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As filed with the Securities and Exchange Commission on June 25, 2002

Registration No. 333-87542

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

BIOSANTE PHARMACEUTICALS, INC.
(Name of Small Business Issuer in its Charter)

Delaware 2836 58-2301143
(State or Other Jurisdiction of
Incorporation or Organization)		 (Primary Standard Industrial
Classification Code Number)		 (I.R.S. Employer
Identification No.)

111 Barclay Boulevard
Lincolnshire, Illinois 60069
Telephone No.: (847) 478-0500

Phillip B. Donenberg
Chief Financial Officer, Treasurer and Secretary
BioSante Pharmaceuticals, Inc.
111 Barclay Boulevard
Lincolnshire, Illinois 60069
Telephone No.: (847) 478-0500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copy to:
Amy E. Culbert, Esq.
Oppenheimer Wolff & Donnelly LLP
45 South Seventh Street, Suite 3300
Minneapolis, Minnesota 55402
(612) 607-7287

Approximate date of commencement of proposed sale to the public:
 From time to time after this registration statement becomes effective.

        If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or reinvestment plans, check the following box: ý

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

        The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

Subject to Completion, dated June 25, 2002

PROSPECTUS

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

           Shares

LOGO

Common Stock

        BioSante Pharmaceuticals, Inc. is offering            shares of common stock on a "best efforts" basis directly through its officers and directors, who will not receive any commissions or other remuneration for selling shares. BioSante may also offer the shares through brokers or sales agents, who may receive compensation in the form of commissions, which total commissions will not exceed 10% of the selling price of the shares.

        We have not established a minimum amount of proceeds that must be received in the offering before any proceeds may be accepted. Once accepted, funds will be deposited into an account maintained by us and considered our general assets. Funds will not be placed into escrow, trust or any other similar arrangement.

        The offering will commence promptly after the effectiveness of the registration statement of which this prospectus is a part, and will be made on a continuous basis for a period of 90 days, unless extended by us in our discretion, for up to an additional 90 days. The offering may be terminated by us earlier if we sell all of the shares being offered or we decide to cease selling efforts.

        Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol "BISP." On June 3, 2002, the last reported sale price of our common stock on the OTC Bulletin Board was $4.00 per share.

        The common stock offered involves a high degree of risk. We refer you to "Risk Factors," beginning on page 8.
 
   Per Share

   Total
Public Offering Price(1)   $   $
Commissions   $   $
Proceeds to BioSante (before expenses)   $   $
(1)
Omitted in reliance upon Rule 430A under the Securities Act and to be based upon a discount to the market price of BioSante's common stock at the time of pricing not later than 15 business days after the effective date of the registration statement of which this prospectus is a part.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is                        , 2002


TABLE OF CONTENTS

 
   Page
SUMMARY   3
RISK FACTORS   8
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS   17
ABANDONED PRIVATE OFFERING   18
PLAN OF DISTRIBUTION   19
USE OF PROCEEDS   20
DIVIDEND POLICY   20
PRICE RANGE OF COMMON STOCK   20
CAPITALIZATION   22
DILUTION   23
SELECTED CONSOLIDATED FINANCIAL DATA   24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   26
BUSINESS   35
MANAGEMENT   49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS   56
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT   57
DESCRIPTION OF CAPITAL STOCK   60
LEGAL MATTERS   62
EXPERTS   62
WHERE YOU CAN FIND MORE INFORMATION   63
INDEX TO FINANCIAL STATEMENTS   F-1 - F-30
     

         In this prospectus, references to "BioSante," "the company," "we," and "our," unless the context otherwise requires, refer to BioSante Pharmaceuticals, Inc.

        We own or have the rights to use various trademarks, trade names or service marks, including BioSante™, Bio-Vant™, NanoVant™, CAP-Oral™, Bio-Air™, Bio-T-Gel™, Bio-E-Gel™, Bio-E/P-Gel™, LibiGel™ and LibiGel-E/T™

         You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with different information. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus is accurate as of the date on the front cover. You should not assume that the information contained in this prospectus is accurate as of any other date.



SUMMARY

        The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information contained in this prospectus, including the financial statements.


Our Company

        We are a development stage biopharmaceutical company that is developing a pipeline of hormone replacement products to treat hormone deficiencies in both men and women. We also are engaged in the development of our proprietary calcium phosphate, nanoparticulate-based platform technology, or CAP, for vaccine adjuvants, drug delivery systems and to purify the milk of transgenic animals.

        To enhance the value of our current pharmaceutical portfolio, we are pursuing the following corporate growth strategies:


        Our primary focus is to build a pipeline of hormone replacement products for the treatment of human hormone deficiencies. Symptoms of hormone deficiency in men include impotence, lack of sex drive, muscle weakness and osteoporosis, and in women, menopausal symptoms, such as hot flashes, vaginal atrophy, decreased libido and osteoporosis.

        Our proposed hormone replacement products, which we license on an exclusive basis from Antares Pharma Inc., are gel formulations of testosterone, estradiol, a combination of estradiol and testosterone and a combination of estradiol and progestogen. The gels are designed to be absorbed quickly through the skin after application on the arms, shoulders, abdomen or thighs, delivering the hormone to the bloodstream evenly and in a non-invasive, painless manner. Human clinical trials have begun on four of our hormone replacement products, a necessary step in the process of obtaining United States Food and Drug Administration, or FDA, approval to market the products.

        The following is a list of our hormone replacement gel products in development:

        Our CAP technology, which we license on an exclusive basis from the University of California, is based on the use of extremely small, solid, uniform particles, which we call "nanoparticles," as immune

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system boosters, for drug delivery and to purify the milk of transgenic animals. We have identified four potential initial applications for our CAP technology:

        The following is a list of our CAP products in development:

        Our company, which was initially formed as a corporation organized under the laws of the Province of Ontario on August 29, 1996, was continued as a corporation under the laws of the State of Wyoming on December 19, 1996 and was reincorporated under the laws of the State of Delaware on June 26, 2001.

        Our principal executive offices are located at 111 Barclay Boulevard, Suite 280, Lincolnshire, Illinois 60069, and our telephone number is (847) 478-0500. Our web site is located at www.biosantepharma.com. Our web site, and the information contained on that site, or connected to that site, are not intended to be part of this prospectus.


Recent Developments

        On May 31, 2002, we effected a one-for-ten reverse split of our issued and outstanding shares of common stock and class C special stock. All share and per share numbers in this prospectus have been adjusted to reflect the reverse stock split.

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The Offering

Common stock offered by us                      shares

Common stock to be outstanding immediately after the offering
 
                   shares (based upon shares outstanding as of June 3, 2002 and excludes 2,416,017 shares issuable upon the exercise of outstanding options and warrants)

Use of proceeds
 
Expenses related to the human clinical development of our proposed hormone replacement products and general corporate purposes, including working capital and funding operating losses.

Type of offering
 
Best efforts basis by our directors and officers, who will not receive any commissions or other remuneration for selling shares.

 
 
We may also offer the shares through brokers or sales agents, who may receive compensation in the form of commissions, which total commissions will not exceed 10% of the selling price of the shares.

 
 
The offering will commence promptly after the effectiveness of the registration statement of which this prospectus is a part, and will be made on a continuous basis for a period of 90 days, unless extended by us in our discretion, for up to an additional 90 days. The offering may be terminated by us earlier if we sell all of the shares being offered or we decide to cease selling efforts.

Minimum amount of proceeds; no escrow
 
We have not established a minimum amount of proceeds that must be received in the offering before any proceeds may be accepted. Once accepted, funds will be deposited into an account maintained by us and considered our general assets. Funds will not be placed into escrow, trust or any other similar arrangement.

OTC Bulletin Board symbol
 
"BISP"


Abandoned Private Offering

        From January 15 to February 20, 2002, we offered to sell up to approximately $10,000,000 of shares of our common stock to qualified institution buyers and accredited investors in a private placement in reliance upon Rule 506 under Regulation D under the Securities Act of 1933. The per share offer price was equal to approximately $5.00, a slight discount to the then market price of our common stock. We abandoned this private offering and terminated all offering activity in connection with the offering on February 28, 2002. Any offers to buy or indications of interest given in the private offering were rejected or otherwise not accepted by BioSante. This prospectus supersedes any offering materials used in the abandoned private offering.

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Summary Consolidated Financial Data

        The selected statement of operations data shown below for the years ended December 31, 1999, 2000 and 2001 and the balance sheet data as of December 31, 2000 and 2001 are derived from our audited financial statements included elsewhere in this prospectus. The selected statement of operations data shown below for the period from August 29, 1996 (date of incorporation) to December 31, 1996 and for the years ended December 31, 1997 and 1998 and the balance sheet data as of December 31, 1997, 1998 and 1999 are derived from our audited financial statements not included elsewhere in this prospectus. The selected statement of operations data for the three months ended March 31, 2001 and 2002 and the balance sheet data as of March 31, 2002 has been derived from our unaudited financial statements included elsewhere in this prospectus, which, in the opinion of management, include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the financial information shown in these statements. The results for the three months ended March 31, 2001 and 2002 are not necessarily indicative of the results to be expected for the full year or for any future period. All share and per share numbers have been adjusted to reflect the one-for-ten reverse stock split effected on May 31, 2002. When you read this selected consolidated financial data, it is important that you also read the historical financial statements and related notes included in this prospectus, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations." Historical results are not necessarily indicative of future results.

 
    
    
    
    
    
    
  

Three Months Ended
March 31,
  
 
    
  

Year Ended December 31,
  
 
   Period from August 29,
1996 (date of
incorporation) to
December 31, 1996
  
 
   1997
   1998
   1999
   2000
   2001
   2001
   2002
  
 
   (in thousands, except per share and share data)

  
Statement of Operations Data:                                                  
Licensing income   $ —   $ —   $ —   $ —   $ —   $ 1,747   $ —   $ —  
Interest income     53     144     123     199     228     175     32     23  
   
 
 
 
 
 
 
 
 
Total income     53     144     123     199     228     1,922     32     23  
   
 
 
 
 
 
 
 
 
Expenses:                                                  
  Research and development     —     336     1,400     661     1,888     2,142     233     644  
  General and administration     547     1,618     1,112     853     1,679     2,299     465     459  
  Depreciation and amortization     1     52     140     91     98     92     24     23  
  Loss on disposal of capital assets     —     28     130     —     —     —     —     —  
   
 
 
 
 
 
 
 
 
Total expenses     548     2,034     2,782     1,605     3,665     4,533     722     1,126  
   
 
 
 
 
 
 
 
 
Loss before other expenses     (495 )   (1,890 )   (2,659 )   (1,406 )   (3,437 )   (2,611 )   (690 )   (1,103 )
   
 
 
 
 
 
 
 
 
  Cost of acquisition of Structured Biologicals, Inc.     375     —     —     —     —     —     —     —  
  Purchased in-process research and development     5,377     —     —     —     —     —     —     —  
   
 
 
 
 
 
 
 
 
Total other expenses     5,752     —     —     —     —     —     —     —  
   
 
 
 
 
 
 
 
 
Net loss   $ (6,247 ) $ (1,890 ) $ (2,659 ) $ (1,406 ) $ (3,437 ) $ (2,611 ) $ (690 ) $ (1,103 )
   
 
 
 
 
 
 
 
 
Basic and diluted net loss per share   $ (2.56 ) $ (0.53 ) $ (0.76 ) $ (0.28 ) $ (0.60 ) $ (0.40 ) $ (0.12 ) $ (0.16 )
   
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding     2,437     3,596     3,486     4,942     5,754     6,485     5,764     6,788  
   
 
 
 
 
 
 
 
 

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        The as adjusted column (without broker commissions) in the balance sheet data below gives effect to the sale of            shares of common stock in this offering at a public offering price of $                      per share, after deducting estimated offering expenses and assuming no broker, dealer or sales agent commissions are paid. The as adjusted column (with broker commissions) in the balance sheet data below gives effect to the sale of shares of common stock in this offering at a public offering price of $                      per share, after deducting estimated offering expenses and assuming the payment of broker, dealer or sales agent commissions equal to 10% of the aggregate selling price of the shares. Because the shares being offered in this offering are being offered and sold by us on a best efforts basis, we may not sell all or any of the shares and therefore may not receive all or any of the net proceeds in this offering.

 
   As of March 31, 2002
 
   Actual
   As Adjusted
(without broker
commissions)
   As Adjusted
(with broker
commissions)
 
   (in thousands)
Balance Sheet Data:                  
Cash and cash equivalents   $ 3,163   $     $  
Working capital     2,568            
Total assets     3,626            
Stockholders' equity     2,947            

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RISK FACTORS

        This offering involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition to the other information contained in this prospectus, including the section entitled "Cautionary Statement Concerning Forward-Looking Statements" before deciding whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition or operating results could be harmed. In that case, the trading price of our common stock could decline, and you may lose part or all of your investment. These risks and uncertainties described below are not the only ones facing BioSante. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations and adversely affect the market price of our common stock.

Risks Relating to Our Company

We have a history of operating losses, expect continuing losses and may never achieve profitability.

        We have incurred losses in each year since our amalgamation in 1996 and expect to incur substantial and continuing losses for the foreseeable future. We incurred a net loss of $2,611,361 for the year ended December 31, 2001, and as of December 31, 2001, our accumulated deficit was $18,251,033. We incurred a net loss of $1,102,926 for the three months ended March 31, 2002, and as of March 31, 2002, our accumulated deficit was $19,353,959.

        All of our revenue to date has been derived from interest earned on invested funds and license fees. We have not commercially introduced any products. We expect to incur substantial and continuing losses for the foreseeable future as our own product development programs expand and various preclinical and clinical trials commence. The amount of these losses may vary significantly from year-to-year and quarter-to-quarter and will depend on, among other factors:

        In order to generate revenues, we must successfully develop and commercialize our own proposed products or products in the late-stage human clinical development phase or already on the market that we may in-license or otherwise acquire, or enter into collaborative agreements with others who can successfully develop and commercialize them. Even if our proposed products and the products we may license or otherwise acquire are commercially introduced, they may never achieve market acceptance and we may never generate revenues or achieve profitability.

We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms.

        We currently do not have sufficient resources to complete the commercialization of any of our proposed products. Therefore, we may need to raise substantial additional capital to fund our operations sometime in the future. We cannot be certain that any financing will be available when needed. If we fail to raise additional financing as we need it, we may have to delay or terminate our own product development programs or pass on opportunities to in-license or otherwise acquire new products that we believe may be beneficial to our business.

        Our cash on hand as of March 31, 2002 was $3,162,849. If we do not sell any of the shares offered in this offering, we believe our existing cash will be sufficient to fund our operations through

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December 2002. If we are able to sell all of the shares offered in this offering, we believe that with the net proceeds of this offering and our existing cash, we will have sufficient working capital to meet our needs through December 2003. We have based these estimates, however, on assumptions that may prove to be wrong. As a result, we may need to obtain additional financing prior to that time. In addition, we may need to raise additional capital at an earlier time to fund our ongoing research and development activities, acquire new products or take advantage of other unanticipated opportunities. Any additional equity financings may be dilutive to our existing shareholders, and debt financing, if available, may involve restrictive covenants on our business. In addition, insufficient funds may require us to delay, scale back or eliminate some or all of our programs designed to facilitate the commercial introduction of our proposed products, prevent commercial introduction of our products altogether or restrict us from acquiring new products that we believe may be beneficial to our business.

We are a development stage company with a short operating history, making it difficult for you to evaluate our business and your investment.

        We are in the development stage and our operations and the development of our proposed products are subject to all of the risks inherent in the establishment of a new business enterprise, including:

        Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our company.

Our proposed products are in the research and development stages and will likely not be commercially introduced for several years, if at all.

        Our proposed products are in the research and development stages and will require further research and development, preclinical and clinical testing and investment prior to commercialization in the United States and abroad. We cannot assure you that any of our proposed products will:

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        We do not anticipate that any of our proposed products will receive the requisite regulatory approvals for commercialization in the United States or abroad until approximately late 2003, or later, if at all, and we cannot assure you that any of our proposed products, if approved and marketed, will generate significant product revenue and provide an acceptable return on our investment.

Our strategy to acquire products in the late-stage development phase or products already on the market is risky and the market for acquiring these products is competitive.

        We may acquire, through outright purchase, license, joint venture or other methods, products in the late-stage development phase and assist in the final development and commercialization of those products or products already on the market. There are a number of companies that have similar strategies to ours, many of whom have substantially greater resources than us. It is difficult to determine the value of a product that has not been fully developed or commercialized, and the possibility of significant competition for these products may tend to increase the cost to us of these products beyond the point at which we will experience an acceptable return on our investment. We cannot assure you that we will be able to acquire any products on commercially acceptable terms or at all, that any product we may acquire will be approved by the FDA or if approved, will be marketable, or that even if marketed, that we will be able to obtain an acceptable return on our investment.

        If we purchase any products, we could issue common or preferred stock that would dilute our existing stockholders' percentage ownership, incur substantial debt or assume contingent liabilities by paying cash for such products. For example, we paid a $1.0 million upfront license fee for our hormone replacement products in June 2000. In September 2000, we sublicensed some of these products to a Canadian company and in connection with this transaction and subject to our achieving certain milestones we agreed to sell shares of our common stock to this licensee in the future at a premium of the then market value of our common stock. Purchases of new products also involve numerous other risks, including:

If we fail to obtain regulatory approval to commercially manufacture or sell any of our future products, or if approval is delayed, we will be unable to generate revenue from the sale of our products.

        We must obtain regulatory approval to sell any of our products in the United States and abroad. In the United States, we must obtain the approval of the FDA for each product or drug that we intend to commercialize. The FDA approval process is typically lengthy and expensive, and approval is never certain. Products to be commercialized abroad are subject to similar foreign government regulation.

        Generally, only a very small percentage of newly discovered pharmaceutical products that enter preclinical development are approved for sale. Because of the risks and uncertainties in biopharmaceutical development, our proposed products could take a significantly longer time to gain regulatory approval than we expect or may never gain approval. If regulatory approval is delayed or never obtained, our management's credibility, the value of our company and our operating results and liquidity would be adversely affected.

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To obtain regulatory approval to market our products, costly and lengthy preclinical studies and clinical trials may be required, and the results of the studies and trials are highly uncertain.

        As part of the FDA approval process, we must conduct preclinical studies on animals and clinical trials on humans on each of our proposed products. We expect the number of preclinical studies and clinical trials that the FDA will require will vary depending on the product, the disease or condition the product is being developed to address and regulations applicable to the particular product. We may need to perform multiple preclinical studies using various doses and formulations before we can begin clinical trials, which could result in delays in our ability to obtain any regulatory approvals or to market any of our products. Furthermore, even if we obtain favorable results in preclinical studies on animals, the results in humans may be different.

        After we have conducted preclinical studies in animals, we must demonstrate that our products are safe and effective for use on human patients in order to receive regulatory approval for commercial sale. The data obtained from preclinical and clinical testing are subject to varying interpretations that could delay, limit or prevent regulatory approval. Adverse or inconclusive clinical results would prevent us from filing for regulatory approval of our products. Additional factors that could cause delay or termination of our clinical trials include:

If we fail to obtain an adequate level of reimbursement for our products by third party payors, there may be no commercially viable markets for our products.

        Our ability to commercialize our products successfully will depend in part upon the price we may be able to charge for our products and on the extent to which reimbursement for the cost of our products and related treatment will be available from government health administration authorities, private health insurers and other third party payors. We currently have limited expertise obtaining reimbursement. We will need to seek additional reimbursement expertise unless we enter into collaborations with other companies with the necessary expertise. Even if we are able to obtain reimbursement from third party payors, we cannot be certain that reimbursement rates will be high enough to allow us to profit from sales of our products and realize an acceptable return on our investment in product development.

We license the technology underlying our proposed hormone replacement products and our CAP technology from third parties and may lose the rights to license them.

        We license the technology underlying our proposed hormone replacement products from Antares Pharma, Inc. and our CAP technology from the University of California. We may lose our right to license these technologies if we breach our obligations under the license agreements. Although we intend to use our reasonable best efforts to meet these obligations, if we violate or fail to perform any term or covenant of the license agreements or with respect to the University of California's license agreement within 60 days after written notice from the University of California, the other party to these agreements may terminate these agreements or certain projects contained in these agreements. The termination of these agreements, however, will not relieve us of our obligation to pay any royalty or license fees owing at the time of termination. Our failure to retain the right to license the technology underlying our proposed hormone replacement products or CAP technology could harm our business and future operating results. For example, if we were to enter into an outlicense agreement with a third party under which we agree to outlicense our hormone replacement technology or CAP technology for

11


a license fee, the termination of the main license agreement with Antares Pharma, Inc. or the University of California could either, depending upon the terms of the outlicense agreement, cause us to breach our obligations under the outlicense agreement or give the other party a right to terminate that agreement, thereby causing us to lose future revenue generated by the outlicense fees.

We do not have any facilities appropriate for clinical testing, we lack significant manufacturing experience and we have very limited sales and marketing personnel. We may, therefore, be dependent upon others for our clinical testing, manufacturing, sales and marketing.

        Our current facilities do not include accommodation for the testing of our proposed products in animals or in humans for the clinical testing required by the FDA. We do not have a manufacturing facility that can be used for full-scale production of our products. In addition, at this time, we have very limited sales and marketing personnel. In the course of our development program, we will therefore be required to enter into arrangements with other companies or universities for our animal testing, human clinical testing, manufacturing, and sales and marketing activities. If we are unable to retain third parties for these purposes on acceptable terms, we may be unable to successfully develop, manufacture and market our proposed products. In addition, any failures by third parties to adequately perform their responsibilities may delay the submission of our proposed products for regulatory approval, impair our ability to deliver our products on a timely basis or otherwise impair our competitive position. Our dependence on third parties for the development, manufacture, sale and marketing of our products also may adversely affect our profit margins.

If we are unable to protect our proprietary technology, we may not be able to compete as effectively.

        The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, in part, upon our ability to obtain, enjoy and enforce protection for any products we develop or acquire under United States and foreign patent laws and other intellectual property laws, preserve the confidentiality of our trade secrets and operate without infringing the proprietary rights of third parties.

        Where appropriate, we seek patent protection for certain aspects of our technology. In February 2000, we filed a patent application relating to our CAP technology. However, our owned and licensed patents and patent applications may not ensure the protection of our intellectual property for a number of other reasons:

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        It also is unclear whether our trade secrets will provide useful protection. While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our proprietary information to competitors. Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Finally, our competitors may independently develop equivalent knowledge, methods and know-how.

Claims by others that our products infringe their patents or other intellectual property rights could adversely affect our financial condition.

        The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Patent applications are maintained in secrecy in the United States until the patents are issued and also are maintained in secrecy for a period of time outside the United States. Accordingly, we can conduct only limited searches to determine whether our technology infringes any patents or patent applications of others. Any claims of patent infringement would be time-consuming and could likely:

        Although patent and intellectual property disputes in the pharmaceutical industry often have been settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and often require the payment of ongoing royalties, which could hurt our gross margins. In addition, we cannot be sure that the necessary licenses would be available to us on satisfactory terms, or that we could redesign our products or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing, manufacturing and selling some of our products, which could harm our business, financial condition and operating results.

Because we are developing new products, we may fail to gain market acceptance for our products and our business could suffer.

        None of the products we propose to develop or are developing have yet been approved for marketing by regulatory authorities in the United States or elsewhere. Even if our proposed products ultimately are approved for sale, there can be no assurance that they will be commercially successful.

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Risks Relating to Our Industry

Because our industry is very competitive and many of our competitors have substantially greater capital resources and more experience in research and development, manufacturing and marketing than us, we may not succeed in developing our proposed products and bringing them to market.

        Competition in the pharmaceutical industry is intense. Potential competitors in the United States are numerous and include pharmaceutical, chemical and biotechnology companies, most of which have substantially greater capital resources and more experience in research and development, manufacturing and marketing than us. Academic institutions, hospitals, governmental agencies and other public and private research organizations also are conducting research and seeking patent protection and may develop and commercially introduce competing products or technologies on their own or through joint ventures. We cannot assure you that our competitors will not succeed in developing similar technologies and products more rapidly than we do or that these competing technologies and products will not be more effective than any of those that we currently are developing or will develop.

We are dependent upon key personnel, many of whom would be difficult to replace.

        Our success will be largely dependent upon the efforts of Stephen M. Simes, our Vice Chairman, President and Chief Executive Officer, and other key employees. We are not the stated beneficiary of key person life insurance on any of our key personnel. Our future success also will depend in large part upon our ability to identify, attract and retain other highly qualified managerial, technical and sales and marketing personnel. Competition for these individuals is intense. The loss of the services of any of our key personnel, the inability to identify, attract or retain qualified personnel in the future or delays in hiring qualified personnel, could make it more difficult for us to manage our business and meet key objectives, such as the timely introduction of our proposed products, which would harm our business, financial condition and operating results.

Risks Relating to this Offering and Our Common Stock

Because our common stock is traded on the OTC Bulletin Board, your ability to sell your shares in the secondary trading market may be limited.

        Our common stock currently is traded on the over-the-counter market on the OTC Bulletin Board. Consequently, the liquidity of our common stock is impaired, not only in the number of shares that are bought and sold, but also through delays in the timing of transactions, and coverage by security analysts and the news media, if any, of our company. As a result, prices for shares of our common stock may be lower than might otherwise prevail if our common stock was quoted on the Nasdaq Stock Market or traded a national securities exchange, like The New York Stock Exchange or American Stock Exchange.

Because our shares may be deemed "penny stocks," you may have difficulty selling them in the secondary trading market.

        Federal regulations under the Securities Exchange Act of 1934 regulate the trading of so-called "penny stocks," which are generally defined as any security not listed on a national securities exchange or Nasdaq, priced at less than $5.00 per share and offered by an issuer with limited net tangible assets and revenues. Since our common stock currently trades on the OTC Bulletin Board and has in the past and may in the future trade at less than $5.00 per share, our common stock may be deemed a "penny stock" and may not be traded unless a disclosure schedule explaining the penny stock market and the risks associated therewith is delivered to a potential purchaser prior to any trade.

        In addition, because our common stock is not listed on Nasdaq or any national securities exchange and has in the past and may in the future trade at less than $5.00 per share, trading in our common

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stock may be subject to Rule 15g-9 under the Exchange Act. Under this rule, broker-dealers must take certain steps prior to selling a "penny stock," which steps include:

        If these penny stock rules are not followed by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules will make it more difficult for broker-dealers to sell our common stock and our stockholders, therefore, may have difficulty in selling their shares in the secondary trading market.

Sales of a substantial number of shares of our common stock in the public market, including the shares offered under this prospectus and under other registration statements, could lower our stock price and impair our ability to raise funds in new stock offerings.

        Future sales of a substantial number of shares of our common stock in the public market, including the shares offered under this prospectus and under other registration statements, or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock and could make it more difficult for us to raise additional capital through the sale of equity securities.

Our stock price may be volatile and your investment in our common stock could suffer a decline in value.

        Our common stock has been listed on the OTC Bulletin Board since May 2000. The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control. These factors include:

We may incur significant costs from class action litigation due to our expected stock volatility.

        In the past, following periods of large price declines in the public market price of a company's stock, holders of that stock occasionally have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring this type of lawsuit against us, even if the lawsuit is without merit, we could incur substantial costs defending the lawsuit. The lawsuit

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also could divert the time and attention of our management, which would hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

Provisions in our charter documents and Delaware law could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders.

        Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include:

        We refer you to "Description of Securities—Undesignated Preferred Stock;—Anti-Takeover Provisions of Delaware Law" for more information on the specific provisions of our certificate of incorporation, our bylaws and Delaware law that could discourage, delay or prevent a change of control of our company.

Our directors and executive officers own a sufficient number of shares of our capital stock to control our company, which could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders.

