BioSpecifics Technologies Corp.
Annual Report 2012

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KBIOSPECIFICS TECHNOLOGIES CORP - BSTCFiled: March 15, 2013 (period: December 31, 2012)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 STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2012o 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)Delaware 11-3054851(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)35 Wilbur Street, Lynbrook, NY 11563(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: 516.593.7000 Securities 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 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 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 from their obligationsunder 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 of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements forthe past 90 days.Yes ¨NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany 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 reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. iSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. Large accelerated filer ¨Accelerated filer  Non-accelerated filer ¨ (Do not check if a smaller reporting company)Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).¨Yes NoThe aggregate market value of voting and non-voting common stock held by non-affiliates of the Registrant as of June 30, 2012, the last business day of theregistrant’s most recently completed second fiscal quarter, was approximately $93.0 million.Note – If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, theaggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under 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 1, 2013 is 6,354,649.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement for its 2013 Annual Meeting of Stockholders scheduled to be held on June 19, 2013, which is expected tobe filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal year ended December 31, 2012, areincorporated by reference into Part III of this annual report on Form 10-K. With the exception of the portions of the registrant’s definitive proxy statement for its2013 Annual Meeting of Stockholders that are expressly incorporated by reference into this annual report on Form 10-K, such proxy statement shall not bedeemed filed as part of this annual report on Form 10-K. iiSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 I3Item 1. DESCRIPTION OF BUSINESS.3Item 1A. RISK FACTORS18Item IB. UNRESOLVED STAFF COMMENTS29Item 2. DESCRIPTION OF PROPERTY.29Item 3. LEGAL PROCEEDINGS.29Item 4. MINE SAFETY DISCLOSURES.29PART II30Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS.30Item 6. SELECTED FINANCIAL DATA32Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION33Item 8. FINANCIAL STATEMENTS.50Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.50Item 9A. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.50Item 9B. OTHER INFORMATION50PART III51Item 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION16(a) OF THE EXCHANGE ACT51Item 11. EXECUTIVE COMPENSATION.51Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.51Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.51Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.51PART IV51Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.51 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 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 Statements This Report includes “forward-looking statements” within the meaning of, and made pursuant to the safe harbor provisions of, the Private SecuritiesLitigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding our strategy, future operations, futurefinancial position, future revenues, projected costs, prospects, plans and objectives of management, expected revenue growth, and the assumptions underlyingor relating to such statements, are “forward-looking statements”. The forward-looking statements in this Report include statements concerning, among otherthings, the timing of the review and potential approval by the FDA of XIAFLEX as a treatment for Peyronie’s disease; the potential of XIAFLEX for thetreatment of Peyronie’s disease to become a breakthrough treatment; the development progress of various indications; the expectation of XIAFLEX to be thefirst and only biologic therapy indicated for the treatment of Peyronie’s disease; the timing of reporting top-line data from BioSpecifics’ phase II clinical trial ofXIAFLEX for the treatment of human lipoma; the timing of completing enrollment for BioSpecifics’ phase II trial for the treatment of canine lipoma; the timingof making XIAFLEX available in Canada as a treatment for Dupuytren’s contracture; the timing of results from Auxilium’s clinical trials for Dupuytren’scontracture (release of year 5 recurrence data and release of top-line data for multi-cord study) and frozen shoulder; the potential for Auxilium to seek from theFDA a XIAFLEX label expansion for the concurrent treatment of multiple palpable cords in adult Dupuytren’s contracture patients; the timing for Auxilium toinitiate a phase II trial of XIAFLEX as a treatment for cellulite; the timing for Auxilium to initiate a phase II trial of XIAFLEX as a treatment for frozenshoulder; the potential market for XIAFLEX as a treatment for various indications; the expected life of patents; the expected marketing exclusivity forXIAFLEX for Dupuytren’s contracture in Europe; the assignment to Smith & Nephew plc of our agreement with DFB Biotech, Inc. and its affiliates; and thetiming for receiving the final earn-out payments under our agreement with DFB Biotech, Inc. and its affiliates. In some cases, these statements can be identifiedby forward-looking words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “likely,” “may,” “will,” “could,” “continue,” “project,” “predict,”“goal,” the negative or plural of these words, and other similar expressions. These forward-looking statements are predictions based on BioSpecifics’ currentexpectations and its projections about future events. There are a number of important factors that could cause BioSpecifics’ actual results to differ materiallyfrom those indicated by such forward-looking statements, including the timing of regulatory filings and action; the ability of BioSpecifics’ partner, AuxiliumPharmaceuticals, Inc., and its partners, Asahi Kasei Pharma Corporation and Actelion Pharmaceuticals Ltd., to achieve their objectives for XIAFLEX in theirapplicable territories; the market for XIAFLEX in, and initiation and outcome of clinical trials for, additional indications including frozen shoulder, cellulite,human lipoma and canine lipoma, all of which will determine the amount of milestone, royalty and sublicense income BioSpecifics may receive; the potentialof XIAFLEX to be used in additional indications; the timing of results of any clinical trials; the receipt of any applicable milestone payments from AuxiliumPharmaceuticals, Inc.; whether royalty payments BioSpecifics is entitled to receive will exceed set-offs; and other risk factors set forth in Part I, Item 1A ofthis Report under the heading "Risk Factors". All forward-looking statements included in this Report are made as of the date hereof, and we assume noobligation to update these forward-looking statements. 2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsPART I Item 1. DESCRIPTION OF BUSINESS. OverviewWe are a biopharmaceutical company involved in the development of an injectable collagenase for multiple indications. We have a development and licenseagreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase (which Auxilium has named XIAFLEX® (collagenase clostridiumhistolyticum)) for clinical indications in Dupuytren’s contracture, Peyronie’s disease, frozen shoulder (adhesive capsulitis) and cellulite (edematousfibrosclerotic panniculopathy). Auxilium has an option to acquire additional indications that we may pursue, including human and canine lipoma. Auxiliumis currently selling XIAFLEX in the U.S. for the treatment of Dupuytren’s contracture. Auxilium has an agreement with Pfizer, Inc. (“Pfizer”) pursuant towhich Pfizer has marketing rights for XIAPEX® (the EU trade name for collagenase clostridium histolyticum) for Dupuytren’s contracture and Peyronie’sdisease in Europe and certain Eurasian countries until April 24, 2013. In addition, Auxilium has an agreement with Asahi Kasei Pharma Corporation(“Asahi”) pursuant to which Asahi has the right to commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Japan.Auxilium also has an agreement with Actelion Pharmaceuticals Ltd. (“Actelion”) pursuant to which Actelion has the right to commercialize XIAFLEX for thetreatment of Dupuytren’s contracture and Peyronie’s disease in Canada, Australia, Brazil and Mexico. Auxilium has been granted a Notice of Compliance(approval) by Health Canada for XIAFLEX for the treatment of Dupuytren’s contracture in adults with a palpable cord in Canada.Operational HighlightsPeyronie’s Disease. In December 2012, the U.S. Food and Drug Administration (“FDA”) accepted for filing Auxilium’s supplemental Biologics LicenseApplication (“sBLA”) for XIAFLEX for the potential treatment of Peyronie's disease. As a result, we recognized a $1.0 million milestone payment fromAuxilium. The filing was granted standard review status and, under the Prescription Drug User Fee Act (“PDUFA”), the FDA is expected to take action on theapplication by September 6, 2013. Auxilium has reported that the FDA is not planning on holding an Advisory Committee meeting for the use of XIAFLEX inthe treatment of Peyronie’s disease, but cautions that it can offer no assurance that the FDA will not require an Advisory Committee meeting in the future. ThesBLA was based on results from Auxilium’s phase III clinical program that assessed XIAFLEX for the potential treatment of Peyronie’s disease and is knownas IMPRESS (The Investigation for Maximal Peyronie’s Reduction Efficacy and Safety Studies). The Journal of Urology has electronically published on itswebsite the uncorrected proof of Auxilium’s IMPRESS clinical program. In announcing this publication, Auxilium’s Chief Executive Officer and President,Adrian Adams, noted that “We believe that XIAFLEX, if approved for the treatment of Peyronie’s Disease, has the clinical profile to become a potentialbreakthrough treatment . . . With its current indication in Dupuytren’s contracture, positive clinical results in Peyronie’s disease, and development ongoing inFrozen Shoulder syndrome and Cellulite, [XIAFLEX] represents a pipeline in a product with potential applications in multiple therapeutic areas that currentlyhave limited treatment options.” Cellulite. Auxilium expanded the field of its license for injectable collagenase to include the potential treatment of adult patients with cellulite by exercising, inJanuary 2013, its exclusive option under our development and license agreement. As a result of this exercise, we received a license fee payment of $500,000from Auxilium. We paid a portion of this payment to the Research Foundation of the State University of New York at Stony Brook pursuant to the terms ofour in-licensing agreement described below in the “In-Licensing and Royalty Agreements” section under the heading “Cellulite”. Auxilium’s exercise of thisoption follows its fourth quarter 2012 announcement of top-line 30-day data from the phase Ib study of XIAFLEX for the potential treatment of adult patientswith cellulite, in which all doses of XIAFLEX were generally well-tolerated. These data support the progression into a phase IIa clinical trial in cellulite, whichAuxilium plans to initiate in the second half of 2013. Frozen Shoulder. Auxilium completed enrollment in its frozen shoulder phase IIa clinical trial in the third quarter of 2012. Auxilium expects top-line data fromthis XIAFLEX study in the first quarter of 2013. Auxilium anticipates initiating a phase II clinical trial of frozen shoulder in the second half of 2013. 3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Dupuytren’s Contracture. ·Auxilium and Actelion announced in the beginning of the third quarter of 2012 that Auxilium was granted a Notice of Compliance (approval) byHealth Canada for XIAFLEX for the treatment of Dupuytren’s contracture in adults with a palpable cord in Canada. Under the terms of thecollaboration agreement between Actelion and Auxilium, Actelion is to receive exclusive rights to commercialize XIAFLEX for the treatment ofDupuytren’s contracture and Peyronie's disease in Canada, Australia, Brazil and Mexico upon receipt of the respective regulatory approvals.Pursuant to this agreement, Auxilium intends to transfer regulatory sponsorship of the dossier to Actelion, and Actelion will be primarilyresponsible for the applicable regulatory and commercialization activities for XIAFLEX in Canada and, upon approval, in the remainder ofthese countries. Actelion expects to make XIAFLEX available to patients in Canada in the first half of 2013. ·Also in the third quarter, Auxilium announced positive top-line data from its open-label phase IIIb trial evaluating XIAFLEX for the treatment ofadult Dupuytren's contracture patients with multiple palpable cords. Auxilium enrolled 60 patients at eight sites throughout the U.S. andAustralia. Following the announcement of these data, Auxilium began a larger study with XIAFLEX for the concurrent treatment of multiplepalpable cords that, if successful, may allow Auxilium to seek FDA approval of the expansion of the Dupuytren's label. Auxilium expects top-line results in the first half of 2014. Based on research by SDI Health, LLC estimating that 35 to 40% of annual Dupuytren's surgeries in theU.S. are performed to treat two or more cords concurrently, Auxilium is conducting these studies to seek a multicord indication for XIAFLEXfrom the FDA. It is hoped that more surgeons will perform the XIAFLEX injection in these cases, rather than surgery, if the FDA approves thelabel expansion. ·Auxilium completed enrollment in its Dupuytren’s contracture retreatment phase IV clinical trials in the third quarter of 2012 and expects top-line results from these trials in the fourth quarter of 2013. Lipoma. We initiated two clinical trials in the second quarter of 2012. One is a 14 patient, single center dose escalation phase II clinical trial of XIAFLEX forthe treatment of human lipoma. The other is a placebo controlled randomized phase II trial, Chien-804, to evaluate the efficacy of XIAFLEX for canines withbenign subcutaneous lipomas. Research and Development of Injectable Collagenase for Multiple Indications On June 3, 2004, we entered into, and later amended, a development and license agreement with Auxilium pursuant to which we granted to Auxilium anexclusive worldwide license to develop, market and sell products containing our injectable collagenase for the treatment of Dupuytren’s contracture, Peyronie'sdisease, frozen shoulder and cellulite, as well as an exclusive option to develop and license the technology for use in additional indications other than dermalformulations labeled for topical administration. We have amended and restated that agreement twice, once on December 11, 2008 in connection with theDevelopment, Commercialization and Supply Agreement, dated December 17, 2008 between an Auxilium subsidiary and Pfizer, and more recently on August31, 2011 (the “Auxilium Agreement”). The Auxilium Agreement and other licensing agreements are discussed more fully throughout this Item 1, in particularunder the section titled “Licensing and Marketing Agreements.” Background on CollagenaseCollagenase is the only protease that can hydrolyze the triple helical region of collagen under physiological conditions. The specific substrate collagencomprises approximately one-third of the total protein in mammalian organisms, and it is the main constituent of skin, tendon, and cartilage, as well as theorganic component of teeth and bone. The body relies on endogenous collagenase production to remove dead tissue, and collagenase production is an essentialbiological mechanism, which regulates matrix remodeling and the normal turnover of tissue. The Clostridial collagenase produced by us has a broadspecificity towards all types of collagen and is acknowledged as much more efficient than mammalian collagenases. Clostridial collagenase cleaves thecollagen molecule at multiple sites along the triple helix whereas the mammalian collagenase is only able to cleave the molecule at a single site along the triplehelix. 4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Collagenase is widely used for cell dispersion for tissue disassociation and cell culture because it does not damage the cell membrane. Since the maincomponent of scar tissue is collagen, collagenase has been used in a variety of clinical investigations to remove scar tissue without surgery. Histological andbiochemical studies have shown that the tissue responsible for the deformities associated with Dupuytren’s contracture and Peyronie’s disease is primarilycomposed of collagen. Surgical removal of scar tissue has the potential to result in complications including increased scar formation. Due to the highly specificnature of the Clostridial collagenase enzyme, we consider its use to be more desirable for the removal of unwanted tissue than the application of generalproteolytic enzymes. Treatment with injectable collagenase for removal of excessive scar tissue represents a first in class non-invasive approach to this unmetmedical need. The lead indications involving our injectable collagenase are Dupuytren’s contracture, Peyronie’s disease, frozen shoulder, cellulite, humanlipoma and canine lipoma. New clinical indications involving the therapeutic application of Clostridial collagenase to supplement the body’s own naturalenzymes are continuously being proposed 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 in physical disability.The onset of Dupuytren’s contracture is characterized by the formation of nodules in the palm that are composed primarily of collagen. As the diseaseprogresses, the collagen nodules begin to form a cord causing the patient’s finger(s) to contract, making it impossible to open the hand fully. Patients oftencomplain about the inability to wash their hands, wear gloves, or grasp some objects. Dupuytren’s contracture has a genetic basis and is most prevalent inindividuals of northern European ancestry. Well-known individuals with Dupuytren’s contracture include President Ronald Reagan, President George Bush,and Prime Minister Margaret Thatcher.XIAFLEX is the only drug approved by the FDA for the treatment of Dupuytren’s contracture. Prior to FDA approval of XIAFLEX, the only proven treatmentfor Dupuytren’s contracture was surgery. Recurrence rates after surgery can be as high as 30% the first two years after surgery and 55% within ten years ofsurgery. According to Auxilium in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 26, 2013 (the“Auxilium 10-K”), “[s]ince its launch in the first quarter of 2010, XIAFLEX use has grown, comprising 29% of Dupuytren's procedures in the third quarterof 2012, while, over that same time period, the percentage of Dupuytren's procedures performed by surgery and needle aponeurotomy has decreased”.Commercialization of XIAFLEX for Dupuytren’s Contracture in the United StatesAuxilium has been marketing XIAFLEX for the treatment of adult Dupuytren's contracture patients with a palpable cord since it became available byprescription in March 2010, following Auxilium’s receipt of marketing approval from the FDA. 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 regional pain syndrome,and sensory abnormality of the hand,” as reported serious adverse reactions to XIAFLEX. The prescribing information for XIAFLEX also states that the mostfrequently reported adverse drug reactions in XIAFLEX clinical trials included swelling of the injected hand, contusion, injection site reaction, injection sitehemorrhage, and pain 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.” As a condition of its approval of XIAFLEX, the FDA requireda risk evaluation and mitigation strategy (“REMS”) program for XIAFLEX, which consists of a communication plan and a medication guide. This REMSprogram is designed (1) to evaluate and mitigate known and potential risks and serious adverse events; (2) to inform healthcare providers about how toproperly inject XIAFLEX and perform finger extension procedures; and (3) to inform patients about the serious risks associated with XIAFLEX.On September 5, 2012, Auxilium announced a safety update following 30 months of post-approval use in the U.S. of XIAFLEX for the treatment of adultDupuytren’s contracture patients with a palpable cord. As reported by Auxilium, after approximately 27,000 injections were administered to approximately21,000 patients in the U.S., there was no clinically meaningful change in the nature of events expected relative to the clinical trial safety profile. Auxilium’sestimates of the number of adverse events are based upon voluntary reporting and reflect all information available to Auxilium from February 2, 2010 thruJuly 31, 2012 for the use of XIAFLEX in adult patients with Dupuytren’s contracture with a palpable cord in the U.S. 5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 According to Auxilium, research by SDI Health, LLC estimates that 35 to 40% of annual Dupuytren’s surgeries in the U.S. are performed to treat two or morecords concurrently, and Auxilium is conducting studies to seek a multicord indication for XIAFLEX from the FDA. In July 2012, Auxilium announcedpositive top-line data from the open-label phase IIIb clinical trial designed to assess the safety and efficacy of concurrent administration of two injections ofXIAFLEX into the same hand of adult Dupuytren's contracture patients with multiple palpable cords. In this study, 60 patients at eight sites throughout theU.S. and Australia received two concurrent injections of 0.58 mg of XIAFLEX per affected hand and efficacy was based on a single injection per contractedjoint. At 30 days, 60% of all joints, 76% of metacarpophalangeal (MP) and 33% proximal interphalangeal joints achieved clinical success (defined as jointcorrection to 0 to 5 degrees) following this single injection when two 0.58 mg doses of XIAFLEX were administered concurrently into the same hand. Later inthe third quarter of 2012, Auxilium initiated a larger study with XIAFLEX for the concurrent treatment of multiple palpable cords that, if successful, mayallow Auxilium to seek FDA approval and expansion of the Dupuytren’s label.Status of Regulatory Approval of XIAFLEX for Dupuytren’s Contracture in Europe Pfizer has marketing rights for XIAPEX for Dupuytren’s contracture and Peyronie’s disease in Europe and certain Eurasian countries until April 24, 2013when, by mutual agreement, Auxilium’s collaboration agreement with Pfizer will conclude. After April 24, 2013, rights to commercialize XIAPEX andresponsibility for regulatory activities for XIAPEX in these countries will revert to Auxilium. Auxilium has reported that it is currently evaluating strategicoptions for the continuing commercialization of XIAPEX for the treatment of Dupuytren’s contracture and for gaining approval for XIAPEX for the treatmentof Peyronie’s disease in the EU and other specified markets when the rights revert to Auxilium. Status of Regulatory Approval of XIAFLEX for Dupuytren’s Contracture in Canada Auxilium and its partner, Actelion, announced on July 9, 2012 that Health Canada granted a Notice of Compliance (approval) for XIAFLEX as a treatmentfor Dupuytren’s contracture for adult patients with a palpable cord in Canada. As a result of this approval, Auxilium received a $0.5 million regulatorymilestone payment from Actelion, of which we received $28,500, or 5.7%. We are also entitled to 5.7% of all future milestone payments paid to Auxilium byActelion. Under the terms of the collaboration agreement between Actelion and Auxilium, Actelion received exclusive rights to commercialize XIAFLEX for thetreatment of Dupuytren's contracture and Peyronie's disease in Canada, Australia, Brazil and Mexico upon receipt of the respective regulatory approvals.Pursuant to this collaboration agreement, Auxilium intends to transfer regulatory sponsorship of the dossier to Actelion and Actelion will be primarilyresponsible for the applicable regulatory and commercialization activities for XIAFLEX in Canada and, upon approval, in the remainder of these countries.Actelion expects to make XIAFLEX available to patients in Canada in the first half of 2013. 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 make intercourse difficultor impossible in advanced cases. In some mild cases, the plaque can resolve spontaneously without medical intervention. In severe cases, the penis can be bentat a 90-degree angle during erection. Significant psychological distress has been noted in patients with Peyronie’s disease who are sexually active. Frequentpatient complaints include increased pain, painful erections, palpable plaque, penile deformity, and erectile dysfunction. Patients with Peyronie’s disease havebeen reported to have an increased likelihood of having Dupuytren’s contracture, frozen shoulder, plantar fibromatosis, knuckle pads, hypertension anddiabetes. Peyronie’s disease typically affects males in the range of 40-70 years. The cause of Peyronie’s disease is unknown, although some investigators haveproposed that it may 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. Although the estimated prevalence of Peyronie’s disease in adult men has been reported to beapproximately 5% (See Bella A. Peyronie’s Disease J Sex Med 2007; 4:1527-1538), the disease is thought to be underdiagnosed and undertreated. (See L.A.Levine Peyronie’s Disease: A Guide to Clinical Management. Humana Press: 10-17, 2007). According to Auxilium, based on U.S. historical medical claimsdata, it is estimated that between 65,000 and 120,000 patients are diagnosed with Peyronie’s disease every year, but only 5,000 to 6,500 Peyronie’s diseasepatients are treated with injectables or surgery annually. Currently, there are no FDA approved pharmaceutical products that are labeled as effective for use in Peyronie’s disease. If approved by the FDA, XIAFLEXis expected to be the first and only biologic therapy indicated for the treatment of Peyronie’s disease. 6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Development Status As announced by Auxilium on December 27, 2012, the FDA has accepted for filing and granted standard review status to Auxilium’s sBLA for XIAFLEX forthe potential treatment of Peyronie's disease. Under PDUFA, the FDA is expected to take action on the application by September 6, 2013. Auxilium hasreported that the FDA is not planning on holding an Advisory Committee meeting for the use of XIAFLEX in the treatment of Peyronie’s disease, but cautionsthat it can offer no assurance that the FDA will not require an Advisory Committee meeting in the future. Auxilium’s sBLA submission for XIAFLEX as a potential treatment for Peyronie’s disease is based on data from Auxilium’s IMPRESS (The Investigation forMaximal Peyronie's Reduction Efficacy and Safety Studies) phase III clinical program and other controlled and uncontrolled clinical studies, in which over1,000 Peyronie’s disease patients were enrolled and received over 7,400 injections of XIAFLEX. IMPRESS is described in more detail below. The uncorrectedproof of the IMPRESS clinical program has been electronically published on The Journal of Urology’s website, and the manuscript is currently scheduled toappear in print in the July 2013 print version of The Journal of Urology. Phase III On June 4, 2012, we announced positive top-line results from the IMPRESS phase III clinical program of XIAFLEX for the treatment of Peyronie's disease,which was conducted by Auxilium. IMPRESS consists of the following four clinical studies: ·two identical randomized, double-blind, placebo-controlled phase III studies, which enrolled over 800 patients combined at 64 sites in the U.S. andAustralia in less than five months, with a 2:1 ratio of XIAFLEX to placebo; ·one open label study, which enrolled at least 250 patients, at approximately 30 sites in the U.S., EU and New Zealand; and ·one pharmacokinetic study, which enrolled approximately 20 patients who were then enrolled into the open label study. XIAFLEX was administered two times a week every six weeks for up to four treatment cycles (2 x 4). Each treatment cycle was followed by a penile modelingprocedure. Patients were followed for 52 weeks post-first injection in the double-blind studies and were followed for 36 weeks in the open label andpharmacokinetic trials. The trials’ co-primary endpoints are percent improvement from baseline in penile curvature deformity compared to placebo and thechange from baseline (improvement) in the Peyronie’s disease bother domain of the PDQ compared to placebo. The PDQ also has two additional domains assecondary endpoints, which include severity of psychological and physical symptoms of Peyronie’s disease, and penile pain. Safety measurements includeadverse event monitoring and clinical labs. Immunogenicity testing was also performed. As described by Auxilium in the Auxilium 10-K, “In the two phase III double-blind placebo-controlled IMPRESS studies, [XIAFLEX] demonstratedstatistically significant improvement in the co-primary endpoints of improvement in penile curvature deformity and improvement in patient-reported botherversus placebo. In IMPRESS I at 52 weeks, the co-primary endpoints met statistical significance with a 37.6% mean reduction in penile curvature deformityfor [XIAFLEX] subjects (p=0.0005) and a 3.3 point improvement in the Peyronie's Disease Questionnaire (PDQ) bother domain for [XIAFLEX] subjects(p=0.0451). In IMPRESS II at 52 weeks, the co-primary endpoints met statistical significance with a 30.5% mean improvement in penile curvature deformityfor [XIAFLEX] subjects (p=0.0059) and a 2.4 point improvement in the PDQ bother domain for [XIAFLEX] subjects (p=0.0496).” In addition,“[XIAFLEX] was generally well-tolerated. The most common adverse events reported in the double-blind, placebo-controlled IMPRESS phase III trials werehematoma, pain and swelling at the treatment site. These adverse events were comparable to the previous trials: most adverse events were mild or moderate inseverity and resolved within 14 days. There were three serious adverse events of corporal rupture (penile fracture) and three serious adverse events ofhematomas related to [XIAFLEX] reported in IMPRESS I and II. All three corporal ruptures resolved following intervention and two of three hematomasresolved with intervention, with the third hematoma resolving without intervention. Although >98% of patients developed positive AUX I or II antibodies in theIMPRESS studies, there have been no systemic hypersensitivity events reported in the phase III trials or any of the previous [XIAFLEX] Peyronie’s diseaseclinical studies to date. Including data from all [XIAFLEX] Peyronie’s disease clinical studies, over 7,500 XIAFLEX injections have been administered tomore than 1,050 [Peyronie’s disease] patients.” 7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Based on data from this IMPRESS phase III clinical program and other controlled and uncontrolled studies, Auxilium submitted its sBLA for XIAFLEX as apotential treatment for Peyronie’s disease, which the FDA has accepted for filing and granted standard review status. Under PDUFA, the FDA is expected totake action on the sBLA by September 6, 2013. 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 people worldwide with aslightly higher incidence in women. It is estimated that 700,000 patients visit doctors annually in the U.S. in connection with frozen shoulder. It typicallyoccurs between the ages of 40-70. Individuals with insulin dependent diabetes have been reported to have a 36% higher incidence rate and are more likely tohave bilateral symptoms. According to the Auxilium 10-K, the most common treatments for frozen shoulder syndrome are extensive physical therapy,corticosteroids and/or arthroscopy, and some drugs are used to manage pain. We initiated, monitored and supplied requisite study drug for a phase II clinical trial using our injectable collagenase in the treatment of frozen shoulder. Threedifferent doses of injectable collagenase were compared to placebo in this double-blind, randomized trial in 60 patients. Results of this phase II clinical trialwere presented at the annual meeting of the American Academy of Orthopaedic Surgeons in March 2006. Based on its review of the final study report from us,Auxilium elected to exercise its option to develop and commercialize this additional indication for collagenase injection in December 2005.Phase IIAuxilium commenced a phase IIa escalation trial in December 2011 to assess the safety and efficacy of XIAFLEX in the treatment of frozen shouldersyndrome in comparison to an exercise-only control group. This study involved two doses (0.29 mg and 0.58 mg) of XIAFLEX given under ultrasoundguidance and involves approximately 50 subjects across 4 cohorts. Up to three injections were given 21 days apart and the subjects are being followed for 90days. The endpoint will be range of motion parameters for the affected shoulder. Auxilium expects to announce top-line results of this trial in the first quarter of2013.In its presentation for its fourth quarter 2012 earnings call, Auxilium lists as a key objective for 2013 the initiation in the second half of 2013 a phase IIclinical trial of XIAFLEX for the treatment of Frozen Shoulder syndrome.Collagenase For Treatment of Cellulite (Edematous Fibrosclerotic Panniculopathy) Edematous fibrosclerotic panniculopathy, commonly known as cellulite, describes a condition, in which lobules of subcutaneous adipose tissue extend intothe dermal layer. Cellulite can involve the loss of elasticity or shrinking of collagen cords, called septae, that attach the skin to lower layers of muscle. Whenfat in cellulite prone areas swells and expands, the septae tether the skin, which causes surface dimpling characteristic of cellulite. These changes can visiblyaffect the shape of the epidermis and resemble an orange peel-like dimpling of the skin. (See Avram, Cellulite: a review of its physiology and treatment, Journalof Cosmetic Laser Therapy 2004; 6: 181–185). XIAFLEX treatment is intended to target and lyse, or break, those collagen tethers with the goal of releasingthe skin dimpling and potentially resulting in smoothing of the skin.Cellulite has been reported to occur in 85-98% of post-pubertal females and rarely in men, and it is believed to be prevalent in women of all races. (See Avram,Cellulite: a review of its physiology and treatment, Journal of Cosmetic Laser Therapy 2004; 6: 181–185; Khan MH et al. Treatment of cellulite: Part I.Pathophysiology. J Am Acad Dermatol. 2010 Mar;62(3):361-70). As noted in the Auxilium 10-K, “[c]urrent treatments for cellulite include creams, light-based procedures or liposuction. None has been demonstrated to have a significant impact on eliminating cellulite”. 8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 In January 2013, Auxilium exercised its exclusive option under the Auxilium Agreement to expand the field of its license for injectable collagenase to include thepotential treatment of adult patients with cellulite. As a result, we received a one-time license fee payment of $500,000, a portion of which we paid to theResearch Foundation of the State University of New York at Stony Brook pursuant to the terms of our in-licensing agreement described below in the “In-Licensing and Royalty Agreements” section under the heading “Cellulite”. Auxilium’s exclusive, worldwide license has now been expanded, subject to theterms of the Auxilium Agreement, to include all research, development, use, commercialization, marketing, sales and distribution rights for injectablecollagenase for the potential treatment of cellulite. Auxilium plans to initiate a phase II trial for this indication in the second half of 2013.In December 2012, Auxilium announced top-line 30-day data from its phase Ib, single site, open-label dose escalation study of XIAFLEX for the treatment ofcellulite. The study enrolled 99 women between 21 and 60 years of age. Study participants were assigned to one of 11 arms, each of which varied in treatmentdose, injection concentration and volume, to receive a single injection of XIAFLEX, divided into 10 aliquots over a pre-defined 8x10cm template around atarget dimple. The objectives of the study are to assess the safety and effectiveness of a single injection of XIAFLEX for the treatment of cellulite at 30, 60 and90 days across multiple dosing arms. Pharmacokinetic evaluations were made as well. Across all dosing arms, 60 patients (63%) who were treated experiencedsome improvement in the volume of their target cellulite dimple at Day 30. Overall, 17% of patients had a greater than or equal to 30% improvement in theirtarget dimple at Day 30; however, multiple XIAFLEX dosing arms had more than 40 percent of patients experience an improvement greater than or equal to30% in their target dimple at Day 30. Treatment-related adverse events with XIAFLEX were mostly localized bruising, injection site discomfort and swelling,and all such events resolved without intervention, which are all consistent with XIAFLEX use in other indications. Additional Clinical Indications For CollagenaseHuman Lipoma Lipomas are benign fatty tumors that occur as bulges under the skin and affect humans and canines. It is estimated that lipomas are the primary diagnosis in575,000 patients in the U.S. annually. The only proven therapy for lipoma treatment is surgery, which is often not practical for patients with multiplelipomas. Based on observations made during preclinical studies that a collagenase injection decreased the size of fat pads in animals, we initiated, monitoredand supplied the requisite study drug for a phase I open label clinical trial for the treatment of human lipomas with a single injection of collagenase. Favorableinitial results (10 out of 12 patients had a 50-90% reduction in the size of the lipomas) from this trial for the treatment of human lipomas were presented at ameeting of the American Society of Plastic Surgeons. We have initiated a 14-patient, single center dose escalation, phase II clinical trial of XIAFLEX for the treatment of human lipoma. The study is a singleinjection, open-label trial, and XIAFLEX is being administered in four ascending doses (0.058 mg to 0.44 mg). The primary efficacy endpoint will be a changein the visible surface area of the target lipoma, as determined at six months post-injection. We have completed enrollment for this study and expect top-line datain the second half of 2013. Canine Lipoma Based on the encouraging results reported in the clinical investigations in human lipoma, we began clinical trials in canine lipoma. Lipomas are found in 2.3%of canines, and there may be as many as 1.7 million canines affected with skin lipomas in the U.S. Lipomas in older canines are very common, and lipomasthat restrict motion in older canines are a serious problem. The only proven therapy for this condition is surgical excision of the lipoma, which necessarilyinvolves the use of general anesthesia. It has been estimated that up to 2% of sick canines die as a complication of general anesthesia (See Brodbelt Vet J 2009Dec; 182 (3): 375-6). We surveyed 77 veterinarians which included participants from the academic field and others that are in private practice. Theparticipants indicated that on average they perform 25 lipoma excision surgeries per year at an average cost of $530 for the surgical procedure. It isconservatively estimated that 47,000 veterinarians are in active practice in the U.S. Chien-801 and Chien-802 Clinical Trials Chien-801 was a pilot study conducted for the purpose of evaluating the use of purified collagenase for the non-surgical treatment of lipoma in six canines. Thestudy evaluated the appropriate dosage and frequency of injections necessary to significantly reduce the size of the lipoma. The dose administered ranged from0.012 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 theCompany selected the dose for Chien-802. 9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Chien-802 was designed to evaluate the efficacy of injectable collagenase in canine lipoma in four healthy canines with subcutaneous lipomas. Inclusioncriteria required the lipoma to be benign, superficial and easily measureable. All canines had a second lipoma that was untreated and used as a control. At 90days post injection, in the three evaluable canines, the lipoma size was 0%, 0% or 7% of the original size as measured by a CT scan. By contrast, theuntreated 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 andan increase in the size of the untreated controls of 23%. Chien-803 Based 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 was to enroll 25 canines,each having two or more lipomas. To meet the primary endpoint, an animal would have to have achieved at least a 50% decrease in the drug-treated lipomavolume relative to baseline as measured by CT scan at 3 months post injection. We subsequently discontinued this study and designed a new trial, Chien-804. Chien-804 We have initiated a placebo controlled randomized study to evaluate the efficacy of XIAFLEX for the treatment of subcutaneous benign lipomas in canines.The study will consist of 32 canines randomized at 1:1 XIAFLEX or placebo. The treatment is a single injection of XIAFLEX or placebo. The primaryefficacy endpoint will be the relative change in lipoma volume from baseline to 3 months, as determined by CT scan. We expect to complete enrollment in thisstudy by the first half of 2013. Other Clinical Indications Other clinical indications for which our collagenase injection has been tested include keloids, hypertrophic scars, scarred tendons, glaucoma, herniatedintervertebral discs, and as an adjunct to vitrectomy. 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 DFB Biotech, Inc. and itsaffiliates (“DFB”), until March 2011 we received payments for certain technical assistance and certain transition services that we provided to DFB. Pursuantto the DFB Agreement, we currently receive earn out payments based on the sales of certain products, but our right to receive these payments expires at the endof August 2013. We expect to receive the final of these earn out payments by the end of 2013. The topical collagenase business of DFB was acquired by Smith& Nephew plc at the end of the fourth quarter of 2012. With our consent, DFB is expected to assign, and Smith & Nephew plc is expected to assume, theDFB Agreement. As of December 31, 2012, we have received a total of $1.4 million in consulting fees; our right to receive these consulting fees expired in March 2011. Inaddition, we have recognized $2.9 million in earn out payments from DFB in connection with the net sales of topical collagenase in 2012.Auxilium Agreement Under the Auxilium Agreement, we granted to Auxilium exclusive worldwide rights to develop, market and sell certain products containing our injectablecollagenase. Currently its licensed rights cover the indications of Dupuytren’s contracture, Peyronie’s disease, frozen shoulder and cellulite. Auxilium mayfurther expand the Auxilium Agreement, at its exclusive option, to develop and license our injectable collagenase for use in additional indications. Pfizer hasmarketing rights for XIAPEX for Dupuytren’s contracture and Peyronie's disease in Europe and certain Eurasian countries through April 24, 2013. Auxiliumhas announced that it is currently evaluating strategic options for the continuing commercialization of XIAPEX for the treatment of Dupuytren’s contractureand for gaining approval for XIAPEX for the treatment of Peyronie’s disease in the EU and other specified markets when rights to commercialize XIAPEX andresponsibility for regulatory activities for XIAPEX in these countries revert to Auxilium. Auxilium has granted to Asahi the exclusive right to develop andcommercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Japan. Auxilium has granted to Actelion the exclusive right todevelop and commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Canada, Australia, Brazil and Mexico. 