As Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-111894
PROSPECTUS
NEXMED, INC.
1,300,000 SHARES
COMMON STOCK
This prospectus relates to the resale, from time to time, of up to
1,300,000 shares of Common Stock of NexMed, Inc., a Nevada corporation, all of
which are being offered by the selling shareholders named in this prospectus.
The shares consist of shares of Common Stock issued or issuable in
connection with the conversion of principal and principal accretions of our
Convertible Notes issued pursuant to a Purchase Agreement dated as of December
12, 2003. See "Selling Shareholders" at page 15.
Pursuant to the terms of a registration rights agreement dated as of
December 12, 2003 between the Company and the holders of the Convertible Notes,
we agreed to register a number of shares of our Common Stock over and above the
number of shares acquirable by the holders of the Convertible Notes on the date
of issuance of the notes (923,077 shares). Such additional number of shares
(376,923 shares) was chosen to allow for a reasonable number of additional
shares of common stock that may be issuable upon conversion of the Convertible
Notes in the event that the conversion price of the Convertible Notes is reduced
to an amount that is less than the conversion price on the date of the issuance
of the Convertible Notes ($6.50 per share), and to allow for resale under this
prospectus of shares of Common Stock which may be issued in payment of principal
accretions of the Convertible Notes.
All net proceeds from the sale of the shares of Common Stock offered by
this prospectus will go to the selling shareholders; we will not receive any
proceeds from such sales.
Our Common Stock is listed on the Nasdaq Stock Market under the ticker
symbol "NEXM". On January 28, 2004, the last reported sale price of our Common
Stock was $4.40 per share.
---------------------
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 6, IN
DETERMINING WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
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WHERE YOU CAN FIND MORE INFORMATION .................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................ 3
INFORMATION ABOUT US ................................................... 4
RISK FACTORS ........................................................... 6
USE OF PROCEEDS ........................................................ 15
SELLING SHAREHOLDERS ................................................... 15
PLAN OF DISTRIBUTION ................................................... 17
LEGAL MATTERS .......................................................... 19
EXPERTS ................................................................ 19
The date of this prospectus is January 29, 2004
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by NexMed,
Inc., any selling shareholder or by any other person. Neither the delivery of
this prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.
2
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission, and we have an
internet website address at http://www.nexmed.com. You may read and copy any
document we file at the Securities and Exchange Commission's public reference
room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-732-0330 for further information on
the operation of such public reference room. You also can request copies of such
documents, upon payment of a duplicating fee, by writing to the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain
copies of such documents from the Securities and Exchange Commission's website
at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information we incorporate by reference is considered to be part of this
prospectus and information that we file later with the Securities and Exchange
Commission automatically will update and supersede such information. We
incorporate by reference the documents listed below and any future filings we
make with the Securities and Exchange Commission under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, prior to the termination of the
offering of the securities covered by this prospectus, as amended:
(1) Our Annual Report on Form 10-K for the fiscal year ended December
31, 2002;
(2) Our Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 2003, June 30, 2003 and September 30, 2003;
(3) Our Current Reports on Form 8-K dated February 6, 2003, June 2,
2003 and June 12, 2003;
(4) Our definitive proxy statement on Schedule 14A filed with the
Securities and Exchange Commission on April 30, 2003;
(5) The description of our articles of incorporation and bylaws, both
contained in our Registration Statement on Form 10-SB (File No.
0-22245), dated March 14, 1997, including any amendment or report
filed for the purpose of updating such information; and
(6) The description of our securities contained in our Registration
Statement on Form S-3 (File No. 333-46976), dated September 29,
2000, including any amendment or report filed for the purpose of
updating such information.
You may request a copy of these filings (including exhibits to such
filings that we have specifically incorporated by reference in such filings), at
no cost, by writing or telephoning our executive offices at the following
address:
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NexMed, Inc.
350 Corporate Boulevard
Robbinsville, New Jersey 08691
Attention: Ms. Vivian H. Liu
(609) 208-9688
You should rely only on the information provided or incorporated by
reference in this prospectus or any related supplement. We have not authorized
anyone else to provide you with different information. The selling shareholders
will not make an offer of these shares in any state that prohibits such an
offer. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the cover page of
such documents.
All references in this prospectus to "NexMed," the "Company," "us,"
"our," "registrant," or "we" include NexMed, Inc., a Nevada corporation, and any
subsidiaries or other entities that we own or control. All references in this
prospectus to "Common Stock" refer to our Common Stock, par value $.001 per
share.
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this prospectus or
incorporated by reference in this prospectus.
INFORMATION ABOUT US
We have been in existence since 1987. Since 1994, we have positioned
ourselves as a pharmaceutical and medical technology company with a focus on
developing and commercializing therapeutic products based on proprietary
delivery systems.
We are currently focusing our efforts on new and patented topical
pharmaceutical products based on a penetration enhancement drug delivery
technology known as NexACT(R), which may enable an active drug to be better
absorbed through the skin. The NexACT(R) transdermal drug delivery technology is
designed to enhance the absorption of an active drug through the skin,
overcoming the skin's natural barrier properties and enabling high
concentrations of the active drug to rapidly penetrate the desired site of the
skin or extremity. Successful application of the NexACT(R) technology would
improve therapeutic outcomes and reduce gastrointestinal or other systemic side
effects that often accompany oral and injectable medications.
