<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 000-28637
/ / TRANSITION REPORT UNDER SECTION 13 OR 16(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Transition Period From ___________ To _______________.
BIOSANTE PHARMACEUTICALS, INC.
(Exact name of small business issuer as specified in its charter)
WYOMING 58-2301143
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
175 Olde Half Day Road
Lincolnshire, Illinois 60069
----------------------------
(Address of principal executive offices)
(847) 793-2458
--------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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 / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding as of August 11, 2000
----- ---------------------------------
<S> <C>
Common stock, no par value 52,952,942
</TABLE>
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
1
<PAGE>
BIOSANTE PHARMACEUTICALS, INC.
FORM 10-QSB
JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of June 30, 2000 and December 31, 1999.................................................3
Statements of Operations for the three and six months ended June 30, 2000 and 1999
and the cumulative period from August 29, 1996 (date of incorporation) to
June 30, 2000............................................................................................4
Statements of Cash Flows for the six months ended June 30, 2000 and
1999 and the cumulative period from August 29, 1996 (date of
incorporation) to June 30, 2000..........................................................................5
Notes to the Financial Statements......................................................................6-7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................................................8-15
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.............................................16
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds.............................................................17
ITEM 4. Submission of Matters to a Vote of Security Holders...................................................17
ITEM 6. Exhibits and Reports on Form 8-K......................................................................17
SIGNATURE PAGE...................................................................................................18
EXHIBIT INDEX....................................................................................................19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BIOSANTE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------ ----------------------
ASSETS (UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,366,063 $ 5,274,552
Prepaid expenses and other sundry assets 39,395 58,994
---------------------------------------------------------------------------------------------------------------------------
3,405,458 5,333,546
PROPERTY AND EQUIPMENT, NET 425,239 446,083
---------------------------------------------------------------------------------------------------------------------------
$ 3,830,697 $ 5,779,629
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 110,977 $ 76,057
Accrued compensation 94,835 182,973
Other accrued expenses 16,405 45,085
Due to licensor 25,000 25,000
---------------------------------------------------------------------------------------------------------------------------
247,217 329,115
---------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Issued and Outstanding
4,716,025 (1999 - 4,807,865) Class C special stock 472 481
52,734,526 (1999 - 52,642,686) Common stock 17,675,479 17,652,510
---------------------------------------------------------------------------------------------------------------------------
17,675,951 17,652,991
Deficit accumulated during the development stage (14,092,471) (12,202,477)
---------------------------------------------------------------------------------------------------------------------------
3,583,480 5,450,514
---------------------------------------------------------------------------------------------------------------------------
$ 3,830,697 $ 5,779,629
===========================================================================================================================
</TABLE>
Note: The balance sheet as of December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles.
See accompanying notes to the financial statements.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
BIOSANTE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND THE CUMULATIVE
PERIOD FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO JUNE 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
THREE MONTHS ENDED SIX MONTHS ENDED AUGUST 29, 1996
JUNE 30, JUNE 30, (DATE OF
--------------- -------------- ------------------------------- INCORPORATION) TO
2000 1999 2000 1999 JUNE 30, 2000
--------------- -------------- --------------- -------------- -----------------------
<S> <C> <C> <C> <C> <C>
REVENUE
Interest income $ 61,504 $ 46,781 $ 121,886 $ 72,516 $ 640,704
---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development 1,164,039 145,509 1,355,214 316,531 3,751,754
General and administration 307,280 157,539 608,455 359,432 4,740,112
Depreciation and amortization 24,359 23,119 48,211 44,820 331,545
Loss on disposal of capital assets - - - - 157,545
Costs of acquisition of Structured
Biologicals Inc. - - - - 375,219
Purchased in-process research
and development - - - - 5,377,000