        Our directors and executive officers own or control approximately 37.3% of our outstanding voting power. Accordingly, these stockholders, individually and as a group, may be able to influence the outcome of stockholder votes, involving votes concerning the election of directors, the adoption or amendment of provisions in our certificate of incorporation and bylaws and the approval of certain mergers or other similar transactions, such as a sale of substantially all of our assets. Such control by existing stockholders could have the effect of delaying, deferring or preventing a change in control of our company.

Purchasers in this offering will experience immediate and substantial dilution of their investment.

        We expect that the public offering price per share will significantly exceed the net tangible book value per share of the outstanding common stock. Accordingly, purchasers of common stock in this offering will suffer immediate and substantial dilution of their investment. In the past, we have granted options and warrants to purchase shares of our common stock at prices below the public offering price. To the extent these outstanding options and warrants are ultimately exercised, there will be further dilution to investors in this offering.

Exercise of outstanding options and warrants will dilute existing stockholders and could decrease the market price of our common stock.

        As of June 3, 2002, we had issued and outstanding 6,321,458 shares of common stock, 466,602 shares of our class C stock and outstanding options and warrants to purchase 2,416,017 additional shares of common stock. The existence of the outstanding options and warrants may adversely affect the market price of our common stock and the terms under which we could obtain additional equity capital.

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We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in our common stock must come from increases in the fair market value and trading price of our common stock.

        We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in our common stock must come from increases in the fair market value and trading price of our common stock.

We likely will issue additional equity securities which will dilute your share ownership.

        We likely will issue additional equity securities to raise capital and through the exercise of options and warrants that are outstanding or may be outstanding. These additional issuances will dilute your share ownership.

Because this is a best efforts offering with no firm underwriting commitment, we may not receive sufficient proceeds from the offering to justify payment of the offering expenses and finance our operations.

        The shares are initially being offered by us on a best efforts basis, although we may engage brokers and sales agents to offer the shares on a best efforts basis from time to time in the future. We currently do not have any agreements with any brokers or sales agents to assist us in offering and selling the shares in this offering. We may not sell all or any of the shares offered under this prospectus. No one has committed to purchase any of the shares offered. As a result, we may not receive sufficient proceeds from the offering to justify payment of the offering expenses. We also may be required to delay, scale back or eliminate some or all of our programs designed to facilitate the commercial introduction of our proposed products.

None of the proceeds from the sale of shares in this offering will be placed in escrow and therefore there are no investor protections for the return of subscription funds once accepted.

        We have not established a minimum amount of proceeds that we must receive in the offering before any proceeds may be accepted. Once accepted, the funds will be deposited into an account maintained by us and considered general assets of BioSante. None of the proceeds will be placed in any escrow, trust or other arrangement, therefore, there are no investor protections for the return of subscription funds once accepted.

Management has broad discretion as to the use of proceeds of this offering and could spend or invest the net proceeds in ways in which the stockholders may not agree.

        We expect to use most of the net proceeds from this offering for expenses related to the human clinical development of our hormone replacement products, working capital or other general corporate purposes, including funding operating losses. Our management has broad discretion as to the use of proceeds of this offering and could spend or invest the net proceeds from this offering in ways in which the stockholders may not agree. The investment of these proceeds may not yield a favorable return to BioSante or its stockholders.


CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements concerning our financial condition, results of operations and business, the anticipated financial and other benefits of this offering and the plans and objectives of our management following this offering, including, without limitation, statements pertaining to:

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        These and other forward-looking statements are primarily in the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and "Business." Generally, you can identify these statements because they use phrases like "anticipates," "believes," "expects," "future," "intends," "plans," and similar terms. These statements are only predictions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy, and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, among others, the risks we face as described in the section entitled "Risk Factors" and elsewhere in this prospectus.

        We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are unable to predict accurately or over which we have no control. The risk factors listed in the section entitled "Risk Factors," as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in the section entitled "Risk Factors" and elsewhere in this prospectus could negatively impact our business, operating results, financial condition and stock price.

        We are not obligated to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus and other statements made from time to time from us or our representatives, might not occur. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.


ABANDONED PRIVATE OFFERING

        From January 15 to February 20, 2002, we offered to sell up to approximately $10,000,000 of shares of our common stock to qualified institution buyers and accredited investors in a private placement in reliance upon Rule 506 under Regulation D under the Securities Act of 1933. The per share offer price was equal to approximately $5.00, a slight discount to the then market price of our common stock. We abandoned this private offering and terminated all offering activity in connection with the offering on February 28, 2002. Any offers to buy or indications of interest given in the private offering were rejected or otherwise not accepted by BioSante. This prospectus supersedes any offering materials used in the abandoned private offering.

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PLAN OF DISTRIBUTION

        We are offering the shares on a "best efforts" basis directly through our officers and directors, who will not receive any commissions or other remuneration of any kind for selling shares in this offering, other than reimbursement of offering expenses incurred by them. This offering will commence promptly after the effectiveness of the registration statement of which this prospectus is a part. This offering will be made on a continuous basis for a period of 90 days, unless extended by us in our sole discretion, for up to an additional 90 days. This offering may be terminated by us earlier if we sell all of the shares being offered or we decide to cease selling efforts.

        This offering is a self underwritten offering, which means that it does not involve the participation of an underwriter to market, distribute or sell the shares offered under this prospectus. We may sell shares from time to time in one or more transactions directly by us or, alternatively, we may offer the shares through brokers or sales agents, who may receive compensation in the form of commissions or fees. We have entered into several agreements with several sales agents to assist us in identifying and contacting potential investors. Under these agreements, we have generally agreed to pay these sales agents fees based on a percentage (not exceeding 10%) of the aggregate purchase price of shares sold by us to the investors identified and contacted by these sales agents. We have also agreed in some cases to reimburse these sales agents for out-of-pocket expenses incurred in connection with their engagement. Any broker, dealer or sales agent that participates in the distribution of shares may be deemed to be an underwriter, and any profits on the sale of the shares by any such broker, dealer or sales agent and any commissions and fees received by any such broker, dealer or sales agents may be deemed to be underwriting compensation under the Securities Act.

        The shares may not be offered or sold in certain jurisdictions unless they are registered or otherwise comply with the applicable securities laws of such jurisdictions by exemption, qualification or otherwise. We intend to sell the shares only in the states in which this offering has been qualified or an exemption from the registration requirements is available, and purchases of shares may be made only in those states. To comply with the securities laws of certain jurisdictions, as applicable, the shares may be required to be offered and sold only through registered or licensed brokers or dealers. If such registered or licensed brokers or dealers are engaged, the total commission and fees paid to such brokers and dealers in connection with the sale of shares will not exceed 10% of the selling price of the shares.

        In connection with their selling efforts in the offering, our officers and directors will not register as broker-dealers pursuant to Section 15 of the Securities Exchange Act of 1934, but rather will rely upon the "safe harbor" provisions of Rule 3a4-1 under the Exchange Act. Generally speaking, Rule 3a4-1 provides an exemption from the broker-dealer registration requirements of the Exchange Act for persons associated with an issuer that participate in an offering of the issuer's securities. The conditions to obtaining this exemption include the following:

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        We have not established a minimum amount of proceeds that we must receive in the offering before any proceeds may be accepted. We cannot assure you that all or any of the shares offered under this prospectus will be sold. No one has committed to purchase any of the shares offered. We reserve the right to withdraw, cancel or modify this offer and to accept or reject any subscription in whole or in part, for any reason or for no reason. Subscriptions will be accepted or rejected promptly. All monies from rejected subscriptions will be returned immediately by us to the subscriber, without interest or deductions. Any accepted subscriptions will be made on a rolling basis. Once accepted, the funds will be deposited into an account maintained by us and considered general assets of BioSante. Subscription funds will not be placed into escrow, trust or any other similar arrangement. There are no investor protections for the return of subscription funds once accepted. Certificates for shares purchased will be issued and distributed by our transfer agent within 10 business days after a subscription is accepted and "good funds" are received in our account. Certificates will be sent to the address supplied in the investor subscription agreement by certified mail.

        Our officers, directors, existing stockholders and affiliates may purchase shares in this offering and there is no limit to the number of shares they may purchase.


USE OF PROCEEDS

        If all of the shares offered hereby are sold, we will receive net proceeds of approximately $                  , after payment of offering expenses. This amount of the proceeds will be up to 10% or $                  less if we use a broker, dealer or sales agent to assist us in offering and selling the shares. We cannot assure you that we will sell any shares or receive any proceeds. We estimate that we will use approximately $8.0 million of the net proceeds received in this offering for expenses related to the human clinical development of our hormone replacement products and the remaining amount for general corporate purposes, including working capital and funding operating losses. Pending these uses, we plan to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities.


DIVIDEND POLICY

        We never have declared or paid cash dividends on our common stock or our class C special stock. We currently intend to retain all future earnings for the operation and expansion of our business. We do not anticipate declaring or paying cash dividends on our common stock or class C special stock in the foreseeable future. Any payment of cash dividends on our common stock or class C special stock will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors.


PRICE RANGE OF COMMON STOCK

        Our common stock is currently trading in the United States on the over-the-counter market on the OTC Bulletin Board, under the symbol "BISP," and traded on the OTC Bulletin Board under the symbol "BTPH" from May 5, 2000 to May 31, 2002. Our common stock traded in Canada on the Canadian Venture Exchange, formerly known as the Alberta Stock Exchange, under the symbol "BAI," from December 20, 1996 to July 20, 2001. From September 10, 1999 to May 4, 2000, our common stock was traded in the United States on the National Quotation Bureau, commonly referred to as the "Pink Sheets," under the symbol "BTPH."

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        The following table sets forth, in U.S. dollars and in dollars and cents (in lieu of fractions), the high and low sales prices for each of the calendar quarters indicated, as reported by the OTC Bulletin Board and the Pink Sheets. The prices in the table may not represent actual transactions. These quotations reflect inter-dealer prices, without retail mark up, mark down or commissions and may not represent actual transactions.

OTC Bulletin Board
2002
   High
   Low
First Quarter   $ 7.90   $ 5.10
Second Quarter (through June 24, 2002)   $ 6.00   $ 3.60
2001
   High
   Low
First Quarter   $ 7.50   $ 3.80
Second Quarter   $ 10.70   $ 3.90
Third Quarter   $ 10.00   $ 4.60
Fourth Quarter   $ 10.50   $ 4.80
2000
   High
   Low
Second Quarter   $ 12.50   $ 4.70
Third Quarter   $ 10.30   $ 8.00
Fourth Quarter   $ 9.20   $ 5.20
National Quotation Bureau ("Pink Sheets")
2000
   High
   Low
First Quarter   $ 15.00   $ 2.80

        The following table sets forth, in U.S. dollars and in dollars and cents (in lieu of fractions), the high and low sales prices for each of the calendar quarters indicated, as reported by the Canadian Venture Exchange.

Canadian Venture Exchange
2001
   High
   Low
First Quarter   $ 7.20   $ 4.60
Second Quarter   $ 10.70   $ 3.50

2000
 
 
 
 
 
 
First Quarter   $ 13.80   $ 2.20
Second Quarter   $ 10.70   $ 4.60
Third Quarter   $ 10.10   $ 7.10
Fourth Quarter   $ 9.50   $ 4.90

        As of June 3, 2002, there were 713 record holders of our common stock and 10 record holders of our class C stock.

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CAPITALIZATION

        The following table sets forth our capitalization as of March 31, 2002:

        Because the shares being offered in this offering are being offered and sold by us on a best efforts basis, we may not sell all or any of the shares and therefore may not receive all or any of the net proceeds in this offering.

        You should read the information presented below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes included elsewhere in this prospectus. For a description of our capital stock, you should read the information under the caption "Description of Capital Stock."

 
   March 31, 2002
 
   Actual
   As Adjusted
(without broker
commissions)
   As Adjusted
(with broker
commissions)
Stockholders' equity:                  
  Undesignated preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; no shares issued and outstanding (actual and as adjusted)   $ —   $     $  
  Common stock, par value $0.0001 per share; 100,000,000 shares authorized; 6,321,458 shares issued and outstanding (actual); shares issued and outstanding (as adjusted)     22,302,046            
  Class C special stock, par value $0.0001 per share; 4,687,684 shares authorized; 466,602 shares issued and outstanding (actual and as adjusted)     467            
  Additional paid-in capital     —            
  Warrants     —            
  Accumulated deficit     (18,251,033 )          
   
 
 
    Total stockholders' equity     4,051,480            
   
 
 
      Total capitalization   $ 4,051,480            
   
 
 

        The outstanding share information excludes 771,267 shares of common stock issuable upon exercise of outstanding options as of March 31, 2002 with a weighted average exercise price of $3.88 and warrants to purchase 1,644,750 shares of common stock with a weighted average exercise price of $3.70 per share.

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DILUTION

        Our net tangible book value as of March 31, 2002 was $2,947,304 or $0.47 per share. Net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding. After giving effect to the sale of the            shares of common stock offered by this prospectus at a public offering price of $                              and after deducting estimated offering expenses and assuming no broker, dealer or sales agent commissions are paid, and without taking into account any other changes in our net tangible book value after March 31, 2002, our net tangible book value as of March 31, 2002 would have been approximately $                              , or $             per share. This represents an immediate increase in net tangible book value of $                              per share to our existing stockholders and an immediate and substantial dilution of $                              per share to new investors. Dilution is an accounting concept that refers to the difference between what an investor pays for shares of a company and the book value of the shares immediately after the transaction. Whenever the book value per share is less than the investor paid, the investor suffers dilution. The dilution to investors in the offering is as illustrated in the following table:

 
   As Adjusted
(without broker commissions)
Public offering price per share   $      
  Net tangible book value per share before the offering          
   
   
  Increase per share attributable to new investors          
   
   
As adjusted net tangible book value per share after the offering, assuming no broker, dealer or sales agent commissions are paid          
         
Dilution per share to new investors   $      
   
   

        After giving effect to the sale of the            shares of common stock offered by this prospectus at a public offering price of $                              and after deducting estimated offering expenses and assuming the payment of broker, dealer or sales agent commissions equal to 10% of the aggregate selling price of the shares, and without taking into account any other changes in our net tangible book value after March 31, 2002, our net tangible book value as of March 31, 2002 would have been approximately $                              , or $                              per share. This represents an immediate increase in net tangible book value of $                              per share to our existing stockholders and an immediate and substantial dilution of $                              per share to new investors. The dilution to investors in the offering is as illustrated in the following table:

 
   As Adjusted
(with broker commissions)
Public offering price per share   $      
  Net tangible book value per share before the offering          
   
   
  Increase per share attributable to new investors          
   
   
As adjusted net tangible book value per share after the offering, assuming the payment of broker or sales agent commissions          
         
Dilution per share to new investors   $      
   
   

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SELECTED CONSOLIDATED FINANCIAL DATA

        The selected statement of operations data shown below for the years ended December 31, 1999, 2000 and 2001 and the balance sheet data as of December 31, 2000 and 2001 are derived from our audited financial statements included elsewhere in this prospectus. The selected statement of operations data shown below for the period from August 29, 1996 (date of incorporation) to December 31, 1996 and for the years ended December 31, 1997 and 1998 and the balance sheet data as of December 31, 1996, 1997, 1998 and 1999 are derived from our audited financial statements not included elsewhere in this prospectus. The selected statement of operations data for the three months ended March 31, 2001 and 2002 and the balance sheet data as of March 31, 2002 has been derived from our unaudited financial statements included elsewhere in this prospectus, which, in the opinion of management, include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the financial information shown in these statements. The results for the three months ended March 31, 2001 and 2002 are not necessarily indicative of the results to be expected for the full year or for any future period. All share and per share numbers have been adjusted to reflect the one-for-ten reverse stock split effected on May 31, 2002. When you read this selected consolidated financial data, it is important that you also read the historical financial statements and related notes included in this prospectus, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations." Historical results are not necessarily indicative of future results.

 
   Period from August 29, 1996 (date of incorporation) to December 31, 1996
    
    
    
    
    
   Three Months Ended March 31,
  
 
   Year Ended December 31,
  
 
   1997
   1998
   1999
   2000
   2001
   2001
   2002
  
 
   (in thousands, except per share and share data)

  
Statement of Operations Data:                                                  
Licensing income   $ —   $ —   $ —   $ —   $ —   $ 1,747   $ —   $ —  
Interest income     53     144     123     199     228     175     32     23  
   
 
 
 
 
 
 
 
 
Total income     53     144     123     199     228     1,922     32     23  
   
 
 
 
 
 
 
 
 
Expenses:                                                  
  Research and development     —     336     1,400     661     1,888     2,142     233     644  
  General and administration     547     1,618     1,112     853     1,679     2,299     465     459  
  Depreciation and amortization     1     52     140     91     98     92     24     23  
  Loss on disposal of capital assets     —     28     130     —     —     —     —     —  
Total expenses     548     2,034     2,782     1,605     3,665     4,533     722     1,126  
Loss before other expenses     (495 )   (1,890 )   (2,659 )   (1,406 )   (3,437 )   (2,611 )   (690 )   (1,103 )
   
 
 
 
 
 
 
 
 
  Cost of acquisition of Structured Biologicals, Inc.     375     —     —     —     —     —     —     —  
   
 
 
 
 
 
 
 
 
  Purchased in-process research and development     5,377     —     —     —     —     —     —     —  
   
 
 
 
 
 
 
 
 
Total other expenses     5,752     —     —     —     —     —     —     —  
   
 
 
 
 
 
 
 
 
Net loss   $ (6,247 ) $ (1,890 ) $ (2,659 ) $ (1,406 ) $ (3,437 ) $ (2,611 ) $ (690 ) $ (1,103 )
   
 
 
 
 
 
 
 
 
Basic and diluted net loss per share   $ (2.56 ) $ (0.53 ) $ (0.76 ) $ (0.28 ) $ (0.60 ) $ (0.40 ) $ (0.12 ) $ (0.16 )
   
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding     2,437     3,596     3,486     4,942     5,754     6,485     5,764     6,788  
   
 
 
 
 
 
 
 
 

        The as adjusted column (without broker commissions) in the balance sheet data below gives effect to the sale of            shares of common stock in this offering at a public offering price of $                      per share, after deducting estimated offering expenses and assuming no broker, dealer or sales agent commissions are paid. The as adjusted column (with broker commissions) in the balance sheet data below gives effect to the sale of shares of common stock in this offering at a public offering price of $                      per share, after deducting estimated offering expenses and assuming the payment of

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broker, dealer or sales agent commissions equal to 10% of the aggregate selling price of the shares. Because the shares being offered in this offering are being offered and sold by us on a best efforts basis, we may not sell all or any of the shares and therefore may not receive all or any of the net proceeds in this offering.

 
    
    
    
    
    
   As of March 31,
 
   As of December 31,
   2002 As Adjusted (without broker commissions)
   2002 As Adjusted (with broker commissions)
 
   1997
   1998
   1999
   2000
   2001
 
   (in thousands)
Balance Sheet Data:                                          
Cash and cash equivalents   $ 1,750   $ 2,841   $ 5,275   $ 2,612   $ 4,502   $ 3,163   $  
Working capital     356     2,099     5,004     1,735     3,666     2,568      
Total assets     2,450     3,449     5,780     3,067     4,979     3,626      
Convertible debenture—current     —     —     —     500     —     —     —
Stockholders' equity     1,034     2,631     5,451     2,126     4,051     2,947      

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

        The following discussion of BioSante's financial condition and results of operations should be read in conjunction with BioSante's financial statements and related notes included elsewhere in this registration statement and the cautionary statements concerning forward-looking statements presented in the sections entitled "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements."

General

        We are a development stage biopharmaceutical company engaged in the development and commercialization of hormone replacement products to treat hormone deficiencies in men and women. We also are engaged in the development and commercialization of vaccine adjuvants or immune system boosters, proprietary novel vaccines, drug delivery systems and the purification of the milk of transgenic animals, all applications using calcium phosphate nanoparticles, or CAP.

        Our hormone replacement products, which we license on an exclusive basis from Antares Pharma, Inc., address a variety of hormone deficiencies that affect both men and women.

        The following is a list of our hormone replacement gel products in development:

        These gel products are designed to be quickly absorbed through the skin after application on the arms, abdomen or thighs, delivering the required hormone to the bloodstream evenly and in a non-invasive, painless manner. The gels are formulated to be applied once per day and to be absorbed into the skin without a trace of residue.

        Under the terms of our license agreement with Antares, we acquired exclusive development and marketing rights, with the right to grant sub-licenses, to the single active ingredient testosterone and estradiol products for all therapeutic indications in the U.S., Canada, Mexico, Israel, Malaysia, Australia, Indonesia, New Zealand, China and South Africa. We acquired exclusive development and marketing rights, with the right to grant sub-licenses, for the combination estradiol and progestogen product in the U.S. and Canada. In partial consideration for the license of the hormone replacement products, we paid Antares an upfront license fee of $1.0 million. In addition, under the terms of the license agreement, we agreed to fund the development of the proposed products, make milestone payments and, after all necessary regulatory approvals are received, pay royalties to Antares on sales of the products.

        In a series of amendments executed during 2001 between BioSante and Antares, BioSante returned to Antares the license rights to one of four previously licensed hormone products, namely the estradiol patch, in all countries of the licensed territory. Additionally, BioSante returned to Antares the license rights to the single entity estrogen and testosterone gel products in Malaysia and Australia. In exchange for the return to Antares of the estradiol patch in all the countries and the single entity estradiol and testosterone gel products in Malaysia and Australia, Antares granted BioSante a credit for

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approximately $600,000 of manufacturing and formulation services and a license for the combination estradiol plus testosterone gel product.

        In September 2000, we sub-licensed the marketing rights to our portfolio of female hormone replacement products in Canada to Paladin Labs Inc. In exchange for the sub-license, Paladin agreed to make an initial investment in our company, make future milestone payments and pay royalties on sales of the products in Canada. The milestone payments will be in the form of a series of equity investments by Paladin in BioSante common stock at a 10 percent premium to the market price of our stock at the time the equity investment is made. Upon execution of the sub-license agreement, Paladin made an initial investment of $500,000 in our company in the form of a convertible debenture, convertible into our common stock at $10.50 per share. On August 13, 2001, BioSante exercised its right and declared the debenture converted in full. Accordingly, 47,619 shares of BioSante common stock were issued to Paladin on August 23, 2001. During the third quarter 2001, Paladin made a series of equity investments in BioSante as a result of certain sub-licensing transactions and BioSante reaching certain milestones. These equity investments resulted in BioSante issuing an additional 18,939 shares of its common stock to Paladin.

        On August 7, 2001, we entered into a sub-license agreement with Solvay Pharmaceuticals, B.V. covering the U.S. and Canadian rights to the estrogen/progestogen combination transdermal hormone replacement gel product licensed from Antares in June 2000. Under the terms of the agreement, Solvay paid us an initial payment of $2.5 million ($1.7 million net of the related payments due to Antares and Paladin) and has agreed to make future milestone payments and pay escalating sales-based royalties. Solvay is responsible for all costs of development and marketing of the estrogen/progestogen combination transdermal hormone replacement gel product. We have retained co-promotion rights to the product and will be compensated for sales we generate over and above those attributable to Solvay's marketing efforts. The Canadian rights to this product had previously been sub-licensed to Paladin as part of that sub-license arrangement and were repurchased by us prior to the Solvay transaction in exchange for $125,000, paid by the issuance of 17,361shares of BioSante common stock with a market value of $125,000 at the date of the transaction.

        Our strategy with respect to our hormone replacement product portfolio is to conduct human clinical trials of our proposed hormone replacement products, which are required to obtain approval from the U.S. Food and Drug Administration, or FDA, to market the products in the United States.

        Our strategy with respect to our CAP technology over the next 12 months is to continue development and actively seek collaborators and licensees to accelerate the development and commercialization of products incorporating this technology. We received clearance in August 2000 from the FDA to initiate a Phase I clinical trial of our CAP as a vaccine adjuvant and delivery system based on an Investigational New Drug Application that we filed in July 2000. The Phase I trial was a double-blind, placebo-controlled trial in 18 subjects to determine the safety of CAP as a vaccine adjuvant. The trial was completed in October 2000. The results showed that there was no apparent difference in side effect profile between CAP and placebo.

        On October 1, 2001, BioSante licensed its Bio-Vant calcium phosphate based vaccine adjuvant on a non-exclusive basis to Corixa Corporation for use in several potential vaccines to be developed by Corixa. This is the first license agreement signed by BioSante for the development of CAP as a vaccine adjuvant. Under the agreement, Corixa has agreed to pay BioSante milestone payments upon the achievement by Corixa of certain milestones plus royalty payments on sales by Corixa if and when vaccines are approved using Bio-Vant and sold on a commercial basis. If Corixa sub-licenses vaccines that include Bio-Vant, BioSante will share in milestone payments and royalties received by Corixa. The license agreement covers access to Bio-Vant for a variety of cancer, infectious and auto immune disease vaccines.

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        Our goal is to develop and commercialize our portfolio of hormone replacement products and CAP technology into a wide range of pharmaceutical products and to expand this product portfolio as appropriate. Our strategy to obtain this goal is to:

        We currently expect that we will add employees as we continue to develop and commercialize our hormone replacement products and products incorporating our CAP technology or in-license or otherwise acquire products in late-stage human clinical development.

        All of our revenue to date has been derived from interest earned on invested funds and license payments earned on sub-licensing transactions. We have not commercially introduced any products. Since our inception, we have experienced significant operating losses. We incurred a net loss of $1,102,926 for the quarter ended March 31, 2002 , resulting in an accumulated deficit of $19,353,959. We expect that we will incur substantial and continuing losses for the foreseeable future as our product development programs expand and various preclinical and clinical trials commence. The amount of these losses may vary significantly from year-to-year and quarter-to-quarter and will depend upon, among other factors:

        In order to generate revenues, we must successfully develop and commercialize our proposed products in pre-clinical development, in late-stage human clinical development, or already on the market that we may in-license or otherwise acquire or enter into collaborative agreements with others who can successfully develop and commercialize them. Even if our proposed products and the products we may license or otherwise acquire are commercially introduced, they may never achieve market acceptance and we may never generate revenues or achieve profitability.

        On May 31, 2002, we effected a one-for-ten reverse split of our issued and outstanding shares of common stock and class C special stock. All share and per share numbers in this prospectus have been adjusted to reflect the reverse stock split.

Results of Operations

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

        General and administrative expenses decreased slightly from $465,058 during the three month period ended March 31, 2001 to $459,129 during the three month period ended March 31, 2002.

        Research and development expenses increased from $232,989 during the three month period ended March 31, 2001 to $644,394 during the three month period ended March 31, 2002. This increase is the result of certain manufacturing and formulation services provided by and paid to Antares and increased expenses during the three month period ended March 31, 2002 associated with the clinical development

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of our hormone replacement product portfolio. As a result of our hormone replacement product in-license agreement entered into in June 2000, we expect that our research and development expenses will increase significantly. We also are required under the terms of our license agreement with the University of California to have available certain amounts of funds for research and development activities. The amount of our research and development expenditures may fluctuate from quarter-to-quarter and year-to-year depending on: (1) the resources available; (2) our development schedule; (3) results of studies, clinical trials and regulatory decisions; and (4) competitive developments.

        Interest income decreased from $32,109 during the three month period ended March 31, 2001 to $23,259 during the three month period ended March 31, 2002 as a result of lower average cash balances, coupled with lower interest rates.

        We incurred a net loss of $1,102,926 for the three month period ended March 31, 2002, compared to a net loss of $689,900 for the three month period ended March 31, 2001. The increase in the net loss is the result of increased expenses during the three month period ended March 31, 2002 associated with (1) clinical development and personnel-related expenses, (2) legal expenses related to increased patent, collaboration and licensing activities, and (3) increased expenses associated with the clinical development of our hormone replacement product portfolio. We anticipate that we will incur operating losses for the foreseeable future.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

        General and administrative expenses increased from $1,678,581 during the year ended December 31, 2000 to $2,298,659 during the year ended December 31, 2001. This increase of approximately 37% is due primarily to expenses related to personnel-related expenses and the higher legal expenses related to the increase in our patent, collaboration and licensing activities.

