Albireo Pharma 10Q 2014 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

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. Yes x No o

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). Yes x No o

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 filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyx
		(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 No x

Indicate the number of shares outstanding of the issuer's common stock as of the latest practicable date: As of May 05, 2014 there were 21,116,579 shares of the registrant's common stock outstanding.

BIODEL INC.



	PART I — FINANCIAL INFORMATION

	Item 1. Consolidated Condensed Financial Statements			1

	Consolidated Condensed Balance Sheets at September 30, 2013 and March 31, 2014 (unaudited)			1

	Consolidated Condensed Statements of Operations (unaudited) for the Three and Six Months Ended March 31, 2013 and 2014 and for the period from December 3, 2003 (inception) to March 31, 2014			2

	Consolidated Condensed Statements of Stockholders' Equity for the period from December 3, 2003 (inception) to March 31, 2014 (six month ended March 31, 2014 is unaudited)			3

	Consolidated Condensed Statements of Cash Flows (unaudited) for the Six Months Ended March 31, 2013 and 2014 and for the period from December 3, 2003 (inception) to March 31, 2014			7

	Notes to Consolidated Condensed Financial Statements			9

	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			23

	Item 3. Quantitative and Qualitative Disclosure About Market Risk			32

	Item 4. Controls and Procedures			33

	PART II — OTHER INFORMATION

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34

	Item 6. Exhibits			35

	Signatures			36
	EX-10.1
	EX-31.01
	EX-31.02
	EX-32.01

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements

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


		September 30, 2013			March 31, 2014
					(unaudited)
ASSETS
Current:
Cash and cash equivalents	$	39,781		$	28,686
Taxes receivable		6			6
Grant receivable		26			207
Prepaid and other assets		264			610

Total current assets		40,077			29,509
Property and equipment, net		1,031			755
Intellectual property, net		43			41
Total assets	$	41,151		$	30,305

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable	$	246		$	641
Accrued expenses:
Clinical trial expenses		181			25
Payroll and related		1,139			721
Accounting and legal fees		226			118
Severance		255			96
Other		319			247
Income taxes payable		75			7

Total current liabilities		2,441			1,855

Common stock warrant liability		6,121			3,960
Other long term liabilities		26			—

Total liabilities		8,588			5,815
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 21,116,579 issued and outstanding		211			211
Additional paid-in capital		247,761			248,328
Deficit accumulated during the development stage		(215,428	)		(224,068	)

Total stockholders' equity		32,563			24,490

Total liabilities and stockholders' equity	$	41,151		$	30,305

See accompanying notes to consolidated condensed financial statements.

-1-

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


		Three Months Ended March 31,						Six Months Ended March 31,						December 3, 2003 (inception) to March 31,
		2013			2014			2013			2014			2014
Revenue	$	—		$	—		$	—		$	—		$	—

Operating expenses:
Research and development		2,966			4,257			7,641			7,998			163,398
Government grant		(29	)		(207	)		(224	)		(304	)		(938	)
General and administrative		2,174			1,731			3,603			3,127			75,328

Total operating expenses		5,111			5,781			11,020			10,821			237,788
Other (income) and expense:
Interest and other income		(12	)		(13	)		(28	)		(29	)		(5,731	)
Interest expense		—			—			—			—			78
Adjustment to fair value of common stock warrant liability		116			426			(2,112	)		(2,161	)		(13,225	)
Loss on settlement of debt		—			—			—			—			627

Loss before tax provision (benefit)		(5,215	)		(6,194	)		(8,880	)		(8,631	)		(219,537	)
Tax provision (benefit)		5			4			9			9			(529	)

Net loss		(5,220	)		(6,198	)		(8,889	)		(8,640	)		(219,008	)
Charge for accretion of beneficial conversion rights		—			—			—			—			(603	)
Deemed dividend — warrants		—			—			—			—			(4,457	)

Net loss applicable to common stockholders	$	(5,220	)	$	(6,198	)	$	(8,889	)	$	(8,640	)	$	(224,068	)

Net loss per share — basic and diluted	$	(0.37	)	$	(0.29	)	$	(0.63	)	$	(0.41	)

Weighted average shares outstanding — basic and diluted		14,182,451			21,083,237			14,179,219			21,078,404

See accompanying notes to consolidated condensed financial statements.

-2-

Biodel Inc.
(A Development Stage Company)
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 Preferred stock $.01 Par Value				Additional Paid in Capital			Accumulated Other Comprehensive Income (loss)		Deficit Accumulated During the Development Stage			Total Stockholders' Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Additional Paid in Capital			Accumulated Other Comprehensive Income (loss)		Deficit Accumulated During the Development Stage			Total Stockholders' Equity
Balance at Inception (December 3, 2003)		—	$	—		—	$	—		—	$	—	$	—		$	—	$	—		$	—
Shares issued to employees		183,126		2		—		—		—		—		(2	)		—		—			—
January 2004 Proceeds from sale of common stock		1,145,306		11		—		—		—		—		1,343			—		—			1,354
Net loss		—		—		—		—		—		—		—			—		(774	)		(774	)

