UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 
 [X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2009
 
 [ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
transition period from __________ to __________
 
 Commission
file number 1-32302
 
 ANTARES
      PHARMA, INC.(Exact
      name of registrant as specified in its
charter)
 
 A
      Delaware corporation
              
              
              I.R.S.
      Employer Identification No.
41-1350192
 
 250
      Phillips Boulevard, Suite 290, Ewing,
  NJ  08618
 
 Registrant’s
telephone number, including area code:  (609) 359-3020
 
 Securities
registered pursuant to section 12(b) of the Act:
 
 Title of each
      class
              
              Name of each exchange
      on which registeredCommon
      Stock
              
              NYSE
      Amex
 Securities
registered pursuant to section 12(g) of the Act:  None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 YES[  ]  
NO[X]
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
 YES[  ]  
NO[X]
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
  
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
 
 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
[  ]                  
 Non –accelerated filer
[  ]                  
Smaller reporting company [X]
 (Do
not check if a smaller reporting company)
  Indicate
by check mark if the registrant is a shell company (as defined in Rule 12b-2 of
the Act). YES[  ]    NO[X]
 
 Aggregate
market value of the voting and non-voting common stock held by nonaffiliates of
the registrant as of June 30, 2009, was $49,908,000 (based upon the last
reported sale price of $0.89 per share on June 30, 2009, on NYSE
Amex).
 
 There
were 82,361,434 shares of common stock outstanding as of March 15,
2010.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 Portions
of the definitive proxy statement for the registrant’s 2010 annual meeting of
stockholders to be filed within 120 days after the end of the period covered by
this annual  report on Form 10-K are  incorporated
by  reference  into Part III of this
annual report on Form 10-K.
   
 PART
I
 
 Item
      1.
              BUSINESS
 
 This report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and the Private Securities Litigation Reform Act of 1995 that
are subject to risks and uncertainties. You should not place undue reliance on
those statements because they are subject to numerous uncertainties and factors
relating to our operations and business environment, all of which are difficult
to predict and many of which are beyond our control. You can identify these
statements by the fact that they do not relate strictly to historical or current
facts. Such statements may include words such as “anticipate,” “will,”
“estimate,” “expect,” “project,” “intend,” “should,” “plan,” “believe,” “hope,”
and other words and terms of similar meaning in connection with any discussion
of, among other things, future operating or financial performance, strategic
initiatives and business strategies, regulatory or competitive environments, our
intellectual property and product development. In particular, these
forward-looking statements include, among others, statements about:
 
 §
              our
      expectations regarding product developments with Teva Pharmaceutical
      Industries, Ltd. (“Teva”);
 §
              our
      expectations regarding trends in pharmaceutical drug delivery
      characteristics;
 §
              our
      anticipated penetration into the market for traditional drug injection
      devices (such as needles and syringes) with our
  technology;
 §
              our
      anticipated continued reliance on contract manufacturers to manufacture
      our products;
 §
              our
      marketing and product development
plans;
 §
              our
      future cash flow and our ability to support our
  operations;
 §
              our
      projected net loss for the year ending December 31,
  2010;
  §
              our
      ability to raise additional funds in light of our current and projected
      level of operations and general economic conditions;
  and
 §
              other
      statements regarding matters that are not historical facts or statements
      of current condition.
 
 These forward-looking statements are
based on assumptions that we have made in light of our industry experience as
well as our perceptions of historical trends, current conditions, expected
future developments and other factors we believe are appropriate under the
circumstances. As you read and consider this annual report, you should
understand that these statements are not guarantees of performance results. They
involve risks, uncertainties and assumptions. Although we believe that these
forward-looking statements are based on reasonable assumptions, you should be
aware that many factors could affect our actual financial results or results of
operations and could cause actual results to differ materially from those in the
forward-looking statements. You should keep in mind that forward-looking
statements made by us in this annual report speak only as of the date of this
annual report. Actual results could differ materially from those currently
anticipated as a result of a number of risk factors, including, but not limited
to, the risks and uncertainties discussed under the caption “Risk
Factors.”  New risks and uncertainties come up from time to time, and
it is impossible for us to predict these events or how they may affect us. We
have no duty to, and do not intend to update or revise the forward-looking
statements in this annual report after the date of this annual report. In light
of these risks and uncertainties, you should keep in mind that any
forward-looking statement in this annual report or elsewhere might not
occur.
 
 Overview
 
 Antares Pharma, Inc. (“Antares,” “we,”
“our,” “us” or the “Company”) is an emerging pharma company that focuses on
self-injection pharmaceutical products and technologies and topical gel-based
products.  Our subcutaneous injection technology platforms include VibexTM
disposable pressure-assisted auto injectors, VisionTM reusable needle-free
injectors, and disposable multi-use pen injectors.  In the injector area,
we have a multi-product deal with Teva that includes Tev-Tropin® human
growth hormone and have partnerships with Ferring Pharmaceuticals BV (“Ferring”)
and JCR Pharmaceuticals Co., Ltd. (“JCR”) that include their human growth
hormone (“hGH”) products.  In the gel-based area, our lead product
candidate, Anturol®, an
oxybutynin ATDTM gel for the treatment of overactive bladder (“OAB”), is
currently under evaluation in a pivotal Phase 3 trial.  We also
 
 
 
 
 have a
partnership with BioSante Pharmaceuticals, Inc. (“BioSante”) that includes
LibiGel®
(transdermal testosterone gel) in Phase 3 clinical development for the treatment
of female sexual dysfunction (“FSD”), and Elestrin®
(estradiol gel) for the treatment of moderate-to-severe vasomotor symptoms
associated with menopause, which is currently marketed in the
U.S.  Two of our technologies have generated FDA approved
products.  Our products and product opportunities are summarized and
briefly described below:
 
 Products
 
 Injection
Devices
  
 Transdermal
Delivery Gels
 
 
 Pressure Assisted Injection
Devices
 
 Our injection device platform features
three main products: reusable needle-free injectors, disposable pressure
assisted auto injectors and disposable pen injectors.  Each is briefly
described below:
 
 ·
              Reusable needle-free
      injectors deliver precise medication doses through high-speed,
      pressurized liquid penetration of the skin without a needle. Our current
      needle-free injector product is a reusable, variable-dose device
      engineered to last for two years and is designed for easy use,
      facilitating self-injection with a disposable syringe to assure safety and
      efficacy. The injector employs a disposable plastic needle-free syringe,
      which offers high precision liquid medication delivery through an opening
      that is approximately half the diameter of a standard, 30-gauge
      needle.  The associated sterile plastic disposables, needle-free
      syringes and adapters, are designed for use as appropriate for the drug
      and indication.
   
 3
 We have
sold our needle-free injection system for use in more than 30 countries to
deliver either human growth hormone (“hGH”) or insulin.  The product
is marketed by our partners for use with hGH as Tjet®, by
Teva in the U.S.; Zomajet® 2
Vision and Zomajet®
Vision X, by Ferring in Europe and Asia; and Twin-Jector® EZ
II, by JCR in Japan, and is sold as the Medi-Jector VISION®
over-the-counter (“OTC”) or by prescription in the U.S. for use by patients for
insulin.  We refer to our reusable needle-free injector as the VisionTM
and/or Tjet®.
 
 ·
              Disposable pressure assisted
      auto injectorsemploy the same basic technology developed for our
      needle-free devices, a controlled pressure delivery of drugs into the body
      utilizing a spring power source.  Combining pressure with a
      hidden needle supports the design of a disposable, single-use injection
      system compatible with conventional glass drug containers. This system,
      the VibexTM, is designed to economically provide highly reliable fast
      subcutaneous injections with minimal discomfort and improved convenience
      in conjunction with the enhanced safety of a shielded needle. After use,
      the device can be disposed of without the typical “sharps” disposal
      concerns. We and our potential partners have successfully tested the
      device in multiple patient preference studies.  We continue to
      explore product extensions within this category, including the targeting
      of various body sites and devices with multiple dose, variable dose and
      user-fillable applications.
 
 ·
              Disposable pen injectorsare needle-based devices designed to deliver multiple injections
      from multi-dose drug cartridges.  The devices contain mechanisms
      that specify the dose to be delivered by defining the amount of movement
      by the stopper in the cartridge with each device actuation.  In
      contrast to our reusable needle-free injectors, the cartridge drug
      container is integral to the pen injector and after utilizing all the drug
      from the cartridge, the entire device is then
  disposed.
 
 Transdermal Gel
System
 
 Our transdermal system consists of a
unique formulation in semisolid dosage forms (gels) that delivers medication
efficiently and minimize gastrointestinal impact, as well as the initial liver
metabolism effect of some orally ingested drugs. Our gels are hydro-alcoholic
and contain a combination of permeation enhancers to promote rapid drug
absorption through the skin following application, which is typically to the
arms, shoulders, or abdomen. Our transdermal gel system provides the option of
delivering both systemically (penetrating into and through the subcutaneous
tissues and then into the circulatory system) as well as locally (e.g. topically
for skin and soft tissue injury, infection and local inflammation). Typically,
the gel is administered daily, and is effective on a sustained release basis
over approximately a 24-hour period of time. Our gel system is known as our
Advanced Transdermal Delivery (“ATDTM”) gels.
 
 History
 
 On January 31, 2001, we (Antares,
formerly known as Medi-Ject Corporation, or Medi-Ject) completed a business
combination to acquire the three operating subsidiaries of Permatec Holding AG
(“Permatec”), headquartered in Basel, Switzerland.  The transaction
was accounted for as a reverse acquisition, as Permatec’s shareholders initially
held a majority of the outstanding stock of Medi-Ject.  Medi-Ject was
at that time, focused on delivering drugs across the skin using needle-free
technology, and Permatec specialized in delivering drugs across the skin using
transdermal patch and gel technologies as well as developing oral disintegrating
tablet technology. With both companies focused on drug delivery but with a focus
on different sectors, it was believed that a business combination would be
attractive to both pharmaceutical partners and to our stockholders. Upon
completion of the transaction our name was changed from Medi-Ject Corporation to
Antares Pharma, Inc.
 
 Our Parenteral Medicines (device)
division is located in Minneapolis, Minnesota, where we develop and manufacture
with partners novel pressure assisted injectors, with and without needles, which
allow patients to self-inject drugs. We make a reusable, needle-free,
spring-action injector device known as the VisionTM and Tjet®,
which is legally marketed for use with insulin and human growth
hormone.  We have had success in achieving distribution of our device
for use with hGH through licenses to pharmaceutical partners, and it has
resulted in continuing market growth and, we believe, a high degree of customer
satisfaction. Distribution of growth hormone injectors occurs in the U.S.,
Europe, Japan and other Asian countries through our pharmaceutical company
relationships.
   4
 
 We have also developed variations of
the needle-free injector by adding a very small hidden needle to a pre-filled,
single-use disposable injector, called the VibexTM pressure assisted auto
injection system. This system is an alternative to the needle-free system for
use with injectable drugs in unit dose containers and is suitable for branded
and branded generic injectables.  We also developed a disposable
multi-dose pen injector for use with standard multi-dose
cartridges.  We have entered into multiple licenses for these devices
mainly in the U.S. and Canada with Teva.
 
 Our Pharma division is located both in
the U.S. and in Muttenz, Switzerland, where we develop pharmaceutical products
utilizing our transdermal systems.  Several licensing agreements with
pharmaceutical companies of various sizes have led to successful clinical
evaluation of our formulations.  In 2006, the United States Food and
Drug Administration (“FDA”) approved our first transdermal gel with a partner’s
drug product for the treatment of vasomotor symptoms in post-menopausal
women.  We are also developing our own transdermal gel-based products
for the market and have recently completed enrollment in a pivotal Phase III
safety and efficacy trial for Anturol®, our
oxybutynin transdermal gel product for overactive bladder.
 
 We believe that our transdermal gels
minimize first pass liver metabolism, gastro intestinal effects and skin
erythema.  Other advantages include cosmetic elegance and ease of
application as compared to transdermal patches and have potential applications
in such therapeutic markets as hormone replacement, overactive bladder,
contraception, pain management and central nervous system
therapies.
 
 We operate in the drug delivery sector
of the pharmaceutical industry. Companies in this sector generally leverage
technology and know-how in the area of drug formulation and product development
to pharmaceutical manufacturers through licensing and development agreements
while continuing to develop their own products for the marketplace. We also view
many pharmaceutical and biotechnology companies as collaborators and primary
customers. We have negotiated and executed licensing relationships in the
needle-free devices segment in the U.S., Europe and Asia, the auto injector
segment in the U.S. and Canada, the disposable pen injector segment worldwide,
and the transdermal gels segment for which we have several development programs
in place worldwide, including the United States and Europe. In addition, we
continue to market our re-usable needle-free devices for the self administration
of insulin in the U.S. market through distributors and have a non-exclusive
license for our technology in the diabetes and obesity fields.
 
 We are a Delaware corporation
with principal executive offices located at Princeton Crossroads Corporate
Center, 250 Phillips Boulevard, Suite 290, Ewing, New Jersey
08618.  Our telephone number is (609) 359-3020. We have wholly-owned
subsidiaries in Switzerland (Antares Pharma AG and Antares Pharma IPL AG) and
the Netherland Antilles (Permatec NV).
 
 Products
and Technology
 
 We are leveraging our experience in
drug delivery systems to enhance the product performance of established drugs as
well as new drugs in development. Our current portfolio includes transdermal
Advanced ATDTM gels; disposable pressure assisted auto injection systems
(VibexTM); disposable pen injection systems; and reusable needle-free injection
systems (VisionTM).
 
 SELF-ADMINISTRATION OF
INJECTABLE BIOLOGIC DRUGS
 
 Injectable biologic drugs generated a
reported $125 billion in global revenue in 2008.   Given the
market success of several recent biologic drugs, pharmaceutical firms are
increasingly reliant upon biologic drug candidates in their product pipelines,
fueling growth expectations for the biologic drugs.  Industry analysts
project that biologics will account for 50% of the 100 top selling drugs by
2014, up from 28% in 2008.
 
 Biological drugs are often used in
managing chronic medical conditions, presenting a need for repeated injections
over time.  Cost containment pressure by managed care combined with
patient preferences for convenience and comfort are driving a change in the
treatment setting from the health care facility to patients’
homes.  This trend is creating a shift from the injection being given
by a doctor or nurse to self-administration by the patient or administration by
a family member or other lay caregiver.   This shift has produced
a transition in how injectable drugs are configured to facilitate use by
consumers.  In many therapeutic categories pre-filled syringes
 
 
 5
 
 
 and other
injection systems offering greater ease-of-use and security for patients now
exceed vials in unit volume, often at substantial unit price
premium.  These therapeutic categories and example products
include:
 
 Condition
              ProductsDiabetes
              Humalog
      (Lilly), Novolog (Novo Nordisk), Apidra (Sanofi Aventis), Lantus (Sanofi
      Aventis), Levemir (Novo Nordisk), Byetta (Lilly)Growth
      deficiency
              Genotropin
      (Pfizer), Tev-Tropin (Teva), Humatrope (Lilly), Nutropin AQ (Roche),
      Noridtropin (Novo Nordisk), Saizen/Serostem (EMD Serono), Omnitrope
      (Sandoz)Rheumatoid
      Arthritis
              Enbrel
      (Amgen, Pfizer), Humira (Abbott), Simponi (Centocor Ortho Biotech), Cimzia
      (UCB)Multiple
      Sclerosis
              Avonex
      (Biogen Idec), Betaseron (Bayer), Copaxone (Teva), Rebif (EMD
      Serono)Chronic
      Hepatitis C
              Intron-A
      (Merck), Pegasys (Roche), Peg-Intron (Merck)Anemia/Neutropenia
              Aranesp
      (Amgen), Neulasta (Amgen)
 
 Pressure Assisted Auto
Injection
 
 The most significant challenge beyond
discovery of new molecules is how to effectively deliver them by means other
than conventional injection technology. The majority of these molecules have
not, to date, been amenable to oral administration due to a combination of
several factors, including breakdown in the gastrointestinal tract,
fundamentally poor absorption, or high first pass liver metabolism. Pulmonary
delivery of these molecules, as an alternative to injections, has also been
pursued without commercial success. Many companies have expended considerable
effort in searching for less invasive ways to deliver such molecules that may
allow them to achieve higher market acceptance, particularly for those requiring
patient self-administration.
 
 Pressure assisted auto injection is a
form of parenteraldrug delivery that
continues to gain acceptance among the medical community. Encompassing a wide
variety of sizes and designs, this technology operates by using pressure to
force the drug, in solution or suspension, through the skin and deposits the
drug into the subcutaneous tissue.
 
 Needle-Free
Injectors
 
 Needle-free injection combines proven
delivery technology for molecules that require parenteral administration with a
device that eliminates the part of the injection that patients dislike – the
needle.  Improving patient comfort through needle-free injection may
increase compliance and mitigate the problem of daily injections. Needle-free
delivery eliminates the risk of needlestick injuries as well, which occur
frequently in institutions in the U.S., and can result in disease transmission
to healthcare workers.
 
 One of the primary factors influencing
development in the category of needle-free injection is the inherent problematic
dependence on needles. It is also recognized that greater willingness to accept
injection therapy could have a beneficial impact on disease outcomes. For
example, patients with diabetes appear to be reluctant to engage in intensive
disease management, at least in part because of concerns over increased
frequency of injections. Similarly, patients with diabetes who are ineffectively
managed with oral hypoglycemic agents are reluctant to transition to insulin
injections in a timely manner because of injection concerns.
 
 The advent of these technologies has,
to date, had a minor influence within the injectable sector, and they have
failed to produce the deep market penetration that many within the industry
believe they are capable of gaining. Several factors are believed to contribute
to this lack of market penetration, beginning with older needle-free injection
systems. Many of the early needle-free injection systems had an assortment of
drawbacks associated with both performance and cost efficiency. With potential
consumers aware of these historical shortcomings, current technologies promising
greater efficiency and lower prices have failed to gain wide acceptance in the
industry.
   6
  Our
Injection Products
 
 VisionTM / Tjet®
 
 The
VisionTM/Tjet®has
been sold for use in more than 30 countries to deliver either insulin or hGH.
The product features a reusable, spring-based power source and disposable
needle-free syringe, which acts as the pathway for the injectable drug through
the skin and allows for easy viewing of the medication dose prior to injection.
The device’s primary advantages are its ease of use and cost efficiency. The
product is also reusable, with each device designed to last for approximately
3,000 injections (or approximately two years) while the needle-free syringe,
when used with insulin or hGH, is disposable after approximately one week when
used by a single patient for injecting from multi-dose vials.
 
 The VisionTM/Tjet®administers injectables by using a spring to push the active ingredient
in solution or suspension through a micro-fine opening in the needle-free
syringe. The opening is approximately half the diameter of a standard 30-gauge
needle. A fine liquid stream then penetrates the skin, and the dose is dispersed
into the layer of fatty, subcutaneous tissue. The drug is subsequently
distributed throughout the body, successfully producing the desired
effect.
 
 We believe this method of
administration is a particularly attractive alternative to the needle and
syringe for the groups of patients described below:
 
 Patient
      Candidates for Needle-Free Injection·Young
      adults and children·Patients
      looking for an alternative to needles·Patients
      mixing drugs·Patients
      unable to comply with a prescribed needle program·Patients
      transitioning from oral medication·New
      patients beginning an injection treatment program
 
 The VisionTM/Tjet®is
primarily used in the U.S., Europe, Asia, Japan and elsewhere to provide a
needle-free means of administering human growth hormone to patients with growth
retardation. We typically sell our injection devices to partners in these
markets who manufacture and/or market human growth hormone directly. The
partners then market our device with their growth hormone. We receive benefits
from these agreements in the form of product sales and royalties on sales of
their products.  In 2008, our partner, Teva, supported the filing of a
supplemental new drug application (“sNDA”) to provide the Tjet®to
hGH patients in the U.S.  In June of 2009, the FDA approved the sNDA
and in August of 2009 Teva launched the Tjet®
device.
 
 Disposable (VibexTM)
Injectors
 
 Beyond reusable needle-free injector
technologies, we have designed disposable, pressure assisted auto injector
devices to address acute medical needs, such as allergic reactions, migraine
headaches, acute pain, emesis and other daily therapies, as well as potentially
for the delivery of vaccines. Our proprietary VibexTM disposable product combines
a low-energy, spring-based power source with a small, hidden needle, which
delivers the needed drug solution subcutaneously or, in the case of vaccines,
subdermally.
 
 In order to minimize the anxiety and
perceived pain associated with injection-based technologies, the VibexTM system
features a triggering collar that shields the needle from view. The patented
retracting collar springs back and locks in place as a protective needle guard
after the injection, making the device safe for general disposal. In clinical
studies, this device has outperformed other delivery methods in terms of
completeness of injection and user preference, while limiting pain and bleeding.
A summary of the key competitive advantages of the VibexTM system is provided
below:
  
 7
 
 
 
 Competitive
      Advantages of VibexTM Disposable Injectors·Rapid
      injection·Eliminates
      sharps disposal·Ease
      of use in emergencies·Reduces
      psychological barriers since the patient never sees the
    needle·Reliable
      subcutaneous injection·Designed
      around conventional cartridges or pre-filled syringes
 
 The primary goal of the VibexTM
disposable pressure assisted auto injector is to provide a fast, safe, and
time-efficient method of self-injection that addresses the patient’s need for
immediate relief. This device is designed around conventional cartridges or
pre-filled syringes, which are primary drug containers, offering ease of
transition for potential pharmaceutical partners.  We have signed two
license agreements with Teva for our VibexTM system for two undisclosed products,
and we are currently developing a proprietary product using the VibexTM in the
area of pain management.
 
 Disposable Pen Injector
System
 
 Our most recently developed product,
the pen injector, complements our portfolio of pressure assisted auto injector
devices.  The disposable pen injector device is designed to deliver
drugs by injection through needles from multi-dose cartridges.  The
disposable pen is in the stage of development where devices are being used in
clinical evaluations.  Although differing from the other pressure
assisted injection strategies common to the above portfolio of injection
therapy, this device includes a dosing mechanism design that is drawn from our
variable dose needle-free technology.  We have signed a license
agreement with Teva for our pen injector device for two undisclosed
products.
 
 TRANSDERMAL DRUG
DELIVERY
 
 Transdermal drug delivery has emerged
as a generally safe and patient-friendly method of drug delivery. The
commercialization of transdermal products for controlled drug delivery began
over two decades ago.  In more recent years, transdermal gels, creams
and sprays have become increasingly popular as alternative drug delivery
systems.  Among transdermal products currently marketed are
nitroglycerin for angina, diclofenac gel for pain, scopolamine for motion
sickness, fentanyl for pain control, nicotine for smoking cessation, estrogen
for hormone therapy, clonidine for hypertension, lidocaine for topical
anesthesia, testosterone for hypogonadism, and a combination of estradiol and a
norelgestimate for contraception. Skin penetration enhancers are often used to
enhance drug permeation through the dermal layers.
 
 The primary goal of transdermal drug
delivery is to effectively penetrate the surface of the skin via topical
administration.  When successful, transdermal drug delivery provides
an easy and painless method of administration. The protective capabilities of
the skin, however, often act as a barrier to effective delivery. Since the
primary role of the skin is to provide protection against infection and physical
damage, the organ can prevent certain pharmaceuticals from entering the body as
well.  As a result, a limited number of active substances are able to
cross the skin’s surface.
 
 Despite these limitations, transdermal
drug delivery is still viewed as a highly attractive method of administration
for certain therapeutics. As a high concentration of capillaries is located
immediately below the skin, transdermal administration provides an easy means of
access to systemic circulation. Transdermal systems can be designed to minimize
absorption of the active drug in the blood circulation as is needed in topical
applications. This allows a build-up of drug in the layers underlying the skin,
leading to an increased residence time in the targeted tissue. Transdermal
systems can also be designed to release an active ingredient over extended
periods of time, providing benefits similar to depot injections and implants,
without the need for an invasive procedure. If required, patients are also able
to interrupt dosing by removing a patch or discontinuing the application of a
gel. Finally, this delivery technology typically minimizes first-pass metabolism
by the liver as well as many of the gastrointestinal concerns of many orally
ingested drugs.
   
 8
 
 Transdermal
Gels
 
 While transdermal patches remain an
important aspect of the transdermal drug delivery market, transdermal gels have
emerged as another viable means of administering an increasingly wide array of
active pharmaceutical treatments. The concept of transdermal gels parallels that
of the transdermal patch in the creation of a drug reservoir to provide
sustained delivery of therapeutic quantities of a drug. While a patch provides
this from an external reservoir, gel formulations typically create a subdermal
reservoir of the medication.  Transdermal patches, however, sometimes
result in more adverse events, specifically skin irritation events associated
principally with the occlusive nature of patches and the use of adhesives that
contain residual solvents and irritant monomers.  Most of these
factors are minimized in transdermal gels.
 
 Gels also provide drug developers with
an opportunity to explore a wide variety of potential applications. Due to the
physicochemical properties of the excipients employed in gels, combined with the
enhanced solubilization properties, a broad range of active agents can be
formulated. These solubilization properties allow for higher concentrations of
the active ingredient to be incorporated for delivery. The enhanced viscosity in
gels further enhances the patient’s ability to apply the product with
little-to-no adverse cosmetic effect. There is also relatively little limitation
in the surface area to which a gel can be applied, as opposed to patches,
allowing greater quantities of drug to be transported if required.
 
 We have developed our ATDTM gel
technology that utilizes a combination of permeation enhancers to further
bolster a pharmaceutical agent’s ability to penetrate the skin, which leads to a
sustained plasma profile of the active agent, without the skin irritation and
cosmetic concerns often associated with patches.
 
 Our
Transdermal Products
 
 Our ATDTM system successfully penetrates
the skin to deliver a variety of treatments. The gels consist of a
hydro-alcoholic base including a combination of permeation enhancers. The gels
are also designed to be absorbed quickly through the skin after application,
which is typically to the arms, shoulders, or abdomen, and release the active
ingredient into the blood stream predictably over approximately a 24 hour period
of time.  The following is a summary of the competitive advantages of
our ATDTM gel system:
 
 Competitive
      Advantages of ATDTM Gel System·Discrete·Easy
      application·Cosmetically
      appealing compared with patches·Reduced
      skin irritancy compared with patches·Application
      of once per day for most products·Potential
      for delivery of larger medication doses·Potential
      for delivery of multiple active drugs·Ability
      to be either systemic or topical
 
 Our ATDTM
gel products are being developed by both us and our pharmaceutical
partner.  The following is a summary of the products being
developed/commercialized.
 
 Anturol®
 
 Our lead product candidate,
Anturol®, is
an oxybutynin ATDTM gel for the treatment of OAB (overactive bladder), and is
currently under evaluation in a pivotal Phase 3
trial.   Enrollment in the trial was completed in March of 2010
and we expect to file a new drug application (“NDA”) in 2010.  We
intend to seek a marketing partner to help fund the development of Anturol® and
to commercially launch Anturol® if
approved by the FDA.
 
 
 9
 
 
 Elestrin®
 
 Elestrin® is a
transdermal estradiol gel for the treatment of moderate-to-severe vasomotor
symptoms associated with menopause.  We licensed the rights to
Elestrin® in
the U.S. and other markets to our partner BioSante through a license agreement
under which we receive milestone payments and royalties.  BioSante has
sublicensed Elestrin® to
Azur Pharma, who is currently marketing Elestrin® in
the U.S.
 
 LibiGel®
 
 LibiGel®is a
transdermal testosterone gel for the treatment of female sexual dysfunction
being developed by our partner BioSante.  LibiGel®is
currently in a Phase 3 clinical study.  If LibiGel®is
approved by the FDA, we are entitled to milestone and royalty payments from
BioSante.
 
 Nestorone®
 
 We have a joint development agreement
with the Population Council, an international, non-profit research organization,
to develop contraceptive formulation products containing Nestorone®, by
using the Population Council’s patented compound and other proprietary
information covering the compound, and our transdermal delivery gel
technology.  We are responsible for research and development
activities as they relate to ATD formulation and manufacturing and the
Population Council will be responsible for clinical trial design development and
management.  In 2010, we announced with the Population Council
successful results from a dose-finding Phase II trial for the contraceptive
gel.  Together, we expect to identify a worldwide or regional
commercial development partner as clinical data becomes available.
 
 Ropinirole
 
 We have a worldwide product development
and license agreement with Jazz Pharmaceuticals (“Jazz”) for Ropinerole which is
being developed to treat a central nervous system (“CNS”) disorder that will
utilize our transdermal gel delivery technology ATDTM.  Under the
agreement, an upfront payment, development milestones, and royalties on product
sales are to be received by us under certain circumstances.
 
 Market
Opportunity
 
 Needle-free Injectors / Auto
Injectors / Pen Injectors
 
 Our parenteral/device focus is
specifically on the market for delivery of self-administered injectable drugs,
comprised mainly of biological products.  According to a September
2008 Deutsche Bank Global Market Research Report, U.S. sales of biological drugs
in 2007 were approximately $42 billion.  The same report states that
$25 billion worth of these drugs are losing patent exclusivity between now and
2016, making them prime targets for follow-on
biologics.  Self-administered injectable biologics account for the
main portion—over $22 billion—of those facing future competition from follow-on
biologics.  Since, by design, follow-on biologic molecules will be
nearly identical to the innovator biologic, both the innovator and follow-on
manufacturers will seek other ways to differentiate their products in the
market.  We believe that manufacturers will look to proprietary
advantages in the designs of the self-administration devices, such as those
offered by our injection device platforms, as a key way to compete in the
market.
 
 In a May 2009 report, Greystone
Associates estimated the worldwide hGH market in 2008 at $2.8
billion.  The hGH market has significant competition with major
pharmaceutical companies such as Lilly, Roche, Pfizer, NovoNordisk and Merck
Serono among others.  Sandoz introduced Omnitrope as a lower cost
biosimilar hGH in Europe in 2005 and the U.S. in 2006.  However,
despite a 25% lower price the product achieved only a 0.8% hGH market share by
2007.  We believe that other product attributes, including patient
comfort and ease-of-use, play a key role, along with price and promotion, in
determining performance in the market. Our pharmaceutical partner in Europe,
Ferring, has made significant inroads in the hGH market using our needle-free
injector, marketed as the Zomajet® 2
Vision for their 4 mg formulation and Zomajet®Vision X for their 10 mg formulation, and we expect similar progress in
the U.S. market with our partner Teva.    Teva entered the
hGH market without the benefit of an injection device and initially struggled to
gain market share.  Since the launch of the Tjet®
needle-free device in late
 
 
 10
 
 
 2009,
sales of Teva’s hGH Tev-Tropin® have
increased monthly.  This early trend supports the notion that devices
can increase patient use of a partner’s brand of drug due to the benefits of a
device.
 
 Other injectable drugs that are
presently self-administered and may be suitable for injection with our systems
include therapies for the prevention of blood clots and treatments for multiple
sclerosis, migraine headaches, inflammatory diseases, impotence, infertility,
AIDS and hepatitis. We believe that many injectable drugs currently under
development will be administered by self-injection once they reach the market.
Our belief is supported by the continuing development of important chronic care
products that can only be given by injection, the ongoing effort to reduce
hospital and institutional costs by early patient release, and the gathering
momentum of new classes of drugs that require injection. A partial list of such
drugs (and their manufacturer) introduced in recent years that require self
injection include Cimzia®
(UCB), Simponi®
(Centocor Ortho Biotech), Enbrel®
(Amgen, Pfizer) and Humira®
(Abbott) for treatment of rheumatoid arthritis, Epogen® and
Aranesp®
(Amgen) for treatment of anemia, ForteoTM (Lilly) for treatment of osteoporosis,
Intron® A
(Merck) and Roferon®
(Roche) for hepatitis C, Lantus®
(sanofi aventis) and Byetta®
(Lilly)  for diabetes, Rebif® (EMD
Serono) for multiple sclerosis, Copaxone®
(Teva) for multiple sclerosis and Gonal-F® (EMD
Serono) for fertility treatment.
 
 We believe a significant portion of
injectable products currently offered in vials could be replaced with user
friendly injectors promoting better compliance and decreasing sharps
concerns.  Several manufacturers of injectable products have recently
introduced convenient alternatives to vials, such as prefilled syringes and
injector systems; and an increasing proportion of people who self-administer
drugs are transitioning to prefilled syringes and other injector systems when
offered. We believe that our injection technologies offer further improvements
in convenience and comfort for patients self-administering injectable products
and that our business model of working with pharmaceutical company partners has
the potential for further market penetration.  In addition to
partnering with manufacturers of injectable products, we anticipate developing
our own pharmaceutical products using our pressure assisted auto injectors in
the future.
 
 Anturol®
 
 According to a March 2010 Cowen
Therapeutic Outlook Report, the worldwide market for urinary incontinence was
$2.1 billion in 2009 and is estimated to be $2.3 billion by
2014.  During this period, new treatments of overactive bladder (OAB)
are expected to grow from $0.9 billion to $2.0 billion, offset by generic
erosion of older brands such as Detrol LA (Pfizer).  It is estimated
that half of the U.S. adults suffering from OAB either are too embarrassed to
discuss the symptoms or are not aware that pharmacological treatment is
available.   Patient acceptance of older incontinence drugs, such
as oral oxybutynin, is hindered by anticholinergic side-effects including
moderate to severe dry mouth, constipation and somnolence.  A goal of
transdermal delivery is to minimize these common anticholinergic side
effects.  In clinical trials other transdermal gel and patch
oxybutynin products have reported an incidence of anticholinergic side effects
comparable to placebo.  We have recently completed enrollment in a
Phase III study of Anturol®oxybutynin gel to treat urinary incontinence.
 
