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VII, Suite 3300
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www.Oppenheimer.com
Direct: (612)
607-7287
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607-7100
E-Mail: ACulbert@oppenheimer.com
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November
6, 2007
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VIA
FACSIMILE AND EDGAR
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Securities
and Exchange Commission
Division
of Corporation Finance
100
F Street, N.E.
Washington,
D.C. 20549
Attn: Mr.
Jim B. Rosenberg
Senior
Assistant Chief
Accountant
Mail
Stop 6010
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Re:
BioSante Pharmaceuticals, Inc.
Form
10-K for the fiscal year
ended December 31, 2006
Filed
March 27,
2007
File
No.
001-31812
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Dear
Ladies and Gentlemen:
On
behalf
of BioSante Pharmaceuticals, Inc., we are responding to the Staff’s
oral comments given to me by Vanessa Robertson on October 29, 2007,
regarding BioSante’s annual report on Form 10-K for the fiscal year ended
December 31, 2006 filed with the Securities and Exchange Commission on March
27,
2007. The following responses to your comments are numbered to
correspond to the oral comments received on October 29, 2007:
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Notes
to the Financial Statements, page
55
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2. Summary
of Significant Accounting Polices, page
55
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Revenue
Recognition, page 58
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1.
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Comment: We
have read your response to Comment No. 2. Please revise your
disclosure to include your policy for recognizing milestone
revenue. Also, please revise your disclosure in footnote 3 to
clarify many of the points in your response that you feel support
the
timing of recognition as well as clarifying any obligations at the
initial
signing and throughout the license
agreement.
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Response: BioSante
will revise its disclosure regarding its policy for recognizing milestone
revenue in its future filings, as requested. In addition, as
requested, BioSante will revise its disclosure regarding its sublicense
agreement with Bradley Pharmaceuticals, Inc. (“Bradley”) to clarify many of the
points BioSante believes support the timing of BioSante’s recognition of revenue
with respect to the receipt of milestone payments, as well as BioSante’s
obligations at the initial signing and throughout the license agreement.
BioSante supplementally advises the Staff that BioSante intends to include
the
following disclosures in the following notes to its financial statements to
be
included in BioSante’s next annual report on Form 10-K:
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
The
Company enters into various licensing agreements that generate license revenue
or other upfront fees and which may also involve subsequent milestone payments
earned upon completion of development milestones by the Company or upon the
occurrence of certain regulatory actions, such as the filing of a regulatory
application or the receipt of a regulatory approval. Non-refundable license
fees
are recognized as revenue when the Company has a contractual right to receive
such payment, the contract price is fixed or determinable, the collection of
the
resulting receivable is reasonably assured and the Company has no further
performance obligations under the license agreement. Non-refundable
license fees that meet these criteria and are due to the Company upon execution
of an agreement are recognized as revenue immediately.
Milestones,
in the form of additional license fees, typically represent non-refundable
payments to be received in conjunction with the achievement of a specific event
identified in the contract, such as completion of specified clinical development
activities and/or regulatory submissions and/or approvals. Revenues
from milestone payments that meet the criteria in the preceding paragraph are
recognized when the milestone is achieved.
Additionally,
royalty revenue based upon sales of products under license is recorded when
such
royalties are earned, which is generally in the quarter when the related
products are sold.
Deferred
revenue arises from payments received in advance of the culmination of the
earnings process. Deferred revenue expected to be recognized within the next
twelve months is classified as a current liability. Deferred revenue will be
recognized as revenue in future periods when the applicable revenue recognition
criteria have been met.
3. LICENSE
AGREEMENTS
In
November 2006, the Company entered into an exclusive sublicense agreement with
Bradley Pharmaceuticals, Inc. (“Bradley”) for the marketing of Elestrin, the
Company’s estradiol gel, in the United States. Upon execution of the
sublicense agreement, the Company received an upfront payment of $3.5
million. In addition, Bradley paid the Company $7 million and $3.5
million in the first and fourth quarters 2007, respectively, both triggered
by
the FDA approval of Elestrin in the U.S., which occurred in the fourth quarter
2006.
