ALBIREO PHARMA, INC. - Quarter Report: 2014 June (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission File Number 001-33451

BIODEL INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

90-0136863

(IRS Employer Identification No.)

100 Saw Mill Road
Danbury, Connecticut

(Address of principal executive offices)

06810

(Zip code)

(203) 796-5000

(Registrant's telephone number, including area code)

Not Applicable

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

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. x Yes o 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). x Yes o No

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

(Do not check if a smaller
reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

Indicate the number of shares outstanding of the issuer's common stock as of the latest practicable date: As of August 6, 2014 there were 22,691,696 shares of the registrant's common stock outstanding.

BIODEL INC.

Page

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements 1

Consolidated Condensed Balance Sheets at September 30, 2013 and June 30, 2014 (unaudited) 1

Consolidated Condensed Statements of Operations (unaudited) for the Three and Nine Months Ended June 30, 2013 and 2014 2

Consolidated Condensed Statements of Stockholders' Equity for the period from September 30, 2013 through June 30, 2014 (unaudited) 3

Consolidated Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 2013 and 2014 4

Notes to Consolidated Condensed Financial Statements 5

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18

Item 3. Quantitative and Qualitative Disclosure About Market Risk 27

Item 4. Controls and Procedures 28

PART II — OTHER INFORMATION

Item 6. Exhibits 29

Signatures 30

EX-10.1

EX-31.01

EX-31.02

EX-32.01

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements

Biodel Inc.
Consolidated Condensed Balance Sheets
(in thousands, except share and per share amounts)

September 30,
2013 June 30,
2014

(unaudited)

ASSETS

Current:

Cash and cash equivalents $ 39,781 $ 24,480

Income taxes receivable 6 2

Grants receivable 26 227

Prepaid and other assets 264 394

Total current assets 40,077 25,103

Property and equipment, net 1,031 604

Intellectual property, net 43 41

Total assets $ 41,151 $ 25,748

LIABILITIES AND STOCKHOLDERS' EQUITY

Current:

Accounts payable $ 246 $ 374

Accrued expenses:

Clinical trial expenses 181 132

Payroll and related 1,139 991

Accounting and legal fees 226 170

Severance 255 31

Other 319 266

Income taxes payable 75 —

Total current liabilities 2,441 1,964

Common stock warrant liability 6,121 2,413

Other long term liabilities 26 —

Total liabilities 8,588 4,377

Commitments

Stockholders' equity:

Convertible Preferred stock, $.01 par value; 50,000,000 shares authorized, 1,950,000 and 1,950,000 issued and outstanding 19 19

Common stock, $.01 par value; 62,500,000 shares authorized; 21,070,824 and 21,119,722 issued and outstanding 211 211

Additional paid-in capital 247,761 248,414

Accumulated deficit (215,428 ) (227,273 )

Total stockholders' equity 32,563 21,371

Total liabilities and stockholders' equity $ 41,151 $ 25,748

See accompanying notes to consolidated condensed financial statements.

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Biodel Inc.
Consolidated Condensed Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)

Three Months Ended
June 30, Nine Months Ended
June 30,

2013 2014 2013 2014

Revenue $ — $ — $ — $ —

Operating expenses:

Research and development 3,474 3,628 11,115 11,626

Government grant (25 ) (227 ) (249 ) (531 )

General and administrative 1,768 1,348 5,371 4,475

Total operating expenses 5,217 4,749 16,237 15,570

Other (income) and expense:

Interest and other income (11 ) (11 ) (39 ) (40 )

Adjustment to fair value of common stock warrant liability 4,431 (1,548 ) 2,319 (3,708 )

Loss before tax provision (benefit) (9,637 ) (3,190 ) (18,517 ) (11,822 )

Tax provision (benefit) (6 ) 14 3 23

Net loss $ (9,631 ) $ (3,204 ) $ (18,520 ) $ (11,845 )

Net loss per share — basic and diluted $ (0.66 ) $ (0.15 ) $ (1.29 ) $ (0.56 )

Weighted average shares outstanding — basic and diluted 14,573,110 21,118,375 14,311,875 21,100,903

See accompanying notes to consolidated condensed financial statements.

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Biodel Inc.
Consolidated Condensed Statements of Stockholders' Equity
(in thousands, except share and per share amounts)

Common Stock
$.01 Par Value Series A
Preferred stock
$.01 Par Value Series B
Convertible Preferred stock
$.01 Par Value Additional
Paid in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity

Shares Amount Shares Amount Shares Amount

Balance, September 30, 2013 21,070,824 $ 211 — $ — 1,950,000 $ 19 $ 247,761 $ (215,428 ) $ 32,563

Expenses of ATM (55 ) (55 )

Stock-based compensation — — — — — — 645 — 645

Proceeds from the sale of stock-ESPP 8,189 — — — — — 15 — 15

Stock options exercised 19,241 — — — — — 48 — 48

RSUs converted to common stock 21,468 — — — — — — — —

Net loss — — — — — — — (11,845 ) (11,845 )

Balance, June 30, 2014 (unaudited) 21,119,722 $ 211 — $ — 1,950,000 $ 19 $ 248,414 $ (227,273 ) $ 21,371

See accompanying notes to consolidated condensed financial statements.

-3-

Biodel Inc.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)

Nine Months Ended
June 30,

2013 2014

Cash flows from operating activities:

Net loss $ (18,520 ) $ (11,845 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 484 462

Stock-based compensation for employees and directors 1,216 645

Adjustment to fair value of common stock warrant liability 2,319 (3,708 )

(Increase) decrease in:

Income taxes receivable 16 4

Grants receivable 64 (201 )

Other receivables 8 —

Prepaid expenses and other assets (393 ) (130 )

Increase (decrease) in:

Accounts payable (45 ) 128

Income taxes payable (26 ) (75 )

Accrued expenses and long term liabilities (93 ) (557 )

Total adjustments 3,550 (3,432 )

Net cash used in operating activities (14,970 ) (15,277 )

Cash flows from investing activities:

Purchase of property and equipment (87 ) (32 )

Net cash used in investing activities (87 ) (32 )

Cash flows from financing activities:

Options exercised 75 48

Net proceeds from employee stock purchase plan 30 15

Net proceeds from sale of common stock 18,284 —

Net expenses of ATM — (55 )

Net cash provided by financing activities 18,389 8

Net increase (decrease) in cash and cash equivalents 3,332 (15,301 )

Cash and cash equivalents, beginning of period 39,050 39,781

Cash and cash equivalents, end of period $ 42,382 $ 24,480

Supplemental disclosures of cash flow information:

Cash paid for interest and income taxes was:

Income taxes $ 12 $ 19

See accompanying notes to consolidated condensed financial statements.

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

1. Business and Basis of Presentation

Business

Biodel Inc. and its wholly owned subsidiary (collectively, "Biodel" or the "Company", and formerly Global Positioning Group Ltd.) is a specialty pharmaceutical company which focuses on the development and commercialization of innovative treatments for diabetes that may be safer, more effective and more convenient for patients.

Currently, the Company is developing room temperature stable glucagon presentations for use as a rescue treatment for diabetes patients experiencing severe hypoglycemia. The Company is also developing proprietary insulin formulations that are designed to be more rapid-acting than the formulations currently available to Type 1 and Type 2 diabetes patients.

The Company is in the process of raising additional equity capital to support the completion of its development and commercialization of its innovative treatments for diabetes.

The Company's activities are subject to significant risks and uncertainties, including failing to secure additional funding before another company develops similar treatments for patients with diabetes.

Basis of Presentation

The consolidated financial statements have been prepared by the Company and are unaudited. These consolidated financial statements include Biodel UK Limited. This subsidiary has been inactive since its inception. All intercompany balances and transactions have been eliminated. In the opinion of management, the Company has made all adjustments (consisting of normal recurring accruals) necessary to fairly present the financial position and results of operations for the interim periods presented. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP") have been consolidated or omitted. These consolidated financial statements should be read in conjunction with the September 30, 2013 audited financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2013, filed with the Securities and Exchange Commission on December 20, 2013. The results of operations for the three and nine months ended June 30, 2014 are not necessarily indicative of the operating results for the full fiscal year or any other interim period.

Recent Accounting Pronouncements

In June 2014, the FASB issued ASU No. 2014-10, to eliminate the concept of a development stage entity (DSE) from U.S. GAAP, effective for interim periods and years beginning after December 15, 2014. The issuance of ASU No. 2014-10 rescinds certain financial reporting requirements that have historically applied to DSEs, such as inception-to-date information in the statements of income, cash flows, and shareholder equity. Additionally, the financial statements no longer need to be labeled as those of a DSE. ASU No. 2014-10 was early adopted and the adoption of this standard did not have a material effect on the Company's financial statements.

2. Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, which include cash and cash equivalents, grants receivable and accounts payable, approximate their fair values due to their short term maturities.

ASC Topic 820 ("ASC 820", originally issued as SFAS No. 157, Fair Value Measurements) applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, ASC 820 does not require any new fair value measurements. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The three levels of inputs used are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of September 30, 2013 and June 30, 2014, the Company had assets and liabilities that fell under the scope of ASC 820. The Company used the Black-Scholes valuation model to determine the fair value of the Company's warrant liability as of September 30, 2013 and June 30, 2014 for the warrants issued in the May 2011 and June 2012 financings (as defined in Note 7). The Black-Scholes valuation model takes into account, as of the valuation date, factors including the current exercise price, the life of the warrant, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the term of the warrant. Accordingly, the Company's fair value measurements of its cash and cash equivalents are classified as a Level 1 input and the warrant liability as a Level 3 input.

