2007 first quarter 10-Q for BioSante
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, 2007
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 001-31812
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer: o Accelerated
filer: o Non-accelerated
filer: 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
April 30, 2007, 23,084,663 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, 2007
TABLE
OF CONTENTS
Description
|
Page
|
|
|
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
ITEM
1.
|
Financial
Statements (unaudited)
|
|
|
Balance
Sheets as of March 31, 2007 and December 31, 2006
|
3
|
|
Statements
of Operations for the three months ended March 31, 2007 and
2006
|
4
|
|
Statements
of Cash Flows for the three months ended March 31, 2007 and
2006
|
5
|
|
Notes
to the Financial Statements
|
6-9
|
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10-18
|
ITEM
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
19
|
ITEM
4.
|
Controls
and Procedures
|
19
|
PART
II.
|
OTHER
INFORMATION
|
21
|
ITEM
1.
|
Legal
Proceedings
|
21
|
ITEM
1A.
|
Risk
Factors
|
21
|
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
21
|
ITEM
3.
|
Defaults
Upon Senior Securities
|
22
|
ITEM
4.
|
Submission
of Matters to a Vote of Security Holders
|
22
|
ITEM
5.
|
Other
Information
|
22
|
ITEM
6.
|
Exhibits
|
22
|
SIGNATURE
PAGE
|
23
|
Exhibit
Index
|
24
|
_____________
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®,
Elestrin™, LibiGel®,
Bio-E-Gel®,
Bio-E/P-Gel™, LibiGel-E/T™ Bio-T-Gel™, The Pill-plus™, BioVant™, NanoVant™,
CAP-Oral™ and BioAir™. This report also contains trademarks, trade names and
service marks that are owned by other persons or entities.
BIOSANTE
PHARMACEUTICALS, INC.
|
Balance
Sheets
|
March
31, 2007 and December 31, 2006 (Unaudited)
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,290,742
|
|
$
|
7,653,852
|
|
Short-term
investments
|
|
|
3,856,965
|
|
|
3,795,977
|
|
Accounts
receivable
|
|
|
3,514,711
|
|
|
10,510,529
|
|
Prepaid
expenses and other sundry assets
|
|
|
256,521
|
|
|
248,116
|
|
|
|
|
18,918,939
|
|
|
22,208,474
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
104,124
|
|
|
137,040
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Security
deposits
|
|
|
25,326
|
|
|
25,326
|
|
|
|
$
|
19,048,389
|
|
$
|
22,370,840
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
643,845
|
|
$
|
621,818
|
|
Due
to licensor - Antares
|
|
|
875,000
|
|
|
2,625,000
|
|
Provision
for contingencies
|
|
|
412,941
|
|
|
550,588
|
|
Accrued
compensation
|
|
|
289,604
|
|
|
368,522
|
|
Other
accrued expenses
|
|
|
175,236
|
|
|
65,500
|
|
Deferred
revenue
|
|
|
34,091
|
|
|
68,182
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
2,430,717
|
|
|
4,299,610
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
Issued
and Outstanding
|
|
|
|
|
|
|
|
2007
- 391,286; 2006 - 391,286 Class C special stock
|
|
|
391
|
|
|
391
|
|
2007
- 23,027,540; 2006 - 22,975,040 Common stock
|
|
|
65,331,346
|
|
|
64,967,887
|
|
|
|
|
65,331,737
|
|
|
64,968,278
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(48,714,065
|
)
|
|
(46,897,047
|
)
|
|
|
|
16,617,672
|
|
|
18,071,231
|
|
|
|
$
|
19,048,389
|
|
$
|
22,370,840
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial statements.
|
|
|
|
|
|
|
|
BIOSANTE
PHARMACEUTICALS, INC.
|
Statements
of Operations
|
Three
months ended March 31, 2007 and 2006
(Unaudited)
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
Licensing
revenue
|
|
$
|
34,091
|
|
$
|
34,091
|
|
Grant
revenue
|
|
|
16,517
|
|
|
50,588
|
|
|
|
|
|
|
|
|
|
|
|
|
50,608
|
|
|
84,679
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
Research
and development
|
|
|
913,852
|
|
|
1,002,539
|
|
General
and administration
|
|
|
771,589
|
|
|
1,520,344
|
|
Stock
compensation expense
|
|
|
220,798
|
|
|
859,013
|
|
Depreciation
and amortization
|
|
|
32,916
|
|
|
27,457
|
|
|
|
|
|
|
|
|
|
|
|
|
1,939,155
|
|
|
3,409,353
|
|
|
|
|
|
|
|
|
|
OTHER
- Interest income
|
|
|
146,529
|
|
|
96,179
|
|
|
|
|
|
|
|
|
|
NET
LOSS BEFORE INCOME
|
|
|
|
|
|
|
|
TAX
EXPENSE
|
|
|
(1,742,018
|
)
|
|
(3,228,495
|
)
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
75,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(1,817,018
|
)
|
$
|
(3,228,495
|
)
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS
|
|
|
|
|
|
|
|
PER
SHARE (Note 2)
|
|
$
|
(0.08
|
)
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER
|
|
|
|
|
|
|
|
OF
SHARES OUTSTANDING
|
|
|
23,367,493
|
|
|
19,426,895
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial statements.