The
Company licenses the transdermal estradiol gel formulation that is used in
Elestrin from Antares Pharma IPL AG (“Antares”). Under its license
agreement with Antares, the Company is obligated to pay Antares 25% of all
licensing-related proceeds and a portion of any future associated
royalties.
The
aggregate $14.0 million received from Bradley (consisting of the following
amounts paid by Bradley to the Company: $3.5 million in the fourth quarter
2006,
$7.0 million in the first quarter 2007 and $3.5 million in the fourth quarter
2007) was recognized as revenue in 2006 since the entire $14.0 million was
non-refundable, the Company had a contractual right to receive such payments,
the contract price was fixed, the collection of the resulting receivable was
reasonably assured and the Company had no further performance obligations under
the license agreement.
Bradley
also has agreed to pay the Company additional payments of up to $40 million
in
the event certain sales-based milestones are achieved, plus royalties on sales
of Elestrin which totaled $________ for the year ended December 31,
2007. The Company is obligated to pay 25% of any sales-based
milestone payments and a specified portion of royalties to Antares, which the
Company will recognize as these payments are triggered, based on reported levels
of future Elestrin sales. Bradley began its commercial launch of
Elestrin in mid-June 2007.
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License
Agreements, page 60
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2.
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Comment: We
have read your response to Comment No. 3. Please confirm
whether it is reasonably possible that a product will be developed
using
the patents owned by the University of California and therefore that
the
Company would have to make milestone payments. If it is
reasonably possible, please confirm that you will include the amount
of
the potential milestone payments in the table of contractual obligations
and your notes to the financial statements in future filings as we
believe
that information would be useful for
investors.
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Response: As
described in BioSante’s previous response to the Staff’s written Comment No. 3,
pursuant to a negotiated amendment entered into by the Company with the
University of California in August 2006, BioSante’s amended license agreement
with the University of California no longer requires BioSante to pay any
milestone payments to the University. The amendment also removed the
requirement to have available minimum amounts of funds each year for research
and development activities relating to the licensed technology as well as
eliminating the previous requirement for BioSante to achieve specific research
and development milestones within a specified time period. In
addition, BioSante is no longer obligated to pay the University of California
future specified minimum annual royalties. The $100,000 negotiated consideration
for the elimination of these future obligations was paid prior to December
31,
2006, and as such, was not included in the contractual obligation table at
December 31, 2006.
While
the
minimum annual royalties were eliminated, under the amended
agreement, BioSante continues to be required to pay the University royalties
on
the sales of any products that may be eventually developed using the patents
licensed from the University. BioSante will include any associated
future royalty payments in its contractual obligations table at the time such
royalty liabilities are recognized. No products have been developed under this
agreement to date. BioSante notes that this amendment was previously
filed with the SEC in connection with BioSante’s filing of its quarterly report
on Form 10-Q for the quarter ended September 30, 2006 and that certain portions
therein were subsequently granted confidential treatment by the
Staff.
BioSante
acknowledges that in its initial response to the Staff’s written Comment No. 3,
BioSante inadvertently stated that “…BioSante is still obligated under the
amended licensing agreement to pay milestones and
royalties to the University of California,” (emphasis added) and
that a similar reference to “milestone payments” also inadvertently remained in
BioSante’s disclosure of the University of California license agreement in note
3 to the financial statements included in BioSante’s annual report on Form 10-K
for the year ended December 31, 2006. BioSante intends to revise that
disclosure in note 3 to its financial statements to be included in
BioSante’s annual report on Form 10-K for the year ending December
31, 2007 to state as follows (language stricken will be deleted):
3. LICENSE
AGREEMENTS
In
June
1997, the Company entered into a licensing agreement with the Regents of the
University of California, which has subsequently been amended, pursuant to
which
the University has granted the Company an exclusive license to seven United
States patents owned by the University, including rights to sublicense such
patents. The University of California has filed patent applications
for this licensed technology in several foreign jurisdictions, including Canada,
Europe and Japan. The Company is obligated to pay milestones
and royalties to the University if and when a product is
developed using these patents.
