UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2009

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

0-19879 (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.

YesxNoo

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 | o                                                  | Accelerated filer         | o
|----------------------- | -------------------------------------------------- | ------------------------- | -
|                        |                                                    |                           |  
|Non-accelerated filer   | o(Do not check if
    a smaller reporting company) | Smaller reporting company | x

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

YesoNox

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

|Class
      of Stock           | Outstanding August
    7,
      2009
|------------------------------ | ------------------------------------
|Common Stock ($.001 par value) | 6,081,551                           

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BIOSPECIFICS TECHNOLOGIES CORP.

TABLE OF CONTENTS

|         |                                                                                                       | Page
|-------- | ----------------------------------------------------------------------------------------------------- | ----
|         | PART I  FINANCIAL INFORMATION                                                                        |     
|ITEM 1.  | Consolidated Financial
      Statements                                                               | 3   
|         | Consolidated Balance Sheet as of June 30, 2009
      and December 31, 2008                            | 3   
|         | Consolidated Statements of
      Operations for the Three and Six Months Ended June 30, 2009 and 2008 | 4   
|         | Consolidated Statements of Cash Flows for the
      Six Months Ended June 30, 2009 and 2008           | 5   
|         | Notes to Consolidated Financial
      Statements                                                      | 6   
|ITEM 2.  | Managements Discussion and Analysis                                                                  | 15  
|ITEM 3.  | Quantitative and Qualitative
      Disclosures About Market Risk                                      | 22  
|ITEM 4T. | Controls and Procedures                                                                               | 22  
|         | PART II  OTHER INFORMATION                                                                           |     
|ITEM 1.  | Legal Proceedings                                                                                     | 23  
|ITEM 2.  | Unregistered Sales of Equity
      Securities and Use of Proceeds                                     | 23  
|ITEM 3.  | Defaults Upon Senior Securities                                                                       | 23  
|ITEM 4.  | Submission of Matters to a Vote
      of Security Holders                                             | 23  
|ITEM 5.  | Other Information                                                                                     | 24  
|ITEM 6.  | Exhibits                                                                                              | 24  

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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 Corporation
(ABC-NY).

Introductory Comments  Forward-Looking Statements

This Report includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended. All statements other
than statements of historical facts are forward-looking statements for
purposes of these provisions, including any projections of earnings, revenues or
other financial items, any statements of the plans and objectives of management
for future operations, any statements concerning proposed new products or
licensing or collaborative arrangements, any statements regarding future
economic conditions or performance, and any statement of assumptions underlying
any of the foregoing. In some cases, forward-looking statements can be
identified by the use of terminology such as may, will, expects, plans,
anticipates, estimates, potential, or continue or the negative thereof or
other comparable terminology. Although we believe that the expectations
reflected in the forward-looking statements contained in this Report are
reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to inherent risks and uncertainties,
including but not limited to the risk factors set forth below, and for the
reasons described elsewhere in this Report. All forward-looking statements and
reasons why results may differ included in this Report are made as of the date
hereof, and we assume no obligation to update these forward-looking statements
or reasons why actual results might differ.

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PART I  FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

BIOSPECIFICS TECHNOLOGIES CORP. Consolidated Balance
Sheets

|                                                                                                                                                                                                             |   | June 30,    |   |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ----------- | - | - | ------------ | -
|                                                                                                                                                                                                             |   |             |   |   |              |  
|                                                                                                                                                                                                             |   | 2009        |   |   | 2008         |  
|                                                                                                                                                                                                             |   | (unaudited) |   |   | (audited)    |  
|Assets                                                                                                                                                                                                       |   |             |   |   |              |  
|Current assets:                                                                                                                                                                                              |   |             |   |   |              |  
|Cash and cash equivalents                                                                                                                                                                                    | $ | 9,324,499   |   | $ | 3,494,150    |  
|Short-term investments                                                                                                                                                                                       |   | 499,379     |   |   | 900,000      |  
|Accounts receivable, net                                                                                                                                                                                     |   | 874,673     |   |   | 6,952,781    |  
|Prepaid expenses and other current assets                                                                                                                                                                    |   | 135,263     |   |   | 67,709       |  
|Total current assets                                                                                                                                                                                         |   | 10,833,814  |   |   | 11,414,640   |  
|Deferred royalty buy-down                                                                                                                                                                                    |   | 1,250,000   |   |   | 1,250,000    |  
|Property, plant and equipment,
      net                                                                                                                                                                     |   | 1,453       |   |   | 2,297        |  
|Patent costs, net                                                                                                                                                                                            |   | 201,976     |   |   | 164,424      |  
|Total assets                                                                                                                                                                                                 |   | 12,287,243  |   |   | 12,831,361   |  
|Liabilities and Stockholders' Equity                                                                                                                                                                         |   |             |   |   |              |  
|Current liabilities:                                                                                                                                                                                         |   |             |   |   |              |  
|Accounts payable and accrued expenses                                                                                                                                                                        |   | 505,501     |   |   | 642,465      |  
|Deferred revenue                                                                                                                                                                                             |   | 1,174,785   |   |   | 1,271,792    |  
|Accrued liabilities of discontinued operations                                                                                                                                                               |   | 78,138      |   |   | 78,138       |  
|Total current liabilities                                                                                                                                                                                    |   | 1,758,424   |   |   | 1,992,395    |  
|Accrued third-party development expenses                                                                                                                                                                     |   | 2,842,262   |   |   | 2,758,595    |  
|Long-term deferred revenue                                                                                                                                                                                   |   | 1,526,277   |   |   | 1,901,832    |  
|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; 6,168,518 shares and      
      6,140,068 shares issued and outstanding at June 30, 2009 and December 31,
      2008,       respectively |   | 6,169       |   |   | 6,140        |  
|Additional paid-in capital                                                                                                                                                                                   |   | 14,310,300  |   |   | 13,294,803   |  
|Accumulated deficit                                                                                                                                                                                          |   | (7,462,232  | ) |   | (6,428,447   | )
|Treasury stock, 131,267 shares
      at cost at June 30, 2009 and December 31, 2008                                                                                                                          |   | (693,957    | ) |   | (693,957     | )
|Total stockholders' equity                                                                                                                                                                                   |   | 6,160,280   |   |   | 6,178,539    |  
|Total liabilities and
      stockholders equity                                                                                                                                                             | $ | 12,287,243  |   | $ | 12,831,361   |  