        Research and development expenses increased from $1,887,832 during the year ended December 31, 2000 to $2,141,944 during the year ended December 31, 2001. This overall increase is the result of increased expenses during the year ended December 31, 2001 associated with the clinical development of our hormone replacement product portfolio and payment to Antares for certain manufacturing and formulation services, offset by a $1.0 million upfront license fee paid to Antares during the year ended December 31, 2000. 2001 also included recognition of a $250,000 credit from Antares, which represented the portion of the initial $1.0 million upfront license fee paid in 2000 which was creditable against future payments. As a result of our hormone replacement product in-license agreement with Antares, we expect to continue to incur significant expenses, primarily relating to our research and development activities. Management estimates that it is currently expending approximately $200,000 to $250,000 per month on research and development activities and approximately $350,000 to $400,000 per month in total expenses, including research and development activities. We are required under the terms of our license agreement with the University of California to have available certain amounts of funds for research and development activities. The amount of BioSante's actual research and development expenditures, however, may fluctuate from quarter-to-quarter and year-to-year depending on: (1) the resources available; (2) our development schedule; (3) results of studies, clinical trials and regulatory decisions; and (4) competitive developments.

        On August 7, 2001, we entered into a sub-license agreement with Solvay Pharmaceuticals, B.V. covering the U.S. and Canadian rights to the estrogen/progestogen combination transdermal hormone replacement gel product licensed from Antares in June 2000. Under the terms of the agreement, Solvay paid us an initial payment of $2.5 million ($1.7 million net of the related payments due to Antares and Paladin) and has agreed to make future milestone payments and pay escalating sales-based royalties. Solvay is responsible for all costs of development and marketing of the estrogen/progestogen combination transdermal hormone replacement gel product. We have retained co-promotion rights to

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the product and will be compensated for sales we generate over and above those attributable to Solvay's marketing efforts. The Canadian rights to this product had previously been sub-licensed to Paladin as part of that sub-license arrangement and were repurchased by us prior to the Solvay transaction in exchange for $125,000, paid by the issuance of 17,361shares of BioSante common stock with a market value of $125,000 at the date of the transaction.

        Interest income decreased from $227,718 during the year ended December 31, 2000 to $174,416 during the year ended December 31, 2001 as a result of lower average cash balances in 2001 and as a result of lower interest rates on invested cash balances in 2001. We expect interest income to decline in future periods as we use our cash balances for operations.

        BioSante incurred a net loss of $2,611,361 for the year ended December 31, 2001, compared to a net loss of $3,437,195 for the year ended December 31, 2000. The overall decrease in the net loss is the result of a $1.0 million upfront license fee paid to Antares during the year ended December 31, 2000, offset by the combination of $1.7 million, net, in revenue from a sub-license upfront payment received by BioSante and increased expenses during the year ended December 31, 2001 associated with (1) personnel-related expenses, (2) legal expenses related to increased patent, collaboration and licensing activities, and (3) increased expenses associated with the clinical development of our hormone replacement product portfolio and payment to Antares for certain manufacturing and formulation services. We anticipate that our operating losses will continue for the foreseeable future.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

        General and administrative expenses increased from $853,389 during the year ended December 31, 1999 to $1,678,581 during the year ended December 31, 2000. This increase of approximately 97% is due primarily to expenses related to personnel-related expenses and the higher legal expenses related to the increase in our patent, collaboration and licensing activities.

        Research and development expenses increased from $660,588 during the year ended December 31, 1999 to $1,887,832 during the year ended December 31, 2000. This overall increase is the result of a $1.0 million upfront license fee paid to Antares during the year ended December 31, 2000 and increased expenses related to the clinical development of our hormone replacement product portfolio.

        Interest income increased from $198,683 during the year ended December 31, 1999 to $227,718 during the year ended December 31, 2000 as a result of higher average cash balances in 2000.

        BioSante incurred a net loss of $3,437,195 for the year ended December 31, 2000, compared to a net loss of $1,406,259 for the year ended December 31, 1999. The overall increase in the net loss is the result of a $1.0 million upfront license fee paid to Antares during the year ended December 31, 2000, in addition to increases in (1) personnel-related expenses, (2) legal expenses related to increased patent, collaboration and licensing activities, and (3) expenses associated with the clinical development of our hormone replacement product portfolio.

Liquidity and Capital Resources

        To date, we have raised equity financing and received licensing income to fund our operations, and we expect to continue this practice to fund our ongoing operations. Since inception, we have raised net proceeds of approximately $12.9 million from private equity financings, class A and class C stock conversions, warrant exercises and in the third quarter 2000, the issuance of a $500,000 convertible debenture, which was converted into 47,619 shares of common stock in the third quarter of 2001. In addition, as a result of licensing upfront payments and milestones, we have received an additional $2.1 million.

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Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

        Our cash and cash equivalents were $3,162,849 and $4,502,387 at March 31, 2002 and December 31, 2001, respectively. The decrease in our cash balances is due to cash used in operating activities. We used cash in operating activities of $1,321,655 for the three month period ended March 31, 2002 versus cash used in operating activities of $785,657 for the three month period ended March 31, 2001. This change reflects the cash expenditures associated with: (1) increased research and development and personnel-related expenses, (2) legal fees associated with the increase in patent, licensing and collaboration activities, (3) increased expenses related to the clinical development of our hormone replacement product portfolio and expenses related to manufacturing and formulation services provided by Antares, and (4) reduction of accounts payable and accrued expenses. Net cash used in investing activities was $16,633 for the three month period ended March 31, 2002 versus $2,121 used in investing activities for the three month period ended March 31, 2001. The uses of cash in investing activities during both three month periods ended March 31, 2002 and 2001 were capital expenditures for the purchases of computer equipment. Net cash used in financing activities was $1,250 for the three months ended March 31, 2002 compared to cash provided by financing activities of $3,397,970 for the three months ended March 31, 2001. The net cash used in financing activities of $1,250 was the result of transaction costs associated with a previous financing, while the net cash provided during the three months ended March 31, 2001 was the result of the receipt of cash proceeds (net of transaction costs) from our private placement of units which closed in April 2001 and licensing milestone payments received.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

        We used cash in operating activities of $1,823,820 for the year ended December 31, 2001 versus cash used in operating activities of $3,149,604 for the year ended December 31, 2000. This decrease reflects the combination of the upfront payment received from Solvay in 2001, offset by cash expenditures associated with: (1) increased general and administrative and research and development personnel-related expenses, (2) legal fees associated with the increase in patent, licensing and collaboration activities; and (3) increased expenses related to the clinical development of our hormone replacement product portfolio and expenses related to manufacturing and formulation services provided by Antares. Offsetting these increased expenses for the year ended December 31, 2001 is the recognition of $1.7 million of licensing revenues pursuant to the Solvay sub-license agreement versus the year ended December 31, 2000 and the $1.0 million upfront license fee payment to Antares paid in June 2000. Net cash used in investing activities was $86,735 for the year ended December 31, 2001 versus $43,238 for the year ended December 31, 2000. The significant uses of cash in investing activities for the year ended December 31, 2001 and 2000 included capital expenditures for computer equipment. Additionally, during the year ended December 31, 2001, we relocated our business office thus incurring the capital expenditures of used office equipment and furniture. Net cash provided by financing activities was $3,801,187 for the year ended December 31, 2001 compared to $530,045 for the year ended December 31, 2000. Net cash provided during 2001 was primarily the result of $3.7 million cash proceeds pursuant to our private placement of common stock and warrants which closed in April 2001 and licensing milestone payments received while net cash provided during 2000 was primarily the result of a $500,000 convertible debenture issued to Paladin Labs Inc. pursuant to a sub-license agreement related to our proposed female hormone replacement products.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

        We used cash in operating activities of $3,149,604 for the year ended December 31, 2000 versus cash used in operating activities of $1,787,822 for the year ended December 31, 1999. This change was driven by the increase in research and development expenses, including the hormone product portfolio in-license upfront payment of $1.0 million to Antares Pharma, Inc. during 2000. Net cash used in

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investing activities was $43,238 for the year ended December 31, 2000 versus $4,219 for the year ended December 31, 1999. The significant uses of cash in investing activities for the year ended December 31, 2000 were capital expenditures for the purchase of office furniture and computer equipment. The significant uses of cash in investing activities for the year ended December 31, 1999 included capital expenditures for office furniture and a computer. Net cash provided by financing activities was $530,045 for the year ended December 31, 2000 compared to $4,225,343 for the year ended December 31, 1999. Net cash provided during 2000 was primarily the result of a $500,000 convertible debenture issued to Paladin Labs Inc. pursuant to a sub-license agreement related to our proposed female hormone replacement products. Net cash provided in 1999 was primarily the result of our private placement in May 1999.

Capital Resources

        We currently do not have sufficient resources to complete the commercialization of any of our proposed products. Therefore, we will likely need to raise substantial additional capital to fund our operations. We cannot be certain that any financing will be available when needed. If we fail to raise additional financing as we need it, we may have to delay or terminate our own product development programs or pass on opportunities to in-license or otherwise acquire new products that we believe may be beneficial to our business. We expect to continue to spend capital on:

        The amount of capital we may need will depend on many factors, including the:

Commitments

        We have several financial commitments, including those relating to our license agreement with the University of California.

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        Under our license agreement with the University of California, we are required to:


Year
   Minimum Annual
Royalty Due
2004   $ 50,000
2005   $ 100,000
2006   $ 150,000
2007   $ 200,000
2008   $ 400,000
2009   $ 600,000
2010   $ 800,000
2011   $ 1,500,000
2012   $ 1,500,000
2013   $ 1,500,000

        In addition, our license agreement with Antares, the licensor of our hormone products, requires us to make certain payments as development milestones are achieved and our license agreement with the University of California, requires us to have available minimum amounts of funds each year for research and development activities relating to our licensed technology and to achieve research and development milestones. Moreover, our fixed expenses, such as rent, license payments and other contractual commitments, may increase in the future, as we may:

        In addition to the commitments to the University of California, we also have minimum annual lease payments.

        The following table summarizes the timing of these future contractual obligations and commitments:

 
   Payments Due by Period
Contractual Obligations
   Total
   Less Than
1 Year
   1-3 Years
   4-5 Years
   After 5
Years
Operating Leases   $ 274,688   $ 142,811   $ 131,877     —     —
Commitments Under License Agreement with UCLA     6,800,000     —     50,000   $ 250,000   $ 6,500,000
Commitments Under License Agreement with Wake Forest     1,240,000     100,000     55,000     145,000     940,000
Total Contractual Cash Obligations   $ 8,314,688   $ 242,811   $ 236,877   $ 395,000   $ 7,440,000

        The capital equipment expenditures of $86,735 during 2001 were principally for the acquisition of office furniture and computer equipment. We expect to spend approximately $25,000 to $50,000 in capital expenditures during the next 12 months.

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Outlook

        We currently do not have sufficient resources to complete the commercialization of any of our proposed products. Based on our current cash resources, we believe we should be able to maintain our current pace and level of expenditures through December 2002, although no assurance can be given that we will not need additional cash prior to such time. Unexpected increases in general and administrative expenses and research and development expenses may cause us to need additional financing prior to December 2002. If we do not sell any of the shares offered in this offering, we believe our existing cash will be sufficient to fund our operations through December 2002. If we are able to sell all of the shares offered in this offering, we believe that with the net proceeds of this offering and our existing cash, we will have sufficient working capital to meet our needs through December 2003. We have based these estimates, however, on assumptions that may prove to be wrong. As a result, we may need to obtain additional financing prior to that time. In addition, we may need to raise additional capital at an earlier time to fund our ongoing research and development activities, acquire new products or take advantage of other unanticipated opportunities. Any additional equity financings may be dilutive to our existing shareholders, and debt financing, if available, may involve restrictive covenants on our business. In addition, insufficient funds may require us to delay, scale back or eliminate some or all of our programs designed to facilitate the commercial introduction of our proposed products, prevent commercial introduction of our products altogether or restrict us from acquiring new products that we believe may be beneficial to our business. We are required under the terms of our license agreement with the University of California, however, to have available certain amounts of funds for research and development activities.

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BUSINESS

General

        We are a development stage biopharmaceutical company that is developing a pipeline of hormone replacement products to treat hormone deficiencies in both men and women. We also are engaged in the development of our proprietary calcium phosphate, nanoparticulate-based platform technology, or CAP, for vaccine adjuvants, drug delivery systems and to purify the milk of transgenic animals.

        To enhance the value of our current pharmaceutical portfolio, we are pursuing the following corporate growth strategies:

        Our primary focus is to build a pipeline of hormone replacement products for the treatment of human hormone deficiencies. Symptoms of hormone deficiency in men include impotence, lack of sex drive, muscle weakness and osteoporosis, and in women, menopausal symptoms, such as hot flashes, vaginal atrophy, decreased libido and osteoporosis.

        Our proposed hormone replacement products, which we license on an exclusive basis from Antares Pharma Inc., are gel formulations of testosterone, estradiol, a combination of estradiol and testosterone and a combination of estradiol and a progestogen. The gels are designed to be absorbed quickly through the skin after application on the arms, shoulders, abdomen or thighs, delivering the hormone to the bloodstream evenly and in a non-invasive, painless manner. Human clinical trials have begun on four of our proposed hormone replacement products, a necessary step in the process of obtaining United States Food and Drug Administration, or FDA, approval to market the products.

        The following is a list of our hormone replacement gel products in development:

        Our CAP technology, which we license on an exclusive basis from the University of California, is based on the use of extremely small, solid, uniform particles, which we call "nanoparticles," as immune system boosters, for drug delivery, to purify the milk of transgenic animals, among other uses. We have identified three potential initial applications for our CAP technology:

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        The following is a list of our CAP products in development:

        Our company, which was initially formed as a corporation organized under the laws of the Province of Ontario on August 29, 1996, was continued as a corporation under the laws of the State of Wyoming on December 19, 1996 and reincorporated in Delaware on June 26, 2001. Our company is the continuing corporation resulting from an amalgamation, or consolidation, of three companies—our company, which was previously named "Ben-Abraham Technologies Inc.," Structured Biologicals Inc., a corporation organized under the laws of the Province of Ontario, and 923934 Ontario Inc., a corporation organized under the laws of the Province of Ontario and a wholly owned subsidiary of Structured Biologicals. The amalgamation was approved by our stockholders on November 27, 1996 and the articles of arrangement were filed and became effective as of December 6, 1996. In November 1999, our stockholders approved the change of our corporate name from Ben-Abraham Technologies Inc. to BioSante Pharmaceuticals, Inc. In June 2001, our stockholders approved the reincorporation of our company to Delaware.

        On May 31, 2002, we effected a one-for-ten reverse split of our issued and outstanding shares of common stock and class C stock . All share and per share numbers in this prospectus have been adjusted to reflect the reverse stock split .

Business Strategy

        Our goal is to develop and commercialize our hormone replacement products and CAP technology into a wide range of pharmaceutical products. Key elements of our strategy to obtain this goal are to:

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Description of Our Proposed Hormone Replacement Products

        We are focused on building a pipeline of hormone replacement products to treat hormone deficiencies in men and women. Our proposed hormone replacement products are gel formulations of testosterone (the natural male hormone), estradiol (the natural female hormone), a combination of estradiol and testosterone and a combination of estradiol and a progestogen (another female hormone). The gels are designed to be quickly absorbed through the skin after application on the arms, shoulders, abdomen or thighs, delivering the hormone to the bloodstream evenly and in a non-invasive, painless manner. The gels are formulated to be applied once per day and to be absorbed into the skin without a trace of residue.

        The following is a list our hormone replacement gel products in development:

        Testosterone deficiency in men is known as hypogonadism. Low levels of testosterone may result in lethargy, depression, decreased sex drive, impotence, low sperm count and increased irritability. Men with severe and prolonged reduction of testosterone may also experience loss of body hair, reduced

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muscle mass, osteoporosis and bone fractures due to osteoporosis. Approximately five million men in the United States, primarily in the over age 40 male population group, have lower than normal levels of testosterone. Testosterone replacement therapy has been shown to restore levels of testosterone with minimal side effects.

        Testosterone often is delivered through injections or dermal, or skin, patches. Delivery of testosterone through dermal patches was developed primarily to promote the therapeutic effects of testosterone replacement therapy without the often painful side effects associated with testosterone injections. Dermal patches, however, have been associated with skin irritation. Our testosterone formulated gel product for men, Bio-T-Gel, is designed to deliver the required amount of testosterone without the pain of injections and the skin irritation and discomfort associated with dermal patches. We are aware of one gel testosterone product for men currently on the market in the United States and several in development.

        Estrogen deficiency in women can result in hot flashes and flushes, vaginal atrophy, decreased libido and osteoporosis. Hormone replacement in women decreases the chance that women will experience the symptoms of estrogen deficiency. According to industry estimates, approximately twenty million women in the U.S. currently are receiving some form of estrogen or combined estrogen hormone replacement therapy.

        Estrogen is most commonly given orally in pill or tablet form. There are several potential side effects, however, with the use of oral estrogen, including insufficient absorption by the circulatory system, gallstones and blood clots. Although dermal patches have been shown to avoid some of these problems, delivery of estrogen through dermal patches, like testosterone patches, can result in skin irritation. Our estrogen formulated gel product, Bio-E-Gel, is designed to deliver estrogen without the skin irritation associated with, and the physical presence of, dermal patches.

        Through a sub-license agreement with Solvay Pharmaceuticals, B.V., we are in the process of developing a combined estrogen/progestogen formulated gel product. Women whose uterus is intact often use a combined hormone replacement therapy because evidence suggests adding progestogen to estrogen therapy may reduce the potential risks of endometrial cancer and endometrial hyperplasia associated with estrogen therapy in these women.

        We are also developing a testosterone formulated gel product for women, LibiGel. Though generally characterized as a male hormone, testosterone also is present in women and its deficiency has been found to cause low libido or sex drive. Studies have shown that testosterone replacement therapy can boost sexual desire and pleasure, increase bone density, raise energy levels and improve mood. Similarly, we are developing a combination gel product of testosterone and estradiol for women, LibiGel-E/T, for low libido or sex drive.

        We believe our proposed hormone replacement products have a number of benefits, including the following:

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        Human clinical trials have begun on four of our proposed hormone replacement products, which are required to obtain FDA approval to market the products.

        We license our proposed hormone replacement products on an exclusive basis from Antares Pharma, Inc. under a license agreement we entered into in June 2000. Under the terms of our license agreement with Antares (which we have amended several times since June 2000), we acquired exclusive development and marketing rights, with the right to grant sub-licenses (1) to the single active ingredient testosterone and estradiol products for all therapeutic indications in the U.S., Canada, Mexico, Israel, New Zealand, China, Indonesia and South Africa, (2) for the combination estradiol and progestogen product in the U.S. and Canada, and (3) for a transdermal hormone replacement gel containing a combination of estradiol and testosterone in the U.S., Canada, Mexico, Israel, Australia, New Zealand, Malaysia, China, Indonesia and South Africa.

        In September 2000, we sublicensed the marketing rights for our female proposed hormone replacement products to Paladin Labs Inc. in Canada. In August 2001, we sublicensed our proposed estrogen/progestogen combination transdermal hormone replacement gel product to Solvay Pharmaceuticals, B.V. for development and sale in the U.S. and Canada.

        On August 7, 2001, we entered into a sub-license agreement with Solvay Pharmaceuticals, B.V. covering the U.S. and Canadian rights to the proposed estrogen/progestogen combination transdermal hormone replacement gel product licensed from Antares in June 2000. Under the terms of the agreement, Solvay paid us an initial payment of $2.5 million ($1.7 million net of the related payments due to Antares and Paladin) and has agreed to make future milestone payments and pay escalating sales-based royalties. Solvay is responsible for all costs of development and marketing of the proposed estrogen/progestogen combination transdermal hormone replacement gel product. We have retained co-promotion rights to the product and will be compensated for sales we generate over and above those attributable to Solvay's marketing efforts.

        In April 2002, we exclusively in-licensed from Wake Forest University and Cedars-Sinai Medical Center three issued U.S. Patents claiming triple hormone therapy (the combination use of estrogen plus progestogen plus androgen, e.g. testosterone) and an option for triple hormone contraception. The financial terms of the license include an upfront payment by BioSante, regulatory milestones, maintenance payments and royalty payments by BioSante if the product gets approved and subsequently marketed.

Description of Our CAP Technology and Proposed CAP Technology Products

        We believe our CAP technology will serve as an effective vehicle for delivering drugs and vaccines and enhancing the effects of vaccines. The key component, calcium phosphate, or CAP, is on the FDA's GRAS (Generally Regarded as Safe) list. Our nanoparticles have successfully passed the first stage of toxicity studies for administration orally, into muscles, under the skin, and into the lungs by inhalation.

        The following is a list of our CAP products in development:

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        Research and development involving our CAP technology originated in a project set up under an agreement dated April 6, 1989 between the University of California and our predecessor company, Structured Biologicals, relating to viral protein surface absorption studies. The discovery research was funded by Structured Biologicals at UCLA School of Medicine and was based, in essence, on the use of extremely small, solid, uniform particles as components that could increase the stability of drugs and act as systems to deliver drugs into the body.

        These ultra fine particles are made from inert, biologically acceptable materials, such as ceramics, pure crystalline carbon or biodegradable calcium phosphate. The size of the particles is in the nanometer range. A nanometer is one millionth of a millimeter and typically particles measure approximately 1,000 nanometers (nm). For comparison, a polio virus particle is about 27 nm in diameter, a herpes virus particle has a central core measuring 100 nm in diameter, contained in an envelope measuring 150-200 nm, while a tuberculosis bacterium is rod-shaped, about 1,200 nm long by 300 nm across. Because the size of these particles is measured in nanometers, we use the term "nanoparticles" to describe them.

        We use the nanoparticles as the basis of a delivery system by applying a layer of a "bonding" coating of cellobiose or another carbohydrate derivative. The critical property of these coated nanoparticles is that biologically active molecules, proteins, peptides or pharmacological agents, for example, vaccine components like bacterial or viral antigens or proteins like insulin, attached to them retain their activity and can be protected from natural alterations to their molecular structure by adverse environmental conditions. It has been shown in studies conducted by us that when these combinations are injected into animals, the attachment can enhance the biological activity as compared to injection of the molecule alone.

        A major immune response that is triggered by these combination particles is the creation of antibody molecules, which can then specifically counteract an invading virus or bacterium. Similarly, a drug will produce an effect on an organ system only if it can attach to specific receptors on the surface of target cells (e.g., tumor cells). The stabilizing and slow release capabilities of a drug carrier and delivery system based on this discovery can lead to significant advances towards finding more effective and less toxic or harmful molecules to seek out and attach to such receptors.

        We believe our CAP technology has a number of benefits, including the following:

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        Research in these areas has resulted in the issuance of a number of patents that we license from the University of California.

        We have completed a Phase I human clinical trial of CAP as a vaccine adjuvant and delivery system, a necessary step in the process of obtaining FDA approval to market the product. The Phase I trial was a double blind, placebo controlled trial, in 18 subjects to determine the safety of CAP as a vaccine adjuvant. The trial results showed that there was no apparent difference in side-effect profile between CAP and placebo.

        We plan to develop commercial applications of our CAP technology and any proprietary technology developed as a result of our ongoing research and development efforts. Initially, we plan to pursue the development of (1) vaccine adjuvants, (2) drug delivery systems, including a method of delivering proteins (e.g., insulin) through inhalation, orally and subcutaneous routes of administration, and (3) the purification of the milk of transgenic animals. Our pre-clinical research team in our laboratory in Smyrna, Georgia is currently pursuing the development of our CAP technology.

        Vaccine adjuvants.    We believe that our CAP nanoparticles may offer a means of preparing new improved formulations of current vaccines that are equal or better in their safety and immunogenicity, that is, in their capacity to elicit an immune response, compared to alum-formulated and non-adjuvanted vaccines but may be injected in lower concentrations and less often which could result in certain benefits, including cost savings and improved patient compliance. Also, we believe that CAP will allow for creation of safe and effective vaccines for diseases and conditions for which no vaccines currently exist.

        We intend to seek opportunities to enter into business collaborations or joint ventures with vaccine companies and others interested in vaccine development, co-development and co-marketing arrangements. We believe these collaborations may enable us to accelerate the development of potential improved vaccines. These arrangements also could include out-licenses of our CAP technology to vaccine companies and others for further development and marketing.

        Our nanoparticles when combined with vaccine antigens have been shown in animal studies conducted by us and others to possess an ability to elicit a higher immune response than non-adjuvanted vaccines and an immune response of the same magnitude as alum-formulated vaccines but up to 100 times lower concentrations. These preclinical studies also have shown that our CAP nanoparticles also may sustain higher antibody levels over a longer time period than both alum-formulated vaccines and non-adjuvanted vaccines. Because our CAP nanoparticles are made of calcium phosphate, which has a chemical nature similar to normal bone material and therefore is natural to the human body, as opposed to aluminum hydroxide, or alum, which is not natural to the human body, we believe that our nanoparticles may be safer to use than alum. In our animal studies, we observed no material adverse reactions when our CAP nanoparticles were administered at effective levels.

        We filed an investigational new drug, or IND, application with the FDA in July 2000 to commence a Phase I human clinical trial. We completed our Phase I human clinical trial in October 2000. As discussed in more detail under the heading "Government Regulation," the purpose of a Phase I trial is to evaluate the metabolism and safety of the experimental product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence of possible effectiveness. The Phase I trial of our CAP specifically looked at safety parameters, including local irritation and blood chemistry changes. The trial was completed and there was no apparent difference in the side effects profile between CAP and placebo.

        In addition to continuing our own research and development in this area, we intend to seek opportunities to enter into business collaborations or joint ventures with vaccine companies and others interested in co-development and co-marketing arrangements with respect to our CAP nanoparticles for

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use as a vaccine adjuvant. These arrangements also could include out-licenses of our CAP technology to vaccine companies and others for further development in their on-going vaccine development.

        Our outlicensing activities with respect to our adjuvant, which we call Bio-Vant, for use in other companies' vaccines have to date included meeting with target companies and, in some cases, agreeing that the target company will test our adjuvant in their animal models. Thereafter, the target company may send to us its vaccine antigen or DNA which we will then formulate with our nanoparticles and return for use in the target company's animal models. Once this is completed, if the results are positive, we would negotiate an out-license agreement with the target company.

        In November 1999, we announced that we formed a collaborative research alliance with Antares Pharma, Inc. to evaluate the efficacy of combining our nanoparticle drug delivery and adjuvant or immune system boosters with Antares' needle-free pressure injection. This research alliance evaluated the ability of the combined systems to deliver DNA vaccines as part of a DNA vaccine program at a major U.S. university. In August 2000, we announced initial preclinical results from our collaboration with Antares. The initial tests demonstrated that Antares' needle-free pressure assisted injections containing our CAP technology produced better cellular immune responses in the injected animals than the injections without our CAP technology. No further work related to our CAP technology with Antares is currently planned.

        In June 2000, we announced an option license agreement with ID Biomedical Corporation to use CAP as an adjuvant in a second-generation vaccine against group-A streptococcus ("GAS"). GAS is considered a worldwide public health threat causing strep-throat, skin infections, rheumatic fever, invasive fasciitis (flesh eating disease), toxic shock syndrome and other diseases. We believe ID Biomedical has decided to proceed without the use of CAP in their GAS vaccine.

