What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-25 compared with 2020-02-27 · 544 added, 410 removed, 818 unchanged (54% of the section changed)

13 unchanged sentences

Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Because of such limitations, there is a risk that material misstatements may not be prevented

or detected on a timely basis by internal control over financial reporting.

Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

However, these inherent limitations are known features of the financial reporting process.

Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a 15(f) and 15d 15(f) under the Exchange Act.

Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as

such term is defined in Rules 13a 15(f) and 15d 15(f) under the Exchange Act.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting.

54 unchanged sentences

Agreement and Plan of Merger, dated July 10, 2014, by and between Collegium Pharmaceutical, Inc., a Delaware corporation, and Collegium Pharmaceutical, Inc., a Virginia corporation.

Second Amended and Restated Articles of Incorporation of Collegium Pharmaceutical, Inc.

Third Amended and Restated Articles of Incorporation of Collegium Pharmaceutical, Inc.

Amended and Restated Bylaws of Collegium Pharmaceutical, Inc.

8 unchanged sentences

Office Lease agreement by and between Campanelli-Trigate 100 TCD Stoughton, LLC, and Collegium Pharmaceutical, Inc as of March 23, 2018.

Loan and Security Agreement, dated August 28, 2012, by and between Silicon Valley Bank and Collegium Pharmaceutical, Inc.

First Amendment to Loan and Security Agreement, dated January 31, 2014, by and between Silicon Valley Bank and Collegium Pharmaceutical, Inc.

Assumption and Second Amendment to Loan and Security Agreement, dated August 12, 2014, by and between Silicon Valley Bank and Collegium Pharmaceutical, Inc.

Third Amendment to Loan and Security Agreement, dated September 25, 2014, by and between Silicon Valley Bank and Collegium Pharmaceutical, Inc.

Fourth Amendment to Loan and Security Agreement, dated October 31, 2014, by and between Silicon Valley Bank and Collegium Pharmaceutical, Inc.

Sixth Amendment to Loan and Security Agreement, dated January 9, 2018, by and between Collegium Pharmaceutical, Inc.

and Silicon Valley Bank.

Seventh Amendment to Loan and Security Agreement, dated March 30, 2018, by and between Silicon Valley Bank and Collegium Pharmaceutical, Inc.

Amended and Restated Loan and Security Agreement, dated November 1, 2018, by and between Silicon Valley Bank and Collegium Pharmaceutical, Inc.

Subordination Agreement, dated November 14, 2014, by and among Collegium Pharmaceutical, Inc., Silicon Valley Bank and the creditors named therein.

Subordination Agreement, dated December 2, 2014, by and among Collegium Pharmaceutical, Inc., Silicon Valley Bank and the creditors named therein.

Offer Letter, dated January 29, 2015, by and between Collegium Pharmaceutical, Inc.

and Garen Bohlin.

2015 Employee Stock Purchase Plan.

6 unchanged sentences

Form of Indemnification Agreement.

Employment Agreement, dated August 4, 2015, by and between Paul Brannelly and Collegium Pharmaceutical, Inc.

Employment Agreement, dated May 31, 2017, by and between Collegium Pharmaceutical, Inc.

Amended & Restated Employment Agreement, dated December 28, 2020, by and between Paul Brannelly and Collegium Pharmaceutical, Inc.

Amended & Restated Employment Agreement, dated December 27, 2020, by and between Collegium Pharmaceutical, Inc.

and Joseph Ciaffoni.

Employment Agreement, effective as of March 16, 2018, by and between Shirley Kuhlmann and Collegium Pharmaceutical, Inc.

Amended & Restated Employment Agreement, dated December 27, 2020, by and between Shirley Kuhlmann and Collegium Pharmaceutical, Inc.

Letter Agreement dated June 4, 2018, by and between Collegium Pharmaceutical, Inc.

and Michael T.

Amendment to Employment Agreement, dated June 4, 2018, by and between Collegium Pharmaceutical, Inc.

and Joseph Ciaffoni.

Employment Agreement, dated July 10, 2018, by and between Collegium Pharmaceutical, Inc.

Amended & Restated Employment Agreement, dated December 27, 2020, by and between Collegium Pharmaceutical, Inc.

and Scott Dreyer.

Employment Agreement, effective as of April 1, 2019, by and between Richard Malamut and Collegium Pharmaceutical, Inc.

Employment Agreement, effective as of August 4, 2015, by and between Alison Fleming and Collegium Pharmaceutical, Inc.

Amended & Restated Employment Agreement, effective as of December 27, 2020, by and between Richard Malamut, M.D.

and Collegium Pharmaceutical, Inc.

Amended & Restated Employment Agreement, effective as of December 29, 2020, by and between Alison Fleming, Ph.D.

and Collegium Pharmaceutical, Inc.

Commercialization Agreement, by and among, Assertio, Inc., Collegium Pharmaceutical, Inc.

10 unchanged sentences

Loan Agreement, dated as of February 6, 2020, by and among the Company, its subsidiaries, BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender.

First Amendment to Loan Agreement, dated as of February 24, 2020, by and among the Company, its subsidiaries, BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender.

Second Amendment to Loan Agreement, dated as of May 27, 2020, by and among the Company, Collegium Securities Corporation, BioPharma Credit PLC, as collateral agent, BPCR Limited Partnership, as lender, and BioPharma Credit Investments V (Master) LP, as lender.

License Agreement (U.S.), dated as of January 13, 2015, by and among Grünenthal GmbH, Janssen Research & Development, LLC, Assertio Therapeutics, Inc.

and Collegium Pharmaceutical, Inc.

Consent Agreement, dated January 30, 2020, by and among Grünenthal GmbH, Assertio Therapeutics, Inc.

and Collegium Pharmaceutical, Inc.

Settlement Agreement, dated September 29, 2020, by and among Collegium Pharmaceutical, Inc.

and Teva Pharmaceuticals USA, Inc.

Subsidiaries of Collegium Pharmaceutical, Inc.

4 unchanged sentences

Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code.

The following financial information from this Annual Report on Form 10-K for the year ended December 31, 2019, formatted in XBRL:

The following financial information from this Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL:

(i) Consolidated Balance Sheets as of December 31, 2020, 2019, (ii) Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018, (iii) Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2020, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

†Previously filed.

+Indicates management contract or compensatory plan.

* Subject to confidential treatment request.

* Certain portions of the exhibits that are not material and would be competitively harmful if publicly disclosed have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

Copies of the unredacted exhibits will be furnished to the Commission upon request.

(1) Previously filed as an exhibit to the registrant’s Registration Statement on Form S-1 (File No.

333-203208) filed with the Commission on April 2, 2015.

(2) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on May 12, 2015.

(2) Previously filed as an exhibit to the registrant’s Registration Statement on Form S-8 (File No.

2 unchanged sentences

333-203208) filed with the Commission on April 27, 2015.

(5) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on August 10, 2015.

(4) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on December 4, 2017.

(7) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on January 10, 2018.

(8) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on May 31, 2017.

(5) Previously filed as an exhibit to the registrant’s Annual Report on Form 10-K filed with the Commission on March 7, 2018.

1 unchanged sentence

(7) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on June 4, 2018.

(12) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018 filed with the Commission on August 8, 2018.

(8) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 filed with the Commission on November 8, 2018.

3 unchanged sentences

(12) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2020.

(13) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 filed with the Commission on May 7, 2020.

(14) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 filed with the Commission on August 5, 2020.

(15) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on September 30, 2020.

(16) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on December 30, 2020.

Form 10-K Summary

17 unchanged sentences

February 25, 2021

/s/ Rita Balice-Gordon, Ph.D.

Rita Balice-Gordon, Ph.D.

February 25, 2021

1 unchanged sentence

February 25, 2021

/s/ David Hirsch, M.D., Ph.D.

David Hirsch, M.D., Ph.D.

February 25, 2021

16 unchanged sentences

Notes to Consolidated Financial Statements

REPOR T OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Collegium Pharmaceutical, Inc.

15 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Sales Deductions – Xtampza ER Product Return Reserves — Refer to Note 3 to the financial statements

Critical Audit Matter Description

Revenue is stated net of certain sales deductions, including provisions for product returns.

Provisions for product returns are deducted from gross revenues at the time revenues are recognized and are included in accrued rebates, returns and discounts in the Company’s consolidated balance sheets.

Estimating the provision for product returns of Xtampza ER, a product that was first shipped in 2016, requires significant judgment by management.

Management’s model for estimating returns is based on historical returns, while also considering levels of inventory in the channel, purchasing, shipment and prescription trends, production dates and expiration dates .

Given the limited history of production lots of Xtampza ER, for which the right of return has been terminated or lapsed, coupled with the level of estimation uncertainty involved, our audit in this area required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Revenue Sales Deductions – Xtampza ER Product Return Reserves included the following, among others:

• We tested the effectiveness of controls over the calculation of the provision for product return, including Management’s controls over product return and product revenue data.

• We evaluated the Company’s methodology and significant assumptions made in developing the provision for product return, including testing the completeness and accuracy of the underlying data used by management that serves as the basis for their product return estimates.

• We tested the mathematical accuracy of management’s calculation of the provision for product return.

• We tested the reasonableness of management’s provision for product return by comparing the assumptions used in the projections to external market sources, information produced by the entity and corroboration with management outside of accounting and finance.

• We evaluated management’s ability to accurately forecast product returns activity by performing a retrospective review, comparing prior period product return estimates to actual returns processed in the subsequent year to identify potential bias or unanticipated trends in the determination of product return reserves.

• We developed independent estimates of the provision for product returns using historical sales and returns activity, product dating and expiration dates and independent estimates of product inventory in the channel and compared our estimates to management’s estimates.

/s/ Deloitte & Touche LLP

12 unchanged sentences

Operating lease assets

Intangible assets, net

Intangible asset, net

Restricted cash

Other noncurrent assets

4 unchanged sentences

Accrued rebates, returns and discounts

Current portion of term loan payable

Current portion of term notes payable

Current portion of operating lease liabilities

Total current liabilities

Term loan payable, net of current portion

Term notes payable, net of current portion

Convertible senior notes

Operating lease liabilities, net of current portion

Other noncurrent liabilities

Total liabilities

17 unchanged sentences

Product revenues, net

Costs and expenses

Cost of product revenues

Cost of product revenues (excluding intangible asset amortization)

Intangible asset amortization

Total cost of products revenues

Operating expenses

Research and development

Selling, general and administrative

Total costs and expenses

Loss from operations

Total operating expenses

Income (loss) from operations

Interest expense

Interest income

Loss per share - basic and diluted

Weighted-average shares - basic and diluted

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

Earnings (loss) per share — basic

Weighted-average shares — basic

Earnings (loss) per share — diluted

Weighted-average shares — diluted

The accompanying notes are an integral part of these consolidated financial statements.

6 unchanged sentences

Issuance for employee stock purchase plan

Vesting of restricted stock units ("RSUs")

Vesting of RSUs

Shares withheld for employee taxes upon vesting of RSUs

Public offerings of common stock, net of issuance costs of $ 1,253

Stock-based compensation

Issuance of warrant

Balance at December 31, 2018

4 unchanged sentences

Stock-based compensation

Issuance of warrant

Balance at December 31, 2019

4 unchanged sentences

Stock-based compensation

Equity component of 2020 Convertible Notes, net of issuance costs of $ 1,773

Balance at December 31, 2020

5 unchanged sentences

Operating activities

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Amortization expense for Nucynta asset acquisition

Depreciation and amortization, excluding Nucynta asset acquisition

Non-cash impairment charges

Lease incentive obligation

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Amortization expense

Depreciation expense

Stock-based compensation expense

Non-cash lease expense

Non-cash interest expense for amortization of debt discount and issuance costs

Non-cash interest expense for Nucynta asset acquisition

6 unchanged sentences

Operating lease assets and liabilities

Deferred revenue

Other long-term liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Investing activities

Upfront cash paid for Nucynta asset acquisition

Purchase of intangible asset

Purchases of property and equipment

4 unchanged sentences

Payments made for employee restricted stock tax withholdings

Proceeds from issuances of common stock from public offerings, net of issuance costs of $- , $ 30 and $ 1,198 , respectively

Proceeds from term loan amendment, net of repayment of amended term loan

Proceeds from issuance of term note, net of issuance costs of $ 2,456

Proceeds from convertible senior notes, net of issuance costs of $ 5,473

Repayment of term notes

Repayment of term loan

Proceeds from issuance of common stock from public offerings, net of issuance costs of $-, $- and $ 30 , respectively

Proceeds from term loan amendment, net of repayment of amended term loan

Repayment of asset acquisition obligations

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash

Supplemental disclosure of cash flow information

1 unchanged sentence

Cash paid for interest

Cash paid for income taxes

Supplemental disclosure of non-cash activities

Acquisition of property and equipment in accounts payable and accrued expenses

Accrued royalties discharged upon closing of asset acquisition

Inventory used in the construction and installation of property and equipment

Receivable from stock option exercises in other current assets

Operating lease assets assumed

13 unchanged sentences

The Company’s first product, Xtampza ER, is an abuse-deterrent, extended-release, oral formulation of oxycodone.

In April 2016, the U.S.

Food and Drug Administration (“FDA”) approved the Company’s new drug application (“NDA”) for Xtampza ER for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate.

In April 2016, the United States Food and Drug Administration (the “FDA”) approved the Company’s new drug application (“NDA”) for Xtampza ER for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate.

In June 2016, the Company announced the commercial launch of Xtampza ER.

5 unchanged sentences

Nucynta IR is an immediate-release formulation of tapentadol that is indicated for the management of acute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate in adults.

On February 6, 2020, the Company entered into an Asset Purchase Agreement with Assertio (the “Nucynta Purchase Agreement”), pursuant to which the Company agreed to acquire from Assertio certain assets related to the Nucynta Products (the “Nucynta Acquisition”), including the license from Grünenthal GmbH (“Grünenthal”), for an aggregate purchase price of $ 375,000 , subject to certain closing and post-closing adjustments as described in the Nucynta Purchase Agreement.

On February 13, 2020, the Company closed the Nucynta Acquisition in accordance with the Nucynta Purchase Agreement.

Upon closing, the Nucynta Commercialization Agreement was effectively terminated.

Following the closing, the Company's prior royalty obligation to Assertio ceased and the Company’s only remaining royalty obligation is to pay 14 % of net sales of the Nucynta Products directly to Grünenthal.

In December 2019, a novel strain of coronavirus began infecting people in China;

since then, the disease caused by virus, COVID-19, has sickened millions of people across the world and in March 2020, the World Health Organization declared COVID-19 a pandemic.

