BioSante 2nd Quarter 10Q 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 June 30, 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 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
August 14, 2006, 22,973,672 shares of common stock and 391,286 shares of class
C
special stock of the registrant were outstanding.
BIOSANTE
PHARMACEUTICALS, INC.
FORM
10-Q
June 30,
2006
Description |
|
Page
|
PART
I. |
FINANCIAL
INFORMATION |
|
|
|
|
ITEM
1. |
Financial
Statements |
|
|
|
|
|
Balance
Sheets as of June 30, 2006 and December 31, 2005 |
3
|
|
|
|
|
Statements
of Operations for the three and nine months ended June 30, 2006 and
2005 and the cumulative period from August 29, 1996 (date of
incorporation) to June 30, 2006
|
4
|
|
|
|
|
Statements
of Cash Flows for the nine months ended June 30, 2006 and 2005 and
the cumulative period from August 29, 1996 (date of incorporation)
to June 30, 2006
|
5
|
|
|
|
|
Notes
to the Financial Statements |
6-11
|
|
|
|
ITEM
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
12-21
|
|
|
|
ITEM
3. |
Quantitative
and Qualitative Disclosure About Market Risk |
21
|
|
|
|
ITEM
4. |
Controls
and Procedures |
22
|
|
|
|
PART
II |
OTHER
INFORMATION |
23
|
|
|
|
ITEM
1. |
Legal
Proceedings |
23
|
|
|
|
ITEM
1A. |
Risk
Factors |
23
|
|
|
|
ITEM
2. |
Unregistered
Sales of Equity Securities, Use of Proceeds and Issuer Purchases
of Equity
Securities
|
23
|
|
|
|
ITEM
3 |
Defaults
upon Senior Securities |
23
|
|
|
|
ITEM
4 |
Submission
of Matters to a Vote of Security Holders |
23-24
|
|
|
|
ITEM
5
|
Other
Information |
24
|
|
|
|
ITEM
6. |
Exhibits |
24
|
|
|
|
|
SIGNATURE
PAGE |
25
|
|
|
|
|
Exhibit
Index |
26
|
_____________
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.
|
(a
development stage company)
|
Balance
Sheets
|
June
30, 2006 and December 31, 2005 (Unaudited)
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
133,605
|
|
$
|
310,643
|
|
Short-term
investments
|
|
|
4,371,626
|
|
|
8,790,888
|
|
Prepaid
expenses and other sundry assets
|
|
|
207,678
|
|
|
245,465
|
|
|
|
|
4,712,909
|
|
|
9,346,996
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
164,906
|
|
|
215,566
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Security
deposits
|
|
|
25,325
|
|
|
11,992
|
|
|
|
$
|
4,903,140
|
|
$
|
9,574,554
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
669,734
|
|
$
|
1,139,566
|
|
Accrual
for contingencies
|
|
|
890,000
|
|
|
750,000
|
|
Accrued
compensation
|
|
|
324,813
|
|
|
492,980
|
|
Other
accrued expenses
|
|
|
282,713
|
|
|
147,125
|
|
Deferred
revenue
|
|
|
136,363
|
|
|
136,363
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
2,303,623
|
|
|
2,666,034
|
|
|
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
|
|
|
Leasehold
retirement liability
|
|
|
21,500
|
|
|
21,500
|
|
Deferred
revenue
|
|
|
-
|
|
|
68,182
|
|
TOTAL
LONG TERM LIABILITIES
|
|
|
21,500
|
|
|
89,682
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
$
|
2,325,123
|
|
$
|
2,755,716
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Capital
stock Issued
and Outstanding
|
|
|
|
|
|
|
|
2006
- 391,286; 2005 - 391,286 Class C special stock
|
|
|
398
|
|
|
398
|
|
2006
- 19,160,694; 2005 - 19,007,800 Common stock
|
|
|
57,719,334
|
|
|
56,653,219
|
|
|
|
|
57,719,732
|
|
|
56,653,617
|
|
|
|
|
|
|
|
|
|
Deferred
unearned compensation
|
|
|
-
|
|
|
(146,459
|
)
|
Deficit
accumulated during the development stage
|
|
|
(55,141,715
|
)
|
|
(49,688,320
|
)
|
|
|
|
2,578,017
|
|
|
6,818,838
|
|
|
|
$
|
4,903,140
|
|
$
|
9,574,554
|
|
See
accompanying notes to the financial statements.