Balance, September 30, 2004		1,328,432		13		—		—		—		—		1,341			—		(774	)		580
Additional stockholder contributions		—		—		—		—		—		—		514			—		—			514
Stock-based compensation		—		—		—		—		—		—		353			—		—			353
Shares issued to employees and directors for services		10,658		—		—		—		—		—		61			—		—			61
July 2005 Private placement — Sale of Series A preferred stock, net of issuance costs of $379		—		—		569,000		6		—		—		2,460			—		—			2,466
Founder's compensation contributed to capital		—		—		—		—		—		—		63			—		—			63
Net loss		—		—		—		—		—		—		—			—		(3,383	)		(3,383	)

Balance, September 30, 2005		1,339,090	��	13		569,000		6		—		—		4,792			—		(4,157	)		654
Stock-based compensation		—		—		—		—		—		—		1,132			—		—			1,132
July 2006 Private placement — Sale of Series B preferred stock, net of issuance costs of $1,795		—		—		—		—		5,380,711		54		19,351			—		—			19,405
July 2006 — Series B preferred stock units issued July 2006 to settle debt		—		—		—		—		817,468		8		3,194			—		—			3,202
Shares issued to employees and directors for services		988		—		—		—		—		—		23			—		—			23
Accretion of fair value of beneficial conversion charge		—		—		—		—		—		—		603			—		(603	)		—
Net loss		—		—		—		—		—		—		—			—		(8,068	)		(8,068	)

Balance, September 30, 2006		1,340,078	$	13		569,000	$	6		6,198,179	$	62	$	29,095		$	—	$	(12,828	)	$	16,348

-3-

Biodel Inc.
(A Development Stage Company)
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 Preferred stock $.01 Par Value						Additional Paid in Capital		Accumulated Other Comprehensive Income (loss)			Deficit Accumulated During the Development Stage			Total Stockholders' Equity
	Shares		Amount		Shares			Amount			Shares			Amount			Additional Paid in Capital		Accumulated Other Comprehensive Income (loss)			Deficit Accumulated During the Development Stage			Total Stockholders' Equity
Balance, September 30, 2006		1,340,078	$	13		569,000		$	6			6,198,179		$	62		$	29,095	$	—		$	(12,828	)	$	16,348
May 2007 Proceeds from sale of common stock		1,437,500		14		—			—			—			—			78,741		—			—			78,755
Conversion of preferred stock on May 16, 2007		1,601,749		16		(569,000	)		(6	)		(6,198,179	)		(62	)		52		—			—			—
Stock-based compensation		—		—		—			—			—			—			4,224		—			—			4,224
Shares issued to employees, non-employees and directors for services		732		—		—			—			—			—			16		—			—			16
Stock options exercised		885		—		—			—			—			—			5		—			—			5
March 2007 Warrants exercised		659,226		7		—			—			—			—			416		—			—			423
Deemed dividend — warrants		—		—		—			—			—			—			4,457		—			(4,457	)		—
Net loss		—		—		—			—			—			—			—		—			(22,548	)		(22,548	)

Balance, September 30, 2007		5,040,170		50		—			—			—			—			117,006		—			(39,833	)		77,223
Proceeds from sale of common stock		815,000		8		—			—			—			—			46,809		—			—			46,817
Issuance of restricted stock		2,428		—		—			—			—			—			172		—			—			172
Stock-based compensation		—		—		—			—			—			—			6,503		—			—			6,503
Stock options exercised		43,600		1		—			—			—			—			901		—			—			902
Warrants exercised		19,802		—		—			—			—			—			112		—			—			112
Net unrealized loss on Marketable Securities		—		—		—			—			—			—			—		(62	)		—			(62	)
Proceeds from sale of stock — ESPP		3,596		—		—			—			—			—			181		—			—			181
Net loss		—		—		—			—			—			—			—		—			(43,361	)		(43,361	)

Balance, September 30, 2008		5,924,596	$	59		—		$	—			—		$	—		$	171,684	$	(62	)	$	(83,194	)	$	88,487

-4-

Biodel Inc.
(A Development Stage Company)
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 Preferred stock $.01 Par Value				Additional Paid in Capital			Accumulated Other Comprehensive Income (loss)			Deficit Accumulated During the Development Stage			Total Stockholders' Equity
	Shares			Amount		Shares		Amount		Shares		Amount		Additional Paid in Capital			Accumulated Other Comprehensive Income (loss)			Deficit Accumulated During the Development Stage			Total Stockholders' Equity
Balance, September 30, 2008		5,924,596		$	59		—	$	—		—		—	$	171,684		$	(62	)	$	(83,194	)	$	88,487
Stock-based compensation		—			—		—		—		—		—		5,064			—			—			5,064
Stock options exercised		4,413			—		—		—		—		—		25			—			—			25
Net unrealized gain on Marketable Securities		—			—		—		—		—		—		—			62			—			62
Proceeds from the sale of stock — ESPP		21,863			—		—		—		—		—		170			—			—			170
Net loss		—			—		—		—		—		—		—			—			(43,270	)		(43,270	)