The pandemic has severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel.

The travel restrictions and “social distancing” recommendations resulting from the spread of COVID-19 have impacted the Company’s sales professionals’ ability to travel to and meet with healthcare providers in person.

The Company periodically reviews its accounting estimates in light of changes in circumstances, facts and experience.

As of the date of the filing of this Annual Report on Form 10-K, the COVID-19 pandemic and actions taken to contain it have impacted revenue (due to fewer new patients beginning therapy with the Company’s products and adverse impact on the Company’s ability to promote products due to closure or limited operations of many physicians’ offices) and decreased certain operating expenses, including travel, marketing and expenses associated with participation in congresses that have been postponed.

The Company believes that the disruptions caused by COVID-19 will continue and there remains substantial uncertainty as to when such disruptions will cease (or ease).

The Company’s operations are subject to certain risks and uncertainties.

The principal risks include inability to successfully commercialize products, changing market conditions for products and development of competing products, changing regulatory environment and reimbursement landscape, litigation related to opioid marketing and distribution practices, manufacture of adequate commercial inventory, inability to secure adequate supplies of active pharmaceutical ingredients, key personnel retention, protection of intellectual property, patent infringement litigation and the availability of additional capital financing on terms acceptable to the Company.

The principal risks include inability to continue successfully commercializing products, changing market conditions for products and development of competing

products, changing regulatory environment and reimbursement landscape, litigation related to opioid marketing and distribution practices, manufacture of adequate commercial inventory, inability to secure adequate supplies of active pharmaceutical ingredients, key personnel retention, protection of intellectual property, and patent infringement litigation.

The Company believes that its cash and cash equivalents at December 31, 2020, together with expected cash inflows from the commercialization of its products, will enable the Company to fund its operating expenses, debt service and capital expenditure requirements under its current business plan for the foreseeable future.

The Company has experienced net losses since its inception, and as of December 31, 2020, had an accumulated deficit of $ 333,147 .

A successful transition to profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.

A successful transition to sustainable profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 unchanged sentences

(a Massachusetts corporation), incorporated in December 2015, and Collegium NF LLC (a Delaware limited liability company), incorporated in December 2017, both wholly owned subsidiaries requiring consolidation.

The consolidated financial statements are prepared in conformity with generally

accepted accounting principles in the United States of America (“GAAP”).

The consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

All intercompany balances and transactions have been eliminated in consolidation.

1 unchanged sentence

The preparation of consolidated financial statements in accordance with GAAP requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues, costs and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes.

Estimates in the Company’s consolidated financial statements include revenue recognition, including the estimates of product returns, units prescribed, discounts and allowances related to commercial sales of products, estimates of useful lives with respect to intangible assets, accounting for stock based compensation, contingencies, impairment of intangible assets and tax valuation reserves.

The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances.

18 unchanged sentences

Money market funds, included in cash equivalents

As of December 31, 2019, and December 31, 2018, the carrying amounts of the cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued rebates, returns and discount, operating lease liabilities, and term loan payable approximated their estimated fair values.

The Company’s convertible senior notes fall into the Level 2 category within the fair value level hierarchy.

The fair value was determined using broker quotes in a non-active market for valuation.

As of December 31, 2020, the convertible senior notes had a fair value of approximately $ 139,643 and a net carrying value of $ 99,575 .

The Company’s term notes fall into the Level 2 category within the fair value level hierarchy and the fair value was determined using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals.

As of December 31, 2020, and December 31, 2019, the carrying amounts of the cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued rebates, returns and discounts, and term notes payable reasonably approximated their estimated fair values.

Concentration of Credit Risk

18 unchanged sentences

Restricted cash is reported as non-current unless the restrictions are expected to be released in the next twelve months.

The Company had no restricted cash as of December 31, 2019 and 2018.

As of December 31, 2017, the Company had restricted cash of $ 97 , which represents cash held in a depository account at a financial institution to collateralize a conditional stand by letter of credit for the Company’s former headquarters.

As of December 31, 2020, the Company had restricted cash of $ 2,547 , which represents cash held in a depository account at a financial institution to collateralize conditional stand by letters of credit for the Company’s corporate credit card program, its lease of its corporate headquarters, and its leases of vehicles for its field-based employees.

The Company had no restricted cash as of December 31, 2019.

Inventories are stated at the lower of cost or net realizable value.

Inventory costs consist of costs related to the manufacturing of the Company’s products, which are primarily the costs of contract manufacturing.

Inventory costs consist of costs related to the manufacturing of the Company’s products, which are primarily the costs of contract manufacturing and active pharmaceutical ingredient.

The Company determines the cost of its inventories on a specific identification basis, and removes amounts from inventories on a first-in, first-out basis.

2 unchanged sentences

As of December 31, 2020, cumulative estimates of excess inventory recorded as a component of cost of product revenues were immaterial.

The Company outsources the manufacturing of Xtampza ER to a sole contract manufacturer that produces the finished product.

In addition, the Company currently relies on a sole supplier for the active pharmaceutical ingredient in Xtampza ER.

The Company’s Nucynta Commercialization Agreement partner also relies on a sole supplier to produce the finished products.

The Company outsources the manufacturing of Xtampza ER and the Nucynta Products to contract manufacturers that produce the finished product.

In addition, the Company currently relies on a sole supplier for the active pharmaceutical ingredient in Xtampza ER and the Nucynta Products.

Accordingly, the Company has concentration risk associated with its commercial manufacturing of Xtampza ER and the Nucynta Products.

19 unchanged sentences

Intangible assets are then amortized over their estimated useful lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized.

The Company tests intangible assets for potential impairment whenever triggering events or circumstances present an indication of impairment.

The Company tests intangible assets for

potential impairment whenever triggering events or circumstances present an indication of impairment.

If the sum of expected undiscounted future cash flows of the intangible assets is less than the carrying amount of such assets, the intangible assets would be written down to the estimated fair value, calculated based on the present value of expected future cash flows.

4 unchanged sentences

Research and Development Costs

Research and development costs are charged to expense as incurred and consist of costs incurred to further the Company’s research and development activities, including salaries and employee related costs, costs associated with conducting preclinical and clinical activities, including fees paid to third-party professional consultants and service providers, costs incurred under preclinical and clinical trial agreements, costs for laboratory supplies, costs to acquire, develop and manufacture preclinical study and clinical trial materials, facilities, depreciation and other expenses including allocated expenses for rent and maintenance of facilities.

Research and development costs are charged to expense as incurred and consist of costs incurred to further the Company’s research and development activities.

These costs include compensation and employee related costs, including stock based compensation;

costs associated with conducting our clinical and non-clinical activities, including clinical and non-clinical trials that the Company conducts for post-marketing requirements;

and costs for laboratory supplies, depreciation of lab equipment, and other expenses including allocated expenses for rent and maintenance of facilities.

Costs related to filing and pursuing patent applications are recorded as selling, general and administrative expense as incurred since the recoverability of such expenditures is uncertain.

Advertising and Product Promotion Costs

Advertising and product promotion costs are included in selling, general and administrative expenses and were $ 9,527 , $ 17,497 , $ 11,019 in the years ended December 31, 2019, 2018, and 2017 respectively.

Advertising and product promotion costs are included in selling, general and administrative expenses and were $ 5,368 , $ 9,527 and $ 17,497 in the years ended December 31, 2020, 2019, and 2018 respectively.

Advertising and product promotion costs are expensed as incurred.

1 unchanged sentence

The Company accounts for grants of stock options, restricted stock units and performance share units to employees, as well as to the Board of Directors, based on their grant date fair value and recognizes compensation expense over their vesting period, net of actual forfeitures.

For employee awards with service conditions, the Company recognizes compensation expense on a straight-line basis.

The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model.

The Company estimates restricted stock units and performance share units based on the fair value of the underlying common stock as determined by management.

For performance share units, the Company estimates the number of shares that will vest based upon the probability of achieving performance metrics.

The Company estimates restricted stock units based on the fair value of the underlying common stock as determined by management.

For awards with performance conditions, the Company estimates the number of shares that will vest based upon the probability of achieving performance metrics.

The Company accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.

2 unchanged sentences

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized.

In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and the absence of carryback available from results of recent operations.

In making such a determination, management considers all available positive and negative evidence,

including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and the absence of carryback available from results of recent operations.

If management determines that the Company would be able to realize its deferred tax assets in the future, in excess of its net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

3 unchanged sentences

As of December 31, 2020 and December 31, 2019, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations.

Net Loss per Common Share

Basic net loss per common share is calculated by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities.

Diluted net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period, as determined in accordance with the treasury stock accounting method.

For purposes of the diluted net loss per share calculation, stock options, warrants and unvested restricted stock units are considered potentially dilutive securities.

Earnings per Share

Earnings per share is calculated by dividing the net income (loss) attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities.

Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period, as determined in accordance with the treasury stock accounting method.

For purposes of the diluted net loss per share calculation, stock options, warrants, unvested restricted stock units and performance share units are considered potentially dilutive securities.

Because the Company has reported a net loss for the years ended December 31, 2019 and 2018, diluted net loss per common share is the same as basic net loss per common share for those periods.

Embedded Derivatives

The Company accounts for derivative financial instruments as either equity or liabilities in accordance with Accounting Standards Codification Topic 815, Derivatives and Hedging , based on the characteristics and provisions of each instrument.

Embedded derivatives are required to be bifurcated from the host instruments and recorded at fair value if the derivatives are not clearly and closely related to the host instruments on the date of issuance.

The Company’s term notes and convertible notes (see Note 12) contain certain features that, in accordance with ASC 815, are not clearly and closely related to the host instrument and represent derivatives that are required to be re-measured at fair value each reporting period.

The Company determined that the estimated fair value of the derivatives at issuance and as of December 31, 2020 were not material based on a scenario-based cash flow model that uses unobservable inputs that reflect the Company’s own assumptions.

Should the Company’s assessment of the probabilities around these scenarios change, including due to changes in market conditions, there could be a change to the fair value.

Reclassifications

The Company has reclassified certain amounts in its Consolidated Statements of Operations for the years ended December 31, 2019 and 2018 to conform to the 2020 presentation.

Specifically, the Company disaggregated previously reported cost of product revenues of $ 193,660 for the year ended December 31, 2019 into the captions Cost of product revenues (excluding intangible asset amortization) of $ 178,908 and Intangible asset amortization of $ 14,752 .

In addition, the Company disaggregated previously reported cost of product revenues of $ 165,677 for the year ended December 31, 2018 into the captions Cost of product revenues (excluding intangible asset amortization) of $ 55,843 and Intangible asset amortization of $ 109,834 .

The reclassifications relate to the presentation of the Company’s gross profit and amortization expense and were made to provide the readers of the Company’s consolidated financial statements with additional insight into how the Company and its management view and evaluate its performance and profitability.

This reclassification within the consolidated statements of operations for the years ended December 31, 2019 and 2018 had no impact on previously reported total consolidated revenues or consolidated results of operations.

Recently Adopted Accounting Pronouncements

New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as of the specified effective dates.

Adoption of ASC Topic 606, Revenue from Contracts with Customers

The Company adopted ASC Topic 606 on January 1, 2018 using the modified retrospective method.

Under this method, prior periods were not retrospectively adjusted and, as a result, the reported results for 2018 reflect the application of ASC Topic 606 guidance while the reported results for 2017 were prepared under the guidance of ASC Topic 605, Revenue Recognition (“legacy GAAP”).

Immediately prior to the adoption date of January 1, 2018, the Company recognized revenue in accordance with legacy GAAP, or when there was persuasive evidence of an arrangement;

when title and risk of loss had passed to the customer;

when estimated provisions for chargebacks, rebates, sales incentives and allowances, distribution service fees, and returns were reasonably determinable;

and when collectability was reasonably assured.

The satisfaction of these criteria generally occurred upon delivery of products to customers, or the sell-in method of revenue recognition under legacy GAAP.

The Company began recognizing revenue on the sell-in method in the third quarter of 2017.

As a result of the considerations discussed above, the Company concluded that, as of the adoption date, it would record revenue net of a provision for estimated chargebacks, rebates, sales incentives and allowances, distribution service fees, and returns upon delivery of products to customers under either the sell-in method of revenue recognition under legacy GAAP or under ASC Topic 606 as of the adoption date.

Therefore, the adoption of ASC Topic 606 did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of January 1, 2018.

Prior to the third quarter of 2017, the Company recognized revenue when products were dispensed to end users, or the sell-through method of revenue recognition under legacy GAAP, as the Company did not have sufficient experience with product sales to estimate returns at the time product was sold to customers.

In the third quarter of 2017, the Company transitioned to the sell-in method of revenue recognition and the Company recorded a cumulative one-time $ 4,377 increase to revenues during the three months ended September 30, 2017.

Therefore, the adoption of Topic 606 would not have had a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of December 31, 2018.

For additional information related to revenue from contracts with customers and accounting policies, please see Note 3.

Adoption of ASC Topic 842, Leases

The Company adopted Accounting Standard Updated (“ASU”) 2016-02, Leases (ASC Topic 842), as amended, on January 1, 2019, using the modified retrospective approach by initially applying the new standard at the adoption date and recognizing a cumulative-effect adjustment.

This adoption method did not impact prior period financial statements and related disclosures.

In addition, the Company utilized the package of practical expedients permitted within the transition guidance, which, among other things, allowed the Company to carryforward the historical lease classification.

Upon adoption, the new standard resulted in the Company recording operating lease assets of $ 9,957 and corresponding operating lease liabilities of $ 10,691 on its balance sheet, primarily related to the operating lease agreement for its corporate headquarters.

In addition, the Company identified an embedded operating lease arrangement that was accounted as a service contract in prior years, as accounting for operating leases and service contracts was similar under legacy GAAP and the accounting for the embedded lease did not result in a material impact to the financial statements.

In addition, the Company implemented new accounting policies, processes and controls to identify and account for leases going forward.

For additional information related to lease arrangements and accounting policies, please see Note 13.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (ASC Topic 326):

Measurement of Credit Losses on Financial Instruments , which requires companies to measure credit losses utilizing a methodology that

reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The new standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.

The Company adopted Accounting Standard Updated (“ASU”) 2016-13, Financial Instruments – Credit Losses (ASC Topic 326) :

Measurement of Credit Losses on Financial Instruments , which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

Subsequent to issuance, the FASB issued ASUs 2019-04, 2019-05, 2019-10, 2019-11 and 2020-03 to provide additional guidance on the adoption of ASU 2016-13.

