424B3 1 file001.txt DEFINITIVE MATERIALS As filed pursuant to Rule 424(b)(3) Registration No. 333-96813 PROSPECTUS NEXMED, INC. 5,458,657 SHARES COMMON STOCK This prospectus relates to the resale, from time of up to 5,458,657 shares of Common Stock of NexMed, Inc., a Nevada corporation, all of which are being offered by the selling shareholders named in this prospectus. 1,593,137 shares consist of shares of Common Stock issued, or issuable in connection with conversion of principal and principal accretions of our convertible notes, 1,198,850 shares consist of shares of Common Stock issuable upon exercise of warrants with exercise prices ranging from $2.81 to $7.00 per share and 2,666,670 shares consist of shares of Common Stock purchased by certain selling shareholders in a private placement completed June 28, 2002. Warrants were issued to the purchasers of the convertible notes and to two placement agents (or their assignees) in connection with the assistance of such agents in placing our securities. See "Selling Shareholders" at page 15. Pursuant to the terms of a registration rights agreement dated June 11, 2002 between the Company and the holders of the convertible notes, we agreed to register a number of shares of our Common Stock equal to 30% or 367,647 shares over and above the number of shares acquirable by the holders of the convertible notes on the date of issuance of the notes (1,225,490 shares). Such additional percentage 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 convertible notes are converted at a time when the Market Price (as defined in the convertible notes) is less than the conversion price on the date of the issuance of the convertible notes ($4.08 per share). Although we will receive the exercise price of any warrants exercised by the selling shareholders, 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. Assuming all of the warrants are exercised for cash, we would receive gross proceeds of approximately $3,972,788. Our Common Stock is listed on the Nasdaq Stock Market under the ticker symbol "NEXM". On October 1, 2002, the last reported sale price of our Common Stock was $1.80 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. 1 TABLE OF CONTENTS Page ---- 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 ................................................... 21 LEGAL MATTERS .......................................................... 24 EXPERTS ................................................................ 24 The date of this prospectus is October 11, 2002 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 web site 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, 2001; (2) Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2002 and June 30, 2002; (3) Our Current Reports on Form 8-K dated June 12, 2002 and July 3, 2002; (4) Our definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on April 30, 2002; (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: 3 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. All references in this prospectus to "warrants," refer to the warrants to purchase shares of our Common Stock held by the selling shareholders. 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 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. Currently, we are focusing our application of the NexACT(R) technology to Alprox-TD(R) and Femprox(R) creams, for the treatment of male erectile dysfunction and female sexual arousal disorder, respectively. We are also exploring the application of the NexACT(R) technology to other drug compounds and delivery systems, and are in the early stage of developing new products such as a 4 topical treatment for nail fungus, a topical non-steroidal anti-inflammatory drug treatment for pain and inflammation, and a topical anti-nausea treatment for the prevention of nausea and vomiting associated with post-operative surgical procedures and cancer chemotherapy. Alprox-TD(R) is an alprostadil-based cream treatment intended for patients with mild to severe erectile dysfunction. Alprostadil is a drug well recognized for treating erectile dysfunction. Our clinical studies have demonstrated that NexACT(R) enhancers promote the rapid absorption of alprostadil and improve clinical responses. In November 2001, we initiated our Phase 3 clinical development program for Alprox-TD(R) which includes two pivotal studies and one open label study and will enroll up to 2,500 patients at approximately 82 sites throughout the U.S. The two pivotal studies, which we initiated in November 2001, are 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. The open-label study, which we initiated in March 2002, is to confirm the safety of Alprox-TD(R) in patients on a longer term basis and includes new patients as well as those who have completed testing in one of the two pivotal Phase 3 studies and elect to continue using Alprox-TD(R) for an additional period. As of August 12, 2002, over 1,000 patients have completed testing and approximately 300 more patients are actively completely testing in our two pivotal studies which we anticipate that we will complete by December 2002. We have over 700 patients enrolled and being tested in our open-label study. If our Phase 3 clinical results are successful, we will submit the New Drug Application ("NDA") to the FDA during 2003. Completion of the open-label study is not a prerequisite for our NDA submission; however it is possible that we may never successfully complete our studies or receive FDA approval on a timely basis if at all. Internationally, in April 2002, our Asian licensee launched Befar(R), which is the Asian trademark in Asia for our proprietary erectile dysfunction treatment, in Hong Kong. Preliminary sales results indicate the product is well received as a viable alternative to the currently marketed oral erectile dysfunction treatment. Befar(R) has been available in China since July 2001. 