We intend to continue our efforts developing topical treatments
including cream, gel, patch and tape, based on the application of NexACT(R)
technology to drugs: (1) previously approved by the FDA, (2) with proven
efficacy and safety profiles, (3) with patents expiring or expired and (4) with
proven market track records and potential.
We are focusing our application of the NexACT(R) technology to
Alprox-TD(R) cream for the treatment of male erectile dysfunction. We have
explored the application of the NexACT(R) technology to other drug compounds and
delivery systems, and are in the early stages of developing new topical
treatments for female sexual arousal disorder, nail fungus, premature
ejaculation, urinary incontinence, wound healing, and the prevention of nausea
and vomiting associated with post-operative surgical procedures and
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cancer chemotherapy.
Alprox-TD(R) is an alprostadil-based cream treatment intended for
patients with mild, moderate or severe erectile dysfunction. Our clinical
studies have demonstrated that NexACT(R) enhancers promote the rapid absorption
of alprostadil and improve clinical responses. In December 2002, we completed
our two pivotal Phase 3 studies for Alprox-TD(R), which tested over 1,700
patients at 85 sites throughout the U.S. The two pivotal studies were
randomized, double-blind, placebo-controlled, and designed to confirm the
efficacy and safety of Alprox-TD(R) in patients with various degrees of erectile
dysfunction. On June 12, 2003 we announced positive results from these two
pivotal Phase 3 studies, with data indicating that the three dose levels of
Alprox-TD(R) tested were effective over placebo study in the combined analysis
of the two studies. The side effects reported were mostly mild to moderate,
localized and transient.
We are currently engaged in late stage discussions and contract
negotiations with several pharmaceutical companies regarding possible strategic
marketing partnership(s) for Alprox-TD(R). If partnership arrangements are
successfully completed, the partner(s) will obtain marketing rights for
Alprox-TD(R) for certain markets, in exchange for milestone payments and other
future payments to us. However, in each case consummation of the transaction is
subject to the negotiation of complex contractual relationships, and we may not
be able to negotiate such agreements on a timely basis, if at all, or on terms
acceptable to us.
We had initiated a Phase 3 open-label study for Alprox-TD(R) in March
2002 in order to confirm the safety of Alprox-TD(R) on a longer-term basis.
However, in November 2002, we halted the open-label study of Alprox-TD(R) due to
FDA concerns about results of our 26-week transgenic mice study. In January
2003, we met with the FDA and successfully addressed their concerns regarding
the results of the transgenic mice study and in February 2003, we were cleared
by the FDA to continue with the open-label study of Alprox-TD(R). This study is
one of the required studies for the new drug application filing. However, we
have determined that completion of the open-label study is not a prerequisite
for our new drug application submission. The timeframe for us to initiate and
complete this study largely depends on our ability to obtain financing through a
partnering agreement for Alprox-TD(R) or from other sources. Assuming we
initiate the study in January 2004, we anticipate that we will file the new drug
application during the fourth quarter of 2004; however, it is possible that we
may not have successful clinical results or receive FDA approval on a timely
basis, if at all.
In April 2002, Alprox-TD(R) was launched in Hong Kong under the
Befar(R) trademark. The product, which has been selling in China since October
2001, is manufactured and marketed by a local affiliate of Vergemont
International Limited, our Asian licensee. We receive from our Asian licensee
royalty payments and payments for manufacturing supplies in connection with the
distribution of Befar(R) in China and will receive such payments in other Asian
markets once Befar(R) is approved for marketing in such other markets. Befar(R),
along with the currently approved oral erectile dysfunction product, are
currently classified in China as controlled substances, and their distribution
is limited to prescription by certain urologists and dispensing through
hospitals. In addition, China has a limited number of patients who can afford
erectile dysfunction treatments.
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In December 2002, our Asian licensee entered into a licensing agreement with CJ
Corporation, one of the five largest pharmaceutical companies in South Korea.
Pursuant to the terms of the agreement, CJ Corporation will develop, file for
regulatory approval, market and distribute Befar(R) in South Korea. Our Asian
licensee also has a new drug application pending with the Singapore Health
Science Authority for approval to market the product in Singapore.
We have explored the application of the NexACT(R) technology to other
drug compounds and delivery systems. The furthest advanced of these products is
Femprox(R), which is an alprostadil-based cream product intended for the
treatment of female sexual arousal disorder. We have completed one Phase 2 study
for Femprox(R) and intend to continue with its U.S. clinical development pending
the availability of a partnering agreement.
We are also working with various pharmaceutical companies in order to
explore the introduction of NexACT(R) into their existing drugs as a means of
developing new patient-friendly topical products and extending patent lifespans.