---------------------------------------------------------------------------------------------------------------------------------
1,495,678 326,167 2,011,880 720,783 14,733,175
---------------------------------------------------------------------------------------------------------------------------------
NET LOSS $(1,434,174) $ (279,386) $(1,889,994) $ (648,267) $ (14,092,471)
=================================================================================================================================
BASIC AND DILUTED NET LOSS
PER SHARE $ (0.02) $ (0.01) $ (0.03) $ (0.02) $ (0.34)
=================================================================================================================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 57,450,551 48,232,199 57,450,551 41,282,485 40,985,354
=================================================================================================================================
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
BIOSANTE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND THE CUMULATIVE
PERIOD FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO JUNE 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
AUGUST 29, 1996
(DATE OF
SIX MONTHS ENDED JUNE 30, INCORPORATION) TO
-------------------------------------- JUNE 30,
2000 1999 2000
----------------- ------------------ ---------------------
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (1,889,994) $ (648,267) $ (14,092,471)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 48,211 44,820 331,545
Purchased in-process research and development - - 5,377,000
Loss on disposal of equipment - - 157,545
Changes in other assets and liabilities
affecting cash flows from operations
Prepaid expenses 19,599 9,110 (36,427)
Accounts payable and accrued expenses (81,898) (361,724) (517,970)
Due to licensor - - 25,000
Due from SBI - (133,901) (128,328)
-------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,904,082) (1,089,962) (8,884,106)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (27,367) (4,218) (880,219)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
(Conversion) issuance of Class "C" shares (9) - 472
Proceeds from sale or conversion of shares 22,969 4,213,233 13,129,916
-------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,960 4,213,233 13,130,388
-------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,908,489) 3,119,053 3,366,063
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 5,274,552 2,841,250 -
-------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,366,063 $ 5,960,303 $ 3,366,063
===============================================================================================================================
SUPPLEMENTAL SCHEDULE OF
CASH FLOW INFORMATION
Acquisition of SBI
Purchased in-process research and development $ - $ - $ 5,377,000
Other net liabilities assumed - - (831,437)
-------------------------------------------------------------------------------------------------------------------------------
- - 4,545,563
Less: common stock issued therefor - - 4,545,563
-------------------------------------------------------------------------------------------------------------------------------
$ - $ - $ -
===============================================================================================================================
Income tax paid $ - $ - $ -
===============================================================================================================================
Interest paid $ - $ - $ -
===============================================================================================================================
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
BIOSANTE PHARMACEUTICALS, INC.
FORM 10-QSB
JUNE 30, 2000
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited financial
statements contain all necessary adjustments, which are of a normal recurring
nature, to present fairly the financial position of BioSante Pharmaceuticals,
Inc. as of June 30, 2000, the results of operations for the three and six
months ended June 30, 2000 and 1999 and for the cumulative period from August
29, 1996 (date of incorporation) to June 30, 2000, and the cash flows for the
six months ended June 30, 2000 and 1999 and for the cumulative period from
August 29, 1996 (date of incorporation) to June 30, 2000, in conformity with
generally accepted accounting principles. Operating results for the three and
six month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
These unaudited interim financial statements should be read in
conjunction with the financial statements and related notes contained in
BioSante's Annual Report on Form 10-KSB for the year ended December 31, 1999.
2. BASIC AND DILUTED NET LOSS PER SHARE
The basic and diluted net loss per share is computed based on the
weighted average number of shares of common stock and Class C stock
outstanding, all being considered as equivalent of one another. Basic net
loss per share is computed by dividing the net loss by the weighted average
number of shares outstanding for the reporting period. Diluted net loss per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock. Because BioSante has incurred net losses from operations in each of
the periods presented, there is no difference between basic and diluted net
loss per share amounts. The computation of diluted net loss per share does
not include options and warrants with the dilutive potential that would have
an antidilutive effect on net loss per share.