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. We also have an NDA pending for Befar in Singapore. Befar(R) is manufactured in China and marketed in Asia by our Asian licensee. We receive royalty payments and payments for the sale of active ingredients and other manufacturing supplies from our Asian licensee. Femprox(R) is an alprostadil-based cream product intended for the treatment of female sexual arousal disorder. We have completed a Phase 2 "at home use" clinical study with Femprox(R). This multi-center study was randomized, double-blind, placebo-controlled, and designed to investigate the efficacy and safety of the Femprox(R) cream in 98 pre-menopausal women diagnosed with female sexual arousal disorder. Upon completion of our review and analysis of the clinical results, we will submit them to the FDA for their review and comment. Another product we are developing is the Viratrol(R) device, therapeutic medical device for the treatment of herpes simplex lesions without the use of drugs. The Viratrol(R) device is hand-held, non-invasive, and designed to treat 5 herpes simplex lesions. The device topically delivers a minute electrical current to an infected site and may block lesions from forming and/or shorten healing time once lesions develop. In December 2001, we submitted to the FDA our planned protocols for the initiation of a clinical study designed to support the efficacy claims of the Viratrol(R) device in treating patients with oral herpes lesions. The FDA has provided us with comments on our proposed clinical protocol for an efficacy study. Pending the availability of financing, we may elect to initiate the study. RISK FACTORS RISKS RELATED TO THE COMPANY WE HAVE AN URGENT NEED FOR ADDITIONAL FINANCING AND IT MAY NOT BE AVAILABLE TO US. While we have recently completed two financings which have resulted in our receipt of net proceeds of approximately $11 million, at a cash expenditure rate of approximately $1.8 million per month, such proceeds, combined with other cash on hand, are sufficient to finance our activities at the current rate to approximately the end of 2002. We will require additional financing even to complete our clinical programs. We will seek additional financing from the sale of equity or debt, from private and public sources and/or from collaborative licensing and/or marketing arrangements with third parties. However, we have not made arrangements for, and such additional external funding may never be available to us on acceptable terms, if at all. If we cannot obtain such additional financing or partnering arrangements, we may need to modify our business objectives or reduce or even cease certain or all of our product development programs and other operations. The additional financing we will require to pursue our research, development and commercialization plans will be substantial. Our research and development expenses for the years ended December 31, 2001, 2000, and 1999 were $12,456,384, $6,892,283, and $2,374,024, respectively. From January 1, 1994, when we repositioned ourselves as a medical and pharmaceutical technology company until June 30, 2002, we have spent $38,726,375 on research and development. We anticipate that our expenses for research and development will continue to increase with our advanced clinical development efforts. We have generated minimal revenues from the limited sales of Befar(R) in China and have not marketed or generated revenues in the U.S. from our products under development. WE MAY BE UNSUCCESSFUL IN OUR RESEARCH AND DEVELOPMENT UNDERTAKINGS. We intend to focus our current development efforts on the Alprox-TD(R) and Femprox(R) cream treatments. These products are currently in the research and development stage and require significant time-consuming and costly research and development, clinical testing, regulatory approval and significant additional investment prior to their commercialization. There are risks that (1) the research and development activities we conduct will not be successful, (2) products under development will not prove to be safe and effective, (3) our clinical development work will not be completed, or (4) the anticipated products will not be commercially viable or successfully 6 marketed. Commercial sales of our products cannot begin until we receive final FDA approval. The earliest likely time for such final approval of the first product which may be approved, Alprox-TD(R), is sometime during first half of 2004, assuming sufficient funding is obtained to continue the program at its planned pace. 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 China 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 $52,866,401 from our inception through June 30, 2002. Our current 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 ability to become profitable will depend, among other things, on our (1) development of our proposed products, (2) obtaining of regulatory approvals of our proposed products on a timely basis and (3) success in manufacturing, distributing and marketing our proposed products. 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 through December 31, 2001, working capital deficiency and accumulated deficit, our independent accountants, PricewaterhouseCoopers LLP, have concluded that there is substantial doubt as to our ability to continue as a going concern for a reasonable period of time, and have modified their report contained in our Form 10-K for December 31, 2001 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 obligations. 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. 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. 7 We have seven 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 seven U.S. patents and the year of expiration for each patent:

Patent Name Expiration Date ----------- --------------- Prostaglandin Composition and Methods of Treatment of Male ED 2020 Topical Compositions for PGE1 Delivery 2017 Topical Compositions for Non-Steroidal Anti-Inflamatory 2017 Drug Delivery Biodegradable Absorbation Enhancers 2012 Biodegradable Absorbation Enhancers 2010 Medicament Dispenser 2019 Crystalline Salts of dodecyl 2-(N, N-Dimethylamino) 2019

While we have obtained patents and have several patent applications pending, the extent of effective patent protection in the U.S. and other countries is highly uncertain and involves complex legal and factual questions. No consistent policy addresses the breadth of claims allowed in or the degree of protection afforded under patents of medical and pharmaceutical companies. Patents we currently own or may obtain might not be sufficiently broad to protect us against competitors with similar technology. Any of our patents could be invalidated or circumvented. 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, it is possible that holders of these competing patents will commence a lawsuit against us and that we will not 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. 8 WE DEPEND UPON THIRD PARTY MANUFACTURERS FOR OUR CHEMICAL MANUFACTURING SUPPLIES. In October 2000, we acquired 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 as required by the FDA. We anticipate that upon completion, 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 Femprox(R) for continuing clinical testing purposes. We depend on third party chemical manufacturers for alprostadil, the active drug in Alprox-TD(R) and Femprox(R) and for the supply of our NexACT(R) enhancers that are essential in the formulation and production of our topical products, in a timely basis and at satisfactory quality levels. There are currently five validated manufacturers of alprostadil and we are therefore not dependent upon, nor do we have any contractual relationships with, any one such supplier. However, if our validated third party chemical manufacturers fail to produce quality products on time and in sufficient qualities, 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 increased 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 sales of their products before we could enjoy a significant competitive advantage. Products developed by our competitors may be more effective than our products. Treatments for erectile dysfunction, such as needle injection therapy, devices that facilitate blood engorgement in the penis by applying pressure through a vacuum device and sustaining the erection through a constriction band, penile implants, medications that are absorbed through the urethra of the penis 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), Pharmacia & Upjohn Company's needle injection therapy; (2) Viagra(R), Pfizer, Inc.'s oral product to treat erectile dysfunction; and (3) 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) Topiglan(R), a topical treatment containing alprostadil based on a proprietary drug delivery system under development by MacroChem Corporation; (2) Vasomax(R), an oral medication to be marketed through a collaborative effort of Zonagen, Inc. and Schering Plough Pharmaceuticals; (3) Cialis(R), an oral formulation to be marketed through a joint venture between ICOS and Eli Lilly & Co; (4) Uprima(R), an oral medication to be marketed by TAP Pharmaceuticals, a joint venture between 9 Takeda Pharmaceuticals Japan and Abbott Laboratories; and (5) vardenafil(R), an oral medication to be marketed through a collaborative effort of Bayer AG and GlaxoSmithKline, Inc. WE WILL NEED TO PARTNER TO OBTAIN EFFECTIVE SALES, MARKETING AND DISTRIBUTION. We have engaged in discussions with several large pharmaceutical companies regarding a strategic partnership for the Alprox-TD(R) cream but we may not be able to conclude an arrangement on a timely basis, if at all, or on terms acceptable to us. With our current cash reserves, we have elected to proceed with our Phase 3 program on the Alprox-TD(R) cream while concurrently pursuing these discussions. We currently have no sales force or marketing organization and will need, but may be unable, to attract and retain qualified or experienced marketing and sales personnel. 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 on our ability to establish (1) successful arrangements with domestic and international distributors and marketing partners and (2) an effective internal marketing organization. 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 China and Asian Pacific countries, our Alprox-TD(R), Femprox(R) and three other of our proprietary products under development, and (2) we will 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 fourth quarter 2001 and the first half of 2002, we recorded modest receipts from our Asian licensee for royalty on sales of Befar(R) in Asia and for manufacturing supplies purchased from us. WE MAY BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS, CREATING RISK AND EXPENSE We are 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. 