FORM 10-K
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x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 58-2301143 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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210 Main Street West | ||
Baudette, Minnesota | 56623 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $0.0001 per share | The NASDAQ |
Market).o¨ NO xo¨ NO xo¨ox NO o¨o¨x¨o¨Smaller reporting company x
(Do not check if a smaller reporting company)o¨ NO xregistrant’svoting and non-voting common stock excluding shares beneficially ownedheld by affiliates, computed by reference tonon-affiliates of the closing sale price at which the common stock was last soldregistrant as of June 30, 2010 (the28, 2013, was $36.8 million (based upon the last business dayreported sale price of the registrant’s second fiscal quarter) as reported by$6.00 per share on June 28, 2013, on The NASDAQ Global Market on that date was approximately $119.8 million.March 10, 2011, 93,590,612February 14, 2014, 9,639,941 shares of common stock and 10,868 shares of Class C Special stock of the registrant were outstanding. incorporates by reference information (toextent specific sections are referred to herein) from the registrant’s Proxy Statement for its 2011 Annual Meeting of Stockholders to be held on May 26, 2011.Year Ended December 31, 2013
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PART I | ||||
Item 1. | Business |
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Item 1A. | Risk Factors | 15 | ||
1B. | Unresolved Staff Comments |
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Item 2. | Properties | 32 | ||
3. | Legal Proceedings |
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Item 4. | Mine Safety Disclosures | 34 | ||
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PART II | ||||
5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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Item 6. | Selected Consolidated Financial Data | 35 | ||
7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 49 | ||
8. | Consolidated Financial Statements and Supplementary Data |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 81 | ||
9A. | Controls and Procedures |
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Item 9B. | Other Information | 82 | ||
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PART III | ||||
10. | Directors, Executive Officers and Corporate Governance |
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Item 11. | Executive Compensation | 83 | ||
12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence | 83 | ||
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Item 15. | Exhibits and Financial Statement Schedules | 85 | ||
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TableANI Pharmaceuticals, Inc. and its consolidated subsidiary, ANIP Acquisition Company (together, the “Company” or "ANI") files annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of Contents1934, as amended (the "Exchange Act"), with the Securities and Exchange Commission ("SEC"). The Company makes available free of charge on its website (www.anipharmaceuticals.com) its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those filings as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Also posted on the Company's website in the “Investors — Corporate Governance” section are the Company's Corporate Governance Guidelines, Code of Ethics and the charters for the Audit and Finance, Compensation, and Nominating and Corporate Governance Committees. Information on, or accessible through, the Company's website is not a part of, and is not incorporated into, this report or any other SEC filing. Copies of ANI's SEC filings or corporate governance materials are available without charge upon written request to Investor Relations, c/o ANI Pharmaceuticals, Inc., 210 Main Street West, Baudette, Minnesota, 56623.
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As used statements in this annual report referencesspeak only as of the date made and are based on the Company’s current beliefs, assumptions, and expectations. The Company undertakes no obligation to “BioSante,” the “company,” “we,” “our”update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
We own or have the rights to use various trademarks, trade names or servicemarks, including BioSante®, LibiGel®, Elestrin™, Bio-T-Gel™, The Pill-Plus™ and BioLook™. This report also contains trademarks, trade names andservice marks that are owned by other persons or entities.
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ANI Pharmaceuticals, Inc. and its consolidated subsidiary, ANIP Acquisition Company Overview
We(together, the “Company” or “ANI”) is an integrated specialty pharmaceutical company developing, manufacturing, and marketing branded and generic prescription pharmaceuticals. The Company's targeted areas of product development currently include narcotics, oncolytics (anti-cancers), hormones and steroids, and complex formulations involving extended release and combination products. The Company has two pharmaceutical manufacturing facilities located in Baudette, Minnesota, which are capable of producing oral solid dose products, as well as liquids and topicals, narcotics, and potent products that must be manufactured in a specialtyfully-contained environment. The Company's strategy is to continue to use these manufacturing assets to develop, produce, and distribute niche generic pharmaceutical products.
Ourstability testing, the Company has a 1,000 square foot pilot laboratory offering liquid, suspension and solid dose development capabilities. This pilot laboratory offers a full range of analytical capabilities including method development, validation and de-formulation, and is licensed by the Drug Enforcement Administration (“DEA”). Finally, a separate development suite located within the Company’s high-potency manufacturing facility offers additional capabilities for product development.
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· | Formulation Complexity. The Company's development and manufacturing capabilities enable it to manufacture pharmaceuticals that are difficult to produce, including highly potent, extended release, combination, and low dosage products. This ability to manufacture a variety of complex products is a competitive strength that the Company intends to leverage in selecting products to develop or manufacture. | |
· | Patent Status. The Company seeks to develop products whose branded bioequivalents do not have long-term patent protection or existing patent challenges. | |
· | Market Size. When determining whether to develop or acquire an individual product, management reviews the current and expected market size for that product at launch, as well as forecasted price erosion upon conversion from branded to generic pricing. The Company endeavors to manufacture products with sufficient market size to enable the Company to enter the market with a strong likelihood of being able to price its product both competitively and at a profit. | |
· | Profit Potential. Management researches the availability and cost of active pharmaceutical ingredients along with anticipated market share in determining which products to develop or acquire. In determining the potential profit of a product, management forecasts the Company’s anticipated market share, pricing, which includes expected price erosion caused by competition from other generic manufacturers, and the estimated cost to manufacture the products. | |
· | Manufacturing. The Company generally seeks to develop and manufacture products at its own manufacturing plants in order to maximize the capacity and utilization of its facilities, to ensure quality control in its products, and to maximize profit potential. | |
· | Competition. When determining whether to develop or acquire an individual product, management researches the existing and expected market share of generic competitors. The Company seeks to develop products for which it can obtain a large market share, and may decline to develop a product if management anticipates that many generic competitors will be entering that product’s market. The Company’s highly specialized manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies would be able to compete. |
and capital assets and will result in measurable growth of the Company's business. Since 2011, the Company has successfully:
· | Increased prescription product sales through market share gains on established products. | |
· | Acquired the New Drug Application (“NDA”) for and began marketing Reglan®. | |
· | Developed two new contract manufacturing customer relationships. | |
· | Established two external product development partnerships to bolster the internal pipeline. | |
· | Filed five Abbreviated New Drug Applications (“ANDAs”) and developed a pipeline of seven additional ANDAs. | |
· | Entered into a contract to purchase the ANDAs for 31 previously marketed generic drug products, including 20 solid-oral immediate release products, four extended release products and seven liquid products for $12.5 million. This asset acquisition will help the Company expand and diversify its product lines over the next few years, help increase revenue, and reduce the Company’s percentage of revenue derived from sales of unapproved products. |
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Generic Products | Branded Products | |
Esterified Estrogen with Methyltestosterone Tablets | Cortenema® | |
Fluvoxamine Maleate Tablets | Reglan® Tablets | |
Hydrocortisone Enema | ||
Metoclopramide Syrup Opium Tincture |
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·Bio-T-Gel — once daily transdermalcontraceptives, testosterone gelreplacement therapies for men, and therapies for treating hormone-sensitive and other cancers.
·Cancer vaccines — a portfolioestrogen only, but has evolved to include combination therapies of cancer vaccines in Phase II clinical development for the treatment of various cancers.
We believe LibiGel remains the lead pharmaceutical productestrogen, progesterone and androgens. The Company targets niche products in the U.S.HT and steroidal products market for several reasons, including:
· | Hormone and steroid products are a core competency based on the Company’s manufacturing and product development teams' long history of manufacturing these types of products; and | |
· | The aging baby boom population, of which women represent a majority, is expected to support continued growth in the HT market. |
Elestrin is our first FDA approved product. Azur Pharma International II Limited (Azur), BioSante’s licensee, is marketing Elestrin in the U.S. using Azur’s women’s health sales force which targets estrogen prescribing physicians in the U.S. comprised mostly of gynecologists. In December 2009, we entered into an amendment to our original licensing agreement with Azur pursuant to which we received $3.16 million in non-refundable payments in exchange for the elimination of all remaining future royalty payments and certain milestone payments that could have been paid to us related to Azur’s sales of Elestrin. We maintain the right to receive up to $140
million in sales-based milestone payments from Azur if Elestrin reaches certain predefined sales per calendar year, although based on current sales levels, we believe our receipt of such payments unlikely in the near term, if at all.
Our portfolio of cancer vaccines is designed to stimulate the patient’s immune system to fight effectively the patient’s own cancer. Multiple Phase II trials of these vaccines are ongoing at minimal cost to us at the Johns Hopkins Sidney Kimmel Comprehensive Cancer Center in various cancer types, including pancreatic cancer, leukemia and breast cancer. We anticipate Phase II trials for prostate cancer to begin in the first half of 2011. Four of these vaccines have been granted FDA orphan drug designation.
Our CaP technology is based on the use of extremely small, solid, uniform particles, which we call “nanoparticles.” CaP currently is in development as a facial line filler (BioLook) in the area of aesthetic medicine.
BioSante’s Primary Product Portfolio
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One of our strategic goals is to continue to seek and implement strategic alternatives with respect to our products and our company, including licenses, business collaborations and other business combinations or transactions with other pharmaceutical and biotechnology companies. Therefore, as a matter of course, we may engage in discussions with third parties regarding the licensure, sale or acquisition of our products and technologies or a merger or sale of our company.
Description of Our Female Sexual Health, Menopause, Contraception and Male Hypogonadism Products
Overview. Our products for female sexual health, menopause, contraception and male hypogonadism include our gel formulations of estradiol or testosterone and combinations of estrogen, progestogen and androgen: LibiGel, Elestrin, Bio-T-Gel and Pill-Plus, our triple component contraceptive that uses various combinations of estrogens, progestogens and androgens in development for the treatment of FSD in women using oral or transdermal contraceptives.
Our gel products are designed to be quickly absorbed through the skin after application on the upper arm for the women’s products, delivering the active component to the bloodstream evenly and in a non-invasive, painless manner. The gels are formulated to be applied once per day and to be absorbed into the skin without a trace of residue and to dry in under one to two minutes. We believe our gel products have a number of benefits over competitive products, including the following:
·our transdermal gels can be spread over areas of skin where they dry rapidlyhigh abuse risk but that also have safe and decrease the chance for skin irritation versus transdermal patches;
·our transdermal gels may have fewer side effects than many pills which have been known to cause gallstones, blood clots and complications related to metabolism;
·our transdermal gels have been shown to be well absorbed, thus allowing effective therapeutic levels to reach the systemic circulation;
·transdermal gels may allow for better dose adjustment than either transdermal patches or oral tablets or capsules; and
·transdermal gels may be more appealing to patients since they are less conspicuous than transdermal patches, which may be aesthetically unattractive.
We license the technology underlying certain of our gel products, including LibiGel and Elestrin, from Antares Pharma, Inc. Our license agreement with Antares requires us to pay Antares certain development and regulatory milestone payments and royalties based on net sales of any products we or our licensees sell incorporating the licensed technology. Bio-T-Gel was developed and is fully-owned by us and licensed to Teva for further development and commercialization. We license the technology underlying The Pill Plus from Wake Forest University Health Sciences and Cedars-Sinai Medical Center. The financial terms of this license include regulatory milestone payments, maintenance payments and royalty payments by us if a product incorporating the licensed technology gets approved and subsequently is marketed.
LibiGel. We believe LibiGel, if approved by the FDA, could be a very successful product. LibiGel is a once daily transdermal testosterone gel designed to treat FSD, specifically HSDD in menopausal women. The majority of women with FSD are postmenopausal, experiencing FSD due to hormonal changes associated with aging or following surgical menopause. LibiGel successfully has completed a Phase II clinical trial, and three Phase III safety and efficacy clinical studies currently are underway. We have completed enrollment in the first efficacy trial, plan to complete enrollment in the second efficacy trial in the near future and the safety study currently is enrolling women.
We believe LibiGel remains the lead pharmaceutical product in the U.S. in active development for the treatment of HSDD in menopausal women, and that it has the potential to be the first product approved by the FDA for this common and unmetaccepted medical need. We believe based on agreements with the FDA, including an SPA, that two Phase III safety and efficacy trials and a minimum average exposure to LibiGel per subject of 12 months in a Phase III cardiovascular and breast cancer safety study with a four-year follow-up post-NDA filing and potentially post-FDA approval and product launch, are the essential requirements for submission and, if successful, approval by the FDA of an NDA for LibiGel for the treatment of FSD, specifically HSDD in menopausal women. We have three SPAs in place concerning LibiGel. The first SPA agreement covers the pivotal Phase III safety and efficacy trials of LibiGel in the treatment of FSD for “surgically” menopausal women. The second SPA covers our LibiGel program in the treatment of FSD in “naturally” menopausal women. The third SPA agreement covers the LibiGel stability, or shelf life, studies for the intended commercialization of LibiGel product.
Both Phase III safety and efficacy trials are randomized, double-blind, placebo-controlled, multi-center trials of approximately 500 surgically menopausal women each, exposed to LibiGel or placebo for six months. We have completed enrollment in the first efficacy trial and plan to complete enrollment in the second efficacy trial in the near future The Phase III safety study currently is enrolling women and is a randomized, double-blind, placebo-controlled, multi-center, cardiovascular and breast cancer safety study of between approximately 3,000 and 4,000 women exposed to LibiGel or placebo for a minimum average of 12 months. After data analysis and following NDA submission and potential FDA approval and product launch, we will continue to follow each woman in the safety study for 60 total months of exposure.
In February 2011, based upon the fifth review of study conduct and unblinded safety data from the safety study by the study’s independent data monitoring committee, the DMC unanimously recommended continuing the safety study as described in the FDA-agreed study protocol, with no modifications. The DMC’s review was based on unblinded adverse events of the subjects who have been enrolled in the safety study. Additional unblinded reviews will be conducted by the DMC every approximately 90 days from the previous review. However, according to the
protocol, the DMC may meet earlier after each two additional adjudicated cardiovascular events. As of the date of the DMC’s most recent review, there had been only 17 adjudicated cardiovascular (CV) events, a rate of approximately 0.58 percent, and only eight diagnoses of breast cancer, a rate of approximately 0.27 percent, after approximately 2,900 women-years of exposure in the study, or an average of more than 12 months per subject. As of the end of February 2011, approximately 2,900 women were enrolled in the study. At each review of safety data, the study potentially could be fully enrolled based on predefined statistical analyses. If enrollment is not completed sooner, enrollment will continue until the safety study reaches its predetermined maximum of 4,000 women.
There is no pharmaceutical product currently approveduses in the United StatesStates. In addition to its existing pipeline of four ANDAs, the Company has identified additional product development opportunities in this market.
· | Free-up internal resources to focus on sales and marketing as well as research and development; | |
· | Employ internal capacity to manufacture higher volume or more critical products; and | |
· | Utilize the Company’s specialized equipment and expertise. |
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Although generally thought of as being limited to men, testosterone also is important to women and its deficiency has been found to cause low libido or sex drive. Studies have shown that testosterone therapy in women can boost sexual desire, sexual activity and pleasure, increase bone density, raise energy levels and improve mood. According to a study published in the Journal of the American Medical Association, 43 percent of American women between the ages of 18 to 59, or about 40 million women, experience some degree of impaired sexual function. Among the more than 1,400 women surveyed, 32 percent lacked interest in sex (low sexual desire). Furthermore, according to a study published in the New England Journal of Medicine, 43 percent of American women between the ages of 57 to 85 experience low sexual desire. Importantly, according to IMS data, two million testosterone prescriptions were written off-label for women by U.S. physicians in 2009 and according to independent primary market research, at least 2 million additional prescriptions of compounded testosterone were written off-label for women. Female sexual dysfunction is defined as a lack of sexual desire, arousal or pleasure. The majority of women with FSD are postmenopausal, experiencing symptomseach product due to hormonal changes that occur with aging or following surgical menopause.
Treatment with LibiGelthe cost and time required to validate and qualify a second source of supply. Any change by the Company in our Phase II clinical trial significantly increased satisfying sexual events in surgically menopausal women suffering from FSD. The Phase II trial results showed LibiGel significantly increased the numberone of satisfying sexual events by 238 percent versus baseline; this increase also was significant versus placebo. In this study, the effective dose of LibiGel produced testosterone blood levels within the normal range for pre-menopausal women and hadits API suppliers must usually be approved through a safety profile similar to that observed in the placebo group. In addition, no serious adverse events and no discontinuations due to adverse events occurred in any subject receiving LibiGel. The Phase II clinical trial was a double-blind, placebo-controlled trial, conducted in the United States, in surgically menopausal women distressed by their low sexual desire and activity.
In July 2010, we announced the initiation of a LibiGel clinical trial to evaluate its effect on cognitive function in menopausal women. The trial is a randomized, double-blind, placebo-controlled six-month comparison in 120 women of the effect of LibiGel compared to placebo treatment on a variety of learning and memory tasks. The study is being conducted by Dr. Susan Davis, Professor of Women’s Health, Department of Medicine, Monash University Women’s Health Program in Australia.
Elestrin. Elestrin is our first FDA approved product. Elestrin is a once daily transdermal gel that delivers estrogen without the skin irritation associated with, and the physical presence of, transdermal patches, and to avoid the effects of oral estrogen. Elestrin contains estradiol versus conjugated equine estrogen contained in the most commonly prescribed oral estrogen.
Elestrin is indicated for the treatment of moderate-to-severe vasomotor symptoms (hot flashes) associated with menopause. Elestrin is administered using a metered dose applicator. Two doses of Elestrin were approvedPrior Approval Supplement by the FDA. The lower dose of Elestrin is oneCertain of the lowest daily dosesCompany’s API for its drug products, including those that are marketed without approved NDAs or ANDAs, such as EEMT, are sourced from international suppliers. From time to time the Company has experienced temporary disruptions in the supply of estradiol approvedcertain of such imported API due to FDA inspections.
ElestrinCompany is subject to a license agreementextensive and an asset purchase agreement with Azur for the marketingcomplex regulation, including physical inspection of Elestrin and the sale of certain assets related to Elestrin pursuant toits facilities, under multiple federal statutes, which we received approximately $3.3 million. In April
2009, we announced the initiation of sales and marketing activity of Elestrin by Azur. Subsequently, we entered into an amendment to our original licensing agreement with Azur pursuant to which we received $3.16 million in non-refundable payments in exchange for the elimination of all remaining future royalty payments and certain milestone payments that could have been paid to us related to Azur’s sales of Elestrin. We maintain the right to receive up to $140 million in sales-based milestone payments from Azur if Elestrin reaches certain predefined sales per calendar year, although based on current sales levels, we believe our receipt of such payments unlikely in the near term, if at all. Azur is marketing Elestrin in the U.S. using Azur’s women’s health sales force which targets estrogen prescribing physicians in the U.S. comprised mostly of gynecologists.
Elestrin is also subject to an exclusive agreement with PharmaSwiss SA (to be acquired by Valeant Pharmaceuticals) for the marketing of Elestrin in Israel. PharmaSwiss is responsible for regulatory and marketing activities in Israel. Israeli authorities have approved Elestrin and plans for marketing Elestrin.
Bio-T-Gel. Bio-T-Gel is our once daily transdermal testosterone gel in development for the treatment of hypogonadism, or testosterone deficiency, in men. Unlike LibiGel and Elestrin, Bio-T-Gel is owned by us with no royalty or milestone obligations to any other party.
Bio-T-Gel is subject to a development and license agreement with Teva Pharmaceuticals USA, Inc., a wholly-owned subsidiary of Teva Pharmaceutical Industries Ltd., pursuant to which Teva USA has agreed to develop and market Bio-T-Gel for the U.S. market. The financial terms of the development and license agreement included a $1.5 million upfront payment by Teva USA, certain milestones and royalties on sales of the product, if and when approved and marketed, in exchange for rights to develop and market the product. Teva USA also is responsible under the terms of the agreement for continued development, regulatory filings and all manufacturing and marketing associated with the product. It is anticipated that Teva USA will submit an application for approval to market Bio-T-Gel to the FDA during the first half of 2011.
Testosterone deficiency in men is known as hypogonadism. Low levels of testosterone may result in lethargy, depression, decreased sex drive, impotence, low sperm count and increased irritability. Men with severe and prolonged reduction of testosterone also may experience loss of body hair, reduced muscle mass, osteoporosis and bone fractures due to osteoporosis. Approximately five million men in the United States, primarily over age 40, have lower than normal levels of testosterone. Testosterone therapy has been shown to restore levels of testosterone with minimal side effects.
There are currently several products on the market for the treatment of low testosterone levels in men. As opposed to estrogen therapy products, oral administration of testosterone is currently not possible as the hormone is, for the most part, rendered inactive in the liver making it difficult to achieve adequate levels of the compound in the bloodstream. Current methods of administration include testosterone injections, patches and gels. Testosterone injections require large needles, are often painful and not effective for maintaining adequate testosterone blood levels throughout the day. Delivery of testosterone through transdermal patches was developed primarily to promote the therapeutic effects of testosterone therapy without the often painful side effects associated with testosterone injections. Transdermal patches, however, similar to estrogen patches, have a physical presence, can fall off, and can result in skin irritation. Testosterone formulated gel products for men are designed to deliver testosterone without the pain of injections and the physical presence, skin irritation and discomfort associated with transdermal patches. We are aware of two gel testosterone products for men currently on the market in the United States and two others have been FDA approved but have not been commercially launched yet. According to IMS Health, the U.S. market for transdermal testosterone therapies grew approximately 17 percent in 2010 to $1.1 billion from $968 million in 2009.
The Pill-Plus. The Pill-Plus is based on three issued U.S. patents claiming triple component therapy via any route of administration (the combination use of estrogen plus progestogen plus androgen, e.g. testosterone). The Pill-Plus adds a third component, an androgen, to the normal two component (estrogen and progestogen) oral contraceptive to prevent testosterone deficiency which can result from the estrogen and progestogen components and which often leads to a decrease in sexual desire, sexual activity and mood changes. In a completed Phase II double-blind randomized clinical trial, the addition of an oral androgen resulted in restoration of testosterone levels to the normal
and physiological range for healthy women. Paradoxically, many women who use oral contraceptives have reduced sexual desire, arousabilty and activity due to the estrogen and progestogen in normal oral contraceptives. The Pill-Plus is designed to improve the symptoms of female sexual dysfunction in oral contraceptive users.
We have an exclusive license from Wake Forest University Health Sciences (formerly known as Wake Forest University) and Cedars-Sinai Medical Center for the three issued U.S. patents for triple component contraception. The financial terms of the license include an upfront payment, regulatory milestone payments, maintenance payments and royalty payments by us if a product incorporating the licensed technology gets approved and subsequently is marketed.
The Pill-Plus is subject to a sublicense agreement with Pantarhei Bioscience B.V. (Pantarhei), a Netherlands-based pharmaceutical company. Pantarhei is responsible under the agreement for all expenses to develop and market the product. We may receive certain development and regulatory milestones for the first product developed under the license. In addition, we will receive royalty payments on any sales of the product in the U.S., if and when approved and marketed. If the product is sublicensed by Pantarhei to another company, we will receive a percentage of any and all payments received by Pantarhei for the sublicense from a third party. We have retained all rights under our licensed patents to the transdermal delivery of triple component contraceptives.
In June 2010, we announced positive results in a Phase II study of the Pill-Plus “triple component” oral contraceptive. The study was a Phase II double-blind, randomized clinical trial in 82 women comprising a cross-over design of two treatment periods of five months each. The study compared use of an oral contraceptive alone to the same oral contraceptive with the addition of an oral androgen (DHEA). The study was performed by the Department of Sexology of the Academic Medical Center in Amsterdam, The Netherlands in close collaboration with Pantarhei Bioscience B.V. in The Netherlands, our licensee.
Other Products. Marketing rights to our gel products in Canada are subject to an agreementrevision from time to time. While the Company has experience with Paladin Labs Inc. In exchange for the sublicense, Paladin agreed to make an initial investment in our company, make future milestone payments and pay royalties on sales of the products in Canada. The milestone payments are required to be in the form of a series of equity investments by Paladin in our common stock at a 10 percent premium to the market price of our stock at the time the equity investment is made.
Description of Our Cancer Vaccines and Other Technologies
Cancer Vaccine Technology. Our cancer vaccines are designed to stimulate the patient’s immune system to effectively fight cancer. Our cancer vaccines are comprised of tumor cells that are genetically modified to secrete an immune-stimulating cytokine known as granulocyte-macrophage colony-stimulating factor, or GM-CSF, and are then irradiated for safety. Since our cancer vaccines consist of whole tumor cells, the cancer patient’s immune systemthese regulations, there can be activated against multiple tumor cell components, or antigens, potentially resulting in greater clinical benefit than ifno assurance that the vaccine consisted of only a single tumor cell component. Additionally, the secretion of GM-CSF by the modified tumor cells can enhance greatly the immune response by recruiting and activating dendritic cells at the injection site, a critical step in the optimal response by the immune systemCompany will be able to any immunotherapy product. The antitumor immune response which occurs throughout the body following administration of our cancer vaccine potentially can result in the destruction of tumor cells that persist or recur following surgery, radiation therapy or chemotherapy treatment.fully comply with all applicable regulations.
Our cancer vaccines can be administered conveniently in an outpatient setting as an injection into the skin, a site where immune cells, including in particular dendritic cells, can be optimally accessed and activated. These cancer vaccines are being tested as patient-specific, or autologous, products and as non patient-specific, or allogeneic, products. Multiple Phase II trials of these vaccines are ongoing at minimal cost to us at the Johns Hopkins Sidney Kimmel Comprehensive Cancer Center in various cancer types, including pancreatic cancer, leukemia and breast cancer. We anticipate Phase II trials for prostate cancer to begin in 2011. Four of these vaccines have been granted FDA orphan drug designation.
two proteins at high concentrations from a single expression vector making it particularly useful for recombinant antibody expression. The technology expression technology has been used successfully to express antibodies from several species, including murine, rat and human, as well as a variety of antibody isotypes. The 2A/furin expression technology has several potential applications including preclinical lead and target validation, gene therapy, production of stable, high producer antibody cell lines, and commercial production of antibodies and other proteins. The 2A/furin technology can increase the efficiency of antibody production by cutting the cost and reducing the time to manufacture antibodies. According to the Global Monoclonal Antibodies Review, the antibody market in the U.S. is estimated to be more than $30 billion per year.
In April 2010, we entered into an option agreement with an undisclosed pharmaceutical company to obtain a non-exclusive license for the use of our 2A/furin technology. The undisclosed company has chosen not to exercise this option. We are evaluating further development of our 2A/furin technology.
Oncolytic Virus Technology. On November 15, 2010, we entered into an assignment and technology transfer agreement with Cold Genesys, Inc. pursuant to which we sold to Cold Genesys exclusive, worldwide rights to develop and commercialize our oncolytic virus technology. The oncolytic virus technology uses replication-competent adenoviruses derived from Adenovirus type 5, a common “cold” virus that replicate in and selectively kill tumor cells. The replication of the virus is controlled by replacing the promoter of a gene required for replication with a promoter that is preferentially expressed only in tumor cells. Furthermore, the virus may optionally include a gene encoding a cytokine, which enhances immune stimulation to the tumor, thereby providing a dual mechanism of action for killing targeted cancer cells by direct cell lysis as well as via cellular and humoral immune responses to the tumor. The oncolytic virus technology includes CG0070, a replication-competent adenovirus that has completed a Phase I clinical trial for treatment of superficial bladder cancer. In exchange for the technology, we received a 19.9 percent ownership position in Cold Genesys and a $95,000 upfront cash payment and are eligible to receive future milestone and royalty payments.
CaP Technology. Our CaP technology is based on the use of extremely small, solid, uniform particles, which we call “nanoparticles.” Our CaP technology is subject to a license agreement with Medical Aesthetics Technology Corporation (MATC) covering the use of our CaP as a facial line filler in aesthetic medicine (BioLook). Under the license agreement, MATC is responsible for continued development of BioLook, including required clinical trials, regulatory filings and all manufacturing and marketing associated with the product. In exchange for the license, we received a minor ownership position in MATC. In addition to the ownership position, we may receive certain milestone payments and royalties as well as share in certain payments if MATC sublicenses the technology.
Pre-clinical work to date by MATC indicates that our BioLook nanotechnology performs well as a facial line filler and may be at least as long lasting and safe as other injectable fillers. Preliminary results indicate long lasting effects with no adverse events. BioLook should be extremely user friendly with minimal risk of side effects and may improve both facial wrinkles and fulfill larger facial volume needs. Human clinical testing of BioLook for this use is being planned and is expected to be initiated by MATC in 2011.
Although we believe our CaP technology has other potential commercial uses, we are not devoting any of our cash resources to pursuing any of these other potential uses.
Sales and Marketing
We currently have no sales and marketing personnel to sell any of our products on a commercial basis. Under our license agreements, our licensees have agreed to market the products covered by the agreements in certain countries. For example, under our license agreement with Azur, Azur has agreed to use commercially reasonable efforts to manufacture, market, sell and distribute Elestrin for commercial sale and distribution throughout the United States.
If and when we are ready to launch commercially a product not covered by our license agreements, we will either contract with or hire qualified sales and marketing personnel or seek a joint marketing partner or licensee to assist us with this function.
Research and Product Development
We spend a significant amount of our financial resources on product development activities, with the largest portion being spent on clinical studies of our products, including in particular LibiGel. We spent approximately $39.7 million in 2010, $13.7 million in 2009 and $15.8 million in 2008 on research and development activities. We spent an average of approximately $3.3 million per month on our research and development activities during 2010, the substantial majority of which was spent on our LibiGel Phase IIII clinical studies. The increase in research and development expenses in 2010 compared to 2009 was primarily the result of the conduct of the LibiGel Phase III clinical studies. In April 2009, we decided to delay screening new subjects for our LibiGel Phase III safety study in order to conserve cash; however, in January 2010, we reinitiated screening and enrollment in our safety study. The amount of our actual research and development expenditures in 2011 and beyond may fluctuate from quarter-to-quarter and year-to-year depending upon: (1) the amount of resources, including cash available; (2) our development schedule, including the timing and scope of our clinical studies; (3) results of studies, clinical studies and regulatory decisions, including in particular the number of subjects required in our LibiGel Phase III safety study; (4) the amount of our clinical recruitment expenditures intended to complete enrollment in our LibiGel safety study; (5) whether we or our licensees are funding the development of our products; and (6) competitive developments
Manufacturing
We currently do not have any facilities suitable for manufacturing on a commercial scale basis any of our products nor do we have any experience in volume manufacturing. We currently use third-party current Good Manufacturing Practices, or cGMP, manufacturers to manufacture our products in accordance with FDA and other appropriate regulations. LibiGel for our clinical studies is currently manufactured by an approved U.S.-based manufacturer under FDA-approved, cGMP conditions.
Patents, Licenses and Proprietary Rights
Our success depends and will continue to depend in part upon our ability to maintain our exclusive licenses, to obtain and maintain patent protection for our products and processes, to preserve our proprietary information, trademarks and trade secrets and to operate without infringing the proprietary rights of third parties. Our policy is to attempt to protect our technology by, among other things, filing patent applications or obtaining license rights for technology that we consider important to the development of our business.
GelGeneric Pharmaceutical Products. We licensed the technology underlying LibiGel, Elestrin and certain of our other gel
The Pill Plus. We licensed the technology underlying our triple component contraceptives, or The Pill Plus, from Wake Forest University Health Sciences and Cedars-Sinai Medical Center. The financial terms of this license include regulatory milestone payments, maintenance payments and royalty payments by us if a product incorporating the licensed technology gets approved and subsequently is marketed. The patents covering the technology underlying The Pill Plus expire in 2016.
Cancer Vaccine Technology. We own development and commercialization rights to our cancer vaccine technology as a result of our merger with Cell Genesys in October 2009. The original core patent applications
covering our cancer vaccine technology were licensed exclusively to Cell Genesys from Johns Hopkins University and The Whitehead Institute for Biomedical Research in 1992. Rights to additional patents and patent applications were licensed from Johns Hopkins University in 2001. In addition, we own several patents and patent applications that build upon our in-licensed technology, and provide for significant additional patent term.
Our cancer vaccine patent estate broadly covers our cancer vaccine products and pipeline. The cancer vaccine patent estate includes 17 patent families, comprising over 60 issued US and foreign patents, directed to various aspects of our cancer vaccine technology. The patents expire between 2012 and 2026.
Under the various agreements, we are required to pay Johns Hopkins University and The Whitehead Institute for Biomedical Research certain development and regulatory milestone payments and royalties based on net sales of any products we or our sub-licensees sell incorporating the in-licensed technology.
2A/Furin Protein Expression Technology. We own development and commercialization rights to our 2A/furin protein expression technology as a result of our merger with Cell Genesys in October 2009. Our 2A/furin patent estate includes five patent families, including four issued US patents and additional patent applications, directed to various aspects of the 2A/furin technology, including compositions and methods for producing recombinant antibodies. The patents expire between 2023 and 2026.
CaP Technology. In June 1997, we entered into a licensing agreement with the Regents of the University of California, which subsequently has been amended, pursuant to which the University granted us an exclusive license to certain United States patents owned by the University, including rights to sublicense such patents, in fields of use pertaining to vaccine adjuvants and drug delivery systems. The last of the expiration dates for these patents is 2014. We also own several of our own additional patents and patent applications covering the CaP technology expiring beginning in 2021. The University of California also has filed patent applications for this licensed technology in several foreign jurisdictions, including Canada, Europe and Japan. The license agreement requires us to pay royalties to the University based on a percentage of the net sales of any products we sell or a licensee sells incorporating the licensed technology until expiration of the licensed patents. As described earlier in this report, we have entered into agreements with respect to our CaP technology, including a license agreement covering the use of our CaP as a facial line filler (BioLook) in aesthetic medicine. Although we are maintaining the patents for our CaP to be used as a facial line filler, we have discontinued maintaining any of the other CaP patents.
