BioSante's 1st Quater 10Q for 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
one)
x
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31, 2006
o
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from ___________ to ______________.
Commission
File Number 1-31812
BIOSANTE
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
58-2301143
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification Number)
|
111
Barclay Boulevard
Lincolnshire,
Illinois 60069
(Address
of principal executive offices)
(847)
478-0500
(Registrant’s
telephone number including area code)
Indicate
by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. YES x
NO
o
Indicate
by
check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). YES o NO x
Indicate
by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). YES o NO
x
As
of May 12, 2006, 19,160,694 shares of common stock and 391,286 shares of
class C special stock of the registrant were outstanding.
BIOSANTE
PHARMACEUTICALS, INC.
FORM
10-Q
MARCH
31, 2006
TABLE
OF CONTENTS
Description
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Page
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PART
I.
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FINANCIAL
INFORMATION
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_____________
In
this report, references to “BioSante,” “the company,” “we,” “our” or “us,”
unless the context otherwise requires, refer to BioSante Pharmaceuticals,
Inc.
We
own or have the rights to use various trademarks, trade names or service marks,
including BioSante®,
BioVant™, NanoVant™, CAP-Oral™, BioAir™, Bio-E-Gel®,
Bio-E/P-Gel™, LibiGel®,
LibiGel-E/T™ and Bio-T-Gel™. This report also contains trademarks, trade names
and service marks that are owned by other persons or entities.
BIOSANTE
PHARMACEUTICALS, INC.
|
(a
development stage company)
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|
March
31, 2006 and December 31, 2005 (Unaudited)
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March
31,
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December
31,
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2006
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2005
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ASSETS
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CURRENT
ASSETS
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Cash
and cash equivalents
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$
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70,189
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$
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310,643
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Short-term
investments
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6,984,609
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8,790,888
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Prepaid
expenses and other sundry assets
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227,965
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245,465
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7,282,763
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9,346,996
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PROPERTY
AND EQUIPMENT, NET
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188,629
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215,566
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OTHER
ASSETS
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Security
deposits
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11,992
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11,992
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$
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7,483,384
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$
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9,574,554
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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CURRENT
LIABILITIES
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Accounts
payable
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$
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1,380,026
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$
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1,139,566
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Accrual
for contingencies
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890,000
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750,000
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Accrued
compensation
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223,579
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492,980
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Other
accrued expenses
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104,794
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147,125
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Deferred
revenue
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136,363
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136,363
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TOTAL
CURRENT LIABILITIES
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2,734,762
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2,666,034
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LONG
TERM LIABILITIES
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Leasehold
retirement liability
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21,500
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21,500
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Deferred
revenue
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34,091
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68,182
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TOTAL
LONG TERM LIABILITIES
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55,591
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89,682
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TOTAL
LIABILITIES
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$
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2,790,353
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$
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2,755,716
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STOCKHOLDERS'
EQUITY
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Capital
stock
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Issued
and Outstanding
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2006
- 391,286; 2005 - 391,286 Class C special stock
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398
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398
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2006
- 19,160,694; 2005 - 19,007,800 Common stock
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57,668,032
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56,653,219
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57,668,430
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56,653,617
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Deferred
unearned compensation
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(58,584
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)
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(146,459
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)
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Deficit
accumulated during the development stage
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(52,916,815
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)
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(49,688,320
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)
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4,693,031
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6,818,838
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$
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7,483,384
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$
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9,574,554
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See
accompanying notes to the financial statements.
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BIOSANTE
PHARMACEUTICALS, INC.
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(a
development stage company)
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Three
months ended March 31, 2006 and 2005 and the
cumulative
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period
from August 29, 1996 (date of incorporation) to March 31, 2006
(Unaudited)
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Cumulative
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period
from
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August
29, 1996
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(date
of
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Three
Months Ended
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incorporation)
to
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March
31,
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March
31,
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2006
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2005
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2006
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REVENUE
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Licensing
income
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$
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34,091
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$
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-
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$
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4,672,489
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Grant
income
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50,588
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28,677
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299,370
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Other
Income
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-
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-
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32,000
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84,679
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28,677
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5,003,859
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EXPENSES
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Research
and development
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1,018,877
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2,151,679
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31,494,950
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General
and administration
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2,223,019
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720,495
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20,555,320
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Provision
for contingencies
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140,000
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-
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890,000
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Depreciation
and amortization
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27,457
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24,943
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889,758
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Loss
on disposal of capital assets
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-
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-
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157,545
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Costs of
acquisition
of Structured Biologicals
Inc.
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-
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-
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375,219
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Purchased
in-process research and development
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-
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-
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5,377,000
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3,409,353
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2,897,117
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59,739,792
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OTHER
- Interest income
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96,179
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97,947
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1,819,118
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NET
LOSS
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$
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(3,228,495
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)
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$
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(2,770,493
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)
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$
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(52,916,815
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)
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BASIC
AND DILUTED NET LOSS
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PER
SHARE (Note 2)
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$
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(0.17
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)
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$
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(0.14
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)
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WEIGHTED
AVERAGE NUMBER
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OF
SHARES OUTSTANDING
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19,426,895
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19,374,775
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See
accompanying notes to the financial statements.
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BIOSANTE
PHARMACEUTICALS, INC.