In August 2003, we entered into an R&D agreement with a Japanese pharmaceutical
company to develop NM 20138, a new one-a-day patch treatment for bronchial
asthma. NM 20138 incorporates an off-patent anti-asthmatic drug compound and the
NexACT(R) technology. Pursuant to the terms of the agreement, we received a
modest signing payment and would receive additional payments based on the
achievement of certain R&D milestones. We also retained the rights to
manufacture and commercialize the new product worldwide except in Japan. This is
the second R&D agreement we have entered since August 2002. We anticipate that
we will enter into additional R&D agreements during the next twelve months but
we cannot assure you that we will be able to conclude any arrangement on a
timely basis, if at all, or on terms acceptable to us.
RISK FACTORS
RISKS RELATED TO THE COMPANY
WE HAVE A NEED FOR ADDITIONAL FINANCING.
We are currently continuing with the development of Alprox-TD(R), but
have put on hold the development of Femprox(R) and other pipeline products,
pending the availability of additional financing. Our cash position as of
January 28, 2004 is approximately $10.25 million, following successful
completion of a private placement in December 2003 of Convertible Notes,
yielding net proceeds to us of approximately $6 million. We have been actively
seeking financing from the sale of equity or issuance of debt from private and
public sources as well as from collaborative licensing and/or marketing
arrangements with third parties, and since December 31, 2002, we have raised
approximately $27 million net through the sale of Preferred Stock, the exercise
of warrants to purchase shares of our common stock and the issuance by the
Company of notes, Common Stock and warrants to purchase shares of Common Stock.
Our anticipated cash requirements for Alprox-TD(R) through the new drug
application filing in the last quarter of 2004, including completion of an
open-label study, will be approximately $15 million. However, completion of the
open-label study is not a prerequisite for our new drug application submission.
There is no assurance that we will be successful in obtaining financing on
acceptable terms, if at all. If additional financing cannot be
6
obtained on reasonable terms, future operations may need to be scaled back or
discontinued.
WE CONTINUE TO INCUR OPERATING LOSSES.
Our current business operations began in 1994 and we have a limited
operating history. We may encounter delays, uncertainties and complications
typically encountered by development stage businesses. We have generated minimal
revenues from the limited sales of Befar(R) in Asia and our existing research
and development agreement with our Japanese partner, and have not marketed or
generated revenues in the U.S. from our products under development. We are not
profitable and have incurred an accumulated deficit of $78,594,390 since our
inception and through September 30, 2003. Our ability to generate revenues and
to achieve profitability and positive cash flow will depend on the successful
commercialization of our products currently under development. However, even if
we eventually generate revenues from sales of our products currently under
development, we expect to incur significant operating losses over the next
several years.
OUR INDEPENDENT ACCOUNTANTS HAVE DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING
CONCERN FOR A REASONABLE PERIOD OF TIME.
As a result of our losses to date, working capital deficiency and
accumulated deficit, there is substantial doubt as to our ability to continue as
a going concern for a reasonable period of time, and accordingly, our
independent accountants have modified their report on our December 31, 2002
consolidated financial statements included in our annual report on Form 10-K in
the form of an explanatory paragraph describing the events that have given rise
to this uncertainty. Our continuation is based on our ability to generate or
obtain sufficient cash to meet our obligations on a timely basis and ultimately
to attain profitable operations. Our independent auditors' going concern
qualification may make it more difficult for us to obtain additional funding to
meet our objectives. We anticipate that we will continue to incur significant
losses until successful commercialization of one or more of our products, and we
may never operate profitably in the future.
WE WILL NEED SIGNIFICANT FUNDING TO COMPLETE OUR RESEARCH AND DEVELOPMENT
EFFORTS.
Our research and development expenses for the years ended December 31,
2002, 2001, and 2000 were $21,615,787, $12,456,384, and $6,892,283, respectively
and $1,687,459 for the three months ended September 30, 2003. Since January 1,
1994, when we repositioned ourselves as a medical and pharmaceutical technology
company, and through September 30, 2003 we have spent $56,344,739 on research
and development. Our expenses for research and development were significantly
lower in 2003 than in 2002. Given our current level of cash reserves and low
rate of revenue generation, we will not be able to fully advance the development
of our products unless we raise additional cash through financing from the sale
of our securities and/or through partnering agreements. If we are successful in
entering partnering agreements for our products under development, we will
receive milestone payments, which will offset some of our research and
development expenses.
As indicated above, our anticipated cash requirements for Alprox-TD(R)
7
through the new drug application filing in the last quarter of 2004, including
completion of an open-label study, will be approximately $15 million. However,
completion of the open-label study is not a prerequisite for our New Drug
Application filing.
We will also need significant funding to pursue our overall product
development plans. In general, our products under development will require
significant time-consuming and costly research and development, clinical
testing, regulatory approval and significant additional investment prior to
their commercialization. The research and development activities we conduct may
not be successful; our products under development may not prove to be safe and
effective; our clinical development work may not be completed; and the
anticipated products may not be commercially viable or successfully marketed.
Commercial sales of our products cannot begin until we receive final FDA
approval. The earliest time for such final approval of the first product which
may be approved, Alprox-TD(R), is sometime in early 2005. We intend to focus our
current development efforts on the Alprox-TD(R) cream treatment, which is in the
late clinical development stage.