Balance, September 30, 2009		5,950,872			59		—		—		—		—	$	176,943			—			(126,464	)		50,538
Registered direct financing		599,550			6		—		—		—		—		8,706			—			—			8,712
Initial value of warrants issued in a registered direct		—			—		—		—		—		—		(2,915	)		—			—			(2,915	)
Stock-based compensation		—			—		—		—		—		—		5,621			—			—			5,621
Stock options exercised		8,076			—		—		—		—		—		68			—			—			68
Net unrealized gain on marketable securities		—			—		—		—		—		—		—			1			—			1
Proceeds from the sale of stock — ESPP		41,393			1		—		—		—		—		324			—			—			325
Net loss		—			—		—		—		—		—		—			—			(38,290	)		(38,290	)

Balance, September 30, 2010		6,599,891			66		—		—		—		—		188,747		$	1			(164,754	)		24,060
Registered direct financing		3,018,736			30		1,813,944		18		—		—		27,913			—			—			27,961
Initial value of warrants issued in a registered direct offering		—			—		—		—		—		—		(9,438	)		—			—			(9,438	)
Stock-based compensation		—			—		—		—		—		—		4,920			—			—			4,920
Stock options exercised		104			—		—		—		—		—		—			—			—			—
Warrants exercised		10,549			—		—		—		—		—		50			—			—			50
Common stock issued upon settlement of RSUs		15,537			—		—		—		—		—		—			—			—			—
Net unrealized loss on marketable securities		—			—		—		—		—		—		—			(1	)		—			(1	)
Proceeds from the sale of stock — ESPP		17,051			—		—		—		—		—		118			—			—			118
Net loss		—			—		—		—		—		—		—			—			(10,592	)		(10,592	)

Balance, September 30, 2011		9,661,868			96		1,813,944		18		—		—		212,310		$	—			(175,346	)		37,078
Proceeds from the sale of unregistered securities		4,250,020			43		—		—		3,605,607		36		16,999			—			—			17,078
Initial value of warrants issued in private placement financing		—			—		—		—		—		—		(4,832	)		—			—			(4,832	)
Stock-based compensation		—			—		—		—		—		—		1,828			—			—			1,828
Proceeds from the sale of stock — ESPP		10,776			—		—		—		—		—		27			—			—			27
Common Stock issued upon settlement of RSUs issued in place of cash bonuses, net of taxes		191,719			2		—		—		—		—		582			—			—			584
Common stock issued upon settlement of RSUs		60,409			1		—		—		—		—		(1	)		—			—			—
Net loss		—			—		—		—		—		—		—			—			(20,747	)		(20,747	)
Company repurchase of fractional shares from the reverse stock split		(247	)		—		—		—		—		—		—			—			—			—

Balance, September 30, 2012		14,174,545		$	142		1,813,944	$	18		3,605,607	$	36	$	226,913		$	—		$	(196,093	)	$	31,016

-5-

Biodel Inc.
(A Development Stage Company)
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 Preferred stock $.01 Par Value						Additional Paid in Capital		Accumulated Other Comprehensive Income (loss)		Deficit Accumulated During the Development Stage			Total Stockholders' Equity
	Shares		Amount		Shares			Amount			Shares			Amount			Additional Paid in Capital		Accumulated Other Comprehensive Income (loss)		Deficit Accumulated During the Development Stage			Total Stockholders' Equity
Balance, September 30, 2012		14,174,545	$	142		1,813,944		$	18			3,605,607		$	36		$	226,913	$	—	$	(196,093	)	$	31,016
Proceeds from sale of common stock		4,718,767		47		—			—			—			—			19,192		—		—			19,239
Preferred stock conversion		2,109,090		22		(1,813,944	)		(18	)		(1,655,607	)		(17	)		13		—		—			—
Stock-based compensation		—		—		—			—			—			—			1,538		—		—			1,538
Proceeds from the sale of stock-ESPP		13,395		—		—			—			—			—			30		—		—			30
Stock options exercised		30,250		—		—			—			—			—			75		—		—			75
RSUs converted to common stock		24,777		—		—			—			—			—			—		—		—			—

Net loss		—		—		—			—			—			—			—		—		(19,335	)		(19,335	)
Balance, September 30, 2013		21,070,824	$	211		—		$	—			1,950,000		$	19		$	247,761	$	—	$	(215,428	)	$	32,563
Stock-based compensation		—		—		—			—			—			—			509		—		—			509
Proceeds from the sale of stock-ESPP		5,046		—		—			—			—			—			10		—		—			10
Stock options exercised		19,241		—		—			—			—			—			48		—		—			48
RSUs converted to common stock		21,468		—		—			—			—			—			—		—		—			—
Net Loss		—		—		—			—			—			—			—		—		(8,640	)		(8,640	)
Balance, March 31, 2014 (unaudited)		21,116,579	$	211		—		$	—			1,950,000		$	19		$	248,328	$	—	$	(224,068	)	$	24,490

See accompanying notes to consolidated condensed financial statements.