|
(a
development stage company)
|
|
Three
months ended March 31, 2006 and 2005 and the
cumulative
|
period
from August 29, 1996 (date of incorporation) to March 31, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
period
from
|
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|
|
|
|
|
|
|
|
|
August
29, 1996
|
|
|
|
|
|
|
|
|
|
|
(date
of
|
|
|
|
|
|
|
|
|
|
|
incorporation)
to
|
|
|
|
|
Three
Months ended March 31,
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|
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March
31,
|
|
|
|
|
2006
|
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|
2005
|
|
|
2006
|
|
CASH
FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,228,495
|
)
|
$
|
(2,770,493
|
)
|
$
|
(52,916,815
|
)
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
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|
|
net
cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
27,457
|
|
|
24,943
|
|
|
889,758
|
|
Amortization
of deferred unearned compensation
|
|
|
-
|
|
|
-
|
|
|
42,290
|
|
Repurchase
of licensing rights
|
|
|
-
|
|
|
-
|
|
|
125,000
|
|
Employee
& director compensation - noncash
|
|
|
859,013
|
|
|
87,875
|
|
|
2,127,054
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|
Purchased
in-process research and development
|
|
|
-
|
|
|
-
|
|
|
5,377,000
|
|
Loss
on disposal of equipment
|
|
|
-
|
|
|
-
|
|
|
157,545
|
|
Changes
in other assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
affecting
cash flows from operations
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other sundry assets
|
|
|
17,500
|
|
|
104,859
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|
|
(236,989
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(71,272
|
)
|
|
(96,106
|
)
|
|
1,035,258
|
|
Accrual
for contingencies
|
|
|
140,000
|
|
|
-
|
|
|
890,000
|
|
Deferred
revenue
|
|
|
(34,091
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)
|
|
-
|
|
|
170,454
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Due
from SBI
|
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|
-
|
|
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-
|
|
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(128,328
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)
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Net
cash used in operating activities
|
|
|
(2,289,888
|
)
|
|
(2,648,922
|
)
|
|
(42,467,773
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)
|
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CASH
FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
|
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|
|
|
|
|
|
Redemption
of short term investments
|
|
|
1,902,458
|
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|
1,503,708
|
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|
9,602,608
|
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Purchase
of short term investments
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|
(96,179
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)
|
|
(97,947
|
)
|
|
(16,587,217
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)
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Purchase
of capital assets
|
|
|
(520
|
)
|
|
(27,852
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)
|
|
(1,201,822
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)
|
Net
cash provided by (used in) investing activities
|
|
|
1,805,759
|
|
|
1,377,909
|
|
|
(8,186,431
|
)
|
|
|
|
|
|
|
|
|
|
|
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CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Issuance
of convertible debenture
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
Proceeds
from sale or conversion of shares
|
|
|
243,675
|
|
|
157,168
|
|
|
50,227,443
|
|
Fractional
share payout
|
|
|
-
|
|
|
-
|
|
|
(3,050
|
)
|
Net
cash provided by financing activities
|
|
|
243,675
|
|
|
157,168
|
|
|
50,724,393
|
|
|
|
|
|
|
|
|
|
|
|
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NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(240,454
|
)
|
|
(1,113,845
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)
|
|
70,189
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CASH
AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
AT
BEGINNING OF PERIOD
|
|
|
310,643
|
|
|
1,170,025
|
|
|
-
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
70,189
|
|
$
|
56,180
|
|
$
|
70,189
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF
|
|
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|
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|
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CASH
FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of SBI
|
|
|
|
|
|
|
|
|
|
|
Purchased
in-process research and development
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,377,000
|
|
Other
net liabilities assumed
|
|
|
-
|
|
|
-
|
|
|
(831,437
|
)
|
-
|
|
|
|
|
|
-
|
|
|
4,545,563
|
|
Less:
subordinate voting shares issued therefor
|
|
|
-
|
|
|
-
|
|
|
4,545,563
|
|
$
-
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
Income
tax paid
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Interest
paid
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,421
|
|
SIGNIFICANT
NON-CASH TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
Fair
value of common stock warrants issued in connection
|
|
|
|
|
|
|
|
|
|
|
with
the sale of capital stock
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,053,423
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial statements.
|
|
|
|
|
|
|
|
|
|
|
BIOSANTE
PHARMACEUTICALS, INC.
FORM
10-Q
MARCH
31, 2006
1. |
INTERIM
FINANCIAL INFORMATION
|
In
the
opinion of management, the accompanying unaudited financial statements contain
all necessary adjustments, which are of a normal recurring nature, to present
fairly the financial position of BioSante Pharmaceuticals, Inc. (the “Company”)
as of March 31, 2006, the results of operations for the three months ended
March
31, 2006 and 2005 and for the cumulative period from August 29, 1996 (date
of
incorporation) to March 31, 2006, and the cash flows for the three months ended
March 31, 2006 and 2005 and for the cumulative period from August 29, 1996
(date
of incorporation) to March 31, 2006, in conformity with accounting principles
generally accepted in the United States of America. Operating results for the
three month period ended March 31, 2006 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2006.
These
unaudited interim financial statements should be read in conjunction with the
financial statements and related notes contained in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2005.
2. |
BASIC
AND DILUTED NET LOSS PER
SHARE
|
The
basic
and diluted net loss per share is computed based on the weighted average number
of shares of common stock and class C special stock outstanding, all being
considered as equivalent of one another. Basic net loss per share is computed
by
dividing the net loss by the weighted average number of shares outstanding
for
the reporting period. Diluted net loss per share is intended to reflect the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Because the Company
has incurred net losses from operations in each of the periods presented, the
Company’s outstanding options and warrants are antidilutive; accordingly, there
is no difference between basic and diluted net loss per share amounts. The
computation of diluted net loss per share for the three months ended March
31,
2006 does not include options to purchase an aggregate of 1,039,312 shares
of
common stock, with exercise prices ranging from $2.10 to $7.60 per share, and
warrants to purchase an aggregate of 1,252,168 shares of common stock, with
exercise prices of $2.15 and $7.00 per share, because of their antidilutive
effect on net loss per share. The computation of diluted net loss per share
for
the three months ended March 31, 2005 does not include options to purchase
an
aggregate of 1,115,197 shares of common stock, with exercise prices ranging
from
$2.10 to $7.60 per share, and warrants to purchase an aggregate of 1,644,355
shares of common stock, with exercise prices ranging from $2.15 to $8.75 per
share, because of their antidilutive effect on net loss per share.
In
February 2006, the Company signed an exclusive option and license agreement
with
Medical Aesthetics Technology Corporation (“MATC”) for the use of the Company’s
calcium phosphate nanotechnology (“CaP”) in the field of aesthetic medicine.
Under the terms of the option and license agreement, MATC will use the Company’s
CaP technology to develop products for commercialization in the field of
aesthetic medicine, specifically, the improvement and/or maintenance of the
external appearance of the head, face, neck and body. Within the first 12
months, MATC has the exclusive right to exercise an option to secure a license
to this technology in the field of aesthetic medicine upon payment to the
Company of a license fee. The Company has the right to receive additional
milestone payments upon approval by the U.S. Food and Drug Administration or
first commercial sale of each product containing CaP, a royalty on net sales
of
any such products, and a share of any milestones and license fees from third
party sublicenses.
4. |
COMMITMENTS
AND CONTINGENCIES
|
Commitments
The
Company is a party to various licensing agreements, including agreements with
the Regents of the University of California, Antares Pharma, Inc. and Wake
Forest University. Certain of these agreements require the Company to indemnify
the licensor for claims, suits, losses, damages, costs, fees and expenses
resulting from or arising out of the license agreement, including but not
limited to, any product liability claim. The Company has no knowledge of events
having occurred which would require indemnification by the Company, and has
not
recorded any liability in connection with these obligations as of March 31,
2006
or March 31, 2005.
Contingencies
On
November 30, 2005, the Company sent written notice to Leah M. Lehman, Ph.D.,
the
Company’s former Vice President, Product Development, that the Company was
exercising its contractual right not to renew her employment agreement. As
a
result of this notice, Dr. Lehman’s employment agreement expired by its
terms on December 31, 2005. On February 15, 2006, the Company received notice
that on February 10, 2006, Dr. Lehman had filed a complaint against the Company,
the Company’s President and Chief Executive Officer, the Company’s Chief
Financial Officer and one of the Company’s directors, with the Occupational
Safety and Health Administration under the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”) seeking reinstatement of her employment with back pay,
interest and attorney’s fees and claiming, among other things, wrongful
termination. The Company believes that Dr. Lehman’s allegations of wrongful
termination and violations of the Sarbanes-Oxley Act are wholly without merit
and intends to vigorously defend its position. On February 17, 2006, the Company
filed a complaint against Dr. Lehman in the Circuit Court of Cook County,
Illinois alleging breach of fiduciary duty, breach of contract in regard to
her
employment agreement with the Company, tortious interference with prospective
economic advantage and abuse of process. The Company is seeking an unspecified
amount of damages, punitive damages, declaratory judgment regarding a breach
by
Dr. Lehman of her employment agreement and the amount of severance pay, if
any, to be owed to Dr. Lehman, reimbursement of the Company’s legal fees
and costs and such other relief as the Court may deem proper. In March 2006,
Dr.