3. LICENSE AND SUPPLY AGREEMENTS
On June 13, 2000, the Company entered into a licensing agreement and
a supply agreement with Permatec Technologie, AG, a Swiss corporation,
covering four hormone products for the treatment of testosterone deficiency
in men and estrogen deficiency in women. Under the terms of the license
agreement, Permatec granted the Company an exclusive license, with the right
to grant sublicenses, to develop and, after receipt of all necessary
approvals, market the products in the United States of America and nine other
countries. In consideration for the license, the Company paid Permatec an
initial license fee of $1,000,000, a portion of which may be applied against
future royalty payments and/or sublicense upfront payments. The entire
$1,000,000 has been expensed in accordance with the Company's policy to
expense all license fees for products which have not yet successfully
completed Phase II or similar clinical trials. The agreement requires the
Company to pay Permatec a percentage of future net sales, if any, as a
royalty. Under the terms of the license agreement, the Company is also
obligated to make milestone payments upon the occurrence of certain future
events, however, the Company is unconditionally obligated to make minimum
future milestone
6
<PAGE>
payments of $250,000, regardless of whether the contract milestones are ever
achieved. Under terms of the supply agreement, Permatec has agreed to
manufacture or have manufactured and sell exclusively to the Company, and the
Company has agreed to purchase exclusively from Permatec, the Company's total
requirements for the products covered under the license agreement between the
two parties.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
THIS FORM 10-QSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED IN THIS FORM 10-QSB THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," BELIEVE," "ANTICIPATE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR
COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS,
INCLUDING THOSE DESCRIBED UNDER THIS SECTION AND THE SECTION ENTITLED "RISK
FACTORS" BELOW AND THOSE CONTAINED UNDER THE CAPTION "RISK FACTORS" CONTAINED IN
BIOSANTE'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999.
The following discussion of the results of the operations and financial
condition of BioSante should be read in conjunction with BioSante's financial
statements and the related notes thereto.
OVERVIEW
We are an emerging development stage biopharmaceutical company that
develops hormone replacement products to treat testosterone deficiency in men
and estrogen deficiency in women. We are also engaged in the development and
commercialization of vaccine adjuvants, proprietary novel vaccines and drug
delivery systems.
We license a portion of our technology, on an exclusive basis from
the University of California. This technology is based on the use of
extremely small, solid, uniform particles, which we call "nanoparticles" or
"CAP", as immune system boosters and for drug delivery. We have identified
three potential initial applications for our nanoparticle technology:
- the creation of improved versions of current vaccines by the
"adjuvant" activity of our proprietary nanoparticles;
- the development of new, unique vaccines against diseases for
which there currently are few or no effective methods of
prevention, such as genital herpes; and
- the creation of inhaled forms of pharmaceutical compounds that
currently must be given by injection, such as insulin.
On June 13, 2000, we announced that we entered into a license
agreement with Permatec Technologie, AG of Switzerland under which we are
in-licensing a group of hormone replacement products. These products are
designed to address a variety of hormone deficiencies that affect both men
and women. Symptoms of these hormone deficiencies include impotence, lack of
sex drive, muscle weakness and osteoporosis in men and menopausal symptoms in
women including hot flashes, vaginal atrophy, decreased libido and
osteoporosis.
Three of the four new products we are licensing are gel formulations
of testosterone (the natural male hormone), estradiol (the natural female
hormone), and a combination of estradiol and a progestogen (another female
hormone). These gels are designed to be quickly absorbed through the skin
after application on the arms, abdomen or thighs, delivering the required
hormone to the bloodstream evenly and in a non-invasive, painless manner. The
gels are being formulated to be applied once per day and to be absorbed into
the skin without a trace of
8
<PAGE>
residue. The fourth product is an estradiol patch for application on the skin
once per week with delivery of estradiol lasting seven days.
Under the terms of our license agreement with Permatec, we acquired
exclusive marketing rights, with the right to grant sub-licenses, to the
three single active ingredient testosterone and estradiol products for all
therapeutic indications in the U.S., Canada, Mexico, Israel, Australia, New
Zealand, China, Malaysia, Indonesia and South Africa. We acquired exclusive
marketing rights, with the right to grant sub-licenses, for the combination
estradiol and progestogen product in the U.S. and Canada. In partial
consideration for the license of the proposed hormone products, we paid
Permatec an upfront license fee of $1 million in June 2000. In addition,
under the terms of the license agreement, we agreed to fund the development
of the proposed products, make milestone payments and, once regulatory
approval to market is received, pay royalties to Permatec on sales of the
products.
