our proprietary position is not established until actual patent issuance, which may take up to two or three years after initial filing, by the appropriate regulatory authorities. In addition, alternative drug delivery technologies may provide more effective therapeutic benefit to patients thereby creating potential obsolescence of our products, technology and/or proprietary position. Moreover, patent positions of pharmaceutical companies are generally uncertain and involve complex legal and factual issues. Therefore, although we believe our patents are valid, we cannot predict with any precision the scope or enforceability of our claims or that our issued patents would withstand review and be held valid by a court of competent jurisdiction. Furthermore, there can be no assurance that any issued patents will not be infringed or otherwise circumvented by others or that we will be able to fund the cost of litigation against such parties. THE COMMERCIAL OPPORTUNITY FOR NASALLY-ADMINISTERED PRODUCTS MAY BE LIMITED We rely on our understanding of the physical and chemical properties of a drug and the effect of these properties on the development of a formulation applied intranasally. Although we continue to explore the feasibility of delivering certain drugs that are large molecules nasally, our expertise historically has been focused in small molecules. The universe of nasal products that qualify as small molecules and are available for commercialization may be limited. Accordingly, we may be subject to intense competition in these potential products. Although we need to accelerate our research of larger molecules, we cannot assure you that we will be successful in these areas. WE MAY REQUIRE ADDITIONAL FINANCING IN YEAR 2000, OTHERWISE WE MAY NOT BE ABLE TO COMPLETE OUR PROJECTS Subject to the success of our development programs and potential licensing transactions, we may require an additional infusion of capital to complete our research and development activities currently contemplated and to commercialize our proposed products. Our future capital needs depend on many factors, including: - the scope, duration and expenditures associated with our current research and development programs - continued scientific progress in these programs - the outcome of potential licensing transactions, if any - competing technological developments - our proprietary patent position, if any, in our products - the regulatory approval process for our products - other factors which may not be within our control Subject to projected cash flow, we may seek additional financing when market conditions allow but we cannot assure you that capital will be available at that time. Without additional funding, we may be required to delay, reduce - 7 - 9 or eliminate one or more research or development programs and reduce overall overhead expenses. Such action may have an adverse effect on the market price of our common stock. OUR PRODUCTS ARE SUBJECT TO REGULATORY APPROVALS WHICH COULD SUBSTANTIALLY DELAY OR PREVENT US FROM MARKETING OUR PRODUCTS We embark on specific research or development projects that address unmet medical needs and incur significant project costs in anticipation of filing an NDA. These projects are subject to significant regulation by numerous governmental authorities in the United States and other countries. The process of completing clinical testing and obtaining FDA approval for a new drug product requires the expenditure of substantial resources over a number of years (see "Government Regulations"). If we do not receive the necessary regulatory approvals along the way, we will not be able to progress clinically in our projects and may be forced to abandon projects after incurring substantial costs. Furthermore, we will not be able to generate revenues and become profitable. Finally, we may encounter significant delays or excessive costs in our efforts, even if we are eventually successful in achieving regulatory approval. WE HAVE NO EXPERIENCE IN MARKETING OR SELLING OUR PRODUCTS Even if we are able to develop our products and obtain necessary regulatory approvals, we have no experience in marketing or commercializing any of our proposed products. We are dependent on our ability to find collaborative marketing partners for commercial sale of our products. Even if we find a potential marketing partner, we may not be able to negotiate a licensing contract on favorable terms to justify our investment or achieve adequate revenues. In addition, a licensing transaction with a marketing partner does not assure a product's success, which is dependent upon market acceptance by patients, physicians or third party payors. Our products may prove to be unsuccessful as a result of lack of acceptance by government health administration authorities, private health care insurers and other health care payers, such as health maintenance organizations and self-insured employee plans, that determine reimbursement to the consumer. We cannot assure you that such reimbursement will be available at all or at levels sufficient to allow our marketing partners to achieve profitable price levels for our products. If we fail to achieve adequate reimbursement levels, patients may not purchase our products and sales of these products would be adversely affected. WE EXPECT THAT WE WILL FACE INTENSE COMPETITION THAT MAY LIMIT OUR ABILITY TO ACHIEVE PROFITABILITY Our competitors are numerous and include, among others, major pharmaceutical companies, biotechnology firms, universities and other research institutions. We cannot assure you that our competitors will not succeed in developing technologies and products that are more effective than the nasal technology being developed by us or which would cause our technology or products to become obsolete or noncompetitive. Many of our competitors have substantially greater financial and technical resources and production and marketing capabilities than we have. They also may have greater experience in conducting preclinical testing and clinical trials of pharmaceutical products and obtaining FDA and other regulatory approvals. Therefore, our competitors may succeed in obtaining FDA approval for products faster than we could. Even if we commence commercial sales of our products, we will also be competing against their manufacturing efficiency and marketing capabilities, areas in which we have limited or no experience. We believe that direct competition with our patented nasal delivery products may be difficult because of our patent position. However, we must also compete with other promising technologies such as controlled release, target organ or site release, pumps, polymers, microemulsion, monoclonal antibodies, inhalation, ocular, liposomal, implants, transdermal passive and transdermal electrotransport. Other products using these or other delivery alternatives may be developed that may be as or more effective than our products and proposed products. There can be no assurance that we will be able to compete effectively with other commercially available products or drug delivery technologies. WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES We depend upon the knowledge, experience and skills of our management and research and development personnel. In addition, we rely on consultants to assist us in our business. The loss of any key employee or consultant could have a material adverse effect on our business. - 8 - 10 Recruiting and retaining qualified technical and managerial personnel is vital to our success. We cannot assure you that we will be successful in attracting or retaining key personnel who generally are in high demand in the pharmaceutical industry. In addition, the location of our facilities may limit the pool of technical talent available to us. WE MAY NOT BE ABLE TO MANUFACTURE OUR PRODUCTS OR PERFORM OUR CLINICAL STUDIES All of our products for clinical and commercial use must be produced in compliance with Federal and State regulations. Our facilities are also subject to inspection by these authorities. In addition, certain key suppliers are also subject to regulatory compliance. We cannot assure you that our suppliers will comply with these regulations or perform their obligations in a timely fashion. The failure by any supplier could cause a delay in clinical trials or the supply of product to market. Any significant delay could also jeopardize our performance contracts with collaborative partners and result in material penalties to us. WE ARE SUBJECT TO FACTORS OF CHANGES IN OUR INDUSTRY THAT ARE BEYOND OUR CONTROL The health care industry is changing rapidly as the public, government, medical professionals and the pharmaceutical industry examine ways to broaden medical coverage while controlling the increase in health care costs. Potential changes could put pressure on the prices of prescription pharmaceutical products and adversely affect our business or prospects. We cannot predict when, if any, proposed health care reforms will be implemented, and such changes are beyond our control. ITEM 2 - PROPERTY We lease approximately 28,000 square feet for our research and development activities and 10,000 square feet for our manufacturing and corporate and administrative offices. The R&D site is in proximity to the corporate offices in Hauppauge, New York. The leases provide for minimum annual rent of approximately $210,000 which escalates to $410,000 in 2008 with our having an option to renew the R&D site lease for an additional five-year term at increased annual rental rates. The corporate office lease expires June 30, 2005 and the R&D site lease expires October 31, 2009. We are also responsible for all utilities, maintenance, security and property tax increases. ITEM 3 - LEGAL PROCEEDINGS We know of no material litigation or proceeding, pending or threatened, to which we are or may become a party. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to the vote of security holders through the solicitation of proxies or otherwise, during the last quarter of the fiscal period covered by this report. - 9 - 11 PART II ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on the NASDAQ National Market (prior to January 27, 1997 it traded on the NASDAQ Small Cap Market) under the symbol NSTK. The following table sets forth the range of high and low closing bid prices for the Company's common stock as reported by the NASDAQ Stock Market for the last two years. These quotations represent inter-dealer prices, without adjustment for retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions.
