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ASSEMBLY BIOSCIENCES, INC. - Quarter Report: 2012 March (Form 10-Q)

 

__________________________

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

 

FORM 10-Q

 

x            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

 

or

 

¨       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:  000 -35005

__________________________

 

VENTRUS BIOSCIENCES, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware 20-8729264
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)  

 

99 Hudson Street, 5th Floor, New York, New York 10013

(Address of principal executive offices, including zip code)

 

(646) 706-5208

(Registrant’s telephone number, including area code)

__________________________

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x   NO ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  x   NO ¨

 

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

 

Large Accelerated Filer ¨   Accelerated Filer   x  
         
Non-accelerated Filer ¨   (Do not check if smaller reporting company)  Smaller Reporting Company   ¨

 

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

 

As of May 7, 2012 there were 12,486,313 shares of registrant’s common stock outstanding.

 

 
 

 

Index

 

    Page
     
PART I – FINANCIAL INFORMATION    
Item 1. Condensed  Financial Statements    
Condensed Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011   1
Condensed Statements of Operations for Three Months ended March 31, 2012 and 2011 and for the period October 7, 2005 (Inception) to March 31, 2012 (Unaudited)   2
Condensed Statement of Changes in Stockholders’ Equity for the Three Months ended March 31, 2012 (Unaudited)   3
Condensed Statements of Cash Flows for Three Months ended March 31, 2012, and 2011 and for the period October 7, 2005 (Inception) to March 31, 2012 (Unaudited)   4-5
Notes to Unaudited Condensed Financial Statements   6
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   13
Item 4.   Controls and Procedures   19
PART II – OTHER INFORMATION   20
Item 6.   Exhibits   20

 

i
 

 

PART I – FINANCIAL INFORMATION

 

Item 1.     Financial Statements

 

VENTRUS BIOSCIENCES, INC.

A Development Stage Company

 

CONDENSED BALANCE SHEETS

 

   March  31, 2012   December 31,
2011
 
   (Unaudited)     
ASSETS        
Current assets:          
Cash and cash equivalents  $31,066,611   $36,975,434 
Other current assets   316,342    62,129 
Total current assets   31,382,953    37,037,563 
           
Computer equipment, net   7,221    8,218 
           
Total assets  $31,390,174   $37,045,781 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $3,142,863   $2,342,074 
Accrued expenses   709,995    171,000 
           
Total current liabilities   3,852,858    2,513,074 
           
Commitments          
Stockholders’ equity:          
Preferred stock, $.001 par value; 5,000,000 shares authorized, none issued   -    - 
Common stock, $.001 par value; 50,000,000 shares authorized; 12,444,646 and 12,406,406 issued and outstanding at March 31, 2012 and December 31, 2011 respectively   12,444    12,406 
Additional paid-in capital   103,227,832    102,049,385 
Deficit accumulated during the development stage   (75,702,960)   (67,529,084)
           
Total stockholders’ equity   27,537,316    34,532,707 
           
Total liabilities and stockholders’ equity  $31,390,174   $37,045,781 

 

See Notes to Condensed Financial Statements

 

1
 

 

VENTRUS BIOSCIENCES, INC.

 

A Development Stage Company

 

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

 

   Three
Months
Ended
March 31,
2012
   Three
Months
Ended
March 31,
2011
   Period from
October 7, 2005
(Inception) to
March 31, 2012
 
Operating expenses:               
Research and development  $6,422,726   $970,762   $45,951,969 
General and administrative   1,767,331    1,696,030    16,012,399 
                
Loss from operations   (8,190,057)   (2,666,792)   (61,964,368)
Other income (expense)               
Interest income   16,181    13,490    112,234 
Interest expense:               
Beneficial conversion feature             (6,001,496)
Amortization of debt  discount and warrants        (24,513)   (2,865,758)
Interest expense        (44,663)   (4,983,572)
    -    (69,176)   (13,754,773)
Net loss  $(8,173,876)  $(2,722,478)  $(75,702,960)
                
Basic and diluted net loss per common share  $(0.66)   (0.38)     
                
Weighted average common shares outstanding – basic and diluted   12,408,927    7,147,624      

 

See Notes to Condensed Financial Statements

 

2
 

 

VENTRUS BIOSCIENCES, INC.

A Development Stage Company

 

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three Months Ended March 31, 2012

           Deficit     
   Common Stock       Accumulated     
           Additional   During the     
           Paid-in   Development     
   Shares   Amount   Capital   Stage   Total 
Balance at January 1, 2012   12,406,406   $12,406   $102,049,385   $(67,529,084)  $34,532,707 
                          
Options exercised between January 1, 2012 and March 31, 2012   38,240    38    238,579    -    238,617 
Stock-based compensation for the period from January 1, 2012 to March 31, 2012 to employees and directors   -    -    714,355    -    714,355 
Stock-based payments for the period from January 1, 2012 to March 31, 2012 to consultants   -    -    225,513         225,513 
Net loss for the period                  (8,173,876)   (8,173,876)
                          
Balance at March 31,  2012   12,444,646   $12,444   $103,227,832   $(75,702,960)  $27,537,316 

 

See Notes to Condensed Financial Statements

 

3
 

 

VENTRUS BIOSCIENCES, INC.

