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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from  __________________  to __________________

001-34236 (Commission file number)

BIOSPECIFICS TECHNOLOGIES
CORP.(Exact Name of Registrant as Specified in Its
Charter)

|Delaware                          | 11-3054851         
|--------------------------------- | -------------------
|(State or Other Jurisdiction      | (I.R.S. Employer   
|of Incorporation or Organization) | Identification No.)

35 Wilbur Street Lynbrook, NY 11563(Address of
Principal Executive Offices) (Zip Code)

516.593.7000(Registrants Telephone Number,
Including Area Code)

Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

Yes [X]     No [   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large accelerated filer    [   ]                  | Accelerated filer                     [X]
|------------------------------------------------- | -----------------------------------------
|Non-accelerated filer      [   ]                  | Smaller reporting company   [   ]        
|(Do not check if a smaller reporting
    company) |                                          

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]       No [X]

|
|

Indicate the number of shares outstanding of the issuer's
classes of common stock, as of the latest practicable date:

|Class of Stock                 | Outstanding May 6, 2011
|------------------------------ | -----------------------
|Common Stock ($.001 par value) | 6,353,868              

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BIOSPECIFICS TECHNOLOGIES CORP.

TABLE OF CONTENTS

|        |                                                                                                | Page
|------- | ---------------------------------------------------------------------------------------------- | ----
|        | PART I  FINANCIAL INFORMATION                                                                 |     
|ITEM 1. | Consolidated Financial
      Statements                                                        | 4   
|        | Consolidated Balance Sheet as of March 31, 2011
      and December 31, 2010                    | 4   
|        | Consolidated Statements of
      Operations for the Three Months Ended March 31, 2011 and 2010 | 5   
|        | Consolidated Statements of Cash Flows for the
      Three Months Ended March 31, 2011 and 2010 | 6   
|        | Notes to Consolidated Financial
      Statements                                               | 7   
|ITEM 2. | Managements Discussion and Analysis                                                           | 16  
|ITEM 3. | Quantitative and Qualitative
      Disclosures About Market Risk                               | 21  
|ITEM 4. | Controls and Procedures                                                                        | 22  

|         |                                                                   |   
|-------- | ----------------------------------------------------------------- | --
|         | PART II  OTHER INFORMATION                                       |   
|ITEM 1.  | Legal Proceedings                                                 | 22
|ITEM 1A. | Risk Factors                                                      | 23
|ITEM 2.  | Unregistered Sales of Equity
      Securities and Use of Proceeds | 23
|ITEM 3.  | Defaults Upon Senior Securities                                   | 23
|ITEM 4.  | Reserved                                                          | 23
|ITEM 5.  | Other Information                                                 | 23
|ITEM 6.  | Exhibits                                                          | 23

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Introductory Comments  Terminology

Throughout this quarterly report on Form 10-Q (this Report),
the terms BioSpecifics, Company, we, our, and us refer to BioSpecifics
Technologies Corp. and its subsidiary, Advance Biofactures Corp. (ABC-NY).

Introductory Comments  Forward-Looking Statements

This Report contains forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995. Any statements,
other than statements of historical fact, including statements regarding
BioSpecifics strategy, future operations, future financial position, future
revenues, projected costs, prospects, plans and objectives of management, its
expected revenue growth, and any other statements containing the words
believes, expects, anticipates, plans, estimates and similar
expressions, are forward-looking statements. There are a number of important
factors that could cause its actual results to differ materially from those
indicated by such forward-looking statements, including the statements made by
BioSpecifics and by its partner Auxilium Pharmaceuticals, Inc. (Auxilium)
regarding progress toward achievement of Auxiliums objectives for the US launch
of XIAFLEX® for Dupuytrens contracture; the ability of Pfizer, Inc.
to achieve its objectives for XIAPEX® in Europe; the ability of Asahi
Kasei to achieve its objectives for XIAFLEX®in Japan; the success of
the Phase 3 trials for XIAFLEX for the treatment of Peyronies disease; the
outcome of the dispute with Auxilium over the Companys right to conduct
clinical trials; the Companys ability to restart the Chien-803 trial for
injectable collagenase for the treatment of canine lipomas and the clinical
success of that trial; the Companys ability to initiate and complete clinical
trials in additional indications, all of which will determine the amount of
milestone, royalty and sublicense income BioSpecifics may receive; and other
risk factors identified in the Company's Form 10-K for the year ended December
31, 2010 and its reports on Form 8-K filed with the SEC. All forward-looking
statements included in this Report are made as of the date hereof, and the
Company assumes no obligation to update these forward-looking statements.

3

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PART I  FINANCIAL INFORMATION

Item 1:
Consolidated Financial Statements

BioSpecifics Technologies Corp.Consolidated
Balance Sheets

|                                                                                                                                         |   | March 31,   |   |   | December 31, |  
|---------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ------------ | -
|                                                                                                                                         |   | 2011        |   |   | 2010         |  
|                                                                                                                                         |   | (unaudited) |   |   | (audited)    |  
|Assets                                                                                                                                   |   |             |   |   |              |  
|Current assets:                                                                                                                          |   |             |   |   |              |  
|Cash and cash
      equivalents                                                                                                          | $ | 3,145,359   |   | $ | 2,470,852    |  
|Short-term investments                                                                                                                   |   | 5,360,970   |   |   | 5,360,970    |  
|Accounts
      receivable, net                                                                                                           |   | 1,016,027   |   |   | 1,986,125    |  
|Income tax receivable                                                                                                                    |   | 185,386     |   |   | 185,386      |  
|Deferred tax
      assets                                                                                                                |   | 2,321,286   |   |   | -            |  
|Prepaid expenses and other
      current assets                                                                                          |   | 80,489      |   |   | 91,925       |  
|Total current assets                                                                                                                     |   | 12,109,517  |   |   | 10,095,258   |  
|                                                                                                                                         |   |             |   |   |              |  
|Deferred royalty
      buy-down                                                                                                          |   | 1,250,000   |   |   | 1,250,000    |  
|Deferred tax assets long term                                                                                                           |   | 1,217,954   |   |   | -            |  
|Patent costs,
      net                                                                                                                  |   | 176,677     |   |   | 173,443      |  
|                                                                                                                                         |   |             |   |   |              |  
|Total assets                                                                                                                             |   | 14,754,148  |   |   | 11,518,701   |  
|                                                                                                                                         |   |             |   |   |              |  
|Liabilities and
      Stockholders' Equity                                                                                               |   |             |   |   |              |  
|Current liabilities:                                                                                                                     |   |             |   |   |              |  
|Accounts payable
      and accrued expenses                                                                                              |   | 1,177,655   |   |   | 893,083      |  
|Accrued third-party development
      expenses                                                                                           |   | 1,931,365   |   |   | 2,649,369    |  
|Deferred revenue                                                                                                                         |   | 437,101     |   |   | 483,769      |  
|Accrued liabilities of
      discontinued operations                                                                                     |   | 78,138      |   |   | 78,138       |  
|Total current
      liabilities                                                                                                          |   | 3,624,259   |   |   | 4,104,359    |  
|                                                                                                                                         |   |             |   |   |              |  
|Long-term
      deferred revenue                                                                                                         |   | 604,344     |   |   | 713,619      |  
|                                                                                                                                         |   |             |   |   |              |  
|Stockholders' equity:                                                                                                                    |   |             |   |   |              |  
|Series A Preferred stock,
      $.50 par value, 700,000 shares authorized; none outstanding                                              |   | -           |   |   | -            |  
|Common
      stock, $.001 par value; 10,000,000 shares authorized; 6,445,743 shares
      issued at March 31, 2011 and December 31, 2010 |   | 6,446       |   |   | 6,446        |  
|Additional paid-in capital                                                                                                               |   | 17,889,930  |   |   | 17,739,765   |  
|Accumulated
      deficit                                                                                                                |   | (6,202,407  | ) |   | (9,893,530   | )
|Treasury stock, 151,875 shares
      at cost at March 31, 2011 and December 31, 2010                                                     |   | (1,151,958  | ) |   | (1,151,958   | )
|Total stockholders'
      equity                                                                                                         |   | 10,525,545  |   |   | 6,700,723    |  
|                                                                                                                                         |   |             |   |   |              |  
|Total liabilities and
      stockholders equity                                                                                         | $ | 14,754,148  |   | $ | 11,518,701   |  