10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Through December 31, 2012, Auxilium has paid us up-front licensing and sublicensing fees and milestone payments under the Auxilium Agreement of $24.3million, including amounts in connection with Auxilium’s agreements with Pfizer, Asahi and Actelion. In addition to the payments already received by us andto be received by us with respect to the Dupuytren’s contracture indication, Auxilium will be obligated to make contingent milestone payments to us, withrespect to each of the Peyronie’s disease, frozen shoulder and cellulite indications, upon the acceptance of the regulatory filing (which has occurred in the U.S.,in the case of Peyronie’s disease) and upon receipt by Auxilium, its affiliate or sublicensee of regulatory approval. The remaining contingent milestonepayments that may be received, in the aggregate, from Auxilium in respect of these contingent milestones are $5.0 million. Auxilium will also be obligated tomake sublicense fee payments to us if it out-licenses to third parties the right to market and sell XIAFLEX for the treatment of frozen shoulder or cellulite.Additional milestone obligations will be due if Auxilium exercises its option to develop and license XIAFLEX for additional indications.We are entitled to 8.5% of all sublicense income that Auxilium receives from Pfizer under their collaboration agreement, which payments are dependent on theachievement by Pfizer of certain regulatory and sales related milestones. Under this collaboration agreement, Auxilium received a $30 million milestonepayment from Pfizer following the first sale of XIAPEX in the United Kingdom, which was the first major market country in which Pfizer sold XIAPEX, andwe received from Auxilium $2.5 million in connection with that first sale. In connection with the launch of XIAPEX in each of Germany and Spain, wereceived from Auxilium 8.5% of each of the $7.5 million milestone payments from Pfizer to Auxilium, or $637,500. As of January 25, 2013, we havereceived $11.5 million in sublicensing fees and milestones related to the Auxilium’s collaboration agreement with Pfizer. Given the mutual termination byAuxilium and Pfizer of their collaboration agreement, we do not anticipate receiving any more sublicense income related to Pfizer. If Auxilium enters into anagreement with a third party related to the continuing commercialization of XIAPEX for the treatment of Dupuytren’s contracture and for gaining approval forXIAPEX for the treatment of Peyronie’s disease in the EU and other specified markets, we will be entitled to a specified percentage of sublicense agreement dueunder such agreement. In 2011, we received $750,000, or 5%, of the $15 million upfront payment Auxilium received from Asahi. In 2012, we received$570,000, or 5.7%, of the $10 million upfront payment Auxilium received from Actelion and $29,000 for approval in Canada of XIAFLEX for Dupuytren’scontracture. To the extent Auxilium enters into an agreement or agreements related to other territories, the percentage of sublicense income that Auxilium wouldpay us will depend on the stage of development and approval of XIAFLEX for the particular indication at the time such other agreement or agreements areexecuted.Auxilium must pay us on a country-by-country and product-by-product basis a low double digit royalty as a percentage of net sales for products covered bythe Auxilium Agreement and sold in the United States, Europe and certain Eurasian countries and Japan. In the case of products covered by the AuxiliumAgreement and sold in other countries (the “Rest of the World”), Auxilium must pay us on a country-by-country and product-by-product basis a specifiedpercentage of the royalties it is entitled to receive from a partner or partners with whom it has contracted for such countries (a “Rest of the World Partner”),which in the case of Canada, Australia, Brazil and Mexico is Actelion. The royalty rate is independent of sales volume and clinical indication in the UnitedStates, Europe and certain Eurasian countries and Japan, but is subject to set-off in those countries and the Rest of the World for certain expenses we owe toAuxilium relating to certain development and patent costs. In addition, the royalty percentage may be reduced if (i) market share of a competing productexceeds 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 thirdparty’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 thirdparty, then we will receive a specified percentage of certain payments made to Auxilium in consideration of such out-licenses.These royalty obligations extend, on a country-by-country and product-by-product basis, for the longer of the patent life (including pending patents), theexpiration of any regulatory exclusivity period based on orphan drug designation or foreign equivalent thereof or June 3, 2016. Auxilium may terminate theAuxilium Agreement upon 90 days prior written notice. If Auxilium terminates the Auxilium Agreement other than because of an uncured, material breach byus, all rights revert to us. Pursuant to our August 31, 2011 settlement agreement with Auxilium, we are now co-owners and are or will be co-inventors of U.S.Patent No. 7,811,560 and any continuations and divisionals thereof. Auxilium expects this patent will expire in July 2028. 11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 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 for products sold in theUnited States, Europe and certain Eurasian countries or Japan. For products sold in the Rest of the World, Auxilium must pay to us a specified percentage ofthe mark-up of the cost of goods sold it is entitled to receive from a Rest of the World Partner, including Actelion, without regard to any set-offs that the Rest ofthe World Partner may have with respect to Auxilium.Auxilium is generally responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for theclinical supply of products. Auxilium is generally responsible for all clinical development and regulatory costs for Peyronie’s disease, Dupuytren’scontracture, frozen shoulder, cellulite and all additional indications for which it exercises its options.A redacted copy of the Auxilium Agreement was filed on Form 8-K with the SEC on September 1, 2011. The foregoing descriptions of the AuxiliumAgreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Auxilium Agreement.In-Licensing and Royalty AgreementsWe have entered into several in-licensing and royalty agreements with various investigators, universities and other entities throughout the years.Dupuytren’s ContractureOn November 21, 2006, we entered into a license agreement (the “Dupuytren’s License Agreement”) with the Research Foundation of the State University ofNew York at Stony Brook (the “Research Foundation”), pursuant to which the Research Foundation granted to us and our affiliates an exclusive worldwidelicense, with the right to sublicense to certain third parties, to know-how owned by the Research Foundation related to the development, manufacture, use orsale of (i) the collagenase enzyme obtained by a fermentation and purification process (the “Enzyme”), and (ii) all pharmaceutical products containing theEnzyme or injectable collagenase, in each case to the extent it pertains to the treatment 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 certain royalties on net sales (ifany) of pharmaceutical products containing the Enzyme or injectable collagenase for the treatment and prevention of Dupuytren’s contracture (each a“Dupuytren’s Licensed Product”).Our obligation to pay royalties to the Research Foundation with respect to sales by us, our affiliates or any sublicensee of any Dupuytren’s Licensed Productin any country (including the U.S.) arises only upon the first commercial sale of such Dupuytren’s Licensed Product on a country-by-country basis. Theroyalty rate is 0.5% of net sales. Our obligation to pay royalties to the Research Foundation will continue until the later of (i) the expiration of the last validclaim of a patent pertaining to the Dupuytren’s Licensed Product; (ii) the expiration of the regulatory exclusivity period conveyed by the FDA’s Office ofOrphan Products Development (“OOPD”) with respect to the Dupuytren’s Licensed Product; or (iii) June 3, 2016.Unless terminated earlier in accordance with its termination provisions, the Dupuytren’s License Agreement and the licenses granted under that agreement willcontinue in effect until the termination of our royalty obligations. After that, all licenses granted to us under the Dupuytren’s License Agreement will becomefully paid, irrevocable exclusive licenses.A redacted copy of the Dupuytren’s License Agreement was filed on Form 8-K with the SEC on November 28, 2006. The foregoing descriptions of theDupuytren’s License Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Dupuytren’s LicenseAgreement. 12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Peyronie’s DiseaseOn August 27, 2008, we entered into an agreement with Dr. Martin K. Gelbard to improve the deal terms related to our future royalty obligations for Peyronie’sdisease by buying down our future royalty obligations with a one-time cash payment. A redacted copy of the agreement was filed on Form 8-K with the SECon September 5, 2008. On March 31, 2012, we entered into an amendment to this agreement, which enables us to buy down a portion of our future royaltyobligations in exchange for an initial cash payment and five additional cash payments payable upon the occurrence of a milestone event. A redacted copy of theamendment was filed on Form 8-K/A with the SEC on August 8, 2012. The foregoing descriptions of the agreement with Dr. Gelbard and the amendment tothat agreement do not comport to be complete and are qualified in their entirety by reference to the full text of that agreement, as amended.Frozen ShoulderOn November 21, 2006, we entered into a license agreement (the “Frozen Shoulder License Agreement”) with the Research Foundation, pursuant to which theResearch Foundation granted to us and our affiliates an exclusive worldwide license, with the right to sublicense to certain third parties, to know-how ownedby the Research Foundation related to the development, manufacture, use or sale of (i) the Enzyme and (ii) all pharmaceutical products containing the Enzymeor injectable collagenase, in each case to the extent it pertains to the treatment and prevention of frozen shoulder. Additionally, the Research Foundation grantedto us an exclusive license to the patent applications in respect of frozen shoulder. The license granted to us under the Frozen Shoulder License Agreement issubject to the non-exclusive license (with right to sublicense) granted to the U.S. government by the Research Foundation in connection with the U.S.government’s funding of the initial research.In consideration of the license granted under the Frozen Shoulder License Agreement, we agreed to pay to the Research Foundation certain royalties on net sales(if any) of pharmaceutical products containing the Enzyme or injectable collagenase for the treatment and prevention of frozen shoulder (each a “FrozenShoulder Licensed Product”). In addition, we and the Research Foundation will share in any milestone payments and sublicense income received by us inrespect 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 Frozen Shoulder LicensedProduct in any country (including the U.S.) arises only upon the first commercial sale of a Frozen Shoulder Licensed Product. Our obligation to pay royaltiesto the Research Foundation will continue until, the later of (i) the expiration of the last valid claim of a patent pertaining to a Frozen Shoulder Licensed Productor (ii) June 3, 2016.Unless terminated earlier in accordance with its termination provisions, the Frozen Shoulder License Agreement and licenses granted under that agreement willcontinue in effect until the termination of our royalty obligations. After that, all licenses granted to us under the Frozen Shoulder License Agreement will becomefully paid, irrevocable exclusive licenses.A redacted copy of the Frozen Shoulder License Agreement was filed on Form 8-K with the SEC on November 28, 2006. The foregoing descriptions of theFrozen Shoulder License Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Frozen Shoulder LicenseAgreement.In connection with the execution of the Dupuytren’s License Agreement and the Frozen Shoulder License Agreement, we made certain up-front payments to theResearch Foundation and the clinical investigators working on the Dupuytren’s contracture and frozen shoulder indications for the Enzyme.CelluliteWe have two in-licensing and royalty agreements related to cellulite. One is a license agreement (the “Cellulite License Agreement”) with the Research Foundationthat we entered into on August 23, 2007. Pursuant to the Cellulite License Agreement, the Research Foundation granted to us and our affiliates an exclusiveworldwide license, with the right to sublicense to certain third parties, to know-how owned by the Research Foundation related to the manufacture, preparation,formulation, use or development of (i) the Enzyme and (ii) all pharmaceutical products containing the Enzyme, which are made, used and sold for theprevention or treatment of cellulite. Additionally, the Research Foundation granted to us an exclusive license to the patent applications in respect of cellulite. Thelicense granted to us under the Cellulite License Agreement is subject to the non-exclusive license (with right to sublicense) granted to the U.S. government bythe Research Foundation in connection with the U.S. government’s funding of the initial research. 13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 In consideration of the license granted under the Cellulite License Agreement, we agreed to pay to the Research Foundation certain royalties on net sales (if any)of pharmaceutical products containing the Enzyme, which are made, used and sold for the prevention or treatment of cellulite (each a “Cellulite LicensedProduct”). In addition, we and the Research Foundation will share in any milestone payments and sublicense income received by us in respect of the rightslicensed under the Cellulite License Agreement. We paid a portion of the $500,000 milestone payment we received from Auxilium in respect of its exercise ofcellulite as an addition indication under the Auxilium Agreement, subject to certain credits for certain up-front payments we made to the Research Foundation.Our obligation to pay royalties to the Research Foundation with respect to sales by us, our affiliates or any sublicensee of any Cellulite Licensed Product inany country (including the U.S.) arises only upon the first commercial sale of a Cellulite Licensed Product. Our obligation to pay royalties to the ResearchFoundation will continue until, the later of (i) the expiration of the last valid claim of a patent pertaining to a Cellulite Licensed Product or (ii) June 3, 2016.Unless terminated earlier in accordance with its termination provisions, the Cellulite License Agreement and licenses granted under that agreement will continuein effect until the termination of our royalty obligations. After that, all licenses granted to us under the Cellulite License Agreement will become fully paid,irrevocable exclusive licenses.The other in-licensing and royalty agreement we have related to cellulite is a license agreement with Dr. Zachary Gerut that we entered into on March 27, 2010(the “Gerut License Agreement”). Pursuant to the Gerut License Agreement, Dr. Gerut granted to us and our affiliates an exclusive worldwide license, with theright to sublicense to certain third parties to know-how owned by Dr. Gerut related to the manufacture, preparation, formulation, use or development of (i) theEnzyme and (ii) all pharmaceutical products containing the Enzyme or injectable collagenase, in each case to the extent it pertains to the treatment of fat. As thein-license granted in the Gerut License Agreement pertains to the treatment of fat, this in-license also relates to human lipoma and canine lipoma.In consideration of the license granted under the Gerut License Agreement, we agreed to pay to Dr. Gerut certain royalties on net sales (if any) of pharmaceuticalproducts containing the Enzyme which are made, used and sold for the removal or treatment of fat in humans or animals (each a “Gerut Licensed Product”).In addition, in the event the FDA approves a Gerut Licensed Product, we have agreed to make a one-time stock option grant to Dr. Gerut with a strike priceequal to the closing trading price on the day before the date of such grant.Our obligation to pay royalties to Dr. Gerut with respect to sales by us, our affiliates or any sublicensee of any Gerut Licensed Product in any country(including the U.S.) arises only upon the first commercial sale of a Gerut Licensed Product. Our obligation to pay royalties to Dr. Gerut will continue untilJune 3, 2016 or such longer period as we continue to receive royalties for such Gerut Licensed Product.Unless terminated earlier in accordance with its termination provisions, the Gerut License Agreement and licenses granted under that agreement will continue ineffect until the termination of our royalty obligations. After that, all licenses granted to us under the Gerut License Agreement will become fully paid,irrevocable exclusive licenses.Redacted copies of the Cellulite License Agreement and the Gerut License Agreement are being filed with this Report. The foregoing descriptions of the CelluliteLicense Agreement and the Gerut License Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of theseagreements.Other IndicationsWe have or may enter into certain other license and royalty agreements with respect to other indications that we may elect to pursue. COMPETITION We and our licensees face worldwide competition from larger pharmaceutical companies, specialty pharmaceutical companies and biotechnology firms,universities and other research institutions and government agencies that are developing and commercializing pharmaceutical products. Many of ourcompetitors have substantially greater financial, technical and human resources than we have and may subsequently develop products that are more effective,safer or less costly than any products that we have developed, are developing or will develop, or that are generic products. Our success will depend on ourability to acquire, develop and commercialize products and our ability to establish and maintain markets for our products that receive marketing approval. 14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 COST OF RESEARCH AND DEVELOPMENT ACTIVITIESDuring fiscal years 2012 and 2011, the Company invested $1,249,755 and $972,078, respectively, in research and development activities.GOVERNMENT REGULATION Any product labeled for use in humans requires regulatory approval by government agencies prior to commercialization. In particular, human therapeuticproducts are subject to rigorous preclinical and clinical trials to demonstrate safety and efficacy and other approval procedures of the FDA and similar regulatory authorities in foreign countries. Various federal, state, local, and foreign statutes andregulations also govern testing, manufacturing, labeling, distribution, storage, and record-keeping related to such products and their promotion and marketing.The process of obtaining these approvals and the compliance with federal, state, local, and foreign statutes and regulations require the expenditure ofsubstantial time and financial resources. In addition, the current political environment and the current regulatory environment at the FDA could lead toincreased 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 the supervision of qualifiedinvestigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study and the parameters to be used in assessingthe safety and the effectiveness of the drug. Typically, clinical evaluation involves a time-consuming and costly three-phase sequential process, but the phasesmay overlap. Each trial must be reviewed, approved and conducted under the auspices of an independent institutional review board, and each trial mustinclude 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 clinical trials that areconducted in the U.S. and may, at its discretion, reevaluate, alter, suspend or terminate the testing based upon the data accumulated to that point and theFDA’s assessment of the risk/benefit ratio to the patient. The FDA can also provide specific guidance on the acceptability of protocol design for clinical trials.The FDA, we or our partners may suspend or terminate clinical trials at any time for various reasons, including a finding that the subjects or patients arebeing exposed to an unacceptable health risk. The FDA can also request that additional clinical trials be conducted as a condition to product approval. Duringall clinical trials, physicians monitor the patients to determine effectiveness and/or to observe and report any reactions or other safety risks that may resultfrom 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 otherdetailed information including information on the chemistry, manufacture and control of the product, to the FDA, in the form of an NDA or BLA, requestingapproval to market the product for one or more indications. In most cases, the NDA/BLA must be accompanied by a substantial user fee. The FDA reviewsan NDA/BLA to determine, among other things, whether a product is safe and effective 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 approve the NDA orBLA unless cGMP compliance is satisfactory. The FDA will issue an approval letter if it determines that the NDA or BLA, manufacturing process andmanufacturing facilities are acceptable. If the FDA determines that the NDA or BLA, manufacturing process or manufacturing facilities are not acceptable, itwill outline the deficiencies in the submission and will often request additional testing or information. Notwithstanding the submission of any requestedadditional information, the FDA ultimately may decide that the NDA or BLA does not satisfy the regulatory criteria for approval and refuse to approve theNDA or BLA by issuing a “not approvable” letter. 15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 The testing and approval process requires substantial time, effort and financial resources, which may take several years to complete. The FDA may not grantapproval on a timely basis, or at all. We or our partners may encounter difficulties or unanticipated costs in our or their efforts to secure necessarygovernmental approvals, which could delay or preclude us or them from marketing our products. Furthermore, the FDA may prevent a drug developer frommarketing a product under a label for its desired indications or place other conditions, including restrictive labeling, on distribution as a condition of anyapprovals, which may impair commercialization of the product. After approval, some types of changes to the approved product, such as adding newindications, manufacturing changes and additional labeling claims, are subject to 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 must comply witha number of post-approval requirements, including delivering periodic reports to the FDA (i.e., annual reports), submitting descriptions of any adversereactions reported, biological product deviation reporting, and complying with drug sampling and distribution requirements and any other requirements setforth in the FDA’s approval (such as the REMS program, which the FDA has required for XIAFLEX and consists of a communication plan and a medicationguide). The holder of an approved NDA/BLA is required to provide updated safety and efficacy information and to comply with requirements concerningadvertising and promotional labeling. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval. Drugmanufacturers and their subcontractors are required to register their facilities and are subject to periodic unannounced inspections by the FDA to assesscompliance with cGMP which impose procedural and documentation requirements relating to manufacturing, quality assurance and quality control.Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPand other regulatory requirements. The FDA may require post-market testing and surveillance to monitor the product’s safety or efficacy, including additionalstudies 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 the approved drug fortreatment of new indications, which require submission of a supplemental or new NDA/BLA and FDA approval of the new labeling claims. The purpose ofthese trials and studies is to broaden the application and use of the drug and its acceptance in the medical community.We use, and will continue to use, third party manufacturers to produce our products in clinical quantities. Future FDA inspections may identify complianceissues at our facilities, at the facilities of our contract manufacturers or at those of our partners that may disrupt production or distribution, or requiresubstantial resources to correct. In addition, discovery of problems with a product or the failure to comply with requirements may result in restrictions on aproduct, manufacturer or holder of an approved NDA/BLA, including withdrawal or recall of the product from the market or other voluntary or FDA-initiatedaction that could delay further marketing. Newly discovered or developed safety or effectiveness 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 regulatoryapproval 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 and maintaining a strongproprietary position both in the U.S. and in other countries. To develop and maintain such a position, we intend to continue relying upon patent protection,trade secrets, know-how, continuing technological innovations and licensing opportunities. In addition, we intend to seek patent protection whenever availablefor any products or product candidates and related technology we develop or acquire in the future.PatentsWe are the assignee or licensee of various U.S. patents, which have received patent protection in various foreign countries. Pursuant to our August 31, 2011settlement agreement with Auxilium, we are now co-owners and either have been or will be added as co-inventors of U.S. Patent No. 7,811,560 and anycontinuations and divisionals thereof. Auxilium expects this patent will expire in July 2028. In addition, we have licenses to other pending patentapplications. Although we believe these patent applications, if they issue as patents, will provide a competitive advantage, the scope of the patent positions ofpharmaceutical firms involves complex legal, scientific and factual questions and, as such, is generally uncertain. In addition, the coverage claimed in apatent application can be significantly reduced before the patent is issued. Consequently, we do not know whether any of our current patent applications, orthe 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 providesignificant proprietary protection, will be of any value to us or will be challenged, circumvented or invalidated by our competitors or otherwise. 16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 While we attempt to ensure that our product candidates and the methods we employ to manufacture them do not infringe other parties’ patents and proprietaryrights, competitors or other parties may assert that we infringe their proprietary rights. Because patent applications in the U.S. and some other jurisdictionscan proceed in secrecy until patents issue, third parties may obtain other patents without our knowledge prior to the issuance of patents relating to our productcandidates, which they could attempt to assert against us. Also, since publication of discoveries in the scientific or patent literature often lags behind actualdiscoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interferenceproceedings declared by the U.S. Patent and Trademark Office (the “USPTO”) to determine priority of invention, or in opposition proceedings in the USPTO,either of which could result in substantial cost to us, even if the eventual outcome is favorable to us. In the U.S., issued patents may be broadened, narrowedor even canceled as a result of post-issuance procedures instituted by us or third parties, including reissue, ex parte reexamination, and the new inter partesreview, post grant review, and supplemental examination procedures enacted as part of the Leahy-Smith America Invents Act. There can be no assurance thatthe patents, if issued and challenged in a court of competent jurisdiction, would be found valid or enforceable. An adverse outcome could subject us tosignificant liabilities to third parties, 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 property rights of thirdparties, we cannot be certain that a third party will not challenge our position in the future. If a third party alleges that we are infringing its intellectual propertyrights, we may need to obtain a license from that third party, but there can be no assurance that any such license will be available on acceptable terms or at all.Any infringement claim that results in litigation could result in substantial cost to us and the diversion of management’s attention from our core business. Toenforce patents issued, assigned or licensed to us or to determine the scope and validity of other parties’ proprietary rights, we may also become involved inlitigation or in interference proceedings declared by the USPTO, which could result in substantial costs to us or an adverse decision as to the priority of ourinventions. We may be involved in interference and/or opposition proceedings in the future. We believe there will continue to be litigation in our industryregarding patent and other intellectual property rights. We licensed to Auxilium our injectable collagenase for the treatment of Dupuytren’s contracture, Peyronie’s disease, frozen shoulder and cellulite. We have twouse patents in the U.S. covering the enzyme underlying our injectable collagenase, one for the treatment of Dupuytren’s contracture, which issued from areissue proceeding in December 2007, and one for the treatment of Peyronie’s disease. The Dupuytren’s patent expires in 2014, and the Peyronie’s patentexpires in 2019. Both the Dupuytren’s and Peyronie’s patents are limited to the use of the enzyme for the treatment of Dupuytren’s contracture and Peyronie’sdisease within certain dose ranges. An application to extend the term of the Dupuytren’s patent to August 22, 2019 based upon regulatory delay in grantingapproval to sell XIAFLEX was filed in the USPTO on April 1, 2010. The USPTO has not taken any action on the request for extension, and we cannot becertain how much of an extension, if any, will be granted by the USPTO.Orphan Drug DesignationsTwo indications, Dupuytren’s contracture and Peyronie’s disease, have received orphan drug designation from the OOPD. These indications did not receivethe 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 to develop products forrare diseases. The incentives for products that qualify under the Orphan Drug Act include seven-year exclusive marketing rights post-FDA approval (whichmeans, with respect to Dupuytren’s contracture, exclusivity until February 2, 2017), tax credits for expenses associated with clinical trials including a 20 yeartax carry-forward, availability of FDA grants, and advice on design of the clinical development plan. The orphan drug provisions of the Federal Food, Drug, and Cosmetic Act also provide incentives to drug and biologics suppliers to develop and supply drugsfor the treatment of rare diseases, currently defined as diseases that affect fewer than 200,000 individuals in the U.S. or, for a disease that affects more than200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for suchdisease or condition will be recovered from its sales in the U.S. Under these provisions, a supplier of a designated orphan product can seek tax benefits, andthe holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for that product for the orphanindication. It would not prevent other drugs from being approved for the same indication. 17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 In the Auxilium 10-K, Auxilium stated that “[w]hile XIAFLEX does not have orphan drug status for any indication in Europe, foreign patents cover theseproducts in certain countries, and on approval of XIAFLEX for a first indication in Europe, we believe the product will benefit from ten years of marketexclusivity and eight years of data exclusivity. We may obtain an additional year of market exclusivity if the regulatory authorities approve an additionalindication that they determine to represent a significant clinical benefit.” Our royalty term, however, is not extended by any period of marketing exclusivity ascontrasted with any period of orphan drug status or foreign equivalent thereof. Trade Secrets We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that others will not independently developsubstantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technology or that we canmeaningfully protect our trade secrets. It is our policy to require certain employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentialityagreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developedor made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except inspecific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual shall be our exclusive property. Therecan be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorizeduse or disclosure of such information. EMPLOYEES The 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 telephone number is 516-593-7000. Our corporate headquarters are currently located at 35 Wilbur St., Lynbrook, NY 11563, as further described in this Report under “Item 2 -Description of Property”. AVAILABLE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file with theSEC at the SEC's public reference room at 100 F. Street, N.E., Washington, DC 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for furtherinformation on the public reference room. You may also obtain our SEC filings free of charge from the SEC's Internet website at www.sec.gov. Our Internet website address is www.biospecifics.com. We make available free of charge through our Internet website's “Investors Relations” page most of ourfilings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other information. Thesereports and information are available as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Item 1A. RISK FACTORS In addition to the other information included in this Report, the following factors should be considered in evaluating our business and future prospects. Any ofthe following risks, either alone or taken together, could materially and adversely affect our business, financial position or results of operations. If one or moreof these or other risks or uncertainties materialize or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what weprojected. There may be additional risks that we do not presently know or that we currently believe are immaterial which could also impair our business orfinancial position. 18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Risks Related to Our Limited Sources of RevenueOur future revenue is primarily dependent upon option, milestone and contingent royalty payments from Auxilium and contingent earn outpayments from DFB.Our primary sources of revenues are from (i) option, milestone and contingent royalty payments from Auxilium under the Auxilium Agreement and (ii)contingent earn out payments from DFB. AuxiliumAs described in Item 1 above, under the Auxilium Agreement, in exchange for the right to receive royalties and other payments, we granted to Auxilium the rightto develop, manufacture, market and sell worldwide products (other than dermal formulations for topical administration) that contain collagenase for thetreatment of Dupuytren’s contracture, Peyronie’s disease, frozen shoulder and cellulite. However, we have no control over Auxilium’s ability to successfullymarket, sell and manufacture candidate products for the treatment of Dupuytren’s contracture, or, in the case of Peyronie’s disease, frozen shoulder andcellulite, to pursue commercialization, and we may receive limited, if any, royalty payments from Auxilium. We have received in the past, and are entitled toreceive in the future, certain milestone payments from Auxilium in respect of its efforts to commercialize candidate products, but we have no control overAuxilium’s ability to achieve the milestones. As also described in Item 1 above, Auxilium has sublicensed to third parties some of the development andcommercialization rights it licenses from us. We have received in the past a percentage of sublicense income that Auxilium receives from these third partiesbased on the achievement of certain regulatory and sales related milestones. There is no guarantee that these third parties will continue to pursue developmentand commercialization of XIAFLEX. If any third party stops pursuing such development and commercialization, sublicense income would no longer bepayable to Auxilium or us. For example, Auxilium and Pfizer have agreed to terminate their collaboration agreement on April 24, 2013, at which time rights todevelop and commercialize XIAPEX in Europe and certain Eurasian countries will revert to Auxilium and no further milestones will be due under thePfizer/Auxilium collaboration agreement. Auxilium has not announced its plans for when these rights revert to Auxilium. Auxilium has stated that it iscurrently committed to continuing to commercialize XIAPEX for the treatment of Dupuytren’s contracture and continuing to develop XIAPEX if approved forthe treatment of Peyronie’s disease in this territory, but has noted that it “may not have adequate resources or capabilities to do so on [its] own, [it] may not besuccessful in entering into a new collaboration agreement with a new partner, and continued commercialization may not be profitable for [it]. Also, [Auxilium]may not be successful in completing all actions necessary for the transfer of the Marketing Authorization to it”. Future sublicense income, if any, related todevelopment and commercialization of XIAFLEX for Dupuytren’s contracture and Peyronie’s disease in Europe and certain Eurasian countries will dependupon whether Auxilium enters into an agreement with a third party with respect to those activities, and it is unclear whether Auxilium will do so.Even if Auxilium or its sublicensees pursues development and commercialization, there is no guarantee that the FDA will approve XIAFLEX for a givenindication or that commercialization will be successful, if the FDA does approve XIAFLEX for a given indication. Moreover, under the Auxilium Agreement,royalty payments are subject to set-off for certain expenses we owe Auxilium related to development and patent costs. We received our first royalty paymentfrom Auxilium in November 2011 because the amount of royalties exceeded accrued set-off expenses for the first time. We anticipate that the amount ofroyalties due to us will exceed the amount of any set-offs on a going forward basis.In addition, we have granted to Auxilium an option to expand its license and development rights to one or more additional indications for injectable collagenasenot currently licensed to Auxilium, including for the treatment of human and canine lipoma. If Auxilium exercises its option with respect to an additionalindication, 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 newindication. If Auxilium does not exercise its option as to any additional indication, we may offer to any third party such development rights with regard toproducts in the Auxilium Territory (as defined in the Auxilium Agreement), provided that we first offer the same terms to Auxilium, or develop the productourselves. Auxilium has no obligation to exercise its option with respect to any such additional indication, and its decision to do so is in its completediscretion. Clinical trials can be expensive and the results are subject to different interpretations, therefore, there is no assurance that after conducting phase IIclinical trials on any additional indication, and incurring the associated expenses, Auxilium will exercise its option or we will receive any revenue from it.Under the Auxilium Agreement, we may only offer to a third party development rights with regard to products in the Auxilium Territory and not in Europe andcertain Eurasian countries. 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 exercising the option as tosuch indication. Auxilium may decide to allocate its resources other than to the development of XIAFLEX, and we have no control over that decision. Auxiliumrecently announced the issuance of $350 million in the aggregate principal amount of 1.50% Convertible Senior Notes due 2018, the net proceeds from which,according to Auxilium, are to be used, among other things, “for general corporate purposes, which may include the acquisition (including by merger,purchase, license or otherwise) of businesses, products, product rights or technologies”. Any such non-XIAFLEX related acquisition may result in Auxiliumreallocating its priorities away from XIAFLEX. 19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 DFBAs part of the sale of our topical collagenase business to DFB, we are entitled to receive earn out payments in respect of sales of certain products developed andmanufactured by DFB that contain collagenase for topical administration. However, our right to receive earn out payments from DFB is dependent uponDFB’s decision to pursue the manufacture and commercialization of such products and its ability to achieve certain sales thresholds. In addition, DFB’sobligations to make earn-out payments to us terminate in August 2013 and we expect to receive our last earn-out payment by the end of 2013.Our dependence upon revenue from Auxilium make us subject to the commercialization and other risk factors affecting Auxilium over which wehave 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. Given our dependenceupon revenue from Auxilium, Auxilium’s operating success or failure has a significant impact on our potential royalty stream and other payment rights. Assuch, we refer you to the full text of Auxilium’s disclosed risk factors in its securities filings, which were most recently included in the Auxilium 10-K. If we are unable to obtain option, milestone, earn out and royalty payments from Auxilium or DFB or meet our needs for additional fundingfrom 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, royalty or earn outpayments from Auxilium or DFB, or secure additional funding from other sources. While we anticipate being profitable on an ongoing, annual basis, ourfuture funding requirements will depend on many factors, including: ·The ability of DFB and its successor, Smith & Nephew plc, to meet its payment obligations and to manufacture and commercialize topicalcollagenase products for which we would receive earn out payments until August 2013, payable by the end of 2013; ·Auxilium’s ability to manufacture and commercialize XIAFLEX for which we would receive milestone and royalty payments; · whether Auxilium finds another partner to develop and commercialize XIAPEX in Europe and certain Eurasian countries following the terminationof Auxilium’s collaboration with Pfizer on April 24, 2013 (for more information regarding Auxilium’s plans with respect to the development andcommercialization of XIAPEX in Europe and certain Eurasian countries, we refer you to the Auxilium 10-K); ·Actelion’s ability to commercialize XIAFLEX in Canada; ·the amount actually owed to Auxilium for certain patent costs; ·the scope, rate of progress, cost and results of our clinical trials on additional indications, including human and canine lipoma, for which Auxiliumcould exercise its option to acquire rights to them, and whether Auxilium exercises the option; 20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ·the terms and timing of any future collaborative, licensing, co-promotion and other arrangements that we may establish; ·the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights or defending against any otherlitigation; and ·whether Auxilium acquires a new product or technology, which results in Auxilium’s reallocation of priority away from XIAFLEX. These factors could result in variations from our currently projected operating requirements. If our existing resources are insufficient to satisfy our operatingrequirements, we may need to limit, scale back or cease operations or, in the alternative, borrow money. Given our operations and history, we may not be ableto borrow money on commercially reasonable terms, if at all. If we issue any equity or debt securities, the terms of such issuance may not be acceptable to usand would likely result in substantial dilution of our stockholders’ investment. If we do not receive revenues from Auxilium or DFB, and are unable to secureadditional 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 granted to third partiessignificant 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 certain rights to share inroyalty payments received by us from Auxilium under the Auxilium Agreement. Consequently, we will be required to share a significant portion of thepayments due to us 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 ofproducts, as described throughout this Item 1A of this Report. If we fail to comply with such obligations, or a counterparty to our agreements believes that wehave failed to comply with such obligations, we may be sued and the costs of the resulting litigation could materially harm our business.Risks Related to Clinical Trials and Development of Drug CandidatesOur ability to conduct clinical trials may be limited by the Auxilium Agreement.Under the Auxilium Agreement, we have the right to conduct trials, studies or development work for, among other things, indications in canine lipomas andhuman lipomas, and, upon approval by the parties’ joint development committee (“JDC”), additional indications. Auxilium has pre-approved our protocolsfor canine lipomas and human lipomas. However, certain material changes to the protocols must be approved by the JDC, and the JDC may decide not toapprove such changes if the JDC has reasonable safety concerns. In addition, the JDC has the right to stop a study or trial in canine lipomas and humanlipomas if the rate of serious adverse events exceeds certain thresholds. If the JDC fails to approve changes to our protocols for canine lipomas and humanlipomas or if the JDC stops our studies or trials in canine lipomas and human lipomas due to safety concerns, our ability to obtain option, milestone androyalty payments with respect to those indications would be limited. We may only conduct trials, studies or development work for additional indicationsbeyond the pre-approved indications upon submission to and approval by the JDC of our development plan. In the case of indications in keloids, capsularcontraction after breast augmentation, arthrofibrosis following total joint replacement in humans and equine suspensory ligament desmitis, the JDC may rejectour submission only for reasonable safety concerns. The JDC may reject our submission for any other additional indications for safety or commercialconcerns. If the JDC rejects our submissions in any additional indications, our ability to obtain option, milestone and royalty payments with respect to thoseadditional indications would be limited. 21Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsWe are dependent on Auxilium for access to XIAFLEX, which may limit our ability to conduct clinical trials and to obtain the associated option,milestone and contingent royalty payments under the Auxilium Agreement.Under the Auxilium Agreement, we have agreed to buy at cost plus a mark-up XIAFLEX from Auxilium for conducting our trials, studies and developmentwork. If Auxilium does not supply XIAFLEX to us, our ability to conduct clinical trials using XIAFLEX would be limited because we do not have the right tomake XIAFLEX or to purchase it from third parties. Moreover, our ability to use our own clinical material may be limited both by lack of availability and bycertain potential regulatory restrictions. Without adequate supply of clinical material our ability to obtain additional option, milestone and royalty paymentsunder the Auxilium Agreement would be limited.If clinical trials in humans or veterinarian trials for our potential new indications are delayed, we may not be able to obtain option, milestone orroyalty 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 after they havebegun. Clinical trials can be delayed or may need to be restructured for a variety of reasons, including delays or restructuring related 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 regulatory obligations in atimely fashion; and ·exposure of clinical trial subjects to unexpected and unacceptable health risks or noncompliance with regulatory requirements, which may result insuspension of the trial. The process of conducting clinical trials and developing product candidates involves a high degree of risk, may take several years, and mayultimately not be successful. Product candidates that appear promising in the early phases of development may fail to reach the market for several reasons, including: ·clinical trials may show product candidates to be ineffective or not as effective as anticipated or to have harmful side effects or any unforeseenresult; ·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; and ·the proprietary rights of others and their competing products and technologies may prevent product candidates from being effectivelycommercialized or from obtaining exclusivity. 22Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Success in preclinical and early clinical trials does not ensure that large-scale clinical trials will be successful. Clinical results are frequently susceptible tovarying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete clinical trials and to submit anapplication for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict. Any changes to the U.S.regulatory approval process could significantly increase the timing or cost of regulatory approval for product candidates making further developmentuneconomical or impossible. In addition, once Auxilium exercises its option with respect to an additional indication, further clinical trials, development,manufacturing, marketing and selling of such product are out of our control. Our interest is limited to receiving option, milestone and royalty payments. Successful development of drug candidates is inherently difficult and uncertain, and our long-term prospects depend upon our ability and theability of our partners, particularly with respect to XIAFLEX, to continue to successfully commercialize these drug candidates. Successful development of drugs is inherently difficult and uncertain. Our business requires investments in research and development over many years,often for drug candidates that may fail during the research and development process. Even if the Company is able to successfully complete the development ofour drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX, to continue tosuccessfully commercialize these drug candidates. There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of: ·the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects; ·the anticipated completion dates for our drug candidate projects; ·the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drugcandidate projects; ·the scope, rate of progress of our preclinical studies and other research and development activities related to our drug candidate projects; ·clinical trial results for our drug candidate projects; ·the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidateprojects; ·the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drugcandidate projects; ·the cost and timing of regulatory approvals with respect to our drug candidate projects; and ·the cost of establishing clinical supplies for our drug candidate projects. 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 Auxilium Agreement.Under the Auxilium Agreement, we have licensed or granted options to certain of our rights to conduct clinical trials and develop products for injectableadministration of collagenase. We agreed, for example, to certain non-competition provisions, which may limit our clinical development activities.Our ability to conduct clinical trials and develop products for topical administration of collagenase is limited by the agreement we have signedwith DFB.Under the DFB Agreement, we have sold, licensed, or granted options to certain of our rights to conduct clinical trials and develop products for topicaladministration of collagenase. Under the terms of the DFB Agreement, we have agreed to certain non-competition provisions, which may limit our clinicaldevelopment activities. 23Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Risks Related to Regulatory RequirementsWe are subject to numerous complex regulatory requirements and failure to comply with these regulations, or the cost of compliance with theseregulations, may harm our business.Conducting clinical trials for human drugs and, in certain circumstances, veterinarian trials for animal drugs, and the testing, development andmanufacturing and distribution of product candidates are subject to regulation by numerous governmental authorities in the U.S. and other jurisdictions, if wedesire 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 as safe working conditions. Noncompliance with any applicableregulatory requirements can result in suspension or termination of any ongoing clinical trials of a product candidate or refusal of the government to approve aproduct candidate for commercialization, criminal prosecution and fines, recall or seizure of products, total or partial suspension of production, prohibitionsor limitations on the commercial sale of products or refusal to allow the entering into of federal and state supply contracts. The FDA and comparablegovernmental authorities have the authority to suspend or terminate any ongoing clinical trials of a product candidate or withdraw product approvals that havebeen previously granted. 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 clinical studies or trialsand commitments to voluntarily conduct additional clinical trials. In addition, regulatory approval could impose limitations on the indicated or intended usesfor which product candidates may be marketed. With respect to its approval of XIAFLEX for the treatment of adult Dupuytren’s contracture patients with apalpable cord, for example, the FDA has required a REMS program consisting of a communication plan and a medication guide. Currently, there is asubstantial amount of congressional and administrative review of the FDA and the regulatory approval process for drug candidates in the U.S. As a result,there may be significant changes made to the regulatory approval process in the U.S. In addition, the regulatory requirements relating to the development,manufacturing, testing, promotion, marketing and distribution of product candidates may change in the U.S. Such changes may increase our costs andadversely affect our operations. Additionally, failure to comply with, or changes to applicable regulatory requirements may result in a variety of consequences, including the following: ·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; and ·injunctions or the imposition of civil or criminal penalties against us. 24Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable laws and regulations and wehave 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 a biopharmaceutical company,we are subject to a large body of legal and regulatory requirements. In addition, as a publicly traded company we are subject to significant regulations,including the Sarbanes-Oxley Act of 2002 (“SOX”), some of which have only recently been revised or adopted. We cannot assure you that we are or will be incompliance with all potentially applicable laws and regulations. Failure to comply with all potentially applicable laws and regulations could lead to theimposition of fines, cause the value of our common stock to decline, impede our ability to raise capital or list our securities on certain securities exchanges.New rules could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and wemay be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of theseevents could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees and as executiveofficers. We cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs to comply with these rules and regulations. We may fail to maintain effective internal controls over external financial reporting or such controls may fail or be circumvented. SOX requires us to report annually on our internal controls over financial reporting, and our business and financial results could be adversely effected if we,or our independent registered public accounting firm, determine that these controls are not effective. In addition, any failure or circumvention of our internalcontrols and procedures or failure to comply with regulations concerning controls and procedures could have a material effect on our business, results ofoperation and financial condition. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on ourboard of directors, our board committees and as executive officers.Risks Related to Growth and Employees Adverse events or lack of efficacy in clinical trials may force us and/or our partners upon whom we are wholly dependent to stop development ofour product candidates or prevent regulatory approval of our product candidates or significant safety issues could arise after regulatoryapproval 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 serious injury to theinjected extremity” as a reported serious adverse reaction to XIAFLEX and states that the most frequently reported adverse drug reactions in XIAFLEX clinicaltrials included swelling of the injected hand, contusion, injection site reaction, injection site hemorrhage, and pain in the treated extremity. The prescribinginformation notes that adverse reaction rates observed in clinical trials of a drug may not reflect those observed in practice because such trials “are conductedunder widely varying conditions.”Auxilium has reported that the most common adverse events in the Peyronie’s double-blind, placebo-controlled IMPRESS phase III clinical program werehematoma, pain and swelling at the treatment site, with most adverse events being mild or moderate in severity. There were also three serious adverse events ofcorporal rupture (penile fracture) and three serious adverse events of hematomas related to XIAFLEX reported in IMPRESS I and II.Adverse events or lack of efficacy may force us to stop development of our product candidates or prevent regulatory approval of our product candidates,which could materially harm our business. In addition, any adverse events or lack of efficacy may force Auxilium to stop development of the products wehave licensed to it or prevent regulatory approval of such products, which could materially impair all or a material part of the future revenue we hope to receivefrom Auxilium. Even if our product candidates receive regulatory approval, new safety issues may be reported and we or our partners may be required toamend the conditions of use for a product.We and our licensees face competition in our product development and marketing efforts from pharmaceutical and biotechnology companies,universities and other not-for-profit institutions.We and our licensees face competition in our product development and marketing efforts from entities that have substantially greater research and productdevelopment capabilities and greater financial, scientific, marketing and human resources. These entities include pharmaceutical and biotechnologycompanies, as well as universities and not-for-profit institutions. Our and our licensees’ competitors may succeed in developing products or intellectualproperty earlier than we or our licensees do, entering into successful collaborations before us or our licensees, obtaining approvals from the FDA or otherregulatory agencies for such products before us or our licensees, or developing or marketing products that are more effective than those we or our licenseescould develop or market. The success of any one competitor in these or other respects will have a material adverse effect on our business, our ability to receiveoption payments from Auxilium or our ability to generate revenues from third party arrangements with respect to additional indications for which Auxiliumdoes not exercise its option. 25Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Because of the specialized nature of our business, the termination of relationships with key management, consulting and scientific personnel or theinability to recruit and retain additional personnel could prevent us from developing our technologies, conducting clinical trials and/or obtainingfinancing. The competition for qualified personnel in the biotechnology field is intense, and we rely heavily on our ability to attract and contract with qualifiedindependent scientific and medical investigators, and technical and managerial personnel. We face intense competition for qualified individuals fromnumerous pharmaceutical, biopharmaceutical and biotechnology companies, as well as academic and other research institutions. To the extent we are unable toattract and retain any of these individuals on favorable terms our business may be adversely affected.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, under the AuxiliumAgreement, we are obligated to indemnify Auxilium and its affiliates for any harm or losses they suffer relating to any personal injury and other productliability resulting from our development, manufacture or commercialization of any injectable collagenase product. In addition, the clinical testing and, ifapproved, commercialization of our product candidates involves significant exposure to product liability claims. We have clinical trial and product liabilityinsurance in the aggregate amount of $5.0 million dollars that we believe is adequate in both scope and amount and has been placed with what we believe arereputable insurers. We may not be able to maintain our clinical trial and product liability insurance at an acceptable cost, if at all, and this insurance may notprovide adequate coverage against potential claims or losses. If losses from product liability claims exceed our insurance coverage, we may incur substantialliabilities that exceed our financial resources, and our business and results of operations may be harmed. Whether or not we are ultimately successful inproduct liability litigation, such litigation could consume substantial amounts of our financial and managerial resources, and might result in adversepublicity, all of which could impair our business. If we are unable to negotiate a new lease for our corporate headquarters or relocate, our existing operations and our operating results could beadversely affected. As described in this Report under “Item 2 - Description of Property”, we are holding over in our current premises on a month-to-month basis. If we are unableto negotiate a new lease for our current premises or relocate to other premises, our existing operations and operating results could be adversely affected becausealternate space may not permit the current laboratory activities with respect to the development of collagenase for use in other indications.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 license rights that are criticalto 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 are necessary for us tooperate our business. If any of the parties terminates its agreement, whether by its terms or due to our breach, our right to use the party’s intellectual propertymay 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 patents may be impaired bythe intellectual property of third parties. Auxilium’s, DFB’s and our commercial success in developing and manufacturing collagenase products based on our patents is dependent on these productsnot infringing the patents or proprietary rights of third parties. While we currently believe that we, our licensees, licensors and collaborators have freedom tooperate in the collagenase market, others may challenge that position in the future. There has been, and we believe that there will continue to be, significantlitigation in the pharmaceutical industry regarding patent and other intellectual property rights. 26Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Third parties could bring legal actions against us, our licensees, licensors or collaborators claiming damages and seeking to enjoin clinical testing,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 toothers, or those we may in-license in the future, are invalid or unenforceable. In such a case, even if the validity or enforceability of those patents were upheld,a court might hold that the third party’s actions do not infringe the patent we in-license or license to others, which could, in effect, limit the scope of our patentrights and those of our licensees, licensors or collaborators. Our agreements with Auxilium and DFB require us to indemnify them against any claims forinfringement based on the use of our technology. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless ofthe outcome of the litigation. If Auxilium or DFB becomes involved in such litigation, it could also consume a substantial portion of their resources, regardlessof the outcome of the litigation, 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 license to permitourselves, our licensees, licensors or our collaborators to conduct clinical trials, manufacture or market the affected product, in which case we may berequired to pay substantial royalties or grant cross-licenses to our patents. However, there can be no assurance that any such license will be available onacceptable terms or at all. Ultimately, we, our licensees, licensors or collaborators could be prevented from commercializing a product, or forced to cease someaspect of their or our business, as a result of patent infringement claims, which could harm our business or right to receive option, milestone and contingentroyalty payments.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 may occur, the marketprice of our common stock could decline. In addition, we may need to raise additional capital in the future to fund our operations. If we raise additional fundsby issuing equity securities, our stock price may decline and our existing stockholders may experience dilution of their interests. Because we historically havenot declared dividends, stockholders must rely on an increase in the stock price 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 The Nasdaq Global Market (“Nasdaq”) and is thinly traded. Market prices for securities of pharmaceutical, biotechnology and specialty pharmaceutical companies have been particularly volatile. Some of the factors thatmay cause the market price of our common stock to fluctuate include: ·results of our clinical trials; ·failure of any product candidates we have licensed to Auxilium or sold to DFB to achieve commercial success; ·regulatory developments in the U.S. and foreign countries; ·developments or disputes concerning patents or other proprietary rights; ·litigation involving us or our general industry, or both; ·future sales of our common stock by the estate of our former Chairman and CEO or others; ·changes in the structure of healthcare payment systems, including developments in price control legislation; ·departure of key personnel; ·termination of agreements with our licensees or their sublicensees; ·announcements of material events by those companies that are our competitors or perceived to be similar to us; 27Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ·changes in estimates of our financial results; ·investors’ general perception of us; ·general economic, industry and market conditions; and ·the acquisition by Auxilium of a new product or technology that causes Auxilium to reallocate its priorities away from XIAFLEX. 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 if unsuccessful,could be costly to defend and a distraction to management. In addition, purchases of our common stock pursuant to our stock repurchase program may,depending on the timing and volume of such repurchases, result in our stock price being higher than it would be in the absence of such repurchases. Ifrepurchases 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 and strategic directionof certain companies due to governance or strategic related disagreements between such companies and such stockholders. If we become subject to suchstockholder activism efforts, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business andadversely 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 their shares. We cannotassure investors of a positive return on their investment when they sell their shares nor can we assure that investors will not lose the entire amount of theirinvestment.Our outstanding options to purchase shares of common stock could have a possible dilutive effect. As of December 31, 2012, options to purchase 1,182,000 shares of common stock were outstanding. In addition, as of December 31, 2012 a total of 254,098options were available for grant under our stock option plans. The issuance of common stock upon the exercise of these options could adversely affect themarket 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 our common stockcould decline.The trading market for our common stock will depend in part on research reports that industry or financial analysts publish about us or our business. Ifanalysts downgrade us or any of our licensees, or other research analysts downgrade the industry in which we operate or the stock of any of our competitors orlicensees, the price of our common stock will probably decline.Provisions in our certificate of incorporation and bylaws may prevent or frustrate a change in control. Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholdersmay consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions: ·provide for a classified board of directors; ·give our Board the ability to designate the terms of and issue new series of preferred stock without stockholder approval, commonly referred 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; and ·impose advance notice requirements on stockholders concerning the election of directors and other proposals to be presented at stockholder meetings. 28Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 In addition, during May 2002, the Board implemented a rights agreement (commonly known as a “Poison Pill”), which effectively discourages or preventsacquisitions of more than 15% of our common stock in transactions (mergers, consolidations, tender offer, etc.) that have not been approved by our Board.The Board amended the Poison Pill in February 2011 to increase the threshold from 15% to 18% and extended the expiration date of the Poison Pill for anadditional two years, to May 31, 2014. These provisions could make it more difficult for common stockholders to replace members of the Board. Becauseour Board is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace the currentmanagement team.If our principal stockholders, executive officers and directors choose to act together, they may be able to control our operations, acting in their ownbest interests and not necessarily those of other stockholders. As of March 1, 2013 our executive officers, directors and their affiliates, in the aggregate, beneficially owned shares representing approximately 30.6% of ourcommon stock. Beneficial ownership includes shares over which an individual or entity has investment or voting power and includes shares that could beissued upon the exercise of options within 60 days. As a result, if these stockholders were to choose to act together, they may be able to control all matterssubmitted to our stockholders for approval, as well as our management and affairs. For example, these individuals, if they chose to act together, could controlthe election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership could havethe effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination that could befavorable to other stockholders. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantagesin owning stock in companies with controlling stockholders. Item IB. UNRESOLVED STAFF COMMENTS None. Item 2. DESCRIPTION OF PROPERTY. Our corporate headquarters are currently located at 35 Wilbur St., Lynbrook, NY 11563. As previously reported, we are currently holding over in ourpremises on a month-to-month basis.Item 3. LEGAL PROCEEDINGS. None.Item 4. MINE SAFETY DISCLOSURES. Not Applicable. 29Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 PART II Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS. Market Information Our common stock currently trades under the symbol BSTC on Nasdaq. The table below sets forth the high and low closing sale prices for our common stock for each of the quarterly periods in 2012 and 2011 as reported by and asquoted by Nasdaq, as applicable: 2012 HIGH LOW Fourth Quarter $19.43 $12.75 Third Quarter $20.27 $17.53 Second Quarter $19.06 $13.70 First Quarter $21.10 $15.76 2011 HIGH LOW Fourth Quarter $19.08 $13.36 Third Quarter $25.04 $14.80 Second Quarter $25.52 $22.40 First Quarter $26.88 $23.00 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 1, 2013, there were approximately 71 holders of record of our common stock. Because many of such shares are held by brokers and otherinstitutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.Dividends It has been our policy to retain potential earnings to finance the growth and development of our business and not pay dividends, and we have no current plansto pay dividends. Any payment of cash dividends in the future will depend upon our financial condition, capital requirements and earnings as well as suchother factors as our board of directors may deem relevant. Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2012 with respect to the shares of our common stock that may be issued under our existingequity compensation plans: Number of securities tobe issued upon exerciseof outstanding options,warrants and rights (a) Weighted-averageexercise price ofoutstanding options,warrants and rights (b) Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected in column (a))(c) Equity compensation plans approved by security holders(1) 1,182,000 $ 8.90 254,098 Equity compensation plans not approved by security holders - - - Total 1,182,000 $ 8.90 254,098 (1) Please see Note 9, “Stockholders’ Equity,” of the notes to the consolidated financial statements for a description of the material features of each of ourplans. 30Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Recent Sales of Unregistered Securities For the year ended December 31, 2012, we did not issue any unregistered shares of securities. Issuer Purchases of Equity Securities (1)Month Total Number ofShares PurchasedDuring Quarter (2) Average Price Paid Per Share (3) Total CumulativeNumber of SharesPurchased as Partof PubliclyAnnounced Plan Maximum DollarValue of Sharesthat may yet bePurchasedunder the Plan January 1, 2012 – March 31, 2012 12,247 $16.24 75,584 $1,267,935 April 1, 2012 – June 30, 2012 16,340 $17.57 91,924 $980,841 July 1, 2012 – September 30, 2012 10,360 $18.20 102,284 $792,296 October 1, 2012 to November 14, 2012 2,300 $14.00 104,584 $760,004 - - - $2,000,000(4)November 15, 2012 to December 31, 2012 24,781 $13.23 129,365 $1,672,146 Total 66,028 (1)On June 4, 2010, we announced that our board of directors authorized a stock repurchase program under Rule 10b-18 of the Exchange Act ofup to $2.0 million of our outstanding common stock over a period of 12 months. On June 20, 2011, we announced that our Board of Directorshad reauthorized this stock repurchase program. On November 15, 2012, we announced that our Board of Directors had reauthorized thisstock repurchase program. (2)The purchases were made in open-market transactions. (3)Includes commissions paid, if any, related to the stock repurchase transactions. (4)On November 15, 2012, we announced that our Board of Directors had reauthorized the repurchase of up to $2.0 million of our commonstock under the stock repurchase program. 31Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Performance GraphThe graph below compares the cumulative total stockholder return on our common stock with the cumulative total stockholder return of (i) the NASDAQBiotechnology Index, and (ii) the NASDAQ Composite Index, assuming an investment of $100 on December 31, 2007, in each of our common stock; thestocks comprising the NASDAQ Composite Index; and the stocks comprising the NASDAQ Biotechnology Index.Comparison of Cumulative Total Return* Among BioSpecifics Technologies Corp, the NASDAQ Biotechnology Index and the NASDAQComposite Index 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 Biospecifics Technologies Corp $100.00 $214.00 $293.50 $256.00 $166.20 $149.50 Nasdaq Biotechnology Index $100.00 $87.37 $101.01 $116.19 $129.91 $171.36 Nasdaq Composite Index $100.00 $59.46 $85.55 $100.02 $98.22 $113.85 *Total return assumes $100 invested on December 31, 2007 in our common stock, the NASDAQ Composite Index, and the NASDAQ Biotechnology Indexand reinvestment of dividends through fiscal year ended December 31, 2012.Item 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this Report. The consolidated statements ofoperations data for the years ended December 31, 2012, 2011 and 2010 and the consolidated balance sheet data as of December 31, 2012 and 2011 have beenderived from our audited consolidated financial statements and related notes, which are included elsewhere in this Report. The consolidated statement ofoperations data for the years ended December 31, 2009 and 2008 and the consolidated balance sheet data as of December 31, 2010, 2009 and 2008 have beenderived from audited financial statements which do not appear in this Report. The historical results presented are not necessarily indicative of results to beexpected in any future period. 32Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Years Ended December 31, Consolidated Statement of Operations Data 2012 2011 2010 2009 2008 Net revenues $11,145,078 $11,395,726 $5,661,348 $3,155,757 $8,411,780 Operating expenses: Research and development 1,249,755 972,078 1,223,931 488,646 439,919 General and administrative 4,774,828 5,231,881 6,470,449 4,832,019 4,191,052 Total operating expenses 6,024,583 6,203,959 7,694,380 5,320,665 4,630,971 Operating income (loss) 5,120,495 5,191,767 (2,033,032) (2,164,908) 3,780,809 Other income (expense): Interest income 34,634 55,780 86,310 55,693 107,552 Interest expense - - - (39) 46,529 Other - 15,823 13,130 (8,863) 108,730 Qualifying Therapeutic Credit - - 426,403 - - 34,634 71,603 525,843 46,791 262,811 Income (loss) before income tax 5,155,129 5,263,370 (1,507,189) (2,118,117) 4,043,620 Income tax benefit (expense) (2,174,054) 1,338,256 (1,351) 161,574 (299,212)Net income (loss) $2,981,075 $6,601,626 $(1,508,540) $(1,956,543) $3,744,408 Basic net income (loss) per share $0.47 $1.04 $(0.24) $(0.32) $0.64 Diluted net income (loss) per share $0.43 $0.95 $(0.24) $(0.32) $0.55 Shares used in computation of basic net income (loss) pershare 6,351,245 6,340,648 6,261,214 6,065,939 5,854,836 Shares used in computation of diluted net income (loss)per share 6,981,527 6,952,386 6,261,214 6,065,939 6,836,911 Years Ended December 31, Consolidated Balance Sheet Data: 2012 2011 2010 2009 2008 Cash and cash equivalents $3,383,737 $3,196,831 $2,470,852 $3,950,389 $3,494,150 Short-term investments 5,120,000 5,000,000 5,360,970 4,548,541 900,000 Total assets 18,390,264 16,265,073 11,518,701 11,748,478 12,831,361 Total stockholders’ equity 17,458,346 14,872,314 6,700,723 6,092,107 6,178,539 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financialstatements and the related notes appearing at the end of this Report. Some of the information contained in this discussion and analysis or set forthelsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-lookingstatements that involve risks and uncertainties. You should review the “Risk Factors” section of this Report for a discussion of important factors thatcould cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the followingdiscussion and analysis.OverviewWe are a biopharmaceutical company involved in the development of an injectable collagenase for multiple indications. We have a development and licenseagreement with Auxilium for injectable collagenase (which Auxilium has named XIAFLEX® (collagenase clostridium histolyticum)) for clinical indications inDupuytren’s contracture, Peyronie’s disease, frozen shoulder (adhesive capsulitis) and cellulite (edematous fibrosclerotic panniculopathy). Auxilium has anoption to acquire additional indications that we may pursue, including human and canine lipoma. Auxilium is currently selling XIAFLEX in the U.S. for thetreatment of Dupuytren’s contracture. Auxilium has an agreement with Pfizer pursuant to which Pfizer has marketing rights for XIAPEX® (the EU trade namefor collagenase clostridium histolyticum) for Dupuytren’s contracture and Peyronie’s disease in Europe and certain Eurasian countries until April 24, 2013. Inaddition, Auxilium has an agreement with Asahi pursuant to which Asahi has the right to commercialize XIAFLEX for the treatment of Dupuytren’scontracture and Peyronie’s disease in Japan. Auxilium also has an agreement with Actelion pursuant to which Actelion has the right to commercializeXIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Canada, Australia, Brazil and Mexico. Auxilium has been granted a Noticeof Compliance (approval) by Health Canada for XIAFLEX for the treatment of Dupuytren’s contracture in adults with a palpable cord in Canada. 33Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Operational HighlightsPeyronie’s Disease. In December 2012, the FDA accepted for filing Auxilium’s sBLA for XIAFLEX for the potential treatment of Peyronie's disease. As aresult, we recognized a $1.0 million milestone payment from Auxilium. The filing was granted standard review status and, under PDUFA, the FDA isexpected to take action on the application by September 6, 2013. Auxilium has reported that the FDA is not planning on holding an Advisory Committeemeeting for the use of XIAFLEX in the treatment of Peyronie’s disease, but cautions that it can offer no assurance that the FDA will not require an AdvisoryCommittee meeting in the future. The sBLA was based on results from Auxilium’s phase III clinical program that assessed XIAFLEX for the potentialtreatment of Peyronie’s disease and is known as IMPRESS (The Investigation for Maximal Peyronie’s Reduction Efficacy and Safety Studies). The Journal ofUrology has electronically published on its website the uncorrected proof of Auxilium’s IMPRESS clinical program. Cellulite. Auxilium expanded the field of its license for injectable collagenase to include the potential treatment of adult patients with cellulite by exercising, inJanuary 2013, its exclusive option under our development and license agreement. As a result of this exercise, we received a license fee payment of $500,000from Auxilium. We paid a portion of this payment to the Research Foundation of the State University of New York at Stony Brook pursuant to the terms ofour in-licensing agreement described below in the “In-Licensing and Royalty Agreements” section under the heading “Cellulite”. Auxilium’s exercise of thisoption follows its fourth quarter 2012 announcement of top-line 30-day data from the phase Ib study of XIAFLEX for the potential treatment of adult patientswith cellulite, in which all doses of XIAFLEX were generally well-tolerated. These data support the progression into a phase II clinical trial in cellulite, whichAuxilium plans to initiate in the second half of 2013. Frozen Shoulder. Auxilium completed enrollment in its frozen shoulder phase IIa clinical trial in the third quarter of 2012. Auxilium expects top-line data fromthis XIAFLEX study in the first quarter of 2013. Auxilium anticipates initiating a phase II clinical trial of frozen shoulder in the second half of 2013. Dupuytren’s Contracture. ·Auxilium and Actelion announced in the beginning of the third quarter of 2012 that Auxilium was granted a Notice of Compliance (approval) byHealth Canada for XIAFLEX for the treatment of Dupuytren’s contracture in adults with a palpable cord in Canada. Under the terms of thecollaboration agreement between Actelion and Auxilium, Actelion is to receive exclusive rights to commercialize XIAFLEX for the treatment ofDupuytren’s contracture and Peyronie's disease in Canada, Australia, Brazil and Mexico upon receipt of the respective regulatory approvals.Pursuant to this agreement, Auxilium intends to transfer regulatory sponsorship of the dossier to Actelion, and Actelion will be primarilyresponsible for the applicable regulatory and commercialization activities for XIAFLEX in Canada and, upon approval, in the remainder ofthese countries. Actelion expects to make XIAFLEX available to patients in Canada in the first half of 2013. ·Also in the third quarter, Auxilium announced positive top-line data from its open-label phase IIIb trial evaluating XIAFLEX for the treatment ofadult Dupuytren's contracture patients with multiple palpable cords. Auxilium enrolled 60 patients at eight sites throughout the U.S. andAustralia. Following the announcement of these data, Auxilium began a larger study with XIAFLEX for the concurrent treatment of multiplepalpable cords that, if successful, may allow Auxilium to seek FDA approval of the expansion of the Dupuytren's label. Auxilium expects top-line results in the first half of 2014. Based on research by SDI Health, LLC estimating that 35 to 40% of annual Dupuytren's surgeries in theU.S. are performed to treat two or more cords concurrently, Auxilium is conducting these studies to seek a multicord indication for XIAFLEXfrom the FDA. It is hoped that more surgeons will perform the XIAFLEX injection in these cases, rather than surgery, if the FDA approves thelabel expansion. ·Auxilium completed enrollment in its Dupuytren’s contracture retreatment phase IV clinical trials in the third quarter of 2012 and expects top-line results from these trials in the fourth quarter of 2013. 34Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Lipoma. We initiated two clinical trials in the second quarter of 2012. One is a 14 patient, single center dose escalation phase II clinical trial of XIAFLEX forthe treatment of human lipoma. The other is a placebo controlled randomized phase II trial, Chien-804, to evaluate the efficacy of XIAFLEX for canines withbenign subcutaneous lipomas. OutlookCurrently, we generate revenue from two primary sources: in connection with the DFB Agreement and in connection with the Auxilium Agreement. Under theDFB Agreement, our right to receive earn-out payments with respect to the marketed topical product sold to DFB expires in August 2013, but earn-outpayments for second generation collagenase products, if any, continue indefinitely. Under the Auxilium Agreement, we receive sublicense income, royalties,milestones and mark-up on cost of goods sold payments related to the sale and approval of XIAFLEX/XIAPEX as described above.In connection with the DFB Agreement, pursuant to which we sold our topical collagenase business to DFB, until March 2011 we received payments forcertain technical assistance and certain transition services that we provided to DFB. Pursuant to the DFB Agreement, we currently receive earn out paymentsbased on the sales of certain products, but our right to receive these payments expires at the end of August 2013. We expect to receive the final of these earn outpayments by the end of 2013. The topical collagenase business of DFB was acquired by Smith & Nephew plc at the end of the fourth quarter of 2012. Withour consent, DFB is expected to assign, and Smith & Nephew plc is expected to assume, the DFB Agreement. As of December 31, 2012, we have received a total of $1.4 million in consulting fees; our right to receive these consulting fees expired in March 2011. Inaddition, we have recognized $2.9 million in earn out payments from DFB in connection with the net sales of topical collagenase in 2012.Auxilium Agreement Under the Auxilium Agreement, we granted to Auxilium exclusive worldwide rights to develop, market and sell certain products containing our injectablecollagenase. Currently its licensed rights cover the indications of Dupuytren’s contracture, Peyronie’s disease, frozen shoulder and cellulite. Auxilium mayfurther expand the Auxilium Agreement, at its exclusive option, to develop and license our injectable collagenase for use in additional indications. Pfizer hasmarketing rights for XIAPEX for Dupuytren’s contracture and Peyronie's disease in Europe and certain Eurasian countries through April 24, 2013. Auxiliumhas announced that it is currently evaluating strategic options for the continuing commercialization of XIAPEX for the treatment of Dupuytren’s contractureand for gaining approval for XIAPEX for the treatment of Peyronie’s disease in the EU and other specified markets when rights to commercialize XIAPEX andresponsibility for regulatory activities for XIAPEX in these countries revert to Auxilium. Auxilium has granted to Asahi the exclusive right to develop andcommercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Japan. Auxilium has granted to Actelion the exclusive right todevelop and commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Canada, Australia, Brazil and Mexico. Through December 31, 2012, Auxilium has paid us up-front licensing and sublicensing fees and milestone payments under the Auxilium Agreement of $24.3million, including amounts in connection with Auxilium’s agreements with Pfizer, Asahi and Actelion. In addition to the payments already received by us andto be received by us with respect to the Dupuytren’s contracture indication, Auxilium will be obligated to make contingent milestone payments to us, withrespect to each of the Peyronie’s disease, frozen shoulder and cellulite indications, upon the acceptance of the regulatory filing (which has occurred in the U.S.,in the case of Peyronie’s disease) and upon receipt by Auxilium, its affiliate or sublicensee of regulatory approval. The remaining contingent milestonepayments that may be received, in the aggregate, from Auxilium in respect of these contingent milestones are $5.0 million. Auxilium will also be obligated tomake sublicense fee payments to us if it out-licenses to third parties the right to market and sell XIAFLEX for the treatment of frozen shoulder or cellulite.Additional milestone obligations will be due if Auxilium exercises its option to develop and license XIAFLEX for additional indications. 35Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 We are entitled to 8.5% of all sublicense income that Auxilium receives from Pfizer under their collaboration agreement, which payments are dependent on theachievement by Pfizer of certain regulatory and sales related milestones. Under this collaboration agreement, Auxilium received a $30 million milestonepayment from Pfizer following the first sale of XIAPEX in the United Kingdom, which was the first major market country in which Pfizer sold XIAPEX, andwe received from Auxilium $2.5 million in connection with that first sale. In connection with the launch of XIAPEX in each of Germany and Spain, wereceived from Auxilium 8.5% of each of the $7.5 million milestone payments from Pfizer to Auxilium, or $637,500. As of January 25, 2013, we havereceived $11.5 million in sublicensing fees and milestones related to the Auxilium’s collaboration agreement with Pfizer. Given the mutual termination byAuxilium and Pfizer of their collaboration agreement, we do not anticipate receiving any more sublicense income related to Pfizer. If Auxilium enters into anagreement with a third party related to the continuing commercialization of XIAPEX for the treatment of Dupuytren’s contracture and for gaining approval forXIAPEX for the treatment of Peyronie’s disease in the EU and other specified markets, we will be entitled to a specified percentage of sublicense agreement dueunder such agreement. In 2011, we received $750,000, or 5%, of the $15 million upfront payment Auxilium received from Asahi. In 2012, we received$570,000, or 5.7%, of the $10 million upfront payment Auxilium received from Actelion and $29,000 for approval in Canada of XIAFLEX for Dupuytren’scontracture. To the extent Auxilium enters into an agreement or agreements related to other territories, the percentage of sublicense income that Auxilium wouldpay us will depend on the stage of development and approval of XIAFLEX for the particular indication at the time such other agreement or agreements areexecuted.Auxilium must pay us on a country-by-country and product-by-product basis a low double digit royalty as a percentage of net sales for products covered bythe Auxilium Agreement and sold in the United States, Europe and certain Eurasian countries and Japan. In the case of products covered by the AuxiliumAgreement and sold in other countries (the “Rest of the World”), Auxilium must pay us on a country-by-country and product-by-product basis a specifiedpercentage of the royalties it is entitled to receive from a partner or partners with whom it has contracted for such countries (a “Rest of the World Partner”),which in the case of Canada, Australia, Brazil and Mexico is Actelion. The royalty rate is independent of sales volume and clinical indication in the UnitedStates, Europe and certain Eurasian countries and Japan, but is subject to set-off in those countries and the Rest of the World for certain expenses we owe toAuxilium relating to certain development and patent costs. In addition, the royalty percentage may be reduced if (i) market share of a competing productexceeds 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 thirdparty’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 thirdparty, then we will receive a specified percentage of certain payments made to Auxilium in consideration of such out-licenses.These royalty obligations extend, on a country-by-country and product-by-product basis, for the longer of the patent life (including pending patents), theexpiration of any regulatory exclusivity period based on orphan drug designation or foreign equivalent thereof or June 3, 2016. Auxilium may terminate theAuxilium Agreement upon 90 days prior written notice. If Auxilium terminates the Auxilium Agreement other than because of an uncured, material breach byus, all rights revert to us. Pursuant to our August 31, 2011 settlement agreement with Auxilium, we are now co-owners and are or will be co-inventors of U.S.Patent No. 7,811,560 and any continuations and divisionals thereof. Auxilium expects this patent will expire in July 2028.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 for products sold in theUnited States, Europe and certain Eurasian countries or Japan. For products sold in the Rest of the World, Auxilium must pay to us a specified percentage ofthe mark-up of the cost of goods sold it is entitled to receive from a Rest of the World Partner, including Actelion, without regard to any set-offs that the Rest ofthe World Partner may have with respect to Auxilium.Auxilium is generally responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for theclinical supply of products. Auxilium is generally responsible for all clinical development and regulatory costs for Peyronie’s disease, Dupuytren’scontracture, frozen shoulder, cellulite and all additional indications for which it exercises its options. 36Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 In-Licensing and Royalty AgreementsWe have entered into several in-licensing and royalty agreements with various investigators, universities and other entities throughout the years.Dupuytren’s ContractureOn November 21, 2006, we entered into a license agreement (the “Dupuytren’s License Agreement”) with the Research Foundation of the State University ofNew York at Stony Brook (the “Research Foundation”), pursuant to which the Research Foundation granted to us and our affiliates an exclusive worldwidelicense, with the right to sublicense to certain third parties, to know-how owned by the Research Foundation related to the development, manufacture, use orsale of (i) the collagenase enzyme obtained by a fermentation and purification process (the “Enzyme”), and (ii) all pharmaceutical products containing theEnzyme or injectable collagenase, in each case to the extent it pertains to the treatment 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 certain royalties on net sales (ifany) of pharmaceutical products containing the Enzyme or injectable collagenase for the treatment and prevention of Dupuytren’s contracture (each a“Dupuytren’s Licensed Product”).Our obligation to pay royalties to the Research Foundation with respect to sales by us, our affiliates or any sublicensee of any Dupuytren’s Licensed Productin any country (including the U.S.) arises only upon the first commercial sale of such Dupuytren’s Licensed Product on a country-by-country basis. Theroyalty rate is 0.5% of net sales. Our obligation to pay royalties to the Research Foundation will continue until the later of (i) the expiration of the last validclaim of a patent pertaining to the Dupuytren’s Licensed Product; (ii) the expiration of the regulatory exclusivity period conveyed by the FDA’s Office ofOrphan Products Development (“OOPD”) with respect to the Dupuytren’s Licensed Product; or (iii) June 3, 2016.Unless terminated earlier in accordance with its termination provisions, the Dupuytren’s License Agreement and the licenses granted under that agreement willcontinue in effect until the termination of our royalty obligations. After that, all licenses granted to us under the Dupuytren’s License Agreement will becomefully paid, irrevocable exclusive licenses.A redacted copy of the Dupuytren’s License Agreement was filed on Form 8-K with the SEC on November 28, 2006. The foregoing descriptions of theDupuytren’s License Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Dupuytren’s LicenseAgreement.Peyronie’s DiseaseOn August 27, 2008, we entered into an agreement with Dr. Martin K. Gelbard to improve the deal terms related to our future royalty obligations for Peyronie’sdisease by buying down our future royalty obligations with a one-time cash payment. A redacted copy of the agreement was filed on Form 8-K with the SECon September 5, 2008. On March 31, 2012, we entered into an amendment to this agreement, which enables us to buy down a portion of our future royaltyobligations in exchange for an initial cash payment and five additional cash payments payable upon the occurrence of a milestone event. A redacted copy of theamendment was filed on Form 8-K/A with the SEC on August 8, 2012. The foregoing descriptions of the agreement with Dr. Gelbard and the amendment tothat agreement do not purport to be complete and are qualified in their entirety by reference to the full text of that agreement, as amended.Frozen ShoulderOn November 21, 2006, we entered into a license agreement (the “Frozen Shoulder License Agreement”) with the Research Foundation, pursuant to which theResearch Foundation granted to us and our affiliates an exclusive worldwide license, with the right to sublicense to certain third parties, to know-how ownedby the Research Foundation related to the development, manufacture, use or sale of (i) the Enzyme and (ii) all pharmaceutical products containing the Enzymeor injectable collagenase, in each case to the extent it pertains to the treatment and prevention of frozen shoulder. Additionally, the Research Foundation grantedto us an exclusive license to the patent applications in respect of frozen shoulder. The license granted to us under the Frozen Shoulder License Agreement issubject to the non-exclusive license (with right to sublicense) granted to the U.S. government by the Research Foundation in connection with the U.S.government’s funding of the initial research. 37Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsIn consideration of the license granted under the Frozen Shoulder License Agreement, we agreed to pay to the Research Foundation certain royalties on net sales(if any) of pharmaceutical products containing the Enzyme or injectable collagenase for the treatment and prevention of frozen shoulder (each a “FrozenShoulder Licensed Product”). In addition, we and the Research Foundation will share in any milestone payments and sublicense income received by us inrespect 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 Frozen Shoulder LicensedProduct in any country (including the U.S.) arises only upon the first commercial sale of a Frozen Shoulder Licensed Product. Our obligation to pay royaltiesto the Research Foundation will continue until, the later of (i) the expiration of the last valid claim of a patent pertaining to a Frozen Shoulder Licensed Productor (ii) June 3, 2016.Unless terminated earlier in accordance with its termination provisions, the Frozen Shoulder License Agreement and licenses granted under that agreement willcontinue in effect until the termination of our royalty obligations. After that, all licenses granted to us under the Frozen Shoulder License Agreement will becomefully paid, irrevocable exclusive licenses.A redacted copy of the Frozen Shoulder License Agreement was filed on Form 8-K with the SEC on November 28, 2006. The foregoing descriptions of theFrozen Shoulder License Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Frozen Shoulder LicenseAgreement.In connection with the execution of the Dupuytren’s License Agreement and the Frozen Shoulder License Agreement, we made certain up-front payments to theResearch Foundation and the clinical investigators working on the Dupuytren’s contracture and frozen shoulder indications for the Enzyme.CelluliteWe have two in-licensing and royalty agreements related to cellulite. One is a license agreement (the “Cellulite License Agreement”) with the Research Foundationthat we entered into on August 23, 2007. Pursuant to the Cellulite License Agreement, the Research Foundation granted to us and our affiliates an exclusiveworldwide license, with the right to sublicense to certain third parties, to know-how owned by the Research Foundation related to the manufacture, preparation,formulation, use or development of (i) the Enzyme and (ii) all pharmaceutical products containing the Enzyme, which are made, used and sold for theprevention or treatment of cellulite. Additionally, the Research Foundation granted to us an exclusive license to the patent applications in respect of cellulite. Thelicense granted to us under the Cellulite License Agreement is subject to the non-exclusive license (with right to sublicense) granted to the U.S. government bythe Research Foundation in connection with the U.S. government’s funding of the initial research.In consideration of the license granted under the Cellulite License Agreement, we agreed to pay to the Research Foundation certain royalties on net sales (if any)of pharmaceutical products containing the Enzyme, which are made, used and sold for the prevention or treatment of cellulite (each a “Cellulite LicensedProduct”). In addition, we and the Research Foundation will share in any milestone payments and sublicense income received by us in respect of the rightslicensed under the Cellulite License Agreement. We paid a portion of the $500,000 milestone payment we received from Auxilium in respect of its exercise ofcellulite as an addition indication under the Auxilium Agreement, subject to certain credits for certain up-front payments we made to the Research Foundation.Our obligation to pay royalties to the Research Foundation with respect to sales by us, our affiliates or any sublicensee of any Cellulite Licensed Product inany country (including the U.S.) arises only upon the first commercial sale of a Cellulite Licensed Product. Our obligation to pay royalties to the ResearchFoundation will continue until, the later of (i) the expiration of the last valid claim of a patent pertaining to a Cellulite Licensed Product or (ii) June 3, 2016.Unless terminated earlier in accordance with its termination provisions, the Cellulite License Agreement and licenses granted under that agreement will continuein effect until the termination of our royalty obligations. After that, all licenses granted to us under the Cellulite License Agreement will become fully paid,irrevocable exclusive licenses. 38Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 The other in-licensing and royalty agreement we have related to cellulite is a license agreement with Dr. Zachary Gerut that we entered into on March 27, 2010(the “Gerut License Agreement”). Pursuant to the Gerut License Agreement, Dr. Gerut granted to us and our affiliates an exclusive worldwide license, with theright to sublicense to certain third parties to know-how owned by Dr. Gerut related to the manufacture, preparation, formulation, use or development of (i) theEnzyme and (ii) all pharmaceutical products containing the Enzyme or injectable collagenase, in each case to the extent it pertains to the treatment of fat. As thein-license granted in the Gerut License Agreement pertains to the treatment of fat, this in-license also relates to human lipoma and canine lipoma.In consideration of the license granted under the Gerut License Agreement, we agreed to pay to Dr. Gerut certain royalties on net sales (if any) of pharmaceuticalproducts containing the Enzyme which are made, used and sold for the removal or treatment of fat in humans or animals (each a “Gerut Licensed Product”).In addition, in the event the FDA approves a Gerut Licensed Product, we have agreed to make a one-time stock option grant to Dr. Gerut with a strike priceequal to the closing trading price on the day before the date of such grant.Our obligation to pay royalties to Dr. Gerut with respect to sales by us, our affiliates or any sublicensee of any Gerut Licensed Product in any country(including the U.S.) arises only upon the first commercial sale of a Gerut Licensed Product. Our obligation to pay royalties to Dr. Gerut will continue untilJune 3, 2016 or such longer period as we continue to receive royalties for such Gerut Licensed Product.Unless terminated earlier in accordance with its termination provisions, the Gerut License Agreement and licenses granted under that agreement will continue ineffect until the termination of our royalty obligations. After that, all licenses granted to us under the Gerut License Agreement will become fully paid,irrevocable exclusive licenses.Redacted copies of the Cellulite License Agreement and the Gerut License Agreement are being filed with this Report. The foregoing descriptions of the CelluliteLicense Agreement and the Gerut License Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of theseagreements.Other IndicationsWe have or may enter into certain other license and royalty agreements with respect to other indications that we may elect to pursue.Significant RisksWe are dependent to a significant extent on third parties, and our principal licensee, Auxilium, may not be able to continue successfully commercializingXIAFLEX for Dupuytren’s contracture, successfully develop XIAFLEX for additional indications, obtain required regulatory approvals, manufactureXIAFLEX at an acceptable cost, in a timely manner and with appropriate quality, or successfully market products or maintain desired margins for productssold, 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 management to make estimatesand assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience and onvarious other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates. While our significantaccounting policies are described in more detail in the notes to our consolidated financial statements, we believe the following accounting policies to be criticalto the judgments and estimates used in the preparation of our consolidated financial statements.Revenue Recognition. We recognize revenues from product sales when there is persuasive evidence that an arrangement exists, title passes, the price is fixedand determinable, and payment is reasonably assured. We currently recognize revenues resulting from the licensing, sublicensing and use of our technologyand from services we sometimes perform in connection with the licensed technology. 39Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 We enter into product development licenses and collaboration agreements that may contain multiple elements, such as upfront license and sublicense fees,milestones related to the achievement of particular stages in product development and royalties. As a result, significant contract interpretation is sometimesrequired to determine the appropriate accounting, including whether the deliverables specified in a multiple-element arrangement should be treated as separateunits of accounting for revenue recognition purposes, and if so, how the aggregate contract value should be allocated among the deliverable elements and whento recognize revenue for each element.We recognize revenue for delivered elements only when the fair values of undelivered elements are known, when the associated earnings process is completeand, to the extent the milestone amount relates to our performance obligation, when our licensee confirms that we have met the requirements under the terms ofthe agreement, and when payment is reasonably assured. Changes in the allocation of the contract value between various deliverable elements might impact thetiming of revenue recognition, but in any event, would not change the total revenue recognized on the contract. For example, nonrefundable upfront productlicense fees, for product candidates for which we are providing continuing services related to product development, are deferred and recognized as revenue overthe development period.Milestones, in the form of additional license fees, typically represent nonrefundable payments to be received in conjunction with the achievement of a specificevent identified in a contract, such as completion of specified clinical development activities and/or regulatory submissions and/or approvals. We believe that amilestone represents the culmination of a distinct earnings process when it is not associated with ongoing research, development or other performance on ourpart. We recognize such milestones as revenue when they become due and payment is reasonably assured. When a milestone does not represent the culminationof a distinct earnings process, we recognize 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 and collectability is reasonablyassured, we recognize revenue during the applicable period earned. For interim quarterly reporting purposes, when collectability is reasonably assured but areasonable estimate of royalty, mark-up on cost of goods sold or earn-out payment revenues cannot be made, the royalty, mark-up on cost of goods sold orearn-out payment revenues are generally recognized in the quarter that the applicable 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 royalties and a mark-up ofthe cost of goods sold revenues. The royalty and mark-up on cost of goods sold revenues will generally be recognized in the quarter that Auxilium provides thewritten reports and related information to us, that is, royalty and mark-up on cost of goods sold revenues are generally recognized one quarter following thequarter in which the underlying sales by Auxilium occurred. The royalties payable by Auxilium to us are subject to set-off for certain patent costs.Under the DFB Agreement, pursuant to which we sold our topical collagenase business to DFB, we have the right to receive earn-out payments in the futurebased on sales of certain products. Generally, under the DFB Agreement we would receive payments and a report within ninety (90) days from the end of eachcalendar year after DFB has sold the royalty-bearing product. Currently, DFB is providing us earn-out reports on a quarterly basis. We expect to receive thefinal earn-out payment at the end of 2013.Consulting and Technical Assistance Services. We recognize revenues from consulting and technical assistance contracts primarily as a result of the DFBAgreement. Consulting revenues are recognized ratably over the term of the contract. The consulting and technical assistance obligations to DFB expired duringMarch 2011.Reimbursable Third Party Development Costs. We accrued patent expenses for research and development that are reimbursable by us under the AuxiliumAgreement. We capitalize certain patent costs related to estimated third party development costs that are reimbursable under the Auxilium Agreement. In August2011, through the amendment and restatement of our development and license agreement with Auxilium, we have clarified the rights and responsibilities of thejoint development of XIAFLEX. We resolved what had been an on-going dispute with Auxilium concerning the appropriate amount of creditable third partydevelopment expenses related to the lyophilization of the injection formulation and certain patent expenses for research and development costs that arereimbursable under the Auxilium Agreement. We agreed and have reimbursed Auxilium by offsetting future royalties payable for the amount invoiced us forthird party development costs related to the development of the lyophilization of the injection formulation. We do not expect any additional third partydevelopment cost related to the lyophilization of the injection formulation. 40Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 As of December 31, 2012 our net reimbursable third party patent costs accrual was approximately $0.2 million. Receivables and Deferred Revenue. Accounts receivable as of December 31, 2012 is approximately $5.1 million, which consists of approximately $2.9million due from DFB in accordance with the earn-out under the DFB Agreement and approximately $2.1 million in royalties and mark-up on costs of goodssold due from Auxilium in accordance with the terms of the Auxilium Agreement. Deferred revenue of $0.4 million consist of licensing fees related to the cashpayments received under the Auxilium Agreement in prior years and amortized over the expected development period of certain indications for XIAFLEX. Royalty Buy-Down. On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Gelbard, dated August 27, 2008, related to ourfuture royalty obligations for Peyronie’s disease. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initialcash payment and five additional cash payments payable upon the occurrence of a milestone event.As of December 31, 2012, we have capitalized $2.75 million related to this agreement which will be amortized over approximately five years beginning on thedate of the first commercial sale of XIAFLEX for the treatment of Peyronie’s disease, which represents the period estimated to be benefited using the straight-line method. 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 that pattern cannot bereliably 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 the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant assumptions are our estimates of the expected volatility of themarket price of our stock and the expected term of an award. Expected volatility is based on the historical volatility of our common stock. When establishingan estimate of the expected term of an award, we consider the vesting period for the award, our historical experience of employee stock option exercises(including forfeitures) and the expected volatility. As required under the accounting rules, we review our valuation assumptions at each grant date and, as aresult, we are likely to change our valuation assumptions used to value future employee stock-based awards granted, to the extent any such awards aregranted.Further, ASC 718 requires that employee stock-based compensation costs to be recognized over the requisite service period, or the vesting period, in a mannersimilar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line areestimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in futureperiods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-basedcompensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the currentperiod.RESULTS OF OPERATIONSYEAR ENDED DECEMBER 31, 2012 COMPARED WITH YEAR ENDED DECEMBER 31, 2011Net revenuesNet revenues for the two years ended December 31, 2012 and 2011 comprise the following: Year Ended December 31 2012 2011 Change % Change Net sales $18,219 $21,998 (3,779) (17)%Royalties 9,155,654 6,314,959 2,840,695 45%Licensing revenue 1,971,205 5,012,102 (3,040,897) (61)%Consulting fees - 46,667 (46,667) (100)%Total net revenues $11,145,078 $11,395,726 $(250,648) (2)% 41Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 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 small amount of revenuefrom the sale of collagenase for laboratory use. For the calendar years ended 2012 and 2011 product revenues were $18,219 and $21,998, respectively. Thisdecrease of $3,779, or 17%, was primarily related to the amount of material required to perform testing and additional research by our customers.RoyaltiesRoyalties consist of royalties and the mark-up on cost of goods sold under the Auxilium Agreement and earn-out revenues associated with the DFB Agreement.Total royalty, mark-up on cost of goods sold and earn-out revenues for year ended December 31, 2012 were $9,155,654 as compared to $6,314,959 in the2011 period, an increase of $2,840,695, or 45%. Royalty and the mark-up on cost of goods sold revenues recognized under the Auxilium Agreement were$6,253,626 for the 2012 period and $4,028,623 for the 2011 period. The increase of $2,225,003, or 55%, was due to increased net sales of XIAFLEXduring 2012 reported to us by Auxilium. Auxilium launched XIAFLEX in March 2010.We receive earn-out revenues from DFB under the earn-out payment provision of the DFB Agreement after certain net sales levels are achieved. Revenuesrecognized under the DFB Agreement were $2,902,028 for the year ended December 31, 2012 and $2,286,336 for the same period in 2011. This increase of$615,692, or 27%, is mainly related to the increase in net sales during the 2012 period reported to us by DFB. We expect to receive the final earn-out paymentat the end of 2013.Licensing Revenue Licensing revenue consists of licensing fees, sublicensing fees and milestones. For the years ended December 31, 2012 and 2011, we recognized total licensingand milestone revenue of $1,971,205 and $5,012,102, respectively, a decrease of $3,040,897, or 61%. Certain licensing revenues recognized are related tothe cash payments received under the Auxilium Agreement in prior years and amortized over the expected development period. Licensing revenue recognized forthe years ended December 31, 2012 and 2011 were $372,705 and $437,102, respectively. The decrease of $64,397, or 15%, was mainly due to thecompleted recognition of licensing revenue associated with the Dupuytren’s contracture indication during the first quarter of 2010 and a slight change in thedevelopment timeline associated with the Peyronie’s indication. Sublicensing fees recognized in 2012 were $570,000 compared to $750,000 in the same periodin 2011. In 2012, we recognized $570,000 in sublicensing fees, which were related to the $10.0 million paid to Auxilium by Actelion for the rights to developand commercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Canada, Australia, Brazil and Mexico. In the 2011 period,we recognized $750,000 of the $15.0 million paid to Auxilium by Asahi for the rights to commercialize XIAFLEX for the treatment of Dupuytren's contractureand Peyronie's disease in Japan.Milestone revenue recognized for the years ended December 31, 2012 and 2011 were $1.0 million and $3.8 million, respectively. In the 2012 period, werecognized a $1.0 million milestone related to the FDA’s December 2012 acceptance of Auxilium’s sBLAfor XIAFLEX for the potential treatment of Peyronie'sdisease. We also, recognized a milestone of $28,500 related to the Notice of Compliance (approval) by Health Canada for XIAFLEX for the treatment ofDupuytren's contracture in adults with a palpable cord in Canada granted to Auxilium. In the 2011 period, we recognized a $2.6 million milestone related tothe first sale of XIAFLEX in Europe, , a $637,500 milestone related to the first sale of XIAFLEX in Germany, and a $637,500 milestone related to the firstsale of XIAFLEX in Spain.Under current accounting guidance, nonrefundable upfront license fees for product candidates for which we are providing continuing services related toproduct development are deferred and recognized as revenue over the development period. The remaining balance will be recognized over the respectivedevelopment periods or when we determine that we have no ongoing performance obligations. 42Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Consulting ServicesWe recognize revenues from consulting and technical assistance contracts primarily as a result of the DFB Agreement. We recognize consulting revenuesratably over the term of the contract. For calendar years 2012 and 2011 we recognized zero and $46,667 respectively. The decrease in revenues resulting fromconsulting and technical assistance contracts is due to the expiration in March 2011 of our consulting obligations under the DFB Agreement.Research and Development ActivitiesResearch and development expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costsand overhead. Research and development expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials,consulting fees and costs associated with clinical study arrangements. Research and development expenses were $1,249,755 and $972,078, respectively, forcalendar years 2012 and 2011, representing an increase in 2012 of $277,677, or 29%. This increase in research and development expenses was primarilydue to expenses related to our clinical development programs. We are currently working to develop XIAFLEX for the treatment of human and canine lipoma. We have initiated a placebo controlled randomized study toevaluate the efficacy of XIAFLEX for the treatment of subcutaneous benign lipomas in canines. The study will consist of 32 canines randomized at 1:1XIAFLEX or placebo. The treatment is a single injection of XIAFLEX or placebo. The primary efficacy endpoint will be the relative change in lipoma volumefrom baseline to 3 months, as determined by CT scan. We expect to complete enrollment in this study by the first half of 2013. Also, we have initiated a 14-patient, single center dose escalation, phase II clinical trial of XIAFLEX for the treatment of human lipomas. The study is a single injection, open-label trial,and XIAFLEX is being administered in four ascending doses (0.058 mg to 0.44 mg). The primary efficacy endpoint will be a change in the visible surface areaof the target lipoma, as determined at six months post-injection. We completed enrollment for this study in January 2013 and top-line data is expected in thesecond half of 2013. Please refer to Part I, Item 1, "Description of Business", for a more detailed description of each of these programs. The following table summarizes our research and development expenses related to our clinical development programs: Year EndedDecember 31, 2012 Year EndedDecember 31, 2011 Accumulated ExpensesSince January 1, 2010 Program Canine Lipoma $442,741 $332,217 $972,988 Human Lipoma 168,879 110,800 404,869 Successful development of drugs is inherently difficult and uncertain. Our business requires investments in research and development over many years,often for drug candidates that may fail during the research and development process. Even if the Company is able to successfully complete the development ofour drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX, to continue tosuccessfully commercialize these drug candidates.There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of: ·the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects; ·the anticipated completion dates for our drug candidate projects; ·the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drugcandidate projects; ·the scope, rate of progress of our preclinical studies and other research and development activities related to our drug candidate projects; ·clinical trial results for our drug candidate projects; ·the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidateprojects; ·the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drugcandidate projects; ·the cost and timing of regulatory approvals with respect to our drug candidate projects; and ·the cost of establishing clinical supplies for our drug candidate projects. 43Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Our current resources and liquidity are sufficient to advance our significant current research and development projects and, Auxilium will have the option toexclusively license the canine and human lipoma indications upon completion of the appropriate opt-in study.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries and other related costs for personnel, consultant costs, legal fees, investor relations,professional fees and overhead costs. General and administrative expenses were $4,774,828 and $5,231,881 for calendar years 2012 and 2011, respectively,a decrease of $457,053 or 9%, from 2011. The decrease in general and administrative expenses was due to lower general legal fees and stock basedcompensation partially offset by third party royalty fees and consulting fees.Other Income and expenseOther income for calendar year 2012 was $34,634 compared to $71,603 for calendar year 2011. For calendar year 2012, other income consisted of interestearned on our investments of $34,634. For calendar year 2011, other income consisted of interest earned on our investments of $55,780 and a reversal ofaccrued tax penalties associated with our delinquent tax filings in previous years of $15,823.Income TaxesOur deferred tax liabilities, deferred tax assets and related valuation allowances are impacted by events and transactions arising in the ordinary course ofbusiness, research and development activities, vesting of nonqualified options, deferred revenues and other items. Deferred tax assets are affected by thevaluation allowance which is dependent upon several factors, including estimates of the realization of deferred income tax assets, and the impact of estimatedfuture taxable income. Significant judgment is required to determine the estimated amount of valuation allowance to record. Changes in the estimate of thevaluation allowance could materially increase or decrease our provision for income taxes in future periods.The provision for income taxes and corresponding taxes payable in 2012 was $2.2 million as compared to a tax benefit of $1.3 million in 2011. In 2012, weused $1.0 million of our Orphan Drug tax credit to reduce our federal income tax payable. We recognized the tax effect of $0.8 million related to the exercise ofnonqualified options in our financial statements, which lowered our taxes payable by $0.3 million, reduced our tax assets related to non-qualified stockoptions by $32,000 and increased additional paid in capital by $0.3 million. Additionally, we utilized tax assets from our federal and state net operating losscarryforwards of $16,000 and deferred licensing revenue of $0.1 million to reduce our taxes payable. Because our state net operating losses of $4.2 millionexceeded our federal net operating losses of $47,000 we set up a valuation allowance of $0.3 million against our tax asset of our state net operating losscarryforwards. In the 2011 period, the $1.3 million in income tax benefit consisted of an income tax expense of $2.3 million which was offset by a one-time $3.6 million taxbenefit related to our deferred tax asset valuation allowance and the recording of our deferred tax assets as we believe that our tax assets are more likely than notto be realized as we achieved sustained profitability on an on-going annual basis. In making such determination, we consider all available positive and negativeevidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financialoperations. In 2011, we recognized the tax effect of $4.6 million in disqualifying disposition of options and the exercise of nonqualified options in ourfinancial statements. The exercise of nonqualified options and disposition of disqualified options lowered our taxes payable by $1.9 million, reduced our taxassets related to non-qualified options by $0.2 million and increased additional paid in capital and provision for income tax benefits by $1.7 million and$30,239, respectively. Additionally, we utilized tax assets from our federal and state net operating loss carryforwards of $0.3 million and deferred licensingrevenue of $0.2 million to reduce our taxes payable. Because our state net operating losses exceeded our federal net operating losses we set up a valuationallowance of $0.2 million against our tax asset for our state net operating loss carryforwards. 44Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsYEAR ENDED DECEMBER 31, 2011 COMPARED WITH YEAR ENDED DECEMBER 31, 2010Net revenuesNet revenues for the two years ended December 31, 2011 and 2010 comprise the following: Year Ended December 31 2011 2010 Change % Change Net sales $21,998 $34,508 $(12,510) (36)%Royalties 6,314,959 2,320,729 3,994,230 172%Licensing revenue 5,012,102 3,026,111 1,985,991 66%Consulting fees 46,667 280,000 (233,333) (83)%Total net revenues $11,395,726 $5,661,348 $5,734,378 101%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 small amount of revenuefrom the sale of collagenase for laboratory use. For the calendar years ended 2011 and 2010 product revenues were $21,998 and $34,508, respectively. Thisdecrease of $12,510 or 36% was primarily related to the amount of material required to perform testing and additional research by our customers.RoyaltiesRoyalties consist of royalties and the mark-up on cost of goods sold under the Auxilium Agreement and earn-out revenues associated with the DFB Agreement.Total royalty, mark-up on cost of goods sold and earn-out revenues for year ended December 31, 2011 were $6,314,959 as compared to $2,320,729 in the2010 period, an increase of $3,994,230 or 172%. Royalty and the mark-up on cost of goods sold revenues recognized under the Auxilium Agreement were$4,028,623 for the 2011 period and $710,182 for the 2010 period. The increase was due to increased net sales of XIAFLEX during 2011 reported to us byAuxilium. Auxilium launched XIAFLEX in March 2010. We receive earn-out revenues from DFB under the earn-out payment provision of the DFB Agreement after certain net sales levels are achieved. Revenuesrecognized under the DFB Agreement were $2,286,336 for the year ended December 31, 2011 and $1,610,548 for the same period in 2010. This increase of$675,788 or 42% is mainly related to the increase in net sales during the 2011 period reported to us by DFB.Licensing Revenue Licensing revenue consists of licensing fees, sublicensing fees and milestones. For the years ended December 31, 2011 and 2010, we recognized total licensingand milestone revenue of $5,012,102 and $3,026,111, respectively, an increase of $1,985,991 or 66%. Certain licensing revenues recognized are related tothe cash payments received under the Auxilium Agreement in prior years and amortized over the expected development period. Licensing revenue recognized forthe years ended December 31, 2011 and 2010 were $437,102 and $751,111, respectively. The decrease of $314,009, or 42%, was mainly due to thecompleted recognition of licensing revenue associated with the Dupuytren’s contracture indication during the first quarter of 2010. Sublicensing fees recognizedin 2011 were $750,000 compared to zero in the same period in 2010. We recognized $750,000 of the $15.0 million paid to Auxilium by Asahi for the rights tocommercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Japan.Milestone revenue recognized for the years ended December 31, 2011 and 2010 were $3.8 million and $2.6 million, respectively. In the 2011 period, werecognized milestones related to the first sale of XIAFLEX in Europe of $2.6 million, the first sale of XIAFLEX in Germany of $637,500 and the first sale ofXIAFLEX in Spain of $637,500. In the comparable 2010 period, we received and recognized $1.3 million of the $15 million paid to Auxilium by Pfizer forthe scientific/technical review procedure of the Marketing Authorization Application for XIAFLEX for Dupuytren’s contracture in Europe. We also receivedand recognized in the 2010 period a milestone of $1.0 million related to the FDA’s approval of XIAFLEX for Dupuytren’s contracture in February 2010 andour notification to Auxilium in June 2010 of our election not to commercially manufacture XIAFLEX. 45Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Under current accounting guidance, nonrefundable upfront license fees for product candidates for which we are providing continuing services related toproduct development are deferred and recognized as revenue over the development period. The remaining balance will be recognized over the respectivedevelopment 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 recognize consulting revenuesratably over the term of the contract. For calendar years 2011 and 2010 we recognized $46,667 and $280,000 respectively. The decrease in revenues resultingfrom consulting and technical assistance contracts is due to the expiration in March 2011 of our consulting obligations under the DFB Agreement.Research and Development ActivitiesResearch and development expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costsand overhead. Research and development expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials,consulting fees and costs associated with clinical study arrangements. Research and development expenses were $972,078 and $1,223,931, respectively, forcalendar years 2011 and 2010, representing a decrease in 2011 of $251,853, or 21%. This decrease in research and development expenses was primarily dueto third party development costs that are reimbursable under the Auxilium Agreement partially offset by increased clinical development expenses. We are currently working to develop XIAFLEX for the treatment of human and canine lipoma. We have initiated a placebo controlled randomized study toevaluate the efficacy of XIAFLEX for the treatment of subcutaneous benign lipomas in canines. The study will consist of 32 canines randomized at 1:1XIAFLEX or placebo. The treatment is a single injection of XIAFLEX or placebo. The primary efficacy endpoint will be the relative change in lipoma volumefrom baseline to 3 months, as determined by CT scan. We expect to complete enrollment in this study by the first half of 2013. Also, we have initiated a 14-patient, single center dose escalation, phase II clinical trial of XIAFLEX for the treatment of human lipomas. The study is a single injection, open-label trial,and XIAFLEX is being administered in four ascending doses (0.058 mg to 0.44 mg). The primary efficacy endpoint will be a change in the visible surface areaof the target lipoma, as determined at six months post-injection. We completed enrollment for this study in January 2013 and top-line data is expected in thesecond half of 2013. The following table summarizes our research and development expenses related to our clinical development programs. Please refer to Part I, Item 1,"Description of Business", for a more detailed description of each of these programs: Year EndedDecember 31, 2011 Year EndedDecember 31, 2010 Accumulated ExpensesSince January 1, 2010 Program Canine Lipoma $332,217 $198,030 $530,247 Human Lipoma 110,800 125,191 235,991 Successful development of drugs is inherently difficult and uncertain. Our business requires investments in research and development over many years,often for drug candidates that may fail during the research and development process. Even if the Company is able to successfully complete the development ofour drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX, to continue tosuccessfully commercialize these drug candidates.There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of: ·the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects; ·the anticipated completion dates for our drug candidate projects; ·the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drugcandidate projects; 46Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ·the scope, rate of progress of our preclinical studies and other research and development activities related to our drug candidate projects; ·clinical trial results for our drug candidate projects; ·the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidateprojects; ·the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drugcandidate projects; ·the cost and timing of regulatory approvals with respect to our drug candidate projects; and ·the cost of establishing clinical supplies for our drug candidate projects.Our current resources and liquidity are sufficient to advance our significant current research and development projects and, Auxilium will have the option toexclusively license the canine and human lipoma indications upon completion of the appropriate opt-in study.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries and other related costs for personnel, consultant costs, legal fees, investor relations,professional fees and overhead costs. General and administrative expenses were $5,231,881 and $6,470,449 for calendar years 2011 and 2010, respectively,a decrease of $1,238,568, or 19%, from 2010. The decrease in general and administrative expenses was due to lower stock based compensation, consultingservices, general legal fees and services related to investor relations partially offset by increases in patent costs and director fees.Other Income and expenseOther income for calendar year 2011 was $71,603 compared to $525,843 for calendar year 2010. For calendar year 2011, other income consisted of interestearned on our investments of $55,780 (compared to $86,310 for the 2010 period) and a reversal of accrued tax penalties associated with our delinquent taxfilings in previous years of $15,823 (compared to $13,130 for the 2010 period). Other income for the calendar year 2010, unlike the comparable 2011 period,included revenue in connection with a $426,000 grant under the Qualifying Therapeutic Discovery Project Program. Although we received $324,000 of thisgrant in 2011, we did not recognize revenues related to it in 2011 because we had recognized the full amount of the grant during the 2010 period and hadincurred all of the qualifying expenses prior to 2011. We elected to classify this revenue as other income in the Consolidated Statement of Operations since thisprogram is non-recurring, Income TaxesOur deferred tax liabilities, deferred tax assets and related valuation allowances are impacted by events and transactions arising in the ordinary course ofbusiness, research and development activities, vesting of nonqualified options, deferred revenues and other items. Deferred tax assets are affected by thevaluation allowance which is dependent upon several factors, including estimates of the realization of deferred income tax assets, and the impact of estimatedfuture taxable income. Significant judgment is required to determine the estimated amount of valuation allowance to record. Changes in the estimate of thevaluation allowance could materially increase or decrease our provision for income taxes in future periods.In the 2011 period, the $1.3 million in income tax benefit consisted of an income tax expense of $2.3 million which was offset by a one-time $3.6 million taxbenefit related to our deferred tax asset valuation allowance and the recording of our deferred tax assets as we believe that our tax assets are more likely than notto be realized as we achieved sustained profitability on an on-going annual basis. In making such determination, we consider all available positive and negativeevidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financialoperations.In 2011 and 2010, we had $0.7 million and $2.0 million of tax deductible expenses from the exercise of non-qualified and disqualified disposition of incentivestock options, respectively. Based on the results of our operations over the last two years, the growth in the market for XIAFLEX, and the trend in actual andanticipated royalty income, we had determined that is was more likely than not that the benefit of our deferred tax assets will be realized. Consequently, weeliminated our 2010 valuation allowance of $3.6 million and increased our deferred tax assets by $0.3 million to reflect the application of our state statutoryrates of 7.1% to temporary differences. 47Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Under the ASC 718-25-09, we recognized the tax effect of $4.6 million in disqualifying disposition of options and the exercise of nonqualified options in ourfinancial statements for the year ended December 31, 2011. The exercise of nonqualified options and disposition of disqualified options lowered our taxespayable by $1.9 million, reduced our tax assets related to non-qualified options by $0.2 million and increased additional paid in capital and provision forincome tax benefits by $1.7 million and $30,239, respectively. Additionally, we utilized tax assets from our federal and state net operating loss carryforwardsof $0.3 million and deferred licensing revenue of $0.2 million to reduce our taxes payable. Because our state net operating losses exceeded our federal netoperating losses we set up a valuation allowance of $0.2 million against our tax asset for our state net operating loss carryforwards.In the 2010 period we had a tax expense of $1,351. The income tax expense for 2010 was the result of minimum New York State taxes.Liquidity and Capital ResourcesTo date, we have financed our operations primarily through product sales, debt instruments, licensing revenues and royalties under agreements with thirdparties and sales of our common stock. At December 31, 2012, 2011 and 2010, we had cash and cash equivalents and short-term investments in the aggregateof approximately $8.5 million, $8.2 million and $7.8 million, respectively.Sources and Uses of CashNet cash provided (by used) in operating activities was $2.4 million, $(0.7) million and $(0.9) million for 2012, 2011 and 2010. Net cash provided byoperations for 2012 was primarily due to our net income, net of stock compensation expenses and other non-cash charges. Net cash used in operations for2011 was mainly due to a decrease in accrued expenses, increases in deferred tax assets and accounts receivable, net of stock compensation expense and othernon-cash charges. Cash used in operations for 2010 resulted primarily from operating losses, net of stock compensation expenses and other non-cash charges.The majority of our cash expenditures in 2012, 2011, and 2010 were to fund research and development and our business activities.Net cash used in investing activities was $1.6 million in 2012, compared to net cash provided by investing activities of $0.4 million in 2011 and $0.8 millionin 2010. The net cash used in investing activities in the 2012 period reflects the maturing of investments of $5.1 million and reinvestment of $5.2 million inmarketable securities and a one-time cash payment related to our future royalty obligations for Peyronie's disease of $1.5 million. The net cash provided byinvesting activities in the 2011 period reflects the maturing of investments of $5.4 million and reinvestment of $5.0 million in marketable securities. In 2010,purchases of marketable securities exceeded maturities by $0.8 million.Net cash used in financing activities for 2012 was $0.6 million, as compared to net cash provided by financing activities of $1.1 million and $0.2 million for2011 and 2010 periods. In 2012, net cash used in financing activities was mainly related to the repurchase of our common stock under our 2010 StockRepurchase Program partially offset by excess tax benefits related to share-based payments and stock option proceeds. In 2011, net cash provided byfinancing activities was due to excess tax benefits related to share-based payments and stock option proceeds partly offset by the repurchase of our commonstock under our 2010 Stock Repurchase Program. Net cash provided by financing activities in 2010 reflects proceeds from stock option exercises partly offsetby the repurchase of our common stock under our 2010 Stock Repurchase Program. Contractual Commitments We are involved with licensing of products which are generally associated with payments to third parties from whom we have licensed the product. Suchpayments may take the form of an up-front payment; milestone payments which are paid when certain parts of the overall development program areaccomplished; payments upon certain regulatory events, such as the filing of an IND, an NDA or BLA, approval of an NDA or BLA, or the equivalents inother countries; and payments based on a percentage of sales. 48Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 We may also out-license products, for which we hold the rights, to other companies for commercialization in other territories, or at times, for other uses. Whenthis happens, the payments to us would also take the same form as described above. Operating Leases Our operating leases are principally for facilities and equipment. We currently lease approximately 15,000 square feet of space at our headquarters inLynbrook, New York on a month to month basis. Additionally, we lease certain vehicle and certain office equipment which generally expire in 2014 and 2017,respectively.Future minimum annual payments required under non-cancelable operating leases are approximated as follows:Year ending December 31, 2013 $8,000 2014 $5,000 2015 $4,000 2016 $4,000 2017 $2,000 Off-Balance Sheet Arrangements We 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 June 2011, the Financial Accounting Standards Board (FASB) issued a new standard on the presentation of comprehensive income. The new standardeliminated the current alternative to report other comprehensive income and its components in the statement of changes in equity. Under the new standard,companies can elect to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive statements.We adopted the provisions of this standard during the first quarter of 2012.In July 2012, the FASB issued a new standard which amends the guidance on testing indefinite-lived intangible assets, other than goodwill. The new standardallows companies an option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impairedas a basis for determining if it is necessary to perform a quantitative assessment and calculate the fair value of the asset. Under the new standard, a companyis no longer required to calculate the fair value of an indefinite-lived intangible asset unless the company determines, based on the qualitative assessment, thatit is more likely than not impaired. The new standard is effective for annual and interim impairment tests performed in fiscal years beginning after September15, 2012, with early adoption permitted. We do not expect a material impact with the adoption of this new standard.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 consist of cash, cashequivalents, short-term investments, trade accounts receivable, accounts payable and long-term obligations. We consider investments that, when purchased,have a remaining maturity of 90 days or less to be cash equivalents.Our investment portfolio is subject to interest rate risk, although limited given the nature of the investments, and will fall in value in the event market interestrates increase. All our cash and cash equivalents at December 31, 2012, amounting to approximately $3.4 million, were maintained in bank demand accountsand money market accounts. Our short-term investments of $5.1 million were maintained in certificates of deposit. We do not hedge our interest rate risks, aswe believe reasonably possible near-term changes in interest rates would not materially affect our results of operations, financial position or cash flows. 49Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Item 8. FINANCIAL STATEMENTS. For the discussion of Item 8, “Financial Statements” please see the Consolidated Financial Statements, beginning on page F-1 of this Report.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 Executive Officer, PrincipalFinancial Officer and Principal Accounting Officer, evaluated the effectiveness of its disclosure controls and procedures as of the end of the period covered bythis Report. Based on that evaluation, management has concluded that the Company’s disclosure controls and procedures are effective to ensure thatinformation required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated tothe Company’s management, to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, any controlsand procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and managementnecessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, our controls andprocedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control, andmisstatements due to error or fraud may occur and not be detected on a timely basis.Management’s Annual Report on Internal Control Over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined inRule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’smanagement and board of directors regarding the preparation and fair presentation of published 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 those systems determinedto 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, 2012. In making this assessment,management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – IntegratedFramework. We believe that, as of December 31, 2012, the Company’s internal control over financial reporting was effective based on this criteria. Tabriztchi & Co, the independent registered public accounting firm that audited our Consolidated Financial Statements included in this Report, audited theeffectiveness of our internal control over financial reporting as of December 31, 2012, as stated in their report which is included in Part IV, Item 15 of thisReport. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation of our controls performed during the yearended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Item 9B. OTHER INFORMATION Not applicable. 50Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsPART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)OF THE EXCHANGE ACT The information required by this item is incorporated herein by reference to the sections captioned “Directors and Executive Officers,” “Committees of theBoard of Directors,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement relating to our 2013 Annual Meetingof Stockholders.Item 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated herein by reference to the section captioned “Executive Compensation” in our definitive Proxy Statementrelating to our 2013 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 Beneficial Owners andManagement” and “Equity Compensation Plan Information” in our definitive Proxy Statement relating to our 2013 Annual Meeting 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 Related Transactions” in ourdefinitive Proxy Statement relating to our 2013 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 Independent Registered PublicAccounting Firm” in our definitive Proxy Statement relating to our 2013 Annual Meeting of Stockholders.PART IV Item 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 presented inthe consolidated financial statements (3)Exhibits The information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference. (b)Exhibits The information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference. 51Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 BIOSPECIFICS TECHNOLOGIES CORP.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARENDED DECEMBER 31, 2012 PageReports of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Cash Flows F-6 Consolidated Statements of Stockholders’ Deficit F-7 Notes to Consolidated Financial Statements F-8 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors andStockholders ofBioSpecifics Technologies Corp. We have audited the accompanying consolidated balance sheets of BioSpecifics Technologies Corp. (the Company) as of December 31, 2012 and 2011, andthe related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2012.BioSpecifics Technologies Corp.'s management is responsible for these financial statements. Our responsibility is to express an opinion on these financialstatements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide 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 of BioSpecificsTechnologies Corp. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the three-year period endedDecember 31, 2012 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), BioSpecifics TechnologiesCorp.'s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2013 expressed an unqualifiedopinion. /s/ Tabriztchi & Co., CPA, P.C. Garden City, NY March 14, 2013 F-2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors andStockholders ofBioSpecifics Technologies Corp. We have audited BioSpecifics Technologies Corp.'s internal control over financial reporting as of December 31, 2012 based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). BioSpecifics TechnologiesCorp's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility isto express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditalso included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for ouropinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control overfinancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, 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 any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. In our opinion, BioSpecifics Technologies Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31,2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets and the relatedstatements of income, stockholders' equity and cash flows of BioSpecifics Technologies Corp. and our report dated March 14, 2013 expressed an unqualifiedopinion. /s/ Tabriztchi & Co., CPA, P.C. Garden City, NY March 14, 2013 F-3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsBioSpecifics Technologies Corp.Consolidated Balance Sheet December 31, 2012 2011 Assets Current assets: Cash and cash equivalents $3,383,737 $3,196,831 Short term investments 5,120,000 5,000,000 Accounts receivable, net 5,082,360 3,236,917 Income tax receivable 51,070 244,720 Deferred tax asset 88,910 1,309,801 Prepaid expenses and other current assets 149,724 98,234 Total current assets 13,875,801 13,086,503 Deferred royalty buy-down 2,750,000 1,250,000 Deferred tax assets –long term 1,484,141 1,738,154 Patent costs, net 280,322 190,416 Total assets 18,390,264 16,265,073 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses 512,866 601,002 Deferred revenue 133,524 437,099 Accrued liabilities of discontinued operations 78,138 78,138 Total current liabilities 724,528 1,116,239 Deferred revenue - license fees 207,390 276,520 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; 6,625,168 and 6,530,743 shares issued atDecember 31, 2012 and 2011, respectively 6,625 6,531 Additional paid-in capital 20,688,706 20,049,196 Accumulated deficit (310,829) (3,291,904)Treasury stock, 260,632 and 194,604 shares at cost as of December 31, 2012 and 2011 (2,926,156) (1,891,509)Total stockholders' equity 17,458,346 14,872,314 Total liabilities and stockholders’ equity $18,390,264 $16,265,073 F-4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsBioSpecifics Technologies Corp.Consolidated Statements of Operations Years Ended December 31, 2012 2011 2010 Revenues: Net sales $18,219 $21,998 $34,508 Royalties 9,155,654 6,314,959 2,320,729 Licensing revenue 1,971,205 5,012,102 3,026,111 Consulting fees - 46,667 280,000 Total revenues 11,145,078 11,395,726 5,661,348 Costs and expenses: Research and development 1,249,755 972,078 1,223,931 General and administrative 4,774,828 5,231,881 6,470,449 Total costs and expenses 6,024,583 6,203,959 7,694,380 Operating income (loss) 5,120,495 5,191,767 (2,033,032) Other income (expense): Interest income 34,634 55,780 86,310 Other - 15,823 13,130 Qualifying Therapeutic Discovery Grant - - 426,403 34,634 71,603 525,843 Income (loss) before benefit (expense) for income tax 5,155,129 5,263,370 (1,507,189)Income tax benefit (expense) (2,174,054) 1,338,256 (1,351)Net income (loss) $2,981,075 $6,601,626 $(1,508,540) Basic net income (loss) per share $0.47 $1.04 $(0.24) Diluted net income (loss) per share $0.43 $0.95 $(0.24) Shares used in computation of basic net income (loss) per share 6,351,245 6,340,648 6,261,214 Shares used in computation of diluted net income (loss) per share 6,981,527 6,952,386 6,261,214 F-5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsBioSpecifics Technologies Corp.Consolidated Statements of Cash Flows Years Ended December 31, Cash flows from operating activities: 2012 2011 2010 Net income (loss) $2,981,075 $6,601,626 $(1,508,540)Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 64,190 50,685 18,949 Stock-based compensation expense 228,485 517,367 1,901,781 Deferred tax assets 1,474,904 (3,047,955) - Changes in operating assets and liabilities: Accounts receivable (1,845,443) (1,250,792) (459,291)Prepaid expenses and other current assets 142,160 (65,642) (28,664)Accounts payable and accrued expenses (242,233) (3,009,109) 24,394 Deferred revenue (372,705) (483,769) (831,111)Net cash provided by (used in) operating activities from continuing operations 2,430,433 (687,589) (882,482) Cash flows from investing activities: Maturities of marketable securities 5,070,000 5,360,970 4,548,541 Purchases of marketable securities (5,190,000) (5,000,000) (5,360,970)Payment for royalty buy down (1,500,000) - - Net cash provided by (used in) investing activities from continuing operations (1,620,000) 360,970 (812,429) Cash flows from financing activities: Proceeds from stock option exercises 148,425 82,450 673,375 Repurchases of common stock (1,034,647) (739,551) (458,001)Excess tax benefits from share-based payment arrangements 262,695 1,709,699 - Net cash provided by (used in) financing activities from continuing operations (623,527) 1,052,598 215,374 Increase (decrease) in cash and cash equivalents 186,906 725,979 (1,479,537)Cash and cash equivalents at beginning of year 3,196,831 2,470,852 3,950,389 Cash and cash equivalents at end of year $3,383,737 $3,196,831 $2,470,852 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $- $- $- Taxes $232,000 $190,000 $9,851 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 December31, 2012 we accrued $179,901 related to this issue of which $64,190, $50,685 and $36,041were amortized in the 2012, 2011 and 2010 periods,respectively. The net patent amortization expense for 2010 was $18,339 due to a reduction of reimbursable patents fees under our agreement with Auxiliumfrom prior periods.See accompanying notes to consolidated financial statements F-6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsBioSpecifics Technologies Corp.Consolidated Statement of Stockholders' Equity (Deficit) Shares Amount Additional Paidin Capital AccumulatedDeficit 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)Issuance of common stock under stock option plans 85,000 85 82,365 - Stock compensation expense - - 517,367 - Repurchases of common stock - - - - Excess tax benefits from share-based payment arrangements - - 1,709,699 - Net profit - - - 6,601,626 Balances - December 31, 2011 6,530,743 $6,531 $20,049,196 $(3,291,904)Issuance of common stock under stock option plans 94,425 94 148,330 - Stock compensation expense - - 228,485 - Repurchases of common stock - - - - Excess tax benefits from share-based payment arrangements - - 262,695 - Net profit - - - 2,981,075 Balances - December 31, 2012 6,625,168 $6,625 $20,688,706 $(310,829) TreasuryStock ShareholderEquityTotal 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 Issuance of common stock under stock option plans - 82,450 Stock compensation expense - 517,367 Repurchases of common stock (739,551) (739,551)Excess tax benefits from share-based payment arrangements - 1,709,699 Net profit - 6,601,626 Balances - December 31, 2011 $(1,891,509) $ 14,872,314 Issuance of common stock under stock option plans - 148,424 Stock compensation expense - 228,485 Repurchases of common stock (1,034,647) (1,034,647)Excess tax benefits from share-based payment arrangements - 262,695 Net profit - 2,981,075 Balances - December 31, 2012 $(2,926,156) $17,458,346 F-7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 BIOSPECIFICS TECHNOLOGIES CORP.Notes to Consolidated Financial StatementsDecember 31, 2012, 2011 and 20101. ORGANIZATION AND DESCRIPTION OF BUSINESSWe are a biopharmaceutical company involved in the development of an injectable collagenase for multiple indications. We have a development and licenseagreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase (which Auxilium has named XIAFLEX® (collagenase clostridiumhistolyticum)) for clinical indications in Dupuytren’s contracture, Peyronie’s disease, frozen shoulder (adhesive capsulitis) and cellulite (edematousfibrosclerotic panniculopathy). Auxilium has an option to acquire additional indications that we may pursue, including human and canine lipoma. Auxiliumis currently selling XIAFLEX in the U.S. for the treatment of Dupuytren’s contracture. Auxilium has an agreement with Pfizer, Inc. (“Pfizer”) pursuant towhich Pfizer has marketing rights for XIAPEX® (the EU trade name for collagenase clostridium histolyticum) for Dupuytren’s contracture and Peyronie’sdisease in Europe and certain Eurasian countries until April 24, 2013. In addition, Auxilium has an agreement with Asahi Kasei Pharma Corporation(“Asahi”) pursuant to which Asahi has the right to commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Japan.Auxilium also has an agreement with Actelion Pharmaceuticals Ltd. (“Actelion”) pursuant to which Actelion has the right to commercialize XIAFLEX for thetreatment of Dupuytren’s contracture and Peyronie’s disease in Canada, Australia, Brazil and Mexico. Auxilium has been granted a Notice of Compliance(approval) by Health Canada for XIAFLEX for the treatment of Dupuytren’s contracture in adults with a palpable cord in Canada.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Consolidation The audited consolidated financial statements include the accounts of the Company and its subsidiary, Advance Biofactures Corp. (“ABC-NY”).Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires the use of management’sestimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ fromthose 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 maturity of three months orless at the time of purchase. The Company limits its credit risk associated with cash, cash equivalents and short-term investments by placing its investmentswith 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-term investments, accountsreceivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of those instruments.Concentration of Credit Risk and Major CustomersThe Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with theseaccounts and believes that it is not exposed to any significant credit risk on cash. F-8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 The Company maintains its investment in FDIC insured certificates of deposits with several banks.At December 31, 2012, the accounts receivable balance of $5.1 million was primarily from two customers, comprising of $2.9 million (57% of total) fromDFB Biotech, Inc. and $2.1 million (41% of total) from Auxilium Pharmaceutical, Inc.The Company has been dependent in each year on a two customers who generate almost all its revenues. In the year ended December 31, 2012, the licensingand royalty revenues from Auxilium Pharmaceutical, Inc. were $8.2 million (74% of total) and royalties and consulting revenues from DFB Biotech, Inc. were$2.9 million (26% of total).Revenue Recognition We currently recognize revenues resulting from product sales, the licensing and sublicensing of the use of our technology and from services we sometimesperform in connection with the licensed technology under the guidance of Accounting Standards Codification 605, Revenue Recognition (“ASC 605”).If we determine that separate elements exist in a revenue arrangement under ASC 605, we recognize revenue for delivered elements only when the fair values ofundelivered elements are known, when the associated earnings process is complete, when payment is reasonably assured and, to the extent the milestoneamount relates to our performance obligation, when our customer confirms that we have met the requirements 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 or determinable andcollectability is reasonably assured. No right of return exists for our products except in the case of damaged goods. To date, we have not experienced anysignificant 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 for laboratory use.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 and collectability is reasonablyassured, we recognize revenue during the applicable period earned. For interim quarterly reporting purposes, when collectability is reasonably assured but areasonable estimate of royalty, mark-up on cost of goods sold or earn-out payment revenues cannot be made, the royalty, mark-up on cost of goods sold orearn-out payment revenues are generally recognized in the quarter that the applicable 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 royalties and a mark-up ofthe cost of goods sold revenues. The royalty and mark-up on cost of goods sold revenues will generally be recognized in the quarter that Auxilium provides thewritten reports and related information to us, that is, royalty and mark-up on cost of goods sold revenues are generally recognized one quarter following thequarter in which the underlying sales by Auxilium occurred. The royalties payable by Auxilium to us are subject to set-off for certain patent costs.Under the DFB Agreement, pursuant to which we sold our topical collagenase business to DFB, we have the right to receive earn-out payments in the futurebased on sales of certain products. Generally, under the DFB Agreement we would receive payments and a report within ninety (90) days from the end of eachcalendar year after DFB has sold the royalty-bearing product. Currently, DFB is providing us earn-out reports on a quarterly basis. F-9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Licensing RevenueWe include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Revenues” in our consolidated statements ofoperations 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 the earnings process and wehave no ongoing performance obligation with respect to the arrangement. Nonrefundable upfront technology license for product candidates for which we areproviding continuing services related to product development are deferred and recognized as revenue over the development period.MilestonesMilestones, in the form of additional license fees, typically represent nonrefundable payments to be received in conjunction with the achievement of a specificevent identified in the contract, such as completion of specified development activities and/or regulatory submissions and/or approvals. We believe that amilestone represents the culmination of a distinct earnings process when it is not associated with ongoing research, development or other performance on ourpart. We recognize such milestones as revenue when they become due and collection is reasonably assured. When a milestone does not represent theculmination of a distinct earnings process, we recognize 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 are providing continuingservices related to product development, is primarily dependent upon our estimates of the development period. We define the development period as the pointfrom which research activities commence up to regulatory approval of either our, or our partners’ submission assuming no further research is necessary. Asproduct candidates move through the development process, it is necessary to revise these estimates to consider changes to the product development cycle, suchas changes in the clinical development plan, regulatory requirements, or various other factors, many of which may be outside of our control. Should the U.S.Food and Drug Administration or other regulatory agencies require additional data or information, we would adjust our development period estimatesaccordingly. The impact on revenue of changes in our estimates and the timing thereof is recognized prospectively over the remaining estimated productdevelopment period.Consulting and Technical Assistance ServicesWe recognize revenues from consulting and technical assistance contracts primarily as a result of our DFB Agreement and Auxilium Agreement. Consultingrevenues are recognized ratably over the term of the contract. The consulting and technical assistance obligations to DFB expired in March 2011. Treasury Stock The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity.Further, ASC 718 requires that employee stock-based compensation costs to be recognized over the requisite service period, or the vesting period, in a mannersimilar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line areestimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in futureperiods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-basedcompensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the currentperiod. F-10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Receivables, Deferred Revenue and Allowance for Doubtful Accounts Trade accounts receivable are stated at the amount the Company expects to collect. We maintain allowances for doubtful accounts for estimated losses resultingfrom the inability of its customers to make required payments. We consider the following factors when determining the collectability of specific customeraccounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer paymentterms. Our accounts receivable balance is typically due from its two large pharmaceutical customers. These companies have historically paid timely andhave been financially stable organizations. Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal. If thefinancial condition of our customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Weprovide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we haveused reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Accounts receivable as of December 31, 2012 is approximately $5.1 million, which consists of approximately $2.9 million due from DFB in accordance withthe earn-out under the DFB Agreement and approximately $2.1 million in royalties and mark-up on costs of goods sold due from Auxilium in accordance withthe terms of the Auxilium Agreement. Deferred revenue of $0.3 million consist of licensing fees related to the cash payments received under the AuxiliumAgreement in prior years and amortized over the expected development period of certain indications for XIAFLEX. We recorded no material bad debt expense ineach of the last three years. The allowance for doubtful accounts balance was $30,095 and $30,581, at December 31, 2012 and 2011, respectively. Reimbursable Third Party Development CostsWe accrued patent expenses for research and development that are reimbursable by us under the Auxilium Agreement. We capitalize certain patent costs relatedto estimated third party development costs that are reimbursable under the Auxilium Agreement. In August 2011, through the amendment and restatement ofour development and license agreement with Auxilium, we have clarified the rights and responsibilities of the joint development of XIAFLEX. We resolvedwhat had been an on-going dispute with Auxilium concerning the appropriate amount of creditable third party development expenses related to thelyophilization of the injection formulation and certain patent expenses for research and development costs that are reimbursable under the Auxilium Agreement.We agreed and have reimbursed Auxilium by offsetting future royalties payable for the amount invoiced us for third party development costs related to thedevelopment of the lyophilization of the injection formulation. We do not expect any additional third party development cost related to the lyophilization of theinjection formulation.As of December 31, 2012 our net reimbursable third party patent costs accrual was approximately $0.2 million.Royalty Buy-DownOn March 31, 2012, we entered into an amendment to our existing agreement, dated August 27, 2008, related to our future royalty obligations for Peyronie’sdisease. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and fiveadditional cash payments payable upon the occurrence of a milestone event.As of December 31, 2012, we have capitalized $2.75 million related to this agreement which will be amortized over approximately five years beginning on thedate of the first commercial sale of XIAFLEX for the treatment of Peyronie’s disease, which represents the period estimated to be benefited using the straight-line method. 