A Development Stage Company

 

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   Three Months
Ended March
31, 2012
   Three Months
Ended
March
31, 2011
   Period from
October 7, 2005
(Inception) to
March 31, 2012
 
             
Cash flows from operating activities:               
Net loss  $(8,173,876)   (2,722,478)  $(75,702,960)
                
Adjustments to reconcile net loss to net cash used in operating activities:               
Stock-based compensation   714,355    1,005,542    6,654,626 
Stock -based payments to consultants   225,513    147,244    4,216,330 
Depreciation   997    755    32,003 
Stock issued in connection with license agreement             414,825 
Charge resulting from beneficial note conversion             6,001,496 
Stock issued to vendor             5,000 
Warrants issued in connection with related party note conversion        26,587    1,255,978 
Amortization of deferred financing costs and debt discount        -    3,466,010 
Non-cash research and development        -    1,087,876 
Interest payable – 2007 Senior convertible notes        -    1,598,104 
Interest payable – 2010 Senior convertible notes        -    354,269 
Expenses paid on behalf of the Company satisfied through the issuance of notes        -    227,910 
Interest payable – related parties        -    266,279 
                
Changes in operating assets and liabilities:               
Other current assets   (196,324)   (82,618)   (258,453)
Accounts payable and accrued expenses   1,339,784    (189,999)   3,852,858 
                
Net cash used in operating activities   (6,089,551)   (1,814,967)   (46,527,850)
                
Cash flows from investing activities:               
Purchase of office and computer equipment   -    (11,963)   (39,224)
Net cash used in investing activities   -    (11,963)   (39,224)
                
Cash flows from financing activities:               
Net proceeds from IPO and the over-allotment option exercise        2,420,775    65,173,167 
Proceeds from 2010 Senior convertible notes        -    3,425,000 
Proceeds from notes payable to Paramount Credit Partners, LLC        -    1,573,000 
Proceeds from notes payable to related parties        -    5,041,953 
Proceeds from 2007 Senior convertible notes        -    5,305,000 
Proceeds from private placement        -    1,146,024 
Payment for deferred financing costs        -    (1,431,603)
Proceeds from utilization of line of credit        -    419,380 

   

4
 

 

VENTRUS BIOSCIENCES, INC.

A Development Stage Company

 

CONDENSED STATEMENTS OF CASH FLOWS (continued)

 

   Three Months
Ended March
31, 2012
   Three 
Months
Ended
March
31, 2011
   Period from
October 7, 2005
(Inception) to
March 31, 2012
 
             
Proceeds from term note payable   -         800,000 
Repayment of term note        (800,000)   (800,000)
Repayment of Paramount Credit Partner Notes        -    (1,500,000)
Repayment of notes payable - related party   -    -    (1,573,000)
Repayment of line of credit        (419,380)   (419,380)
Proceeds from exercise of options and warrants   238,617    55,004    527,349 
Proceeds from receipt of subscriptions   -    -    4,684 
Payment for shelf registration statement costs   (57,889)   -    (57,889)
                
Net cash provided by financing activities   180,728    1,256,399    77,633,685 
                
Net increase (decrease) in cash and cash equivalents   (5,908,823)   (570,531)   31,066,611 
                
Beginning of period   36,975,434    14,571,055    - 
                
End of period   31,066,611    14,000,524    31,066,611 
                
Supplemental schedule of non-cash financing activities:               
Warrants issued to placement agent  $-   $-   $341,334 
Warrants issued to investors in connection with convertible notes  $-   $-   $1,166,989 
Debt discount on Paramount Credit Partners, LLC notes  $-   $-   $782,376 
Related party notes and accrued interest converted to 2010 Senior convertible notes  $-   $-   $3,995,667 
Debt discount on 2010 senior convertible notes  $-   $-   $1,468,254 
Notes and accrued interest converted to common stock  $-   $-   $14,003,158 
                
Supplemental disclosure – cash paid for interest  $-   $39,325   $685,397 

  

See Notes to Condensed Financial Statements

 

5
 

 

VENTRUS BIOSCIENCES, INC.

(A Development Stage Company)

 

Notes to Condensed Financial Statements

(March 31, 2012)

 

Note 1 — Organization, Business and Basis of Presentation:

 

Organization and business:

 

Ventrus BioSciences Inc. (“Ventrus” or the “Company”) is a specialty pharmaceutical company focused on the late-stage development and commercialization of gastrointestinal products. Ventrus was incorporated in the State of Delaware on October 7, 2005 and commenced operations in April 2007.

 

Basis of presentation:

 

The accompanying condensed balance sheet as of December 31, 2011, which has been derived from the Company’s audited financial statements, and the unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The unaudited interim condensed financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the periods presented. All such adjustments are of a normal and recurring nature. These unaudited condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The operating results presented in these unaudited condensed financial statements are not necessarily indicative of the results that may be expected for any future periods.