SALE PRICE ------------------------------------ YEARS LOW HIGH - ------------------------------------- -------------- --------------- 1999 QUARTER ENDED: December 31, 1999 $ 1.56 $ 3.63 September 30, 1999 2.75 4.44 June 30, 1999 2.56 3.63 March 31, 1999 3.00 6.25 1998 QUARTER ENDED: - -------------------- December 31, 1998 $ 3.00 $ 5.50 September 30, 1998 3.75 8.25 June 30, 1998 7.63 12.50 March 31, 1998 10.38 15.38 - ---------------------------------------------------------------------------------
The Company believes that its common stock is held of record by approximately 5,000 persons, including several brokerage firms holding shares in street name for beneficial owners. DIVIDEND POLICY Since its inception, the Company has neither paid nor declared any cash or other dividends on its shares of common stock. The Company has no current plans to pay dividends on its common stock and intends to retain earnings, if any, for working capital purposes. Any future determination as to the payment of dividends on the common stock will depend upon the results of operations, capital requirements, the financial condition of the Company and other factors that the Board of Directors deems relevant. - 10 - 12 ITEM 6 - SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the financial statements and notes thereto. The statement of operations data for the years ended December 31, 1999, 1998 and 1997, for the six months ended December 31, 1996 and each of the years in the two-year period ended June 30, 1996 and the balance sheet data as of December 31, 1999, 1998, 1997 and 1996 and June 30, 1996 and 1995 are derived from the audited financial statements of the Company. The selected financial data for the year ended December 31, 1996 and the six months ended December 31, 1995 has been derived from unaudited financial statements of the Company which, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such information for such period. The Company changed its year end from June 30 to December 31 commencing with the six month period ended December 31, 1996. (In Thousands, Except Share and Per Share Data)
YEAR ENDED DECEMBER 31 YEAR ENDED JUNE 30 -------------------------------------------------------------- ------------------------------- STATEMENT OF OPERATIONS DATA: 1999 1998 19971 1996 1996 1995 -------------- -------------- ------------ --------------- -------------- -------------- (UNAUDITED) Revenues: Product sales ................. $ 325 $ 516 $ 482 $ --- $ --- $ --- License fee, royalty and research income............. 4,222 7,632 3,647 3,987 3,629 2,684 Interest income................ 1,084 1,442 1,393 344 238 254 Total revenues.............. 5,631 9,590 5,522 4,331 3,867 2,938 -------------- -------------- ------------ --------------- -------------- -------------- Cost and expenses: Cost of product sales ......... 268 589 454 --- --- --- Research and development....... 9,649 6,014 4,600 1,494 1,164 882 Royalties...................... 1,436 1,251 1,586 1,649 1,677 1,251 Sales and marketing............ 1,051 875 1,723 169 128 50 General and administrative..... 1,577 1,737 1,705 1,073 780 834 Total costs and expenses.... 13,981 10,466 10,068 4,385 3,749 3,017 -------------- -------------- ------------ --------------- -------------- -------------- Income (loss) before provision for income taxes............... (8,350) (876) (4,546) (54) 118 (79) Provision for income taxes........ --- --- --- --- --- --- -------------- -------------- ------------ --------------- -------------- -------------- Net income (loss) ................ $ (8,350) $ (876) $ (4,546) $ (54) $ 118 $ (79) ============== ============== ============ =============== ============== ============== Net income (loss) per common share-basic.................... $ (1.32) $ (.14) $ (.76) $ (.01) $ .04 $ (.03) Net income (loss) per common share-diluted.................. $ (1.32) $ (.14) $ (.76) $ (.01) $ .03 $ (.03) Average shares outstanding- basic......................... 6,335,112 6,296,019 5,978,121 3,706,529 3,221,447 3,119,718 Average shares outstanding- diluted....................... 6,335,112 6,296,019 5,978,121 3,706,529 4,297,536 3,119,718 DECEMBER 31 JUNE 30 -------------------------------------------------------------- ------------------------------- BALANCE SHEET DATA: 1999 19982 19972 19962 19962 1995 -------------- -------------- ------------ --------------- -------------- -------------- Working capital .................. $ 12,912 $ 24,454 $ 24,206 $ 11,342 $ 7,469 $ 4,444 Total assets...................... 20,199 27,518 27,371 12,894 9,367 6,035 Total stockholders' equity 16,625 25,502 24,929 11,813 7,569 4,288
SIX MONTHS ENDED DECEMBER 31 ------------------------------- STATEMENT OF OPERATIONS DATA: 1996 1995 --------------- -------------- (UNAUDITED) Revenues: Product sales .................. $ --- $ --- License fee, royalty and research income.............. 1,880 1,522 Interest income................. 231 125 Total revenues............... 2,111 1,647 --------------- -------------- Cost and expenses: Cost of product sales .......... --- --- Research and development........ 1,035 705 Royalties....................... 710 738 Sales and marketing............. 76 35 General and administrative...... 643 349 Total costs and expenses..... 2,464 1,827 --------------- -------------- Income (loss) before provision for income taxes................ (353) (180) Provision for income taxes......... --- --- --------------- -------------- Net income (loss) ................. $ (353) $ (180) =============== ============== Net income (loss) per common share-basic..................... $ (.08) $ (.06) Net income (loss) per common share-diluted................... $ (.08) $ (.06) Average shares outstanding- basic.......................... 4,191,600 3,221,447 Average shares outstanding- diluted........................ 4,191,600 3,221,447 DECEMBER 31 ------------------------------- BALANCE SHEET DATA: 1996 1995 --------------- -------------- (UNAUDITED) Working capital ................... $ 11,342 $ 4,045 Total assets....................... 12,894 5,616 Total stockholders' equity 11,813 4,108
- -------- (1)During fiscal 1997, the Company began making shipments of Nascobal(R) to Schwarz Pharma (see note 8 to the Company's financial statements). (2)During fiscal 1997, the Company completed a public offering of 1,380,000 shares of common stock. For the periods end ed December 31, 1998 and 1996 and June 30, 1996, the Company received net proceeds of $1.4 million, $4.6 million and $3.2 million, respectively, from the exercise of the warrants. - 11 - 13 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS OVERVIEW Except for historical information contained herein, the statements in this Item are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward- looking statements involve known and unknown risks and uncertainties that reflect the Company's intentions, expectations or beliefs concerning future events. (See Item 1, "Risk Factors".) The Company is engaged in the research, development, manufacturing and commercialization of nasally administered forms of prescription pharmaceuticals that are currently delivered in oral, injectable or other dosage forms. The nasal delivery of certain pharmaceuticals may enable more rapid systemic absorption, lower required dosages, quicker onset of desired effect, and painless, convenient patient self-administration, resulting in improved patient compliance and pharmacoeconomics. The Company focuses its research primarily on drugs with demonstrated safety and efficacy, which, through current delivery forms, have certain bioavailability, therapeutic or patient compliance limitations that may be improved with a preferred delivery system. The Company receives licensing revenues on two commercial products - Stadol(R)NS(TM) and Nascobal(R). Stadol NS, an opioid analgesic which is classified as a Schedule IV substance, is used for the treatment of moderate to severe pain and the acute pain of migraine. The product is currently marketed by Bristol-Myers Squibb Co. (BMS) under an agreement that generates quarterly royalties to the Company. Royalties from BMS are scheduled to terminate at time of patent expiry in August 2001. In July 1997, the Company entered into an exclusive licensing agreement for Nascobal(R) in the U.S. with Schwarz Pharma and commercially launched the product in October 1997. Under the agreement, the Company received minimum royalties of $2 million in 1998 and retains global manufacturing rights. The minimum royalty expired in December 1998. Sales re-orders of Nascobal(R) in 1999 and 1998 were below expectations as a result of a marketing issue which required a change in the packaging configuration of the product. The Company shipped the new package configuration to Schwarz Pharma beginning in the second quarter of 1999. Schwarz Pharma has reported an increase in units sold to distributors during the second half of 1999. In December 1999, we reacquired the marketing rights to intranasal scopolamine hydrobromide from Schwarz Pharma. We made a payment of $250,000 to Schwarz Pharma which has been reflected as an expense in research and development for the year ended December 31, 1999. We agreed to pay Schwarz Pharma one-half of any future consideration received by Nastech in respect to intranasal scopolamine until Schwarz Pharma receives payments totaling $3,500,000 plus an additional amount for interest that will accrue at a rate of 8.5% per annum. As any payment to Schwarz Pharma is contingent on whether we will receive proceeds from the future sale or license of intranasal scopolamine, no liability has been recorded for this agreement as of December 31, 1999. The Company is currently seeking a marketing partner for this product. The Company intends to commit significant financial resources in the future to internally fund certain research and development projects with the goal of achieving greater economic benefit from product sales. In addition, the Company's future profitability is primarily affected by, among others, the success of product sales by its licensees, its investment and achievement of milestones in research and development programs, regulatory uncertainties with respect to its filings with the FDA, and the success of its financing activities. As a result of the uncertainties associated with these factors and the increased investment in research and development, the Company anticipates operating losses in the foreseeable future. RESULTS OF OPERATIONS Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Revenues decreased by $4.0 million, or 41%, to $5.6 million primarily as a result of a decline in product sales and royalty income of Nascobal(R) and milestone payments on intranasal scopolamine. Total revenues from Schwarz Pharma on Nascobal(R) were $740,000 compared to $2.5 million in 1998. The revenue for the year ended December 31, 1998 included $2 million as a minimum royalty from Schwarz Pharma on Nascobal(R). Sales re-orders of Nascobal(R) were below expectation as a result of the marketing issue noted above. Accordingly, royalty income on sales of Nascobal(R) decreased $1.6 million, or 79%, to $415,000. Total milestone payments on scopolamine decreased $2.2 million or 75% to $750,000. Royalty income received from BMS on sales of Stadol NS increased $374,000, or 15%, to $2.9 million. - 12 - 14 Total costs and expenses increased by $3.5 million or 34%, to $14 million in 1999. The details of the increase follow: Research and development expense increased by $3.6 million, or 60%, to $9.6 million primarily as a result of the Company's clinical programs for intranasal scopolamine, morphine and apomorphine. Included in the increase is the $250,000 initial buyback amount paid to Schwarz Pharma. In September 1998, the Company also entered into an operating lease for a larger R&D facility and intends to pursue additional internally funded projects in the future. Royalties expense increased by $185,000, or 15%, to $1.4 million as a result of the increase in sales of Stadol NS by BMS and the related royalty payable to the University of Kentucky Research Foundation (UKRF) under a separate agreement between the Company and UKRF. Royalties expense increases or decreases approximately in proportion to royalty income associated with Stadol NS. Sales and marketing costs increased by $176,000 or 20% from 1998 and arises from an increase in market research and consulting fees. As a percentage of total revenues, sales and marketing and general and administrative expenses increased to 47% in 1999 as compared to 27% in 1998 as a result of the decline in revenues. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Revenues increased by $4.1 million, or 73.7%, to $9.6 million primarily as a result of manufactured product sales and royalty income from the sales of Nascobal(R) of $2 million and the achievement of milestones of $3 million on the intranasal motion sickness product, scopolamine, under its collaborative licensing agreements with Schwarz Pharma. Royalty income received from BMS on sales of Stadol NS decreased $675,000 or 21%, to $2.6 million. Total costs and expenses increased by $398,000 to $10.5 million in 1998. The details of the increase follow: Research and development expense increased by $1.4 million, or 31% to $6.0 million primarily as a result of the Company's clinical program for intranasal scopolamine. The Company has entered into an operating lease for a larger R&D facility and intends to pursue internally funded projects. In connection with the manufacture of Nascobal(R), the Company entered into a filling and packaging agreement with a third party. In 1998, the Company has incurred certain costs associated with its plan to expand its manufacturing capabilities and reduce its reliance on third parties. The total cost of product sales, including certain costs associated with this plan of operations, was $589,000 in 1998. Royalties expense decreased by $335,000 or 21% to $1.3 million as a result of the decline in sales of Stadol NS by BMS and the related royalty payable to the University of Kentucky Research Foundation (UKRF) under a separate agreement between the Company and UKRF. Royalties expense increases or decreases approximately in proportion to royalty income associated with Stadol NS. Sales and marketing expenses decreased by $848,000, or 49%, to $875,000. The Company eliminated its marketing costs associated with the product, Nascobal(R), as a result of the licensing agreement entered into with Schwarz Pharma in 1997. As a percentage of total revenues, general and administrative expenses decreased to 18% in 1998 as compared to 31% in 1997. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, the Company's liquidity included cash and cash equivalents and short-term investments of $14.6 million compared to $23.5 million at December 31, 1998. Accounts, royalties and fee receivables at December 31, 1999 consist principally of receivables pursuant to the BMS and Schwarz Pharma agreements. In July 1999, the shareholders of the Company approved a 1:100 reverse split of its common stock followed immediately by a 100:1 forward split. The Company effectuated these transactions on August 17, 1999. The purpose of these transactions is to enable a redemption of odd-lot shares and reduce certain related administrative costs incurred annually by the Company. As of December 31, 1999 the Company has redeemed 110,736 of such shares at a cost of - 13 - 15 $395,000. In addition, on October 29, 1999, the Company's Board of Directors authorized the Company to effect open market purchases of up to 500,000 shares of its common stock. As of December 31, 1999 the Company made purchases of 77,000 of its shares of common stock at a cost of $151,000. At December 31, 1999, the Company had working capital of $12.9 million. Management anticipates that it may require an additional infusion of capital in year 2000 in order to provide adequate funds for the Company's anticipated needs, including working capital. As of December 31, 1999 the Company has invested approximately $3.0 million in equipment and leasehold improvements in connection with its new R&D facility. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity." This statement establishes comprehensive accounting and reporting standards for derivative instruments and hedging activities. In June 1999, the FASB issued SFAS No. 137, deferring the required implementation of SFAS No. 133. This SFAS will be adopted by the Company in the first quarter of fiscal 2001. Implementation of this statement is not expected to affect the Company's financial position or results of operations. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable - 14 - 16 ITEM 8 - INDEX TO FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT...............................................................................16 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Balance Sheets at December 31, 1999 and 1998...................................................17 Statements of Operations for the years ended December 31, 1999, 1998 and 1997. ................18 Statements of Stockholders' Equity for the years ended December 31, 1999, 1998, and 1997.......19 Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997..................20 Notes to Financial Statements..................................................................21
- 15 - 17 INDEPENDENT AUDITORS' REPORT To the Board of Directors Nastech Pharmaceutical Company Inc. We have audited the accompanying balance sheets of Nastech Pharmaceutical Company Inc. (the Company) as of December 31, 1999 and 1998 and related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nastech Pharmaceutical Company Inc. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ KPMG LLP Melville, New York February 28, 2000 - 16 - 18 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NASTECH PHARMACEUTICAL COMPANY INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31, 1999 1998 ----------- ------------ ASSETS Current assets: Cash and cash equivalents ................................... $ 10,652 $ 23,515 Short-term investments ...................................... 3,986 --- Accounts receivable ......................................... 25 20 Royalties and fees receivable ............................... 1,011 2,265 Inventories ................................................. 279 390 Prepaid expenses and sundry assets .......................... 533 280 -------- -------- Total current assets ............................... 16,486 26,470 -------- -------- Property and equipment .......................................... 4,666 1,635 Less: Accumulated depreciation and amortization ............. 986 602 Property and equipment, net ........................ 3,680 1,033 -------- -------- Other assets .................................................... 33 15 -------- -------- Total assets ....................................... $ 20,199 $ 27,518 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................ $ 2,059 $ 625 Royalties payable ........................................... 664 597 Accrued expenses and sundry liabilities ..................... 851 794 -------- -------- Total current liabilities .......................... 3,574 2,016 -------- -------- Commitments and Contingencies Stockholders' equity: Preferred stock, $.01 par value; authorized: 100,000 shares; issued and outstanding: none .......................... --- --- Common stock, $0.006 par value; authorized: 25,000,000 shares; issued: 6,267,485 and 6,376,915 shares at December 31, 1999 and 1998, respectively ............... 38 38 Additional paid-in capital .................................. 37,050 37,426 Accumulated deficit ......................................... (20,312) (11,962) -------- -------- 16,776 25,502 Less: Treasury stock, at cost, 77,000 shares ............... 151 --- -------- -------- Total stockholders' equity ......................... 16,625 25,502 -------- -------- Total liabilities and stockholders' equity ......... $ 20,199 $ 27,518 ======== ========
See accompanying notes to financial statements. - 17 - 19 NASTECH PHARMACEUTICAL COMPANY INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED ----------------------------------------- DEC. 31, DEC. 31, DEC. 31, 1999 1998 1997 -------- -------- --------- Revenues: Product sales .......................... $ 325 $ 516 $ 482 License fee, royalty and research income 4,222 7,632 3,647 Interest income ........................ 1,084 1,442 1,393 -------- -------- -------- Total revenues .................... 5,631 9,590 5,522 -------- -------- -------- Costs and expenses: Cost of product sales .................. 268 589 454 Research and development ............... 9,649 6,014 4,600 Royalties .............................. 1,436 1,251 1,586 Sales and marketing .................... 1,051 875 1,723 General and administrative ............. 1,577 1,737 1,705 -------- -------- -------- Total costs and expenses .......... 13,981 10,466 10,068 -------- -------- -------- Net loss ................................... $ (8,350) $ (876) $ (4,546) ======== ======== ======== Net loss per common share-basic and diluted $ (1.32) $ (.14) $ (.76) ======== ======== ======== Average shares outstanding-basic and diluted 6,335 6,296 5,978 ======== ======== ========
See accompanying notes to financial statements. - 18 - 20 NASTECH PHARMACEUTICAL COMPANY INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL ----------------------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT ---------- ---------- ----------- ----------- BALANCE, DECEMBER 31, 1996 ......................... 4,706,158 $ 28 $ 18,325 $ (6,540) Additional shares issued in connection with public offering net of issuance costs .......................................... 1,380,000 9 17,460 --- Shares issued in connection with exercise of stock options ............................... 14,999 --- 18 --- Compensation related to stock options .............. --- --- 175 --- Fractional shares redeemed in connection with reverse stock split ....................... (137) --- --- --- Net loss year ended December 31, 1997 .............. --- --- --- $ (4,546) ---------- ---------- ---------- ---------- BALANCE, DECEMBER 31, 1997 ......................... 6,101,020 $ 37 $ 35,978 $ (11,086) Shares issued in connection with exercise underwriter's warrants ......................... 270,000 1 1,402 --- Shares issued in connection with exercise of stock options ............................... 6,000 --- 46 --- Fractional shares redeemed in connection with reverse stock split ....................... (105) --- --- --- Net loss year ended December 31, 1998 .............. --- --- --- (876) ---------- ---------- ---------- ---------- BALANCE, DECEMBER 31, 1998 ......................... 6,376,915 $ 38 $ 37,426 $ (11,962 ) Redemption of shares in connection with reverse/forward stock .......................... (110,736) --- (395) --- Shares issued in connection with exercise of stock options ............................... 5,000 --- 19 --- Acquisition of treasury stock ...................... --- --- --- --- Fractional shares redeemed in connection with reverse stock split ....................... (3,694) --- --- --- Net loss year ended December 31, 1999 .............. --- --- --- (8,350) ---------- ---------- ---------- ---------- BALANCE, DECEMBER 31, 1999 ......................... 6,267,485 $ 38 $ 37,050 $ (20,312) ========== ========== ========== ==========
TOTAL TREASURY STOCKHOLDERS' STOCK EQUITY ----------- ------------- BALANCE, DECEMBER 31, 1996 ......................... --- $ 11,813 Additional shares issued in connection with public offering net of issuance costs .......................................... --- 17,469 Shares issued in connection with exercise of stock options ............................... --- 18 Compensation related to stock options .............. --- 175 Fractional shares redeemed in connection with reverse stock split ....................... --- --- Net loss year ended December 31, 1997 .............. --- $ (4,546) ---------- ---------- BALANCE, DECEMBER 31, 1997 ......................... --- $ 24,929 Shares issued in connection with exercise underwriter's warrants ......................... --- 1,403 Shares issued in connection with exercise of stock options ............................... --- 46 Fractional shares redeemed in connection with reverse stock split ....................... --- --- Net loss year ended December 31, 1998 .............. --- (876) ---------- ---------- BALANCE, DECEMBER 31, 1998 ......................... --- $ 25,502 Redemption of shares in connection with reverse/forward stock .......................... --- (395) Shares issued in connection with exercise of stock options ............................... --- 19 Acquisition of treasury stock ...................... (151) (151) Fractional shares redeemed in connection with reverse stock split ....................... --- --- Net loss year ended December 31, 1999 .............. --- (8,350) ---------- ---------- BALANCE, DECEMBER 31, 1999 ......................... $ (151) $ 16,625 ========== ==========
See accompanying notes to financial statements. - 19 - 21 NASTECH PHARMACEUTICAL COMPANY INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED ----------------------------------------------- DEC. 31, DEC. 31, DEC. 31, 1999 1998 1997 -------- -------- -------- OPERATING ACTIVITIES: Net loss .............................. $ (8,350) $ (876) $ (4,546) Adjustments to reconcile net loss to net cash used in operating activities: Compensation related to stock options ......................... --- --- 175 Depreciation and amortization .... 384 300 262 Changes in assets and liabilities: Accounts and other receivables ... 1,249 (1,348) (139) Inventories ...................... 111 (20) (370) Prepaid expenses and sundry assets (271) (233) 33 Accounts payable ................. 1,434 (872) 910 Royalties payable ................ 67 406 (45) Accrued expenses and sundry liabilities .................. 57 40 497 -------- -------- -------- Net cash used in operating activities ..... (5,319) (2,603) (3,223) -------- -------- -------- INVESTING ACTIVITIES: Property and equipment ................ (3,031) (625) (585) Short-term investments-acquisitions ... (3,986) --- (968) Short-term investments-redemptions .... --- --- 7,992 -------- -------- -------- Net cash provided by (used in) investing activities ............................ (7,017) (625) 6,439 -------- -------- -------- FINANCING ACTIVITIES: Redemption of common shares ........... (395) --- --- Acquisition of treasury stock ......... (151) --- --- Exercise of stock options ............. 19 46 18 Exercise of warrants .................. --- 1,403 --- Proceeds from sale of common stock .... --- --- 17,566 -------- -------- -------- Net cash provided by (used in) financing activities ............................ (527) 1,449 17,584 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ........................... (12,863) (1,779) 20,800 Cash and cash equivalents--beginning ...... 23,515 25,294 4,494 -------- -------- -------- Cash and cash equivalents--ending ......... $ 10,652 $ 23,515 $ 25,294 ======== ======== ========