The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) :

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , to ease the potential burden in accounting for reference rate reform.

The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The new standard became effective immediately and may be applied prospectively to contracts and transactions through December 31, 2022.

Subsequent to issuance, the FASB issued ASU 2021-01 in January 2021 to refine and clarify some its guidance on ASU 2020-04.

Upon the transition of the Company’s contracts and transactions to new reference rates in connection with reference rate reform, the Company will prospectively apply the standard and disclose the effect on its consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

1 unchanged sentence

The amendments in ASU 2019-12 affect a wide variety of income tax accounting standards with the objective of reducing their complexity.

The new standard is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted.

The new standard is effective for annual and interim periods beginning after December 15, 2020.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The amendments in ASU 2020-06 aim to reduce the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.

The new standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is currently evaluating the standard’s effect on the Company’s consolidated financial statements.

Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the consolidated financial statements upon future adoption.

REVENUE FROM CONTRACTS WITH CUSTOMERS

1 unchanged sentence

Revenue Recognition

In accordance with ASC Topic 606, the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, the Company performs the following five steps:

9 unchanged sentences

The Company determined that performance obligations are satisfied and revenue is recognized when a customer takes control of the Company’s product, which occurs at a point in time.

This generally occurs upon delivery of the products to customers, at which point the Company recognizes revenue and records accounts receivable, which represents the Company’s only contract asset.

Payment is typically received 30 to 90 days after satisfaction of the Company’s performance obligations and generally does not have an effect on contract asset and contract liability balances.

Under the practical expedients permitted by the rules of the adoption, the Company will expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the assets is one year or less.

This generally occurs upon delivery of the products to customers, at which point the Company recognizes revenue and records accounts receivable.

Payment is typically received 30 to 90 days after satisfaction of the Company’s performance obligations.

The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the assets is one year or less.

Transaction Price and Variable Consideration

1 unchanged sentence

The transaction price for product sales includes variable consideration related to sales deductions, including (1) rebates and incentives, including managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances;

(2) product returns, including return estimates for both the Nucynta Products and Xtampza ER;

(2) product returns, including return estimates for both the Xtampza ER and the Nucynta Products;

and, (3) trade allowances and chargebacks, including fees for distribution service fees, prompt pay discounts, and chargebacks.

The Company will estimate the amount of variable consideration that should be included in the transaction price under the expected value method for all sales deductions other than trade allowances, which are estimated under the most likely amount method.

These provisions reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract.

These provisions reflect the expected amount of consideration to which the Company is entitled based on the terms of the contract.

In addition, the Company made a policy election to exclude from the measurement of the transaction price all taxes that are assessed by a governmental authority that are imposed on revenue-producing transactions.

Provisions for rebates and incentives are based on the estimated amount of rebates and incentives to be claimed on the related sales from the period.

5 unchanged sentences

Provisions for product returns are based on product-level historical trends, as well as relevant market events and other factors.

For Xtampza ER, since the product has only been commercially sold since June 2016, estimates of product returns are based on a combination of historical returns processed to date, taking into consideration the expiration date of the product upon delivery to customers, as well as forecasted customer buying patterns, shipment and prescription trends, channel inventory levels, and other specifically known market events and trends.

For the Nucynta Products, estimates of product returns are primarily based on historical trends as the Nucynta Products have been commercially sold for a number of years.

For Xtampza ER, since the product has only been commercially sold since June 2016, estimates of product returns are based on a combination of historical returns processed to date, taking into consideration the expiration date of product upon delivery to customers, as well as forecasted customer buying patterns, shipment and prescription trends, channel inventory levels, and other specifically known market events and trends.

Provisions for trade allowances and chargebacks are primarily based on customer-level contractual terms.

4 unchanged sentences

If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known

The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the year ended December 31, 2019 and 2018:

The following tables summarize activity in each of the Company’s product revenue provision and allowance categories for the years ended December 31, 2020 and 2019, respectively:

Allowances and

3 unchanged sentences

Provision related to current period sales

Liabilities assumed from asset acquisition (4)

Changes in estimate related to prior period sales

10 unchanged sentences

Trade allowances and chargebacks are deducted from gross revenue at the time revenues are recognized and are recorded as a reduction to accounts receivable in the Company’s Consolidated Balance Sheets.

(4) The Company recorded a liability of $ 22,660 related to sales of Nucynta Products that occurred prior to the closing date of January 9, 2018, for which the Company is liable under the terms of the Nucynta Commercialization Agreement.

This assumed liability, representing $ 22,406 of assumed rebates and incentives and $ 254 of assumed trade allowances and chargebacks, was recorded as a component of the intangible asset acquired in the Company’s Consolidated Balance Sheets.

As of December 31, 2020, the Company did not have any transaction price allocated to remaining performance obligations and any costs to obtain contracts with customers, including pre-contract costs and set up costs, were immaterial.

Disaggregation of Revenue

The Company disaggregates its product revenue, net from contracts with customers into the categories included in the table below.

The Company disaggregates its product revenue, net from contracts with customers into the categories included in the

These categories depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors :

4 unchanged sentences

For the year ended December 31, 2019, the Company recognized Nucynta IR and Nucynta ER product revenues, net of $ 117,680 and $ 74,009 , respectively.

For the year ended December 31, 2018, the Company recognized Nucynta IR and Nucynta ER product revenues, net of $ 129,917 and $ 81,113 , respectively.

LICENSE AGREEMENTS

The Company periodically enters into license agreements to develop and commercialize its products.

As of December 31, 2019 and 2018, the Company’s only license agreement was the Nucynta Commercialization Agreement.

As of December 31, 2019, the Company’s only license agreement was the Nucynta Commercialization Agreement.

Upon the closing of the Nucynta Acquisition in February 2020, the Nucynta Commercialization Agreement was effectively terminated.

On January 9, 2018 (the “Nucynta Commercialization Closing Date”), the Company consummated the transactions contemplated by the Nucynta Commercialization Agreement, pursuant to which Assertio agreed to grant a sublicense of certain of its intellectual property related to the Nucynta Products for commercialization in the United States.

8 unchanged sentences

Pursuant to the amended Nucynta Commercialization Agreement, the $ 135,000 guaranteed minimum annual royalties were eliminated, and the Company was no longer required to secure its royalty payment obligations with a standby letter of credit.

Beginning on January 1, 2019 and thereafter, the Company will be conditionally obligated to make royalty payments to Assertio conditional upon net sales and based on the following royalty structure for the period between January 1, 2019 and December 31, 2021:

Beginning on January 1, 2019, the Company was conditionally obligated to make royalty payments to Assertio conditional upon net sales and based on the following royalty structure for the period between January 1, 2019 and December 31, 2021:

(i) 65 % of annual net sales of the Nucynta Products up to $ 180,000 , plus

3 unchanged sentences

(v) 15 % of annual net sales of the Nucynta Products in excess of $ 258,000 .

The Third Amendment does not modify the royalties payable on sales of the Nucynta Products on and after January 1, 2022, which will remain as contemplated by the Nucynta Commercialization Agreement as in effect on January 9, 2018, based on the following royalty structure:

The Third Amendment did not modify the royalties payable on sales of the Nucynta Products on and after January 1, 2022, which remained as contemplated by the Nucynta Commercialization Agreement as in effect on January 9, 2018, based on the following royalty structure:

(i) 58 % of annual net sales of the Nucynta Products up to $ 233,000 , plus

1 unchanged sentence

(iii) 17.5 % of annual net sales of the Nucynta Products in excess of $ 258,000 .

In addition, prior to January 1, 2022, if the annual net sales of the Nucynta Products are in the range of $ 180,000 to $ 243,000 , the Company will be required to pay a supplemental royalty to Assertio, for ultimate payment to Grünenthal GmbH, not to exceed a maximum of 4.9 % of net sales of the Nucynta Products.

If annual net sales of Products are less than $ 180,000 in any 12-month period through January 1, 2022, or if they are less than $ 170,000 in any 12-month period commencing on January 1, 2022, then Assertio will have the right to terminate the Nucynta Commercialization Agreement without penalty.

The Amendment further provides that the Company does not have a right to terminate the Nucynta Commercialization Agreement prior to December 31, 2021.

The Company will be required to pay a $ 5,000 termination fee to Assertio in connection with any termination by the Company with an effective date between

December 31, 2021 and December 31, 2022.

In addition, prior to January 1, 2022, if the annual net sales of the Nucynta Products were in the range of $ 180,000 to $ 243,000 , the Company would have been required to pay a supplemental royalty to Assertio, for ultimate payment to Grünenthal GmbH, not to exceed a maximum of 4.9 % of net sales of the Nucynta Products.

If annual net sales of Products were less than $ 180,000 in any 12-month period through January 1, 2022, or if they were less than $ 170,000 in any 12-month period commencing on January 1, 2022, then Assertio would have had the right to terminate the Nucynta Commercialization Agreement without penalty.

The Amendment further provided that the Company did not have a right to terminate the Nucynta Commercialization Agreement prior to December 31, 2021.

The Company would have been required to pay a $ 5,000 termination fee to Assertio in connection with any termination by the Company with an effective date between December 31, 2021 and December 31, 2022.

In connection with execution of the Third Amendment to the Nucynta Commercialization Agreement, the Company issued a warrant to Assertio to purchase 1,041,667 shares of common stock of the Company (the “Warrant”) at an exercise price of $ 19.20 per share.

The Warrant will expire in November 2022 and includes customary adjustments for changes in the Company’s capitalization.

Upon the closing of the Nucynta Acquisition, the Nucynta Commercialization Agreement was effectively terminated and the Company’s royalty payment obligations to Assertio thereunder ceased.

Following the closing, the Company no longer pays royalties to Assertio and the Company’s only remaining royalty obligation is to pay 14 % of net sales of the Nucynta Products directly to Grünenthal.

The assets acquired, liabilities assumed, and equity interests issued by the Company in connection with the Nucynta Commercialization Agreement are further described in Note 9.

NET LOSS PER COMMON SHARE

For the years ended December 31, 2019, 2018 and 2017, the following table presents the computations of basic and dilutive net loss per share:

EARNINGS PER SHARE

Basic net earnings per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock, plus potentially dilutive securities outstanding for the period, as determined in accordance with the treasury stock accounting method.

Potentially dilutive securities

outstanding include stock options, unvested restricted stock units, performance share units, warrants, and shares related to the convertible senior notes, but are only included to the extent that their addition is dilutive.

The following table presents the computations of basic and dilutive earnings (loss) per common share:

Years ended December 31,

Weighted-average number of common shares used in net loss per share - basic and diluted

Loss per share - basic and diluted

For the years ended December 31, 2019, 2018 and 2017, the following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported (in common stock equivalent shares):

Net income (loss)

Weighted-average shares outstanding — basic

Effect of dilutive securities:

Stock options

Restricted stock units

Performance share units

Employee stock purchase plan

Weighted average shares outstanding — diluted

Earnings (loss) per share — basic

Earnings (loss) per share — diluted

The Company has the option to settle the conversion obligation for its convertible senior notes due in 2026 in cash, shares or a combination of the two.

Since the Company intends to settle the principal amount of the convertible senior notes in cash, the Company used the treasury stock method for determining the potential dilution in the diluted earnings per share computation.

The following table presents dilutive securities excluded from the calculation of diluted earnings per share:

Years ended December 31,

Stock options

Unvested restricted stock (1)

Restricted stock units

Performance share units

(1) - Includes shares of unvested restricted stock remaining from the early exercise of stock options.

Convertible senior notes

Unvested restricted stock

For performance share units, these securities were excluded from the calculation of diluted earnings per share as the performance-based or market-based vesting conditions were not met as of the end of the reporting period.

For all other securities, these securities were excluded from the calculation of diluted earnings per share as their inclusion would have had an antidilutive effect.

Inventory consisted of the following:

As of December 31,

Raw materials

4 unchanged sentences

These expenses were recorded as a component of cost of product revenues.

During the year ended December 31, 2020, inventory used in the construction and installation of property and equipment was $ 2,299 .

During the years ended December 31, 2019 and 2018, inventory used in the construction and installation of property and equipment was immaterial.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

2 unchanged sentences

Prepaid regulatory fees

Prepaid development costs

Prepaid insurance

Prepaid development costs

Other prepaid expenses

15 unchanged sentences

During the years ended December 31, 2020, 2019 and 2018, the Company disposed of fully depreciated assets of $ 102 , $ 280 and $ 905 , respectively.

During the year ended December 31, 2017, disposals were immaterial.

The Company did not have any gains or losses from the retirement, sale or disposal of property and equipment during the years ended December 31, 2020, 2019, or 2018.

INTANGIBLE ASSETS

Nucynta Intangible Asset

As of December 31, 2019 and 2018, the Company’s only intangible asset is related to the Nucynta Commercialization Agreement (“Nucynta Intangible Asset.”) The gross carrying amount and accumulated amortization of the Nucynta Intangible Asset were as follows:

As of December 31,

As of December 31, 2020 and 2019, the Company’s only intangible asset (“Nucynta Intangible Asset”) is related to the Nucynta Acquisition and the Nucynta Commercialization Agreement.

The gross carrying amount and accumulated amortization of the Nucynta Intangible Asset were as follows:

As of December 31,

1 unchanged sentence

Accumulated amortization

Intangible assets, net

The Company determined the Nucynta Commercialization Agreement should be accounted for as an asset acquisition in accordance with ASC Topic 805-50 , as substantially all of the fair value of the gross assets acquired is concentrated in

the sublicense of the Nucynta Products, which is a single identifiable asset.

The Company concluded that the fair value estimates of the assets surrendered, liabilities incurred, and equity interests issued were more clearly evident than the fair value of the assets received, and therefore followed a cost accumulation model to determine the consideration transferred in the asset acquisition.

The table below represents the costs accumulated during the year ended December 31, 2018 to acquire the sublicense of the Nucynta Products based on the terms of the Nucynta Commercialization Agreement, as amended:

Intangible asset, net

Nucynta Acquisitions

In February 2020, the Company entered into the Nucynta Purchase Agreement with Assertio, pursuant to which the Company acquired certain intellectual property and manufacturing rights related to the Nucynta Products, including U.S.

commercialization rights, U.S.

manufacturing rights, and inventory, for an aggregate purchase price of $ 375,000 , subject to certain closing and post-closing adjustments.

The Company also agreed to assume certain regulatory and supply chain contracts, and obligations related to Nucynta Products (see Note 4).

