PART I – FINANCIAL INFORMATION

Item 1:

Condensed Consolidated Financial Statements

BioSpecifics Technologies Corp.

Condensed Consolidated Balance Sheets

	September 30, 2018⁽¹⁾			December 31, 2017			March 31, 2019			December 31, 2018
	(unaudited)			(audited)			(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	13,381,013		$	7,333,810		$	17,597,430		$	13,176,452
Short term investments		58,429,211			51,973,971			66,899,660			67,707,143
Accounts receivable		14,455,354			4,655,105			16,476,790			16,518,687
Deferred royalty buy-down		601,660			1,794,126			-			184,931
Prepaid expenses and other current assets		801,956			623,503			604,392			646,749
Total current assets		87,669,194			66,380,515			101,578,272			98,233,962

Long-term investments		5,168,322			5,745,974			3,635,115			1,099,834
Deferred royalty buy-down – long term, net		-			732,206
Deferred tax assets, net		275,526			1,739,706			313,768			313,768
Patent costs, net		439,892			397,993			425,678			444,478

Total assets	$	93,552,934		$	74,996,394		$	105,952,833		$	100,092,042

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	1,116,463		$	933,998		$	1,944,663			1,798,588
Income tax payable		694,050			68,733			1,802,847			704,934
Deferred revenue		-			1,057,979
Accrued liabilities of discontinued operations		-			78,138
Total current liabilities		1,810,513			2,138,848			3,747,510			2,503,522

Long-term deferred revenue		-			5,340,708

Commitments and Contingencies
Stockholders’ equity:
Series A Preferred stock, $.50 par value, 700,000 shares authorized; none outstanding		-			-			-			-
Common stock, $.001 par value; 10,000,000 shares authorized; 7,738,167 and 7,600,167 shares issued, 7,283,528 and 7,189,233 shares outstanding as of September 30, 2018 and December 31, 2017, respectively		7,738			7,600
Common stock, $.001 par value; 10,000,000 shares authorized; 7,740,167 and 7,738,167 shares issued, 7,277,902 and 7,275,902 shares outstanding as of March 31, 2019 and December 31, 2018, respectively								7,740			7,738
Additional paid-in capital		36,198,898			33,468,323			36,502,652			36,302,446
Retained earnings		65,993,035			41,939,115			76,593,314			72,176,719
Treasury stock, 454,639 and 410,934 shares at cost as of September 30, 2018 and December 31, 2017, respectively		(10,457,250	)		(7,898,200	)
Treasury stock, 462,265 shares at cost as of March 31, 2019 and December 31, 2018								(10,898,383	)		(10,898,383	)
Total stockholders’ equity		91,742,421			67,516,838			102,205,323			97,588,520

Total liabilities and stockholders’ equity	$	93,552,934		$	74,996,394		$	105,952,833		$	100,092,042

See accompanying notes to condensed consolidated financial statements.

⁽¹⁾As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective adoption method, and as a result, there is a lack of comparability of certain amounts to the prior periods presented. See Note 3-~~Summary of Significant Accounting Policies~~ ~~for additional discussion.~~

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BioSpecifics Technologies Corp.

Condensed Consolidated Income Statements

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018⁽¹⁾			2017			2018⁽¹⁾			2017			2019			2018
Revenues:
Royalties	$	8,168,081		$	6,511,700		$	23,068,585		$	20,729,017		$	8,129,141		$	7,085,000
Licensing revenues		-			4,408			39,679			13,226			-			4,409
Total Revenues		8,168,081			6,516,108			23,108,264			20,742,243			8,129,141			7,089,409

Costs and expenses:
Research and development		162,625			356,847			569,648			949,359			149,536			195,227
General and administrative		2,232,077			2,175,501			6,345,662			6,916,501			2,907,160			2,069,633
Total Cost and Expenses		2,394,702			2,532,348			6,915,310			7,865,860
Total Costs and Expenses														3,056,696			2,264,860

Operating income		5,773,379			3,983,760			16,192,954			12,876,383			5,072,445			4,824,549

Other income:
Interest income		359,637			193,462			851,334			436,210			449,425			217,951
Other income		-			14,667			96,663			40,651			-			14,678
		359,637			208,129			947,997			476,861			449,425			232,629

Income before income tax expense		6,133,016			4,191,889			17,140,951			13,353,244			5,521,870			5,057,178
Provision for income tax expense		(1,089,966	)		(1,477,057	)		(3,271,366	)		(4,669,569	)		(1,105,275	)		(1,078,574	)

Net income	$	5,043,050		$	2,714,832		$	13,869,585		$	8,683,675		$	4,416,595		$	3,978,604


Basic net income per share	$	0.69		$	0.38		$	1.92		$	1.21		$	0.61		$	0.55
Diluted net income per share	$	0.69		$	0.37		$	1.89		$	1.19		$	0.60		$	0.54

Shares used in computation of basic net income per share		7,281,388			7,164,934			7,230,106			7,166,470			7,276,885			7,192,900
Shares used in computation of diluted net income per share		7,356,885			7,314,609			7,327,029			7,325,602			7,338,128			7,303,336

See accompanying notes to condensed consolidated financial statements.

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BioSpecifics Technologies Corp.

Condensed ~~Consolidated~~consolidated Statements of ~~Cash Flows~~Stockholders' Equity

~~(unaudited)~~

Nine Months Ended
September 30,

Cash flows from operating activities:
2018⁽¹⁾
2017
Net income $ 13,869,585 $ 8,683,675
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization 1,984,577 1,632,823
Stock-based compensation expense 159,883 100,428
Deferred tax expense 128,418 298,121
Extinguishment of accrued liabilities (78,138 ) -
Changes in operating assets and liabilities:
Accounts receivable (2,245,522 ) (871,093 )
Income tax receivable (774,624 ) 437,781
Prepaid expenses and other current assets (178,453 ) (48,719 )
Patent costs (95,399 ) -
Accounts payable and accrued expenses (356,548 ) 46,626
Deferred revenue (139,680 ) (907,776 )
Net cash provided by operating activities 12,274,099 9,371,866

Cash flows from investing activities:
Maturity of marketable investments 58,380,000 43,579,082
Purchases of marketable investments (64,618,676 ) (50,933,705 )
Net cash used in investing activities (6,238,676 ) (7,354,623 )

Cash flows from financing activities:
Proceeds from stock option exercises 2,570,830 258,250
Payments for repurchase of common stock (2,559,050 ) (616,499 )
Net cash provided by (used in) financing activities 11,780 (358,249 )

Increase in cash and cash equivalents 6,047,203 1,658,994
Cash and cash equivalents at beginning of year 7,333,810 4,763,364
Cash and cash equivalents at end of period $ 13,381,013 $ 6,422,358

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - -
Taxes $ 3,917,572 $ 4,410,000

	Common Stock Shares Amount				Additional Paid in Capital		Retained Earnings		Treasury Stock			Stockholders’ Equity Total
Balances - December 31, 2017		7,600,167	$	7,600	$	33,468,323	$	41,939,115	$	(7,898,200	)	$	67,516,838
Adjustment due to adoption of ASC606		-		-		-		10,184,335		-			10,184,335
Issuance of common stock upon stock option exercise		10,000		10		132,390		-		-			132,400
Stock compensation expense		-		-		32,512		-		-			32,512
Net income		-		-		-		3,978,604		-			3,978,604
Balances – March 31, 2018		7,610,167	$	7,610	$	33,633,225	$	56,102,054	$	(7,898,200	)	$	81,844,689

	Common Stock Shares Amount				Additional Paid in Capital		Retained Earnings		Treasury Stock			Stockholders’ Equity Total
Balances - December 31, 2018		7,738,167	$	7,738	$	36,302,446	$	72,176,719	$	(10,898,383	)	$	97,588,520
Issuance of common stock upon stock option exercise		2,000		2		58,418		-		-			58,420
Stock compensation expense		-		-		141,788		-		-			141,788
Net income		-		-		-		4,416,595		-			4,416,595
Balances – March 31, 2019		7,740,167	$	7,740	$	36,502,652	$	76,593,314	$	(10,898,383	)	$	102,205,323

See accompanying notes to condensed consolidated financial statements.

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BioSpecifics Technologies Corp.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Three Months Ended March 31,
Cash flows from operating activities:	2019			2018
Net income	$	4,416,595		$	3,978,604
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization		153,261			699,703
Stock-based compensation expense		141,788			32,512
Changes in operating assets and liabilities:
Accounts receivable		41,897			(6,955,839	)
Income tax payable		1,097,913			1,067,002
Prepaid expenses and other current assets		42,359			42,582
Patent costs		-			(44,598	)
Accounts payable and accrued expenses		146,073			308,152
Deferred revenue		-			(4,409	)
Net cash provided by (used in) operating activities		6,039,886			(876,291	)

Cash flows from investing activities:
Maturity of marketable investments		20,152,229			20,287,000
Purchases of marketable investments		(21,829,557	)		(14,318,018	)
Net cash (used in) provided by investing activities		(1,677,328	)		5,968,982

Cash flows from financing activities:
Proceeds from stock option exercises		58,420			132,400
Net cash provided by financing activities		58,420			132,400

Increase in cash and cash equivalents		4,420,978			5,225,091
Cash and cash equivalents at beginning of year		13,176,452			7,333,810
Cash and cash equivalents at end of period	$	17,597,430		$	12,558,901

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		-			-
Taxes	$	7,362			-

See accompanying notes to condensed consolidated financial statements.

