What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-24 compared with 2021-02-25 · 380 added, 372 removed, 990 unchanged (43% of the section changed)

16 unchanged sentences

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.

Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to evaluate the effectiveness of our internal control over financial reporting.

Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2020, the end of our most recent fiscal year.

Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.

Changes in Internal Control Over Financial Reporting

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 24, 2022, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in accounting principle applied to its convertible debt effective January 1, 2021.

Basis for Opinion

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Not applicable.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Director s, Executive Officers, and Corporate Governance

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Form of Indemnification Agreement.

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.

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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.

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and Teva Pharmaceuticals USA, Inc.

Employment Agreement, dated May 24, 2021, by and between Colleen Tupper and Collegium Pharmaceutical, Inc.

Subsidiaries of Collegium Pharmaceutical, Inc.

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

(2) 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.

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

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

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

(6) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 filed with the Commission on May 9, 2018.

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

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

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

(9) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 filed with the Commission on May 8, 2019.

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

(11) 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 Annual Report on Form 10-K filed with the Commission on March 7, 2018.

(13) 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.

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

(10) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 filed with the Commission on May 8, 2019.

(11) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on February 10, 2020.

(14) 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.

(15) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on February 10, 2020.

(16) 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.

(17) 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.

(18) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 filed with the Commission August 5, 2021.

Form 10-K Summary

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/s/ Joseph Ciaffoni

Joseph Ciaffoni

President and Chief Executive Officer (Principal Executive Officer) and Director

February 24, 2022

/s/ Paul Brannelly

Paul Brannelly

Joseph Ciaffoni

/s/ Colleen Tupper

Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

February 24, 2022

Colleen Tupper

/s/ Michael T.

Heffernan, R.Ph.

Chairman of the Board

February 24, 2022

Heffernan, R.Ph.

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

Rita Balice-Gordon, Ph.D.

February 24, 2022

Rita Balice-Gordon, Ph.D.

February 24, 2022

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/s/ Gwen Melincoff

Gwen Melincoff

February 24, 2022

Gwen Melincoff

/s/ Gino Santini

February 24, 2022

/s/ Theodore R.

February 25, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated

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Audited Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( PCAOB ID 34 )

Consolidated Balance Sheets as of December 31, 2021 and 2020

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for convertible debt in 2021 due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , using the modified retrospective approach.

Basis for Opinion

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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

Revenue Recognition – Product Return Liability– 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.

Revenue is recognized when control is transferred to the customer, which occurs upon delivery, and revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer (“transaction price”).

The transaction price for product sales includes variable consideration related to sales deductions and a refund liability is established for estimated product returns.

At the end of each reporting period, the Company

updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

Variable consideration, including the risk of customer concessions, is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved.

The Company updates the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds with the corresponding adjustments recognized as revenue (or reductions of revenue).

Estimating the variable consideration and the provision for the refund liability requires significant judgment by management.

Given the complexity and significant estimation involved in calculating variable consideration and the refund liability, 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.

Our audit procedures related to the revenue deductions and the refund liability (the “return adjustments”) included the following, among others:

● We tested the effectiveness of controls over the measurement and recognition of return adjustments, including management's controls over product returns and revenue data.

● We evaluated the Company's methodology and significant assumptions made in developing the return adjustments.

● We tested the completeness and accuracy of the data underlying the measurement of return adjustments.

● We tested the mathematical accuracy of management's underlying calculation of return adjustments.

● We tested the reasonableness of management's estimate through corroboration with management outside of accounting and finance and evaluated evidence related to return adjustments.

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

● We developed independent estimates of the return adjustments using historical sales and returns activity, product dating and expiration dates, and other information.

/s/ Deloitte & Touche LLP

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Cash and cash equivalents

Accounts receivable

Accounts receivable, net

Prepaid expenses and other current assets

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Restricted cash

Deferred tax assets

Other noncurrent assets

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Preferred stock, $ 0.001 par value;

authorized shares - 5,000,000 at December 31, 2020 and December 31, 2019;

issued and outstanding shares - none at December 31, 2020 and December 31, 2019

authorized shares - 5,000,000

Common stock, $ 0.001 par value;

authorized shares - 100,000,000 at December 31, 2020 and December 31, 2019;

issued and outstanding shares - 34,612,054 at December 31, 2020 and 33,678,840 at December 31, 2019

authorized shares - 100,000,000 ;