Our corporate strategy is to develop a portfolio of pharmaceutical
products and to:
- in-license or otherwise acquire products in the late-stage
development phase;
- in-license or otherwise acquire products already on the
market; and
- enter into business collaborations or joint ventures with
complementary firms to further develop and commercialize our
products.
PLAN OF OPERATIONS
Our strategy over the next 12 months is to continue development of
our nanoparticle technology and to actively seek collaborators and licensees
to accelerate the development and commercialization of products incorporating
this technology. We hope to file an investigational new drug application with
the U.S. Food and Drug Administration (commonly referred to as the "FDA")
before the end of 2000 to commence a Phase I human clinical trial with
respect to our CAP nanoparticles. In addition, we expect to begin human
clinical trials with respect to our hormone replacement products by the end
of 2000 or early 2001, in order to obtain FDA approval to market these
products.
Pursuant to our hormone replacement product portfolio in-license, we
expect to hire commercial development, clinical and regulatory employees as
appropriate. Alternatively, in lieu of and possibly in addition to hiring
additional employees, we may elect to enter into arrangements with third
parties to contract for similar tasks of hired employees.
All of our revenue to date has been derived from interest earned on
invested funds. We have not commercially introduced any products. We expect
to incur substantial and continuing losses for the foreseeable future as our
own product development programs expand, various preclinical and clinical
trials commence and we continue to seek product in-licenses or otherwise
acquire new products. The amount of these losses may vary significantly from
year-to-year and quarter-to-quarter and will depend on, among other factors:
- the costs of licensure or acquisition of new products;
- the timing and cost of product development;
- the progress and cost of preclinical and clinical development
programs;
- the timing and cost of obtaining necessary regulatory
approvals; and
- the timing and cost of obtaining third party reimbursement.
9
<PAGE>
In order to generate revenues, we must successfully develop and
commercialize the products currently in our portfolio or additional products
that we may in-license or otherwise acquire, or we must enter into
collaborative agreements with others who can successfully develop and
commercialize them. Even if our proposed products and the additional products
we may in-license or otherwise acquire are commercially introduced, they may
never achieve market acceptance and we may never generate revenues or achieve
profitability.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
General and administrative expenses increased from $157,539 during
the three month period ended June 30, 1999 to $307,280 during the three month
period ended June 30, 2000. This increase of approximately 95% is due
primarily to an increase in the expenses associated with filing our Form
10-SB with the SEC.
Research and development expenses increased from $145,509 during the
three month period ended June 30, 1999 to $1,164,039 during the three month
period ended June 30, 2000 due primarily to a $1 million upfront payment to
the licensor of the hormone replacement product portfolio. As a result of our
hormone replacement product in-license, we expect that our research and
development expenses will increase significantly. We are required under the
terms of our license agreement with the University of California to make
available certain amounts of funds dedicated to research and development
activities. The amount of BioSante's research and development expenditures,
however, may fluctuate from quarter-to-quarter and year-to-year depending on:
(1) the resources available; (2) its development schedule; (3) results of
studies, clinical trials and regulatory decisions; and (4) competitive
developments.
Interest income increased from $46,781 during the three month period
ended June 30, 1999 to $61,504 during the three month period ended June 30,
2000. We expect interest income to decline in future periods as we use our
cash balances for operations.
We incurred a net loss of $1,434,174 for the three month period
ended June 30, 2000, compared to a net loss of $279,386 for the three month
period ended June 30, 1999. The increase in the net loss is primarily due to
the $1 million upfront in-license fee we paid to the licensor of the hormone
replacement product portfolio in June 2000. We anticipate that our operating
losses will continue for the foreseeable future.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
General and administrative expenses increased from $359,432 during
the six month period ended June 30, 1999 to $608,455 during the six month
period ended June 30, 2000. This increase of approximately 69% is due
primarily to an increase in the expenses associated with filing our Form
10-SB with the SEC.