-6-

Biodel Inc.
(A Development Stage Company)
Consolidated Condensed Statements of Cash Flows
(in thousands, except share and per share amounts)
(unaudited)


		Six Months Ended March 31,						December 3, 2003 (inception) to March 31,
		2013			2014			2014
Cash flows from operating activities:
Net loss	$	(8,889	)	$	(8,640	)	$	(219,008	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		326			310			5,754
Founder's compensation contributed to capital		—			—			271
Stock-based compensation for employees and directors		890			509			29,671
Stock-based compensation for non-employees		—			—			2,274
Loss on settlement of debt		—			—			627
Write-off of capitalized patent expense		—			—			246
Write-off of loan to related party		—			—			41
Adjustment to fair value of common stock warrant liability		(2,112	)		(2,161	)		(13,225	)
(Increase) decrease in:
Income taxes receivable		—			—			(6	)
Grant receivable		60			(181	)		(206	)
Other receivables		8			—			(1	)
Prepaid expenses and other assets		(658	)		(346	)		(610	)
Increase (decrease) in:
Accounts payable		27			395			641
Income taxes payable		(4	)		(68	)		7
Accrued expenses and long term liabilities		(716	)		(939	)		2,011

Total adjustments		(2,179	)		(2,481	)		27,495

Net cash used in operating activities		(11,068	)		(11,121	)		(191,513	)

Cash flows from investing activities:
Purchase of property and equipment		(87	)		(32	)		(6,499	)
Purchase of marketable securities		—			—			(31,614	)
Sale of marketable securities		—			—			31,614
Capitalized intellectual properties		—			—			(298	)
Loan to related party		—			—			(41	)

Net cash used in investing activities		(87	)		(32	)		(6,838	)

-7-

Biodel Inc.
(A Development Stage Company)
Consolidated Condensed Statements of Cash Flows
(in thousands, except share and per share amounts)
(unaudited)


		Six Months Ended March 31,						December 3, 2003 (inception) to March 31,
		2013			2014			2014
Cash flows from financing activities:

Options exercised		—			48			1,123
Warrants exercised		—			—			585
Net proceeds from employee stock purchase plan		6			10			861
Deferred public offering costs		—			—			(1,458	)
Stockholder contribution		—			—			1,660
Net proceeds from sale of Series A preferred stock 2005		—			—			2,466
Net proceeds from sale of Series A preferred stock 2011		—			—			2,685
Net proceeds from sale of unregistered common stock — private placement		—			—			8,587
Net proceeds from sale of common stock		—			—			180,257
Proceeds from bridge financing		—			—			2,575
Net proceeds from sale of Series B preferred stock 2006		—			—			19,205
Net proceeds from sale of Series B preferred stock 2012		—			—			8,491

Net cash provided by financing activities		6			58			227,037

Net (decrease) increase in cash and cash equivalents		(11,149	)		(11,095	)		28,686

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

Cash and cash equivalents, end of period	$	27,901		$	28,686		$	28,686

Supplemental disclosures of cash flow information:
Cash paid for interest and income taxes was:
Interest	$	—		$	—		$	9
Income taxes		12			14			352
Non-cash financing and investing activities:
Warrants issued in connection with registered direct offering	$	—		$	—		$	12,353
Warrants issued in connection with unregistered common stock private placement		—			—			4,832
Settlement of debt with Series B preferred stock		—			—			3,202
Accrued expenses settled with Series B preferred stock		—			—			150
Deemed dividend — warrants		—			—			4,457
Accretion of fair value of beneficial charge on preferred stock		—			—			603
Conversion of convertible preferred stock to common stock		—			—			68
Issuance of restricted stock units to settle accrued bonus		—			—			584

See accompanying notes to consolidated condensed financial statements.

-8-

Biodel Inc.

(A Development Stage Company)

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 development stage specialty pharmaceutical company located in Danbury, Connecticut. The Company was incorporated in the State of Delaware on December 3, 2003 and commenced operations in January 2004. The Company formed a wholly owned subsidiary in the United Kingdom in October 2011 ("Biodel UK Limited"). This subsidiary has been inactive since its inception. The Company focuses on the development and commercialization of innovative treatments for diabetes that may be safer, more effective and more convenient for patients.

The Company is 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. The 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. The Company expects to submit an Investigational New Drug application to the U.S. Food and Drug Administration (the "FDA") for its dual-chamber glucagon rescue product in the second half of calendar year 2014 and initiate a pivotal clinical trial in the fourth calendar quarter of 2014. The Company has 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. The Company has 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. The Company is currently assessing several formulations of liquid glucagon in pre-clinical studies.

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 refers to these as "ultra rapid acting" formulations. The Company's most advanced ultra-rapid-acting insulin formulation, BIOD-123, combines recombinant human insulin, or RHI, with the Company's 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. The Company is also using its 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®.

In addition to BIOD-123, the Company has other RHI-based formulations in earlier stages of development. In particular, the Company is 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. The Company believes 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 January 2014, the Company announced preliminary results from a Phase 1 clinical trial with BIOD-531, the Company's candidate for an ultra-rapid-acting concentrated insulin formulation. 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.

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

-9-

Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

December 20, 2013. The results of operations for the three and six months ended March 31, 2014 are not necessarily indicative of the operating results for the full fiscal year or any other interim period.

The Company is in the development stage, as defined by Financial Accounting Standards Board ("FASB") ASC 915 (prior authoritative literature: Statement of Financial Accounting Standards No. 7), "Accounting and Reporting by Development Stage Enterprises", as its primary activities since incorporation have been establishing its facilities, recruiting personnel, conducting research and development, business development, business and financial planning and raising capital.