See accompanying notes to consolidated financial
statements

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BIOSPECIFICS TECHNOLOGIES CORP. Consolidated Statements
of Operations(unaudited)

|                                                                         |   | Three Months Ended |   |   | Six Months Ended |  
|------------------------------------------------------------------------ | - | ------------------ | - | - | ---------------- | -
|                                                                         |   | June 30,           |   |   | June 30,         |  
|                                                                         |   | 2009               |   |   | 2008             |  
|Revenues:                                                                |   |                    |   |   |                  |  
|Net sales                                                                | $ | 9,914              |   | $ | 4,046            |  
|Royalties                                                                |   | 375,400            |   |   | 2,028            |  
|Licensing fees                                                           |   | 766,281            |   |   | 266,282          |  
|Consulting fees                                                          |   | 70,000             |   |   | 162,000          |  
|Total
      Revenues                                                     |   | 1,221,595          |   |   | 434,356          |  
|Costs and expenses:                                                      |   |                    |   |   |                  |  
|Research and development                                                 |   | 124,192            |   |   | 94,432           |  
|General and administrative                                               |   | 1,140,485          |   |   | 1,173,316        |  
|Total
      Cost and Expenses                                            |   | 1,264,677          |   |   | 1,267,748        |  
|Operating loss                                                           |   | (43,082            | ) |   | (833,392         | )
|Other income (expense):                                                  |   |                    |   |   |                  |  
|Interest income                                                          |   | 1,688              |   |   | 27,528           |  
|Interest expense                                                         |   | (39                | ) |   | -                |  
|Other, net                                                               |   | -                  |   |   | 4,527            |  
|                                                                         |   | 1,649              |   |   | 32,055           |  
|Loss before benefit (expense) for income tax                             |   | (41,433            | ) |   | (801,337         | )
|Income tax benefit (expense)                                             |   | (46,376            | ) |   | -                |  
|Net loss                                                                 | $ | (87,809            | ) | $ | (801,337         | )
|Basic and diluted net loss per share                                     | $ | (0.01              | ) | $ | (0.14            | )
|Shares used in computation of basic and diluted net loss per
      share |   | 6,014,312          |   |   | 5,796,764        |  

See accompanying notes to consolidated financial
statements

4

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BioSpecifics Technologies Corp. Consolidated Statements
of Cash Flows

|                                                                                       |   | Six Months Ended |  
|-------------------------------------------------------------------------------------- | - | ---------------- | -
|                                                                                       |   | June 30,         |  
|Cash flows from operating activities:                                                  |   | 2009             |  
|Net loss                                                                               | $ | (1,033,785       | )
|Adjustments to reconcile net loss to net cash
      used      in operating activities: |   |                  |  
|Gain on
      disposal of fixed asset                                                  |   | -                |  
|Depreciation and amortization                                                          |   | 16,312           |  
|Stock-based
      compensation expense                                                 |   | 882,891          |  
|Changes in operating assets and
      liabilities:                                     |   |                  |  
|Accounts
      receivable                                                              |   | 6,078,109        |  
|Prepaid
      expenses and other current assets                                        |   | (67,554          | )
|Accounts
      payable and accrued expenses                                            |   | (59,942          | )
|Deferred
      revenue                                                                 |   | (472,563         | )
|Net provided by (used in) operating
      activities                                   |   | 5,343,468        |  
|Cash flows from investing activities:                                                  |   |                  |  
|Maturities of marketable
      securities                                              |   | 900,000          |  
|Purchases of marketable securities                                                     |   | (499,379         | )
|Proceeds from sale of fixed
      asset                                                |   | -                |  
|Net cash provided by (used in) investing activities                                    |   | 400,621          |  
|Cash flows from financing activities:                                                  |   |                  |  
|Proceeds from issuance of capital stock                                                |   | -                |  
|Proceeds from stock option
      exercises                                             |   | 86,260           |  
|Proceeds from pay-off of notes receivable from
      former CEO and Chairman           |   | -                |  
|Net cash provided by financing
      activities                                        |   | 86,260           |  
|Increase in cash and cash equivalents                                                  |   | 5,830,349        |  
|Cash and cash equivalents at beginning of
      year                                   |   | 3,494,150        |  
|Cash and cash equivalents at end of year                                               | $ | 9,324,499        |  
|Supplemental disclosures of cash flow
      information:                               |   |                  |  
|Cash paid during the year for:                                                         |   |                  |  
|Interest                                                                               | $ | -                |  
|Taxes                                                                                  | $ | 361,228          |  

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
June 30, 2009 we accrued $242,301 related to this issue of which $40,325 was
amortized in the 2009 period and zero in the 2008 comparable period.

See accompanying notes to consolidated financial statements

5

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BIOSPECIFICS TECHNOLOGIES CORP.NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 (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 with Auxilium Pharmaceuticals, Inc. (Auxilium) for
injectable collagenase (which Auxilium has named XIAFLEX TM
(formerly known as AA4500)) for clinical indications in Dupuytrens disease,
Peyronies disease and frozen shoulder (adhesive capsulitis), and
Auxilium has an option to acquire additional indications that we may pursue,
including cellulite and lipomas.

The most advanced indications are for the treatment of
Dupuytrens disease, Peyronies disease and frozen shoulder. On June 3, 2004, we
entered into a development and license agreement with Auxilium, as amended on
May 10, 2005 and December 15, 2005, respectively (the Prior Auxilium
Agreement), pursuant to which we granted to Auxilium an exclusive worldwide
license to develop products containing our injectable collagenase for the
treatment of Dupuytrens disease, Peyronie's disease and frozen shoulder, as
well as an exclusive option to develop and license the technology for use in
additional indications other than dermal formulations labeled for topical
administration.