Other License Agreements. As described earlier in this report, we have entered into several other license agreements pursuant to which we have sublicensed to third parties certain rights with respect to our products, none of which we view as material to our business. The financial terms of these agreements generally include an upfront license fee and subsequent milestone and royalty payments to us if a product incorporating the licensed technology gets approved and subsequently is marketed and a portion of any payments received from subsequent successful out-licensing efforts.
Trademarks and Trademark Applications/Registrations. We own trademark registrations in the U.S. and/or in certain foreign jurisdictions for several marks, including BIOSANTE®, LIBIGEL® and BIO-E-GEL®. In addition, we have filed trademark applications for several other marks including ELESTRIN™ (pursuant to our license of Elestrin to Azur in the U.S., we transferred the Elestrin trademark in the U.S. to Azur) and BIO-T-GEL™. In addition, we own common law rights to several trademarks, including BIOSANTE®, LIBIGEL®, ELESTRIN™, BIO-E-GEL®, BIO-T-GEL™, THE PILL-PLUS™, LIBIGEL-E/T™, and BIOLOOK™. For those trademarks for which registration has been sought, registrations have issued for some of those trademarks in certain jurisdictions and others currently are in the application/prosecution phase.
Confidentiality and Assignment of Inventions Agreements. We require our employees, consultants and advisors having access to our confidential information to execute confidentiality agreements upon commencement of their employment or consulting relationships with us. These agreements generally provide that all confidential information we develop or make known to the individual during the course of the individual’s employment or consulting relationship with us must be kept confidential by the individual and not disclosed to any third parties. We also require all of our employees and consultants who perform research and development for us to execute
agreements that generally provide that all inventions and works-for-hire conceived by these individuals during their employment by us will be our property.
Competition
There is intense competition in the biopharmaceutical industry, the market for prevention and/or treatment of the same infectious diseases we target and in the acquisition or licensing of new products. Potential competitors in the United States are numerous and include major pharmaceutical and specialized biotechnology companies, universities and other institutions. In general, competition ingenerally marketed as either branded or generic drugs. Branded products are generally patent protected, which provides a period of market exclusivity during which time they are sold by the pharmaceutical industry can be divided into four categories: (1) corporations with large research and developmental departments that develop and market products in many therapeutic areas; (2) companies that have moderate research and development capabilities and focus their product strategy on a small number of therapeutic areas; (3) small companies with limited development capabilities and only a few product offerings; and (4) university and other research institutions. Many of our competitors have longer operating histories, greater name recognition, substantially greater financial resources and larger research and development staffs than we do, as well as substantially greater experience than us in developing products, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. A significant amount of research is carried out at academic and government institutions. These institutions are awaredeveloper of the commercial value of their findings andproduct with little or no competition for the compound, although typically there are becoming more aggressive in pursuing patent protection and negotiating licensing arrangements to collect royalties for use of technology that they have developed.
There are several firms currently marketing or developing products that may be competitive with ours; they include Upsher-Smith Laboratories, Inc., Noven Pharmaceuticals, Inc. (a subsidiary of Hisamitsu Pharmaceutical Co., Inc.), Pfizer Inc., Auxilium Pharmaceuticals, Inc., Ascend Therapeutics, Inc., Watson Pharmaceuticals, Inc., KV Pharmaceutical Co., and Abbott Laboratories. Competitor products include oral tablets, transdermal patches, a spray and gels. We expect our FDA-approved product, Elestrin, and our other products, if and when approved for sale, to compete primarily on the basis of product efficacy, safety, patient convenience, reliability and patent position. In addition, the first product to reach the market in a therapeutic or preventative area is often at a significant competitive advantage relative to later entrants in the market and may result in certain marketing exclusivity as per federal legislation. Acceptance by physicians and other health care providers, including managed care groups, also is critical to the success of a product versus competitor products.
With regard to our cancer vaccine technology and other recently acquired technologies, we face substantial competition in the development of products for cancer and other diseases. This competition from other manufacturers is expected to continue in both U.S. and international markets. Cancer vaccines are evolving areas in the biotechnology industry and are expected to undergo many changes in the coming years as a result of technological advances. We currently are aware of a number of groups that are developing cancer vaccines including early-stage and established biotechnology companies, pharmaceutical companies, academic institutions, government agencies and research institutions. Examples in the cancer vaccine area include Dendreon Corporation, which has an FDA approved product for prostate cancer, Onyvax Ltd., Antigenics, Inc., Oncothyreon Inc., GlaxoSmithKline, Warner Chilcott plc and Boerhinger Ingelheim USA Corporation also are developing vaccine products for other types of cancers.
Governmental Regulation
Pharmaceutical companies are subject to extensive regulation by national, state and local agencies in countries in which they do business. Pharmaceutical products intended for therapeutic use in humans are governed by extensive FDA regulations in the United States and by comparable regulations in foreign countries. Any products developed by us will require FDA approvals in the United States and comparable approvals in foreign markets before they can be marketed.
The U.S. Federal Food, Drug, and Cosmetic Act (FDCA) and other federal and state statutes and regulations govern or influence, among other things, the development, testing, manufacture, safety, labeling, storage, recordkeeping, approval, advertising, promotion, sale, import, export and distribution of pharmaceutical products in the United States. Pharmaceutical manufacturers also are subject to certain record-keeping and reporting requirements, establishment registration and product listing, and FDA inspections.
same therapeutic area.
Manufacturers of controlled substances alsoAll prescription pharmaceutical products, whether branded or generic, must comply with the federal Controlled Substances Act of 1970 (CSA) and regulations promulgatedbe approved by the U.S. Drug Enforcement Administration (DEA), as well as similar state and local regulatory requirements for manufacturing, distributing, testing, importing, exporting and handling controlled substances.
Noncompliance with applicable legal and regulatory requirements can have a broad range of consequences, including warning letters, fines, seizure of products, product recalls, total or partial suspension of production and distribution, refusal to approve NDAs or other applications or revocation of approvals previously granted, withdrawal of product from marketing, injunction, withdrawal of licenses or registrations necessary to conduct business, disqualification from supply contracts with the government, and criminal prosecution.
Product development and approval within the FDA regulatory framework take a number of years, involve the expenditure of substantial resources, and are uncertain. Many products ultimately do not reach the market because they are not found to be safe or effective or cannot meet the FDA’s other regulatory requirements. After a product is approved, the FDA may revoke or suspend the product approval if compliance with post-market regulatory standards is not maintained or if problems occur after the product reaches the marketplace. In addition, the FDA may require post-marketing studies to monitor the effect of approved products, and may limit further marketing of the product based on the results of these post-market studies or evidence of safety concerns. Further, the current regulatory framework may change and additional regulatory or approval requirements may arise at any stage of our product development that may affect approval, delay the submission or review of an application or require additional expenditures by us. We may not be able to obtain necessary regulatory clearances or approvals on a timely basis, if at all, for any of our products under development. Delays in receipt or failure to receive such clearances or approvals, the loss of previously received clearances or approvals, or failure to comply with existing or future regulatory requirements could have a material adverse effect on our business.
New Product Development and Approval. FDA. All applications for FDA approval must contain information relating to product formulation, raw material suppliers, stability, product testing, manufacturing processes, manufacturing facilities, packaging, labeling and quality control, and evidencecontrol. Information to support the bioequivalence of generic drug products or the safety and effectiveness of new drug products for their intended uses. For a generic drug product, instead of safety and effectiveness data, an application must demonstrate that the proposed productuse is the same as the branded drug in several key characteristics.also required to be submitted. There are threegenerally two types of applications used for obtaining FDA approval of new non-biological drug products, other than a generic product:products:
·Another form of an NDA is the “505(b)(2) NDA,” which typically is used to seek FDA approval of products that share characteristics (often, the active ingredient(s)) withindication for a previously approved product of another company, but contain modificationsdrug. The Company markets its Cortenema®, generic Hydrocortisone Enema, Reglan®tablets and generic Fluvoxaminetablets under approved NDAs.
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Theprocess by which a product, other thanmarket a generic product, is approved for marketing in the United States can take from three to more than 10 years, and generally involves the following:
·laboratory and preclinical tests;
·submission of an Investigational New Drug (IND) application, which must become effective before clinical studies may begin;
·adequate and well-controlled human clinical studies to establish the safety and efficacy of the proposed product for its intended use;
·submission of a full NDA or 505(b)(2) NDA containing, to the extent required, the results of the preclinical tests and clinical studies establishing the safety and efficacy of the proposed product for its intended use, as well as extensive data addressing matters such as manufacturing and quality assurance;
·scale-up to commercial manufacturing;
·satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities; and
·FDA approval of the application.
To the extent that a 505(b)(2) NDA applicant can rely on the referenced application, it may not be required to conduct some of these steps.
Pre-Clinical Studies and Clinical Trials. Typically, preclinical studies are conducted in the laboratory and in animals to gain preliminary information on a product’s uses and physiological effects and harmful effects, if any, and to identify any potential safety problems that would preclude testing in humans. The results of these studies, together with the general investigative plan, protocols for specific human studies and other information, are submitted to the FDA as part of the IND application. The FDA regulations do not, by their terms, require FDA approval of an IND. Rather, they allow a clinical investigation to commence if the FDA does not notify the sponsor to the contrary within 30 days of receipt of the IND. As a practical matter, however, FDA approval is often sought before a company commences clinical investigations. That approval may come within 30 days of IND receipt but may involve substantial delays if the FDA requests additional information.
Our submission of an IND, or those of our collaboration partners, may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND also must be made for each successive clinical trial conducted during product development. Depending on its significance, the FDA also must approve changes to an existing IND. Further, an independent institutional review board, or IRB, for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center and it must monitor the study until completed. Alternatively, a central IRB may be used instead of individual IRBs. The FDA, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive Good Clinical Practice requirements and regulations for informed consent.
The sponsorequivalent of a drug product typically conducts human clinical trialspreviously approved under an NDA. The Company markets its Metoclopramide syrup under an approved ANDA. The Company has submitted five ANDAs and had an additional seven ANDAs in three sequential phases, but the phases may overlap or not all phases may be necessary. its pipeline as of December 31, 2013.
Phase II trials are designed to evaluaterequire new preclinical and clinical studies, because it relies on the effectiveness of the product in the treatment of a given disease and involve people with the disease under study. These trials often are well controlled, closely monitored studies involving a relatively small number of subjects, usually no more than several hundred. The optimal routes, dosages and schedules of administration are determined in these studies. If Phase II trials are completed successfully, Phase III trials are often commenced, although Phase III trials are not always required.
Phase III trials are expanded, controlled trials that are performed after preliminary evidence of the effectiveness of the experimental product has been obtained. These trials are intended to gather the additional information aboutestablishing safety and effectiveness that is needed to evaluateefficacy conducted for the overall risk/benefit relationship ofreference branded drug previously approved through the experimental product
and provide the substantial evidence of effectiveness and the evidence of safety necessary for product approval. Phase III trials are usually conducted with several hundred to several thousand subjects.
A clinical trial may combine the elements of more thanNDA process. The ANDA process, however, typically requires one phase and typically two or more Phase IIIbioequivalence studies are required. A company’s designation of a clinical trial as being of a particular phase is not necessarily indicativeto show that the trial will be sufficient to satisfy the FDA requirements of that phase because this determination cannot be made until the protocol and data have been submitted to and reviewed by the FDA. In addition, a clinical trial may contain elements of more than one phase notwithstanding the designation of the trial as being of a particular phase. The FDA closely monitors the progress of the phases of clinical testing and may, at its discretion, re-evaluate, alter, suspend or terminate the testing based on the data accumulated and its assessment of the risk/benefit ratio to patients. ItANDA drug is not possible to estimate with any certainty the time required to complete Phase I, II and III studies with respect to a given product.
Success in early-stage clinical trials does not necessarily assure success in later-stage clinical trials. Data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit or even prevent regulatory approval. Regulations require the posting of certain details about active clinical trials on government or independent websites (e.g., www.clinicaltrials.gov), and subsequently a limited posting of the results of those trials. This helps prospective patients find out about trials they may wish to enroll in, but also provides some competitive intelligence to other companies working in the field. Failure to post the trial or its results in a timely manner can result in civil penalties and the rejection of the drug application.
New Drug Applications. The results of the product development, including preclinical studies, clinical studies, and product formulation and manufacturing information, are then submittedbioequivalent to the FDA as part of the NDA. The FDA also may conclude that as part of the NDA or the 505(b)(2) NDA, the sponsor must develop a risk evaluation and mitigation strategy (REMS) to ensure that the benefits of the drug outweigh the risks. A REMS may have different components, including a package insert directed to patients, a plan for communication with healthcare providers, restrictions on a drug’s distribution, or a medication guide to provide better information to consumers about the drug’s risks and benefits.
The FDA reviews each submitted application before accepting it for filing, and may refuse to file the application if it does not appear to meet the minimal standards for filing. If the FDA refuses to file an application and requests additional information, the application must be resubmitted with the requested information. Once the submission is accepted for filing, the FDA begins an in-depth review of the application to determine, among other things, whether a product is safe and effective for its intended use. As part of this review, the FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation. Under the policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has 10 months in which to complete its initial review of a standard NDA and respond to the applicant. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months of the PDUFA goal date. The FDA typically takes from 10 to 18 months to review an NDA after it has been accepted for filing. Following its review of an NDA, the FDA invariably raises questions or requests additional information. The NDA approval process can, accordingly, be very lengthy, and there is no assurance that the FDA will ultimately approve an NDA.
Acceptance for filing of an application does not assure FDA approval for marketing. The FDA has substantial discretion in the approval process and may disagree with an applicant’s interpretation of the submitted data, which could delay, limit, or prevent regulatory approval. If it concludes that the application does not satisfy the regulatory criteria for approval, the FDA typically issues a “Complete Response” letter communicating the agency’s decision not to approve the application and outlining the deficiencies in the submission. The Complete Response letter may request additional information, including additional preclinical testing or clinical trials. Even if such information and data are submitted, the FDA may ultimately decide that the NDA or 505(b)(2) NDA does not satisfy the criteria for approval.
If the FDA approves the application, the agency may require post-marketing studies, also known as Phase IV studies, as a condition to approval. These studies may involve continued testing of a product and development of data, including clinical data, about the product’s effects in various populations and any side effects associated with long-term use. After approval, the FDA also may require post-marketing studies or clinical trials if new safety information develops.
Special Protocol Assessments. The special protocol assessment, or SPA, process generally involves FDA evaluation of a proposed Phase III clinical trial protocol and a commitment from the FDA that the design and analysis of the trial are adequate to support approval of an NDA, if the trial is performed according to the SPA and meets its endpoints. The FDA’s guidance on the SPA process indicates that SPAs are designed to evaluate individual clinical trial protocols primarily in response to specific questions posed by the sponsors. In practice, the sponsor of a product candidate may request an SPA for proposed Phase III trial objectives, designs, clinical endpoints and analyses. A request for an SPA is submitted in the form of a separate amendment to an IND, and the FDA’s evaluation generally will be completed within a 45-day review period under applicable PDUFA goals, provided that the trials have been the subject of discussion at an end-of-Phase II and pre-Phase III meeting with the FDA, or in other limited cases.
If an agreement is reached, the FDA will reduce the agreement to writing and make it part of the administrative record. While the FDA’s guidance on SPAs states that documented SPAs should be considered binding on the review division, the FDA has the latitude to change its assessment if certain exceptions apply. Exceptions include identification of a substantial scientific issue essential to safety or efficacy testing that later comes to light, a sponsor’s failure to follow the protocol agreed upon, or the FDA’s reliance on data, assumptions or information that are determined to be wrong.
The Hatch-Waxman Act. The Drug Price Competition and Patent Term Restoration Act of 1984 known(the “Hatch-Waxman Act”) provides that generic drugs may enter the market after the approval of an ANDA, which requires (1) that bioequivalence to the branded product be demonstrated through clinical studies, and (2) either the expiration, invalidation or circumvention of any patents or the end of any other relevant market exclusivity periods related to the reference branded drug.
Orphan Drug Exclusivity. The Orphan Drug Act was enacted by Congress to provide financial incentives for the development of drugs for rare conditions (affecting less than 200,000 individuals per year) in the United States. The orphan designation is granted for a combinationtreatment of a drug entity and an indication and therefore it can be grantedrare disease or is studied for an existing drug with a new (orphan) indication. Applications are made to the Office of Orphan Products Development at the FDA and a decision or requestpediatric indications.
Other Regulatory Requirements. Regulations continue to apply to pharmaceutical products after FDA approval occurs. Post-marketing safety surveillanceof NDAs and ANDAs is required in orderthat the Company's manufacturing procedures and operations conform to continue to market an approved product. The
FDA also may, in its discretion, require post-marketing testingrequirements and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of these products.
All facilities and manufacturing techniques used to manufacture products for clinical use or sale in the United States must be operated in conformity with “current good manufacturing practice” regulations, commonlyguidelines, generally referred to as “cGMP” regulations, which govern“cGMP.” The requirements for FDA approval encompass all aspects of the production of pharmaceutical products. We currently do not have any manufacturing capability. Inprocess, including validation and recordkeeping, the event we undertake any manufacturing activities standards around which are continuously changing and evolving. As a result, the Company must consistently keep pace and comply with these changes.
periodic inspections.
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Employees
We had 45 employees as of December 31, 2010, including 38 inparties' master product development and sevencollaboration agreement (the “RiconPharma Agreement”), the Company and RiconPharma have agreed to collaborate in management or administrative positions. Nonea cost, asset and profit sharing arrangement for the development, manufacturing, regulatory approval and marketing of our employeespharmaceutical products in the United States.
Forward-Looking Statements
This annual report on Form 10-K contains or incorporates by reference not only historical information, but also forward-looking statements withinresponsible for developing the meaning of Section 27Aproducts and the Company is responsible for manufacturing, sales, marketing and distribution of the Securities Actproducts. The parties are jointly responsible for directing any bioequivalence studies. The Company is responsible for obtaining and maintaining all necessary regulatory approvals, including the preparation of 1933,all ANDAs.
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·the timing of the commencement, enrollment and successful completion of our clinical studies, the submission of new drug applications and other regulatory status of our products in development;
·approval by the FDA of our products that are currently in clinical development and other regulatory decisions and actions;
·our spending capital on research and development programs, pre-clinical studies and clinical studies, regulatory processes and licensure or acquisition of new products;
·our spending on general and administrative expenses;
·our efforts to continue to evaluate various strategic alternatives with respect to our products and our company;
·the future market size and market acceptance of our products;
·the effect of new accounting pronouncements and future health care, tax and other legislation;
·whether and how long our existing cash will be sufficient to fund our operations;
·our need, ability and expected timing of any actions to raise additional capital through future equity and other financings; and
·our substantial and continuing losses.
Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businessestheir role as well as matters specific to us. Some of the factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements are described under the heading “Part I. Item 1A. Risk Factors” below. We wish to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described under the heading “Part I. Item 1A. Risk Factors” below, as well as others that we may consider immaterial or do not anticipate at this time. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described below under the heading “Part I. Item 1A. Risk Factors.” The risks and uncertainties described under the heading “Item 1A. Risk Factors” below are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K we file with or furnish to the Securities and Exchange Commission.
Available Information
We are a Delaware corporation that was initially formed as a corporation organized under the laws of the Province of Ontario in August 1996. We continued as a corporation under the laws of the State of Wyoming in December 1996 and reincorporated under the laws of the State of Delaware in June 2001. In October 2009, Cell Genesys, Inc. was merged with and into us, and we are the surviving corporation.
Our principal executive offices are located at 111 Barclay Boulevard, Lincolnshire, Illinois 60069. Our telephone number is (847) 478-0500, and our Internet web site address is www.biosantepharma.com. The information contained on our web site or connected to our web site is not incorporated by reference into and should not be considered part of this annual report on Form 10-K.
We make available, free of charge and through our Internet web site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also make available, free of charge and through our Internet web site, to any stockholder who requests, our corporate governance guidelines, the charters of our board committees and our Code of Conduct and Ethics. Requests for copies can be directed to Investor Relations at (847) 478-0500, extension 120.
The following are significant risk factors known to us thatdistributors, could have a material adverse effect on the Company’s business.
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· | Wholesalers. The Company has contracts with four major wholesalers in the United States: Cardinal, McKesson, AmerisourceBergen, and Morris Dickson, as well as access to their respective retail source programs. | |
· | Retail Market Chains. The Company conducts business with four major retail chains in the United States: Walgreens, CVS, RiteAid, and Wal-Mart. | |
· | Distributors and Mail Order Pharmacies. The Company has contracts with several major distributors and mail order pharmacies in the United States, including Anda, ExpressScripts, and Omnicare. | |
· | Hospital Market. The Company has contracts with group purchasing organizations in the United States, such as Premiere, MedAssets, Minnesota Multi-State, and the Federal Supply Schedule (“FSS”). |
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Item 1A. | Risk Factors |
Risks Relatedresults or could cause its actual results to Our Financial Conditiondiffer materially from its anticipated results or other expectations, including those expressed in any forward-looking statement made in this report. The risks described are not the only risks facing the Company. Additional risks and Future Capital Requirements
uncertainties not currently known to management, or that management currently deems to be immaterial, also may adversely affect the Company’s business, financial condition and/or operating results. If any of these risks actually occur, the Company's business, financial condition and operating results could suffer significantly. As a result, the market price of our common stock could decline and investors could lose all or part of their investment.
We
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Because we have no source of significant recurring revenue, we must depend on financing or partnering to sustain our operations. We may need to continue to raise substantial additional capital or enter into strategic partnering agreements to fund our operations and welargely unpredictable. The Company may be unable to raise such fundsobtain requisite approvals on a timely basis for branded or enter into strategic partnering agreements when needed and on acceptable terms.
Developinggeneric products requires substantial amounts of capital. In particular, we expectthat it may develop, license or acquire. Moreover, if the Phase III clinical study program of LibiGel to continue to require significant resources. We currently do not have sufficient cash resources to obtainCompany obtains regulatory approval of LibiGel or any of our other products in development. Our future capital requirements will depend upon numerous factors, including:
·the progress, timing, cost and results of our clinical development programs, including in particular our Phase III clinical study program for LibiGel, and our other product development efforts;
·subject recruitment and enrollment in our current and future clinical studies, including in particular our LibiGel Phase III safety study;
·our ability to license LibiGel or our other products in development;
·the success, progress, timing and costs of our business development efforts to seek strategic partners and implement business collaborations, licenses and other business combinations or transactions, including our efforts to continue to seek a strategic partner for LibiGel and evaluate various strategic alternatives availabledrug, it may be limited with respect to our cancer vaccinesthe indicated uses and other technologiesdelivery methods for which the drug may be marketed, which in turn could restrict its potential market for the drug. Also, for products pending approval, the Company may obtain raw materials or produce batches of inventory. In the event that we acquired as a resultregulatory approval is denied or delayed, the Company could be exposed to the risk of our merger with Cell Genesys, our products and our company;
·the cost, timing and outcome of regulatory reviews of our products in development;
·the rate of technological advances;
·the commercial success of our products;
·our general and administrative expenses;
·theany such inventory becoming obsolete. The timing and cost of obtaining regulatory approvals could adversely affect the Company’s product introduction plans, business, financial position and results of operations.
· | greater financial resources; | |
· | proprietary processes or delivery systems; | |
· | larger research and development and marketing staffs; | |
· | larger production capabilities; | |
· | more products; or | |
· | more experience in developing new drugs. |
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· | the availability of alternative products from the Company’s competitors; | |
· | the price of the Company's products relative to that of the Company's competitors; | |
· | the effectiveness of the Company’s marketing relative to that of the Company’s competitors; | |
· | the timing of the Company's market entry; | |
· | the ability to market the Company's products effectively to the retail level; and | |
· | the acceptance of the Company's products by government and private formularies. |
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· | diversion of management time and focus from operating the Company's business to addressing acquisition and/or product integration challenges; | |
· | coordination of research and development and sales and marketing functions; | |
· | retention of key employees from the acquired company; | |
· | integration of the acquired company’s accounting, management information, human resources and other administrative systems; | |
· | the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; | |
· | liability for activities of the acquired company and/or products before the acquisition, including patent infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; | |
· | unanticipated write-offs or charges; and | |
· | litigation or other claims in connection with the acquired company or product, including claims from product users, former stockholders or other third parties. |
·parties to assist it in its clinical studies. If these third parties do not perform as required contractually or expected, the activities of our competitors.
Therefore, weCompany’s clinical studies may be extended, delayed or terminated or may need to continuebe repeated, and the Company may not be able to raiseobtain regulatory approval for or commercialize the product being tested in such studies.
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· | entering into agreements whereby other generic companies will begin to market an authorized generic, a generic equivalent of a branded product, at the same time generic competition initially enters the market; | |
· | launching a generic version of their own branded product at the same time generic competition initially enters the market; | |
· | filing citizen's petitions with the FDA or other regulatory bodies, including timing the filings so as to thwart generic competition by causing delays of the Company’s product approvals; | |
· | seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate bioequivalence or meet other approval requirements; | |
· | initiating legislative and regulatory efforts to limit the substitution of generic versions of branded pharmaceuticals; | |
· | filing suits for patent infringement that may delay regulatory approval of generic products; |
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· | introducing "next-generation" products prior to the expiration of market exclusivity for the reference product, which often materially reduces the demand for the first generic product for which the Company seeks regulatory approval; | |
· | obtaining extensions of market exclusivity by conducting clinical trials of branded drugs in pediatric populations or by other potential methods; | |
· | persuading regulatory bodies to withdraw the approval of branded name drugs for which the patents are about to expire, thus allowing the branded name company to obtain new patented products serving as substitutes for the products withdrawn; and | |
· | seeking to obtain new patents on drugs for which patent protection is about to expire. |
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To date, we have relied primarily upon proceeds from sales of our equity securities to finance our business and operations. We can provide no assurance that additional financing,the IRS will not successfully challenge this determination. Accordingly, the Company’s ability to utilize BioSante’s (and, if needed, willsuccessfully challenged by the IRS, ANIP Acquisition Company’s) net operating loss and tax credit carryforwards may be substantially limited. These limitations, in turn, could result in increased future tax payments for the Company, which could have a material adverse effect on the business, financial condition or results of operations of the Company.
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the Company, and might ultimately affect the market price of the Company’s common stock.
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If we raise additional funds through the issuance of additional equity or convertible debtequity-linked securities. If the Company were to raise funds through the issuance of additional equity or equity-linked securities, the percentage ownership of ourits stockholders could be diluted, potentially significantly, and these newly issued securities may have rights, preferences or privileges senior to those of ourits existing stockholders. In addition, the issuance of any equity securities could be at a discount to the then-prevailing market price.
Our committed equity financing facility with Kingsbridge Capital Limited may not be availablerelated to us if we electits operating performance, including, but not limited to:
· | general stock market and general economic conditions in the United States and abroad, even if not directly related to the Company or its business; | |
· | any inability to manufacture EEMT, whether due to FDA determinations or otherwise; | |
· | disruptions in the supply of API and other ingredients used in the Company’s current and planned products; | |
· | actual or anticipated governmental agency actions, including in particular decisions or actions by the FDA or FDA advisory committee panels with respect to the Company’s current products, products in development, or its competitors’ products; | |
· | changes in anticipated or actual timing of the Company’s product development programs; | |
· | competition in the Company’s industry; | |
· | the Company entering into new strategic partnering arrangements or termination of existing strategic partnering arrangements; | |
· | public concern as to the safety or efficacy of the Company’s products; | |
· | the Company’s need and ability to obtain additional financing; |
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· | changes in laws or regulations applicable to the Company’s products or business; | |
· | period-to-period fluctuations in the Company’s financial results; | |
· | changes in key management; | |
· | sales of shares of the Company's common stock by the Company or its stockholders; | |
· | failure of securities analysts to initiate and maintain coverage of the Company and, with respect to any analyst coverage, the Company's failure to meet analyst estimates or the expectations of investors; | |
· | announcements by the Company or its competitors of new products or services; | |
· | the public’s reaction to the Company's press releases, other public announcements and filings with the SEC; | |
· | rumors and market speculation involving the Company or other companies in the Company’s business; | |
· | actual or anticipated changes in the Company's operating results or fluctuations in its operating results; | |
· | actual or anticipated developments in the Company's business, its competitors’ businesses or the competitive landscape generally; | |
· | litigation involving the Company, its industry or both, or investigations by regulators into the Company's operations or those of its competitors; | |
· | announced or completed acquisitions of businesses or products by the Company or its competitors; | |
· | new laws or regulations or new interpretations of existing laws or regulations applicable to the Company's business; | |
· | changes in accounting standards, policies, guidelines, interpretations or principles; and | |
· | slow or negative growth of the Company's products or markets. |
We have a committed equity financing facility with Kingsbridge that expires in December 2011. The committed equity financing facility entitles us to sell and obligates Kingsbridge to purchase,the SEC from time to time through the expiration date, up to the lesser of (i) an aggregate of $25 million in or (ii) 5,405,840 shares of our common stock for cash consideration, subject to certain conditions and restrictions. Kingsbridge will not be obligated to purchase shares under the facility unless certain conditions are met, which include a minimum price for our common stock of $1.15 per share; the accuracy of representations and warranties made to Kingsbridge; compliance with laws; continued effectiveness of the registration statement registering the resale of shares of our common stock issued or issuable to Kingsbridge; and the continued listing of our stock on the NASDAQ Global Market. In addition, Kingsbridge is permitted to terminate the facility if Kingsbridge determines thatcould have a material and adverse event has occurred affecting ourimpact on the market price of the Company’s common stock. Securities class action litigation is sometimes brought against a company following periods of volatility in the market price of its securities or for other reasons. The Company currently is subject to such litigation. Securities litigation, whether with or without merit, could result in substantial costs and divert management’s attention and resources, which could harm the Company’s business operations, properties orand financial condition, as well as the market price of the Company’s common stock.
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2008 Plan, the Company could incur significant expense related to stock-based compensation in future periods, and shareholders could find their holdings diluted by the increase in shares.
As a result of our merger with Cell Genesys, we assumed $22.0 million aggregate principal amount of outstanding convertible senior notes, $1.2 million of which will be due in November 2011 and $20.8 million of which will be due in May 2013. The annual interest payment on these notes is approximately $0.7 million. We do not have any significant source of revenues and thus although we intend to continue to seek additional financing to support our operations, it is possible that we may not have sufficient funds to pay the principal on our convertible notes when it becomes due, especially if an event of default were to occur under the indentures governing the convertible notes.
The indentures governing our convertible senior notes contain covenants, which if not complied with,Company’s products could result in an eventa negative result, which could require discontinuance of defaultproduct marketing, or other risk management programs.
The indentures governing our assumed convertible senior notes contain covenants,Company. In some cases, studies have resulted, and in the future may result, in the discontinuance of product marketing or other risk management programs such as the requirementneed for a patient registry. These situations, should they occur with respect to pay accrued interest on May 1 and November 1 of each year, the requirement to repurchase the notes upon a “fundamental change,” as defined in the indentures, if a note holder so elects and the requirement to file periodic reports electronically with the SEC. If we do not comply with the covenants in the indentures, an event of default could occur and all amounts due under the notes could become immediately due and payable. Upon the occurrence of an event of default under the indentures, the trustee has available a range of remedies customary in these circumstances, including declaring all such indebtedness, together with accrued and unpaid interest thereon, to be due and payable. Although it is possible we could negotiate a waiver with the trustee and the holdersany products of the notes, such a waiver likely would involve significant costs. It also is possible that weCompany, could refinance our obligations under the notes; however, such a refinancing also would involve significant costs and likely result in increased interest rates.
As a result of our merger with Cell Genesys, we possess not only all of the assets but also all of the liabilities of Cell Genesys. Discovery of previously undisclosed liabilities could have an adverse effect on our business, operating results and financial condition.
Acquisitions often involve known and unknown risks, including inaccurate assessment of undisclosed, contingent or other liabilities or problems. In October 2008, in view of the termination of both its VITAL-1 and VITAL-2 Phase III clinical trials, Cell Genesys discontinued further development of its cancer vaccines for prostate cancer. Cell Genesys subsequently implemented a substantial restructuring plan to wind down its business operations and seek strategic alternatives. Under the restructuring plan, Cell Genesys terminated approximately 280 employees, closed two facilities and terminated two leases. As a result of our merger with Cell Genesys, we possess not only all of the assets, but also all of the potential liabilities of Cell Genesys. Although we conducted a due diligence investigation of Cell Genesys and its known and potential liabilities and obligations, it is possible that undisclosed,
contingent or other liabilities or problems may arise, which could have an adverse effect on our business, operating results and financial condition.
Risks Related to Our Business
Most of our products are in the human clinical development stages and, depending on the product, likely will not be introduced commercially for at least one year and likely more, if at all.
Most of our products are in the human clinical development stages and will require further development, preclinical and clinical testing and investment prior to commercialization in the United States and abroad. Other than Elestrin, none of our products has been introduced commercially and most are not expected to be for at least one year and likely more, if at all. Some of our products are not in active development. We cannot assure you that any of our products in human clinical development will:
·be developed successfully;
·prove to be safe and effective in clinical studies;
·meet applicable regulatory standards or obtain required regulatory approvals;
·demonstrate substantial protective or therapeutic benefits in the prevention or treatment of any disease;
·be capable of being produced in commercial quantities at reasonable costs;
·obtain coverage and favorable reimbursement rates from insurers and other third-party payors; or
·be successfully marketed or achieve market acceptance by physicians and patients.
If we fail to obtain regulatory approval to manufacture commercially or sell any of our future products, or if approval is delayed or withdrawn, we will be unable to generate revenue from the sale of our products.