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BIOSPECIFICS TECHNOLOGIES CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2018~~March 31, 2019

(Unaudited)

1.	~~RESTATEMENT OF PREVIOUSLY REPORTED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

In our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed with the Securities and Exchange Commission on August 9, 2018, we underestimated the amount of royalty revenue from Endo by approximately $750,000 because we did not have sufficient controls in place and Endo’s sales materially exceeded our estimates based on available historical data for the relevant period. Consequently, we have corrected that amount for the relevant period in this Quarterly Report on Form 10-Q. We have requested that Endo provide this interim data consistently going forward and, they have provided it to us for this quarter ~~ended September 30, 2018. As we continue to refine our estimation process and controls around that process, we will need this data to make reasonable estimates.~~

~~The “As Reported” amounts in the tables below represent the amounts reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.~~

~~The nature of the restatement adjustments and the impact of the adjustments to June 30, 2018 are shown in the following tables:~~

June 30, 2018
Condensed Consolidated Balance Sheet

As Reported Adjustments Restated
Assets
Accounts Receivable $ 12,893,893 $ 754,365 $ 13,648,258
Total Current Assets 81,402,261 754,365 82,156,626
Total Assets 89,330,315 754,365 90,084,680

Liabilities
AP and Accrued Liabilities 1,591,707 58,740 1,650,447
Income Tax Payable 801,800 148,361 950,161
Total Current Liabilities 2,393,507 207,101 2,600,608

Stockholders' Equity
Retained Earnings 60,402,721 547,264 60,949,985
Total Stockholders' Equity 86,936,808 547,264 87,484,072
Total Liabilities and Stockholders' Equity $ 89,330,315 $ 754,365 $ 90,084,680

Condensed Consolidated Income Statements
Three months ended June 30, 2018 Six months ended June 30, 2018

As
Reported
Adjustments Restated
As
Reported
Adjustments Restated
Revenues
Royalties $ 7,061,139 $ 754,365 $ 7,815,504 $ 14,146,139 $ 754,365 $ 14,900,504
Total Revenues 7,096,409 754,365 7,850,774 14,185,818 754,365 14,940,183

Cost and expenses
General and administrative 1,985,212 58,740 2,043,952 4,054,845 58,740 4,113,585
Total cost and expenses 2,197,008 58,740 2,255,748 4,461,868 58,740 4,520,608

Operating income 4,899,401 695,625 5,595,026 9,723,950 695,625 10,419,575

Income before income tax expense 5,255,132 695,625 5,950,757 10,312,310 695,625 11,007,935
Provision for income tax expense (954,465 ) (148,361 ) (1,102,826 ) (2,033,039 ) (148,361 ) (2,181,400 )
Net income $ 4,300,667 $ 547,264 $ 4,847,931 $ 8,279,271 $ 547,264 $ 8,826,535

Basic net income per share $ 0.60 $ 0.67 $ 1.15 $ 1.23
Diluted net income per share $ 0.59 $ 0.66 $ 1.13 $ 1.21

~~Table of Contents~~

Condensed Consolidated Statement of Cash Flow
Six months ended June 30, 2018

As Reported Adjustments Restated
Cash Flows from Operating Activities
Net Income $ 8,279,271 $ 547,264 $ 8,826,535
Changes in Operating Assets and Liabilities:
Accounts Receivable (684,061 ) (754,365 ) (1,438,426 )
Income tax receivable (666,874 ) 148,361 (518,513 )
Accounts payable and accrued expenses 118,696 58,740 177,436

2.	1. ORGANIZATION AND DESCRIPTION OF BUSINESS

We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum (CCH) for multiple indications. We maintain intellectual property with respect to injectable CCH that treats, among other indications, Dupuytren’s contracture (DC), Peyronie’s disease (PD), frozen shoulder syndrome, and removal of adipose tissue. Injectable CCH currently ~~have a development~~is approved and marketed in the U.S. under the trademark XIAFLEX^® for the treatment of both DC and PD. XIAFLEX® also is commercialized in Japan, Europe (where it is marketed as Xiapex®), Canada, and Australia for DC, and for PD in Canada, Europe and Australia. We generate revenue primarily from our license agreement with Endo, ~~Global Ventures, a Bermuda unlimited liability company (~~“~~Endo Global Ventures~~”~~), an affiliate~~under which we receive license, sublicense income, royalties, milestones and mark-up on cost of ~~Endo International plc (~~“~~Endo~~”~~), for injectable collagenase for marketed indications~~goods sold payments related to the sale, regulatory submissions and ~~indications in development. Endo assumed this agreement when Endo acquired~~approval of XIAFLEX®.

On August 31, 2011, we entered into the Second Amended and Restated Development and License Agreement (as amended, the “License Agreement”) with Auxilium Pharmaceuticals, Inc. (“~~Auxilium~~”(“Auxilium”) ~~on January 29, 2015 (the~~ “~~Acquisition~~”), an entity that was acquired by Endo in 2015. The License Agreement originally was entered into in June 2004 to obtain exclusive worldwide rights to develop, market, and sell certain products containing our enzyme CCH, which Endo markets for approved indications under the trademark XIAFLEX®. ~~Injectable collagenase clostridium histolyticum is marketed~~Endo’s licensed rights concern the development and commercialization of products, other than dermal formulations labeled for topical administration. Currently, Endo’s licensed rights cover the indications of DC, Dupuytren’s nodules, PD, frozen shoulder, cellulite, canine and human lipomas, plantar fibromatosis, lateral hip fat, and other potential aesthetic indications. We and Endo may further expand the License Agreement to cover other indications as ~~XIAFLEX~~® ~~(or Xiapex~~® ~~in Europe).~~they are developed.

Pursuant to the License Agreement, Endo currently is selling XIAFLEX® in the U.S. for the treatment of DC and PD and is distributing XIAFLEX® in Canada through its operating company, Paladin Labs Inc. Additionally, Endo has entered into several non-affiliated sublicensee agreements (as permitted by the License Agreement), including the following:

An agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant to which Sobi has marketing rights for Xiapex® for the treatment of DC and PD in Europe and certain Eurasian countries;

An agreement with Asahi Kasei Pharma Corporation (“Asahi”), pursuant to which Asahi has the right to commercialize XIAFLEX® for the treatment of DC and PD in Japan; and

An agreement with Actelion Pharmaceuticals Ltd. (“Actelion”), pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX® in Australia and New Zealand.

On February 1, 2016, we entered into ~~with Endo~~ the First Amendment (the “~~First Amendment~~”“First Amendment”) to the ~~Second Amended and Restated Development and Licensing Agreement (the~~ “~~Auxilium Agreement~~”~~), by and between us and Auxilium, now a wholly-owned subsidiary of Endo, to amend certain provisions of the Auxilium Agreement (as amended by the First Amendment, the~~ “License ~~Agreement~~”~~). The effective date of the First Amendment was January 1, 2016.~~Agreement. Pursuant to the First Amendment, wethe Company and Endo Global Ventures mutually agreed that in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “~~Endo~~“Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016 and began recognizing this income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy in the second quarter of 2016.

Additionally, we agreed that Endo may opt-in early to indications, prior to our submission of a clinical trial report, with our consent, such consent not to be unreasonably withheld. For early opt-ins, Endo will be required to make an opt-in payment of $0.5 million on a per indication basis. For regular opt-ins, following our submission of a clinical trial report, Endo will be required to make an opt-in payment of $0.75 million on a per indication basis. Endo has opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma.

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On February 26, 2019, we and Endo entered into the Second Amendment to Second Amended and Restated Development and License Agreement (the “Second Amendment”) to amend certain provisions of the License Agreement. The Second Amendment has an effective date of January 1, 2019. Pursuant to the terms of the Second Amendment, we have consented to the assignment of the License Agreement by Endo Global Ventures to Endo Global Aesthetics Limited, an Irish private company and an affiliate of Endo Global Ventures that is indirectly wholly-owned by Endo. In addition, the Second Amendment amends certain provisions of the License Agreement to require Endo to provide timely estimates of royalties to assist us in complying with our financial reporting obligations.

The two marketed indications involving our injectable collagenase are ~~Dupuytren~~’~~s contracture~~DC and ~~Peyronie~~’~~s disease. Prior to the Acquisition, Auxilium had, and after the Acquisition,~~PD. Endo has opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of ~~XIAFLEX~~XIAFLEX® for uterine fibroids and initiate the development of ~~XIAFLEX~~XIAFLEX® in new potential indications, not licensed by Endo.

