Business context and reporting period
This is BioSante Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2012—not an ANI Pharmaceuticals standalone filing. BioSante reported the period before its proposed merger with ANI, agreed to on October 3, 2012. Its business centered on pharmaceutical licensing and research and development; it had not itself launched a commercial product. Share and per-share data reflect the June 2012 one-for-six reverse stock split.
Financial performance and position
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $110,383 | $182,784 | $333,163 | $320,787 |
| Research and development expense | $3.87 million | $11.50 million | $14.45 million | $37.48 million |
| General and administrative expense | $1.55 million | $1.68 million | $5.33 million | $5.26 million |
| Net loss | $6.12 million | $12.73 million | $23.73 million | $44.96 million |
| Basic and diluted loss per share | $0.27 | $0.73 | $1.14 | $2.86 |
| Operating cash used | — | $22.12 million | $36.94 million |
Revenue was almost entirely Elestrin royalties, offset by corresponding royalties payable to Antares; Q3 2011 also included a $100,000 licensing fee. The filing does not provide a meaningful operating-margin measure; revenue was very small relative to expenses. The lower losses principally reflect sharply reduced clinical-trial spending. A noncash convertible-note fair-value adjustment affected earnings, including $4.04 million of expense for the nine-month period.
At September 30, cash and cash equivalents were $38.05 million, down from $57.23 million at year-end 2011; investments were $3.41 million. Total assets were $43.21 million, total liabilities $10.92 million, and stockholders’ equity $32.29 million. The company had $8.28 million principal amount of 3.125% convertible notes due May 1, 2013; their fair-value carrying amount was $7.59 million. The company had no credit facility. Nine-month investing cash use was $0.54 million and financing cash provided was $3.48 million.
Material changes, outlook and risks
- BioSante exchanged $12.50 million principal amount of notes and accrued interest for 3.65 million common shares during 2012. Its August stock-and-warrant offering raised $3.27 million net. Weighted-average shares outstanding increased 32% year over year for the nine-month period.
- Earlier Phase III LibiGel efficacy trials failed to meet co-primary or secondary endpoints. BioSante ended the Phase III safety study in September after the monitoring committee recommended continuation without changes; management stated it believed the accumulated safety exposure was adequate. It was developing protocols for two new efficacy trials and seeking an FDA Special Protocol Assessment.
- Management expected approximately $1.1 million per month of R&D spending for the remainder of 2012, assuming no additional in-licensed development programs. It estimated September cash could fund operations through the anticipated merger closing and satisfy the merger’s $17 million net-cash condition. If the merger did not proceed and the new LibiGel trials were not started, management estimated cash could last 3–5 years; starting those trials would require additional financing. These estimates are conditional and may prove inaccurate.
- The proposed merger was expected to close in Q1 2013, subject to shareholder, regulatory, listing, tax and other conditions. ANI shareholders were expected to own about 53% of the combined company and BioSante shareholders about 47%, subject to net-cash adjustments; ANI’s minimum ownership would be 50.1%. The agreement includes potential termination fees and expense reimbursement. BioSante also retained discretion to issue CVRs tied to potential LibiGel transaction proceeds, but issuance was not assured; any aggregate payment would be capped at $40 million.
- After quarter-end, Teva paid BioSante $1 million under an amended license agreement and agreed to conditional milestone payments, potential $4 million payment and royalties of 5% of net sales (7.5% during a specified sole-marketer period). These contingent amounts are not guaranteed revenue.
- BioSante planned a workforce reduction and expected approximately $300,000 of severance costs in late 2012, expected to be offset by reversal of previously recognized stock-based compensation. Pending class-action and shareholder derivative suits concern disclosures and conduct related to LibiGel; outcomes and possible losses were not predictable. The company said they could materially affect operations.
- Other risks include ongoing losses, reliance on external financing and licensees, the 2013 note maturity, merger failure or dilution, Nasdaq listing requirements, regulatory and clinical uncertainty, and potential litigation costs. Disclosure controls were assessed as effective, with no material change in internal control reported for the quarter.
Most important facts for investors to verify
- Whether the ANI merger closed, its final exchange ratios and net-cash calculation, and whether the $17 million closing condition was met.
- Actual cash burn, remaining obligations and the ability to address the May 2013 note maturity without the merger or additional financing.
- Any decision to restart LibiGel efficacy trials, FDA feedback or SPA status, and the commercial or licensing prospects for LibiGel.
- Whether Teva achieved the specified regulatory and launch milestones and the timing and amount of any additional payments or royalties.
- Whether CVRs were issued and their final terms; any payments remain contingent on qualifying LibiGel proceeds.
- Developments in the class and derivative litigation, including any potential financial exposure.