Lehman filed a charge with the Equal Employment Opportunity Commission (the
“EEOC”) claiming
sex discrimination and retaliation in violation of Title VII of the Civil Rights
Act of 1964. The Company also believes that Dr. Lehman’s charges with the EEOC
are wholly without merit and intends to vigorously defend its
position.
The
Company has accrued $890,000 in connection with this matter, $140,000 of which
was accrued during the three month period ended March 31, 2006. Although the
Company believes that at least a portion of any liability resulting from this
matter may be covered under its employment practices liability insurance policy,
there can be no assurance that it will be so covered or that the ultimate
resolution of this matter will not exceed the amount of the Company’s accrual or
will not otherwise result in a material adverse effect on the Company’s
business, financial condition or results of operations.
5. |
STOCK-BASED
COMPENSATION
|
The
Company adopted Statement of Financial Accounting Standards No. 123(R),
“Share-Based Payment” (“SFAS No. 123(R)”) under the modified prospective method
on January 1, 2006. Under the “modified prospective” method, compensation cost
is recognized in the financial statements beginning with the effective date,
based on the requirements of SFAS No. 123(R) for all share-based payments
granted after that date, and based on the requirements of Statement of Financial
Accounting Standards No.123, “Accounting for Stock Based Compensation” (“SFAS
No. 123”) for all unvested awards granted prior to the effective date of SFAS
No. 123(R). SFAS No. 123(R) eliminates the intrinsic value measurement method
of
accounting in APB Opinion 25 and generally requires measuring the cost of the
employee services received in exchange for an award of equity instruments based
on the fair value of the award on the date of the grant. The standard requires
grant date fair value to be estimated using either an option-pricing model
which
is consistent with the terms of the award or a market observed price, if such
a
price exists. Such costs must be recognized over the period during which an
employee is required to provide service in exchange for the award. The standard
also requires estimating the number of instruments that will ultimately be
issued, rather than accounting for forfeitures as they occur.
As
of
March 31, 2006, the Company maintained one share-based compensation plan, the
BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan, which
is
described below. The compensation cost that has been incurred by the Company
in
connection with this plan was $859,013 and $87,875 for the periods ended March
31, 2006 and 2005, respectively. No income tax benefit has been recognized
in
the Company’s statement of operations for share-based compensation arrangements
due to the Company’s net loss position.
The
BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan (the “Plan”)
permits the grant of stock options and stock awards to its employees, directors
and consultants. As of March 31, 2006, 2 million shares of the Company’s common
stock were available for issuance under the Plan, subject to adjustment as
provided in the plan. In April 2006, the Company’s Board of Directors, upon
recommendation of the Compensation Committee and subject to approval by the
Company’s stockholders, approved an amendment to the Plan to increase the number
of shares of the Company’s common stock available for issuance under the Plan
from 2 million to 3 million. The Company believes that equity-based incentives,
such as stock options and stock awards, align the interest of its employees
with
those of its stockholders. Options are generally granted with an exercise price
equal to the market price of the Company’s common stock on the date of the
grant; outstanding employee stock options generally vest ratably over a period
of time and have 10-year contractual terms. In certain instances, stock options
have been granted to directors which were exercisable immediately. In these
instances, compensation cost was recognized on the grant date in an amount
equal
to the fair value of the related options. No stock awards have been granted
under the Plan. The Compensation Committee of the Board of Directors of the
Company may at its sole discretion modify or accelerate the vesting of any
stock
option or stock award.
The
fair
value of each option grant has been estimated on the date of grant using the
Black-Scholes option-pricing-model using the assumptions in the table below:
|
|
Three
Months Ended March, 31
|
|
|
|
2006
|
|
|
2005
|
|
Expected
life in years
|
|
|
10
|
|
|
10
|
|
Annualized
volatility
|
|
|
73.94
|
%
|
|
73.91
|
%
|
Discount
rate - bond equivalent yield
|
|
|
4.10
|
%
|
|
3.96
|
%
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
The
Company uses a volatility rate calculation based on the closing price for its
common stock at the end of each calendar month as reported by the American
Stock
Exchange. Since the Company has a limited history with option exercises, the
expected life was set to the entire life of the option grant. The discount
rate
used is as published in The
Wall Street Journal
as of
the grant date. The Company has not in the past issued a dividend, nor does
it
have any current plans to do so in the future; therefore, an expected dividend
yield of 0 was used.
A
summary
of activity under the Plan during the three months ended March 31, 2006 is
presented below:
Options
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
Outstanding
December 31, 2005
|
|
|
1,425,530
|
|
$
|
3.41
|
|
Granted
|
|
|
362,500
|
|
|
3.87
|
|
Exercised
|
|
|
152,894
|
|
|
2.51
|
|
Forfeited
or expired
|
|
|
593,157
|
|
|
3.58
|
|
Outstanding
March 31, 2006
|
|
|
1,041,979
|
|
$
|
3.61
|
|
(weighted
average contractual term)
|
|
|
8.0
years
|
|
|
|
|
Exercisable
at March 31, 2006
|
|
|
720,312
|
|
$
|
3.63
|
|
(weighted
average contractual term)
|
|
|
7.6
years
|
|
|
|
|
The
aggregate intrinsic values of the Company’s outstanding and exercisable options
as of March 31, 2006 were $822,453 and $557,524, respectively.
A
summary
of the Plan’s non-vested options at December 31, 2005 and activity under the
Plan during the three months ended March 31, 2006 is presented
below:
Options
|
|
|
Shares
|
|
|
Weighted
Average Grant Date Fair-Value
|
|
Outstanding
December 31, 2005
|
|
|
398,000
|
|
$
|
3.61
|
|
Granted
|
|
|
362,500
|
|
|
3.11
|
|
Vested
|
|
|
263,333
|
|
|
3.15
|
|
Forfeited
|
|
|
179,056
|
|
|
3.49
|
|
Non-Vested
at March 31, 2006
|
|
|
318,111
|
|
$
|
3.58
|
|
As
of
March 31, 2006, there was $691,627 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under the
Plan. The cost is expected to be recognized over a weighted-average period
of
2.36 years.