See accompanying notes to consolidated financial
statements

4

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BioSpecifics Technologies Corp.Consolidated
Statements of Operations(unaudited)

|                                                                        |   | Three Months
      Ended | 
|----------------------------------------------------------------------- | - | ------------------------ | 
|                                                                        |   | March 31,                | 
|                                                                        |   | 2011                     | 
|Revenues:                                                               |   |                          | 
|Net sales                                                               | $ | 5,892                    | 
|Royalties                                                               |   | 945,081                  | 
|Licensing
      revenues                                                |   | 859,275                  | 
|Consulting fees                                                         |   | 46,667                   | 
|Total Revenues                                                          |   | 1,856,915                | 
|                                                                        |   |                          | 
|Costs and expenses:                                                     |   |                          | 
|Research and development                                                |   | 212,066                  | 
|General and
      administrative                                        |   | 1,509,526                | 
|Total Cost and Expenses                                                 |   | 1,721,592                | 
|                                                                        |   |                          | 
|Operating income (loss)                                                 |   | 135,323                  | 
|                                                                        |   |                          | 
|Other income (expense):                                                 |   |                          | 
|Interest income                                                         |   | 16,560                   | 
|                                                                        |   |                          | 
|Income (loss) before expense
      for income tax                       |   | 151,883                  | 
|Income tax benefit (expense)                                            |   | 3,539,240                | 
|                                                                        |   |                          | 
|Net income (loss)                                                       | $ | 3,691,123                | 
|                                                                        |   |                          | 
|                                                                        |   |                          | 
|Basic net income (loss)
      per share                                 | $ | 0.59                     | 
|Diluted net income (loss) per share                                     | $ | 0.51                     | 
|                                                                        |   |                          | 
|Shares used in computation of basic net
      income (loss) per share   |   | 6,293,868                | 
|Shares used in computation
      of diluted net income (loss) per share |   | 7,203,324                | 

See accompanying notes to consolidated financial
statements

****5

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BioSpecifics Technologies Corp. Consolidated Statements
of Cash Flows(unaudited)

|                                                                                               |   | Three Months
      Ended |  
|---------------------------------------------------------------------------------------------- | - | ------------------------ | -
|                                                                                               |   | March 31,                |  
|                                                                                               |   | 2011                     |  
|**Cash flows from operating
      activities:**                                                |   |                          |  
|Net income
      (loss)                                                                        | $ | 3,691,123                |  
|Adjustments to reconcile
      net income (loss) to net cash provided by operating activities: |   |                          |  
|Depreciation and
      amortization                                                            |   | 10,610                   |  
|Stock-based compensation expense                                                               |   | 133,698                  |  
|Changes
      in operating assets and liabilities:                                             |   |                          |  
|Deferred revenue                                                                               |   | (155,943                 | )
|Deferred tax assets                                                                            |   | (3,539,240               | )
|Accounts receivable                                                                            |   | 970,098                  |  
|Prepaid expenses and other current assets                                                      |   | 11,436                   |  
|Accounts payable and accrued expenses                                                          |   | (447,275                 | )
|Net cash provided by
      operating activities                                                |   | 674,507                  |  
|                                                                                               |   |                          |  
|Cash flows from financing
      activities:                                                    |   |                          |  
|Proceeds from stock
      option exercises                                                     |   | -                        |  
|Net cash provided by
      financing activities                                                |   | -                        |  
|                                                                                               |   |                          |  
|Increase (decrease) in cash
      and cash equivalents                                         |   | 674,507                  |  
|Cash and cash equivalents at beginning of
      year                                           |   | 2,470,852                |  
|Cash and cash equivalents
      at end of year                                                 | $ | 3,145,359                |  
|                                                                                               |   |                          |  
|Supplemental disclosures
      of cash flow information:                                       |   |                          |  
|Cash paid during the year for:                                                                 |   |                          |  
|Interest                                                                                       | $ | -                        |  
|Taxes                                                                                          | $ | -                        |  

Supplemental disclosures of non-cash transactions:

Under our agreement with Auxilium certain patent costs paid by
Auxilium on behalf of the Company are creditable against future royalties. As of
March 31, 2011 we accrued $13,844 related to these costs of which $10,610 was
amortized in the 2011 period and $9,710 in the 2010 comparable period.

See accompanying notes to consolidated financial statements

****6

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BIOSPECIFICS TECHNOLOGIES CORP.NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

We are a biopharmaceutical company involved in the development
of an injectable collagenase for multiple indications. We have a development and
license agreement (the Auxilium Agreement) with Auxilium Pharmaceuticals, Inc.
(Auxilium) for injectable collagenase (which Auxilium has named XIAFLEX
(collagenase clostridium histolyticum)) for clinical indications in Dupuytrens
contracture, Peyronies disease and frozen shoulder (adhesive
capsulitis), and Auxilium has an option to acquire additional indications
that we may pursue, including human and canine lipoma and cellulite. Auxilium
has an agreement with Pfizer, Inc. (Pfizer), pursuant to which Pfizer has the
right to market XIAFLEX for Dupuytrens contracture and Peyronies disease in 27
member countries of the European Union and 19 other European and Eurasian
countries, and will do so under the registered trademark XIAPEX (collagenase
clostridium histolyticum). In addition, Auxilium has an agreement with Asahi
Kasei Pharma Corporation (Asahi) pursuant to which Asahi has the right to
commercialize XIAFLEX for the treatment of Dupuytren's contracture and
Peyronie's disease in Japan.

Until March 2011, we received, pursuant to a March 2006
agreement (the DFB Agreement) between the Company and DFB Biotech, Inc.
(DFB), payments for certain technical assistance and certain transition
services that we provided to DFB. Under the DFB Agreement, we continue to
receive earn out payments based on the sales of certain products. Our right to
receive earn out payments with respect to the marketed topical product sold to
DFB expires in June 2013, but earn out payments for second generation
collagenase products, if any, continue indefinitely.

Operational Highlights

In April 2011, Auxilium announced it will receive a $30 million
regulatory milestone payment from its EU partner, Pfizer, following the first
sale of XIAPEX in a major EU market. XIAPEX is a new non-surgical treatment
option for Dupuytren's contracture in adult patients with a palpable cord and is
the first injectable treatment to be approved in the EU for the treatment of
Dupuytren's contracture. The sale in the first major EU market occurred in the
United Kingdom. We will recognize $2.55 million of the $30 million regulatory
milestone paid to Auxilium by Pfizer under our agreement with Auxilium in the
second quarter of 2011. We will receive 8.5% of the $365 million in potential
additional milestone payments that may be made by Pfizer to Auxilium under the
Pfizer Agreement. For example, we will receive 8.5% of each additional $7.5
million milestone payment ($30 million in aggregate) made as a result of the
first commercial sale in each of the following additional major European
markets: France, Italy, Germany and Spain. In addition, we will receive 8.5% of
all additional sublicense income Auxilium receives from Pfizer, a markup on the
cost of goods sold and low double digit royalties as a percent of net sales
independent of clinical indication, territory and sales volume.

In March 2011, Auxilium and Asahi announced that they had
entered into a long-term strategic alliance for the development,
commercialization and supply of XIAFLEX for the treatment of Dupuytren's
contracture and Peyronie's disease. Under the terms of the agreement, Asahi paid
Auxilium a $15 million upfront fee and received rights to commercialize XIAFLEX
for the treatment of Dupuytren's contracture and Peyronie's disease in Japan. We
recognized in the first quarter of 2011 $0.75 million related to the upfront fee
paid to Auxilium, although we dispute the calculation of this amount. Asahi will
also make up to $247 million in potential milestone payments which we will be
entitled to a certain percentage of, with $37 million tied to development and
regulatory milestones and $210 million based on sales milestones. Asahi will be
primarily responsible for the clinical development, regulatory and
commercialization activities for XIAFLEX in Japan. In addition, we will receive
a different percentage depending upon the indication of all additional
sublicense income Auxilium receives from Asahi, a markup on the cost of goods
sold and low double digit royalties as a percent of net sales independent of
clinical indication and sales volume in Japan.

In March 2011, Auxilium announced it had reached the target
enrollment for the double-blind placebo-controlled phase III program of
XIAFLEXfor the treatment of Peyronie's disease. Peyronie's disease
is the development of a collagen plaque on the penis that can cause the penis to
curve during erection, often interfering with or preventing intercourse and
resulting in psychological distress or bother for the patient.

7

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In February 2011, we announced that our Board of Directors
amended its Rights Agreement. The amendment increases the ownership threshold
for determining Acquiring Person status under the rights Agreement from
15%-18% and extends the Final Expiration Date for an additional two years, to
May 31, 2014.