        We announced in August 2000, a non-exclusive option license agreement with Antex Biologics, Inc. to conduct preclinical tests of CAP in vaccines against Chlamydia pneumoniae and H. pylori. This collaboration is ongoing.

        In October 2001, we announced a non-exclusive license agreement with Corixa Corporation to use our Bio-Vant vaccine adjuvant in potential vaccines to be development by Corixa. This is the first license agreement signed by BioSante for the development of CAP as a vaccine adjuvant. Under the license agreement, Corixa has agreed to pay us milestone payments upon the achievement by Corixa of certain milestones plus royalty payments on sales by Corixa if and when vaccines are approved using Bio-Vant and sold on a commercial basis. If Corixa sub-licenses vaccines that include Bio-Vant, we will share in milestone payments and royalties received by Corixa. The license agreement covers access to Bio-Vant for a variety of cancer, infectious and auto immune disease vaccines.

        Drug delivery systems.    The third field of use in which we are exploring applying our CAP technology involves creating novel and improved forms of delivery of drugs, including proteins (e.g., insulin). The attachment of drugs to CAP may enhance their effects in the body or enable the addition of further protective coatings to permit oral, delayed-release and mucosal (through mucous membranes) applications. Currently, insulin is given by frequent, inconvenient and often painful injections. However, several companies are in the process of developing and testing products that will deliver insulin orally or through inhalation. We believe we may have successfully created a formulation for the inhaled delivery of insulin, which we call Bio-Air. We are in the process of contacting and meeting the insulin manufacturers and companies with devices for inhalation of drugs to pursue collaborations for this development. Furthermore, we have shown pre-clinical efficacy in the oral delivery of insulin in diabetic mouse models. In the oral insulin mouse models, our product, which we call CAP-Oral, has shown an 80% reduction of glucose levels for 12 hours versus 20-30% glucose reduction for five hours for free insulin. Our research and development efforts in this area are ongoing.

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        Transgenic Milk Purification.    The fourth field of use in which we are exploring applying our CAP technology is in the purification of the milk of transgenic animals in which protein drugs are grown. This is achieved by selectively isolating biologically active therapeutic proteins from the transgenic milk. This method uses our CAP technology to recover greater than 90% of drug protein from the milk in a way that may require less downstream processing and may produce higher overall yields at lower cost than currently used methods. Our method dissolves casein clusters, thereby freeing the drug proteins, and then reforms the casein clusters using CAP as the core. Caseins are then removed from the milk, leaving high concentrations of the drug protein in the remaining crystal clear whey fraction.

Sales and Marketing

        We currently have very limited sales and marketing personnel to sell on a commercial basis any of our proposed products. If and when we are ready to commercially launch a product, we will either contract with or hire qualified sales and marketing personnel or seek a joint marketing partner to assist us with this function.

Research and Product Development

        We expect to spend a significant amount of our financial resources on research and development activities. We spent approximately $2,142,000 in 2001 and $1,888,000 in 2000 on research and development activities. Since we are not yet engaged in the commercial distribution of any products and we have no revenues from the sale of our products, these research and development costs must be financed by us. We estimate that we are currently spending approximately $200,000 to $250,000 per month on research and development activities. These expenditures, however, may fluctuate from quarter-to-quarter and year-to-year depending upon the resources available and our development schedule. Results of preclinical studies, clinical trials, regulatory decisions and competitive developments may significantly influence the amount of our research and development expenditures. In addition, we expect that our spending on product development will increase if we are successful at in-licensing or otherwise acquiring other late-stage development products.

Manufacturing

        We currently do not have any facilities suitable for manufacturing on a commercial scale basis any of our proposed products nor do we have any experience in volume manufacturing. We will either find our own manufacturing facilities, hire additional personnel with manufacturing experience and comply with the extensive Good Manufacturing Practices, or GMP, regulations of the FDA and other regulations applicable to such a facility or we will more likely rely upon third-party manufacturers to manufacture our proposed products in accordance with these regulations.

        In September 1999, we entered into an arrangement with the University of Iowa to manufacture our CAP nanoparticles for use in our Phase I human clinical trial. Under the arrangement, the University of Iowa manufactured both a trial batch of our CAP nanoparticles and a clinical batch which was used in the clinical trial.

        Currently, our gel hormone products are manufactured through an exclusive agreement with Antares Pharma, Inc.

Patents, Licenses and Proprietary Rights

        Our success depends and will continue to depend in part upon our ability to maintain our exclusive licenses, to maintain patent protection for our products and processes, to preserve our proprietary information and trade secrets and to operate without infringing the proprietary rights of third parties. Our policy is to attempt to protect our technology by, among other things, filing patent applications or obtaining license rights for technology that we consider important to the development of our business.

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        Antares Pharma, Inc.    In June 2000, we entered into a license agreement with Antares Pharma, Inc. pursuant to which Antares has granted us an exclusive license to four proposed hormone replacement products for the treatment of testosterone deficiency in men and women and estrogen deficiency in women, including rights to sublicense the hormone replacement technology, in order to develop and market the hormone replacement technology in certain territories. Antares has an issued patent for these technologies in the United States and has filed patent applications for this licensed technology in several foreign jurisdictions, including Argentina, Australia, Canada, Europe, Italy, Japan, Korea, New Zealand, South Africa, and Taiwan.

        In a series of amendments executed during 2001 between BioSante and Antares, BioSante returned to Antares the license rights to one of the four previously licensed hormone products, namely the estradiol patch, in all countries of the licensed territory. Additionally, BioSante returned to Antares the license rights to the single entity estrogen and testosterone gel products in Malaysia and Australia. In exchange for the return to Antares of the estradiol patch in all the countries and the single entity estradiol and testosterone gel products in Malaysia and Australia, Antares granted BioSante a credit for approximately $600,000 of manufacturing and formulation services and a license for a transdermal hormone replacement gel combination of testosterone and estradiol.

        The license agreement with Antares required us to pay a $1,000,000 up-front license fee to Antares, which we paid in June 2000. Also pursuant to the terms of the Antares license agreement, we expect to:

        University of California.    In June 1997, we entered into a licensing agreement with the Regents of the University of California, which has subsequently been amended, pursuant to which the University has granted us an exclusive license to nine United States patents owned by the University, including rights to sublicense such patents, in fields of use initially pertaining to: (1) vaccine adjuvants; (2) vaccine constructs or combinations for use in immunization against herpes virus; (3) drug delivery systems; and (4) red blood cell surrogates. The University of California has filed patent applications for this licensed technology in several foreign jurisdictions, including Canada, Europe and Japan.

        The license agreement with the University of California requires us to undertake various obligations, including:

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        The license agreement further provides that we have the right to abandon any project in any field of use without abandoning our license to pursue other projects in that or other fields of use covered by the agreement. In May 1999, we notified the University that we would not pursue the red blood cell surrogate use because we did not believe it will be proven an effective use of CAP. In October 1999, we signed an amendment to our license agreement with the University, which removed the red-blood cell surrogate use from the agreement. In addition, under the terms of the amendment, the University agreed to make other changes we suggested to the license agreement, including delaying minimum royalty payments until 2004 and limiting the University's rights to terminate the agreement in cases where we do not perform under the agreement. If we violate or fail to perform any term or covenant of the license agreement and fail to cure this default within 60 days after written notice from the University, the University may terminate some projects included in the agreement. In May 2001, we signed a second amendment to our license agreement with the University to amend certain provisions of the license agreement for sublicensing arrangements with third parties.

        Patents and patent applications.    We own one United States patent and no foreign patents. In June 1999, we filed a patent for our advanced method of selectively isolating biologically active therapeutic proteins from transgenic milk. This patent was issued in February 2001. In February 2000, we filed a patent application with the U.S. Patent and Trademark Office relating to our development work with vaccine adjuvants, conventional DNA and RNA vaccines and drug delivery, including aerosol delivery into the lungs. In addition, there are two other patent applications pending for products in development.

        Trademarks and trademark applications.    We have filed trademark applications in the U. S. for the mark BIOSANTE for vaccines and vaccine adjuvants and for our proposed hormone replacement products. Both applications have been allowed for registration and will register upon submission of proof of use. We have also filed U.S. trademark applications and received Notices of Allowance for the marks BIOVANT, BIOAIR, NANOVANT and LIBIGEL. Two other U. S. trademark applications are pending for BIO-E-GEL and BIO-T-GEL for products in development. The BIOSANTE mark is registered in the European Union and Israel, and BIO-E-GEL and BIO-T-GEL are registered in Mexico. In addition, there are 17 other applications pending in the European Union and other countries for marks including the BIOSANTE mark. We do not have any other registered trademarks.

        Confidentiality and assignment of inventions agreements.    We require our employees, consultants and advisors having access to our confidential information to execute confidentiality agreements upon commencement of their employment or consulting relationships with us. These agreements generally provide that all confidential information we develop or make known to the individual during the course of the individual's employment or consulting relationship with us must be kept confidential by the

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individual and not disclosed to any third parties. We also require all of our employees and consultants who perform research and development for us to execute agreements that generally provide that all inventions conceived by these individuals will be our property.

Competition

        There is intense competition in the biopharmaceutical industry, including in the hormone replacement therapy market, the market for prevention and/or treatment of the same infectious diseases we target and in the acquisition of products in the late-stage development phase or already on the market. Potential competitors in the United States are numerous and include major pharmaceutical and specialized biotechnology companies, universities and other institutions. In general, competition in the pharmaceutical industry can be divided into four categories: (1) corporations with large research and developmental departments that develop and market products in many therapeutic areas; (2) companies that have moderate research and development capabilities and focus their product strategy on a small number of therapeutic areas; (3) small companies with limited development capabilities and only a few product offerings; and (4) university and other research institutions.

        All of our competitors in categories (1) and (2) and some of our competitors in category (3) have longer operating histories, greater name recognition, substantially greater financial resources and larger research and development staffs than we do, as well as substantially greater experience than us in developing products, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products.

        A significant amount of research in the field is being carried out at academic and government institutions. These institutions are becoming increasingly aware of the commercial value of their findings and are becoming more aggressive in pursuing patent protection and negotiating licensing arrangements to collect royalties for use of technology that they have developed.

        We expect our products, if and when approved for sale, to compete primarily on the basis of product efficacy, safety, patient convenience, reliability and patent position. In addition, the first product to reach the market in a therapeutic or preventative area is often at a significant competitive advantage relative to later entrants in the market.

        We are aware of certain programs and products under development by others which may compete with our proposed hormone replacement products and products we may develop that incorporate our CAP technology. Several competing companies, including Wyeth-Ayerst Pharmaceuticals, Novartis AG, Solvay Pharmaceuticals, Inc., Noven Pharmaceuticals, Inc. and Berlex Laboratories, Inc., dominate the international hormone replacement industry. The international vaccine industry is dominated by three companies: GlaxoSmithKline, Aventis (through its subsidiaries, including Institut Merieux International, Pasteur Merieux Serums et Vaccins, Connaught Laboratories Limited and Connaught Laboratories, Inc.) and Merck & Co., Inc.

        There are several firms currently marketing or developing transdermal hormone replacement products. They include The Procter & Gamble Company, Noven Pharmaceuticals, Inc., Novavax, Inc., Cellegy Pharmaceuticals, Inc., Auxilium A2, Inc., Watson Pharmaceuticals Inc. and Solvay Pharmaceuticals, Inc.

        With regard to our CAP technology, the larger, better known pharmaceutical companies have generally focused on a traditional synthetic drug approach, although some have substantial expertise in biotechnology. During the last decade, however, significant research activity in the biotechnology industry has been completed by smaller research and development companies, like us, formed to pursue new technologies. Competitive or comparable companies to us include Corixa Corporation, generally regarded as a leader in vaccine adjuvant development, ID Biomedical Corporation and Antex Biologicals Inc., which both develop sub-unit vaccines from mycobacteria and other organisms.

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Governmental Regulation

        Pharmaceutical products intended for therapeutic use in humans are governed by extensive FDA regulations in the United States and by comparable regulations in foreign countries. Any products developed by us will require FDA approvals in the United States and comparable approvals in foreign markets before they can be marketed. The process of seeking and obtaining FDA approval for a previously unapproved new human pharmaceutical product generally requires a number of years and involves the expenditure of substantial resources.

        Following drug discovery, the steps required before a drug product may be marketed in the United States include:

        Typically, preclinical studies are conducted in the laboratory and in animals to gain preliminary information on a proposed product's uses and physiological effects and harmful effects, if any, and to identify any potential safety problems that would preclude testing in humans. The results of these studies, together with the general investigative plan, protocols for specific human studies and other information, are submitted to the FDA as part of the IND application. The FDA regulations do not, by their terms, require FDA approval of an IND. Rather, they allow a clinical investigation to commence if the FDA does not notify the sponsor to the contrary within 30 days of receipt of the IND. As a practical matter, however, FDA approval is often sought before a company commences clinical investigations. That approval may come within 30 days of IND receipt but may involve substantial delays if the FDA requests additional information.

        The initial phase of clinical testing, which is known as Phase I, is conducted to evaluate the metabolism, uses and physiological effects of the experimental product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence of possible effectiveness. Phase I studies can also evaluate various routes, dosages and schedules of product administration. These studies generally involve a small number of healthy volunteer subjects, but may be conducted in people with the disease the product is intended to treat. The total number of subjects is generally in the range of 20 to 80. A demonstration of therapeutic benefit is not required in order to complete Phase I trials successfully. If acceptable product safety is demonstrated, Phase II trials may be initiated.

        Phase II trials are designed to evaluate the effectiveness of the product in the treatment of a given disease and involve people with the disease under study. These trials often are well controlled, closely monitored studies involving a relatively small number of subjects, usually no more than several hundred. The optimal routes, dosages and schedules of administration are determined in these studies. If Phase II trials are completed successfully, Phase III trials are often commenced, although Phase III trials are not always required.

        Phase III trials are expanded, controlled trials that are performed after preliminary evidence of the effectiveness of the experimental product has been obtained. These trials are intended to gather the additional information about safety and effectiveness that is needed to evaluate the overall risk/benefit relationship of the experimental product and provide the substantial evidence of effectiveness and the

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evidence of safety necessary for product approval. Phase III trials usually include from several hundred to several thousand subjects.

        A clinical trial may combine the elements of more than one Phase and typically two or more Phase III studies are required. A company's designation of a clinical trial as being of a particular Phase is not necessarily indicative that this trial will be sufficient to satisfy the FDA requirements of that Phase because this determination cannot be made until the protocol and data have been submitted to and reviewed by the FDA. In addition, a clinical trial may contain elements of more than one Phase notwithstanding the designation of the trial as being of a particular Phase. The FDA closely monitors the progress of the phases of clinical testing and may, at its discretion, re-evaluate, alter, suspend or terminate the testing based on the data accumulated and its assessment of the risk/benefit ratio to patients. It is not possible to estimate with any certainty the time required to complete Phase I, II and III studies with respect to a given product.

        Upon the successful completion of clinical testing, an NDA is submitted to the FDA for approval. This application requires detailed data on the results of preclinical testing, clinical testing and the composition of the product, specimen labeling to be used with the drug, information on manufacturing methods and samples of the product. The FDA typically takes from six to 18 months to review an NDA after it has been accepted for filing. Following its review of an NDA, the FDA invariably raises questions or requests additional information. The NDA approval process can, accordingly, be very lengthy. Further, there is no assurance that the FDA will ultimately approve an NDA. If the FDA approves that NDA, the new product may be marketed. The FDA often approves a product for marketing with a modification to the proposed label claims or requires that post-marketing surveillance, or Phase IV testing, be conducted.

        All facilities and manufacturing techniques used to manufacture products for clinical use or sale in the United States must be operated in conformity with current "good manufacturing practice" regulations, commonly referred to as "GMP" regulations, which govern the production of pharmaceutical products. We currently do not have manufacturing capability. In the event we undertake any manufacturing activities or contract with a third-party manufacturer to perform our manufacturing activities, we intend to establish a quality control and quality assurance program to ensure that our products are manufactured in accordance with the GMP regulations and any other applicable regulations.

        Products marketed outside of the United States are subject to regulatory approval requirements similar to those in the United States, although the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain European countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. We intend to seek and utilize foreign partners to apply for foreign approvals of our products.

Employees

        We had eleven full-time employees as of March 31, 2002, including eight in research and development and three in management or administrative positions. None of our employees is covered by a collective bargaining agreement. We believe we have an excellent relationship with our employees.

Legal Proceedings

        We are not a party to any material, threatened or pending legal proceedings.

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MANAGEMENT

Executive Officers, Directors and Key Employees

        Set forth below is information concerning our executive officers, directors and key employees, including their age, as of June 3, 2002:

Name
   Age
   Title
Stephen M. Simes   50   Vice Chairman, President and Chief Executive Officer
Phillip B. Donenberg   41   Chief Financial Officer, Treasurer and Secretary
Leah M. Lehman, Ph.D.   38   Vice President, Clinical Development
Steven J. Bell, Ph.D.   42   Vice President, Research and Pre-Clinical Development
Louis W. Sullivan, M.D.(1)(2)(3)   68   Chairman of the Board
Victor Morgenstern(2)   59   Director
Fred Holubow(3)   63   Director
Ross Mangano(1)   56   Director
Edward C. Rosenow III, M.D.(3)   67   Director
Angela Ho(2)   49   Director
Peter Kjaer(1)   41   Director
(1)
Member of the audit and finance committee

(2)
Member of the compensation committee

(3)
Member of the scientific review committee

        Stephen M. Simes has served as our Vice Chairman, President and a director of our company since January 1998 and Chief Executive Officer since March 1998. From October 1994 to January 1997, Mr. Simes was President, Chief Executive Officer and a Director of Unimed Pharmaceuticals, Inc., a company with a product focus on infectious diseases, AIDS, endocrinology and oncology. From 1989 to 1993, Mr. Simes was Chairman, President and Chief Executive Officer of Gynex Pharmaceuticals, Inc., a company which concentrated on the AIDS, endocrinology, urology and growth disorders markets. In 1993, Gynex was acquired by Bio-Technology General Corp., and from 1993 to 1994, Mr. Simes served as Senior Vice President and director of Bio-Technology General Corp. Mr. Simes' career in the pharmaceutical industry started in 1974 with G.D. Searle & Co.

        Phillip B. Donenberg, CPA has served as our Chief Financial Officer, Treasurer and Secretary since July 1998. Before joining our company, Mr. Donenberg was Controller of Unimed Pharmaceuticals, Inc. from January 1995 to July 1998. Prior to Unimed Pharmaceuticals, Inc., Mr. Donenberg held similar positions with other pharmaceutical companies, including Gynex Pharmaceuticals, Inc., Molecular Geriatrics Corporation and Xtramedics, Inc.

        Leah M. Lehman, Ph.D. has served as our Vice President, Clinical Development since January 2001. Prior to joining our company, Dr. Lehman was Director of Clinical Research with Scientific Research Development Corp. from April 1995 to December 2000. From 1993 to 1995, Dr. Lehman was a clinical statistician at Abbott Laboratories.

        Steven J. Bell, Ph.D. has served as our Vice President, Research and Pre-Clinical Development since October 2000 and served as a Director of Research and Development of BioSante from July 1997 to October 2000. Prior to joining our company, Dr. Bell held various positions with Boehringer Mannheim, Hoffman-LaRoche, The Upjohn Company and Boehringer Ingelheim.

        The Honorable Louis W. Sullivan, M.D. has been our Chairman of the Board of Directors since March 1998 and has been a director of our company since its formation. Dr. Sullivan served as Secretary of Health and Human Services in the cabinet of President George Bush from 1989 to 1993.

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Since retiring from the Bush Administration, Dr. Sullivan has been President of the Morehouse School of Medicine in Atlanta, Georgia. He had previously served as President and Dean of the School from 1981 to 1985 and President from 1985 to 1989. Since 1993, Dr. Sullivan has served and continues to serve on the Boards of several large U.S. corporations, including 3M Corp., Bristol-Myers Squibb Company, Cigna Corporation, Georgia Pacific Corp. and Household International Inc.

        Victor Morgenstern was elected a director of our company in July 1999. Mr. Morgenstern has more than 32 years of investment experience and is the Chairman of the Board of Trustees of The Oakmark Funds, an open-end registered investment company and serves as managing director of Resolute Partners L.P. He is a trustee of the Illinois Institute of Technology.

        Fred Holubow was elected a director of our company in July 1999. Mr. Holubow has been a Vice President of Pegasus Associates since he founded Pegasus in 1982. Pegasus Associates is currently an operating division of William Harris Investors, a registered investment advisory firm. He specializes in analyzing and investing in pharmaceutical and biotechnology companies. Mr. Holubow has served on the Boards for Bio-Technology General Corp., ThermoRetec Corporation, Gynex Pharmaceuticals, Inc., Unimed Pharmaceuticals, Inc. and Gynex Pharmaceuticals, Inc.

        Ross Mangano was elected a director of our company in July 1999. Mr. Mangano has been the President and a director of Oliver Estate, Inc., a management company specializing in investments in public and private companies since 1971. He is the Chairman of Cerprobe Corporation, and serves as a director for Blue Chip Casino, Inc., Orchard Software Corporation, and U.S. RealTel Inc.

        Edward C. Rosenow, III, M.D. has been a director of our company since November 1997. Dr. Rosenow is a Master Fellow of the American College of Physicians as well as Master Fellow of the American College of Chest Physicians. Dr. Rosenow was the Arthur M. and Gladys D. Gray Professor of Medicine at the Mayo Clinic from 1988 until his recent retirement. Beginning with his residency in 1960, Dr. Rosenow has worked at the Mayo Clinic in many professional capacities including as a Consultant in Internal Medicine (Thoracic Diseases) from 1966 to 1996, an Assistant Professor, Associate Professor and Professor of Medicine at the Mayo Clinic Medical School, President of the Mayo Clinic Staff in 1986, and Chair of the Division of Pulmonary and Critical Care Medicine from 1987 to 1994. Dr. Rosenow has also served as a consultant to NASA, space station FREEDOM at the Johnson Space Center in Houston, Texas from 1989 to 1990 and as the President of the American College of Chest Physicians from 1989 to 1990. In 1998, he received the Mayo Distinguished Alumnus Award.

        Angela Ho has been a director of our company since June 1998. Ms. Ho was elected to our Board of Directors as a representative of certain major investors in Hong Kong. Ms. Ho has been the Vice Chairman and Chief Managing Officer of Jet-Asia Ltd., a Hong Kong-based aircraft and management company, since April 1996. From June 1996 to June 1998, Ms. Ho was the President of Ho Galleries Ltd., a New York art gallery.

        Peter Kjaer has been a director of our company since July 1999 and is a representative of certain major investors in Hong Kong. Mr. Kjaer has been President and Chief Executive Officer of Jet-Asia Ltd., a Hong Kong-based aircraft and management company, since April 1996. From April 1989 to July 1996, Mr. Kjaer was the General Manager and a director of the Gallery of Contemporary Living Ltd., a Hong Kong-based art gallery.

Board Committees

        The Board of Directors has an Audit and Finance Committee, Compensation Committee and Scientific Review Committee.

        Audit and Finance Committee.    The Audit and Finance Committee provides assistance to the Board of Directors in satisfying its fiduciary responsibilities relating to our accounting, auditing,

50


operating and reporting practices, and reviews our annual financial statements, the selection and work of our independent auditors and the adequacy of internal controls for compliance with corporate policies and directives. The Audit and Finance Committee consists of Mr. Kjaer, Dr. Sullivan and Mr. Mangano.

        Compensation Committee.    The Compensation Committee:

        The Compensation Committee consists of Dr. Sullivan, Mr. Morgenstern and Ms. Ho.

        Scientific Review Committee.    The Scientific Review Committee assists in evaluating potential new licenses or new products. The Scientific Review Committee consists of Dr. Sullivan, Mr. Holubow and Dr. Rosenow.

Director Compensation

        We do not pay fees to our directors. We do, however, periodically compensate our directors through the granting of stock options. On January 1, 2001, we granted stock options to purchase 2,500 shares of common stock to each of our non-employee directors. These options have an exercise price of $6.70 per share, fully vest on January 1, 2002 and expire ten years from the date of grant. All directors are reimbursed for travel expenses for attending meetings of the Board of Directors and any Board committees.

Executive Compensation

        The following table provides summary information concerning cash and non-cash compensation paid to or earned by our Chief Executive Officer and our executive officers, who received or earned cash and non-cash salary and bonus of more than $100,000, for the fiscal year ended December 31, 2001.

51



Summary Compensation Table

 
    
    
    
   Long-Term
Compensation
    
  
 
   Annual Compensation
    
  
Name and Principal Position
   Securities
Underlying
Options (#)
   All Other
Compensation ($)
  
  Year
   Salary ($)
   Bonus ($)
  
Stephen M. Simes
Vice Chairman, President and Chief Executive Officer		   2001
2000
1999		   $

 291,500
275,000
248,917		   $

 131,175
150,000
125,000
(1)
(2)		 71,406
185,625		   $

 18,388
29,317
22,965		 (3)
(3)
(3)

Phillip B. Donenberg
Chief Financial Officer, Treasurer and Secretary
 
2001
2000
1999
 
 
150,000
127,000
110,000
 
 
45,000
42,000
33,000

(4)
(5)
21,546
0
52,187
 
 
13,592
13,286
13,001
(6)
(6)
(6)

Leah M. Lehman, Ph.D.
Vice President, Clinical Development
 
2001
2000
1999
 
 
180,000
—
—
 
 
54,000
—
—
 
50,000
—
—
 
 
12,450
—
—
(7)

Steven J. Bell, Ph.D.
Vice President, Research and Pre-Clinical Development
 
2001
2000
1999
 
 
102,000
91,521
85,313
 
 
30,000
26,000
10,000

(8)
5,000
0
12,500
 
 
11,250
11,250
6,500
(9)
(9)
(9)

John E. Lee(10)
Former Vice President, Commercial Development
 
2001
2000
1999
 
 
146,407
70,833
—
 
 
—
—
—
 
—
50,000
—
 
 
9,338
81,470
—
(11)
(11)
(1)
Represents a cash bonus of $75,000 and a stock bonus of 12,500 shares of common stock valued at $75,000.

(2)
Represents a cash bonus of $75,000 and a stock bonus of 16,385 shares of common stock valued at $50,000.

(3)
Represents an auto allowance ($12,000 in 2001, $12,000 in 2000 and $12,000 in 1999), a 401(k) matching contribution ($5,250 in 2001, $5,250 in 2000 and $5,000 in 1999) and insurance premiums and taxes associated with the premiums ($1,138 in 2001, $12,067 in 2000 and $5,965 in 1999).

(4)
Represents a cash bonus of $30,000 and a stock bonus of 2,000 shares of common stock valued at $12,000.

(5)
Represents a cash bonus of $25,000 and a stock bonus of 2,621 shares of common stock valued at $8,000.

(6)
Represents an auto allowance ($7,200 in 2001, $7,200 in 2000 and $7,200 in 1999), a 401(k) matching contribution ($5,250 in 2001, $5,250 in 2000 and $5,000 in 1999) and insurance premiums paid and taxes associated with the premiums ($1,142 in 2001, $836 in 2000 and $801 in 1999).

(7)
Represents an auto allowance of $7,200 and a 401(k) matching contribution of $5,250.

(8)
Represents a cash bonus of $20,000 and a stock bonus of 1,000 shares of common stock valued at $6,000.

(9)
Represents an auto allowance ($6,000 in 2001, $6,000 in 2000 and $1,500 in 1999) and a 401(k) matching contribution ($5,250 in 2001, $5,250 in 2000 and $5,000 in 1999).

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(10)
Mr. Lee was Vice President, Commercial Development from August 2000 to September 2001. Mr. Lee resigned as Vice President, Commercial Development on September 28, 2001.

(11)
Represents an auto allowance ($5,400 in 2001 and $3,000 in 2000), a 401(k) matching contribution ($3,938 in 2001 and $2,188 in 2000) and relocation expenses and associated taxes of $76,282 in 2000.