The fair value of the Company's financial assets and liabilities carried at fair value and measured on a recurring basis are as follows:

Description Fair Value at
June 30, 2014 Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable
Market Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)

Assets:

Cash and cash equivalents $ 24,480 $ 24,480 $ — $ —

Subtotal 24,480 24,480 — —

Liabilities:

Common stock warrant liability (see Note 7) (2,413 ) — — (2,413 )

Subtotal (2,413 ) — — (2,413 )

Total $ 22,067 $ 24,480 $ — $ (2,413 )

Description Fair Value at
September 30, 2013 Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable
Market Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)

Assets:

Cash and cash equivalents $ 39,781 $ 39,781 $ — $ —

Subtotal 39,781 39,781 — —

Liabilities:

Common stock warrant liability (see Note 7) (6,121 ) — — (6,121 )

Subtotal (6,121 ) — — (6,121 )

Total $ 33,660 $ 39,781 $ — $ (6,121 )

The Company recognizes transfers into and out of the levels indicated above on the actual date of the event or change in circumstances that caused the transfer of change. All changes within Level 3 can be found in the following Level 3 reconciliation table below:

Balance at September 30, 2013 $ (6,121 )

Decrease in fair value of common stock warrant liability 3,708

Balance at June 30, 2014 $ (2,413 )

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

The unrealized gains or losses on the derivative liabilities are recorded as an adjustment to fair value of common stock warrant liability in the Company's statement of operations. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC Topic 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

3. Pre-Launch Inventory

Inventory costs associated with product candidates that have not yet received regulatory approval are capitalized if the Company believes there is probable future commercial use and future economic benefit. If the probability of future commercial use and future economic benefit cannot be reasonably determined, then pre-launch inventory costs associated with such product candidates are expensed as research and development expense during the period the costs are incurred. Because all of its product candidates are in early stages of preclinical or clinical development, the Company currently expenses all purchases of pre-launch inventory as research and development, and expects to continue to do so until it can determine the probability of regulatory approval for the applicable product candidate.

4. Stock-Based Compensation

In March 2013, the Company's stockholders approved an amendment to and restatement of the Company's 2010 Stock Incentive Plan (as amended and restated the "2010 Plan"). The 2010 Plan replaced the Company's 2004 Stock Incentive Plan and 2005 Non-Employee Directors Stock Option Plan. Stock options are granted at an exercise price equal to the Company's closing stock price on the date of the grant. Stock options vest over a period of up to four years with a contractual life of seven years. The Company estimates the fair value using the Black-Scholes pricing model. The Company uses the following assumptions in its Black Scholes valuation calculations:

Risk-free rate - The Company uses interest rates based on the yield of US Treasury strips on the date the award is granted and the expected term of the award.

Forfeitures - The Company estimates forfeitures based on actual historical and estimated future forfeitures.

Dividends - The Company has assumed that dividends will not be paid.

Volatility - The Company uses its historical volatility.

Expected term - The expected option term represents the period that stock based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin ("SAB") No. 107, Share-Based Payment, ("SAB No. 107"), which averages an award's weighted-average vesting period and expected term for "plain vanilla" share options. Under SAB No. 107, options are considered to be "plain vanilla" if they have the following basic characteristics: (i) granted "at-the money" (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.

In December 2007, the SEC issued SAB No. 110, Share-Based Payment, ("SAB No. 110"). SAB No. 110 was effective January 1, 2008 and expresses the views of the Staff of the SEC with respect to extending the use of the simplified method, as discussed in SAB No. 107, in developing an estimate of the expected term of "plain vanilla" share options in accordance with ASC Topic 718. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, the Company has "plain-vanilla" stock options, and therefore used a simple average of the vesting period and the contractual term for options granted subsequent to January 1, 2006 as permitted by SAB No. 107.The Company expenses ratably over the vesting period the cost of the stock options granted to employees and non-employee directors. The total stock based compensation cost for the three and nine months ended June 30, 2014 which included stock based compensation charges related to the Company's 2005 Employee Stock Purchase Plan and RSU's was $135 and $645, respectively. In comparison, the total compensation cost for the three and nine months ended June 30, 2013 was $326 and $1,216, respectively.

At June 30, 2014, the total compensation cost related to non-vested options not yet recognized was $1,283, which will be recognized over the next four years assuming the employees complete their service period for vesting of the options.

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

The following table summarizes the stock option activity during the nine months ended June 30, 2014:

Number Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Life in Years Aggregate
Intrinsic
Value

Outstanding options, September 30, 2013 1,920,051 $ 22.26 4 $ 445

Granted 1,267,000 2.41 —

Exercised (19,241 ) 2.48 $ 10

Forfeited, expired (582,650 ) 14.69 —

Outstanding options, June 30, 2014 2,585,160 $ 14.39 4 —

Exercisable options, June 30, 2014 1,302,178 $ 26.18 3 —

The Black-Scholes pricing model assumptions for the three and nine months ended June 30, 2013 and 2014 are determined as discussed below:

Three Months Ended
June 30, Nine Months Ended
June 30,

2013 2014 2013 2014

Expected life (in years) 4.75 — 2.39 - 4.75 3.77 - 4.75

Expected volatility 91 % — 80 - 91 % 70 - 83 %

Expected dividend yield 0 % — 0 % 0 %

Risk-free interest rate 0.39 % — 0.25 - 0.75 % 0.58 - 0.78 %

Weighted average grant date fair value $ 1.89 — $ 2.34 $ 2.41

Restricted Stock Units

The Company grants restricted stock units ("RSUs") to executive officers and employees pursuant to the 2010 Plan from time to time. There is no direct cost to the recipients of RSUs, except for any applicable taxes.

Each RSU award that was granted to the Company's executive officers and employees represents one share of common stock. Each year following the annual vesting date, between January 1st and March 15th, the Company will issue common stock for each vested RSU. During the period when the RSU is vested but not distributed, the RSUs cannot be transferred and the grantee has no voting rights. If the Company declares a dividend, RSU recipients will receive payment based upon the percentage of RSUs that have vested prior to the date of declaration. The costs of the awards, determined as the fair market value of the shares on the grant date, are expensed per the vesting schedule outlined in the award.

Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of 10%. Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate.

The stock-based compensation expense associated with the RSUs has been recorded in the statement of operations and in additional paid-in-capital on the balance sheets as follows:

Three Months Ended
June 30, Nine Months Ended
June 30,

2013 2014 2013 2014

Stock compensation expense — RSUs $ 76 $ 0 $ 275 $ 54

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

At June 30, 2014, all of the stock-based compensation expense related to RSU awards granted under the 2004 Stock Incentive Plan and the 2010 Plan has been recognized. The following table summarizes RSU activity from October 1, 2013 through June 30, 2014:

Shares Weighted
Average
Grant-Date
Fair Value

Non-vested and outstanding balance at October 1, 2013 31,296 $ 10.48

Changes during the period:

RSUs granted — —

RSUs converted to common stock (21,468 ) 10.48

RSUs withheld for tax payments (9,828 ) 10.48

Non-vested and outstanding RSU balance at June 30, 2014 — $ —

2005 Employee Stock Purchase Plan

The Company's 2005 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by its board of directors and approved by its stockholders on March 20, 2007. The Purchase Plan became effective upon the closing of the Company's initial public offering. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code.

Under the Purchase Plan, eligible employees may contribute up to 15% of their eligible earnings for the period of that offering withheld for the purchase of common stock under the Purchase Plan. The employee's purchase price is equal to the lower of: 85% of the fair market value per share on the start date of the offering period in which the employee is enrolled or 85% of the fair market value per share on the semi-annual purchase date. The Purchase Plan imposes a limitation upon a participant's right to acquire common stock if immediately after the purchase the employee would own 5% or more of the total combined voting power or value of the Company's common stock or of any of its affiliates. The Purchase Plan provides for an automatic rollover when the purchase price for a new offering period is lower than previously established purchase price(s). The Purchase Plan also provides for a one-time election that allows an employee the opportunity to enroll into a new offering period when the new offering is higher than their current offering price. This election must be made within 30 days from the start of a new offering period. Offering periods are twenty-seven months in length. The compensation charge in connection with the Purchase Plan for the three and nine months ended June 30, 2014 was $2 and $3, respectively. In comparison, for the three and nine months ended June 30, 2013, the Company expensed $8 and $1, respectively.

An aggregate of 500,000 shares of common stock are reserved for issuance pursuant to purchase rights to be granted to the Company's eligible employees under the Purchase Plan. The Purchase Plan shares are replenished annually on the first day of each calendar year by virtue of an evergreen provision. The provision allows for share replenishment equal to the lesser of 1% of the total number of shares of common stock outstanding on that date or 25,000 shares. As of June 30, 2013 and 2014, a total of 366,926 and 383,737 shares, respectively, were reserved and available for issuance under the Purchase Plan. As of June 30, 2013 and 2014, the Company has issued 108,074 and 116,263 shares, respectively, under the Purchase Plan.

5. Income Taxes

The Company accounts for income taxes under FASB ASC 740-10-25 ("ASC 740-10-25"), Accounting for Income Taxes. Under ASC 740-10-25, 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. Under ASC 740-10-25, 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. The Company files U.S. federal and state tax returns and has determined that its major tax jurisdictions are the United States and Connecticut. The tax years ended in 2010 through 2013 remain open and subject to examination by the appropriate governmental agencies in the United States and Connecticut.

Section 382 of the Internal Revenue Code imposes limitations on the use of U.S. federal net operating losses ("NOLs") upon a greater than 50% change in ownership in the Company within the three-year period preceding the date of ownership change. The Company's NOLs will continue to be available to offset taxable income (until such NOLs are

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

either used or expire) subject to the Section 382 annual limitation. If the Section 382 annual limitation amount is not fully utilized in a particular tax year, then the unused portion from that particular tax year will be added to the Section 382 annual limitation in subsequent years. The Company has determined that ownership change, under Section 382, occurred as a result of the May 2011financing and therefore, the ability to utilize its current NOLs is further limited.

The Company has approximately $58 million of NOLs at the end of the prior fiscal year, which, if not used, expire beginning in 2024 through 2033.

The Company's effective tax rate for the three and nine months ended June 30, 2013 and 2014 was 0% and differs from the federal statutory rate of 34% primarily due to the effects of state income taxes and a full valuation allowance offsetting its deferred tax assets.