On January 6, 2011, we announced promising results from our
study Chien-802 showing reductions in canine lipoma following injections with
purified injectable collagenase. These results build upon an earlier dose
escalation study from which the Company selected the dose for Chien-802. The
Company also announced the initiation of a larger clinical trial, Chien-803, for
the same indication. However, Auxilium filed a complaint against BioSpecifics
(Court of Common Pleas in Chester County, Pennsylvania) concerning its right to
conduct clinical trials without Auxiliums approval. In response to the lawsuit,
BioSpecifics voluntarily agreed to suspend Chien-803 and will not be initiating
any new trials using injectable collagenase in animals or humans pending
resolution of dispute.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements are
unaudited, but include all adjustments (consisting only of normal, recurring
adjustments) which we consider necessary for a fair presentation of our
financial position at such dates and the operating results and cash flows for
those periods. Although we believe that the disclosures in our financial
statements are adequate to make the information presented not misleading,
certain information normally included in financial statements prepared in
accordance with United States generally accepted accounting principles (GAAP)
has been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (the SEC) for quarterly reporting.

The information included in this Report should be read in
conjunction with our Annual Report on Form 10-K for the year ended December 31,
2010 filed with the SEC on March 14, 2011.

Principles of Consolidation

The audited consolidated financial statements include the
accounts of the Company and its subsidiary, ABC-NY.

Critical Accounting Policies, Estimates and Assumptions

The preparation of consolidated financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. These estimates are based on
historical experience and on various other assumptions that we believe are
reasonable under the circumstances. Actual results could differ from those
estimates. While our significant accounting policies are described in more
detail in the notes to our consolidated financial statements, we believe the
following accounting policies to be critical to the judgments and estimates used
in the preparation of our consolidated financial statements.

Cash, Cash Equivalents and Short-term Investments

Cash, cash equivalents and short-term investments are stated at
market value. Cash equivalents include only securities having a maturity of
three months or less at the time of purchase. The Company limits its credit risk
associated with cash, cash equivalents and short-term investments by placing its
investments with banks it believes are highly creditworthy and with highly rated
money market funds, United States government securities, or certificates of
deposit.

Fair Value Measurements

Accounting Standards Codification 820, Fair Value
Measurements and Disclosures(ASC 820), requires expanded disclosures
about fair value measurements. ASC 820 clarifies that fair value is an exit
price, representing the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants based
on the highest and best use of the asset or liability. As such, fair value is a
market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. ASC 820 requires
us to use valuation techniques to measure fair value that maximize the use of
observable inputs and minimize the use of unobservable inputs. These inputs are
prioritized as follows:

8

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- Level 1: Observable inputs such as quoted prices for
      identical assets or liabilities in active markets
- Level 2: Other inputs that are observable directly or
      indirectly, such as quoted prices for similar assets or liabilities or
      market-corroborated inputs
- Level 3: Unobservable inputs for which there is little or
      no market data and which require us to develop our own assumptions about
      how market participants would price the assets or liabilities

The following table sets forth the fair value of our financial
assets that were measured on a recurring basis as of March 31, 2011:

|                          |   | Level 1   |  |  | Level 2 |  |  | Level 3 | 
|------------------------- | - | --------- |  |  | ------- |  |  | ------- | 
|                          |   |           |  |  |         |  |  |         | 
|Cash and cash equivalents | $ | 3,145,359 |  |  | -       |  |  | -       | 
|Certificates of Deposit   |   | 5,360,970 |  |  | -       |  |  | -       | 

Revenue Recognition

We currently recognize revenues resulting from product sales,
the licensing and sublicensing of the use of our technology and from services we
sometimes perform in connection with the licensed technology under the guidance
of Accounting Standards Codification 605, Revenue Recognition (ASC
605).

If we determine that separate elements exist in a revenue
arrangement under ASC 605, we recognize revenue for delivered elements only when
the fair values of undelivered elements are known, when the associated earnings
process is complete, when payment is reasonably assured and, to the extent the
milestone amount relates to our performance obligation, when our customer
confirms that we have met the requirements under the terms of the agreement.

Revenues, and their respective treatment for financial
reporting purposes, are as follows:

Product Sales

We recognize revenue from product sales when there is
persuasive evidence that an arrangement exists, title passes, the price is fixed
or determinable and collectability is reasonably assured. No right of return
exists for our products except in the case of damaged goods. To date, we have
not experienced any significant returns of our products.

Net sales include the sales of the collagenase for laboratory
use that are recognized at the time the product is shipped to customers for
laboratory use.

Royalty / Mark-up on Cost of Goods Sold / Earn-Out
Revenue

For those arrangements for which royalty, mark-up on cost of
goods sold or earn-out payment information becomes available and collectability
is reasonably assured, we recognize revenue during the applicable period earned.
For interim quarterly reporting purposes, when collectability is reasonably
assured but a reasonable estimate of royalty, mark-up on cost of goods sold or
earn-out payment revenues cannot be made, the royalty, mark-up on cost of goods
sold or earn-out payment revenues are generally recognized in the quarter that
the applicable licensee provides the written report and sufficient related
information to us.

Under the Auxilium Agreement, we do not participate in the
selling, marketing or manufacturing of products for which we receive royalties
and a mark-up of the cost of goods sold revenues. The royalty, mark-up on cost
of goods sold revenues will generally be recognized in the quarter that Auxilium
provides the written reports and related information to us, that is, royalty and
mark up on cost of goods sold revenues are generally recognized one quarter
following the quarter in which sales by Auxilium occurred.The royalties
payable by Auxilium to us are subject to set-off for certain third party
development and patent costs.

Under the DFB Agreement, pursuant to which we sold our topical
collagenase business to DFB, we have the right to receive earn-out payments in
the future based on sales of certain products. Generally, under the DFB
Agreement we would receive payments and a report within ninety (90) days from
the end of each calendar year after DFB has sold the royalty-bearing product. Currently, DFB is providing us
earn-out reports on a quarterly basis.

9

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License and Sublicense Fees

We include revenue recognized from upfront licensing,
sublicensing and milestone payments in License Revenues in our consolidated
statements of operations in this Report.

Upfront License and Sublicensing Fees

We generally recognize revenue from upfront licensing and
sublicensing fees when the agreement is signed, we have completed the earnings
process and we have no ongoing performance obligation with respect to the
arrangement. Nonrefundable upfront technology license for product candidates for
which we are providing continuing services related to product development are
deferred and recognized as revenue over the development period.

Milestones

Milestones, in the form of additional license fees, typically
represent nonrefundable payments to be received in conjunction with the
achievement of a specific event identified in the contract, such as completion
of specified development activities and/or regulatory submissions and/or
approvals. We believe that a milestone represents the culmination of a distinct
earnings process when it is not associated with ongoing research, development or
other performance on our part. We recognize such milestones as revenue when they
become due and collection is reasonably assured. When a milestone does not
represent the culmination of a distinct earnings process, we recognize revenue
in a manner similar to that of an upfront license fee.

The timing and amount of revenue that we recognize from
licenses of technology, either from upfront fees, sublicenses or milestones
where we are providing continuing services related to product development, is
primarily dependent upon our estimates of the development period. We define the
development period as the point from which research activities commence up to
regulatory approval of either our, or our partners submission assuming no
further research is necessary. As product candidates move through the
development process, it is necessary to revise these estimates to consider
changes to the product development cycle, such as changes in the clinical
development plan, regulatory requirements, or various other factors, many of
which may be outside of our control. Should the FDA or other regulatory agencies
require additional data or information, we would adjust our development period
estimates accordingly. The impact on revenue of changes in our estimates and the
timing thereof is recognized prospectively over the remaining estimated product
development period.

Consulting and Technical Assistance Services

We recognize revenues from consulting and technical assistance
contracts primarily as a result of the DFB Agreement. Consulting revenues are
recognized ratably over the term of the contract. The consulting and technical
assistance obligations to DFB expired in March 2011.

Accounts Receivable and Allowance for Doubtful Accounts

The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses which when
realized have been within the range of managements expectations. Our policy is
to write off bad debts as uncollectible when it is determined that they cannot
be collected.

As of March 31, 2011, accounts receivables included
approximately $0.75 million mainly due from Auxilium related to a sublicense
fee.

Reimbursable Third Party Development Costs

We accrue expenses for research and development and capitalize
certain patent costs related to estimated third party development costs that are
reimbursable under the Auxilium Agreement. Estimates are based on contractual
terms, historical development costs, reviewing third party data and expectations
regarding future development for certain products. Further, we monitor the
activities and clinical trials of our development partners.

10

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If conditions or other circumstances change, we may take
actions to revise our reimbursable third party development cost estimates. These
revisions could result in an incremental increase or decrease in research and
development costs. For example, the Auxilium Agreement provides that Auxilium
and BioSpecifics will share equally in third party costs for the development of
the lyophilization of the injection formulation and certain patent expenses
which are creditable against future royalty revenues.