Research and development expenses increased from $316,531 during the
six month period ended June 30, 1999 to $1,355,214 during the six month
period ended June 30, 2000, due primarily to a $1 million upfront payment to
the licensor of the hormone replacement product portfolio. As a result of our
hormone replacement product in-license, we expect that our research and
development expenses will increase significantly. We are required under the
terms of our license agreement with the University of California to make
available certain amounts of funds dedicated to research and development
activities. The amount of BioSante's research and development expenditures,
however, may fluctuate from quarter-to-quarter and
10
<PAGE>
year-to-year depending on: (1) the resources available; (2) its development
schedule; (3) results of studies, clinical trials and regulatory decisions;
and (4) competitive developments.
Interest income increased from $72,516 during the six month period
ended June 30, 1999 to $121,886 during the six month period ended June 30,
2000. We expect interest income to decline in future periods as we use our
cash balances for operations.
BioSante incurred a net loss of $1,889,994 for the six month period
ended June 30, 2000, compared to a net loss of $648,267 for the six month
period ended June 30, 1999. The increase in the net loss is primarily due to
the $1 million upfront in-license fee we paid to the licensor of the hormone
replacement product portfolio in June 2000. As of June 30, 2000, BioSante had
an accumulated deficit of $14,092,471. We anticipate that our operating
losses will continue for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have raised equity financing to fund our operations, and
we expect to continue this practice to fund our ongoing operations. Since
inception, we have raised net proceeds of approximately $9.1 million from
private equity financings, class A and class C stock conversions and warrant
exercises.
Our cash and cash equivalents were $3,366,063 and $5,274,552 at June
30, 2000 and December 31, 1999, respectively. The decrease in our cash
balances is due to cash used in operating activities. We used cash in
operating activities of $1,442,894 for the three month period ended June 30,
2000 versus cash used in operating activities of $279,714 for the three month
period ended June 30, 1999. This change reflects a $1 million upfront payment
to the licensor of the hormone replacement product portfolio license we
acquired in June 2000. Net cash used in investing activities was $16,033 for
the three month period ended June 30, 2000 versus $975 for the three month
period ended June 30, 1999. The uses of cash in investing activities during
the three month period ended June 30, 2000 were capital expenditures for the
purchase of three computers. The significant uses of cash in investing
activities for the three month period ended June 30, 1999 included capital
expenditures for a hand-held computer. Net cash provided by financing
activities was $12,500 for the three months ended June 30, 2000 compared to
$4,210,733 for the three months ended June 30, 1999. Net cash provided during
the three months ended June 30, 2000 was the result of conversions of shares
of class C stock into shares of common stock while net cash provided during
the three months ended June 30, 1999 was the result of a $4.2 million private
placement of our common stock in May 1999.
We used cash in operating activities of $1,904,082 for the six month
period ended June 30, 2000 versus cash used in operating activities of
$1,089,962 for the six month period ended June 30, 1999. This change reflects
a $1 million upfront payment to the licensor of the hormone replacement
product portfolio license we acquired in June 2000. Net cash used in
investing activities was $27,367 for the six month period ended June 30, 2000
versus $4,218 for the six month period ended June 30, 1999. The uses of cash
in investing activities during 2000 were capital expenditures for the
purchase of six computers. The significant uses of cash in investing
activities for the six month period ended June 30, 1999 included capital
expenditures for office furniture. Net cash provided by financing activities
was $22,960 for the six months ended June 30, 2000 compared to $4,213,233 for
the six months ended June 30, 1999. Net cash provided during the six months
ended June 30, 2000 was the result of conversions of shares of class C stock
into shares of common stock. Net cash provided by financing activities during
the six
11
<PAGE>
months ended June 30, 1999 was the result of a $4.2 million private placement
of our common stock in May 1999.
We did not have any material commitments for capital expenditures as
of June 30, 2000. We have, however several financial commitments, including
product development milestone payments to the licensor of our proposed
hormone products, payments under the license agreement with the University of
California, as well as the minimum annual lease payments.
