Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BSTC > SEC Filings for BSTC > Form 10-K on 15-Mar-2013All Recent SEC Filings

Show all filings for BIOSPECIFICS TECHNOLOGIES CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-K for BIOSPECIFICS TECHNOLOGIES CORP


15-Mar-2013

Annual Report


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing at the end of this Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a biopharmaceutical company involved in the development of an injectable collagenase for multiple indications. We have a development and license agreement with Auxilium for injectable collagenase (which Auxilium has named XIAFLEX® (collagenase clostridium histolyticum)) for clinical indications in Dupuytren's contracture, Peyronie's disease, frozen shoulder (adhesive capsulitis) and cellulite (edematous fibrosclerotic panniculopathy). Auxilium has an option to acquire additional indications that we may pursue, including human and canine lipoma. Auxilium is currently selling XIAFLEX in the U.S. for the treatment of Dupuytren's contracture. Auxilium has an agreement with Pfizer pursuant to which Pfizer has marketing rights for XIAPEX® (the EU trade name for collagenase clostridium histolyticum) for Dupuytren's contracture and Peyronie's disease in Europe and certain Eurasian countries until April 24, 2013. In addition, Auxilium has an agreement with Asahi pursuant to which Asahi has the right to commercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Japan. Auxilium also has an agreement with Actelion pursuant to which Actelion has the right to commercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Canada, Australia, Brazil and Mexico. Auxilium has been granted a Notice of Compliance (approval) by Health Canada for XIAFLEX for the treatment of Dupuytren's contracture in adults with a palpable cord in Canada.


Table of Contents

Operational Highlights

Peyronie's Disease. In December 2012, the FDA accepted for filing Auxilium's sBLA for XIAFLEX for the potential treatment of Peyronie's disease. As a result, we recognized a $1.0 million milestone payment from Auxilium. The filing was granted standard review status and, under PDUFA, the FDA is expected to take action on the application by September 6, 2013. Auxilium has reported that the FDA is not planning on holding an Advisory Committee meeting for the use of XIAFLEX in the treatment of Peyronie's disease, but cautions that it can offer no assurance that the FDA will not require an Advisory Committee meeting in the future. The sBLA was based on results from Auxilium's phase III clinical program that assessed XIAFLEX for the potential treatment of Peyronie's disease and is known as IMPRESS (The Investigation for Maximal Peyronie's Reduction Efficacy and Safety Studies). The Journal of Urology has electronically published on its website the uncorrected proof of Auxilium's IMPRESS clinical program.

Cellulite. Auxilium expanded the field of its license for injectable collagenase to include the potential treatment of adult patients with cellulite by exercising, in January 2013, its exclusive option under our development and license agreement. As a result of this exercise, we received a license fee payment of $500,000 from Auxilium. We paid a portion of this payment to the Research Foundation of the State University of New York at Stony Brook pursuant to the terms of our in-licensing agreement described below in the "In-Licensing and Royalty Agreements" section under the heading "Cellulite". Auxilium's exercise of this option follows its fourth quarter 2012 announcement of top-line 30-day data from the phase Ib study of XIAFLEX for the potential treatment of adult patients with cellulite, in which all doses of XIAFLEX were generally well-tolerated. These data support the progression into a phase II clinical trial in cellulite, which Auxilium plans to initiate in the second half of 2013.

Frozen Shoulder. Auxilium completed enrollment in its frozen shoulder phase IIa clinical trial in the third quarter of 2012. Auxilium expects top-line data from this XIAFLEX study in the first quarter of 2013. Auxilium anticipates initiating a phase II clinical trial of frozen shoulder in the second half of 2013.

Dupuytren's Contracture.

· Auxilium and Actelion announced in the beginning of the third quarter of 2012 that Auxilium was granted a Notice of Compliance (approval) by Health Canada for XIAFLEX for the treatment of Dupuytren's contracture in adults with a palpable cord in Canada. Under the terms of the collaboration agreement between Actelion and Auxilium, Actelion is to receive exclusive rights to commercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Canada, Australia, Brazil and Mexico upon receipt of the respective regulatory approvals. Pursuant to this agreement, Auxilium intends to transfer regulatory sponsorship of the dossier to Actelion, and Actelion will be primarily responsible for the applicable regulatory and commercialization activities for XIAFLEX in Canada and, upon approval, in the remainder of these countries. Actelion expects to make XIAFLEX available to patients in Canada in the first half of 2013.