6. Net Loss per Share

Basic and diluted net loss per share has been calculated by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. All potentially dilutive common shares have been excluded from the calculation of weighted average common shares outstanding, as their inclusion would be anti-dilutive.

The amount of options, common shares underlying warrants, common shares issuable upon conversion of preferred stock and RSUs excluded are as follows:

June 30,
June 30,

2013 2014 2013 2014

Common shares underlying warrants issued for common stock 5,006,398 5,006,398 5,006,398 5,006,398

Common shares issuable upon conversion of Series A Preferred Stock 453,486 — 453,486 —

Common shares issuable upon conversion of Series B Preferred Stock 3,428,643 1,950,000 3,428,643 1,950,000

Stock options 1,929,676 2,585,160 1,929,676 2,585,160

Restricted stock units outstanding 31,302 — 31,302 —

7. Financings

June 2013 Public Offering

On June 24, 2013, the Company completed an underwritten public offering of 4,482,760 shares of its common stock at a price to the public of $4.35 per share. On July 22, 2013, the Company issued 236,007 additional shares of common stock, at the public offering price of $4.35 per share, in connection with the underwriters' exercise of a portion of their over-allotment option. The Company received net proceeds from this offering, after deducting underwriting discounts, commissions and expenses, of $19.3 million, of which $18.3 million was received and recorded in June 2013 and $1.0 million was received and recorded in July 2013.

June 2012 Private Placement

In June 2012, the Company completed a private placement (the "2012 Private Placement") of an aggregate of 4,250,020 shares of the Company's common stock, 3,605,607 shares of the Company's Series B Convertible Preferred Stock and warrants to purchase an aggregate of 2,749,469 shares of common stock at an exercise price of $2.66 per share. For each unit consisting of either a share of common stock or Series B Preferred Stock and a warrant to purchase 0.35 of a share of common stock, the purchasers in the June 2012 Private Placement paid a negotiated price of $2.355. The warrants are immediately exercisable and will expire on June 26, 2017, five years from the original issuance date of June 27, 2012. The Company received net proceeds, after deducting placement agents' fees and other transaction expenses, of approximately $17,100 from the 2012 Private Placement. Each share of Series B Preferred Stock is convertible into one share of the Company's common stock at any time at the option of the holder, except that the securities purchase agreement that the Company entered into in connection with the 2012 Private Placement (the "Securities Purchase Agreement") provides that a holder will be prohibited from converting shares of Series B Preferred

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

Stock into shares of common stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than 9.98% of the total number of shares of common stock then issued and outstanding. In the event of the Company's liquidation, dissolution or winding up, holders of the Series B Preferred Stock will receive a payment equal to $0.01 per share of Series B Preferred Stock before any proceeds are distributed to the holders of common stock. After the payment of this preferential amount, and subject to the rights of holders of any class or series of capital stock specifically ranking by its terms senior to the Series B Preferred Stock, holders of Series B Preferred Stock will participate ratably in the distribution of any remaining assets with the common stock and any other class or series of capital stock that participates with the common stock in such distributions. Shares of Series B Preferred Stock will generally have no voting rights, except as required by law and except that the consent of the holders of a majority of the outstanding Series B Preferred Stock will be required to amend the terms of the Series B Preferred Stock. Holders of Series B Preferred Stock are entitled to receive, and the Company is required to pay, dividends on shares of the Series B Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends (other than dividends in the form of common stock) actually paid on shares of the common stock when, as and if such dividends (other than dividends in the form of common stock) are paid on shares of the common stock.

As required by the Securities Purchase Agreement, the Company filed a Registration Statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") on July 27, 2012, which was within 30 days after the closing of the 2012 Private Placement. The Registration Statement, which was declared effective on August 13, 2012, registers the resale of the shares of common stock and Series B Preferred Stock issued and sold in the 2012 Private Placement, the shares of common stock issuable upon conversion of the Series B Preferred Stock issued and sold in the 2012 Private Placement, and the shares of common stock issuable upon exercise of the warrants issued and sold in the 2012 Private Placement. Pursuant to the terms of the Securities Purchase Agreement, the Company agreed to pay liquidated damages to the purchasers in the 2012 Private Placement if, after effectiveness of the Registration Statement and subject to certain specified exceptions, the Company suspends the use of the Registration Statement or the Registration Statement ceases to remain continuously effective as to all the securities for which it is required to be effective (each such event, a "Registration Default"). Subject to specified exceptions, for each 30-day period or portion thereof during which a Registration Default remains uncured, the Company is obligated to pay liquidated damages to each purchaser in cash in an amount equal to 1.0% of the aggregate purchase price paid by each such purchaser in the 2012 Private Placement, up to a maximum of 8.0% of such aggregate purchase price. As of the date of these financial statements, the Company does not believe that it is probable that it will be obligated to pay any such liquidated damages. Accordingly, the Company has not established an accrual for liquidated damages.

In the event that the Company enters into a merger or change of control transaction, the holders of the warrants issued in the 2012 Private Placement will be entitled to receive consideration as if they had exercised the warrants immediately prior to such transaction, or they may require the Company to purchase the unexercised warrants at the Black-Scholes value (as defined in the warrant) of the warrant on the date of such transaction. The holders have up to 30 days following any such transaction to exercise this right. As a result of this provision, the Company recognizes the warrants as liabilities at their fair value on each reporting date.

At June 30, 2014, the fair value of the warrant liability determined utilizing the Black-Scholes valuation model was approximately $2,342. In comparison, the fair value of the warrant liability at September 30, 2013 was $4,958.

During the three and nine months ended June 30, 2014, the Company recorded an adjustment to fair value of common stock warrant liability of $(1,258) and $(2,616) respectively, within Other (income)/expense, to reflect a decrease in the valuation of the warrants from September 30, 2013 to June 30, 2014.

The following summarizes the changes in value of the warrant liability from September 30, 2013 through June 30, 2014:

Balance at September 30, 2013 $ 4,958

Decrease in fair value of common stock warrant liability (2,616 )

Balance at June 30, 2014 $ 2,342

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

May 2011 Registered Direct Offering

In May 2011, the Company completed a registered direct offering (the "May 2011 Offering") of an aggregate of 3,018,736 shares of the Company's common stock, 1,813,944 shares of the Company's Series A Preferred Stock and warrants to purchase 2,256,929 shares of the Company's common stock. The shares and warrants were sold in units consisting of (i) one share of common stock and (ii) one warrant to purchase 0.1625 of a share of common stock, at an exercise price of $9.92 per share of the Company's common stock. However, one investor also purchased units consisting of one share of Series A Preferred Stock and a warrant to purchase 0.1625 of a share of common stock. No fractional warrants were issued. Each unit was sold at a price of $8.64 per unit. These units were not issued or certificated. The shares and warrants were immediately separated. The warrants will expire on May 17, 2016, five years from the original issuance date of May 18, 2011. The Company received net proceeds, after deducting placement agents' fees and other offering expenses, of approximately $28,000 from the May 2011 Offering. The shares of Series A Preferred Stock issued in the May 2011 Offering have been converted into an aggregate of 453,483 shares of common stock. In the event that the Company enters into a merger or change of control transaction, the holders of the warrants issued in the May 2011 Offering will be entitled to receive consideration as if they had exercised the warrants immediately prior to such transaction, or they may require the Company to purchase the unexercised warrants at the Black-Scholes value (as defined in the warrant) of the warrant on the date of such transaction. As per terms of the warrant, the holders have up to 30 days following any such transaction to exercise this right. As a result of this provision, the Company recognizes the warrants as liabilities at their fair value on each reporting date.

At June 30, 2014, the fair value of the warrant liability determined utilizing the Black-Scholes valuation model was approximately $71. In comparison, the fair value of the warrant liability at September 30, 2013 was $1,163.

During the three and six months ended June 30, 2014, the Company recorded an adjustment to fair value of common stock warrant liability of $(290) and $(1,092), respectively, within Other (income)/expense, to reflect a decrease in the valuation of the warrants from September 30, 2013 to June 30, 2014.

The following summarizes the changes in value of the warrant liability from September 30, 2013 through June 30, 2014:

Balance at September 30, 2013 $ 1,163

Decrease in fair value of common stock warrant liability (1,092 )

Balance at June 30, 2014 $ 71

Fair Value Assumptions Used in Accounting for Warrant Liability

The Company has determined its warrant liability to be a Level 3 fair value measurement and used the Black-Scholes valuation model to calculate, as of June 30, 2014, the fair value of the warrants issued in the June 2012 Private Placement and the May 2011 Offering.

As of June 30, 2014, the Company estimated such fair value using the following assumptions:

June 2012 Financing June 30, 2014

Stock price $ 2.16

Exercise price $ 2.66

Risk-free interest rate 0.88 %

Expected remaining term 2.99

Expected volatility 76 %

Dividend yield —

Warrants outstanding 2,749,469

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

May 2011 Offering June 30, 2014

Stock price $ 2.16

Exercise price $ 9.92

Risk-free interest rate 0. 47 %

Expected remaining term 1.88

Expected volatility 60 %

Dividend yield —

Warrants outstanding 2,256,929

Risk-Free Interest Rate. This is the United States Treasury rate for the measurement date having a term equal to the expected remaining term of the warrant. An increase in the risk-free interest rate will increase the fair value and the associated derivative liability.

Term of Warrants. This is the period of time over which the warrant is expected to remain outstanding and is based on management's estimate, taking into consideration the remaining contractual life.

Expected Volatility. This is a measure of the amount by which the stock price has fluctuated or is expected to fluctuate. The Company uses a weighted-average of its historic volatility over the retrospective period corresponding to the expected remaining term of the warrants on the measurement date. An increase in the expected volatility will increase the fair value and the associated derivative liability.

Dividend Yield. The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease the fair value and the associated derivative liability.

Participating Securities

If at any time the Company grants, issues or sells securities or other property to holders of any class of common stock, the holders of the warrants are entitled to also acquire those same securities as if they held the number of shares of common stock acquirable upon complete exercise of the warrants.