Option Grants in Last Fiscal Year

        The following tables summarize option grants and exercises during the fiscal year ended December 31, 2001 to or by each of the executive officers named in the Summary Compensation Table on page 52 and the potential realizable value of the options held by these persons at December 31, 2001.

 
   Individual Grants(1)
Name
   Number of
Securities
Underlying
Options
Granted (#)
   Percent of
Total Options
Granted to
Employees in
Fiscal Year
   Exercise
Price
Per Share
   Expiration
Date
Stephen M. Simes   71,406 (2) 46.32 % $ 4.00   4/5/11

Phillip B. Donenberg
 
21,546
(2)
13.98
%
$
4.00
 
4/5/11

Leah M. Lehman, Ph.D.
 
50,000
(3)
32.44
%
$
6.70
 
12/31/10

Steven J. Bell, Ph.D.
 
5,000
(4)
3.24
%
$
6.70
 
12/31/10

John E. Lee
 
—
 
—
 
 
—
 
—
(1)
All of the options granted to the individuals in this table were granted under our Amended and Restated 1998 Stock Option Plan.

(2)
This option vests in equal quarterly installments over three years so long as the executive officer remains employed by us at that date. To the extent not already exercisable, this option becomes immediately exercisable in full upon certain changes in control of our company and remains exercisable for the remainder of its term.

(3)
This option vests: (i) with respect to 7,460 shares on 6/30/2001 and 12/31/2001; (ii) 3,730 shares on 3/31/2002, 6/30/2002, 9/30/2002, 12/31/2002, 3/31/2003, 6/30/2003, 9/30/2003 and 12/31/2003; and (iii) 5,240 shares on 1/1/2004. To the extent not already exercisable, this option becomes immediately exercisable in full upon certain changes in control of our company and remains exercisable for the remainder of its term.

(4)
This option vests in equal annual installments over three years so long as the executive officer remains employed by us at that date. To the extend not already exercisable, this option becomes immediately exercisable in full upon certain changes in control of our company and remains exercisable for the remainder of its term.

53

Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values

        The following table summarizes the number and value of options held by each of the executive officers named in the Summary Compensation Table on page 52 at December 31, 2001. None of these executive officers exercised any stock options during 2001.

 
   Number of Securities
Underlying Unexercised
Options at December 31, 2001
   Value of Unexercised
In-the-Money Options
at December 31, 2001(1)
Name
  Exercisable
   Unexercisable
   Exercisable
   Unexercisable
Stephen M. Simes   287,725   69,305   $ 1,707,667   $ 328,536
Phillip B. Donenberg   87,337   20,396   $ 518,390   $ 95,934
Leah M. Lehman, Ph.D   14,920   35,080   $ 26,856   $ 63,144
Steven J. Bell, Ph.D.   25,000   5,000   $ 140,625   $ 9,000
John E. Lee   50,000   —   $ —   $ —
(1)
Value based on the difference between the fair market value of one share of our common stock at December 31, 2001 ($8.50), and the exercise price of the options ranging from $2.30 to $9.10 per share. Options are in-the-money if the market price of the shares exceeds the option exercise price.

Employment and Separation Agreements

Simes Employment Agreement

        In January 1998, we entered into a letter agreement with Stephen M. Simes pursuant to which Mr. Simes serves as our Vice Chairman, President and Chief Executive Officer. The term of this agreement continues until December 31, 2003, after which time the term will be automatically extended for three additional years unless on or before October 1 immediately preceding the extension, either party gives written notice to the other of the termination of the agreement.

        Mr. Simes is entitled to receive an annual performance bonus of up to 50% of his then base salary if certain performance criteria are met. If Mr. Simes is terminated without cause or upon a change in control or if he terminates his employment for good reason, all of his options will become immediately exercisable and will remain exercisable for a period of one year (for the remainder of their term in the event of a change in control), and he will be entitled to a minimum severance payment of 12 months base salary. Mr. Simes is also subject to assignment of inventions, confidentiality and non-competition provisions.

Donenberg Employment Agreement

        In June 1998, we entered into a letter agreement with Phillip B. Donenberg pursuant to which Mr. Donenberg serves as our Chief Financial Officer. The term of this agreement continues until either party gives 30 days written notice to the other of the termination of the agreement.

        Mr. Donenberg is entitled to receive an annual performance bonus of up to 30% of his then base salary if certain performance criteria are met. If Mr. Donenberg is terminated without cause or upon a change in control or if he terminates his employment for good reason, all of his options will become immediately exercisable and will remain exercisable for a period of one year (for the remainder of their term in the event of a change in control), and he will be entitled to a minimum severance payment of 12 months base salary. Mr. Donenberg is also subject to assignment of inventions, confidentiality and non-competition provisions.

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Employment Agreements with Other Executive Officers

        We have entered into employment agreements with each of our other executive officers, Leah M. Lehman, Ph.D. and Steven J. Bell, Ph.D. These agreements provide for a fixed salary which may be adjusted from time to time by the Chief Executive Officer and the Compensation Committee of the Board. In addition, BioSante may pay Dr. Lehman and Dr. Bell an annual performance bonus of up to a maximum of 30% of their then base salary. The term of each of these employment agreements is for one year and will renew automatically every year unless either party gives the other party written notice of termination at least 30 days prior to the end of the then term of the agreement. If the executive officer's employment is terminated as a result of death or disability, by BioSante without cause or by the executive officer for good reason, the officer will be entitled to a severance payment in an amount equal to his or her base salary for the shorter of (1) 12 months or (2) the date upon which the officer obtains full-time employment or a consulting position with another company. In addition, the executive officer will receive health and dental benefits from BioSante during any severance period. Dr. Lehman and Dr. Bell are also subject to assignment of inventions, confidentiality and non-competition provisions.

Separation Agreement and Mutual Release

        On February 1, 2002, we entered into a separation and mutual release agreement with John E. Lee in connection with Mr. Lee's resignation as Vice President, Commercial Development and an employee of BioSante effective September 28, 2001. In connection with the separation and mutual release agreement, Mr. Lee received a severance payment of $184,166.66 on October 7, 2001 and will receive a monthly payment of $12,000 for eight months, commencing February 1, 2002 in consideration of providing marketing liaison services to BioSante during this time.

Change in Control Arrangements

        Under our Amended and Restated 1998 Stock Option Plan, options granted under that plan will become fully exercisable following certain changes in control of our company, such as:

Stock Option Plan

        From time to time we grant options under our Amended and Restated 1998 Stock Option Plan. The option plan was approved by our Board of Directors on December 8, 1998 and approved by our stockholders on July 13, 1999. The option plan has been amended several times to increase the number of shares reserved for issuance. The option plan provides for the grant to employees, officers, directors, consultants and independent contractors of our company and our subsidiaries of options to purchase shares of common stock that qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, as well as non-statutory options that do not qualify as incentive stock options. This plan is administered by the Compensation Committee of our Board of

55


Directors, which determines the persons who are to receive awards, as well as the type, terms and number of shares subject to each award.

        We have reserved an aggregate of 1,000,000 shares of common stock for awards under the option plan. As of June 3, 2002, options to purchase an aggregate of 776,267 shares of common stock were outstanding under the option plan, of which 588,267 were fully vested, and a total of 223,733 shares of common stock remained available for grant. As of June 3, 2002, the outstanding options under the plan were held by an aggregate of 19 individuals and were exercisable at prices ranging from $2.30 to $10.40 per share of common stock.

        Incentive stock options granted under the plan may not have an exercise price less than the fair market value of the common stock on the date of the grant (or, if granted to a person holding more than 10% of our voting stock, at less than 110% of fair market value). Non-statutory stock options granted under the plans may not have an exercise price less than 85% of fair market value on the date of grant. Aside from the maximum number of shares of common stock reserved under the plans, there is no minimum or maximum number of shares that may be subject to options under the plans. However, the aggregate fair market value of the stock subject to incentive stock options granted to any optionee that are exercisable for the first time by an optionee during any calendar year may not exceed $100,000. Options generally expire when the optionee's employment or other service is terminated with us. Options generally may not be transferred, other than by will or the laws of descent and distribution, and during the lifetime of an optionee, may be exercised only by the optionee. The term of each option, which is fixed by our Board of Directors at the time of grant, except that an incentive stock option may be exercisable only for 10 years and an incentive stock option granted to a person holding more than 10% of our voting stock may be exercisable only for five years.

        The option plan contains provisions under which options would become fully exercisable following certain changes in control of our company, such as (1) the sale, lease, exchange or other transfer of all or substantially all of the assets of our company to a corporation that is not controlled by us, (2) the approval by our stockholders of any plan or proposal for the liquidation or dissolution of our company, (3) certain merger or business combination transactions, (4) more than 50% of our outstanding voting shares are acquired by any person or group of persons who did not own any shares of common stock on the effective date of the plan, or (5) certain changes in the composition of our Board of Directors.

        Payment of an option exercise price may be made in cash, or at the Compensation Committee's discretion, in whole or in part by tender of a broker exercise notice, a promissory note or previously acquired shares of our common stock having an aggregate fair market value on the date of exercise equal to the payment required.


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Director Relationships

        Messrs. Morgenstern, Holubow and Mangano were elected to our Board of Directors in July 1999 as representatives of the lead investors in our May 1999 private placement. Neither Mr. Morgenstern, Mr. Holubow nor Mr. Mangano has entered into any voting agreements with the lead investors nor does Mr. Morgenstern, Mr. Holubow or Mr. Mangano otherwise have any control over the voting of shares held by the lead investors.

        Ms. Ho and Mr. Kjaer were elected to our Board of Directors as representatives of several investors located in Hong Kong. Neither Ms. Ho nor Mr. Kjaer has entered into any voting agreements with these Hong Kong investors nor does Ms. Ho or Mr. Kjaer otherwise have any control over the voting of shares held by these investors.

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April 2001 Private Placement

        In connection with our April 2001 private placement, we sold an aggregate of 925,000 shares of our common stock and warrants to purchase an aggregate of 462,500 shares of our common stock for $4.00 per unit, each unit consisting of one-tenth of a share of common stock and a warrant to purchase one-twentieth of a share of our common stock, for an aggregate purchase price of $3,700,000, to accredited investors, including certain existing stockholders, directors and officers. Stephen M. Simes purchased 12,500 shares of common stock and a warrant to purchase 6,250 shares of common stock, Phillip B. Donenberg purchased 1,250 shares of common stock and a warrant to purchase 625 shares of common stock, Leah M. Lehman, Ph.D. purchased 37,500 shares of common stock and a warrant to purchase 18,750shares of common stock, Steven J. Bell, Ph.D. purchased 375 shares of common stock and a warrant to purchase 187 shares of common stock, Victor Morgenstern, including an affiliated Trust and his wife, purchased an aggregate of 75,000 shares of common stock and warrants to purchase an aggregate of 37,500 shares of common stock and Fred Holubow purchased 12,500 shares of common stock and a warrant to purchase 6,250 shares of common stock.

Other Agreements with Affiliates

        In January 2001, we entered into a consulting agreement with Scientific Research Development Corporation, a company owned and operated by Ronald B. McCright, the husband of Leah M. Lehman, Ph.D., an executive officer of BioSante. Under the agreement, Scientific Research Development Corporation provides us with database and statistical programming, database management, medical writing and project management services. In consideration for such services, we paid Scientific Research Development Corporation an aggregate of approximately $60,000 during the fiscal year ended December 31, 2001. This agreement expires on December 31, 2002.

        In July 2001, Avi Ben-Abraham, M.D., a former director of BioSante, and BioSante entered into a settlement agreement with a stockholder of BioSante in connection with certain claims and disputes among the stockholder, Dr. Ben-Abraham and BioSante arising out of actions of Dr. Ben-Abraham during 1996. In exchange for a release of all claims, suits, damages and judgments among the stockholder, BioSante and Dr. Ben-Abraham, Dr. Ben-Abraham transferred 50,000 shares of his BioSante common stock to the stockholder.


SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

        The following table sets forth information known to us with respect to the beneficial ownership of each class of our capital stock as of June 3, 2002 for (1) each person known by us to beneficially own more than 5% of any class of our voting securities, (2) each of the executive officers named in the Summary Compensation Table under the heading "Management" (3) each of our directors and (4) all of our executive officers and directors as a group. Except as otherwise indicated, we believe that each of the beneficial owners of our capital stock listed below, based on information provided by these owners, has sole investment and voting power with respect to its shares, subject to community property laws where applicable.

        Unless otherwise noted, each of the stockholders listed in the table possesses sole voting and investment power with respect to the shares indicated. Shares not outstanding but deemed beneficially

57


owned by virtue of the right of a person or member of a group to acquire them within 60 days are treated as outstanding only when determining the amount and percent owned by such person or group.

 
    
    
   Class C Special Stock
    
    
  
 
   Common Stock
   Common Stock
and Common
Stock
Equivalents
   Percent of
Total
Voting
Power(1)
  
Name
  
  Number
   Percent
   Number
   Percent
  
Stephen M. Simes(2)   394,562 (3) 5.9 % —   —   394,562   5.5 %
Louis W. Sullivan, M.D.(2)   15,000 (4) *   100,000   21.4 % 115,000   1.7 %
Edward C. Rosenow III, M.D.(2)   12,500 (5) *   —   —   12,500   *  
Victor Morgenstern(2)   512,500 (6) 7.9 % —   —   512,500   7.4 %
Fred Holubow(2)   66,250 (7) 1.0 % —   —   66,250   1.0 %
Ross Mangano(2)   1,505,499 (8) 22.1 % —   —   1,505,499   20.7 %
Angela Ho(2)   75,000 (9) 1.2 % 100,000   21.4 % 175,000   2.6 %
Peter Kjaer(2)   10,000 (10) *   —   —   10,000   *  
Phillip B. Donenberg(2)   99,865 (11) 1.6 % —   —   99,865   1.5 %
Leah M. Lehman, Ph.D.(2)   74,900 (12) 1.2 % —   —   74,900   1.1 %
Steven J. Bell, Ph.D.(2)   28,228 (13) *   —   —   28,228   *  
JO & Co.   1,155,000 (14) 17.2 % —   —   1,155,000   16.1 %
Hans Michael Jebsen   425,000 (15) 6.6 % 100,000   21.4 % 525,000   7.6 %
King Cho Fung   370,000 (16) 5.8 % 62,500   13.4 % 432,500   6.3 %
Marcus Jebsen   175,000 (17) 2.8 % 50,000   10.7 % 225,000   3.3 %
Avi Ben-Abraham, M.D.   1,047,980 (18) 16.6 % —   —   1,047,980   15.4 %
All executive officers and directors as a group (11 persons)   2,794,304 (19) 37.0 % 200,000   42.9 % 2,994,304   37.3 %
*
less than 1%.

(1)
In calculating the percent of total voting power, the voting power of shares of our common stock and shares of our class C special stock is combined.

(2)
Address: 111 Barclay Boulevard, Suite 280, Lincolnshire, Illinois 60069.

(3)
Mr. Simes' beneficial ownership includes 309,427 shares of common stock issuable upon exercise of stock options and 18,750 shares of common stock issuable upon exercise of warrants.

(4)
Dr. Sullivan's beneficial ownership includes 15,000 shares of common stock issuable upon exercise of a stock option.

(5)
Dr. Rosenow's beneficial ownership includes 12,500 shares of common stock issuable upon exercise of stock options.

(6)
Mr. Morgenstern's beneficial ownership includes: (1) 10,000 shares of common stock issuable upon exercise of a stock option, (2) 95,000 shares of common stock issuable upon exercise of warrants, (3) 32,500 shares of common stock issuable upon exercise of warrants and 80,000 shares of common stock held by Mr. Morgenstern's wife as trustee of the Morningstar Trust, as to which Mr. Morgenstern disclaims control, direction or beneficial ownership, (4) 10,000 shares of common stock issuable upon exercise of a warrant and 20,000 shares of common stock held by Mr. Morgenstern's wife, as to which Mr. Morgenstern disclaims control, direction or beneficial ownership, and (5) 25,000 shares of common stock issuable upon exercise of a warrant and 50,000 shares of common stock held by Resolute Partners L.P. Victor Morgenstern is managing director of Resolute Partners L.P.

(7)
Mr. Holubow's beneficial ownership includes 18,750 shares of common stock issuable upon exercise of warrants and 10,000 shares of common stock issuable upon exercise of a stock option.

58

(8)
Mr. Mangano's beneficial ownership includes: (1) 10,000 shares of common stock issuable upon exercise of a stock option, (2) 375,000 shares of common stock issuable upon exercise of a warrant and 780,000 shares of common stock held by JO & Co., of which Mr. Mangano is President, and (3) an aggregate of 225,000 shares of common stock and an aggregate of 112,499 shares of common stock issuable upon exercise of warrants held in various accounts, of which Mr. Mangano is an advisor and/or a trustee. Mr. Mangano has sole dispositive power over these shares. See note (14) below.

(9)
Ms. Ho's beneficial ownership includes 15,000 shares of common stock issuable upon exercise of stock options.

(10)
Mr. Kjaer's beneficial ownership includes 10,000 shares of common stock issuable upon exercise of a stock option.

(11)
Mr. Donenberg's beneficial ownership includes 93,369 shares of common stock issuable upon exercise of stock options and 625 shares of common stock issuable upon exercise of a warrant.

(12)
Dr. Lehman's beneficial ownership includes 18,650 shares of common stock issuable upon exercise of a stock option and 18,750 shares of common stock issuable upon exercise of a warrant.

(13)
Dr. Bell's beneficial ownership includes 26,666 shares of common stock issuable upon exercise of stock options and 187 shares of common stock issuable upon exercise of a warrant.

(14)
Includes 375,000 shares of common stock issuable upon exercise of a warrant. Ross Mangano, a director of BioSante, has sole voting power over these shares. See note (8) above. The address for JO & Co. is 112 West Jefferson Boulevard, Suite 613, South Bend, Indiana 46634.

(15)
Mr. Jebsen's beneficial ownership includes 75,000 shares of common stock issuable upon exercise of a warrant. Mr. Jebsen's address is c/o Jebsen & Co. Ltd., 28/F Caroline Center, 28 Yun Ping Road, Causeway Bay, Hong Kong.

(16)
Mr. Fung's beneficial ownership includes 75,000 shares of common stock issuable upon exercise of a warrant. Mr. Fung's address is c/o SP 2, 15/F, 46 Lyndhurst Terrace, Central Hong Kong.

(17)
Mr. Jebsen's beneficial ownership includes 25,000 shares of common stock issuable upon exercise of a warrant. Mr. Jebsen's address is c/o Jebsen & Co. Ltd., 28/F Caroline Center, 28 Yun Ping Road, Causeway Bay, Hong Kong.

(18)
Dr. Ben-Abraham's beneficial ownership includes 5,000 shares of common stock issuable upon exercise of a stock option. Mr. Ben-Abraham's address is 22 Maskit Street, Suite MB-12550, Lumir Bldg., Herzelya Pituach, 46733, Israel.

(19)
The amount beneficially owned by all current directors and executive officers as a group includes 682,672 shares issuable upon exercise of warrants and stock options held by these individuals and 554,999 shares issuable upon exercise of warrants held by entities affiliated with these individuals. See notes (6), (8) and (14) above.

59


DESCRIPTION OF CAPITAL STOCK

Authorized Shares

        We are authorized to issue 100,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.0001 par value per share. The following is a summary of the material terms and provisions of our capital stock. Because it is a summary, it does not include all of the information that is included in our certificate of incorporation. The text of our certificate of incorporation, which is attached as an exhibit to this registration statement, is incorporated into this section by reference.

Common Stock

        We are authorized to issue 100,000,000 shares of common stock, of which 6,321,458 shares were issued and outstanding as of June 3, 2002. Each share of our common stock entitles its holder to one vote per share. Holders of our common stock are entitled to receive dividends as and when declared by our Board of Directors from time to time out of funds properly available to the payment of dividends. Subject to the liquidation rights of any outstanding preferred stock, the holders of our common stock are entitled to share pro rata in the distribution of the remaining assets of our company upon a liquidation, dissolution or winding up of our company. The holders of our common stock have no cumulative voting, preemptive, subscription, redemption or sinking fund rights.

Class C Special Stock

        We are authorized to issue 4,687,684 shares of class C special stock, of which 466,602 shares were issued and outstanding as of June 3, 2002. Each share of class C special stock entitles its holder to one vote per share. Each share of our class C special stock is exchangeable, at the option of the holder, for one share of common stock, at an exchange price of $2.50 per share, subject to adjustment upon certain capitalization events. Holders of our class C special stock are not entitled to receive dividends. Holders of our class C special stock are not entitled to participate in the distribution of our assets upon any liquidation, dissolution or winding-up of our company. The holders of our class C special stock have no cumulative voting, preemptive, subscription, redemption or sinking fund rights.

Undesignated Preferred Stock

        We are authorized to issue 10,000,000 shares of preferred stock, none of which are issued and outstanding. Our Board of Directors is authorized to issue one or more series of preferred stock with such rights, privileges, restrictions and conditions as our Board may determine. The preferred stock, if issued, may be entitled to rank senior to our common stock with respect to the payment of dividends and the distributions of assets in the event of a liquidation, dissolution or winding-up of our company.

Options and Warrants

        As of June 3, 2002, we had outstanding options to purchase an aggregate of 771,267 shares of common stock at a weighted average exercise price of $3.88 per share. All outstanding options provide for antidilution adjustments in the event of certain mergers, consolidations, reorganizations, recapitalizations, stock dividends, stock splits or other similar changes in our corporate structure and shares of our capital stock. We typically grant options with a ten-year term. We have outstanding warrants to purchase an aggregate of 1,644,750 shares of common stock at a weighted average exercise price of $3.70 per share with a majority of those warrants having a five-year term. The warrants provide for antidilution adjustments in the event of certain mergers, consolidations, reorganizations, recapitalizations, stock dividends, stock splits or other changes in our corporate structure of our company and, subject to certain exceptions, the issuance by our company of any securities for a purchase price of less than $4.00 per share.

60


Registration Rights

        The holders of the common stock and warrants purchased in our April 2001 private placement are entitled to certain registration rights under the Securities Act. No later than 90 days after April 4, 2001, we were required to file a registration statement to register under the Securities Act the resale of the shares of BioSante common stock underlying the shares of common stock and warrants purchased in our April 2001 private placement. We are required to use our reasonable best efforts to cause the registration statement to become effective under the Securities Act as promptly as practicable and to use our reasonable best efforts to cause the registration statement to remain effective until the earlier of (1) the sale of all the shares of BioSante common stock covered by this registration statement; or (2) such time as the selling stockholders named in this registration statement become eligible to resell the shares of BioSante common stock and the shares of BioSante common stock issuable upon exercise of the warrants pursuant to Rule 144(k) under the Securities Act.

        The holders of the common stock and warrants purchased in our May 1999 private placement are entitled to certain registration rights under the Securities Act. If at any time after we become listed on Nasdaq, the holders of a specified amount of these registrable shares request that we file a registration statement covering the shares, we will use commercially reasonable efforts to cause these shares to be registered. We are not required to file more than two registration statements under these demand rights, or more than one registration statement in any twelve-month period. In addition, the holders of these registrable shares are entitled to have their shares included in a registration statement under the Securities Act in connection with the public offering of our securities. In any underwritten public offering, the registration rights are limited to the extent that the managing underwriter has the right to (1) limit the number of registrable shares to be included in the registration statement; (2) prohibit the sale of any of our securities other than those registered and included in the underwritten offering for a period of 180 days; and (3) require holders of registrable shares not to sell or otherwise dispose of any securities of our company (other than securities included in the registration) without the prior written consent of the underwriters for a period of up to 180 days from the effective date of such registration. These registration rights will terminate as to any registrable shares when such registrable shares are effectively registered and sold by the holder thereof or when such registrable shares are sold pursuant to Rule 144(k) or are sold pursuant to Rule 144 under the Securities Act.

        In September 2001, we filed a registration statement on Form SB-2 to register, under the Securities Act, the resale of the shares of BioSante common stock underlying the shares of common stock and warrants purchased in our April 2001 private placement and the shares of common stock purchased in our May 1999 private placement. This registration statement became effective on September 19, 2001. In May 2002, we filed a post-effective amendment to our registration statement on Form SB-2.

Anti-Takeover Provisions of Delaware Law and Our Certificate of Incorporation

        We are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an interested stockholder is a person who, together with affiliates and associates, owns or, in the case of affiliates or associates of the corporation, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's voting stock. The existence of this provision could have anti-takeover effects with respect to transactions not approved in advance by the Board of Directors, such as discouraging takeover attempts that might result in a premium over the market price of the common stock.

61


        There are several provisions of our amended and restated certificate of incorporation that may have the effect of deterring or discouraging hostile takeovers or delaying changes in control of our company. In addition, stockholders are not entitled to cumulative voting in the election of directors. Our certificate of incorporation has authorized undesignated preferred stock which could make it possible for our Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to effect a change of control of our company.

Limitation on Liability of Directors and Indemnification

        Our certificate of incorporation limits our directors' liability to the fullest extent permitted under Delaware's corporate law. Specifically, our directors are not liable to us or our stockholders for monetary damages for any breach of fiduciary duty by a director, except for liability for:

        This provision generally does not limit liability under federal or state securities laws.

        Delaware law, and our certificate of incorporation, provide that we will, in some situations, indemnify any person made or threatened to be made a party to a proceeding by reason of that person's former or present official capacity with our company against judgments, penalties, fines, settlements and reasonable expenses including reasonable attorney's fees. Any person is also entitled, subject to some limitations, to payment or reimbursement of reasonable expenses in advance of the final disposition of the proceeding.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of BioSante pursuant to the provisions described above, or otherwise, BioSante has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Transfer Agents and Registrars

        The transfer agent and registrar for our common stock is Computershare Trust Company of Canada, formerly Montreal Trust of Canada.


LEGAL MATTERS

        The validity of the shares of common stock offered hereby will be passed upon for BioSante by Oppenheimer Wolff & Donnelly LLP, Minneapolis, Minnesota.


EXPERTS

        The financial statements as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001, included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the development stage nature

62


of BioSante). This report has been included in reliance upon the report of such firm given upon its authority as an expert in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

        We file reports, proxy statements and other information with the Securities and Exchange Commission. Copies of our reports, proxy statements and other information may be inspected and copied at the following public reference facilities maintained by the SEC:

Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549		   175 W. Jackson Blvd.
Suite 900
Chicago, Illinois 60604		   233 Broadway
Woolworth Building
New York, New York 10279

        Copies of these materials also can be obtained by mail at prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxy statements and other information regarding us. The address of the SEC web site is http://www.sec.gov. The Securities Act file number for our SEC filings is 0-28637.

        We have filed a registration statement on Form SB-2 with the SEC for the common stock offered under this prospectus. This prospectus does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information that is not contained in this prospectus. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.

        We also file annual audited and interim unaudited financial statements, proxy statements and other information with the Ontario, Alberta and British Columbia Securities Commissions. Copies of these documents that are filed through the System for Electronic Document Analysis and Retrieval ("SEDAR") of the Canadian Securities Administrators are available at its web site http://www.sedar.com.

         This prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this prospectus or the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make an offer, solicitation of an offer or proxy solicitation in that jurisdiction.

63



BIOSANTE PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS

Description
   Page
Balance Sheets as of March 31, 2002 and December 31, 2001   F-2

Statements of Operations for the three months ended March 31, 2002 and 2001 and the cumulative period from August 29, 1996 (date of incorporation) to March 31, 2002
 
F-3

Statements of Cash Flows for the three months ended March 31, 2002 and 2001 and the cumulative period from August 29, 1996 (date of incorporation) to March 31, 2002
 
F-4

Notes to Financial Statements for the three months ended March 31, 2002
 
F-5 - F-7

Independent Auditors' Report
 
F-8

Balance Sheets as of December 31, 2001 and 2000
 
F-9

Statements of Operations for the years ended December 31, 2001, 2000 and 1999 and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001
 
F-10

Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999 and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001
 
F-11

Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001
 
F-12

Notes to the Financial Statements for the years ended December 31, 2001, 2000 and 1999 and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001
 
F-13 - F-25

F-1


 BIOSANTE PHARMACEUTICALS, INC.

