UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended December 31, 2007
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
transitional period from __________________ to __________________
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BIOSPECIFICS
TECHNOLOGIES CORP.
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(Exact
name of registrant as specified in its charter)
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Delaware
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0-19879
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11-3054851
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(State
or Other Jurisdiction
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(Commission
File Number)
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(I.R.S.
Employer
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Of
Incorporation)
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Identification
No.)
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35
Wilbur Street
Lynbrook,
NY 11563
(Address
of Principal Executive Offices, including zip code)
516.593.7000
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par
value
Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 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
[ ]
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). No [X]
The
issuer’s revenues from continuing operations for the fiscal year ending December
31, 2007 were $1,514,334.
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of April 7,
2008. (See definition of affiliate in Rule 12b-2 of the Exchange Act.): $48,522,660.
The
number of shares outstanding of the issuer's common stock as of April 7, 2008 is
5,722,500.
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Introductory
Comments – Terminology
Throughout
this annual report on Form 10-KSB (this “Report”), the terms “BioSpecifics,”
“Company,” “we,” “our,” and “us” refer to BioSpecifics Technologies Corp. and
its subsidiaries, Advance Biofactures Corporation (“ABC-NY”) and Advance
Biofactures of Curacao, N.V. (“ABC-Curacao”), which was sold in
2006. We also owned two dormant companies, BioSpecifics N.V. and
Biota N.V., which were each liquidated in January 2007.
Introductory
Comments – Forward-Looking Statements
This
Report includes “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities and Exchange Act of 1934, as amended. All statements other
than statements of historical facts are “forward-looking statements” for
purposes of these provisions, including any projections of earnings, revenues or
other financial items, any statements of the plans and objectives of management
for future operations, any statements concerning proposed new products or
licensing or collaborative arrangements, any statements regarding future
economic conditions or performance, and any statement of assumptions underlying
any of the foregoing. In some cases, forward-looking statements can be
identified by the use of terminology such as “may,” “will,” “expects,” “plans,”
“anticipates,” estimates,” “potential,” or “continue” or the negative thereof or
other comparable terminology. Although we believe that the expectations
reflected in the forward-looking statements contained in this report are
reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to inherent risks and uncertainties,
including but not limited to the risk factors set forth below, and for the
reasons described elsewhere in this report. All forward-looking statements and
reasons why results may differ included in this report are made as of the date
hereof, and we assume no obligation to update these forward-looking statements
or reasons why actual results might differ.
Overview
We are a
biopharmaceutical company that has been involved in the development of
injectable collagenase for multiple indications. We have a development and
license agreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for
injectable collagenase (which Auxilium has named “XIAFLEX TM”
(formerly known as “AA4500”)) for clinical indications in Dupuytren’s disease,
Peyronie’s disease and frozen shoulder (adhesive capsulitis), and
Auxilium has an option to acquire additional indications that we may pursue,
including cellulite and lipomas. XIAFLEX is in a Phase III trial for
treatment of Dupuytren’s disease and top line results are expected to be
released in the second quarter of 2008.
Marketed
Product
Prior to
the sale of our collagenase topical business to DFB Biotech, Inc. and its
affiliates (“DFB”) in March 2006, we had been in the business of manufacturing
the active pharmaceutical ingredient (“API” or “API Enzyme”) for a topical
collagenase prescription product. We had developed and achieved Food and Drug
Administration (“FDA”) approval for the topical collagenase prescription
product. This topical collagenase product is an FDA approved biologic product
indicated for debridement of chronic dermal ulcers and severely burned areas.
Abbott Laboratories, Inc. and its subsidiaries (“Abbott”), under the terms of an
exclusive licensing agreement (the “Abbott Agreement”), compounded the API into
a topical collagenase ointment utilizing the API Enzyme manufactured by
us.
Because
sales of this topical collagenase had declined significantly since the peak year
of 1999, we decided to sell the collagenase topical business and focus on the
clinical indications related to our injectable collagenase business. As part of
the sales agreement, DFB assumed ownership and operation of our wholly-owned
subsidiary, ABC-Curacao, where the API is manufactured, along with certain other
assets, including our FDA manufacturing license and the Abbott
Agreement.
Development
of Injectable Collagenase for Multiple Indications
We are
developing an injectable collagenase for multiple indications. The most advanced
indications are for the treatment of Dupuytren’s disease, Peyronie’s disease and
frozen shoulder. On June 3 2004, we entered into a development and licensing
agreement with Auxilium, which was amended on May 10, 2005 (the “Auxilium
Agreement”). Under the Auxilium Agreement, we have granted Auxilium an exclusive
worldwide license to develop products containing our injectable collagenase for
the treatment of Dupuytren’s disease and Peyronie's disease and the option to
develop and license the technology for use in additional indications other than
dermal formulations labeled for topical administration. In December
2005, Auxilium exercised its option to include the clinical indication of frozen
shoulder. The Auxilium Agreement and other licensing agreements are discussed
more fully in this Item 1, under the section titled “Licensing and Marketing
Agreements.”
In its
presentation materials filed in its Current Report on Form 8-K on February 28,
2008, Auxilium noted the following key points in regards to
XIAFLEX:
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·
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Potential
to replace surgery
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Worldwide
rights offer options to build company or generate cash – exploring
partnering opportunities now
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·
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We
believe there are approximately 450,000 potential patients annually in
U.S. and EU for Dupuytren’s & Peyronie’s indications -> $1 Billion
opportunity, based on market research and
analysis
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In its
Form 10-K filed on March 10, 2008, Auxilium announced that it intends to explore
partnering opportunities for XIAFLEX in Europe as part of its ongoing evaluation
of options to maximize the product’s potential in Europe. No final
decision as to whether to do it on its own or to establish a partnership has
been reached. To the extent that Auxilium establishes such a partnership, BTC
may derive a monetary benefit under the terms of the Auxilium Agreement. If
Auxilium out-licenses to a third party, then we receive a certain specified
percentage of all non royalty payments made to Auxilium in consideration of such
out-licenses.
Background
on Collagenase
Collagenase
is the only protease that can hydrolyze the triple helical region of collagen
under physiological conditions. The specific substrate collagen comprises
approximately one-third of the total protein in mammalian organisms and it is
the main constituent of skin, tendon, and cartilage, as well as the organic
component of teeth and bone. The body relies on endogenous collagenase
production to remove dead tissue and collagenase production is an essential
biological mechanism, which regulates matrix remodeling and the normal turnover
of tissue. The Clostridial collagenase
produced by us has a broad specificity towards all types of collagen and is
acknowledged as much more efficient than mammalian collagenases. Clostridial collagenase
cleaves the collagen molecule at multiple sites along the triple helix whereas
the mammalian collagenase is only able to cleave the molecule at a single site
along the triple helix. Because collagenase does not damage the cell membrane,
it is widely used for cell dispersion for tissue disassociation and cell
culture. Since the main component of scar tissue is collagen, collagenase has
been used in a variety of clinical investigations to remove scar tissue without
surgery. Histological and biochemical studies have shown that the tissue
responsible for the deformities associated with Dupuytren’s disease and
Peyronie’s disease is primarily composed of collagen. The contracture associated
with Dupuytren’s disease is an example of a disease that results from excessive
collagen formation. Surgical removal of scar tissue has the potential to result
in complications including increased scar formation. Due to the highly specific
nature of the enzyme, we consider its use to be more desirable than the
application of general proteolytic enzymes for the removal of unwanted tissue.
Treatment with injectable collagenase for removal of excessive scar tissue
represents a first in class non-invasive approach to this unmet medical need.
New uses involving the therapeutic application of exogenous collagenase to
supplement the body’s own natural enzymes are periodically being
proposed.
Collagenase
for Treatment of Dupuytren’s Disease
Dupuytren’s
disease is a deforming condition of the hand in which one or more fingers
contract toward the palm, often resulting in physical disability. The onset of
Dupuytren’s disease is characterized by the formation of nodules in the palm
that are composed primarily of collagen. As the disease progresses, the collagen
nodules begin to form a cord causing the patient’s finger(s) to contract, making
it impossible to open the hand fully. Patients often complain about the
inability to wash their hands, wear gloves, or grasp some
objects. Dupuytren’s disease has a genetic basis and it is most
prevalent in individuals of northern European ancestry. Well-known individuals
with Dupuytren’s disease include President Ronald Reagan and Prime Minister
Margaret Thatcher.
The only
proven treatment for Dupuytren’s disease is surgery. Recurrence rates can range
from 26-80%. The post surgical recovery is often associated with significant
pain, delayed return to work, and extended periods of post-operative physical
therapy. Because many of the individuals with Dupuytren’s disease are older than
60 years of age, there is considerable resistance from the patients to undergo
the surgical procedure, which also involves the risk of general anesthesia. We
anticipate that many of the patients who are now willing to live with the
disease, given the current treatment options, would be receptive to an
alternative treatment involving an injection into the hand that could be
performed in an office setting.
Hand
surgeons note that the Dupuytren’s disease surgery is tedious, lengthy and
poorly reimbursed in the U.S. In a conference on February 8, 2007,
Auxilium stated that the average cost of Dupuytren’s disease surgery is $5,000
in the U.S. and $3,500 in Europe. Auxilium has reported that U.S.
based hand surgeons would recommend the use of collagenase injection on 76% of
the patients who are candidates for surgery. This figure is consistent with an
earlier survey that we conducted, which found that U.S. hand surgeons would
recommend the use of collagenase injection on 80% of patients considered
eligible for Dupuytren’s disease surgery.
Phase
III Clinical Trials
Phase III
clinical results with injectable collagenase manufactured by us were published
in the July-August 2007 issue of the Journal of Hand
Surgery. The study was designed and monitored by us in
collaboration with Marie Badalamente, PhD and Lawrence Hurst, M.D., who are
clinical investigators from the Department of Orthopaedics, at the State
University of New York, Health Science Center at Stony Brook, New
York. Auxilium issued a press release on July 24, 2007 based on their
statistical analysis of the results. Please see “Development Status”
under this Item 1 for information regarding the results of this
trial.
33 of 35
patients who entered the double-blind phase of the trial completed the study and
19 of them entered the open
label
extension. In the double-blind phase of the study, 23 patients
received injectable collagenase and 12 received placebo. The results show that
21 of 23 patients (91%) treated with up to 3 injections of injectable
collagenase achieved clinical success (reduction in joint contracture to within
0° to 5° of normal) in the double-blind phase. 12 of 14 (86%) of
metacarpophalangeal (“MP”) joints and 9 of 9 (100%) proximal intraphalangeal
(“PIP”) joints were successfully treated. No patient treated with placebo
achieved clinical success.
Of the 19
patients who entered the open label phase, 15 had previously received placebo,
and 4 had received the active drug but required further treatment due to
incomplete success or treatment failure or needed treatment for other
contractures. 17 of 19 patients (89%) who received up to 3 injections of
injectable collagenase achieved clinical success in at least 1 treated joint in
the open label phase. 14 of 16 (88%) of MP joints and 13 of 19 (68%) PIP joints
were successfully treated.
During
the double-blind and extension phases, the mean numbers of injections needed to
achieve clinical success were 1.5 and 1.4, respectively. Clinical
success was achieved in a median of 8 days during the double-blind phase. The
time for achievement of clinical success ranged between 1 and 29 days in the
open label extension phase of the study.
An
evaluation of the long-term durability of treatment was conducted for patients
treated in this Phase III trial and its open label extension. At the 24-month
follow up, recurrence of contracture of at least 20° was favorable compared to
the long-term results observed post surgery according to the investigators. Of
the 54 successfully treated joints, all were followed up for 24 months. Over the
24- month period, 5 joints (9%) had a recurrence. Dr. Badalamente
stated that reported recurrence rates post surgery vary widely, from 27% to
80%.
The most
common adverse events were pain and swelling of the hand at the injection site
and post-injection temporary swelling of a modest nature in the lymph node area
of the armpit. There were no nerve or arterial injuries. Adverse events were
generally mild to moderate in nature and resolved without treatment within 30
days.
In a
press release dated July 31, 2007, Auxilium announced information related to the
latest Phase III clinical trials conducted with injectable collagenase. Auxilium
discussed the results of the suspended clinical trials of XIAFLEX for the
treatment of Dupuytren’s contracture conducted in the fourth quarter of 2006: A
total of 30 patients were treated: 22 received XIAFLEX and 8 received placebo
injections. 2 of the patients who received XIAFLEX received 2 injections in a
primary joint; 1 patient received 1 injection in a primary joint and 1 injection
in a secondary joint; and the other 19 patients all received a single injection
of XIAFLEX into a primary joint. The data indicates that 14 of the 22 (64%)
patients injected with XIAFLEX achieved clinical success, defined as reduction
of the contracture to within 0º–5º of normal. No patients who received placebo
injections achieved clinical success. No serious adverse events related to study
drug were reported, and adverse events included injection site pain, contusions
and edema.
Phase
II Trials
A Phase
II clinical study was designed to evaluate the relative safety and efficacy of
collagenase compared to placebo injection in improving the degree of flexion
deformity, and range of finger motion in patients with Dupuytren’s disease. The
investigation was carried out as a randomized, double-blind, placebo-controlled
clinical trial using collagenase or placebo. 36 MP patients and 13 PIP patients
were enrolled in the study. The success rate was determined one month after the
first injection of collagenase or placebo. The overall success rate,
defined by the primary endpoint of reduction in contracture to within 0º–5º of
normal, was 14 out of 18 patients (78%) for MP joints (p=0.001)
and approximately 70% for PIP joints. Adverse events reported during this
protocol included pain and swelling of the hand, bruising, and post-injection
self-limiting swelling of the lymph nodes. Some patients experienced transient
increases in blood pressure on the day of injection, which were attributed to
anxiety in anticipation of the treatment. Only one serious adverse
event was reported and it was not attributed to the study drug by the clinical
investigator.
This
study demonstrated a statistically significant reduction in contracture to
within 0º-5° of normal
at day 30 and improved range of motion at 7 and 14 days and at day 30 after a
single injection of collagenase into the cord affecting the MP
joint.
A second
Phase II study designed as a double-blind, randomized, parallel group,
placebo-controlled, dose response clinical trial was conducted. 55 MP
patients and 25 PIP patients with a mean baseline fixed flexion deformity of 49
degrees were enrolled in the study at two centers. Patients were treated with
low (2,500), mid (5,000) or high (10,000)
number of
units of collagenase or placebo. The overall success rate and primary
endpoint were defined as reduction in contracture to within 0º–5º of normal 30
days after the
first injection.
18 out of
the 23 patients (78%) who received the high number of units returned to normal
extension (0º-5º) at one month post-treatment as compared to 10 out of 22 (45%)
in the mid number of units group, and nine out of 18 (50%) in the low number of
units group. There was no response to placebo in any patient. For PIP
joints, 5 out of 7 (71%) patients who received the high number of units of
collagenase returned to normal extension at the one month post-treatment as
compared to 4 out of 7 (57%) patients in the mid number of units group, 2 out of
4 (50%) in the low number of units group and 0 out of 7 (0%) in the placebo
group. For MP joints, 13 out of 16 (81%) patients who received the
high number of units group of collagenase returned to normal extension at the
one month post-treatment as compared to 6 out of 15 (43%) patients in the mid
number of units group, 7 out of 14 (50%) in the low number of units group and 0
out of 10 (0%) in the placebo group.
The
investigators did not attribute any of the serious adverse events that occurred
to the study drug.
Development
Status
In its
Form 10-K filed on March 10, 2008, Auxilium provided the following status report
on the Phase III clinical trial:
In
December 2006, [Auxilium] suspended the dosing of patients in [its] ongoing
phase III trials for XIAFLEX for the treatment of Dupuytren’s contracture in
response to an issue related to the manufacture of clinical supplies. Phase III
trials resumed in September 2007. In December, 2007, patient enrollment was
completed in Auxilium’s second U.S. phase III pivotal trial (CORD I) and its
Australian phase III study (CORD II) of XIAFLEX for the treatment of Dupuytren’s
contracture. In accordance with the study design, all enrolled patients have
received their first injection of either XIAFLEX or placebo. [Auxilium was] able
to exceed enrollment targets in both studies, with greater than 300 patients
enrolled in the CORD I and CORD II studies combined. Auxilium had targeted
enrolling 216 patients in CORD I and 60 patients in CORD II. [Auxilium expects]
to release top line efficacy results from these two trials in the second quarter
of 2008. [Auxilium has] now completed enrollment in the U.S. JOINT I open label
study. At this point [Auxilium continues] to actively enroll patients in JOINT
II in Europe, and [Auxilium expects] to complete enrollment in the first quarter
of 2008. As of March 5, 2008, [Auxilium has] enrolled approximately 890 patients
in all of the clinical trials started in the third quarter of 2007 and these
patients have received in excess of 1980 total injections.
Collagenase
for Treatment of Peyronie’s Disease
Peyronie’s
disease affects the penis and it is characterized by the presence of a collagen
plaque on the shaft of the penis, which can distort an erection and make
intercourse difficult or impossible in advanced cases. The plaque is not elastic
and it does not stretch during erection. In some mild cases, the plaque can
resolve spontaneously without medical intervention. The most common plaque forms
on the top of the penis causing the penis to arc upward. In severe cases, the
penis can be bent at a 90-degree angle during erection. Significant
psychological distress has been noted in patients with Peyronie’s disease who
are sexually active. Frequent patient complaints include increased pain, painful
erections, palpable plaque, penile deformity, and erectile
dysfunction. Patients with Peyronie’s disease have been reported to
have an increased likelihood of having Dupuytren’s disease, frozen shoulder,
plantar fibromatosis, knuckle pads, hypertension and diabetes. Peyronie’s
disease typically affects males in the range of 40-70 years. The cause of
Peyronie’s disease is unknown, although some investigators have proposed that it
may be due to trauma or an autoimmune component. A number of researchers have
suggested that the incidence of Peyronie’s disease has increased due to the use
of erectile dysfunction drugs.
Surgery
is the only proven treatment for Peyronie’s disease and the results are
variable. Surgery often results in shortening of the penis. Auxilium has
reported that 33% of Peyronie’s disease patients who undergo surgery are
subsequently dissatisfied with the results and they frequently require a penile
implant. Patients with Peyronie’s disease strongly desire therapeutic
alternatives to surgery. Auxilium has reported that 90% of urologists would use
collagenase injection to delay or avoid surgery and this finding is consistent
with a survey of urologists conducted for us.
Histological
and biochemical studies indicate that the scarring on the penis due to
Peyronie’s disease is composed primarily of collagen.
An
independent investigator carried out a positive Phase I clinical trial in which
he treated approximately 180 patients in an open label trial. In
addition, two positive open label clinical trials have been conducted by an
independent investigator at Tidewater Urology in Norfolk, Virginia, which is the
largest center for treatment of Peyronie’s disease in the world.
Auxilium
announced on October 25, 2006 the results of two Phase II trials. Auxilium
stated:
Both
studies were open label and up to 12 months in duration. They were conducted to
evaluate the efficacy and tolerability of AA4500 in the treatment of Peyronie’s
disease. Clinical success was defined as change from baseline in deviation angle
of at least 25 percent.
In Study
A (n=25) [25 patients], 3 injections of AA4500, each administered on a separate
day, were given over 7-10 days. Patients received a second series of 3
injections 12 weeks later. Patients were evaluated at three, six, and nine
months post-last injection. The mean baseline deviation angle was 52.8 degrees.
At months three and six, 58 percent and 53 percent of patients (respectively)
achieved clinical success with respect to deviation angle.
The best
results were achieved with a three-treatment series of three injections each in
Study B (n=10) [10 patients]. In Study B, patients received three injections of
AA4500 administered one per day, separated by at least one day each, over a one
week timeframe. Patients received two additional series of 3 injections, each
spaced 6 weeks apart. The mean baseline deviation angle was 50.2 degrees. At 9
month follow up (post-first injections), 25 percent or greater reduction in
deviation angle was achieved in 8/9 patients who completed the study (89
percent, 1 patient had 24 percent reduction in deviation angle). Based on the
investigator’s global assessment, 67 percent of subjects were very much improved
or much improved after treatment with AA4500.
The most
common adverse events reported in both studies were local administration site
reactions that were mid or moderate in severity, non-serious, and resolved in
time without medical attention.
An
article was published by Gerald H. Jordan, M.D. in the Journal of Sexual Medicine in
January 2008, titled “The Use of Intralesional Clostridial Collagenase Injection
Therapy for Peyronie’s Disease: A Prospective, Single-Center, Non-Placebo
Controlled-Study.” The details from the article’s abstract are as
follows:
Methods. Twenty-five
patients aged 21-75 years who were referred to a single institution with a
well-defined Peyronie’s disease plaque were treated with three intralesional
injections of clostridial collagenase 10,000 units in a small volume (0.25
cm3
per injection) administered over 7-10 days, with a repeat treatment (i.e., three
injections of collagenase 10,0000 units/25 cm3
injection over 7-10 days) at 3 months. Primary efficacy measures were
changes from baseline in the deviation angle and plaque
size. Secondary efficacy end points were patient responses to a
Peronie’s disease questionnaire and improvement according to the investigator’s
global evaluation of change.
Main
Outcome Measure. The primary efficacy measures were change in
deviation angle and change in plaque size. Secondary and points were
patient questionnaire responses and improvement according to the investigators’
global evaluation of change.
Results. Significant
decreases from baseline were achieved in the mean deviation angle at months 3
(P = 0.0001) and 6
(P = 0.0012), plaque
width at months 3 (P =
0.0018) and 6 (P = 0.0483). More
than 50% of patients in this series considered themselves “very much improved”
or “much improved” at all time points in the study, and the drug was generally
well tolerated.
Conclusion. The
benefits of intralesional clostridial collagenase injections in this trial lend
support
to prior studies supporting its use in the management of Peyronie’s
disease. A double-blind, placebo-controlled study is currently under
development.
Development
Status
Auxilium
reported in its Form 10-K filed on March 10, 2008 that it will initiate a Phase
IIb trial for Peyronie’s disease in the first half of 2008 pending FDA review of
Auxilium’s previously conducted animal study results and the proposed Phase IIb
protocol.
Collagenase
For Treatment of Frozen Shoulder (Adhesive
Capsulitis)
Frozen
shoulder is a clinical syndrome of pain and decreased motion in the shoulder
joint. It is estimated to affect 2-5% of the general population with a slightly
higher incidence in women. It is estimated that 700,000 patients
visit doctors annually in the U.S. in connection with frozen
shoulder. It typically occurs between the ages of 40-70. Individuals
with insulin dependent diabetes have been reported to have a 36% higher
incidence rate and are more likely to have bilateral symptoms.
Results
of a Phase II randomized double-blind, placebo controlled, dose response study
were presented at the annual meeting of the American Academy of Orthopaedic
Surgeons (AAOS) in March 2006. Based on Auxilium’s prior review of the data
contained in the oral presentation, they elected to exercise their option to
develop and commercialize this additional indication for collagenase injection
in December 2005. In its Form 10-K filed on March 10, 2008, Auxilium
reported that it has started certain non-clinical activities that it believes
are necessary for advancing the program to the next stage of clinical
trials.
Other
Clinical Indications For Collagenase
Lipomas
Lipomas
are benign fatty tumors that occur as bulges under the skin. An open label
clinical trial has been completed for treatment of lipomas utilizing a single
injection of collagenase. Based on observations made during preclinical studies
that a collagenase injection decreased the size of fat pads in animals, a Phase
I open label clinical trial was conducted. Favorable initial results (10 out of
12 patients had a 50-90% reduction in the size of the lipomas) from this study
for treatment of lipomas were presented at a meeting of the American Society of
Plastic Surgeons. We have announced our intention to initiate a Phase
II trial for treatment of lipomas in the first half of 2008.
Cellulite
Cellulite
is a condition characterized by dimpling of the skin and a mattress phenomenon
typically affecting the thighs and buttocks. It is due to irregular and
discontinuous subcutaneous connective tissue. An open label study has been
completed to assess whether injectable collagenase can restore the
cellulite-affected areas to a more cosmetically acceptable appearance. An
abstract of an article titled “Collagenase Injection in the Treatment of
Cellulite” by A. Dagum and M.Badalamente, describing the promising results of
this study was published in Plastic and Reconstructive
Surgery on September 15, 2006. We have announced our intention
to initiate a Phase II clinical trial for cellulite treatment in the second half
of 2008.
Scarred
Tendon
Traumatic
injuries to the hand may result in an inability to return to normal function due
to scar formation between flexor tendon and surrounding tissues. Scarring
frequently results in the formation of adhesions, which complicates the ability
of the tendon to glide further impairing finger movement. Surgical repairs of
the flexor tendon are notably difficult because of the post-traumatic
accumulation of scar tissue, as such it is considered to be one of the most
difficult issues in orthopaedic surgery. An open label clinical investigation
was initiated by independent investigators to determine if collagenase injection
can be of help to patients with scarred flexor tendons and has been
closed.
Total
Patient Exposure
Clinical
investigations with our collagenase injection have been conducted in the
treatment of herniated disc disease, keloids and hypertrophic scars, as an
adjunct to vitrectomy, Peyronie’s disease, Dupuytren’s disease, glaucoma, frozen
shoulder, lipoma, flexor tendon adhesions and cellulite. In its Form 10-K filed
on March 10, 2008, Auxilium reported that as of March 5, 2008, over
approximately 890 patients have received in excess of 1,980
injections. In addition, BioSpecifics has treated over 1300 patients
in its own clinical studies.
LICENSING
AND MARKETING AGREEMENTS
Topical
Collagenase Agreement
Prior to
March 2006, we were a party to the Abbott Agreement, an exclusive license
agreement with Knoll Pharmaceutical Company, a subsidiary of Abbott, for the
production of the API for topical collagenase.
In March
2006 we sold our topical collagenase business to DFB, including all rights to
the exclusive license agreement and we were released of any obligations
thereunder.
In
addition, DFB acquired all of the issued and outstanding shares of ABC-Curacao,
pursuant to an asset purchase agreement between us, DFB and ABC-NY (the “Asset
Purchase Agreement”). ABC-Curacao manufactured the API Enzyme, which in its
final formulation was marketed by Abbott.
In
addition, at the closing of the Asset Purchase Agreement, DFB (i) acquired from
us certain inventory and manufacturing equipment used in the topical collagenase
business, (ii) was granted a perpetual royalty free license to use, solely in
connection with the topical collagenase business, certain intangible assets
retained by us and (iii) was granted the right (for a limited period of time
which was subsequently extended in April 2008) to use, solely in connection with
the topical collagenase business, certain tangible assets retained by us. As
part of the sale, we transferred to DFB our FDA manufacturing
license.
As
consideration for the purchased assets we received $8 million in cash, DFB’s
assumption of certain liabilities, and the right to receive earn out payments in
the future based on sales of certain products. In connection with the closing of
the Asset Purchase Agreement, we agreed to provide certain technical assistance
and certain transition services to DFB in consideration of fees and costs
totaling over $1.4 million. At the closing, DFB paid to us a partial payment of
$400,000 in respect of the technical assistance to be provided by us. To date,
we have received a total of $1,000,000 in payments from DFB. The consulting
obligations generally expire during March 2011.
On
January 8, 2007, we entered into an Amendment to the Asset Purchase Agreement
with ABC-NY and DFB (the “Amendment”) in order to clarify the intent of the
parties with respect to certain provisions of the Asset Purchase Agreement and
the parties are discussing further clarifications to address certain concerns
raised by Auxilium.