|
|
|
|
|
|
|
|
BIOSANTE
PHARMACEUTICALS,
INC.
|
(a
development stage company)
|
Statements
of Operations
|
Three
and six months ended June 30, 2006 and 2005 and the
cumulative
|
period
from August 29, 1996 (date of incorporation) to June 30, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
period
from
|
|
|
|
|
|
|
|
|
|
|
|
August
29, 1996
|
|
|
|
|
|
|
|
|
|
|
|
(date
of
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
incorporation)
to
|
|
|
|
June
30,
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
income
|
|
$
|
34,091
|
|
$
|
-
|
|
$
|
68,182
|
|
$
|
-
|
|
$
|
4,706,580
|
|
Grant
income
|
|
|
86,160
|
|
|
45,596
|
|
|
136,748
|
|
|
74,273
|
|
|
385,530
|
|
Other
Income
|
|
|
55,000
|
|
|
-
|
|
|
55,000
|
|
|
-
|
|
|
87,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,251
|
|
|
45,596
|
|
|
259,930
|
|
|
74,273
|
|
|
5,179,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,114,588
|
|
|
1,927,890
|
|
|
2,133,465
|
|
|
4,079,569
|
|
|
32,609,538
|
|
General
and administration
|
|
|
1,328,612
|
|
|
775,174
|
|
|
3,551,631
|
|
|
1,495,669
|
|
|
21,883,932
|
|
Provision
for contingencies
|
|
|
-
|
|
|
-
|
|
|
140,000
|
|
|
-
|
|
|
890,000
|
|
Depreciation
and amortization
|
|
|
27,109
|
|
|
26,043
|
|
|
54,566
|
|
|
50,985
|
|
|
916,867
|
|
Loss
on disposal of capital assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
157,545
|
|
Costs
of acquisition of Structured Biologicals
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
in-process research
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
development
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,377,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,470,309
|
|
|
2,729,107
|
|
|
5,879,662
|
|
|
5,626,223
|
|
|
62,210,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
- Interest income
|
|
|
70,158
|
|
|
101,926
|
|
|
166,337
|
|
|
199,873
|
|
|
1,889,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(2,224,900
|
)
|
$
|
(2,581,585
|
)
|
$
|
(5,453,395
|
)
|
$
|
(5,352,077
|
)
|
$
|
(55,141,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
SHARE (Note 2)
|
|
$
|
(0.11
|
)
|
$
|
(0.13
|
)
|
$
|
(0.28
|
)
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OF
SHARES OUTSTANDING
|
|
|
19,551,980
|
|
|
19,385,086
|
|
|
19,488,094
|
|
|
19,379,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial
statements.
|
BIOSANTE
PHARMACEUTICALS,
INC.