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3.
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Comment: In
your revised contractual obligations table included in response to
Comment
No. 3, the amount you include as an obligation to Antares is $875,000;
however, on page 69 to the 2006 Form 10-K, you disclose that $875,000
was
paid to Antares in 2006 and that a liability of $2,625,000 was
recorded. Please advise or revise your contractual obligations
table. Furthermore, please clarify whether there are any other
potential milestone payments to be paid to Antares that are reasonably
possible. If so, please revise your table of contractual
obligations to include the total amount of potential milestone payments
to
Antares. Also revise your disclosure to include the events that
would trigger these payments and confirm that you will include the
same
information in the notes to the financial
statements.
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Response:
Under
the
terms of the BioSante’s license with Antares, and as a result of the sublicense
entered into between BioSante and Bradley, BioSante was obligated to pay to
Antares $875,000 prior to December 31, 2006, $1.750 million during the first
quarter 2007, and an additional $875,000 during the fourth quarter 2007. The
first two amounts have been paid to Antares by BioSante in accordance with
contractual terms. The contractual obligations table included in
BioSante’s response to the Staff’s written Comment No. 3 in its letter to you
dated October 10, 2007 portrays BioSante’s contractual obligations as of
September 30, 2007. Therefore, BioSante included only the
remaining $875,000 milestone payment still owed to Antares as of that
date.
Please
note that in addition to the $875,000 contractual obligation to Antares
remaining as of September 30, 2007, BioSante will revise the table to also
include $6,328 of recognized liabilities as of that date for royalties payable
to Antares based on third quarter 2007 sales of Elestrin by
Bradley. These amounts were inadvertently not included in the
contractual obligations table as of September 30, 2007 contained in BioSante’s
original response to the Staff’s oral Comment No. 3. As such, the
proposed contractual obligations table that BioSante intends to provide in
its
Form 10-Q for the quarter ended September 30, 2007 is as follows:
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Payments
Due by Period
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Total
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Less
than 1 Year
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1-3
Years
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4-5
Years
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After 5
Years
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Operating
Leases
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$ |
110,386
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$ |
110,386
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Obligation
for Settlement Agreement
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137,647
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137,647
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Obligation
under License Agreement with Antares
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881,328
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881,328
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Commitments
Under License Agreement with Wake Forest
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710,000
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30,000
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160,000
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160,000
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360,000
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Total
Contractual Cash Obligations
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$ |
1,839,361
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$ |
1,159,361
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$ |
160,000
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$ |
160,000
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$ |
360,000
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With
respect to the second part of the Staff’s oral Comment No. 3, as noted in
BioSante’s response to the Staff’s oral Comment No. 1, BioSante may become
obligated to pay to Antares additional sales-based milestone
payments. BioSante will include these payments in its contractual
obligation table at the time BioSante becomes obligated to make such
payments.
*
* * *
*
In
connection with this response, BioSante Pharmaceuticals, Inc. acknowledges
that:
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1.
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BioSante
is responsible for the adequacy and accuracy of the disclosure in
the
filing;
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2.
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Staff
comments or changes to disclosure in response to Staff comments do
not
foreclose the Commission from taking any action with respect to the
filing; and
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3.
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BioSante
may not assert Staff comments as a defense in any proceeding initiated
by
the Commission or any person under the federal securities laws of
the
United States.
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After
you
have had an opportunity to review the above responses to your oral comments,
please call me at (612) 607-7287 to discuss any further questions or comments
you might have concerning BioSante’s responses.
Very
truly yours,
/s/Amy E. Culbert
Amy
E.
Culbert
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cc:
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Jim
B. Rosenberg, Division of Corporation Finance, Securities and Exchange
Commission
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Vanessa Robertson, Division of Corporation Finance, Securities and Exchange
Commission
Stephen M. Simes, BioSante Pharmaceuticals, Inc.
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Phillip
B. Donenberg, BioSante Pharmaceuticals,
Inc.
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Benjamin
G. Resch, Deloitte & Touche LLP
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