We currently do not have sufficient resources to complete the
commercialization of any of our proposed products. Therefore, we may need to
raise substantial additional capital to fund our operations sometime in the
future. We cannot be certain that any financing will be available when
needed. If we fail to raise additional financing as we need it, we may have
to delay or terminate our own product development programs or pass on
opportunities to in-license or otherwise acquire new products that we believe
may be beneficial to our business. We expect to continue to spend capital on:
- research and development programs;
- preclinical studies and clinical trials;
- regulatory processes;
- establishment of our own commercial scale manufacturing and
marketing capabilities or a search for third party
manufacturers and marketing partners to manufacture and market
our products for us; and
- the licensure or acquisition of new products.
The amount of capital we may need will depend on many factors, including the:
- progress, timing and scope of our research and development
programs;
- progress, timing and scope of our preclinical studies and
clinical trials;
- time and cost necessary to obtain regulatory approvals;
- time and cost necessary to build our own manufacturing
facilities and obtain the necessary regulatory approvals for
those facilities or to seek third party manufacturers to
manufacture our products for us;
- time and cost necessary to establish our own sales and
marketing capabilities or to seek marketing partners to market
our products for us;
- time and cost necessary to respond to technological and market
developments;
- changes made or new developments in our existing
collaborative, licensing and other commercial relationships;
and
- new collaborative, licensing and other commercial
relationships that we may establish.
In addition, our license agreement with the licensor of our proposed
hormone products requires us to make certain payments and our license
agreement the University of California, requires us to have available minimum
amounts of funds each year for research and development activities relating
to our licensed technology and to achieve research and development
milestones. Moreover, our fixed expenses, such as rent, license payments and
other contractual commitments, may increase in the future, as we may:
- enter into additional leases for new facilities and capital
equipment;
- enter into additional licenses and collaborative agreements;
and
- incur additional expenses associated with being a public
company.
12
<PAGE>
Our cash on hand as of June 30, 2000 was $3,366,063. We believe this
cash will be sufficient to fund our operations through at least December 2001.
We have based this estimate on assumptions that may prove to be wrong. As a
result, we may need to obtain additional financing prior to that time. In
addition, we may need to raise additional capital at an earlier time to fund our
ongoing research and development activities, acquire new products or take
advantage of other unanticipated opportunities. Any additional equity financings
may be dilutive to our existing shareholders, and debt financing, if available,
may involve restrictive covenants on our business. In addition, insufficient
funds may require us to delay, scale back or eliminate some or all of our
programs designed to facilitate the commercial introduction of our proposed
products, prevent commercial introduction of our products altogether or restrict
us from acquiring new products that we believe may be beneficial to our
business.
RISK FACTORS
There are several important factors that could cause our actual
results to differ materially from those anticipated by us or which are
reflected in any of our forward-looking statements. These factors, and their
impact on the success of our operations and our ability to achieve our goals,
include the following and those listed under the caption "Risk Factors" in
our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999:
WE ARE A DEVELOPMENT STAGE COMPANY WITH A SHORT OPERATING HISTORY,
MAKING IT DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND YOUR INVESTMENT.
We are in the development stage and our operations and the
development of our proposed products are subject to all of the risks inherent
in the establishment of a new business enterprise, including:
- the absence of an operating history;
- the lack of commercialized products;
- insufficient capital;
- expected substantial and continual losses for the foreseeable
future;
- limited experience in dealing with regulatory issues;
- the lack of manufacturing experience and limited marketing
experience;
- an expected reliance on third parties for the development and
commercialization of our proposed products;
- a competitive environment characterized by numerous,
well-established and well-capitalized competitors; and
- reliance on key personnel.
Because we are subject to these risks, you may have a difficult time
evaluating our business and your investment in our company.
OUR PROPOSED PRODUCTS ARE IN THE RESEARCH STAGES AND WILL LIKELY NOT
BE COMMERCIALLY INTRODUCED FOR SEVERAL YEARS, IF AT ALL.
Our proposed products are in the research stages and will require
further research and development, preclinical and clinical testing and
investment prior to commercialization in the United States and abroad. We
cannot assure you that any of our proposed products will:
- be successfully developed;
- prove to be safe and efficacious in clinical trials;
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<PAGE>
- meet applicable regulatory standards;
- demonstrate substantial protective or therapeutic benefits in
the prevention or treatment of any disease;
- be capable of being produced in commercial quantities at
reasonable costs; or
- be successfully marketed.
