BioSpecifics Technologies Corp.
Annual Report 2008

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KBIOSPECIFICS TECHNOLOGIES CORP - BSTCFiled: March 31, 2009 (period: December 31, 2008)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549FORM 10-K (Mark One)Q ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2008£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________________ to __________________Commission File Number: 0-19879BIOSPECIFICS TECHNOLOGIES CORP.(Exact name of registrant as specified in its charter)Delaware11-3054851(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.) 35 Wilbur Street, Lynbrook, NY11563(Address of principal executive offices)(Zip Code) 516.593.7000 Registrant’s telephone number, including area code: Securities registered under Section 12(b) of the Exchange Act: Title of each className of each exchange on which registeredCommon StockThe Nasdaq Stock Market LLCSecurities registered under Section 12(g) of the Exchange Act: NONEIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. £ Yes Q NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. £ Yes Q NoNote – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act fromtheir obligations under those Sections.Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Q Yes £ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not containedherein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by referencein Part III of this Form 10-K or any amendment to this Form 10-K. £Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer £Accelerated filer £Non-accelerated filer £ (Do not check if a smaller reportingcompany)Smaller reporting company QIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ Yes Q NoThe aggregate market value of voting and non-voting common stock held by non-affiliates of the Registrant as of June 30, 2008, the lastbusiness day of the registrant’s most recently completed second fiscal quarter, was approximately $70,828,160.Note – If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort andexpense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonableunder the circumstances, provided that the assumptions are set forth in this Form.The number of shares outstanding of the registrant’s common stock as of March 2, 2009 is 6,008,801.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement for its 2009 Annual Meeting of Stockholders scheduled to be held on June 17, 2009,which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal yearended December 31, 2008, are incorporated by reference into Part III of this annual report on Form 10-K. With the exception of the portions ofthe registrant’s definitive proxy statement for its 2009 Annual Meeting of Stockholders that are expressly incorporated by reference into thisannual report on Form 10-K, such proxy statement shall not be deemed filed as part of this annual report on Form 10-K.iSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTS Page PART I2 Item 1. DESCRIPTION OF BUSINESS.2 Item 1A. RISK FACTORS15 Item IB. UNRESOLVED STAFF COMMENTS26 Item 2. DESCRIPTION OF PROPERTY26 Item 3. LEGAL PROCEEDINGS26 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.26 PART II 27 Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS.27 Item 6. SELECTED FINANCIAL DATA29 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION29 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK35 Item 8. FINANCIAL STATEMENTS35 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE 35 Item 9A(T). CONTROLS AND PROCEDURES35 Item 9B. OTHER INFORMATION36 PART III36 Item 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITHSECTION 16(a) OF THE EXCHANGE ACT36 Item 11. EXECUTIVE COMPENSATION37 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS37 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.37 Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.37 PART IV37 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES37iiSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Introductory Comments – TerminologyThroughout this annual report on Form 10-K (this “Report”), the terms “BioSpecifics,” “Company,” “we,” “our,” and “us” refer to BioSpecificsTechnologies Corp. and its subsidiary, Advance Biofactures Corporation (“ABC-NY”).Introductory Comments – Forward-Looking StatementsThis Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, anystatements of the plans and objectives of management for future operations, any statements concerning proposed new products or licensingor collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptionsunderlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,”“expects,” “plans,” “anticipates,” “estimates,” “potential,” or “continue” or the negative thereof or other comparable terminology. Although webelieve that the expectations reflected in the forward-looking statements contained in this report are reasonable, there can be no assurancethat such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from thoseprojected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth below, and for thereasons described elsewhere in this report. All forward-looking statements and reasons why results may differ included in this report aremade as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results mightdiffer.1Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IItem 1. DESCRIPTION OF BUSINESS.OverviewWe are a biopharmaceutical company involved in the development of an injectable collagenase for multiple indications. We have adevelopment and license agreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase (which Auxilium hasnamed “XIAFLEX TM” (formerly known as “AA4500”)) for clinical indications in Dupuytren’s disease, Peyronie’s disease and frozen shoulder(adhesive capsulitis), and Auxilium has an option to acquire additional indications that we may pursue, including cellulite and lipomas.Development of Injectable Collagenase for Multiple IndicationsWe are developing an injectable collagenase for multiple indications. The most advanced indications are for the treatment of Dupuytren’sdisease, Peyronie’s disease and frozen shoulder. On June 3, 2004, we entered into a development and license agreement with Auxilium, asamended on May 10, 2005 and December 15, 2005, respectively (the “Prior Auxilium Agreement”), pursuant to which we granted toAuxilium an exclusive worldwide license to develop products containing our injectable collagenase for the treatment of Dupuytren’s disease,Peyronie's disease and frozen shoulder, as well as an exclusive option to develop and license the technology for use in additional indicationsother than dermal formulations labeled for topical administration.On December 11, 2008, the parties amended and restated the development and license agreement (the “Auxilium Agreement”), whichbecame effective on December 17, 2008 upon the execution and effectiveness of the Development, Commercialization and SupplyAgreement, dated December 17, 2008 (the “Pfizer Agreement”) between Auxilium International Holdings, Inc., a wholly owned subsidiary ofAuxilium, and Pfizer, Inc. (“Pfizer”), pursuant to which Pfizer will market XIAFLEX for the treatment of Dupuytren’s disease and Peyronie’sdisease in Europe and various other territories. The Auxilium Agreement amends and restates in its entirety the Prior Auxilium Agreement.The Auxilium Agreement and other licensing agreements are discussed more fully in this Item 1, under the section titled “Licensing andMarketing Agreements.”In its Form 10-K filed with the Securities and Exchange Commission (the “SEC” or the “Commission”) on February 26, 2009, Auxiliumnoted the following key points in regards to XIAFLEX:We believe that XIAFLEX has the potential to become a blockbuster. For Dupuytren’s andPeyronie’s, we believe there is a large unmet medical need for a non-surgical solution to thesedebilitating diseases and that the data from our well-controlled phase II studies in Peyronie’s andphase III studies in Dupuytren’s are encouraging. The product has received orphan drugdesignation in the U.S. for both indications, and our preliminary market research leads us tobelieve that urologists and orthopedic surgeons would be very likely to use the product to delay oravoid surgery. Based on market research that we conducted several years ago, physicians indicatethat there are potentially 450,000 patients on an annual basis in the U.S. and Europe who could becandidates for XIAFLEX with approximately 240,000 for the treatment of Dupuytren’s andapproximately 210,000 for the treatment of Peyronie’s. These patients represent an annual marketpotential in excess of $1 billion, assuming that we are able to price treatments using XIAFLEX ona basis comparable to the cost of surgery for these indications.In its Form 10-K filed with the SEC on February 26, 2009, Auxilium stated that “it is currently evaluating the options that we have forcommercializing XIAFLEX in other indications and territories of the world.” In the event that Auxilium does license XIAFLEX in otherindications, we will be entitled to receive a certain percentage of sublicense income and milestone payments for such indications pursuant tothe terms of the Auxilium Agreement. 2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Background on CollagenaseCollagenase is the only protease that can hydrolyze the triple helical region of collagen under physiological conditions. The specific substratecollagen comprises approximately one-third of the total protein in mammalian organisms and it is the main constituent of skin, tendon, andcartilage, as well as the organic component of teeth and bone. The body relies on endogenous collagenase production to remove dead tissueand collagenase production is an essential biological mechanism, which regulates matrix remodeling and the normal turnover of tissue. TheClostridial collagenase produced by us has a broad specificity towards all types of collagen and is acknowledged as much more efficient thanmammalian collagenases. Clostridial collagenase cleaves the collagen molecule at multiple sites along the triple helix whereas themammalian collagenase is only able to cleave the molecule at a single site along the triple helix. Because collagenase does not damage thecell membrane, it is widely used for cell dispersion for tissue disassociation and cell culture. Since the main component of scar tissue iscollagen, collagenase has been used in a variety of clinical investigations to remove scar tissue without surgery. Histological and biochemicalstudies have shown that the tissue responsible for the deformities associated with Dupuytren’s disease and Peyronie’s disease is primarilycomposed of collagen. The contracture associated with Dupuytren’s disease is an example of a disease that results from excessive collagenformation. Surgical removal of scar tissue has the potential to result in complications including increased scar formation. Due to the highlyspecific nature of the enzyme, we consider its use to be more desirable than the application of general proteolytic enzymes for the removal ofunwanted tissue. Treatment with injectable collagenase for removal of excessive scar tissue represents a first in class non-invasive approachto this unmet medical need. New uses involving the therapeutic application of exogenous collagenase to supplement the body’s own naturalenzymes are periodically being proposed.Collagenase for Treatment of Dupuytren’s DiseaseDupuytren’s disease is a deforming condition of the hand in which one or more fingers contract toward the palm, often resulting in physicaldisability. The onset of Dupuytren’s disease is characterized by the formation of nodules in the palm that are composed primarily of collagen.As the disease progresses, the collagen nodules begin to form a cord causing the patient’s finger(s) to contract, making it impossible to openthe hand fully. Patients often complain about the inability to wash their hands, wear gloves, or grasp some objects. Dupuytren’s disease hasa genetic basis and it is most prevalent in individuals of northern European ancestry. Well-known individuals with Dupuytren’s diseaseinclude President Ronald Reagan and Prime Minister Margaret Thatcher.The only proven treatment for Dupuytren’s disease is surgery. Recurrence rates can range from 26-80%. The post surgical recovery is oftenassociated with significant pain, delayed return to work, and extended periods of postoperative physical therapy. Because many of theindividuals with Dupuytren’s disease are older than 60 years of age, there is considerable resistance from the patients to undergo thesurgical procedure, which also involves the risk of general anesthesia. We anticipate that many of the patients who are now willing to livewith the disease, given the current treatment options, would be receptive to an alternative treatment involving an injection into the hand thatcould be performed in an office setting.Hand surgeons note that the Dupuytren’s disease surgery is tedious, lengthy and poorly reimbursed in the U.S. In a conference on February8, 2007, Auxilium stated that the average cost of Dupuytren’s disease surgery is $5,000 in the U.S. and $3,500 in Europe. Auxilium hasreported that U.S. based hand surgeons would recommend the use of collagenase injection on 76% of the patients who are candidates forsurgery. This figure is consistent with an earlier survey that we conducted, which found that U.S. hand surgeons would recommend the useof collagenase injection on 80% of patients considered eligible for Dupuytren’s disease surgery. Both of these surveys were conducted prior tothe results of the Auxilium Phase III trials being available.Phase III Clinical TrialsPhase III clinical results with injectable collagenase manufactured by us were published in the July-August 2007 issue of the Journal ofHand Surgery. The study was designed and monitored by us in collaboration with Marie Badalamente, Ph.D. and Lawrence Hurst, M.D.,who are clinical investigators from the Department of Orthopaedics, at the State University of New York, Health Science Center at StonyBrook, New York. Auxilium issued a press release on July 24, 2007 based on their statistical analysis of the results. Please see“Development Status” under this Item 1 for information regarding the results of this trial.33 of 35 patients who entered the double-blind phase of the trial completed the study and 19 of them entered the open label extension. In thedouble-blind phase of the study, 23 patients received injectable collagenase and 12 received placebo. The results show that 21 of 23 patients(91%) treated with up to 3 injections of injectable collagenase achieved clinical success (reduction in joint contracture to within 0° to 5° ofnormal) in the double-blind phase. 12 of 14 (86%) of metacarpophalangeal (“MP”) joints and 9 of 9 (100%) proximal intraphalangeal (“PIP”)joints were successfully treated. No patient treated with placebo achieved clinical success.3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Of the 19 patients who entered the open label phase, 15 had previously received placebo, and 4 had received the active drug but requiredfurther treatment due to incomplete success or treatment failure or needed treatment for other contractures. 17 of 19 patients (89%) whoreceived up to 3 injections of injectable collagenase achieved clinical success in at least 1 treated joint in the open label phase. 14 of 16 (88%)of MP joints and 13 of 19 (68%) PIP joints were successfully treated.Clinical success was achieved in a median of 8 days during the double-blind phase. The time for achievement of clinical success rangedbetween 1 and 29 days in the open label extension phase of the study.An evaluation of the long-term durability of treatment was conducted for patients treated in this Phase III trial and its open label extension. Atthe 24-month follow up, recurrence of contracture of at least 20° was favorable compared to the long-term results observed post surgeryaccording to the investigators. Of the 54 successfully treated joints, all were followed up for 24 months. At one year, 5 of 54 joints had arecurrence (6%) and at two years, 5 of 27 joints had a recurrence (18%). Dr. Badalamente stated that reported recurrence rates post surgeryvary widely, from 26% to 80%.The most common adverse events were pain and swelling of the hand at the injection site and post-injection temporary swelling of a modestnature in the lymph node area of the armpit. There were no nerve or arterial injuries. Adverse events were generally mild to moderate innature and resolved without treatment within 30 days.Auxilium conducted Phase III trials with injectable collagenase that was manufactured under their control. The Phase III trials were designedas randomized double blind placebo controlled clinical investigations and the blinded efficacy clinical investigations were designated asCORD 1 and CORD II. In its Form 10-K filed with the SEC on February 26, 2009, Auxilium stated:In December 2007, patient enrollment was completed in Auxilium’s second U.S. phase III pivotaltrial (CORD I) and its Australian phase III study (CORD II) of XIAFLEX for the treatment ofDupuytren’s. CORD I data were released in June 2008. A modified intent to treat analysis yielded306 patients. CORD I successfully met the primary endpoint with a p value of <0.001: 64 % ofXIAFLEX patients vs. 6.8% of placebo patients achieved a reduction in contracture to ≤5 degrees ofnormal 30 days after the last injection. On average, Dupuytren’s patients who achieved theprimary endpoint received 1.5 XIAFLEX injections. In addition to the primary endpoint, there were26 secondary endpoints that were measured, each of which was met with statistical significance.The average percent improvement in contracture from baseline was 79.3% (50.2° averagecontracture at baseline down to 12.1° average contracture after treatment) for primary joints treatedwith XIAFLEX, compared to placebo patients, where the average contracture for joints was 49.1° atbaseline and improved to an average of 45.7° after placebo treatment (8.6% reduction) (p<0.001).84.7% of patients (172 of 203) treated with XIAFLEX achieved greater than 50% reduction in theircontracture compared with baseline, compared with 11.7% of patients (12 of 103) treated withplacebo (p<0.001). In CORD II, 44.4% of XIAFLEX patients vs. 4.8% of placebo patients achievedthe primary endpoint, a reduction in the angle of a patient’s joint contracture to ≤5 degrees ofnormal, as measured by digital goniometer, 30 days after the last injection. These double blindstudies along with the open label Joint I and II studies will provide most of the patient safetydatabase for the BLA submission. The safety of XIAFLEX was assessed in 1,082 subjects whoreceived at least one injection of XIAFLEX in over 2,600 joints. The most common adverse eventswere related to the injection or the subsequent procedure to disrupt the cord. These reactions weremild to moderate in intensity, and occurred within approximately four weeks of injection. Thereactions generally resolved without intervention within approximately four weeks. The mostfrequently reported adverse events included peripheral edema, contusion, injection site reaction,injection site hemorrhage, and pain in extremity. In the clinical studies there were four seriousadverse events related to effect of XIAFLEX on collagen. There were three cases of tendon ruptureand one case of pulley injury reported in patients who received XIAFLEX during the clinicaldevelopment program. There were no reports of injury to nerves or blood vessels of the treatedfinger following treatment with XIAFLEX.4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Phase II TrialsA Phase II clinical study was designed to evaluate the relative safety and efficacy of collagenase compared to placebo injection in improvingthe degree of flexion deformity, and range of finger motion in patients with Dupuytren’s disease. The investigation was carried out as arandomized, double-blind, placebo-controlled clinical trial using collagenase or placebo. 36 MP patients and 13 PIP patients were enrolled inthe study. The success rate was determined one month after the first injection of collagenase or placebo. The overall success rate, defined bythe primary endpoint of reduction in contracture to within 0º–5º of normal, was 14 out of 18 patients (78%) for MP joints (p=0.001) andapproximately 70% for PIP joints. Adverse events reported during this protocol included pain and swelling of the hand, bruising, and post-injection self-limiting swelling of the lymph nodes. Some patients experienced transient increases in blood pressure on the day of injection,which were attributed to anxiety in anticipation of the treatment. Only one serious adverse event was reported and it was not attributed to thestudy drug by the clinical investigator.This study demonstrated a statistically significant reduction in contracture to within 0º-5° of normal at day 30 and improved range of motion at7 and 14 days and at day 30 after a single injection of collagenase into the cord affecting the MP joint.A second Phase II study designed as a double-blind, randomized, parallel group, placebo-controlled, dose response clinical trial wasconducted. 55 MP patients and 25 PIP patients with a mean baseline fixed flexion deformity of 49 degrees were enrolled in the study at twocenters. Patients were treated with low (2,500), mid (5,000) or high (10,000) number of units of collagenase or placebo. The overall successrate and primary endpoint were defined as reduction in contracture to within 0º–5º of normal 30 days after the first injection.18 out of the 23 patients (78%) who received the high number of units returned to normal extension (0º-5º) at 30 days post-treatment ascompared to 10 out of 22 (45%) in the mid number of units group, and nine out of 18 (50%) in the low number of units group. There was noresponse to placebo in any patient. For PIP joints, 5 out of 7 (71%) patients who received the high number of units of collagenase returned tonormal extension at the one month post-treatment as compared to 4 out of 7 (57%) patients in the mid number of units group, 2 out of 4(50%) in the low number of units group and 0 out of 7 (0%) in the placebo group. For MP joints, 13 out of 16 (81%) patients who received thehigh number of units group of collagenase returned to normal extension at the one month post-treatment as compared to 6 out of 15 (43%)patients in the mid number of units group, 7 out of 14 (50%) in the low number of units group and 0 out of 10 (0%) in the placebo group.The investigators did not attribute any of the serious adverse events that occurred to the study drug.Development StatusIn a press release dated March 2, 2009, Auxilium announced that it filed a Biologics License Application (“BLA”) for the treatment ofDupuytren’s disease on February 27, 2009. Auxilium also announced that it has requested a Priority Review designation for the BLAsubmission from the U.S. Food and Drug Administration (“FDA”) and that it expects to hear from the FDA on Priority Review designationwithin approximately 60 days of the filing date. If granted, the FDA has a goal to take action on the BLA within six months from the date ofsubmission. In its Current Report on Form 8-K filed on December 3, 2008, Auxilium announced that Pfizer expects to file XIAFLEX forapproval for the treatment of Dupuytren’s disease in Europe in 2010.Collagenase for Treatment of Peyronie’s DiseasePeyronie’s disease affects the penis and it is characterized by the presence of a collagen plaque on the shaft of the penis, which can distort anerection and make intercourse difficult or impossible in advanced cases. The plaque is not elastic and it does not stretch during erection. Insome mild cases, the plaque can resolve spontaneously without medical intervention. The most common plaque forms on the top of thepenis causing the penis to arc upward. In severe cases, the penis can be bent at a 90-degree angle during erection. Significant psychologicaldistress has been noted in patients with Peyronie’s disease who are sexually active. Frequent patient complaints include increased pain,painful erections, palpable plaque, penile deformity, and erectile dysfunction. Patients with Peyronie’s disease have been reported to have anincreased likelihood of having Dupuytren’s disease, frozen shoulder, plantar fibromatosis, knuckle pads, hypertension and diabetes.Peyronie’s disease typically affects males in the range of 40-70 years. The cause of Peyronie’s disease is unknown, although someinvestigators have proposed that it may be due to trauma or an autoimmune component. A number of researchers have suggested that theincidence of Peyronie’s disease has increased due to the use of erectile dysfunction drugs.5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Surgery is the only proven treatment for Peyronie’s disease and the results are variable. Surgery often results in shortening of the penis.Auxilium has reported that 33% of Peyronie’s disease patients who undergo surgery are subsequently dissatisfied with the results and theyfrequently require a penile implant. Patients with Peyronie’s disease strongly desire therapeutic alternatives to surgery. Auxilium hasreported that 90% of urologists would use collagenase injection to delay or avoid surgery and this finding is consistent with a survey ofurologists conducted for us.Histological and biochemical studies indicate that the scarring on the penis due to Peyronie’s disease is composed primarily of collagen.An investigator carried out a positive Phase I clinical trial in which he treated approximately 180 patients in an open label trial. In addition, twopositive open label clinical trials have been conducted by an independent investigator at Tidewater Urology in Norfolk, Virginia, which is thelargest center for treatment of Peyronie’s disease in the world.Auxilium announced on October 25, 2006 the results of two Phase II trials. Auxilium stated:Both studies were open label and up to 12 months in duration. They were conducted to evaluatethe efficacy and tolerability of AA4500 in the treatment of Peyronie’s disease. Clinical success wasdefined as change from baseline in deviation angle of at least 25 percent.In Study A (n=25) [25 patients], 3 injections of AA4500, each administered on a separate day,were given over 7-10 days. Patients received a second series of 3 injections 12 weeks later.Patients were evaluated at three, six, and nine months post-last injection. The mean baselinedeviation angle was 52.8 degrees. At months three and six, 58 percent and 53 percent of patients(respectively) achieved clinical success with respect to deviation angle.The best results were achieved with a three-treatment series of three injections each in Study B(n=10) [10 patients]. In Study B, patients received three injections of AA4500 administered one perday, separated by at least one day each, over a one week timeframe. Patients received twoadditional series of 3 injections, each spaced 6 weeks apart. The mean baseline deviation anglewas 50.2 degrees. At 9 month follow up (post-first injections), 25 percent or greater reduction indeviation angle was achieved in 8/9 patients who completed the study (89 percent, 1 patient had24 percent reduction in deviation angle). Based on the investigator’s global assessment, 67percent of subjects were very much improved or much improved after treatment with AA4500.The most common adverse events reported in both studies were local administration site reactionsthat were mid or moderate in severity, non-serious, and resolved in time without medicalattention.An article was published by Gerald H. Jordan, M.D. in the Journal of Sexual Medicine in January 2008, titled “The Use of IntralesionalClostridial Collagenase Injection Therapy for Peyronie’s Disease: A Prospective, Single-Center, Non-Placebo Controlled-Study.” The detailsfrom the article’s abstract are as follows:Methods. Twenty-five patients aged 21-75 years who were referred to a single institution with awell-defined Peyronie’s disease plaque were treated with three intralesional injections of clostridialcollagenase 10,000 units in a small volume (0.25 cm3 per injection) administered over 7-10 days,with a repeat treatment (i.e., three injections of collagenase 10,000 units/0.25 cm3 injection over 7-10 days) at 3 months. Primary efficacy measures were changes from baseline in the deviationangle and plaque size. Secondary efficacy end points were patient responses to a Peronie’sdisease questionnaire and improvement according to the investigator’s global evaluation ofchange.6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Main Outcome Measure. The primary efficacy measures were change in deviation angle andchange in plaque size. Secondary and points were patient questionnaire responses andimprovement according to the investigators’ global evaluation of change.Results. Significant decreases from baseline were achieved in the mean deviation angle atmonths 3 (P = 0.0001) and 6 (P = 0.0012), plaque width at months 3 (P = 0.0018) and 6 (P =0.0483). More than 50% of patients in this series considered themselves “very much improved” or“much improved” at all time points in the study, and the drug was generally well tolerated.Conclusion. The benefits of intralesional clostridial collagenase injections in this trial lend supportto prior studies supporting its use in the management of Peyronie’s disease. A double-blind,placebo-controlled study is currently under development.Development StatusIn a press release dated February 2, 2009, Auxilium announced that it has completed patient enrollment in its Phase IIb trial of XIAFLEX forthe treatment of Peyronie’s disease and that all patients have received their first injection of either XIAFLEX or placebo in accordance with thestudy design. Auxilium stated that “due to the high level of interest from patients and physicians, [Auxilium] exceeded its enrollment target of120 patients.” As stated in the press release, “the Phase IIb study is a randomized, double-blind, placebo-controlled study that is designed toassess the safety and efficacy of XIAFLEX, when administered two times a week every six weeks for up to three treatment cycles (2 x 3), insubjects with Peyronie’s disease. The study is being conducted at 12 sites throughout the U.S., and patients will be monitored for 36 weeksfollowing the first injection.” In its presentation materials filed with its Form 8-K on March 19, 2009, Auxilium stated that top line results ofthe IIb trial are expected to be released in the fourth quarter of 2009.Collagenase For Treatment of Frozen Shoulder (Adhesive Capsulitis)Frozen shoulder is a clinical syndrome of pain and decreased motion in the shoulder joint. It is estimated to affect 2-5% of the generalpopulation with a slightly higher incidence in women. It is estimated that 700,000 patients visit doctors annually in the U.S. in connectionwith frozen shoulder. It typically occurs between the ages of 40-70. Individuals with insulin dependent diabetes have been reported to have a36% higher incidence rate and are more likely to have bilateral symptoms.Results of a Phase II randomized double-blind, placebo controlled, dose response study were presented at the annual meeting of theAmerican Academy of Orthopaedic Surgeons (AAOS) in March 2006. Based on Auxilium’s prior review of the data contained in the oralpresentation, they elected to exercise their option to develop and commercialize this additional indication for collagenase injection inDecember 2005. In its Form 10-K filed on February 26, 2009, Auxilium reported that it has started certain non-clinical activities that it believesare necessary for advancing the program to the next stage of clinical trials.Other Clinical Indications For CollagenaseLipomasLipomas are benign fatty tumors that occur as bulges under the skin. An open label clinical trial has been completed for treatment of lipomasutilizing a single injection of collagenase. Based on observations made during preclinical studies that a collagenase injection decreased thesize of fat pads in animals, a Phase I open label clinical trial was conducted. Favorable initial results (10 out of 12 patients had a 50-90%reduction in the size of the lipomas) from this study for treatment of lipomas were presented at a meeting of the American Society of PlasticSurgeons. BioSpecifics has not announced plans for any new studies in lipomas.7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CelluliteCellulite is a condition characterized by dimpling of the skin and a mattress phenomenon typically affecting the thighs and buttocks. It is dueto irregular and discontinuous subcutaneous connective tissue. An open label study has been completed to assess whether injectablecollagenase can restore the cellulite-affected areas to a more cosmetically acceptable appearance. An abstract of an article titled “CollagenaseInjection in the Treatment of Cellulite” by A. Dagum and M.Badalamente, describing the promising results of this study was published inPlastic and Reconstructive Surgery on September 15, 2006. BioSpecifics has not announced plans for any new studies in cellulite.Total Patient ExposureClinical investigations with our collagenase injection have been conducted in the treatment of herniated disc disease, keloids andhypertrophic scars, as an adjunct to vitrectomy, Peyronie’s disease, Dupuytren’s disease, glaucoma, frozen shoulder, lipoma, flexor tendonadhesions and cellulite. In a press release dated March 2, 2009, Auxilium announced that the BLA submission for the treatment ofDupuytren’s disease was based on data from a total of 1,082 patients who received in excess of 2,600 injections for treatment of Dupuytren’sdisease in trials sponsored by Auxilium. In addition, BioSpecifics has treated over 1,200 patients in its own clinical studies.LICENSING AND MARKETING AGREEMENTSTopical Collagenase Agreement In connection with the sale of our topical collagenase business to DFB Biotech, Inc. and its affiliates (“DFB”) in March 2006, we continue toreceive payments for certain technical assistance and certain transition services that we provide to DFB as well as earn out payments basedon the sales of certain products. In 2008, we received $200,000 of technical assistance related payments and as of December 31, 2008, wehave received a total of $1.0 million in consulting fees. Our consulting obligations generally expire during March 2011. In addition, werecognized $0.5 million in earn out payments from DFB in connection with the net sales of topical collagenase in 2008.Auxilium AgreementOn June 3, 2004, we entered into the Prior Auxilium Agreement, which was amended on May 10, 2005 and December 15, 2005,respectively. On December 11, 2008, the parties entered into the Auxilium Agreement, which amended and restated in its entirety the PriorAuxilium Agreement and became effective on December 17, 2008 upon the effectiveness of the Pfizer Agreement between Auxilium andPfizer, pursuant to which Pfizer will market XIAFLEX for the treatment of Dupuytren’s disease and Peyronie’s disease in Europe and variousother territories set forth in the Pfizer Agreement (the “Pfizer Territory”). Under the Auxilium Agreement, in 2009 we received $6.375 millionof the $75 million upfront payment paid to Auxilium by Pfizer and will receive 8.5% of the $410 million in potential additional milestonepayments that may be made by Pfizer to Auxilium under the Pfizer Agreement. Of these additional milestones, $150 million are tied toregulatory milestones and $260 million are based on sales milestones.Under the Auxilium Agreement, we granted to Auxilium exclusive worldwide rights to develop, market and sell certain products containingour injectable collagenase. Auxilium’s licensed rights concern the development of products, other than dermal formulations labeled for topicaladministration, and currently its licensed rights cover the indications of Dupuytren’s disease, Peyronie’s disease and frozen shoulder.Auxilium may further expand the Auxilium Agreement, at its option, to cover other indications that we may develop. Pfizer is responsible formarketing XIAFLEX for both Dupuytren's disease and Peyronie's disease in the Pfizer Territory. In addition, Pfizer will be primarilyresponsible for regulatory activities for XIAFLEX in the Pfizer Territory.The royalty obligations under the Auxilium Agreement extend, on a country-by-country and product-by-product basis, for the longer of thepatent life (including Auxilium patents and patent applications), the expiration of any regulatory exclusivity period or June 3, 2016. Auxiliummay terminate the Auxilium Agreement upon 90 days prior written notice. In January 2006, Auxilium filed a patent application with regard tothe composition and manufacturing process for XIAFLEX which, if granted, would expire in January 2027.8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Auxilium is generally responsible, at its own cost and expense (excluding the third party costs for the development of the lyophilization of theinjection formulation, which are shared equally by the parties), for developing the formulation and finished dosage form of products andarranging for the clinical supply of products. Auxilium is responsible for all clinical development and regulatory costs for Peyronie’s disease,Dupuytren’s disease, frozen shoulder and all additional indications for which they exercise their options.We have the option, exercisable no later than six months after FDA approval of the first New Drug Application (“NDA”) or BLA with respect toa product, to assume the right and obligation to supply, or arrange for the supply from a third party other than a back-up supplier qualified byAuxilium, of a specified portion of Auxilium’s commercial product requirements in all countries and territories of the world excluding thePfizer Territory (the “Auxilium Territory”). The Auxilium Agreement provides that Auxilium may withhold a specified amount of a milestonepayment until (i) we execute an agreement, containing certain milestones, with a third party for the commercial manufacture of the product,(ii) we commence construction of a facility, compliant with Current Good Manufacturing Practices (“cGMP”), for the commercial supply of theproduct or (iii) 30 days after we notify Auxilium in writing that we will not exercise the supply option. If we exercise the supply option,commencing on a specified date from the date of regulatory approval, we will be responsible for supplying either ourselves or through a thirdparty other than a back-up supplier qualified by Auxilium, a specified portion of the commercial supply of the product for the AuxiliumTerritory. If we do not exercise the supply option, then Auxilium will be responsible for arranging for the entire commercial product supply. Inthe event that we do exercise the supply option, then we and Auxilium are required to use commercially reasonable efforts to enter into acommercial supply agreement on customary and reasonable terms and conditions which are not worse than those with back-up suppliersqualified by Auxilium.Auxilium must pay us on a country-by-country and product-by-product basis a specified percentage of worldwide net sales for productscovered by the Auxilium Agreement. Such percentage may vary depending on whether we exercise the supply option. In addition, thepercentage may be reduced if (i) we fail to supply commercial product supply in accordance with the terms of the Auxilium Agreement; (ii)market share of a competing product exceeds a specified threshold; or (iii) Auxilium is required to obtain a license from a third party in order topractice our patents without infringing such third party’s patent rights. In addition, if Auxilium out-licenses to a third party, then we will receivea specified percentage of certain payments made to Auxilium in consideration of such out-licenses.In addition to the payments set forth above, Auxilium must pay to us an amount equal to a specified mark-up of the cost of goods sold forproducts sold by Auxilium or Pfizer that are not manufactured by or on behalf of us, provided that, in the event that we exercise the supplyoption, no payment will be due for so long as we fail to supply the commercial supply of the product in accordance with the terms of theAuxilium Agreement.Auxilium will be obligated to make contingent milestone payments upon the acceptance of the regulatory filing and receipt by Auxilium, itsaffiliate or sublicensee of regulatory approval. Through December 31, 2008, Auxilium paid us up-front licensing and sublicensing fees andmilestone payments under the Auxilium Agreement of $14.4 million. Auxilium could make in excess of $5 million of additional contingentmilestone payments for exercised indications under the Auxilium Agreement if all existing conditions are met. Additional milestoneobligations will be due if Auxilium exercises an option to develop and license XIAFLEX for additional medical indications.In addition to the milestone payments from Auxilium, the Company is entitled, specifically in the case of the Auxilium Agreement, to 8.5% ofall sublicense income that Auxilium receives from Pfizer under the Pfizer Agreement, which includes $410 million in potential milestonepayments that may be made by Pfizer to Auxilium, of which $150 million are tied to regulatory milestones and $260 million are based onsales milestones.In its Form 10-K filed with the SEC on February 26, 2009, Auxilium stated that “it is currently evaluating the options that we have forcommercializing XIAFLEX in other indications and territories of the world.” In the event that Auxilium does license XIAFLEX in otherindications, we will be entitled to receive a certain percentage of sublicense income and milestone payments for such indications pursuant tothe terms of the Auxilium Agreement.A copy of the Auxilium Agreement was filed on Form 8-K with the SEC on December 19, 2008. The foregoing descriptions of the AuxiliumAgreement do not purport to be complete and are qualified in their entirety by reference to the full text of the agreement.In-Licensing and Royalty AgreementsWe have entered into several in-licensing and royalty agreements with various investigators, universities and other entities throughout theyears.9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Dupuytren’s DiseaseOn November 21, 2006, we entered into a license agreement (the “Dupuytren’s License Agreement”) with the Research Foundation of theState University of New York at Stony Brook (the “Research Foundation”), pursuant to which the Research Foundation granted to us and ouraffiliates an exclusive worldwide license, with the right to sublicense to certain third parties, to know-how owned by the Research Foundationrelated to the development, manufacture, use or sale of (i) the collagenase enzyme obtained by a fermentation and purification process (the“Enzyme”), and (ii) all pharmaceutical products containing the Enzyme or injectable collagenase, in each case to the extent it pertains to thetreatment and prevention of Dupuytren’s disease.In consideration of the license granted under the Dupuytren’s License Agreement, we agreed to pay to the Research Foundation certainroyalties on net sales (if any) of pharmaceutical products containing the Enzyme or injectable collagenase for the treatment and prevention ofDupuytren’s disease (each a “Dupuytren’s Licensed Product”).Our obligation to pay royalties to the Research Foundation with respect to sales by the Company, its affiliates or any sublicensee of anyDupuytren’s Licensed Product in any country (including the U.S.) arises only upon the first commercial sale of such Dupuytren’s LicensedProduct on a country-by-country basis. The royalty rate is 0.5% of net sales. Our obligation to pay royalties to the Research Foundation willcontinue until the later of (i) the expiration of the last valid claim of a patent pertaining to the Dupuytren’s Licensed Product; (ii) the expirationof the regulatory exclusivity period conveyed by the FDA’s Orphan Product Division with respect to the Licensed Product or (iii) June 3, 2016.Unless terminated earlier in accordance with its termination provisions, the Dupuytren’s License Agreement and licenses grantedthereunder will continue in effect until the termination of our royalty obligations. Thereafter, all licenses granted to us under the Dupuytren’sLicense Agreement will become fully paid, irrevocable exclusive licenses.Peyronie’s DiseaseOn August 27, 2008, we entered into an agreement to improve the deal terms related to our future royalty obligations for Peyronie’s diseaseby buying down our future royalty obligations with a one-time cash payment. A copy of the agreement was filed on Form 8-K with the SECon September 5, 2008.Frozen ShoulderOn November 21, 2006, we also entered into a license agreement (the “Frozen Shoulder License Agreement”) with the ResearchFoundation, pursuant to which the Research Foundation granted to us and our affiliates an exclusive worldwide license, with the right tosublicense to certain third parties, to know-how owned by the Research Foundation related to the development, manufacture, use or sale of(i) the Enzyme and (ii) all pharmaceutical products containing the Enzyme or injectable collagenase, in each case to the extent it pertains tothe treatment and prevention of frozen shoulder. Additionally, the Research Foundation granted to us an exclusive license to the patentapplications in respect of frozen shoulder. The license granted to us under the Frozen Shoulder License Agreement is subject to the non-exclusive license (with right to sublicense) granted to the U.S. government by the Research Foundation in connection with the U.S.government’s funding of the initial research.In consideration of the license granted under the Frozen Shoulder License Agreement, we agreed to pay to the Research Foundation certainroyalties on net sales (if any) of pharmaceutical products containing the Enzyme or injectable collagenase for the treatment and prevention offrozen shoulder (each a “Frozen Shoulder Licensed Product”). In addition, we and the Research Foundation will share in any milestonepayments and sublicense income received by us in respect of the rights licensed under the Frozen Shoulder License Agreement.Our obligation to pay royalties to the Research Foundation with respect to sales by us, our affiliates or any sublicensee of any FrozenShoulder Licensed Product in any country (including the U.S.) arises only upon the first commercial sale of a Frozen Shoulder LicensedProduct. Our obligation to pay royalties to the Research Foundation will continue until, the later of (i) the expiration of the last valid claim of apatent pertaining to a Frozen Shoulder Licensed Product or (ii) June 3, 2016.10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Unless terminated earlier in accordance with its termination provisions, the Frozen Shoulder License Agreement and licenses grantedthereunder will continue in effect until the termination of our royalty obligations. Thereafter, all licenses granted to us under the FrozenShoulder License Agreement will become fully paid, irrevocable exclusive licenses.In connection with the execution of the Dupuytren’s License Agreement and the Frozen Shoulder License Agreement, certain up-frontpayments were made by us to the Research Foundation and the clinical investigators working on the Dupuytren’s disease and frozenshoulder indications for the Enzyme.Other IndicationsWe have entered into certain other license and royalty agreements with respect to certain other indications that we may elect to pursue.COMPETITIONWe face worldwide competition from larger pharmaceutical companies, specialty pharmaceutical companies and biotechnology firms,universities and other research institutions and government agencies that are developing and commercializing pharmaceutical products.Many of our competitors have substantially greater financial, technical and human resources than we have and may subsequently developproducts that are more effective, safer or less costly than any products that we have developed, are developing or will develop, or that aregeneric products. Our success will depend on our ability to acquire, develop and commercialize products and our ability to establish andmaintain markets for our products that receive marketing approval.RESEARCH AND DEVELOPMENTCost of Research and Development ActivitiesDuring fiscal years 2008 and 2007, the Company invested $439,919 and $2,489,122, respectively, in research and development activities.Dupuytren’s DiseaseFollowing an end-of-Phase II meeting with the FDA, we supplied requisite study drug, initiated and monitored a pivotal clinical trial for thetreatment of Dupuytren’s disease. The results of the Phase III clinical trial with injectable collagenase manufactured by us were published inthe July-August 2007 issue of the Journal of Hand Surgery, as discussed in this Item 1, under the section titled “Collagenase for Treatmentof Dupuytren’s Disease.”Peyronie‘s DiseaseBased on clinical trial protocols submitted to the FDA, we supplied requisite study drug, initiated and monitored clinical investigations for thetreatment of Peyronie’s disease, which were described by Auxilium in their press release dated October 25, 2006. An excerpt of this pressrelease appears in this Item 1, under the section titled “Collagenase for Treatment of Peyronie’s Disease.”Frozen ShoulderWe have supplied requisite study drug, initiated and monitored a Phase II clinical trial using the injectable enzyme in the treatment of frozenshoulder. Three different doses of the enzyme were compared to placebo in this double-blind, randomized trial in 60 patients. The resultsfrom this trial suggest that local injection of the enzyme are encouraging and may be effective in patients suffering from frozen shoulder.Additional studies are needed to assess the optimal dose and dosing regimen of injectable collagenase in this indication. In its press releasedated December 20, 2005, concurrent with its exercise of its option with respect to frozen shoulder, Auxilium reported: “AA4500 is a veryimportant product candidate for Auxilium, and we believe the addition of a third indication for this development program enhances thecommercial potential of AA4500.” In its Form 10-K filed on February 26, 2009, Auxilium stated that an estimated 3% of people develop frozenshoulder over their lifetime and that women tend to be affected more frequently than men.11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Additional Clinical IndicationsLipomasAs described in this Item 1, under the section titled “Other Clinical Indications for Collagenase,” we have supplied requisite study drug,initiated and monitored a positive open label clinical study for the treatment of lipomas with injectable collagenase. These results suggest thepossibility of chemical liposuction BioSpecifics has not announced plans for new studies in lipomas.CelluliteAs described in this Item 1, under the section titled “Other Clinical Indications for Collagenase,” we have referenced the promising open labelclinical trial results for the treatment of cellulite with injectable collagenase. These results suggest the possibility of chemical liposuction.BioSpecifics has not announced plans for new studies in cellulite.New ProductsWe continue to review selectively new technologies and products in the areas of wound healing, tissue remodeling and anti fibrotic therapyfor possible acquisition or in-licensing.GOVERNMENT REGULATIONAll of our products labeled for use in humans require regulatory approval by government agencies prior to commercialization. In particular,human therapeutic products are subject to rigorous preclinical and clinical trials to demonstrate safety and efficacy and other approvalprocedures of the FDA and similar regulatory authorities in foreign countries. Various federal, state, local, and foreign statutes andregulations also govern testing, manufacturing, labeling, distribution, storage and record-keeping related to such products and theirpromotion and marketing. The process of obtaining these approvals and the compliance with federal, state, local, and foreign statutes andregulations require the expenditure of substantial time and financial resources. In addition, the current political environment and the currentregulatory environment at the FDA could lead to increased testing and data requirements which could impact regulatory timelines and costs.Clinical trials involve the administration of the investigational product candidate or approved products to human subjects under thesupervision of qualified investigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study,the parameters to be used in assessing the safety and the effectiveness of the drug. Typically, clinical evaluation involves a time-consumingand costly three-phase sequential process, but the phases may overlap. Each trial must be reviewed, approved and conducted under theauspices of an independent institutional review board, and each trial must include the patient’s informed consent.Clinical testing may not be completed successfully within any specified time period, if at all. The FDA monitors the progress of all clinicaltrials that are conducted in the U.S. and may, at its discretion, reevaluate, alter, suspend or terminate the testing based upon the dataaccumulated to that point and the FDA’s assessment of the risk/benefit ratio to the patient. The FDA can also provide specific guidance on theacceptability of protocol design for clinical trials. The FDA or we may suspend or terminate clinical trials at any time for various reasons,including a finding that the subjects or patients are being exposed to an unacceptable health risk. The FDA can also request that additionalclinical trials be conducted as a condition to product approval. During all clinical trials, physicians monitor the patients to determineeffectiveness and/or to observe and report any reactions or other safety risks that may result from use of the drug candidate.12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Assuming successful completion of the required clinical trials, drug developers submit the results of preclinical studies and clinical trials,together with other detailed information including information on the chemistry, manufacture and control of the product, to the FDA, in theform of a NDA or BLA, requesting approval to market the product for one or more indications. In most cases, the NDA/BLA must beaccompanied by a substantial user fee. The FDA reviews an NDA/BLA to determine, among other things, whether a product is safe andeffective for its intended use.Before approving an application, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve theapplication unless cGMP compliance is satisfactory. The FDA will issue an approval letter if it determines that the application, manufacturingprocess and manufacturing facilities are acceptable. If the FDA determines that the application, manufacturing process or manufacturingfacilities are not acceptable, it will outline the deficiencies in the submission and will often request additional testing or information.Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfythe regulatory criteria for approval and refuse to approve the application by issuing a “not approvable” letter.The testing and approval process requires substantial time, effort and financial resources, which may take several years to complete. TheFDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to securenecessary governmental approvals, which could delay or preclude us from marketing our products. Furthermore, the FDA may prevent adrug developer from marketing a product under a label for its desired indications or place other conditions, including restrictive labeling, ondistribution as a condition of any approvals, which may impair commercialization of the product. After approval, some types of changes to theapproved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA reviewand approval.If the FDA approves the NDA or BLA, the drug can be marketed to physicians to prescribe in the U.S. After approval, the drug developer mustcomply with a number of post-approval requirements, including delivering periodic reports to the FDA (i.e., annual reports), submittingdescriptions of any adverse reactions reported, biological product deviation reporting, and complying with drug sampling and distributionrequirements. The holder of an approved NDA/BLA is required to provide updated safety and efficacy information and to comply withrequirements concerning advertising and promotional labeling. Also, quality control and manufacturing procedures must continue to conformto cGMP after approval. Drug manufacturers and their subcontractors are required to register their facilities and are subject to periodicunannounced inspections by the FDA to assess compliance with cGMP which imposes procedural and documentation requirements relatingto manufacturing, quality assurance and quality control. Accordingly, manufacturers must continue to expend time, money and effort in thearea of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. The FDA may requirepost-market testing and surveillance to monitor the product’s safety or efficacy, including additional studies to evaluate long-term effects.In addition to studies requested by the FDA after approval, a drug developer may conduct other trials and studies to explore use of theapproved drug for treatment of new indications, which require submission of a supplemental or new NDA and FDA approval of the newlabeling claims. The purpose of these trials and studies is to broaden the application and use of the drug and its acceptance in the medicalcommunity.We use, and will continue to use, third party manufacturers to produce our products in clinical quantities. Future FDA inspections mayidentify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, orrequire substantial resources to correct. In addition, discovery of problems with a product or the failure to comply with requirements mayresult in restrictions on a product, manufacturer or holder of an approved NDA/BLA, including withdrawal or recall of the product from themarket or other voluntary or FDA-initiated action that could delay further marketing. Newly discovered or developed safety or effectivenessdata may require changes to a product’s approved labeling, including the addition of new warnings and contraindications. Also, newgovernment requirements may be established that could delay or prevent regulatory approval of our products under development.INTELLECTUAL PROPERTY AND RIGHTSPATENT PROTECTIONPatentsWe are the assignee or licensee of five U.S. patents, which have received patent protection in various foreign countries. In addition, we havelicenses to other pending patent applications. There can be no assurances when, if ever, such patents will be issued, or that such patents ifissued, will be of any value to us.13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The scope of the intellectual property rights held by pharmaceutical firms involves complex legal, scientific and factual questions andconsequently is generally uncertain. In addition, the coverage claimed in a patent application can be significantly reduced before the patent isissued. Consequently, we do not know whether any of our current patent applications, or the products or product candidates we develop,acquire or license will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protectionor will be challenged, circumvented or invalidated. Because patent applications in the U.S. and some other jurisdictions are sometimesmaintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature often lags behind actualdiscoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate ininterference proceedings declared by the U.S. Patent and Trademark Office (the “USPTO”), or a foreign patent office to determine priority ofinvention, or in opposition proceedings in a foreign patent office, either of which could result in substantial cost to us, even if the eventualoutcome is favorable to us. There can be no assurance that the patents, if issued and challenged, in a court of competent jurisdiction wouldbe found valid or enforceable. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to belicensed from third parties or require us to cease using such technology.Although we believe these patent applications, if they issue as patents, will provide a competitive advantage, the patent positions ofpharmaceutical and biotechnology companies are highly uncertain and involve complex legal and factual questions. We may not be able todevelop patentable products or processes and may not be able to obtain patents from pending applications. Even if patent claims are allowed,the claims may not issue, or in the event of issuance, may not be sufficient to protect our technology. In addition, any patents or patent rightswe obtain may be circumvented, challenged or invalidated by our competitors.While we attempt to ensure that our product candidates and the methods we employ to manufacture them do not infringe other parties’patents and proprietary rights, competitors or other parties may assert that we infringe on their proprietary rights. Additionally, because patentprosecution can proceed in secret prior to issuance of a patent, third parties may obtain other patents without our knowledge prior to theissuance of patents relating to our product candidates, which they could attempt to assert against us.Although we believe that our product candidates, production methods and other activities do not currently infringe the intellectual propertyrights of third parties, we cannot be certain that a third party will not challenge our position in the future. If a third party alleges that we areinfringing its intellectual property rights, we may need to obtain a license from that third party, but there can be no assurance that any suchlicense will be available on acceptable terms or at all. Any infringement claim that results in litigation could result in substantial cost to us andthe diversion of management’s attention from our core business. To enforce patents issued to us or to determine the scope and validity ofother parties’ proprietary rights, we may also become involved in litigation or in interference proceedings declared by the USPTO, whichcould result in substantial costs to us or an adverse decision as to the priority of our inventions. We may be involved in interference and/oropposition proceedings in the future. We believe there will continue to be litigation in our industry regarding patent and other intellectualproperty rights.We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that others will notindependently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets ordisclose such technology or that we can meaningfully protect our trade secrets.It is our policy to require certain employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to executeconfidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that allconfidential information developed or made known to the individual during the course of the individual’s relationship with us is to be keptconfidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that allinventions conceived by the individual shall be our exclusive property. There can be no assurance, however, that these agreements willprovide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our success will depend in part on our ability to protect our existing products and the products we acquire or in-license by obtaining andmaintaining a strong proprietary position both in the U.S. and in other countries. To develop and maintain such a position, we intend tocontinue relying upon patent protection, trade secrets, know-how, continuing technological innovations and licensing opportunities. Inaddition, we intend to seek patent protection whenever available for any products or product candidates and related technology we develop oracquire in the future.We licensed to Auxilium our injectable collagenase for the treatment of Dupuytren’s and Peyronie’s diseases as well as frozen shoulder. Inaddition to the marketing exclusivity which comes with its orphan drug status as a treatment for Dupuytren’s and Peyronie’s diseases, theenzyme underlying this product candidate is covered by two use patents in the U.S., one for the treatment of Dupuytren’s disease, whichissued from a reissue proceeding in December 2007, and one for the treatment of Peyronie’s disease. The Dupuytren’s patent expires in2014, and the Peyronie’s patent expires in 2019. Both the Dupuytren’s and Peyronie’s patents are limited to the use of the enzyme for thetreatment of Dupuytren’s and Peyronie’s diseases within certain dose ranges. In its Form 10-K filed with the SEC on February 26, 2009,Auxilium stated that “while XIAFLEX does not have orphan drug status for any indication in Europe, foreign patents cover these products incertain countries, and on approval of XIAFLEX for a first indication in Europe, we expect the product will benefit from 10 years of marketexclusivity and 8 years of data exclusivity. We may obtain an additional year of market exclusivity if the regulatory authorities approve anadditional indication that they determine to represent a significant clinical benefit.”Orphan Drug DesignationsThe FDA’s Office of Orphan Products Development (“OOPD”) administers the major provisions of the Orphan Drug Act (the “Act”), aninnovative program that provides incentives for sponsors to develop products for rare diseases. The incentives for products that qualify underthe Act include seven-year exclusive marketing rights post FDA approval, tax credits for expenses associated with clinical trials including a 20year tax carry-forward, availability of FDA grants, and advice on design of the clinical development plan.The orphan drug provisions of the Federal Food, Drug, and Cosmetic Act also provide incentives to drug and biologics suppliers to developand supply drugs for the treatment of rare diseases, currently defined as diseases that affect fewer than 200,000 individuals in the U.S. or, fora disease that affects more than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developingand making available in the U.S. a drug for such disease or condition will be recovered from its sales in the U.S. Under these provisions, asupplier of a designated orphan product can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will begranted a seven-year period of marketing exclusivity for that product for the orphan indication. It would not prevent other drugs from beingapproved for the same indication.Two indications, Dupuytren’s disease and Peyronie’s disease, have received orphan drug status from the OOPD.EMPLOYEESThe Company currently has five employees, who are all full-time employees.CORPORATE INFORMATIONBioSpecifics Technologies Corp. was incorporated in Delaware in 1990. ABC-NY was incorporated in New York in 1957. Our corporateheadquarters are located at 35 Wilbur St., Lynbrook, NY 11563. Our telephone number is 516-593-7000.Item 1A. RISK FACTORSIn addition to the other information included in this Report, the following factors should be considered in evaluating our business and futureprospects. Any of the following risks, either alone or taken together, could materially and adversely affect our business, financial position orresults of operations. If one or more of these or other risks or uncertainties materialize or if our underlying assumptions prove to be incorrect,our actual results may vary materially from what we projected. There may be additional risks that we do not presently know or that wecurrently believe are immaterial which could also impair our business or financial position.15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Risks Related to Our Limited Sources of RevenueOur future revenue is primarily dependent upon option, milestone and contingent royalty payments from Auxilium andtechnical assistance payments and contingent earn out payments from DFB.Our primary sources of revenues are from (i) option, milestone and contingent royalty payments from Auxilium under the AuxiliumAgreement, (ii) payments from DFB for technical assistance we provide and contingent earn out payments from DFB and (iii) the sale ofsmall amounts of collagenase for laboratory research.Under the Auxilium Agreement, in exchange for the right to receive royalties and other rights, we granted to Auxilium the right to develop,manufacture, market and sell worldwide products (other than dermal formulations for topical administration) that contain collagenase for thetreatment of Dupuytren’s and Peyronie’s diseases and frozen shoulder, subject to certain reversionary rights. However, we may not receiveany royalty payments from Auxilium because we have no control over Auxilium’s decision to pursue commercialization, or its ability tosuccessfully manufacture, market and sell candidate products for the treatment of Dupuytren’s and Peyronie’s diseases, and frozenshoulder. Subject to certain conditions, we have retained an option to manufacture a portion of the developed product for the AuxiliumTerritory licensed to Auxilium after it has been marketed for several years. We have received in the past, and are entitled to receive in thefuture, certain milestone payments from Auxilium in respect of its efforts to commercialize such candidate products. However, we have nocontrol over Auxilium’s ability to achieve the milestones. Additionally, under the Auxilium Agreement, we are entitled to receive 8.5% of allsublicense income that Auxilium receives from Pfizer under the Pfizer Agreement, which payments are dependent on the achievement byPfizer of certain regulatory and sales related milestones, of which we have no control.We have also retained the right to pursue other clinical indications for injectable collagenase, and have granted to Auxilium an option toexpand its license and development rights to one or more additional indications (“Additional Indications”) for injectable collagenase notcurrently licensed to Auxilium, including lipomas and cellulite. The option is exercisable as to any such Additional Indications for which wehave submitted a Phase II clinical trial report to Auxilium and which meet other criteria provided in the Auxilium Agreement. UponAuxilium’s exercise of the option with respect to any Additional Indication, it must pay to us a one-time license fee for the rights to such newindication. In addition, we are also entitled to receive milestone payments and, subject to commercialization of any Additional Indications,royalty payments with respect to any such Additional Indications. If Auxilium does not exercise its option as to any Additional Indication, wemay offer to any third party such development rights with regard to products in the Auxilium Territory, provided that we first offer the sameterms to Auxilium, or to develop the product ourselves. Auxilium has no obligation to exercise its option with respect to any such AdditionalIndication, and its decision to do so is in its complete discretion. Clinical trials can be expensive and the results are subject to differentinterpretations, therefore, there is no assurance that after conducting Phase II clinical trials on any Additional Indication, and incurring theassociated expenses, Auxilium will exercise its option or we will receive any revenue from it. Under the Auxilium Agreement, we may onlyoffer to a third party development rights with regard to products in the Auxilium Territory and not in the Pfizer Territory. Auxilium’s ability todevelop or commercialize Additional Indications in the Pfizer Territory are subject to negotiation with Pfizer under the terms of the PfizerAgreement.As part of the sale of our topical collagenase business to DFB, we are entitled to receive earn out payments in respect of sales of certainproducts developed and manufactured by DFB that contain collagenase for topical administration. However, our right to receive earn outpayments from DFB is dependent upon DFB’s decision to pursue, and its ability to succeed in, the manufacture and commercialization ofsuch products, and achieve certain sales thresholds at which its obligations to pay earn out payments to us would commence. We are awarethat DFB has certain competitive products that may adversely affect the volume of sales of those topical collagenase products for which weare entitled to earn out payments.We also agreed to provide technical assistance to DFB’s affiliate, DPT Lakewood, for a fixed period of time in consideration for certainpayments and we are required to maintain certain scientific resources and records in order to provide such assistance and be entitled toreceive such payments.16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our dependence upon revenue from Auxilium and DFB make us subject to the commercialization and other risk factorsaffecting those two companies over which we have limited or no control.Auxilium has disclosed in its securities filings a number of risk factors to consider when evaluating its business and future prospects. Givenour dependence upon revenue from Auxilium, Auxilium’s operating success or failure has a significant impact on our potential royaltystream and other payment rights. As such, we refer you to the full text of Auxilium’s disclosed risk factors in its securities filings, which weremost recently included on its Form 10-K filed on February 26, 2009.DFB is not a publicly traded company and therefore we have little information about its business and future prospects. Although we cannot becertain, we presume that many of the risk factors affecting Auxilium’s business may have some bearing in evaluating DFB’s ability to meetits payment obligations to us for technical assistance or to generate sufficient sales of topical collagenase products entitling us to receive anyearn out payments.Unstable market conditions may have serious adverse consequences on our business.The recent economic downturn and market instability has made the business climate more volatile and more costly. Our general businessstrategy may be adversely affected by unpredictable and unstable market conditions. If the current equity and credit markets deterioratefurther, or do not improve, it may make any necessary equity or debt financing more difficult, more costly, and more dilutive. While webelieve we have adequate capital resources to meet our expected working capital and capital expenditure requirements until at least the firsthalf of 2012, a radical economic downturn or increase in our expenses could require additional financing on less than attractive rates or onterms that are excessively dilutive to existing stockholders. Failure to secure any necessary financing in a timely manner and on favorableterms could have a material adverse effect on our growth strategy, financial performance and stock price. There is a risk that one or more ofour partners may encounter difficulties during challenging economic times, which could have an adverse effect on our business, results ofoperations and financial condition.Risks Related to Limited Supply of Clinical MaterialsThe FDA’s action in December 2005 to place on hold a clinical trial related to hypertrophic scarring being conducted on ourbehalf by an independent investigator, because of questions regarding certain of our clinical materials, may limit our ability toconduct other clinical trials and to obtain the associated option, milestone and contingent royalty payments under the AuxiliumAgreement.One of the independent investigators who has performed a clinical trial on hypertrophic scarring was notified by the FDA that a clinical holdhas been placed on an investigational new drug (an “IND”) application for that indication. Prior to commencing clinical trials in U.S. interstatecommerce, there must be an effective IND for each of our product candidates. As a result of the clinical hold, the independent investigatorsare not permitted to conduct a clinical trial for that indication under the IND until the FDA releases the hold. Although we believe that theclinical hold only applies to the use of our clinical materials in connection with the indication specified in the clinical hold notification, it ispossible that the FDA might broaden the scope of the clinical hold to cover use of our clinical materials in clinical trials for other indicationsthat we may want to pursue. If the FDA’s hold also limits our ability to conduct clinical trials on other indications, it may make it difficult for usto conduct clinical trials on Additional Indications under the Auxilium Agreement. Consequently, it may limit our ability to obtain the option,milestone and contingent royalty payments under the Auxilium Agreement.We have a limited supply of clinical material, which may limit our ability to conduct other clinical trials and to obtain theassociated option, milestone and contingent royalty payments under our agreement with Auxilium.Although we currently have our own clinical material, if this clinical material is damaged or otherwise becomes unusable, then we may haveinsufficient clinical material to conduct other clinical trials. Although Auxilium has agreed to provide us with additional clinical material, thereis no guaranty that Auxilium will do so. Consequently, the lack of availability of clinical material may limit our ability to obtain the option,milestone and contingent royalty payments under the Auxilium Agreement.Risks Related to our Agreements with Auxilium and DFBOur ability to conduct clinical trials and develop products for dermal formulations for topical or injectable administration ofcollagenase is limited by the agreements we have signed with Auxilium and DFB.Under our agreements with Auxilium and DFB, we have sold, licensed, or granted options to certain of our rights to conduct clinical trials anddevelop products for dermal formulations for topical or injectable administration of collagenase. Under the terms of the Auxilium Agreementand our agreement with DFB, we have agreed to certain non-competition provisions, which limit our clinical development activities.17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Risks Related to our Limited Financial and Employee ResourcesOur limited financial and employee resources limit our ability to develop other indications or products.We currently have only four employees and the sources of revenue described above. Because we have limited internal research capabilities,we are dependent upon independent investigators, pharmaceutical and biotechnology companies and other researchers to conduct clinicaltrials, sell or license products or technologies to us.To end our reliance on Auxilium and DFB for the majority of our revenues, we would need to in-license, acquire, develop and market otherproducts and product candidates. However, we may not be able to successfully identify any commercial products or product candidates to in-license, acquire or internally develop given our limited financial and employee resources. Moreover, negotiating and implementing aneconomically viable in-licensing arrangement or acquisition is a lengthy and complex process. Other companies, including those withsubstantially greater financial, marketing and sales resources, may, if we decide to follow this strategy, compete with us for the in-licensingor acquisition of product candidates and approved products. We may not be able to acquire or in-license the rights to additional productcandidates and approved products on terms that we find acceptable, or at all. If we are unable to in-license or acquire additional commercialproducts or product candidates our ability to grow our business or increase our profits could be severely limited.If we are unable to obtain option payments, milestone and earn out or contingent royalty payments from Auxilium or DFB or meetour needs for additional funding from other sources, we may be required to limit, scale back or cease our operations.Our negative cash flows from operations are expected to continue for at least the foreseeable future. Our business strategy contains elementsthat we will not be able to execute if we do not receive the anticipated option, milestone, royalty or earn out payments from Auxilium or DFB,or secure additional funding from other sources. Specifically, we may need to raise additional capital to:acquire or in-license approved products or product candidates or technologies for development;fund our product development, including clinical trials relating to in-licensed technology and the remaining indications; andcommercialize any resulting product candidates for which we receive regulatory approval.We believe that our existing cash resources and interest on these funds will be sufficient to meet our anticipated operating requirements untilat least the first half of 2012. Our future funding requirements will depend on many factors, including:DFB’s ability to meet its payment obligations and to manufacture and commercialize topical collagenase products for which we wouldreceive earn out payments;Auxilium’s ability to manufacture and commercialize injectable product for which we would receive milestone and royalty payments;Pfizer’s ability to develop and commercialize the product in the Pfizer Territory and Auxilium’s receipt of milestone payments fromPfizer under the Pfizer Agreement for which we would receive a percentage of sublicense income and royalty payments (for moreinformation regarding Auxilium’s financial risks associated with Pfizer under the Pfizer Agreement, we refer you to the full text ofAuxilium’s disclosed risk factors in its securities filings, which were most recently included on its Form 10-K filed on February 26,2009);The amount actually owed to Auxilium for lyophilization related costs;the scope, rate of progress, cost and results of our clinical trials on remaining Additional Indications, including lipomas and cellulite,and whether Auxilium exercises its option to acquire rights to them;the terms and timing of any future collaborative, licensing, co-promotion and other arrangements that we may establish; andthe cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights or defending against anyother litigation.18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.These factors could result in variations from our currently projected operating requirements. If our existing resources are insufficient to satisfyour operating requirements, we may need to limit, scale back or cease operations or, in the alternative, borrow money. Given our operationsand history, we may not be able to borrow money on commercially reasonable terms, if at all. If we issue any equity or debt securities, theterms of such issuance may not be acceptable to us and would likely result in substantial dilution of our stockholders’ investment. If we donot receive revenues from Auxilium or DFB, and are unable to secure additional financing, we may be required to cease operations.In order to finance and to secure the rights to conduct clinical trials for products we have licensed to Auxilium, we have grantedto third parties significant rights to share in royalty payments received by us.To finance and secure the rights to conduct clinical trials for products we have licensed to Auxilium, we have granted to third parties certainrights to share in royalty payments received by us from Auxilium under the Auxilium Agreement. Consequently, we will be required to sharea significant portion of the payments due from Auxilium under the Auxilium Agreement.Risks Related to the Age and Qualifications of the Members of Our Board of DirectorsBecause of the age of some of our independent Board members, we may have to find replacements shortly, and due to ourfinancial condition and SEC compliance history this may be difficult, which could impact our ability to remain listed onNasdaq.The four independent members of our Board, who are also members of our audit committee (the “Audit Committee”), are eighty-eight, sixty-nine, sixty-eight and sixty years old, respectively, as of December 31, 2008. Upon the retirement, incapacity or death of one or more of ourindependent Board members, we would have to find replacements in a short period of time. In light of our financial condition and SECcompliance history, it may be difficult to find any replacements for our independent Board members. If we fail to find replacements in a timelymanner, our ability to remain listed on the Nasdaq Global Market (“Nasdaq”) and our common stock price may be negatively impacted.Risks Related to Regulatory RequirementsWe are subject to numerous complex regulatory requirements and failure to comply with these regulations, or the cost ofcompliance with these regulations, may harm our business.Conducting clinical trials, and the testing, development and manufacturing and distribution of any product candidates are subject to regulationby numerous governmental authorities in the U.S. and other jurisdictions, if we desire to export the resulting products to such otherjurisdictions. These regulations govern or affect the testing, manufacture, safety, labeling, storage, record-keeping, approval, distribution,advertising and promotion of any product candidates, as well as safe working conditions. Noncompliance with any applicable regulatoryrequirements can result in suspension or termination of any ongoing clinical trials of a product candidate or refusal of the government toapprove product candidate for commercialization, criminal prosecution and fines, recall or seizure of products, total or partial suspension ofproduction, prohibitions or limitations on the commercial sale of products or refusal to allow the entering into of federal and state supplycontracts. The FDA and comparable governmental authorities have the authority to suspend or terminate any ongoing clinical trials of aproduct candidate or withdraw product approvals that have been previously granted. Currently, there is a substantial amount of congressionaland administrative review of the FDA and the regulatory approval process for drug candidates in the U.S. As a result, there may be significantchanges made to the regulatory approval process in the U.S. In addition, the regulatory requirements relating to the development,manufacturing, testing, promotion, marketing and distribution of product candidates may change in the U.S. Such changes may increase ourcosts and adversely affect our operations.19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Additionally, failure to comply with or changes to the regulatory requirements that are applicable, or may become applicable to us or anyproduct candidates we may develop or obtain, may result in a variety of consequences, including the following:restrictions on our products or manufacturing processes;warning letters;withdrawal of a product candidate from the market;voluntary or mandatory recall of a product candidate;fines;suspension or withdrawal of regulatory approvals for a product candidate;refusal to permit the import or export of our products;refusal to approve pending applications or supplements to approved applications that we submit;denial of permission to file an application or supplement in a jurisdiction;product seizure; andinjunctions or the imposition of civil or criminal penalties against us.We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have theoperating effectiveness of our internal controls attested to by our independent auditors.As directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”), or SOX 404, the SEC adopted rules requiring public companies toinclude a report of management on the company’s internal controls over financial reporting in its annual reports, including Form 10-KSB. Wewere subject to this requirement commencing with our fiscal year ending December 31, 2007 and a report of our management is includedunder Item 9A(T) of this Report. In addition, SOX 404 requires the independent registered public accounting firm auditing a company’sfinancial statements to also attest to and report on the operating effectiveness of such company’s internal controls. However, this Report doesnot include an attestation report because under current securities laws, we are not subject to these requirements until our annual report forthe fiscal year ending December 31, 2009. We can provide no assurance that we will comply with all of the requirements imposed thereby.There can be no assurance that we will receive a positive attestation from our independent auditors. In the event that we identify significantdeficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive apositive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in thereliability of our financial statements.Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable laws andregulations and we have and will continue to incur costs relating to compliance with applicable laws and regulations.We are a small company and we rely heavily on third parties and outside consultants to conduct many important functions. As abiopharmaceutical company, we are subject to a large body of legal and regulatory requirements. In addition, as a publicly traded company weare subject to significant regulations, including SOX, some of which have only recently been revised or adopted. We cannot assure you thatwe are or will be in compliance with all potentially applicable laws and regulations. Failure to comply with all potentially applicable laws andregulations could lead to the imposition of fines, cause the value of our common stock to decline, impede our ability to raise capital or list oursecurities on certain securities exchanges. The new rules could make it more difficult or more costly for us to obtain certain types ofinsurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incursubstantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attractand retain qualified persons to serve on our board of directors, our board committees and as executive officers. We cannot predict or estimatethe amount of the additional costs we may incur or the timing of such costs to comply with these rules and regulations.20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Risks Related to Growth and EmployeesOur failure to successfully in-license or acquire additional technologies, product candidates or approved products could impairour ability to grow or continue to operate.We may decide to pursue other opportunities to in-license, acquire, develop and market additional products and product candidates so that weare not solely reliant on Auxilium and DFB sales for our revenues. Because we have limited internal research capabilities, we are dependentupon pharmaceutical and biotechnology companies and other researchers and independent investigators to sell or license products ortechnologies to us. The success of this strategy depends upon our ability to identify, select and acquire the right pharmaceutical productcandidates, products and technologies.We may not be able to successfully identify any commercial products or product candidates to in-license, acquire or internally develop.Moreover, negotiating and implementing an economically viable in-licensing arrangement or acquisition is a lengthy and complex process.Other companies, including those with substantially greater financial, marketing and sales resources, may compete with us for the in-licensing or acquisition of product candidates and approved products. We may not be able to acquire or in-license the rights to additionalproduct candidates and approved products on terms that we find acceptable, or at all. If we are unable to in-license or acquire additionalcommercial products or product candidates we may be reliant solely on Auxilium and DFB sales for revenues. As a result, our ability to growour business or increase our revenues could be severely limited.If we are able to develop any product candidates for Additional Indications of injectable collagenase, we may not be able toobtain option, milestone or royalty payments under the Auxilium Agreement, which could impair our ability to grow and couldcause a decline in the price of our common stock.The process of conducting clinical trials and developing product candidates involves a high degree of risk and may take several years. Productcandidates that appear promising in the early phases of development may fail to reach the market for several reasons, including:clinical trials may show product candidates to be ineffective or not as effective as anticipated or to have harmful side effects or anyunforeseen result;product candidates may fail to receive regulatory approvals required to bring the products to market;manufacturing costs, the inability to scale up to produce supplies for clinical trials or other factors may make our product candidatesuneconomical; andthe proprietary rights of others and their competing products and technologies may prevent product candidates from being effectivelycommercialized or to obtain exclusivity.Success in preclinical and early clinical trials does not ensure that large-scale clinical trials will be successful. Clinical results are frequentlysusceptible to varying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete clinicaltrials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly and may be difficultto predict. Currently, there is substantial congressional and administration review of the regulatory approval process for drug candidates in theU.S. Any changes to the U.S. regulatory approval process could significantly increase the timing or cost of regulatory approval for a productcandidates making further development uneconomical or impossible. In addition, once Auxilium exercises its option with respect to anyproduct candidate for any Additional Indications, further clinical trials, development, manufacturing, marketing and selling of such product isout of our control. Our interest is limited to receiving option, milestone and royalty payment, and the option in certain circumstances tomanufacture according to particular specifications set by Auxilium.21Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Any product acquisition or development efforts also could result in large and immediate write-offs, incurrence of debt and contingent liabilitiesor amortization of expenses related to intangible assets, any of which could negatively impact our financial results.Adverse events or lack of efficacy in clinical trials may force us and/or our partners whom we are wholly dependent upon to stopdevelopment of our product candidates or prevent regulatory approval of our product candidates, which could materially harmour business.If we decide to proceed with conducting clinical trials with respect to any Additional Indications, adverse events or lack of efficacy may force usto stop development of our product candidates or prevent regulatory approval of our product candidates, which could materially harm ourbusiness. In addition, any adverse events or lack of efficacy may force Auxilium to stop development of the products we have licensed tothem or prevent regulatory approval of such products, which could materially impair all or a material part of the future revenue we hope toreceive from Auxilium.We face competition in our product development efforts from pharmaceutical and biotechnology companies, universities andother not-for-profit institutions.We face competition in our product development from entities that have substantially greater research and product development capabilitiesand greater financial, scientific, marketing and human resources. These entities include pharmaceutical and biotechnology companies, aswell as universities and not-for-profit institutions. Our competitors may succeed in developing products or intellectual property earlier than wedo, entering into successful collaborations before us, obtaining approvals from the FDA or other regulatory agencies for such products beforeus, or developing products that are more effective than those we could develop. The success of any one competitor in these or other respectswill have a material adverse effect on our business, our ability to receive option payments from Auxilium or ability to generate revenues fromthird party arrangements with respect to the Additional Indications (to the extent that Auxilium does not exercise its option with respect to anAdditional Indication).Because of the specialized nature of our business, the termination of relationships with key management, consulting andscientific personnel or the inability to recruit and retain additional personnel could prevent us from developing ourtechnologies, conducting clinical trials and obtaining financing.The competition for qualified personnel in the biotechnology field is intense, and we rely heavily on our ability to attract and contract withqualified independent scientific and medical investigators, and technical and managerial personnel. We face intense competition for qualifiedindividuals from numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well as academic and other researchinstitutions. To the extent we are unable to attract and retain any of these individuals on favorable terms our business may be adverselyaffected.If product liability lawsuits are brought against us, we may incur substantial liabilities.We continue to have product liability exposure for topical product sold by us prior to the sale of our topical business to DFB. In addition, underthe Auxilium Agreement, we are obligated to indemnify Auxilium and its affiliates for any harm or losses they suffered relating to anypersonal injury and other product liability resulting from our development, manufacture or commercialization of any injectable collagenaseproduct. In addition, the clinical testing and, if approved, commercialization of our product candidates involves significant exposure to productliability claims. We have clinical trial and product liability insurance in the aggregate amount of $3 million dollars that covers us and theclinical trials of our other product candidates that we believe is adequate in both scope and amount and has been placed with what we believeare reputable insurers. Our current and future coverage may, however, not be adequate to protect us from all the liabilities that we may incur.If losses from product liability claims exceed our insurance coverage, we may incur substantial liabilities that exceed our financial resources.Whether or not we are ultimately successful in product liability litigation, such litigation could consume substantial amounts of our financialand managerial resources, and might result in adverse publicity, all of which could impair our business. We may not be able to maintain ourclinical trial and product liability insurance at an acceptable cost, if at all, and this insurance may not provide adequate coverage againstpotential claims or losses. If we are required to pay a product liability claim, we may not have sufficient financial resources and our businessand results of operations may be harmed.22Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Risks Related to Intellectual Property RightsIf we breach any of the agreements under which we license rights to products or technology from others, we could lose licenserights that are critical to our business and our business could be harmed.We are a party to a number of license agreements by which we have acquired rights to use the intellectual property of third parties that arenecessary for us to operate our business. If any of the parties terminate their agreements, whether by their terms or due to a breach by us,our right to use their intellectual property may negatively affect our licenses to Auxilium or DFB and, in turn, their obligation to make option,milestone, contingent royalty or other payments to us.Our ability and the ability of out licensors, licensees and collaborators to develop and license products based on our patentsmay be impaired by the intellectual property of third parties.Auxilium’s, DFB’s and our commercial success in developing and manufacturing collagenase products based on our patents is dependenton these products not infringing the patents or proprietary rights of third parties. While we currently believe that we, our licensees, licensorsand collaborators have freedom to operate in the collagenase market, others may challenge that position in the future. There has been, andwe believe that there will continue to be, significant litigation in the pharmaceutical industry regarding patent and other intellectual propertyrights.Third parties could bring legal actions against us, our licensees, licensors or collaborators claiming damages and seeking to enjoin clinicaltesting, manufacturing and marketing of the affected product or products. A third party might request a court to rule that the patents we in-licensed or licensed to others, or those we may in-license in the future, are invalid or unenforceable. In such a case, even if the validity orenforceability of those patents were upheld, a court might hold that the third party’s actions do not infringe the patent we in-license or licenseto others thereby, in effect, limiting the scope of our patent rights and those of our licensees, licensors or collaborators. We are obligated byour agreements with Auxilium and DFB to indemnify them against any claims for infringement based on the use of our technology. If webecome involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. IfAuxilium or DFB becomes involved in such litigation, it could also consume a substantial portion of their resources, regardless of theoutcome of the litigation, thereby jeopardizing their ability to commercialize candidate products and/or their ability to make option, milestoneor royalty payments to us. If any of these actions are successful, in addition to any potential liability for damages, we could be required toobtain a license to permit ourselves, our licensees, licensors or our collaborators to conduct clinical trials, manufacture or market the affectedproduct, in which case we may be required to pay substantial royalties or grant cross-licenses to our patents. However, there can be noassurance that any such license will be available on acceptable terms or at all. Ultimately, we, our licensees, licensors or collaborators couldbe prevented from commercializing a product, or forced to cease some aspect of their or our business, as a result of patent infringementclaims, which could harm our business or right to receive option, milestone and contingent royalty payments.Risks Related to our Common StockAlthough we currently meet the listing requirements for Nasdaq, our common stock could be delisted from Nasdaq.The National Association of Securities Dealers, Inc. has established certain standards for the continued listing of a security on Nasdaq, whichare applicable to the continued listing of our common stock. In light of the current economic slowdown, Nasdaq has temporarily suspendedcertain of its continued listing requirements regarding minimum bid price and market value of publicly held shares. These rules will bereinstated on July 20, 2009. Nasdaq has not indicated any further suspension of those requirements beyond that date.If we are unsuccessful in maintaining our Nasdaq listing, then we may pursue listing and trading of our common stock on the Over-The-Counter Bulletin Board or another securities exchange or association with different listing standards than Nasdaq.If securities analysts do not publish research or reports about our business or if they downgrade us or our or our sector, theprice of our common stock could decline.The trading market for our common stock will depend in part on research and reports that industry or financial analysts publish about us orour business. We are not currently covered by any research analysts. Furthermore, if the analysts who cover us in the future downgrade usor the industry in which we operate or the stock of any of our competitors, the price of our common stock will probably decline.23Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Future sales of our common stock could negatively affect our stock price.If our common stockholders sell substantial amounts of common stock in the public market, or the market perceives that such sales mayoccur, the market price of our common stock could decline. In addition, we may need to raise additional capital in the future to fund ouroperations. If we raise additional funds by issuing equity securities, our stock price may decline and our existing stockholders mayexperience dilution of their interests. Because we historically have not declared dividends, stockholders must rely on an increase in the stockprice for any return on their investment in us.Our stock price has, in the past, been volatile, and the market price of our common stock may drop below the current price.Our stock price has, at times, been volatile. Currently, our common stock is traded on Nasdaq and is thinly traded. Market prices forsecurities of pharmaceutical, biotechnology and specialty pharmaceutical companies have been particularly volatile. Some of the factors thatmay cause the market price of our common stock to fluctuate include:listing of our common stock on a securities exchange or market;results of our clinical trials;failure of any product candidates we have licensed to Auxilium or sold to DFB to achieve commercial success;regulatory developments in the U.S. and foreign countries;developments or disputes concerning patents or other proprietary rights;litigation involving us or our general industry, or both;future sales of our common stock by the estate of our former Chairman and CEO or others;changes in the structure of healthcare payment systems, including developments in price control legislation;departure of key personnel;announcements of material events by those companies that are our competitors or perceived to be similar to us;changes in estimates of our financial results;investors’ general perception of us; andgeneral economic, industry and market conditions.If any of these risks occurs, or continues to occur, it could cause our stock price to fall and may expose us to class action lawsuits that, even ifunsuccessful, could be costly to defend and a distraction to management.We have no current plan to pay dividends on our common stock and investors may lose the entire amount of their investment.We have no current plans to pay dividends on our common stock. Therefore, investors will not receive any funds absent a sale of theirshares. We cannot assure investors of a positive return on their investment when they sell their shares nor can we assure that investors willnot lose the entire amount of their investment.24Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our outstanding options to purchase shares of common stock could have a possible dilutive effect.As of December 31, 2008, options to purchase 1,427,100 shares of common stock were outstanding. In addition, as of December 31, 2008 atotal of 194,098 options were available for grant under our stock option plans. The issuance of common stock upon the exercise of theseoptions could adversely affect the market price of the common stock or result in substantial dilution to our existing stockholders.Provisions in our certificate of incorporation, bylaws and stockholder rights agreement may prevent or frustrate a change incontrol.Provisions of our certificate of incorporation, bylaws (as amended) and stockholder rights agreement may discourage, delay or prevent amerger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwisereceive a premium for your shares. These provisions:provide for a classified board of directors;give our Board the ability to designate the terms of and issue new series of preferred stock without stockholder approval, commonlyreferred to as “blank check” preferred stock, with rights senior to those of our common stock;limit the ability of the stockholders to call special meetings; andimpose advance notice requirements on stockholders concerning the election of directors and other proposals to be presented atstockholder meetings.In addition, during May 2002, the Board implemented a rights agreement (commonly known as a “Poison Pill”), which effectivelydiscourages or prevents acquisitions of more than 15% of our common stock in transactions (mergers, consolidations, tender offer, etc.) thathave not been approved by our Board. These provisions could make it more difficult for common stockholders to replace members of theBoard. Because our Board is responsible for appointing the members of our management team, these provisions could in turn affect anyattempt to replace the current management team.If our principal stockholders, executive officers and directors choose to act together, they may be able to control our operations,acting in their own best interests and not necessarily those of other stockholders.As of March 2, 2009 our executive officers, directors and their affiliates, in the aggregate, beneficially owned shares representingapproximately 34.9% of our common stock, although sales by the estate of Edwin H. Wegman, our former Chairman and CEO, may resultin a change of control of certain of these shares. Beneficial ownership includes shares over which an individual or entity has investment orvoting power and includes shares that could be issued upon the exercise of options within 60 days. As a result, if these stockholders were tochoose to act together, they may be able to control all matters submitted to our stockholders for approval, as well as our management andaffairs. For example, these individuals, if they chose to act together, could control the election of directors and approval of any merger,consolidation or sale of all or substantially all of our assets. This concentration of ownership could have the effect of delaying, deferring orpreventing a change in control or impeding a merger or consolidation, takeover or other business combination that could be favorable to otherstockholders.This significant concentration of share ownership may adversely affect the trading price for our common stock because investors oftenperceive disadvantages in owning stock in companies with controlling stockholders.Changes in the expensing of stock-based compensation will result in unfavorable accounting charges and may require us tochange our compensation practices. Any change in our compensation practices may adversely affect our ability to attract andretain qualified scientific, technical and business personnel.In the past, we have relied on stock options to compensate existing directors, employees and attract new employees and consultants. TheFinancial Accounting Standards Board (“FASB”) has announced new rules for recording expense for the fair value of stock options. As a resultof these new rules, commencing on January 1, 2006, we will expense the fair value of stock options, thereby increasing our operatingexpenses and reported losses. Although we may continue to include various forms of equity in our compensation plans, if the extent to whichwe use forms of equity in our plans is reduced due to the negative effects on earnings, it may be difficult for us to attract and retain qualifiedscientific, technical and business personnel.25Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item IB. UNRESOLVED STAFF COMMENTSNone.SUBSEQUENT EVENTSOn January 6, 2009 the Company announced that it will hold its 2009 Annual Meeting of Stockholders on June 17, 2009 at the New Yorkoffices of Bingham McCutchen LLP, located at 399 Park Avenue, New York, NY 10022 and that the deadline for stockholders to submitproposals to be included in our proxy statement with respect to the 2009 Annual Meeting of Stockholders was February 6, 2009.On January 9, 2009 the Company’s common became listed and commenced trading on the Nasdaq Global Market under the symbol“BSTC.”On January 30, 2009, the Company received an upfront sublicense payment of $6.375 million from Auxilium in accordance with the termsof the Auxilium Agreement.In a press release dated February 2, 2009, Auxilium announced that it has completed patient enrollment in its Phase IIb trial of XIAFLEX forthe treatment of Peyronie’s disease and that all patients have received their first injection of either XIAFLEX or placebo in accordance with thestudy design.In a press release dated March 2, 2009, Auxilium announced that it filed a BLA for the treatment of Dupuytren’s disease on February 27,2009. Auxilium also announced that it has requested a Priority Review designation for the BLA submission from the FDA and that it expectsto hear from the FDA on Priority Review designation within approximately 60 days of the filing date.Item 2. DESCRIPTION OF PROPERTY.As of December 31, 2007 we leased one facility in Lynbrook, New York. The New York facility is our administrative headquarters andcontains approximately 3,500 square feet of office space and 11,500 square feet of laboratory, production, and storage facilities. As part of theagreement with DFB, DFB agreed to sublease a part of the New York facility for a period of one year, which expired on March 2, 2007, for anall inclusive monthly payment of $15,500. DFB extended its sublease until March 6, 2008 and paid $16,500 per month during this extendedlease period. In April 2008, DFB extended its sublease until March 3, 2009 and paid $19,000 per month during the extended lease period. Inaccordance with the sublease extension, in July 2008 DFB provided notice of the termination of its obligations under the sublease, effectiveas of September 1, 2008. We lease this facility from WSC and are currently negotiating with WSC a reduction of the rent price of the facilitybut as of the date of this filing the parties have not reached an agreement regarding such reduction.WSC was an affiliate of Edwin H. Wegman, our former Chairman and CEO, until Edwin H. Wegman’s death. At the present time theownership of WSC is unclear. However, our President, Thomas L. Wegman, is the senior most officer of WSC.Item 3. LEGAL PROCEEDINGS.None.Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.Our 2008 Annual Meeting of Stockholders was held on September 9, 2008 at the offices of Thelen LLP in New York, New York, inaccordance with the Notice of Annual Meeting of Stockholders sent on or about August 14, 2008. The tables below present the voting resultsof the matters voted upon by our stockholders at the meeting:26Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Proposal 1: Election of DirectorsAt the meeting, each of the nominees listed below was elected to our Board of Directors to serve as director until the end of his or herrespective term and received the number votes set forth after their respective names below.Nominee*ForNumber ofShares AgainstAbstainToby Wegman4,555,895544,6530Dr. Mark Wegman4,354,850645,698100,000_____________* The Board is divided into three classes, each of which serves for a term of three years, with only one class of directors being elected in eachyear. Each director holds office for the term for which elected and until his or her successor shall be elected and shall qualify and be subject tosuch director’s earlier death, resignation or removal. The term of office of the first class of directors, presently consisting of Thomas L.Wegman, Dr. Paul A. Gitman and Dr. Matthew Geller, is scheduled to expire at the 2009 Annual Meeting of Stockholders; the term of office ofthe second class of directors, presently consisting of Henry Morgan and Michael Schamroth is scheduled to expire on the date of the 2010Annual Meeting of Stockholders; and the third class of directors, which was elected at our 2008 Annual Meeting of Stockholders, consisting ofToby Wegman and Dr. Mark Wegman is now scheduled to expire at the 2011 Annual Meeting of Stockholders. Dr. Matthew Geller wasappointed to the Board on September 22, 2008 to serve in the first class until the end of the applicable term.Proposal 2: Ratification of the selection of Tabriztchi & Co. CPA, P.C. as our independent registered public accounting firm forthe fiscal year ending December 31, 2008.At the meeting, our stockholders ratified by the vote set forth below the selection of Tabriztchi & Co. CPA, P.C. as our independent registeredpublic accounting firm for the fiscal year ending December 31, 2008. Number of Shares ForAgainstAbstainBroker Non-Votes4,661,430245,713193,4050The number of shares of our common stock eligible to vote as of the record date of July 23, 2008 was 5,950,801 shares.PART IIItem 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS.Market InformationOur common stock currently trades under the symbol BSTC on the Nasdaq Global Market (“Nasdaq”). We were listing and commencedtrading on Nasdaq on January 9, 2009. From January 29, 2008 through market close on January 8, 2009, our common stock was quotedand traded on the Over-The-Counter Bulletin Board (the “OTCBB”) under the symbol BSTC. Prior to January 29, 2008, our common stockwas quoted on the Pink Sheets.The table below sets forth the high and low closing sale prices for our common stock for each of the quarterly periods in 2008 and 2007 asreported by and as quoted in the OTCBB, on which we traded under the symbol BSTC.OB until we obtained listing on Nasdaq:2008HIGHLOWFourth Quarter$22.00$11.75Third Quarter$22.50$17.00Second Quarter$19.00$11.00First Quarter$14.90$9.50 2007HIGHLOWFourth Quarter$10.25$5.50Third Quarter$6.00$4.50Second Quarter$4.70$4.10First Quarter$4.65$4.0027Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.HoldersAs of March 2, 2009, to the best of our knowledge, there were approximately 750 beneficial stockholders of our common stock.DividendsIt is our current policy to retain potential earnings to finance the growth and development of our business and not pay dividends. Any paymentof cash dividends in the future will depend upon our financial condition, capital requirements and earnings as well as such other factors asthe Board may deem relevant.Transfer AgentOur common shares are issued in registered form. The registrar and transfer agent for our common shares is OTC Corporate TransferService Co., 52 Maple Run Drive, Jericho, New York 11753 (Telephone: 516-932-2080; Facsimile: 516-932-2078; Website:www.otccorporatetransferservice.com). We have no other exchangeable securities.Equity Compensation Plan Information.The following table provides information as of December 31, 2008 with respect to the shares of our common stock that may be issued underour existing equity compensation plans: Number of securities to be issued upon exercise of outstanding options, warrants and rightsWeighted-average exercise price of outstanding options, warrants and rightsNumber of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a)(b)(c)Equity compensation plans approved by securityholders(1)1,427,100$4.25194,098Equity compensation plans not approved by securityholders---Total1,427,100$4.25194,098(1) Please see Note 9, “Stockholders’ Equity,” of the notes to the consolidated financial statements for a description of the material features of eachof our plans.28Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Performance Graph Not applicable. Recent Sales of Unregistered SecuritiesThe Company engaged in multiple issuances of unregistered securities, as described below.The Company sold shares of its common stock in the following transactions, in which its shares were offered and sold in reliance on Section4(2) of the Securities Act of 1933 (the “Act”) as private placements of securities that are exempt from the registration requirements of the Act.In each of the following transactions the shares were sold to financially sophisticated investors who had access to the sort of informationwhich registration under the Act would disclose. Additionally, no commissions were paid and no general solicitation was made to any personor entity in connection with the sale of the shares in any of the following transactions.On January 14, 2008, the Company sold 200,000 shares of its common stock in a private placement offering to Apis Capital Advisors LLCon behalf of various funds advised by them at a purchase price of $10.50 per share, for aggregate proceeds to the Company of $2,100,000.On May 30, 2008, the Company sold 100,000 shares of its common stock in a private placement offering to an investment fund at apurchase price of $13.00 per share, for aggregate proceeds to the Company of $1,300,000.On June 9, 2008, the Company sold 100,000 shares of its common stock in a private placement offering to certain private investors at apurchase price of $15.00 per share, for aggregate proceeds to the Company of $1,500,000.On August 19, 2008, the Company sold 50,000 shares of its common stock in a private placement offering to an investment fund at apurchase price of $22.50 per share, for aggregate proceeds to the Company of $1,125,000.Item 6. SELECTED FINANCIAL DATANot applicable.Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONThis annual report on Form 10-K (the “Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Actof 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements ofhistorical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or otherfinancial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed newproducts or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and anystatement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use ofterminology such as “may,” “will,” “expects,” “plans,” “anticipates,” estimates,” “potential,” or “continue” or the negative thereof or othercomparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this report arereasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actualresults could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results ofoperations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the riskfactors set forth above, and for the reasons described elsewhere in this report. All forward-looking statements and reasons why results maydiffer included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements orreasons why actual results might differ.OverviewWe are a biopharmaceutical company involved in the development of an injectable collagenase for multiple indications. We have adevelopment and license agreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase (which Auxilium hasnamed “XIAFLEX TM” (formerly known as “AA4500”)) for clinical indications in Dupuytren’s disease, Peyronie’s disease and frozen shoulder(adhesive capsulitis), and Auxilium has an option to acquire additional indications that we may pursue, including cellulite and lipomas.29Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The most advanced indications are for the treatment of Dupuytren’s disease, Peyronie’s disease and frozen shoulder. On June 3, 2004, weentered into a development and license agreement with Auxilium, as amended on May 10, 2005 and December 15, 2005, respectively (the“Prior Auxilium Agreement”), pursuant to which we granted to Auxilium an exclusive worldwide license to develop products containing ourinjectable collagenase for the treatment of Dupuytren’s disease, Peyronie's disease and frozen shoulder, as well as an exclusive option todevelop and license the technology for use in additional indications other than dermal formulations labeled for topical administration.On December 11, 2008, the parties amended and restated the development and license agreement (the “Auxilium Agreement”), whichbecame effective on December 17, 2008 upon the execution and effectiveness of the Development, Commercialization and SupplyAgreement, dated December 17, 2008 (the “Pfizer Agreement”) between Auxilium International Holdings, Inc., a wholly owned subsidiary ofAuxilium, and Pfizer, Inc. (“Pfizer”), pursuant to which Pfizer will market XIAFLEX for the treatment of Dupuytren’s disease and Peyronie’sdisease in Europe and various other territories. The Auxilium Agreement amends and restates in its entirety the Prior Auxilium Agreement.The Auxilium Agreement and other licensing agreements are discussed more fully in Item 1, under the section titled “Licensing andMarketing Agreements.”OutlookWe foresee the potential to generate income from limited sources in the next several years. Under the terms of our agreement with DFB, weare scheduled to receive certain contractual anniversary payments and, if DFB exceeds a certain sales target, we would be entitled to an earnout on sales. Under the terms of our agreement with Auxilium, we may receive milestone payments upon their achieving certain regulatoryprogress and if Auxilium elects to pursue additional indications for injectable collagenase (“Additional Indications”) as well as 8.5% of allsublicense income that Auxilium may receive from Pfizer under the Pfizer Agreement.The Company sold shares of its common stock in the following transactions, in which its shares were offered and sold in reliance on Section4(2) of the Securities Act of 1933 (the “Act”) as private placements of securities that are exempt from the registration requirements of the Act.On January 14, 2008, the Company sold 200,000 shares of it common stock in a private placement offering to Apis Capital Advisors LLC onbehalf of various funds advised by them at a purchase price of $10.50 per share, for aggregate proceeds to the Company of $2,100,000.On May 30, 2008, the Company sold 100,000 shares of it common stock in a private placement offering to an investment fund at a purchaseprice of $13.00 per share, for aggregate proceeds to the Company of $1,300,000.On June 9, 2008, the Company sold 100,000 shares of it common stock in a private placement offering to certain private investors at apurchase price of $15.00 per share, for aggregate proceeds to the Company of $1,500,000.On August 19, 2008, the Company sold 50,000 shares of it common stock in a private placement offering to an investment fund at apurchase price of $22.50 per share, for aggregate proceeds to the Company of $1,125,000.On February 1, 2008, the Estate of Edwin H. Wegman (the “Estate”) sold an aggregate of 344,114 shares of the Company's common stock,par value $0.001, at a purchase price of $12.00 per share to certain private investors. The Estate used certain of the proceeds of thetransaction to repay the loan owed to the Company by Edwin H. Wegman, our former Chairman and CEO. The total loan repaymentamount was $1,116,558, which represents the principal amount of $625,774 owed to the Company and accrued interest through January31, 2008 of $490,784.Additionally, on December 11, 2008 the Company and Auxilium entered into the Auxilium Agreement, which became effective on December17, 2008 upon the execution and effectiveness of the Pfizer Agreement, pursuant to which Pfizer will market XIAFLEX for the treatment ofDupuytren’s disease and Peyronie’s disease in Europe and various other territories. The Auxilium Agreement amends and restates in itsentirety the Prior Auxilium Agreement. Under the Auxilium Agreement, we recognized in 2008 $6.375 million of the $75 million upfrontpayment paid to Auxilium by Pfizer and will receive 8.5% of the $410 million in potential additional milestone payments that may be madeby Pfizer to Auxilium under the Pfizer Agreement. Of these additional milestones, $150 million are tied to regulatory milestones and $260million are based on sales milestones.30Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Based on our current business model, we expect to have adequate cash reserves until at least the first half of 2012 depending on the amountactually owed to Auxilium, as discussed in Item 1A of this Report, “Risk Factors.” As a significant portion of our revenues is tied directly to thesuccess of Auxilium in commercializing XIAFLEX, we cannot reasonably forecast our financial condition beyond this time.Significant RisksIn recent history we have had operating losses and may not achieve sustained profitability. As of December 31, 2008 we had an accumulateddeficit from continuing operations of $6,428,447.We are dependent to a significant extent on third parties, and our principal licensee, Auxilium, may not be able to successfully developproducts, obtain required regulatory approvals, manufacture products at an acceptable cost, in a timely manner and with appropriate quality,or successfully market products or maintain desired margins for products sold, and as a result we may not achieve sustained profitableoperations.As of December 31, 2008, we held $0.9 million of taxable auction rate securities, or ARS, which are classified as short-term investments. InOctober 2008, the Company received notice from UBS of a solution that provided us the option to continue to hold our Auction RateSecurities (“ARS”) or sell the securities back to UBS at par value plus any accrued interest. On October 24, 2008 we accepted UBS’s offerand instructed UBS that we would notify them if and when we want to exercise our rights and sell our ARS to UBS during the period January2, 2009 through January 4, 2011. In early January 2009, we exercised our rights and instructed UBS to sell all our remaining ARS. OnJanuary 6, 2009, we received the remaining principal balance of our investment in auction rate securities of $0.9 million.Critical Accounting Policies, Estimates and AssumptionsThe preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during thereporting period. These estimates are based on historical experience and on various other assumptions that we believe are reasonable underthe circumstances. Actual results could differ from those estimates. While our significant accounting policies are described in more detail inthe notes to our consolidated financial statements, we believe the following accounting policies to be critical to the judgments and estimatesused in the preparation of our consolidated financial statements.Revenue Recognition. We recognize revenues from product sales when there is persuasive evidence that an arrangement exists, titlepasses, the price is fixed and determinable, and payment is reasonably assured. We currently recognize revenues resulting from thelicensing, sublicensing and use of our technology and from services we sometimes perform in connection with the licensed technology.We enter into product development licenses, and collaboration agreements that may contain multiple elements, such as upfront license andsublicense fees, and milestones related to the achievement of particular stages in product development and royalties. As a result, significantcontract interpretation is sometimes required to determine the appropriate accounting, including whether the deliverables specified in amultiple-element arrangement should be treated as separate units of accounting for revenue recognition purposes, and if so, how theaggregate contract value should be allocated among the deliverable elements and when to recognize revenue for each element.We recognize revenue for delivered elements only when the fair values of undelivered elements are known, when the associated earningsprocess is complete and, to the extent the milestone amount relates to our performance obligation, when our licensee confirms that we havemet the requirements under the terms of the agreement, and when payment is reasonably assured. Changes in the allocation of the contractvalue between various deliverable elements might impact the timing of revenue recognition, but in any event, would not change the totalrevenue recognized on the contract. For example, nonrefundable upfront product license fees, for product candidates where we are providingcontinuing services related to product development, are deferred and recognized as revenue over the development period.31Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Milestones, in the form of additional license fees, typically represent nonrefundable payments to be received in conjunction with theachievement of a specific event identified in the contract, such as completion of specified clinical development activities and/or regulatorysubmissions and/or approvals. We believe that a milestone represents the culmination of a distinct earnings process when it is notassociated with ongoing research, development or other performance on our part. We recognize such milestones as revenue when theybecome due and payment is reasonably assured. When a milestone does not represent the culmination of a distinct earnings process, werecognize revenue in a manner similar to that of an upfront product license fee.Royalty/Earn-Out Revenue. We recognize royalties under the earn-out provision of the Asset Purchase Agreement with DFB. We have theright to receive earn out payments in the future based on sales of certain products. Generally, under this agreement we would receive royaltypayments and a report within ninety (90) days from the end of each calendar year after the licensee has sold the royalty-bearing product. Werecognize royalty revenues when we can reliably estimate such amounts and collectibility is reasonably assured.Consulting and Technical Assistance Services. We recognize revenues from a consulting and technical assistance contracts primarilyas a result of our agreements with DFB BioTech, Inc. (“DFB”) and Auxilium. Consulting revenues are recognized ratably over the term of thecontract. The consulting obligations to DFB generally expire during March 2011.Inventory and Warranty Provisions. Inventories are stated at the lower of cost or realizable market value. In assessing the ultimaterealization of inventories, we are required to make judgments as to future demand requirements and compare that with the current inventorylevels. In March 2006 we sold our topical collagenase business to DFB, including certain product inventory. As of a result of this sale ourproduct inventory as of December 31, 2008 and 2007 was zero.Reimbursable Third Party Development Costs. We accrue expenses to research and development and capitalize certain patent costs forestimated third party development costs that are reimbursable under our agreement with Auxilium. Estimates are based on contractualterms, historical development costs, reviewing third party data and expectations regarding future development for certain products. Further,we monitor the activities and clinical trials of our development partners.If conditions or other circumstances change, we may take actions to revise our reimbursable third party development cost estimates. Theserevisions could result in an incremental increase in research and development costs. For example, the Auxilium Agreement provides thatAuxilium and BioSpecifics will share equally in third party costs for the development of the lyophilization of the injection formulation andpatent expenses.In February 2009, we received an updated invoice from Auxilium for approximately $2.8 million which represents an increase ofapproximately $0.5 million in the total amount due that Auxilium believes is owed by us through year end 2008 under this provision. Theincrease in 2008 was primarily due to additional lyophilization costs for the development of the injection formulation of $86,106 and patentand related legal fees of $399,520. Based upon the updated invoice, we changed our estimates for reimbursable third party development andpatent cost estimates from approximately $2.3 million to approximately $2.8 million.Based on our preliminary review, we believe that only a portion of the amounts invoiced actually relates to the development of thelyophilization of the injection formulation as well as for patent and related legal fees, and therefore, reserve all rights related to this matter,including but not limited to our right to contest the amount charged by Auxilium.Actual results have differed in the past, and may differ in the future, from our estimates and could impact our earnings in any period duringwhich an adjustment is made.32Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Stock Based Compensation. On January 1, 2006, we began accounting for employee stock-based compensation in accordance withSFAS 123(R). Under the provisions of SFAS 123(R), we estimate the fair value of our employee stock awards at the date of grant using theBlack-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions areour estimates of the expected volatility of the market price of our common stock and the expected term of the award. When establishing anestimate of the expected term of an award, we consider the vesting period for the award, our recent historical experience of employee stockoption exercises (including forfeitures) and the expected volatility. As required under the accounting rules, we review our valuationassumptions at each grant date and, as a result, our valuation assumptions used to value employee stock-based awards granted in futureperiods may change.Further, SFAS 123(R) requires that employee stock-based compensation costs to be recognized over the requisite service period, or thevesting period, in a manner similar to all other forms of compensation paid to employees. Accordingly, in 2008 we recognized employeestock-based compensation as part of our operating expenses and allocated $37,789 to research and development expenses and $1,438,360to general and administrative expenses.We account for stock options granted to persons other than employees or directors at fair value using the Black-Scholes option-pricing modelin accordance with EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or inConjunction with Selling, Goods or Services.” Stock options granted to such persons and stock options that are modified and continue to vestwhen an employee has a change in employment status are subject to periodic revaluation over their vesting terms. We recognize theresulting stock-based compensation expense during the service period over which the non-employee provides services to us. The stock-basedcompensation expense related to non-employees for the year ended December 31, 2008 was $572,424.RESULTS OF OPERATIONSYEAR ENDED DECEMBER 31, 2008 COMPARED WITH YEAR ENDED DECEMBER 31, 2007Product Revenues, netProduct revenues include the sales of the API Enzyme recognized at the time it is shipped to customers. We had a small amount of revenuefrom the sale of collagenase for laboratory use. For the calendar years ended 2008 and 2007 product revenues were $37,343 and $34,357,respectively. This increase of $2,986 or 9% was primarily related to the amount of material required to perform testing and additionalresearch by our customers.Royalties/Earn-OutWe received all of our royalty revenues from DFB under the earn-out payment provision of the Asset Purchase Agreement. Total royaltyrevenues recognized under our agreement with DFB were $510,126 and 16,361 for the calendar year 2008 and 2007, respectively. Thisincrease of $493,765 for the calendar year 2008 was due to certain sales levels achieved by DFB in connection with the sale of topicalcollagenase.Licensing, Sublicensing and Milestone RevenuesWe recognized as licensing, sublicensing and milestone revenue $7,440,125 and $1,157,116 in calendar years 2008 and 2007, respectively.This increase of $6,283,009 or 543% was due to a sublicense fee of $6,375,000 recognized in 2008 partially offset by slightly lowerlicensing revenue due to the extension of the development timeline for XIAFLEX in Peyronie’s disease in connection with the AuxiliumAgreement.Under current accounting guidance, nonrefundable upfront sublicense fees for product candidates where we are not providing continuingservices related to product development and have no ongoing performance obligations, are recognized as revenue when payment can bereasonable assured according to contractual terms.Nonrefundable upfront license fees for product candidates where we are providing continuing services related to product development, aredeferred and recognized as revenue over the development period. The remaining balance will be recognized over the respective developmentperiods or when we determine that we have no ongoing performance obligations.33Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Consulting ServicesWe recognize revenues from consulting and technical assistance contracts primarily as a result of the Asset Purchase Agreement and aconsulting agreement signed in October 2007 with Auxilium. Consulting revenues are recognized ratably over the term of the contract. Theconsulting obligations under the Asset Purchase Agreement generally expire during March 2011. For the calendar years 2008 and 2007consulting revenue recognized was $424,185 and $306,500, respectively. This increase of $117,685 or 38% in consulting revenues wasprimarily the result of the Auxilium consulting agreement which was completed in June 2008.Research and Development ActivitiesResearch and development expenses were $439,919 and $2,489,122 respectively, for the calendar years 2008 and 2007, a decrease incalendar year 2008 of $2,049,203 or 82%. The decrease in research and development expenses was primarily due to lower third partydevelopment costs in 2008.General and Administrative ExpensesGeneral and administrative expenses were $4,191,052 and $3,516,716 for the calendar years 2008 and 2007, respectively, which was anincrease of $674,336 or 19%. The increase in general and administrative expenses was primarily due to employee stock-basedcompensation expense, third-party patent fees, legal fees, Nasdaq registration fees and investor relations partially offset by general andadministrative personnel cost and consulting expenses.Other Income and expense, netOther income, net, for the calendar year 2008 was $262,811compared to other income, net of $1,040 for the 2007 period. Other income, netduring the 2008 period was due to interest earned on our investments of $107,552, a reversal of accrued tax penalties of $103,203 andinterest of $80,409 associated with our delinquent tax filings and a small gain from the sale of an asset of $5,527 partially offset by interestexpense related to our delinquent tax filings of $33,880. Other income, net for the 2007 period was primarily due to interest earned on ourinvestments of $126,821 partially offset by accrued penalties of $105,000 and interest of $20,000, associated with out delinquent tax filings.Income TaxesThe income tax expense for 2008 was $299,212 as compared to $53,865 for 2007. We accrued approximately $494,234 associated withfederal and state taxes based on our net income in 2008 which was partially offset by a tax benefit related to the exercise of stock options of$314,648. After finalizing our delinquent prior year tax filings in 2008, our estimated federal and state tax penalties and interest were reducedby $103,203 and $77,250, respectively, and we recognized a $195,022 tax benefit in connection with our 2007 net operating loss. We havepostponed the recognition of a tax benefit of $220,000 for the 2007 period due to net operating loss carrybacks and will request that theInternal Revenue Service apply this amount to our 2008 federal taxes.Liquidity and Capital ResourcesTo date, we have financed our operations primarily through product sales, debt instruments, licensing revenues under agreements with thirdparties and sales of our common stock. At December 31, 2008 and 2007 we had cash, cash equivalents in the aggregate of $3,494,150 and$68,564, respectively.Continuing OperationsNet cash used in operating activities in the 2008 period was $3,101,055 as compared to net cash used in operating activities in the 2007period of $3,125,488. In the 2008 period, the change in net cash used in operating activities as compared to the 2007 period was primarilydue to lower operating expenses, an increase in non-cash stock compensation expense, increases in accounts receivable related to revenuerecognized from a sublicense fee and earn-out royalties under certain agreements not received until 2009 and accounts payable and accruedexpenses.Net cash used in investing activities in the 2008 period was $1,167,000 as compared to cash used in investing activities of $975,000 in the2007 period. Net cash used in investing activities in the 2008 period reflect our investment in marketable securities of $2,000,000, a one-timecash payment related to our future royalty obligations for Peyronie's disease of $1,250,000 and by the sale or maturity of marketablesecurities of $2,075,000. Net cash provided by investing activities in the 2007 was due to purchases of short-term investments.34Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Net cash provided by financing activities for 2008 was $7,693,641 as compared to the 2007 period of $122,912. The increase in net cashprovided by financing activities for the 2008 consisted of proceeds from the sale of our common stock of $6,007,047, repayment of anoutstanding loan from our former Chairman and CEO of $1,116,558, $314,648 related to excess tax benefits from share-based paymentarrangements and proceeds received from stock option exercises of $255,388. Net cash provided by financing activities in the 2007 periodwas from proceeds received from stock option exercises.Discontinued OperationsCash flow changes from discontinued operations are primarily due to the operating results of ABC-Curacao and certain operations of ABC-NY, which have been classified as discontinued operations.Net cash used in operating activities from discontinued operations in the 2008 period was zero as compared to net cash provided by operatingactivities from discontinued operations in the 2007 period of $321,038. The net cash used in the 2007 period was primarily due to thepayment of accrued payroll taxes from previous periods on our Curacao operations.Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Not applicable.Item 8. FINANCIAL STATEMENTS.For the discussion of Item 8, “Financial Statements” please see the Consolidated Financial Statements, beginning on page F-1 of thisReport.Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.Item 9A(T). CONTROLS AND PROCEDURES.The Company, under the supervision and with the participation of Thomas L. Wegman, the Company’s President, Principal ExecutiveOfficer and Principal Financial Officer, evaluated the effectiveness of its disclosure controls and procedures as of the end of the period coveredby this Report. Based on that evaluation, management has concluded that the Company’s disclosure controls and procedures are effective toensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that suchinformation is accumulated and communicated to the Company’s management, to allow timely decisions regarding required disclosure.Because of the inherent limitations in all control systems, any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgmentin evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, our controls and procedures can be circumventedby the individual acts of some persons, by collusion of two or more people or by management override of the control, and misstatements dueto error or fraud may occur and not be detected on a timely basis.A material weakness is a control deficiency, or combination of control deficiencies (within the meaning of Public Company AccountingOversight Board Auditing Standard No. 2), that results in there being more than a remote likelihood that a material misstatement of theannual or interim financial statements will not be prevented or detected on a timely basis by employees in the normal course of theirassigned functions. Management has identified the following material weaknesses in our internal control over financial reporting as ofDecember 31, 2008: certain non-executive employees of the Company sold shares of the Company’s common stock prior to obtaining pre-clearance in accordance with the Company’s insider trading policy. Management has taken steps to remind all of its non-executiveemployees that all transactions in the Company’s securities must be pre-cleared, regardless of whether such transactions occur during anopen trading window. Additionally, management has identified the following non-material weakness: the Company had not filed either itsfederal or state corporate tax returns since the calendar year 2002 but had paid the estimated franchise tax due to New York State. InSeptember 2008, we filed our delinquent federal and state tax returns for the years ended 2003, 2004, 2005, 2006 and 2007.35Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Management’s Annual Report on Internal Control Over Financial ReportingManagement of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for theCompany as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed toprovide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation ofpublished financial statements and the reliability of financial reporting.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even thosesystems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making thisassessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission(“COSO”) in Internal Control – Integrated Framework. We believe that, as of December 31, 2008, the Company’s internal control overfinancial reporting is not effective based on this criteria, due to the material weakness identified by management and discussed above in Item9A(T).This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financialreporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporaryrules of the SEC that permit the Company to provide only management’s report in this Report.Changes in Internal Control Over Financial ReportingThere were no changes in the Company’s internal control over financial reporting in the year ended December 31, 2008 that materiallyaffected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.Item 9B. OTHER INFORMATIONOn October 1, 2008, the Company entered into a change of control agreement with Dr. Matthew Geller, who was appointed to serve as anindependent director of the Company on September 22, 2008. The agreement follows the Company’s standard change of control agreementfor independent directors. Dr. Matthew Geller’s change of control agreement is filed as Exhibit 10.23 to this Form 10-K. The foregoingdescriptions of the agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the agreement.PART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION16(a) OF THE EXCHANGE ACTThe information required by this item is incorporated herein by reference to the sections captioned “Directors and Executive Officers,”“Committees of the Board of Directors,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statementrelating to our 2009 Annual Meeting of Stockholders.We have adopted an Amended and Restated Code of Business Conduct and Ethics (“Code of Ethics”) that applies to all of our directors,officers and employees. Our Code of Ethics contains provisions that satisfy the standards for a “code of ethics” set forth in Item 406 ofRegulation S-K of the rules and regulations of the SEC. Our Code of Conduct is available under the heading “Investor Relations —Corporate Governance” on our Internet Web site, the address of which is www.biospecifics.com. The information contained on our InternetWeb site is not incorporated by reference into this Report and should not be considered part of this or any other report that we file with orfurnish to the SEC.36Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.To the extent that we amend any provision of our Code of Ethics or grant a waiver from any provision of our Code of Ethics that is applicableto any of our directors or our principal executive officer, principal financial officer, principal accounting officer or controller or personsperforming similar functions, we intend to satisfy our disclosure obligations under applicable SEC rules by posting such information on ourInternet Web site under the heading “Investor Relations — Corporate Governance.”Item 11. EXECUTIVE COMPENSATION.The information required by this item is incorporated herein by reference to the section captioned “Executive Compensation” in our definitiveProxy Statement relating to our 2009 Annual Meeting of Stockholders.Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.The information required by this item is incorporated herein by reference to the sections captioned “Security Ownership of Certain BeneficialOwners and Management” and “Equity Compensation Plan Information” in our definitive Proxy Statement relating to our 2009 AnnualMeeting of Stockholders.Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.The information required by this item is incorporated herein by reference to the section captioned “Certain Relationships and RelatedTransactions” in our definitive Proxy Statement relating to our 2009 Annual Meeting of Stockholders.Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.The information required by this item is incorporated herein by reference to the section captioned “Ratification of Selection of IndependentRegistered Public Accounting Firm” in our definitive Proxy Statement relating to our 2009 Annual Meeting of Stockholders.PART IVItem 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.(a)The following documents are filed as part of this Report: (1)Consolidated Financial Statements (See Index to Consolidated Financial Statements on page F-1) (2)Financial Statement Schedules All schedules to the consolidated financial statements are omitted as the required information is either inapplicable or presentedin the consolidated financial statements (3)Exhibits The information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference. (b)Exhibits The information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference.37Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BIOSPECIFICS TECHNOLOGIES CORP.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2008 Page Report of Independent Registered Public Accounting FirmF-2 Consolidated Balance SheetsF-3 Consolidated Statements of OperationsF-4 Consolidated Statements of Cash FlowsF-5 Consolidated Statements of Stockholders’ DeficitF-6 Notes to Consolidated Financial StatementsF-7 F-1Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe have audited the accompanying balance sheets of BioSpecifics Technologies Corp. (the “Company”) as of December 31, 2008 and 2007,and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the two years in the period ended December31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion onthese financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2008 and 2007, and the results of its operations and its cash flows for each of the two years in the period ended December 31,2008, in conformity with U.S. generally accepted accounting principles./s/Tabriztchi & Co., CPA, P.C. Garden City, NY March 25, 2009 7 Twelfth Street Garden City, NY 11530 Œ Tel: 516-746-4200 Œ Fax: 516-746-7900 Email:Info@Tabrizcpa.com Œ www.Tabrizcpa.comF-2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BioSpecifics Technologies Corp. Consolidated Balance Sheet December 31, 2008 2007 Assets Current assets: Cash and cash equivalents$3,494,150 $68,564 Short term investments 900,000 975,000 Accounts receivable, net 6,952,781 108,809 Prepaid expenses and other current assets 67,709 73,158 Total current assets 11,414,640 1,225,531 Deferred royalty buy-down 1,250,000 - Property, plant and equipment, net 2,297 35,680 Patent costs, net 164,424 - Total assets 12,831,361 1,261,211 Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable and accrued expenses 642,465 873,460 Accrued tax liability - 453,553 Deferred revenue 1,271,792 1,437,116 Accrued liabilities of discontinued operations 78,138 78,138 Total current liabilities 1,992,395 2,842,267 Accrued third party development expenses 2,758,595 2,272,969 Deferred revenue - license fees 1,901,832 2,881,633 Stockholders' equity (deficit): Series A Preferred stock, $.50 par value, 700,000 shares authorized; none outstanding - - Common stock, $.001 par value; 10,000,000 shares authorized; 6,140,068 and 5,480,768 shares issued and outstanding at December 31, 2008 and 2007,respectively6,1405,481Additional paid-in capital 13,294,803 4,751,447 Accumulated deficit (6,428,447) (10,172,855)Treasury stock, 131,267 shares at cost as of December 31, 2008 and 2007 (693,957) (693,957)Notes receivable from former Chairman and CEO and other related party-(625,774)Total stockholders' equity (deficit) 6,178,539 (6,735,658)Total liabilities and stockholders’ equity (deficit)$12,831,361 $1,261,211 F-3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BioSpecifics Technologies Corp. Consolidated Statements of Operations Years Ended December 31, 2008 2007 Revenues: Net sales$ 37,343 $ 34,357 Royalties 510,127 16,361 Licensing fees 7,440,125 1,157,116 Consulting fees 424,185 306,500 Total revenues 8,411,780 1,514,334 Costs and expenses: Research and development 439,919 2,489,122 General and administrative 4,191,052 3,516,716 Total costs and expenses 4,630,971 6,005,838 Operating income (loss) 3,780,809 (4,491,504) Other income (expense): Interest income 107,552 126,821 Interest expense (33,880) (781)Other income (expense) 189,139 (125,000) 262,811 1,040 Income (loss) before expense for income tax 4,043,620 (4,490,464)Income tax expense (299,212) (53,865)Net income (loss)$ 3,744,408 $ (4,544,329) Basic net income (loss) per share$ 0.64 $ (0.86)Diluted net income (loss) per share$ 0.55 $ (0.86)Shares used in computation of basic net income (loss) per share 5,854,836 5,291,506 Shares used in computation of diluted net income (loss) per share 6,836,911 5,291,506 F-4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BioSpecifics Technologies Corp. Consolidated Statements of Cash Flows Years Ended December 31, 2008 2007 Cash flows from operating activities: Net income (loss)$ 3,744,408 $ (4,544,329)Adjustments to reconcile net income (loss) to net cash used in operating activities:Depreciation and amortization 55,774 32,144 Gain on disposal of fixed assets (5,535) - Stock-based compensation expense 1,476,148 650,160 Changes in operating assets and liabilities: Accounts receivable (6,843,974) (57,685)Prepaid expenses and other current assets 5,449 (28,745)Accounts payable and accrued expenses (388,200) 1,885,084 Deferred revenue (1,145,125) (1,062,117)Net cash used in operating activities from continuing operations (3,101,055) (3,125,488)Net cash used in discontinued operations - (321,038) Cash flows from investing activities: Maturities of marketable securities 2,075,000 - Purchases of marketable securities (2,000,000) (975,000)Payment for royalty buy down (1,250,000) - Proceeds from sale of fixed asset 8,000 - Net cash used in investing activities from continuing operations (1,167,000) (975,000) Cash flows from financing activities: Proceeds from issuance of capital stock 6,007,047 - Proceeds from stock option exercises 255,388 122,912 Excess tax benefits from share-based payment arrangements 314,648 - Proceeds from pay-off of notes receivable from former CEO and Chairman 1,116,558 - Net cash provided by financing activities from continuing operations 7,693,641 122,912 Increase (decrease) in cash and cash equivalents 3,425,586 (4,298,614)Cash and cash equivalents at beginning of year 68,564 4,367,178 Cash and cash equivalents at end of year$ 3,494,150 $ 68,564 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest$ 33,880 $ 781 Taxes$ 225,824 $ 3,600 Supplemental disclosures of non-cash transactions:Under our agreement with Auxilium certain patent costs paid by Auxilium on behalf of the Company are creditable against future royalties.As of December 31, 2008 we accrued $189,280 related to this issue of which $24,856 was amortized in the 2008 period.In March 2007, in full repayment of the $304,398 loan owed to the Company by Wilbur Street Corporation (“WSC”), WSC offset $304,398in back rent due from the Company. The transaction was recorded by reducing the rent payable by $304,398 and the receivable from theformer CEO and Chairman by $98,253 and increasing additional paid in capital by $206,145.See accompanying notes to consolidated financial statementsF-5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BioSpecifics Technologies Corp. Consolidated Statements of Stockholders' Equity (Deficit) Additional Accumulated Shares Amount Paid inCapital Deficit Balances - December 31, 2006 5,365,816 $ 5,366 $ 3,772,345 $ (5,628,526)Issuance of common stock under stock option plans 114,952 115 122,797 - Stock compensation expense - - 650,160 - Offset of former CEO and Chairman loan principal and interest - - 206,145 - Net loss - - - (4,544,329)Balances - December 31, 2007 5,480,768 $ 5,481 $ 4,751,447 $ (10,172,855) Issuance of common stock at $10.50 to a private investor, net of issuancecosts 200,000 200 2,093,450 - Issuance of common stock at $13.00 to a private investor, net of issuancecosts 100,000 100 1,299,900 - Issuance of common stock at $15.00 to a private investor, net of issuancecosts 100,000 100 1,488,929 - Issuance of common stock at $22.50 to a private investor, net of issuancecosts 50,000 50 1,124,318 - Issuance of common stock under stock option plans 209,300 209 255,178 Tax benefit from exercised stock options - - 314,648 - Stock compensation expense - - 1,476,149 - Payment from former CEO and Chairman loan principal and interest - - 490,784 - Net income - - - 3,744,408 Balances - December 31, 2008 6,140,068 $ 6,140 $ 13,294,803 $ (6,428,447) Due from former Shareholder Treasury Chairman Equity(Deficit) Stock and CEO Total Balances - December 31, 2006 (693,957)$ (724,027)$ (3,268,799) Issuance of common stock under stock option plans - - 122,912 Stock compensation expense - - 650,160 Offset of former CEO and Chairman loan principal and interest - 98,253 304,398 Net loss - - (4,544,329) Balances - December 31, 2007 (693,957)$ (625,774)$ (6,735,658) Issuance of common stock at $10.50 to a private investor, net of issuancecosts - - 2,093,650 Issuance of common stock at $13.00 to a private investor, net of issuancecosts - - 1,300,000 Issuance of common stock at $15.00 to a private investor, net of issuancecosts - - 1,489,029 Issuance of common stock at $22.50 to a private investor, net of issuancecosts - - 1,124,368 Issuance of common stock under stock option plans - - 255,387 Tax benefit of exercised stock options - - 314,648 Stock compensation expense - - 1,476,149 Payment from former CEO and Chairman loan principal and interest - 625,774 1,116,558 Net income - - 3,744,408 Balances - December 31, 2008 (693,957)$ - $ 6,178,539 F-6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BIOSPECIFICS TECHNOLOGIES CORP.Notes to Consolidated Financial Statements December 31, 2008 and 20071. ORGANIZATION AND DESCRIPTION OF BUSINESSWe are a biopharmaceutical company involved in the development of an injectable collagenase for multiple indications. We have adevelopment and license agreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase (which Auxilium hasnamed “XIAFLEX TM” (formerly known as “AA4500”)) for clinical indications in Dupuytren’s disease, Peyronie’s disease and frozen shoulder(adhesive capsulitis), and Auxilium has an option to acquire additional indications that we may pursue, including cellulite and lipomas.The most advanced indications are for the treatment of Dupuytren’s disease, Peyronie’s disease and frozen shoulder. On June 3, 2004, weentered into a development and license agreement with Auxilium, as amended on May 5, 2005 and December 15, 2005, respectively (the“Prior Auxilium Agreement”), pursuant to which we granted to Auxilium an exclusive worldwide license to develop products containing ourinjectable collagenase for the treatment of Dupuytren’s disease, Peyronie's disease and frozen shoulder, as well as an exclusive option todevelop and license the technology for use in additional indications other than dermal formulations labeled for topical administration.On December 11, 2008, the parties amended and restated the development and license agreement (the “Auxilium Agreement”), whichbecame effective on December 17, 2008 upon the execution and effectiveness of the Development, Commercialization and SupplyAgreement, dated December 17, 2008 (the “Pfizer Agreement”) between Auxilium International Holdings, Inc., a wholly owned subsidiary ofAuxilium, and Pfizer, Inc. (“Pfizer”), pursuant to which Pfizer will market XIAFLEX for the treatment of Dupuytren’s disease and Peyronie’sdisease in Europe and various other territories. The Auxilium Agreement amends and restates in its entirety the Prior Auxilium Agreement.DISCONTINUED OPERATIONSPrior to March 2006, we were a party to an exclusive license agreement with Abbott Laboratories, Inc. and its subsidiaries (“Abbott”), for theproduction of the active pharmaceutical ingredient (“API” or “API Enzyme”) for topical collagenase. In March 2006 we sold our topicalcollagenase business to DFB Biotech, Inc. and its affiliates (“DFB”), including all rights to the exclusive license agreement and we werereleased of any obligations thereunder.In addition, DFB acquired all of the issued and outstanding shares of ABC-Curacao, pursuant to an asset purchase agreement between us,DFB and ABC-NY (the “Asset Purchase Agreement”). ABC-Curacao manufactured the API Enzyme, which in its final formulation wasmarketed by Abbott. The operating results of ABC-Curacao and certain operations of ABC-NY have been classified as discontinued operationsin the Consolidated Financial Statements for all periods presented.In addition, at the closing of the Asset Purchase Agreement, DFB (i) acquired from us certain inventory and manufacturing equipment usedin the topical collagenase business, (ii) was granted a perpetual royalty free license to use, solely in connection with the topical collagenasebusiness, certain intangible assets retained by us and (iii) was granted the right (for a limited period of time which was subsequentlyextended in April 2008) to use, solely in connection with the topical collagenase business, certain tangible assets retained by us. As part ofthe sale, we transferred to DFB our FDA manufacturing license.As consideration for the purchased assets we received $8 million in cash, DFB’s assumption of certain liabilities, and the right to receiveearn out payments in the future based on sales of certain products. In connection with the closing of the Asset Purchase Agreement, weagreed to provide certain technical assistance and certain transition services to DFB in consideration of fees and costs totaling over $1.4million. At the closing, DFB paid to us a partial payment of $400,000 in respect of the technical assistance to be provided by us. As ofDecember 31, 2008, we have received a total of $1,000,000 payments from DFB. The consulting obligations generally expire during March2011.F-7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of ConsolidationThe audited consolidated financial statements include the accounts of the Company and its subsidiary, ABC-NY. Due to the sale of ABC-Curacao in March 2006 to DFB all accounts of this former subsidiary and certain operations of ABC-NY are classified as discontinuedoperations in all periods presented.Management EstimatesThe preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires the useof management’s estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanyingnotes. Actual results could differ from those estimates.Cash, Cash Equivalents and Short-term InvestmentsCash, cash equivalents and short-term investments are stated at market value. Cash equivalents include only securities having a maturityof three months or less at the time of purchase. The Company limits its credit risk associated with cash, cash equivalents and short-terminvestments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, U.S.government securities, or short-term commercial paper.Fair Value MeasurementsSFAS 157 requires expanded disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements thatrequire or permit fair value measurements, but does not require any new fair value measurements. We adopted the provisions of SFAS 157relating to assets and liabilities recognized or disclosed in the financial statements at fair value on a recurring basis on January 1, 2008. Theadoption of these provisions did not have a material effect on our consolidated financial statements.SFAS 157 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability inan orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.SFAS 157 requires us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use ofunobservable inputs. These inputs are prioritized as follows:Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active marketsLevel 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputsLevel 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions abouthow market participants would price the assets or liabilitiesThe following table sets forth the fair value of our financial assets that were measured on a recurring basis as of December 31, 2008: Level 1 Level 2 Level 3 Cash and cash equivalents$3,494,150 - - Auction rate securities$900,000 - - Auction Rate SecuritiesAs of December 31, 2008, we held $0.9 million of taxable auction rate securities, or ARS, which are classified as short-term investments. InOctober 2008, the Company received notice from UBS of a solution that provided us the option to continue to hold our Auction RateSecurities (“ARS”) or sell the securities back to UBS at par value plus any accrued interest. On October 24, 2008 we accepted UBS’s offerand instructed UBS that we would notify them if and when we want to exercise our rights and sell our ARS to UBS during the period January2, 2009 through January 4, 2011. In early January 2009, we exercised our rights and instructed UBS to sell all our remaining ARS. OnJanuary 5, 2009, we received the remaining principal balance of our investment in auction rate securities of $0.9 million.F-8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Revenue RecognitionWe currently recognize revenues resulting from product sales and royalties from licensing, sublicensing and use of our technology, and fromother services we sometimes perform in connection with the licensed technology under the guidance of Staff Accounting Bulletin (SAB) No.104, “Revenue Recognition.”If we determine that separate elements exist in a revenue arrangement under Emerging Issues Task Force Issue No. 00-21, “RevenueArrangements with Multiple Deliverables” (EITF 00-21), we recognize revenue for delivered elements only when the fair values ofundelivered elements are known, when the associated earnings process is complete, when payment is reasonably assured and, to theextent the milestone amount relates to our performance obligation, when our customer confirms that we have met the requirements underthe terms of the agreement.Revenues, and their respective treatment for financial reporting purposes, are as follows:Product SalesWe recognize revenue from product sales when there is persuasive evidence that an arrangement exists, title passes, the price is fixed ordeterminable and collectability is reasonably assured. No right of return exists for our products except in the case of damaged goods. To date,we have not experienced any significant returns of our products.Net sales include the sales of the API Enzyme that are recognized at the time the product is shipped to customers for laboratory use.Royalty/Earn-Out RevenueWe recognize royalties under the earn-out provision of the Asset Purchase Agreement with DFB. We have the right to receive earn outpayments in the future based on sales of certain products. Generally, under this agreement we would receive royalty payments and a reportwithin ninety (90) days from the end of each calendar year after the licensee has sold the royalty-bearing