As such, given that the warrant holders will participate fully on any dividends or dividend equivalents, the Company determined that the warrants are participating securities and therefore are subject to ASC 260-10-55 earnings per share. These securities were excluded from the three and nine months ended June 30, 2013 and June 30, 2014 loss per share calculation since their inclusion would be anti-dilutive.

8. Commitments

Leases

As of June 30, 2014, the Company leased three facilities in Danbury, Connecticut.

The Company renewed its lease for laboratory space in November 2013 for one year. This lease provides for annual basic lease payments of $68, plus the annual Consumers Price Index ("CPI") increase for October, not to exceed 6%, plus operating expenses.

The Company also renewed its lease agreement for additional office space adjacent to its laboratory space in November 2013 for one year. This lease provides for annual basic lease payments of $31, plus the annual CPI increase for October, not to exceed 6%, plus operating expenses.

In November 2013, the Company renewed its lease for its corporate office for five years. This lease provides for annual basic lease payments of $388, plus the annual CPI increase for May, not to exceed 6%, plus operating expenses.

Rent expense for the three and nine months ended June 30, 2014, was $165 and $476, respectively. In comparison, rent expense for the three and nine months ended June 30, 2013, was $164 and $481, respectively.

Other Commitments

The Company has entered into certain licensing and collaboration agreements for products currently under development. The Company may be obligated in future periods to make additional payments, which would become due

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

and payable only upon the achievement of certain research and development, regulatory, and approval milestones. The specific timing of such milestones cannot be predicted and depend upon future discretionary research and clinical developments, as well as, regulatory agency actions. Further, under the terms of certain agreements the Company may be obligated to pay commercial milestones contingent upon the realization of sales revenues and sublicense revenues. Due to the long range nature of such commercial milestones, they are neither probable at this time nor predictable, and consequently are not considered contingent milestone payment amounts.

9. Government Grants

Grants received are recognized as grant income when the grants become receivable, provided there is reasonable assurance that the Company will comply with the conditions attached to the grant and there is reasonable assurance the grant will be received. The Company requests cash funding under approved grants as expenses are incurred (not in advance) and reports these receipts on the statement of operations as a separate line item entitled "Government Grants." The corresponding expenses are included in research and development expenses. In July and September 2012, the Company was awarded two National Institutes of Health grants for the development of a concentrated ultra-rapid-acting insulin formulation and a stable glucagon formulation, respectively, for use in an artificial pancreas. Both awards are for two years and total approximately $582 and $583, respectively.

Work on the grant for the development of a concentrated ultra-rapid-acting insulin formulation started in August 2012 and completed in June 2014. Expenses incurred were $69 and $167, respectively for the three and nine months ended June 30, 2014 and $0 and $203, respectively, for the three and nine months ended June 30, 2013. As of June 30, 2014 the Company has recorded a grant receivable in the amount of $69.

Work on the grant for the stable glucagon formulation started in January 2013 and completed in June 2014. Expenses incurred were $158 and $364 respectively, for the three and nine months ended June 30, 2014 and $25 and $46, respectively, for the three and nine months ended June 30, 2013. As of June 30, 2014, the Company has recorded a grant receivable in the amount of $158.

The Company reported grant income of $227 and $531 respectively, for the three and nine months ended June 30, 2014. In comparison, the Company reported grant income of $25 and $249 respectively, for the three and nine months ended June 30, 2013. As of June 30, 2014, all grant income was earned and recorded.

10. Subsequent Events

In May 2013, the Company entered into an At-the-Market Issuance Sales Agreement (the "Sales Agreement") with MLV & Co. LLC ("MLV"), under which the Company may initially issue and sell shares of common stock having aggregate sales proceeds of up to $14 million from time to time through MLV as the Company's sales agent. As of June 30, 2014, the Company had not issued any shares pursuant to the Sales Agreement. During the period from July 1 through July 31, 2014, the Company sold an aggregate of 1,476,974 shares of common stock pursuant to the Sales Agreement and received proceeds, net of sales agent commissions, of $2.9 million.

On July 25, 2014, the Company entered into a purchase agreement (the "Purchase Agreement"), together with a registration rights agreement (the "Registration Rights Agreement") with Lincoln Park Capital Fund, LLC ("LPC"). Under the terms, and subject to the conditions of the Purchase Agreement, the Company has the right to sell to LPC, and LPC is obligated to purchase, up to $15,000,000 in shares of common stock, subject to certain limitations, from time to time over the 36-month period commencing on the date that a registration statement, which the Company agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus in connection therewith is filed. The Company may direct LPC, at its sole discretion and subject to certain conditions, to purchase up to 150,000 shares of common stock in regular purchases, increasing to amounts of up to 250,000 shares, depending upon the closing sale price of the common stock. In addition, the Company may direct LPC to purchase additional shares

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Biodel Inc.

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

as accelerated purchases if, on the date of a regular purchase, the closing sale price of the common stock is not below $2.50 per share (subject to adjustment). The purchase price of shares of common stock to be purchased under the Purchase Agreement will be based on the prevailing market prices of such shares at the time of sales, but in no event will the Company be able to sell shares to LPC on a day when the closing sale price of the common stock closing price is less than a floor price of $1.50 per share (subject to adjustment). The Company will control the timing and amount of any sales of common stock to LPC under the Purchase Agreement. As consideration for LPC's commitment to purchase shares of common stock pursuant to the Purchase Agreement, the Company issued to LPC 95,000 shares of Common Stock as commitment shares. To date the Company has not issued any shares of common stock under the purchase agreement.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Our forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements, including:

•the progress, timing or success of our research and development and clinical programs for our product candidates;

•our ability to conduct the development work necessary to finalize the formulation and design of our dual-chamber glucagon rescue product candidate, as well as the preclinical studies, clinical trials and manufacturing activities necessary to support the filing of a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, for that product candidate;

•our ability to engage a strategic partner in the further development of our prandial ultra-rapid-acting insulin formulations, including BIOD-123, which uses regular human insulin, or RHI, as the active pharmaceutical ingredient, and our insulin analog-based formulations ;

•the success of our formulation development work to improve the stability of our newer ultra-rapid-acting insulin analog-based formulations while maintaining the pharmacokinetic and injection site toleration characteristics associated with earlier formulations;

•the results of our real-time stability programs for our RHI-, insulin analog- and glucagon-based product candidates, including the reproducibility of earlier, smaller scale, stability studies and our ability to accurately project long term stability on the basis of accelerated testing;

•our ability to accurately anticipate technical challenges that we may face in the development of our ultra-rapid-acting RHI- and insulin analog-based product candidates or our glucagon rescue product candidates;

•our ability to secure approval by the FDA for our product candidates under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA;

•our ability to enter into collaboration arrangements for the commercialization of our product candidates and the success or failure of any such collaborations into which we enter, or our ability to commercialize our product candidates ourselves;

•our ability to enforce our patents for our product candidates and our ability to secure additional patents for our product candidates;

•our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

•the degree of clinical utility of our product candidates, particularly with regard to our ultra-rapid-acting insulin formulations, which have not yet been shown to be clinically superior to existing rapid-acting insulin analogs;

•the emergence of competing technologies and products and other adverse market developments, such as advancements in glucagon stabilization technologies that could enable a room-temperature rescue product in a portable, easy to use presentation;

•the ability of our contract manufacturing organizations or collaborators to produce our products in our final dosage form;

•our ability to secure adequate supplies of active pharmaceutical ingredients to support our product development programs and, if successful, the commercialization one or more product candidates;

•our capabilities and strategies for manufacturing, marketing and commercializing a product candidate; and

•our ability to accurately estimate anticipated operating losses, future revenues, capital requirements and our needs for additional financing.

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We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in Part II-Item 1A of this Quarterly Report, and in our other public filings with the Securities and Exchange Commission that could cause actual results or events to differ materially from the forward-looking statements that we make.

You should read this Quarterly Report and the documents that we have filed as exhibits to the Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. It is routine for internal projections and expectations to change as the year, or each quarter in the year, progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations are made as of the date of this Quarterly Report on Form 10-Q and may change prior to the end of each quarter or the year. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the "Risk Factors" section of our report on Form 10-Q for the first fiscal quarter ended December 31, 2013 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a specialty biopharmaceutical company focused on the development and commercialization of innovative treatments for diabetes that may be safer, more effective and more convenient for patients. We develop our product candidates by applying our proprietary formulation technologies to existing drugs in order to improve their therapeutic profiles. Our proprietary insulin formulations are designed to be more rapid-acting than the formulations currently available to Type 1 and Type 2 diabetes patients. We refer to these as "ultra-rapid-acting" formulations. Our glucagon formulations and presentations are designed to be stable at room temperature and are intended for use by caregivers with no medical training as a rescue treatment for diabetes patients experiencing severe hypoglycemia, or very low concentrations of blood glucose.

We are developing room temperature stable glucagon presentations for use as a rescue treatment for diabetes patients experiencing severe hypoglycemia, or very low concentrations of blood glucose. Our leading presentation uses a proprietary device from Unilife Corporation. The device, which is being customized for use in emergency situations, is a dual-chamber design that automatically reconstitutes lyophilized glucagon with a liquid diluent immediately prior to injection, and it features automatic needle retraction on full dose delivery. We submitted an Investigational New Drug application to the U.S. Food and Drug Administration, or FDA, for our dual-chamber glucagon rescue product in the second half of calendar year 2014 and we expect to initiate a Phase 1 clinical trial to assess the pharmacokinetic and pharmacodynamic profiles BIOD-961, the reconstituted glucagon formulation intended for use in the device, in the fourth calendar quarter of 2014. We have entered into a customization and commercial supply agreement with Unilife Medical Solutions, Inc., a wholly owned subsidiary of Unilife Corporation, to acquire an exclusive, sublicensable, worldwide license to the dual-chamber device for use with glucagon. We have also entered into a long-term commercial supply agreement with Becton, Dickinson and Company for worldwide exclusive rights to its Uniject disposable injection system for use with liquid glucagon formulations. We are currently assessing several formulations of liquid glucagon in pre-clinical studies.