|
(a
development stage company)
|
Statements
of Cash Flows
|
six
months ended June 30, 2006 and 2005 and the
cumulative
|
period
from August 29, 1996 (date of incorporation) to June 30, 2006
(Unaudited)
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
period
from
|
|
|
|
|
|
|
|
August
29, 1996
|
|
|
|
|
|
|
|
(date
of
|
|
|
|
|
|
|
|
incorporation)
to
|
|
|
|
Six
Months ended June 30,
|
|
June 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
CASH
FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,453,395
|
)
|
$
|
(5,352,077
|
)
|
$
|
(55,141,715
|
)
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
|
|
|
net
cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
54,566
|
|
|
50,985
|
|
|
916,867
|
|
Amortization
of deferred unearned compensation
|
|
|
-
|
|
|
-
|
|
|
42,290
|
|
Repurchase
of licensing rights
|
|
|
-
|
|
|
-
|
|
|
125,000
|
|
Employee
& director compensation - noncash
|
|
|
975,222
|
|
|
175,750
|
|
|
2,243,263
|
|
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, deposits and other sundry assets
|
|
|
24,454
|
|
|
131,130
|
|
|
(230,035
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(502,411
|
)
|
|
(356,059
|
)
|
|
604,119
|
|
Accrual
for contingencies
|
|
|
140,000
|
|
|
-
|
|
|
890,000
|
|
Deferred
revenue
|
|
|
(68,182
|
)
|
|
-
|
|
|
136,363
|
|
Due
from SBI
|
|
|
-
|
|
|
-
|
|
|
(128,328
|
)
|
Net
cash used in operating activities
|
|
|
(4,829,746
|
)
|
|
(5,350,271
|
)
|
|
(45,007,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Redemption
of short term investments
|
|
|
4,585,599
|
|
|
4,605,576
|
|
|
12,285,749
|
|
Purchase
of short term investments
|
|
|
(166,337
|
)
|
|
(199,873
|
)
|
|
(16,657,375
|
)
|
Purchase
of capital assets
|
|
|
(3,906
|
)
|
|
(43,703
|
)
|
|
(1,205,208
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
4,415,356
|
|
|
4,362,000
|
|
|
(5,576,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Issuance
of convertible debenture
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
Proceeds
from sale or conversion of shares
|
|
|
237,352
|
|
|
197,769
|
|
|
50,221,120
|
|
Fractional
share payout
|
|
|
-
|
|
|
-
|
|
|
(3,050
|
)
|
Net
cash provided by financing activities
|
|
|
237,352
|
|
|
197,769
|
|
|
50,718,070
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(177,038
|
)
|
|
(790,502
|
)
|
|
133,605
|
|
CASH
AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
AT
BEGINNING OF PERIOD
|
|
|
310,643
|
|
|
1,170,025
|
|
|
-
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
133,605
|
|
$
|
379,523
|
|
$
|
133,605
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF
|
|
|
|
|
|
|
|
|
|
|
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.
|
FORM
10-Q
JUNE
30, 2006
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 June 30, 2006, the results of operations for the three and six months
ended June 30, 2006 and 2005 and for the cumulative period from August 29,
1996
(date of incorporation) to June 30, 2006, and the cash flows for the six months
ended June 30, 2006 and 2005 and for the cumulative period from August 29,
1996
(date of incorporation) to June 30, 2006, in conformity with accounting
principles generally accepted in the United States of America. Operating results
for the three and six month periods ended June 30, 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 and six months ended
June 30, 2006 does not include options to purchase an aggregate of 1,039,312
and
1,037,979 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 and six months ended June 30, 2005 does not include
options to purchase an aggregate of 1,099,530 and 1,107,364 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 June 30,
2006
or June 30, 2005.
Contingencies
In
November 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 and
that
the agreement, consequently, would expire by its terms on December 31, 2005.
In
February 2006, Lehman 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 seeking reinstatement of
her
employment with back pay, interest and attorney’s fees and claiming, among other
things, wrongful termination. The Company subsequently filed a complaint against
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 sought an unspecified amount of damages, punitive
damages, declaratory judgment regarding a breach by Lehman of her employment
agreement and the amount of severance pay, if any, to be owed to Lehman,
reimbursement of the Company’s legal fees and costs and such other relief as the
Court may have deemed proper. In March 2006, Lehman filed a charge with the
Equal Employment Opportunity Commission claiming
sex discrimination and retaliation in violation of Title VII of the Civil Rights
Act of 1964. In
May
2006, the Company, its President and Chief Executive Officer, its Chief
Financial Officer, Treasurer and Secretary, one of its directors, and Dr. Lehman
entered into a Confidential Settlement Agreement. Under the Settlement
Agreement, the parties thereto agreed to voluntarily withdraw and dismiss any
and all charges, claims and pending litigation with prejudice and execute mutual
releases and covenants not to sue. The Company agreed to pay Lehman
post-termination installment payments in the aggregate amount of $780,000 in
equal installments in accordance with the Company’s regular payroll cycle
through December 31, 2007 and to secure such payments with an irrevocable letter
of credit. The Company also agreed to pay the legal fees incurred by Lehman
in
the amount of $110,000. In exchange for the payments, Lehman agreed, among
other
things, to honor through June 30, 2007, non-competition and non-solicitation
obligations as provided in her employment agreement. The Company has accrued
$890,000 in connection with this matter.