We must obtain regulatory approval to sell any of our products in the United States and abroad. In the United States, we must obtain the approval of the FDA for each product or drug that we intend to commercialize. The FDA approval process typically is lengthy and expensive, and approval never is certain. Products to be commercialized abroad are subject to similar foreign government regulation.
Generally, only a very small percentage of newly discovered pharmaceutical products that enter preclinical development eventually are approved for sale. Because of the risks and uncertainties in biopharmaceutical development, our products could take a significantly longer time to gain regulatory approval than we expect or may never gain approval. If regulatory approval is delayed or never obtained, the credibility of our management, the value of our company and our operating results and liquidity would be affected adversely. Even if a product gains regulatory approval, the product and the manufacturer of the product may be subject to continuing regulatory review and we may be restricted or prohibited from marketing or manufacturing a product if previously unknown problems with the product or our manufacture of the product subsequently are discovered. The FDA also may require us to commit to perform lengthy post-approval studies, for which we would have to expend significant additional resources, which could have an adverse effect on our operating results and financial condition.
To obtain regulatory approval to market many of our products, costly and lengthy human clinical trials are required, and the results of the studies and trials are highly uncertain. As part of the FDA approval process, we must conduct, at our own expense or the expense of current or potential licensees, clinical trials in human subjects on each of our products. We expect the number of human clinical trials that the FDA will require will vary depending on the product, the disease or condition the product is being developed to address and regulations applicable to the particular product. We may need to perform multiple pre-clinical studies using various doses and formulations before we can begin human clinical trials, which could result in delays in our ability to market any of our products.
Furthermore, even if we obtain favorable results in pre-clinical studies on animals, the results in humans may be different.
After we have conducted pre-clinical studies in animals, we must demonstrate that our products are safe and effective for use on the target human patients in order to receive regulatory approval for commercial sale. The data obtained from pre-clinical and human clinical testing are subject to varying interpretations that could delay, limit or prevent regulatory approval. We face the risk that the results of our clinical trials in later phases of clinical trials may be inconsistent with those obtained in earlier phases. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in early animal or human testing. Adverse or inconclusive human clinical results would prevent us from filing for regulatory approval of our products. Additional factors that can cause delay or termination of our human clinical trials include:
·slow subject enrollment;
·timely completion of clinical site protocol approval and obtaining informed consent from subjects;
·longer treatment time required to demonstrate efficacy or safety;
·adverse medical events or side effects in treated subjects;
·lack of effectiveness of the product being tested; and
·lack of funding.
Delays in our clinical trials could allow our competitors additional time to develop or market competing products and thus can be extremely costly in terms of lost sales opportunities and increased clinical trial costs.
Although we successfully have completed and reached agreement with the FDA under the Special Protocol Assessment process for our Phase III safety and efficacy clinical trial program for LibiGel, we still may not obtain FDA approval of LibiGel within a reasonable period of time or ever, which would harm our business and likely decrease our stock price.
LibiGel has not been approved for marketing by the FDA and is still subject to risks associated with its clinical development and obtaining regulatory approval. We believe based on agreements with the FDA, including a Special Protocol Assessment received in January 2008, that two Phase III safety and efficacy trials and one year of LibiGel exposure in a Phase III cardiovascular and breast cancer safety study with a four-year follow-up post-NDA filing and potentially post-FDA approval and product launch, are the essential requirements for submission and, if successful, approval by the FDA of an NDA for LibiGel for the treatment of FSD, specifically, HSDD in menopausal women. The SPA process and agreement affirms that the FDA agrees that the LibiGel Phase III safety and efficacy clinical trial design, clinical endpoints, sample size, planned conduct and statistical analyses are acceptable to support regulatory approval. Further, it provides assurance that these agreed measures will serve as the basis for regulatory review and the decision by the FDA to approve an NDA for LibiGel. These SPA trials use our validated instruments to measure the clinical endpoints. The January 2008 SPA agreement covers the pivotal Phase III safety and efficacy trials of LibiGel in the treatment of FSD for “surgically” menopausal women. In July 2008, we received another SPA for our LibiGel program in the treatment of FSD in “naturally” menopausal women. We have an additional SPA agreement which covers the LibiGel stability, or shelf life studies for the intended commercialization of LibiGel product. The SPA agreements, however, are not guarantees of LibiGel approval by the FDA or approval of any permissible claims about LibiGel. In particular, SPA agreements are not binding on the FDA if previously unrecognized public health concerns later comes to light, other new scientific concerns regarding product safety or effectiveness arise, we fail to comply with the protocol agreed upon, or the FDA’s reliance on data, assumptions or information are determined to be wrong. Even after an SPA agreement is finalized, the SPA agreement may be changed by us or the FDA on written agreement of both parties, and the FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results
from any study that is the subject of the SPA agreement. In addition, the data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent FDA regulatory approval.
Delays in the completion of our Phase III clinical study program for LibiGel, which can result from unforeseen issues, FDA interventions, problems with enrolling subjects and other reasons, could delay significantly FDA approval and commercial launch of LibiGel and adversely affect our product development cost estimates. Moreover, results from these clinical studies may not be as favorable as the results we obtained in prior, completed studies. Although it is our objective to submit an NDA for LibiGel to the FDA to allow for a product approval in 2012, we cannot ensure that we will meet this objective or that even after extensive clinical trials, regulatory approval will ever be obtained for LibiGel.
The process for obtaining approval of an NDA is time consuming, subject to unanticipated delays and costs, and requires the commitment of substantial resources.
Our objective is to submit an NDA for LibiGel to the FDA to allow for a product approval in 2012. We cannot ensure that we will meet this objective, however, or that even after extensive clinical studies, regulatory approval ever will be obtained for LibiGel.
The FDA conducts in-depth reviews of NDAs to determine whether to approve products for commercial marketing for the indications proposed. If the FDA is not satisfied with the information provided, the FDA may refuse to approve an NDA or may require a company to perform additional studies or provide other information in order to secure approval. The FDA may delay, limit or refuse to approve an NDA for many reasons, including:
·the information submitted may be insufficient to demonstrate that a product is safe and effective;
·the FDA might not approve the processes or facilities of a company, or those of its vendors, that will be used for the commercial manufacture of a product; or
·the FDA’s interpretation of the nonclinical, clinical or manufacturing data provided in an NDA may differ from a company’s interpretation of such data.
If the FDA determines that the clinical studies submitted for a product candidate in support of an NDA are not conducted in full compliance with the applicable protocols for these studies, as well as with applicable regulations and standards, or if the FDA does not agree with a company’s interpretation of the results of such studies, the FDA may reject the data that resulted from such studies. The rejection of data from clinical studies required to support an NDA could negatively affect a company’s ability to obtain marketing authorization for a product and would have a material adverse effect on a company’sthe Company's profitability, business, financial position and financial condition. In addition, an NDA may not be approved, or approval may be delayed, as a resultresults of changes in FDA policies for drug approval during the review period.
operations.
We set goals and objectives for, and make public statements regarding, the timing of certain accomplishments and milestones regarding our business, such as the initiation and completion of clinical studies, the completion of enrollment for clinical studies, the filing of applications for regulatory approvals, the receipt of regulatory approvals and other developments and milestones. The actual timing of these events can vary dramatically due to a number of factors including without limitation delays or failures in our current clinical studies, the amount of time, effort and resources committed to our programs by us and our current and potential future strategic partners and the uncertainties inherent in the clinical studies and regulatory approval process. As a result, there can be no assurance that clinical studies involving our products in development will advance or be completed in the time periods that we or our strategic partners announce or expect, that we or our current and potential future strategic partners will make regulatory submissions or receive regulatory approvals as planned or that we or our current and potential future strategic partners will be able to adhere to our current schedule for the achievement of key milestones under any of our development programs. If we or any of our strategic partners fail to achieve one or more of these milestones as planned, our business could be materially adversely affected and the price of our common stock could decline.
We also disclose from time to time projected financial information, including our anticipated burn rate and other expenditures, for future periods. These financial projections are based on management’s current expectations and do not contain any margin of error or cushion for any specific uncertainties, or for the uncertainties inherent in all financial forecasting.
If the market opportunities for LibiGel and our other products in development are smaller than we anticipate, then our future revenues and business may be adversely affected.
We believe there is significant market opportunity for LibiGel. Our belief is based on certain market data information, off-label use of products for HSDD, numerous publications reporting on the incidence of HSDD, the urgency placed on the condition by various medical societies and a recent survey of over 100 obstetrician/gynecologists and primary care physicians regarding the need for an FDA-approved drug to treat FSD and specifically HSDD conducted independently for us by Campbell Alliance Group, Inc. Our projection of the market opportunity for LibiGel is based on certain market data information, including this survey and thus estimates of the number of physicians that believe that FSD is an important and legitimate disorder requiring treatment and the number of physicians that would prescribe LibiGel to treat FSD. If these estimates prove to be incorrect, the market opportunity for LibiGel may be smaller than we anticipate. If the market opportunity for LibiGel is smaller than we anticipate, then it may be difficult for us to find a strategic partner to assist us in the development and commercialization of LibiGel and our prospects for generating LibiGel revenue and business may be adversely affected. This is also true with respect to our other products in development, although to a lesser extent, since LibiGel is our lead product in development.
Uncertainties associated with the impact of published studies regarding the adverse health effects of certain forms of hormone therapy could affect adversely affect the market for ourthe Company’s hormone therapy products and the trading price of our common stock.products.
If clinical studies for our products are prolonged or delayed, it may be difficult for us to find a strategic partner to assist us in the development and commercialization of our non-partnered products or commercialize such products on a timely basis, which would require us to incur additional costs and delay our receipt of any revenue from potential product sales or licenses.
We may encounter problems with our completed, ongoing or planned clinical studies for our products that may cause us or the FDA to delay or suspend those studies or delay the analysis of data derived from them. A number of events, including any of the following, could delay the completion of, or terminate, our ongoing and planned clinical studies for our products and negatively impact our ability to obtain regulatory approval or enter into strategic partnerships for, or market or sell, a particular product:
Company’s business.
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·delay in developing, or our inability to obtain, a clinical dosage form, insufficient supply or deficient quality of our products or other materials necessary to conduct our clinical studies;
·negative or inconclusive results from clinical studies, or results that are inconsistent with earlier results, that necessitate additional clinical study or termination of a clinical program;
·serious and/or unexpected product-related side effects experienced by subjects in our clinical studies; or
·failure of our third-party contractors or our investigators to comply with regulatory requirements or otherwise meet their contractual obligations to us in a timely manner.
Regulatory authorities, clinical investigators, institutional review boards, data safety monitoring boards and the sites at which our clinical studies are conducted all have the power to stop our clinical studies prior to completion. Our clinical studies for our products in development may not begin as planned, may need to be amended, and may not be completed on schedule, if at all. This is particularly true if we no longer have the financial resources to dedicate to our clinical development program.
We rely on a few third parties to assist us in certain aspects of our clinical studies. If these third parties do not perform as contractually required or expected, our clinical studies may be extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the product being tested in such studies.
We rely on a few third parties, such as medical institutions, academic institutions, clinical investigators and contract laboratories, to assist us in certain aspect of our clinical studies. We are responsible for confirming that our studies are conducted in accordance with applicable regulations and that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. The FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices for conducting, monitoring, recording and reporting the results of clinical trials, to assure that data and reported results are accurate and that the clinical trial participants are adequately protected. Our reliance on these few third parties does not relieve us of these responsibilities. If the third parties assisting us with certain aspects of our clinical studies do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with the FDA’s good clinical practice regulations, do not adhere to our protocols or otherwise fail to generate reliable clinical data, we may need to enter into new arrangements with alternative third parties and our clinical studies may be extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the product being tested in such studies. In addition, if a third party fails to perform as agreed, our ability to collect damages may be limited contractually.
Our products will remain subject to ongoing regulatory review even if they receive marketing approval. If we fail to comply with continuing regulations, we could lose these approvals, and the sale of any future products could be suspended.
Even if we receive regulatory approval to market a particular product in development, the FDA or a foreign regulatory authority could condition approval on conducting additional costly post-approval studies or could limit the scope of our approved labeling or could impose burdensome post-approval obligations under a Risk Evaluation and Mitigation Strategy, or REMS. If required, a REMS may include various elements, such as publication of a medication guide, a patient package insert, a communication plan to educate healthcare providers of the drug’s risks, limitations on who may prescribe or dispense the drug or other measures that the FDA deems necessary to assure the safe use of the drug. Moreover, the product may later cause adverse effects that limit or prevent its widespread use, force us to withdraw it from the market, cause the FDA to impose additional REMS obligations or impede or delay our ability to obtain regulatory approvals in additional countries. In addition, we will continue to be subject to FDA review and periodic inspections to ensure adherence to applicable regulations. After receiving marketing approval, the FDA imposes extensive regulatory requirements on the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping related to the product.
If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities or previously unknown problems with any future products, suppliers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions, including:
·restrictions on the products, suppliers or manufacturing processes;
·warning letters or untitled letters;
·civil or criminal penalties or fines;
·injunctions;
·product seizures, detentions or import bans;
·voluntary or mandatory product recalls and publicity requirements;
·suspension or withdrawal of regulatory approvals;
·total or partial suspension of production; and
·refusal to approve pending applications for marketing approval of new drugs or supplements to approved applications
We intend to enter into additional strategic relationships with third parties to develop and commercialize our products in development, including in particular LibiGel. If we do not enter into such relationships, we will need to undertake development and commercialization efforts on our own, which would be costly and could delay our ability to commercialize our future products.
A key element of our business strategy is our intent to partner selectively with pharmaceutical, biotechnology and other companies to obtain assistance for commercialization and, in some cases, development of our products. For example, we have entered into a strategic relationship with Azur with respect to Elestrin, with Teva USA with respect to Bio-T-Gel and with Pantarhei Science with respect to The Pill Plus. We currently do not have a strategic partner for LibiGel.
We intend to enter into additional strategic relationships with third parties to develop, and if regulatory approval is obtained commercialize, our products in development, including in particular LibiGel. We face significant competition in seeking appropriate strategic partners, and these strategic relationships can be intricate and time consuming to negotiate and document. We may not be able to negotiate additional strategic relationships on
acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional strategic relationships because of the numerous risks and uncertainties associated with establishing such relationships. If we are unable to negotiate additional strategic relationships for our products, such as LibiGel, we may be forced to curtail the development of a particular product, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization, reduce the scope of anticipated sales or marketing activities or undertake development or commercialization activities at our own expense. In addition, we will bear all the risk related to the development and commercialization of that product. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring our products in development if they receive regulatory approvals to market and generate product revenue.
If we are unable to partner with a third party and obtain assistance for the potential commercialization of our products, including in particular LibiGel, if approved for commercial sale, we would need to establish our own sales and marketing capabilities, which involves risk.
We do not have an internal sales and marketing organization and we have limited experience in the sales, marketing and distribution of pharmaceutical products. There are risks involved with establishing our own sales capabilities and increasing our marketing capabilities, as well as entering into arrangements with third parties to perform these services. Developing an internal sales force is expensive and time consuming and could delay any product launch. On the other hand, if we enter into arrangements with third parties to perform sales, marketing and distribution services, revenues from sales of the product or the profitability of these product revenues are likely to be lower than if we market and sell any products that we develop ourselves.
Although our preferred alternative would be to engage a pharmaceutical or other healthcare company with an existing sales and marketing organization and distribution systems to sell, market and distribute our products, if approved for commercial sale, if we are unable to engage such a sales and marketing partner, we may need to establish our own specialty sales force. Factors that may inhibit our efforts to commercialize any future products without strategic partners or licensees include:
·our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
·the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;
·the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
·unforeseen costs and expenses associated with creating an independent sales and marketing organization.
Because the establishment of sales and marketing capabilities depends on the progress towards commercialization of our products and because of the numerous risks and uncertainties involved with establishing our own sales and marketing capabilities, we are unable to predict when, if ever, we will establish our own sales and marketing capabilities. If we are not able to partner with additional third parties and are unsuccessful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty commercializing our products, which would adversely affect our business and financial condition.
Our current strategic relationships and any future additional strategic relationships we may enter into involve risks with respect to the development and commercialization of our products.
A key element of our business strategy is to selectively partner with pharmaceutical, biotechnology and other companies to obtain assistance for commercialization and, in some cases, development of our products. For example, we have entered into a strategic relationship with Azur with respect to Elestrin, with Teva USA with respect to Bio-T-Gel and with Pantarhei Science with respect to The Pill Plus. We currently do not have a strategic partner for LibiGel.
Our current strategic relationships and any future additional strategic relationships we may enter into involve a number of risks, including:
·business combinations or significant changes in a strategic partner’s business strategy may adversely affect a strategic partner’s willingness or ability to complete its obligations under any arrangement;
·we may not be able to control the amount and timing of resources that our strategic partners devote to the development or commercialization of our partnered products;
·strategic partners may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a partnered product, repeat or conduct new clinical trials or require a new version of a product for clinical testing;
·strategic partners may not pursue further development and commercialization of partnered products resulting from the strategic partnering arrangement or may elect to discontinue research and development programs;
·strategic partners may not commit adequate resources to the marketing and distribution of our partnered products, limiting our potential revenues from these products;
·disputes may arise between us and our strategic partners that result in the delay or termination of the research, development or commercialization of our partnered products or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;
·strategic partners may experience financial difficulties;
·strategic partners may not maintain properly or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation;
·strategic partners independently could move forward with competing products developed either independently or in collaboration with others, including our competitors; and
·strategic partners could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing or commercializing our products.
Although we maintain the right to receive sales-based milestones of up to $140 million, our ability to receive these milestones is dependent upon Azur’s ability to market and sell Elestrin, and based on Elestrin sales during 2010, we believe it is unlikely that we will receive any sales-based milestone payments from Azur in the foreseeable future or at all.
Elestrin is our first FDA approved product. Azur Pharma International II Limited is marketing Elestrin in the U.S. using its women’s health sales force that targets estrogen prescribing physicians in the U.S. comprised mostly of gynecologists. In December 2009, we entered into an amendment to our original licensing agreement with Azur pursuant to which we received $3.16 million in non-refundable payments in exchange for the elimination of all remaining future royalty payments and certain milestone payments that could have been paid to us related to Azur’s sales of Elestrin. We maintain the right to receive up to $140 million in sales-based milestone payments from Azur if Elestrin reaches certain predefined sales per calendar year. We cannot assure you that Azur will be successful in marketing Elestrin, Elestrin will be widely accepted in the marketplace or that Azur will remain focused on the commercialization of Elestrin, especially if Azur does not experience significant Elestrin sales. Market penetration of Elestrin during 2010 was low. Based on such low sales of Elestrin, we believe it is unlikely that we will receive any sales-based milestone payments from Azur in the foreseeable future or at all.
If our products in development receive FDA approval and are introduced commercially, they may not achieve expected levels of market acceptance, which could harm our business, financial position and operating results and could cause the market value of our common stock to decline.
The commercial success of our products in development, if they receive the required FDA or other regulatory approvals, is dependent upon acceptance by physicians, patients, third-party payors and the medical community. Levels of market acceptance for such products, if approved for commercial sale, could be affected by several factors, including:
·demonstration of efficacy and safety in clinical trials;
·the existence, prevalence and severity of any side effects;
·the availability of alternative treatments and potential or perceived advantages or disadvantages compared to alternative treatments;
·perceptions about the relationship or similarity between our products and the parent drug compound upon which the product is based;
·the timing of market entry relative to competitive treatments;
·the ability to offer our products for sale at competitive prices;
·relative convenience, product dependability and ease of administration;
·the strength of marketing and distribution support;
·the sufficiency of coverage and reimbursement of our products by third-party payors and governmental and other payors; and
·the product labeling or product insert required by the FDA or regulatory authorities in other countries.
Some of these factors are not within our control, especially if we have transferred all of the marketing rights associated with the product, as we have with the U.S. marketing rights to Elestrin to Azur, the U.S. development and marketing rights to Bio-T-Gel to Teva USA and the U.S. marketing rights to The Pill Plus to Pantarhei Science. Our products may not achieve expected levels of market acceptance.
Additionally, continuing studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by our industry, government agencies and others. Such studies, which increasingly employ sophisticated methods and techniques, can call into question the use, safety and efficacy of previously marketed products. In some cases, these studies have resulted, and in the future may result, in the discontinuance of product marketing. These situations, should they occur, could harm our business, financial position and results of operations, and the market value of our common stock could decline.
Even if we or our strategic partners successfully develop and commercialize any of our products under development, we face uncertainty with respect to pricing, third-party reimbursement and healthcare reform, all of which could adversely affect the commercial success of our products.
Our ability to collect significant revenues from sales of our products, if approved and commercialized, may depend on our ability, and the ability of any current or potential future strategic partners or customers, to obtain adequate levels of coverage and reimbursement for such products from third-party payers such as:
·private health insurers;
·health maintenance organizations;
·pharmacy benefit management companies;
·government health administration authorities; and
·other healthcare-related organizations.
Third party payers increasingly are challenging the prices charged for medical products and services. For example, third-party payers may deny coverage or offer inadequate levels of reimbursement if they determine that a prescribed product has not received appropriate clearances from the FDA, or foreign equivalent, or other government regulators, is not used in accordance with cost-effective treatment methods as determined by the third-party payer, or is experimental, unnecessary or inappropriate. Prices also could be driven down by health maintenance organizations that control or significantly influence purchases of healthcare services and products. If third-party payers deny coverage or offer inadequate levels of reimbursement, we or any of our strategic partners may not be able to market our products effectively or we may be required to offer our products at prices lower than anticipated.
In both the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory proposals and initiatives to change the health care system in ways that could affect our ability to sell our products profitably. Some of these proposed and implemented reforms could result in reduced reimbursement rates for our potential products, which would adversely affect our business strategy, operations and financial results. For example, in March 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, known as the Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare and Education Affordability Reconciliation Act of 2010, which we refer to as the PPACA. This legislation may have far reaching consequences for life science companies like us. As a result of this new legislation, substantial changes could be made to the current system for paying for healthcare in the United States, including changes made in order to extend medical benefits to those who currently lack insurance coverage. Extending coverage to a large population could substantially change the structure of the health insurance system and the methodology for reimbursing medical services, drugs and devices. These structural changes could entail modifications to the existing system of private payors and government programs, such as Medicare and Medicaid, creation of a government-sponsored healthcare insurance source, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the United States could impact the reimbursement for prescribed drugs, biopharmaceuticals and medical devices. If reimbursement for our products, if approved, is substantially less that we expect in the future, our business could be affected materially and adversely.
The cost-containment measures that healthcare providers are instituting and the results of healthcare reforms such as the PPACA may prevent us from maintaining prices for our products that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results. In addition, to the extent that our approved products are marketed outside of the United States, foreign government pricing controls and other regulations may prevent us from maintaining prices for such products that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results.
We and our licensees depend on third-party manufacturers to produce our products and if these third parties do not manufacture successfully these products our business would be harmed.
We have no manufacturing experience or manufacturing capabilities for the production of our products for our clinical studies or commercial sale. In order to continue to develop products, apply for regulatory approvals and commercialize our products following approval, if obtained, we or our licensees must be able to manufacture or contract with third parties to manufacture our products in clinical and commercial quantities, in compliance with regulatory requirements, at acceptable costs and in a timely manner. The manufacture of our products may be complex, difficult to accomplish and difficult to scale-up when large-scale production is required. Manufacture may be subject to delays, inefficiencies and poor or low yields of quality products. The cost of manufacturing our products may make them prohibitively expensive. If supplies of any of our products become unavailable on a timely basis or at all or are contaminated or otherwise lost, our clinical studies could be seriously delayed.
To the extent that we or our licensees enter into manufacturing arrangements with third parties, we and such licensees will depend upon these third parties to perform our obligations in a timely and effective manner and in accordance with government regulations. Contract manufacturers may breach their manufacturing agreements because of factors beyond our control or may terminate or fail to renew a manufacturing agreement based on their own business priorities at a time that is costly or inconvenient for us.
Our existing and future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to successfully produce, store and distribute our products. If a natural disaster, business failure, strike or other difficulty occurs, we may be unable to replace these contract manufacturers in a timely or cost-effective manner and the production of our products would be interrupted, resulting in delays and additional costs. Switching manufacturers or manufacturing sites would be difficult and time-consuming because the number of potential manufacturers is limited. In addition, before a product from any replacement manufacturer or manufacturing site can be commercialized, the FDA must approve that site. This approval would require regulatory testing and compliance inspections. A new manufacturer or manufacturing site also would have to be educated in, or develop substantially equivalent processes for, production of our products. It may be difficult or impossible to transfer certain elements of a manufacturing process to a new manufacturer or for us to find a replacement manufacturer on acceptable terms quickly, or at all, either of which would delay or prevent our ability to develop and commercialize our products.
If third-party manufacturers fail to perform their obligations, our competitive position and ability to generate revenue may be adversely affected in a number of ways, including:
·we and our strategic partners may be unable to initiate or continue clinical studies of our products that are under development;
·we and our strategic partners may be delayed in submitting applications for regulatory approvals for our products that are under development; and
·we and our strategic partners may be unable to meet commercial demands for any approved products.
In addition, if a third-party manufacturer fails to perform as agreed, our ability to collect damages may be contractually limited.
We have very limited staffing and will continue to be dependent upon key employees.
Our success is dependent upon the efforts of a relatively small management team and staff. We have employment arrangements in place with our executive officers, but none of these executive officers is bound legally to remain employed for any specific term. We do not have key man life insurance policies covering our executive officers or any of our other employees. If key individuals leave our company, our business could be affected adversely if suitable replacement personnel are not recruited quickly.
There is competition for qualified personnel in all functional areas, which makes it difficult to attract and retain the qualified personnel necessary for the development and growth of our business. Our future success depends upon our ability to continue to attract and retain qualified personnel.
If plaintiffs bring product liability lawsuits against us, we may incur substantial liabilities and may be required to delay development or limit commercialization of any of our products approved for commercial sale.
We face an inherent risk of product liability as a result of the clinical testing of our products in development and the commercial sale of our products that have been or will be approved for commercial sale. We may be held liable if any product we develop causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, liability claims may result in decreased demand for our products, injury to our reputation, withdrawal of clinical studies, costs to defend litigation, substantial monetary awards to clinical study participants or patients, loss of revenue and the inability to commercialize any products that we develop.
We currently maintain limited product liability insurance. We may not have sufficient resources to pay for any liabilities resulting from a personal injury or other claim excluded from, or beyond the limit of, our insurance coverage. Our insurance does not cover third parties’ negligence or malpractice, and our clinical investigators and sites may have inadequate insurance or none at all. In addition, in order to conduct our clinical studies or otherwise carry out our business, we may have to assume liabilities contractually for which we may not be insured. If we are unable to look to our own or a third party’s insurance to pay claims against us, we may have to pay any arising costs and damages ourselves, which may be substantial. Even if we ultimately are successful in product liability litigation, the litigation likely would consume substantial amounts of our financial and managerial resources and may create adverse publicity, all of which likely would impair our ability to generate sales of the affected product and our other products. Moreover, product recalls may be issued at our discretion or at the direction of the FDA, other governmental agencies or other companies having regulatory control for our product sales. Product recalls generally are expensive and often have an adverse effect on the reputation of the products being recalled and of the product’s developer or manufacturer.
We may be required to indemnify third parties against damages and other liabilities arising out of our development, commercialization and other business activities, which could be costly and time-consuming and distract management. If third parties that have agreed to indemnify us against damages and other liabilities arising from their activities do not fulfill their obligations, then we may be held responsible for those damages and other liabilities.
Our business is subject to increasingly complex corporate governance, public disclosure and accounting requirements that could adversely affect our business and financial results.
We are subject to changing rules and regulations of federal and state governments as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board, the SEC and the NASDAQ Global Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress. In July 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from our other business activities.
Risks Related to Our Industry
Because our industry is very competitive, we may not succeed inbringing certain of our products to market and any products we introduce commercially may not be successful.
Competition in the pharmaceutical industry is intense. Potential competitors in the United States and abroad are numerous and include pharmaceutical and biotechnology companies, most of which have substantially greater capital resources and more experience in research and development, manufacturing and marketing than us. Academic institutions, hospitals, governmental agencies and other public and private research organizations also are conducting research and seeking patent protection and may develop and commercially introduce competing products or technologies on their own or through joint ventures. We cannot assure you that our potential competitors, some of whom are our strategic partners, will not succeed in developing similar technologies and products more rapidly than we do, commercially introducing such technologies and products to the marketplace prior to us, or that these competing technologies and products will not be more effective or successful than any of those that we currently are developing or will develop.
Because the pharmaceutical industry is heavily regulated, we face significantcosts and uncertainties associated with our efforts to comply with applicableregulations. Should we fail to comply, we could experience material adverseeffects on our business, financial position, cash flow and results of operations, and themarket value of our common stock could decline.
The pharmaceutical industry is subject to regulation by various federal authorities, including principally the FDA and, to a lesser extent, the DEA, and state governmental authorities. The FDCA, the CSA and other federal statutes and regulations govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products. Noncompliance with applicable legal and regulatory requirements can have a broad range of consequences, including warning letters, fines, seizure of products, product recalls, total or partial suspension of production and distribution, refusal to approve NDAs or other applications or revocation of approvals previously granted, withdrawal of product from marketing, injunction, withdrawal of licenses or registrations necessary to conduct business, disqualification from supply contracts with the government, and criminal prosecution. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals.
In addition to compliance with cGMP requirements, drug manufacturers must register each manufacturing facility with the FDA. Manufacturers and distributors of prescription drug products are also required to be registered in the states where they are located and in certain states that require registration by out-of-state manufacturers and distributors. Manufacturers also must be registered with the DEA and similar applicable state and local regulatory authorities if they handle controlled substances, and also must comply with other applicable DEA requirements.
Despite our efforts at compliance, there is no guarantee that we may not be deemed to be deficient in some manner in the future. If we were deemed to be deficient in any significant way, our business, financial position and results of operations could be materially affected and the market value of our common stock could decline.
The trend towards consolidation in the pharmaceutical and biotechnology industries may affect us adversely.
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There is a trend towards consolidation in the pharmaceutical and biotechnology industries. This consolidation trend may result in the remaining companies in these industries having greater financial resources and technological capabilities, thus intensifying competition in these industries. This trend also may result in fewer potential strategic partners or licensees for our products and technology. Also, if a consolidating company is already doing business with our competitors, we may lose existing licensees or strategic partners as a result of such consolidation. This trend may adversely affect our ability to enter into strategic arrangements for the development and commercialization of our products, and as a result may harm our business.
Risks Related to Our Intellectual Property
We license rights to the technology underlying LibiGel and many of our other products and technologies from third parties. The loss of these rights, including in particular, our rights underlying LibiGel, could have an adverse effect on our business and future prospects and could cause the market value of our common stock to decline.
We license rights to certain of the technology underlying our gel products, including LibiGel, from Antares Pharma, Inc., our cancer vaccines from Johns Hopkins University and The Whitehead Institute for Biomedical Research, a portion of our CaP technology from the University of California and The Pill Plus from Wake Forest University Health Sciences. We may lose our rights to these technologies if we breach our obligations under the license agreements. Although we intend to use commercially reasonable efforts to meet these obligations, if we violate or fail to perform any term or covenant of the license agreements, the other party to these agreements under certain circumstances may terminate these agreements or certain projects contained in these agreements. The termination of these agreements, however, will not relieve us of our obligation to pay any royalty or license fees owed at the time of termination.
We have licensed some of our products to third parties and any breach by these parties of their obligations under these license agreements or a termination of these license agreements by these parties could adversely affect the development and marketing of our licensed products. In addition, these third parties also may compete with us with respect to some of our products.
We have licensed our CaP technology for use as a facial line filler to MATC and some of our gel products to third parties, including Azur, Teva Pharmaceuticals USA, Inc., Pantarhei Bioscience B.V. and PharmaSwiss SA (to be acquired by Valeant Pharmaceuticals). All of these parties, except for Azur, have agreed to be responsible for continued development, regulatory filings and all have agreed to manufacturing and marketing associated with the products. In addition, in the future we may enter into additional similar license agreements. Our products that we have licensed to others thus are subject to not only customary and inevitable uncertainties associated with the drug development process, regulatory approvals and market acceptance of products, but also depend on the respective licensees for timely development, obtaining required regulatory approvals, commercialization and otherwise continued commitment to the products. Our current and future licensees may have different and, sometimes, competing priorities. We cannot assure you that our strategic partners or any future third party to whom we may license our products will remain focused on the development and commercialization of our partnered products or will not otherwise breach the terms of our agreements with them, especially since these third parties also may compete with us with respect to some of our products. For example, in 2005, we were notified that Teva USA had discontinued development of our male testosterone gel, Bio-T-Gel, product. Although in June 2007, we signed an amendment to the agreement under which we and Teva reinitiated our collaboration on the development of Bio-T-Gel for the U.S. market, no assurance can be provided that Teva will continue such development. Any future breach of this agreement by Teva or any other breach by our strategic partners or any other third party of their obligations under these agreements or a termination of these agreements by these parties could harm development of the partnered products in these agreements if we are unable to license the products to another party on substantially the same or better terms or continue the development and future commercialization of the products ourselves.
If we are unable to protect our proprietary technology, we may not be able to compete as effectively.
The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, in part, upon our ability to obtain, enjoy and enforce protection for any products we develop or acquire under United States and foreign patent laws and other intellectual property laws, preserve the confidentiality of our trade secrets and operate without infringing the proprietary rights of third parties. We rely on patent protection, as well as a combination of copyright and trademark laws and nondisclosure, confidentiality and other contractual arrangements to protect our proprietary technology. These legal means, however, afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.
Where appropriate, we seek patent protection for certain aspects of our technology. Our owned and licensed patents and patent applications, however, may not ensure the protection of our intellectual property for a number of other reasons:
·We do not know whether our licensor’s patent applications will result in issued patents.