10 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. The following table sets forth the range of high and low bids 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 -------------- ------------- 1999 First Quarter $2.438 $1.750 Second Quarter $1.875 $0.938 Third Quarter $2.938 $0.938 Fourth Quarter $4.438 $2.875 2000 First Quarter $22.250 $3.563 Second Quarter $14.875 $6.375 Third Quarter $19.437 $9.062 Fourth Quarter $19.625 $4.875 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 (through October 1, 2002) $1.840 $1.800 11 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, including the Alprox-TD(R) and Femprox(R) creams utilizing the NexACT(R) technology as well as the Viratrol(R) device, 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 NDA is submitted to the FDA or foreign governmental regulatory authority for review and approval. Our failure to obtain requisite governmental approvals timely or at all will delay or preclude us from licensing or marketing our products or limit the commercial use of our products, which could adversely affect our business, financial condition and results of operations. Because we intend to sell and market our products outside the U.S., we will be subject to foreign regulatory requirements governing the conduct of clinical trials, product licensing, pricing and reimbursements. These requirements vary widely from country to country. 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 effect our business and limit our revenues. 12 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. At October 1, 2002, 28,274,471 shares of our Common Stock and no shares of our preferred stock were issued and outstanding, and 7,436,198 shares of our Common Stock were issuable upon the exercise of options, warrants, or other convertible securities (including the convertible notes and warrants held by the selling shareholders). In light of our need for additional financing, we may issue authorized and unissued shares of Common Stock at below current market prices or preferred stock that could dilute the earnings per share and book value of your shares of our Common Stock. THE PROVISIONS OF THE NOTES ISSUED TO SELLING SHAREHOLDERS WOULD SUBJECT OUR SHAREHOLDERS TO FURTHER DILUTION IF WE WERE TO ISSUE COMMON STOCK AT PRICES BELOW MARKET OR BELOW THE CONVERSION PRICE IN THE NOTES OR PREPAY ACCRUED AMOUNTS OR PRINCIPAL THROUGH REQUIRED CONVERSIONS. In addition to provisions providing for proportionate adjustments in the event of stock splits, stock dividends, reverse stock splits and similar events, the convertible notes provide (with certain exceptions) for an adjustment of the conversion price if we issue shares of common stock at prices lower than the conversion price or the then prevailing market price. This means that if we need to raise equity financing at a time when the market price for our common stock is lower than the conversion price, or if we need to provide a new equity investor with a discount from the then prevailing market price, then the conversion price will be reduced and the dilution to shareholders increased. In addition, we are permitted (with certain exceptions - see "Selling Shareholders") to require conversion of up to $250,000 principal amount of the notes every month. If we do so, the 13 notes would convert valuing our common stock at a price equal to 90% of then average market value, which would result in additional dilution. The same formula (with the same dilutive result) applies if accreted amounts are "paid" in our common stock rather than cash, at our election. THE PROVISIONS OF WARRANTS TO PURCHASE AN AGGREGATE OF 389,408 SHARES OF COMMON STOCK PROVIDE FOR REDUCTIONS IN THE EXERCISE PRICE IF WE ISSUE COMMON STOCK AT PRICES BELOW MARKET OR BELOW THE WARRANT EXERCISE PRICES. In addition to provisions providing for proportionate adjustments in the event of stock splits, stock dividends, reverse stock splits and similar events, some of the warrants we have issued provide for a reduction of the exercise price if we issue shares of common stock at prices lower than the exercise price or lower than the then average market price. The number of shares issuable under such warrants would change in this case in inverse proportion, but we would receive the same amount of proceeds if the warrants were subsequently exercised in full. OUR COMMON STOCK IS CURRENTLY QUOTED ON THE NASDAQ NATIONAL MARKET SYSTEM BUT COULD BE DELISTED. To continue to be listed on the Nasdaq National Market System, we must maintain certain requirements. If we fail to satisfy one or more of the requirements, our Common Stock may be delisted. If our Common Stock is delisted, and does not become listed on another stock exchange, then it will be traded, if at all, in the over-the-counter market commonly referred to as the NASD OTC Bulletin Board and/or the "pink sheets." If this occurs, it may be more difficult for you to sell our Common Stock, since there is generally less market-maker interest, and less liquidity, in Bulletin Board stocks than in Nasdaq listed securities. Also, if our Common Stock is delisted and its trading price remains below $5.00 per share, trading could potentially be subject to certain other rules of the Securities Exchange Act of 1934. Such rules require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a "penny stock." "Penny stock" is defined as any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such rules require the delivery of a disclosure schedule explaining the penny stock market and the risks associated with that market before entering into any penny stock transaction. Disclosure is also required to be made about compensation payable to both the broker-dealer and the registered representative and current quotations for the securities. The rules also impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to the sale. Finally, monthly statements are required to be sent disclosing recent price information for the penny stocks. The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our Common Stock. This could severely limit the market liquidity of our Common Stock and your ability to sell the Common Stock. 