-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VWKWaffFNJTakQj57rV1eEO7qyjyqd645c74H6tk5OUJjYCheXyisGkSoGzDhz54 PQ9CxO9Brf3UjpIopOMdIQ== 0001016169-05-000022.txt : 20050815 0001016169-05-000022.hdr.sgml : 20050815 20050815135930 ACCESSION NUMBER: 0001016169-05-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050815 DATE AS OF CHANGE: 20050815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTARES PHARMA INC CENTRAL INDEX KEY: 0001016169 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411350192 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32302 FILM NUMBER: 051025239 BUSINESS ADDRESS: STREET 1: 707 EAGLEVIEW BOULEVARD STREET 2: SUITE 414 CITY: EXTON STATE: PA ZIP: 19341 BUSINESS PHONE: 610-458-6200 MAIL ADDRESS: STREET 1: 707 EAGLEVIEW BOULEVARD STREET 2: SUITE 414 CITY: EXTON STATE: PA ZIP: 19341 FORMER COMPANY: FORMER CONFORMED NAME: ANTARES PHARMA INC /MN/ DATE OF NAME CHANGE: 20010604 FORMER COMPANY: FORMER CONFORMED NAME: MEDI JECT CORP /MN/ DATE OF NAME CHANGE: 19960605 10-Q 1 q10_2ndqtr.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2005

Commission File Number 0-20945

ANTARES PHARMA, INC.

A Delaware Corporation IRS Employer ID No. 41-1350192

707 Eagleview Boulevard, Suite 414
Exton, Pennsylvania
19341

(610) 458-6200

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X

The number of shares outstanding of the Registrant’s Common Stock, $.01 par value, as of August 10, 2005, was 41,993,606.

ANTARES PHARMA, INC.

INDEX

		PAGE
PART I. ITEM 1 ITEM 2 ITEM 3 ITEM 4 PART II.	FINANCIAL INFORMATION Financial Statements (Unaudited) Consolidated Balance Sheets, as of June 30, 2005 and December 31, 2004 Consolidated Statements of Operations for the three months and six months ended June 30, 2005 and 2004 Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004 Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures OTHER INFORMATION SIGNATURES	3 4 5 6 12 17 17 19 20

ANTARES PHARMA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	June 30, 2005			December 31, 2004
Assets
Current Assets:
Cash and cash equivalents	$	2,840,499		$	1,652,408
Short-term investments		1,997,713			7,971,625
Accounts receivable, net of allowances of $21,000 and $22,500, respectively		185,231			277,606
Other receivables		132,095			64,359
Inventories		77,874			92,344
Prepaid expenses and other assets		233,878			81,009

Total current assets		5,467,290			10,139,351

Equipment, furniture and fixtures, net		548,044			611,920
Patent rights, net		852,684			947,459
Goodwill		1,095,355			1,095,355
Other assets		357,633			383,518

Total Assets	$	8,321,006		$	13,177,603

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable	$	429,062		$	476,509
Accrued expenses and other liabilities		555,982			626,583
Deferred revenue		491,684			547,006

Total current liabilities		1,476,728			1,650,098

Deferred revenue - long term		2,992,335			3,338,666

Total liabilities		4,469,063			4,988,764

Stockholders' Equity:
Series A Convertible Preferred Stock: $0.01 par; authorized 10,000 shares; 1,500 issued and
outstanding at December 31, 2004		—			15
Series D Convertible Preferred Stock: $0.01 par; authorized 245,000 shares; 33,588 and 63,588
issued and outstanding at June 30, 2005 and December 31, 2004, respectively		336			636
Common Stock: $0.01 par; authorized 100,000,000 shares; 41,993,606 and 40,418,406 issued
and outstanding at June 30, 2005 and December 31, 2004, respectively		419,937			404,184
Additional paid-in capital		94,394,934			94,479,402
Prepaid license discount		(2,600,303	)		(2,698,427	)
Accumulated deficit		(87,225,752	)		(82,575,151	)
Deferred compensation		(534,970	)		(759,342	)
Accumulated other comprehensive loss		(602,239	)		(662,478	)

		3,851,943			8,188,839

Total Liabilities and Stockholders' Equity	$	8,321,006		$	13,177,603

See accompanying notes to consolidated financial statements.

ANTARES PHARMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2005			2004			2005			2004
Revenues:
Product sales	$	386,982		$	434,910		$	793,235		$	906,356
Development revenue		34,710			69,654			82,616			144,962
Licensing fees		56,421			168,803			137,007			329,165
Royalties		14,312			18,013			33,952			36,718

Total revenues		492,425			691,380			1,046,810			1,417,201

Cost of revenues:
Cost of product sales		261,909			359,283			544,537			704,091
Cost of development revenue		6,416			43,517			31,276			44,192

Total cost of revenues		268,325			402,800			575,813			748,283

Gross profit		224,100			288,580			470,997			668,918

Operating expenses:
Research and development		1,083,465			603,990			2,049,586			1,267,963
Sales, marketing and business development		354,258			124,281			641,002			234,333
General and administrative		1,132,616			1,273,263			2,427,941			2,702,438

		2,570,339			2,001,534			5,118,529			4,204,734

Operating loss		(2,346,239	)		(1,712,954	)		(4,647,532	)		(3,535,816	)

Other income (expense):
Interest income		36,726			32,943			79,294			45,612
Interest expense		—			(965	)		—			(79,084	)
Foreign exchange losses		(16,969	)		(9,273	)		(29,754	)		(10,740	)
Other, net		(1,247	)		(337	)		(2,609	)		(4,985	)

		18,510			22,368			46,931			(49,197	)

Net loss		(2,327,729	)		(1,690,586	)		(4,600,601	)		(3,585,013	)

Preferred stock dividends		(50,000	)		(71,429	)		(50,000	)		(71,429	)

Net loss applicable to common shares	$	(2,377,729	)	$	(1,762,015	)	$	(4,650,601	)	$	(3,656,442	)

Basic and diluted net loss per common share	$	(0.06	)	$	(0.05	)	$	(0.11	)	$	(0.11	)

Basic and diluted weighted average common shares outstanding		40,539,760			37,943,664			40,499,032			33,285,470

See accompanying notes to consolidated financial statements.

ANTARES PHARMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net loss	$	(4,600,601	)	$	(3,585,013	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		173,839			318,259
Noncash interest expense		—			75,388
Stock-based compensation expense		93,644			410,494
Amortization of prepaid license discount		98,125			98,125
Changes in operating assets and liabilities:
Accounts receivable		92,334			260,432
Other receivables		(147,692	)		(104,043	)
Inventories		14,470			125,186
Prepaid expenses and other assets		(156,186	)		(189,747	)
Other assets		10,942			(44,400	)
Accounts payable		(23,643	)		61,865
Accrued expenses and other		(53,056	)		(72,773	)
Deferred revenue		(271,979	)		(364,205	)
Due to related parties		—			(143,361	)

Net cash used in operating activities		(4,769,803	)		(3,153,793	)

Cash flows from investing activities:
Purchases of equipment, furniture and fixtures		(76,604	)		(105,640	)
Purchase of short-term investments		(5,955,789	)		(9,961,386	)
Proceeds from maturity of short-term investments		12,000,000			—
Additions to patent rights		—			(104,170	)

Net cash provided by (used in) investing activities		5,967,607			(10,171,196	)

Cash flows from financing activities:
Proceeds from sales of common stock, net		—			13,753,400
Proceeds from exercise of warrants		61,700			847,500
Principal payments on capital lease obligations		—			(25,502	)
Payment of preferred stock dividends		(50,000	)		(21,429	)

Net cash provided by financing activities		11,700			14,553,969

Effect of exchange rate changes on cash and cash equivalents		(21,413	)		12,506

Net increase in cash and cash equivalents		1,188,091			1,241,486
Cash and cash equivalents:
Beginning of period		1,652,408			1,928,815

End of period	$	2,840,499		$	3,170,301

Cash paid during the period for interest	$	—		$	3,696

See accompanying notes to consolidated financial statements.

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2005 and 2004

1.	Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying financial statements and notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Operating results for the three and six-month periods ended June 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

Stock Based Compensation

The Company applies Accounting Principles Board, Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for stock plans. Accordingly, compensation expense has been recognized for restricted stock granted to employees, as discussed in Note 4, but has not been recognized for employee stock options other than the intrinsic value of options when the exercise price of the options was below their fair value on the date of grant. In September 2003 the Company issued stock options to employees at $1.77 per share when the fair value of the stock was $2.20 per share. In the first six months of 2005 and 2004 the Company recognized compensation expense of $82,566 and $85,058, respectively, in connection with the employee stock options granted in September 2003. Had compensation cost been determined based on the fair value at the grant date for stock options under SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation, the net loss applicable to common shares and loss per common share would have increased to the pro-forma amounts shown below:

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net loss applicable to common shares:
As reported	$	(2,377,729	)	$	(1,762,015	)	$	(4,650,601	)	$	(3,656,442	)
Intrinsic value of stock options granted		41,268			42,193			82,566			85,058
Fair-value method compensation expense		(313,744	)		(245,434	)		(638,209	)		(512,270	)

Pro forma	$	(2,650,205	)	$	(1,965,256	)	$	(5,206,244	)	$	(4,083,654	)

Basic and diluted net loss per common share:
As reported	$	(0.06	)	$	(0.05	)	$	(0.11	)	$	(0.11	)
Intrinsic value of stock options granted		—			—			—			—
Fair-value method compensation expense		(0.01	)		—			(0.02	)		(0.01	)

Pro forma	$	(0.07	)	$	(0.05	)	$	(0.13	)	$	(0.12	)

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

2.	Going Concern

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business. The Company had working capital of $3,990,562 and $8,489,253 at June 30, 2005 and December 31, 2004, respectively, and has had net losses and negative cash flows from operating activities since inception.

The Company expects to report a net loss for the year ending December 31, 2005, as development and marketing costs related to bringing future generations of products to market continue. Long-term capital requirements will depend on numerous factors including the status of collaborative arrangements, the progress of research and development programs and the receipt of revenues from sales of products.