35,806,119 issued and 33,655,402 outstanding shares at December 31, 2021 and 34,612,054 issued and outstanding at December 31, 2020

Additional paid-in capital

Accumulated deficit

Treasury stock, at cost;

2,150,717 shares at December 31, 2021 and none at December 31, 2020

Total shareholders’ equity

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Selling, general and administrative

Restructuring

Total operating expenses

2 unchanged sentences

Interest income

Income (loss) before income taxes

Provision for income taxes

(Loss) income before income taxes

(Benefit from) provision for income taxes

Net income (loss)

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(In thousands, except share data)

Treasury Stock

Shareholders’

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Stock-based compensation

Issuance of warrant

Balance at December 31, 2019

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Stock-based compensation

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

Balance at December 31, 2020

Cumulative effect of adjustment for adoption of ASU 2020-06

Exercise of common stock options

Issuance for employee stock purchase plan

Vesting of RSUs

Shares withheld for employee taxes upon vesting of RSUs

Vesting of RSUs and PSUs

Shares withheld for employee taxes upon vesting of RSUs and PSUs

Share repurchases

( 2,150,717 )

Forward contract on ASR agreement

Stock-based compensation

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

Balance at December 31, 2021

( 2,150,717 )

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

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Depreciation expense

Deferred income taxes

Stock-based compensation expense

1 unchanged sentence

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

Non-cash interest expense for Nucynta asset acquisition

Changes in operating assets and liabilities:

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Proceeds from the exercise of stock options

Payments made for employee restricted stock tax withholdings

Payments made for employee stock tax withholdings

Repurchases of common stock, including the ASR agreement

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

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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 cash (used in) provided by financing activities

Net increase in cash, cash equivalents and restricted cash

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Operating lease liabilities assumed

Liabilities assumed from Nucynta asset acquisition included in accrued rebates, returns and discounts

Liabilities assumed from Nucynta asset acquisition included as a reduction to accounts receivable

Warrant issued in connection with Nucynta asset acquisition

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

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The Company has its principal operations in Stoughton, Massachusetts.

The Company is a specialty pharmaceutical company committed to being the leader in responsible pain management.

The Company’s mission is to build a leading, diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions.

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

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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).

As of the date of the filing of this Annual Report on Form 10-K, the Company expects the COVID-19 pandemic and actions taken to contain it to continue to impact its revenue.

Notwithstanding the lifting of COVID-19 restrictions in many jurisdictions, and amidst continuing public health concerns relating to the spread of COVID-19, weekly pain patient office visits continue to be depressed compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with the Company’s products.

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

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

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 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, 2021, 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 sustainable profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.

The Company historically experienced net losses in each year since its inception until 2020, and as of December 31, 2021, had an accumulated deficit of $ 256,342 .

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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 allowances.

Estimates in the Company’s consolidated financial statements include revenue recognition, including the estimates of product returns, 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 allowances.

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

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Fair Value Measurements

Disclosures of fair value information about financial instruments are required, whether or not recognized in the balance sheet, for financial instruments with respect to which it is practicable to estimate that value.

Fair value measurements and disclosures describe the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, as follows:

Fair value measurements and disclosures describe the fair value hierarchy based on three levels of inputs as follows:

Level 1 inputs:

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Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability

Transfers are calculated on values as of the transfer date.

There were no transfers between Levels 1, 2 and 3 during the years ended December 31, 2021 and 2020.

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Money market funds, included in cash equivalents

The Company’s cash equivalents, which consist of money market funds, are measured at fair value on a recurring basis using quoted market prices.

Accordingly, these securities are categorized as Level 1.

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.

The fair value was determined based on data points other than quoted prices that are observable, either directly or indirectly, such as broker quotes in a non-active market.

As of December 31, 2021, the convertible senior notes had a fair value of approximately $ 139,078 and a net carrying value of $ 139,966 .

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.

As of December 31, 2021, the carrying amount of the term notes reasonably approximated the estimated fair value.

As of December 31, 2021, and December 31, 2020, the carrying amounts of the cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and accrued rebates, returns and discounts, reasonably approximated the estimated fair values.

Concentration of Credit Risk

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Three customers comprised 10% or more of the Company’s accounts receivable balance as of December 31, 2021.

These customers comprised 46 %, 34 % and 17 % of the accounts receivable balance, respectively.