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." However, assuming all of the warrants are exercised by the selling shareholders, and that certain of the selling shareholders whose warrants contain "cashless exercise" provisions do not utilize such provisions, we would receive approximately $3,972,788 in gross proceeds from those exercises. Any such proceeds will be used for working capital purposes. SELLING SHAREHOLDERS The shares covered by this prospectus have been issued in a private placement to certain selling shareholders or will be issued upon the conversion of convertible notes and the exercise of warrants to purchase shares of Common Stock. 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 persons and/or entities listed in the table below who own our Common Stock, our convertible notes or warrants to purchase shares of our Common Stock. We are registering for the 23 selling shareholders named herein, an aggregate of 5,458,657 shares of Common Stock. Pursuant to a purchase agreement dated June 11, 2002 among us, The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc., we issued and sold to such selling shareholders on that date, for an aggregate purchase price of $5,000,000: 5% convertible notes due November 30, 2005 in the aggregate principal amount of $5.0 million, convertible into shares of our common stock at a conversion price of $4.08 per share, subject to adjustment; and purchase warrants to purchase an aggregate of 389,408 shares of our common stock at an initial exercise price of $4.08 per share, subject to adjustment. The convertible notes are convertible at the option of the holder at a price of $4.08 per share. We can require the conversion of accrued amounts as well as the conversion of up to $250,000 principal amount of notes every month except (i) to the extent, and only to the extent, that such conversion into shares of Common Stock would result in (a) either of the holder's of the convertible notes respective beneficial ownership of the Common Stock exceeding 9.9% of the total issued and outstanding shares of the Common Stock or (b) the Company being obligated to issue such number of shares of Common Stock, which, when aggregated with all of the shares of Common Stock issued to the holders of the convertible notes, would constitute a breach of the Company's obligations under the rules or regulations of the Nasdaq Stock Market as they apply to the Company or any other principal securities exchange or market which the Common Stock is or becomes traded;(ii) to the extent the holders of the convertible notes exercise their one time right to prohibit such 15 conversion for a period of one year; (iii) if the shares of Common Stock underlying the convertible notes are not registered and covered by an effective registration statement and quoted on the Nasdaq National Market or on the Nasdaq Small-Cap Market, the New York Stock Exchange or the American Stock Exchange; or (iv) if an event of default exists under the convertible notes that is not otherwise waived by the holders of such convertible notes. If we require conversion, the relevant portion of the notes would convert valuing our common stock at a price equal to 90% of the then average market value. The convertible notes and related warrants provide for proportionate adjustments in the event of stock splits, stock dividends and reverse stock splits. In addition, the conversion price and exercise prices on warrants held by the noteholders will be reduced, with certain specified exceptions, if we issue shares at lower prices then the notes conversion or warrant exercise prices, or less than average market values for our common stock. If certain of the conversion features and the anti-dilution terms of the notes and warrants are actually utilized, the Company may be required to record charges to operations in the future. Pursuant to the terms of a registration rights agreement dated June 11, 2002 between the Company and the holders of the convertible notes, we agreed to register a number of shares of our Common Stock equal to 30% or 367,647 shares over and above the number of shares acquirable by the holders of the convertible notes on the date of issuance of the notes (1,225,490 shares). Such additional percentage 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 convertible notes are converted at a time when the Market Price (as defined in the convertible notes) is less than the conversion price on the date of the issuance of the convertible notes ($4.08 per share). In connection with the issuance of the notes to The Tail Wind Fund and Solomon Strategic Holdings, we paid a placement fee to Griffin Securities, Inc. in the amount of $125,000 and we issued 38,941 purchase warrants to Griffin Securities, Inc. Pursuant to purchase agreements dated as of June 28, 2002, we sold 2,666,670 shares of Common Stock and warrants to purchase 533,334 shares of Common Stock to 16 accredited investors. The shares and warrants were sold in units of five shares of Common Stock and one two-year warrant to purchase an additional share of Common Stock at $2.81 per share. The unit purchase price was $11.25 per unit. In connection with the sale of the units we paid a placement fee to Security Research Associates, Inc. of $249,938 and we issued 222,167 purchase warrants to Security Research Associates, Inc. Subsequent to the closing of the units sale, Security Research Associates, Inc. assigned its warrants to four of the selling shareholders. The purchase warrants have an exercise price of $2.81 per share and expire on June 28, 2005. If all such warrants and warrants issued pursuant to the above-referenced purchase agreements are exercised at $2.81 per share, we would receive $2,122,958. 