product. We recognize royaltyrevenues when we can reliably estimate such amounts and collectability is reasonably assured.License and Sublicense FeesWe include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Fees” in our consolidatedstatements of operations in this Report.Upfront License and Sublicensing FeesWe generally recognize revenue from upfront licensing and sublicensing fees when the agreement is signed, we have completed theearnings process and we have no ongoing performance obligation with respect to the arrangement. Nonrefundable upfront technology licensefor product candidates for which we are providing continuing services related to product development are deferred and recognized as revenueover the development period.MilestonesMilestones, in the form of additional license fees, typically represent nonrefundable payments to be received in conjunction with theachievement of a specific event identified in the contract, such as completion of specified development activities and/or regulatorysubmissions and/or approvals. We believe that a milestone represents the culmination of a distinct earnings process when it is notassociated with ongoing research, development or other performance on our part. We recognize such milestones as revenue when theybecome due and collection is reasonably assured. When a milestone does not represent the culmination of a distinct earnings process, werecognize revenue in a manner similar to that of an upfront license fee.F-9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The timing and amount of revenue that we recognize from licenses of technology, either from upfront fees or milestones where we areproviding continuing services related to product development, is primarily dependent upon our estimates of the development period. Wedefine the development period as the point from which research activities commence up to regulatory approval of either our, or our partners’submission assuming no further research is necessary. As product candidates move through the development process, it is necessary torevise these estimates to consider changes to the product development cycle, such as changes in the clinical development plan, regulatoryrequirements, or various other factors, many of which may be outside of our control. Should the FDA or other regulatory agencies requireadditional data or information, we would adjust our development period estimates accordingly. The impact on revenue of changes in ourestimates and the timing thereof is recognized prospectively over the remaining estimated product development period.Accounts receivable and Allowance for Doubtful AccountsThe Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses which when realizedhave been within the range of management’s expectations. Our policy is to write off bad debts as uncollectible when it is determined that theycannot be collected.As of December 31, 2008, accounts receivables include $6,375,000 due from Auxilium in accordance with the terms of the AuxiliumAgreement for an upfront sublicense fee.Reimbursable Third Party Development CostsWe accrue expenses to research and development for estimated third party development costs and capitalize certain patent costs that arereimbursable under our agreement with Auxilium. Estimates are based on contractual terms, historical development costs, reviewing thirdparty data and expectations regarding future development for certain products. Further, we monitor the activities and clinical trials of ourdevelopment partners.If conditions or other circumstances change, we may take actions to revise our reimbursable third party development cost estimates. Theserevisions could result in an incremental increase in research and development costs. For example, the Auxilium Agreement provides thatAuxilium and BioSpecifics will share equally in third party costs for the development of the lyophilization of the injection formulation andcertain patent fees.In February 2009, we received an updated invoice from Auxilium for approximately $2.8 million which represents an increase ofapproximately $0.5 million in the total amount due that Auxilium believes is owed by us through year end 2008 under this provision. Theincrease in 2008 was primarily due to additional lyophilization costs for the development of the injection formulation of $86,106 and patentand related legal fees of $399,520. Based upon the updated invoice, we changed our estimates for reimbursable third party development andpatent cost estimates from approximately $2.3 million to approximately $2.8 million.Based on our preliminary review, we believe that only a portion of the amount charged actually relates to the development of thelyophilization of the injection formulation as well as for patent and related legal fees and, therefore, reserve all rights related to this matter,including but not limited to our right to contest the amount charged by Auxilium.Actual results have differed in the past, and may differ in the future, from our estimates and could impact our earnings in any period duringwhich an adjustment is made.Research and Development ExpensesOur research and development (“R&D”) costs are expensed as incurred. R&D includes, but is not limited to, internal costs, such as salariesand benefits, costs of materials, lab expense, facility costs and overhead. R&D also consists of third party costs, such as medical professionalfees, contract manufacturing costs for material used in clinical trials, consulting fees and costs associated with clinical study R&Darrangements. We fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are chargedto R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time.F-10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Clinical Trial ExpensesOur cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with variousclinical trial centers and clinical research organizations. In the normal course of business we contract with third parties to perform variousclinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation andvary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as theachievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. Theobjective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received andefforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratably beginning upon entry into the trialand over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amountbased on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates andassumptions could differ significantly from the amounts that may actually be incurred.Stock Based CompensationThe Company has two stock-based compensation plans in effect which are described more fully in Note 12. Effective January 1, 2006, weadopted SFAS No. 123, “Share-Based Payment (Revised 2004)” (SFAS 123(R)), which supersedes our previous accounting underAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations. SFAS123(R) requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based awardsincluding stock options and common stock issued to our employees and directors under our stock plans. It requires companies to estimatethe fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimatelyexpected to vest is recognized as expense on a straight-line basis over the requisite service periods in our Consolidated Statements ofOperations.Under the provisions of Statement SFAS 123(R), we estimate the fair value of our employees’ and directors’ stock awards at the date of grantusing the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant of theseassumptions are our estimates of the expected volatility of the market price of our common stock and the expected term of the award. Whenestablishing an estimate of the expected term of an award, we consider the vesting period for the award, our recent historical experience ofemployee stock option exercises (including forfeitures) and the expected volatility. As required under the accounting rules, we review ourvaluation assumptions at each grant date and, as a result, our valuation assumptions used to value employee stock-based awards granted infuture periods may change. The ranges of valuation assumptions used were as follows: Year Ended Year Ended December31, December31, 2008 2007 Stock Option Plans Expected life, in years 5.0 5.0 Risk free interest rate 1.9%- 2.9% 4.9% Volatility 61% - 80% 62% - 151% Dividend yield — — Further, SFAS 123(R) requires that employee stock-based compensation costs to be recognized over the requisite service period, or thevesting period, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-basedcompensation costs to each operating expense line are estimated based on specific employee headcount information at each grant date andestimated stock option forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differmaterially from those estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operatingexpense category in future periods may differ significantly from what we have recorded in the current period.F-11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Stock-based compensation expense recognized under SFAS 123(R) was as follows: December 31, 2008 2007 Research and development$ 37,789 $ 14,197 General and administrative 865,936 409,422 Total stock-based compensation expense$ 903,725 $ 423,619 We account for stock options granted to persons other than employees or directors at fair value using the Black-Scholes option-pricing modelin accordance with EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or inConjunction with Selling, Goods or Services.” Stock options granted to such persons and stock options that are modified and continue to vestwhen an employee has a change in employment status are subject to periodic revaluation over their vesting terms. We recognize theresulting stock-based compensation expense during the service period over which the non-employee provides services to us. The stock-basedcompensation expense related to non-employees for the years ended December 31, 2008 and 2007 was $572,424 and $226,541,respectively.Property, Plant and EquipmentProperty, plant and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autosare depreciated on the straight-line basis over their estimated useful lives of 5 to 10 years. Leasehold improvements are being amortized overthe lesser of their estimated useful lives or the life of the lease, which is approximately 8 to 10 years.Patent CostsWe amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from 5 to 13 years, andreview for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assetsmay not be recoverable.As of December 31, 2008, the Company capitalized certain patent costs, paid by Auxilium on behalf of the Company. These costs arereimbursable to Auxilium under our agreement and are creditable against future royalty revenues. At December 31, patent costs consisted of: 2008 2007 Patents$ 164,424 $ - The amortization expense for patents was $24,856, for the year ended December 31, 2008. The estimated aggregate amortization expensefor each of the next five years is as follows:2009$24,856 2010 24,856 2011 24,856 2012 23,033 2013 21,209 Income TaxesThe Company uses the liability method of accounting for income taxes, as set forth in Statement of Financial Accounting Standards No. 109,“Accounting for Income Taxes.” Under this method, deferred income taxes, when required, are provided on the basis of the differencebetween the financial reporting and income tax bases of assets and liabilities at the statutory rates enacted for future periods.F-12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Recent Accounting PronouncementsIn February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” or SFAS 159,which provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 establishes presentationand disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similartypes of assets and liabilities and highlights the effect of a company’s choice to use fair value on its earnings. It also requires a company todisplay the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the balance sheet. SFAS 159 waseffective for us beginning January 1, 2008 and did not have an impact on our consolidated financial statements as we did not choose to usethe fair value option.In June 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue No. 07-3, “Accounting for Non-Refundable Advance Paymentsfor Goods or Services to be Used in Future Research and Development Activities,” or EITF 07-3, which provides that non-refundable advancepayments for future research and development activities should be deferred and capitalized until the related goods are delivered or the relatedservices are performed. EITF 07-3 was effective for us on a prospective basis beginning January 1, 2008 and did not have a material impacton our consolidated financial statements.In December 2007, the FASB ratified EITF Issue No. 07-1, “Accounting for Collaborative Arrangements Related to the Development andCommercialization of Intellectual Property,” or EITF 07-1, which provides guidance on how the parties to a collaborative agreement shouldaccount for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration agreementshould be presented in the income statement and certain related disclosure requirements. EITF 07-1 will be effective for us beginningJanuary 1, 2009 on a retrospective basis. We currently do not expect that the adoption of EITF 07-1 will have a material impact on ourconsolidated financial statements.In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” or SFAS 141R, which replaces FASB Statement No. 141,“Business Combinations,” and requires an acquirer to recognize the assets acquired, the liabilities assumed and any noncontrolling interestin the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in SFAS 141R. SFAS141R amended SFAS No. 109, “Accounting for Income Taxes,” or SFAS 109, and FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes — an Interpretation of FASB Statement No. 109,” or FIN 48. Previously, SFAS 109 and FIN 48, respectively, generallyrequired post-acquisition adjustments to a business combination related deferred tax asset valuation allowance and liabilities related touncertain tax positions to be recorded as an increase or decrease to goodwill. SFAS 141R does not permit this accounting and generally willrequire any such changes to be recorded in current period income tax expense. Thus, after SFAS 141R is adopted, all changes to valuationallowances and liabilities related to uncertain tax positions from an acquisition (whether the combination was accounted for under SFAS 141or SFAS 141R) must be recognized in current period income tax expense. SFAS 141R is effective prospectively to business combinations forwhich the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS141R is effective for us beginning January 1, 2009 and we will account for future business combinations in accordance with its provisions, inaddition to adopting its provisions related to post-acquisition adjustments to taxes.In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment ofARB No. 51,” or SFAS 160, which changes the accounting for and reporting of noncontrolling interests (formerly known as minorityinterests) in consolidated financial statements. It is effective for financial statements issued for fiscal years and interim periods beginning afterDecember 15, 2008, with early adoption prohibited. Upon implementation, prior periods will be recast for the changes required by SFAS 160.We currently do not expect that the adoption of SFAS 160 will have a material impact on our consolidated financial statements.In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” or SFAS 161, which isintended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enableinvestors to better understand their effects on an entity’s financial position, financial performance and cash flows. It is effective for financialstatements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. SFAS 161 iseffective for us during the interim period beginning January 1, 2009 and we will adopt the disclosure provisions in our financial statementsas of March 31, 2009.F-13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In April 2008, the FASB issued FASB Staff Position, or FSP, No. FAS 142-3, “Determination of the Useful Life of Intangible Assets,” or FSPFAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used todetermine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP FAS142-3 iseffective for fiscal years beginning after December 15, 2008, with early adoption prohibited. We currently do not expect that the adoption ofFSP FAS 142-3 will have a material impact on our consolidated financial statements.In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash uponConversion (Including Partial Cash Settlement),” or FSP APB 14-1, which requires separate accounting for the debt and equity componentsof convertible debt issuances that have a cash settlement feature permitting settlement partially or fully in cash upon conversion. Acomponent of such debt issuances representative of the approximate fair value of the conversion feature at inception should be bifurcated andrecorded to equity, with the resulting debt discount amortized to interest expense in a manner that reflects the issuer’s nonconvertible,unsecured debt borrowing rate. The requirements for separate accounting must be applied retrospectively to previously issued convertibledebt issuances as well as prospectively to newly issued convertible debt issuances, negatively affecting both net income and earnings pershare, in financial statements issued for fiscal years beginning after December 15, 2008. The adoption of FSP APB 14-1 will not have anyimpact on our consolidated financial statements.In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles or SFAS No. 162. SFAS No. 162identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements ofnongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the Securities andExchange Commission’s (“SEC” or the Commission”) approval of the Public Company Accounting Oversight Board amendments to AUSection 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believethat implementation of this standard will have a material impact on its consolidated financial position, results of operations or cash flows.In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment TransactionsAre Participating Securities,” or FSP EITF 03-6-1. The FSP addresses whether instruments granted in share-based payment transactions areparticipating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under thetwo-class method described in SFAS No. 128, “Earnings per Share.” The FSP requires companies to treat unvested share-based paymentawards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share.The FSP is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The adoption of FSP EITF 03-6-1 willnot have any impact on our consolidated financial statements.In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset IsNot Active,” or FSP FAS 157-3. The FSP clarifies the application of FASB Statement No. 157 in a market that is not active and provides anexample to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.The FSP was effective upon issuance, including prior periods for which financial statements have not been issued and did not have amaterial impact on our financial statements.In November 2008, the FASB ratified EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations,” or EITF 08-6, whichclarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effectivefor fiscal years beginning after December 15, 2008, with early adoption prohibited. We currently do not expect that the adoption of EITF 08-6will have a material impact on our consolidated financial statements.In November 2008, the FASB ratified EITF Issue No. 08-7, “Accounting for Defensive Intangible Assets,” or EITF 08-7, which clarifies theaccounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to preventits competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangibleasset as a separate unit of accounting which should be amortized to expense over the period the asset diminishes in value. EITF 08-7 iseffective for fiscal years beginning after December 15, 2008, with early adoption prohibited. It is effective prospectively for intangible assetsacquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. EITF 08-7 is effective for usbeginning January 1, 2009 and we will account for defensive intangible assets acquired in future business combinations in accordance withits provisions.F-14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.4. EARNINGS PER SHAREBasic earnings per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding duringthe period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstandingduring the period increased to include all additional common shares that would have been outstanding assuming potentially dilutivecommon shares, resulting from option exercises, had been issued and any proceeds thereof used to repurchase common stock at theaverage market price during the period. In periods in which there is a net loss, potentially dilutive common shares are excluded from thecomputation of diluted earnings per share as their effect would be anti-dilutive. 2008 2007 Net income (loss) for diluted computation$ 3,744,408 $ (4,544,329) Weighted average shares: Basic 5,854,836 5,291,506 Effect of dilutive securities: Stock options 982,075 - Diluted 6,836,911 5,291,506 Net Income (Loss) Per Share: Basic$ 0.64 $ (0.86)Diluted$ 0.55 $ (0.86)For the year ended December 31, 2007, 1,409,700 of potential common shares were excluded from the diluted loss per share calculationbecause their effect was anti-dilutive as a result of the Company’s 2007 net loss.5. INVENTORIES, NETNone.6. PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment from continuing operations consist of: December 31, 2008 2007 Machinery and equipment$ 562,610 $ 575,069 Furniture and fixtures 91,928 91,928 Leasehold improvements 1,185,059 1,185,059 1,839,597 1,852,056 Less accumulated depreciation and amortization(1,837,300)(1,816,376) $ 2,297 $ 35,680 Total depreciation expense amounted to $30,919 and $32,143 for calendar years 2008 and 2007, respectively.F-15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIESAccounts payable and accrued liabilities consist of the following: December 31, 2008 2007 Trade accounts payable and accrued expenses$ 409,433 $ 686,742 Accrued legal and other professional fees 117,837 98,438 Accrued payroll and related costs 115,195 88,280 $ 642,465 $ 873,460 8. INCOME TAXESThe income tax expense for 2008 was $299,212 as compared to $53,865 for 2007. We accrued approximately $494,234 associated withfederal and state taxes based on our net income in 2008 which was partially offset by a tax benefit related to the exercise of stock options of$314,648. After finalizing our delinquent prior year tax filings in 2008, our estimated federal and state tax penalties and interest were reducedby $103,203 and $77,250, respectively, and we recognized a $195,002 tax benefit in connection with our 2007 net operating loss. We havepostponed the recognition of a tax benefit of $220,000 for the 2007 period due to net operating loss carrybacks and will request that theInternal Revenue Service apply this amount to our 2008 federal taxes.The provision for income taxes consist of the following: Year ended December 31, 2008 2007 Current: Federal$ 172,186 $ - State 7,400 3,600 179,586 3,600 Deferred: Federal - - State - - Total$ 179,586 $ 3,600 The effective income tax rate of the Company differs from the federal statutory tax rate of 34% due to the following items: Year ended December 31, 2008 2007 Computed tax expense at statutory rate 34.0% 34.0% State income taxes, net of federal tax benefit 0.1% 0.1% Deferred revenues (9.0%) (25.7%)Tax benefit of exercised options and warrant (6.4%) (0.4%)Orphan drug and other tax credits (2.2%) - Stock-based compensation 12.4% 14.3% Tax benefit of NOL (14.7%) - Depreciation and amortization (8.4%) - Other (1.4%) 0.2% Increase (decrease) in valuation allowance - (22.5%) 4.4% -% F-16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The significant components of the Company's deferred tax assets, pursuant to SFAS No. 109, are summarized as follows: Year ended December 31, 2008 2007 Tax Credit carryforward$ 1,039,390 $ 1,128,724 Deferred revenues 1,231,287 1,673,314 Other 37,736 117,308 Options 815,686 381,882 Net operating loss carryforward 128,775 1,831,764 Net deferred tax assets before valuation allowance 3,252,874 5,132,992 Valuation allowance (3,252,874) (5,132,992)Net deferred tax asset$ - $ - SFAS No. 109 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely thannot that some or all of the deferred tax assets may not be realized. The Company decreased the valuation allowance by $2,008,893 duringthe year ending December 31, 2008. The decrease in the valuation allowance was primarily to the realization of net income for the reportingperiod. The net deferred tax asset has been fully reserved due to the uncertainty of the Company's ability to generate taxable income underthe more likely than not criteria of FAS 109.At December 31, 2008, the Company had $1,717,000 of state and zero of federal net operating loss carryforward. As of December 2008, theCompany had approximately $1,020,626 of orphan drug tax credit that can be carried forward and used indefinitely.9. STOCKHOLDERS’ EQUITYStock Option PlansIn July 1994, the Company's stockholders approved a stock option plan for eligible key employees, directors, independent agents, andconsultants who make a significant contribution toward the Company's success and development and to attract and retain qualifiedemployees (the “1993 Plan”), which expired in July 2004. Under the 1993 Plan, qualified incentive stock options and non-qualified stockoptions may be granted to purchase up to an aggregate of 200,000 shares of the Company's common stock, subject to certain anti-dilutionprovisions. The exercise price per share of common stock may not be less than 100% (110% for qualified incentive stock options granted tostockholders owning at least 10% of common shares) of the fair market value of the Company's common stock on the date of grant. Ingeneral, the options vest and become exercisable in four equal annual installments following the date of grant, although the Board, at itsdiscretion, may provide for different vesting schedules. The options expire ten years (five years for qualified incentive stock options granted tostockholders owning at least 10% of common shares) after such date. In accordance with terms of the 1993 Plan, no options were grantedten years after the effective date of the 1993 Plan, or July 2004. As of December 31, 2008 there were zero options outstanding under the1993 Plan.In July 1997, the Company's stockholders approved a stock option plan (the “1997 Plan”) with terms identical to the 1993 Plan. The 1997Plan authorizes the granting of awards of up to an aggregate of 500,000 shares of the Company's common stock, subject to certain anti-dilution provisions. In accordance with terms of the 1997 Plan, no options were granted ten years after the effective date of the 1997 Plan orJuly 2007. In July 2007, approximately 231,000 stock options expired unissued. As of December 31, 2008 there were 147,250 optionsoutstanding under the 1997 Plan.F-17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In August 2001, the Company's stockholders approved a stock option plan (the “2001 Plan”), with terms similar to the 1997 Plan. The 2001Plan authorizes the granting of awards of up to an aggregate of 750,000 shares of the Company's common stock, subject to certain anti-dilution provisions. On December 16, 2003, stockholders approved an amendment to the 2001 Plan, which increased the number of sharesauthorized for grant from 750,000 shares to 1,750,000 shares, an increase of 1,000,000 shares. A total of 1,750,000 shares of common stockare now authorized for issuance under the amended 2001 Plan. The 2001 Plan, as amended expires in August 2011. The Company filed aRegistration Statement on Form S-8 for the 2001 Plan with the Commission on October 5, 2007 to register these securities. As of December31, 2008 there were 1,279,850 options outstanding and a total of 194,098 shares available for grant remaining under the 2001 Plan.The summary of the stock options activity is as follows for year ended: December 31, 2008 2007 Weighted Weighted Average Average Exercise Exercise Shares Price Shares PriceOutstanding at beginning of year 1,409,700 $1.86 1,281,125 $1.17Options granted 232,500 16.00 