These customers comprised 46 %, 33 % and 20 % of the accounts receivable balance as of December 31, 2021;

46 %, 34 % and 17 % as of December 31, 2020;

and 51 %, 27 %, and 19 % as of December 31, 2019.

The same three customers comprised 10% or more of the Company’s revenue during the year ended December 31, 2021.

These customers comprised 34 %, 31 % and 31 % of revenue, respectively.

To date, the Company has not experienced any losses with respect to the collection of its accounts receivable and believes that its entire accounts receivable balance is collectible as of December 31, 2020.

These customers comprised 35 %, 31 % and 29 % of revenue during the year ended December 31, 2021;

34 %, 31 % and 31 % during the year ended December 31, 2020;

and 34 %, 31 %, and 30 % during the year ended December 31, 2019.

To date, the Company has not experienced any credit losses with respect to the collection of its accounts receivable and has not recorded an allowance for credit losses as of December 31, 2021 or 2020.

The Company has no financial instruments with off balance sheet risk of loss.

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The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents.

The Company’s cash equivalents, which consist of money market funds, are measured at fair value on a recurring basis.

As of December 31, 2020 and 2019, the carrying amount of cash equivalents was $ 45,069 and $ 94,841 , respectively, which approximates fair value and was determined based upon Level 1 inputs.

Money market funds are valued using quoted market prices with no valuation adjustments applied.

Accordingly, these securities are categorized as Level 1.

Restricted Cash

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

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.

As of December 31, 2021 and 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.

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

8 unchanged sentences

The Company has capitalized $ 17,394 of inventory as of December 31, 2021.

The Company expects sales of the capitalized units to occur during the next twelve months.

The Company expects to use the inventory over its operating cycle.

Property and Equipment

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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.

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

For operating leases, the Company records a beginning lease liability equal to the present value of minimum lease payments to be made over the lease term discounted using the Company’s incremental borrowing rate and a corresponding lease asset adjusted for incentives received and indirect costs.

At lease commencement, the Company measures the lease liability at the present value of the remaining lease payments discounted using the incremental borrowing rate and the corresponding lease asset is adjusted for incentives received and indirect costs.

The Company records operating lease rent expense in the Statements of Operations over the lease term.

Variable lease costs are not included in the measurement of the operating lease liability and 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.

Short-term lease expense is recognized on a straight-line basis over the lease term.

The Company does not have any financing lease arrangements.

Revenue Recognition

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In accordance with ASC 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.

Please see Note 3 for further detail.

Refer to Note 3 , Revenue from Contracts with Customers , for further detail.

Research and Development Costs

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Stock-Based Compensation

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.

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 the grant date fair value and recognizes compensation expense over the 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 based on the fair value of the underlying common stock as determined by management.

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

The Company estimates the grant date fair value of restricted stock units based on the fair value of the underlying common stock.

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

For employee awards with market conditions, the Company recognizes compensation expense on an accelerated attribution basis.

The Company estimates the grant date fair value of awards with market conditions using the Monte Carlo model.

Restructuring

During the three months ended December 31, 2021, the Company executed a plan to reduce its workforce, primarily related to its salesforce.

The arrangements included the payment of a cash severance benefit near the time of separation, together with continued medical benefits and related services.

As a result, the Company recognized $ 4,578 in restructuring expense.

Of this amount, $ 1,335 was paid by December 31, 2021 and $ 2,980 was paid in January 2022, with the remaining $ 263 will be paid in the first half of 2022.

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.

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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.

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.

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.

The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more likely than not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

1 unchanged sentence

Any accrued interest and penalties will be included within the related tax liability.

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.

As of December 31, 2021, 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.

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.

Basic 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 earnings per share is computed by dividing the net income (loss) attributable to common shareholders 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, if-converted, or contingently issuable accounting methods, depending on the nature of the security.

For purposes of the diluted earnings per share calculation, stock options, restricted stock units, performance share units, and shares potentially issuable in connection with our employee stock purchase plan and Convertible Notes are considered potentially dilutive securities and included to the extent that their addition is not anti-dilutive.

Embedded Derivatives

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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’s term notes and convertible notes ( refer to Note 12, Debt ) 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, 2021 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.

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.

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

In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

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 became effective for annual and interim periods beginning after December 15, 2020.

The Company adopted this standard effective January 1, 2021 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

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

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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.

Subsequent to issuance, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope, in January 2021 to refine and clarify some of 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):

Simplifying the Accounting for Income Taxes .

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.

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):

In August 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.