The Company’s cash position is currently sufficient to fund operations only through the end of 2005. The Company does not currently have any bank credit lines. If the Company does need additional financing and is unable to obtain such financing when needed, or obtain it on favorable terms, the Company may be required to curtail development of new drug technologies, limit expansion of operations or accept financing terms that are not as attractive as the Company may desire and the Company’s ability to execute its business plan and remain a going concern may be significantly impaired.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

3.	Inventories

Inventories consist of the following:

	June 30, 2005		December 31, 2004
Raw material	$	20,591	$	32,335
Finished goods		57,283		60,009

	$	77,874	$	92,344

4.	Product Warranty

The Company recognizes the estimated cost of warranty obligations at the time the products are shipped based on historical claims incurred by the Company. Actual warranty claim costs could differ from these estimates. Warranty liability activity is as follows:

			Balance at Beginning of Year			Warranty Provisions			Warranty Claims			Balance at June 30
2005			$	30,000		$	5,871		$	5,871		$	30,000
2004			$	50,000		$	1,714		$	1,714		$	50,000

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

5.	Stockholders’ Equity

Common Stock, Options and Warrants

Warrant exercises during the first six months of 2005 and 2004 resulted in proceeds of $61,700 and $847,500, respectively, and in the issuance of 75,200 and 2,980,500 shares of common stock, respectively.

During the first six months of 2005 the Company granted options to purchase a total of 225,000 shares of its common stock. Members of the Company’s board of directors received options to purchase 120,000 shares of common stock at an exercise price of $1.40 per share; James Hattersley, hired as Vice-President of Corporate Business Development during the first quarter, received options to purchase 65,000 shares of common stock at an exercise price of $1.32 per share; and Jack Stover, Chief Executive Officer of the Company, received options to purchase 40,000 shares of common stock at an exercise price of $1.21 per share. All options were granted at an exercise price that equaled the fair value of the Company’s common stock on the date of the grant.

During the six-month period ended June 30, 2004 the Company received net proceeds of $13,753,400 in three private placements of its common stock. A total of 15,120,000 shares of common stock were sold to investors at a price of $1.00 per share. The Company also issued to the investors five-year warrants to purchase an aggregate of 5,039,994 shares of common stock at an exercise price of $1.25 per share. Additionally, warrants for the purchase of 1,612,000 shares of common stock at an exercise price of $1.00 per share were issued to the placement agent as a commission.

During the first six months of 2004 the Company recognized expense of $33,500 in connection with the issuance of 30,000 shares of common stock to a consultant as compensation for services.

During the first six months of 2004 the Company issued warrants to purchase 400,000 shares of the Company’s common stock at an exercise price of $1.18 per share as compensation to non-employees for professional services. The Company recognized expense of $254,997 in 2004 in connection with these warrants.

During the first quarter of 2004 the Company granted to members of the Company’s board of directors options to purchase 101,500 shares of its common stock at exercise prices ranging from $1.06 to $1.45.

Preferred Stock Conversions

In June 2005, 30,000 shares of Series D Preferred Stock were converted into 300,000 shares of common stock. Also in June 2005, all 1,500 outstanding shares of Series A Preferred Stock were converted into 1,200,000 shares of common stock.

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

5.	Stockholders’ Equity (Continued)

Stock-Based Compensation to Chief Executive Officer

Jack E. Stover was appointed President and Chief Operating Officer on July 22, 2004, and was appointed Chief Executive Officer on September 1, 2004, upon the resignation of Roger G. Harrison, Ph.D. The terms of the employment agreement with Mr. Stover included the issuance of options to purchase 500,000 shares of common stock at $0.70 per share and an additional issuance of options to purchase 40,000 shares of common stock at $1.21 per share in January of 2005, with all options vesting over four years. The employment agreement also included the issuance of 100,000 shares of common stock, of which 50,000 shares vested immediately and the remaining 50,000 shares will become fully vested on the first anniversary of his employment. The Company recorded compensation expense of $35,000 related to the shares with immediate vesting and deferred compensation expense of $35,000 related to the shares vesting over one year. The amounts recorded were based on the market value of the stock on the measurement date. The deferred compensation expense is being recognized ratably over the one-year vesting period. Compensation expense of $17,500 was recognized in connection with these shares during the six-month period ended June 30, 2005. Mr. Stover can earn up to an additional 459,999 shares of common stock upon the occurrence of various triggering events. The Company will begin recognizing expense in connection with these additional shares when it becomes probable that a triggering event will be reached.

Roger G. Harrison, Ph.D., was appointed Chief Executive Officer of Antares Pharma, Inc., effective March 12, 2001. Under the terms of the employment agreement with Dr. Harrison, the Company issued 88,000 restricted shares of common stock with a three-year vesting period that became fully vested on March 12, 2004. The Company had recorded deferred compensation expense of $341,000, the aggregate market value of the 88,000 shares at the measurement date.

Compensation expense was recognized ratably over the three-year vesting period. Compensation expense of $23,688 was recognized in connection with these shares during the six-month period ended June 30, 2004. Dr. Harrison resigned as Chief Executive Officer effective September 1, 2004, and on that date entered into an agreement with the Company under which he has provided consulting services.

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

6.	Net Loss Per Share

Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per common share reflects the potential dilution from the exercise or conversion of securities into common stock. The table below discloses the basic and diluted loss per share.

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net loss applicable to common shares	$	(2,377,729	)	$	(1,762,015	)	$	(4,650,601	)	$	(3,656,442	)
Basic and diluted weighted avg common
shares outstanding		40,539,760			37,943,664			40,499,032			33,285,470

Basic and diluted net loss per common share	$	(0.06	)	$	(0.05	)	$	(0.11	)	$	(0.11	)

Potentially dilutive stock options and warrants excluded from dilutive loss per share because their effect was anti-dilutive totaled 20,401,391 and 19,587,700 at June 30, 2005 and 2004, respectively.

The weighted average exercise price of the stock options and warrants outstanding at June 30, 2005 and 2004 was $1.49 and $1.51, respectively.

7.	Industry Segment and Operations by Geographic Areas

The Company is primarily engaged in development of drug delivery transdermal and transmucosal pharmaceutical products and drug delivery injection devices and supplies. These operations are considered to be one segment. The geographic distributions of the Company’s identifiable assets and revenues are summarized in the following tables:

The Company has operating assets located in two countries as follows:

	June 30, 2005		December 31, 2004
Switzerland	$	810,079	$	1,022,485
United States of America		7,510,927		12,155,118

	$	8,321,006	$	13,177,603

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

7.	Industry Segment and Operations by Geographic Areas (Continued)

Revenues by customer location are summarized as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
United States of America	$	83,183	$	112,747	$	188,106	$	229,071
Europe		276,116		462,089		654,957		1,033,720
Other		133,126		116,544		203,747		154,410

	$	492,425	$	691,380	$	1,046,810	$	1,417,201

The following summarizes significant customers comprising 10% or more of total revenue for the three months and six months ended June 30:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Ferring	$	239,752	$	278,960	$	569,803	$	671,152
Solvay		31,048		81,486		81,855		163,955
Diabetic Care Center		49,224		42,607		96,508		83,080
JCR Pharmaceuticals		74,984		84,314		90,484		86,189

8.	Comprehensive Loss

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net loss	$	(2,327,729	)	$	(1,690,586	)	$	(4,600,601	)	$	(3,585,013	)
Change in cumulative translation adjustment		34,835			(10,824	)		60,239			3,843

Comprehensive loss	$	(2,292,894	)	$	(1,701,410	)	$	(4,540,362	)	$	(3,581,170	)

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company develops, produces and markets pharmaceutical delivery products, including transdermal gels, oral fast melting tablets and reusable needle-free and disposable mini-needle injector systems. In addition, the Company has several products and compound formulations under development. The Company has operating facilities in the U.S. and Switzerland. The U.S. operation develops reusable needle-free and disposable mini-needle injector systems and manufactures and markets reusable needle-free injection devices and related disposables. These operations, including all manufacturing and some U.S. administrative activities, are located in Minneapolis, Minnesota and are referred to as Antares/Minnesota. The Company also has operations located in Basel, Switzerland, which consists of administration and facilities for the research and development of transdermal gels and oral fast melt tablet products. The Swiss operations, referred to as Antares/Switzerland, focus on research, development and commercialization. Antares/Switzerland has signed a number of license agreements with pharmaceutical companies for the application of its drug delivery systems and began generating revenue in 1999 with the recognition of license revenues. The Company’s corporate offices are located in Exton, Pennsylvania (near Philadelphia).

The Company operates as a specialty pharmaceutical company in the broader pharmaceutical industry. Companies in this sector generally bring technology and know-how in the area of drug formulation and/or delivery devices to pharmaceutical product marketers through licensing and development agreements while actively pursuing development of their own products. The Company currently views pharmaceutical and biotechnology companies as primary customers. The Company has negotiated and executed licensing relationships in the growth hormone segment (reusable needle-free devices in Europe and Asia) and the transdermal hormone gels segment (several development programs in place worldwide, including the United States and Europe). In addition, the Company continues to market reusable needle-free devices for the home or alternate site administration of insulin in the U.S. through distributors, and has licensed its reusable needle-free technology in the fields of diabetes and obesity to Eli Lilly and Company on a worldwide basis.

The Company is reporting a net loss of $4,600,601 for the six-month period ended June 30, 2005 and expects to report a net loss for the year ending December 31, 2005, as marketing and development costs related to bringing future generations of products to market continue. Long-term capital requirements will depend on numerous factors, including the status of collaborative arrangements, the progress of research and development programs, the receipt of revenues from sales of products and the ability to control costs.

Results of Operations

Critical Accounting Policies

The Company has identified certain of its significant accounting policies that it considers particularly important to the portrayal of the Company’s results of operations and financial position and which may require the application of a higher level of judgment by the Company’s management, and as a result are subject to an inherent level of uncertainty. These are characterized as “critical accounting policies” and address revenue recognition, foreign currency translation, valuation of long-lived and intangible assets and goodwill and accounting for debt and equity instruments, each more fully described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. The Company has made no changes to these policies during 2005.

Three and Six Months Ended June 30, 2005 and 2004

Revenues

Total revenues for the three and six months ended June 30, 2005 were $492,425 and $1,046,810, respectively, compared to revenues for the same prior-year periods of $691,380 and $1,417,201, respectively. The decreases in the second quarter of $198,955, or 29%, and in the first half of $370,391, or 26%, were primarily due to decreases in product sales of $47,928 and $113,121, respectively, development revenue of $34,944 and $62,346, respectively, and licensing fees of $112,382 and $192,158, respectively.