 Elestrin®and LibiGel®
 
 According to IMS Health, the U.S.
hormone replacement market, including estrogens, progestogens, and
estrogen-progestogen and estrogen-androgen combinations,was $2.1 billion in 2008,
up 3.7% from 2007 despite a slight decrease in the number of
prescriptions.  According to industry estimates, approximately six
million women in the U.S. currently are receiving some form of estrogen or
combined estrogen hormone therapy. IMS Health reported the current market in the
U.S. for single-entity estrogen products was approximately $1.4 billion in
2007, of which the transdermal segment, mostly patches, was about
$260 million.
 
 According to IMS Health, the U.S.
market for transdermal testosterone therapies grew approximately 22 percent
in 2007 to $624 million from $510 million in 2006.  Further
growth in this sector may be achieved by the use of testosterone products in
both male and female applications.  We believe that a new market
opportunity exists with the use of low dose testosterone for treatment of FSD, a
disorder according to published reports that affects an estimated 40-55% of all
women and for which no drug is currently approved in the U.S.  Antares
Pharma, along with its U.S. partner BioSante, has a low dose testosterone
product named LibiGel®,
which has completed Phase II testing for FSD and is currently in Phase III
clinical trials. We have the exclusive rights in Europe and elsewhere
outside the United States for LibiGel®.  As
evidenced in Europe, we believe that global patient demand
 
 
 11
 
 
 for
transdermal hormone therapy products will continue to
increase.  Evidence of this belief is the commercial launch, in
France, Italy, Spain, U.K., Germany and others, by Proctor and Gamble of the
Intrinsa®
Patch, a testosterone transdermal patch for FSD.
 
 Nestorone®Gel
(Contraception)
 
 Worldwide sales of hormonal
contraceptives in 2008 was $6.2 billion according to an October 2009 report by
Datamonitor.   Oral contraceptives account for about 86% of
market with the remainder consisting of hormonal implants, injections and
intra-uterine systems according to a 2007 report by Business
Insights.  Transdermal contraceptive systems provide women an
attractive alternative to the pill by offering convenience and discretion. The
Company is collaborating with the Population Council (an international,
nonprofit research organization) to develop a novel hormonal contraceptive
comprising a combination of the progestin Nestorone® and a form of estrogen,
called 17β-estradiol
(E2), which is chemically identical to the naturally occurring
estrogen.  This combination was chosen because of their potential for
offering a superior tolerability and safety profile compared to other commonly
used hormonal contraceptives.  Nestorone is a novel synthetic
progestin that has been shown to be highly effective at stopping ovulation at a
low dose. It has no androgenic hormonal effects and has a good safety profile.
It is not active when taken orally and is therefore especially appropriate for
topical application. When delivered by the transdermal route, Estradiol (E2) has
the advantage of being a much less potent estrogen than the commonly used
contraceptive ethinyl estradiol (EE) and therefore may have a lower risk of
causing venous thromboembolism.
 
 Ropinirole
Gel
 
 The central nervous system consists of
the brain and spinal cord. Disorders of this system are many, varied and
frequently severe, affecting a large portion of the population. These
debilitating disorders include diseases such as Parkinson’s disease, restless
leg syndrome, epilepsy and migraine and psychotic disorders such as anxiety,
bipolar disorder, depression and schizophrenia. In addition, chronic pain is a
neurological response to disease or injury; or it may have no readily apparent
cause. Regardless of the cause, chronic pain can have devastating effects on
those suffering from it.
 
 Current treatments for CNS disorders
vary in effectiveness, but there are many conditions for which there are few
safe and effective drugs. Cowen & Co. estimates that nearly $41 billion was
spent in 2009 on prescription CNS drugs. They estimate that another $6.7 billion
was spent in 2009 on pain management prescriptions consisting primarily of
opioid drugs and nonsteroidal anti-inflammatory drugs.  Many CNS and
chronic pain drugs merely treat the symptoms and do not provide cures. According
to the World Health Organization, diseases of the CNS will constitute an
increasing medical need in this century, attributable to an exponential increase
of these diseases after the age of 65 combined with an aging
population.  Ropinirole and Pramipexole are products being used for
CNS disorders, particularly parkinsons disease and Restless Leg Syndrome
(RLS).  Oral therapies for RLS such as Ropinirole and Pramipexole
generated U.S. sales of $660 million in 2007 prior to introduction of generic
versions of the products.
 
 Industry
Trends
 
 Based upon our experience in the
healthcare industry, we believe the following significant trends in healthcare
have important implications for the growth of our business.
 
 Major pharmaceutical companies market
directly to consumers and encourage the use of innovative, user-friendly drug
delivery systems, offering patients a wider choice of dosage forms. We believe
the patient-friendly attributes of our injection technologies and transdermal
gels meet these market needs.
 
 We
believe transdermal gel formulations offer patients more choices and added
convenience with no compromise of efficacy. Our ATDTM gel technology is based
upon so-called GRAS (“Generally Recognized as Safe”) substances, meaning the
toxicology profiles of the ingredients are known and widely used. We believe
this approach has a major regulatory benefit and may reduce the cost and time of
product development and approval.
   12
 
 Many drugs, including selected protein
biopharmaceuticals, are degraded in the gastrointestinal tract and may only be
administered through the skin by injection.  Injection therefore
remains the mainstay of protein delivery. The growing number of protein
biopharmaceuticals requiring injection may have limited commercial potential if
patient compliance with conventional injection treatment is not optimal. The
failure to take all prescribed injections can lead to increased health
complications for the patient, decreased drug sales for pharmaceutical companies
and increased healthcare costs for society. In addition, it is becoming
increasingly recognized that conventional needles and syringes are inherently
unreliable and require special and often costly disposal
methods.  Industry expectations are that improvements in protein
delivery systems such as our injector platform will continue to be accepted by
the market.
 
 In addition to the increase in the
number of drugs requiring self-injection, recommended changes in the frequency
of injections may contribute to an increase in the number of self-injections.
Follow-on biologic drug legislation continues to gather momentum in the United
States Congress.  In order to differentiate follow-on biologics, novel
patented delivery systems are becoming more important to extend product
proprietary position as well as secure patient preference.
 
 Furthermore, patented pharmaceutical
products continue to be challenged by generic companies once substantial
proprietary sales are generated.  All of our proprietary delivery
systems may provide pharmaceutical companies with the ability to protect and
extend the life of a product.
 
 Finally, when a drug loses patent
protection, the branded version of the drug typically faces competition from
generic alternatives. It may be possible to preserve market share by altering
the delivery method, e.g., a single daily controlled release dosage form rather
than two to four pills a day. We expect branded and specialty pharmaceutical
companies will continue to seek differentiating drug delivery characteristics to
defend against generic competition and to optimize convenience to patients. The
altered delivery method may be an injection device or a novel transdermal
formulation that may offer therapeutic advantages, convenience or improved
dosage schedules. Major pharmaceutical companies now focus on life cycle
management of their products to maximize return on investment and often consider
phased product improvement opportunities to maintain
competitiveness.
 
 Competition
 
 Competition in the transdermal delivery
market includes companies like Watson Pharmaceuticals, Solvay, Acrux, NexMed,
Inc., Auxillium, Inc., Novavax, Inc. and many others.  Competition in
the disposable, single-use injector market includes, but is not limited to,
Ypsomed AG, SHL Group AB, OwenMumford Ltd., West Pharmaceuticals, Becton
Dickinson, Haselmeir GmbH, Elcam Medical and Vetter Pharma, while competition in
the reusable needle-free injector market includes Bioject Medical Technologies
Inc. and The Medical House PLC.  Additionally, in the drug injection
field we face competition from internal groups within large pharmaceutical
companies as well as design houses which complete the design of devices for
companies but don’t have manufacturing management capabilities.
 
 Competition in the injectable drug
delivery market is intensifying. We face competition from traditional needles
and syringes as well as newer pen-like and sheathed needle syringes and other
injection systems as well as alternative drug delivery methods including oral,
transdermal and pulmonary delivery systems. Nevertheless, the majority of
injections are still currently administered using needles. Because injections
are typically only used when other drug delivery methods are not feasible, the
auto injector systems may be made obsolete by the development or introduction of
drugs or drug delivery methods which do not require injection for the treatment
of conditions we have currently targeted. In addition, because we intend to, at
least in part, enter into collaborative arrangements with pharmaceutical
companies, our competitive position will depend upon the competitive position of
the pharmaceutical company with which we collaborate for each drug
application.
 
 Research
and Development
 
 We currently perform clinical
development work primarily in our Ewing, NJ corporate location for our own
portfolio of products.  Additionally, we perform parenteral product
development work primarily at our Minneapolis, MN facility.  We have
various products at earlier stages of development as highlighted in our products
schedule above.
   13
 
 We currently have a pharmaceutical
product candidate in our own clinical studies listed below. Additionally,
pharmaceutical partners are developing compounds using our technology (see
“Collaborative Arrangements and License Agreements”).
 
 ANTUROL®We
are currently evaluating Anturol®for
the treatment of OAB.  Anturol®is
the anticholinergic active substance oxybutynin delivered by our proprietary
ATDTM gel that is used to achieve therapeutic blood levels of the active compound
that can be sustained over 24 hours after a single, daily application. It is
believed that Anturol®may
offer equal or increased oxybutynin to the metabolite ratio, thus resulting in
decreased reporting of adverse events when compared to patients taking
comparable oral products. In addition, Anturol®may
also be more cosmetically appealing than patches and have less irritation and
allergic reactions as well as comparable or decreased reporting of adverse
events.
 
 Summary of Clinical
Data
 
 In February 2006, we announced the
results of our Phase II dose ranging study for Anturol®. The
study was an open label, single period, randomized study using 48 healthy
subjects and three different doses of Anturol® over
a 20 day period. Variables tested included accumulation of the dose, dose
proportionality, decay of plasma levels, skin tolerability and other adverse
events.
 
 The overall conclusions of the study
were positive. Dose proportionality occurred within the tested dosing range. A
steady state was achieved after three applications (i.e., three
days).  The incidences of dry mouth were minimal and similar to other
transdermals while significantly improved over comparable oral medications.
Additionally, skin tolerance (i.e. local skin irritation) was
excellent.
 
 In October 2007, we announced that the
first patients were dosed in the pivotal trial designed toevaluate efficacy of
Anturol® when
administered topically once daily for 12 weeks in patients predominantly with
urge incontinence episodes. The randomized, double-blind, parallel, placebo
controlled, multi-center trial is to involve 600 patients (200 per arm) using
two dose strengths (selected from the Phase II clinical trial) versus a placebo.
The primary end point of the trial will be efficacy against the placebo defined
as the reduction in the number of urinary incontinence episodes experienced.
Secondary end points include changes from baseline in urinary urgency, average
daily urinary frequency, patient perceptions as well as safety and tolerability
including skin irritation.  Enrollment was completed in March of 2010
with an expected NDA filing time, if data is successful, in the fourth quarter
of 2010.
 
 Device Development
Projects.  We are engaged in research and development
activities related to our VibexTM disposable pressure assisted auto injectors and
our disposable pen injectors.  We have signed license agreements with
Teva for our VibexTM system for two undisclosed products and for our pen injector
device for two undisclosed products.  Our pressure assisted auto
injectors are designed to deliver drugs by injection from single dose prefilled
syringes.  The disposable pen injector device is designed to deliver
drugs by injection through needles from multi-dose cartridges.  The
development programs consist of determination of the device design, development
of prototype tooling, production of prototype devices for testing and clinical
studies, performance of clinical studies, and development of commercial tooling
and assembly.  The following is a summary of the development stage for
the four products in development with Teva.
 
 VibexTMundisclosed product
#1
 
 We have designed the VibexTMfor
the first undisclosed product and are currently scaling up the commercial
tooling and molds for this product.  During 2009, we received
approximately $4,000,000 from Teva for this tooling as well as other development
work for this program.  From a regulatory standpoint Teva filed this
product as an ANDA, and the FDA accepted the filing as
such.  Currently, Teva is conducting its own development work on the
drug as well as conducting user studies with the device.  An amendment
to the ANDA is expected to be filed with the FDA and then the FDA is expected to
complete its review of the ANDA, the timing of which is completely dependent on
the FDA.
 
 
 14
 
 VibexTMundisclosed product
#2
 
 We have designed the VibexTMfor
the second undisclosed product and have completed the majority of the commercial
tooling and molds for the product.  From a regulatory standpoint Teva
filed the product as an abbreviated new drug application (“ANDA”) and the FDA
rejected the filing as such.  The FDA’s rejection was based primarily
on the opinion that the device was sufficiently different than the innovator’s
device not to warrant an ANDA.  We believe we can redesign the device
to address the FDA’s concern of device similarity and are currently working on
the redesign.
 
 Disposable pen injector
#1
 
 We have designed the pen injector and
provided clinical supplies for the first pen injector product to
Teva.  We have not completed any commercial tooling to
date.  From a regulatory standpoint Teva has conducted a
bioequivalence study for the product and determined the appropriate regulatory
pathway is a 505(b)(2).  The FDA has requested a safety study be
conducted in support of the filing.  Teva is currently determining the
clinical design and cost for this program.
 
 Disposable pen injector
#2
 
 We have early prototype designs for the
second pen injector product.  Teva believes the regulatory pathway is
an ANDA pathway.  Currently Teva is designing the development
program.
 
 The development timelines of the auto
and pen injectors related to the Teva products are controlled by
Teva.  We expect development related to the Teva products to continue
in 2010, but the timing and extent of near-term future development will be
dependent on decisions made by Teva.
 
 See Research and Development Programs
in Item 7 – Management’s Discussion and Analysis of Financial Condition and
Results of Operations – for amounts spent on Company sponsored research and
development activities.
 
 Manufacturing
 
 We do not have the facilities or
capabilities to commercially manufacture any of our products and product
candidates. We have no current plans to establish a manufacturing facility. We
expect that we will be dependent to a significant extent on contract
manufacturers for commercial scale manufacturing of our product candidates in
accordance with regulatory standards.  Contract manufacturers may
utilize their own technology, technology developed by us, or technology acquired
or licensed from third parties. When contract manufacturers develop proprietary
process technology, our reliance on such contract manufacturers is
increased.  Technology transfer from the original contract
manufacturer may be required. Any such technology transfer may also require
transfer of requisite data for regulatory purposes, including information
contained in a proprietary drug master file (“DMF”) held by a contract
manufacturer. FDA approval of the new manufacturer and manufacturing site would
also be required.
 
 We have contracted with a commercial
supplier of pharmaceutical chemicals to supply us with the active pharmaceutical
ingredient of oxybutynin for clinical quantities of Anturol® in a
manner that meets FDA requirements via reference to their DMF for oxybutynin. We
have contracted with Patheon, Inc. (“Patheon”), a manufacturing development
company, to supply clinical quantities of Anturol® gel
in a manner that may meet FDA requirements. The FDA has not approved the
manufacturing processes for Anturol® at
Patheon at this time.  We have completed commercial scale up
activities associated with Anturol®
manufacturing required for the NDA.
 
 We are responsible for U.S. device
manufacturing in compliance with current Quality System Regulations (“QSR”)
established by the FDA and by the centralized European regulatory authority
(Medical Device Directive). Injector and disposable parts are manufactured by
third-party suppliers and are assembled by a third-party supplier for our
needle-free device for all of our partners. Packaging is performed by a
third-party supplier under our direction. Product release is performed by
us.  We have contracted with Nypro Inc. (“Nypro”), an international
 
 
 15
 
 manufacturing
development company to supply commercial quantities of our VibexTM pressure
assisted auto injector device in compliance with FDA QSR
regulations.
  Sales
and Marketing
 
 We expect to currently market most of
our products through other more established pharmaceutical companies while
continuing marketing of our insulin injection devices and related disposable
components in the U.S. In the future and as we develop more products in niche
therapeutic areas, we will consider developing commercial
capabilities.
 
 During 2009, 2008 and 2007,
international revenue accounted for approximately 47%, 74% and 55% of total
revenue. Europe accounted for 94%, 93% and 91% of international revenue in 2009,
2008 and 2007, with the remainder coming primarily from Asia.  Ferring
accounted for 39%, 60% and 39% of our worldwide revenues in 2009, 2008 and
2007.  BioSante accounted for 2%, 12% and 36% and JCR accounted for
2%, 5% and 4% of our worldwide revenues in 2009, 2008 and
2007.  Revenue from Ferring and JCR resulted from sales of injection
devices and related disposable components for their hGH
formulations.  In 2008 and 2007, the BioSante revenue resulted
primarily from license fees and milestone payments related to Elestrin®,
received under a sublicense arrangement related to an existing license agreement
with BioSante.
 
 See Results of Operations – Revenues in
Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition
and Results of Operations – for a discussion of our products and services
revenues and Note 13 to the Consolidated Financial Statements for revenues by
geographic area.
 
 Collaborative
Arrangements and License Agreements
 
 The following table describes
significant existing pharmaceutical and device relationships and license
agreements:
 
 Partner
              Drug
              Market
      Segment
              ProductFerring
              hGH
      (4mg formulation)
              Growth
      Retardation
                (U.S.,
      Europe, Asia & Pacific)
              Needle
      Free
                Zomajet®
      2 VisionFerring
              hGH
      (10 mg formulation)
              Growth
      Retardation
                (U.S.,
      Europe, Asia & Pacific)
              Needle
      Free
                Zomajet®
      Vision XTeva
              hGH
              Growth
      Retardation
                (United
      States)
              Needle
      Free
                Tjet®JCR
              hGH
              Growth
      Retardation
                (Japan)
              Needle
      Free
                Twin-Jector®
      EZ IITeva
              Undisclosed
                Product
      #1
              Undisclosed
                (U.S.
      and Canada)
              Auto
      Injector Disposable DeviceTeva
              Undisclosed
                Product
      #2
              Undisclosed
                (United
      States)
              Auto
      Injector Disposable DeviceTeva
              Undisclosed
                Product
      #3
              Undisclosed
                (North
      America, Europe & others)
              Disposable
      Pen Injector DeviceTeva
              Undisclosed
                Product
      #4
              Undisclosed
                (North
      America, Europe & others)
              Disposable
      Pen Injector DeviceBioSante
              Estradiol
      (Elestrin®)
                
                
                Testosterone
      (LibiGel®)
              Hormone
      replacement therapy
                (North
      America, other countries)
                
                Female
      sexual dysfunction
                (North
      America, other countries)
              ATDTM
      Gel
                
                
                ATDTM
      GelJazz
      Pharmaceuticals
              Ropinirole
              Central
      Nervous System
                (Worldwide)
              ATDTM
      GelPopulation
      Council
              Nestorone®/Estradiol
              Contraception
                (Worldwide)
              ATDTM
      GelFerring
              Undisclosed
              Undisclosed
                (Worldwide)
              ATDTM
      Gel
   16
 
 The table above summarizes agreements
under which our partners are selling products, conducting clinical evaluation,
and performing development of our products. For competitive reasons, our
partners may not divulge their name, the product name or the exact stage of
clinical development.
 
 In June 2000, we granted an exclusive
license to BioSante to develop and commercialize three of our gel technology
products and one patch technology product for use in hormone replacement therapy
in North America and other countries. Subsequently, the license for the patch
technology product was returned to us in exchange for a fourth gel based
product. BioSante paid us $1 million upon execution of the agreement and is also
required to make royalty payments once commercial sales of the products have
begun. The royalty payments are based on a percentage of sales of the products
and must be paid for a period of 10 years following the first commercial sale of
the products, or when the last patent for the products expires, whichever is
later. The agreement also provides for milestone payments to us upon the
occurrence of certain events related to regulatory filings and
approvals.  In November 2006, BioSante entered into a sublicense and
marketing agreement with Bradley Pharmaceuticals, Inc. (“Bradley”) for
Elestrin®
(formerly Bio-E-Gel).  BioSante received an upfront payment from
Bradley which triggered a payment to us of $875,000.  In December
2006, the FDA approved Elestrin®for
marketing in the United States triggering payments to us totaling $2.6 million,
which were received in 2007.  We also received royalties on sales of
Elestrin®.  Bradley
was acquired by Nycomed Inc. in February 2008 and returned Elestrin® to
BioSante.  In December 2008, Elestrin® was
sublicensed to Azur Pharmaceuticals (“Azur”) and subsequently relaunched in
2009.  As a result of the sublicense agreement with Azur, we received
payments from BioSante of $462,500 in December 2008.  In addition, we
will receive royalties on sales of Elestrin®as
well as potential sales-based milestone payments.
 
 In January 2003, we entered into a
revised License Agreement with Ferring, under which we licensed certain of our
intellectual property and extended the territories available to Ferring for use
of certain of our reusable needle-free injection devices to include all
countries and territories in the world except Asia/Pacific. Specifically, we
granted to Ferring an exclusive, royalty-bearing license, within a prescribed
manufacturing territory, to utilize certain of our reusable needle-free injector
devices for the field of hGH until the expiration of the last to expire of the
patents in any country in the territory. We granted to Ferring similar
non-exclusive rights outside of the prescribed manufacturing territory. In
addition, we granted to Ferring a non-exclusive right to make and have made the
equipment required to manufacture the licensed products, and an exclusive,
royalty-free license in a prescribed territory to use and sell the licensed
products under certain circumstances.  In 2007, we amended this
agreement providing for non-exclusive rights in Asia along with other changes to
financial terms of the agreement.
 
 In 2004, JCR initiated a campaign to
broaden its marketing efforts for human growth hormone under a purchase
agreement with our needle free injector.
 
 In November 2005, we signed an
agreement with Sicor Pharmaceuticals Inc., an affiliate of Teva, under which
Sicor is obligated to purchase all of its injection delivery device requirements
from us for an undisclosed product to be marketed in the United States. Sicor
also received an option for rights in other territories. The license agreement
included, among other things, an upfront cash payment, milestone fees, a
negotiated purchase price for each device sold, and royalties on sales of their
product.
 
 In July 2006, we entered into an
exclusive License Development and Supply Agreement with Sicor Pharmaceuticals
Inc., an affiliate of Teva. Pursuant to the agreement; the affiliate is
obligated to purchase all of its delivery device requirements from us for an
undisclosed product to be marketed in the United States and Canada. We received
an upfront cash payment, and will receive milestone fees, a negotiated purchase
price for each device sold, as well as royalties on sales of their
product.  In December 2008, this agreement was amended to include
development work that was outside the scope of the original agreement, resulting
in additional payments to us.  In 2009 the agreement was again amended
providing for payment of capital equipment and other development
work.
 
 In July 2006, we entered into a joint
development agreement with the Population Council, an international, non-profit
research organization, to develop contraceptive formulation products containing
Nestorone®, by
using the Population Council’s patented compound and other proprietary
information covering the compound, and our transdermal delivery gel
technology.  Under the terms of the joint development agreement, we
are responsible for research and development activities as they relate to ATD
formulation and manufacturing.  The Population Council
 
  17
 
 will be
responsible for clinical trial design development and
management.  Together, we expect to identify a worldwide or regional
commercial development partner as clinical data becomes available.
 
 In September 2006, we entered into a
Supply Agreement with Teva.  Pursuant to the agreement, Teva is
obligated to purchase all of its delivery device requirements from us for hGH
marketed in the United States. We received an upfront cash payment, and will
receive milestone fees and a royalty payment on Teva’s net sales of hGH, as well
as a purchase price for each device sold.
 
 In July 2007, we entered into a
worldwide product development and license agreement with Jazz for ropinirole
which is being developed to treat a CNS disorder that will utilize our
transdermal gel delivery technology ATDTM.  Under the agreement, an
upfront payment, development milestones, and royalties on product sales are to
be received by us under certain circumstances.
 
 In December 2007, we entered into a
license, development and supply agreement with Teva under which we will develop
and supply a disposable pen injector for use with two undisclosed
patient-administered pharmaceutical products.  Under the agreement, an
upfront payment, development milestones, and royalties on product sales are to
be received by us under certain circumstances.
 
 In November 2009 we entered into a
license agreement with Ferring under which we licensed certain of our patents
and agreed to transfer know-how for our transdermal gel technology for certain
pharmaceutical products.  Under this agreement, we received an upfront
payment and will receive milestone payments as certain defined milestones are
achieved.
 
 Distribution/supply agreements are
arrangements under which our products are supplied to end-users through the
distributor or supplier. We provide the distributor/supplier with injection
devices and related disposable components, and the distributor/supplier often
receives a margin on sales. We currently have a number of distribution/supply
arrangements under which the distributors/suppliers sell our needle-free
injection devices and related disposable components for use with
insulin.
 
 Seasonality
of Business
 
 We do not believe our business, either
device or pharmaceutical, is subject to seasonality.  We are subject
to and affected by the business practices of our pharmaceutical/device
partners.  Inventory practices of our partners may subject us to
product sales fluctuations quarter to quarter or year over
year.  Additionally, development revenue we derive from our partners
is subject to fluctuation based on the number of programs being conducted by our
partners as well as delays or lack of funding for those programs.
 
 Proprietary
Rights
 
 When appropriate, we actively seek
protection for our products and proprietary information by means of U.S. and
international patents and trademarks.  We currently hold numerous
patents and numerous additional patent applications pending in the U.S. and
other countries.  Our patents have expiration dates ranging from 2015
to 2023. In addition to issued patents and patent applications, we are also
protected by trade secrets in all of our technology platforms.
 
 Some of our technology is developed on
our behalf by independent outside contractors. To protect the rights of our
proprietary know-how and technology, Company policy requires all employees and
consultants with access to proprietary information to execute confidentiality
agreements prohibiting the disclosure of confidential information to anyone
outside the Company. These agreements also require disclosure and assignment to
us of discoveries and inventions made by such individuals while devoted to
Company-sponsored activities. Companies with which we have entered into
development agreements have the right to certain technology developed in
connection with such agreements.
 
 
 18
 
 
 Government
Regulation
 
 Any potential products discovered,
developed and manufactured by us or our collaborative partners must comply with,
comprehensive regulation by the FDA in the United States and by comparable
authorities in other countries. These national agencies and other federal,
state, and local entities regulate, among other things, the pre-clinical and
clinical testing, safety, effectiveness, approval, manufacturing operations,
quality, labeling, distribution, marketing, export, storage, record keeping,
event reporting, advertising and promotion of pharmaceutical products and
medical devices. Facilities and certain company records are also subject to
inspections by the FDA and comparable authorities or their representatives. The
FDA has broad discretion in enforcing the Federal Food, Drug and Cosmetic Act
(“FD&C Act”) and the regulations thereunder, and noncompliance can result in
a variety of regulatory steps ranging from warning letters, product detentions,
device alerts or field corrections to mandatory recalls, seizures, injunctive
actions and civil or criminal actions or penalties.
 
 Drug Approval
Process
 
 Transdermal and topical products
indicated for the treatment of systemic or local treatments respectively are
regulated by the FDA in the U.S. and other similar regulatory agencies in other
countries as drug products. Transdermal and topical products are considered to
be controlled release dosage forms and may not be marketed in the U.S. until
they have been demonstrated to be safe and effective. The regulatory approval
routes for transdermal and topical products include the filing of an NDA for new
drugs, new indications of approved drugs or new dosage forms of approved drugs.
Alternatively, these dosage forms can obtain marketing approval as a generic
product by the filing of an ANDA, providing the new generic product is
bioequivalent to and has the same labeling as a comparable approved product or
as a filing under Section 505(b)(2) of the FD&C Act where there is an
acceptable reference product. Many topical products for local treatment do not
require the filing of either an NDA or ANDA, providing that these products
comply with existing OTC monographs. The combination of the drug, its dosage
form and label claims, and FDA requirements will ultimately determine which
regulatory approval route will be required.
 
 The process required by the FDA before
a new drug (pharmaceutical product) or a new route of administration of a
pharmaceutical product may be approved for marketing in the United States
generally involves:
 
 §
              pre-clinical
      laboratory and animal tests;
 §
              submission
      to the FDA of an investigational new drug (“IND”) application, which must
      be in effect before clinical trials may
begin;
 §
              adequate
      and well controlled human clinical trials to establish the safety and
      efficacy of the drug for its intended
  indication(s);
 §
              FDA
      compliance inspection and/or clearance of all
    manufacturers;
 §
              submission
      to the FDA of an NDA; and
 §
              FDA
      review of the NDA or product license application in order to determine,
      among other things, whether the drug is safe and effective for its
      intended uses.
 
 Pre-clinical tests include laboratory
evaluation of product chemistry and formulation, as well as animal studies, to
assess the potential safety and efficacy of the product. Certain pre-clinical
tests must comply with FDA regulations regarding current good laboratory
practices. The results of the pre-clinical tests are submitted to the FDA as
part of an IND, to support human clinical trials and are reviewed by the FDA,
with patient safety as the primary objective, prior to the IND commencement of
human clinical trials.
 
 Clinical trials are conducted according
to protocols that detail matters such as a description of the condition to be
treated, the objectives of the study, a description of the patient population
eligible for the study and the parameters to be used to monitor safety and
efficacy. Each protocol must be submitted to the FDA as part of the IND.
Protocols must be conducted in accordance with FDA regulations concerning good
clinical practices to ensure the quality and integrity of clinical trial results
and data. Failure to adhere to good clinical practices and the protocols may
result in FDA rejection of clinical trial results and data, and may delay or
prevent the FDA from approving the drug for commercial use.
 
 Clinical trials are typically conducted
in three sequential Phases, which may overlap. During Phase I, when the drug is
initially given to human subjects, the product is tested for safety, dosage
tolerance, absorption, distribution,
 
 
 19
  metabolism
and excretion. Phase I studies are often conducted with healthy volunteers
depending on the drug being tested; however, in oncology, Phase I trials are
more often conducted in cancer patients. Phase II involves studies in a limited
patient population, typically patients with the conditions needing treatment,
to:
  ▪
                  evaluate
      preliminarily the efficacy of the product for specific, targeted
      indications;
 ▪
                    ▪
                  determine
      dosage tolerance and optimal dosage; and
                    identify
      possible adverse effects and safety
risks.
 
 Pivotal or Phase III adequate and
well-controlled trials are undertaken in order to evaluate efficacy and safety
in a comprehensive fashion within an expanded patient population for the purpose
of registering the new drug. The FDA may suspend or terminate clinical trials at
any point in this process if it concludes that patients are being exposed to an
unacceptable health risk or if they decide it is unethical to continue the
study. Results of pre-clinical and clinical trials must be summarized in
comprehensive reports for the FDA. In addition, the results of Phase III studies
are often subject to rigorous statistical analyses. This data may be presented
in accordance with the guidelines for the International Committee of
Harmonization that can facilitate registration in the United States, the EU and
Japan.
 
 FDA approval of our own and our
collaborators’ products is required before the products may be commercialized in
the United States. FDA approval of an NDA will be based, among other factors, on
the comprehensive reporting of clinical data, risk/benefit analysis, animal
studies and manufacturing processes and facilities. The process of obtaining NDA
approvals from the FDA can be costly and time consuming and may be affected by
unanticipated delays.
 
 A sNDA is a submission to an existing
NDA that provides for changes to the NDA and therefore requires FDA approval.
Changes to the NDA that require FDA approval are the subject of either the
active ingredients, the drug product and/or the labeling. A supplement is
required to fully describe the change.
 
 Both before and after market approval
is obtained, a product, its manufacturer and the holder of the NDA for the
product are subject to comprehensive regulatory oversight. Violations of
regulatory requirements at any stage, including after approval, may result in
various adverse consequences, including the FDA’s delay in approving or refusal
to approve a product, withdrawal of an approved product from the market and the
imposition of criminal penalties against the manufacturer and NDA holder. In
addition, later discovery of previously unknown problems may result in
restrictions on the product, manufacturer or NDA holder, including withdrawal of
the product from the market. Furthermore, new government requirements may be
established that could delay or prevent regulatory approval of our products
under development.
 
 FDA approval is required before a
generic drug equivalent can be marketed. We seek approval for such products by
submitting an ANDA to the FDA. When processing an ANDA, the FDA waives the
requirement of conducting complete clinical studies, although it normally
requires bioavailability and/or bioequivalence studies. “Bioavailability”
indicates the extent of absorption of a drug product in the blood stream.
“Bioequivalence” indicates that the active drug substance that is the subject of
the ANDA submission is equivalent to the previously approved drug. An ANDA may
be submitted for a drug on the basis that it is the equivalent of a previously
approved drug or, in the case of a new dosage form, is suitable for use for the
indications specified.
 
 The timing of final FDA approval of an
ANDA depends on a variety of factors, including whether the applicant challenges
any listed patents for the drug and whether the brand-name manufacturer is
entitled to one or more statutory exclusivity periods, during which the FDA may
be prohibited from accepting applications for, or approving, generic products.
In certain circumstances, a regulatory exclusivity period can extend beyond the
life of a patent, and thus block ANDAs from being approved on the patent
expiration date. For example, in certain circumstances the FDA may extend the
exclusivity of a product by six months past the date of patent expiry if the
manufacturer undertakes studies on the effect of their product in children, a
so-called pediatric extension.
 
 Before approving a product, either
through the NDA or ANDA route, the FDA also requires that our procedures and
operations or those of our contracted manufacturer conform to Current Good
Manufacturing Practice (“cGMP”) regulations, relating to good manufacturing
practices as defined in the U.S. Code of Federal Regulations. We and our
contracted manufacturer must follow the cGMP regulations at all times during the
manufacture of our products.
 
 
 20
 
 We will
continue to spend significant time, money and effort in the areas of production
and quality testing to help ensure full compliance with cGMP regulations and
continued marketing of our products now or in the future.
 