We are also developing ultra-rapid-acting proprietary insulin formulations that are designed to be more rapid-acting than the formulations currently available to Type 1 and Type 2 diabetes patients. For example, BIOD-123, which was recently the subject of a successful Phase 2 clinical trial, combines recombinant human insulin, or RHI, with our proprietary combination of excipients to increase the rate of absorption following subcutaneous injection when compared to other commercially available insulin formulations, including "rapid-acting" mealtime insulin analogs such as Humalog®, marketed by Eli Lilly, NovoLog®, marketed by Novo Nordisk, and Apidra®, marketed by Sanofi. We are also using our proprietary excipients to develop ultra-rapid-acting insulin analog-based formulations using either insulin lispro, the active pharmaceutical ingredient in Humalog®, or insulin aspart, the active pharmaceutical ingredient in NovoLog®. We believe that a pharmaceutical company with expertise in diabetes and a significant commercial infrastructure will be in the best position to maximize the value of our ultra-rapid-acting prandial insulin product candidates, including BIOD-123.

An earlier RHI-based formulation known as Linjeta™ (and previously referred to as VIAject®) was the subject of a New Drug Application, or NDA, that we submitted to the FDA in December 2009. In October 2010, the FDA issued a complete response letter stating that the NDA for Linjeta™ could not be approved in its submitted form and that we should conduct two new Phase 3 clinical trials using our preferred commercial formulation of Linjeta™ prior to re-submitting the NDA. Based upon the complete response letter and subsequent feedback that the FDA provided, we decided to develop newer RHI-based formulations with the goal of identifying a formulation with a pharmacokinetic and pharmacodynamic profile similar to Linjeta™, but with improved injection site toleration characteristics. From January 2011 to April 2012, we studied several such newer formulations, including BIOD-123, in Phase 1 clinical trials. In these trials, we used Humalog® as the comparator drug rather than the comparator drug we used in our Phase 3 Linjeta™ clinical trials. In our Phase 3 clinical trials, the comparator drug was Humulin® R, an RHI-based insulin formulation marketed by Eli Lilly that is less rapid-acting than the insulin analog Humalog®.

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BIOD-123 achieved our target pharmacokinetic, pharmacodynamic and injection site toleration profiles for a candidate RHI-based formulation in a Phase 1 clinical trial completed in April 2012, and in the third calendar quarter of 2012 we began enrolling patients in a Phase 2 clinical trial of BIOD-123. The Phase 2 clinical trial of BIOD-123 was a randomized, open label, parallel group study conducted at 32 investigative centers in the United States. In the trial, 132 patients with Type 1 diabetes were randomized to receive either BIOD-123 or Humalog® to use as their mealtime insulin during an 18-week treatment period. Both arms of the study used insulin glargine, sold as Lantus®, as the basal insulin. The clinical trial was designed to evaluate the mean change in patients' glycosylated hemoglobin, or HbA1c, levels from baseline as the primary endpoint, and secondary endpoints included postprandial glucose excursions, glycemic variability, hypoglycemic event rates and weight changes.

The Phase 2 clinical trial of BIOD-123 completed patient dosing in the second calendar quarter of 2013, and in September 2013 we announced preliminary results from the trial. BIOD-123 achieved the primary endpoint of noninferiority for HbA1c relative to Humalog®. The mean HbA1c change from baseline in the BIOD-123 group was -0.08 ± 0.064% and -0.25 ± 0.063% in the Humalog® group. The 95% confidence interval (-0.01, 0.35) of the between group differences in change from baseline HbA1c did not exceed the FDA-designated threshold of 0.40%, thereby establishing non-inferiority. We are currently seeking a partner in the further development and commercialization of BIOD-123.

In addition to BIOD-123, we continue to develop ultra-rapid-acting insulin analog-based formulations. In January 2013, we announced top-line results from our Phase 1 clinical trial of two insulin analog-based formulations, BIOD-238 and BIOD-250. These formulations, which were manufactured using commercial preparations of Humalog®, generally use similar excipients to BIOD-123 and were intended to be optimized for rapid absorption and injection site toleration. The trial, which was conducted in Australia, was designed to compare the pharmacokinetic and injection site toleration profiles of BIOD-238 and BIOD-250 relative to Humalog®. In the trial, both formulations met our target pharmacokinetic profile for an ultra-rapid-acting insulin analog-based formulation, and BIOD-250 met our target injection site toleration profile. We do not expect to study these formulations in additional clinical trials because they were formulated by adding our proprietary excipients to the marketed formulation of Humalog® and because they do not demonstrate stability characteristics consistent with our target product profile. Accordingly, we are continuing our insulin analog-based formulation work to develop formulations using the active pharmaceutical ingredients of currently marketed rapid-acting insulin analogs.

We also have RHI-based ultra-rapid-acting insulin formulations in earlier stages of development. In particular, we are developing ultra-rapid-acting formulations of concentrated insulin that are characterized in pre-clinical studies with diabetic swine by a rapid onset of action and a prolonged duration of action. We believe these formulations could address an unmet medical need for an insulin with an initial rate of absorption superior to that of existing concentrated insulins and prandial/basal pre-mixed insulins. In February 2014, we announced preliminary results from a Phase 1 clinical trial with BIOD-531, our candidate for an ultra-rapid-acting concentrated insulin formulation. BIOD-531 contains 400 units of RHI per milliliter (instead of the standard 100 units per milliliter), and is formulated with EDTA, citrate and magnesium sulfate. The Phase 1 clinical trial assessed pharmacokinetic, pharmacodynamic and injection site toleration profiles of single injections of BIOD-531, Humulin® R U-500, or U-500R, and Humalog® Mix 75/25 in non-diabetic obese volunteers. The clinical trial included 1.0 U/kg and 0.5 U/kg doses of BIOD-531, as well as 1.0 U/kg of U-500R and 0.5 U/kg of Humalog® Mix 75/25. The results of the clinical trial confirmed earlier findings in diabetic swine that BIOD-531 is characterized by rapid absorption and onset of action, and an extended duration of action that may be suitable for basal insulin needs. In May 2014, we initiated the first of two planned Phase 2 meal studies using Biodel-531. In August, 2014, we announced preliminary data from one of the Phase 2 meal studies, Study 3-152, which compared BIOD-531 to Humalog® Mix 75/25 and Humulin® R U-500 in patients with type 2 diabetes with moderate insulin resistance. BIOD-531 demonstrated superiority over both comparators with respect to lower glucose responses following a standardized meal challenge.

We were incorporated in December 2003 and commenced active operations in January 2004. To date, we have generated no revenues and have incurred significant losses. We expect to continue to incur operating losses as we continue our efforts to develop and commercialize our product candidates. We have financed our operations and internal growth through various financing transactions, including our initial public offering in May 2007 and several subsequent transactions, including, most recently, our June 2013 underwritten public offering. In addition, we recently raised funds pursuant to our At-the-Market Issuance Sales Agreement, or the sales agreement, with MLV & Co. LLC, or MLV, and we entered into a purchase agreement with Lincoln Park Capital Fund, LLC, or LPC, under which we may issue shares of common stock in the future. We have devoted substantially all of our efforts to research and development activities, including clinical trials. Our net loss was $3.2 million and $11.8 million, respectively, for the three and nine months ended June 30, 2014. As of June 30, 2014 we had an accumulated deficit of $227.3 million. As of June 30, 2014 we had

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approximately $24.5 million in cash and cash equivalents compared to $39.8 million in cash and cash equivalents as of September 30, 2013. We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital expenditures at least through the third calendar quarter of 2015. We believe that future cash expenditures will be partially offset by raising additional capital from capital markets, revenues from research grants and proceeds derived from potential collaborations, including, but not limited to, upfront fees, research and development funding, milestone payments and royalties. We can give no assurances that such funding will, in fact, be realized in the time frames we expect, or at all. We may be required to secure alternative financing arrangements or defer or limit some or all of our research, development or clinical projects.

Financial Operations Overview

Revenues

To date, we have generated no revenues. We do not expect to begin generating any revenues unless any of our product candidates receive marketing approval, or if we receive payments in connection with strategic collaborations that we may enter into for the commercialization of our product candidates.

Research and Development Expenses

Research and development expenses consist of the costs associated with our basic research activities, as well as the costs associated with our drug development efforts, conducting pre-clinical studies and clinical trials, manufacturing efforts and activities related to regulatory filings. Our research and development expenses consist of:

•external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites, third-party manufacturing organizations and consultants;

•employee-related expenses, which include salaries and benefits for the personnel involved in our preclinical and clinical drug development and manufacturing activities; and

•facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, laboratory supplies and other supplies.

We intend to focus our research and development efforts on advancing at least one of our glucagon rescue product candidates into a pivotal clinical trial. We also intend to conduct earlier stage clinical trials in support of one or more of our ultra-rapid-acting insulin formulations, including BIOD-531. We anticipate that our research and development expenses for the fiscal year ending September 30, 2014 will increase as compared to the fiscal year ended September 30, 2013, as we continue to:

•conduct the development work necessary to finalize the formulation and design of our dual-chamber glucagon rescue product candidate, commence preclinical studies and clinical trials of that product candidate and undertake manufacturing activities for that product candidate;

•complete the two planned Phase 2 clinical trials of BIOD-531;

•conduct additional formulation development work to improve the stability, pharmacokinetic, and pharmacodynamic properties of our ultra-rapid-acting insulin analog-based formulations, our concentrated insulin formulations and our liquid glucagon formulations, or purchase rights related to proprietary technologies that are compatible with our product candidates; and

•purchase active pharmaceutical ingredients and other materials to support our research and development activities.

In fiscal year 2015 and beyond, we anticipate that these expenses will increase further as we prepare and file an NDA for our dual-chamber glucagon rescue product candidate and, if successful, potentially commence commercialization activities in support of this program.

