In
November
2006, the Company signed an exclusive agreement with Bradley Pharmaceuticals,
Inc. for the marketing of Bio-E-Gel®
(transdermal
estradiol gel) in the United States. Upon execution of the agreement, the
Company received an upfront payment of $2.625 million. In addition, if and
when
Bio-E-Gel is approved by the U.S. Food and Drug Administration (FDA), Bradley
has agreed to pay the Company $10 to $10.5 million, $7 million of which would
be
due upon the earlier of 14 weeks after obtaining such approval or the first
commercial sale of Bio-E-Gel by Bradley in the U.S. and up to an additional
$3.5
million which would be due on the one-year anniversary of such
approval,. Upon receipt of these payments, BioSante will be
obligated to pay Antares Pharma IPL AG, BioSante’s licensor of the transdermal
estradiol gel formulation in Bio-E-Gel, 25 percent of such payments resulting
in
BioSante receiving an aggregate of $7.5 million to $7.875 million from Bradley.
Bradley also has agreed to pay BioSante additional sales based milestone
payments, as well as royalties on sales of Bio-E-Gel.
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,
primarily for 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 expect Bradley Pharmaceuticals, Inc., our Bio-E-Gel
licensee, to commercially launch our Bio-E-Gel product after obtaining FDA
approval, which we hope to receive in late 2006 or early 2007. Our proposed
LibiGel product successfully completed a Phase II clinical trial, and we
are
currently in the planning stage for our Phase III clinical trials which we
hope
to begin by year-end 2006 or early 2007. 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 potential approval by the FDA
on
our NDA for our Bio-E-Gel product, which we submitted in February
2006.
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 nine months ended September
30, 2006, we received approximately $244,000 from option exercises. Our cash,
cash equivalents and short-term investments were $10,269,931 as of September
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 unit. The private placement
resulted in net proceeds of approximately $7.2 million, after deduction of
transaction expenses.
In
November 2006, BioSante signed an exclusive agreement with Bradley
Pharmaceuticals, Inc. for the marketing of Bio-E-Gel®
(transdermal
estradiol gel) in the United States. Upon execution of the agreement, BioSante
received an upfront payment of $2.625 million. In addition, if and when
Bio-E-Gel is approved by the U.S. Food and Drug Administration (FDA), Bradley
has agreed to pay BioSante $10 to $10.5 million, $7 million of which would
be
due upon the earlier of 14 weeks after obtaining such approval or the first
commercial sale of Bio-E-Gel by Bradley in the U.S. and up to an additional
$3.5
million which would be due on the one-year anniversary of such
approval,. Upon receipt of these payments, BioSante will be
obligated to pay Antares Pharma IPL AG, BioSante’s licensor of the transdermal
estradiol gel formulation in Bio-E-Gel, 25 percent of such payments resulting
in
BioSante receiving an aggregate of $7.5 million to $7.875 million from Bradley.
Bradley also has agreed to pay BioSante additional sales based milestone
payments, as well as royalties on sales of Bio-E-Gel.
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 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 our July 2006 private placement and the upfront
payment 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 additional
cash
prior to such time.
We
spent
an average of approximately $325,000 per month on research and development
activities during the nine months ended September 30, 2006. Our research
and
development expenses decreased $547,691 or 42 percent, to $766,592 for the
three
months ended September 30, 2006 from $1,314,283 for the same period ended
September 30, 2005, and decreased $2,493,795 or 46 percent to $2,900,057
in the
nine months ended September 30, 2006 from $5,393,852 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
nine
months of 2006 until the commencement of our LibiGel Phase III clinical program,
which we expect to commence by year-end 2006 or early 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 decreased $494,414 or 70 percent, to
$210,552 for the three months ended September 30, 2006 from $704,966 for
the
same period ended September 30, 2005, and increased $1,701,548 or 77 percent
to
$3,902,183 in the nine months ended September 30, 2006 from $2,200,635 in
the
same period in 2005. This increase was primarily as a result of recognition
of
$1,024,425 in non-cash, stock-based compensation expense during the nine
months
ended September 30, 2006 compared to $263,625 for the nine months ended
September 30, 2005 as a result of our adoption of SFAS No. 123(R) “Share-Based
Payment” (“SFAS 123”) and increased legal expenses and settlement costs incurred
due to a personnel-related matter partially offset by insurance proceeds
related
to the matter. $746,616 of the non-cash, stock-based compensation expense
recorded in the nine months ended September 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 quarter-to-quarter and year-to-year depending upon the amount of legal,
public and investor relations, accounting and corporate governance and other
fees and expenses incurred.