 If the FDA believes a company is not in
compliance with cGMP, sanctions may be imposed upon that company
including:
 
 §
              withholding
      from the company new drug approvals as well as approvals for supplemental
      changes to existing applications;
 §
              preventing
      the company from receiving the necessary export licenses to export its
      products; and
 §
              classifying
      the company as an “unacceptable supplier” and thereby disqualifying the
      company from selling products to federal
  agencies.
 
 Our drug products such as Anturol®gel
and Nestorone® gel,
as well as our products being developed by our partners are subject to the above
regulations.  Anturol®and
Nestorone® will
be subject to the NDA process.  Device combination products developed
and currently being developed by our partner Teva are subject to the sNDA, ANDA
and 505(b)(2) regulations cited above.
 
 Device Approval
Process
 
 Products regulated as medical devices
can be commercially distributed in the United States following approval by the
FDA, through a finding of substantial equivalence to a marketed product, or by
having been exempted from the FD&C Act and regulations thereunder. In cases
of substantial equivalence, under Section 510(k) of the FD&C Act, certain
products qualify for a pre-market notification (“PMN”) of the manufacturer’s
intention to commence marketing the product. The manufacturer must, among other
things, establish in the PMN that the product to be marketed is substantially
equivalent to another legally marketed product (that it has the same intended
use and that it is as safe and effective as a legally marketed device and does
not raise questions of safety and effectiveness that are different from those
associated with the legally marketed device). Marketing may commence when the
FDA issues a letter finding substantial equivalence to such a legally marketed
device. The FDA may require, in connection with a PMN, that it be provided with
animal and/or human test results. If a medical device does not qualify for PMN,
the manufacturer must file a pre-market approval (“PMA”) application under
Section 515 of the FD&C Act. A PMA must show that the device is safe and
effective.  A PMA is generally a much more complex submission than a
510(k) notification, typically requiring more extensive pre-filing testing and a
longer FDA review process.
 
 Drug delivery systems such as injectors
may be legally marketed as a medical device or may be evaluated as part of the
drug approval process such as a NDA or a Product License Application (“PLA”).
Combination drug/device products raise unique scientific, technical and
regulatory issues. The FDA has established an Office of Combination Products
(“OCP”) to address the challenges associated with the review and regulation of
combination products. The OCP assists in determining strategies for the approval
of drug/delivery combinations and assuring agreement within the FDA on review
responsibilities.  To the extent permitted under the FD&C Act and
current FDA policy, we intend to seek regulatory review for drug delivery
systems for use in specific drug applications under the medical device
provisions, rather than under the new drug provisions, of the FD&C
Act.  Device regulatory filings could take the form of a PMN, PMA, or
the filing of a device master file (“MAF”).  In some cases, the device
specific information may need to be filed as part of the drug approval
submission, and in those cases we will seek agreement from the Agency for review
of the device portion of the submission by the Center for Devices and
Radiological Health (“CDRH”) under the medical device provisions of the
law.
 
 A MAF filing typically supports a
regulatory filing in the approval pathway.  Where common data elements
may be part of several submissions for regulatory approval, as in the case of
information supporting an injection platform; a MAF filing with the FDA may be
the preferred route.  A delivery device that is considered a product
only when combined with a drug, and where such a device is applicable to a
variety of drugs, represents another opportunity for such a
filing.  We intend to pursue such strategies as permitted by the law
and as directed by the FDA either through guidance documents or
discussions.
 
 In addition to submission when a device
is being introduced into the market for the first time, a PMN is also required
when the manufacturer makes a change or modification to a previously marketed
device that could significantly affect safety or effectiveness, or where there
is a major change or modification in the intended use or in
 
 
 21
 
 the
manufacture of the device. When any change or modification is made in a device
or its intended use, the manufacturer is expected to make the initial
determination as to whether the change or modification is of a kind that would
necessitate the filing of a new 510(k) notification. The VisionTM injection system is a
legally marketed device under Section 510(k) of the FD&C Act for insulin. In
the future we or our partners may submit additional 510(k) notifications with
regard to further device design improvements and uses with additional drug
therapies.
 
 If the FDA concludes that any or all of
our new injectors must be handled under the new drug provisions of the FD&C
Act, substantially greater regulatory requirements and approval times will be
imposed. Use of a modified new product with a previously unapproved new drug
likely will be handled as part of the NDA for the new drug itself. Under these
circumstances, the device component will be handled as a drug accessory and will
be approved, if ever, only when the NDA itself is approved. Our injectors may be
required to be approved as a combination drug/device product under a sNDA for
use with previously approved drugs. Under these circumstances, our device could
be used with the drug only if and when the supplemental NDA is approved for this
purpose. It is possible that, for some or even all drugs, the FDA may take the
position that a drug-specific approval must be obtained through a full NDA or
supplemental NDA before the device may be packaged and sold in combination with
a particular drug. Teva, a pharmaceutical partner of ours, filed a sNDA with the
FDA for hGH for use with our Tjet®
device in July 2008.  The sNDA was approved in June of
2009.  Teva launched the Tjet®device in August of 2009 for use in delivery of Teva’s form of hGH,
Tev-Tropin®.
 
 To the extent that our modified
injectors are packaged with the drug, as part of a drug delivery system, the
entire package may be subject to the requirements for drug/device combination
products. These include drug manufacturing requirements, drug adverse reaction
reporting requirements, and all of the restrictions that apply to drug labeling
and advertising. In general, the drug requirements under the FD&C Act are
more onerous than medical device requirements. These requirements could have a
substantial adverse impact on our ability to commercialize our products and our
operations.
 
 The FD&C Act also regulates quality
control and manufacturing procedures by requiring that we and our contract
manufacturers demonstrate compliance with the current QSR. The FDA’s
interpretation and enforcement of these requirements have been increasingly
strict in recent years and seem likely to be even more stringent in the future.
The FDA monitors compliance with these requirements by requiring manufacturers
to register with the FDA and by conducting periodic FDA inspections of
manufacturing facilities. If the inspector observes conditions that might
violate the QSR, the manufacturer must correct those conditions or explain them
satisfactorily. Failure to adhere to QSR requirements would cause the devices
produced to be considered in violation of the FDA Act and subject to FDA
enforcement action that might include physical removal of the devices from the
marketplace.
 
 The FDA’s Medical Device Reporting
Regulation requires companies to provide information to the FDA on the
occurrence of any death or serious injuries alleged to have been associated with
the use of their products, as well as any product malfunction that would likely
cause or contribute to a death or serious injury if the malfunction were to
recur. In addition, FDA regulations prohibit a device from being marketed for
unapproved or uncleared indications. If the FDA believes that a company is not
in compliance with these regulations, it could institute proceedings to detain
or seize company products, issue a recall, seek injunctive relief or assess
civil and criminal penalties against the company or its executive officers,
directors or employees.
 
 In addition to regulations enforced by
the FDA, we must also comply with regulations under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other federal, state and local
regulations.
 
 Foreign Approval
Process
 
 In addition to regulations in the
United States, we are subject to various foreign regulations governing clinical
trials and the commercial sales and distribution of our products. We must obtain
approval of a product by the comparable regulatory authorities of foreign
countries before we can commence clinical trials or marketing of the product in
those countries. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement and the regulatory approval process
all vary greatly from country to country. Additionally, the time it takes to
complete the approval process in foreign countries may be longer or shorter than
that required for FDA approval. Foreign regulatory approvals of our products are
necessary whether or not we obtain FDA approval for
 
 
 22
  such
products. Finally, before a new drug may be exported from the United States, it
must either be approved for marketing in the United States or meet the
requirements of exportation of an unapproved drug under Section 802 of the
Export Reform and Enhancement Act or comply with FDA regulations pertaining to
INDs.
 
 Under European Union regulatory
systems, we are permitted to submit marketing authorizations under either a
centralized or decentralized procedure. The centralized procedure provides for
the grant of a single marketing authorization that is valid for all member
states of the European Union. The decentralized procedure provides for mutual
recognition of national approval decisions by permitting the holder of a
national marketing authorization to submit an application to the remaining
member states. Within 90 days of receiving the applications and assessment
report, each member state must decide whether to recognize
approval.
 
 Sales of medical devices outside of the
U.S. are subject to foreign legal and regulatory requirements. Certain of our
transdermal and injection systems have been approved for sale only in certain
foreign jurisdictions. Legal restrictions on the sale of imported medical
devices and products vary from country to country. The time required to obtain
approval by a foreign country may be longer or shorter than that required for
FDA approval, and the requirements may differ. We rely upon the companies
marketing our injectors in foreign countries to obtain the necessary regulatory
approvals for sales of our products in those countries. Generally, products
having an effective section 510(k) clearance or PMA may be exported without
further FDA authorization.
 
 We have obtained ISO 13485: 2003
certification, the medical device industry standard for our quality systems.
This certification shows that our development and manufacturing comply with
standards for quality assurance, design capability and manufacturing process
control. Such certification, along with compliance with the European Medical
Device Directive enables us to affix the CE Mark (a certification indicating
that a product has met EU consumer safety, health or environmental requirements)
to current products and supply the device with a Declaration of Conformity.
Semi-annual audits by our notified body, British Standards Institute, are
required to demonstrate continued compliance.
 
 Employees
 
 We believe that our success is largely
dependent upon our ability to attract and retain qualified personnel in the
research, development, manufacturing, business development and commercialization
fields. As of March 15, 2010, we had 19 full-time employees, of whom 17 are in
the United States. Of the 19 employees, 10 are primarily involved in research,
development and manufacturing activities, two are primarily involved in business
development and commercialization, with the remainder engaged in executive and
administrative capacities. Although we believe that we are appropriately sized
to focus on our mission, we intend to add personnel with specialized expertise,
as needed.
 
 We believe that we have been successful
to date in attracting skilled and experienced scientific and business
professionals. We consider our employee relations to be good, and none of our
employees are represented by any labor union or other collective bargaining
unit.
 
 Available
Information
 
 We file with the United States
Securities and Exchange Commission (“SEC”) annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements
and other documents as required by applicable law and
regulations.  The public may read and copy any materials that we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, N. E.,
Washington, DC 20549.  The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330
(1-800-732-0330).  The SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the
SEC.  We maintain an Internet site
(http://www.antarespharma.com).  We make available free of charge on
or through our Internet website our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to these
reports, as soon as reasonably practicable after electronically filing those
documents with or furnishing them to the SEC.  The information on our
website is not incorporated into and is not a part of this annual
report.
 
 
 23
 
 Item
1A.              RISK
FACTORS
 
 The
following “risk factors” contain important information about us and our business
and should be read in their entirety.   Additional risks and
uncertainties not known to us or that we now believe to be not material could
also impair our business. If any of the following risks actually occur, our
business, results of operations and financial condition could suffer
significantly. As a result, the market price of our common stock could decline
and you could lose all of your investment.  In this Section, the terms
the “Company,” “we”, “our” and “us” refer to Antares Pharma, Inc.
 
 Risks
Related to Our Operations
 
 We
have incurred significant losses to date, and there is no guarantee that we will
ever become profitable.
 
 We incurred net losses of $10,290,752
and $12,690,453 in the fiscal years ended 2009 and 2008,
respectively.  In addition, we have accumulated aggregate net losses
from the inception of business through December 31, 2009 of
$130,882,597.  In addition, we expect to report a net loss for the
year ending December 31, 2010. The costs for research and product development of
our drug delivery technologies along with marketing and selling expenses and
general and administrative expenses have been the principal causes of our
losses.  We may not ever become profitable and if we do not become
profitable your investment would be harmed.
 
 We
may need additional capital in the future in order to continue our
operations.
 
 In July of 2009, we completed a
registered direct offering of our common stock and warrants in which we received
aggregate gross proceeds of $8,500,000.  In September of 2009, we
received gross proceeds of $3,000,000 from an additional registered direct
offering of common stock and warrants.  In September 2009, we used
approximately $3,000,000 of the stock sales proceeds to pay down an existing
credit facility.  In addition, we received proceeds from warrant and
stock option exercises of $105,622 and $1,319,950 in 2009 and 2008,
respectively.  If additional capital is needed in the near term to
support operations, the current economic and market conditions may make it
difficult to raise additional funds through debt or equity
financings.
 
 At December 31, 2009 we had cash and
cash equivalents of $13,559,088.  Although the combination of our
current cash and cash equivalents balance and projected product sales, product
development, license revenues, milestone payments and royalties may provide us
with sufficient funds to support operations for the next 12 months, we may need
to pursue a financing or reduce expenditures as necessary to meet our cash
requirements over the next 12 months.  If we do obtain such financing,
we cannot assure that the amount or the terms of such financing will be as
attractive as we may desire.  If we are unable to obtain such
financing when needed, or if the amount of such financing is not sufficient, it
may be necessary for us to take significant cost saving measures or generate
funding in ways that may negatively affect our business in the
future.  To reduce expenses, we may be forced to make personnel
reductions, eliminate departments or curtail or discontinue development
programs.  To generate funds, it may be necessary to monetize future
royalty streams, sell intellectual property, divest of technology platforms or
liquidate assets. However, there is no assurance that, if required, we will be
able to generate sufficient funds or reduce spending to provide the required
liquidity.
 
 Long-term capital requirements will
depend on numerous factors, including, but not limited to, the status of
collaborative arrangements, the progress of research and development programs
and the receipt of revenues from sales of products. Our ability to achieve
and/or sustain profitable operations depends on a number of factors, many of
which are beyond our control. These factors include, but are not limited to, the
following:
 
 ·
              timing
      of our partners’ development, regulatory and commercialization
      plans;
 ·      the
demand for our technologies from current and future biotechnology and
pharmaceutical partners;
 ·
              our
      ability to manufacture products efficiently, at the appropriate commercial
      scale, and with the required
quality;
 ·
              our
      ability to increase and continue to outsource manufacturing capacity to
      allow for new product
introductions;
 ·      the
level of product competition and of price competition;
 ·      patient
acceptance of our current and future products;
   24
  ·      our
ability to develop additional commercial applications for our
products;
 ·      our
limited regulatory and commercialization experience;
 ·      our
ability to obtain regulatory approvals;
 ·      our
ability to attract the right personnel to execute our plans;
 ·      our
ability to develop, maintain or acquire patent positions;
 ·      our
ability to control costs; and
 ·      general
economic conditions.
 
 The
failure of any of our third-party licensees to develop, obtain regulatory
approvals for, market, distribute and sell our products as planned may result in
us not meeting revenue and profit targets.
 
 Pharmaceutical company partners such as
Teva help us develop, obtain regulatory approvals for, manufacture and sell our
products.  If one or more of these pharmaceutical company partners
fail to pursue the development or marketing of the products as planned, our
revenues and profits may not reach expectations or may decline.  We
may not be able to control the timing and other aspects of the development of
products because pharmaceutical company partners may have priorities that differ
from ours.  Therefore, commercialization of products under development
may be delayed unexpectedly.  Generally speaking, in the near term, we
do not intend to have a direct marketing channel to consumers for our drug
delivery products or technologies except through current distributor agreements
in the United States for our insulin delivery device.  Therefore, the
success of the marketing organizations of our pharmaceutical company partners,
as well as the level of priority assigned to the marketing of the products by
these entities, which may differ from our priorities, will determine the success
of the products incorporating our technologies.  Competition in this
market could also force us to reduce the prices of our technologies below
currently planned levels, which could adversely affect our revenues and future
profitability.
 
 Additionally, there is no assurance
that regulatory filings by our partners in the U.S. will be deemed sufficient by
the FDA, potentially delaying product launches.
 
 We
currently depend on a limited number of customers for the majority of our
revenue, and the loss of any one of these customers could substantially reduce
our revenue and impact our liquidity.
 
 For the year ended December 31, 2009,
we derived approximately 39% of our revenue from Ferring and 38% from
Teva.  For the year ended December 31, 2008, we derived approximately
60% of our revenue from Ferring and 12% of our revenue from
BioSante.   The revenue from Ferring was primarily product sales
and royalties.  The revenue from Teva was license and development
revenue and product sales.  The revenue from BioSante was primarily
milestone based and will likely not be recurring in the near
future.
 
 The loss of any of these customers or
partners or reduction in our business activities could cause our revenues to
decrease significantly, increase our continuing losses from operations and,
ultimately, could require us to cease operations. If we cannot broaden our
customer base, we will continue to depend on a few customers for the majority of
our revenues. Additionally, if we are unable to negotiate favorable business
terms with these customers in the future, our revenues and gross profits may be
insufficient to allow us to achieve and/or sustain profitability or continue
operations.
 
 We have entered into four license,
development and/or supply agreements for five potential products since November
of 2005 with Teva or an affiliate of Teva.  To date we have received
FDA approval of one of those products, the Tjet®
needle-free device for use with hGH.  Teva is currently marketing the
Tjet®
device to its patients and we expect product sales and royalties from this
product into the future.  Although certain upfront and milestone
payments have been received for the other programs with Teva, timelines have
been extended and there can be no assurance that there ever will be commercial
sales or future milestone payments under these other agreements.
 
 In July 2007, we entered into a
worldwide product development and license agreement with Jazz. Under the
agreement an upfront payment, development milestones, and royalties on product
sales are to be paid to us under certain circumstances. The development program
conducted by Jazz is currently on hold and we may never receive any compensation
other than the upfront payment earned at agreement execution and other
development revenue.
 
  25
  In June 2000, we entered into an
exclusive agreement to license four applications of our drug-delivery technology
to BioSante.  BioSante is using the licensed technology for the
development of hormone replacement therapy products that include LibiGel®
(transdermal testosterone gel) in Phase 3 clinical development for the treatment
of FSD, and Elestrin®
(estradiol gel) for the treatment of moderate-to-severe vasomotor symptoms
associated with menopause, and currently marketed in the U.S.  Under
the agreement an upfront payment, development milestones and royalties on
product sales are to be paid to us.   We also receive a portion
of any sublicense fees received by BioSante.
 
 Part
of our business model is to be commercially oriented by further developing our
own products, and we may not have sufficient resources to fully execute our
plan.
 
 We must make choices as to the drugs
that we develop on our own.  We may not make the correct choice of
drug or technologies when combined with a drug, which may not be accepted by the
marketplace as we expected or at all.  FDA approval processes for the
drugs and drugs with devices may be longer in time and/or more costly and/or
require more extended clinical evaluation than anticipated.  Funds
required to bring our own products to market may be more than anticipated or may
not be available at all.  We have limited experience in development of
compounds, regulatory matters and bringing such products to market; therefore,
we may experience difficulties in execution of development of internal product
candidates.
 
 If
we or our third-party manufacturer are unable to supply Ferring with our devices
pursuant to our current device license agreement with Ferring, Ferring could own
a fully paid up license for certain of our intellectual property.
 
 Pursuant to our license agreement with
Ferring, we licensed certain of our intellectual property related to our
needle-free injection devices, including a license that allows Ferring to
manufacture our devices on its own under certain circumstances for use with its
hGH product. In accordance with the license agreement, we entered into a
manufacturing agreement with a third party to manufacture our devices for
Ferring. If we or this third party are unable to meet our obligations to supply
Ferring with our devices, Ferring would own a fully paid up license to
manufacture our devices and to use and exploit our intellectual property in
connection with Ferring’s human growth hormone product. In such an event, we
would no longer receive product sales and manufacturing margins from Ferring;
however we would still receive royalties.
 
 If
we do not develop and maintain relationships with manufacturers of our drug
candidates, then we may be unable to successfully manufacture and sell our
pharmaceutical products.
 
 We do not possess the capabilities or
facilities to manufacture commercial quantities of Anturol®,
which is currently in development for overactive bladder, or any other of our
future drug candidates.  We must contract with manufacturers to
produce Anturol®
according to government regulations.  Our future development and
delivery of our product candidates depends on the timely, profitable and
competitive performance of these manufacturers.  A limited number of
manufacturers exist which are capable of manufacturing our product candidates.
We may fail to contract with the necessary manufacturers or we may contract with
manufactures on terms that may not be favorable to us.  Our
manufacturers must obtain FDA approval for their manufacturing processes, and we
have no control over this approval process. Additionally, use of contract
manufacturers exposes us to risks in the manufacturer's business such as their
potential inability to perform from a technical, operational or financial
standpoint.
 
 We have contracted with a commercial
supplier of pharmaceutical chemicals to supply us with the active pharmaceutical
ingredient of oxybutynin for clinical quantities of Anturol® in a
manner that meets FDA requirements via reference of their DMF for
oxybutynin.  Additionally, we have contracted with Patheon, a
manufacturing development company, to supply clinical quantities of Anturol® in a
manner that meets FDA requirements.  The FDA has not approved the
manufacturing processes of Patheon for Anturol®.  Any
failure by Patheon or our supplier of the active ingredient oxybutynin to
achieve or maintain compliance with FDA standards could significantly harm our
business since we do not currently have approved secondary manufacturers for
Anturol® gel
or oxybutynin.
 
 
 26
 
 If
we do not develop and maintain relationships with manufacturers of our device
products, then we may be unable to successfully manufacture and sell our device
products.
 
 Our device manufacturing for our
needle-free device has involved the assembly of products from machined stainless
steel and composite components in limited quantities.  Our planned
future device business may necessitate changes and additions to our contract
manufacturing and assembly process due to the anticipated larger scale of
manufacturing in our business plan.  Our devices must be manufactured
in compliance with regulatory requirements, in a timely manner and in sufficient
quantities while maintaining quality and acceptable manufacturing
costs.  In the course of these changes and additions to our
manufacturing and production methods, we may encounter difficulties, including
problems involving scale-up, yields, quality control and assurance, product
reliability, manufacturing costs, existing and new equipment and component
supplies, any of which could result in significant delays in
production.
 
 We operate under a manufacturing
agreement with Minnesota Rubber and Plastics (“MRP”), a contract manufacturing
company, who manufactures and assembles our needle-freedevices
and certain related disposable component parts for our partners Teva, Ferring
and JCR.  There can be no assurance that MRP will be able to continue
to meet these regulatory requirements or our own quality control
standards.  Therefore, there can be no assurance that we will be able
to successfully produce and manufacture our products.  Our
pharmaceutical partners retain the right to audit the quality systems of our
manufacturing partner, and there can be no assurance that MRP will be successful
in these audits. Any of these failures would negatively impact our business,
financial condition and results of operations.  We will also continue
to outsource manufacturing of our future disposable injection products to third
parties.  Such products will be price sensitive and may be required to
be manufactured in large quantities, and we have no assurance that this can be
done.  Additionally, use of contract manufacturers exposes us to risks
in the manufacturers’ business such as their potential inability to perform from
a technical, operational or financial standpoint.
 
 We have contracted with Nypro, an
international manufacturing development company to commercialize our VibexTM
pressure assisted auto injector device in compliance with FDA QSR
regulations.  Any failure by Nypro to successfully manufacture the
pressure assisted auto injector device in commercial quantities, be in
compliance with regulatory regulations, or pass the audits by our pharmaceutical
partner would have a negative impact on our future revenue
expectations.
 
 We rely on third parties to supply
components for our products, and any failure to retain relationships with these
third parties could negatively impact our ability to manufacture our
products.
 
 Certain of our technologies contain a
number of customized components manufactured by various third
parties.  Regulatory requirements applicable to manufacturing can make
substitution of suppliers costly and time-consuming. In the event that we could
not obtain adequate quantities of these customized components from our
suppliers, there can be no assurance that we would be able to access alternative
sources of such components within a reasonable period of time, on acceptable
terms or at all.  The unavailability of adequate quantities, the
inability to develop alternative sources, a reduction or interruption in supply
or a significant increase in the price of components could have a material
adverse effect on our ability to manufacture and market our
products.
 
 Our
products have achieved only limited acceptance by patients and physicians, which
continues to restrict marketing penetration and the resulting sales of more of
our products.
 
 Our business ultimately depends on
patient and physician acceptance of our reusable needle-free injectors,
disposable pressure assisted auto injectors, transdermal gels and our other drug
delivery technologies as an alternative to more traditional forms of drug
delivery, including injections using a needle, orally ingested drugs and more
traditional transdermal patch products.  To date, our drug delivery
technologies have achieved only limited acceptance from such parties. The degree
of acceptance of our drug delivery systems depends on a number of
factors.  These factors include, but are not limited to, the
following:
 
 ·      advantages
over alternative drug delivery systems or similar products from other
companies;
 ·      demonstrated
clinical efficacy, safety and enhanced patient compliance;
 ·      cost-effectiveness;
   27
  ·      convenience
and ease of use of injectors and transdermal gels;
 ·      marketing
and distribution support; and
 ·      successful
launch of our pharmaceutical partners products which utilize our
devices.
 
 Physicians may refuse to prescribe
products incorporating our drug delivery technologies if they believe that the
active ingredient is better administered to a patient using alternative drug
delivery technologies, that the time required to explain use of the technologies
to the patient would not be offset by advantages, or they believe that the
delivery method will result in patient noncompliance.  Factors such as
patient perceptions that a gel is inconvenient to apply or that devices do not
deliver the drug at the same rate as conventional drug delivery methods may
cause patients to reject our drug delivery technologies.  Because only
a limited number of products incorporating our drug delivery technologies are
commercially available, we cannot yet fully assess the level of market
acceptance of our drug delivery technologies.
 
 If
transdermal gels do not achieve greater market acceptance, we may be unable to
achieve profitability.
 
 Because transdermal gels are not a
widely understood method of drug delivery, our potential partners and consumers
may have little experience with such products. Our assumption of higher value
may not be shared by the potential partner and consumer.  To date,
transdermal gels have gained successful entry into only a limited number of
markets such as the testosterone replacement market.  There can be no
assurance that transdermal gels will ever gain market acceptance beyond these
markets sufficient to allow us to achieve and/or sustain profitable operations
in this product area.
 
 Elestrin®, our
transdermal estradiol gel, was launched by BioSante’s marketing partner Bradley
in June 2007.  Bradley was acquired by Nycomed in February
2008.  BioSante reacquired Elestrin® from
Nycomed and in December 2008 relicensed all manufacturing, distribution and
marketing responsibilities of Elestrin® to
Azur. The multiple licenses of Elestrin® has
had a negative impact on the marketing efforts of Elestrin® and
to date, the market penetration of Elestrin® has
been low.
 
 We are developing Anturol®, our
oxybutynin gel for overactive bladder.  We may seek a pharmaceutical
partner to assist in the development and marketing of this potential
product.  However, we may be unsuccessful in partnering Anturol® which
may delay or affect the timing of the potential product launch due to
availability of resources if Anturol® is
ultimately approved by the FDA.
 
 As
health insurance companies and other third-party payors increasingly challenge
the products and services for which they will provide coverage, our individual
consumers may not be able to receive adequate reimbursement or may be unable to
afford to use our products, which could substantially reduce our revenues and
negatively impact our business as a whole.
 
 Our injector device products are
currently sold in the European Community and elsewhere for use with human growth
hormone and in the United States for use with human growth hormone and
insulin.  In the case of human growth hormone, our products are
generally provided to users at no cost by the drug supplier.
 
 Although it is impossible for us to
identify the amount of sales of our products that our customers will submit for
payment to third-party insurers, at least some of these sales may be dependent
in part on the availability of adequate reimbursement from these third-party
healthcare payors.  Currently, insurance companies and other
third-party payors reimburse the cost of certain technologies on a case-by-case
basis and may refuse reimbursement if they do not perceive benefits to a
technology’s use in a particular case.  Third-party payors are
increasingly challenging the pricing of medical products and devices, and there
can be no assurance that such third-party payors will not in the future
increasingly reject claims for coverage of the cost of certain of our
technologies.  Insurance and third-party payor practice vary from
country to country, and changes in practices could negatively affect our
business if the cost burden for our technologies were shifted more to the
patient.  Therefore, there can be no assurance that adequate levels of
reimbursement will be available to enable us to achieve or maintain market
acceptance of our products or technologies or maintain price levels sufficient
to realize profitable operations. There is also a possibility of increased
government control or influence over a broad range of healthcare expenditures in
the future.  Any such trend could negatively impact the market for our
drug delivery products and technologies.
   28
   Elestrin®, for
which we receive royalties from our partner based on any commercial sales, was
launched in June 2007.  We have no way of knowing at this time if
health insurance companies’ reimbursement has negatively impacted patient use of
Elestrin®.
 
 Our Tjet®device was launched in the U.S. in 2009 for use with hGH by
Teva.  Although Teva currently provides the device and disposables at
no cost to the patient, the amount of health insurance reimbursement of Teva’s
hGH, Tev-Tropin®, has
a direct impact on the device product sales and royalty due from Teva to
us.
 
 The
loss of any existing licensing agreements or the failure to enter into new
licensing agreements could substantially affect our revenue.
 
 One of our primary business pathways
requires us to enter into license agreements with pharmaceutical and
biotechnology companies covering the development, manufacture, use and marketing
of drug delivery technologies with specific drug therapies. Under these
arrangements, the partner companies typically assist us in the development of
systems for such drug therapies and collect or sponsor the collection of the
appropriate data for submission for regulatory approval of the use of the drug
delivery technology with the licensed drug therapy.  Our licensees may
also be responsible for distribution and marketing of the technologies for these
drug therapies either worldwide or in specific territories.  We are
currently a party to a number of such agreements, all of which are currently in
varying stages of development. We may not be able to meet future milestones
established in our agreements (such milestones generally being structured around
satisfactory completion of certain phases of clinical development, regulatory
approvals and commercialization of our product) and thus, would not receive the
fees expected from such arrangements, related future royalties or product
sales.  Moreover, there can be no assurance that we will be successful
in executing additional collaborative agreements or that existing or future
agreements will result in increased sales of our drug delivery technologies. In
such event, our business, results of operations and financial condition could be
adversely affected, and our revenues and gross profits may be insufficient to
allow us to achieve and/or sustain profitability.  As a result of our
collaborative agreements, we are dependent upon the development, data collection
and marketing efforts of our licensees.  The amount and timing of
resources such licensees devote to these efforts are not within our control, and
such licensees could make material decisions regarding these efforts that could
adversely affect our future financial condition and results of
operations.  In addition, factors that adversely impact the
introduction and level of sales of any drug or drug device covered by such
licensing arrangements, including competition within the pharmaceutical and
medical device industries, the timing of regulatory or other approvals and
intellectual property litigation, may also negatively affect sales of our drug
delivery technology.  We are relying on partners such as Teva,
Ferring, BioSante and Jazz for future milestone, sales and royalty
revenue.  Any or all of these partners may never commercialize a
product with our technologies or significant delays in anticipated launches of
these products may occur.  Any potential loss of anticipated future
revenue could have an adverse affect on our business and the value of your
investment.
 
 If
we cannot develop and market our products as rapidly or cost-effectively as our
competitors, then we may never be able to achieve profitable
operations.
 
 Competitors in the overactive bladder,
injector device and other markets, some with greater resources and experience
than us, may enter these markets, as there is an increasing recognition of a
need for less invasive methods of delivering drugs.  Our success
depends, in part, upon maintaining a competitive position in the development of
products and technologies in rapidly evolving fields.  If we cannot
maintain competitive products and technologies, our current and potential
pharmaceutical company partners may choose to adopt the drug delivery
technologies of our competitors. Companies that compete with our technologies
include Watson Pharmaceuticals, Ipsomed, Owen Mumford, Elcam, SHL, Bioject
Medical Technologies, Inc., Auxillium, Aradigm, Zogenix, Inc., Columbia
Laboratories, Inc., NexMed, Inc. and West Pharmaceuticals, along with other
companies. We also compete generally with other drug delivery, biotechnology and
pharmaceutical companies engaged in the development of alternative drug delivery
technologies or new drug research and testing.  Many of these
competitors have substantially greater financial, technological, manufacturing,
marketing, managerial and research and development resources and experience than
we do, and, therefore, represent significant competition.
 
 Additionally, new drug delivery
technologies are mostly used only with drugs for which other drug delivery
methods are not possible, in particular with biopharmaceutical proteins (drugs
derived from living organisms, such as insulin and human growth hormone) that
cannot currently be delivered orally or transdermally.  Transdermal
 
 29
 
 patches
and gels are also used for drugs that cannot be delivered orally or where oral
delivery has other limitations (such as high first pass drug metabolism, meaning
that the drug dissipates quickly in the digestive system and, therefore,
requires frequent administration).  Many companies, both large and
small, are engaged in research and development efforts on less invasive methods
of delivering drugs that cannot be taken orally. The successful development and
commercial introduction of such non-injection techniques could have a material
adverse effect on our business, financial condition, results of operations and
general prospects.
 
 Competitors may succeed in developing
competing technologies or obtaining governmental approval for products before we
do.  Competitors’ products may gain market acceptance more rapidly
than our products, or may be priced more favorably than our
products.  Developments by competitors may render our products, or
potential products, noncompetitive or obsolete.
 
 One of our competitors, Watson
Pharmaceuticals, completed a Phase III study of its own oxybutynin gel
(Gelnique®) for
OAB in January 2008 and in January 2009 Gelnique was approved by the
FDA.  Watson’s launch of their oxybutynin gel is well ahead of
Anturol’s potential launch which may limit the success of Anturol® in
the market, if approved.  Additionally, Watson has greater resources
than we do, which may impact our ability to be competitive in the OAB
market.
 
 Although
we have applied for, and have received, several patents, we may be unable to
protect our intellectual property, which would negatively affect our ability to
compete.
 
 Our success depends, in part, on our
ability to obtain and enforce patents for our products, processes and
technologies and to preserve our trade secrets and other proprietary
information.  If we cannot do so, our competitors may exploit our
innovations and deprive us of the ability to realize revenues and profits from
our developments.
 