WE WILL NEED TO PARTNER TO OBTAIN EFFECTIVE SALES, MARKETING AND DISTRIBUTION.
We currently have no sales force or marketing organization and will
need, but may be unable, to attract or afford qualified or experienced marketing
and sales personnel. In addition, we will need to secure a marketing partner who
is able to devote substantial marketing efforts to achieve market acceptance for
our proprietary products under development. The marketing partner will need to
spend significant funds to inform potential customers, including third-party
distributors, of the distinctive characteristics and benefits of our products.
Our operating results and long term success will depend, among other things, on
our ability to establish (1) successful arrangements with domestic and
international distributors and marketing partners and (2) an effective internal
marketing organization. We are currently engaged in late stage discussions and
contract negotiations with several pharmaceutical companies regarding possible
strategic marketing partnership(s) for the Alprox-TD(R) cream. However, in each
case consummation of the transaction is subject to the negotiation of complex
contractual relationships, and we may not be able to negotiate such agreements
on a timely basis, if at all, or on terms acceptable to us.
In Asia, our subsidiary, NexMed International Limited, and our Asian
licensee, Vergemont International Limited, entered into a license agreement in
1999 pursuant to which (1) Vergemont International Limited has an exclusive
right to manufacture and to market in Asian Pacific countries, our Alprox-TD(R),
Femprox(R) and three other of our proprietary products under development, and
(2) we receive a royalty on sales and supply, on a cost plus basis, the
NexACT(R) enhancers that are essential in the formulation and production of our
proprietary topical products. In 2002 and in the first three quarters of 2003,
we recorded only modest payments from our Asian licensee for royalties on sales
of Befar(R) in China and Hong Kong and for manufacturing supplies purchased from
us.
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PRE-CLINICAL AND CLINICAL TRIALS ARE INHERENTLY UNPREDICTABLE. IF WE DO NOT
SUCCESSFULLY CONDUCT THESE TRIALS, WE MAY BE UNABLE TO MARKET OUR PRODUCTS.
Through pre-clinical studies and clinical trials, we must demonstrate
that our products are safe and effective for their indicated uses. Results from
pre-clinical studies and early clinical trials may not allow us to predict
results in later-stage testing. Our future clinical trials may not demonstrate
the safety and effectiveness of our products or may not result in regulatory
approval to market our products. The failure of the FDA to approve our products
for commercial sales will have a material adverse effect on our prospects.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS ARE IMPORTANT TO US BUT COULD BE
CHALLENGED.
Proprietary protection for our pharmaceutical products is of material
importance to our business in the U.S. and most other countries. We have and
will continue to seek proprietary protection for our products to attempt to
prevent others from commercializing equivalent products in substantially less
time and at substantially lower expense. Our success may depend on our ability
to (1) obtain effective patent protection within the U.S. and internationally
for our proprietary technologies and products, (2) defend patents we own, (3)
preserve our trade secrets, and (4) operate without infringing upon the
proprietary rights of others.
We have nine U.S. patents either acquired or received out of a series
of patent applications that we have filed in connection with our NexACT(R)
technology and our NexACT-based products under development, such as
Alprox-TD(R), Femprox(R), and our non-steroidal anti-inflammatory cream. We have
three U.S. patents issued on the Viratrol(R) device and one patent application
pending with respect to the technology, inventions and improvements that are
significant to the Viratrol(R) device. To further strengthen our global patent
position on our proprietary products under development, and to expand the patent
protection to other markets, we have filed under the Patent Cooperation Treaty,
corresponding international applications for our issued U.S. patents and pending
U.S. patent applications.
The following table identifies our nine U.S. patents issued for
NexACT(R) technology and/or our NexACT-based products under development, and the
year of expiration for each patent:
Patent Name Expiration Date
- ----------- ---------------
Topical Compositions Containing Prostaglandin E1 2019
Prostaglandin Composition and Methods of Treatment of Male Erectile Dysfunction 2020
Compositions and Methods for Amelioration of Human Female Sexual Dysfunction 2017
Topical Compositions for PGE1 Delivery 2017
Topical Compositions for Non-Steroidal Anti-Inflammatory Drug Delivery 2017
Biodegradable Absorption Enhancers 2009
Biodegradable Absorption Enhancers 2008
Medicament Dispenser 2019
Crystalline Salts of dodecyl 2-(N, N-Dimethylamino) 2019
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While we have obtained patents and have several patent applications
pending, the extent of effective patent protection in the U.S. and other
countries is highly uncertain and involves complex legal and factual questions.
No consistent policy addresses the breadth of claims allowed in or the degree of
protection afforded under patents of medical and pharmaceutical companies.
Patents we currently own or may obtain might not be sufficiently broad to
protect us against competitors with similar technology. Any of our patents could
be invalidated or circumvented.
There have been patents issued to others such as Vivus, Inc. and
MacroChem Corporation on the use of alprostadil for the treatment of male or
female sexual dysfunction. While we believe that our patents will prevail in any
potential litigation, the holders of these competing patents could determine to
commence a lawsuit against us and even prevail in any such lawsuit. Litigation
could result in substantial cost to and diversion of effort by us, which may
harm our business. In addition, our efforts to protect or defend our proprietary
rights may not be successful or, even if successful, may result in substantial
cost to us.