~~On November 8, 2016, following a change in~~ Endo management, Endo announced that a commercial review is ongoing of the XIAFLEX exercised but non-marketed indications, including frozen shoulder, cellulite, lateral hip fat, plantar fibromatosis and human lipoma, so that Endo can best prioritize its R&D efforts and determine clinical trial timelines moving forward. ~~On February 6, 2018, Endo initiated~~presented positive results from two ~~identical~~ Phase 3 ~~RELEASE clinical trials~~studies, RELEASE-1 and RELEASE-2, of ~~XIAFLEX~~CCH for the treatment of cellulite. ~~On November 7, 2018, Endo released positive results from the multicenter, randomized, double-blind, placebo-controlled RELEASE studies, which evaluated the safety and efficacy~~Subjects receiving CCH showed highly statistically significant levels of ~~XIAFLEX~~improvement in ~~reducing~~ the appearance of ~~cellulite.~~ (~~For more~~cellulite with treatment, as measured by the trial's primary endpoint (RELEASE-1, p=0.006 & RELEASE-2, p=0.002), which was at least a ~~more detailed discussion~~2-level composite improvement in cellulite severity at Day 71 as compared to subjects receiving placebo. Statistically significant improvements with CCH versus placebo were observed for 8 of ~~the results see~~ ~~Note~~8 (RELEASE-1) and 7 – ~~Subsequent Events.~~)

~~Table~~ of ~~Contents~~

8 (RELEASE-2) secondary endpoints, in addition to patient-centric endpoints. These data were presented at 2019 American Academy of Dermatology Annual Meeting on March 2, 2019. Endo ~~is currently selling XIAFLEX in~~expects to file its Biologics License Application (BLA) with the U.S. Food and Drug Administration (FDA) for CCH for the treatment of ~~Dupuytren~~’~~s contracture and Peyronie~~’~~s disease and has~~cellulite in the second half of 2019 with an ~~agreement with Swedish Orphan Biovitrum AB (~~“~~Sobi~~”~~), pursuant to which Sobi has marketing rights for Xiapex for Dupuytren~~’~~s contracture and Peyronie~~’~~s disease~~expected commercial launch in ~~Europe and certain Eurasian countries. Sobi is currently selling Xiapex in Europe and certain Eurasian countries~~the second half of 2020 upon approval.

Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Our accounts receivable balance is typically due from Endo, our one large specialty pharmaceutical customer. Endo has historically paid timely and has been a financially stable organization. Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal and therefore no allowance is recorded. If the financial condition of our customer were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required. We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~ 2018 our accounts receivable balance was ~~$14.5~~$16.5 million ~~and $4.7 million, respectively,~~at the end of each period, and was from one customer, Endo. ~~With the adoption of ASC 606 as of January 1, 2018,~~ ~~using the modified-retrospective adoption method~~, we recorded an adjustment to our accounts receivable balance of $7.6 million related to royalties associated with the net sales of XIAFLEX that occurred during the fourth quarter of 2017 thereby eliminating the one quarter lag. (~~For more a more detailed discussion regarding ASC 606 see~~ ~~Note 3~~- ~~Summary of Significant Accounting Policies – Recent Accounting Pronouncements~~ - ~~Accounting Pronouncements Adopted.~~)

~~Deferred Revenue~~

With the adoption of ASC 606 using the modified retrospective adoption method as of January 1, 2018, the remaining deferred revenue balance associated with the mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S. as of December 31, 2017 of $6.3 million ~~was recorded as an adjustment to our retained earnings. Additionally,~~ ~~approximately $35,000 related to nonrefundable upfront product license fees for product candidates for which we have no remaining~~ ~~performance obligations~~ was recognized during the second quarter of 2018. Finally, during the second quarter of 2018 we determined that the $100,000 related to a milestone payment withheld by Endo due to a foreign tax withholding was uncollectable and have reduced this amount to zero. As of September 30, 2018 and December 31, 2017, deferred revenue was zero and $6.4 million, respectively. (~~For more a more detailed discussion regarding ASC 606 see~~ ~~Note 3~~- ~~Summary of Significant Accounting Policies – Recent Accounting Pronouncements~~ - ~~Accounting Pronouncements Adopted.~~)

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Reimbursable Third-Party Patent Costs

We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and maintenance and expense others. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, our net reimbursable third party patent expense was $40,000 ~~and zero, respectively.~~at the end of each period.

Third-Party Royalties

We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC. No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are generally expensed under general and administrative in the quarter that the net sales have occurred. For the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~third-party royalty expenses were $0.6 million and $1.7 million, respectively. For the three and nine month periods ended September 30, 2017,~~ third-party royalty expenses were $0.4 million and ~~$1.4~~$0.5 million, respectively. ~~With the adoption~~As of ~~ASC 606 as of January 1, 2018~~ ~~using the modified-retrospective adoption method~~, March 31, 2019, we ~~recorded an adjustment to our retained earnings for~~have no further third party royalties ~~expense of $0.5 million associated~~in connection with Peyronie’s disease as the ~~net sales of XIAFLEX that occurred during the fourth quarter of 2017 thereby eliminating the one quarter lag~~. Our third-party royalty expense under general and administrative expenses may increase if net sales by Endo and its partners for XIAFLEX and Xiapex increase and potential new indications for XIAFLEX and Xiapex are approved, marketed and sold. (~~For more a more detailed discussion regarding ASC 606 see~~ ~~Note 3~~- ~~Summary of Significant Accounting Policies – Recent Accounting Pronouncements~~ - ~~Accounting Pronouncements Adopted.~~)agreement has expired.

Royalty Buy-Down

On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with ~~Peyronie’s disease.~~PD. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, all of which have been paid as of January 1, 2018. Royalty obligations terminate five years after first commercial sale, which occurred in January 2014. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of ~~XIAFLEX~~XIAFLEX® and ~~Xiapex~~Xiapex® for ~~Peyronie’s disease~~PD on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, we amortized approximately ~~$0.6~~$0.2 million and ~~$1.6~~$0.5 million related to this agreement and ~~$0.4 million~~is recorded as part of general and ~~$1.1 million for the three and nine months ended September 30, 2017. With the adoption of ASC 606 as of January 1, 2018~~ ~~using the modified-retrospective adoption method~~, we recorded an adjustment to our capitalized balance of $0.4 million related to royalties associated with the net sales of XIAFLEX that occurred during the fourth quarter of 2017 thereby eliminating the one quarter lag.administrative expenses. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the remaining capitalized balances were ~~approximately $0.6~~zero and $0.2 million, ~~and $2.5 million,~~ respectively. We perform an evaluation of the recoverability of the carrying value to determine if facts and circumstances indicate that the carrying value of the assets may be impaired and if any adjustment is warranted. As of September 30, 2018, there was no indicator that an impairment existed. (~~For more a more detailed discussion regarding ASC 606 see~~ ~~Note 3~~- ~~Summary of Significant Accounting Policies – Recent Accounting Pronouncements~~ - ~~Accounting Pronouncements Adopted.~~)

Research and Development Expenses

R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time.

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Clinical Trial Expenses

Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research consultants. In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratably beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred.

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Stock-Based Compensation

The Company currently has one stock-based compensation plan in effect. ASC 718, Compensation - Stock Compensation (“ASC 718”), requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock options including stock options and common stock issued to our employees and directors under our stock plans. ASC 718 requires companies to estimate the fair value of stock option awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our condensed consolidated statements of operations.

Under ASC 718, we estimate the fair value of our employee stock option awards at the date of grant using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected volatility of the market price of our stock and the expected term of an award. When establishing an estimate of the expected term of an option award, we consider the vesting period for the award, our recent historical experience of employee stock option exercises (including forfeitures) and the expected volatility of our common stock. As required under the accounting rules, we review our estimates at each grant date and, as a result, the valuation assumptions that we use to value employee stock-based awards granted in future periods may change. For the ~~nine~~three months ended ~~September 30, 2018, we granted a total of 31,500~~March 31, 2019, there were no stock options ~~with a weighted average grant date fair value of $18.00 per share.~~

~~The assumptions used in the valuation of stock options granted during the nine months ended September 30, 2018 were as follows:~~granted.

Nine Months Ended
September 30, 2018

Risk-free interest rate 2.62% to 2.81%
Expected term of option 6.25 years
Expected stock price volatility 39.6% to 39.7%
Expected dividend yield $ 0.0

Further, ASC 718 requires that employee stock-based compensation costs be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the current period.

Stock-based compensation expense recognized in general and administrative expenses was approximately ~~$64,000~~$142,000 and ~~$160,000~~$33,000 for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and approximately $33,000 and $100,000 for the three and nine months ended September 30, 2017,~~ respectively.

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Stock Option Activity

A summary of our stock option activity during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 is presented below:

Shares
Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

Outstanding at December 31, 2017 232,000 $ 21.56 2.52 $ 5,050,990
Grants 31,500 41.79 - -
Exercised (138,000 ) 18.63 - 3,720,149
Forfeitures or expirations - - - -
Outstanding at September 30, 2018 125,500 $ 29.86 5.16 $ 3,593,430
Exercisable at September 30, 2018 86,500 $ 24.84 3.47 $ 2,910,945

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2018		175,500		$	37.73		6.33	$	4,014,235
Grants		-			-		-		-
Exercised		(2,000	)		29.21		-		66,240
Outstanding at March 31, 2019		173,500		$	37.83		6.14	$	4,251,610
Exercisable at March 31, 2019		92,000		$	26.13		3.51	$	3,330,690

During the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company received approximately ~~$2.6 million~~$58,000 and ~~$258,000,~~$132,000, respectively, from stock options exercised by option holders.

Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of ~~$58.49~~$62.33 on ~~September 28, 2018,~~March 31, 2019, which would have been received by the option holders had all option holders exercised their options as of that date. We have approximately ~~$548,000~~$1.6 million in unrecognized compensation cost related to stock options outstanding as of ~~September 30, 2018,~~March 31, 2019, which we expect to recognize over the next ~~3.17~~3.39 years.

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Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At each of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, property and equipment were fully depreciated.

Comprehensive Income

For each of the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ we had no components of other comprehensive income other than net income itself.