|
|
|
|
|
|
|
|
BIOSANTE
PHARMACEUTICALS, INC.
|
Statements
of Cash Flows
|
Three
months ended March 31, 2007 and 2006
(Unaudited)
|
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,817,018
|
)
|
$
|
(3,228,495
|
)
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
net
cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
32,916
|
|
|
27,457
|
|
Employee
& director compensation - noncash
|
|
|
220,798
|
|
|
859,013
|
|
Changes
in other assets and liabilities
|
|
|
|
|
|
|
|
affecting
cash flows from operations
|
|
|
|
|
|
|
|
Prepaid
expenses and other sundry assets
|
|
|
(8,405
|
)
|
|
17,500
|
|
Accounts
receivable
|
|
|
6,995,818
|
|
|
-
|
|
Accounts
payable and accrued liabilities
|
|
|
(1,697,155
|
)
|
|
(71,272
|
)
|
Provision
for contingencies
|
|
|
(137,647
|
)
|
|
140,000
|
|
Deferred
revenue
|
|
|
(34,091
|
)
|
|
(34,091
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
3,555,216
|
|
|
(2,289,888
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Redemption
of short term investments
|
|
|
-
|
|
|
1,902,458
|
|
Purchase
of short term investments
|
|
|
(60,988
|
)
|
|
(96,179
|
)
|
Purchase
of capital assets
|
|
|
-
|
|
|
(520
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(60,988
|
)
|
|
1,805,759
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from sale or conversion of shares
|
|
|
142,662
|
|
|
243,675
|
|
Net
cash provided by financing activities
|
|
|
142,662
|
|
|
243,675
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
3,636,890
|
|
|
(240,454
|
)
|
CASH
AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
AT
BEGINNING OF PERIOD
|
|
|
7,653,852
|
|
|
310,643
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
11,290,742
|
|
$
|
70,189
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY
INFORMATION
|
|
|
|
|
|
|
|
Other
information:
|
|
|
|
|
|
|
|
Income
tax paid
|
|
$
|
75,000
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial statements.
|
|
|
|
|
|
|
|
BIOSANTE
PHARMACEUTICALS, INC.
FORM
10-Q
MARCH
31, 2007
Notes
to the Financial Statements (Unaudited)
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, 2007, the results of operations for the three months ended
March
31, 2007 and 2006, and the cash flows for the three months ended March 31,
2007
and 2006, in conformity with accounting principles generally accepted in the
United States of America. Operating results for the three month period ended
March 31, 2007 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2007.
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, 2006.
Certain
2006 amounts have been reclassified to conform to 2007
presentation.
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,
2007 does not include options to purchase an aggregate of 1,371,788 shares
of
common stock, with exercise prices ranging from $2.10 to $6.70 per share, and
warrants to purchase an aggregate of 2,534,210 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, 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 ranging from $2.15 to $7.00 per
share, because of their antidilutive effect on net loss per share.
In
November 2006, the Company entered into an exclusive sublicense agreement with
Bradley Pharmaceuticals, Inc. for the marketing of Elestrin, our estradiol
gel,
in the United States. Upon execution of the sublicense agreement, the Company
received an upfront payment of $2.625 million. In addition, Bradley paid the
Company $7 million in the first quarter of 2007 triggered by the FDA approval
of
Elestrin in the U.S. and an additional $3.5 million is due on the one-year
anniversary of such approval during the fourth quarter of 2007. Upon receipt
of
the $7 million payment, the Company paid Antares Pharma IPL AG (“Antares”), the
Company’s licensor of the transdermal estradiol gel formulation in Elestrin, 25
percent of such payment resulting in the Company receiving a net payment of
$5.25 million from Bradley and upon receipt of the additional $3.5 million
payment, the Company will be obligated to pay Antares 25 percent of such payment
resulting in the Company receiving a net payment of $2.625 million from Bradley.
Bradley also has agreed to pay the Company additional sales-based milestone
payments, plus royalties on sales of Elestrin. The Company will pay a
portion
of sales-based milestone payments and royalties to Antares.
It is
the Company’s understanding that Bradley is planning to commercially launch
Elestrin in mid-2007.
