BioSpecifics Technologies Corp.
Annual Report 2013

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KBIOSPECIFICS TECHNOLOGIES CORP - BSTCFiled: March 07, 2014 (period: December 31, 2013)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, 2013o 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 Market Securities 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 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 smallerreporting 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 28, 2013, the last business day of theregistrant’s most recently completed second fiscal quarter, was approximately $77.0 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 3, 2014 is 6,388,468.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement for its 2014 Annual Meeting of Stockholders scheduled to be held on June , 24, 2014, which is expectedto be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal year ended December 31, 2013, 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 its2014 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 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsTABLE OF CONTENTS PagePART I3 Item 1.DESCRIPTION OF BUSINESS.3 Item1A.RISK FACTORS19 Item IB.UNRESOLVED STAFF COMMENTS30 Item 2.DESCRIPTION OF PROPERTY.30 Item 3.LEGAL PROCEEDINGS.30 Item 4.MINE SAFETY DISCLOSURES.30PART II31 Item 5.MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS.31 Item 6.SELECTED FINANCIAL DATA34 Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION34 Item7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK52 Item 8.FINANCIAL STATEMENTS.52 Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.52 Item9A.EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.52 Item9B.OTHER INFORMATION53PART III53 Item 10DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION16(a) OF THE EXCHANGE ACT53 Item 11.EXECUTIVE COMPENSATION.53 Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.53 Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.53 Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.54PART IV54 Item15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.54iSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsIntroductory Comments – TerminologyThroughout this annual report on Form 10-K (this “Report”), the terms “BioSpecifics,” “Company,” “we,” “our,” and “us” refer to BioSpecificsTechnologies Corp. and its subsidiary, Advance Biofactures Corporation (“ABC-NY”).Introductory Comments – Forward-Looking StatementsThis Report includes “forward-looking statements” within the meaning of, 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 market potential for the use of XIAFLEX to treat Dupuytren’s contracture and Peyronie’s disease and the likelihood of success of Auxilium’s plansfor marketing and sales for those indications; the potential approval by the FDA of the sBLA filed by Auxilium to expand the label for Dupuytren’scontracture for multiple injections; the timing for Swedish Orphan Biovitrum AB to submit to the EMA a MAA for Peyronie’s disease; the timing of therelease by Auxilium of top-line data from its phase IIb study of collagenase clostridium histolyticum (“CCH”) as a treatment for frozen shoulder; the timing ofthe release by Auxilium of top-line data from its phase IIa study of CCH for cellulite; the expectation of XIAFLEX to be the first and only pharmaceuticaltherapy for frozen shoulder and cellulite; the timing for BioSpecifics to submit to Auxilium the Chien-804 final study report for canine lipoma and thelikelihood that Auxilium will exercise its opt in rights for such indication; the timing for BioSpecifics’ to initiate and complete enrollment of a placebo-controlled trial for human lipoma; the timing of the release by BioSpecifics of top-line data from its pre-clinical study in uterine fibroids and the potentialsuccess of, and commercial market for, such indication; the expected life of patents; the expected marketing exclusivity for XIAFLEX for Dupuytren’scontracture in Europe; the timing for receiving the final earn-out payment under our agreement with DFB Biotech, Inc.; and the projected receipt of paymentsfrom Auxilium. In some cases, these statements can be identified by 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’ current expectations and its projections about future events. There are a number of important factorsthat could cause BioSpecifics’ actual results to differ materially from those indicated by such forward-looking statements, including the timing of regulatoryfilings and action; the ability of BioSpecifics’ partner, Auxilium Pharmaceuticals, Inc., and its partners, Asahi Kasei Pharma Corporation, ActelionPharmaceuticals Ltd. and Swedish Orphan Biovitrum AB, to achieve their objectives for XIAFLEX in their applicable territories; the market for XIAFLEX in,and timing, initiation and outcome of clinical trials for, additional indications including frozen shoulder, cellulite, human lipoma and canine lipoma anduterine fibroids, all of which will determine the amount of milestone, royalty, mark-up on cost of goods sold and sublicense income BioSpecifics may receive;the potential of XIAFLEX to be used in additional indications; and other risk factors set forth in Part I, Item 1A of this Report under the heading “RiskFactors”. All forward-looking statements included in this Report are made as of the date hereof, and we assume no obligation to update these forward-lookingstatements.2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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®) for marketed indications andcollagenase clostridium histolyticum (“CCH”) for indications in development. Auxilium has an option to acquire additional indications that we may pursue,including human and canine lipoma. Auxilium is currently selling XIAFLEX in the U.S. for the treatment of Dupuytren’s contracture and Peyronie’s disease.Following the termination of the agreement between Auxilium and Pfizer, Inc. (“Pfizer”), Auxilium entered into an agreement with Swedish Orphan BiovitrumAB (“Sobi”) pursuant to which Sobi has marketing rights for XIAPEX® (the EU trade name for collagenase clostridium histolyticum) for Dupuytren’scontracture and Peyronie’s disease in Europe and certain Eurasian countries. Sobi is currently selling XIAPEX in Europe for the treatment of Dupuytren’scontracture. In addition, Auxilium has an agreement with Asahi Kasei Pharma Corporation (“Asahi”) pursuant to which Asahi has the right to commercializeXIAFLEX 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 the treatment of Dupuytren’s contracture and Peyronie’s disease inCanada, Australia, Brazil and Mexico.Operational Highlights Peyronie’s Disease. In December 2013, the U.S. Food and Drug Administration (“FDA”) approved Auxilium’s supplemental Biologics LicenseApplication (“sBLA”) for XIAFLEX for the treatment of Peyronie's disease. As a result, we recognized a $2.0 million milestone payment from Auxilium. Thisis the first and only FDA-approved biologic therapy indicated for the treatment of Peyronie's disease in men with a palpable plaque and a curvature of 30degrees or greater at the start of therapy. Dupuytren’s Contracture. In the fourth quarter of 2013, Auxilium presented results from Year 4 of the Collagenase Optimal Reduction ofDupuytren’s Long-term Evaluations of Success Study (“CORDLESS”). CORDLESS is a five-year observational study designed to assess the rates ofrecurrence following treatment with XIAFLEX, as well as long-term safety and progression of disease in patients from earlier Auxilium studies. Also in thefourth quarter of 2013, Auxilium announced positive results from the open label, phase IIIb MULTICORD (Multiple Treatment Investigation ofCollagenase Optimizing the Resolution of Dupuytren's) study evaluating XIAFLEX for the concurrent treatment of adult Dupuytren's contracture patients withmultiple palpable cords. The study demonstrated that two concurrent injections of XIAFLEX in patients with multiple Dupuytren's contractures resulted incomparable improvement in joint contracture and range of motion to those seen in previous studies when XIAFLEX was administered as single injections, 30days apart. Adverse event (AE) rates were also comparable to single injection administration 30 days apart. Based on the results, Auxilium submitted a sBLAto the FDA in the fourth quarter 2013 seeking expansion of labeling for the concurrent treatment of multiple palpable cords and hopes to receive approval bythe end of 2014. On February 24, 2014, Auxilium reported that the FDA had accepted the submission with a PDUFA date of October 20, 2014. Cellulite. Auxilium expanded the field of its license for injectable collagenase to include the potential treatment of cellulite by exercising, in January2013, its exclusive option under our development and license agreement. In October 2013, Auxilium dosed the first patient in its phase IIa clinical trial ofcollagenase clostridium histolyticum (“CCH”) for the treatment of cellulite. Auxilium anticipates top-line results from the study in the first quarter of 2015. No FDA-approved pharmaceutical therapies are currently available for the treatment of cellulite. Frozen Shoulder. Auxilium reported positive top-line data in the first quarter of 2013 from its phase IIa clinical trial of XIAFLEX for the potentialtreatment of frozen shoulder (adhesive capsulitis). In December 2013, Auxilium dosed the first patient in its phase IIb study of CCH for the treatment of frozenshoulder. Auxilium anticipates top-line results from the study in the first quarter of 2015. No FDA-approved pharmaceutical therapies are currently availablefor the treatment of frozen shoulder.3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsHuman Lipoma. In the first quarter 2014, we announced top-line data from the phase II dose escalation clinical trial of CCH for the treatment ofhuman lipoma. The primary efficacy outcome of active reduction of the visible surface area of the lipoma as measured by caliper was met, combining allpatients (p<0.0001). There were no serious adverse events reported during the trial. Canine Lipoma. In fourth quarter 2013, we announced top-line data from Chien-804, the placebo-controlled, double-blind, randomized phase II trialevaluating the efficacy of CCH in canines with benign subcutaneous lipomas. The trial did not meet its primary endpoint of a statistically significant post-treatment difference in the mean percent change in lipoma volume by CT scan; however, in the responder analysis there was a statistically significantreduction in lipoma surface area among dogs treated with CCH (p=0.0084). Auxilium has the option to exclusively license development and marketing rights tothe canine lipoma indication, which would trigger an opt-in payment and potential future milestone and royalty payments from Auxilium. We anticipatesubmitting a final study report to Auxilium in the first quarter of 2014, which will trigger the 120 day opt-in period. If Auxilium does not opt-in, then the rightswill revert back to us. Uterine Fibroids. In third quarter 2013, we announced that a poster titled, “Biomechanical Evaluation of Human Uterine Fibroids after Exposure toPurified Clostridial Collagenase” was presented at the Society for the Study of Reproduction 46th Annual Meeting in Montreal, Quebec, Canada. The posterprovided data which show that highly purified collagenase can reduce the stiffness of human uterine fibroid tissue in laboratory experiments. Increased tissuerigidity has been implicated as a cause of the morbidity associated with uterine fibroids. We anticipate releasing top-line data from a pre-clinical study in thesecond quarter of 2014. 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, such as humanand canine lipoma and uterine fibroids, other than dermal formulations labeled for topical administration. We have amended and restated that agreement twice,once on December 11, 2008 in connection with the Development, Commercialization and Supply Agreement, dated December 17, 2008 between an Auxiliumsubsidiary and Pfizer, and more recently on August 31, 2011 (the “Auxilium Agreement”). The Auxilium Agreement and other licensing agreements arediscussed more fully throughout this Item 1, in particular under 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.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 minimally-invasive approach to thisunmet medical need. The lead indications involving our injectable collagenase are Dupuytren’s contracture, Peyronie’s disease, frozen shoulder, cellulite,human lipoma and canine lipoma and uterine fibroids. New clinical indications involving the therapeutic application of Clostridial collagenase to supplementthe body’s own natural enzymes are continuously being proposed to us by specialists in the medical community.4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsCollagenase 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 and the EMA for the treatment of Dupuytren’s contracture. Prior to FDA approval of XIAFLEX, the onlyproven treatment for Dupuytren’s contracture was surgery.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,” and one “anaphylactic reaction reported in a post-marketing clinical study in a patient who had previous exposure toXIAFLEX for the treatment of Dupuytren’s contracture” as reported serious adverse reactions to XIAFLEX. The prescribing information for XIAFLEX alsostates that the most frequently reported adverse drug reactions in XIAFLEX clinical trials included swelling of the injected hand, contusion, injection sitereaction, injection site hemorrhage, and pain in the treated extremity. The prescribing information notes that adverse reaction rates observed in clinical trials ofa drug may not reflect those observed in practice because such trials “are conducted under widely varying conditions.” As a condition of its approval ofXIAFLEX, the FDA and Auxilium agreed upon a risk evaluation and mitigation strategy (“REMS”) program for XIAFLEX, which consists of acommunication plan and a medication guide. This REMS program is designed (1) to evaluate and mitigate known and potential risks and serious adverseevents; (2) to inform healthcare providers about how to properly inject XIAFLEX and perform finger extension procedures; and (3) to inform patients about theserious risks associated with XIAFLEX.In the fourth quarter of 2013, Auxilium presented results from Year 4 of the Collagenase Optimal Reduction of Dupuytren’s Long-term Evaluations of SuccessStudy (“CORDLESS”). CORDLESS is a five-year observational study designed to assess the rates of recurrence following treatment with XIAFLEX, as wellas long-term safety and progression of disease in patients from earlier Auxilium studies. These data indicated that 57.9 percent of patients previouslysuccessfully treated with XIAFLEX did not experience disease recurrence based on the study's definition of recurrence, which is a 20 degree change ofcontracture with a palpable cord, or the joint undergoing medical or surgical intervention. Of the 623 joints assessed, only 12.8 percent of those joints receivedmedical or surgical intervention through Year 4 and of these patients, most were retreated with XIAFLEX. The data also reveal no new long-term adverseevents. Of the 86 serious AEs reported through four years of follow-up, only one was considered related to XIAFLEX (decrease in ring finger circumferencedue to Dupuytren's contracture resolution).Also in the fourth quarter of 2013, Auxilium announced positive results from the open label, phase IIIb, MULTICORD (Multiple Treatment Investigation ofCollagenase Optimizing the Resolution of Dupuytren's) study evaluating XIAFLEX for the concurrent treatment of adult Dupuytren's contracture patients withmultiple palpable cords. The study demonstrated that two concurrent injections of XIAFLEX in patients with multiple Dupuytren's contractures resulted incomparable improvement in joint contracture and range of motion to those seen in previous studies when XIAFLEX was administered as single injections, 30days apart. Adverse event (AE) rates were also comparable to single injection administration 30 days apart. The MULTICORD study found that concurrentinjections of XIAFLEX reduced total fixed flexion contracture (FFC) by an average of 74.4 percent and improved the total range of motion by a combinedaverage 66.6 degrees. Hand functionality as measured by the URAM ( U nité R humatologique des A ffections de la M ain) scale, a 9-item validated scaledeveloped to assess functional outcome of patients suffering from Dupuytren’s disease, improved an average of 12.3 points. The estimated clinicallyimportant change of the URAM scale is 2.9 points.(i) The timing of the finger extension procedure was also examined in this study. XIAFLEX injection iscurrently followed by the finger extension procedure at 24 hours when needed. In MULTICORD, finger extension was performed at 24, 48 or 72 hours. Therewas no difference in the efficacy or safety profile based upon finger extension times. Based on the results, Auxilium submitted a sBLA to the FDA in thefourth quarter 2014 seeking expansion of labeling for the concurrent treatment of multiple palpable cords and expects to receive approval by the end of 2014.On February 24, 2014, Auxilium reported that the FDA had accepted its submission with a PDUFA date of October 20, 2014.5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 its Corporate Overview - 4Q and FY 2013 Financial Results presented on February 28, 2014 (the “Auxilium Presentation”), Auxilium stated that the numberof procedures in 2013 were up 10.6 % from 2012 and the XIAFLEX market share of procedures reached 27.0% in 2013. Total XIAFLEX revenues increasedby 22% from 2012 to 2013 with an increase from $65.8 million dollars in 2012 to $80.1 million dollars in 2013. Status of Regulatory Approval of XIAFLEX for Dupuytren’s Contracture Outside of the United States Sobi has exclusive rights to commercialize XIAPEX for Dupuytren's contracture and Peyronie's disease, subject to applicable regulatory approvals, in 28 EUmember countries, Switzerland, Norway, Iceland, 18 Central Eastern Europe/Commonwealth of Independent countries, including Russia and Turkey, and 22Middle Eastern & North African countries. Sobi, via its Partner Products business unit, is primarily responsible for the applicable regulatory, clinical andcommercialization activities for XIAPEX in Dupuytren's contracture and Peyronie's disease in these countries. As Auxilium reported in its 10K, “XIAPEX isnow available in Austria, Belgium, Czech Republic, Denmark, Finland, Hungary, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland,Portugal, Romania, Spain, Sweden, Switzerland and the United Kingdom.”XIAFLEX for the treatment of Dupuytren’s contracture has also been approved for sale in Canada and Australia.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.Approval by the FDA As announced on December 6, 2013, the FDA approved the sBLA submitted by Auxilium for XIAFLEX, an in-office, biologic for this treatment of Peyronie'sdisease. This is the first and only FDA-approved biologic therapy indicated for the treatment of Peyronie's disease in men with a palpable plaque and acurvature of 30 degrees or greater at the start of therapy. XIAFLEX is already approved in the U.S., EU, Canada and Australia for the treatment of adultDupuytren's contracture patients with a palpable cord in the palm.6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsThe approval by the FDA of Auxilium's sBLA for XIAFLEX for the treatment of Peyronie's disease is based on safety and efficacy data from Auxilium'sPhase III clinical trials and other controlled and open label clinical studies in which over 1,000 patients with Peyronie's disease were enrolled and received over7,400 injections of XIAFLEX. In the two identical Phase III double-blind placebo-controlled studies, XIAFLEX demonstrated statistically significantimprovement in the co-primary endpoints of penile curvature deformity and patient-reported bother versus placebo. The approved dose of XIAFLEX for thetreatment of Peyronie's disease is 0.58 mg per injection administered into a Peyronie's plaque. Up to eight injections (four treatment cycles) may beadministered in the course of treatment. Also, a penile modeling procedure is recommended after every treatment cycle of two injections in an effort to furtherdisrupt the plaque. If more than one plaque is present, it should be injected into the plaque causing the curvature deformity. Auxilium has created Auxilium Advantage™ to support access to XIAFLEX and provide a single point of contact for health care providers and patients forhelp accessing the product. A risk evaluation and mitigation strategy (REMS) for XIAFLEX went into effect after the product first received FDA approvalin February 2010 for adults with Dupuytren's contracture with a palpable cord, and Auxilium has further collaborated with the FDA to update the REMS withan Elements to Assure Safe Use (ETASU) for XIAFLEX for the treatment of Peyronie's disease in men with a palpable plaque and curvature deformity of 30degrees or greater at the start of therapy. The goal of the XIAFLEX REMS with an ETASU for Peyronie's disease is to certify that the appropriate physiciansand practice sites are trained in the use of XIAFLEX and to attempt to mitigate the serious risk of penile fracture (corporal rupture) and other serious injuries tothe penis such as hematoma. These serious risks are highlighted in the Boxed Warning within the Full Prescribing Information (the label). Commercialization of Peyronie’s Diseases in the United States The Auxilium Presentation noted that the initial patient focus if 5,000-6,000 invasive treatment patients per year and the initial launch focus is on 400physicians who perform 90% of all surgeries, with 225 in the first phase of outreach. To date, 452 physicians and 249 sites have been certified. Withrespect to reimbursement, 827 patients have submitted requests for reimbursement and 84% of the 32% for whom decisions have been made receivedreimbursement. 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. No FDA-approved pharmaceutical therapies are currently available for the treatment of frozen shoulder. The most commontreatments for frozen shoulder syndrome are extensive physical therapy, corticosteroids and/or arthroscopy, and some drugs are used to manage pain.Phase IIIn the first quarter of 2013, reported the top-line results of its phase IIa study. The phase IIa study was an open-label, controlled dose-ranging study designedto assess the safety and efficacy of CCH for the treatment of Stage 2 unilateral idiopathic frozen shoulder in comparison to an exercise-only control group. Thestudy involved 50 adult men and women at 11 sites throughout the U.S. Four cohorts of 10 patients each received up to three ultrasound-guided extraarticularinjections of varying doses of CCH (ranging from 0.29 mg to 0.58 mg in three different volumes; 0.5, 1.0, or 2.0 mL), separated by a minimum of 21 days. All patients were instructed to perform home shoulder exercises. The fifth cohort of ten patients received no CCH injections and only performed home shoulderexercises. The study’s primary endpoint was the change (in degrees) from baseline to the day 92 follow-up in active forward flexion in the affected shouldercompared to the exercise-only cohort. Safety assessments were made during all study visits and immunogenicity testing was performed at screening and day92. Both the 0.58mg(1mL) and 0.58mg(2mL) dosing arms showed positive, statistically significant improvement from baseline in forward flexion vs. theexercise-only group. The 0.58mg(1mL) dosing arm also showed statistically significant improvement from baseline in shoulder abduction vs. the exercise-only group. Positive trends with improvement in degrees were also seen in other active range of motion (“AROM”) assessments vs. the exercise-only group. Twenty-nine study patients (72.5%) received three CCH injections with 5 subjects receiving two injections and 6 subjects receiving one injection only.7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsAROM Assessment Results from Phase IIa FSS Study Patients were also assessed using the American Shoulder and Elbow Surgeons (“ASES”) Scale for function and pain. Both the 0.58 mg(1mL) and 0.58mg(2mL) cohort demonstrated statistically significant improvement in pain and function over baseline scores vs. the exercise-only group (p<0.05).Treatment-related adverse events with CCH were mostly localized bruising, injection site pain and swelling, hematoma, and musculoskeletal pain. All suchevents resolved without intervention, and are consistent with XIAFLEX/CCH use in other approved and potential indications. No subjects discontinued thestudy due to an adverse event. A shoulder MRI was performed on all patients at screening and day 92. Screening MRIs were performed to exclude thepresence of other clinically significant conditions such as concomitant rotator cuff injury. Day 92 MRI evaluations indicated there were no rotator cuffinjuries. There were no drug-related serious adverse events reported.In the fourth quarter of 2013, Auxilium reported that it had initiated a phase IIb double-blind, placebo-controlled study of the safety and efficacy of CCH forthe treatment of Stage 2 unilateral idiopathic frozen shoulder. The study will enroll approximately 300 adult men and women at approximately 35 sites in theU.S. and Australia. Subjects will be randomized 3:1 to receive CCH or placebo and will receive up to three ultrasound-guided injections of study drug. Eachinjection will be separated by a minimum of 21 days. All subjects will also perform home shoulder exercises after the first injection.The primary endpoint of the phase IIb study will be change in degrees from baseline to the Day 95 follow-up visit in active forward flexion in the affectedshoulder compared to placebo. Patients will also be assessed using the ASES Scale for function and pain as well as additional patient reported outcomemeasures. Safety assessments will be made during all study visits and immunogenicity testing will be performed at screening and at the end of the study.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.8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsCellulite 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 Auxilium reported in its 10 K, “[c]urrent treatments for cellulite include massagedevices, creams, unapproved injectables, laser-based procedures or liposuction. There are no drugs currently approved by the FDA to treat cellulite, anddevices cleared by the FDA to treat the condition have varying degrees of success in eliminating cellulite.”In December 2012, Auxilium announced top-line 30-day data from its phase Ib, single site, open-label dose escalation study of CCH 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 CCH, divided into 10 aliquots over a pre-defined 8x10cm template around a targetdimple. The objectives of the study are to assess the safety and effectiveness of a single injection of CCH for the treatment of cellulite at 30, 60 and 90 daysacross multiple dosing arms. Pharmacokinetic evaluations were made as well. Across all dosing arms, 60 patients (63%) who were treated experienced someimprovement 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 their targetdimple at Day 30; however, multiple CCH dosing arms had more than 40 percent of patients experience an improvement greater than or equal to 30% in theirtarget dimple at Day 30. Treatment-related adverse events with CCH were mostly localized bruising, injection site discomfort and swelling, and all such eventsresolved without intervention, which are all consistent with CCH use in other indications. 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.In October 2013, Auxilium announced the initiation of its phase IIa study of CCH for the treatment of cellulite. The phase IIa study is a randomized, double-blind multiple-dose study expected to enroll approximately 144 women between the ages of 18 and 45 in the U.S. Patients will be evaluated for treatmentefficacy by investigator and patient assessments, as well as 3-D photographic imaging techniques. The study will be conducted in two stages and safety willbe evaluated through the collection of adverse events. If the safety and local tolerability profile from the first stage has been found to be acceptable, subjects willbe enrolled in stage 2. To qualify for the study, participants must have cellulite in the posterolateral thighs and/or buttocks for at least 12 months prior to a screening visit. Eligiblestudy participants will be assigned to one of four groups that vary in treatment dose (low, medium, high, and placebo) and will be randomized to low-doseCCH, mid-dose CCH, high-dose CCH, or placebo in a 5:5:5:3 ratio. Total treatment doses per treatment session include doses both lower and higher than thedose used in Dupuytren’s contracture with a palpable cord. Each subject may receive up to three treatment sessions of study drug according to randomizationand each treatment session will be approximately 21 days apart. In this study, only the dimples treated on Day 1 may be retreated on Day 22 (TreatmentSession 2) and Day 43 (Treatment Session 3) if, in the opinion of the investigator, the dimple continues to be evident. A variable number of dimples may betreated within one treatment quadrant. Topline results from the study are expected in the first quarter of 2015.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.9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 2014, we announced the top-line data from the phase II dose escalation clinical trial of CCH for the treatment of human lipoma. This phase II open-label single-center dose escalation study assessed the safety and efficacy of CCH in 14 patients with lipoma, divided into four dose cohorts. Each patientreceived a single injection of CCH in one of four ascending doses based on the current commercial dose of CCH in marketed indications, ranging from0.058mg (10% of commercial dose) to 0.44mg (75% of commercial dose). The primary efficacy outcome was reduction in lipoma visible surface area asmeasured by caliper. Data showed patients in the highest dose group (75% of commercial dose) achieved the best efficacy results with an average of 67%reduction of lipoma visible surface area as measured by caliper at six months post-treatment. Additionally, data demonstrated that 75% of patients in thehighest dose group achieved reduction of 50% or more in lipoma visible surface area. We anticipate initiating a placebo-controlled trial in the first half of 2014.There were no drug-related serious adverse events reported during the trial. The most frequent treatment-related adverse events were localized to the injection siteand included bruising, injection site swelling and injection site pain. These adverse events are consistent with those seen previously in clinical experience. 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-804 In December 2013, we announced top-line data from Chien-804, the placebo-controlled, double-blind, randomized phase II trial evaluating the efficacy of CCHin canines with benign subcutaneous lipomas. The Chien-804 trial enrolled 37 dogs in a single injection study randomized 1:1 CCH to placebo with lipomavolume being measured by CT scan and lipoma surface area being measured by caliper at baseline, one month and 90 days. The data at 90 days show a post-treatment difference in the mean percent change in lipoma volume by CT scan between the CCH and placebo-treated groups of -11.58% (p=0.52), which wasnot statistically significant. The percent change at 90 days in mean visible surface area measured by caliper showed a difference of -24.18% (p=0.09), whichapproached statistical significance. Among those dogs whose lipomas decreased by 50% or more, the results achieved statistical significance and showed thatthe visible surface area as measured by caliper decreased by 50% or more in 47.4% of CCH-treated dogs (9 out of 19) versus 5.9% of placebo-treated dogs (1out of 17), with a p-value of 0.0084. A questionnaire administered to pet owners, while blinded to the study, showed 84.2% satisfaction with the results ofCCH treatment versus 33.4% satisfaction with the placebo results (p=0.005). We anticipate providing Auxilium with the Chien-804 final study report in thefirst quarter of 2014.There were no drug-related serious adverse events reported during the trial. The most frequent treatment-related adverse events were local injection site reactionsincluding bruising, injection site swelling, injection site pain and injection site edema. These adverse events are consistent with those seen previously inclinical experience in humans.Uterine Fibroids In July 2013, we announced that a poster titled, "Biomechanical Evaluation of Human Uterine Fibroids after Exposure to Purified Clostridial Collagenase"was presented at the Society for the Study of Reproduction 46th Annual Meeting in Montreal, Quebec, Canada. The poster provided data which show thathighly purified collagenase can reduce the stiffness of human uterine fibroid tissue in laboratory experiments. Increased tissue rigidity has been implicated as acause of the morbidity associated with uterine fibroids.10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsThe results of this ex vivo study showed that treatment of fibroids with determined doses of purified collagenase caused a statistically significant decrease inthe stiffness of the tissue. This hypothesis was tested in fibroid tissue obtained after hysterectomy or myomectomy surgery from patients. Tissues were injected with collagenase and compared to control-injected tissue. The stiffness in the fibroid tissue was reduced in a time and dose dependentmanner with a p-value ≤ 0.001. The study is being led by Dr. Phyllis Leppert, a Professor of Obstetrics and Gynecology and Professor of Pathology and her colleague, Dr. Friederike Jayes atDuke Medicine with our support. We anticipate reporting top-line data from the pre-clinical study in the first half of 2014. Other Clinical IndicationsOther 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 AGREEMENTSAuxilium 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. Auxilium’s existing agreement with Pfizer terminated as of April 24, 2013. Pursuant to a transition services agreement, Pfizer continued support of the supplyof XIAPEX until February 28, 2014. Currently, Sobi has exclusive rights to commercialize XIAPEX for Dupuytren's contracture and Peyronie's disease,subject to applicable regulatory approvals, in 28 EU member countries, Switzerland, Norway, Iceland, 18 Central Eastern Europe/Commonwealth ofIndependent countries, including Russia and Turkey, and 22 Middle Eastern & North African countries.Sobi, via its Partner Products business unit, is primarily responsible for the applicable regulatory, clinical and commercialization activities for XIAPEX inDupuytren's contracture and Peyronie's disease in these countries. We will receive a certain percentage of milestone payments that Sobi pays to Auxilium. Wewill also receive royalties from net sales and payments on costs of goods sold in Sobi territories from Auxilium, which will be a specified percentage of whatAuxilium receives from Sobi. Auxilium has granted to Asahi the exclusive right to develop and commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s diseasein Japan. Auxilium has granted to Actelion the exclusive right to develop and commercialize XIAFLEX for the treatment of Dupuytren’s contracture andPeyronie’s disease in Canada, Australia, Brazil and Mexico. XIAFLEX has been approved for sale for Dupuytren’s contracture in Canada and Australia. Through December 31, 2013, Auxilium has paid us up-front licensing and sublicensing fees and milestone payments under the Auxilium Agreement of $26.4million, 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 frozen shoulder and cellulite indications, upon the acceptance of the regulatory filing and upon receipt by Auxilium, its affiliate orsublicensee of regulatory approval. The remaining contingent milestone payments that may be received, in the aggregate, from Auxilium in respect of frozenshoulder and cellulite are $3.0 million. To the extent there is sub-licensing income as defined in the Auxilium Agreement, 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, such as human andcanine lipoma. In the first quarter 2014, we anticipate we will present the opt-in study for canine lipoma to Auxilium and Auxilium will have 120 days toexercise its option and pay the associated option amount.11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 will receive a certain percentage of milestone payments that Sobi pays to Auxilium. We will also receive royalties from net sales and payments on costs ofgoods sold in Sobi territories from Auxilium, which will be a specified percentage of what Auxilium receives from Sobi. To the extent Auxilium enters into anagreement or agreements related to other territories, the percentage of sublicense income that Auxilium would pay us will depend on the stage of developmentand approval of XIAFLEX for the particular indication at the time such other agreement or agreements are executed.