Auxilium
Agreement
On June
3, 2004, we entered into the Auxilium Agreement, which was amended on May 10,
2005. Under the Auxilium Agreement, we granted to Auxilium exclusive
worldwide rights to develop, market and sell certain products containing our
injectable collagenase. Auxilium’s licensed rights concern the
development of products, other than dermal formulations labeled for topical
administration, and currently its licensed rights cover the indications of
Dupuytren’s and Peyronie’s diseases and frozen shoulder, for which Auxilium
exercised its option in December 2005. Auxilium may further expand the Auxilium
Agreement, at its option, to cover other indications as that we may
develop.
The
royalty obligations under the Auxilium Agreement extend, on a country-by-country
and product-by-product basis, for the longer of the patent life, the expiration
of any regulatory exclusivity period or 12 years from the date of execution of
the Auxilium Agreement (June 3, 2016). Auxilium may terminate the Auxilium
Agreement upon 90 days prior written notice.
Auxilium
is generally responsible, at its own cost and expense (excluding the third party
costs for the development of the lyophilization of the injection formulation,
which are shared equally by the parties), for developing the formulation and
finished dosage form of products and arranging for the clinical supply of
products. Auxilium is responsible for all
clinical
development and regulatory costs for Peyronie’s disease, Dupuytren’s disease,
frozen shoulder and all additional indications for which they exercise their
options.
We have
the option, exercisable no later than six months after FDA approval of the first
New Drug Application (“NDA”) or Biologics License Application (“BLA”) with
respect to a product, to assume the right and obligation to supply, or arrange
for the supply from a third party other than a back-up supplier qualified by
Auxilium, of a specified portion of Auxilium’s commercial product requirements.
The Auxilium Agreement provides that Auxilium may withhold a specified amount of
a milestone payment until (i) we execute an agreement, containing certain
milestones, with a third party for the commercial manufacture of the product,
(ii) we commence construction of a facility, compliant with Current Good
Manufacturing Practices (“cGMP”), for the commercial supply of the product or
(iii) 30 days after we notify Auxilium in writing that we will not exercise the
supply option. If we exercise the supply option, commencing on a
specified date from the date of regulatory approval, we will be responsible for
supplying either ourselves or through a third party other than a back-up
supplier qualified by Auxilium, a specified portion of the commercial supply of
the product. If we do not exercise the supply option, then Auxilium will be
responsible for arranging for the entire commercial product supply. In the event
that we do exercise the supply option, then we and Auxilium are required to use
commercially reasonable efforts to enter into a commercial supply agreement on
customary and reasonable terms and conditions which are not worse than those
with back-up suppliers qualified by Auxilium.
Auxilium
must pay us on a country-by-country and product-by-product basis a specified
percentage of worldwide net sales for products covered by the Auxilium
Agreement. Such percentage may vary depending on whether we exercise the supply
option. In addition, the percentage may be reduced if (i) we fail to supply
commercial product supply in accordance with the terms of the Auxilium
Agreement; (ii) market share of a competing product exceeds a specified
threshold; or (iii) Auxilium is required to obtain a license from a third party
in order to practice our patents without infringing such third party’s patent
rights. In addition, if Auxilium out-licenses to a third party, then
we receive a certain specified percentage of all non royalty payments made to
Auxilium in consideration of such out-licenses.
In
addition to the payments set forth above, Auxilium must pay to us an amount
equal to a specified mark-up of the cost of goods sold for products sold by
Auxilium that are not manufactured by or on behalf of us, provided that, in the
event that we exercise the supply option, no payment will be due for so long as
we fail to supply the commercial supply of the product in accordance with the
terms of the Auxilium Agreement.
Finally,
Auxilium will be obligated to make contingent milestone payments upon the filing
of regulatory applications and receipt of regulatory approval. Through December
31, 2007, Auxilium paid us both up-front and milestone payments under the
Auxilium Agreement of $8.5 million. Auxilium could make in excess of $5 million
of additional contingent milestone payments for listed indications under the
Auxilium Agreement if all existing conditions are met. Additional milestone
obligations will be due if Auxilium exercises an option to develop and license
XIAFLEX for additional medical indications.
In-Licensing
and Royalty Agreements
We have
entered into several in-licensing and royalty agreements with various
investigators, universities and other entities throughout the
years.
Dupuytren’s
Disease
On
November 21, 2006, we entered into a license agreement (the “Dupuytren’s License
Agreement”) with the Research Foundation of the State University of New York at
Stony Brook (the “Research Foundation”), pursuant to which the Research
Foundation granted to us and our affiliates an exclusive worldwide license, with
the right to sublicense to certain third parties, to know-how owned by the
Research Foundation related to the development, manufacture, use or sale of (i)
the collagenase enzyme obtained by a fermentation and purification process (the
“Enzyme”), and (ii) all pharmaceutical products containing the Enzyme or
injectable collagenase, in each case to the extent it pertains to the treatment
and prevention of Dupuytren’s disease.
In
consideration of the license granted under the Dupuytren’s License Agreement, we
agreed to pay to the Research Foundation certain royalties on net sales (if any)
of pharmaceutical products containing the Enzyme or injectable collagenase for
the treatment and prevention of Dupuytren’s disease (each a “Dupuytren’s
Licensed Product”).
Our
obligation to pay royalties to the Research Foundation with respect to sales by
the Company, its affiliates or any sublicensee of any Dupuytren’s Licensed
Product in any country (including the U.S.) arises only upon the first
commercial sale of such Dupuytren’s Licensed Product on a country-by-country
basis. Our obligation to pay royalties to the Research Foundation will continue
until the later of (i) the expiration of the last valid claim of a patent
pertaining to the Dupuytren’s Licensed Product; (ii) the expiration of the
regulatory exclusivity period conveyed by the FDA’s Orphan Product Division with
respect to the Licensed Product or (iii) June 3, 2016.
Unless
terminated earlier in accordance with its termination provisions, the
Dupuytren’s License Agreement and licenses granted thereunder will continue in
effect until the termination of our royalty obligations. Thereafter, all
licenses granted to us under the Dupuytren’s License Agreement will become fully
paid, irrevocable exclusive licenses.
Peyronie’s
Disease
On
October 1, 1993, we entered into a royalty agreement with Martin K. Gelbard,
M.D., pursuant to which we are obligated to pay certain royalties on net
sales.
Frozen
Shoulder
On
November 21, 2006, we also entered into a license agreement (the “Frozen
Shoulder License Agreement”) with the Research Foundation, pursuant to which the
Research Foundation granted to us and our affiliates an exclusive worldwide
license, with the right to sublicense to certain third parties, to know-how
owned by the Research Foundation related to the development, manufacture, use or
sale of (i) the Enzyme and (ii) all pharmaceutical products containing the
Enzyme or injectable collagenase, in each case to the extent it pertains to the
treatment and prevention of frozen shoulder. Additionally, the Research
Foundation granted to us an exclusive license to the patent applications in
respect of frozen shoulder. The license granted to us under the Frozen Shoulder
License Agreement is subject to the non-exclusive license (with right to
sublicense) granted to the U.S. government by the Research Foundation in
connection with the U.S. government’s funding of the initial
research.
In
consideration of the license granted under the Frozen Shoulder License
Agreement, we agreed to pay to the Research Foundation certain royalties on net
sales (if any) of pharmaceutical products containing the Enzyme or injectable
collagenase for the treatment and prevention of frozen shoulder (each a “Frozen
Shoulder Licensed Product”). In addition, we and the Research
Foundation will share in any milestone payments and sublicense income received
by us in respect of the rights licensed under the Frozen Shoulder License
Agreement.
Our
obligation to pay royalties to the Research Foundation with respect to sales by
us, our affiliates or any sublicensee of any Frozen Shoulder Licensed Product in
any country (including the U.S.) arises only upon the first commercial sale of a
Frozen Shoulder Licensed Product. Our obligation to pay royalties to the
Research Foundation will continue until, the later of (i) the expiration of the
last valid claim of a patent pertaining to a Frozen Shoulder Licensed Product or
(ii) June 3, 2016.
Unless
terminated earlier in accordance with its termination provisions, the Frozen
Shoulder License Agreement and licenses granted thereunder will continue in
effect until the termination of our royalty obligations. Thereafter, all
licenses granted to us under the Frozen Shoulder License Agreement will become
fully paid, irrevocable exclusive licenses.
In
connection with the execution of the Dupuytren’s License Agreement and the
Frozen Shoulder License Agreement, certain up-front payments were made by us to
the Research Foundation and the clinical investigators working on the
Dupuytren’s disease and frozen shoulder indications for the Enzyme.
Other
Indications
We have
entered into certain other license and royalty agreements with respect to
certain other indications that we may elect to pursue.
COMPETITION
We face
worldwide competition from larger pharmaceutical companies, specialty
pharmaceutical companies and biotechnology firms, universities and other
research institutions and government agencies that are developing and
commercializing pharmaceutical products. Many of our competitors have
substantially greater financial, technical and human resources than we have and
may subsequently develop products that are more effective, safer or less costly
than any products that we have developed, are developing or will develop, or
that are generic products. Our success will depend on our ability to acquire,
develop and commercialize products and our ability to establish and maintain
markets for our products that receive marketing approval.
RESEARCH AND
DEVELOPMENT
Cost
of Research and Development Activities
During
fiscal years 2007 and 2006, the Company invested $2,489,122 and $1,217,306,
respectively, in research and development activities.
Dupuytren’s
Disease
Following
an end-of-Phase II meeting with the FDA, we supplied requisite study drug,
initiated and monitored a pivotal clinical trial for the treatment of Dupuyren’s
disease. The results of the Phase III clinical trial with injectable
collagenase manufactured by us were published in the July-August 2007 issue of
the Journal of Hand
Surgery, as discussed in this Item 1, under the section titled
“Collagenase for Treatment of Dupuytren’s Disease.”
Peyronie‘s
Disease
Based on
clinical trial protocols submitted to the FDA, we supplied requisite study drug,
initiated and monitored clinical investigations for the treatment of Peyronie’s
disease, which were described by Auxilium in their press release dated October
25, 2006. An excerpt of this press release appears in this Item 1,
under the section titled “Collagenase for Treatment of Peyronie’s
Disease.”
Frozen
Shoulder
We have
supplied requisite study drug, initiated and monitored a Phase II clinical trial
using the injectable enzyme in the treatment of frozen
shoulder. Three different doses of the enzyme were compared to
placebo in this double-blind, randomized trial in 60 patients. The results from
this trial suggest that local injection of the enzyme are encouraging and may be
effective in patients suffering from frozen shoulder. Additional studies are
needed to assess the optimal dose and dosing regimen of injectable collagenase
in this indication. In its press release dated December 20, 2005,
concurrent with its exercise of its option with respect to frozen shoulder,
Auxilium reported: “AA4500 is a very important product candidate for Auxilium,
and we believe the addition of a third indication for this development program
enhances the commercial potential of AA4500.” In its Form 10-K filed on March
10, 2008, Auxilium stated that an estimated 3% of people develop frozen shoulder
over their lifetime, that 700,00 patients visit physicians annually in the U.S.
for frozen shoulder, and that women tend to be affected more frequently than
men.
Additional
Clinical Indications
Lipomas
As
described in this Item 1, under the section titled “Other Clinical Indications
for Collagenase,” we have supplied requisite study drug, initiated and monitored
a positive open label clinical study for the treatment of lipomas with
injectable collagenase. These results suggest the possibility of chemical
liposuction. We have announced our intention to commence a Phase II
study for the treatment of lipomas during the first half of 2008.
Cellulite
As
described in this Item 1, under the section titled “Other Clinical Indications
for Collagenase,” we have referenced the promising open label clinical trial
results for the treatment of cellulite with injectable collagenase. We have
announced our intention to initiate a Phase II study for the treatment of
cellulite during the second half of 2008.
Scarred
Tendon
Traumatic
injuries to the hand may result in an inability to return to normal function due
to scar formation between flexor tendon and surrounding
tissues. Scarring frequently results in the formation of adhesions,
which complicates the ability of the tendon to glide further impairing finger
movement. Surgical repairs of the flexor tendon are notably difficult
because of the post-traumatic accumulation of scar tissue, as such it is
considered to be one of the most difficult issues in orthopaedic surgery. We
have supplied requisite study drug and we monitor an open label clinical
investigation with collagenase for the treatment of scarred tendons in the hand.
An open label clinical investigation was initiated by independent investigators
to determine if collagenase injection can be of help to patients with scarred
flexor tendons and has been closed.
New
Products
We
continue to review selectively new technologies and products in the areas of
wound healing, tissue remodeling and anti fibrotic therapy for possible
acquisition or in-licensing.
GOVERNMENT
REGULATION
All of
our products labeled for use in humans require regulatory approval by government
agencies prior to commercialization. In particular, human therapeutic products
are subject to rigorous preclinical and clinical trials to demonstrate safety
and efficacy and other approval procedures of the FDA and similar regulatory
authorities in foreign countries. Various federal, state, local, and foreign
statutes and regulations also govern testing, manufacturing, labeling,
distribution, storage and record-keeping related to such products and their
promotion and marketing. The process of obtaining these approvals and the
compliance with federal, state, local, and foreign statutes and regulations
require the expenditure of substantial time and financial resources. In
addition, the current political environment and the current regulatory
environment at the FDA could lead to increased testing and data requirements
which could impact regulatory timelines and costs.
Clinical
trials involve the administration of the investigational product candidate or
approved products to human subjects under the supervision of qualified
investigators. Clinical trials are conducted under protocols detailing, among
other things, the objectives of the study, the parameters to be used in
assessing the safety and the effectiveness of the drug. Typically, clinical
evaluation involves a time-consuming and costly three-phase sequential process,
but the phases may overlap. Each trial must be reviewed, approved and conducted
under the auspices of an independent institutional review board, and each trial
must include the patient’s informed consent.
Clinical
testing may not be completed successfully within any specified time period, if
at all. The FDA monitors the progress of all clinical trials that are conducted
in the U.S. and may, at its discretion, reevaluate, alter, suspend or terminate
the testing based upon the data accumulated to that point and the FDA’s
assessment of the risk/benefit ratio to the patient. The FDA can also provide
specific guidance on the acceptability of protocol design for clinical trials.
The FDA or we may suspend or terminate clinical trials at any time for various
reasons, including a finding that the subjects or patients are being exposed to
an unacceptable health risk. The FDA can also request that additional clinical
trials be conducted as a condition to product approval. During all clinical
trials, physicians monitor the patients to determine effectiveness and/or to
observe and report any reactions or other safety risks that may result from use
of the drug candidate.
Assuming
successful completion of the required clinical trials, drug developers submit
the results of preclinical studies and clinical trials, together with other
detailed information including information on the chemistry, manufacture and
control of the product, to the FDA, in the form of a NDA or BLA, requesting
approval to market the product for one or more indications. In most cases, the
NDA/BLA must be accompanied by a substantial user fee. The FDA reviews an
NDA/BLA to determine, among other things, whether a product is safe and
effective for its intended use.
Before
approving an application, the FDA will inspect the facility or facilities where
the product is manufactured. The FDA will not approve the application unless
cGMP compliance is satisfactory. The FDA will issue an approval letter if it
determines that the application, manufacturing process and manufacturing
facilities are acceptable. If the FDA determines that the application,
manufacturing process or manufacturing facilities are not acceptable, it will
outline the deficiencies in the submission and will often request additional
testing or information. Notwithstanding the
submission
of any requested additional information, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval and refuse to
approve the application by issuing a “not approvable” letter.
The
testing and approval process requires substantial time, effort and financial
resources, which may take several years to complete. The FDA may not grant
approval on a timely basis, or at all. We may encounter difficulties or
unanticipated costs in our efforts to secure necessary governmental approvals,
which could delay or preclude us from marketing our products. Furthermore, the
FDA may prevent a drug developer from marketing a product under a label for its
desired indications or place other conditions, including restrictive labeling,
on distribution as a condition of any approvals, which may impair
commercialization of the product. After approval, some types of changes to the
approved product, such as adding new indications, manufacturing changes and
additional labeling claims, are subject to further FDA review and
approval.
If the
FDA approves the NDA or BLA, the drug can be marketed to physicians to prescribe
in the U.S. After approval, the drug developer must comply with a number of
post-approval requirements, including delivering periodic reports to the FDA
(i.e., annual reports), submitting descriptions of any adverse reactions
reported, biological product deviation reporting, and complying with drug
sampling and distribution requirements. The holder of an approved NDA/BLA is
required to provide updated safety and efficacy information and to comply with
requirements concerning advertising and promotional labeling. Also, quality
control and manufacturing procedures must continue to conform to cGMP after
approval. Drug manufacturers and their subcontractors are required to register
their facilities and are subject to periodic unannounced inspections by the FDA
to assess compliance with cGMP which imposes procedural and documentation
requirements relating to manufacturing, quality assurance and quality control.
Accordingly, manufacturers must continue to expend time, money and effort in the
area of production and quality control to maintain compliance with cGMP and
other aspects of regulatory compliance. The FDA may require post-market testing
and surveillance to monitor the product’s safety or efficacy, including
additional studies to evaluate long-term effects.
In
addition to studies requested by the FDA after approval, a drug developer may
conduct other trials and studies to explore use of the approved drug for
treatment of new indications, which require submission of a supplemental or new
NDA and FDA approval of the new labeling claims. The purpose of these trials and
studies is to broaden the application and use of the drug and its acceptance in
the medical community.
We use,
and will continue to use, third-party manufacturers to produce our products in
clinical quantities. Future FDA inspections may identify compliance issues at
our facilities or at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct.
In addition, discovery of problems with a product or the failure to comply with
requirements may result in restrictions on a product, manufacturer or holder of
an approved NDA/BLA, including withdrawal or recall of the product from the
market or other voluntary or FDA-initiated action that could delay further
marketing. Newly discovered or developed safety or effectiveness data may
require changes to a product’s approved labeling, including the addition of new
warnings and contraindications. Also, new government requirements may be
established that could delay or prevent regulatory approval of our products
under development.
INTELLECTUAL
PROPERTY AND RIGHTS
PATENT
PROTECTION
Patents
We are
the assignee or licensee of six U.S. patents, four of which have received patent
protection in various foreign countries. In addition, we have licenses to
others’ patent under applications. There can be no assurances when, if ever,
such patent will be issued, or that such patent, if issued, will be of any value
to us.
The scope
of the intellectual property rights held by pharmaceutical firms involves
complex legal, scientific and factual questions and consequently is generally
uncertain. In addition, the coverage claimed in a patent application can be
significantly reduced before the patent is issued. Consequently, we do not know
whether any of our current patent applications, or the products or product
candidates we develop, acquire or license will result in the issuance of patents
or, if any patents are issued, whether they will provide significant proprietary
protection or will be challenged, circumvented or invalidated. Because patent
applications in the U.S. and some other jurisdictions are sometimes
maintained
in secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, we cannot
be certain of the priority of inventions covered by pending patent applications.
Moreover, we may have to participate in interference proceedings declared by the
U.S. Patent and Trademark Office (the “USPTO”), or a foreign patent office to
determine priority of invention, or in opposition proceedings in a foreign
patent office, either of which could result in substantial cost to us, even if
the eventual outcome is favorable to us. There can be no assurance that the
patents, if issued and challenged, in a court of competent jurisdiction would be
found valid or enforceable. An adverse outcome could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require us to cease using such technology.
Although
we believe these patent applications, if they issue as patents, will provide a
competitive advantage, the patent positions of pharmaceutical and biotechnology
companies are highly uncertain and involve complex legal and factual questions.
We may not be able to develop patentable products or processes and may not be
able to obtain patents from pending applications. Even if patent claims are
allowed, the claims may not issue, or in the event of issuance, may not be
sufficient to protect our technology. In addition, any patents or patent rights
we obtain may be circumvented, challenged or invalidated by our
competitors.
While we
attempt to ensure that our product candidates and the methods we employ to
manufacture them do not infringe other parties’ patents and proprietary rights,
competitors or other parties may assert that we infringe on their proprietary
rights. Additionally, because patent prosecution can proceed in secret prior to
issuance of a patent, third parties may obtain other patents without our
knowledge prior to the issuance of patents relating to our product candidates,
which they could attempt to assert against us.
Although
we believe that our product candidates, production methods and other activities
do not currently infringe the intellectual property rights of third parties, we
cannot be certain that a third party will not challenge our position in the
future. If a third party alleges that we are infringing its intellectual
property rights, we may need to obtain a license from that third party, but
there can be no assurance that any such license will be available on acceptable
terms or at all. Any infringement claim that results in litigation could result
in substantial cost to us and the diversion of management’s attention from our
core business. To enforce patents issued to us or to determine the scope and
validity of other parties’ proprietary rights, we may also become involved in
litigation or in interference proceedings declared by the USPTO, which could
result in substantial costs to us or an adverse decision as to the priority of
our inventions. We may be involved in interference and/or opposition proceedings
in the future. We believe there will continue to be litigation in our industry
regarding patent and other intellectual property rights.
We also
rely on trade secret protection for our confidential and proprietary
information. No assurance can be given that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose such technology or that
we can meaningfully protect our trade secrets.
It is our
policy to require certain employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual’s relationship with us is to be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions conceived by the individual shall be our
exclusive property. There can be no assurance, however, that these agreements
will provide meaningful protection or adequate remedies for our trade secrets in
the event of unauthorized use or disclosure of such information.
Our
success will depend in part on our ability to protect our existing products and
the products we acquire or in-license by obtaining and maintaining a strong
proprietary position both in the U.S. and in other countries. To develop and
maintain such a position, we intend to continue relying upon patent protection,
trade secrets, know-how, continuing technological innovations and licensing
opportunities. In addition, we intend to seek patent protection whenever
available for any products or product candidates and related technology we
develop or acquire in the future.
We
licensed to Auxilium our injectable collagenase for the treatment of Dupuytren’s
and Peyronie’s diseases as well as frozen shoulder. In addition to the marketing
exclusivity which comes with its orphan drug status as a treatment for
Dupuytren’s
and Peyronie’s diseases, the enzyme underlying this product candidate is covered
by two use patents in the U.S., one for the treatment of Dupuytren’s disease,
which issued from a reissue proceeding in December 2007, and one for the
treatment of Peyronie’s disease. The Dupuytren’s patent expires in 2014, and the
Peyronie’s patent expires in 2019. Both the Dupuytren’s and Peyronie’s patents
are limited to the use of the enzyme for the treatment of Dupuytren’s and
Peyronie’s diseases within certain dose ranges. While XIAFLEX does not have
orphan drug designation in Europe, foreign patents also cover these products in
certain countries.
Orphan
Drug Designations
The FDA’s
Office of Orphan Products Development (“OOPD”) administers the major provisions
of the Orphan Drug Act (the “Act”), an innovative program that provides
incentives for sponsors to develop products for rare diseases. The incentives for
products that qualify under the Act include seven-year exclusive marketing
rights post FDA approval, tax credits for expenses associated with clinical
trials including a 20 year tax carry-forward, availability of FDA grants, and
advice on design of the clinical development plan.
The
orphan drug provisions of the Federal Food, Drug, and Cosmetic Act also provide
incentives to drug and biologics suppliers to develop and supply drugs for the
treatment of rare diseases, currently defined as diseases that affect fewer than
200,000 individuals in the U.S. or, for a disease that affects more than 200,000
individuals in the U.S. and for which there is no reasonable expectation that
the cost of developing and making available in the U.S. a drug for such disease
or condition will be recovered from its sales in the U.S. Under these
provisions, a supplier of a designated orphan product can seek tax benefits, and
the holder of the first FDA approval of a designated orphan product will be
granted a seven-year period of marketing exclusivity for that product for the
orphan indication. It would not prevent other drugs from being
approved for the same indication.
Two
indications, Dupuytren’s disease and Peyronie’s disease, have received orphan
drug status from the OOPD.
EMPLOYEES
The
Company currently has four employees, who are all full-time
employees.
CORPORATE
INFORMATION
BioSpecifics
Technologies Corp. was incorporated in Delaware in 1990. ABC-NY was incorporated
in New York in 1957. Our corporate headquarters are located at 35
Wilbur St., Lynbrook, NY 11563. Our telephone number is
516-593-7000.
In
addition to the other information included in this Report, the following factors
should be considered in evaluating our business and future prospects. Any of the
following risks, either alone or taken together, could materially and adversely
affect our business, financial position or results of operations. If one or more
of these or other risks or uncertainties materialize or if our underlying
assumptions prove to be incorrect, our actual results may vary materially from
what we projected. There may be additional risks that we do not presently know
or that we currently believe are immaterial which could also impair our business
or financial position.
Risks
Related to Our Limited Sources of Revenue
Our
future revenue is primarily dependent upon option, milestone and contingent
royalty payments from Auxilium and, as part of our sale of our topical
collagenase business to DFB, technical assistance payments and contingent earn
out payments from DFB.
Following
our sale of our topical business to DFB, our primary sources of revenues are
from (i) option, milestone and contingent royalty payments from Auxilium
under the Auxilium Agreement, (ii) payments from DFB for technical assistance we
provide and contingent earn out payments from DFB and (iii) the sale of small
amounts of collagenase for laboratory research.
Under the
Auxilium Agreement, in exchange for the right to receive royalties and other
rights, we granted to Auxilium the right to develop, manufacture, market and
sell worldwide products (other than dermal formulations for topical
administration) that contain collagenase for the treatment of Dupuytren’s and
Peyronie’s diseases and frozen shoulder, which Auxilium exercised in December
2005, subject to certain reversionary rights. However, we may not receive any
royalty payments from Auxilium because we have no control over Auxilium’s
decision to pursue commercialization, or its ability to successfully
manufacture, market and sell candidate products for the treatment of Dupuytren’s
and Peyronie’s diseases, and frozen shoulder. Subject to certain conditions, we
have retained an option to manufacture a portion of the developed product
licensed to Auxilium after it has been marketed for several years. We have
received in the past, and are entitled to receive in the future, certain
milestone payments from Auxilium in respect of its efforts to commercialize such
candidate products. However, we have no control over Auxilium’s ability to
achieve the milestones.
We have
also retained the right to pursue other clinical indications for injectable
collagenase, and have granted to Auxilium an option to expand its license and
development rights to one or more additional indications (“Additional
Indications”) for injectable collagenase not currently licensed to Auxilium,
including lipomas and cellulite. The option is exercisable as to any such
Additional Indications for which we have submitted a Phase II clinical trial
report to Auxilium and which meet other criteria provided in the Auxilium
Agreement. Upon Auxilium’s exercise of the option with respect to any Additional
Indication, it must pay to us a one-time license fee for the rights to such new
indication. In addition, we are also entitled to receive milestone payments and,
subject to commercialization of any Additional Indications, royalty payments
with respect to any such Additional Indications. If Auxilium does not exercise
its option as to any Additional Indication, we have the right to offer it to any
third party, provided that we first offer the same terms to Auxilium, or to
develop the product ourselves. Auxilium has no obligation to exercise its option
with respect to any such Additional Indication, and its decision to do so is in
its complete discretion. Clinical trials can be expensive and the results are
subject to different interpretations, therefore, there is no assurance that
after conducting Phase II clinical trials on any Additional Indication, and
incurring the associated expenses, Auxilium will exercise its option or we will
receive any revenue from it.
As part
of the sale of our topical collagenase business to DFB, we are entitled to
receive earn out payments in respect of sales of certain products developed and
manufactured by DFB that contain collagenase for topical
administration. However, our right to receive earn out payments from
DFB is dependent upon DFB’s decision to pursue, and its ability to succeed in,
the manufacture and commercialization of such products, and achieve certain
sales thresholds at which its obligations to pay earn out payments to us would
commence. We are aware that DFB has certain competitive products that may
adversely affect the volume of sales of those topical collagenase products for
which we are entitled to earn out payments.