On December 11, 2008, the parties amended and restated the
development and license agreement (the Auxilium Agreement), which became
effective on December 17, 2008 upon the execution and effectiveness of the
Development, Commercialization and Supply Agreement, dated December 17, 2008
(the Pfizer Agreement) between Auxilium International Holdings, Inc., a wholly
owned subsidiary of Auxilium, and Pfizer, Inc. (Pfizer), pursuant to which
Pfizer will market XIAFLEX for the treatment of Dupuytrens disease and
Peyronies disease in Europe and various other territories. The Auxilium
Agreement amends and restates in its entirety the Prior Auxilium Agreement.

On April 28, 2009, Auxilium announced that the U.S. Food and
Drug Administration (the FDA) has accepted for filing and granted priority
review status to its Biologics License Application (BLA) for XIAFLEX. On June
18, 2009, Auxilium announced that the FDA Arthritis Advisory Committee will
review XIAFLEX during an advisory committee hearing, tentatively scheduled to
take place on September 16, 2009 and that the FDA has not updated the
Prescription Drug User Fee Act date of August 28, 2009. On July 31, 2009
Auxilium announced that the FDA Arthritis Advisory Committee confirmed it will
review XIAFLEX during an advisory committee hearing in Gaithersburg, MD on
September 16, 2009. A notice announcing the meeting was published in the Federal
Register on July 31, 2009.

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 accounting principles generally accepted (GAAP) in the United
States (the U.S.) has been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (the SEC) for quarterly reporting.

6

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The information included in this Report should be read in
conjunction with our Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2009 filed with the SEC on May 12, 2009 and our Annual Report on
Form 10-K for the year ended December 31, 2008 filed with the SEC on March 31,
2009.

Principles of Consolidation

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

Management Estimates

The preparation of unaudited consolidated financial statements
in conformity with accounting principles generally accepted in the U.S. requires
the use of managements estimates and assumptions that affect the amounts
reported in the unaudited consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.

Cash, Cash Equivalents and Marketable Securities

Cash, cash equivalents and marketable securities 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 marketable securities by placing its
investments with banks it believes are highly creditworthy.

Fair Value Measurements

SFAS 157 requires expanded disclosures about fair value
measurements. SFAS 157 applies to other accounting pronouncements that require
or permit fair value measurements, but does not require any new fair value
measurements. We adopted the provisions of SFAS 157 relating to assets and
liabilities recognized or disclosed in the financial statements at fair value on
a recurring basis on January 1, 2008. The adoption of these provisions did not
have a material effect on our consolidated financial statements.

SFAS 157 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. SFAS 157
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:

- 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 June 30, 2009:

7

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|                          |   | Level 1   |  |  | Level 2 |  |  | Level 3 | 
|------------------------- | - | --------- |  |  | ------- |  |  | ------- | 
|Cash and cash equivalents | $ | 9,324,499 |  |  | -       |  |  | -       | 
|U.S Treasuries            |   | 499,379   |  |  | -       |  |  | -       | 

Auction Rate Securities

As of June 30, 2009 we held no taxable auction rate securities,
or ARS. As of December 31, 2008, we held $0.9 million of ARS, which were
classified as short-term investments. On January 5, 2009, we received the
remaining principal balance of our investment in auction rate securities of $0.9
million.

Revenue Recognition

We recognize revenues resulting from product sales, royalties,
from licensing and use of our technology, and from other services we sometimes
perform in connection with the licensed technology under the guidance of Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition.

If we determine that separate elements exist in a revenue
arrangement under Emerging Issues Task Force Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21), 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 API Enzyme that are
recognized at the time the product is shipped to customers for laboratory
use.

Royalty/Earn-Out Revenue

We recognize royalties under the earn-out provision of the
Asset Purchase Agreement with DFB. We have the right to receive earn out
payments in the future based on sales of certain products. Generally, under this
agreement we would receive royalty payments and a report within ninety (90) days
from the end of each calendar year after the licensee has sold the
royalty-bearing product. Our right to receive earn out payments under our
agreement with DFB will expire in 2013. We recognize royalty revenues when we
can reliably estimate such amounts and collectability is reasonably assured.

8

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License and Sublicense Fees

We include revenue recognized from upfront licensing,
sublicensing and milestone payments in License Fees 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 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 a consulting and technical
assistance contracts primarily as a result of our agreements with DFB and
Auxilium. Consulting revenues are recognized ratably over the term of the
contract. The consulting obligations to DFB generally expire during March
2011.

Reimbursable Third Party Development Costs

We accrue expenses to research and development for estimated
third party development costs and capitalize certain patent costs that are
reimbursable under our agreement with Auxilium. 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 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 fees.

9

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On July 13, 2009, we received an updated invoice from Auxilium
for approximately $37,000 increasing the total amount due that Auxilium believes
is owed by us to approximately $2.84 million through June 30, 2009 under this
provision. The increase in the second quarter was primarily due to patent and
related legal fees. Based upon the updated invoice, we recorded an additional
liability of $37,000 for reimbursable third party patent expenditures.

Based on our preliminary review, we believe that only a portion
of the amount charged actually relates to the development of the lyophilization
of the injection formulation as well as for patent and related legal fees and,
therefore, reserve all rights related to this matter, including but not limited
to our right to contest the amount charged by Auxilium.