 

Capital Resources:

 

The Company has not derived any revenue from product sales to date as its products have not been approved for sale by the U.S. Food and Drug Administration (“FDA”) or any foreign regulatory agency. Since inception, the Company’s operations have been financed primarily through the sale of equity securities, the proceeds from the exercise of warrants and stock options and issuance of debt. The Company has incurred losses from operations and negative cash flows since inception and expects to continue to incur substantial losses for the foreseeable future as it continues product development. As a result, the Company may need to obtain additional funds to finance its operations in the future. In July 2011, the Company raised net proceeds of approximately $47,600,000 in a secondary offering of its equity securities. Until the Company can generate significant cash from its operations, it intends to obtain any additional funding it requires through strategic relationships, public or private equity or debt financings, or other arrangements and it cannot assure such funding will be available on reasonable terms, or at all. The Company currently has sufficient funds to meet its operating requirements and scheduled regulatory and development activities through the third quarter of 2013.

 

Note 2 — Summary of Significant Accounting Policies:

 

Cash and Cash Equivalents:

 

All highly liquid investments with maturities of three months or less at the time of purchase are considered to be cash equivalents. All of the Company’s cash equivalents have liquid markets and high credit ratings. The Company maintains its cash in bank deposit and other accounts, the balances of which, at times and at March 31, 2012, exceed federally insured limits.

 

6
 

 

VENTRUS BIOSCIENCES, INC.

(A Development Stage Company)

 

Notes to Condensed Financial Statements (continued)

(March 31, 2012)

 

Use of estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

  

Significant estimates inherent in the preparation of the accompanying financial statements include the fair value of stock options and warrants granted to employees, consultants, directors, investors, licensors, placement agents and underwriters.

 

Additionally, the Company provides a valuation allowance for deferred income tax assets when it is considered more likely than not that all or a portion of such deferred income tax assets will not be realized.

 

Stock-based compensation:

 

The Company’s share-based compensation cost is measured at grant date, using the Black-Scholes option pricing model to estimate the fair value of the award, and is recognized as expense over the employee’s or director’s requisite service period on a straight-line basis. The Company accounts for stock options and warrants granted to non-employees on a fair value basis which is estimated using the Black-Scholes option pricing model. The initial non-cash charge to operations for non-employee options and warrants with vesting are revalued at the end of each reporting period until vested and recognized as consulting expense over the related vesting period.

 

Research and development:

 

Research and development expenses include personnel and facility-related expenses, third party contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services. Research and development costs are expensed as incurred. In instances where the Company enters into agreements with third parties for clinical trials, manufacturing and process development, research and other consulting activities, costs are expensed as services are performed. Amounts due under such arrangements may be either fixed fee or fee for service, and may include upfront payments, monthly payments, and payments upon the completion of milestones or receipt of deliverables.

  

The Company’s accruals for clinical trials are based on estimates of the services received and pursuant to contracts with the respective clinical trial centers and clinical research organizations. In the normal course of business, the Company contracts with third parties to perform various clinical trial activities in the ongoing development of potential products. The financial terms of these agreements are subject to negotiation and variation from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, and the completion of portions of the clinical trial or similar conditions. The objective of the Company’s accrual policy is to match the recording of expenses in its financial statements to the actual services received. As such, expense accruals related to clinical trials are recognized based on the estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract.

 

Income taxes:

 

The Company’s income tax expense consists of current and deferred income tax expense or benefit. Current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.

 

7
 

 

VENTRUS BIOSCIENCES, INC.

(A Development Stage Company)

 

Notes to Condensed Financial Statements (continued)

(March 31, 2012)

 

Loss per common share:

 

Basic net loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Since the Company has only incurred losses, basic and diluted net loss per share is the same. The number of potentially dilutive securities (options, warrants and convertible instruments) excluded from the diluted loss per share calculation for the three-month periods ended March 31, 2012 and 2011 was 3,169,688 and 2,782,412 respectively.

 

Note 3 — Commitments:

 

Employment agreements:

 

The Company has employment agreements with the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Business Officer (“CBO”) which provide for aggregate base salaries of $875,000 per year, a guaranteed bonus of $75,000 per year for the CEO and annual performance-based bonuses of up to 50%, 25% and 20%, respectively, of their base salaries. The agreements for the CEO and CFO also provide incentive bonuses of $250,000 and $500,000 for each in the event that the Company’s market capitalization exceeds specified levels. The first threshold was met and each of the $250,000 bonuses were paid in the third quarter of 2011. 

 

In 2011, the agreements with the CEO and CFO were amended to provide that if the second market capitalization threshold is attained, the bonus of $500,000 will be paid in a combination of shares of the Company’s common stock worth $300,000 and $200,000 in cash. The number of the shares of common stock each was determined by the closing price of the Company’s common stock as reported on NASDAQ on August 24, 2011 ($9.85), which results in 30,457 shares to be issued to each of Dr. Ellison and Mr. Barrett if the second market capitalization threshold is attained. As of March 31, 2012, the second market capitalization threshold has not been attained.

 

Note 4 — Stockholders’ Transactions:

 

Common Stock Transactions:

 

On January 31, 2012, the Company filed a shelf registration statement with the Securities and Exchange Commission under which it may offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $100,000,000. The registration statement became effective as of February 10, 2012. As part of the shelf registration statement, the Company included a prospectus for a possible at-the-market common equity sales program for the sale of up to $20,000,000 of common stock. As of March 31, 2012, no securities have been offered or sold pursuant to the shelf registration statement.