38,941 of the purchase warrants issued to Griffin Securities, Inc., a selling shareholder, have an exercise price of $4.01 per share, and 15,000 such warrants have an exercise price of $7.00 per share, both subject to adjustment. The exercise periods extend to June 11, 2005 and July 27, 2003, respectively. If all of the purchase warrants are exercised at such prices, we would receive proceeds of approximately $261,150. We have the option of redeeming the warrants held by the two noteholders at a price of $.01 per underlying warrant share, if the average 16 closing bid price of our common stock is greater than $10.20 (as adjusted) for fifteen consecutive trading days in any calendar month prior to June 2004. The warrants held by Griffin Securities, Inc. have similar redemption provisions; warrants held by the other selling shareholders do not. No proceeds can be expected to be received from the exercise of the warrants unless the market price of our common stock is higher than the applicable exercise prices. No commissions are payable by us or the holders of the convertible notes and the warrants in connection with a conversion or exercise. Under the terms of a registration rights agreement with The Tail Wind Fund, Ltd. and Solomon Strategic Holdings, Inc., the number of shares being registered for them is one hundred and thirty percent of the number of shares necessary to convert the debentures into common stock in full at the conversion price, plus the number of shares underlying the warrants. Thus, the shares of common stock covered under this prospectus include all shares which may be issued (i) upon resale of shares of Common Stock held by selling shareholders, (ii) upon conversion of the principal amount of the convertible notes, (iii) in payment of accrued amounts under the convertible notes in the case where such amounts are converted, and (iv) upon exercise of the warrants. The following table sets forth, as of October 1, 2002: (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 conversion of convertible notes and exercise of warrants, (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. 17

PERCENTAGE PERCENTAGE OF OF CLASS CLASS TO BE OWNED BY OWNED BY THE NUMBER OF SHARES OF THE SELLING NUMBER OF SHARES NUMBER OF SHARES SELLING NAME OF COMMON STOCK OWNED SHAREHOLDER OF COMMON STOCK OF COMMON STOCK TO SHAREHOLDER SELLING BEFORE THIS BEFORE THIS COVERED BE OWNED AFTER AFTER THIS SHAREHOLDER OFFERING OFFERING (13) BY THIS PROSPECTUS THIS OFFERING OFFERING (14) ----------- -------- ------------- ------------------ ------------- ------------- The Tail Wind Fund Ltd. 1,291,918(1) 4.37% 1,586,036(3) 0 * Solomon Strategic 322,980(1) 1.13% 396,509(3) 0 * Holdings, Inc. Griffin Securities, Inc. 53,941(2) * 53,941 0 * Blair Family Trust 27,000(4) * 27,000 0 * 6/19/92, & amended and restated 1/16/97 Clipperbay & Co. (6) 1,465,652(4) 5.18% 182,826 1,282,826 4.54% Clarion Capital 298,531(4) 1.05% 133,332 165,199 * Corporation (7) Clarion Partners, LP (8) 80,054(4) * 49,704 30,350 * Clarion Offshore Fund 141,863(4) * 49,704 92,159 * Ltd. (9) Dynamic Equity Hedge 53,442(4) * 53,442 0 * Fund Horizon Waves & Co. (10) 2,149,533(4) 7.54% 1,333,332 816,201 2.89% 2030 Investors LLC 160,000(4) * 60,000 100,000 * 401K (11) Kahan Family Trust (12) 160,000(4) * 60,000 100,000 * Nob Hill Capital 180,000(4) * 180,000 0 * Partners LP

18

PERCENTAGE PERCENTAGE OF OF CLASS CLASS TO BE OWNED BY OWNED BY THE NUMBER OF SHARES OF THE SELLING NUMBER OF SHARES NUMBER OF SHARES SELLING NAME OF COMMON STOCK OWNED SHAREHOLDER OF COMMON STOCK OF COMMON STOCK TO SHAREHOLDER SELLING BEFORE THIS BEFORE THIS BEING REGISTERED BE OWNED AFTER AFTER THIS SHAREHOLDER OFFERING OFFERING (13) BY THIS PROSPECTUS THIS OFFERING OFFERING (14) ----------- -------- ------------- ------------------ ------------- ------------- Francis E. O'Rourke 27,000(4) * 27,000 0 * Provident Master Fund Ltd. 266,664(4) * 266,664 0 * Rogers Family Trust 108,000(4) * 108,000 0 * 1/21/81 Roy & Ruth Rogers 108,000(4) * 108,000 0 * Unit Trust 9/28/89 Marvin L. Slomowitz 534,000(4) 1.88% 534,000 0 * Leonard J. Sojka Jr. 48,500(4) * 27,000 21,500 * Revocable Trust 2/2/01 Brian & Suzanne Swift 103,848(5) * 103,848 0 * 1991 Living Trust Leonard H. Cohen 141,171(5) * 102,345 38,826 * Leonard and Dena 144,574(5) * 10,574 134,000 * Oppenheim Revocable Trust 1/6/00 Andrew P. Blair 5,400(5) * 5,400 0 * Total 7,872,071 25.36% 5,458,657 2,781,061 9.81%