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 may 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

Under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123(R), 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 the 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 expected term, we use
the simplified method in accordance with SEC Staff Accounting Bulletin 107.
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
weighted-average assumptions used were as follows:

10

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|                        | Six Months Ended
|----------------------- | ----------------
|                        | June 30,        
|                        | 2009            
|Stock Option Plans      |                 
|Expected life, in years | 5.0             
|Risk free interest rate | 2.4%            
|Volatility              | 59%             
|Dividend yield          |                

Further, SFAS 123(R) 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 SFAS 123(R)
was as follows:

|                                      |   | Three Months Ended |  |   | Six Months Ended | 
|------------------------------------- | - | ------------------ |  | - | ---------------- | 
|                                      |   | June 30,           |  |   | June 30,         | 
|                                      |   | 2009               |  |   | 2008             | 
|Research and development              | $ | 29,728             |  | $ | 4,979            | 
|General and administrative            |   | 423,576            |  |   | 574,234          | 
|Total stock-basedcompensation expense | $ | 453,304            |  | $ | 579,213          | 

Stock Option Activity

A summary of our stock option and warrant activity during the
six months ended June 30, 2009 is presented below:

|                                    |  | Total Number |   |   | Weighted-Average | 
|----------------------------------- |  | ------------ | - | - | ---------------- | 
|Option                              |  | of Shares    |   |   | Exercise Price   | 
|Outstanding as of December 31, 2008 |  | 1,477,100    |   | $ | 4.82             | 
|Granted                             |  | 55,000       |   |   | 18.96            | 
|Forfeited                           |  | -            |   |   | -                | 
|Exercised                           |  | (28,450      | ) | $ | 3.12             | 
|Expired                             |  | -            |   |   | -                | 
|Outstanding as of June 30, 2009     |  | 1,503,650    |   | $ | 5.37             | 
|Exercisable as of June 30, 2009     |  | 1,282,400    |   | $ | 4.02             | 

During the second quarter of 2009, the Company granted 40,000
stock options to its employees with a four year vesting period at an exercise
price of $18.21 and 15,000 stock options to a director with a one year vesting
period at an exercise price of $20.95. The total number of outstanding options
as of June 30, 2009 was 1,503,650.

11

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The weighted-average grant-date fair value for options granted
during the six months ended June 30, 2009 and 2008 was $18.96 and $14.19 per
share respectively. During the six months ended June 30, 2009 and 2008, $86,260
and $230,825 were received from stock options exercised by option holders,
respectively.

The aggregate intrinsic value of options outstanding and
exercisable as of June 30, 2009 was approximately $25.4 million. Aggregate
intrinsic value represents the total pre-tax intrinsic value, based on the
closing price of our common stock of $23.83 on June 30, 2009, 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 June 30, 2009 was approximately $1.5
million which we expect to recognize over a weighted-average period of 1.5
years.

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 being amortized over the
lesser of their estimated useful lives or the remaining life of the lease, which
is approximately 1 year.

Recent Accounting Pronouncements

We adopted Financial Accounting Standards No. 165,
Subsequent Events (FAS 165), in the second quarter of 2009. FAS 165
establishes the accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, that is, whether that
date represents the date the financial statements were issued or were available
to be issued. The adoption of FAS 165 did not have a material impact on our
consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting
Standard (SFAS) No. 168, The FASB Accounting Standard Codification and the
Hierarchy of the Generally Accepted Accounting Principles  a replacement of
SFAS No. 162 (SFAS 168), to become the source of authoritative U.S.
generally accepted accounting principles (GAAP) recognized by the FASB to be
applied by nongovernmental entities. SFAS 168 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. We do not believe the adoption of SFAS 168 will have a material impact on
our consolidated financial statements.

3. NET LOSS PER SHARE

In accordance with SFAS No. 128, Earnings Per Share (SFAS
128), basic net loss per share amount is computed using the weighted-average
number of shares of common stock outstanding during the periods presented, while
diluted net 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. For the three and
six months ended June 30, 2009 and 2008, 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, as their effect would
have been anti-dilutive.

The following table summarizes the number of common equivalent
shares excluded from the calculation of diluted net loss per share from
continuing operations reported in the consolidated statement of operations as
their effect would have been anti-dilutive:

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|              |  | Three Months Ended |  |  | Six Months Ended | 
|------------- |  | ------------------ |  |  | ---------------- | 
|              |  | June 30,           |  |  | June 30,         | 
|              |  | 2009               |  |  | 2008             | 
|Stock options |  | 1,014,917          |  |  | 1,260,813        | 

4. TOTAL COMPREHENSIVE INCOME (LOSS)

Comprehensive loss is comprised of net 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 loss. The following table presents
the calculation of our comprehensive income (loss):

|                                                           |   | Three Months Ended |  |   | Six Months Ended | 
|---------------------------------------------------------- | - | ------------------ |  | - | ---------------- | 
|                                                           |   | June 30,           |  |   | June 30,         | 
|                                                           |   | 2009               |  |   | 2008             | 
|Net loss                                                   | $ | 87,809             |  | $ | 801,337          | 
|Other comprehensive loss:                                  |   |                    |  |   |                  | 
|Change in unrealized losses on
      marketable securities |   | -                  |  |   | 142,184          | 
|Total
      Comprehensive Loss                             | $ | 87,809             |  | $ | 943,521          | 

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the
following:

|                                            |   | June 30, |  |   | December 31, | 
|------------------------------------------- | - | -------- |  | - | ------------ | 
|                                            |   | 2009     |  |   | 2008         | 
|Trade accounts payable and accrued expenses | $ | 329,837  |  | $ | 409,433      | 
|Accrued legal and other professional fees   |   | 46,385   |  |   | 117,837      | 
|Accrued payroll and related costs           |   | 129,279  |  |   | 115,195      | 
|Total                                       | $ | 505,501  |  | $ | 642,465      | 

6. PATENT COSTS

We amortize intangible assets with definite lives on a
straight-line basis over their estimated useful lives, ranging from 5 to 13
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 June 30, 2009, the Company capitalized certain patent
costs, paid by Auxilium on behalf of the Company. These costs are reimbursable
to Auxilium under our agreement and are creditable against future royalty
revenues. Net patent costs consisted of:

|        |   | June 30, |  |   | December 31, | 
|------- | - | -------- |  | - | ------------ | 
|        |   | 2009     |  |   | 2008         | 
|Patents | $ | 201,976  |  | $ | 164,424      | 

The amortization expense for patents was $15,469, for the six
months ended June 30, 2009 and zero for the 2008 period. The estimated aggregate
amortization expense for each of the next five years is approximately as
follows:

2010
    $31,0002011
    31,000 2012
    29,0002013
    27,0002014
    27,000


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7. INCOME TAXES

Deferred tax assets and liabilities are recognized based on the
expected future tax consequences, using current tax rates, of temporary
differences between the financial statement carrying amounts and the income tax
basis of assets and liabilities. A valuation allowance is applied against any
net deferred tax asset if, based on the weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.