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.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.12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsDFB In 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”), we expect to receive in March 2014 the final earn out payment of $3.5 million which was recognized as income in 2013. In-Licensing and Royalty Agreements We 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. A redacted copy of the amendment was filed on Form 8-K/A with theSEC on August 8, 2012. The foregoing descriptions of the agreement with Dr. Gelbard and the amendment to that agreement do not comport to be completeand 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 granted to us an exclusive license to the patent applications in respect of frozen shoulder. The license granted to us underthe Frozen Shoulder License Agreement is subject to the non-exclusive license (with right to sublicense) granted to the U.S. government by the ResearchFoundation in connection with the U.S. government’s funding of the initial research.13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2016.14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsUnless 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 were filed on our Form 10-K filed with the SEC March 15, 2013. Theforegoing descriptions of the Cellulite License Agreement and the Gerut License Agreement do not purport to be complete and are qualified in their entirety byreference to the full text of these agreements.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. COST OF RESEARCH AND DEVELOPMENT ACTIVITIESDuring fiscal years 2013 and 2012, the Company invested $1.5 million dollars and $1.2 million dollars, respectively, in research and development activities.15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsGOVERNMENT 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 similarregulatory authorities in foreign countries. Various federal, state, local, and foreign statutes and regulations 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 thecompliance with federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. In addition, thecurrent political environment and the current regulatory environment at the FDA could lead to increased testing and data requirements which could impactregulatory 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.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.16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsIf 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 patent applications. 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.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.17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsAlthough 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. A letter was issued by the Food and Drug Administration on March 11, 2013, indicatingthat XIAFLEX was subject to a regulatory review period before its commercial marketing or use, and that submission of the application was timely. However,the USPTO has not taken any action on the request for extension, and we cannot be certain 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 and Peyronie’s Disease until December 6, 2020), tax credits for expensesassociated with clinical trials including a 20 year tax carry-forward, availability of FDA grants, and advice on design of the clinical development plan. The orphan drug provisions of the Federal Food, Drug, and Cosmetic Act also provide incentives to drug and biologics suppliers to 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.18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsPatient Protection and Affordable Care Act As Auxilium reported in its 10 K, “the Patient Protection and Affordable Care Act (“PPACA”, which was enacted in 2010, includes provisions coveringbiological product exclusivity periods and a specific reimbursement methodology for biosimilars. As a new biological product, we expect that XIAFLEX willbe eligible for 12 years of marketing exclusivity from the date of its approval by the FDA (although this could change as the regulations are enacted) whichwas February 2, 2010. PPACA also establishes an abbreviated licensure pathway for products that are biosimilar to or interchangeable with FDA-approvedbiological products, such as XIAFLEX. As a result, we could face competition from other pharmaceutical companies that develop biosimilar versions ofXIAFLEX that do not infringe our patents or other proprietary rights. Similar legislation has been adopted in the EU.” 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 INFORMATION BioSpecifics 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.19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsRisks Related to Our Limited Sources of RevenueOur future revenue is primarily dependent upon option, milestone and contingent royalty payments from Auxilium.Our primary sources of revenues are from option, milestone, mark-up on cost of goods sold and contingent royalty payments from Auxilium under theAuxilium Agreement. In 2013, we recognized the final earnout payment of $3.5 million from DFB, which will be received in March 2014. 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. As in the case with Pfizer, if any third party stops pursuing such development and commercialization, sublicenseincome would no longer be payable to Auxilium or us.Even if Auxilium or its sublicensees pursues development and commercialization, there is no guarantee that the FDA or equivalent foreign regulatory body willapprove XIAFLEX for a given indication or that commercialization will be successful, if the FDA or equivalent foreign regulatory body does approveXIAFLEX for a given indication. Moreover, under the Auxilium Agreement, royalty payments are subject to set-off for certain expenses we owe Auxiliumrelated to development and patent costs. We anticipate that the amount of royalties 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. Forinstance, Auxilium has acquired Actient Holdings LLC, a private urology specialty therapeutics company, for $585 million in upfront cash plus certaincontingent consideration and warrants to purchase Auxilium common stock. Any such non-XIAFLEX related acquisition may result in Auxilium reallocatingits priorities away from XIAFLEX.20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsDFBAs part of the sale of our topical collagenase business to DFB, we were entitled to receive earn out payments in respect of sales of certain products developedand manufactured by DFB that contain collagenase for topical administration through the end of August 2013. A final payment of $3.5 million wasrecognized in 2013, but will be received in March 2014. 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, mark-up on cost of goods sold and royalty payments from Auxilium or meet our needs for additionalfunding from other sources, we may be required to limit, scale back or cease our operations. Our business strategy contains elements that we will not be able to implement if we do not receive the anticipated option, milestone, royalty or earn outpayments from Auxilium, or secure additional funding from other sources. While we anticipate being profitable on an ongoing, annual basis, our futurefunding requirements will depend on many factors, including: •Auxilium’s ability to manufacture and commercialize XIAFLEX for which we would receive milestone, mark-up on cost of goods sold and royaltypayments; •Sobi’s ability to commercialize XIAPEX in its territory and Actelion’s ability to commercialize XIAFLEX in Canada or Australia; •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 lipoma, for which Auxilium couldexercise its option to acquire rights to them, and whether Auxilium exercises the option for canine lipoma; •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; •the extent to which Auxilium’s acquisition of Actient and in-licensing of STENDRA™ results in Auxilium’s reallocation of priority away fromXIAFLEX; and •the extent to which Auxilium focuses on men’s health and away from orthopedic or dermatology (Dupuytren’s contracture, frozen shoulder, cellulite). 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.21Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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 in vivo trials, studies or development work for additionalindications beyond the pre-approved indications upon submission to and approval by the JDC of our development plan which includes in vivo studies ofuterine fibroids. In the case of indications in keloids, capsular contraction after breast augmentation, arthrofibrosis following total joint replacement inhumans and equine suspensory ligament desmitis, the JDC may reject our submission only for reasonable safety concerns. The JDC may reject oursubmission for any other additional indications for safety or commercial concerns. If the JDC rejects our submissions in any additional indications, ourability to obtain option, milestone and royalty payments with respect to those additional indications would be limited.We 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:22Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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 unforeseen result; •product candidates may fail to receive regulatory approvals required to bring the products to market; •manufacturing costs, the inability to scale up to produce supplies for clinical trials or other factors may make our product candidates uneconomical;and •the proprietary rights of others and their competing products and technologies may prevent product candidates from being effectively commercializedor from obtaining exclusivity. 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.23Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsThere 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.Risks Related to Regulatory Requirements24Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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 and Auxilium agreed upon a REMS program consisting of a communication plan and a medication guide. With respect toits approval of XIAFLEX for Peyronie’s disease, Auxilium has further collaborated with the FDA to update the REMS with an Elements to Assure Safe Use(“ETASU”) for XIAFLEX for the treatment of Peyronie's disease in men with a palpable plaque and curvature deformity of 30 degrees or greater at the start oftherapy. The goal of the XIAFLEX REMS with an ETASU for Peyronie’s disease is to certify that the appropriate physicians and practice sites are trained inthe use of XIAFLEX and to attempt to mitigate the serious risk of penile fracture (corporal rupture) and other serious injuries to the penis such as hematoma.Currently, there is a substantial amount of congressional and administrative review of the FDA and the regulatory approval process for drug candidates in theU.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 thedevelopment, manufacturing, testing, promotion, marketing and distribution of product candidates may change in the U.S. Such changes may increase ourcosts and adversely affect our operations. 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.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.25Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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” and one “anaphylactic reaction reported in a post-marketing clinical study in a patient who had previous exposure to XIAFLEX for thetreatment of Dupuytren’s contracture” as a reported serious adverse reaction to XIAFLEX and states that the most frequently reported adverse drug reactions inXIAFLEX clinical trials included swelling of the injected hand, contusion, injection site reaction, injection site hemorrhage, and pain in the treated extremity. The prescribing information notes that adverse reaction rates observed in clinical trials of a drug may not reflect those observed in practice because such trials“are conducted under widely varying conditions.”In the case of Peyronie’s disease, the serious risks include penile fracture (corporal rupture) and other serious injuries to the penis such as hematoma. Theseserious risks are highlighted in the Boxed Warning within the Full Prescribing Information (the label).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.26Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsBecause 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. 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, 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, and our commercial success in developing and manufacturing collagenase products based on our patents is dependent on these products notinfringing 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. 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 require us to indemnify them against any claims for infringementbased on the use of our technology. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcomeof the litigation. If Auxilium becomes involved in such litigation, it could also consume a substantial portion of their resources, regardless of the outcome of thelitigation, thereby jeopardizing their ability to commercialize candidate products and/or their ability to make option, milestone or royalty payments to us. If anyof these actions is successful, in addition to any potential liability for damages, we could be required to obtain a license to permit ourselves, our licensees,licensors or our collaborators to conduct clinical trials, manufacture or market the affected product, in which case we may be required to pay substantialroyalties or grant cross-licenses to our patents. However, there can be no assurance that any such license will be available on acceptable terms or at all.Ultimately, we, our licensees, licensors or collaborators could be prevented from commercializing a product, or forced to cease some aspect of their or ourbusiness, as a result of patent infringement claims, which could harm our business or right to receive option, milestone and contingent royalty payments.27Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsRisks 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 to achieve commercial success; •failure of Auxilium to exercise any opt in rights to new indications including canine lipoma; •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, directors,officers, 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; •changes in estimates of our financial results; •investors’ general perception of us; •general economic, industry and market conditions; and •the reallocation by Auxilium of its priorities away from XIAFLEX or orthopedic or dermatological indications.28Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsIf 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, 2013, options to purchase 1,167,000 shares of common stock were outstanding. In addition, as of December 31, 2013 a total of 239,098options 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.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. In February 2014, the Board amended the Poison Pill again to extend the term for an additional two years, to May 31,2016. These provisions could make it more difficult for common stockholders to replace members of the Board. Because our Board is responsible forappointing the members of our management team, these provisions could in turn affect any attempt to replace the current management team.29Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsIf 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 3, 2014 our executive officers, directors and their affiliates, in the aggregate, beneficially owned shares representing approximately 28.5% 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 1B.UNRESOLVED STAFF COMMENTS. None. Item 2.DESCRIPTION OF PROPERTY.Our corporate headquarters are currently located at 35 Wilbur St., Lynbrook, NY 11563. On November 21, 2013, the Company entered into an Agreementof Lease (the “New Lease”) with 35 Wilbur Street Associates, LLC (“New Landlord”) for the Company’s corporate headquarters located at 35 Wilbur Street,Lynbrook, New York 11563 (the “Premises”). Neither the Company nor its affiliates have a material relationship or affiliation with the New Landlord. Aspreviously reported, the Company formerly leased the Premises from Wilbur St. Corp. (“WSC”). On November 21, 2013, WSC sold the Premises to the NewLandlord, and the Company entered into the New Lease with the New Landlord and simultaneously terminated the existing lease. The term of the New Lease istwenty-four months, provided, however, that the Company has the option to cancel the New Lease after the first year by giving three months’ notice, whichmay be given before the expiration of the first year. Pursuant to the New Lease, the Company’s monthly base rent is $12,000.00. The Company is required topay as additional rent an amount equal to the increase in taxes over a specified base year.Item 3.LEGAL PROCEEDINGS.None.Item 4.MINE SAFETY DISCLOSURES.Not Applicable. 30Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2013 HIGH LOW Fourth Quarter $22.94 $18.42 Third Quarter $19.47 $15.98 Second Quarter $17.29 $15.17 First Quarter $17.20 $14.64 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 Table of ContentsPART II Item 5.MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES. Market InformationOur 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 2013 and 2012 as reported by and asquoted by Nasdaq, as applicable: These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.Holders of RecordAs of February 26, 2014, 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.31Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsSecurities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2013 with respect to the shares of our common stock that may be issued under our existingequity compensation plans: Plan Category Number ofsecurities to beissued uponexercise ofoutstandingoptions,warrants andrights (a) Weighted-averageexercise price ofoutstandingoptions,warrants andrights (b) Number ofsecuritiesremainingavailablefor futureissuanceunder equitycompensationplans (excludingsecuritiesreflected incolumn (a))(c) Equity compensation plans approved by security holders(1) 1,167,000 $9.03 239,098 Equity compensation plans not approved by security holders - - - Total 1,167,000 $9.03 239,098 (1) Please see Note 10, “Stockholders’ Equity,” of the notes to the consolidated financial statements for a description of the material features of each of ourplans. Recent Sales of Unregistered Securities For the year ended December 31, 2013, we did not issue any unregistered shares of securities.Issuer Purchases of Equity Securities (1)On December 10, 2013, our Board of Directors reauthorized the repurchase of up to $2.0 million of our common stock under the stock repurchase program. The following table presents a summary of share repurchases made by us during the quarter ended December 31, 2013.Month Total Number ofShares Purchased (2) AveragePrice PaidPer Share (3) Total CumulativeNumber of SharesPurchased as Partof PubliclyAnnounced Plan Maximum DollarValue of Sharesthat may yet bePurchasedunder the Plan October 1, 2013 to October 31, 2013 3,539 $18.88 169,472 $997,271 November 1, 2013 – November 30, 2013----December 1, 2013 to December 31, 2013 - - - $2,000,000(5) Total 3,539 (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 common stockunder the stock repurchase program. (5)On December 10, 2013, we announced that our Board of Directors had reauthorized the repurchase of up to $2.0 million of our common stockunder the stock repurchase program.32Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsPerformance 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, 2008, 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 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 Biospecifics Technologies Corp $100.00 $137.15 $119.63 $77.66 $69.86 $101.26 Nasdaq Biotechnology Index $100.00 $115.60 $132.98 $148.69 $196.12 $324.80 Nasdaq Composite Index $100.00 $143.89 $168.22 $165.19 $191.47 $264.84 *Total return assumes $100 invested on December 31, 2008 in our common stock, the NASDAQ Composite Index, and the NASDAQ Biotechnology Indexand reinvestment of dividends through fiscal year ended December 31, 2013.33Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsItem 6.SELECTED FINANCIAL DATAThe 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, 2013, 2012 and 2011 and the consolidated balance sheet data as of December 31, 2013 and 2012 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, 2010 and 2009 and the consolidated balance sheet data as of December 31, 2011, 2010 and 2009 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. Years Ended December 31, Consolidated Statement of Operations Data 2013 2012 2011 2010 2009 Net revenues $14,467,240 $11,145,078 $11,395,726 $5,661,348 $3,155,757 Operating expenses: Research and development 1,484,416 1,249,755 972,078 1,223,931 488,646 General and administrative 5,038,363 4,774,828 5,231,881 6,470,449 4,832,019 Total operating expenses 6,522,779 6,024,583 6,203,959 7,694,380 5,320,665 Operating income (loss) 7,944,461 5,120,495 5,191,767 (2,033,032) (2,164,908) Other income (expense): Interest income 26,202 34,634 55,780 86,310 55,693 Interest expense - - - - (39)Other - - 15,823 13,130 (8,863)Qualifying Therapeutic Credit - - - 426,403 - 26,202 34,634 71,603 525,843 46,791 Income (loss) before income tax 7,970,663 5,155,129 5,263,370 (1,507,189) (2,118,117)Income tax benefit (expense) (2,684,816) (2,174,054) 1,338,256 (1,351) 161,574 Net income (loss) $5,285,847 $2,981,075 $6,601,626 $(1,508,540) $(1,956,543) Basic net income (loss) per share $0.83 $0.47 $1.04 $(0.24) $(0.32) Diluted net income (loss) per share $0.76 $0.43 $0.95 $(0.24) $(0.32) Shares used in computation of basic net income (loss) pershare 6,345,615 6,351,245 6,340,648 6,261,214 6,065,939 Shares used in computation of diluted net income (loss)per share 6,922,274 6,981,527 6,952,386 6,261,214 6,065,939 Years Ended December 31, Consolidated Balance Sheet Data: 2013 2012 2011 2010 2009 Cash and cash equivalents $5,624,860 $3,383,737 $3,196,831 $2,470,852 $3,950,389 Short-term investments 6,966,964 5,120,000 5,000,000 5,360,970 4,548,541 Total assets 23,252,244 18,390,264 16,265,073 11,518,701 11,748,478 Total stockholders’ equity 22,322,439 17,458,346 14,872,314 6,700,723 6,092,107 Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS.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.34Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsOverviewWe 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®) for marketed indications andcollagenase clostridium histolyticum (“CCH”) for indications in development. Auxilium has an option to acquire additional indications that we may pursue,including human and canine lipoma. Auxilium is currently selling XIAFLEX in the U.S. for the treatment of Dupuytren’s contracture and Peyronie’s disease.Following the termination of the agreement between Auxilium and Pfizer, Inc. (“Pfizer”), Auxilium entered into an agreement with Swedish Orphan BiovitrumAB (“Sobi”) pursuant to which Sobi has marketing rights for XIAPEX® (the EU trade name for collagenase clostridium histolyticum) for Dupuytren’scontracture and Peyronie’s disease in Europe and certain Eurasian countries. Sobi is currently selling XIAPEX in Europe for the treatment of Dupuytren’scontracture. In addition, Auxilium has an agreement with Asahi Kasei Pharma Corporation (“Asahi”) pursuant to which Asahi has the right to commercializeXIAFLEX 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 the treatment of Dupuytren’s contracture and Peyronie’s disease inCanada, Australia, Brazil and Mexico. Peyronie’s Disease. In December 2013, the U.S. Food and Drug Administration (“FDA”) approved Auxilium’s supplemental Biologics LicenseApplication (“sBLA”) for XIAFLEX for the treatment of Peyronie's disease. As a result, we recognized a $2.0 million milestone payment from Auxilium. Thisis the first and only FDA-approved biologic therapy indicated for the treatment of Peyronie's disease in men with a palpable plaque and a curvature of 30degrees or greater at the start of therapy. Dupuytren’s Contracture. In the fourth quarter of 2013, Auxilium presented results from Year 4 of the Collagenase Optimal Reduction ofDupuytren’s Long-term Evaluations of Success Study (“CORDLESS”). CORDLESS is a five-year observational study designed to assess the rates ofrecurrence following treatment with XIAFLEX, as well as long-term safety and progression of disease in patients from earlier Auxilium studies. Also in thefourth quarter of 2013, Auxilium announced positive results from the open label, phase IIIb MULTICORD (Multiple Treatment Investigation ofCollagenase Optimizing the Resolution of Dupuytren's) study evaluating XIAFLEX for the concurrent treatment of adult Dupuytren's contracture patients withmultiple palpable cords. The study demonstrated that two concurrent injections of XIAFLEX in patients with multiple Dupuytren's contractures resulted incomparable improvement in joint contracture and range of motion to those seen in previous studies when XIAFLEX was administered as single injections, 30days apart. Adverse event (AE) rates were also comparable to single injection administration 30 days apart. Based on the results, Auxilium submitted a sBLAto the FDA in the fourth quarter 2013 seeking expansion of labeling for the concurrent treatment of multiple palpable cords and hopes to receive approval bythe end of 2014. On February 24, 2014, Auxilium reported that the FDA had accepted the submission with a PDUFA date of October 20, 2014. Cellulite. Auxilium expanded the field of its license for injectable collagenase to include the potential treatment of cellulite by exercising, in January2013, its exclusive option under our development and license agreement. In October 2013, Auxilium dosed the first patient in its phase IIa clinical trial ofcollagenase clostridium histolyticum (“CCH”) for the treatment of cellulite. Auxilium anticipates top-line results from the study in the first quarter of 2015. No FDA-approved pharmaceutical therapies are currently available for the treatment of cellulite. Frozen Shoulder. Auxilium reported positive top-line data in the first quarter of 2013 from its phase IIa clinical trial of XIAFLEX for the potentialtreatment of frozen shoulder (adhesive capsulitis). In December 2013, Auxilium dosed the first patient in its phase IIb study of CCH for the treatment of frozenshoulder. Auxilium anticipates top-line results from the study in the first quarter of 2015. No FDA-approved pharmaceutical therapies are currently availablefor the treatment of frozen shoulder. Human Lipoma. In the first quarter 2014, we announced top-line data from the phase II dose escalation clinical trial of CCH for the treatment ofhuman lipoma. The primary efficacy outcome of active reduction of the visible surface area of the lipoma as measured by caliper was met, combining allpatients (p<0.0001). There were no serious adverse events reported during the trial. Canine Lipoma. In fourth quarter 2013, we announced top-line data from Chien-804, the placebo-controlled, double-blind, randomized phase II trialevaluating the efficacy of CCH in canines with benign subcutaneous lipomas. The trial did not meet its primary endpoint of a statistically significant post-treatment difference in the mean percent change in lipoma volume by CT scan; however, in the responder analysis there was a statistically significantreduction in lipoma surface area among dogs treated with CCH (p=0.0084). Auxilium has the option to exclusively license development and marketing rights tothe canine lipoma indication, which would trigger an opt-in payment and potential future milestone and royalty payments from Auxilium. We anticipatesubmitting a final study report to Auxilium in the first quarter of 2014, which will trigger the 120 day opt-in period. If Auxilium does not opt-in, then the rightswill revert back to us.35Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsUterine Fibroids. In third quarter 2013, we announced that a poster titled, “Biomechanical Evaluation of Human Uterine Fibroids after Exposure toPurified Clostridial Collagenase” was presented at the Society for the Study of Reproduction 46th Annual Meeting in Montreal, Quebec, Canada. The posterprovided data which show that highly purified collagenase can reduce the stiffness of human uterine fibroid tissue in laboratory experiments. Increased tissuerigidity has been implicated as a cause of the morbidity associated with uterine fibroids. We anticipate releasing top-line data from a pre-clinical study in thesecond quarter of 2014. Outlook We generated revenue from two primary sources: in connection with the Auxilium Agreement, we receive license, sublicense income, royalties, milestones andmark-up on cost of goods sold payments related to the sale and approval of XIAFLEX/XIAPEX as described below in Part II, Item 7, "AuxiliumAgreement". Under the DFB Agreement, pursuant to which we sold our topical collagenase business to DFB, we received earn out payments based on thesales of certain products, but our right to receive these payments expired at the end of August 2013. We expect to receive the final of these earn out payments inMarch 2014. Beginning in the fourth quarter of 2013, we expect to generate revenue from one primary source: in connection with the Auxilium Agreement. 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. Auxilium’s existing agreement with Pfizer terminated as of April 24, 2013. Pursuant to a transition services agreement, Pfizer continued support of the supplyof XIAPEX until February 28, 2014. Currently, Sobi has exclusive rights to commercialize XIAPEX for Dupuytren's contracture and Peyronie's disease,subject to applicable regulatory approvals, in 28 EU member countries, Switzerland, Norway, Iceland, 18 Central Eastern Europe/Commonwealth ofIndependent countries, including Russia and Turkey, and 22 Middle Eastern & North African countries. As Auxilium reported in its 10K, “XIAPEX is nowavailable in Austria, Belgium, Czech Republic, Denmark, Finland, Hungary, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal,Romania, Spain, Sweden, Switzerland and the United Kingdom.” Sobi, via its Partner Products business unit, is primarily responsible for the applicable regulatory, clinical and commercialization activities for XIAPEX inDupuytren's contracture and Peyronie's disease in these countries. We will receive a certain percentage of milestone payments that Sobi pays to Auxilium. Wewill also receive royalties from net sales and payments on costs of goods sold in Sobi territories from Auxilium, which will be a specified percentage of whatAuxilium receives from Sobi. Auxilium has granted to Asahi the exclusive right to develop and commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s diseasein Japan. Auxilium has granted to Actelion the exclusive right to develop and commercialize XIAFLEX for the treatment of Dupuytren’s contracture andPeyronie’s disease in Canada, Australia, Brazil and Mexico. XIAFLEX has been approved for sale for Dupuytren’s contracture in Canada and Australia.36Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsThrough December 31, 2013, Auxilium has paid us up-front licensing and sublicensing fees and milestone payments under the Auxilium Agreement of $26.4million, 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 frozen shoulder and cellulite indications, upon the acceptance of the regulatory filing and upon receipt by Auxilium, its affiliate orsublicensee of regulatory approval. The remaining contingent milestone payments that may be received, in the aggregate, from Auxilium in respect of frozenshoulder and cellulite are $3.0 million. To the extent there is sub-licensing income as defined in the Auxilium Agreement, 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, such as human andcanine lipoma. In the first quarter 2014, we anticipate we will present the opt-in study for canine lipoma to Auxilium and Auxilium will have 120 days toexercise its option and pay the associated option amount. We will receive a certain percentage of milestone payments that Sobi pays to Auxilium. We will also receive royalties from net sales and payments on costs ofgoods sold in Sobi territories from Auxilium, which will be a specified percentage of what Auxilium receives from Sobi. To the extent Auxilium enters into anagreement or agreements related to other territories, the percentage of sublicense income that Auxilium would pay us will depend on the stage of developmentand approval of XIAFLEX for the particular indication at the time such other agreement or agreements are executed.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.37Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsDFBIn 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”), we expect to receive in March 2014 the final earn out payment of $3.5 million which was recognized as income in 2013.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.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. A redacted copy of the amendment was filed on Form 8-K/A with theSEC on August 8, 2012. The foregoing descriptions of the agreement with Dr. Gelbard and the amendment to that agreement do not comport to be completeand 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.38Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.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.39Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsThe 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.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 and Peyronie’s Disease, successfully develop CCH for additional indications, obtain required regulatory approvals,manufacture XIAFLEX at an acceptable cost, in a timely manner and with appropriate quality, or successfully market products or maintain desired marginsfor products sold, and as a result we may not achieve sustained profitable operations.Critical Accounting Policies, Estimates and AssumptionsThe preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires 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.Cash, Cash Equivalents and Short-term Investments. Cash, cash equivalents and short-term investments are stated at market value. Cash equivalentsinclude only securities having a maturity of three months or less at the time of purchase. The Company limits its credit risk associated with cash, cashequivalents and short-term investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds,U.S. government securities, or short-term commercial paper which are held to maturity. Fair Value Measurements. Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents,short-term investments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of those instruments.40Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsConcentration of Credit Risk and Major Customers. The Company maintains bank account balances, which, at times, may exceed insured limits. TheCompany has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash. The Companymaintains its investment in FDIC insured certificates of deposits with several banks.At December 31, 2013, the accounts receivable balance of $5.0 million was primarily from two customers, comprised of $3.5 million (70% of total) fromDFB and $1.5 million (30% of total) from Auxilium. The Company has been dependent in each year on two customers who generate almost all its revenues.(With the expiration of right to receive payments on Santyl sales in August 2013, the primary source of our revenues is Auxilium Pharmaceutical, Inc.) Treasury Stock. The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity.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.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 Revenue. For those arrangements for which royalty, mark-up on cost of goods sold or earn-outpayment information becomes available and collectability is reasonably assured, we recognize revenue during the applicable period earned. For interimquarterly reporting purposes, when collectability is reasonably assured but a reasonable estimate of royalty, mark-up on cost of goods sold or earn-outpayment revenues cannot be made, the royalty, mark-up on cost of goods sold or earn-out payment revenues are generally recognized in the quarter that theapplicable licensee provides the written report and related information to us. Under the Auxilium Agreement, we do not participate in the selling, marketing or manufacturing of products for which we receive 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.41Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsUnder the DFB Agreement, pursuant to which we sold our topical collagenase business to DFB, we had the right to receive earn-out payments based on salesof certain products. This right to receive payments on Santyl sales expired in August 2013. Generally, under the DFB Agreement we would receive paymentsand a report within ninety (90) days from the end of each calendar year after DFB has sold the royalty-bearing product. DFB has provided us earn-out reportson a quarterly basis. BioSpecifics has now recognized all income from the Santyl sales under the DFB agreement, and expects to receive the correspondingcash payment, the income recognized in 2013, in March 2014.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 collagenase clostridium histolyticum (“CCH”). We resolved what had been an on-going dispute with Auxilium concerning the appropriateamount of creditable third party development expenses related to the lyophilization of the injection formulation and certain patent expenses for research anddevelopment costs that are reimbursable under the Auxilium Agreement. We agreed and have reimbursed Auxilium by offsetting future royalties payable for theamount invoiced us for third party development costs related to the development of the lyophilization of the injection formulation. We do not expect anyadditional third party development cost related to the lyophilization of the injection formulation.As of December 31, 2013 our net reimbursable third party patent expense accrual was approximately $60,000. Receivables and Deferred Revenue. Accounts receivable as of December 31, 2013 is approximately $5.0 million, which consists of approximately $3.5million due from DFB in accordance with the earn-out under the DFB Agreement and approximately $1.5 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 $0.2 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 CCH. Third-Party Royalties. We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products forspecific indications. We accrue third-party royalty expenses on net sales reported to us by Auxilium. Third-party royalty expense is generally expensed in thequarter that Auxilium provides the written reports and related information to us, that is, generally one quarter following the quarter in which the underlyingsales by Auxilium occurred. We expect our third party royalty expense under General and Administrative expenses will continue to increase as net sales byAuxilium for XIAFLEX increase and potential new indications for CCH are approved.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, one of which was paid in December 2013.As of December 31, 2013, we have capitalized $3.35 million related to this agreement which will be amortized over approximately five years beginning on thedate in which we receive our quarterly royalty report from Auxilium reporting 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 with finite lives in a manner that reflects the pattern in which the economic benefits of theassets are consumed or otherwise used up. If that pattern cannot be reliably determined, the assets are amortized using the straight-line method. We perform anevaluation of the recoverability of the carrying value of our intangible assets to determine if facts and circumstances indicate that the carrying value ofintangible assets may be impaired and if any adjustment is warranted. Based on our evaluation as of December 31, 2013, no impairment existed for intangibleassets.42Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. 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, 2013 COMPARED WITH YEAR ENDED DECEMBER 31, 2012Net revenuesNet revenues for the two years ended December 31, 2013 and 2012 comprise the following: Year Ended December 31 2013 2012 Change % Change Net sales $37,458 $18,219 19,239 106%Royalties 11,767,758 9,155,654 2,612,104 29%Licensing revenue 2,662,024 1,971,205 690,819 35%Total net revenues $14,467,240 $11,145,078 3,322,162 30%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 2013 and 2012 product revenues were $37,458 and $18,219, respectively. Thisincrease of $19,239, or 106%, 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, 2013 were $11.8 million as compared to $9.2 million in the2012 period, an increase of $2.6 million, or 29%. Royalty and the mark-up on cost of goods sold revenues recognized under the Auxilium Agreement were$8.2 million for the 2013 period and $6.3 million for the 2012 period. The increase of $1.9 million, or 32%, was due to increased net sales of XIAFLEXduring 2013 reported to us by Auxilium.We received 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 $3.5 million for the year ended December 31, 2013 and $2.9 million for the same period in 2012. This increase of$0.6 million, or 22%, is mainly related to the increase in net sales during the 2013 period reported to us by DFB. We expect to receive the final earn-outpayment for revenue recognized during 2013 in March 2014.43Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsLicensing Revenue Licensing revenue consists of licensing fees, sublicensing fees and milestones. For the years ended December 31, 2013 and 2012, we recognized total licensingand milestone revenue of $2.7 million and $2.0 million, respectively, an increase of $0.7 million, or 35%. 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, 2013 and 2012 were $0.6 million and $0.4 million, respectively. The increase of $0.2 million was mainly due to licensing feesrecognized of $0.5 million related to the exercise by Auxilium of its exclusive option to expand the field of its license for injectable collagenase to include thepotential treatment of adult patients with edematous fibrosclerotic panniculopathy, commonly known as cellulite, partially offset by lower license feesrecognized related to development of $0.1 million as compared to $0.4 million in the comparable period of 2012. Sublicensing fees recognized in 2013 were zerocompared to $0.6 million in the same period in 2012. In 2012, we recognized $0.6 million in sublicensing fees, which were related to the $10.0 million paid toAuxilium by Actelion for the rights to develop and commercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Canada,Australia, Brazil and Mexico.Milestone revenue recognized for the years ended December 31, 2013 and 2012 were $2.0 million and $1.0 million, respectively. In 2013, we recognized a $2.0million milestone related to the FDA’s approval of XIAFLEX for the treatment of Peyronie's disease. In addition, a $28,500 milestone was recognized in the2013 period related to product approval for XIAFLEX for the treatment of Dupuytren's contracture in adults with a palpable cord in Australia granted toActelion. In the 2012 period, we recognized a $1.0 million milestone related to the FDA’s December 2012 acceptance of Auxilium’s sBLA for XIAFLEX for thepotential treatment of Peyronie's disease. We also, recognized a milestone of $28,500 related to the Notice of Compliance (approval) by Health Canada forXIAFLEX for the treatment of Dupuytren's contracture in adults with a palpable cord in Canada granted to Auxilium.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.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 $1.5 million and $1.2 million, respectively,for calendar years 2013 and 2012, representing an increase in 2013 of $0.3 million, or 19%. This increase in research and development expenses wasprimarily due to expenses related to our clinical development programs partially offset by lower stock-based compensation. We are currently working to develop CCH for the treatment of human and canine lipoma and have begun a pre-clinical study in uterine fibroids. Human 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.44Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 January 2014, we announced the top-line data from the phase II dose escalation clinical trial of CCH for the treatment of human lipoma. This phase II open-label single-center dose escalation study assessed the safety and efficacy of CCH in 14 patients with lipoma, divided into four dose cohorts. Each patientreceived a single injection of CCH in one of four ascending doses based on the current commercial dose of CCH in marketed indications, ranging from0.058mg (10% of commercial dose) to 0.44mg (75% of commercial dose). The primary efficacy outcome was reduction in lipoma visible surface area asmeasured by caliper. Data showed patients in the highest dose group (75% of commercial dose) achieved the best efficacy results with an average of 67%reduction of lipoma visible surface area as measured by caliper at six months post-treatment. Additionally, data demonstrated that 75% of patients in thehighest dose group achieved reduction of 50% or more in lipoma visible surface area. We anticipate initiating a placebo-controlled trial in the first half of 2014.There were no drug-related serious adverse events reported during the trial. The most frequent treatment-related adverse events were localized to the injection siteand included bruising, injection site swelling and injection site pain. These adverse events are consistent with those seen previously in clinical experience. 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-804 In December 2013, we announced top-line data from Chien-804, the placebo-controlled, double-blind, randomized phase II trial evaluating the efficacy of CCHin canines with benign subcutaneous lipomas. The Chien-804 trial enrolled 37 dogs in a single injection study randomized 1:1 CCH to placebo with lipomavolume being measured by CT scan and lipoma surface area being measured by caliper at baseline, one month and 90 days. The data at 90 days show a post-treatment difference in the mean percent change in lipoma volume by CT scan between the CCH and placebo-treated groups of -11.58% (p=0.52), which wasnot statistically significant. The percent change at 90 days in mean visible surface area measured by caliper showed a difference of -24.18% (p=0.09), whichapproached statistical significance. Among those dogs whose lipomas decreased by 50% or more, the results achieved statistical significance and showed thatthe visible surface area as measured by caliper decreased by 50% or more in 47.4% of CCH-treated dogs (9 out of 19) versus 5.9% of placebo-treated dogs (1out of 17), with a p-value of 0.0084. A questionnaire administered to pet owners, while blinded to the study, showed 84.2% satisfaction with the results ofCCH treatment versus 33.4% satisfaction with the placebo results (p=0.005). We anticipate providing Auxilium with the Chien-804 final study report in thefirst quarter of 2014.There were no drug-related serious adverse events reported during the trial. The most frequent treatment-related adverse events were local injection site reactionsincluding bruising, injection site swelling, injection site pain and injection site edema. These adverse events are consistent with those seen previously inclinical experience in humans. Uterine Fibroids In July 2013, we announced that a poster titled, "Biomechanical Evaluation of Human Uterine Fibroids after Exposure to Purified Clostridial Collagenase"was presented at the Society for the Study of Reproduction 46th Annual Meeting in Montreal, Quebec, Canada. The poster provided data which showed thathighly purified collagenase can reduce the stiffness of human uterine fibroid tissue in laboratory experiments. Increased tissue rigidity has been implicated as acause of the morbidity associated with uterine fibroids.45Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsThe results of this ex vivo study showed that treatment of fibroids with determined doses of purified collagenase caused a statistically significant decrease inthe stiffness of the tissue. This hypothesis was tested in fibroid tissue obtained after hysterectomy or myomectomy surgery from patients. Tissues wereinjected with collagenase and compared to control-injected tissue. The stiffness in the fibroid tissue was reduced in a time and dose dependent manner with ap-value ≤ 0.001. The study is being led by Dr. Phyllis Leppert, a Professor of Obstetrics and Gynecology and Professor of Pathology and her colleague, Dr. Friederike Jayes atDuke Medicine with our support. We anticipate reporting top-line data from the pre-clinical study in the first half of 2014.The following table summarizes our research and development expenses related to our pre-clinical and clinical development programs: Year EndedDecember 31,2013 Year EndedDecember 31,2012 AccumulatedExpensesSince January 1,2010 Program Canine Lipoma $463,208 $442,741 $1,436,196 Human Lipoma 333,230 168,879 738,099 Uterine Fibroids 157,630 - 157,630 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 and CCH, tocontinue to successfully 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.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.46Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsGeneral 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 $5.0 million and $4.8 million for calendar years 2013 and 2012, respectively,an increase of $0.2 million or 6%, from 2012. The increase in general and administrative expenses was mainly due to increased third party licensing androyalty fees, investor relations, professional fees, consulting services partially offset by lower legal fees, stock-based compensation and director fees.Other Income and expenseOther income for calendar year 2013 was $26,202 compared to $34,634 for calendar year 2012. For calendar year 2013 and 2012, other income consisted ofinterest earned on our investments.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 2013 was $2.7 million as compared to $2.2 million in 2012. In 2013, we utilized taxassets of $0.1 million related to deferred licensing revenue and stock based compensation and a $17,000 research and development credit to reduce our taxespayable which was partially offset by an increase to our deferred taxes for employee based compensation. The amount of refundable federal income taxes as ofDecember 31, 2013 is approximately $0.2 million.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.YEAR 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)% 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.47Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsRoyaltiesRoyalties 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 $9.2 million as compared to $6.3 million in the2011 period, an increase of $2.9 million, or 45%. Royalty and the mark-up on cost of goods sold revenues recognized under the Auxilium Agreement were$6.3 million for the 2012 period and $4.0 million for the 2011 period. The increase of $2.3 million, or 55%, was due to increased net sales of XIAFLEXduring 2012 reported to us by Auxilium.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 $2.9 million for the year ended December 31, 2012 and $2.3 million for the same period in 2011. This increase of$0.6 million, or 27%, is mainly related to the increase in net sales during the 2012 period reported to us by DFB.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 $2.0 million and $5.0 million, respectively, a decrease of $3.0 million, 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 $0.6 million compared to $0.8 million in the sameperiod in 2011. In 2012, we recognized $0.6 million in sublicensing fees, which were related to the $10.0 million paid to Auxilium by Actelion for the rights todevelop and commercialize XIAFLEX for the treatment of Dupuytren's contracture and Peyronie's disease in Canada, Australia, Brazil and Mexico. In the2011 period, we recognized $0.8 million of the $15.0 million paid to Auxilium by Asahi for the rights to commercialize XIAFLEX for the treatment ofDupuytren's contracture and 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 sBLA for 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 $0.6 million milestone related to the first sale of XIAFLEX in Germany, and a $0.6 million milestone related to thefirst sale 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. 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.48Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsResearch 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 $1.2 million and $1.0 million, respectively,for calendar years 2012 and 2011, representing an increase in 2012 of $0.2 million, or 29%. This increase in research and development expenses wasprimarily due to expenses related to our clinical development programs.We were working to develop CCH for the treatment of human and canine lipoma. We initiated a placebo controlled randomized study to evaluate the efficacy ofCCH for the treatment of subcutaneous benign lipomas in canines. The treatment was a single injection of CCH or placebo. The primary efficacy endpointwas the relative change in lipoma volume from baseline to 3 months, as determined by CT scan. We completed this study, and top-line data were released inDecember 2013.Also, we initiated a 14-patient, single center dose escalation, phase II clinical trial of CCH for the treatment of human lipomas. The study was a singleinjection, open-label trial, and CCH was being administered in four ascending doses (0.058 mg to 0.44 mg). The primary efficacy endpoint was a change inthe visible surface area of the target lipoma, as determined at six months post-injection. In January 2014, we announced the top-line data from the phase II doseescalation clinical trial of CCH for the treatment of human lipoma.The following table summarizes our research and development expenses related to our clinical development programs: Year EndedDecember 31,2012 Year EndedDecember 31,2011 AccumulatedExpensesSince January1, 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 and CCH, tocontinue to successfully 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.49Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsOur 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 $4.8 million and $5.2 million for calendar years 2012 and 2011, respectively,a decrease of $0.5 million 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.50Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2014 $137,000 2015 $4,000 2016 $4,000 2017 $2,000 Table of ContentsLiquidity 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, 2013, 2012 and 2011, we had cash and cash equivalents and short-term investments in the aggregateof approximately $12.6 million, $8.5 million and $8.2 million, respectively.Sources and Uses of CashNet cash provided by (used in) operating activities was $5.1 million, $2.4 million and $(0.7) million for 2013, 2012 and 2011. Net cash provided byoperating activities for 2013 was primarily due to our net income, net of stock compensation expenses and other non-cash charges. 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 chargesThe majority of our cash expenditures in 2013, 2012, and 2011 were to fund research and development, our business activities and our stock repurchaseprogram.Net cash used in investing activities was $2.4 million in 2013 and $1.6 million in 2012, as compared to net cash provided by investing activities of $0.4million in 2011. The net cash used in investing activities in the 2013 period reflects the maturing of investments of $9.7 million and reinvestment of $11.6million in marketable securities and a cash payment related to our future royalty obligations for Peyronie's disease of $0.6 million. The net cash used ininvesting activities in the 2012 period reflects the maturing of investments of $5.1 million and reinvestment of $5.2 million in marketable securities and aone-time cash payment related to our future royalty obligations for Peyronie's disease of $1.5 million. The net cash provided by investing activities in the 2011period reflects the maturing of investments of $5.4 million and reinvestment of $5.0 million in marketable securities.Net cash used in financing activities was $0.4 million in 2013 and $0.6 million in 2012, as compared to net cash provided by financing activities of $1.1million for 2011. In 2013, net cash used in financing activities of was mainly related to the repurchase of our common stock under our 2010 StockRepurchase Program of $0.7 million partially offset by excess tax benefits related to share-based payments and stock option proceeds of $0.2 million. In 2012,net cash used in financing activities was mainly related to the repurchase of our common stock under our 2010 Stock Repurchase Program of $1.0 millionpartially offset by excess tax benefits related to share-based payments and stock option proceeds of $0.4 million. In 2011, net cash provided by financingactivities was due to excess tax benefits related to share-based payments and stock option proceeds partly offset by the repurchase of our common stock underour 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.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. Additionally, we lease certain vehicle and certain office equipment which generally expire in 2014 and 2017, respectively. Operating lease expenses amounted to approximately $143,000 for calendar years 2013, 2012 and 2011, respectively. Future minimum annual payments required under non-cancelable operating leases are approximated as follows:Year ending December 31, 51Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsOff-Balance Sheet Arrangements We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.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, 2013, amounting to approximately $5.6 million, were maintained in bank demand accountsand money market accounts. Our short-term investments of $7.0 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.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.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.52Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsManagement’s Annual Report on Internal Control Over Financial ReportingManagement of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for 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, 2013. In making this assessment,management used the 1992 criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – IntegratedFramework. We believe that, as of December 31, 2013, 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, 2013, 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, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Item 9B.OTHER INFORMATION.Not applicable.PART III Item 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.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 2014 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 2014 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 2014 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 2014 Annual Meeting of Stockholders.53Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsItem 14.PRINCIPAL ACCOUNTANT 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 2014 Annual Meeting of Stockholders.PART IV Item 15.EXHIBITS AND 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 SchedulesAll schedules to the consolidated financial statements are omitted as the required information is either inapplicable or presented in theconsolidated financial statements (3)ExhibitsThe information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference. (b)ExhibitsThe information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference.54Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARENDED DECEMBER 31, 2013 PageReports of Independent Registered Public Accounting Firm F-2 Consolidated Balance SheetsF-4 Consolidated Statements of OperationsF-5 Consolidated Statements of Cash FlowsF-6 Consolidated Statements of Stockholders’ DeficitF-7 Notes to Consolidated Financial StatementsF-8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsREPORT 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, 2013 and 2012, andthe related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the years in the three-year periodended December 31, 2013. BioSpecifics Technologies Corp.'s management is responsible for these financial statements. Our responsibility is to express anopinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, 2013 and 2012, 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, 2013, based on criteria established in Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992 framework), and our report dated March 6, 2014 expressed anunqualified opinion thereon./s/ Tabriztchi & Co., CPA, P.C. Garden City, NY March 6, 2014F - 2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsREPORT 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, 2013 based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSOcriteria). BioSpecifics Technologies Corp's management is responsible for maintaining effective internal control over financial reporting and for its assessmentof the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over FinancialReporting. Our responsibility is to 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 31,2013, 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 of BioSpecifics Technologies Corp. , as of December 31, 2013 and 2012, and the related statements of income, stockholders' equity and cash flows for each ofthe three years in the period ended December 31, 2013 of and our report dated March 6, 2014 expressed an unqualified opinion. /s/ Tabriztchi & Co., CPA, P.C. Garden City, NY March 6, 2014F - 3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2013 2012 Assets Current assets: Cash and cash equivalents $5,624,860 $3,383,737 Short term investments 6,966,964 5,120,000 Accounts receivable, net 5,004,418 5,082,360 Income tax receivable 255,708 51,070 Deferred tax asset 94,992 88,910 Prepaid expenses and other current assets 326,519 149,724 Total current assets 18,273,461 13,875,801 Deferred royalty buy-down 3,350,000 2,750,000 Deferred tax assets –long term 1,412,784 1,484,141 Patent costs, net 215,999 280,322 Total assets 23,252,244 18,390,264 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses 634,277 512,866 Deferred revenue 69,130 133,524 Accrued liabilities of discontinued operations 78,138 78,138 Total current liabilities 781,545 724,528 Deferred revenue - license fees 138,260 207,390 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; 6,655,168 and 6,625,168 shares issued atDecember 31, 2013 and 2012, respectively 6,655 6,625 Additional paid-in capital 20,951,796 20,688,706 Retained earnings (accumulated deficit) 4,975,018 (310,829)Treasury stock, 300,739 and 260,632 shares at cost as of December 31, 2013 and 2012 (3,601,030) (2,926,156)Total stockholders' equity 22,332,439 17,458,346 Total liabilities and stockholders’ equity $23,252,244 $18,390,264 See accompanying notes to consolidated financial statementsF - 4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2013 2012 2011 Revenues: Net sales $37,458 $18,219 $21,998 Royalties 11,767,758 9,155,654 6,314,959 Licensing revenue 2,662,024 1,971,205 5,012,102 Consulting fees - - 46,667 Total revenues 14,467,240 11,145,078 11,395,726 Costs and expenses: Research and development 1,484,416 1,249,755 972,078 General and administrative 5,038,363 4,774,828 5,231,881 Total costs and expenses 6,522,779 6,024,583 6,203,959 Operating income 7,944,461 5,120,495 5,191,767 Other income (expense): Interest income 26,202 34,634 55,780 Other - - 15,823 26,202 34,634 71,603 Income before benefit (expense) for income tax 7,970,663 5,155,129 5,263,370 Income tax benefit (expense) (2,684,816) (2,174,054) 1,338,256 Net income $5,285,847 $2,981,075 $6,601,626 Basic net income per share $0.83 $0.47 $1.04 Diluted net income per share $0.76 $0.43 $0.95 Shares used in computation of basic net income per share 6,345,615 6,351,245 6,340,648 Shares used in computation of diluted net income per share 6,922,274 6,981,527 6,952,386 Consolidated Statements of Comprehensive Income Years Ended December 31, 2013 2012 2011 Net income $5,285,847 $2,981,075 $6,601,626 Other comprehensive income - - - Comprehensive income $5,285,847 $2,981,075 $6,601,626 See accompanying notes to consolidated financial statementsF - 5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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: 2013 2012 2011 Net income $5,285,847 $2,981,075 $6,601,626 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 64,323 64,190 50,685 Stock-based compensation expense 111,636 228,485 517,367 Deferred income tax (10,653) 1,474,904 (3,047,955)Changes in operating assets and liabilities: Accounts receivable 77,942 (1,845,443) (1,250,792)Prepaid expenses and other current assets (381,433) 142,160 (65,642)Accounts payable and accrued expenses 121,411 (242,233) (3,009,109)Deferred revenue (133,524) (372,705) (483,769)Net cash provided by (used in) operating activities from operations 5,135,549 2,430,433 (687,589) Cash flows from investing activities: Maturities of marketable securities 9,710,000 5,070,000 5,360,970 Purchases of marketable securities (11,556,964) (5,190,000) (5,000,000)Payment for royalty buy down (600,000) (1,500,000) - Net cash provided by (used in) investing activities from operations (2,446,964) (1,620,000) 360,970 Cash flows from financing activities: Proceeds from stock option exercises 30,000 148,425 82,450 Repurchases of common stock (674,874) (1,034,647) (739,551)Excess tax benefits from share-based payment arrangements 197,412 262,695 1,709,699 Net cash provided by (used in) financing activities from operations (447,462) (623,527) 1,052,598 Increase in cash and cash equivalents 2,241,123 186,906 725,979 Cash and cash equivalents at beginning of year 3,383,737 3,196,831 2,470,852 Cash and cash equivalents at end of year $5,624,860 $3,383,737 $3,196,831 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $- $- $- Taxes $2,713,500 $232,000 $190,000 Supplemental disclosures of non-cash transactions: Under our agreement with Auxilium certain patent costs and expenses paid by Auxilium on behalf of the Company are creditable against future royalties.During the year ended December 31, 2013 we accrued $60,000 related to patent expense which was offset against our royalties’ receivable from Auxilium. Theamortization of patent costs was $64,323, $64,190 and $50,685 in the 2013, 2012 and 2011 periods, respectively.Our deferred tax assets and additional paid in capital decreased by approximately $75,000 as a result of the cancelation of 15,000 stock options. See accompanying notes to consolidated financial statementsF - 6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. TreasuryStock ShareholderEquityTotal 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 Issuance of common stock under stock option plans - 30,000 Effect of expiration of stock options - (75,928)Stock compensation expense - 111,636 Repurchases of common stock (674,874) (674,874)Excess tax benefits from share-based payment arrangements - 197,412 Net profit - 5,285,847 Balances - December 31, 2013 $(3,601,030) $22,332,439 Table of ContentsBioSpecifics Technologies Corp.Consolidated Statement of Stockholders' Equity (Deficit) Shares Amount AdditionalPaidin Capital RetainedEarnings(AccumulatedDeficit) Balances - December 31, 20010 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)Issuance of common stock under stock option plans 30,000 30 29,970 - Effect of expiration of stock options - - (75,928) - Stock compensation expense - - 111,636 - Repurchases of common stock - - - - Excess tax benefits from share-based payment arrangements - - 197,412 - Net profit - - - 5,285,847 Balances - December 31, 2013 6,655,168 6,655 $20,951,796 $4,975,018 F - 7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.Notes to Consolidated Financial StatementsDecember 31, 2013, 2012 and 20111. 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®) for marketed indications andcollagenase clostridium histolyticum (“CCH”) for indications in development. Auxilium has an option to acquire additional indications that we may pursue,including human and canine lipoma. Auxilium is currently selling XIAFLEX in the U.S. for the treatment of Dupuytren’s contracture and Peyronie’s disease.Following the termination of the agreement between Auxilium and Pfizer, Inc. (“Pfizer”), Auxilium entered into an agreement with Swedish Orphan BiovitrumAB (“Sobi”) pursuant to which Sobi has marketing rights for XIAPEX® (the EU trade name for collagenase clostridium histolyticum) for Dupuytren’scontracture and Peyronie’s disease in Europe and certain Eurasian countries. Sobi is currently selling XIAPEX in Europe for the treatment of Dupuytren’scontracture. In addition, Auxilium has an agreement with Asahi Kasei Pharma Corporation (“Asahi”) pursuant to which Asahi has the right to commercializeXIAFLEX 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 the treatment of Dupuytren’s contracture and Peyronie’s disease inCanada, Australia, Brazil and Mexico.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 whichare held to maturity.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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsConcentration 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. The Company maintains its investment in FDIC insured certificates ofdeposits with several banks.At December 31, 2013, the accounts receivable balance of $5.0 million was primarily from two customers, comprising of $3.5 million (70% of total) fromDFB Biotech, Inc. and $1.5 million (30% 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, 2013, the licensingand royalty revenues from Auxilium Pharmaceutical, Inc. were $8.2 million (70% of total) and royalties and consulting revenues from DFB Biotech, Inc. were$3.5 million (30% of total). (With the expiration of right to receive payments on Santyl sales in August 2013, the primary source of our revenues is AuxiliumPharmaceutical, Inc.)