The product sales decrease was primarily due to a decrease in sales of the Medi-Jector Vision™ device and disposable components to the Company’s major European customer who had acquired sufficient disposable products in prior periods. Development revenue decreased for the three months and six months ended June 30, 2005 as compared to the prior-year periods primarily due to development fees related to an agreement that originated and ended in 2004 and changes to the Company’s strategy that reduced the emphasis on licensing early stage technology. Licensing fees decreased mainly due to amortizing remaining deferred revenue over longer periods of time for accounting purposes as a result of increasing the estimated revenue recognition periods of certain existing license agreements.

Cost of Sales

The cost of product sales are related to injection devices and disposable products. Cost of product sales as a percentage of product sales decreased to 68% in the second quarter of 2005 from 83% for the second quarter of 2004, and decreased to 69% for the first six months of 2005 from 78% for the first six months of 2004. The decrease in the second quarter and first half of 2005 cost of sales percentage was mainly due to a decrease in cost of most products resulting from a reduction in allocable overhead expenses, primarily tool based depreciation and other manufacturing efficiencies. In addition, the first six months of 2004 included a write-down for excess inventory related to disposable components used with older injector device models.

The cost of development revenue consists of labor costs, direct external costs and an allocation of certain research and development expenses. Cost of development revenue as a percentage of development revenue was 18% and 38%, respectively, for the three and six-month periods ended June 30, 2005, and for the same periods of the prior year were 62% and 30%, respectively. The decrease in the second quarter of 2005 as compared to 2004 was primarily due to a year-to-date expense allocation made in the

second quarter of 2004 that included expenses related to both the first and second quarters of 2004. The cost of development revenue as a percentage of development revenue for the 2005 six-month period was significantly impacted by a one-time development arrangement that generated approximately $18,000 of revenue at a very small gross margin.

Research and Development

Research and development expenses totaled $1,083,465 and $2,049,586 in the three and six-month periods ended June 30, 2005, respectively, compared to $603,990 and $1,267,963 in the same prior-year periods. The increases in the second quarter and first half of 2005 compared to the same periods of 2004 were primarily due to development projects related to transdermal gels and oral fast melt tablet products and consisted mainly of increases in external costs for studies and analysis work around platform validation and proof-of-concept work.

Sales, Marketing and Business Development

Sales, marketing and business development expenses totaled $354,258 and $641,002 in the three and six-month periods ended June 30, 2005, respectively, compared to $124,281 and $234,333 in the same prior-year periods. The increases in the current year three and six-month periods as compared to the prior-year periods of $229,977, or 185%, and $406,669, or 174%, respectively, are primarily due to increases in payroll and travel expenses resulting from the hiring of a vice president of corporate business development during the first six months of 2005 and the utilization of consultants for various business development projects and marketing related clinical studies.

General and Administrative

General and administrative expenses totaled $1,132,616 and $2,427,941 in the three and six-month periods ended June 30, 2005, respectively, compared to $1,273,263 and $2,702,438 in the same periods of the prior year. The decrease of $140,647, or 11%, in the second quarter of 2005 and the decrease of $274,497, or 10%, in the first six months of 2005 as compared to the same periods in 2004 were due primarily to decreases in professional services and legal fees, partially offset by increases in directors’ costs.

Other Income (Expense)

Net other income (expense) decreased to $18,510 of income in the second quarter of 2005 from income of $22,368 in the second quarter of 2004, and changed to income of $46,931 for the first six months of 2005 from $(49,197) of expense in 2004. The decrease in the second quarter is primarily due to the foreign exchange losses in 2005 of $(16,969) compared to $(9,273) in 2004, partially offset by interest income that increased by $3,783 to $36,726 in 2005 from $32,943 in 2004. In the first half of 2005 compared to 2004 foreign exchange losses increased to $(29,754) from $(10,740), interest income increased by $33,682 to $79,294 from $45,612, and interest expense decreased to zero from $(79,084). The foreign exchange losses increased mainly as a result of the strengthening U.S. dollar against the Swiss Franc and Euro. The interest income increases were due primarily to higher interest rates in 2005 than in 2004. The interest expense decrease in the six-month period was mainly due to expense of $75,388 recognized in 2004 in connection with warrants originally issued to convertible debenture holders that were exercised at a discounted exercise price.

Net Loss Per Common Share

The net loss per common share for the three and six-month periods ended June 30, 2005 of $0.06 and $0.11, respectively, were basically unchanged from the net loss per common share of $0.05 and $0.11, respectively, for the same prior-year periods. The larger losses in each of the 2005 periods were spread across a slightly higher number of weighted average shares outstanding, resulting in a $0.01 increase in the net loss per share for the quarter and no change for the six-month period. The increase in weighted average shares outstanding was mainly due to the private placement that occurred in the first quarter of 2004.

Liquidity and Capital Resources

The Company has not historically, and does not currently, generate enough revenue to provide the cash needed to support its operations, and has continued to operate primarily by raising capital and issuing debt. In order to better position the Company to take advantage of potential growth opportunities and to fund future operations, the Company raised additional capital in the first half of 2004. The Company received net proceeds of $13,753,400 in three private placements of its common stock in which a total of 15,120,000 shares of common stock were sold at a price of $1.00 per share. During the first six months of 2004 the Company also received proceeds of $847,500 in connection with the exercise of warrants for 2,980,500 shares of common stock. During the first six months of 2005 the Company received proceeds of $61,700 in connection with the exercise of warrants for 75,200 shares of common stock.

Total cash and cash equivalents and short-term investments at June 30, 2005 were $4,838,212 compared to $9,624,033 at December 31, 2004. This decrease resulted primarily from funding operating activities in the first half of 2005. If the net cash burn continues at this rate, the Company’s cash and investment reserves will be sufficient to fund operations only through the end of 2005.

The Company does not currently have any bank credit lines. If the Company does need additional financing and is unable to obtain such financing when needed, or obtain it on favorable terms, the Company may be required to curtail development of new drug technologies, limit expansion of operations or accept financing terms that are not as attractive as the Company may desire and the Company’s ability to execute its business plan and remain a going concern may be significantly impaired.

Cash Flows

Operating Activities

Net cash used in operating activities increased to $4,769,803 for the first six months of 2005 from $3,153,793 for the first six months of 2004, a change of $1,616,010. This increase in cash used was due to an increase in net loss net of noncash expenses of $1,552,246 in 2005 compared to 2004 and an increase in cash used for operating assets and liabilities of $63,764 in 2005 compared to 2004.

Noncash expenses decreased by $536,658 to $365,608 in the first six months of 2005 compared to $902,266 in the first six months of 2004. The decrease was due to decreases in depreciation and amortization of $144,420, noncash interest expense of $75,388 and stock-based compensation expense of $316,850.

In the first half of 2005 the cash used to acquire assets and reduce liabilities exceeded the cash provided by the sale or collection of assets and increases in liabilities by $534,810. This net use of cash was comprised mainly of increases in other receivables and prepaid expenses of $147,692 and $156,186, respectively, and a decrease in deferred revenue of $271,979, partially offset by a decrease in accounts receivable of $92,334. The decrease in deferred revenue is due to amortization of previously deferred amounts that exceeded new amounts received and deferred under license or development agreements. The decrease in accounts receivable resulted primarily from the timing of collections versus billings. In the first half of 2004 the cash used to acquire assets and reduce liabilities exceeded the cash provided by the sale or collection of assets and increases in liabilities by $471,046. The main reasons for this were increases in other receivables and prepaid expenses of $104,043 and $189,747, respectively, and decreases in accrued expenses, deferred revenue, due to related parties and other assets of $72,773, $364,205, $143,361 and $44,400, respectively, partially offset by decreases in accounts receivable and inventory of $260,432 and $125,186, respectively, and an increase in accounts payable of $61,865. The decrease in deferred revenue of $364,205 is due to amortization of previously deferred amounts that exceeded new amounts received and deferred under license or development agreements. The decrease in amounts due to related parties was mainly the result of the payment of amounts due to a consulting company owned by the Company’s largest stockholder for services rendered in 2003. The decrease in accounts receivable resulted primarily from the timing of collections versus billings. The decrease in inventory is mainly the result of the timing of purchases of finished goods from the third-party supplier versus shipments to customers. At the end of 2003 the Company had a large amount of finished goods in inventory that was shipped to a customer in early January 2004, while the same level of finished goods inventory did not exist at June 30, 2004.

Investing Activities

In the first six months of 2005 investing activities resulted in an increase in cash and cash equivalents of $5,967,607. This increase was due to proceeds from the maturity of short-term investments of $12,000,000, partially offset by purchases of short-term investments of $5,955,789 and purchases of equipment, furniture and fixtures of $76,604. Investing activities in the first six months of 2004 resulted in a decrease in cash and cash equivalents of $10,171,196. This was due to the purchase of short-term debt securities in the amount of $9,961,386 after receiving proceeds from the private placement of common stock in the first quarter, along with purchases of equipment, furniture and fixtures that totaled $105,640 and expenditures for patent acquisition and development of $104,170.

Financing Activities

Net cash provided by financing activities decreased to $11,700 in the first six months of 2005 from $14,553,969 in the first six months of 2004. In 2005 proceeds of $61,700 from the exercise of warrants was partially offset by a $50,000 preferred stock dividend payment. The cash provided in 2004 was due primarily to net proceeds of $13,753,400 related to private placements of common stock in the first quarter of 2004. Cash was also generated in the first half of 2004 from proceeds from exercise of warrants of $847,500 and was reduced by principal payments on capital lease obligations of $25,502 and payment of preferred stock dividends of $21,429.

On June 30, 2005 all 1,500 shares of Series A Convertible Preferred Stock were converted into 1,200,000 shares of common stock at a conversion price of $1.25 per share. The preferred stock dividends paid in 2005 and 2004 were related to these preferred shares.