In
May
2006, the Company, certain officers, one of its directors and a former officer
entered into a Settlement Agreement related to a personnel matter, under which
the Company agreed to pay the former officer post-termination payments in the
aggregate amount of $780,000 in equal installments in accordance with the
Company’s regular payroll cycle through December 31, 2007, plus $110,000 of
legal fees incurred by the former officer. As required by the agreement, the
payments are secured by an irrevocable letter of credit, which is supported
by
the Company’s short-term investment account. The outstanding balance under the
letter of credit and corresponding accrued liability was $412,941 as of March
31, 2007 and will continue to decrease as payments are made through December
2007. In August 2006, the Company’s employment practices liability carrier paid
the Company $500,000 in settlement of the Company’s claim against the carrier
for coverage in this matter. The costs of the Settlement Agreement and
corresponding insurance payment receipt were included in general and
administrative expenses in the statements of operations in 2006.
On
March
28, 2007, the Company received notice that the staff of the Securities and
Exchange Commission’s Division of Enforcement (the “Staff”) is conducting an
inquiry arising out of allegations contained in a complaint made by the former
officer with whom the Company entered into the above-described settlement
agreement to the U.S. Department of Labor, Occupational Safety & Health
Administration (“OSHA”) in February 2006 under the “whistleblower” provision of
the Sarbanes-Oxley Act of 2002 (“SOX”). Immediately upon notice of the former
officer’s intent to file the SOX complaint in January 2006, the Board of
Directors of the Company directed that an investigation be made into the
allegations of securities and other law violations contained in the former
officer’s SOX complaint. The results of the investigation led to the conclusion
by the Company and the Company’s outside legal counsel that the allegations in
the SOX complaint were without merit. OSHA closed its investigation into the
SOX
complaint in August 2006. The Staff has informed the Company that the Staff’s
investigation into the matter should not be construed as an indication by the
SEC or
the
Staff that any violation of law has occurred. The
Company intends to fully cooperate with the Staff. In this regard, the Company’s
legal counsel recently met with members of the Staff to discuss the matter,
including the background of the personnel matter and the fact that the Company
had previously conducted an investigation into the allegations contained in
the
SOX complaint.
5. |
STOCK-BASED
COMPENSATION
|
The
Company adopted Statement of Financial Accounting Standards (“SFAS”) 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 Accounting Principles Board 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, 2007, the Company maintained one stock-based compensation plan, the
BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan, which
is
described below. The non-cash, stock-based compensation cost that has been
incurred by the Company in connection with this plan was $220,798 and $859,013
for the three months ended March 31, 2007 and 2006, respectively. No income
tax
benefit has been recognized in the Company’s statement of operations for
stock-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, 2007, 3,000,000 shares of the Company’s common
stock were reserved for issuance under the Plan, and 1,317,820 shares remained
available for issuance, in each case, subject to adjustment as provided in
the
Plan. The Company believes that equity-based incentives, such as stock options
and stock awards, align the interest of its employees, directors and consultants
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 which were exercisable immediately. In these instances,
stock-based compensation expense 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 at any time but may not reprice any outstanding
options without obtaining stockholder approval.
The
fair
value of each option grant has been estimated on the date of grant using the
Black-Scholes option-pricing-model. The assumptions in the table below reflect
the weighted average of all stock option grants during the first quarter ended
March 31, 2007 and 2006.
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
Expected
life in years
|
|
|
10
|
|
|
10
|
|
Annualized
volatility
|
|
|
71.00
|
%
|
|
73.94
|
%
|
Discount
rate - bond equivalent yield
|
|
|
4.82
|
%
|
|
4.10
|
%
|
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 the yield on a United States Treasury note as of the grant date with
a
maturity equal to the estimated life of the option. The Company has not in
the
past issued a cash dividend, nor does it have any current plans to do so in
the
future; therefore, an expected dividend yield of zero was used.
A
summary
of activity under the Plan during the three months ended March 31, 2007 is
presented below:
Options
|
|
Option
Shares
|
|
Weighted
Average Exercise Price
|
|
Outstanding
December 31, 2006
|
|
|
1,011,479
|
|
$
|
3.61
|
|
Granted
|
|
|
455,000
|
|
|
2.98
|
|
Exercised
|
|
|
0
|
|
|
0
|
|
Forfeited
or expired
|
|
|
(94,691
|
)
|
|
4.99
|
|
Outstanding
March 31, 2007
|
|
|
1,371,788
|
|
$
|
3.31
|
|
(weighted
average contractual term)
|
|
|
8.45
years
|
|
|
|
|
Exercisable
at March 31, 2007
|
|
|
810,753
|
|
$
|
3.41
|
|
(weighted
average contractual term)
|
|
|
6.2
years
|
|
|
|
|
The
aggregate intrinsic values of the Company’s outstanding and exercisable options
as of March 31, 2007 were $3,657,619 and $2,090,855, respectively.