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 that pattern cannot bereliably determined, the assets are amortized using the straight-line method. Research and Development ExpensesResearch and development expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costsand overhead. Research and development (“R&D”) expenses also consist of third party costs, such as medical professional fees, product costs used in clinicaltrials, consulting fees and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that aregenerally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patientenrollment, or the passage of time. F-11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsClinical Trial ExpensesOur cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centersand clinical research organizations. In the normal course of business we contract with third parties to perform various clinical trial activities in the ongoingdevelopment of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in unevenpayment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, thecompletion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financialstatements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratablybeginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, weaccrue an amount based 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 temporary differences between thefinancial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if,based on the weighted available evidence, it is more likely than not that some or all of the deferred 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. Under this method,deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities atthe statutory rates enacted for future periods. In accordance with Accounting Standards Codification 740-10-45-25, Income Statement Classification ofInterest and Penalties, we classify interest associated with income taxes under interest expense 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 Codification 718,Compensation - Stock Compensation (“ASC 718”) requires the recognition of compensation expense, using a fair-value based method, for costs related to allshare-based awards including stock options and common stock issued to our employees and directors under our stock plans. It requires companies to estimatethe fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vestis recognized as expense on a straight-line basis over the requisite service periods in our Consolidated Statements of Operations.Under the ASC 718, we estimate the fair value of our employee stock awards at the date of grant using the Black-Scholes option-pricing model, whichrequires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected volatility of the market price ofour stock and the expected term of an award. When establishing an estimate of the expected term of an award, we consider the vesting period for the award, ourrecent historical experience of employee stock option exercises (including forfeitures) and the expected volatility. When there is uncertainty in the factors used todetermine the expected term of an award, we use the simplified method. As required under the accounting rules, we review our valuation assumptions at eachgrant date and, as a result, our valuation assumptions used to value employee stock-based awards granted in future periods may change. The companygranted 15,000 stock options during the 2012 period and none in the 2011 period. Further, ASC 718 requires that employee stock-based compensation costs to be recognized over the requisite service period, or the vesting period, in a mannersimilar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line areestimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in futureperiods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-basedcompensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the currentperiod. F-12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 ContentsStock-based compensation expense recognized under ASC 718 was as follows: December 31, 2012 2011 2010 Research and development $ 171,217 $ 96,849 $ 109,385 General and administrative 57,268 420,518 1,792,396 Total stock-based compensation expense $228,485 $517,367 $1,901,781 We account for stock options granted to persons other than employees or directors at fair value using the Black-Scholes option-pricing model in accordancewith Accounting Standards Codification 505-50, Equity Based Payments to Non-Employees (“ASC 505-50”). Stock options granted to such persons andstock options that are modified and continue to vest when an employee has a change in employment status are subject to periodic revaluation over their vestingterms. We recognize the resulting stock-based compensation expense during the service period over which the non-employee provides services to us. The stock-based compensation expense related to non-employee consultants for the years ended December 31, 2012, 2011 and 2010 was $109,479, zero, and$685,096, respectively.Property, Plant and EquipmentProperty, plant and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciatedon 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 2 to 8 years, and review for impairmenton a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.As of December 31, 2012, the Company’s capitalized costs related to certain patents paid by Auxilium on behalf of the Company and are reimbursable toAuxilium under the Auxilium Agreement. These patent costs are creditable against future royalty revenues. At December 31, net patent costs consisted of: 2012 2011 2010 Patents, net $280,322 $190,416 $173,443 The amortization expense for patents was $64,190, $50,685 and $36,041, for the years ended December 31, 2012, 2011 and 2010. The net patentamortization expense for 2010 was $18,339 due to a reduction of reimbursable patents fees under the Auxilium Agreement from prior periods. The estimatedaggregate amortization expense for each of the next five years is as follows: 2013 $64,000 2014 53,000 2015 25,000 2016 20,000 2017 20,000 F-13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Income Taxes In accordance with Accounting Standards Codification 740-10-45-25, Income Statement Classification of Interest and Penalties (“ASC 740-10-45-25”) weclassify interest associated with income taxes under interest expense and tax penalties under other.Qualifying Therapeutic Discovery Project Program In November 2010, we were notified that we had been awarded a total cash grant of approximately $426,000 under the Qualifying Therapeutic DiscoveryProject program administered under section 48D of the Internal Revenue Code, of which approximately $102,000 relates to qualifying expenses we hadpreviously incurred during the 2009 fiscal year which was received during the fourth quarter of fiscal 2010. The remainder of the grant of approximately$324,000 was received in February 2011 based on qualifying expenses that we incurred during the 2010 fiscal year. In the 2010 period, we recognized the full$426,000 of the grant since we had already incurred all of the qualifying expenses. Since this program is non-recurring, we elected to classify this revenue asother income in the Consolidated Statement of Operations.Future Impact of Recently Issued Accounting StandardsIn June 2011, the Financial Accounting Standards Board (FASB) issued a new standard on the presentation of comprehensive income. The new standardeliminated the current alternative to report other comprehensive income and its components in the statement of changes in equity. Under the new standard,companies can elect to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive statements.We adopted the provisions of this standard during the first quarter of 2012.In July 2012, the FASB issued a new standard which amends the guidance on testing indefinite-lived intangible assets, other than goodwill. The new standardallows companies an option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impairedas a basis for determining if it is necessary to perform a quantitative assessment and calculate the fair value of the asset. Under the new standard, a companyis no longer required to calculate the fair value of an indefinite-lived intangible asset unless the company determines, based on the qualitative assessment, thatit is more likely than not impaired. The new standard is effective for annual and interim impairment tests performed in fiscal years beginning after September15, 2012, with early adoption permitted. We do not expect a material impact with the adoption of this new standard.3. FAIR VALUE MEASUREMENTSThe authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. Thesetiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quotedprices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developedassumptions) in which little or no market data exists.As of December 31, 2012, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tablespresent the Company’s fair value hierarchy for these financial assets as of December 31, 2012, 2011 and 2010:December 31, 2012 Fair Value Level 1 Level 2 Level 3 Cash and cash equivalents $3,383,737 $3,383,737 - - Certificates of Deposit 5,120,000 5,120,000 - - December 31, 2011 Fair Value Level 1 Level 2 Level 3 Cash and cash equivalents $3,196,831 $3,196,831 - - Certificates of Deposit 5,000,000 5,000,000 - - 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 - - F-14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 4. EARNINGS PER SHAREBasic earnings per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Dilutedearnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period increased to includeall additional common shares that would have been outstanding assuming potentially dilutive common shares, resulting from option exercises, had beenissued and any proceeds thereof used to repurchase common stock at the average market price during the period. In periods in which there is a net loss,potentially dilutive common shares are excluded from the computation of diluted earnings per share as their effect would be anti-dilutive. 2012 2011 2010 Net income (loss) for diluted computation $2,981,075 $6,601,626 $(1,508,540) Weighted average shares: Basic 6,351,245 6,340,648 6,261,214 Effect of dilutive securities: Stock options 630,282 611,738 - Diluted 6,981,527 6,952,386 6,261,214 Net income (loss) Per Share: Basic $0.47 $1.04 $(0.24)Diluted $0.43 $0.95 $(0.24)For the year ended December 31, 2010, 912,001 of potential common shares were excluded from the diluted loss per share calculation because their effect wasanti-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, 2012 2011 2010 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) (1,839,597) (1,839,597) $- $- $- Total depreciation expense amounted to zero for each calendar year 2012, 2011 and 2010, respectively. F-15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Contents7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIESAccounts payable and accrued liabilities consist of the following: December 31, 2012 2011 2010 Trade accounts payable and accrued expenses $304,635 $407,954 $674,917 Accrued legal and other professional fees 61,147 50,000 77,442 Accrued payroll and related costs 147,084 143,048 140,725 $512,866 $601,002 $893,084 8. INCOME TAXES The provision for income taxes consists of the following: Year ended December 31, 2012 2011 2010 Current taxes: Federal $686,968 $- $- State 12,182 3,525 1,351 Total current taxes 699,150 3,525 1,351 Deferred taxes: Federal 1,134,532 (1,219,190) - State 340,372 (122,593) - Total deferred taxes 1,474,904 (1,341,783) - Total provision for income taxes $2,174,054 $(1,338,258) $ 1,351 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, 2012 2011 2010 Statutory rate 34.00% 34.0% 34.0%State income taxes, net of federal income tax benefit 0.16% 7.1% 5.0%Stock-based compensation 1.51% 4.0% (42.8)%Change in effective state tax rate 6.59% - - Other, net (0.08)% (5.9)% 21.4%Increase (decrease) in valuation allowance - (64.6)% (17.6)%Effective tax rate (benefit) 42.18% (25.4%) - The effective rate reconciliation includes the permanent differences and changes in valuation allowance for windfalls, stock-based compensation, and netoperating loss.Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for income tax purposes. The components of deferred income tax assets and liabilities are as follows: Year ended December 31, 2012 2011 2010 Tax credit carry forward $- $1,027,633 $1,027,633 Deferred revenues 132,514 293,297 466,981 Other 27,322 17,253 - Options 1,413,214 1,687,780 1,757,303 Net operating loss carry forward - 21,992 350,617 Net deferred tax assets before valuation allowance 1,573,050 3,047,955 3,602,534 Valuation allowance - - (3,602,534)Net deferred tax asset $1,573,050 $3,047,955 $- F-16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Company considers all available information, including operating results, ongoing tax planning, and forecasts of future taxable income. Our valuationallowance as of December 31, 2010 related primarily to Federal Orphan Drug Tax Credit and net operating loss carryforwards. Based on the results of ouroperations in 2010 and 2011, the growth in the market for XIAFLEX, and the trend in actual and anticipated royalty income, we had determined that it wasmore likely than not that the benefit of our deferred tax assets would be realized. Consequently, in 2011, we eliminated the valuation allowance of $3.6 million.Stock-based compensation, recorded in the Company's financial statements is non-deductible for tax purposes and increases the Company's effective tax rate.Deferred tax assets, including those associated with stock based compensation, are reviewed and adjusted for apportionment and potential tax rates changes invarious jurisdictions. In 2012, our tax assets related to stock-based compensation decreased by $0.3 million, due to a reduction in our estimated state taxapportionment rate.Federal and state net operating losses from the exercise of employee stock options are not recorded on the Company's consolidated statements. Federal and statenet operating loss carryforwards that result from the exercise of employee stock options are accounted for as a credit to tax assets from stock basedcompensation and additional paid-in capital if and when realized through a reduction in income taxes payable. We recognized $0.8 million, $0.7 million and$2.0 million of tax deductible expenses from the exercise of non-qualified or a disqualified disposition of incentive stock options, in 2012, 2011 and 2010respectively.In 2012, we used $1.0 million of our Orphan Drug tax credit to reduce our federal income tax payable. We recognized the tax effect of $0.8 million related tothe exercise of nonqualified options in our financial statements, which lowered our taxes payable by $0.3 million, reduced our tax assets related to non-qualified stock options by $32,000 and increased additional paid in capital by $0.3 million. Additionally, we utilized tax assets from our federal and state netoperating loss carryforwards of $16,000 and deferred licensing revenue of $0.1 million to reduce our taxes payable. Because our state net operating losses of$4.2 million exceeded our federal net operating losses of $47,000 we set up a valuation allowance of $0.3 million against our tax asset of our state net operatingloss carryforwards. As of December 31, 2012, the Company believes that there are no significant uncertain tax positions, and no amounts have been recorded for interest andpenalties. The Company does not expect that it would be required to record a liability related to an uncertain tax position. 9. STOCKHOLDERS’ EQUITYStock Option PlansIn July 1997, the Company's stockholders approved a stock option plan (the “1997 Plan”) for eligible key employees, directors, independent agents, andconsultants who make a significant contribution toward the Company's success and development and to attract and retain qualified employees which expiredin July 2007. Under the 1997 Plan, qualified incentive stock options and non-qualified stock options may be granted to purchase up to an aggregate of500,000 shares of the Company's common stock, subject to certain anti-dilution provisions. The exercise price per share of common stock may not be lessthan 100% (110% for qualified incentive stock options granted to stockholders owning at least 10% of common shares) of the fair market value of theCompany's common stock on the date of grant. In general, the options vest and become exercisable in four equal annual installments following the date ofgrant, although the Company’s board of directors, at its discretion, may provide for different vesting schedules. The options expire ten years (five years forqualified incentive stock options granted to stockholders owning at least 10% of common shares) after such date. The Company filed with the Securities andExchange Commission a Registration Statement on Form S-8 for the 1997 Plan on September 26, 1997 to register these securities. In accordance with termsof the 1997 Plan, no options were granted ten years after the effective date of the 1997 Plan, or July 2007. In July 2007, approximately 231,000 stock optionsexpired unissued, and there are no shares available for grant remaining under the 1997 Plan. As of December 31, 2012 there were zero options outstandingunder the 1997 Plan. F-17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 In August 2001, the Company's stockholders approved a stock option plan (the “2001 Plan”), with terms similar to the 1997 Plan. The 2001 Plan authorizesthe 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 shares authorized for grant from 750,000 shares to 1,750,000shares, an increase of 1,000,000 shares. On June 17, 2009, our stockholders approved an amendment to the 2001 Plan to extend the term of the 2001 Planfrom April 6, 2011 to April 23, 2019 and to authorize an additional 300,000 shares of our common stock for issuance under the 2001 Plan. A total of2,050,000 shares of common stock are now authorized for issuance under the amended 2001 Plan. The Company filed with the Securities and ExchangeCommission a Registration Statement on Form S-8 for the 2001 Plan on October 5, 2007 and on July 15, 2009 as amended to register these securities. As ofDecember 31, 2012 options to purchase 1,182,000 shares of common stock were outstanding under the 1997 Plan and 2001 Plan, and a total of 254,098shares remain available for grant under the 2001 Plan.The summary of the stock options activity is as follows for year ended: Shares WeightedAverageExercisePrice Outstanding at December 31, 2011 1,261,425 $8.27 2012 Options granted 15,000 $15.75 Options exercised (94,425) 1.57 Options canceled or expired -- -- Outstanding at end of year 1,182,000 8.90 Options exercisable at year end 1,102,000 7.90 Shares available for future grant 254,098 -- The following table summarizes information relating to stock options by exercise price at December 31, 2012: Option ExercisePrice OutstandingShares WeightedAverageLife (years) WeightedAverageExercise Price ExercisableShares WeightedAverageOptionPrice $0.83 - 2.00 497,500 3.10 $1.01 497,500 $1.01 4.00 - 6.00 242,000 4.41 4.69 242,000 4.69 13.00 - 16.00 140,000 5.80 13.75 140,000 13.75 17.00 - 18.99 70,000 5.93 17.69 60,000 17.61 19.00 - 21.00 112,500 5.75 20.57 62,500 20.23 26.00 - 28.00 45,000 6.68 26.43 45,000 26.43 29.00 - 31.00 75,000 6.88 29.53 55,000 29.64 1,182,000 4.49 $8.90 1,102,000 $7.90 We granted 15,000 stock options during 2012. The weighted-average grant-date fair value for options granted during 2012 was $15.75 per share. During the2012, 2011 and 2010, $148,425, $82,450 and $673,375 were received from stock options exercised by employees, respectively. The aggregate intrinsicvalue of options outstanding and exercisable as of December 31, 2012 was approximately $8.0 million. Aggregate intrinsic value represents the total pre-taxintrinsic value, based on the closing price of our common stock of $14.95 on December 30, 2012, which would have been received by the option holders hadall option holders exercised their options as of that date. Total unrecognized compensation cost related to non-vested stock options outstanding as of December31, 2012 was approximately $26,000 which we expect to recognize over a weighted-average period of 0.3 years. F-18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 10. COMMITMENTS AND CONTINGENCIESLease AgreementsOur corporate headquarters are currently located at 35 Wilbur St., Lynbrook, NY 11563. As previously reported, our previous lease for our headquartersterminated on June 30, 2010. Our subsidiary, ABC-NY (together with the Company, the “Tenant”) and Wilbur St. Corp. (the “Landlord”) were parties to alease agreement initially dated as of January 30, 1998 and modified as of June 24, 2009 (the “Lease Agreement”), pursuant to which the Landlord leased to theTenant the premises located at 35 Wilbur Street, Lynbrook, NY 11563 (the “Premises”) until June 30, 2010 and for a monthly rental price of $11,250 plusutilities and real estate taxes. Following the expiration of the Lease Agreement, the Tenant continued to lease the Premises from the Landlord on a month-to-month basis. We notified the Landlord of our termination of the Lease Agreement effective March 31, 2011, but continue to hold over in the Premises.The Company's operations are principally conducted on leased premises. Future minimum annual rental payments required under non-cancelable operatingleases are zero.Rent expense under all operating leases amounted to approximately $135,000, $135,000 and $136,250 for calendar year 2012, 2011 and 2010.11. RELATED PARTY TRANSACTIONSAs described above in Note 10, the Tenant and the Landlord were parties to the Lease Agreement. Following the expiration of the Lease Agreement, the Tenantcontinued to lease the Premises from the Landlord on a month-to-month basis. We notified the Landlord of our termination of the Lease Agreement effectiveMarch 31, 2011, but continue to hold over in the Premises.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 by ABC-NY arediscretionary and subject to certain vesting provisions. The Company made no contributions to this plan for calendar years 2012, 2011 or 2010.13. SUBSEQUENT EVENTSIn January 2013, Auxilium expanded the field of its license for injectable collagenase to include the potential treatment of adult patients with cellulite byexercising its exclusive option under our development and license agreement. As a result of this exercise, we received a license fee payment of $500,000 fromAuxilium. We paid a portion of this payment to the Research Foundation of the State University of New York at Stony Brook pursuant to the terms of our in-licensing agreement described above in the “In-Licensing and Royalty Agreements” section under the heading “Cellulite”. Auxilium’s exercise of this optionfollows its fourth quarter 2012 announcement of top-line 30-day data from the phase Ib study of XIAFLEX for the potential treatment of adult patients withcellulite, in which all doses of XIAFLEX were generally well-tolerated. These data support the progression into a phase IIa clinical trial in cellulite, whichAuxilium plans to initiate in the second half of 2013. We have evaluated subsequent events for recognition or disclosure through the time of filing these consolidated financial statements on Form 10-K with theU.S. Securities and Exchange Commission on March 14, 2013. F-19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 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, 2012 and 2011. The data has beenderived from the Company's unaudited consolidated financial statements that, in management's opinion, include all adjustments (consisting of normalrecurring adjustments) necessary for a fair presentation of such information when read in conjunction with the Consolidated Financial Statements and Notesthereto. The results of operations for any quarter are not necessarily indicative of the results of operations for any future period. First Second Third Fourth Quarter Quarter Quarter Quarter Year ended December 31, 2012 Net revenues $2,586,748 $2,601,834 $2,448,225 $3,508,271 Operating profit 1,248,474 1,047,562 779,527 2,044,932 Net income 742,390 666,682 471,047 1,100,956 Basic earnings per share $0.12 $0.11 $0.07 $0.17 Diluted earnings per share $0.11 $0.10 $0.07 $0.16 First Second Third Fourth Quarter Quarter Quarter Quarter Year ended December 31, 2011 Net revenues $1,856,915 $5,008,824 $1,921,395 $2,608,592 Operating profit 135,323 3,320,009 452,100 1,284,335 Net income 3,691,123 2,569,341 268,836 71,326 Basic earnings per share $0.59 $0.40 $0.04 $0.01 F-20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 EXHIBIT INDEXThe documents listed below are being filed or have previously been filed on behalf of the Company and are incorporated herein by reference from thedocuments indicated and made a part hereof. Exhibits not identified as previously filed are filed herewith:ExhibitNumberDescription 3.1Registrant’s Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-KSB filed withthe 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 filed with theCommission on March 2, 2007)4.1Rights Agreement dated as of May 14, 2002 (incorporated by reference as Exhibit 1 to the Registrant’s Form 8-A filed with the Commissionon May 30, 2002)4.2Amendment No. 1 to Rights Agreement, dated June 19, 2003 (incorporated by reference to Exhibit 10.19 of the Registrant’s Form 10-KSBfiled with the Commission on March 2, 2007)4.3Amendment No. 2 to Rights Agreement, dated as of February 3, 2011 (incorporated by reference to Exhibit 4.1 to the Registrant’s CurrentReport on Form 8-K filed with the Securities and Exchange Commission on February 4, 2011)10.1Lease Modification Agreement dated June 22, 2009 between ABC-NY, the Company and Wilbur St. Corp. (incorporated by reference toExhibit 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 to Exhibit 2.1 of theRegistrant’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 by reference toExhibit 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 (incorporated by reference toExhibit 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 byreference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Commission on November 28, 2006)10.7*Cellulite License Agreement dated August 23, 2007 between the Company and the Research Foundation*10.8*License Agreement dated March 27, 2010 between the Company and Zachary Gerut, M.D.*10.9Form of 1997 Stock Option Plan of Registrant (incorporated by reference as Exhibit 4.1 of the Registrant’s Form S-8 filed with theCommission on September 26, 1997)10.10Amended and Restated 2001 Stock Option Plan of Registrant (incorporated by reference to Appendix D of the Registrant’s Schedule14Afiled with the Commission on April 30, 2009)10.11Change of Control Agreement, dated June 18, 2007 between the Company and Henry Morgan (incorporated by reference to Exhibit 10.21 ofthe Registrant’s Form 10-KSB filed with the Commission on September 26, 2007)10.12Change of Control Agreement, dated June 18, 2007 between the Company and Michael Schamroth (incorporated by reference to Exhibit10.22 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 Dr. Paul Gitman (incorporated by reference to Exhibit 10.23of the Registrant’s Form 10-KSB filed with the Commission on September 26, 2007) Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 10.14Agreement dated August 27, 2008 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Commission onSeptember 5, 2008)10.15Amended and Restated Development and License Agreement dated December 11, 2008 and effective December 17, 2008 between theCompany and Auxilium Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with theCommission on December 19, 2008)10.16Executive Employment Agreement, dated August 5, 2008 between the Company and Thomas L. Wegman (incorporated by reference toExhibit 10.1 of the Registrant’s Form 8-K filed with the Commission on August 8, 2008)10.17Change of Control Agreement, dated October 1, 2008 between the Company and Dr. Matthew Geller (incorporated by reference to Exhibit10.23 of the Registrant’s Form 10-K filed with the Commission on March 31, 2009)10.18Second Amended and Restated Development and License Agreement, dated as of August 31, 2011, by and between BioSpecificsTechnologies Corp. and Auxilium Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed withthe SEC on September 1, 2011)10.19Settlement Agreement, dated as of August 31, 2011, by and between BioSpecifics Technologies Corp. and Auxilium Pharmaceuticals, Inc.(incorporated by reference to Exhibit 10.2 of the Registrant's Form 8-K filed with the SEC on September 1, 2011)14Amended and Restated Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 of the Registrant’s Form 10-KSBfiled 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 the Commission onMarch 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 of 2002*32*Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*___________________* filed herewith Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 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 signed on its behalf bythe undersigned, thereto duly authorized individual.Date: March 14, 2013 BIOSPECIFICS TECHNOLOGIESCORP. By:/s/ Thomas L. Wegman Name:Thomas L. Wegman Title:President In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated. SIGNATURE TITLE /s/ Thomas L. Wegman President, Director, and Principal Executive, FinancialName: Thomas L. Wegman and Accounting OfficerDate: March 14, 2013 DirectorName: Dr. Paul Gitman Date: March 14, 2013 /s/ George Gould DirectorName: George Gould Date: March 14, 2013 /s/ Henry G. Morgan DirectorName: Henry G. Morgan Date: March 14, 2013 /s/ Michael Schamroth DirectorName: Michael Schamroth Date: March 14, 2013 /s/ Dr. Mark Wegman DirectorName: Dr. Mark Wegman Date: March 14, 2013 /s/ Toby WegmanDirectorName: Toby Wegman Date: March 14, 2013 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.7Confidential treatment requested under 17 C.F.R. §§ 200.80(b)(4) and 240.24b-2. The confidential portions of this exhibit have been omitted andare marked accordingly. The confidential portions have been filed separately with the Securities and Exchange Commission pursuant to aconfidential treatment request. CELLULITE LICENSE AGREEMENTThis CELLULITE LICENSE AGREEMENT (the “Agreement”), effective as of August 23, 2007 (the “Effective Date”), is entered into by and betweenBioSpecifics Technologies Corp., a corporation organized and existing under the laws of Delaware (“BTC”), and the Research Foundation of the StateUniversity of New York for and on behalf of Stony Brook University, a nonprofit, educational corporation organized and existing under the laws of NewYork (the “Research Foundation”). BTC and the Research Foundation shall sometimes be referred to herein individually as a “Party” and collectively as“Parties.”RECITALSWHEREAS, BTC has developed an injectable form of collagenase that has been used in a number of clinical applications, including, among other things, thetreatment and prevention of Dupuytren’s disease and Frozen Shoulder; andWHEREAS, BTC and the Research Foundation entered into a Dupuytren’s Disease License Agreement dated November 21, 2006 (the “Dupuytren’s DiseaseLicense Agreement”) to compensate the Research Foundation for the prior development work performed by the State University of New York at Stony Brook (“Stony Brook”) in connection with Dupuytren’s disease; andWHEREAS, BTC and the Research Foundation have entered into a Frozen Shoulder License Agreement dated November 21, 2006 (the “FrozenShoulder License Agreement”) to compensate the Research Foundation for the prior development work performed by Stony Brook in connection with FrozenShoulder; andWHEREAS, ; andWHEREAS, ; andWHEREAS, ; andWHEREAS, ; andWHEREAS, contemporaneously herewith, the Research Foundation and BTC will execute an Research Agreement pursuant to which the Research Foundationwill conduct a clinical trial for BTC in accordance with Clinical Research Protocol AA4500 for the treatment of Cellulite (the “Research Agreement”); and Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. WHEREAS, contemporaneously herewith, B&D shall execute the transfer of the Cellulite IND, pursuant to the form attached hereto as “IND Transfer of Ownership”), which transfer shall be held in escrow by the Research Foundation and not become effective until released by the ResearchFoundation in accordance with the terms of this Agreement; and WHEREAS, ; andWHEREAS, the Research Foundation has the right to grant certain rights and licenses as set forth herein; and WHEREAS, the Research Foundation now wishes to license the University Know-How and the University Patents in respect of Cellulite to BTC,and BTC wishes to license the University Know-How and the University Patents in respect of Cellulite from the Research Foundation, on the terms andconditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth below, the Parties agree as follows:ARTICLE I.DEFINITIONSFor the purposes of this Agreement, the following capitalized words and phrases, whether used in the singular or plural, shall have the following meanings:1.1 “Affiliate” means any corporation or other business entity controlled by, controlling, or under common control with another entity,with “control” meaning direct or indirect beneficial ownership of more than 50% (or such lesser percent provided that ownership is accompanied by the powerto direct the management or policies of the entity) of (a) the voting stock in the case of a corporation, or (b) the profits interest or decision-making authority inthe case of an unincorporated business entity. 1.2 “Auxilium” means Auxilium Pharmaceuticals, Inc., a corporation organized and existing under the laws of Delaware. 1.3 “Auxilium License Agreement” means the agreement dated as of June 3, 2004 by and between BTC and Auxilium, as amended onMay 10, 2005 and as may be subsequently amended from time to time, by which BTC granted to Auxilium certain licenses, as defined therein. 1.4 “Cellulite” means the dimpling of the skin or the "mattress phenomenon" of the thighs and buttocks. 1.5 “Combination Product” means any product containing both an agent or ingredient which constitutes a Licensed Product and one ormore other active agents or ingredients which do not constitute Licensed Products. 2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 1.6 “Development Program” means the clinical studies previously performed by B&D with injectable collagenase pertaining to Cellulite,as described more fully in Article II hereof. 1.7 “EMEA” means the European Medicines Evaluation Agency, which coordinates the scientific review of human pharmaceuticalproducts under the centralized licensing procedure of the European Community, and includes any successor agency. 1.8 “Enzyme” means an enzyme constituted of collagenase obtained by fermentation of Clostridium histolyticum, purified bychromatography, lyophilized and substantially free from other proteinases, and any variants or derivatives thereof. 1.9 “European Union“ or “EU” means the countries of the European Union (or its successor) as constituted on the Effective Date andfuture members of the European Union upon their admission for full membership with commercial rights and privileges. 1.10 “FDA” has the meaning set forth above in the recitals. 1.11 “Field” means the prevention or treatment of Cellulite. 1.12 “First Commercial Sale” means the first commercial sale of a Licensed Product by BTC under the terms of a Supply Agreement orby a Sublicensee to a Third Party. 1.13 “Indication” shall mean a pharmaceutical application of injectable collagenase. 1.14 “Information” means (a) techniques, technology, practices, methods, procedures, inventions, discoveries, knowledge, know-how,trade secrets, skill, experience, gene or protein sequences, technical data, test data, analytical and quality control data, formulas or software programs, and (b)all compounds, compositions of matter, cells, cell lines, assays, and all other biological or chemical materials and samples. 1.15 “Joint Inventions” means any inventions in the Field, whether patentable or not, which are jointly conceived, discovered, developedor otherwise made, during the Development Program by at least one BTC employee or person contractually required to assign or license the intellectual propertyrights covering such inventions to BTC and at least one Stony Brook employee or person contractually required by virtue of New York state law to assign orlicense the intellectual property rights covering such inventions to the Research Foundation. 1.16 “Licensed Products” means pharmaceutical products containing Enzyme as an active ingredient and any reformulation,improvement, enhancement, combination, refinement, or modification thereof, which are made, used and sold in the Field and the development, manufacture,use or sale of which would, in the absence of this Agreement, infringe one or more Valid Claims; provided however, the Licensed Products shall specificallyexclude dermal formulations labeled for topical administration. 3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 1.17 “MAA” means a Marketing Authorization Application filed with the EMEA. 1.18 “NDA” means a New Drug Application, Biologics License Application or a Product License Application filed with the FDA. 1.19 “Net Sales” means(a) with respect to sales of Licensed Products by BTC or its Affiliates, the gross sales price actually received less the followingitems to the extent they are paid and included in the invoice price: (i) customary trade discounts actually allowed; (ii) packing, freight, and insurance costs; (iii) sales, use, value-added and excise taxes; (iv) import, export and customs duties and taxes; (v)credit for returns, allowances or trades actually allowed; and (vi) government mandated rebates, if any; and(b) with respect to sales of Licensed Products by a Sublicensee (as defined below) where BTC has elected not to supply theLicensed Product, the net sales price as required to be reported to BTC by the Sublicensee pursuant to the written sublicense agreement between them. Forpurposes of clarification, if Auxilium acquires BTC, then notwithstanding any termination of the Auxilium License Agreement, the Net Sales price shall be theprice that would have been reported by Auxilium to BTC under the Auxilium License Agreement as if the Auxilium License Agreement had remained in effect.(c) with respect to sales of Licensed Products by a Sublicensee (as defined below) where BTC has elected to supply the LicensedProduct, the net sales price as required to be reported to BTC under the Supply Agreement entered into between them.In the case of (a) and (b) above, sales by BTC, its Affiliates and Sublicensees to resellers or others for further formulation, processing, repackaging orrelabeling shall be excluded, and only the subsequent resale to independent customers shall be deemed Net Sales.In the case of Combination Products for which the agent or ingredient constituting a Licensed Product and each of the other active agents or ingredients notconstituting a Licensed Product have established market prices when sold separately, Net Sales shall be determined by multiplying the Net Sales for each suchCombination Product by a fraction, the numerator of which shall be the established market price for the Licensed Products contained in the CombinationProduct and the denominator of which shall be the sum of the established market prices for the Licensed Products plus the other active agents or ingredientscontained in the Combination Product. When separate market prices are not established, then the Parties shall negotiate in good faith to determine a fair andequitable method of calculating Net Sales for the Combination Product in question, taking into account factors such as relative cost and relative therapeutic ordiagnostic contribution. 4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 1.20 “Sublicensee” means Auxilium or any person or entity who receives in the future a sublicense from BTC pursuant to Article IIIhereof. 1.21 “Sublicense Income” means the upfront payments and milestone payments actually received by BTC from (i) Auxilium andincluded within the definition of Sublicense Income as defined in the Auxilium License Agreement, or (ii) any other Sublicensee pursuant to Article III hereof. 1.22 “Supply Agreement” shall mean any commercial supply agreement related to the manufacturing and/or supply of the LicensedProduct between BTC and a Sublicensee or any Third Party. 1.23 “Territory” means all countries of the world. 1.24 “Third Party” shall mean any person or other entity other than BTC or its Affiliates. 1.25 “University Know-How” means (i) any proprietary Information or materials related to the manufacture, preparation, formulation,use or development of the Enzyme and the Licensed Products and shall include formulations, processes, techniques, formulas, biological, chemical, assaycontrol and manufacturing, technical, pre-clinical, clinical or other data, methods, and know-how, and trade secrets; (ii) all Information, not generallyknown, which is owned by the Research Foundation or is rightfully held with right to sublicense as of the Effective Date, or which was developed,discovered, conceived, reduced to practice, or acquired by the Research Foundation or by Stony Brook inventors and assigned by Stony Brook inventors tothe Research Foundation as a result of the Development Program and which (a) relates to the Licensed Products or (b) relates to the methods, processes ortechniques for the manufacture or use of the Licensed Products and (iii) any Joint Inventions. 1.26 “University Patents” means the patents and patent applications in respect of Cellulite identified in Exhibit B hereto and anydivisions, continuations and continuations-in-part thereof, any foreign patent applications corresponding thereto, and any patent issued with respect to suchpatent applications, and any reissues or extensions thereof. 1.27 “Valid Claim” means a claim of an issued and unexpired patent included within the University Patents, which has not been heldpermanently revoked, unenforceable or invalid by a decision of a governmental agency or court of competent jurisdiction, unappealable or unappealed withinthe time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. 5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. ARTICLE II.DEVELOPMENT PROGRAM2.1 Cellulite Development Program. Pursuant to certain protocols, B&D, individually or collectively, together with other Stony Brookemployees, performed certain pre-clinical, clinical, regulatory, process development and manufacturing work related to injectable collagenase pertaining toCellulite. ARTICLE III.LICENSE GRANT3.1 License Grant. The Research Foundation hereby grants to BTC and its Affiliates a worldwide exclusive license for the UniversityKnow-How in the Field and the University Patents in the Field. The Research Foundation hereby reserves all rights to any University Know How andUniversity Patents outside of the Field. The Research Foundation further grants to BTC a worldwide exclusive license with right to sublicense to use theUniversity Know-How and the University Patents to develop, manufacture, use and sell in any manner Licensed Products in the Field, except to the extent thatBTC, its Affiliates or Sublicensees enters into a material transfer agreement, clinical trial agreement or any similar agreement that allows the ResearchFoundation or any other entity to do research or clinical development. This grant is subject to the payment by BTC to Research Foundation of anyconsideration required to be paid by Article IV of this Agreement. 3.2 Government Rights. BTC acknowledges that the license granted to it hereunder are subject to a certain license granted to the UnitedStates (“U.S.”) government by the Research Foundation, as described in a letter dated as of October 6, 2006, a copy of which is attached hereto as Exhibit C. 3.3 Sublicenses. (a) BTC shall be entitled to grant sublicenses of its rights hereunder, with full rights to further sublicense, provided that anyNet Sales of Licensed Products by a BTC Sublicensee shall be deemed to be Net Sales of a Sublicensee as defined in Section 1.19(b) or (c) for purposes ofroyalty payments due hereunder, and BTC shall remain obligated to pay all royalties due with respect to Licensed Products sold by BTC and anySublicensee. If BTC shall grant any sublicenses in addition to the Auxilium License Agreement under this Agreement, then it shall obtain the writtencommitment of such additional Sublicensees to abide by all applicable terms and conditions of this Agreement and BTC shall remain fully responsible to theResearch Foundation for the performance of all such terms by such additional Sublicensees. Upon the termination of this Agreement, each Sublicensee shallhave the option to convert its sublicense to a direct license with the Research Foundation on the same terms as in the sublicense agreement. 6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. (b) The Research Foundation hereby acknowledges and consents to the sublicense that BTC has previously granted to Auxiliumpursuant to the Auxilium License Agreement in respect of the Licensed Products. 3.4 Subagents. It is agreed that BTC has the right to take the following actions, none of which shall constitute a sublicense hereunder andnone of which shall be subject to Section 3.3 herein: (a) appointing an agent or distributor to market, sell or otherwise dispose of Licensed Products; and (b) subcontracting the development, manufacture or packaging of Licensed Products. 3.5 Term. The term of said license will continue in effect in perpetuity. ARTICLE IV.ROYALTIES AND MILESTONE PAYMENTS4.1 Royalties. . Commencing with a First Commercial Sale BTC will pay running royalties on a specified percentage of Net Sales of Licensed Productson a country-by-country and product by product basis as follows: (a) in the event of a sale whereby BTC supplies License Product to Sublicensee under the terms of a Supply Agreement, the royaltyrate shall be . (b) in the event of a sale whereby BTC elects not to supply the Licensed Product to Sublicensee, the royalty rate shall be . (c) in the event of a sale by BTC of Licensed Product, the royalty rate shall be . 4.2 Royalty Period. The royalty obligations of BTC shall commence on the date of the First Commercial Sale and continue until thelonger of (i) the expiration of the last to expire Valid Claim of a patent covering the Licensed Product or (ii) June 3, 2016. 4.3 Currency; Conversion; Taxes. Royalty payments shall be paid in U.S. Dollars at the address of the Research Foundation set forth inSection 13.6 below, or such other place as the Research Foundation may reasonably designate in writing, consistent with applicable laws and regulations. Anytaxes which BTC or its Affiliates or Sublicensees shall be required by law to withhold or pay upon remittance of the royalty payments shall be deducted fromthe royalty payable to the Research Foundation and paid on its behalf as required. BTC shall furnish the original of any official receipts for such taxes. Ifany currency conversion shall be required in connection with the payment of royalties hereunder, such conversion shall be made by using the average of thedaily exchange rates for such currency quoted by the Wall Street Journal’s (New York edition) foreign exchange desk for each of the last three (3) banking daysof each calendar quarter, or, in the case of sales by Sublicensees, using the exchange rates provided for in the written agreements between BTC and suchSublicensees. 7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4.4 Currency Transfer Restrictions. If in any country in the Territory the payment or transfer of royalties on Net Sales in such country isprohibited by law or regulation, BTC shall notify the Research Foundation of the conditions preventing such transfer, and shall deposit the blocked paymentsin local currency in a recognized banking institution in the relevant country for the credit of the Research Foundation. 4.5 Payments by Others. With respect to any sales of Licensed Products by BTC, its Affiliates or Sublicensees, BTC shall have theright to cause any Affiliate, Sublicensee or other designee to make direct payment to the Research Foundation of the royalties otherwise due for such sales. TheResearch Foundation shall accept such payments and the amount of royalties to be paid by BTC shall be reduced by the amount of such payments actuallyreceived by Research Foundation. 4.6 Offsets for Third Party Licenses. If the Parties agree in writing that BTC or its Affiliates must obtain a license from an independentThird Party in order for BTC to manufacture, use or sell a Licensed Product and if BTC and the Research Foundation agree on the terms of such license (a“Third Party License”), then the Parties shall share the cost of that license as defined herein. Such cost includes license fees, royalties and other fixed costsassociated with the Third Party License minus the costs apportioned to any Sublicensee. The Parties shall, within thirty (30) days, reimburse each other asnecessary to . At BTC’s option, it maydeduct from royalties otherwise payable to the Research Foundation hereunder . 