BIOSPECIFICS TECHNOLOGIES CORP. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and is qualified by reference to them.
Overview
We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum ("CCH") for multiple indications. Collagenases are naturally occurring enzymes responsible for the breakdown of collagen, which is the main structural protein in the extracellular matrix in the various connective tissues of the body and is the most abundant protein in mammals. Local accumulations of excess collagen are associated with a number of medical conditions.
We maintain intellectual property with respect to injectable CCH that treats,
among other indications, Dupuytren's contracture ("DC"), Peyronie's disease
("PD"), cellulite, frozen shoulder syndrome, plantar fibromatosis, and uterine
fibroids. Injectable CCH currently is marketed in the
Endo filed a biologics license application for CCH for the treatment of
cellulite with the FDA. On
We have developed injectable CCH for 12 clinical indications to date. Under our license agreement with Endo, Endo has the right to further develop CCH for frozen shoulder and plantar fibromatosis, as well as certain other licensed indications. Endo has a right to opt-in for use of CCH in the treatment of uterine fibroids.
On
Third Quarter Highlights and Outlook
Overall revenues for the quarter increased over the prior quarter as a result
of a
? FDA approval of Qwo™ (collagenase clostridium histolyticum-aaes) as well as a
recovery over the previous quarter in sales of XIAFLEX®. Endo expects revenues
to continue to recover during the remainder of 2020 as physician and patient
activities continue returning toward pre-COVID-19 levels.
In
? only
cellulite was approved by the FDA. Endo's commercial launch is expected to
occur in spring 2021.
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Impact of COVID-19
The outbreak of COVID-19 has adversely impacted the
License Agreement with Endo
We generate revenue from one source, our license agreement with Endo (the "License Agreement"), under which we receive license, sublicense income, royalties, milestones, and mark-up on cost of goods sold payments related to the sale, regulatory submissions, and approval of XIAFLEX® as described above. Currently, Endo's licensed rights cover the indications of DC, PD, frozen shoulder, plantar fibromatosis, and other potential indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.
Under the License Agreement, Endo is 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. Endo has the option to license development and marketing rights to these indications based on a full analysis of the data from the clinical trials, which would transfer responsibility for the future development costs to Endo and trigger opt-in payments and potential future milestone and royalty payments to us.
Endo must pay us on a country-by-country and product-by-product basis a specified percentage, which typically is in the low double digits, of net sales for products covered by the License Agreement. This royalty applies to net sales by Endo or its sublicensees. Endo also is obligated to pay a percentage of any future regulatory or commercial milestone payments received from such sublicensees. In addition, Endo and its affiliates pay us an amount equal to a specified mark-up on certain cost of goods related to supply of XIAFLEX® (which mark-up is capped at a specified percentage of the cost of goods of XIAFLEX®) for products sold by Endo and its affiliates.
Endo previously collaborated with partners to commercialize XIAFLEX® and Xiapex®
outside of
Significant Risks
We are dependent on third parties, and our licensee, Endo, may not be able to continue successfully commercializing XIAFLEX® for DC and PD, successfully develop XIAFLEX® for additional indications, obtain required regulatory approvals, manufacture XIAFLEX® at an acceptable cost, in a timely manner and with appropriate quality, or successfully market products or maintain desired margins for products sold, and, as a result, we may not achieve sustained profitable operations.
The Company maintains bank account balances, which, at times, may exceed insured
limits. The Company has not experienced any losses with these accounts and
believes that it is not exposed to any significant credit risk on cash. The
Company maintains its investment in money market funds, certificates of deposit,
commercial paper,
The Company is subject to risks and uncertainties as a result of the global COVID-19 pandemic. While we expect that COVID-19 will impact our business to some degree, the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease, and other unforeseeable consequences.
For more information regarding the risks facing the Company, please see the risk
factors discussed under the heading "Risk Factors" under Part II, Item 1A.
herein, under Part II, Item 1A. of our Quarterly Report on Form 10-Q for the
quarters ended
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Critical Accounting Policies, Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity
with
As described in Note 2 to our accompanying Condensed Consolidated Financial
Statements, there have been no significant changes to our critical accounting
policies for the three and nine months ended
RESULTS OF OPERATIONS
THREE MONTHS ENDED
Revenues Royalties
Royalties consist of royalties and the mark-up on cost of goods sold under the
License Agreement. Total royalty and mark-up on cost of goods sold for the three
months ended
License Revenue
Under a development and license agreement with Endo, the Company received a
milestone payment of
Research and Development Activities and Expenses
R&D expenses include, but are not limited to, internal costs, such as salaries
and benefits, costs of materials, lab expenses, facility costs, and overhead.
R&D expenses also consist of third-party costs, such as medical professional
fees, product costs used in clinical trials, consulting fees, and costs
associated with clinical study arrangements. For the three months ended
The successful development of drugs is inherently difficult and uncertain. Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX®, to continue to commercialize these drug candidates.