We account for uncertain tax positions that meet a more likely
than not threshold in accordance with FASB Interpretation No. 48,Accounting
for Uncertain Tax Positions, which requires us to recognize the benefit of
uncertain tax positions in our financial statements.

8. RELATED PARTY TRANSACTIONS

On February 1, 2008, the Estate of Edwin H. Wegman (the
Estate) sold an aggregate of 344,114 shares of the Company's common stock, par
value $0.001, at a purchase price of $12.00 per share to certain private
investors. The Estate used certain of the proceeds of the transaction to repay
the loan owed to the Company by Edwin H. Wegman, our former Chairman and CEO.
The total loan repayment amount was $1,116,558, which represents the principal
amount of $625,774 owed to the Company and accrued interest through January 31,
2008 of $490,784.

As previously reported, Advance Biofactures Corp. (ABC, and
together, with the Company, the Tenant), a wholly owned subsidiary of the
Company, and Wilbur St. Corp. (the Landlord), entered into a Commercial Lease
Agreement on January 30, 1998 (the Commercial Lease Agreement), pursuant to
which the Landlord leased to ABC the premises located at 35 Wilbur Street,
Lynbrook, NY 11563 (the Premises) for a term of 7 years or until January 31,
2005 and for an annual rental price of $125,000.

As previously reported, the Tenant, without the approval of the
board of directors of the Company, and the Landlord entered into an Extension
and Modification Agreement on July 1, 2005 (the Modification Agreement and
together with the Commercial Lease Agreement, the Lease Agreement), pursuant
to which the term of the Commercial Lease Agreement was extended for an
additional 5 years or until June 30, 2010 and the annual rental price for the
Premises increased to $150,000.

In connection with the settlement of the previously reported
dispute between the Tenant and the Landlord regarding payments of amounts due
under the Modification Agreement, the parties entered into a Lease Modification
Agreement dated June 22, 2009 and effective as of June 24, 2009 (the LMA).
Pursuant to the LMA, the Tenant ratified the Lease Agreement, including the
Modification Agreement, subject to the terms thereof, and agreed to a $15,000
reduction in the annual rental price of the Premises to $135,000.

The foregoing description of the LMA does not purport to be
complete and is qualified in its entirety by reference to the full text of the
agreement, which was filed as Exhibit 10.1 to our Current Report on Form 8-K on
June 29, 2009.

9. SUBSEQUENT EVENTS

None

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 related notes thereto included
elsewhere in this Report.

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Overview

We are a biopharmaceutical company involved in the development
of an injectable collagenase for multiple indications. We have a development and
license agreement with Auxilium Pharmaceuticals, Inc. (Auxilium) for
injectable collagenase (which Auxilium has named XIAFLEX TM
(formerly known as AA4500)) for clinical indications in Dupuytrens disease,
Peyronies disease and frozen shoulder (adhesive capsulitis), and
Auxilium has an option to acquire additional indications that we may pursue,
including cellulite and lipomas.

The most advanced indications are for the treatment of
Dupuytrens disease, Peyronies disease and frozen shoulder. On June 3, 2004, we
entered into a development and license agreement with Auxilium, as amended on
May 10, 2005 and December 15, 2005, respectively (the Prior Auxilium
Agreement), pursuant to which we granted to Auxilium an exclusive worldwide
license to develop products containing our injectable collagenase for the
treatment of Dupuytrens disease, Peyronie's disease and frozen shoulder, as
well as an exclusive option to develop and license the technology for use in
additional indications other than dermal formulations labeled for topical
administration.

On December 11, 2008, the parties amended and restated the
development and license agreement (the Auxilium Agreement), which became
effective on December 17, 2008 upon the execution and effectiveness of the
Development, Commercialization and Supply Agreement, dated December 17, 2008
(the Pfizer Agreement) between Auxilium International Holdings, Inc., a wholly
owned subsidiary of Auxilium, and Pfizer, Inc. (Pfizer), pursuant to which
Pfizer will market XIAFLEX for the treatment of Dupuytrens disease and
Peyronies disease in Europe and various other territories. The Auxilium
Agreement amends and restates in its entirety the Prior Auxilium Agreement.

On April 28, 2009, Auxilium announced that the U.S. Food and
Drug Administration (the FDA) has accepted for filing and granted priority
review status to its Biologics License Application (BLA) for XIAFLEX. On June
18, 2009, Auxilium announced that the FDA Arthritis Advisory Committee will
review XIAFLEX during an advisory committee hearing, tentatively scheduled to
take place on September 16, 2009 and that the FDA has not updated the
Prescription Drug User Fee Act date of August 28, 2009. On July 31, 2009
Auxilium announced that the FDA Arthritis Advisory Committee confirmed it will
review XIAFLEX during an advisory committee hearing in Gaithersburg, MD on
September 16, 2009. A notice announcing the meeting was published in the Federal
Register on July 31, 2009.

Outlook

We foresee the potential to generate income from limited
sources in the next several years. Under the terms of our agreement with DFB, we
are scheduled to receive certain contractual anniversary payments and, if DFB
exceeds a certain sales target, we would be entitled to an earn out on sales.
Under the terms of our agreement with Auxilium, we may receive milestone
payments upon their achieving certain regulatory progress and if Auxilium elects
to pursue additional indications for injectable collagenase (Additional
Indications) as well as 8.5% of all sublicense income that Auxilium may receive
from Pfizer under the Pfizer Agreement.