Cash
received from option exercises under the Plan for the three months ended March
31, 2006 was $243,675. The intrinsic value of options exercised during the
three
months ended March 31, 2006 was $218,613. The Company did not receive a tax
benefit related to the exercise of these options because of its net operating
loss position.
|
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
March
31, 2006
|
|
|
March
31, 2006
|
|
|
March
31, 2005
|
|
Net
loss
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(3,228,495
|
)
|
$
|
(2,770,493
|
)
|
Stock-based
compensation included in net loss as reported
|
|
|
859,013
|
|
|
87,875
|
|
Total
stock-based employee compensation determined under fair value based
method
for all awards
|
|
|
(859,013
|
)
|
|
(402,568
|
)
|
|
|
|
|
|
|
|
|
Net
loss, pro forma
|
|
$
|
(3,228,495
|
)
|
$
|
(3,085,186
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
Pro
forma
|
|
$
|
(0.17
|
)
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
During
the three months ended March 31, 2006, options to purchase an aggregate of
91,849 shares of common stock were exercised for total cash proceeds of
$243,675. In addition, options to purchase an aggregate of 61,045 shares of
common were exercised on a cashless basis, for which 91,768 shares were withheld
and subsequently cancelled by the Company in payment for the exercised options,
thus reducing the number of shares outstanding on a fully diluted
basis.
This
Management’s Discussion and Analysis provides material historical and
prospective disclosures intended to enable investors and other users to assess
our financial condition and results of operations. Statements that are not
historical are forward-looking and involve risks and uncertainties discussed
under the caption “Forward-Looking Statements” below. The following discussion
of the results of operations and financial condition of BioSante should be
read
in conjunction with our financial statements and the related notes
thereto.
Overview
We
are a
development stage biopharmaceutical company that is developing a pipeline of
hormone therapy products to treat men and women. We also are engaged in the
development of our proprietary calcium phosphate nanotechnology, or CaP, for
primarily vaccine adjuvants or immune system boosters and drug delivery
systems.
All
of
our revenue to date has been derived from upfront and milestone payments earned
on licensing and sub-licensing transactions and from subcontracts. We have
not
commercially introduced any products and do not expect to do so until early
2007
at the earliest depending upon the timing of the decision by the U.S. Food
and
Drug Administration, or FDA, on our New Drug Application, or NDA, for our
Bio-E-Gel product, which we submitted in February 2006, and the potential
approval of such application.
To
date,
we have used primarily equity financing and licensing income to fund our ongoing
business operations and short-term liquidity needs, and we expect to continue
this practice for the foreseeable future. For the three months ended March
31,
2006, we received approximately $244,000 from option exercises. Our cash, cash
equivalents and short-term investments were $7,054,798 as of March 31, 2006.
We
currently do not have sufficient resources on a long-term basis to complete
the
commercialization of any of our proposed products. Based on our current cash
resources and commitments, we believe we should be able to maintain our current
planned development activities and the corresponding level of expenditures
through at least the next twelve months, although no assurance can be made
that
we will not need additional cash prior to such time.
Our
business operations to date have consisted mostly of research and development
activities, and we expect this to continue for the immediate future. If and
when
our Bio-E-Gel or other proposed products receive FDA approval, we may begin
to
incur other expenses, including sales and marketing related expenses if we
choose to market the product ourselves.
We
spent
an average of approximately $300,000 to $350,000 per month on research and
development activities during the three months ended March 31, 2006. Our
research and development expenses decreased $1,132,802 or 53 percent, to
$1,018,877 for the three months ended March 31, 2006 from $2,151,679 for the
same period ended March 31, 2005, primarily as a result of the completion of
the
Phase III clinical trial of our Bio-E-Gel product in March 2005, partially
offset by the costs associated with the preparation of the Bio-E-Gel NDA. We
expect our research and development expenses to be significantly lower in 2006
until the commencement of our LibiGel Phase III trial, which we expect to
commence sometime during 2006. The amount of our actual research and development
expenditures may fluctuate from quarter-to-quarter and year-to-year depending
upon: (1) resources available; (2) our development schedule, including the
timing of our clinical trials; (3) results of studies, clinical trials and
regulatory decisions; (4) whether we or our licensees are funding the
development of our proposed products; and (5) competitive developments. We
are
required under the terms of our license agreement with the University of
California to have available certain amounts of funds for research and
development activities.
Our
general and administrative expenses increased $1,502,524 or 209%, to $2,223,019
for the three months ended March 31, 2006 from $720,495 for the same period
ended March 31, 2005, primarily as a result of increased legal expenses incurred
due to pending litigation of a personnel-related matter and recognition of
$859,013 in non-cash compensation expense during the three months ended March
31, 2006 compared to $87,875 for the three months ended March 31, 2005 as a
result of our adoption of SFAS No. 123(R) “Share-Based Payment” (“SFAS 123”).
$746,616 of the expenses recorded in the three months ended March 31, 2006
related to a March 2006 issuance of options with immediate vesting to the
non-employee members of the Company’s Board of Directors which were fully
expensed on the grant date due to the terms of those awards. Our general and
administrative expenses may fluctuate from year-to-year depending upon the
amount of legal, public and investor relations, accounting and corporate
governance and other fees and expenses incurred.
Since
our
inception, we have experienced significant operating losses. We incurred a
net
loss of $3,228,495 for the three months ended March 31, 2006, resulting in
an
accumulated deficit of $52,916,815. We expect to incur substantial and
continuing losses for the foreseeable future as our product development programs
expand and various preclinical and clinical trials commence and continue. The
amount of these losses may vary significantly from year-to-year and
quarter-to-quarter and will depend upon, among other factors:
· |
the
timing and cost of product
development;
|
· |
the
progress and cost of preclinical and clinical development
programs;
|
· |
the
costs of licensure or acquisition of new products or sublicensing
of our
products;
|
· |
the
timing and cost of making necessary regulatory filings and obtaining
approvals;
|
· |
the
timing and cost of obtaining third party
reimbursement;
|
· |
the
cost of sales and marketing activities;
and
|
· |
the
costs of pending and any future litigation of which we may be
subject.
|
Hormone
Therapy Products.
Our
hormone therapy products address a variety of hormone therapies for symptoms
that affect both men and women. The products are gel formulations of
testosterone, estradiol, a combination of estradiol and testosterone and a
combination of estradiol and progestogen. Our hormone therapy products include
Bio-E-Gel, LibiGel, Bio-E/P-Gel, Bio-E/T-Gel and Bio-T-Gel. We have conducted
human clinical trials on several of our hormone therapy products, which are
required to obtain FDA approval to market the products. We completed our pivotal
Phase III clinical trial of Bio-E-Gel in March 2005 and submitted an NDA with
the FDA in February 2006. We hope to commercially launch our Bio-E-Gel product
after obtaining FDA approval, which we hope to receive in late 2006 or early
2007. Our proposed LibiGel product successfully completed a Phase II clinical
trial, and we are currently in the planning stage for our Phase III clinical
trials which we hope to begin during 2006. We have not received FDA or any
other
government approval for any of our products and thus have not commercialized
any
of them in the United States or elsewhere.
Under
the
terms of our license agreement with Antares Pharma, Inc., we acquired exclusive
marketing rights, with the right to grant sublicenses, to the single active
ingredient products containing testosterone and estradiol for all therapeutic
indications in the U.S. and several foreign countries. We acquired exclusive
marketing rights, with the right to grant sublicenses, for the combination
estradiol and progestogen product in the U.S. and Canada. In addition, under
the
terms of the license agreement, we agreed to fund the development of the
proposed products, make milestone payments and, pay royalties to Antares on
sales of the products if and when the products are brought to market.