This ASU simplifies the complexity associated with applying U.S.

GAAP for certain financial instruments with characteristics of liabilities and equity.

More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exceptions for contracts in an entity’s own equity.

Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital.

Consequently, a convertible debt instrument, such as the Company’s convertible senior notes, will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives.

The new guidance also requires the if-converted method to be applied for all convertible instruments and requires additional disclosures.

The Company elected to early adopt this guidance on January 1, 2021 using the modified retrospective method.

Under this transition method, the cumulative effect of the accounting change was removing the impact of recognizing the equity component of the Company’s convertible notes (at issuance and the subsequent accounting impact of additional interest expense from debt discount amortization).

The cumulative effect of the accounting change as of January 1, 2021 was an increase to the carrying amount of the convertible notes of $ 39,489 , a reduction to accumulated deficit of $ 5,288 , and a reduction to additional paid-in capital of $ 44,777 .

Interest expense of the convertible senior notes will be lower as a result of adoption of this guidance and diluted net loss per share will be computed using the if-converted method for the

convertible senior notes.

As a result of the adoption of this guidance, interest expense decreased and net income increased by $ 6,488 , basic earnings per share was increased by $ 0.19 , and diluted earnings per share was decreased by $ 0.06 for the year ended December 31, 2021.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

This ASU clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange.

The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021 and may be applied prospectively to modifications or exchanges occurring on or after the effective date of the amendments.

The Company will adopt this standard effective January 1, 2022 and the adoption is not expected to have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to distributors (“customers”), which in turn sell the product to pharmacies for the treatment of patients (“end users”).

The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to wholesalers (“customers”), which in turn sell the product to pharmacies for the treatment of patients (“end users”).

Revenue Recognition

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.

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.

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:

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The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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.

Performance Obligations

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.

This generally occurs upon delivery of the products to customers (wholesalers), 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

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”).

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 Xtampza ER and the Nucynta Products;

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;

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

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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.

As the Company’s rebates and incentives are based on products dispensed to patients, the Company is required to estimate the expected value of claims at the time of product delivery to distributors.

Given that distributors sell the product to pharmacies, which in turn dispense the product to patients, claims can be submitted significantly after the related sales are recognized.

The Company bases its estimates of variable consideration, which could include estimates of future rebates, returns, and other adjustments, on historical data and other information.

Estimates include:

(i) timing of the rebates and returns incurred, (ii) pricing adjustments related to rebates and returns, and (iii) the quantity of product that will be rebated or returned in the future.

Significant judgment is used in determining the appropriateness of these assumptions at each reporting period.

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

As the Company’s rebates and incentives are based on products dispensed to patients, the Company is required to estimate the expected value of claims at the time of product delivery to wholesalers.

Given that wholesalers sell the product to pharmacies, which in turn dispense the product to patients, claims can be submitted significantly after the related sales are recognized.

The Company’s estimates of these claims are based on the historical experience of existing or similar programs, including current contractual and statutory requirements, specific known market events and trends, industry data, and estimated distribution channel inventory levels.

Accruals and related reserves required for rebates and incentives are adjusted as new information becomes available, including actual claims.

If actual results vary, the Company may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.

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.

If actual results vary, the Company may need to adjust future estimates, which could have an effect on earnings in the period of the adjustment.

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

Accruals and related reserves are adjusted as new information becomes available, which generally consists of actual trade allowances and chargebacks processed relating to sales recognized in the period.

The amount of variable consideration that is included in the transaction price may be constrained and is included in net sales only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

In general, performance obligations do not include any estimated amounts of variable consideration that are constrained.

Actual amounts of consideration ultimately received may differ from the Company’s estimates.

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 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:

Accruals and related reserves are adjusted as new information becomes available, which generally consists of actual trade allowances and chargebacks processed relating to sales recognized.

Provisions for product returns are based on product-level returns rates, recent unprocessed return claims, as well as relevant market events and other factors.

Estimates of the future product returns are made at the time of revenue recognition to determine the amount of consideration to which the Company expects to be entitled (that is, excluding the products expected to be returned).

To the extent the Company receives amounts in excess of what it expects to be entitled to receive due to a product return, the Company does not recognize revenue when it transfers products to customers but instead recognizes those excess amounts received as a refund liability.

Historically, estimates of the refund liability for product returned for Nucynta Products were based on historical returns rates as these products have been commercially sold in the US since 2009 for Nucynta IR and since 2011 for Nucynta ER.