New Accounting Pronouncements

In December 2004, the FASB issued FASB Statement No. 123R, Share-Based Payment. Among other items, the standard requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated statement of operations. Note 1 to the Consolidated Financial Statements contains pro forma disclosures regarding the effect on net loss and net loss per share as if the fair value method of accounting for stock-based compensation had been applied. The new standard was originally effective for the first interim or annual reporting period that begins after June 15, 2005. However, the SEC has deferred the effective date of Statement 123R to allow companies to implement the new standard at the beginning of their next fiscal year. The Company expects to implement the new standard beginning with the first quarter of 2006, and to use the modified prospective transition method. Under this method, awards that are granted, modified, or settled after the date of adoption will be measured and accounted for in accordance with Statement 123R, and unvested equity awards granted prior to the effective date will continue to be accounted for in accordance with Statement 123 as they have been for purposes of pro forma disclosures, except that amounts will be recognized in the statement of operations.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary market risk exposure is foreign exchange rate fluctuations of the Swiss Franc to the U.S. dollar as the financial position and operating results of the Company’s subsidiaries in Switzerland are translated into U.S. dollars for consolidation. The Company’s exposure to foreign exchange rate fluctuations also arises from transferring funds to its Swiss subsidiaries in Swiss Francs. The Company also has exposure to exchange rate fluctuations between the Euro and the U.S. dollar. The licensing agreement entered into in January 2003 with Ferring established pricing in Euros for products sold under the supply agreement and for all royalties. The effect of foreign exchange rate fluctuations on the Company’s financial results for the three and six-month periods ended June 30, 2005 and 2004 was not material. The Company does not currently use derivative financial instruments to hedge against exchange rate risk.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

Internal Control over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or “continue” and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements. These statements are only predictions. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance and/or achievements.

Forward-looking statements represent the Company’s expectations or beliefs concerning future events, including statements regarding the Company’s current cash situation, need for additional capital, ability to continue operations, whether the Company will be successful in entering into new strategic relationships, the Company’s ability to attract and retain customers, the Company’s ability to adapt to changing technologies, the impact of competition and pricing pressures from actual and potential competitors with greater financial resources, the Company’s ability to hire and retain competent employees, the Company’s ability to protect and reuse its intellectual property, changes in general economic conditions, and other factors identified in the Company’s filings with the Securities and Exchange Commission. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART II — OTHER INFORMATION

Item 4.

Submission of Matters to a Vote of Security Holders

On April 28, 2005, the Company held an annual meeting of its shareholders. The following items were voted on at the meeting:

•

Dr. Paul Wotton was elected to the Company’s board of directors to serve until the 2008 annual meeting. There were 32,579,178 votes in favor of the proposal, zero votes against the proposal, 60,010 abstentions and zero broker non-votes.

•

The shareholders approved the change in the state of incorporation from the State of Minnesota to the State of Delaware. There were 14,304,753 votes for the proposal, 301,937 votes against the proposal, 36,140 abstentions and 17,996,358 broker non-votes.

•

The shareholders ratified the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2005. There were 32,047,863 votes for the proposal, 248,985 votes against the proposal, 342,340 abstentions and zero broker non-votes.

•

The shareholders approved the proposal to transact other business that may properly come before the meeting. There were 32,258,356 votes for the proposal, 335,856 votes against the proposal, 44,976 abstentions and zero broker non-votes.

Item 6.

Exhibits

(a)

Exhibits

Exhibit No.	Description
10.69	Development Supply Agreement*
31.1	Section 302 CEO Certification
31.2	Section 302 CFO Certification
32.0	Section 906 CEO and CFO Certification

*	The redacted portions of Exhibit 10.69 have been filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment dated August 15, 2005.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized


	ANTARES PHARMA, INC.
August 15, 2005	/s/ Jack E. Stover Jack E. Stover. President and Chief Executive Officer
August 15, 2005	/s/ Lawrence M. Christian Lawrence M. Christian Vice President - Finance, Secretary and Chief Financial Officer

EX-10 2 qtr2_10q.htm 10.69 SUPPLY AGREEMENT

Exhibit 10.69

CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

DEVELOPMENT SUPPLY AGREEMENT

This Development Supply Agreement, effective as of June 22, 2005 (the “Effective Date”), is made by and between **** (hereinafter ****) and Antares Pharma AG, having its principal offices at Geweberstrasse 18, 4123 Allschwil, Switzerland (hereinafter “Antares”).

Antares is in the business of marketing branded pharmaceutical products and has developed an orally disintegrating version of **** (“Product”). Antares desires to have **** develop a manufacturing and testing protocol for the Product and to manufacture quantities of the Product for use in testing to support Antares’ regulatory filing. **** is engaged in the business of commercial manufacturing, formulating and developing pharmaceutical products in finished dosage form. The parties wish to enter into this Agreement to have **** develop and manufacture the Product according to the terms and conditions of this Agreement.

NOW, THEREFORE, in view of this foregoing premise and in consideration of the foregoing premises and in consideration of the mutual covenants set forth below, the parties agree as follows:

1. DEFINITIONS

For the purposes of this Agreement, the following terms shall have the following respective meanings:

1.1 "Development Program" shall mean the program outlined in Appendix 1 hereto.

1.2 “**** Development Activities” shall mean the activities for which **** has agreed to be responsible in the Development Program.

1.3 “Formulation” shall mean the orally disintegrating tablet formulations developed hereunder and the protocols, batch records and all other relevant manufacturing information regarding the same.

1.4 "Product" shall mean an orally disintegrating version of the **** oral tablet.

1.5 “Specifications” means those protocols and standard operating procedures, including without limitation, formulations, processes, quality control, compression, labeling, packaging, finishing, storage and release requirements and/or procedures and all requisite analyses and tests conducted in connection with any of the foregoing, in each instance conforming to cGMP, utilized in the course of the manufacture of the Product as the same are specified in writing by Antares and ****.

**** — Denotes portions omitted pursuant to a request for confidentiality under Rule 24b-2 of the Securities Exchange Act of 1934. A copy of this agreement with the omitted information intact has been filed separately with the Securities and Exchange Commission.

2. CONFIDENTIALITY

The parties acknowledge that the Confidentiality Agreement between the parties dated April 20, 2005 (the “Confidentiality Agreement”) shall continue to govern the parties’ respective obligations to one another with regard to the confidential information each has disclosed to the other and shall continue to disclose to the other in connection with this Agreement. The parties’ respective obligations with regard to any such confidential information shall survive the termination of this Agreement in accordance with the terms of the Confidentiality Agreement.

3. CONDUCT OF DEVELOPMENT PROGRAM

(a) **** will be responsible for performing all tasks associated with the development of Product that are included within the **** Development Activities. It is understood that Antares’ entire financial responsibility with respect to the **** Development Activities are the payments to be made by Antares to **** in accordance with Appendix 1. Any payment shall be made on a non-refundable basis unless otherwise expressly indicated.

(b) In the course of performing the **** Development Activities, **** will provide Antares or its representative with reasonable and prompt, prior notice of all meetings or conferences between **** representatives (including any consultants and other subcontractors) and any regulatory authorities that are involved in review or approval of any step in the development process and will give Antares the right to have representatives attend all such meetings and conferences. Antares acknowledges that the timing of such meetings may be dictated by the regulatory authorities and may not be within the control of **** and that Antares ability to attend such meetings may be affected by the dictates of such authorities.

(c) During the Development Program, **** shall keep Antares or its representative informed on a regular basis of its progress related to the development of Product. In a timely manner and on a regular basis during the Development Program (but no less often than monthly), **** shall provide Antares or its representative with all meeting minutes and relevant data and updated timelines which shall describe **** progress with respect to its development efforts under this Agreement.

(d) Antares or its representative may, at any time Antares reasonably requests and with the prior approval of **** (which approval shall not be unreasonably withheld or delayed), visit the sites of any activities being conducted by **** or by any of its consultants or other subcontractors in connection with the Development Program or any inspections by any federal, state or local regulatory agency relating to the Product. **** shall cause appropriate individuals involved in the Development Program to be reasonably available for consultation with Antares.

(e) It is understood that the nature, sequence and timing of the **** Development Activities as described herein shall not be modified absent the mutual written agreement of **** and Antares. However, the parties agree that the nature of the development process is such that modifications may be desirable or reasonably necessary at certain times and, therefore, the parties will follow the procedures set forth in this subsection (e) to implement any changes

deemed necessary. In the event that either of the parties believes that changes to the Development Program are required, that party shall immediately notify the other party in writing of the exact nature of any desired changes and the specific reasons therefor. If the parties are in agreement that changes to the Development Program should be made, then this Agreement shall be amended by the parties as and to the extent necessary and the appropriate party shall implement such changes in the Development Program. Unless and to the extent otherwise specifically agreed by the parties, any and all cost increases or decreases associated with any agreed upon changes to the Development Program shall be as set forth in such mutually agreed upon amendment to this Agreement.

(f) **** agrees that, at all times during the performance of any of the **** Development Activities, it will act in accordance with cGMP and all United States applicable laws, rules and regulations (including, without limitation, any rules and regulations of the FDA). **** represents and warrants: (i) that it will at all times use commercially reasonable efforts in the conduct of the **** Development Activities, (ii) its facilities and resources are adequate to perform the **** Development Activities, and (iii) that the **** personnel assigned to perform the **** Development Activities under this Agreement have the requisite skills and training to carry out the **** Development Activities in a professional and workmanlike manner.

(g) **** will use commercially reasonable efforts to complete the **** Development Activities within the timelines set forth herein and in Appendix 1. Antares acknowledges and agrees that **** will require certain information and reasonable cooperation from Antares in order to properly perform the **** Development Activities within the timelines set forth herein and in Appendix 1 and that **** is not responsible for delays in its performance caused by Antares’ failure to provide such information and reasonable cooperation to **** in a timely manner.

4. REGULATORY

(a) It is understood that **** will provide Antares with all reasonable assistance with respect to all filings with the FDA including the CMC section of the **** describing the manufacturing process for the Product.

(b) **** agrees, upon request from Antares, promptly to provide Antares with such information as Antares may reasonably require to complete any and all United States regulatory filings and submissions.

(c) Subject to the limitations set forth herein and for the avoidance of doubt, it is understood that Antares will be the owner of the Product **** and will have sole and exclusive rights to market and sell the Product in the United States. **** shall not directly or indirectly, on its own behalf or on behalf of others engage in the development, manufacturing, and/or supply of a solid, orally administered ODT (orally disintegrating tablet) **** dosage form during the term of this Agreement and for a period of one year thereafter provided, however, that if Antares engages **** to provide **** Development Activities that run for a period of at least two years under this Agreement, the latter period shall be extended to run for a period of two years; provided, further however, in the event the agreement is terminated due to a breach of any of

Antares’ obligations hereunder, **** shall not be bound by the foregoing restriction, which shall be null and void.

