COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2013

10.

COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases equipment under operating leases that expire in May 2017. The Company also leases office space under operating leases that expire in beginning in February 2014 through July 2018. Future minimum lease payments due under these leases total $536,720 as of June 30, 2013.

Rent expense for the three months ended June 30, 2013 and 2012 totaled $10,271 and $2,392, respectively. Rent expense for the six months ended June 30, 2013 and 2012 totaled $14,397 and $4,631, respectively.

Monitoring and Advisory Fees

The Company was required to pay monitoring and advisory fees to two investors. A total of $433,956 and $50,000 is included in other expense in the accompanying unaudited condensed consolidated statements of operations for the three-month periods ended June 30, 2013 and 2012, respectively. A total of $483,956 and $99,400 is included in other expense in the accompanying unaudited condensed consolidated statements of operations for the six-month periods ended June 30, 2013 and 2012, respectively. These fees were paid quarterly in advance on the first business day of each calendar quarter.

Included in the amounts above and in conjunction with the Merger, the Company paid additional monitoring and advisory fees totaling $390,000 to the same two investors (Note 2). Upon completion of the Merger, the Company’s obligation to pay monitoring and advisory fees was terminated.

Government Regulation

The Company’s products and facilities are subject to regulation by a number of federal and state governmental agencies. The Food and Drug Administration (“FDA”), in particular, maintains oversight of the formulation, manufacture, distribution, packaging and labeling of all of the Company’s products. The Drug Enforcement Administration (“DEA”) maintains oversight over the Company’s products that are considered controlled substances.

Unapproved Products

Certain of the Company’s generic products are marketed without approved New Drug Applications (“NDA”) or Abbreviated New Drug Applications (“ANDA”). During the three-month periods ended June 30, 2013 and 2012, net revenues for these products totaled $1,765,257 and $1,538,538, respectively. During the six-month periods ended June 30, 2013 and 2012, net revenues for these products totaled $3,286,587 and $2,664,086, respectively.

The FDA’s policy with respect to the continued marketing of unapproved products is stated in the FDA’s September 2011 compliance policy guide, Marketed New Drugs without Approved NDAs or ANDAs. Under this policy, the FDA has stated that it will follow a risk-based approach with regard to enforcement against such unapproved products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher priority to enforcement action against products in certain categories, such as those marketed as unapproved drugs with potential safety risks or that lack evidence of effectiveness. The Company believes that so long as it complies with applicable manufacturing and labeling standards, the FDA will not take action against it under the current enforcement policy. There can be no assurance, however, that the FDA will continue this policy or not take a contrary position with any individual product or group of products. If the FDA were to take a contrary position, the Company may be required to seek FDA approval for these products or withdraw such products from the market.

In addition, one group of products that the Company manufactures on behalf of a contract customer is marketed by that customer without an FDA-approved NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market. The Company’s contract manufacturing revenues for the group of unapproved products for the three-month periods ended June 30, 2013 and 2012 was $759,780 and $160,468, respectively. The Company’s contract manufacturing revenues for the group of unapproved products for the six-month periods ended June 30, 2013 and 2012 was $1,224,204 and $403,958, respectively.

The Company receives royalties on the net sales of a group of contract-manufactured products, which are marketed by the contract customer without an FDA-approved NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market. The Company’s royalties on the net sales of these unapproved products for the three-month periods ended June 30, 2013 and 2012 was $105,600 and $62,053, respectively. The Company’s royalties on the net sales of these unapproved products for the six-month periods ended June 30, 2013 and 2012 was $185,273 and $131,424, respectively.

In October 2012, the Company received a telephone call requesting a meeting with the FDA representatives from the Minneapolis district of the FDA to discuss continued manufacturing and distribution of the Opium 10mg/mL Solution 118mL product (“Opium Tincture”), which is a non-NDA Product. That meeting was held on October 25, 2012 by conference telephone call and included FDA representatives from the Office of Compliance at the Center for Drug Evaluation and Research. Counsel to the Company sent a letter to the FDA on November 9, 2012 in support of the Company’s position. Although the FDA confirmed receipt of this letter, the Company has received no further response thereto. If the FDA were to make a determination that the Company could not continue to sell Opium Tincture as an unapproved product, the Company would be required to seek FDA approval for such product or withdraw such product from the market. If the Company determined to withdraw the product from the market, the Company’s net revenues for generic pharmaceutical products would decline materially, and if the Company decided to seek FDA approval, it would face increased expenses and might need to suspend sales of the product until such approval is obtained, and there are no assurances that the Company would receive such approval.