 

Common Stock Options and Warrants:

 

In connection with the Company’s financings in 2007, 2008, 2009 and 2010, the Company issued warrants to investors and/or placement agents to purchase shares of common stock as well as certain consulting warrants.

 

8
 

 

VENTRUS BIOSCIENCES, INC.

(A Development Stage Company)

 

Notes to Condensed Financial Statements (continued)

(March 31, 2012)

 

A summary of the Company’s warrant activity and related information is as follows:

 

   Period  Ended 
   March  31, 2012 
       Weighted Average 
   Shares   Exercise Price 
Outstanding at beginning of period   956,443   $7.61 
Granted   -   $- 
Exercised   -   $- 
Outstanding at end of period   956,443   $7.61 
Warrants exercisable at end of period   956,443   $7.61 

 

All outstanding warrants have vested and no additional expense is expected to be recorded in the future years.

 

In August 2010, the Company’s stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). In May 2011, the Company’s stockholders approved an amendment to the 2010 Plan to increase the shares reserved for issuance from 2,467,200 to 3,967,200 shares of the Company’s common stock. The 2010 Plan authorizes the Company to issue equity incentive awards in the form of shares, options or other awards based on Ventrus common stock as part of an overall compensation package to provide performance-based compensation to attract and retain qualified personnel.

 

In November 2010, the Company granted options to non-employee directors to purchase an aggregate of 160,000 shares under the 2010 Plan. In addition, under Dr. Ellison’s and Mr. Barrett’s respective employment agreements, the Company granted to Dr. Ellison and Mr. Barrett options under the 2010 plan to purchase 573,599 shares and 305,920 shares, respectively, at a price of $6.00 per share.

 

In January 2012, the Company granted options to purchase 35,000 shares to one of its directors and 168,000 options to purchase shares to seven employees. Additionally, the company granted options to purchase an aggregate of 127,740 shares to seven consultants all pursuant to the 2010 Plan. The exercise prices of the options granted were at the then market value of the Company’s common stock ($8.10 - $10.62 per share).

 

9
 

 

VENTRUS BIOSCIENCES, INC.

(A Development Stage Company)

 

Notes to Condensed Financial Statements (continued)

(March 31, 2012)

 

A summary of the Company’s option activity and related information is as follows:

 

   Period Ended
March 31, 2012
     
   Shares   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic Value
 
Outstanding at beginning of period   2,046,455   $6.40   $- 
Granted   330,740   $8.44   $- 
Exercised   38,240   $6.24   $173,227 
                
Outstanding at end of period   2,338,955   $6.69   $7,817,824 
Options exercisable at end of period   1,715,715           

 

The Company expects that all outstanding unvested options will vest. The fair value of the options granted for the three month periods ended March 31, 2012, was based on the following assumptions, respectively:

 

   2012 
Risk-free interest rate   1.31% - 1.44 
Expected volatility   76.37%
Expected life of options   7 years 
Expected dividend yield   0%

 

Estimated future stock-based compensation expense relating to unvested stock options (for non-employees, based on the fair value at March 31, 2012) is as follows:

 

Calendar Years Ending December 31,  Future Stock Option
Compensation
Expense
 
2012  $2,504,223 
2013   1,576,231 
2014   651,674 
Total estimated future stock-based
compensation expense – stock options
  $4,732,128 

 

The weighted average remaining contractual life of options outstanding at March 31, 2012 is approximately 8.5 years and the cost is expected to be recognized over a weighted-average period of 1.61 years.

 

Stock-based compensation expensed to research and development expense for the three months ended March 31, 2012 and 2011 was $258,494, and $154,457, respectively. Stock-based compensation expensed to general and administrative expense for the three months ended March 31, 2012 and 2011 was $681,374 and $998,329, respectively.

 

10
 

 

VENTRUS BIOSCIENCES, INC.

(A Development Stage Company)

 

Notes to Condensed Financial Statements (continued)

(March 31, 2012)

 

Note 5 — License Agreements:

 

In March 2007, pursuant to an Exclusive License Agreement, S.L.A. Pharma, AG (“S.L.A. Pharma”) granted Paramount BioSciences, LLC, or PBS, a royalty-bearing license to sell, make and use diltiazem for treatment, through topical administration, of anal fissures and phenylepherine for treatment, through topical administration, of fecal incontinence in the United States, Canada and Mexico. In August 2007, pursuant to an Assignment and Assumption Agreement, PBS sold all of its rights in and arising out of the Exclusive License Agreement with S.L.A. Pharma to Ventrus for $1,087,876. The corresponding U.S. and foreign patents and applications for the two compounds have been licensed to Ventrus under the Assignment and Assumption Agreement (the technology referred to collectively as the “Compound Technology”). In the event that the Compound Technology is commercialized, the Company is obligated to pay to S.L.A. Pharma annual royalties, based upon net sales of the product. In addition, the Company is required to make payments to S.L.A. Pharma up to an aggregate amount of $20 million upon the achievement of various milestones related to regulatory events. Should the Company make any improvements regarding the Compound Technology, the Company is required to grant S.L.A. Pharma licenses to use such improvements.