Provision for Income Taxes

Deferred tax assets and liabilities are recognized based on the expected future tax consequences, using current tax rates, of temporary differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We use the asset and liability method of accounting for income taxes, as set forth in ASC 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future ~~periods.~~ ~~In accordance with~~ ~~ASC~~ ~~740-10-45-25,~~ ~~Income Statement Classification~~periods when the differences are expected to reverse. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of ~~Interest and Penalties, we classify interest associated with income taxes under interest expense and~~the deferred tax ~~penalties under other.~~assets will not be realized.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company has not recorded any unrecognized tax benefits. We classify interest associated with income taxes under interest expense and tax penalties under other.

Commitments and Contingencies

On ~~September~~August 14, 2018, the Company entered into an agreement with ~~the Landlord, dated August 14, 2018,~~35 Wilbur Street Associates, LLC (the “Landlord”) to extend the term of the lease to ~~the Headquarters~~our corporate headquarters, which are currently located at 35 Wilbur St., Lynbrook, NY 11563, for an additional one year period (the “Extended Lease Agreement”). The one year extension will end on November 30, 2019. Pursuant to the Extended Lease Agreement, the base rent is $11,500 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term.

18Our rent expense amounted to approximately $34,000 and $32,000 for the three months ended March 31, 2019 and 2018, respectively.

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4.	3. NET INCOME PER SHARE

In accordance with ASC 260, Earnings Per Share, basic net income per share amount is computed using the weighted-average number of shares of common stock outstanding during the periods presented, while diluted net income per share is computed using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options using the treasury stock method.

~~The following table summarizes~~ For the ~~number~~three month periods ended March 31, 2019 and 2018, there were 61,243 and 110,436, respectively of common equivalent shares attributable to stock options that were included in the calculation of diluted net income per share. There were 50,000 and zero stock options to purchase shares excluded ~~for~~from the calculation of diluted net income per share ~~reported in~~for the ~~condensed consolidated statement of operations.~~periods ended March 31, 2019 and 2018, respectively, because their effects are anti-dilutive.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018 2017 2018 2017
Stock options - 20,000 - 20,000

~~For the three and nine months ended September 30, 2017, the Company had 20,000 options, which have an exercise price~~

Table of $29.21, and would have vested upon the achievement of certain performance criteria, which were not met. These options would have expired on December 2, 2019. On October 25, 2017, these 20,000 options were cancelled due to a change in status of a certain consultant.Contents

5.	4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Trade accounts payable	$	122,485	$	152,542	$	60,125	$	122,199
Accrued legal and other professional fees		200,116		150,691		843,117		308,725
Accrued payroll and related costs		183,435		215,322		427,705		173,123
Third party royalties		589,274		329,211		379,000		1,168,837
Other accruals		21,153		86,232		234,716		25,704
Total	$	1,116,463	$	933,998	$	1,944,663	$	1,798,588

6.	5. PATENT COSTS

We amortize intangible assets with definite lives on a straight-line basis over their ~~remaining~~ estimated useful lives, ranging from two to ten years, and review for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We analyze our intangible assets, specifically, capitalized patent costs, on an annual basis for any indicator that an impairment exists. As of March 31, 2019 and December 31, 2018, no impairment existed and no adjustments were warranted.

~~For the nine months ended September 30, 2018, we increased~~There were no additions to our capitalized patent costs ~~based on reports provided to us by Endo.~~during the three months ended March 31, 2019 and 2018. Patent costs may be creditable against future royalty revenues. For each period presented below, net patent costs consisted of:

	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Patents		1,020,416		$	925,016		$	1,046,216		$	1,046,216
Accumulated amortization		(580,524	)		(527,023	)		(620,538	)		(601,738	)
	$	439,892		$	397,993		$	425,678		$	444,478

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The amortization expense for patents for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 was approximately $19,000 and ~~$54,000, respectively and for the three and nine months ended September 30, 2017 was approximately $10,000 and $31,000,~~$17,000, respectively. The estimated aggregate amortization expense for the remaining ~~three~~nine months of ~~2018~~2019 and each of the years below is approximately as follows:

October 1, 2018 - December 31, 2018	$	19,400
2019		72,700
April 1, 2019 – December 31, 2019			$	56,400
2020		55,800		58,300
2021		38,900		41,500
2022		38,900		41,400
2023				41,500
Thereafter		214,200		186,600

7.	6. PROVISION FOR INCOME TAXES

Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options and other items. The provision for income taxes is based on an estimated effective tax rate derived from our consolidated earnings before taxes, adjusted for nondeductible expenses and other permanent differences for the fiscal year. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, the provision for income taxes was $1.1 million ~~and $3.3 million, respectively.~~in both periods. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, our remaining deferred tax assets were approximately $0.3 million ~~and $1.7 million, respectively.~~

~~For~~at the ~~three and nine months ended September 30, 2017, the provision for income taxes was $1.5 million and $4.7 million, respectively.~~end of each period.

The estimated effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 was ~~18.1%~~20.0% and ~~19.1%~~21.3%, respectively, of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2019 and 2018 plus the effects, if any, of certain discrete items occurring in ~~2018. Our effective tax rate for the nine months ended September 30, 2018 was impacted primarily by the Tax Cuts~~2019 and ~~Jobs Act of 2017, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in~~ 2018. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs. The effective tax rate for the nine months ended September 30, 2017 was 35% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2017 plus the effects of certain material discrete items that occurred in 2017.

Table of September 30, 2018, the Company has no unrecognized tax benefits or related interest and penalties. Management does not believe that there is any tax position which it is reasonably possible that will result in unrecognized tax benefit within the next 12 months.

7.	~~SUBSEQUENT EVENTS~~

~~On November 7, 2018, Endo announced positive results from two identical Phase 3~~ R~~andomized~~ EvaL~~uation of C~~E~~llulite Reduction by Coll~~A~~gena~~SE Clostridium Histolyticum (“RELEASE”) studies of CCH for the treatment of cellulite in the buttocks. Subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial's primary endpoint (RELEASE-1, p=0.006 & RELEASE-2, p=0.002), which was at least a 2-level composite improvement in cellulite severity in the target buttock at Day 71 as compared to subjects receiving placebo. In addition, RELEASE-1 passed 8 out of 8 key secondary endpoints and RELEASE-2 passed 7 out of 8 key secondary endpoints. CCH was well-tolerated in the actively-treated subjects with most adverse events (AEs) being mild to moderate in severity and primarily limited to the local injection area.Contents

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Report and is qualified by reference to them.

Overview

We are a biopharmaceutical company involved in the development of an injectable ~~collagenase clostridium histolyticum~~ ~~(CCH)~~ CCH for multiple indications. We maintain intellectual property with respect to injectable CCH that treats, among other indications, Dupuytren’s contracture (DC), Peyronie’s disease (PD), frozen shoulder syndrome, and removal of adipose tissue. Injectable CCH currently ~~have a development~~is approved and marketed in the U.S. under the trademark XIAFLEX^® for the treatment of both DC and PD. XIAFLEX® also is commercialized in Japan, Europe (where it is marketed as Xiapex®), Canada, and Australia for DC, and for PD in Canada, Europe and Australia. We generate revenue primarily from our license agreement with Endo, ~~Global Ventures, a Bermuda unlimited liability company (~~“~~Endo Global Ventures~~”~~), an affiliate~~under which we receive license, sublicense income, royalties, milestones and mark-up on cost of ~~Endo International plc (~~“~~Endo~~”~~), for injectable collagenase for marketed indications~~goods sold payments related to the sale, regulatory submissions and ~~indications in development. Endo assumed this agreement when Endo acquired~~approval of XIAFLEX®.

An agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant to which Sobi has marketing rights for Xiapex® for the treatment of DC and PD in Europe and certain Eurasian countries;

An agreement with Asahi Kasei Pharma Corporation (“Asahi”), pursuant to which Asahi has the right to commercialize XIAFLEX® for the treatment of DC and PD in Japan; and

An agreement with Actelion Pharmaceuticals Ltd. (“Actelion”), pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX® in Australia and New Zealand.

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The two marketed indications involving our injectable collagenase are ~~Dupuytren~~’~~s contracture~~DC and ~~Peyronie~~’~~s disease. Prior to the Acquisition, Auxilium had, and after the Acquisition,~~PD. Endo has, opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of ~~XIAFLEX~~XIAFLEX® for uterine fibroids and initiate the development of ~~XIAFLEX~~XIAFLEX® in new potential indications, not licensed by Endo.

On November 8, 2016, following a change in Endo management, Endo announced that a commercial review is ongoing of the XIAFLEX exercised but non-marketed indications, including frozen shoulder, cellulite, lateral hip fat, plantar fibromatosis and human lipoma, so that Endo can best prioritize its R&D efforts and determine clinical trial timelines moving forward. On February 6, 2018, Endo initiated two identical Phase 3 RELEASE clinical trials of XIAFLEX for the treatment of cellulite. On November 7, 2018, Endo released positive results from the multicenter, randomized, double-blind, placebo-controlled RELEASE studies, which evaluated the safety and efficacy of XIAFLEX in reducing the appearance of cellulite. (~~For more a more detailed discussion of the results see~~ ~~Note 7~~ – ~~Subsequent Events~~ ~~to the Company’s Condensed Consolidated Financial Statements~~.)