4.7 Milestone Payments. BTC shall pay to the Research Foundation . 4.8 Payments Related to Sublicense Income and Damages or Settlements Received. BTC shall pay to the Research Foundation. ARTICLE V.CELLULITE IND TRANSFER OF OWNERSHIP5.1 Transfer of IND. Contemporaneously with the execution of this Agreement, B&D shall execute and deliver to the ReserarchFoundation to hold in escrow (i) the IND Transfer of Ownership and (ii) a power of attorney, in the form attached hereto as Exhibit D, empowering theResearch Foundation as their joint and several attorney-in-fact, with full authority, to date, finalize and deliver the executed IND Transfer of Ownership to theFDA for the benefit of BTC or its designee at BTC’s request provided that (i) BTC is not in default under this Agreement or the Research Agreement and (ii)BTC has complied with the utilization requirements set forth in Section 12.3 below. The Research Foundation shall deliver a copy of the finalized INDTransfer of Ownership to BTC and the B&D for their records promptly after delivery of the same to the FDA. 8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. ARTICLE VI.REPORTS, PAYMENTS AND ACCOUNTING6.1 Royalty Reports and Payments. BTC agrees to make written reports and royalty payments to the Research Foundation within ninety(90) days after the close of each calendar quarter during the term of this Agreement, beginning with the quarter in which the First Commercial Saleoccurs. These reports shall show for the calendar quarter in question all Net Sales of Licensed Products and the royalty due thereon, together with the sameinformation for Licensed Products sold by Affiliates and Sublicensees (if applicable). With respect to sales of Licensed Products by Sublicensees, reportsneed only include information reflected in the reports required by Section 5.4 below which are actually received during the calendar quarter inquestion. Concurrently with the making of each report, BTC shall remit any royalty payment due for the period covered by the report. BTC will make agood faith attempt, using commercially reasonable biotech industry practices, to differentiate between Net Sales of Licensed Products and sales of similarproducts outside of the Field in calculating the amount of the royalty due hereunder to the Research Foundation. Absent manifest error, BTC’s good faithdifferentiation shall be binding and conclusive on the Parties.6.2 Termination Report. Within ninety (90) days after the date on which BTC and its Affiliates and Sublicensees last sell any LicensedProducts, BTC shall make a final termination report containing the same quarterly information required above.6.3 Accounting. BTC agrees to keep written or digitally stored records for a period of three (3) years from the end of each reporting periodin sufficient detail to enable the royalties payable to be determined, and further agrees to permit its books and records to be examined during normal businesshours by an independent accounting firm, selected by the Research Foundation and reasonably satisfactory to BTC, from time-to-time on reasonable notice,but not more often than once per year. Such examination must be made confidentially and the auditing firm shall be required to enter into reasonableconfidentiality agreements. The expense of such examination shall be borne by the Research Foundation except that in the event the results of the audit reveal adiscrepancy in the Research Foundation’s favor of 10% or more, then reasonable out-of-pocket audit fees shall be paid by BTC. Any discrepancy will bepromptly corrected by a payment or refund, as appropriate. 9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 6.4 Third Party Reports. BTC agrees to require, as a term of any sublicense agreement, that the Sublicensee shall render written reportsto BTC of Net Sales of Licensed Products no less frequently than twice per year and in sufficient detail to enable the royalties payable by BTC hereunder to bedetermined (“Third Party Reports”). BTC shall also require Sublicensees to keep records concerning Net Sales for a period of at least three (3) years, and topermit reasonable examination of such records by an independent accounting firm selected by BTC. Notwithstanding the foregoing, nothing in this Agreementshall be construed as enlarging, or requiring BTC to modify, Auxilium’s, its Affiliate’s or its Sublicensee’s existing reporting and record keeping obligationspursuant to the Auxilium License Agreement. 6.5 Confidentiality of Reports. The Research Foundation agrees that the information set forth in (a) the reports required by Sections 6.1and 6.2, (b) the records subject to examination under Section 6.3, and (c) all Third Party Reports delivered under Section 6.4, shall be maintained inconfidence by the Research Foundation and any independent accounting firm selected under Section 6.3, shall not be used for any purpose other thanverification of the performance by BTC of its obligations hereunder, and shall not be disclosed by the Research Foundation or such accounting firm to anyother person. ARTICLE VII.WARRANTIES; DISCLAIMED WARRANTIES; INDEMNIFICATION 7.1 Title; Authority. The Research Foundation represents and warrants that B&D, by virtue of New York state law, have assigned to theResearch Foundation all of the rights pertaining to the University Know-How and the University Patents licensed to BTC hereunder and that therefore theResearch Foundation has the full unrestricted legal right to enter into this Agreement and to grant the licenses granted hereunder. 7.2 No Other Licenses Granted. The Research Foundation represents and warrants that it has not granted any license pertaining to theUniversity Know-How or the University Patents to any party other than to BTC pursuant to this Agreement. In addition, after reasonable investigation, theResearch Foundation to the best of its knowledge is not aware that B&D, individually or collectively, have granted any license pertaining to the UniversityKnow-How or the University Patents to any Third Party, other than the U.S. government, as set forth in Section 3.2 of this Agreement. 7.3 No Known Infringement. As of the Effective Date, the Research Foundation has not received any notice of infringement of or conflictwith any patent, trade secret, copyright, trademark or other intellectual property right of any other person with respect to the University Know-How. 7.4 No Warranty of Non-Infringement. Nothing in this Agreement shall be construed as a warranty or representation that any LicensedProducts made, used or sold pursuant to any license granted hereunder is or will be free from infringement of patents, copyrights, trademarks, trade secrets orother intellectual property rights of Third Parties. 10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 7.5 Indemnification by Research Foundation. Notwithstanding the absence of any warranty of non-infringement, the ResearchFoundation shall, during the term of this Agreement and thereafter, indemnify and hold harmless BTC, its Affiliates, Sublicensees and its and their directors,officers, agents and employees, from any losses, damages, expenses and liabilities of any kind (including legal expenses and reasonable attorneys’ fees andcosts ) resulting from the Research Foundation’s gross negligence or willful misconduct in connection with: (a) the action or inaction of the Research Foundation, its Affiliates or B&D; or (b) any breach of this Agreement by the Research Foundation or its Affiliates. 7.6 Indemnification by BTC. BTC shall, during the term of this Agreement and thereafter, indemnify and hold harmless the ResearchFoundation and its Affiliates and its and their directors, officers, agents and employees, from any losses, damages, expenses, and liability of any kindwhatsoever (including legal expenses and reasonable attorneys’ fees and costs) resulting from BTC’s (and its Affiliates’ and Sublicensees’) gross negligence orwillful misconduct in connection with the manufacture, use, testing, sale or advertisement of Licensed Products; provided, however, that in no case will theforegoing indemnity obligation apply to the extent that such claim, proceeding, loss, expense, or liability is the result of: (a) any action or inaction of the Research Foundation or its Affiliates, or its or their agents; or (b) any alleged or actual infringement by the University Know-How of any patents, copyrights, trademarks, trade secrets or otherintellectual property rights of Third Parties; or (c) any breach of this Agreement by the Research Foundation. ARTICLE VIII.TERM AND TERMINATION8.1 Term. Unless earlier terminated in accordance with this Article VIII, this Agreement and the licenses granted hereunder shall continuein effect until the termination of BTC’s royalty obligations. Thereafter, all licenses granted shall become fully paid-up, irrevocable exclusive licenses. 8.2 Termination by the Research Foundation for Default. The Research Foundation may terminate this Agreement if BTC commits anymaterial default of any of BTC’s material obligations, by notice to BTC specifying in reasonable detail the nature of the default, provided that such defaulthas not been remedied within ninety (90) days of such notice. 11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 8.3 Termination by BTC. BTC may terminate this Agreement (a) on thirty (30) days’ notice to the Research Foundation if BTC elects tocease utilizing all license rights granted hereunder or (b) if the Research Foundation or any of its Affiliates is in material default of any of the ResearchFoundation’s material obligations or covenants, which default has not been remedied within ninety (90) days of notice to the Research Foundation specifyingin reasonable detail the nature of the default. 8.4 Termination for Bankruptcy. If voluntary or involuntary proceedings in bankruptcy by or against a Party are instituted under anyinsolvency law, or a receiver or custodian is appointed for a Party, or proceedings are instituted by or against a Party for corporate reorganization ordissolution, which proceedings shall not have been dismissed within sixty (60) days after the date of filing, or if a Party makes an assignment for the benefitof creditors, or substantially all of the assets of a Party are seized or attached and not released within sixty (60) days thereafter (that Party, a “BankruptcyParty”), then the other Party may immediately terminate this Agreement by notice to the Bankruptcy Party. However, in the event that the other Party elects notto terminate the Agreement, the Parties intend that the rights and licenses granted under this Agreement shall be deemed to be, for purposes of Section 365(n) ofthe U.S. Bankruptcy Code (or any equivalent provision of applicable foreign law), licenses or rights to “intellectual property” as defined under Section101(52) of the U.S. Bankruptcy Code. 8.5 Rights and Obligations Upon Termination. Following termination of this Agreement for any reason and subject to the right to convertin accordance with Section 3.3(a), nothing herein shall be construed to release either Party from any obligation that arose prior to the date of suchtermination. After termination, subject to the right to convert in accordance with Section 3.3(a), BTC and its Affiliates and Sublicensees may completeLicensed Products in the process of manufacture at the date of termination and sell them along with any other Licensed Products in inventory, provided thatBTC shall pay royalties as required by Article IV and shall submit the reports required by Article VI for such Licensed Products. 8.6 Return of Confidential Information. Upon termination of this Agreement, BTC shall return or destroy all University Know-How thatis written, to the Research Foundation, provided that BTC and its sublicensees may retain one copy of all written materials for legal and archival purposesonly. 8.7 Third Party Beneficiary Status of Auxilium. In the event of BTC’s bankruptcy and inability to perform its obligations hereunder,Auxilium shall have the right to cure any default by BTC and perform BTC’s obligations, and enforce BTC’s rights, hereunder, as a third party beneficiary. 12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. ARTICLE IX.CONFIDENTIALITY, DISCLOSURE, AND PUBLICATIONS9.1 Confidentiality. (a) During the term of this Agreement and for a period of five (5) years following its expiration or termination, each Party shallmaintain in confidence all Information disclosed by the other Party which is marked or identified as confidential or which the receiving Party has reason toknow is confidential or proprietary (referred to herein as “Confidential Information“), and shall not disclose Confidential Information to anyone except thoseAffiliates, Sublicensees, further sublicensees, employees, subagents, consultants, or subcontractors having a “need to know” in order to carry out thereceiving Party’s activities as contemplated by this Agreement. Each receiving Party shall obtain written agreements from its Affiliates, Sublicensees,employees, subagents, consultants or subcontractors, prior to disclosure to them of Confidential Information, obligating them to hold in confidence and notuse any Confidential Information except as permitted by this Agreement. Notwithstanding the foregoing sentence, if employees or consultants of a receivingParty have previously signed general confidentiality agreements in favor the receiving Party as employer, and if those agreements bind the employees orconsultants to protect Information disclosed hereunder to at least the same extent required by this Section, then it shall be sufficient for the employing Party to(i) notify the employees or consultants of the fact that Information disclosed hereunder is governed by such confidentiality agreements and (ii) identify tosuch employees or consultants the specific Information so governed. Each Party shall use the same degree of effort used to protect its own most valuableproprietary Information from unauthorized use or disclosure, and shall be responsible for ensuring compliance with these obligations by its Affiliates,Sublicensees, employees, subagents, consultants and subcontractors. Each Party shall promptly notify the other upon discovery of any unauthorized use ordisclosure of the other’s Confidential Information. (b) The receiving Party shall not use Confidential Information for any purpose, except as contemplated by this Agreement orthe Research Agreement. 9.2 Exceptions. The obligation of confidentiality and non-use in this Article shall not apply to the extent that: (a) either Party (the “Recipient”) is required to disclose Confidential Information by law, order or regulation of a governmentalagency or a court of competent jurisdiction, or (b) the Recipient can demonstrate that (i) the disclosed Information was, at the time of disclosure to the Recipient, already inthe public domain or which, after disclosure, becomes part of the public domain other than as a result of action of the Recipient, its Affiliates, Sublicensees,employees, subagents, consultants or subcontractors in violation hereof; (ii) the Recipient can demonstrate that the disclosed Information was rightfullyknown or independently developed by the Recipient or its Affiliates prior to the date of disclosure to the Recipient, or (iii) the disclosed Information wasreceived by the Recipient or its Affiliates on an unrestricted basis from a source unrelated to any Party to this Agreement and not under a duty of confidentialityto the other Party or 13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. (c) the disclosure is made to the FDA, EMEA or other regulatory agency as part of a product approval process. 9.3 Legally Compelled Information. In the event that either Party becomes legally compelled to disclose any Confidential Informationbelonging to the other Party, it shall notify the other Party prior to disclosure so that the other Party can seek a protective order or other appropriate remedy. 9.4 Publications. Prior to public disclosure of or submission for publication of an abstract, manuscript or oral presentation describingthe results of any aspect of the Development Program or other scientific activity between BTC and the Research Foundation, the Party disclosing or submittingsuch abstract, manuscript or oral presentation (“Disclosing Party”) shall send the other Party (“Responding Party”) by a recognized delivery service for nextday delivery a copy of the abstract, manuscript or oral presentation materials to be submitted. The Responding Party shall have thirty (30) days, in the caseof an abstract or oral presentation materials, or sixty (60) days, in the case of a manuscript, from the date of receipt of the abstract, manuscript or oralpresentation materials. If the Responding Party believes the subject matter of such abstract, manuscript or oral presentation contains Confidential Informationor a patentable invention of significant commercial value to the Responding Party, then prior to the expiration of the relevant period, the Responding Party shallnotify the Disclosing Party in writing of its determination and the basis for its conclusion. Upon receipt of such notice, the Disclosing Party shall delaypublic disclosure of or submission of abstract, manuscript or oral presentation for an additional period of 60 days to permit preparation and filing of a patentapplication on the disclosed subject matter. No publication or presentation shall be made by the Disclosing Party unless and until the Responding Party’scomments have been addressed and any information determined by the Responding Party to be Confidential Information of the Responding Party has beenremoved. Determination of authorship for any paper or inventorship for any patent shall be in accordance with accepted scientific practice or patent law, asappropriate. Should any questions of authorship or inventorship arise, they will be determined by good faith consultation between the senior management ofthe respective Parties. ARTICLE X.PATENT MATTERS10.1 Filing and Prosecution of Patents.(a) During the term of the Agreement, BTC or any Sublicensee, pursuant to any sublicense agreement, shall have the right to,and in the reasonable exercise of its commercial discretion, prepare, file, prosecute, maintain, renew and defend all of the patents and applications includedwithin the University Patents in the countries where such University Patents are filed as of the Effective Date. In the event that neither BTC nor any of itsSublicensees intend to file for patent protection or wish to continue preparation, prosecution, or maintenance of the patents and applications included withinthe University Patents, then BTC shall give at least thirty (30) days advance notice to the Research Foundation, and in no event less than a reasonable periodof time for the Research Foundation to act. In such case, the Research Foundation shall have the right to prepare, file, prosecute, maintain, renew and defendall of the patents and applications included within the University Patents in the countries where such University Patents are filed as of the Effective Date. 14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. (b) BTC shall be responsible for all costs and expenses incurred for such prosecution and maintenance. At BTC’s or any ofits Sublicensee’s request, the Research Foundation shall cooperate and provide BTC or such Sublicensee with all necessary assistance and documentation inconnection with the filing, prosecution and maintenance of all applications included within the University Patents. At the request of the Research Foundation,BTC or its Sublicensee will provide the Research Foundation with reports relating to the filing, prosecution and maintenance of the University Patents andcopies of any intended filings.10.2 Enforcement of University Patents.(a) In the event that either Party becomes aware of a suspected infringement of a University Patent, or of the institution by aThird Party of any proceedings alleging the invalidity or unenforceability of any University Patent, such Party shall promptly notify the other Party, and,following such notification, the Parties shall confer. BTC or any Sublicensee, pursuant to any sublicense agreement, shall have the right, but shall not beobligated, to prosecute an infringement action or to defend such proceedings at its own expense, in its own name and entirely under its own direction andcontrol. BTC may deduct any unreimbursed litigation expenses and legal fees from any recovery of damages or settlement received by BTC from any suchsuit, and twenty percent (20%) of the balance of the proceeds shall be paid to Research Foundation. The Research Foundation will reasonably assist BTC orits Sublicensee in such actions or proceedings if so requested, and will lend its name to such actions or proceedings if requested by BTC or its Sublicensee orif required by law, provided that BTC shall pay or reimburse the Research Foundation for all costs which the Research Foundation may incur in providingsuch assistance. If BTC or its Sublicensee elect not to bring any action for infringement or defend any proceeding challenging any claims in an issued patentincluded within the University Patents within ninety (90) days of being requested to do so, the Research Foundation may bring such action or defend suchproceeding at its own expense, in its own name and entirely under its own direction and control. BTC or its Sublicensee will reasonably assist the ResearchFoundation in any action or proceeding if so requested by the Research Foundation or required by law, provided that the Research Foundation shall pay orreimburse BTC or its Sublicensee for all costs which BTC or its Sublicensee may incur in affording such assistance. No settlement of any action orproceeding may be entered into by either Party without the prior written consent of the other, which consent, in the case of the Research Foundation shall not beunreasonably withheld, and in the case of BTC or any Sublicensee may be withheld in BTC’s or any Sublicensee’s sole and absolute discretion.(b) If either Party brings such an action or defends such a proceeding and subsequently ceases to pursue it or withdrawstherefrom, that Party shall promptly notify the other Party who may then substitute itself for the withdrawing Party under the terms of this Section. 15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. ARTICLE XI.DISPUTE RESOLUTION; ARBITRATION11.1 Exclusive Remedy. The Parties agree that the terms of this Article shall be the exclusive means of resolving any dispute, controversyor claim (a “Dispute”) arising out of or relating to this Agreement, including but not limited to any claim relating to the validity or invalidity of any UniversityPatent, except that either Party may seek injunctive relief or other provisional remedies from a court of competent jurisdiction if necessary to protect suchParty’s name, intellectual property rights, or to prevent irreparable harm. 11.2 Good Faith Negotiations. In the event of any Dispute arising out of or relating to or in connection with any provision of theAgreement, or the rights or obligations hereunder, the Parties shall try to settle their differences amicably between themselves. Either Party may initiate suchinformal dispute resolution by sending written notice of the dispute to the other Party, and within ten (10) business days after such notice appropriaterepresentatives of the Parties shall meet for attempted resolutions by good faith negotiations. If such representatives are unable to resolve such disputedmatters, they shall be referred to the senior management of the respective Parties, for discussion and resolution. If they are unable to resolve the dispute withinthirty (30) days (or such longer period of time as the Parties may agree to in writing) of initiating such negotiations, then the Parties must resort to bindingarbitration, as set forth in Section 11.3 below. 11.3 Binding Arbitration. Any Dispute not so resolved shall be submitted, by a written notice of request to arbitrate given by either Party,to final and binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then in force except as modified inaccordance with the provisions of this Section. The arbitration proceedings shall be held in the City of New York in New York State. 11.4 Arbitrators. The arbitral tribunal shall be composed of three arbitrators, one appointed by each Party within fifteen (15) days, andthe two arbitrators so appointed shall, within fifteen (15) days of their appointment, appoint a third arbitrator who shall act as Chairman of the tribunal. Ifthe Dispute involves scientific or technical matters, at least two (2) of the three (3) arbitrators chosen shall have educational training and/or experiencesufficient to demonstrate a reasonable level of knowledge in the field of biotechnology. 11.5 Procedures. (a) Prompt resolution of any Dispute is important to both Parties and the Parties agree that the arbitration of any Dispute shallbe conducted expeditiously. The arbitrators shall be instructed and directed to assume management initiative and control over the arbitration process(including scheduling of events, pre-hearing discovery and activities, and the conduct of the hearing), in order to complete the arbitration as expeditiously as isreasonably practical for obtaining a just resolution of the Dispute. The arbitrators shall be directed that any arbitration shall be completed within 1 year fromthe filing of notice of a request for such arbitration. 16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. (b) The arbitrators shall determine what discovery shall be permitted, consistent with the goal of limiting the cost and timewhich the Parties must expend for discovery; provided that the arbitrators shall permit such discovery as they deem necessary to permit an equitable resolutionof the Dispute. (c) In arriving at decisions, the arbitrators shall apply the terms and conditions of this Agreement in accordance with the rulesof law governing it in accordance with Section 11.4. The arbitrators are empowered to render the following awards in accordance with any provision of thisAgreement: (i) enjoining a Party from performing any act prohibited, or compelling a Party to perform any act required, by the terms of this Agreement or anyrelated agreement, and (ii) ordering such other legal or equitable relief, including any provisional legal or equitable relief, or specifying such procedures as thearbitrator deems appropriate, to resolve any Dispute submitted for arbitration. Any monetary award made and shall be payable in U.S. Dollars free of any taxor any deduction. The arbitrators shall issue to both Parties a written explanation in English of the reasons for the award and a full statement of the facts asfound and the rules of law applied in reaching the decision. An award rendered in connection with an arbitration pursuant to this Article shall be the sole,exclusive, final and binding remedy between the Parties regarding the Dispute and any counterclaims made, and judgment upon any award may be enteredand enforced in any court of competent jurisdiction. 11.6 Expenses. The award rendered by the arbitrators shall include the costs of arbitration, arbitrator fees, reasonable attorneys’ fees andreasonable costs for expert and other witnesses. 11.7 Confidentiality of Proceedings. The arbitration proceedings shall not be made public without the joint consent of the Parties, andeach Party shall maintain the confidentiality of such proceedings and decision unless otherwise required by law or permitted in writing by the other Party. ARTICLE XII.COMMENCEMENT OF CLINICAL TRIAL; UTILIZATION12.1 Commencement of Clinical Trial. The clinical trial to be conducted pursuant to the Research Agreement shall not commence untilBTC has received from Auxilium (or another mutually agreeable source) clinical trial material in sufficient amounts, in BTC’s sole determination, toundertake and complete the clinical trial contemplated hereunder. The date upon which BTC receives all necessary quantities of the above referenced clinicaltrial material shall be referred to herein as the “Material Receipt Date”. 17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 12.2 Termination of Agreement if No Clinical Trial Initiated. If a clinical trial for the treatment of Cellulite is not initiated by BTC withintwo (2) years of the Material Receipt Date, then the Research Foundation shall have the right to terminate this Agreement in accordance with the provisions ofArticle VIII hereof. 12.3 Utilization Requirements. If Auxilium exercises its option rights under the Auxilium License Agreement in respect of Cellulite, thenBTC agrees to enforce its rights under the Auxilium License Agreement for the benefit of BTC and the Research Foundation hereunder. If Auxilium does notexercise its option rights under the Sublicense Agreement in respect of Cellulite, then BTC agrees that, within two (2) years of the date on which Auxiliumnotifies BTC that it does not intend to exercise its option rights under the Auxilium License Agreement, BTC shall either (i) enter into a new sublicenseagreement in respect of Cellulite or (ii) submit to the FDA a clinical trial protocol to initiate on its own a further clinical trial (whether Phase 2b or Phase 3) inrespect of Cellulite and obtain a commitment from a reputable third-party of no less than $1 million dollars to fund such further clinical trial. ARTICLE XIII.MISCELLANEOUS PROVISIONS13.1 Indemnification Procedures. In the event either Party seeks indemnification under any provision for indemnification afforded by thisAgreement, the following procedures shall be followed: (a) Notice of Claim. The Party seeking indemnification (the “Indemnitee”) shall give the other Party (the “IndemnifyingParty”) prompt notice of any losses or of the discovery of facts upon which a request for indemnification may be made. The Indemnifying Party shall not beliable for any losses that it can show resulted from any delay in providing such notice. The notice must contain a description of the claim and the nature andamount of the loss (to the extent known), and shall include copies of all papers and official documents received in respect of any losses. (b) Control of Defense. At its option, the Indemnifying Party may assume the defense of any Third Party claim by givingwritten notice to the Indemnitee within thirty (30) days of the Indemnitee’s notice. The assumption of the defense of a Third Party claim by the IndemnifyingParty shall not be construed as an acknowledgment that the Indemnifying Party is liable to the Indemnitee. Upon assuming the defense of a Third Partyclaim, the Indemnifying Party shall have the right to choose legal counsel and direct and control the defense in its sole discretion. In the event that it isultimately determined that the Indemnifying Party is not obligated to indemnify the Indemnitee from the claim, the Indemnitee shall reimburse the IndemnifyingParty for all costs and expenses incurred. (c) Right to Participate in Defense. The Indemnitee shall be entitled to participate in, but not control, the defense of a ThirdParty claim and to employ counsel of its choice for such purpose; provided, however, that such participation shall be at the Indemnitee's own expense unlessthe indemnifying Party has failed to assume the defense, in which case the Indemnitee shall control the defense. 18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. (d) Settlement. If the Indemnifying Party has acknowledged in writing the obligation to indemnify the Indemnitee for lossesrequiring only the payment of money damages in connection with a Third Party claim, and that will not result in the Indemnitee's becoming subject toinjunctive or other, the Indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose ofsuch claim on such terms as the Indemnifying Party deems appropriate in its sole discretion. With respect to all other claims or losses, the Indemnifying Partyshall have authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such claim or loss provided it obtains the priorwritten consent of the Indemnitee (which consent shall not be unreasonably withheld or delayed). Regardless of whether the Indemnifying Party chooses todefend or prosecute any Third Party claim, no Indemnitee shall admit any liability with respect to, or settle, compromise or discharge, any such claim withoutthe prior written consent of the Indemnifying Party. (e) Cooperation of Indemnitee. Regardless of whether the Indemnifying Party chooses to defend or prosecute any Third Partyclaim, the Indemnitee shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnessesand attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested. Such cooperation shall include access toand reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Third Party claim, and making theIndemnitee’s employees and agents available on a mutually convenient basis to provide additional information and explanation of any material providedhereunder. The Indemnifying Party shall reimburse the Indemnitee for all its costs incurred in providing such cooperation. (f) Reimbursement of Expenses. The verifiable costs and expenses, including fees and disbursements of counsel, incurredby the Indemnitee in connection with any claim shall be reimbursed quarterly by the Indemnifying Party, without prejudice to the Indemnifying Party's right tocontest its indemnification obligations, and such reimbursements shall be subject to refund in the event the Indemnifying Party is ultimately held not to beobligated to indemnify the Indemnitee. 13.2 Assignment. This Agreement may not be assigned by either Party without the prior written consent of the other, except that BTCmay assign this Agreement to a Third Party which acquires (whether by merger, sale of assets or otherwise) all or substantially all of that portion of BTC’sbusiness to which this Agreement pertains. 13.3 Entire Agreement. This Agreement constitutes the entire Agreement between the Parties with respect to the subject matter hereof, andsupersedes all previous agreements, whether written or oral, including, but not limited to, the side letter, dated November 21, 2006, from Donna L.Tumminello to Thomas Wegman regarding the cost of prosecuting a Cellulite patent application. This Agreement may not be modified orally, but only by aninstrument in writing signed by both Parties. 19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 13.4 Choice of Law. The validity, performance, construction and effect of the Agreement shall be governed by the substantive laws of thestate of New York without reference to conflicts of laws provisions. 13.5 Severability. If any provision of this Agreement is declared invalid or unenforceable by an arbitrator pursuant to Section 11.5 (or bya court whose decision is final and binding pursuant to Section 11.1) that provision shall be deemed fully severable. The remaining provisions of thisAgreement shall remain in full force and effect and will be construed as if the invalid or unenforceable provision had been deleted. 13.6 Notices. Any notice or report required or permitted to be given shall be in writing and delivered personally, sent by facsimile (andpromptly confirmed by personal delivery, registered or certified mail or overnight courier as provided herein), sent by nationally-recognized overnight courier,or sent by registered or certified mail, postage prepaid, return receipt requested. Such notices and reports shall be sent to the following addresses and persons(or such other address or person as a Party may provide by a communication complying with this section), and shall be effective upon personal delivery orfive (5) days after dispatch by mail or courier, whichever is applicable: If to BTC,BioSpecifics Technologies Corp.35 Wilbur StreetLynbrook, New York 11563Tel: (516) 593-7000Fax: (516) 593-7039Attn: Presidentwith a copy to:Carl A. ValensteinThelen Reid Brown Raysman & Steiner LLP701 8th Street NWWashington, DC 20001Tel: (202) 508-4195Fax: (202) 654-1836If to the Research Foundation,Office of Technology Licensing and Industry RelationsN5002 MelvilleMemorial LibraryStony Brook, New York11794-3369Tel: (631) 632-9009Fax: (631) 632-1505Attn: Director 20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 13.7 Waiver. The delay or failure of any Party to require performance of any provision in any one instance shall not be deemed a waiverand shall not affect the right to enforce the provision later or in any other instance. The observance of any term or condition may be waived, either generally orin a particular instance by the Party entitled to enforce such term or condition, but shall only be effective if in writing and signed by such Party. 13.8 Force Majeure. If either Party shall be delayed, interrupted in or prevented from the performance of any obligation hereunder (otherthan an obligation to make a payment) by reason of force majeure, including an act of God, fire, flood, earthquake, war (declared or undeclared), acts ofterrorism, public disaster, strike or labor unrest, governmental act, rule or regulation, or any other cause beyond such Party’s control, such Party shall not beliable to the other therefore and the time for performance of such obligation shall be extended for a period equal to the duration of the contingency whichoccasioned the delay, interruption or prevention. The Party invoking such force majeure rights must notify the other Party within a period of fifteen (15)days from the first and last day of the force majeure unless it renders such notification impossible, in which case, notification shall be made as soon aspossible. If the resulting delay exceeds four (4) months, both Parties shall consult in good faith to determine an appropriate course of action. 13.9 Independent Contractors. It is expressly agreed that the Parties shall be independent contractors and that the relationship shall notconstitute a partnership or agency of any kind. Neither Party may bind the other or make statements on behalf of the other without prior written consent. 13.10 Publicity. Neither Party shall use the name of the other Party in any publicity release without the prior written permission of theother, which shall not be unreasonably withheld. Except as required by law, neither Party shall publicly disclose the terms and conditions of the Agreementwithout the prior written consent of the other Party. 13.11 Headings. The captions used in this Agreement are inserted for convenience of reference only and shall not be construed to createobligations, benefits or limitations. 13.12 Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which takentogether shall constitute one and the same instrument. [Signature Page Follows] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES ANDEXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. 21Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN WITNESS WHEREOF, the Parties have executed this Agreement on the dates set forth below. BIOSPECIFICS TECHNOLOGIES CORP. THE RESEARCH FOUNDATION OF THE STATEUNIVERSITY NEW YORK AT STONY BROOK By:/s/ Thomas L. Wegman By:/s/ Donna L. Tumminello Name: Thomas L. Wegman Name: Donna L. Tumminello Title: President Title: Assistant Director Date: 08/23/07 Date: 08/23/07 Signature Page to Cellulite License Agreement Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 A CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES ANDEXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 B CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES ANDEXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 C CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES ANDEXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 D CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES ANDEXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.8Confidential treatment requested under 17 C.F.R. §§ 200.80(b)(4) and 240.24b-2. The confidential portions of this exhibit have been omitted andare marked accordingly. The confidential portions have been filed separately with the Securities and Exchange Commission pursuant to aconfidential treatment request. LICENSE AGREEMENT This LICENSE AGREEMENT (the “Agreement”), effective as of March 27, 2010 (the “Effective Date”), is entered into by and betweenBioSpecifics Technologies Corp., a corporation organized and existing under the laws of Delaware (“BTC”), and Zachary Gerut, M.D. (“Gerut”). BTC andGerut shall sometimes be referred to herein individually as a “Party” and collectively as “Parties.” RECITALS WHEREAS, BTC has developed an injectable form of collagenase that has been used in a number of clinical applications, including, among otherthings, the treatment of fat and for which BTC owns patents, under EPO Patent #EPO721781B1 (Edwin H. Wegman, Burton Bronsther, and Erwin T.Jacob, “Reduction of Adipose Tissue Using Collagenase”) and U.S. Patent #6,958,150 (B2), (Edwin H. Wegman, Burton Bronsther, and Erwin T. Jacob,“Reduction of Adipose Tissue”) (collectively, the “BTC Patents”); and WHEREAS, Gerut has performed clinical studies with injectable collagenase pertaining to the treatment of fat in accordance with the acceptedprinciples of Good Clinical Practices and the clinical protocols for such studies have been reviewed and found to be satisfactory by the Food and DrugAdministration (the “FDA”) and BTC; and WHEREAS, BTC and Gerut have entered into various agreements concerning the subject matter of this Agreement over the years (the “PreviousAgreements”); and WHEREAS, this Agreement shall supersede the Previous Agreements but shall have no effect upon the ; and WHEREAS, concurrently herewith, BTC and Gerut are entering into a side letter agreement in connection with this Agreement (the “Side Letter”);and WHEREAS, concurrently herewith, BTC and Gerut are entering into an investigator agreement for a Phase II clinical trial for injectable collagenasefor the treatment of fat (the “Investigator Agreement”); and WHEREAS, Gerut is now willing to license the Licensed Know-How (hereinafter defined) to BTC, and BTC wishes to license the Licensed Know-How from Gerut, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth below, the Parties agree as follows: Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. ARTICLE I.DEFINITIONS For the purposes of this Agreement, the following capitalized words and phrases, whether used in the singular or plural, shall have the followingmeanings: 1.1 “Affiliate” means any corporation or other business entity controlled by, controlling, or under common control with another entity, with“control” meaning direct or indirect beneficial ownership of more than 50% (or such lesser percent provided that ownership is accompanied by the power todirect the management or policies of the entity) of (a) the voting stock in the case of a corporation, or (b) the profits interest or decision-making authority in thecase of an unincorporated business entity. 1.2 “Auxilium” means Auxilium Pharmaceuticals, Inc., a corporation organized and existing under the laws of Delaware. 1.3 “Auxilium License Agreement” means the agreement dated as of June 3, 2004 by and between BTC and Auxilium, as amended on May10, 2005 and amended and restated on December 11, 2008, and as may be subsequently amended from time to time, under which BTC granted to Auxiliumcertain licenses, as defined therein. 1.4 “BTC Patents” has the meaning set forth above in the recitals. 1.5 “Combination Product” means any product containing both an agent or ingredient which constitutes a Licensed Product and one or moreother active agents or ingredients which do not constitute Licensed Products. 1.6 “Development Program” means the preliminary research and pre-clinical, clinical, regulatory, process development and manufacturingwork previously performed by Gerut and the Clinical Study (as defined in the Investigator Agreement) to be conducted by Gerut pursuant to the InvestigatorAgreement, with injectable collagenase pertaining to treatment of fat, as described more fully in Article II hereof. 1.7 “EMEA” means the European Medicines Evaluation Agency, which coordinates the scientific review of human pharmaceutical productsunder the centralized licensing procedure of the European Community, and includes any successor agency. 