On June 11, 2012, the Company effected a one-for-four reverse split of its outstanding common stock. All references in these financial statements and accompanying notes to units of common stock or per share amounts are reflective of the reverse split for all periods reported. (See Note 5.)

2. Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, which include cash and cash equivalents, 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.

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 March 31, 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 March 31, 2014 for the warrants issued in the May 2011 and June 2012 financings (as defined in Note 9). 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 and restricted cash are classified as a Level 1 input and the warrant liability as a Level 3 input.

-10-

Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

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 March 31, 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	$	28,686		$	28,686	$	—	$	—
Subtotal		28,686			28,686		—		—

Liabilities:
Common stock warrant liability (see Note 9)		(3,960	)		—		—		(3,960	)
Subtotal		(3,960	)		—		—		(3,960	)

Total	$	24,726		$	28,686	$	—	$	(3,960	)



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 9)		(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		2,161
Balance at March 31, 2014	$	(3,960	)

The unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities 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

-11-

Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

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 six months ended March 31, 2014 which included stock based compensation charges related to the Company's 2005 Employee Stock Purchase Plan was $214 and $509, respectively. In comparison, the total compensation cost for the three and six months ended March 2013 was $346 and $890, respectively.

At March 31, 2014, the total compensation cost related to non-vested options not yet recognized was $1,444, which will be recognized over the next four years assuming the employees complete their service period for vesting of the options.

The following table summarizes the stock option activity during the six months ended March 31, 2014:

-12-

Biodel Inc.
(A Development Stage Company)
Notes to Consolidated Condensed Financial Statements
(in thousands, except share and per share amounts)
(unaudited)


	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
Forfeited, expired	(282,285	)		5.96			—
Outstanding options, March 31, 2014	2,885,525		$	15.27	5		531

Exercisable options, March 31, 2014	1,441,668		$	28.09	3	$	50

The Black-Scholes pricing model assumptions for the three and six months ended March 31, 2013 and 2014 are determined as discussed below:


		Three Months Ended March 31,						Six Months Ended March 31,
		2013			2014			2013			2014
Expected life (in years)		2.39 - 3.77			3.77 - 4.75			2.39 - 4.75			3.77 - 4.75
Expected volatility		80 - 87	%		73 - 83	%		80 - 90	%		70 - 83	%
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		0.25 - 0.36	%		0.69 - 0.78	%		0.25 - 0.75	%		0.58 - 0.78	%
Weighted average grant date fair value	$	2.86		$	3.35		$	2.43		$	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 7.5%. 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 is as follows:


		Three Months Ended March 31,				Six Months Ended March 31,
		2013		2014		2013		2014
Stock compensation expense — RSUs	$	110	$	0	$	199	$	54

At March 31, 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 March 31, 2014:

-13-

Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)


	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 March 31, 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/(credit) in connection with the Purchase Plan for the three and six months ended March 31, 2014 was $2 and $1, respectively. In comparison, for the three and six months ended March 31, 2013, the Company expensed $3 and $(7), 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 March 31, 2013 and 2014, a total of 377,646 and 386,880 shares, respectively, were reserved and available for issuance under the Purchase Plan. As of March 31, 2013 and 2014, the Company has issued 97,354 and 113,120 shares, respectively, under the Purchase Plan.

5. Reverse Stock Split

On June 11, 2012, the Company amended its certificate of incorporation in order to effect a one-for-four reverse split of its outstanding common stock and to fix on a post-split basis the number of authorized shares of its common stock at 25,000,000 (reduced from 100,000,000 authorized shares). As a result of the reverse stock split, each share of Company common stock outstanding at the effective time was automatically changed into one-quarter of a share of common stock. No fractional shares were issued in connection with the reverse stock split, and cash of $0.3 was paid in lieu of fractional shares. Also as a result of the reverse stock split, the number of shares of common stock subject to outstanding options, restricted stock units and warrants issued by the Company and the number of shares reserved for future issuance under the Company's stock plans have been reduced by a factor of four. There was no alteration to the par value of the common

-14-

Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

stock or any modification of the voting rights or other terms thereof. All references in these financial statements and accompanying notes to units of common stock or per share amounts are reflective of the reverse stock split for all periods reported.

6. Stockholders' Equity

On November 1, 2012, the Company's shareholders approved an amendment to the Company's certificate of incorporation to increase the number of authorized shares of common stock, and on December 20, 2012, the Company amended its certificate of incorporation in order to effect an increase in the number of shares of its authorized common stock, par value $.01, from 25,000,000 to 62,500,000 shares.

For the year ended September 30, 2013, 1,655,607 shares of the Company's Series B Convertible Preferred stock were converted into 1,655,607 share of common stock.

In August 2013, 1,813,944 shares of the Company's Series A Convertible Preferred Stock, convertible at a 4:1 ratio, were converted into 453,483 shares of common stock.

7. 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 2004 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 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 six months ended March 31, 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.

8. 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:

-15-

Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended March 31,		Six Months Ended March 31,
	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	3,605,607	1,950,000	3,605,607	1,950,000
Stock options	1,983,297	2,885,525	1,983,297	2,885,525
Restricted stock units outstanding	31,302	—	31,302	—

9. 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, after the completion of its third fiscal quarter, 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.