~~Endo is currently selling XIAFLEX in the U.S. for the treatment of Dupuytren~~’~~s contracture and Peyronie~~’~~s disease and has an agreement with Swedish Orphan Biovitrum AB (~~“~~Sobi~~”~~), pursuant to which Sobi has marketing rights for Xiapex for Dupuytren~~’~~s contracture and Peyronie~~’~~s disease in Europe and certain Eurasian countries. Sobi is currently selling Xiapex in Europe and certain Eurasian countries for the treatment of Dupuytren~~’~~s contracture and Peyronie~~’~~s disease. In addition, Endo has an agreement with Asahi Kasei Pharma Corporation (~~“~~Asahi~~”~~) pursuant to which Asahi has the right to commercialize XIAFLEX for the treatment of Dupuytren~~’~~s contracture and Peyronie~~’~~s disease in Japan. Asahi is selling XIAFLEX for the treatment of Dupuytren~~’~~s contracture in Japan.~~ ~~Endo is currently distributing XIAFLEX in Canada through Paladin Labs Inc.,~~ ~~an operating company of Endo~~. In December 2016, Endo entered into a new out-licensing agreement with Actelion Pharmaceuticals Ltd. (“Actelion”), pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX in Australia and New Zealand.

Operational Highlights

~~On October 31, 2018, we announced~~Endo presented positive ~~topline~~results from two Phase 3 studies, RELEASE-1 and RELEASE-2, of CCH for the treatment of cellulite. Subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial's primary endpoint (RELEASE-1, p=0.006 & RELEASE-2, p=0.002), which was at least a 2-level composite improvement in cellulite severity at Day 71 as compared to subjects receiving placebo. Statistically significant improvements with CCH versus placebo were observed for 8 of 8 (RELEASE-1) and 7 of 8 (RELEASE-2) secondary endpoints, in addition to patient-centric endpoints. These data were presented at 2019 American Academy of Dermatology Annual Meeting on March 2, 2019. Endo expects to file its Biologics License Application (BLA) with the U.S. Food and Drug Administration (FDA) for CCH for the treatment of cellulite in the second half of 2019 with an expected commercial launch in the second half of 2020 upon approval.

We presented data from ~~our~~the Phase 1 clinical trial of ~~Collagenase Clostridium Histolyticum (“CCH”)~~CCH for the treatment of uterine fibroids at the 66^th Annual Meeting of the Society of Reproductive Investigation (SRI) on March 14, 2019 in Paris, France. This presentation follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids. ~~The study met~~

On April 1, 2019, the ~~primary endpoint~~Company appointed Dr. Ronald Law to the role of safety and tolerability of a single injection of XIAFLEX directly into the uterine fibroids under transvaginal ultrasound guidance with no observed clinically significant adverse reactions. Pharmacodynamic changes were noted in all secondary endpoints, which included assessment of symptoms of pain and bleeding, quality of life throughout the study, shrinkage of XIAFLEX treated fibroids in size, increased rates of apoptosis in treated fibroids and a decrease in the collagen contentPrincipal Executive Officer of the ~~treated fibroids, with~~Company and Mr. Pat Caldwell to the ~~exception~~role of ~~apoptosis.~~Principal Financial Officer, assuming both the principal financial officer and principal accounting officer functions on an interim basis pending an executive search being conducted by the Company.

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Outlook

We generated revenue from primarily one source, the License Agreement. Under the License Agreement, we receive license, sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale, regulatory submissions and approval of ~~XIAFLEX~~XIAFLEX® as described above.

Significant Risks

We are dependent to a significant extent on third parties, and our principal licensee, Endo, may not be able to continue successfully commercializing ~~XIAFLEX~~XIAFLEX® for ~~Dupuytren’s contracture~~DC and ~~Peyronie’s disease,~~PD, successfully develop ~~XIAFLEX~~XIAFLEX® for additional indications, obtain required regulatory approvals, manufacture ~~XIAFLEX~~XIAFLEX® at an acceptable cost, in a timely manner and with appropriate quality, or successfully market products or maintain desired margins for products sold, and, as a result, we may not achieve sustained profitable operations.

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The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash. The Company maintains its investment in FDIC insured certificates of deposits with several banks, municipal bonds and corporate bonds.

For more information regarding the risks facing the Company, please see the risk factors discussed under the heading “Risk Factors” under ~~item~~Item 1A of Part 1 of our 2018 Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 14, 2018 and under Item 1A of Part 2 of our Quarterly Reports on Form 10Q for the quarter ended March 31, 2018 and June 30, 2018 filed with the SEC on May 10, 2018 and August 9, 2018, respectively.Report.

Critical Accounting Policies, Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience, interim data provided by Endo and on various other assumptions that we believe are reasonable under the circumstances. The financial information at ~~September 30, 2018~~March 31, 2019 and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the financial information set forth herein. The December 31, ~~2017~~2018 balance sheet amounts and disclosures included herein have been derived from the Company’s December 31, ~~2017~~2018 audited consolidated financial statements. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2017~~2018 included in the Company’s 2018 Annual ~~Report on Form 10-Kfiled and~~ ~~with the unaudited condensed consolidated financial statements included in our~~ ~~Quarterly Reports on Form 10-Q for the first and second quarters of 2018 filed with the SEC.~~Report. While our significant accounting policies are described in more detail in the notes to our unaudited condensed consolidated financial statements, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements. Actual results have differed in the past, and may differ in the future, from our estimates and could impact our earnings in any period during which an adjustment is made.

As described in Note 32 to our accompanying Condensed Consolidated Financial Statements, ~~with respect to changes in our revenue recognition policy related to our adoption of~~ ~~the requirements of ASC 606~~, there have been no significant changes to our critical accounting policies for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2018 Annual ~~Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2018 and June 30, 2018.~~Report.

~~As described in Note 1, in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, we underestimated the amount of royalty revenue from Endo by approximately $750,000 because~~ ~~we did not have sufficient controls in place and~~ Endo’s sales materially exceeded our estimates based on available historical data for the relevant period. Consequently, we have corrected that amount for the relevant period in this Quarterly Report on Form 10-Q. We have requested that Endo provide this interim data consistently going forward and, while they have provided it to us for this quarter ended September 30, 2018, there is no guarantee that they will do so in the future and we may need to make further corrections or adjustments in the future if there are differences between actual and estimated royalties.

Third-Party Royalties

We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC. No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are generally expensed under general and administrative in the quarter that the net sales have occurred. For the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~third-party royalty expenses were $0.7 million and $1.7 million, respectively. For the three and nine month periods ended September 30, 2017,~~ third-party royalty expenses were $0.4 million and ~~$1.4~~$0.5 million, respectively. Our third-party royalty expense under general and administrative expenses may increase if net sales by Endo and its partners for ~~XIAFLEX~~XIAFLEX® and ~~Xiapex~~Xiapex® increase and potential new indications for ~~XIAFLEX~~XIAFLEX® and ~~Xiapex~~Xiapex® are approved, marketed and sold. As of March 31, 2019, we have no further third party royalties in connection with PD as the agreement has expired.

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Royalty Buy-Down

On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with Peyronie’s disease. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, all of which have been paid as of ~~September 30,~~January 1, 2018. Royalty obligations terminate five years after first commercial sale which occurred in January 2014. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of ~~XIAFLEX~~XIAFLEX® and ~~Xiapex~~Xiapex® for Peyronie’s disease on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ we amortized approximately ~~$0.6~~$0.2 million and ~~$1.6~~$0.5 million related to this agreement and ~~$0.4 million~~is recorded as part of general and ~~$1.1 million for the three and nine months ended September 30, 2017.~~administrative expenses. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the remaining capitalized balances were ~~approximately $0.6~~zero and $0.2 million, ~~and $2.5 million,~~ respectively. We perform an evaluation of the recoverability of the carrying value to determine if facts and circumstances indicate that the carrying value of the assets may be impaired and if any adjustment is warranted. As of September 30, 2018, there was no indicator that an impairment existed.

Stock Based Compensation

Under ASC 718, Compensation - Stock Compensation, or ASC 718, we estimate the fair value of our employee stock awards at the date of grant using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant assumptions are our estimates of the expected volatility of the market price of our common stock and the expected term of an award. Expected volatility is based on the historical volatility of our common stock. When establishing an estimate of the expected term of an award, we consider the vesting period for the award, our historical experience of employee stock option exercises (including forfeitures) and the expected volatility. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value future employee stock-based awards granted, to the extent any such awards are granted.

Further, ASC 718 requires that employee stock-based compensation costs to be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the current period.

RESULTS OF OPERATIONS

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2018

Revenues

We generate revenue primarily from royalties under the License Agreement and, to a lesser degree, licensing fees, sublicensing fees, and milestones.

Royalties

Royalties consist of royalties and the mark-up on cost of goods sold under the License Agreement. Total royalty and mark-up on cost of goods sold for the three month period ended ~~September 30, 2018~~March 31, 2019 were ~~$8.2~~$8.1 million as compared to ~~$6.5~~$7.1 million in the corresponding ~~2017~~2018 period, an increase of ~~$1.7~~$1.0 million or ~~26%~~14%. The increase in total revenues for the quarterly period was primarily due to royalties associated with higher net sales of ~~XIAFLEX~~XIAFLEX® in ~~Dupuytren's contracture~~DC and ~~Peyronie’s disease partially offset by lower~~PD, and slightly higher mark-up on cost of goods sold ~~revenue in prepaid foreign mark-up on cost of goods sold revenue recognized under new revenue standard ASC 606, as of January 1, 2018.~~revenue.

