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| BPAX > SEC Filings for BPAX > Form 10-Q on 8-Nov-2012 | All Recent SEC Filings |
8-Nov-2012
Quarterly Report
This Management's Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading "Forward-Looking Statements" below. The following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report.
Business Overview
We are a specialty pharmaceutical company focused on developing products for female sexual health and oncology.
Our products, either approved or in clinical development, include:
† LibiGel - once daily transdermal testosterone gel in Phase III development for the treatment of female sexual dysfunction (FSD), specifically hypoactive sexual desire disorder (HSDD).
† Male testosterone gel - once daily transdermal testosterone gel approved by the U.S. Food and Drug Administration (FDA) indicated for the treatment of hypogonadism, or testosterone deficiency in men, and licensed to Teva Pharmaceuticals USA, Inc. (Teva).
† GVAX cancer vaccines - a portfolio of cancer vaccines, four of which have been granted FDA orphan drug designation, currently in 17 Phase I and Phase II clinical trials for the treatment of various cancers.
† The Pill-Plus (triple component contraceptive) - once daily use of various combinations of estrogens, progestogens and androgens in Phase II development.
† Elestrin - once daily transdermal estradiol (estrogen) gel approved by the FDA indicated for the treatment of hot flashes associated with menopause and marketed in the U.S. by Meda Pharmaceuticals, Inc. (Meda), our licensee.
Our corporate strategy is to develop high value medically-needed pharmaceutical products. As a part of our corporate strategy, we seek to implement strategic alternatives with respect to our products and our company, including licenses, business collaborations and other business combinations or transactions with other pharmaceutical and biotechnology companies. Therefore, as a matter of course, from time to time, we may engage in discussions with third parties regarding the licensure, sale or acquisition of our products and technologies or a merger or sale of our company, with the goal of maximizing stockholder value.
Recent Development
Agreement and Plan of Merger
On October 3, 2012, we entered into an agreement and plan of merger with ANIP Acquisition Company d/b/a ANI Pharmaceuticals, Inc. (ANI). The merger agreement provides that, subject to the terms and conditions set forth in the merger agreement, ANI will merge with and into BioSante, with BioSante continuing as the surviving company. At the effective time of the merger, each outstanding
share of capital stock of ANI will be converted into the right to receive a
number of shares of our common stock, if any, as determined pursuant to the
exchange ratios described in the merger agreement and the provisions of ANI's
certificate of incorporation. All options, warrants or other rights to purchase
shares of capital stock of ANI, will be canceled at the effective time of the
merger without any consideration in exchange, except for certain warrants which
although not cancelled will not represent the right to acquire any equity or
other interest in the combined company after the merger. No fractional shares
of our common stock will be issued in connection with the merger, and holders of
ANI capital stock will be entitled to receive cash in lieu thereof. Following
the consummation of the transactions contemplated by the merger agreement, the
current stockholders of ANI are expected to own approximately 53 percent of the
outstanding shares of common stock of the combined company, and current
stockholders of BioSante are expected to own approximately 47 percent of the
outstanding shares of common stock of the combined company. The exchange ratios
are subject to potential adjustment as described in the merger agreement
depending upon the amount of our "net cash," as defined in the merger agreement
and generally consisting of our cash and cash equivalents less certain expenses
and liabilities, as of a determination date prior to the closing date of the
merger, but in no event will the current ANI stockholders own less than 50.1
percent (or the current BioSante stockholders own more than 49.9 percent) of the
outstanding shares of common stock of the combined company. The merger is
intended to qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended.
The merger agreement provides that, immediately following the effective time of the merger, the board of directors of the combined company will consist of five former directors of ANI and two former directors of BioSante, and ANI's current executive officers are expected to serve as executive officers of the combined company. In connection with the merger, we will seek to amend our certificate of incorporation to: (i) effect a reverse split of our common stock at a ratio between the range of one-for-two and one-for-five, as determined by us and ANI, which is intended to ensure that the listing requirements of The NASDAQ Global Market or The NASDAQ Capital Market are satisfied; and (ii) change the name of our company to "ANI Pharmaceuticals, Inc." or another name as designated by ANI (together, the "charter amendments").