 

As compensation for S.L.A. Pharma’s participation in the management and the development of the technologies, Ventrus is required to make separate payments to S.L.A. Pharma equal to $41,500 per month (“Monthly Payments”) for each of diltiazem and phenylephrine. Per the agreement, Ventrus’ obligation to make these monthly payments was to terminate upon a new drug application (“NDA”) filing. Pursuant to amendments to the Exclusive License Agreement, the Company, as of September 30, 2010, was no longer required to make additional payments for phenylephrine. At March 31, 2012, the Company had no amounts due to S.L.A. Pharma.

 

Ventrus is also required to reimburse S.L.A. Pharma for clinical development costs associated with the technology development of both diltiazem and phenylephrine. Ventrus’ total payment obligation for the diltiazem project was limited to $4,200,000. and these payments were made from August 2007 through December 31, 2011. Both Ventrus and S.L.A. Pharma have agreed to add additional services outside the scope of the agreement for $400,000. The services have not yet been provided by S.L.A. Pharma. S.L.A. Pharma has been paid $600,000 for services for the phenylephrine project through March 31, 2012. S.L.A. Pharma did not provide Ventrus with any services for the phenylephrine project in 2011 or 2012, and management does not expect any services from SLA Pharma for the phenylephrine project in the foreseeable future.

 

On June 6, 2011, Ventrus further amended the Exclusive License Agreement with S.L.A. Pharma. The amendment eliminates its potential $800,000 milestone payment to S.L.A. Pharma for the development of diltiazem, previously payable upon the completion of enrollment into the Phase III clinical trial that S.L.A. Pharma is conducting in Europe. It also eliminates S.L.A. Pharma’s ability to terminate the license agreement at any time, with one month’s notice, in the event that Ventrus had failed to make a required payment and a third party wished to enter into a license agreement for diltiazem and phenylephrine, provided the termination would not have been effective if within that one-month period Ventrus paid all the then required payments under the agreement. Pursuant to the amendment, Ventrus must pay S.L.A. Pharma up to $1,000,000 in milestone payments, payable in four equal installments of $250,000 once specified thresholds of randomized patients are achieved in the Phase III trial for diltiazem that S.L.A. Pharma is conducting in Europe. The first two milestones were met and paid in the third quarter of 2011 and the third and fourth milestone was met and paid in the fourth quarter of 2011. As of March 31, 2012, Ventrus’ total remaining payment obligation for the phenylephrine project shall not exceed $400,000, consisting of to-be-agreed-upon services. Additionally, upon Ventrus’ receipt of a quality controlled final study report of the Phase III trial for diltiazem in Europe, Ventrus must pay S.L.A. Pharma $400,000 in development costs for diltiazem.

 

In March 2008, Ventrus entered into an exclusive worldwide license agreement with Sam Amer & Co., Inc., a California company (“Amer”), whereby Ventrus acquired certain patent rights to iferanserin for the topical treatment of any anorectal disorders. Under the terms of the license agreement, Ventrus was obligated to make monthly contractual payments and may be required to make future milestone and royalty payments totaling up to $20 million upon the achievement of various milestones related to regulatory or commercial events. Through November 14, 2011, the Company had made all monthly contractual payments relating to the license agreement but still could be required to make future milestone and royalty payments.

 

11
 

 

VENTRUS BIOSCIENCES, INC.

(A Development Stage Company)

 

Notes to Condensed Financial Statements (continued)

(March 31, 2012)

 

On June 5, 2011, the Company entered into an agreement with Amer to acquire all rights, title and interest to iferanserin. Ventrus paid $500,000 on execution of the agreement. On November 14, 2011, the Company closed the acquisition and paid Amer an additional $12 million which was expensed as research and development expense. Ventrus will pay Amer royalties of between 3.0% and 4.0% on net annual sales in the U.S. and between 1.0% and 1.33% on gross annual sales outside the U.S., subject to a minimum annual royalty payment on both U.S. and ex-U.S. sales equal to (i) the royalty that would have been due had U.S. Net Sales (as defined in the Amer Purchase Agreement) equaled 50% of the U.S. Net Sales contained in the sales forecast to be provided by the Company to Amer for the applicable year and (ii) the royalty that would have been due had ex-U.S. Gross Sales (as defined in the Amer Purchase Agreement) equaled 50% of the ex-U.S. Gross Sales contained in the sales forecast to be provided by the Company to Amer for the applicable year.

  

12
 

 

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

 

The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2011, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2011.  In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements are subject to risks and uncertainties, including those set forth under “Part I. Item 1. Business - Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results.

 

Overview

 

We are a specialty pharmaceutical company currently focused on the development and commercialization of late-stage prescription drugs for gastrointestinal disorders, specifically hemorrhoid disease, anal fissures and fecal incontinence. We have in-licensed all of the products in our current pipeline.