In February 2020, the Company entered into a loan agreement (see Note 10) and issued convertible senior notes (see Note 10) to finance a portion of the purchase price paid pursuant to the Nucynta Purchase Agreement.

The consideration transferred in the asset acquisition was measured at cost, including transaction costs, assets transferred by the Company, and royalty obligations discharged by the seller.

The table below represents the costs accumulated to acquire the commercial rights for the Nucynta Products based on the terms of the Nucynta Purchase Agreement, as amended:

Acquisition consideration:

Upfront cash paid

Minimum royalty payment obligation (1)

Rebates, incentives, trade allowances and chargebacks assumed

Warrant issued

Base purchase price

Cash paid for inventory

Transaction costs

Reduction for 2020 cash transferred to Assertio under the prior Nucynta Commercialization Agreement (1)

Reduction for accrued royalty obligation discharged upon closing (1)

Total acquisition consideration:

(1) Represents $ 132,000 of minimum royalty payments owed under the Nucynta Commercialization Agreement discounted for present value adjustments of $ 19,281 .

(1) Represents $ 14,216 total reduction to the base purchase price comprising of $ 13,071 of cash payments transferred to Assertio under the prior Nucynta Commercialization Agreement as well as a reduction for $ 1,145 of discharged pre-acquisition accrued royalties based on sales from January 1, 2020 through closing.

The Company then allocated the consideration transferred to the individual assets acquired on a relative fair value basis as summarized in the table below:

1 unchanged sentence

Nucynta Intangible Asset

Prepaid expenses

Total consideration allocated to assets acquired:

The Company concluded that the consideration allocable to the Nucynta Intangible Asset for the additional intellectual

property and manufacturing rights it acquired as part of the Nucynta Acquisition were incremental costs associated with the pre-existing intangible asset from the former Nucynta Commercialization Agreement, as such costs result in probable future economic benefits.

Specifically, the additional intellectual property rights acquired in the Nucynta Acquisition enable the Company to eliminate royalty obligations otherwise payable to Assertio under the former Nucynta Commercialization Agreement.

Nucynta Commercialization Agreement

The Company determined that the Nucynta Commercialization Agreement, which closed in January 2018, should be accounted for as an asset acquisition in accordance with ASC Topic 805-50 , as substantially all of the fair value of the gross assets acquired was concentrated in the sublicense of the Nucynta Products, which is a single identifiable asset.

Under the original terms of the Nucynta Commercialization Agreement, the Company was obligated to make guaranteed annual minimum royalty payments of $ 537,000 to Assertio, which consisted of scheduled payments of $ 132,000 in 2018, $ 135,000 in 2019, $ 135,000 in 2020, and $ 135,000 in 2021.

4 unchanged sentences

Prior to the Third Amendment to the Nucynta Commercialization Agreement in November 2018, the Company recognized interest expense of $ 19,281 relating to the minimum royalty payments and amortization expense of $ 107,662 related to the intangible asset.

A summary of the costs included in the Nucynta Intangible Asset as of the acquisition date of January 9, 2018, is as follows:

Costs included in Nucynta Intangible Asset:

Upfront cash paid

Transaction costs

Minimum royalty payment obligation (1)

Rebates, incentives, trade allowances and chargebacks assumed (2)

(1) Represents $ 537,000 of minimum royalty payments owed under the Nucynta Commercialization Agreement discounted for present value adjustments of $ 54,700 .

(2) Represents $ 22,660 of liabilities assumed related to sales of Nucynta Products that occurred prior to the closing date of January 9, 2018, for which the Company is liable under the terms of the Nucynta Commercialization Agreement.

Effective November 8, 2018 (the “Third Amendment Date”), the Company entered into the Third Amendment to the Nucynta Commercialization Agreement, which eliminated the guaranteed minimum royalty payment obligations for years 2019, 2020 and 2021.

1 unchanged sentence

As of December 31, 2018, the Company had paid all of the $ 132,000 of minimum royalty payment obligation owed under the Nucynta Commercialization Agreement for 2018.

A summary of the gross carrying amount, accumulated amortization, and net book value of the Nucynta Intangible Asset from the acquisition date through December 31, 2018 is as follows:

In connection with the Third Amendment to the Nucynta Commercialization Agreement, the Company issued a warrant to Assertio to purchase 1,041,667 shares of common stock of the Company at an exercise price of $ 19.20 per share.

The Company estimated the fair value of the warrant on the date of issuance to be approximately $ 8,043 using the Black-Scholes option-pricing model.

See Note 14 for further detail regarding the warrant issued to Assertio.

Effective February 13, 2020, upon the closing of the Nucynta Acquisition, the Nucynta Commercialization Agreement was effectively terminated and the Company’s royalty payment obligations to Assertio thereunder ceased.

Following the closing, the Company no longer pay royalties to Assertio and the Company’s only remaining royalty obligation is to pay 14 % of net sales of the Nucynta Products directly to Grünenthal.

A summary of the gross carrying amount, accumulated amortization, and net book value of the Nucynta Intangible Asset from the execution of the Nucynta Commercialization Agreement through period end are as follows:

Gross Carrying Value

3 unchanged sentences

Cost basis as of acquisition date

Amortization expense from acquisition date through Amendment Date

Adjustment due to the remeasurement of liability as of Amendment Date

Additional costs incurred as of Amendment Date (1)

Amortization expense from acquisition date through Third Amendment Date

Adjustment due to the remeasurement of liability as of Third Amendment Date

Additional costs incurred as of Third Amendment Date (1)

Amortization expense from Amendment Date through fiscal year end

Balance as of December 31, 2018

Amortization expense

Balance as of December 31, 2019

Amortization expense through Nucynta Acquisition

Additional cost incurred from Nucynta Acquisition

Amortization expense from Nucynta Acquisition through period end

Balance as of December 31, 2020

(1) Represents fair value of warrant issued in connection with the Amendment to the Nucynta Commercialization Agreement.

In November 2018, in connection with the Third Amendment to the Nucynta Commercialization Agreement, the Company issued a warrant to Assertio to purchase 1,041,667 shares of common stock of the Company at an exercise price of $ 19.20 per share.

The terms of the warrant are fixed, with the exception of customary adjustments for changes in the Company’s capitalization.

The warrant may only be settled with the issuance of shares of common stock upon exercise and will expire in November 2022.

The Company has recorded the relative fair value of the warrant as a component of equity interest issued by the Company as consideration transferred in the cost accumulation model for the asset acquisition.

The Company estimated the fair value of the warrant on the date of issuance to be approximately $ 8,043 using the Black-Scholes option-pricing model.

The Company concluded that the warrant met the definition of an equity instrument and was recorded as a component of additional paid-in capital in the Company’s Consolidated Balance Sheet as of the issuance date.

The Company has been amortizing the Nucynta Intangible Asset over its useful life, which is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the Company.

The Company determined that the useful life for the intangible asset was approximately 4.0 years from the Nucynta Commercialization Closing Date.

The Company recognizes amortization expense as a component of cost of product revenues in the Statement of Operations on a straight-line basis over its useful life as it approximates the period of economic benefits expected to be realized from future cash inflows from sales of the Nucynta Products.

Prior to the Third Amendment to the Nucynta Commercialization Agreement, the Company had recognized $ 107,662 of amortization expense.

As the accumulated cost basis of the intangible asset was reduced with the Third Amendment to the Nucynta Commercialization Agreement, the Company will continue to prospectively amortize the residual net intangible asset on a straight-line basis over the remaining useful life.

For the years ended December 31, 2019 and 2018, the Company recognized amortization expense of $ 14,752 and $ 109,834 , respectively.

As of December 31, 2019, the remaining amortization period is approximately 2.0 years and estimated amortization for 2020 and 2021 is expected to be $ 14,752 and $ 14,751 , respectively.

Onsolis Intangible Asset

In May 2016, the Company entered into an agreement with BDSI to license the rights to develop, manufacture, and commercialize Onsolis, in the United States.

During the year ended December 31, 2016, the Company made an upfront payment of $ 2,500 and recorded the payment as a component of intangible assets (the “Onsolis Intangible Asset”).

On December 8, 2017, the Company, after a review of its product portfolio, provided written notice to BDSI of termination of the License and Development Agreement.

The termination was effective pursuant to the terms of such agreement on March 8, 2018, and the Company’s rights to develop and commercialize Onsolis reverted to BDSI.

As a result of this notice of termination, the Company determined that the carrying amount of the intangible asset was not recoverable and that the carrying amount exceeded its fair value.

As such, an impairment loss of $ 1,845 was recognized and included as a component of sales, general and administrative expense during the year ended December 31, 2017 and the net intangible asset is zero as of the years ended December 31, 2019, 2018 and 2017.

For the year ended December 31, 2017 the Company recognized amortization expense relating to the Onsolis Intangible Asset of $ 258 .

The Company had initially determined that the useful life for the intangible asset was approximately 4.0 years from the Nucynta Commercialization Closing Date on the basis of the majority of the cash flows expected to be realized for future product sales under the Nucynta Commercialization Agreement.

The Nucynta Acquisition significantly impacted the timing and amount of future cash inflows from the sales of the Nucynta Products, and, therefore, the Company considered it to be a triggering event to remeasure the expected useful life of the Nucynta Intangible Asset.

The Company determined that the useful life for the Nucynta Intangible Asset was approximately 5.9 years from the closing date of the Nucynta Acquisition and accordingly, the intangible asset will be amortized prospectively over its revised useful life.

The Company will recognize amortization expense as a component of cost of product revenues in the Consolidated Statement of Operations on a straight-line basis over its useful life as it approximates the period of economic benefits expected to be realized from future cash inflows from sales of the Nucynta Products.

Prior to the Nucynta Acquisition, the Company had recognized $ 126,340 of amortization expense related to the Nucynta Intangible Asset.

As the accumulated cost basis of the Nucynta Intangible Asset was increased with the Nucynta Acquisition, the Company will continue to prospectively amortize the resulting net intangible asset on a straight-line basis over the remaining useful life.

The following table presents amortization expense recognized for the years ended December 31, 2020, 2019, and 2018:

Years ended December 31,

Nucynta amortization expense included in cost of product revenues

As of December 31, 2020, the remaining amortization period is approximately 5.0 years and is expected to be recognized in the following periods:

Years ended December 31,

Amortization Expense

Remaining amortization expense:

ACCRUED EXPENSES

1 unchanged sentence

As of December 31,

Accrued royalties

Accrued bonuses

Accrued product taxes and fees

Accrued incentive compensation

Accrued payroll and related benefits

Accrued sales and marketing

Accrued interest

Accrued payroll and related benefits

Accrued audit and legal

Accrued inventory

Accrued sales and marketing

Accrued other operating costs

6 unchanged sentences

The Company filed the NDA for Xtampza ER as a 505(b)(2) application, which allows the Company to reference data from an approved drug listed in the FDA’s Orange Book, in this case OxyContin.

The 505(b)(2) process requires that the Company certifies to the FDA and notify Purdue Pharma, L.P (“Purdue”), as the holder of the NDA and any other Orange Book-listed patent owners, that the Company does not infringe any of the patents listed for OxyContin in the Orange Book, or that the patents are invalid.

The Company made such certification and provided such notice on February 11, 2015 and such certification documented why Xtampza ER does not infringe any of the 11 Orange Book listed patents for OxyContin, five of which have been invalidated in court proceedings.

Under the Hatch-Waxman Act of 1984, Purdue had the option to sue the Company for infringement and receive a stay of up to 30 months before the FDA could issue a final approval for Xtampza ER, unless the stay was earlier terminated.

Purdue exercised its option and elected to sue the Company for infringement in the District of Delaware on March 24, 2015 asserting infringement of three of Purdue’s Orange Book-listed patents (Patent Nos.

7,674,799, 7,674,800, and 7,683,072) and a non-Orange Book-listed patent (Patent No.

The 505(b)(2) process requires that the Company certify to the FDA that the Company does not infringe any of the patents listed for OxyContin in the Orange Book, or that the patents are invalid.

The process also requires that the Company notify Purdue Pharma, L.P (“Purdue”), as the holder of the NDA, and any other Orange Book-listed patent owners that it has made such a certification.

On February 11, 2015, the Company made the required certification documenting why Xtampza ER does not infringe any of the 11 Orange Book listed patents for OxyContin, five of which have been invalidated in court proceedings, and provided the required notice to Purdue.

Under the Drug Price Competition and Patent Term Restoration Act of 1984, Purdue had the option to sue the Company for infringement and receive a stay of up to 30 months before the FDA could issue a final approval for Xtampza ER, unless the stay was earlier terminated.

In response to these actions, Purdue sued the Company for infringement in the District of Delaware on March 24, 2015 asserting infringement of three of Purdue’s Orange Book-listed patents (Patent Nos.

7,674,799, 7,674,800, and

7,683,072) and a non-Orange Book-listed patent (Patent No.

8,652,497), and accordingly, received a 30-month stay of FDA approval.

3 unchanged sentences

As a result, the Company was able to obtain final approval for Xtampza ER and launch the product commercially.

In November 2015, Purdue filed a follow-on suit asserting infringement of another patent, Patent No.

9,073,933, which was late-listed in the Orange Book and therefore could not trigger any stay of FDA approval.

In June 2016, Purdue filed another follow-on suit asserting infringement of another non-Orange Book listed patent, Patent No.

In April 2017, Purdue filed another follow-on suit asserting infringement of another patent, Patent No.

9,522,919, which was late-listed in the Orange Book and therefore could not trigger any stay of FDA approval.

Then, in September 2017, Purdue filed another follow-on suit asserting infringement of another non-Orange Book listed patent, Patent No.

Purdue subsequently filed two follow-on lawsuits asserting infringement of two patents that had been late-listed in the Orange Book and therefore could not trigger any stay of FDA approval:

Purdue filed suit asserting infringement of Patent No.

9,073,933 in November 2015, and asserted infringement of Patent No.

9,522,919 in April 2017.

In addition, Purdue filed suit on two patents that had not been listed in the Orange Book, filing suit in June 2016 asserting infringement of Patent No.

9,155,717 and in September 2017, asserting infringement of Patent No.

On March 13, 2018, the Company filed a Petition for Post-Grant Review (“PGR”) of the ʼ961 patent with the Patent Trial and Appeal Board (“PTAB”).

The PGR argues that the ʼ961 patent is invalid for lack of a written description, for lack of enablement, for indefiniteness, and as being anticipated by prior art.

Purdue filed its Patent Owner Preliminary Response on July 10, 2018.