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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsUnder the Auxilium Agreement, we do not participate in the selling, marketing or manufacturing of products for which we receive royalties and a mark-up onthe 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 had the right to receive earn-out payments based on salesof certain products. This right to receive payments on Santyl sales expired in August 2013. Generally, under the DFB Agreement we would receive paymentsand a report within ninety (90) days from the end of each calendar year after DFB has sold the royalty-bearing product. DFB has provided us earn-out reportson a quarterly basis. BioSpecifics has now recognized all income from the Santyl sales under the DFB agreement, and expects to receive the correspondingcash payment, the income recognized in 2013, in March 2014.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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsConsulting and Technical Assistance ServicesWe recognized 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. 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 payment terms. Our accounts receivable balance is typically due from its two large pharmaceutical customers. These companies have historically paid timely and have beenfinancially stable organizations. Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal. If the financialcondition of our customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. We provide forestimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have usedreasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Accounts receivable as of December 31, 2013 is approximately $5.0 million, which consists of approximately $3.5 million due from DFB in accordance withthe expired earn-out under the DFB Agreement and approximately $1.5 million in royalties and mark-up on costs of goods sold due from Auxilium inaccordance with the terms of the Auxilium Agreement. Deferred revenue of $0.2 million consist of licensing fees related to the cash payments received underthe Auxilium Agreement in prior years and amortized over the expected development period of certain indications for CCH. We recorded no material bad debtexpense in each of the last three years. The allowance for doubtful accounts balance was $30,095, at December 31, 2013 and 2012. Reimbursable Third Party Development Costs We 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 and CCH. Weresolved what 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, 2013 our net reimbursable third party patent expense accrual was approximately $60,000.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsThird-Party RoyaltiesWe have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. We accrue third-party royalty expenses on net sales reported to us by Auxilium. Third-party royalty expense is generally expensed in the quarter that Auxiliumprovides the written reports and related information to us, that is, generally one quarter following the quarter in which the underlying sales by Auxiliumoccurred. We expect our third party royalty expense under General and Administrative expenses will continue to increase as net sales by Auxilium forXIAFLEX increase and potential new indications for CCH are approved.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, one of which was paid in December 2013.As of December 31, 2013, we have capitalized $3.35 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. We perform an evaluation of the recoverability of the carrying value of ourintangible assets to determine if facts and circumstances indicate that the carrying value of intangible assets may be impaired and if any adjustment iswarranted. Based on our evaluation as of December 31, 2013, no impairment existed for intangible assets. 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.Clinical 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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsIncome 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 10. 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 30,000, 15,000 and zero stock options in 2013, 2012 and 2011, respectively.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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2014 $53,000 2015 25,000 2016 20,000 2017 20,000 2018 20,000 Table of ContentsStock-based compensation expense recognized under ASC 718 was as follows: December 31, 2013 2012 2011 Research and development $92,249 $171,217 $96,849 General and administrative 19,387 57,268 420,518 Total stock-based compensation expense $111,636 $228,485 $517,367 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-employees for the years ended December 31, 2013, 2012 and 2011 was $79,049, $109,479, and zero,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 1 to 13 years, and review forimpairment on 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, 2013, 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: 2013 2012 2011 Patents, net $215,999 $280,322 $190,416 The amortization expense for patents was $64,323, $64,190and $50,685, for the years ended December 31, 2013, 2012 and 2011. The estimated aggregateamortization expense for each of the next five years is as follows: 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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 Contents3.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, 2013, 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, 2013, 2012 and 2011:December 31, 2013 Fair Value Level 1 Level 2 Level 3 Cash and cash equivalents $5,624,860 $5,624,860 - - Certificates of Deposit 6,966,964 6,966,964 - - 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 - - 4. EARNINGS PER SHAREBasic earnings per share is computed by dividing net income 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. 2013 2012 2011 Net income for diluted computation $5,285,847 $2,981,075 $6,601,626 Weighted average shares: Basic 6,345,615 6,351,245 6,340,648 Effect of dilutive securities: Stock options 576,659 630,282 611,738 Diluted 6,922,274 6,981,527 6,952,386 Net income per share: Basic $0.83 $0.47 $1.04 Diluted $0.76 $0.43 $0.95 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 Contents5. INVENTORIES, NETNone. 6. PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment from continuing operations consist of: December 31, 2013 2012 2011 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 2013, 2012 and 2011, respectively.7. COMPREHENSIVE INCOMEFor the years ended 2013, 2012, 2011, we had no components of other comprehensive income other than net income itself.8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIESAccounts payable and accrued liabilities consist of the following: December 31, 2013 2012 2011 Trade accounts payable and accrued expenses $409,617 $304,635 $407,954 Accrued legal and other professional fees 61,538 61,147 50,000 Accrued payroll and related costs 163,122 147,084 143,048 $634,277 $512,866 $601,002 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 2013 2012 2011 Current taxes: Federal $2,724,597 $686,968 $- State 25,491 12,182 3,525 Total current taxes 2,750,088 699,150 3,525 Deferred taxes: Federal (68,298) 1,134,532 (1,219,190)State 3,023 340,372 (122,593)Total deferred taxes (65,274) 1,474,904 (1,341,783)Total provision for income taxes $2,684,814 $2,174,054 $(1,338,258)Table of Contents9. INCOME TAXES The provision for income taxes consists of the following: Year ended December 31, 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, 2013 2012 2011 Statutory rate 34.00% 34.00% 34.0%State income taxes, net of federal income tax benefit 0.21% 0.16% 7.1%Stock-based compensation 0.11% 1.51% 4.0%Change in effective state tax rate 0.02% 6.59% - Other, net (0.66)% (0.08)% (5.9)%Increase (decrease) in valuation allowance - - (64.6)%Effective tax rate (benefit) 33.68% 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, 2013 2012 2011 Tax credit carry forward $- $- $1,027,633 Deferred revenues 71,062 132,514 293,297 Other 71,304 27,322 17,253 Options 1,365,409 1,413,214 1,687,780 Net operating loss carry forward - - 21,992 Net deferred tax assets before valuation allowance 1,507,776 1,573,050 3,047,955 Valuation allowance - - - Net deferred tax asset $1,507,776 $1,573,050 $3,047,955 Company considers all available information, including operating results, ongoing tax planning, and forecasts of future taxable income. Based on the resultsof our operations in 2011, the growth in the market for XIAFLEX, and the trend in actual and anticipated royalty income, we had determined that it was morelikely 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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 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.We recognized $0.6 million, $0.8 million and $0.7 million of tax deductible expenses from the exercise of non-qualified or a disqualified disposition ofincentive stock options, in 2013, 2012 and 2011 respectively. The windfall tax benefits of $0.2 million, $0.3 million and $1.7 million realized upon exerciseof stock-based awards were classified as additional paid in capital and recorded under cash flows from financing activities, in 2013, 2012 and 2011,respectively.The provision for income taxes and corresponding taxes payable in 2013 was $2.7 million. We utilized tax assets of $0.1 million related to deferred licensingrevenue and stock based compensation and a $17,000 research and development credit to reduce our taxes payable which was partially offset by an increase toour deferred taxes for employee based compensation. The amount of refundable federal income taxes as of December 31, 2013 is approximately $0.2 million. 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, 2013, 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. The tax periods open to examinationby the major taxing jurisdictions to which the Company is subject include fiscal years 2010 through 2012. 10. 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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. September2013 April2013 May2012 Risk-free interest rate 1.73% 0.68% 0.69%Expected volatility 33% 37% 54%Expected life (in years) 5 5 5 Dividend yield - - - Weighted-average estimated fair value of options granted during theyear $85,000 $79,000 $110,000 Table of ContentsIn 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, 2013 options to purchase 1,167,000 shares of common stock were outstanding under the 1997 Plan and 2001 Plan, and a total of 239,098shares remain available for grant under the 2001 Plan.The following table presents the assumptions used to estimate the fair values of the stock options granted in the periods presented:The summary of the stock options activity is as follows for year ended: Shares WeightedAverageExercisePrice Outstanding at December 31, 2012 1,182,000 $8.90 December 31, 2013 Options granted 30,000 $16.88 Options exercised (30,000) 1.00 Options canceled or expired 15,000 30.79 Outstanding at end of year 1,167,000 9.03 Options exercisable at year end 1,132,000 8.55 Shares available for future grant 239,098 -- Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Outstanding Shares Exercisable Shares OptionExercisePrice Number ofShares WeightedAverage Life(years) WeightedAverageExercisePrice Number ofShares WeightedAverageOptionPrice $0.83 - 2.00 467,500 2.10 $1.01 467,500 $1.01 4.00 - 6.00 242,000 3.41 4.69 242,000 4.69 13.00 - 16.00 155,000 5.24 13.96 155,000 13.96 17.00 - 19.00 85,000 5.77 17.73 70,000 17.69 20.00 - 21.00 112,500 4.75 20.57 112,500 20.57 26.00 - 30.00 105,000 5.82 28.02 85,000 27.74 1,167,000 3.72 $9.03 1,132,000 $8.55 Table of ContentsThe following table summarizes information relating to stock options by exercise price at December 31, 2013: We granted 30,000 stock options during 2013. The weighted-average grant-date fair value for options granted during 2013 was $16.88 per share. During the2013, 2012 and 2011, $30,000, $148,425and $82,450 were received from stock options exercised by employees, respectively. The aggregate intrinsic valueof options outstanding and exercisable as of December 31, 2013 was approximately $14.8 million. Aggregate intrinsic value represents the total pre-tax intrinsicvalue, based on the closing price of our common stock of $21.67 on December 31, 2013, which would have been received by the option holders had all optionholders exercised their options as of that date. Total unrecognized compensation cost related to non-vested stock options outstanding as of December 31, 2013was approximately $79,000 which we expect to recognize over a weighted-average period of 3.75 years. 11. COMMITMENTS AND CONTINGENCIESLease AgreementsOur corporate headquarters are currently located at 35 Wilbur St., Lynbrook, NY 11563. On November 21, 2013, the Company entered into an Agreementof Lease (the “New Lease”) with 35 Wilbur Street Associates, LLC (“New Landlord”) for the Company’s administrative headquarters located at 35 WilburStreet, Lynbrook, New York 11563 (the “Premises”). Neither the Company nor its affiliates have a material relationship or affiliation with the New Landlord.As previously reported, the Company formerly leased the Premises from Wilbur St. Corp. (“WSC”). On November 21, 2013, WSC sold the Premises to theNew Landlord, and the Company entered into the New Lease with the New Landlord and simultaneously terminated the existing lease. The term of the NewLease is twenty-four months, provided, however, that the Company has the option to cancel the New Lease after the first year by giving three months’ notice,which may be given before the expiration of the first year. Pursuant to the New Lease, the Company’s monthly base rent is $12,000.00. The Company isrequired to pay as additional rent an amount equal to the increase in taxes over a specified base year.The Company's operations are principally conducted on leased premises. Future minimum annual rental payments required under non-cancelable operatingleases are $132,000.Rent expense under all operating leases amounted to approximately $135,000 for calendar years 2013, 2012 and 2011, respectively.12. RELATED PARTY TRANSACTIONSAs described above in Note 11, the Tenant and the Landlord were parties to the Lease Agreement. The rent expense, under the lease agreement, were $120,000,$135,000 and $135,000 for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013 there were no remaining related partytransactions.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. First Second Third Fourth Quarter Quarter Quarter Quarter Year ended December 31, 2013 Net revenues $3,980,024 $3,269,983 $3,145,123 $4,072,110 Operating profit 2,066,668 1,563,685 1,738,501 2,575,607 Net income 1,353,084 1,028,186 1,178,775 1,725,802 Basic earnings per share $0.21 $0.16 $0.19 $0.27 Diluted earnings per share $0.19 $0.15 $0.17 $0.25 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 Table of Contents13. 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 2013, 2012 or 2011.14. SUBSEQUENT EVENTSWe 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 7, 2014.15. 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, 2013 and 2012. 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.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsEXHIBIT 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 with theCommission on March 2, 2007)3.2*Registrant’s Amended and Restated By-laws as amended February 25, 2014*3.3Amendment to Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed with theCommission on February 26, 2014)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 Commission onMay 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-KSB filedwith 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)4.4*Amendment No.3 Rights Agreement, dated as of March 5, 2014*10.1*Agreement of Lease, dated as of November 21, 2013, between the Company, ABC-NY and 35 Wilbur Street Associates, LLC*10.2*Lease Termination Agreement, dated as of November 21, 2013, between the Company, ABC-NY and Wilbur St. Corp.*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 by referenceto Exhibit 10.2 of the Registrant’s Form 8-K filed with the Commission on November 28, 2006)10.7Cellulite License Agreement dated August 23, 2007 between the Company and the Research Foundation (incorporated by reference as Exhibit10.7 of the Registrant’s Form 10-KSB filed with the Commission on March 15, 2013)10.8License Agreement dated March 27, 2010 between the Company and Zachary Gerut, M.D. (incorporated by reference as Exhibit 10.8 of theRegistrant’s Form 10-KSB filed with the Commission on March 15, 2013)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 Schedule14A filedwith 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 of theRegistrant’s Form 10-KSB filed with the Commission on September 26, 2007)Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 Contents10.12Change of Control Agreement, dated June 18, 2007 between the Company and Michael Schamroth (incorporated by reference to Exhibit 10.22of 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 10.23 ofthe Registrant’s Form 10-KSB filed with the Commission on September 26, 2007)10.14Amendment and Restated Agreement between the Company and Dr. Marty Gelbard dated March 31, 2012 between the Company and MartyGelbard (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-KA filed with the Commission on August 8, 2012)10.15Amended and Restated Development and License Agreement dated December 11, 2008 and effective December 17, 2008 between the Companyand Auxilium Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Commission onDecember 19, 2008)10.16Executive Employment Agreement, dated August 5, 2008 between the Company and Thomas L. Wegman (incorporated by reference to Exhibit10.1 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 Exhibit 10.23of the Registrant’s Form 10-K filed with the Commission on March 31, 2009)10.18*Change of Control Agreement, dated as of September 17, 2013, between the Company and George Gould*10.19Second Amended and Restated Development and License Agreement, dated as of August 31, 2011, by and between BioSpecifics TechnologiesCorp. and Auxilium Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed with the SEC onSeptember 1, 2011)10.20Settlement 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-KSB filedwith 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 on March2, 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 herewithSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsSIGNATURESIn 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 7, 2014 BIOSPECIFICS TECHNOLOGIES CORP. 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. SIGNATURETITLE /s/ Thomas L. WegmanPresident, Director, and Principal Executive, FinancialName: Thomas L. Wegmanand Accounting OfficerDate: March 7, 2014 /s/ Paul Gitman DirectorName: Dr. Paul Gitman Date: March 7, 2014 /s/ George GouldDirectorName: George Gould Date: March 7, 2014 /s/ Henry G. MorganDirectorName: Henry G. Morgan Date: March 7, 2014 /s/ Michael SchamrothDirectorName: Michael Schamroth Date: March 7, 2014 /s/ Dr. Mark WegmanDirectorName: Dr. Mark Wegman Date March 7, 2014 /s/ Toby WegmanDirectorName: Toby Wegman Date: March 7, 2014 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 3.2 AMENDED AND RESTATED BY-LAWSOFBIOSPECIFICS TECHNOLOGIES CORP. As amended on February 25, 2014 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ContentsArticle I. The Stockholders4 Section 1.1.Annual Meeting.4 Section 1.2.Special Meetings.4 Section 1.3.Notice of Meetings.4 Section 1.4.Inspectors.5 Section 1.5.Quorum.5 Section 1.6.Voting Requirements and Proxies.6 Section 1.7.Organization.6 Section 1.8.Procedures.6 Section 1.9.Voting by Ballot.7 Section 1.10.Voting Lists.7 Section 1.11.Proposals for Voting.7 Section 1.12.Place of Meeting.9 Section 1.13.Voting of Shares of Certain Holders.9 Section 1.14.Consent of Stockholders in Lieu of Meeting.10 Section 1.15.Unanimous Written Consent.10 Article II. Board of Directors10 Section 2.1.General Powers.10 Section 2.2.Number and Term of Office.10 Section 2.3.Vacancies.11 Section 2.4.Place of Meetings, etc.11 Section 2.5.Annual Meeting.11 Section 2.6.Other Regular Meetings.11 Section 2.7.Special Meetings.11 Section 2.8.Notice of Special Meetings.11 Section 2.9.Quorum.12 Section 2.10.Order of Business.12 Section 2.11.Action Without a Meeting.12 Section 2.12.Compensation of Directors.12 Section 2.13.Election of Officers and Committees.12 Section 2.14.Removal.12 Section 2.15.Nominations.13 Article III. Executive Committee and Other Committees15 Section 3.1.Number and Term of Office.15 Section 3.2.Powers.15 Section 3.3.Meetings.15 Section 3.4.Meetings by Conference Communications Equipment.15 Section 3.5.Presiding Officer.16 Section 3.6.Action by Consent.16Section 3.7.Vacancies.16Section 3.8.Rules of Procedure; Quorum.162Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Section 3.9.Other Committees.16 Article IV. The officers16 Section 4.1.Titles; Number and Term of Office.16 Section 4.2.Resignation and Removal.17 Section 4.3.Chairman of the Board.17 Section 4.4.Chief Executive Officer.17 Section 4.5.President.17 Section 4.6.Vice-Presidents.18 Section 4.7.Chief Financial Officer.18 Section 4.8.Chief Accounting Officer.18 Section 4.9.Treasurer.18 Section 4.10.Secretary.19 Section 4.11.Assistant Treasurers and Assistant Secretaries.19 Section 4.12.Salaries.19 Section 4.13.Voting upon Stocks.19 Article V. Contracts and Loans19 Section 5.1.Contracts.19 Section 5.2.Loans.20 Article VI. Certificates for Shares and Their Transfer20 Section 6.1.Certificates for Shares.20 Section 6.2.Transfers of Shares.21 Section 6.3.Lost Certificates.21 Article VII. General Provisions21 Section 7.1.Fiscal Year.21 Section 7.2.Seal.21 Section 7.3.Waiver of Notice.21 Section 7.4.Amendments.22 Section 7.5.Evidence of Authority.22 Section 7.6.Certificate of Incorporation.22 Section 7.7.Severability.22 Section 7.8.Pronouns.22 Section 7.9.Offices.22 Section 7.10.Off-Shore Offerings.22 Section 7.11Forum for Adjudication of Disputes22 Article VIII. Indemnification22 Section 8.1.Indemnification.22 Section 8.2.Indemnification Terms.22 Article IX. Record Date27 Section 9.1.Fixing Date of Record.273Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.AMENDED AND RESTATED BY-LAWSOFBIOSPECIFICS TECHNOLOGIES CORP.a Delaware corporation(the "Corporation") Article I. The Stockholders Section 1.1. Annual Meeting. The annual meeting of the stockholders shall be held at such date and time (which date shall not be a legalholiday in the place where the meeting is to be held) as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting,for the election of directors and for the transaction of such other business as may properly be brought before the meeting. If no annual meeting is held inaccordance with the foregoing provisions, a special meeting may be held in lieu of the annual meeting, and any action taken at that special meeting shall havethe same effect as if it had been taken at an annual meeting, and in such case all references in these Amended and Restated By-laws to the annual meeting ofthe stockholders shall be deemed to refer to such special meeting. Section 1.2. Special Meetings. A special meeting of the stockholders may be called at any time by the written resolution or request of themajority of the Board of Directors, the Chief Executive officer, the Chairman, the President, or any Vice President and shall be called upon the request inwriting of the holders of at least seventy-five-percent (75%) of the issued and outstanding shares of capital stock of the Corporation entitled to vote at suchmeeting specifying the purpose or purposes for which such meeting shall be called. Business transacted at any special meeting of the stockholders shallbe limited to the purposes stated in the notice. Section 1.3. Notice of Meetings. Written notice of each meeting of stockholders, whether annual or special, shall be given not less than ten (10)nor more than sixty (60) days before the date of the meeting to any stockholder entitled to vote at such meeting. Without limiting the manner by which noticeotherwise may be given to stockholders, any notice shall be effective if given by a form of electronic transmission consented to (in a manner consistent with theGeneral Corporation Law of the State of Delaware) by the stockholder to whom the notice is given. The notices of all meetings shall state the date, hour andplace where it is to be held, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in personand vote at such meeting. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called, and shall indicate that it is beingissued by, or at the direction of, the person or persons calling the meeting. If mailed, notice shall be deemed to be delivered when deposited in the United Statesmail, postage prepaid, or with any private express mail service, and shall be directed to each such stockholder at his address, as it appears on the records ofthe stockholders of the Corporation, unless he shall have previously filed with the Secretary of the Corporation a written request that notices intended for himbe mailed to some other address, in which case, it shall be mailed to the address designated in such request. If notice is given by electronic transmission, suchnotice shall be deemed given at the time specified in Section 232 of the General Corporation Law of the State of Delaware.4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 1.4. Inspectors. At each meeting of the stockholders, the inspector shall have the duties prescribed by law and shall, unless otherwiseprescribed by law, open and close the polls, take charge of the polls, the proxies and ballots shall be received and be taken in charge, all questions touching thequalification of voters and the validity of proxies and the acceptance or rejection of votes, shall be decided by one or more inspectors and, when the vote incompleted, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. Such inspectors shall be appointed by theBoard of Directors before or at the meeting, or, if no such appointment shall have been made, then by the presiding officer at the meeting shall so appoint suchinspector(s). If for any reason any of the inspectors previously appointed shall fail to attend or refuse or be unable to serve, inspectors in place of any sofailing to attend or refusing or unable to serve shall be appointed in like manner. Unless otherwise required by law, inspectors may be officers, employees oragents of the Corporation. Each inspector, before entering upon the discharge of such inspector's duties, shall take and sign an oath faithfully to execute theduties of inspector with strict impartiality and according to the best of such inspector's ability. Section 1.5. Quorum. (a) Except as provided by law, at any meeting of the stockholders, the holders of capital stock representing a majority in voting power ofthe shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting, present in person, present by means of remotecommunication in a manner, if any, authorized by the Board of Directors in its sole discretion, or represented by proxy, shall constitute a quorum of thestockholders for the transaction of business permitted to be transacted at the meeting; unless the representation of a larger number shall be required by law,and, in that case, the representation of the number so required shall constitute a quorum. (b) Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting ofstockholders may be held under these Amended and Restated By-laws by the stockholders present or represented at the meeting and entitled to vote, althoughless than a quorum, or, if no stockholder is present, by any officer entitled to preside at or to act as secretary of such meeting. It shall not be necessary tonotify any stockholder of any adjournment of 30 days or less if the time and place of the adjourned meeting, and the means of remote communication, if any,by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at whichadjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting, in that instance a notice of the adjourned meeting shallbe given to each stockholder of record entitled to vote at the meeting. At any such adjourned meeting at which a quorum shall be present, any business may betransacted which might have been transacted at the meeting as originally notified. Section 1.6. Voting Requirements and Proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the stockhaving voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which,by express provision of the statutes or of the Certificate of Incorporation or these Amended and Restated By-laws, a different vote is required, in which casesuch express provision shall govern and control the decision of such question. Unless otherwise provided in the Certificate of Incorporation or by law, eachstockholder shall at every meeting of the stockholders be entitled to one vote for each share of the capital stock entitled to vote and held of record by suchstockholder. Each stockholder of record entitled to vote at a meeting of stockholders may vote in person (including by means of remote communications, ifany, by which stockholders may be deemed to be present in person and vote at such meeting) or may authorize another person or persons to vote for suchstockholder by a proxy executed or transmitted in a manner permitted by the General Corporation Law of the State of Delaware by the stockholder or suchstockholder's authorized agent and delivered (including by electronic transmission) to the Secretary of the Corporation. No proxy shall be valid after 11months from the date of its execution, unless otherwise provided in the proxy.5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 1.7. Organization. The Chairman, or in his absence, the Chief Executive Officer, or in his absence, the President, or in his absence,any Vice President, in the order named, shall call meetings of the stockholders to order, and shall act as chairman of such meeting. The Secretary of theCorporation shall act as secretary at all meetings of the stockholders; but in the absence of the Secretary at any meeting of the stockholders the presidingofficer may appoint any person to act as secretary of the meeting. Section 1.8. Procedures. (a) The Board of Directors may adopt by resolution such rules, regulations and procedures for the conduct of any meeting ofstockholders of the Corporation as it shall deem appropriate including, without limitation, such guidelines and procedures as it may deem appropriateregarding the participation by means of remote communication of stockholders and proxyholders not physically present at a meeting. Except to the extentinconsistent with such rules, regulations and procedures as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have theright and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for theproper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting,may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintainingorder at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation,their duly authorized and constituted proxies or such other persons as shall be determined; (iv) restrictions on entry to the meeting after the time fixed for thecommencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board ofDirectors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. (b) The chairman of the meeting shall announce at the meeting when the polls for each matter to be voted upon at the meeting will beopened and closed. If no announcement is made, the polls shall be deemed to have opened when the meeting is convened and closed upon the final adjournmentof the meeting. After the polls close, no ballots, proxies or votes or any revocations or changes thereto may be accepted.6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 1.9. Voting by Ballot. The votes for directors, and, upon the demand of any stockholder or when required by law, the votes upon anyquestion before the meeting, shall be by ballot. Section 1.10. Voting Lists. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before everymeeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of eachstockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for anypurpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where themeeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, oralternatively, such list may be maintained by the Corporation's transfer agent at its office. The list shall also be produced and kept at the time and place of themeeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 1.11. Proposals for Voting. (a) At any special or annual meeting of the stockholders, only such business shall be conducted as shall have been properly broughtbefore the meeting. To be properly brought before an special or annual meeting, business must be (1) specified in the notice of meeting (or any supplementthereto) given by or at the direction of the Board of Directors, (2) otherwise properly brought before the meeting by or at the direction of the Board of Directors,or (3) properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, (i) if suchbusiness relates to the nomination of a person for election as a director of the Corporation, the procedures in Section 2.15 must be complied with and (ii) ifsuch business relates to any other matter, the business must constitute a proper matter under Delaware law for stockholder action and the stockholder must (x)have given timely notice thereof in writing to the Secretary in accordance with the procedures set forth in Section 1.11(b) and (y) be a stockholder of record onthe date of the giving of such notice and on the record date for the determination of stockholders entitled to vote at such annual meeting. (b) To be timely, a stockholder’s notice must be received in writing by the Secretary at the principal executive offices of the Corporation(i) in the case of an annual meeting of stockholders, not earlier than the 120th day prior to such annual meeting and not later than the close of business on thelater of (A) the 90th day prior to such annual meeting and (B) the fifth day following the day on which notice of the date of such annual meeting was mailed orpublic disclosure of the date of such annual meeting was made, whichever first occurs, or (ii) in the case of a special meeting of stockholders, not earlier thanthe 120th day prior to such special meeting and not later than the close of business on the later of (x) the 90th day prior to such special meeting and (y) thetenth day following the day on which notice of the date of such special meeting was mailed or public disclosure of the date of such special meeting was made,whichever first occurs. In no event shall the adjournment or postponement of an annual meeting (or the public announcement thereof) commence a new timeperiod (or extend any time period) for the giving of a stockholder’s notice.7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual orspecial meeting (1) a brief description of the business desired to be brought before the annual or special meeting, the text relating to the business (including thetext of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Amended and Restated By-laws, thelanguage of the proposed amendment), and the reasons for conducting such business at the annual or special meeting, (2) the name and address, as theyappear on the Corporation’s books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalfthe proposal is made, (3) the class and number of shares of stock of the Corporation which are owned, of record and beneficially, by the stockholder andbeneficial owner, if any, (4) a description of all arrangements or understandings between such stockholder or such beneficial owner, if any, and any otherperson or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of the stockholderor such beneficial owner, if any, in such business, (5) a representation that such stockholder intends to appear in person or by proxy at the annual or specialmeeting to bring such business before the meeting and (6) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a groupwhich intends (x) to deliver a proxy statement and/or form of proxy to holders of capital stock representing at least the percentage of voting power of all of theCorporation’s capital stock outstanding as of the record date of the annual or special meeting required to approve or adopt the proposal and/or (y) otherwise tosolicit proxies from stockholders in support of such proposal. Notwithstanding anything in these Amended and Restated By-laws to the contrary, no businessshall be conducted at any annual or special meeting of stockholders except in accordance with the procedures set forth in this Section 1.11. A stockholder shallnot have complied with this Section 1.11 if the stockholder (or beneficial owner, if any, on whose behalf the nomination is made) solicits or does not solicit, asthe case may be, proxies in support of such stockholder’s proposal in contravention of the representations with respect thereto required by this Section 1.11. (d) The chairman of any meeting shall have the power and duty to determine whether business was properly brought before the meetingin accordance with the provisions of this Section 1.11 (including whether the stockholder or beneficial owner, if any, on whose behalf the proposal is madesolicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s proposal in compliance withthe representation with respect thereto required by this Section 1.11), and if the chairman should determine that business was not properly brought before themeeting in accordance with the provisions of this Section 1.11, the chairman shall so declare to the meeting and such business shall not be brought before themeeting. (e) Notwithstanding the foregoing provisions of this Section 1.11, if the stockholder (or a qualified representative of the stockholder)does not appear at the annual or special meeting of stockholders of the Corporation to present business, such business shall not be considered,notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 1.11, to be considered a qualifiedrepresentative of the stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered bysuch stockholder to act for such stockholder as a proxy at the meeting of stockholders and such person must produce such written instrument or electronictransmission, or a reliable reproduction of the written instrument or electronic transmission, at the meeting of stockholders.8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(f) For purposes of this Section 1.11, “public disclosure” shall include disclosure in a press release reported by the Dow Jones NewService, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and ExchangeCommission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (g) Notwithstanding any other provision of these Amended and Restated By-laws, the Corporation shall be under no obligation to includeany stockholder proposal in its proxy statement materials or otherwise present any such proposal to stockholders at a special or annual meeting ofstockholders if the Board of Directors reasonably believes the proponents thereof have not complied with Sections 13 and 14 of the Securities Exchange Act of1934, as amended, and the rules and regulations thereunder, nor shall the Corporation be required to include any stockholder proposal not required to beincluded in its proxy materials to stockholders in accordance with any such section, rule or regulation, to the extent permitted under applicable laws. Section 1.12. Place of Meeting. The Board of Directors may designate any place, either within or without the state of Delaware, as the place ofmeeting for any annual meeting or any special meeting duly called. If no designation is made the place of meeting shall be the principal office of theCorporation in the City of Lynbrook, New York. Section 1.13. Voting of Shares of Certain Holders. (a) Shares of capital stock of the Corporation standing in the name of another corporation, domestic or foreign, may be voted by suchofficer, agent, or proxy as the By-laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporationmay determine. (b) Shares of capital stock of the Corporation standing in the name of a deceased person, a minor ward or an incompetent person, maybe voted by his administrator, executor, court-appointed guardian or conservator, either in person or by proxy without a transfer of such shares into the nameof such administrator, executor, court-appointed guardian or conservator. Shares of capital stock of the Corporation standing in the name of a trustee may bevoted by him either in person or by proxy. (c) Shares of capital stock of the Corporation standing in the name of a receiver may be voted by such receiver, and shares held by orunder the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in any appropriateorder of the court by which such receiver was appointed. (d) A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of thepledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. (e) Shares of its own capital stock belonging to this Corporation shall not be voted, directly or indirectly, at any meeting and shall not becounted in determining the total number of outstanding shares at any given time, but shares of its own stock held by it in a fiduciary capacity may be votedand shall be counted in determining the total number of outstanding shares at any given time.9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 1.14. Consent of Stockholders in Lieu of Meeting. Except as provided in the Certificate of Incorporation, any action that may be takenat a meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth theaction so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize ortake such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation, by hand or bycertified or registered mail, return receipt requested, at its registered office or its principal place of meeting. Section 1.15. Unanimous Written Consent. Any action required or permitted to be taken at a meeting of the stockholder may be taken without ameeting if a consent in writing, setting forth the action, is signed by all the stockholders entitled to vote thereon and filed with the Secretary of the Corporation.Such consent shall have the same force and effect as a unanimous vote of the stockholders entitled to vote thereon. Article II. Board of Directors Section 2.1. General Powers. The business and the property of the Corporation shall be managed and controlled by the Board of Directors,who may exercise all of the powers of the Corporation except as otherwise provided by law or the Certificate of Incorporation or these Amended and RestatedBy-laws. Section 2.2. Number and Term of Office. Subject to the rights of holders of any series of Preferred Stock to elect directors, the number ofdirectors which shall constitute the whole Board shall be not less than three (3) nor more than ten (10). Within the limits above specified, the number ofdirectors shall be determined by the Board of Directors pursuant to a resolution adopted by a majority of the directors then in office. Beginning with the annualmeeting of stockholders to be held in 1991, the directors shall be classified, in respect solely to the time for which they shall severally hold office, by dividingthem into three classes, each such class to be as nearly equal as possible to each other class. The term of office of directors of the first class shall expire at thefirst annual meeting after their election, the term of office of directors of the second class shall expire at the second annual meeting after their election; and theterm of office of the directors of the third class shall expire at the third annual meeting after their election. At each succeeding annual meeting, the stockholdersshall elect directors of the class whose term then expires to hold office until the third succeeding annual meeting. Each director shall hold office for the term forwhich elected and until his or her successor shall be elected and shall qualify and be subject to such director’s earlier death, resignation or removal. Directorsneed not be stockholders.10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 2.3. Vacancies. Subject to the rights of holders of any series of Preferred Stock, and except as required by law, vacancies in the Board ofDirectors, including vacancies resulting from an increase in the number of directors, shall be filled only by the directors then in office, though less than aquorum, except that vacancies resulting from removal from office by a vote of the stockholders may be filled by the stockholders at the same meeting at whichsuch removal occurs. A director elected to fill a vacancy shall hold office until the next election of the class for which such director shall have been chosen,subject to the election and qualification of a successor or until such director's earlier death, resignation or removal. No decrease in the number of directorsconstituting the Board of Directors shall shorten the term of an incumbent director. If there are no directors in office, then an election of directors may be heldin the manner provided by statute. If, at any time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less thana majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder orstockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily orderan election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office, consistent withSection 223(c) of the Delaware General Corporation Law. Section 2.4. Place of Meetings, etc. The Board of Directors may hold its meetings, and may have an office and keep the books of theCorporation (except as otherwise may be provided for by law), in such place or places in the state of Delaware or outside of the state of Delaware, as the Boardfrom time to time may determine. Directors may participate in meetings of the Board of Directors or any committee thereof by means of conference telephone orother communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shallconstitute presence in person at such meeting. Section 2.5. Annual Meeting. The annual meeting of the Board of Directors for the election of officers and the transaction of such other businessas may come before the meeting shall be held immediately following the annual meeting of stockholders, at the same place at which such stockholders’ meetingis held or at such other time and place as the directors may designate. Notice of this meeting shall not be required unless some time and place other than theplace of the annual stockholders’ meeting has been designated. Section 2.6. Other Regular Meetings. Other regular meetings of the Board of Directors may be held at such time and place, within or outsidethe State of Delaware as shall be fixed by resolution of the Board of Directors. Section 2.7. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman, the ChiefExecutive Officer, the President, or by written request of any two (2) of the directors then in office. Section 2.8. Notice of Special Meetings. The Secretary shall give notice of each special meeting to each director, stating the date, hour and placethereof, (a) in person or by telephone at least 24 hours in advance of the meeting, (b) by sending written notice via reputable overnight courier, telecopy orelectronic mail, or delivering written notice by hand, to such director's last known business, home or electronic mail address at least 48 hours in advance ofthe meeting, or (c) by sending written notice via first-class mail to such director's last known business or home address at least 72 hours in advance of themeeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. Any and all business may betransacted at a special meeting.11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 2.9. Quorum. A majority of the total number of directors then in office shall constitute a quorum for the transaction of business; but ifat any meeting of the Board there be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice or otherannouncement. The act of a majority of the directors present at a meeting at which there is a quorum shall be the act of the Board of Directors, except as maybe otherwise provided by statute or by the Certificate of Incorporation. Section 2.10. Order of Business. Business shall be transacted at meetings of the Board of Directors in such order as the Board may determine. Atall meetings of the Board of Directors, the Chairman of the Board, or in his absence the Chief Executive Officer, or in his absence the President, or in hisabsence any Vice President, if any, shall preside. Section 2.11. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of anycommittee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in the writing, and writing orwritings are filed with the minutes of proceedings of the Board or committee. Section 2.12. Compensation of Directors. Each director of the Corporation who is not a salaried officer or employee of the Corporation, or of asubsidiary of the Corporation, shall receive such fees for serving as a director and such fees and expenses for attendance at meetings of the Board of Directorsor the Executive Committee (if any) or any other committee appointed by the Board as the Board may from time to time determine. Section 2.13. Election of Officers and Committees. At the first regular meeting of the Board of Directors in each year (at which a quorum shallbe present) held next after the annual meeting of stockholders, the Board of Directors shall elect the principal officers of the Corporation, and members of theExecutive Committee, if any, to be elected by the Board of Directors under the provisions of Article III and Article IV of these Amended and Restated By-laws.The Board of Directors may designate such other committees with such power and authority (to the extent permitted by law, the Certificate of Incorporation andthese Amended and Restated By-laws), as may be provided by resolution of the Board. Section 2.14. Removal. Any director or the entire Board of Directors may be removed from office by stockholder vote at any time, withoutassigning any cause, but only if the holders of not less than a majority of the voting power of the then outstanding shares of capital stock of the Corporationentitled to vote at an annual election of directors, voting together as a single class, shall vote in favor of such removal.12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 2.15. Nominations. (a) Subject to the rights (if any) of holders of any class or series of stock having a preference over the Common Stock as to dividends orupon liquidation, nominations for the election of directors may be made by (i) the Board of Directors or by (ii) any stockholder who (x) complies with thenotice procedures set forth in this Section 2.15, if required, and (y) is a stockholder of record on the date of the giving of such notice and on the record date forthe determination of stockholders entitled to vote at such meeting. Only persons who are nominated in accordance with the procedures in this Section 2.15shall be eligible for election as directors. To be timely, a stockholder’s notice must be received in writing by the Secretary of the Corporation at the principalexecutive offices of the Corporation as follows: (i) in the case of an election of directors at an annual meeting of stockholders, not earlier than the 120th dayprior to such annual meeting and not later than the close of business on the later of (A) the 90th day prior to such annual meeting and (B) the fifth dayfollowing the day on which notice of the date of such annual meeting was mailed or public disclosure of the date of such annual meeting was made, whicheverfirst occurs, or (ii) in the case of an election of directors at a special meeting of stockholders, provided that the Board of Directors has determined that directorsshall be elected at such meeting, not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of (x) the 90thday prior to such special meeting and (y) the tenth day following the day on which notice of the date of such special meeting was mailed or public disclosure ofthe date of such special meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an annual meeting (or the publicannouncement thereof) commence a new time period (or extend any time period) for the giving of a stockholder’s notice. (b) The stockholder’s notice to the Corporation shall set forth: (A) as to each proposed nominee (1) such person’s name, age, businessaddress and, if known, residence address, (2) such person’s principal occupation or employment, (3) the class or series and number of shares of stock of theCorporation which are beneficially owned by such person, and (4) any other information concerning such person that must be disclosed as to nominees inproxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (B) as to the stockholder givingthe notice (1) such stockholder’s name and address, as they appear on the Corporation’s books, (2) the class or series and number of shares of stock of theCorporation which are owned, beneficially and of record, by such stockholder, (3) a description of all arrangements or understandings between suchstockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by suchstockholder, (4) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the person(s) named in its notice and(5) a representation whether the stockholder intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders ofcapital stock representing at least the percentage of voting power of all of the shares of capital stock of the Corporation outstanding as of the record date of theannual meeting reasonably believed by such stockholder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder,and/or (y) otherwise to solicit proxies from stockholders in support of such nomination; and (C) as to the beneficial owner, if any, on whose behalf thenomination is being made (1) such beneficial owner’s name and address, (2) the class and number of shares of stock of the Corporation which are beneficiallyowned by such beneficial owner, (3) a description of all arrangements or understandings between such beneficial owner and each proposed nominee and anyother person or persons (including their names) pursuant to which the nomination(s) are to be made and (4) a representation whether the beneficial ownerintends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of capital stock representing at least the percentageof voting power of all of the shares of capital stock of the Corporation outstanding as of the record date of the annual meeting reasonably believed by suchbeneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and/or (y) otherwise to solicit proxies fromstockholders in support of such nomination. In addition, to be effective, the stockholder’s notice must be accompanied by the written consent of the proposednominee to serve as a director if elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be requiredto determine the eligibility of such proposed nominee to serve as a director of the Corporation. A stockholder shall not have complied with this Section 2.15(b)if the stockholder (or beneficial owner, if any, on whose behalf the nomination is made) solicits or does not solicit, as the case may be, proxies in support ofsuch stockholder’s nominee in contravention of the representations with respect thereto required by this Section 2.15.13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 chairman of any meeting shall have the power and duty to determine whether a nomination was made in accordance with theprovisions of this Section 2.15 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination is made solicited (or is part of agroup which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s nominee in compliance with the representations withrespect thereto required by this Section 2.15), and if the chairman should determine that a nomination was not made in accordance with the provisions of thisSection 2.15, the chairman shall so declare to the meeting and such nomination shall be disregarded. (d) Except as otherwise required by law, nothing in this Section 2.15 shall obligate the Corporation or the Board of Directors to include inany proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to anynominee for director submitted by a stockholder. (e) Notwithstanding the foregoing provisions of this Section 2.15, if the stockholder (or a qualified representative of the stockholder)does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination, such nomination shall be disregarded,notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.15, to be considered a qualifiedrepresentative of the stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered bysuch stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronictransmission, or a reliable reproduction of the written instrument or electronic transmission, at the meeting of stockholders. (f) For purposes of this Section 2.15, “public disclosure” shall include disclosure in a press release reported by the Dow Jones NewService, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and ExchangeCommission pursuant to Section 13, 14 or 15(d) of the Exchange Act.14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.Executive Committee and Other Committees Section 3.1. Number and Term of Office. The Board of Directors may, at any meeting, by majority vote of the whole Board of Directors, electfrom the directors an Executive Committee. The Executive Committee shall consist of such number of members as may be fixed from time to time byresolution of the Board of Directors. The officer-directors, by virtue of their offices, shall be members of the Executive Committee. Unless otherwise orderedby the Board of Directors, each elected member of the Executive Committee shall continue to be a member thereof until the expiration of his term of office as adirector, even if he or she is no longer an officer of the Corporation. Section 3.2. Powers. The Executive Committee may, while the Board of Directors is not in session, exercise all or any of the powers of the Boardof Directors in all cases in which specific directions shall not have been given by the Board of Directors; except that the Executive Committee shall not have thepower or authority of the Board of Directors in reference to amending the Certificate of Incorporation (except that the Executive Committee may, to the extentauthorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of theDelaware General Corporation Law, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution ofassets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or anyother class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger orconsolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommendingto the stockholders a dissolution of the Corporation or a revocation of a dissolution, amending these Amended and Restated By-laws, or declaring a dividendor, unless specifically authorized by the Board of Directors, authorizing the issuance of stock. Section 3.3. Meetings. Regular meetings of the Executive Committee may be held without notice at such times and places as the ExecutiveCommittee may fix from time to time by resolution. Notice of any special meeting shall be given to each member by the Secretary or the member calling suchmeeting, but such notice may be waived by any member of the Executive Committee. Notice may be given (a) in person or by telephone at least 24 hours inadvance of the meeting, (b) by sending written notice stating the place, date and hour of the meeting via reputable overnight courier, telecopy or electronic mail,or delivering written notice by hand, to such director's last known business, home or electronic mail address at least 48 hours in advance of the meeting, or(c) by sending written notice via first-class mail to such director's last known business or home address at least 72 hours in advance of the meeting. If mailed,notice shall be deemed to be delivered when deposited in the United States mail or with any private express mail service. A notice or waiver of notice of ameeting of the Board of Directors need not specify the purposes of the meeting. Section 3.4. Meetings by Conference Communications Equipment. Members of the Executive Committee may participate in meetings of theExecutive Committee or any committee thereof by means of conference telephone or other communications equipment by means of which all personsparticipating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. At any meeting at whichevery member of the Executive Committee shall be present, in person or by telephone, even though without any notice, any business may be transacted.15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 3.5. Presiding Officer. At all meetings of the Executive committee, the Board of Directors shall designate a member of such committee topreside. The Board of Directors may also similarly elect from their number one or more alternate members of the Executive Committee to serve at the meetingsof such committee in the absence of any regular member or members, and, in case more than one alternate is elected, shall designate at the time of election thepriorities as between them. Section 3.6. Action by Consent. Any action required or permitted to be taken at any meeting of the Executive Committee (or any other committee)may be taken without a meeting, if all members of the Executive Committee (or other committee), as the case may be, consent to the action in writing or byelectronic transmission, and the written consents or electronic transmissions are filed with the minutes of proceedings of the Executive Committee or othercommittee. Section 3.7. Vacancies. The Board of Directors, by majority vote of the whole Board of Directors then in office, shall fill vacancies in theExecutive Committee by election from the directors. Section 3.8. Rules of Procedure; Quorum. The Executive Committee shall keep regular minutes which shall be reported to the Board ofDirectors at its meeting next succeeding such action, and all actions of such committee shall be subject to revision or alteration by the Board of Directors;provided that no rights or acts of third parties shall be affected by any such revision or alteration. The Executive Committee shall fix its own rules ofprocedure, and shall meet where and as provided by such rules, or by resolution of the Board of Directors, but in every case the presence of a majority of thetotal number of members of the Executive Committee shall be necessary to constitute a quorum. In every case the affirmative vote of a majority of all of themembers of the committee present at the meeting shall be necessary for the adoption of any resolution; or the affirmative vote of the sole member if only onemember. Section 3.9. Other Committees. The Board of Directors may, from time to time, designate one or more committees (in addition to the ExecutiveCommittee), each committee to consist of one or more of the directors of the Corporation and shall have such powers and duties as the Board of Directors maydetermine. The provisions of Sections 3.3, 3.4, 3.5, 3.6, 3.7 and 3.8 of these Amended and Restated By-laws shall apply to such other committees, unless theBoard of Directors directs otherwise. Article IV. The officers Section 4.1. Titles; Number and Term of Office. (a) The officers of the Corporation shall be a Chief Executive Officer, a President, a Treasurer, and a Secretary, and such other officersas may from time to time be elected or appointed by the Board of Directors, including a chief financial officer, a chief accounting officer, one or more VicePresidents, assistant secretaries and assistant treasurers as may be determined by the Board of Directors. No officer need be a stockholder.16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 officers of the Corporation shall be appointed annually by the Board of Directors at the first meeting of the Board of Directorsheld after each annual meeting of stockholders. Vacancies or new offices may be filled at any time. Each officer shall hold office until his successor shall havebeen duly elected or appointed or until his death or until he shall resign or shall have been removed by the/Board of Directors. (c) Each of the salaried officers of the Corporation shall devote his entire time, skill and energy to the business of the Corporation,unless the contrary is expressly consented to by the Board of Directors or the Executive Committee. Section 4.2. Resignation and Removal. Any officer may be removed at any time, with or without cause, by vote of a majority of the directorsthen in office. Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as anofficer for any period following such officer's resignation or removal, or any right to damages on account of such removal, whether such officer'scompensation be by the month or by the year or otherwise, unless such compensation is expressly provided for in a duly authorized written agreement with theCorporation. Any officer may resign by delivering a written resignation to the Corporation at its principal office or to the Chief Executive Officer, the Presidentor the Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some later time or upon the happening of some laterevent. Section 4.3. Chairman of the Board. The Board of Directors may appoint from its members a Chairman of the Board, who need not be anemployee or officer of the Corporation. If the Board of Directors appoints a Chairman of the Board, such Chairman shall perform such duties and possesssuch powers as are assigned by the Board of Directors and, if the Chairman of the Board is also designated as the Corporation’s Chief Executive Officer,shall have the powers and duties of the Chief Executive Officer prescribed in Section 4.4 of these Amended and Restated By-laws. Unless otherwise providedby the Board of Directors, the Chairman of the Board shall preside at all meetings of the Board of Directors, the Executive Committee (if any) and thestockholders. Section 4.4. Chief Executive Officer. The Chief Executive Officer shall have general charge and supervision of the business of the Corporationsubject to the direction of the Board of Directors. Section 4.5. President. Unless the Board of Directors has designated the Chairman of the Board or another person as the Corporation’s ChiefExecutive Officer, the President shall be the Chief Executive Officer of the Corporation. The President shall (i) have active management of the business of theCorporation, (ii) shall see that all orders and resolutions of the Board of Directors are carried into effect, and (iii) perform such other duties (includingexecuting bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwisesigned and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent ofthe Corporation) and shall have such other powers as the Board of Directors or the Chief Executive Officer (if the President is not the Chief Executive Officer)may from time to time prescribe. In the event of the absence, inability or refusal to act of the Chief Executive Officer or the President (if the President is not theChief Executive Officer), the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shallperform the duties of the Chief Executive Officer and when so performing such duties shall have all the powers of and be subject to all the restrictions upon theChief Executive Officer.17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 4.6. Vice-Presidents. In the absence of the President or in the event of his inability or refusal to act, the Vice-President (or in the eventthere be more than one Vice-President, the Vice-Presidents in the order designated by the directors, in the absence of any designation, then in the order of theirelection) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. TheVice-Presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 4.7. Chief Financial Officer. The Chief Financial Officer shall be subject to the direction of the Chief Executive Officer, President andthe Board of Directors and shall have day-to-day managerial responsibility for the finances of the Corporation. The Chief Financial Officer shall, if requiredby the Board of Directors, give a bond for the faithful discharge of his duties in such sum as the Board of Directors may determine. Section 4.8. Chief Accounting Officer. The Chief Accounting Officer shall be subject to the direction of the Chief Executive Officer, Presidentand the Board of Directors and shall have day-to-day managerial responsibility for the accounting of the Corporation. Section 4.9. Treasurer. Subject to the direction of the Chief Executive Officer, the President and the Board of Directors, the Treasurer shallhave charge and custody of all the funds and securities of the Corporation; when necessary or proper he shall endorse for collection, or cause to be endorsed,on behalf of the Corporation, checks, notes and other obligations, and shall cause the deposit of the same to the credit of the Corporation in such bank orbanks or depositary as the Board of Directors may designate or as the Board of Directors by resolution may authorize; he shall sign all receipts and vouchersfor payments made to the Corporation other than routine receipts and vouchers, the signing of which he may delegate; he shall have the authority to sign suchchecks made by the Corporation as the Board may authorize; provided, however, that the Board of Directors may authorize and prescribe by resolution themanner in which checks drawn on banks or depositaries shall be signed, including the use of facsimile signatures, and the manner in which officers, agentsor employees shall be authorized to sign; unless otherwise provided by resolution of the Board of Directors, he shall sign with an officer-director all bills ofexchange and promissory notes of the Corporation; he may sign with the Chief Executive Officer, the President or Vice-President (if any) all certificates ofshares in the capital stock; whenever required by the Board of Directors, he shall render a statement of his cash account; he shall enter regularly full andaccurate account of the Corporation in books of the Corporation to be kept by him for that purpose; he shall, at all reasonable times, exhibit his books andaccounts to any director of the Corporation upon application at his office during business hours; and he shall perform all acts incident to the position ofTreasurer. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum as the Board of Directorsmay require.18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 4.10. Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors, and the minutes of all meetings of thestockholders, and also (unless otherwise directed by the Board of Directors) the minutes of all committees, in books provided for that purpose; he shall attendto the giving and serving of all notices of the Corporation; he may sign with an officer-director or any other duly authorized person, in the name of theCorporation, all contracts authorized by the Board of Directors or by the Executive committee (if any), and, when so ordered by the Board of Directors or theExecutive Committee (if any), he shall affix the seal of the Corporation thereto; he shall have charge of the certificate books, transfer books and stock ledgers,and such other books and papers as the Board of Directors or the Executive Committee (if any) may direct, all of which shall, at all reasonable times, be opento the examination of any director, upon application at the Secretary's office during business hours; and he shall in general perform all the duties incident tothe office of the Secretary, subject to the control of the President and the Board of Directors. Section 4.11. Assistant Treasurers and Assistant Secretaries. The Assistant Treasurers shall respectively, if required by the Board ofDirectors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors may determine. The AssistantSecretaries as thereunto authorized by the Board of Directors may sign with the President or a Vice-President for shares of the Corporation, the issue of whichshall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers and Assistant Secretaries, in general, shall perform such dutiesas shall be assigned to them by the Chief Financial Officer/Treasurer or the Secretary, respectively, or the Chief Executive Officer, the President, the Board ofDirectors, or these Amended and Restated By-laws. Section 4.12. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors. No officer shall be prevented fromreceiving such salary by reason of the fact that he is also a director of the Corporation. Section 4.13. Voting upon Stocks. Unless otherwise ordered by the Board of Directors or by the Executive committee, any officer-director or anyperson or persons appointed in writing by any of them, shall have full power and authority in behalf of the Corporation to attend and to act and to vote at anymeetings of stockholders of any Corporation in which the Corporation may hold stock, and at any such meeting shall possess and may exercise any and allthe rights and powers incident to the ownership of such stock, and which, as the owner thereof, the Corporation might have possessed and exercised ifpresent. The Board of Directors may confer like powers upon any other person or persons. Article V. Contracts and Loans Section 5.1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute anddeliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 5.2. Section 5.2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued inits name unless authorized by a resolution of the Board of Directors or the Executive Committee. Such authority may be general or confined to specificinstances. Article VI. Certificates for Shares and Their Transfer Section 6.1. Certificates for Shares. (a) Subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capitalstock of the Corporation or the whole or any part of any shares of the authorized capital stock of the Corporation held in the Corporation’s treasury may beissued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such lawful consideration and on such terms as theBoard of Directors may determine. (b) Every holder of stock of the Corporation shall be entitled to have a certificate, in such form as may be prescribed by law and by theBoard of Directors, certifying the number and class of shares owned by such holder in the Corporation; provided, however, that to the extent permitted bylaw, the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of stock of the Corporation shall beuncertificated shares. Each such certificate shall be signed by, or in the name of the Corporation by, the chairman or vice chairman, if any, of the Board ofDirectors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation. (c) The signatures of such officers and the seal may be a facsimile. If a stock certificate is countersigned (i) by a transfer agent other thanthe Corporation or its employee, or (ii) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. Incase any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer,transfer agent, or registrar before such 'certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agentor registrar at the date of issue. (d) All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the sharesrepresented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the Corporation. All certificates surrendered to theCorporation for transfer shall be cancelled and no new certificates shall be issued until the former certificate for a like number of shares shall have beensurrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity tothe Corporation as the Board of Directors may prescribe.20Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 6.2. Transfers of Shares. Except as otherwise established by Section 6.3 of these Amended and Restated By-laws or by rules andregulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the Corporation by thesurrender to the Corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or powerof attorney properly executed, and with such proof of authority or the authenticity of signature as the Corporation or its transfer agent may reasonably require.Except as may be otherwise required by law, by the Certificate of Incorporation or by these Amended and Restated By-laws, the Corporation shall be entitled totreat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to votewith respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of theCorporation in accordance with the requirements of these Amended and Restated By-laws. Section 6.3. Lost Certificates. The Board of Directors may direct a new certificate or certificates or uncertificated shares to be issued in place ofany certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact bythe person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificatedshares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyedcertificate or certificates, or his legal representative, to indemnify and post such bond as the Board of Directors may require for the protection of theCorporation or any transfer agent or registrar against any claim that may be made with respect to the certificate alleged to have been lost, stolen or destroyed. Article VII. General Provisions Section 7.1. Fiscal Year. Except as from time to time designated by the Board of Directors, the fiscal year of the Corporation shall begin on thefirst day of January in each year and end on the last day of December in each year. Section 7.2. Seal. The Board of Directors shall approve a corporate seal which shall be in the form of a circle and shall have inscribed thereonthe name of the Corporation. Section 7.3. Waiver of Notice. Whenever any notice whatever is required to be given under the provisions of these Amended and Restated By-laws or under the provisions of the Certificate of Incorporation or under the provisions of the General Corporation Law of Delaware, waiver thereof in writingsigned, or a waiver by electronic transmission, by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemedequivalent to the giving of such notice. Attendance of any person at a meeting for which any notice whatever is required to be given under the provisions ofthese Amended and Restated By-laws, the Certificate of Incorporation or the General Corporation Law of Delaware shall constitute a waiver of notice of suchmeeting except when the person attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any businesses because themeeting is not lawfully called or convened.21Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Section 7.4. Amendments. These Amended and Restated By-laws may be altered, amended or repealed and new By-laws may be adopted at anymeeting of the Board of Directors of the Corporation by the affirmative vote of a majority of the members of the Board of Directors, or by the affirmative voteof the holders of a majority or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors cast at ameeting of the stockholders called for that purpose. Section 7.5. Evidence of Authority. A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken bythe stockholders, directors, a committee or any officer or representative of the Corporation shall as to all persons who rely on the certificate in good faith beconclusive evidence of such action. Section 7.6. Certificate of Incorporation. All references in these Amended and Restated By-laws to the Certificate of Incorporation shall bedeemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time, including the terms of any certificate ofdesignation of any series of Preferred Stock. Section 7.7. Severability. Any determination that any provision of these Amended and Restated By-laws is for any reason inapplicable, illegal orineffective shall not affect or invalidate any other provision of these Amended and Restated By-laws. Section 7.8. Pronouns. All pronouns used in these Amended and Restated By-laws shall be deemed to refer to the masculine, feminine or neuter,singular or plural, as the identity of the person or persons may require. Section 7.9. Offices. The registered office of the Corporation is set forth in the Certificate of Incorporation of the Corporation. The Corporationmay also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or thebusiness of the Corporation may require. Section 7.10. Off-Shore Offerings. In all offerings of securities pursuant to Regulation S of the Securities Act of 1933 (the “Act”), the Corporationshall require that its stock transfer agent refuse to register any transfer of securities not made in accordance with the provisions of Regulation S, pursuant toregistration under the Securities Act of 1933 or an available exemption under the Act. Section 7.11. Forum for Adjudication of Disputes. Unless the Corporation consents in writing to the selection of an alternative forum, the Courtof Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceedingbrought on behalf of the Corporation, (b) any action asserting a claim of breach of fiduciary duty owed by, or other wrongdoing by, any director, officer,employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, creditors or other constituents, (c) any action asserting a claimarising pursuant to any provision of the General Corporation Law of the State of Delaware or the Certificate of Incorporation or these By-Laws of theCorporation, (d) any action to interpret, apply, enforce or determine the validity of the Certificate of Incorporation or these By-Laws of the Corporation or (e)any action asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery of the State of Delaware having personaljurisdiction over the indispensable parties named as defendants therein; provided that if and only if the Court of Chancery of the State of Delaware dismissesany such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. To thefullest extent permitted by applicable law, any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporationshall be deemed to have notice of and consented to the provisions of this Section 7.11. If any provision or provisions of this Section 7.11 shall be held to beinvalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, thevalidity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Section 7.11 (including, withoutlimitation, each portion of any sentence of this Section 7.11 containing any such provision held to be invalid, illegal or unenforceable that is not itself held tobe invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected orimpaired thereby. Article VIII. Indemnification Section 8.1. Indemnification. The Corporation shall indemnify its officers, directors, employees and agents to the fullest extent permitted by theGeneral Corporation Law of the State of Delaware, as amended from time to time. Section 8.2. Indemnification Terms. The Corporation shall provide indemnification and advancement of expenses as follows:22Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(a) Actions, Suits and Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify each person whowas or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative orinvestigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was, or has agreed to become, a director orofficer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of,or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such personsbeing referred to hereafter as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses(including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connectionwith such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to bein, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or herconduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or itsequivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in, ornot opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or herconduct was unlawful. (b) Actions or Suits by or in the Right of the Corporation. (c) The Corporation shall indemnify any Indemnitee who was or is a party to or threatened to be made a party to any threatened, pendingor completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was, or has agreedto become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner,employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefitplan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees) and, to the extentpermitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit orproceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, thebest interests of the Corporation, except that no indemnification shall be made under this Section 8.2(b) in respect of any claim, issue or matter as to whichIndemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware, or the court inwhich such action or suit was brought, shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances ofthe case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses (including attorneys’ fees) which the Court of Chancery of Delaware, orthe court in which such action or suit was brought, shall deem proper.23Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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) Indemnification for Expenses of Successful Party. Notwithstanding any other provisions of this Article VIII, to the extent that anIndemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections (a) and (b) of this Section 8.2,or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, Indemnitee shall be indemnified against all expenses(including attorneys’ fees) actually and reasonably incurred by or on behalf of Indemnitee in connection therewith. Without limiting the foregoing, if anyaction, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse toIndemnitee, (ii) an adjudication that Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by Indemnitee, (iv) an adjudication thatIndemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respectto any criminal proceeding, an adjudication that Indemnitee had reasonable cause to believe his conduct was unlawful, Indemnitee shall be considered for thepurposes hereof to have been wholly successful with respect thereto. (e) Notification and Defense of Claim. As a condition precedent to an Indemnitee’s right to be indemnified pursuant to Section (a), (b)and (c) of this Section 8.2, or to receive advancement of expenses pursuant to subsection (e) of this Section 8.2, such Indemnitee must notify the Corporationin writing as soon as practicable of any action, suit, proceeding or investigation involving such Indemnitee for which indemnity or advancement of expenseswill or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled toparticipate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to Indemnitee. Afternotice from the Corporation to Indemnitee of its election so to assume such defense, the Corporation shall not be liable to Indemnitee for any legal or otherexpenses subsequently incurred by Indemnitee in connection with such action, suit, proceeding or investigation, other than as provided below in thisSection 8.2(d). Indemnitee shall have the right to employ his or her own counsel in connection with such action, suit, proceeding or investigation, but the feesand expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless(i) the employment of counsel by Indemnitee has been authorized by the Corporation, (ii) counsel to Indemnitee shall have reasonably concluded that there maybe a conflict of interest or position on any significant issue between the Corporation and Indemnitee in the conduct of the defense of such action, suit,proceeding or investigation or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, suit, proceeding orinvestigation, in each of which cases the fees and expenses of counsel for Indemnitee shall be at the expense of the Corporation, except as otherwise expresslyprovided by this Section 8.2. The Corporation shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in theright of the Corporation or as to which counsel for Indemnitee shall have reasonably made the conclusion provided for in clause (ii) of the preceding sentence.The Corporation shall not be required to indemnify Indemnitee under this Article VIII for any amounts paid in settlement of any action, suit, proceeding orinvestigation effected without its written consent. The Corporation shall not settle any action, suit, proceeding or investigation in any manner which wouldimpose any penalty or limitation on Indemnitee without Indemnitee’s written consent. Neither the Corporation nor Indemnitee will unreasonably withhold ordelay its consent to any proposed settlement.24Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(f) Advance of Expenses. Subject to the provisions of Sections 8.2(d) and (f) of this Section 8.2, any expenses (including attorneys’fees) incurred by or on behalf of Indemnitee in defending an action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporationin advance of the final disposition of such matter; provided, however, that the payment of such expenses incurred by or on behalf of Indemnitee in advance ofthe final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of Indemnitee to repay all amounts so advanced in theevent that it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertakingshall be accepted without reference to the financial ability of Indemnitee to make such repayment. (g) Procedure for Indemnification and Advance of Expenses. In order to obtain indemnification pursuant to Section 8.2(a), (b) or (c) oradvancement of expenses pursuant to Section 8.2(e), an Indemnitee shall submit to the Corporation a written request. Any such advancement of expenses shallbe made promptly, and in any event within 30 days after receipt by the Corporation of the written request of Indemnitee, unless the Corporation has assumedthe defense pursuant to Section 8.2(d) (and none of the circumstances described in Section 8.2(d) that would nonetheless entitle the Indemnitee toindemnification or an advancement for the fees and expenses of separate counsel have occurred). Any such indemnification, unless ordered by a court, shallbe made with respect to requests under Section 8.2(a) or (b) only as authorized in the specific case upon a determination by the Corporation that theindemnification of Indemnitee is proper because Indemnitee has met the applicable standard of conduct set forth in Section 8.2(a) or (b), as the case may be.Such determination shall be made in each instance (a) by a majority vote of the directors of the Corporation who are not at that time parties to the action, suit orproceeding in question (“disinterested directors”), whether or not a quorum, (b) by a committee of disinterested directors designated by majority vote ofdisinterested directors, whether or not a quorum, (c) if there are no disinterested directors, or if the disinterested directors so direct, by independent legalcounsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation) in a written opinion, or (d) by the stockholders of theCorporation. (h) Remedies. The right to indemnification or advancement of expenses as granted by this Article shall be enforceable by Indemnitee inany court of competent jurisdiction. Neither the failure of the Corporation to have made a determination prior to the commencement of such action thatindemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporationpursuant to Section 8.2(f) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption thatIndemnitee has not met the applicable standard of conduct. Indemnitee’s expenses (including attorneys’ fees) reasonably incurred in connection withsuccessfully establishing Indemnitee’s right to advancement of expenses or indemnification, in whole or in part, in any such proceeding shall also beindemnified by the Corporation. (i) Limitations. Notwithstanding anything to the contrary in this Article VIII, except as set forth in Section 8.2(g), the Corporation shallnot indemnify or advance expenses to an Indemnitee pursuant to this Article VIII in connection with a proceeding (or part thereof) initiated by such Indemniteeunless the initiation thereof was approved by the Board of Directors. Notwithstanding anything to the contrary in this Article, the Corporation shall notindemnify or advance expenses to an Indemnitee to the extent such Indemnitee is reimbursed or paid expenses from the proceeds of insurance, and in the eventthe Corporation makes any indemnification payments or advancement of expenses to an Indemnitee and such Indemnitee is subsequently reimbursed from theproceeds of insurance, such Indemnitee shall promptly refund indemnification payments or advancement of expenses to the Corporation to the extent of suchinsurance reimbursement.25Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(j) Subsequent Amendment. No amendment, termination or repeal of this Article VIII or of the relevant provisions of the GeneralCorporation Law of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification or advancementof expenses under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions orfacts occurring prior to the final adoption of such amendment, termination or repeal. (k) Other Rights. The indemnification and advancement of expenses provided by this Article VIII shall not be deemed exclusive of anyother rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement orvote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee’s official capacity and as to action in any other capacity whileholding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate,heirs, executors and administrators of Indemnitee. Nothing contained in this Article VIII shall be deemed to prohibit, and the Corporation is specificallyauthorized to enter into, agreements with officers and directors providing indemnification and advancement rights and procedures different from those set forthin this Article VIII. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification andadvancement rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater orless than, those set forth in this Article VIII. (l) Partial Indemnification and Advance of Expenses. If an Indemnitee is entitled under any provision of this Article VIII toindemnification or advancement of expenses by the Corporation for some or a portion of the expenses (including attorneys’ fees), judgments, fines or amountspaid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with any action, suit, proceeding or investigation and anyappeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify or advance expenses to Indemnitee for the portionof such expenses (including attorneys’ fees), judgments, fines or amounts paid in settlement to which Indemnitee is entitled. (m) Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer,employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) againstany expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the powerto indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. (n) Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, thenthe Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys’ fees), judgments, fines and amounts paid in settlementin connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of theCorporation, to the fullest extent permitted by any applicable portion of this Article VIII that shall not have been invalidated and to the fullest extent permittedby applicable law.26Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(o) Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shallhave the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). Article IX. Record Date Section 9.1. Fixing Date of Record. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or anyadjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respectof any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date (otherthan a record date for stockholder action by written consent, if permitted), which shall not precede the date upon which the resolution fixing the record date isadopted by the Board of Directors and shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to anyother action. (b) If no record date is fixed: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close ofbusiness on the day immediately preceding the day on which notice is given, or, if notice is waived, at the close of business on the day immediatelypreceding the day on which the meeting is held; and (ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which theBoard of Directors adopts the resolution relating thereto. (c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournmentof the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. *** 27Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 4.4 THIRD AMENDMENT TO RIGHTS AGREEMENTThis THIRD AMENDMENT (this “Amendment”), dated as of March 5, 2014, to the RIGHTS AGREEMENT, dated as of May 14, 2002, asamended on June 19, 2003, and as further amended on of February 3, 2011 (the “Rights Agreement”), between BioSpecifics Technologies Corp., a Delawarecorporation (the “Company”), and Worldwide Stock Transfer, LLC (as successor in interest to OTC Corporate Transfer Service Company) as Rights Agent(the “Rights Agent”). WHEREAS the Company may from time to time supplement or amend the Rights Agreement in accordance with the provisions ofSection 27 thereof; and WHEREAS the Company desires to amend certain provisions of the Rights Agreement as set forth herein. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth in the Rights Agreement and this Amendment,the parties hereto hereby agree as follows: 1. Section 7. Section 7(a) of the Rights Agreement is hereby amended by deleting the reference to “May 31, 2014” in clause (i) thereofand inserting “May 31, 2016” in place thereof.2. Exhibit B. Exhibit B to the Rights Agreement is hereby amended by deleting all references therein to “May 31, 2014” and inserting“May 31, 2016” in place thereof.3. Exhibit C. Exhibit C to the Rights Agreement is hereby amended by deleting all references therein to “May 31, 2014” and inserting“May 31, 2016” in place thereof.4. Full Force and Effect. Except as expressly amended hereby, the Rights Agreement shall continue in full force and effect inaccordance with the provisions thereof.5. Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for allpurposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within suchState; provided, however, that all provisions regarding the rights, duties and obligations of the Rights Agent shall be governed by and construed in accordancewith the laws of the State of New York applicable to contracts made to be performed entirely within such State.6. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and each of such counterparts shallfor all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. This Amendment shall beeffective as of the date hereof.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. Descriptive Headings. Descriptive headings of the several Sections of this Amendment are inserted for convenience only and shallnot control or affect the meaning or construction of any of the provisions hereof.8. Rights Agreement as Amended. From and after the date hereof, any reference to the Rights Agreement shall mean the RightsAgreement as amended hereby.9. Severability. If any term, provision, covenant or restriction of this Amendment is held by a court of competent jurisdiction or otherauthority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment shall remain in full forceand effect and shall in no way be affected, impaired or invalidated.[Remainder of page intentionally left blank] Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 hereto have caused this Amendment to be duly executed as of the day and year first above written. BIOSPECIFICS TECHNOLOGIES CORP. By:/s/ Thomas L. Wegman Name:Thomas L. Wegman Title:President WORLDWIDE STOCK TRANSFER, LLC By:/s/ Authorized Signatory Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 10.1 =========================================================== LEASE dated November 21, 2013between 35 WILBUR STREET ASSOCIATES, LLC, as Landlord andADVANCED BIOFACTURES CORP., as TenantBIOSPECIFICS TECHNOLOGIES CORP, as Tenant PREMISES:35 Wilbur Street Lynbrook, New York 11563===========================================================iSource: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ArticleCaptionPage 1DEMISED PREMISES12TERM, RENTS13USE24EARLY TERMINATION OF LEASE25INTENTIONALLY OMITTED26SUBORDINATION, NOTICE TO LESSORS AND MORTGAGEES37QUIET ENJOYMENT38ASSIGNMENT AND SUBLETTING39COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES310INSURANCE411INTENTIONALLY OMITTED512LANDLORD'S WORK OR CONDITION OF DEMISED PREMISES513TENANT'S CHANGES514TENANT'S PROPERTY515REPAIRS AND MAINTENANCE616ELECTRICITY717INTENTIONALLY OMITTED718ACCESS. CHANGES IN BUILDING FACILITIES. NAME719NON-LIABILITY AND INDEMNIFICATION720DESTRUCTION OR DEMOLITION821EMINENT DOMAIN922SURRENDER1023CONDITIONS OF LIMITATION1024RE-ENTRY BY LANDLORD1125DAMAGES1226WAIVERS1327NO OTHER WAIVERS OR MODIFICATIONS1328CURING TENANT'S DEFAULTS, ADDITIONAL RENT1429BROKER1430NOTICES1431ESTOPPEL CERTIFICATE, MEMORANDUM1532NO OTHER REPRESENTATIONS. CONSTRUCTION, GOVERNING LAW. CONSENTS1533PARTIES BOUND1534ADJACENT EXCAVATION AND CONSTRUCTION - SHORING1635MISCELLANEOUS1636SECURITY DEPOSIT1737INTENTIONALLY OMITTED1738INTENTIONALLY OMITTED1739INTENTIONALLY OMITTED1740LANDLORD'S WORK1841ENVIRONMENTAL18 EXHIBITARENTAL SPACE19 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.AGREEMENT OF LEASEAGREEMENT OF LEASE dated as of November 21, 2013 between 35 WILBUR STREET ASSOCIATES, LLC, having an office at 19 Wilbur Street,Lynbrook, New York 11563 (hereinafter referred to as "Landlord"), and BIOSPECIFICS TECHNOLOGIES CORP., a Delaware Corporation, andADVANCED BIOFACTURES CORP., a New York Corporation, having an office at 35 Wilbur Street, Lynbrook, New York 11563 (hereinafter referred toas "Tenant"). W I T N E S S E T H :ARTICLE 1 Demised Premises 1.01. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, upon and subject to the terms, covenants, provisions andconditions of this lease, the building known as 35 Wilbur Street, Lynbrook, New York 11563 (the "Building" or “Demised Premises”). ARTICLE 2 Term, Rents 2.01. The term of this lease (the "Term") for which the Demised Premises are hereby leased, shall commence on the first day of the firstmonth following closing (herein called the "Commencement Date") and shall end 24 months thereafter (herein called the “Expiration Date”), or shall end onsuch earlier date upon which the Term may expire or be canceled or terminated pursuant to any of the conditions or covenants of this lease or pursuant to law.2.02. The "rents" reserved under this lease shall be and consist of:(a) "fixed rent" at the following annual amounts: (i) One Hundred and Forty Four Thousand Dollars ($144,000.00) Dollars and 00/100 ($12,000.00 per month) per annum for theperiod commencing on the Commencement Date and ending on the last day of the Lease Year which shall be two (2) years later. Said Lease to commence on the first date of the first month following the closing of title to 35 Wilbur Street. Tenant to pay at the closingof title rent for the date of closing to the end of the month.(b) "additional rent" consisting of all such other sums of money as shall become due from and payable by Tenant to Landlord hereunder(for default in payment of which Landlord shall have the same remedies as for a default in payment of fixed rent).Rents shall be paid by Tenant to Landlord at its office, or such other place, or to such agent and at such place as Landlord may designate by noticeto Tenant, in lawful money of the United State of America.2.03. Tenant shall pay the fixed rent and additional rent herein reserved promptly as and when the same shall become due and payable,without demand therefor and without any abatement, deduction or setoff whatsoever except as expressly provided in this lease. 2.04. Tenant shall pay as additional rent 100% of the increase in taxes over the base year. Tenant’s base year shall be 2013 for General andVillage taxes and 2013/2014 for school tax. Tenant shall only be responsible for that part of the taxes when they are actually in possession.1Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2.05. There shall be no other additional rent paid by Tenant.2.06. Landlord may use a portion of the office space of the Premises to be agreed to by the parties as to location. The cost of which shall be acredit to the Tenant in rent and for utilities based on the percentage of the space used. ARTICLE 3Use 3.01. Tenant shall use and occupy the Demised Premises for warehousing, manufacturing and offices in connection with Tenant's businessand consistent with its current use and for no other purpose.3.02. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business, Tenant shall at alltimes comply with the terms and conditions of each such license or permit.3.03. Tenant shall not at any time use or occupy, or suffer or permit anyone to use or occupy, the Demised Premises, or do or permitanything to be done in the Demised Premises, in violation of the Certificate of Occupancy for the Demised Premises or for the Building.3.04. Notwithstanding anything contained to the contrary in this lease, Tenant covenants and agrees that Tenant shall not (1) use or permitany portion of the Demised Premises to be used for the sale, preparation or servicing of food or beverages, or for the sale of merchandise or the rendering ofservices to the public, including, without limitation, employees of Tenant or (2) install, maintain or operate, or permit the installation, maintenance oroperation in the Demised Premises of any vending machine or device designed to dispense or sell food, beverages, tobacco, tobacco products or merchandise ofany kind, whether or not included in the above categories, or of any restaurant, cafeteria, kitchen, stand or other establishment of any type for the preparation,dispensing or sale of food, beverages, tobacco, tobacco products or merchandise of any kind, whether or not included in the above categories, or of anyequipment or device for the furnishing to the public of service of any kind, including, without limitation thereto, telephone pay-stations.3.05. Tenant shall not commit any nuisance on the Demised Premises, or do or permit to be done anything which might result in the creationor commission of a nuisance on the Demised Premises, and Tenant shall not cause or permit to be caused or produced upon the Demised Premises, to permeatethe same or to emanate therefrom, any unusual, noxious or objectionable smoke, gases, vapor, odors, noises or vibrations.ARTICLE 4Early Termination of Lease 4.01 The Tenant has the option to cancel this Lease after the first year by giving three (3) months’ notice, which may be given before theexpiration of the first year. ARTICLE 5Intentionally Omitted2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 6Subordination, Notice To Lessors And Mortgagees 6.01. This lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to the Underlying Lease, allground leases, overriding leases and underlying leases of the Land and/or the Building now or hereafter existing and to all mortgages which may now orhereafter affect the Land and/or the Building and/or any of such leases, whether or not such mortgages shall also cover other lands and/or buildings, to eachand every advance made or hereafter to be made under such mortgages, and to all renewals, modifications, replacements and extensions of such leases andsuch mortgages and spreaders and consolidations of such mortgages. This Section shall be self-operative and no further instrument of subordination shall berequired. In confirmation of such subordination, Tenant shall promptly execute and deliver any instrument that Landlord, the lessor of any such lease or theholder of any such mortgage or any of their respective successors in interest may request to evidence subordination. If, in connection with the obtaining,continuing or renewing of financing, a superior lessor or superior mortgagee or a prospective superior lessor or prospective superior mortgagee shall requestmodifications of this lease as a condition of such financing, Tenant will not unreasonably withhold or delay its consent thereto, provided that suchmodifications do not materially and adversely either increase the obligations of Tenant hereunder or affect the rights of Tenant under this lease.ARTICLE 7 Quiet Enjoyment 7.01. So long as Tenant pays all of the fixed rent and additional rent due hereunder and performs all of Tenant's other obligations hereunder,Tenant shall peaceably and quietly have, hold and enjoy the Demised Premises subject, nevertheless, to the obligations of this lease and, as provided in Article6, to any and all underlying leases and superior mortgages. ARTICLE 8 Assignment And Subletting8.01. Tenant may not sublet or assign. ARTICLE 9 Compliance With Laws And Requirements Of Public Authorities 9.01. Tenant shall give prompt notice to Landlord of any notice it receives of the violation of any law or requirement of public authority, andat its expense shall comply with all laws and requirements of public authorities which shall, with respect to the Demised Premises or the use and occupationthereof, or the abatement of any nuisance, impose any violation, order or duty on Landlord or Tenant, arising from (a) Tenant's use of the Demised Premises,(b) the manner of conduct of Tenant's business or operation of its installations, equipment or other property therein, (c) any cause or condition created by or atthe request of Tenant, other than by Landlord's performance of any work for or on behalf of Tenant, or (d) breach of any of Tenant's obligations hereunder.However, Tenant shall not be so required to make any structural or other substantial change in the Demised Premises unless the requirement arises from acause or condition referred to in clause (b), (c) or (d) above.3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 10 Insurance 10.01. Tenant shall not do or suffer or permit anything to be done in or about the Demised Premises or the Building which would: (a) subjectLandlord to any liability for injury to any person or property (b) cause any increase in the insurance rates applicable to any policies of insurance carried byLandlord covering the Real Property, the Building or the rental income to be derived therefrom or the Building equipment or other property of Landlord, orcause insurance companies of good standing to refuse to insure the aforesaid interests of Landlord in amounts reasonably satisfactory to Landlord (c) result inthe cancellation of any policy of insurance or the assertion of any defense by the insurer to any claim under any policy of insurance maintained by or for thebenefit of Landlord or (d) violate any insurance requirement. 