(a development stage company)

Balance Sheets

March 31, 2002 and December 31, 2001 (Unaudited)

 
   March 31,
2002
   December 31,
2001
  
ASSETS              

CURRENT ASSETS
 
 
 
 
 
 
 
  Cash and cash equivalents   $ 3,162,849   $ 4,502,387  
  Prepaid expenses and other sundry assets     83,737     91,859  
   
 
 
      3,246,586     4,594,246  

PROPERTY AND EQUIPMENT, NET
 
 
378,967
 
 
384,996
 
   
 
 
    $ 3,625,553   $ 4,979,242  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 

CURRENT LIABILITIES
 
 
 
 
 
 
 
  Accounts payable   $ 142,471   $ 90,653  
  Accrued compensation     88,797     379,346  
  Other accrued expenses     51,325     24,444  
  Due to Antares     395,656     433,319  
   
 
 
      678,249     927,762  
   
 
 
COMMITMENTS              
STOCKHOLDERS' EQUITY              
  Capital stock              
    Issued and Outstanding 466,602 (2001—466,602) Class C special stock     467     467  
    6,321,880 (2001—6,321,880) Common stock     22,300,796     22,302,046  
   
 
 
      22,301,263     22,302,513  
 
Deficit accumulated during the development stage
 
 
(19,353,959
)
 
(18,251,033
)
   
 
 
      2,947,304     4,051,480  
   
 
 
    $ 3,625,553   $ 4,979,242  
   
 
 

See accompanying notes to the financial statements.

F-2


BIOSANTE PHARMACEUTICALS, INC.

(a development stage company)

Statements of Operations

Three months ended March 31, 2002 and 2001 and the cumulative
period from August 29, 1996 (date of incorporation) to March 31, 2002

(Unaudited)

 
    
    
   Cumulative
period from
August 29, 1996
(date of incorporation) to
March 31,
2002
  
 
   Three Months Ended March 31,
  
 
   2002
   2001
  
REVENUE                    
  Licensing income   $ —   $ —   $ 1,747,386  
  Interest income     23,259     32,109     944,211  
   
 
 
 
      23,259     32,109     2,691,597  
   
 
 
 

EXPENSES
 
 
 
 
 
 
 
 
 
 
  Research and development     644,394     232,989     7,070,710  
  General and administration     459,129     465,058     8,568,026  
  Depreciation and amortization     22,662     23,962     497,056  
  Loss on disposal of capital assets     —     —     157,545  
  Costs of acquisition of Structured Biologicals Inc.     —     —     375,219  
  Purchased in-process research and development     —     —     5,377,000  
   
 
 
 
      1,126,185     722,009     22,045,556  
   
 
 
 

NET LOSS
 
$
(1,102,926
)
$
(689,900
)
$
(19,353,959
)
   
 
 
 

BASIC AND DILUTED NET LOSS PER SHARE
 
$
(0.16
)
$
(0.12
)
 
 
 
   
 
       

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
 
 
6,788,482
 
 
5,764,063
 
 
 
 
   
 
       

See accompanying notes to the financial statements.

F-3


BIOSANTE PHARMACEUTICALS, INC.

(a development stage company)

Statements of Cash Flows

Three months ended March 31, 2002 and 2001 and the cumulative
period from August 29, 1996 (date of incorporation) to March 31, 2002

(Unaudited)

 
    
    
   Cumulative
period from
August 29, 1996
(date of
incorporation) to
March 31,
2002
  
 
   Three Months Ended March 31,
  
 
   2002
   2001
  
CASH FLOWS USED IN OPERATING ACTIVITIES                    
  Net loss   $ (1,102,926 ) $ (689,900 ) $ (19,353,959 )
  Adjustments to reconcile net loss to net cash used in operating activities                    
    Depreciation and amortization     22,662     23,962     497,056  
    Amortization of deferred unearned compensation     —     9,000     42,290  
    Repurchase of licensing rights     —     —     125,000  
    Employee compensation paid in shares of common stock     —     —     151,000  
    Purchased in-process research and development     —     —     5,377,000  
    Loss on disposal of equipment     —     —     157,545  
  Changes in other assets and liabilities affecting cash flows from operations                    
    Prepaid expenses and other sundry assets     8,122     18,016     (80,769 )
    Accounts payable and accrued expenses     (211,850 )   (146,735 )   (457,594 )
    Due to licensors     (37,663 )   —     395,656  
    Due from SBI     —     —     (128,328 )
   
 
 
 
Net cash used in operating activities     (1,321,655 )   (785,657 )   (13,275,103 )
   
 
 
 

CASH FLOWS USED IN INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
  Purchase of capital assets     (16,633 )   (2,121 )   (999,458 )
   
 
 
 

CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
  Issuance of convertible debenture     —     —     500,000  
  Proceeds from sale, subscription or conversion of shares     (1,250 )   3,397,970     16,937,410  
   
 
 
 
Net cash (used in) provided by financing activities     (1,250 )   3,397,970     17,437,410  
   
 
 
 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
 
 
(1,339,538
)
 
2,610,192
 
 
3,162,849
 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 
 
4,502,387
 
 
2,611,755
 
 
—
 
   
 
 
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 3,162,849   $ 5,221,947   $ 3,162,849  
   
 
 
 

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
 
 
 
 
 
 
 
 
 
 
  Acquisition of SBI                    
    Purchased in-process research and development   $ —   $ —   $ 5,377,000  
    Other net liabilities assumed     —     —     (831,437 )
   
 
 
 
      —     —     4,545,563  
    Less: subordinate voting shares issued therefor     —     —     4,545,563  
   
 
 
 
    $ —   $ —   $ —  
   
 
 
 
 
Income tax paid
 
$
—
 
$
—
 
$
—
 
   
 
 
 
 
Interest paid
 
$
—
 
$
—
 
$
—
 
   
 
 
 

See accompanying notes to the financial statements.

F-4


BIOSANTE PHARMACEUTICALS, INC.

Notes to Financial Statements (Unaudited)

March 31, 2002

1. INTERIM FINANCIAL INFORMATION

        In the opinion of management, the accompanying unaudited financial statements contain all necessary adjustments, which are of a normal recurring nature, to present fairly the financial position of BioSante Pharmaceuticals, Inc. as of March 31, 2002 and December 31, 2001, the results of operations for the three months ended March 31, 2002 and 2001 and for the cumulative period from August 29, 1996 (date of incorporation) to March 31, 2002, and the cash flows for the three months ended March 31, 2002 and 2001 and for the cumulative period from August 29, 1996 (date of incorporation) to March 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Operating results for the three month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

        These unaudited interim financial statements should be read in conjunction with the financial statements and related notes contained in BioSante's Annual Report on Form 10-KSB for the year ended December 31, 2001.

2. BASIC AND DILUTED NET LOSS PER SHARE

        The basic and diluted net loss per share is computed based on the weighted average number of shares of common stock and class C stock outstanding, all being considered as equivalent of one another. Basic net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding for the reporting period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Because BioSante has incurred net losses from operations in each of the periods presented, there is generally no difference between basic and diluted net loss per share amounts. The computation of diluted net loss per share does not include options and warrants with dilutive potential that would have an antidilutive effect on net loss per share.

3. PRIVATE PLACEMENT FINANCING

        On April 4, 2001, BioSante closed a private placement raising $3.7 million upon the issuance of units, which consisted of an aggregate of 925,000 shares of common stock and five-year warrants to purchase an aggregate of 462,500 shares of common stock. The price of each unit, which consisted of one share of common stock plus a warrant to purchase one half-share of common stock was $4.00, the approximate market price of BioSante's common stock at closing. The exercise price of the warrant is $5.00 per full share. Transaction costs related to the private placement have been netted against the proceeds.

4. COMMITMENTS

        BioSante's license agreement with the University of California requires BioSante to undertake various obligations, including:

F-5

Year
   Minimum Annual Royalty Due
2004   $ 50,000
2005     100,000
2006     150,000
2007     200,000
2008     400,000
2009     600,000
2010     800,000
2011     1,500,000
2012     1,500,000
2013     1,500,000

        BioSante's license agreement with Antares required BioSante to make a $1.0 million upfront payment to Antares. $250,000 of this upfront payment was creditable against future milestone or other payments and was utilized in the third quarter of 2001. The result was a $250,000 reduction in research and development expense in the statement of operations during the quarter ended September 30, 2001 as the initial $1.0 million payment had been expensed in its entirety in 2000. BioSante expects to fund

F-6

the development of the products, make milestone payments and once regulatory approval to market is received and sales of the products commence, pay royalties on the sales of products. BioSante must also make cash payments to Antares for manufacturing and formulation services incurred by Antares related to the products and must pay Antares a portion of any up front sublicense or milestone payment received by BioSante from the sublicense of the products.

5. NEW ACCOUNTING PRONOUNCEMENTS

        On July 20, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". These statements establish new accounting and reporting standards for business combinations and associated goodwill and intangible assets. They require, among other things, elimination of the pooling of interests method of accounting, no amortization of acquired goodwill, and a periodic assessment for impairment of all goodwill and intangible assets acquired in a business combination. SFAS 141 is effective for all business combinations accounted for by the purchase method that are completed after June 30, 2001. SFAS 142 was adopted on January 1, 2002. There was no impact on BioSante's financial statements as a result of the adoption of SFAS 142.

6. SUBSEQUENT EVENTS

        In April 2002, BioSante exclusively in-licensed from Wake Forest University and Cedars-Sinai Medical Center three issued U.S. Patents claiming triple hormone therapy (the combination use of estrogen plus progestogen plus androgen, e.g. testosterone) and an option for triple hormone contraception. The financial terms of the license include an upfront payment by BioSante, regulatory milestones, maintenance payments and royalty payments by BioSante if the product gets approved and subsequently marketed.

        In May 2002, BioSante filed a registration statement on Form SB-2 with the Securities and Exchange Commission. The filing relates to a proposed best-efforts, self underwritten offering by BioSante of up to $10.0 million in shares of common stock. The per share public offering price will be determined shortly after the registration statement is declared effective.

        On May 21, 2002, the Board of Directors authorized a reverse stock split of the issued and outstanding shares of BioSante's common stock and class C special stock. All share and per share numbers have been adjusted to reflect the one-for-ten reverse stock split effected May 31, 2002.

F-7


Independent Auditors' Report

Board of Directors
BioSante Pharmaceuticals, Inc.
Lincolnshire, Illinois

        We have audited the accompanying balance sheets of BioSante Pharmaceuticals, Inc. (a development stage company) as of December 31, 2001 and 2000 and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001, and for the period from August 29, 1996 (date of incorporation) through December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, based on our audits, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001 and 2000 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, and for the period from August 29, 1996 (date of incorporation) through December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 1 to the financial statements, the Company is in the development stage.

/s/ Deloitte & Touche LLP

February 15, 2002
(May 31, 2002 as to Note 14)
Chicago, Illinois

F-8


 BIOSANTE PHARMACEUTICALS, INC.

(a development stage company)

Balance Sheets

December 31, 2001 and 2000

 
   2001
   2000
  
ASSETS              

CURRENT ASSETS
 
 
 
 
 
 
 
  Cash and cash equivalents   $ 4,502,387   $ 2,611,755  
  Prepaid expenses and other sundry assets     91,859     64,341  
   
 
 
      4,594,246     2,676,096  
PROPERTY AND EQUIPMENT, NET (Note 5)     384,996     390,821  
   
 
 
    $ 4,979,242   $ 3,066,917  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              

CURRENT LIABILITIES
 
 
 
 
 
 
 
  Accounts payable (Note 12)   $ 90,653   $ 44,746  
  Accrued compensation     379,346     258,598  
  Other accrued expenses     24,444     137,919  
  Due to Antares (Note 4)     433,319     —  
  Convertible debenture (Notes 7 and 13)     —     500,000  
   
 
 
      927,762     941,263  
   
 
 
COMMITMENTS (Notes 11 and 13)              

STOCKHOLDERS' EQUITY (Note 8)
 
 
 
 
 
 
 
  Capital stock              
    Issued and Outstanding              
      2001—466,602; 2000—468,768 Class C special stock     467     469  
      2001—6,321,880; 2000—5,295,294 Common stock     22,302,046     17,782,857  
   
 
 
      22,302,513     17,783,326  
  Deferred unearned compensation     —     (18,000 )
  Deficit accumulated during the development stage     (18,251,033 )   (15,639,672 )
   
 
 
      4,051,480     2,125,654  
   
 
 
    $ 4,979,242   $ 3,066,917  
   
 
 

See accompanying notes to the financial statements.

F-9


BIOSANTE PHARMACEUTICALS, INC.

(a development stage company)

Statements of Operations

Years ended December 31, 2001, 2000 and 1999
and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001

 
   Year ended
December 31,
2001
   Year ended
December 31,
2000
   Year ended
December 31,
1999
   Cumulative
period from
August 29, 1996
(date of
incorporation) to
December 31, 2001
  
REVENUE                          
  Licensing income, net (Note 4)   $ 1,747,386   $ —   $ —   $ 1,747,386  
  Interest income     174,416     227,718     198,683     920,952  
   
 
 
 
 
      1,921,802     227,718     198,683     2,668,338  
   
 
 
 
 
EXPENSES                          
  Research and development     2,141,944     1,887,832     660,588     6,426,316  
  General and administration     2,298,659     1,678,581     853,389     8,108,897  
  Depreciation and amortization     92,560     98,500     90,965     474,394  
  Loss on disposal of capital assets     —     —     —     157,545  
  Costs of acquisition of Structured Biologicals Inc.     —     —     —     375,219  
  Purchased in-process research and development     —     —     —     5,377,000  
   
 
 
 
 
        4,533,163     3,664,913     1,604,942     20,919,371  
   
 
 
 
 

NET LOSS
 
$
(2,611,361
)
$
(3,437,195
)
$
(1,406,259
)
$
(18,251,033
)
   
 
 
 
 

BASIC AND DILUTED NET LOSS PER SHARE (Note 2)
 
$
(0.40
)
$
(0.60
)
$
(0.28
)
 
 
 
   
 
 
       

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
 
 
6,485,349
 
 
5,753,676
 
 
4,942,414
 
 
 
 
   
 
 
       

See accompanying notes to the financial statements.

F-10

BIOSANTE PHARMACEUTICALS, INC.

(a development stage company)

Statements of Stockholders' Equity

Years ended December 31, 2001, 2000 and 1999
and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001

 
   Class A
Special Shares
   Class C
Special Shares
    
    
    
   Deficit
Accumulated
During the
Development
Stage
    
  
 
   Common Stock
    
    
  
 
   Deferred
Unearned
Compensation
    
  
 
   Shares
   Amount
   Shares
   Amount
   Shares
   Amount
   Total
  
Balance, August 29, 1996, Date of incorporation   —   $ —   —   $ —   —   $ —   $ —   $ —   $ —  
Issuance of Class "C" shares August 29, 1996 ($0.0001 per share)   —     —   415,000     415   —     —     —     —     415  
Issuance of Class "A" shares September 23, 1996 ($0.0001 per share)   2,000,000     2,000   —     —   —     —     —     —     2,000  
Issuance of common shares September 23, 1996   —     —   —     —   410,000     4,100,000     —     —     4,100,000  
  Financing fees accrued   —     —   —     —   —     (410,000 )   —     —     (410,000 )
  November 27, 1996—issued as consideration upon acquisition of SBI (Note 3)   —     —   —     —   743,432     4,545,563     —     —     4,545,563  
  Exercise of Series "X" warrants (Note 7)   —     —   —     —   21,571     275,387     —     —     275,387  
  Exercise of Series "Z" warrants (Note 7)   —     —   —     —   143     2,553     —     —     2,553  
Net loss   —     —   —     —   —     —     —     (6,246,710 )   (6,246,710 )
Balance, December 31, 1996   2,000,000     2,000   415,000     415   1,175,146     8,513,503     —     (6,246,710 )   2,269,208  
Conversion of shares                                                  
  January 13, 1997   —     —   (28,285 )   (28 ) 28,285     70,741     —     —     70,713  
  January 13, 1997   —     —   (9,428 )   (9 ) 9,429     23,580     —     —     23,571  
  December 2, 1997   —     —   (10,639 )   (11 ) 10,639     26,607     —     —     26,596  
  December 2, 1997   —     —   (10,000 )   (10 ) 10,000     25,010     —     —     25,000  
Exercise of Series "V" warrants (Note 7)   —     —   —     —   2,400     36,767     —     —     36,767  
Exercise of Series "X" warrants (Note 7)   —     —   —     —   2,857     36,200     —     —     36,200  
Exercise of Series "W" warrants (Note 7)   —     —   —     —   2,000     25,555     —     —     25,555  
Adjustment for partial shares issued upon amalgamation   —     —   —     —   13     —     —     —     —  
  Financing fees reversed   —     —   —     —   —     410,000     —     —     410,000  
Net loss   —     —   —     —   —     —     —     (1,890,093 )   (1,890,093 )
Balance, December 31, 1997   2,000,000     2,000   356,648     357   1,240,769     9,167,963     —     (8,136,803 )   1,033,517  
Conversion of shares                                                  
  March 4, 1998   —     —   (2,000 )   (2 ) 2,000     5,002     —     —     5,000  
  March 16, 1998   —     —   (1,000 )   (1 ) 1,000     2,501     —     —     2,500  
  May 8, 1998   (1,500,000 )   (1,500 ) —     —   1,500,000     3,751,500     —     —     3,750,000  
  June 1, 1998   (100,000 )   (100 ) —     —   100,000     250,100     —     —     250,000  
  June 1, 1998   (100,000 )   (100 ) —     —   100,000     250,100     —     —     250,000  
Return of shares to treasury                                                  
  May 8, 1998   (146,861 )   (147 ) —     —   —     —     —     —     (147 )
  May 8, 1998   —     —   (25,000 )   (25 ) —     —     —     —     (25 )
Net loss   —     —   —     —   —     —     —     (2,659,415 )   (2,659,415 )
Balance, December 31, 1998   153,139     153   328,648     329   2,943,769     13,427,166     —     (10,796,218 )   2,631,430  
Conversion of shares February 2, 1999   —     —   (1,000 )   (1 ) 1,000     2,501     —     —     2,500  
Private placement of common shares, net May 6, 1999   —     —   —     —   2,312,500     4,197,843     —     —     4,197,843  
Share redesignation July 13, 1999   (153,139 )   (153 ) 153,139     153   —     —     —     —     —  
Issuance of common shares August 15, 1999   —     —   —     —   7,000     25,000     —     —     25,000  
Net loss   —     —   —     —   —     —     —     (1,406,259 )   (1,406,259 )
Balance, December 31, 1999   —     —   480,787     481   5,264,269     17,652,510     —     (12,202,477 )   5,450,514  
Conversion of shares                                                  
  March 17, 2000   —     —   (1,000 )   (1 ) 1,000     2,501     —     —     2,500  
  March 24, 2000   —     —   (3,184 )   (3 ) 3,184     7,963     —     —     7,960  
  June 12, 2000   —     —   (5,000 )   (5 ) 5,000     12,505     —     —     12,500  
  July 13, 2000   —     —   (2,835 )   (3 ) 2,834     7,088     —     —     7,085  
Issuance of common shares                                                  
  July 18, 2000   —     —   —     —   19,007     58,000     —     —     58,000  
Issuance of warrants for services received   —     —   —     —   —     42,290     (42,290 )   —     —  
Amortization of deferred unearned compensation   —     —   —     —   —     —     24,290     —     24,290  
Net loss   —     —   —     —   —     —     —     (3,437,195 )   (3,437,195 )
Balance, December 31, 2000   —     —   468,768     469   5,295,294     17,782,857     (18,000 )   (15,639,672 )   2,125,654  
Conversion of shares                                                  
  September 15, 2001   —     —   (1,166 )   (1 ) 1,166     2,916     —     —     2,915  
  December 15, 2001   —     —   (1,000 )   (1 ) 1,000     2,501     —     —     2,500  
Private placement of common shares, net                                                  
  April 4, 2001   —     —   —     —   925,000     3,659,408     —     —     3,659,408  
Issuance of common shares                                                  
  August 15, 2001   —     —   —     —   15,500     93,000     —     —     93,000  
  August 15, 2001   —     —   —     —   47,619     500,000     —     —     500,000  
  September 15, 2001   —     —   —     —   17,361     125,000     —     —     125,000  
  September 15, 2001   —     —   —     —   18,940     136,364     —     —     136,364  
Amortization of deferred unearned compensation   —     —   —     —   —     —     18,000     —     18,000  
Net loss   —     —   —     —   —     —     —     (2,611,361 )   (2,611,361 )
   
 
 
 
 
 
 
 
 
 
Balance, December 31, 2001   —   $ —   466,602   $ 467   6,321,880   $ 22,302,046   $ —   $ (18,251,033 ) $ 4,051,480  
   
 
 
 
 
 
 
 
 
 

See accompanying notes to the financial statements.

F-11

BIOSANTE PHARMACEUTICALS, INC.

(a development stage company)

Statements of Cash Flows

Years ended December 31, 2001, 2000 and 1999
and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001

 
   Year ended
December 31,
2001
   Year ended
December 31,
2000
   Year ended
December 31,
1999
   Cumulative
period from
August 29, 1996
(date of
incorporation) to
December 31,
2001
  
CASH FLOWS USED IN OPERATING ACTIVITIES                          
  Net loss   $ (2,611,361 ) $ (3,437,195 ) $ (1,406,259 ) $ (18,251,033 )
  Adjustments to reconcile net loss to net cash used in operating activities                          
    Depreciation and amortization     92,560     98,500     90,965     474,394  
    Amortization of deferred unearned compensation     18,000     24,290     —     42,290  
    Repurchase of licensing rights     125,000     —     —     125,000  
    Employee compensation paid in shares of common stock     —     93,000     58,000     151,000  
    Purchased in-process research and development     —     —     —     5,377,000  
    Loss on disposal of equipment     —     —     —     157,545  
  Changes in other assets and liabilities affecting cash flows from operations                          
    Prepaid expenses and other sundry assets     (27,518 )   (5,347 )   16,272     (88,891 )
    Accounts payable and accrued expenses     146,180     102,148     (444,483 )   (245,744 )
    Due to licensor (Antares/Regents)     433,319     (25,000 )   (102,317 )   433,319  
    Due from SBI     —     —     —     (128,328 )
   
 
 
 
 
Net cash used in operating activities     (1,823,820 )   (3,149,604 )   (1,787,822 )   (11,953,448 )
   
 
 
 
 
CASH FLOWS USED IN INVESTING ACTIVITIES                          
  Purchase of capital assets     (86,735 )   (43,238 )   (4,219 )   (982,825 )
   
 
 
 
 
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                          
  Issuance of convertible debenture     —     500,000     —     500,000  
  Proceeds from sale or conversion of shares     3,801,187     30,045     4,225,343     16,938,660  
   
 
 
 
 
Net cash provided by financing activities     3,801,187     530,045     4,225,343     17,438,660  
   
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     1,890,632     (2,662,797 )   2,433,302     4,502,387  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     2,611,755     5,274,552     2,841,250     —  
   
 
 
 
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 4,502,387   $ 2,611,755   $ 5,274,552   $ 4,502,387  
   
 
 
 
 
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION                          
    Acquisition of SBI                          
      Purchased in-process research and development   $ —   $ —   $ —   $ 5,377,000  
      Other net liabilities assumed     —     —     —     (831,437 )
   
 
 
 
 
      —     —     —     4,545,563  
      Less: subordinate voting shares issued therefor     —     —     —     4,545,563  
   
 
 
 
 
    $ —   $ —   $ —   $ —  
   
 
 
 
 
    Income tax paid   $ —   $ —   $ —   $ —  
   
 
 
 
 
    Interest paid   $ —   $ —   $ —   $ —  
   
 
 
 
 

See accompanying notes to the financial statements.

F-12


BIOSANTE PHARMACEUTICALS, INC.
(a development stage company)

Notes to the Financial Statements

For the years ended December 31, 2001, 2000 and 1999, and the cumulative period
from August 29, 1996 (date of incorporation) to December 31, 2001

1.    ORGANIZATION

        On December 19, 1996, Ben-Abraham Technologies, Inc. ("BAT") was continued under the laws of the State of Wyoming, U.S.A. Previously, BAT had been incorporated under the laws of the Province of Ontario effective August 29, 1996. Pursuant to the shareholders meeting to approve the arrangement on November 27, 1996 and subsequent filing of the articles of arrangement on December 6, 1996, BAT acquired Structured Biologicals Inc. and its wholly-owned subsidiary 923934 Ontario Inc. ("SBI"), a Canadian public company listed on the Alberta Stock Exchange. The "acquisition" was effected by a statutory amalgamation wherein the stockholders of BAT were allotted a significant majority of the shares of the amalgamated entity. Upon amalgamation, the then existing stockholders of SBI received 743,432 subordinate voting shares of BAT (1 such share for every 35 shares held in SBI). On November 10, 1999, BAT changed its name to BioSante Pharmaceuticals, Inc. ("the Company").

        The Company was established to develop prescription pharmaceutical products, vaccines and vaccine adjuvants using its nanoparticle technology ("CAP") licensed from the University of California. The research and development on the CAP technology is conducted in the Company's Smyrna, Georgia laboratory facility. In addition to its nanoparticle technology, the Company also is developing its pipeline of hormone replacement products to treat hormone deficiencies in men and women, the technology for which has been licensed from Antares Pharma, Inc. The business office is located in Lincolnshire, Illinois.

        The Company has been in the development stage since its inception. The Company's successful completion of its development program and its transition to profitable operations is dependent upon obtaining regulatory approval from the United States (the "U.S.") Food and Drug Administration ("FDA") prior to selling its products within the U.S., and foreign regulatory approval must be obtained to sell its products internationally. There can be no assurance that the Company's products will receive regulatory approvals, and a substantial amount of time may pass before the achievement of a level of sales adequate to support the Company's cost structure. The Company will also incur substantial expenditures to achieve regulatory approvals and will need to raise additional capital during its developmental period. Obtaining marketing approval will be directly dependent on the Company's ability to implement the necessary regulatory steps required to obtain marketing approval in the United States and in other countries. It is not possible at this time to predict with assurance the outcome of these activities.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        These financial statements are expressed in U.S. dollars.

        The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles") and Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting by Development Stage Enterprises." The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial

F-13


statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        For purposes of reporting cash flows, the Company considers all instruments with original maturities of three months or less to be cash equivalents.

        Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of computer, office and laboratory equipment is computed primarily by accelerated methods over estimated useful lives of seven years. Leasehold improvements are amortized on a straight-line basis over the terms of the leases, plus option renewals.

        Long-lived assets are reviewed for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable. If such a review indicates an impairment, the carrying amount of such assets is reduced to estimated recoverable value.

        Research and development costs are charged to expense as incurred.

        The basic and diluted net loss per share is computed based on the weighted average number of the aggregate of common stock and Class C shares outstanding, all being considered as equivalent of one another. Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of shares outstanding for the reporting period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The computation of diluted earnings (loss) per share does not include the Company's stock options, warrants or convertible debt with dilutive potential because of their antidilutive effect on earnings (loss) per share.