WE DEPEND UPON THIRD PARTY MANUFACTURERS FOR OUR CHEMICAL MANUFACTURING
SUPPLIES.
In 2002, we completed the construction of a 31,500 square foot
industrial facility, located in East Windsor, New Jersey, which we are in the
process of developing and validating as a manufacturing facility designed to
meet the Good Manufacturing Practice (GMP) standards required by the FDA. We
anticipate that our manufacturing facility will have the capacity to meet our
anticipated needs for full-scale commercial production. Initially, we are
utilizing the facility to manufacture Alprox-TD(R) and other NexACT(R)-based
products under development for continuing clinical testing purposes. We are also
validating the facility for GMP compliance, which is a requirement for our new
drug application filing with the FDA. If we do not successfully pass the
Pre-Approved Inspection conducted by the FDA, our new drug application filing
will be delayed.
In this regard, we depend on third party chemical manufacturers for
alprostadil, the active drugs in Alprox-TD(R) and in other NexACT-based products
under development, and for the supply of our NexACT(R) enhancers that are
essential in the formulation and production of our topical products on a timely
basis and at satisfactory quality levels. If our validated third party chemical
manufacturers fail to produce quality products on time and in sufficient
quantities, our results would suffer, as we would encounter costs and delays in
revalidating new third party suppliers.
WE FACE SEVERE COMPETITION.
We are engaged in a highly competitive industry. We expect competition
from numerous existing companies, including large international enterprises, and
others entering the industry. Most of these companies have greater research and
development, manufacturing, marketing, financial, technological, personnel and
managerial resources. Acquisitions of competing companies by large
pharmaceutical or healthcare companies could further enhance such competitors'
financial, marketing and other resources. Competitors may complete clinical
trials, obtain regulatory approvals and commence commercial
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sales of their products before we could enjoy a significant competitive
advantage. Products developed by our competitors may be more effective than our
products.
Certain treatments for erectile dysfunction, such as needle injection
therapy, vacuum constriction devices, penile implants, transurethral absorption
and oral medications, currently exist, have been approved for sale in certain
markets and are being improved. Currently known products for the treatment of
erectile dysfunction developed or under development by our competitors include
the following: (1) Caverject(R), Pfizer, Inc.'s needle injection therapy; (2)
Viagra(R), Pfizer, Inc.'s oral product to treat erectile dysfunction; (3)
Levitra(R), an oral medication marketed through a collaborative effort of Bayer
AG and GlaxoSmithKline, Inc. and (4) Muse(R), Vivus, Inc.'s device for
intra-urethral delivery of a suppository containing alprostadil. In addition,
the following products are currently under development: (1) Cialis(R), an oral
formulation to be marketed in the U.S. through a joint venture between ICOS and
Eli Lilly & Co; and (2) Uprima(R), an oral medication to be marketed in the U.S.
by TAP Pharmaceuticals, a joint venture between Takeda Pharmaceuticals Japan and
Abbott Laboratories.
WE ARE THE SUBJECT OF SEVERAL LAWSUITS AND MAY BE SUBJECT TO POTENTIAL PRODUCT
LIABILITY AND OTHER CLAIMS, CREATING RISK AND EXPENSE.
We have been the subject of a number of lawsuits. On March 22, 2003
four former employees filed a lawsuit in the Superior Court of New Jersey
against the Company, Y. Joseph Mo, and Administaff (the co-employer who provides
the Company's benefits), claiming their termination was due to age
discrimination and seeking unspecified damages. This complaint is covered by a
labor insurance policy the Company maintains through Administaff and the
insurance company has appointed counsel.
Another lawsuit was filed with the Superior court of New Jersey on
April 1, 2003 by one of the above five employees against the Company for an
unspecified bonus amount that he believes he should have received for completing
the construction of the Company's East Windsor facility. The Company has engaged
counsel to defend its position.
On December 29, 2003, a consultant previously engaged by the company
filed a suit in the Superior Court of New Jersey Chancery Division: Mercer
County, alleging a breach by the company of a consulting agreement entered into
with that consultant in January 2003. The plaintiff alleged that the company
failed to issue warrants provided for under that agreement, which the company
terminated in April 2003. The complaint did not specify any particular amount of
monetary damages.
We are also exposed to potential product liability risks inherent in
the development, testing, manufacturing, marketing and sale of human therapeutic
products. Product liability insurance for the pharmaceutical industry is
extremely expensive, difficult to obtain and may not be available on acceptable
terms, if at all. We currently have liability insurance to cover claims related
to our products that may arise from clinical trials, with coverage of $1 million
for any one claim and coverage of $3 million in total, but we do not maintain
product liability insurance and we may need to acquire such insurance coverage
prior to the commercial introduction of our products. If we obtain such
coverage, we have no guarantee that the coverage limits of such insurance
policies will be adequate. A successful claim against us if we are uninsured, or
which is in excess of our insurance coverage, if any, could have a material
adverse effect upon us and on our financial condition.