A
summary
of the Plan’s non-vested options at December 31, 2006 and activity under the
Plan during the three months ended March 31, 2007 is presented below:
Options
|
|
Option
Shares
|
|
Weighted
Average Grant Date Fair-Value
|
|
Outstanding
December 31, 2006
|
|
|
207,833
|
|
$
|
3.65
|
|
Granted
|
|
|
455,000
|
|
|
2.98
|
|
Vested
|
|
|
(77,145
|
)
|
|
3.95
|
|
Forfeited
|
|
|
(24,668
|
)
|
|
4.99
|
|
Non-Vested
at March 31, 2007
|
|
|
561,020
|
|
$
|
3.14
|
|
As
of
March 31, 2007, there was $1,269,312 of total unrecognized compensation cost
related to non-vested stock-based compensation arrangements granted under the
Plan. The cost is expected to be recognized over a weighted-average period
of
2.35 years.
There
were no options exercised under the Plan for the three months ended March 31,
2007.
The
company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109
(“FIN 48”) on January 1, 2007. FIN 48 requires companies to determine
whether it is “more likely than not” that a tax position will be sustained upon
examination by the appropriate taxing authorities before any tax benefit can
be
recorded in the financial statements. It also provides guidance on the
recognition, measurement, classification and interest and penalties related
to
uncertain tax positions. The adoption of FIN 48 did not have an impact on our
results of operations or financial condition.
During
the three months ended March 31, 2007, a warrant to purchase 52,500 shares
of
common stock was exercised for total cash proceeds of $144,375.
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This
Management’s Discussion and Analysis provides material historical and
prospective disclosures intended to enable investors and other users to assess
our financial condition and results of operations. Statements that are not
historical are forward-looking and involve risks and uncertainties discussed
under the 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.
Business
Overview
We
are a
biopharmaceutical company that licenses and develops hormone therapy products
to
treat men and women. We also are engaged in the development of our proprietary
calcium phosphate nanotechnology, or CaP, primarily for vaccine adjuvants or
immune system boosters and drug delivery systems.
Our
hormone therapy products are gel formulations of testosterone, estradiol, and
various combinations of estrogens, progestogens and androgens. Our hormone
therapy products include Elestrin, LibiGel, Bio-E/P-Gel, LibiGel-E/T, Bio-T-Gel
and triple hormone contraceptives. We license the technology underlying our
hormone therapy products, except Bio-T-Gel and triple hormone contraceptives,
from Antares Pharma IPL AG. Bio-T-Gel was developed and is fully-owned by us.
Our license agreement with Antares required us to pay an up-front license fee
to
Antares, certain development and regulatory milestone payments and to pay
royalties to Antares based on a percentage of the net sales of any products
we
or our sublicensees sell incorporating the licensed technology. We license
the
technology underlying our proposed triple hormone contraceptives from Wake
Forest University Health Sciences (formerly known as Wake Forest University)
and
Cedars-Sinai Medical Center. The financial terms of this license include an
upfront license fee, regulatory milestone payments, maintenance payments and
royalty payments by us if a product incorporating the licensed technology gets
approved and subsequently marketed.
We
have
entered into several sublicense agreements covering our hormone therapy
products, including an agreement with Solvay Pharmaceuticals, B.V. covering
the
U.S. and Canadian rights to the estrogen/progestogen combination transdermal
hormone therapy gel product, a development and license agreement with Teva
Pharmaceuticals USA, Inc., pursuant to which Teva USA agreed to develop our
proposed Bio-T-Gel product for the U.S. market and an agreement with Paladin
Labs Inc. covering Canadian rights to certain of our hormone therapy products.
The financial terms of these agreements generally include an upfront license
fee, milestone payments, and royalty payments to us if a product incorporating
the licensed technology gets approved and subsequently marketed.
In
November 2006, we entered into an exclusive sublicense agreement with Bradley
Pharmaceuticals, Inc. for the marketing of Elestrin in the United States. Upon
execution of the agreement, we received an upfront payment of $2.625 million.
In
addition, in March 2007, Bradley paid us $5.25 million which was triggered
by
FDA approval of Elestrin in the U.S. and has agreed to pay us an additional
$2.625 million which is due on the one-year anniversary of such approval during
the fourth quarter of 2007. These payments are net of license fees we
are required to pay Antares as a result of our receipt of such
payments from Bradley. Bradley also has agreed to pay us additional sales-based
milestone payments, plus royalties on sales of Elestrin. It is our understanding
that Bradley is planning to commercially launch Elestrin in
mid-2007.
We
completed our pivotal Phase III clinical trial of Elestrin in April 2005,
submitted an NDA for Elestrin with the FDA in February 2006 and received FDA
approval for Elestrin in December 2006. The Elestrin FDA approval is a
non-conditional and full approval with no Phase IV development commitments.
In
addition, we received three years of marketing exclusivity for Elestrin. Our
proposed LibiGel product has successfully completed a Phase II clinical trial,
and we began the first of two Phase III clinical trials in December 2006. We
believe based on FDA guidance to us that two Phase III safety and efficacy
trials and one year of LibiGel exposure in a separate safety trial with a four
year follow-up post-NDA filing and FDA approval are the essential requirements
for submission and, if successful, approval by the FDA of an NDA for LibiGel.