· Also in the third quarter, Auxilium announced positive top-line data from its open-label phase IIIb trial evaluating XIAFLEX for the treatment of adult Dupuytren's contracture patients with multiple palpable cords. Auxilium enrolled 60 patients at eight sites throughout the U.S. and Australia. Following the announcement of these data, Auxilium began a larger study with XIAFLEX for the concurrent treatment of multiple palpable cords that, if successful, may allow Auxilium to seek FDA approval of the expansion of the Dupuytren's label. Auxilium expects top-line results in the first half of 2014. Based on research by SDI Health, LLC estimating that 35 to 40% of annual Dupuytren's surgeries in the U.S. are performed to treat two or more cords concurrently, Auxilium is conducting these studies to seek a multicord indication for XIAFLEX from the FDA. It is hoped that more surgeons will perform the XIAFLEX injection in these cases, rather than surgery, if the FDA approves the label expansion.

· Auxilium completed enrollment in its Dupuytren's contracture retreatment phase IV clinical trials in the third quarter of 2012 and expects top-line results from these trials in the fourth quarter of 2013.


Table of Contents

Lipoma. We initiated two clinical trials in the second quarter of 2012. One is a 14 patient, single center dose escalation phase II clinical trial of XIAFLEX for the treatment of human lipoma. The other is a placebo controlled randomized phase II trial, Chien-804, to evaluate the efficacy of XIAFLEX for canines with benign subcutaneous lipomas.

Outlook

Currently, we generate revenue from two primary sources: in connection with the DFB Agreement and in connection with the Auxilium Agreement. Under the DFB Agreement, our right to receive earn-out payments with respect to the marketed topical product sold to DFB expires in August 2013, but earn-out payments for second generation collagenase products, if any, continue indefinitely. Under the Auxilium Agreement, we receive sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale and approval of XIAFLEX/XIAPEX as described above.

In connection with the DFB Agreement, pursuant to which we sold our topical collagenase business to DFB, until March 2011 we received payments for certain technical assistance and certain transition services that we provided to DFB. Pursuant to the DFB Agreement, we currently receive earn out payments based on the sales of certain products, but our right to receive these payments expires at the end of August 2013. We expect to receive the final of these earn out payments by the end of 2013. The topical collagenase business of DFB was acquired by Smith & Nephew plc at the end of the fourth quarter of 2012. With our consent, DFB is expected to assign, and Smith & Nephew plc is expected to assume, the DFB Agreement.

As of December 31, 2012, we have received a total of $1.4 million in consulting fees; our right to receive these consulting fees expired in March 2011. In addition, we have recognized $2.9 million in earn out payments from DFB in connection with the net sales of topical collagenase in 2012.

Auxilium Agreement

Under the Auxilium Agreement, we granted to Auxilium exclusive worldwide rights to develop, market and sell certain products containing our injectable collagenase. Currently its licensed rights cover the indications of Dupuytren's contracture, Peyronie's disease, frozen shoulder and cellulite. Auxilium may further expand the Auxilium Agreement, at its exclusive option, to develop and license our injectable collagenase for use in additional indications. Pfizer has marketing rights for XIAPEX for Dupuytren's contracture and Peyronie's disease in Europe and certain Eurasian countries through April 24, 2013. Auxilium has announced that it is currently evaluating strategic options for the continuing commercialization of XIAPEX for the treatment of Dupuytren's contracture and for gaining approval for XIAPEX for the treatment of Peyronie's disease in the EU and other specified markets when rights to commercialize XIAPEX and responsibility for regulatory activities for XIAPEX in these countries revert to Auxilium. Auxilium has granted to Asahi the exclusive right to develop and commercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Japan. Auxilium has granted to Actelion the exclusive right to develop and commercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Canada, Australia, Brazil and Mexico.

Through December 31, 2012, Auxilium has paid us up-front licensing and sublicensing fees and milestone payments under the Auxilium Agreement of $24.3 million, including amounts in connection with Auxilium's agreements with Pfizer, Asahi and Actelion. In addition to the payments already received by us and to be received by us with respect to the Dupuytren's contracture indication, Auxilium will be obligated to make contingent milestone payments to us, with respect to each of the Peyronie's disease, frozen shoulder and cellulite indications, upon the acceptance of the regulatory filing (which has occurred in the U.S., in the case of Peyronie's disease) and upon receipt by Auxilium, its affiliate or sublicensee of regulatory approval. The remaining contingent milestone payments that may be received, in the aggregate, from Auxilium in respect of these contingent milestones are $5.0 million. Auxilium will also be obligated to make sublicense fee payments to us if it out-licenses to third parties the right to market and sell XIAFLEX for the treatment of frozen shoulder or cellulite. Additional milestone obligations will be due if Auxilium exercises its option to develop and license XIAFLEX for additional indications.