10.02. If, as the result of any failure by Tenant to comply with the terms of Section 10.01, the insurance rates applicable to any policy ofinsurance carried by Landlord covering the Real Property, the Building or the rental income to be derived therefrom or the Building equipment or other propertyof Landlord, shall be increased, Tenant agrees to pay Landlord, as additional rent, within ten (10) days after Landlord's demand therefor, the portion of thepremiums for said insurance attributable to such higher rates.10.03. A. Tenant shall secure and keep in full force and effect throughout the Term, at Tenant's sole cost and expense (a) ComprehensiveGeneral Liability Insurance, written on an occurrence basis, to afford protection in form and in such amount as Landlord may determine but in no event lessthan $1,000,000 combined single limit; (b) insurance upon Tenant's Property, fixtures, furnishings and equipment, including Tenant's Changes, located inthe Demised Premises, in an amount equal to the full replacement value thereof (including an "agreed amount" endorsement), including any increase in valueresulting from increased costs, with coverage against such perils and casualties as are commonly included in "all risk" insurance policies (including breakageof glass within the Demised Premises, sprinkler leakage and collapse); (c) during the course of construction of any Tenant's Changes and until completionthereof, Builder's Risk insurance on an "all risk" basis (including collapse) on a completed value (non-reporting) form for full replacement value covering theinterests of Landlord and Tenant (and their respective contractors and subcontractors) and Ground Lessor in all work incorporated in the Building and allmaterials and equipment in or about the Demised Premises; (d) Workers' Compensation Insurance, as required by law and (e) such other insurance in suchamounts as Landlord reasonably requires from time to time. All such insurance shall contain only such "deductibles" as Landlord shall reasonably approve.The minimum amounts of insurance required under this Section shall not be construed to limit the extent of Tenant's liability under this lease. B. All such insurance shall be written in form and substance reasonably satisfactory to Landlord by an insurance company in afinancial size category of not less than XII and with general policy holders' ratings of not less than A, as rated in the most current available "Best's" insurancereports, or the then equivalent thereof, and licensed to do business in New York State and authorized to issue such policies. Duly executed certificates ofinsurance (including endorsements and evidence of the waivers of subrogation required pursuant to Section 10.04) or, if required by Landlord, certified copiesor duplicate originals of the original policies, together with reasonably satisfactory evidence of payment of the premiums therefor, shall be delivered toLandlord, on or before the Commencement Date. Each renewal or replacement of a policy shall be so deposited at least 30 days prior to the expiration of suchpolicy. 10.04. Each party shall include in each of its insurance policies covering loss, damage or destruction by fire or other casualty (insuring theBuilding and Landlord's property therein and the rental value thereof, in the case of Landlord, and insuring Tenant's Property and the fixtures required to beinsured by Tenant pursuant to Section 10.03 and business interruption insurance in the case of Tenant) a waiver of the insurer's right of subrogation againstthe other party or, if such waiver should be unobtainable or unenforceable, (a) an express agreement that such policy shall not be invalidated if the insuredwaives before the casualty the right of recovery against any party responsible for a casualty covered by such policies, or (b) any other form of permission forthe release of the other party. If such waiver, agreement or permission shall cease to be obtainable without additional charge, then if the other party shall so electand shall pay the insurer's additional charge therefor, such waiver, agreement or permission shall be included in the policy, or the other party shall be namedas an additional insured in the policy, provided, however, that Tenant shall at no time be named a loss payee under any of Landlord's insurance policies.10.05. Each party hereby releases the other party with respect to any claim (including a claim for negligence) which it might otherwise haveagainst the other party for loss, damage or destruction with respect to its property (including rental value or business interruption) occurring during the Termand with respect and to the extent to which it is insured under a policy or policies containing a waiver of subrogation or permission to release liability ornaming the other party as an additional insured, as provided in Section 10.04.4Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.10.06. All insurance required shall name the Landlord as an additional insured. ARTICLE 11 Intentionally Omitted ARTICLE 12 Landlord's Work or Condition of Demised Premises 12.01. Tenant acknowledges that it has inspected the Demised Premises and shall accept same in its current as-is condition, normal wear andtear excepted. ARTICLE 13 Tenant's Changes 13.01. Tenant shall not make any alterations, additions, installations, substitutions, improvements or decorations (hereinafter collectivelyreferred to as "Tenant's Changes") in or to the Demised Premises except as expressly permitted or otherwise approved by Landlord pursuant to the terms andprovisions of this Article.ARTICLE 14Tenant's Property 14.01. All fixtures, equipment, improvements and appurtenances attached to or built into the Demised Premises at the commencement of orduring the Term, whether or not by or at the expense of Tenant, shall be and remain a part of the Demised Premises, shall be deemed the property of Landlordand shall not be removed by Tenant, except as hereinafter in this Article expressly provided. 14.02. All movable partitions, special cabinet work, other business and trade fixtures, machinery and equipment, communicationsequipment and office equipment, whether or not attached to or built into the Demised Premises, which are installed in the Demised Premises by or for theaccount of Tenant, without expense to Landlord, and can be removed without structural damage to the Building, and all furniture, furnishings and otherarticles of movable personal property owned by Tenant and located in the Demised Premises (all of which are sometimes referred to as "Tenant's Property")shall be and shall remain the property of Tenant and may be removed by it at any time during the Term; provided that if any of Tenant's Property is removed,Tenant or any party or person entitled to remove same shall repair to Landlord's satisfaction or pay the cost of repairing any damage to the Demised Premisesor to the Building resulting from such removal.14.03. At or before the Expiration Date, or the date of any earlier termination of this lease, or as promptly as practicable after such an earliertermination date, Tenant at its expense, shall remove from the Demised Premises all of Tenant's Property listed on Exhibit “A”, and shall fully repair anydamage to the Demised Premises or the Building resulting from such removal. Tenant's obligation herein shall survive the termination of the lease. Tenantshall leave all partitions, walls, and other improvements which in Tenant’s sole discretion are considered part of the building.5Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.14.04. Tenant has no obligation to remove any items of Tenant’s Property not listed on Exhibit “A” from the Demised Premises upontermination or expiration of the Lease. Any other items of Tenant's Property (except money, securities and other like valuables) which shall remain in theDemised Premises after the Expiration Date or after a period of fifteen (15) days following an earlier termination date, may, at the option of the Landlord, bedeemed to have been abandoned, and in such case either may be retained by Landlord as its property or may be disposed of, without accountability, atTenant's expense in such manner as Landlord may see fit.ARTICLE 15Repairs and Maintenance 15.01. Tenant shall take good care of the Demised Premises. Tenant, at its expense, shall promptly make all repairs, ordinary orextraordinary, interior or exterior, structural or otherwise, in and about the Demised Premises and the Building, as shall be required by reason of (i) theperformance or existence of Tenant's Changes, (ii) the installation, use or operation of Tenant's Property in the Demised Premises, (iii) the moving of Tenant'sProperty in or out of the Building, or (iv) the misuse or neglect of Tenant or any of its employees, agents, visitors, invitees or contractors; but Tenant shall notbe responsible for any of such repairs as are required by reason of Landlord's neglect or other fault in the manner of performing any of Tenant's Changeswhich may be undertaken by Landlord for Tenant's account or are otherwise required by reason of neglect or other fault of Landlord or its employees, agentsor contractors. Except if required by the neglect or other fault of Landlord or its employees, agents or contractors, or if existing as of the Commencement Date.Tenant at its expense, shall replace all scratched, damaged or broken doors or other glass in or about the Demised Premises and shall be responsible for allrepairs, maintenance and replacement of wall and floor coverings in the Demised Premises and, for the repair and maintenance of all lighting fixtures thereinbeyond customary wear and tear.15.02. Landlord, at its expense, shall keep and maintain the Building and its fixtures, appurtenances, systems and facilities serving theDemised Premises, in good working order, condition and repair and shall make all repairs, structural and otherwise, interior and exterior, as and when neededin or about the Demised Premises, except for those repairs for which Tenant is responsible pursuant to any other provisions of this lease. Notwithstandingthis provision, Landlord shall be responsible for all repairs to the roof and the new HVAC system in the front of the building. Tenant shall be responsible formaintaining the windows in the same condition as they are on the day Landlord closes on its purchase of the Premises.15.03. Except as expressly otherwise provided in this lease, Landlord shall have no liability to Tenant by reason of any inconvenience,annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this lease,or required by law, to make in or to any portion of the Building or the Demised Premises, or in or to the fixtures, equipment or appurtenances of the Buildingor the Demised Premises.6Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 16 Electricity 16.01. Tenant shall purchase electricity directly from the utility and shall pay the bill directly. ARTICLE 17 Intentionally OmittedARTICLE 18 Access. Changes In Building Facilities. Name 18.01. Tenant shall permit Landlord to install, use, replace and maintain pipes, ducts and conduits within the Demised Premises and wherepracticable, within the demising walls, bearing columns and ceilings of the Demised Premises.18.02. Landlord and Landlord's agents shall have the right, upon request (except in emergency under clause (ii) hereof) to enter and/or passthrough the Demised Premises or any part thereof, at reasonable times during reasonable hours, (i) to examine the Demised Premises and to show them to thefee owners, lessors of superior leases, holders of superior mortgages, or prospective purchasers, mortgagees or lessees of the Building as an entirety, and (ii)for the purpose of making such repairs or changes in or to the Demised Premises or in or to its facilities, as may be provided for by this lease or may bemutually agreed upon by the parties or as Landlord may be required to make by law or in order to repair and maintain said structure or its fixtures orfacilities. Landlord shall be allowed to take all materials into and upon the Demised Premises that may be required for such repairs, changes, repainting ormaintenance, without liability to Tenant, but Landlord shall not unreasonably interfere with Tenant's use of the Demised Premises. Landlord shall also havethe right to enter on and/or pass through the Demised Premises, or any part thereof, at such times as such entry shall be required by circumstances ofemergency affecting the Demised Premises or said structure.18.03. Landlord may exhibit the Demised Premises to prospective tenants and others on reasonable notice to Tenant.18.04. Landlord reserves the right, at any time, without incurring any liability to Tenant therefor, to make such changes in or to the Buildingand Real Property and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, and stairways thereof, as it maydeem necessary or desirable.18.05. Landlord may adopt any name for the Building. Landlord reserves the right to change the name or address of the Building at any time.Tenant agrees not to refer to the Building by any name or address other than as designated by Landlord. ARTICLE 19Non-Liability And Indemnification 19.01. Neither Landlord nor any agent or employee of Landlord shall be liable to Tenant for any injury or damage to Tenant or to any otherperson or for any damage to, or loss (by theft or otherwise) of, any property of Tenant or of any other person, irrespective of the cause of such injury, damageor loss, unless caused by or due to the willful acts or gross negligence of Landlord, its agents or employees occurring within the scope of their respectiveemployments without negligence on the part of Tenant, it being understood that no property, other than such as might normally be brought upon or kept in theDemised Premises as an incident to the reasonable use of the Demised Premises for the purpose herein permitted, will be brought upon or be kept in theDemised Premises.7Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.19.02. Tenant shall indemnify and save harmless Landlord and its agents against and from (a) any and all claims (i) arising from (x) theconduct or management of the Demised Premises or of any business therein, or (y) any work or thing whatsoever done, or any condition created in or about theDemised Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to theDemised Premises, or (ii) arising from any negligent or otherwise wrongful act or omission of Tenant or any of its subtenants or licensees or its or theiremployees, agents, visitors, invitees or contractors or subcontractors of any tier, and (b) all costs, expenses and liabilities incurred in or in connection witheach such claim or action or proceeding brought thereon. In case any action or proceeding be brought against Landlord by reason of any such claim, Tenant,upon notice from Landlord, shall resist and defend such action or proceeding at Tenant's expense by counsel reasonably satisfactory to Landlord, without anydisclaimer of liability in connection with such claim.19.03. Except as otherwise expressly provided in this lease, this lease and the obligations of Tenant hereunder shall be in no wise affected,impaired or excused because Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this lease by reason of strike, other labortrouble, governmental pre-emption or priorities or other controls in connection with a national or other public emergency or shortages of fuel, supplies or laborresulting therefrom, acts of God or other cause beyond Landlord's reasonable control. ARTICLE 20 Destruction or Demolition 20.01. If the Building or the Demised Premises shall be partially or totally damaged or destroyed by fire or other cause, then, whether or notthe damage or destruction shall have resulted from the fault or neglect of Tenant, or its employees, agents or visitors (and if this lease shall not have beenterminated as in this Article hereinafter provided), Landlord shall repair the damage and restore and rebuild the Building and/or the Demised Premises, at itsexpense, with reasonable dispatch after notice to it of the damage or destruction; provided, however, that Landlord shall not be required to repair or replace anyof Tenant's Property nor to restore any Tenant's Changes.20.02. If the Building or the Demised Premises shall be partially damaged or partially destroyed by fire or other cause, the rents payablehereunder shall be abated to the extent that the Demised Premises shall have been rendered Untenantable (hereinafter defined) and for the period from the date ofsuch damage or destruction to the date the damage shall be repaired or restored. If the Demised Premises or a major part thereof shall be totally (which shall bedeemed to include substantially totally) damaged or destroyed or rendered completely (which shall be deemed to include substantially completely) Untenantableon account of fire or other cause, the rents shall abate as of the date of the damage or destruction and until Landlord shall repair, restore and rebuild theDemised Premises, provided, however, that should Tenant reoccupy a portion of the Demised Premises during the period the restoration work is taking placeand prior to the date that the same are made completely tenantable, rents allocable to such portion shall be payable by Tenant from the date of such occupancy.20.03. If the Building or the Demised Premises shall be totally damaged or destroyed by fire or other cause, or if the Building shall be sodamaged or destroyed by fire or other cause (whether or not the Demised Premises are damaged or destroyed) as to require a reasonably estimated expenditure ofmore than 30% of the full insurable value of the Building immediately prior to the casualty, then in either such case Landlord may terminate this lease bygiving Tenant notice to such effect within one hundred one hundred twenty (120) days after the date of the casualty. 20.04. No damages, compensation or claim (or other expense, including replacement premises or services) shall be payable by Landlord forinconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building pursuant to thisArticle. Landlord shall use its reasonable efforts to affect such repair or restoration promptly and in such manner as to not unreasonably interfere withTenant's use and occupancy.8Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.20.05. Landlord will not carry insurance of any kind on Tenant's Property or Tenant's Changes, and, except as provided by law or by reasonof its fault or its breach of any of its obligations hereunder, Landlord shall not be obligated to repair any damage thereto or replace the same.20.06. The provisions of this Article shall be considered an express agreement governing any case of damage or destruction of the DemisedPremises by fire or other casualty, and Section 227 of the Real Property Law of the State of New York, providing for such a contingency in the absence of anexpress agreement, and any other law of like import, now or hereafter in force, shall have no application in such case.20.07. The term "Untenantable" as used in this Article shall mean that Tenant is unable to use the Demised Premises or the portion thereof towhich reference is made, for the conduct of its business in the normal course.20.08. In the Event the Owner herein or its successors or assigns intend to demolish the building of which the demised premises are a part (thebuilding of which the demised premises are a part shall be deemed demolished for the purposes of this paragraph even though all or a part of the foundation,or all or a part of the steel structure, roof and exterior walls of the building shall remain) or decide to make a substantial alteration to the building, or to thedemised premises, the Owner herein, its successors or assigns shall have the option to cancel this lease and the term hereof by giving written notice by certifiedmail addressed to the Tenant at the demised premises at least ninety (90) days prior to the effective date as such cancellation ("Cancellation Date") and thislease and the term hereof shall end and expire on the Cancellation Date set forth in such notice as if such date were the date originally set forth herein for the endor expiration of this lease and the term hereunder. The term shall be deemed conditionally limited as herein stated. A statement of intention that the building isto be demolished shall constitute the evidence of such intention to demolish the building and shall accompany the notice of cancellation. On or before suchCancellation Date, Tenant shall vacate the demised premises in condition required at the expiration of the term, and deliver to Owner a written surrender of thislease and general release in favor of Owner. 20.09 If Tenant fails for any reason to vacate the demised premises by the close of business on the Cancellation Date, then Tenant agrees themeasure of damages to be sustained by Owner as a result thereof are substantial, but unascertainable as of the date of execution of this lease and Tenant agreesto pay for use and occupancy of the demised premises $800.00 for each and every day that Tenant shall remain in possession of the demised premises beyondthe Cancellation Date; and if Owner institutes a summary proceeding to evict the Tenant, Tenant consents the issuance of a final judgment in said summaryproceeding, waives any stay of the issuance or execution of the warrant, and consents to an order by the court fixing use and occupancy in the sum of $800.00per day and in addition, Tenant hereby agrees to pay Owner's attorney's fees. Nothing herein contained shall be deemed to constitute consent of Owner toTenant remaining in possession of the demised premises beyond the cancellation date. ARTICLE 21 Eminent Domain 21.01. If the whole of the Building or the Demised Premises shall be lawfully taken by condemnation or in any other manner for any publicor quasi-public use or purpose, this lease and the term and estate hereby granted shall forthwith terminate as of the date of vesting of title in such taking(which date is hereinafter also referred to as the "date of the taking"), and the rents shall be prorated and adjusted as of such date.21.02. If a portion of the Building outside the Demised Premises or only a part of the Demised Premises shall be so taken, then Landlord shallhave the right to terminate this lease by giving Tenant written notice of such election not later than thirty (30) days after the date of such taking. Upon thegiving of such notice by Landlord this lease shall terminate on the date of such taking and the rents shall be prorated as of such termination date. Upon suchpartial taking and this lease continuing in force as to any part of the Demised Premises, Landlord shall promptly repair the Demised Premises (excludingTenant=s Property) and the rents apportioned to the part taken shall be prorated and adjusted as of the date of taking and from such date the fixed rent for theDemised Premises and additional rent shall be payable pursuant to Article 4 according to the rentable area remaining.9Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.21.03. Landlord shall be entitled to receive the entire award in any proceeding with respect to any taking provided for in this Article withoutdeduction therefrom for any estate vested in Tenant by this lease and Tenant shall receive no part of such award, except as hereinafter expressly provided inthis Article. Tenant hereby expressly assigns to Landlord all of its right, title and interest in or to every such award. Notwithstanding anything herein to thecontrary, Tenant may, at its sole cost and expense, make an independent claim with the condemning authority for Tenant's property and for moving expenses,provided, however, that Landlord's award is not thereby reduced or otherwise adversely affected.21.04. In the event of any taking of less than the whole of the Building which does not result in a termination of this lease, or in the event of ataking for a temporary use or occupancy of all or any part of the Demised Premises which does not extend beyond the Expiration Date, Landlord, at itsexpense, and to the extent any award or awards shall be sufficient for the purpose, shall proceed with reasonable diligence to repair, alter and restore theremaining parts of the building and the Demised Premises to substantially a Building standard condition to the extent that the same may be feasible and so asto constitute a complete and tenantable Building and Demised Premises.ARTICLE 22 Surrender 22.01. On the last day of the Term, or upon any earlier termination of this lease, or upon any re-entry by Landlord upon the DemisedPremises, Tenant shall quit and surrender the Demised Premises to Landlord in good order, condition and repair, except for ordinary wear and tear and Tenantshall remove all of Tenant's Property listed on Exhibit “A” therefrom except as otherwise expressly provided in this lease and shall restore the DemisedPremises wherever such removal results in damage thereto.Tenant shall deliver premises on the last day of the Lease or upon any earlier termination of the Lease, vacant and broom clean. ARTICLE 23 Conditions Of Limitation 23.01. This lease and the Term and estate hereby granted are subject to the limitations that: (a) if Tenant shall file a voluntary petition seeking an order for relief under Title 11 of the United States Code, or Tenant shall beadjudicated a debtor, bankrupt or insolvent, or shall file any petition or answer seeking, consenting to or acquiescing in any order for relief, reorganization,arrangement, composition, adjustment, winding-up, liquidation, dissolution or similar relief with respect to Tenant or its debts under the present or any futurefederal bankruptcy act or any other present or future applicable federal, state or other statute or law (foreign or domestic), or shall be unable to, pay its debtsas they become due or shall admit its insolvency or its inability to pay its debts as they become due, or shall make a general assignment for the benefit ofcreditors or shall seek or consent or acquiesce in the appointment of any trustee, receiver, examiner, assignee, sequestrator, custodian or liquidator or similarofficial of Tenant or of all or any part of Tenant's Property or if Tenant shall take any action in furtherance of or authorizing any of the foregoing; or (b) if any case, proceeding or other action shall be commenced or instituted against Tenant, seeking to adjudicate Tenant a bankruptor insolvent, or seeking an order for relief against Tenant as debtor, or reorganization, arrangement, composition, adjustment, winding-up, liquidation,dissolution or similar relief with respect to Tenant or its debts under any present or future federal bankruptcy act or any other present or future applicablefederal, state or other statute or law (foreign or domestic) , or seeking appointment of any trustee, receiver, examiner, assignee, sequestrator, custodian orliquidator or similar official of Tenant or of all or any part of Tenant's property, or if any case, proceeding or other action shall be commenced or institutedagainst Tenant seeking issuance of a warrant of execution, attachment, distraint or similar process against Tenant or any of Tenant's property; or10Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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) if Tenant shall default in the payment when due of any installment of fixed rent or in the payment when due of any additionalrent; or (d) if Tenant shall default in the performance of any term of this lease on Tenant's part to be performed (other than the payment offixed rent and additional rent) and Tenant shall fail to remedy such default as soon as practicable and in any event within ten (10) days after notice byLandlord to Tenant of such default, or if such default is of such a nature that it can be remedied, but cannot be completely remedied within said period of ten(10) days, if Tenant shall not (x) promptly upon the giving by Landlord of such notice, advise Landlord of Tenant's intention to institute all steps necessary toremedy such situation, (y) promptly institute and thereafter diligently prosecute to completion all steps necessary to remedy the same, and (z) complete suchremedy within a reasonable time after the date of the giving of said notice by Landlord and in any event prior to such time as would either (i) subject Landlord,Landlord's agents, superior lessor or superior mortgagee to prosecution for a crime or (ii) cause a default under underlying lease or superior mortgage; or (e) if the Demised Premises shall become vacant or deserted for a period of ten (10) consecutive days or abandoned (and the fact thatany of Tenant's Property remains in the Demised Premises shall not constitute evidence that Tenant has not vacated, deserted or abandoned the DemisedPremises) or if Tenant shall fail to take occupancy of the Demised Premises, or a floor thereof, as the case may be, within 30 days after delivery of possessionthereof; or (f) if Tenant shall default in the performance of any term, covenant, agreement or condition on Tenant's part to be observed orperformed under any other lease with Landlord of space in the Building and such default shall continue beyond the grace period, if any, set forth in such otherlease for the remedying of such default,then, and in any of said events, Landlord may give to Tenant notice of intention to terminate this lease and to end the Term and the estate hereby granted at theexpiration of three (3) days from the date of the giving of such notice, and, in the event such notice is given, this lease and the Term and estate hereby granted(whether or not the Term shall have commenced) shall terminate upon the expiration of said three (3) days with the same effect as if that day were theExpiration Date, but Tenant shall remain liable as provided in Article 25. ARTICLE 24 Re-Entry By Landlord 24.01. If Tenant shall default in the payment of any installment of fixed rent, or of any additional rent, on any date upon which the sameought to be paid, and if such default shall continue for three (3) days after Landlord shall have given to Tenant a notice specifying such default, or if this leaseshall expire as in Article 23 provided, Landlord or Landlord's agents and employees may immediately or at any time thereafter re-enter the Demised Premises,or any part thereof, in the name of the whole, either by summary dispossess proceedings or by any suitable action or proceeding at law, or by force orotherwise, without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any persons therefrom, to theend that Landlord may have, hold and enjoy the Demised Premises again as of its first estate and interest therein. The word re-enter as herein used, is notrestricted to its technical legal meaning. In the event of any termination of this lease under the provisions of Article 23 or if Landlord shall re-enter the DemisedPremises under the provisions of this Article or in the event of the termination of this lease, or of re-entry, by or under any summary dispossess or otherproceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the fixed rent andadditional rent payable by Tenant to Landlord up to the time of such termination of this lease, or of such recovery of possession of the Demised Premises byLandlord, as the case may be, and shall also pay to Landlord damages as provided in Article 23.11Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.24.02 If this lease shall terminate under the provisions of Article 23 or if Landlord shall re-enter the Demised Premises under the provisions ofthis Article, or in the event of the termination of this lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provisionof law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to retain all moneys, if any, paid by Tenant to Landlord, whether asadvance rent, security or otherwise, but such moneys shall be credited by Landlord against any fixed rent or additional rent due from Tenant at the time ofsuch termination or re-entry or, at Landlord's option, against any damages payable by Tenant under Article 25 or pursuant to law. ARTICLE 25 Damages 25.01. If this lease is terminated under the provisions of Article 23 or if Landlord shall re-enter the Demised Premises under the provisions ofArticle 24, or in the event of the termination of this lease, or of re-enter, by or under any summary dispossess or other proceeding or action or any provision oflaw by reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord as damages; The sum equal to the fixed rent and the additional rent (as above presumed) payable hereunder which would have been payable byTenant had this lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein followingsuch termination or such re-entry and until the Expiration Date, provided, however, that if Landlord shall relet the Demised Premises during said period,Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the grossrents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this lease or in re-entering the DemisedPremises and in securing possession thereof, as well as the expenses of reletting, including altering and preparing the Demised Premises for new tenants,brokers' commissions, and all other expenses properly chargeable against the Demised Premises and the rental therefrom; it being understood that Tenant shallin no event be entitled in any suit for the collection of damages pursuant to this Subsection to a credit in respect of any net rents from a reletting, except to theextent that such net rents are actually received by Landlord.25.02 Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at itselection, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the term of this lease would have expired if ithad not been so terminated under the provisions of Article 23, or under any provision of law, or had Landlord not re-entered the Demised Premises.12Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 26 Waivers 26.01. In the event that Tenant is in arrears in payment of fixed rent or additional rent hereunder, Tenant waives Tenant's right, if any, todesignate the items against which any payments made by Tenant are to be credited, and Tenant agrees that Landlord may apply any payments made byTenant to any items it sees fit, irrespective of and notwithstanding any designation or request by Tenant as to the items against which any such paymentsshall be credited.26.02. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on anymatter whatsoever arising out of or in any way connected with this lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the DemisedPremises, including any claim of injury or damage, or any emergency or other statutory remedy with respect thereto. It is further mutually agreed that in theevent Landlord commences any summary proceeding for non-payment of rent, Tenant will not interpose and does hereby waive the right to interpose anycounterclaim of whatever nature or description in any such proceeding. ARTICLE 27 No other Waivers or Modifications 27.01 The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the obligations ofthis lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one ormore obligations of this lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to anysubsequent breach, act or omission. No executory agreement hereafter made between Landlord and Tenant shall be effective to change, modify, waive, release,discharge, terminate or effect an abandonment of this lease, in whole or in part, unless such executory agreement is in writing, refers expressly to this lease andis signed by the party against whom enforcement of the change, modification, waiver, release, discharge or termination or effectuation of the abandonment issought.27.02. The following specific provisions of this Section shall be deemed to limit the generality of any of the foregoing provisions of thisArticle: (a) no agreement to accept a surrender of all or any part of the Demised Premises shall be valid unless in writing and signed byLandlord. The delivery of keys to an employee of Landlord or of its agent shall not operate as a termination of this lease or a surrender of the DemisedPremises. If Tenant shall at any time request Landlord to sublet the Demised Premises for Tenant's account, Landlord or its agent is authorized to receive saidkeys for such purposes without releasing Tenant from any of its obligations under this lease, and Tenant hereby releases Landlord from any liability for lossor damage to any of Tenant's Property in connection with such subletting. (b) the receipt by Landlord of rent with knowledge of breach of any obligation of this lease shall not be deemed a waiver of suchbreach; (c) no payment by Tenant or receipt by Landlord of a lesser amount than the correct fixed rent or additional rent due hereunder shallbe deemed to be other than a payment on account, not shall any endorsement or statement on any check or any letter accompanying any check or payment bedeemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursueany other remedy in this lease or at law provided; (d) no work or repairs performed by Landlord in the Building shall be deemed a constructive eviction of Tenant.13Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 28 Curing Tenant's Defaults, Additional Rent 28.01. (a) If Tenant shall default in the performance of any of Tenant's obligations under this lease, Landlord, without thereby waivingsuch default, may (but shall not be obligated to) perform the same for the account and at the expense of Tenant, without notice, in a case of emergency, and inany other case, only if such default continues after the expiration of (i) three (3) business days from the date Landlord gives Tenant notice of intention so to do,or (ii) the applicable grace period provided in Section 23.02 or elsewhere in this lease for cure of such default, whichever occurs later; (b) If Tenant is late in making any payment due to Landlord from Tenant under this lease for five (5) or more days Tenant shall beassessed a late charge of Two Hundred ($200.00) Dollars each and every time it is late.28.02. Bills for any expenses incurred by Landlord in connection with any such performance by it for the account of Tenant, and bills for allcosts, expenses and disbursements of every kind and nature whatsoever, including reasonable counsel fees! involved in collecting or endeavoring to collect thefixed rent or additional rent or any part thereof or enforcing or endeavoring to enforce any rights against Tenant, under or in connection with this lease, orpursuant to law, including any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings, as well as bills for anyproperty, material, labor or services provided, furnished, or rendered, by Landlord or at its instance to Tenant, may be sent by Landlord to Tenant monthly,or immediately, at Landlord's option, and, shall be due and payable in accordance with the terms of such bills. ARTICLE 29Broker 29.01. Tenant covenants, warrants and represents that there was no broker or finder except NONE (the "Broker") instrumental inconsummating this lease and that no conversations or negotiations were had with any broker or finder except the Broker concerning the renting of the DemisedPremises. Tenant agrees to hold Landlord harmless against any claims for a brokerage, finder or other commission or fee arising out of any conversations ornegotiations had by Tenant with any broker or finder except the Broker. ARTICLE 30 Notices 30.01. Any notice, statement, demand or other communication required or permitted to be given, rendered or made by either party to the other,pursuant to this lease or pursuant to any applicable law or requirement of public authority, shall be in writing (whether or not so stated elsewhere in this lease)and shall be deemed to have been properly given, rendered or made, if sent by registered or certified mail (express mail, if available), return receipt requested,or by courier guaranteeing overnight delivery and furnishing a receipt in evidence thereof, addressed to the other party at the address hereinabove set forth(except that after the Commencement Date, Tenant's address, unless Tenant shall give notice to the contrary, shall be the Building), and shall be deemed tohave been given, rendered or made (a) on the date delivered, if delivered to Tenant personally, (b) on the date delivered, if delivered by overnight courier or (c)on the date which is two (2) days after being mailed. Either party may, by notice as aforesaid, designate a different address or addresses for notices,statements, demand or other communications intended for it. Notices given by Landlord's managing agent shall be deemed a valid notice if addressed and setin accordance with the provisions of this Article. At Landlord's option, notices to Tenant may be sent by hand delivery.14Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 31 Estoppel Certificate, Memorandum 31.01 Tenant agrees, at any time and from time to time, as requested by Landlord, upon not less than ten (10) days, prior notice, to executeand deliver to Landlord a statement certifying (a) that this lease is unmodified and in full force and effect (or if there have been modifications, that the same isin full force and effect as modified and stating the modifications) and whether any options granted to Tenant pursuant to the provisions of this lease have beenexercised, (b) certifying the dates to which the fixed rent and additional rent have been paid and the amounts thereof, and stating whether or not, to the bestknowledge of the signer, the other party is in default in performance of any of its obligations under this lease, and, if so, specifying each such default ofwhich the signer may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by others with whom Landlordmay be dealing. Additionally, Tenant's statement shall contain such other information as shall be required by the holder or proposed holder of any superiormortgage or the lessor or proposed lessor under any underlying lease. ARTICLE 32 No other Representations. Construction, Governing Law. Consents 32.01. Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and deliveringthis lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this lease.32.02. If any of the provisions of this lease, or the application thereof to any person or circumstances, shall, to any extent, be invalid orunenforceable, the remainder of this lease, or the application of such provision or provisions to persons or circumstances other than those as to whom orwhich it is held invalid or unenforceable, shall not be affected thereby, and every provision of this lease shall be valid and enforceable to the fullest extentpermitted by law.32.03. This lease shall be governed in all respects by the laws of the State of New York. Tenant hereby specifically consents to jurisdiction inthe State of New York in any action or proceeding arising out of this lease and/or the use and occupation of the Demised Premises.32.04. Wherever in this lease Landlord's consent or approval is required, if Landlord shall refuse such consent or approval, Tenant in noevent shall be entitled to make, nor shall Tenant make, any claim and Tenant hereby waives any claim for money damages (nor shall Tenant claim any moneydamages by way of set-off, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord unreasonably withheld or unreasonablydelayed its consent or approval. Tenant's sole remedy shall be an action or proceeding to enforce any such provision, for specific performance, injunction ordeclaratory judgment. ARTICLE 33Parties Bound 33.01. The obligations of this lease shall bind and benefit the successors and assigns of the parties hereto (herein sometimes referred to as the"parties") with the same effect as if mentioned in each instance where a party is named or referred to, except that no violation of the provisions of Article 8shall operate to vest any rights in any successor or assignee of Tenant and that the provisions of this Article shall not be construed as modifying the conditionsof limitation contained in Article 23. However, the obligations of Landlord under this lease shall not be binding upon Landlord herein named with respect toany period subsequent to the transfer of its interest in the Building and/or Real Property as owner or lessee thereof and in event of such transfer said obligationsshall thereafter be binding upon each transferee of the interest of Landlord herein named as such owner or lessee of the Building and/or Real Property, but onlywith respect to the period ending with a subsequent transfer within the meaning of this Section.15Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.33.02. Tenant shall look only to Landlord's estate and property in the Building (or the proceeds thereof) and, where expressly so provided inthis lease, to offset against the rents payable under this lease, for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process)requiring the payment of money by Landlord in the event of any default by Landlord hereunder, and no other property or assets of such Landlord or anypartner, member, officer or director thereof, disclosed or undisclosed, shall be subject to levy, execution or other enforcement procedure for the satisfaction ofTenant's remedies under or with respect to this lease, the relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of the DemisedPremises. ARTICLE 34 Adjacent Excavation And construction - Shoring 34.01. If an excavation or other substructure work shall be made upon land adjacent to the Demised Premises, or shall be authorized to bemade, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the Demised Premises for the purpose of doingsuch work as shall be necessary to preserve the wall of or the Building from injury or damage and to support the same by proper foundations without anyclaim for damages or indemnity against Landlord, or diminution or abatement of rent. ARTICLE 35 Miscellaneous 35.01. If the Expiration Date or the date of sooner termination of this lease shall fall on a day which is not a business day, then Tenant'sobligations under Articles 13 and 22 hereof shall be performed on or prior to the immediately preceding business day. Tenant expressly waives, for itself andfor any person claiming through or under Tenant, any rights which Tenant or any such person may have under the provisions of Section 2201 of the NewYork civil Practice Law and Rules and of any similar or successor law of same import then in force, in connection with any holdover proceedings whichLandlord may institute to enforce the provisions of this lease. If the Demised Premises are not surrendered upon the termination of this lease, Tenant herebyindemnifies Landlord against liability resulting from delay by Tenant in so surrendering the Demised Premises, including any claims made by any succeedingtenant or prospective tenant founded upon such delay. In the event Tenant remains in possession of the Demised Premises after the termination of this leasewithout the execution of a new lease, Tenant, at the option of Landlord, shall be deemed to be occupying the Demised Premises as a tenant from month tomonth, at a monthly rental equal to three times the fixed rent and additional rent payable during the last month of the term, subject to all of the other terms ofthis lease insofar as the same are applicable to a month-to-month tenancy. Tenant's obligations under this Section shall survive the termination of this lease. 35.02. Any apportionments or prorations of rent to be made under this lease shall be computed on the basis of a 360 day year, with 12months of 30 days each.35.03. If the fixed rent or any additional rent shall be or become uncollectible by virtue of any law, governmental order or regulation, ordirection of any public officer or body, Tenant shall enter into such agreement or agreements and take such other action (without additional expense to Tenant)as Landlord may request, as may be legally permissible, to permit Landlord to collect the maximum fixed rent and additional rent which may, from time totime during the continuance of such legal rent restriction be legally permissible, but not in excess of the amounts of fixed rent or additional rent payable underthis lease. Upon the termination of such legal rent restriction, (a) the fixed rent and additional rent, after such termination, shall become payable under thislease in the amount of the fixed rent and additional rent set forth in this lease for the period following such termination, and (b) Tenant shall pay to Landlord,if legally permissible, an amount equal to (i) the fixed rent and additional rent which would have been paid pursuant to this lease, but for such rent restriction,less (ii) the fixed rent and additional rent paid by Tenant to Landlord during the period that such rent restriction was in effect.16Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 36 Security Deposit 36.01. Tenant has deposited with Landlord the sum of $24,000.00 by check, subject to collection, as security for the full and punctual performanceby Tenant of all of the terms of this lease. Said sum to be deposited by Landlord in a noninterest bearing account. If Tenant defaults in the performance of anyof the terms of this lease, including the payment of rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extentrequired for the payment of any rent or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of anyof the terms of this lease, including any damages or deficiency in the reletting of the Demised Premises, whether accruing before or after summary proceedingsor other re-entry by Landlord. In the case of every such use, application or retention, Tenant shall, on demand, pay to Landlord the sum so used, applied orretained which shall be added to the security deposit so that the same shall be replenished to its former amount, and any failure by Tenant to pay such sum ondemand shall constitute a default under this lease. In the event of a sale or lease of the Building, Landlord shall have the right to transfer the security to thevendee or lessee and Landlord shall upon such transfer be released by Tenant from all liability for the return of such security; and Tenant agrees to look solelyto the new landlord for the return of said security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security toa new landlord. Tenant shall not assign or encumber or attempt to assign or encumber the money deposited herein as security and neither Landlord nor itssuccessors or assigns shall be bound by any such assignment, encumbrance or attempted assignment or encumbrance. Tenant shall from time to timeincrease the amount of security so the Landlord hold security equal to two (2) months’ rent.ARTICLE 37 Intentionally Omitted ARTICLE 38 Intentionally Omitted ARTICLE 39 Intentionally OmittedARTICLE 40 Landlord's Work 40.1. Landlord shall be under no obligation to bring the Demised Premises into compliance with the Americans with Disabilities Act ("ADA") orwith local laws concerning access for and use by the disabled applicable to the Demised Premises, or to Tenant's particular use or manner of use thereof.17Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.40.2. Tenant shall not make any alterations, additions, installations, substitutions, improvements or decorations (hereinafter collectively referredto as "Tenant's Changes") in or to the Demised Premises except as expressly permitted or otherwise approved by Landlord pursuant to the terms andprovisions of this Article, and Tenant's Work.ARTICLE 41 Environmental 41.1 Except for such use and storage as is conducted by Tenant as of the Commencement Date, Tenant expressly represents that it shall not useor store any hazardous or toxic substances/materials (as identified in any Federal, State or other governmental subdivisions, stature, ordinances, laws, rules orregulations) on the demised premises without first obtaining the express written consent of the landlord after having delivered to landlord a copy of all requiredgovernmental permits, consents and/or approval.IN WITNESS WHEREOF, Landlord and Tenant have duly executed this lease as of the day and year first above written. LANDLORD: 35 WILBUR STREET ASSOCIATES, LLC By:/s/ Authorized Signatory WITNESS:TENANT: BIOSPECIFICS TECHNOLOGIES, CORP. /s/By: /s/ Thomas Wegman Name: Thomas Wegman Title: President Federal Employer I.D. No. _________________________________ TENANT: ADVANCED BIOFACTURES CORP. By: /s/ Thomas Wegman Name: Thomas Wegman Title: President Federal Employer I.D. No. _____________________________18Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 ATENANT’S PROPERTY Two (2) Autoclaves Safes 19Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 10.2 LEASE TERMINATION AGREEMENT THIS AGREEMENT (this “Agreement”) is made as of the 21st day of November 2013 (the “Termination Date”) by and among WILBUR ST.CORP., a New York corporation (“Landlord”), and ADVANCE BIOFACTURES CORP., a New York corporation, and BIOSPECIFICS TECHNOLOGIESCORP., a Delaware corporation ( collectively, “Tenant”). W I T N E S S E T H: WHEREAS, the Landlord desires to transfer ownership of the Premises to a third party buyer (the “Buyer”) as of the Termination Date, and theTenant desires to lease the Premises (defined herein) from Buyer beginning as of the Termination Date; WHEREAS, Landlord and Tenant are parties to that certain Commercial Lease Agreement, dated as of January 30, 1998 (the “Original Lease”), asamended by the Extension and Modification Agreement, dated as of July 1, 2005 (the “First Amendment”), and as amended by the Lease ModificationAgreement, dated as of June 22, 2009 (the “Second Amendment,” and collectively with the Original Lease and First Amendment, the “Lease”), wherebyTenant leases from the Landlord and Landlord leases to Tenant the premises known as 35 Wilbur Street, Lynbrook, New York 11563 (the “Premises”); WHEREAS, the term of the Lease expired as of June 30, 2010 and the Tenant has been leasing the Premises on a month-to-month basis on the sameeconomic terms as the Lease; and WHEREAS, given the sale described above, Tenant wishes to be released from its obligations under the Lease and to terminate the month-to-monthtenancy of the Premises, and Landlord is willing to grant such release and accept such termination, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the mutual receiptand legal sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: 1. Capitalized Terms. All capitalized terms used in this Agreement which are not otherwise defined in this Agreement shall have their respectivemeanings set forth in the Lease. 2. Termination of Tenancy. (a) Effective as of Termination Date, the Lease and the month-to-month tenancy shall be extinguished. Landlord hereby confirms thatthere are no items required to be removed from the Premises, and Tenant shall not be obligated to remove any Tenant improvements, wiring or cabling from thePremises. Notwithstanding any provision contained in the Lease or in this Agreement to the contrary, Tenant shall have no other obligation with respect to therepair or restoration of all or any part of the Premises. All rent and other amounts payable under the Lease shall be apportioned as of the Termination Date. Landlord represents and warrants to Tenant that Landlord has obtained any necessary consents and approvals in connection with the transactionscontemplated by this Agreement, including, without limitation, from Landlord’s principals and the holder of any mortgage which affects the Premises. 3. Release of Tenant. On the Termination Date, Landlord shall accept the termination of the Lease and the month-to-month tenancy of thePremises and release Tenant, its successors and assigns from all claims, obligations and liabilities of every kind or nature whatsoever arising out of or inconnection with the Premises, the Lease and the month-to-month tenancy. Tenant shall have no obligation to make any payments after the Termination Datewith respect to the rent or adjustments thereof, or any taxes or assessments.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. Release of Landlord. Effective on the Termination Date, Tenant shall release Landlord and its successors and assigns from and against anyand all claims, obligations and liabilities of every kind or nature whatsoever arising out of or in connection with the Premises, the Lease, and the month-to-month tenancy. 5. Broker. Landlord and Tenant each represents and warrants to the other that it has not dealt with any broker in connection with thisAgreement, and that, to the best of its knowledge, no broker negotiated this Agreement or is entitled to any fee or commission in connection herewith. Each ofLandlord and Tenant agrees to pay, hold harmless and indemnify the other party, from and against any and all costs, liability and expenses (includingreasonable attorneys’ fees and disbursements and reasonable attorneys’ fees and disbursements incurred in establishing liability under this Section 5 and incollecting amounts payable hereunder) arising in connection with any commissions, charges or other compensation claimed by any broker, finder or like agentclaiming to have dealt with the indemnifying party with respect to the negotiation, execution or delivery of this Agreement, or the above representation beingfalse. 6. Governing Law. This Agreement shall be governed by and construed in accordance with New York law without regard to conflicts of lawprinciples that might direct the application of the law of another jurisdiction. 7. Counterparts. This Agreement may be executed in several counterparts, all of which, taken together, shall constitute one original instrument. 8. Entire Agreement. This Agreement constitutes the entire understanding between the parties concerning the subject matter of this Agreement andsupersedes all prior and contemporaneous agreements and understandings, whether oral or written, express or implied, relating to the subject matter of thisAgreement. 9. No Oral Changes. This Agreement may not be amended orally, but only by a writing duly executed by the parties. 10. Successors and Assigns. This Agreement shall inure to the benefit of, and be binding upon, Landlord and Tenant and their respectivesuccessors and assigns. 11. Confidentiality. Except to the extent required in the Tenant’s reports filed with the Securities and Exchange Commission or as otherwiserequired by law, Landlord and Tenant agree not to issue any public statement, announcement or press release regarding this Agreement or the transactionscontemplated by this Agreement to any party or otherwise disclose the existence or contents of this Agreement or the transactions contemplated by thisAgreement; provided, however, that the foregoing shall not prevent Landlord and Tenant from sharing such information with its partners, employees,attorneys, accountants, consultants and lenders. [Signature Page to Follow.]2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, Landlord and Tenant have duly executed this Agreement as of the day and year first above written. LANDLORD: WILBUR STREET CORP. a New York corporation By:/s/ Thomas L Wegman Name: Thomas L Wegman Title: President TENANT: ADVANCE BIOFACTURES CORP. a New York corporation By:/s/ Thomas L Wegman Name: Thomas L. Wegman Title: President BIOSPECIFICS TECHNOLOGIES CORP. a Delaware corporation By:/s/ Thomas L Wegman Name: Thomas L. Wegman Title: President 3Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 10.18 BIOSPECIFICS TECHNOLOGIES CORP. Non-Employee Director Change of Control Agreement This Non-Employee Director Change of Control Agreement, effective as of September 17, 2013 is entered into by and between BioSpecifics TechnologiesCorp., a Delaware corporation (the “Company”), with its principal offices located at 35 Wilbur Street, Lynbrook, NY 11563, and George Gould (the“Director”).The Director is a non-employee member of the Board of Directors of the Company and the Company and the Director desire to arrange for certain provisionsapplicable in the event that the Director’s service on the Company’s Board of Directors terminates under the circumstances provided herein. Accordingly, the parties hereto agree as follows: 1. Change of Control. For purposes of this Agreement, a “Change of Control” shall mean the occurrence of any one of the following: 1.1. the acquisition by any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934), other than the Company or itsaffiliates, from any party of an amount of the capital stock of the Company, so that such person holds or controls 40% or more of the Company’scapital stock; or 1.2. a merger or similar combination between the Company and another entity after which 40% or more of the voting stock of the surviving corporationis held by persons other than the Company or its affiliates; or 1.3. a merger or similar combination (other than with the Company) in which the Company is not the surviving corporation; or 1.4. the sale of all or substantially all of the Company’s assets or business. 2. Benefits. If the Director’s service on the Board of Directors of the Company is terminated pursuant to a transaction resulting in a Change of Control, thenthe following provisions shall apply: 2.1. Option Vesting. 100% of any options to purchase shares of common stock of the Company then held by the Director, which options are thensubject to vesting, shall, notwithstanding any contrary provision in the option agreement or stock option plan pursuant to which such options had beengranted, be accelerated and become fully vested and exercisable on the date immediately preceding the effective date of such termination. All other termsof the Director’s options shall remain in full force and effect. 2.2. Restricted Stock. If, on the date immediately preceding the effective date of such termination, the Director then holds shares of common stock ofthe Company that are subject to restrictions on transfer (“Restricted Stock”) issued to the Director in a transaction other than pursuant to the exercise ofa stock option, then, notwithstanding any contrary provision in the relevant stock purchase agreement or other instrument pursuant to which theDirector acquired such shares of Restricted Stock, such restrictions shall expire in their entirety on the date immediately preceding the date oftermination and all of such shares of common stock shall become transferable free of restriction, subject to the applicable provisions of federal and statesecurities laws. All other terms of any existing stock purchase or similar document shall remain in full force and effect.Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 10.18 3. Confidentiality Agreement. The Director confirms that as of the date hereof he or she has executed, or agrees that he or she will execute, the Company’sstandard Confidentiality Agreement pursuant to which the Director has agreed to refrain from disclosing the Company’s confidential information as set forthin such Confidentiality Agreement. 4. Miscellaneous. 4.1. Assignment. This Agreement may not be assigned, in whole or in part, by either party without the prior written consent of the other party, exceptthat the Company shall assign its rights and obligations under this Agreement to any corporation, firm or other business entity with or into which theCompany may merge or consolidate, or to which the Company may sell or transfer all or substantially all of its assets, or of which 50% or more of theequity investment and of the voting control is owned, directly or indirectly, by, or is under common ownership with, the Company. In the event of anysuch assignment by the Company, the Company shall not be discharged from its liability hereunder. 4.2. Notices. All notices, requests, demands and other communications to be given pursuant to this Agreement shall be in writing and shall be deemed tohave been duly given if delivered by hand or mailed by registered or certified mail, return receipt requested, postage prepaid, to the addresses set forth atthe beginning of this Agreement or such other address as a party shall have designated by notice in writing to the other party, provided that notice of anychange in address must actually have been received to be effective hereunder. 4.3. Integration. This Agreement is the entire agreement of the parties with respect to the subject matter hereof and supersedes any prior agreement orunderstanding relating to the subject matter hereof. This Agreement may not be superseded amended, supplemented or otherwise modified except by awriting signed by the Director and the Company. 4.4. Binding Effect. Subject to Section 4.1, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors,assigns, heirs and personal representatives. 4.5. Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original and shall together constitute oneand the same instrument. 4.6. Severability. If any provision hereof shall, for any reason, be held to be invalid or unenforceable in any respect, such invalidity orunenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid or unenforceable provision had notbeen included herein. If any provision hereof shall for any reason be held by a court to be excessively broad as to duration, geographical scope, activityor subject matter, it shall be construed by limiting and reducing it to make it enforceable to the extent compatible with applicable law as then in effect. 4.7. Governing Law. This Agreement shall be governed by the laws of the State of New York, without regard to its conflict-of-law provisions. 4.8. Termination. Nothing in this Agreement is intended to or shall modify the nature of the Director’s service as a member of the Board of Directors ofthe Company. The Director may resign as a director at any time and the Board may take action to remove the Director, subject only to the expressprovisions of this Agreement. 4.9. Survival of Obligations; Enforcement. The Director’s duties hereunder shall survive the Director’s service as a member of the Board of Directorsof the Company. The Director acknowledges that a remedy at law for any breach or threatened breach by the Director of the provisions of this Agreementmay be inadequate and the Director therefore agrees that the Company shall be entitled to injunctive relief in case of any such breach or threatenedbreach.2Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as of the date first written above. DIRECTOR /s/ George Gould Name: George Gould BIOSPECIFICS TECHNOLOGIES CORP. By:/s/ Thomas L. Wegman Name: Thomas L. Wegman Title: President Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23Consent of the Independent Registered Certified Public Accounting FirmWe hereby consent to the incorporation of our audit report dated March 6,2014 with respect to the consolidated balance sheets of BioSpecifics TechnologiesCorp. as of December 31, 2013 and 2012, and the related statements of income, stockholders' equity and cash flows for each of the years in the three-yearperiod ended December 31, 2013, 2012, 2011 and our report dated March 6,2014 with respect to internal control over financial reporting as of December 31,2013, in Form 10-K for the year ended December 31, 2013for BioSpecifics Technologies Corp. /s/ Tabriztchi & Co., CPA, P.C. Garden City, NY March 6, 2014 Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO RULES 13a-14(a) AND 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934 I, Thomas L. Wegman, certify that:1.I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2013 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(s) 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; and5.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 7, 2014 /s/ Thomas L. Wegman Thomas L. Wegman President, Principal Executive and Financial Officer Source: BIOSPECIFICS TECHNOLOGIES CORP, 10-K, March 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO RULES 13a-14(b) AND 15d-14(b) OFTHE SECURITIES EXCHANGE ACT OF 1934 AND18 U.S.C. SECTION 1350 The undersigned, Thomas L. Wegman, the President, Principal Executive Officer and Principal Financial Officer of BioSpecifics Technologies Corp. (the“Company”), DOES HEREBY CERTIFY that:1.The Company’s annual report on Form 10-K for the fiscal year ended December 31, 2013 (the “Report”), fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company forthe period covered by the Report.IN WITNESS WHEREOF, the undersigned has executed this certification this 7th day of March, 2014./s/ Thomas L. Wegman Thomas L. Wegman President, 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 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 07, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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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