Consummation of the merger is subject to a number of conditions, including, but not limited to (i) the adoption and approval of the merger agreement and the transactions contemplated thereby by both our and ANI's stockholders and the approval of the charter amendments by our stockholders; (ii) the effectiveness of a Form S-4 registration statement to be filed by us with the Securities and Exchange Commission to register the shares of our common stock to be issued in connection with the merger, which will contain a joint proxy statement/prospectus; (iii) approval for the listing of shares of our common stock to be issued in the merger on The NASDAQ Global Market or The NASDAQ Capital Market; (iv) written opinions of counsel that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code; and (v) other customary closing conditions. In addition, the obligation of ANI to effect the merger is subject to a condition that our net cash, after deducting all remaining liabilities, as calculated pursuant to the terms of the merger agreement, be no less than $17.0 million immediately prior to the effective time of the merger. No fractional shares of our common stock will be issued in connection with the reverse split and holders of our common stock will be entitled to receive cash in lieu thereof.
Each of BioSante and ANI have made customary representations, warranties and
covenants in the merger agreement, including among others, covenants that
(i) each party will conduct its business in the ordinary course consistent with
past practice during the interim period between the execution of the merger
agreement and the consummation of the merger; (ii) each party will not engage in
certain kinds of transactions or take certain actions during such period;
(iii) ANI will convene and hold a meeting of its stockholders for the purpose of
considering the adoption and approval of the merger agreement and the
transactions contemplated thereby and the board of directors of ANI will
recommend that its stockholders
adopt and approve the merger agreement, subject to certain exceptions; and
(iv) we will convene and hold a meeting of our stockholders for the purpose of
considering the adoption and approval of the merger agreement and the
transactions contemplated thereby and the approval of the charter amendments and
our board of directors will recommend that our stockholders adopt and approve
the merger agreement and approve the charter amendments, subject to certain
exceptions. Each of BioSante and ANI also has agreed not to solicit proposals
relating to alternative business combination transactions or enter into
discussions or an agreement concerning any proposals for alternative business
combination transactions, subject to exceptions for us in the event of our
receipt of a "superior proposal."
The merger agreement contains certain termination rights in favor of each of ANI and us in certain circumstances. If the merger agreement is terminated due to certain triggering events specified in the merger agreement, we will be required to pay ANI a termination fee of up to $1.0 million or ANI will be required to pay us a termination fee of up to $750,000. The merger agreement also provides that under specified circumstances, we may be required to reimburse ANI up to $500,000 for ANI's expenses in connection with the transaction. Any expenses paid by us will be credited against the $1.0 million termination fee if the termination fee subsequently becomes payable by us.
Voting Agreements
Concurrently and in connection with the execution of the merger agreement, certain of ANI's stockholders, who collectively hold approximately 90 percent of the outstanding shares of ANI capital stock as of the close of business on October 3, 2012, entered into voting agreements with us, pursuant to which each stockholder agreed to vote its shares of ANI capital stock in favor of the merger, the merger agreement and the transactions contemplated by the merger agreement and against certain transactions or certain actions that would delay, prevent or nullify the merger or the transaction contemplated by the merger agreement. In addition, one of the stockholders of ANI, who holds approximately 57 percent of the outstanding shares of ANI capital stock as of the close of business on October 3, 2012, has agreed to vote in favor of the election of the two directors designated by us at the first annual meeting of stockholders following the completion of the merger.
In addition, certain of our stockholders, directors and officers, who collectively hold approximately two percent of the outstanding shares of our capital stock as of the close of business on October 3, 2012, entered into voting agreements with ANI, pursuant to which each stockholder agreed to vote its shares of our capital stock in favor of the merger, the merger agreement and the transactions contemplated by the merger agreement and the charter amendments, and against certain transactions or certain actions that would delay, prevent or nullify the merger or the transaction contemplated by the merger agreement.
Lock-Up Agreements
Concurrently and in connection with the execution of the merger agreement, ANI's chief executive officer and chief financial officer and certain stockholders of ANI, who collectively hold approximately 85 percent of the outstanding shares of ANI capital stock as of the close of business on October 3, 2012, entered into lock-up agreements with us, pursuant to which each stockholder will be subject to a six-month lock-up on the sale of shares of our common stock received in the merger.