* Less than 1%. --------------- (1) Assumes conversion of debentures held by the selling shareholders as of July 16, 2002 at a conversion price of $4.08 per share and exercise of all warrants granted to them. The agreements we entered into with The Tail Wind Fund, Ltd. and Solomon Strategic Holdings, Inc. in connection 19 with the private financing prohibit each such entity from beneficially owning more than an aggregate of 9.9% of our Common Stock each at any time, and each such entity expressly disclaims beneficial ownership of any shares of Common Stock that would cause it to own in excess of 9.9% of our Common Stock. (2) Consists of 53,941 shares of Common Stock issuable on exercise of warrants issued as compensation for services rendered as a placement agent. (3) Pursuant to the terms of a registration rights agreement dated June 11, 2002 with The Tail Wind Fund, Ltd. and Solomon Strategic Holdings, Inc., we agreed to register for each such selling shareholder a number of shares of Common Stock equal to 130% of the number of shares issuable upon full conversion of the convertible notes (at $4.08 per share) plus 100% of the number of shares of Common Stock issuable upon the exercise of warrants. (4) Consists of shares of Common Stock and shares of Common Stock issuable on exercise of warrants. (5) Consists of shares of Common Stock issuable on exercise of warrants assigned to the selling shareholder by Security Research Associates, Inc., which were issued the warrants as compensation for services rendered as a placement agent. (6) Capital Research and Management Company, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, as amended, is the investment adviser to Clipperbay & Co. for the benefit of SMALLCAP World Fund, Inc. whose address is c/o Capital Research & Management Company, 333 South Hope Street, 55th Floor, Los Angeles, CA 90071. (7) Mort Cohen is the natural person who has investment and voting power for the securities held by Clarion Capital Corporation whose address is 1801 East Ninth Street, Suite 510, Cleveland, OH 44114. (8) Mort Cohen is the natural person who has investment and voting power for the securities held by Clarion Partners, LP whose address is 1801 East Ninth Street, Suite 510, Cleveland, OH 44114. (9) Mort Cohen is the natural person who has investment and voting power for the securities held by Clarion Offshore Fund Ltd. whose address is 1801 East Ninth Street, Suite 510, Cleveland, OH 44114. (10) John Goode is the natural person who has investment and voting power for the securities held by Horizon Waves & Co. whose address is c/o David Skaggs Investment Management, 1 Sansome Street, 36th Floor, San Francisco, CA 94104. (11) Ellison C. Morgan is the natural person who has investment and voting power for the securities held by 2030 Investors LLC 401K for the benefit of Ellison C. Morgan whose address is 1211 SW 5th Ave., Suite 2250, Portland, Oregon 97204. 20 (12) Robert L. Kahan is the natural person who has investment and voting power for the securities held by Kahan Family Trust whose address is 815 Stony Hill Road, Tiburon, CA 94920. (13) This percentage is calculated using as the numerator, the number of shares of Common Stock included in the prior column and as the denominator, 28,274,471 shares of Common Stock outstanding as of October 1, 2002 plus the number of shares of Common Stock issuable upon the exercise of options, warrants or other convertible securities held by the selling shareholder before this offering. (14) This percentage is calculated using as the numerator, the number of shares of Common Stock included in the prior column and as the denominator, 28,274,471 shares of Common Stock outstanding as of October 1, 2002 plus the number of shares of Common Stock issuable upon the exercise of options, warrants or other convertible securities held by the selling shareholder after this offering, assuming the sale by the selling shareholder of all of its shares covered by this prospectus. Neither 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. PLAN OF DISTRIBUTION The selling shareholders may from time to time offer and sell their shares of Common Stock offered by this prospectus. We have registered their shares for resale to provide them with freely tradable securities. However, registration does not necessarily mean that they will offer and sell any or all of their shares. OFFER AND SALE OF SHARES The selling shareholders, or their pledgees, donees, transferees or other successors in interest, may offer and sell their shares of Common Stock in the following manner: o in the over-the-counter market or otherwise at prices and at terms then prevailing or at prices related to the then current market price; o at fixed prices; or o in privately negotiated transactions. The selling shareholders, or their pledgees, donees, transferees or other successors in interest, may sell their shares of Common Stock in one or more of the following types of transactions: o a block trade in which the broker or 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; 21 o a broker or dealer may purchase as principal and resell such shares for its own account pursuant to this prospectus; o an exchange distribution in accordance with the rules of the exchange; o by writing options; o ordinary brokerage transactions and transactions in which the broker solicits purchasers; and o any combination of the foregoing, or any other available means allowable under law. From time to time, a selling shareholder may transfer, pledge, donate or assign its shares of common stock to lenders or others and each of such persons will be deemed to be a "selling shareholder" for purposes of this prospectus. The number of shares of common stock beneficially owned by a selling shareholder may decrease as and when it takes such actions. The plan of distribution for the selling shareholder's shares of common stock sold under this prospectus will otherwise remain unchanged, except that the transferees, pledgees, donees or other successors will be a selling shareholder