1.8 “Enzyme” means an enzyme constituted of collagenase obtained by fermentation of Clostridium histolyticum, purified bychromatography, lyophilized and substantially free from other proteinases, and any variants or derivatives thereof. 1.9 “FDA” has the meaning set forth above in the recitals. 1.10 “Field” means the removal or treatment of fat in humans or in animals. 1.11 “First Commercial Sale” means (a) the date of first sale following FDA or other regulatory approval of the NDA, MAA (as definedbelow) or equivalent marketing license application filed for a Licensed Product in any country, or (b) if regulatory approval is not required the first commercialsale of a Licensed Product, in either case to an independent party who is not an Affiliate, Sublicensee or subagent of the seller. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 1.12 “Information” means (a) techniques, technology, practices, methods, procedures, inventions, discoveries, knowledge, know-how, tradesecrets, skill, experience, gene or protein sequences, technical data, test data, analytical and quality control data, formulas or software programs, and (b) allcompounds, compositions of matter, cells, cell lines, assays, and all other biological or chemical materials and samples. 1.13 “Joint Inventions” means any inventions in the Field, whether patentable or not, which are jointly conceived, discovered, developed orotherwise made, during the Development Program by at least one BTC employee or person contractually required to assign or license the intellectual propertyrights covering such inventions to BTC and to Gerut or an employee or person contractually required to assign or license the intellectual property rightscovering such inventions to Gerut. 1.14 “Licensed Know-How” means (i) any proprietary Information or materials related to the manufacture, preparation, formulation, use ordevelopment of the Enzyme, the Licensed Products or injectable collagenase pertaining to the treatment of fat and shall include formulations, processes,techniques, formulas, biological, chemical, assay control and manufacturing, technical, pre-clinical, clinical or other data, methods, know-how, and tradesecrets; (ii) all Information, not generally known, which is owned by Gerut or is rightfully held with right to sublicense as of the Effective Date, or which wasdeveloped, discovered, conceived, reduced to practice, or acquired by Gerut or assigned to Gerut as a result of the Development Program and which (a) relatesto the Licensed Products or (b) relates to the methods, processes or techniques for the manufacture or use of the Licensed Products or (c) relates to injectablecollagenase pertaining to the treatment of fat and (iii) any Joint Inventions. 1.15 “Licensed Products” means pharmaceutical products containing Enzyme as an active ingredient and any reformulation, improvement,enhancement, combination, refinement, or modification thereof, which are made, used and sold in the Field; provided however, the Licensed Products shallspecifically exclude dermal formulations labeled for topical administration. 1.16 “MAA” means a Marketing Authorization Application filed with the EMEA. 1.17 “NDA” means a New Drug Application, Biologics License Application or a Product License Application filed with the FDA. 1.18 “Net Sales” means (a) with respect to sales of Licensed Products by BTC or its Affiliates, or any other entity to which BTC has sold, assignedrights, merged with or has become acquired by, the gross sales price actually received less the following items to the extent they are paid and included in theinvoice price provided that in no event shall the following amounts, in aggregate, exceed 15% of the gross sales price: Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. (i)customary trade discounts actually allowed; (ii)packing, freight, and insurance costs; (iii)sales, use, value-added and excise taxes; (iv)import, export and customs duties and taxes; (v)credit for returns, allowances or trades actually allowed; and (vi)government mandated rebates, if any; and (b) with respect to sales of Licensed Products by a Sublicensee (as defined below) where BTC has elected not to supply theLicensed Product, the net sales price as required to be reported to BTC by the Sublicensee pursuant to the written sublicense agreement between them. Forpurposes of clarification, if Auxilium or any other entity acquires BTC, then notwithstanding any termination of the Auxilium License Agreement, the NetSales price shall be the price that would have been reported by Auxilium to BTC under the Auxilium License Agreement as if the Auxilium License Agreementhad remained in effect. (c) with respect to sales of Licensed Products by a Sublicensee (as defined below) where BTC has elected to supply the LicensedProduct, the net sales price as required to be reported to BTC under the Supply Agreement entered into between them. In the case of (a) and (b) above, sales by BTC, its Affiliates and Sublicensees to resellers or others for further formulation, processing, repackaging orrelabeling shall be excluded, and only the subsequent resale to independent customers shall be deemed Net Sales. In the case of Combination Products for which the agent or ingredient constituting a Licensed Product and each of the other active agents or ingredients notconstituting a Licensed Product have established market prices when sold separately, Net Sales shall be determined by multiplying the Net Sales for each suchCombination Product by a fraction, the numerator of which shall be the established market price for the Licensed Products contained in the CombinationProduct and the denominator of which shall be the sum of the established market price(s) for the Licensed Products plus the wholesale cost of other activeagents or ingredients contained in the Combination Product. When separate market prices are not established, then the Parties shall negotiate in good faith todetermine a fair and equitable method of calculating Net Sales for the Combination Product in question, taking into account factors such as relative cost andrelative therapeutic or diagnostic contribution. 1.19 “Sublicensee” means Auxilium or any person or entity who receives in the future a sublicense from BTC pursuant to Article III hereof. 1.20 “Territory” means all countries of the world. ARTICLE II.DEVELOPMENT PROGRAM 2.1 Development Program. Pursuant to the Previous Agreements, Gerut, individually or collectively together with his employees, performedcertain preliminary research and pre-clinical, clinical, regulatory, process development and manufacturing work and will conduct the Clinical Study (asdefined in the Investigator Agreement) pursuant to the Investigator Agreement, related to injectable collagenase pertaining to the treatment of fat. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. ARTICLE III.LICENSE GRANT 3.1 License Grant. Gerut hereby grants to BTC and its Affiliates a worldwide exclusive license with right to sublicense the Licensed Know-How. Gerut further grants to BTC and its Affiliates a worldwide exclusive license with right to sublicense to use the Licensed Know-How to make, use and sellin any manner Licensed Products. Ownership of the Licensed Know-How shall be retained by Gerut subject to the license granted herein. Nothing in thisAgreement shall be construed in any way to limit the right of Gerut, as a physician and independent contractor, to use XIAFLEXTM for any purpose to pursueany medical, business and/or clinical advancements, including, but not limited to, teaching or providing medical services. 3.2 Sublicenses. (a) BTC shall be entitled to grant sublicenses of its rights hereunder, with right to further sublicense, provided that any Net Salesof Licensed Products by a BTC Sublicensee shall be deemed to be Net Sales of BTC for purposes of royalty payments due hereunder, and BTC shall remainobligated to pay all royalties due with respect to Licensed Products sold by any Sublicensee. If BTC shall grant any sublicenses in addition to the AuxiliumLicense Agreement under this Agreement, then it shall obtain the written commitment of such additional Sublicensees to abide by all applicable terms andconditions of this Agreement and BTC shall remain fully responsible to Gerut for the performance of all such terms by such additional Sublicensees. Uponthe termination of this Agreement, each additional Sublicensee shall have the option to convert its sublicense to a direct license with Gerut on the same terms asin the sublicense agreement. (b) Gerut hereby acknowledges and consents to the sublicense that BTC has previously granted to Auxilium pursuant to theAuxilium License Agreement in respect of the Licensed Products. 3.3 Subagents. It is agreed that BTC has the right to take the following actions, none of which shall constitute a sublicense hereunder andnone of which shall be subject to Section 3.2 herein: (a) appointing an agent or distributor to market, sell or otherwise dispose of Licensed Products; and (b) subcontracting the development, manufacture or packaging of Licensed Products. ARTICLE IV.ROYALTIES 4.1 Royalties. . Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4.2 Royalty Period. The royalty obligations of BTC shall commence upon the date of the First Commercial Sale and continue until June 3,2016 or such longer period as BTC continues to receive royalties for the Licensed Product; provided, however, that if BTC ceases on a country-by-countrybasis to receive royalties for the Licensed Product as a result of a sale of the royalty stream in respect of the Licensed Product in exchange for one or more cashpayment(s) then . 4.3 Currency; Conversion; Taxes. Royalty payments shall be paid in U.S. Dollars at the address of Gerut set forth in Section 10.7 below, orsuch other place as Gerut may reasonably designate in writing, consistent with applicable laws and regulations. Any taxes which BTC or its Affiliates orSublicensees shall be required by law to withhold or pay upon remittance of the royalty payments shall be deducted from the royalty payable to Gerut andpaid on its behalf as required. BTC shall furnish the original of any official receipts for such taxes. If any currency conversion shall be required in connectionwith the payment of royalties hereunder, such conversion shall be made by using the average of the daily exchange rates for such currency quoted by the WallStreet Journal’s (New York edition) foreign exchange desk for each of the last three (3) banlcing days of each calendar quarter, or, in the case of sales bySublicensees, using the exchange rates provided for in the written agreements between BTC and such Sublicensees. 4.4 Currency Transfer Restrictions. If in any country in the Territory the payment or transfer of royalties on Net Sales in such country isprohibited by law or regulation, BTC shall notify Gerut of the conditions preventing such transfer, and shall deposit the blocked payments in local currencyin a recognized banking institution in the relevant country for the credit of Gerut and such deposits shall belong solely to Gerut. 4.5 Payments by Others. With respect to any sales of Licensed Products by BTC, its Affiliates or Sublicensees, BTC shall have the right tocause any Affiliate, Sublicensee or other designee to make direct payment to Gerut of the royalties otherwise due for such sales. Gerut shall accept suchpayments and the amount of royalties to be paid by BTC shall be reduced by the amount of such payments actually received directly by Gerut. 4.6 Special Payment for . ARTICLE V.REPORTS, PAYMENTS AND ACCOUNTING 5.1 Royalty Reports and Payments. BTC agrees to make written reports and royalty payments to Gerut within 90 days after the close ofeach calendar quarter during the term of this Agreement, beginning with the quarter in which the First Commercial Sale occurs. These reports shall show forthe calendar quarter in question all Net Sales of Licensed Products and the royalty due thereon, together with the same information for Licensed Products soldby Affiliates and Sublicensees (if applicable). With respect to sales of Licensed Products by Sublicensees, reports need only include information reflected inthe reports required by Section 5.4 below which are actually received during the calendar quarter in question. Concurrently with the making of each report,BTC shall remit any royalty payment due for the period covered by the report. BTC will make a good faith attempt, using commercially reasonable biotechindustry practices, to differentiate between Net Sales of Licensed Products and sales of similar products outside of the Field in calculating the amount of theroyalty due hereunder to Gerut. Absent manifest error, BTC’s good faith differentiation shall be binding and conclusive on the Parties. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 5.2 Termination Report. Within ninety (90) days after the date on which BTC and its Affiliates and Sublicensees last sell any LicensedProducts, BTC shall make a final termination report containing the same quarterly information required above. 5.3 Accounting. BTC agrees to keep written or digitally stored records for a period of three (3) years from the end of each reporting period insufficient detail to enable the royalties payable to be determined, and further agrees to permit its books and records to be examined during normal businesshours by an independent accounting firm, selected by Gerut and reasonably satisfactory to BTC, from time-to-time on reasonable notice, but not more oftenthan once per year. Such examination must be made confidentially and the auditing firm shall be required to enter into reasonable confidentiality agreements.The expense of such examination shall be borne by Gerut except that in the event the results of the audit reveal a discrepancy in Gerut’s favor of 7.5% or more,then reasonable out-of-pocket audit fees shall be paid by BTC. Any discrepancy will be promptly corrected by a payment or refund, as appropriate. 5.4 Third Party Reports. BTC agrees to require, as a term of any sublicense agreement, that the Sublicensee shall render written reports toBTC of Net Sales of Licensed Products no less frequently than twice per year and in sufficient detail to enable the royalties payable by BTC hereunder to bedetermined (“Third Party Reports”). BTC shall also require Sublicensees to keep records concerning Net Sales for a period of at least three (3) years, and topermit reasonable examination of such records by an independent accounting firm selected by BTC. Notwithstanding the foregoing, nothing in this Agreementshall be construed as enlarging, or requiring BTC to modify, Auxilium’s, its Affiliate’s or its Sublicensee’s existing reporting and record keeping obligationspursuant to the Auxilium License Agreement. 5.5 Confidentiality of Reports. Gerut agrees that the information set forth in (a) the reports required by Sections 5.1 and 5.2, (b) the recordssubject to examination under Section 5.3, and (c) all Third Party Reports, shall be maintained in confidence by Gerut and any independent accounting firmselected under Section 5.3, shall not be used for any purpose other than verification of the performance by BTC of its obligations hereunder, and shall not bedisclosed by Gerut or such accounting firm to any other person. ARTICLE VI.WARRANTIES; DISCLAIMED WARRANTIES; INDEMNIFICATION 6.1 Title; Authority. Gerut represents and warrants that he owns all of the rights pertaining to the Licensed Know-How licensed to BTChereunder and that therefore has the full unrestricted legal right to enter into this Agreement and to grant the licenses granted hereunder. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 6.2 No Other Licenses Granted. Gerut represents and warrants that he has not granted any license pertaining to the Licensed Know-How toany party other than to BTC pursuant to this Agreement. 6.3 No Known Infringement. As of the Effective Date, Gerut has not received any notice of infringement of or conflict with any patent, tradesecret, copyright, trademark or other intellectual property right of any other person with respect to the Licensed Know-How. 6.4 No Warranty of Non-Infringement. Nothing in this Agreement shall be construed as a warranty or representation that any LicensedProducts made, used or sold pursuant to any license granted hereunder is or will be free from infringement of patents, copyrights, trademarks, trade secrets orother intellectual property rights of third parties. 6.5 Indemnification by Gerut. Notwithstanding the absence of any warranty of non-infringement, Gerut shall, during the term of thisAgreement and thereafter, indemnify and hold harmless BTC, its Affiliates, Sublicensees and its and their directors, officers, agents and employees, fromany losses, damages, expenses and liabilities of any kind (including legal expenses and reasonable attorneys’ fees and costs ) resulting from Gerut’s grossnegligence or willful misconduct in connection with: (a) the action or inaction of Gerut, his agents or his employees or (b) any breach of this Agreement by Gerut, his agents or his employees. 6.6 Indemnification by BTC. BTC shall, during the term of this Agreement and thereafter, indemnify and hold harmless Gerut his agentsand his employees, from any losses, damages, expenses, and liability of any kind whatsoever (including legal expenses and reasonable attorneys’ fees andcosts) resulting from BTC’s (and its Affiliates’ and Sublicensees’) gross negligence or willful misconduct in connection with the manufacture, use, testing,sale or advertisement of Licensed Products; provided, however, that in no case will the foregoing indemnity obligation apply to the extent that such claim,proceeding, loss, expense, or liability is the result of: (a) any action or inaction of Gerut, his agents or his employees, or their agents constituting medical malpractice; or (b) any alleged or actual infringement by the Licensed Know-How of any patents, copyrights, trademarks, trade secrets or otherintellectual property rights of third parties; or (c) any breach of this Agreement by Gerut, his agents or his employees. ARTICLE VII.TERM AND TERMINATION 7.1 Term. Unless earlier terminated in accordance with this Article VII, this Agreement and the licenses granted hereunder shall continue ineffect until the termination of BTC’s royalty obligations. Thereafter, all licenses granted shall become fully paid-up, irrevocable exclusive licenses. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 7.2 Termination by Gerut for Default. Gerut may terminate this Agreement if BTC commits any material default of any of BTC’s materialobligations, by notice to BTC specifying in reasonable detail the nature of the default, provided that such default has not been remedied within 90 days ofsuch notice. 7.3 Termination by BTC. BTC may terminate this Agreement (a) on thirty (30) days’ notice to Gerut if BTC elects to cease utilizing alllicense rights granted hereunder; (b) if Gerut or any of his agents or employees is in material default of any of Gerut’s material obligations or covenants, whichdefault has not been remedied within 90 days’ of notice to Gerut specifying in reasonable detail the nature of the default. 7.4 Termination for Bankruptcy. If voluntary or involuntary proceedings in bankruptcy by or against Gerut are instituted under anyinsolvency law, or a receiver or custodian is appointed for Gerut, or proceedings are instituted by or against Gerut, which proceedings shall not have beendismissed within 60 days after the date of filing, or if Gerut makes an assignment for the benefit of creditors, or substantially all of the assets of Gerut areseized or attached and not released within 60 days thereafter, BTC may immediately terminate this Agreement by notice to Gerut. However, in the event thatBTC elects not to terminate the Agreement, the Parties intend that the rights and licenses granted under this Agreement shall be deemed to be, for purposes ofSection 365(n) of the U.S. Bankruptcy Code (or any equivalent provision of applicable foreign law), licenses or rights to “intellectual property” as definedunder Section 101(52) of the U.S. Bankruptcy Code. BTC, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of itsrights and elections under the U.S. Bankruptcy Code, subject to performance by Gerut of his preexisting obligations under this Agreement. 7.5 Rights and Obligations Upon Termination. If for any reason, and subject to the right to convert in accordance with 3.2(a), followingtermination of this Agreement, nothing herein shall be construed to release either Party from any obligation that arose prior to the date of such termination. Aftertermination, BTC and its Affiliates and Sublicensees may complete Licensed Products in the process of manufacture at the date of termination and sell themalong with any other Licensed Products in inventory, provided that BTC and its Sublicensees shall pay royalties as required by Article IV and shall submitthe reports required by Article V for such Licensed Products. 7.6 Return of Confidential Information. Upon termination of this Agreement, BTC shall return or destroy all Licensed Know-How that iswritten, to Gerut, provided that BTC may retain one copy of all written materials for legal and archival purposes only. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. ARTICLE VIII.CONFIDENTIALITY, DISCLOSURE, AND PUBLICATIONS 8.1 Confidentiality. (a) During the term of this Agreement and for a period of five (5) years following its expiration or termination, each Party shallmaintain in confidence all Information disclosed by the other Party which is marked or identified as confidential or which the receiving Party has reason toknow is confidential or proprietary (referred to herein as “Confidential Information”), and shall not disclose Confidential Information to anyone except thoseAffiliates, further Sublicensees, employees, subagents, consultants, or subcontractors having a “need to know” in order to carry out the receiving Party’sactivities as contemplated by this Agreement. Each receiving Party shall obtain written agreements to the extent applicable, from its Affiliates, Sublicensees,employees, subagents, consultants or subcontractors, prior to disclosure to them of Confidential Information, obligating them to hold in confidence and notuse any Confidential Information except as permitted by this Agreement. Notwithstanding the foregoing sentence, if employees or consultants of a receivingParty have previously signed general confidentiality agreements in favor the receiving Party as employer, and if those agreements bind the employees orconsultants to protect Information disclosed hereunder to at least the same extent required by this Section, then it shall be sufficient for the employing Party to(i) notify the employees or consultants of the fact that Information disclosed hereunder is governed by such confidentiality agreements and (ii) identify to suchemployees or consultants the specific Information so governed. Each Party shall use the same degree of effort used to protect its own most valuable proprietaryInformation from unauthorized use or disclosure, and shall be responsible for ensuring compliance with these obligations by its Affiliates, Sublicensees,employees, subagents, consultants and subcontractors. Each Party shall promptly notify the other upon discovery of any unauthorized use or disclosure ofthe other’s Confidential Information. (b) The receiving Party shall not use Confidential Information for any purpose, including for the development of products in theField, except as contemplated by this Agreement. 8.2 Exceptions. The obligation of confidentiality and non-use in this Article shall not apply to the extent that: (a) either Party (the “Recipient”) is required to disclose Confidential Information by law, order or regulation of a governmentalagency or a court of competent jurisdiction, or (b) the Recipient can demonstrate that (i) the disclosed Information was, at the time of disclosure to the Recipient, already in thepublic domain or which, after disclosure, becomes part of the public domain other than as a result of action of the Recipient, its Affiliates, Sublicensees,employees, subagents, consultants or subcontractors in violation hereof; (ii) the Recipient can demonstrate that the disclosed Information was rightfullyknown or independently developed by the Recipient or its Affiliates prior to the date of disclosure to the Recipient, or (iii) the disclosed Information wasreceived by the Recipient or its Affiliates on an unrestricted basis from a source unrelated to any Party to this Agreement and not under a duty of confidentialityto the other Party or (c) the disclosure is made to the FDA, EMEA or other regulatory agency as part of a product approval process. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 8.3 Legally Compelled Information. In the event that either Party becomes legally compelled to disclose any Confidential Informationbelonging to the other Party, it shall notify the other Party prior to disclosure so that the other Party can seek a protective order or other appropriate remedy. 8.4 Publications. Prior to public disclosure of or submission for publication of an abstract, manuscript or oral presentation describing theresults of any aspect of the Development Program or other scientific activity between BTC and Gerut, the Party disclosing or submitting such abstract,manuscript or oral presentation (“Disclosing Party”) shall send the other Party (“Responding Party”) by a recognized delivery service for next day delivery acopy of the abstract, manuscript or oral presentation materials to be submitted. The Responding Party shall have 10 days, in the case of an abstract or oralpresentation materials, or 30 days, in the case of a manuscript, from the date of receipt of the abstract, manuscript or oral presentation materials. If theResponding Party believes the subject matter of such abstract, manuscript or oral presentation contains Confidential Information or a patentable invention ofsignificant commercial value to the Responding Party, then prior to the expiration of the relevant period, the Responding Party shall notify the Disclosing Partyin writing of its determination and the basis for its conclusion. Upon receipt of such notice, the Disclosing Party shall delay public disclosure of orsubmission of abstract, manuscript or oral presentation for an additional period of 60 days to permit preparation and filing of a patent application on thedisclosed subject matter. No publication or presentation shall be made by the Disclosing Party unless and until the Responding Party’s comments have beenaddressed and any information determined by the Responding Party to be Confidential Information of the Responding Party has been removed. Determinationof authorship for any paper or inventorship for any patent shall be in accordance with accepted scientific practice or patent law, as appropriate. Should anyquestions of authorship or inventorship arise, they will be determined by good faith consultation between Gerut and BTC. ARTICLE IX.DISPUTE RESOLUTION; ARBITRATION 9.1 Exclusive Remedy. The Parties agree that the terms of this Article shall be the exclusive means of resolving any dispute, controversy orclaim (a “Dispute”) arising out of or relating to this Agreement, except that either Party may seek injunctive relief or other provisional remedies from a court ofcompetent jurisdiction if necessary to protect such Party’s name, intellectual property rights, or to prevent irreparable harm. 9.2 Good Faith Negotiations. In the event of any Dispute arising out of or relating to or in connection with any provision of the Agreement, orthe rights or obligations hereunder, the Parties shall try to settle their differences amicably between themselves. Either Party may initiate such informal disputeresolution by sending written notice of the dispute to the other Party, and within ten (10) business days after such notice appropriate representatives of theParties shall meet for attempted resolutions by good faith negotiations. If such representatives are unable to resolve such disputed matters, they shall be referredto the senior management of BTC, for discussion and resolution. If they are unable to resolve the dispute within thirty (30) days (or such longer period of timeas the Parties may agree to in writing) of initiating such negotiations, then the Parties may resort to binding arbitration, as set forth in Section 9.3 below. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 9.3 Binding Arbitration. Any Dispute not so resolved may be submitted, by a written notice of request to arbitrate given by either Party, tofinal and binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then in force except as modified inaccordance with the provisions of this Section. The arbitration proceedings shall be held in the City of New York in New York State. 9.4 Arbitrators. The arbitral tribunal shall be composed of three arbitrators, one appointed by each Party within 15 days, and the twoarbitrators so appointed shall, within 15 days of their appointment, appoint a third arbitrator who shall act as Chairperson of the tribunal. If the Disputeinvolves scientific or technical matters, at least 2 of the 3 arbitrators chosen shall have educational training and/or experience sufficient to demonstrate areasonable level of knowledge in the field of biotechnology. 9.5 Procedures. (a) Prompt resolution of any Dispute is important to both Parties; and the Parties agree that the arbitration of any Dispute shall beconducted expeditiously. The arbitrators shall be instructed and directed to assume management initiative and control over the arbitration process (includingscheduling of events, pre-hearing discovery and activities, and the conduct of the hearing), in order to complete the arbitration as expeditiously as isreasonably practical for obtaining a just resolution of the Dispute. The arbitrators shall be directed that any arbitration shall be completed within 1 year fromthe filing of notice of a request for such arbitration. (b) The arbitrators shall determine what discovery shall be permitted, consistent with the goal of limiting the cost and time whichthe Parties must expend for discovery; provided that the arbitrators shall permit such discovery as they deem necessary to permit an equitable resolution of theDispute. (c) In arriving at decisions, the arbitrators shall apply the terms and conditions of this Agreement in accordance with the rules oflaw of the state of New York. The arbitrators are empowered to render the following awards in accordance with any provision of this Agreement: (i) enjoining aParty from performing any act prohibited, or compelling a Party to perform any act required, by the terms of this Agreement or any related agreement, and (ii)ordering such other legal or equitable relief, including any provisional legal or equitable relief, or specifying such procedures as the arbitrator deemsappropriate, to resolve any Dispute submitted for arbitration. Any monetary award made and shall be payable in U.S. Dollars free of any tax or anydeduction. The arbitrators shall issue to both Parties a written explanation in English of the reasons for the award and a full statement of the facts as foundand the rules of law applied in reaching the decision. An award rendered in connection with an arbitration pursuant to this Article shall be the sole, exclusive,final and binding remedy between the Parties regarding the Dispute and any counterclaims made, and judgment upon any award may be entered and enforcedin any court of competent jurisdiction. 9.6 Expenses. The award rendered by the arbitrators shall include the costs of arbitration, arbitrator fees, reasonable attorneys’ fees andreasonable costs for expert and other witnesses. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 9.7 Confidentiality of Proceedings. The arbitration proceedings shall not be made public without the joint consent of the Parties, and eachParty shall maintain the confidentiality of such proceedings and decision unless otherwise required by law or permitted in writing by the other Party. ARTICLE X.MISCELLANEOUS PROVISIONS 10.1 . 10.2 Indemnification Procedures.In the event either Party seeks indemnification under any provision for indemnification afforded by thisAgreement, the following procedures shall be followed: (a) Notice of Claim. The Party seeking indemnification (the “Indemnitee”) shall give the other Party (the “Indemnifying Party”)prompt notice of any losses or of the discovery of facts upon which a request for indemnification may be made. The Indemnifying Party shall not be liable forany losses that it can show resulted from any delay in providing such notice. The notice must contain a description of the claim and the nature and amount ofthe loss (to the extent known), and shall include copies of all papers and official documents received in respect of any losses. (b) Control of Defense. At its option, the Indemnifying Party may assume the defense of any third party claim by giving writtennotice to the Indemnitee within thirty (30) days of the Indemnitee’s notice. The assumption of the defense of a third party claim by the Indemnifying Party shallnot be construed as an acknowledgment that the Indemnifying Party is liable to the Indemnitee. Upon assuming the defense of a third party claim, theIndemnifying Party shall have the right to choose legal counsel and direct and control the defense in its sole discretion. In the event that it is ultimatelydetermined that the Indemnifying Party is not obligated to indemnify the Indemnitee from the claim, the Indemnitee shall reimburse the Indemnifying Party forall costs and expenses incurred. (c) Right to Participate in Defense. The Indemnitee shall be entitled to participate in, but not control, the defense of a third partyclaim and to employ counsel of its choice for such purpose; provided, however, that such participation shall be at the Indemnitee’s own expense unless theindemnifying Party has failed to assume the defense, in which case the Indemnitee shall control the defense. (d) Settlement. If the Indemnifying Party has acknowledged in writing the obligation to indemnify the Indemnitee for lossesrequiring only the payment of money damages in connection with a third party claim, and that will not result in the Indemnitee’s becoming subject toinjunctive or other, the Indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose ofsuch claim on such terms as the Indemnifying Party deems appropriate in its sole discretion. With respect to all other claims or losses, the Indemnifying Partyshall have authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such claim or loss provided it obtains the priorwritten consent of the Indemnitee (which consent shall not be unreasonably withheld or delayed). Regardless of whether the Indemnifying Party chooses todefend or prosecute any third party claim, no Indemnitee shall admit any liability with respect to, or settle, compromise or discharge, any such claim withoutthe prior written consent of the Indemnifying Party. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. (e) Cooperation of Indemnitee.Regardless of whether the Indemnifying Party chooses to defend or prosecute any third party claim,the Indemnitee shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnesses andattend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested. Such cooperation shall include access to andreasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such third party claim, and making the Indemnitee’semployees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. TheIndemnifying Party shall reimburse the Indemnitee for all its reasonable out-of-pocket expenses in connection therewith. (f) Reimbursement of Expenses. The verifiable costs and expenses, including fees and disbursements of counsel, incurred by theIndemnitee in connection with any claim shall be reimbursed quarterly by the Indemnifying Party, without prejudice to the Indemnifying Party’s right tocontest its indemnification obligations, and such reimbursements shall be subject to refund in the event the Indemnifying Party is ultimately held not to beobligated to indemnify the Indemnitee. 10.3 Assignment; Successors. This Agreement may not be assigned by either Party without the prior written consent of the other, except thatBTC may assign this Agreement to a party which acquires (whether by merger, sale of assets or otherwise) all or substantially all of that portion of BTC’sbusiness to which this Agreement pertains. Any entity to whom BTC assigns its rights under this Agreement, is merged with or is acquired by shall be boundthe terms of this Agreement, including the obligation to pay royalties to Gerut and no assignment shall relieve BTC of its obligations hereunder without theprior written consent of Gerut. 10.4 Entire Agreement. This Agreement, the Side Letter and the Investigator Agreement, together with all corresponding Exhibits, constitute theentire agreement between the Parties with respect to the subject matter hereof, and supersede all Previous Agreements, whether written or oral, but shall have noeffect upon the Existing Options. This Agreement or any corresponding Exhibit may not be modified orally, but only by an instrument in writing signed byboth Parties. 10.5 Choice of Law. The validity, performance, construction and effect of the Agreement shall be governed by the substantive laws of thestate of New York without reference to conflicts of laws provisions. 10.6 Severability. If any provision of this Agreement is declared invalid or unenforceable by an arbitrator pursuant to Section 9.5 (or by acourt whose decision is final and binding pursuant to subsection 9.1) that provision shall be deemed fully severable. The remaining provisions of thisAgreement shall remain in full force and effect and will be construed as if the invalid or unenforceable provision had been deleted. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 10.7 Notices. Any notice or report required or permitted to be given shall be in writing and delivered personally, sent by facsimile (andpromptly confirmed by personal delivery, registered or certified mail or overnight courier as provided herein), sent by nationally-recognized overnight courier,or sent by registered or certified mail, postage prepaid, return receipt requested. Such notices and reports shall be sent to the following addresses and persons(or such other address or person as a Party may provide by a communication complying with this section), and shall be effective upon personal delivery or 5days after dispatch by mail or courier, whichever is applicable: If to BTC, BioSpecifics Technologies Corp.35 Wilbur StreetLynbrook, New York 11563Fax: (516) 593-7039Attn: President with a copy to: Carl A. ValensteinBingham McCutchen LLP2020 K Street, N.W.Fax: (202) 373-6448 If to Gerut, 1245 Colonial RoadHewlett, NY 11557Fax No.: (516) 295-2487 with a copy to: Stanley D. FriedmanMcAloon & Friedman, P.C.123 William StreetNew York, New York 10038Fax (212) 227-2903 10.8 Waiver. The delay or failure of any Party to require performance of any provision in any one instance shall not be deemed a waiver andshall not affect the right to enforce the provision later or in any other instance. The observance of any term or condition may be waived, either generally or in aparticular instance by the Party entitled to enforce such term or condition, but shall only be effective if in writing and signed by such Party. 10.9 Force Majeure. If either Party shall be delayed, interrupted in or prevented from the performance of any obligation hereunder (other thanan obligation to make a payment) by reason of force majeure, including an act of God, fire, flood, earthquake, war (declared or undeclared), acts ofterrorism, public disaster, strike or labor unrest, governmental act, rule or regulation, or any other cause beyond such Party’s control, such Party shall not beliable to the other therefore and the time for performance of such obligation shall be extended for a period equal to the duration of the contingency whichoccasioned the delay, interruption or prevention. The Party invoking such force majeure rights must notify the other Party within a period of 15 days fromthe first and last day of the force majeure unless it renders such notification impossible, in which case, notification shall be made as soon as possible. If theresulting delay exceeds 4 months, both Parties shall consult in good faith to determine an appropriate course of action. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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. 10.10 Independent Contractors. It is expressly agreed that the Parties shall be independent contractors and that the relationship shall notconstitute a partnership or agency of any kind. Neither Party may bind the other or make statements on behalf of the other without prior written consent. 10.11 Publicity. Neither Party shall use the name of the other Party in any publicity release without the prior written permission of the other,which shall not be unreasonably withheld. Except as required by law, neither Party shall publicly disclose the terms and conditions of the Agreement withoutthe prior written consent of the other Party. 10.12 Headings. The captions used in this Agreement are inserted for convenience of reference only and shall not be construed to createobligations, benefits or limitations. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which takentogether shall constitute one and the same instrument. [Signature Page Follows] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES ANDEXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the date set forth above. BIOSPECIFICS TECHNOLOGIES CORP. By:/s/ Thomas L. Wegman /s/ Zachary Gerut Name: Thomas L. Wegman Zachary Gerut Title: President Signature Page to License Agreement Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 A CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES ANDEXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 Firm We hereby consent to the incorporation of our audit report dated March 14, 2013 with respect to the consolidated balance sheets of BioSpecifics TechnologiesCorp. as of December 31, 2012 and 2011, and the related statements of income, stockholders' equity and cash flows for each of the years in the three-yearperiod ended December 31, 2012, 2011, 2010 and our report dated March 14, 2013 with respect to internal control over financial reporting as of December 31,2012, in Form 10-K for the year ended December 31, 2012 for BioSpecifics Technologies Corp. /s/ Tabriztchi & Co., CPA, P.C.Garden City, NYMarch 14, 2013 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 31 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO RULES 13a-14(a) AND 15d-14(a) OFTHE 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, 2012 of BioSpecifics Technologies Corp.; 2.Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers 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 designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably 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 the registrant’s internalcontrols over financial reporting.Date: March 14, 2013/s/ Thomas L. Wegman Thomas L. WegmanPresident, Principal Executive and Financial Officer Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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 32 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO RULES 13a-14(b) AND 15d-14(b) OFTHE SECURITIES EXCHANGE ACT OF 1934 AND18 U.S.C. SECTION 1350The undersigned, Thomas L. Wegman, the President, Principal Executive Officer and Principal Financial Officer of BioSpecifics Technologies Corp. (the“Company”), DOES HEREBY CERTIFY that: 1.The Company’s annual report on Form 10-K for the fiscal year ended December 31, 2012 (the “Report”), fully complies with the requirements ofSection 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 the Company forthe period covered by the Report. IN WITNESS WHEREOF, the undersigned has executed this certification this 14th day of March, 2013. /s/ Thomas L. Wegman Thomas L. WegmanPresident, Principal Executive and Financial Officer This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange of 1934, as amended, or otherwise subject to liabilitypursuant to that section. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, orthe Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 15, 2013Powered 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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