 We currently hold numerous patents and
numerous patent applications pending in the U.S. and other
countries.  Our current patents may not be valid or enforceable and
may not protect us against competitors that challenge our patents, obtain their
own patents that may have an adverse effect on our ability to conduct business,
or are able to otherwise circumvent our patents.  Additionally, our
technologies are complex and one patent may not be sufficient to protect our
products where a series of patents may be needed.  Further, we may not
have the necessary financial resources to enforce or defend our patents or
patent applications. In addition, any patent applications we may have made or
may make relating to inventions for our actual or potential products, processes
and technologies may not result in patents being issued or may result in patents
that provide insufficient or incomplete coverage for our
inventions.
 
 To protect our trade secrets and
proprietary technologies and processes, we rely, in part, on confidentiality
agreements with employees, consultants and advisors.  These agreements
may not provide adequate protection for our trade secrets and other proprietary
information in the event of any unauthorized use or disclosure, or if others
lawfully and independently develop the same or similar information.
 
 Others
may bring infringement claims against us, which could be time-consuming and
expensive to defend.
 
 Third
parties may claim that the manufacture, use or sale of our drug delivery
technologies infringe their patent rights.  If such claims are
asserted, we may have to seek licenses, defend infringement actions or challenge
the validity of those patents in the patent office or the courts.  If
we cannot avoid infringement or obtain required licenses on acceptable terms, we
may not be able to continue to develop and commercialize our product
candidates.  Even if we were able to obtain rights to a third party’s
intellectual property, these rights may be non-exclusive, thereby giving our
competitors potential access to the same intellectual property.  If we
are found liable for infringement or are not able to have these patents declared
invalid, we may be liable for significant monetary damages, encounter
significant delays in bringing products to market or be precluded from
participating in the manufacture, use or sale of products or methods of drug
delivery covered by patents of others.  Even if we were able to
prevail, any litigation could be costly and time-consuming and could divert the
attention of our management and key personnel from our business
operations.  We may not have identified, or be able to identify in the
future, United States or foreign patents that pose a risk of potential
infringement claims.  Furthermore, in the event a patent infringement
suit is brought against us, the development, manufacture or potential sale of
product candidates
 
 30
 
 claimed
to infringe on a third party’s intellectual property may have to stop or be
delayed.  Ultimately, we may be unable to commercialize some of our
product candidates as a result of patent infringement claims, which could harm
our business.
 
 We are
aware of two related U.S. patents issued to Watson Pharmaceuticals relating to a
gel formulation of oxybutynin (Gelnique®).  We
believe that we do not infringe these patents and that they should not have been
granted.  We may seek to invalidate these patents but there can be no
assurance that we will prevail.  If the patents are determined to be
valid and if Anturol® is
approved, we may be delayed in our marketing of Anturol® or
incur significant expenses defending our patent position which may adversely
affect the potential market value of Anturol®.
 
 We are aware that one of our partners
has been sued for infringement by another party related to a potential product
incorporating one of our devices.  We believe the claim has no merit
but we have no assurance that our partner will prevail in the suit, which could
result in significant litigation cost, product launch delay or ultimately the
abandonment of the potential product incorporating our device.
 
 Our
business may suffer if we lose certain key officers or employees or if we are
not able to add additional key officers or employees necessary to reach our
goals.
 
 The success of our business is
materially dependent upon the continued services of certain of our key officers
and employees.  The loss of such key personnel could have a material
adverse effect on our business, operating results or financial
condition.  There can be no assurance that we will be successful in
retaining key personnel.   We consider our employee relations to
be good; however, competition for personnel is intense and we cannot assume that
we will continue to be able to attract and retain personnel of high
caliber.
 
 We are involved in international
markets, and this subjects us to additional business risks.
 
 We license and distribute our products
in the European Community, Asia and the United States. These geographic
localities provide economically and politically stable environments in which to
operate.  However, in the future, we intend to introduce products
through partnerships in other countries. As we expand our geographic market, we
will face additional ongoing complexity to our business and may encounter the
following additional risks:
 
 ·
              increased
      complexity and costs of managing international
  operations;
 ·
              protectionist
      laws and business practices that favor local
  companies;
 ·
              dependence
      on local vendors;
 ·
              multiple,
      conflicting and changing governmental laws and
  regulations;
 ·
              difficulties
      in enforcing our legal rights;
 ·
              reduced
      or limited protections of intellectual property rights;
  and
 ·
              political
      and economic instability.
 
 A significant portion of our
international revenues is denominated in foreign currencies.  An
increase in the value of the U.S. dollar relative to these currencies may make
our products more expensive and, thus, less competitive in foreign
markets.
 
 If
we make any acquisitions, we will incur a variety of costs and might never
successfully integrate the acquired product or business into ours.
 
 We might attempt to acquire products or
businesses that we believe are a strategic complement to our business model. We
might encounter operating difficulties and expenditures relating to integrating
an acquired product or business.  These acquisitions might require
significant management attention that would otherwise be available for ongoing
development of our business.  In addition, we might never realize the
anticipated benefits of any acquisition. We might also make dilutive issuances
of equity securities, incur debt or experience a decrease in cash available for
our operations, or incur contingent liabilities and/or amortization expenses
relating to goodwill and other intangible assets, in connection with future
acquisitions.
  31
  If
we do not have adequate insurance for product liability or clinical trial
claims, then we may be subject to significant expenses relating to these
claims.
 
 Our business entails the risk of
product liability and clinical trial claims. Although we have not experienced
any material claims to date, any such claims could have a material adverse
impact on our business.  Insurance coverage is expensive and may be
difficult to obtain, and may not be available in the future on acceptable terms,
or at all.  We maintain product and clinical trial liability insurance
with coverage of $5 million per occurrence and an annual aggregate maximum of $5
million and evaluate our insurance requirements on an ongoing
basis.  If the coverage limits of the product liability insurance are
not adequate, a claim brought against us, whether covered by insurance or not,
could have a material adverse effect on our business, results of operations,
financial condition and cash flows.
 
 Risks
Related to General Economic Conditions
 
 Uncertainty
in the global credit markets could adversely affect our ability to obtain
financing, and we cannot assure that financing will be available to us on
favorable terms or at all.
 
 The global credit markets have
experienced significant dislocations and liquidity disruptions.  These
circumstances have materially impacted liquidity in the financial
markets.  Continued uncertainty in the financial markets may
negatively impact our ability to access additional financing, which could
negatively affect our ability to fund our current operations as well as our
future development and our business could be adversely affected.  A
prolonged downturn in the financial markets may cause us to seek alternative
sources of potentially less attractive financing, and may require us to adjust
our business plan accordingly.
 
 In addition, if we raise additional
financing via issuance of securities, such future issuance of our securities may
result in substantial dilution to existing stockholders.
 
 We
are susceptible to the current conditions of the global economy.  If
the conditions do not improve, our business could be adversely
affected.
 
 The current uncertainty in global
economic conditions have resulted in a substantial slowdown in the global
economy that could affect our business and financial performance by reducing the
prices that our customers and third party payors may be willing or able to pay
for our products.  These conditions may also reduce demand for our
products, which could in turn negatively impact our sales and revenue generation
and result in a material adverse effect on our business, cash flow, results of
operations, financial position and prospects.  In addition, we may
experience difficulties in scaling our operations to react to various economic
pressures.
 
 Risks
Related to Regulatory Matters
 
 We
or our licensees may incur significant costs seeking approval for our products,
which could delay the realization of revenue and, ultimately, decrease our
revenues from such products.
 
 The design, development, testing,
manufacturing and marketing of pharmaceutical compounds and medical devices are
subject to regulation by governmental authorities, including the FDA and
comparable regulatory authorities in other countries.  The approval
process is generally lengthy, expensive and subject to unanticipated
delays.  Currently we, along with our partners, are actively pursuing
marketing approval for a number of products from regulatory authorities in other
countries and anticipate seeking regulatory approval from the FDA for products
developed internally and pursuant to our license agreements.  In the
future we, or our partners, may need to seek approval for newly developed
products.  Our revenue and profit will depend, in part, on the
successful introduction and marketing of some or all of such products by our
partners or us.
 
 Applicants for FDA approval often must
submit extensive clinical data and supporting information to the FDA. Varying
interpretations of the data obtained from pre-clinical and clinical testing
could delay, limit or prevent regulatory approval of a drug
product.  Changes in FDA approval policy during the development
period, or changes in regulatory review for each submitted new drug application
also may cause delays or rejection of an approval.  Even if the FDA
approves a product, the approval may limit the uses or “indications” for which a
product may be
 
 32
 
 marketed,
or may require further studies.  The FDA also can withdraw product
clearances and approvals for failure to comply with regulatory requirements or
if unforeseen problems follow initial marketing.
 
 We are currently developing
Anturol® for
the treatment of overactive bladder (OAB). Anturol® is
the anticholinergic oxybutynin delivered by our proprietary ATDTM gel that is
used to achieve therapeutic blood levels of the active compound that can be
sustained over 24 hours after a single, daily application.
 
 In February 2006, we announced the
results of our Phase II dose ranging study for our ATDTM oxybutynin gel product
Anturol®.  The
study was an open label, single period, randomized study using 48 healthy
subjects and three different doses of Anturol® over
a 20 day period.  Our overall conclusions of the study were
positive.  The FDA however, may not concur with our analysis of the
data.
 
 In July 2007, we completed a special
protocol assessment (“SPA”) with the FDA for a pivotal trial of Anturol®. A
SPA documents the FDA's agreement that the design and planned analysis of the
trial adequately addresses objectives, in support of a regulatory submission
such as a NDA. The completion of the SPA does not ensure success of the trial or
that the FDA will ultimately accept the results of the trial and we may never
receive FDA approval for Anturol® and
without FDA approval, we cannot market or sell Anturol®in the U.S.
 
 In October 2007, we announced the first
patient dosing in a pivotal safety and efficacy trial of Anturol® for
OAB.  The three arm study will enroll approximately 600 patients for a
12-week clinical trial.  The randomized, double-blind, placebo
controlled, multi-center trial will principally evaluate the efficacy of
Anturol® when
administered topically once daily for 12 weeks.  The primary end point
of the trial will be efficacy against the placebo defined as the reduction in
the number of urinary incontinence episodes experienced.  Secondary
end points include changes from baseline in urinary urgency, average daily
urinary frequency, patient perceptions as well as safety and
tolerability.  In March of 2010 we announced that enrollment in the
Phase III study was complete.  The completion of enrollment of the
trial does not ensure success of the trial.  Anturol® may
prove to not be efficacious and may not beat placebo or may have undesired side
effects not previously experienced.   Additionally, the FDA may
require further studies for approval.   Any of these potential
outcomes could have a negative impact on the value of our stock
price.
 
 We are also developing, with our
partners, injection devices for use with our partner’s drugs.  The
regulatory path for approval of such combination products maybe subject to
review by several centers within the FDA and although precedent and guidance
exists for the requirements for such combination products, there is no assurance
that the FDA will not change what it requires or how it reviews such
submissions. Human clinical testing may be required by the FDA in order to
commercialize these devices and there can be no assurance that such trials will
be successful. Such changes in review processes or the requirement for clinical
studies could delay anticipated launch dates or be at a cost which makes
launching the device cost prohibitive for our partners. Such delay or failure to
launch these devices could adversely affect our revenues and future
profitability.
 
 In December 2008, one of our device
partners, Teva, filed an ANDA for their undisclosed product.  The ANDA
submission was accepted by the FDA.  Teva is in the process of
completing the work required for the submission.  The submission of
the ANDA does not ensure that the FDA will approve the filing and without FDA
approval we cannot market or sell our injector for use with this drug product in
the U.S.
 
 As part of our device regulatory
strategy, we have filed two MAFs with the FDA.  These MAFs are
reviewed as part of a product application review.  Amendments are made
to the MAFs as appropriate either because of design changes, additional test
data or in response to questions from the FDA.  The submission of a
MAF does not guarantee that the MAF contains all the information required for
product approval.
 
 In other jurisdictions, we, and the
pharmaceutical companies with whom we are developing technologies (both drugs
and devices), must obtain required regulatory approvals from regulatory agencies
and comply with extensive regulations regarding safety and
quality.  If approvals to market the products are delayed, if we fail
to receive these approvals, or if we lose previously received approvals, our
revenues may not materialize or may decline.  We may not be able to
obtain all necessary regulatory approvals. Additionally, clinical data that we
generate or obtain from partners from FDA regulatory filings may not be
sufficient for regulatory filings in other jurisdictions and we may be required
to incur significant costs in obtaining those regulatory approvals.
  33
  The
505(b)(2) and 505(j) (ANDA) regulatory pathway for many of our potential
products is uncertain and could result in unexpected costs and delays of
approvals.
 
 Transdermal and topical products
indicated for the treatment of systemic or local treatments respectively are
regulated by the FDA in the U.S. and other similar regulatory agencies in other
countries as drug products.  Transdermal and topical products are
considered to be controlled release dosage forms and may not be marketed in the
U.S. until they have been demonstrated to be safe and effective.  The
regulatory approval routes for transdermal and topical products include the
filing of an NDA for new drugs, new indications of approved drugs or new dosage
forms of approved drugs.  Alternatively, these dosage forms can obtain
marketing approval as a generic product by the filing of an ANDA, providing the
new generic product is bioequivalent to and has the same labeling as a
comparable approved product or as a filing under Section 505(b)(2) where there
is an acceptable reference product.  Other topical products for local
treatment do not require the filing of either an NDA or ANDA, providing that
these products comply with existing OTC monographs.  The combination
of the drug, its dosage form and label claims and FDA requirement will
ultimately determine which regulatory approval route will be
required.
 
 Many of our transdermal product
candidates may be developed via the 505(b)(2) route. The 505(b)(2) regulatory
pathway is continually evolving and advice provided in the present is based on
current standards, which may or may not be applicable when we potentially submit
an NDA.  Additionally, we must reference the most similar predicate
products when submitting a 505(b)(2) application. It is therefore probable
that:
 
 ·
              should
      a more appropriate reference product(s) be approved by the FDA at any time
      before or during the review of our NDA, we would be required to submit a
      new application referencing the more appropriate
  product;
 ·
              the
      FDA cannot disclose whether such predicate product(s) is under development
      or has been submitted at any time during another company’s review
      cycle.
 
 Drug delivery systems such as injectors
are reviewed by the FDA and may be legally marketed as a medical device or may
be evaluated as part of the drug approval process.   Combination
drug/device products raise unique scientific, technical and regulatory issues.
The FDA has established the OCP to address the challenges associated with the
review and regulation of combination products. The OCP assists in determining
strategies for the approval of drug/delivery combinations and assuring agreement
within the FDA on review responsibilities.  We may seek approval for a
product including an injector and a generic pharmaceutical by filing an ANDA
claiming bioequivalence and the same labeling as a comparable referenced product
or as a filing under Section 505(b)(2) if there is an acceptable reference
product.  In reviewing the ANDA filing, the agency may decide that the
unique nature of combination products allows them to dispute the claims of
bioequivalence and/or same labeling resulting in our re-filing the application
under Section 505(b)(2).  If such combination products require filing
under Section 505(b)(2) we may incur delays in product approval and may incur
additional costs associated with testing including clinical
trials.  The result of an approval for a combination product under
Section 505(b)(2) may result in additional selling expenses and a decrease in
market acceptance due to the lack of substitutability by pharmacies or
formularies.
 
 If the use of our injection devices
require additions to or modifications of the drug labeling regulated by the FDA,
the review of this labeling may be undertaken by the FDA’s Office of
Surveillance and Epidemiology (OSE).  With the heightened concern
surrounding medical errors, the Division of Medication Errors and Technical
Support (DMETS) has the responsibility of reviewing all pre-marketing
labeling.  Since such labeling can include device instructions for
use, DMETS may be involved in evaluating device usage
parameters.  These reviews could increase the time needed for review
completion of a successful application and may require additional studies, such
as usage studies, to establish the validity of the instructions.  Such
reviews and requirement may extend the time necessary for the approval of
drug-device combinations.  Such was the case for the approval of our
needle-free device for use with hGH.  The approval process took much
more time than contemplated, which resulted in lost revenues.
 
 Accordingly, these regulations and the
FDA’s interpretation of them might impair our ability to obtain product approval
or effectively market our products.
 
 34
 
 
 Our
business could be harmed if we fail to comply with regulatory requirements and,
as a result, are subject to sanctions.
 
 If we, or pharmaceutical companies with
whom we are developing technologies, fail to comply with applicable regulatory
requirements, the pharmaceutical companies, and we, may be subject to sanctions,
including the following:
 
 ·
              warning
      letters;
 ·
              fines;
 ·
              product
      seizures or recalls;
 ·
              injunctions;
 ·
              refusals
      to permit products to be imported into or exported out of the applicable
      regulatory jurisdiction;
 ·
              total
      or partial suspension of
production;
 ·
              withdrawals
      of previously approved marketing applications;
  or
 ·
              criminal
      prosecutions.
 
 Our
revenues may be limited if the marketing claims asserted about our products are
not approved.
 
 Once a drug product is approved by the
FDA, the Division of Drug Marketing, Advertising and Communication, the FDA’s
marketing surveillance department within the Center for Drugs, must approve
marketing claims asserted by our pharmaceutical company partners. If we or a
pharmaceutical company partner fails to obtain from the Division of Drug
Marketing acceptable marketing claims for a product incorporating our drug
technologies, our revenues from that product may be
limited.  Marketing claims are the basis for a product’s labeling,
advertising and promotion. The claims the pharmaceutical company partners are
asserting about our drug delivery technologies, or the drug product itself, may
not be approved by the Division of Drug Marketing.
 
 Product
liability claims related to participation in clinical trials or the use or
misuse of our products could prove to be costly to defend and could harm our
business reputation.
 
 The testing, manufacturing and
marketing of products utilizing our drug delivery technologies may expose us to
potential product liability and other claims resulting from their use in
practice or in clinical development. If any such claims against us are
successful, we may be required to make significant compensation payments. Any
indemnification that we have obtained, or may obtain, from contract research
organizations or pharmaceutical companies conducting human clinical trials on
our behalf may not protect us from product liability claims or from the costs of
related litigation. Similarly, any indemnification we have obtained, or may
obtain, from pharmaceutical companies with whom we are developing drug delivery
technologies may not protect us from product liability claims from the consumers
of those products or from the costs of related litigation.  If we are
subject to a product liability claim, our product liability insurance may not
reimburse us, or may not be sufficient to reimburse us, for any expenses or
losses that may have been suffered.  A successful product liability
claim against us, if not covered by, or if in excess of our product liability
insurance, may require us to make significant compensation payments, which would
be reflected as expenses on our statement of operations.  Adverse
claim experience for our products or licensed technologies or medical device,
pharmaceutical or insurance industry trends may make it difficult for us to
obtain product liability insurance or we may be forced to pay very high
premiums, and there can be no assurance that insurance coverage will continue to
be available on commercially reasonable terms or at all.
 
 Risks
Related to our Common Stock
 
 Future
conversions or exercises by holders of warrants or options could substantially
dilute our common stock.
 
 As of March 15, 2010, we have warrants
outstanding that are exercisable, at prices ranging from $0.80 per share to
$3.78 per share, for an aggregate of approximately 18,300,000 shares of our
common stock.  We also have options outstanding that are exercisable,
at exercise prices ranging from $0.37 to $4.56 per share, for an aggregate of
approximately 8,000,000 shares of our common stock.  Purchasers of our
common stock could therefore experience substantial dilution of their investment
upon exercise of the above warrants or options. The majority of the shares of
our common stock issuable upon exercise of the warrants or options held by these
investors are currently registered.
  35
  Sales of our common stock by our
officers and directors may lower the market price of our common
stock.
 
 As of March 15, 2010, our officers and
directors beneficially owned an aggregate of approximately 16,300,000 shares (or
approximately 19%) of our outstanding common stock, including stock options
exercisable within 60 days. If our officers and directors, or other
stockholders, sell a substantial amount of our common stock, it could cause the
market price of our common stock to decrease and could hamper our ability to
raise capital through the sale of our equity securities.
 
 We
do not expect to pay dividends in the foreseeable future.
 
 We intend to retain any earnings in the
foreseeable future for our continued growth and, thus, do not expect to declare
or pay any cash dividends in the foreseeable future.
 
 Anti-takeover
effects of certain certificate of incorporation and bylaw provisions could
discourage, delay or prevent a change in control.
 
 Our certificate of incorporation and
bylaws could discourage, delay or prevent persons from acquiring or attempting
to acquire us.  Our certificate of incorporation authorizes our board
of directors, without action of our stockholders, to designate and issue
preferred stock in one or more series, with such rights, preferences and
privileges as the board of directors shall determine.  In addition,
our bylaws grant our board of directors the authority to adopt, amend or repeal
all or any of our bylaws, subject to the power of the stockholders to change or
repeal the bylaws.  In addition, our bylaws limit who may call
meetings of our stockholders.
 
 Item
1B.                      UNRESOLVED
STAFF COMMENTS.
 
 None.
 
 Item
2.              PROPERTIES.
 
 We lease approximately 7,000 square
feet of office space in Ewing, New Jersey for our corporate headquarters
facility. The lease will terminate in January 2012. We believe the facility will
be sufficient to meet our requirements through the lease period at this
location.
 
 We lease approximately 9,300 square
feet of office and laboratory space in Plymouth, a suburb of Minneapolis,
Minnesota, and sublease approximately half of this space to another company. The
lease will terminate in April 2011.  We believe the facilities will be
sufficient to meet our requirements through the lease period at this
location.
 
 We also lease a small amount of office
space in Muttenz, Switzerland.  The lease is month-to-month and
requires a three month notice prior to termination. We believe the facilities
will be sufficient to meet our requirements through the lease period at this
location.
 
 Item
3.              LEGAL
PROCEEDINGS.
 
 None.
 
 Item
4.              RESERVED.
 
 
 36
 
  PART
II
 
 Item
      5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES.
 
 Market
Information
 
 Our common stock trades on the NYSE
Amex, formerly known as the American Stock Exchange, under the symbol
“AIS.”  The following table sets forth the per share high and low
closing sales prices of our common stock, as reported by the NYSE Amex, for each
quarterly period during the two most recent fiscal years.
  High
              
              
              Low2009:First Quarter
              
              $
              0.48
              
              
              $
              0.36Second Quarter
              
              $
              1.06
              
              
              $
              0.40Third Quarter
              
              $
              1.21
              
              
              $
              0.76Fourth Quarter
              
              $
              1.27
              
              
              $
              1.072008:First Quarter
              
              $
              1.08
              
              
              $
              0.88Second Quarter
              
              $
              1.02
              
              
              $
              0.50Third Quarter
              
              $
              0.88
              
              
              $
              0.65Fourth Quarter
              
              $
              0.69
              
              
              $
              0.32
 
 Common
Shareholders
 As of March 15, 2010, we had 112
shareholders of record of our common stock.
 Dividends
 
 We have not paid or declared any cash
dividends on our common stock during the past ten years. We have no intention of
paying cash dividends in the foreseeable future on our common
stock.
    37
 
 Performance
Graph
 
 The graph below provides an indication
of cumulative total stockholder returns (“Total Return”) for the Company as
compared with the Amex Composite Index and the Amex Biotechnology Stock Index
weighted by market value at each measurement point. The graph covers the period
beginning December 31, 2004, through December 31, 2009. The graph assumes $100
was invested in each of our Common Stock, the Amex Composite Index and the Amex
Biotechnology Stock Index on December 31, 2004 (based upon the closing price of
each). Total Return assumes reinvestment of dividends.
 
 
 
 
 
 December
      31, 2004
              
              
              December
      31, 2005
              
              
              December
      31, 2006
              
              
              December
      31, 2007
              
              
              December
      31, 2008
              
              
              December
      31, 2009Antares
      Pharma, Inc.
              
              $
              100.00
              
              
              $
              114.81
              
              
              $
              88.89
              
              
              $
              72.59
              
              
              $
              27.41
              
              
              $
              84.44Amex
      Composite Index
              
              
              100.00
              
              
              
              122.64
              
              
              
              143.37
              
              
              
              168.00
              
              
              
              97.43
              
              
              
              127.23Amex
      Biotechnology Stock Index
              
              
              100.00
              
              
              
              125.11
              
              
              
              138.59
              
              
              
              144.51
              
              
              
              118.91
              
              
              
              173.11
 
 
 
 38
 
 Item
6.              SELECTED
FINANCIAL DATA
 
 The
following table summarizes certain selected financial data. The selected
financial data is derived from, and is qualified by reference to, our
consolidated financial statements accompanying this annual report (amounts
expressed in thousands, except per share amounts).
 
 At
      December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Balance
      Sheet Data:Cash
      and cash equivalents
              
              $
              13,559
              
              
              $
              13,096
              
              
              $
              9,759
              
              
              $
              2,706
              
              
              $
              2,718Short-term
      investments
              
              
              -
              
              
              
              -
              
              
              
              16,301
              
              
              
              4,953
              
              
              
              -Working
      capital
              
              
              8,307
              
              
              
              7,537
              
              
              
              21,891
              
              
              
              5,979
              
              
              
              965Total
      assets
              
              
              19,143
              
              
              
              19,911
              
              
              
              30,217
              
              
              
              11,534
              
              
              
              6,166Long-term
      liabilities, less current maturities
              
              
              2,051
              
              
              
              5,297
              
              
              
              7,295
              
              
              
              3,556
              
              
              
              3,062Accumulated
      deficit
              
              
              (130,883
              )
              
              
              (120,592
              )
              
              
              (107,901
              )
              
              
              (99,322
              )
              
              
              (91,123
              )Total
      stockholders’ equity
              
              
              8,851
              
              
              
              7,243
              
              
              
              17,499
              
              
              
              5,080
              
              
              
              757
 
 
 
 Year
      Ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Statement
      of Operations Data:Product
      sales
              
              $
              3,506
              
              
              $
              3,350
              
              
              $
              3,211
              
              
              $
              2,195
              
              
              $
              1,512Development
      revenue
              
              
              2,607
              
              
              
              541
              
              
              
              956
              
              
              
              594
              
              
              
              184Licensing
      fees
              
              
              1,595
              
              
              
              1,238
              
              
              
              3,231
              
              
              
              1,254
              
              
              
              374Royalties
              
              
              603
              
              
              
              532
              
              
              
              459
              
              
              
              225
              
              
              
              155Revenues
              
              
              8,311
              
              
              
              5,661
              
              
              
              7,857
              
              
              
              4,268
              
              
              
              2,225Cost
      of revenues (1)
              
              
              4,140
              
              
              
              2,020
              
              
              
              3,442
              
              
              
              1,556
              
              
              
              1,137Research
      and development
              
              
              7,903
              
              
              
              7,866
              
              
              
              5,362
              
              
              
              3,778
              
              
              
              3,677Sales,
      marketing and business development
              
              
              1,051
              
              
              
              1,625
              
              
              
              1,641
              
              
              
              1,350
              
              
              
              1,161General
      and administrative (2)
              
              
              4,911
              
              
              
              6,348
              
              
              
              6,058
              
              
              
              5,861
              
              
              
              4,839Operating
expenses
              
              
              13,865
              
              
              
              15,839
              
              
              
              13,061
              
              
              
              10,989
              
              
              
              9,677Operating
      loss
              
              
              (9,694
              )
              
              
              (12,198
              )
              
              
              (8,646
              )
              
              
              (8,277
              )
              
              
              (8,589
              )Net
      other income (expense)
              
              
              (597
              )
              
              
              (492
              )
              
              
              67
              
              
              
              177
              
              
              
              91Net
      loss
              
              
              (10,291
              )
              
              
              (12,690
              )
              
              
              (8,579
              )
              
              
              (8,100
              )
              
              
              (8,498
              )Deemed
      dividend to warrant holder
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (99
              )
              
              
              -Preferred
      stock dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (50
              )Net
      loss applicable to common shares
              
              $
              (10,291
              )
              
              $
              (12,690
              )
              
              $
              (8,579
              )
              
              $
              (8,199
              )
              
              $
              (8,548
              )Net
      loss per common share (3) (4)
              
              $
              (0.14
              )
              
              $
              (0.19
              )
              
              $
              (0.14
              )
              
              $
              (0.16
              )
              
              $
              (0.21
              )Weighted
      average number of common shares
              
              
              73,489
              
              
              
              67,233
              
              
              
              59,605
              
              
              
              51,582
              
              
              
              41,460
 
 (1)
              In
      2007 we recorded non-cash impairment of prepaid license discount and
      related charges of $1,439.
 (2)
              In
      2007 and 2006 we recorded non-cash patent impairment charges of $296 and
      $139, respectively.
 (3)
              Basic
      and diluted loss per share amounts are identical as the effect of
      potential common shares is
anti-dilutive.
 (4)
              We
      have not paid any dividends on our common stock since
      inception.
 
 39
 
 
 Item  7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 You
should read the following discussion in conjunction with Item 1A. (“Risk
Factors”) and our audited consolidated financial statements included elsewhere
in this annual report. Some of the statements in the following discussion are
forward-looking statements. See “Special Note Regarding Forward-Looking
Statements” and “Forward-Looking Statements in Management’s Discussion and
Analysis.”
 
 Forward-Looking
Statements in Management’s Discussion and Analysis
 
 Management’s
discussion and analysis of the significant changes in the consolidated results
of operations, financial condition and cash flows of the Company is set forth
below.  Certain statements in this report may be considered to be
“forward-looking statements” as that term is defined in the U.S. Private
Securities Litigation Reform Act of 1995, such as statements that include the
words “expect,” “estimate,” “project,” “anticipate,” “should,” “intend,”
“probability,” “risk,” “target,” “objective” and other words and terms of
similar meaning in connection with any discussion of, among other things, future
operating or financial performance, strategic initiatives and business
strategies, regulatory or competitive environments, our intellectual property
and product development.  In particular, these forward-looking
statements include, among others, statements about:
 
 ·
              the
      impact of new accounting
pronouncements;
 
 ·
              our
      expectations regarding the product development of Anturol®;
 
 ·
              our
      expectations regarding continued product development with
      Teva;
 
 ·
              our
      plans regarding potential manufacturing and marketing
      partners;
 
 ·
              our
      future cash flow;
 
 ·
              our
      expectations regarding a net loss for the year ending December 31,
      2010;
 
 ·
              our
      ability to raise additional financing, reduce expenses or generate funds
      in light of our current and projected level of operations and general
      economic conditions.
 
 The words
“may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,”
“continue,” and similar expressions may identify forward-looking statements, but
the absence of these words does not necessarily mean that a statement is not
forward-looking.  Forward-looking statements involve known and unknown
risks, uncertainties and achievements, and other factors that may cause our or
our industry’s actual results, levels of activity, performance, or achievements
to be materially different from the information expressed or implied by these
forward-looking statements.  While we believe that we have a
reasonable basis for each forward-looking statement contained in this report, we
caution you that these statements are based on a combination of facts and
factors currently known by us and projections of the future about which we
cannot be certain.  Many factors may affect our ability to achieve our
objectives, including:
 
 
 ·
              delays
      in product introduction and marketing or interruptions in
      supply;
 
 ·
              a
      decrease in business from our major customers and
  partners;
 
 ·
              our
      inability to compete successfully against new and existing competitors or
      to leverage our marketing capabilities and our research and development
      capabilities;
 
 ·
              our
      inability to obtain additional financing, reduce expenses or generate
      funds when necessary;
 
 ·
              our
      inability to attract and retain key
personnel;
  
 40
 ·
              adverse
      economic and political conditions;
and
 
 ·
              our
      inability to effectively market our services or obtain and maintain
      arrangements with our customers, partners and
    manufacturers.
 
 In
addition, you should refer to the “Risk Factors” section of this Form 10-K
report for a discussion of other factors that may cause our actual results to
differ materially from those described by our forward-looking
statements.  As a result of these factors, we cannot assure you that
the forward-looking statements contained in this report will prove to be
accurate and, if our forward-looking statements prove to be inaccurate, the
inaccuracy may be material.
 
 We
encourage readers of this report to understand forward-looking statements to be
strategic objectives rather than absolute targets of future
performance.  Forward-looking statements speak only as of the date
they are made.  We do not intend to update publicly any
forward-looking statements to reflect circumstances or events that occur after
the date the forward-looking statements are made or to reflect the occurrence of
unanticipated events except as required by law.  In light of the
significant uncertainties in these forward-looking statements, you should not
regard these statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any specified time
frame, if at all.
 
 The
following discussion and analysis, the purpose of which is to provide investors
and others with information that we believe to be necessary for an understanding
of our financial condition, changes in financial condition and results of
operations, should be read in conjunction with the financial statements, notes
and other information contained in this report.
 
 Overview
 
 Antares Pharma, Inc. is an emerging
pharma company that focuses on self-injection pharmaceutical products and
technologies and topical gel-based products.  Our subcutaneous injection
technology platforms include VibexTM disposable pressure-assisted auto injectors,
VisionTM reusable needle-free injectors, and disposable multi-use pen
injectors.  We currently view pharmaceutical and biotechnology
companies as our primary customers.
 
 In the injector area, we have licensed
our reusable needle-free injection device for use with hGH to Teva, Ferring and
JCR.  In August 2009, we announced that Teva launched its Tjet®
injector system, which uses our needle-free device to administer Teva’s
Tev-Tropin® brand
hGH.  We have also licensed both disposable auto and pen injection
devices to Teva for use in undisclosed fields and territories.  In
2009, we received a payment of $4,076,375 from Teva for tooling and for an
advance for the design, development and purchase of additional tooling and
automation equipment, all of which is related to an undisclosed, fixed,
single-dose, disposable injector product using our VibexTM auto injector
platform.  In addition, we continue to support existing customers of
our reusable needle-free devices for the home or alternate site administration
of insulin in the U.S. market through distributors.
 