        The Company follows the provisions of APB Opinion No. 25, which requires compensation cost for stock-based employee compensation plans be recognized based on the difference, if any, between the quoted market price of the stock on the date of grant and the amount the employee must pay to acquire the stock. As a result of the Company's application of APB No. 25, SFAS No. 123, "Accounting for Stock-Based Compensation," requires certain additional disclosures of the pro forma compensation expense arising from the Company's fixed and performance stock compensation plans. The expense is measured as the fair value of the award at the date it was granted using an option-pricing model that takes into account the exercise price and the expected term of the option, the current price of the underlying stock, its expected volatility, expected dividends on the stock and the expected risk-free rate of return during the term of the option. The compensation cost is recognized over the service period, usually the period from the grant date to the vesting date. The Company has disclosed the required pro forma net loss and loss per share data in Note 9 as if the Company had recorded compensation expense using the fair value method per SFAS No. 123. Warrants issued to non-employees as compensation for services rendered are valued at their fair value on the date of issue.

F-14

        The Company recognizes revenue from licensing arrangements in the form of upfront license fees, milestone payments, royalties and other fees. Revenue is recognized when cash is received and the Company has completed all of its obligations under the licensing arrangement which are required for the payment to be non-refundable. Any ancillary payments related to the products being licensed, such as royalties to the head licensor, are netted against revenues at the time of revenue recognition. To date, there has been no royalty revenue recognized. Interest income on invested cash balances is recognized on the accrual basis as earned.

        The Company adopted SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities," effective January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. No cumulative transition adjustment was required.

        On July 20, 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations" (SFAS 141), and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). These statements establish new accounting and reporting standards for business combinations and associated goodwill and intangible assets. They require, among other things, elimination of the pooling of interests method of accounting, no amortization of acquired goodwill, and a periodic assessment for impairment of all goodwill and intangible assets acquired in a business combination. SFAS 141 is effective for all business combinations accounted for by the purchase method that are completed after June 30, 2001. SFAS 142 will be effective for the Company's fiscal year beginning January 1, 2002.

        On August 16, 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The pronouncement addresses the recognition and remeasurement of obligations associated with the retirement of tangible long-lived assets. On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144, which supercedes SFAS No. 121 "Accounting for Long-lived Assets and for Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions," applies to long-lived assets (including discontinued operations) and it develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS 143 will be effective for the Company's fiscal year beginning January 1, 2003. SFAS 144 will be effective for the Company's fiscal year beginning January 1, 2002.

        The Company does not believe that the issuance of these four new pronouncements will have an impact on its financial statements.

3.    ACQUISITION

        Pursuant to the shareholders meeting to approve the arrangement held on November 27, 1996 and the subsequent filing of the articles of arrangement December 6, 1996, the Company completed the acquisition of 100% of the outstanding shares of SBI. The acquisition was effected by a statutory amalgamation wherein the stockholders of the Company were allotted a significant majority of the shares of the amalgamated entity. Upon amalgamation, the then existing shareholders of SBI received 743,432 shares of common stock of the Company (1 such share for every 35 shares they held in SBI).

F-15


SBI's results of operations have been included in these financial statements from the date of acquisition. The acquisition was accounted for by using the purchase method of accounting, as follows:

Assets      
  In-process research and development   $ 5,377,000
  Other     37,078
   
      5,414,078
   
Liabilities      
  Current liabilities     679,498
  Due to directors     60,689
  Due to the Company     128,328
   
      868,515
   
  Net assets acquired   $ 4,545,563
   
Consideration      
  Common stock   $ 4,545,563
   

        In connection with the acquisition of SBI, accounted for under the purchase method, the Company acquired the rights to negotiate with the Regents of the University of California for licenses of specific CAP-related technologies and products. The specific technologies and products relate to investigative research funded by SBI. At the time of acquisition, the technologies and products had not yet been approved for human clinical research. The value ascribed to the rights, based on an independent evaluation, was $5,377,000. This amount was immediately expensed as the technologies and products did not have their technological feasibility established and had no identified future alternative use.

        As of the date of acquisition, the technology related to the development of products for six indications (i.e. applications of the technology). The Company determined the value of the in process research and development related to the acquired rights based on an independent valuation using discounted cash flows. Principle assumptions used in the valuation were as follows:

F-16

4.    LICENSE AND SUPPLY AGREEMENTS

        On June 13, 2000, BioSante entered into a licensing agreement and a supply agreement with Antares Pharma, Inc. (Antares), covering four hormone products for the treatment of hormone deficiencies in men and women. The agreement requires BioSante to pay Antares a percentage of future net sales, if any, as a royalty. Under the terms of the license agreement, BioSante is also obligated to make milestone payments upon the occurrence of certain future events. Under terms of the supply agreement, Antares has agreed to manufacture or have manufactured and sell exclusively to BioSante, and BioSante has agreed to purchase exclusively from Antares, BioSante's total requirements for the products covered under the license agreement between the two parties.

        As allowed by the licensing agreement with Antares, on September 1, 2000, BioSante entered into a sub-license agreement with Paladin Labs Inc. (Paladin) to market the female hormone replacement products in Canada. In exchange for the sub-license, Paladin agreed to make an initial investment in BioSante, make future milestone payments and pay royalties on sales of the products in Canada. The milestone payments will be in the form of a series of equity investments by Paladin in BioSante's common stock at a 10% premium to the market price of BioSante's common stock at the date of the equity investment.

        During the third quarter 2001, Paladin made a series of equity investments in BioSante as a result of certain sub-licensing transactions and BioSante reaching certain milestones. These equity investments resulted in BioSante issuing an additional 18,939 shares of its common stock to Paladin at a 10 percent premium to BioSante's market price. The dollar value of the premium, $39,394, is recorded as licensing income in the statements of operations.

        In a series of amendments executed during 2001 between BioSante and Antares, BioSante returned to Antares the license rights to one of the four previously licensed hormone products, namely the estradiol patch, in all countries of the licensed territory. Additionally, BioSante returned to Antares the license rights to the single entity estrogen and testosterone gel products in Malaysia and Australia. In exchange for the return to Antares of the estradiol patch in all the countries and the estradiol and testosterone gel products in Malaysia and Australia, Antares granted BioSante a credit for approximately $600,000 of manufacturing and formulation services and a license for an undisclosed transdermal hormone replacement gel product. During the third quarter of 2001, Antares informed the Company that the total costs for manufacturing and formulation services had exceeded the $600,000 credit. Accordingly, beginning in third quarter of 2001 and going forward, the Company will be required to reimburse Antares for such services. At December 31, 2001, the amount owed to Antares for such services was $433,319.

        On August 7, 2001, BioSante entered into a sub-license agreement with Solvay Pharmaceuticals, B.V. (Solvay) covering the U.S. and Canadian rights to the estrogen/progestogen combination transdermal hormone replacement gel product licensed from Antares in June 2000. Under the terms of the agreement, Solvay has sub-licensed BioSante's estrogen/progestogen combination transdermal hormone replacement gel product for an initial payment of $2.5 million ($1.7 million net of the related payments due to Antares and Paladin), future milestone payments and escalating sales-based royalties. Solvay will be responsible for all costs of development and marketing of the product. BioSante has retained co-promotion rights to the product and will be compensated for sales generated by BioSante over and above those attributable to Solvay's marketing efforts. The Canadian rights to this product had previously been sub-licensed to Paladin as part of that sub-license arrangement and were repurchased by the Company prior to the Solvay transaction in exchange for $125,000, paid by the issuance of 17,361 shares of BioSante common stock with a market value of $125,000 at the date of the transaction.

        On October 1, 2001, BioSante sub-licensed its Bio-Vant™ calcium phosphate based vaccine adjuvant on a non-exclusive basis to Corixa Corporation for use in several potential vaccines to be

F-17


developed by Corixa. Under the agreement, Corixa has agreed to pay BioSante milestone payments upon the achievement by Corixa of certain milestones plus royalty payments on sales by Corixa if and when vaccines are approved using Bio-Vant™ and sold on a commercial basis. If Corixa sub-licenses vaccines that include Bio-Vant™, BioSante will share in milestone payments and royalties received by Corixa. The sub-license agreement covers access to Bio-Vant™ for a variety of cancer, infectious and autoimmune disease vaccines.

        In June 1997, we entered into a licensing agreement with the Regents of the University of California, which has subsequently been amended, pursuant to which the University has granted us an exclusive license to nine United States patents owned by the University, including rights to sublicense such patents, in fields of use initially pertaining to: (1) vaccine adjuvants; (2) vaccine constructs or combinations for use in immunization against herpes virus; (3) drug delivery systems; and (4) red blood cell surrogates. The University of California has filed patent applications for this licensed technology in several foreign jurisdictions, including Canada, Europe and Japan.

        The license agreement with the University of California requires us to undertake various obligations as described in Note 13.

5.    PROPERTIES AND EQUIPMENT

        Property and equipment, net of accumulated depreciation at December 31 comprise:

 
   2001
   2000
  
Computer equipment   $ 101,490   $ 61,643  
Office equipment     78,051     34,208  
Laboratory equipment     103,012     103,012  
Leasehold improvements—Laboratory     477,339     474,294  
   
 
 
      759,892     673,157  
Accumulated depreciation and amortization     (374,896 )   (282,336 )
   
 
 
    $ 384,996   $ 390,821  
   
 
 

6.    INCOME TAXES

        The components of the Company's net deferred tax asset at December 31, 2001, 2000 and 1999 were as follows:

 
   2001
   2000
   1999
  
Net operating loss carryforwards   $ 4,861,792   $ 3,886,495   $ 2,367,292  
Amortization of intangibles     1,323,455     1,468,699     1,613,942  
Research & development credits     580,141     191,358     235,310  
Other     79,197     60,993     38,794  
   
 
 
 
      6,844,585     5,607,545     4,255,338  
Valuation allowance     (6,844,585 )   (5,607,545 )   (4,255,338 )
   
 
 
 
    $ —   $ —   $ —  
   
 
 
 

F-18

        The Company has no current tax provision due to its accumulated losses, which result in net operating loss carryforwards. At December 31, 2001, the Company had approximately $13,140,000 of net operating loss carryforwards that are available to reduce future taxable income for a period of up to 20 years. The net operating loss carryforwards expire in the years 2011-2021. The net operating loss carryforwards as well as amortization of various intangibles, principally acquired in-process research and development, generate deferred tax benefits, which have been recorded as deferred tax assets and are entirely offset by a tax valuation allowance. The valuation allowance has been provided at 100% to reduce the deferred tax assets to zero, the amount management believes is more likely than not to be realized. Additionally, the Company has approximately $580,000 of research and development credits available to reduce future income taxes through the year 2014.

        The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% to pre-tax income as follows:

 
   2001
   2000
   1999
  
Tax at U.S. federal statutory rate   $ (887,863 ) $ (1,160,388 ) $ (469,799 )
State taxes, net of federal benefit     (355,149 )   (195,854 )   (91,015 )
Change in valuation allowance     1,237,041     1,352,207     556,972  
Other, net     5,971     4,035     3,842  
   
 
 
 
    $ —   $ —   $ —  
   
 
 
 

7.    CONVERTIBLE DEBENTURE

        In September 2000, in connection with entering into a sub-license agreement, the Company issued a convertible debenture to Paladin Labs Inc. (Paladin) in the face amount of $500,000. The debenture did not bear interest and was due September 1, 2001, unless converted into shares of the Company's common stock. On August 13, 2001, the Company exercised its right and declared the debenture converted in full at a price of $10.50 per share. Accordingly, 47,619 shares of the Company's common stock were issued to Paladin. This was a non-cash financing transaction.

8.    STOCKHOLDERS' EQUITY

        By articles of amendment dated July 20, 1999 (effective as of July 13, 1999), the subordinate voting shares of the Company were redesignated as common stock, the Class A special shares were reclassified as Class C special shares and the Class B special shares were eliminated. There were no changes in the number of shares outstanding.

a)    Authorized

F-19

        During the third quarter 2001, Paladin made a series of equity investments in BioSante as result of certain sub-licensing transactions and BioSante reaching certain milestones. These equity investments resulted in BioSante issuing an additional 18,939 shares of its common stock to Paladin at a 10 percent

F-20


premium to BioSante's market price on the date of the transactions. The dollar value of the premium is recorded as licensing income in the statements of operations.

        On August 7, 2001, BioSante entered into a sub-license agreement with Solvay Pharmaceuticals, B.V. (Solvay) covering the U.S. and Canadian rights to the estrogen/progestogen combination transdermal hormone replacement gel product licensed from Antares in June 2000. The Canadian rights to this product had previously been sub-licensed to Paladin as part of that sub-license arrangement and were repurchased by the Company prior to the Solvay transaction in exchange for $125,000, paid by the issuance of 17,361 shares of BioSante common stock with a market value of $125,000 at the date of the transaction.

b)    Warrants

        The Company, upon the acquisition of SBI, assumed 257,713 exercisable warrants to purchase common stock, all of which expired prior to or as of December 31, 1998. Of this amount, 7,257 were exercised in 1997 prior to their expiration.

        Pursuant to the Company's private placement financing in May 1999, warrants to purchase an aggregate of 1,156,250 shares of common stock were issued at an exercise price of $3.00 per share with a term of five years. These warrants remain outstanding and are all exercisable as of December 31, 2001.

        In June 2000, a five-year warrant to purchase 25,000 shares of common stock at an exercise price of $8.80 was issued to a communications firm for various consulting services. The warrant vests quarterly over the first year. As of December 31, 2001, all 25,000 of these shares were exercisable. The Company recognized expense of approximately $18,000 for this warrant grant in 2000 and 2001.

        Pursuant to the Company's private placement financing in April 2001, warrants to purchase an aggregate of 462,500 shares of common stock were issued at an exercise price of $5.00 per share with a term of five years. These warrants remain outstanding and are all exercisable as of December 31, 2001.

9.    STOCK OPTIONS

        The Company has a stock option plan for certain officers, directors and employees whereby 850,000 shares of common stock have been reserved for issuance. Options for 699,466 shares of common stock have been granted as of December 31, 2001 at prices equal to either the ten-day weighted average closing price, or the closing price of the stock at the date of the grant, and are exercisable and vest in a range substantially over a three-year period. The options expire either in five or ten years from the date of the grants.

        The Company applies APB Opinion No. 25 and related interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized for the plan. Had the compensation cost for the Company's plan been determined based on the fair value of the awards under the plan consistent

F-21


with the method of SFAS No. 123 the Company's net loss, cumulative net loss, and basic net loss per common share would have been increased to the pro forma amounts indicated below:

 
   2001
   2000
   1999
  
Net loss                    
  As reported   $ (2,611,361 ) $ (3,437,195 ) $ (1,406,259 )
  Pro forma   $ (3,501,822 ) $ (3,960,210 ) $ (1,713,693 )

Basic and diluted net loss per share
 
 
 
 
 
 
 
 
 
 
  As reported   $ (0.40 ) $ (0.60 ) $ (0.28 )
  Pro forma   $ (0.54 ) $ (0.69 ) $ (0.35 )

Cumulative net loss
 
 
 
 
 
 
 
 
 
 
  As reported   $ (18,251,033 )            
  Pro forma   $ (20,318,982 )            

        The weighted average fair value of the options at the date of the grant for options granted during 2001, 2000 and 1999 was $5.00, $8.96 and $3.30 was estimated using the Cox Rubinstein binomial model and the Black-Scholes option-pricing model with following weighted average assumptions:

 
   2001
   2000
   1999
  
Expected option life (years)   10   10   5  
Risk free interest rate   5.39 % 6.03 % 4.59 %
Expected stock price volatility   118.79 % 157.06 % 238.08 %
Dividend yield   —   —   —  

        The following table summarizes the Company's stock option activity:

Options outstanding,
    Beginning of period		   526,312   $ 3.30   497,312   $ 3.00   246,500   $ 3.70
Options granted   174,153   $ 5.20   51,000   $ 9.10   306,812   $ 2.40
Options cancelled/expired   (1,000 ) $ 7.50   (22,000 ) $ 10.00   (56,000 ) $ 3.10
Options exercised   —   $ —   —   $ —   —   $ —
   
       
       
     
Options outstanding,
    End of period		   699,465   $ 3.80   526,312   $ 3.30   497,312   $ 3.00
   
 
 
 
 
 
Options exercisable,
End of year		   542,483   $ 3.40   386,502   $ 2.80   211,711   $ 3.50
   
 
 
 
 
 

        The following table summarizes information about stock options outstanding at December 31, 2001:

 
   Outstanding Options
   Options Exercisable
Range of
Exercise Prices
   Number
Outstanding
   Weighted Avg.
Remaining
Contractual Life
   Weighted Avg.
Exercise
Price
   Number
Outstanding
   Weighted Avg.
Exercise
Price
$2.30   237,812   2.2 years   $ 2.30   225,571   $ 2.30
$2.80 - $2.90   232,500   2.1 years   $ 2.80   231,500   $ 2.80
$4.00 - $6.70   174,153   9.2 years   $ 5.20   30,412   $ 5.30
$9.10 - $10.40   55,000   8.5 years   $ 9.20   55,000   $ 9.20
   
           
     
    699,465             542,483      
   
           
     

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10.  RETIREMENT PLAN

        In July 1998, the Company began offering a discretionary 401(k) Plan (the Plan) to all of its employees. Under the Plan, employees may defer income on a tax-exempt basis, subject to IRS limitation. Under the Plan the Company can make discretionary matching contributions. Company contributions expensed in 2001, 2000 and 1999 totaled $30,743, $26,296 and $23,899, respectively.

11.  LEASE ARRANGEMENTS

        The Company has entered into lease commitments for rental of its office space and laboratory facilities. The future minimum lease payments are:

2002   $ 142,811
2003     131,877
Thereafter     —
   
    $ 274,688
   

        Rent expense amounted to $119,765, $82,069 and $89,110 for the years ended December 31, 2001, 2000 and 1999, respectively. Effective September 16, 1999, the Company entered into a sublease agreement for its Atlanta office space under which the Company receives approximately $3,400 per month from the sub-tenant through September 14, 2002.

12.  RELATED PARTY TRANSACTIONS

        Included in current liabilities are $5,074, $379, and $5,588 which represent amounts due to directors and officers of the Company as of December 31, 2001, 2000 and 1999, respectively.

        Prior to the Amalgamation on December 6, 1996, the Company issued 2,000,000 shares of class A stock and 415,000 shares of class C stock for $0.001 per share. 1,700,000 of the class A shares were sold to a director of the Company. 105,000 of the class C shares were sold to the same director of the Company to be held by him in trust for the benefit of others; 50,000 of the class C shares were sold to a separate company controlled by a then officer of the Company; and 200,000 of the class C shares were sold to other directors of the Company.

        The 2,000,000 class A shares and 415,000 class C shares were founder's shares and the terms under the authorization of these shares, provided for their conversion to common stock at $2.50 per share.

        In May 1998, the Company and Avi Ben-Abraham, M.D., a director and a founder of the Company and the Company's then Chief Executive Officer and Chairman of the Board, entered into an agreement pursuant to which Dr. Ben-Abraham would relinquish his executive position and remain as a director of the Company. See Note 8.

        In connection with the May 1999 private placement of 2,312,500 shares of common stock and warrants to purchase 1,156,250 shares of common stock, the Company's Chief Executive Officer purchased 25,000 shares of the common stock sold and warrants to purchase 12,500 shares of common stock. Three other individuals, who purchased either individually or through affiliated entities, an aggregate 1,025,000 shares of common stock and warrants to purchase 512,500 shares of common stock, became directors of the Company upon their acquisition of the shares or sometime later.

        In connection with the April 2001 private placement of 925,000 shares of common stock and warrants to purchase 462,500 shares of common stock, the Company's Chief Executive Officer, Chief Financial Officer and other senior officers purchased an aggregate of 52,875 shares of the common stock sold and warrants to purchase 26,437 shares of common stock. Three directors, either individually or through affiliated entities, purchased an aggregate 312,500 shares of common stock and warrants to purchase 156,250 shares of common stock.

F-23


13.  COMMITMENTS

        The Company's license agreement with the University of California requires it to undertake various obligations, including:


Year
   Minimum Annual Royalty Due
2004   $ 50,000
2005     100,000
2006     150,000
2007     200,000
2008     400,000
2009     600,000
2010     800,000
2011     1,500,000
2012     1,500,000
2013     1,500,000
   
    $ 6,800,000
   

F-24

        The Company's license agreement with Antares Pharma, Inc. (formerly known as Permatec Technologie, AG) required the Company to make a $1.0 million upfront payment to Antares. The Company expects to fund the development of the products, make milestone payments and once regulatory approval to market is received, pay royalties on the sales of products.

        The Company's sub-license agreement in Canada (of the Antares license) with Paladin Labs Inc. required Paladin to make an initial investment in the Company of $500,000 in the form of a convertible debenture. On August 13, 2001, the Company exercised its right and declared the convertible debenture converted in full at a price of $10.50 per share. Accordingly, 47,619 shares of the Company's common stock were issued to Paladin.

        Paladin will also make milestone payments to the Company in the form of a series of equity investments at a 10 percent premium to the Company's market price at the time the equity investment is made. In addition, Paladin will pay the Company a royalty on sales of the sub-licensed products.

14.  SUBSEQUENT EVENT

        On May 21, 2002, the Board of Directors authorized a reverse stock split of the issued and outstanding shares of BioSante's common stock and class C special stock. All share and per share numbers have been adjusted to reflect the one-for-ten reverse stock split effected May 31, 2002.

F-25


             Shares

LOGO

Common Stock


Prospectus

                  , 2002


PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

        BioSante's Certificate of Incorporation limits the liability of its directors to the fullest extent permitted by the Delaware General Corporation Law. Specifically, Article VII of BioSante's Certificate of Incorporation provides that no director of BioSante shall be personally liable to BioSante or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director, except to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to BioSante or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which such director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of BioSante shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. No amendment to or repeal of Article VII shall apply to or have any effect on the liability or alleged liability of any director of BioSante for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

        BioSante's Certificate of Incorporation provides for indemnification of BioSante's directors and officers. Specifically, Article VI provides that BioSante shall indemnify, to the fullest extent authorized or permitted by law, as the same exists or may thereafter be amended, any person who was or is made or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of BioSante), by reason of the fact that such person is or was a director or officer of BioSante, or is or was serving at the request of BioSante as a director, officer, employee or agent of any other company, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise; provided, however, that BioSante shall not indemnify any director or officer in connection with any action by such director or officer against BioSante unless BioSante shall have consented to such action. BioSante may, to the extent authorized from time to time by BioSante's Board of Directors, provide rights to indemnification to employees and agents of BioSante similar to those conferred in Article VI to directors and officers of BioSante. No amendment or repeal of Article VI shall apply to or have any effect on any right to indemnification provided thereunder with respect to any acts or omission occurring prior to such amendment or repeal.

        BioSante maintains an insurance policy for its directors and executive officers pursuant to which its directors and executive officers are insured against liability for certain actions in their capacity as directors and executive officers of BioSante.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to BioSante's directors, officers or persons controlling BioSante pursuant to the foregoing provisions, BioSante is aware that in the opinion of the Securities and Exchange Commission that this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

II-1


Item 25. Other Expenses of Issuance and Distribution.

        The following table sets forth the costs and expenses payable by BioSante in connection with the issuance and distribution of the shares of common stock being registered. All such expenses are estimated except for the SEC registration fee.

SEC registration fee   $ 920
Printing expenses     6,000
Fees and expenses of counsel for BioSante     40,000
Fees and expenses of accountants for BioSante     6,000
Blue sky fees and expenses     10,000
Miscellaneous     10,000
   
  Total   $ 72,920
   

Item 26. Recent Sales of Unregistered Securities.

        Since April 1, 1999, BioSante has issued the following securities without registration under the Securities Act:

1.
In May 1999, we issued an aggregate of 2,312,500 shares of common stock and warrants to purchase 1,156,250 shares of common stock at an exercise price of $3.00 per share to 31 accredited investors pursuant to a private placement of our stock for an aggregate payment of $4,372,500. Stephen Simes purchased 25,000 shares of common stock, Victor Morgenstern, including an affiliated Trust and a Partnership, purchased an aggregate of 250,000 shares of common stock, Fred Holubow purchased 25,000 shares of common stock and JO & Co. purchased 750,000 shares of common stock to which Ross Mangano has sole voting power.

2.
In August 1999, an outstanding liability of $25,000 was converted into 7,000 shares of common stock to an accredited investor at approximately $3.60 per share for executive placement services.

3.
In March and June 2000, we issued 9,184 shares of common stock to accredited investors pursuant to the conversion of class C stock, at a conversion price of $2.50 per share for an aggregate payment of $22,960.

4.
In September 2000, we issued a $500,000 convertible debenture to Paladin Labs Inc.

5.
In July 2000, we issued an aggregate of 19,007 shares of common stock (16,385 shares to Stephen Simes and 2,621 shares to Phillip Donenberg) pursuant to the granting of common stock bonuses, in lieu of cash valued at $58,000.

6.
In July 2000, we issued 2,834 shares of common stock to an accredited investor pursuant to the conversion of class C stock, at a conversion price of $2.50 per share for a payment of $7,085.25.

II-2

7.
In April 2001, we issued an aggregate of 925,000 shares of our common stock and warrants to purchase an aggregate of 462,500 shares of our common stock for $4.00 per unit, each unit consisting of one-tenth of a share of common stock and a warrant to purchase one-twentieth of a share of our common stock, for an aggregate purchase price of $3,700,000, to 49 accredited investors, including certain existing stockholders, directors and officers. Stephen Simes purchased 12,500 shares of common stock and a warrant to purchase 6,250 shares of common stock, Leah Lehman purchased 37,500 shares of common stock and a warrant to purchase 18,750 shares of common stock, Fred Holubow purchased 12,500 shares of common stock and a warrant to purchase 6,250 shares of common stock, Victor Morgenstern, including an affiliated trust and his wife, purchased an aggregate of 75,000 shares of common stock and warrants to purchase an aggregate of 37,500 shares of common stock, Phillip Donenberg and John Lee, each purchased 1,250 shares of common stock and a warrant to purchase 625 shares of common stock, Steve Bell purchased 375 shares of common stock and a warrant to purchase 187 shares of common stock, and Ross Mangano, as a trustee and investment advisor purchased an aggregate of 225,000 shares of common stock and warrant to purchase an aggregate of 112,499 shares of common stock.

8.
In August 2001, we issued 47,619 shares of our common stock upon conversion of a $500,000 convertible debenture to Paladin Labs Inc. at a conversion price of $10.50 per share.

9.
In August 2001, we issued a stock bonus of 12,500 shares of common stock to Stephen Simes at a price of $6.00 per share, a stock bonus of 2,000 shares of our common stock to Phillip Donenberg at a price of $6.00 per share, and a stock bonus of 1,000 shares of common stock to Steve Bell at a price of $6.00 per share.

10.
In September 2001, we issued 1,166 shares of common stock to an accredited investor pursuant to the conversion of class C stock, at a conversion price of $2.50 per share.

        No underwriting commissions or discounts were paid with respect to the sales of the unregistered securities described above. In addition, all of the above sales were made in reliance on either Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering or Regulation D of the Securities Act. In all such transactions, certain inquiries were made by BioSante to establish that such sales qualified for such exemption from the registration requirements. In particular, BioSante confirmed that with respect to the exemption claimed under Section 4(2) of the Securities Act (i) all offers of sales and sales were made by personal contact from officers and directors of BioSante or other persons closely associated with BioSante, (ii) each investor made representations that he or she was sophisticated in relation to this investment (and BioSante has no reason to believe that such representations were incorrect), (iii) each purchaser gave assurance of investment intent and the certificates for the shares bear a legend accordingly, and (iv) offers and sales within any offering were made to a limited number of persons.

Item 27. Exhibits.

        See the Exhibit Index attached to this registration statement that is incorporated herein by reference.

Item 28. Undertakings.

        (a)  The undersigned registrant hereby undertakes:

II-3

        (b)  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

        (c)  The undersigned registrant hereby undertakes that:

II-4


SIGNATURES

        In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Pre-Effective Amendment No. 1 to the registration statement to be signed on its behalf by the undersigned, in the City of Lincolnshire, State of Illinois.