See accompanying notes to financial statements. - 20 - 22 NASTECH PHARMACEUTICAL COMPANY INC. NOTES TO FINANCIAL STATEMENTS For the Three Years Ended December 31, 1999 NOTE 1 -- BUSINESS AND BASIS OF PRESENTATION Business The Company operates in a single segment which is engaged in the research, development, manufacturing and commercialization of nasally administered forms of prescription pharmaceuticals. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Cash and Cash Equivalents Cash and cash equivalents consist of cash and temporary investments of highly-rated investment grade commercial paper with maturities of three months or less when purchased. At December 31, 1999 and 1998, cash equivalents totaled $10.6 million and $23.2 million, respectively. Investments Short-term investments consist of highly-rated investment grade commercial paper having original maturities greater that three months and up to one year. There were no material unrealized holding gains or losses at December 31, 1999. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market and consist principally of raw materials. Patents The cost of acquired patents is capitalized and amortized over the remaining legal life of the patents at acquisition or their useful life, whichever is shorter. Legal costs and fees related to patent applications developed by the Company are charged to expense as incurred. Property and Equipment Property and equipment are carried at cost and depreciated using accelerated methods over estimated useful lives ranging from 5 to 7 years. Leasehold improvements are carried at cost and amortized using the straight-line method over the lesser of the estimated useful life or the remaining lease term. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the period. Expenditures for maintenance and repairs are charged to expense as incurred. License Fee, Royalty and Research Income The Company has entered into various collaborative arrangements with other pharmaceutical companies and recognizes income from royalties based upon the sale of licensed products as reported by licensees. Income from license fees and research income are recognized as earned pursuant to the terms of the related agreements. A substantial portion of the Company's revenues is derived from licensing agreements with Bristol-Myers Squibb ("BMS") and Schwarz Pharma, Inc. ("Schwarz"). - 21 - 23 Net Loss per Common Share Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The diluted loss per common share presented excludes the common stock equivalents (stock options and warrants), since such inclusion in the computation would be antidilutive. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Long-Lived Assets The Company reviews its long-lived assets (property and equipment) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. There was no significant impact on the Company's results of operations or financial position as a result of the adoption of SFAS No. 121. Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method in accordance with APB No. 25, "Accounting for Stock Issued to Employees." Effective July 1, 1996, the Company adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", which requires the disclosure of pro forma net income and earnings per share as if the Company adopted the fair value-based method in measuring compensation expense as of the beginning of fiscal 1996 (see Note 9). Comprehensive Income Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 130 requires that all items recognized under accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. Other comprehensive income may include foreign currency translation adjustments, minimum pension liability adjustments and unrealized gains and losses on marketable securities classified as available-for-sale. The Company's operations did not give rise to items includible in comprehensive income which were not already included in net income. Accordingly, the Company's comprehensive income is the same as its net income for all periods presented. . Fair Value Financial Instruments The Company considers the fair value of all financial instruments to not be materially different from their carrying value at year-end as all financial instruments are highly rated investment grade commercial paper having short term maturities. - 22 - 24 NOTE 3 -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, 1999 1998 ---------------- ----------------- (In thousands) Furniture and fixtures...................................... $ 335 $ 131 Machinery and equipment..................................... 2,027 962 Computer equipment.......................................... 316 211 Leasehold improvements...................................... 1,988 331 ---------------- ----------------- 4,666 1,635 Less accumulated depreciation and amortization........................................... 986 602 ---------------- ----------------- Net property and equipment.................................. $ 3,680 $ 1,033 ================ =================
NOTE 4 -- STOCKHOLDERS' EQUITY The Company completed a public offering of 1,380,000 shares of common stock at $14.00 per share in February, 1997. The proceeds to the Company of $17,469,000 was net of direct expenses of the offering totaling $1,851,000. In connection with this public offering, the Company issued to the representatives of the underwriters warrants to purchase in the aggregate up to 69,000 shares of Common Stock (the "Representatives' Warrants") at an exercise price per share equal to 120% of the public offering price per share. The Representatives' Warrants are exercisable for a period of four years commencing January 24, 1998. The holders of the Representatives' Warrants will have no voting, dividend or other stockholder rights until the Representatives' Warrants are exercised. The Company has granted the representatives certain registration rights related to the Representatives' Warrants. In connection with a public offering of common stock and warrants in 1994, underwriter's warrants were exercised during 1998 resulting in proceeds to the Company of $1,403,000. In July 1999, the shareholders of the Company approved a 1:100 reverse split of its common stock followed immediately by a 100:1 forward split. The Company effectuated these transactions on August 17, 1999. The purpose of these transactions is to enable a redemption of odd-lot shares and reduce certain related administrative costs incurred annually by the Company. As of December 31, 1999, the Company has redeemed 110,736 of such shares at a cost of $395,000 and subsequently retired. The Company also acquired 77,000 shares of its common stock in 1999 at an aggregate cost of $151,000. These shares are being held as treasury stock. The Company is authorized to issue up to 100,000 shares of preferred stock, the designations, powers, preferences and rights of which may be determined, from time to time, by the Company's Board of Directors. NOTE 5 -- STOCK OPTION PLAN Under the Company's amended Stock Option Plan (the "Plan") options to purchase a maximum of 1,500,000 shares of common stock (subject to adjustment in the event of stock splits, stock dividends, recapitalization and other capital adjustments) may be granted to employees, officers and directors of the Company and other persons who provide services to the Company. The options to be granted under the Plan are designated as incentive stock options or non-incentive stock options by the Board of Directors which also has discretion as to the person to be granted options, the number of shares subject to the options and the terms of the option agreements. Only employees, including officers and part-time employees of the Company may be granted incentive stock options. The options are intended to receive incentive stock option tax treatment pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan provides that options granted thereunder shall be exercisable during a period of no more than ten years (five years in the case of 10% shareholders) from the date of grant, depending upon the specific stock option agreement, and that, with respect to incentive stock options, the option exercise price shall be at least equal to 100% of the fair market value of the common stock at the time of grant (110% in the case of 10% shareholders). Pursuant to the provisions of the Plan, the aggregate fair market value (determined on the date of grant) of the common stock with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year shall not exceed $100,000. The Plan is administered by the Company's Board of Directors. - 23 - 25 In August 1998, the Company's Board of Directors approved a stock option exchange program in which it offered all holders the right to exchange their options for the same number of new options with a lower exercise price but with a modified term of vesting. All outstanding options (786,350) with an exercise price greater than $5.63 per share were eligible for this program and were exchanged during 1998. No charge was recorded to earnings as the new exercise price was in excess of the market value on the date of the exchange. Data relating to these plans are as follows:
Year Ended Year Ended Year Ended Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 ---------------------------- ---------------------------- ---------------------------- Weighted Average Weighted Weighted Exercise Average Average Shares Price Shares Exercise Price Shares Exercise Price ------------ -------------- ----------- ---------------- ----------- ---------------- Outstanding at beginning of period..... 985,750 $ 5.49 878,150 $ 10.47 459,299 $ 9.97 Granted................................ 429,050 3.29 903,650 5.91 461,902 10.94 Exercised.............................. (5,000) 3.72 (6,000) 7.73 (14,999) 1.21 Expired................................ (25,000) 3.72 --- --- --- --- Canceled............................... --- --- (786,350) 11.18 (10,000) 22.75 Terminated............................. (214,288) 3.92 (3,700) 9.96 (18,052) 9.83 ----------- ------------- -------- ------ ------- ------------ Outstanding at end of period........... 1,170,512 $ 4.84 985,750 $ 5.49 878,150 $ 10.47 =========== ============= ======== ====== ======= ============
The following table summaries the information on stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable ---------------------------------------------------------------------------- --------------------------------- Weighted- Weighted- average Weighted- average Range of Number remaining average Number exercisable exercise prices outstanding contractual life exercise price exercisable price --------------- ----------- ---------------- -------------- ----------- ----------- $1.94 - $3.75 242,650 4.51 $ 2.84 100,800 $ 3.20 $4.13 - $5.13 291,900 2.50 $ 4.77 226,000 $ 4.78 $5.63 635,962 3.67 $ 5.63 554,693 $ 5.63 --------- -------- 1,170,512 881,493 ========= ========
NOTE 6 -- INCOME TAXES The Company's net deferred tax assets as of December 31, 1999 and 1998, are estimated as follows:
1999 1998 ------------ ------------ Deferred tax assets: Net operating loss carryforwards $ 7,798,000 $ 3,546,000 Federal and State tax credits .. 1,106,000 637,000 Depreciation ................... 263,000 56,000 Other .......................... 131,000 59,000 ------------ ------------ Total deferred tax assets . $ 9,298,000 $ 4,298,000 Valuation allowance ............ (9,298,000) (4,298,000) ------------ ------------ Net deferred taxes ............. $ --- $ --- ============ ============
A valuation allowance for 1999 and 1998 has been applied to offset the respective deferred tax assets in recognition of the uncertainty that such tax benefits will be realized. At December 31, 1999, the Company has available net operating loss carryforwards for Federal and State income tax reporting purposes of approximately $19,100,000, and has available Federal and State tax credits of approximately -24- 26 $1,106,000, which are available to offset future taxable income, if any. These carryforwards expire beginning in 2000 through 2019. The Company's ability to use such net operating loss and Federal and State tax credit carryforwards is limited by change of control provisions under Section 382 of the Internal Revenue Code. NOTE 7 -- COMMITMENTS (a) Employment Agreements and Accrued Compensation Certain officers of the Company have employment agreements that provide base compensation and annual incentive compensation. The Company's Chief Executive Officer has an employment agreement expiring December 31, 2000, from which he receives base compensation of $230,000 per year, and annual incentive compensation of up to 50% of base salary based on the achievement of certain business objectives of the Company. The Company's agreement with its former President terminated January 1, 1999. As part of the termination agreement the former President received a severance payment of $107,500 which was accrued as of December 31, 1998 and a monthly retainer of $10,000 for the initial six month term of a consulting arrangement. Participation in the Company's stock option plan expired December 31, 1999. As of December 31, 1999 and 1998, accrued expenses and sundry liabilities include accrued compensation and benefits of $331,000 and $439,000, respectively. (b) Leases: The Company leases space for its research and development activities under a lease expiring October 31, 2009 and leases office and manufacturing space under a lease expiring on June 30, 2005. The lease for the research and development facility has a 5 year renewal option. The following is a schedule of future minimum lease payments:
2000...................................................... $ 290,000 2001...................................................... 313,000 2002...................................................... 333,000 2003...................................................... 361,000 2004...................................................... 391,000 Thereafter................................................ 1,851,000 ----------- Total............................................. $ 3,538,000 ===========