In
August
2006, we entered into a Fourth Amendment to Exclusive License Agreement for
patents related to the Company’s CaP technology with The Regents of the
University of California. Under the terms of the amendment, we amended certain
terms of the agreement, including the elimination of future specified minimum
annual royalties which equal in excess of $3 million owed to the University
of
California in exchange for an immediate payment of $100,000. Under the terms
of
the original agreement, $75,000 would have been payable on February 28, 2007.
The amendment also eliminated provisions that required us to have available
minimum amounts of funds each year for research and development activities
relating to our licensed technology and to achieve specific research and
development milestones within specified time periods.
Since
our
inception, we have experienced significant operating losses. We incurred
a net
loss of $745,061 and $6,198,456 for the three and nine months ended September
30, 2006, respectively, resulting in an accumulated deficit of $55,886,776
as of
September 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 September 30, 2006 Compared to Three Months Ended September
30,
2005
The
following table sets forth our results of operations for the three months
ended
September 30, 2006 and 2005.
|
|
Three
Months Ended
September
30,
|
|
|
|
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
Revenue
|
|
$
|
140,324
|
|
$
|
87,106
|
|
$
|
53,218
|
|
|
61.1
|
%
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
766,592
|
|
|
1,314,283
|
|
|
(547,691
|
)
|
|
(41.7
|
)%
|
General
and administrative
|
|
|
210,552
|
|
|
704,966
|
|
|
(494,414
|
)
|
|
(70.1
|
)%
|
Interest
income
|
|
|
122,484
|
|
|
104,390
|
|
|
18,094
|
|
|
17.3
|
%
|
Net
loss
|
|
$
|
(745,061
|
)
|
$
|
(1,853,217
|
)
|
$
|
1,108,156
|
|
|
59.8
|
%
|
We
earned
$34,091 in licensing income during the three months ended September 30, 2006
due
to the CaP option and material transfer agreement we entered into in September
2005 compared to $11,364 in licensing income during the same period in 2005.
We
earned $106,233 and $43,472 in grant revenue during the three months ended
September 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 September 30, 2006 decreased
42 percent compared to research and development expenses for the three months
ended September 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 September 30, 2006
decreased 70 percent compared to general and administrative expenses for
the
three months ended September 30, 2005 as a result of recognizing and receiving
$500,000 in settlement of our claim against our insurance carrier for coverage
in a personnel-related matter.
Interest
income for the three months ended September 30, 2006 increased 17 percent
compared to interest income during the three months ended September 30, 2005,
as
a result of higher invested cash balances and higher interest rates on invested
cash balances in 2006.
Nine
Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
2005
The
following table sets forth our results of operations for the nine months
ended
September 30, 2006 and 2005.
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
Revenue
|
|
$
|
400,254
|
|
$
|
161,380
|
|
$
|
238,874
|
|
|
148.0
|
%
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,900,057
|
|
|
5,393,852
|
|
|
(2,493,795
|
)
|
|
(46.2
|
)%
|
General
and administrative
|
|
|
3,902,183
|
|
|
2,200,635
|
|
|
1,701,548
|
|
|
77.3
|
%
|
Interest
income
|
|
|
288,821
|
|
|
304,263
|
|
|
(15,442
|
)
|
|
(5.1
|
)%
|
Net
loss
|
|
$
|
(6,198,456
|
)
|
$
|
(7,205,293
|
)
|
$
|
1,006,837
|
|
|
14.0
|
%
|
We
earned
$102,273 in licensing income during the nine months ended September 30, 2006
due
to the CaP option and material transfer agreement we entered into in September
2005 compared to $11,364 in licensing income during the same period in 2005.