In
August
2001, we entered into a sublicense agreement with Solvay Pharmaceuticals, B.V.
covering the U.S. and Canadian rights to the estrogen/progestogen combination
transdermal hormone therapy gel product licensed from Antares. Under the terms
of the agreement, Solvay sublicenses our estrogen/progestogen combination
transdermal hormone therapy gel product for an initial payment of $2.5 million
($1.7 million net of the related payments due to Antares and Paladin), future
milestone payments and escalating sales-based royalties. Solvay has been
responsible for all costs of development to date.
We
have
sublicensed the marketing rights to our portfolio of hormone therapy products
(other than the estrogen/progestogen combination product) in Canada to Paladin
Labs Inc. In exchange for the sublicense, Paladin agreed to make an initial
investment in our company, make future milestone payments and pay royalties
on
sales of the products in Canada. The milestone payments will be in the form
of a
series of equity investments by Paladin in our common stock at a 10 percent
premium to the market price of our stock at the time the equity investment
is
made.
In
April
2002, we exclusively in-licensed from Wake Forest University and Cedars-Sinai
Medical Center three issued U.S. patents claiming triple hormone therapy (the
combination use of estrogen plus progestogen plus androgen, e.g. testosterone)
and obtained an option to license the patents for triple hormone contraception.
The financial terms of the license include an upfront payment by us in exchange
for exclusive rights to the license, and regulatory milestone payments,
maintenance payments and royalty payments by us if a product incorporating
the
licensed technology gets approved and subsequently marketed. In July 2005,
we
exercised the option for an exclusive license for the three U.S. patents for
triple hormone contraception. The financial terms of this license include an
upfront payment, regulatory milestone payments, maintenance payments and royalty
payments by us if a product incorporating the licensed technology gets approved
and subsequently marketed.
In
December 2002, we entered into a development and license agreement with Teva
Pharmaceuticals USA, Inc., a wholly-owned subsidiary of Teva Pharmaceutical
Industries Ltd., pursuant to which Teva USA agreed to develop our proposed
Bio-T-Gel product for the U.S. market. The financial terms of the development
and license agreement included a $1.5 million upfront payment by Teva USA and
royalties on sales of the commercialized product upon approval in exchange
for
rights to develop and market Bio-T-Gel. Teva USA is also responsible under
the
terms of this agreement for continued development, regulatory filings and all
manufacturing and marketing associated with the product. Teva USA has
discontinued development of Bio-T-Gel and indicated to us a desire to formally
terminate this agreement. Accordingly, we are in the process of exploring
various alternatives with respect to our Bio-T-Gel product, including licensing
the product to another third party or continuing the development of the product
ourselves. We believe the decision by Teva to discontinue the development of
Bio-T-Gel is based on strategic decisions by Teva.
Bio-E-Gel
and LibiGel are both non-partnered products; and therefore, we can control
better the timing and future development and commercialization of these
products, subject to customary and inevitable uncertainties associated with
the
product development process, regulatory approvals and market acceptance of
such
products. Those products we have licensed to others, such as Bio-E/P-Gel and
Bio-T-Gel, are reliant on our partners for timely development, obtaining
required regulatory approvals, commercialization and an ongoing commitment
to
the products, subject to regulatory and market conditions. From time to time,
based on various circumstances including market analysis or a change in the
strategic plan of the partner, a partner may elect to restructure its
arrangement which may result in entering into a revised agreement or a mutual
termination. Any restructuring or termination of these agreements by such
partners as Solvay Pharmaceuticals, B.V. or Teva Pharmaceuticals USA, Inc.
could
adversely affect the development and marketing of our licensed products if
we
are unable to license the proposed products to another qualified partner or
continue the development and future commercialization of the proposed products
ourselves. Unfortunately, the market for progestogen containing hormone therapy
products has declined dramatically in the last several years and the market
for
testosterone in men may change in the next couple of years since a generic
testosterone gel already has been approved. We will continue to monitor these
developments carefully.
CaP
Technology and Proposed Products.
Our CaP
technology, several of whose issued patents we license on an exclusive basis
from the University of California, is based on the use of extremely small,
solid, uniform particles, which we call “nanoparticles,” as immune system
boosters, for drug delivery and to purify the milk of transgenic animals, among
other uses. Our strategy with respect to CaP is to continue development of
our
nanoparticle technology and actively seek collaborators and licensees to fund
and accelerate the development and commercialization of products incorporating
the technology. In addition to continuing our own product development in the
potential commercial applications of our CaP technology, we have sought and
continue to seek opportunities to enter into business collaborations or joint
ventures with vaccine companies and others interested in development and
marketing arrangements with respect to our CaP technology. We believe these
collaborations may enable us to accelerate the development of potential improved
vaccines and vaccines that can be delivered other than by injection as well
as
delivery by non-injected routes products that now must be injected.
In
June
2003, we announced the signing of a CRADA with the U.S. Army’s Medical Research
Institute of Infectious Disease (USAMRIID) for the development of non-injected
biodefense vaccines, including anthrax, staph and ricin. The USAMRIID has agreed
to grant us an exclusive license to any U.S. patent application or issued patent
as a result of the work under the CRADA. The USAMRIID will cover all costs
associated with the CRADA.
In
January 2004, we announced the signing of a subcontract with DynPort Vaccine
Company LLC for the development of anthrax vaccines for delivery via alternative
routes of administration, including nasal, oral and needle-free transcutaneous
routes. Under the subcontract, we provide BioVant and DynPort provides
recombinant antigens to be used in potential vaccines against anthrax. The
objective is to assess the immunogenic potential of BioVant when used in anthrax
vaccines versus the immunogenic response of anthrax vaccines that use alum
as
the vaccine adjuvant. The subcontract is in support of the U.S. Department
of
Defense Joint Vaccine Acquisition Program. The subcontract is valued at
approximately up to $658,000. We have successfully completed the first year
of
this contract which should conclude in the second half of 2006. Revenue related
to this contract of $30,345 was recorded in the three months ended March 31,
2006.
In
September 2005, we signed a Material Transfer and Option Agreement for an
exclusive option to obtain an exclusive, worldwide license to use our CaP in
the
development of a series of allergy products. The partner company will fund
its
development of potential products for the treatment of conditions including
rhinitis, asthma, conjunctivitis, dermatitis, and allergic gastrointestinal
diseases. Under the terms of the agreement, we received a nonrefundable $250,000
upfront payment. We are recognizing revenue from this agreement on a pro rata
basis over the term of the agreement. The remainder of the upfront payment
is
recorded as deferred revenue. If the option is exercised and the parties enter
into an exclusive license agreement, we will receive a one-time license fee,
annual maintenance payments, milestone payments upon the achievement of
regulatory milestones and royalties on commercial sales of any allergy product
that is developed using CaP. Revenue related to this contract of $34,091 was
recorded in the three months ended March 31, 2006.