Based on our current business model, we expect to have adequate
cash reserves until at least the first half of 2012 depending on the amount
actually owed to Auxilium, as discussed in Item 1A, Risk Factors, included in
our Annual Report on Form 10-K for the year ended December 31, 2008. As a
significant portion of our revenues is tied directly to the success of Auxilium
in commercializing XIAFLEX, we cannot reasonably forecast our financial
condition beyond this time.

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Significant Risks

In recent history we have had operating losses and may not
achieve sustained profitability. As of June 30, 2009 we had an accumulated
deficit from continuing operations of $7,462,232.

We are dependent to a significant extent on third parties, and
our principal licensee, Auxilium, may not be able to successfully develop
products, obtain required regulatory approvals, manufacture products at an
acceptable cost, in a timely manner and with appropriate quality, or
successfully market products or maintain desired margins for products sold, and
as a result we may not achieve sustained profitable operations.

As of June 30, 2009 we held no taxable auction rate securities,
or ARS. As of December 31, 2008, we held $0.9 million of ARS, which were
classified as short-term investments. On January 6, 2009, we received the
remaining principal balance of our investment in auction rate securities of $0.9
million.

Critical Accounting Policies, Estimates and Assumptions

The preparation of unaudited consolidated financial statements
in conformity with accounting principles generally accepted in the U.S. 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 June 30, 2009
and for the three and six months ended June 30, 2009 and 2008 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 December 31, 2008 balance sheet amounts and
disclosures included herein have been derived from the Companys December 31,
2008 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,
2008 included in the Companys Form 10-K filed with the SEC on March 31, 2009
and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.
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.

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, and 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.

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 where we
are providing continuing services related to product development, are deferred
and recognized as revenue over the development period.

16

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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 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/Earn-Out Revenue.We recognize royalties
under the earn-out provision of the Asset Purchase Agreement with DFB BioTech,
Inc. (DFB). We have the right to receive earn out payments in the future based
on sales of certain products. Generally, under this agreement we would receive
royalty payments and a report within ninety (90) days from the end of each
calendar year after the licensee has sold the royalty-bearing product. Our right
to receive earn out payments under our agreement with DFB will expire in 2013.
We recognize royalty revenues when we can reliably estimate such amounts and
collectibility is reasonably assured.

Consulting and Technical Assistance Services.We
recognize revenues from a consulting and technical assistance contracts
primarily as a result of our agreements with DFB and Auxilium. Consulting
revenues are recognized ratably over the term of the contract. The consulting
obligations to DFB generally expire during March 2011.

Inventory and Warranty Provisions.
Inventories are stated at the lower of cost or realizable market value. In
assessing the ultimate realization of inventories, we are required to make
judgments as to future demand requirements and compare that with the current
inventory levels. In March 2006 we sold our topical collagenase business to DFB,
including certain product inventory. As of a result of this sale our product
inventory as of June 30, 2009 and 2008 was zero.

Reimbursable Third Party Development Costs. We
accrue expenses to research and development and capitalize certain patent costs
for estimated third party development costs that are reimbursable under our
agreement with Auxilium. 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 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 patent expenses.

On July 13, 2009, we received an updated invoice from Auxilium
for approximately $37,000 increasing the total amount due that Auxilium believes
is owed by us to approximately $2.84 million through June 30, 2009 under this
provision. The increase in the second quarter was primarily due to patent and
related legal fees. Based upon the updated invoice, we recorded an additional
liability of $37,000 for reimbursable third party patent expenditures.

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 as well as for patent and related
legal fees, and therefore, reserve all rights related to this matter, including
but not limited to our right to contest the amount charged by Auxilium.

17

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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
our agreement with DFB, we agreed to provide certain technical assistance and
transitional services in consideration of fees and costs totaling over $1.4
million. At the closing, DFB paid to us a partial payment of $400,000 in respect
of the technical assistance to be provided by us. To date, we have received a
total of $1,200,000 in payments from DFB. The consulting obligations generally
expire during March 2011. As of June 30, 2009 the remaining accounts receivable
balance due was $200,000 for future services and was offset by the associated
deferred revenues to be recognized in future periods of $200,000.

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 June 30, 2009, 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
SFAS No. 142, Goodwill and Other Intangibles,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 the
provisions of SFAS 123(R), 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 the 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 employee stock-based awards
granted in future periods.

Further, SFAS 123(R) 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 JUNE 30, 2009 and 2008

Revenues

Product Revenues, net

Product revenues include the sales of the API Enzyme 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 June 30, 2009 and 2008 product revenues were
$9,914 and $4,046, respectively. This increase of $5,868 or 145% was primarily
related to the amount of material required to perform testing by our customers.

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Royalties

We received all of our royalty revenues from DFB under the earn
out payment provision of the Asset Purchase Agreement after certain net sales
levels are achieved. Royalty revenues recognized under our agreement with DFB
for the three months ended June 30, 2009 were $375,400 and $2,028 in the 2008
period. This increase is mainly related to the increase in net sales during the
period reported to us by DFB.

Licensing and Milestone Revenues

For the three months ended June 30, 2009 and 2008, we
recognized licensing and milestone revenue of $766,281 and $266,282,
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. This increase of $500,000 was related to a
milestone received and recognized in the second quarter under our agreement with
Auxilium.

Under current accounting guidance, nonrefundable upfront
license fees for product candidates where 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 Asset Purchase Agreement and an Auxilium
consulting agreement signed in October 2007 which terminated during the second
quarter of 2008. Consulting revenues are recognized ratably over the term of the
contract. The consulting obligations under the Asset Purchase Agreement
generally expire during March 2011. For the three months ended June 30, 2009 and
2008 consulting revenues were $70,000 and $162,000, respectively. This decrease
of $92,000 or 57% in was primarily due to the recognition in 2008 of revenues
earned in connection with the October 2007 consulting agreement with Auxilium.