Rental expense for the aforementioned space aggregated approximately $418,000, $173,000, and $95,000 for the years ended December 31, 1999, 1998 and 1997, respectively. NOTE 8 -- CONTRACTUAL AGREEMENTS In January 1986, the Company sublicensed to BMS its development and commercial exploitation rights with respect to its licensed patent rights for the nasal delivery of Butorphanol Tartrate, in exchange for which BMS agreed to pay the Company a royalty based on the net sales of such product (the "BMS Agreement"). The Company must pay a percentage of these royalties to University of Kentucky Research Foundation ("UKRF") under the Company's separate license agreement with UKRF. The BMS Agreement, which may be terminated by BMS at any time upon 60 days written notice to the Company, is concurrent with the Company's licensed patent rights to nasal Butorphanol Tartrate. The nasal Butorphanol Tartrate patent expires in the year 2001 in the United States, subject to any right of extension or renewal. In December 1991, the FDA granted marketing clearance to BMS for this product, which is marketed by BMS as Stadol NS and quarterly royalty payments to the Company by BMS are continuing. During 1997, Stadol NS was classified by the FDA as a Schedule IV substance under the Controlled Substances Act which has negatively affected sales by BMS and royalties to the Company. In July 1997, the Company exclusively licensed to Schwarz Pharma the right to market the Company's Nascobal(R) (Cyanocobalamin, USP) Gel in the U.S. The Company retained worldwide manufacturing rights and the -25- 27 agreement provided for a fixed manufacturing transfer price to Schwarz Pharma. Pursuant to the agreement the Company will receive royalty payments from Schwarz Pharma based upon the net sales of Nascobal(R). The royalty rate is, in part, dependent upon sales volume, with a minimum royalty of $2 million in 1998. The term of the agreement is for the later of 15 years or the expiration of the applicable patent which expires in 2005. In December 1997, the Company exclusively licensed to Schwarz Pharma the right to market the Company's intranasal scopolamine gel in the U.S. Under the terms of the agreement, the Company was to receive royalty and manufacturing payments from Schwarz Pharma. In addition, Schwarz Pharma made research milestone payments to the Company of $3,750,000 through December 1999 of which $750,000 and $3,000,000 was recognized in the years ended December 31, 1999 and 1998, respectively, In December 1999, the Company reacquired the marketing rights to intranasal scopolamine from Schwarz Pharma. The Company made a payment of $250,000 to Schwarz Pharma, which has been reflected as an expense in research and development for the year ended December 31, 1999, and agreed to pay one-half of any future consideration received until Schwarz Pharma receives payments totaling $3,500,000 plus an additional amount for interest that will accrue at a rate of 8.5% per annum. As any payment to Schwarz Pharma is contingent on whether the Company will receive proceeds from the future sale or license of intranasal scopolamine, no liability has been recorded for this agreement as of December 31, 1999. In September 1997, the Company entered into an agreement with Meda AB of Goteborg, Sweden ("Meda"), giving Meda the exclusive right to market Nascobal(R) in Sweden, Denmark, Norway and Finland. Pursuant to the agreement, the Company will receive revenue from the sale of Nascobal(R) to Meda and a license fee upon the occurrence of certain regulatory approvals and commercial events in the Nordic countries. In July 1998, the Company entered into an agreement with Cambridge Laboratories ("Cambridge"), giving Cambridge the exclusive right to market Nascobal(R) in several European countries, Australia and New Zealand. Pursuant to the agreement, the Company will receive revenue from the sale of Nascobal(R) to Cambridge. NOTE 9 -- STOCK-BASED COMPENSATION The per share weighted average fair value of stock options granted during the years ended December 31, 1999, 1998 and 1997, was $1.50, $3.82, and $6.81, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:
YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31, 1999 DEC. 31, 1998 DEC. 31, 1997 ------------- ------------- ------------- Expected dividend yield - 0-% - 0-% - 0-% Risk free interest rate 6.0% 4.75% 5.8% Expected stock volatility 53% 63% 65% Expected option life 5 years 5 years 5 years
The Company applies APB Opinion No. 25 in accounting for its stock options and, accordingly, no compensation cost (except in 1997 with the amount of $175,000 for options granted below market value), has been recognized in the financial statements for its stock options which have an exercise price equal to the fair value of the stock on the date of the grant. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss would have been reported as the pro forma amounts indicated below:
YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31, 1999 DEC. 31, 1998 DEC. 31, 1997 ------------- ------------- ------------- (In thousands, except per share amounts) Net loss: As reported.............. $ (8,350) $ (876) $ (4,546) Pro forma................ $ (9,011) $ (2,322) $ (6,515) Net loss per share: As reported.............. $ (1.32) $ (.14) $ (.76) Pro forma................ $ (1.42) $ (.37) $ (1.09)
-26- 28 Pro forma net income reflects only options granted subsequent to July 1, 1995, the date the Company adopted SFAS No. 123. Accordingly, the pro forma amounts above do not reflect the full impact of calculating pro forma income since cost of options issued prior to June 1, 1995, which would be amortized over the five year vesting period of the options, was not considered. NOTE 10 -- RELATED PARTY TRANSACTIONS In 1999, the Company agreed to provide split-dollar life insurance for its former Chairman of the Board of Directors in consideration for services rendered and in lieu of cash remuneration. Over a 10-year period the Company will pay $397,000 in premiums. At the end of 15 years, the premiums are to be repaid to the Company; such repayment being secured by the Company's collateral interest in the insurance policy. For the year ended December 31, 1999, the Company recognized $24,000 of expense related to this policy. A member of the Board of Directors provided legal services to the Company in 1999. Fees earned by this director were $142,000. NOTE 11 -- SUBSEQUENT EVENT - SHAREHOLDER RIGHTS PLAN In February 2000, the Company adopted a Shareholder Rights Plan, which is designed to protect shareholders from coercive or unfair takeover tactics. Under the plan, a dividend of one preferred stock purchase right is being declared for each common share held of record as of the close of business on March 17, 2000. -27- 29 PART III ITEM 8 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers, directors and senior employees of the Company are as follows:
NAME AGE POSITION ---- --- -------- Dr. Vincent D. Romeo 43 President and Chief Executive Officer Executive Vice President of Research Dr. Charan R. Behl 48 and Development Andrew P. Zinzi 53 Chief Financial Officer Devin N. Wenig 33 Director Joel Girsky 60 Director, Treasurer Bruce R. Thaw 47 Director Grant W. Denison, Jr 50 Director Dr. Ian R. Ferrier 56 Director Alvin Katz 70 Director John V. Pollock 61 Director Carol Wenig 55 Secretary
All directors hold office until the next annual meeting of shareholders or until their successors are elected and qualify. Executive officers hold office until their successors are chosen and qualify, subject to earlier removal by the Board of Directors. Set forth below is a biographical description of each director, executive officer and senior employee of the Company based on information supplied by each of them. Dr. Vincent D. Romeo. Dr. Romeo has been employed by the Company since 1985 as Director of Research and was appointed President and Chief Executive Officer of the Company in August 1991. Dr. Romeo is a registered pharmacist in the State of New York and received a Ph.D. degree from St. John's University College of Pharmacy and Allied Health Professions in Pharmaceutical Sciences in 1984, with a specialty in pharmacology. He continues at St. John's as an Adjunct Professor of Pharmacology, Graduate Division, College of Pharmacy and Allied Health Professions. He has authored and co-authored several published articles in the field of drug delivery. Dr. Romeo has also presented his work at various meetings and conferences sponsored by the American Association of Pharmaceutical Scientists ("AAPS") and the American College of Clinical Pharmacology. Dr. Romeo is an active member of the AAPS, the American College of Clinical Pharmacology, the Rho Chi Pharmaceutical Society, and the New York Academy of Sciences. He is currently co-chairing the Nasal Drug Delivery Focus Group of the AAPS. Dr. Charan R. Behl. Dr. Behl has been employed by the Company since January 1995 as Executive Vice President of Research and Development. Dr. Behl previously held senior research positions in the Pharmaceutical Research and Development Department of Hoffmann La-Roche, Inc, for approximately 14 years. During his tenure at Roche and as a research faculty member at the University of Michigan, he has done extensive research and product development on various drug delivery systems. Dr. Behl has worked on the optimization of drug delivery via different routes including nasal, enteral, transdermal (local and systemic), rectal, vaginal and trans-nail. Dr. Behl has authored or coauthored over 100 articles and major meeting abstracts including many book chapters. Working closely with his colleagues at the FDA, academia, National Institute of Health and other companies, Dr. Behl has been instrumental in organizing international workshops, conferences and meetings to address crucial issues pertaining to drug delivery. Currently he is co-chairing the Nasal Drug Delivery Focus Group of the AAPS. Dr. Behl is an active member of the American Pharmaceutical Association, AAPS and Controlled Release Society, and is a Fellow of the AAPS. Andrew P. Zinzi. Mr. Zinzi has been employed by the Company since November 1996 as the Company's Chief Financial Officer. From February 1992 to November 1996, Mr. Zinzi was employed by IVAX Corporation ("IVAX"), a pharmaceutical company, most recently as Vice President-Finance and Treasurer. From March 1985 to February 1992, Mr. Zinzi held various management positions in finance and operations with Goldline Laboratories and Bioline Laboratories, distributors of generic pharmaceutical products, which were subsequently acquired by IVAX in December 1991. Mr. Zinzi is a CPA, member of the AICPA and earned a Master of Business Administration degree from New York -28- 30 University. Joel Girsky. Mr. Girsky has been a Director of the Company since October 1983, and the Company's Secretary and Treasurer since April 1986. From 1961 to the present, Mr. Girsky has been President and Chairman of the Board of Jaco Electronics, Inc., Hauppauge, New York, a publicly held company engaged in the distribution of electronic components. Mr. Girsky received a degree in Marketing from Brooklyn College in 1957. Bruce R. Thaw. Mr. Thaw has been a Director of the Company from June 1991 to January 1997 and was reappointed to the Board in January 1998. From 1984 to the present, Mr. Thaw has been a principal in a law firm, which serves as general counsel to the Company. Mr. Thaw was admitted to the bar of the State of New York in 1978 and the California State Bar in 1983. Mr. Thaw is also a director of Information Resource Engineering, Inc. a publicly traded company engaged in the computer network security industry and Amtech Systems, Inc. a publicly traded company engaged in the semi-conductor industry. Devin N. Wenig. Mr. Wenig has been Chairman of the Board of Directors of the Company from June 1991 to March 1999 and currently serves as a director. Mr. Wenig was appointed Managing Director of Reuters Information (1999 revenue of $2.5 billion) in February 2000. In this role Mr. Wenig has the responsibility for both the regional and central marketing functions, product development, e-commerce, the data groups, and commercial policy for Reuters globally. Mr. Wenig also retains the position of Executive Vice President of Marketing - Reuters America responsible for marketing and business development functions in North and South America. Mr. Wenig serves as a Director of a number of Reuters subsidiaries and portfolio companies, including Aether Systems, Inc., Multex.com, Intralinks, Inc., Loan Pricing Corporation, and FreeEdgar.com. Before joining the Reuters organization, Mr. Wenig worked with the firm of Cravath, Swaine and Moore as a Mergers and Acquisitions attorney. There he managed several of their largest global transactions, including leveraged buyouts, hostile transactions and cross-border mergers. Mr. Wenig has also served as Chairman of the Board of Directors for a mid-sized biotechnology company for the past eight years. Mr. Wenig received a B.A. degree from Union College and a J.D. degree from the Columbia University School of Law. Grant W. Denison, Jr. Mr. Denison co-founded BioMarin Pharmaceutical Inc. in 1997. As Chairman and CEO, he has guided the development of the Company since its inception. Under his leadership, BioMarin has raised approximately $69.0 million in private financings and $67.3 million in a July 1999 IPO dual listing of the Company on Nasdaq National Market and Swiss New Market exchanges. He also formed a joint venture with Genzyme General to develop and commercialize BioMarin's lead enzyme replacement product, which has completed pivotal clinical trials. Mr. Denison has 25 years experience in senior management in major pharmaceutical companies. During his ten years at Monsanto/Searle, he served as a member of the executive committees of both companies. As President of Worldwide Consumer Products and Senior Vice President for Business Development at Searle, he was responsible for the general management of Searle's consumer products business and all pharmaceutical, diagnostics and consumer licensing and business development. He also served as Corporate Vice President, Strategic Planning for Searle's parent company, Monsanto, during a period of major restructuring and portfolio realignment. In addition, he was President of Searle's U.S. Pharmaceutical Operations during a period of significant sales and earnings growth in the late 1980's. Prior to joining Searle, Mr. Denison was Vice President of International Operations for Squibb Medical Systems and also held a number of management positions during his 13 years at Pfizer, Inc., including Vice President of Pharmaceutical Planning and Business Development from 1980 to 1985. During the course of his career at Pfizer, he formed numerous licensing agreements, acquisitions and strategic alliances. Mr. Denison holds an MBA from Harvard Business School, and he graduated from Colgate University magna cum laude with a bachelor's degree with High Honors in Mathematical Economics. Dr. Ian R. Ferrier. Dr. Ferrier, who was appointed to the Company's Board of Directors in January 1995, is the founder, President and Chief Executive Officer of Bogart Delafield Ferrier Inc., and has served in such capacity since its inception in 1982. Trained in medicine and pharmacology, Dr. Ferrier has managed and directed pharmaceutical programs and guided the growth of several multinational companies. He has served on the Board of Directors of a number of health care and biotechnical firms, as well as serving as consultant to many of the world's major pharmaceutical companies. From 1982 to 1987, Dr. Ferrier served as President of McCann Healthcare Inc. From 1982 to 1983, Dr. Ferrier served as Chairman of The Covington Group of