The PTAB entered an order to institute post-grant review of all claims of the ’961 patent on October 4, 2018, upon a finding that it is more likely than not that the claims of the ʼ961 patent are unpatentable.

Purdue filed its Patent Owner Response on January 30, 2019.

The Company filed its reply on April 12, 2019, and Purdue filed a sur-reply on May 10, 2019.

The PTAB held oral argument on the proceedings on July 10, 2019 and was scheduled to issue a decision on the patentability of the ʼ961 patent by no later than October 4, 2019.

4 unchanged sentences

The Company filed a motion to dismiss that action, and the Court granted its motion on January 16, 2018.

The suits that remain pending have been consolidated by the District of Massachusetts.

The Court issued an order on September 28, 2018 in which it granted in part a motion for summary judgment that the Company filed, in which the Court ruled that the Xtampza ER formulation does not infringe the ‘497 and ʼ717 patents.

The suits that remain pending were consolidated by the District of Massachusetts, which has ruled that the Xtampza ER formulation does not infringe the ‘497 and ʼ717 patents.

As a result, only the ʼ933, the ʼ919, and the ʼ961 patents remain in dispute.

On October 16, 2018, the Company filed a motion to stay proceedings in the district court on the ‘961 patent pending the PGR.

Purdue has made a demand for monetary relief but has not

quantified its alleged damages.

Purdue has made a demand for monetary relief but has not quantified its alleged damages.

Purdue has also requested a judgment of infringement, an adjustment of the effective date of FDA approval, and an injunction on the sale of the Company’s products accused of infringement.

The Company has denied all claims and have requested a judgment that the remaining asserted patents are invalid and/or not infringed;

the Company is also seeking a judgment that the case is exceptional and have requested an award of the Company’s attorneys’ fees for defending the case.

The Company has denied all claims and has requested a judgment that the remaining asserted patents are invalid and/or not infringed;

the Company is also seeking a judgment that the case is exceptional and has requested an award of the Company’s attorneys’ fees for defending the case.

A claim construction hearing was held on June 1, 2017.

3 unchanged sentences

On September 20, 2019, the matter was stayed pending further order of the Court.

Once the stay is lifted, the Company plans to defend this case vigorously.

On September 1, 2020, the Bankruptcy Court entered an Order Granting Motions for Relief from the Automatic Stay, lifting the automatic stays in both the District of Massachusetts and PTAB proceedings.

The Company appealed the Bankruptcy Court’s Order, in part, and that appeal is stayed, on consent by Purdue, pending the outcome of the PTAB proceedings and any appeal thereto.

On September 11, 2020, Purdue filed a motion to terminate the PTAB action on the basis that those proceedings had gone beyond the 18-month statutory period.

The Company opposed Purdue’s motion and the parties are awaiting PTAB’s decision.

In light of the PTAB proceeding, the entirety of District of Massachusetts proceedings, beyond the single ’961 patent that is also the subject of the PTAB proceeding, had been stayed.

During a January 22, 2021 hearing, Purdue asked the District of Massachusetts Court to lift the stay as to the ʼ933 and ʼ919 patents, and advised the Court of its intention to file another patent litigation concerning U.S.

The Court set a briefing schedule through mid-March and a hearing for March 18, 2021.

If the stay is lifted, the Company plans to defend this case vigorously.

At this stage, the Company is unable to evaluate the likelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any.

7 unchanged sentences

Also, on December 10, 2018, the Company filed a Rule 12(c) Motion for Judgment on the Pleadings, arguing that the Purdue’s claims were barred by the doctrine of patent exhaustion.

Purdue filed its response on January 11, 2019 and the Company filed a reply on January 25, 2019.

On June 18, 2019, the Court heard oral argument on the Company’s Rule 12(c) Motion for Judgment on the Pleadings.

6 unchanged sentences

Teva Litigation

Presently, the Company has seventeen patents listed in the FDA Orange Book as covering the Company’s abuse-deterrent product and methods of using it to treat patients:

Presently, the Company has nineteen patents listed in the FDA Orange Book as covering the Company’s abuse-deterrent product and methods of using it to treat patients:

9,737,530, 9,763,883;

8 unchanged sentences

Teva notified the Company of its certification and the Company filed a second lawsuit in the District of Delaware, asserting those two patents, on November 30, 2018.

Teva responded to the complaint on January 11, 2019 denying infringement by Teva’s proposed ANDA products, and asserting counterclaims of non-infringement and invalidity of the asserted patents.

Teva responded to the complaint on January 11, 2019 denying infringement by Teva’s proposed

ANDA products, and asserting counterclaims of non-infringement and invalidity of the asserted patents.

The Company answered Teva’s counterclaims on February 1, 2019.

9 unchanged sentences

The parties filed a proposed Scheduling Order, which the Court entered on September 4, 2019.

The parties have exchanged initial disclosures pursuant to that Order.

On September 20, 2019, the parties jointly agreed to stay both litigations, which the Court so ordered.

Once the district Court lifts the stay, the Company plans to continue pursuing this case vigorously.

The Company listed two additional patents in the Orange Book in January 2020, which brings the total number of Orange Book Patents for Xtampza ER to seventeen .

On September 20, 2019, the parties jointly agreed to stay both litigations.

The Company listed four additional patents in the Orange Book in first half of 2020, which brings the total number of Orange Book Patents for Xtampza ER to nineteen .

Teva and the Company have entered into a Settlement Agreement and License Agreement to resolve the case.

On October 7, 2020, the Court entered a Consent Judgment and Order of Permanent Inunction that dismissed with prejudice all affirmative defenses, claims, and counterclaims which have or could have been raised by Teva.

The Order states that Teva would infringe each of the Litigated Patents by using, making, offering to sell, selling, and/or importing Teva’s ANDA product in or into the United States.

It further states that the Litigated Patents, and all claims contained therein, are valid and enforceable, solely with respect to the Teva ANDA and Teva ANDA Product.

It further stated that, except as authorized and licensed by the Company under the License, Teva, its officers, agents, employees, affiliates, successors and all persons in active concert or participation with Teva, are permanently enjoined from using, making, offering for sale, or selling in the United States, or importing into the United States, Teva’s ANDA Product and/or inducing or assisting others to use, make, offer for sale, or sell in the United States, or import into the United States, Teva’s ANDA Product.

On September 29, 2020, the Company entered into a settlement agreement with Teva resolving the patent litigation in the U.S.

District Court for the District of Delaware.

Pursuant to the terms of the settlement, which is subject to review by the U.S.

Federal Trade Commission and the U.S.

Department of Justice, the Company will grant Teva a license to market its generic version of Xtampza ER in the United States beginning on or after September 2, 2033 (subject to U.S.

Food and Drug Administration approval, and acceleration under certain circumstances).

As a result of the settlement, Teva has agreed to a consent judgment confirming that its proposed generic products infringe upon the Company’s asserted patents and that those patents are valid and enforceable with respect to Teva’s proposed generic products.

Additional details regarding the settlement are confidential.

Opioid Litigation

On March 19, 2018, a lawsuit was filed by multiple local governments in the Circuit Court of Crittenden County, Arkansas, against the Company and other pharmaceutical manufacturers and distributors alleging a variety of claims related to opioid marketing and distribution practices.

On January 29, 2019, the Company was dismissed from this litigation without prejudice.

On March 21, 2018, the Company, along with other pharmaceutical manufacturers and distributors, were named in a class-action lawsuit filed in the Eastern District of Kentucky by a family practice clinic, on behalf of other similarly-situated healthcare providers.

The action alleges violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) relating to opioid marketing and distribution practices.

On April 14, 2018, the lawsuit was conditionally transferred by the Judicial Panel on Multi-District Litigation to the federal Prescription Opiate Multi District Litigation (the “MDL”) in the Southern District of Ohio.

On April 10, 2018, the conditional transfer was finalized, and the lawsuit was docketed in the MDL on April 11, 2018.

On May 4, 2018, the Company, along with other pharmaceutical manufacturers and distributors, were named in two lawsuits filed in the MDL by the Fiscal Court of Bourbon County, Kentucky and the Fiscal Court of Owen County, Kentucky, relating to opioid marketing and distribution practices.

On July 11 and 12, 2018, the Company was named in four lawsuits filed in the MDL by a health system and various member hospitals.

On September 26, 2018, the Company was named in two lawsuits filed in the MDL by the Fiscal Court of Lee County, Kentucky and the Fiscal Court of Wolfe County, Kentucky.

On March 15, 2019, the plaintiffs in these MDL cases filed amended complaints which no longer name the Company as a defendant, effectively terminating these

lawsuits as to the Company.

On September 6, 2019, Triad Health Systems filed a class action lawsuit in the MDL on behalf of itself and similarly situated health care systems, generally alleging negligence, fraud, and violations of the RICO Act relating to opioid marketing and distribution practices, naming the Company and other pharmaceutical distributors and manufacturers.

On October 18, 2019, three counties in Kentucky filed lawsuits in the MDL naming the Company:

the Fiscal Court of Casey County Kentucky;

the Fiscal Court of Gallatin County Kentucky;

and the Fiscal Court of Lewis County Kentucky.

These three lawsuits generally allege negligence, fraud, and violations of the RICO Act relating to opioid marketing and distribution practices.

The Company was dismissed from these four lawsuits on November 6, 2019.

As a result of the opioid epidemic, numerous state and local governments, healthcare providers, and other entities have brought suit against manufacturers, wholesale distributors, and pharmacies alleging a variety of claims related to opioid marketing and distribution practices.

In late 2017, the U.S.

Judicial Panel on Multidistrict Litigation ordered the consolidation of what were then a few hundred cases pending around the country in federal court against opioid manufacturers and distributors into a Multi-District Litigation (MDL) in the Northern District of Ohio.

Currently, the Opioid MDL consists of over 2,000 opioid-related cases brought primarily by states, cities, counties, and other local entities.

Generally speaking, these suits do not seek damages for injuries to individuals but rather compensation for the cost of public services needed to address the consequences of addicted communities, ranging from emergency response capabilities to rehabilitation services.

The Company has been named as a defendant in a small subset of the MDL cases.

Of the 21 MDL cases that have named the Company as a defendant, the allegations against it have been dismissed or withdrawn in 13 cases.

In addition, the Company has been dismissed from three non-MDL cases filed in Pennsylvania and Arkansas state courts.

Eight cases that name the Company as a defendant, originally filed in three states, remain pending in the MDL:

On January 11, 2019, the City of Portsmouth filed a lawsuit in Virginia Circuit Court against the Company and other pharmaceutical manufacturers and distributors.

1 unchanged sentence

On October 3, 2019, the City of Portsmouth case was transferred to the MDL.

● New Jersey.

On March 15, 2019, the Company was named in a lawsuit in the MDL by the City of Paterson, New Jersey.

The lawsuit that alleges violations of fraud, public nuisance, negligent misrepresentation, and violations of state consumer protection laws, and seeks, generally, penalties and/or injunctive relief.

In April 2019, the City of Norwich, Connecticut and the Town of Enfield, Connecticut filed lawsuits that name the Company in Connecticut Superior Court.

The lawsuit alleges violations of fraud, public nuisance, negligent misrepresentation, and violations of state consumer protection laws, and seeks, generally, penalties and/or injunctive relief.

On June 14, 2019, the City of Trenton filed a lawsuit in the New Jersey Superior Court against the Company and other pharmaceutical manufacturers and distributors.

The lawsuit alleges a variety of claims related to opioid marketing and distribution practices including public nuisance, common law fraud, negligent misrepresentation, negligence, and violations of state consumer protection laws and the New Jersey Drug Dealer Liability Act.

On December 18, 2019, the case was transferred to the MDL.

● Connecticut.

On April 9, 2019, the City of Norwich, Connecticut and the Town of Enfield, Connecticut filed lawsuits that name the Company in Connecticut Superior Court.

The lawsuits allege violations of fraud, public nuisance, negligent misrepresentation, and violations of state consumer protection laws.

3 unchanged sentences

These cases were both also transferred to the MDL in July 2019.

On June 14, 2019, the City of Trenton filed a lawsuit in the New Jersey Superior Court against the Company and other pharmaceutical manufacturers and distributors.

On August 23, 2019, the case was removed to the District Court of New Jersey.

The plaintiff filed an opposition to coordination and requested remand, but on December 18, 2019, the case was transferred to the MDL.

Finally, on January 15, 2020, the Town of Windham, Connecticut filed a lawsuit that names the Company, among other pharmaceutical manufacturers, in Connecticut Superior Court.

The lawsuit alleges violations of fraud, public nuisance, negligent misrepresentation, and violations of state consumer protection laws.

On March 3, 2020, the lawsuit was transferred to the MDL.

Each of the lawsuits in the MDL naming the Company seeks, generally, penalties and injunctive relief.

None of the lawsuits naming the Company are designated as representative cases in the MDL, and therefore, are effectively currently stayed.

On May 29, 2018, a lawsuit was filed by Bucks County, Pennsylvania against the Company and other pharmaceutical manufacturers and on June 12, 2018, a lawsuit was filed by Clinton County, Pennsylvania, against the Company and other pharmaceutical manufacturers and distributors.

On June 6, 2018, a lawsuit was filed by Mercer County, Pennsylvania, against the Company and other pharmaceutical manufacturers and distributors.

These lawsuits allege claims related to opioid marketing and distribution, including negligence, fraud, unjust enrichment, public nuisance, and violations of state consumer protections laws.

These cases have been consolidated for discovery purposes in the Delaware County Court of Common Pleas as part of a consolidated proceeding of similar lawsuits brought by numerous Pennsylvania counties against other pharmaceutical manufacturers and distributors.

In March 2019, three additional cases were filed in Pennsylvania by two payor groups and Warminster Township.

The Company has been dismissed from both of the payor group cases.

In July 2019, the Company learned of additional lawsuits alleging similar claims which were filed by Warrington Township in the Bucks County Court of Common Pleas, and filed by the City of Lock Haven in the Clinton County Court of Common Pleas.

The City of Lock Haven and the Warrington Township cases have been coordinated into the consolidated proceeding before the Delaware County Court of Common Pleas.

None of these cases have been designated a Track One case in which discovery would commence, and therefore are effectively stayed at present.

On July 30, 2018, a lawsuit was filed by the City of Worcester, Massachusetts against the Company and other pharmaceutical manufacturers and distributors.

The action alleges a variety of claims related to opioid marketing and distribution practices including public nuisance, common law fraud, negligent misrepresentation, negligence, violations of Mass Gen.