Costs and Expenses

Research and Development Activities

Research and development expenses were $124,192 and $94,432
respectively, for the three months ended March 31, 2009 and 2008. This increase
of $29,760 or 32% in research and development expenses was primarily due to
certain employee costs which were reimbursable under our agreement with DFB
which expired in October 2008 partially offset by decreases in external study
development costs.

General and Administrative Expenses

General and administrative expenses were $1,140,485 and
$1,173,316 for the three months ended June 30, 2009 and 2008, respectively. The
decrease in general and administrative expenses of $32,831 or 3% was primarily
due to lower stock-based compensation expense and legal fees partially offset by
increases in outside consulting expense and certain facility costs which were
reimbursable under our agreement with DFB which expired in October 2008.

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Other Income (expense), net

Other income, net, was $1,649 for the three months ended June
30, 2009 as compared to other income, net of $32,055 for the 2008 period.
Components of other income, net, consist of investment income, interest expense
and other, net. Investment income for the three months ended June 30, 2009 was
$1,688 as compared to $27,528 in the comparable period of 2008. This decrease of
$25,840 or 94% was primarily due to lower interest rates and invested balances
during the 2009 period. Interest expense for the three months ended June 30,
2009 was minimal in both periods. Other expense, net for the three months ended
June 30, 2009 was zero as compared to $4,527 in the 2008 period. The decrease in
other expense, net was primarily due to the sale of a company owned vehicle in
the 2008 period.

Income Taxes

The expense for income taxes for the three months ended June
30, 2009 was $46,376 and zero in the comparable period of 2008. The increase was
due to tax allowance reserve in connection with the recognition of a deferred
tax asset arising from the exercise and sale of employee stock options during
the second quarter of 2009.

SIX-MONTHS ENDED JUNE 30, 2009 and 2008

Revenues

Product Revenues, net

Product revenues include the sales of the API Enzyme 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 six months ended June
30, 2009 and 2008 product revenues were $17,105 and $16,799, respectively. This
increase of $306 or 2% was primarily related to the amount of material required
to perform testing by our customers.

Royalties

We received all of our royalty revenues from DFB under the earn
out payment provision of the Asset Purchase Agreement after certain net sales
levels are achieved. Royalty revenues recognized under our agreement with DFB
for the six months ended June 30, 2009 were $375,400 and $2,028 in the 2008
period. This increase is mainly related to the increase in net sales during the
period reported to us by DFB.

Licensing and Milestone Revenues

For the six months ended June 30, 2009 and 2008, we recognized
licensing and milestone revenue of $1,032,562 and $532,563, 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. This increase of $500,000 was related to a milestone
received and recognized in the second quarter under our agreement with Auxilium.

Under current accounting guidance, nonrefundable upfront
license fees for product candidates where 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.

20

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Consulting Services

We recognize revenues from consulting and technical assistance
contracts primarily as a result of the Asset Purchase Agreement and an Auxilium
consulting agreement signed in October 2007 which terminated during the second
quarter of 2008. Consulting revenues are recognized ratably over the term of the
contract. The consulting obligations under the Asset Purchase Agreement
generally expire during March 2011. For the six months ended June 30, 2009 and
2008 consulting revenues were $140,000 and $284,185, respectively. This decrease
of $144,185 or 51% in was primarily due to the recognition in 2008 of revenues
earned in connection with the October 2007 consulting agreement with Auxilium.

Costs and Expenses

Research and Development Activities

Research and development expenses were $240,063 and $188,703
respectively, for the six months ended March 31, 2009 and 2008. This increase of
$51,360 or 27% in research and development expenses was primarily due to certain
employee costs which were reimbursable under our agreement with DFB which
expired in October 2008 and stock-based compensation expense partially offset by
decreases in external study development costs.

General and Administrative Expenses

General and administrative expenses were $2,307,456 and
$1,973,772 for the six months ended June 30, 2009 and 2008, respectively. The
increase in general and administrative expenses of $333,684 or 17% was primarily
due to outside consulting services, stock-based compensation expense, certain
facility costs which were reimbursable under our agreement with DFB which
expired in October 2008, employee costs and patent related fees partially offset
by a decrease in legal fees.

Other Income (expense), net

Other expense, net, was $4,957 for the six months ended June
30, 2009 as compared to other income, net of $61,879 for the 2008 period.
Components of other income, net, consist of investment income, interest expense
and other, net. Investment income for the six months ended June 30, 2009 was
$4,545 as compared to $57,803 in the comparable period of 2008. This decrease of
$53,258 was primarily due to lower interest rates and invested balances during
the 2009 period. Interest expense for the six months ended June 30, 2009 was
minimal in both periods. Other expense, net for the six months ended June 30,
2009 was $9,463 as compared to other income, net of $4,527 in the 2008 period.
The change in other income and expense, net was primarily due to a penalty
related to our delinquent tax filings from previous periods partially offset by
the sale of a company owned vehicle in the 2008 period.

Income Taxes

The expense for income taxes for the six months ended June 30,
2009 was $46,376 and zero in the comparable period of 2008. The increase was due
to tax allowance reserve in connection with the recognition of a deferred tax
asset arising from the exercise and sale of employee stock options during the
second quarter of 2009.

Liquidity and Capital Resources

To date, we have financed our operations primarily through
product sales, debt instruments, licensing revenues, royalties under agreements
with third parties and sales of our common stock. At June 30, 2009 and December
31, 2008, we had cash and cash equivalents in the aggregate of $9,324,499 and
$3,494,150, respectively.

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Continuing Operations

Net cash provided by operating activities for the six months
ended June 30, 2009 was $5,343,468 as compared to net cash used in operating
activities in the 2008 period of $1,164,241. In the 2009 period, as compared to
the 2008 period, the changes in net cash provided by operating activities was
primarily attributable to a the reduction in accounts receivable due to the
receipt of a payment for a sublicense fee of $6.4 million and non-cash stock
compensation expense partially offset by increased expenses during the period
2009 period.