 In the gel-based area, our lead product
candidate, Anturol®, an
oxybutynin ATDTM gel for the treatment of OAB, is currently under evaluation in a
pivotal Phase 3 trial, for which we expect to file an NDA in
2010.  Spending on this program in 2009 was approximately $5,200,000
and we expect spending in 2010 to be approximately $5,000,000. We also have
a partnership with BioSante that includes LibiGel®
(transdermal testosterone gel) in Phase 3 clinical development for the treatment
of FSD, and Elestrin®
(estradiol gel) for the treatment of moderate-to-severe vasomotor symptoms
associated with menopause, and currently marketed in the U.S.
 
 We have operating facilities in the
U.S. and Switzerland.  Our U.S. operation manufactures and markets our
reusable needle-free injection devices and related disposables, and develops our
disposable pressure-assisted auto injector and pen injector systems. These
operations, including all development and some U.S. administrative activities,
are located in Minneapolis, Minnesota.  We also have operations
located in Switzerland, which is focused on our transdermal gels and has a
number of license agreements with pharmaceutical companies for the application
of our drug delivery systems.  Our corporate offices are located in
Ewing, New Jersey.
 
 In order to better position ourselves
to take advantage of potential growth opportunities and to fund future
operations, during 2009 we raised additional capital and took steps to reduce
our monthly cash obligations.  In the third quarter of 2009, we raised
gross proceeds of $11,500,000 through the sale of shares of our common stock and
 
 41
 warrants.  We
used approximately $3,000,000 of these proceeds to pay off the remaining balance
of our credit facility, eliminating our monthly debt service
requirements.  In the fourth quarter of 2009, we reduced our monthly
overhead when we entered into an Asset Purchase Agreement with Ferring. Under
this agreement, Ferring assumed responsibility for all of our facility and
equipment lease obligations in connection with our operations in Switzerland,
and the majority of our employees at that location were hired by Ferring
effective January 1, 2010.  Subsequent to the Ferring agreement we
entered into a month-to-month facility lease agreement at a new Swiss location
in a much smaller space at a significantly reduced monthly rate.
 
 We have reported net losses of
$10,290,752, $12,690,453 and $8,578,939 in the fiscal years ended 2009, 2008 and
2007, respectively.  We have accumulated aggregate net losses from the
inception of business through December 31, 2009 of
$130,882,597.   In addition, we expect to report a net loss for
the year ending December 31, 2010.   We have not historically
generated sufficient revenue to provide the cash needed  to support
our operations, and have continued to operate primarily by raising capital and
incurring debt.  At December 31, 2009 we had cash and cash equivalents
of $13,559,088.  We believe that the combination of our current cash
and cash equivalents balance, our recent reductions in our monthly cash
outflows, our projected product sales, product development revenue, license
revenues, milestone payments and royalties will provide us with sufficient funds
to support operations for at least the next 12 months.
 
 Critical
Accounting Policies and Use of Estimates
 
 In preparing the consolidated financial
statements in conformity with U.S. generally accepted accounting principles
(GAAP), management must make decisions that impact reported amounts and related
disclosures. Such decisions include the selection of the appropriate accounting
principles to be applied and the assumptions on which to base accounting
estimates. In reaching such decisions, management applies judgment based on its
understanding and analysis of relevant circumstances. Note 2 to the consolidated
financial statements provides a summary of the significant accounting policies
followed in the preparation of the consolidated financial statements. The
following accounting policies are considered by management to be the most
critical to the presentation of the consolidated financial statements because
they require the most difficult, subjective and complex judgments.
 
 Revenue
Recognition
 
 A significant portion of our revenue
relates to product sales for which revenue is recognized upon shipment, with
limited judgment required related to product returns. Product sales are shipped
FOB shipping point. We also enter into license arrangements that are often
complex as they may involve license, development and manufacturing components.
Licensing revenue recognition requires significant management judgment to
evaluate the effective terms of agreements, our performance commitments and
determination of fair value of the various deliverables under the
arrangement.  In the third quarter of 2009, we elected early adoption
of Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) 2009-13, “Revenue Arrangements with Multiple Deliverables” (“ASU
2009-13”) with retrospective application to January 1, 2009.  ASU
2009-13, which amended FASB ASC 605-25, “Multiple-Element Arrangements,” is
effective for arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, but allows for early
adoption.  ASU 2009-13 requires a vendor to allocate revenue to each
unit of accounting in arrangements involving multiple
deliverables.  It changes the level of evidence of standalone
selling price required to separate deliverables by allowing a vendor to make its
best estimate of the standalone selling price of deliverables when vendor
specific objective evidence or third party evidence of selling price is not
available.  As discussed further in Note 12 to our consolidated
financial statements, adoption of this accounting pronouncement in 2009 resulted
in the recognition of revenue deferred in prior years of $481,833 and the
recognition of costs previously deferred of $615,256 in connection with one of
our License, Development and Supply Agreements with Teva that became subject to
the new accounting pronouncement after a material modification to the agreement
occurred.  As a result of adoption of ASU 2009-13, deferred revenues
and deferred costs associated with this agreement with Teva will be recognized
as revenues and expenses earlier than would otherwise have
occurred.  We also expect revenues and expenses generated in
connection with future multiple element arrangements will often be recognized
over shorter periods than would have occurred prior to adoption of ASU
2009-13.
 
 We have a number of arrangements that
were not affected by adoption of ASU 2009-13, and the accounting for these
arrangements will continue under the prior accounting standards unless an
arrangement is materially modified,
 
 42
 
 as
defined in the new accounting standard.  The prior accounting
standards address when and, if so, how an arrangement involving multiple
deliverables should be divided into separate units of accounting. In some
arrangements, the different revenue-generating activities (deliverables) are
sufficiently separable, and there exists sufficient evidence of their fair
values to separately account for some or all of the deliverables (that is, there
are separate units of accounting). In other arrangements, some or all of the
deliverables are not independently functional, or there is not sufficient
evidence of their fair values to account for them separately. Our ability or
inability to establish objective evidence of fair value for the deliverable
portions of the contracts significantly impacted the time period over which
revenues are being recognized. For instance, if there was no objective fair
value of undelivered elements of a contract, then we were required to treat a
multi-deliverable contract as one unit of accounting, resulting in all revenue
being deferred and recognized over the entire contract period.
 
 We have deferred significant revenue
amounts ($7,362,066 at December 31, 2009) where non-refundable cash payments
have been received, but the revenue is not immediately recognized due to the
long-term nature of the respective agreements. Subsequent factors affecting the
initial estimate of the effective terms of agreements could either increase or
decrease the period over which the deferred revenue is recognized.
 
 Due to the requirement to defer
significant amounts of revenue and the extended period over which the revenue
will be recognized, along with the requirement to recognize certain deferred
development costs over an extended period of time, revenue recognized and cost
of revenue may be materially different from cash flows.
 
 On an overall basis, our reported
revenues can differ significantly from billings and/or accrued billings based on
terms in agreements with customers. The table below is presented to help explain
the impact of the deferral of revenue on reported revenues, and is not meant to
be a substitute for accounting or presentation requirements under U.S. generally
accepted accounting principles.
 
 2009
              
              
              2008
              
              
              2007Product
      sales
              
              $
              3,506,510
              
              
              $
              3,349,532
              
              
              $
              3,211,397Development
      fees
              
              
              5,095,125
              
              
              
              1,481,254
              
              
              
              912,172Licensing
      fees and milestone payments
              
              
              2,272,047
              
              
              
              762,500
              
              
              
              3,478,642Royalties
              
              
              602,816
              
              
              
              314,189
              
              
              
              218,042Billings
      received and/or accrued per contract terms
              
              
              11,476,498
              
              
              
              5,907,475
              
              
              
              7,820,253Deferred
      billings received and/or accrued
              
              
              (6,633,477
              )
              
              
              (1,387,380
              )
              
              
              (1,068,804
              )Deferred
      revenue recognized
              
              
              3,468,041
              
              
              
              1,140,616
              
              
              
              1,195,880Amortization
      of prepaid license discount
              
              
              -
              
              
              
              -
              
              
              
              (90,333
              )Total
      revenue as reported
              
              $
              8,311,062
              
              
              $
              5,660,711
              
              
              $
              7,856,996
 
 Valuation of Long-Lived and Intangible
Assets and Goodwill
 
 Long-lived assets, including patent
rights, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset or asset group may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset or asset group. This analysis can be very
subjective as we rely upon signed distribution or license agreements with
variable cash flows to substantiate the recoverability of long-lived assets. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
 
 Each year we review patent costs for
impairment and identify patents related to products for which there are no
signed distribution or license agreements or for which no revenues or cash flows
are anticipated.  In 2007, we recognized impairment charges of
$296,338 in general and administrative expenses, which represented the gross
carrying amount, net of accumulated amortization, for the identified patents. No
impairment charges were recognized in 2008 or 2009.  The 2007
impairment charge relates to the amendment to the agreement with Eli Lilly and
Co. (“Lilly”) discussed further in Note 11 to the consolidated financial
statements.  The gross carrying amount and accumulated amortization of
patents, which are our only intangible assets subject to amortization, were
$1,665,519 and $923,120 at December 31, 2009 and were $1,471,536 and $826,680 at
December 31, 2008. The
 
 43
 
 estimated
aggregate patent amortization expense for the next five years is $91,000,
$66,000, $60,000, $60,000 and $60,000 in 2010, 2011, 2012, 2013 and
2014.
 
 We have $1,095,355 of goodwill recorded
as of December 31, 2009 that relates to our Minnesota operations.  We
evaluate the carrying amount of goodwill during the fourth quarter of each year
and between annual evaluations if events occur or circumstances change that
would more likely than not reduce the fair value of the reporting unit below its
carrying amount. Such circumstances could include, but are not limited to: (1) a
significant adverse change in legal factors or in business climate, (2)
unanticipated competition, (3) an adverse action or assessment by a regulator,
or (4) a sustained significant drop in our stock price. When evaluating whether
goodwill is impaired, we compare the fair value of the Minnesota operations to
the carrying amount, including goodwill. If the carrying amount of the Minnesota
operations exceeds its fair value, then the amount of the impairment loss must
be measured. The impairment loss would be calculated by comparing the implied
fair value of goodwill to its carrying amount. In calculating the implied fair
value of goodwill, the fair value of the Minnesota operations would be allocated
to all of its other assets and liabilities based on their fair values. The
excess of the fair value of the Minnesota operations over the amount assigned to
its other assets and liabilities is the implied fair value of goodwill. An
impairment loss would be recognized when the carrying amount of goodwill exceeds
its implied fair value. Our evaluation of goodwill completed during 2009, 2008
and 2007 resulted in no impairment losses.
 
 Results
of Operations
 
 Years
Ended December 31, 2009, 2008 and 2007
 
 Revenues
 
 Product sales were $3,506,510,
$3,349,532 and $3,211,397 for the years ended December 31, 2009, 2008 and
2007.  Product sales include sales of reusable needle-free injector
devices, related parts, disposable components, and repairs. In 2009, 2008 and
2007, revenue from sales of needle-free injector devices totaled $1,291,250,
$1,045,296 and $1,027,986.  Sales of disposable components in 2009,
2008 and 2007 totaled $2,131,525, $2,201,076 and $2,100,253.  The 2009
increase in device sales and decrease in sales of disposable components was
primarily a result of the combination of first year sales to Teva in connection
with Teva’s launch of our Tjet needle-free device with their hGH Tev-Tropin® and a
decrease in sales to Ferring.  Device sales to Teva exceeded the
decrease in device sales to Ferring, while the decrease in sales of disposable
components to Ferring exceeded sales of disposable components to
Teva.  Product sales in 2008 compared to 2007 were relatively
unchanged, due primarily to Ferring sales being approximately the same each
year.  We believe Ferring sales fluctuations from quarter to quarter
and the decrease from the prior year are driven mainly by Ferring inventory
management practices and we expect product sales to Ferring to normalize in the
first quarter of 2010.
 
 Development revenue was $2,606,516,
$540,557 and $955,402 for the years ended December 31, 2009, 2008 and
2007.  The increase in 2009 compared to 2008 was primarily due to auto
injector development work under a License, Development and Supply agreement with
Teva originally signed in July 2006.  In 2009, in connection with an
amendment to this License, Development and Supply Agreement, Teva purchased
tooling in process from us that had a carrying value of approximately $1,200,000
and paid us in advance for the design, development and purchase of additional
tooling and automation equipment.  We received a payment under this
amendment in the amount of $4,076,375, all of which was initially recorded as
deferred revenue.  Approximately $1,600,000 of the development revenue
recognized in 2009 was related to work done under this Teva agreement, as
amended.  The balance of the revenue in 2009 of approximately
$1,000,000 and the 2008 revenue was attributable primarily to projects related
to our proprietary ATDTM gel technology.  The revenue in 2007 was
attributable primarily to an agreement related to our oral disintegrating tablet
technology, along with recognized revenue in connection with our proprietary
ATDTM gel technology.
 
 Licensing revenue was $1,595,220,
$1,238,211 and $3,231,305 for the years ended December 31, 2009, 2008 and 2007.
Licensing revenue in 2009 included approximately $350,000 recognized that had
been previously deferred and represents a portion of payments received from Teva
under a License, Development and Supply Agreement for a product utilizing our
auto injector technology.  This revenue was recognized as a result of
adopting a new revenue recognition accounting standard, as described in Note 12
to the consolidated financial statements.  The licensing revenue in
2009 also included a milestone payment received from Teva in connection with
Teva’s
 
 44
 
 launch of
our Tjet needle-free device with their hGH Tev-Tropin®.  In
addition, in 2009 we recognized licensing revenue of approximately $315,000 in
connection with a License Agreement with Ferring executed in November 2009,
described in more detail in Note 11 to the consolidated financial statements,
which included an upfront payment and milestone payments.  Also in
2009, approximately $338,000 of a previously deferred license fee related to our
oral disintegrating tablet technology was recognized after the customer
terminated the agreement due to technical challenges with their drug
molecule.  The licensing revenue in 2008 and 2007 included $462,500
and $2,625,000, respectively, received under sublicense arrangements related to
an existing license agreement with BioSante related to Elestrin®(formerly
Bio-E-Gel).  The remaining licensing revenue in each year is primarily
due to recognizing portions of previously deferred amounts related to upfront
license fees or milestone payments received under various
agreements.
 
 Royalty revenue was $602,816, $532,411
and $458,892 for the years ended December 31, 2009, 2008 and
2007.  Nearly all royalty revenue has been related to our reusable
needle-free injection device, and has been generated primarily under the license
agreement with Ferring described in more detail in Note 11 to the consolidated
financial statements.  Royalties from Ferring are earned on device
sales and under a provision in the Ferring agreement in which royalties are
triggered by the achievement of certain quality standards.  The
increase in 2009 compared to 2008 was partially due to an increase in the
royalty from Ferring related to the achievement of certain quality standards and
partially due to an increase in royalties from BioSante related to Elestrin®.  The
increase in 2008 compared to 2007 was primarily related to the increase in the
number of injector devices sold to Ferring.
 
 Total revenue was $8,311,062,
$5,660,711 and $7,856,996 for the years ended December 31, 2009, 2008 and
2007.  The increase in 2009 compared to 2008 was primarily due to an
increase in development revenue related to auto injector development work under
a License, Development and Supply agreement with Teva.  The decrease
in 2008 compared to 2007 was primarily due to $2,625,000 received in 2007 under
a sublicense arrangement related to an existing license agreement with
BioSante.
 
 Cost
of Revenues and Gross Margins
 
 The costs of product sales are
primarily related to reusable injection devices and disposable components. Cost
of product sales were $1,813,385, $1,889,317 and $1,768,799 for the years ended
December 31, 2009, 2008 and 2007, representing gross margins of 48%, 44% and
45%, respectively.  The gross margin increase in 2009 from 2008 was
primarily due to an inventory write-down in 2008, along with a combined impact
of other factors including selling price increases, changes in the mix of
products sold, and variations in exchange rates between the Euro and the US
Dollar which can affect our gross margins realized on a portion of our product
sales to Ferring.
 
 The cost of development revenue
consists of labor costs, direct external costs and an allocation of certain
overhead expenses based on actual costs and time spent in these
revenue-generating activities.  Cost of development revenue was
$2,326,449, $130,268 and $234,583 for the years ended December 31, 2009, 2008
and 2007. The significant increase in 2009 compared to 2008 and 2007 was due to
development costs recognized related to a License, Development and Supply
Agreement with Teva for a product utilizing our auto injector
technology.   Approximately $615,000 of the development costs in
2009 were previously deferred costs recognized after adoption of the new revenue
recognition accounting standard, as described in Note 12 to our consolidated
financial statements.  Development costs that were being deferred in
connection with the Teva agreement were related to both licensing and
development revenue that had been deferred.  An additional $1,300,000
of development costs were recognized in 2009 in connection with revenue
recognized related to the Teva agreement.  The remaining development
costs in 2009 of approximately $410,000 and the development costs in 2008 were
attributable primarily to projects related to our proprietary ATDTM gel
technology, while the majority of development costs in 2007 were incurred in
connection with an agreement involving our oral disintegrating tablet
technology.
 
 Impairment of prepaid license discount
of $2,215,596, partially offset by recognizing deferred revenue net of deferred
costs, resulted in a net non-cash impairment charge of $1,438,638 in
2007.  As discussed in Note 11 to the consolidated financial
statements, we determined it was unlikely that future cash flows from a License
Agreement with Lilly would exceed the unamortized prepaid license discount
(recorded as contra equity in the stockholders’ equity section of the balance
sheet).   In addition, we determined that the carrying amount of
related capitalized patent costs of $296,338 was impaired, and was recorded in
general and administrative expenses in the 2007 consolidated statement of
operations.
  45
  Research
and Development
 
 The majority of research and
development expenses consist of external costs for studies and analysis
activities, design work and prototype development.  While we are
typically engaged in research and development activities involving each of our
drug delivery platforms, over 75% of the total research and development expenses
in each year were generated in connection with projects related to our
transdermal gel products.  Research and development expenses were
$7,902,486, $7,866,499 and $5,362,291 for the years ended December 31, 2009,
2008 and 2007.  Although the total research and development expense in
2009 increased only slightly compared to 2008, the costs directly associated
with the Phase III study of Anturol®
increased by approximately $1,400,000 to $5,200,000, while costs associated with
certain other projects decreased.  The increase in 2008 compared to
2007 was mainly due to an increase of approximately $1,900,000 in expenses
related to the Phase III study of Anturol® and
an increase of approximately $450,000 in connection with establishing an
internal clinical and regulatory department in early 2008.
 
 Sales,
Marketing and Business Development
 
 Sales, marketing and business
development expenses were $1,051,030, $1,624,599 and $1,640,875 for the years
ended December 31, 2009, 2008 and 2007. The decrease in 2009 is primarily due to
reductions in payroll costs associated with headcount reductions.  In
2008, increases in expenses related to marketing research were offset by
decreases in legal expenses.
 
 General
and Administrative
 
 General and administrative expenses
were $4,911,356, $6,347,997 and $6,057,396 for the years ended December 31,
2009, 2008 and 2007.  The decrease in 2009 compared to 2008 and the
increase in 2008 compared to 2007 was mainly due to the expense in 2008
associated with a separation agreement with Jack Stover, our former Chief
Executive Officer, and the hiring of Paul Wotton who started as Chief Operating
Officer in July of 2008 and was appointed Chief Executive Officer in October
2008.  The decrease in 2009 compared to 2008 was also impacted by a
decrease in overhead costs and patent related expenses.  The increase
in 2008 compared to 2007 due mainly to payroll cost increases was partially
offset by a reduction in patent impairment charges from approximately $296,000
in 2007 to zero in 2008.
 
 Other
Income (Expense)
 
 Other income (expense), net, was
($597,108), ($492,484) and $66,647 for the years ended December 31, 2009, 2008
and 2007.  In 2009, interest income decreased to $27,270 from $553,061
in 2008, due to a reduction in market interest rates received on invested funds
and a lower average cash balance.  Interest expense decreased in 2009
to $633,459 from $1,021,675 in 2008 due primarily to a lower average principal
balance of our credit facility in 2009 compared to 2008 and due to the
retirement of our credit facility in 2009.  The change to expense in
2008 from income in 2007 was due to a decrease in interest income and an
increase in interest expense.  In 2008, interest income decreased to
$553,061 from $872,095 in 2007 due primarily to a reduction in market interest
rates received on invested funds.  Interest expense increased in 2008
to $1,021,675 from $772,417 in 2007 in connection with notes payable that
originated in the first and fourth quarters of 2007 that were outstanding for
the full year of 2008.
 
 Liquidity
and Capital Resources
 
 We have reported net losses of
$10,290,752, $12,690,453 and $8,578,939 in the fiscal years ended 2009, 2008 and
2007.  We have accumulated aggregate net losses from the inception of
business through December 31, 2009 of $130,882,597.   In
addition, we expect to report a net loss for the year ending December 31,
2010.   We have not historically generated, and do not currently
generate, enough revenue to provide the cash needed  to support our
operations, and have continued to operate primarily by raising capital and
incurring debt.  In our 2008 Annual Report on Form 10-K we disclosed
there was uncertainty about our ability to continue as a going
concern.  In 2009 we resolved this uncertainty.  In order to
better position ourselves to take advantage of potential growth opportunities
and to fund future operations, during 2009 we raised additional capital and took
steps to reduce our monthly cash obligations.
  46
  
 In July 2009, we raised gross proceeds
of $8,500,000 in a registered direct offering through the sale of shares of our
common stock and warrants.  We sold a total of 10,625,000 units, each
unit consisting of (i) one share of common stock and (ii) one warrant to
purchase 0.4 of a share of common stock (or a total of 4,250,000 shares), at a
purchase price of $0.80 per unit.  The warrants will be exercisable
six months after issuance at $1.00 per share and will expire five years from the
date of issuance.
 
 In September 2009, we raised gross
proceeds of $3,000,000 through the sale of 2,727,273 units to certain
institutional investors, each unit consisting of (i) one share of common stock
and (ii) one warrant to purchase 0.4 of a share of common stock (or a total of
1,090,909 shares), at a purchase price of $1.10 per unit. The warrants will be
exercisable six months after issuance at $1.15 per share and will expire five
years from the date of issuance.
 
 The proceeds from the sale of common
stock and warrants in September 2009 were used to pay off the remaining balance
of our credit facility, reducing our monthly debt service
requirements.  The credit facility had originated in 2007, when we
received gross proceeds of $7,500,000 in two tranches of $5,000,000 and
$2,500,000 to help fund working capital needs.  The per annum interest
rate was 12.7% in the case of the first tranche and 11% in the case of the
second tranche.  The maturity date (i) with respect to the first
tranche was forty-two months from February 2007 and (ii) with respect to the
second tranche was thirty-six months from December 2007.
 
 In the fourth quarter of 2009, we
reduced our monthly overhead when we entered into an Asset Purchase Agreement
with Ferring. Under this agreement, Ferring assumed responsibility for all of
our facility and equipment lease obligations in connection with our operations
in Switzerland, and the majority of our employees at that location were hired by
Ferring effective January 1, 2010.  Subsequent to the Ferring
agreement we entered into a month-to-month facility lease agreement at a new
Swiss location in a much smaller space at a significantly reduced monthly
rate.
 
 At December 31, 2009 we had cash and
cash equivalents of $13,559,088.  We believe that the combination of
our current cash and cash equivalents balance and projected product sales,
product development, license revenues, milestone payments and royalties will
provide us with sufficient funds to support operations for at least the next 12
months.  We do not currently have any bank credit lines.  In
the future, if we need additional financing and are unable to obtain such
financing when needed, or obtain it on favorable terms, we may be required to
curtail development of new products, limit expansion of operations or accept
financing terms that are not as attractive as we may desire.
 
 Net
Cash Used in Operating Activities
 
 Operating cash inflows are generated
primarily from product sales, license and development fees and
royalties.  Operating cash outflows consist principally of
expenditures for manufacturing costs, general and administrative costs, research
and development projects and sales, marketing and business development
activities.  Net cash used in operating activities was $5,099,560,
$10,324,412 and $5,394,276 for the years ended December 31, 2009, 2008 and
2007.  Net operating cash outflows were primarily the result of net
losses of $10,290,752, $12,690,453 and $8,578,939 in 2009, 2008 and 2007,
adjusted by noncash expenses and changes in operating assets and
liabilities.
 
 In 2009, the net loss decreased by
$2,399,701 to $10,290,752 from $12,690,453 in 2008 primarily as a result of an
increase in gross profit of $530,102 and decreases in general and administrative
expenses of $1,436,641 and sales marketing and business development expenses of
$573,569.
 
 In 2008, the net loss increased by
$4,111,514 to $12,690,453 from $8,578,939 in 2007.  This increase was
due to a number of factors which consisted primarily of the
following:
 ·
              an
      increase in research and development expenses of approximately $2,500,000
      related mainly to the Anturol®
      Phase III trial;
 ·
              a
      decrease in gross profit of approximately $800,000 due mainly to a
      reduction in licensing revenue from BioSante of approximately $2,200,000
      which was partially offset by a reduction in cost of revenue of
      approximately $1,400,000 related to impairment charges recognized in 2007
      in connection with the Lilly
agreement;
 ·
              an
      increase in general and administrative expenses of approximately
      $300,000;
 ·
              a
      decrease in interest income of approximately $300,000;
  and
 ·
              an
      increase in interest expense of approximately
  $250,000.
   47
 
 Noncash expenses totaled $1,554,876,
$1,713,321 and $4,276,731 in 2009, 2008 and 2007.  The decrease in
2009 compared to 2008 was primarily due to reductions in depreciation and
amortization of $56,936 and amortization of debt discount and issuance costs of
$63,028 and a gain on disposal of equipment, molds, furniture and fixtures of
$70,506.  The decrease in 2008 compared to 2007 was mainly due to the
impairment charges in 2007 related to the Lilly License Agreement, including the
prepaid license discount impairment and amortization charge of $2,305,929 and
the patent rights impairment charge of $296,338.
 
 In 2009, the change in operating assets
and liabilities generated cash of $3,636,316.  This was mainly the
result of payments received from Teva and Ferring under license and development
agreements, much of which was recorded as deferred revenue which increased by
$3,171,277 in 2009.  Other operating assets and liabilities changed by
a net of $465,039, with the most significant change being a decrease in deferred
costs of $1,099,072 due mainly to costs recognized in connection with
development revenue recognized under a License, Development and Supply Agreement
with Teva for a product utilizing our auto injector technology.
 
 In 2008, the change in operating assets
and liabilities generated cash of $652,720.  Changes resulting in the
generation of cash included increases in accounts payable and deferred revenue
and a decrease in prepaid expenses and other current assets.  Accounts
payable increased by $1,195,006 primarily due to costs incurred in connection
with the Phase III study of Anturol®.  Deferred
revenue increased by $554,717 due primarily to payments received and deferred in
connection with injector device development projects.  The decrease in
prepaid expenses and other current assets was due to a reduction in prepaid
expenses related to the Phase III study of Anturol®.   Changes
resulting in the use of cash included increases in accounts receivable and other
assets.  Accounts receivable increased by $853,964 primarily due to
invoices generated in December related to injector device
projects.  Deferred costs increased by $740,276 due to costs incurred
and deferred related to injector device projects.
 
 In 2007, the change in operating assets
and liabilities resulted in a use of cash of $1,092,068.  This was
primarily due to a decrease in deferred revenue of $1,061,916, which was mainly
the result of eliminating the deferred revenue related to the Lilly
agreement.  Other changes included increases in prepaid expenses and
other current assets of $452,224 and deferred costs of $340,004, which were
partially offset by a decrease in accounts receivable of $379,129 and an
increase in accrued expenses and other current liabilities of
$441,698.  The increases in prepaid expenses and deferred costs were
the result of costs incurred in connection with development projects related
mainly to injector devices and Anturol®.  The
increase in accrued expenses was primarily due to compensation related accruals
such as bonuses, along with accruals for project costs and certain professional
fees.
 
 Net
Cash Provided by (Used in) Investing Activities
 
 In 2009, cash used in investing
activities was $12,584, consisting of additions to patent rights of $176,541,
purchases of equipment, molds, furniture and fixtures of $11,043, and net of
proceeds from sales of equipment, molds, furniture and fixtures of
$175,000.  Investing activities in 2008 and 2007 were comprised
primarily of short-term investment purchases and maturities.  All
short-term investments were commercial paper or U.S. government agency discount
notes that matured within six to twelve months of purchase and were classified
as held-to-maturity because we had the positive intent and ability to hold the
securities to maturity.   In 2008, as short term investments
matured, the proceeds of $16,015,057 were either used to fund operations or were
invested in a money market account with an interest rate that equaled or
exceeded interest rates available on most short-term investments as market
interest rates were decreasing during the year.  In 2007, the use of
cash to purchase securities exceeded cash generated from maturities by
$11,163,507, due to availability of funds for investment provided primarily by
the private placement and the debt financing.  Investing activities in
2008 and 2007 also included additions to patent rights of $177,425 and $145,590
and purchases of equipment, molds, furniture and fixtures of $1,379,344 and
$96,575.  The 2008 purchases of equipment, molds, furniture and
fixtures were primarily for tooling and production equipment related to
commercial injector device deals with Teva.
 
 
 48
 
 
 Net
Cash Provided by (Used in) Financing Activities
 
 Net cash provided by (used in)
financing activities totaled $5,606,808, $(808,641) and $23,851,897 for the
years ended December 31, 2009, 2008 and 2007.  In 2009, we received
net proceeds of $10,527,650 from the sale of common stock and warrants, we made
payments on long term debt of $5,026,464 and we received $105,622 from the
exercise of warrants and stock options. In 2008, principal payments on long term
debt totaled $2,128,591 and proceeds received from the exercise of warrants
totaled $1,319,950.  In 2007, we received net proceeds of $14,742,671
from the private placement of common stock in which a total of 10,000,000 shares
of common stock were sold at a price of $1.60 per share.  In addition,
in 2007 we received proceeds of $2,292,692 from the exercise of warrants and
stock options and received proceeds of $7,500,000 from debt
financings.  In 2007, cash was used for debt principal payments and
debt issuance costs, which totaled $492,745 and $190,721,
respectively.
 
 Our contractual cash obligations at
December 31, 2009 are associated with operating leases and are summarized in the
following table:
  Payment
      Due by PeriodTotal
              
              
              Less
      than
                1
      year
              
              
              1-3
                years
              
              
              4-5
                years
              
              
              After
      5 yearsTotal
      contractual cash obligations
              
              $
              334,898
              
              
              $
              192,823
              
              
              $
              142,075
              
              
              $
              -
              
              
              $
              -
 
 Off
Balance Sheet Arrangements
 
 We do not have any off-balance sheet
arrangements, including any arrangements with any structured finance, special
purpose or variable interest entities.
 
 Research
and Development Programs
 
 During 2009, our research and
development activities were primarily related to Anturol® and
device development projects.
 
 Anturol®.  We
are currently evaluating Anturol® for
the treatment of OAB (overactive bladder).  In the fourth quarter of
2007 we initiated a Phase III pivotal trial designed toevaluate the efficacy of
Anturol® when
administered topically once daily for 12 weeks in patients predominantly with
urge incontinence episodes. The randomized, double-blind, parallel,
placebo-controlled, multi-center trial is expected to involve 600 patients (200
per arm) using two dose strengths (selected from the Phase II clinical trial)
versus a placebo. Enrollment expanded to approximately sixty centers throughout
the United States in 2009.  In addition to the Phase III trial, we
have incurred significant costs related to Anturol®
manufacturing development.  We have contracted with Patheon, Inc.
(“Patheon”), a manufacturing development company, to supply clinical quantities
of Anturol® and
to develop a commercial manufacturing process for Anturol®.  With
Patheon, we have completed limited commercial scale up activities associated
with Anturol®
manufacturing.  As of December 31, 2009, we have incurred total
external costs of approximately $12,900,000 in connection with our Anturol®
research and development, of which approximately $5,200,000 was incurred in the
year ended December 31, 2009.  We intend to seek a marketing partner
to help fund the development of Anturol® and
to commercially launch Anturol® if
approved by the FDA.  To date, we have not entered into an agreement
with a marketing partner.  However, in the third quarter of 2009, we
raised gross proceeds of $11,500,000 through the sale of shares of our common
stock and warrants.  Because of the additional funding received, we
will continue the Anturol®
development program and expect total expenses for Anturol® to be
approximately $5,000,000 in 2010.  Although the Phase III program for
Anturol® will
continue, the rate of progress of the program will be determined by the level of
expenditures, which may be affected by the timing of engaging a marketing
partner.
 
 Device Development
Projects.  We are engaged in research and development
activities related to our VibexTM disposable pressure-assisted auto injectors and
our disposable pen injectors.  We have signed license agreements with
Teva for our VibexTM system for two undisclosed products and for our pen injector
device for two undisclosed products.  Our pressure-assisted auto
injectors are designed to deliver drugs by injection from single-dose prefilled
syringes.  The auto injectors are in the advanced commercial stage of
development.  The disposable pen injector device is designed to
deliver drugs by injection through needles from multi-dose
cartridges.  The disposable pen is in
 
 49
  
 the early
stage of development where devices are being evaluated in clinical
studies.  Our development programs consist of determination of the
device design, development of prototype tooling, production of prototype devices
for testing and clinical studies, performance of clinical studies, and
development of commercial tooling and assembly.  As of December 31,
2009, we have incurred total external costs of approximately $4,400,000 in
connection with research and development activities associated with our auto and
pen injectors, of which approximately $900,000 was incurred in the year ended
December 31, 2009.  As of December 31, 2009, approximately $3,200,000
of the total costs of $4,400,000 had been deferred, of which approximately
$1,800,000 has been recognized as cost of sales and $1,400,000 remains
deferred.  This remaining deferred balance will be recognized as cost
of sales over the same period as the related deferred revenue will be
recognized.  The development timelines of the auto and pen injectors
related to the Teva products are controlled by Teva.  We expect
development related to the Teva products to continue in 2009, but the timing and
extent of near-term future development will be dependent on certain decisions
made by Teva.  In 2009 we received a payment from Teva in the amount
of $4,076,375 in connection with an amendment to a License, Development and
Supply Agreement signed in July 2006 related to an undisclosed, fixed,
single-dose, disposable injector product using our VibexTM auto injector
platform. Although this payment and certain upfront and milestone payments have
been received from Teva, there have been no commercial sales from the auto
injector or pen injector programs, timelines have been extended and there can be
no assurance that there ever will be commercial sales or future milestone
payments under these agreements.
 