Table of Contents

We are entitled to 8.5% of all sublicense income that Auxilium receives from Pfizer under their collaboration agreement, which payments are dependent on the achievement by Pfizer of certain regulatory and sales related milestones. Under this collaboration agreement, Auxilium received a $30 million milestone payment from Pfizer following the first sale of XIAPEX in the United Kingdom, which was the first major market country in which Pfizer sold XIAPEX, and we received from Auxilium $2.5 million in connection with that first sale. In connection with the launch of XIAPEX in each of Germany and Spain, we received from Auxilium 8.5% of each of the $7.5 million milestone payments from Pfizer to Auxilium, or $637,500. As of January 25, 2013, we have received $11.5 million in sublicensing fees and milestones related to the Auxilium's collaboration agreement with Pfizer. Given the mutual termination by Auxilium and Pfizer of their collaboration agreement, we do not anticipate receiving any more sublicense income related to Pfizer. If Auxilium enters into an agreement with a third party related to the continuing commercialization of XIAPEX for the treatment of Dupuytren's contracture and for gaining approval for XIAPEX for the treatment of Peyronie's disease in the EU and other specified markets, we will be entitled to a specified percentage of sublicense agreement due under such agreement. In 2011, we received $750,000, or 5%, of the $15 million upfront payment Auxilium received from Asahi. In 2012, we received $570,000, or 5.7%, of the $10 million upfront payment Auxilium received from Actelion and $29,000 for approval in Canada of XIAFLEX for Dupuytren's contracture. To the extent Auxilium enters into an agreement or agreements related to other territories, the percentage of sublicense income that Auxilium would pay us will depend on the stage of development and approval of XIAFLEX for the particular indication at the time such other agreement or agreements are executed.

Auxilium must pay us on a country-by-country and product-by-product basis a low double digit royalty as a percentage of net sales for products covered by the Auxilium Agreement and sold in the United States, Europe and certain Eurasian countries and Japan. In the case of products covered by the Auxilium Agreement and sold in other countries (the "Rest of the World"), Auxilium must pay us on a country-by-country and product-by-product basis a specified percentage of the royalties it is entitled to receive from a partner or partners with whom it has contracted for such countries (a "Rest of the World Partner"), which in the case of Canada, Australia, Brazil and Mexico is Actelion. The royalty rate is independent of sales volume and clinical indication in the United States, Europe and certain Eurasian countries and Japan, but is subject to set-off in those countries and the Rest of the World for certain expenses we owe to Auxilium relating to certain development and patent costs. In addition, the royalty percentage may be reduced if (i) market share of a competing product exceeds a specified threshold; or (ii) 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, although Auxilium has confirmed to us that no license from a third party is required. In addition, if Auxilium out-licenses to a third party, then we will receive a specified percentage of certain payments made to Auxilium in consideration of such out-licenses.

These royalty obligations extend, on a country-by-country and product-by-product basis, for the longer of the patent life (including pending patents), the expiration of any regulatory exclusivity period based on orphan drug designation or foreign equivalent thereof or June 3, 2016. Auxilium may terminate the Auxilium Agreement upon 90 days prior written notice. If Auxilium terminates the Auxilium Agreement other than because of an uncured, material breach by us, all rights revert to us. Pursuant to our August 31, 2011 settlement agreement with Auxilium, we are now co-owners and are or will be co-inventors of U.S. Patent No. 7,811,560 and any continuations and divisionals thereof. Auxilium expects this patent will expire in July 2028.

On top of 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 in the United States, Europe and certain Eurasian countries or Japan. For products sold in the Rest of the World, Auxilium must pay to us a specified percentage of the mark-up of the cost of goods sold it is entitled to receive from a Rest of the World Partner, including Actelion, without regard to any set-offs that the Rest of the World Partner may have with respect to Auxilium.

Auxilium is generally responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for the clinical supply of products. Auxilium is generally responsible for all clinical development and regulatory costs for Peyronie's disease, Dupuytren's contracture, frozen shoulder, cellulite and all additional indications for which it exercises its options.


Table of Contents

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 Contracture

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 contracture.

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 contracture (each a "Dupuytren's Licensed Product").

Our obligation to pay royalties to the Research Foundation with respect to sales by us, our 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. The royalty rate is 0.5% of net sales. 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 Office of Orphan Products Development ("OOPD") with respect to the Dupuytren's Licensed Product; or (iii) June 3, 2016.

Unless terminated earlier in accordance with its termination provisions, the Dupuytren's License Agreement and the licenses granted under that agreement will continue in effect until the termination of our royalty obligations. After that, all licenses granted to us under the Dupuytren's License Agreement will become fully paid, irrevocable exclusive licenses.

A redacted copy of the Dupuytren's License Agreement was filed on Form 8-K with the SEC on November 28, 2006. The foregoing descriptions of the Dupuytren's License Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Dupuytren's License Agreement.

Peyronie's Disease

On August 27, 2008, we entered into an agreement with Dr. Martin K. Gelbard to improve the deal terms related to our future royalty obligations for Peyronie's disease by buying down our future royalty obligations with a one-time cash payment. A redacted copy of the agreement was filed on Form 8-K with the SEC on September 5, 2008. On March 31, 2012, we entered into an amendment to this agreement, which enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment and five additional cash payments payable upon the occurrence of a milestone event. A redacted copy of the amendment was filed on Form 8-K/A with the SEC on August 8, 2012. The foregoing descriptions of the agreement with Dr. Gelbard and the amendment to that agreement do not purport to be complete and are qualified in their entirety by reference to the full text of that agreement, as amended.

Frozen Shoulder

On November 21, 2006, we 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.


Table of Contents

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 under that agreement will continue in effect until the termination of our royalty obligations. After that, all licenses granted to us under the Frozen Shoulder License Agreement will become fully paid, irrevocable exclusive licenses.

A redacted copy of the Frozen Shoulder License Agreement was filed on Form 8-K with the SEC on November 28, 2006. The foregoing descriptions of the Frozen Shoulder License Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Frozen Shoulder License Agreement.

In connection with the execution of the Dupuytren's License Agreement and the Frozen Shoulder License Agreement, we made certain up-front payments to the Research Foundation and the clinical investigators working on the Dupuytren's contracture and frozen shoulder indications for the Enzyme.

Cellulite

We have two in-licensing and royalty agreements related to cellulite. One is a license agreement (the "Cellulite License Agreement") with the Research Foundation that we entered into on August 23, 2007. Pursuant to the Cellulite License Agreement, 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 manufacture, preparation, formulation, use or development of (i) the Enzyme and
(ii) all pharmaceutical products containing the Enzyme, which are made, used and sold for the prevention or treatment of cellulite. Additionally, the Research Foundation granted to us an exclusive license to the patent applications in respect of cellulite. The license granted to us under the Cellulite 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 Cellulite License Agreement, we agreed to pay to the Research Foundation certain royalties on net sales (if any) of pharmaceutical products containing the Enzyme, which are made, used and sold for the prevention or treatment of cellulite (each a "Cellulite 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 Cellulite License Agreement. We paid a portion of the $500,000 milestone payment we received from Auxilium in respect of its exercise of cellulite as an addition indication under the Auxilium Agreement, subject to certain credits for certain up-front payments we made to the Research Foundation.

Our obligation to pay royalties to the Research Foundation with respect to sales by us, our affiliates or any sublicensee of any Cellulite Licensed Product in any country (including the U.S.) arises only upon the first commercial sale of a Cellulite 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 Cellulite Licensed Product or (ii) June 3, 2016.

Unless terminated earlier in accordance with its termination provisions, the Cellulite License Agreement and licenses granted under that agreement will continue in effect until the termination of our royalty obligations. After that, all licenses granted to us under the Cellulite License Agreement will become fully paid, irrevocable exclusive licenses.


Table of Contents

The other in-licensing and royalty agreement we have related to cellulite is a license agreement with Dr. Zachary Gerut that we entered into on March 27, 2010 (the "Gerut License Agreement"). Pursuant to the Gerut License Agreement, Dr. Gerut granted to us and our affiliates an exclusive worldwide license, with the right to sublicense to certain third parties to know-how owned by Dr. Gerut related to the manufacture, preparation, formulation, use or development 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 of fat. As the in-license granted in the Gerut License Agreement pertains to the treatment of fat, this in-license also relates to human lipoma and canine lipoma.

In consideration of the license granted under the Gerut License Agreement, we agreed to pay to Dr. Gerut certain royalties on net sales (if any) of pharmaceutical products containing the Enzyme which are made, used and sold for the removal or treatment of fat in humans or animals (each a "Gerut Licensed Product"). In addition, in the event the FDA approves a Gerut Licensed Product, we have agreed to make a one-time stock option grant to Dr. Gerut with a strike price equal to the closing trading price on the day before the date of such grant.

Our obligation to pay royalties to Dr. Gerut with respect to sales by us, our affiliates or any sublicensee of any Gerut Licensed Product in any country (including the U.S.) arises only upon the first commercial sale of a Gerut Licensed Product. Our obligation to pay royalties to Dr. Gerut will continue . . .

  Add BSTC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BSTC - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.