5. MANUFACTURE

At such time as Antares begins commercialization of the Product, but subject to Antares offering **** the first opportunity to enter into a mutually agreeable Manufacturing Agreement, **** will manufacture the Product in accordance with the terms and conditions of the Manufacturing Agreement.

6. OWNERSHIP OF MATERIALS AND INFORMATION

(a) All data, information, reports and any and all related documentation, which are developed, generated or derived, directly or indirectly, by **** (or by any subcontractor or agent of ****) for Antares during the course of this Agreement (the “Data”), and all inventions, discoveries, formulae (including the Formulation), procedures, any other intellectual property, and any improvements thereto, whether patentable or not, which result or evolve directly, during the course of this Agreement or as a result of the services performed hereunder by **** (or by any subcontractor or agent or ****) (together with any Data relating thereto, the “Inventions”), shall be and remain the sole and exclusive property of Antares if related to the Product; provided, however, any Inventions made, developed or discovered solely by **** (or by any subcontractor or agent of ****) that constitute an invention, improvement or other intellectual property relating to drug delivery technology, formulation (exclusive of the Product itself), analysis or manufacturing process of pharmaceutical products (together with any Data relating thereto, “**** Inventions”), shall be and remain the property of ****, and **** hereby grants to Antares a royalty-free, exclusive worldwide license (including the right to sublicense) to develop, use, manufacture and sell such **** Inventions in connection with the development, use, manufacture, importation, and sale of the Product. Except as specifically set forth herein, neither **** nor its employees or agents shall have or acquire any right, title or interest in Inventions. **** shall promptly disclose in writing to Antares any Inventions. If related to the Product and to the extent not **** Inventions, **** shall assign any and all rights in any Inventions to Antares and shall assist Antares, at no cost to ****, in perfecting its rights in such Inventions.

(b) **** agrees that it will not abandon the prosecution of any patent applications directed to the **** Inventions nor will it fail to make any payment or fail to take any other action necessary to maintain its rights to an issued patent or any other item included in the **** Inventions without providing Antares reasonable notice of its intention to abandon or not maintain such patent or patent application and giving Antares the opportunity to take such action at Antares’ expense whereupon **** shall transfer title to the patent or application to Antares. **** also agrees that it will at all times take all commercially reasonably available steps to prevent the disclosure, misappropriation or misuse of any trade secrets and other non-patented technology included in the **** Inventions. **** and Antares shall each promptly notify the other in writing of any alleged or threatened infringement of patents or patent applications included in the **** Inventions by a **** product of which they become aware. If, in the reasonable judgment of Antares, any such actual or alleged infringement poses a material threat to the development,

commercial viability or success of the Product, Antares shall have the right to prosecute any such infringement using counsel of its selection and **** shall provide Antares with its full support, at Antares cost and expense, including joining in such an action as a co-party plaintiff if required. The cost of such infringement prosecution will be borne by Antares. Any recoveries or damages derived from such action shall also be for the account of Antares, to the extent relating to the Product.

7. TERMINATION

(a) Antares, but not ****, may terminate this Agreement at any time and for any reason at the sole discretion of Antares upon thirty (30) days advance written notice to ****. Upon such termination, Antares shall pay all costs incurred by **** for work performed prior to the effective date of termination, provided **** provides written evidence that such costs have been incurred and such work performed, and for non-cancelable costs incurred by **** and costs associated with concluding any in-process testing and provision of final reports, in accordance herewith through the effective date of such termination. Either party may terminate this Agreement if the other party is in default of any of its material obligations set forth herein, and such breach is not cured within sixty (60) days, which time period shall be reduced to twenty-five (25) days for any default of any monetary obligation, after the breaching party’s receipt of a written notice from the non-breaching party that describes such breach in reasonable detail. Unpaid balances shall bear interest at a rate of 12% per annum unless determined not to be properly payable.

(b) The expiration or termination of this Agreement for any reason shall not relieve the parties of any obligation that accrued prior to such expiration or termination.

8. NOTIFICATION OF SUB-CONTRACT LABS

Insofar as **** anticipates using contract laboratories for some of the activities described in this Agreement, **** shall notify Antares when use of such contract laboratories becomes necessary and subject to Antares’ consent, which shall not be unreasonably withheld, **** may employ such laboratories. **** shall be responsible for assuring that any contract lab used complies with Good Laboratory Practices.

9. WARRANTIES

(a) **** represents and warrants to Antares that it has the full power and authority to enter into this Agreement and to grant to Antares the rights granted hereunder and that this Agreement is enforceable against **** in accordance with its terms, and that the execution and performance of this Agreement by **** is not subject to any restriction of any kind and will not violate any laws, decrees, agreements or the corporate governance and organizational documents of ****, which restriction or violation might have any material adverse effect on the exercise or scope of the rights of Antares hereunder.

(b) **** warrants and covenants that it will perform all of its obligations under this

Agreement in accordance with all applicable United States laws and regulations. Without limiting the generality of the foregoing, **** warrants and covenants that all CTM will meet the Specifications and will have been produced in compliance with cGMPs and that upon delivery any Product supplied hereunder will meet the applicable Specifications and otherwise be as warranted herein and will not be adulterated or misbranded within the meaning of the Food Drug and Cosmetic Act. **** further represents and warrants that neither it nor any of its officers or employees nor anyone providing services to it in conjunction with this Agreement has been debarred under 21 U.S.C.§ 335(a) or (b).

(c) **** further represents and warrants: (i) to its knowledge and belief, its activities under this Agreement and the manufacture, use, sale and importation of the Product will not infringe the intellectual property rights of any party, and (ii) with regard to its activities under this Agreement, it has not received any notice of infringement or potential infringement from any party.

(d) EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, **** MAKES NO EXPRESS OR IMPLIED WARRANTIES OR COVENANTS, STATUTORY OR OTHERWISE, CONCERNING THE DELIVERABLES. WITHOUT LIMITING THE FOREGOING, **** MAKES NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE REGARDING THE DELIVERABLES. Without limiting the foregoing, in no event shall **** shall be responsible for the stability of the Product manufactured in accordance with the Specifications. For the avoidance of doubt, **** will be responsible for testing the stability of the Product.

(e) Antares represents and warrants to **** that, except to the extent that any of the following are the obligations(s) of ****: (a) Antares shall comply with applicable laws and regulations and Antares shall keep **** fully informed of any development that would affect **** manufacturing of the Product hereunder; and (b) any active pharmaceutical ingredient furnished by Antares shall meet required Specifications, be suitable for use in the further processing of the Product, and shall not contain any viruses or other deleterious substances which could contaminate the processing operations of **** or any latent defects. Antares further represents and warrants to **** that it has the full power and authority to enter into this Agreement and to grant to **** the rights granted hereunder and that this Agreement is enforceable against Antares in accordance with its terms, and that the execution and performance of this Agreement by Antares is not subject to any restriction of any kind and will not violate any laws, decrees, agreements or the corporate governance and organizational documents of Antares, which restriction or violation might have any material adverse effect on the exercise or scope of the rights of **** hereunder.

(f) Each Party represents and warrants that neither it nor any persons supervising, administering or performing any obligations pursuant to this Agreement has ever been, is currently, or at any time during the term of this Agreement shall be: (i) excluded, barred from participation in, or sanctioned by any state or federal health care program, including without limitation Medicare or Medicaid; (ii) the recipient of a criminal conviction related to any such health care program; or (iii) under investigation by the FDA for debarment action or debarred

pursuant to the Generic Drug Enforcement Act of 1992, as amended (21 U.S.C. §301 et seq.). No party shall use the services of any person who has been disbarred under the Generic Drug Enforcement Act of 1992, as amended, in any capacity, in connection with any of the Work provided hereunder. It is understood and agreed that this Agreement imposes a continuing obligation upon each party to notify the other of any change of circumstances with regard to this Section.

10. ACCEPTANCE OF SHIPMENTS; NON-CONFORMANCE

(a) **** will manufacture, package and test Product according to the agreed upon procedures and Specifications. **** will notify and obtain written approval from Antares of any and all proposed changes in its manufacturing, packaging or testing procedures relating to Product. All references to Antares in this Article 10 shall include its agent ****.

(b) For each shipment hereunder, **** shall provide a Certificate of Analysis and within thirty (30) days following delivery to Antares, Antares shall have the right to give **** notice of rejection of any shipment that, in whole or part, fails to meet Specifications or which otherwise breaches **** warranties set forth herein. Antares shall at all times supply **** with any evidence it has that relates to whether any Product delivered to Antares by **** is non-conforming as contemplated hereunder. Failure by Antares to give notice of rejection within 30 days of the date of its receipt shall constitute acceptance by it of the shipment to which the notice of rejection would have otherwise applied. In the event of any disagreement between **** and Antares relating to Product conformance with Specifications or **** warranties set forth herein, the parties will use best good faith efforts to reach an amicable resolution of such disagreement. In the event that resolution cannot be reached, a mutually agreed upon, neutral, independent third party laboratory shall be brought in to resolve the disagreement upon the request of either party. The results of the independent laboratory shall be binding on the parties and non-appealable, and the cost of such independent laboratory shall be borne by the party hereunder determined by the independent laboratory to be the non-prevailing party in such disagreement. For any Product properly rejected pursuant to this Section, such Product shall be returned by Antares to **** at **** expense and shall be replaced by **** at no extra charge to Antares, subject to the Antares’ provision to **** of Antares Materials, including any active pharmaceutical ingredient (“API”). In the event **** cannot replace such defective Product, it shall refund to Antares the amount paid therefor. Notwithstanding anything to the contrary contained herein, **** shall not be responsible for any non-conforming Product except to the extent of its negligence or willful misconduct in the performance of its obligations hereunder.

(c) **** will deliver or arrange for the delivery of Product to a destination point designated by Antares, at the expense of Antares, Ex Works (Incoterms 2000), **** loading dock, ****. Title to Product will pass to Antares upon leaving **** loading dock, whereupon Antares will assume all risk of loss or damage.