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Licensing Revenue

Licensing revenue consists of licensing fees, sublicensing fees and milestones. For the three month periods ended ~~September 30, 2018,~~March 31, 2019, we recognized zero revenue related to nonrefundable upfront product license fees for product candidates as compared to ~~$4,408~~$4,409 in the ~~2017~~2018 period.

Research and Development Activities and Expenses

R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expenses, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. For the three month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ R&D expenses were approximately ~~$0.2 million~~$150,000 and ~~$0.4 million,~~$195,000, respectively and in each case, are primarily related to the development work associated with our clinical, preclinical and other R&D programs. The decrease in the ~~2018~~2019 period as compared to the ~~2017~~2018 period was mainly due to ~~lower consulting fees~~cost associated with ~~clinical, clinical costs and~~ other R&D ~~programs.~~

programs partially offset by higher clinical costs.

We manage the development of ~~XIAFLEX~~XIAFLEX® for uterine fibroids and initiate the development of ~~XIAFLEX~~XIAFLEX® in new potential indications, not licensed by Endo. ~~On October 31, 2018, we announced positive topline~~We presented data from ~~our~~the Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66^th Annual Meeting of the Society of Reproductive Investigation on March 14, 2019 in Paris, France. This presentation follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids.BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids.

The following table summarizes our R&D expenses related to our development programs:

	Three Months Ended September 30, 2018		Three Months Ended September 30, 2017		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Program
Uterine Fibroids	$	82,716	$	129,276	$	60,285	$	22,331
Pre-clinical/other research projects		79,909		227,571		89,251		172,896
Total R&D expenses					$	149,536	$	195,227

The successful development of drugs is inherently difficult and uncertain. Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to ~~XIAFLEX~~XIAFLEX® and ~~Xiapex,~~Xiapex®, to continue to commercialize these drug candidates.

There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:

~~the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects;~~

the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects;

~~the anticipated completion dates for our drug candidate projects;~~

the anticipated completion dates for our drug candidate projects;

~~the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drug candidate projects;~~

the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drug candidate projects;

~~the scope, rate of progress of our preclinical studies and other R&D activities related to our drug candidate projects;~~

the scope, rate of progress of our preclinical studies and other R&D activities related to our drug candidate projects;

~~clinical trial results for our drug candidate projects;~~

clinical trial results for our drug candidate projects;

the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidate projects;

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~~the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidate projects;~~

the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drug candidate projects;

~~the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drug candidate projects;~~

the cost and timing of regulatory approvals with respect to our drug candidate projects; and

~~the cost and timing of regulatory approvals with respect to our drug candidate projects; and~~

the cost of establishing clinical supplies for our drug candidate projects.

~~the cost of establishing clinical supplies for our drug candidate projects.~~

We believe that our current resources and liquidity are sufficient to advance our current clinical and R&D projects.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs for personnel, third-party royalty fees, amortization of deferred royalty buy-down, consultant costs, legal fees, investor relations, professional fees and overhead costs. General and administrative expenses for the three months ended ~~September 30,~~March 31, 2019 and 2018 were $2.9 and ~~2017 were $2.2~~$2.1 million, ~~in each period. Changes~~respectively. Increases in general and administrative expenses was mainly due to the higher ~~amortization associated with deferred royalty buy-down, third party royalties associated with XIAFLEX, patent~~legal fees, personnel expenses, stock compensation expense and professional fees partially offset by lower ~~consulting~~third party royalties associated with XIAFLEX® and ~~general legal fees.~~the amortization associated with deferred royalty buy-down related to PD.

Other Income

Other income for the three months ended ~~September 30, 2018~~March 31, 2019 was approximately ~~$360,000~~$449,000 compared to ~~$208,000~~$233,000 in the corresponding ~~2017~~2018 period. Other income consists of interest earned on our investments and product sales of collagenase for laboratory use.

Provision for Income Taxes

Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options, deferred revenues and other items. For the three month period ended ~~September 30, 2018,~~March 31, 2019, our provision for income taxes was $1.1 million. Our deferred tax assets as of ~~September 30, 2018~~March 31, 2019 were $0.3 million. The estimated effective tax rate for the three months ended ~~September 30, 2018~~March 31, 2019 was ~~18.1%~~20.0% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, ~~2018~~2019 plus the effects of certain discrete items occurring in ~~2018.~~2019. For the three month period ended March 31, 2018, our provision for income taxes was $1.1 million. Our deferred tax assets as of March 31, 2018 were $0.4 million. Our effective tax rate for the three months ended ~~September 30,~~March 31, 2018 was impacted primarily by the Tax Cuts and Jobs Act of 2017, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in 2018. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.

For the three month period ended September 30, 2017, our provision for income taxes was $1.5 million. Our deferred tax assets as of September 30, 2017 were $3.0 million. The effective tax rate for the three months ended September 30, 2017 was 35% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2017 plus the effects of certain material discrete items that occurred in 2017.

Net Income

For the three months ended ~~September 30, 2018,~~March 31, 2019, we recorded net income of ~~$5.0~~$4.4 million, or ~~$0.69~~$0.61 per basic common share and ~~$0.69~~$0.60 per diluted common share, compared to a net income of ~~$2.7~~$4.0 million, or ~~$0.38~~$0.55 per basic common share and ~~$0.37~~$0.54 per diluted common share, for the same period in ~~2017.~~2018.

~~NINE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2017~~

~~Revenues~~

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~~Royalties~~

Royalties consist of royalties and the mark-up on cost of goods sold under the License Agreement. Total royalty and mark-up on cost of goods sold for the nine month period ended September 30, 2018 were $23.1 million as compared to $20.7 million in the corresponding 2017 period, an increase of $2.4 million or 12%. The increase in total revenues for the nine month period was primarily due to royalties associated with higher net sales of XIAFLEX in Dupuytren’s contracture and Peyronie’s disease partially offset by lower mark-up on cost of goods sold revenue in prepaid foreign mark-up on cost of goods sold revenue recognized under new revenue standard ASC 606, as of January 1, 2018.

~~Licensing Revenue~~

Licensing revenue consists of licensing fees, sublicensing fees and milestones. We recognized certain licensing fees related to the cash payments received under the License Agreement in prior years and amortized them over the expected development period. For the nine month periods ended September 30, 2018, we recognized the remaining $39,679 related to nonrefundable upfront product license fees for product candidates as there were no remaining ~~performance obligations~~ ~~as compared to $13,226 in the 2017 period.~~

~~Research and Development Activities and Expenses~~

R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expenses, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. For the nine month periods ended September 30, 2018 and 2017, R&D expenses were approximately $0.6 million and $0.9 million, respectively and in each case, are primarily related to the development work associated with our clinical, preclinical and other R&D programs. The decrease in the 2018 period as compared to the 2017 period was mainly due to lower consulting fees associated with clinical, clinical costs and other R&D programs.

We manage the development of XIAFLEX for uterine fibroids and initiate the development of XIAFLEX in new potential indications, not licensed by Endo. On October 31, 2018, we announced positive topline data from our Phase 1 trial of CCH for the treatment of uterine fibroids.

~~The following table summarizes our R&D expenses related to our development programs:~~

Nine Months Ended
September 30, 2018

Nine Months Ended
September 30, 2017

Program

Uterine Fibroids $ 210,250 $ 357,409
Pre-clinical/other research projects 359,398 591,950

The successful development of drugs is inherently difficult and uncertain. Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX and Xiapex, to continue to commercialize these drug candidates.

~~There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:~~

~~the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects;~~

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~~the anticipated completion dates for our drug candidate projects;~~

~~the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drug candidate projects;~~

~~the scope, rate of progress of our preclinical studies and other R&D activities related to our drug candidate projects;~~

~~clinical trial results for our drug candidate projects;~~

~~the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidate projects;~~

~~the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drug candidate projects;~~

~~the cost and timing of regulatory approvals with respect to our drug candidate projects; and~~

~~the cost of establishing clinical supplies for our drug candidate projects.~~

~~We believe that our current resources and liquidity are sufficient to advance our current clinical and R&D projects.~~

~~General and Administrative Expenses~~

General and administrative expenses consist primarily of salaries and other related costs for personnel, third-party royalty fees, amortization of deferred royalty buy-down, consultant costs, legal fees, investor relations, professional fees and overhead costs. General and administrative expenses for the nine months ended September 30, 2018 and 2017 were $6.3 million and $6.9 million, respectively. The decrease in general and administrative expenses was mainly due to the lower consulting and patent fees partially offset by higher amortization associated with deferred royalty buy-down and third party royalties associated with XIAFLEX.

~~Other Income~~

Other income for the nine months ended September 30, 2018 was approximately $0.9 million compared to $0.5 million in the corresponding 2017 period. Other income consists of interest earned on our investments and product sales of collagenase for laboratory use.

~~Provision for Income Taxes~~

Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options, deferred revenues and other items. For the nine month period ended September 30, 2018, our provision for income taxes was $3.3 million. Our deferred tax assets as of September 30, 2018 were $0.3 million. The estimated effective tax rate for the nine months ended September 30, 2018 was 19.1% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2018 plus the effects of certain discrete items occurring in 2018. Our effective tax rate for the nine months ended June 30, 2018 was impacted primarily by the Tax Cuts and Jobs Act of 2017, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in 2018. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.

For the nine month period ended September 30, 2017, the provision for income taxes was $4.7 million. The effective tax rate for the nine months ended September 30, 2017 was 35% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2017 plus the effects of certain material discrete items that occurred in 2017.