We also
agreed to provide technical assistance to DFB’s affiliate, DPT Lakewood, for a
fixed period of time in consideration for certain payments and we are required
to maintain certain scientific resources and records in order to provide such
assistance and be entitled to receive such payments.
Our
dependence upon revenue from Auxilium and DFB make us subject to the
commercialization and other risk factors affecting those two companies over
which we have limited or no control.
Auxilium
has disclosed in its securities filings a number of risk factors to consider
when evaluating its business and future prospects. Given our dependence upon
revenue from Auxilium, Auxilium’s operating success or failure has a significant
impact on our potential royalty stream and other payment rights. As such, we
refer you to the full text of Auxilium’s disclosed risk factors in its
securities filings, which were most recently included on its Form 10-K filed on
March 10, 2008.
DFB is
not a publicly traded company and therefore we have little information about its
business and future prospects. Although we cannot be certain, we presume that
many of the risk factors affecting Auxilium’s business may have some bearing in
evaluating DFB’s ability to meet its payment obligations to us for technical
assistance or to generate sufficient sales of topical collagenase products
entitling us to receive any earn out payments.
Risks
Related to Limited Supply of Clinical Materials
The
FDA’s action in December 2005 to place on hold a clinical trial related to
hypertrophic scarring being conducted on our behalf by an independent
investigator, because of questions regarding certain of our clinical
materials,
may limit our ability to conduct other clinical trials and to obtain the
associated option, milestone and contingent royalty payments under the Auxilium
Agreement.
One of
the independent investigators who has performed a clinical trial on hypertrophic
scarring was notified by the FDA that a clinical hold has been placed on an
investigational new drug (an “IND”) application for that indication. Prior to
commencing clinical trials in U.S. interstate commerce, there must be an
effective IND for each of our product candidates. As a result of the clinical
hold, the independent investigators are not permitted to conduct a clinical
trial for that indication under the IND until the FDA releases the hold.
Although we believe that the clinical hold only applies to the use of our
clinical materials in connection with the indication specified in the clinical
hold notification, it is possible that the FDA might broaden the scope of the
clinical hold to cover use of our clinical materials in clinical trials for
other indications that we may want to pursue. If the FDA’s hold also limits our
ability to conduct clinical trials on other indications, it may make it
difficult for us to conduct clinical trials on Additional Indications under the
Auxilium Agreement. Consequently, it may limit our ability to obtain
the option, milestone and contingent royalty payments under the Auxilium
Agreement.
We
have a limited supply of clinical material, which may limit our ability to
conduct other clinical trials and to obtain the associated option, milestone and
contingent royalty payments under our agreement with Auxilium.
Although
we currently have our own clinical material, which may be sufficient to conduct
clinical trials contemplated for cellulite and lipoma, if this clinical material
is damaged or otherwise becomes unusable, then we may have insufficient clinical
material to conduct other clinical trials. Although Auxilium has
agreed to provide us with additional clinical material, there is no guaranty
that Auxilium will do so. Consequently, the lack of availability of
clinical material may limit our ability to obtain the option, milestone and
contingent royalty payments under the Auxilium Agreement.
Risks
Related to our Agreements with Auxilium and DFB
Our
ability to conduct clinical trials and develop products for dermal formulations
for topical or injectable administration of collagenase is limited by the
agreements we have signed with Auxilium and DFB.
Under our
agreements with Auxilium and DFB, we have sold, licensed, or granted options to
certain of our rights to conduct clinical trials and develop products for dermal
formulations for topical or injectable
administration of collagenase. Under the terms of the Auxilium
Agreement and our agreement with DFB, we have agreed to certain non-competition
provisions, which limit our clinical development activities.
Risks
Related to our Limited Financial and Employee Resources
Our
limited financial and employee resources limit our ability to develop other
indications or products.
We
currently have only four employees and the sources of revenue described above.
Because we have limited internal research capabilities, we are dependent upon
independent investigators, pharmaceutical and biotechnology companies and other
researchers to conduct clinical trials, sell or license products or technologies
to us.
To end
our reliance on Auxilium and DFB for the majority of our revenues, we would need
to in-license, acquire, develop and market other products and product
candidates. However, we may not be able to successfully identify any commercial
products or product candidates to in-license, acquire or internally develop
given our limited financial and employee resources. Moreover, negotiating and
implementing an economically viable in-licensing arrangement or acquisition is a
lengthy and complex process. Other companies, including those with substantially
greater financial, marketing and sales resources, may, if we decide to follow
this strategy, compete with us for the in-licensing or acquisition of product
candidates and approved products. We may not be able to acquire or in-license
the rights to additional product candidates and approved products on terms that
we find acceptable, or at all. If we are unable to in-license or acquire
additional commercial products or product candidates our ability to grow our
business or increase our profits could be severely limited.
Our
revenues are difficult to forecast.
Forecasting
our revenues is complicated by the difficult task of predicting the level of
success that Auxilium and DFB will have in meeting milestones, manufacturing,
marketing and selling products or candidate products for which we
would
receive milestone, earn out or royalty payments.
The
invoice that we received from Auxilium in April 2008 for amounts owed to
Auxilium for lyophilization related costs could materially adversely affect the
financial position of our company.
Amendment
No.1 to the Development and License Agreement, dated May 10, 2005 provides that
Auxilium and BioSpecifics will share equally in third party costs for the
development of the lyophilization of the injectable formulation. On
April 11, 2008, we received an invoice for $2,272,968.71 from Auxilium, which
represents an amount that Auxilium believes is owed by us under this provision
through December 31, 2007. We have not had adequate time to verify the accuracy
or validity of the charges and have informed Auxilium that we cannot pay the
invoice until we have done so. Based on our preliminary review, we
believe that only a portion of the amount charged actually relates to the
development of the lyophilization of the injection formulation and, therefore,
reserve all rights related to this matter, including but not limited to our
right to contest the amount charged by Auxilium. Our financial
position could be materially adversely affected depending on the total amount
actually owed to Auxilium.
If
we are unable to obtain option payments, milestone and earn out or contingent
royalty payments from Auxilium or DFB or meet our needs for additional funding
from other sources, we may be required to limit, scale back or cease our
operations.
Our
negative cash flows from operations are expected to continue for at least the
foreseeable future. Our business strategy contains elements that we will not be
able to execute if we do not receive the anticipated option, milestone, royalty
or earn out payments from Auxilium or DFB, or secure additional funding from
other sources. Specifically, we may need to raise additional capital
to:
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acquire
or in-license approved products or product candidates or technologies for
development;
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fund
our product development, including clinical trials relating to in-licensed
technology and the remaining indications;
and
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commercialize
any resulting product candidates for which we receive regulatory
approval.
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We
believe that our existing cash resources and interest on these funds will be
sufficient to meet our anticipated operating requirements until at least the
fourth quarter of 2008. Our future funding requirements will depend on many
factors, including:
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DFB’s
ability to meet its payment obligations and to manufacture and
commercialize topical collagenase products for which we would receive earn
out payments;
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Auxilium’s
ability to manufacture and commercialize injectable product for which we
would receive milestone and royalty
payments;
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The
amount actually owed to Auxilium for lyophilization related costs, as
discussed in the risk factor immediately
above;
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The
amount we owe for our delinquent tax filings for the years 2003, 2004,
2005 and 2006;
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the
scope, rate of progress, cost and results of our clinical trials on
remaining Additional Indications, including lipomas and cellulite, and
whether Auxilium exercises its option to acquire rights to
them;
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the
terms and timing of any future collaborative, licensing, co-promotion and
other arrangements that we may establish;
and
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the
cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights or defending against any other
litigation.
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These
factors could result in variations from our currently projected operating
requirements. If our existing resources are insufficient to satisfy our
operating requirements, we may need to limit, scale back or cease operations or,
in the alternative, borrow money. Given our operations and history, we may not
be able to borrow money on commercially
reasonable
terms, if at all. If we issue any equity or debt securities, the terms of such
issuance may not be acceptable to us and would likely result in substantial
dilution of our stockholders’ investment. If we do not receive revenues from
Auxilium or DFB, and are unable to secure additional financing, we may be
required to cease operations.
In
order to finance and to secure the rights to conduct clinical trials for
products we have licensed to Auxilium, we have granted to third parties
significant rights to share in royalty payments received by us, which are in the
process of being clarified.
To
finance and secure the rights to conduct clinical trials for products we have
licensed to Auxilium, we have granted to third parties certain rights to share
in royalty payments received by us from Auxilium under the Auxilium Agreement.
Consequently, we will be required to share a significant portion of the payments
due from Auxilium under the Auxilium Agreement. We are in the process of
clarifying the terms of certain of these agreements relating to Peyronie’s
disease and other indications.
Our
investments in auction rate securities are subject to risks which may cause
losses and affect the liquidity of these investments.
As of
April 22, 2008, we held $1,725,000 million of taxable auction rate securities
(“ARS”) with a current market value of approximately $1.5 million. These
investments are private placement securities with long-term stated maturities
for which interest rates are reset through a “Dutch” auction every 7 to 28
days. $1,000,000 of the ARS are auction rate preferred securities
backed by secured floating-rate loans, mortgage-backed securities and corporate
bonds that are rated below investment grade quality. The remaining
$725,000 of the ARS are backed by student loans which carry guarantees as
provided under the Federal Family Education Loan Program of the U.S. Department
of Education and are collateralized between 200% and 260% by supporting
assets. The Dutch auction mechanism, which allows investors to sell
or hold the securities at par, has in the past provided a liquid market for
these types of securities. Given this liquidity, we have classified ARS as
“available for sale” securities under SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities,” and, accordingly, have reported such
investments as short-term investments. Because of the liquidity issues
experienced in global credit and capital markets, all of the ARS we hold
experienced failed auctions in February 2008. For the first time in the 20 year
history of the ARS market a large amount of these securities failed as the
amount of securities submitted for sale exceeded the amount of purchase orders.
Our ability to access in the near term the funds we invested in ARS is dependent
on the success of future scheduled auctions, finding a buyer outside the auction
process or a decision by the issuer of the securities to call the securities. If
the uncertainties in the credit and capital market continue, these markets
deteriorate further or there are ratings downgrades on any of the ARS we hold,
we may be required to reclassify these investments to long-term investments and/
or adjust their carrying value through an impairment charge to earnings, if the
fair value of these securities has declined to below their cost and such decline
is assessed to be “other than temporary” under SFAS No. 115.
Risks
Related to the Age and Qualifications of the Members of Our Board of
Directors
Because
of the age of some of our independent Board members, we may have to find
replacements shortly, and due to our financial condition and Securities and
Exchange Commission (the “SEC”) compliance history this may be difficult, which
could impact our ability to be listed on certain securities exchanges. None of
our independent Board members, who are also the members of the Audit Committee,
is a financial expert, as required by certain exchanges. With the election of
Toby and Dr. Mark Wegman to the Board of Directors on June 25, 2007, we no
longer have a majority of independent directors, as required by certain
exchanges.
The three
independent members of our Board, who are also members of our audit committee
(the “Audit Committee”), are sixty-seven, sixty-eight and eighty-seven years
old, respectively, as of December 31, 2007. Upon the retirement, incapacity or
death of one or more of our independent Board members, we would have to find
replacements in a short period of time. In addition, none of the members of the
Audit Committee is a financial expert, which is required by certain exchanges.
With the election of Toby and Dr. Mark Wegman to the Board of Directors on June
25, 2007, we no longer have a majority of independent Board directors, as
required by certain exchanges. In light of our financial condition and SEC
compliance history, it may be difficult to find any replacements for our
independent Board members. If we fail to find replacements in a timely manner,
or fail to recruit a financial expert for the Audit Committee or fail to recruit
another independent Board member, our ability to list on certain exchanges and
our common stock price may be negatively impacted.
Risks
Related to Regulatory Requirements
We
are subject to numerous complex regulatory requirements and failure to comply
with these regulations, or the cost of compliance with these regulations, may
harm our business.
Conducting
clinical trials, and the testing, development and manufacturing and distribution
of any product candidates are subject to regulation by numerous governmental
authorities in the U.S. and other jurisdictions, if we desire to export the
resulting products to such other jurisdictions. These regulations govern or
affect the testing, manufacture, safety, labeling, storage, record-keeping,
approval, distribution, advertising and promotion of any product candidates, as
well as safe working conditions. Noncompliance with any applicable regulatory
requirements can result in suspension or termination of any ongoing clinical
trials of a product candidate or refusal of the government to approve product
candidate for commercialization, criminal prosecution and fines, recall or
seizure of products, total or partial suspension of production, prohibitions or
limitations on the commercial sale of products or refusal to allow the entering
into of federal and state supply contracts. The FDA and comparable governmental
authorities have the authority to suspend or terminate any ongoing clinical
trials of a product candidate or withdraw product approvals that have been
previously granted. Currently, there is a substantial amount of congressional
and administrative review of the FDA and the regulatory approval process for
drug candidates in the U.S. As a result, there may be significant changes made
to the regulatory approval process in the U.S. In addition, the regulatory
requirements relating to the development, manufacturing, testing, promotion,
marketing and distribution of product candidates may change in the
U.S. Such changes may increase our costs and adversely affect our
operations.
Additionally,
failure to comply with or changes to the regulatory requirements that are
applicable, or may become applicable to us or any product candidates we may
develop or obtain, may result in a variety of consequences, including the
following:
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restrictions
on our products or manufacturing
processes;
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warning
letters;
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withdrawal
of a product candidate from the
market;
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voluntary
or mandatory recall of a product
candidate;
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fines;
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suspension
or withdrawal of regulatory approvals for a product
candidate;
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refusal
to permit the import or export of our
products;
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refusal
to approve pending applications or supplements to approved applications
that we submit;
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denial
of permission to file an application or supplement in a
jurisdiction;
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product
seizure; and
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injunctions
or the imposition of civil or criminal penalties against
us.
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We
may be exposed to potential risks relating to our internal controls over
financial reporting and our ability to have the operating
effectiveness of our internal controls attested to by our independent
auditors.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”), or SOX 404,
the SEC adopted rules requiring public companies to include a report of
management on the company’s internal controls over financial reporting in its
annual reports, including Form 10-KSB. We are subject to this requirement
commencing with our fiscal year ending December 31, 2007 and a report of our
management is included under Item 8A(T) of this Report. In addition,
SOX 404 requires the independent registered public accounting firm auditing a
company’s financial statements to also attest to and report on the operating
effectiveness of such company’s internal controls. However, this Report
does not
include
an attestation report because under current securities laws, we are not subject
to these requirements until our annual report for the fiscal year ending
December 31, 2008. We can provide no assurance that we will comply with
all of the requirements imposed thereby. There can be no assurance that we
will receive a positive attestation from our independent auditors. In the
event that we identify significant deficiencies or material weaknesses in our
internal controls that we cannot remediate in a timely manner or we are unable
to receive a positive attestation from our independent auditors with respect to
our internal controls, investors and others may lose confidence in the
reliability of our financial statements.
Our
corporate compliance program cannot guarantee that we are in compliance with all
potentially applicable laws and regulations and we have and will continue to
incur costs relating to compliance with applicable laws and
regulations.
We are a
small company and we rely heavily on third parties and outside consultants to
conduct many important functions. As a biopharmaceutical company, we are subject
to a large body of legal and regulatory requirements. In addition, as a publicly
traded company we are subject to significant regulations, including SOX, some of
which have only recently been revised or adopted. We cannot assure you that we
are or will be in compliance with all potentially applicable laws and
regulations. Failure to comply with all potentially applicable laws and
regulations could lead to the imposition of fines, cause the value of our common
stock to decline, impede our ability to raise capital or list our securities on
certain securities exchanges. The new rules could make it more difficult or more
costly for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. The impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of
directors, our board committees and as executive officers. We cannot predict or
estimate the amount of the additional costs we may incur or the timing of such
costs to comply with these rules and regulations.
Risks
Related to Growth and Employees
Our
failure to successfully in-license or acquire additional technologies, product
candidates or approved products could impair our ability to grow or continue to
operate.
We may
decide to pursue other opportunities to in-license, acquire, develop and market
additional products and product candidates so that we are not solely reliant on
Auxilium and DFB sales for our revenues. Because we have limited internal
research capabilities, we are dependent upon pharmaceutical and biotechnology
companies and other researchers and independent investigators to sell or license
products or technologies to us. The success of this strategy depends upon our
ability to identify, select and acquire the right pharmaceutical product
candidates, products and technologies.
We may
not be able to successfully identify any commercial products or product
candidates to in-license, acquire or internally develop. Moreover, negotiating
and implementing an economically viable in-licensing arrangement or acquisition
is a lengthy and complex process. Other companies, including those with
substantially greater financial, marketing and sales resources, may compete with
us for the in-licensing or acquisition of product candidates and approved
products. We may not be able to acquire or in-license the rights to additional
product candidates and approved products on terms that we find acceptable, or at
all. If we are unable to in-license or acquire additional commercial products or
product candidates we may be reliant solely on Auxilium and DFB sales for
revenues. As a result, our ability to grow our business or increase our revenues
could be severely limited.
If
we are able to develop any product candidates for Additional Indications of
injectable collagenase, we may not be able to obtain option, milestone or
royalty payments under the Auxilium Agreement, which could impair our ability to
grow and could cause a decline in the price of our common stock.
The
process of conducting clinical trials and developing product candidates involves
a high degree of risk and may take several years. Product candidates that appear
promising in the early phases of development may fail to reach the market for
several reasons, including:
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clinical
trials may show product candidates to be ineffective or not as effective
as anticipated or to have harmful side effects or any unforeseen
result;
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product
candidates may fail to receive regulatory approvals required to bring the
products to market;
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manufacturing
costs, the inability to scale up to produce supplies for clinical trials
or other factors may make our product candidates uneconomical;
and
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the
proprietary rights of others and their competing products and technologies
may prevent product candidates from being effectively commercialized or to
obtain exclusivity.
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Success
in preclinical and early clinical trials does not ensure that large-scale
clinical trials will be successful. Clinical results are frequently susceptible
to varying interpretations that may delay, limit or prevent regulatory
approvals. The length of time necessary to complete clinical trials and to
submit an application for marketing approval for a final decision by a
regulatory authority varies significantly and may be difficult to predict.
Currently, there is substantial congressional and administration review of the
regulatory approval process for drug candidates in the U.S. Any changes to the
U.S. regulatory approval process could significantly increase the timing or cost
of regulatory approval for a product candidates making further development
uneconomical or impossible. In addition, once Auxilium exercises its option with
respect to any product candidate for any Additional Indications, further
clinical trials, development, manufacturing, marketing and selling of such
product is out of our control. Our interest is limited to receiving option,
milestone and royalty payment, and the option in certain circumstances to
manufacture according to particular specifications set by Auxilium.
Any
product acquisition or development efforts also could result in large and
immediate write-offs, incurrence of debt and contingent liabilities or
amortization of expenses related to intangible assets, any of which could
negatively impact our financial results.
Adverse
events or lack of efficacy in clinical trials may force us and/or our partners
whom we are wholly dependent upon to stop development of our product candidates
or prevent regulatory approval of our product candidates, which could materially
harm our business.
If we
decide to proceed with conducting clinical trials with respect to any Additional
Indications, adverse events or lack of efficacy may force us to stop development
of our product candidates or prevent regulatory approval of our product
candidates, which could materially harm our business. In addition,
any adverse events or lack of efficacy may force Auxilium to stop development of
the products we have licensed to them or prevent regulatory approval of such
products, which could materially impair all or a material part of the future
revenue we hope to receive from Auxilium.
We
face competition in our product development efforts from pharmaceutical and
biotechnology companies, universities and other not-for-profit
institutions.
We face
competition in our product development from entities that have substantially
greater research and product development capabilities and greater financial,
scientific, marketing and human resources. These entities include pharmaceutical
and biotechnology companies, as well as universities and not-for-profit
institutions. Our competitors may succeed in developing products or intellectual
property earlier than we do, entering into successful collaborations before us,
obtaining approvals from the FDA or other regulatory agencies for such
products before us, or developing products that are more effective than those we
could develop. The success of any one competitor in these or other respects will
have a material adverse effect on our business, our ability to receive option
payments from Auxilium or ability to generate revenues from third party
arrangements with respect to the Additional Indications (to the extent that
Auxilium does not exercise its option with respect to an Additional
Indication).
Because
of the specialized nature of our business, the termination of relationships with
key management, consulting and scientific personnel or the inability to recruit
and retain additional personnel could prevent us from developing our
technologies, conducting clinical trials and obtaining financing.
The
competition for qualified personnel in the biotechnology field is intense, and
we rely heavily on our ability to attract and contract with qualified
independent scientific and medical investigators, and technical and managerial
personnel. We face intense competition for qualified individuals from numerous
pharmaceutical, biopharmaceutical and biotechnology companies, as well as
academic and other research institutions. To the extent we are unable to attract
and retain any of these individuals on favorable terms our business may be
adversely affected.
If
product liability lawsuits are brought against us, we may incur substantial
liabilities.
We
continue to have product liability exposure for topical product sold by us prior
to the sale of our topical business to DFB. In addition, under the Auxilium
Agreement, we are obligated to indemnify Auxilium and its affiliates for any
harm or losses they suffered relating to any personal injury and other product
liability resulting from our development, manufacture or commercialization of
any injectable collagenase product. In addition, the clinical testing and, if
approved, commercialization of our product candidates involves significant
exposure to product liability claims. We have clinical trial and product
liability insurance in the aggregate amount of $3 million dollars that covers us
and the clinical trials of our other product candidates that we believe is
adequate in both scope and amount and has been placed with what we believe are
reputable insurers. Our current and future coverage may, however, not be
adequate to protect us from all the liabilities that we may incur. If losses
from product liability claims exceed our insurance coverage, we may incur
substantial liabilities that exceed our financial resources. Whether or not we
are ultimately successful in product liability litigation, such litigation could
consume substantial amounts of our financial and managerial resources, and might
result in adverse publicity, all of which could impair our business. We may not
be able to maintain our clinical trial and product liability insurance at an
acceptable cost, if at all, and this insurance may not provide adequate coverage
against potential claims or losses. If we are required to pay a product
liability claim, we may not have sufficient financial resources and our business
and results of operations may be harmed.
Risks
Related to Intellectual Property Rights
If
we breach any of the agreements under which we license rights to products or
technology from others, we could lose license rights that are critical to our
business and our business could be harmed.
We are a
party to a number of license agreements by which we have acquired rights to use
the intellectual property of third parties that are necessary for us to operate
our business. If any of the parties terminate their agreements, whether by their
terms or due to a breach by us, our right to use their intellectual property may
negatively affect our licenses to Auxilium or DFB and, in turn, their obligation
to make option, milestone, contingent royalty or other payments to
us.
Our
ability and the ability of out licensors, licensees and collaborators to develop
and license products based on our patents may be impaired by the intellectual
property of third parties.
Auxilium’s,
DFB’s and our commercial success in developing and manufacturing collagenase
products based on our patents is dependent on these products not infringing the
patents or proprietary rights of third parties. While we currently believe that
we, our licensees, licensors and collaborators have freedom to operate in the
collagenase market, others may challenge that position in the future. There has
been, and we believe that there will continue to be, significant litigation in
the pharmaceutical industry regarding patent and other intellectual property
rights.
Third
parties could bring legal actions against us, our licensees, licensors or
collaborators claiming damages and seeking to enjoin clinical testing,
manufacturing and marketing of the affected product or products. A third party
might request a court to rule that the patents we in-licensed or licensed to
others, or those we may in-license in the future, are invalid or unenforceable.
In such a case, even if the validity or enforceability of those patents were
upheld, a court might hold that the third party’s actions do not infringe the
patent we in-license or license to others thereby, in effect,
limiting the scope of our patent rights and those of our licensees, licensors or
collaborators. We are obligated by our agreements with Auxilium and DFB to
indemnify them against any claims for infringement based on the use of our
technology. If we become involved in any litigation, it could consume a
substantial portion of our resources, regardless of the outcome of the
litigation. If Auxilium or DFB becomes involved in such litigation, it could
also consume a substantial portion of their resources, regardless of the outcome
of the litigation, thereby jeopardizing their ability to commercialize candidate
products and/or their ability to make option, milestone or royalty payments to
us. If any of these actions are successful, in addition to any potential
liability for damages, we could be required to obtain a license to permit
ourselves, our licensees, licensors or our collaborators to conduct clinical
trials, manufacture or market the affected product, in which case we may be
required to pay substantial royalties or grant cross-licenses to our patents.
However, there can be no assurance that any such license will be available on
acceptable terms or at all. Ultimately, we, our licensees, licensors or
collaborators could be prevented from commercializing a product, or forced to
cease some aspect of their or our business, as a result of patent infringement
claims, which could harm our business or right to receive option, milestone and
contingent royalty payments.
Risks
Related to our Common Stock
If
securities analysts do not publish research or reports about our business or if
they downgrade us or our or our sector, the price of our common stock could
decline.
The
trading market for our common stock will depend in part on research and reports
that industry or financial analysts publish about us or our
business. We are not currently covered by any research
analysts. Furthermore, if the analysts who cover us in the future
downgrade us or the industry in which we operate or the stock of any of our
competitors, the price of our common stock will probably decline.
Future
sales of our common stock could negatively affect our stock price.
If our
common stockholders sell substantial amounts of common stock in the public
market, or the market perceives that such sales may occur, the market price of
our common stock could decline. In addition, we may need to raise additional
capital in the future to fund our operations. If we raise additional funds by
issuing equity securities, our stock price may decline and our existing
stockholders may experience dilution of their interests. Because we historically
have not declared dividends, stockholders must rely on an increase in the stock
price for any return on their investment in us.
Our
stock price has, in the past, been volatile, and the market price of our common
stock may drop below the current price.
Our stock
price has, at times, been volatile. Currently, our common stock is quoted on the
Over the Counter Bulletin Board (the “OTCBB”) and is thinly traded.
Market
prices for securities of pharmaceutical, biotechnology and specialty
pharmaceutical companies have been particularly volatile. Some of the factors
that may cause the market price of our common stock to fluctuate
include:
|
|
·
|
listing
of our common stock on a securities exchange or
market;
|
|
|
·
|
results
of our clinical trials;
|
|
|
·
|
failure
of any product candidates we have licensed to Auxilium or sold to DFB to
achieve commercial success;
|
|
|
·
|
regulatory
developments in the U.S. and foreign
countries;
|
|
|
·
|
developments
or disputes concerning patents or other proprietary
rights;
|
|
|
·
|
litigation
involving us or our general industry, or
both;
|
|
|
·
|
future
sales of our common stock by the estate of our former Chairman and CEO or
others;
|
|
|
·
|
changes
in the structure of healthcare payment systems, including developments in
price control legislation;
|
|
|
·
|
departure
of key personnel;
|
|
|
·
|
announcements
of material events by those companies that are our competitors or
perceived to be similar to us;
|
|
|
·
|
changes
in estimates of our financial
results;
|
|
|
·
|
investors’
general perception of us; and
|
|
|
·
|
general
economic, industry and market
conditions.
|
If any of
these risks occurs, or continues to occur, it could cause our stock price to
fall and may expose us to class action lawsuits that, even if unsuccessful,
could be costly to defend and a distraction to management.
We
have no current plan to pay dividends on our common stock and investors may lose
the entire amount of their investment.