Net cash provided by investing activities for the six months
ended June 30, 2009 was $400,621 as compared to net cash used in investing
activities in the 2008 period of $393,000. The change in net cash provided by
investing activities for the 2009 period reflect redemption of our investment in
marketable securities compared to cashed used in investing activities related to
purchases of marketable securities in the 2008 period.

Net cash provided by financing activities for the six months
ended June 30, 2009 was $86,260 as compared to the 2008 period of $6,230,062.
The change in net cash provided by financing activities for the 2009 consisted
of proceeds received from stock option exercises and excess tax benefits related
to the sale by employees of certain stock options. Net cash provided by
financing activities in the 2008 period consisted of proceeds from the sale of
our common stock of $4,882,679, repayment of an outstanding loan from our former
Chairman and CEO of $1,116,558 and proceeds received from stock option exercises
of $230,825.

Item 3: Quantitative and Qualitative Disclosures About
Market Risk.

Not applicable.

Item 4T. 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 and six month periods ended June 30, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

None.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

Our 2009 Annual Meeting of Stockholders was held on June 17,
2009 at the offices of Bingham McCutchen LLP in New York, New York, in
accordance with the Notice of Annual Meeting of Stockholders sent on or about
April 30, 2009. The tables below present the voting results of the matters voted
upon by our stockholders at the meeting:

Proposal 1: Election of Directors

At the meeting, each of the nominees listed below was elected
to our Board of Directors to serve as director until the end of his or her
respective term and received the number votes set forth after their respective
names below.

|Nominee*           | Number of Shares
|------------------ | ----------------
|                   | For             
|Thomas L. Wegman   | 5,480,342       
|Dr. Paul Gitman    | 3,955,424       
|Dr. Matthew Geller | 5,463,026       

_____________ * The Board is divided into three
classes, each of which serves for a term of three years, with only one class of
directors being elected in each year. Each director holds office for the term
for which elected and until his or her successor shall be elected and shall
qualify and be subject to such directors earlier death, resignation or removal.
The term of office of the first class of directors, presently consisting of
Thomas L. Wegman, Dr. Paul A. Gitman and Dr. Matthew Geller, is scheduled to
expire at the annual meeting for the year 2012; the term of office of the second
class of directors, presently consisting of Henry Morgan and Michael Schamroth
is scheduled to expire on the date of the annual meeting for the year 2010; and
the third class of directors, consisting of Toby Wegman and Dr. Mark Wegman is
scheduled to expire at the 2011 Annual Meeting.

Proposal 2: Approval of Amended and Restated BioSpecifics
Technologies Corp. 2001 Stock Option Plan

At the meeting, our stockholders ratified by the vote set forth
below the approval of the Amended and Restated BioSpecifics Technologies Corp.
2001 Stock Option Plan to extend the term of the 2001 Plan from April 6, 2011 to
April 23, 2019 and to authorize an additional 300,000 shares of our common stock
for issuance under the 2001 Plan from 1,750,000 shares reserved for issuance
under the Original 2001 Plan to 2,050,000.

|Number of Shares
|----------------
|For             
|4,089,921       

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The number of shares of our common stock eligible to vote as of
the record date of April 23, 2009 was 6,014,801 shares.

Item 5. Other Information

On June 15, 2009, Hapoalim Securities USA, Inc. initiated
analyst coverage on the Company.

On June 17, 2009, as disclosed on our Form 8-K filed with the
SEC on June 19, 2009 that upon the recommendation of the Compensation Committee,
the Board of Directors of the Company approved an increase in the base salary of
the Companys President, Thomas Wegman, from $250,000 to $300,000 per year,
effective June 17, 2009.

On June 29, 2009, the Company announced that it was added to
the Russell 3000 and Russell 2000 Indexes effective at the close of the U.S.
markets on June 29, 2009. The Russell 3000 Index measures the performance of the
largest 3000 U.S. companies representing approximately 98% of the investable
U.S. equity market. The Russell 2000 Index measures the performance of the
small-cap segment of the U.S. equity universe. The Russell 2000 Index is a
subset of the Russell 3000® Index representing approximately 8% of the total
market capitalization of that index. It includes approximately 2,000 of the
smallest securities based on a combination of their market cap and current index
membership.

Item 6. Exhibits

| | 3.1   | Articles of Incorporation of the Registrant
      (incorporated by reference to Exhibit 3.1 to the Registrant's Annual
      Report on Form 10-KSB for the fiscal years ended December 31, 2005, 2004
      and 2003).          
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.2   | Bylaws of the Registrant (incorporated by
      reference to Exhibit 3.2 to the Registrants Annual Report on Form 10-KSB
      for the fiscal years ended December 31, 2005, 2004 and 2003).                                   
| | 4     | Amended and Restated BioSpecifics Technologies
      Corp. 2001 Stock Option Plan (and incorporated by reference to Appendix D
      to the Registrants Definitive Proxy Statement filed with the SEC on April
      30, 2009).
| | 10    | Lease Modification Agreement dated June 22,
      2009 and effective June 24, 2009 (incorporated by reference to Exhibit
      10.1 to the Registrants Current Report on Form 8- K filed with the SEC on
      June 29, 2009). 
| | 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.                                                                                 
| | 99.1* | Audit Committee Charter (revised June 17, 2009)                                                                                                                                                                                 
| | 99.2* | Compensation Committee Charter (revised June
      17, 2009)                                                                                                                                                                    
| | 99.3* | Nominating and Corporate Governance Committee
      Charter (revised June 17, 2009)                                                                                                                                             

_________* 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: August 12, 2009 | /s/ Thomas L.
      Wegman                 
|--------------------- | -------------------------------------------
|                      | Thomas L. Wegman                           
|                      | President                                  
|                      | (Principal Executive and Financial Officer)

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