Outside of the MDL, there are several cases pending against the Company in state courts in Pennsylvania and Massachusetts:

● In Pennsylvania, six lawsuits naming the Company have been consolidated for discovery purposes in the Delaware County Court of Common Pleas as part of a consolidated proceeding of similar lawsuits brought by numerous Pennsylvania counties against other pharmaceutical manufacturers and distributors.

These include lawsuits filed between May 2018 and July 2019 on behalf of Bucks County, Clinton County, Mercer County, Warrington Township, Warminster Townerhip, and the City of Lock Haven, each of Pennsylvania, alleging claims related to opioid marketing and distribution, including negligence, fraud, unjust enrichment, public nuisance, and violations of state consumer protections laws.

None of these cases has been designated a Track One case in which discovery would commence, and therefore they are all effectively stayed at present.

● In Massachusetts, there are lawsuits by the City of Worcester, the City of Salem, the City of Framingham, the Town of Lynfield, the City of Springfield, the City of Haverhill, the City of Gloucester, the Town of Canton, the Town of Wakefield, the City of Chicopee, the Town of Natick, the City of Cambridge and the Town of Randolp, all of which have been consolidated before the Business Litigation Session of the Superior Court.

The actions allege a variety of claims related to opioid marketing and distribution practices including public nuisance, common law fraud, negligent misrepresentation, negligence, violations of Mass Gen.

93A, Section 11 , unjust enrichment and civil conspiracy.

In February 2019, the City of Worcester

case was transferred to the Business Litigation Session of the Superior Court.

Additional lawsuits brought by the following cities and counties Massachusetts were filed between October 2018 and April 2019:

City of Salem, City of Framingham, Town of Lynnfield, City of Springfield, City of Haverhill, City of Gloucester, Town of Canton, Town of Wakefield, City of Chicopee;

Town of Natick;

City of Cambridge, and Town of Randolph.

Each of these additional lawsuits has been coordinated before the Business Litigation Session.

The case brought by the City of Springfield was selected to advance for the purpose of motion practice, defendants’ motions to dismiss were denied on January 3, 2020.

There is currently no schedule for the next stage of the proceedings.

There is no trial date set for this case.

The Company disputes the allegations in these lawsuits and intends to vigorously defend these actions.

2 unchanged sentences

The Company, like a number of other pharmaceutical companies, has received subpoenas or civil investigative demands related to opioid sales and marketing.

The Company has received such subpoenas or civil investigative demands from the Offices of the Attorney General of each of Washington, New Hampshire, and Massachusetts.

The Company has received such subpoenas or civil investigative demands from the Offices of the Attorney General of each of Washington, New Hampshire, Maryland and Massachusetts.

The Company is currently cooperating with each of the foregoing states in their respective investigations.

TERM LOAN PAYABLE

On August 28, 2012, the Company entered into a loan agreement with Silicon Valley Bank (“SVB”) to borrow up to a maximum amount of $ 1,000 .

The loan agreement was subsequently amended in 2014 and 2015 to provide for additional borrowings (as amended, the “Existing Term Loan”).

In January 2018, in connection with, and as a condition to, consummation of the transactions contemplated by the Nucynta Commercialization Agreement with Assertio, the Company entered into a Consent and Amendment to Loan and Security Agreement (the “Consent and Amendment”) with SVB to amend the Existing Term Loan.

The Consent and Amendment provided the Company with a new term loan facility in an original principal amount of $ 11,500 , which replaced the Existing Term Loan and the proceeds of which were used by the Company to finance certain payment obligations under the Nucynta Commercialization Agreement and to repay the balance of the Existing Term Loan.

The Existing Term Loan also provided SVB’s consent with respect to the Nucynta Commercialization Agreement.

The Consent and Amendment bears interest at a rate per annum of 0.75 % above the prime rate (as defined in the Consent and Amendment).

The Company will repay the Consent and Amendment in equal consecutive monthly installments of principal plus monthly payments of accrued interest, commencing in January 2020.

All outstanding principal and accrued and unpaid interest under the Consent and Amendment, and all other outstanding obligations with respect to the Consent and Amendment, are due and payable in full in December 2022.

The Company may prepay the Consent and Amendment, in full but not in part, with a prepayment fee of (i) 3.0 % of the outstanding principal balance prior to the first anniversary of the Consent and Amendment, (ii) 2.0 % of the outstanding principal balance following the first anniversary of the Consent and Amendment and prior to the second anniversary of the Consent and Amendment and (iii) 1.0 % of the outstanding principal balance following the second anniversary of the Consent and Amendment, plus, in each case, a final payment fee of $ 719 .

In November 2018, the Company entered into an amended and restated Loan and Security Agreement (“Amended Term Loan”) with SVB, that supersedes the Company’s original loan agreement and subsequent amendments with SVB.

The Amended Term Loan amended and restated the loan documentation between the Company and SVB and modified the minimum liquidity ratio to be at least 1.5 to 1.0 (as defined in the Amended Term Loan), along with other non-material changes.

The Amended Term Loan did not modify the Company’s borrowings, interest rates, or repayment terms.

amounts outstanding during the continuance of any event of default under the Consent and Amendment will bear additional interest at the per annum rate of 5.0 %.

As of December 31, 2019, scheduled principle repayments under the Company’s Amended Term Loan are as follows:

In February 2020, the Company prepaid its outstanding loan balance with SVB in full, including the final prepayment fee.

Refer to Note 19 for further detail.

Pharmakon Term Notes

On February 6, 2020, in connection with the execution of the Nucynta Purchase Agreement, the Company, together with its subsidiary, Collegium Securities Corporation, entered into a Loan Agreement (the “Loan Agreement”) with BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender (collectively “Pharmakon”).

The Loan Agreement provides for a $ 200,000 secured term loan (the “term notes”), the proceeds of which were used to finance a portion of the purchase price paid pursuant to the Nucynta Purchase Agreement.

O n February 13, 2020 (the “Closing Date”) , the Company received the net proceeds.

The term notes bear interest at a rate based upon the three-month LIBOR rate, subject to a LIBOR floor of 2.0 %, plus a margin of 7.5 % per annum, payable quarterly in arrears.

The Company is required to repay the term notes by making equal quarterly payments of principal beginning in the first quarter immediately following the third month anniversary of the Closing Date.

The term notes will mature on the calendar quarter end immediately following the 48 -month anniversary of the Closing Date and is guaranteed by the Company’s material domestic subsidiaries and also secured by substantially all of the Company’s material assets.

On the Closing Date, the Company paid to Pharmakon a facility fee equal to 2.50 % of the aggregate principal amount of the term notes, or $ 5,000 , in addition to $ 427 of other expenses incurred by Pharmakon and reimbursed by the Company (together, the “discount”).

Net proceeds of $ 194,573 were transferred to Assertio by the Company as agent in partial satisfaction of the Nucynta Purchase Agreement.

In addition, the Company capitalized $ 2,456 of term notes issuance costs, related to legal and advisory fees.

Except with respect to certain prepayments made with the proceeds from new equity issuances as described below, the Loan Agreement permits voluntary prepayment at any time, subject to a prepayment premium.

The prepayment premium is equal to 3.00 % of the principal amount being prepaid prior to the second-year anniversary of the Closing Date, 2.00 % of the principal amount being prepaid on or after the second-year anniversary, but on or prior to the third-year anniversary, of the Closing Date, and 1.00 % of the principal amount being prepaid on or after the third-year anniversary of the Closing Date, but prior to the fourth-year anniversary of the Closing Date.

The Loan Agreement also includes a make-whole premium if there is a voluntary prepayment, a prepayment due to a change in control or acceleration following an Event of Default on or prior to the second-year anniversary of the Closing Date in an amount equal to foregone interest from the date of prepayment through the second-year anniversary of the Closing Date.

A change of control triggers a mandatory prepayment of the term notes.

The Loan Agreement also permits single voluntary prepayments of the Loan Agreement of less than or equal to $ 50,000 made solely from the proceeds of an equity issuance by the Company.

If equity prepayment occurs prior to the second-year anniversary of the Closing Date, a prepayment premium of 5.00 % would apply, with no make-whole premium.

The Loan Agreement contains certain covenants and obligations of the parties, including, without limitation, covenants that require the Company to maintain $ 200,000 in annual net sales and covenants that limit the Company’s ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary

course of business, restrictions which limit the Company’s ability to pay dividends and restrictions of net assets of subsidiaries.

The Loan Agreement also contains customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse change default.

Failure to comply with these covenants would constitute an event of default under the Loan Agreement, notwithstanding the Company’s ability to meet its debt service obligations.

The Loan Agreement also includes various customary remedies for Pharmakon following an event of default, including the acceleration of repayment of outstanding amounts under the Loan Agreement and execution upon the collateral securing obligations under the Loan Agreement.

Under certain circumstances, a default interest rate will apply on outstanding obligations during the occurrence and continuance of an event of default.

During the year ended December 31, 2020 the Company recognized interest expense of $ 19,034 related to the term notes.

As of December 31, 2020, principal repayments under the term notes are estimated to be paid as follows:

Years ended December 31,

Principal Payments

Total before unamortized discount and issuance costs

unamortized discount and issuance costs

Total term notes

Silicon Valley Bank Term Loan Facility

From August 2012 until January 2020, the Company maintained a term loan facility with Silicon Valley Bank (“SVB”), which was amended in connection with, and as a condition to, consummation of the transactions contemplated by the Nucynta Commercialization Agreement.

Under the amended term loan (“Consent and Amendment”), the Company had a term loan facility in an amount of $ 11,500 , which replaced the Company’s previously existing term loan facility.

The proceeds of the Consent and Amendment were used to finance certain payment obligations under the Nucynta Commercialization Agreement and to repay the balance of the previously existing term loan.

The Consent and Amendment bore interest at a rate per annum of 0.75 % above the prime rate (as defined in the Consent and Amendment).

The Company was eligible to repay the Consent and Amendment in equal consecutive monthly installments of principal plus monthly payments of accrued interest, commencing in January 2020.

In January 2020, the Company prepaid the outstanding principal and accrued interest on the Consent and Amendment along with the required prepayment fees.

The loss on extinguishment of the term loan was immaterial and was recorded as a component of interest expense.

Convertible Senior Notes

On February 13, 2020, the Company issued 2.625 % convertible senior notes due in 2026 (the “convertible notes”) in the aggregate principal amount of $ 143,750 , in a public offering registered under the Securities Act of 1933, as amended.

The convertible notes were issued in connection with funding the Nucynta Acquisition, and the proceeds of the convertible notes were used to finance a portion of the purchase price payable pursuant to the Nucynta Purchase Agreement.

Some of the Company’s existing investors participated in the convertible notes offering.

The Company may, at its option, settle the convertible notes in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock.

Accordingly, the Company separately accounted for the liability component (the “Liability Component”) and the embedded derivative conversion option (the “Equity Component”) of the convertible notes by allocating the proceeds between the Liability Component and the Equity Component.

In connection with the issuance of the convertible notes, the Company incurred approximately $ 5,473 of

debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs between the Liability Component and the Equity Component based on the allocation of the proceeds.

Of the total debt issuance costs, $ 1,773 was allocated to the Equity Component and recorded as a reduction to additional paid-in capital and $ 3,700 was allocated to the Liability Component and recorded as a debt discount of the convertible notes.

The portion allocated to the Liability Component is amortized to interest expense using the effective interest method over six years .

The convertible notes are the Company’s senior unsecured obligations and bear interest at a rate of 2.625 % per year payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020.

Before August 15, 2025, noteholders will have the right to convert their notes only upon the occurrence of certain events.

From and after August 15, 2025, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date.

The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.

The notes will mature on February 15, 2026, unless earlier repurchased, redeemed or converted.

The initial conversion rate is 34.2618 shares of common stock per $1 principal amount of notes, which represents an initial conversion price of approximately $ 29.19 per share of common stock.

The conversion rate and conversion price are subject to adjustment upon the occurrence of certain events.

Holders of the convertible notes may convert all or any portion of their convertible notes, in multiples of $1 principal amount, at their option only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the “trading price” per $1 principal amount of the Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;

(3) upon the occurrence of certain corporate events or distributions on the Company’s common stock;

(4) if the Company calls the convertible notes for redemption;

(5) at any time from, and including, August 15, 2025 until the close of business on the scheduled trading day immediately before the maturity date.

As of December 31, 2020, none of the above circumstances had occurred and as such, the convertible notes could not have been converted.

The Company may not redeem the convertible notes prior to February 15, 2023.

On or after February 15, 2023, the Company may redeem the convertible notes, in whole and not in part, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on:

(1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice;

(2) the trading day immediately before the date the Company sends such notice.

Calling any convertible note for redemption will constitute a make-whole fundamental change with respect to that convertible note, in which case the conversion rate applicable to the conversion of that convertible note, if it is converted in connection with the redemption, will be increased in certain circumstances for a specified period of time.

The convertible notes have customary default provisions, including (i) a default in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption

price or fundamental change repurchase price for, any note; (ii) a default for 30 days in the payment when due of interest on any note; (iii) a default in the Company’s obligation to convert a note in accordance with the indenture;

(iv) a default with respect to the Company’s obligations under the indenture related to consolidations, mergers and asset sales;

(v) certain payment or other defaults by the Company or certain subsidiaries with respect to mortgages, agreements or other instruments for indebtedness for money borrowed of at least $ 20,000 ;

and (vi) certain events of bankruptcy, insolvency and reorganization with respect to the Company or any of its significant subsidiaries.

The initial carrying amount of the Liability Component of $ 97,200 was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature.

The allocation was performed in a manner that reflected the Company’s non-convertible borrowing rate for similar debt.

The Equity Component of the Notes of $ 46,550 was recognized as a debt discount.

The excess of the principal amount of the Liability Component over its carrying amount is amortized to interest expense using the effective interest method over six years .

The Equity Component, which is included in the additional paid in capital portion of stockholders’ equity on the Company’s consolidated balance sheet, is not remeasured as long as it continues to meet the conditions for equity classification.

As of December 31, 2020, the convertible notes outstanding consisted of the following:

Liability component:

unamortized debt discount and issuance costs

Net carrying amount

Equity component, net of issuance costs of $ 1,773

The Company determined the expected life of the convertible notes was equal to its six-year term.

The effective interest rate on the Liability Component of the convertible notes was 10.27 %.

As of December 31, 2020, the “if-converted value” did not exceed the remaining principal amount of the convertible notes.