We
earned $242,981 and $118,061 in grant revenue during the nine months ended
September 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 nine months ended September 30, 2006 decreased
46 percent compared to research and development expenses for the nine months
ended September 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 nine months ended September 30, 2006
increased 77 percent compared to general and administrative expenses for
the
nine months ended September 30, 2005, primarily as result of the recognition
of
$1,024,425 in non-cash, stock-based compensation expense during the nine
months
ended September 30, 2006 compared to $263,625 for the nine months ended
September 30, 2005 as a result of our adoption of SFAS No. 123(R) “Share-Based
Payment” (“SFAS 123”) and additional legal costs incurred due to a
personnel-related matter partially offset by insurance proceeds related to
the
matter. Of the non-cash, stock-based compensation expense recorded in the
nine
months ended September 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 employee stock
option grants also have milestone provisions, which will result in recognition
of expense upon such milestones being reached.
Interest
income for the nine months ended September 30, 2006 decreased 5 percent compared
to interest income during the nine months ended September 30, 2005, as a
result
of lower invested cash balances, partially offset by higher interest rates
on
invested cash balances 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 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 September 30, 2006, we have
raised net proceeds totaling approximately $57.3 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 $10,269,931 and $9,101,531 at September 30,
2006
and December 31, 2005, respectively. We do not have any outstanding
borrowings.
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 unit. The private placement resulted in
net
proceeds of approximately $7.2 million, after deduction of transaction
expenses.
In
July
2006, we reached an agreement with our employment practices liability insurance
carrier pursuant to which in August 2006, the carrier paid us $500,000 in
settlement of our claim against the carrier for coverage in the
personnel-related matter described in more detail in note 4 to our financial
statements.
In
November 2006, BioSante signed an exclusive agreement with Bradley
Pharmaceuticals, Inc. for the marketing of Bio-E-Gel®
(transdermal
estradiol gel) in the United States. Upon execution of the agreement, BioSante
received an upfront payment of $2.625 million. In addition, if and when
Bio-E-Gel is approved by the U.S. Food and Drug Administration (FDA), Bradley
has agreed to pay BioSante $10 to $10.5 million, $7 million of which would
be
due upon the earlier of 14 weeks after obtaining such approval or the first
commercial sale of Bio-E-Gel by Bradley in the U.S. and up to an additional
$3.5
million which would be due on the one-year anniversary of such
approval,. Upon receipt of these payments, BioSante will be
obligated to pay Antares Pharma IPL AG, BioSante’s licensor of the transdermal
estradiol gel formulation in Bio-E-Gel, 25 percent of such payments resulting
in
BioSante receiving an aggregate of $7.5 million to $7.875 million from Bradley.
Bradley also has agreed to pay BioSante additional sales based milestone
payments, as well as royalties on sales of Bio-E-Gel.
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 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 our July 2006 private placement and the upfront
payment 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 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
commercial success of our proposed
products;
|
· |
our
general and administrative expenses, including if we receive FDA
approval
of any of our proposed products and 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 $6,176,635 for the nine months ended September
30, 2006 versus cash used in operating activities of $7,121,043 for the nine
months ended September 30, 2005. The
decrease in cash
used in
operating activities primarily reflects a decrease in our net loss over the
same
nine month period.
During
the nine months ended September 30, 2006, we had net investment activity
of
$6,909,815 (including the investment of $7,233,863 from the proceeds of our
July
2006 equity offering) in auction rate securities. During the nine months
ended
September 30, 2005, we received $6,350,149 from the net sale of auction rate
securities. We used $39,254 for the purchase of computer equipment during
the
nine months ended September 30, 2006 and $45,916 for the purchase of computer,
lab and office equipment during the nine months ended September 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 is $688,234 as of September
30,
2006 and will continue to 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 $7,384,289 for the nine months
ended
September 30, 2006, which consisted of cash received as a result of our July
2006 private placement and stock option exercises, versus $197,768
for the nine months
ended
September 30, 2005,
which
was due to
option
and warrant exercises.