 

We have several proprietary product candidates, one of which we own and two of which we have licensed that are in clinical development that address large market opportunities, including our most advanced product candidates, VEN 309 and VEN 307. VEN 309, a topical form of iferanserin which blocks a specific serotonin receptor (5HT 2A), is being developed for the topical treatment of symptomatic hemorrhoids, where it can reduce the bleeding, itchiness, and pain associated with the condition. Approximately 12.5 million people in the U.S. currently suffer from symptomatic hemorrhoids and we are not aware of any prescription drugs for this condition that have been approved by the U.S. Food and Drug Administration, or FDA. VEN 307 is a pre-mixed and pre-packaged proprietary topical formulation of the drug diltiazem which we are developing for the treatment of anal fissures. We estimate that over four million people in the U.S. currently suffer from anal fissures and that there are approximately 1.1 million office visits per year and yet, to our knowledge, there is only one drug with FDA approval for this condition.

 

We previously met with the FDA regarding our plans for the development of VEN 309, VEN 307 and VEN 308. We initiated one of two pivotal Phase III clinical trials in the U.S. with VEN 309 in August 2011 and intend to initiate a long-term carcinogenicity study. Depending on our assessment of the data generated by the Phase III trial, which is expected in late June or early July 2012, as well as on other factors, including our access to capital, clinical and regulatory considerations, and our assessment of the then-current state of our intellectual property estate, we intend to initiate and conduct the second Phase III trial, and a double blind recurrence trial which, together with the first study, a clinical pharmacology program, one 9-month and one 6-month toxicology study, and the carcinogenicity study (which we plan to complete after the second trial) will comprise the data needed to be able to submit a new drug application, or NDA, to the FDA and analogous filings to authorities in Europe and Japan, which we anticipate could occur in 2014.

 

Our development partner for VEN 307, S.L.A. Pharma, began conducting a Phase III clinical trial with VEN 307 in Europe in November 2010. Enrollment was completed in December 2011 and data is expected in May 2012. At the same time, we are conducting a formulation program with contract manufacturers to create a new, improved formulation of topical diltiazem, with new intellectual property protections. We expect to receive the data from the first Phase III trial in Europe in May 2012 and aim to have important information from our formulation program around that time. Depending on our assessment of the data generated by this trial and on whether the new formulation is superior to the existing version, as well as on other factors, including our access to capital, clinical and regulatory considerations, and our assessment of the then-current state of our intellectual property estate, we intend to initiate either one additional Phase III trial in the U.S. with the existing formulation or two additional Phase III clinical trials in the U.S. with the new formulation, to be run in parallel. We anticipate that both program options could provide sufficient data for an NDA submission to the FDA in 2013.

 

Since our inception, we have had no revenue from product sales, and have funded our operations principally through debt financings, our initial public offering in 2010 and a public offering of our common stock in July 2011. Our operations to date have been primarily limited to organizing and staffing our company, licensing our product candidates, developing clinical trials for our product candidates, establishing manufacturing for our product candidates, maintaining and improving our patent portfolio and raising capital. We have generated significant losses to date, and we expect to continue to generate losses as we progress towards the commercialization of our product candidates, including VEN 307 and VEN 309. As of March 31, 2012, we had a deficit accumulated during the development stage of $75,702,960. Because we do not generate revenue from any of our product candidates, our losses will continue as we advance our product candidates towards regulatory approval and eventual commercialization. As a result, our operating losses are likely to be substantial over the next several years. We are unable to predict the extent of any future losses or when we will become profitable, if at all.

 

13
 

 

We believe that our existing cash will be sufficient to fund our projected operating requirements into the third quarter of 2013, while we anticipate receiving data from the key clinical trials with VEN 309 in late June or early July 2012 and VEN 307 in May 2012. Until we can generate a sufficient amount of product revenue, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaborations and licensing arrangements.

 

Critical Accounting Policies

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Our significant accounting policies are more fully described in Note 2 to the December 31, 2011 audited financial statements included in our Annual Report on Form 10-K for the year ended December, 31, 2011. The following accounting policies are critical to fully understanding and evaluating our financial results.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported revenue, if any, and expenses during the reporting periods. On an ongoing basis, management evaluates their estimates and judgments. Management bases estimates on historical experience and on various other factors that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results might differ from these estimates under different assumptions or conditions.

 

Stock-Based Compensation

 

We account for stock options granted to employees and directors, measured at grant date, based on the estimated fair value of the award, which is recognized as expense over the employee’s or director’s requisite service period on a straight-line basis. We account for stock options and warrants granted to non-employees on a fair value basis. The initial non-cash charge to operations for nonemployee options and warrants with vesting are revalued at the end of each reporting period based upon the change in the fair value of the options and recognized as consulting expense over the related service period. For the purpose of valuing options and warrants granted to employees and directors and to non-employees, we use the Black-Scholes option pricing model. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the awards. We estimate the expected life of the options granted based on anticipated exercises in the future periods assuming the success of our business model as currently forecasted. For warrants and non-employee options, we use the contractual term of the warrant, the length of the note or option as the expected term. The expected dividend yield reflects our current and expected future policy for dividends on our common stock. The expected stock price volatility for our stock options will be calculated by examining historical volatilities for publicly traded industry peers as we do not now and for the near future will not have any significant trading history for our common stock. Forfeiture rates will be calculated based on the expected service period for our employees.