To
secure
payments under the Settlement Agreement described above, on May 26, 2006, the
Company entered into an irrevocable letter of credit with UBS AG in the amount
of $780,000 supported by the Company’s short term investment account with UBS
AG. The outstanding balance under the letter of credit will decrease as payments
are made through December 2007.
In
July
2006, the Company reached an agreement with its employment practices liability
insurance carrier pursuant to which the carrier has agreed to pay the Company
$500,000 in settlement of the Company’s claim against the carrier for coverage
in this matter (see note 7 to our financial statements entitled “Subsequent
Events”).
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
June 30, 2006, 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 $975,222 and $175,750
for the six months ended June 30, 2006 and 2005, 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 June 30, 2006, 3,000,000 shares of the Company’s common
stock were available for issuance under the Plan, 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 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, 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 using the assumptions in the table below:
|
|
Six
Months Ended June 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
Expected
life in years
|
|
|
10
|
|
|
10
|
|
Annualized
volatility
|
|
|
73.94
|
%
|
|
76.58
|
%
|
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 cash 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 six months ended June 30, 2006 is
presented below:
Options
|
|
Option
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
|
|
|
597,157
|
|
|
3.65
|
|
Outstanding
June 30, 2006
|
|
|
1,037,979
|
|
$
|
3.61
|
|
(weighted
average contractual term)
|
|
|
7.9
years
|
|
|
|
|
Exercisable
at June 30, 2006
|
|
|
788,478
|
|
$
|
3.49
|
|
(weighted
average contractual term)
|
|
|
7.4
years
|
|
|
|
|
The
aggregate intrinsic values of the Company’s outstanding and exercisable options
as of June 30, 2006 were $51,458 and $51,458, respectively.
A
summary
of the Plan’s non-vested options at December 31, 2005 and activity under the
Plan during the six months ended June 30, 2006 is presented below:
Options
|
|
Option
Shares
|
|
Weighted
Average Grant Date Fair-Value
|
|
Outstanding
December 31, 2005
|
|
|
398,000
|
|
$
|
3.61
|
|
Granted
|
|
|
362,500
|
|
|
3.87
|
|
Vested
|
|
|
331,944
|
|
|
3.56
|
|
Forfeited
|
|
|
179,055
|
|
|
3.49
|
|
Non-Vested
at June 30, 2006
|
|
|
249,501
|
|
$
|
3.58
|
|
As
of
June 30, 2006, there was $610,846 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
2.27 years.
As
a
result of March 2006 issuance of stock options with immediate vesting to the
non-employee members of our Board of Directors, $746,616 of non-cash, stock
based compensation expense was recorded in the six months ended June 30,
2006.
Cash
received from option exercises under the Plan for the six months ended June
30,
2006 was $243,675. The intrinsic value of options exercised during the six
months ended June 30, 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
|
|
|
|
|
June
30, 2006
|
|
|
June
30, 2005
|
|
Net
loss
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(2,224,900
|
)
|
$
|
(2,581,585
|
)
|
Stock-based
compensation included in net loss as reported
|
|
|
116,209
|
|
|
87,875
|
|
Total
stock-based employee compensation determined under fair value based
method
for all awards
|
|
|
(116,209
|
)
|
|
(178,892
|
)
|
|
|
|
|
|
|
|
|
Net
loss, pro forma
|
|
$
|
(2,224,900
|
)
|
$
|
(2,672,602
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.11
|
)
|
$
|
(0.13
|
)
|
Pro
forma
|
|
$
|
(0.11
|
)
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
|
June
30, 2006
|
|
|
June
30, 2005
|
|
Net
loss
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(5,453,395
|
)
|
$
|
(5,352,077
|
)
|
Stock-based
compensation included in net loss as reported
|
|
|
975,222
|
|
|
175,750
|
|
Total
stock-based employee compensation determined under fair value based
method
for all awards
|
|
|
(975,222
|
)
|
|
(370,735
|
)
|
|
|
|
|
|
|
|
|
Net
loss, pro forma
|
|
$
|
(5,453,395
|
)
|
$
|
(5,547,062
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.28
|
)
|
$
|
(0.28
|
)
|
Pro
forma
|
|
$
|
(0.28
|
)
|
$
|
(0.29
|
)
|
During
the six months ended June 30, 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 options were withheld by the
Company in payment of the exercise price for the exercised options, thus
reducing the number of shares outstanding on a fully diluted basis.