Companies, in 1982 as Executive Vice President of TechAmerica Group and from 1979 to 1982, as Vice President of Kalipharma Inc. From 1975 to 1979, Dr. Ferrier served as Chief Executive Officer of the Monadnock Medical Center. Dr. Ferrier received a BSc in Pharmacology from the University of Edinburgh, Edinburgh Scotland; served his residency training in nephrology/clinical pharmacology at Southmead General Hospital, University of Bristol Associated Hospitals, Bristol, England; and his post-graduate internship at the Western General Hospital of the University of Edinburgh Associated Hospitals, Edinburgh, Scotland. -29- 31 Alvin Katz. Mr. Katz was appointed to the Board of Directors of the Company in September 1993. Since 1981, he has served as an adjunct professor of business management at Florida Atlantic University. In 1991, Mr. Katz was appointed Chief Executive Officer of Odessa Engineering Corp., a company engaged in the manufacturing of pollution monitoring equipment. He held this position until that company was sold in September 1992. Mr. Katz also serves on the Board of Directors of Amtech Systems Inc. which is engaged in the manufacture of capital equipment in the computer chip manufacturing business; BCT International, Inc., a franchisor of thermo graphic printing plants; Micron Instruments Inc., a manufacturer of infrared temperature measuring instruments; Ozo Diversified Inc., a manufacturer of depaneling equipment for the computer chip manufacturing industry; and Blimpie International, Inc., which is engaged in fast food franchising. Mr. Katz holds a B.S. in Business Administration degree from New York University and has done graduate work at C.U.N.Y. -- Baruch School. John V. Pollock. Mr. Pollock was appointed to the Company's Board of Directors in September 1993. From 1991 to the present, Mr. Pollock has served as a director of Frank E. Basil, Inc., a worldwide provider of facilities maintenance, engineering and operations management services. Mr. Pollock also serves as a consultant to the partners of Basil Properties and has served as the President of Nastech-Basil International, Inc. From 1975 to 1991, Mr. Pollock was a senior banking executive in the Washington, D.C. area, serving as President and Chief Executive Officer of Dominion Bank of Washington and the John Hanson Savings Bank. COMMITTEES OF THE BOARD The Company's Board of Directors has established a Compensation Committee which is comprised of Joel Girsky and John V. Pollock. The purpose of this Committee is to review and approve the compensation of the Company's officers and to administer and interpret the Company's stock option plan. The Audit Committee of the Company's Board of Directors is comprised of Alvin Katz, Joel Girsky and John V. Pollock. The purpose of this Committee is to review with the Company's independent auditors the financial controls and practices of the Company and the plans for and results of the audit engagement. The Company's Certificate of Incorporation contains provisions indemnifying its officers, directors, employees and agents against certain liabilities. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None ITEM 10 - EXECUTIVE COMPENSATION Information with respect to executive compensation is set forth in the Proxy Statement for the Annual Meeting of Shareholders of the Company under the caption "Executive Compensation and Other Information", and is incorporated herein by reference. ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management is set forth in the Proxy Statement for the Annual Meeting of Shareholders of the Company under the caption "Security Ownership of Certain Beneficial Owners and Management", and is incorporated herein by reference. ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to certain relationships and related transactions is set forth in the Proxy Statement for the Annual Meeting of Shareholders of the Company under the caption "Certain Relationships and Related Transactions", and is incorporated herein by reference. -30- 32 PART IV ITEM 13 - EXHIBITS, LISTS AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: EXHIBIT NO. DESCRIPTION 3.1 Articles of Incorporation of Registrant, as amended and filed with the Secretary of State of Delaware on November 8, 1993. (Filed as Exhibit 3A to the Company's Registration Statement on Form SB-2, as amended (Commission File No. 33-70180), filed on October 12, 1993, and incorporated herein by reference.) 3.2 Amended By-Laws of Registrant. (Filed as Exhibit 3B to the Company's Registration Statement on Form SB-2, as amended (Commission File No. 33-70180), filed on October 12, 1993, and incorporated herein by reference.) 3.3 Certificate of Amendment of Certificate of Incorporation of Registrant, as filed with the Secretary of State of Delaware on December 30, 1996. (Filed as Exhibit 3.3 to the Company's Registration Statement on Form S-2 (Commission File No. 333-16507), filed on November 20, 1996, and incorporated herein by reference.) 4.1 Form of Representatives' Warrant (Filed as Exhibit 4.1 to the Company's Registration Statement on Form S-2 (Commission File No. 333-16507), filed on November 20, 1996, and incorporated herein by reference.) 10.1 Licensing Agreement with UKRF. (Filed as Exhibit 10.4 to the Company's Registration Statement on Form S-18, as amended (Commission File No. 2-88605-NY), filed on December 23, 1983, and incorporated herein by reference.) 10.2 Lease for facilities at 45 Davids Drive, Hauppauge, NY. (Filed as Exhibit 10B to the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995 (Commission File No. 0-13789), and incorporated herein by reference.) 10.3 Sublicense Agreement with Bristol-Myers Squibb Co. (Filed as Exhibit 10E to the Company's Registration Statement on Form S-1, as amended (Commission File No. 33-5717), filed on May 15, 1986, and incorporated herein as reference.) 10.4 Agreements between Registrant, and RiboGene, Inc. (as successor in interest to Rugby Laboratories, Inc., and Darby Pharmaceuticals, Inc.) (Filed as Exhibit 10D to the Company's Registration Statement on Form S-1, as amended (Commission File No. 33-5717), filed on May 15, 1986, and incorporated herein by reference.) 10.5 1995 Agreement between the Registrant and RiboGene, Inc. (Filed as Exhibit 10F to the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995 (Commission File No. 0-13789), and incorporated herein by reference.) 10.6 Stock Option Agreements. (Filed as Exhibit 10M to the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995 (Commission File No. 0-13789), and incorporated herein by reference.) 10.7 License Agreement with The DuPont Merck Pharmaceutical Company. (Filed as Exhibit 10N to the Company's Registration Statement on Form SB-2, as amended (Commission File No. 33-70180), filed on October 12, 1993, and incorporated herein by reference.) 10.8 Nasal Drug Evaluation and Option Agreement. (Filed as Exhibit 10K to the Company's Annual Report on Form 10-KSB for the year ended June 30, 1996 (Commission File No. 0-13789), and incorporated herein by reference.) 10.9 Agreement with Ciba Self-Medication, Inc. (Filed as Exhibit 10J to the Company's Annual Report on Form 10-KSB for the year ended June 30, 1996 (Commission File No. 0-13789), and incorporated herein by reference.) 10.10 Employment Agreement with Andrew P. Zinzi. (Filed as Exhibit 10.11 to the Company's Registration Statement on Form S-2 (Commission File No. 333-16507), filed on November 20, 1996, and incorporated herein by reference.) 10.11 Employment Agreement with Dr. Vincent D. Romeo. (Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (Commission File No. 000-13789), and incorporated herein by reference.) 10.12 Employment Agreement with Robert H. Rosen. (Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (Commission File No. 000-13789), and incorporated herein by reference.) -31- 33 10.13 Evaluation and Option Agreement with the Consumer Health Care Division of Pfizer Inc. (Filed as Exhibit 10.12 to the Company's Registration Statement on Form S-2 (Commission File No. 333-16507), filed on November 20, 1996, and incorporated herein by reference.) 10.14 Development and License Agreement with DynaGen, Inc. (Filed as Exhibit 10.13 to the Company's Registration Statement on Form S-2 as amended (Commission File No. 333-16507), filed on November 20, 1996, and incorporated herein by reference.) 10.15 License and Supply Agreement with Schwarz Pharma, Inc. (Filed as Exhibit 10J to the Company's Financial Report on Form 10Q for the Quarter Ended June 30, 1997 (Commission File No.000-13789), filed on August 14, 1997, and incorporated herein by reference.) 10.16 License and Supply Agreement with Schwarz Pharma, Inc. (Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (Commission File No. 000-13789), and incorporated herein by reference.) 10.17 License and Supply Agreement with Meda AB. (Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (Commission File No. 000-13789), and incorporated herein by reference.) 10.18 License and Supply Agreement with Tzamal Pharma Ltd. (Filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (Commission File No. 000-13789), and incorporated herein by reference.) 10.19 International Distribution Agreement with Cambridge Selfcare Diagnostics Limited. (Filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (Commission File No. 000-13789), and incorporated herein by reference.) 10.20 Employment Agreement with Dr. Charan Behl. (Filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (Commission File No. 000-13789), and incorporated herein by reference.) 10.21 Employment Agreement with Andrew P. Zinzi. 10.22 Termination and Release Agreement with Schwarz Pharma, Inc. -32- 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hauppauge, State of New York, on March 29, 2000. NASTECH PHARMACEUTICAL COMPANY INC. By: /s/ Vincent D. Romeo, Ph.D ----------------------------------- Vincent D. Romeo, Ph.D. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ Vincent D. Romeo, Ph.D President and Chief Executive Officer - ----------------------------------- (Principal Executive Officer) March 28, 1999 Vincent D. Romeo, Ph.D. /s/ Andrew Zinzi Chief Financial Officer March 28, 1999 - ----------------------------------- (Principal Financial and Accounting Officer) Andrew Zinzi /s/ Devin N. Wenig Director March 28, 1999 - ----------------------------------- Devin N. Wenig /s/ Joe Girsky Director, Treasurer March 28, 1999 - ----------------------------------- Joel Girsky /s/ Bruce R. Thaw Director March 28, 1999 - ----------------------------------- Bruce R. Thaw /s/ Grant W. Denison Director March 28, 1999 - ----------------------------------- Grant W. Denison /s/ Dr. Ian R. Ferrier Director March 28, 1999 - ----------------------------------- Dr. Ian R. Ferrier /s/ Alvin Katz Director March 28, 1999 - ----------------------------------- Alvin Katz /s/ John V. Pollock Director March 28, 1999 - ----------------------------------- John V. Pollock
-33- 35 Index to Exhibits Exhibit No. Description 10.21 Employment Agreement with Andrew P. Zinzi 10.22 Termination and Release Agreement with Schwarz Pharma, Inc. -34- EX-10.21 2 EMPLOYMENT AGREEMENT WITH ANDREW P. ZINZI 1 EXHIBIT 10.21 EMPLOYMENT AGREEMENT AGREEMENT, dated this 27th day of December, 1999 between Nastech Pharmaceutical Company Inc., a Delaware corporation ("Employer") with offices at 45 Davids Drive, Hauppauge, NY and Andrew P. Zinzi ("Employee"). W I T N E S S E T H : WHEREAS, the Employee is currently employed as Chief Financial Officer ("CFO") for the Employer and the Employer and Employee wish to enter into an employment and compensation arrangement on the following terms and conditions: 1. Employment. Subject to the terms and conditions of this Agreement, including specifically Section 12, Employer agrees to employ Employee for a period commencing from the effective date of this Agreement and ending December 31, 2001 to serve as the Chief Financial Officer ("CFO") and to serve in such capacitates consistent with his position as CFO as the Employer may from time to time designate. Employee hereby accepts such employment and agrees to devote his full time and best efforts to the duties provided herein. If Employee shall remain in the full time employ of the Company beyond December 31, 2001 without any written agreement between the parties, this Agreement shall be deemed to continue on a month-to-month basis and either party shall have the right to terminate this Agreement at the end of any ensuing calendar month on written notice of at least 30 days. 2. Compensation. For services rendered to Employer during the term of this Agreement, Employer shall compensate Employee with a salary, payable in accordance with Employer's standard payroll practices in effect, from time to time, of $165,000 per annum. Employee's salary may be adjusted for merit and/or cost of living increases, as determined by Employer in its sole discretion. The Employee shall also be entitled to annual incentive compensation of up to thirty (30%) of the applicable base salary if the Employer's combined corporate and department objectives as set forth in the Employer's annual business plan are achieved. The nature and extent of such compensation shall be approved by the Compensation Committee of the Company's Board of Directors no later than sixty (60) days following the end of the Employer's fiscal year. (1) 2 3. Stock Options. As further compensation, Employee acknowledges the receipt of 35,000 incentive stock options (subject to allowable limitations set forth in the Internal Revenue Code of 1986, as amended, hereinafter stock options) as an incentive to enter into this Agreement. The stock options were issued at the fair market value of the Employer's common stock as of the date grant and shall then be vested at 50% per full year of service (and shall not be vested for interim periods on a pro-rata basis, except as otherwise provided in the applicable Stock Option Agreement) from the date of grant, over a two year period, all of the foregoing to be in accordance with the provisions of Employer's Stock Option Plan, as may be amended from time to time, which is incorporated by reference herein. The Common Stock to be issued upon the exercise of said options has been registered under the Securities Act of 1933. Employee's stock options may be increased during the term of this Agreement, as determined by Employer in its sole discretion. 