We have
no current plans to pay dividends on our common stock. Therefore,
investors will not receive any funds absent a sale of their
shares. We cannot assure investors of a positive return on their
investment when they sell their shares nor can we assure that investors will not
lose the entire amount of their investment.
Our outstanding options to purchase
shares of common stock could have a possible dilutive
effect.
As of
December 31, 2007, options to purchase 1,409,700 shares of common stock
were outstanding. In addition, as of December 31, 2007 a total of 426,598
options were available for grant under our stock option plans. The
issuance of common stock upon the exercise of these options could adversely
affect the market price of the common stock or result in substantial dilution to
our existing stockholders.
Provisions
in our certificate of incorporation, bylaws and stockholder rights agreement may
prevent or frustrate a change in control.
Provisions
of our certificate of incorporation, bylaws (as amended) and stockholder rights
agreement may discourage, delay or prevent a merger, acquisition or other change
in control that stockholders may consider favorable, including transactions in
which you might otherwise receive a premium for your shares. These
provisions:
|
|
·
|
provide
for a classified board of
directors;
|
|
|
·
|
give
our Board the ability to designate the terms of and issue new series of
preferred stock without stockholder approval, commonly referred to as
“blank check” preferred stock, with rights senior to those of our common
stock;
|
|
|
·
|
limit
the ability of the stockholders to call special meetings;
and
|
|
|
·
|
impose
advance notice requirements on stockholders concerning the election of
directors and other proposals to be presented at stockholder
meetings.
|
In
addition, during May 2002, the Board implemented a rights agreement (commonly
known as a “Poison Pill”), which effectively discourages or prevents
acquisitions of more than 15% of our common stock in transactions (mergers,
consolidations, tender offer, etc.) that have not been approved by our Board.
These provisions could make it more difficult for common stockholders to replace
members of the Board. Because our Board is responsible for appointing the
members of our management team, these provisions could in turn affect any
attempt to replace the current management team.
If
our principal stockholders, executive officers and directors choose to act
together, they may be able to control our operations, acting in their own best
interests and not necessarily those of other stockholders.
As of
April 7, 2008, our executive officers, directors and their affiliates, in the
aggregate, beneficially owned shares representing approximately 37.3% of our
common stock, although sales by the estate of Edwin H. Wegman, our former
Chairman and CEO, may result in a change of control of certain of these shares.
Beneficial ownership includes shares over which an individual or entity has
investment or voting power and includes shares that could be issued upon the
exercise of options within 60 days. As a result, if these stockholders were to
choose to act together, they may be able to control all matters submitted to our
stockholders for approval, as well as our management and affairs. For example,
these individuals, if they chose to act together, could control the election of
directors and approval of any merger, consolidation or sale of all or
substantially all of our assets. This concentration of ownership could have the
effect of delaying, deferring or preventing a change in control or impeding a
merger or consolidation, takeover or other business combination that could be
favorable to other stockholders.
This
significant concentration of share ownership may adversely affect the trading
price for our common stock because investors often perceive disadvantages in
owning stock in companies with controlling stockholders.
Changes
in the expensing of stock-based compensation will result in unfavorable
accounting charges and may require us to change our compensation practices. Any
change in our compensation practices may adversely affect our ability to attract
and retain qualified scientific, technical and business personnel.
In the
past, we have relied on stock options to compensate existing directors,
employees and attract new employees
and
consultants. The Financial Accounting Standards Board (“FASB”) has announced new
rules for recording expense for the fair value of stock options. As a result of
these new rules, commencing on January 1, 2006, we will expense the fair
value of stock options, thereby increasing our operating expenses and reported
losses. Although we may continue to include various forms of equity in our
compensation plans, if the extent to which we use forms of equity in our plans
is reduced due to the negative effects on earnings, it may be difficult for us
to attract and retain qualified scientific, technical and business
personnel.
On July
20, 2007, we received an initial comment letter from the Staff of the Division
of Corporate Finance of the SEC containing comments regarding our Form 10-KSB
for the fiscal years ended December 31, 2005, 2004 and 2003, filed on March 2,
2007. All of the comments have been resolved except for one, which
relates to the Company’s 2003 financial statements. The Company’s
predecessor auditor, BDO Seidman, LLP (whom the Company dismissed as its auditor
on January 6, 2005), audited our financial statements for the calendar year
ended December 31, 2003 and issued a report in connection therewith, dated March
22, 2004. However, BDO Seidman, LLP refused to allow us to include
this report in our Form 10-KSB for the fiscal years ended December 31, 2005,
2004 and 2003 regarding the restatement of the financial statements for calendar
year 2003. We are therefore in the process of conducting a re-audit
of calendar year 2003 with our current auditor, Tabriztchi & Co. CPA,
P.C. This re-audit of calendar year 2003 in not expected to impact
our 2007 and 2006 consolidated financial statements. We expect to satisfactorily
resolve this matter and file an amendment to our Form 10-KSB for the fiscal
years ended December 31, 2005, 2004 and 2003.
SUBSEQUENT
EVENTS
On
January 14, 2008, the Company closed on the sale of 200,000 shares of its common
stock, par value $0.001, in a private placement offering to certain investment
funds, at a purchase price of $10.50 per share for aggregate proceeds to the
Company of $2,100,000. The shares were sold in a Company-managed transaction at
a premium of $1.00 per share over the then current market price.
Effective January 29,
2008, the Company obtained listing on the Over-the-Counter-Bulletin Board under
the trading symbol BSTC.OB. On April 16, 2008 we received notice that our
symbol was changed to BSTCE.OB due to the delinquent filing of this
Report. Once the filing of this Report has been processed by the
OTCBB, our symbol will return to BSTC.OB.
On
February 1, 2008, the estate of Edwin H. Wegman (the “Estate”) sold an aggregate
of 344,114 shares of the Company's common stock, par value $0.001, at a purchase
price of $12.00 per share to certain private investors. The Estate used certain
of the proceeds of the transaction to repay the loan owed to the Company by
Edwin H. Wegman, the Company’s former Chairman and CEO. The loan repayment
amount was $1,116,558, which represents the principal amount owed and accrued
interest through January 31, 2008.
In
addition to the foregoing subsequent events, there have been a number of
additional events that are described in the Form 8-Ks that have been filed by
the Company since December 31, 2007 that are listed in Item 13,
“Exhibits—Reports on Form 8-K.”
As of
December 31, 2007 we leased one facility in Lynbrook, New York. The New York
facility is our administrative headquarters and contains approximately 3,500
square feet of office space and 11,500 square feet of laboratory, production,
and storage facilities. As part of the agreement with DFB, DFB agreed to
sublease a part of the New York facility for a period of one year, which expired
on March 2, 2007, for an all inclusive monthly payment of
$15,500. DFB extended its sublease until March 6, 2008 and paid
$16,500 per month during this extended lease period. In April 2008,
DFB extended its sublease until March 3, 2009 and will pay $19,000 per month
during this extended lease period. DFB may terminate its obligations under
the sublease upon 90 days written notice provided that such termination does not
occur prior to September 1, 2008. We
lease this facility from WSC, which, until the death of Edwin H. Wegman, our
former Chairman and CEO, was an affiliate of Edwin H. Wegman. At the
present time the ownership of WSC is unclear. However, our President,
Thomas Wegman, is the senior most officer of WSC.
None.
Our 2007
Annual Meeting of Stockholders was held on October 24, 2007 at the offices of
Thelen Reid Brown Raysman & Steiner LLP in New York, New York, in accordance
with the Notice of Annual Meeting of Stockholders sent on or about September 28,
2007. The tables below present the voting results of the matters voted upon by
our stockholders at the meeting:
Proposal
1: Election of Directors
At the
meeting, each of the nominees listed below was elected to our Board of Directors
to serve as director until the end of his or her respective term and received
the number votes set forth after their respective names below.
|
Nominee
|
Number of
Shares
|
||
|
|
For
|
Against
|
Abstain
|
|
Class I (2 year term)
*
|
|||
|
Thomas
Wegman
|
4,594,038
|
74,392
|
19,996
|
|
Dr.
Paul Gitman
|
4,552,453
|
115,977
|
19,996
|
|
Class II (3 year term)
*
|
|||
|
Henry
Morgan
|
4,554,053
|
114,377
|
19,996
|
|
Michael
Schamroth
|
4,554,153
|
114,277
|
19,996
|
|
Class III (1 year term)
*
|
|||
|
Toby
Wegman
|
4,541,338
|
127,092
|
19,996
|
|
Dr.
Mark Wegman
|
4,593,838
|
74,592
|
19,996
|
_____________
* The Class I directors’ term
will expire at the 2009 Annual Stockholders’ Meeting for the 2008 fiscal year
and consists of Thomas Wegman and Dr. Paul Gitman. The Class II directors’ term
will expire at the 2010 Annual Stockholders’ Meeting for the 2009 fiscal year
and consists of Henry Morgan and Michael Schamroth. The Class III directors’
term will expire at the 2008 Annual Stockholders’ Meeting for the 2007 fiscal
year and consists of Toby Wegman and Dr. Mark Wegman.
Proposal
2: Ratification of the selection of Tabriztchi & Co. CPA, P.C. as our
independent registered public accounting firm for the fiscal year ending
December 31, 2007.
At the
meeting, our stockholders ratified by the vote set forth below the selection of
Tabriztchi & Co. CPA, P.C. as our independent registered public accounting
firm for the fiscal year ending December 31, 2007.
|
Number of
Shares
|
|||
|
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
|
4,664,202
|
3,046
|
21,176
|
0
|
The
number of shares of our common stock eligible to vote as of the record date of
September 24, 2007 was 5,316,101 shares.
Market
Information
Our
common stock currently trades under the symbol BSTC.OB on the Over-The-Counter
Bulletin Board (the “OTCBB”). We obtained listing on the OTCBB
effective January 29, 2008. On April 16, 2008 we received notice that
our symbol was changed to BSTCE.OB due to the delinquent filing of this
Report. Once the filing of this Report has been processed by the
OTCBB, our symbol will return to BSTC.OB.
The table
below sets forth the high and low closing sale prices for our common stock for
each of the quarterly periods in 2007 and 2006 as reported by and as quoted in
the Over-The-Counter Pink Sheets, on which we traded under the symbol BSTC.PK
until we obtained listing on the OTCBB:
|
2007
|
HIGH
|
LOW
|
||||||
|
Fourth
Quarter
|
$ | 10.25 | $ | 5.50 | ||||
|
Third
Quarter
|
$ | 6.00 | $ | 4.50 | ||||
|
Second
Quarter
|
$ | 4.70 | $ | 4.10 | ||||
|
First
Quarter
|
$ | 4.65 | $ | 4.00 | ||||
|
2006
|
HIGH
|
LOW
|
||||||
|
Fourth
Quarter
|
$ | 4.55 | $ | 1.15 | ||||
|
Third
Quarter
|
$ | 1.42 | $ | 0.72 | ||||
|
Second
Quarter
|
$ | 1.75 | $ | 0.80 | ||||
|
First
Quarter
|
$ | 1.65 | $ | 0.75 | ||||
These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
Holders
As of
April 22, 2008, to the best of our knowledge, there were approximately 750
beneficial stockholders of our common stock.
Dividends
It is our
current policy to retain potential earnings to finance the growth and
development of our business and not pay dividends. Any payment of cash dividends
in the future will depend upon our financial condition, capital requirements and
earnings as well as such other factors as the Board may deem
relevant.
Transfer
Agent
Our
common shares are issued in registered form. The registrar and
transfer agent for our common shares is OTC Corporate Transfer Service Co., 52
Maple Run Drive, Jericho, New York 11753 (Telephone: 516-932-2080; Facsimile:
516-932-2078; Website: www.otccorporatetransferservice.com). We have no other
exchangeable securities.
Equity
Compensation Plan Information.
The
following table provides information as of December 31, 2007 with respect to the
shares of our common stock that may be issued under our existing equity
compensation plans:
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a) |
Weighted-average
exercise
price of outstanding options, warrants and rights
(b) |
Number
of securities remaining available
for
future issuance
under
equity
compensation
plans (excluding securities reflected in column (a))
(c) |
|
|
Equity
compensation plans approved by security holders(1)
|
1,409,700
|
$1.86
|
426,598
|
|
Equity
compensation plans not approved by security holders
|
0
|
0
|
0
|
|
Total
|
1,409,700
|
$1.86
|
426,598
|
(1)
Please see Note 11, “Stockholders’ Equity,” of the notes to the consolidated
financial statements for a description of the material features of each of our
plans.
Recent
Sales of Unregistered Securities
The
Company engaged in multiple issuances of unregistered securities, as described
below.
Treasury
Shares Issued
We issued
127,419 shares of treasury stock to our employees in January 2006 of which 4,400
were subsequently cancelled. These securities were incorrectly issued
without an appropriate restrictive legend.
In March
2006, in connection with the sale of our topical collagenase business to DFB, we
repurchased all of the outstanding shares of ABC-NY and ABC-Curacao held by
minority shareholders in exchange for a combination of approximately $83,000 in
cash and 102,574 restricted shares of our treasury stock.
Common
Stock Issued in Lieu of Services
In May
2006, the Company issued 7,500 shares of common stock to an individual
performing services for the former Chairman and CEO in addition to the Company
at a total fair market value of $7,875 at the date of issuance.
Sale
of Unregistered Shares
On
January 14, 2008, the Company sold 200,000 shares of it common stock in a
private placement offering to Apis Capital Advisors LLC on behalf of various
funds advised by them at a purchase price of $10.50 per share, for aggregate
proceeds to the Company of $2,100,000. The shares were offered and
sold in reliance on Section 4(2) of the Securities Act of 1933 (the “Act”) as
private placements of securities that are exempt from the registration
requirements of the Act. The shares were sold to financially
sophisticated investors who had access to the sort of information which
registration under the Act would disclose. Additionally, no
commissions were paid and no general solicitation was made to any person or
entity in connection with the sale of the shares.
This
annual report on Form 10-KSB (the “Report”) includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities and Exchange Act of
1934, as amended. All statements other than statements of historical facts are
“forward-looking statements” for purposes of these provisions, including any
projections of earnings, revenues or other financial items, any statements of
the plans and objectives of management for future operations, any statements
concerning proposed new products or licensing or collaborative arrangements, any
statements regarding future economic conditions or performance, and any
statement
of
assumptions underlying any of the foregoing. In some cases, forward-looking
statements can be identified by the use of terminology such as “may,” “will,”
“expects,” “plans,” “anticipates,” estimates,” “potential,” or “continue” or the
negative thereof or other comparable terminology. Although we believe that the
expectations reflected in the forward-looking statements contained in this
report are reasonable, there can be no assurance that such expectations or any
of the forward-looking statements will prove to be correct, and actual results
could differ materially from those projected or assumed in the forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to inherent risks and uncertainties,
including but not limited to the risk factors set forth above, and for the
reasons described elsewhere in this report. All forward-looking statements and
reasons why results may differ included in this report are made as of the date
hereof, and we assume no obligation to update these forward-looking statements
or reasons why actual results might differ.
Overview
We are a
biopharmaceutical company that has been involved in the development of
injectable collagenase for multiple indications. We have a development and
license agreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for
injectable collagenase (which Auxilium has named “XIAFLEX TM”
(formerly known as “AA4500”) for clinical indications in Dupuytren’s disease,
Peyronie’s disease and frozen shoulder (adhesive capsulitis), and
Auxilium has an option to acquire additional indications that we may pursue,
including cellulite and lipomas.
Prior to
March 2006, we were a party to an exclusive license agreement with Abbott
Laboratories, Inc. and its subsidiaries (“Abbott”) for the production of the API
for topical collagenase. In March 2006, we sold our topical collagenase business
to DFB Biotech, Inc. and its affiliates (“DFB”), including all rights to the
exclusive license agreement and we were released of any obligations
thereunder.
In
addition, DFB acquired all of the issued and outstanding shares of ABC-Curacao,
pursuant to an asset purchase agreement between us, DFB and ABC-NY (the “Asset
Purchase Agreement”). ABC-Curacao manufactured the API Enzyme, which in its
final formulation was marketed by Abbott. The operating results of ABC-Curacao
and certain operations of ABC-NY have been classified as discontinued operations
in the Consolidated Financial Statements for all periods presented.
At the
closing of the Asset Purchase Agreement, DFB (i) acquired from us certain
inventory and manufacturing equipment used in the topical collagenase business,
(ii) was granted a perpetual royalty free license to use, solely in connection
with the topical collagenase business, certain intangible assets retained by us
and (iii) was granted the right (for a limited period of time which was
subsequently extended in April 2008) to use, solely in connection with the
topical collagenase business, certain tangible assets retained by us. As part of
the sale, we transferred to DFB our FDA manufacturing license.
As
consideration for the purchased assets we received $8 million in cash, DFB’s
assumption of certain liabilities, and the right to receive earn out payments in
the future based on sales of certain products. In connection with the closing of
the Asset Purchase Agreement, we agreed to provide certain technical assistance
and certain transition services to DFB in consideration of fees and costs
totaling over $1.4 million. At the closing, DFB paid to us a partial payment of
$400,000 in respect of the technical assistance to be provided by us. To date,
we have received a total of $1,000,000 in payments from DFB. The consulting
obligations generally expire during March 2011.
Outlook
We
foresee the potential to generate income from limited sources in the next
several years. Under the terms of our agreement with DFB, we are scheduled to
receive certain contractual anniversary payments and, if DFB exceeds a certain
sales target, we would be entitled to an earn out on sales. Under the terms of
our agreement with Auxilium, we may receive milestone payments upon their
achieving certain regulatory progress and if Auxilium elects to pursue
additional indications for injectable collagenase (“Additional
Indications”). In addition, as a result of our transaction with DFB
in the first quarter of 2006, our costs have been significantly reduced due
mainly to the reduction in our workforce.
On
January 14, 2008, the Company sold 200,000 shares of it common stock in a
private placement offering to Apis Capital Advisors LLC on behalf of various
funds advised by them at a purchase price of $10.50 per share, for aggregate
proceeds to the Company of $2,100,000. The shares were offered and
sold in reliance on Section 4(2) of the
Securities
Act of 1933 (the “Act”) as private placements of securities that are exempt from
the registration requirements of the Act.
On
February 1, 2008, the Estate of Edwin H. Wegman (the “Estate”) sold an aggregate
of 344,114 shares of the Company's common stock, par value $0.001, at a purchase
price of $12.00 per share to certain private investors. The Estate used certain
of the proceeds of the transaction to repay the loan owed to the Company by
Edwin H. Wegman, our former Chairman and CEO. The total loan repayment amount
was $1,116,558, which represents the principal amount of $625,774 owed to the
Company and accrued interest through January 31, 2008 of $490,784.
Based on
our current business model, we expect to have adequate cash reserves until the
fourth quarter of 2008 depending on the amount actually owed to Auxilium, as
discussed in Item 1A of this Report, “Risk Factors.” As a significant portion of
our revenues is tied directly to the success of Auxilium in commercializing
XIAFLEX, we cannot reasonably forecast our financial condition beyond this
time.
Significant
Risks
In recent
history we have had operating losses and may not achieve sustained
profitability. As of December 31, 2007, we had an accumulated deficit from
continuing operations of $10,172,855.
We are
dependent to a significant extent on third parties, and our principal licensee,
Auxilium, may not be able to successfully develop products, obtain required
regulatory approvals, manufacture products at an acceptable cost, in a timely
manner and with appropriate quality, or successfully market products or maintain
desired margins for products sold, and as a result we may not achieve sustained
profitable operations.
As of
April 22, 2008, we held $1.7 million of taxable auction rate securities, or ARS,
which are classified as short-term investments with a current market value of
approximately $1.5 million. The Dutch auctions have in the past provided a
liquid market for these types of securities. With the liquidity issues
experienced in global credit and capital markets, auctions of all the ARS we
hold experienced failed auctions, beginning in February 2008, as the amount of
securities submitted for sale exceeded the amount of purchase orders. If the
uncertainties in the credit and capital market continue, these markets
deteriorate further or there are ratings downgrades on any of the ARS we hold,
we may be required to adjust the value of these investments through an
impairment charge to earnings, if the fair value of these securities has
declined to below their cost and such decline is assessed to be “other than
temporary” under SFAS No. 115. Further, we may not be able to liquidate these
investments until successful auctions occur, a buyer outside the auction process
is found, the issuer calls these debt securities, or the securities
mature.
Critical
Accounting Policies, Estimates and Assumptions
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. These estimates are based on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. Actual results could differ from those estimates. While our
significant accounting policies are described in more detail in the notes to our
consolidated financial statements, we believe the following accounting policies
to be critical to the judgments and estimates used in the preparation of our
consolidated financial statements.
Revenue
Recognition. We
recognize revenues from product sales when there is persuasive evidence that an
arrangement exists, title passes, the price is fixed and determinable, and
payment is reasonably assured. We currently recognize revenues resulting from
the licensing and use of our technology and from services we sometimes perform
in connection with the licensed technology.
We enter
into product development licenses, and collaboration agreements that may contain
multiple elements, such as upfront license fees, and milestones related to the
achievement of particular stages in product development and royalties. As a
result, significant contract interpretation is sometimes required to determine
the appropriate accounting, including whether the deliverables specified in a
multiple-element arrangement should be treated as separate units of accounting
for revenue recognition purposes, and if so, how the aggregate contract value
should be allocated among the deliverable elements and when to recognize revenue
for each element.
We
recognize revenue for delivered elements only when the fair values of
undelivered elements are known, when the associated earnings process is complete
and, to the extent the milestone amount relates to our performance obligation,
when our licensee confirms that we have met the requirements under the terms of
the agreement, and when payment is reasonably assured. Changes in the allocation
of the contract value between various deliverable elements might impact the
timing of revenue recognition, but in any event, would not change the total
revenue recognized on the contract. For example, nonrefundable upfront product
license fees, for product candidates where we are providing continuing services
related to product development, are deferred and recognized as revenue over the
development period.
Milestones,
in the form of additional license fees, typically represent nonrefundable
payments to be received in conjunction with the achievement of a specific event
identified in the contract, such as completion of specified clinical development
activities and/or regulatory submissions and/or approvals. We believe that a
milestone represents the culmination of a distinct earnings process when it is
not associated with ongoing research, development or other performance on our
part. We recognize such milestones as revenue when they become due and payment
is reasonably assured. When a milestone does not represent the culmination of a
distinct earnings process, we recognize revenue in a manner similar to that of
an upfront product license fee.
Consulting and
Technical Assistance Services. We recognize revenues from a consulting
and technical assistance contracts primarily as a result of our agreements with
DFB and Auxilium. Consulting revenues are recognized ratably over the term of
the contract. The consulting obligations to DFB generally expire during March
2011.
Inventory and
Warranty Provisions. Our inventories are stated
at the lower of cost or realizable market value. In assessing the ultimate
realization of inventories, we are required to make judgments as to future
demand requirements and compare that with the current inventory
levels. In March 2006 we sold our topical collagenase business to
DFB, including certain product inventory. As of a result of this sale our
product inventory as of December 31, 2007 and 2006 was zero.
Reimbursable
Third-Party Development Costs. We accrue expenses to research and
development for estimated third party development costs that are reimbursable
under our agreement with Auxilium. Estimates are based on contractual terms,
historical development costs, reviewing third-party data and expectations
regarding future development for certain products. Further, we monitor the
activities and clinical trials of our development partners.
If
conditions or other circumstances change, we may take actions to revise our
reimbursable third party development cost estimates. These revisions could
result in an incremental increase in research and development costs. For
example, Amendment No.1 to the Development and License Agreement, dated May 5,
2006 provides that Auxilium and BioSpecifics will share equally in third party
costs for the development of the lyophilization of the injection formulation. On
April 11, 2008, we received an invoice for approximately $2.3 million from
Auxilium, which represents an amount that Auxilium believes is owed by
us through year end 2007 under this provision, Based
upon this invoice, we changed our estimates for reimbursable third party
development cost estimates. The effect of this change in estimate was to
increase research and development expenses, in December 2007 by approximately
$1.8 million, which increased our net loss per basic and diluted share by
approximately $0.39 for the year ended December 31, 2007. We have not had
adequate time to verify the accuracy or validity of the charges and have
informed Auxilium that we cannot pay the invoice until we have done so.
Based on our preliminary review, we believe that only a portion of the
amount charged actually relates to the development of the lyophilization of the
injection formulation and, therefore, reserve all rights related to this matter,
including but not limited to our right to contest the amount charged by
Auxilium.
Actual
results have differed in the past, and may differ in the future, from our
estimates and could impact our earnings in any period during which an adjustment
is made.
Stock Based
Compensation. On
January 1, 2006, we began accounting for employee stock-based compensation
in accordance with SFAS 123(R). Under the provisions of SFAS 123(R), we
estimate the fair value of our employee stock awards at the date of grant using
the Black-Scholes option-pricing model, which requires the use of certain
subjective assumptions. The most significant of these assumptions are our
estimates of the expected volatility of the market price of our common stock and
the expected term of the award. When establishing an estimate of the expected
term of an award, we consider the vesting period for the award, our recent
historical experience of employee stock option exercises (including forfeitures)
and the expected volatility. As required under the accounting rules, we review
our
valuation assumptions at each grant date and, as a result, our valuation
assumptions used to value employee stock-based awards granted in future periods
may change.
Further,
SFAS 123(R) requires that employee stock-based compensation costs to be
recognized over the requisite service period, or the vesting period, in a manner
similar to all other forms of compensation paid to employees. Accordingly, in
2007 we recognized employee stock-based compensation as part of our operating
expenses and allocated $14,197 to research and development expenses and $409,422
to general and administrative expenses.
We
account for stock options granted to persons other than employees or directors
at fair value using the Black-Scholes option-pricing model in accordance with
EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.” Stock options granted to such persons and stock options that are
modified and continue to vest when an employee has a change in employment status
are subject to periodic revaluation over their vesting terms. We recognize the
resulting stock-based compensation expense during the service period over which
the non-employee provides services to us. The stock-based compensation expense
related to non-employees for the year ended December 31, 2007 was
$226,541.
RESULTS
OF OPERATIONS
YEAR
ENDED DECEMBER 31, 2007 COMPARED WITH YEAR ENDED DECEMBER 31, 2006
Product
Revenues, net
Product
revenues include the sales of the API Enzyme recognized at the time it is
shipped to customers. From continuing operations, we had a small amount of
revenue from the sale of collagenase for laboratory use. For the
calendar years ended 2007 and 2006 product revenues were $34,357 and $26,469,
respectively. This increase of $7,888 or 30% was primarily related to the amount
of material required to perform testing by our customers.
Royalties
We
received all of our royalty revenues from DFB under the earn out payment
provision of the Asset Purchase Agreement. Total royalty revenues recognized
under our agreement with DFB were $16,361 and zero for the calendar year 2007
and 2006, respectively. This increase for the calendar year 2007 was due to
certain sales levels achieved by DFB in connection with the sale of topical
collagenase.
Licensing
and Milestone Revenues
We
recognized as licensing and milestone revenue $1,157,116 and $1,657,116 in
calendar years 2007 and 2006, respectively. This decrease of $500,000 or 30% was
due to a milestone payment received and recognized in 2006 in connection with
the Auxilium Agreement.
Under
current accounting guidance, nonrefundable upfront license fees for product
candidates where we are providing continuing services related to product
development, are deferred and recognized as revenue over the development period.
The remaining balance will be recognized over the respective development periods
or when we determine that we have no ongoing performance
obligations.
Consulting
Services
We
recognize revenues from consulting and technical assistance contracts primarily
as a result of the Asset Purchase Agreement. In addition, we recognized revenue
from a consulting agreement signed in October 2007 with Auxilium. Consulting
revenues are recognized ratably over the term of the contract. The consulting
obligations under the Asset Purchase Agreement generally expire during March
2011. For the calendar years 2007 and 2006 consulting revenue recognized was
$306,500 and $233,333, respectively. This increase of $73,167 or 31% in
consulting revenues was primarily the result of the timing of closings of the
Asset Purchase Agreement and the Auxilium consulting agreement.
Research
and Development Activities
Research
and development expenses were $2,489,122 and $1,217,306 respectively, for the
calendar years 2007 and 2006, an increase in calendar year 2007 of $1,271,816 or
104%. The increase in research and development expenses was primarily due to
third party development costs which was partially offset by lower research and
development license expense, employee stock-based compensation expense and
research and development personnel costs.
General
and Administrative Expenses
General
and administrative expenses were $3,516,716 and $4,002,519 for the calendar
years 2007 and 2006, respectively, which was a decrease of $485,803 or 12%. The
decrease in general and administrative expenses was primarily due to lower
general and administrative personnel costs, legal fees and an asset impairment
charge in 2006 partially offset by employee stock-based compensation expense and
consulting expenses.
Asset
Impairment Charges
Total
asset impairment charges included in our general and administrative operating
expenses for the year ended December 31, 2007 were zero compared to
$144,963 in 2006. In connection with the DFB agreement, which was signed in
March 2006, we determined that indicators existed that suggested our research
and development equipment assets could be impaired. As such, we tested these
assets for recoverability under SFAS 144, and the total of the estimated future
cash flows directly related to the development of future product sales was less
than the carrying value of the asset as of December 31, 2006. Therefore, we
determined that the carrying value of our research and development equipment
assets was impaired, and we used a present value technique to calculate the fair
market value of the asset. As a result, we recognized an impairment charge
totaling approximately $144,963, which represented the difference between the
carrying value of the asset and the present value of estimated future cash flows
as of December 31, 2006. After recognizing the impairment charge, the book
value of these asset as of December 31, 2006 was reduced to
zero.
Other
Income and expense, net
Other
income, net, for the calendar year 2007 was $1,040 compared to other income, net
of $87,076 for the 2006 period. Other income, net during the 2007 period was due
to interest earned on our investments offset by accrued tax penalties, $105,000,
and interest, $20,000 associated with out delinquent tax filings. Other income,
net for the 2006 period was primarily due to interest earned on our investments
partially offset by accrued penalties, $70,399 and interest, $60,409, associated
with out delinquent tax filings.
Income
Taxes
The
expense for income taxes was $53,865 and $147,480 for the calendar years 2007
and 2006, respectively. In 2007, we accrued approximately $105,000 in penalties
for not complying with the requirements for filing tax returns and $20,000 in
interest expense for not remitting the required payments on time. In addition,
in 2006, we accrued estimated federal and state tax penalties and interest of
$70,399 and $60,409, respectively, also due to our delinquent tax
filings.
Liquidity
and Capital Resources
To date,
we have financed our operations primarily through product sales, debt
instruments, licensing revenues under agreements with third parties and sales of
our common stock. At December 31, 2007 and 2006 we had cash, cash
equivalents in the aggregate of $68,564 and $4,367,178,
respectively.
Continuing
Operations
Net cash
used in operating activities in the 2007 period was $3,125,488 as compared to
net cash used in operating activities in the 2006 period of
$3,884,463. In the 2007 period, the change in net cash used in
operating activities as compared to the 2006 period was primarily due to
increased operating expenses, a smaller decrease in deferred revenue related to
the recognition of licensing fees for payments received in prior annual periods
under the Auxilium
Agreement
and depreciation expense partially offset by an increase in accruals related to
third party development costs and non-cash stock compensation
expense.
Net cash
used in investing activities in the 2007 was $975,000 as compared to cash
provided by investing activities of $11,933 in the 2006 period. Net cash used in
investing activities in the 2007 period was due to purchases of short term
investments. Net cash provided by investing activities in the 2006 was the
result of the sale of specific research equipment.
Net cash
provided by financing activities in the 2007 was $122,912 as compared to net
cash used in financing activities in the 2006 period of $153,300. Net cash
provided by financing activities in the 2007 period was related to proceeds
received from the exercise of stock options. Net cash used in the 2006 period
was primarily related to a cash payment for shares we purchased from our
minority shareholders to affect the DFB transaction and the repayment of certain
third party short-term loans.
Discontinued
Operations
Cash flow
changes from discontinued operations are primarily due to the operating results
of ABC-Curacao and certain operations of ABC-NY, which have been classified as
discontinued operations.
Net cash
used in operating activities from discontinued operations in the 2007 period was
$321,038 as compared to net cash provided by operating activities from
discontinued operations in the 2006 period of $1,806,879. The net cash used in
the 2007 period was primarily due to the payment of accrued payroll taxes from
previous periods on our Curacao operations.
Net cash
provided by investing activities from discontinued operations in the 2007 and
2006 periods was zero and $6,046,749, respectively.
For the
discussion of Item 7, “Financial Statements” please see the Consolidated
Financial Statements, beginning on page F-1 of this Report.
None.
Disclosure
Controls and Procedures
The
Company, under the supervision and with the participation of Thomas Wegman, the
Company’s President, Principal Executive Officer and Principal Financial
Officer, evaluated the effectiveness of its disclosure controls and procedures
as of the end of the period covered by this Report. Based on that evaluation,
management has concluded that the Company’s disclosure controls and procedures
are effective to ensure that information required to be disclosed in reports
filed under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Commission, and that such information is
accumulated and communicated to the Company’s management, to allow timely
decisions regarding required disclosure. Because of the inherent limitations in
all control systems, any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily is required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and
procedures. Furthermore, our controls and procedures can be circumvented by the
individual acts of some persons, by collusion of two or more people or by
management override of the control, and misstatements due to error or fraud
may occur and not be detected on a timely basis.
A
material weakness is a control deficiency, or combination of control
deficiencies (within the meaning of Public
Company
Accounting Oversight Board Auditing Standard No. 2), that results in there being
more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis
by employees in the normal course of their assigned functions. Management has
not identified any material weaknesses in our internal control over financial
reporting as of December 31, 2007. Management has, however,
identified the following non-material weakness: the Company has not filed either
its federal or state corporate tax returns since the calendar year 2002 but has
paid the estimated franchise tax due to New York State. The Company has accrued
approximately $454,000 for tax, penalties and interest. The Company plans to
file these returns as soon as possible and to pay any associated fines
therewith.
Management’s
Annual Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company as defined in Rule 13a-15(f)
under the Exchange Act. The Company’s internal control over financial reporting
is designed to provide reasonable assurance to the Company’s management and
board of directors regarding the preparation and fair presentation of published
financial statements and the reliability of financial reporting.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control – Integrated
Framework. We believe that, as of December 31, 2007, the
Company’s internal control over financial reporting is effective based on this
criteria.
This
Report does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Commission that permit
the Company to provide only management’s report in this Report.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting in
the year ended December 31, 2007 that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Directors
and Executive Officers
Set forth
below is information concerning our current executive officers and directors as
of April 7, 2008:
|
Name
|
Age
|
Title
|
|
Thomas
Wegman
|
53
|
President
|
|
Henry
Morgan
|
87
|
Director
|
|
Dr.
Paul Gitman
|
67
|
Director
|
|
Michael
Schamroth
|
68
|
Director
|
|
Toby
Wegman
|
73
|
Director
|
|
Dr.
Mark Wegman
|
58
|
Director
|
THOMAS WEGMAN. Mr. Wegman, age
53, has served as an officer of the Company for more than 15 years. He is our
current President and has served as our President since October 17, 2005. Prior
to such appointment he served as
the
executive vice president of the Company. Effective in 1994, Mr. Wegman became a
director on the Board of the Company and has served as such since that time. He
has over 30 years of experience in the bio-pharmaceutical industry that
encompasses managing company operations and drug development, licensing, and
registration. From 1978 thru 1983, Mr. Wegman managed the production, marketing
and foreign registration activities related to an avian vaccine
business. Mr. Wegman has been instrumental in licensing technologies
from universities for use by the Company. He is the author of a
number of U.S. and foreign patents in the life sciences field. Mr.
Wegman received his B.A. from Boston University. Mr. Wegman is the son of our
former CEO and Chairman, Edwin H. Wegman, who passed away on February 16, 2007.
Mr. Wegman is the brother of Dr. Mark Wegman and the stepson of Toby Wegman,
both of whom are currently directors of the Company.
HENRY MORGAN. Mr. Morgan, age
87, is currently a director on the Board and has served as a director of the
Company since 1990, with the exception of a few interim months. He has been a
practicing attorney for more than 50 years. Prior to his work as an
attorney, he was employed in the insurance industry as an insurance auditor and
agent. His law practice is in the defense of corporations and
individuals for claims asserted against them that allege professional errors and
omissions, defective products, insurance coverage issues and employment related
disputes. Mr. Morgan is a member of the Essex County, New Jersey
State and American Bar Associations, the International Association of Defense
Counsel and the Defense Research Institute. He received his B.A. and
J.D. degrees from Rutgers, The State University of New Jersey.
DR. PAUL GITMAN. Dr. Gitman,
age 67, is currently a director on the Board and has served as a director of the
Company since 1990. He is board certified by the American Board of Internal
Medicine and the American Board of Quality Assurance and Utilization
Review. Following 25 years in private medical practice he joined the
fulltime faculty of Long Island Jewish Medical Center where he became Medical
Director. In 2007, Dr Gitman was promoted to Vice President of
Medical Affairs for the North Shore Long Island Jewish Health
system. Dr. Gitman is currently an Associate Professor of Medicine at
Albert Einstein College of Medicine as well as the Vice Chairman of the Medical
Society of the State of New York’s Committee for Physician’s
Health. He has served on the New York State Board of Medicine for 10
years and on various New York State Committees and Task Forces. He is
past President of both the New York Chapter of the American College
of Physicians and the Medical Society of the County of
Queens. Dr. Gitman received his medical degree from Boston University
School of Medicine.
MICHAEL
SCHAMROTH. Mr. Schamroth, age 68, is currently a director on
the Board and has served as a director of the Company since 2004. He has been a
partner of M. Schamroth & Sons in New York City for the past 38
years. As a principal in this fourth-generation international diamond
house, Mr. Schamroth has extensive experience in dealing with all aspects of the
trade, from manufacturing to sales. He has been a member of the Diamond
Manufacturers and Importers Association since 1964, and has served on the
Nominating and Building Committees of the Diamond Dealers Club. In
addition, Mr. Schamroth has served as a member of the Board of South Nassau
Communities Hospital since 1976, the Board of the Winthrop-South Nassau
University Health System since 1993 and the Board of Sound Bank of North
Carolina since 2002. He has been a member of the Miami University
Business Advisory Board since 1984 and served as its Chairman from
1987-1988. He received his B.S. in Business from Miami University,
Oxford, Ohio.
TOBY WEGMAN. Ms.
Wegman, age 73, is currently a director on the Board and has served as a
director of the Company since June 25, 2007. Ms. Wegman is the widow
of our former CEO and Chairman, Edwin H. Wegman. Ms. Wegman has had a range of
business-related work experiences. For five years she owned and operated a
women’s apparel business and prior to that managed a women’s retail clothing
operation. She has also been actively involved in the management of
Edwin H. Wegman’s business interests and finances for many years. Ms.
Wegman is the step mother of Thomas Wegman and Dr. Mark Wegman, both of whom are
currently directors of the Company and are nominated for re-election at the 2007
Annual Meeting. Ms. Wegman is a member of the Lion of Judah, and a
lifetime member of the National Council of Jewish Women.
DR. MARK WEGMAN. Dr.
Wegman, age 58, is currently a director on the Board and has served as a
director of the Company since June 25, 2007. He joined International Business
Machines (“IBM”) in 1975 where Dr. Wegman is currently Head of Computer Science
with world wide responsibilities in IBM’s eight research
laboratories. Dr. Wegman is recognized for his significant
contributions to computer algorithms and compiler optimization that have deeply
influenced many areas of computer science and practice. This work was recognized
by the Special Interest Group On Programming Languages in 2006 with its
Programming Languages Achievement Award. He recently was named as an
IBM Fellow, which is IBM’s highest technical honor. Dr. Wegman is the author of
over 30 publications
in the
field of Computer Science. Dr. Wegman received his doctorate in
Computer Science from the University of California at Berkeley. Dr.
Wegman is the son of our former CEO and Chairman, Edwin H. Wegman. Dr. Wegman is
the brother of Thomas Wegman and the stepson of Toby Wegman, both of whom are
currently directors of the Company.
Family
Relationships
Edwin H.
Wegman, our former Chairman and CEO, was (i) the father of Thomas Wegman, a
current director and our current President, (ii) the father of Dr. Mark Wegman,
a current director, and (iii) the husband of Toby Wegman, a current
director.
Board
Responsibility, Composition and Meetings
The Board
of Directors has responsibility for establishing broad corporate policies and
reviewing our overall performance of the Company. The primary responsibility of
our Board is to oversee the management of the Company and, in doing so, serve
the best interests of the company and our stockholders. The Board selects,
evaluates and provides for the succession of executive officers and, subject to
stockholder election, directors. It reviews and approves corporate objectives
and strategies, and evaluates significant policies and proposed major
commitments of corporate resources. Our Board also participates in decisions
that have a potential major economic impact on the Company. Management keeps the
directors informed of Company activity through regular communication, including
written reports and presentations at Board of Directors and Committee
meetings.
The Board
is divided into three classes, each of which serves for a term of three years,
with only one class of directors being elected in each year. The term of office
of the first class of directors, presently consisting of Thomas Wegman and Dr.
Paul Gitman is scheduled to expire at the annual meeting for the year 2009; the
term of office of the second class of directors, presently consisting of Henry
Morgan and Michael Schamroth is scheduled to expire on the date of the annual
meeting for the year 2010; and the third class of directors, consisting of Toby
Wegman and Dr. Mark Wegman is scheduled to expire on the date of the annual
meeting for the year 2008. Each director shall hold office for their
specified term and until his or her successor shall be elected and shall qualify
and be subject to such director’s earlier death, resignation or
removal.
The Board
held eight meetings in 2007. All Board members were present, either
in person or telephonically at all meetings.
Board
Committees
Our Board
has established an Audit Committee, a Compensation Committee and a Nominating
and Governance Committee, each of which performs various duties on behalf of and
reports to the Board pursuant to delegated authority. The members of
each committee are appointed by our Board. From time to time, the
Board may establish other committees.
Audit
Committee and Audit Committee Financial Expert
The Audit
Committee is comprised of our independent directors, Dr. Paul Gitman, Henry
Morgan and Michael Schamroth. Dr. Paul Gitman serves as the Chairman of the
Audit Committee. The Audit Committee is governed by an Audit Committee Charter,
which was filed with the SEC as an appendix to our Proxy Statement on September
28, 2007. The Audit Committee’s responsibilities include: selecting our
independent registered public accounting firm, reviewing with the independent
auditors firm the results of their audits, review with the independent
accountants and management our financial reporting and operating controls and
the scope of audits, reviewing our budgets and make recommendations concerning
our financial reporting, accounting practices and policies and financial,
accounting and operating controls and safeguards and reviewing matters relating
to the relationship between the Company and our auditors, including the
selection of and engagement fee for the independent registered public accounting
firm.
Our Board
has determined that it does not have a member of its Audit Committee that
qualifies as an “audit committee financial expert” as defined under Exchange Act
regulations. We believe that retaining an independent director who would qualify
as an “audit committee financial expert” would be overly costly and burdensome
and is not warranted in our current circumstances.
The Audit
Committee met six times during 2007.
Compensation
Committee
The
Compensation Committee is comprised of our independent directors, Michael
Schamroth, Dr. Paul Gitman and Henry Morgan. Henry Morgan serves as
the Chairman of the Compensation Committee. The Compensation Committee’s
responsibilities include: reviewing and recommending approval of the
compensation of our executive officers, overseeing the evaluation of our
executive officers, reviewing and making recommendations to the Board regarding
incentive compensation and equity-based plans, administering our stock option
plans, and reviewing and making recommendations to the Board regarding director
compensation.
The
Compensation Committee met five times during 2007.
Nominating
and Governance Committee
The
Nominating and Corporate Governance Committee is comprised of our independent
directors, Michael Schamroth, Dr. Paul Gitman and Henry
Morgan. Michael Schamroth serves as the Chairman of the Nominating
and Corporate Governance Committee. The Nominating and Corporate
Governance Committee is governed by a Nominating and Corporate Governance
Committee Charter, which was adopted by the Board at a Board meeting on April 7,
2008. The Nominating and Corporate Governance Committee’s
responsibilities include: identifying individuals qualified to become Board
members and to recommend to the Board the nominees for director at annual
meetings of stockholders, recommending to the Board nominees for each Committee
of the Board, developing and recommending to the Board corporate governance
principles applicable to the Company and leading the Board in its annual review
of the Board’s performance.
The
Nominating and Corporate Governance Committee did not meet during
2007.
Code
of Business Conduct and Ethics
The
Company’s Amended and Restated Code of Business Conduct and Ethics (“Code of
Ethics”) applies to, among other persons, members of our Board, our officers,
contractors, consultants and advisors. A copy of our Code of Ethics
is available on our website at www.biospecifics.com under
“Investors—Corporate Governance.” We intend to post on our website
disclosures that are required by applicable law, SEC rules or OTCBB listing
standards concerning any amendment to, or waiver from, our Code of
Ethics.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our officers, directors and persons who own
more than 10% of any class of our securities registered under Section 12(g) of
the Exchange Act to file initial reports of ownership and changes in ownership
with the SEC. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish us with copies of all Section 16(a)
forms they file.
Based
solely upon our review of copies of such reports, we believe that during the
fiscal year ended December 31, 2007, all reports required to be filed under
Section 16(a) were timely filed except as follows: Toby Wegman was late in
filing an initial Form 3 report and three Form 4 reports concerning three
transactions, Dr. Mark Wegman was late in filing an initial Form 3 report, Dr.
Paul Gitman was late in filing one Form 4 report concerning one transaction,
Henry Morgan was late in filing one Form 4 report concerning one transaction,
Michael Schamroth was late in filing two Form 4 reports concerning two
transactions and Thomas Wegman was late in filing four Form 4 reports concerning
four transactions. These individuals subsequently filed their delinquent
forms.
The
following table summarizes the annual compensation paid to our named executive
officers for the two years ended December 31, 2007 and 2006:
Summary
Compensation Table
|
Name
And Principal
Position
|
Year
|
Salary
($) |
Stock
Awards
($) |
Option Awards
($) (2) |
All
Other Compensation
($) |
Total
($) |
|
Thomas
Wegman
President,
Principal Executive Officer and Principal Financial Officer (1)
|
2007
|
250,000
|
0
|
41,918
|
3,578(3)
|
295,496
|
|
|
2006
|
251,590
|
0
|
127,001
|
3,720(3)
|
382,311
|
|
Edwin
H. Wegman
Former
CEO and Chairman of the Board (4)
|
2007
|
31,250
|
0
|
0
|
220,959(5)
|
252,209
|
|
|
2006
|
401,422
|
0
|
63,540
|
16,898(6)
|
481,860
|
|
Lawrence
Dobroff
Former
Chief Financial Officer
|
2007
|
91,318(7)
|
0
|
0
|
0
|
|
|
2006
|
138,461
|
25,000
|
51,190
|
0
|
214,651
|
|
(1)
|
Thomas
Wegman also serves as the President of the Company’s wholly-owned
subsidiary, Advance Biofactures Corporation, for no additional
compensation.
|
|
(2)
|
Amounts
listed in this column reflect the compensation cost recognized for
financial statement purposesduring 2007 and 2006 for the stock awards held
by the named executive officer calculated in accordance
withSFAS 123(R) and using a Black-Scholes valuation model. The
stock-based compensation expense recognized under SFAS No. 123(R) for
the years ended December 31, 2007 and 2006 was determined using the
Black-Scholes option valuation model. Option valuation models require the
input of subjective assumptions and these assumptions can vary over time.
The assumptions used were as follows: expected life of 5* years, risk free
interest rate of 5%, volatility of 128% and zero dividend
yield.
|
*Expected life used in Black-Scholes
valuation model was 2 years for Edwin H. Wegman
|
(3)
|
Represents
Incremental cost of vehicles leased by the
Company.
|
|
(4)
|
Upon
his death on February 16, 2007, Edwin H. Wegman ceased to be the Chairman
and CEO of the Company.
|
|
(5)
|
On
February 20, 2007 at a special meeting of the Board, the Board, out of
generosity and affection, approved the payment to Toby Wegman, the wife of
Edwin H. Wegman, of $250,000 as a death benefit to recognize and honor
Edwin H. Wegman’s past service to the Company. This amount is
equal to the salary that Edwin H. Wegman would have received for a one
year period commencing on February 20, 2007, payable on the same
semi-monthly basis. In 2007, the Company paid to Toby Wegman $218,750 of
this amount. In addition, the Board approved the continuation of spousal
health benefits for Toby Wegman for a one year period commencing February
20, 2007, at the Company’s expense, which benefits amounted to $2,209
during 2007.
|
|
(6)
|
This
amount includes (i) $4,500, which represents the incremental cost of
Company’s used 1997 Cadillac Sedan, the title of which was transferred to
Edwin H. Wegman as additional compensation upon affirmation of approval by
the non-employee members of the Board, (ii) $7,875, which represents
compensation in 2006 for the value at the time of issuance of restricted
stock to an individual who provided personal services to Edwin H. Wegman,
(iii) $3,291 for personal legal services to Edwin H. Wegman which was paid
by the Company and (iv) $1,175 for the incremental cost of vehicles leased
by the Company.
|
|
(7)
|
On
May 7, 2007, the Board terminated Lawrence Dobroff’s employment with the
Company. This amount includes (i) $49,318, which represents the
base salary that Mr. Dobroff earned from January 1, 2007 through May 7,
2007 and (ii) $42,000, which represents the total value of his accrued
vacation time from January 1, 2007 through May 7,
2007.
|
Narrative
Disclosure to Summary Compensation Table
Thomas
Wegman
On
January 23, 2006, the Board awarded to Thomas Wegman options to purchase 100,000
shares of common stock at an exercise price of $1.00 per share (100% of the
closing sales price of the common stock on the grant date), which vested on the
grant date and expires ten years from the grant date.
On
September 6, 2006, the Board awarded a bonus stock option award to Thomas Wegman
in the form of options to purchase 25,000 shares of common stock in recognition
of his valued efforts in connection with the consummation of the sale of the
Company’s topical business to DFB Biotech, Inc. Each option vested on the grant
date, has an exercise price of $0.83 per share (100% of the closing sales price
of the common stock on the grant date), and expires ten years from the grant
date.
On
September 6, 2006, as an incentive for attaining certain goals for the Company,
the non-employee members of the Board granted to Thomas Wegman incentive stock
options to acquire 100,000 shares of common stock of the Company at an exercise
price equal to $0.83 per share (equal to 100% of the closing sales price of the
common stock on the grant date) and expiring ten years from the grant date. The
options are to vest in two installments if the Company achieves certain
objectives set by the Board, including the Company becoming current in its SEC
filings.
On
October 24, 2007, upon the Company becoming current in its SEC filings, 50,000
of the 100,000 options granted to Thomas Wegman on September 6, 2006,
vested. As of the date of this filing, the remaining 50,000
contingent options have not vested.
Edwin
H. Wegman
On
January 23, 2006, the Board awarded to Edwin H. Wegman options to purchase
100,000 shares of common stock at an exercise price of $1.10 per share (as a
ten-percent stockholder of the Company, Edwin H. Wegman’s options have an
exercise price equal to 110% of the closing sales price of the common stock on
the date of grant and expire 5 years from the grant date).
On
February 16, 2007, Edwin H. Wegman, our Chief Executive Officer and Chairman of
the Board, passed away. On February 20, 2007, our Board appointed Thomas Wegman,
our President and son of Edwin H. Wegman, to also act as our Principal Executive
Officer. As of the date hereof, the Board has not appointed a new Chief
Executive Officer or Chairman of the Board.
Following
the death of Edwin H. Wegman on February 16, 2007, under the Company’s 2001
Employee Stock Option
Plan, the
Estate of Edwin H. Wegman was required to exercise all options held by the
estate by midnight on August 16, 2007 because all options expire 6 months from
the death of the option holder pursuant to the terms of the 2001 Employee Stock
Option Plan. At the request of the Estate of Edwin H. Wegman, on July 30, 2007,
the Board of Directors of the Company extended the expiration dates of the two
options to their original expiration dates.
Lawrence
Dobroff
On
January 23, 2006, the Board awarded to Lawrence Dobroff options to purchase
25,000 shares of common stock at an exercise price of $1.00 per share (100% of
the closing sales price of the common stock on the grant date), which fully
vested on the grant date and expire ten years from the grant date.
On
September 6, 2006, the Board awarded a bonus stock option award to Lawrence
Dobroff in the form of options to purchase 15,000 shares of common stock, in
recognition of his valued efforts in connection with the consummation of the
sale of the Company’s topical business to DFB Biotech, Inc. Each option vested
on the grant date, has an exercise price of $0.83 per share (100% of the closing
sales price of the common stock on the grant date), and expires ten years from
the grant date.
On
September 6, 2006, the Board also authorized the payment to Lawrence Dobroff of
a cash bonus award of $40,000 payable upon the achievement of certain objectives
set by the Board. The cash bonus was never paid out because the objectives were
not met during Mr. Dobroff’s employment with the Company.
In
December 2004, Lawrence Dobroff was promoted to Chief Financial Officer (CFO)
and on a monthly basis received a stock grant based upon a set dollar limit of
$1,667 per month or $20,000 per year. This promotion in 2004 resulted in 19,413
shares being granted at various dates in 2006, 17,054 shares being granted at
various dates in 2005 and 958 shares in 2004. On December 4, 2006,
the Board authorized the termination of the yearly grant of $20,000 worth of
stock options to Mr. Dobroff. Effective January 1, 2007, Mr. Dobroff
received $20,000 in cash compensation in addition to his yearly salary in lieu
of the stock options.
On May 7,
2007, the Company terminated the employment of Mr. Dobroff, effective May 7,
2007. Effective the same date, we appointed Thomas Wegman, our President and
Principal Executive Officer to serve as our Principal Financial Officer for the
purpose of making the certifications required by the Sarbanes-Oxley Act of
2002.
Change
of Control Agreement
On June
18, 2007, the Company entered into a Change of Control Agreement with Thomas L.
Wegman, who serves as a Director as well as the Company’s President (the “Wegman
Change of Control Agreement”). Pursuant to the
terms of the Wegman Change of Control Agreement, in the event that Mr. Wegman’s
employment with the Company is terminated by the Company without cause following
a Change of Control or if Mr. Wegman terminates his employment with the Company
for Good Reason following a Change of Control, each as described below, then (A)
Mr. Wegman shall receive a payment by the Company equal to one-twelfth
(1/12th) of his
annual base salary at the time of such termination multiplied by twelve (12)
months, to be payable in one lump sum not later than thirty (30) days after date
of termination of his employment with the Company; (B) until the anniversary of
such date of termination, Mr. Wegman shall be entitled to participate in the
Company’s medical, dental, and life insurance plans at no greater cost than the
cost he was paying immediately prior to the Change in Control; (C) 100% of any
options to purchase shares of common stock of the Company then held by Mr.
Wegman, which options are then subject to vesting, shall be accelerated and
become fully vested and exercisable on the date immediately preceding the
effective date of such termination and (D) if, on the date immediately preceding
the effective date of such termination, Mr. Wegman then holds shares of
Restricted Stock, issued to the Director in a transaction other than pursuant to
the exercise of a stock option, then, such restrictions shall expire in their
entirety on the date immediately preceding the date of termination and all of
such shares of common stock shall become transferable free of restriction,
subject to the applicable provisions of federal and state securities
laws.
Under the
Wegman Change of Control Agreement, a “Change of Control” shall mean the
occurrence of any one of the following:
|
|
·
|
the
acquisition by any “person” (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934), other than the Company or its
affiliates, from any party of an amount of the capital stock of the
Company, so that such person holds or controls 40% or more of the
Company’s capital stock; or
|
|
|
·
|
a
merger or similar combination between the Company and another entity after
which 40% or more of the voting stock of the surviving corporation is held
by persons other than the Company or its affiliates;
or
|
|
|
·
|
a
merger or similar combination (other than with the Company) in which the
Company is not the surviving corporation;
or
|
|
|
·
|
the
sale of all or substantially all of the Company’s assets or
business.
|
Under the
Wegman Change of Control Agreement, “Good Reason” shall mean any of the
following involuntary circumstances:
|
|
·
|
assignment
to Mr. Wegman of any duties inconsistent in any material respect with the
his position (including titles and reporting requirements), authority,
duties or responsibilities as contemplated by the job description of his
position, or any other action by the Company or its successor, which
results in a diminution in such position, authority, duties or
responsibilities, other than an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of written notice thereof given by Mr.
Wegman;
|
|
|
·
|
a
reduction in Mr. Wegman’s annual base salary (or an adverse change in the
form or timing of the payment thereof), other than an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of written notice thereof
given by Mr. Wegman; or the elimination of or reduction of any benefit
under any bonus, incentive or other employee benefit plan in effect on the
day immediately preceding the Change in Control, without an economically
equivalent replacement, if Mr. Wegman was a participant or member of such
plan on the day immediately preceding the Change in
Control;
|
|
|
·
|
the
Company’s or its successor’s requiring Mr. Wegman (i) to be based at any
office or location more than 25 miles away from the office or location
where he was performing services immediately prior to the Change in
Control, or (ii) to relocate his or her personal residence, or (iii) the
Company’s requiring Mr. Wegman to travel on Company business to a
substantially greater extent than required immediately prior to the Change
in Control.
|
A copy of
the Wegman Change of Control Agreement entered into with Thomas L. Wegman was
filed on Form 8-K with the SEC on June 22, 2007. The foregoing
descriptions of the Wegman Change of Control Agreement do not purport to be
complete and are qualified in their entirety by reference to the full text of
the agreement.
Outstanding
Equity Awards at Fiscal Year End
|
Option
Awards
|
|||||
|
Name
|
Number
of Securities Underlying Unexercised Options
Exercisable (#)
|
Number
of Securities Underlying Unexercised Options Unexercisable
(#)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
|
Thomas
Wegman
President
|
1,500(1)
|
0
|
0
|
4.38
|
1/14/2008
|
|
1,800
|
0
|
0
|
4.25
|
10/12/2008
|
|
|
2,500
|
0
|
0
|
4.00
|
12/30/2008
|
|
|
20,000
|
0
|
0
|
3.00
|
7/12/2009
|
|
|
50,000
|
0
|
0
|
1.875
|
10/28/2009
|
|
|
20,000
|
0
|
0
|
1.00
|
12/26/2010
|
|
|
50,000
|
0
|
0
|
1.00
|
4/18/2011
|
|
|
45,000
|
0
|
0
|
1.00
|
9/29/2012
|
|
|
100,000
|
0
|
0
|
1.00
|
1/22/2016
|
|
|
50,000
|
50,000
|
50,000
|
.83
|
9/5/2016
|
|
|
25,000
|
0
|
0
|
.83
|
9/5/2016
|
|
|
Edwin H.
Wegman
Former
Chairman and CEO (2)
|
39,000
|
0
|
0
|
1.10
|
9/29/2012
|
|
100,000
|
0
|
0
|
1.10
|
1/22/2011
|
|
|
Lawrence Dobroff
Former
CFO (3)
|
0
|
0
|
0
|
N/A
|
N/A
|
|
(1)
|
Thomas
Wegman’s option to purchase 1,500 shares expired on January 14, 2008.
Mr. Wegman
did not receive any value for such
expiration.
|
|
(2)
|
Upon
his death on February 16, 2007, Edwin H. Wegman ceased to be the Chairman
and CEO of the Company. On February 1, 2008 Toby Wegman and
Thomas Wegman, as co-executors of the estate of Edwin H. Wegman (the
“Estate”), exercised the two options owned by the Estate and then sold the
139,000 shares. Certain of the proceeds of this sale were used
to repay a loan owed by the Estate to
us.
|
|
(3)
|
On
May 7, 2007, the Board terminated Lawrence Dobroff’s employment with the
Company. Mr. Dobroff had no outstanding equity awards at year
end.
|
Director
Compensation (1)
|
Name
|
Fees
Earned or Paid in Cash
($)
|
Option
Awards
($) (4)
|
All
Other Compensation
($)
|
Total
($)
|
|
Henry
Morgan(2)
|
3,500
|
95,899
|
0
|
99,399
|
|
Dr.
Dr. Paul Gitman(2)
|
3,500
|
95,899
|
0
|
99,399
|
|
Michael
Schamroth(2)
|
1,500
|
95,899
|
0
|
97,399
|
|
Dr.
Mark Wegman(3)
|
0
|
34,850
|
0
|
34,850
|
|
Toby
Wegman(3)
|
0
|
34,850
|
0
|
34,850
|
|
(1)
|
Thomas
Wegman serves as our President and received no additional compensation to
serve on the Board as a director during
2007.
|
|
(2)
|
On
March 2, 2007, the Board awarded options to purchase 24,000 shares of
common stock to each Director (Mr. Morgan, Dr. Gitman and Mr. Schamroth)
at an exerciseprice of $4.00 per share (100% ofthe closing sales price of
the common stock on the grant date), which vest over the course of one
year and expire ten years from the grant
date.
|
On
September 6, 2007, the Board awarded options to purchase 15,000 shares of common
stock to each Director (Mr. Morgan, Dr. Gitman and Mr. Schamroth) at an
exerciseprice of $5.15 per share (100% ofthe closing sales price of the common
stock on the grant date), which vest over the course of one year and expire ten
years from the grant date.
As of
December 31, 2007, (i) Mr. Morgan had, in the aggregate, options to purchase
139,425 shares of Company common stock of which 6,250 have not yet vested (as of
the date of this filing), (ii) Dr. Gitman had,in the aggregate, options to
purchase 139,425 shares of Company common stock of which 6,250 have not yet
vested (as of the date of this filing), (iii) Mr. Schamroth had, in the
aggregate, options to purchase 64,000 shares of Company common stock, of which
6,250 have not yet vested (as of the date of this filing).
|
(3)
|
On
June 25, 2007, the Board awarded to options to purchase 15,000 shares of
common stock to each new Director (Dr. Mark Wegman and Toby Wegman) at an
exerciseprice of $4.60 per share (100% of the closingsales price of the
common stock on the grant date), which vest over the course of one year
and expire ten years from the grant
date.
|
|
|
As
of December 31, 2007, (i) Dr. Mark Wegman had, in the aggregate, options
to purchase 15,000 shares of Company common stock of which 2,500 have not
yet vested (as of the date of this filing) and (ii) Toby Wegman had, in
the aggregate, options to purchase 15,000 shares of Company common stock
of which 2,500 have not yet vested (as of the date of this
filing).
|
|
(4)
|
Amounts
listed in this column reflect the compensation cost recognized for
financial statement purposes during 2007 and 2006 for the stock awards
held by the named executive officer calculated in accordance
withSFAS 123(R) and using a Black-Scholes valuation model. The
stock-based compensation expense recognized under SFAS No. 123(R) for
the years ended December 31, 2007 and 2006 was determined using the
Black- Scholes option valuation model. Option valuation models require the
input of subjective assumptions and these assumptions can vary over time.
The following assumptions were used for stock options granted March 2,
2007 and June 25, 2007: expected life of 5 years, risk free interest rate
of 5%, volatility of 128% and zero
|
|
|
dividend
yield. For stock options granted September 6, 2007, the assumptions used
were as follows: expected life, in years 5, risk free interest rate of
4.9%, volatility of 65% and zero dividend
yield.
|
Narrative
Disclosure to Director Compensation Table
On
September 6, 2006, Thomas Wegman, as the sole disinterested director of the
Board, approved the following compensation for each of the then non-employee
members on the Board, Michael Schamroth, Dr. Dr. Paul Gitman and Henry Morgan:
(a) a $10,000 yearly retainer payable in arrears in December of each year
commencing in December 2007; (b) $1,500 for each meeting of the Board attended
in person and $500 for each meeting of the Board attended telephonically,
effective retroactively from January 1, 2006 and payable upon attendance of each
meeting going forward; and (c) 15,000 non-qualified stock options per year,
vesting 1/12 per month during the applicable year with a grant date for 2006 of
September 6, 2006, an exercise price of $0.83 per share (equal to 100% of the
closing sales price of the common stock on the grant date) and an expiration
period of ten years from the grant date. Prior to September 6, 2006,
we had no specific policy for compensating non-employee directors and the
non-employee directors had not received cash compensation since 2002 for serving
on the Company’s Board or its Committees.
On March
2, 2007, in lieu of the $10,000 yearly retainer and Board meeting attendance
fees described above, the Company granted to each of our then non-employee
directors, Henry Morgan, Dr. Paul Gitman and Michael Schamroth, a one-time grant
of options to purchase 24,000 shares of the Company. The 24,000
options vest monthly with respect to 1/12 of the total number of shares until
all of the shares underlying the options have vested. The exercise
price of the options is $4.00 per share (equal to 100% of the closing sales
price of the common stock on the grant date) and the options expire ten years
from the grant date.
In the
first quarter of 2007, the Company paid $1,200 to Morgan Melhuish Abrutyn, a law
firm in which Henry Morgan (director on the Board) is a named partner, for
services rendered to the Company.
On June
25, 2007, the Board (i) elected Toby Wegman to serve as a director of the third
class of the Board to fill the vacancy created by the death of Edwin H. Wegman,
our former CEO, Chairman and director. Toby Wegman is the widow of
the late Edwin H. Wegman, (ii) approved an increase in the size of the Board
from five to six directors by adding a second director to the third class of the
Board and (iii) elected Dr. Mark Wegman to fill the vacancy created by such
increase. Dr. Mark Wegman is the son of the late Edwin H. Wegman, the
brother to our President and director, Thomas Wegman, and a stepson of Toby
Wegman. Additionally, on June 25, 2007, the Company granted to Toby Wegman and
Dr. Mark Wegman a nonqualified stock option to purchase 15,000 shares of the
Company’s common stock. The options vest monthly with respect to 1/12
of the total number of shares, commencing on the date of grant, and on each
successive anniversary date until all of the shares underlying the options have
vested. The options granted to Toby Wegman and Dr. Mark Wegman have
an exercise price per share of $4.63 per share (equal to 100% of the closing
sales price of the common stock on the grant date) and the options expire ten
years from the grant date.
Current
Director Compensation Arrangements
As of the
date of this filing (and since March 2, 2007), our non-employee directors are
compensated by an annual grant of options to purchase 15,000 shares of common
stock, which vest 1/12 per month until fully vested. The annual grant
date for our independent directors, Henry Morgan, Dr. Paul Gitman and Michael
Schamroth is September 6 and for Dr. Mark Wegman and Toby Wegman, the annual
grant date is June 25. The options are granted at a price equal to
the fair market value of the stock on the date of grant and expire ten years
from the date of grant. Additionally, the Company reimburses all of our
non-employee directors for reasonable out-of-pocket expenses incurred
in connection with attendance and participation in Board and Committee
meetings.
Change
of Control Agreements for Independent Directors
On June
18, 2007, the Company entered into Change of Control Agreements with its
directors, Paul Gitman, Henry Morgan, Michael Schamroth (each a “Director Change
of Control Agreement”). Pursuant to the terms of
the Director Change of Control Agreement, in the event that the director’s
service on the Board of Directors of the Company is terminated pursuant to a
transaction resulting in a Change of Control, as described below, then (A) 100%
of any
options
to purchase shares of common stock of the Company then held by the Director,
which options are then subject to vesting, shall be accelerated and become fully
vested and exercisable on the date immediately preceding the effective date of
such termination and (B) if, on the date immediately preceding the effective
date of such termination, the Director then holds shares of common stock of the
Company that are subject to restrictions on transfer (“Restricted Stock”) issued
to the Director in a transaction other than pursuant to the exercise of a stock
option, then, such restrictions shall expire in their entirety on the date
immediately preceding the date of termination and all of such shares of common
stock shall become transferable free of restriction, subject to the applicable
provisions of federal and state securities laws.
Under the
Director Change of Control Agreement, a “Change of Control” shall mean the
occurrence of any one of the following:
|
|
·
|
the
acquisition by any “person” (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934), other than the Company or its
affiliates, from any party of an amount of the capital stock of the
Company, so that such person holds or controls 40% or more of the
Company’s capital stock; or
|
|
|
·
|
a
merger or similar combination between the Company and another entity after
which 40% or more of the voting stock of the surviving corporation is held
by persons other than the Company or its affiliates;
or
|
|
|
·
|
a
merger or similar combination (other than with the Company) in which the
Company is not the surviving corporation;
or
|
|
|
·
|
the
sale of all or substantially all of the Company’s assets or
business.
|
A copy of
the Director Change of Control Agreement entered into by each Director was filed
on Form 8-K with the SEC on June 22, 2007. The foregoing descriptions
of the Director Change of Control Agreement do not purport to be complete and
are qualified in their entirety by reference to the full text of the
agreements.
Based on
information publicly filed and provided to us by certain holders, the following
table shows the amount of our common stock beneficially owned as of the close of
business on April 7, 2008 by (i) each person known by us to beneficially own
more than 5% of our voting securities, (ii) each executive officer, (iii) each
of our directors and nominees, and (iv) all of our executive officers and
directors as a group. Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with respect
to securities. Unless otherwise stated in a footnote, each of the beneficial
owners listed below has direct ownership of and sole voting power and investment
power with respect to the shares of our common stock.
|
Name
and Address of
Beneficial
Owner
|
Number
of Shares Beneficially Owned
|
Percentage
(1)
|
|
5%
or Greater Stockholders:
|
||
|
Estate
of Edwin H. Wegman
Co-executor
Toby Wegman
Co-executor
Thomas Wegman
35
Wilbur Street
Lynbrook,
New York 11563
|
1,400,179(2)
|
21.7%
|
|
Jeffrey
K. Vogel
1
Meadow Drive
Lawrence,
NY 11559
|
496,041(3)
|
7.7%
|
|
RA
Capital Management, LLC
RA
Capital Biotech Fund, L.P.
RA
Capital Biotech Fund, II, L.P.
Richard
H. Aldrich
Peter
Kolchinsky
|
440,393(11)
|
6.8%
|
|
Directors
and Named Executive Officers
|
||
|
Thomas
Wegman, President and Director
35
Wilbur Street
Lynbrook,
New York 11563
|
1,815,423(4)
|
28.2%
|
|
Dr.
Paul Gitman, Director
35
Wilbur Street
Lynbrook,
New York 11563
|
191,675(5)
|
3.0%
|
|
Henry
Morgan, Director
35
Wilbur Street
Lynbrook,
New York 11563
|
159,203(6)
|
2.5%
|
|
Michael
Schamroth, Director
35
Wilbur Street
Lynbrook,
New York 11563
|
167,050(7)
|
2.6%
|
|
Toby
Wegman, Director
35
Wilbur Street
Lynbrook,
New York 11563
|
1,413,929(8)
|
21.9%
|
|
Mark
Wegman, Director
35
Wilbur Street
Lynbrook,
New York 11563
|
55,244(9)
|
0.9%
|
|
All
Executive Officers and Directors as a Group (6 persons)
|
2,402,345(10)
|
37.3%
|
|
(1)
|
Based
on 5,722,500 shares of our common stock outstanding as of April 7, 2008
pursuant to Rule 13d-3(d)(1) under the Exchange
Act.
|
|
(2)
|
Includes
1,400,179 shares of common stock owned by The S.J. Wegman Company, a
partnership of which Edwin H. Wegman was the sole general partner. Upon
his death on February 16, 2007, The S.J. Wegman Company was legally
dissolved. At the present time, we do not know who will own or
control the shares of the Company owned by The S.J. Wegman Company. The
shares beneficially owned by the Estate are included in the number
disclosed in this chart for Toby Wegman and Thomas Wegman, the
co-executors of the Estate. As disclosed in their respective
footnotes, the shares owned by the Estate are indirectly held by each of
the co-executors.
|
|
(3)
|
Includes
(i) 200,729 shares of common stock held directly by Jeffrey K. Vogel, the
sole shareholder and President of Bio Management Inc., which is the sole
general partner of Bio Partners LP and (ii) 295,312 shares of common stock
held directly by Bio Partners LP. The foregoing information is based
solely on Jeffrey K. Vogel’s Section 16 filings with the SEC without
independent verification.
|
|
(4)
|
Includes
(i) 364,300 shares subject to stock options that are currently exercisable
or exercisable within 60 days of April 7, 2008, (ii) indirect ownership of
7,300 shares jointly held by Thomas Wegman’s wife and child and (iii)
indirect ownership of 1,400,179 shares beneficially owned by the Estate of
Edwin H. Wegman. Excludes 50,000 options which are contingent
and are currently not exercisable. Thomas Wegman is the son of Edwin H.
Wegman, the brother of Mark Wegman and step-son to Toby Wegman. He is also
the co-executor of the Estate of Edwin H.
Wegman.
|
|
(5)
|
Includes
(i) 135,675 shares subject to stock options that are currently exercisable
or exercisable within 60 days of April 7, 2008 and (ii) indirect ownership
of 7,500 shares held by Dr. Gitman's
wife.
|
|
(6)
|
Includes
135,675 shares subject to stock options that are currently exercisable or
exercisable within 60 days of April 7,
2008.
|
|
(7)
|
Includes
(i) 60,250 shares subject to stock options that are currently exercisable
or exercisable within 60 days of April 7, 2008 and (ii) indirect ownership
of 86,800 shares owned by M. Schamroth & Sons a New York partnership
that is jointly owned by Mr. Schamroth’s sons. Mr. Schamroth
has disclaimed any beneficial ownership interest in the 86,800 shares
owned by M. Schamroth & Sons.
|
|
(8)
|
Includes
(i) 13,750 shares subject to stock options that are currently exercisable
or exercisable within 60 days of April 7, 2008 and (ii) indirect ownership
of 1,400,179 shares beneficially owned by the Estate of Edwin H.
Wegman. Toby Wegman is the widow of Edwin H. Wegman and the
stepmother of Mark Wegman and Thomas Wegman. She is also the co-executor
of the Estate of Edwin H. Wegman.
|
|
(9)
|
Includes
(i) 13,750 shares subject to stock options that are currently exercisable
or exercisable within 60 days of April 7, 2008 and (ii) 37,594 shares of
common stock held jointly by Mark Wegman and his
wife.
|
|
(10)
|
For
purposes of clarification, the 1,400,179 shares owned by the Estate of
Edwin H. Wegman (and indirectly owned by Toby Wegman and Thomas Wegman,
the co-executors of the Estate) have only been counted one time in
calculating the number of shares beneficially owned by all officers and
directors.
|
|
(11)
|
Includes
(i) 434,669 shares directly owned by RA Capital Biotech Fund, L.P. (“Fund
I”) and (ii) 5,724 shares directly owned by RA Capital Biotech Fund II,
L.P. (“Fund II”). RA Capital Management, LLC, as the sole
general partner of each of Fund I and Fund II, and Richard H. Aldrich and
Peter Kolchinsky as the managers of RA Capital Management, LLC, are each
deemed to beneficially own 440,393 shares. The six reporting
persons filed a joint statement on Schedule 13G in accordance with Rule
13d-1(k) under the Exchange Act on April 14, 2008. The
foregoing information is based solely on the reporting persons’ Schedule
13G filings with the SEC without independent
verification.
|
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides information as of December 31, 2007 with respect to the
shares of our common stock that may be issued under our existing equity
compensation plans:
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a) |
Weighted-average
exercise
price of outstanding options, warrants and rights
(b) |
Number
of securities remaining available
for
future issuance
under
equity
compensation
plans (excluding securities reflected in column
(a))
(c) |
|
|
Equity
compensation plans approved by security holders(1)
|
1,409,700
|
$1.86
|
426,598
|
|
Equity
compensation plans not approved by security holders
|
0
|
0
|
0
|
|
Total
|
1,409,700
|
$1.86
|
426,598
|
|
(1)
|
Please
see Note 11, “Stockholders’ Equity,” of the notes to the consolidated
financial statements for a description of the material features of each of
our plans.
|
Until the
death of Edwin H. Wegman, our former Chairman and CEO, The S.J. Wegman Company,
of which Edwin H. Wegman was the sole general partner, owned Wilbur Street
Corporation (“WSC”), which has leased to us a building serving as a
manufacturing facility and headquarters in Lynbrook, New York for over 30 years.
The building also serves as our administrative headquarters. Edwin H. Wegman was
the President of WSC and the sole general partner of The S.J. Wegman Company, a
limited partnership. Upon his death on February 16, 2007, The S.J. Wegman
Company was legally dissolved. His death had no effect on the legal existence of
WSC. At the present time the ownership of WSC is
unclear. However, our President, Thomas Wegman, is the senior most
officer of WSC.
In
January 1998, WSC and the Company entered into a triple net lease agreement that
provided for an annual rent starting at $125,000, which was to increase annually
by the amount of annual increase in the consumer price index for the greater New
York metropolitan region. The lease term was 7 years, expiring on January 31,
2005. Without Board approval, the lease was renewed (a related party
transaction) in July 2005 for an additional 5 years, expiring on June 30, 2010.
The extension of the lease may thus not be valid. The annual rent, effective
February 2006, is $150,000 ($10 per square foot) per annum. As part
the agreement to sell of our collagenase topical business to DFB in March 2006,
DFB agreed to sublease a part of our New York facility for a period of one year
for an all inclusive monthly payment of $15,500, which sublease expired on March
2, 2007. DFB extended its sublease until March 6, 2008 and paid
$16,500 per month during this extended lease period. In April 2008,
DFB renewed its sublease until March 3, 2009 and will pay $19,000 per month
during this renewal period. DFB may terminate its obligations under
the sublease upon 90 days written notice provided that such termination does not
occur prior to September 1, 2008.
In January 2007, we entered into
amended and restated demand promissory notes with each of Edwin H. Wegman and
WSC reflecting the prior outstanding principal amounts of the loans and
compounded interest, which became the obligation of Edwin H. Wegman’s estate
(the “Estate”) upon his death on February 16, 2007. As of December
31, 2007, the aggregate principal amounts, including compounded interest, owed
to the Company by Edwin H. Wegman and WSC were $1,108,088 and $304,397,
respectively. The loans were in the form of demand promissory notes,
bearing interest at a rate of 9% per annum.
The loans were secured by a pledge of
100% of the shares of the Company owned by The S.J. Wegman
Company. At December 31, 2007 the total number of shares pledged,
1,843,327, had a current market value of $3.80 per share. Upon Edwin
H. Wegman’s death on February 16, 2007, The S.J. Wegman Company was legally
dissolved. The dissolution of the The S.J. Wegman Company constituted
an event of default under the above mentioned pledge agreement, which gave the
Board the right to vote the pledged shares. Notwithstanding
the dissolution of The S.J. Wegman Company, upon the death of Edwin H. Wegman,
the loan continued to be secured by The S.J. Wegman Company pledge.
In March 2007, in full repayment
of the loan made by the Company to WSC, WSC offset
$304,397 in back rent due from the Company in full repayment of the loan. On February
1, 2008, the demand promissory note was repaid in full by the Estate of Edwin H.
Wegman (the “Estate”).
Board
Determination of Director Independence
Our securities are not listed on a
national securities exchange but we use the standards of “independence”
prescribed by rules set forth by the National Stock Market, Inc.
(“Nasdaq”). We have determined that our directors, Henry Morgan, Dr.
Paul Gitman and Michael Schamroth, all three of who serve as the sole members of
our Audit Committee, Compensation Committee and Nominating and Corporate
Governance Committee, qualify as “independent” under the Nasdaq rules but that
our remaining three directors, Thomas Wegman, Toby Wegman and Dr. Mark Wegman,
do not. The Nasdaq rules include a series of objective tests that
would not allow a director to be considered independent if the director had
certain employment, business or family relationships with the
Company. The Nasdaq independence definition includes a requirement
that the Board also review the relationship of each independent director to the
Company on a subjective basis. In accordance with that review, the Board has
made a subjective determination as to each independent director that no
relationships exist that, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. In making these determinations, the directors reviewed and discussed
information provided by the directors and the Company with regard to each
director’s business and personal activities as they may relate to the Company
and the Company’s
management.
(A)
EXHIBITS
The
exhibits required to be listed and filed by this Item 13 are included in the
Exhibit Index of this Report and are herein incorporated by
reference.
(B)
REPORTS ON FORM 8-K:
January 12, 2007
January 24, 2007
January 25, 2007
February 7, 2007
February 23, 2007
March 7, 2007
May 11, 2007
June 22, 2007
June 26, 2007
October 16, 2007
January 15, 2008 (2)
February 6, 2008
During
August 2007, the Audit Committee reappointed Tabriztchi & Co. as its
principal independent registered accountants for calendar year 2007. During
March 2007, Tabriztchi & Co. was reappointed for calendar year
2006.
Audit
Fees
The
aggregate audit fees billed for professional services rendered by our principal
accountants for the audit of our annual consolidated financial statements
included in this Report and review of our quarterly consolidated financial
statements included in our Reports on Form 10-QSB were $50,000 and $60,651, for
the calendar years ended December 31, 2007 and December 31, 2006,
respectively.
2003
Re-Audit Fees
The
aggregate audit fees billed for professional services rendered by our principal
accountants for the re-audit of our 2003 annual consolidated financial
statements was $73,375.
Audit
Related Fees
For the
calendar years ended December 31, 2007 and December 31, 2006 there were no
aggregate fees billed for assurance and related services by Tabriztchi &
Co. relating to the performance of the audit of our consolidated financial
statements, other than those reported under the caption "Audit Fees"
above.
Tax
Fees
For the
calendar years ended December 31, 2007 and December 31, 2006 there were no
aggregate fees billed for professional services rendered by our principal
accountants for tax compliance, tax advice and tax planning.
All
Other Fees
We have
not incurred any fees for services rendered by our principal accounting firm,
other than the fees described above.
Pre-Approval
Policies and Procedures
The Audit
Committee has adopted policies and procedures relating to the approval of all
audit and non-audit services that are to be performed by the Company’s
independent registered public accounting firm. This policy generally provides
that the Company will not engage its independent registered public accounting
firm to render audit or non-audit services unless the service is specifically
approved in advance by the Audit Committee or the engagement is entered into
pursuant to one of the pre-approval procedures described below.
From time
to time, the Audit Committee may pre-approve specified types of services that
are expected to be provided to the Company by its independent registered public
accounting firm during the next 12 months. Any such pre-approval is
detailed as to the particular service or type of services to be provided and is
also generally subject to a maximum dollar amount.
BIOSPECIFICS
TECHNOLOGIES CORP.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED
DECEMBER 31, 2007
|
Page
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
F-7
|
To the
Board of Directors
And
Stockholders of
BioSpecifics
Technologies Corp.
We have
audited the accompanying consolidated balance sheet of BioSpecifics Technologies
Corp. (the “Company”) as of December 31, 2007, and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
two years in the period ended December 31, 2007. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of BioSpecifics
Technologies Corp. as of December 31, 2007, and the consolidated results of
operations, changes in stockholders’ equity and cash flows for each of the two
years in the period then ended December 31, 2007 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Tabriztchi & Co.,
CPA, P.C.
Garden
City, NY
May 1,
2008
7 Twelfth
Street Garden City, NY 11530 s Tel:
516-746-4200 s
Fax: 516-746-7900
Email:Info@Tabrizcpa.com s
www.Tabrizcpa.com
|
|
||||
|
Consolidated
Balance Sheets
|
||||
|
Year
Ended December 31, 2007
|
||||
|
2007
|
||||
|
Assets
|
||||
|
Current
assets:
|
||||
|
Cash
and cash equivalents
|
$ |
68,564
|
||
|
Short
term investments
|
975,000
|
|||
|
Accounts
receivable, net
|
108,809
|
|||
|
Prepaid
expenses and other current assets
|
73,158
|
|||
|
Total
current assets
|
1,225,531
|
|||
|
Property,
plant and equipment, net
|
35,680
|
|||
|
Total
assets
|
1,261,211
|
|||
|
Liabilities
and Stockholders' Equity
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable and accrued expenses
|
873,460
|
|||
|
Accrued
third-party development expenses
|
2,272,969
|
|||
|
Accrued
tax liability
|
453,553
|
|||
|
Deferred
revenue
|
1,437,116
|
|||
|
Accrued
tax and other accrued liabilities of discontinued
operations
|
78,138
|
|||
|
Total
current liabilities
|
5,115,236
|
|||
|
Deferred
revenue - license fees
|
2,881,633
|
|||
|
Stockholders'
deficit:
|
||||
|
Series
A Preferred stock, $.50 par value, 700,000 shares authorized;
none
outstanding
|
-
|
|||
|
Common
stock, $.001 par value; 10,000,000 shares authorized; 5,480,768 shares issued
and outstanding at December 31, 2007
|
5,481
|
|||
|
Additional
paid-in capital
|
4,751,447
|
|||
|
Accumulated deficit
|
(10,172,855)
|
|||
|
Treasury
stock, 131,267
shares at cost as of December 31, 2007
|
(693,957)
|
|||
|
Notes
receivable from former Chairman and CEO and other
related party
|
(625,774)
|
|||
|
Total
stockholders' deficit
|
(6,735,658)
|
|||
|
Total
liabilities and stockholders’ deficit
|
$ |
1,261,211
|
||
|
See
accompanying notes to consolidated financial
statements
|
||||
|
Consolidated
Statements of Operations
|
||||||||
|
Years
Ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Revenues:
|
||||||||
|
Net
sales
|
$ | 34,357 | $ | 26,469 | ||||
|
Royalties
|
16,361 | - | ||||||
|
Licensing
fees
|
1,157,116 | 1,657,116 | ||||||
|
Consulting
fees
|
306,500 | 233,333 | ||||||
| 1,514,334 | 1,916,918 | |||||||
|
Costs
and expenses:
|
||||||||
|
Research
and development
|
2,489,122 | 1,217,306 | ||||||
|
General
and administrative
|
3,516,716 | 4,002,519 | ||||||
| 6,005,838 | 5,219,825 | |||||||
|
Operating
loss from continuing operations
|
(4,491,504 | ) | (3,302,907 | ) | ||||
|
Other
income (expense):
|
||||||||
|
Interest
income
|
126,821 | 220,608 | ||||||
|
Interest
expense
|
(20,781 | ) | (63,133 | ) | ||||
|
Other
expense
|
(105,000 | ) | (70,399 | ) | ||||
| 1,040 | 87,076 | |||||||
|
Loss
from continuing operations before benefit (expense) for income
tax
|
(4,490,464 | ) | (3,215,831 | ) | ||||
|
Income
tax benefit (expense)
|
(53,865 | ) | (147,480 | ) | ||||
|
Net
loss from continuing operations
|
(4,544,329 | ) | (3,363,311 | ) | ||||
|
Discontinued
Operations:
|
||||||||
|
Net
gain (loss) from discontinued operations
|
- | (988,696 | ) | |||||
|
Net
gain on the sale of assets
|
- | 3,601,071 | ||||||
|
Net
loss
|
$ | (4,544,329 | ) | $ | (750,936 | ) | ||
|
Basic
net income (loss) per share:
|
||||||||
|
From
continuing operations
|
$ | (0.86 | ) | $ | (0.64 | ) | ||
|
From
discontinued operations
|
$ | - | $ | 0.50 | ||||
|
Basic
net loss per share
|
$ | (0.86 | ) | $ | (0.14 | ) | ||
|
Diluted
net income (loss) per share:
|
||||||||
|
From
continuing operations
|
$ | (0.86 | ) | $ | (0.64 | ) | ||
|
From
discontinued operations
|
$ | - | $ | 0.50 | ||||
|
Diluted
net loss per share:
|
$ | (0.86 | ) | $ | (0.14 | ) | ||
|
Shares
used in computation of basic net income (loss) per share
|
5,291,506 | 5,219,908 | ||||||
|
Shares
used in computation of diluted net income (loss) per share
|
5,291,506 | 5,219,908 | ||||||
|
See
accompanying notes to consolidated financial statements
|
||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||
|
Years
Ended December 31,
|
||||||||
|
Cash
flows from operating activities:
|
2007
|
2006
|
||||||
|
Net
loss
|
$ | (4,544,329 | ) | $ | (3,363,311 | ) | ||
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
|
Depreciation
and amortization
|
32,144 | 249,745 | ||||||
|
Issuance
of restricted stock for services
|
- | 7,875 | ||||||
|
Stock-based
compensation
expense
|
650,160 | 520,386 | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(57,685 | ) | (26,566 | ) | ||||
|
Prepaid
expenses and other current assets
|
(28,745 | ) | 54,506 | |||||
|
Accounts
payable and accrued expenses
|
1,885,084 | 144,951 | ||||||
|
Deferred
revenue
|
(1,062,117 | ) | (1,465,449 | ) | ||||
|
Employee
stock bonus liability
|
- | (6,600 | ) | |||||
|
Net
cash used in operating activities from continuing
operations
|
(3,125,488 | ) | (3,884,463 | ) | ||||
|
Net
cash provided by (used in) discontinued operations
|
(321,038 | ) | 1,806,879 | |||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchase
of short term investments
|
(975,000 | ) | - | |||||
|
Sale
of property, plant and equipment
|
- | 11,933 | ||||||
|
Net
cash provided by (used in) investing activities from continuing
operations
|
(975,000 | ) | 11,933 | |||||
|
Net
cash provided by investing activities from discontinued
operations
|
- | 6,046,749 | ||||||
|
Cash
flows from financing activities:
|
||||||||
|
Decrease
in short-term debt
|
- | (69,894 | ) | |||||
|
Payment
to minority shareholders
|
- | (83,406 | ) | |||||
|
Proceeds
from issuance of common stock
|
122,912 | - | ||||||
|
Net
cash provided by (used in) financing activities from continuing
operations
|
122,912 | (153,300 | ) | |||||
|
Increase
(decrease) in cash and cash equivalents
|
(4,298,614 | ) | 3,827,798 | |||||
|
Cash
and cash equivalents at beginning of year
|
4,367,178 | 539,380 | ||||||
|
Cash
and cash equivalents at end of year
|
$ | 68,564 | $ | 4,367,178 | ||||
|
Supplemental
disclosures of cash flow information:
|
||||||||
|
Cash
paid during the year for:
|
||||||||
|
Interest
|
$ | 781 | $ | 12,608 | ||||
|
Taxes
|
$ | 3,600 | $ | - | ||||
| Supplemental disclosures of non-cash transactions: | ||||||||
In March
2007, in full repayment of the $304,398 loan owed to the Company by Wilbur
Street Corporation (“WSC”), WSC offset $304,398 in back rent due from the
Company. The transaction was recorded by reducing the rent payable by $304,398
and the receivable from the former CEO and Chairman by $98,253 and increasing
additional paid in capital by $206,145.
For the
year ended December 31, 2006, the Company reduced its liability to our employees
under the stock bonus plan by issuing $162,300 of common stock. The remaining
balance of $6,600 was cancelled.
In March
2006, we sold our topical collagenase business to DFB. In order to help
effectuate the transaction with DFB, we repurchased all of the outstanding
shares of ABC-NY and ABC-Curacao held by minority shareholders in exchange for a
combination of approximately $83,000 in cash and 102,574 restricted shares of
our treasury stock.
See
accompanying notes to consolidated financial statements
|
Consolidated
Statements of Stockholders' Deficit
|
|||||||||||||||
|
Shares
|
Amount
|
Additional
Paid in Capital
|
Accumulated
Deficit
|
||||||||||||
|
Balances
- December 31, 2005
|
5,362,716 | $ | 5,363 | $ | 4,224,963 | $ | (4,877,590 | ) | |||||||
|
Shares
for services
|
7,500 | 7 | 7,868 | - | |||||||||||
|
Cancellation
of treasury shares
|
(4,400 | ) | (4 | ) | (6,596 | ) | - | ||||||||
|
Stock
compensation expense
|
- | - | 520,386 | - | |||||||||||
|
Issuance
of treasury shares to minority shareholders
|
- | - | (546,887 | ) | - | ||||||||||
|
Issuance
of treasury shares to employees
|
- | - | (427,389 | ) | - | ||||||||||
|
Net
loss
|
- | - | - | (750,936 | ) | ||||||||||
|
Balances
- December 31, 2006
|
5,365,816 | $ | 5,366 | $ | 3,772,345 | $ | (5,628,526 | ) | |||||||
|
Stock
compensation expense
|
- | - | 650,160 | - | |||||||||||
|
Issuance
of common stock under stock option plans
|
114,952 | 115 | 122,797 | - | |||||||||||
|
Offset
of former CEO and Chairman loan principal and interest
|
- | - | 206,145 | - | |||||||||||
|
Net
loss
|
(4,544,329 | ) | |||||||||||||
|
Balances
- December 31, 2007
|
5,480,768 | $ | 5,481 | $ | 4,751,447 | $ | (10,172,855 | ) | |||||||
|
Treasury
Stock
|
Due
from
former Chairman and CEO |
Shareholder
Deficit
Total
|
|||||||||
|
Balances
- December 31, 2005
|
(1,832,864 | ) | $ | (724,027 | ) | $ | (3,204,154 | ) | |||
|
Shares
for services
|
- | - | 7,875 | ||||||||
|
Cancellation
of treasury shares
|
- | - | (6,600 | ) | |||||||
|
Stock
compensation expense
|
- | - | 520,386 | ||||||||
|
Issuance
of treasury shares to minority shareholders
|
542,617 | - | (4,270 | ) | |||||||
|
Issuance
of treasury shares to employees
|
596,289 | - | 168,900 | ||||||||
|
Net
loss
|
- | - | (750,936 | ) | |||||||
|
Balances
- December 31, 2006
|
(693,958 | ) | $ | (724,027 | ) | $ | (3,268,799 | ) | |||
|
Stock
compensation expense
|
- | - | 650,160 | ||||||||
|
Issuance
of common stock under stock option plans
|
- | - | 122,912 | ||||||||
|
Offset
of former CEO and Chairman loan principal and interest
|
- | 98,253 | 304,398 | ||||||||
|
Net
loss
|
- | - | (4,544,329 | ) | |||||||
|
Balances
- December 31, 2007
|
(693,958 | ) | $ | (625,774 | ) | $ | (6,735,658 | ) | |||
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
We are a
biopharmaceutical company that has been involved in the development of
injectable collagenase for multiple indications. We have a development and
license agreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for
injectable collagenase (which Auxilium has named “XIAFLEX TM”
(formerly known as “AA4500”)) for clinical indications in Dupuytren’s disease,
Peyronie’s disease and frozen shoulder (adhesive capsulitis), and
Auxilium has an option to acquire additional indications that we may pursue,
including cellulite and lipomas. XIAFLEX is in a Phase III trial for
treatment of Dupuytren’s disease and top line results are expected to be
released in the second quarter of 2008.
DISCONTINUED
OPERATIONS
Prior to
March 2006, we were a party to an exclusive license agreement with Abbott
Laboratories, Inc. and its subsidiaries (“Abbott”), for the production of the
active pharmaceutical ingredient (“API” or “API Enzyme”) for topical
collagenase. In March 2006 we sold our topical collagenase business to DFB
Biotech, Inc. and its affiliates (“DFB”), including all rights to the exclusive
license agreement and we were released of any obligations
thereunder.
In
addition, DFB acquired all of the issued and outstanding shares of ABC-Curacao,
pursuant to an asset purchase agreement between us, DFB and ABC-NY (the “Asset
Purchase Agreement”). ABC-Curacao manufactured the API Enzyme, which in its
final formulation was marketed by Abbott. The operating results of
ABC-Curacao and certain operations of ABC-NY have been classified as
discontinued operations in the Consolidated Financial Statements for all periods
presented.
In
addition, at the closing of the Asset Purchase Agreement, DFB (i) acquired from
us certain inventory and manufacturing equipment used in the topical collagenase
business, (ii) was granted a perpetual royalty free license to use, solely in
connection with the topical collagenase business, certain intangible assets
retained by us and (iii) was granted the right (for a limited period of time
which was subsequently extended in April 2008) to use, solely in connection with
the topical collagenase business, certain tangible assets retained by us. As
part of the sale, we transferred to DFB our FDA manufacturing
license.
As
consideration for the purchased assets we received $8 million in cash, DFB’s
assumption of certain liabilities, and the right to receive earn out payments in
the future based on sales of certain products. In connection with the closing of
the Asset Purchase Agreement, we agreed to provide certain technical assistance
and certain transition services to DFB in consideration of fees and costs
totaling over $1.4 million. At the closing, DFB paid to us a partial payment of
$400,000 in respect of the technical assistance to be provided by us. To date,
we have received a total of $1,000,000 payments from DFB. The consulting
obligations generally expire during March 2011.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles
of Consolidation
The
audited consolidated financial statements include the accounts of the Company
and its subsidiaries, ABC-NY, ABC-Curacao, which was sold in March 2006,
BioSpecifics of Curacao N.V. and Biota N.V. and its wholly-owned subsidiary,
which were both liquidated in January 2007. Due to the sale of ABC-Curacao in
March 2006 to DFB all accounts of this former subsidiary and certain operations
of ABC-NY are classified as discontinued operations in all periods
presented.
Management
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the U.S. requires the use of management’s
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
Cash,
Cash Equivalents and Short-term Investments
Cash,
cash equivalents and short-term investments are stated at market value. Cash
equivalents include only securities having a maturity of three months or less at
the time of purchase. The Company limits its credit risk associated with cash,
cash equivalents and short-term investments by placing its investments with
banks it believes are highly creditworthy and with highly rated money market
funds, U.S. government securities, or short-term commercial paper.
Short-term
investments consist of taxable auction rate securities, or ARS, with original
maturities ranging up to 40 years. ARS have interest reset dates of 28 or 35
days. The reset date is the date in which the underlying interest rate is
revised based on a Dutch auction and the underlying security may be sold. The
Company classifies ARS as current as they are available for sale under SFAS No.
115 since the Dutch auctions have historically provided a liquid market for the
type of ARS owned by the Company. However, with liquidity issues experienced in
global credit and capital markets, all ARS held by the Company as of April 22,
2008 experienced failed auctions, beginning in February 2008, as the amount of
securities submitted for sale exceeded the amount of purchase orders. The cost
value of these securities held as of April 22, 2008 amounts to approximately
$1.7 million with a current market value of approximately $1.5 million, of which
$975,000 were held as of December 31, 2007. The Company will continue to
assess the balance sheet classification of its short-term investments if
uncertainties in the credit and capital markets continue.
Revenue
Recognition
We
currently recognize revenues resulting from product sales and royalties from
licensing and use of our technology, and from other services we sometimes
perform in connection with the licensed technology under the guidance of Staff
Accounting Bulletin (SAB) No. 104, “Revenue Recognition.”
If we
determine that separate elements exist in a revenue arrangement under Emerging
Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple
Deliverables” (EITF 00-21), we recognize revenue for delivered elements only
when the fair values of undelivered elements are known, when the associated
earnings process is complete, when payment is reasonably assured and, to the
extent the milestone amount relates to our performance obligation, when our
customer confirms that we have met the requirements under the terms of the
agreement.
Revenues,
and their respective treatment for financial reporting purposes, are as
follows:
Product
Sales
We
recognize revenue from product sales when there is persuasive evidence that an
arrangement exists, title passes, the price is fixed or determinable and
collectibility is reasonably assured. No right of return exists for our products
except in the case of damaged goods. To date, we have not experienced any
significant returns of our products.
Net sales
include the sales of the API Enzyme that are recognized at the time the product
is shipped to customers for laboratory use.
Royalty
Revenue
We
recognize royalties under the earn-out provision of the Asset Purchase Agreement
with DFB. We have the right to receive earn out payments in the future based on
sales of certain products. Royalties are recognized as earned in
accordance with the contract terms when royalties can be reliably measured, and
collectibility is reasonably assured, such as upon the receipt of a royalty
statement from our licensees. We have historically recognized royalty revenue in
the quarter in which the sale was made by our licensees.
License
Fees
We
include revenue recognized from upfront licensing and milestone payments in
“License Fees” in our consolidated statements of operations in this
Report.
Upfront
License Fees
We
generally recognize revenue from upfront fees when the agreement is signed, we
have completed the earnings process and we have no ongoing performance
obligation with respect to the arrangement. Nonrefundable upfront technology
license fees for product candidates for which we are providing continuing
services related to product development are deferred and recognized as revenue
over the development period.
Milestones
Milestones,
in the form of additional license fees, typically represent nonrefundable
payments to be received in conjunction with the achievement of a specific event
identified in the contract, such as completion of specified development
activities and/or regulatory submissions and/or approvals. We believe that a
milestone represents the culmination of a distinct earnings process when it is
not associated with ongoing research, development or other performance on our
part. We recognize such milestones as revenue when they become due and
collection is reasonably assured. When a milestone does not represent the
culmination of a distinct earnings process, we recognize revenue in a manner
similar to that of an upfront license fee.
The
timing and amount of revenue that we recognize from licenses of technology,
either from upfront fees or milestones where we are providing continuing
services related to product development, is primarily dependent upon our
estimates of the development period. We define the development period as the
point from which research activities commence up to regulatory approval of
either our, or our partners’ submission assuming no further research is
necessary. As product candidates move through the development process, it is
necessary to revise these estimates to consider changes to the product
development cycle, such as changes in the clinical development plan, regulatory
requirements, or various other factors, many of which may be outside of our
control. Should the FDA or other regulatory agencies require additional data or
information, we would adjust our development period estimates accordingly. The
impact on revenue of changes in our estimates and the timing thereof is
recognized prospectively over the remaining estimated product development
period.
Allowance
for Doubtful Accounts
The
company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which when realized have been within the
range of management’s expectations. Our policy is to write off bad
debts as uncollectible when it is determined that they cannot be
collected.
Reimbursable
Third-Party Development Costs.
We accrue
expenses to research and development for estimated third party development costs
that are reimbursable under our agreement with Auxilium. Estimates are based on
contractual terms, historical development costs, reviewing third-party data and
expectations regarding future development for certain products. Further, we
monitor the activities and clinical trials of our development
partners.
If
conditions or other circumstances change, we may take actions to revise our
reimbursable third party development cost estimates. These revisions could
result in an incremental increase in research and development costs. For
example, Amendment No.1 to the Development and License Agreement, dated May 5,
2006 provides that Auxilium and BioSpecifics will share equally in third party
costs for the development of the lyophilization of the injection formulation. On
April 11, 2008, we received an invoice for approximately $2.3 million from
Auxilium, which represents an amount that Auxilium believes is owed by
us through year end 2007 under this provision, Based
upon this invoice, we changed our estimates for reimbursable third party
development cost estimates. The effect of this change in estimate was to
increase research and development expenses, in December 2007 by approximately
$1.8 million, which increased our net loss per basic and diluted share by
approximately $0.39 for the year ended December 31, 2007. We have not had
adequate time to verify the accuracy or validity of the charges and have
informed Auxilium that we cannot pay the invoice until we have done so.
Based on our preliminary review, we believe that only a portion of the
amount charged actually relates to the development of the lyophilization of the
injection formulation and, therefore, reserve all rights related to this matter,
including but not limited to our right to contest the amount charged by
Auxilium.
Actual
results have differed in the past, and may differ in the future, from our
estimates and could impact our earnings in any period during which an adjustment
is made.
Research and Development
Expenses
Our
research and development (“R&D”) costs are expensed as incurred. R&D
includes, but is not limited to, internal costs, such as salaries and benefits,
costs of materials, lab expense, facility costs and overhead. R&D also
consists of third party costs, such as medical professional fees, contract
manufacturing costs for material used in clinical trials, consulting fees and
costs associated with clinical study R&D arrangements. We fund R&D at
medical research institutions under agreements that are generally cancelable.
All of these costs are charged to R&D as incurred, which may be measured by
percentage of completion, contract milestones, patient enrollment, or the
passage of time.
Clinical
Trial Expenses
Our cost
accruals for clinical trials are based on estimates of the services received and
efforts expended pursuant to contracts with various clinical trial centers and
clinical research organizations. In the normal course of business we contract
with third parties to perform various clinical trial activities in the ongoing
development of potential drugs. The financial terms of these agreements are
subject to negotiation and vary from contract to contract and may result in
uneven payment flows. Payments under the contracts depend on factors such as the
achievement of certain events, the successful enrollment of patients, the
completion of portions of the clinical trial, or similar conditions. The
objective of our accrual policy is to match the recording of expenses in our
financial statements to the actual cost of services received and efforts
expended. As such, expenses related to each patient enrolled in a clinical trial
are recognized ratably beginning upon entry into the trial and over the course
of the patient’s continued participation in the trial. In the event of early
termination of a clinical trial, we accrue an amount based on our estimate of
the remaining non-cancelable obligations associated with the winding down of the
clinical trial. Our estimates and assumptions could differ significantly from
the amounts that may actually be incurred.
Stock
Based Compensation
The
Company has three stock-based employee compensation plans in effect which are
described more fully in Note 12. Effective January 1, 2006, we adopted SFAS
No. 123, “Share-Based Payment (Revised 2004)” (SFAS 123(R)), which
supersedes our previous accounting under Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related
interpretations. SFAS 123(R) requires the recognition of compensation expense,
using a fair-value based method, for costs related to all share-based awards
including stock options and common stock issued to our employees and directors
under our stock plans. It requires companies to estimate the fair value of
share-based awards on the date of grant using an option-pricing model. The value
of the portion of the award that is ultimately expected to vest is recognized as
expense on a straight-line basis over the requisite service periods in our
Consolidated Statements of Operations.
Under the
provisions of Statement SFAS 123(R), we estimate the fair value of our
employees’ and directors’ stock awards at the date of grant using the
Black-Scholes option-pricing model, which requires the use of certain subjective
assumptions. The most significant of these assumptions are our estimates of the
expected volatility of the market price of our common stock and the expected
term of the award. When establishing an estimate of the expected term of an
award, we consider the vesting period for the award, our recent historical
experience of employee stock option exercises (including forfeitures) and the
expected volatility. As required under the accounting rules, we review our
valuation assumptions at each grant date and, as a result, our valuation
assumptions used to value employee stock-based awards granted in future periods
may change.
We
account for stock options granted to persons other than employees or directors
at fair value using the Black-Scholes option-pricing model in accordance with
EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.” Stock options granted to such persons and stock options that are
modified and continue to vest when an employee has a change in employment status
are subject to periodic revaluation over their vesting terms. We recognize the
resulting stock-based compensation expense during the service period over which
the non-employee provides services to us. The stock-based compensation expense
related to non-employees for the years ended December 31, 2007 and 2006 was
$226,541 and $43,290, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost, less accumulated depreciation. Machinery
and equipment, furniture and fixtures, and autos are depreciated on the
straight-line basis over their estimated useful lives of 5 to 10 years.
Leasehold improvements are being amortized over the lesser of their estimated
useful lives or the life of the lease, which is approximately 8 to 10
years.
Income
Taxes
The
Company uses the liability method of accounting for income taxes, as set forth
in Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes.” Under this method, deferred income taxes, when required, are provided on
the basis of the difference between the financial reporting and income tax bases
of assets and liabilities at the statutory rates enacted for future
periods.
The
expense for income taxes was $53,865 and $147,480 for the calendar years 2007
and 2006, respectively. In 2007 we accrued estimated federal and state tax
penalties and interest of $105,000 and $20,000, respectively. In 2006, we
accrued estimated federal and state tax penalties and interest of $70,399 and
$60,409, respectively. We accrued these amounts due to our delinquent tax
filings.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 provides a framework for measuring fair value in
accordance with GAAP, and expands disclosures regarding fair value measurements
and the effect on earnings. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. We are in the process of evaluating the impact SFAS
No. 157 will have on our financial position and results of
operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides
reporting entities an option to report selected financial assets, including
investment securities designated as available for sale, and liabilities,
including most insurance contracts, at fair value. SFAS 159 establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities. The standard also requires additional information to
aid financial statement users' understanding of a reporting entity's choice to
use fair value on its earnings and also requires entities to display on the face
of the balance sheet the fair value of those assets and liabilities for which
the reporting entity has chosen to measure at fair value. SFAS 159 is effective
as of the beginning of a reporting entity's first fiscal year beginning after
November 15, 2007. Early adoption is permitted as of the beginning of the
previous fiscal year provided the entity makes that choice in the first 120 days
of that fiscal year and also elects to apply the provisions of SFAS 157. We are
currently evaluating the effect, if any, the adoption of SFAS 159 will have on
our financial condition, results of operations and cash flows.
4.
NET LOSS PER SHARE
In
accordance with FASB Statement No. 128, “Earnings Per Share,” basic net
loss per share amount is computed using the weighted-average number of shares of
common stock outstanding during the periods presented, while diluted net
loss per share is computed using the sum of the weighted-average number of
common and common equivalent shares outstanding. Common equivalent shares used
in the computation of diluted earnings per share result from the assumed
exercise of stock options and restricted stock, using the treasury stock method.
For all periods presented, we incurred a net loss, and as such, we did not
include the effect of outstanding stock options and outstanding restricted
stock, or in the diluted net loss per share calculations, as their effect would
be anti-dilutive.
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Stock
options
|
1,409,700 | 1,281,125 | ||||||
|
Warrants
|
- | 10,000 | ||||||
|
Total
|
1,409,700 | 1,291,125 | ||||||
In March
2003, the Company granted to an individual lender in consideration of a loan,
warrants to purchase up to 10,000 common shares of the Company at $1.18 per
share, until March 11, 2008. We repaid the total outstanding loan
balance in March 2005. In October 2007, the individual exercised the warrants
and purchased 10,000 common shares at $1.18 per share.
5. INVENTORIES, NET
None.
6. PROPERTY, PLANT AND
EQUIPMENT
Property,
plant and equipment from continuing operations consist of:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Machinery
and equipment
|
$ | 575,069 | $ | 575,069 | ||||
|
Furniture
and fixtures
|
91,928 | 91,928 | ||||||
|
Leasehold
improvements
|
1,185,059 | 1,185,059 | ||||||
| 1,852,056 | 1,852,056 | |||||||
|
Less
accumulated depreciation and amortization
|
(1,816,376 | ) | (1,784,233 | ) | ||||
| $ | 35,680 | $ | 67,823 | |||||
Total
depreciation and amortization expense amounted to $32,143 and $329,027 for
calendar years 2007 and 2006, respectively. Depreciation expense from continuing
operations was $32,143 and $249,745 for calendar years 2007 and 2006,
respectively.
Asset
Impairment Charges
Total
asset impairment charges included in our general and administrative operating
expenses for the year ended December 31, 2007 were zero compared to
$144,963 in 2006. In connection with the DFB agreement, which was signed in
March 2006, we determined that indicators existed that suggested our research
and development and quality control equipment assets could be impaired. As such,
we tested these assets for recoverability under SFAS 144, and the total of the
estimated future cash flows directly related to the development of future
product sales was less than the carrying value of the asset as of
December 31, 2006. Therefore, we determined that the carrying value of our
research and development and quality control equipment assets was impaired, and
we used a present value technique to calculate the fair market value of the
asset. As a result, we recognized an impairment charge totaling approximately
$144,963, which represented the difference between the carrying value of the
asset and the present value of estimated future cash flows as of
December 31, 2006. After recognizing the impairment charge, the book value
of these asset as of December 31, 2006 was reduced to zero.
7. ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Accounts
payable and accrued liabilities consist of the following:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Trade
accounts payable and accrued expenses
|
$ | 686,742 | $ | 1,751,014 | ||||
|
Accrued
legal and other professional fees
|
98,438 | 120,030 | ||||||
|
Accrued
payroll and related costs
|
88,280 | 148,252 | ||||||
| $ | 873,460 | $ | 2,019,296 | |||||
8. INCOME TAXES
The
expense for income taxes consist of the following:
|
Year
ended
|
December
31,
|
|||||||
|
2007
|
2006
|
|||||||
|
Current:
|
||||||||
|
Federal
|
$ | -- | $ | -- | ||||
|
State
|
53,865 | 147,480 | ||||||
| $ | 53,865 | $ | 147,480 | |||||
|
Deferred:
|
||||||||
|
Federal
|
-- | -- | ||||||
|
State
|
-- | -- | ||||||
|
Total
|
$ | 53,865 | $ | 147,480 | ||||
The
effective income tax rate of the Company differs from the federal statutory tax
rate of 35% in calendar years 2007 and 2006 as a result of the effect of the
following items:
|
Year
ended
|
December
31,
|
|||||||
|
2007
|
2006
|
|||||||
|
State
income taxes, net of federal tax benefit
|
$ | 35,012 | $ | 95,862 | ||||
|
Computed
tax expense (benefit) at statutory rate
|
(1,590,515 | ) | (277,846 | ) | ||||
|
Tax
effect of foreign sourced income (loss)
|
- | 142,043 | ||||||
|
Non-deductible
expenses, deferred revenue and other
|
522,122 | 422,883 | ||||||
|
Tax
benefit of exercised warrant
|
(17,574 | ) | - | |||||
|
Orphan
drug and other tax credits
|
(628,892 | ) | (82,895 | ) | ||||
|
Loss
carry back
|
145,876 | 225,528 | ||||||
|
Increase
(decrease) in valuation allowance
|
1,568,983 | (429,713 | ) | |||||
| $ | 35,012 | $ | 95,862 | |||||
The
components of the Company's deferred tax assets, pursuant to SFAS No. 109, are
summarized as follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Tax
Credit carryforward
|
$ | 1,352,191 | $ | 723,299 | ||||
|
Exercise
of warrants
|
17,574 | - | ||||||
|
Deferred
revenues
|
1,819,937 | 1,981,670 | ||||||
|
Accrued
expenses
|
81,711 | 72,452 | ||||||
|
Depreciation
and amortization
|
18,023 | 12,820 | ||||||
|
Net
operating loss carryforward
|
1,214,456 | 144,668 | ||||||
|
Net
deferred tax assets before valuation allowance
|
4,503,891 | 2,934,909 | ||||||
|
Valuation
allowance
|
(4,503,891 | ) | (2,934,909 | ) | ||||
|
Net
deferred tax asset
|
$ | - | $ | - | ||||
SFAS No.
109 requires a valuation allowance against deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets may not be realized. The Company increased the
valuation
allowance by $1,568,983 during the year ending December, 31, 2007 and decreased
the valuation allowance by $429,713 during the years ended December 31, 2006.
The increase in the valuation allowance was primarily to offset the tax assets
from NOL and tax credit carryforwards. The net deferred tax asset has been fully
reserved due to the uncertainty of the Company's ability to generate taxable
income under the more likely than not criteria of SFAS 109.
The
Company adopted FIN 48, in the year ended December 31,
2006. The previously recognized benefit from a tax
position that no longer met the more-likely-than-not recognition threshold was
derecognized by increasing the income tax liability or reducing the
deferred tax asset in the 2006, the period in which it becomes more likely than
not that the tax position would not be sustained. The Company accrued
approximately $105,000 and $70,000 in penalties in 2007 and 2006 respectively,
for not complying with the requirements for filing tax returns in a timely
fashion. The Company accrued approximately $20,000 and $60,000 in interest in
2007 and 2006 respectively, for not remitting required tax payments in a timely
fashion. Changes in tax laws or interpretations of tax laws, as well as outcomes
of current and future audits conducted by various tax authorities, could also
materially impact the amounts provided for income taxes in our consolidated
financial statements.
At
December 31, 2007 the Company had federal and state net operating loss
carryforwards of approximately $3,470,000, from losses incurred in 2007. These
loss carryforwards will expire in 2027. As of December 2007, the
Company had approximately $1,352,000 of tax credits which expire at various
dates between 2018 and 2026.
9. CREDIT FACILITIES
In March
2003, the Company borrowed $100,000 from an individual lender, evidenced by a
one-year promissory note, bearing interest of 8% per annum, which was due March
11, 2004. In March 2004, the holder of the note extended the note for
one year at which time the loan was repaid in full. The Company granted to the
lender warrants to purchase up to 10,000 common shares of the Company at $1.18
per share, until March 11, 2008. In October 2007, the individual exercised the
warrants and purchased 10,000 common shares at $1.18 per share.
10. FOREIGN
OPERATIONS
The
Company had a manufacturing facility located in Curacao, Netherlands Antilles
through March 6, 2006. The local currency is tied to the U.S. dollar; as a
result no material gain or loss was incurred on foreign currency transactions in
2006.
11. STOCKHOLDERS’
EQUITY
Stock
Option Plans
In July
1994, the Company's stockholders approved a stock option plan for eligible key
employees, directors, independent agents, and consultants who make a significant
contribution toward the Company's success and development and to attract and
retain qualified employees (the “1993 Plan”), which expired in July 2004. Under
the 1993 Plan, qualified incentive stock options and non-qualified stock options
may be granted to purchase up to an aggregate of 200,000 shares of the Company's
common stock, subject to certain anti-dilution provisions. The exercise price
per share of common stock may not be less than 100% (110% for qualified
incentive stock options granted to stockholders owning at least 10% of common
shares) of the fair market value of the Company's common stock on the date of
grant. In general, the options vest and become exercisable in four equal annual
installments following the date of grant, although the Board, at its discretion,
may provide for different vesting schedules. The options expire ten years (five
years for qualified incentive stock options granted to stockholders owning at
least 10% of common shares) after such date. In accordance with terms of the
1993 Plan, no option shall be granted ten years after the effective date of the
1993 Plan, or July 2004.
In July
1997, the Company's stockholders approved a stock option plan (the “1997 Plan”)
with terms identical to the 1993 Plan. The 1997 Plan authorizes the granting of
awards of up to an aggregate of 500,000 shares of the Company's common stock,
subject to certain anti-dilution provisions. In accordance with terms
of the 1997 Plan, no option shall be granted ten years after the effective date
of the 1997 Plan or July 2007. In July 2007, approximately 231,000 stock options
expired unissued.
In August
2001, the Company's stockholders approved a stock option plan (the “2001 Plan”),
with terms similar to the 1997 Plan. The 2001 Plan authorizes the granting of
awards of up to an aggregate of 750,000 shares of the Company's common stock,
subject to certain anti-dilution provisions. On December 16, 2003, stockholders
approved an amendment to the 2001 Plan, which increased the number of shares
authorized for grant from 750,000 shares to 1,750,000 shares, an increase of
1,000,000 shares. A total of 1,750,000 shares of common stock are now authorized
for issuance under the amended 2001 Plan. The 2001 Plan, as amended
expires in August 2011. The Company filed a Registration Statement on Form S-8
for the 2001 Plan with the Commission on October 5, 2007 to register these
securities.
As of
December 31, 2007 there were a total of 426,598 shares available for grant
remaining under the 2001 Plan.
The
summary of the stock options activity is as follows for year ended:
|
December
31,
|
||||||||||||||||
|
2007
|
2006
|
|||||||||||||||
|
Shares
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Exercise Price
|
|||||||||||||
|
Outstanding
at beginning of year
|
1,281,125 | $ | 1.17 | 963,887 | $ | 1.63 | ||||||||||
|
Options
granted
|
277,000 | 4.68 | 884,413 | 0.93 | ||||||||||||
|
Options
exercised
|
(104,952 | ) | 1.06 | -- | -- | |||||||||||
|
Options
canceled or expired
|
(43,473 | ) | 1.95 | (567,175 | ) | 1.10 | ||||||||||
|
Outstanding
at end of year
|
1,409,700 | $ | 1.86 | 1,281,125 | $ | 1.17 | ||||||||||
|
Options
exercisable at year end
|
1,226,700 | $ | 1.57 | 1,147,376 | $ | 1.34 | ||||||||||
|
Shares
available for future grant
|
426,598 | -- | 896,199 | -- | ||||||||||||
During
2007, the Company granted 277,000 options to employees and consultants on
various dates. Of the 277,000 options granted in 2007, 147,000 options granted
to our Board members vest over one year, 30,000 options granted to our employees
vest over four years and 100,000 options granted to consultants vests upon the
achievement of certain milestones. During calendar year 2006, the Company
granted 884,413 options to employees and consultants, of which 150,000 options
granted to certain consultants were cancelled in 2006. Of the 884,413 options
granted in 2006, 45,000 options granted to our Board members vest over one year
and the vesting of the 100,000 options granted to our President, Thomas Wegman,
are contingent upon the achievement of certain milestones. As of the
date of this filing, 50,000 of these 100,000 options have vested. All
other options granted to employees and consultants in 2006 vested immediately.
The options granted in 2007 and 2006 were granted at exercise prices ranging
from $0.80 to $5.50 per share.
The
following table summarizes information relating to stock options by exercise
price at December 31, 2007:
| Outstanding | Exercisable | |||||||||||||||||||||
|
Option
Exercise Price
|
Shares
|
Weighted
Average Life (years)
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Option
Price
|
|||||||||||||||||
| $ | 0.83-1.99 | 1,068,850 | 6.65 | $ | 1.05 | 1,018,850 | $ | 1.06 | ||||||||||||||
| 2.00-2.99 | 31,750 | 2.40 | 2.68 | 31,750 | 2.68 | |||||||||||||||||
| 3.00-3.99 | 20,000 | 1.53 | 3.00 | 20,000 | 3.00 | |||||||||||||||||
| 4.00-4.99 | 191,600 | 8.82 | 4.33 | 132,350 | 4.29 | |||||||||||||||||
| 5.00-5.99 | 97,500 | 9.51 | $ | 5.35 | 23,750 | $ | 5.37 | |||||||||||||||
| 1,409,700 | 6.98 | $ | 1.86 | 1,226,700 | $ | 1.57 | ||||||||||||||||
12.
COMMITMENTS AND CONTINGENCIES
Lease
Agreements
The
Company's operations are principally conducted on leased premises. Future
minimum annual rental payments required under non-cancelable operating leases
are approximated as follows:
Year
ending December 31,
|
2008
|
$ | 154,000 | |
|
2009
|
152,000 | ||
|
2010
|
75,000 | ||
|
thereafter
|
-0-
|
Rent
expense under all operating leases amounted to approximately $150,000 and
$151,000 for calendar years 2007 and 2006, respectively. Wilbur
Street Corporation (“WSC”) owns and has leased to ABC-NY a building that serves
as a manufacturing facility and our headquarters in Lynbrook, New York for over
30 years. The building also serves as the Company’s administrative headquarters.
Edwin H. Wegman, the Company's former Chairman and CEO, was the President of
WSC.
In
January 1998, WSC, the Company and ABC-NY entered into a triple net lease
agreement that provides for an annual rent starting at $125,000, which can
increase annually by the amount of the annual increase in the consumer price
index for the greater New York metropolitan region. The lease term was 7 years
and expired on January 31, 2005. The Company paid and accrued approximately
$220,000 and $206,000 representing rent, real estate taxes and insurance to WSC
in 2007 and 2006, respectively. Without Board approval, the lease was renewed (a
related party transaction) in July 2005 for an additional 5 years, expiring on
June 30, 2010. The extension of the lease may thus not be valid. The annual base
rent, exclusive of taxes and related insurance, is $150,000 ($10 per square
foot) per annum commencing in February 2006. Our rent may increase annually by
the amount of the annual increase in the consumer price index for the greater
New York metropolitan region. As part of the agreement with DFB, DFB
agreed to sublease a part of the New York facility for a period of one year,
which expired on March 2, 2007 for an all inclusive monthly payment of
$15,500. DFB extended its sublease until March 6, 2008 and paid
$16,500 per month during this extended lease period. In April 2008, DFB extended
its sublease until March 3, 2009 and will pay $19,000 per month during this
extended lease period. DFB may terminate its obligations under the sublease upon
90 days written notice provided that such termination does not occur prior to
September 1, 2008.
Receivables
and Deferred Revenue
Under our
agreement with DFB, we agreed to provide certain technical assistance and
certain transition services to DFB in consideration of fees and costs totaling
over $1.4 million. At the closing, DFB paid to us a partial payment of $400,000
in respect of the technical assistance to be provided by us. To date, we have
received a total of $1,000,000 in payments from DFB. The consulting obligations
generally expire during March 2011. As of December 31, 2007 the
remaining accounts receivable balance due was $575,000 for future services and
was offset by the associated deferred revenues to be recognized in future
periods of $575,000.
Potential
Product Liability
The sale
of our topical collaganese product, as well as the development and marketing of
any potential products of the Company, exposes us to potential product liability
claims both directly from patients using the product or products in development,
as well as from our agreement to indemnify certain distributors of the product
for claims made by others. We have product liability insurance, which covers the
use of our licensed topical collagenase product and clinical experiments of
potential products in the U.S. No known claims are pending against us at the
current time. Our insurance policy has a limit of $3 million and is renewed
annually during the month of February.
13. RELATED PARTY
TRANSACTIONS
WSC owns
and has leased to ABC-NY a building serving as a manufacturing facility and our
headquarters in Lynbrook, New York for over 30 years. The building also serves
as the Company’s administrative headquarters. Edwin H. Wegman, the Company's
former Chairman and CEO, was the President of WSC. At the present
time the ownership of WSC is unclear. However, our President, Thomas
Wegman, is the senior most officer of WSC.
In
January 1998, WSC and the Company entered into a triple net lease agreement that
provides for an annual rent starting at $125,000, which was to increase annually
by the amount of annual increase in the consumer price index for the greater New
York metropolitan region. The lease term was 7 years and expired on January 31,
2005. Without Board approval, the lease was renewed (a related party
transaction) in July 2005 for an additional 5 years, expiring on June 30, 2010.
The extension of the lease may thus not be valid. The annual rent, effective
February 2006, is $150,000 ($10 per square foot) per annum. As part
of the agreement with DFB, DFB agreed to sublease a part of the New York
facility for a period of one year, which expired on March 2, 2007 for an all
inclusive monthly payment of $15,500. DFB extended its sublease until
March 6, 2008 and paid $16,500 per month during this extended lease
period. In April 2008, DFB extended its sublease until March 3, 2009
and will pay $19,000 per month during this extended lease period. DFB
may terminate its obligations under the sublease upon 90 days written notice
provided that such termination does not occur prior to September 1,
2008.
In
January 2007, we entered into two amended and restated demand promissory notes
with each of Edwin H. Wegman and WSC reflecting the prior outstanding principal
amounts of the loans and compounded interest (collectively, the
“Notes”). Upon the death of Edwin H. Wegman on February 16, 2007, his
Notes became the obligation of his estate. As of December 31, 2007,
the aggregate principal amounts, including compounded interest, owed to us by
Edwin H. Wegman and WSC were $1,108,088 and $304,397, respectively. Under the
Notes, the respective principal amounts remaining unpaid at any time shall each
bear interest at the rate of nine percent (9%) per annum compounded
annually. The loans
were secured by a pledge of 100% of the shares of the Company owned by The S.J.
Wegman Company. At December 31, 2007 the total number of shares
pledged, 1,843,327, had a current market value of $3.80 per share. In March
2007, in full repayment of the loan made by the
Company to WSC, WSC offset $304,397 in back rent due from
the Company in full repayment of the loan.
Edwin H.
Wegman was the sole general partner of The S.J. Wegman Company, a limited
partnership which owned over 20% of the issued and outstanding common stock of
the Company. Upon his death on February 16, 2007, The S.J. Wegman
Company was legally dissolved. The dissolution of the The S.J. Wegman
Company constituted an event of default under the above mentioned pledge
agreement, which gave the Board the right to vote the pledged shares.
As of
December 31, 2007, the Company had an outstanding loan to the Company’s former
Chairman and CEO, Edwin H. Wegman. The principal amount owed was $625,774 and
the accrued interest amount through December 31, 2007 was $482,314 for an
aggregate amount of $1,108,088. The loan was in the form of a demand
promissory note, bearing interest at a rate of 9% per annum. For financial
statement purposes, this loan is classified as components of stockholders’
equity in the balance sheet and appear as “Notes due from former Chairman and
CEO and other related party.”
Notwithstanding
the dissolution of The S.J. Wegman Company, upon the death of Edwin H. Wegman,
the loan continued to be secured by The S.J. Wegman Company
pledge. Interest income accrued for these loans, but not recognized
for financial statement purposes, aggregated approximately $91,500 and $102,000,
for the calendar years 2007 and 2006, respectively. On February 1 2008, the
demand promissory note was repaid in full by the Estate of Edwin H.
Wegman.
14. EMPLOYEE BENEFIT
PLANS
ABC-NY
has a 401(k) Profit Sharing Plan for employees who meet minimum age and service
requirements. Contributions to the plan by ABC-NY are discretionary and subject
to certain vesting provisions. The Company made no contributions to this plan
for calendar years 2007 or 2006.
15.
SUBSEQUENT EVENTS
On
January 14, 2008, the Company closed on the sale of 200,000 shares of its common
stock, par value $0.001, in a private placement offering to certain investment
funds, at a purchase price of $10.50 per share for aggregate proceeds to the
Company of $2,100,000. The shares were sold in a Company managed transaction at
a premium of $1.00 per share over the then current market price.
Effective January 29,
2008, the Company obtained listing on the Over-the-Counter-Bulletin Board under
the trading symbol BSTC.OB. On April 16, 2008 we received notice that our
symbol was changed to BSTCE.OB due to the delinquent filing of this
Report. Once the filing of this Report has been processed by the
OTCBB, our symbol will return to BSTC.OB.
On
February 1, 2008, the Estate sold an aggregate of 344,114 shares of the
Company's common stock, par value $0.001, at a purchase price of $12.00 per
share to certain private investors. The Estate used certain of the proceeds of
the transaction to repay the loan owed to the Company by Edwin H. Wegman, the
Company’s former CEO. The loan repayment amount was $1,116,558, which represents
the principal amount owed and accrued interest through January 31,
2008.
In
addition to the foregoing subsequent events, there have been a number of
additional events that are described in the Form 8-Ks that have been filed by
the Company since December 31, 2007 that are listed in Item 13,
“Exhibits—Reports on Form 8-K.”
EXHIBIT
INDEX
The
documents listed below are being filed or have previously been filed on behalf
of the Company and are incorporated herein by reference from the documents
indicated and made a part hereof. Exhibits not identified as
previously filed are filed herewith:
|
Exhibit
Number
|
Description
|
|
3.1
|
Registrant’s
Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Registrant’s Form 10-KSB filed with the Commission on
March 2, 2007)
|
|
3.2
|
Registrant’s
Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 of
the Registrant’s Form 10-KSB filed with the Commission on March 2,
2007)
|
|
10.1
|
Copy
of Promissory Note, dated January 1, 2007, executed by Edwin H. Wegman in
favor of the Company (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 10-KSB filed with the Commission on March 2,
2007)
|
|
10.2
|
Copy
of Promissory Note, dated January 1, 2007, executed by Wilbur Street
Corporation in favor of the Company (incorporated by reference to Exhibit
10.2 of the Registrant’s Form 10-KSB filed with the Commission on March 2,
2007)
|
|
10.3
|
Copy
of Pledge Agreement, dated January 1, 2007, executed by The S.J. Wegman
Company in favor of the Company (incorporated by reference to Exhibit 10.3
of the Registrant’s Form 10-KSB filed with the Commission on March 2,
2007)
|
|
10.4
|
Copy
of Lease, dated January 30, 1998, between the Company and the Wilbur
Street Corporation (incorporated by reference to Exhibit 10.14 of the
Registrant’s Form 10-KSB filed with the Commission on May 7,
1998)
|
|
10.5
|
Copy
of Extension and Modification Agreement, dated July 1, 2005, between the
Company and the Wilbur Street Corporation (incorporated by reference to
Exhibit 10.5 of the Registrant’s Form 10-KSB filed with the Commission on
March 2, 2007)
|
|
10.6
|
Development
and License Agreement between the Company and Auxilium Pharmaceuticals,
Inc. dated June 3, 2004 (incorporated by reference to Exhibit 24 of the
Registrant’s Form 10-KSB filed with the Commission on November 22,
2004)
|
|
10.7
|
Amendment
No. 1 to the Development and License Agreement between the Company and
Auxilium Pharmaceuticals, Inc. dated May 5, 2005 (incorporated by
reference to Exhibit 10.7 of the Registrant’s Form 10-KSB filed with the
Commission on March 2, 2007)
|
|
10.8
|
Asset
Purchase Agreement between the Company, ABC-NY and DFB dated March 3, 2006
(incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K
filed with the Commission on March 9, 2006)
|
|
10.9
|
Amendment
to Asset Agreement between the Company, ABC-NY and DFB dated January 8,
2007 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form
8-K filed with the Commission on January 12, 2007)
|
|
10.10
|
Dupuytren’s
License Agreement dated November 21, 2006 between the Company and the
Research Foundation (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 8-K filed with the Commission on November 28,
2006)
|
|
10.11
|
Frozen
Shoulder License Agreement dated November 21, 2006 between the Company and
the Research Foundation (incorporated by reference to Exhibit 10.2 of the
Registrant’s Form 8-K filed with the Commission on November 28,
2006)
|
|
10.12
|
License
Agreement dated October 1, 1993 between the Company and Martin K. Gelbard,
M.D. (incorporated by reference to Exhibit 10.12 of the Registrant’s Form
10-KSB filed with the Commission on March 2, 2007)
|
|
10.13
|
Form
of 1993 Stock Option Plan of Registrant (incorporated by reference as
Exhibit 10.2 of the Registrant’s Form S-8 filed with the Commission on
July 27, 1995)
|
|
10.14
|
Form
of 1997 Stock Option Plan of Registrant (incorporated by reference as
Exhibit 4.1 of the Registrant’s Form S-8 filed with the Commission on
September 26, 1997)
|
|
10.15
|
Form
of 2001 Stock Option Plan of Registrant (incorporated by reference as
Exhibit 10.15 of the Registrant’s Form 10-KSB filed with the Commission on
May 17, 2001)
|
|
10.16
|
Amendment
to 2001 Stock Option Plan of Registrant (incorporated by reference to the
Registrant’s Form 14A filed with the Commission on November 12,
2003)
|
|
10.17
|
Warrant
to purchase common stock of the Company dated March 12, 2003 between the
Company and David Geller (incorporated by reference to Exhibit 10.17 of
the Registrant’s Form 10-KSB filed with the Commission on March 2,
2007)
|
|
10.18
|
Rights
Agreement dated as of May 14, 2002 (incorporated by reference as Exhibit 1
to the Registrant’s Form 8-A filed with the Commission on May 30,
2002)
|
|
10.19
|
Amendment
No.1 to Rights Agreement, dated June 19, 2003 (incorporated by reference
to Exhibit 10.19 of the Registrant’s Form 10-KSB filed with the Commission
on March 2, 2007)
|
|
10.20
|
Change
of Control Agreement, dated June 18, 2007 between the Company and Thomas
Wegman (incorporated by reference to Exhibit 10.2 of the Registrant’s Form
8-K filed with the Commission on June 22, 2007)
|
|
10.21
|
Change
of Control Agreement, dated June 18, 2007 between the Company and Henry
Morgan (incorporated by reference to Exhibit 10.21 of the Registrant’s
Form 10-KSB filed with the Commission on September 26,
2007)
|
|
10.22
|
Change
of Control Agreement, dated June 18, 2007 between the Company and Michael
Schamroth (incorporated by reference to Exhibit 10.22 of the Registrant’s
Form 10-KSB filed with the Commission on September 26,
2007)
|
|
10.23
|
Change
of Control Agreement, dated June 18, 2007 between the Company and Dr. Paul
Gitman (incorporated by reference to Exhibit 10.23 of the Registrant’s
Form 10-KSB filed with the Commission on September 26,
2007)
|
|
14
|
Amended
and Restated Code of Business Conduct and Ethics (incorporated by
reference to Exhibit 14.1 of the Registrant’s Form 10-KSB filed with the
Commission on March 2, 2007)
|
|
21
|
Subsidiaries
of the Registrant (incorporated by reference to Exhibit 21.1 of the
Registrant’s Form 10-KSB filed with the Commission on March 2,
2007)
|
|
23*
|
|
|
31*
|
|
|
32*
|
___________________
* filed
herewith
SIGNATURES
In accordance with section 13 or 15(d)
of the Securities Exchange Act of 1934, the Registrant caused this Report on
Form 10-KSB to be signed on its behalf by the undersigned, thereto duly
authorized individual.
Date: May
2, 2008
|
BIOSPECIFICS
TECHNOLOGIES CORP.
|
||
| By: |
/s/ Thomas L. Wegman
|
|
|
Name: Thomas
L. Wegman
|
||
|
Title: President
|
||
In accordance with the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
|
SIGNATURE
|
TITLE
|
|
/s/
Thomas L. Wegman
|
President,
Director, Principal Executive Officer and Principal Financial
Officer)
|
|
Name:
Thomas Wegman
Date:
May 2, 2008
/s/
Henry Morgan
|
|
|
Name:
Henry Morgan
Date:
May 2, 2008
/s/
Dr. Paul Gitman
|
Director
|
|
Name:
Dr. Paul Gitman
Date:
May 2, 2008
/s/
Dr. Mark Wegman
|
Director
|
|
Name:
Dr. Mark Wegman
Date:
May 2, 2008
|
Director
|