Contingent Value Rights Agreement
We have the right in our sole discretion to issue contingent value rights (each, a CVR and collectively, the CVRs) to our existing stockholders immediately prior to the completion of the merger. We expect that one CVR will be issued for each share of our common stock outstanding as of the record
date to be set at a date prior to the completion of the merger. However, the CVRs will not be certificated and will not be attached to the shares of our common stock. Each CVR will be a non-transferable (subject to certain limited exceptions) right to potentially receive certain cash payments in the event we receive net cash payments during the ten-year period after the distribution of the rights as a result of the sale, transfer, license or similar transaction relating to our LibiGel program, upon the terms and subject to the conditions set forth in a contingent value rights agreement to be entered into between us and an as of yet unidentified third party, as rights agent. The aggregate cash payments to be distributed to the holders of the CVRs, if any, will be equal to 66 percent of the net cash payments received by the combined company as a result of the sale, transfer, license or similar transaction relating to our LibiGel program, as determined pursuant to the CVR agreement, and will not exceed $40 million in the aggregate.
Additional Business Developments
Our lead product in development is LibiGel for the treatment of FSD, specifically HSDD, in postmenopausal women, for which there is no FDA-approved pharmaceutical product. For the past several years, we focused our efforts on two Phase III LibiGel efficacy trials and our LibiGel Phase III cardiovascular and breast cancer safety study. In December 2011, we announced results from our two Phase III LibiGel efficacy trials, which showed that the trials did not meet the co-primary or secondary endpoints. Although LibiGel performed as predicted, increasing satisfying sexual events and sexual desire and decreasing distress associated with low desire, the placebo response in the two efficacy trials was greater than expected, and LibiGel's results were not shown to be statistically different from the placebo.
Beginning in December 2011, we analyzed the data from our Phase III LibiGel efficacy trials, consulted with key opinion leaders in female sexual dysfunction, testosterone therapy and placebo effects, and met with representatives of the FDA. As a result of this process, in June 2012 we announced a plan to initiate two new LibiGel Phase III efficacy trials. We subsequently began the process of developing a protocol for the two new efficacy trials and applying for an FDA Special Protocol Assessment (SPA) agreement covering aspects of the two new efficacy trials.
In September 2012, we announced that the independent Data Monitoring Committee (DMC) completed its ninth unblinded review of the LibiGel Phase III cardiovascular events and breast cancer safety study and recommended that the LibiGel safety study should continue as per the FDA-agreed protocol, without modifications. At the time of the DMC review, there were 53 adjudicated CV events, with a lower than anticipated event rate of approximately 0.72 percent. In the same population of subjects, there were 27 breast cancers reported, a rate of approximately 0.37 percent, which is in line with the expected rate based on the ages of the subjects enrolled in the study. Given this latest review during which no specific or general safety issues were raised, and after extensive consideration, we also announced in September 2012 the conclusion of the LibiGel Phase III safety study effective immediately. Prior to the initiation of the LibiGel safety study in 2008, the FDA advised us that subjects in the cardiovascular event and breast cancer safety study were required to have a minimum average exposure in the safety study of 12 months prior to submitting a LibiGel new drug application (NDA), and prior to a potential FDA approval of LibiGel. As of the date of the conclusion of the safety study, subjects had been in the study for an average time of 24.5 months; more than 3,200 subjects had been in the study for more than one year and over 1,700 subjects had been enrolled for more than two years. With this ninth positive unblinded review of the study by the DMC, and over 7,400 women-years of exposure, we believe that adequate safety data of LibiGel use in menopausal women has been obtained.
We are continuing to develop a protocol for the two new LibiGel efficacy trials and will seek an FDA SPA agreement covering aspects of the two new efficacy trials.
Elestrin was our first FDA approved product and now is one of our two FDA approved products. Meda Pharmaceuticals, Inc. (which acquired Jazz Pharmaceuticals, Inc.'s women's health business and which in turn had acquired Azur Pharma International II Limited (Azur), our prior licensee), is marketing Elestrin in the U.S. In December 2009, we entered into an amendment to our original licensing agreement with Azur pursuant to which we received $3.16 million in non-refundable payments in exchange for the elimination of all remaining future royalty payments and certain milestone payments that could have been paid to us related to sales of Elestrin. We maintain the right to receive up to $140 million in sales-based milestone payments from Meda if Elestrin reaches certain predefined sales per calendar year; although, based on current sales levels, we believe our receipt of such payments unlikely in the near term, if at all.