hereunder. A selling shareholder may enter into hedging, derivative or short transactions with broker-dealers in connection with sales or distributions of the shares or otherwise. In these transactions, brokers-dealers may engage in short sales of the shares in the course of hedging the positions they assume with the selling shareholder. A selling shareholder also may sell shares short and redeliver the shares to close out short positions and engage in derivative or hedging transactions. A selling shareholder may enter into option or other transactions with broker-dealers which require the delivery to the broker-dealer of the shares. The broker-dealer may then resell or otherwise transfer the shares under this prospectus. A selling shareholder also may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the loaned shares or upon a default the broker-dealer may sell the pledged shares under this prospectus. SELLING THROUGH BROKERS AND DEALERS The selling shareholders may select brokers or dealers to sell their shares of Common Stock. Brokers or dealers that the selling shareholders engage may arrange for other brokers or dealers to participate in selling such shares. The selling shareholders may give such brokers or dealers commissions or discounts or concessions in amounts to be negotiated immediately before any sale. In connection with such sales, these brokers or dealers, any other participating brokers or dealers, and the selling shareholders and certain pledgees, donees, transferees and other successors in interest, may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act of 1933 in connection with the sale of the shares. Accordingly, any such commission, discount or concession received by them and any profit on the resale of the shares purchased by them may be deemed to be underwriting discounts or commissions under the Securities Act of 1933. Because the selling shareholders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act of 1933, the 22 selling shareholders will be subject to the prospectus delivery requirements of the Securities Act of 1933. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 promulgated under the Securities Act of 1933 may be sold under Rule 144 rather than pursuant to this prospectus. The selling shareholders have advised us that they will not enter into any agreements, understandings or arrangements with any underwriters or brokers or dealers regarding the sale of their securities without written notice to us. There is no underwriter or coordinating broker acting in connection with the proposed sale of shares by the selling shareholders. SUPPLEMENTAL PROSPECTUS REGARDING MATERIAL ARRANGEMENTS If and when a selling shareholder notifies us that it has entered into a material arrangement with a broker or dealer for the sale of its shares of Common Stock offered by this prospectus through a block trade, special offering, exchange or secondary distribution or a purchase by a broker or dealer, we will file a supplemental prospectus, if required, pursuant to Rule 424(c) under the Securities Act of 1933. EXPENSES OF SELLING SHAREHOLDERS The selling shareholders may engage brokers or dealers who may receive commissions or discounts from the selling shareholders. While we will pay substantially all of the expenses incident to the registration of the selling shareholders' shares, we will not be responsible for discounts or commissions paid to such brokers or dealers. COMPLIANCE WITH STATE SECURITIES LAWS We have not registered or qualified the shares of Common Stock offered by this prospectus under the laws of any country, other than the United States. In certain states, the selling shareholders may not offer or sell their shares of Common Stock unless (1) we have registered or qualified such shares for sale in such states; or (2) we have complied with an available exemption from registration or qualification. Also, in certain states, to comply with such states' securities laws, the selling shareholders must offer and sell their shares of Common Stock only through registered or licensed brokers or dealers. LIMITATIONS IMPOSED BY EXCHANGE ACT OF 1934 RULES AND REGULATIONS Certain provisions of the Securities Exchange Act of 1934, and related rules and regulations, will apply to the selling shareholders and any other person engaged in a distribution of shares of the Common Stock. Such provisions may (1) limit the timing of purchases and sales of any of the shares of Common Stock by the selling shareholders or such other person; (2) affect the marketability of such stock; and (3) affect the brokers' and dealers' market-making activities with respect to such stock. SUSPENSION OF THIS OFFERING We may suspend the use of this prospectus if we learn of any event that causes this prospectus to include an untrue statement of material fact or omit to state a material fact required to be stated in the prospectus or 23 necessary to make the statements in the prospectus not misleading in light of the circumstances then existing. If this type of event occurs, a prospectus supplement or post-effective amendment, if required, will be distributed to the selling shareholders. 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. 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, 2001, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 24 -------------------------------------------------------------------------------- NEXMED, INC. 5,458,657 SHARES COMMON STOCK ----------------- PROSPECTUS ----------------- October 11, 2002 --------------------------------------------------------------------------------