We have used our employee and infrastructure resources across multiple research projects and our drug development programs for our ultra-rapid-acting insulin formulations, including BIOD-123, our BIOD-531 concentrated insulin formulation and our stable glucagon presentations. Substantially all of our research and development expenses incurred to date are attributable to our ultra-rapid-acting insulin program.

In July and September 2012, we were awarded two National Institutes of Health grants for the development of a concentrated ultra-rapid-acting insulin formulation and a stable glucagon formulation respectively, for use in an artificial

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pancreas. The July 2012 award is intended to fund research to develop a proprietary ultra-rapid-insulin product candidate at high concentrations suited to provide sufficient quantities of insulin in an external artificial pancreas pump device that has limited volume capacity. The July 2012 award is for two years and totals $582 thousand. The September 2012 award is intended to fund research to develop a proprietary glucagon product candidate optimized to algorithmically deliver glucagon as part of a bihormonal closed loop system to mitigate hypoglycemic events. The September 2012 award is for two years and totals $583 thousand. As of June 30, 2014 all grant income was earned and recorded.

The following table illustrates, for each period presented, our research and development costs by nature of the cost.

Three Months Ended
June 30, Nine Months Ended
June 30,

2013 2014 2013 2014

Research and development expenses:

Preclinical expenses $ 1,064 $ 952 $ 3,537 $ 3,803

Manufacturing expenses 616 540 1,768 2,870

Clinical/regulatory expenses 1,794 2,136 5,810 4,953

Total $ 3,474 $ 3,628 $ 11,115 $ 11,626

The following table illustrates, for the three and nine months ended June 30, 2013 and 2014, our research and development costs by project.

Three Months Ended
June 30, Nine Months Ended
June 30,

2013 2014 2013 2014

Ultra-rapid-acting insulin formulations:

RHI-based $ 1,446 $ 32 $ 4,304 $ 428

Insulin analog-based 315 85 1,082 1,225

Stable Glucagon 372 1,280 1,328 4,581

Concentrated RHI-based formulations 380 1,484 766 2,953

Other 961 747 3,635 2,439

Total $ 3,474 $ 3,628 $ 11,115 $ 11,626

The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of, or the period, if any, in which material net cash inflows may commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

•the progress, timing or success of our research and development and clinical programs for our product candidates;

•our ability to conduct the development work necessary to finalize the formulation and design of our dual-chamber glucagon rescue product candidate, as well as the preclinical studies, clinical trials and manufacturing activities necessary to support the filing of a new drug application, or NDA, to the FDA for that product candidate;

•our ability to engage a strategic partner in the further development of our prandial ultra-rapid-acting insulin formulations, including BIOD-123, which uses regular human insulin, or RHI, as the active pharmaceutical ingredient, and our insulin analog-based formulations;

•the success of our formulation development work to improve the stability of our newer ultra-rapid-acting insulin analog-based formulations while maintaining the pharmacokinetic and injection site toleration characteristics associated with earlier formulations;

•the results of our real-time stability programs for our RHI-, insulin analog- and glucagon-based product candidates, including the reproducibility of earlier, smaller scale, stability studies and our ability to accurately project long term stability on the basis of accelerated testing;

•our ability to accurately anticipate technical challenges that we may face in the development of our ultra-rapid-acting RHI- and insulin analog-based product candidates or our glucagon rescue product candidates;

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•our ability to secure approval by the FDA for our product candidates under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA;

•our ability to enter into collaboration arrangements for the commercialization of our product candidates and the success or failure of any such collaborations into which we enter, or our ability to commercialize our product candidates ourselves;

•our ability to enforce our patents for our product candidates and our ability to secure additional patents for our product candidates;

•our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

•the degree of clinical utility of our product candidates, particularly with regard to our ultra-rapid-acting insulin formulations, which have not yet been shown to be clinically superior to existing rapid-acting insulin analogs;

•the emergence of competing technologies and products and other adverse market developments, such as advancements in glucagon stabilization technologies that could enable a room-temperature rescue product in a portable, easy to use presentation;

•the ability of our contract manufacturing organizations or collaborators to produce our products in our final dosage form;

•our ability to secure adequate supplies of active pharmaceutical ingredients to support our product development programs and, if successful, the commercialization one or more product candidates;

•our capabilities and strategies for manufacturing, marketing and commercializing a product candidate; and

•our ability to accurately estimate anticipated operating losses, future revenues, capital requirements and our needs for additional financing.

A change in the outcome of any of these variables with respect to the development of ultra-rapid-acting insulin formulations or our liquid glucagon formulation could mean a significant change in the costs and timing associated with product development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related expenses for personnel, including stock-based compensation expenses, in our executive, legal, accounting, finance and information technology functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, travel expenses, costs associated with industry conventions and professional fees, such as legal and accounting fees and consulting costs and facility-related costs not otherwise allocated to research and development expense.

We anticipate that our general and administrative expenses in the fiscal year ending September 30, 2014 will decrease slightly as compared to the fiscal year ended September 30, 2013. Over the longer term, however, these expenses could greatly increase if we are successful in advancing our product candidates into later stage clinical trials, including pivotal clinical trials.

Warrant Liability

In June 2012, we issued warrants to purchase 2,749,469 shares of our common stock at an exercise price of $2.66 per share in connection with our June 2012 private placement. These warrants will expire on June 26, 2017, five years from the original issuance date of June 27, 2012. In May 2011, we issued warrants to purchase 2,256,929 shares of our common stock at an exercise price of $9.92 per share in connection with our May 2011 registered direct offering. These warrants will expire on May 17, 2016, five years from the original issuance date of May 18, 2011. Under the terms of both the 2012 warrants and the 2011 warrants, if we enter into a merger or change of control transaction, the holders of the warrants will be entitled to receive consideration as if they had exercised the warrants immediately prior to such transaction, or they may require us to purchase the unexercised warrants at the Black-Scholes value (as defined in the applicable warrant) of the warrant on the date of such transaction. The holders have up to 30 days following any such transaction to exercise this right. As a result of this provision, we recognize the 2012 and 2011 warrants as liabilities at their fair value on each reporting date.

We use the Black-Scholes valuation model to estimate the fair value of the warrants. The Black-Scholes valuation model takes into account, as of the valuation date, factors including the current exercise price, the expected life of the warrant, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the

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risk-free interest rate for the term of the warrant. Using this model, we recorded an initial warrant liability of $4.8 million for the 2012 warrants and $9.4 million for the 2011 warrants, in each case as of the initial warrant issuance date. The liability for both the 2012 and 2011 warrants is revalued at each reporting period and changes in fair value are recognized currently in the statements of operations under the caption "Adjustment to fair value of common stock warrant liability."

Interest Income

Interest income consists of interest earned on our cash and cash equivalents and marketable securities. In November 2007, our board of directors approved investment policy guidelines, the primary objectives of which are the preservation of capital, the maintenance of liquidity and maintenance of appropriate fiduciary control - subject to our business objectives and tax situation. We have maintained an investment strategy of investing primarily in a premier commercial money market account, which consists primarily of short-term debt securities issued by the U.S. government, Treasury securities and U.S. government agencies. We intend to maintain this conservative strategy for the fiscal year ending September 30, 2014.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 2 to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 and in the notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q. We believe that our accounting policies relating to research and development costs, warrant liability, and stock-based compensation are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations. These policies are described under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013. There have been no material changes to such policies since the filing of such Annual Report.

Results of Operations

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2014

Revenue. We did not recognize any revenue during the three months ended June 30, 2013 or 2014.

Research and Development Expenses.

Three Months Ended
June 30, Increase

2013 2014 $ %

(in thousands)

Research and Development $ 3,474 $ 3,628 $ 154 4.4 %

Research and development expenses were $3.6 million for the three months ended June 30, 2014, an increase of $0.2 million, or approximately 4.4%, from $3.5 million for the three months ended June 30, 2013. This increase is primarily due to an increase in personnel and stock-based compensation costs of $0.1 million and an increase in professional fees of $0.1 million. Stock-based compensation included in research and development expenses were $0.1 million for both the three months ended June 30, 2014 and the three months ended June 30, 2013.

General and Administrative Expenses.

Three Months Ended
June 30, Decrease

2013 2014 $ %

(in thousands)

General and Administrative $ 1,768 $ 1,348 $ 420 23.8 %

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General and administrative expenses were approximately $1.4 million for the three months ended June 30, 2014, a decrease of $0.4 million, or 23.8%, from $1.8 million for the three months ended June 30, 2013. This decrease is primarily attributable to a decrease in personnel and stock-based compensation costs of $0.3 million and a decrease in professional fees of $0.1 million. Stock-based compensation expenses were $0.1 million for the three months ended June 30, 2014, compared to $0.2 million for the three months ended June 30, 2013.

Interest and Other Income.

Three Months Ended
June 30,

2013 2014 $ %

(in thousands)

Interest and Other Income $ 11 $ 11 $ 0 0 %

Interest and other income was $11 thousand for the three months ended June 30, 2014 and the three months ended June 30, 2013.

Adjustments to Fair Value of Common Stock Warrant Liability

Three Months Ended
June 30, Decrease

2013 2014 $ %

(in thousands)

Adjustments to fair value of common stock warrant liability $ 4,431 $ (1,548 ) $ 5,979 134.9 %

The change to fair value of common stock warrant liability during the three months ended June 30, 2014 was primarily a result of the decrease in the price of the common stock from $2.73 per share at March 31, 2014 to $2.16 per share at June 30, 2014. The change to fair value of common stock warrant liability during the three months ended June 30, 2013 was primarily a result of the increase in the price of the common stock from $2.84 per share at March 31, 2013 to $4.18 per share at June 30, 2013.

Net Loss and Net Loss per Share

Three Months Ended
June 30, Decrease

2013 2014 $ %

(in thousands)

Net loss $ (9,631 ) $ (3,204 ) $ 6,427 66.7 %

Net loss per share $ (0.66 ) $ (0.15 )

Net loss was $3.2 million, or $(0.15) per share, for the three months ended June 30, 2014, compared to $9.6 million, or $(0.66) per share, for the three months ended June 30, 2013. The decrease in net loss was primarily attributable to the decreased expenses described above. We expect our losses to continue for the foreseeable future as we continue our development efforts.