We do not anticipate that any of our proposed products will receive the
requisite regulatory approvals for commercialization in the United States or
abroad for a number of years, if at all, and we cannot assure you that any of
our proposed products, if approved and marketed, will generate significant
product revenue and provide an acceptable return on our investment.
OUR STRATEGY TO ACQUIRE PRODUCTS IN THE LATE-STAGE DEVELOPMENT PHASE OR
PRODUCTS ALREADY ON THE MARKET IS RISKY AND THE MARKET FOR ACQUIRING THESE
PRODUCTS IS COMPETITIVE.
We intend to acquire, through outright purchase, license, joint
venture or other methods, products in the late-stage development phase or
products already on the market, and assist in the final development and
commercialization of those products. There are a number of companies that
have similar strategies to ours, many of whom have substantially greater
resources than us. It is difficult to determine the value of a product that
has not been fully developed or commercialized, and the possibility of
significant competition for these products may tend to increase the cost to
us of these products beyond the point at which we will experience an
acceptable return on our investment. We cannot assure you that we will be
able to acquire any products on commercially acceptable terms or at all, that
any product we may acquire will be approved by the FDA or if approved, will
be marketable, or that even if marketed, that we will be able to obtain an
acceptable return on our investment.
While we have no current agreements or negotiations underway, if we
purchase any products, we could issue stock that would dilute existing
shareholders' percentage ownership, incur substantial debt or assume
contingent liabilities. These purchases also involve numerous other risks,
including:
- problems assimilating the purchased products;
- unanticipated costs associated with the purchase;
- incorrect estimates made in the accounting for acquisitions;
and
- risks associated with entering markets in which we have no or
limited prior experience.
IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE
OR SELL ANY OF OUR FUTURE PRODUCTS, OR IF APPROVAL IS DELAYED, WE WILL BE
UNABLE TO GENERATE REVENUE FROM THE SALE OF OUR PRODUCTS.
We must obtain regulatory approval to sell any of our products in
the United States and abroad. In the United States, we must obtain the
approval of the FDA for each vaccine or drug that we intend to commercialize.
The FDA approval process is typically lengthy and expensive, and approval is
never certain. Products distributed abroad are subject to similar foreign
government regulation.
Generally, only a very small percentage of newly discovered
pharmaceutical products that enter preclinical development are approved for
sale. Because of the risks and uncertainties in biopharmaceutical
development, our proposed products could take a significantly longer time to
gain regulatory approval than we expect or may never gain approval. If
regulatory approval is
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<PAGE>
delayed or never obtained, our management's credibility, the value of our
company and our operating results would be adversely affected.
Moreover, even if the FDA approves a product, such approval may be
conditioned upon commercially unacceptable limitations on the indications for
which a product may be marketed, and further studies may be required to
provide additional data on safety or effectiveness. The FDA may also require
post-marketing surveillance programs to monitor the product's side effects.
The later discovery of previously unknown problems with a product or
manufacturer may result in restrictions or sanctions on the product or
manufacturer, including the withdrawal of the product from the market.
TO OBTAIN REGULATORY APPROVAL TO MARKET OUR PRODUCTS, COSTLY AND
LENGTHY PRECLINICAL STUDIES AND CLINICAL TRIALS MAY BE REQUIRED, AND THE
RESULTS OF THE STUDIES AND TRIALS ARE HIGHLY UNCERTAIN.
As part of the FDA approval process, we must conduct, at our own
expense, preclinical studies on animals and clinical trials on humans on each
of our proposed products. We expect the number of preclinical studies and
clinical trials that the FDA will require will vary depending on the product,
the disease or condition the product is being developed to address and
regulations applicable to the particular product. We may need to perform
multiple preclinical studies using various doses and formulations before we
can begin clinical trials, which could result in delays in our ability to
market any of our products. Furthermore, even if we obtain favorable results
in preclinical studies on animals, the results in humans may be different.