The fair value of the convertible notes was determined based on data points other than quoted prices that are observable, either directly or indirectly, and has been classified as Level 2 within the fair value hierarchy.

The fair value of the convertible notes, which differs from their carrying value, is influenced by market interest rates, the Company’s stock price and stock price volatility.

The following table presents the total interest expense recognized related to the convertible notes during the year ended December 31, 2020:

Year ended December 31,

Contractual interest expense

Amortization of debt discount

Amortization of debt issuance costs

Total interest expense

As of December 31, 2020, the future minimum payments on the convertible notes were as follows:

Years ended December 31,

Future Minimum Payments

Total minimum payments

unamortized debt discount and issuance costs

Convertible senior notes

In accordance with ASC Topic 842, Lease Accounting, the Company records lease assets and liabilities for lease arrangements exceeding a 12-month initial term.

1 unchanged sentence

After lease commencement, the Company remeasures the operating liability at the present value of the remaining lease payments discounted using the original incremental borrowing rate and corresponding lease asset adjusted for incentives received, indirect costs and uneven lease payments.

T he Company records operating lease rent expense in the Statements of Operations on a straight-line basis over the lease term.

Variable lease costs associated with non-lease components are not included in the measurement of the operating lease liability and are recognized in the period in which they are incurred.

The Company records operating lease rent expense in the Statements of Operations on a straight-line basis over the lease term.

Variable lease costs, that are primarily associated with non-lease components are not included in the measurement of the operating lease liability, are recognized in the period in which they are incurred.

Leases with an initial term of 12 months or less, or short-term leases, are not recorded on the balance sheet.

13 unchanged sentences

In January 2016, the Company entered a non-cancellable contract with the contract manufacturing organization (“CMO”) of Xtampza ER.

The initial contract term continues through December 2020 and automatically renews for successive two-year terms unless either party gives written notice of termination two-years in advance.

production is currently conducted in an area of the manufacturing plant that is shared with other clients.

Pursuant to the terms of the agreement, since 2016 the CMO has reserved 3,267 square feet of existing manufacturing space for a dedicated production suite for Xtampza ER, which is currently under construction.

Upon adoption of ASC Topic 842, the Company determined that this arrangement has an embedded operating lease arrangement as the Company can direct the use of the dedicated space and obtain substantially all the economic benefits.

The contract term continues through December 2022 and automatically renews for successive two-year terms unless either party gives written notice of termination two-years in advance.

Xtampza ER production is

currently conducted in an area of the manufacturing plant that is shared with other clients.

Pursuant to the terms of the agreement, since 2016 the CMO has reserved 3,267 square feet of existing manufacturing space for a dedicated production suite for Xtampza ER, which was put into service in the year ended December 31, 2020.

As the Company can direct the use of the dedicated space and obtain substantially all the economic benefits of the dedicated space, the Company determined that the arrangement was an embedded operating lease.

The Company expects the lease term to continue at least through December 2026 and separated the agreement’s lease and non-lease components in determining the operating lease assets and liabilities.

6 unchanged sentences

Variable lease costs associated with non-lease components primarily include utilities, property taxes, and other operating costs that are passed on from the lessor.

The components of lease cost for the year ended December 31, 2019 are as follows:

The components of lease cost for the years ended December 31, 2020 and 2019 are as follows:

Year ended December 31,

3 unchanged sentences

Total lease cost

The lease term and discount rate for operating leases for the year ended December 31, 2019 are as follows:

The lease term and discount rate for operating leases for the years ended December 31, 2020 and 2019 are as follows:

As of December 31,

2 unchanged sentences

Weighted-average discount rate — operating leases

Other information related to operating leases for the year ended December 31, 2019 is as follows:

Other information related to operating leases for the years ended December 31, 2020 and 2019 is as follows:

Year ended December 31,

2 unchanged sentences

Leased assets obtained in exchange for new operating lease liabilities

Under ASC Topic 842, the Company’s aggregate future minimum lease payments for its operating leases, including embedded operating lease arrangements, as of December 31, 2019, are as follows:

The Company’s aggregate future minimum lease payments for its operating leases, including embedded operating lease arrangements, as of December 31, 2020, are as follows:

Total minimum lease payments

1 unchanged sentence

Present value of lease liabilities

Under legacy GAAP, the Company’s aggregate future minimum lease payments for its operating leases as of December 31, 2018 were as follows:

Total minimum lease payments

As of December 31, 2019 and 2018, the Company had reserved the following shares of common stock for the issuance of shares upon the exercise of stock options and warrants and the issuance of shares under the 2015 Employee Stock Purchase Plan:

As of December 31,

Options to purchase common stock

Employee stock purchase plan

Controlled Equity Offering Sales Agreement

In March 2017, the Company entered into a Controlled Equity Offering Sales Agreement (the “ATM Sales Agreement”), with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which the Company may issue and sell, from time to time, through Cantor Fitzgerald, shares of the Company’s common stock, up to an aggregate offering price of $ 60,000 (the “ATM Shares”).

During the year ended December 31, 2017, the Company sold an aggregate of 3,126,998 shares of common stock under the ATM Sales Agreement at an average gross sales price of $ 11.36 per share, generating net proceeds of $ 34,283 after deduction of underwriting discounts and commissions and expenses payable by us.

No shares were sold under the ATM Sales Agreement during the years ended December 31, 2019 or 2018.

The ATM Sales Agreement expired in October 2019.

As of December 31, 2019, the warrant issued to Assertio in November 2018 was the Company’s only outstanding warrant, which is described in greater detail in Note 9.

STOCK-BASED COMPENSATION

Stock Options, Restricted Stock Units and Performance Share Units

In May 2015, the Company adopted the Amended and Restated 2014 Stock Incentive Plan (the “Plan”), under which an aggregate of 2,700,000 shares of common stock were authorized for issuance to employees, officers, directors, consultants and advisors of the Company, plus an annual increase to be added on the first day of each fiscal year until the expiration of the Plan equal to 4 % of the total number of outstanding shares of common stock on December 31 st of the immediately preceding calendar year (or a lower amount as otherwise determined by the Board of Directors prior to January 1 st ).

As of December 31, 2019, 1,295,200 shares of common stock were available for issuance pursuant to the Plan.

In May 2015, the Company adopted the Amended and Restated 2014 Stock Incentive Plan (the “Plan”), under which an aggregate of 2,700,000 shares of common stock were authorized for issuance to employees, officers, directors, consultants and advisors of the Company, plus an annual increase on the first day of each fiscal year until the expiration of the Plan equal to 4 % of the total number of outstanding shares of common stock on December 31st of the immediately preceding calendar year (or a lower amount as otherwise determined by the Company’s board of directors (“Board of Directors”) prior to January 1st).

As of December 31, 2020, there were 928,261 shares of common stock available for issuance pursuant to the Plan.

The Plan provides for granting of both Internal Revenue Service qualified incentive stock options and non-qualified options, restricted stock awards, restricted stock units and performance stock units.

1 unchanged sentence

The stock options generally have a ten-year contractual life and, upon termination, vested options are generally exercisable between one and three months following the termination date, while unvested options are forfeited immediately upon termination.

In June 2018, the Company’s board of directors approved a modification to the former President and Chief Executive Officer’s equity-based awards to provide that all of those awards, to the extent unvested as of the Company’s 2020 annual meeting of shareholders, will vest on such date, subject to his continued service on the Company’s board of directors through such date.

This modification was effective on June 4, 2018 and affected 116,250 shares of non-vested restricted stock units and 225,625 unvested stock options to purchase the Company’s common stock.

The Company accounted for this modification under ASC 718, and, per guidance, determined the modification did not create incremental value as the fair value of these awards was unchanged.

The shorter requisite service period will result in the accelerated recognition of stock-based compensation expense through 2020.

In January 2019, the Company granted performance share units (“PSUs”) to certain members of the Company's senior management team.

The PSUs will vest following a three-year performance period, subject to the satisfaction of annual and cumulative performance criteria and the executive’s continued employment through the performance period.

No shares will be issued if the minimum applicable performance metric is not achieved.

The Company recognizes compensation expense ratably over the required service period based on its estimate of the number of shares that will vest based upon the probability of achieving performance metrics.

Refer to Note 15, Stock-based Compensation , for more information.

As of December 31, 2020, the warrant issued in connection with the Third Amendment to the Nucynta Commercialization Agreement in November 2018 was the Company’s only outstanding warrant, which is described in greater detail in Note 9.

The warrant expires in November 2022.

STOCK-BASED COMPENSATION

Performance Share Units, Restricted Stock Units and Stock Options

Performance Share Units

The Company periodically grants performance share units (“PSUs”) to certain members of the Company's senior management team.

PSUs vest subject to the satisfaction of annual and cumulative performance and/or market conditions established by the Compensation Committee.

In January 2019, the Company granted PSUs with performance conditions related to 2019, 2020, 2021 and three-year cumulative revenue goals for Xtampza ER.

The PSUs were to vest following a three-year performance period, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period.

PSUs may vest in a range between 0 % and 200 % , based on the satisfaction of performance criteria, and no shares will be issued if the minimum applicable performance metric is not achieved.

The Company recognizes compensation expense ratably over the required service period based on its estimate of the number of shares that will

vest based upon the probability of achieving the performance metrics.

If there is a change in the estimate of the number of shares that are likely to vest, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made.

Achievement of the annual and cumulative performance criteria for PSU grants will be determined by the Compensation Committee.

For PSUs granted in 2019, the performance criteria relate to Xtampza ER 2019, 2020, 2021 and three-year cumulative revenue goals.

The expense for the year ended December 31, 2019 was $ 136 .

In February 2020, the Company granted PSUs with performance criteria related to the relative ranking of the total stockholder return (“TSR”) of the Company’s common stock in 2020, 2021, 2022 and the cumulative three-year performance period return relative to the TSR of certain peer companies within the S&P Pharmaceutical Select Industry Index.

TSR will be measured based on the 30-day average stock price on the first day of each period compared to the 30-day average stock price on the last day of each period.

The PSUs subject to the annual performance criteria will vest annually, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period.

The cumulative PSUs will vest following the three-year performance period, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period.

PSUs may vest in a range between 0 % and 200 % , based on the satisfaction of performance, and no shares will be issued if the minimum applicable performance metric is not achieved.

As these PSUs vest based on the achievement of market conditions, the grant date fair values were determined using a Monte-Carlo valuation model.

The Monte-Carlo valuation model considered a variety of potential future share prices for the Company as well as its peer companies in the selected market index.

The weighted-average grant date fair value of 2020 PSUs granted with market-based vesting conditions was $ 28.81 based on the valuation model.

In December 2020, the Company’s board of directors approved a modification of PSUs that were originally granted to the Company’s senior management team in January 2019.

The modification replaced the original performance criteria for the 2020, 2021 and cumulative performance periods from being based on Xtampza 2020, 2021 and three-year cumulative revenue goals to being based on total shareholder return (“TSR”) for 2020, 2021 and the corresponding two-year cumulative period.

The PSUs achieved based on 2019 Xtampza revenues goals were not changed as part of the modification.

The Company accounted for this modification under ASC 718, and, per guidance, determined the modification created incremental value as the fair value of these awards was increased upon modification.

The increase in fair value resulted in an accelerated recognition of stock-based compensation expense on the modification date of $ 906 .

The total expense for these PSUs in years ended December 31, 2020 and 2019 was $ 950 and $ 136 , respectively.

A summary of the Company’s performance share units activity for the year ended December 31, 2020 and related information is as follows:

2 unchanged sentences

Outstanding at December 31, 2019

Performance adjustment

Outstanding at December 31, 2020

The weighted-average grant date fair value of PSUs granted for the year ended December 31, 2019 was $ 15.90 .

There were no PSUs that vested during the year ended December 31, 2019.

The number of PSUs awarded represents the target number of shares of common stock that may be earned;

however, the actual number of shares earned may vary based on the satisfaction of performance criteria.

The weighted-average grant date fair value of PSUs granted for the years ended December 31, 2020 and 2019 was $ 28.49 and $ 15.90 , respectively.

There were no PSUs granted in the year ended December 31, 2018.

For the years ended December 31, 2020 and 2019, the stock-based compensation expense for PSUs was $3,551 and $136, respectively.

There was no expense for PSUs in the year ended December 31, 2018.

As of December 31, 2020, the unrecognized compensation cost related to performance share units was $ 3,555 and is expected to be recognized as expense over approximately 1.6 years.

Restricted Stock Units

A summary of the Company’s restricted stock units activity for the year ended December 31, 2020 and related information is as follows:

7 unchanged sentences

The fair value of restricted stock units vested during the year ended December 31, 2020 was $ 5,989 .

Stock Options

The Company granted stock options to employees for the years ended December 31, 2020, 2019 and 2018.

The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model and restricted stock awards and restricted stock units based on the fair value of the award.

A summary of the Company’s stock option activity for the year ended December 31, 2020 and related information is as follows:

4 unchanged sentences

Exercisable at December 31, 2020

The weighted-average grant date fair value of stock options granted for the years ended December 31, 2019, 2018, and 2017 was $ 9.07 , $ 14.51 , and $ 7.86 respectively.

The total intrinsic value of stock options exercised for the years ended December 31, 2019, 2018, and 2017 was $ 1,506 , $ 3,970 , and $ 1,100 respectively.

As of December 31, 2019, the unrecognized compensation cost related to outstanding options was $ 15,603 and is expected to be recognized as expense over approximately 2.5 years.

Employee Stock Purchase Plan

The Company’s 2015 Employee Stock Purchase Plan allows employees as designated by the Company’s Board of Directors to purchase shares of the Company’s common stock.

The purchase price is equal to 85 % of the lower of the closing price of the Company’s common stock on (1) the first day of the purchase period or (2) the last day of the purchase period.

During the year ended December 31, 2019, 74,142 shares of common stock were purchased for total proceeds of $ 817 .

The expense for the years ended December 31, 2019, 2018 and 2017 was $ 358 , $ 493 and $ 380 , respectively.

Stock-Based Compensation Expense

The Company granted stock options to employees for the years ended December 31, 2019, 2018 and 2017.

Stock-based compensation for all stock options, restricted stock awards, restricted stock units and for the employee stock purchase plan are reported within:

Year Ended December 31,

Research and development expenses

Selling, general and administrative expenses

Total stock-based compensation expense

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:

14 unchanged sentences

The expected dividend yield assumption is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.

The weighted-average grant date fair value of stock options granted for the years ended December 31, 2020, 2019, and 2018 was $ 12.78 , $ 9.07 and $ 14.51 respectively.

