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Note A - Liquidity
9 Months Ended
Sep. 30, 2011
Liquidity Disclosure [Policy Text Block]
NOTE A – LIQUIDITY

Based upon management’s projections, we believe our current cash should be sufficient to support our current operations into the second half of 2012.  At September 30, 2011, we had cash and cash equivalents of $5,193,000, a decrease of $7,008,000 from December 31, 2010.  Cash received during the first nine months of 2011 was primarily from GlaxoSmithKline (“GSK”), from Fortical sales and royalties received under our agreement with Upsher-Smith Laboratories, Inc. (“USL”) and from testing and other services provided to Tarsa and others.  In May 2011 we received a $4,000,000 milestone payment from GSK for completion of Phase 2 patient enrollment.  Our primary sources of cash have historically been (1) licensing fees for new agreements, (2) milestone payments under licensing or development agreements, (3) bulk peptide sales under licensing or supply agreements, (4) loans from our stockholders and an entity managed by Victory Park Capital Advisors, LLC (together with its affiliates, “Victory Park”), (5) the sale of our common stock and (6) since 2005, Fortical sales and royalties.  In 2011, we monetized our former China joint venture as well as our site-directed bone growth (“SDBG”) program.  See Notes K and R. We cannot be certain that any of these cash sources will continue to be (or the extent to which they will be) available to us in the future.  Licensing fees from new collaborations are dependent upon the successful completion of complex and lengthy negotiations.  Milestone payments are based upon progress achieved in collaborations, which cannot be guaranteed, and are often subject to factors that are controlled neither by our licensees nor us. Product sales to our partners under these agreements are based upon our licensees’ needs, which are sometimes difficult to predict. Sale of our common stock is dependent upon our ability to attract interested investors, our ability to negotiate favorable terms and the performance of the stock market in general and biotechnology investments in particular.  Future Fortical sales and royalties will be affected by competition and continued acceptance in the marketplace and could be impacted by manufacturing, distribution, reimbursement or regulatory issues.

We believe that in the balance of 2011 we will generate cash to apply toward funding our operations through Fortical sales and royalties and from testing and other services provided to Tarsa, GSK and others; from the sale of our common stock to Den Danske Forskningsfond (see Note S); and from our former China joint venture partner.    We expect to generate cash in the long term on sales and royalties from the sale of Fortical and oral calcitonin, the achievement of milestones under our existing license agreements and revenue from future licensed products and technologies and, possibly, from the sale of common stock.  We are actively seeking additional licensing and/or supply agreements with pharmaceutical companies for various oral peptides and for our peptide manufacturing technology. In October 2011, we and Nordic Bioscience announced our decision to establish a Joint Development Vehicle (see Note S).  However, we may not be successful in achieving milestones under our current agreements, in obtaining regulatory approval for our other products or in licensing any of our other products or technologies.

Due to our limited financial resources, any further significant decline in Fortical sales and/or royalties, or delay in achieving milestones under our existing license agreements, or in signing new license or distribution agreements for our products or technologies or loss of patent protection or ability to sell additional shares of common stock, could have a material adverse effect on our cash flow and operations (see Notes C, D, E, J and O).

If we are unable to achieve significant milestones or sales under our existing agreements and/or enter into a new significant revenue generating license or other arrangement or sell additional shares of common stock, we would need to either secure another source of funding in order to satisfy our working capital needs and to remain in compliance with covenants in our restated financing agreement with Victory Park, which we entered into in March 2010, as amended (see Note H), or significantly curtail our operations. Under the restated financing agreement, we must maintain a cash balance equal to at least $2,500,000 and our cash flow (as defined in the restated financing agreement) must be at least $2,000,000 in any fiscal quarter or $7,000,000 in any three consecutive quarters.  These default provisions were temporarily waived under a forbearance agreement executed in December 2010.  The forbearance period began December 10, 2010 and will terminate upon the earliest to occur of (i) the termination of the Amended License Agreement (see Note C), (ii) June 30, 2012 (or such later date as the parties may agree in writing), (iii) GSK’s failure to pay us certain specific amounts pursuant to the Amended License Agreement, or (iv) the date when we (a) repudiate or assert a defense to any obligation or liability under the forbearance agreement or any transaction document (as defined in the restated financing agreement) or (b) make or pursue a claim against Victory Park or any secured party named in the forbearance agreement.  Should the funding we require to sustain our working capital needs be unavailable or prohibitively expensive, the consequence would be a material adverse effect on our business, operating results, financial condition and prospects.  We believe that the 2010 Victory Park financing and the 2010 and 2011 GSK payments have satisfied our current cash requirements, but satisfying our cash requirements over the long term will require the successful commercialization of one or more of our biotechnologies or our licensees’ oral or nasal calcitonin products, our oral parathyroid hormone (“PTH”) product, the obesity program or another peptide product in the U.S. and/or abroad. However, it is uncertain whether any of these products other than Fortical will be approved or will be commercially successful.  The amount of future revenue we will derive from Fortical is also uncertain.

We have incurred annual operating losses since our inception and, as a result, at September 30, 2011, had an accumulated deficit of approximately $193,000,000.

The global credit crisis that began in 2007 was further exacerbated by events occurring in the financial markets in the fall of 2008, and has continued into 2011.  These events have negatively impacted the ability of corporations to raise capital through equity financings or borrowings.    In addition, uncertainty about current and future global economic conditions may impact our ability to license our products and technologies to other companies and may cause consumers to defer purchases of prescription medicines, such as Fortical, in response to tighter credit, decreased cash availability and declining consumer confidence.  Accordingly, future demand for our product could differ from our current expectations.