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~~Net Income~~

For the nine months ended September 30, 2018, we recorded net income of $13.9 million, or $1.92 per basic common share and $1.89 per diluted common share, compared to a net income $8.7 million, or $1.21 per basic common share and $1.19 per diluted common share, for the same period in 2017.

Liquidity and Capital Resources

To date, we have financed our operations primarily through product sales, licensing revenues and royalties under agreements with third parties and sales of our common stock. At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, we had cash and cash equivalents and investments in the aggregate of approximately ~~$77.0~~$88.1 million and ~~$65.1~~$82.0 million, respectively. We currently anticipate that our available funds and cash flow from operations will be sufficient to meet our operational cash needs for at least the next 12 months from the date of this filing.

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Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was ~~$12.3~~$6.0 million as compared to net cash ~~provided by~~used in operating activities of ~~$9.4~~$0.9 million in the ~~2017~~2018 period. Net cash provided by operating activities in the ~~2018~~2019 period was primarily attributable to our net income ~~partially offset by an increase in accounts receivable of $2.2 million due to an increase in XIAFLEX net sales~~ and accrued tax liability of ~~$0.8~~$1.1 million. Non-cash items ~~included amortization, stock-based compensation expense, and deferred taxes which was reduced by adjustments~~used to reconcile net income to net cash provided by operating activities of ~~$2.2 million.~~$0.3 million included amortization of patent costs and bond premiums and discounts and stock-based compensation expense. Net cash ~~provided by~~used in operating activities in the ~~2017~~2018 period was primarily attributable ~~to our net income of $8.7 million, an increase in operating assets and liabilities of $1.3 million of which $0.9 million was related~~ to an increase in accounts receivable of $7.0 million due to ~~sales~~the timing of ~~XIAFLEX.~~Endo’s payment of our quarterly XIAFLEX® royalties partially offset by an increase in accounts payable and accrued expenses related to third party royalties and accrued tax liability of $1.4 million. Non-cash items ~~included amortization, stock-based compensation expense, and deferred taxes which was reduced by adjustments~~used to reconcile net income to net cash provided by operating activities of ~~$2.0 million.~~$0.7 million included amortization of patent costs and bond premiums and discounts and stock-based compensation expense.

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was ~~$6.2~~$1.7 million as compared to ~~$7.4~~net cash provided by investing activities of $6.0 million for the corresponding ~~2017~~2018 period. The net cash used in investing activities in the ~~2018~~2019 period reflects the investment of ~~$58.4~~$21.8 million and the maturing of ~~$64.6~~$20.2 million in marketable securities. The net cash ~~used in~~provided by investing activities in the ~~2017~~2018 period reflects the ~~investment~~maturing of ~~$43.6~~$20.3 million and the ~~maturing~~investment of ~~$50.9~~$14.3 million in marketable securities.

Net cash provided by financing activities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was approximately ~~$12,000~~$58,000 as compared to ~~net cash used in financing activities of approximately $0.4 million~~$132,000 in the corresponding ~~2017~~2018 period. In the 2019 period and 2018, ~~period,~~ net cash provided by financing activities was due to proceeds received from stock option exercises of approximately $2.6 million and the repurchase of approximately of $2.6 million of our common stock under our stock repurchase program. In the 2017 period, net cash used in financing activities was mainly due to the repurchase of approximately $0.6 million of our common stock under our stock repurchase program partially offset by the proceeds received from stock option exercises of approximately $0.3 million.exercises.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative financial instruments or derivative commodity instruments for trading purposes. Our financial instruments consist of cash, cash equivalents, investments, trade accounts receivable and accounts ~~payable and long-term obligations.~~payable. We consider investments that, when purchased, have a remaining maturity of three months or less to be cash equivalents.

Our investment portfolio is subject to interest rate risk, although limited given the short term nature of the investments, and will fall in value in the event market interest rates increase. All of our cash and cash equivalents and investments at ~~September 30, 2018,~~March 31, 2019, amounting to approximately ~~$77.0~~$88.1 million, were maintained in bank demand accounts, money market accounts, certificates of deposit, corporate bonds and municipal bonds. We do not hedge our interest rate risks, as we believe reasonably possible near-term changes in interest rates would not materially affect our results of operations, financial position or cash flows.

We are subject to market risks in the normal course of our business, including changes in interest rates. There have been no significant changes in our exposure to market risks since ~~September 30, 2018.~~March 31, 2019.

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Item 4:

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of Thomas L. Wegman, the Company’s President, Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of itsWe maintain disclosure controls and procedures ~~as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on~~ that evaluation, Thomas L. Wegman, in his capacity as the sole named executive officer of the Company, the Company’s Principal Executive Officer and the Company’s Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were not effective, as discussed below,are designed to ~~ensure~~provide reasonable assurance that information required to be disclosed ~~by it~~ in our reports ~~the Company files or submits~~ under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, ~~of the SEC,~~ and that such ~~material~~ information is accumulated and communicated to the ~~Company’s~~ management of the Company (the “Management”), including ~~its Principal Executive Officer~~our principal executive officer and ~~Principal Financial Officer,~~our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. ~~Because of~~In designing and evaluating the ~~inherent limitations in all control systems,~~disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Company, under the supervision and ~~management necessarily is required to apply~~with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of its ~~judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, the Company’s~~disclosure controls and procedures ~~can be circumvented by~~(as defined in Rules 13a-15(e) or 15d-15(e) under the ~~individual acts~~Exchange Act) as of some persons, by collusion of two or more people or by management override of such control, and misstatements due to error or fraud may occur and not be detected on a timely basis. Because of our inability to estimate correctly the royalty revenue to be received from Endo for the quarter ended June 30, 2018, our management has identified a material weakness in internal controls concerning our royalty revenue recognition process, which we are attempting to correct by implementing additional controls by requesting that Endo provide to us timely interim data on royalties before the end of the ~~relevant quarter so~~period covered by this Quarterly Report. Based on that evaluation, our principal executive officer and principal financial officer concluded, as of the end of the period covered by this Quarterly Report, that the Company’s disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our ~~estimates are not based solely on~~disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our ~~analysis~~Management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Table of ~~historical data. For the quarter ended September 30, 2018, Endo provided us the necessary interim data for us to estimate our royalty revenue.~~

Contents

Changes in Internal Controls

~~Except as noted below, t~~There were no changes in our internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) that occurred during the three months ended ~~September 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. To address the material weakness in internal controls identified by us concerning our royalty revenue recognition process, we are attempting to correct such material weakness by requesting that Endo provide to us timely interim data on royalties before the end of the relevant period so that our estimates are not based solely on our analysis of historical data. ~~For the quarter ended September 30, 2018, Endo provided us the necessary interim data for us to estimate our royalty revenue.~~

PART II: OTHER INFORMATION

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

In addition to the other information contained elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Part I, Item 1A. Risk Factors” in our 2018 Annual Report, on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 14, 2018 and our Quarterly Reports on Form 10-Q for the first and second quarters of 2018 filed with the SEC on May 10, 2018 and August 9, respectively, which could materially affect our business, financial condition or future results.

~~Our Quarterly Royalty Revenue Recognition is Dependent Upon the Receipt of Interim Data from Endo~~

We receive royalty revenues on net sales under our License Agreement with Endo. These are presented in “Royalties” in our condensed consolidated statements of income. In accordance with ASC 606, we record these revenues based on estimates of the net sales that occurred during the relevant period. The relevant period estimates of these royalties are based on interim data provided by Endo and analysis of historical royalties and mark-up on cost of goods sold revenue that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. While we have requested that Endo provide interim data to us on a regular basis, there is no guarantee that they will do so in the future and we may need to make quarterly corrections or adjustments in the future if there are differences in actual and estimated royalties.

~~Table of Contents~~

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the ~~nine~~three month period ended ~~September 30, 2018,~~March 31, 2019, we did not issue any unregistered shares of securities.

Issuer Purchases of Equity Securities

~~The following table presents a summary~~During the three month period ended March 31, 2019, we did not purchase any equity shares of ~~share repurchases made by us during the quarter ended September 30, 2018~~.

Period
Total Number of
Shares
Purchased ⁽²⁾

Average
Price Paid
Per Share ⁽³⁾

Total Number of
Shares
Purchased as
Part of Publicly
Announced Plan

Maximum
Number (or
Dollar Value) of
Shares that may
yet be Purchased
under the Plan

275,014 $ 3,000,000
⁽¹⁾
July 1, 2018 – July 31, 2018 - $ - - -
August 1, 2018 – August 31, 2018 - - - -
September 1, 2018 – September 30, 2018 43,705 58.55 318,719 $ 440,950

~~(1)~~

~~On August 9, 2018, we announced that our Board of Directors had authorized~~ ~~the repurchase of up to~~ ~~$3.0 million~~ ~~of our common stock under the~~ ~~stock repurchase program.~~

~~(2)~~

~~The purchases were made in open-market transactions in compliance with rule 10b-18 or under the company’s 10b-18 plan.~~

~~(3)~~

~~Includes commissions paid, if any, related to the stock repurchase transactions.~~

securities.

3025

Table of Contents

~~Item 6.~~Item6.