The total intrinsic value of stock options exercised for the years ended December 31, 2020, 2019, and 2018 was $ 7,516 , $ 1,506 and $ 3,970 , respectively.

As of December 31, 2020, the unrecognized compensation cost related to outstanding options was $ 14,170 and is expected to be recognized as expense over approximately 2.4 years.

In June 2018, the Company’s board of directors approved a modification of equity-based awards granted to the former President and Chief Executive Officer to provide that all of those awards, to the extent unvested as of the Company’s 2020 annual meeting of shareholders, will vest on such date, subject to his continued service on the Company’s board of directors through such date.

This modification was effective on June 4, 2018 and affected 116,250 shares of non-vested restricted stock units and 225,625 unvested stock options to purchase the Company’s common stock.

The Company accounted for this modification under ASC 718, and, per guidance, determined the modification did not create incremental value as the fair value of these awards was unchanged.

The shorter requisite service period resulted in the accelerated recognition of stock-based compensation expense from the modification date through the date of the annual meeting of shareholders in May 2020.

Employee Stock Purchase Plan

The Company’s 2015 Employee Stock Purchase Plan allows employees as designated by the Company’s Board of Directors to purchase shares of the Company’s common stock.

The purchase price is equal to 85 % of the lower of the closing price of the Company’s common stock on (1) the first day of the purchase period or (2) the last day of the purchase period.

During the year ended December 31, 2020, 67,512 shares of common stock were purchased for total proceeds of $ 758 .

As of December 31, 2020, there were 1,315,844 shares of common stock authorized for issuance pursuant to the employee stock purchase plan.

The expense for the years ended December 31, 2020, 2019 and 2018 was $ 342 , $ 358 and $ 493 respectively.

Stock-Based Compensation Expense

Stock-based compensation for all stock options, restricted stock awards, restricted stock units, performance share units and for the employee stock purchase plan are reported within the following:

Year Ended December 31,

Research and development expenses

Selling, general and administrative expenses

Total stock-based compensation expense

For the year ended December 31, 2020, the Company recorded a current state tax expense of $ 830 .

For the years ended December 2019, and 2018 the Company did not record a current or deferred income tax expense or (benefit) due to current and historical losses incurred by the Company.

The Company's losses before income taxes consist solely of losses from domestic operations.

The enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017, as further described below, resulted in a remeasurement of the Company’s net deferred tax asset due to the reduction in corporate rates from 35 % to a 21 %, which is included in the Company’s 2017 rate reconciliation.

A reconciliation of income tax expense (benefit) computed at the statutory federal income tax rate to income taxes as reflected in the consolidated financial statements is as follows:

14 unchanged sentences

Operating lease liabilities

Operating lease assets

Accruals and other (1)

Depreciation and amortization

Total deferred tax assets

Intangible assets

Gross deferred tax assets:

Valuation allowance

Deferred tax assets after valuation allowance

Deferred tax liabilities – intangible assets

Total deferred tax assets:

Deferred tax liabilities:

Debt discount

Operating lease assets

Intangible assets

Net deferred tax assets

Balance includes $ 5,796 and $ 3,137 of accruals related to stock-based compensation expense as of December 31, 2019 and 2018, respectively.

(1) Balance includes $ 7,133 and $ 5,796 of stock-based compensation expense related to accruals as of December 31, 2020 and 2019, respectively.

Balance also includes $ 6,281 and $ 7,204 of accrued rebates, returns, and discounts as of December 31, 2020 and 2019, respectively.

1 unchanged sentence

As of December 31, 2020, and December 31, 2019, based on the Company's history of operating losses, the Company has concluded that it is not more likely than not that the benefit of its deferred tax assets will not be realized.

Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2019 and December 31, 2018.

The valuation allowance decreased $ 3,005 during the year ended December 31, 2019 due primarily to the expected utilization of its net operating losses in 2019 as well as limitations caused by ownership changes under the provisions of Internal Revenue Code Section 382.

Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2020 and

December 31, 2019.

The valuation allowance decreased $ 11,624 during the year ended December 31, 2020 due primarily to the expected utilization of its net operating losses in 2020.

The Company recorded a valuation allowance against all of its deferred tax assets as of December 31, 2020 and 2019.

The Company intends to continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

Given the Company’s current earnings and anticipated future earnings, however, the Company believes that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow the Company to reach a conclusion that a significant portion or all of the valuation allowance will no longer be needed.

Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to the provision for income taxes for the period the release is recorded.

The exact timing and amount of the valuation allowance release, however, are subject to change on the basis of the level of profitability that the Company is able to actually achieve.

As of December 31, 2020, 2019, and 2018, the Company had gross U.S.

federal net operating loss carryforwards of $ 226,824 , $ 292,342 , and $ 324,533 , respectively, which may be available to offset future income tax liabilities.

TCJA will generally allow losses incurred after 2017 to be carried over indefinitely but will generally limit the NOL deduction to the lesser of the NOL carryover or 80% of a corporation’s taxable income (subject to Internal Revenue Code Sections 382 and 383).

The Tax Cuts and Jobs Act of 2017 (“TCJA”) will generally allow losses incurred after 2017 to be carried over indefinitely but will generally limit the NOL deduction to the lesser of the NOL carryover or 80% of a corporation’s taxable income (subject to Internal Revenue Code Sections 382 and 383).

Also, there will be no carryback for losses incurred after 2017.

Losses incurred prior to 2018 will generally be deductible to the extent of the lesser of a corporation’s NOL carryover or 100% of a corporation’s taxable income (subject to Internal Revenue Code Section 382 and 383) and be available for twenty years from the period the

loss was generated.

As of December 31, 2020, 2019, and 2018, the Company also had gross U.S.

2 unchanged sentences

As of December 31, 2020, 2019 and 2018 the Company had state research and development tax credit carryforwards of approximately $ 1,150 , $ 1,112 , and $ 885 , respectively, available to reduce future tax liabilities which expire at various dates through 2035.

During 2018 the Company finalized its review of the impact of TCJA on the NOL rules and determined its impact on its NOL carryovers.

The impact of TCJA to the Company was primarily attributable to the limitation on the deductions associated with executive compensation under Internal Revenue Code Section 162(m).

The Company made adjustments during 2018 to its carryovers associated with its analysis of TCJA so that as of December 31, 2018, the Company’s NOL carryovers have been adjusted to comply with the impact of TCJA’s changes to the tax treatment of executive compensation under Internal Revenue Code Section 162(m).

Since a full valuation allowance has been provided against the Company’s net deferred tax asset, the impact of adjustments during 2018 to the net deferred tax asset associated with the impact of TCJA does not result in any financial statement impact.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

This could limit the amount of tax attributes that can be utilized annually to offset future tax liabilities.

The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change.

Subsequent ownership changes may further affect the limitation in future years.

During 2019, the Company completed a study to assess the impact of ownership changes, if any, on the Company’s ability to use its NOL and tax credit carryovers as defined under Section 382 of the Internal Revenue Code (“IRC 382”).

During 2020, the Company completed an updated study to assess the impact of ownership changes, if any, on the Company’s ability to use its NOL and tax credit carryovers as defined under Section 382 of the Internal Revenue Code (“IRC 382”).

As a result of the study, the Company concluded that there were ownership changes that occurred during the years 2006, 2012 and 2015 that could be subject to IRC 382 limitations.

Of the total federal NOL carryovers of $ 292,342 at December 31, 2019, approximately $ 28,990 are estimated to expire unbenefited due to IRC 382 annual limitations, and approximately $ 112 of state NOL carryovers are estimated to expire unbenefited due to IRC 382 annual limitations.

In addition, of our total federal R&D credit carryover of $ 4,044 at December 31, 2019, approximately $ 1,212 are estimated to expire unbenefited due to IRC 382 annual limitations.

These IRC 382 annual limitations may limit the Company’s ability to use these pre-ownership change federal and state NOL carryovers and pre-ownership change federal tax credit carryovers, which may potentially increase the Company’s future federal and state income tax liability.

These IRC 382 annual limitations may limit the Company’s ability to use pre-ownership change federal NOL carryovers and pre-ownership change federal tax credit carryovers, which may potentially increase the Company’s future federal income tax liability.

The Company files income tax returns in the United States and in several states.

3 unchanged sentences

The Company settled its IRS audit during 2018, which resulted in a total decrease to its NOL carryover of $ 36 .

As a result of the IRS settlement, the Company reversed this unrecognized tax benefit and trued-up its NOL carryover during 2018 to reflect the reduction of the $ 36 to its NOL as required by the IRS settlement.

As a result of the IRS settlement, the Company reversed this unrecognized tax benefit and trued-up its NOL carryover during 2018 to reflect the reduction of the $ 36 to its NOL as required by the IRS

This is included in the tabular rollforward below of gross unrecognized tax benefits.

23 unchanged sentences

Product revenues, net

Costs and expenses

Cost of product revenues

Cost of product revenues (excluding intangible asset amortization)

Intangible asset amortization

Total cost of products revenues

Operating expenses

Research and development

Selling, general and administrative

Total costs and expenses

Loss from operations

Total operating expenses

Income from operations

Interest expense

Interest income

Net income (loss)

Weighted-average shares - basic and diluted

Loss per share - basic and diluted

Income before income taxes

Provision for income taxes

Earnings per share — basic

Weighted-average shares — basic

Earnings (loss) per share — diluted

Weighted-average shares — diluted

Year ended December 31, 2019

Product revenues, net

Costs and expenses

Cost of product revenues

Cost of product revenues (excluding intangible asset amortization)

Intangible asset amortization

Total cost of products revenues

Operating expenses

Research and development

Selling, general and administrative

Total costs and expenses

Total operating expenses

Loss from operations

1 unchanged sentence

Interest income

Net income (loss)

Weighted-average shares - basic

(Loss) earnings per share - basic

Weighted-average shares - diluted

(Loss) earnings per share - diluted

(1) In the fourth quarter of 2018, the Company executed the Third Amendment to the Nucynta Commercialization Agreement, which eliminated the guaranteed minimum royalty payment obligations after 2018.

As a result, the Company remeasured the remaining contractual obligation as of the Amendment Date and reduced the intangible asset.

Consequently, amortization expense included within cost of product revenues was $ 15,494 in the fourth quarter compared to $ 32,407 , $ 32,407 and $ 29,526 in the third, second and first quarters, respectively.

Similarly, interest expense associated with the minimum royalty payments was $ 2,169 in the fourth quarter compared to $ 5,641 , $ 5,943 and $ 5,528 in the third, second and first quarters, respectively.

See Note 9 for further detail.

SUBSEQUENT EVENTS

Nucynta Purchase Agreement

On February 6, 2020, the Company entered into an asset purchase agreement (“Nucynta Purchase Agreement”) with Assertio, pursuant to which the Company agreed to acquire from Assertio certain assets related to the Nucynta Products for an aggregate purchase price of $ 375,000 (the “Purchase Price”), subject to certain closing and post-closing adjustments as described in the Nucynta Purchase Agreement.

In connection with the Nucynta Purchase Agreement, the Company also agreed to assume certain regulatory and supply chain contracts, liabilities and obligations related to Nucynta Products.

The Nucynta Purchase Agreement contains customary representations, warranties and covenants, and indemnification provisions subject to specified limitations.

From and after the closing of the Nucynta Purchase Agreement, the Company will pay royalties directly to Grünenthal GmbH at a rate of 14 % of net sales of the Nucynta Products.

This royalty payment obligation will replace the Company’s previous obligation to pay a royalty rate of 14 % of net sales of the Nucynta Products to Grünenthal, subject to a guaranteed royalty of $ 34,000 when net sales are between $ 180,000 and $ 243,000 .

On February 13, 2020, the Company closed the Nucynta Acquisition in accordance with the Nucynta Purchase Agreement.

Upon the closing of the transactions contemplated by the Nucynta Purchase Agreement, the Nucynta Commercialization Agreement is terminated with the exception of certain provisions thereof which will survive pursuant to the terms of the Nucynta Purchase Agreement, and the Company’s royalty payment obligations to Assertio thereunder will cease.

2020 Term Loan

On February 6, 2020, in connection with the execution of the Nucynta Purchase Agreement, the Company entered into a Loan Agreement with BioPharma Credit PLC, as collateral agent and lender;

and BioPharma Credit Investments V (Master) LP, as lender (the “2020 Loan Agreement”).

The 2020 Loan Agreement provides for a $ 200,000 secured term loan (the “2020 Term Loan”), the proceeds of which were used to finance a portion of the purchase price paid pursuant to the Nucynta Purchase Agreement.

The 2020 Term Loan will mature on the 48-month anniversary of the closing of the Nucynta Acquisition, and is guaranteed by the Company’s material domestic subsidiaries and is also secured by substantially all of the Company’s material domestic assets.

The 2020 Term Loan will bear interest at a rate based upon LIBOR (subject to a LIBOR floor of 2.0 % ), plus a margin of 7.5 % per annum.

The Company is required to repay the 2020 Term Loan by making equal quarterly payments.

The 2020 Loan Agreement contains certain covenants and obligations of the parties, including, without limitation, covenants that require the Company to maintain $ 200,000 in annual net sales and covenants that limit the Company’s ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business.

Failure to comply with these covenants would constitute an event of default under the 2020 Loan Agreement, notwithstanding the Company’s ability to meet its debt service obligations.

The 2020 Loan Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the 2020 Loan Agreement and execution upon the collateral securing obligations under the 2020 Loan Agreement.

2026 Convertible Notes

On February 13, 2020, the Company issued 2.625 % convertible senior notes due 2026 (the “convertible notes”), in the aggregate principal amount of $ 143,750 , in a public offering registered under the Securities Act of 1933, as amended.

The convertible notes are senior, unsecured obligations and will accrue interest at a rate of 2.625 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020.

The notes will mature on February 15, 2026, unless earlier repurchased, redeemed or converted.

Before August 15, 2025, noteholders will have the right to convert their notes only upon the occurrence of certain events.

From and after August 15, 2025, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date.

The initial conversion rate is 34.2618 shares of common stock per $1,000 principal amount of notes, which represents an initial conversion price of approximately $ 29.19 per share of common stock.

The initial conversion price represents a premium of approximately 35 % over the last reported sale of $ 21.62 per share of the Company’s common stock on February 10, 2020.

The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events.

SVB Term Loan

On January 23, 2020, the Company paid off the outstanding principal and accrued interest on our term loan with SVB with cash on hand.

Weighted-average shares - basic and diluted

Loss per share - basic and diluted

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures