BioSpecifics Technologies Corp.
Annual Report 2010

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KBIOSPECIFICS TECHNOLOGIES CORP - BSTCFiled: March 14, 2011 (period: December 31, 2010)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)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________________to __________________Commission File Number: 001-34236BIOSPECIFICS 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)Registrant’s telephone number, including area code: 516.593.7000Securities registered under Section 12(b) of the Exchange Act:Title of each className of each exchange on which registeredCommon StockThe Nasdaq Global MarketSecurities 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 [X] 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 [X] 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.[X] Yes [ ] No Indicate 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. [ ]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 [X]Non-accelerated filer [ ] (Do not check if a smaller reporting company)Smaller reporting company [ ]iSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 shell company (as defined in Rule 12b-2 of the Exchange Act).[ ] Yes [X] NoThe aggregate market value of voting and non-voting common stock held by non-affiliates of the Registrant as of June 30, 2010, the lastbusiness day of the registrant’s most recently completed second fiscal quarter, was approximately $95.3 million.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 8, 2011 is 6,293,868.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement for its 2011 Annual Meeting of Stockholders scheduled to be held on June 13, 2011,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, 2010, 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 2011 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.iiSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 I2Item 1. DESCRIPTION OF BUSINESS2Item 1A. RISK FACTORS15Item IB. UNRESOLVED STAFF COMMENTS26Item 2. DESCRIPTION OF PROPERTY26Item 3. LEGAL PROCEEDINGS26Item 4. (REMOVED AND RESERVED)27 PART II27Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS27Item 6. SELECTED FINANCIAL DATA29Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION30Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK39Item 8. FINANCIAL STATEMENTS40Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE40Item 9A. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES40Item 9B. OTHER INFORMATION41 PART III41Item 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCEWITH SECTION 16(a) OF THE EXCHANGE ACT41Item 11. EXECUTIVE COMPENSATION41Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS41Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE41Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES41 PART IV41Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES41iSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-lookingstatements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of theplans and objectives of management for future operations, any statements concerning proposed new products or licensing or collaborativearrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any ofthe 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 we believe that theexpectations reflected in the forward-looking statements contained in this Report are reasonable, there can be no assurance that suchexpectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected orassumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-lookingstatements, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth in Item 1A of this Report, andfor the reasons described elsewhere in this Report. All forward-looking statements and reasons why results may differ included in this Reportare made 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 14, 2011Powered 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® (collagenase clostridium histolyticum)) for clinical indications in Dupuytren’s contracture, Peyronie’s disease and frozenshoulder (adhesive capsulitis), and Auxilium has an option to acquire additional indications that we may pursue, including human andcanine lipoma and cellulite. Auxilium has an agreement with Pfizer, Inc. (“Pfizer”) pursuant to which Pfizer has the right to market XIAFLEXfor Dupuytren’s contracture and Peyronie’s disease in 27 member countries of the European Union and 19 other European and Eurasiancountries, and will do so under the registered trademark XIAPEX® (collagenase clostridium histolyticum).Commercialization of XIAFLEX for Dupuytren’s Contracture in the United StatesAuxilium announced on February 2, 2010 that it received marketing approval from the United States Food and Drug Administration (“FDA”)for XIAFLEX for the treatment of adult Dupuytren’s contracture patients with a palpable cord as further described in this Item 1 under theheading “Collagenase for Treatment of Dupuytren’s Contracture.” Auxilium launched XIAFLEX, the only drug approved by the FDA for thetreatment of Dupuytren’s contracture, in March 2010.Auxilium has announced that a new XIAFLEX-specific J-code (J0775) became available, beginning January 1, 2011, for use in the U.S. toidentify XIAFLEX for obtaining reimbursement from Medicare, Medicaid and commercial health plans. Auxilium has reported in its Form 10-K filed with the SEC on March 1, 2011 (the “Auxilium 10-K”) that “the leadership of the American Society for Surgery of the Handsrecommended a CPT code for XIAFLEX to the American Medical Association’s CPT Editorial Panel in February 2011”.As discussed in more detail below under the section titled “Licensing and Marketing Agreements,” pursuant to our development andlicensing agreement with Auxilium, we will be entitled to low double-digit royalties for net sales of XIAFLEX, subject to set-off for certainexpenses we owe to Auxilium relating to certain development and patent costs.Status of Regulatory Approval of XIAFLEX for Dupuytren’s Contracture in EuropeIn a press release dated February 28, 2011, Auxilium and Pfizer announced that the European Commission granted XIAPEX marketingauthorization for the treatment of Dupuytren’s contracture in adult patients with a palpable cord. The press release also noted that XIAPEX “isexpected to be available for use in some European markets later this year”.In the Auxilium 10-K, Auxilium stated that “a total of $60 million in milestone payments will be payable to [Auxilium] by Pfizer upon Pfizer’sachievement of [the] first commercial sale of XIAPEX for Dupuytren’s [contracture] within the major markets in Europe. Of this $60 million,$30 million will be payable upon [the] first commercial sale in the first country and a total of $30 million will be payable upon the respectivefirst commercial sales in each of the remaining major markets.” We will receive 8.5% of any such milestone payments from Pfizer toAuxilium.Qualifying Therapeutic Discovery Project ProgramWe have received $426,000 in grant funding under the Qualifying Therapeutic Discovery Project Program. The program, funded through theU.S. Patient Protection and Affordable Care Act of 2010, encourages therapeutic discovery programs. As we announced on November 3,2010, the funding supports the clinical development of injectable collagenase in lipoma and the development of improved collagenases fortissue disassociation related to cellular therapy.2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Research and Development of Injectable Collagenase for Multiple IndicationsWe entered into a development and license agreement with Auxilium on June 3, 2004, 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,market and sell products containing our injectable collagenase for the treatment of Dupuytren’s contracture, Peyronie's disease and frozenshoulder, as well as an exclusive option to develop and license the technology for use in additional indications other than dermalformulations labeled for topical administration.On December 11, 2008, the parties amended and restated, in its entirety, the Prior Auxilium 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. Under the Pfizer Agreement, Pfizer will market XIAPEX for the treatment of Dupuytren’s contracture and Peyronie’sdisease in Europe and various other territories. In the Auxilium 10-K, Auxilium announced that it is seeking a partner or partners fordevelopment and commercialization in the rest of the world.The Auxilium Agreement and other licensing agreements are discussed more fully in this Item 1, under the section titled “Licensing andMarketing Agreements.”In the Auxilium 10-K, Auxilium stated that it plans to “prioritize [its] development of additional indications for XIAFLEX”. In the event thatAuxilium does out-license XIAFLEX in other indications, we will be entitled to receive a certain percentage of sublicense income andmilestone payments for such indications pursuant to the terms of the Auxilium Agreement.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.Collagenase is widely used for cell dispersion for tissue disassociation and cell culture because it does not damage the cell membrane. Sincethe main component of scar tissue is collagen, collagenase has been used in a variety of clinical investigations to remove scar tissue withoutsurgery. Histological and biochemical studies have shown that the tissue responsible for the deformities associated with Dupuytren’scontracture and Peyronie’s disease is primarily composed of collagen. Surgical removal of scar tissue has the potential to result incomplications including increased scar formation. Due to the highly specific nature of the Clostridial collagenase enzyme, we consider itsuse to be more desirable for the removal of unwanted tissue than the application of general proteolytic enzymes. Treatment with injectablecollagenase for removal of excessive scar tissue represents a first in class non-invasive approach to this unmet medical need. The leadindications involving our injectable collagenase are Dupuytren’s contracture, Peyronie’s disease and frozen shoulder. New clinical indicationsinvolving the therapeutic application of Clostridial collagenase to supplement the body’s own natural enzymes are continuously beingproposed to us by specialists in the medical community.Collagenase for Treatment of Dupuytren’s ContractureDupuytren’s contracture is a deforming condition of the hand in which one or more fingers contract toward the palm, often resulting inphysical disability. The onset of Dupuytren’s contracture is characterized by the formation of nodules in the palm that are composed primarilyof collagen. As the disease progresses, the collagen nodules begin to form a cord causing the patient’s finger(s) to contract, making itimpossible to open the hand fully. Patients often complain about the inability to wash their hands, wear gloves, or grasp some objects.Dupuytren’s contracture has a genetic basis and it is most prevalent in individuals of northern European ancestry. Well-known individualswith Dupuytren’s contracture include President Ronald Reagan, President George Bush, and Prime Minister Margaret Thatcher.3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Prior to FDA approval of XIAFLEX, the only proven treatment for Dupuytren’s contracture was surgery. Recurrence rates after surgery can beas high as 30% the first two years after surgery and 55% within ten years of surgery. The post surgical recovery is often associated withsignificant pain, delayed return to work, and extended periods of post-operative physical therapy. Because many of the individuals withDupuytren’s contracture are older than 60, there is considerable resistance from patients to undergo the surgical procedure, which alsoinvolves the risk of general anesthesia. In addition, hand surgeons note that surgery for Dupuytren’s contracture is tedious, lengthy andpoorly reimbursed in the U.S. Auxilium has also stated in its presentation materials for March 2011 that “[s]urgery has been reserved foradvanced disease due to the nature of the disease, unpredictable results, complications, long recovery time and recurrence/additionalsurgeries.”In the Auxilium 10-K, Auxilium cited the following reasons that “treatment with XIAFLEX offers benefits compared to surgery”. It:“delivers improvement to 0 to 5 degrees of normal joint contracture without surgery for a majority of patients;safeguards patients from the complications commonly associated with surgery;simplifies treatment by offering a convenient in-office procedure alternative;streamlines recovery for a rapid return to daily activities; andsignificantly reduces costly and time-consuming physical therapy associated with surgery.”We anticipate that many of the patients who had been willing to live with the disease at a time when the only proven treatment option wassurgery would be receptive to the XIAFLEX treatment which involves a collagenase injection into the hand that is performed in a doctor’soffice. As quoted in a February 28, 2011 joint press release of Auxilium and Pfizer, “‘Dupuytren’s contracture can significantly impact apatient’s quality of life, as the affected finger often interferes with daily activities such as driving, washing one’s face or shaking hands so anew alternative treatment for the condition is encouraging to those living with Dupuytren’s contracture across the EU,’ said Dr. Jörg Witthaut,consultant hand surgeon from Schön Klinik Vogtareuth Handchirurgie, Vogtareuth, Germany.”Commercialization of XIAFLEX for Dupuytren’s Contracture in the United StatesIn a February 2, 2010 press release, Auxilium announced that it received marketing approval from the FDA for XIAFLEX for the treatment ofadult Dupuytren's contracture patients with a palpable cord. XIAFLEX became available by prescription in March 2010. XIAFLEX is the onlydrug approved by the FDA for the treatment of Dupuytren’s contracture. The prescribing information for XIAFLEX made available byAuxilium lists “tendon rupture or other serious injury to the injected extremity,” as well as “pulley rupture, ligament injury, complex regionalpain syndrome, and sensory abnormality of the hand,” as reported serious adverse reactions to XIAFLEX. The prescribing information forXIAFLEX also states that the most frequently reported adverse drug reactions in XIAFLEX clinical trials included swelling of the injectedhand, contusion, injection site reaction, injection site hemorrhage, and pain in the treated extremity. The prescribing information notes thatadverse reaction rates observed in clinical trials of a drug may not reflect those observed in practice because such trials “are conducted underwidely varying conditions.”Auxilium also stated in the Auxilium 10-K that: “As a condition of approval for XIAFLEX, [the] FDA has required a risk evaluation andmitigation strategy (“REMS”) program for XIAFLEX, which consists of a communication plan and a medication guide. This REMS programis designed (1) to evaluate and mitigate known and potential risks and serious adverse events; (2) to inform healthcare providers about howto properly inject XIAFLEX and perform finger extension procedures; and, (3) to inform patients about the serious risks associated withXIAFLEX. [Auxilium] market[s] XIAFLEX to physicians who are experienced in injection procedures of the hand and in the treatment ofDupuytren’s, and [Auxilium] require[s] that they attest to this experience and their completion of the REMS-required training program beforethey have access to XIAFLEX.”4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.As discussed in more detail below under the section titled “Licensing and Marketing Agreements,” we will be entitled to low double-digitroyalties for net sales of XIAFLEX pursuant to the Auxilium Agreement, subject to set-off for certain expenses we owe to Auxilium under theAuxilium Agreement relating to certain development and patent costs.In its March 2011 presentation, Auxilium highlighted the following as its strategy for establishing XIAFLEX as the standard of care forDupuytren’s contracture: to “[d]isseminate excellent clinical efficacy and safety data; [f]acilitate peer to peer dialogue; [e]ducate patients on anon-invasive option; [s]mooth the reimbursement process; [and a]ctivate a critical mass of experienced prescribers”. In furtherance of thisstrategy, Auxilium has targeted 6,000 physicians including hand surgeons, plastic surgeons, orthopedic surgeons, general surgeons andrheumatologists, is utilizing 100 field based representatives compromised of sales representatives, sales managers and reimbursementspecialists as part of the launch, and has medical science liaisons to help gain key opinion leader and regional opinion leader support.In the Auxilium 10-K Auxilium noted that it plans to generate additional clinical data for Dupuytren’s contracture. Specifically, it “expect[s] toprovide top-line three year recurrence data from [its] long term extension study in June 2011. In the first quarter of 2011, [it has] commenceddosing in a phase IV study expected to evaluate the ability to inject multiple cords in a single hand simultaneously. [Auxilium is] alsoplanning to start a phase IV study on recurrent contractures previously successfully treated with XIAFLEX in 2011”.Status of Regulatory Approval of XIAFLEX for Dupuytren’s Contracture in EuropeOn December 16, 2010, Pfizer and Auxilium issued a joint press release to announce that Pfizer had received a positive opinion from theEMA’s CHMP recommending European Union approval for XIAPEX as treatment for Dupuytren’s contracture in adult patients with apalpable cord. The release stated that the CHMP’s positive recommendation will be reviewed by the European Commission, which hasauthority to approve medicines for the European Union. In addition, the release stated that Pfizer anticipates a final decision from theEuropean Commission by the end of the first quarter of 2011. Pfizer is responsible for marketing XIAFLEX for Dupuytren’s contracture andPeyronie’s disease in 27 member countries of the European Union and 19 other European and Eurasian countries, and will do so under theregistered trademark XIAPEX.Collagenase for Treatment of Peyronie’s DiseasePeyronie’s disease is characterized by the presence of a collagen plaque on the shaft of the penis, which can distort an erection and makeintercourse difficult or impossible in advanced cases. In some mild cases, the plaque can resolve spontaneously without medicalintervention. In severe cases, the penis can be bent at a 90-degree angle during erection. Significant psychological distress has been noted inpatients with Peyronie’s disease who are sexually active. Frequent patient complaints include increased pain, painful erections, palpableplaque, penile deformity, and erectile dysfunction. Patients with Peyronie’s disease have been reported to have an increased likelihood ofhaving Dupuytren’s contracture, frozen shoulder, plantar fibromatosis, knuckle pads, hypertension and diabetes. Peyronie’s disease typicallyaffects males in the range of 40-70 years. The cause of Peyronie’s disease is unknown, although some investigators have proposed that itmay be due to trauma or an autoimmune component. A number of researchers have suggested that the incidence of Peyronie’s disease hasincreased due to the use of erectile dysfunction drugs.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. This finding is consistent with a survey of urologistsconducted for us. In the Auxilium 10-K, Auxilium stated its belief that “there is a large unmet medical need for a non-surgical solution toPeyronie’s [disease]”.Histological and biochemical studies indicate that the scarring on the penis due to Peyronie’s disease is composed primarily of collagen.5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Development StatusOn October 11, 2010, Auxilium announced that the first subject had been dosed in the global phase III program of XIAFLEX for the treatmentof Peyronie’s disease. Auxilium also stated that it anticipates reporting top-line results in the first half of 2012. On March 9, 2011, Auxiliumannounced that it had reached target enrollment for the double-blind, placebo-controlled phase III program.Phase IIb TrialOn December 16, 2009, Auxilium announced top-line efficacy and safety results from a phase IIb trial of XIAFLEX for the treatment ofPeyronie’s disease. According to the Auxilium 10-K, the phase IIb trial was a “randomized, double-blind, placebo-controlled study 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. The study was conducted at 12 sites throughout the U.S., and patients were monitored for 36 weeks following thefirst injection. The trial was designed to validate a proprietary Peyronie’s Disease Questionnaire (“PDQ”) which measures several domainsof patients’ sexual quality of life over a 36 week period. The four domains measured by the PDQ are penile pain, Peyronie’s bother,intercourse discomfort and intercourse constraint. Patients had to have a penile contracture between 30 and 90 degrees to be included in thestudy. Patients were stratified by the degree of penile curvature (i.e. 30 degrees to 60 degrees versus 60 to 90 degrees) and then randomizedinto four treatment groups to receive either XIAFLEX or placebo with or without modeling of the penile plaque. Modeling refers to massagingof the plaque after the second injection of a treatment series and is intended to maximize the enzymatic effect of the XIAFLEX injection in theplaque. Patients were randomized in a 3:1 ratio of XIAFLEX to placebo and a 1:1 ratio to receive penile plaque modeling or no modeling.”In addition, the Auxilium 10-K stated that “Top-line data demonstrated that XIAFLEX improved penile curvature when compared to placebowith a mean improvement of 29.7% vs. 11%, respectively (P=0.001). In addition, the PDQ domain of Peyronie’s symptom bother wassignificantly improved in XIAFLEX treated subjects compared to placebo. The use of modeling also demonstrated significant improvement inXIAFLEX subjects compared to placebo, 32.4% improvement in curvature compared to a 2.5% worsening of curvature in placebo subjects(p<0.001). In the no-modeling group, XIAFLEX subjects experienced a 27.1% mean improvement in penile curvature, which was notstatistically different from the 27.9% mean improvement for subjects receiving the placebo. The most common adverse events reported inthe phase IIb trial were injection site bruising, injection site pain, injection site edema, contusion, penile edema and penile pain. There was atotal of five (3.4%) subjects who experienced eight non-fatal serious adverse events, none of which were considered to be related toXIAFLEX. [Auxilium] sought to accomplish two goals with this study. First, [Auxilium] wanted to validate the PDQ as a tool for use in futurepivotal studies. Second, [Auxilium] aimed to establish an acceptable primary endpoint related to the PDQ for use in pivotal phase III trials.”Phase IIIIn the Auxilium 10-K, Auxilium stated that “[f]ollowing discussions with the FDA where [Auxilium] achieved agreement that the PDQ was avalid tool for use in a pivotal phase III trial and the appropriate endpoint for such trials, [Auxilium] commenced its phase III studies.” In itsOctober 11, 2010 press release, Auxilium described these phase III studies as follows: the “late stage global development plan for XIAFLEXwill consist of four clinical studies and will be known by the acronym IMPRESS – The Investigation for Maximal Peyronie’s ReductionEfficacy and Safety Studies. There will be two randomized, double-blind, placebo-controlled phase III studies, which are expected to enroll atleast 600 patients at approximately 70 sites in the U.S. and Australia, with a 2:1 ratio of XIAFLEX to placebo. There also will be one openlabel study, which is expected to enroll at least 250 patients, at approximately 30 sites in the U.S., EU and New Zealand, and onepharmacokinetic study, which should enroll approximately 16 patients. XIAFLEX will be administered two times a week every six weeks forup to four treatment cycles (2 x 4). Each treatment cycle will be followed by a penile modeling procedure. Patients will be followed for 52weeks post-first injection in the double-blind studies and for 36 weeks in the open label trial. The trials’ co-primary endpoints are the changefrom baseline in the Peyronie’s disease bother domain of the PDQ compared to placebo and percent improvement from baseline in penilecurvature compared to placebo.” In addition, the Auxilium 10-K stated that “[t]he remaining domains of the PDQ will be considered secondaryendpoints. Safety measurements will include adverse event monitoring, immunogenicity testing and clinical labs.” In addition, in its October11, 2010 press release, Auxilium, quoting Dr. Jim Tursi, its Vice President of Clinical Research & Development, stated that it is “encouragedby the clinical profile of XIAFLEX, which emerged from [Auxilium’s] earlier phase IIb clinical trial in Peyronie’s disease. XIAFLEX was well-tolerated and produced clinically significant reductions in both penile curvature and disease bother,” and that “[o]ver the last six months,[Auxilium’s] team, in conjunction with the [FDA], outside experts and men with Peyronie’s disease, has spent a considerable amount oftime and effort to refine the PDQ, which has now been accepted for use in the phase III clinical trials by the FDA’s Study Endpoint and LabelDevelopment (SEALD) Division.”6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.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 20 to 50 million peopleworldwide 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. One common therapy currently available to treat frozen shoulderis manipulation, which is painful and requires general anesthesia.We initiated, monitored and supplied requisite study drug for a Phase II clinical trial using our injectable collagenase in the treatment of frozenshoulder. Three different doses of injectable collagenase were compared to placebo in this double-blind, randomized trial in 60 patients.Results of this Phase II clinical trial were presented at the annual meeting of the American Academy of Orthopaedic Surgeons in March2006. Based on its prior review of the data contained in the oral presentation, Auxilium elected to exercise its option to develop andcommercialize this additional indication for collagenase injection in December 2005. In a press release dated December 20, 2005 and issuedconcurrently with the exercise of its option, Auxilium stated its belief that “the addition of a third indication for this development programenhances the commercial potential of AA4500” (now known as XIAFLEX).Additional Clinical Indications For CollagenaseHuman LipomaLipomas are benign fatty tumors that occur as bulges under the skin and affect humans and canines. It is estimated that lipomas are theprimary diagnosis in 575,000 patients in the U.S. annually. Based on observations made during preclinical studies that a collagenaseinjection decreased the size of fat pads in animals, we initiated, monitored and supplied the requisite study drug for a Phase I open labelclinical trial for the treatment of human lipomas with a single injection of collagenase. Favorable initial results (10 out of 12 patients had a 50-90% reduction in the size of the lipomas) from this trial for the treatment of lipomas were presented at a meeting of the American Society ofPlastic Surgeons. We have been developing clinical protocols for the treatment of lipomas in humans, and this is an area that we areinterested in exploring.Canine LipomaBased on the encouraging results reported in the clinical investigations in human lipoma, we began clinical trials in canine lipoma. Lipomasare found in 2.3% of dogs, and there may be as many as 1.7 million dogs affected with skin lipomas in the U.S. Lipomas in older dogs arevery common, and lipomas that restrict motion in older dogs are a serious problem. The only proven therapy for this condition is surgicalexcision of the lipoma, which necessarily involves the use of general anesthesia. It has been estimated that up to 2% of sick dogs die as acomplication of general anesthesia (See Brodbelt Vet J 2009 Dec; 182 (3): 375-6). We surveyed 77 veterinarians which included participantsfrom the academic field and others that are in private practice. The participants indicated that on average they perform 25 lipoma excisionsurgeries per year at an average cost of $530 for the surgical procedure. It is conservatively estimated that 47,000 veterinarians are in activepractice in the U.S.Chien-801 and Chien-802 Clinical TrialsChien-801 was a pilot study conducted for the purpose of evaluating the use of purified collagenase for the non-surgical treatment of lipoma insix dogs. The study evaluated the appropriate dosage and frequency of injections necessary to significantly reduce the size of the lipoma. Thedose administered ranged from 0.012 to 0.021 mg/ cm2 which was approximately ½ to ¾ of the dose used in previous human clinical trials.Based on this dose escalation study the Company selected the dose for Chien-802.7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Chien-802 was designed to evaluate the efficacy of injectable collagenase in canine lipoma in four healthy dogs with subcutaneous lipomas.Inclusion criteria required the lipoma to be benign, superficial and easily measureable. All dogs had a second lipoma that was untreated andused as a control. At 90 days post injection, in the three evaluable dogs, the lipoma size was 0%, 0% or 7% of the original size as measuredby a CT scan. By contrast, the untreated lipomas were 129%, 113% and 128% of the original size at day 90. Thus, the treated lipomasshowed a 97% reduction in the size of the lipoma and an increase in the size of the untreated controls of 23%.Chien-803Based on the positive results from Chien-802, we announced on January 6, 2011 that we had begun enrollment in a randomized, double-blind, placebo-controlled study designed to evaluate the efficacy of purified collagenase for injection for the treatment of canine lipomas.The trial would enroll 25 canines, each having two or more lipomas. To meet the primary endpoint an animal must achieve at least a 50%decrease in the drug-treated lipoma volume relative to baseline as measured by CT scan at 3 months post injection. As further described inthis Report under “Item 3 - Legal Proceedings”, we have voluntarily agreed to suspend the trial pending a resolution of our dispute withAuxilium.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.Other Clinical IndicationsOther clinical indications for which our collagenase injection has been tested include keloids, hypertrophic scars, scarred tendons, glaucoma,herniated intervertebral discs, and as an adjunct to vitrectomy.Total Patient Exposure to Injectable CollagenaseAs discussed above, clinical investigations with our collagenase injection have been conducted in the treatment of Dupuytren’s contracture,Peyronie’s disease, frozen shoulder, lipomas, cellulite, keloids, hypertrophic scars, scarred tendons, glaucoma, herniated intervertebraldiscs, and as an adjunct to vitrectomy. We have treated over 1,200 patients in our own clinical studies. According to the prescribinginformation for XIAFLEX made available by Auxilium, 1,082 patients received in excess of 2,600 injections for the treatment of Dupuytren’scontracture in trials sponsored by Auxilium. Auxilium reported in a December 16, 2009 press release that its Phase IIb trial for Peyronie’sdisease included 109 patients treated with XIAFLEX.LICENSING AND MARKETING AGREEMENTSTopical Collagenase AgreementIn connection with a March 2006 agreement (the “DFB Agreement”), pursuant to which we sold our topical collagenase business to DFBBiotech, Inc. and its affiliates (“DFB”), until March 2011, we received payments for certain technical assistance and certain transition servicesthat we provided to DFB. Pursuant to the DFB Agreement, we continue to receive earn out payments based on the sales of certain products.Our right to receive earn out payments with respect to the marketed topical product sold to DFB expire in June 2013, but earn out paymentsfor second generation collagenase products, if any, continue indefinitely.8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 2010, we received $200,000 of technical assistance related payments, and as of December 31, 2010, we have received a total of $1.4million in consulting fees. In addition, we have recognized $1.6 million in earn out payments from DFB in connection with the net sales oftopical collagenase in 2010.Auxilium AgreementUnder the Auxilium Agreement, in 2010 we received $1.275 million of the $15 million paid to Auxilium by Pfizer. We also received $1 millionrelated to milestone payments associated with FDA approval of XIAFLEX for Dupuytren’s contracture. We will receive 8.5% of the $395million in potential additional milestone payments that may be made by Pfizer to Auxilium under the Pfizer Agreement. Of these additionalmilestones, $135 million are tied to regulatory milestones and $260 million are based on sales milestones. According to Auxilium in theAuxilium 2010 Earnings Call, of the $135 million tied to regulatory milestones “[a] total of $60 million in milestone payments will bepayable to Auxilium by Pfizer upon Pfizer’s achievement of [the] first commercial sale of XIAPEX for Dupuytren’s contracture within themajor markets in Europe. $30 million will be payable upon [the] first commercial sale in the first country and a total of $30 million will bepayable upon the first commercial sales in the remaining major markets.”Under the Auxilium Agreement, we granted to Auxilium exclusive worldwide rights to develop, market and sell certain products containingour injectable collagenase. Currently its licensed rights cover the indications of Dupuytren’s contracture, Peyronie’s disease and frozenshoulder. Auxilium may further expand the Auxilium Agreement, at its exclusive option, to develop and license our injectable collagenase foruse in additional indications. Under the Pfizer Agreement, Pfizer is responsible for marketing XIAFLEX for the treatment of both Dupuytren’scontracture and Peyronie's disease in 27 member countries of the European Union and 19 other European and Eurasian countries (the“Pfizer Territory”). In addition, Pfizer will be primarily responsible 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 pending patents), the expiration of any regulatory exclusivity period based on orphan drug designation or foreignequivalent thereof or June 3, 2016. Auxilium may terminate the Auxilium Agreement upon 90 days prior written notice. If Auxiliumterminates the Auxilium Agreement other than because of an uncured, material breach by us, all rights revert to us. On October 12, 2010,Auxilium announced that the U.S. Patent & Trademark Office (the “USPTO”) issued a patent regarding the composition and manufacturingprocess for XIAFLEX, which Auxilium expects will expire in July 2028. We claim both co-inventorship and co-ownership of this patent,which Auxilium disputes.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 Auxilium and us), 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 contracture, frozen shoulder and all additional indications for which it exercises its options. The royalties payable by Auxilium tous are subject to set-off for certain development and patent costs. Auxilium has sent us an invoice for such costs; however, the amount ofsuch costs is in dispute.Under the Auxilium Agreement, we have the option, exercisable no later than six months after FDA approval of the Biologics LicenseApplication (“BLA”) with respect to XIAFLEX for an indication (in the case of Dupuytren’s contracture, by August 2, 2010), to assume theright and obligation to supply, or arrange for the supply from a third party other than a back-up supplier qualified by Auxilium of, a specifiedportion of Auxilium’s commercial product requirements in all countries and territories of the world excluding the Pfizer Territory (the“Auxilium Territory”). In June 2010, we informed Auxilium that we were not exercising this option with respect to XIAFLEX for Dupuytren’scontracture.Auxilium must pay us on a country-by-country and product-by-product basis a low double digit royalty as a percentage of worldwide net salesfor products covered by the Auxilium Agreement. The royalty rate is independent of sales volume, clinical indication, territory, and whetherthe product is sold by Auxilium or Pfizer, but is subject to set-off for certain expenses we owe to Auxilium relating to certain development andpatent costs. In addition, the royalty percentage may be reduced if (i) market share of a competing product exceeds a specified threshold; or (ii)Auxilium is required to obtain a license from a third party in order to practice our patents without infringing such third party’s patent rights,although Auxilium has confirmed to us that no license from a third party is required. In addition, if Auxilium out-licenses to a third party, thenwe will receive a specified percentage of certain payments made to Auxilium in consideration of such out-licenses.9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 top of 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.In addition to the payments already received by us with respect to the Dupuytren’s contracture indication, Auxilium will be obligated to makecontingent milestone payments, with respect to each of the Peyronie’s disease and frozen shoulder indications, upon the acceptance of theregulatory filing and receipt by Auxilium, its affiliate or sublicensee of regulatory approval. Through December 31, 2010, Auxilium paid us up-front licensing and sublicensing fees and milestone payments under the Auxilium Agreement of $17.7 million. Auxilium could make inexcess of $5 million of additional contingent milestone payments for exercised indications under the Auxilium Agreement if all existingconditions are met. Additional milestone obligations will be due if Auxilium exercises its option to develop and license XIAFLEX for additionalmedical indications.In addition to the milestone payments from Auxilium, the Company is entitled to 8.5% of all sublicense income that Auxilium receives fromPfizer under the Pfizer Agreement, which payments are dependent on the achievement by Pfizer of certain regulatory and sales relatedmilestones. To the extent Auxilium enters into an agreement or agreements related to other territories, the percentage of sublicense incomethat Auxilium would pay us will depend on the stage of development and approval of XIAFLEX for the particular indication at the time suchother agreement or agreements are executed.In its presentation materials for March 2011, Auxilium includes “advanc[ing] XIAFLEX [for] new indication(s)” as a strategic priority in 2011.In the event that Auxilium does out-license XIAFLEX in other indications, we will be entitled to receive a certain percentage of sublicenseincome and milestone payments for such indications pursuant to the terms of the Auxilium Agreement.A copy of the Auxilium Agreement was filed on Form 8-K with the Securities and Exchange Commission (“SEC”) on December 19, 2008.The foregoing descriptions of the Auxilium Agreement do not purport to be complete and are qualified in their entirety by reference to the fulltext of the Auxilium Agreement.In-Licensing and Royalty AgreementsWe have entered into several in-licensing and royalty agreements with various investigators, universities and other entities throughout theyears.Dupuytren’s ContractureOn 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 contracture.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 contracture (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 Office of Orphan Products Development (“OOPD”) with respect to theDupuytren’s Licensed Product; or (iii) June 3, 2016.10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 Dupuytren’s License Agreement and the licenses granted underthat agreement will continue in effect until the termination of our royalty obligations. After that, all licenses granted to us under theDupuytren’s License 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 entered into a license agreement (the “Frozen Shoulder License Agreement”) with the Research Foundation,pursuant to which the Research Foundation granted to us and our affiliates an exclusive worldwide license, with the right to sublicense tocertain third parties, to know-how owned by the Research Foundation related to the development, manufacture, use or sale of (i) the Enzymeand (ii) all pharmaceutical products containing the Enzyme or injectable collagenase, in each case to the extent it pertains to the treatmentand prevention of frozen shoulder. Additionally, the Research Foundation granted to us an exclusive license to the patent applications inrespect 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 ofthe 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.Unless terminated earlier in accordance with its termination provisions, the Frozen Shoulder License Agreement and licenses granted underthat agreement will continue in effect until the termination of our royalty obligations. After that, 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, we made certain up-front payments to the Research Foundation and the clinical investigators working on the Dupuytren’s contracture and frozen shoulderindications for the Enzyme.Other IndicationsWe have entered into certain other license and royalty agreements with respect to other indications that we may elect to pursue.COMPETITIONWe and our licensees face worldwide competition from larger pharmaceutical companies, specialty pharmaceutical companies andbiotechnology firms, universities and other research institutions and government agencies that are developing and commercializingpharmaceutical products. Many of our competitors have substantially greater financial, technical and human resources than we have andmay subsequently develop products that are more effective, safer or less costly than any products that we have developed, are developing orwill develop, or that are generic products. Our success will depend on our ability to acquire, develop and commercialize products and ourability to establish and maintain markets for our products that receive marketing approval.11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.COST OF RESEARCH AND DEVELOPMENT ACTIVITIESDuring fiscal years 2010 and 2009, the Company invested $1,223,931 and $488,646, respectively, in research and development activities.GOVERNMENT REGULATIONAny product labeled for use in humans require regulatory approval by government agencies prior to commercialization. In particular, humantherapeutic products are subject to rigorous preclinical and clinical trials to demonstrate safety and efficacy and other approval procedures ofthe FDA and similar regulatory authorities in foreign countries. Various federal, state, local, and foreign statutes and regulations also governtesting, manufacturing, labeling, distribution, storage and record-keeping related to such products and their promotion and marketing. Theprocess of obtaining these approvals and the compliance with federal, state, local, and foreign statutes and regulations require theexpenditure of substantial time and financial resources. In addition, the current political environment and the current regulatory environmentat 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 studyand the parameters to be used in assessing the safety and the effectiveness of the drug. Typically, clinical evaluation involves a time-consuming and costly three-phase sequential process, but the phases may overlap. Each trial must be reviewed, approved and conductedunder the auspices 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, we or our partners may suspend or terminate clinical trials at any time for variousreasons, including a finding that the subjects or patients are being exposed to an unacceptable health risk. The FDA can also request thatadditional clinical 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.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 an 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 NDA or BLA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approvethe NDA or BLA unless cGMP compliance is satisfactory. The FDA will issue an approval letter if it determines that the NDA or BLA,manufacturing process and manufacturing facilities are acceptable. If the FDA determines that the NDA or BLA, manufacturing process ormanufacturing facilities are not acceptable, it will outline the deficiencies in the submission and will often request additional testing orinformation. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the NDA or BLAdoes not satisfy the regulatory criteria for approval and refuse to approve the NDA or BLA by issuing a “not approvable” letter.12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 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 or our partners may encounter difficulties or unanticipated costs in our or theirefforts to secure necessary governmental approvals, which could delay or preclude us or them from marketing our products. Furthermore,the FDA may prevent a drug developer from marketing a product under a label for its desired indications or place other conditions, includingrestrictive labeling, on distribution as a condition of any approvals, which may impair commercialization of the product. After approval, sometypes of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subjectto further FDA review and 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 and any other requirements set forth in the FDA’s approval (such as the REMS program, which the FDA has required forXIAFLEX and consists of a communication plan and a medication guide). The holder of an approved NDA/BLA is required to provide updatedsafety and efficacy information and to comply with requirements concerning advertising and promotional labeling. Also, quality control andmanufacturing procedures must continue to conform to cGMP after approval. Drug manufacturers and their subcontractors are required toregister their facilities and are subject to periodic unannounced inspections by the FDA to assess compliance with cGMP which imposeprocedural and documentation requirements relating to manufacturing, quality assurance and quality control. Accordingly, manufacturersmust continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and otherregulatory requirements. The FDA may require post-market testing and surveillance to monitor the product’s safety or efficacy, includingadditional 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/BLA 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, at the facilities of our contract manufacturers or at those of our partners that may disrupt productionor distribution, or require substantial resources to correct. In addition, discovery of problems with a product or the failure to comply withrequirements may result in restrictions on a product, manufacturer or holder of an approved NDA/BLA, including withdrawal or recall of theproduct from the market or other voluntary or FDA-initiated action that could delay further marketing. Newly discovered or developed safety oreffectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications. Also,new government requirements may be established that could delay or prevent regulatory approval of our products under development.INTELLECTUAL PROPERTY AND RIGHTSOur 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.PatentsWe 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. Although we believe these patent applications, if they issue as patents, will provide acompetitive advantage, the scope of the patent positions of pharmaceutical firms involves complex legal, scientific and factual questions and,as such, 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 proprietaryprotection, will be of any value to us or will be challenged, circumvented or invalidated by our competitors or otherwise.13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.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. Because patent applicationsin the U.S. and some other jurisdictions can proceed in secrecy until patents issue, third parties may obtain other patents without ourknowledge prior to the issuance of patents relating to our product candidates, which they could attempt to assert against us. Also, sincepublication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority ofinventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings declared by the USPTOor a foreign patent office to determine priority of invention, or in opposition proceedings in a foreign patent office, either of which could result insubstantial cost to us, even if the eventual outcome is favorable to us. There can be no assurance that the patents, if issued and challengedin a court of competent jurisdiction, would be found valid or enforceable. An adverse outcome could subject us to significant liabilities to thirdparties, require disputed rights to be licensed from third parties or require us to cease using such technology.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 licensed to Auxilium our injectable collagenase for the treatment of Dupuytren’s contracture, Peyronie’s disease, and frozen shoulder. Wehave two use patents in the U.S. covering the enzyme underlying our injectable collagenase, one for the treatment of Dupuytren’scontracture, which issued from a reissue proceeding in December 2007, and one for the treatment of Peyronie’s disease. The Dupuytren’spatent expires in 2014, and the Peyronie’s patent expires in 2019. Both the Dupuytren’s and Peyronie’s patents are limited to the use of theenzyme for the treatment of Dupuytren’s contracture and Peyronie’s disease within certain dose ranges. An application to extend the term ofthe Dupytren’s patent to August 22, 2019 based upon regulatory delay in granting approval to sell XIAFLEX was filed in the USPTO on April1, 2010. The USPTO has not taken any action on the request for extension, and we cannot be certain how much of an extension, if any, willbe granted by the USPTO. In October 2010, Auxilium was granted a patent entitled “Compositions and Methods for Treating CollagenMediated Diseases,” which will extend the royalty payments until July 12, 2028. We have filed an application in the USPTO asserting thatthe inventors named on that patent should also include inventors who have assigned their rights to us, and thus we should be co-owners ofthe patent. Auxilium has disputed that assertion. An interference might be necessary to resolve the issue. An interference has yet to berequested, and if requested, we cannot be certain whether the USPTO would declare an interference, and if declared, whether we wouldprevail.Orphan Drug DesignationsTwo indications, Dupuytren’s contracture and Peyronie’s disease, have received orphan drug designation from the OOPD. These indicationsdid not receive the European equivalent of orphan drug designation.The OOPD administers the major provisions of the Orphan Drug Act, an innovative program that provides incentives for sponsors todevelop products for rare diseases. The incentives for products that qualify under the Orphan Drug Act include seven-year exclusivemarketing rights post FDA approval (which means, with respect to Dupuytren’s contracture, exclusivity until February 2, 2017), tax creditsfor expenses associated with clinical trials including a 20 year tax carry-forward, availability of FDA grants, and advice on design of the clinicaldevelopment 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.14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 the Auxilium 10-K, Auxilium stated that “[w]hile XIAFLEX does not have orphan drug status for any indication in Europe, foreign patentscover these products in certain countries, and on approval of XIAFLEX for a first indication in Europe, we expect the product will benefit from10 years of market exclusivity and 8 years of data exclusivity. We may obtain an additional year of market exclusivity if the regulatoryauthorities approve an additional indication that they determine to represent a significant clinical benefit.” Our royalty term, however, is notextended by any period of marketing exclusivity as contrasted with any period of orphan drug status or foreign equivalent thereof.Trade SecretsWe 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.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 telephonenumber is 516-593-7000. Our corporate headquarters are currently located at 35 Wilbur St., Lynbrook, NY 11563, as further described in thisReport under “Item 2 - Description of Property”.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.Risks Related to Our Limited Sources of RevenueOur future revenue is primarily dependent upon option, milestone and contingent royalty payments from Auxilium andcontingent 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) contingent earn out payments from DFB and (iii) the sale of small amounts of collagenase for laboratory research.15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.As described in Item 1 above, under the Auxilium Agreement, in exchange for the right to receive royalties and other payments, we grantedto Auxilium the right to develop, manufacture, market and sell worldwide products (other than dermal formulations for topical administration)that contain collagenase for the treatment of Dupuytren’s contracture, Peyronie’s disease and frozen shoulder. However, we have no controlover Auxilium’s ability to successfully manufacture, market and sell candidate products for the treatment of Dupuytren’s contracture, or, inthe case of Peyronie’s disease and frozen shoulder, to pursue commercialization, and we may receive limited, if any, royalty payments fromAuxilium. In the Auxilium 10-K, Auxilium included as a risk factor to its ability to successfully launch and commercialize XIAFLEX forDupuytren’s contracture additional challenges with regard to reimbursement “including:unless and until a XIAFLEX-specific CPT (procedure) code is announced, the variability of reimbursement rates likely to be caused bythe use of miscellaneous procedure codes may discourage physicians from providing XIAFLEX to certain or all patients depending ontheir insurance coverage;payor and physician confusion surrounding appropriate procedure codes to bill for the administration and follow up procedure related toXIAFLEX until such time as XIAFLEX-specific drug codes are approved could result in slow claims processing times and/orinsufficient reimbursement to physicians and discourage physician use;physicians may have, or may believe they have, an economic incentive to perform Dupuytren’s surgery and therefore discourageXIAFLEX use;continued downward pressure on reimbursement rates for services and for products administered incident to a physician’s servicemay discourage uptake or continued usage;physicians may decide that managing specialty biologics such as XIAFLEX in their practices, including all of the requirement of the . .. REMS, is too complex and cumbersome for them to undertake or continue;an increase in insurance plans that place more of a cost share liability onto patients may limit patients willingness to pay for XIAFLEXand thereby discourage uptake;unforeseen changes in federal health care policy guidelines may negatively impact a physician practice’s willingness to provide noveltreatments; andinability, difficulty or delay in obtaining XIAFLEX-specific procedure billing codes resulting in underutilization.”In addition, there is no guarantee that a XIAFLEX-specific CPT code will meet the expectations of physicians or significantly or quicklyincrease sales of XIAFLEX. Moreover, royalty payments from Auxilium are subject to set-off for certain expenses we owe Auxilium under theAuxilium Agreement relating to certain development and patent costs. As a result of Auxilium’s set off of such costs, we did not receive anyroyalty payments from Auxilium in 2010. We have received in the past, and are entitled to receive in the future, certain milestone paymentsfrom Auxilium in respect of its efforts to commercialize such candidate products, but we have no control over Auxilium’s ability to achieve themilestones. Additionally, we have received in the past, and are entitled to receive in the future, 8.5% of all sublicense income that Auxiliumreceives from Pfizer under the Pfizer Agreement, which payments are dependent on the achievement by Pfizer of certain regulatory and salesrelated milestones, of which we have no control.We have also granted to Auxilium an option to expand its license and development rights to one or more additional indications for injectablecollagenase not currently licensed to Auxilium, including for the treatment of human and canine lipoma and cellulite. If Auxilium exercises itsoption with respect to an additional indication, we are entitled to receive a one-time license fee for the rights to, as well as potential milestone,royalty and other payments with respect to, such new indication. 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 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. Even if Auxilium exercises its option as to any additional indication, its obligations to develop the product for such indication arelimited to initiating Stage II Development (as defined in the Auxilium Agreement) for such additional indication within one year of exercisingthe option as to such indication. In the case of frozen shoulder, for example, Auxilium exercised its option in 2005, but development has notprogressed beyond Stage II Development.16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.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 the manufacture and commercialization of such products and its ability toachieve certain sales thresholds. We are aware that DFB has certain competitive products that may adversely affect the volume of sales ofthose topical collagenase products for which we are 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. These obligations expire during March 2011.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 in the Auxilium 10-K.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 togenerate sufficient sales of topical collagenase products to entitle us to receive any earn out payments.If we are unable to obtain option, milestone, earn out and royalty payments from Auxilium or DFB or meet our needs foradditional funding from other sources, we may be required to limit, scale back or cease our operations.Our business strategy contains elements that we will not be able to implement if we do not receive the anticipated option, milestone, royaltyor earn out payments from Auxilium or DFB, or secure additional funding from other sources. We believe that our existing cash resourcesand interest on these funds will be sufficient to meet our anticipated operating requirements until at least the second half of 2012. Our futurefunding 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 until June 2013, when DFB’s obligations to us terminate, absent the introduction of a second generationproduct as defined in the DFB Agreement;Auxilium’s ability to manufacture and commercialize XIAFLEX 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 in the Auxilium 10-K);17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 amount actually owed to Auxilium for certain development and patent costs;the outcome of the litigation with Auxilium concerning our right to conduct clinical trials without the approval of the companies’ JointDevelopment Committee controlled by Auxilium;the scope, rate of progress, cost and results of our clinical trials on additional indications, including human and canine lipoma andcellulite, for which Auxilium could exercise its option to acquire rights to them, and whether Auxilium exercises the option;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.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.If we breach our agreements with third parties, our business could be materially harmed.Our agreements with third parties impose on us various obligations, such as those related to intellectual property rights, non-competition,and development of products, as described throughout this Item 1A of this Report. If we fail to comply with such obligations, or a counterpartyto our agreements believes that we have failed to comply with such obligations, we may be sued and the costs of the resulting litigation couldmaterially harm our business.Risks Related to Clinical TrialsOur ability to conduct clinical trials may be limited by the Auxilium Agreement.We have voluntarily agreed to suspend Chien-803, our clinical trial testing the use of injectable collagenase in canine lipoma, and will not beinitiating any new trials using injectable collagenase in animals or humans pending a resolution of our dispute with Auxilium concerning ourright to conduct clinical trials without the prior approval of the companies’ Joint Development Committee. On February 15, 2011, Auxiliumfiled a complaint against us in the Court of Common Pleas in Chester County, Pennsylvania. The complaint seeks declaratory andinjunctive relief, but not monetary damages. The dispute has been sealed pending further order of the court. The outcome of the dispute willhave no effect on the amounts due to us from Auxilium for exercised indications (Dupuytren’s contracture, Peyronie’s disease and FrozenShoulder). However, if the court rules in a manner that is detrimental to our interests or interprets our agreement with Auxilium in a way thatlimits the scope of our rights under that agreement, we may be precluded from pursuing additional indications and, if Auxilium does notpursue such additional indications, we may also be precluded from the opportunity to receive from Auxilium license fees for the rights to, aswell as potential milestone, royalty and other payments with respect to, such additional indications.18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.We have a limited supply of our own clinical material, which may limit our ability to conduct other clinical trials and to obtainthe associated option, milestone and contingent royalty payments under the Auxilium Agreement.Although we currently have our own clinical material, if this clinical material is damaged or otherwise becomes unusable because ofimproper testing, storage or otherwise, then we may have insufficient clinical material to conduct other clinical trials unless we make newmaterial, which would entail time and expense and delay the initiation of new clinical trials. Consequently, the lack of availability of our ownclinical material may limit our ability to conduct other clinical trials and to obtain additional option, milestone and royalty payments under theAuxilium Agreement.We may have limited access to XIAFLEX under the Auxilium Agreement, which may limit our ability to conduct other clinicaltrials and to obtain the associated option, milestone and contingent royalty payments under the Auxilium Agreement.Under the Auxilium Agreement, Auxilium has agreed to sell us, at cost, XIAFLEX for pre-clinical and clinical trials approved by the jointdevelopment committee and such other non-preclinical and non-clinical purposes as are consistent with our rights under this Agreement.However, there is no guaranty that Auxilium will do so. If Auxilium does not supply XIAFLEX to us directly, we may have limited ability toacquire it through other means. Consequently, the lack of availability of XIAFLEX may limit our ability to conduct other clinical trials and toobtain additional option, milestone and royalty payments under the Auxilium Agreement.If clinical trials in humans or veterinarian trials for our potential new indications are delayed, we may not be able to obtainoption, milestone or royalty payments under the Auxilium Agreement for new indications.Clinical trials that we or our investigators may conduct may not begin on time or may need to be restructured or temporarily suspended afterthey have begun. Clinical trials can be delayed or may need to be restructured for a variety of reasons, including delays or restructuringrelated to:changes to the regulatory approval process for product candidates;obtaining regulatory approval to commence a clinical trial;timing of responses required from regulatory authorities;negotiating acceptable clinical trial agreement terms with prospective investigators or trial sites;obtaining institutional review board, or equivalent, approval to conduct a clinical trial at a prospective site;recruiting subjects to participate in a clinical trial;competition in recruiting clinical investigators;shortage or lack of availability of clinical trial supplies from external and internal sources;the need to repeat clinical trials as a result of inconclusive results or poorly executed testing;failure to validate a patient-reported outcome questionnaire;the placement of a clinical hold on a study;the failure of third parties conducting and overseeing the operations of our clinical trials to perform their contractual or regulatoryobligations in a timely fashion; andexposure of clinical trial subjects to unexpected and unacceptable health risks or noncompliance with regulatory requirements, whichmay result in suspension of the trial.The process of conducting clinical trials and developing product candidates involves a high degree of risk and may takeseveral years, and may ultimately not be successful.Product candidates that appear promising in the early phases of development may fail to reach the market for several reasons, including:19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 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 from obtaining 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. Any changes to the U.S. regulatory approval process could significantly increase the timing or cost of regulatory approval for productcandidates making further development uneconomical or impossible. In addition, once Auxilium exercises its option with respect to anyadditional indications, further clinical trials, development, manufacturing, marketing and selling of such product is out of our control. Ourinterest is limited to receiving option, milestone and royalty payments, and the option in certain circumstances to manufacture according toparticular specifications set by Auxilium.Risks Related to Our Agreements with Auxilium and DFBOur ability to conduct clinical trials and develop products for injectable administration of collagenase is limited by the AuxiliumAgreement.Under the Auxilium Agreement, we have licensed or granted options to certain of our rights to conduct clinical trials and develop products forinjectable administration of collagenase. We agreed, for example, to certain non-competition provisions, which may limit our clinicaldevelopment activities.Our ability to conduct clinical trials and develop products for topical administration of collagenase is limited by the agreementwe have signed with DFB.Under the DFB Agreement, we have sold, licensed, or granted options to certain of our rights to conduct clinical trials and develop products fortopical administration of collagenase. Under the terms of the DFB Agreement, we have agreed to certain non-competition provisions, whichmay limit our clinical development activities.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 for human drugs and, in certain circumstances, veterinarian trials for animal drugs, and the testing, developmentand manufacturing and distribution of product candidates are subject to regulation by numerous governmental authorities in the U.S. andother jurisdictions, if we desire to export the resulting products to such other jurisdictions. These regulations govern or affect the testing,manufacture, safety, labeling, storage, record-keeping, approval, distribution, advertising and promotion of product candidates, as well assafe working conditions. Noncompliance with any applicable regulatory requirements can result in suspension or termination of any ongoingclinical trials of a product candidate or refusal of the government to approve a product candidate for commercialization, criminal prosecutionand fines, recall or seizure of products, total or partial suspension of production, prohibitions or limitations on the commercial sale of productsor refusal to allow the entering into of federal and state supply contracts. The FDA and comparable governmental authorities have theauthority to suspend or terminate any ongoing clinical trials of a product candidate or withdraw product approvals that have been previouslygranted. Even after a product candidate has been approved, the FDA and comparable governmental authorities subject such product tocontinuing review and regulatory requirements including, for example, requiring the conducting and reporting of the results of certain clinicalstudies or trials and commitments to voluntarily conduct additional clinical trials. In addition, regulatory approval could impose limitations onthe indicated or intended uses for which product candidates may be marketed. With respect to its approval of XIAFLEX for the treatment ofadult Dupuytren’s contracture patients with a palpable cord, for example, the FDA has required a REMS program consisting of acommunication plan and a medication guide. Currently, there is a substantial amount of congressional and administrative review of the FDAand the regulatory approval process for drug candidates in the U.S. As a result, there may be significant changes made to the regulatoryapproval 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 our costs and adversely affect ouroperations.20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 applicable regulatory requirements may result in a variety of consequences, including thefollowing:restrictions on our products or manufacturing processes;warning letters;withdrawal of a product from the market;voluntary or mandatory recall of a product;fines;suspension or withdrawal of regulatory approvals for a product;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.Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable laws andregulations and we have incurred 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 the Sarbanes-Oxley Act of 2002 (“SOX”), some of which have only recently been revised oradopted. We cannot assure you that we are or will be in compliance with all potentially applicable laws and regulations. Failure to comply withall potentially applicable laws and regulations could lead to the imposition of fines, cause the value of our common stock to decline, impedeour ability to raise capital or list our securities on certain securities exchanges. New rules could make it more difficult or more costly for us toobtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits andcoverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it moredifficult for us to attract and retain qualified persons to serve on our board of directors, our board committees and as executive officers. Wecannot predict or estimate the amount of the additional costs we may incur or the timing of such costs to comply with these rules andregulations.We may fail to maintain effective internal controls over external financial reporting or such controls may fail or becircumvented.SOX requires us to report annually on our internal controls over financial reporting, and our business and financial results could beadversely effected if we, or our independent registered public accounting firm, determine that these controls are not effective. In addition, anyfailure or circumvention of our internal controls and procedures or failure to comply with regulations concerning controls and procedures couldhave a material effect on our business, results of operation and financial condition. The impact of these events could also make it moredifficult for us to attract and retain qualified persons to serve on our board of directors, our board committees and as executive officers.21Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 EmployeesAdverse events or lack of efficacy in clinical trials may force us and/or our partners upon whom we are wholly dependent to stopdevelopment of our product candidates or prevent regulatory approval of our product candidates or significant safety issuescould arise after regulatory approval of our products, any of which could materially harm our business.The prescribing information for XIAFLEX for Dupuytren’s contracture made available by Auxilium lists “tendon ruptures or other seriousinjury to the injected extremity” as a reported serious adverse reaction to XIAFLEX and states that the most frequently reported adverse drugreactions in XIAFLEX clinical trials included swelling of the injected hand, contusion, injection site reaction, injection site hemorrhage, andpain in the treated extremity. The prescribing information notes that adverse reaction rates observed in clinical trials of a drug may not reflectthose observed in practice because such trials “are conducted under widely varying conditions.”Auxilium reported in the Auxilium 10-K that the most common adverse events in the Peyronie’s phase IIb clinical trial were “injection sitebruising, injection site pain, injection site edema, contusion, penile edema and penile pain.”Adverse events or lack of efficacy may force us to stop development of our product candidates or prevent regulatory approval of our productcandidates, which could materially harm our business. In addition, any adverse events or lack of efficacy may force Auxilium to stopdevelopment of the products we have licensed to it or prevent regulatory approval of such products, which could materially impair all or amaterial part of the future revenue we hope to receive from Auxilium. Even if our product candidates receive regulatory approval, new safetyissues may be reported and we or our partners may be required to amend the conditions of use for a product.We and our licensees face competition in our product development efforts from pharmaceutical and biotechnology companies,universities and other not-for-profit institutions.We and our licensees face competition in our product development from entities that have substantially greater research and productdevelopment capabilities and greater financial, scientific, marketing and human resources. These entities include pharmaceutical andbiotechnology companies, as well as universities and not-for-profit institutions. Our and our licensees’ competitors may succeed indeveloping products or intellectual property earlier than we or our licensees do, entering into successful collaborations before us or ourlicensees, obtaining approvals from the FDA or other regulatory agencies for such products before us or our licensees, or developing productsthat are more effective than those we or our licensees could develop. The success of any one competitor in these or other respects will have amaterial adverse effect on our business, our ability to receive option payments from Auxilium or ability to generate revenues from third partyarrangements with respect to additional indications for which Auxilium does not exercise its option.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 $5 million dollars that we believe is adequatein both scope and amount and has been placed with what we believe are reputable insurers. We may not be able to maintain our clinical trialand product liability insurance at an acceptable cost, if at all, and this insurance may not provide adequate coverage against potential claimsor losses. If losses from product liability claims exceed our insurance coverage, we may incur substantial liabilities that exceed our financialresources, and our business and results of operations may be harmed. Whether or not we are ultimately successful in product liabilitylitigation, such litigation could consume substantial amounts of our financial and managerial resources, and might result in adversepublicity, all of which could impair our business.22Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.If we are unable to negotiate a new lease for our corporate headquarters or relocate, our existing operations and our operatingresults could be adversely affected.As described in this Report under “Item 2 - Description of Property”, we notified our landlord of our termination of our existing lease effectiveMarch 31, 2011. If we are unable to negotiate a new lease for our current premises or relocate to other premises, our existing operations andoperating results could be adversely affected.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 terminates its agreement, whether by its terms or due to our breach, our right touse the party’s 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 our 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, which could, in effect, limit the scope of our patent rights and those of our licensees, licensors or collaborators. Our agreementswith Auxilium and DFB require us to indemnify them against any claims for infringement based on the use of our technology. If we becomeinvolved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If Auxilium orDFB becomes involved in such litigation, it could also consume a substantial portion of their resources, regardless of the outcome of thelitigation, thereby jeopardizing their ability to commercialize candidate products and/or their ability to make option, milestone or royaltypayments to us. If any of these actions is successful, in addition to any potential liability for damages, we could be required to obtain a licenseto permit ourselves, our licensees, licensors or our collaborators to conduct clinical trials, manufacture or market the affected product, inwhich case we may be required to pay substantial royalties or grant cross-licenses to our patents. However, there can be no assurance thatany such license will be available on acceptable terms or at all. Ultimately, we, our licensees, licensors or collaborators could be preventedfrom commercializing a product, or forced to cease some aspect of their or our business, as a result of patent infringement claims, whichcould harm our business or right to receive option, milestone and contingent royalty payments.23Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 Litigation with AuxiliumOur litigation with Auxilium could be detrimental to our relationship and the results of our operations.Our litigation with Auxilium may inhibit or preclude our ability to pursue additional indications, and, if Auxilium does not pursue suchadditional indications, we may be precluded from the opportunity to receive from Auxilium license fees for the rights to, as well as potentialmilestone, royalty and other payments with respect to, such additional indications. If we decided to settle the litigation with Auxilium, thesettlement could result in an amendment to the Auxilium Agreement and change the scope of our rights under the Auxilium Agreement.Auxilium may obtain the relief it is seeking in its litigation against us, which could adversely affect the results of ouroperations.The court before which the litigation with Auxilium is being conducted could:grant the relief Auxilium is seeking,rule in a manner that is detrimental to our interests, orinterpret the Auxilium Agreement in a manner that limits the scope of our rights under the Auxilium Agreement.Any of the foregoing results may inhibit or preclude our ability to conduct clinical trials in additional indications, and, if Auxilium does notpursue such additional indications, we may be precluded from the opportunity to receive from Auxilium license fees for the rights to, as wellas potential milestone, royalty and other payments with respect to, such additional indications.Our litigation with Auxilium may have an impact on our cash flow and management priorities.The litigation that Auxilium has initiated against us, any related litigation and any resulting appeals could be costly and time-consuming andcould divert the attention of management and key personnel from our business operations. These costs and diversions of management couldhave an adverse effect on our business and our financial condition.Risks Related to our Common StockFuture 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 for securities of pharmaceutical, biotechnology and specialty pharmaceutical companies have been particularly volatile. Someof the factors that may cause the market price of our common stock to fluctuate include: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;24Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 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. In addition, purchases of our common stock pursuant to our stockrepurchase program may, depending on the timing and volume of such repurchases, result in our stock price being higher than it would bein the absence of such repurchases. If repurchases pursuant to the program are discontinued, our stock price may fall.We may become subject to stockholder activism efforts that could cause material disruption to our business.Certain influential institutional investors, hedge funds and other stockholders have taken steps to involve themselves in the governance andstrategic direction of certain companies due to governance or strategic related disagreements between such companies and suchstockholders. If we become subject to such stockholder activism efforts, it could result in substantial costs and a diversion of management’sattention and resources, which could harm our business and adversely affect the market price of our common stock.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.Our outstanding options to purchase shares of common stock could have a possible dilutive effect.As of December 31, 2010, options to purchase 1,346,425 shares of common stock were outstanding. In addition, as of December 31, 2010 atotal of 269,098 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.If securities analysts do not publish research reports about our business or if they downgrade us or our sector, the price of ourcommon stock could decline.The trading market for our common stock will depend in part on research reports that industry or financial analysts publish about us or ourbusiness. If analysts downgrade us or any of our licensees, or other research analysts downgrade the industry in which we operate or thestock of any of our competitors or licensees, the price of our common stock will probably decline.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:25Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.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. The Board amended the Poison Pill in February 2011 to increase the threshold from 15% to 18% andextended the expiration date of the Poison Pill for an additional two years, to May 31, 2014. These provisions could make it more difficult forcommon stockholders to replace members of the Board. Because our Board is responsible for appointing the members of our managementteam, these provisions could in turn affect any attempt 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 8, 2011 our executive officers, directors and their affiliates, in the aggregate, beneficially owned shares representingapproximately 30.6% of our common stock. 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.Item IB. UNRESOLVED STAFF COMMENTSNone.Item 2. DESCRIPTION OF PROPERTY.Our corporate headquarters are currently located at 35 Wilbur St., Lynbrook, NY 11563. As previously reported, our previous lease for ourheadquarters terminated on June 30, 2010. Since June 30, 2010, we have been leasing the space from Wilbur St. Corp. on a month-to-month basis. On February 28, 2011, we notified Wilbur St. Corp. of our termination of the lease effective March 31, 2011. We intend tonegotiate a new lease for our current space at a reduced rental or seek alternative space at a reduced rental.Item 3. LEGAL PROCEEDINGS.On February 15, 2011, Auxilium filed a complaint against us in the Court of Common Pleas in Chester County, Pennsylvania. We havevoluntarily agreed to suspend Chien-803, our clinical trial testing the use of injectable collagenase in canine lipoma, and will not be initiatingany new trials using injectable collagenase in animals or humans pending a resolution of our dispute with Auxilium concerning our right toconduct clinical trials without the prior approval of the companies’ Joint Development Committee. The complaint seeks declaratory andinjunctive relief and does not seek monetary damages. The dispute has been sealed pending further order of the court. The outcome of thedispute will have no effect on the amounts due to us from Auxilium for exercised indications (Dupuytren’s contracture, Peyronie’s diseaseand Frozen Shoulder). However, if the court rules in a manner that is detrimental to our interests or interprets our agreement with Auxiliumin a way that limits the scope of our rights under that agreement, we may be precluded from pursuing additional indications and, if Auxiliumdoes not pursue such additional indications, we may also be precluded from the opportunity to receive from Auxilium license fees for therights to, as well as potential milestone, royalty and other payments with respect to, such additional indications.26Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 4. (REMOVED AND RESERVED).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 listed 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.OB. Prior to January 29, 2008, our commonstock was 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 2010 and 2009 asreported by and as quoted in the OTCBB or Nasdaq, as applicable:2010 HIGH LOW Fourth Quarter$27.86 $20.71 Third Quarter$27.36 $18.80 Second Quarter$31.72 $19.02 First Quarter$29.98 $26.53 2009 HIGH LOW Fourth Quarter$33.00 $27.86 Third Quarter$32.05 $23.67 Second Quarter$24.98 $18.06 First Quarter$21.50 $17.50 These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.Holders of RecordAs of March 8, 2011, there were approximately 80 holders of record of our common stock. Because many of such shares are held by brokersand other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these recordholders.DividendsIt has been our policy to retain potential earnings to finance the growth and development of our business and not pay dividends, and we haveno current plans to pay dividends. Any payment of cash dividends in the future will depend upon our financial condition, capital requirementsand earnings as well as such other factors as our board of directors may deem relevant.Securities Authorized for Issuance Under Equity Compensation PlansThe following table provides information as of December 31, 2010 with respect to the shares of our common stock that may be issued underour existing equity compensation plans:27Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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. Number of securities toWeighted-averageNumber of securities be issued upon exerciseexercise price ofremaining available of outstanding options,outstanding options,for future issuance warrants and rightswarrants and rightsunder equity compensation plans (excluding securities reflected in column (a)) (a)(b)(c)Equity compensation plans approved by security holders(1)1,346,425$7.81269,098Equity compensation plans not approved by security holders--- Total1,346,425$7.81269,098(1) Please see Note 9, “Stockholders’ Equity,” of the notes to the consolidated financial statements for a description of the material features ofeach of our plans.Recent Sales of Unregistered SecuritiesDuring the quarter ended December 31, 2010, we did not issue any unregistered shares of securities.Issuer Purchases of Equity Securities (1) Maximum Dollar Total Number of Value of Shares Total Number of Average Shares Purchased that may yet be Shares Purchased Price Paid as Part of Publicly Purchased Month During Month (2) Per Share (3) Announced Plan under the Plan (4) October 1 to October 31, 2010 − $ − − $ 1,581,242.43 November 1 to November 30, 2010 1,890 $ 20.76 1,890 $ 1,541,999.23 December 1 to December 31, 2010 − $ − − $ 1,541,999.23 Total 1,890 (1)On June 4, 2010, we announced that our board of directors authorized a stock repurchase program under Rule 10b-18 of theSecurities Exchange Act of 1934, as amended, of up to $2.0 million of our outstanding common stock over a period of 12 months. Theabove table provides information regarding our stock repurchases in the quarter ended December 31, 2010. This program expires onJune 4, 2011 and may be suspended or discontinued at any time. We have no obligation to repurchase stock under this program. (2)The purchases were made in open-market transactions. (3)Includes commissions paid, if any, related to the stock repurchase transactions. (4)Represents the difference between the $2,000,000 of stock repurchases authorized by our board of directors and the value of the stockrepurchased from June 4, 2010 through the indicated month.Performance GraphThe graph below compares the cumulative total stockholder return on our common stock with the cumulative total stockholder return of (i) theNASDAQ Biotechnology Index, and (ii) the NASDAQ Composite Index, assuming an investment of $100 on December 31, 2005, in each ofour common stock; the stocks comprising the NASDAQ Composite Index; and the stocks comprising the NASDAQ Biotechnology Index.28Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Comparison of Cumulative Total Return* Among BioSpecifics Technologies Corp., the NASDAQ Biotechnology Index and theNASDAQ Composite Index 12/30/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 BioSpecifics Technologies Corp.