In the first quarter of 2011, we recognized approximately $0.8
million related to royalty revenue from the sale of XIAFLEX. Based upon the
royalty revenue reported to us, we reduced our estimates for reimbursable third
party development and certain patent costs to approximately $1.9 million. Any
amount ultimately agreed or determined as being owed by us to Auxilium for
lyophilization expenses and patent expenses are creditable against future
royalties payable by Auxilium on net sales of XIAFLEX. We have an ongoing
dispute with Auxilium concerning the appropriate amount of creditable
lyophilization and patent expenses.

We believe that only a portion of the amounts invoiced actually
relates to the development of the lyophilization of the injection formulation
and certain patent expenses may increase based upon a resolution of certain
patent matters, and therefore, we reserve all rights related to this matter,
including but not limited to our right to contest the amount charged by
Auxilium. We have classified accrued third party development costs as current
liabilities on our balance sheet as of March 31, 2011.

Actual results have differed in the past, and may differ in the
future, from our estimates and could impact our earnings in any period during
which an adjustment is made.

Research and Development Expenses

Our research and development (R&D) costs are expensed as
incurred. R&D includes, but is not limited to, internal costs, such as
salaries and benefits, costs of materials, lab expense, facility costs and
overhead. R&D also consists of third party costs, such as medical
professional fees, contract manufacturing costs for material used in clinical
trials, consulting fees and costs associated with clinical study R&D
arrangements. We fund R&D at medical research institutions under agreements
that are generally cancelable. All of these costs are charged to R&D as
incurred, which may be measured by percentage of completion, contract
milestones, patient enrollment, or the passage of time.

Clinical Trial Expenses

Our cost accruals for clinical trials are based on estimates of
the services received and efforts expended pursuant to contracts with various
clinical trial centers and clinical research organizations. In the normal course
of business we contract with third parties to perform various clinical trial
activities in the ongoing development of potential drugs. The financial terms of
these agreements are subject to negotiation and vary from contract to contract
and may result in uneven payment flows. Payments under the contracts depend on
factors such as the achievement of certain events, the successful enrollment of
patients, the completion of portions of the clinical trial, or similar
conditions. The objective of our accrual policy is to match the recording of
expenses in our financial statements to the actual cost of services received and
efforts expended. As such, expenses related to each patient enrolled in a
clinical trial are recognized ratably beginning upon entry into the trial and
over the course of the patients continued participation in the trial. In the
event of early termination of a clinical trial, we accrue an amount based on our
estimate of the remaining non-cancelable obligations associated with the winding
down of the clinical trial. Our estimates and assumptions could differ
significantly from the amounts that may actually be incurred.

Stock-Based Compensation

The Company has two stock-based compensation plans in effect.
Accounting Standards Codification 718, Compensation - Stock Compensation(ASC 718) requires the recognition of compensation expense, using a
fair-value based method, for costs related to all share-based awards including
stock options and common stock issued to our employees and directors under our
stock plans. It requires companies to estimate the fair value of share-based
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense on a straight-line basis over the requisite service periods in our
Consolidated Statements of Operations.

11

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Under the ASC 718, we estimate the fair value of our employee
stock awards at the date of grant using the Black-Scholes option-pricing model, which requires the use of certain
subjective assumptions. The most significant of these assumptions are our
estimates of the expected volatility of the market price of our stock and the
expected term of an award. When establishing an estimate of the expected term of
an award, we consider the vesting period for the award, our recent historical
experience of employee stock option exercises (including forfeitures) and the
expected volatility. When there is uncertainty in the factors used to determine
the expected term of an award, we use the simplified method. As required under
the accounting rules, we review our valuation assumptions at each grant date
and, as a result, our valuation assumptions used to value employee stock-based
awards granted in future periods may change. The company did not grant stock
options during the first quarter of 2011.

Further, ASC 718 requires that employee stock-based
compensation costs to be recognized over the requisite service period, or the
vesting period, in a manner similar to all other forms of compensation paid to
employees. The allocation of employee stock-based compensation costs to each
operating expense line are estimated based on specific employee headcount
information at each grant date and estimated stock option forfeiture rates and
revised, if necessary, in future periods if actual employee headcount
information or forfeitures differ materially from those estimates. As a result,
the amount of employee stock-based compensation costs we recognize in each
operating expense category in future periods may differ significantly from what
we have recorded in the current period.

Stock-based compensation expense recognized under ASC 718 was
as follows:

|                                             |   | Three Months Ended | 
|-------------------------------------------- | - | ------------------ | 
|                                             |   | March 31,          | 
|                                             |   | 2011               | 
|                                             |   |                    | 
|Research and development                     | $ | 27,116             | 
|                                             |   |                    | 
|General and administrative                   |   | 106,582            | 
|Total stock-based
      compensation expense | $ | 133,698            | 

Stock Option Activity

A summary of our stock option activity during the three months
ended March 31, 2011 is presented below:

|                                    |  | Total           |  |   | Weighted-      | 
|----------------------------------- |  | --------------- |  | - | -------------- | 
|                                    |  | Number          |  |   | Average        | 
|Options                             |  | of
      Shares |  |   | Exercise Price | 
|Outstanding as of December 31, 2010 |  | 1,346,425       |  | $ | 7.81           | 
|Granted                             |  | -               |  |   | -              | 
|Forfeited                           |  | -               |  |   | -              | 
|Exercised                           |  | -               |  |   | -              | 
|Expired                             |  | -               |  |   | -              | 
|Outstanding as of March 31, 2011    |  | 1,346,425       |  | $ | 7.81           | 
|                                    |  |                 |  |   |                | 
|                                    |  |                 |  |   |                | 
|Exercisable as of March 31, 2011    |  | 1,231,425       |  | $ | 6.66           | 

During the three months ended March 31, 2011 and 2010, zero and
$36,800, respectively, were received from stock options exercised by option
holders.

The aggregate intrinsic value of options outstanding and
exercisable as of March 31, 2011 was approximately $23.2 million. Aggregate
intrinsic value represents the total pre-tax intrinsic value, based on the
closing price of our common stock of $25.50 on March 31, 2011, which would have
been received by the option holders had all option holders exercised their
options as of that date. Total unrecognized compensation cost related to
non-vested stock options outstanding as of March 31, 2011 was approximately $0.5
million which we expect to recognize over a weighted-average period of 1.1
years.

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Property, Plant and Equipment

Property, plant and equipment are stated at cost, less
accumulated depreciation. Machinery and equipment, furniture and fixtures, and
autos are depreciated on the straight-line basis over their estimated useful
lives of 5 to 10 years. Leasehold improvements are amortized over the lesser of
their estimated useful lives or the remaining life of the lease.

Income Taxes

We account for income taxes under the asset and liability
method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements. Under this method, deferred tax assets and liabilities
are determined based on the differences between the financial statements and tax
basis of assets and liabilities using tax rates in effect for the year in which
the differences are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the appropriate
period.

We record net deferred tax assets to the extent we believe
these assets will more likely than not be realized. In making such
determination, we consider all available positive and negative evidence,
including future reversals of existing taxable temporary differences, projected
future taxable income, tax planning strategies and recent financial
operations.

Future Impact of Recently Issued Accounting Standards

In March 2010, the Financial Accounting Standards Board
(FASB) amended its authoritative guidance on the milestone method of revenue
recognition. The milestone method of revenue recognition has now been codified
as an acceptable revenue recognition model when a milestone is deemed to be
substantive. This guidance may be applied retrospectively to all arrangements or
prospectively for milestones achieved after the adoption of the guidance. We
adopted this amended guidance for the fiscal year beginning January 1, 2011. The
adoption of this amendment did not have any impact on our consolidated financial
statements.

In February 2010, the FASB issued update No. 2010-09,Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements.This update provides amendments to Subtopic 855-10 for an
entity that is an SEC filer and is required to evaluate subsequent events
through the date that the financial statements are issued. An entity that is an
SEC filer is not required to disclose the date through which subsequent events
have been evaluated. The adoption of this update did not have any impact on our
consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06, Fair Value
Measurements and Disclosures(Topic 820)  Improving Disclosures about
Fair Value Measurements.ASU 2010-06 amends the fair value disclosure
guidance to include new disclosures and changes to clarify existing disclosure
requirements. These amended standards require disclosures about inputs and
valuation techniques used to measure fair value as well as disclosures about
significant transfers, beginning in the first quarter of 2010. Additionally,
these amended standards require presentation of disaggregated activity within
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), beginning in the first quarter of 2011. The adoption of these
new standards did not materially impact our consolidated financial statements.