11. INDEMNIFICATION AND INSURANCE

(a) Antares agrees to indemnify, defend and hold harmless ****, its stockholders, directors, officers, employees and agents from and against any and all claims, losses, liabilities, lawsuits, proceedings, costs and expenses, including without limitation, reasonable attorney’s fees and the cost of recalls (a “Claim”) arising out of or in connection with: (i) injuries and/or death to humans resulting from the use of any materials provided to **** by Antares (including all manufactured products or materials resulting from the provision of **** services hereunder), including, without limitation, claims based on negligence, warranty, strict liability or any other theory of product liability or a violation of applicable laws or regulations, except to the extent that such injuries or violations are the result of **** negligence or willful misconduct in performing the services hereunder or breach of any covenant or agreement hereunder, (ii) negligence or willful misconduct in advertising, labeling, or improper handling and storage by any person other than ****, (iii) any specifications provided by Antares that are incorrect or do not meet FDA approved specifications, or other instructions given by Antares in connection with any materials provided to **** by Antares or **** services provided hereunder, (iv) any misrepresentation by Antares or breach by Antares of any covenant or agreement hereunder or (v) patent infringement relating to any materials provided to **** by Antares or **** services provided hereunder; except to the extent with regard to clauses (i) through (v) above that such Claim arises from an act or occurrence for which **** has indemnified Antares hereunder.

(b) **** shall indemnify and hold harmless Antares and Antares’ affiliates, and its and their stockholders, directors, officers, employees and agents from and against any and all claims, losses, liabilities, lawsuits, proceedings, costs and expenses, including without limitation, reasonable attorney’s fees and the cost of recalls arising out of or in connection with: (i) any negligence or willful misconduct of **** in performing the services hereunder, (ii) any misrepresentation by **** or breach by **** of any covenant or agreement hereunder, or (iii) any claim asserted by a third party that **** in performing the services hereunder has infringed or misappropriated any proprietary or confidential information or intellectual property rights of such third party, except as relate to any materials, specifications or instructions provided to **** by Antares or on behalf of Antares; or (iv) any failure of Product delivered by **** to meet the Specifications except as and to the extent such failure is related to stability of the Product or any defects in the API not attributable to negligent acts or omissions to act by ****; except to the extent with regard to clauses (i) though (iv) above that such Claim arises from an act or occurrence for which Antares has indemnified **** hereunder.

(c) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT DAMAGES OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOST PROFITS OR REVENUES, EXCEPT TO THE EXTENT THAT THEY ARE RELATED TO A CLAIM OF A THIRD PARTY WHICH IS NOT IN PRIVITY WITH EITHER PARTY THAT IS THE SUBJECT OF ONE OF THE ABOVE INDEMNIFICATIONS.

(d) Procedure. Unless and to the extent otherwise specifically provided herein, a party or any of its Affiliates (the “Indemnitee”) that intends to claim indemnification under this

Article shall promptly notify the other party (the “Indemnitor”) of any loss, claim, damage, or liability arising out of any third party claim or action in respect of which the Indemnitee intends to claim such indemnification, and the Indemnitor shall assume the defense thereof with counsel of its own choosing; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of such Indemnitee by the counsel retained by the Indemnitor, in the opinion of an independent counsel chosen by both parties, would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. An Indemnitee shall not be entitled to indemnification under this Article if any settlement or compromise of a third party claim is effected by the Indemnitee without the consent of the Indemnitor.

(e) **** represents and warrants that it has obtained and shall at all times during the term of this Agreement and for at least 3 years following its termination maintain at its own cost and expense, in respect to its performance hereunder: (a) physical damage property insurance on all of the Product **** at all times it is in **** possession and before delivery to the carrier on behalf of Antares. Such insurance shall be in the amount of the full replacement value of all such property and Product; (b) worker’s compensation insurance in accordance with the statutory requirements of ****; and (c) product liability insurance and general liability insurance, including contractual liability insurance, in each case, with a minimum of Five Million Dollars ($5,000,000) per occurrence which includes Antares as an additional insured.

(f) Antares represents and warrants that it has obtained and shall at all times during the term of this Agreement and for at least 3 years thereafter maintain at its own cost and expense product liability insurance with respect to the Product with minimum coverage of Five Million Dollars ($5,000,000) per occurrence and which includes **** as an additional insured.

12. FORCE MAJEURE

Failure of any party to perform its obligations under this Agreement (except the obligation to make payments) shall not subject such party to any liability or place it in breach of any term or condition of this Agreement to the other party if such failure is caused by any cause beyond the reasonable control of such non-performing party, including, without limitation, acts of God, fire, explosion, flood, drought, war, riot, sabotage, embargo, interruption of or delay in transportation, a national health emergency or compliance with any order or regulation of any government entity acting with color of right.

13. GOVERNING LAW

This Agreement shall be governed by and construed in accordance with the laws of the Delaware (exclusive of its conflicts of laws provisions).

14. DISPUTES; ARBITRATION

(a) Except as provided in clause (c) below or in Section 6 with respect to disputes regarding non-conforming shipments, all disputes, controversies or claims arising out of or relating to the operation or interpretation of this Agreement shall be resolved by arbitration before one arbitrator in accordance with the Commercial Rules of the American Arbitration Association. The arbitrator shall be jointly selected by the parties. Any award rendered by the arbitrator shall be final and binding upon the parties and judgment upon any such award may be entered in any court having jurisdiction thereof. Arbitration shall be conducted in Delaware. The parties shall share the costs and expenses of the arbitrator, and each party shall bear its cost of the arbitration including its own attorney fees.

(b) Notwithstanding anything to the contrary contained in this Section, in the event of any breach or threatened breach of this Agreement by either party that the other party believes will cause irreparable harm and damage to it, such party shall be entitled to an injunction, restraining order restraining such breach or threatened breach by the other party and all other remedies which shall be available to it at law or in equity and the parties irrevocably submit to the jurisdiction of any state or federal court sitting in the state of Delaware over any such suit, action or proceeding. The parties irrevocably waive, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

15. NON-SOLICITATION AND HIRING

During the term of this Agreement and for a period of two (2) years thereafter, regardless of the reason for such termination, neither party will, directly or indirectly, without the prior written consent of the other party, solicit or hire, as an employee or independent contractor, any person who is, or was at any time, employed by or under contract with the other party, unless at the time of the solicitation or hiring, at least one (1) year shall have elapsed since the person was last employed by or under contract with the other party.

16. MISCELLANEOUS

(a) Waiver; Integration; Modification. The waiver of the breach of any term or provision of this Agreement shall not operate as or be construed to be a waiver of any other or subsequent breach of this Agreement. This Agreement sets forth the entire agreement between the parties with respect to the subject matter of this Agreement and merges and supersedes all prior discussions, agreements and understandings of every nature between them. No modification or amendment to this Agreement or any other agreement with respect to the subject matter of this Agreement shall be effective unless stated in writing and signed by the parties.

(b) Construction. Whenever the context may require, the singular form of names and pronouns shall include the plural and vice-versa. The section and subsection headings are included solely for the convenience of the parties and shall not be used in the interpretation of this Agreement. No rule of construction shall apply to this Agreement that construes any language, whether ambiguous, unclear or otherwise, in favor of or against any party based on the party that drafted such language.

(c) Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement.

(d) Survival. No termination or expiration of this Agreement shall relieve the parties hereto of any obligation hereunder which by their terms are intended to or may survive the termination or expiration of this Agreement, including but not by way of limitation, the provisions of Sections 2, 4(c), 6, 9, 11, 13, 14, 15, and 16.

(e) Relationship Between Parties. **** relationship to Antares shall be that of an independent contractor. No persons engaged by **** shall be considered under the provisions of this Agreement or otherwise as an employee of Antares. Nothing contained in this Agreement shall create or imply the creation of a partnership between Antares and **** and neither party shall have any authority (actual or apparent) to bind the other. Antares acknowledges and agrees that **** (****) is the agent of Antares, **** has the full power to bind Antares with respect to any action required of Antares hereunder and **** shall be entitled to rely on all actions taken by **** purported to be on behalf of Antares.

(f) Assignment. Except as provided in Section 8 above or in connection with a sale of substantially all of **** assets, **** shall not assign its rights or obligations under this agreement, and any purported assignment shall be null and void and without force or effect.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives.

****		Antares Pharma AG
/s/ ** ** President and CEO/SVP		/s/ Darrio Carrara, PhD Darrio Carrara, PhD Managing Director, Swiss Operations
6/23/2005 Date		June 24, 2005 Date
		Billing Contact:
		Address:
		City, State, Zip:

		Phone:
		Fax:
		Email Address:
		PO Number:

APPENDIX 1 DEVELOPMENT PROGRAM

Development and Manufacture of **** Tablets

****
Contact:

Address:

****
Vice President of CMC Services
****

Phone:
Fax:
Email:

****
****
****

Antares Pharma
Contact:

Phone:
Email:

Holger Kraus
Project Manager
Antares Pharma AG
Gewerbestrasse 18
CH-4123 Allschwil Switzerland
+41 (61) 486 41 45
hkraus@antarespharma.ch

****Contacts:

Corporate Phone:

Corporate Fax:

****
****
****
****
****
****
****

**** Phone:
**** Fax:
Email:

****
****
****

Project number: ****

The proposal is split into three sections:
(A) Project Definition and Scope
(B) Costs
(C) Legal and Signatures

(A) Project Definition and Scope

Antares Pharma AG is planning to file an **** tablet product with the objective being to develop an orally disintegrating version of the **** oral tablet. Antares requires **** to develop the orally disintegrating tablet formulation version of the ****. **** will manufacture one (1) **** of approximately **** tablets for the **** strength and manufacture one (1) **** of approximately **** tablets for the **** strength if the filing is an ****.

Antares Pharma AG (“Antares”) has contracted with **** (**** ) to oversee the pharmaceutical development program.

“Product” is defined as **** in Section 1.4.

**** tablets is a **** drug indicated for relief of the signs and symptoms of ****. **** was developed by ****.

****, an **** derivative, is a member of the **** and is structurally related to ****. Each **** tablet contains **** for oral administration. **** is chemically designated as ****. The molecular weight is ****.

**** is a **** solid, **** in water, with higher solubility observed in ****. It is very slight soluble in ****. **** has an apparent partition coefficient = ****. **** has pKa ****.

The inactive ingredients in **** tablets include ****.