 Other research and development
costs.  In addition to the Anturol®
project and Teva related device development projects, we incur direct costs in
connection with other research and development projects related to our
technologies and indirect costs that include salaries, administrative and other
overhead costs of managing our research and development
projects.  Total other research and development costs were
approximately $2,700,000 for the year ended December 31, 2009.
 
 Item
      7(A).
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
 Our primary market risk exposure is
foreign exchange rate fluctuations of the Swiss Franc to the U.S. dollar as the
financial position and operating results of our subsidiaries in Switzerland are
translated into U.S. dollars for consolidation. Our exposure to foreign exchange
rate fluctuations also arises from transferring funds to our Swiss subsidiaries
in Swiss Francs. In addition, we have exposure to exchange rate fluctuations
between the Euro and the U.S. dollar in connection with the licensing agreement
entered into in January 2003 with Ferring, which established pricing in Euros
for products sold under the supply agreement and for all
royalties.  In March 2007, we amended the 2003 agreement with Ferring,
establishing prices in U.S. dollars rather than Euros for certain products,
reducing the exchange rate risk.  Most of our sales and licensing fees
are denominated in U.S. dollars, thereby significantly mitigating the risk of
exchange rate fluctuations on trade receivables. We do not currently use
derivative financial instruments to hedge against exchange rate risk. Because
exposure increases as intercompany balances grow, we will continue to evaluate
the need to initiate hedging programs to mitigate the impact of foreign exchange
rate fluctuations on intercompany balances. The effect of foreign exchange rate
fluctuations on our financial results for the years ended December 31, 2009,
2008 and 2007 was not material.
 
 Typically, our short-term investments
are commercial paper or U.S. government agency discount notes that mature within
six to twelve months of purchase. The market value of such investments
fluctuates with current market interest rates. In general, as rates increase,
the market value of a debt instrument is expected to decrease. The opposite is
also true. To minimize such market risk, we have in the past and to the extent
possible, will continue in the future, to hold such debt instruments to maturity
at which time the debt instrument will be redeemed at its stated or face value.
Due to the short duration and nature of these instruments, we do not believe
that we have a material exposure to interest rate risk related to our investment
portfolio.  We had no short-term investments at December 31,
2009.
 
 
 
 50
 Item
8.              FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
 
 
 ANTARES
      PHARMA, INC.
 INDEX
      TO CONSOLIDATED FINANCIAL
STATEMENTS
 
 
 
 Management’s
      Report on Internal Control Over Financial Reporting
              52Report
      of Independent Registered Public Accounting Firm
              53Consolidated
      Balance Sheets as of December 31, 2009 and 2008
              54Consolidated
      Statements of Operations for the Years Ended December 31, 2009, 2008 and
      2007
              55Consolidated
      Statements of Stockholders’ Equity and Comprehensive Loss for
      the
                Years
      Ended December 31, 2009, 2008 and 2007
              56Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
      2007
              57Notes
      to Consolidated Financial Statements
              58
 
 
 51
 
 MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 
 The
management of Antares Pharma, Inc. (the “Company”) is responsible for
establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934.  The Company’s internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States
and include those policies and procedures that:
 
 ·
              Pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;
 ·
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United
  States;
 ·
              Provide
      reasonable assurance that receipts and expenditures of the Company are
      being made only in accordance with authorization of management and
      directors of the Company; and
 ·
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
 
 Company
management assessed the effectiveness of its internal control over financial
reporting as of December 31, 2009.  In making this assessment,
management used the criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  Based on its assessment, management has
concluded that the Company’s internal control over financial reporting was
effective as of December 31, 2009.
 
 This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting.  Management’s report was not subject to
attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this annual report.
 
 
 /s/
                Paul
      K. Wotton
                
                /s/
                Robert
      F. AppleDr.
      Paul K. Wotton
                
                
                Robert
      F. ApplePresident
      and Chief Executive Officer
                
                
                Executive
      Vice President and Chief Financial Officer(Principal
      Executive Officer)
                
                
                (Principal
      Financial Officer)March
      23, 2010
                
                
                March
      23, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 52
 
 
 
 
 
 
 
 Report of
Independent Registered Public Accounting Firm
 
 
 
 The Board
of Directors and Shareholders
 Antares
Pharma, Inc.:
 
 We have
audited the accompanying consolidated balance sheets of Antares Pharma, Inc. and
subsidiaries (the Company) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ equity and comprehensive
loss, and cash flows for each of the years in the three-year period ended
December 31, 2009. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Antares Pharma, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles.
 As
disclosed in notes 2 and 12 to the consolidated financial statements, the
Company adopted Financial Accounting Standards Board Accounting Standards Update
2009-13, Revenue Arrangements
with Multiple Deliverables, in the third quarter of 2009 with
retrospective application to January 1, 2009.
 /s/ KPMG
LLP
 
 
 Minneapolis,
Minnesota
 March 23,
2010
  
 
 
 53
 
 
 
 ANTARES
PHARMA, INC.
 CONSOLIDATED
BALANCE SHEETS
 
 
 December
      31,
              
              
              December
      31,2009
              
              
              2008AssetsCurrent
      Assets:Cash
      and cash equivalents
              
              $
              13,559,088
              
              
              $
              13,096,298Accounts
      receivable, less allowance for doubtful accounts of
$10,000
              
              
              1,542,272
              
              
              
              1,334,648Inventories
              
              
              329,553
              
              
              
              182,038Deferred
      costs
              
              
              963,053
              
              
              
              -Prepaid
      expenses and other current assets
              
              
              155,255
              
              
              
              294,818Total
      current assets
              
              
              16,549,221
              
              
              
              14,907,802Equipment,
      molds, furniture and fixtures, net
              
              
              317,310
              
              
              
              1,788,163Patent
      rights, net
              
              
              742,399
              
              
              
              644,856Goodwill
              
              
              1,095,355
              
              
              
              1,095,355Deferred
      costs
              
              
              408,250
              
              
              
              1,292,090Other
      assets
              
              
              30,838
              
              
              
              183,139Total
      Assets
              
              $
              19,143,373
              
              
              $
              19,911,405Liabilities
      and Stockholders’ EquityCurrent
      Liabilities:Accounts
      payable
              
              $
              1,882,158
              
              
              $
              2,103,493Accrued
      expenses and other liabilities
              
              
              1,048,619
              
              
              
              1,382,306Notes
      payable and capital leases, net of discount of $0 and $121,762,
      respectively
              
              
              -
              
              
              
              2,705,070Deferred
      revenue
              
              
              5,311,516
              
              
              
              1,179,820Total
      current liabilities
              
              
              8,242,293
              
              
              
              7,370,689Notes
      payable and capital leases, net of discount of $0 and $32,427,
      respectively
              
              
              -
              
              
              
              2,239,550Deferred
      revenue – long term
              
              
              2,050,550
              
              
              
              3,057,901Total
      liabilities
              
              
              10,292,843
              
              
              
              12,668,140Stockholders’
      Equity:Preferred
      Stock:  $0.01 par; authorized 3,000,000 shares, none
      outstanding
              
              
              -
              
              
              
              -Common
      Stock:  $0.01 par; authorized 150,000,000
shares;81,799,541
      and 68,049,666 issued and outstanding atDecember
      31, 2009 and 2008, respectively
              
              
              817,995
              
              
              
              680,496Additional
      paid-in capital
              
              
              139,614,459
              
              
              
              127,926,205Accumulated
      deficit
              
              
              (130,882,597
              )
              
              
              (120,591,845
              )Accumulated
      other comprehensive loss
              
              
              (699,327
              )
              
              
              (771,591
              )8,850,530
              
              
              
              7,243,265Total
      Liabilities and Stockholders’ Equity
              
              $
              19,143,373
              
              
              $
              19,911,405
 
 
 
 See
accompanying notes to consolidated financial statements.
    54
 ANTARES
PHARMA, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 
 Years
      Ended December 31,2009
              
              
              2008
              
              
              2007Revenue:Product
      sales
              
              $
              3,506,510
              
              
              $
              3,349,532
              
              
              $
              3,211,397Development
      revenue
              
              
              2,606,516
              
              
              
              540,557
              
              
              
              955,402Licensing
      revenue
              
              
              1,595,220
              
              
              
              1,238,211
              
              
              
              3,231,305Royalties
              
              
              602,816
              
              
              
              532,411
              
              
              
              458,892Total
      revenue
              
              
              8,311,062
              
              
              
              5,660,711
              
              
              
              7,856,996Cost
      of revenue:Cost
      of product sales
              
              
              1,813,385
              
              
              
              1,889,317
              
              
              
              1,768,799Cost
      of development revenue
              
              
              2,326,449
              
              
              
              130,268
              
              
              
              234,583Impairment
      of prepaid license discount and
                related charges
              
              
              -
              
              
              
              -
              
              
              
              1,438,638Total
      cost of revenue
              
              
              4,139,834
              
              
              
              2,019,585
              
              
              
              3,442,020Gross
      profit
              
              
              4,171,228
              
              
              
              3,641,126
              
              
              
              4,414,976Operating
      expenses:Research
      and development
              
              
              7,902,486
              
              
              
              7,866,499
              
              
              
              5,362,291Sales,
      marketing and business development
              
              
              1,051,030
              
              
              
              1,624,599
              
              
              
              1,640,875General
      and administrative
              
              
              4,911,356
              
              
              
              6,347,997
              
              
              
              6,057,39613,864,872
              
              
              
              15,839,095
              
              
              
              13,060,562Operating
      loss
              
              
              (9,693,644
              )
              
              
              (12,197,969
              )
              
              
              (8,645,586
              )Other
      income (expense):Interest
      income
              
              
              27,270
              
              
              
              553,061
              
              
              
              872,095Interest
      expense
              
              
              (633,459
              )
              
              
              (1,021,675
              )
              
              
              (772,417
              )Foreign
      exchange gains (losses)
              
              
              (40,861
              )
              
              
              17,001
              
              
              
              (46,268
              )Other,
      net
              
              
              49,942
              
              
              
              (40,871
              )
              
              
              13,237(597,108
              )
              
              
              (492,484
              )
              
              
              66,647Net
      loss applicable to common shares
              
              $
              (10,290,752
              )
              
              $
              (12,690,453
              )
              
              $
              (8,578,939
              )Basic
      and diluted net loss per common share
              
              $
              (0.14
              )
              
              $
              (0.19
              )
              
              $
              (0.14
              )Basic
      and diluted weighted average common shares outstanding
              
              
              73,488,507
              
              
              
              67,232,889
              
              
              
              59,604,646
 
 
 
 
 
 
 
 See
accompanying notes to consolidated financial statements.
  55
 ANTARES
PHARMA, INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
 Years
Ended December 31, 2007, 2008 and 2009
 
 
 Common
      Stock
              
              
              
              
              
              AccumulatedNumber
                of
                Shares
              
              
              Amount
              
              
              Additional
                Paid-In
                Capital
              
              
              Prepaid
                License
                Discount
              
              
              Accumulated
                Deficit
              
              
              Other
      Comprehensive
                Loss
              
              
              Total
                Stockholders’
                EquityDecember
      31, 2006
              
              
              53,319,622
              
              
              $
              533,196
              
              
              $
              106,792,974
              
              
              $
              (2,305,929
              )
              
              $
              (99,322,453
              )
              
              $
              (617,343
              )
              
              $
              5,080,445Issuance
      of common stock in private placement
              
              
              10,000,000
              
              
              
              100,000
              
              
              
              14,642,671
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              14,742,671Issuance
      of warrants in debt financing
              
              
              -
              
              
              
              -
              
              
              
              505,379
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              505,379Exercise
      of warrants and options
              
              
              2,187,317
              
              
              
              21,873
              
              
              
              2,270,819
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,292,692Stock-based
      compensation
              
              
              22,727
              
              
              
              227
              
              
              
              1,218,810
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,219,037Impairment
      and amortization of prepaid license discount
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,305,929
              
              
              
              -
              
              
              
              -
              
              
              
              2,305,929Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (8,578,939
              )
              
              
              -
              
              
              
              (8,578,939
              )Translation
      adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (67,923
              )
              
              
              (67,923
              )Comprehensive
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (8,646,862
              )December
      31, 2007
              
              
              62,529,666
              
              
              
              655,296
              
              
              
              125,430,653
              
              
              
              -
              
              
              
              (107,901,392
              )
              
              
              (685,266
              )
              
              
              17,499,291Exercise
      of warrants
              
              
              2,400,000
              
              
              
              24,000
              
              
              
              1,295,950
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,319,950Stock-based
      compensation
              
              
              120,000
              
              
              
              1,200
              
              
              
              1,199,602
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,200,802Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (12,690,453
              )
              
              
              -
              
              
              
              (12,690,453
              )Translation
      adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (86,325
              )
              
              
              (86,325
              )Comprehensive
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (12,776,778
              )December
      31, 2008
              
              
              68,049,666
              
              
              
              680,496
              
              
              
              127,926,205
              
              
              
              -
              
              
              
              (120,591,845
              )
              
              
              (771,591
              )
              
              
              7,243,265Issuance
      of common stock
              
              
              13,352,273
              
              
              
              133,523
              
              
              
              10,394,127
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,527,650Exercise
      of warrants and options
              
              
              152,082
              
              
              
              1,521
              
              
              
              104,101
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              105,622Stock-based
      compensation
              
              
              245,520
              
              
              
              2,455
              
              
              
              1,190,026
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,192,481Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,290,752
              )
              
              
              -
              
              
              
              (10,290,752
              )Translation
      adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              72,264
              
              
              
              72,264Comprehensive
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,218,488
              )December
      31, 2009
              
              
              81,799,541
              
              
              $
              817,995
              
              
              $
              139,614,459
              
              
              $
              -
              
              
              $
              (130,882,597
              )
              
              $
              (699,327
              )
              
              $
              8,850,530
 
 
 
 
 See
accompanying notes to consolidated financial statements.
   56
  ANTARES
PHARMA, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 
 Years
      Ended December 31,2009
              
              
              2008
              
              
              2007Cash
      flows from operating activities:Net
      loss
              
              $
              (10,290,752
              )
              
              $
              (12,690,453
              )
              
              $
              (8,578,939
              )Adjustments
      to reconcile net loss to net
                cash
      used in operating activities:Patent
      rights impairment charge
              
              
              -
              
              
              
              -
              
              
              
              296,338Depreciation
      and amortization
              
              
              226,384
              
              
              
              283,320
              
              
              
              251,827Gain
      on sale of equipment, molds, furniture and fixtures
              
              
              (70,506
              )
              
              
              -
              
              
              
              -Stock-based
      compensation expense
              
              
              1,192,479
              
              
              
              1,160,454
              
              
              
              1,202,603Amortization
      of debt discount and issuance costs
              
              
              206,519
              
              
              
              269,547
              
              
              
              220,034Impairment
      and amortization of prepaid license discount
              
              
              -
              
              
              
              -
              
              
              
              2,305,929Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (239,440
              )
              
              
              (853,964
              )
              
              
              379,129Inventories
              
              
              (147,515
              )
              
              
              (56,629
              )
              
              
              (40,630
              )Prepaid
      expenses and other current assets
              
              
              130,761
              
              
              
              659,726
              
              
              
              (452,224
              )Deferred
      costs
              
              
              1,099,072
              
              
              
              (740,276
              )
              
              
              (340,004
              )Other
      assets
              
              
              147,734
              
              
              
              (562
              )
              
              
              (435
              )Accounts
      payable
              
              
              (201,161
              )
              
              
              1,195,006
              
              
              
              (17,686
              )Accrued
      expenses and other current liabilities
              
              
              (324,412
              )
              
              
              (105,298
              )
              
              
              441,698Deferred
      revenue
              
              
              3,171,277
              
              
              
              554,717
              
              
              
              (1,061,916
              )Net
      cash used in operating activities
              
              
              (5,099,560
              )
              
              
              (10,324,412
              )
              
              
              (5,394,276
              )Cash
      flows from investing activities:Purchase
      of short-term investments
              
              
              -
              
              
              
              -
              
              
              
              (24,326,544
              )Proceeds
      from maturity of short-term investments
              
              
              -
              
              
              
              16,015,057
              
              
              
              13,163,037Proceeds
      from sales of equipment, molds, furniture and fixtures
              
              
              175,000
              
              
              
              -
              
              
              
              -Additions
      to patent rights
              
              
              (176,541
              )
              
              
              (177,425
              )
              
              
              (145,590
              )Purchases
      of equipment, molds, furniture and fixtures
              
              
              (11,043
              )
              
              
              (1,379,344
              )
              
              
              (96,575
              )Net
      cash provided by (used in) investing activities
              
              
              (12,584
              )
              
              
              14,458,288
              
              
              
              (11,405,672
              )Cash
      flows from financing activities:Proceeds
      from issuance of common stock, net
              
              
              10,527,650
              
              
              
              -
              
              
              
              14,742,671Proceeds
      from exercise of warrants and stock options
              
              
              105,622
              
              
              
              1,319,950
              
              
              
              2,292,692Proceeds
      from notes payable, net of debt issuance costs
              
              
              -
              
              
              
              -
              
              
              
              7,309,279Principal
      payments on notes payable
              
              
              (5,026,464
              )
              
              
              (2,128,591
              )
              
              
              (492,745
              )Net
      cash provided by (used in) financing activities
              
              
              5,606,808
              
              
              
              (808,641
              )
              
              
              23,851,897Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (31,874
              )
              
              
              12,139
              
              
              
              928Net
      increase in cash and cash equivalents
              
              
              462,790
              
              
              
              3,337,374
              
              
              
              7,052,877Cash
      and cash equivalents:Beginning
      of year
              
              
              13,096,298
              
              
              
              9,758,924
              
              
              
              2,706,047End
      of year
              
              $
              13,559,088
              
              
              $
              13,096,298
              
              
              $
              9,758,924
 
 See
accompanying notes to consolidated financial statements.
   57
  ANTARES PHARMA, INC.
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
   1.      Description
of Business
 
 Antares Pharma, Inc. (the “Company” or
“Antares”) is an emerging pharma company that focuses on self-injection
pharmaceutical products and technologies and topical gel-based products. 
The Company's subcutaneous injection technology platforms include VibexTM
disposable pressure-assisted auto injectors, VisionTM reusable needle-free
injectors, and disposable multi-use pen injectors.  Pharmaceutical and
biotechnology companies are viewed as the Company’s primary
customers.
 
 In the injector area, the Company has
licensed its reusable needle-free injection device for use with human growth
hormone to Teva Pharmaceutical Industries, Ltd. (“Teva”), Ferring
Pharmaceuticals BV (“Ferring”) and JCR Pharmaceuticals Co., Ltd. (“JCR”). 
In August 2009, the Company announced that Teva launched its Tjet®
injector system, which uses the Company’s needle-free device to administer
Teva’s Tev-Tropin® brand
human growth hormone.  The Company has also licensed both disposable
auto and pen injection devices to Teva for use in undisclosed fields and
territories.  In 2009, the Company received a payment of $4,076,375
from Teva for tooling and for an advance for the design, development and
purchase of additional tooling and automation equipment, all of which is related
to an undisclosed, fixed, single-dose, disposable injector product using the
Company’s VibexTM auto injector platform.  In addition, the Company
continues to support existing customers of its reusable needle-free devices for
the home or alternate site administration of insulin in the U.S. market through
distributors.
 
 In the gel-based area, the Company’s
lead product candidate, Anturol®, an
oxybutynin ATDTM gel for the treatment of OAB (overactive bladder), is currently
under evaluation in a pivotal Phase 3 trial, for which the Company expects to
file an NDA in 2010.  The Company also has a partnership with BioSante
Pharmaceuticals, Inc. (“BioSante”) that includes LibiGel®
(transdermal testosterone gel) in Phase 3 clinical development for the treatment
of female sexual dysfunction (FSD), and Elestrin®
(estradiol gel) for the treatment of moderate-to-severe vasomotor symptoms
associated with menopause, and currently marketed in the U.S.
 
 The Company has operating facilities in
the U.S. and Switzerland.  The U.S. operation manufactures and markets
the Company’s reusable needle-free injection devices and related disposables,
and develops its disposable pressure-assisted auto injector and pen injector
systems. These operations, including all development and some U.S.
administrative activities, are located in Minneapolis, Minnesota.  The
Company also has operations located in Switzerland, which is focused on
transdermal gels and has a number of license agreements with pharmaceutical
companies for the application of its drug delivery systems.  The
Company’s corporate offices are located in Ewing, New Jersey.
 
 2.      Summary
of Significant Accounting Policies
 
 Basis
of Presentation
 
 The accompanying consolidated financial
statements include the accounts of Antares Pharma, Inc. and its three
wholly-owned subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
 
 Use
of Estimates
 
 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 financial statements and the reported amounts
of revenues and expenses during the reporting period. The Company’s significant
accounting estimates relate to the revenue recognition periods for license
revenues, product warranty accruals and determination of the fair value and
recoverability of goodwill and patent rights. Actual results could differ from
these estimates.
 
 Foreign
Currency Translation
 
 The majority of the foreign
subsidiaries revenues are denominated in U.S. dollars, and any required funding
of the subsidiaries is provided by the U.S. parent. Nearly all operating
expenses of the foreign subsidiaries, including labor, materials, leasing
arrangements and other operating costs, are denominated in Swiss Francs.
Additionally,
  58
  bank
accounts held by foreign subsidiaries are denominated in Swiss Francs, there is
a low volume of intercompany transactions
and there is not an extensive interrelationship between the operations of the
subsidiaries and the parent company. As such, the Company has determined that
the Swiss Franc is the functional currency for its three foreign subsidiaries.
The reporting currency for the Company is the United States Dollar (“USD”). The
financial statements of the Company’s three foreign subsidiaries are translated
into USD for consolidation purposes. All assets and liabilities
are translated using period-end exchange rates and statements of operations
items are translated using average exchange rates for the period. The resulting
translation adjustments are recorded as a separate component of stockholders’
equity.  Sales to certain customers by the U.S. parent are in
currencies other than the U.S. dollar and are subject to foreign currency
exchange rate fluctuations. Foreign currency transaction gains and losses are
included in the statements of operations.
 
 Cash
Equivalents
 
 The Company considers highly liquid
debt instruments with original maturities of 90 days or less to be cash
equivalents.
 
 Allowance
for Doubtful Accounts
 
 Trade accounts receivable are stated at
the amount the Company expects to collect. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. The Company considers the following factors
when determining the collectibility of specific customer accounts: customer
credit-worthiness, past transaction history with the customer, current economic
industry trends, and changes in customer payment terms. If the financial
condition of the Company’s customers were to deteriorate, adversely affecting
their ability to make payments, additional allowances would be
required.  The Company provides for estimated uncollectible amounts
through a charge to earnings and a credit to a valuation allowance. Balances
that remain outstanding after the Company has used reasonable collection efforts
are written off through a charge to the valuation allowance and a credit to
accounts receivable.  The Company recorded no bad debt expense in each
of the last three years.  The allowance for doubtful accounts balance
was $10,000 at December 31, 2009, 2008 and 2007.
 
 Inventories
 
 Inventories are stated at the lower of
cost or market. Cost is determined on a first-in, first-out basis. Certain
components of the Company’s products are provided by a limited number of
vendors, and the Company’s production and assembly operations are outsourced to
a third-party supplier. Disruption of supply from key vendors or the third-party
supplier may have a material adverse impact on the Company’s
operations.
 
 Equipment,
Molds, Furniture, and Fixtures
 
 Equipment, molds, furniture, and
fixtures are stated at cost and are depreciated using the straight-line method
over their estimated useful lives ranging from three to ten years. Certain
equipment and furniture held under capital leases is classified in equipment,
molds, furniture and fixtures and is amortized using the straight-line method
over the lease term or estimated useful life, and the related obligations are
recorded as liabilities. Lease amortization is included in depreciation
expense.  Depreciation expense was $135,411, $158,864 and $137,085 for
the years ended December 31, 2009, 2008 and 2007, respectively.
 
 Goodwill
 
 The Company has $1,095,355 of goodwill
recorded as of December 31, 2009 that relates to the Minnesota
operations.  The Company evaluates the carrying amount of goodwill
during the fourth quarter of each year and between annual evaluations if events
occur or circumstances change that would more likely than not reduce the fair
value of the Minnesota reporting unit below its carrying amount. Such
circumstances could include, but are not limited to: (1) a significant adverse
change in legal factors or in business climate, (2) unanticipated competition,
(3) an adverse action or assessment by a regulator, or (4) a sustained
significant drop in the Company’s stock price. When evaluating whether goodwill
is impaired, the Company compares the fair value of the Minnesota operations to
the carrying amount, including goodwill. If the carrying amount of the Minnesota
operations exceeds its fair value,
 
 59
 
 then the
amount of the impairment loss must be measured. The impairment loss would be
calculated by comparing the implied fair value of goodwill to its carrying
amount. In calculating the implied fair value of goodwill, the fair value of the
Minnesota operations would be allocated to all of its other assets and
liabilities based on their fair values. The excess of the fair value of the
Minnesota operations over the amount assigned to its other assets and
liabilities is the implied fair value of goodwill. An impairment loss would be
recognized when the carrying amount of goodwill exceeds its implied fair value.
The Company’s evaluation of goodwill completed during 2009, 2008 and 2007
resulted in no impairment losses.
 
 Patent
Rights
 
 The Company capitalizes the cost of
obtaining patent rights. These capitalized costs are being amortized on a
straight-line basis over periods ranging from six to fifteen years beginning on
the earlier of the date the patent is issued or the first commercial sale of
product utilizing such patent rights. Amortization expense for the years ended
December 31, 2009, 2008 and 2007 was $99,313, $124,455 and $112,383,
respectively.
 
 Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
 
 Long-lived assets, including patent
rights, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset or asset group may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset or asset group. This analysis can be very
subjective as the Company relies upon signed distribution or license agreements
with variable cash flows to substantiate the recoverability of long-lived
assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
 
 Each year the Company reviews patent
costs for impairment and identifies patents related to products for which there
are no signed distribution or license agreements or for which no revenues or
cash flows are anticipated. In 2007 the Company recognized an impairment charge
of $296,338 in general and administrative expenses, which represented the gross
carrying amount net of accumulated amortization for the identified
patents.  No impairment charges were recognized in 2009 or
2008.  The 2007 impairment charge related to the amendment of the
agreement with Eli Lilly and Co. (“Lilly”) and is discussed further in Note
11.  The gross carrying amount and accumulated amortization of
patents, which are the only intangible assets of the Company subject to
amortization, were $1,665,519 and $923,120, respectively, at December 31, 2009
and were $1,471,536 and $826,680, respectively, at December 31, 2008. The
Company’s estimated aggregate patent amortization expense for the next five
years is $91,000, $66,000, $60,000, $60,000 and $60,000 in 2010, 2011, 2012,
2013 and 2014, respectively.
 
 Fair
Value of Financial Instruments
 
 Cash and cash equivalents are stated at
cost, which approximates fair value.   The fair value of notes
payable was approximately $4,923,000 at December 31, 2008, estimated using rates
that may be available to the Company for debt with similar remaining
maturities.
 
 Revenue
Recognition
 
 The Company sells its proprietary
reusable needle-free injectors and related disposable products through
pharmaceutical and medical product distributors. The Company’s reusable
injectors and related disposable products are not interchangeable with any
competitive products and must be used together. The Company recognizes revenue
upon shipment when title transfers. The Company offers no price protection or
return rights other than for customary warranty claims. Sales terms and pricing
are governed by sales and distribution agreements.
 
 The Company also records revenue from
license fees, milestone payments and royalties. License fees and milestone
payments received under contracts originating prior to June 15, 2003 are
accounted for under the cumulative deferral method. This method defers milestone
payments with amortization to income over the contract term on a straight-line
basis commencing with the achievement of a contractual milestone. If the Company
is
 
 60
 
 required
to refund any portion of a milestone payment, the milestone will not be
amortized into revenue until the repayment obligation no longer
exists.
 
 Licensing revenue recognition requires
significant management judgment to evaluate the effective terms of agreements,
the Company’s performance commitments and determination of fair value of the
various deliverables under the arrangement.  In the third quarter of
2009, the Company elected early adoption of Financial Accounting Standards Board
(“FASB”) Accounting Standards Update (“ASU”) 2009-13, “Revenue Arrangements with
Multiple Deliverables” (“ASU 2009-13”).  ASU 2009-13, which amended
FASB ASC 605-25, “Multiple-Element Arrangements,” is effective for arrangements
entered into or materially modified in fiscal years beginning on or after June
15, 2010, but allows for early adoption.  ASU 2009-13 requires a
vendor to allocate revenue to each unit of accounting in arrangements involving
multiple deliverables.  It changes the level of evidence of
standalone selling price required to separate deliverables by allowing a vendor
to make its best estimate of the standalone selling price of deliverables when
vendor specific objective evidence or third party evidence of selling price is
not available.  As a result of adoption of ASU 2009-13, deferred
revenues and deferred costs associated with one License, Development and Supply
Agreements with Teva will be recognized as revenues and expenses earlier than
would otherwise have occurred.  Revenues and expenses generated in
connection with future multiple element arrangements will likely often be
recognized over shorter periods than would have occurred prior to adoption of
ASU 2009-13.  The impact of adoption of ASU 2009-13 is discussed
further in Note 12 to the consolidated financial statements.
 
 The Company has a number of
arrangements that were not affected by adoption of ASU 2009-13, and the
accounting for these arrangements will continue under the prior accounting
standards unless an arrangement is materially modified, as defined in the new
accounting standard.  The prior accounting standards address when and,
if so, how an arrangement involving multiple deliverables should be divided into
separate units of accounting. In some arrangements, the different
revenue-generating activities (deliverables) are sufficiently separable, and
there exists sufficient evidence of their fair values to separately account for
some or all of the deliverables (that is, there are separate units of
accounting). In other arrangements, some or all of the deliverables are not
independently functional, or there is not sufficient evidence of their fair
values to account for them separately. The ability or inability to establish
objective evidence of fair value for the deliverable portions of the contracts
significantly impacted the time period over which revenues are being recognized.
For instance, if there was no objective fair value of undelivered elements of a
contract, then a multi-deliverable contract was required to be treated as one
unit of accounting, resulting in all revenue being deferred and recognized over
the entire contract period.
 
 At December 31, 2009, $7,362,066 of
non-refundable cash payments received have been recorded as deferred revenue in
cases where the revenue is not immediately recognized due to the long-term
nature of the respective agreements. Subsequent factors affecting the initial
estimate of the effective terms of agreements could either increase or decrease
the period over which the deferred revenue is recognized.
 
 Stock-Based
Compensation
 
 The Company records compensation
expense associated with share based awards granted to employees at the fair
value of the award on the date of grant.  The expense is recognized
over the period during which an employee is required to provide services in
exchange for the award.
 
 The Company uses the Black-Scholes
option valuation model to determine the fair value of stock options. The fair
value model includes various assumptions, including the expected volatility and
expected life of the awards.
 
 Stock-based instruments granted to
nonemployees are recorded at their fair value on the measurement date, which is
typically the vesting date.
 
 Product
Warranty
 
 The Company provides a warranty on its
reusable needle-free injector devices. Warranty terms for devices sold to
end-users by dealers and distributors are included in the device instruction
manual included with each device sold. Warranty
terms for devices sold to corporate customers who provide their own warranty
terms to end-users are included in the contracts with the corporate customers.
The Company is obligated to repair or replace, at the
 
 61
 
 Company’s
option, a device found to be defective due to use of defective materials or
faulty workmanship. The warranty does not apply to any product that has been
used in violation of instructions as to the use of the product or to any product
that has been neglected, altered, abused or used for a purpose other than the
one for which it was manufactured. The warranty also does not apply to any
damage or defect caused by unauthorized repair or the use of unauthorized parts.
The warranty period on a device is typically 24 months from either the date of
retail sale of the device by a dealer or distributor or the date of shipment to
a customer if specified by contract. The Company recognizes the estimated cost
of warranty obligations at the time the products are shipped based on historical
claims incurred by the Company. Actual warranty claim costs could differ from
these estimates. Warranty liability activity is as follows:
  Balance
      at
                Beginning
      of
                Year
              
              
              Provisions
              
              
              Claims
              
              
              Balance
      at
                End
      of
                Year2009
              
              $
              20,000
              
              
              $
              13,129
              
              
              $
              (13,129
              )
              
              $
              20,0002008
              
              $
              20,000
              
              
              $
              8,496
              
              
              $
              (8,496
              )
              
              $
              20,000
 
 Research
and Development
 
 Research and development costs are
expensed as incurred.
 
 Income
Taxes
 
 Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
 years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Due to
historical net losses of the Company, a valuation allowance is established to
offset the net deferred tax asset balance for all years presented.
 