There were various other updates recently issued, most of which
represented technical corrections to the accounting literature or application to
specific industries and are not expected to have a material impact on the on our
consolidated financial statements.

3. NET INCOME (LOSS) PER SHARE

In accordance with Accounting Standards Codification 260,Earnings Per Share, basic net income (loss) per share amount is computed
using the weighted-average number of shares of common stock outstanding during
the periods presented, while diluted net income (loss) per share is computed
using the sum of the weighted-average number of common and common equivalent
shares outstanding. Common equivalent shares used in the computation of diluted
earnings per share result from the assumed exercise of stock options using the
converted method.

The following table summarizes the number of common equivalent
shares that may be included for the calculation of diluted net income purposes
from continuing operations reported in the consolidated statement of operations.
For the three months ended March 31, 2010, we incurred a net loss from
continuing operations and, as such, we did not include the effect of outstanding
stock options in the diluted net loss per share calculations for that period, as
their effect would have been anti-dilutive.

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|              |  | Three Months Ended | 
|------------- |  | ------------------ | 
|              |  | March 31,          | 
|              |  | 2011               | 
|              |  |                    | 
|Stock options |  | 909,456            | 

4. TOTAL COMPREHENSIVE INCOME (LOSS)

Comprehensive loss is comprised of net income (loss) and other
comprehensive income. Specifically, we include in other comprehensive income the
changes in unrealized gains and losses on our holdings of available-for-sale
securities, which are excluded from our net income (loss). The following table
presents the calculation of our comprehensive income (loss):

|                                                           |   | Three Months Ended | 
|---------------------------------------------------------- | - | ------------------ | 
|                                                           |   | March 31,          | 
|                                                           |   | 2011               | 
|                                                           |   |                    | 
|Net income (loss)                                          | $ | 3,691,123          | 
|Other comprehensive loss:                                  |   |                    | 
|Change in unrealized losses on
      marketable securities |   | -                  | 
|Total Comprehensive Income (Loss)                          | $ | 3,691,123          | 

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the
following:

|                                            |   | March 31, |  |   | December 31, | 
|------------------------------------------- | - | --------- |  | - | ------------ | 
|                                            |   | 2011      |  |   | 2010         | 
|                                            |   |           |  |   |              | 
|Trade accounts payable and accrued expenses | $ | 994,031   |  | $ | 674,917      | 
|Accrued legal and other professional fees   |   | 37,016    |  |   | 77,442       | 
|Accrued payroll and related costs           |   | 146,608   |  |   | 140,725      | 
|                                            |   |           |  |   |              | 
|Total                                       | $ | 1,177,655 |  | $ | 893,084      | 

6. PATENT COSTS

We amortize intangible assets with definite lives on a
straight-line basis over their estimated useful lives, ranging from 3 to 10
years, and review for impairment on a quarterly basis and when events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable.

As of March 31, 2011, the Company capitalized certain patent
costs, paid by Auxilium on behalf of the Company. These costs are reimbursable
to Auxilium under the Auxilium Agreement and are creditable against future
royalty revenues. Our net patent costs consisted of:

|                         |   | March 31, |   |   | December 31, |  
|------------------------ | - | --------- | - | - | ------------ | -
|                         |   | 2011      |   |   | 2010         |  
|                         |   |           |   |   |              |  
|Patents                  | $ | 264,465   |   | $ | 250,621      |  
|Accumulated Amortization |   | (87,788   | ) |   | (77,178      | )
|                         | $ | 176,677   |   | $ | 173,443      |  

The amortization expense for patents was $10,610 for the three
months ended March 31, 2011. (See Note 1: Reimbursable Third Party
Development Costsfor a more detailed description of the change) In the
comparable period of 2010, the amortization expense for patents was
$9,710. The estimated aggregate amortization expense for each of the next five
years is approximately as follows:

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|2012 | $ | 37,000 | 
|---- | - | ------ | 
|2013 |   | 35,000 | 
|2014 |   | 27,000 | 
|2015 |   | 10,000 | 
|2016 |   | 10,000 | 

7. INCOME TAXES

The significant components of the Company's deferred tax
assets, pursuant to Accounting Standards Codification 740-10-50 consist of net
operating losses, orphan tax credits, stock-based compensation and deferred
revenues. For the three month period ended March 31, 2011, the valuation
allowance reversed by approximately $3.6 million with respect to the Companys
net deferred tax assets and corresponding tax benefit reduced the Company's
statutory tax rate of 34% and resulted in net benefit of $3,539,240. The Company has determined that it is more likely than
not that these deferred tax assets would be realized based on the Companys
projected annual profitability of operations driven by our revenues under our
agreement with Auxilium. Included in the valuation adjustment is a decrease in
the net operating loss carry-forward of approximately $0.1 million which was
applied to the current periods federal and state income taxes. The remaining
balance of deferred tax assets as of March 31, 2011 is approximately $3.5
million.

8. QUALIFYING THERAPEUTIC DISCOVERY PROJECT PROGRAM

In November 2010, we were notified that we had been awarded a
total cash grant of approximately $426,000 under the Qualifying Therapeutic
Discovery Project program administered under section 48D of the Internal Revenue
Code, of which approximately $102,000 relates to qualifying expenses we had
previously incurred during the 2009 fiscal year which was received during the
fourth quarter of fiscal 2010. The remainder of the grant of approximately
$324,000 was received in February 2011 based on qualifying expenses that we
incurred during the 2010 fiscal year. We recognized the full $426,000 of the
grant as of the date of notification since we had already incurred all of the
qualifying expenses. Since this program is non-recurring, we elected to classify
this payment as other income in the Consolidated Statement of Operations for the
year ended December 31, 2010.

9. RELATED PARTY TRANSACTIONS

Our subsidiary, ABC-NY (together with the Company, the
Tenant) and Wilbur St. Corp. (the Landlord) were parties to a lease
agreement initially dated as of January 30, 1998 and modified as of June 24,
2009 (the Lease Agreement), pursuant to which the Landlord leased to the
Tenant the premises located at 35 Wilbur Street, Lynbrook, NY 11563 (the
Premises) until June 30, 2010 and for a monthly rental price of $11,250
(exclusive of real estate taxes) plus utilities. Following the expiration of the
Lease Agreement, the Tenant has continued to lease the Premises from the
Landlord on a month-to-month basis. We have notified the Landlord of our
termination of the Lease Agreement effective March 31, 2011, but continue to
hold over pending the closing of the sale described below.

On April 14, 2011, Landlord entered into an agreement to sell
the Premises to an unrelated third party named 35 Wilbur Street Associates, LLC
(Third Party Buyer). The agreement is subject to a 45-day contingency period.
Pending the closing of the sale, the Company and the Third Party Buyer have
engaged in negotiations concerning entering into a new lease at the reduced
rental price of $10,000 per month (inclusive of current real estate taxes), plus
utilities, for a period of six months with an option to renew for an additional
six months. If the closing of the sale does not occur or the Third Party Buyer
and the Company cannot agree on the terms of the new lease, the Company will
need to relocate.

10. SUBSEQUENT EVENTS

We have evaluated subsequent events for recognition or
disclosure through the time of filing these consolidated financial statements on
Form 10-Q with the U.S. Securities and Exchange Commission on May 10, 2011.

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Item 2: Managements Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion should be read in conjunction with
the consolidated financial statements and the related notes thereto included
elsewhere in this Report, and is qualified by reference to them.

Overview

We are a biopharmaceutical company involved in the development
of an injectable collagenase for multiple indications. We have a development and
license agreement (the Auxilium Agreement) with Auxilium Pharmaceuticals, Inc.
(Auxilium) for injectable collagenase (which Auxilium has named XIAFLEX
(collagenase clostridium histolyticum)) for clinical indications in Dupuytrens
contracture, Peyronies disease and frozen shoulder (adhesive
capsulitis), and Auxilium has an option to acquire additional indications
that we may pursue, including human and canine lipoma and cellulite. Auxilium
has an agreement with Pfizer Inc. (Pfizer), pursuant to which Pfizer has the
right to market XIAFLEX for Dupuytrens contracture and Peyronies disease in 27
member countries of the European Union and 19 other European and Eurasian
countries, and will do so under the registered trademark XIAPEX (collagenase
clostridium histolyticum). In addition, Auxilium has an agreement with Asahi
Kasei Pharma Corporation (Asahi) pursuant to which Asahi has the right to
commercialize XIAFLEX for the treatment of Dupuytren's contracture and
Peyronie's disease in Japan.