Antares will supply:

•
•
•
•
•

API — (****) with Certificate of Analysis (C of A) and Material Safety Data Sheet (MSDS)
Reference standard and impurities
Innovator Product – up to 3 lots
Technical data package including methods, if any and formulation
Analytical methods for API with validation package, if available

**** will order and invoice to Antares:

•
•
•
•
•

Excipients with C of A and MSDS
Packaging components with Certificate of Compliance (C of C) and MSDS
Analytical columns
Tooling per **** specifications - up to 40 stations per set
Blister tooling

**** Services:

1.	Materials: ** will order sufficient materials for all activities in this proposal. will use stock excipients where possible and will bill for materials and testing at the completion of this contract.**

1.1

**** – **** will receive on C of A and perform full release testing. **** will perform I.D. testing on any non GMP batches of API received.

1.2

Excipients – **** will receive on C of A and perform USP full release testing.

1.3

Packaging components – **** will receive on C of C and perform USP full release testing.

2.	Formulation Development

2.1

**** will develop a discriminating dissolution method and will perform dissolution testing of innovator product – up to three (3) lots to use for comparative dissolution screening.

2.2

**** will provide the formulation for each strength, which is a direct compression.

2.3

**** will prepare a development protocol and have signed by **** prior to initiating development activities.

2.4

Manufacture of two (2) prototypes- one (1) x **** and one (1) x **** at approximately **** tablets in scale. **** will test for the following:

2.4.1

Dissolution Profile if not provided by Antares

2.4.2

Physical Appearance

2.4.3

Assay and Related Substances

2.4.4

Content Uniformity

2.4.5

Disintegration

2.4.6

Moisture by KF

2.4.7

Blend Uniformity

2.4.8

Bulk / Tap Density

2.4.9

Tablet Compression Characteristics (= Tablet properties? See §2.4.11 here below)

2.4.10

Taste Masking Evaluation to be performed by Antares – development samples will be sent to Antares. Results will be provided to **** within one (1) week of receipt of samples in order to maintain project time lines.

2.4.11

Tablet properties (weight variation, hardness, thickness, friability and disintegration)

2.5

**** will perform tablet compression studies on the two (2) tablet strengths.

2.6

The **** prototype will be placed on accelerated stability in two (2) package configurations (aclar blisters and foil/foil blisters) at 40°C/75% RH and will be tested at 1, 2 and 3 months for dissolution and assay and related substances, moisture, appearance and tablets properties. (Total two (2) batches on stability – 1 prototype in 2 package configurations)

Condition	Initial	1 Month	2 Months	3 Months
40°C/75%RH	X	X	X	X
25°C/60%RH		0	0	0

0-Optional

Decision Point 1: ****, Antares and **** will review the one (1) month stability data to

move forward with the manufacture of the feasibility batch.

Decision Point 2: ****, Antares and **** will review the two (2) month stability data to order the blister tooling (aclar with foil backing or foil/foil).

NOTE: **** will package in blister cards with in house tooling for the development batches in aclar and foil/foil . Tooling will have to be ordered immediately once final formulation and tablet weight, thickness confirmed so prototypes can be sent to blister tooling manufacturer.

3.	Manufacture of the Feasibility/Scale-Up Batches of the ** strengths (Batch sizes will be approximately tablets per batch)**

3.1

All materials used for the manufacture of the feasibility batches will be released by I.D. unless otherwise specified by ****. See Materials: Sections 1.1 & 1.2

3.2

**** will prepare feasibility batch records and document all activities in the project notebook.

3.3

Operators will wear respirators.

3.4

**** will use the following equipment train:

•

V-Blender

•

Tablet Press

3.5

**** will perform the following in-process testing on the feasibility batches (to be confirmed by ****):

•

Blend Uniformity Assay

•

Bulk and Tap Density

•

Sieve Analysis

•

Tablet properties (weight variation, hardness, thickness, friability and disintegration)

3.6

**** will perform the following finished product testing on the feasibility batches:

•

Appearance

•

Moisture

•

Content uniformity of dosage units

•

Dissolution profile

•

HPLC assay and related substances

•

Disintegration

4.	Manufacture of the one (1) and the one (1) if ** filing – Batch sizes will yield approximately tablets per batch**

4.1

All materials used for the manufacture of the Batches will be fully released by **** unless otherwise specified by ****. See Materials: Sections 1.1 & 1.2

4.2

**** will prepare Master Batch Records that will be approved by **** at least one (1) week prior to manufacture of the Batches.

4.3

The Batches will be manufactured under cGMP conditions as directed in the Master Batch Records.

4.4

Operators will wear respirators.

4.5

**** will remove periodic samples per the agreed sampling protocols.

4.6

Based on the experience gained from Formulation Development and Feasibility Batches (See Sections 2 and 3), **** will manufacture one (1) **** (**** strength) and one (1) **** (**** strength) of **** tablets if **** filing. The batches will yield approximately **** tablets per batch.

4.7

**** will use the following equipment train:

•

V-Blender

•

Tablet Press

4.8

**** will perform the following in-process testing on the batches (to be confirmed by ****):

•

Blend Uniformity Assay

•

Bulk and Tap Density

•

Sieve Analysis

•

Tablet properties (weight variation, thickness, hardness, friability and disintegration)

4.9

**** will perform the following finished product testing on the batches or as per mutually agreed upon by **** and **** (should meet Master Specifications):

•

Appearance

•

Moisture

•

Content uniformity

•

Dissolution profile

•

HPLC assay and related substances

•

Disintegration

4.10

**** will store, monitor and test the stability of the batches per the **** approved protocols (See Section 6).

5.	Packaging and Labeling of Batches

5.1

Materials: See Section 1.3.

5.2

Packaging and labeling protocols will be prepared by **** one (1) week prior to the manufacture of the batches.

5.3

The batches will be packaged per **** approved packaging protocols.

5.3.1

Blisters of 10 (ten) tablets with three (3) cards per carton (total 30 tablets)

5.4

The batches will be labeled with ink-jetted lot numbers per **** approved labeling protocols.

5.5

Any remaining tablets will be stored in bulk.

6.	Stability of Batches and ****

6.1

**** will monitor and test, using **** approved stability protocol, the stability of **** and finished product; the stability program is to be initiated as soon as the tablets are manufactured and packaged.

6.2

Stability of the Packaged Product:

6.2.1

The packaged batches of **** tablets (**** strengths) will be set down on stability in blisters. Number of batches will be confirmed once **** has decision from FDA on filing type (e.g. ****). There will be two (2) batches set on stability.

6.2.2

Stability protocols will be developed per ICH guidelines. The stability protocols will include a **** long term stability at 25°C+/-2°C /60% +/-5% RH (25°C/60% RH) and a **** accelerated stability at 40°C+/-2°C /75% +/-5% RH (40°C/75% RH). **** may elect to include a 12 month intermediate stability at 30°C+/-2°C /65% +/-5% RH (30°C/65% RH) in the protocol. Sufficient samples will be placed on stability to meet the stability protocol requirements.

6.2.3

The packaged product on stability will be tested at **** months at 40°C/75% RH and **** months at 25°C/60% RH. Samples stored at 30°C/65% RH will be tested if significant change occurs at the accelerated conditions or by **** request.

Condition	Initial **	****	****	****	****	****	****	****	****	****
25°C/60%RH		0	0	X	X	X	X	X	X	X
40°C/75%RH	X	X	X	X	0
30°C/65%RH*				0	0	0	0
* Optional, will be initiated subsequent to failure at 40°C/75% RH or at **** request
**Release data will be used at Time 0 (initial) if stability is initiated within one (1) month of production

6.3

****:

6.4

Stability Tests:

6.4.1

The following tests will be performed on the batches if not specified in the approved protocol otherwise: (**** will confirm testing)

•

Moisture (KF)

•

Physical Appearance

•

Assay and related substances

•

Dissolution

•

Disintegration

•

Leak Testing

•

Moisture permeation

•

Container/Closure

•

Tablet properties (weight variation, hardness, thickness, friability and disintegration)

6.5

General Stability Support:

6.5.1

**** will prepare stability protocols and **** and Antares will review and approve the stability protocols one (1) week prior to initiation of stability study.

6.5.2

**** will complete stability testing within thirty (30) calendar days from the scheduled pull date. **** and Antares will be notified in writing of any testing that will not be completed in this time frame.

6.5.3

**** will provide to **** and Antares test results upon completion at each stability time point and not later than forty-five (45) calendar days from the scheduled pull date.

6.5.4

**** and Antares will be notified of any Out-of-Specification (OOS) Result within three (3) days of completion of Phase I Investigation when the OOS Result was confirmed. Investigations will be billed to Antares based upon work scope.

**** will provide to **** and Antares an updated stability summary table after each stability time point.

7	Analytical Support

7.1

**** will develop and validate the following analytical methods:

•

Cleaning

•

Assay and related substances for drug product

•

Dissolution for drug product

7.2

**** will perform validation of the following methods:

•

HPLC Assay and Related Substances for API

•

Residual Solvents for API

7.3

Innovator (Reference) Product Testing concurrent with the ****

•

Dissolution Profile at n=12

•

Content Uniformity at n=30

•

Assay and Related Substances

Note: Any additional analytical methods will be covered under a separate change order.

8	Filing Documentation

8.1

Master Specifications

8.2

Validation Reports

8.3

Master and Executed Batch Records

8.4

Master Labels

8.5

Stability Reports

**** shall be owned by Antares, and **** submission will be the responsibility of **** (subject to the approval and authorization of Antares).

9	Project Management

9.1.

**** will provide project management including project team meetings, summary status reports, conference calls, project coordination and on site visits.

10.

General Support

10.1.

**** will coordinate the preparation of Batch Records and they will be signed one (1) week prior to manufacturing; **** will coordinate the preparation of packaging and labeling protocols.

10.2.

**** will be responsible for report writing and issuance of the final report, and the final reports will be jointly approved by **** and ****.

10.3.

cGMP batch records will be prepared by **** and approved by ****.

10.4.

Method Validation or Transfer Protocols for the drug product will be prepared by **** and approved by ****, if required.

10.5.

**** Quality Assurance Department will audit and ensure cGMP compliance for the manufacturing of the ****.

10.6.

Waste from the manufacturing process will be incinerated. Any unused excipients will be destroyed after expiry date, as it arises.

10.7.