Because the Company began selling the Nucynta Products in 2018, the majority of Nucynta Products sold to customers by the Company were not eligible for return until the year ended December 31, 2021, or beyond.

For Xtampza ER, estimates of the refund liability for product returns were historically based on a combination of historical actual returns processed to date, taking into consideration the expiration date of product upon delivery to customers, as well as forecasted customer buying and return patterns, channel inventory levels, and other specifically known market events and trends.

Sales of Xtampza increased significantly starting in 2018;

as a result, the majority of Xtampza sold to customers by the Company has not been eligible for return until the year ended December 31, 2021, or beyond.

The Company’s customers short-pay an existing invoice upon notice of a product return claim.

Adjustments to the preliminary short-paid claims are processed when the product is physically returned and the return claim is validated and finalized.

The Company’s return policy requires that product is physically returned within an 18-month window beginning six months prior to expiration and up until twelve months after expiration.

During the year ended December 31, 2021, there were unprecedented and significant disruptions in the processing of product returns.

Specifically, the Company’s customers, via the third-party returns processor that they and many pharmacies engage to process the majority of the Company’s product returns, failed to return products to the Company in the ordinary course.

The value of actual returned product during the year ended December 31, 2021 represented less than 20 % of the value of the product returns claimed during that period.

Due to the failure of the customers and their vendor to return product timely in the ordinary course, the Company did not physically receive returned products corresponding to the substantial majority of the returns claimed and could not validate or finalize customer return claims, nor determine if the return was or would be eligible for refund upon the physical return.

The lack of timely processing of requested product returns obscures information related to the validation of product returns and increases uncertainty related to the actual volume of product that will be physically returned and credited in accordance with the Company’s returns policy.

During the fourth quarter of 2021, after significant and sustained efforts with customers to resolve the unprocessed return claims, the Company formally denied a significant portion of these claims under the Company’s return policy.

The Company subsequently received payment for only a portion of the denied claims and intends to vigorously pursue collections of the full amount of these short-pay receivables.

Additional unprocessed return claims have and are expected to continue to expire prior to their physical return.

Although the Company has denied and expects to continue to deny credit for product returns that are not in accordance with its return policy, uncertainty exists related to the ultimate resolution of these claims.

At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

In particular, resolution of the unprocessed return claims includes the risk of concession for those that are outside of the Company’s return policy.

As a result of discussions with customers related to unprocessed return claims and the uncertainty associated with the ultimate resolution, as well as the impact of unprocessed claims on estimates of future returns, the Company recorded an adjustment to reduce product revenue, net of $ 38,329 , with offsetting reductions in accounts receivable or increases in the refund liability for future product returns.

Significant judgment is required to determine the variable consideration included in the transaction price as described above.

Adjustments to the estimated variable consideration included in the transaction price occurs when new information indicates that the estimate should be revised.

If the value of accepted and processed claims is different than the amount estimated and included in variable consideration, then adjustments would impact product revenue, net and earnings in the period such revisions become known.

During the year ended December 31, 2021, the Company’s adjustment related the transaction price of performance obligations satisfied in the prior year was $ 26,644 , which includes $ 8,763 in adjustments to the refund liability.

The amount of variable consideration ultimately received and included in the transaction price may materially differ from the Company’s estimates, resulting in additional adjustments recorded to increase or decrease product revenue, net.

The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the years ended December 31, 2021, 2020, and 2019, respectively:

Allowances and

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Balance at December 31, 2020

Provision related to current period sales

Changes in estimate related to prior period sales

Credits/payments made

Balance at December 31, 2021

(1) Provisions for rebates and incentives includes managed care rebates, government rebates and co-pay program incentives.

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Disaggregation of Revenue

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

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

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

Year ended December 31,

Years ended December 31,

Nucynta Products (1)

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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.

The Company began recording revenues from sales of the Nucynta Products on the Nucynta Commercialization Closing Date and began commercial promotion of the Nucynta Products in February 2018.

Pursuant to the Nucynta Commercialization Agreement, the Company paid a one-time, non-refundable license fee of $ 10,000 to Assertio on the Nucynta Commercialization Closing Date, $ 6,223 for transferred inventory and $ 1,987 as reimbursement for prepaid expenses.

The Company also assumed the existing liabilities of the Nucynta Products, including $ 22,660 related to sales of Nucynta Products that occurred prior to the Nucynta Commercialization Closing Date.