Commitments
and Contractual Obligations
We
did
not have any material commitments for capital expenditures as of September
30,
2006. We have, however, several financial commitments, including certain
contractual obligations, product development milestone payments to the licensors
of our hormone therapy products, payments under our license agreement with
Wake
Forest University, as well as minimum annual lease payments.
The
following table summarizes the timing of these future contractual obligations
and commitments as of September 30, 2006:
|
|
Payments
Due by Period
|
|
|
|
Total
|
|
Less
Than 1 Year
|
|
1-3
Years
|
|
4-5
Years
|
|
After
5 Years
|
|
Operating
Leases
|
|
$
|
195,142
|
|
$
|
187,353
|
|
$
|
7,789
|
|
$
|
0
|
|
$
|
0
|
|
Obligation
for Settlement Agreement
|
|
|
688,235
|
|
|
550,588
|
|
|
137,647
|
|
|
0
|
|
|
0
|
|
Commitments
Under License Agreement with Wake Forest
|
|
|
720,000
|
|
|
40,000
|
|
|
160,000
|
|
|
160,000
|
|
|
360,000
|
|
Total
Contractual Cash Obligations
|
|
$
|
1,603,377
|
|
$
|
777,941
|
|
$
|
305,436
|
|
$
|
160,000
|
|
$
|
360,000
|
|
In
August
2006, we entered into a Fourth Amendment to Exclusive License Agreement for
patents related to the Company’s CaP technology with The Regents of the
University of California. Under the terms of the amendment, we amended certain
terms of our agreement, including the elimination of future specified minimum
annual royalties which equal in excess of $3 million owed to the University
of
California in exchange for an immediate payment of $100,000. Under the terms
of
the original agreement, $75,000 would have been due on February 28, 2007
for
which we had accrued $37,500 at the time of the amendment.
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. 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 at the date of termination.
Pursuant
to an amendment entered into with the University of California in August
2006,
our license agreement with the University of California no longer requires
us to
have available minimum amounts of funds each year for research and development
activities relating to our licensed technology and to achieve specific research
and development milestones within a specified time period.
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.
Recent
Accounting Pronouncements
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. 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 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
have
not yet determined the impact, if any, that the implementation of
FIN 48
will have on our results of operations and financial condition.
In
September 2006, the FASB issued SFAS 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
September 2006, the SEC issued Staff Accounting Bulletin No. 108
“Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (SAB
108). SAB 108
provides
interpretive guidance on how the effects of the carryover or reversal of
prior
year misstatements should be considered in quantifying a current year
misstatement. The SEC staff believes that registrants should quantify errors
using both a balance sheet and an income statement approach and evaluate
whether
either approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. SAB 108
is
effective for fiscal years ending on or after November 15, 2006, with early
application encouraged. We have not yet determined the impact, if any, that
the
implementation of SAB 108 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, including the licensing
of our
Bio-E-Gel, 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;
|
· |
Our
understanding that although Procter & Gamble (P&G) has obtained
approval and is planning to launch Intrinsa, P&G’s testosterone patch,
in Europe, P&G has recently put Intrinsa on
hold in the United States and is considering its options in the United
States, which decision, if true, may have an adverse effect on the
potential size of the U.S. female sexual dysfunction market, the
potential
market for our LibiGel product and our ability to find a development
partner to share in the cost of such development if we choose to
seek such
a partner;
|
· |
Our
dependence upon Bradley Pharmaceuticals, Inc. to market and sell
our
Bio-E-Gel product, if and when it is approved by the
FDA;
|
· |
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 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, 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 September 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
Not
applicable.
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,” and the additional and revised
risk factors below, which could materially adversely affect our business,
financial condition or operating results.