In
December 2005, we were awarded a subcontract by the University of
Nebraska-Lincoln for the development of recombinant Factor IX formulations
for
delivery via alternative routes of administration. The subcontract was awarded
to us as part of the University’s five year $10 million grant entitled “GMP
Recombinant FIX for IV and Oral Hemophilia B Therapy” from the National
Institutes of Health. Our subcontract is for the first year of the grant, and
if
warranted, we can apply to renew the subcontract in subsequent years. The first
year of the subcontract is valued at approximately $250,000. We believe this
subcontract leverages our expertise in alternative routes of drug
administration, specifically buccal and pulmonary administration using our
proprietary CaP BioOral and BioAir technologies. Revenue related to this
subcontract of $20,243 was recorded in the three months ended March 31,
2006.
In
February 2006, we signed an exclusive option and license agreement with Medical
Aesthetics Technology Corporation, or MATC, for the use of our CaP technology
in
the field of aesthetic medicine. Under the terms of the option and license
agreement, MATC will use our CaP technology to develop products for
commercialization in the field of aesthetic medicine, specifically, the
improvement and/or maintenance of the external appearance of the head, face,
neck and body. Within the first 12 months, MATC has the exclusive right to
exercise an option to secure a license to this technology in the field of
aesthetic medicine upon payment to us of a license fee. We have the right to
receive additional milestone payments upon approval by the FDA or first
commercial sale of each product containing CaP, a royalty on net sales of any
such products, and a share of any milestones and license fees from third party
sublicenses.
Results
of Operations
Three
Months Ended March 31, 2006 Compared to Three Months Ended March 31,
2005
The
following table sets forth our results of operations for the three months ended
March 31, 2006 and 2005.
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
$
|
Change
|
|
|
%
Change
|
|
Revenue
|
|
$
|
84,679
|
|
$
|
28,677
|
|
$
|
56,002
|
|
|
195.3
|
%
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,018,877
|
|
|
2,151,679
|
|
|
(1,132,802
|
)
|
|
(52.6
|
)%
|
General
and administrative
|
|
|
2,223,019
|
|
|
720,495
|
|
|
1,502,524
|
|
|
208.5
|
%
|
Interest
income
|
|
|
96,179
|
|
|
97,947
|
|
|
1,768
|
|
|
(1.8
|
)%
|
Net
loss
|
|
$
|
(3,228,495
|
)
|
$
|
(2,770,493
|
)
|
$
|
458,002
|
|
|
16.5
|
%
|
We
earned
$34,091 in licensing income during the three months ended March 31, 2006 due
to
the CaP option and material transfer agreement we entered into in September
2005
and no licensing income during the same period in 2005. We earned $50,588 and
$28,677 in grant revenue during the three months ended March 31, 2006 and 2005,
respectively. This increase is due to a subcontract we entered into with the
University of Nebraska in December 2005, for the development of alternative
routes of delivery of Factor IX formulations for Hemophilia B therapy.
Research
and development expenses for the three months ended March 31, 2006 decreased
53
percent compared to research and development expenses for the three months
ended
March 31, 2005 primarily as a result of completion of clinical development
of
certain of our hormone therapy products, including the Phase III clinical trial
of our Bio-E-Gel product, which was completed at the end of March 2005,
partially offset by the expenses related to the New Drug Application for
Bio-E-Gel, which was submitted to the FDA in February 2006. We expect our
research and development expenses to remain at approximately the same level
as
our first quarter 2006 until we commence our LibiGel Phase III trials, which
we
plan to commence in 2006.
General
and administrative expenses for the three months ended March 31, 2006 increased
209 percent compared to general and administrative expenses for the three months
ended March 31, 2005, primarily as result of additional legal costs incurred
due
to pending litigation of a personnel-related matter combined with the
recognition of $859,013 in non-cash stock-based compensation expense during
the
three months ended March 31, 2006 compared to $87,875 for the three months
ended
March 31, 2005 as a result of our adoption of SFAS No. 123(R) “Share-Based
Payment” (“SFAS 123”). Of the expenses recorded in the three months ended March
31, 2006, $746,616 related to a March 2006 grant of options with immediate
vesting to the non-employee members of the Company’s Board of Directors, which
were fully expensed on the grant date due to the terms of those awards. The
Company’s other stock option grants have remaining service lives of one to ten
years and will be amortized over that period. Certain of the Company’s stock
option grants also have milestone provisions, which will result in recognition
of expense when such milestones are probable of being reached.
Interest
income for the three months ended March 31, 2006 decreased 2 percent compared
to
interest income during the three months ended March 31, 2005, primarily as
a
result of lower invested cash balances, offset by higher interest rates on
invested cash balances in first quarter 2006.
The
overall increase in net loss for the three months ended March 31, 2006 compared
to the three months ended March 31, 2005 was primarily the impact of adopting
SFAS 123(R) and increases in general and administrative expenses, partially
offset by reductions in research and development expense and an increase in
revenue, as described above.
Liquidity
and Capital Resources
Working
Capital
All
of
our revenue to date has been derived from upfront and milestone payments earned
on licensing and sub-licensing
transactions and most recently, from a subcontract. To date, we have used
primarily equity financing and received licensing income to fund our ongoing
business operations and short-term liquidity needs, and we expect to continue
this practice for the foreseeable future. Since inception, we have raised net
proceeds of approximately $50.7 million from equity financings, class A and
class C stock conversions, warrant and option exercises and the issuance of
a
$500,000 convertible debenture, and have received $4.7 million, net of
sublicensing costs, as a result of licensing upfront payments and
milestones.
Our
cash,
cash equivalents and short-term investments available to fund current operations
were $7,054,798 and $9,101,531 at March 31, 2006 and December 31, 2005,
respectively. We expect our cash balance to decrease as we continue to use
cash
to fund our operations. We do not have any debt for borrowed money.
We
currently do not have sufficient resources to complete the commercialization
of
any of our proposed products. Based on our current cash balance and commitments,
we believe we should be able to maintain our current planned development
activities and the corresponding level of expenditures through at least the
next
twelve months, although no assurance can be given that we will not need
additional cash prior to such time. Our future capital requirements will depend
upon numerous factors, including:
· |
the
progress and costs of our research and development
programs;
|
· |
the
scope, timing and results of our clinical
trials;
|
· |
patient
recruitment and enrollment in our current and future clinical
trials;
|
· |
the
cost, timing and outcome of regulatory
reviews;
|
· |
the
rate of technological advances;
|
· |
ongoing
determinations of the potential commercial success of our proposed
products;
|
· |
our
general and administrative expenses, including legal expenses incurred
in
connection with pending and any future litigation of which we may
be
subject, and if we receive FDA approval of any of our proposed products,
the amount of resources we devote to sales and marketing
capabilities;
|
· |
our
ability to sublicense our products;
|
· |
the
activities of our competitors; and
|
· |
our
opportunities to acquire new products or take advantage of other
unanticipated opportunities.
|
If
we
raise additional funds through the issuance of equity securities, our
stockholders may experience dilution, which could be significant. Furthermore,
additional financing may not be available when needed or, if available,
financing may not be on terms favorable to us or our stockholders. If financing
is not available when required or is not available on acceptable terms, we
may
be required to delay, scale back or eliminate some or all of our programs
designed to facilitate the development of our proposed products, commercial
introduction of our products or restrict us from acquiring new products that
we
believe may be beneficial to our business.
