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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

x      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

o         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                             .

Commission File Number: 001-31812

BIOSANTE PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

111 Barclay Boulevard

Lincolnshire, Illinois  60069

(Address of principal executive offices) (Zip Code)

(847) 478-0500

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

As of July 31, 2012, 21,921,596 shares of common stock and 65,211 shares of class C special stock of the registrant were outstanding.

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BIOSANTE PHARMACEUTICALS, INC.

FORM 10-Q

JUNE 30, 2012

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As used in this report, references to “BioSante,” the “company,” “we,” “our” or “us,” unless the context otherwise requires, refer to BioSante Pharmaceuticals, Inc.

We own or have the rights to use various trademarks, trade names or service marks, including BioSante®, LibiGel®, GVAX™,  The Pill-Plus™ and Elestrin™.  This report also contains trademarks, trade names and service marks that are owned by other persons or entities.

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All share and per share amounts have been adjusted to reflect the one-for-six reverse split of BioSante’s outstanding common stock and class C special stock effective June 1, 2012.

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BIOSANTE PHARMACEUTICALS, INC.

Condensed Balance Sheets

June 30, 2012 and December 31, 2011 (Unaudited)

See accompanying notes to the condensed financial statements.

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BIOSANTE PHARMACEUTICALS, INC.

Condensed Statements of Operations

Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)

See accompanying notes to the condensed financial statements.

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BIOSANTE PHARMACEUTICALS, INC.

Condensed Statements of Cash Flows

Six Months Ended June 30, 2012 and 2011 (Unaudited)

See accompanying notes to the condensed financial statements.

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BIOSANTE PHARMACEUTICALS, INC.
FORM 10-Q
JUNE 30, 2012

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1.                                    DESCRIPTION OF BUSINESS

BioSante Pharmaceuticals, Inc. (the Company) is a specialty pharmaceutical company focused on developing products for female sexual health and oncology.  The Company’s products, either approved or in human clinical development, include: (1) LibiGel, once daily transdermal testosterone gel in Phase III clinical development for the treatment of female sexual dysfunction (FSD), specifically hypoactive sexual desire disorder (HSDD); (2) a once daily transdermal testosterone gel approved by the U.S. Food and Drug Administration (FDA) indicated for the treatment of hypogonadism, or testosterone deficiency in men, and licensed to Teva Pharmaceuticals USA, Inc. (Teva); (3) GVAX cancer vaccines, a portfolio of cancer vaccines, four of which have been granted FDA orphan drug designation, and which are currently in 17 Phase I and Phase II clinical trials for the treatment of various cancers; (4) The Pill-Plus (triple component contraceptive), once daily use of various combinations of estrogens, progestogens and androgens in Phase II development; and (5) Elestrin, once daily transdermal estradiol (estrogen) gel approved by the FDA indicated for the treatment of moderate-to-severe vasomotor symptoms (hot flashes) associated with menopause and marketed in the U.S. by Jazz Pharmaceuticals, Inc. (Jazz Pharmaceuticals), our licensee.

2.                                    BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed financial statements contain all necessary adjustments, which are of a normal recurring nature, to present fairly the financial position of the Company as of June 30, 2012 and December 31, 2011, the results of operations for the three and six months ended June 30, 2012 and 2011, and the cash flows for the six months ended June 30, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of America (GAAP).  Operating results for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.  The Company does not have items of other comprehensive income for either of the three or six month periods ended June 30, 2012 or 2011; and therefore, has not presented comprehensive income.

These unaudited interim condensed financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

On June 1, 2012, the Company effected a one-for-six reverse split of its outstanding common stock and class C special stock.  These unaudited interim condensed financial statements give retroactive effect to the reverse stock split.

3.                                    LIQUIDITY AND CAPITAL RESOURCES

Substantially all of the Company’s revenue to date has been derived from upfront, milestone and royalty payments earned on licensing transactions and from subcontracts.  The Company’s business operations to date have consisted mostly of licensing and research and development activities and the Company expects this to continue for the immediate future.  The Company itself has not introduced commercially any products.  If and when the Company’s products for which it has not entered into marketing relationships receive FDA approval, the Company may begin to incur other expenses,

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including sales and marketing related expenses if it chooses to market the products itself.  To date, the Company has used primarily equity financings, and to a lesser extent, licensing income, interest income and the cash received from its 2009 merger with Cell Genesys, Inc. (Cell Genesys), to fund its ongoing business operations and short-term liquidity needs.

As of June 30, 2012, the Company had $42,417,045 of cash and cash equivalents.  As of June 30, 2012, the Company had outstanding $11,782,000 in aggregate principal amount of its 3.125% convertible senior notes due May 1, 2013.  In July 2012, the Company issued an aggregate of 1,784,070 shares of its common stock to two of the holders of the Company’s 3.125% convertible senior notes due May 1, 2013 in exchange for the cancellation of $3,504,150 in aggregate principal amount of such notes and accrued and unpaid interest of $20,686.  As a result of such exchange, as of July 31, 2012, the Company had outstanding $8,277,850 in aggregate principal amount of its 3.125% convertible senior notes due May 1, 2013.

Absent the receipt of any additional licensing income or financing, the Company expects its cash and cash equivalents balance to decrease as the Company continues to use cash to fund its operations, including in particular the LibiGel Phase III safety study, and beginning in mid-2013, the two new LibiGel Phase III efficacy trials, assuming the Company continues to fund its LibiGel Phase III clinical development program.  Based on these assumptions, and after considering the July 2012 exchange of $3,504,150 of the Company’s convertible senior notes into common stock, the Company expects its cash and cash equivalents as of June 30, 2012 to meet the Company’s liquidity requirements until approximately the third quarter of 2013.  These estimates may prove incorrect or the Company, nonetheless, may choose to raise additional financing earlier.

The Company does not have any existing credit facilities under which the Company could borrow funds.  In the event that the Company would require additional working capital to fund future operations, the Company could seek to acquire such funds through additional equity or debt financing arrangements. If the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience dilution. Debt financing, if available, may involve covenants restricting the Company’s operations or the Company’s ability to incur additional debt. There is no assurance that any financing transaction will be available on terms acceptable to the Company, or at all. As an alternative to raising additional financing, the Company may choose to license one or more of its products or technologies to a third party who may finance a portion or all of the continued development and, if approved, commercialization of that licensed product, sell certain assets or rights under the Company’s existing license agreements or enter into other business collaborations or combinations, including a possible sale or merger of the Company.  In addition, from time to time, the Company may purchase, exchange or restructure its outstanding convertible senior notes through cash purchases and/or exchanges for other equity securities of the Company, in open market purchases, privately negotiated transactions and/or a tender offer.  Such purchases, exchanges or restructurings, if any, will depend on prevailing market conditions, the Company’s available cash and cash equivalents, the Company’s liquidity requirements, contractual restrictions and other factors.  Such purchases, exchanges or restructurings could dilute the percentage ownership of the Company’s stockholders, result in the issuance of securities at a discount to market price or that may have rights, preferences or privileges senior to those of the Company’s existing stockholders and/or decrease the Company’s cash balance.  A significant decrease in the Company’s cash balance, together with an inability to raise additional financing when needed, may impair the Company’s ability to execute strategic alternatives or leave the Company without sufficient cash remaining for operations.

The Company can provide no assurance that additional financing, if needed, will be available on terms favorable to the Company, or at all.  This is particularly true if investors are not confident in our LibiGel Phase III clinical development program, the future value of the Company and/or economic and

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market conditions deteriorate.  If adequate funds are not available or are not available on acceptable terms when the Company needs them, the Company may need to reduce its operating costs or the Company may be forced to complete other strategic alternatives, such as selling or merging the Company or winding down its operations and liquidating the Company.  In such case, the Company’s stockholders could lose some or all of their investment.

4.                                      BASIC AND DILUTED NET LOSS PER SHARE

The basic and diluted net loss per share is computed based on the weighted average number of shares of common stock and class C special stock outstanding, all being considered as equivalent of one another.  Basic net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding for the reporting period.  Diluted net loss per share is intended to reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  Because the Company has incurred net losses from operations in each of the periods presented, the Company’s outstanding options, warrants and convertible debt are antidilutive; accordingly, such securities are excluded from the computation of diluted net loss per share and there is no difference between basic and diluted net loss per share amounts.

5.                                      CONVERTIBLE SENIOR NOTES

The Company has outstanding 3.125% convertible senior notes due May 1, 2013 (the 2013 Notes).  The aggregate principal amount of the 2013 Notes outstanding at July 31, 2012, June 30, 2012 and December 31, 2011 was $8,277,850, $11,782,000 and $20,782,000, respectively.  In February 2012, the Company issued 1,868,055 shares of its common stock to one of the holders of the 2013 Notes in exchange for the cancellation of $9,000,000 in aggregate principal amount of such notes and the related accrued and unpaid interest on such notes.  A non-cash fair value adjustment of $(2,545,530) was recorded during the first quarter of 2012 as a result of the cancellation of such notes. The fair value adjustment recorded upon the cancellation of the notes is primarily attributable to the time value effect of settling these obligations at a date prior to the stated maturity of the notes.  In July 2012, the Company issued an aggregate of 1,784,070 shares of its common stock to two of the holders of the 2013 Notes in exchange for the cancellation of $3,504,150 in aggregate principal amount of such notes and accrued and unpaid interest of $20,686.  It is anticipated that an additional non-cash fair value adjustment of $(611,621) will be recorded during the third quarter of 2012 as a result of the July 2012 cancellation of such notes.

The remaining $8,277,850 aggregate principal amount of the 2013 Notes are exchangeable at the option of the holder or upon certain specified events into an aggregate of approximately 370,871 shares of the Company’s common stock at a conversion price of $22.32 per share.  The 2013 Notes are general, unsecured obligations of the Company and are described in Note 7 to the Company’s financial statements for the year ended December 31, 2011.  As of June 30, 2012, the 2013 Notes were not eligible for redemption. The indenture governing the 2013 Notes, as supplemented by the supplemental indenture, does not contain any financial covenants and does not restrict the Company from paying dividends, incurring additional debt or issuing or repurchasing the Company’s other securities.  In addition, the indenture, as supplemented by the supplemental indenture, does not protect the holders of the 2013 Notes in the event of a highly leveraged transaction or a fundamental change of the Company except in certain circumstances specified in the indenture.

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As described in Note 3, “Liquidity and Capital Resources,” from time to time, the Company may purchase, exchange or restructure its outstanding 2013 Notes through cash purchases and/or exchanges for other equity securities of the Company, in open market purchases, privately negotiated transactions and/or a tender offer.

The Company has elected to record the 2013 Notes at fair value in order to simplify the accounting for the convertible debt, inclusive of the redemption, repurchase and conversion adjustment features which otherwise would require specialized valuation, bifurcation and recognition.  Accordingly, the Company has adjusted the carrying value of the 2013 Notes to their fair value as of June 30, 2012, with changes in the fair value of the 2013 Notes occurring since December 31, 2011, reflected in fair value adjustment in the unaudited condensed statements of operations.  As described in Note 9, “Fair Value Measurements,” the fair value of the 2013 Notes is based on Level 2 inputs.  The recorded fair value of the 2013 Notes of an aggregate of $10,477,635 as of June 30, 2012 differs from their total stated aggregate principal amount of $11,782,000 as of such date by $1,304,365.  The recorded fair value of the 2013 Notes of an aggregate of $17,336,760 as of December 31, 2011 differed from their total stated aggregate principal amount of $20,782,000 as of such date by $3,445,240.  During the three and six months ended June 30, 2012, the Company recorded a fair value adjustment of $15,953 and $(3,194,385) related to the 2013 Notes that remained outstanding as of June 30, 2012, that for the three months ended June 30, 2012 decreased the recorded liability and corresponding expense and for the six months ended June 30, 2012 increased the recorded liability and corresponding expense.  For the three and six months ended June 30, 2011, the Company recorded a fair value adjustment of $(1,753,000) and $(2,392,000) that increased the recorded liability and corresponding expense.

For the six months ended June 30, 2012 and 2011, approximately $(22,000) and $415,000, respectively, of the fair value adjustment was attributable to the change in instrument specific credit risk.  The change in the aggregate fair value of the 2013 Notes due to instrument specific credit risk for the six months ended June 30, 2012 was estimated by calculating the difference between the June 30, 2012 fair value of the 2013 Notes as recorded and what the fair value of the 2013 Notes would have been on June 30, 2012 if the December 31, 2011 discount rate continued to be used in the calculation.  The instrument specific credit risk for both periods has increased the fair value of the 2013 Notes as market borrowing rates have decreased for similarly rated companies and are estimated to have decreased for the Company as well, indicating a lower credit spread assuming no significant changes in the risk-free borrowing rate.

The Company establishes the value of the 2013 Notes based upon contractual terms of the 2013 Notes, as well as certain key assumptions.

The assumptions as of June 30, 2012 were:

The assumptions as of December 31, 2011 were:

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The discount rate is based on observed yields as of the measurement date for debt securities of entities having a Ca and Caa3 rating for long-term corporate obligations as assigned by Moody’s Investors Service.  Volatility is based on the historical fluctuations in the Company’s stock price for a period of time equal to the remaining time until the debt maturity.  The risk-free rate is based on observed yields as of the measurement date of six month and one-year U.S. Treasury Bonds.

6.                                      STOCK-BASED COMPENSATION

At the annual meeting of the Company’s stockholders held on May 30, 2012, the Company’s stockholders approved a third amended and restated BioSante Pharmaceuticals, Inc. 2008 Stock Incentive Plan (the 2008 Plan), which, among other things, increased the number of shares of the Company’s common stock authorized for issuance under the plan from 1.0 million to approximately 1.8 million plus the number of shares subject to stock options outstanding under the BioSante Pharmaceuticals, Inc. Amended and Restated 1998 Stock Plan as of May 30, 2012 but only to the extent that such outstanding awards are forfeited, expire or otherwise terminate without the issuance of such shares.  As of June 30, 2012, approximately 945,391shares of the Company’s common stock remain available for issuance under the 2008 Plan.

During the six months ended June 30, 2012, the Company granted options under the 2008 Plan to purchase an aggregate of 354,782 shares of the Company’s common stock to certain employees of the Company and the Company’s non-employee directors with a weighted average exercise price of $4.10 per share.  Options to purchase an aggregate of 86,994 shares of the Company’s common stock expired and were cancelled during the six months ended June 30, 2012.  Options are granted at an exercise price equal to the closing price of the Company’s common stock on the date of the grant.  No options were exercised during the six months ended June 30, 2012.

During the six months ended June 30, 2012, no warrants were granted or exercised and warrants to purchase an aggregate of 65,872 shares of the Company’s common stock at an exercise price of $235.62 per share expired on April 11, 2012.

7.                                      STOCKHOLDERS’ EQUITY

During the six months ended June 30, 2012, the Company issued an aggregate of 1,868,055 shares of its common stock to one of the holders of the 2013 Notes in exchange for the cancellation of $9,000,000 in aggregate principal amount of such notes, including accrued and unpaid interest.  In July 2012, the Company issued 1,784,070 shares of its common stock to two of the holders of the 2013 Notes in exchange for the cancellation of $3,504,150 in aggregate principal amount of such notes and accrued and unpaid interest of $20,686.  See Note 5, “Convertible Senior Notes” for information regarding the 2013 Notes.

On May 30, 2012, the Company’s stockholders approved an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse split of the Company’s outstanding shares of common stock and class C special stock in the discretion of the Company’s Board of Directors at an exchange ratio of not less than 1-for-2 and not more than 1-for-10.  On June 1, 2012, the Board of Directors of the Company effected a 1-for-6 reverse split of the Company’s outstanding shares of common stock and class C special stock.  The reverse stock split did not change the number of authorized shares of the Company’s common stock or class C special stock or the par value of the Company’s

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common stock or class C special stock, but because the number of authorized shares of the Company’s common stock and class C special stock was not affected, the effect of the reverse stock split was to increase the number of authorized but unissued shares of the Company’s common stock and class C special stock.  The primary purpose of the reverse stock split was to increase the Company’s ability to maintain the listing of its common stock on The NASDAQ Global Market.

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8.                                      COMMITMENTS AND CONTINGENCIES

Aptar Pharma — Gel Packaging Machine

The Company has a commitment with Aptar Pharma to purchase a gel packaging machine for $847,532. As of June 30, 2012, the Company had paid $337,096 resulting in a remaining obligation of $510,436 as of such date.

Pending Litigation

On February 3, 2012, a purported class action lawsuit was filed in the United States District Court for the Northern District of Illinois under the caption Thomas Lauria, on behalf of himself and all others similarly situated v. BioSante Pharmaceuticals, Inc. and Stephen M. Simes naming the Company and the Company’s President and Chief Executive Officer, Stephen M. Simes, as defendants.  The complaint alleges that certain of the Company’s disclosures relating to the efficacy of LibiGel and its commercial potential were false and/or misleading and that such false and/or misleading statements had the effect of artificially inflating the price of the Company’s securities resulting in violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (Exchange Act), Rule 10b-5 and Section 20(a) of the Exchange Act.  Although a substantially similar complaint was filed in the same court on February 21, 2012, such complaint was voluntarily dismissed by the plaintiff in April 2012. The plaintiff seeks to represent a class of persons who purchased the Company’s securities between February 12, 2010 and December 15, 2011, and seeks unspecified compensatory damages, equitable and/or injunctive relief, and reasonable costs, expert fees and attorneys’ fees on behalf of such purchasers.  The Company believes the action is without merit and intends to defend the action vigorously.

On May 7, 2012, Jerome W. Weinstein, a purported stockholder of the Company filed a shareholder derivative action in the United States District Court for the Northern District of Illinois under the caption Weinstein v. BioSante Pharmaceuticals, Inc. et al., naming the Company’s directors as defendants and the Company as a nominal defendant.  A substantially similar complaint was filed in the same court on May 22, 2012 and another substantially similar complaint was filed in the Circuit Court for Cook County, Illinois, County Department, Chancery Division, on June 27, 2012. The suits are generally related to the same events that are the subject of the class action litigation described above.  The complaints allege breaches of fiduciary duty, abuse of control, gross mismanagement and unjust enrichment as causes of action occurring from at least February 2010 through December 2011.  The complaints seek unspecified damages, punitive damages, costs and disbursements and unspecified reform and improvements in the Company’s corporate governance and internal control procedures. Additional lawsuits may be filed by other purported stockholders of the Company.

The lawsuits are in their early stages; and, therefore, the Company is unable to predict the outcome of the lawsuits and the possible loss or range of loss, if any, associated with their resolution or any potential effect the lawsuits may have on the Company’s operations.  Depending on the outcome or resolution of these lawsuits, they could have a material effect on the Company’s operations, including its financial condition, results of operations, or cash flows.

The Company is not involved in any other legal actions, however, from time to time may be subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business.  Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time.

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9.                                      FAIR VALUE MEASUREMENTS

The Company accounts for its convertible debt and U.S. Treasury money market fund at fair value.  Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy has been established that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1:  Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.  The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2:  Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3:  Unobservable inputs are used when little or no market data is available.  The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk.

Financial assets and liabilities recorded at fair value on a recurring basis as of June 30, 2012 and December 31, 2011 are classified in the tables below in one of the three categories described above:

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The Company made an election to record the values of the 2013 Notes at fair value with gains and losses related to fluctuations in the value of these financial liabilities recorded in earning immediately.  The fair values of the 2013 Notes are estimated based on the risk-free borrowing rate, the volatility of the Company’s stock, and the current borrowing rates for similar companies.  See Note 6, “Convertible Senior Notes” for more information and disclosures regarding key assumptions used in this fair value determination.

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ITEM 2.                                                    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations.  Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading “Forward-Looking Statements” below.  The following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report.

Business Overview

We are a specialty pharmaceutical company focused on developing products for female sexual health and oncology.

Our products, either approved or in human clinical development, include:

·                  LibiGel — once daily transdermal testosterone gel in Phase III clinical development for the treatment of female sexual dysfunction (FSD), specifically hypoactive sexual desire disorder (HSDD).

·                  Male testosterone gel — once daily transdermal testosterone gel approved by the U.S. Food and Drug Administration (FDA) indicated for the treatment of hypogonadism, or testosterone deficiency in men, and licensed to Teva Pharmaceuticals USA, Inc. (Teva).

·                  GVAX cancer vaccines — a portfolio of cancer vaccines, four of which have been granted FDA orphan drug designation, currently in 17 Phase I and Phase II clinical trials for the treatment of various cancers.

·                  The Pill-Plus (triple component contraceptive) — once daily use of various combinations of estrogens, progestogens and androgens in Phase II development.

·                  Elestrin — once daily transdermal estradiol (estrogen) gel approved by the FDA indicated for the treatment of hot flashes associated with menopause and marketed in the U.S. by Jazz Pharmaceuticals, Inc. (Jazz Pharmaceuticals), our licensee.

Our corporate strategy is to develop high value medically-needed pharmaceutical products.  As a part of our corporate strategy, we continue to seek and to implement strategic alternatives with respect to our products and our company, including licenses, business collaborations and other business combinations or transactions with other pharmaceutical and biotechnology companies.  Therefore, as a matter of course, from time to time, we may engage in discussions with third parties regarding the licensure, sale or acquisition of our products and technologies or a merger or sale of our company, with the goal of maximizing stockholder value.

Our lead product in development is LibiGel for the treatment of FSD, specifically HSDD, in postmenopausal women, for which there is no FDA-approved pharmaceutical product.  For the past several years, we have focused our efforts on two Phase III LibiGel efficacy trials and our ongoing LibiGel Phase III cardiovascular and breast cancer safety study.  In December 2011, we announced results from our two Phase III LibiGel efficacy trials, which showed that the trials did not meet the co-primary or secondary endpoints.  Although LibiGel performed as predicted, increasing satisfying sexual events and sexual desire and decreasing distress associated with low desire, the placebo response in the

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two efficacy trials was greater than expected, and LibiGel’s results were not shown to be statistically different from use of the placebo.

Beginning in December 2011, we analyzed the data from our Phase III LibiGel efficacy trials, consulted with key opinion leaders (KOLs) in female sexual dysfunction, testosterone therapy and placebo effects, and met with representatives of the FDA.  As a result of this process, in June 2012 we announced a plan to initiate two new LibiGel Phase III efficacy trials.  We subsequently began the process of developing a protocol for the two new efficacy trials and applying for an FDA Special Protocol Assessment (SPA) agreement covering aspects of the two new efficacy trials.  We also announced in June 2012 the continuation of the LibiGel Phase III cardiovascular and breast cancer safety study per the protocol.

We expect that any potential new LibiGel Phase III efficacy trials would include the same FDA-required efficacy endpoints as our prior Phase III efficacy trials: an increase in the number of satisfying sexual events and sexual desire, and decreased distress associated with low desire.  We estimate that the cost of the two new LibiGel Phase III efficacy trials would be similar to the cost of the previous trials, approximately $15-$18 million each, or a combined $30-$36 million spread over 18 months.  No assurance can be provided that these cost estimates will be correct or that we will be able to obtain the necessary working capital to fund the trials.  In addition, no assurance can be provided that we will be able to design the two new efficacy trials to the FDA’s satisfaction or to minimize sufficiently the placebo effect and meet the co-primary and secondary endpoints for the trials.  If we are not successful in this regard, our business may be harmed and we likely would disappoint our stockholders and may experience a decline in our stock price.

With respect to our LibiGel Phase III safety study, in February 2012, we announced that based upon the eighth unblinded review of safety data from the safety study by the study’s independent data monitoring committee (DMC), the DMC unanimously recommended continuing the safety study as described in the FDA-agreed study protocol, with no modifications.  At the time of such announcement, 3,656 subjects were enrolled in the safety study resulting in over 5,800 subject-years of exposure.  We anticipate that the DMC will perform another unblinded review of safety data from the safety study during the third quarter of 2012.  Currently, we anticipate that top-line safety data of the safety study on an unblinded basis will be available during the fourth quarter of 2012.

Our male testosterone gel is our second FDA approved product.  This product initially was developed by BioSante, and then licensed by us to Teva for late stage clinical development.  Teva submitted a new drug application (NDA) to the FDA in the beginning of 2011, which was approved by the FDA in February 2012.  Subsequent to Teva submitting the NDA, in April 2011, a subsidiary of Abbott Laboratories, a marketer of a testosterone gel for men, filed a complaint against Teva alleging patent infringement.  This litigation was settled in December 2011; however, the terms of the settlement agreement are confidential and have not been publicly disclosed.  No launch date for this product has been announced by Teva.

Our GVAX cancer vaccines, which are designed to stimulate a patient’s immune system to fight effectively the patient’s own cancer, are in development for the treatment of several different types of cancer including melanoma, leukemia, pancreatic, breast and prostate cancer.  Four of these vaccines — to treat pancreatic cancer, acute myeloid leukemia, chronic myeloid leukemia and melanoma — have been granted FDA orphan drug designation. Currently, there are 17 Phase I and Phase II clinical studies involving our GVAX cancer vaccines ongoing, primarily being conducted at Johns Hopkins Sidney Kimmel Comprehensive Cancer Center in Baltimore, Maryland.  The studies are being funded by various sources, including certain foundations and our licensees. Our objective with respect to our GVAX cancer vaccines is to help facilitate further studies and commercialization in order to bring important cancer

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therapies to patients in need and to maximize the value of our GVAX cancer vaccine portfolio to our stockholders.  This objective includes monetizing the entire portfolio or seeking additional licensees to fund, develop and eventually commercialize the cancer vaccines.

Elestrin was our first FDA approved product and now is one of our two FDA approved products.  Jazz Pharmaceuticals, Inc. (which acquired Azur Pharma International II Limited (Azur), our prior licensee), is marketing Elestrin in the U.S.  In December 2009, we entered into an amendment to our original licensing agreement with Azur pursuant to which we received $3.16 million in non-refundable payments in exchange for the elimination of all remaining future royalty payments and certain milestone payments that could have been paid to us related to sales of Elestrin.  We maintain the right to receive up to $140 million in sales-based milestone payments from Jazz Pharmaceuticals if Elestrin reaches certain predefined sales per calendar year; although, based on current sales levels, we believe our receipt of such payments unlikely in the near term, if at all.

We license the technology underlying certain of our gel products, including LibiGel and Elestrin, but not our male testosterone gel, from Antares Pharma, Inc.  Our license agreement with Antares requires us to pay Antares certain development and regulatory milestone payments and royalties based on net sales of any products we or our licensees sell incorporating the licensed technology.  Specifically, we are obligated to pay Antares 25 percent of all upfront and milestone payments related to a license and a 4.5 percent royalty on net sales of product by us or a licensee.  Our male testosterone gel was developed and is fully-owned by us and licensed to Teva.  We license the technology underlying The Pill Plus from Wake Forest University Health Sciences and Cedars-Sinai Medical Center.  The financial terms of this license include regulatory milestone payments, maintenance payments and royalty payments by us if a product incorporating the licensed technology gets approved and subsequently is marketed.

Financial Overview

Substantially all of our revenue to date has been derived from upfront, milestone and royalty payments earned on licensing and sublicensing transactions and from subcontracts.  Our business operations to date have consisted primarily of licensing and research and development activities and we expect this to continue for the immediate future.  If and when our products for which we have not entered into marketing relationships receive FDA approval, we may begin to incur other expenses, including sales and marketing related expenses if we choose to market the products ourselves.  To date, we have used primarily equity financings, and to a lesser extent, licensing income, interest income and the cash received from our 2009 merger with Cell Genesys, Inc., to fund our ongoing business operations and short-term liquidity needs.

As of June 30, 2012, we had $42.4 million of cash and cash equivalents and had outstanding $11,782,000 in aggregate principal amount of our 3.125% convertible senior notes due May 1, 2013.  In July 2012, we issued an aggregate of 1,784,070 shares of our common stock to two of the holders of our 3.125% convertible senior notes due May 1, 2013 in exchange for the cancellation of $3,504,150 in aggregate principal amount of such notes and accrued and unpaid interest of $20,686.  As a result of such exchange, we had $8,277,850 in aggregate principal amount of our 3.125% convertible senior notes due May 1, 2013 outstanding as of July 31, 2012.  Absent the receipt of any additional licensing income or financing, we expect our cash and cash equivalents balance to decrease as we continue to use cash to fund our operations, including in particular the LibiGel Phase III safety study, and beginning in mid-2013, the two new LibiGel Phase III efficacy trials, assuming we continue to fund our LibiGel Phase III clinical development program.  Based on these assumptions, we expect our cash and cash equivalents as of June 30, 2012 to meet our liquidity requirements until approximately the third quarter of 2013.  These estimates may prove incorrect or we, nonetheless, may choose to raise additional financing earlier.

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We incurred expenses of $10.6 million on research and development activities during the six months ended June 30, 2012, which is a 59 percent decrease compared to the same period in 2011, primarily as a result of the conclusion of our prior two LibiGel Phase III efficacy trials at the end of 2011.  We anticipate that our research and development expenses for the remainder of 2012 will consist primarily of expenses associated with the continuation of the safety study, the primary analysis of the safety study and the planning for the two new LibiGel Phase III efficacy trials.  We currently expect to spend approximately $1.7 million per month on research and development activities during the remainder of 2012, assuming we continue the LibiGel Phase III safety study, and do not in-license additional products and technologies requiring additional development.

Our general and administrative expenses for the six months ended June 30, 2012 increased six percent compared to the same period in 2011 due primarily to an increase in personnel-related costs, professional fees and other administrative expenses.  Our general and administrative expenses may fluctuate from year-to-year and quarter-to-quarter depending upon the amount of non-cash, stock-based compensation expense and the amount of legal, public and investor relations, accounting, corporate governance and other general and administrative fees and expenses incurred.

We recognized a net loss for the three and six months ended June 30, 2012 of $7.3 million and $17.6 million, respectively, compared to a net loss of $15.0 million and $32.2 million for the three and six months ended June 30, 2011, respectively.  These decreases were primarily a result of the conclusion of our prior two LibiGel Phase III efficacy trials at the end of 2011 and were offset in part by an increase in the non-cash fair value adjustment relating to the cancellation of $9.0 million in aggregate principal amount of our convertible senior notes and an increase in general and administrative expenses.  We recognized a net loss per share for the three and six months ended June 30, 2012 of $0.36 and $0.89, respectively, compared to a net loss per share of $0.96 and $2.16 for the three and six months ended June 30, 2011, respectively.  These decreases in net loss per share were the result of the significantly higher weighted average number of shares outstanding, partially offset by the lower net loss described above.  We expect to continue to incur substantial and continuing losses for the foreseeable future.

Results of Operations

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

The following table sets forth our results of operations for the three months ended June 30, 2012 and 2011.

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The only revenue recognized during the three months ended June 30, 2012 and 2011 consisted of royalty revenue from Jazz Pharmaceuticals for Elestrin sales, which royalty revenue is offset by our corresponding obligation to pay Antares royalties representing the same amount.  Our corresponding obligation to pay Antares a portion of the royalties received, which equaled $108,780 during the three months ended June 30, 2012 and $81,003 during the three months ended June 30, 2011, is recorded within general and administrative expenses in our condensed statements of operations.

Research and development expenses for the three months ended June 30, 2012 decreased 51 percent compared to the three months ended June 30, 2011 primarily as a result of the completion of our prior two LibiGel Phase III efficacy trials at the end of 2011.

General and administrative expenses for the three months ended June 30, 2012 decreased two percent compared to the three months ended June 30, 2011 primarily as a result of a decrease in personnel-related costs, professional fees and other administrative expenses.

The convertible note fair value adjustment to decrease the recorded liability and corresponding expense was $15,953 for the three months ended June 30, 2012 compared to a fair value adjustment to increase the recorded liability and corresponding expense of $1.8 million for the three months ended June 30, 2011.

Interest expense was $92,047 and $172,000 for the three months ended June 30, 2012 and 2011, respectively, as a result of our convertible senior notes.  Interest expense decreased during the most recent current year period as a result of the repayment of our 3.125% convertible senior notes due November 1, 2011 during the fourth quarter of 2011 and the cancellation of $9.0 million in aggregate principal amount of our 3.125% convertible senior notes due May 1, 2013, including accrued and unpaid interest, during the first quarter of 2012 in exchange for the issuance of 1,868,055 shares of our common stock.

Interest income decreased $280 for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 as a result of lower average interest rates during the current year period.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

The following table sets forth our results of operations for the six months ended June 30, 2012 and 2011.

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The only revenue recognized during the six months ended June 30, 2012 and 2011 consisted of royalty revenue from Jazz Pharmaceuticals for Elestrin sales, which royalty revenue is offset by our corresponding obligation to pay Antares royalties representing the same amount.  Our corresponding obligation to pay Antares a portion of the royalties received, which equaled $222,780 during the six months ended June 30, 2012 and $138,003 during the six months ended June 30, 2011, is recorded within general and administrative expenses in our condensed statements of operations.

Research and development expenses for the six months ended June 30, 2012 decreased 59 percent compared to the six months ended June 30, 2011 primarily as a result of the completion of our prior two LibiGel Phase III efficacy trials at the end of 2011.

General and administrative expenses for the six months ended June 30, 2012 increased six percent compared to the six months ended June 30, 2011 primarily as a result of an increase in personnel-related costs, professional fees and other administrative expenses.

The fair value adjustment on our convertible senior notes for the six months ended June 30, 2012 was $3.2 million compared to $2.4 million for the six months ended June 30, 2011. The increase in the liability for the six months ended June 30, 2012 was primarily as a result of a $(2,545,530) non-cash fair value adjustment recorded upon cancellation of $9.0 million in aggregate principal amount of our convertible senior notes in February 2012.  The convertible note fair value adjustment for the six months ended June 30, 2012 also included an adjustment of $648,855 to increase the recorded liability and corresponding expense of the then remaining $11.8 million in aggregate principal amount of our convertible senior notes due to an increase in the discount rate in the current year period in comparison to the prior year period. The convertible fair value adjustment for the six months ended June 30, 2011 increased the recorded liability and corresponding expense by $2,392,000 and included the 2011 and 2013 Notes.

Interest expense was $216,243 and $344,000 for the six months ended June 30, 2012 and 2011, respectively, as a result of our convertible senior notes.  Interest expense decreased during the most recent current year period as a result of the repayment of our 3.125% convertible senior notes due November 1, 2011 during the fourth quarter of 2011 and the cancellation of $9.0 million in aggregate principal amount of our 3.125% convertible senior notes due May 1, 2013, including accrued and unpaid interest, during the first quarter of 2012 in exchange for the issuance of 1,868,055 shares of our common stock.

Interest income decreased $1,533 for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 as a result of lower average interest rates during the current year period.

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Liquidity and Capital Resources

The following table highlights several items from our condensed balance sheets:

Liquidity

Since our inception, we have incurred significant operating losses resulting in an accumulated deficit of $234.8 million as of June 30, 2012.  To date, we have used primarily equity financings, and to a lesser extent, licensing income, interest income and the cash received from our 2009 merger with Cell Genesys, to fund our ongoing business operations and short-term liquidity needs.

As of June 30, 2012, we had $42.4 million of cash and cash equivalents and $11,782,000 in aggregate principal amount of our 3.125% convertible senior notes due May 1, 2013 (2013 Notes) outstanding.  In July 2012, we issued an aggregate of 1,784,070 shares of our common stock to two of the holders of the 2013 Notes in exchange for the cancellation of $3,504,150 in aggregate principal amount of such notes and accrued and unpaid interest of $20,686.  As a result of such exchange, $8,277,850 in aggregate principal amount of the 2013 Notes were outstanding as of July 31, 2012.  Absent the receipt of any additional licensing income or financing, we expect our cash and cash equivalents balance to decrease as we continue to use cash to fund our operations, including in particular the LibiGel Phase III safety study, and beginning in mid- 2013, the two new LibiGel Phase III efficacy trials, assuming we continue to fund our LibiGel Phase III safety study.  Based on these assumptions, and after considering the July 2012 exchange of $3.5 million of the 2013 Notes into our common stock, we expect our cash and cash equivalents as of June 30, 2012 to meet our liquidity requirements until approximately the third quarter of 2013.  These estimates may prove incorrect or we, nonetheless, may choose to raise additional financing earlier.

Our future capital requirements will depend upon numerous factors, including:

·                  the progress, timing, cost and results of our clinical development programs, including in particular the LibiGel Phase III safety study, and beginning in mid-2013, the two new LibiGel Phase III efficacy trials, and if we in-license additional new products that require further development;

·                  the cost, timing and outcome of regulatory actions with respect to our products;

·                  the success, progress, timing and costs of our business development efforts to implement business collaborations, licenses and other business combinations or transactions, and our efforts to evaluate various strategic alternatives available with respect to our products and our company.

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·                  our ability to obtain value from our current products and technologies and our ability to out-license our products and technologies to third parties for development and commercialization and the terms of such out-licenses;

·                  our ability to acquire or in-license additional new products and technologies and the costs and expenses of such acquisitions or licenses;

·                  the timing and amount of any royalties, milestone or other payments we may receive from or be obligated to pay to current and potential licensors, licensees and other third parties;

·                  the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights;

·                  the emergence of competing products and technologies, and other adverse market developments;

·                  the perceived, potential and actual commercial success of our products;

·                  the outstanding principal amount of our 3.125% convertible senior notes due May 1, 2013 (convertible senior notes) that are scheduled to mature and become due and payable on May 1, 2013 and our ability to avoid a “fundamental change” or an “event of default” under the indenture governing such notes, which may cause such notes to become due and payable prior to their maturity date on May 1, 2013;

·                  our operating expenses; and

·                  the resolution of our pending purported class action and shareholder derivative litigation and any amount we may be required to pay in excess of our directors’ and officers’ liability insurance.

We do not have any existing credit facilities under which we could borrow funds.  In the event that we would require additional working capital to fund future operations, we could seek to acquire such funds through additional equity or debt financing arrangements. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. There is no assurance that any financing transaction will be available on terms acceptable to us, or at all. As an alternative to raising additional financing, we may choose to license one or more of our products or technologies to a third party who may finance a portion or all of the continued development and, if approved, commercialization of that licensed product, sell certain assets or rights under our existing license agreements or enter into other business collaborations or combinations, including a possible merger or sale of our company.  In addition, from time to time, we may purchase, exchange or restructure our outstanding convertible senior notes through cash purchases and/or exchanges for other equity securities of our company, in open market purchases, privately negotiated transactions and/or a tender offer.  In February 2012, we issued an aggregate of 1,868,055 shares of our common stock to one of the holders of our 2013 Notes in exchange for the cancellation of $9,000,000 in aggregate principal amount of such notes, including accrued and unpaid interest, and in July 2012, we issued an aggregate of 1,784,070 shares of our common stock to two of the holders of our 2013 Notes in exchange for the cancellation of $3,504,150 in aggregate principal amount of such notes and accrued and unpaid interest of $20,686.  Such additional purchases, exchanges or restructurings, if any, will depend on prevailing market conditions, the trading price and volume of our common stock, the willingness of the note holders to sell, exchange or restructure their notes, our available cash and cash equivalents, our liquidity requirements, regulatory limitations, contractual

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restrictions and other factors.  Such future purchases, exchanges or restructurings could dilute the percentage ownership of our stockholders, result in the issuance of securities at a discount to market price or that may have rights, preferences or privileges senior to those of our existing stockholders and/or decrease our cash balance.  A significant decrease in our cash balance, together with an inability to raise additional financing when needed, may impair our ability to execute strategic alternatives or leave us without sufficient cash remaining for operations.

We are subject to pending purported class action and shareholder derivative litigation, which litigation is described in more detail in Note 8, “Commitments and Contingencies” to our unaudited condensed financial statements included in this report.  Such litigation could divert management’s attention, harm our business and/or reputation and result in significant liabilities, as well as harm our ability to raise additional financing and execute certain strategic alternatives.

We can provide no assurance that additional financing, if needed, will be available on terms favorable to us, or at all.  This is particularly true if investors are not confident in our LibiGel clinical development program, the future value of our company and/or economic and market conditions deteriorate.  If adequate funds are not available or are not available on acceptable terms when we need them, we may need to reduce our operating costs further or we may be forced to explore other strategic alternatives, such as selling or merging our company or winding down our operations and liquidating our company.  In such case, our stockholders could lose some or all of their investment.

Uses of Cash and Cash Flow

Net cash used in operating activities was $14.7 million for the six months ended June 30, 2012 compared to net cash used in operating activities of $24.4 million for the six months ended June 30, 2011.  Net cash used in operating activities for the six months ended June 30, 2012 was primarily the result of the net loss for that period which was lower compared to the prior year period due to lower clinical trial related expenses primarily as a result of the completion of our prior two LibiGel Phase III efficacy trials at the end of 2011.  Net cash used in operating activities for the six months ended June 30, 2011 was primarily the result of the net loss for that period which was higher compared to the prior year period due to higher clinical trial related expenses, partially offset by a decrease in prepaid expenses and other assets and an increase in accounts payable and accrued liabilities.

Net cash used in investing activities was $71,261 for the six months ended June 30, 2012 compared to net cash used in investing activities of $542,919 for the six months ended June 30, 2011.  Net cash used in investing activities for each of the six months ended June 30, 2012 and 2011 was due primarily to the purchase of fixed assets.

Net cash used in financing activities was $658 for the six months ended June 30, 2012 compared to net cash provided by financing activities of $23.9 million for the six months ended June 30, 2011.  Net cash provided by financing activities for the six months ended June 30, 2011 was the result of our March 2011 registered direct offering, which resulted in net proceeds of $23.9 million, after deduction of placement agent fees and offering expenses.

Commitments and Contractual Obligations

We did not have any material commitments for capital expenditures as of June 30, 2012.  The Company has a significant purchase obligation relating to a gel packaging machine of $510,436.  We also have several financial commitments, including our 2013 Notes, product development milestone payments to the licensors of certain of our products, payments under our license agreements with Johns Hopkins University and Wake Forest University Health Sciences, as well as minimum annual lease payments.  We

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refer you to the description of our contractual obligations and commitments as of December 31, 2011 as set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  There were no material changes to such information since that date through June 30, 2012, except for the $12,504,150 reduction in the aggregate principal amount outstanding under the 2013 Notes as a result of the share exchanges in February 2012 and July 2012, as previously described.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or reasonably are likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.  As a result, we are not exposed materially to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Critical Accounting Policies

The discussion and analysis of our unaudited condensed financial statements and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these condensed financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  The Securities and Exchange Commission has defined a company’s most critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which requires the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Based on this definition, we have identified certain of our accounting policies as critical accounting policies.  Our critical accounting policies are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  There have been no changes to the critical accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Recently Issued Accounting Pronouncements

We do not expect the adoption of any recent accounting pronouncements to have a material effect on our financial position, results of operations or cash flows.

Forward-Looking Statements

This quarterly report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections.  In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in news releases or reports, on our Internet web site or otherwise.  All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business.  We have identified some of these forward-looking statements with words like “believe,” “may,” “could,” “would,” “might,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate,” “contemplate” or “continue,” the negative of these words, other words and terms of similar meaning and the use of future dates.  These forward-looking statements may be contained in the

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notes to our condensed financial statements and elsewhere in this report, including under the heading “Part I. Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Our forward-looking statements generally relate to:

·                  the status and conduct of our LibiGel Phase III clinical development program and the timing of certain events related thereto;

·                  our future operating expenses, anticipated burn rate and whether and how long our existing cash and cash equivalents will be sufficient to fund our operations;

·                  our efforts to explore and evaluate various strategic alternatives with respect to our products and our company and the possible effect such strategic alternatives may have on our business, including in particular our LibiGel Phase III clinical development program;

·                  the market size and market acceptance of our approved products and products in development;

·                  the effect of new accounting pronouncements and future health care, tax and other legislation;

·                  our need, ability and expected timing of any actions to raise additional capital through future equity and other financings; and

·                  our substantial and continuing losses.

Forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors that affect all businesses operating in a global market as well as matters specific to us.  These uncertainties and factors are difficult to predict and many of them are beyond our control.  The following are some of the uncertainties and factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition or operating results:

·                  the future and success of our LibiGel Phase III clinical development program;

·                  our ability to generate significant revenues and obtain profitability;

·                  our ability to obtain additional capital when needed or on acceptable terms and the effect of any future equity or debt financings or debt restructurings on our stockholders;

·                  our substantial indebtedness and our ability to repay such debt when it becomes due and payable and the effect of such debt on our ability to operate our business;

·                  the resolution of our pending purported class action and shareholder derivative litigation and the effect of such resolution on our business, operating results and financial condition;

·                  our ability to maintain the listing of our common stock on The NASDAQ Global Market;

·                  the significant costs that we may incur in terminating our LibiGel Phase III clinical development program if we decide to do so;

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·                  our ability to implement strategic alternatives with respect to our products and our company, including licenses, business collaborations, and other business combinations or transactions with other pharmaceutical and biotechnology companies;

·                  our ability to acquire or invest in new businesses, products and technologies by way of a license, acquisition or merger transaction and the effect of such a transaction on our stockholders, business, operating results and financial condition;

·                  our success in developing new products and technologies, obtaining any required regulatory approvals for such products and technologies and obtaining market acceptance and commercial success with respect to such new products and technologies;

·                  results of our clinical studies and the actions of the independent DMC or certain regulatory bodies, including the FDA;

·                  our ability to submit and receive an FDA SPA agreement and other applications for and obtain and maintain required regulatory approvals on a timely basis or at all;

·                  the timing of when, if ever, our products will be approved and introduced commercially;

·                  the size of the market and the level of market acceptance of our products if and when they are commercialized;

·                  our dependence upon the maintenance of our license with Antares Pharma IPL AG and, to a lesser extent, other licensors;

·                  our dependence upon our licensees for the development, marketing and sale of certain of our products, including in particular Teva Pharmaceuticals USA Inc. with respect to our male testosterone gel and the uncertainty involved in when or if Teva will launch commercially our male testosterone gel and the commercial success of such product and the amount of revenues we may receive, if any, from such product;

·                  our dependence upon certain third parties who assist us in certain aspects of our clinical studies and certain manufacturers who produce our products;

·                  our ability to achieve projected goals and objectives within the time periods that we anticipate or announce publicly;

·                  uncertainties associated with the impact of published studies regarding the adverse health effects of certain forms of hormone therapy;

·                  our ability to protect our proprietary technology and to operate our business without infringing the proprietary rights of third parties;

·                  our ability to compete in a competitive industry;

·                  our dependence upon key employees;

·                  the risk of product liability lawsuits against us or our licensees;

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·                  our ability to maintain effective internal control over financial reporting;

·                  changes in applicable laws or regulations and our failure to comply with applicable laws and regulations;

·                  changes in generally accepted accounting principles and the effect of new accounting pronouncements; or

·                  conditions and changes in the biopharmaceutical industry or in general economic or business conditions.

For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition or operating results, see the risk factors described later in this report under the heading “Part II — Item 1A.  Risk Factors.”

All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements.  We wish to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated.  Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the uncertainties and factors described above and later in this report under the heading “Part II — Item 1A.  Risk Factors” as well as others that we may consider immaterial or do not anticipate at this time.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown uncertainties and factors, including those described above and later in this report under the heading “Part II — Item 1A.  Risk Factors.”  The risks and uncertainties described above and later in this report are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time.  We assume no obligation to update, amend or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.  We advise you, however, to consult any further disclosures we make on related subjects in our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K we file with or furnish to the Securities and Exchange Commission.

ITEM 3.                             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate sensitivity on our cash equivalents in money market funds and our outstanding fixed rate debt.  The objective of our investment activities is to preserve principal, while at the same time maximizing yields without significantly increasing risk.  To achieve this objective, we invest in highly liquid U.S. Treasury money market funds.  Our investments in U.S. Treasury money market funds are subject to interest rate risk.  To minimize the exposure due to an adverse shift in interest rates, we invest in short-term securities and our goal is to maintain an average maturity of less than one year.  As of the date of this report, all of our cash equivalents are only invested in a U.S. Treasury money market fund and a certificate of deposit.

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The following table provides information about our financial instruments that are sensitive to changes in interest rates.

Interest Rate Sensitivity

Principal Amount by Expected Maturity and Average Interest Rate

ITEM 4.                                                CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible internal controls.  Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this quarterly report on Form 10-Q.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that material information relating to our company is made known to management, including our Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared.

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Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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PART II.                                             OTHER INFORMATION

ITEM 1.                                                LEGAL PROCEEDINGS

A description of our legal proceedings in Note 8, “Commitments and Contingencies” to our unaudited condensed financial statements included in this report is incorporated herein by reference.

ITEM 1A.                                       RISK FACTORS

The following are significant factors known to us that could materially adversely affect our business, financial condition, or operating results or could cause our actual results to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statement made in this report:

Risks Related to Our Possible Pursuit of a Strategic Alternative

In light of the risks involved in initiating two new LibiGel Phase III efficacy trials and recent investor and market reaction to our decision to initiate these two new efficacy trials, we may decide to pursue a strategic alternative which may include seeking others to fund continued LibiGel development and/or a transaction involving a merger or sale of our company.

Our lead product in development is LibiGel for the treatment of FSD.  In December 2011, we announced top-line results from our two Phase III LibiGel efficacy trials, which showed that the trials did not meet the co-primary or secondary endpoints.  In June 2012, we announced a plan to initiate two new LibiGel Phase III efficacy trials and to continue the LibiGel Phase III safety study.

We expect that any new LibiGel Phase III efficacy trials would include the same FDA-required efficacy endpoints as our prior LibiGel Phase III efficacy trials.  We estimate that the cost of the two new efficacy trials would be similar to the cost of the previous trials, a total of approximately $30-$36 million spread over 18 months.  No assurance can be provided that these cost estimates will be correct or that we will be able to obtain the necessary working capital to fund the trials.  In addition, no assurance can be provided that we will be able to design the two new efficacy trials to minimize sufficiently the placebo effect and meet the co-primary and secondary endpoints for the trials.  If we are not successful in this regard, our business may be harmed and we likely would disappoint our stockholders and may experience a decline in our stock price.

We have monitored, and continue to monitor, investor and analyst reaction to our corporate strategy and decision to pursue two new LibiGel Phase III efficacy trials and continue our ongoing LibiGel Phase III safety study.  We also have continued to review our strategic alternatives.  In light of recent investor and market reaction to our decision to initiate two new LibiGel Phase III efficacy trials, and in light of the risk involved in the initiation of the two new efficacy trials and the various strategic alternatives that may be available to us, we believe that there is a reasonable likelihood that we may decide not to initiate the two new LibiGel Phase III efficacy trials and to seek collaborations with others to help fund further development through license or sale of LibiGel. If our board of directors determines that a strategic alternative involving the merger or sale of our company is in the best interests of our company and stockholders, we may pursue such strategic alternative, even if the pursuit of such strategic alternative results in a change in our current strategic direction with respect to LibiGel and one or more of our other products in development.

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Our possible pursuit of a strategic alternative involving the merger or sale of our company involves risks to our stockholders.

As a part of our corporate strategy, we continue to seek and to implement strategic alternatives with respect to our products and our company, including licenses, business collaborations and other business combinations or transactions with other pharmaceutical and biotechnology companies.  Therefore, as a matter of course, from time to time, we may engage in discussions with third parties regarding the licensure, sale or acquisition of our products and technologies or a merger or sale of our company, with the goal of maximizing stockholder value.

If our board of directors determines that a strategic alternative involving the merger or sale of our company is in the best interests of our company and stockholders, we may pursue such strategic alternative, even if the pursuit of such strategic alternative results in a change in our current strategic direction with respect to LibiGel and one or more of our other products in development.

There can be no assurance that any strategic alternative we pursue will be completed.  Any strategic transaction we complete could subject us and our stockholders to a number of risks, including:

·                  the value of the stock received in the transaction being illiquid or not increasing over time;

·                  our stockholders owning less than a majority ownership interest in the surviving entity;

·                  changes in our board of directors and management;

·                  changes in our business strategy and focus;

·                  difficulties associated with assimilating and integrating the business and operations of the two companies; and

·                  the inability of the surviving company to develop successfully any products and generate revenue sufficient to meet our objectives in undertaking the transaction.

If a strategic transaction is pursued but not ultimately completed, our stockholders may be subjected to a number of other risks, including:

·                  the diversion of managerial, financial and other resources from the development of our own proposed products and technologies;

·                  the loss of key personnel and business relationships;

·                  the potential disruption of our ongoing business; and

·                  the incurrence of non-recurring or other charges, which could be significant.

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Risks Related to Our Financial Condition and Future Capital Requirements

We have not generated significant revenues and do not expect to in the near future.  We have a history of operating losses, expect continuing losses and may never become profitable.

Substantially all of our revenue to date has been derived from upfront and milestone payments earned on licensing transactions, revenue earned from subcontracts and royalty revenue.  In order to generate new and significant revenues, we must develop and commercialize successfully our own products or enter into strategic partnering agreements with others who can develop and commercialize them successfully, or acquire additional new products that generate or have the potential to generate revenues.  Because of the numerous risks and uncertainties associated with our and our strategic partners’ product development programs and our ability to acquire additional new products, we are unable to predict when we will be able to generate significant revenue or become profitable, if at all.  We incurred a net loss of $51.6 million for the year ended December 31, 2011 and a net loss of $17.6 million for the six months ended June 30, 2012.  As of June 30, 2012, our accumulated deficit was $234.8 million.  We expect to continue to incur substantial and continuing losses for the foreseeable future.  These losses likely will increase if we continue to spend money on the LibiGel Phase III safety study, and beginning in mid-2013, the two new LibiGel Phase III efficacy trials.  Even if our approved products, products in development or any additional new products we may acquire or in-license are introduced commercially, they may never achieve market acceptance and we may never generate sufficient revenues or receive sufficient license fees or royalties on our licensed products and technologies in order to achieve or sustain future profitability.

Because we have no source of significant recurring revenue, we must depend on financing or partnering to sustain our operations.  We likely will need to raise substantial additional capital or enter into strategic partnering agreements to fund our operations and we may be unable to raise such funds or enter into strategic partnering agreements when needed and on acceptable terms.

Developing products requires substantial amounts of capital. We estimate that the cost of the two new LibiGel Phase III efficacy trials will be approximately $15-$18 million each, or a combined $30-$36 million spread over 18 months.  No assurance can be provided, however, that our cost estimates will be correct.  It is possible that the two new LibiGel Phase III efficacy trials will cost more than we anticipate.  The cost of the two new LibiGel Phase III efficacy trials is in addition to the cost of the ongoing LibiGel Phase III safety study, which currently incurs approximately $1.7 million per month.  If we continue with the LibiGel Phase III safety study, and beginning in mid-2013, the two new LibiGel Phase III efficacy trials, we likely will need to raise substantial additional capital or enter into strategic partnering agreements to fund our operations and we may be unable to raise such funds or enter into strategic partnering agreements when needed and on acceptable terms.

Our future capital requirements will depend upon numerous factors, including:

·                  the progress, timing, cost and results of our clinical development programs, including in particular the LibiGel Phase III safety study, and beginning in mid-2013, the two new LibiGel Phase III efficacy trials, and if we in-license additional new products that require further development;

·                  the cost, timing and outcome of regulatory actions with respect to our products;

·                  the success, progress, timing and costs of our business development efforts to implement business collaborations, licenses and other business combinations or transactions, and our

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efforts to evaluate various strategic alternatives available with respect to our products and our company.

·                  our ability to obtain value from our current products and technologies and our ability to out-license our products and technologies to third parties for development and commercialization and the terms of such out-licenses;

·                  our ability to acquire or in-license additional new products and technologies and the costs and expenses of such acquisitions or licenses;

·                  the timing and amount of any royalties, milestone or other payments we may receive from or be obligated to pay to current and potential licensors, licensees and other third parties;

·                  the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights;

·                  the emergence of competing products and technologies, and other adverse market developments;

·                  the perceived, potential and actual commercial success of our products;

·                  the outstanding principal amount of our 3.125% convertible senior notes due May 1, 2013 (convertible senior notes) that are scheduled to mature and become due and payable on May 1, 2013 and our ability to avoid a “fundamental change” or an “event of default” under the indenture governing such notes, which may cause such notes to become due and payable prior to their maturity date on May 1, 2013;

·                  our operating expenses; and

·                  the resolution of our pending purported class action and shareholder derivative litigation and any amount we may be required to pay in excess of our directors’ and officers’ liability insurance.

Our future capital requirements and projected expenditures are based upon numerous assumptions and subject to many uncertainties, and actual requirements and expenditures may differ significantly from our projections.  To date, we have relied primarily upon proceeds from sales of our equity securities to finance our business and operations.  We likely will need to raise additional capital to fund our operations.  As of June 30, 2012, we had $42.4 million of cash and cash equivalents.  We do not have any existing credit facilities under which we may borrow funds.  Absent the receipt of any additional licensing income or financing, we expect our cash and cash equivalents balance to decrease as we continue to use cash to fund our operations, including in particular the LibiGel Phase III safety study, and beginning in mid-2013, the two new LibiGel Phase III efficacy trials.  As of July 31, 2012, we had $8,277,850 in principal amount of convertible senior notes outstanding that mature on May 1, 2013.  Assuming we continue the LibiGel Phase III safety study, and beginning in mid-2013, the two new LibiGel Phase III efficacy trials, we expect our cash and cash equivalents as of June 30, 2012 to meet our liquidity requirements until approximately the third quarter of 2013.  This estimate may prove incorrect or we, nonetheless, may choose to raise additional financing earlier in order to create a “cash cushion” and take advantage of favorable financing conditions.

The December 2011 announcement of the results of our prior completed LibiGel Phase III efficacy trials has significantly depressed the trading price of our common stock and harmed our ability to

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raise additional capital.   We can provide no assurance that additional financing, if needed, will be available on terms favorable to us, or at all.  This is particularly true if investors are not confident in our LibiGel Phase III clinical development program, the future value of our company and/or if economic and market conditions deteriorate. We have on file effective shelf registration statements that allow us to raise up to an aggregate of $118.6 million from the sale of common stock, preferred stock, warrants or units comprised of the foregoing. However, under applicable SEC rules, if we have a public float of less than $75.0 million, we can only offer to sell under the registration statement up to one-third of our public float during any 12 month period. We can provide no assurance that additional financing, if needed, will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms when we need them, we may need to delay or terminate our Phase III clinical development program for LibiGel or otherwise make changes to our operations to reduce costs. As an alternative to raising additional financing, we may choose to license LibiGel, Elestrin (outside the territories already licensed) or another product, e.g., our GVAX cancer vaccines, to a third party who may finance a portion or all of the continued development and, if approved, commercialization of that licensed product, sell certain assets or rights we have under our existing license agreements or decide or be forced to explore other strategic alternatives, such as selling or merging our company or winding down our operations and liquidating our company.  In such case, our stockholders could lose some or all of their investment.

Raising additional funds by issuing additional equity securities may cause dilution to our existing stockholders, raising additional funds by issuing additional debt financing may restrict our operations and raising additional funds through licensing arrangements may require us to relinquish proprietary rights.

If we raise additional funds through the issuance of additional equity or convertible debt securities, the percentage ownership of our stockholders could be diluted significantly, and these newly issued securities may have rights, preferences or privileges senior to those of our existing stockholders.  In addition, the issuance of any equity securities could be at a discount to the market price.

If we incur additional debt financing, the payment of principal and interest on such indebtedness may limit funds available for our business activities, and we could be subject to covenants that restrict our ability to operate our business and make distributions to our stockholders.  These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on the ability of us to create liens, pay dividends, redeem our stock or make investments.  There is no assurance that any equity or debt financing transaction will be available on terms acceptable to us, or at all.

As an alternative to raising additional financing by issuing additional equity or debt securities, we may choose to license one or more of our products or technologies to a third party who may finance a portion or all of the continued development and, if approved, commercialization of that licensed product, sell certain assets or rights under our existing license agreements or enter into other business collaborations or combinations, including a possible sale or merger of our company.  If we raise additional funds through licensing arrangements, we may be required to relinquish greater or all rights to our products at an earlier stage of development or on less favorable terms than we otherwise would choose.

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We have substantial indebtedness, in the form of convertible senior notes, which notes we may not be able to pay when they become due and payable on May 1, 2013, or earlier if we experience a “fundamental change” or an “event of default” under the indenture governing such notes.

As of July 31, 2012, we had $8,277,850 in aggregate principal amount of convertible senior notes outstanding.  The annual interest payment on these notes is approximately $259,000. At maturity, on May 1, 2013, the entire then remaining aggregate outstanding principal amount of our convertible senior notes will become due and payable. In addition, upon the occurrence of a “fundamental change”, holders of our convertible senior notes may require us to purchase their notes prior to the May 1, 2013 maturity date. A fundamental change includes a significant change in our ownership; the first day the majority of our board of directors does not consist of continuing directors; the consummation of certain recapitalizations, reclassifications, or changes of common stock, share exchanges or consolidations or mergers; or the termination of trading of our common stock (which will be deemed to have occurred if our common stock is neither listed for trading on a United States national securities exchange nor any United States system of automated dissemination of quotations of securities prices or traded in over-the-counter securities markets).  Additionally, the aggregate principal amount of the outstanding convertible senior notes will become due and payable upon an uncured or unwaived event of default.  We do not have any significant source of revenues; and thus, although we intend to seek additional financing to support our operations and pay the aggregate outstanding principal amount of our convertible senior notes, it is possible that we may not have sufficient funds to pay the aggregate principal amount of our then outstanding convertible senior notes when they mature on May 1, 2013, or become due and payable earlier if we were to experience a “fundamental change” or an “event of default” under the indenture governing such notes.

The indentures governing our convertible senior notes contains covenants, which if not complied with, could result in an event of default and the acceleration of all amounts due under the notes.

The indenture governing our convertible senior notes contains covenants, such as the requirement to pay accrued interest on May 1 and November 1 of each year, the requirement to repurchase the notes upon a “fundamental change,” as defined in the indenture, if a note holder so elects and the requirement to file periodic reports electronically with the SEC.  If we do not comply with the covenants in the indenture, an event of default could occur and all amounts due under the notes could become immediately due and payable.  Upon the occurrence of an event of default under the indenture, the trustee has available a range of remedies customary in these circumstances, including declaring all such indebtedness, together with accrued and unpaid interest thereon, to be due and payable.  Although it is possible we could negotiate a waiver with the trustee and the holders of the notes, such a waiver likely would involve significant costs.  It also is possible that we could refinance or restructure our obligations under the notes; however, such a refinancing or restructuring also likely would involve significant costs and likely would result in higher interest rates than the current 3.125% annual interest rate on the notes.

Future purchases, exchanges or restructurings of our outstanding convertible senior notes could dilute the percentage ownership of our stockholders, result in the issuance of securities at a discount to market price or that may have rights, preferences or privileges senior to those of our existing stockholders and/or decrease our cash balance.

In February 2012, we entered into privately-negotiated securities exchange agreements with one of the holders of our convertible senior notes pursuant to which we issued an aggregate of 1,868,055 shares of our common stock, as adjusted to reflect our one-for-six reverse stock split effected on June 1, 2012, to the note holder in exchange for the cancellation of an aggregate of $9,000,000 principal amount of our convertible senior notes, including accrued and unpaid interest, and in July 2012, we entered into a privately-negotiated securities exchange agreement with two of the holders of our convertible senior notes

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pursuant to which we issued an aggregate of 1,784,070 shares of our common stock to the note holder in exchange for the cancellation of an aggregate of $3,504,150 principal amount of our convertible senior notes and accrued and unpaid interest of $20,686.  As a result of these exchanges, an aggregate of $8,277,850 principal amount of the convertible senior notes remained outstanding as of July 31, 2012.  From time-to-time, we again may purchase, exchange or restructure our outstanding convertible senior notes through cash purchases and/or exchanges for other equity securities of our company, in open market purchases, privately negotiated transactions and/or a tender offer.  Such additional purchases, exchanges or restructurings, if any, will depend on prevailing market conditions, the trading price and volume of our common stock, the willingness of the note holders to sell, exchange or restructure their notes, our available cash and cash equivalents, our liquidity requirements, regulatory limitations, contractual restrictions and other factors.  Such future purchases, exchanges or restructurings could dilute the percentage ownership of our stockholders, result in the issuance of securities at a discount to market price or that may have rights, preferences or privileges senior to those of our existing stockholders and/or decrease our cash balance.  A significant decrease in our cash balance may impair our ability to execute strategic alternatives or leave us without sufficient cash remaining for operations.

We are subject to pending purported securities class action and shareholder derivative litigation, which could divert management’s attention, harm our business and/or reputation and result in significant liabilities, as well as harm our ability to raise additional financing and execute certain strategic alternatives.

As described in more detail elsewhere in this report, we are subject to pending purported securities class action and shareholder derivative litigation.

On February 3, 2012, a purported class action lawsuit was filed in the United States District Court for the Northern District of Illinois under the caption Thomas Lauria, on behalf of himself and all others similarly situated v. BioSante Pharmaceuticals, Inc. and Stephen M. Simes naming BioSante and our President and Chief Executive Officer, Stephen M. Simes, as defendants.  The complaint alleges that certain of our disclosures relating to the efficacy of LibiGel and its commercial potential were false and/or misleading and that such false and/or misleading statements had the effect of artificially inflating the price of our securities resulting in violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (Exchange Act), Rule 10b-5 and Section 20(a) of the Exchange Act.  Although a substantially similar complaint was filed in the same court on February 21, 2012, such complaint was voluntarily dismissed by the plaintiff in April 2012. The plaintiff seeks to represent a class of persons who purchased our securities between February 12, 2010 and December 15, 2011, and seeks unspecified compensatory damages, equitable and/or injunctive relief, and reasonable costs, expert fees and attorneys’ fees on behalf of such purchasers.  We believe the action is without merit and intend to defend the action vigorously.