In
April
2007, we announced that a new patent has issued covering the formulations used
in Elestrin™ (estradiol gel), our newly approved treatment for moderate to
severe vasomotor symptoms associated with menopause and LibiGel®
(testosterone gel), which recently moved into Phase III clinical development
for
the treatment of female sexual dysfunction. The patent, which was issued on
April 3, 2007 covering both Elestrin and LibiGel, will expire on June 25,
2022.
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. For example, under a
subcontract with DynPort Vaccine Company LLC, we provided BioVant, our vaccine
adjuvant, and DynPort provided recombinant antigens to be used in potential
vaccines against anthrax. The objective was 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. We have completed this
subcontract and recorded approximately $300,000 in revenue over the life of
the
subcontract with $1,806 and $82,985 recognized in 2007 and 2006, respectively.
Currently, we are seeking additional funding from government sources or
potential partners for our anthrax program.
Financial
Overview
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 in the
foreseeable future, although Bradley, our marketing partner for Elestrin,
expects to commercially launch Elestrin in mid-2007, at which point we will
then
be entitled to receive royalties on any net sales of Elestrin and additional
milestone payments upon the achievement of certain sales-based
milestones.
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. In 2006, we recognized $14 million
in
licensing revenue as a result of the execution of our sublicense agreement
with
Bradley and subsequent FDA approval of Elestrin in December 2006. Upon execution
of the Bradley agreement, we received an upfront payment of $2.625 million.
In
addition, in March 2007, Bradley paid us $5.25 million and has agreed to pay
us
an additional $2.625 million which is due on the one-year anniversary of such
approval during the fourth quarter of 2007. These payments are net of license
fees we are required to pay Antares as a result of our receipt of such payments
from Bradley. Our cash, cash equivalents and short-term investments were
$15,147,707 as of March 31, 2007.
Our
business operations to date have consisted mostly of licensing and research
and
development activities, and we expect this to continue for the immediate future.
If and when our proposed products for which we have not entered into marketing
relationships receive FDA approval, we may begin to incur other expenses,
including sales and marketing related expenses if we choose to market the
products ourselves.
We
currently do not have sufficient resources on a long-term basis to complete
the
commercialization of any of our proposed products for which we have not entered
into marketing relationships. Based on our current cash resources, including
the
net proceeds we received from the additional sublicensing payments we recently
received from Bradley, and our current 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 or seek additional cash prior to
such time. As an alternative to raising additional financing, we may be able
to
license LibiGel to a third party who would finance the continued development
and
if approved, commercialization of LibiGel.
We
spent
an average of approximately $300,000 to $350,000 per month on research and
development activities in the first quarter of 2007. Our research and
development expenses decreased $88,687 or 9 percent, to $913,852 for the three
months ended March 31, 2007 from $1,002,539 for the three months ended March
31,
2006, primarily as a result of the filing of the NDA for Elestrin in February
2006. We expect our research and development expenses to be higher for the
remainder of 2007 and beyond compared to the first three months of 2007 as
a
result of the commencement of our Phase III clinical development program for
LibiGel, which began in December 2006. Specifically, we expect our research
and
development expenses to increase to approximately $600,000 to $800,000 per
month
beginning in the third quarter of 2007. 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.
Our
general and administrative expenses for the three months ended March 31, 2007
decreased $748,755 or 49 percent, compared to the three months ended March
31,
2006. This decrease was due to higher legal and business development costs
during the previous period, including costs associated with a personnel-related
matter. 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.
Although
we recognized net income of $2,791,273 for the year ended December 31, 2006
primarily due to recognizing $14 million in licensing revenue as a result of
the
execution of our sublicense agreement with Bradley and subsequent FDA approval
of Elestrin in 2006, we have incurred losses in recent years and expect to
incur
substantial and continuing losses for the foreseeable future. As of March 31,
2007, our accumulated deficit was $48,714,065. Although we expect Bradley to
commercially launch Elestrin in mid-2007 for which we will be entitled to
receive royalties on the net sales of Elestrin as well as sales-based milestone
payments, we expect to incur substantial and continuing losses for the
foreseeable future as our own product development programs expand and various
preclinical and clinical trials commence or continue, including in particular
the Phase III clinical trial program for our LibiGel product which commenced
in
December 2006. The amount of these losses may vary significantly from
year-to-year and quarter-to-quarter and will depend on, among other
factors:
· |
the
timing and cost of product
development;
|
· |
the
progress and cost of preclinical and clinical development
programs;
|
· |
the
timing and cost of obtaining necessary regulatory
approvals;
|
· |
the
commercial success and net sales of Elestrin, on which we will receive
royalties and potential sales-based milestone payments;
and
|
· |
the
costs of licensure or acquisition of new
products.
|
Results
of Operations
Three
Months Ended March 31, 2007 Compared to Three Months Ended March 31,
2006
The
following table sets forth our results of operations for the three months ended
March 31, 2007 and 2006.