$ 100.00 $ 463.41 $ 1,219.51 $ 2,609.76 $ 3,579.27 $ 3,121.95 Nasdaq Biotechnology Index$ 100.00 $ 101.02 $ 105.65 $ 92.31 $ 106.71 $ 122.76 Nasdaq Composite Index$ 100.00 $ 109.52 $ 120.27 $ 71.51 $ 102.89 $ 120.29 *Total return assumes $100 invested on December 31, 2005 in our common stock, the NASDAQ Composite Index, and the NASDAQBiotechnology Index and reinvestment of dividends through fiscal year ended December 31, 2010.Item 6. SELECTED FINANCIAL DATAThe following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this Report.The consolidated statements of operations data for the years ended December 31, 2010, 2009 and 2008 and the consolidated balance sheetdata as of December 31, 2010 and 2009 have been derived from our audited consolidated financial statements and related notes, which areincluded elsewhere in this Report. The consolidated statement of operations data for the years ended December 31, 2007 and 2006 and theconsolidated balance sheet data as of December 31, 2008, 2007 and 2006 have been derived from audited financial statements which do notappear in this Report. The historical results presented are not necessarily indicative of results to be expected in any future period. Years Ended December 31, Consolidated Statement of Operations Data 2010 2009 2008 2007 2006 (1) Net revenues$ 5,661,348 $ 3,155,757 $ 8,411,780 $ 1,514,334 $ 1,916,918 Operating expenses: Research and development 1,223,931 488,646 439,919 2,489,122 1,217,306 General and administrative 6,470,449 4,832,019 4,191,052 3,516,716 4,002,519 Total operating expenses 7,694,380 5,320,665 4,630,971 6,005,838 5,219,825 Operating income (loss) (2,033,032) (2,164,908) 3,780,809 (4,491,504) (3,302,907) Other income (expense): Interest income 86,310 55,693 107,552 126,821 220,608 Interest expense - (39) 46,529 (781) (63,133) Other 13,130 (8,863) 108,730 (125,000) (70,399) Qualifying Therapeutic Credit 426,403 - - - - 525,843 46,791 262,811 1,040 87,076 Income (loss) before income tax (1,507,189) (2,118,117) 4,043,620 (4,490,464) (3,215,831) Income tax benefit (expense) (1,351) 161,574 (299,212) (53,865) (147,480) Net income (loss)$ (1,508,540)$ (1,956,543)$ 3,744,408 $ (4,544,329)$(3,363,311) Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Basic net income (loss) per share$ (0.24)$ (0.32)$ 0.64 $ (0.86)$ (0.64) Diluted net income (loss) per share$ (0.24)$ (0.32)$ 0.55 $ (0.86)$ (0.64) Shares used in computation of basic net income (loss) per share 6,261,214 6,065,939 5,854,836 5,291,506 5,219,908 Shares used in computation of diluted net income (loss) per share 6,261,214 6,065,939 6,836,911 5,291,506 5,219,908 29Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.(1) In March 2006, we sold our topical collagenase business to DFB, including all rights to the exclusive license agreement and we werereleased of any obligations thereunder. For the year-ended December 31, 2006 operating results of ABC-Curacao and certain operations ofABC-NY were classified as discontinued operations in our 2006 consolidated financial statements and are excluded in the table above. Years Ended December 31, Consolidated Balance Sheet Data: 2010 2009 2008 2007 2006 Cash and cash equivalents$ 2,470,852 $ 3,950,389 $ 3,494,150 $ 68,564 $ 4,367,178 Short-term investments 5,360,970 4,548,541 900,000 975,000 - Total assets 11,518,701 11,748,478 12,831,361 1,261,211 4,530,538 Total stockholders’ equity (deficit) 6,700,723 6,092,107 6,178,539 (6,735,658) (3,268,799)Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONThis Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-lookingstatements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of theplans and objectives of management for future operations, any statements concerning proposed new products or licensing or collaborativearrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any ofthe 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 we believe that theexpectations reflected in the forward-looking statements contained in this Report are reasonable, there can be no assurance that suchexpectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected orassumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-lookingstatements, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth in Item 1A above, 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.OverviewWe are a biopharmaceutical company involved in the development of an injectable collagenase for multiple indications. We have adevelopment and license agreement with Auxilium for injectable collagenase (which Auxilium has named XIAFLEX (collagenaseclostridium histolyticum)) for clinical indications in Dupuytren’s contracture, Peyronie’s disease and frozen shoulder (adhesive capsulitis),and Auxilium has an option to acquire additional indications that we may pursue, including human and canine lipoma and cellulite. Auxiliumhas an agreement with Pfizer pursuant to which Pfizer has the right to market XIAFLEX for Dupuytren’s contracture and Peyronie’s diseasein 27 member countries of the European Union and 19 other European and Eurasian countries, and will do so under the registeredtrademark XIAPEX (collagenase clostridium histolyticum).30Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 connection with the DFB Agreement, until March 2011, we received payments for certain technical assistance and certain transitionservices that we provided to DFB. Under the DFB Agreement, we continue to receive earn out payments based on the sales of certainproducts. Our right to receive earn out payments with respect to the marketed topical product sold to DFB expire in June 2013, but earn outpayments for second generation collagenase products, if any, continue indefinitely.Operational HighlightsOn February 28, 2011, Auxilium and Pfizer announced that the European Commission granted XIAPEX marketing authorization for thetreatment of Dupuytren’s contracture in adult patients with a palpable cord. Auxilium and Pfizer also announced that XIAPEX “is expected tobe available for use in some European markets later this year”.On January 6, 2011, we announced promising results from our study Chien-802 showing reductions in canine lipoma following injectionswith purified injectable collagenase. These results build upon an earlier dose escalation study from which the Company selected the dose forChien-802.Chien-802 was designed to evaluate the efficacy of injectable collagenase in canine lipoma in four healthy dogs with subcutaneous lipomas.Inclusion criteria required the lipomas to be benign, superficial and easily measureable. All dogs had a second lipoma that was untreated andused as a control. At 90 days post injection, in the three evaluable dogs, the lipoma size was 0%, 0% or 7% of the original size as measuredby a computed tomography (“CT”) scan. By contrast, the untreated lipomas were 129%, 113% and 128% of the original size at day 90. Thus,the treated lipomas showed a 97% reduction in the size of the lipoma and an increase in the size of the untreated controls of 23%. Based onthe positive results from Chien-802, we announced on January 6, 2011 the initiation of a larger clinical trial, Chien-803, for the sameindication. We have voluntarily agreed to suspend this trial and will not be initiating any new trials using injectable collagenase in animals orhumans pending a resolution of our dispute with Auxilium concerning our right to conduct clinical trials without the prior approval of thecompanies’ Joint Development Committee. This dispute is described in this Report in “Item 3 - Legal Proceedings”.On November 3, 2010, we announced that we had been awarded $426,000 in grant funding under the Qualifying Therapeutic DiscoveryProject Program. The program, funded through the U.S. Patient Protection and Affordable Care Act of 2010, encourages therapeutic discoveryprograms. The grant funding supports the clinical development of injectable collagenase in human lipoma and the development of improvedcollagenases for tissue disassociation related to cellular therapy.On October 11, 2010, Auxilium announced that the first subject had been dosed in the global Phase III program of XIAFLEX for the treatmentof Peyronie's disease. In its announcement, Auxilium described that the “late stage global development plan for XIAFLEX will consist of fourclinical studies and will be known by the acronym IMPRESS - The Investigation for Maximal Peyronie's Reduction Efficacy and SafetyStudies. There will be two randomized, double-blind, placebo-controlled phase III studies, which are expected to enroll at least 600 patients atapproximately 70 sites in the U.S. and Australia, with a 2:1 ratio of XIAFLEX to placebo. There also will be one open label study, whichshould enroll at least 250 patients, at approximately 30 sites in the U.S., EU and New Zealand, and one pharmacokinetic study, which itexpected to enroll approximately 16 patients.”On June 4, 2010, we announced that our board of directors authorized the repurchase of up to $2 million of our outstanding common stock,reflecting our continued commitment to increasing value for our stockholders and our confidence that we will achieve our goals.On February 2, 2010, Auxilium announced that it received marketing approval from the FDA for XIAFLEX for the treatment of adultDupuytren’s contracture patients with a palpable cord. XIAFLEX, the only drug approved by the FDA for the treatment of Dupuytren’scontracture, became available by prescription for such treatment in March 2010.The Auxilium Agreement and other licensing agreements are discussed more fully in Item 1 of this Report under the section titled “Licensingand Marketing Agreements.”31Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.OutlookCurrently, we generate revenue from two primary sources: in connection with the DFB Agreement and in connection with the AuxiliumAgreement. Under the DFB Agreement, until March 2011, we received revenue related to certain technical assistance and certain transitionservices that we provided to DFB. Under the DFB Agreement, we continue to receive earn-out payments from DFB based on the sales ofcertain products. Under the Auxilium Agreement, we receive royalties, milestones and mark-up on cost of goods sold payments related to thesale and approval of XIAFLEX. We will receive 8.5% of the $395 million in potential additional milestone payments that may be made byPfizer to Auxilium under the Pfizer Agreement. In addition to the payments already received by us with respect to the Dupuytren’s contractureindication, Auxilium will be obligated to make contingent milestone payments, with respect to each of the Peyronie’s disease and frozenshoulder indications, upon the acceptance of the regulatory filing and receipt by Auxilium, its affiliate or sublicensee of regulatory approval.Based on our current business model, we expect to have adequate cash reserves until at least the second half of 2012. As a significantportion of our revenues is tied directly to the success of Auxilium in commercializing XIAFLEX, we cannot reasonably forecast our financialcondition beyond this time.Significant RisksIn recent history we have had operating losses and may not achieve sustained profitability. As of December 31, 2010, we had anaccumulated deficit from continuing operations of approximately $9.9 million.We are dependent to a significant extent on third parties, and our principal licensee, Auxilium, may not be able to successfully commercializeXIAFLEX for Dupuytren’s contracture, successfully develop XIAFLEX for additional indications, obtain required regulatory approvals,manufacture XIAFLEX at an acceptable cost, in a timely manner and with appropriate quality, or successfully market products or maintaindesired margins for products sold, and as a result we may not achieve sustained profitable operations.Critical Accounting Policies, Estimates and AssumptionsThe preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires managementto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.These estimates are based on historical experience and on various other assumptions that we believe are reasonable under thecircumstances. Actual results could differ from those estimates. While our significant accounting policies are described in more detail in thenotes to our consolidated financial statements, we believe the following accounting policies to be critical to the judgments and estimates usedin 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, 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 for which we areproviding continuing services related to product development, are deferred and recognized as revenue over the development period.32Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 a 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/ Mark-up on Cost of Goods Sold / Earn-Out RevenueFor those arrangements for which royalty, mark-up on cost of goods sold or earn-out payment information becomes available andcollectability is reasonably assured, we recognize revenue during the applicable period earned. For interim quarterly reporting purposes,when collectability is reasonably assured but a reasonable estimate of royalty, mark-up on cost of goods sold or earn-out payment revenuescannot be made, the royalty, mark-up on cost of goods sold or earn-out payment revenues are generally recognized in the quarter that theapplicable licensee provides the written report and related information to us.Under the Auxilium Agreement, we do not participate in the selling, marketing or manufacturing of products for which we receive royaltiesand a mark-up of the cost of goods sold revenues, The royalty, mark-up on cost of goods sold revenues will generally be recognized in thequarter that Auxilium provides the written reports and related information to us, that is, royalty and mark up on cost of goods sold revenuesare generally recognized one quarter following the quarter in which sales by Auxilium occurred. The royalties payable by Auxilium to us aresubject to set-off for certain third party development and patent costs.Under the DFB Agreement, pursuant to which we sold our topical collagenase business to DFB, we have the right to receive earn-outpayments in the future based on sales of certain products. Generally, under the DFB Agreement we would receive payments and a reportwithin ninety (90) days from the end of each calendar year after DFB has sold the royalty-bearing product. Currently, DFB is providing usearn-out reports on a quarterly basis.Consulting and Technical Assistance Services. We recognize revenues from consulting and technical assistance contracts primarily asa result of the DFB Agreement. Consulting revenues are recognized ratably over the term of the contract. The consulting and technicalassistance obligations to DFB expire during March 2011.Reimbursable Third Party Development Costs. We accrue expenses for research and development and capitalize certain patent costsrelated to estimated third party development costs that are reimbursable under the Auxilium Agreement. 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 or decrease in research and development costs. For example, the Auxilium Agreementprovides that we will share equally with Auxilium in third party costs for the development of the lyophilization of the injection formulation andcertain patent expenses which are creditable against future royalty revenues.In January 2011, we received a credit memo from Auxilium reducing by $227,000 the amount Auxilium claims we owe for our portion of thelyophilization expenses through December 31, 2010. Any amount ultimately agreed as being owed by us to Auxilium for lyophilizationexpenses and patent expenses are creditable against future royalties payable by Auxilium on net sales of XIAFLEX. In 2010, we recognizedapproximately $0.7 million related to royalty revenue from the sale of XIAFLEX. Based upon the updated information and the royalty revenuereported to us, we reduced our estimates for reimbursable third party development and certain patent costs to approximately $2.6 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 and certain patent expenses may increase based upon a resolution of certain patent matters, andtherefore, we reserve all rights related to this matter, including but not limited33to our right to contest the amount charged by Auxilium. We have classified accrued third party development costs as current liabilities on ourbalance sheet as of December 31, 2010.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.Receivables and Deferred Revenue. Under the DFB Agreement, we agreed to provide certain technical assistance and transitionalservices in consideration of fees and costs totaling over $1.4 million. At the closing of the DFB Agreement, DFB made a partial payment to usof $400,000 in respect of the technical assistance to be provided by us. To date, we have received a total of $1.4 million in payments fromDFB. The consulting and technical assistance obligations expire during March 2011.Royalty Buy-Down. In August 2008, we signed an agreement to significantly improve the deal terms related to our future royaltyobligations for Peyronie’s disease by buying down our future royalty obligations with a one-time cash payment. We modified our agreementto lower future royalties payable on net sales of injectable collagenase, XIAFLEX, for Peyronie’s disease. In addition, we agreed to pay certaindevelopment milestones, if achieved.As of December 31, 2010, we capitalized $1,250,000 which will be amortized over approximately five years beginning on the date of the firstcommercial sale of XIAFLEX, for Peyronie’s disease, which represents the period estimated to be benefited, using the straight-line method.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 accordance with Accounting Standards Codification 350, Intangibles, Goodwill and Other, the Company amortizes intangible assets withfinite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. If thatpattern cannot be reliably determined, the assets are amortized using the straight-line method.Stock Based Compensation. Under ASC 718, 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 assumptions are ourestimates of the expected volatility of the market price of our stock and the expected term of an award. Expected volatility is based on thehistorical volatility of our common stock. When establishing an estimate of the expected term of an award, we consider the vesting period forthe award, our historical experience of employee stock option exercises (including forfeitures) and the expected volatility. As required underthe accounting rules, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuationassumptions used to value future employee stock-based awards granted, to the extent any such awards are granted.Further, ASC 718 requires that employee stock-based compensation costs to be recognized over the requisite service period, or the vestingperiod, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensationcosts to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stockoption forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially fromthose estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category infuture periods may differ significantly from what we have recorded in the current period.RESULTS OF OPERATIONSYEAR ENDED DECEMBER 31, 2010 COMPARED WITH YEAR ENDED DECEMBER 31, 2009Net revenuesNet revenues for the two years ended December 31, 2010 and 2009 comprise the following: Year Ended December 31 2010 2009 Change % Change Net sales$ 34,508 $ 39,035 $ (4,527) (12%)Royalties 2,320,729 1,271,597 1,049,132 83% Licensing revenue 3,026,111 1,565,125 1,460,986 93% Consulting fees 280,000 280,000 - - Total net revenues$5,661,348 $3,155,757 $2,505,591 79% 34Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Product Revenues, netProduct revenues include the sales of the collagenase for laboratory use recognized at the time it is shipped to customers. We had a smallamount of revenue from the sale of collagenase for laboratory use. For the calendar years ended 2010 and 2009 product revenues were$34,508 and $39,035, respectively. This decrease of $4,527 or 12% was primarily related to the amount of material required to performtesting and additional research by our customers.RoyaltiesRoyalties consist of royalties and the mark-up on cost of goods sold under our agreement with Auxilium and earn-out revenues associatedwith the DFB Agreement. Total royalty and earn-out revenues for year ended December 31, 2010 were $2,320,729 as compared to$1,271,597 in the 2009 period, an increase of $1,049,132 or 83%. We receive royalty revenues from DFB under the earn-out paymentprovision of the DFB Agreement, after certain net sales levels are achieved. Royalty revenues recognized under the DFB Agreement for theyear ended December 31, 2010 were $1,610,548 and $1,271,597 for the same period in 2009. This increase of $338,950 or 27% is mainlyrelated to the increase in net sales during the 2010 period reported to us by DFB.In 2010, we began to recognize royalties and the mark-up on cost of goods sold due to us under the terms of the Auxilium Agreement. Underthe Auxilium Agreement, royalties to which we are entitled are subject to set-off for certain expenses we owe to Auxilium relating to certaindevelopment and patent costs. Royalty and cost of goods sold revenues recognized under the Auxilium Agreement for the 2010 period were$682,160 and zero in the comparable period of 2009. The increase was due to the net sales of XIAFLEX during 2010 reported to us byAuxilium. Auxilium launched XIAFLEX in March 2010.Licensing RevenueLicensing revenue consist of licensing fees, sublicensing fees and milestones. For the year ended December 31, 2010 and 2009, werecognized total licensing and milestone revenue of $3,026,111 and $1,565,125, an increase of $1,490,986 or 93%, respectively. Licensingrevenues recognized are related to the cash payments received under the Auxilium Agreement in prior years and amortized over the expecteddevelopment period. Licensing revenue recognized for the year ended December 31, 2010 and 2009 were $751,111 and $1,065,125,respectively. The decrease of $314,014, or 29%, was mainly due to the completed recognition of licensing revenue associated with theDupuytren’s contracture indication during the first quarter of 2010.Milestone revenue recognized for the year ended December 31, 2010 and 2009 was $2.275 million and $0.5 million, respectively. In the2010 period, we received and recognized $1.275 million of the $15 million paid to Auxilium by Pfizer for the scientific/technical reviewprocedure of the Marketing Authorization Application for XIAFLEX for Dupuytren’s contracture in Europe. We also received and recognized amilestone of $1.0 million related to the FDA’s approval of XIAFLEX for Dupuytren’s contracture in February 2010 and in connection with ournotification in June 2010 to Auxilium of our election not to commercially manufacture XIAFLEX. In the comparable 2009 period, werecognized $500,000 related to a milestone received under the Auxilium Agreement for the filing and acceptance of a new drug application forDupuytren’s contracture.Under current accounting guidance, nonrefundable upfront license fees for product candidates for which we are providing continuing servicesrelated to product development are deferred and recognized as revenue over the development period. The remaining balance will berecognized over the respective development periods or when we determine that we have no ongoing performance obligations.Consulting ServicesWe recognize revenues from consulting and technical assistance contracts primarily as a result of the DFB Agreement. We recognizeconsulting revenues ratably over the term of the contract. The consulting and technical assistance obligations under the DFB Agreementexpire during March 2011. For calendar years 2010 and 2009 we recognized $280,000 in each period in consulting revenue.35Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Research and Development ActivitiesOur research and development expenses consist of salaries and expenses for our research personnel; supplies, payments to consultants,investigators clinical trials and overhead costs. Research and development expenses were $1,223,931 and $488,646, respectively, forcalendar years 2010 and 2009, representing an increase in 2010 of $735,285, or 150%. This increase in research and developmentexpenses was primarily due to third party development costs that are reimbursable under the Auxilium Agreement.