 Net
Loss Per Share
 
 Basic net loss per share is computed by
dividing net income or loss available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted net
loss per share is computed similar to basic net loss per share except that the
weighted average shares outstanding are increased to include additional shares
from the assumed exercise of stock options and warrants, if dilutive. The number
of additional shares is calculated by assuming that outstanding stock options or
warrants were exercised and that the proceeds from such exercise were used to
acquire shares of common stock at the average market price during the reporting
period.  All potentially dilutive common shares were excluded from the
calculation because they were anti-dilutive for all periods
presented.
 
 Potentially dilutive securities at
December 31, 2009, 2008 and 2007, excluded from dilutive loss per share as their
effect is anti-dilutive, are as follows:
  2009
              
              
              
              2008
              
              
              
              2007Stock
      options and warrants
              
              26,635,093
              
              
              
              26,268,701
              
              
              
              28,723,412
 
 New
Accounting Pronouncements
 
 Effective July 1, 2009, the FASB
issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The
FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principles—a replacement of FASB Statement No. 162” (“SFAS
No. 168”). SFAS No. 168 reduces the U.S. GAAP hierarchy to two
levels, one that is authoritative and one that is not. The Company began to use
the new guidance and reflect the new accounting guidance references when
referring to GAAP for the quarterly period ended September 30, 2009, and
all subsequent periods. As the guidance was not intended to change or alter
existing GAAP, adoption of this pronouncement did not have an effect on the
Company’s consolidated financial statements.
   62
 
 Effective January 1, 2009, the Company
adopted FASB ASC 805, “Business Combinations” (formerly SFAS
141R).  This establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree and the goodwill acquired in the business combination.  ASC
805 also establishes disclosure requirements to enable the evaluation of the
nature and financial effects of the business combination.  Adoption of
ASC 805 will apply prospectively to business combinations completed after
January 1, 2009.
 
 Effective January 1, 2009, the Company
adopted the provisions of ASC 815, “Derivatives and Hedging” that were issued
with Emerging Issues Task Force Issue 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock.”  This provides
that an entity should use a two step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own
stock, including evaluating the instrument's contingent exercise and settlement
provisions.  The adoption of this pronouncement did not have an impact on
the Company’s consolidated financial statements.
 
 The Company adopted the provisions of
ASC 820-10, “Fair Value Measurements and Disclosures” (formerly SFAS
No. 157), with respect to non-financial assets and liabilities effective
January 1, 2009. This pronouncement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. The adoption of ASC 820-10 did not have an impact on the Company’s
consolidated financial statements.
 
 In May 2009, the FASB issued ASC 855,
“Subsequent Events” (formerly SFAS 165), which establishes general standards of
accounting for, and requires disclosure of, events that occur after the balance
sheet date but before financial statements are issued or are available to be
issued.  In February 2010, ASC 855 was amended by ASU 2010-09
eliminating the requirement to disclose the date through which subsequent events
have been evaluated.  The adoption of ASC 855, as amended by ASU
2010-09, did not have an impact on the Company’s consolidated financial
statements.
 
 In the third quarter of 2009, the
Company elected early adoption of FASB ASU 2009-13, “Revenue Arrangements with
Multiple Deliverables.”  ASU 2009-13, which amended FASB ASC 605-25,
“Multiple-Element Arrangements,” is effective for arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, but
allows for early adoption.  ASU 2009-13 requires a vendor to allocate
revenue to each unit of accounting in arrangements involving multiple
deliverables based on the relative selling price of each
deliverable.  It also changes the level of evidence of standalone
selling price required to separate deliverables by allowing a vendor to make its
best estimate of the standalone selling price of deliverables when more
objective evidence of selling price is not available.  The impact of
adopting this pronouncement is discussed in Note 12 to the consolidated
financial statements.
 
 3.
              Liquidity
 
 The Company has reported net losses of
$10,290,752, $12,690,453 and $8,578,939 in the fiscal years ended 2009, 2008 and
2007, respectively, and the Company has accumulated aggregate net losses from
the inception of business through December 31, 2009 of
$130,882,597.   In addition, the Company expects to report a net
loss for the year ending December 31, 2010.   The Company has not
historically generated sufficient revenue to provide the cash
needed  to support operations, and has continued to operate primarily
by raising capital and incurring debt.  The Company disclosed in its
2008 Annual Report on Form 10-K that there was uncertainty about its ability to
continue as a going concern.  In 2009 this uncertainty was
resolved.
 
 In order to be in a better position to
take advantage of potential growth opportunities and to fund future operations,
during 2009 the Company raised additional capital and took steps to reduce its
monthly cash obligations.  In the third quarter of 2009, the Company
raised gross proceeds of $11,500,000 through the sale of shares of its common
stock and warrants.  Approximately $3,000,000 of the proceeds was used
to pay off the remaining balance of the Company’s credit facility, eliminating
the monthly debt service requirements.  In the fourth quarter of 2009,
the Company reduced its monthly overhead when it entered into an Asset Purchase
Agreement with Ferring. Under this agreement, Ferring assumed responsibility for
all of the Company’s facility and equipment lease obligations in connection with
its operations in Switzerland, and the majority of the Company’s employees at
that location were hired by Ferring effective January 1,
2010.  Subsequent to the Ferring agreement, the Company entered into a
 
 63
 
 month-to-month
facility lease agreement at a new Swiss location in a much smaller space at a
significantly reduced monthly rate.
 
 At December 31, 2009, the Company
had cash and cash equivalents of $13,559,088.  The Company believes
that the combination of the current cash and cash equivalents balance, the
recent reductions in its monthly cash outflows, the projected product sales,
product development revenue, license revenues, milestone payments and royalties
will provide sufficient funds to support operations for at least the next 12
months.
 
 4.
              Composition
      of Certain Financial Statement
Captions
 
 December
      31,
              
              
              December
      31,2009
              
              
              2008Inventories:Raw
      material
              
              $
              250,718
              
              
              $
              103,456Finished
      goods
              
              
              78,835
              
              
              
              78,582$
              329,553
              
              
              $
              182,038Equipment,
      molds, furniture and fixtures:Furniture,
      fixtures and office equipment
              
              $
              713,809
              
              
              $
              1,395,209Production
      molds and equipment
              
              
              1,348,701
              
              
              
              2,458,692Molds
      and tooling in process
              
              
              105,800
              
              
              
              1,395,325Less
      accumulated depreciation
              
              
              (1,851,000
              )
              
              
              (3,461,063
              )$
              317,310
              
              
              $
              1,788,163Patent
      rights:Patent
      rights
              
              $
              1,665,519
              
              
              $
              1,471,536Less
      accumulated amortization
              
              
              (923,120
              )
              
              
              (826,680
              )$
              742,399
              
              
              $
              644,856Accrued
      expenses and other liabilities:Accrued
      employee compensation and benefits
              
              $
              490,773
              
              
              $
              994,810Other
      liabilities
              
              
              557,846
              
              
              
              387,496$
              1,048,619
              
              
              $
              1,382,306
 
 5.
              Notes
      Payable
 
 In September 2009, the remaining
balance of the Company’s credit facility was paid off with the proceeds from the
sale of common stock and warrants.  In 2007, the Company received
gross proceeds of $7,500,000 in two tranches of $5,000,000 and $2,500,000 under
a credit facility to help fund working capital needs.  The per annum
interest rate was 12.7% in the case of the first tranche and 11% in the case of
the second tranche.  The maturity date (i) with respect to the first
tranche was forty-two months from February 2007 and (ii) with respect to the
second tranche was thirty-six months from December 2007.
 
 Total interest expense related to the
credit facility was $620,304, $996,832 and $756,262 in 2009, 2008 and 2007,
respectively, of which $206,519, $269,546 and $221,775 in 2009, 2008 and 2007,
respectively, was noncash interest consisting of amortization of debt discount
and debt issuance costs.
 
 6.     Leases
 
 The Company has non-cancelable
operating leases for its corporate headquarters facility in Ewing, New Jersey,
and its office, research and development facility in Minneapolis,
MN.  The leases require payment of all executory costs such as
maintenance and property taxes. The Company also leases certain equipment and
furniture under various operating leases.  The Company had no
equipment under capital leases at December 31, 2009, as these leases were
assumed by Ferring in the Asset Purchase Agreement discussed in Note 11 to the
consolidated financial
 
 64
 
 statements.  The
cost of equipment and furniture under capital leases was $213,386 and $116,923
and accumulated amortization was $54,673 and $15,507 at December 31, 2008 and
2007, respectively.
 
 Rent expense, net, incurred for the
years ended December 31, 2009, 2008 and 2007 was $378,425, $395,031 and
$353,966, respectively.
 
 Future minimum lease payments under
operating leases as of December 31, 2009 are $163,681, $133,580 and $8,496 for
the years ended December 31, 2010, 2011 and 2012, respectively.
 
 7.     Income
Taxes
 
 The Company incurred losses for both
book and tax purposes for all applicable jurisdictions in each of the years in
the three-year period ended December 31, 2009, and, accordingly, no income taxes
were provided. The Company was subject to taxes in both the U.S. and Switzerland
in each of the years in the three-year period ended December 31, 2009. Effective
tax rates differ from statutory income tax rates in the years ended December 31,
2009, 2008 and 2007 as follows:
 
 2009
              
              2008
              
              2007Statutory
      income tax rate
              (34.0
              )%
              (34.0
              )%
              (34.0
              )%State
      income taxes, net of federal benefit
              (0.3
              )
              (0.4
              )
              (0.6
              )Valuation
      allowance increase
              4.6
              
              17.2
              
              11.5Effect
      of foreign operations
              17.4
              
              16.4
              
              11.9Expiration
      of unused net operating loss and credit carryforwards
              10.2
              
              1.7
              
              2.8Nondeductible
      items
              1.9
              
              1.7
              
              5.6Other
              0.2
              
              (2.6
              )
              2.80.0
              %
              0.0
              %
              0.0
              %
 
 Deferred
tax assets as of December 31, 2009 and 2008 consist of the
following:
 
 2009
              
              2008Net
      operating loss carryforward – U.S.
              $
              16,060,000
              
              $
              16,415,000Net
      operating loss carryforward – Switzerland
              
              7,261,000
              
              
              6,547,000Research
      and development tax credit carryforward
              
              909,000
              
              
              919,000Deferred
      revenue
              
              785,000
              
              
              636,000Depreciation
      and amortization
              
              119,000
              
              
              208,000Stock-based
      compensation
              
              1,189,000
              
              
              1,114,000Other
              
              876,000
              
              
              641,00027,199,000
              
              
              26,480,000Less
      valuation allowance
              
              (27,199,000
              )
              
              (26,480,000
              )$
              —
              
              $
              —
 
 The valuation allowance for deferred
tax assets as of December 31, 2009 and 2008 was $27,199,000 and $26,480,000,
respectively. The net change in the total valuation allowance for the years
ended December 31, 2009 and 2008 was an increase of $719,000 and $2,522,000,
respectively. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Due to the
uncertainty of realizing the deferred tax asset, management has recorded a
valuation allowance against the entire deferred tax asset.
   65
 
 The Company has a U.S. federal net
operating loss carryforward at December 31, 2009, of approximately $43,600,000,
which, subject to limitations of Internal Revenue Code Section 382, is available
to reduce income taxes payable in future years. If not used, this carryforward
will expire in years 2010 through 2029, with approximately $7,047,000 expiring
over the next three years. Additionally, the Company has a research credit
carryforward of approximately $909,000. These credits expire in years 2010
through 2029.
 
 The Company also has a Swiss net
operating loss carryforward at December 31, 2009, of approximately $53,800,000,
which is available to reduce income taxes payable in future years. If not used,
this carryforward will expire in years 2010 through 2016, with approximately
$19,800,000 expiring over the next three years.
 
 Utilization of U.S. net operating
losses and tax credits of Antares Pharma, Inc. are subject to annual limitations
under Internal Revenue Code Sections 382 and 383, respectively, as a result of
significant changes in ownership, including the business combination with
Permatec, private placements, warrant exercises and conversion of Series D
Convertible Preferred Stock. Subsequent significant equity changes, including
exercise of outstanding warrants, could further limit the utilization of the net
operating losses and credits. The annual limitations have not yet been
determined; however, when the annual limitations are determined, the gross
deferred tax assets for the net operating losses and tax credits will be reduced
with a reduction in the valuation allowance of a like amount.
 
 The Company adopted the provisions of a
FASB accounting standard contained in ASC 740-10 related to accounting for
uncertainty in income taxes.  Implementation of this accounting
standard had no impact on the consolidated financial statements.  As
of both the date of adoption, and as of December 31, 2009, the unrecognized tax
benefit accrual was zero.  The Company has decided to classify any
future interest and penalties as a component of income tax expense if
incurred.  To date, there have been no interest or penalties charged
or accrued in relation to unrecognized tax benefits.
 
 8.     Stockholders’
Equity
 
 Common
Stock
 
 In July 2009, the Company raised gross
proceeds of $8,500,000 in a registered direct offering through the sale of
shares of its common stock and warrants.  The Company sold a total of
10,625,000 units, each unit consisting of (i) one share of common stock and (ii)
one warrant to purchase 0.4 of a share of common stock (or a total of 4,250,000
shares), at a purchase price of $0.80 per unit.  The warrants will be
exercisable six months after issuance at $1.00 per share and will expire five
years from the date of issuance.
 
 In September 2009, the Company raised
gross proceeds of $3,000,000 through the sale of 2,727,273 units to certain
institutional investors, each unit consisting of (i) one share of common stock
and (ii) one warrant to purchase 0.4 of a share of common stock (or a total of
1,090,909 shares), at a purchase price of $1.10 per unit. The warrants will be
exercisable six months after issuance at $1.15 per share and will expire five
years from the date of issuance.
 
 In July of 2007, the Company received
proceeds of $14,742,671, net of offering costs of $1,257,329, in a private
placement of its common stock in which a total of 10,000,000 shares of common
stock were sold at a price of $1.60 per share. In connection with the private
placement, the Company issued five-year warrants to purchase an aggregate of
3,800,000 shares of common stock with an exercise price of $2.00 per
share.
 
 Warrant and stock option exercises
during 2009, 2008 and 2007 resulted in proceeds of $105,622, $1,319,950 and
$2,292,692, respectively, and in the issuance of 152,082, 2,400,000 and
2,187,317 shares of common stock, respectively.
 
 Stock
Options and Warrants
 
 The Company’s 2008 Equity Compensation
Plan (the “Plan”), which became effective on May 14, 2008, merged all active
prior stock option and equity incentive plans and this new plan into one
plan.  The Plan allows for grants in the form of incentive stock
options, nonqualified stock options, stock units, stock awards, stock
appreciation rights, dividend equivalents and other stock-based
awards.  All of the Company’s officers, directors, employees,
consultants and advisors are eligible to receive grants under the
Plan.  Under the Plan, the maximum
 
 66
 
 number of
shares of stock that may be granted to any one participant during a calendar
year is 1,000,000 shares.  Options to purchase shares of common stock
are granted at exercise prices not less than 100% of fair market value on the
dates of grant.  The term of the options range from three to eleven
years and they vest in varying periods.  As of December 31, 2009, the
Plan had 1,069,694 shares available for grant.  The number of shares
available for grant does not take into consideration potential stock awards that
could result in the issuance of shares of common stock if certain performance
conditions are met, discussed under “Stock Awards” below.  Stock
option exercises are satisfied through the issuance of new shares.
 
 A summary of stock option activity
under the Plan as of December 31, 2009 and the changes during the year then
ended is as follows:
  Number
      of
                Shares
              
              Weighted
                Average
                Exercise
                Price
      ($)
              
              Weighted
                Average
                Remaining
                Contractual
                Term
      (Years)
              
              Aggregate
                Intrinsic
                Value
      ($)Outstanding
      at December 31, 2008
              
              8,056,656
              
              
              1.19Granted/Issued
              
              1,245,936
              
              
              0.90Exercised
              
              (72,082
              )
              
              0.77Cancelled
              
              (890,826
              )
              
              1.38Outstanding
      at December 31, 2009
              
              8,339,684
              
              
              1.13
              
              
              6.6
              
              
              2,001,379Exercisable
      at December 31, 2009
              
              5,880,573
              
              
              1.28
              
              
              5.6
              
              
              1,091,783
 
 As of December 31, 2009, there was
approximately $1,000,000 of total unrecognized compensation cost related to
nonvested outstanding stock options that is expected to be recognized over a
weighted average period of approximately 2.0 years.
 
 Stock option expense recognized in
2009, 2008 and 2007 was approximately $973,000, $1,076,000 and $1,146,000,
respectively.    In 2009 and 2008, expense included
approximately $54,000 and $65,000, respectively, recognized due to modifications
of option terms for employees whose employment with the Company ended in those
years.  The per share weighted average fair value of options granted
during 2009, 2008 and 2007 was estimated as $0.52, $0.40 and $1.14,
respectively, on the date of grant using the Black-Scholes option pricing model
based on the assumptions noted in the table below.  Expected
volatilities are based on the historical volatility of the Company’s
stock.  The weighted average expected life is based on both historical
and anticipated employee behavior.
  December
      31,2009
              
              
              2008
              
              
              2007Risk-free
      interest rate
              
              2.2
              %
              
              2.9
              %
              
              4.7
              %Annualized
      volatility
              
              72.0
              %
              
              70.0
              %
              
              109.0
              %Weighted
      average expected life, in years
              
              5.0
              
              
              5.0
              
              
              5.0Expected
      dividend yield
              
              0.0
              %
              
              0.0
              %
              
              0.0
              %
 
 
 67
 
  Stock option and warrant activity is
summarized as follows:
 
 Options
                
                WarrantsNumber
      of
                
                Weighted
                
                Number
      of
                
                WeightedShares
                
                Average
      Price
                
                Shares
                
                Average
      PriceOutstanding
      at December 31, 2006
                4,426,759
                
                
                1.65
                
                21,272,783
                
                
                1.35Granted/Issued
                1,307,632
                
                
                1.42
                
                4,440,000
                
                
                1.89Exercised
                (35,000
                )
                
                1.54
                
                (2,430,095
                )
                
                1.09Cancelled
                (117,000
                )
                
                2.31
                
                (141,667
                )
                
                1.10Outstanding
      at December 31, 2007
                5,582,391
                
                
                1.58
                
                23,141,021
                
                
                1.49Granted/Issued
                3,477,023
                
                
                0.66
                
                -
                
                
                -Exercised
                -
                
                
                -
                
                (2,400,000
                )
                
                0.55Cancelled
                (1,002,758
                )
                
                1.55
                
                (2,528,976
                )
                
                1.19Outstanding
      at December 31, 2008
                8,056,656
                
                
                1.19
                
                18,212,045
                
                
                1.65Granted/Issued
                1,245,936
                
                
                0.90
                
                5,500,909
                
                
                1.02Exercised
                (72,082
                )
                
                0.77
                
                (80,000
                )
                
                1.00Cancelled
                (890,826
                )
                
                1.38
                
                (5,337,545
                )
                
                1.27Outstanding
      at December 31, 2009
                8,339,684
                
                
                1.13
                
                18,295,409
                
                
                1.56
   The following table summarizes
information concerning currently outstanding and exercisable options and
warrants by price range at December 31, 2009:
 Outstanding
                ExercisablePrice
      Range
                Number
      of Shares Outstanding
                Weighted
      Average Remaining Life
                  In
      Years
                Weighted
      Average Exercise Price
                Number
      Exercisable
                Weighted
      Average Exercise PriceOption Plans:$      0.37 to 0.53
                  0.70 to 0.96
                  1.01 to 1.50
                  1.51 to 1.77
                  4.56
                2,041,511
                  1,893,274
                  2,335,009
                  1,863,832
                  206,058
                  8,339,684
                9.0
                  6.3
                  6.9
                  4.5
                  1.7
                  6.6
                $
      0.49
                  0.80
                  1.24
                  1.64
                  4.56
                  1.13
                968,526
                  1,300,440
                  1,570,301
                  1,835,248
                  206,058
                  5,880,573
                $   0.50
                  0.79
                  1.31
                  1.64
                  4.56
                  1.28Warrants:
                  $      0.80 to 1.15
                  1.50
                  2.00
                  3.78
                  
                  Total Options &
                  Warrants
                6,140,909
                  7,354,500
                  3,800,000
                  1,000,000
                  18,295,409
                  
                  26,635,093
                4.3
                  1.2
                  2.5
                  3.5
                  2.6
                  
                  3.9
                1.00
                  1.50
                  2.00
                  3.78
                  1.56
                  
                  1.43
                6,140,909
                  7,354,500
                  3,800,000
                  1,000,000
                  18,295,409
                  
                  24,175,982
                1.00
                  1.50
                  2.00
                  3.78
                  1.56
                  
                  1.49
 Stock
Awards
 
 The employment agreements with the
Chief Executive Officer, Chief Financial Officer and other members of executive
management include stock-based incentives under which the executives could be
awarded up to approximately 1,380,000 shares of common stock upon the occurrence
of various triggering events.  Of these shares, 135,227, 22,727 and
22,727 were awarded in 2009, 2008 and 2007, respectively.  A total of
approximately $133,000, $11,000 and $91,000 in compensation expense was recorded
in 2009, 2008 and 2007, respectively, in connection with the shares awarded and
others considered probable of achievement.
 
 In 2008, four executive officers
received stock awards totaling 180,000 shares of common stock.  The
stock awards vest in equal annual installments over a three year period and
60,000 of these shares vested in 2009.  Expense is recognized on a
straight line basis over the vesting period and is based on the fair value of
the stock on the grant date.  The fair value of the stock awards is
determined based on the number of shares granted and the market price of the
Company’s common stock on the date of grant.  Expense recognized in
connection with these
 
 68
 
 awards
was approximately $49,000 and $28,000 in 2009 and 2008,
respectively.  The weighted average fair value of the shares granted
in 2008 was $0.82 per share.
 
 In 2008, the Company’s former Chief
Executive Officer was granted 70,000 shares of common stock in connection with
his separation agreement.  The Company recognized $35,000 of expense
based on the market price of $0.50 per share of the Company’s common stock on
the date of grant.
 
 In addition to the shares granted to
executive management, in 2009 and 2008 a total of 50,293 and 27,273 shares of
common stock, respectively, were granted to directors and employees as part of
annual compensation or bonuses.
 
 9.     Employee
401(k) Savings Plan
 
 The Company sponsors a 401(k) defined
contribution retirement savings plan that covers all U.S. employees who have met
minimum age and service requirements. Under the plan, eligible employees may
contribute up to 50% of their annual compensation into the plan up to the IRS
annual limits. At the discretion of the Board of Directors, the Company may
contribute elective amounts to the plan, allocated in proportion to employee
contributions to the plan, employee’s salary, or both. For the years ended
December 31, 2009, 2008 and 2007, the Company elected to make contributions to
the plan totaling $72,537, $61,180 and $75,553, respectively.
 
 10.  Supplemental
Disclosures of Cash Flow Information
 
 Cash paid for interest during the years
ended December 31, 2009, 2008 and 2007 was $476,907, $677,456 and $550,642,
respectively.
 
 11.   License
Agreements
 
 Teva
License Development and Supply Agreements
 
 In December 2007, the Company entered
into a license, development and supply agreement with Teva under which the
Company will develop and supply a disposable pen injector for use with two
undisclosed patient-administered pharmaceutical products.  Under the
agreement, an upfront payment, development milestones, and royalties on Teva’s
product sales, as well as a purchase price for each device sold are to be
received by the Company under certain circumstances.   Based on
an analysis under accounting literature applicable at the time of the agreement,
the entire arrangement is considered a single unit of
accounting.  Therefore, payments received and development costs
incurred will be deferred and will be recognized from the start of manufacturing
through the end of the initial contract period.
 
 In September 2006, the Company entered
into a Supply Agreement with Teva Pursuant to the agreement, Teva is obligated
to purchase all of its needle-free delivery device requirements from Antares for
hGH to be marketed in the United States. Antares received an upfront cash
payment, and will receive milestone fees and a royalty payment on Teva’s net
sales, as well as a purchase price for each device sold.  The upfront
payment was recognized as revenue over the development period.  The
milestone fees and royalties will be recognized as revenue when
earned.  In 2009, the Company received a milestone payment from Teva
in connection with Teva’s launch of the Company’s Tjet needle-free device with
their hGH Tev-Tropin®.
 
 In July 2006, the Company entered into
an exclusive License Development and Supply Agreement with an affiliate of Teva,
Sicor Pharmaceuticals Inc.  Pursuant to the agreement, the affiliate
is obligated to purchase all of its delivery device requirements from Antares
for an undisclosed product to be marketed in the United States and Canada.
Antares received an upfront cash payment, and will receive milestone fees, a
negotiated purchase price for each device sold, as well as royalties on sales of
their product.  As discussed in Note 12 to the consolidated financial
statements, in the third quarter of 2009 this agreement was amended and the
accounting for the revenue and costs under this agreement was
changed.
 
 In November 2005, the Company signed an
agreement with an affiliate of Teva, Sicor Pharmaceuticals Inc., under which
Sicor is obligated to purchase all of its injection delivery device requirements
from Antares for an
 
 69
 
 undisclosed
product to be marketed in the United States. Sicor also received an option for
rights in other territories. The license agreement included, among other things,
an upfront cash payment, milestone fees, a negotiated purchase price for each
device sold, and royalties on sales of their product.  In addition,
pursuant to a Stock Purchase Agreement, Sicor purchased 400,000 shares of
Antares common stock at a per share price of $1.25. Antares granted Sicor
certain registration rights with respect to the purchased shares of common
stock.  Based on an analysis under accounting literature applicable
the time of the agreement, the entire arrangement is considered a single unit of
accounting.  Therefore, payments received and development costs
incurred will be deferred and will be recognized from the start of manufacturing
through the end of the initial contract period.
 
 Eli
Lilly Development and License Agreement
 
 On September 12, 2003, the Company
entered into a Development and License Agreement (the “License Agreement”) with
Lilly. Under the License Agreement, the Company granted Lilly an exclusive
license to certain of the Company’s reusable needle-free technology in the
fields of diabetes and obesity. The Company also granted an option to Lilly to
apply the technology in one additional therapeutic area. Additionally, the
Company issued to Lilly a ten-year warrant to purchase shares of the Company’s
common stock. The Company granted Lilly certain registration rights with respect
to the shares of common stock issuable upon exercise of the warrant. At the time
of the grant, the Company determined that the fair value of the warrant was
$2,943,739 using the Black-Scholes option pricing model. The fair value of the
warrant was recorded to additional paid in capital and to prepaid license
discount, a contra equity account.
 
 The Company reached the conclusion that
although there are multiple deliverables in the contract, the entire contract
must be accounted for as one unit of accounting. Therefore, all revenue was
being deferred when billed under the contract terms and was being recognized
into revenue on a straight-line basis over the remaining life of the contract.
All related costs were also being deferred and recognized as expense over the
remaining life of the contract on a straight-line basis. The prepaid license
discount was being amortized against revenue on a straight-line basis over the
life of the contract.
 
 In March of 2008 the Company entered
into a second amendment to the original development and license agreement with
Lilly dated September 12, 2003.  The amendment narrowed the scope of
the license grant to Lilly under the agreement whereby (a) certain devices (as
defined in the agreement) owned by the Company are no longer licensed to Lilly,
including the Company’s MJ7 device, (b) the scope of the license for the
remaining devices licensed to Lilly are converted to nonexclusive from exclusive
and (c) the scope of such remaining nonexclusive license is limited to use with
a smaller subset of compounds in a narrower field of use.  The Company
is now able to exclusively license and supply certain devices that were
previously licensed to Lilly under the agreement.  In connection with
the return of rights with respect to the devices, no device development plan is
required going forward.
 
 Considering the renegotiations with
Lilly and drafts of the then pending amendment, the Company evaluated the
prepaid license discount related to the original agreement (recorded as contra
equity in the stockholders’ equity section of the balance sheet) for potential
impairment in connection with the preparation and review of the 2007
consolidated financial statements.  Given that Lilly was no longer
committed to development of the Company’s product on the previously agreed upon
timeline under the agreement, the Company determined it was unlikely that future
cash flows would be received that would exceed the unamortized carrying amount,
indicating that the recorded prepaid license discount was
impaired.  In addition, the Company determined that capitalized patent
costs associated with the agreement had been impaired.  The Company
also recognized related deferred revenue and deferred costs related to the
agreement.  Accordingly, the Company recorded a net non-cash charge to
earnings in the fourth quarter of 2008 totaling $1,629,060, consisting
principally of the patent impairment charge of $296,338 and the impairment of
prepaid license discount and related charges of $1,438,638.  The
patent impairment charge was recorded in general and administrative expense,
while the impairment of prepaid license discount and recognition of deferred
revenue and deferred costs was recorded in cost of revenue.  The net
impact to stockholders’ equity was an increase of approximately $480,000 as a
result of the recognition of deferred revenue in excess of deferred costs and
patent impairment charges.
 
 70
 
 Ferring
Agreements
 
 On November 6, 2009, the Company
entered into an Exclusive License Agreement with Ferring, under which the
Company licensed certain of its patents and agreed to transfer know-how for its
transdermal gel technology for certain pharmaceutical products.  This
agreement has no impact on Antares’ current licenses, the transdermal clinical
pipeline, or marketed products, including Anturol®,
LibiGel®,
Nestorone, and Elestrin®.  Also
on November 6, 2009, in tandem with the execution of the Exclusive License
Agreement, the Company entered into an Asset Purchase Agreement (the “Purchase
Agreement”) with Ferring.  Pursuant to the terms and conditions of the
Purchase Agreement, Ferring purchased from the Company all of the assets,
including equipment, fixtures, fittings and inventory, located at the Company’s
research and development facility located in Allschwil, Switzerland (the
“Facility”).  Further pursuant to the terms and conditions of the
Purchase Agreement, Ferring assumed the contractual obligations related to the
Facility, including the real property lease for the Facility, and continued to
employ the employees working at the Facility.  In addition, the
Company entered into a Consultancy Services Agreement with Ferring for a period
of 12 months, under which the Company will provide services in connection with
development of certain pharmaceutical products under the Exclusive License
Agreement.  Under these agreements the Company received upfront
license fees, payments for assets and payments for services rendered under the
consultancy agreement.  In addition, the Company will receive
milestone payments as certain defined milestones are achieved and will continue
to receive monthly payments over the term of the consultancy
agreement.
 
 Although there are three separate
agreements with Ferring, they were all entered into at essentially the same time
and therefore are presumed to have been negotiated as a package.  This
package of arrangements was evaluated as a single arrangement for purposes of
applying the applicable accounting standard.  Payments received under
the Exclusive License Agreement will be recognized over the 12 month period of
the Consultancy Services Agreement, as this is the period of time the Company
will be involved in development.  Milestone payments received in
connection with milestones reached after the services agreement has ended will
be recognized when the milestone payment is received.  The amount
received from Ferring for the assets sold resulted in a gain, which was recorded
in other income.
 
 The Company entered into a License
Agreement, dated January 22, 2003, with Ferring, under which the Company
licensed certain of its intellectual property and extended the territories
available to Ferring for use of certain of the Company’s reusable needle-free
injector devices. Specifically, the Company granted to Ferring an exclusive,
perpetual, irrevocable, royalty-bearing license, within a prescribed
manufacturing territory, to manufacture certain of the Company’s reusable
needle-free injector devices for the field of human growth hormone. The Company
granted to Ferring similar non-exclusive rights outside of the prescribed
manufacturing territory. In addition, the Company granted to Ferring a
non-exclusive right to make and have made the equipment required to manufacture
the licensed products, and an exclusive, perpetual, royalty-free license in a
prescribed territory to use and sell the licensed products.
 
 As consideration for the license
grants, Ferring paid the Company an upfront payment upon execution of the
License Agreement, and paid an additional milestone in 2003. Ferring will also
pay the Company royalties for each device manufactured by or on behalf of
Ferring, including devices manufactured by the Company. Beginning in 2004, a
portion of the license fee received in 2003 was credited against future
royalties owed by Ferring, until such amount is exhausted. These royalty
obligations expire, on a country-by-country basis, when the respective patents
for the products expire, despite the fact that the License Agreement does not
itself expire until the last of such patents expires. The license fees have been
deferred and are being recognized in income over the period from 2003 through
expiration of the patents in 2016.
 
 In March 2007, the Company amended the
agreement increasing the royalty rate and device pricing, included a next
generation device and provided for payment principally in U.S. dollars rather
than Euros.
 
 BioSante
License Agreement
 
 In June 2000, the Company entered into
an exclusive agreement to license four applications of its drug-delivery
technology to BioSante in the United States, Canada, China, Australia, New
Zealand, South Africa, Israel, Mexico, Malaysia and Indonesia (collectively,
“the BioSante Territories”). The Company is required to transfer technology
know-how to BioSante until each country’s regulatory authorities approve the
licensed product. BioSante will use
 
 71
 
 the
licensed technology for the development of hormone replacement therapy products.
At the signing of the contract, BioSante made an upfront payment to the Company,
a portion of which, per the terms of the contract, was used to partially offset
a later payment made to the Company as a result of an upfront payment received
by BioSante under a sublicense agreement.  The initial upfront payment
received by the Company was for the delivery of intellectual property to
BioSante.
 
 The Company will receive payments upon
the achievement of certain milestones and will receive from BioSante a royalty
from the sale of licensed products. The Company will also receive a portion of
any sublicense fees received by BioSante.
 