Nine Months Ended June 30, 2013 Compared to Nine Months Ended June 30, 2014

Revenue. We did not recognize any revenue during the nine months ended June 30, 2013 or 2014.

Research and Development Expenses.

Nine Months Ended
June 30, Increase

2013 2014 $ %

(in thousands)

Research and Development $ 11,115 $ 11,626 $ 511 4.6 %

Research and development expenses were $11.6 million for the nine months ended June 30, 2014, an increase of $0.5 million, or 4.6%, from $11.1 million for the nine months ended June 30, 2013. This increase was primarily due to $1.4 million in expenses associated with payments to Unilife Corporation and other external contract manufacturers for the development of our dual-chamber glucagon rescue product and an increase of $1.0 million associated with toxicology studies. The increase in research and development expense was offset by a decrease of $1.7 million in clinical trial costs due to reduced clinical trial activity.

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Research and development expenses for the nine months ended June 30, 2013 and 2014 include $0.7 million and $0.2 million, respectively, in stock-based compensation expense.

General and Administrative Expenses.

Nine Months Ended
June 30, Decrease

2013 2014 $ %

(in thousands)

General and Administrative $ 5,371 $ 4,475 $ 896 16.7 %

General and administrative expenses were approximately $4.5 million for the nine months ended June 30, 2014, a decrease of $0.9 million, or 16.7%, from $5.4 million for the nine months ended June 30, 2013. This decrease was primarily attributable to a decrease in personnel and stock-based compensation costs of $0.7 million and a decrease in legal fees of $0.2 million.

General and administrative expenses for the nine months ended June 30, 2013 and 2014 include $0.5 million and $0.4 million, respectively, in stock-based compensation expense.

Interest and Other Income.

Nine Months Ended
June 30, Increase

2013 2014 $ %

(in thousands)

Interest and Other Income $ 39 $ 40 $ 1 2.6 %

Interest and other income was $40 thousand for the nine months ended June 30, 2014, compared to $39 thousand for the nine months ended June 30, 2013.

Adjustments to Fair Value of Common Stock Warrant Liability

Nine Months Ended
June 30, Decrease

2013 2014 $ %

(in thousands)

Adjustments to fair value of common stock warrant liability $ 2,319 $ (3,708 ) $ 6,027 259.9 %

The change to fair value of common stock warrant liability during the nine months ended June 30, 2014 was primarily a result of the decrease in the price of the common stock from $3.15 per share at September 30, 2013 to $2.16 per share at June 30, 2014. The change to fair value of common stock warrant liability during the nine months ended June 30, 2013 was primarily a result of an increase in the price of the common stock from $2.97 per share at September 30, 2012 to $4.18 per share at June 30, 2013.

Net Loss and Net Loss per Share

Nine Months Ended
June 30, Decrease

2013 2014 $ %

(in thousands)

Net loss $ (18,520 ) $ (11,845 ) $ 6,675 36.0 %

Net loss per share $ (1.29 ) $ (0.56 )

Net loss was $11.8 million, or $(0.56) per share, for the nine months ended June 30, 2014 compared to $18.5 million, or $(1.29) per share, for the nine months ended June 30, 2013. We expect our losses to continue for the foreseeable future as we continue our development efforts.

Liquidity and Capital Resources

Sources of Liquidity and Cash Flows

As a result of our significant research and development expenditures and the lack of any approved products or other sources of revenue, we have not been profitable and have generated significant operating losses since we were

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incorporated in 2003. We initially funded our research and development operations through aggregate gross proceeds of $26.6 million from our private financing transactions that we completed prior to our initial public offering. We received an aggregate of approximately $202 million from our initial public offering in May 2007, our follow-on offering in February 2008, our registered direct offerings in August 2010 and May 2011, our private placement in June 2012 and our public offering in June 2013.

At June 30, 2014 and September 30, 2013, we had cash and cash equivalents totaling approximately $24.5 million and $39.8 million, respectively. We currently invest our excess funds in a premium commercial money market fund with one major financial institution. We plan to continue to invest our cash and cash equivalents in accordance with our approved investment policy guidelines, which set forth our policy to hold investment securities to maturity.

Net cash used in operating activities was $15.3 million and $15 million, respectively for the nine months ended June 30, 2014 and June 30, 2013.

Net cash used in investing activities was $32 thousand for the nine months ended June 30, 2014 and $87 thousand for the nine months ended June 30, 2013. This decrease was primarily due to the purchasing of less laboratory equipment in the nine months ended June 30, 2014 compared to the nine months ended June 30, 2013.

Net cash provided by financing activities was $8 thousand for the nine months ended June 30, 2014 and $18.4 million for the nine months ended June 30, 2013. Net cash provided by financing activities for the nine months ended June 30, 2014 primarily reflects proceeds from employees exercising options and the sale of our common stock through our employee stock purchase plan offset by expenses related to our ATM. Net cash provided by financing activities for the nine months ended June 30, 2013 primarily reflects proceeds from the sale of our common stock through our June 2013 public offering.

In May 2013, we entered into the sales agreement with MLV, under which we may initially issue and sell up to $14 million in shares of our common stock from time to time through MLV as our sales agent. As of June 30, 2014, we had not issued any shares pursuant to the sales agreement. During the period from July 1 through July 31, 2014, we sold an aggregate of 1,476,974 shares of common stock pursuant to the sales agreement and received proceeds, net of sales agent commissions, of $2.9 million.

On July 25, 2014, we entered into the purchase agreement with LPC. Under the terms, and subject to the conditions of the purchase agreement, we have the right to sell to LPC, and LPC is obligated to purchase, up to $15 million in shares of our common stock, subject to certain limitations, from time to time over the 36-month period commencing on the date that a registration statement, which we have agreed to file with the SEC, is declared effective by the SEC and a final prospectus in connection therewith is filed. We will control the timing and amount of any sales of common stock to LPC under the purchase agreement. To date, we have not issued any shares of common stock under the purchase agreement.

Funding Requirements

We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital expenditures at least through the second calendar quarter of 2015.We have based this estimate upon assumptions that may prove to be wrong and we could use our available capital resources sooner than we currently expect. Our existing capital resources are not sufficient to complete our clinical development programs for an ultra-rapid-acting insulin product candidate or a stable glucagon presentation. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and to the extent that we may or may not enter into collaborations with third parties to have them participate in the development and commercialization of our products, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current anticipated clinical trials.

Our future capital requirements will depend on many factors, including:

•the progress, timing or success of our research and development and clinical programs for our product candidates;

•our ability to conduct the development work necessary to finalize the formulation and design of our dual-chamber glucagon rescue product candidate, as well as the preclinical studies, clinical trials and manufacturing activities necessary to support the filing of a new drug application, or NDA, to the FDA for that product candidate;

•our ability to engage a strategic partner in the further development of our prandial ultra-rapid-acting insulin formulations, including BIOD-123, which uses regular human insulin, or RHI, as the active pharmaceutical ingredient, and our insulin analog-based formulations;

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•the success of our formulation development work to improve the stability of our newer ultra-rapid-acting insulin analog-based formulations while maintaining the pharmacokinetic and injection site toleration characteristics associated with earlier formulations;

•the results of our real-time stability programs for our RHI-, insulin analog- and glucagon-based product candidates, including the reproducibility of earlier, smaller scale, stability studies and our ability to accurately project long term stability on the basis of accelerated testing;

•our ability to accurately anticipate technical challenges that we may face in the development of our ultra-rapid-acting RHI- and insulin analog-based product candidates or our glucagon rescue product candidates;

•our ability to secure approval by the FDA for our product candidates under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA;

•our ability to enter into collaboration arrangements for the commercialization of our product candidates and the success or failure of any such collaborations into which we enter, or our ability to commercialize our product candidates ourselves;

•our ability to enforce our patents for our product candidates and our ability to secure additional patents for our product candidates;

•our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

•the degree of clinical utility of our product candidates, particularly with regard to our ultra-rapid-acting insulin formulations, which have not yet been shown to be clinically superior to existing rapid-acting insulin analogs;

•the emergence of competing technologies and products and other adverse market developments, such as advancements in glucagon stabilization technologies that could enable a room-temperature rescue product in a portable, easy to use presentation;

•the ability of our contract manufacturing organizations or collaborators to produce our products in our final dosage form;

•our ability to secure adequate supplies of active pharmaceutical ingredients to support our product development programs and, if successful, the commercialization one or more product candidates;

•our capabilities and strategies for manufacturing, marketing and commercializing a product candidate; and

•our ability to accurately estimate anticipated operating losses, future revenues, capital requirements and our needs for additional financing.

We do not anticipate generating product revenue for the next few years. In the absence of additional funding, we expect our continuing operating losses to result in increases in our cash used in operations over the next several years and will need to raise additional funds. We may receive additional proceeds from the exercise of the warrants that we issued in connection with our May 2011 registered direct offering and our June 2012 private placement, if any of those warrants are exercised for cash. Whether the warrants are exercised for cash will depend on decisions made by the warrant holders and on whether the market price of our common stock exceeds the $9.92 per share warrant exercise price of the May 2011 warrants or the $2.66 per share warrant exercise price of the June 2012 warrants. The May 2011 warrants and the June 2012 warrants will expire on May 17, 2016 and June 26, 2017, respectively.

To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We may in the future receive proceeds from additional sales under our sales agreement with MLV or from sales under our purchase agreement with LPC. Any such sales would be subject to the conditions under the applicable agreement. We do not currently have any other commitments for future external funding. Additional funding may not be available on favorable terms or at all. If additional funds are raised by issuing equity securities, substantial dilution to existing shareholders may result. If we fail to obtain additional capital when needed, we may be required to delay, scale back, or eliminate some or all of our research and development programs. The accompanying financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is limited to our cash, cash equivalents and marketable securities. We invest in high-quality financial instruments, as permitted by the terms of our investment policy guidelines. Currently, our excess funds are invested in a premium commercial money market fund with one major financial institution. We do not hedge interest rate exposure. A portion of our investments may be subject to interest rate risk and could fall in value if interest rates were to increase. The effective duration of our portfolio is currently less than one year, which we believe limits interest rate and credit risk.