 

Research and Development Expense

 

Research and development expenses consist primarily of costs associated with: (i) internal costs associated with our development activities; (ii) payments we make to third party contract research organizations, contract manufacturers, and consultants; (iii) technology and intellectual property license costs; and (iv) patent reimbursements. All research and development is expensed as incurred. License fees and pre-approved milestone payments due under each research and development arrangement that are paid prior to regulatory approval are expensed when the license is entered into or the milestone is achieved.

 

14
 

 

Conducting a significant amount of research and development is central to our business model. Since our inception on October 7, 2005 to March 31, 2012, we incurred $45,951,969 in research and development expenses. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of the clinical trials. Included in research and development expense is the purchase price we paid in 2011 for VEN 309, discussed below.

 

We extended into an asset purchase agreement with Amer (the “Purchase Agreement”) to acquire all rights, title and interest to VEN 309 (including patents, know how, other research materials and other indications), iferanserin inventory for use in clinical trials and a non-compete agreement. We paid $500,000 on execution of the Purchase Agreement and $12 million at closing, which took place on November 14, 2011. Additionally, we paid Amer $50,000 on execution and $5,000 per month through the closing for the consulting service. Upon the closing of the acquisition, the Exclusive License Agreement that we had previously entered into with Amer terminated.

 

As part of the Purchase Agreement, the milestone payments from the original Exclusive License Agreement were reduced to an aggregate of $10.5 million as follows: $1.5 million upon the one year anniversary of FDA approval of our planned NDA for VEN 309; $750,000 upon the attainment of $20 million in cumulative net sales of VEN 309; $1.5 million upon the attainment of $50 million in cumulative net sales; $3.0 million upon the attainment of $75 million in cumulative net sales; and $3.75 million upon regulatory approval for over-the-counter sale of VEN 309. These aggregate milestone payments represent an approximately 50% reduction in the $20 million aggregate milestone payments under the Exclusive License Agreement.

 

Further, the royalties payable to Amer upon commercialization also were reduced to between 3.0% and 4.0% of net sales in the U.S., based on the level of net sales in the U.S., and between 1.0% and 1.33% of sales outside of the U.S., based on the level of gross sales outside the U.S. These royalty rates represent an approximately 66% decrease in the royalty fees that would have been due to Amer under the Exclusive License Agreement. We will pay Amer a minimum royalty of 50% of the royalties on the forecasted annual net sales in the U.S. and 50% of the royalties on the forecasted annual gross sales outside the U.S.

 

The Purchase Agreement also prohibits Amer, Dr. Amer and his wife for a period of five years after November 14, 2012 from directly or indirectly, owning an interest in, managing, operating, joining, controlling or participating in the ownership, management, operation or control of any profit or non-profit business or organization other than us that conducts research, develops, formulates, tests, produces, licenses, commercializes, manufactures or distributes a product incorporating VEN 309 or any other product which has the function of affecting the 5HT 2A receptor. The non-compete covers the United Sates and its territories and any other jurisdiction in the world where a patent has issued for iferanserin. We determined that the non-compete agreement had minimal value due to the age of Dr. and Mrs. Amer. Accordingly, we allocated the entire purchase price to in-process research and development and concluded that there is no alternative future use for these assets. Therefore, the entire $12.5 million has been recorded as a research and development expense in the statement of operations.

 

We plan to increase our research and development expenses for the foreseeable future in order to complete development of our two most advanced product candidates, VEN 309 and VEN 307. The following table summarizes the research and development expenses related to our two most advanced product candidates and other projects. The table reflects expenses directly attributable to each development candidate, which are tracked on a project basis.

 

15
 

 

   3 Months ended
3/31/2012
   3 Months
ended
3/31/2011
   Period from
October 7, 2005
(inception) to
Mar. 31, 2012
 
VEN 307  $346,260   $164,918   $6,070,183 
VEN 309  $5,817,972   $651,387   $36,488,811 
Other  $258,494   $154,457   $3,392,975 

 

The process of conducting pre-clinical studies and clinical trials necessary to obtain FDA approval is costly and time consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others, the quality of the product candidate’s early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result of the uncertainties discussed above, the uncertainty associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine with certainty the duration and completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. Based on their current status, we anticipate that to complete the clinical trial process and commercialize our product candidates will cost approximately $20 million for VEN 307, $15 million for VEN 308 and $40 million for VEN 309. These estimates could change significantly depending on the progress, timing and results of non-clinical and clinical trials. We will need to raise additional funds in order to fully complete the development of VEN 307 and VEN 309.

 

Off-Balance Sheet Arrangements

 

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

 

Results of Operations

 

Comparison of the Three Months Ended March 31, 2012 and March 31, 2011

 

Research and Development Expense

 

Research and development expense was $6,422,726 for the three months ended March 31, 2012, an increase of $5,451,964 or 561.62%, from $970,762 for same period in 2011. The primary reason for the increase was the costs associated with the Phase III clinical trials for VEN 309, which commenced in the third quarter of 2011. Additionally, we have incurred higher development costs due to initiation of nonclinical and pharmacology trials for VEN 309 and manufacturing costs to support future clinical studies for VEN 307 and VEN 309.

 

General and Administrative Expense

 

General and administrative expense consists primarily of salaries, consulting fees and other related costs, professional fees for legal services and accounting services, insurance and travel expenses, as well as the option expense associated with the grants of options to our employees and directors. We expect that our general and administrative expenses will increase as we add additional personnel to continue our development plans and comply with the reporting obligations applicable to public companies.