The Nucynta Commercialization Agreement initially required the Company to pay a guaranteed minimum royalty of $ 135,000 per year through December 2021, payable in quarterly payments of $ 33,750 , prorated in 2018 for the Nucynta Commercialization Closing Date, as well as a variable royalty based on annual net sales over $ 233,000 .

Beginning January 2022 and for each year of the Nucynta Commercialization Agreement term thereafter, the Company was required to pay a variable royalty on annual net sales of the Nucynta Products, but without a guaranteed minimum.

Effective August 2018, the Company entered into a Second Amendment to the Nucynta Commercialization Agreement to clarify the mechanism for transferring title of products to be sold by the Company pursuant to the agreement and various related matters.

The Second Amendment did not have an impact on the Company’s financial statements.

Effective November 2018, the Company entered into the Third Amendment to the Nucynta Commercialization Agreement to adjust the royalty structure and termination clauses.

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, 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

(ii) 14 % of annual net sales of the Nucynta Products between $ 180,000 and $ 210,000 , plus

(iii) 58 % of annual net sales of the Nucynta Products between $ 210,000 and $ 233,000 , plus

(iv) 20 % of annual net sales of the Nucynta Products between $ 233,000 and $ 258,000 , plus

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

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

(ii) 25 % of annual net sales of the Nucynta Products between $ 233,000 and $ 258,000 , plus

(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 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.

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:

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Net income (loss)

Adjustment for interest expense recognized on convertible senior notes:

Net income (loss) — diluted

Weighted-average shares outstanding — basic

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Employee stock purchase plan

Convertible senior notes

Weighted average shares outstanding — diluted

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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.

Effective for the year ended December 31, 2021, the Company used the if-converted method for the convertible senior notes as a result of the adoption of ASU 2020-06, as described in Recently Adopted Accounting Pronouncements above.

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

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Performance share units

Employee stock purchase plan

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.

All other securities presented in the table above were excluded from the calculation of diluted earnings per share as their inclusion would have had an antidilutive effect.

As discussed in Note 14, the forward contract in connection with the Company’s ASR Agreement was outstanding as of December 31, 2021.

As the Company is entitled to receive additional shares of its common stock in connection with the outstanding forward contract, the receipt of additional shares of common stock would be antidilutive.

Therefore, no adjustments were made in the computation of earnings per share for the period the forward was outstanding.

Inventory consisted of the following:

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Total inventory

During the years ended December 31, 2020, 2019 and 2018, the aggregate charges to date related to excess inventory were immaterial.

During the years ended December 31, 2021, 2020 and 2019, the aggregate charges related to excess inventory were immaterial.

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.

During the years ended December 31, 2021 and 2020, inventory used in the construction and installation of property and equipment was $ 516 and $ 2,299 , respectively.

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

PREPAID EXPENSES AND OTHER CURRENT ASSETS

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Prepaid insurance

Other current assets

Prepaid development costs

Other prepaid expenses

Other current assets

Prepaid expenses and other current assets

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

In February 2020, the Company entered into a loan agreement ( refer to Note 12 , Debt ) and issued convertible senior notes ( refer to Note 12 , Debt ) 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:

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:

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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.

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.

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.

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.

Due to the nature of the guaranteed minimum royalty payment obligation and the fact that it was required to be settled in cash, the Company determined that the future minimum royalty payments represented a liability that should be recorded at its fair value as of the Nucynta Commercialization Closing Date.

The Company calculated the fair value of the future minimum royalty payments to be $ 482,300 using a discount rate of 5.7 %.

The discount rate was determined based on a review of observable market data relating to similar liabilities.

The Company determined the $ 54,700 discount should be recognized as interest expense in the Statement of Operations using the effective interest method and over the repayment period from January 9, 2018 through December 2021.

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.

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.

As a result, the Company remeasured the remaining contractual obligation as of the Third Amendment Date and recorded a reduction of the acquired intangible asset and obligation.

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.

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.

Under the original terms of the Nucynta Commercialization Agreement, the Company was obligated to make guaranteed annual minimum royalty payments.

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:

The following table summarizes the gross carrying amount, accumulated amortization, and net book value of the Nucynta Intangible Asset for the years ended December 31, 2021, 2020, and 2019:

Gross Carrying Value

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Net Book Value

Intangible Asset, net

Cost basis as of acquisition date

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

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Balance as of December 31, 2020

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

Amortization expense through period end

Balance as of December 31, 2021

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 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.

