BioSante Pharmaceuticals, Inc. — Q1 2013 Form 10-Q
Entity clarification: The supplied filing is BioSante Pharmaceuticals, Inc.’s Form 10-Q for the quarter ended March 31, 2013. ANI Pharmaceuticals was the proposed merger partner; the merger had not closed as of the filing.
Business context and reporting period
BioSante was a specialty pharmaceutical company focused on women’s health, contraception and male hypogonadism. Its portfolio included LibiGel and The Pill-Plus in development, and licensed products Elestrin and a male testosterone gel. The unaudited results cover the three months ended March 31, 2013, compared with Q1 2012.
Financial performance and liquidity
- Revenue: $145,040, all royalty revenue related to Elestrin, up 27.2% from $114,000. The corresponding Antares royalty obligation equaled the revenue, so this did not represent meaningful net product economics.
- Expenses and loss: Research and development was $972,049, down 81.2% from $5.18 million, principally following the conclusion of the LibiGel safety study. General and administrative expense was $1.95 million, up 6.4%, mainly due to professional and merger-related costs. Net loss was $2.29 million, or $0.09 per share, versus a $10.26 million loss, or $0.53 per share, in Q1 2012. The year-over-year improvement chiefly reflected lower R&D spending and prior-year note fair-value effects; the company continued to report operating losses.
- Cash flow: Operating cash use was $4.15 million versus $7.69 million in Q1 2012. Investing cash use was $1.26 million, including $2.26 million transferred to restricted cash for a rabbi trust, partly offset by $1.0 million from the GVAX asset sale. Cash and cash equivalents declined $5.41 million during the quarter to $29.39 million.
- Balance sheet and liquidity: Total assets were $35.36 million, total liabilities $9.33 million, and stockholders’ equity $26.03 million at March 31. Current assets were $31.93 million and current liabilities $9.33 million. The company reported $3.41 million of investments, including a $3.2 million historical-book-value investment in Ceregene that might be impaired.
- Debt: The company had $8.28 million principal amount of 3.125% convertible notes due May 1, 2013. After quarter-end, on April 30, BioSante repaid the notes in full, plus $129,341 accrued interest. It reported no credit facilities.
Material changes, outlook and significant matters
- Proposed ANI merger: After BioSante failed to obtain the required vote for the earlier merger proposal, BioSante and ANI signed a replacement agreement on April 12, 2013. If completed, ANI shareholders would own 57% and existing BioSante shareholders 43% of the combined company. Completion remained conditional on shareholder approvals, tax opinions and other customary conditions; closing was anticipated for the end of Q2 2013. ANI holders representing about 90% of ANI capital stock had signed voting agreements. The transaction would substantially dilute existing BioSante holders’ voting power.
- Liquidity outlook: Management expected March 31 cash to fund operations through the anticipated merger closing. If the merger did not occur, management said cash could support at least three to five years of operations only under assumptions that BioSante did not pursue another transaction and did not restart LibiGel efficacy trials. New LibiGel efficacy trials would require additional financing. Management warned that funding might not be available on acceptable terms and that failure to secure funding or a transaction could force cost reductions, other strategic alternatives, or a wind-down.
- Development and commercial outlook: The earlier LibiGel Phase III efficacy trials did not meet primary or secondary endpoints. The safety study was concluded in September 2012 after a favorable Data Monitoring Committee review; management believed sufficient safety exposure had been obtained. New efficacy trials were being considered, but were unlikely if the ANI merger closed. Teva’s FDA-approved male testosterone gel had no announced launch date.
- Asset sale and contingent value rights: BioSante sold its GVAX cancer-vaccine assets to Aduro for $1.0 million plus potential royalties and milestone payments, with a stated maximum of $162 million for royalties and milestones. The merger agreement contemplated non-transferable LibiGel CVRs for existing BioSante common shareholders, potentially sharing specified future proceeds for up to ten years, subject to a $50 million aggregate cap. Issuance and final terms were not assured.
- Other risks and unusual items: Two purported class-action/shareholder derivative litigation matters were pending; BioSante said outcomes and potential losses could not be estimated and had accrued no liability. Management was evaluating possible impairment of the Ceregene investment after disappointing Phase 2 results announced April 19. The filing also disclosed planned workforce reductions, executive severance arrangements and conditional 2012 bonuses. Merger-related termination fees could reach $1.0 million payable by BioSante, with up to $500,000 of ANI expenses reimbursable in specified circumstances.
Most important facts for investors to verify
- Whether the ANI merger closed, its final ownership, consideration, costs and any changes to the CVR terms.
- Cash and restricted-cash balances after repayment of the notes and payment of merger, severance and other costs.
- Whether the Ceregene investment was impaired and the amount of any resulting charge.
- Any subsequent decisions, funding needs or regulatory plans for LibiGel, given the prior efficacy-trial failures.
- Developments in the pending litigation and any resulting liability or effect on strategic options.
- Whether Teva launched the male testosterone gel and whether it generated royalties or milestone payments.