Uses
of Cash and Cash Flow
We
used
cash in operating activities of $2,289,888 for the three months ended March
31,
2006 versus cash used in operating activities of $2,648,922 for the three months
ended March 31, 2005. The
decrease in cash used in operating activities primarily reflects the increase
in
non-cash stock-based compensation expense during the three months ended March
31, 2006 as a result of our adoption of SFAS No. 123(R) “Share-Based Payment”,
partially offset by an increase in our net loss over the same three month
period.
We
received $1,806,279 and $1,405,761 from the net sale of auction rate securities
for the three
months
ended March 31, 2006 and 2005, respectively. We used $520 for the purchase
of
computer equipment during the three months ended March 31, 2006 and $27,852
for
the purchase of computer, lab and office equipment during the three months
ended
March 31, 2005. Net
cash
provided by financing activities was $243,675 for the three
months
ended March 31, 2006 versus $157,168
for the three
months
ended March 31, 2005,
which
during both periods consisted of cash received due to option exercises, and
in
the case of the first quarter 2005, due to
warrant
exercises.
Commitments
and Contractual Obligations
We
did
not have any material commitments for capital expenditures as of March 31,
2006.
We have, however, several potential financial commitments, including product
development milestone payments to the licensor of our hormone therapy products,
payments under our license agreements with the University of California and
Wake
Forest University, as well as minimum annual lease payments. We refer you to
the
table summarizing the timing of these future contractual obligations and
commitments contained in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2005. There has been no material change in this
information.
We
expect
to continue to spend capital on:
· |
research
and development programs;
|
· |
pre-clinical
studies and clinical trials;
|
· |
general
administrative expenses, involving investor relations, legal and
accounting fees and expenses;
|
· |
establishment
of our own marketing capabilities or a search for third party sales
and
marketing partners to sell and market our products for us;
and
|
· |
the
licensure or acquisition of new products or sublicensing of our
products.
|
The
amount of capital we may need will depend on many factors, including
the:
· |
progress,
timing and scope of our research and development
programs;
|
· |
progress,
timing and scope of our pre-clinical studies and clinical
trials;
|
· |
time
and cost necessary to obtain regulatory
approvals;
|
· |
time
and cost necessary to establish our own sales and marketing capabilities
or to seek marketing partners to market our products for
us;
|
· |
time
and cost necessary to respond to technological and market
developments;
|
· |
changes
made or new developments in our existing collaborative, licensing
and
other commercial relationships;
|
· |
new
collaborative, licensing and other commercial relationships that
we may
establish; and
|
· |
costs
incurred in connection with pending and any future litigation of
which we
may be subject.
|
In
addition, our license agreement with the licensor of our hormone therapy
products requires us to make certain payments as development milestones are
achieved, and our license agreement with the University of California requires
us to have available minimum amounts of funds each year for research and
development activities relating to our licensed technology and to achieve
research and development milestones. Moreover, our fixed expenses, such as
rent,
license payments and other contractual commitments, may increase in the future
based on annual usage and subject to cancellation upon our request, as we
may:
· |
enter
into additional leases for new facilities and capital
equipment;
|
· |
enter
into additional licenses and collaborative agreements;
and
|
· |
incur
additional expenses associated with being a public
company.
|
Under
the
terms of the license agreements with the
University of California and Wake Forest University,
we have
the right to terminate the license agreements for any reason, with our only
obligation being the payment of monies owed to the date of
termination.
Off-Balance
Sheet Arrangements
Except
for operating leases entered in the ordinary course of business and customary
indemnification obligations under our license,
financing and other agreements,
we do
not have any off-balance sheet arrangements.
Critical
Accounting Policies
The
discussion and analysis of our financial statements and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amount of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. The Securities and Exchange Commission has defined a company’s most
critical accounting policies as those that are most important to the portrayal
of its financial condition and results of operations, and which requires the
company to make its most difficult and subjective judgments, often as a result
of the need to make estimates of matters that are inherently uncertain. Based
on
this definition, we have identified certain of our accounting policies as
critical accounting policies. Our critical accounting policies are described
in
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations” section of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2005. There have been no changes to the critical
accounting policies described in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2005, other than our adoption of SFAS No. 123(R), as
described herein. Although we believe that our estimates and assumptions are
reasonable, they are based upon information available when they are made. Actual
results may differ significantly from these estimates under different
assumptions or conditions.
Forward-Looking
Statements
This
quarterly report on Form 10-Q contains not only historical information, but
also
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended,
and are subject to the safe harbor created by those sections. In addition,
we or
others on our behalf may make forward-looking statements from time to time
in
oral presentations, including telephone conferences and/or web casts open to
the
public, in press releases or reports, on our Internet web site or otherwise.
All
statements other than statements of historical facts included in this report
that address activities, events or developments that we expect, believe or
anticipate will or may occur in the future are forward-looking statements
including, in particular, the statements about our plans, objectives, strategies
and prospects regarding, among other things, our financial condition, results
of
operations and business. We have identified some of these forward-looking
statements with words like “believe,” “may,” “could,” “might,” “possible,”
“potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,”
“anticipate,” “estimate,” “approximate,” “contemplate” or “continue” and other
words and terms of similar meaning. These forward-looking statements may be
contained in the notes to our financial statements and elsewhere in this report,
including under the caption “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” Our forward-looking statements generally
relate to:
· |
the
timing of the commencement and completion of our clinical trials
and other
regulatory status of our proposed
products;
|
· |
our
spending capital on research and development programs, pre-clinical
studies and clinical trials, regulatory processes, establishment
of
marketing capabilities and licensure or acquisition of new
products;
|
· |
whether
and how long our existing cash will be sufficient to fund our operations;
|
· |
our
need and ability to raise additional capital through future equity
and
other financings; and
|
· |
our
substantial and continuing losses.