Until March 2011, we received, pursuant to a March 2006
agreement (the DFB Agreement) between the Company and DFB Biotech, Inc.
(DFB), payments for certain technical assistance and certain transition
services that we provided to DFB. Under the DFB Agreement, we continue to
receive earn out payments based on the sales of certain products. Our right to
receive earn out payments with respect to the marketed topical product sold to
DFB expire in June 2013, but earn out payments for second generation collagenase
products, if any, continue indefinitely.

Operational Highlights

In April 2011, Auxilium announced it will receive a $30 million
regulatory milestone payment from its EU partner, Pfizer, following the first
sale of XIAPEX in a major EU market. XIAPEX is a new non-surgical treatment
option for Dupuytren's contracture in adult patients with a palpable cord and is
the first injectable treatment to be approved in the EU for the treatment of
Dupuytren's contracture. The sale in the first major EU market occurred in the
United Kingdom. We will recognize $2.55 million of the $30 million regulatory
milestone paid to Auxilium by Pfizer under our agreement with Auxilium in the
second quarter of 2011. We will receive 8.5% of the $365 million in potential
additional milestone payments that may be made by Pfizer to Auxilium under the
Pfizer Agreement. For example, we will receive 8.5% of each additional $7.5
million milestone payment ($30 million in aggregate) made as a result of the
first commercial sale in each of the following additional major European
markets: France, Italy, Germany and Spain. In addition, we will receive 8.5% of
all additional sublicense income Auxilium receives from Pfizer, a markup on the
cost of goods sold and low double digit royalties as a percent of net sales
independent of clinical indication, territory and sales volume.

In March 2011, Auxilium and Asahi announced that they had
entered into a long-term strategic alliance for the development,
commercialization and supply of XIAFLEX for the treatment of Dupuytren's
contracture and Peyronie's disease. Under the terms of the agreement, Asahi paid
Auxilium a $15 million upfront fee and received rights to commercialize XIAFLEX
for the treatment of Dupuytren's contracture and Peyronie's disease in Japan. We
recognized in the first quarter of 2011 $0.75 million related to the upfront fee
paid to Auxilium, although we dispute the calculation of this amount. Asahi will
also make up to $247 million in potential milestone payments which we will be
entitled to a certain percentage of, with $37 million tied to development and
regulatory milestones and $210 million based on sales milestones. Asahi will be
primarily responsible for the clinical development, regulatory and
commercialization activities for XIAFLEX in Japan. In addition, we will receive
a different percentage depending upon the indication of all additional
sublicense income Auxilium receives from Asahi, a markup on the cost of goods
sold and low double digit royalties as a percent of net sales independent of
clinical indication and sales volume in Japan.

In March 2011, Auxilium announced it had reached the target
enrollment for the double-blind placebo-controlled phase III program of
XIAFLEXfor the treatment of Peyronie's disease. Peyronie's disease
is the development of a collagen plaque on the penis that can cause the penis to
curve during erection, often interfering with or preventing intercourse and
resulting in psychological distress or bother for the patient.

In February 2011, we announced that our Board of Directors
amended its Rights Agreement. The amendment increases the ownership threshold
for determining Acquiring Person status under the rights Agreement from
15% to 18% and

16

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extends the Final Expiration Date for an additional two
years, to May 31, 2014.

On January 6, 2011, we announced promising results from our
study Chien-802 showing reductions in canine lipoma following injections with
purified injectable collagenase. These results build upon an earlier dose
escalation study from which the Company selected the dose for Chien-802. The
Company also announced the initiation of a larger clinical trial, Chien-803, for
the same indication. However, Auxilium filed a complaint against BioSpecifics
(Court of Common Pleas in Chester County, Pennsylvania) concerning its right to
conduct clinical trials without Auxiliums approval. In response to the lawsuit,
BioSpecifics voluntarily agreed to suspend Chien-803 and will not be initiating
any new trials using injectable collagenase in animals or humans pending
resolution of dispute.

Outlook

Currently, we generate revenue from two primary sources: in
connection with the DFB Agreement and in connection with the Auxilium Agreement.
Under the DFB Agreement, until March 2011, we received revenue related to
certain technical assistance and certain transition services that we provided to
DFB. Under the DFB Agreement, we continue to receive earn-out payments from DFB
based on the sales of certain products. Under the Auxilium Agreement, we receive
sublicense income, royalties, milestones and mark-up on cost of goods sold
payments related to the sale and approval of XIAFLEX/XIAPEX as described above.

Significant Risks

In recent history we have had operating losses but expect to
achieve sustained profitability on an on-going annual basis. As of March 31,
2011, we had an accumulated deficit from continuing operations of approximately
$6.2 million.

We are dependent to a significant extent on third parties, and
our principal licensee, Auxilium, may not be able to successfully commercialize
XIAFLEX for Dupuytrens contracture, successfully develop XIAFLEX for additional
indications, obtain required regulatory approvals, manufacture XIAFLEX at an
acceptable cost, in a timely manner and with appropriate quality, or
successfully market products or maintain desired margins for products sold,
which will affect our profitability.

Critical Accounting Policies, Estimates and
Assumptions

The preparation of unaudited consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the unaudited consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. These estimates are based on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. The information at March 31, 2011 and for the three months ended
March 31, 2011 and 2010 is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which, in the opinion of management, are
necessary to state fairly the financial information set forth herein. The March
31, 2011 balance sheet amounts and disclosures included herein have been derived
from the Companys December 31, 2010 audited consolidated financial statements.
The interim results are not necessarily indicative of results to be expected for
the full fiscal year. These unaudited consolidated financial statements should
be read in conjunction with the audited consolidated financial statements for
the year ended December 31, 2010 included in the Companys Annual Report on Form
10-K filed with the SEC on March 14, 2011. While our significant accounting
policies are described in more detail in the notes to our unaudited consolidated
financial statements, we believe the following accounting policies to be
critical to the judgments and estimates used in the preparation of our unaudited
consolidated financial statements. Actual results have differed in the past, and
may differ in the future, from our estimates and could impact our earnings in
any period during which an adjustment is made.

Revenue Recognition. We recognize revenues
from product sales when there is persuasive evidence that an arrangement exists,
title passes, the price is fixed and determinable, and payment is reasonably
assured. We currently recognize revenues resulting from the licensing,
sublicensing and use of our technology and from services we sometimes perform in
connection with the licensed technology.

We enter into product development licenses, and collaboration
agreements that may contain multiple elements, such as upfront license and
sublicense fees, milestones related to the achievement of particular stages in
product development and royalties. As a result, significant contract
interpretation is sometimes required to determine the appropriate accounting,
including whether the deliverables specified in a multiple-element arrangement
should be treated as separate units of accounting for revenue recognition purposes, and if
so, how the aggregate contract value should be allocated among the deliverable
elements and when to recognize revenue for each element.

17

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We recognize revenue for delivered elements only when the fair
values of undelivered elements are known, when the associated earnings process
is complete and, to the extent the milestone amount relates to our performance
obligation, when our licensee confirms that we have met the requirements under
the terms of the agreement, and when payment is reasonably assured. Changes in
the allocation of the contract value between various deliverable elements might
impact the timing of revenue recognition, but in any event, would not change the
total revenue recognized on the contract. For example, nonrefundable upfront
product license fees, for product candidates for which we are providing
continuing services related to product development, are deferred and recognized
as revenue over the development period.

Milestones, in the form of additional license fees, typically
represent nonrefundable payments to be received in conjunction with the
achievement of a specific event identified in a contract, such as completion of
specified clinical development activities and/or regulatory submissions and/or
approvals. We believe that a milestone represents the culmination of a distinct
earnings process when it is not associated with ongoing research, development or
other performance on our part. We recognize such milestones as revenue when they
become due and payment is reasonably assured. When a milestone does not
represent the culmination of a distinct earnings process, we recognize revenue
in a manner similar to that of an upfront product license fee.

Royalty / Mark-up on Cost of Goods Sold / Earn-Out
Revenue

For those arrangements for which royalty, mark-up on cost of
goods sold or earn-out payment information becomes available and collectability
is reasonably assured, we recognize revenue during the applicable period earned.
For interim quarterly reporting purposes, when collectability is reasonably
assured but a reasonable estimate of royalty, mark-up on cost of goods sold or
earn-out payment revenues cannot be made, the royalty, mark-up on cost of goods
sold or earn-out payment revenues are generally recognized in the quarter that
the applicable licensee provides the written report and related information to
us.