Dedicated excipients and packaging components will be destroyed six (6) months after completion of the manufacturing campaign. If **** elects for **** to store the materials longer than six (6) months then there will be a storage charge of $200 per month per ****.

10.8.

Legal support required for execution of agreements will be provided by ****.

10.9.

**** will prepare necessary documentation for **** submission. However, the **** submission will be the responsibility of ****.

Timing and Project Initiation:

The project will commence upon receipt of the signed contract, the drug substance, and the initiation payment, thereafter payments are due thirty (30) days from the date of invoice.

Wire transfer information:

****
****
ABA: ****
A/C #: ****

Timing — Timing will be finalized once the contract is signed but will be in line with **** needs.

Microsoft Project timeline will be provided once contract is signed.

Month 1:

Receive API, signed contract, initiation payment
Initiate formulation development activities
Initiate cleaning method development
Initiate analytical method development
Initiate technical transfer document

Months 2 / 3:

Develop discriminating dissolution method and perform dissolution testing of innovator product
Manufacture of prototypes
Send development samples to **** for taste masking evaluation and results to be provided to **** one (1) week after receipt of samples
Place prototypes on stability (**** set date is preferred)
Develop drug product methods

Months 3 / 4 / 5:

Validate drug product methods
Manufacture feasibility batches (week of **** is preferred)
Prepare Master Batch Records
Order tablet and blister tooling (**** deadline preferred)

Month 5 / 6:

Manufacture **** (Week of **** is preferred)
Package ****
Place product on stability in one (1) package configuration

Month 7 / 8 / 9:

Provide **** documentation to ****.

(B) Cost:

Stability is charged at **** for the active per pull point including testing and storage. The stability activities and associated costs are listed in the table below along with the additional cost

of testing the 30(Degree)C/65% RH samples according to the stability protocol should **** at the request of Antares elect to test such samples (“optional cost”).

Stability Activity Cost Table
Activity	****Cost
Monitor, test & store up to three (3) years per protocol: 1. Six (6) month stability program
• Packaged product stability program for two (2) active batches at the following storage conditions: 25°C/60% RH at 3 and 6 months and 40°C/75% RH at 1, 2, and 3 months. (5) pull points x (2) active batches x (1) packaging configuration x ****	****
Packaged product stability program for one (1) active batch at warehouse conditions at 1, 3 and 6 months. (3) pull points x (2) active batches x (1) packaging configuration x ****
	****
2. Additional stability program beyond six (6) months
• Packaged product stability program for two (2) active batches at the following storage conditions: 25°C/60% RH at ** months. (5) pull points x (2) active batches x (1) packaging configuration x **	****
3. Contingency stability cost for 30°C/65% RH storage condition
• Each condition charged at **** per pull point per active batch
Total Project Cost	****

Stability Study Payment Schedule

Invoice Issue Date		Amount Due for ****
Stability Set	Initiation Fee (non-refundable up to three (3) months)	****
Month ****	**** month pull point	****
Month ****	**** month pull point	****
Month ****	**** month pull point	****
Month ****	**** month pull point	****
Month ****	**** month pull point	****
Month ****	**** month pull point	****
Total		****

Stability Study Payment Schedule for Bulk Stability

Invoice Issue Date		Amount Due	Invoice Date and #
Stability Set	Initiation Fee (non-refundable up to three (3) months)	****
Total		****

NOTE: Release testing will be considered time 0; however, if the product is not set within thirty (30) days of manufacturing then the initial time point will be required. This cost is not included in this table; therefore, **** will invoice Antares separately for the initial time point.

The Cost Table below lists the cost of each step of the program. If **** and **** with the authorization of Antares mutually agree in writing that additional man-hours are required for completion of a step, **** shall invoice such additional man-hours to Antares provided however, such invoice describes in detail the additional work conducted by ****.

Activity for Orally Disintegrating Tablet – ** Strengths –** Submission		****
Section 1:	Materials
1.1	API - full release testing will be charged - estimated **** / lot	$TBC
1.2	Excipients - full release testing will be charged - estimated ** / lot; ** will use stock excipients where applicable and may opt to charge on a per Kg basis.	$TBC
1.3	Packaging Components - release testing will be charged - estimated ** / lot; ** will use stock components where applicable and may opt to charge on a per component basis.	$TBC
Section 2:	Formulation Development
2.1	Comparative dissolution of innovator product - 3 lots x **** per lot x 2 strengths	****
2.2	Manufacture of two (2) prototype batches including testing, **** for direct compression to repeat current formulation process	****
2.3	Stability - 3 time points x **** x 1 strength x 2 package configurations	****
Section 3:	Manufacture of Feasibility Batches – two (2) batches (one of each strength) - **** per batch for direct compression	****
Section 4:	Manufacture of ****
4.6	Manufacture of one (1) ** () and one (1) () of approximately tablets each - total two (2) batches for submission. (** per batch for direct compression)	****
Section 5:	Packaging and Labeling of ****
5.3	Packaging of one (1) ** into one (1) package configuration and one (1) into one (1) package configuration for submission with a total of two (2) batches - - ** per batch.	****
5.4
Section 6:	Stability of ****
6.2
6.2	Stability of Packaged Product - 10 time points x **** x 2 strengths x 1 batch	****
6.3	****	****
Section 7:	Analytical Support
7.1	Analytical Method Development and Validation
	• Cleaning – method validation	****
	• Assay for drug product	****
	• Dissolution for drug product	****
7.2	Validation of API Methods
	• Assay and Related Substances
	• Residual Solvents	****
7.3	Innovator Testing	****
		****
Section 8:	**** Documentation	****
Section 9:	Project Management	****
Section 10:	General Support	****
Total		****

Non-Stability Payment Schedule

Invoice Issue Date	Section Reference	Activity	Amount Due for ****
****	8,9,10	Initiation Payment	****
****	7	Cleaning method validation	****
****	2	Completion of Innovator Testing and Manufacture of Two Prototypes	****
****	2	Stability Initiation of Prototypes (non refundable up to 3 months)	****
****	3	Completion of feasibility batches	****
****	4	Master Batch Records	****
****	4	Executed Batch Records	****
****	5	Executed Packaging and Labeling Protocols	****
****	7	Method Validation Protocols for Drug Product	****
****	7	Method Validation Reports for Drug Product	****
****	7	Method Validation Protocols for API	****
****	7	Method Validation Reports for API	****
****	7	Innovator Testing	****
****	1	Materials & Testing	****
Total			****

In addition to the above costs, Antares shall pay to **** upon receipt of **** invoice for all non-capital materials (excipients, packaging components, HPLC columns, analytical standards, microbial testing and tooling) used in the study at cost plus 10%. **** shall obtain Antares’ prior written approval for any expenditure greater than ****. For high priced items more than ****, **** will charge cost plus 5% to Antares. **** shall invoice Antares for all reasonable and normal out-of pocket travel related expenses, including airfare, room & board, car rental and the like, of **** during any technology transfer phase or project update meetings requested in advance by Antares and ****.

Shipments outside of Service Contract work scope will be invoiced as per the following:

a)	Shipment requests with three (3) days notice will be charged at **** plus shipping costs and a 10% service charge on shipping.

b)	Shipment requests with two (2) days notice will be charged at **** plus shipping costs and a 10% service charge on shipping.

c)	Shipment requests with twenty-four (24) hours notice will be charged at **** plus shipping costs and a 10% service charge on shipping.

EX-31 3 exhibit31_1.htm

Exhibit 31.1

Section 302 CEO Certification

I, Jack E. Stover, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Antares Pharma, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 15, 2005

/s/ Jack E. Stover
Jack E. Stover
President and Chief Executive Officer

EX-31 4 exhibit31_2.htm

Exhibit 31.2

Section 302 CFO Certification

I, Lawrence M. Christian, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Antares Pharma, Inc.;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 15, 2005

/s/ Lawrence M. Christian
Lawrence M. Christian
Vice President – Finance, Secretary and Chief Financial Officer

EX-32 5 exhibit32.htm

Exhibit 32.0

ANTARES PHARMA, INC.

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

Each of the undersigned, Jack E. Stover and Lawrence M. Christian, the Chief Executive Officer and the Chief Financial Officer, respectively, of Antares Pharma, Inc. (the “Company”), individually and not jointly has executed this Certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005 (the “Report”).

Each of the undersigned hereby certifies that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this Certification as of the 15th day of August, 2005.

	/s/ Jack E. Stover Jack E. Stover President and Chief Executive Officer
	/s/ Lawrence M. Christian Lawrence M. Christian Vice President - Finance, Secretary and Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

FORM 10-Q

For the quarterly period ended June 30, 2005

ANTARES PHARMA, INC.

ANTARES PHARMA, INC.

INDEX

ANTARES PHARMA, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)

ANTARES PHARMA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

ANTARES PHARMA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

ANTARES PHARMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2005 and 2004

ANTARES PHARMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) June 30, 2005 and 2004

ANTARES PHARMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) June 30, 2005 and 2004

ANTARES PHARMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) June 30, 2005 and 2004

ANTARES PHARMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) June 30, 2005 and 2004

ANTARES PHARMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) June 30, 2005 and 2004

Overview

Results of Operations

Liquidity and Capital Resources

New Accounting Pronouncements

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

PART II — OTHER INFORMATION

DEVELOPMENT SUPPLY AGREEMENT

1. DEFINITIONS

2. CONFIDENTIALITY

3. CONDUCT OF DEVELOPMENT PROGRAM

4. REGULATORY

5. MANUFACTURE

8. NOTIFICATION OF SUB-CONTRACT LABS

9. WARRANTIES

10. ACCEPTANCE OF SHIPMENTS; NON-CONFORMANCE

11. INDEMNIFICATION AND INSURANCE

12. FORCE MAJEURE

13. GOVERNING LAW

14. DISPUTES; ARBITRATION

15. NON-SOLICITATION AND HIRING

16. MISCELLANEOUS

APPENDIX 1

DEVELOPMENT PROGRAM

Development and Manufacture of **** Tablets

(A) Project Definition and Scope

Antares will supply:

**** Services:

Timing and Project Initiation:

(B) Cost:

Non-Stability Payment Schedule

Section 302 CEO Certification

Section 302 CFO Certification

ANTARES PHARMA, INC.

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

ANTARES PHARMA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

ANTARES PHARMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

ANTARES PHARMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2005 and 2004

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, 2005 and 2004

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)