Because most of our transactions are denominated in United States dollars, we do not have any material exposure to fluctuations in currency exchange rates.

Item 4. Controls and Procedures

Management's Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2014. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2014, our chief executive officer and principal accounting officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal controls

No change in our internal control over financial reporting (defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 6. Exhibits

Exhibit No. Description

10.01 At-the-Market Issuance Sales Agreement, dated May 13, 2013, between the Registrant and MLV & Co. LLC (Incorporated by reference to exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 filed on May 13, 2013).

31.01 Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02 Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01 Chief Executive Officer and Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

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SIGNATURES

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

BIODEL INC.

Dated: August 13, 2014 By: /s/ Errol B. De Souza

Errol B. De Souza, President and Chief Executive Officer,

Principal Accounting Officer

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Exhibit No. Description

10.01 At-the-Market Issuance Sales Agreement, dated May 13, 2013, between the Registrant and MLV & Co. LLC (Incorporated by reference to exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 filed on May 13, 2013).

31.01 Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02 Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01 Chief Executive Officer and Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

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	Delaware (State or other jurisdiction of incorporation or organization)			90-0136863 (IRS Employer Identification No.)

	100 Saw Mill Road Danbury, Connecticut (Address of principal executive offices)			06810 (Zip code)


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


				Page
	PART I — FINANCIAL INFORMATION

	Item 1. Consolidated Condensed Financial Statements			1

	Consolidated Condensed Balance Sheets at September 30, 2013 and June 30, 2014 (unaudited)			1

	Consolidated Condensed Statements of Operations (unaudited) for the Three and Nine Months Ended June 30, 2013 and 2014			2

	Consolidated Condensed Statements of Stockholders' Equity for the period from September 30, 2013 through June 30, 2014 (unaudited)			3

	Consolidated Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 2013 and 2014			4

	Notes to Consolidated Condensed Financial Statements			5

	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			18

	Item 3. Quantitative and Qualitative Disclosure About Market Risk			27

	Item 4. Controls and Procedures			28

	PART II — OTHER INFORMATION

	Item 6. Exhibits			29

	Signatures			30
	EX-10.1
	EX-31.01
	EX-31.02
	EX-32.01


		September 30, 2013			June 30, 2014
					(unaudited)
ASSETS
Current:
Cash and cash equivalents	$	39,781		$	24,480
Income taxes receivable		6			2
Grants receivable		26			227
Prepaid and other assets		264			394

Total current assets		40,077			25,103
Property and equipment, net		1,031			604
Intellectual property, net		43			41
Total assets	$	41,151		$	25,748

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable	$	246		$	374
Accrued expenses:
Clinical trial expenses		181			132
Payroll and related		1,139			991
Accounting and legal fees		226			170
Severance		255			31
Other		319			266
Income taxes payable		75			—

Total current liabilities		2,441			1,964

Common stock warrant liability		6,121			2,413
Other long term liabilities		26			—

Total liabilities		8,588			4,377
Commitments
Stockholders' equity:
Convertible Preferred stock, $.01 par value; 50,000,000 shares authorized, 1,950,000 and 1,950,000 issued and outstanding		19			19
Common stock, $.01 par value; 62,500,000 shares authorized; 21,070,824 and 21,119,722 issued and outstanding		211			211
Additional paid-in capital		247,761			248,414
Accumulated deficit		(215,428	)		(227,273	)

Total stockholders' equity		32,563			21,371

Total liabilities and stockholders' equity	$	41,151		$	25,748


		Three Months Ended June 30,						Nine Months Ended June 30,
		2013			2014			2013			2014
Revenue	$	—		$	—		$	—		$	—

Operating expenses:
Research and development		3,474			3,628			11,115			11,626
Government grant		(25	)		(227	)		(249	)		(531	)
General and administrative		1,768			1,348			5,371			4,475

Total operating expenses		5,217			4,749			16,237			15,570
Other (income) and expense:
Interest and other income		(11	)		(11	)		(39	)		(40	)
Adjustment to fair value of common stock warrant liability		4,431			(1,548	)		2,319			(3,708	)

Loss before tax provision (benefit)		(9,637	)		(3,190	)		(18,517	)		(11,822	)
Tax provision (benefit)		(6	)		14			3			23

Net loss	$	(9,631	)	$	(3,204	)	$	(18,520	)	$	(11,845	)

Net loss per share — basic and diluted	$	(0.66	)	$	(0.15	)	$	(1.29	)	$	(0.56	)

Weighted average shares outstanding — basic and diluted		14,573,110			21,118,375			14,311,875			21,100,903


	Common Stock $.01 Par Value			Series A Preferred stock $.01 Par Value			Series B Convertible Preferred stock $.01 Par Value				Additional Paid in Capital			Accumulated Deficit			Total Stockholders' Equity
	Shares		Amount	Shares		Amount	Shares		Amount		Additional Paid in Capital			Accumulated Deficit			Total Stockholders' Equity

Balance, September 30, 2013	21,070,824	$	211	—	$	—	1,950,000	$	19	$	247,761		$	(215,428	)	$	32,563
Expenses of ATM											(55	)					(55	)
Stock-based compensation	—		—	—		—	—		—		645			—			645
Proceeds from the sale of stock-ESPP	8,189		—	—		—	—		—		15			—			15
Stock options exercised	19,241		—	—		—	—		—		48			—			48
RSUs converted to common stock	21,468		—	—		—	—		—		—			—			—
Net loss	—		—	—		—	—		—		—			(11,845	)		(11,845	)
Balance, June 30, 2014 (unaudited)	21,119,722	$	211	—	$	—	1,950,000	$	19	$	248,414		$	(227,273	)	$	21,371


Description		Fair Value at June 30, 2014			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Market Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	24,480		$	24,480	$	—	$	—
Subtotal		24,480			24,480		—		—

Liabilities:
Common stock warrant liability (see Note 7)		(2,413	)		—		—		(2,413	)
Subtotal		(2,413	)		—		—		(2,413	)
Total	$	22,067		$	24,480	$	—	$	(2,413	)


Description		Fair Value at September 30, 2013			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Market Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	39,781		$	39,781	$	—	$	—
Subtotal		39,781			39,781		—		—

Liabilities:
Common stock warrant liability (see Note 7)		(6,121	)		—		—		(6,121	)
Subtotal		(6,121	)		—		—		(6,121	)
Total	$	33,660		$	39,781	$	—	$	(6,121	)


Balance at September 30, 2013	$	(6,121	)
Decrease in fair value of common stock warrant liability		3,708
Balance at June 30, 2014	$	(2,413	)


	Number			Weighted Average Exercise Price	Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding options, September 30, 2013	1,920,051		$	22.26	4	$	445
Granted	1,267,000			2.41			—
Exercised	(19,241	)		2.48		$	10
Forfeited, expired	(582,650	)		14.69			—
Outstanding options, June 30, 2014	2,585,160		$	14.39	4		—

Exercisable options, June 30, 2014	1,302,178		$	26.18	3		—


	Shares			Weighted Average Grant-Date Fair Value
Non-vested and outstanding balance at October 1, 2013	31,296		$	10.48
Changes during the period:
RSUs granted	—			—
RSUs converted to common stock	(21,468	)		10.48
RSUs withheld for tax payments	(9,828	)		10.48
Non-vested and outstanding RSU balance at June 30, 2014	—		$	—


	June 30,		June 30,
	2013	2014	2013	2014
Common shares underlying warrants issued for common stock	5,006,398	5,006,398	5,006,398	5,006,398
Common shares issuable upon conversion of Series A Preferred Stock	453,486	—	453,486	—
Common shares issuable upon conversion of Series B Preferred Stock	3,428,643	1,950,000	3,428,643	1,950,000
Stock options	1,929,676	2,585,160	1,929,676	2,585,160
Restricted stock units outstanding	31,302	—	31,302	—


Balance at September 30, 2013	$	4,958
Decrease in fair value of common stock warrant liability		(2,616	)
Balance at June 30, 2014	$	2,342


Balance at September 30, 2013	$	1,163
Decrease in fair value of common stock warrant liability		(1,092	)
Balance at June 30, 2014	$	71


June 2012 Financing		June 30, 2014
Stock price	$	2.16
Exercise price	$	2.66
Risk-free interest rate		0.88	%
Expected remaining term		2.99
Expected volatility		76	%
Dividend yield		—
Warrants outstanding		2,749,469


May 2011 Offering		June 30, 2014
Stock price	$	2.16
Exercise price	$	9.92
Risk-free interest rate		0. 47	%
Expected remaining term		1.88
Expected volatility		60	%
Dividend yield		—
Warrants outstanding		2,256,929


		Three Months Ended June 30,				Increase
		2013		2014		$	%
		(in thousands)
Research and Development	$	3,474	$	3,628	$	154	4.4	%


		Three Months Ended June 30,				Decrease
		2013		2014		$	%
		(in thousands)
General and Administrative	$	1,768	$	1,348	$	420	23.8	%


	Exhibit No.						Description
	10.01						At-the-Market Issuance Sales Agreement, dated May 13, 2013, between the Registrant and MLV & Co. LLC (Incorporated by reference to exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 filed on May 13, 2013).

	31.01						Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.02						Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.01						Chief Executive Officer and Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.




	BIODEL INC.

Dated: August 13, 2014	By:	/s/ Errol B. De Souza
		Errol B. De Souza, President and Chief Executive Officer,
		Principal Accounting Officer


	Exhibit No.						Description
	10.01						At-the-Market Issuance Sales Agreement, dated May 13, 2013, between the Registrant and MLV & Co. LLC (Incorporated by reference to exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 filed on May 13, 2013).

	31.01						Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.02						Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.01						Chief Executive Officer and Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.