Exhibits

	~~10.1~~31.1**	~~Amended Agreement~~Certification of ~~Lease, dated as~~Principal Executive Officer pursuant to Section 302 of ~~August 14, 2018, among~~ the ~~Company, ABC-NY and 35 Wilbur Street Associates.~~Sarbanes-Oxley Act of 2002
	3131.2**	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1***	Certification of Principal Executive Officer and Principal Financial Officer pursuant to ~~Rule13a-14(a)/15d-14(a).~~
	32**	~~Certification of Principal Executive Officer and Principal Financial Officer~~18 U.S.C. Section 1350, as adopted pursuant to Section 906 of~~Sarbanes-Oxley~~ the Sarbanes‑Oxley Act of ~~2002.~~
	101*	The following materials from BioSpecifics Technologies Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Cash Flows, and (iii) the Notes to the Condensed Consolidated Financial Statements. 2002

* filed herewith

** furnished herewith

3126

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	BIOSPECIFICS TECHNOLOGIES CORP.
	(Registrant)

Date: ~~November 9, 2018~~May 10, 2019	/s/ ~~Thomas L. Wegman~~Ronald E. Law
	~~Thomas L. Wegman~~Ronald E. Law
	~~President,~~ Principal Executive Officer ~~and~~ ~~Principal Financial Officer~~

3227

Delaware		11-3054851
(State or Other Jurisdiction		~~(I.R.S. Employer~~
of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Large accelerated filer ☐	Accelerated filer	☒ ☐
Non-accelerated filer ☐	Smaller reporting company	☐
	☒ Emerging growth company	☐

~~Class~~ Title of ~~Stock~~each class	~~Outstanding November 8, 2018~~ Trading Symbol(s)	Name of each exchange on which registered
Common Stock, ~~($.001~~$0.001 par ~~value)~~value per share	~~7,278,139~~ BSTC	The Nasdaq Capital Market

	PART II – OTHER INFORMATION
ITEM 1.	Legal Proceedings	2925
ITEM 1A.	Risk Factors	2925
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3025
ITEM 6.	Exhibits	3126
	Signatures	3227

	As reported December 31, 2017			Adjustments			Adjusted January 1, 2018
Accounts receivable	$	4.7		$	7.6	⁽¹⁾	$	12.3
Deferred revenue		(6.4	)		6.3	⁽²⁾		(0.1	)
Deferred royalty buy-down		(2.5	)		(0.4	)⁽³⁾		(2.9	)
Accounts payable and accrued expenses -third party royalties		(0.4	)		(0.5	)⁽³⁾		(0.9	)
Deferred tax assets, net		1.7			(1.3	)⁽⁴⁾		0.4
Income tax payable		-			(1.4	)⁽⁵⁾		(1.4	)
Retained earnings adjustment	$	(2.9	)	$	10.3		$	7.4

		Page
	PART I – FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Unaudited Condensed Consolidated Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Income Statements	5
	Condensed Consolidated Statement of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	67
	Notes to Condensed Consolidated Financial Statements	78
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2018
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	2824
ITEM 4.	Controls and Procedures	2924

	June 30, 2018 Condensed Consolidated Balance Sheet
	As Reported		Adjustments		Restated
Assets
Accounts Receivable	$	12,893,893	$	754,365	$	13,648,258
Total Current Assets		81,402,261		754,365		82,156,626
Total Assets		89,330,315		754,365		90,084,680

Liabilities
AP and Accrued Liabilities		1,591,707		58,740		1,650,447
Income Tax Payable		801,800		148,361		950,161
Total Current Liabilities		2,393,507		207,101		2,600,608

Stockholders' Equity
Retained Earnings		60,402,721		547,264		60,949,985
Total Stockholders' Equity		86,936,808		547,264		87,484,072
Total Liabilities and Stockholders' Equity	$	89,330,315	$	754,365	$	90,084,680

	Condensed Consolidated Income Statements
	Three months ended June 30, 2018									Six months ended June 30, 2018
	As Reported			Adjustments			Restated			As Reported			Adjustments			Restated
Revenues
Royalties	$	7,061,139		$	754,365		$	7,815,504		$	14,146,139		$	754,365		$	14,900,504
Total Revenues		7,096,409			754,365			7,850,774			14,185,818			754,365			14,940,183

Cost and expenses
General and administrative		1,985,212			58,740			2,043,952			4,054,845			58,740			4,113,585
Total cost and expenses		2,197,008			58,740			2,255,748			4,461,868			58,740			4,520,608

Operating income		4,899,401			695,625			5,595,026			9,723,950			695,625			10,419,575

Income before income tax expense		5,255,132			695,625			5,950,757			10,312,310			695,625			11,007,935
Provision for income tax expense		(954,465	)		(148,361	)		(1,102,826	)		(2,033,039	)		(148,361	)		(2,181,400	)
Net income	$	4,300,667		$	547,264		$	4,847,931		$	8,279,271		$	547,264		$	8,826,535

Basic net income per share	$	0.60					$	0.67		$	1.15					$	1.23
Diluted net income per share	$	0.59					$	0.66		$	1.13					$	1.21

	September 30, 2018
	As Reported		Balances Without Adoption of New Revenue Standard			Effect of Change Higher / (Lower)
Assets
Accounts receivable	$	14.5	$	6.3		$	8.2
Deferred royalty buy-down		0.6		0.7			(0.1	)
Deferred tax assets		0.3		1.5			(1.2	)
Liabilities
Accounts payable and accrued expenses		1.1		0.5			0.6
Deferred revenue		-		1.0			(1.0	)
Income tax payable		0.7		(0.6	)		1.3
Deferred revenue, long term		-		4.5			(4.5	)
Equity
Retained earnings		66.0		55.5			10.5

	Three Months Ended September 30, 2018
	As Reported		Balances Without Adoption of New Revenue Standard		Effect of Change Higher / (Lower)
Revenues
Royalties	$	8.2	$	8.1	$	0.1
Costs and expenses
General and administrative	$	2.2	$	2.2	$	-
Provision for income taxes		1.1		1.1		-
Net income		5.0		4.9		0.1

	Nine Months Ended September 30, 2018
	As Reported		Balances Without Adoption of New Revenue Standard		Effect of Change Higher / (Lower)
Revenues
Royalties	$	23.1	$	23.1	$	-
Costs and expenses
General and administrative	$	6.3	$	6.3	$	-
Provision for income taxes		3.3		3.5		(0.2	)
Net income		13.9		13.7		0.2

	Maturities as of September 30, 2018				Maturities as of December 31, 2017				Maturities as of March 31, 2019				Maturities as of December 31, 2018
	1 Year or Less		Greater than 1 Year		1 Year or Less		Greater than 1 Year		1 Year or Less		Greater than 1 Year		1 Year or Less		Greater than 1 Year
Municipal bonds	$	4,285,175	$	100,000	$	1,002,650	$	100,000	$	11,560,848	$	-	$	1,295,350	$	-
Corporate bonds		49,052,966		4,819,306		48,143,495		3,155,573		49,787,288		3,435,177		61,321,162		1,099,834
Certificates of deposit		5,091,070		249,016		2,827,826		2,490,401		5,551,524		199,938		5,090,631
Total	$	58,429,211	$	5,168,322	$	51,973,971	$	5,745,974	$	66,899,660	$	3,635,115	$	67,707,143	$	1,099,834

September 30, 2018	Type of Instrument	Fair Value		Level 1		Level 2		Level 3

March 31, 2019										Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	9,491,019	$	9,491,019	$	-	$	-	Institutional Money Market	$	10,370,601	$	10,370,601	$	-	$	-

Cash equivalents	Corporate Bonds		1,300,000		1,300,000		-		-	Municipal Bonds		330,000		330,000		-		-

Investments	Municipal Bonds		4,385,175		-		4,385,175		-	Municipal Bonds		11,560,848		-		11,560,848		-

Investments	Corporate Bonds		53,872,272		-		53,872,272		-	Corporate Bonds		53,222,465		-		53,222,465		-

Investments	Certificates of Deposit		5,340,086		5,340,086		-		-	Certificates of Deposit		5,751,462		5,751,462		-		-

December 31, 2017	Type of Instrument	Fair Value		Level 1		Level 2		Level 3

December 31, 2018										Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	3,108,549	$	3,108,549	$	-	$	-	Institutional Money Market	$	6,078,025	$	6,078,025	$	-	$	-

Cash equivalents	Municipal Bonds		800,000		-		800,000		-

Investments	Municipal Bonds		1,102,650		-		1,102,650		-	Municipal Bonds		1,295,350		-		1,295,350		-

Investments	Corporate Bonds		51,299,068		-		51,299,068		-	Corporate Bonds		62,420,996		-		62,420,996		-

Investments	Certificates of Deposit		5,318,227		5,318,227		-		-	Certificates of Deposit		5,090,631		5,090,631		-		-

	Nine Months Ended September 30, 2018
Risk-free interest rate	2.62% to 2.81%
Expected term of option	6.25 years
Expected stock price volatility	39.6% to 39.7%
Expected dividend yield	$	0.0

	Nine Months Ended September 30, 2018		Nine Months Ended September 30, 2017
Program
Uterine Fibroids	$	210,250	$	357,409
Pre-clinical/other research projects		359,398		591,950

Period	Total Number of Shares Purchased ⁽²⁾		Average Price Paid Per Share ⁽³⁾		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Number (or Dollar Value) of Shares that may yet be Purchased under the Plan
						275,014	$	3,000,000	⁽¹⁾
July 1, 2018 – July 31, 2018		-	$	-		-		-
August 1, 2018 – August 31, 2018		-		-		-		-
September 1, 2018 – September 30, 2018		43,705		58.55		318,719	$	440,950