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 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 and holders of the Company's Series A 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

-16-

Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

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 March 31, 2014, the fair value of the warrant liability determined utilizing the Black-Scholes valuation model was approximately $3,599. In comparison, the fair value of the warrant liability at September 30, 2013 was $4,958.

During the three and six months ended March 31, 2014, the Company recorded an adjustment to fair value of common stock warrant liability of $568 and $(1,359) respectively, within Other (income)/expense, to reflect a decrease in the valuation of the warrants from September 30, 2013 to March 31, 2014.

The following summarizes the changes in value of the warrant liability from September 30, 2013 through March 31, 2014:


Balance at September 30, 2013	$	4,958
Decrease in fair value of common stock warrant liability		(1,359	)
Balance at March 31, 2014	$	3,599

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. Each share of Series A Preferred Stock is convertible into one quarter of a share of the Company's common stock at any time at the option of the holder, provided that the holder will be prohibited from converting the shares of Series A Preferred Stock into shares of the Company's common stock if, as a result of such conversion, the holder, together with its affiliates, would beneficially own more than 9.98% of the total number of shares of the Company's common stock then issued and outstanding. In the event of the Company's liquidation, dissolution or winding up, holders of the Series A Preferred Stock will receive a payment equal to $0.01 per share of Series A Preferred Stock before any proceeds are distributed to the holders of the Company's 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 A Preferred Stock, holders of Series A Preferred Stock will

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Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

participate ratably in the distribution of any remaining assets with the Company's common stock and any other class or series of capital stock that participates with the common stock in such distributions. Shares of Series A 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 A Preferred Stock will be required to amend the terms of the Series A Preferred Stock. The Series A Preferred Stock will not be entitled to receive any dividends, unless and until specifically declared by the Company's board of directors.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 March 31, 2014, the fair value of the warrant liability determined utilizing the Black-Scholes valuation model was approximately $361. In comparison, the fair value of the warrant liability at September 30, 2013 was $1,163.

During the three and six months ended March 31, 2014, the Company recorded an adjustment to fair value of common stock warrant liability of $(142) and $(802), respectively, within Other (income)/expense, to reflect a decrease in the valuation of the warrants from September 30, 2013 to March 31, 2014.

The following summarizes the changes in value of the warrant liability from September 30, 2013 through March 31, 2014:


Balance at September 30, 2013	$	1,163
Decrease in fair value of common stock warrant liability		(802	)
Balance at March 31, 2014	$	361

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 March 31, 2013, the fair value of the warrants issued in the June 2012 Private Placement and the May 2011 Offering.

As of March 31, 2014, the Company estimated such fair value using the following assumptions:


June 2012 Financing		March 31, 2014
Stock price	$	2.73
Exercise price	$	2.66
Risk-free interest rate		0.90	%
Expected remaining term		3.24
Expected volatility		77	%
Dividend yield		—
Warrants outstanding		2,749,469



May 2011 Offering		March 31, 2014
Stock price	$	2.73
Exercise price	$	9.92
Risk-free interest rate		0. 44	%
Expected remaining term		2.13
Expected volatility		67	%
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.

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Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

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 six months ended March 31, 2013and March 31, 2014 loss per share calculation since their inclusion would be anti-dilutive.

10. Commitments

Leases

As of March 31, 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 six months ended March 31, 2014, was $145 and $310, respectively. In comparison, rent expense for the three and six months ended March 31, 2013, was $152 and $317, 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 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.

11. 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

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Biodel Inc.

(A Development Stage Company)

Notes to Consolidated Condensed Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

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 expenses incurred were $57 and $98, respectively for the three and six months ended March 31, 2014 and $8 and $203, respectively, for the three and six months ended March 31, 2013. Total expenses incurred and grant income received, from inception through March 31, 2014, are $513, which leaves a balance of $69 on the grant for the development of a concentrated ultra-rapid-acting insulin formulation.

Work on the grant for the stable glucagon formulation started in January 2013 and expenses incurred were $150 and $206 respectively, for the three and six months ended March 31, 2014 and $21 for both the three and six months ended March 31, 2013. Total expenses incurred and grant income received, from inception through March 31, 2014, are $425, which leaves a balance of $158 on the grant for a stable glucagon formulation.

The Company reported grant income of $207 and $304 respectively, for the three and six months ended March 31, 2014.

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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;

• the degree to which our ongoing assessment of the data from our recently completed Phase 2 clinical trial of BIOD-123, our lead candidate for an ultra-rapid-acting insulin formulation, and our related chemistry, manufacturing and controls development work, support further clinical development by us or our potential partners;

• 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 this Form 10-Q (see Part II-Item 1A below) 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 expect to submit an Investigational New Drug application to the FDA for our dual-chamber glucagon rescue product in the second half of calendar year 2014 and initiate a pivotal clinical trial 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 proprietary insulin formulations that 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 most advanced ultra-rapid-acting insulin formulation, BIOD-123, 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®.

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

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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 insulin lispro as the active pharmaceutical ingredient, rather than a marketed presentation of Humalog®.

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.

We are a development stage company. 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. We have devoted substantially all of our efforts to research and development activities, including clinical trials. Our net loss was $6.2 million and $8.6 million, respectively, for the three and six months ended March 31, 2014. As of March 31, 2014, we had a deficit accumulated during the development stage of $224.1 million. As of March 31, 2014 we had approximately $28.7 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, cash equivalents and restricted cash will be sufficient to fund our anticipated operating expenses and capital expenditures at least through the second 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

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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 preclinical 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;

• 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 2014 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, BIOD-238 and BIOD-250, our 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 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.

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

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		Three Months Ended March 31,				Six Months Ended March 31,				December 3, 2003 (inception) to March 31,
		2013		2014		2013		2014		2014
		(in thousands)
Research and development expenses:
Preclinical expenses	$	1,004	$	1,051	$	2,471	$	2,850	$	28,532
Manufacturing expenses		638		1,660		1,153		2,330		43,689
Clinical/regulatory expenses		1,324		1,546		4,017		2,818		91,177
Total	$	2,966	$	4,257	$	7,641	$	7,998	$	163,398

The following table illustrates, for the three and six months ended March 31, 2013 and 2014, our research and development costs by project. Inception to date is not noted because we did not track expenses by project in prior years, and therefore cannot accurately reflect past expense history by project.


		Three Months Ended March 31,				Six Months Ended March 31,
		2013		2014		2013		2014
Ultra-rapid-acting insulin formulations:
RHI-based	$	861	$	200	$	2,857	$	396
Insulin analog-based		389		410		767		1,140
Stable Glucagon		405		2,234		956		3,300
Concentrated RHI-based formulations		194		585		386		1,469
Other		1,117		828		2,675		1,693
Total	$	2,966	$	4,257	$	7,641	$	7,998

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

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• 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 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 remain substantially the same as in the fiscal year ended September 30, 2013 as we continue to focus our efforts on product formulation activities and earlier stage clinical trials. Over the longer term, however, these expenses could 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 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 significant assumptions for the model used for the 2012 warrants were the remaining term of the warrants, a common stock price of $2.97 per share, the warrant exercise price of $2.66 per share, a risk-free interest rate of 0. 62% and an expected volatility rate of 98%. The significant assumptions for the model used for the 2011 warrants were the remaining term of the warrants, a common stock price of $2.97 per share, the warrant exercise price of $9.92 per share, a risk-free

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interest rate of 0.31% and an expected volatility rate of 82%. 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 March 31, 2013 Compared to Three Months Ended March 31, 2014

Revenue. We did not recognize any revenue during the three months ended March 31, 2013 or 2014.

Research and Development Expenses.


		Three Months Ended March 31,				Increase
		2013		2014		$	%
		(in thousands)
Research and Development	$	2,966	$	4,257	$	1,291	43.5	%

Research and development expenses were $4.3 million for the three months ended March 31, 2014, an increase of $1.3 million, or approximately 43.5%, from $3.0 million for the three months ended March 31, 2013. This increase is primarily due to $1.2 million in expenses associated with payments to Unilife Corporation and other external contract manufacturers for the development of our dual-chamber glucagon rescue product. Stock-based compensation included in research and development expenses were $0.1 million for the three months ended March 31, 2014 and the three months ended March 31, 2013.

General and Administrative Expenses.


		Three Months Ended March 31,				Decrease
		2013		2014		$	%
		(in thousands)
General and Administrative	$	2,174	$	1,731	$	443	20.4	%

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General and administrative expenses were approximately $1.7 million for the three months ended March 31, 2014, a decrease of $0.4 million, or 20.4%, from $2.2 million for the three months ended March 31, 2013. This decrease is primarily attributable to a onetime charge of $0.4 million in personnel costs associated with severance benefits for one former employee that occurred in the three months ended March 31, 2013.

Stock-based compensation expenses were $0.2 million for the three months ended March 31, 2014, compared to $0.3 million for the three months ended March 31, 2013.

Interest and Other Income.


		Three Months Ended March 31,				Increase
		2013		2014		$	%
		(in thousands)
Interest and Other Income	$	12	$	13	$	1	8.3	%

Interest and other income was $13 thousand for the three months ended March 31, 2014, compared to $12 thousand for the three months ended March 31, 2013.

Adjustments to Fair Value of Common Stock Warrant Liability


		Three Months Ended March 31,				Increase
		2013		2014		$	%
		(in thousands)
Adjustments to fair value of common stock warrant liability	$	116	$	426	$	310	267.2	%

The change to fair value of common stock warrant liability during the three months ended March 31, 2014 was primarily a result of the increase in the price of the common stock from $2.28 per share at December 31, 2013 to $2.73 per share at March 31, 2014. The change to fair value of common stock warrant liability during the three months ended March 31, 2013 was primarily a result of the increase in the price of the common stock from $2.35 per share at December 31, 2012 to $2.84 per share at March 31, 2013.

Net Loss and Net Loss per Share


		Three Months Ended March 31,						Increase
		2013			2014			$	%
		(in thousands)
Net loss	$	(5,220	)	$	(6,198	)	$	978	18.7	%
Net loss per share	$	(0.37	)	$	(0.29	)

Net loss was $6.2 million, or $(0.29) per share, for the three months ended March 31, 2014, compared to $5.2 million, or $(0.37) per share, for the three months ended March 31, 2013. The increase in net loss was primarily attributable to the increased expenses described above. We expect our losses to continue for the foreseeable future as we continue our development efforts.