There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:
? the nature, timing, and estimated costs of the efforts necessary to complete
the development of our drug candidate projects;
? the anticipated completion dates for such drug candidate projects;
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? the scope, rate of progress, and cost of such clinical trials that we may
commence in the future with respect to such drug candidate projects;
? the scope, rate of progress of preclinical studies, and other R&D activities
related to such drug candidate projects;
? clinical trial results for such drug candidate projects;
? the cost of filing, prosecuting, defending, and enforcing any patent claims and
other intellectual property rights relating to such drug candidate projects;
the terms and timing of any strategic alliance, licensing, and other
? arrangements that we have or may establish in the future relating to our drug
candidate projects;
? costs relating to future product opportunities;
? the cost and timing of regulatory approvals with respect to such drug candidate
projects; and
? the cost of establishing clinical supplies for our drug candidate projects.
We believe that our current resources and liquidity are sufficient to advance our current clinical and R&D projects.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs for personnel, third-party royalty fees, consultant costs, legal
fees, investor relations, professional fees, and overhead costs. General and
administrative expenses for the three months ended
Milestone Fee
Under a third-party licensing and royalty agreement, the Company incurred a
milestone fee of
Other Income
Other income for the three months ended
Provision for Income Taxes
Our deferred tax liabilities and deferred tax assets are impacted by events and
transactions arising in the ordinary course of business including stock-based
compensation, revenue and leases. For the three months ended
Net Income
For the three months ended
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NINE MONTHS ENDED
Revenues Royalties
Royalties consist of royalties and the mark-up on cost of goods sold under the
License Agreement. Total royalty and mark-up on cost of goods sold for the nine
months ended
to the effect of significant office closures and less office visits for
physician-administered products. Royalties also decreased due to Endo's
termination of third-party partnership agreements that provided for the sale of
XIAFLEX® and and Xiapex® in markets outside of
License Revenue
Under a development and license agreement with Endo, the Company received a
milestone payment of
Research and Development Activities and Expenses
R&D expenses include, but are not limited to, internal costs, such as salaries
and benefits, costs of materials, lab expenses, facility costs and overhead. R&D
expenses also consist of third-party costs, such as medical professional fees,
product costs used in clinical trials, consulting fees, and costs associated
with clinical study arrangements. For the nine months ended
The successful development of drugs is inherently difficult and uncertain. Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX® to continue to commercialize these drug candidates.
There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:
? the nature, timing and estimated costs of the efforts necessary to complete the
development of our drug candidate projects;
? the anticipated completion dates for our drug candidate projects;
the scope, rate of progress and cost of our clinical trials that we are
? currently running or may commence in the future with respect to our drug
candidate projects;
? the scope, rate of progress of our preclinical studies and other R&D activities
related to our drug candidate projects;
? clinical trial results for our drug candidate projects;
? the cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights relating to our drug candidate projects;
the terms and timing of any strategic alliance, licensing and other
? arrangements that we have or may establish in the future relating to our drug
candidate projects;
? the cost and timing of regulatory approvals with respect to our drug candidate
projects; and
? the cost of establishing clinical supplies for our drug candidate projects.
We believe that our current resources and liquidity are sufficient to advance our current clinical and R&D projects.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs for personnel, third-party royalty fees, consultant costs, legal
fees, investor relations, professional fees and overhead costs. General and
administrative expenses for the nine months ended
Milestone Fee
Under a third-party licensing and royalty agreement, the Company incurred a
milestone fee of
Restructuring Charges
On
Other Income
Other income for the nine months ended
Provision for Income Taxes
Our deferred tax liabilities and deferred tax assets are impacted by events and
transactions arising in the ordinary course of business including stock-based
compensation, revenue and leases. For the nine months ended
Net Income
For the nine months ended
Liquidity and Capital Resources
To date, we have financed our operations primarily through product sales, licensing revenues and royalties under agreements with third parties and sales of our common stock.
At
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On
On
Subject to the terms and conditions of the ATM Agreement, the Agents will use their commercially reasonable efforts to sell the ATM Shares from time to time, based upon the Company's instructions, by methods deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act. The Company has agreed to pay the Agents' commissions for their services in acting as the Company's agents in the sale of the ATM Shares in the amount of 3.0% of gross proceeds from the sale of the ATM Shares pursuant to the ATM Agreement. The Company also has agreed to provide the Agents with customary indemnification and contribution rights. The offering of the ATM Shares will terminate upon the earliest of (a) the sale of the maximum number or amount of the ATM Shares permitted to be sold under the ATM Agreement and (b) the termination of the ATM Agreement by the parties thereto.
During the third quarter, the Company did not make any sales under the ATM Agreement.
Net cash provided by operating activities for the nine months ended
Net cash used in investing activities for the nine months ended
Net cash used in financing activities for the nine months ended
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
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