277,000 4.68Options exercised (209,300) 1.22 (104,952) 1.06Options canceled or expired (5,800) 4.18 (43,473) 1.95Outstanding at end of year 1,427,100 4.25 1,409,700 1.86Options exercisable at year end 1,220,850 3.12 1,226,700 1.57Shares available for future grant 194,098 -- 426,598 --During 2008, the Company granted 232,500 options to Board members, employees and consultants on various dates. Of the 232,500options granted in 2008, 200,000 options granted to our Board members vest over one year, 30,000 options granted to our employees vestover four years, 2,500 options granted to our employees vested immediately and 50,000 options granted to a consultant vested immediately.During 2007, the Company granted 277,000 options to Board members, employees and consultants on various dates. Of the 277,000options granted in 2007, 147,000 options granted to our Board members vest over one year, 30,000 options granted to our employees vestover four years and 100,000 options granted to a consultant vests upon the achievement of certain milestones. The options granted in 2008and 2007 were granted at exercise prices ranging from $4.00 to $20.00 per share.The following table summarizes information relating to stock options by exercise price at December 31, 2008:Outstanding Exercisable Weighted WeightedOption Weighted Average AverageExercise Average Life Exercise OptionPrice Shares (years) Price Shares Price$0.83-1.99 867,600 5.67 $1.06 817,600 $1.072.00-2.99 30,000 1.40 2.67 30,000 2.673.00-3.99 20,000 0.52 3.00 20,000 3.004.00-4.99 182,000 8.25 4.34 159,500 4.305.00-5.99 95,000 8.75 5.33 85,000 5.3113.00-13.99 125,000 9.38 13.51 72,500 13.6017.00-17.99 30,000 9.48 17.00 15,000 17.0019.00-20.00 77,500 9.70 19.61 21,250 19.65 1,427,100 6.67 $4.25 1,220,850 $4.82F-18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The weighted-average grant-date fair value for options granted during 2008 was $16.00 per share and $4.50 per share in 2007. During the2008 and 2007, $255,388 and $122,912 were received from stock options exercised by employees, respectively.During 2008, the exercise of 70,300 stock options resulted in a realized benefit of $314, 647 in tax return deductions, in excess ofcompensation cost recognized and is accounted for as a reduction of the Company’s tax liability and an increase in additional paid-in capital.Under FASB Statement No. 95, Statement of Cash Flows, as amended, the realized tax benefit related to the excess of the deductibleamount over the compensation cost recognized is classified as a cash inflow from financing activities and a cash outflow from operatingactivities in the statement of cash flows.10. COMMITMENTS AND CONTINGENCIESLease AgreementsThe Company's operations are principally conducted on leased premises. Future minimum annual rental payments required under non-cancelable operating leases are approximated as follows:Year ending December 31,2009$152,000 2010 75,000 thereafter -0- Rent expense under all operating leases amounted to approximately $150,000 for each calendar year 2008 and 2007. Wilbur StreetCorporation (“WSC”) owns and has leased to ABC-NY a building that serves as a manufacturing facility and our headquarters in Lynbrook,New York for over 30 years. The building also serves as the Company’s administrative headquarters. Edwin H. Wegman, the Company'sformer Chairman and CEO, was the President of WSC.In January 1998, WSC, the Company and ABC-NY entered into a triple net lease agreement that provides for an annual rent starting at$125,000, which can increase annually by the amount of the annual increase in the consumer price index for the greater New Yorkmetropolitan region. The lease term was 7 years and expired on January 31, 2005. The Company paid and accrued approximately $220,000and $220,000 representing rent, real estate taxes and insurance to WSC in 2008 and 2007, respectively. Without Board approval, the leasewas renewed (a related party transaction) in July 2005 for an additional 5 years, expiring on June 30, 2010. The extension of the lease maythus not be valid. The annual base rent, exclusive of taxes and related insurance, is $150,000 ($10 per square foot) per annum commencingin February 2006. Our rent may increase annually by the amount of the annual increase in the consumer price index for the greater NewYork metropolitan region. As part of the agreement with DFB, DFB agreed to sublease a part of the New York facility for a period of one year,which expired on March 2, 2007, for an all inclusive monthly payment of $15,500. DFB extended its sublease until March 6, 2008 and paid$16,500 per month during this extended lease period. In April 2008, DFB extended its sublease until March 3, 2009 and paid $19,000 permonth during the extended lease period. In accordance with the sublease extension, in July 2008 DFB provided notice of the termination ofits obligations under the sublease, effective as of September 1, 2008. We are currently negotiating with WSC a reduction of the rent price ofthe facility but as of the date of this filing the parties have not reached an agreement regarding such reduction.Receivables and Deferred RevenueUnder our agreement with DFB, we agreed to provide certain technical assistance and certain transition services to DFB in consideration offees and costs totaling over $1.4 million. At the closing, DFB paid to us a partial payment of $400,000 in respect of the technical assistance tobe provided by us. As of December 31, 2008, we have received a total of $1,000,000 in payments from DFB. The consulting obligationsgenerally expire during March 2011. As of December 31, 2008, the remaining accounts receivable balance due was $400,000 for futureservices and was offset by the associated deferred revenues to be recognized in future periods of $400,000.F-19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Potential Product LiabilityThe sale of our topical collagenase product, as well as the development and marketing of any potential products of the Company, exposes usto potential product liability claims both directly from patients using the product or products in development, as well as from our agreement toindemnify certain distributors of the product for claims made by others. We have product liability insurance, which covers the use of ourlicensed topical collagenase product and clinical experiments of potential products in the U.S. No known claims are pending against us at thecurrent time. Our insurance policy has a limit of $3 million and is renewed annually during the month of February.11. RELATED PARTY TRANSACTIONSAs of December 31, 2007 we leased one facility in Lynbrook, New York. The New York facility is our administrative headquarters andcontains approximately 3,500 square feet of office space and 11,500 square feet of laboratory, production, and storage facilities. As part of theagreement with DFB, DFB agreed to sublease a part of the New York facility for a period of one year, which expired on March 2, 2007, for anall inclusive monthly payment of $15,500. DFB extended its sublease until March 6, 2008 and paid $16,500 per month during this extendedlease period. In April 2008, DFB extended its sublease until March 3, 2009 and paid $19,000 per month during the extended lease period. Inaccordance with the sublease extension, in July 2008 DFB provided notice of the termination of its obligations under the sublease, effectiveas of September 1, 2008. We lease this facility from WSC and are currently negotiating with WSC a reduction of the rent price of the facilitybut as of the date of this filing the parties have not reached an agreement regarding such reduction.WSC was an affiliate of Edwin H. Wegman, our former Chairman and CEO, until Edwin H. Wegman’s death. At the present time theownership of WSC is unclear. However, our President, Thomas L. Wegman, is the senior most officer of WSC.In January 2007, we entered into two amended and restated demand promissory notes with each of Edwin H. Wegman and WSC reflectingthe prior outstanding principal amounts of the loans and compounded interest (collectively, the “Notes”). Upon the death of Edwin H.Wegman on February 16, 2007, his Notes became the obligation of his estate. As of December 31, 2007, the aggregate principal amounts,including compounded interest, owed to us by Edwin H. Wegman and WSC were $1,108,088 and $304,397, respectively. Under the Notes,the respective principal amounts remaining unpaid at any time shall each bear interest at the rate of nine percent (9%) per annumcompounded annually. The loans were secured by a pledge of 100% of the shares of the Company owned by The S.J. Wegman Company. AtDecember 31, 2007 the total number of shares pledged, 1,843,327, had a current market value of $3.80 per share. In March 2007, in fullrepayment of the loan made by the Company to WSC, WSC offset $304,397 in back rent due from the Company in full repayment of theloan.Edwin H. Wegman was the sole general partner of The S.J. Wegman Company, a limited partnership which owned over 20% of the issuedand outstanding common stock of the Company. Upon his death on February 16, 2007, The S.J. Wegman Company was legally dissolved.The dissolution of The S.J. Wegman Company constituted an event of default under the above mentioned pledge agreement, which gave theBoard the right to vote the pledged shares.As of December 31, 2007, the Company had an outstanding loan to the Company’s former Chairman and CEO, Edwin H. Wegman. Theprincipal amount owed was $625,774 and the accrued interest amount through December 31, 2007 was $482,314 for an aggregate amountof $1,108,088. The loan was in the form of a demand promissory note, bearing interest at a rate of 9% per annum. For financial statementpurposes, this loan is classified as components of stockholders’ equity in the balance sheet and appear as “Notes due from former Chairmanand CEO and other related party.”Notwithstanding the dissolution of The S.J. Wegman Company, upon the death of Edwin H. Wegman, the loan continued to be secured byThe S.J. Wegman Company pledge. Interest income accrued for these loans, but not recognized for financial statement purposes, aggregatedapproximately $8,470 and $91,500, for the calendar years 2008 and 2007, respectively.F-20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.On February 1, 2008, the Estate of Edwin H. Wegman (the “Estate”) sold an aggregate of 344,114 shares of the Company's common stock,par value $0.001, at a purchase price of $12.00 per share to certain private investors. The Estate used certain of the proceeds of thetransaction to repay the loan owed to the Company by Edwin H. Wegman, our former Chairman and CEO. The total loan repaymentamount was $1,116,558, which represents the principal amount of $625,774 owed to the Company and accrued interest through January31, 2008 of $490,784.12. EMPLOYEE BENEFIT PLANSABC-NY has a 401(k) Profit Sharing Plan for employees who meet minimum age and service requirements. Contributions to the plan byABC-NY are discretionary and subject to certain vesting provisions. The Company made no contributions to this plan for calendar years 2008or 2007.13. SUBSEQUENT EVENTSOn January 5, 2009, we received the entire outstanding principal balance of our investment in auction rate securities of $0.9 million.On January 6, 2009 the Company announced that it will hold its 2009 Annual Meeting of Stockholders on June 17, 2009 at the New Yorkoffices of Bingham McCutchen LLP, located at 399 Park Avenue, New York, NY 10022 and that the deadline for stockholders to submitproposals to be included in our proxy statement with respect to the 2009 Annual Meeting of Stockholders was February 6, 2009.On January 9, 2009 the Company’s common stock became listed and commenced trading on the Nasdaq Global Market under the symbol“BSTC.”On January 30, 2009, the Company received an upfront sublicense payment of $6.375 million from Auxilium in accordance with the termsof the Auxilium Agreement.In a press release dated February 2, 2009, Auxilium announced that it has completed patient enrollment in its Phase IIb trial of XIAFLEX forthe treatment of Peyronie’s disease and that all patients have received their first injection of either XIAFLEX or placebo in accordance with thestudy design.In a press release dated March 2, 2009, Auxilium announced that it filed a BLA for the treatment of Dupuytren’s disease on February 27,2009. Auxilium also announced that it has requested a Priority Review designation for the BLA submission from the FDA and that it expectsto hear from the FDA on Priority Review designation within approximately 60 days of the filing date.F-21Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT INDEXThe documents listed below are being filed or have previously been filed on behalf of the Company and are incorporated herein by referencefrom the documents indicated and made a part hereof. Exhibits not identified as previously filed are filed herewith:ExhibitDescriptionNumber 3.1Registrant’s Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-KSBfiled with the Commission on March 2, 2007)3.2Registrant’s Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10-KSB filedwith the Commission on March 2, 2007)10.1Copy of Promissory Note, dated January 1, 2007, executed by Edwin H. Wegman in favor of the Company (incorporated byreference to Exhibit 10.1 of the Registrant’s Form 10-KSB filed with the Commission on March 2, 2007)10.2Copy of Promissory Note, dated January 1, 2007, executed by Wilbur Street Corporation in favor of the Company (incorporatedby reference to Exhibit 10.2 of the Registrant’s Form 10- KSB filed with the Commission on March 2, 2007)10.3Copy of Pledge Agreement, dated January 1, 2007, executed by The S.J. Wegman Company in favor of the Company(incorporated by reference to Exhibit 10.3 of the Registrant’s Form 10- KSB filed with the Commission on March 2, 2007)10.4Copy of Lease, dated January 30, 1998, between the Company and the Wilbur Street Corporation (incorporated by reference toExhibit 10.14 of the Registrant’s Form 10-KSB filed with the Commission on May 7, 1998)10.5Copy of Extension and Modification Agreement, dated July 1, 2005, between the Company and the Wilbur Street Corporation(incorporated by reference to Exhibit 10.5 of the Registrant’s Form 10-KSB filed with the Commission on March 2, 2007)10.6Asset Purchase Agreement between the Company, ABC-NY and DFB dated March 3, 2006 (incorporated by reference toExhibit 2.1 of the Registrant’s Form 8-K filed with the Commission on March 9, 2006)10.7Amendment to Asset Agreement between the Company, ABC-NY and DFB dated January 8, 2007 (incorporated by referenceto Exhibit 10.1 of the Registrant’s Form 8-K filed with the Commission on January 12, 2007)10.8Dupuytren’s License Agreement dated November 21, 2006 between the Company and the Research Foundation (incorporatedby reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Commission on November 28, 2006)10.9Frozen Shoulder License Agreement dated November 21, 2006 between the Company and the Research Foundation(incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Commission on November 28, 2006)10.10Form of 1993 Stock Option Plan of Registrant (incorporated by reference as Exhibit 10.2 of the Registrant’s Form S-8 filed withthe Commission on July 27, 1995)10.11Form of 1997 Stock Option Plan of Registrant (incorporated by reference as Exhibit 4.1 of the Registrant’s Form S-8 filed withthe Commission on September 26, 1997)10.12Form of 2001 Stock Option Plan of Registrant (incorporated by reference as Exhibit 10.15 of the Registrant’s Form 10-KSB filedwith the Commission on May 17, 2001)10.13Amendment to 2001 Stock Option Plan of Registrant (incorporated by reference to the Registrant’s Form 14A filed with theCommission on November 12, 2003)10.14Warrant to purchase common stock of the Company dated March 12, 2003 between the Company and David Geller(incorporated by reference to Exhibit 10.17 of the Registrant’s Form 10-KSB filed with the Commission on March 2, 2007)10.15Rights Agreement dated as of May 14, 2002 (incorporated by reference as Exhibit 1 to the Registrant’s Form 8-A filed with theCommission on May 30, 2002)Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.10.16Amendment No.1 to Rights Agreement, dated June 19, 2003 (incorporated by reference to Exhibit 10.19 of the Registrant’sForm 10-KSB filed with the Commission on March 2, 2007)10.17Change of Control Agreement, dated June 18, 2007 between the Company and Henry Morgan (incorporated by reference toExhibit 10.21 of the Registrant’s Form 10-KSB filed with the Commission on September 26, 2007)10.18Change of Control Agreement, dated June 18, 2007 between the Company and Michael Schamroth (incorporated by referenceto Exhibit 10.22 of the Registrant’s Form 10-KSB filed with the Commission on September 26, 2007)10.19Change of Control Agreement, dated June 18, 2007 between the Company and Dr. Paul Gitman (incorporated by reference toExhibit 10.23 of the Registrant’s Form 10-KSB filed with the Commission on September 26, 2007)10.20Agreement dated August 27, 2008 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with theCommission on September 5, 2008)10.21Amended and Restated Development and License Agreement dated December 11, 2008 and effective December 17, 2008between the Company and Auxilium Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Form8-K filed with the Commission on December 19, 2008)10.22Executive Employment Agreement, dated August 5, 2008 between the Company and Thomas L. Wegman (incorporated byreference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Commission on August 8, 2008)10.23*Change of Control Agreement, dated October 1, 2008 between the Company and Dr. Matthew Geller14Amended and Restated Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 of the Registrant’sForm 10-KSB filed with the Commission on March 2, 2007)21Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of the Registrant’s Form 10-KSB filed with theCommission on March 2, 2007)23*Consent of Tabriztchi & Co. CPA, P.C.*31*Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002*32*Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002* * filed herewithSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SIGNATURESIn accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report on Form 10-K to besigned on its behalf by the undersigned, thereto duly authorized individual.Date: March 30, 2009BIOSPECIFICS TECHNOLOGIES CORP. By:/s/ Thomas L. Wegman Name:Thomas L. WegmanTitle:PresidentIn accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated.SIGNATURE TITLE /s/ Thomas L. Wegman President, Director, Principal Executive Officer and PrincipalName: Thomas L. Wegman Financial Officer)Date: March 30, 2009 /s/ Henry Morgan DirectorName: Henry Morgan Date: March 30, 2009 /s/ Dr. Paul Gitman DirectorName: Dr. Paul Gitman Date: March 30, 2009 /s/ Dr. Mark Wegman DirectorName: Dr. Mark Wegman Date: March 30, 2009 /s/ Dr. Matthew Geller DirectorName: Dr. Matthew Geller Date: March 30, 2009 /s/ Michael Schamroth DirectorName: Michael Schamroth Date: March 30, 2009 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.23BIOSPECIFICS TECHNOLOGIES CORP.Non-Employee Director Change of Control AgreementThis Non-Employee Director Change of Control Agreement, effective as of October 1, 2008 is entered into by and between BioSpecifics Technologies Corp., aDelaware corporation (the "Company"), with its principal offices located at 35 Wilbur Street, Lynbrook, NY 11563, and Matthew Geller (the "Director").The Director is a non-employee member of the Board of Directors of the Company and the Company and the Director desire to arrange for certain provisionsapplicable in the event that the Director’s service on the Company’s Board of Directors terminates under the circumstances provided herein.Accordingly, the parties hereto agree as follows:1. Change of Control. For purposes of this Agreement, a "Change of Control" shall mean the occurrence of any one of the following:1.1. the acquisition by any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934), other than theCompany or its affiliates, from any party of an amount of the capital stock of the Company, so that such person holds or controls 40% ormore of the Company’s capital stock; or1.2. a merger or similar combination between the Company and another entity after which 40% or more of the voting stock of the survivingcorporation is held by persons other than the Company or its affiliates; or1.3. a merger or similar combination (other than with the Company) in which the Company is not the surviving corporation; or1.4. the sale of all or substantially all of the Company’s assets or business.2. Benefits. If the Director’s service on the Board of Directors of the Company is terminated pursuant to a transaction resulting in a Change of Control, thenthe following provisions shall apply:2.1. Option Vesting. 100% of any options to purchase shares of common stock of the Company then held by the Director, which options arethen subject to vesting, shall, notwithstanding any contrary provision in the option agreement or stock option plan pursuant to which suchoptions had been granted, be accelerated and become fully vested and exercisable on the date immediately preceding the effective date of suchtermination. All other terms of the Director’s options shall remain in full force and effect.2.2. Restricted Stock. If, on the date immediately preceding the effective date of such termination, the Director then holds shares of commonstock of the Company that are subject to restrictions on transfer ("Restricted Stock") issued to the Director in a transaction other than pursuantto the exercise of a stock option, then, notwithstanding any contrary provision in the relevant stock purchase agreement or other instrumentpursuant to which the Director acquired such shares of Restricted Stock, such restrictions shall expire in their entirety on the date immediatelypreceding the date of termination and all of such shares of common stock shall become transferable free of restriction, subject to the applicableprovisions of federal and state securities laws. All other terms of any existing stock purchase or similar document shall remain in full forceand effect.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.3. Confidentiality Agreement. The Director confirms that as of the date hereof he or she has executed, or agrees that he or she will execute, the Company’sstandard Confidentiality Agreement pursuant to which the Director has agreed to refrain from disclosing the Company’s confidential information as set forthin such Confidentiality Agreement.4. Miscellaneous.4.1. Assignment. This Agreement may not be assigned, in whole or in part, by either party without the prior written consent of the otherparty, except that the Company shall assign its rights and obligations under this Agreement to any corporation, firm or other business entitywith or into which the Company may merge or consolidate, or to which the Company may sell or transfer all or substantially all of its assets,or of which 50% or more of the equity investment and of the voting control is owned, directly or indirectly, by, or is under common ownershipwith, the Company. In the event of any such assignment by the Company, the Company shall not be discharged from its liability hereunder.4.2. Notices. All notices, requests, demands and other communications to be given pursuant to this Agreement shall be in writing and shall bedeemed to have been duly given if delivered by hand or mailed by registered or certified mail, return receipt requested, postage prepaid, to theaddresses set forth at the beginning of this Agreement or such other address as a party shall have designated by notice in writing to the otherparty, provided that notice of any change in address must actually have been received to be effective hereunder.4.3. Integration. This Agreement is the entire agreement of the parties with respect to the subject matter hereof and supersedes any prioragreement or understanding relating to the subject matter hereof. This Agreement may not be superseded amended, supplemented or otherwisemodified except by a writing signed by the Director and the Company.4.4. Binding Effect. Subject to Section 4.1, this Agreement shall inure to the benefit of and be binding upon the parties hereto and theirsuccessors, assigns, heirs and personal representatives.4.5. Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original and shall togetherconstitute one and the same instrument.4.6. Severability. If any provision hereof shall, for any reason, be held to be invalid or unenforceable in any respect, such invalidity orunenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid or unenforceableprovision had not been included herein. If any provision hereof shall for any reason be held by a court to be excessively broad as to duration,geographical scope, activity or subject matter, it shall be construed by limiting and reducing it to make it enforceable to the extent compatiblewith applicable law as then in effect.4.7. Governing Law. This Agreement shall be governed by the laws of the State of New York, without regard to its conflict-of-law provisions.4.8. Termination. Nothing in this Agreement is intended to or shall modify the nature of the Director’s service as a member of the Board ofDirectors of the Company. The Director may resign as a director at any time and the Board may take action to remove the Director, subjectonly to the express provisions of this Agreement.4.9. Survival of Obligations; Enforcement. The Director’s duties hereunder shall survive the Director’s service as a member of the Board ofDirectors of the Company. The Director acknowledges that a remedy at law for any breach or threatened breach by the Director of theprovisions of this Agreement may be inadequate and the Director therefore agrees that the Company shall be entitled to injunctive relief in caseof any such breach or threatened breach.2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as of the date first written above.DIRECTOR /s/ Matthew Geller Name: Matthew Geller BIOSPECIFICS TECHNOLOGIES CORP. By:/s/ Thomas L. Wegman Name: Thomas L. Wegman Title: President Signature Page to Matthew Geller Change of Control AgreementSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23Consent of the Independent Registered Certified Public Accounting FirmWe hereby consent to the incorporation of our audit report dated March 25, 2009 with respect to the consolidated balance sheets of BioSpecifics TechnologiesCorp. as of December 31, 2008 and 2007, and the related statements of income, stockholders' equity and cash flows for each of the years in the two-yearperiod ended December 31, 2008, in Form 10-K for the year ended December 31, 2008 for BioSpecifics Technologies Corp./s/Tabriztchi & Co., CPA, P.C.Garden City, NY March 25, 20097 Twelfth Street Garden City, NY 11530 Tel: 516-746-4200 Fax: 516-746-7900 Email:Info@Tabrizcpa.com www.Tabrizcpa.com　Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULES 13a-14(a) AND 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934I, Thomas L. Wegman, certify that:1.I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2008 of BioSpecifics Technologies Corp.;2.Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls overfinancial reporting. Date: March 30, 2009 /s/ Thomas L. Wegman Thomas L. Wegman President, Principal Executive Officer and Principal Financial OfficerSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULES 13a-14(b) AND 15d-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350 The undersigned, Thomas L. Wegman, the President, Principal Executive Officer and Principal Financial Officer of BioSpecifics Technologies Corp. (the"Company"), DOES HEREBY CERTIFY that:1.The Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008 (the "Report"), fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company for theperiod covered by the Report.IN WITNESS WHEREOF, the undersigned has executed this certification this 30th day of March, 2009. /s/ Thomas L. Wegman Thomas L. Wegman President, Principal Executive Officer and Principal Financial Officer This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange of 1934, or otherwise subject to liability pursuant to thatsection. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of1934, except to the extent that the Company specifically incorporates it by reference.　Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 31, 2009Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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