Six Months Ended March 31, 2013 Compared to Six Months Ended March 31, 2014

Revenue. We did not recognize any revenue during the six months ended March 31, 2013 or 2014.

Research and Development Expenses.


		Six Months Ended March 31,				Increase
		2013		2014		$	%
		(in thousands)
Research and Development	$	7,641	$	7,998	$	357	4.7	%

Research and development expenses were $8.0 million for the six months ended March 31, 2014, an increase of $0.4 million, or 4.7%, from $7.6 million for the six months ended March 31, 2013. This increase is primarily due to $1.3 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 $0.1 million associated with personnel costs. This is offset by a decrease of $1.1 million in clinical trial costs due to reduced clinical trial activity.

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Research and development expenses for the six months ended March 31, 2013 and 2014 include $0.6 million and $0.2 million, respectively, in stock-based compensation expense.

General and Administrative Expenses.


		Six Months Ended March 31,				Decrease
		2013		2014		$	%
		(in thousands)
General and Administrative	$	3,603	$	3,127	$	476	13.2	%

General and administrative expenses were approximately $3.1 million for the six months ended March 31, 2014, a decrease of $0.5 million, or 13.2%, from $3.6 million for the six months ended March 31, 2013. This decrease is primarily attributable to a onetime charge of $0.4 million in personnel costs associated with severance benefits for one former employee that occurred in the three months ended March 31, 2013 and a decrease in legal fees of $0.1 million.

General and administrative expenses for both the six months ended March 31, 2013 and 2014 include $0.4 million in stock-based compensation expense related to options and RSUs granted to employees.

Interest and Other Income.


		Six Months Ended March 31,				Increase
		2013		2014		$	%
		(in thousands)
Interest and Other Income	$	28	$	29	$	1	3.6	%

Interest and other income was $29 thousand for the six months ended March 31, 2014, compared to $28 thousand for the six months ended March 31, 2013.

Adjustments to Fair Value of Common Stock Warrant Liability


		Six Months Ended March 31,						Decrease
		2013			2014			$	%
		(in thousands)
Adjustments to fair value of common stock warrant liability	$	(2,112	)	$	(2,161	)	$	49	2.3	%

The change to fair value of common stock warrant liability during the six months ended March 31, 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 $2.73 per share at March 31, 2014. The change to fair value of common stock warrant liability during the six months ended March 31, 2013 was primarily a result of the decrease in the price of the common stock from $2.97 per share at September 30, 2012 to $2.84 per share at March 31, 2013.

Net Loss and Net Loss per Share


		Six Months Ended March 31,						Decrease
		2013			2014			$	%
		(in thousands)
Net loss	$	(8,889	)	$	(8,640	)	$	249	2.8	%
Net loss per share	$	(0.63	)	$	(0.41	)

Net loss was $8.6 million, or $(0.41) per share, for the six months ended March 31, 2014 compared to $8.9 million, or $(0.63) per share, for the six months ended March 31, 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 March 31, 2014, we had cash and cash equivalents totaling approximately $28.7 million. 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 $11.1 million for both the six months ended March 31, 2014 and March 31, 2013.

Net cash used in investing activities was $32 thousand for the six months ended March 31, 2014 and $87 thousand for the six months ended March 31, 2013. This decrease was primarily due to the purchasing of less laboratory equipment in the six months ended March 31, 2014 compared to the six months ended March 31, 2013.

Net cash provided by financing activities was $58 thousand for the six months ended March 31, 2014 and $6 thousand for the six months ended March 31, 2013. Net cash provided by financing activities for the six months ended March 31, 2014 primarily reflects proceeds from employees exercising options and the sale of our common stock through our employee stock purchase plan. Net cash provided by financing activities for the six months ended March 31, 2013 primarily reflects proceeds from the sale of our common stock through our employee stock purchase plan.

Funding Requirements

We believe that our existing cash, cash equivalents and restricted cash 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 secure approval by the FDA for our product candidates under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA;

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• 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 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 do not currently have any 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.

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.

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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 March 31, 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 March 31, 2014, our chief executive officer and chief financial 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 March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

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

Issuer Purchases of Equity Securities

The following table sets forth the information relating to repurchases of our equity securities during the three months ended March 31, 2014:


	(a)		(b)	(c)		(d)
Period	Total number of shares (or units purchased)		Average price paid per share (or unit)	Total number of shares (or units) purchased as part of publicly announced plans or programs		Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs

January 1, 2014 to January 31, 2014	—	$	—	—	$	—
February 1, 2014 to February 28, 2014	—		—	—		—
March 1, 2014 to March 31, 2014	9,828		3.19	—		—

Total	9,828	$	3.19	—	$	—

(a) These shares were not purchased as part of publicly announced plans or programs. They represent the surrender of shares to us to satisfy employee withholding tax obligations related to the vesting of stock-based compensation awards.

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Item 6. Exhibits


	Exhibit No.						Description


	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: May 14, 2014	By:	/s/ Gerard Michel
		Gerard Michel, Chief Financial Officer,
		VP Corporate Development, and Treasurer

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	Exhibit No.						Description


	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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Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

Albireo Pharma (ALBO) 10-Q2014 Q2 Quarterly report

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