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries and other related costs for personnel, consultant costs, legal fees, investorrelations, professional fees and overhead costs. General and administrative expenses were $6,470,449 and $4,832,019 for calendar years2010 and 2009, respectively, an increase of $1,638,430, or 34%, from 2009. The increase in general and administrative expenses was dueto legal fees, stock based compensation and services related to investor relations partially offset by lower patent costs.Other Income and expenseOther income for calendar year 2010 was $525,843 compared to $46,791 for calendar year 2009. Other income during 2010 was due tointerest of $83,310 earned on our investments compared to $55,693 in the 2009 period. Other income during 2010 was due to a reversal ofaccrued tax penalties of $13,130 associated with our delinquent tax filings in previous years.Qualifying Therapeutic Discovery Project ProgramIn November 2010, we were notified that we had been awarded a total cash grant of approximately $426,000 under the QualifyingTherapeutic Discovery Project program administered under section 48D of the Internal Revenue Code, of which approximately $102,000relates to qualifying expenses we had previously incurred during the 2009 fiscal year which was received during the fourth quarter of fiscal2010. The remainder of the grant of approximately $324,000 was received in February 2011 based on qualifying expenses that we incurredduring the 2010 fiscal year. We recognized the full $426,000 of the grant as of the date of notification since we had already incurred all of thequalifying expenses. Since this program is non-recurring, we elected to classify this payment as other income in the Consolidated Statementof Operations for the year ended December 31, 2010.Income TaxesThe income tax expense for 2010 was $1,351 as compared to an income tax benefit of $161,574 for 2009. The income tax expense for 2010was the result of minimum New York State taxes. In 2009, the Company utilized its current federal NOL to carry-back to the 2008 tax year toclaim a refund of taxes paid of $198,239 which were partially offset by 2009 state tax of $1,784 and a $34,881 tax adjustment related to prioryears’ tax returns.YEAR ENDED DECEMBER 31, 2009 COMPARED WITH YEAR ENDED DECEMBER 31, 2008Net revenuesNet revenues for the two years ended December 31, 2009 and 2008 comprise the following: Year Ended December 31 2009 2008 Change % Change Net sales$ 39,035 $ 37,343 $ 1,692 5% Royalties 1,271,597 510,127 761,470 149% Licensing revenue 1,565,125 7,440,125 (5,875,000) (79%)Consulting fees 280,000 424,185 (144,185) (34%) Total revenues$ 3,155,757 $ 8,411,780 $ (5,256,023) (62%)36Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Product Revenues, netProduct revenues include the sales of the collagenase for laboratory use recognized at the time it is shipped to customers. We had a smallamount of revenue from the sale of collagenase for laboratory use. For the calendar years ended 2009 and 2008 product revenues were$39,035 and $37,343, respectively. This increase of $1,692 or 5% was primarily related to the amount of material required to performtesting and additional research by our customers.RoyaltiesAll of the royalty revenues we received in 2009 are from DFB under the earn-out payment provision of the DFB Agreement. Total royaltyrevenues recognized under that agreement were $1,271,597 and $510,126 for calendar years 2009 and 2008, respectively. The increase of$761,470, or 149%, from calendar year 2008 to 2009 was due to certain sales levels achieved by DFB in connection with the sale of topicalcollagenase.Licensing RevenueLicensing revenue consist of licensing fees, sublicensing fees and milestones. We recognized as licensing, sublicensing and milestonerevenue $1,565,125 and $7,440,125 in calendar years 2009 and 2008, respectively. The decrease of $5,875,000, or 79%, from 2008 to2009 was due to a sublicense fee of $6,375,000 recognized in 2008 partially offset by a $500,000 milestone received in 2009 in connectionwith the Auxilium Agreement.Consulting ServicesWe recognize revenues from consulting and technical assistance contracts primarily as a result of the DFB Agreement and a consultingagreement signed in October 2007 with Auxilium. We recognize consulting revenues ratably over the term of the contract. The consultingand technical obligations under the DFB Agreement expire during March 2011. For calendar years 2009 and 2008 we recognized $280,000and $424,185, respectively, in consulting revenue. The decrease of $144,185 or 34% from 2008 to 2009 was primarily due to therecognition in 2008 of revenues earned in connection with the October 2007 consulting agreement with Auxilium.Research and Development ActivitiesResearch and development expenses were $488,646 and $439,919 respectively, for calendar years 2009 and 2008, representing anincrease from 2008 to 2009 of $48,727, or 11%. This increase was primarily due to certain employee costs which were reimbursable underthe DFB Agreement until October 2008 and stock-based compensation expense partially offset by decreases in external study developmentcosts.General and Administrative ExpensesGeneral and administrative expenses were $4,832,019 and $4,191,052 for calendar years 2009 and 2008, respectively, an increase of$640,967, or 15%, from 2008 to 2009. This increase was primarily due to outside consulting services, certain facility costs which werereimbursable under the DFB Agreement until October 2008, employee costs, legal fees and board member service partially offset by adecrease in patent related fees and stock-based compensation expense.Other Income and expenseOther income for calendar year 2009 was $46,791 compared to $262,811 for calendar year 2008. Other income during 2009 was due tointerest of $55,693 earned on our investments and other consisting of tax penalties of $9,463 which was partially offset by a $600 gainrelated to an asset sale. Other income during 2008 was due to interest earned of $107,552 on our investments, a reversal of interestexpense penalty of $80,409 associated with our delinquent tax filings partially offset by an interest expense tax payment of $33,880 afterfinalizing our delinquent tax returns, a reversal of accrued tax penalties of $103,203 and a small gain from the sale of an asset of $5,527.Income Taxes37Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 income tax benefit for 2009 was $161,574 as compared to an income tax expense of $299,212 for 2008. In 2009 the Company utilizedits current federal NOL to carryback to the 2008 tax year to claim a refund of taxes paid of $198,239 which were partially offset by 2009 statetax of $1,784 and a $34,881 tax adjustment related to prior years’ tax returns. In 2008, 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 and we recognized a $195,022 tax benefit in connection with our 2007 net operating loss.Liquidity and Capital ResourcesTo date, we have financed our operations primarily through product sales, debt instruments, licensing revenues and royalties underagreements with third parties and sales of our common stock. At December 31, 2010, 2009 and 2008, we had cash and cash equivalentsand short-term investments in the aggregate of approximately $7.8 million, $8.5 million and $4.4 million, respectively.Sources and Uses of CashNet Cash provided by (Used In) Operating ActivitiesNet cash provided by (used in) operating activities was $(0.9) million, $3.7 million and $(3.1) million for 2010, 2009 and 2008. Cash used inoperations for 2010 resulted primarily from operating losses, net of stock compensation expenses and other non-cash charges. At December31, 2010, accounts receivable increased by $0.4 million, compared to December 31, 2009 primarily due to a higher receivable balancerelated to the DFB Agreement. Our deferred revenue at December 31, 2010 decreased by $0.8 million compared to December 31, 2009primarily due to the amortization of previously received license payments under the Auxilium Agreement.At December 31, 2009, accounts receivable decreased by $5.2 million, compared to December 31, 2008, primarily due to a receipt of a$6.375 million sublicense payment under the Auxilium Agreement which was earned in 2008 partially offset by an increase in earn-outroyalties under the DFB Agreement. Our deferred revenue at December 31, 2009 decreased by $1.1 million compared to December 31, 2008primarily due to the amortization of previously received license payments under the Auxilium Agreement.The majority of our cash expenditures in 2010, 2009, and 2008 were to fund research and development and our business activities.Net Cash Used in Investing ActivitiesNet cash used in investing activities was $0.8 million in 2010, compared to $3.6 million in 2009 and $1.2 million in 2008. In 2010,purchases of marketable securities exceeded maturities by $0.8 million. In 2009, purchases of marketable securities exceeded maturities by$3.6 million. In 2008, maturities of marketable securities exceeded purchases by $75,000 and reflects a one-time cash payment related tothe buy down of future royalty obligations for Peyronie's disease of $1,250,000.Net Cash provided by Financing ActivitiesNet cash provided by financing activities was $0.2 million, $0.4 million and $7.7 million for 2010, 2009 and 2008, respectively. Net cashprovided by financing activities in 2010 was from proceeds from stock option exercises partly offset by the repurchase of our common stockunder our 2010 Stock Repurchase Program. Net cash provided by financing activities in 2009 was from proceeds received from stock optionexercises. Net cash provided by financing activities for 2008 consisted of proceeds from the sale of our common stock of $6.0 million,repayment of an outstanding loan from our former Chairman and CEO of $1.1 million, $0.3 million related to excess tax benefits fromshare-based payment arrangements and proceeds received from stock option exercises of $0.3 million.Contractual CommitmentsWe are involved with licensing of products which are generally associated with payments to third parties from whom we have licensed theproduct. Such payments may take the form of an up-front payment, milestone payments which are paid when certain parts of the overalldevelopment program are accomplished; payments upon certain regulatory events, such as the filing of an IND, an NDA or BLA, approval ofan NDA or BLA, or the equivalents in other countries and payments based on a percentage of sales.38Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.We may also out-license products, for which we hold the rights, to other companies for commercialization in other territories, or at times, forother uses. When this happens, the payments to us would also take the same form as described above.Operating LeasesOur operating leases are principally for facilities and equipment. We currently lease approximately 15,000 square feet of space at ourheadquarters in Lynbrook, New York on a month to month basis. Additionally, we lease certain vehicle and certain office equipment whichgenerally expire in 2011 and 2014.Future minimum annual payments required under non-cancelable operating leases are approximated as follows:Year ending December 31,2011$5,0002012$3,5002013$3,5002014$1,700Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.Future Impact of Recently Issued Accounting StandardsIn March 2010, the Financial Accounting Standards Board (“FASB”) amended its authoritative guidance on the milestone method of revenuerecognition. The milestone method of revenue recognition has now been codified as an acceptable revenue recognition model when amilestone is deemed to be substantive. This guidance may be applied retrospectively to all arrangements or prospectively for milestonesachieved after the adoption of the guidance. We will adopt this amended guidance for the fiscal year beginning January 1, 2011. We do notanticipate that the adoption of this guidance will have a material impact on our financial statements.In February 2010, the FASB issued update No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition andDisclosure Requirements. This update provides amendments to Subtopic 855-10 for an entity that is an SEC filer and is required toevaluate subsequent events through the date that the financial statements are issued. An entity that is an SEC filer is not required to disclosethe date through which subsequent events have been evaluated. The adoption of this update on February 24, 2010 did not have any impacton the consolidated financial statements.In January 2010, the FASB issued update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosuresabout Fair Value Measurements. This update amends subtopic 820-10 to require 1) a reporting entity to disclose separately the amounts ofsignificant transfers in and out of level 1 and 2 fair value measurements and to describe the reasons for the transfers, and 2) in thereconciliation for fair value measurements using significant unobservable inputs (level 3), a reporting entity should present separatelyinformation about purchases, sales, issuances, and settlements on a gross basis rather than as one net number. This update also providesclarification about existing disclosures about the level of disaggregation and inputs and valuation techniques. The new disclosures andclarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 2009. The adoption of thisupdate did not have a material impact on the consolidated financial statements. Disclosures about purchases, sales, issuances, andsettlements in the roll forward of activity on Level 3 fair value measurements is effective for fiscal years beginning after December 15, 2010and for interim periods within those fiscal years.Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.We do not use derivative financial instruments or derivative commodity instruments for trading purposes. Our financial instruments consistof cash, cash equivalents, short-term investments, trade accounts receivable, accounts payable and long-term obligations. We considerinvestments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents.39Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 investment portfolio is subject to interest rate risk, although limited given the nature of the investments, and will fall in value in theevent market interest rates increase. All our cash and cash equivalents at December 31, 2010, amounting to approximately $2.5 million,were maintained in bank demand accounts and money market accounts. Our short-term investments of $5.4 million were maintained incertificates of deposit. We do not hedge our interest rate risks, as we believe reasonably possible near-term changes in interest rates wouldnot materially affect our results of operations, financial position or cash flows.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. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.The Company, under the supervision and with the participation of Thomas L. Wegman, the Company’s President, Principal ExecutiveOfficer, Principal Financial Officer and Principal Accounting Officer, evaluated the effectiveness of its disclosure controls and procedures as ofthe end of the period covered by this Report. Based on that evaluation, management has concluded that the Company’s disclosure controlsand procedures are effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms ofthe SEC, and that such information is accumulated and communicated to the Company’s management, to allow timely decisions regardingrequired disclosure. Because of the inherent limitations in all control systems, any controls and procedures, no matter how well designedand operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required toapply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, our controls and procedurescan be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control,and misstatements due to error or fraud may occur and not be detected on a timely basis.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, 2010. In making thisassessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control – Integrated Framework. We believe that, as of December 31, 2010, the Company’s internal control over financialreporting was effective based on this criteria.Tabriztchi & Co, the independent registered public accounting firm that audited our Consolidated Financial Statements included in thisReport, audited the effectiveness of our internal control over financial reporting as of December 31, 2010, as stated in their report which isincluded in Part IV, Item 15 of this Report.40Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Changes in Internal Control Over Financial ReportingThere were no changes in our internal control over financial reporting identified in connection with the evaluation of our controls performedduring the year ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting.Item 9B. OTHER INFORMATIONNot applicable.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 2011 Annual Meeting of Stockholders.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 2011 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 2011 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 2011 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 2011 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.41Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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)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.42Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 YEARENDED DECEMBER 31, 2010 PageReport of Independent Registered Public Accounting FirmF-2Consolidated Balance SheetsF-5Consolidated Statements of OperationsF-6Consolidated Statements of Cash FlowsF-7Consolidated Statements of Stockholders’ DeficitF-8Notes to Consolidated Financial StatementsF-9F-1Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 FIRMTo the Board of Directors and Stockholders of BioSpecifics Technologies Corp.We have audited the accompanying consolidated balance sheets of BioSpecifics Technologies Corp. as of December 31, 2010 and 2009, andthe related consolidated statements of income, stockholders' equity and cash flows for each of the three-years in the period ended December31, 2010. BioSpecifics Technologies Corp.'s management is responsible for these financial statements. Our responsibility is to express anopinion on these 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position ofBioSpecifics Technologies Corp. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), BioSpecificsTechnologies Corp.'s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our reportdated March 14, 2011 expressed an unqualified opinion./s/ Tabriztchi & Co., CPA, P.C.Garden City, NY March 14, 2011 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 FIRMTo the Board of Directors and Stockholders of BioSpecifics Technologies Corp.We have audited BioSpecifics Technologies Corp.'s internal control over financial reporting as of December 31, 2010 based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). BioSpecifics Technologies Corp's management is responsible for maintaining effective internal control over financialreporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sAnnual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal controlover financial reporting based on our audit.We conducted our audit 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 effective internal control over financialreporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding ofinternal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.In our opinion, BioSpecifics Technologies Corp. maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balancesheets as of December 31, 2010 and 2009 and the related statements of income, stockholders' equity and comprehensive income, and cashflows of BioSpecifics Technologies Corp. for each of the three years ended December 31, 2010, and our report dated March 14, 2011expressed an unqualified opinion./s/ Tabriztchi & Co., CPA, P.C.Garden City, NY March 14, 2011F-4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 SheetDecember 31, 2010 2009 Assets Current assets: Cash and cash equivalents$ 2,470,852 $ 3,950,389 Short term investments 5,360,970 4,548,541 Accounts receivable, net 1,986,125 1,295,399 Income tax receivable 185,386 416,821 Prepaid expenses and other current assets 91,925 63,260 Total current assets 10,095,258 10,274,410 Deferred royalty buy-down 1,250,000 1,250,000 Property, plant and equipment, net - 610 Patent costs, net 173,443 223,458 Total assets 11,518,701 11,748,478 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses 893,083 584,509 Accrued third party development expenses 2,649,369 2,965,225 Deferred revenue 483,769 877,778 Accrued liabilities of discontinued operations 78,138 78,138 Total current liabilities 4,104,359 4,505,650 Deferred revenue - license fees 713,619 1,150,721 Stockholders' equity: Series A Preferred stock, $.50 par value, 700,000 shares authorized; none outstanding-- Common stock, $.001 par value; 10,000,000 shares authorized; 6,445,743and 6,327,318 shares issued at December 31, 2010 and 2009, respectively6,4466,327 Additional paid-in capital 17,739,765 15,164,727 Accumulated deficit (9,893,530) (8,384,990) Treasury stock, 151,875 and 131,267 shares at cost as of December 31, 2010 and 2009(1,151,958)(693,957)Total stockholders' equity 6,700,723 6,092,107 Total liabilities and stockholders’ equity$ 11,518,701 $11,748,478 F-5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BioSpecifics Technologies Corp.Consolidated Statements of OperationsYears Ended December 31, 2010 2009 2008 Revenues: Net sales$ 34,508 $ 39,035 $ 37,343 Royalties 2,320,729 1,271,597 510,127 Licensing revenue 3,026,111 1,565,125 7,440,125 Consulting fees 280,000 280,000 424,185 Total revenues 5,661,348 3,155,757 8,411,780 Costs and expenses: Research and development 1,223,931 488,646 439,919 General and administrative 6,470,449 4,832,019 4,191,052 Total costs and expenses 7,694,380 5,320,665 4,630,971 Operating income (loss) (2,033,032) (2,164,908) 3,780,809 Other income (expense): Interest income 86,310 55,693 107,552 Interest expense - (39) 46,529 Other 13,130 (8,863) 108,730 Qualifying Therapeutic Discovery Grant 426,403 - - 525,843 46,791 262,811 Income (loss) before benefit (expense) for income tax (1,507,189) (2,118,117) 4,043,620 Income tax benefit (expense) (1,351) 161,574 (299,212)Net income (loss)$ (1,508,540)$ (1,956,543)$ 3,744,408 Basic net income (loss) per share$ (0.24)$ (0.32)$ 0.64 Diluted net income (loss) per share$ (0.24)$ (0.32)$ 0.55 Shares used in computation of basic net income (loss) per share 6,261,214 6,065,939 5,854,836 Shares used in computation of diluted net income (loss) per share 6,261,214 6,065,939 6,836,911 F-6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 FlowsYears Ended December 31,Cash flows from operating activities: 2010 2009 2008 Net income (loss)$ (1,508,540)$ (1,956,543)$ 3,744,408 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 18,949 35,669 55,774 Gain on disposal of fixed assets - - (5,535) Stock-based compensation expense 1,901,781 1,490,083 1,476,148 Changes in operating assets and liabilities: Accounts receivable (459,291) 5,616,601 (6,843,974) Prepaid expenses and other current assets (28,664) (371,592) 5,449 Accounts payable and accrued expenses 24,394 55,658 (388,200) Deferred revenue (831,111) (1,145,125) (1,145,125)Net cash provided by (used in) operating activities from continuingoperations (882,482) 3,724,751 (3,101,055) Cash flows from investing activities: Maturities of marketable securities 4,548,541 2,799,754 2,075,000 Purchases of marketable securities (5,360,970) (6,448,295) (2,000,000) 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 (812,429) (3,648,541) (1,167,000) Cash flows from financing activities: Proceeds from issuance of capital stock - - 6,007,047 Proceeds from stock option exercises 673,375 380,029 255,388 Repurchases of common stock (458,001) - - 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 215,374 380,029 7,693,641 Increase (decrease) in cash and cash equivalents (1,479,537) 456,239 3,425,586 Cash and cash equivalents at beginning of year 3,950,389 3,494,150 68,564 Cash and cash equivalents at end of year$ 2,470,852 $ 3,950,389 $ 3,494,150 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest$ - $ - $ 33,880 Taxes$ 9,851 $ 214,467 $ 225,824 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, 2010 we accrued $250,621 related to this issue of which $36,041, $33,983 and $24,856 was amortized in the 2010,2009 and 2008 periods, respectively. The net patent amortization expense for 2010 was $18,339 due to a reduction of reimbursable patentsfees under our agreement with Auxilium from prior periods.See accompanying notes to consolidated financial statementsF-7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 Statement of Stockholders' Equity (Deficit) Additional Paid Accumulated Shares Amount in Capital Deficit 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 ofissuance costs200,0002002,093,450-Issuance of common stock at $13.00 to a private investor, net ofissuance costs100,0001001,299,900-Issuance of common stock at $15.00 to a private investor, net ofissuance costs100,0001001,488,929-Issuance of common stock at $22.50 to a private investor, net ofissuance costs50,000501,124,318-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)Issuance of common stock under stock option plans 187,250 187 379,841 - Stock compensation expense - - 1,490,083 - Net loss - - - (1,956,543)Balances - December 31, 2009 6,327,318 $ 6,327 $ 15,164,727 (8,384,990)Issuance of common stock under stock option plans 118,425 119 673,257 - Stock compensation expense - - 1,901,781 - Repurchases of common stock - - - - Net loss - - - (1,508,540)Balances - December 31, 2010 6,445,743 $ 6,446 $ 17,739,765 $ (9,893,530) Due from former Shareholder Treasury Chairman and Equity (Deficit) Stock CEO Total Balances - December 31, 2007 (693,957)$ (625,774)$ (6,735,658)Issuance of common stock at $10.50 to a private investor, net of issuance costs--2,093,650Issuance of common stock at $13.00 to a private investor, net of issuance costs--1,300,000Issuance of common stock at $15.00 to a private investor, net of issuance costs--1,489,029Issuance of common stock at $22.50 to a private investor, net of issuance costs--1,124,368Issuance of common stock under stock option plans - - 255,387 Tax benefit of exercised stock options - - 314,648 Stock compensation expense - - 1,476,149 Payment from former CEO and Chairman loan principal and interest-625,7741,116,558Net income - - 3,744,408 Balances - December 31, 2008$ (693,957)$ - $ 6,178,539 Issuance of common stock under stock option plans - - 380,028 Stock compensation expense - - 1,490,083 Net loss - - (1,956,543)Balances - December 31, 2009$ (693,957)$ - $ 6,092,107 Issuance of common stock under stock option plans - - 673,376 Stock compensation expense - - 1,901,781 Repurchases of common stock (458,001) - (458,001)Net loss - - (1,508,540)Balances - December 31, 2010$ (1,151,958)$ - $ 6,700,723 F-8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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, 2010, 2009 and 20081. 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 (the “Auxilium Agreement”) with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase(which Auxilium has named XIAFLEX® (collagenase clostridium histolyticum)) for clinical indications in Dupuytren’s contracture, Peyronie’sdisease and frozen shoulder (adhesive capsulitis), and Auxilium has an option to acquire additional indications that we may pursue,including human and canine lipoma and cellulite. Auxilium has an agreement with Pfizer, Inc. (“Pfizer”) pursuant to which Pfizer has theright to market XIAFLEX for Dupuytren’s contracture and Peyronie’s disease in 27 member countries of the European Union and 19 otherEuropean and Eurasian countries, and will do so under the registered trademark XIAPEX® (collagenase clostridium histolyticum).DISCONTINUED OPERATIONSPrior to March 2006, we were a party to an exclusive license agreement with Abbott Laboratories, Inc. and its subsidiaries, for the productionof the active pharmaceutical ingredient for topical collagenase. In March 2006 we sold our topical collagenase business to DFB Biotech, Inc.and its affiliates (“DFB”), including all rights to the exclusive license agreement and we were released of any obligations thereunder (the“DFB Agreement”).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 DFB Agreement, we agreed toprovide certain technical assistance and certain transition services to DFB in consideration of fees and costs totaling over $1.4 million. At theclosing, DFB paid to us a partial payment of $400,000 in respect of the technical assistance to be provided by us. As of December 31, 2010,we have received a total of $1.4 million in payments from DFB. The consulting and technical assistance obligations expire during March2011.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of ConsolidationThe audited consolidated financial statements include the accounts of the Company and its subsidiary, Advance Biofactures Corp. (“ABC-NY”).Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires the use ofmanagement’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 MeasurementsManagement believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents, short-terminvestments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of thoseinstruments.F-9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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, the licensing and sublicensing of the use of our technology and from serviceswe sometimes perform in connection with the licensed technology under the guidance of Accounting Standards Codification 605, RevenueRecognition (“ASC 605”).If we determine that separate elements exist in a revenue arrangement under ASC 605, we recognize revenue for delivered elements onlywhen the fair values of undelivered elements are known, when the associated earnings process is complete, when payment is reasonablyassured and, to the extent the milestone amount relates to our performance obligation, when our customer confirms that we have met therequirements under the 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 collagenase for laboratory use that are recognized at the time the product is shipped to customers forlaboratory use.Royalty/Earn-Out RevenueUnder the Auxilium Agreement, we do not participate in the selling, marketing or manufacturing of products for which we receive royaltiesand a mark-up of the cost of goods sold revenues, The royalty, mark-up on cost of goods sold revenues will generally be recognized in thequarter that Auxilium provides the written reports and related information to us, that is, royalty and mark up on cost of goods sold revenuesare generally recognized one quarter following the quarter in which sales by Auxilium occurred. The royalties payable by Auxilium to us aresubject to set-off for certain third party development and patent costs.Under the DFB Agreement, pursuant to which we sold our topical collagenase business to DFB, we have the right to receive earn-outpayments in the future based on sales of certain products. Generally, under the DFB Agreement we would receive payments and a reportwithin ninety (90) days from the end of each calendar year after DFB has sold the royalty-bearing product. Currently, DFB is providing usearn-out reports on a quarterly basis.Licensing RevenueWe include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Revenues” 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.MilestonesF-10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 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.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.Consulting and Technical Assistance ServicesWe recognize revenues from consulting and technical assistance contracts primarily as a result of our DFB Agreement and AuxiliumAgreement. Consulting revenues are recognized ratably over the term of the contract. The consulting and technical assistance obligations toDFB expire during March 2011.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, 2010, accounts receivables include approximately $1.6 million due from DFB in accordance with the terms of the DFBAgreement. Under the DFB Agreement, we receive royalty payments and a report within ninety (90) days from the end of each calendar yearafter the licensee has sold the royalty-bearing product.Reimbursable Third Party Development CostsWe accrue expenses for research and development and capitalize certain patent costs related to estimated third party development costs thatare reimbursable under the Auxilium Agreement. 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 or decrease in research and development costs. For example, the Auxilium Agreementprovides that Auxilium and BioSpecifics will share equally in third party costs for the development of the lyophilization of the injectionformulation and certain patent expenses which are creditable against future royalty revenues.In January 2011, we received a credit memo from Auxilium reducing the amount we owed for lyophilization expenses by $227,000 to thetotal amount due that Auxilium believes is owed by us through December 31, 2010 under this provision. Any amount ultimately agreed asbeing owed by us to Auxilium for lyophilization expenses and patent expenses are creditable against future royalties payable by Auxilium onnet sales of XIAFLEX. In 2010, we recognized approximately $0.7 million related to royalty revenue from the sale of XIAFLEX. Based uponthe updated information and the royalty revenue reported to us, we reduced our estimates for reimbursable third party development andcertain patent costs to approximately $2.6 million.F-11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 preliminary review, we believe that only a portion of the amounts invoiced actually relates to the development of thelyophilization of the injection formulation and certain patent expenses may increase based upon a resolution of certain patent matters, andtherefore, we reserve all rights related to this matter, including but not limited to our right to contest the amount charged by Auxilium. Wehave classified accrued third party development costs as current liabilities on our balance sheet as of December 31, 2010.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.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.Income TaxesDeferred tax assets and liabilities are recognized based on the expected future tax consequences, using current tax rates, of temporarydifferences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance isapplied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of thedeferred tax assets will not be realized.We use the asset and liability method of accounting for income taxes, as set forth in Accounting Standards Codification 740-10-25-2. Underthis method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and incometax basis of assets and liabilities at the statutory rates enacted for future periods. In accordance with Accounting Standards Codification 740-10-45-25, Income Statement Classification of Interest and Penalties, we classify interest associated with income taxes under interestexpense and tax penalties under other.Stock Based CompensationThe Company has two stock-based compensation plans in effect which are described more fully in Note 9. Accounting Standards Codification718, Compensation - Stock Compensation (“ASC 718”) requires the recognition of compensation expense, using a fair-value basedmethod, for costs related to all share-based awards including stock options and common stock issued to our employees and directors underour stock plans. It requires companies to estimate the 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 ultimately expected to vest is recognized as expense on a straight-line basis over the requisiteservice periods in our Consolidated Statements of Operations.F-12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Under the ASC 718, we estimate the fair value of our employee stock awards at the date of grant using the Black-Scholes option-pricingmodel, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of theexpected volatility of the market price of our stock and the expected term of an award. When establishing an estimate of the expected term ofan award, we consider the vesting period for the award, our recent historical experience of employee stock option exercises (includingforfeitures) and the expected volatility. When there is uncertainty in the factors used to determine the expected term of an award, we use thesimplified method. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, ourvaluation assumptions used to value employee stock-based awards granted in future periods may change. The company did not grant stockoptions during the 2010 year. The ranges of valuation assumptions used were as follows for 2009 and 2008: Year Ended Year Ended December 31, December 31, 2009 2008 Stock Option Plans Expected life, in years 5.0 5.0 Risk free interest rate 1.9%- 2.7% 1.9%- 2.9% Volatility 41% - 69% 61% - 80% Dividend yield — — Further, ASC 718 requires that employee stock-based compensation costs to be recognized over the requisite service period, or the vestingperiod, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensationcosts to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stockoption forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially fromthose estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category infuture periods may differ significantly from what we have recorded in the current period.Stock-based compensation expense recognized under ASC 718 was as follows: December 31, 2010 2009 2008 Research and development$ 109,385 $ 108,465 $ 37,789 General and administrative 1,792,396 1,381,618 1,438,360 Total stock-based compensation expense$1,901,781$1,490,083$1,476,149We account for stock options granted to persons other than employees or directors at fair value using the Black-Scholes option-pricing modelin accordance with Accounting Standards Codification 505-50, Equity Based Payments to Non-Employees (“ASC 505-50”). Stock optionsgranted to such persons and stock options that are modified and continue to vest when an employee has a change in employment status aresubject to periodic revaluation over their vesting terms. We recognize the resulting stock-based compensation expense during the serviceperiod over which the non-employee provides services to us. The stock-based compensation expense related to non-employees for the yearsended December 31, 2010, 2009 and 2008 was $685,096, zero and $572,424, respectively.Property, Plant and EquipmentF-13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Property, plant and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autosare depreciated on the straight-line basis over their estimated useful lives of 5 to 10 years.Patent CostsWe amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from 3 to 11 years, andreview for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assetsmay not be recoverable.As of December 31, 2010, the Company’s capitalized costs related to certain patents paid by Auxilium on behalf of the Company and arereimbursable to Auxilium under our agreement. These patent costs are creditable against future royalty revenues. At December 31, netpatent costs consisted of: 2010 2009 2008 Patents, net$ 173,443 $ 223,458 $ 164,424 The amortization expense for patents was $36,041, $33,983 and $24,856, for the years ended December 31, 2010, 2009 and 2008. Thenet patent amortization expense for 2010 was $18,339 due to a reduction of reimbursable patents fees under our agreement with Auxiliumfrom prior periods. The estimated aggregate amortization expense for each of the next five years is as follows:201138,000201235,000201333,000201426,000201510,000Income TaxesIn accordance with Accounting Standards Codification 740-10-45-25, Income Statement Classification of Interest and Penalties (“ASC740-10-45-25”) we classify interest associated with income taxes under interest expense and tax penalties under other.Qualifying Therapeutic Discovery Project ProgramIn November 2010, we were notified that we had been awarded a total cash grant of approximately $426,000 under the QualifyingTherapeutic Discovery Project program administered under section 48D of the Internal Revenue Code, of which approximately $102,000relates to qualifying expenses we had previously incurred during the 2009 fiscal year which was received during the fourth quarter of fiscal2010. The remainder of the grant of approximately $324,000 was received in February 2011 based on qualifying expenses that we incurredduring the 2010 fiscal year. We recognized the full $426,000 of the grant as of the date of notification since we had already incurred all of thequalifying expenses. Since this program is non-recurring, we elected to classify this payment as other income in the Consolidated Statementof Operations for the year ended December 31, 2010.Future Impact of Recently Issued Accounting StandardsIn March 2010, the Financial Accounting Standards Board (“FASB”) amended its authoritative guidance on the milestone method of revenuerecognition. The milestone method of revenue recognition has now been codified as an acceptable revenue recognition model when amilestone is deemed to be substantive. This guidance may be applied retrospectively to all arrangements or prospectively for milestonesachieved after the adoption of the guidance. We will adopt this amended guidance for the fiscal year beginning January 1, 2011. We do notanticipate that the adoption of this guidance will have a material impact on our financial statements.In February 2010, the FASB issued update No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition andDisclosure Requirements. This update provides amendments to Subtopic 855-10 for an entity that is an SEC filer and is required toevaluate subsequent events through the date that the financial statements are issued. An entity that is an SEC filer is not required to disclosethe date through which subsequent events have been evaluated. The adoption of this update on February 24, 2010 did not have any impacton the consolidated financial statements.F-14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 January 2010, the FASB issued update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosuresabout Fair Value Measurements. This update amends subtopic 820-10 to require 1) a reporting entity to disclose separately the amounts ofsignificant transfers in and out of level 1 and 2 fair value measurements and to describe the reasons for the transfers, and 2) in thereconciliation for fair value measurements using significant unobservable inputs (level 3), a reporting entity should present separatelyinformation about purchases, sales, issuances, and settlements on a gross basis rather than as one net number. This update also providesclarification about existing disclosures about the level of disaggregation and inputs and valuation techniques. The new disclosures andclarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 2009. The adoption of thisupdate did not have a material impact on the consolidated financial statements. Disclosures about purchases, sales, issuances, andsettlements in the roll forward of activity on Level 3 fair value measurements is effective for fiscal years beginning after December 15, 2010and for interim periods within those fiscal years.3. FAIR VALUE MEASUREMENTSThe authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuringfair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, definedas inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significantunobservable inputs (entity developed assumptions) in which little or no market data exists.As of December 31, 2010, the Company held certain investments that are required to be measured at fair value on a recurring basis. Thefollowing tables present the Company’s fair value hierarchy for these financial assets as of December 31, 2010, 2009 and 2008:December 31, 2010 Fair Value Level 1 Level 2 Level 3 Cash and cash equivalents$ 2,470,852 $ 2,470,852 - - Certificates of Deposit 5,360,970 5,360,970 - - December 31, 2009 Cash and cash equivalents$ 3,950,389 $ 3,950,389 - - Certificates of Deposit 4,548,541 4,548,541 - - December 31, 2008 Cash and cash equivalents$3,494,150 $3,494,150 - - Certificates of Deposit 900,000 900,000 - - 4. EARNINGS PER SHAREBasic earnings per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding duringthe period. Diluted earnings per share is computed by dividing net income by theF-15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.weighted-average number of common shares outstanding during the period increased to include all additional common shares that wouldhave been outstanding assuming potentially dilutive common shares, resulting from option exercises, had been issued and any proceedsthereof used to repurchase common stock at the average market price during the period. In periods in which there is a net loss, potentiallydilutive common shares are excluded from the computation of diluted earnings per share as their effect would be anti-dilutive. 