|
Forward-looking
statements are based on current expectations about future events affecting
us
and are subject to uncertainties and factors that affect all businesses
operating in a global market as well as matters specific to us. These
uncertainties and factors are difficult to predict and many of them are beyond
our control. The following are some of the uncertainties and factors known
to us
that could cause our actual results to differ materially from what we have
anticipated in our forward-looking statements:
· |
Failure
to obtain and maintain required regulatory approvals for our proposed
products in a timely and cost-effective manner or at
all;
|
· |
FDA
requirements regarding size and duration of clinical trials required
to
obtain and maintain regulatory approvals for our proposed
products;
|
· |
Failure
of our proposed products to perform as expected in clinical
trials;
|
· |
Slow
patient enrollment in our clinical trials, untimely completion of
clinical
site protocol approval and obtaining informed consent form subjects,
longer treatment time required to demonstrate efficacy or safety
of our
proposed products, adverse medical events or side effects in patients
treated with our proposed products, lack of effectiveness of our
proposed
product and other risks associated with clinical
trials;
|
· |
Failure
of our proposed products if commercially introduced to obtain market
acceptance and generate any
revenues;
|
· |
Uncertainties
associated with the impact of published studies and research regarding
the
adverse health effects of certain forms of hormone
therapy;
|
· |
Highly
competitive nature of the markets in which we intend to sell our
products
and the introduction of competing
products;
|
· |
Failure
to maintain our rights to license our licensed
technology;
|
· |
Exposure
to assertions of intellectual property claims and failure to protect
our
intellectual property;
|
· |
Our
lack of experience and dependence upon others for clinical testing
and
manufacturing and sales and marketing
functions;
|
· |
Failure
to obtain additional capital when needed or on acceptable
terms;
|
· |
Failure
to comply with applicable laws and
regulations;
|
· |
Failure
to retain senior management and other key personnel or replace
lost senior
management or key personnel;
|
· |
Effects
of litigation, including threatened or pending
litigation;
|
· |
Adverse
changes in applicable laws or
regulations;
|
· |
Changes
in generally accepted accounting principles;
or
|
· |
Conditions
and changes in pharmaceutical industry or in general economic and
business
conditions.
|
For
more
information regarding these and other uncertainties and factors that could
cause
our actual results to differ materially from what we have anticipated in our
forward-looking statements or otherwise could materially adversely affect our
business, financial condition or operating results, see our Annual Report on
Form 10-K for the fiscal year ended December 31, 2005 under the heading “Part I
- Item 1A. Risk Factors” on pages 22 through 34 of such report.
All
forward-looking statements included in this report are expressly qualified
in
their entirety by the foregoing cautionary statements. We wish to caution
readers not to place undue reliance on any forward-looking statement that speaks
only as of the date made and to recognize that forward-looking statements are
predictions of future results, which may not occur as anticipated. Actual
results could differ materially from those anticipated in the forward-looking
statements and from historical results, due to the uncertainties and factors
described above, as well as others that we may consider immaterial or do not
anticipate at this time. Although we believe that the expectations reflected
in
our forward-looking statements are reasonable, we do not know whether our
expectations will prove correct. Our expectations reflected in our
forward-looking statements can be affected by inaccurate assumptions we might
make or by known or unknown uncertainties and factors, including those described
above. The risks and uncertainties described above are not exclusive and further
information concerning us and our business, including factors that potentially
could materially affect our financial results or condition, may emerge from
time
to time. We assume no obligation to update, amend or clarify forward-looking
statements to reflect actual results or changes in factors or assumptions
affecting such forward-looking statements. We advise you, however, to consult
any further disclosures we make on related subjects in our annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K we
file with or furnish to the Securities and Exchange Commission.
We
are
exposed to interest rate risk on the investments of our excess cash, although
due to the nature of our short-term investments, we have concluded that such
risk is not material. The primary objective of our investment activities is
to
preserve principal while at the same time maximize yields without significantly
increasing risk. To achieve this objective, we invest in highly liquid and
high
quality debt securities. To minimize the exposure due to adverse shifts in
interest rates, we invest in short-term securities with maturities of less
than
one year.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Rules 13a-15(e)
and
15d-15(e) under the Securities Exchange Act of 1934, as amended) that are
designed to reasonably ensure that information required to be disclosed by
us in
the reports we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized, and reported, within the time
periods specified in the Securities and Exchange Commission’s rules and forms
and that such information is accumulated and communicated to our management,
including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and
procedures, we recognize that any controls and procedures, no matter how well
designed and operated can provide only reasonable assurance of achieving the
desired control objectives and we necessarily are required to apply our judgment
in evaluating the cost-benefit relationship of possible controls and procedures.
Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of the design and operation
of
our disclosure controls and procedures as of the end of the period covered
in
this quarterly report on Form 10-Q. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of such period to provide
reasonable assurance that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms, and that material information
relating to our company and our consolidated subsidiaries is made known to
management, including our Chief Executive Officer and Chief Financial Officer,
particularly during the period when our periodic reports are being
prepared.
Changes
in Internal Control Over Financial Reporting
There
was
no change in our internal control over financial reporting that occurred during
our quarter ended March 31, 2006 that has materially affected, or is reasonably
likely to materially affect our internal control over financial
reporting.
ITEM
1. LEGAL
PROCEEDINGS
A
description of our legal proceedings in note 5 of our financial statements
included within this report is incorporated herein by reference.
ITEM
1A. RISK
FACTORS
We
are
affected by risks specific to us as well as factors that affect all businesses
operating in a global market. The significant factors known to us that could
materially adversely affect our business, financial condition or operating
results are described in our Annual Report on Form 10-K for the year ended
December 31, 2005 under the heading “Part I - Item 1A. Risk Factors.” There has
been no material change in those risk factors.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Recent
Sales of Unregistered Equity Securities
During
the three months ended March 31, 2006, we did not issue any equity securities
that were not registered under the Securities Act of 1933, as
amended.
Issuer
Purchases of Equity Securities
Other
than the withholding of 91,768 shares of our common stock in connection with
the
cashless net exercise of stock options, we did not purchase any shares of our
common stock or other equity securities during the three months ended March
31,
2006, and our board of directors has not authorized any repurchase plan or
program for purchase of our shares of common stock or other equity securities
on
the open market or otherwise.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
Not
applicable.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
ITEM
5. OTHER
INFORMATION
Not
applicable.
ITEM
6. EXHIBITS
The
following exhibits are being filed or furnished with this quarterly report
on
Form 10-Q:
10.1 Third
Amendment to Lease dated as of January 27, 2006, by and between BioSante
Pharmaceuticals, Inc. and LaSalle Bank National Association, as successor
trustee to American National Bank and Trust Company of Chicago
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and SEC Rule 13a-14(a)
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and SEC Rule 13a-14(a)
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
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, hereunto
duly authorized.
May
12, 2006
|
BIOSANTE
PHARMACEUTICALS, INC.
|
|
|
|
By:
/s/ Stephen M. Simes
Stephen
M. Simes
President
and Chief Executive Officer
(principal
executive officer)
|
|
By:
/s/ Phillip B. Donenberg
Phillip
B. Donenberg
Chief
Financial Officer, Treasurer and Secretary
(principal
financial and accounting officer)
|
BIOSANTE
PHARMACEUTICALS, INC.
QUARTERLY
REPORT ON FORM 10-Q
Exhibit
No.
|
Description
|
Method
of
Filing
|
10.1
|
Third
Amendment to Lease dated as of January 27, 2006, by and between BioSante
Pharmaceuticals, Inc. and LaSalle Bank National Association, as successor
trustee to American National Bank and Trust Company of
Chicago
|
Incorporated
by reference to Exhibit 10.1 to our Current Report on Form 8-K dated
January 27, 2006
(SEC
File No. 001-31812)
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and SEC Rule 13a-14(a)
|
Filed
herewith
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and SEC Rule 13a-14(a)
|
Filed
herewith
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Furnished
herewith
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Furnished
herewith
|