 Under the cumulative deferral method,
the Company ratably recognizes revenue related to milestone payments from the
date of achievement of the milestone through the estimated date of receipt of
final regulatory approval in the BioSante Territory. The Company is recognizing
the initial milestone payment in revenue over a 129-month period. All other
milestone payments will be recognized ratably on a product-by-product basis from
the date the milestone payment is earned and all repayment obligations have been
satisfied until the receipt of final regulatory approval in the BioSante
Territory for each respective product. It is expected that these milestones
will be earned at various dates from January 2010 to December 2011 and will be
recognized as revenue over periods of up to 24 months.
 
 In November 2006, BioSante entered into
a sublicense and marketing agreement with Bradley Pharmaceuticals, Inc. for
Elestrin®
(formerly Bio-E-Gel).  BioSante received an upfront payment from
Bradley which triggered a payment to the Company of $875,000.  In
December 2006 the FDA approved for marketing Elestrin® in
the United States triggering payments to the Company totaling $2,625,000, which
was received in 2007.  In 2008, BioSante reacquired the rights to
Elestrin®and
entered into new marketing agreements in December, triggering payments to the
Company of $462,500.  Because final regulatory approval for this
product was obtained by BioSante and Antares had no further obligations in
connection with this product, the sublicense payments of $462,500, $2,625,000
and $875,000 received in 2008, 2007 and 2006, respectively, were recognized as
revenue in those years.  In addition, the Company has received
royalties on sales of Elestrin®,
which have been recognized as revenue when received.
 
 In August 2001, BioSante entered into
an exclusive agreement with Solvay Pharmaceuticals (“Solvay”) in which Solvay
has sublicensed from BioSante the U.S. and Canadian rights to an
estrogen/progestogen combination transdermal hormone replacement gel product,
one of the four drug-delivery products the Company has licensed to BioSante.
Under the terms of the license agreement between the Company and BioSante, the
Company received a portion of the up front payment made by Solvay to BioSante,
net of the portion of the initial up front payment the Company received from
BioSante intended to offset sublicense up front payments. The Company is also
entitled to a portion of any milestone payments or royalties BioSante receives
from Solvay under the sublicense agreement. The Company is recognizing the
payment received from BioSante in revenue over an 108-month period. The Company
received a milestone payment in 2003 and is recognizing revenue over a period of
91 months. All other milestone payments will be recognized ratably from the date
the milestone payment is earned until the receipt of final regulatory approval
in the U.S. and Canada.
 
 Jazz
License Agreement
 
 In July 2007, we entered into a
worldwide product development and license agreement with Jazz Pharmaceuticals
(“Jazz”) for a product being developed to treat a CNS disorder that will utilize
our transdermal gel delivery technology.  Under the agreement, an
upfront payment, development milestones, and royalties on product sales are to
be received by us under certain circumstances.  The upfront payment is
being recognized as revenue over the development period.  The
milestone fees and royalties will be recognized as revenue when
earned.
 
 Solvay
License Agreement
 
 In June 1999, the Company entered into
an exclusive agreement to license one application of its gel based drug-delivery
technology to Solvay in all countries except the United States, Canada, Japan
and Korea (collectively, ‘‘the Solvay Territories’’). The Company is required to
transfer technology know-how and to provide developmental assistance to Solvay
until each country’s applicable regulatory authorities approve the licensed
product. Solvay will
 
 72
 
 reimburse
the Company for all technical assistance provided during Solvay’s development.
Solvay will use the licensed technology for the development of a hormone
replacement therapy gel. The license agreement required Solvay to pay the
Company a milestone payment upon signing of the license, milestones upon the
start of Phase IIb/III clinical trials, additional milestones upon the first
submission by Solvay to regulatory authorities in the Solvay Territories and
upon the first completed registration in Germany, France or the United Kingdom.
The Company will receive from Solvay a royalty from the sale of licensed
products. In 2002, the agreement was amended to change the terms associated with
certain milestone payments.  Development work performed by Solvay has
been limited due to concerns about certain forms of hormone replacement therapy
that have been debated in scientific literature.
 
 Under the cumulative deferral method,
the Company ratably recognizes revenue related to milestone payments from the
date of achievement of the milestone through the estimated date of
completion.
 
 Other
License Agreements
 
 In September 2007, we entered into a
worldwide product development and license agreement with an undisclosed company
for a product in the field of opioid analgesia that utilized our oral
disintegrating tablet delivery technology.  Under the agreement, an
upfront payment, development milestones, and royalties on product sales were to
be received by us under certain circumstances.  The upfront payment
was being recognized as revenue over the development period.  In 2009,
we recognized revenue of approximately $338,000 representing the unrecognized
portion of previously deferred payments received in connection with this
agreement after the customer terminated the agreement due to technical
challenges with their drug molecule.
 
 12.      Revenue
Recognition Change
 
 As discussed in Note 2, the Company
elected early adoption of ASU 2009-13.  The Company elected to adopt
ASU 2009-13 on a prospective basis, with retrospective application to January 1,
2009.
 
 During the third quarter of 2009, the
Company amended the License, Development and Supply Agreement with Teva
originally entered into in July of 2006.  Under the terms of the
amendment, the Company received a payment of $4,076,375 from Teva for tooling in
process that had a carrying value of approximately $1,200,000 and for an advance
for the design, development and purchase of additional tooling and automation
equipment, all of which is related to an undisclosed, fixed, single-dose,
disposable injector product using the Company’s VibexTM auto injector
platform.  The changes to the agreement related to this payment along
with various other changes to the original terms resulted in a material
modification to the agreement.  Because the agreement was materially
modified, the accounting was re-evaluated under ASU 2009-13, and the provisions
of ASU 2009-13 were applied as if they were applicable from inception of the
agreement.  The re-evaluation resulted in the agreement being
separated into three units of accounting and resulted in changes to both the
method of revenue recognition and the period over which revenue will be
recognized.  Under the new accounting, the original license fee and
milestone payments received will be recognized as revenue over the development
period, the $4,076,375 payment received will be recognized as revenue as various
tools and equipment are completed and delivered, and revenue during the
manufacturing period will be recognized as devices are sold and royalties are
earned.  The accounting literature applicable at the time of the
original agreement required the entire arrangement to be considered a single
unit of accounting.  Therefore, the payments received and the
development costs incurred were being deferred and would have been recognized
from the start of manufacturing through the end of the initial contract
period.  The amendment and adoption of ASU 2009-13 resulted in the
recognition of revenue previously deferred of $434,111 and the recognition of
costs previously deferred of $536,732 recorded on a cumulative catch-up basis in
the third quarter of 2009.  For the year ended December 31, 2009, the
adoption of ASU 2009-13 resulted in the recognition of revenue previously
deferred of $481,833 and the recognition of costs previously deferred of
$615,256.  Also, tooling in process of approximately $1,200,000 sold
to Teva was reclassified from equipment, molds, furniture and fixtures to
deferred costs and will be recognized as cost of sales upon revenue
recognition.  Adoption of ASU 2009-13 had no impact on the accounting
for any of the Company’s other revenue arrangements containing multiple
deliverables.
 
 The tables below show amounts for the
four quarterly and the full year periods of 2009 under the following three
scenarios:  (i) as reported with adoption of ASU 2009-13 in the third
quarter of 2009, (ii) as if ASU 2009-13 had been adopted on January 1, 2009,
(iii) as if ASU 2009-13 had not been adopted in 2009.
  73
   Amounts as reported with adoption of
ASU 2009-13 in the third quarter of 2009:
 
 Three
      Months Ended
                
                Year
      EndedMarch
      31,
                
                June
      30,
                
                September
      30,
                
                December
      31,
                
                December
      31,2009
                
                2009
                
                2009
                
                2009
                
                2009Development
      revenue
                $
                680,170
                
                $
                299,674
                
                $
                382,788
                
                $
                1,243,884
                
                $
                2,606,516Licensing
      revenue
                
                425,707
                
                
                82,379
                
                
                658,276
                
                
                428,858
                
                
                1,595,220Total
      revenue
                
                2,026,403
                
                
                1,661,844
                
                
                2,041,172
                
                
                2,581,643
                
                
                8,311,062Cost
      of developmentand licensing
      revenue
                
                267,739
                
                
                96,711
                
                
                701,960
                
                
                1,260,039
                
                
                2,326,449Total
      cost of revenue
                
                711,855
                
                
                620,642
                
                
                1,212,194
                
                
                1,595,143
                
                
                4,139,834Gross
      profit
                
                1,314,548
                
                
                1,041,202
                
                
                828,978
                
                
                986,500
                
                
                4,171,228Operating
      loss
                
                (2,539,742
                )
                
                (2,061,921
                )
                
                (2,612,294
                )
                
                (2,479,687
                )
                
                (9,693,644
                )Net
      loss
                
                (2,736,707
                )
                
                (2,253,611
                )
                
                (2,893,834
                )
                
                (2,406,600
                )
                
                (10,290,752
                )Basic
      and diluted netloss per common
      share
                $
                (0.04
                )
                $
                (0.03
                )
                $
                (0.04
                )
                $
                (0.03
                )
                $
                (0.14
                )
 
 Amounts as if ASU 2009-13 had been
adopted on January 1, 2009:
 
 Three
      Months Ended
                
                Year
      EndedMarch
      31,
                
                June
      30,
                
                September
      30,
                
                December
      31,
                
                December
      31,2009
                
                2009
                
                2009
                
                2009
                
                2009Development
      revenue
                $
                746,837
                
                $
                321,896
                
                $
                293,899
                
                $
                1,243,884
                
                $
                2,606,516Licensing
      revenue
                
                697,707
                
                
                107,879
                
                
                360,776
                
                
                428,858
                
                
                1,595,220Total
      revenue
                
                2,365,070
                
                
                1,709,566
                
                
                1,654,783
                
                
                2,581,643
                
                
                8,311,062Cost
      of developmentand licensing
      revenue
                
                645,054
                
                
                175,235
                
                
                246,121
                
                
                1,260,039
                
                
                2,326,449Total
      cost of revenue
                
                1,089,170
                
                
                699,166
                
                
                756,355
                
                
                1,595,143
                
                
                4,139,834Gross
      profit
                
                1,275,900
                
                
                1,010,400
                
                
                898,428
                
                
                986,500
                
                
                4,171,228Operating
      loss
                
                (2,578,390
                )
                
                (2,092,723
                )
                
                (2,542,844
                )
                
                (2,479,687
                )
                
                (9,693,644
                )Net
      loss
                
                (2,775,355
                )
                
                (2,284,413
                )
                
                (2,824,384
                )
                
                (2,406,600
                )
                
                (10,290,752
                )Basic
      and diluted netloss per common
      share
                $
                (0.04
                )
                $
                (0.03
                )
                $
                (0.04
                )
                $
                (0.03
                )
                $
                (0.14
                )
 
 Amounts as if ASU 2009-13 had not been
adopted in 2009:
 
 Three
      Months Ended
                
                Year
      EndedMarch
      31,
                
                June
      30,
                
                September
      30,
                
                December
      31,
                
                December
      31,2009
                
                2009
                
                2009
                
                2009
                
                2009Development
      revenue
                $
                680,170
                
                $
                299,674
                
                $
                271,677
                
                $
                1,221,662
                
                $
                2,473,183Licensing
      revenue
                
                425,707
                
                
                82,379
                
                
                335,276
                
                
                403,358
                
                
                1,246,720Total
      revenue
                
                2,026,403
                
                
                1,661,844
                
                
                1,607,061
                
                
                2,533,921
                
                
                7,829,229Cost
      of developmentand licensing
      revenue
                
                267,739
                
                
                96,711
                
                
                165,228
                
                
                1,181,515
                
                
                1,711,193Total
      cost of revenue
                
                711,855
                
                
                620,642
                
                
                675,462
                
                
                1,516,619
                
                
                3,524,578Gross
      profit
                
                1,314,548
                
                
                1,041,202
                
                
                931,599
                
                
                1,017,302
                
                
                4,304,651Operating
      loss
                
                (2,539,742
                )
                
                (2,061,921
                )
                
                (2,509,673
                )
                
                (2,448,885
                )
                
                (9,560,221
                )Net
      loss
                
                (2,736,707
                )
                
                (2,253,611
                )
                
                (2,791,213
                )
                
                (2,375,798
                )
                
                (10,157,329
                )Basic
      and diluted netloss per common
      share
                $
                (0.04
                )
                $
                (0.03
                )
                $
                (0.04
                )
                $
                (0.03
                )
                $
                (0.14
                )
 74
 
 13.      Segment
Information and Significant Customers
 
 The Company has one operating segment,
drug delivery, which includes the development of drug delivery transdermal
products and drug delivery injection devices and supplies.
 
 The geographic distributions of the
Company’s identifiable assets and revenues are summarized in the following
tables:
 
 The Company has total assets located in
two countries as follows:
 
 December
      31,2009
              
              2008Switzerland
              $
              1,759,362
              
              $
              1,154,987United
      States of America
              
              17,384,011
              
              
              18,756,418$
              19,143,373
              
              $
              19,911,405
 
 Revenues by customer location are
summarized as follows:
 
 For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007United
      States of America
              
              $
              4,427,822
              
              
              $
              1,451,092
              
              
              $
              3,576,310Europe
              
              
              3,668,941
              
              
              
              3,899,115
              
              
              
              3,915,031Other
              
              
              214,299
              
              
              
              310,504
              
              
              
              365,655$
              8,311,062
              
              
              $
              5,660,711
              
              
              $
              7,856,996
 
 The following summarizes significant
customers comprising 10% or more of total revenue for the years ended December
31:
  2009
              
              
              2008
              
              
              2007Ferring
              
              $
              3,247,758
              
              
              $
              3,383,071
              
              
              $
              3,080,545Teva
              
              
              3,134,830
              
              
              
              90,905
              
              
              
              181,091BioSante
              
              
              206,820
              
              
              
              668,853
              
              
              
              2,836,016
 
 The following summarizes significant
customers comprising 10% or more of outstanding accounts receivable as of
December 31:
  2009
              
              
              2008Ferring
              
              $
              1,325,436
              
              
              $
              360,035Teva
              
              
              121,810
              
              
              
              918,948
 
 
 
 75
 
 
 14.      Quarterly
Financial Data (unaudited)
 
 First
              
              Second
              
              Third
      (3)
              
              Fourth2009:Total
      revenues (1)
              $
              2,365,070
              
              $
              1,709,566
              
              $
              1,654,783
              
              $
              2,581,643Gross
      profit (1)
              
              1,275,900
              
              
              1,010,400
              
              
              898,428
              
              
              986,500Net
      loss applicable to common shares (1)
              
              (2,775,355
              )
              
              (2,284,413
              )
              
              (2,824,384
              )
              
              (2,406,600
              )Net
      loss per common share (1) (2)
              
              (0.04
              )
              
              (0.03
              )
              
              (0.04
              )
              
              (0.03
              )Weighted
      average shares
              
              68,049,666
              
              
              68,101,137
              
              
              75,870,525
              
              
              81,755,9052008:Total
      revenues
              $
              1,114,378
              
              $
              1,390,115
              
              $
              1,388,582
              
              $
              1,767,636Gross
      profit
              
              662,330
              
              
              855,406
              
              
              792,604
              
              
              1,330,786Net
      loss applicable to common shares
              
              (3,497,698
              )
              
              (3,260,770
              )
              
              (3,188,834
              )
              
              (2,743,151
              )Net
      loss per common share (2)
              
              (0.05
              )
              
              (0.05
              )
              
              (0.05
              )
              
              (0.04
              )Weighted
      average shares
              
              65,628,567
              
              
              67,320,325
              
              
              67,979,666
              
              
              67,986,514
 (1)
              The
      2009 quarterly data is shown with retrospective application of ASU
      2009-13, “Revenue Arrangements with Multiple Deliverables,” to January 1,
      2009, as described in note 12 to the consolidated financial
      statements.
 (2)
              Net
      loss per common share is computed based upon the weighted average number
      of shares outstanding during each period. Basic and diluted loss per share
      amounts are identical as the effect of potential common shares is
      anti-dilutive.
 (3)
                The
      third quarter 2009 financial results have been revised for an immaterial
      correction of an error.  The Company adopted ASU 2009-13 in the
      third quarter and recorded the impact of adoption in the financial results
      for the three-months ended September 30, 2009.  This accounting
      standard should have been applied retrospectively to the beginning of the
      year and the impact of adoption included in the first quarter financial
      results.  The result of this correction is a decrease to total
      revenues in the third quarter of $386,389, an increase to gross profit of
      $69,450, and a decrease to net loss applicable to common shares of
      $69,450.  This correction did not affect year-to-date total
      revenues, gross profit and net loss applicable to common shares, and did
      not affect quarter and year-to-date net loss per common share and weighted
      average shares.
 
 
 
 
 76
 
 Item
9.      CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE.
 
 None.
 
 Item
9A.    CONTROLS AND PROCEDURES.
  Disclosure
Controls and Procedures.
 
 The Company’s management, with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this annual report. Based on such evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures as of the end of the period covered by this
annual report have been designed and are functioning effectively to provide
reasonable assurance that the information required to be disclosed by the
Company in reports filed under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and is accumulated and communicated to management,
including the Company’s principal executive and principal financial officers, or
person performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
 
 Internal
Control Over Financial Reporting.
 
 There have not been any changes in the
Company’s internal control over financial reporting during the fiscal quarter to
which this annual report relates that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
 
 A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, control may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
 
 Management’s report on internal control
over financial reporting is included in Item 8, Financial Statements and
Supplementary Data, of this annual report on Form 10-K.
 
 Item
9B.   OTHER INFORMATION.
  None.
  
 77
  PART
III
  
 Item
10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
 
 Information
required by this item concerning our directors will be set forth under the
caption “Election of Directors” in our definitive proxy statement for our 2010
annual meeting, and is incorporated herein by reference.
 
 Information
required by this item concerning our executive officers will be set forth under
the caption “Executive Officers of the Company” in our definitive proxy
statement for our 2010 annual meeting, and is incorporated herein by
reference.
 
 Information
required by this item concerning compliance with Section 16(a) of the Exchange
Act, as amended, will be set forth under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance” in our definitive proxy statement for our 2010
annual meeting, and is incorporated herein by reference.
 
 Information
required by this item concerning the audit committee of the Company, the audit
committee financial expert of the Company and any material changes to the way in
which security holders may recommend nominees to the Company’s Board of
Directors will be set forth under the caption “Corporate Governance” in our
definitive proxy statement for our 2010 annual meeting, and is incorporated
herein by reference.
 
 The Board of Directors adopted a Code
of Business Conduct and Ethics, which is posted on our website at
www.antarespharma.com that is applicable to all employees and directors. We will
provide copies of our Code of Business Conduct and Ethics without charge upon
request. To obtain a copy, please visit our website or send your written request
to Antares Pharma, Inc., 250 Phillips Boulevard, Suite 290, Ewing,
NJ  08618, Attn:  Corporate
Secretary.   With  respect to any amendments or waivers
of this Code of Business Conduct
and  Ethics  (to  the  extent  applicable  to
the Company’s chief executive officer,  principal accounting officer
or controller, or persons performing
similar  functions)  the  Company intends to
either post such amendments or waivers on its website or disclose such
amendments or waivers pursuant to a Current Report on Form 8-K.
 
 Item
11.    EXECUTIVE COMPENSATION.
 
 Information
required by this item will be set forth under the caption “Executive
Compensation” in our definitive proxy statement for our 2010 annual meeting, and
is incorporated herein by reference.
 
 Item
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.
 
 Information required by this item
concerning ownership will be set forth under the caption “Security Ownership of
Certain Beneficial Owners and Management” in our definitive proxy statement for
our 2010 annual meeting, and is incorporated herein by reference.
 
 The following table provides
information for our equity compensation plans as of December 31,
2009:
 
 Plan
      Category
              
              Number of securities
                to be issued upon
                exercise
      of
                outstanding
      options,
                warrants
      andrights
              
              
              Weighted-average
                exercise
      price of
                outstanding
                options,
                warrants
      and rights
              
              
              Number of securities
                remaining
      available
                for
      future issuance under equity compensation plans
                (excluding
      shares reflected in the first column)Equity
      compensation plans approved by security holders
              
              
              8,339,684
              
              
              $
              1.19
              
              
              
              1,069,694
 
 
 78
 
 
 Item
13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
 
 Information required by this item will
be set forth under the captions “Certain Relationships and Related Transactions”
and “Corporate Governance” in our definitive proxy statement for our 2010 annual
meeting, and is incorporated herein by reference.
 
 Item
14.     PRINCIPAL ACCOUNTANT FEES AND
SERVICES.
 
 Information required by this item will
be set forth under the caption “Ratification of Selection of Independent
Registered Public Accountants” in our definitive proxy statement for our 2010
annual meeting, and is incorporated herein by reference.
  
 79
 PART
IV
 
 
 Item
15.     EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES.
 
 (a)
              The
      following documents are filed as part of this annual
    report:
 
 (1) 
      Financial Statements - see Part II
 
 (2)  Financial
      Statement Schedules
 
 All
      schedules have been omitted because they are not applicable, are
      immaterial or are not required because the information is included in the
      consolidated financial statements or the notes
  thereto.
 
 (3)  
      Item 601 Exhibits - see list of Exhibits
below
 
 (b)       Exhibits
 
 The following
is a list of exhibits filed as part of this annual report on Form
10-K.
 
 Exhibit
                No.
              
              Description3.1
              
              Certificate
      of Incorporation (Filed as an exhibit to Schedule 14A on March 18, 2005
      and incorporated herein by reference.)3.2
              
              Certificate
      of Amendment of Certificate of Incorporation (filed as exhibit 3.1 to Form
      8-K on May 19, 2008 and incorporated herein by reference.)3.3
              
              Bylaws
      (Filed as an exhibit to Schedule 14A on March 18, 2005 and incorporated
      herein by reference.)3.4
              
              Amended
      and Restated Bylaws of Antares Pharma, Inc. adopted as of May 11, 2007
      (Filed as exhibit 3.1 to Form 8-K on May 15, 2007 and incorporated herein
      by reference.)4.1
              
              Form
      of Certificate for Common Stock (Filed as an exhibit to Form S-1/A on
      August 15, 1996 and incorporated herein by reference.)4.2
              
              Registration
      Rights Agreement with Permatec Holding AG dated January 31, 2001 (Filed as
      Exhibit 10.2 to Form 10-K for the year ended December 31, 2000 and
      incorporated herein by reference.)4.3
              
              Warrant
      Agreement with Eli Lilly and Company dated September 12, 2003 (Filed as
      exhibit 10.60 to Form 8-K on September 18, 2003 and incorporated herein by
      reference.)4.4
              
              Registration
      Rights Agreement with Eli Lilly and Company dated September 12, 2003
      (Filed as exhibit 10.61 to Form 8-K on September 18, 2003 and incorporated
      herein by reference.)4.5
              
              Stock
      Purchase Agreement with Sicor Pharmaceuticals, Inc., dated November 23,
      2005 (Filed as exhibit 10.55 to Form 10-K for the year ended December 31,
      2005 and incorporated herein by reference.)4.6
              
              Form
      of Common Stock and Warrant Purchase Agreement, dated February 27, 2006
      (Filed as exhibit 10.57 to Form 10-K for the year ended December 31, 2005
      and incorporated herein by reference.)4.7
              
              Form
      of Investors Rights Agreement, dated March 2, 2006 (Filed as exhibit 10.58
      to Form 10-K for the year ended December 31, 2005 and incorporated herein
      by reference.)4.8
              
              Form
      of Common Stock Purchase Warrant, dated March 2, 2006 (Filed as exhibit
      10.59 to Form 10-K for the year ended December 31, 2005 and incorporated
      herein by reference.)4.9
              
              Form
      of Common Stock Purchase Warrant and Related Schedule of Holders and Other
      Terms (Filed as exhibit 4.7 to Form S-3/A Registration Statement on May
      16, 2006 and incorporated herein by reference.)4.10
              
              Registration
      Rights Agreement by and among Antares Pharma, Inc., MMV Financial Inc. and
      HSBC Capital (Canada) Inc., dated February 26, 2007 (Filed as exhibit 4.1
      to Form 8-K on March 2, 2007 and incorporated herein by
      reference.)4.11
              
              Warrant
      for the Purchase of Shares of Common Stock issued by Antares Pharma, Inc.
      to MMV Financial Inc., dated February 26, 2007 (Filed as exhibit 4.2 to
      Form 8-K on March 2, 2007 and incorporated herein by
      reference.)4.12
              
              Warrant
      for the Purchase of Shares of Common Stock issued by Antares Pharma, Inc.
      to HSBC Capital (Canada) Inc., dated February 26, 2007 (Filed as exhibit
      4.3 to Form 8-K on March 2, 2007 and incorporated herein by
      reference.)4.13
              
              Common
      Stock and Warrant Purchase Agreement, dated June 29, 2007, by and between
      Antares Pharma, Inc. and the Purchasers party thereto (Filed as exhibit
      4.1 to Form 8-K on July 2, 2007 and incorporated herein by
      reference.)4.14
              
              Form
      of Investor Rights Agreement (Filed as exhibit 4.2 to Form 8-K on July 2,
      2007 and incorporated herein by reference.)4.15
              
              Form
      of Warrant (Filed as exhibit 4.3 to Form 8-K on July 2, 2007 and
      incorporated herein by reference.)4.16
              
              Form
      of Warrant to Purchase Common Stock (Filed as Exhibit 4.1 to Form 8-K on
      July 24, 2009 and incorporated herein by reference).4.17
              
              Form
      of Warrant to Purchase Common Stock (Filed as Exhibit 4.1 to Form 8-K on
      September 18, 2009 and incorporated herein by reference).4.18
              
              Form
      of Subscription Agreement, by and between Antares Pharma, Inc. and the
      investor party thereto (Filed as Exhibit 10.2 to Form 8-K filed on July
      24, 2009 and incorporated herein by reference).4.19
              
              Form
      of Subscription Agreement, by and between Antares Pharma, Inc. and the
      investor party thereto (Filed as Exhibit 10.1 to Form 8-K filed on
      September 18, 2009 and incorporated herein by reference).10.0
              
              Stock
      Purchase Agreement with Permatec Holding AG, Permatec Pharma AG, Permatec
      Technologie AG and Permatec NV with First and Second
      Amendments
                dated
      July 14, 2000 (Filed as an exhibit to Schedule 14A on December 28, 2000
      and incorporated herein by reference.)10.1
              
              Third
      Amendment to Stock Purchase Agreement, dated January 31, 2001 (Filed as
      exhibit 10.1 to Form 10-K for the year ended December 31, 2000 and
      incorporated herein by reference.)10.2*
              
              Agreement
      with Becton Dickinson dated January 1, 1999 (Filed as exhibit 10.24 to
      Form 10-K for the year ended December 31, 1998 and incorporated herein by
      reference.)10.3*
              
              License
      Agreement with Solvay Pharmaceuticals BV, dated June 9, 1999 (Filed as
      exhibit 10.33 to Form 10-K/A for the year ended December 31, 2001 and
      incorporated herein by reference.)10.4*
              
              License
      Agreement with BioSante Pharmaceuticals, Inc., dated June 13, 2000 (Filed
      as exhibit 10.34 to Form 10-K/A for the year ended December 31, 2001 and
      incorporated herein by reference.)10.5*
              
              Amendment
      No. 1 to License Agreement with BioSante Pharmaceuticals, Inc., dated May
      20, 2001 (Filed as exhibit 10.35 to Form 10-K/A for the year ended
      December 31, 2001 and incorporated herein by reference.)10.6*
              
              Amendment
      No. 2 to License Agreement with BioSante Pharmaceuticals, Inc., dated July
      5, 2001 (Filed as exhibit 10.36 to Form 10-K/A for the year ended December
      31, 2001 and incorporated herein by reference.)10.7*
              
              Amendment
      No. 3 to License Agreement with BioSante Pharmaceuticals, Inc., dated
      August 28, 2001 (Filed as exhibit 10.37 to Form 10-K/A for the year ended
      December 31, 2001 and incorporated herein by reference.)10.8*
              
              Amendment
      No. 4 to License Agreement with BioSante Pharmaceuticals, Inc., dated
      August 8, 2002 (Filed as exhibit 10.38 to Form 10-K/A for the year ended
      December 31, 2001 and incorporated herein by reference.)10.9*
              
              License
      Agreement between Antares Pharma, Inc. and Ferring, dated January 21, 2003
      (Filed as exhibit 10.47 to Form 8-K on February 20, 2003 and incorporated
      herein by reference.)10.10
              
              Securities
      and Exchange Agreement, dated September 12, 2003 (Filed as exhibit 10.57
      to Form 8-K on September 15, 2003 and incorporated herein by
      reference.)10.11*
              
              Development
      and License Agreement, dated September 12, 2003, with Eli Lilly and
      Company (Filed as exhibit 10.59 to Form 8-K on September 18, 2003 and
      incorporated herein by reference.)10.12
              
              Second
      Amendment to the Development and License Agreement with Eli Lily and
      Company dated March 20, 2008 (Filed as Exhibit 10.1 to Form 10-Q for the
      Quarter Ended March 31, 2008 and incorporated herein by
      reference.)10.13
              
              Office
      lease with The Trustees Under the Will and of the Estate of James
      Campbell, Deceased, dated February 19, 2004 (Filed as exhibit 10.65 to
      Form 10-K for the year ended December 31, 2003 and incorporated herein by
      reference.)10.14
              
              Form
      of Indemnification Agreement, dated February 11, 2008, between Antares
      Pharma, Inc. and each of its directors and executive officers (Filed as
      exhibit 10.1 to Form 8-K on February 13, 2008 and incorporated herein by
      reference.)10.15*
              
              Development
      Supply Agreement, dated June 22, 2005 (Filed as exhibit 10.69 to Form 10-Q
      for the quarter ended June 30, 2005 and incorporated herein by
      reference.)10.16*
              
              License
      Development and Supply Agreement with Sicor Pharmaceuticals, Inc., dated
      November 23, 2005 (Filed as exhibit 10.54 to Form 10-K for the year ended
      December 31, 2005 and incorporated herein by reference.)10.17+
              
              Senior
      Management Agreement by and between Antares Pharma, Inc. and Robert F.
      Apple, dated February 9, 2006 (Filed as exhibit 10.1 to Form 8-K on
      February 14, 2006 and incorporated herein by reference.)10.18+
              
              Amendment
      to Senior Management Agreement with Robert F. Apple, dated November 12,
      2008. (Filed as Exhibit 10.1 to Form 10-Q for the Quarter Ended September
      30, 2008 and incorporated herein by reference.)10.19+
                10.20+
              
              Employment
      agreement with Peter Sadowski, Ph.D., dated October 13, 2006 (Filed as
      exhibit 10.1 to Form 8-K on October 16, 2006 and incorporated herein by
      reference.)
                Amendment
      to Employment Agreement with Peter Sadowski, Ph. D., dated November 12,
      2008 (Filed as Exhibit 10.2 to Form 10-Q for the Quarter Ended September
      30, 2008 and incorporated herein by reference.)10.21+
                10.22
                10.23+
                10.24
              
              Employment
      agreement with Dario Carrara, dated October 13, 2006 (Filed as exhibit
      10.2 to Form 8-K on October 16, 2006 and incorporated herein by
      reference.)
                Amendment
      to Employment Agreement with Dario Carrara, dated November 12,2008 (Filed
      as Exhibit 10.3 to Form 10-Q for the Quarter Ended September 30, 2008 and
      incorporated herein by reference.)
                Employment
      Agreement, dated July 7, 2008 by and between Antares Pharma, Inc. and Dr.
      Paul K. Wotton (Filed as Exhibit 10.1 to Form 8-K on July 7, 2008 and
      incorporated herein by reference.)
                Lease
      Agreement, dated as of May 15, 2006, between the Company and 250 Phillips
      Associates LLC (Filed as exhibit 10.2 to From 10-Q for the quarter ended
      June 30, 2006 and incorporated herein by reference.)10.25
              
              Antares
      Pharma, Inc. 2008 Equity Compensation Plan (Filed as exhibit 10.1 to Form
      8-K on May 19, 2008 and incorporated herein by reference.)21.1
              
              Subsidiaries
      of the Registrant23.1
              
              Consent
      of KPMG LLP, Independent Registered Public Accounting Firm31.1
              
              Section
      302 CEO Certification31.2
              
              Section
      302 CFO Certification32.1
              
              Section
      906 CEO Certification32.2
              
              Section
      906 CFO Certification*
              
              Confidential
      portions of this document have been redacted and have been separately
      filed with the Securities and Exchange Commission.+
              
              Indicates
      management contract or compensatory plan or arrangement.
   82
 
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this annual report to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Ewing, State
of New Jersey, on March 23, 2010
   ANTARES PHARMA,
      INC./s/ Paul K. WottonDr.
      Paul K. WottonPresident
      and Chief Executive Officer
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, this annual report has been signed by the following persons on behalf of
the registrant in the capacities indicated on March 23, 2010.
 
 Signature
              Title/s/Paul
      K. Wotton
              President
      and Chief Executive Officer, DirectorDr.
      Paul K. Wotton
              (Principal
      Executive Officer)/s/Robert
      F. Apple
              Executive
      Vice President and Chief Financial OfficerRobert
      F. Apple
              (Principal
      Financial and Accounting Officer)/s/Leonard
      S. Jacob
              Director,
      Chairman of the BoardDr. Leonard
      S. Jacob/s/Thomas
      J. Garrity
              DirectorThomas
      J. Garrity/s/Jacques
      Gonella
              DirectorDr. Jacques
      Gonella/s/Anton
      G. Gueth
              DirectorAnton
      G. Gueth/s/Rajesh
      Shrotriya
              DirectorDr. Rajesh
      Shrotriya/s/Eamonn
      P. Hobbs
              DirectorEamonn
      P. Hobbs
 
 
 83