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
2007
|
|
2006
|
|
$
Change
|
|
%
Change
|
|
Revenue
|
|
$
|
50,608
|
|
$
|
84,679
|
|
$
|
(34,071
|
)
|
|
(40.2
|
)%
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
913,852
|
|
|
1,002,539
|
|
|
(88,687
|
)
|
|
(8.8
|
)%
|
General
and administrative
|
|
|
771,589
|
|
|
1,380,344
|
|
|
(608,755
|
)
|
|
(44.1
|
)%
|
Stock
compensation expense
|
|
|
220,798
|
|
|
859,013
|
|
|
(638,215
|
)
|
|
(74.3
|
)%
|
Interest
income
|
|
|
146,529
|
|
|
96,179
|
|
|
50,350
|
|
|
52.4
|
%
|
Net
loss
|
|
$
|
(1,817,018
|
)
|
$
|
(3,228,495
|
)
|
$
|
(1,411,477
|
)
|
|
(43.7
|
)%
|
Revenue
decreased $34,071 primarily as a result of the completion of the company’s
activities under the Dynport subcontract which terminated in December 2006.
Research
and development expenses for the three months ended March 31, 2007 decreased
9
percent compared to the three months ended March 31, 2006 primarily as a result
of the submission of our NDA for Elestrin in February 2006, and the subsequent
reduction in Elestrin-related expenditures following that submission.
General
and administrative expenses for the three months ended March 31, 2007 decreased
44 percent compared to the three months ended March 31, 2006 primarily as a
result of legal fees incurred and related provisions recorded in the first
quarter of 2006 in connection with a personnel-related matter.
Stock
compensation expense decreased 74% as a result of the recognition of $220,798
in
non-cash stock-based compensation expense during the three months ended March
31, 2007 compared to $859,013 for the three months ended March 31, 2006. A
portion of the expense related to a March 2007 grant of options with immediate
vesting to a non-employee consultant of the Company, which was fully expensed
on
the grant date due to the term of the award. 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, 2007 increased 52 percent compared
to interest income for the three months ended March 31, 2006 as a result of
higher average invested cash balances and higher average interest rates on
invested cash balances during the first three months of 2007 compared to the
same period in 2006.
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 from subcontracts. We have
not
commercially introduced any products and do not expect to do so in the
foreseeable future, although our marketing partner for our Elestrin product,
Bradley Pharmaceuticals, Inc., expects to commercially launch Elestrin in
mid-2007, at which point we will then be entitled to receive royalties on any
net sales of Elestrin and milestone payments upon the achievement of certain
sales-based milestones. Our cash, cash equivalents and short-term investments
available to fund current operations were $15,147,707 and $11,449,829 at March
31, 2007 and December 31, 2006, respectively. The increase in our cash and
short-term investment balances was primarily due to our receipt during the
first
quarter of 2007 of a net payment of $5.25 million as a result of our sublicense
agreement with Bradley, partially offset by our use of cash to fund operations.
We do not have any outstanding debt.
Our
business operations to date have consisted mostly of licensing and research
and
development activities, and we expect this to continue for the immediate future.
If and when our proposed products for which we have not entered into marketing
relationships receive FDA approval, we may begin to incur other expenses,
including sales and marketing related expenses if we choose to market the
products ourselves. We currently do not have sufficient resources to obtain
regulatory approval of our other proposed products or to complete the
commercialization of any of our proposed products. We expect the Phase III
clinical trial program of LibiGel to require significant resources. Therefore,
we may need to raise substantial additional capital to fund our operations
or
alternatively, we may choose to sublicense another product for development
and
commercialization or enter into other business collaborations or
combinations.
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. During the three months ended March
31, 2007, we also received $144,375 in cash proceeds from a warrant
exercise.
We
believe that our cash and short-term investments as of March 31, 2007, together
with payments we expect to receive from Bradley under our sublicense agreement
with Bradley, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. However,
we
may seek to obtain additional financing prior to that 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
commercial success and net sales of Elestrin, on which we will receive
royalties and potential sales-based milestone
payments;
|
· |
the
rate of technological advances;
|
· |
ongoing
determinations of the potential commercial success of our proposed
products;
|
· |
our
general and administrative
expenses;
|
· |
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, or
additional sublicense agreements are not signed, 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
received cash from operating activities of $3,555,216 for the three months
ended
March 31, 2007 versus cash used in operating activities of $2,289,888 for the
three months ended March 31, 2006. Net cash was provided by operations in the
first quarter ended March 31, 2007 primarily due to the receipt of a net payment
of $5,250,000 from Bradley under the licensing agreement for Elestrin. Cash
used
in operating activities for the first three months of 2006 was primarily the
result of the net loss for that period. Net cash used in investing activities
was $60,988 for the three months ended March 31, 2007 versus cash provided
by
investing activities of $1,805,759 for the three months ended March 31, 2006.