·Competitors may interfere with our patents and patent process in a variety of ways. Our issued patents and those that may be issued in the future may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products. Competitors also may have our patents reexamined by demonstrating to the patent examiner that the invention was not original or novel or was obvious.
·We are engaged in the process of developing products. Even if we receive a patent, it may not provide much practical protection. There is no assurance that third parties will not be able to design around our patents. If we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent. Even if the development of our products is successful and approval for sale is obtained, there can be no assurance that applicable patent coverage, if any, will not have expired or will not expire shortly after this approval. Though patent term extension may be possible for particular products, any
expiration of the applicable patent could have a material adverse effect on the sales and profitability of our products.
·Litigation also may be necessary to enforce patent rights we hold or to protect trade secrets or techniques we own. Intellectual property litigation is costly and may adversely affect our operating results. Such litigation also may require significant time by our management. In litigation, a competitor could claim that our issued patents are not valid for a number of reasons. If the court agrees, we would lose protection on products covered by those patents.
·We also may support and collaborate in research conducted by government organizations or universities. We cannot guarantee that we will be able to acquire any exclusive rights to technology or products derived from these collaborations. If we do not obtain required licenses or rights, we could encounter delays in product development while we attempt to design around other patents or we may be prohibited from developing, manufacturing or selling products requiring these licenses. There is also a risk that disputes may arise as to the rights to technology or products developed in collaboration with other parties.
We also rely on unpatented proprietary technology. It is unclear whether efforts to secure our trade secrets will provide useful protection. We rely on the use of registered trademarks with respect to the brand names of some of our products. We also rely on common law trademark protection for some brand names, which are not protected to the same extent as our rights in the use of our registered trademarks. We cannot assure you that we will be able to meaningfully protect all of our rights in our unpatented proprietary technology or that others will not independently develop and obtain patent protection substantially equivalent proprietary products or processes or otherwise gain access to our unpatented proprietary technology. We seek to protect our know-how and other unpatented proprietary technology, in part with confidentiality agreements and intellectual property assignment agreements with our employees and consultants. Such agreements, however, may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information. Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.
The patent protection for our products may expire before we are able to maximize their commercial value which may subject us to increased competition, inhibit our ability to find strategic partners and reduce or eliminate our opportunity to generate product revenue.
The patents for our commercialized products and products in development have varying expiration dates and, when these patents expire, we may be subject to increased competition and we may not be able to recover our development costs. For example, the U.S. patents covering the formulations used in Elestrin and LibiGel which we license from Antares Pharma are scheduled to expire in June 2022. Although we have filed additional U.S. patent applications covering LibiGel, we can provide no assurance that such applications will be granted and that the patents will issue. In addition to patents, we may receive three years of marketing exclusivity for LibiGel under the Hatch-Waxman Act and an additional six months of pediatric exclusivity. Depending upon if and when we receive regulatory approval for LibiGel and our other products in development and the then expiration dates of the patents underlying LibiGel and such other products, we may not have sufficient time to recover our development costs prior to the expiration of such patents and consequently it may be difficult to find a strategic partner for such products.
Claims by others that our products infringe their patents or other intellectual property rights could adversely affect our financial condition.
The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Patent applications are maintained in secrecy in the United States and also are maintained in secrecy outside the United States until the application is published. Accordingly, we cannot determine whether our technology would infringe on patents arising from these unpublished patent applications of others. Any claims of patent infringement asserted by third parties would be time-consuming and could likely:
·result in costly litigation;
·divert the time and attention of our technical personnel and management;
·cause product development delays;
·require us to develop non-infringing technology; or
·require us to enter into royalty or licensing agreements.
Although patent and intellectual property disputes in the pharmaceutical industry often have been settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and often require the payment of ongoing royalties, which could hurt our potential gross margins. In addition, we cannot be sure that the necessary licenses would be available to us on satisfactory terms, or that we could redesign our products or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing, manufacturing and selling some of our products, which could harm our business, financial condition and operating results.
Risks Related to Our Common Stock
The price of our common stock has been volatile. As a result, we could become subject to class action litigation, which even if without merit, could be costly to defend and could divert the time and attention of our management, which could harm our business and financial condition.
Since January 1, 2010, the sale price of our common stock has ranged from a low of $1.29 to a high of $2.54. It is likely that the price of our common stock will continue to fluctuate in the future. The securities of small capitalization, biopharmaceutical companies, including our company, from time to time experience significant price fluctuations, often unrelated to the operating performance of these companies. In particular, the market price of our common stock may fluctuate significantly due to a variety of factors, including:
·general stock, market and general economic conditions in the United States and abroad, not directly related to our company or our business.
·our ability to obtain needed financing;
·equity sales by us to fund our operations;
·actual or anticipated governmental agency actions, including in particular decisions or actions by the FDA or FDA advisory committee panels with respect to our products in development or our competitors’ products;
·actual or anticipated results of our clinical studies or those of our competitors;
·changes in laws or regulations applicable to our products;
·changes in the anticipated or actual timing of our development programs, including delays or cancellations of clinical studies for our products;
·announcements of technological innovations or new products by us or our competitors;
·announcements by licensors or licensees of our technology;
·entering into new strategic partnering arrangements or termination of existing strategic partnering arrangements;
·public concern as to the safety or efficacy of or market acceptance of products developed by us or our competitors;
·developments or disputes concerning patents or other proprietary rights;
·period-to-period fluctuations in our financial results, including our cash and cash equivalents, operating expenses, cash burn rate or revenues;
·loss of key management;
·common stock sales and purchases in the public market by one or more of our larger stockholders, officers or directors;
·reports issued by securities analysts regarding our common stock and articles published regarding our business and/or products;
·changes in the market valuations of other life science or biotechnology companies; and
·other financial announcements, including delisting of our common stock from the NASDAQ Global Market, review of any of our filings by the SEC, changes in accounting treatment or restatement of previously reported financial results, delays in our filings with the SEC or our failure to maintain effective internal control over financial reporting.
In addition, the occurrence of any of the risks described in this report or otherwise in reports we file with or submit to the SEC from time to time could have a material and adverse impact on the market price of our common stock. Securities class action litigation is sometimes brought against a company following periods of volatility in the market price of its securities or for other reasons. We may become the target of similar litigation. Securities litigation, whether with or without merit, could result in substantial costs and divert management’s attention and resources, which could harm our business and financial condition, as well as the market price of our common stock.
We may issue additional equity securities which would dilute your share ownership and could cause our stock price to decrease.
We currently have the ability to offer and sell common stock, preferred stock and warrants under currently effective universal shelf registration statements. We typically sell shares of our common stock and warrants to purchase shares of our common stock to raise additional financing and fund our operations. We may issue additional equity securities to raise capital and through the exercise of options and warrants that are outstanding or may be outstanding. These additional issuances would dilute your share ownership. In addition, these sales, or the perception in the market that the holders of a large number of shares intend to sell such shares, could reduce the market price of our common stock.
Future exercises by holders of warrants and options and conversions by holders of our convertible senior notes could substantially dilute our common stock.
As of March 10, 2011, we had warrants to purchase an aggregate of 23.7 million shares of our common stock outstanding that are exercisable at prices ranging from $2.00 per share to $39.27 per share and options to purchase an aggregate of 5.3 million shares of our common stock outstanding that are exercisable at prices ranging from $1.41 per share to $36.82 per share. In addition, as of March 10, 2011, we had $1.2 million in principal amount of convertible senior notes that are convertible into an aggregate of 24,789 shares of our common stock at a conversion price of $49.78 per share and an additional $20.8 million in principal amount of convertible senior notes that are convertible into an aggregate of 5,586,559 shares of our common stock at a conversion price of $3.72 per share. Our stockholders, therefore, could experience substantial dilution of their investment upon exercise of these warrants and options and conversion of these notes. A substantial majority of these shares of common stock issuable upon exercise of the warrants and options and conversion of the notes currently are registered and thus will be available for immediate resale in the public market.
If we fail to meet continued listing standards of the NASDAQ Global Market, our common stock may be delisted which could have a material adverse effect on the liquidity of our common stock.
In order for our common stock to be eligible for continued listing on the NASDAQ Global Market, we must remain in compliance with certain listing standards, including a $1.00 minimum closing bid price per share requirement, a $50 million market capitalization and a $15 million public float requirement or a $12 million minimum stockholders’ equity requirement, and certain corporate governance standards. If our common stock were to be delisted from the NASDAQ Global Market, we could apply to list our common stock on the NASDAQ Capital Market or our common stock could be traded in the over-the-counter market on an electronic bulletin board established for unlisted securities, such as the Pink Sheets or the OTC Bulletin Board. Any delisting could adversely affect the market price of, and liquidity of the trading market for, our common stock, our ability to obtain financing for the continuation of our operations and could result in the loss of confidence by investors.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to assess the effectiveness of our internal control over financial reporting and to provide a report by our registered independent public accounting firm addressing our management’s assessment and independent audit of our internal control over financial reporting. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve their internal control systems. If we are unable to assert that our internal control over financial reporting is effective (or if our registered independent public accounting firm is unable to attest that management’s report is fairly stated, is unable to express an opinion on our management’s evaluation or on the effectiveness of the internal controls or they issue an adverse opinion on our internal control over financial reporting), we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on our stock price. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain effective internal control over financial reporting could have an adverse effect on our common stock price.
Evolving regulation of corporate governance and public disclosure may result in additional expenses, use of resources and continuing uncertainty.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ Stock Market rules are creating uncertainty for public companies. We are presently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of these costs. For example, the SEC has adopted regulations that will require us to file corporate financial statement information in a new interactive data format known as XBRL beginning with our quarterly report on Form 10-Q for our second quarter of 2011. We will incur significant costs and need to invest considerable resources to implement and to remain in compliance with these new requirements.
These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to maintain high standards of corporate governance and public disclosure. As a result, we intend to invest the resources necessary to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, due to ambiguities related to practice or otherwise, regulatory authorities may initiate legal proceedings against us, which could be costly and time-consuming, and our reputation and business may be harmed.
Provisions in ourthe Company’s charter documents and Delaware law could discourage or prevent a takeover, even if an acquisition would be beneficial to ourthe Company’s stockholders.
·authorizing the issuance of “blank check” preferred shares that could be issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt;
·
· | authorizing the issuance of “blank check” preferred shares that could be issued by the Company’s board of directors to increase the number of outstanding shares and thwart a takeover attempt; | |
· | prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; | |
· | advance notice provisions in connection with stockholder proposals and director nominations that may prevent or hinder any attempt by the Company’s stockholders to bring business to be considered by its stockholders at a meeting or replace its board of directors; and | |
· | as a Delaware corporation, the Company is also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents certain stockholders holding more than 15% of the Company's outstanding common stock from engaging in certain business combinations without approval of the holders of at least two-thirds of its outstanding common stock not held by such 15% or greater stockholder. |
·advance notice provisions in connection with stockholder proposals and director nominations that may prevent or hinder any attempt by our stockholders to bring business to be considered by our stockholders atreceive a meeting or replace our boardpremium for their shares of directors.
Sales of ourthe Company's common stock, by our officers and directors may lowercould also affect the market price of ourthat some investors are willing to pay for its common stock.
As of March 10, 2011, our officers and directors beneficially owned an aggregate of approximately 5,085,504 shares (or approximately 6.1 percent) of our outstanding common stock, including stock options exercisable within 60 days. If our officers and directors, or other stockholders, sell a substantial amount of our common stock, even if such sales occur in connection with broker-assisted cashless exercises of stock options, it could cause the market price of our common stock to decrease and could hamper our ability to raise capital through the sale of our equity securities.
We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on an investment in our common stock must come from increases in the fair market value and trading price of our common stock.
We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on an investment in our common stock must come from increases in the fair market value and trading price of our common stock.
This Item 1B is not applicable to BioSante as a smaller reporting company.
32 | ||
Item 4A.EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, their ages and the offices held, as of March 10, 2011, are as follows:
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Each of our executive officers serves at the discretion of our Board of Directors and holds office until his successor is elected and qualified or until his earlier resignation or removal. There are no family relationships among any of our directors or executive officers. Information regarding the business experience of our executive officers is set forth below.
Stephen M. Simes has served as our Vice Chairman, naming the Company and its former President and Chief Executive Officer, Stephen M. Simes, as defendants. The complaint alleges that certain of the Company’s disclosures relating to the efficacy of LibiGel®and its commercial potential were false and/or misleading and that such false and/or misleading statements had the effect of artificially inflating the price of the Company’s securities resulting in violations of Section 10(b) of the Exchange Act, Rule 10b-5 and Section 20(a) of the Exchange Act.
operations, or cash flows. No amounts have been accrued related to this legal action as of December 31, 2013.
33 | ||
therefore allegedly not reimbursable under the federal Medicaid program. The lawsuit relates to three cough and cold prescription products manufactured and sold by the Company’s former Gulfport, Mississippi operation, which was sold in September 2010. Through its lawsuit, the state seeks unspecified damages, statutory fines, penalties, attorney’s fees and costs. On October 15, 2013, the defendants removed the lawsuit to the U.S. District Court. On November 14, 2013, the state filed a motion to remand the lawsuit to the Louisiana state court. While the Company cannot predict the outcome of the lawsuit at this time, it could be subject to material damages, penalties and fines. The Company intends to vigorously defend against all claims in the lawsuit.
34 | ||
Item 5.Market forMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our
2010 |
| High |
| Low |
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First Quarter |
| $ | 2.081 |
| $ | 1.43 |
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Second Quarter |
| $ | 2.50 |
| $ | 1.75 |
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Third Quarter |
| $ | 1.76 |
| $ | 1.29 |
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Fourth Quarter |
| $ | 2.1685 |
| $ | 1.40 |
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2009 |
| High |
| Low |
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First Quarter |
| $ | 2.33 |
| $ | 1.03 |
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Second Quarter |
| $ | 2.67 |
| $ | 1.30 |
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Third Quarter |
| $ | 2.70 |
| $ | 1.45 |
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Fourth Quarter |
| $ | 2.15 |
| $ | 1.33 |
|
2012, as adjusted for the one-for-six reverse stock splits that occurred on June 4, 2012 and July 17, 2013:
Common Stock Price | |||||||||||||
2013 | 2012 | ||||||||||||
High | Low | High | Low | ||||||||||
First Quarter | $ | 9.48 | $ | 6.60 | $ | 44.28 | $ | 15.84 | |||||
Second Quarter | $ | 8.64 | $ | 4.80 | $ | 27.36 | $ | 12.00 | |||||
Third Quarter | $ | 9.94 | $ | 5.46 | $ | 15.72 | $ | 7.26 | |||||
Fourth Quarter | $ | 23.00 | $ | 9.75 | $ | 11.82 | $ | 6.48 |
anticipate paying cash dividends in the near term.
Except as otherwise described below, during the fourth quarter ended December 31, 2010, we did not issue or sell any equity securities of ours without registration under the Securities Act of 1933, as amended.
On November 22, 2010, we issued a warrant to purchase 180,000 shares of our common stock to one of our investor relations firms. Such warrant has an exercise price of $2.00 per share and will become exercisable with respect to 50 percent of the underlying shares on each of May 22, 2011 and November 22, 2011 and expires on November 21, 2013.
On December 30, 2010, we issued a warrant to purchase 317,647 shares of our common stock to our placement agent in connection with our December 2010 registered direct offering. Such warrant has an exercise price of $2.125 per share, is fully exercisable and expires on June 9, 2015.
Such warrants were issued in reliance upon Section 4(2) under the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering or Regulation D of the Securities Act. In all such transactions, we made certain inquiries to establish that such sales qualified for such exemption from the registration requirements. In particular, we confirmed that with respect to the exemption claimed under Section 4(2) of the Securities Act (i) all offers of sales and sales were made by personal contact from our officers and directors or other persons closely associated with us, (ii) each recipient made representations that such recipient was sophisticated in relation to his, her or its investment (and we had no reason to believe that such representations were
incorrect), (iii) each recipient gave assurance of investment intent and the certificates for the shares bear a legend accordingly, and (iv) offers and sales within any offering were made to a limited number of persons.
We did not purchase any shares of our common stock or other equity securities of ours during the fourth quarter ended December 31, 2010. Our Board of Directors has not authorized any repurchase plan or program for the purchase of our shares of common stock or other securities on the open market or otherwise, other than in connection with the cashless exercise of outstanding warrants and stock options.
Item 6. SELECTED FINANCIAL DATASelected Consolidated Financial Data
The following selected financial information has been derived from our audited financial statements. The information below is not necessarily indicative of results of future operations, and should be read together with “Part II.
35 | ||
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| Year Ended December 31, |
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| 2010 |
| 2009 |
| 2008 |
| 2007 |
| 2006 |
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| (in thousands, except per share data) |
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Statement of Operations Data: |
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Revenue |
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Licensing revenue |
| $ | 116 |
| $ | — |
| $ | 3,384 |
| $ | 199 |
| $ | 14,136 |
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Grant revenue |
| 52 |
| 116 |
| 65 |
| 59 |
| 247 |
| |||||
Royalty revenue |
| 2,306 |
| 1,142 |
| 34 |
| 69 |
| — |
| |||||
Other revenue |
| — |
| — |
| 298 |
| 166 |
| 55 |
| |||||
Total revenue |
| 2,474 |
| 1,258 |
| 3,781 |
| 493 |
| 14,438 |
| |||||
Expenses |
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Research and development |
| 39,706 |
| 13,681 |
| 15,790 |
| 4,751 |
| 3,908 |
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General and administration |
| 5,940 |
| 5,374 |
| 5,125 |
| 4,331 |
| 4,550 |
| |||||
Acquired in-process research and development |
| — |
| 9,000 |
| — |
| — |
| — |
| |||||
Excess consideration paid over fair value |
| — |
| 20,192 |
| — |
| — |
| — |
| |||||
Licensing expense |
| 269 |
| 300 |
| 836 |
| — |
| 3,500 |
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Depreciation and amortization |
| 168 |
| 137 |
| 43 |
| 90 |
| 118 |
| |||||
Total expenses |
| 46,083 |
| 48,684 |
| 21,794 |
| 9,172 |
| 12,076 |
| |||||
Other (expense) income — Convertible note fair value adjustment |
| (1,871 | ) | 33 |
| — |
| — |
| — |
| |||||
Other expense — Investment impairment charge |
| (286 | ) | — |
| — |
| — |
| — |
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Other expense — Interest expense |
| (688 | ) | (147 | ) | — |
| — |
| — |
| |||||
Other income |
| 245 |
| — |
| — |
| — |
| — |
| |||||
Other income — Interest income |
| 13 |
| 12 |
| 588 |
| 1,095 |
| 429 |
| |||||
Net (loss) income |
| $ | (46,196 | ) | $ | (47,528 | ) | $ | (17,425 | ) | $ | (7,584 | ) | $ | 2,791 |
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Basic and diluted net (loss) income per common share |
| $ | (0.70 | ) | $ | (1.40 | ) | $ | (0.64 | ) | $ | (0.30 | ) | $ | 0.13 |
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Weighted average number of common shares and common equivalent shares outstanding |
| 65,912 |
| 33,952 |
| 27,307 |
| 25,486 |
| 21,484 |
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| As of December 31, |
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| 2010 |
| 2009 |
| 2008 |
| 2007 |
| 2006 |
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| (in thousands) |
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Balance Sheet Data: |
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Cash, cash equivalents and short-term investments |
| $ | 38,155 |
| $ | 29,858 |
| $ | 14,787 |
| $ | 30,655 |
| $ | 11,450 |
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Total assets |
| 44,767 |
| 36,437 |
| 17,679 |
| 31,241 |
| 22,371 |
| |||||
Total current liabilities (includes short-term convertible senior notes) |
| 8,183 |
| 3,930 |
| 3,853 |
| 1,516 |
| 4,300 |
| |||||
Convertible senior notes, total long- and short-term |
| 18,547 |
| 16,676 |
| — |
| — |
| — |
| |||||
Stockholders’ equity |
| 19,147 |
| 15,830 |
| 13,826 |
| 29,725 |
| 18,071 |
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Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the headings “Part I. Item 1. Business—Forward-Looking Statements” and “Part I. Item 1A. Risk Factors” of this report. The following discussion of our results of operations and financial condition should be read in conjunction with ourItem 1A. (“Risk Factors”) and the Company's audited consolidated financial statements and the related notes thereto included elsewhere in this annual report. This Management’s Discussion and Analysis is organizedSome of the statements in the following major sections:
discussion are forward-looking statements. See the discussion about forward-looking statements in Item 1. (“Business”).
·Summary of 2010 Financial Results and Outlook for 2011. This section provides a brief summary of our financial results and financial condition for 2010 and our outlook for 2011.
·Critical Accounting Policies and Estimates. This section discusses the accounting estimatesBaudette, Minnesota that are capable of producing oral solid dose products, as well as liquids and topicals, narcotics, and potent products that must be manufactured in a fully-contained environment. The Company's strategy is to continue to use these manufacturing assets to develop, produce, and distribute niche generic pharmaceutical products.
·Results of Operations. This section provides our analysis of the significant line items in our statements of operations.
·Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows and a discussion of our outstanding indebtedness and commitments.
·Recent Accounting Pronouncements. This section discusses recently issued accounting pronouncements that have had or may affect ourreplace BioSante's historical results of operations for all periods prior to the Merger. The results of operations of both companies are included in the Company’s consolidated financial statements for all periods after completion of the Merger.
Business Overview
We are aacquire, manufacture, and market branded and generic specialty prescription pharmaceuticals. By developing and acquiring carefully-considered prescription pharmaceutical company focused on developing products, management believes the Company will be able to continue to grow its business, expand and diversify its product portfolio, and create long-term value for female sexual health and oncology.
Our products, either approved or in human clinical development, include:
·LibiGel —its investors.
·Elestrin — once daily transdermal estradiol (estrogen) gelthe product, including preparation of the ANDA, and the Company will be responsible for the marketing and distribution of the product in the U.S.
36 | ||
·Company’s consolidated statements of operations bear to net revenues.
Years Ended December 31, | ||||||
2013 | 2012 | |||||
Net revenues | 100.0 | % | 100.0 | % | ||
Operating expenses | ||||||
Cost of sales (exclusive of depreciation and amortization) | 33.2 | % | 45.0 | % | ||
Research and development | 5.7 | % | 5.7 | % | ||
Selling, general and administrative | 54.5 | % | 46.7 | % | ||
Depreciation and amortization | 3.6 | % | 2.8 | % | ||
Operating income (loss) from continuing operations | 3.0 | % | (0.2) | % | ||
Interest expense | 1.6 | % | 6.5 | % | ||
Other expense | 1.0 | % | 1.2 | % | ||
Net income (loss) from continuing operations | 0.4 | % | (7.7) | % | ||
Gain on discontinued operation | 0.6 | % | 0.3 | % | ||
Net income (loss) | 1.0 | % | (7.4) | % |
Years Ended December 31, | ||||||
(in thousands) | 2013 | 2012 | ||||
Net revenues | $ | 30,082 | $ | 20,371 | ||
Operating expenses | ||||||
Cost of sales (exclusive of depreciation and amortization) | 9,974 | 9,167 | ||||
Research and development | 1,712 | 1,158 | ||||
Selling, general and administrative | 16,388 | 9,521 | ||||
Depreciation and amortization | 1,110 | 567 | ||||
Operating income (loss) from continuing operations | 898 | (42) | ||||
Interest expense | 467 | 1,327 | ||||
Other expense | 305 | 241 | ||||
Net Income/(Loss) from Continuing Operations | ||||||
Before (Provision) Benefit for Income Taxes | 126 | (1,610) | ||||
(Provision) benefit for income taxes | (20) | 36 | ||||
Net income (loss) from continuing operations | 106 | (1,574) | ||||
Gain on discontinued operation | 195 | 68 | ||||
Net income (loss) | $ | 301 | $ | (1,506) |
37 | ||
·Bio-T-Gel — once daily transdermal testosterone gel in developmentOperations for the treatmentYears Ended December 31, 2013 and 2012
(in thousands) | Years Ended December 31, | |||||||||||
2013 | 2012 | Change | % Change | |||||||||
Generic pharmaceutical products | $ | 19,281 | $ | 10,157 | $ | 9,124 | 89.8 | % | ||||
Branded pharmaceutical products | 3,370 | 1,829 | 1,541 | 84.3 | % | |||||||
Contract manufacturing | 6,018 | 7,557 | (1,539) | (20.4) | % | |||||||
Contract services and other income | 1,413 | 828 | 585 | 70.7 | % | |||||||
Total net revenues | $ | 30,082 | $ | 20,371 | $ | 9,711 | 47.7 | % |
·Cancer vaccines — a portfolio of cancer vaccines in Phase II clinical development for the treatment of various cancers.
We believe LibiGel remains the lead pharmaceutical product in the U.S. in active development for the treatment of hypoactive sexual desire disorder (HSDD) in menopausal women, and that it has the potential to be the first product approved by the FDA for this common and unmet medical need. We believe based on agreements with the FDA, including an SPA, that two Phase III safety and efficacy trials and a minimum average exposure to LibiGel per subject of 12 months in a Phase III cardiovascular and breast cancer safety study with a four-year follow-up post-NDA filing and potentially post-FDA approval and product launch, are the essential requirements for submission and, if successful, approval by the FDA of a new drug application (NDA) for LibiGel for the treatment of FSD, specifically HSDD in menopausal women. Currently, three LibiGel Phase III studies are underway: two LibiGel Phase III safety and efficacy clinical trials under an FDA agreed SPA and one Phase III cardiovascular and breast cancer safety study. We have completed enrollment in the first efficacy trial and plan to complete enrollment in the second efficacy trial in the near future. The Phase III safety study is currently enrolling women, and as of the end of February 2011 had enrolled approximately 2,900 women. In February 2011, we announced that based upon the fifth review of study conduct and unblinded safety dataits revenues from the safety study by the study’s independent data monitoring committee (DMC), the DMC unanimously recommended continuing the safety study as described in the FDA-agreed study protocol, with no modifications. If enrollment is not completed sooner, enrollment will continue until the safety study reaches its predetermined maximum of 4,000 women. Upon completion of the statistical analyses of the safety study and efficacy trials, we intend to submit an NDA to the FDA, requesting approval to market LibiGel for the treatment of HSDD in menopausal women. It is our objective to submit the LibiGel NDA to the FDA so that LibiGel may be approved in 2012.
Elestrin is our first FDA approved product. Azur Pharma International II Limited (Azur), our licensee, is marketing Elestrin in the U.S. In December 2009, we entered into an amendment to our original licensing agreement with Azur pursuant to which we received $3.16 million in non-refundable payments in exchange for the elimination of all remaining future royalty payments and certain milestone payments that could have been paid to us related to Azur’s sales of Elestrin. We maintain the right to receive up to $140 million in sales-based milestone payments from Azur if Elestrin reaches certain predefined sales per calendar year, although based on current sales levels, we believe our receipt of such payments unlikely in the near term, if at all.
We license the technology underlying certain of our gelgeneric and branded pharmaceutical products, including LibiGelcontract manufacturing, and Elestrin, from Antares Pharma, Inc. Our license agreement with Antares requires us to pay Antares certaincontract services, which include product development and regulatory milestone paymentsservices, laboratory services, and royalties based on net sales of any products wecertain contract manufactured products. Revenue for the year ended December 31, 2013 was $30.1 million compared to $20.4 million for 2012.
· | Net revenues for generic pharmaceutical products were $19.3 million in the year ended December 31, 2013, an increase of 89.8% compared to $10.2 million for 2012. Aprimary reason for the $9.1 million increase was an $8.1 million increase in revenue related to Esterified Estrogen with Methyltestosterone tablets (“EEMT”), which was the result of increases in both market share and prices per bottle, due to a significant decrease in competition, beginning in the third quarter of 2013, which the Company cannot be certain will continue. For the year ended December 31, 2013, EEMT comprised 33% of the Company’s net sales, a substantial increase over the prior year wherein EEMT comprised only 9% of the Company’s net sales. In the third quarter of 2013, a significant competitor stopped producing EEMT, which led to a material increase in the Company’s market share for the product and enabled the Company to significantly increase the price it charges for the product. Market share gains on Opium Tincture and Fluvoxamine Maleate tablets also contributed to increased generic product revenues. | |
As discussed further under Item 1. Business – Government Regulations – Unapproved Products, the Company markets EEMT and Opium Tincture without FDA-approved NDAs or ANDAs. The FDA's policy with respect to the continued marketing of unapproved products appears in the FDA's September 2011 Compliance Policy Guide Sec. 440.100 titled "Marketed New Drugs without Approved NDAs or ANDAs." Under this policy, the FDA has stated that it will follow a risk-based approach with regard to enforcement against marketing of unapproved products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher priority to enforcement action against products in certain categories, such as those with potential safety risks or that lack evidence of effectiveness. While the Company believes that, so long as it complies with applicable manufacturing and labeling standards, the FDA will not take action against it under the current enforcement policy, it can offer no assurances that the FDA will continue this policy or not take a contrary position with any individual product or group of products. The Company's combined net revenues for these products for theyears ended December 31, 2013 and 2012 were $14.6 million and $6.0 million, respectively. |
38 | ||
· | Net revenues for branded pharmaceutical products were $3.4 million in the year ended December 31, 2013, an increase of 84.3% compared to $1.8 million for the same period in 2012.The primary reason for the increase was higher unit sales of Reglan® tablets. Higher unit sales of Cortenema® contributed to the increase to a lesser extent. | |
· | Contract manufacturing revenues were $6.0 million for the year ended December 31 2013, a decrease of 20.4% from $7.6 million for 2012, due to decreased orders from contract manufacturing customers during the 2013 period.One group of products that the Company manufactures on behalf of a contract customer is marketed by that customer without an FDA-approved NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market. The Company's contract manufacturing revenue for the group of unapproved products for the years ended December 31, 2013 and 2012 was $2.0 million and $1.4 million, respectively. | |
· | Contract services and other income were $1.4 million for the year ended December 31, 2013, an increase of 70.7% from approximately $0.8 million for 2012, due to a $0.5 million non-recurring payment from Teva in relation to the Teva license agreement acquired in the Merger. The Company receives royalties on the net sales of a group of contract-manufactured products, which are marketed by the contract customer without an FDA-approved NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market. The Company’s royalties on the net sales of these unapproved products for the years ended December 31, 2013 and 2012 were $330 thousand and $284 thousand, respectively. |
(in thousands) | Years Ended December 31, | ||||||||||||
2013 | 2012 | Change | % Change | ||||||||||
Cost of sales (excl. depreciation and amortization) | $ | 9,974 | $ | 9,167 | $ | 807 | 8.8 | % |
Our portfolio of cancer vaccines is designed to stimulate the patient’s immune system to fight effectively the patient’s own cancer. Multiple Phase II trials of these vaccines are ongoing at minimal cost to us at the Johns Hopkins Sidney Kimmel Comprehensive Cancer Center in various cancer types, including pancreatic cancer, leukemia and breast cancer. We anticipate Phase II trials for prostate cancer to begin in 2011. Four of these vaccines have been granted FDA orphan drug designation. We license our cancer vaccine technology from Johns Hopkins University and The Whitehead Institute for Biomedical Research. Under various agreements, we are required to pay Johns Hopkins University certain development and regulatory milestone payments and royalties based on net sales of any products we or our licensees sell incorporating the in-licensed technology.
One of our strategic goals is to continue to seek and implement strategic alternatives with respect to our products and our company, including licenses, business collaborations and other business combinations or transactions with other pharmaceutical and biotechnology companies. Therefore, as a matterpercentage of course, we may engage in discussions with third parties regarding the licensure, sale or acquisition of our products and technologies or a merger or sale of our company.
Summary of 2010 Financial Results and Outlook for 2011
Substantially all of our revenuenet revenues decreased to date has been derived from upfront, milestone and royalty payments earned on licensing and sublicensing transactions and from subcontracts. To date, we have used primarily equity financings, and to a lesser extent, licensing income, interest income and the cash received from our merger with Cell Genesys, Inc., to fund our ongoing business operations and short-term liquidity needs.
We have not introduced commercially any products. Azur, our marketing licensee for Elestrin, commercially launched Elestrin in April 2009. In December 2009, we entered into an amendment to our original licensing agreement with Azur pursuant to which we received $3.16 million in non-refundable payments in exchange for the elimination of all remaining future royalty payments and certain milestone payments that could have been paid to us related to Azur’s sales of Elestrin. We recognized $2,306,560 in royalty revenue from sales of Elestrin33.2% during the year ended December 31, 2010. 2013 from 45.0% for 2012, primarily as a result of a price increase for EEMT. Sales of EEMT provided approximately 33% of total net revenues, but only approximately 24% of cost of sales in 2013. In addition, the Company experienced decreases in the costs of raw materials for Fluvoxamine Maleate tablets and EEMT, which were the result of establishing long-term supply agreements with vendors.