7. SUBSEQUENT
EVENTS
On
July
21, 2006, the Company closed a private placement of 3,812,978 shares of its
common stock and associated warrants to purchase 1,334,542 shares of its common
stock at a purchase price of $2.00 per share to certain institutional and other
accredited investors for gross proceeds of approximately $7.6 million. The
private placement resulted in net proceeds to the Company of approximately
$7.2
million, after deduction of transaction expenses. The warrants are exercisable
for a period of four years and nine months, beginning January 22, 2006, at
an
exercise price of $2.75 per share. The number of shares issuable upon exercise
of the warrants and the exercise price of the warrants are adjustable in the
event of stock splits, combinations and reclassifications, but not in the event
of the issuance of additional securities.
Also
subsequent to the end of the Company’s second quarter 2006, in July 2006, the
Company reached an agreement with its employment practices liability insurance
carrier pursuant to which the carrier has agreed to pay the Company $500,000
in
settlement of the Company’s claim against the carrier for coverage in the
personnel related matter described in more detail in note 4 to these financial
statements. This settlement amount is expected to be received by the
Company during the third quarter of 2006.
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
development stage biopharmaceutical company that is developing a pipeline of
hormone therapy products to treat both 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.
Our
hormone therapy products, most of which we license on an exclusive basis from
Antares Pharma, Inc., are gel formulations for transdermal administration that
deliver bioidentical estradiol, testosterone, 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 U.S. Food and Drug Administration, or FDA approval
to market the products. We completed our pivotal Phase III clinical trial of
Bio-E-Gel in March 2005 and submitted our New Drug Application, or NDA with
the
FDA in February 2006. We hope to commercially launch our Bio-E-Gel product
upon
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 by year-end 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.
We
also
are developing our CaP technology, several of whose issued patents we license
on
an exclusive basis from the University of California, for novel vaccines,
including avian flu and biodefense vaccines for toxins such as anthrax and
ricin, and drug delivery systems. Our strategy with respect to CaP is to
continue development of our CaP technology and actively seek collaborators
and
licensees to fund and accelerate the development and commercialization of
products incorporating the technology. We have entered into an agreement with
the U.S. Army’s Medical Research Institute of Infectious Disease for the
development of non-injected biodefense vaccines, including anthrax, staph and
ricin, and an agreement 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. We have also
entered into 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, a subcontract with the University of
Nebraska-Lincoln for the development of recombinant Factor IX formulations
for
delivery via alternative routes of administration, and 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.
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 until 2007
at
the earliest depending upon the timing of the decision by the FDA on our 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 six months ended June 30,
2006, we received approximately $244,000 from option exercises. Our cash, cash
equivalents and short-term investments were $4,505,231 as of June 30, 2006.
On
July 21, 2006, we completed a private placement of 3,812,978 shares of our
common stock and associated warrants to purchase 1,334,542 shares of our common
stock at a purchase price of $2.00 per share. The private placement resulted
in
net proceeds of approximately $7.2 million, after deduction of transaction
expenses. 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, including the net proceeds we received from our July
2006 private placement, 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 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, however, at this time we are seeking
a
sales/marketing partner to launch Bio-E-Gel if and when approved.