It
is our understanding that although
Procter & Gamble (P&G) has obtained approval and is planning to launch
Intrinsa, P&G’s testosterone patch, in Europe, P&G
recently
has put Intrinsa on hold in the United States,
which decision, if true, may have an adverse effect on the potential size
of the
U.S. female sexual dysfunction market, the potential market for our LibiGel
product and our ability to find a development partner to share in the cost
of
such development if we choose to seek such a partner.
In
December 2004, the FDA’s Reproductive Health Drugs Advisory Committee panel
voted unanimously against recommendation for approval of P&G’s Intrinsa
testosterone patch for hypoactive sexual desire disorder. The panel’s main
concern was the desire to have long-term safety data particularly as it pertains
to potential increased risk of cardiovascular disease and breast cancer in
women
treated chronically with testosterone in combination with estrogen. Currently,
the FDA has not explicitly publicly stated nor set any type of public policy
or
guidance document as to what size or duration of a safety trial would be
required for approval.
It
is our
understanding that although
Procter & Gamble (P&G) has obtained approval and is planning to launch
Intrinsa, P&G’s testosterone patch, in Europe, P&G recently
has put
Intrinsa on hold in the United States and is considering its options with
respect to the product in the United States. Since P&G has not said anything
publicly it is hard for us to determine why it may have made this decision
or
what the future of the product in the U.S. will be. It is possible that
P&G’s decision to put Intrinsa on hold in the U.S. will adversely affect the
potential size of the U.S. female sexual dysfunction market and the potential
for our LibiGel product. In addition, it may adversely effect our ability
to
find a development partner to share in the cost of development if we decide
to
seek such a partner.
Several
pharmaceutical products have been found to have potentially life threatening
side effects and have been subsequently removed from the market. These drugs
had
been previously approved for sale by the FDA. The withdrawals of approved
drugs
from the market create an increased risk for the pharmaceutical industry
in
general in that certain proposed products may not receive the required
regulatory approval on a timely basis or ever. The withdrawal of Vioxx by
Merck
& Co., Inc. has increased safety concerns of various groups including
physicians, patients, members of U.S. Congress and the FDA. Although marketed
product withdrawals have occurred over time, these withdrawals have resulted
and
may continue to result in a more cautious approach by the FDA in terms of
requirements for approval of new products before approval to market is granted.
These recent withdrawals could also result in additional requirements for
safety
monitoring called pharmacovigilence after approval to market is granted.
This
collective concern could result in longer, more expensive clinical trials
before
approval and costly post-marketing surveillance programs and at the same
time
could affect physicians’ desire to prescribe new medication before they are on
the market for a long period of time, all of which would adversely affect
our
business, operating results and financial condition.
We
have recently entered into a marketing agreement with Bradley Pharmaceuticals,
Inc. for the marketing of Bio-E-Gel®
(transdermal estradiol gel) in the United States as a result of which we
are
dependent upon Bradley for the marketing and sale of our Bio-E-Gel product,
if
and when it is approved by the FDA.
In
November
2006, BioSante signed an exclusive agreement with Bradley Pharmaceuticals,
Inc.
for the marketing of Bio-E-Gel® (transdermal estradiol gel) in the United
States. Upon execution of the agreement, BioSante received an upfront payment
of
$2.625 million. In addition, if and when Bio-E-Gel is approved by the U.S.
Food
and Drug Administration (FDA), Bradley has agreed to pay BioSante $10 to
$10.5
million, $7 million of which would be due upon the earlier of 14 weeks after
obtaining such approval or the first commercial sale of Bio-E-Gel by Bradley
in
the U.S. and up to an additional $3.5 million which would be due on the one-year
anniversary of such approval,. Upon receipt of these payments,
BioSante will be obligated to pay Antares Pharma IPL AG, BioSante’s licensor of
the transdermal estradiol gel formulation in Bio-E-Gel, 25 percent of such
payments resulting in BioSante receiving an aggregate of $7.5 million to
$7.875
million from Bradley. Bradley also has agreed to pay BioSante additional
sales
based milestone payments, as well as royalties on sales of Bio-E-Gel.