Dated: June 25, 2002   BIOSANTE PHARMACEUTICALS, INC.

 
 
By
 
/s/  STEPHEN M. SIMES      
Stephen M. Simes
 Vice Chairman, President and Chief Executive Officer

 
 
By
 
/s/  PHILLIP B. DONENBERG      
Phillip B. Donenberg
 Chief Financial Officer, Treasurer and Secretary


POWER OF ATTORNEY

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Pre-Effective Amendment No. 1 to this registration statement on Form SB-2 has been signed by the following persons in the capacities indicated, on June 25, 2002.

Name and Signature
   Title

 
 
 
/s/  STEPHEN M. SIMES      
Stephen M. Simes		   Vice Chairman, President and Chief Executive Officer (Principal Executive Officer)

/s/  PHILLIP B. DONENBERG      
Phillip B. Donenberg
 
Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

*
Louis W. Sullivan, M.D.
 
Chairman of the Board

*
Edward C. Rosenow, III, M.D.
 
Director

*
Victor Morgenstern
 
Director

*
Ross Mangano
 
Director

 
 
 

II-5


*
Peter Kjaer
 
Director

*
Fred Holubow
 
Director

*
Angela Ho
 
Director

* /s/ Phillip B. Donenberg
Phillip B. Donenberg
 
Attorney-in-Fact

II-6


BIOSANTE PHARMACEUTICALS, INC.
REGISTRATION STATEMENT ON FORM SB-2
EXHIBIT INDEX

Exhibit No.
   Exhibit
   Method of Filing
2.1   Arrangement Agreement, dated October 23, 1996, between Structured Biologicals Inc. and BioSante Pharmaceuticals, Inc.   Incorporated by reference to Exhibit 2.1 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

3.1
 
Amended and Restated Certificate of Incorporation of BioSante Pharmaceuticals, Inc.
 
Incorporated by reference to Exhibit 3.1 contained in BioSante's Registration Statement on Form SB-2, as amended, (File No. 333-64218)

3.2
 
Bylaws of BioSante Pharmaceuticals, Inc.
 
Incorporated by reference to Exhibit 3.2 contained in BioSante's Registration Statement on Form SB-2, as amended, (File No. 333-64218)

4.1
 
Form of Warrant issued in connection with May 1999 Private Placement
 
Incorporated by reference to Exhibit 4.1 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

4.2
 
Form of Warrant issued in connection with April 2001 Private Placement
 
Incorporated by reference to Exhibit 4.2 contained in BioSante's Registration Statement on Form SB-2, as amended (File No. 333-64218)

5.1
 
Opinion of Oppenheimer Wolff & Donnelly LLP
 
Filed herewith electronically

10.1
 
License Agreement, dated June 18, 1997, between BioSante Pharmaceuticals, Inc. and The Regents of the University of California (1)
 
Incorporated by reference to Exhibit 10.1 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.2
 
Amendment to License Agreement, dated October 26, 1999, between BioSante Pharmaceuticals, Inc. and the Regents of the University of California (1)
 
Incorporated by reference to Exhibit 10.2 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.3
 
Amended and Restated 1998 Stock Option Plan
 
Filed herewith electronically

 
 
 
 
 

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10.4
 
Stock Option Agreement, dated December 7, 1997, between BioSante Pharmaceuticals, Inc. and Edward C. Rosenow, III, M.D.
 
Incorporated by reference to Exhibit 10.5 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.5
 
Form of Stock Option Agreement between BioSante Pharmaceuticals, Inc. and each of BioSante's executive officers
 
Incorporated by reference to Exhibit 10.5 to BioSante's Annual Report on Form 10-KSB, filed on March 28, 2002 (File No. 0-28637)

10.6
 
Escrow Agreement, dated December 5, 1996, among BioSante Pharmaceuticals, Inc., Montreal Trust Company of Canada, as Escrow Agent, and certain shareholders of BioSante Pharmaceuticals, Inc.
 
Incorporated by reference to Exhibit 10.9 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.7
 
Registration Rights Agreement, dated May 6, 1999, between BioSante Pharmaceuticals, Inc. and certain shareholders of BioSante Pharmaceuticals, Inc
 
Incorporated by reference to Exhibit 10.13 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.8
 
Securities Purchase Agreement, dated May 6, 1999, between BioSante Pharmaceuticals, Inc. and certain shareholders of BioSante Pharmaceuticals, Inc
 
Incorporated by reference to Exhibit 10.14 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.9
 
Lease, dated September 15, 1997, between BioSante Pharmaceuticals, Inc. and Highlands Park Associates
 
Incorporated by reference to Exhibit 10.15 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.10
 
Employment Agreement, dated January 21, 1998, between BioSante Pharmaceuticals, Inc. and Stephen M. Simes, as amended
 
Incorporated by reference to Exhibit 10.16 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.11
 
Employment Agreement, dated June 11, 1998, between BioSante Pharmaceuticals, Inc. and Phillip B. Donenberg, as amended
 
Incorporated by reference to Exhibit 10.17 contained in BioSante's Registration Statement on Form 10-SB, as amended (File No. 0-28637)

10.12
 
License Agreement, dated June 13, 2000, between Permatec Technologie, AG and BioSante Pharmaceuticals, Inc.(1)
 
Incorporated by reference to Exhibit 10.1 contained in BioSante's Current Report on Form 8-K on July 11, 2000 (File No. 0-28637)

 
 
 
 
 

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10.13
 
Supply Agreement, dated June 13, 2000, between Permatec Technologie, AG and BioSante Pharmaceuticals, Inc.(1)
 
Incorporated by reference to Exhibit 10.2 contained in BioSante's Current Report on Form 8-K on July 11, 2000 (File No. 0-28637)

10.14
 
Employment Agreement, dated August 1, 2000, between BioSante Pharmaceuticals, Inc. and John E. Lee
 
Incorporated by reference to Exhibit 10.18 to BioSante's Annual Report on Form 10-KSB filed on March 30, 2001(File No. 0-28637)

10.15
 
Employment Agreement, dated December 15, 2000, between BioSante Pharmaceuticals, Inc. and Leah Lehman, Ph.D.
 
Incorporated by reference to Exhibit 10.19 to BioSante's Annual Report on Form 10-KSB filed on March 30, 2001 (File No. 0-28637)

10.16
 
Form of Subscription Agreement in connection with the April 2001 Private Placement
 
Incorporated by reference to Exhibit 10.19 to BioSante's Registration Statement on Form SB-2, as amended, (File No. 333-64218)

10.17
 
Sublease Agreement, dated August 29, 2001, between ICON InfoSystems, Inc. and BioSante Pharmaceuticals, Inc.
 
Incorporated by reference to Exhibit 10.20 to BioSante's Registration Statement on Form SB-2, as amended, (File No. 333-64218)

10.18
 
Amendment No. 1 to the License Agreement, dated May 20, 2001, between Antares Pharma and BioSante Pharmaceuticals, Inc.(1)
 
Incorporated by reference to Exhibit 10.18 to BioSante's Annual Report on Form 10-KSB, filed on March 28, 2002 (File No. 0-28637)

10.19
 
Amendment No. 2 to the License Agreement, dated July 5, 2001, between Antares Pharma and BioSante Pharmaceuticals, Inc.(1)
 
Incorporated by reference to Exhibit 10.19 to BioSante's Annual Report on Form 10-KSB, filed on March 28, 2002 (File No. 0-28637)

10.20
 
Amendment No. 3 to the License Agreement, dated August 30, 2001, between Antares Pharma and BioSante Pharmaceuticals, Inc.(1)
 
Incorporated by reference to Exhibit 10.20 to BioSante's Annual Report on Form 10-KSB, filed on March 28, 2002 (File No. 0-28637)

10.21
 
Consulting Agreement, dated January 1, 2001, between BioSante Pharmaceuticals, Inc. and Scientific Research Development Corp.
 
Incorporated by reference to Exhibit 10.21 to BioSante's Annual Report on Form 10-KSB, filed on March 28, 2002 (File No. 0-28637)

 
 
 
 
 

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10.22
 
Employment Agreement, dated October 1, 2000, between BioSante Pharmaceuticals, Inc. and Steven J. Bell, Ph.D.
 
Incorporated by reference to Exhibit 10.22 to BioSante's Annual Report on Form 10-KSB, filed on March 28, 2002 (File No. 0-28637)

10.23
 
Amendment No. 2 to the License Agreement, dated May 7, 2001, between BioSante Pharmaceuticals, Inc. and The Regents of the University of California(1)
 
Incorporated by reference to Exhibit 10.23 to BioSante's Annual Report on Form 10-KSB, filed on March 28, 2002 (File No. 0-28637)

10.24
 
Separation and Release Agreement, dated February 1, 2002, between BioSante Pharmaceuticals, Inc. and John E. Lee
 
Incorporated by reference to Exhibit 10.24 to BioSante's Annual Report on Form 10-KSB, filed on March 28, 2002 (File No. 0-28637)

23.1
 
Consent of Deloitte & Touche LLP
 
Filed herewith electronically

23.2
 
Consent of Oppenheimer Wolff & Donnelly LLP (included in Exhibit 5.1)
 
Filed herewith electronically

24.1
 
Power of Attorney
 
Previously filed
(1)
Confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, has been granted with respect to designated portions of this document.

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TABLE OF CONTENTS
SUMMARY
Our Company
Recent Developments
The Offering
Abandoned Private Offering
Summary Consolidated Financial Data
RISK FACTORS
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
ABANDONED PRIVATE OFFERING
PLAN OF DISTRIBUTION
USE OF PROCEEDS
DIVIDEND POLICY
PRICE RANGE OF COMMON STOCK
CAPITALIZATION
DILUTION
SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
Summary Compensation Table
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
DESCRIPTION OF CAPITAL STOCK
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
BIOSANTE PHARMACEUTICALS, INC. INDEX TO FINANCIAL STATEMENTS
BIOSANTE PHARMACEUTICALS, INC. (a development stage company) Balance Sheets March 31, 2002 and December 31, 2001 (Unaudited)
BIOSANTE PHARMACEUTICALS, INC. (a development stage company) Statements of Operations Three months ended March 31, 2002 and 2001 and the cumulative period from August 29, 1996 (date of incorporation) to March 31, 2002 (Unaudited)
BIOSANTE PHARMACEUTICALS, INC. (a development stage company) Statements of Cash Flows Three months ended March 31, 2002 and 2001 and the cumulative period from August 29, 1996 (date of incorporation) to March 31, 2002 (Unaudited)
BIOSANTE PHARMACEUTICALS, INC. Notes to Financial Statements (Unaudited) March 31, 2002
BIOSANTE PHARMACEUTICALS, INC. (a development stage company) Balance Sheets December 31, 2001 and 2000
BIOSANTE PHARMACEUTICALS, INC. (a development stage company) Statements of Operations Years ended December 31, 2001, 2000 and 1999 and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001
BIOSANTE PHARMACEUTICALS, INC. (a development stage company) Statements of Stockholders' Equity Years ended December 31, 2001, 2000 and 1999 and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001
BIOSANTE PHARMACEUTICALS, INC. (a development stage company) Statements of Cash Flows Years ended December 31, 2001, 2000 and 1999 and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001
BIOSANTE PHARMACEUTICALS, INC. (a development stage company) Notes to the Financial Statements For the years ended December 31, 2001, 2000 and 1999, and the cumulative period from August 29, 1996 (date of incorporation) to December 31, 2001
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
POWER OF ATTORNEY
BIOSANTE PHARMACEUTICALS, INC. REGISTRATION STATEMENT ON FORM SB-2 EXHIBIT INDEX

Exhibit 5.1

[OPPENHEIMER WOLFF & DONNELLY LLP LETTERHEAD]

June 25, 2002

The Board of Directors
BioSante Pharmaceuticals, Inc.
111 Barclay Boulevard
Lincolnshire, IL 60069

Re: Registration Statement on Form SB-2

Ladies and Gentlemen:

        We have acted as counsel to BioSante Pharmaceuticals, Inc. ("BioSante"), a Delaware corporation, in connection with the registration by BioSante of the offer and sale, on a best efforts basis, of up to $10,000,000 in shares of the common stock, $0.0001 par value per share (the "Shares"), of BioSante pursuant to BioSante's registration statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on the date hereof (the "Registration Statement").

        In acting as counsel for BioSante and arriving at the opinions expressed below, we have examined and relied upon originals or copies, certified or otherwise identified to our satisfaction, of such records of BioSante, agreements and other instruments, certificates of officers and representatives of BioSante, certificates of public officials and other documents as we have deemed necessary or appropriate as a basis for the opinions expressed herein. In connection with our examination, we have assumed the genuineness of all signatures, the authenticity of all documents tendered to us as originals, the legal capacity of all natural persons and the conformity to original documents of all documents submitted to us as certified or photostatic copies.

        Based on the foregoing, and subject to the qualifications and limitations stated herein, it is our opinion that:

        We express no opinion with respect to laws other than those of the federal law of the United States of America and the Delaware General Corporation Law, and we assume no responsibility as to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction.

        We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement, to its use as part of the Registration Statement, and to the use of our name under the caption "Legal Matters" in the prospectus constituting a part of the Registration Statement.

Very truly yours,

OPPENHEIMER WOLFF & DONNELLY LLP



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Exhibit 10.3


BIOSANTE PHARMACEUTICALS, INC.
AMENDED AND RESTATED
1998 STOCK OPTION PLAN

(As amended through May 31, 2002)

1.    Purpose of Plan.    

        The purpose of the BioSante Pharmaceuticals, Inc. 1998 Stock Option Plan (the "Plan") is to advance the interests of BioSante Pharmaceuticals, Inc. (the "Company") and its shareholders by enabling the Company and its Subsidiaries to attract and retain persons of ability to perform services for the Company and its Subsidiaries by providing an incentive to such individuals through equity participation in the Company and by rewarding such individuals who contribute to the achievement by the Company of its objectives, as the Board of Directors describes them.

2.    Definitions.    

        The following terms will have the meanings set forth below, unless the context clearly otherwise requires:

        2.1    "CVE"    means the Canadian Venture Exchange.

        2.2    "CVE Requirements"    means the by-laws, rules, circulars and policies of the CVE.

        2.3    "Board"    means the Board of Directors of the Company.

        2.4    "Broker Exercise Notice"    means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer.

        2.5    "Change in Control"    means an event described in Section 9.1 of the Plan.

        2.6    "Code"    means the Internal Revenue Code of 1986, as amended.

        2.7    "Committee"    means the group of individuals administering the Plan, as provided in Section 3 of the Plan.

        2.8    "Common Stock"    means the common stock of the Company, no par value, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.3 of the Plan.

        2.9    "Disability"    means the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to the Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code.

        2.10    "Eligible Recipients"    means all employees of the Company or any Subsidiary and any non-employee directors, officers, consultants and independent contractors of the Company or any Subsidiary.

        2.11    "Exchange Act"    means the Securities Exchange Act of 1934, as amended.

        2.12    "Fair Market Value"    means, with respect to the Common Stock, as of any date (or, if no shares were traded or quoted on such date, as of the next preceding date on which there was such a trade or quote) (a) the mean between the reported high and low sale prices of the Common Stock if the Common Stock is listed, admitted to unlisted trading privileges or reported on any foreign or national securities exchange or on the Nasdaq National Market or an equivalent foreign market on which sale prices are reported; (b) if the Common Stock is not so listed, admitted to unlisted trading privileges or reported, the closing bid price as reported by the Nasdaq SmallCap Market, OTC Bulletin


Board or the National Quotation Bureau, Inc. or other comparable service; or (c) if the Common Stock is not so listed or reported, such price as the Committee determines in good faith in the exercise of its reasonable discretion.

        2.13    "Incentive Stock Option"    means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that qualifies as an "incentive stock option" within the meaning of Section 422 of the Code.

        2.14    "Non-Statutory Stock Option"    means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock Option.

        2.15    "Option"    means an Incentive Stock Option or a Non-Statutory Stock Option.

        2.16    "Participant"    means an Eligible Recipient who receives one or more Options under the Plan.

        2.17    "Previously Acquired Shares"    means shares of Common Stock or any other shares of capital stock of the Company that are already owned by the Participant or, with respect to any Option, that are to be issued upon the exercise of such Option.

        2.18    "Retirement"    means termination of employment or service pursuant to and in accordance with the regular (or, if approved by the Board for purposes of the Plan, early) retirement/pension plan or practice of the Company or Subsidiary then covering the Participant, provided that if the Participant is not covered by any such plan or practice, the Participant will be deemed to be covered by the Company's plan or practice for purposes of this determination.

        2.19    "Securities Act"    means the Securities Act of 1933, as amended.

        2.20    "Subsidiary"    means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee.

        2.21    "Tax Date"    means the date any withholding tax obligation arises under the Code or other applicable tax statute for a Participant with respect to an Option.

3.    Plan Administration.    

        3.1    The Committee.    The Plan will be administered by the Board or by a committee of the Board. So long as the Company has a class of its equity securities registered under Section 12 of the Exchange Act, any committee administering the Plan will consist solely of two or more members of the Board who are "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act and, if the Board so determines in its sole discretion, who are "outside directors" within the meaning of Section 162(m) of the Code. Such a committee, if established, will act by majority approval of the members (but may also take action with the written consent of all of the members of such committee), and a majority of the members of such a committee will constitute a quorum. As used in the Plan, "Committee" will refer to the Board or to such a committee, if established. To the extent consistent with corporate law, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan pursuant to such conditions or limitations as the Committee may establish; provided, however, that only the Committee may exercise such duties, power and authority with respect to Eligible Recipients who are subject to Section 16 of the Exchange Act. The Committee may exercise its duties, power and authority under the Plan in its sole and absolute discretion without the consent of any Participant or other party, unless the Plan specifically provides otherwise. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be final, conclusive and binding for all purposes and on all persons, including, without limitation, the Company, the shareholders of the Company, the participants and their respective successors-in-interest. No member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Option granted under the Plan.

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        3.2    Authority of the Committee.    

4.    Shares Available for Issuance.    

        4.1    Maximum Number of Shares Available.    Subject to Section 4.4 below and adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be 1,000,000 shares of Common Stock, plus any shares of Common Stock which, as of the date the Plan is approved by the shareholders of the Company, are reserved for issuance under the Company's existing Stock Option Plan and which are not thereafter issued or which have been issued but are subsequently forfeited and which would otherwise have been available for further issuance under such plan.

        4.2    Accounting for Options.    Shares of Common Stock that are issued under the Plan or that are subject to outstanding Options will be applied to reduce the maximum number of shares of Common

3


Stock remaining available for issuance under the Plan. Any shares of Common Stock that are subject to an Option that lapses, expires, is forfeited or for any reason is terminated unexercised and any shares of Common Stock that are subject to an Option that is settled or paid in cash or any form other than shares of Common Stock will automatically again become available for issuance under the Plan.

        4.3    Adjustments to Shares and Options.    In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities or other property (including cash) available for issuance or payment under the Plan and, in order to prevent dilution or enlargement of the rights of Participants, the number and kind of securities or other property (including cash) subject to, and the exercise price of, outstanding Options.

        4.4    CVE Requirements.    So long as the Common Stock of the Company is listed on the CVE and the Company has not been exempted from the CVE Requirements the number of shares of Common Stock that may be reserved for issuance pursuant to the Plan and any other stock option plan, stock purchase plan or for remuneration for any service performed for or on behalf of the Company to any one party shall not exceed five percent of the outstanding shares of Common Stock, on a non-diluted basis;

5.    Participation.    

        Participants in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of objectives as determined by the Board of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Options as may be determined by the Committee in its sole discretion. Options will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the date of any related agreement with the Participant.

6.    Options.    

        6.1    Grant.    An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. To the extent that any Incentive Stock Option granted under the Plan ceases for any reason to qualify as an "incentive stock option" for purposes of Section 422 of the Code, such Incentive Stock Option will continue to be outstanding for purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock Option.

        6.2    Exercise Price.    The per share price to be paid by a Participant upon exercise of an Option will be determined by the Committee in its discretion at the time of the Option grant; provided, however, that (a) such price will not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant with respect to an Incentive Stock Option (110% of the Fair Market Value if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company), and (b) such price will not be less than 85% of the Fair Market Value of one share of Common Stock on the date of grant with respect to a Non-Statutory Stock Option. Notwithstanding the foregoing, so long as the Common Stock of the Company is listed on the CVE and the Company has not been exempted from the CVE Requirements in this regard, the exercise price per share of an Option shall not be less than the price per share permitted by the CVE Requirements.

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        6.3    Exercisability and Duration.    An Option will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Incentive Stock Option may be exercisable after 10 years from its date of grant (five years from its date of grant if, (a) at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company or (b) the Common Stock of the Company is then listed on the CVE and the Company has not been exempted from the CVE Requirements in this regard).

        6.4    Payment of Exercise Price.    The total purchase price of the shares to be purchased upon exercise of an Option must be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by tender of a Broker Exercise Notice, Previously Acquired Shares, a promissory note (on terms acceptable to the Committee in its sole discretion) or by a combination of such methods.

        6.5    Manner of Exercise.    An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company (Attention: Chief Financial Officer) at its principal executive office in Lincolnshire, Illinois and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.4 of the Plan.

        6.6    Aggregate Limitation of Stock Subject to Incentive Stock Options.    To the extent that the aggregate Fair Market Value (determined as of the date an Incentive Stock Option is granted) of the shares of Common Stock with respect to which incentive stock options (within the meaning of Section 422 of the Code) are exercisable for the first time by a Participant during any calendar year (under the Plan and any other incentive stock option plans of the Company or any subsidiary or parent corporation of the Company (within the meaning of the Code)) exceeds $100,000 (or such other amount as may be prescribed by the Code from time to time), such excess Options will be treated as Non-Statutory Stock Options. The determination will be made by taking incentive stock options into account in the order in which they were granted. If such excess only applies to a portion of an Incentive Stock Option, the Committee, in its discretion, will designate which shares will be treated as shares to be acquired upon exercise of an Incentive Stock Option.

7.    Effect of Termination of Employment or Other Service.    

        7.1    Termination Due to Death, Disability or Retirement.    Unless otherwise provided by the Committee in its sole discretion in the agreement evidencing an Option:

        7.2    Termination for Reasons Other than Death, Disability or Retirement.    

5

        7.3    Modification of Rights Upon Termination.    Notwithstanding the other provisions of this Section 7, upon a Participant's termination of employment or other service with the Company and all Subsidiaries, the Committee may, in its sole discretion (which may be exercised at any time on or after the date of grant, including following such termination), cause Options (or any part thereof) then held by such Participant to become or continue to become exercisable and/or remain exercisable following such termination of employment or service; provided, however, that no Option may remain exercisable beyond its expiration date.

        7.4    Exercise of Incentive Stock Options Following Termination.    Any Incentive Stock Option that remains unexercised more than one year following termination of employment by reason of Disability or more than three months following termination for any reason other than death or Disability will thereafter be deemed to be a Non-Statutory Stock Option.

        7.5    Date of Termination of Employment or Other Service.    Unless the Committee otherwise determines in its sole discretion, a Participant's employment or other service will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or other service, as determined by the Committee in its sole discretion based upon such records.

8.    Payment of Withholding Taxes.    

        8.1    General Rules.    The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all foreign, federal, state and local withholding and employment-related tax requirements attributable to an Option, including, without limitation, the grant or exercise of an Option or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Option.

        8.2    Special Rules.    The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment-related tax obligation described in Section 8.1 of the Plan by electing to tender Previously Acquired Shares, a Broker Exercise Notice or a promissory note (on terms acceptable to the Committee in its sole discretion), or by a combination of such methods.

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9.    Change in Control.    

        9.1    Change in Control.    For purposes of this Section 9, a "Change in Control" of the Company will mean the following:

        9.2    Continuity Directors.    For purposes of this Section 9, "Continuity Directors" of the Company will mean any individuals who are members of the Board on the effective date of the Plan and any individual who subsequently becomes a member of the Board whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Continuity Directors (either by specific vote or by approval of the Company's proxy statement in which such individual is named as a nominee for director without objection to such nomination).

        9.3    Acceleration of Exercisability.    Without limiting the authority of the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the Company occurs, then, unless otherwise provided by the Committee in its sole discretion either in the agreement evidencing an Option at the time of grant or at any time after the grant of an Option, all outstanding Options will become immediately exercisable in full and will remain exercisable for the remainder of their terms, regardless of whether the Participant to whom such Options have been granted remains in the employ or service of the Company or any Subsidiary.

10.    Rights of Eligible Recipients and Participants; Transferability.    

        10.1    Employment or Service.    Nothing in the Plan will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or

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Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue in the employ or service of the Company or any Subsidiary.

        10.2    Rights as a Shareholder.    As a holder of Options, a Participant will have no rights as a shareholder unless and until such Options are exercised for, or paid in the form of, shares of Common Stock and the Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan, no adjustment will be made for dividends or distributions with respect to such Options as to which there is a record date preceding the date the Participant becomes the holder of record of such shares, except as the Committee may determine in its discretion.

        10.3    Restrictions on Transfer.    Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by the Plan (unless approved by the Committee in its sole discretion and the CVE, if necessary), no right or interest of any Participant in an Option prior to the exercise of such Option will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise. A Participant will, however, be entitled to designate a beneficiary to receive an Option upon such Participant's death, and in the event of a Participant's death, payment of any amounts due under the Plan will be made to, and exercise of Options (to the extent permitted pursuant to Section 7 of the Plan) may be made by, the Participant's legal representatives, heirs and legatees.

        10.4    Breach of Confidentiality or Non-Compete Agreements.    Notwithstanding anything in the Plan to the contrary, in the event that a Participant materially breaches the terms of any confidentiality or non-compete agreement entered into with the Company or any Subsidiary, whether such breach occurs before or after termination of such Participant's employment or other service with the Company or any Subsidiary, the Committee in its sole discretion may immediately terminate all rights of the Participant under the Plan and any agreements evidencing an Option then held by the Participant without notice of any kind.

        10.5    Non-Exclusivity of the Plan.    Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable.

11.    Securities Law and Other Restrictions.    

        Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Options granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable state or foreign securities laws or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.

12.    Plan Amendment, Modification and Termination.    

        The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Options under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no amendments to the Plan will be effective without approval of the shareholders of the Company if shareholder approval of the amendment is then required pursuant to Section 422 of the Code or the rules of any

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stock exchange or Nasdaq or similar regulatory body. No termination, suspension or amendment of the Plan may adversely affect any outstanding Option without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 3.2, 4.3 and 9 of the Plan.

13.    Effective Date and Duration of the Plan.    

        The Plan is effective as of December 8, 1998, the date it was adopted by the Board. The Plan will terminate at midnight on December 8, 2008 and may be terminated prior to such time to by Board action, and no Option will be granted after such termination. Options outstanding upon termination of the Plan may continue to be exercised in accordance with their terms.

14.    Miscellaneous.    

        14.1    Governing Law.    The validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Wyoming, notwithstanding the conflicts of laws principles of any jurisdictions.

        14.2    Successors and Assigns.    The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Participants.

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BIOSANTE PHARMACEUTICALS, INC. AMENDED AND RESTATED 1998 STOCK OPTION PLAN (As amended through May 31, 2002)

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Exhibit 23.1


INDEPENDENT AUDITORS' CONSENT

        We consent to the use in this Pre-Effective Amendment No. 1 to Registration Statement No. 333-87542 of BioSante Pharmaceuticals, Inc. on Form SB-2 of our report dated February 15, 2002 (May 31, 2002 as to Note 14) (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the development stage nature of BioSante), appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus.

/s/ Deloitte & Touche LLP

Chicago, Illinois
June 24, 2002



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INDEPENDENT AUDITORS' CONSENT