Our male testosterone gel is our second FDA approved product. This product initially was developed by us, and then licensed by us to Teva for late stage clinical development. Teva submitted an NDA to the FDA in the beginning of 2011, which was approved by the FDA in February 2012. Subsequent to Teva submitting the NDA, in April 2011, a subsidiary of Abbott Laboratories, a marketer of a testosterone gel for men, filed a complaint against Teva alleging patent infringement. This litigation was settled in December 2011; however, the terms of the settlement agreement are confidential and have not been disclosed publicly. No launch date for this product has been announced by Teva.
Under our development and license agreement with Teva, Teva has agreed to market our male testosterone gel for the U.S. market and is responsible for any and all manufacturing and marketing associated with the product. The financial terms of the development and license agreement included a $1.5 million upfront payment by Teva, which was paid to us in December 2002, and an obligation by Teva to pay us certain milestones and royalties on sales of the product in exchange for rights to develop and market the product, as described in more detail below. Teva is entitled to deduct the amount of any legal expenses incurred by Teva in connection with associated patent litigation against Teva from the net sales of the product. The term of the development and license agreement will expire 10 years from the date on which Teva makes its first commercial sale of the male testosterone gel to an unrelated third party in an arms-length transaction in the United States. The parties may terminate the development and license agreement upon the occurrence of certain events, including a material breach of the agreement by the other party. We may terminate the agreement if Teva files a petition in bankruptcy, enters into an arrangement with its creditors or makes an assignment for the benefit of creditors or a receiver or trustee is appointed or if Teva suffers or permits the entry of an order adjudicating it to be bankrupt or insolvent. Teva may terminate the agreement if Teva determines that the continued development and/or marketing of the male testosterone gel is no longer commercially viable.
In October 2012, we entered into an amendment to our agreement with Teva
pursuant to which Teva made a $1.0 million payment to us upon the signing of the
amendment and agreed to make the following milestone based payments to us:
(1) $500,000 if the FDA authorizes marketing of the licensed male testosterone
gel as an "AB-rated" equivalent to AndroGel®; (2) $750,000 upon the earlier to
occur of (a) December 31, 2012 and (b) five business days after Teva's
submission to the FDA of a final report regarding a "washing" clinical study
required by the FDA; and (3) $500,000 upon the earlier to occur of
(a) December 31, 2013 and (b) five business days after Teva's commencement of
commercial manufacture of the licensed product for sale in the United States.
In addition, Teva has agreed to pay us $4.0 million in the event Teva is the
sole marketer in the United States of a generic 1% testosterone gel AB-rated to
AndroGel® for at least 180 days immediately following the launch date of the
licensed product in the United States. The royalty rate to be paid by Teva to
us under the agreement is five percent of net sales; provided, however, that
during the period of time that Teva markets the licensed product and is the sole
marketer of a generic 1% testosterone gel that is AB-rated to AndroGel® in the
United States, the royalty rate will be seven and one half percent of net
sales. Additionally, pursuant to the terms of the October 2012 amendment, the
parties agreed to release each other from certain liabilities.
We license the technology underlying certain of our gel products, including LibiGel and Elestrin, but not our male testosterone gel, from Antares Pharma, Inc. The patents covering the formulations used in the gel products covered under the license agreement are expected to expire in 2022, although with respect to LibiGel, a new U.S. patent covering the "method of use" of LibiGel for treating FSD and HSDD was issued, which will expire in December 2028. Our license agreement with Antares requires us to pay Antares certain development and regulatory milestone payments and royalties based on net sales of any products we or our licensees sell incorporating the licensed technology. Specifically, we are obligated to pay Antares 25 percent of all upfront and milestone payments related to a license and a 4.5 percent royalty on net sales of product by us or a licensee. Since entering into the agreement and through September 30, 2012, we have paid Antares an upfront payment of $1.0 million, an aggregate of $5.1 million in milestone payments and an aggregate of $100,000 in royalties. Aggregate potential milestone payments to be paid by us to Antares under the agreement include 25 percent of the potential $140 million in sales-based milestone payments, or $35 million from Meda if Elestrin reaches certain predefined sales per calendar year; although, based on current sales levels, we believe our receipt of such payments unlikely in the near term, if at all.