INDUSTRY RISKS
WE ARE VULNERABLE TO VOLATILE MARKET CONDITIONS.
The market prices for securities of biopharmaceutical and biotechnology
companies, including ours, have been highly volatile. The market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. In addition, future
announcements, such as the results of testing and clinical trials, the status of
our relationships with third-party collaborators, technological innovations or
new therapeutic products, governmental regulation, developments in patent or
other proprietary rights, litigation or public concern as to the safety of
products developed by us or others and general market conditions, concerning us,
our competitors or other biopharmaceutical companies, may have a significant
effect on the market price of our common stock.
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The following table sets forth the range of high and low bid prices of
our Common Stock for the calendar quarters indicated. The quotes listed below
reflect inter-dealer prices or transactions solely between market-makers,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
High Bid Price Low Bid Price
-------------- -------------
2001
First Quarter $10.250 $3.812
Second Quarter $6.140 $3.800
Third Quarter $5.360 $2.220
Fourth Quarter $3.520 $2.250
2002
First Quarter $4.860 $2.360
Second Quarter $5.000 $2.400
Third Quarter $2.550 $1.670
Fourth Quarter $1.820 $0.400
2003
First Quarter $1.990 $0.800
Second Quarter $4.950 $1.120
Third Quarter $4.400 $3.440
Fourth Quarter $4.900 $3.530
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WE ARE SUBJECT TO NUMEROUS AND COMPLEX GOVERNMENT REGULATIONS.
Governmental authorities in the U.S. and other countries heavily
regulate the testing, manufacture, labeling, distribution, advertising and
marketing of our proposed products. None of our proprietary products under
development has been approved for marketing in the U.S. Before we market any
products we develop, we must obtain FDA and comparable foreign agency approval
through an extensive clinical study and approval process.
The studies involved in the approval process are conducted in three
phases. In Phase 1 studies, researchers assess safety or the most common acute
adverse effects of a drug and examine the size of doses that patients can take
safely without a high incidence of side effects. Generally, 20 to 100 healthy
volunteers or patients are studied in the Phase 1 study for a period of several
months. In Phase 2 studies, researchers determine the drug's efficacy with
short-term safety by administering the drug to subjects who have the condition
the drug is intended to treat, assess whether the drug favorably affects the
condition, and begin to identify the correct dosage level. Up to several hundred
subjects may be studied in the Phase 2 study for approximately 6 to 12 months,
depending on the type of product tested. In Phase 3 studies, researchers further
assess efficacy and safety of the drug. Several hundred to thousands of patients
may be studied during the Phase 3 studies for a period of from 12 months to
several years. Upon completion of Phase 3 studies, a new drug application is
submitted to the FDA or foreign governmental regulatory authority for review and
approval.
Because we intend to sell and market our products outside the U.S., we
will be subject to foreign regulatory requirements governing the conduct of
12
clinical trials, product licensing, pricing and reimbursements. These
requirements vary widely from country to country. Our failure to meet each
foreign country's requirements could delay the introduction of our proposed
products in the respective foreign country and limit our revenues from sales of
our proposed products in foreign markets.
Successful commercialization of our products may depend on the
availability of reimbursement to the consumer from third-party healthcare
payers, such as government and private insurance plans. Even if we succeed in
bringing one or more products to market, reimbursement to consumers may not be
available or sufficient to allow us to realize an appropriate return on our
investment in product development or to sell our products on a competitive
basis. In addition, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to governmental controls. In the U.S.,
federal and state agencies have proposed similar governmental control and the
U.S. Congress has recently considered legislative and regulatory reforms that
may affect companies engaged in the healthcare industry. Pricing constraints on
our products in foreign markets and possibly in the U.S. could adversely affect
our business and limit our revenues.
WE ARE SUBJECT TO ENVIRONMENTAL LAW COMPLIANCE.
Most of our manufacturing and certain research operations are or will
be affected by federal, state and local environmental laws. We have made, and
intend to continue to make, necessary expenditures for compliance with
applicable laws. While we cannot predict with certainty the future operating
costs for environmental compliance, we do not believe they will have a material
effect on our capital expenditures, earnings or competitive position.
RISKS RELATED TO THE OFFERING
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE.
Although our shareholders may receive dividends if, as and when
declared by our board of directors, we do not intend to pay dividends on our
Common Stock in the foreseeable future. Therefore, you should not purchase our
Common Stock if you need immediate or future income by way of dividends from
your investment.
WE MAY ISSUE ADDITIONAL SHARES OF OUR CAPITAL STOCK THAT COULD DILUTE THE VALUE
OF YOUR SHARES OF COMMON STOCK.
We are authorized to issue 90,000,000 shares of our capital stock,
consisting of 80,000,000 shares of our Common Stock and 10,000,000 shares of our
preferred stock of which 1,000,000 is designated as Series A Junior
Participating Preferred Stock. As of December 31, 2003, 40,105,240 shares of our
Common Stock were issued and outstanding and 13,194,521 shares of our Common
Stock were issuable upon the exercise of options, warrants, or other convertible
securities (including the Convertible Notes held by the selling shareholders).
There were no shares of Preferred Stock outstanding at December 31, 2003.