Under the Auxilium Agreement, we do not participate in the
selling, marketing or manufacturing of products for which we receive royalties
and a mark-up of the cost of goods sold revenues, The royalty, mark-up on cost
of goods sold revenues will generally be recognized in the quarter that Auxilium
provides the written reports and related information to us, that is, royalty and
mark up on cost of goods sold revenues are generally recognized one quarter
following the quarter in which sales by Auxilium occurred.The royalties
payable by Auxilium to us are subject to set-off for certain third party
development and patent costs.

Under the DFB Agreement, pursuant to which we sold our topical
collagenase business to DFB, we have the right to receive earn-out payments in
the future based on sales of certain products. Generally, under the DFB
Agreement we would receive payments and a report within ninety (90) days from
the end of each calendar year after DFB has sold the royalty-bearing product.
Currently, DFB is providing us earn-out reports on a quarterly basis.

Consulting and Technical Assistance Services. We
recognize revenues from consulting and technical assistance contracts primarily
as a result of the DFB Agreement. Consulting revenues are recognized ratably
over the term of the contract. The consulting and technical assistance
obligations to DFB expired in March 2011.

Reimbursable Third Party Development Costs. We
accrue expenses for research and development and capitalize certain patent costs
related to estimated third party development costs that are reimbursable under
the Auxilium Agreement. Estimates are based on contractual terms, historical
development costs, reviewing third party data and expectations regarding future
development for certain products. Further, we monitor the activities and
clinical trials of our development partners.

If conditions or other circumstances change, we may take
actions to revise our reimbursable third party development cost estimates. These
revisions could result in an incremental increase or decrease in research and
development costs. For example, the Auxilium Agreement provides that Auxilium
and BioSpecifics will share equally in third party costs for the development of
the lyophilization of the injection formulation and certain patent expenses
which are creditable against future royalty revenues.

In the first quarter of 2011, we recognized approximately $0.75
million related to royalty revenue from the sale of XIAFLEX. Based upon the royalty revenue reported to us, we
reduced our estimates for reimbursable third party development and certain
patent costs to approximately $1.9 million. Any amount ultimately agreed as
being owed by us to Auxilium for lyophilization expenses and patent expenses are
creditable against future royalties payable by Auxilium on net sales of XIAFLEX.
We have an ongoing dispute with Auxilium over the appropriate calculation of the
amount of creditable lyophilization and patent expenses.

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Based on our preliminary review, we believe that only a portion
of the amounts invoiced actually relates to the development of the
lyophilization of the injection formulation and certain patent expenses may
increase based upon a resolution of certain patent matters, and therefore, we
reserve all rights related to this matter, including but not limited to our
right to contest the amount charged by Auxilium. We have classified accrued
third party development costs as current liabilities on our balance sheet as of
March 31, 2011.

Actual results have differed in the past, and may differ in the
future, from our estimates and could impact our earnings in any period during
which an adjustment is made.

Receivables and Deferred Revenue. Under the DFB
Agreement, we agreed to provide certain technical assistance and transitional
services in consideration of fees and costs totaling over $1.4 million. At the
closing of the DFB Agreement, DFB made a partial payment to us of $400,000 in
respect of the technical assistance to be provided by us. To date, we have
received a total of $1.4 million in payments from DFB. The consulting and
technical assistance obligations expired in March 2011.

Royalty Buy-Down. In August 2008, we
signed an agreement to significantly improve the deal terms related to our
future royalty obligations for Peyronies disease by buying down our future
royalty obligations with a one-time cash payment. We modified our agreement to
lower future royalties payable on net sales of injectable collagenase, XIAFLEX,
for Peyronies disease. In addition, we agreed to pay certain development
milestones, if achieved.

As of March 31, 2011, we capitalized $1,250,000 which will be
amortized over approximately five years beginning on the date of the first
commercial sale of XIAFLEX, for Peyronies disease, which represents the period
estimated to be benefited, using the straight-line method. In accordance with
Accounting Standards Codification 350,Intangibles, Goodwill and Other,
the Company amortizes intangible assets with finite lives in a manner that
reflects the pattern in which the economic benefits of the assets are consumed
or otherwise used up. If that pattern cannot be reliably determined, the assets
are amortized using the straight-line method.

Stock Based Compensation. Under ASC 718,
we estimate the fair value of our employee stock awards at the date of grant
using the Black-Scholes option-pricing model, which requires the use of certain
subjective assumptions. The most significant assumptions are our estimates of
the expected volatility of the market price of our stock and the expected term
of an award. Expected volatility is based on the historical volatility of our
common stock. When establishing an estimate of the expected term of an award, we
consider the vesting period for the award, our historical experience of employee
stock option exercises (including forfeitures) and the expected volatility. As
required under the accounting rules, we review our valuation assumptions at each
grant date and, as a result, we are likely to change our valuation assumptions
used to value future employee stock-based awards granted, to the extent any such
awards are granted.

Further, ASC 718 requires that employee stock-based
compensation costs to be recognized over the requisite service period, or the
vesting period, in a manner similar to all other forms of compensation paid to
employees. The allocation of employee stock-based compensation costs to each
operating expense line are estimated based on specific employee headcount
information at each grant date and estimated stock option forfeiture rates and
revised, if necessary, in future periods if actual employee headcount
information or forfeitures differ materially from those estimates. As a result,
the amount of employee stock-based compensation costs we recognize in each
operating expense category in future periods may differ significantly from what
we have recorded in the current period.

RESULTS OF OPERATIONS

THREE-MONTHS ENDED MARCH 31, 2011 and 2010

Revenues

Product Revenues, net

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Product revenues include the sales of the collagenase for
laboratory use recognized at the time it is shipped to customers. We recognized
a small amount of revenue from the sale of collagenase for laboratory use. For
the three months ended March 31, 2011 and 2010, product revenues were $5,892 and
$8,936, respectively. This decrease of $3,044, or 34%, was primarily related to
the amount of material required to perform testing by our customers.

Royalties/Earn-out

Total royalty and earn-out revenues for the three months ended
March 31, 2011 were $945,081 as compared to $31,812 in the 2010 period. We
receive royalty revenues from DFB under the earn-out payment provision of the
DFB Agreement, after certain net sales levels are achieved. Royalty revenues
recognized under the DFB Agreement for the three months ended March 31, 2011
were $165,630 and $31,812 for the same period in 2010. This increase of $133,818
or 421% is mainly related to the increase in net sales during the 2011 period
reported to us by DFB.

We recognized royalties and the mark-up on cost of goods sold
due to us under the terms of the Auxilium Agreement during the first quarter of
2011. Royalty and cost of goods sold revenues recognized under the Auxilium
Agreement for the three months ended March 31, 2011 were $779,451 and zero in
the comparable period of 2010. This change was due to the net sales of XIAFLEX
during the first quarter of 2011 reported to us by Auxilium as they began
selling XIAFLEX in March 2010. Auxilium received marketing approval from the FDA
for XIAFLEX for the treatment of adult Dupuytrens contracture patients with
palpable cord in February 2010.

Licensing, Sublicensing and Milestone Revenues

For the three months ended March 31, 2011 and 2010, we
recognized total licensing, sublicensing and milestone revenue of $859,275 and
$2,548,284, respectively. Licensing revenues recognized are related to the cash
payments received under the Auxilium Agreement in prior years and amortized over
the expected development period. Licensing revenue recognized for the three
months ended March 31, 2011 was $109,276 and $423,284 for the same period in
2010. The decrease of $314,008, or 74%, was mainly due to accelerating the
recognition of the licensing revenue under the Auxilium Agreement in the 2010
quarter that was allocated to the development of XIAFLEX for Dupuytrens
contracture. Auxilium received marketing approval from the FDA for XIAFLEX for
the treatment of Dupuytrens contracture on February 2, 2010.

Sublicensing income recognized in the period ended March 31,
2011 was $750,000 compared to zero in the 2010 period. In the 2011 period, we
recognized $750,000 of the $15 million paid to Auxilium by Ashai for the rights
to commercialize XIAFLEX for the treatment of Dupuytren's contracture and
Peyronie's disease in Japan. We dispute the basis for the calculation of this
amount.

Milestone revenue recognized for the three months ended March
31, 2011 and 2010 was zero and $2.275 million, respectively. In the 2010 period,
we received and recognized $1.275 million of the $15 million paid to Auxilium by
Pfizer for the scientific/technical review procedure of the Marketing
Authorization Application for XIAFLEX for Dupuytrens contracture in Europe. We
also received and recognized a milestone of $850,000 related to the FDAs
approval of XIAFLEX for Dupuytrens contracture in February 2010.

Under current accounting guidance, nonrefundable upfront
license fees for product candidates for which we are providing continuing
services related to product development are deferred and recognized as revenue
over the development period. The remaining balance will be recognized over the
respective development periods or when we determine that we have no ongoing
performance obligations.

Consulting Services

We recognize revenues from consulting and technical assistance
contracts primarily as a result of the DFB Agreement. Consulting revenues are
recognized ratably over the term of the contract. The consulting obligations
under the DFB Agreement expired in March 2011. For the three months ended March
31, 2011 and 2010 consulting revenues were $46,667 and $70,000, respectively.

Costs and Expenses

Research and Development Activities

Research and development expenses were $212,066 and $896,817,
respectively, for the three months ended March 31, 2011 and 2010. This decrease
of $684,751 or 76% in research and development expenses was primarily due to
lower third party development costs incurred in 2011 that were reimbursable
under the Auxilium Agreement partially offset by higher preclinical expenses and
consulting services related to our animal study.

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General and Administrative Expenses

General and administrative expenses were $1,509,526 and
$2,034,178, respectively, for the three months ended March 31, 2011 and 2010.
The decrease in general and administrative expenses of $524,652 or 26% was due
to lower stock based compensation and consulting services partially offset by
higher legal expenses.

Other Income (expense), net

Other income, net, was $16,560 for the three months ended March
31, 2011 as compared to $25,850 for the same period in 2010. This decrease of
$9,290 or 36% was primarily due to lower interest received on our invested
balances during the 2011 period.

Income Tax Provision

Income tax benefit for the three months ended March 31, 2011
was $3.5 million and as compared to an income tax expense of $8,067 in the 2010
period. In the 2011 period, we record net deferred tax assets that we believe
will more likely than not be realized as we expect to achieve sustained
profitability on an on-going annual basis. In making such determination, we
consider all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable
income, tax planning strategies and recent financial operations. Included in the
valuation adjustment is a decrease in the net operating loss carry-forward of
approximately $0.1 million which was applied to the current periods federal and
state income taxes. The income tax expense for the 2010 period is primarily
related to the payment of New York state taxes.

Net Income (Loss)

As a result of the above discussion, we recorded a net income
of $3.7 million for the three months ended March 31, 2011, or $0.59 per basic
and $0.51 per diluted common share, compared to a net loss of $0.3 million, or
$0.04 per basic and diluted common share, for the same period in 2010.

Liquidity and Capital Resources

To date, we have financed our operations primarily through
product sales, debt instruments, licensing revenues and royalties under
agreements with third parties and sales of our common stock. At March 31, 2011
and December 31, 2010, we had cash and cash equivalents and investments in the
aggregate of approximately $8.5 million and $7.8 million, respectively.

Continuing Operations

Net cash provided by operating activities for three months
ended March 31, 2011 was $0.7 million as compared to $2.7 million for the same
period in 2010. The decrease in the 2011 period as compared to the same period
in 2010 was primarily attributable to a reduction in accrued expenses associated
with reimbursable third party development expenses.

Net cash used in investing activities for the three months
ended March 31, 2011 and 2010 was zero in each period.

Net cash provided by financing activities for the three months
ended March 31, 2011 and 2010 was zero and $36,800, respectively. The net cash
provided by financing activities in the 2010 period was due to proceeds received
from stock option exercises.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in
Item 303(a)(4) of Regulation S-K.

Item 3: Quantitative and Qualitative Disclosures About
Market Risk.

We do not use derivative financial instruments or derivative
commodity instruments for trading purposes. Our financial instruments consist of cash, cash equivalents, short-term
investments, trade accounts receivable, accounts payable and long-term
obligations. We consider investments that, when purchased, have a remaining
maturity of 90 days or less to be cash equivalents.

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We invest in marketable securities in accordance with our
investment policy. The primary objectives of our investment policy are to
preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. Our investment policy specifies credit quality standards for
our investments. The maximum allowable duration of a single issue is twelve
months.

Our investment portfolio is subject to interest rate risk,
although limited given the nature of the investments, and will fall in value in
the event market interest rates increase. All our cash and cash equivalents and
short-term investments at March 31, 2011, amounting to approximately $8.5
million, were maintained in bank demand accounts, money market accounts, and
certificates of deposit through the Certificate of Deposit Account Registry
Service (CDARS). We do not hedge our interest rate risks, as we believe
reasonably possible near-term changes in interest rates would not materially
affect our results of operations, financial position or cash flows.

We are subject to market risks in the normal course of our
business, including changes in interest rates. There have been no significant
changes in our exposure to market risks since December 31, 2010.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation
of Thomas L. Wegman, the Companys President, Principal Executive Officer and
Principal Financial Officer, evaluated the effectiveness of its disclosure
controls and procedures as of the end of the period covered by this Report.
Based on that evaluation, management has concluded that the Companys disclosure
controls and procedures are effective to ensure that information required to be
disclosed in reports filed under the Securities Exchange Act of 1934, as amended
(the Exchange Act), is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the SEC, and that such
information is accumulated and communicated to the Companys management to allow
timely decisions regarding required disclosure. Because of the inherent
limitations in all control systems, any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives, and management necessarily is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Furthermore, our controls and procedures can be circumvented by
the individual acts of some persons, by collusion of two or more people or by
management override of the control, and misstatements due to error or fraud may
occur and not be detected on a timely basis.

Changes in Internal Controls

There were no changes in our internal controls over financial
reporting during the three month period ended March 31, 2011 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

On May 2, 2011, we filed a complaint against Recipharm AB
(Recipharm), Recipharmcobra Holdings Limited (Recipharmcobra and together
with Recipharm, Cobra) and Auxilium in the Supreme Court of the State of New
York in Nassau County, New York. We are seeking monetary damages, declaratory
judgment and injunctive relief arising out of a Material Transfer Agreement (the
MTA) between us and Cobra. Our complaint asserts that Auxilium, despite full
knowledge of the terms of the MTA, wrongfully and in breach of an agreement with
us that we would benefit from the assignments, caused Cobra to instruct its
employees to assign to Auxilium alone instead of to us the rights to inventions
that belong to us under the MTA. These assignments were used by Auxilium to
apply for and to obtain a manufacturing patent, which did not name us as a
co-owner or co-inventor.

On February 15, 2011, Auxilium filed a complaint against us in
the Court of Common Pleas in Chester County, Pennsylvania. The complaint
concerns our right to conduct clinical trials without the prior approval of the
companies Joint Development Committee. The complaint seeks declaratory
and injunctive relief and does not seek monetary damages. The dispute has been
sealed pending further order of the court. In response to the complaint, we have
voluntarily agreed to suspend Chien-803, our clinical trial testing the use of
injectable collagenase in canine lipoma, and will not be initiating any new
trials using injectable collagenase in animals or humans pending a resolution of
the dispute with Auxilium unless Auxilium consents. The outcome of the dispute
will have no effect on the amounts due to us from Auxilium for exercised
indications (Dupuytrens contracture, Peyronies disease and Frozen Shoulder).
However, if the court rules in a manner that is detrimental to our interests or
interprets our agreement with Auxilium in a way that limits the scope of our
rights under that agreement, we may be precluded from pursuing additional
indications and, if Auxilium does not pursue such additional indications, we may
also be precluded from the opportunity to receive from Auxilium license fees for
the rights to, as well as potential milestone, royalty and other payments with
respect to, such additional indications.

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Item 1A. Risk Factors

There have been no material changes from the risk factors
previously disclosed in our Annual Report on Form 10-K filed with the SEC on
March 14, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved).

Item 5. Other Information

None.

Item 6. Exhibits

|3.1 | Registrants Certificate of Incorporation, as amended
      (incorporated by reference to Exhibit 3.1 of the Registrant's Form 10-KSB
      filed with the SEC on March 2, 2007).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2 | Registrants Amended and Restated
      Bylaws (incorporated by reference to Exhibit 3.2 of the Registrants Form
      10-KSB filed with the SEC on March 2, 2007).             
|31* | Certification of Principal Executive
      Officer and Principal Financial Officer pursuant to
      Rule13a-14(a)/15d-14(a).                                                    
|32* | Certification
      of Principal Executive Officer and Principal Financial Officer pursuant to
      Section 906 of Sarbanes-Oxley Act of 2002.                                  

________________* filed herewith

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SIGNATURES

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

|                   | BIOSPECIFICS TECHNOLOGIES CORP.                                                 
|------------------ | --------------------------------------------------------------------------------
|                   | (Registrant)                                                                    
|                   |                                                                                 
|Date: May 10, 2011 | /s/ Thomas L. Wegman                                                            
|                   | Thomas L. Wegman                                                                
|                   | President, Principal Executive Officer and
    Principal
      Financial Officer
|                   |                                                                                 

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