The term of our license agreement with Antares will expire on a country-by-country and product-by-product basis when the royalties expire (at patent expiration), at which time we will have a fully paid-up exclusive license regarding the applicable product in such country. We and Antares may terminate the license agreement upon the occurrence of certain events, including a material breach of the agreement by the other party or if the other party goes into liquidation or bankruptcy or makes an assignment for the benefit of creditors or a receiver is appointed. Antares may terminate the agreement with respect to certain products or territories if we do not continue development, seeking regulatory approval or marketing of such products in the covered territories. We may terminate the agreement with respect to certain products or territories if, for technical, scientific or regulatory reasons, it is not likely that the product will gain required regulatory approvals in a territory, if regulatory approvals in a territory are not obtained or if we determine that it is not economically viable to continue development or marketing of a product in a territory.
We license the technology underlying The Pill Plus from Wake Forest University Health Sciences and Cedars-Sinai Medical Center. The financial terms of this license include regulatory milestone payments, maintenance payments and royalty payments by us if a product incorporating the licensed technology gets approved and subsequently is marketed.
Our GVAX cancer vaccines, which are designed to stimulate a patient's immune
system to fight effectively the patient's own cancer, are in development for the
treatment of several different types of cancer including melanoma, leukemia,
pancreatic, breast and prostate cancer. Four of these vaccines - to treat
pancreatic cancer, acute myeloid leukemia, chronic myeloid leukemia and melanoma
- have been granted FDA orphan drug designation. Currently, there are 17 Phase
I and Phase II clinical studies involving our GVAX cancer vaccines ongoing. The
studies are being funded by various sources, including certain foundations and
our licensees. Our objective with respect to our GVAX cancer vaccines is to help
facilitate further studies and commercialization in order to bring important
cancer therapies to patients in need and to maximize the value of our GVAX
cancer vaccine portfolio to our stockholders. This objective includes
monetizing the entire portfolio or seeking additional licensees to fund, develop
and eventually commercialize the cancer vaccines.
Financial Overview
Substantially all of our revenue to date has been derived from upfront, milestone and royalty payments earned on licensing and sublicensing transactions and from subcontracts. Our business operations to date have consisted primarily of licensing and research and development activities and if we
do not complete our proposed merger with ANI, we would expect this to continue for the immediate future. To date, we have used primarily equity financings, and to a lesser extent, licensing income, interest income and the cash received from our 2009 merger with Cell Genesys, Inc., to fund our ongoing business operations and short-term liquidity needs.
As of September 30, 2012, we had $38.0 million of cash and cash equivalents and had outstanding $8.3 million in aggregate principal amount of our 3.125% convertible senior notes due May 1, 2013. Absent the receipt of any additional licensing income or financing, we expect our cash and cash equivalents balance to decrease as we continue to use cash to fund our operations. Assuming our pending merger with ANI is completed, we expect our cash and cash equivalents as of September 30, 2012 to meet our liquidity requirements through at least our anticipated closing of the merger, including the requirement under our merger agreement to have at least $17 million of net cash (as defined in the merger agreement) available upon the closing of the merger. If the Company's pending merger with ANI is not completed, the Company will need to reevaluate its strategic alternatives, which may include a sale of the company, liquidation of the company or other strategic transaction. The Company's liquidity position will be dependent upon the strategic alternative selected; however, assuming the Company does not enter into another strategic transaction, and assuming the Company decides not to commence the two new efficacy trials for LibiGel, the Company expects its cash and cash equivalents as of September 30, 2012 will be sufficient to meet the Company's liquidity requirements for at least the next 3-5 years. Additional financing would be required should the Company decide to commence the two new efficacy trials for LibiGel. These estimates may prove incorrect or the Company, nonetheless, may choose to raise additional financing earlier.
We incurred expenses of $14.5 million on research and development activities during the nine months ended September 30, 2012, which is a 61 percent decrease compared to the same period in 2011, primarily as a result of the conclusion of our two LibiGel Phase III efficacy trials at the end of 2011. We anticipate that our research and development expenses for the remainder of 2012 will consist primarily of expenses associated with the conclusion of the safety study and continuing to develop a protocol for the two new LibiGel Phase III efficacy . . .
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