Redemption of short-term investments provided $1,902,458 in cash during the
first three months of 2006. Net cash provided by financing activities during
the
three months ended March 31, 2007 was $142,662, which resulted from a warrant
exercise. Net cash provided by financing activities during the three months
ended March 31, 2006 was $243,675 and was the result of option
exercises.
We
recorded and paid $75,000 in income tax expense during the quarter ended March
31, 2007 as we were subject to the corporate alternative minimum tax
provision.
Commitments
and Contractual Obligations
We
did
not have any material commitments for capital expenditures as of March 31,
2007.
We have, however, several potential financial commitments, including product
development milestone payments to the licensors of our hormone therapy products,
payments under our license agreement with Wake Forest University Health
Sciences, as well as minimum annual lease payments. We refer you to our most
recently filed annual report on Form 10-K for further details regarding our
contractual obligations. 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; and
|
· |
the
licensure or acquisition of new products, general business development
including out-licensing of our products in our
territories.
|
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 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; and
|
· |
new
collaborative, licensing and other commercial relationships that
we may
establish.
|
In
addition, our license agreement with the licensor of our hormone therapy
products requires us to make certain payments as development milestones are
achieved. Moreover, our fixed expenses, such as rent, license payments and
other
contractual commitments, may increase in the future, 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 Health Sciences and Cedars-Sinai Medical Center, we have
the
right to terminate the license agreements for any reason, with our only
obligation being the payment of monies owed at the date of termination.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements that have or are reasonably likely
to
have a material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources. As a result, we are not materially exposed
to
any financing, liquidity, market or credit risk that could arise if we had
engaged in these 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, 2006. There have been no changes to the critical
accounting policies described in our quarterly Report on Form 10-Q for the
period ended March 31, 2007.
Recent
Accounting Pronouncements
The
company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109
(“FIN 48”) on January 1, 2007. FIN 48 requires companies to determine
whether it is “more likely than not” that a tax position will be sustained upon
examination by the appropriate taxing authorities before any tax benefit can
be
recorded in the financial statements. It also provides guidance on the
recognition, measurement, classification and interest and penalties related
to
uncertain tax positions. The adoption of FIN 48 did not have an impact on our
results of operations or financial condition.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurement (“SFAS
157”). The standard provides guidance for using fair value to measure
assets and liabilities. SFAS 157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing
an
asset or liability and establishes a fair value hierarchy that prioritizes
the
information used to develop those assumptions. Under the standard, fair value
measurements would be separately disclosed by level within the fair value
hierarchy. The statement will be effective for us January 1, 2008 though early
adoption is permitted. We have not yet determined the impact, if any, that
the implementation of SFAS 157 will have on our results of operations or
financial condition.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities — Including an
amendment of FASB Statement No. 115 (“SFAS
159”). SFAS 159 permits an entity to elect fair value as the initial and
subsequent measurement attribute for many financial assets and liabilities.
Entities electing the fair value option are required to recognize changes in
fair value in earnings. SFAS 159 also requires additional disclosures to
compensate for the lack of comparability that will arise from the use of the
fair value option. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. The adjustment to reflect the difference between the
fair value and the carrying amount would be accounted for as a cumulative-effect
adjustment to retained earnings as of the date of initial adoption. We have
not
yet determined the impact, if any, that the adoption of SFAS 159 will have
on
our results of operations or financial condition.
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;
|
· |
the
timing of the commercialization of our Elestrin
product
|
· |
the
future market and market acceptance of our products;
|
· |
our
belief as to the merits of the allegations of violations of law contained
in a “whistleblower” complaint filed by a former officer of our company
under the Sarbanes-Oxley Act of 2002 and the effect on our business
of the
pending investigation regarding such allegations by the staff of
the SEC’s
Enforcement Division;
|
· |
the
effect of new accounting
pronouncements;
|
· |
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, ability and expected timing of any actions to raise additional
capital through future equity and other financings;
and
|
· |
our
substantial and continuing losses.
|
Forward-looking
statements 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:
· |
lack
of market acceptance of Elestrin and our other hormone therapy products
if
and when they are commercialized
|
· |
failure
to obtain additional capital when needed or on acceptable
terms;
|
· |
failure
of products to be commercially introduced for several years or at
all;
|
· |
failure
to obtain and maintain required regulatory approvals on a timely
basis or
at all;
|
· |
uncertainties
associated with the impact of published studies regarding the adverse
health effects of certain forms of hormone
therapy;
|
· |
our
dependence upon Bradley Pharmaceuticals, Inc, for the marketing and
sale
of our Elestrin product and our dependence upon other sub-licensees
for
the development, marketing and sale of certain of our other hormone
therapy products;
|
· |
our
dependence upon the maintenance of our licenses with Antares Pharma
IPL
AG, Wake Forest University Health Sciences and Cedars-Sinai Medical
Center
and the University of California - Los
Angeles;
|
· |
patient
recruitment and enrollment in our current and future clinical
trials;
|
· |
the
scope, timing and results of our clinical trials and other uncertainties
associated with clinical trials;
|
· |
our
ability to compete in a competitive
industry;
|
· |
our
ability to protect our proprietary technology and to operate our
business
without infringing the proprietary rights of third
parties;
|
· |
our
dependence upon key employees;
|
· |
our
ability to maintain effective internal controls over financial
reporting;
|
· |
effect
of any potential litigation and the pending investigation by the
staff of
the SEC’s Enforcement Division;
|
· |
adverse
changes in applicable laws or regulations and our failure to comply
with
applicable laws and regulations;
|
· |
changes
in generally accepted accounting principles;
or
|
· |
conditions
and changes in the biopharmaceutical industry or in general economic
or
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, 2006 under the heading “Part I
- Item 1A. Risk Factors” on pages 22 through 32 of such report and “Part II —
Item 1A. Risk Factors” included elsewhere in this 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 and in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2006 under the heading “Part I - Item 1A. Risk Factors”, 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 and in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2006 under the
heading “Part I - Item 1A. Risk Factors”. 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.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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.
ITEM
4. CONTROLS
AND PROCEDURES
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, 2007 that has materially affected, or is reasonably
likely to materially affect our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
We
refer
you to the description under the heading “Contingencies” in note 4 of our
consolidated financial statements included within this report, which 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. In addition to the other information set forth
in
this report, including the additional risk factor below, careful consideration
should be taken of the factors described in our annual report on Form 10-K
for
the fiscal year ended December 31, 2006 under the heading “Part I - Item 1A.
Risk Factors,” which could materially adversely affect our business, financial
condition or operating results.
The
staff
of the Securities and Exchange Commission’s Division of Enforcement is
conducting an investigation arising out of allegations contained in a complaint
made by a former officer of our company to the U.S. Department of Labor,
Occupational Safety & Health Administration (“OSHA”) in February 2006 under
the “whistleblower” provision of the Sarbanes-Oxley Act of 2002, which complaint
was subsequently closed by OSHA in August 2006. Although we believe the
allegations in the complaint are without merit, it is possible that the staff
of
the SEC’s Division of Enforcement may disagree with our conclusion.
On
March
28, 2007, we received notice that the staff of the Securities and Exchange
Commission’s Division of Enforcement (the “Staff”) is conducting an
investigation arising out of allegations contained in a complaint made by a
former officer of our company to the U.S. Department of Labor, Occupational
Safety & Health Administration (“OSHA”) in February 2006 under the
“whistleblower” provision of the Sarbanes-Oxley Act of 2002 (“SOX”). Immediately
upon notice of the former officer’s intent to file the SOX complaint in January
2006, the Board of Directors of our company directed that an investigation
be
made into the allegations of securities and other law violations contained
in
the former officer’s SOX complaint. The results of the investigation led to the
conclusion by us and our outside legal counsel that the allegations in the
SOX
complaint were without merit. OSHA closed its investigation into the SOX
complaint in August 2006. The Staff has informed us that the Staff’s
inquiry
into the
matter should not be construed as an indication by the SEC or
the
Staff that any violation of law has occurred. We
intend
to fully cooperate with the Staff. In this regard, our legal counsel recently
met with members of the Staff to discuss the matter, including the background
of
the personnel matter and the fact that we had previously conducted an
investigation into the allegations contained in the SOX complaint. Although
we believe the allegations in the complaint are without merit, it is possible
that the Staff may disagree with our conclusion.
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, 2007, we did not issue any unregistered equity
securities.
Issuer
Purchases of Equity Securities
We
did
not purchase any shares of our common stock or other equity securities during
the three months ended March 31, 2007, 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
|
Fourth
Amendment to Lease dated as of March 7, 2007, by and between BioSante
Pharmaceuticals, Inc. and LaSalle Bank National Association, as successor
trustee to American National Bank and Trust Company of
Chicago
|
|
10.2
|
Employment
Agreement, dated January 21, 1998, between BioSante Pharmaceuticals,
Inc.
and Stephen M. Simes, as amended
|
|
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
|
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, hereunto
duly authorized.
May
1, 2007
|
BIOSANTE
PHARMACEUTICALS, INC.
|
|
|
|
By:
/s/ Stephen M. Simes
Stephen
M. Simes
Vice
Chairman, 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
INDEX
Exhibit
No.
|
Description
|
Method
of
Filing
|
10.1
|
Fourth
Amendment to Lease dated as of March 7, 2007, 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 the registrant’s current report on Form
8-K as filed with the Securities and Exchange Commission on March
7,
2007
|
10.2
|
Employment
Agreement, dated January 21, 1998, between BioSante Pharmaceuticals,
Inc.
and Stephen M. Simes, as amended
|
Incorporated
by reference to Exhibit 10.1 to the registrant’s annual report on Form
10-K for the fiscal year ended
December
31, 2006
|
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
|