We
spent
an average of approximately $350,000 per month on research and development
activities during the six months ended June 30, 2006. Our research and
development expenses decreased $813,302 or 42 percent, to $1,114,588 for the
three months ended June 30, 2006 from $1,927,890 for the same period ended
June
30, 2005, and decreased $1,946,104 or 48 percent to $2,133,465 in the six months
ended June 30, 2006 from $4,079,569 for the same period in 2005. This reduction
is primarily as a result of the completion of the Phase III clinical trial
of
Bio-E-Gel 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 remain at approximately the same level as the first six months
of
2006 until the commencement of our LibiGel Phase III clinical program, which
we
expect to commence by year-end 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. We were in compliance with this
requirement as of June 30, 2006.
Our
general and administrative expenses increased $553,438 or 71 percent, to
$1,328,612 for the three months ended June 30, 2006 from $775,174 for the same
period ended June 30, 2005, and increased $2,055,962 or 137 percent to
$3,551,631 in the six months ended June 30, 2006 from $1,495,669 in the same
period in 2005. This increase was primarily as a result of increased legal
expenses incurred due to a personnel-related matter and recognition of $975,222
in non-cash, stock-based compensation expense during the six months ended June
30, 2006 compared to $175,750 for the six months ended June 30, 2005 as a result
of our adoption of SFAS No. 123(R) “Share-Based Payment” (“SFAS 123”). $746,616
of the non-cash, stock-based compensation expense recorded in the six months
ended June 30, 2006 related to a March 2006 issuance of stock options with
immediate vesting to the non-employee members of our 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 $2,224,900 and $5,453,395 for the three and six months ended June 30,
2006, respectively, resulting in an accumulated deficit of $55,141,715 as of
June 30, 2006. 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;
and
|
· |
the
cost of sales and marketing activities.
|
Results
of Operations
Three
Months Ended June 30, 2006 Compared to Three Months Ended June 30,
2005
The
following table sets forth our results of operations for the three months ended
June 30, 2006 and 2005.
|
|
Three
Months Ended June
30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
$
|
Change
|
|
|
%
Change
|
|
Revenue
|
|
$
|
175,251
|
|
$
|
45,596
|
|
$
|
129,655
|
|
|
284.4
|
%
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,114,588
|
|
|
1,927,890
|
|
|
(813,302
|
)
|
|
(42.2
|
)%
|
General
and administrative
|
|
|
1,328,612
|
|
|
775,174
|
|
|
553,438
|
|
|
71.4
|
%
|
Interest
income
|
|
|
70,158
|
|
|
101,926
|
|
|
(31,768
|
)
|
|
(31.1
|
)%
|
Net
loss
|
|
$
|
(2,224,900
|
)
|
$
|
(2,581,585
|
)
|
$
|
356,685
|
|
|
13.8
|
%
|
We
earned
$34,091 in licensing income during the three months ended June 30, 2006 due
to
the CaP option and material transfer agreement we entered into in September
2005
compared to no licensing income during the same period in 2005. We earned
$86,160 and $45,596 in grant revenue during the three months ended June 30,
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 June 30, 2006 decreased
42
percent compared to research and development expenses for the three months
ended
June 30, 2005 primarily as a result of completion of the Phase III clinical
trial of Bio-E-Gel in March 2005 and submission of our NDA for Bio-E-Gel in
February 2006.
General
and administrative expenses for the three months ended June 30, 2006 increased
71 percent compared to general and administrative expenses for the three months
ended June 30, 2005, primarily as result of additional legal costs incurred
due
to a personnel-related matter.
Interest
income for the three months ended June 30, 2006 decreased 31 percent compared
to
interest income during the three months ended June 30, 2005, as a result of
lower invested cash balances, partially offset by higher interest rates on
invested cash balances in 2006.
The
overall decrease in net loss for the three months ended June 30, 2006 compared
to the three months ended June 30, 2005 was primarily due to the reductions
in
research and development expense and an increase in revenue, partially offset
by
increased legal expenses, as described above.