39 | ||
(in thousands) | Years Ended December 31, | ||||||||||||
2013 | 2012 | Change | % Change | ||||||||||
Research and development | $ | 1,712 | $ | 1,158 | $ | 554 | 47.8 | % | |||||
Selling, general and administrative | 16,388 | 9,521 | 6,867 | 72.1 | % | ||||||||
Depreciation and amortization | 1,110 | 567 | 543 | 95.8 | % | ||||||||
Total other operating expenses | $ | 19,210 | $ | 11,246 | $ | 7,964 | 70.8 | % |
· | Research and development expenses increased from $1.2 million in 2012 to $1.7 million in 2013, due to increased expenses incurred with respect to the RiconPharma and Sofgen collaborative arrangements. The Company anticipates that research and development costs will continue to increase based on the Company’s strategy to expand its product portfolio. | |
· | Selling, general and administrative expenses increased from $9.5 million in 2012 to $16.4 million in 2013, primarily as a result of $6.2 million of expenses incurred relating to the Merger, including $4.5 million of non-cash transaction bonuses paid to the Company’s executives upon completion of the Merger. In addition, one-time bonuses paid to certain officers after completion of the merger and increases in personnel contributed to the increase in expense. | |
· | Depreciation and amortization increased from $0.6 million in 2012 to $1.1 million in 2013, an increase of 95.8%, due to amortization of the Teva license acquired in the Merger. The Teva license is being amortized over its estimated useful life of 11 years. |
40 | ||
(in thousands) | Years Ended December 31, | ||||||||||||
2013 | 2012 | Change | % Change | ||||||||||
Interest expense | $ | 467 | $ | 1,327 | $ | (860) | (64.8) | % | |||||
Other expense | 305 | 241 | 64 | 26.4 | % | ||||||||
Total other expenses | $ | 772 | $ | 1,568 | $ | (796) | (50.8) | % |
· | Interest expense decreased from $1.3 million to $0.5 million. In June 2012, all of ANIP’s subordinated debt was converted to Series D convertible preferred stock. In addition, the Company paid down its revolving line of credit in the second quarter of 2013, in connection with the Merger. The resulting reductions from both the subordinated debt conversion and repayment of the revolving line of credit were partially offset by an early termination fee and accelerated amortization of deferred loan costs incurred upon repayment of the line of credit. | |
· | Other expense increased from $0.2 million to $0.3 million as a result of payments totaling $0.4 million to certain of the Company’s investors for monitoring and advisory fees, partially offset by other income from the third quarter resulting from the settling of several aged liabilities. |
(in thousands) | Years Ended December 31, | ||||||||||||
2013 | 2012 | Change | % Change | ||||||||||
Gain on discontinued operation, net of tax | $ | 195 | $ | 68 | $ | 127 | 187.6 | % |
41 | ||
(in thousands) | December 31, | ||||||
2013 | 2012 | ||||||
Cash and cash equivalents | $ | 11,105 | $ | 11 | |||
Accounts receivable, net | 12,513 | 5,432 | |||||
Inventories | 3,518 | 2,810 | |||||
Prepaid expenses | 580 | 313 | |||||
Total current assets | $ | 27,716 | $ | 8,566 | |||
Accounts payable | $ | 1,429 | $ | 1,994 | |||
Accrued expenses | 1,326 | 927 | |||||
Returned goods reserve | 736 | 411 | |||||
Deferred revenue | 47 | 315 | |||||
Borrowing under line of credit | - | 4,065 | |||||
Total current liabilities | $ | 3,538 | $ | 7,712 |
· | proportions of net revenues comprised of contract manufacturing and sales of the Company’s generic and branded products; | |
· | pricing and payment terms with customers; |
42 | ||
· | costs of raw materials and payment terms with suppliers; | |
· | capital expenditures and equipment purchases to support product launches; and | |
· | business and product acquisitions. |
Our business operations to date have consisted mostly of licensing and research and development activities and we expect this to continue for the immediate future. If and when our products for which we have not entered into marketing relationships receive FDA approval, we may begin to incur other expenses, including sales and marketing related expenses if we choose to market$12.5 million.
43 | ||
We incurred expenses of approximately $39.7 million on research and development activities during the year ended December 31, 2010, which is a 190 percent increase, compared to 2009, primarily as a result of the conduct of the three LibiGel Phase III clinical studies. In April 2009, we decided to delay screening new subjects for our LibiGel Phase III safety study in order to conserve cash; however, in January 2010, we reinitiated screening and enrollment in the safety study. We anticipate spending on research and development activities approximately $3.5 million to $4.5 million per month until enrollment is completed in the safety study. The amount of our actual research and development expenditures may fluctuate from quarter-to-quarter and year-to-year depending upon: (1) the amount of resources, including cash available; (2) our development schedule, including the timing and scope of our clinical trials; (3) results of studies, clinical trials and regulatory decisions, including in particular the number of subjects required in our LibiGel safety study; (4) the amount of our clinical recruitment expenditures intended to complete enrollment in our LibiGel safety study; (5) whether we or our licensees are funding the development of our products; and (6) competitive developments.
Our general and administrative expenses for the year ended December 31, 2010 increased 11 percent compared to the year ended December 31, 2009 due primarily to an increaseperiods indicated:
(in thousands) | Years ended December 31, | ||||||
2013 | 2012 | ||||||
Operating Activities | $ | (5,484) | $ | (137) | |||
Investing Activities | $ | 20,267 | $ | (292) | |||
Financing Activities | $ | (3,689) | $ | 440 |
quarter-to-quarter depending upon the amount of non-cash, stock-based compensation expense and the amount of legal, public and investor relations, business development, accounting, corporate governance and other fees and expenses incurred.
We recognized a net loss for the year ended December 31, 2010 of approximately $46.2 million compared to a net loss of approximately $47.5operating activities was $5.5 million for the year ended December 31, 2009.2013 compared to $0.1 million during the same period in 2012, an increase in the use of cash of $5.3 million between the periods. This slight decreaseincrease was due to changes in current assets and current liabilities, partially offset by the change from a net loss in 2012 to net income in 2013. There was a $6.0 million increase in cash provided in 2013 due to the Company's net income/(loss) from continuing operations, after adjusting for non-cash expenses. $1.8 million of this increase was due to the change from a net loss in 2012 to net income in 2013. In addition, increases in non-cash expenses, primarily due to the $29.2$4.4 million of non-cash expenses in 2009 related to our merger with Cell Genesys,the Merger and a $0.5 million increase in depreciation and amortization expense were partially offset by increased LibiGel clinical development expenses discussed above. We recognized a net loss per share$0.9 million decrease in non-cash interest relating to equity-linked securities and loan cost amortization.
year ended December 31, 2012, which included $1.0 million in increased borrowings under ANI's revolving line of credit, net of payment of debt issuance costs of $0.3 million and $0.3 million in note payable repayments.
44 | ||
Our significant accounting policies are described in Note 2 to our financial statements included underAnalysis of Financial Condition and Results of Operations is based on the heading “Part II. Item 8. Financial Statements and Supplementary Data” of this report. The discussion and analysis of our financial statements and results of operations are based upon ourCompany’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.America (“U.S. GAAP”). The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and judgmentsassumptions that affect the reported amountamounts of assets and liabilities revenues and expenses, and related disclosure of contingent assets and liabilities.liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the Company’s consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, allowance for doubtful accounts, accruals for chargebacks, returns and other allowances, allowance for inventory obsolescence, valuation of derivative liabilities, accruals for contingent liabilities, fair value of long-lived assets, deferred taxes and valuation allowance, and the depreciable lives of fixed assets.
Accounting Treatment Related to Acquisition of Assets and Liabilities of Cell Genesys
On October 14, 2009, we completed our legal merger with Cell Genesys, as a result of which we acquired all of the assets and liabilities of Cell Genesys. Concurrently with the merger, the common stock of Cell Genesys was converted into common stock of BioSante, and Cell Genesys ceased to exist. The primary reason we merged with Cell Genesys was our need for additional funding to continue our Phase III clinical studies for LibiGelreasonably determinable, collection is reasonably assured, and the lack of other available acceptable alternatives for us to access capital prior toCompany has no further performance obligations. Contract manufacturing arrangements are typically less than two weeks in duration, and attherefore the time the merger agreement was entered into by both of us in June 2009, especially in light of the then state of the markets for equity offerings, which historically had been our primary method for raising additional financing. We have accounted for our transaction with Cell Genesys under U.S. generally accepted accounting principles as an acquisition of the net assets of Cell Genesys, whereby we have recorded the individual assets and liabilities of Cell Genesys as of therevenue is recognized upon completion of the mergeraforementioned factors rather than using a proportional performance method of revenue recognition. The estimates for discounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments reduce gross revenues to net revenues in the accompanying consolidated statements of operations, and are presented as current liabilities or reductions in accounts receivable in the accompanying consolidated balance sheets (see “Accruals for Chargebacks, Returns, and Other Allowances”). Historically, the Company has not entered into revenue arrangements with multiple elements.
45 | ||
In connectionbranded product revenues are typically subject to agreements with the merger with Cell Genesys, we acquired the rights to in-process researchcustomers allowing chargebacks, product returns, administrative fees, and development of Cell Genesys, as well as associated patentsother rebates and technology.prompt payment discounts. The estimated fair value of the in-process research and development was charged to expense as it was deemed to have no alternative future use.
Following the completion of the merger, our future net income (loss) reflects charges resulting from the purchase price allocation related to the merger, which includes adjustments to carrying values of the acquired net assets based on the fair value of consideration measured as of the completion of the merger.
AccountingCompany accrues for Convertible Notes Assumed in Connection with the Cell Genesys Acquisition
We assumed $22.0 million principal amount of convertible notes in connection with the Cell Genesys acquisition. We elected to apply the fair value option to the debtthese items at the time of sale based on the acquisition, with recognitionestimates and methodologies described below. In the aggregate, these accruals, reflected as a decrease to gross sales, exceed 60% of subsequent changesgeneric and branded gross product sales, reduce gross revenues to net revenues in the fair value of the convertible notes recognized in ourconsolidated statements of operations, immediately. As a result of this election, we must periodically estimate the fair value of our convertible notes, which requires us to make certain judgments and estimates about appropriate discount rates, our creditworthiness, and assumptions regarding potential conversion of the notes. We believe that our estimates and assumptions are reasonable; however changespresented as current liabilities or reductions in these estimates and assumptions could result in significant differencesaccounts receivable in the carrying valueconsolidated balance sheets. The Company continually monitors and re-evaluates the accruals as additional information becomes available, which includes, among other things, updates to trade inventory levels and customer product mix. The Company makes adjustments to the accruals at the end of each reporting period, to reflect any such updates to the convertible notes. relevant facts and circumstances. Accruals are relieved upon receipt of payment from or issuance of credit to the customer.
Results of Operations
The following table sets forth, for the periods indicated, our results of operations.
|
| Year Ended December 31, |
| |||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
Revenue |
| $ | 2,474,237 |
| $ | 1,258,054 |
| $ | 3,780,829 |
|
Expenses |
| 46,082,598 |
| 48,683,608 |
| 21,794,471 |
| |||
Research and development |
| 39,705,502 |
| 13,680,573 |
| 15,789,980 |
| |||
General and administrative |
| 5,940,360 |
| 5,373,945 |
| 5,124,934 |
| |||
Acquired in-process research and development |
| — |
| 9,000,000 |
| — |
| |||
Excess consideration paid over fair value |
| — |
| 20,192,194 |
| — |
| |||
Licensing expense |
| 268,750 |
| 299,616 |
| 836,420 |
| |||
Other (expense) income — Convertible note fair value adjustment |
| (1,870,916 | ) | 33,163 |
| — |
| |||
Other expense — Investment impairment charge |
| (286,000 | ) | — |
| — |
| |||
Other expense — Interest expense |
| (688,083 | ) | 147,025 |
| — |
| |||
Other income |
| 244,479 |
| — |
| — |
| |||
Other income — Interest income |
| 12,665 |
| 11,648 |
| 588,464 |
| |||
Net loss |
| $ | (46,196,216 | ) | $ | (47,527,768 | ) | $ | (17,425,178 | ) |
Net loss per common share (basic and diluted) |
| $ | (0.70 | ) | $ | (1.40 | ) | $ | (0.64 | ) |
Weighted average number of common shares and common equivalent shares outstanding |
| 65,911,750 |
| 33,951,652 |
| 27,307,494 |
|
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenue increased $1.2 million in 2010 compared to 2009 primarily as a result of an increase in royalty and licensing revenue during 2010 compared to 2009. Of the $2.3 million in royalty revenue during 2010, $2.2 million resulted from our receipt of non-refundable upfront payments from Azur as a result of the December 2009 amendment to our license agreement. Pursuant to a separate agreement with Antares and related to the December 2009 amendment, we paid Antares an aggregate of $268,750 in February 2010. In addition, during 2010, we recorded royalty revenue of $152,228 and a corresponding amount of royalty expense, which is recorded within general and administrative expenses in our statements of operations, to reflect the Antares portion of the Elestrin royalty revenues, which revenues were not eliminated as a result of the December 2009 Azur license amendment. In October 2010, we received $244,479, the maximum per project, after LibiGel qualified for a grant under the Qualifying Therapeutic Discovery Project Program which was created in March 2010 as part of the Patient Protection and Affordability Care Act.
Research and development expenses increased 190 percent in 2010 compared to 2009 primarily as a result of the conduct of the three LibiGel Phase III clinical studies.
General and administrative expenses increased 11 percent in 2010 compared to 2009 primarily as a result of an increase in personnel-related costs and, to a lesser extent, increases in professional fees and other administrative expenses in 2010.
We recognized total additional non-cash expenses of $29.2 million in 2009 related to our merger with Cell Genesys, consisting of $9.0 million related to the write-off of acquired in-process research and development, and $20.2 million related to transaction related expenses and additional charges related to the excess of merger consideration over fair values of the net assets acquired. No similar expense was recognized in 2010.
We recognized licensing expense of $268,750 related to our payment to Antares as a result of the December 2009 Azur license amendment compared to licensing expense of $299,616 in 2009 as a result of expenses associated with the Azur licensing agreement and the termination of our prior licensing agreement for Elestrin.
The fair value adjustment on our convertible senior notes to increase the recorded liability and corresponding expense was $1,870,916 in 2010 compared to a fair value adjustment to decrease the recorded liability and corresponding expense of $33,163 in 2009.
We recorded an investment impairment charge of $286,000 in 2010 based on our determination that an other-than-temporary impairment had occurred with respect to our investment in Ceregene, Inc. based on a recent third-party investment in Ceregene. No similar investment impairment charge was recognized in 2009.
Interest expense increased $541,058, or 368 percent, in 2010 compared to 2009 as a result of our convertible senior notes, which we assumed during the fourth quarter of 2009.
Interest income increased $1,017,year and increase or 9 percent, in 2010 compared to 2009 primarily asdecrease accounts receivable. If there were a result of our higher cash balances and our cash being in a U.S. Treasury portfolio for a portion of 2010 compared to our cash being in a non-interest bearing checking account for the majority of 2009.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenue decreased 67 percent in 2009 compared to 2008 primarily as a result of our receipt of $3.4 million from the Azur license of Elestrin in 2008 compared to our receipt of approximately $1.1 million from Azur in 2009, $1.0 million of which was a non-refundable payment received as a result of the December 2009 amendment to our license agreement.
Research and development expenses decreased 13 percent in 2009 compared to 2008 primarily as a result of our decision in April 2009 to delay screening new subjects for our LibiGel safety study to conserve cash.
Our general and administrative expenses increased 5 percent in 2009 compared to 2008 due primarily to a 9 percent or $111,878 increase in our non-cash, stock option and warrant expense in 2009 compared to 2008. This increase was due to an increase10% change in the number of stock options and warrants granted andchargeback estimates throughout the number of stock options and warrants outstanding during 2009 compared to 2008.
We recognized total additional non-cash expenses of $29.2 million in 2009 related to our merger with Cell Genesys, consisting of $9.0 million related toyear, the write-off of acquired in-process research and development, and $20.2 million related to transaction related expenses and additional charges related to the excess of merger consideration over fair values of theCompany’s net assets acquired. No similar expense was recognized during 2008.
We recognized $299,616 in licensing expense in 2009 compared to $836,420 in 2008 due to expenses associated with the Azur licensing agreement and the termination of our prior licensing agreement for Elestrin.
Interest expense was $147,025 in 2009 compared to no similar expense in 2008 as a result of our convertible senior notes which we assumed during the fourth quarter of 2009.
Interest income decreased 98 percent in 2009 compared to 2008 primarily as a result of our decision to keep cash and cash equivalents in a 100 percent FDIC-insured non-interest bearing checking account for the majority of 2009 in order to ensure maximum safety of principal the generally lower interest rates available to us at that time.
Liquidity and Capital Resources
The following table highlights several items from our balance sheets:
Balance Sheet Data |
| December 31, 2010 |
| December 31, 2009 |
| ||
Cash and cash equivalents |
| $ | 38,155,251 |
| $ | 29,858,465 |
|
Total current assets |
| 40,625,130 |
| 31,410,270 |
| ||
Investments |
| 3,405,807 |
| 3,626,000 |
| ||
Total assets |
| 44,766,650 |
| 36,436,928 |
| ||
Total current liabilities |
| 8,183,327 |
| 3,930,117 |
| ||
Convertible senior notes due 2013 |
| 17,436,201 |
| 16,676,417 |
| ||
Total liabilities |
| 25,619,528 |
| 20,606,534 |
| ||
Total stockholders’ equity |
| 19,147,122 |
| 15,830,394 |
| ||
Liquidity
Since our inception, we have incurred significant operating losses resulting in an accumulated deficit of $165,630,644 as of December 31, 2010. To date, we have used primarily equity financings, and to a lesser extent, licensing income, interest income and the cash received from our merger with Cell Genesys, to fund our ongoing business operations and short-term liquidity needs.
During 2010, we raised approximately $48.5 million, net of offering expenses, through the sale of common stock and warrants, in three separate registered direct offerings. In March 2010, we completed an offering of an aggregate of 10,404,626 shares of our common stock and warrants to purchase an aggregate of 5,202,313 shares of our common stock, resulting in net proceeds of approximately $17.5 million, after deducting placement agent fees and other offering expenses. In June 2010, we completed an offering of 7,134,366 shares of our common stock and warrants to purchase an aggregate of 3,567,183 shares of our common stock, resulting in net proceeds of approximately $14.1 million, after deducting placement agent fees and offering expenses. In December 2010, we completed an offering of 10,588,236 shares of our common stock and warrants to purchase an aggregate of 5,294,118 shares of our common stock, resulting in net proceeds of approximately $16.9 million, after deducting placement agent fees and offering expenses.
As of December 31, 2010, we had $38.2 million of cash and cash equivalents. In March 2011, we completed an offering of an aggregate of 12,199,482 shares of our common stock and warrants to purchase an aggregate of 4,025,827 shares of our common stock, resulting in net proceeds of approximately $23.8 million, after deducting placement agent fees and other offering expenses. Absent the receipt of any additional licensing income or financing, we expect our cash and cash equivalents balance to decrease as we continue to use cash to fund our operations, including in particular our LibiGel Phase III clinical development program. Our future capital requirements will depend upon numerous factors, including:
·the progress, timing, cost and results of our preclinical and clinical development programs, including in particular our LibiGel Phase III clinical development program;
·subject recruitment and enrollment in our current and future clinical studies, including in particular our LibiGel safety study, and the amount of our clinical recruitment expenditures intended to encourage enrollment in such study;
·our ability to license LibiGel or our other products for development and commercialization;
·the cost, timing and outcome of regulatory reviews of our products;
·the rate of technological advances;
·the commercial success of our products;
·our general and administrative expenses; and
·the success, progress, timing and costs of our business development efforts to implement business collaborations, licenses and other business combinations or transactions, and our efforts to continue to evaluate various strategic alternatives available with respect to our products and our company.
If and when our products for which we have not entered into marketing relationships receive FDA approval, we may begin to incur other expenses, including sales and marketing and other expenses if we choose to market the products ourselves. We currently do not have sufficient resources to obtain regulatory approval of LibiGel or any of our other products, to establish our own sales and marketing function or complete the commercialization of any of our products that are not licensed to others for development and marketing. We expect the ongoing LibiGel Phase III clinical development program to continue to require significant resources.
We expect our current cash and cash equivalent to meet our liquidity requirements through at least the next 15 to 18 months. These estimates may prove incorrect or we, nonetheless, may choose to raise additional financing earlier. Exactly how long our current cash resources will last will depend upon several factors, including the pace and timing of enrollment in the LibiGel safety study and perhaps more importantly, the number of women we will enroll in the safety study, which number cannotearnings would be determined at this time.
As of December 31, 2010, we did not have any existing credit facilities under which we could borrow funds, other than our committed equity financing facility described below. If we are unable to raise additional financing when needed or secure another funding source for our LibiGel Phase III clinical development program, we may need to temporarily slow or delay the program or otherwise make changes to our operations to cut costs. As an alternative to raising additional financing, we may choose to license LibiGel, Elestrin (outside the territories already licensed) or another product (e.g. one or more of our cancer vaccines) to a third party who may finance a portion or all of the continued development and, if approved, commercialization of that licensed product, sell certain assets or rights under our existing license agreements or enter into other business collaborations or combinations, including the possible sale of our company.
Committed Equity Financing Facility with Kingsbridge Capital Limited
In December 2010, we extended the term of our committed equity financing facility with Kingsbridge Capital Limitedaffected by one additional year. Under the facility, Kingsbridge has committed to purchase, subject to certain conditions and at our sole discretion, up to the lesser of $25.0 million or 5,405,840 shares of our common stock through the end of December 2011. We are not obligated to utilize any of the $25.0 million available under the facility and there are no minimum commitments or minimum use penalties. We have access, at our discretion, to the funds through the sale of newly-issued shares of our common stock. The funds that can be raised under the facility will depend on the then-current price for our common stock and the number of shares actually sold, which may not exceed an aggregate of 5,405,840 shares. We may access capital under the facility by providing Kingsbridge with common stock at discounts ranging from eight to 14 percent, depending on the average market price of our common stock during the applicable pricing period. Kingsbridge will not be obligated to purchase shares under the facility unless certain conditions are met, which include a minimum price for our common stock of $1.15 per share; the accuracy of representations and warranties made to Kingsbridge; compliance with laws; continued effectiveness of the registration statement registering the resale of shares of common stock issued or issuable to Kingsbridge; and the continued listing of our common stock on the NASDAQ Global Market. In addition, Kingsbridge is permitted to terminate the facility if it determines that a material and adverse event has occurred affecting our business, operations, properties or financial condition and if such condition continues for a period of 10 trading days from the date Kingsbridge provides us notice of such material and adverse event. Other than the issuance of a warrant to purchase 300,000 shares of our common stock at an exercise price of $4.00 per share in December 2008, attorneys’ fees and other direct costs related to the registration of these shares, we did not make any other payments to secure or extend the term of the facility. The facility does not impose any material
restrictions on our operating or financial activities. During the term of the facility, Kingsbridge is prohibited from engaging in any short selling or derivative transactions related to our common stock. As of December 31, 2010, we had not sold any shares to Kingsbridge under the committed equity financing facility.
Convertible Senior Notes Due November 2011 and May 2013
As a result of our merger with Cell Genesys, we assumed $1.2 million in principal amount of 3.125% convertible senior notes due in November 2011 and $20.8 million in principal amount of 3.125% convertible senior notes due in May 2013 issued by Cell Genesys. Contractual interest payments on the convertible senior notes are due on May 1 and November 1 of each year through maturity. Annual interest on the notes is approximately $0.7 million. As a result of the merger and in accordance with the terms of the indentures governing such notes as supplemented by supplemental indentures entered into between us and the trustees thereunder, the November 2011 convertible notes are convertible into an aggregate of 24,789 shares of our common stock at a conversion price of $49.78 per share and the May 2013 convertible notes are convertible into an aggregate of 5,586,559 shares of our common stock at a conversion price of $3.72 per share, in each case subject to adjustments for stock dividends, stock splits and other similar events. The convertible notes are our general, unsecured obligations, ranking equally with all of our existing and future unsubordinated, unsecured indebtedness and senior in right of payment to any subordinated indebtedness, but are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the related security, and structurally subordinated to all existing and future liabilities and other indebtedness of our subsidiaries. The convertible notes are subject to repurchase by us at each holder’s option, if a fundamental change (as defined in the indentures) occurs, at a repurchase price equal to 100 percent of the principal amount of the convertible notes, plus accrued and unpaid interest (and additional amounts, if any) through, but not including, the repurchase date and are subject to redemption for cash by us at any time in the case of the convertible notes due in November 2011 and at any time on or after May 1, 2011, in the case of the convertible notes due in May 2013, in whole or in part, at a redemption price equal to 100 percent of the principal amount of such notes if the closing price of our common stock has exceeded 150 percent of the conversion price then in effect with respect to such notes for at least 20 trading days in any period of 30 consecutive trading days ending on the trading day prior to the mailing of the notice of redemption. The indentures governing the convertible notes, as supplemented by the supplemental indentures, do not contain any financial covenants and do not restrict us from paying dividends, incurring additional debt or issuing or repurchasing our other securities. In addition, the indentures, as supplemented by the supplemental indentures, do not protect the note holders in the event of a highly leveraged transaction or a fundamental change of our company except in certain circumstances specified in the indentures.
From time to time, we may seek to retire or purchase our outstanding convertible notes through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
We have elected to record our convertible senior notes at fair value in order to simplify the accounting for the convertible debt, inclusive of the redemption, repurchase and conversion adjustment features which would otherwise require specialized valuation, bifurcation, and recognition. Accordingly, we have adjusted the carrying value of the convertible senior notes to their fair value as of December 31, 2010, with changes in the fair value of the notes occurring since December 31, 2009, reflected in a fair value adjustment in our 2010 statements of operations, and changes in the fair value of the notes occurring from the date we assumed the notes in October 2009 through December 31, 2009 reflected in a fair value adjustment in our 2009 statements of operations. The recorded fair value of the convertible senior notes of an aggregate of $18,547,333 as of December 31, 2010 differs from their total stated principal amount of $22,016,000 by $3,468,667. The recorded fair value of the convertible senior notes of an aggregate of $16,676,417 as of December 31, 2009 differs from their total stated principal amount of $22,016,000 by $5,339,583.
Uses of Cash and Cash Flow
Net cash used in operating activities was $40.1$2.8 million for the year ended December 31, 2010 compared2013.
46 | ||
activities of $15.5earnings would be affected by $0.2 million for the year ended December 31, 2008. Net cash used2013.
Net cash used in investing activities was $60,366 for the yearyears ended December 31, 2010 compared2013 and 2012. Management believes that it is unlikely that there will be a material change in the future estimates or assumptions used to measure estimates of prompt payment discounts. If customers do not take 100% of available discounts as estimated by the Company, the Company could need to re-adjust its methodology for calculating the prompt payment discount reserve. If there were a 10% decrease in the prompt payment discounts estimates throughout the year, the Company’s net cash providedearnings would increase by investing activities of $2.9$0.1 million for the year ended December 31, 20092013.
47 | ||
Net cash provided by financing activities was $48.5 million for the year endedCompany’s consolidated financial statements. Based on stock price information at December 31, 2010 compared to $33.7 million2013, if the increase in total shares available for issuance under the year ended2008 Plan had been approved on December 31, 20092013 and $319,377 for the year ended December 31, 2008. Net cash provided by financing activities in 2010 resulted from the net proceeds to us, after deducting placement agent fees and offering expenses, from the completion of our March, June and December 2010 registered direct offerings. Net cash provided by financing activities for 2009 resulted from a combination of recognizing $24.7 million in cash acquired as a result of our merger with Cell Genesys and $11.4 million in net proceeds to us, after deducting placement agent fees and offering expenses, from the completion of our August 2009 registered direct offering, partially offset by $2.4 million in cash paid for Cell Genesys acquisition-related costs. Net cash provided by financing activities for 2008 resulted from warrant exercises.
Commitments and Contractual Obligations
We did not have any material commitments for capital expendituresthese options had been issued as of December 31, 2010. We2013, there would have however, severalbeen approximately $5.0 million of expense related to these options, to be expensed over the remainder of the four year service period. However, because the stock compensation expense will be calculated based on the stock price as of the date of approval by the shareholders, the actual expense could be materially higher or lower, depending on the Company’s stock price as of that date. Estimates and assumptions are based upon information currently available. However, if actual results are not consistent with current estimates or assumptions, the Company could be exposed to changes in stock-based compensation expense that could be material.
48 | ||
which it would calculate the asset’s fair value. When performing the qualitative assessment, the entity must evaluate events and circumstances that may affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset. The following table summarizesadoption of this standard in 2013 did not have a material impact on the timingCompany’s consolidated results of these future contractual obligations and commitments asoperations, cash flows or financial position.
|
| Payments Due by Period |
| |||||||||||||
|
| Total |
| Less than |
| 1-3 Years |
| 3-5 Years |
| More than |
| |||||
Convertible Senior Notes |
| $ | 22,016,000 |
| $ | 1,234,000 |
| $ | 20,782,000 |
| $ | 0 |
| $ | 0 |
|
Interest Payment Obligations Related to Convertible Senior Notes |
| 1,547,490 |
| 681,573 |
| 865,917 |
| 0 |
| 0 |
| |||||
Operating Lease |
| 1,306,492 |
| 353,880 |
| 952,612 |
| 0 |
| 0 |
| |||||
Commitments Under License Agreements with Johns Hopkins University |
| 455,000 |
| 95,000 |
| 185,000 |
| 70,000 |
| 105,000 |
| |||||
Commitments Under License Agreement with Massachusetts Institute of Technology |
| 200,000 |
| 50,000 |
| 150,000 |
| 0 |
| 0 |
| |||||
Commitments Under License Agreement with University of California |
| 340,000 |
| 20,000 |
| 60,000 |
| 40,000 |
| 220,000 |
| |||||
Commitments Under License Agreement with Wake Forest |
| 720,000 |
| 280,000 |
| 240,000 |
| 120,000 |
| 80,000 |
| |||||
Total Contractual Cash Obligations |
| $ | 26,584,982 |
| $ | 2,714,453 |
| $ | 23,235,529 |
| $ | 230,000 |
| $ | 405,000 |
|
Off-Balance Sheet Arrangements
We do2013 and 2012, the Company did not have any off-balance sheet arrangements, that have or reasonably are likely to have a material effect on our financial condition, changesas defined in financial condition, revenues or expenses, resultsItem 303(a)(4)(ii) of operations, liquidity, capital expenditures or capital resources. As a result, we are not exposed materially to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.
Recent Accounting Pronouncements
In March 2010, the Financial Accounting Standard Board (FASB) ratified the consensus reachedRegulation S-K promulgated by the Emerging Issues Task Force on Issue 08-9, which was codified in Accounting Standards Update 2010-17 (ASU 2010-17). ASU 2010-17 establishes a revenue recognition model for contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone, for research and development arrangements in which one or more payments are contingent upon achieving uncertain future events or circumstances. ASU 2010-17 is effective for fiscal years beginning on or after June 15, 2010, and will be adopted by us in the fiscal year beginning January 1, 2011. The impact of ASU 2010-17 on our financial position, results of operations and cash flows is dependent on the nature and structure of our future arrangements.
In December 2010, the FASB issued ASU 2010-29, “Business Combinations (ASC Topic 805) -SEC.
This Item 7A is not applicable
49 | ||
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
As management of BioSante Pharmaceuticals, Inc., we are responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, for BioSante Pharmaceuticals, Inc. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
BioSante’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of BioSante; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of BioSante are being made only in accordance with authorizations of management and directors of BioSante; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of BioSante’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projection of any evaluation of the effectiveness of internal control over financial reporting to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
With our participation, management evaluated the effectiveness of BioSante’s internal control over financial reporting as of December 31, 2010. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment, management concluded that BioSante’s internal control over financial reporting was effective as of December 31, 2010.
|
| |
|
| |
|
|
March 16, 2011
Further discussion of our internal controls and procedures is included under the heading “Part II. Item 9A. Controls and Procedures” of this report.
BioSante
Lincolnshire, Illinois
and Subsidiary
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended December 31, 2010 of the Company and our report dated March 16, 2011 expressed an unqualified opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 16, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
BioSante Pharmaceuticals, Inc.
Lincolnshire, Illinois
We have audited the accompanying balance sheets of BioSante Pharmaceuticals, Inc. (the “Company”) as of December 31, 2010 and 2009,2012, and the related consolidated statements of operations, changes in stockholders’ equity,equity/(deficit), and cash flows for each of the three years in the two-year period ended December 31, 2010. These2013. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
February 28, 2014
50 | ||
|
| December 31, |
| December 31, |
| ||
|
| 2010 |
| 2009 |
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT ASSETS |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 38,155,251 |
| $ | 29,858,465 |
|
Accounts receivable |
| — |
| 64,645 |
| ||
Prepaid expenses and other assets |
| 2,469,879 |
| 1,487,160 |
| ||
|
| 40,625,130 |
| 31,410,270 |
| ||
|
|
|
|
|
| ||
PROPERTY AND EQUIPMENT, NET |
| 635,776 |
| 747,979 |
| ||
|
|
|
|
|
| ||
OTHER ASSETS |
|
|
|
|
| ||
Investments |
| 3,405,807 |
| 3,626,000 |
| ||
Deposits |
| 99,937 |
| 652,679 |
| ||
|
| $ | 44,766,650 |
| $ | 36,436,928 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
| ||
Accounts payable |
| $ | 4,864,217 |
| $ | 2,440,096 |
|
Accrued compensation |
| 526,022 |
| 529,066 |
| ||
Other accrued expenses |
| 1,681,956 |
| 960,955 |
| ||
Current portion of Convertible Senior Notes |
| 1,111,132 |
| — |
| ||
|
| 8,183,327 |
| 3,930,117 |
| ||
|
|
|
|
|
| ||
Long-term Convertible Senior Notes |
| 17,436,201 |
| 16,676,417 |
| ||
TOTAL LIABILITIES |
| 25,619,528 |
| 20,606,534 |
| ||
|
|
|
|
|
| ||
STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Capital stock |
|
|
|
|
| ||
Issued and outstanding |
|
|
|
|
| ||
2010 - 391,286; 2009 - 391,286 Class C special stock |
| 391 |
| 391 |
| ||
2010 - 81,391,130; 2009 - 53,262,568 Common stock |
| 184,777,375 |
| 135,264,431 |
| ||
|
| 184,777,766 |
| 135,264,822 |
| ||
|
|
|
|
|
| ||
Accumulated deficit |
| (165,630,644 | ) | (119,434,428 | ) | ||
|
| 19,147,122 |
| 15,830,394 |
| ||
|
| $ | 44,766,650 |
| $ | 36,436,928 |
|
Seeper share amounts)
December 31, 2013 | December 31, 2012 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 11,105 | $ | 11 | |||
Accounts receivable, net of $5,104 and $6,124 of adjustments for chargebacks and other allowances at December 31, 2013 and 2012, respectively | 12,513 | 5,432 | |||||
Inventories, net | 3,518 | 2,810 | |||||
Prepaid expenses | 580 | 313 | |||||
Total Current Assets | 27,716 | 8,566 | |||||
Property and Equipment, net | 4,537 | 4,880 | |||||
Deferred loan costs, net | - | 217 | |||||
Intangible assets, net | 10,409 | 85 | |||||
Goodwill | 1,838 | - | |||||
Total Assets | $ | 44,500 | $ | 13,748 | |||
Liabilities and Stockholders' Equity/(Deficit) | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 1,429 | $ | 1,994 | |||
Accrued expenses | 1,326 | 927 | |||||
Returned goods reserve | 736 | 411 | |||||
Deferred revenue | 47 | 315 | |||||
Borrowings under line of credit | - | 4,065 | |||||
Total Current Liabilities | 3,538 | 7,712 | |||||
Commitments and Contingencies (Note 14) | |||||||
Redeemable Convertible Preferred Stock (Note 9) | - | 48,751 | |||||
Stockholders' Equity/(Deficit) | |||||||
Common Stock, $0.0001 par value, 33,333,334 shares authorized; 9,629,174 shares issued and 9,619,941 shares outstanding at December 31, 2013; 4,070,373 shares issued and outstanding at December 31, 2012 | 1 | - | |||||
Class C Special Stock, $0.0001 par value, 781,281 shares authorized; 10,868 shares issued and outstanding at December 31, 2013 and 2012, respectively | - | - | |||||
Preferred Stock, $0.0001 par value, 1,666,667 shares authorized; 0 shares issued and outstanding at December 31, 2013 and 2012, respectively | - | - | |||||
Treasury stock, 9,233 shares of common stock, at cost, at December 31, 2013 | (68) | - | |||||
Additional paid-in capital | 89,501 | 1,083 | |||||
Accumulated deficit | (48,472) | (43,798) | |||||
Total Stockholders' Equity/(Deficit) | 40,962 | (42,715) | |||||
Total Liabilities and Stockholders' Equity/(Deficit) | $ | 44,500 | $ | 13,748 |
51 | ||
Years ended December 31, | |||||||
2013 | 2012 | ||||||
Net Revenues | $ | 30,082 | $ | 20,371 | |||
Operating Expenses | |||||||
Cost of sales (excluding depreciation and amortization) | 9,974 | 9,167 | |||||
Research and development | 1,712 | 1,158 | |||||
Selling, general and administrative | 16,388 | 9,521 | |||||
Depreciation and amortization | 1,110 | 567 | |||||
Total Operating Expenses | 29,184 | 20,413 | |||||
Operating Income/(Loss) from Continuing Operations | 898 | (42) | |||||
Other Expense | |||||||
Interest expense | (467) | (1,327) | |||||
Other expense | (305) | (241) | |||||
Net Income/(Loss) from Continuing Operations | |||||||
Before Benefit for Income Taxes | 126 | (1,610) | |||||
(Provision)/Benefit for income taxes | (20) | 36 | |||||
Net Income/(Loss) from Continuing Operations | 106 | (1,574) | |||||
Discontinued Operation | |||||||
Gain on discontinued operation, net of provision (benefit) for income taxes | 195 | 68 | |||||
Net Income/(Loss) | $ | 301 | $ | (1,506) | |||
Computation of Income/(Loss) from Continuing Operations Attributable to Common Stockholders: | |||||||
Net Income/(Loss) from Continuing Operations | $ | 106 | $ | (1,574) | |||
Preferred stock dividends | (4,975) | (6,922) | |||||
(Loss) from Continuing Operations | |||||||
Attributable to Common Stockholders | $ | (4,869) | $ | (8,496) | |||
Basic and Diluted Income/(Loss) Per Share: | |||||||
Continuing operations | $ | (0.96) | N/A | (1) | |||
Discontinued operation | 0.04 | N/A | (1) | ||||
Basic and Diluted Income/(Loss) Per Share | $ | (0.92) | N/A | (1) | |||
Basic and Diluted Weighted-Average Shares Outstanding | 5,071 | N/A | (1) |
52 | ||
|
| Year Ended December 31, |
| |||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
| |||
REVENUE |
|
|
|
|
|
|
| |||
Licensing revenue |
| $ | 115,807 |
| $ | — |
| $ | 3,384,091 |
|
Grant revenue |
| 51,870 |
| 116,389 |
| 65,051 |
| |||
Royalty revenue |
| 2,306,560 |
| 1,141,665 |
| 34,200 |
| |||
Other revenue |
| — |
| — |
| 297,487 |
| |||
|
|
|
|
|
|
|
| |||
|
| 2,474,237 |
| 1,258,054 |
| 3,780,829 |
| |||
|
|
|
|
|
|
|
| |||
EXPENSES |
|
|
|
|
|
|
| |||
Research and development |
| 39,705,502 |
| 13,680,573 |
| 15,789,980 |
| |||
General and administration |
| 5,940,360 |
| 5,373,945 |
| 5,124,934 |
| |||
|
|
|
|
|
|
|
| |||
Acquired in-process research and development |
| — |
| 9,000,000 |
| — |
| |||
Excess consideration paid over fair value |
| — |
| 20,192,194 |
| — |
| |||
|
|
|
|
|
|
|
| |||
Licensing expense |
| 268,750 |
| 299,616 |
| 836,420 |
| |||
Depreciation and amortization |
| 167,986 |
| 137,280 |
| 43,137 |
| |||
|
|
|
|
|
|
|
| |||
|
| 46,082,598 |
| 48,683,608 |
| 21,794,471 |
| |||
OTHER |
|
|
|
|
|
|
| |||
Convertible note fair value adjustment |
| (1,870,916 | ) | 33,163 |
| — |
| |||
Investment impairment charge |
| (286,000 | ) | — |
| — |
| |||
Interest expense |
| (688,083 | ) | (147,025 | ) | — |
| |||
Other income |
| 244,479 |
| — |
| — |
| |||
Interest income |
| 12,665 |
| 11,648 |
| 588,464 |
| |||
|
|
|
|
|
|
|
| |||
NET LOSS |
| $ | (46,196,216 | ) | $ | (47,527,768 | ) | $ | (17,425,178 | ) |
|
|
|
|
|
|
|
| |||
Loss per common share: |
|
|
|
|
|
|
| |||
Basic |
| $ | (0.70 | ) | $ | (1.40 | ) | $ | (0.64 | ) |
Diluted |
| $ | (0.70 | ) | $ | (1.40 | ) | $ | (0.64 | ) |
|
|
|
|
|
|
|
| |||
Weighted average number of common and common equivalent shares outstanding: |
|
|
|
|
|
|
| |||
Basic |
| 65,911,750 |
| 33,951,652 |
| 27,307,494 |
| |||
Diluted |
| 65,911,750 |
| 33,951,652 |
| 27,307,494 |
|
See
Common | Common | Class C | Additional | Treasury | ||||||||||||||||||||
Stock | Stock | Special | Paid-in | Stock | Treasury | Accumulated | ||||||||||||||||||
Par Value | Shares | Stock | Capital | Shares | Stock | Deficit | Total | |||||||||||||||||
Balance, December 31, 2011 | $ | - | 3,045 | $ | - | $ | 1,086 | - | $ | - | $ | (35,370) | $ | (34,284) | ||||||||||
Issuance of Common Stock upon Cashless Warrant Exercise | 2 | 22 | - | (2) | - | - | - | - | ||||||||||||||||
Issuance of Peferred Stock upon Cashless Warrant Exercise | - | - | - | (3) | - | - | - | (3) | ||||||||||||||||
Preferred Stock Dividends | - | - | - | - | - | - | (6,922) | (6,922) | ||||||||||||||||
Effect of Reverse Merger | (2) | 1,003 | - | 2 | - | - | - | |||||||||||||||||
Net loss | - | - | - | - | - | (1,506) | (1,506) | |||||||||||||||||
Balance, December 31, 2012 | $ | - | 4,070 | $ | - | $ | 1,083 | - | $ | - | $ | (43,798) | $ | (42,715) | ||||||||||
Preferred Stock Dividends | - | - | - | - | (4,975) | (4,975) | ||||||||||||||||||
Non-cash Compensation Relating to Business Combination | - | - | - | 4,418 | - | - | - | 4,418 | ||||||||||||||||
Cancellation of Convertible Preferred Stock | - | - | - | 53,726 | - | - | - | 53,726 | ||||||||||||||||
Shares Issued in Merger | 1 | 5,469 | - | 29,794 | - | - | - | 29,795 | ||||||||||||||||
Stock-based Compensation Expense | - | - | - | 36 | - | - | - | 36 | ||||||||||||||||
Purchase of Common Stock for Treasury | - | - | - | - | 59 | (433) | - | (433) | ||||||||||||||||
Issuance of Common Stock upon Warrant Exercise | - | 90 | - | 809 | - | - | 809 | |||||||||||||||||
Treasury Stock Shares Issued as Restricted Stock | - | - | - | (365) | (50) | 365 | - | - | ||||||||||||||||
Net Income | - | - | - | - | - | 301 | 301 | |||||||||||||||||
Balance, December 31, 2013 | $ | 1 | 9,629 | $ | - | $ | 89,501 | 9 | $ | (68) | $ | (48,472) | $ | 40,962 |
53 | ||
For the years ended December 31, | 2013 | 2012 | |||||
Cash Flows From Operating Activities | |||||||
Net income/(loss) | $ | 301 | $ | (1,506) | |||
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: | |||||||
Stock-based compensation | 36 | - | |||||
Depreciation and amortization | 1,110 | 567 | |||||
Non-cash interest relating to equity-linked securities and loan cost amortization | 217 | 1,071 | |||||
Non-cash compensation relating to business combination | 4,418 | - | |||||
Changes in operating assets and liabilities, net of those acquired in business combination: | |||||||
Accounts receivable | (7,081) | (327) | |||||
Inventories | (708) | (702) | |||||
Prepaid expenses | (188) | (88) | |||||
Accounts payable | (565) | 785 | |||||
Accrued compensation | (2,854) | - | |||||
Accrued expenses, returned goods reserve and deferred revenue | 25 | 205 | |||||
Net Cash and Cash Equivalents Used in Continuing Operations | (5,289) | 5 | |||||
Net Cash Used in Discontinued Operation | (195) | (142) | |||||
Net Cash and Cash Equivalents Used in Operating Activities | (5,484) | (137) | |||||
Cash Flows From Investing Activities | |||||||
Cash acquired in business combination | 18,198 | - | |||||
Release of restricted cash | 2,260 | ||||||
Acquisition of property and equipment | (191) | (292) | |||||
Net Cash and Cash Equivalents Provided by/(Used in) Investing Activities | 20,267 | (292) | |||||
Cash Flows From Financing Activities | |||||||
(Repayments)/borrowings under line of credit, net | (4,065) | 1,001 | |||||
Payment of debt issuance costs | - | (261) | |||||
Proceeds from warrant exercise | 809 | - | |||||
Treasury stock purchases | (433) | - | |||||
Net Cash and Cash Equivalents (Used in)/Provided by Continuing Operations | (3,689) | 740 | |||||
Net Cash Used in Discontinued Operation | - | (300) | |||||
Net Cash and Cash Equivalents (Used in)/Provided by Financing Activities | (3,689) | 440 | |||||
Change in Cash and Cash Equivalents | 11,094 | 11 | |||||
Cash and cash equivalents, beginning of period | 11 | - | |||||
Cash and cash equivalents, end of period | $ | 11,105 | $ | 11 | |||
Supplemental disclosure for cash flow information: | |||||||
Cash paid for interest | $ | 250 | $ | 255 | |||
Supplemental non-cash investing and financing activities: | |||||||
Issuance of common stock in connection with business combination | $ | 40,034 | $ | - | |||
Cancellation of Series D, Series C, Series B, and Series A preferred stock | $ | 53,726 | $ | - | |||
Acquired non-cash net assets | $ | 11,597 | $ | - | |||
Preferred stock dividends accrued | $ | 4,975 | $ | 6,922 | |||
Issuance of common and preferred stock upon cashless warrant exercise | $ | - | $ | 5 | |||
Issuance of preferred stock upon convertible debt conversion | $ | - | $ | 17,610 |
54 | ||
BIOSANTE PHARMACEUTICALS, INC.
Statements of Stockholders’ Equity
YearsFor the years ended December 31, 2010, 20092013 and 20082012
|
| Class C |
|
|
|
|
|
|
|
|
| |||||||||
|
| Special Shares |
| Common Stock |
| Accumulated |
|
|
| |||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Deficit |
| Total |
| |||||||
Balance, January 1, 2008 |
| 391,286 |
| $ | 391 |
| 26,794,607 |
| $ | 84,206,583 |
| $ | (54,481,482 | ) | $ | 29,725,492 |
| |||
Issuance of common shares Warrant exercises - various |
| — |
| — |
| 248,157 |
| 379,720 |
| — |
| 379,720 |
| |||||||
Stock option expense |
| — |
| — |
| — |
| 1,102,444 |
| — |
| 1,102,444 |
| |||||||
Stock warrant expense |
| — |
| — |
| — |
| 104,284 |
| — |
| 104,284 |
| |||||||
Credit equity financing facility |
| — |
| — |
| — |
| (60,343 | ) | — |
| (60,343 | ) | |||||||
Net loss |
| — |
| — |
| — |
| — |
| (17,425,178 | ) | (17,425,178 | ) | |||||||
Balance, December 31, 2008 |
| 391,286 |
| $ | 391 |
| 27,042,764 |
| $ | 85,732,688 |
| $ | (71,906,660 | ) | $ | 13,826,419 |
| |||
Stock option expense |
| — |
| — |
| — |
| 1,254,503 |
| — |
| 1,254,503 |
| |||||||
Stock warrant expense |
| — |
| — |
| — |
| 64,103 |
| — |
| 64,103 |
| |||||||
Registered direct offering of common shares and warrants, net |
| — |
| — |
| 6,000,000 |
| 11,352,751 |
| — |
| 11,352,751 |
| |||||||
Issuance of common shares pursuant to Cell Genesys, Inc. transaction |
| — |
| — |
| 20,219,804 |
| 36,800,043 |
| — |
| 36,800,043 |
| |||||||
Credit equity financing facility |
| — |
| — |
| — |
| 60,343 |
| — |
| 60,343 |
| |||||||
Net loss |
| — |
| — |
| — |
| — |
| (47,527,768 | ) | (47,527,768 | ) | |||||||
Balance, December 31, 2009 |
| 391,286 |
| $ | 391 |
| 53,262,568 |
| $ | 135,264,431 |
| $ | (119,434,428 | ) | $ | 15,830,394 |
| |||
Issuance of common shares Stock option exercise |
| — |
| — |
| 1,334 |
| 2,014 |
| — |
| 2,014 |
| |||||||
Stock option expense |
| — |
| — |
| — |
| 992,757 |
| — |
| 992,757 |
| |||||||
Stock warrant expense |
| — |
| — |
| — |
| 65,529 |
| — |
| 65,529 |
| |||||||
Registered direct offerings of common shares and warrants, net |
| — |
| — |
| 28,127,228 |
| 48,452,644 |
| — |
| 48,452,644 |
| |||||||
Net loss |
| — |
| — |
| — |
| — |
| (46,196,216 | ) | (46,196,216 | ) | |||||||
Balance, December 31, 2010 |
| 391,286 |
| $ | 391 |
| 81,391,130 |
| $ | 184,777,375 |
| $ | (165,630,644 | ) | $ | 19,147,122 |
| |||
See accompanying notes to the financial statements.
BIOSANTE PHARMACEUTICALS, INC.
Years ended December 31, 2010, 2009 and 2008
|
| Year Ended December 31, |
| |||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
CASH FLOWS (USED IN) OPERATING ACTIVITIES |
|
|
|
|
|
|
| |||
Net loss |
| $ | (46,196,216 | ) | $ | (47,527,768 | ) | $ | (17,425,178 | ) |
Adjustments to reconcile net loss to net cash (used in) operating activities |
|
|
|
|
|
|
| |||
Acquired in-process research and development |
| — |
| 9,000,000 |
| — |
| |||
Excess consideration paid over fair value |
| — |
| 20,192,194 |
| — |
| |||
Depreciation and amortization |
| 167,986 |
| 137,280 |
| 43,137 |
| |||
Employee and director stock-based compensation |
| 992,757 |
| 1,254,503 |
| 1,102,444 |
| |||
Stock warrant expense - noncash |
| 65,529 |
| 64,103 |
| 104,284 |
| |||
Loss on disposal of equipment |
| 4,583 |
| — |
| — |
| |||
Investment impairment charge |
| 286,000 |
| — |
| — |
| |||
Other non-cash items |
| (65,807 | ) | 60,739 |
| — |
| |||
Convertible note fair value adjustment |
| 1,870,916 |
| (33,163 | ) | — |
| |||
Changes in assets and liabilities affecting cash flows from operations |
|
|
|
|
|
|
| |||
Prepaid expenses and other assets |
| (429,977 | ) | (316,101 | ) | (1,330,491 | ) | |||
Accounts receivable |
| 64,645 |
| 285,838 |
| (215,209 | ) | |||
Accounts payable and accrued liabilities |
| 3,142,078 |
| (1,548,535 | ) | 2,194,173 |
| |||
Deferred revenue |
| — |
| — |
| (9,091 | ) | |||
Net cash used in operating activities |
| (40,097,506 | ) | (18,430,910 | ) | (15,535,931 | ) | |||
|
|
|
|
|
|
|
| |||
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES |
|
|
|
|
|
|
| |||
Redemption of short term investments |
| — |
| 3,026,334 |
| 11,979,642 |
| |||
Proceeds from sale of fixed assets |
| 3,075 |
| — |
| — |
| |||
Purchase of fixed assets |
| (63,441 | ) | (165,724 | ) | (651,116 | ) | |||
Net cash (used in) provided by investing activities |
| (60,366 | ) | 2,860,610 |
| 11,328,526 |
| |||
|
|
|
|
|
|
|
| |||
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
|
| |||
Cash paid for transaction related costs |
| — |
| (2,431,252 | ) | — |
| |||
Cash received in transaction |
| — |
| 24,746,346 |
| — |
| |||
Credit equity financing facility |
|
|
| — |
| (60,343 | ) | |||
Proceeds from common stock option exercises |
| 2,014 |
| — |
| — |
| |||
Proceeds from common stock warrant exercises |
| — |
| — |
| 379,720 |
| |||
Proceeds from issuance of common stock by registered direct offerings |
| 48,452,644 |
| 11,352,751 |
| — |
| |||
Net cash provided by financing activities |
| 48,454,658 |
| 33,667,845 |
| 319,377 |
| |||
|
|
|
|
|
|
|
| |||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 8,296,786 |
| 18,097,545 |
| (3,888,028 | ) | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 29,858,465 |
| 11,760,920 |
| 15,648,948 |
| |||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ | 38,155,251 |
| $ | 29,858,465 |
| $ | 11,760,920 |
|
|
|
|
|
|
|
|
| |||
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
| |||
Interest paid, including acquired accrued interest |
| $ | 688,000 |
| $ | 248,388 |
| $ | — |
|
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
| |||
Investment - non-cash |
| $ | 65,807 |
| $ | — |
| $ | — |
|
Liabilities acquired through Cell Genesys transaction |
| $ | — |
| $ | 18,487,298 |
| $ | — |
|
Shares issued for Cell Genesys transaction |
| $ | — |
| $ | 36,800,043 |
| $ | — |
|
Investment aquired through Cell Genesys transaction |
| $ | — |
| $ | 3,486,000 |
| $ | — |
|
Other assets acquired in Cell Genesys transaction |
| $ | — |
| $ | 293,658 |
| $ | — |
|
Purchase of fixed assets on account, non-cash investing activity |
| $ | — |
| $ | — |
| $ | 152,019 |
|
See accompanying notes to the financial statements.
BIOSANTE PHARMACEUTICALS, INC.
Notes to the Financial Statements
December 31, 2010
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BioSante
On October 14, 2009,accounting purposes. As such, ANIP's historical results of operations replace BioSante's historical results of operations for all periods prior to the Merger. The results of operations of both companies are included in the Company’s consolidated financial statements for all periods after completion of the Merger.
its current operating plan through December 31, 2014.
Basis of Presentation
These financial statements are expressed in U.S. dollars.
Theaccompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles)(“U.S. GAAP”). Certain prior period information has been reclassified to conform to the current period presentation.
Reclassifications
Certain amounts in the 2009
55 | ||
BIOSANTE PHARMACEUTICALS, INC.
Notes to the Consolidated Financial Statements
licensor - Antares of $18,033 has been combined into
Cash and Cash Equivalents
The Company generally considers all instruments with original maturities of three months or less to be cash equivalents. Certain investments that could meet the definition of a cash equivalent are classified as investments due to the nature of the account in which the investment is held and the Company’s intended use of the investment. Interest income on invested cash balances is recognized on the accrual basis as earned.
revenues, respectively. As of December 31, 2010, all2013, accounts receivable from these customers totaled68% of net accounts receivable. During the Company’s cashyear ended December 31, 2012, three customers represented approximately25%,21%, and cash equivalents resided11% of net revenues, respectively.
Short-Term Investments
Short-term investments are classified as “available for sale” under the provisions of Accounting Standards Codification (ASC) 320). Accordingly, short-term investments are reported at fair value, with any related unrealized gains and losses included as a separate component of stockholders’ equity, net of applicable taxes. Realized gains and losses and interest and dividends are included in interest income. Realized gains and losses are recorded based upon the specific identification method. At December 31, 2010 and 2009, the Company did not own any short-term investments. Accordingly, there were no gains or losses recorded in accumulated other comprehensive income as of December 31, 2010 or December 31, 2009, and there were no realized gains or losses included in earnings as the result of sales of available for sale securities for the yearsyear ended December 31, 2010, December 31, 2009 or December 31, 2008.
2012, the Company purchased approximatelyFair Value63% of Financial Instruments
The carrying valuetotal costs of certaingoods sold from three suppliers.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment
Property and equipment that currently is being used in the Company’s operations is stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on a straight line basis over the estimated useful livesrecognized upon completion of the respective assets, typically five yearsaforementioned factors rather than using a proportional performance method of revenue recognition. The estimates for softwarediscounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and 10 years for laboratory equipment.
Long-Lived Assets
Long-lived assets are reviewed for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable. If such a review indicates an impairment, the carrying amount of such assets is reducedother potential adjustments reduce gross revenues to estimated recoverable value.
Convertible Senior Notes
The Company assumed two series of convertible senior note obligations with an aggregate principal balance of $22,016,000, which contain certain redemption, repurchase and conversion adjustment features as a result of its transaction with Cell Genesys. The Company has made an irrevocable election to account for these debt instruments at fair value commencing from the date of the merger, resulting in recognition of a single liability for each of the two series of convertible senior notes which is reported at fair value at each reporting date. Subsequent changes in the carrying value of the notes are reflected in fair value adjustmentnet revenues in the accompanying consolidated statements of operations. See Note 7, “Convertible Senior Notes”operations, and are presented as current liabilities or reductions in accounts receivable in the accompanying consolidated balance sheets (see “Accruals for a description of these financial liabilities.
ResearchChargebacks, Returns, and Development
Research and development costs are charged to expense as incurred. Direct government grants are recorded as an offset to the related research and development costs whenOther Allowances”). Historically, the Company has compliednot entered into revenue arrangements with multiple elements.
Legal Costs
For ongoing matters, legal costs are charged to expense as incurred.
Basic and Diluted Net Loss Per Share
The basic and diluted net loss per share is computed based on the weighted average number of the shares of common stock and class C special stock outstanding, all being considered as equivalent of one another. Basic loss per share is computed by dividing loss available to common stockholders by the weighted average number of shares outstanding for the reporting period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The computation of diluted loss per share does not include the Company’s stock options, warrants, or convertible debt as there is an antidilutive effect on loss per share.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-Based Compensation
The Company recognizes stock-based compensation expense granted to employees generally on a straight-line basis over the estimated service period of the award, or when certain performance-based vesting provisions occur, for awards that contain these features. The Company has also granted options to non-employees in exchange for services. Expense related to such grants is recognized within the Company’s statements of operations in accordance with the nature of the service received by the Company.
Warrants issued to non-employees as compensation for services rendered are valued at their fair value on the date of issue and are remeasured until the counterparty’s performance under the arrangement is complete. Warrants of this nature to purchase an aggregate of 180,000 and 180,000 shares of the Company’s common stock were issued in 2010 and 2009, respectively.
Revenue Recognition
The Company has entered into various licensing agreements that have generated license revenue or other upfront fees and which also may involve subsequent milestone payments earned upon completion of development milestones by the Company or upon the occurrence of certain regulatory actions, such as the filing of a regulatory application or the receipt of a regulatory approval. Non-refundable license fees are recognized as revenue when thewhenthe Company has a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably assured, and the Company has no further performance obligations under the license agreement. Non-refundable license fees that meet these criteriaThe Company recognized $1.4 million and $0.8 millionof revenue related to contract services in 2013 and 2012, respectively.
56 | ||
Milestones, inConsolidated Financial Statements
⋅ | A change in customer mix | |
⋅ | A change in negotiated terms with customers | |
⋅ | A change in product sales mix | |
⋅ | A change in the volume of off-contract purchases | |
⋅ | Changes in WAC |
57 | ||
Additionally, royalty revenue based upon saleson invoices outstanding. The Company assumes based on past experience that all available discounts will be taken. Accruals for prompt payment discounts are recorded as a reduction in both gross revenues in the consolidated statements of products under licenseoperations and accounts receivable in the consolidated balance sheets.
58 | ||
(in thousands) | Accruals for Chargebacks, Returns and Other Allowances | ||||||||||||
Chargebacks | Returns | Administrative Fees and Other Rebates | Prompt Payment Discounts | ||||||||||
Balance at December 31, 2011 | $ | 3,681 | $ | 252 | $ | 238 | $ | 166 | |||||
Accruals/Adjustments | 22,912 | 698 | 1,369 | 775 | |||||||||
Credits Taken Against Reserve | (20,931) | (539) | (1,376) | (699) | |||||||||
Balance at December 31, 2012 | 5,662 | 411 | 231 | 242 | |||||||||
Accruals/Adjustments | 28,009 | 1,595 | 2,355 | 1,129 | |||||||||
Credits Taken Against Reserve | (29,595) | (1,270) | (1,851) | (1,039) | |||||||||
Balance at December 31, 2013 | $ | 4,076 | $ | 736 | $ | 735 | $ | 332 |
Buildings and improvements | 20 - 40 years |
Machinery, furniture and equipment | 3 - 10 years |
59 | ||
presented on a net basis. Payments between participants are recorded and classified based on the nature of the payments.
60 | ||
1. | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
2012.
61 | ||
2.
For periods of net loss,diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. The investments balancenumber of $3,405,807anti-dilutive shares, consisting ofClass C Special stock, common stock options, unvested restricted stock awards, and warrants exercisable for common stock(and prior to the Merger, equity-linked securities, convertible preferred stock, and stock purchase warrants exercisable for preferred stock), which have been excluded from the computation of diluted earnings (loss) per share, were2.7 million for both of the years ended December 31, 2013 and 2012.The Company’s unvested restricted shares contain non-forfeitable rights to dividends, and therefore are considered to be participating securities; the calculation of basic and diluted income (loss) per share excludes net income (but not net loss) attributable to the unvested restricted shares from the numerator and excludes the impact of those shares from the denominator.
The valuation of investments accounted for under the cost method is based on all available financial information related to the investee, including valuations based on recent third party equity investments in the investee. If an unrealized loss on any investment is considered to be other-than-temporary, the loss is recognized in the period the determination is made. All investments are reviewed for changes in circumstancesidentical assets or occurrence of events that suggest the investment may not be recoverable.liabilities. The fair value ofhierarchy gives the cost method investmentshighest priority to Level 1 inputs.
62 | ||
years ended December 31, 2013 and 2012
In December 2010, the FASB issued ASU 2010-29, “Business Combinations (ASC Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations.” This amendment expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This amendment is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company intends to adopt this guidance in 2011.incomestatement. The adoption of this new guidance willstandard in 2013 did not have a material impact on the Company’s consolidated results of operations, cash flows or financial statements.
% of the combined company’s shares outstanding, and the former BioSante stockholders owned43%. In addition, immediately prior to the Merger, BioSante distributed to its then current stockholders contingent value rights (“CVR”) providing payment rights arising from a future sale, transfer, license or similar transaction(s) involving BioSante’s LibiGel
® (female testosterone gel).63 | ||
Substantially all of
Category | (in thousands) | |||
Legal fees | $ | 1,227 | ||
Accounting fees | 122 | |||
Consulting fees | 119 | |||
Monitoring and advisory fees | 390 | |||
Transaction bonuses | 4,801 | |||
Other | 429 | |||
Total transaction costs | $ | 7,088 |
To date, the Company has used primarily equity financings, and to a lesser extent, licensing income, interest income and the cash received from its merger with Cell Genesys, to fund its ongoing business operations and short-term liquidity needs. During 2010, the Company completed three registered direct offerings resulting in net proceeds of approximately $48.5year ended December 31, 2013, $5.5 million as more fully describedselling, general and administrative expense $0.3 million as interest expense, and $0.4 million as other expense, in Note 9, “Stockholders’ Equity.” Asthe accompanying consolidated statements of December 31, 2010, the Company had $38.2 millionoperations.
Absent the receipt of anyall additional significant licensing income or financing, the Company expects its cash and cash equivalents balance to decrease as the Company continues to use cash to fund its operations, including in particular its LibiGel Phase III clinical development program. The Company expects its cash and cash equivalents to meet its liquidity requirements through at least the next 15 to 18 months. These estimates may prove incorrect or the Company, nonetheless, may choose to raise additional financing earlier. Exactly how long the Company’s cash resources will last will depend upon several factors,consideration, including the pacevested BioSante stock options and timing of enrollment inCVRs, was immaterial. The following presents the LibiGel safety study and perhaps more importantly, the number of women the Company will enroll in the safety study, which number cannot be determined at this time. According to the study’s protocol, the minimum number of enrolled women is 2,500 women and the maximum number is 4,000 women. The greater the number of enrolled women, the more the Company will be required to use its cash to conduct the study. As of the end of February 2011, approximately 2,900 women were enrolled in the safety study. The number of women enrolled in the LibiGel safety study will be determined based on statistical methods contained in the study’s FDA-agreed protocol as analyzed by the study’s independent Data Monitoring Committee (DMC).
As of December 31, 2010, the Company did not have any existing credit facilities under which it could borrow funds, other than the Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Limited in which Kingsbridge has committed to purchase, subject to certain conditions and at the Company’s sole discretion, up to the lesser of $25.0 million or 5,405,840 shares of the Company’s common stock. The term of the CEFF runs through December 2011. The Company may access capital under the CEFF by providing Kingsbridge with common stock at discounts ranging from eight to 14 percent, depending on the average market price of the
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
3.LIQUIDITY AND CAPITAL RESOURCES (continued)
Company’s common stock during the applicable pricing period. As of December 31, 2010, the Company had not sold any shares to Kingsbridge under the CEFF. For additional information regarding the CEFF, see Note 9, “Stockholders’ Equity.”
As an alternative to raising additional financing, the Company may choose to license LibiGel, Elestrin (outside the territories already licensed) or another product (e.g. one or more of the Company’s cancer vaccines) to a third party who may finance a portion or all of the continued development and, if approved, commercialization of that licensed product, sell certain assets or rights under its existing license agreements or enter into other business collaborations or combinations, including the possible sale of the Company.
4.ACQUISITION OF NET ASSETS OF CELL GENESYS
On October 14, 2009, the Company acquired 100 percent of the common stock of Cell Genesys in a direct merger transaction. The merger was accounted as an acquisition of the net assets of Cell Genesys, whereby the individual assets and liabilities of Cell Genesys were recorded by the Company as of the completion of the merger based on their estimated fair values. As Cell Genesys had ceased substantially its operations prior to the date of the transaction, the merger was not considered to be a business combination, and thepreliminary allocation of the purchase price did not result in recognition of goodwill. The total purchase price is allocatedconsideration to the assets acquired assets and liabilities assumed liabilities of Cell Genesys based on theirJune 19, 2013:
(in thousands) | ||||
Total purchase consideration | $ | 29,795 | ||
Assets acquired | ||||
Cash and cash equivalents | 18,198 | |||
Restricted cash | 2,260 | |||
Teva license intangible asset | 10,900 | |||
Other tangible assets | 79 | |||
Deferred tax assets, net | - | |||
Goodwill | 1,838 | |||
Total assets | 33,275 | |||
Liabilities assumed | ||||
Accrued severance | 2,965 | |||
Other liabilities | 515 | |||
Total liabilities | 3,480 | |||
Total net assets acquired | $ | 29,795 |
Fair value of BioSante common stock issued (20,219,804 shares) |
| $ | 36,800,043 |
|
Transaction costs of BioSante |
| 2,431,252 |
| |
Total purchase price |
| $ | 39,231,295 |
|
The total purchase price was allocated as follows:
Cash |
| $ | 24,746,346 |
|
Investment in Ceregene |
| 3,486,000 |
| |
In process research and development |
| 9,000,000 |
| |
Receivables, equipment and other assets |
| 293,658 |
| |
Accounts payable and accrued liabilities |
| 1,777,323 |
| |
Convertible senior notes |
| 16,709,580 |
| |
Total net assets acquired |
| $ | 19,039,101 |
|
In addition to the $24.7 million in cash acquired, the Company obtained, as a result of the merger, the rights to all in-process research and development of Cell Genesys, which included a portfolio of cancer vaccines and other technologies. The $9.0 million value attributed to this portfolio was expensed as of the date of the acquisition as acquired in-process technology, as it was considered to have no alternative future use. The $20.2 million representing the premium of the total value of consideration in excess of fair values of the net assets acquired was also expensed asrecorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the acquisition.
Tabletransaction will change the allocation of Contents
the purchase price. Any subsequent changes to the purchase allocation during the measurement period that are material will be adjusted retrospectively.
64 | ||
In addition, years. Goodwill, which is not tax deductible since the transaction was structured as a result of the merger, the Company assumed $1.2 million in principal amount of outstanding 3.125% convertible senior notes due in November 2011tax-free exchange, is considered an indefinite-lived asset and $20.8 million in principal amount of 3.125% convertible senior notes due in May 2013 issued by Cell Genesys. relates primarily to intangible assets that do not qualify for separate recognition.As a result of purchase accounting related to the mergerMerger, the Company established deferred tax assets of $9.6 million, deferred tax liabilities of $3.9 million, and a valuation allowance of $5.7 million, netting to deferred tax assets of $0.
Year ended December 31, | |||||||
(in thousands) | 2013 | 2012 | |||||
Net revenues | $ | 30,228 | $ | 22,671 | |||
Net income/(loss) | $ | 89 | $ | (27,718) |
5.LICENSE AGREEMENTS
Gel Products
The Company licensed the technology underlying LibiGel, Elestrin and certain of its other gel products, other than Bio-T-Gel, from Antares Pharma, Inc. (Antares). Under the agreement, Antares granted the Company an exclusive license to certain patents and patent applications covering these gel products, including rights to sublicense, in order to develop and market the products in certain territories. Under the agreement, the Company is required to pay Antares certain development and regulatory milestone payments and royalties based on net sales of any products the Company or any sub-licensee sells incorporating the in-licensed technology and as such, the Company owed Antares $0following as of December 31:
(in thousands) | 2013 | 2012 | |||||
Raw materials | $ | 1,480 | $ | 975 | |||
Packaging materials | 766 | 585 | |||||
Work-in-progress | 162 | 374 | |||||
Finished goods | 1,152 | 891 | |||||
3,560 | 2,825 | ||||||
Reserve for excess/obsolete inventories | (42) | (15) | |||||
Inventories, net | $ | 3,518 | $ | 2,810 |
65 | ||
The Pill Plus
The Company licensed the technology underlying its triple component contraceptive, or The Pill Plus, from Wake Forest University Health Sciences and Cedars-Sinai Medical Center. The financial terms of this license include regulatory milestone payments, maintenance payments and royalty payments by the Company if a product incorporating the licensed technology gets approved and subsequently is marketed. The patents covering the technology underlying The Pill Plus are expected to expire in 2016.
CaP Technology
In June 1997, the Company entered into a licensing agreement with the Regents of the University of California (the University), which agreement subsequently has been amended, pursuant to which the University has granted the Company an exclusive license to seven United States patents owned by the University, including rights to sublicense such patents, in fields of use pertaining to vaccine adjuvants and drug delivery systems. The last of the expiration dates for these patents is 2014. The University of California also has filed patent applications for this licensed technology in several foreign jurisdictions, including Canada, Europe and Japan. The
(in thousands) | 2013 | 2012 | |||||
Land | $ | 87 | $ | 87 | |||
Buildings | 3,682 | 3,682 | |||||
Machinery, furniture and equipment | 3,736 | 3,565 | |||||
Construction in progress | 229 | 209 | |||||
7,734 | 7,543 | ||||||
Less: accumulated depreciation | (3,197) | (2,663) | |||||
Property, Plant and Equipment, net | $ | 4,537 | $ | 4,880 |
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
5.LICENSE AGREEMENTS (continued)
license agreement requires the Company to pay royalties to the University based on a percentage of the net sales of any products the Company sells or a licensee sells incorporating the licensed technology until expiration of the licensed patents.
Cancer Vaccine Technology
The Company owns development and commercialization rights to its cancer vaccine technology as a result of its transaction with Cell Genesys. The original core patent applications covering the cancer vaccine technology were licensed exclusively to Cell Genesys from Johns Hopkins University and The Whitehead Institute for Biomedical Research in 1992. Rights to additional patents and patent applications were licensed from Johns Hopkins University in 2001. The patents are expected to expire between 2012 and 2026. Under the various agreements, the Company is required to pay Johns Hopkins University and The Whitehead Institute for Biomedical Research certain development and regulatory milestone payments and royalties based on net sales of any products the Company or any sub-licensee sells incorporating the in-licensed technology.
Other License Agreements
The Company has entered into several other license agreements in which the Company has out-licensed certain of the rights and technologies the Company has licensed. Under these agreements, the Company typically is entitled to receive royalty payments on any sales of the products and, in some cases, may be entitled to receive certain development and regulatory milestones.
6.PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated depreciation at December 31, 2010 and 2009 consists of the following:
|
| 2010 |
| 2009 |
| ||
Computer equipment |
| $ | 417,840 |
| $ | 432,625 |
|
Office equipment |
| 163,653 |
| 143,548 |
| ||
Laboratory and equipment |
| 500,130 |
| 518,775 |
| ||
|
| 1,081,623 |
| 1,094,948 |
| ||
Accumulated depreciation and amortization |
| (445,847 | ) | (346,969 | ) | ||
|
| $ | 635,776 |
| $ | 747,979 |
|
There was no construction in progress as of December 31, 2010 or December 31, 2009.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
7.CONVERTIBLE SENIOR NOTES
As a result of the Company’s merger with Cell Genesys, the Company assumed liabilities related to two series of convertible senior notes of Cell Genesys. The conversion features of the convertible senior notes were adjusted for the exchange ratio used in the merger, as described in Note 4, “Acquisition of Net Assets of Cell Genesys.” The terms of the convertible senior notes are as follows:
·$20,782,000 principal amount of 3.125% Convertible Senior Notes due May 1, 2013 (the “2013 Notes”), exchangeable at the option of the holder or upon certain specified events into an aggregate of 5,586,559 shares of the Company’s common stock at a conversion price of $3.72 per share. The Company has the right to redeem the 2013 Notes for cash as a whole or in part after May 1, 2011. The Company may be obligated to redeem the 2013 Notes prior to their stated maturity if there is an occurrence of a fundamental event, as described in the indentures.
·$1,234,000 principal amount of 3.125% Convertible Senior Notes due November 1, 2011 (the “2011 Notes” and collectively with the 2013 Notes, the “Notes”), exchangeable at the option of the holder or upon certain specified events into an aggregate of 24,789 shares of the Company’s common stock at a conversion price of $49.78 per share. The Company has the right to redeem the 2011 Notes for cash as a whole or in part after November 1, 2009. The Company may be obligated to redeem the 2011 Notes prior to their stated maturity if there is an occurrence of a fundamental event, as described in the indentures.
Interest on both series of Notes is payable on May 1 and November 1 each year through maturity. Under certain circumstances, the Company may redeem some or all of the Notes on or after specified dates at a redemption price equal to 100 percent of the principal amount of the Notes plus accrued and unpaid interest. Holders of the Notes may require the Company to purchase some or all of their Notes if certain changes in control occur at a repurchase price equal to 100 percent of the principal amount of the Notes plus accrued and unpaid interest.
The Company has elected to record the Notes at fair value in order to simplify the accounting for the convertible debt, inclusive of the redemption, repurchase and conversion adjustment features which would otherwise require specialized valuation, bifurcation, and recognition. Accordingly, the Company has adjusted the carrying value of the Notes to their fair value as of December 31, 2010, with changes in the fair value of the Notes occurring since December 31, 2009, reflected in fair value adjustment in the statements of operations. The fair value of the Notes is based on Level 2 inputs. The recorded fair value of the Notes of an aggregate of $18,547,333 and $16,676,417 as of December 31, 2010 and 2009, respectively, differs from their total stated principal amount of $22,016,000 by $3,468,667 and $5,339,583 as of December 31, 2010 and 2009, respectively. The Company recorded fair value adjustments of ($1,870,916) and $33,163 related to the convertible senior notesDepreciation expense for the years ended December 31, 20102013 and 2009, respectively,2012 totaled $534 thousand and $517 thousand, respectively. During the years ended December 31, 2013 and 2012, there was no material interest capitalized into construction in progress.
therefore no quantitative testing for impairment was required.
BIOSANTE PHARMACEUTICALS, INC.NotesIn addition to the Financial Statements
qualitative impairment analysis performed at October 31, 2013, there were noevents or changes in circumstances that could havereduced the fair value of the Company’s reporting unit below its carrying value from October 31, 2013 to December 31, 2010
7.CONVERTIBLE SENIOR NOTES (continued)
For2013. No impairment loss was recognized during the year ended December 31, 2010, approximately $184,0002013.
66 | ||
December 31, 2013 | December 31, 2012 | |||||||||||||||
(in thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Amortization Period | |||||||||||
Acquired ANDA intangible asset | $ | 60 | $ | (55) | $ | 60 | $ | - | 3 years | |||||||
Reglan® intangible asset | 100 | (100) | 100 | (75) | 2 years | |||||||||||
Teva license intangible asset | 10,900 | (496) | - | - | 11 years | |||||||||||
$ | 11,060 | $ | (651) | $ | 160 | $ | (75) |
(in thousands) | ||||
2014 | $ | 996 | ||
2015 | 991 | |||
2016 | 991 | |||
2017 | 991 | |||
2018 | 991 | |||
2019 and thereafter | 5,449 | |||
Total | $ | 10,409 |
67 | ||
(in thousands) | |||||||||||||
Description | Fair Value at December 31, 2013 | Level 1 | Level 2 | Level 3 | |||||||||
Liabilities | |||||||||||||
CVRs | $ | - | $ | - | $ | - | $ | - |
Description | Fair Value at December 31, 2012 | Level 1 | Level 2 | Level 3 | |||||||||
Liabilities | |||||||||||||
Warrants | $ | - | $ | - | $ | - | $ | - |
68 | ||
69 | ||
The Company establishes the value thehighlights of each series of redeemable convertible senior notes based upon contractual terms of the notes, as well as certain key assumptions.
The assumptionspreferred stock as of December 31, 2010 were:
|
| 2013 Notes |
| 2011 Notes |
|
Average risk-free rate |
| 0.82% |
| 0.29% |
|
Volatility of BioSante common stock |
| 78.7% |
| 61.0% |
|
Discount rate for principal payments in cash |
| 17.0% |
| 17.0% |
|
The assumptions as2012:
Series | Shares Authorized | Shares Issued and Outstanding | Carrying Value | Stated Value per share | Dividend Accrual per Annum | Accrued Dividends | ||||||||||||||
A | 108 | 103 | $ | 11,579 | $ | 100 | 10 | % | $ | 2,186 | ||||||||||
B | 119 | 78 | $ | 10,560 | $ | 110 | 10 | % | $ | 1,837 | ||||||||||
C | 38 | 35 | $ | 4,815 | $ | 110 | 12 | % | $ | 994 | ||||||||||
D | 3,400 | 2,375 | $ | 21,797 | $ | 30 | 10 | % | $ | 4,185 |
|
| 2013 Notes |
| 2011 Notes |
|
Average risk-free rate |
| 1.7% |
| 1.1% |
|
Volatility of BioSante common stock |
| 81.4% |
| 89.8% |
|
Discount rate for principal payments in cash |
| 17.6% |
| 17.6% |
|
The discount rate is based on observed yields asredeemable convertible preferred stock, dividends compounded quarterly and were payable in cash. All accrued dividends were included in Redeemable Convertible Preferred Stock in the accompanying consolidated balance sheets. Each share of preferred stock was initially convertible into one share of common stock of ANIP at the option of the measurement date for debt securitiesholder. The conversion rate was subject to adjustment upon the occurrence of entities having a C and Ca rating for long-term corporate obligations as assigned by Moody’s Investors Service. Volatility is based oncertain events including the historical fluctuationsissuance of dividends payable in the Company’sform of common stock, price for a period of time equal to the remaining time until the debt maturity. The risk-free rate is based on observed yields as of the measurement date of one-year, two-year and three-year U.S. Treasury Bonds..
The following table represents the scheduled maturities of required principal payments by year related to the convertible senior notes at December 31, 2010:
2011 |
| 1,234,000 |
| |
2012 |
| — |
| |
2013 |
| 20,782,000 |
| |
Total |
| $ | 22,016,000 |
|
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
8. INCOME TAXES
The Company has analyzed its filing positions in all significant federal and state jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. The only periods subject to examination by the major tax jurisdictions where the Company does business are the 2007 through 2010 tax years. The Company determined there are no uncertain tax positions existing as of December 31, 2010recapitalization, reorganization or 2009.
The components of the Company’s net deferred tax asset at December 31, 2010 and 2009 were as follows:
|
| 2010 |
| 2009 |
| ||
Net operating loss carryforwards |
| $ | 46,071,206 |
| $ | 29,856,745 |
|
Tax basis in intangible assets |
| 4,452,360 |
| 3,618,489 |
| ||
Deferred financing costs for tax |
| 7,001,619 |
| 7,622,553 |
| ||
Research & development credits |
| 5,796,148 |
| 4,242,829 |
| ||
Stock option expense |
| 2,310,405 |
| 1,935,640 |
| ||
Other |
| 25,955 |
| 109,356 |
| ||
|
| 65,657,693 |
| 47,385,612 |
| ||
Valuation allowance |
| (65,657,693 | ) | (47,385,612 | ) | ||
|
| $ | — |
| $ | — |
|
The presentation of the net deferred tax assets as of December 31, 2009 has been corrected to remove a deferred tax asset for convertible senior notes of $6,295,348 that had been previously presented, and correspondingly reduce the valuation allowance by the same amount. There was no effect on the total net deferred tax assets or net loss.
The Company has no current tax provision due to its accumulated losses, which result in net operating loss carryforwards. At December 31, 2010, the Company had approximately $123,401,000 of net operating loss carryforwards that are available to reduce future taxable income for a period of up to 20 years. The net operating loss carryforwards expireother similar change in the years 2018-2030. The net operating loss carryforwardsoutstanding common stock, or upon the occurrence of certain dilutive financings, as well as amortization of various intangibles, principally acquired in-process research and development, generate deferred tax benefits, which have been recorded as deferred tax assets and are entirely offset by a tax valuation allowance. The valuation allowance has been provided at 100% to reduce the deferred tax assets to zero, the amount management believes is more likely than not to be realized. Additionally, the Company has provided a full valuation allowance against $5,796,148 of research and development credits, which are available to reduce future income taxes, if any, through the year 2030.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34.5% to pre-tax income as follows:
|
| 2010 |
| 2009 |
| 2008 |
| |||
Tax at U.S. federal statutory rate |
| $ | (15,937,695 | ) | $ | (16,397,080 | ) | $ | (6,030,952 | ) |
State taxes, net of federal benefit |
| (1,501,377 | ) | (1,544,652 | ) | (568,133 | ) | |||
Research and development credits |
| (966,941 | ) | (515,235 | ) | (526,196 | ) | |||
Other, net |
| 133,932 |
| 17,718 |
| (2,998 | ) | |||
Change in valuation allowance |
| 18,272,081 |
| 18,439,249 |
| 7,128,279 |
| |||
|
|
|
|
|
|
|
| |||
|
| $ | — |
| $ | — |
| $ | — |
|
9.
Authorized and Outstanding Capital Stockshares
Noshare at December 31, 2013.
2013 and 2012, respectively.
70 | ||
July 17, 2013 one-for-six reverse split.
On March 8, 2010,In August 2012, the Company completed a registered direct offering of an aggregate of 10,404,626 shares of its common stock and warrants to an aggregate of 5,202,313 shares of its common stock, at a purchase price of $1.73 per share to funds affiliated with two institutional investors resulting in net proceeds to the Company of approximately $17.5 million, after deducting placement agent fees and other offering expenses. The warrants are exercisable beginning on September 9, 2010, have an exercise price of $2.08 per share and will expire on September 8, 2015. In connection with the offering, the Company issued the placement agent warrants to purchase an aggregate of 208,093 shares of the Company’s common stock at an
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
9.STOCKHOLDERS’ EQUITY (continued)
exercise price of $2.16, which warrants are exercisable beginning on September 8, 2010 and will expire on June 9, 2014.
On June 23, 2010, the Company completed an offering of 7,134,366 thousand shares of its common stock and warrants to purchase an aggregate of 3,567,183197 thousand shares of its common stock at a purchase price of $2.1025$8.835 per share to funds affiliated with certainone institutional investorsinvestor for gross proceeds of $15.0$3.5 million. The offering resulted in net proceeds to the Company of approximately $14.1$3.3 million after deducting placement agent fees and offering expenses. The warrants are exercisable immediately, have an exercise price of $2.45 per share and will expire on June 23, 2015. In connection with the offering, the Company issued the placement agent warrants to purchase an aggregate of 214,031 shares of the Company’s common stock at an exercise price of $2.63 per share, which warrants arewere exercisable immediately and will expire on June 9, 2015.
On December 31, 2010, the Company completed an offering of 10,588,236 shares of its common stock and warrants to purchase an aggregate of 5,294,118 shares of its common stock at a purchase price of $1.70 per share to funds affiliated with certain institutional investors for gross proceeds of $18.0 million. The offering resulted in net proceeds to the Company of approximately $16.9 million, after deducting placement agent fees and offering expenses. The warrants are exercisable immediately, have an exercise price of $2.00 per share and expire on December 30, 2015. In connection with the offering, the Company issued the placement agent warrants to purchase an aggregate of 317,647 shares of the Company’s common stock at an exercise price of $2.125, which warrants are exercisable immediately and will expire on June 9, 2015.
Acquisition of Net Assets of Cell Genesys
In October 2009, the Company acquired Cell Genesys in a direct merger. As a result of the merger, each share of common stock of Cell Genesys issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive 0.1828 of a share of the Company’s common stock. In the aggregate, the Company issued approximately 20.2 million shares of its common stock to former Cell Genesys stockholders in connection with the merger. All options to purchase shares of Cell Genesys common stock, other than certain designated options held by certain of Cell Genesys’s former officers (Assumed Options), became fully vested and exercisable until immediately prior to the effective time of the merger. At the effective time of the merger, such unexercised options other than the Assumed Options terminated. The Assumed Options were assumed by the Company and will remain outstanding following the merger, but converted into and became options to purchase shares of the Company’s common stock on terms substantially identical to those in effect prior to the merger, except for adjustments to the underlying number of shares and the exercise price based on the 0.1828 exchange ratio. As a result of the merger, the Assumed Options converted into options to purchase an aggregate of 234,429 shares of the Company’s common stock at a weighted average exercise price of $19.73 per share. All warrants to purchase shares of Cell Genesys common stock which by their terms survived the merger (Assumed Warrants) were assumed by the Company, but were converted into and became warrants to purchase shares of the Company’s common stock on terms substantially identical to those in effect prior to the merger, except for
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
9.STOCKHOLDERS’ EQUITY (continued)
adjustments to the underlying number of shares and the exercise price based on the 0.1828 exchange ratio. As a result of the merger, these Assumed Warrants converted into warrants to purchase an aggregate of 395,246 shares of the Company’s common stock at a weighted average exercise price of $39.27 per share.
For additional discussion regarding the merger with Cell Genesys and the assets and liabilities acquired, see Note 4, “Acquisition of Net Assets of Cell Genesys.”
Convertible Senior Notes
See the “Acquisition of Net Assets of Cell Genesys” section of this Note 9 and see Note 7, “Convertible Senior Notes” for information regarding the convertible senior notes assumed in the Cell Genesys merger.
Committed Equity Financing Facility
In December 2008, the Company entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Limited in which Kingsbridge has committed to purchase, subject to certain conditions and at the Company’s sole discretion, up to the lesser of $25.0 million or 5,405,840 shares of the Company’s common stock. In December 2010, the parties extended the term of the CEFF until December 2011. The Company may access capital under the CEFF by providing Kingsbridge with common stock at discounts ranging from eight to 14 percent, depending on the average market price of the Company’s common stock during the applicable pricing period. Kingsbridge will not be obligated to purchase shares under the CEFF unless certain conditions are met, which include a minimum price for the Company’s common stock of $1.15 per share; the accuracy of representations and warranties made to Kingsbridge; compliance with laws; continued effectiveness of the registration statement registering the resale of shares of common stock issued or issuable to Kingsbridge; and the continued listing of the Company’s common stock on the NASDAQ Global Market. In addition, Kingsbridge is permitted to terminate the CEFF if it determines that a material and adverse event has occurred affecting the Company’s business, operations, properties or financial condition and if such condition continuescontinue for a period of 10 trading days from the date Kingsbridge provides the Company notice of such material and adverse event. As of December 31, 2010, the Company had not sold any shares to Kingsbridge under the CEFF.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
9.STOCKHOLDERS’ EQUITY (continued)
Warrants
As of December 31, 2010, warrants to purchase 19,418,590 shares of the Company’s common stock were outstanding, as follows, of which, all but 180,000 were exercisable as of December 31, 2010:
Issue Date |
| Amount |
| Exercise Price |
| Expiration |
| |
July 21, 2006 |
| 853,292 |
| $ | 2.75 |
| October 21, 2011 |
|
May 15, 2008 |
| 66,667 |
| $ | 4.78 |
| May 14, 2011 |
|
December 15, 2008 |
| 300,000 |
| $ | 4.00 |
| June 14, 2014 |
|
July 21, 2009 |
| 180,000 |
| $ | 2.00 |
| July 20, 2012 |
|
August 13, 2009 |
| 2,400,000 |
| $ | 2.50 |
| August 12, 2014 |
|
August 13, 2009 |
| 240,000 |
| $ | 2.50 |
| June 9, 2014 |
|
October 14, 2009 |
| 395,246 |
| $ | 39.27 |
| April 1, 2012 |
|
March 8, 2010 |
| 5,202,313 |
| $ | 2.08 |
| September 8, 2015 |
|
March 8, 2010 |
| 208,093 |
| $ | 2.16 |
| June 9, 2014 |
|
June 23, 2010 |
| 3,567,183 |
| $ | 2.45 |
| June 23, 2015 |
|
June 23, 2010 |
| 214,031 |
| $ | 2.63 |
| June 9, 2015 |
|
November 22, 2010 |
| 180,000 |
| $ | 2.00 |
| November 21, 2013 |
|
December 30, 2010 |
| 5,294,118 |
| $ | 2.00 |
| December 30, 2015 |
|
December 30, 2010 |
| 317,647 |
| $ | 2.125 |
| June 9, 2015 |
|
During 2010, the Company issued warrants to purchase 14,803,385 shares of the Company’s common stock in connection with registered direct offerings as described above, and warrants to purchase 180,000 shares of the Company’s common stock as compensation for investor relations services as described below. During 2010, no warrants were exercised and warrants to purchase 763,750 shares of the Company’s common stock expired unexercised.
During 2009, the Company issued warrants to purchase 2,640,000 shares of the Company’s common stock in connection with a registered direct offering, warrants to purchase 395,246 shares of the Company’s common stock in connection with the Cell Genesys merger, and warrants to purchase 180,000 shares of the Company’s common stock as compensation for investor relations services as described below. During 2009, no warrants were exercised and warrants to purchase 534,996 shares of the Company’s common stock expired unexercised.
During 2008, the Company issued warrants to purchase 300,000 shares of the Company’s common stock in connection with the CEFF, and warrants to purchase 80,000 shares of the Company’s common stock as compensation for investor relations services as described below. Warrants to purchase an aggregate of 176,614 shares of common stock were exercised for total cash proceeds of $379,720. Warrants to purchase an aggregate of 71,543 shares of common stock were exercised on a cashless basis, for which warrants to purchase 74,957 shares of common stock were cancelled by the Company in payment of the exercise price for the exercised warrants. During 2008, warrants to purchase 500 shares of the Company’s common stock expired unexercised.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
9.STOCKHOLDERS’ EQUITY (continued)
In 2010, 2009 and 2008, the Company issued warrants to purchase 180,000, 180,000 and 80,000 shares of the Company’s common stock, respectively, in consideration for various investor relations services. The warrants became exercisable on a ratable basis over a twelve-month period. With respect to the warrants issued in 2008, the Company terminated its relationship with the investor relations firm effective March 31, 2009, at which time 66,667 of the warrants were exercisable, and such warrants remain outstanding at December 31, 2010. The Company uses the Black-Scholes pricing model to value these types of warrants and remeasures the awards each quarter until the measurement date is established. For the years ended December 31, 2010, 2009 and 2008, the Company recorded $65,529, $64,103 and $104,284, respectively, in non-cash general and administrative expense pertaining to consultant warrants.
10. STOCK-BASED COMPENSATION
As of December 31, 2010, the Company has two stockholder-approved equity-based compensation plans under which stock options have been granted — the BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan (1998 Plan) and the BioSante Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan (2008 Plan) (collectively, the Plans). The 2008 Plan replaced the 1998 Plan except with respect to options outstanding under the 1998 Plan. As of December 31, 2010, the number of shares of the Company’s common stock authorized for issuance under the 2008 Plan, subject to adjustment as provided in the 2008 Plan, was 4,000,000 plus the number of shares subject to options outstanding under the 1998 Plan as of the effective date of the 2008 Plan but only to the extent that such outstanding options are forfeited, expire or otherwise terminate without the issuance of such shares. Of such authorized shares, 1,334 shares had been issued and 1,660,916 shares were subject to outstanding stock options as of December 31, 2010. Outstanding employee stock options generally vest over a period of three years and for more recent 2011 grants, four years, and have 10-year contractual terms. Upon exercise of an option, the Company issues new shares. From time to time, the Company grants employee stock options that have performance condition-based vesting provisions which result in expense when such performance conditions are probable of being achieved. None of these options were outstanding as of December 31, 2010. The non-cash, stock-based compensation cost that was incurred by the Company in connection with the 1998 Plan and the 2008 Plan was $992,757, $1,254,503 and $1,102,444 for the years ended December 31, 2010, 2009 and 2008, respectively. No income tax benefit was recognized in the Company’s statements of operations for stock-based compensation arrangements due to the Company’s net loss position.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
10. STOCK-BASED COMPENSATION (continued)
The weighted average fair value of the options at the date of grant for options granted during 2010, 2009 and 2008 was $1.11, $1.04 and $2.41, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
| 2010 |
| 2009 |
| 2008 |
|
Expected option life (years) |
| 6.00 |
| 6.00 |
| 6.00 |
|
Risk-free interest rate |
| 2.42 | % | 2.74 | % | 3.45 | % |
Expected stock price volatility |
| 76.05 | % | 76.75 | % | 67.63 | % |
Dividend yield |
| — |
| — |
| — |
|
The Company uses the simplified method to estimate the life of options meeting certain criteria. The risk-free interest rate used is the yield on a United States Treasury note as of the grant date with a maturity equal to the estimated life of the option. The Company calculated a volatility rate based on the closing price for its common stock at the end of each calendar month as reported by the NASDAQ Global Market. The Company has not in the past issued a cash dividend nor does it have any current plans to do so in the future and therefore, an expected dividend yield of zero was used.
The following table summarizes the stock option compensation expense for employees and non-employees recognized in the Company’s statements of operations for each period:
|
| 2010 |
| 2009 |
| 2008 |
| |||
Research and development |
| $ | 325,208 |
| $ | 361,773 |
| $ | 356,287 |
|
General and administrative |
| 667,549 |
| 892,730 |
| 746,157 |
| |||
Total stock-based compensation expense |
| $ | 992,757 |
| $ | 1,254,503 |
| $ | 1,102,444 |
|
A summary of activity under the Plans during the year ended December 31, 2010 is presented below:
Options |
| Option Shares |
| Weighted Average |
| |
Outstanding December 31, 2009 |
| 3,006,120 |
| $ | 4.24 |
|
Granted |
| 758,750 |
| $ | 1.64 |
|
Exercised |
| 1,334 |
| $ | 1.51 |
|
Forfeited or expired |
| 46,100 |
| $ | 1.57 |
|
Outstanding December 31, 2010 |
| 3,717,436 |
| $ | 3.69 |
|
(weighted average contractual term) |
| 6.74 |
|
|
| |
|
|
|
|
|
| |
Exercisable at December 31, 2010 |
| 2,228,853 |
| 4.91 |
| |
(weighted average contractual term) |
| 5.46 |
|
|
|
The aggregate intrinsic value of the Company’s outstanding and exercisable options as of December 31, 2010 was $162,892 and $36,248, respectively. Substantially all outstanding options are expected to vest.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
10.STOCK-BASED COMPENSATION (continued)
As of December 31, 2010, there was $914,412 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.81 years.
The intrinsic value of options exercised during the years ended December 31, 2010 was $974. No stock options were exercised during 2009 or 2008. The Company did not receive a tax benefit related to the exercise of these options because of its net operating loss position. The total fair value of shares vested during the years ended December 31, 2010, 2009 and 2008 was $764,921, $788,461 and $659,898, respectively.
11.RETIREMENT PLAN
The Company offers a discretionary 401(k) Plan to all of its employees. Under the 401(k) Plan, employees may defer income on a tax-exempt basis, subject to IRS limitation. Under the 401(k) Plan, the Company can make discretionary matching contributions. Company contributions expensed in 2010, 2009 and 2008 totaled $179,349, $117,969 and $108,019, respectively.
12.LEASE ARRANGEMENTS
The Company has entered into lease commitments for rental of its office space which expires in 2014. The future minimum lease payments during 2011, 2012 and 2013 are $353,880, $421,910 and $454,270, respectively.
Rent expense amounted to $338,588, $325,093 and $277,370 for the years ended December 31, 2010, 2009 and 2008, respectively.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
13.COMMITMENTS
Antares Pharma, Inc. License
The Company’s license agreement with Antares Pharma, Inc. requires the Company to fund the development of the licensed products, make milestone payments and pay royalties on the sales of products related to this license. In 2010, 2009 and 2008, the Company paid or accrued $152,228, $63,749 and $21,830, respectively, to Antares as a result of royalties generated by Elestrin revenues. Pursuant to a separate agreement with Antares and related to the December 2009 Azur license amendment, the Company paid Antares an aggregate of $268,750 in February 2010, which is recorded in licensing expense. In 2008, the Company also paid $462,500 to Antares as a result of the Azur license of Elestrin.
Wake Forest License
In April 2002, the Company exclusively in-licensed from Wake Forest University Health Sciences and Cedars-Sinai Medical Center three issued U.S. patents claiming triple component therapy (the combination use of estrogen plus progestogen plus androgen, e.g. testosterone) and obtained an option to license the patents for triple component contraception. The financial terms of the license include an upfront payment by the Company in exchange for exclusive rights to the license and regulatory milestone payments, maintenance payments and royalty payments by the Company if a product incorporating the licensed technology gets approved and subsequently marketed. In July 2005, the Company exercised the option for an exclusive license for the three U.S. patents for triple component contraception. The financial terms of this license include an upfront payment, regulatory milestone payments, maintenance payments and royalty payments by the Company if a product incorporating the licensed technology gets approved and subsequently marketed.
Future minimum maintenance payments due under this agreement are as follows:
Year |
| Minimum Amount Due |
|
2011 |
| 80,000 |
|
2012 |
| 80,000 |
|
2013 |
| 80,000 |
|
2014 |
| 80,000 |
|
2015 |
| 80,000 |
|
Thereafter |
| 120,000 |
|
Under the terms of the license agreement with the Wake Forest University Health Sciences and Cedars-Sinai Medical Center, the Company has the right to terminate the license at any time.
The Company has agreed to indemnify, hold harmless and defend Wake Forest University Health Sciences and Cedars-Sinai Medical Center against any and all claims, suits, losses, damages, costs, fees and expenses resulting from or arising out of exercise of the license agreement, including but not limited to, any product liability claims. The Company has not recorded any liability in connection with this obligation as no events occurred that would require indemnification.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
14.FAIR VALUE MEASUREMENTS
The Company accounts for its convertible debt and US Treasury money market fund at fair value. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy has been established that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk.
Financial assets and liabilities recorded at fair value on a recurring basis as of December 31, 2010 and 2009 are classified in the table below in one of the three categories described above:
Description |
| December 31, |
| Quoted Prices in |
| Significant |
| Significant |
| ||
Assets: |
|
|
|
|
|
|
|
|
| ||
Money market fund |
| $ | 21,729,230 |
| — |
| $ | 21,729,230 |
| — |
|
Total assets |
| $ | 21,729,230 |
| — |
| $ | 21,729,230 |
| — |
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||
2011 Senior Notes |
| $ | 1,111,132 |
| — |
| $ | 1,111,132 |
| — |
|
2013 Senior Notes |
| 17,436,201 |
| — |
| 17,436,201 |
| — |
| ||
Total liabilities |
| $ | 18,547,333 |
| — |
| $ | 18,547,333 |
| — |
|
In addition, as of September 30, 2010, the Company recorded an impairment of $286,000 to reduce its investment in Ceregene to its estimated fair value of $3,200,000, which was based on a recent third party investment in Ceregene. The fair value measurement is based on level 2 measurements. The market based valuation technique was used to measure fair value as of September 30, 2010 due to the availability of information, compared to the income based valuation technique at inception. As of December 31, 2010, the investment continues to be recorded at $3,200,000.
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
14.FAIR VALUE MEASUREMENTS (continued)
Description |
| December 31, |
| Quoted Prices in |
| Significant |
| Significant |
| ||
Liabilities: |
|
|
|
|
|
|
|
|
| ||
2011 Senior Notes |
| $ | 974,579 |
| — |
| $ | 974,579 |
| — |
|
2013 Senior Notes |
| 15,701,838 |
| — |
| 15,701,838 |
| — |
| ||
Total liabilities |
| $ | 16,676,417 |
| — |
| $ | 16,676,417 |
| — |
|
The Company made an election to record the values of the 2011 and 2013 Senior Notes at fair value with gains and losses related to fluctuations in the value of these financial liabilities recorded in earning immediately pursuant to ASC 825. The fair values of the 2011 and 2013 Senior Notes are estimated based on the risk-free borrowing rate, the volatility of the Company’s stock, and the current borrowing rates for similar companies. See Note 7, “Convertible Senior Notes” for more information and disclosures regarding key assumptions used in this fair value determination.
The table below presents a reconciliation of the level 3 fair value measurements, which are based on significant unobservable inputs, during 2009, which relate to the auction rate securities previously held by the Company. There were no recurring level 3 fair value measurements during 2010.
|
| Fair Value |
| Fair Value |
| ||
|
| Auction Rate Securities |
| Put Asset Related to |
| ||
January 1, 2009 |
| $ | 2,534,820 |
| $ | 465,180 |
|
Transfers into Level 3 |
| — |
| — |
| ||
Purchases, redemptions, issuances or settlements |
| (2,534,820 | ) | (465,180 | ) | ||
Total gains or (losses) (realized/unrealized) included in net loss |
| — |
| — |
| ||
December 31, 2009 |
| $ | — |
| $ | — |
|
BIOSANTE PHARMACEUTICALS, INC.Notes to the Financial StatementsDecember 31, 2010
15.SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly data for 2010 and 2009 is as follows:
|
| 2010 |
| ||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| ||||
Revenue |
| $ | 2,279,874 |
| $ | — |
| $ | 51,331 |
| $ | 143,032 |
|
Research and development expenses |
| 9,426,870 |
| 8,657,606 |
| 9,716,091 |
| 11,904,935 |
| ||||
General and administrative expenses |
| 1,498,252 |
| 1,540,200 |
| 1,534,417 |
| 1,367,491 |
| ||||
Licensing expense |
| 268,750 |
| — |
| — |
| — |
| ||||
Operating loss |
| (8,959,419 | ) | (10,240,352 | ) | (11,240,177 | ) | (13,168,413 | ) | ||||
Net loss |
| (10,540,419 | ) | (10,794,351 | ) | (11,589,711 | ) | (13,271,735 | ) | ||||
Loss per share: |
|
|
|
|
|
|
|
|
| ||||
Basic and diluted |
| $ | (0.19 | ) | $ | (0.17 | ) | $ | (0.16 | ) | $ | (0.18 | ) |
|
| 2009 |
| ||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| ||||
Revenue |
| $ | 68,428 |
| $ | 115,163 |
| $ | 10,492 |
| $ | 1,063,971 |
|
Research and development expenses |
| 3,072,240 |
| 3,493,576 |
| 3,371,217 |
| 3,743,540 |
| ||||
General and administrative expenses |
| 1,029,202 |
| 1,208,956 |
| 1,506,056 |
| 1,629,731 |
| ||||
Acquisition related charges |
| — |
| — |
| 1,470,467 |
| 27,721,727 |
| ||||
Licensing expense |
| — |
| — |
| — |
| 299,616 |
| ||||
Operating loss |
| (4,062,260 | ) | (4,620,701 | ) | (6,370,556 | ) | (33,630,091 | ) | ||||
Net loss |
| (4,050,612 | ) | (4,620,701 | ) | (6,370,556 | ) | (32,485,899 | ) | ||||
Loss per share: |
|
|
|
|
|
|
|
|
| ||||
Basic and diluted |
| $ | (0.15 | ) | $ | (0.17 | ) | $ | (0.21 | ) | $ | (0.84 | ) |
16.SUBSEQUENT EVENT
On March 8, 2011, the Company completed an offering of 12,199,482 shares of its common stock and warrants to purchase an aggregate of 4,025,827 shares of its common stock at a purchase price of $2.0613 per share to institutional investors for gross proceeds of $25.1 million. The offering resulted in net proceeds to the Company of approximately $23.8 million, after deducting placement agent fees and offering expenses. The warrants are exercisable immediately and continuing for a period of threefive years, at an exercise price of $2.25$9.00 per share. In connection with the offering, the Company issued the placement agent warrants to purchase an aggregate of 243,990 shares of the Company’s common stock at an exercise price of $2.58, which warrants are exercisable immediately and will expire on June 9, 2014. The number of shares issuable upon exercise of the warrants and the exercise price of the warrants are adjustable in the event of stock splits, combinations and reclassifications, but not in the event of the issuance of additional securities.
Number of | ||||||||||
Underlying Shares | Per Share | |||||||||
Issue Date | Of Common Stock | Exercise Price | Expiration Date | |||||||
August 13, 2009 | 67 | $ | 90.00 | August 12, 2014 | ||||||
August 13, 2009 | 7 | $ | 90.00 | June 9, 2014 | ||||||
March 8, 2010 | 145 | $ | 74.88 | September 8, 2015 | ||||||
March 8, 2010 | 6 | $ | 77.76 | June 9, 2014 | ||||||
June 23, 2010 | 99 | $ | 88.20 | June 23, 2015 | ||||||
June 23, 2010 | 6 | $ | 94.68 | June 9, 2015 | ||||||
December 30, 2010 | 147 | $ | 72.00 | December 30, 2015 | ||||||
December 30, 2010 | 9 | $ | 76.50 | June 9, 2015 | ||||||
March 8, 2011 | 112 | $ | 81.00 | March 8, 2014 | ||||||
March 8, 2011 | 7 | $ | 92.88 | June 9, 2014 | ||||||
August 20, 2012 | 83 | $ | 9.00 | August 16, 2017 |
71 | ||
2013 | |||
Expected option life (years) | 6.25 | ||
Risk-free interest rate | 1.72 | % | |
Expected stock price volatility | 55.0 | % | |
Dividend yield | — |
72 | ||
(in thousands, except per share data) | Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Term | Aggregate Intrinsic Value | |||||||
Outstanding December 31, 2011 | 18 | $ | 11.00 | 6.2 | $ | 0 | |||||
Granted | - | - | |||||||||
Exercised | - | - | 0 | ||||||||
Forfeited or expired | (18) | $ | 11.00 | ||||||||
Outstanding December 31, 2012 | - | - | - | $ | — | ||||||
Exercisable at December 31, 2012 | - | - | - | $ | — | ||||||
Vested or expected to vest at December 31, 2012 | - | - | - | $ | — | ||||||
Net BioSante Stock Options assumed | 99 | $ | 59.59 | ||||||||
Granted | 21 | $ | 6.36 | ||||||||
Exercised | - | - | — | ||||||||
Forfeited or expired | - | - | |||||||||
Outstanding December 31, 2013 | 120 | $ | 50.35 | 2.4 | $ | 81 | |||||
Exercisable at December 31, 2013 | 99 | $ | 59.59 | 0.9 | $ | — | |||||
Vested or expected to vest at December 31, 2013 | 120 | $ | 50.35 | 2.4 | $ | 81 |
73 | ||
(in thousands, except per share data) | Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Term (years) | |||||
Unvested at December 31, 2012 | - | $ | - | |||||
Granted | 50 | $ | 10.20 | |||||
Vested | - | $ | - | |||||
Forfeited | - | $ | - | |||||
Unvested at December 31, 2013 | 50 | $ | 10.20 | 2.84 |
(in thousands) | 2013 | 2012 | |||||
Current income tax provision (benefit): | |||||||
Federal | $ | 20 | $ | - | |||
State | - | - | |||||
Total | 20 | - | |||||
Deferred income tax provision (benefit): | |||||||
Federal | 635 | (1,486) | |||||
State | (221) | (35) | |||||
Total | 414 | (1,522) | |||||
Change in valuation allowance | (414) | 1,522 | |||||
Tax provision (benefit) from continuing operations | 20 | (36) | |||||
Tax provision from discontinued operation | 38 | 36 | |||||
Total provision (benefit) for income taxes | $ | 58 | $ | - |
As of December 31, | ||||||||
(in thousands) | 2013 | 2012 | ||||||
US Federal statutory rate | 35.0 | % | (34.0) | % | ||||
State taxes, net of Federal benefit | 1.0 | % | (0.9) | % | ||||
Non-deductible expenses | 245.9 | % | 17.7 | % | ||||
Change in valuation allowance | (300.4) | % | 100.7 | % | ||||
Change in tax rates and other | 34.6 | % | (85.7) | % | ||||
Total income tax provision (benefit) | 16.1 | % | (2.2) | % |
74 | ||
As of December 31, | |||||||
(in thousands) | 2013 | 2012 | |||||
Deferred tax assets: | |||||||
Accruals and advances | $ | 1,160 | $ | 383 | |||
Net operating loss carryforward | 16,409 | 11,271 | |||||
Other | 418 | 193 | |||||
Total deferred tax assets | 17,987 | 11,847 | |||||
Deferred tax liabilities: | |||||||
Depreciation | (220) | (236) | |||||
Intangible assets | (526) | - | |||||
Other | (374) | (52) | |||||
Total deferred tax liabilities | (1,120) | (288) | |||||
Valuation allowance | (16,867) | (11,559) | |||||
Total deferred tax asset (liability), net | $ | - | $ | - |
75 | ||
76 | ||
(in thousands) | ||||
Year | Minimum Annual Rental Payments | |||
2014 | $ | 148 | ||
2015 | 78 | |||
2016 | 53 | |||
2017 | 44 | |||
2018 | 29 | |||
Thereafter | - | |||
Total | $ | 352 |
77 | ||
78 | ||
79 | ||
80 | ||
None.
made only in accordance with authorizations of management and directors; and
Our— Integrated Framework (1992).
81 | ||
Thedoes not include an attestation report of Deloitte & Touche LLP, ourthe Company’s independent registered public accounting firm regarding the effectiveness of our internal control over financial reporting, as such attestation is included in this report in Item 8, under the heading “Report of Independent Registered Public Accounting Firm.”
not required.
82 | ||
Directors
The informationtext of the Company’s Code of Ethics, which applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions, is posted on the Company’s website, www.anipharmaceuticals.com, under the “Corporate Governance” subsection of the “Investors” section of the site.The Company will disclose on its website amendments to, and, if any are granted, waivers of, its Code of Ethics for its principal executive officer, principal financial officer, or principal accounting officer, controller, or persons performing similar functions.
Executive Officers
The information concerning our executive officers is included in this report under Item 4a,caption “Executive Officers of the Registrant” and is incorporated in this report by reference.
Section 16(a) Beneficial Ownership Reporting Compliance
The informationCompany” in the “Stock Ownership—Section 16(a) Beneficial Ownership Reporting Compliance” section of ourCompany's definitive proxy statement for the Company's 2014 annual meeting,
Code of Conduct and Ethics
Our Code of Conduct and Ethics applies to all of our employees, officers and directors, including our principal executive officer and principal financial officer, and meets the requirements of the Securities and Exchange Commission. A copy of our Code of Conduct and Ethics is filed as an exhibit to this report. We intend to satisfy the disclosure requirements of Item 5.05 of Form 8-K regarding amendments to or waivers from any provision of our Code of Conduct and Ethics by posting such information on our corporate website located at www.biosantepharma.com.
Changes to Nomination Procedures
During the fourth quarter of 2010, we made no material changes to the procedures by which stockholders may recommend nominees to the Board of Directors, as described in our most recent proxy statement.
Audit Committee Matters
The informationcaption “Section 16(a) Beneficial Ownership Reporting Compliance” in the “Corporate Governance—Audit and Finance Committee” section of ourCompany's definitive proxy statement for the Company's 2014 annual meeting
StockInformation required by this item with respect to security ownership of certain beneficial owners and management will be set forth under the captions “Security Ownership
The information of Certain Beneficial Owners” and “Security Ownership of Directors and Executive Officers in the “Stock Ownership” section of ourCompany's definitive proxy statement for the Company's 2014 annual meeting, to be filed with the SEC with respectpursuant to our next annual meeting of stockholders and is incorporated in this report by reference, or, if such proxy statement is not filed with the SEC withinRegulation 14A no later than 120 days after the endclose of the Company’s fiscal year, coveredand is incorporated herein by this report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.
Securities Authorized for Issuance Under Equity Compensation Plansreference.
The following table and notes provide information about shares of our common stock that may be issued under all of our equity compensation plans as of December 31, 2010. Except otherwise stated below, options granted in the future under the BioSante Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan are within the discretion of the Compensation Committee of our Board of Directors and our Board of Directors; and therefore, cannot be ascertained at this time.
Plan Category |
| (a) |
| (b) |
| (c) |
| |
Equity compensation plans approved by security holders |
| 3,483,007 | (1)(2) | $ | 2.61 |
| 2,337,750 | (3) |
|
|
|
|
|
|
|
| |
Equity compensation plans not approved by security holders |
| 234,429 |
| $ | 19.73 |
| 0 |
|
Total |
| 3,717,436 |
| $ | 3.69 |
| 2,337,750 |
|
(1)Amount includes shares of our common stock issuable upon the exercise of stock options outstanding as of December 31, 2010 under the BioSante Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”) and the BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan (the “1998 Plan”).
(2)Excludes options assumed by us in connection with our merger with Cell Genesys, Inc. As of December 31, 2010, a total of 234,429 shares of our common stock were issuable upon exercise of the assumed options. The weighted average exercise price of the outstanding assumed options as of such date was $19.73 per share and they have an average weighted life remaining of 5.4 years. All of the options assumed and outstanding in connection with our merger with Cell Genesys were exercisable as of December 31, 2010. No additional options, restricted stock units or other equity incentive awards may be granted under the assumed Cell Genesys, Inc. plans.
(3)As of December 31, 2010, these shares remain available for future issuance under the 2008 Plan. Under the terms of the 2008 Plan, any shares of our common stock subject to outstanding awards under the 1998 Plan as of the approval of the 2008 Plan by our stockholders on June 11, 2010 that are forfeited, expired or otherwise terminated become available for issuance under the 2008 Plan. No awards will be granted or shares issued under the 1998 Plan except upon the exercise of options outstanding as of the effective date of the 2008 Plan.
The information in the “Related Party Certain Relationships and Related Transactions, and Director Independence
83 | ||
The informationInformation required by this item with respect to principal accounting fees and services will be set forth under the caption “Ratification of Selection of Independent Registered Public Accountants” in the “Audit-Related Matters — Audit, Audit-Related, Tax and Other Fees” and “Audit-Related Matters —Pre-Approval Policy and Procedures” of ourCompany’s definitive proxy statement for the Company's 2014 annual meeting, to be filed with the SEC with respectpursuant to our next annual meetingRegulation 14A no later than 120 days after the close of stockholdersthe Company’s fiscal year, and is incorporated herein by reference, or, if such proxy statement is not filed with the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.
84 | ||
Our financial statements are included in Item 8 of Part II of this report.
The exhibits to this report are listed on the Exhibit Index to this report. A copy of any of the exhibits listed will be furnished at a reasonable cost, upon receipt from any person of a written request for any such exhibit. Such request should be sent to BioSante Pharmaceuticals, Inc., 111 Barclay Boulevard, Lincolnshire, Illinois 60069, Attn: Stockholder Information.
The following is a list of each management contract or compensatory plan or arrangement required to be
A.Amended and Restated Employment Letter Agreement dated July 16, 2008 between BioSante Pharmaceuticals, Inc. and Stephen M. Simes (incorporated by reference to Exhibit 10.1 to BioSante’s current report on Form 8-K as filed with the SEC on July 18, 2008 (File No. 001-31812)).
B.Amended and Restated Employment Letter Agreement dated July 16, 2008 between BioSante Pharmaceuticals, Inc. and Phillip B. Donenberg (incorporated by reference to Exhibit 10.2 to BioSante’s current report on Form 8-K as filed with the SEC on July 18, 2008 (File No. 001-31812)).
C.Offer Letter dated April 1, 2008 to Michael C. Snabes from BioSante Pharmaceuticals, Inc. (filed herewith).
D.Change in Control and Severance Agreement effective as of July 16, 2008 between BioSante Pharmaceuticals, Inc. and Michael C. Snabes (filed herewith).
E.BioSante Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 contained in BioSante’s current report on Form 8-K as filed with the Securities and Exchange Commission on June 11, 2010 (File No. 001-31812)).
F.Form of Incentive Stock Option Agreement under the BioSante Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 contained in BioSante’s current report on Form 8-K as filed with the Securities and Exchange Commission on June 11, 2010 (File No. 001-31812)).
G.Form of Non-Statutory Stock Option Agreement under the BioSante Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 contained in BioSante’s current report on Form 8-K as filed with the Securities and Exchange Commission on June 11, 2010 (File No. 001-31812)).
H.Form of Non-Statutory Stock Option Agreement between BioSante Pharmaceuticals, Inc. and its Directors Under the BioSante Pharmaceuticals, Inc. 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 contained in BioSante’s current report on Form 8-K as filed with the Securities and Exchange Commission on June 13, 2008 (File No. 001-31812)).
(a) | Financial Statements: |
The consolidated balance sheets of the Registrant as of December 31, 2013 and 2012, the related consolidated statements of operations, changes in stockholders' equity/(deficit), and cash flows for each of the years ended December 31, 2013 and 2012, the footnotes thereto, and the reports of EisnerAmper LLP, independent registered public accounting firm, are filed herewith. | |
(b) | Financial Statement Schedules: |
All schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. | |
(c) | Exhibits |
Exhibits included or incorporated by reference herein: see Exhibit Index on page 84. |
I.BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan (incorporated by reference to Exhibit 10.1 contained in BioSante’s current report on Form 8-K as filed with the Securities and Exchange Commission on June 12, 2006 (File No. 001-31812)).
J.Form of Stock Option Agreement between BioSante Pharmaceuticals, Inc. and each of BioSante’s Executive Officers Under the BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan (incorporated by reference to Exhibit 10.5 to BioSante’s annual report on Form 10-KSB for the fiscal year ended December 31, 2001 (File No. 000-28637)).
K.Form of Stock Option Agreement between BioSante Pharmaceuticals, Inc. and each of BioSante’s Executive Officers Under the BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan (incorporated by reference to Exhibit 10.30 to BioSante’s annual report on Form 10-KSB for the fiscal year ended December 31, 2003 (File No. 001-31812)).
L.Form of Stock Option Agreement between BioSante Pharmaceuticals, Inc. and each of BioSante’s Directors Under the BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan (incorporated by reference to Exhibit 10.31 to BioSante’s annual report on Form 10-KSB for the fiscal year ended December 31, 2003 (File No. 001-31812)).
M.Form of Indemnification Agreement between BioSante Pharmaceuticals, Inc. and each of BioSante’s Directors and Executive Officers (incorporated by reference to Exhibit 10.30 to BioSante’s annual report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 001-31812)).
N.Description of Non-Employee Director Compensation Arrangements (filed herewith).
O.Cell Genesys, Inc. 2005 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.3 contained in Cell Genesys’s quarterly report on Form 10-Q for the quarter ended June 30, 2007 (File No. 000-19986)).
P.Cell Genesys, Inc. Amended and Restated 1998 Incentive Stock Plan (incorporated by reference to Exhibit 10.2 contained in Cell Genesys’s quarterly report on Form 10-Q for the quarter ended June 30, 2003 (File No. 000-19986)).
85 | ||
|
ANI PHARMACEUTICALS, INC. | |||
By: | /S/ Arthur S. Przybyl | |||
|
| |||
| ||||
| ||||
(principal executive officer) |
|
By: | /S/ Charlotte C. Arnold | ||
Charlotte C. Arnold | |||
|
| ||
| |||
|
Name | Date | |||
/ |
|
| ||
| Chief Executive Officer | |||
/ | Director and Chairman of the Board of |
| ||
| Directors | |||
/ | Director |
| ||
Fred Holubow | ||||
/S/ Ross Mangano | Director |
| ||
| ||||
/ | Director |
| ||
| ||||
/ | Director |
| ||
| ||||
/ | Director |
| ||
|
86 | ||||
|
|
| ||
|
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 20102013
Exhibit No. | Exhibit | Method of Filing | ||
|
| |||
2.1 | Amended and Restated Agreement and Plan of Merger, dated as of | Incorporated by reference to Exhibit | ||
2.2 | Asset Purchase Agreement, dated as of December 26, 2013, by and between ANI Pharmaceuticals, Inc. and Teva Pharmaceuticals USA, Inc. (2) | Filed herewith | ||
3.1 | Certificate of Amendment of the Restated Certificate of Incorporation of BioSante Pharmaceuticals, Inc., dated as of July 17, 2013, Certificate of Amendment of the Restated Certificate of Incorporation of BioSante Pharmaceuticals, Inc., dated as of June 1, 2012, and Restated Certificate of Incorporation of BioSante Pharmaceuticals, Inc. | Incorporated by reference to Exhibit 3.1 to ANI's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013 (File No. 001-31812) | ||
3.2 | Amended and Restated Bylaws of BioSante Pharmaceuticals, Inc. | Incorporated by reference to Exhibit 3.1 to ANI's Current Report on Form 8-K as filed with the Securities and Exchange Commission on June 11, 2010 (File No. 001-31812) | ||
4.1 | Form of Common Stock Purchase Warrant issued by BioSante Pharmaceuticals, Inc. with an Initial Exercise Date of August 13, 2009 | Incorporated by reference to Exhibit 4.1 to ANI's Current Report on Form 8-K as filed with the Securities and Exchange Commission on August 14, 2009 (File No. 001-31812) | ||
4.2 |
Form of | Incorporated by reference to Exhibit | ||
4.3 |
Form of | Incorporated by reference to Exhibit | ||
4.4 |
Form of | Incorporated by reference to Exhibit | ||
4.5 |
Form of Common Stock Purchase Warrant issued by BioSante Pharmaceuticals, Inc. | Incorporated by reference to Exhibit | ||
|
|
| ||
|
|
|
Exhibit No. | Exhibit | Method of Filing | ||
| ||||
4.6 | ||||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
|
|
| ||
| ||||
| Form of Common Stock Purchase Warrant issued by BioSante Pharmaceuticals, Inc. | Incorporated by reference to Exhibit 4.1 to | ||
10.1* |
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
| Amended and Restated Employment Letter Agreement, dated as of July 16, 2008, between BioSante Pharmaceuticals, Inc. and Stephen M. Simes | Incorporated by reference to Exhibit 10.1 to |
|
|
| ||
| ||||
|
|
| ||
10.2* |
Amended and Restated Employment Letter |
| ||
|
|
Incorporated by reference to Exhibit 10.2 to ANI's Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 18, 2008 (File No. 001-31812) | ||
10.3* |
ANI Pharmaceuticals, Inc. Third Amended and Restated 2008 Stock Incentive Plan | Incorporated by reference to Exhibit 10.1 to | ||
10.4* | Form of Incentive Stock Option Agreement under the | Incorporated by reference to Exhibit 10.2 to | ||
10.5* | Form of Non-Statutory | Incorporated by reference to Exhibit 10.3 to | ||
10.6* | Form of Non-Statutory Stock Option Agreement between | Incorporated by reference to Exhibit 10.4 to |
|
|
| ||
10.7* | ||||
| BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan | Incorporated by reference to Exhibit 10.1 to | ||
10.8* | Form of Incentive Stock Option Agreement |
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10.9* | Form of Non-Statutory Stock Option Agreement | Incorporated by reference to Exhibit 10.31 to |
Exhibit No. | Exhibit | Method of Filing | ||
10.10* | Form of Indemnification Agreement between BioSante Pharmaceuticals, Inc. and each of its Directors and Executive Officers | Incorporated by reference to Exhibit 10.30 to | ||
10.11 |
License Agreement, dated June 13, 2000, between Permatec Technologie, AG (renamed as Antares Pharma IPL AG) and BioSante Pharmaceuticals, Inc. (3) |
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10.12 |
Amendment No. 1 to | Incorporated by reference to Exhibit | ||
10.13 |
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| Amendment No. 2 to the License Agreement, dated July 5, 2001, between Antares Pharma IPL AG and BioSante Pharmaceuticals, Inc. | Incorporated by reference to Exhibit 10.19 to | ||
10.14 | Amendment No. 3 to the License Agreement, dated August 30, 2001, between Antares Pharma IPL AG and BioSante Pharmaceuticals, Inc. |
Incorporated by reference to Exhibit 10.30 to ANI's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 001-31812) | ||
10.15 | Amendment No. 4 to the License Agreement, dated August 8, 2002, between Antares Pharma IPL AG and BioSante Pharmaceuticals, Inc. |
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10.16 | Amendment No. 5 to the License Agreement, dated December 30, 2002, between Antares Pharma IPL AG and BioSante Pharmaceuticals, Inc. |
Incorporated by reference to Exhibit 10.32 to ANI's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 001-31812) | ||
10.17 | Amendment No. 6 to the License Agreement, dated October 20, 2006, between Antares Pharma IPL AG and BioSante Pharmaceuticals, Inc. |
Incorporated by reference to Exhibit 10.33 to ANI's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 001-31812) | ||
10.18 | License Agreement, dated December 3, 2008, by and between BioSante Pharmaceuticals, Inc. and Azur Pharma International II Limited (3) | Incorporated by reference to Exhibit 10.1 to | ||
10.19 | Amendment No. 1 to License Agreement and Asset Purchase Agreement, dated | Incorporated by reference to Exhibit 10.2 to |
Exhibit No. | Exhibit | Method of Filing | ||
10.20 |
Development and License Agreement, dated | Incorporated by reference to Exhibit | ||
10.21 |
First Amendment to Development and License Agreement, dated | Incorporated by reference to Exhibit | ||
10.22 |
Letter Agreement, dated | Incorporated by reference to Exhibit | ||
10.23 | Third Amendment to Development and License Agreement, effective October 18, 2012, by and between Teva Pharmaceuticals USA, Inc. and BioSante Pharmaceuticals, Inc. | Incorporated by reference to Exhibit 10.5 to ANI's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2012 (File No. 001-31812) | ||
10.24 | Department of Veterans Affairs Federal Supply Schedule Contract Award to ANIP Acquisition Company, d/b/a ANI Pharmaceuticals, Inc., effective July 15, 2012, and Product Number Change Request, dated August 22, 2012 | Incorporated by reference to Exhibit 10.54 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December | ||
10.25 |
Sublicense Agreement, dated as of | Incorporated by reference to Exhibit |
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10.26 |
Supplier Agreement Multisource and Onestop Generics Program, dated as of | Incorporated by reference to Exhibit | ||
10.27 |
Master Product Development and Collaboration Agreement, dated as of | Incorporated by reference to Exhibit | ||
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10.28 |
Amended and Restated Manufacturing and Supply Agreement, dated | Incorporated by reference to Exhibit |
Exhibit No. | Exhibit | Method of Filing | ||
10.29 |
Generic Wholesale Service Agreement, dated as of May 1, 2006, between ANI Pharmaceuticals, Inc. and Cardinal Health, First Amendment to Generic Wholesale Service Agreement, dated as of July 10, 2008, Letter Agreement, dated as of July 10, 2008, regarding assignment of the Generic Wholesale Service Agreement to ANIP Acquisition Company, d/b/a ANI Pharmaceuticals, Inc., Letter from Cardinal Health, dated December 22, 2008 Regarding Increase in Base Service Fee, and Second Amendment to Generic Wholesale Service Agreement, dated May 7, 2012 (3) | Incorporated by reference to Exhibit 10.59 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.30 | Development, Manufacturing and Supply Agreement, dated as of February 5, 2009, by and between ANI Pharmaceuticals, Inc. and County Line Pharmaceuticals, LLC, and Addendum to Development, Manufacturing and Supply Agreement, dated as of June | Incorporated by reference to Exhibit 10.60 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.31 | Manufacturing Transfer and Supply Agreement, dated March 31, 2010, by and between | Incorporated by reference to Exhibit 10.61 to ANI's Registration Statement on Form S-4 as filed with the | ||
10.32* | Employment Letter Agreement, dated February 25, 2009, by and between ANIP Acquisition Company, d/b/a ANI Pharmaceuticals, Inc., and Arthur S. Przybyl | Incorporated by reference to Exhibit 10.62 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.33* | Employment Letter Agreement, dated May 6, 2009, by and between ANIP Acquisition Company, d/b/a ANI Pharmaceuticals, Inc., and Charlotte C. Arnold | Incorporated by reference to Exhibit 10.63 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.34* | Employment Agreement, dated as of May 1, 2007, by and between ANIP Acquisition Company and James Marken | Incorporated by reference to Exhibit 10.64 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.35* | Transaction Bonus Agreement, dated September 22, 2012, by and between ANIP Acquisition Company and Arthur Przybyl | Incorporated by reference to Exhibit 10.65 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.36* | Transaction Bonus Agreement, dated September 22, 2012, by and between ANIP Acquisition Company and Charlotte Arnold | Incorporated by reference to Exhibit 10.66 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) |
Exhibit No. | Exhibit | Method of Filing | ||
10.37* | Transaction Bonus Agreement, dated September 22, 2012, by and between ANIP Acquisition Company and James Marken | Incorporated by reference to Exhibit 10.67 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.38* | Transaction Bonus Agreement, dated September 22, 2012, by and between ANIP Acquisition Company and Robert Jamnick | Incorporated by reference to Exhibit 10.68 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.39 | Letter Agreement regarding fee payment, dated as of October 3, 2012, by and between ANIP Acquisition Company and MVP Management Company | Incorporated by reference to Exhibit 10.69 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.40 | Letter Agreement regarding fee payment, dated as of October 3, 2012, by and between ANIP Acquisition Company and Healthcare Value Capital LLC | Incorporated by reference to Exhibit 10.70 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.41 | Loan and Security Agreement, dated June | Incorporated by reference to Exhibit 10.71 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.42 | Note Purchase Agreement, dated as of January 28, 2011, between ANIP Acquisition Company, Meridian Venture Partners II, L.P. and the other parties thereto | Incorporated by reference to Exhibit 10.72 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on December 11, 2012 (File No. 333-185391) | ||
10.43* | Amendment No. 1 to Transaction Bonus Agreement, dated December 28, 2012, by and between ANIP Acquisition Company and Arthur S. Przybyl | Incorporated by reference to Exhibit 10.73 to ANI's Amendment No. 1 to Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on January 18, 2013 (File No. 333-185391) | ||
10.44* | Amendment No. 1 to Transaction Bonus Agreement, dated December 28, 2012, by and between ANIP Acquisition Company and Charlotte Arnold | Incorporated by reference to Exhibit 10.74 to ANI's Amendment No. 1 to Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on January 18, 2013 (File No. 333-185391) | ||
10.45* | Amendment No. 2 to Transaction Bonus Agreement, dated April 12, 2013, by and between ANIP Acquisition Company and Arthur Przybyl | Incorporated by reference to Exhibit 10.81 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on April 26, 2013 (File No. 333-188174) |
Exhibit No. | Exhibit | Method of Filing | ||
10.46* | Amendment No. 2 to Transaction Bonus Agreement, dated April 12, 2013, by and between ANIP Acquisition Company and Charlotte Arnold | Incorporated by reference to Exhibit 10.82 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on April 26, 2013 (File No. 333-188174) | ||
10.47* | Amendment No. 1 to Transaction Bonus Agreement, dated April 12, 2013, by and between ANIP Acquisition Company and James Marken | Incorporated by reference to Exhibit 10.83 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on April 26, 2013 (File No. 333-188174) | ||
10.48* | Amendment No. 1 to Transaction Bonus Agreement, dated April 12, 2013, by and between ANIP Acquisition Company and Robert Jamnick | Incorporated by reference to Exhibit 10.84 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on April 26, 2013 (File No. 333-188174) | ||
10.49 | First Amendment to Loan and Security Agreement, dated as of April 11, 2013, between Alostar Bank of Commerce and ANIP Acquisition Company | Incorporated by reference to Exhibit 10.85 to ANI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on April 26, 2013 (File No. 333-188174) | ||
10.50* | Amendment No. 3 to Transaction Bonus Agreement, dated as of June 18, 2013, by and between ANIP Acquisition Company and Arthur S. Przybyl | Incorporated by reference to Exhibit 10.1 to | ||
10.51* |
Amendment No. 3 to Transaction Bonus Agreement, dated | Incorporated by reference to Exhibit |
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10.52* | Employment Letter Agreement, dated July 11, 2013, by | Filed herewith | ||
16.1 | Letter from Deloitte & Touche LLP, dated June 20, 2013, regarding change in | Incorporated by reference to Exhibit | ||
21 |
List of |
Filed herewith | ||
23.1 | Consent of | Filed herewith | ||
31.1 | Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14 | Filed herewith | ||
31.2 | Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14 | Filed herewith | ||
32.1 | Certification of Chief Executive Officer |
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| Furnished herewith |
(1)All exhibits and schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. BioSante will furnish the omitted exhibits and schedules to the Securities and Exchange Commission upon request by the Securities and Exchange Commission.
(2)Confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, has been sought with respect to designated portions of this document.
(3)Confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, has been granted with respect to designated portions of this document.
Exhibit No. | Exhibit | Method of Filing | |||
101** | The following materials from ANI Pharmaceuticals, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the audited consolidated Balance Sheets, (ii) the audited consolidated Statements of Operations, (iii) the audited consolidated Statements of Stockholders’ Equity; (iv) the audited consolidated Statements of Cash Flows, and (v) Notes to consolidated Financial Statements. | Furnished herewith | |||
(1) | All exhibits to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. ANI will furnish the omitted exhibits to the SEC upon request by the SEC. |
(2) | Confidential treatment has been requested with respect to redacted portions of this document. |
(3) | Confidential treatment has been granted with respect to redacted portions of this document. |
* | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10 K pursuant to Item 15(a). |
** | Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this annual report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under Section 11 or 12 of the Securities Act of 1933, as amended, or otherwise subject to the liability of those sections, except as shall be expressly set forth by specific reference in such filings. |