13
In light of our need for additional financing, we may issue authorized
and unissued shares of Common Stock at below current market prices or additional
convertible securities that could dilute the earnings per share and book value
of your shares of our Common Stock.
THE PROVISIONS OF SOME OF THE WARRANTS PREVIOUSLY ISSUED WOULD SUBJECT OUR
SHAREHOLDERS TO FURTHER DILUTION IF WE WERE TO ISSUE COMMON STOCK AT PRICES
BELOW MARKET OR BELOW THE EXERCISE PRICES OF SUCH WARRANTS.
In addition to provisions providing for proportionate adjustments in
the event of stock splits, stock dividends, reverse stock splits and similar
events, certain warrants provide (with certain exceptions) for an adjustment of
the exercise price if we issue shares of common stock at prices lower than the
exercise price or the then prevailing market price. This means that if we need
to raise equity financing at a time when the market price for our common stock
is lower than the exercise price, or if we need to provide a new equity investor
with a discount from the then prevailing market price, then the exercise price
will be reduced and the dilution to shareholders increased.
14
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
Common Stock offered by this prospectus. All proceeds from the sale of the
shares covered by this prospectus will be for the account of the selling
shareholders named herein. See "Selling Shareholders" and "Plan of
Distribution."
SELLING SHAREHOLDERS
This prospectus covers only the resale of shares of our Common Stock by
selling shareholders. The number of shares of Common Stock that may be actually
sold by the selling shareholders will be determined by such selling
shareholders.
The selling shareholders are the entities listed in the table below who
own Convertible Notes. We are registering for resale by the two selling
shareholders named herein, an aggregate of 1,300,000 shares of Common Stock
pursuant to the terms of a Registration Rights Agreement dated as of December
12, 2003. The Convertible Notes are convertible at the option of the holder at a
price of $6.50 per share, provided that if the average market price over the
six-month period commencing December 15, 2003 is less than $6.50 (adjusted for
stock splits, etc.), then the conversion price will equal the greater of $5.00
(also adjusted for stock splits, etc.) or that six-month average market price.
Pursuant to the terms of the Registration Rights Agreement referred to
above, we agreed to register a number of shares of our Common Stock over and
above the number of shares acquirable by the holders of the Convertible Notes if
they converted their notes immediately after the date of issuance of the
Convertible Notes (923,077 shares). Such additional number of shares (376,923
shares) is being registered to allow for the resale by selling shareholders of
additional shares which may be issued to them in the event that, pursuant to the
conversion formula referred to above, the conversion price is lowered,
and to allow for resale of shares which may be issued in payment of principal
accretions on the Convertible Notes.
No commissions are payable by us or the holders of the Convertible
Notes in connection with any conversions.
The following table sets forth, as of December 31, 2003 (except as
otherwise indicated in the footnotes): (1) the name of each selling shareholder,
(2) the number and percentage of shares of our Common Stock beneficially owned
by each selling shareholder, including the number of shares purchasable upon
exercise of warrants and conversion of Convertible Notes, (3) the maximum number
of shares of Common Stock which the selling shareholders can sell pursuant to
this prospectus and (4) the number and percentage of shares of Common Stock that
the selling shareholders would own if they sold all their shares registered by
this prospectus. Each selling shareholder will receive all of the net proceeds
from the sale of its shares of Common Stock offered by this prospectus.
Because the selling shareholders may sell all or part of their shares
of Common Stock pursuant to this prospectus and this offering is not being
underwritten on a firm commitment basis, we cannot estimate the number and
percentage of shares of Common Stock that the selling shareholders will hold in
the aggregate at the end of the offering covered by this prospectus.
PERCENTAGE
OF CLASS NUMBER OF PERCENTAGE OF
OWNED BY SHARES NUMBER OF CLASS TO BE
THE OF COMMON SHARES OF OWNED BY THE
SELLING STOCK COMMON STOCK SELLING
NAME OF NUMBER OF SHARES OF SHAREHOLDER BEING REGISTERED TO BE OWNED SHAREHOLDER
SELLING COMMON STOCK OWNED BEFORE THIS BY THIS AFTER THIS AFTER THIS
SHAREHOLDER (1) BEFORE THIS OFFERING OFFERING (3) PROSPECTUS (4) OFFERING OFFERING (5)
--------------- -------------------- ------------ -------------- -------- ------------
The Tail Wind 1,710,198 (2) 4.2% 1,191,667 1,193,956 (6) 2.9%
Fund Ltd.
Solomon 96,368 (2) 108,333 74,430 (6) *
Strategic *
Holdings,
Inc.
Totals 1,806,566 4.3% 1,300,000 1,268,386 3.1%
* less than 1%
(1) None of the selling shareholders nor any of their officers, directors or
principal equity holders has held any position or office or has had any
material relationship with us within the past three years.
(2) Includes shares of Common Stock and shares of Common Stock issuable upon
the exercise of warrants or conversion of convertible securities (including
the Convertible Notes) held by the selling shareholder which are
exercisable or convertible within 60 days as of December 31, 2003
(excluding conversion of accreted amounts under the Convertible Notes).