Six
Months Ended June 30, 2006 Compared to Six Months Ended June 30,
2005
The
following table sets forth our results of operations for the six months ended
June 30, 2006 and 2005.
|
|
Six
Months Ended June
30,
|
|
|
|
|
2006
|
|
|
2005
|
|
$
|
Change
|
|
|
%
Change
|
|
Revenue
|
|
$
|
259,930
|
|
$
|
74,273
|
|
$
|
185,657
|
|
|
250.0
|
%
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,133,465
|
|
|
4,079,569
|
|
|
(1,946,104
|
)
|
|
(47.7
|
)%
|
General
and administrative
|
|
|
3,551,631
|
|
|
1,495,669
|
|
|
2,055,962
|
|
|
137.5
|
%
|
Interest
income
|
|
|
166,337
|
|
|
199,873
|
|
|
(33,536
|
)
|
|
(16.8
|
)%
|
Net
loss
|
|
$
|
(5,453,395
|
)
|
$
|
(5,352,077
|
)
|
$
|
(101,318
|
)
|
|
(1.9
|
)%
|
We
earned
$68,182 in licensing income during the six months ended June 30, 2006 due to
the
CaP option and material transfer agreement we entered into in September 2005
compared to no licensing income during the same period in 2005. We earned
$136,748 and $74,273 in grant revenue during the six months ended June 30,
2006
and 2005, respectively. This increase is due to a subcontract we entered into
with the University of Nebraska in December 2005.
Research
and development expenses for the six months ended June 30, 2006 decreased 48
percent compared to research and development expenses for the six months ended
June 30, 2005 primarily as a result of completion of the Phase III clinical
trial of Bio-E-Gel in March 2005 and submission of our NDA for Bio-E-Gel in
February 2006.
General
and administrative expenses for the six months ended June 30, 2006 increased
137
percent compared to general and administrative expenses for the six months
ended
June 30, 2005, primarily as result of additional legal costs incurred due to
a
personnel-related matter and the recognition of $975,222 in non-cash,
stock-based compensation expense during the six months ended June 30, 2006
compared to $175,750 for the six months ended June 30, 2005 as a result of
our
adoption of SFAS No. 123(R) “Share-Based Payment” (“SFAS 123”). Of the non-cash,
stock-based compensation expense recorded in the six months ended June 30,
2006,
$746,616 related to a March 2006 grant of stock options with immediate vesting
to the non-employee members of our Board of Directors, which were fully expensed
on the grant date due to the terms of those awards. Our other stock option
grants have remaining service lives of one to ten years and will be amortized
over that period. Certain of our stock option grants also have milestone
provisions, which will result in recognition of expense upon such milestones
being reached.
Interest
income for the six months ended June 30, 2006 decreased 17 percent compared
to
interest income during the six months ended June 30, 2005, as a result of lower
invested cash balances, partially offset by higher interest rates on invested
cash balances in 2006.
The
overall increase in net loss for the six months ended June 30, 2006 compared
to
the six months ended June 30, 2005 was primarily the impact of our adoption
of
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. As of June 30, 2006, 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 $4,505,231 and $9,101,531 at June 30, 2006 and December 31,
2005, respectively. We do not have any debt for borrowed money.
On
July
21, 2006, we completed a private placement of 3,812,978 shares of our common
stock and associated warrants to purchase 1,334,542 shares of our common stock
at a purchase price of $2.00 per share. The private placement resulted in net
proceeds of approximately $7.2 million, after deduction of transaction expenses.
Also
subsequent to the end of our second quarter 2006, in July 2006, we reached
an
agreement with our employment practices liability insurance carrier pursuant
to
which the carrier has agreed to pay us $500,000 in settlement of our claim
against the carrier for coverage in the personnel related matter described
in
more detail in notes 4 and 7 to our financial statements.
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, including the net proceeds we received from our July 2006 private
placement, 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 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 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 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 $4,829,746 for the six months ended June 30,
2006 versus cash used in operating activities of $5,350,271 for the six months
ended June 30, 2005. The
decrease in cash used in operating activities primarily reflects the increase
in
non-cash, stock-based compensation expense during the six months ended June
30,
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 six month
period.