2010 2009 2008 Net income (loss) for diluted computation$ (1,508,540)$ (1,956,543)$ 3,744,408 Weighted average shares: Basic 6,261,214 6,065,939 5,854,836 Effect of dilutive securities: Stock options - - 982,075 Diluted 6,261,214 6,065,939 6,836,911 Net income (loss) Per Share: Basic$ (0.24)$ (0.32)$ 0.64 Diluted$ (0.24)$ (0.32)$ 0.55 For the years ended December 31, 2010 and 2009, 912,001 and 923,900 of potential common shares were excluded from the diluted lossper share calculation because their effect was anti-dilutive as a result of the Company’s net loss.5. INVENTORIES, NETNone.6. PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment from continuing operations consist of: December 31, 2010 2009 2008 Machinery and equipment$ 562,610 $ 562,610 $ 562,610 Furniture and fixtures 91,928 91,928 91,928 Leasehold improvements 1,185,059 1,185,059 1,185,059 1,839,597 1,839,597 1,839,597 Less accumulated depreciation and amortization (1,839,597) (1,838,987) (1,837,300) $ - $ 610 $ 2,297 Total depreciation expense amounted to $610, $1,687 and $30,919 for calendar years 2010, 2009 and 2008, respectively.7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIESAccounts payable and accrued liabilities consist of the following: December 31, 2010 2009 2008 Trade accounts payable and accrued expenses$ 674,917 $ 378,872 $ 409,433 Accrued legal and other professional fees 77,442 70,935 117,837 Accrued payroll and related costs 140,725 134,702 115,195 $ 893,084 $584,509 $642,465 F-16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.8. INCOME TAXESThe provision for income taxes consist of the following:Year ended December 31, 2010 2009 2008 Current: Federal$- $ (198,239)$ 172,186 State 1,351 1,784 7,400 1,351 (196,455) 179,586 Deferred: Federal - - - State - - - Total$ 1,351 $ (196,455)$ 179,586 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, 2010 2009 2008 Computed tax expense at statutory rate (34.0%) (34.0%) 34.0% Deferred revenues (16.9%) (17.1%) (9.0%)Tax benefit of exercised options and warrant - - (6.4%)Stock-based compensation 42.8% 23.9% 12.4% Tax benefit of NOL - - (14.7%)Other (9.5%) (1.8%) (11.9%)Increase (decrease) in valuation allowance 17.6% 25.8% 0.0% Effective tax rate (benefit) - (3.2%) 4.4% The effective rate reconciliation includes the permanent differences and changes in valuation allowance for deferred revenues, stock-basedcompensation and net operating loss.Year ended December 31, 2010 2009 2008 Tax Credit carryforward$ 1,027,633 $ 1,039,390 $ 1,039,390 Deferred revenues 466,981 741,714 1,231,287 Other - 54,846 37,736 Options 939,643 406,517 815,686 Net operating loss carryforward 1,168,277 556,504 128,775 Net deferred tax assets before valuation allowance 3,602,534 2,798,971 3,252,874 Valuation allowance (3,602,534) (2,798,971) (3,252,874) Net deferred tax asset$ - $ - $ - F-17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxableincome during the periods in which the temporary differences representing net future deductible amounts become deductible. Based on theCompany's uncertainty of anticipated future taxable income, the Company is keeping a full valuation allowance for all its deferred tax assets.The Company’s valuation allowance increased by $0.8 million primarily due to the recognition of change a in estimate related to incentivestock options and the net operating loss carryforward.At December 31, 2010, we had federal tax return net operating loss carry forwards of approximately $2.7 million of which $1.9 million willexpire in 2029 and $0.8 million 2030, if not utilized. In addition, we had state tax return net operating loss carry forwards of approximately$4.9 million related to New York State, which will expire in 2027 through 2030 if not utilized. The recorded deferred tax asset amount of $0.9million for net operating losses shown in the above table is net of windfall stock compensation deductions due to the disqualification of certainstock option that were exercised and sold in 2009, which when realized, will be recorded directly to additional paid-in capital in accordancewith ASC 718-25-09.At December 31, 2010, we had orphan drug tax credits of approximately $1.0 million that can be carried forward and will generally expire in2023 through 2029, if not utilized.As of December 31, 2010, the Company believes that there are no significant uncertain tax positions, and no amounts have been recordedfor interest and penalties. The Company does not anticipate any events that would require it to record a liability related to any uncertain taxposition.9. STOCKHOLDERS’ EQUITYStock Option PlansIn July 1997, the Company's stockholders approved a stock option plan (the “1997 Plan”) for eligible key employees, directors, independentagents, and consultants who make a significant contribution toward the Company's success and development and to attract and retainqualified employees which expired in July 2007. Under the 1997 Plan, qualified incentive stock options and non-qualified stock options maybe granted to purchase up to an aggregate of 500,000 shares of the Company's common stock, subject to certain anti-dilution provisions. Theexercise price per share of common stock may not be less than 100% (110% for qualified incentive stock options granted to stockholdersowning at least 10% of common shares) of the fair market value of the Company's common stock on the date of grant. In general, the optionsvest and become exercisable in four equal annual installments following the date of grant, although the Company’s board of directors, 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 1997 Plan, no options were grantedten years after the effective date of the 1997 Plan, or July 2007. In July 2007, approximately 231,000 stock options expired unissued, andthere are no shares available for grant remaining under the 1997 Plan. As of December 31, 2010 there were 9,000 options outstanding underthe 1997 Plan.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. On June 17, 2009, our stockholdersapproved an amendment to the 2001 Plan to extend the term of the 2001 Plan from April 6, 2011 to April 23, 2019 and to authorize anadditional 300,000 shares of our common stock for issuance under the 2001 Plan. A total of 2,050,000 shares of common stock are nowauthorized for issuance under the amended 2001 Plan. The Company filed a Registration Statement on Form S-8 for the 2001 Plan with theCommission on October 5, 2007 and on July 15, 2009 as amended to register these securities. As of December 31, 2010 options topurchase 1,337,425 shares of common stock were outstanding under the 1997 Plan and 2001 Plan, and a total of 269,098 shares availablefor grant remaining under the 2001 Plan.F-18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 summary of the stock options activity is as follows for year ended: Weighted Average Exercise Shares Price Outstanding at December 31, 2009 1,464,850 $ 7.64 2010 Options granted - - Options exercised (118,425) 5.69 Options canceled or expired -- -- Outstanding at end of year 1,346,425 7.81 Options exercisable at year end 1,223,925 6.62 Shares available for future grant 269,098 -- The Company did not grant any stock options during 2010.The following table summarizes information relating to stock options by exercise price at December 31, 2010:Option Exercise PriceOutstandingSharesWeightedAverageLife(years)WeightedAverageExercisePriceExercisableSharesWeightedAverageOptionPrice$0.83-2.00 661,925 4.45 $1.00 661,925 $1.00 4.00-6.00 257,000 6.42 4.69 249,500 4.65 13.00-14.00 125,000 7.38 13.51 110,000 13.55 17.00-18.99 70,000 7.93 17.69 40,000 17.30 19.00-21.00 112,500 7.75 20.57 62,500 20.23 26.00-28.00 45,000 8.69 26.43 45,000 26.43 29.00-31.00 75,000 8.88 29.53 55,000 29.64 1,346,425 5.94 $7.81 1,223,925 $6.62 We did not grant any stock options during 2010. The weighted-average grant-date fair value for options granted during 2009 was $24.43 pershare and $16.00 per share in 2008. During the 2010, 2009 and 2008, $673,375, $380,029 and $255,388 were received from stock optionsexercised by employees, respectively. The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2010 wasapproximately $23.2 million. Aggregate intrinsic value represents the total pre-tax intrinsic value, based on the closing price of our commonstock of $25.60 on December 31, 2010, which would have been received by the option holders had all option holders exercised their optionsas of that date. Total unrecognized compensation cost related to non-vested stock options outstanding as of December 31, 2009 wasapproximately $0.7 million which we expect to recognize over a weighted-average period of 1.3 years.10. COMMITMENTS AND CONTINGENCIESF-19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.Lease AgreementsOur corporate headquarters are currently located at 35 Wilbur St., Lynbrook, NY 11563. As previously reported, our previous lease for ourheadquarters terminated on June 30, 2010. Since June 30, 2010, we have been leasing the space from Wilbur St. Corp. on a month-to-month basis. On February 28, 2011, we notified Wilbur St. Corp. of our termination of the lease effective March 31, 2011. We intend tonegotiate a new lease for our current space or seek alternative space in the surrounding area.The Company's operations are principally conducted on leased premises. Future minimum annual rental payments required under non-cancelable operating leases are zero.Rent expense under all operating leases amounted to approximately $136,500, $136,250 and $150,000 for calendar year 2010, 2009 and2008.11. RELATED PARTY TRANSACTIONSOn 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.As previously reported, ABC-NY (together with the Company, the “Tenant”) and Wilbur St. Corp. (the “Landlord”) were parties to a leaseagreement initially dated as of January 30, 1998 and modified as of June 24, 2009 (the “Lease Agreement”), pursuant to which the Landlordleased to the Tenant the premises located at 35 Wilbur Street, Lynbrook, NY 11563 (the “Premises”) until June 30, 2010 and for an annualrental price of $135,000. Following the expiration of the Lease Agreement, the Tenant has continued to lease the Premises from the Landlordon a month-to-month basis. As described above in Note 10, we have notified the Landlord of our termination of the Lease Agreement effectiveMarch 31, 2011.12. 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 years2010, 2009 or 2008.13. SUBSEQUENT EVENTSOn February 28, 2011, Auxilium and Pfizer announced that the European Commission granted XIAPEX marketing authorization for thetreatment of Dupuytren’s contracture in adult patients with a palpable cord. Auxilium and Pfizer also announced that XIAPEX “is expected tobe available for use in some European markets later this year”.In January 2011, we announced promising results from our study Chien-802, showing dramatic reductions in canine lipoma followinginjections with purified injectable collagenase. These results build upon an earlier dose escalation study from which we selected the dose forChien-802.In January 2011, we also announced the initiation of a larger clinical trial, Chien-803, for the same indication. We have voluntarily agreed tosuspend this trial and will not be initiating any new trials using injectable collagenase in animals or humans pending a resolution of ourdispute with Auxilium concerning our right to conduct clinical trials without the prior approval of the companies’ Joint DevelopmentCommittee. On February 15, 2011, Auxilium filed a complaint against us in the Court of Common Pleas in Chester County, Pennsylvania.The complaint seeks declaratory and injunctive relief, but not monetary damages. The dispute has been sealed pending further order of thecourt. The outcome of the dispute will have no effect on the amounts due to us from Auxilium for exercised indications (Dupuytren’scontracture, Peyronie’s disease and Frozen Shoulder). However, if the court rules in a manner that is detrimental to our interests or interpretsour agreement with Auxilium in a way that limits the scope of our rights under that agreement, we may be precluded from pursuingadditional indications and, if Auxilium does not pursue such additional indications, we may also be precluded from the opportunity to receivefrom Auxilium license fees for the rights to, as well as potential milestone, royalty and other payments with respect to, such additionalindications.F-20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.14. SELECTED QUARTERLY DATA (Unaudited)The following table sets forth certain unaudited quarterly data for each of the four quarters in the years ended December 31, 2010 and 2009.The data has been derived from the Company's unaudited consolidated financial statements that, in management's opinion, include alladjustments (consisting of normal recurring adjustments) necessary for a fair presentation of such information when read in conjunctionwith the Consolidated Financial Statements and Notes thereto. The results of operations for any quarter are not necessarily indicative of theresults of operations for any future period. First Second Third Fourth Quarter Quarter Quarter Quarter Year ended December 31, 2010 Net revenues$ 2,659,032 $ 854,807 $1,004,097 1,143,413 Operating profit (loss) (271,963) (936,157) (501,784) (323,128) Net income (loss) (254,180) (910,232) (484,297) 140,169 Basic earnings per share (1)$ (0.04)$ (0.15)$ (0.08)$ 0.02 Diluted earnings per share (1)$ (0.04)$ (0.15)$ (0.08)$ 0.02 First Second Third Fourth Quarter Quarter Quarter Quarter Year ended December 31, 2009 Net sales$ 343,473 $ 1,221,595 $ 836,568 $ 754,122 Operating profit (loss) (939,370) (43,082) (453,237) (729,219) Net income (loss) (945,977) (87,809) (382,121) (540,637) Basic earnings per share (1)$ (0.16)$ (0.01)$ (0.06)$ (0.09) Diluted earnings per share (1) (0.16) (0.01) (0.06) (0.09)(1) Quarterly income (loss) per share may not equal the annual reported amounts due to roundingF-21Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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:ExhibitNumberDescription3.1Registrant’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)10.1Lease Modification Agreement dated June 22, 2009 between ABC-NY, the Company and Wilbur St. Corp. (incorporated byreference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Commission on June 29, 2009)10.2Copy 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)10.3Asset 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)10.4Amendment to Asset Purchase Agreement between the Company, ABC-NY and DFB dated January 8, 2007 (incorporated byreference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Commission on January 12, 2007)10.5Dupuytren’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)10.6Frozen 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)10.7Form 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)10.8Amended and Restated 2001 Stock Option Plan of Registrant (incorporated by reference to Appendix D of the Registrant’sSchedule14A filed with the Commission on April 30, 2009)10.9Rights 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)10.10Amendment 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)10.11Amendment No. 2 to Rights Agreement, dated as of February 3, 2011 (incorporated by reference to Exhibit 4.1 to theRegistrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 4, 2011).10.12Change 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)10.13Change 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)10.14Change 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)10.15Agreement 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)Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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.10.16Amended 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)10.17Executive 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)10.18Change 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 14, 2011Powered 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 be signedon its behalf by the undersigned, thereto duly authorized individual.Date: March 14, 2011BIOSPECIFICS 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.SIGNATURETITLE /s/ Thomas L. WegmanPresident, Director, and Principal Executive, FinancialName: Thomas L. Wegmanand Accounting OfficerDate: March 14, 2011 /s/ Dr. Matthew GellerDirectorName: Dr. Matthew Geller Date: March 14, 2011 /s/ Dr. Paul GitmanDirectorName: Dr. Paul Gitman Date: March 14, 2011 /s/ Henry G. MorganDirectorName: Henry G. Morgan Date: March 14, 2011 /s/ Michael SchamrothDirectorName: Michael Schamroth Date: March 14, 2011 /s/ Dr. Mark WegmanDirectorName: Dr. Mark Wegman Date: March 14, 2011 /s/ Toby WegmanDirectorName: Toby Wegman Date: March 14, 2011 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 14, 2011 with respect to the consolidated balance sheets ofBioSpecifics Technologies Corp. as of December 31, 2010 and 2009, and the related statements of income, stockholders' equity and cashflows for each of the years in the three-year period ended December 31, 2010, and our report dated March 14, 2011 with respect to internalcontrol over financial reporting as of December 31, 2010, in Form 10-K for the year ended December 31, 2010 for BioSpecifics TechnologiesCorp./s/ Tabriztchi & Co., CPA, P.C.Garden City, NY March 14, 2011Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 OFFICERPURSUANT 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, 2010 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 necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect tothe 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 materialrespects the financial 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 (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-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 underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing theequivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to 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 theregistrant’s internal controls over financial reporting.Date: March 14, 2011/s/ Thomas L. Wegman Thomas L. Wegman President, Principal Executive and Financial OfficerSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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 OFFICERPURSUANT TO RULES 13a-14(b) AND 15d-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350The undersigned, Thomas L. Wegman, the President, Principal Executive Officer and Principal Financial Officer of BioSpecificsTechnologies Corp. (the “Company”), DOES HEREBY CERTIFY that:1.The Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010 (the “Report”), fully complies with therequirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of theCompany for the period covered by the Report.IN WITNESS WHEREOF, the undersigned has executed this certification this 14th day of March, 2011./s/ Thomas L. Wegman Thomas L. Wegman President, Principal Executive and Financial OfficerThis certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange of 1934, as amended, or otherwise subjectto liability pursuant to that section. Such certification shall not be deemed to be incorporated by reference into any filing under the SecuritiesAct of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specificallyincorporates it by reference.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 14, 2011Powered 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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