After we have conducted preclinical studies in animals, we must
demonstrate that our products are safe and effective for use on the target
human patients in order to receive regulatory approval for commercial sale.
The data obtained from preclinical and clinical testing are subject to
varying interpretations that could delay, limit or prevent regulatory
approval. Adverse or inconclusive clinical results would prevent us from
filing for regulatory approval of our products. Additional factors that can
cause delay or termination of our clinical trials include:
- slow patient enrollment;
- longer treatment time required to demonstrate efficacy;
- adverse medical events or side effects in treated patients;
and
- lack of effectiveness of the product being tested.
BECAUSE OUR INDUSTRY IS VERY COMPETITIVE AND OUR COMPETITORS HAVE
SUBSTANTIALLY GREATER CAPITAL RESOURCES AND MORE EXPERIENCE IN RESEARCH AND
DEVELOPMENT, MANUFACTURING AND MARKETING THAN US, WE MAY NOT SUCCEED IN
DEVELOPING OUR PROPOSED PRODUCTS AND BRINGING THEM TO MARKET.
Competition in the pharmaceutical industry is intense. Potential
competitors in the United States are numerous and include pharmaceutical,
chemical and biotechnology companies, most of which have substantially
greater capital resources and more experience in research and development,
manufacturing and marketing than us. Academic institutions, hospitals,
governmental agencies and other public and private research organizations are
also conducting research and seeking patent protection and may develop and
commercially introduce competing products or technologies on their own or
through joint ventures. We cannot assure you that our competitors will not
succeed in developing similar technologies and products more rapidly than we
do or that these competing technologies and products will not be more
effective than any of those that we are currently developing or will develop.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to interest rate risk on the investments of our excess
cash. The primary objective of our investment activities is to preserve
principal while at the same time maximize yields without significantly
increasing risk. To achieve this objective, we invest in highly liquid and high
quality debt securities. To minimize the exposure due to adverse shifts in
interest rates, we invest in short-term securities with maturities of less than
one year. Due to the nature of our short-term investments, we have concluded
that we do not have a material market risk of exposure.
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PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended June 30, 2000, we issued 91,840 shares of
common stock pursuant to the conversion of class C stock.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 13, 2000, at the Annual and Special Meeting of Stockholders,
our stockholders re-elected nine directors. Our stockholders also
adopted an amendment to increase the number of shares of BioSante
common stock reserved for issuance under our 1998 Stock Option Plan
from five million to seven million. In addition, our stockholders
ratified the appointment of Deloitte & Touche L.L.P. our independent
auditors for the fiscal year ending December 31, 2000. The votes on
each of these matters were as follows:
<TABLE>
<CAPTION>
For Against Withheld
--------- ------- --------
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS
Louis W. Sullivan 39,027,270 188
Stephen M. Simes 39,027,287 171
Victor Morgenstern 39,027,287 171
Fred Holubow 39,027,287 171
Ross Mangano 39,027,284 174
Edward C. Rosenow 39,027,287 171
Angela Ho 39,027,287 171
Peter Kjaer 39,027,287 171
Avi Ben-Abraham 38,835,287 192,171
2. AMEND 1998 STOCK OPTION PLAN 38,920,429 96,200 11,421
3. APPOINTMENT OF AUDITORS 39,024,431 422 3,197
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.1 Amended and Restated 1998 Stock Option Plan
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
On June 30, 2000, BioSante filed a Current Report on Form 8-K
to announce the in-license of a portfolio of hormone
replacement products from Permatec Techologie, AG.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
August 11, 2000 BIOSANTE PHARMACEUTICALS, INC.
By: /s/ Stephen M. Simes
------------------------------------------------
Stephen M. Simes
President and Chief Executive Officer
(principal executive officer)
By: /s/ Phillip B. Donenberg
------------------------------------------------
Phillip B. Donenberg
Chief Financial Officer, Secretary and
Treasurer (principal financial and
accounting officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Location
-------------- ----------- --------
<S> <C> <C>
10.1 Amended and Restated 1998 Stock Option Plan Filed herewith
27.1 Financial Data Schedule Filed herewith
</TABLE>
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