We
received $4,585,599 and $4,605,576 from the net sale of auction rate securities
for the six
months
ended June 30, 2006 and 2005, respectively. We used $3,906 for the purchase
of
computer equipment during the six months ended June 30, 2006 and $43,703 for
the
purchase of computer, lab and office equipment during the six months ended
June
30, 2005. We
entered into an irrevocable letter of credit with UBS AG in the amount of
$780,000 supported by our short term investment account with UBS AG. The
outstanding balance under the letter of credit will decrease as payments are
made to a former executive officer pursuant to a settlement agreement through
December 2007. Net cash provided by financing activities was $237,352 for the
six
months
ended June 30, 2006 versus $197,769
for the six
months
ended June 30, 2005,
which
during both periods consisted of cash received due to option exercises, and
in
the case of the six months ended June 30, 2005, due to
warrant
exercises as well.
Commitments
and Contractual Obligations
We
did
not have any material commitments for capital expenditures as of June 30, 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,
other than the entering into of a settlement agreement with a former executive
officer pursuant to we
agreed
to pay the former executive post-termination installment payments in the
aggregate amount of $780,000 in equal installments in accordance with our
regular payroll cycle through December 31, 2007.
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; 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, 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.
In
July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB
Statement No. 109 (FIN 48), which clarifies the accounting for
uncertainty in tax positions. This Interpretation requires that we recognize
in
our financial statements, the impact of a tax position, if that position is
more
likely than not of being sustained on audit, based on the technical merits
of
the position. The provisions of FIN 48 are effective as of the beginning of
our
2007 fiscal year, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. We are
currently evaluating the impact of adopting FIN 48 on our financial statements.
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, including approval of
our
Bio-E-Gel NDA and the commencement of our Phase III clinical trials
for
LibiGel;
|
· |
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 any litigation of which we may be subject, 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.
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 June 30, 2006 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
A
description of our legal proceedings in note 4 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. In addition to the other information set forth
in
this report, careful consideration should be taken of the factors described
in
our annual report on Form 10-K for the fiscal year ended December 31, 2005
under
the heading “Part I - Item 1A. Risk Factors,” which could materially adversely
affect our business, financial condition or operating results.
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 June 30, 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
We
did
not purchase any shares of our common stock or other equity securities during
the three months ended June 30, 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
(a) The
Annual Meeting of Stockholders of BioSante was held on June 6,
2006.
(b) The
results of the stockholder votes were as follows:
|
For
|
Against/
Withheld
|
Abstain
|
Broker
Non-Vote
|
1.
Election
of Directors
|
|
|
|
|
Fred
Holubow
|
14,404,525
|
393,258
|
0
|
0
|
Peter
Kjaer
|
14,310,271
|
487,512
|
0
|
0
|
Ross
Mangano
|
14,404,864
|
392,919
|
0
|
0
|
Victor
Morgenstern
|
14,312,049
|
485,734
|
0
|
0
|
Edward
C. Rosenow
|
14,402,861
|
394,922
|
0
|
0
|
Stephen
M. Simes
|
14,304,799
|
492,984
|
0
|
0
|
Louis
W. Sullivan
|
14,402,975
|
394,808
|
0
|
0
|
|
|
|
|
|
2.
Amendment to the Amended and Restated 1998 Stock
Plan
|
8,227,833
|
562,627
|
116,461
|
5,890,862
|
|
|
|
|
|
3.
Ratification of Appointment of Independent Registered Public Accounting
Firm
|
14,789,182
|
7,810
|
791
|
0
|
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 BioSante
Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan
10.2 Confidential
Settlement Agreement effective as of May 26, 2006 among BioSante
Pharmaceuticals, Inc., Leah Lehman and the other parties thereto 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.
August
14, 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
INDEX
Exhibit
No.
|
Description
|
Method
of
Filing
|
10.1
|
BioSante
Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan
|
Incorporated
by reference to Exhibit 10.1 to BioSante’s Current Report on Form 8-K as
filed with the Securities and Exchange Commission
on
June 12, 2006
(File
No. 001-31812)
|
10.2
|
Confidential
Settlement Agreement effective as of May 26, 2006 among BioSante
Pharmaceuticals, Inc., Leah Lehman and the other parties thereto
as
amended
|
Filed
herewith
|
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
|