4. Expenses. Employer shall pay or reimburse Employee for all expenses normally reimbursed by Employer, reasonably incurred by him in furtherance of his duties hereunder and authorized and approved by the Employer upon submission by him of vouchers or an itemized list thereof prepared in compliance with such rules relating thereto as the Employer may, from time to time, adopt and as may be required in order to permit such payments as proper deductions to Employer under the Internal Revenue Code of 1986, as amended, and the rule and regulations adopted pursuant thereto now or hereafter in effect. 5. Benefits. The Employee shall be entitled to participate in or be covered by any Health and/or Retirement and Executive Compensation plans adopted by the Employer from time to time. 6. Insurance and Indemnity. The Employer shall use its best efforts to maintain, at its expense, officers and directors fiduciary liability insurance covering the Employee in an amount not less than $5 million. The Employer shall also indemnity the Employee, to the fullest extent permitted by law, from any liability asserted against or incurred by the Employee, including attorney's costs, in his capacity as an officer of Employer. This indemnity shall survive termination of the Agreement. (2) 3 7. Noncompetition. A. The Employee agrees that, except in accordance with his duties under this Agreement on behalf of the Employer, he will not during the term of this Agreement: Participate in, be employed in any capacity by, serve as director, consultant, agent or representative for, or have any material direct interest in any enterprise (other than as a passive investor in a publicly traded company) which is engaged in the business of distributing, selling or otherwise trading in products which are competitive to any of the Employer's technology or products distributed, sold or otherwise traded in by the Employer during the term of the Employee's employment with the Employer, or which are competitive to any products being actively developed, with the bona fide intent to market same, by the Employer during the term of the Employee's employment with the Employer; B. The Employee hereby agrees that damages and any other remedy available at law would be inadequate to redress or remedy any loss or damage suffered by the Employer upon any breach of the terms of this Section 7 by the Employee, and the Employee therefore agrees that the Employer, in addition to recovering on any claim for damages or obtaining any other remedy available at law, also may enforce the terms of this Section 7 by injunction or specific performance, and may obtain any other appropriate remedy available in equity. 8. Assignment of Patents. Employee shall disclose fully to the Employer any and all discoveries of a scientific nature relating to Employer's business he shall make and any and all ideas, concepts or inventions of a scientific nature relating to Employer's business which he shall conceive or make during his period of employment, or during the period of six months after his employment shall terminate, which are in whole or in part the result of his work with the Employer. Such disclosure is to be made promptly after each discovery or conception, and the discovery, idea, concept or invention will become and remain the property of the Employer, whether or not patent applications are filed thereon. Upon request and at the expense of the Employer, the Employee shall make application through the patent solicitors of the Employer for letters patent of the United States and any and all other countries at the discretion of the Employer on such discoveries, ideas and inventions, and to assign all such applications to the Employer, or at its order, forthwith, without additional payment by the Employer during his period of employment and for reasonable (3) 4 compensation for time actually spent by the Employee at such work at the request of the Employer after the termination of the employment. He is to give the Employer, its attorneys and solicitors, all reasonable assistance in preparing and prosecuting such applications and, on request of the Employer, to execute all papers and do all things that may be reasonably necessary to protect the right of the Employer and vest in it or its assigns the discoveries, ideas or inventions, applications and letters patent herein contemplated. Said cooperation shall also include all actions reasonably necessary to aid the Employer in the defense of its rights in the event of litigation. 9. Trade Secrets. (a) In the course of the term of this Agreement, it is anticipated that the Employee shall have access to secret or confidential technical and commercial information, records, data, specifications, systems, formulas, methods, plans, policies, inventions, material and other knowledge ("Confidential Material") owned by the Employer and its subsidiaries. The Employee recognizes and acknowledges that included within the Confidential Material are the Employer's confidential commercial information, technology, methods of manufacture, clinical studies, pre-clinical data and related materials, all as they may exist from time to time, and that they are valuable special and unique aspects of the Employer's business. All such Confidential material shall be and remain the property of the Employer. Except as required by his duties to the Employer, the Employee shall not, directly or indirectly, either during the term of his employment or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Material. Upon termination of his employment, the Employee shall promptly deliver to the Employer all Confidential Material (including all copies thereof) which are in the possession or under the control of the Employee. The Employee shall not be deemed to have breached this Section 9 if the Employee shall be specifically compelled by lawful order of any judicial, legislative, or administrative authority or body to disclose any confidential material or else face civil or criminal penalty or sanction. (b) The Employee hereby agrees that damages and any other remedy available at law would be inadequate to redress or remedy any loss or damage suffered by the Employer upon any breach of the terms of this Section 9 by the Employee, and the Employee therefore agrees that the Employer, in addition to recovering on any claim for damages or obtaining any other remedy available at law, also may enforce the terms of this Section 9 by injunction or specific performance, and may obtain any other appropriate remedy available in equity. (4) 5 10. Vacation. Employee shall be entitled to vacation (with a minimum of three weeks vacation which shall not accrue or accumulate from year to year, except as provided by Employer), sick days, personal days and holidays as shall be governed by Employer's standard personnel policies, which shall be provided to Employee. 11. Termination. (a) Employee's employment with Employer shall be at will. Either Employer or the Employee may terminate this Agreement and Employee's employment at any time, with or without Cause or Good Reason (as such terms are defined below), in its or his sole discretion, upon thirty (30) days prior written notice of termination. (b) Without limiting the foregoing Section 12(a), (i) the Employee may terminate his employment with the Employer at any time for Good Reason, or (ii) the Employer may terminate his employment at any time for Cause. Good Reason shall mean death, Disability (as defined below) or a termination of employment as a result of a substantial diminution in the Employee's responsibilities, or a reduction in base salary or a demotion in title as CFO or demotion in position as CFO of a publicly held company. Cause shall mean (i) the Employee's willful, repeated or neglectful failure to perform his duties hereunder or to comply with any reasonable or proper direction given by or on behalf of the Employer's Chief Executive Officer and approved by the Board of Directors following five (5) days written notice to such effect, other than any Employee's refusal to execute any document or statement that contains erroneous or misleading financial information; (ii) the Employee being guilty of serious misconduct on the Company's premises or elsewhere, whether during the performance of his duties or not, which may cause damage to the reputation of the Employer or render it difficult for the Employee to satisfactorily continue to perform his duties; (iii) the Employee being found guilty in a criminal court of any offense of a nature likely to affect the reputation of the Employer or to prejudice its interests if the Employee were to continue to be employed by the Employer; (iv) the Employee's commission of any act of fraud, theft or dishonesty, or any intentional tort against the Company; or (v) the Employee's violation of any of the material terms, covenants, representations or warranties contained in this Agreement. (5) 6 (c) "Disability" shall mean that the Employee, in the good faith determination of the Board of Directors of the Employer, is unable to render services of the character contemplated hereby and that such inability (i) may be expected to be permanent, or (ii) may be expected to continue for a period of at least three (3) consecutive months (or for shorter periods totaling more than six (6) months during any period of twelve consecutive months). Termination resulting from Disability may only be effected after at least thirty (30) days written notice by the Employer of its intention to terminate the Employee's employment. (d) "Termination Date" shall mean (i) if this Agreement is terminated on account of death, the date of death; (ii) if this Agreement is terminated for Disability, the date established by the Company pursuant to Section 11(c) hereof; (iii) if this Agreement is terminated by the Employer, the date on which a notice of termination is given to the Employee; (iv) if the Agreement is terminated by the Employee, the date the Employee ceases work. 12. Severance. (a) If (i) the Employer terminates the employment of the Employee against his will and without Cause, or (ii) the Employee terminates his employment for Good Reason, the Employee shall be entitled to receive salary, incentive compensation and vacation accrued through the Termination Date plus six month's salary payable in one lump-sum at the Termination Date and all stock options shall become exercisable and shall remain exercisable for a period of one year after such Termination Date. Notwithstanding the foregoing, the Employer shall not be required to pay any severance pay for any period following the Termination Date if the Employer violates the provisions of Section 8, Section 9 or Section 10 of this Agreement. In such event, the Employer shall provide written notice to the Employee detailing such violation. (b) If (i) the Employee voluntarily terminates his employment other than for Good Reason, or (ii) the Employee is terminated by the Employer for Cause, then the Employee shall be entitled to receive salary, incentive compensation and accrued vacation through the Termination Date plus all stock options that are exercisable shall remain exercisable for a period of one year after such Termination Date. (6) 7 (c) In addition to the provisions of Section 13(a) and 13(b) hereof, to the extent COBRA shall be applicable to the Employer or as provided by law, the Employee shall be entitled to continuation of group health plan benefits for a period of one (1) year following the Termination Date if the Employee makes the appropriate conversion and payments. (d) The Employee acknowledges that, upon termination of his employment, he is entitled to no other compensation, severance or other benefits other than those specifically set forth in this Agreement or the Stock Option Agreement. 13. Payment and Other Provisions After Change of Control (a) In the event Employee's employment with the Employer is terminated following the occurrence of a Change of Control (other than as a consequence of death or disability) either (x) by the Employer for any reason other than for Cause, or (y) by Employee for Good Reason, then Employee shall be entitled to receive from the Employer, in lieu of the severance payment otherwise payable pursuant to Section 12, the following: (i) Base Salary: Employee's annual base salary as in effect at the date of termination shall be paid on the date of termination; (ii) Incentive Compensation: The amount of the Employee's target incentive compensation under the applicable Incentive Compensation Plan for the fiscal year in which the date of termination occurs, shall be paid on the date of termination; and (iii) Other Benefits: Notwithstanding the vesting period provided for in the Employer's Stock Option Plan and any related stock option agreements between the Employer and the Employee for stock options ("options") granted Employee by the Employer all of options shall be fully vested and exercisable for a period of two years from the Termination Date. (b) For purposes of this Agreement, the term "Change in Control" shall mean: (i) The acquisition, other than from the Employer, by any individual, entity or group (within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor provision) of 50% or more of either (a) the then outstanding shares of Common Stock of the Employer or (b) the combined voting power of the then outstanding voting securities of the Employer entitled to vote generally in the election of directors (the "Voting (7) 8 Securities"). (ii) Individuals who, as of the Effective Date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board. (iii) Approval by the Shareholders of the Employer of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all holders of the outstanding Common Stock or Voting Securities immediately prior to such Business Combination do not, following such Business Combination, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock or the combined voting power of the then Voting Securities entitled to vote generally in the election of directors, as the case may be, of the Employer resulting from the Business Combination, or (iv) (a) a complete liquidation or dissolution of the Employer or (b) a sale or other disposition of all or substantially all of the assets of the Employer with respect to which, following such sale or disposition, more than 60% of, respectively, the then outstanding Common Shares or Voting Securities is then owned beneficially, directly or indirectly, by all or substantially all of the equity holders, respectively, of the Common Shares or Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Common Shares or Voting Securities, as the case may be, immediately prior to such sale or disposition. (c) In the event that involuntary termination of Employee as CFO occurs subsequent to change in senior management or the appointment of a new Chairman of the Board of Directors, the Company would (i) continue to pay base salary and health benefits for the remaining term of this Agreement, provided the Employee remains unemployed in the official capacity as a CFO, and such payments would not be less than six months salary and benefits, and (ii) all stock options currently outstanding would become vested and exercisable through December 31, 2002. 14. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by registered or certified mail, return receipt requested to his residence in the case of the Employee, or to its principal office in the case of the Employer, or to such other addresses as they may respectively designate in writing. 15. Entire Agreement; Waiver. This Agreement contains the entire understanding of the parties and may not be changed orally but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. Waiver of or failure to exercise any rights provided by this Agreement in any respect shall not be deemed a waiver of any further or future rights. (8) 9 16. Assignment. Employee's rights hereunder are personal to and shall not be transferable nor assignable by the Employee. This Agreement shall bind and inure to the benefit of the Employee and the Employer and their respective legal representatives, successors and assigns. 17. Arbitration. Any and all claims, disputes, or controversies arising out of or related to this Agreement, or the breach thereof, shall be resolved exclusively by arbitration in Suffolk County, New York, in accordance with the rules of the American Arbitration Association then in existence. The determination or award rendered therein shall be binding and conclusive upon the parties, and judgment may be entered thereon in accordance with applicable law in any court having jurisdiction. No party shall be entitled to seek or be awarded punitive damages. 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, NASTECH PHARMACEUTICAL COMPANY INC. has caused this instrument to be signed by a duly authorized officer and the Employee has hereunto set his hand the day and year first above written. NASTECH PHARMACEUTICAL COMPANY INC. By /s/ Vincent D. Romeo ------------------------------- VINCENT D. ROMEO /s/ Andrew P. Zinzi - ---------------------------------- ANDREW P. ZINZI (9) EX-10.22 3 TERMINATION AND RELEASE AGREEMENT 1 TERMINATION AND RELEASE AGREEMENT THIS TERMINATION AND RELEASE AGREEMENT, dated as of December 15, 1999 ("Agreement"), is between Nastech Pharmaceutical Company, Inc., a Delaware corporation ("Nastech"), and Schwarz Pharma, Inc., a Delaware corporation ("Schwarz"). W I T N E S S E T H: WHEREAS, Schwarz and Nastech entered into that certain License and Supply Agreement, dated as of December 11, 1997 (the "License Agreement"); and WHEREAS, Buyer and Seller have decided to amicably terminate the License Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used but not defined herein shall have the meanings given them in the License Agreement. 2. Disposition of License and Supply Agreement. As of the Effective Date (as defined in Section 5.1 below), the License Agreement shall be terminated and shall have no further force and effect. No party to the License Agreement shall have any rights or obligations thereunder, including, without limitation, with respect to any unpaid obligation to pay any milestone payments. 3. Mutual Release. As of the Effective Date, each of Schwarz and Nastech (each a "Releasing Party") for itself, its predecessors, successors, assigns, affiliates, officers, directors, agents and employees, does hereby release, remise and forever discharge each other party hereto and its respective successors, affiliates, assigns, officers, directors, agents and employees (collectively, such Releasing Party's "Releasees"), from any and all claims, demands, rights of action, causes of action, lawsuits, damages, indebtedness, liabilities, obligations, losses or expenses of any nature whatsoever and remedies therefor, duty or relationship, acts, omissions, misfeasance, malfeasance, causes of action, sums of money, accounts, compensation, contracts, controversies, promises, choices in action, rights of indemnity or liability of any type, kind, nature, description or character whatsoever, and irrespective of how, why or by reason of what facts, whether known or unknown, suspected or unsuspected, whether heretofore now existing or hereafter arising, which could, might or may be claimed to exist, whether liquidated or unliquidated, whether existing in law or equity and whether known or unknown, foreseen or unforeseen, which the Releasing Party has or has had, or may hereafter claim to have had, against any Releasees arising from, under or in connection with the License Agreement, the negotiation thereof or the relationships created thereunder, and any transactions and documents in connection therewith, related thereto or contemplated thereby, provided, however, that nothing in this Section 3 shall affect the rights, duties and obligations of the Releasing Parties pursuant to this Agreement. 2 4. Remedies. 4.1 In the event of any breach or threatened breach by either party hereto of any covenant, warranty, agreement, understanding of provision (the "terms") of this Agreement, each party acknowledges and agrees that the other parties would be irreparably harmed; and, in the event of any breach of the terms of this Agreement, each party agrees that each of the other parties shall be entitled, if it so elects, in addition to any other legal or equitable remedies available to it, to institute and prosecute any proceeding in any court of competent jurisdiction, either at law or in equity, and shall be entitled to such relief as may be available to it, at law or in equity, including, but not limited to, an injunction or an order for specific performance. 4.2 If, for any reason, a part of this Agreement is deemed unenforceable in any court of law of competent jurisdiction, the remaining provisions of this Agreement shall be enforced to the greatest extent possible as if said unenforceable part were omitted. Failure by any party at any time to require performance by the other party of any provision hereto shall in no way affect the full right to require such performance at any time thereafter, nor shall the waiver by either party of the breach of any provision hereof be a waiver of any succeeding breach of the same or any other provision. 5. Payments. 5.1 On the date hereof, Nastech shall pay Schwarz $250,000 by wire transfer of immediately available funds to such account or accounts as shall be designated by written notice from Schwarz to Nastech on or prior to the date hereof. The date that Schwarz receives such $250,000 payment shall be the "Effective Date" for all purposes hereunder. 5.2 Nastech agrees to pay Schwarz one-half of all Consideration received, including, without limitation, upfront payments, milestone payments, royalties and any other payments, whether received directly or indirectly, through intermediaries or otherwise, in respect of Scopolamine. Payments to Schwarz pursuant to this Section 5.2 shall (i) be made in immediately available funds within 3 business days of Nastech's receipt of the Consideration underlying such payment and (ii) continue until Schwarz receives payments totaling a Net Present Value (as defined below) of $3,500,000. "Net Present Value" shall mean, with respect to the amount of payments to be received by Schwarz under this Section 5.2, an amount that compensates for the time value of money by accruing quarterly compounded interest at the rate of 8.5% per annum on the unpaid portion of such payment from the earlier of (i) the date that is 12 months after the date hereof or (ii) the date that Nastech signs an agreement for license, sale or other disposition of Scopolamine, until the date such payment is received by Schwarz. "Consideration" shall mean, money or the Fair Market Value of in-kind consideration. The "Fair Market Value" of any in-kind consideration received shall be the value determined by the parties in good faith or if the parties can not agree, by a Professional Appraiser. "Professional Appraiser" shall mean, with respect to the valuation of in-kind payments, a professional appraiser (e.g., an 3 accounting firm or investment bank) which is experienced in valuing like assets and which is appointed by the parties. Payments pursuant to this Section 5.2 shall be applied by Schwarz first against interest accrued and unpaid and second, to the outstanding principal balance. 5.3 Nastech will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by it, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect Schwarz against impairment. 5.4 In the event that Nastech breaches its obligations under this Section 5, Schwarz, may, after 10 days prior written notice to Nastech (during which period Nastech may cure such breach), declare all or any portion of the outstanding payments due under this Section 5 to be due an payable, whereupon the full unpaid amount of such payments which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment (which is hereby specifically waived by Nastech). 6. Reports. 6.1 Until Nastech has satisfied its obligations pursuant to Section 5.2, Nastech shall provide to Schwarz a report, within 30 days of the end of each quarter, stating a summary of all activities undertaken by Nastech or its affiliates with respect to Scopolamine as well as all monies and other Consideration received by Nastech or its affiliates in respect of Scopolamine during such quarter, including, without limitation, upfront payments, milestone payments and royalties, whether received directly or indirectly, through intermediaries or otherwise, from the sale and licensing of Scopolamine. 6.2 Nastech and its affiliates shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing amounts owing pursuant to Section 5.2. Such books of account shall be kept at Nastech's principal place of business. Such books and the supporting data shall be open, at all reasonable times and upon reasonable notice during the term of this Agreement and for 2 years after its termination, to the inspection of a firm of certified public accountants selected by Schwarz and reasonably acceptable to Nastech, for the purpose of verifying amounts owing pursuant to Section 5.2. Except as otherwise provided in this Section, the cost of any such examination shall be paid by Schwarz. In the event that any such inspection reveals that the actual amounts owing pursuant to Section 5.2 exceeds the amounts paid by Nastech more than 5% during the period covered by the inspection, Nastech shall promptly pay Schwarz the amount by which Nastech previously underpaid under Section 5.2, plus interest at the rate of 12% per annum, and shall reimburse Schwarz for the fees and expenses paid to such accountants in connection with their inspection. 4 7. Miscellaneous. 7.1 This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 7.2 Nastech shall not assign any of its rights or obligations under this Agreement without the prior written consent of Schwarz. 7.3 Each party hereto has voluntarily entered into and executed this Agreement after having had the opportunity to be advised by legal counsel of its choice of the effects, significance and consequence of this Agreement. 7.4 This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and cannot be modified or amended except by an agreement made in writing by all the parties hereto. 7.5 Each party hereto acknowledges that it has not relied upon any representation of any kind made by any other party in making the foregoing release. 7.6 It is hereby further understood and agreed that the acceptance of delivery of this Agreement by the parties released hereby shall not be deemed or construed as an admission of liability of any nature whatsoever arising from or related to the subject of this Agreement. 7.7 Publicity. The parties agree that no publicity release or announcement concerning the transactions contemplated hereby shall be issued without the advance written consent of the other, except as such release or announcement may be required by law, in which case the party making the release or announcement shall, before making any such release or announcement, use reasonable efforts to afford the other party a reasonable opportunity to review and comment upon such release or announcement. 7.8 This Agreement may be signed in any number of counterparts, all of which together shall constitute one and the same document. 7.9 Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. EACH OF PARTIES HERETO HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH OF PARTIES HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS 5 BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY OF THE PARTIES HERETO HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH PARTY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. [Signatures Next Page] 6 IN WITNESS WHEREOF, the parties have duly executed this Termination and Release Agreement as of the day and year first above written. SCHWARZ PHARMA, INC. By: /s/ Klaus Veitinger ------------------------ Klaus Veitinger, President and CEO NASTECH PHARMACEUTICAL COMPANY, INC. By: /s/ Vincent D. Romeo ------------------------ Name: Vincent D. Romeo Title: President/CEO EX-27 4 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 10,652 3,986 1,036 0 279 16,486 4,666 986 20,199 3,574 0 0 0 38 16,738 20,199 325 5,631 268 0 13,713 0 0 (8,350) 0 0 0 0 0 (8,350) (1.32) (1.32)
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