 

16
 

 

General and administrative, or G&A, expense was $1,767,331 for the three months ended March 31, 2012, an increase of $71,301 or approximately 4.20%, from $1,696,030 for the three months ended March 31, 2011. The increase was due to changes in a number of items, including an increase in salaries of $258,578, a decrease in stock options expense of $316,954, as well as increases of $37,000 in Delaware franchise tax, $27,500 in board fees, $21,500 in rent and $26,600 in travel expense.

 

Interest Income and Expense

 

Interest expense was $0 for the three months ended March 31, 2012, a decrease of $69,176, from the three months ended March 31, 2011. We did not have any outstanding loans during the first quarter of 2012 and therefore did not incur interest expense. Interest income increased slightly, from $13,490 to $16,181. 

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

As a result of our significant research and development expenditures and the lack of any FDA-approved products to generate product sales revenue, we have not been profitable and have generated operating losses since we were incorporated in October 2005. We have funded our operations through March 31, 2012 principally with debt (which in connection with the initial public offering, all of the convertible notes, and accrued interest thereon, were converted into common stock or repaid) and equity financing, including raising approximately $15.2 million in net proceeds in our initial public offering, which closed on December 22, 2010, and approximately $2.4 million in net proceeds upon the exercise on January 7, 2011 of the over-allotment option granted to the underwriter of our initial public offering. In addition, in July 2011, we raised $47.6 million in net proceeds in a registered public offering of our common stock.

 

On January 31, 2012, we filed a shelf registration statement with the Securities and Exchange Commission, or SEC, under which we may offer shares of our common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $100,000,000. The registration statement became effective as of February 10, 2012. As part of the shelf registration statement, we included a prospectus for a possible at-the-market common equity sales program for the sale of up to $20,000,000 of our common stock. At March 31, 2012, no securities have been offered or sold pursuant to the shelf registration statement.

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $6,089,551 for the three months ended March 31, 2012 to fund our research and development program build out and general and administrative expenses. The net loss of $8,173,876 for the three months ended March 31, 2012 was greater than cash used in operating activities by $2,084,325. The primary reasons for the difference are attributed to a stock-based compensation charge of $939,868 and an increase of accounts payable of $1,339,784.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities was $0 for the three months ended March 31, 2012.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities was $180,728 for the three months ended March 31, 2012, and consisted of $238,617 from the exercise of options, net of $57,889 paid for shelf registration statement costs.

 

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Funding Requirements

 

We expect to incur losses for the foreseeable future. We expect to incur increasing research and development expenses. We expect that our general and administrative expenses will also increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a public company, including directors’ and officers’ insurance, investor relations programs, and increased professional fees. Our future capital requirements will depend on a number of factors, including the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the acquisition of licenses to new products or compounds, the status of competitive products, the availability of financing, and our success in developing markets for our product candidates.

 

Based on our cash position at March 31, 2012, and our analysis of our future development costs, we estimate our expected future expenditures related to product development, through our planned first pivotal Phase III trial for VEN 309 and the ongoing Phase III trial for VEN 307 in Europe, as follows:

 

·costs to complete the double blind portion of the Phase III clinical trial of VEN 309 in the treatment of hemorrhoids, carcinogenicity testing and developing new intellectual property: $20,000,000;

 

·costs to complete the double blind portion of the Phase III clinical trial of VEN 307 in the treatment of anal fissures: $10,000,000;

 

·payment to S.L.A. Pharma of our licensing obligations for VEN 307 of $41,500 per month until the filing of an NDA with the FDA, and $400,000 in development costs upon receipt of a quality controlled final study report for the Phase III clinical trial.

 

We believe that our existing cash and cash equivalents will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2013. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, which would cause us to require additional capital earlier. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials.

 

We do not anticipate that we will generate product revenue for at least the next several 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 quarters and years.

 

We may need to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We do not currently have any commitments for future external funding. We may need to raise additional funds more quickly if one or more of our assumptions prove to be incorrect or if we choose to expand our product development efforts more rapidly than we presently anticipate, and we may decide to raise additional funds even before we need them if the conditions for raising capital are favorable. We may seek to sell additional equity or debt securities or obtain a bank credit facility or other financing vehicle. The sale of additional equity or debt securities, if convertible, could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also result in covenants that would restrict our operations.

 

Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our planned commercialization efforts or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

  

18
 

 

Item 4.   Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e),which is designed to provide reasonable assurance that information, which is required to be disclosed in our reports filed pursuant to the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to management in a timely manner. At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting in the first quarter of 2012 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

Item 6.    Exhibits

 

Exhibit

Number

  Description of Document  

Registrant’s

Form

  Dated  

Exhibit

Number

 

Filed

Herewith

31.1   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.               X
31.2   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.               X
32.1   Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.               X
32.2   Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.               X
101   Financials in XBRL format.               X

  

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SIGNATURES

 

In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Ventrus Biosciences, Inc.
Date: May 9, 2012    
     
  By:  /s/ David J. Barrett
    David J. Barrett
    Chief Financial Officer