(3) This percentage is calculated using as the numerator, the number of shares
of Common Stock included in the prior column and as the denominator,
40,105,240 shares of Common Stock outstanding as of December 31, 2003 plus
the number of shares of Common Stock issuable upon the exercise of warrants
or conversion of convertible securities held by the selling shareholder
which are exercisable or convertible within 60 days.
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(4) Pursuant to the terms of a Registration Rights Agreement dated as of
December 12, 2003 between the Company and the holders of the Convertible
Notes, we agreed to register for resale a number of shares in addition to
those issuable upon conversion of the Convertible Notes.
(5) This percentage is calculated using as the numerator, the number of shares
of Common Stock included in the prior column and as the denominator,
40,105,240 shares of Common Stock outstanding as of December 31, 2003 plus
the number of shares of Common Stock issuable upon the exercise of warrants
or conversion of convertible securities held by the selling shareholder,
assuming the sale by the selling shareholder of all of its shares covered
by this prospectus.
(6) Includes shares of Common Stock and all shares of Common Stock issuable
upon the exercise of warrants or conversion of convertible securities held
by the selling shareholder (including 329,912 shares in the case of The
Tail Wind Fund Ltd. and 54,985 shares in the case of Solomon Strategic
Holdings, Inc. that are issuable upon the exercise of warrants that are not
exercisable until 2005), but assumes the sale of all of the shares of
Common Stock being registered by this prospectus.
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PLAN OF DISTRIBUTION
We are registering the shares of Common Stock on behalf of the selling
shareholders. Sales of shares may be made by selling shareholders, including
their respective donees, transferees, pledgees or other successors-in-interest
directly to purchasers or to or through underwriters, broker-dealers or through
agents. Sales may be made from time to time on the Nasdaq National Market, any
other exchange upon which our shares may trade in the future, in the
over-the-counter market or otherwise, at market prices prevailing at the time of
sale, at prices related to market prices, or at negotiated or fixed prices. The
shares may be sold by one or more of, or a combination of, the following:
- - a block trade in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction (including crosses in which the
same broker acts as agent for both sides of the transaction);
- - purchases by a broker-dealer as principal and resale by such broker-dealer,
including resales for its account, pursuant to this prospectus;
- - ordinary brokerage transactions and transactions in which the broker
solicits purchases;
- - through options, swaps or derivatives;
- - in privately negotiated transactions;
- - in making short sales or in transactions to cover short sales; and
- - put or call option transactions relating to the shares.
The selling shareholders may effect these transactions by selling
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. These broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the selling shareholders and/or
the purchasers of shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The selling
shareholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities.
The selling shareholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with those
transactions, the broker-dealers or other financial institutions may engage in
short sales of the shares or of securities convertible into or exchangeable for
the shares in the course of hedging positions they assume with the selling
shareholders. The selling shareholders may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery of shares offered by this prospectus to those broker-dealers or
other financial institutions. The broker-dealer or other financial institution
may then resell the shares pursuant to this prospectus (as amended or
supplemented, if required by applicable law, to reflect those transactions).
The selling shareholders and any broker-dealers that act in connection
with the sale of shares may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, and any commissions received by
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals may be deemed to be underwriting discounts or commissions
under the Securities Act. The selling shareholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against liabilities, including liabilities arising under the
Securities Act. We have agreed to indemnify each of the selling shareholders and
each selling shareholder has agreed, severally and not jointly, to indemnify us
against some liabilities in connection with the offering of the shares,
including liabilities arising under the Securities Act.
The selling shareholders will be subject to the prospectus delivery
requirements of the Securities Act. We have informed the selling shareholders
that the anti-manipulative provisions of Regulation M promulgated under the
Securities Exchange Act of 1934 may apply to their sales in the market.
Selling shareholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of Rule 144.
Upon being notified by a selling shareholder that a material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplement to
this prospectus, if required pursuant to Rule 424(b) under the Securities Act,
disclosing:
- - the name of each such selling shareholder and of the participating
broker-dealer(s);
- - the number of shares involved;
- - the initial price at which the shares were sold;
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- - the commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
- - that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and
- - other facts material to the transactions.
In addition, if required under applicable law or the rules or
regulations of the Commission, we will file a supplement to this prospectus when
a selling shareholder notifies us that a donee or pledgee intends to sell more
than 500 shares of common stock.
We are paying all expenses and fees in connection with the registration
of the shares. The selling shareholders will bear all brokerage or underwriting
discounts or commissions paid to broker-dealers in connection with the sale of
the shares.
Wells Fargo Bank Minnesota, N.A., located at P.O. Box 64854, South St.
Paul, MN 55164-0854, is the transfer agent and registrar for our common stock.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of
the shares of Common Stock offered by this prospectus have been passed upon on
behalf of the Company by Schreck Brignone, Las Vegas, Nevada.
EXPERTS
The financial statements incorporated in this prospectus by reference
to our Annual Report on Form 10-K for the year ended December 31, 2002, have
been so incorporated in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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NEXMED, INC.
1,300,000 SHARES
COMMON STOCK
--------------------
PROSPECTUS
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January 29, 2004
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