Shareholder Class Action and Derivative Lawsuits

On February 3, 2012, a purported class action lawsuit was filed in the United States District Court for the Northern District of Illinois under the caption Thomas Lauria, on behalf of himself and all others similarly situated v. BioSante Pharmaceuticals, Inc. and Stephen M. Simes naming the Company and its former President and Chief Executive Officer, Stephen M. Simes, as defendants. The complaint alleges that certain of the Company’s disclosures relating to the efficacy of LibiGel^® and its commercial potential were false and/or misleading and that such false and/or misleading statements had the effect of artificially inflating the price of the Company’s securities resulting in violations of Section 10(b) of the Exchange Act, Rule 10b-5 and Section 20(a) of the Exchange Act. Although a substantially similar complaint was filed in the same court on February 21, 2012, such complaint was voluntarily dismissed by the plaintiff in April 2012. The plaintiff seeks to represent a class of persons who purchased the Company’s securities between February 12, 2010 and December 15, 2011, and seeks unspecified compensatory damages, equitable and/or injunctive relief, and reasonable costs, expert fees and attorneys’ fees on behalf of such purchasers. Management believes the action is without merit and intends to defend the action vigorously. On November 6, 2012, the plaintiff filed a consolidated amended complaint. On December 28, 2012, the Company and Mr. Simes filed motions to dismiss the consolidated amended complaint. Briefing on the defendants’ motion to dismiss in the district court is complete. On July 1, 2013, the Illinois state court judge granted defendants’ motions to dismiss, without prejudice, and gave plaintiffs until July 31, 2013 to file an amended complaint. On August 1, 2013, the Company was informed by plaintiff’s counsel that they do not intend to file an amended complaint and instead will request an order dismissing the case, with prejudice, after which the plaintiffs will consider whether to appeal to the Illinois court of appeals.

On May 7, 2012, Jerome W. Weinstein, a purported stockholder of the Company, filed a shareholder derivative action in the United States District Court for the Northern District of Illinois under the caption Weinstein v. BioSante Pharmaceuticals, Inc. et al., naming the Company’s directors as defendants and the Company as a nominal defendant. A substantially similar complaint was filed in the same court on May 22, 2012 and another substantially similar complaint was filed in the Circuit Court for Cook County, Illinois, County Department, Chancery Division, on June 27, 2012. The suits generally related to the same events that are the subject of the class action litigation described above. The complaints allege breaches of fiduciary duty, abuse of control, gross mismanagement and unjust enrichment as causes of action occurring from at least February 2010 through December 2011. The complaints seek unspecified damages, punitive damages, costs and disbursements and unspecified reform and improvements in the Company’s corporate governance and internal control procedures. On September 24, 2012, the District Court consolidated the two cases before it and on November 20, 2012, the plaintiffs filed their consolidated amended complaint. On November 27, 2012, the plaintiff in the action pending in Illinois state court filed an amended complaint. On January 11, 2013, the defendants filed a motion to dismiss the amended complaint in the action pending in District Court, and on January 18, 2013, the defendants filed a motion to dismiss the amended complaint in the action pending in Illinois state court. Briefing on these motions is complete and the parties await the Courts’ rulings.

The lawsuits are in their early stages; and, therefore, management is unable to predict the outcome of the lawsuits and the possible loss or range of loss, if any, associated with their resolution or any potential effect the lawsuits may have on the Company’s operations. Depending on the outcome or resolution of these lawsuits, they could have a material effect on the Company’s operations, including its financial condition, results of operations, or cash flows. No amounts have been accrued related to these lawsuits as of June 30, 2013.

Other Commitments and Contingencies

All manufacturers of the drug Reglan® and its generic equivalent metoclopramide, including the Company, are facing allegations from plaintiffs in various states claiming bodily injuries as a result of ingestion of metoclopramide or its brand name Reglan® prior to the FDA's February 2009 Black Box warning requirement. The Company has been named and served in 85 separate complaints, including three in Pennsylvania, nine in New Jersey, and 73 in California, covering 2,934 plaintiffs in total. In August 2012, the Company was dismissed with prejudice from all New Jersey cases. Management considers the Company’s exposure to this litigation to be limited due to several factors: (1) the only generic metoclopramide manufactured by the Company prior to the implementation of the FDA's warning requirement was an oral solution introduced after May 28, 2008; (2) the Company’s market share for the oral solution was a very small portion of the overall metoclopramide market; and (3) once the Company received a request for change of labeling from the FDA, it submitted its proposed changes within 30 days, and such changes were subsequently approved by the FDA. At the present time, management is unable to assess the likely outcome of the remaining cases. The Company’s insurance company has assumed the defense of this matter. In addition, the Company’s insurance company renewed the Company’s product liability insurance on September 1, 2011 and 2012 with absolute exclusions for claims related to Reglan® and metoclopramide. Management cannot provide assurances that the outcome of these matters will not have an adverse effect on its business, results of operations, financial condition and cash flow. Furthermore, like all pharmaceutical manufacturers, the Company in the future may be exposed to other product liability claims, which could harm its business, results of operations, financial condition and cash flow.

- Definition

The entire disclosure for significant arrangements with third parties, which includes operating lease arrangements and arrangements in which the entity has agreed to expend funds to procure goods or services, or has agreed to commit resources to supply goods or services, and operating lease arrangements. Descriptions may include identification of the specific goods and services, period of time covered, minimum quantities and amounts, and cancellation rights.

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