As
a result
of this agreement, Bio-E-Gel is subject to not only customary and inevitable
uncertainties associated with the drug development process, regulatory approvals
and market acceptance of the product, but its success is also now dependent
upon
the success of Bradley in marketing and selling the product. We cannot assure
you that Bradley will remain focused on the commercialization of our Bio-E-Gel
product or will not otherwise breach the terms of our agreement. Any breach
by
Bradley of its obligations under our agreement or a termination of the agreement
could adversely affect the success of our Bio-E-Gel product if we are unable
to
sublicense the product to another party on substantially the same or better
terms or continue the development and future commercialization of the product
ourselves.
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 September 30, 2006, we issued to 24 accredited investors,
including certain existing stockholders, an aggregate of 3,812,978 shares
of
common stock and five-year warrants to purchase an aggregate of 1,334,542
shares
of common stock. The price of each unit, which consisted of one share of
common
stock plus a warrant to purchase 0.35 share of common stock was $2.00, the
approximate price of BioSante’s common stock at the time the subscriptions were
entered into, less a slight discount. The exercise price of the warrant is
$2.75
per full share. Proceeds of the financing were approximately $7.2 million,
net
of transaction costs related to the private placement. We filed with the
Securities and Exchange Commission a registration statement on Form S-3 on
August 23, 2006 registering the offering and resale of 5,147,520 shares of
our
common stock, including the 3,812,978 outstanding shares of common stock
and
1,334,542 shares of common stock issuable upon exercise of the warrants we
issued in this private placement. This registration statement was declared
effective by the SEC on August 30, 2006.
Commissions
and fees were paid to the placement agent in connection with our July 2006
private placement. In addition, all of the above sales were made in reliance
on
either Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering or Regulation D of the Securities Act. In all
such
transactions, certain inquiries were made by BioSante to establish that such
sales qualified for such exemption from the registration requirements. In
particular, BioSante confirmed that with respect to the exemption claimed
under
Section 4(2) of the Securities Act (i) all offers of sales and sales were
made
by personal contact from officers and directors of BioSante or other persons
closely associated with BioSante, (ii) each investor made representations
that
he or she was sophisticated in relation to his or her investment (and BioSante
has no reason to believe that such representations were incorrect), (iii)
each
purchaser gave assurance of investment intent and the certificates for the
shares bear a legend accordingly, and (iv) offers and sales within any offering
were made to a limited number of persons.
Issuer
Purchases of Equity Securities
We
did
not purchase any shares of our common stock or other equity securities during
the three months ended September 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
Not
applicable.
ITEM
5. OTHER
INFORMATION
On
August
18, 2006, we entered into a Fourth Amendment to Exclusive License Agreement
for
patents related to the Company’s CaP technology with The Regents of the
University of California. Under the terms of the amendment, we amended certain
terms of the agreement, including the elimination of future specified minimum
annual royalties which equal in excess of $3 million owed to the University
of
California in exchange for an immediate payment of $100,000. Under the terms
of
the original agreement, $75,000 would have been payable on February 28, 2007.
The amendment also eliminated provisions that required us to have available
minimum amounts of funds each year for research and development activities
relating to our licensed technology and to achieve specific research and
development milestones within specified time periods.
ITEM
6. EXHIBITS
The
following exhibits are being filed or furnished with this quarterly report
on
Form 10-Q:
|
10.1
|
Fourth
Amendment to Exclusive License Agreement for Selected Applications
of
Coated Nanocrystalline Particles between The Regents of the University
of
California and BioSante Pharmaceuticals, Inc. dated as of August
11,
2006
|
|
10.2
|
Form
of Subscription Agreement dated as of July 7, 2006 by and between
BioSante
Pharmaceuticals, Inc. and each of the subscribers party to
the
Subscription Agreements
|
|
10.3
|
Form
of Warrant dated as of July 21, 2006 issued by BioSante Pharmaceuticals,
Inc. to each of the subscribers party to the Subscription Agreements
dated
July 7, 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)
|
|
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
|