On May 7, 2012, Jerome W. Weinstein, a purported stockholder of our company filed a shareholder derivative action in the United States District Court for the Northern District of Illinois under the caption Weinstein v. BioSante Pharmaceuticals, Inc. et al., naming our directors as defendants and our company as a nominal defendant.  A substantially similar complaint was filed in the same court on May 22, 2012 and another substantially similar complaint was filed in the Circuit Court for Cook County, Illinois, County Department, Chancery Division, on June 27, 2012. The suits are generally related to the same events that are the subject of the class action litigation described above.  The complaints allege breaches of fiduciary duty, abuse of control, gross mismanagement and unjust enrichment as causes of action occurring from at least February 2010 through December 2011.  The complaints seek unspecified damages, punitive damages, costs and disbursements and unspecified reform and improvements in our corporate governance and internal control procedures. Additional lawsuits may be filed by other purported stockholders of our company.

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These lawsuits are in their early stages; and, therefore, we are unable to predict the outcome of the lawsuits and the possible loss or range of loss, if any, associated with their resolution or any potential effect the lawsuits may have on our operations.  Depending on the outcome or resolution of these lawsuits, they could have a material effect on our operations, including our financial condition, results of operations, or cash flows.  In additions, these lawsuits could divert management’s attention, harm our business and/or reputation and result in significant liabilities, as well as harm our ability to raise additional financing or execute certain strategic alternatives.

If we fail to meet continued listing standards of The NASDAQ Global Market, our common stock may be delisted which could have a material adverse effect on the liquidity of our common stock.

In order for our securities to be eligible for continued listing on The NASDAQ Global Market, we must remain in compliance with certain listing standards, including a $1.00 minimum closing bid price per share requirement, a $50 million market capitalization and a $15 million public float requirement or a $12 million minimum stockholders’ equity requirement, and certain corporate governance standards. If our common stock were to be delisted from The NASDAQ Global Market, we could apply to list our common stock on The NASDAQ Capital Market or our common stock could be traded in the over-the-counter market on an electronic bulletin board established for unlisted securities, such as the Pink Sheets or the OTC Bulletin Board.

While we intend to maintain our listing on The NASDAQ Global Market, there can be no assurance that we will be able to keep our listing on The NASDAQ Global Market or transfer our listing to The NASDAQ Capital Market.  Stocks trading on The NASDAQ Capital Market rather than The NASDAQ Global Market tend to be more volatile and less liquid as trading volumes are generally significantly lower on The NASDAQ Capital Market than The NASDAQ Global Market. Furthermore, if we fail to meet all applicable NASDAQ Stock Market requirements and NASDAQ determines to delist our common stock, the delisting could decrease substantially trading in our common stock, affect adversely the market liquidity of our common stock, decrease the trading price of our common stock, increase the volatility of our stock price, decrease analyst coverage of our common stock, decrease investor demand and information available concerning trading prices and volume of our common stock, make it more difficult for investors to buy or sell shares of our common stock and harm our ability to obtain additional financing for the continuation of our operations and could result in the loss of confidence by investors.

In addition, if our common stock were to be delisted from The NASDAQ Stock Market, and our trading price remained below $5.00 per share, trading in our common stock also might become subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a “penny stock” (generally, any equity security not listed on a national securities exchange that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of stockholders to borrow against or “margin” low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of our common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if the price of our common stock were higher. This factor also may limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock.

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Risks Related to Our Business

Our two pivotal LibiGel Phase III efficacy trials did not meet the co-primary and secondary endpoints, and it is possible that the two new LibiGel Phase III efficacy trials, which we announced in June 2012, will not meet the co-primary and secondary endpoints, which could harm our business and further disappoint our stockholders and cause our stock price to decrease.

Our lead near term product in development is LibiGel for the treatment of FSD, specifically HSDD, in postmenopausal women, for which there is no FDA-approved product.  In June 2012, we announced a plan to initiate two new LibiGel Phase III efficacy trials.  This decision was based on an extensive analysis of previous efficacy data, consultation with key opinion leaders (KOLs) in FSD, testosterone therapy and placebo effects, as well as a meeting with the FDA. The protocol for the two new efficacy trials is in development.  We intend to apply for an FDA Special Protocol Assessment (SPA) agreement prior to initiating the two new efficacy trials.  Currently, it is expected that the efficacy trials will include the same FDA-required efficacy endpoints as prior Phase III efficacy trials: an increase in the number of satisfying sexual events and sexual desire, and decreased distress associated with low desire.

The initiation of the two new LibiGel Phase III efficacy trials involves risk, especially since our prior LibiGel Phase III efficacy trials failed to meet the co-primary or secondary endpoints.  Although the results indicated that LibiGel performed as predicted based on previous experience with testosterone products for FSD, the placebo response in the two efficacy trials was greater than expected; and therefore, LibiGel’s results were not shown to be statistically different from placebo.  No assurance can be provided that we will be able to design the two new LibiGel Phase III efficacy trials to minimize sufficiently the placebo effect and meet the co-primary and secondary endpoints for the trials.  In addition, we can provide no assurance that we will be able to obtain an FDA SPA agreement for such trials or that we will initiate or complete the trials on a timely basis, or ever.  Any of these possible results could harm our business and further disappoint our stockholders and cause our stock price to decrease.

Although our male testosterone gel is approved by the FDA, we are uncertain as to when Teva will begin to market and sell our male testosterone gel and thus when or if we would begin to receive royalties from such sales in light of Teva’s settlement agreement with a subsidiary of Abbott Laboratories.

Our male testosterone gel initially was developed by us, and then licensed by us to Teva for late stage clinical development.  Teva submitted a New Drug Application, which NDA was approved by the FDA in February 2012.  Subsequent to Teva submitting the NDA, in April 2011, a subsidiary of Abbott Laboratories, a marketer of a testosterone gel for men, filed a complaint against Teva alleging patent infringement.  The Teva/Abbott Laboratories patent infringement litigation was settled in December 2011; however, the terms of the settlement agreement are confidential and have not been publicly disclosed.  In light of the settlement agreement, we are uncertain as to when or if Teva will begin to market and sell our male testosterone gel and thus when or if we would begin to receive royalties from such sales.

Several of our products are in the human clinical development stages and, depending on the product, likely will not be approved by regulatory authorities or introduced commercially for at least several years and likely more, if at all.

Several of our products are in the human clinical development stages and will require further development, preclinical and clinical testing and investment prior to obtaining required regulatory approvals and commercialization in the United States and abroad.  Other than Elestrin and our male testosterone gel, none of our products has been approved by the FDA or other regulatory authorities; and

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accordingly, none of our products have been introduced commercially and most are not expected to be for several years and likely more, if at all.  Some of our products are not in active development.  We cannot assure you that any of our products in human clinical development will:

·                  be developed successfully;

·                  prove to be safe and effective in clinical studies;

·                  meet applicable regulatory standards or obtain required regulatory approvals;

·                  demonstrate substantial protective or therapeutic benefits in the prevention or treatment of any disease;

·                  be capable of being produced in commercial quantities at reasonable costs;

·                  obtain coverage and favorable reimbursement rates from insurers and other third-party payors; or

·                  be marketed successfully or achieve market acceptance by physicians and patients.

If we fail to obtain regulatory approval to manufacture commercially or sell any of our future products, or if approval is delayed or withdrawn, we will be unable to generate revenue from the sale of our products.

We must obtain regulatory approval to sell any of our products in the United States and abroad.  In the United States, we must obtain the approval of the FDA for each product or drug that we intend to commercialize.  The FDA approval process typically is very lengthy and expensive, and approval never is certain. Products to be commercialized abroad are subject to similar foreign government regulation.

Generally, only a very small percentage of newly discovered pharmaceutical products that enter preclinical development eventually are approved for sale.  Because of the risks and uncertainties in biopharmaceutical development, our products could take a significantly longer time to gain regulatory approval than we expect or may never gain approval.  If regulatory approval is delayed or never obtained, the credibility of our management, the value of our company and our operating results and liquidity would be affected adversely.  Even if a product gains regulatory approval, the product and the manufacturer of the product may be subject to continuing regulatory review and we may be restricted or prohibited from marketing or manufacturing a product if previously unknown problems with the product or our manufacture of the product subsequently are discovered.  The FDA also may require us to commit to perform lengthy post-approval studies, for which we would have to expend significant additional resources, which could have an adverse effect on our operating results and financial condition.

To obtain regulatory approval to market many of our products, costly and lengthy human clinical trials are required, and the results of the studies and trials are highly uncertain.  As part of the FDA approval process, we must conduct, at our own expense or the expense of current or potential licensees or other entities, clinical trials in human subjects on each of our products.  We expect the number of human clinical trials that the FDA will require will vary depending on the product, the disease or condition the product is being developed to address and regulations applicable to the particular product.  Depending on the stage of development, may need to perform multiple pre-clinical studies using various doses and formulations before we can begin human clinical trials, which could result in delays in our ability to market any of our products.  Furthermore, even if we obtain favorable results in pre-clinical studies on animals, the results in humans may be different.

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