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.

The Company recognizes 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.

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Accrued royalties

Accrued audit and legal

Accrued restructuring expenses

Accrued bonuses

Accrued product taxes and fees

Accrued incentive compensation

Accrued interest

Accrued incentive compensation

Accrued payroll and related benefits

Accrued audit and legal

Accrued sales and marketing

Accrued income taxes

Accrued other operating costs

Total accrued expenses

As of December 31, 2021, the accrued audit and legal balance presented in the table above includes $ 2,750 related to litigation costs incurred to execute a settlement framework to resolve 27 pending opioid-related lawsuits.

COMMITMENTS AND CONTINGENCIES

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From time to time, the Company may face legal claims or actions in the normal course of business.

Except as disclosed below, the Company is not currently a party to any litigation and, accordingly, does not have any amounts recorded for any litigation related matters.

Except as disclosed below, the Company is not currently a party to any litigation and, accordingly, does not have any other amounts recorded for any litigation related matters.

Xtampza ER Litigation

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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.

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.

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

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 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 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.

On November 21, 2017, the Court issued its claim construction ruling, construing certain claims of the ʼ933, ʼ497, and ʼ717 patents.

No trial date has been scheduled.

The Court issued an order on September 28, 2018 in which it granted in part a motion for summary judgment that the Company filed.

Specifically, the Court ruled that the Xtampza ER formulation does not infringe the ʼ497 and ʼ717 patents.

On September 18, 2019, Purdue gave the Court notice of its bankruptcy filing and sought the imposition of an automatic stay of the proceedings.

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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.

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

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.

The Company opposed Purdue’s motion.

On November 19, 2021, the PTAB (i) denied Purdue’s motion to terminate the PGR and (ii) issued its Final Written Decision, finding that claims 1-17 of the ʼ961 patent were invalid for lack of written description and anticipation.

On December 17, 2021, Purdue filed a Request for Director Review.

That request was denied on February 7, 2022.

On February 16, 2022, Purdue filed a Federal Circuit notice of appeal.

On April 2, 2021, the Court granted Purdue’s Motion to Lift the Stay in the District of Massachusetts that was entered following Purdue’s Notice of Bankruptcy.

On April 9, 2021, Purdue filed another follow-on lawsuit asserting infringement of U.S.

10,407,434, which was late-listed in the Orange Book and therefore could not trigger any stay of FDA approval.

The Company responded to Purdue’s complaint asserting the ’434 patent with a motion to dismiss.

On May 21, 2021, and in response to the Company’s motion to dismiss, Purdue filed an amended complaint asserting the ’434 patent.

The Company renewed its motion to dismiss on June 4, 2021, arguing:

(i) Purdue cannot, as a matter of law, state a claim for infringement under § 271(e)(2)(A);

(ii) Purdue cannot, as a matter of law, state a claim for product-by-process infringement under §271(g);

and (iii) Purdue has not alleged facts sufficient to support any indirect infringement theory under §271(b) or (c).

The Court held a hearing on the Company’s motion to dismiss on October 13, 2021, and the motion is pending before the Court.

Like the prior follow-on lawsuits, the ’434 patent litigation was consolidated into the lead case and a scheduling order was entered.

On October 5, 2021, the Court held a claim construction hearing for the ʼ961 patent and the ʼ434 patent.

On November 17, 2021, by stipulation of the parties, the Court set (i) the fact discovery deadline for June 3, 2022;

and (ii) expert witness depositions to conclude by August 19, 2022.

The court has not set a deadline for dispositive motions or trial.

The remaining patents-in-suit in the lead consolidated action in the District of Massachusetts are the ʼ933, ʼ919, ʼ434, and ʼ961 patents.

Purdue has made a demand for monetary relief, and 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 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.

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.

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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.

Teva Litigation

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;

and 10,668,060 (the “Orange Book Patents”).

Teva filed an ANDA seeking FDA approval to market generic extended-release oxycodone capsule products (the “proposed ANDA products”).

Teva also filed certifications with the FDA that its proposed ANDA products will not infringe the Orange Book Patents and/or that the Orange Book Patents are invalid.

Teva sent the Company a Notice Letter indicating that it had made such certification to the FDA.

On February 22, 2018—within the 45-day period that gives the Company a 30-month stay of FDA approval of Teva’s ANDA while the parties have an opportunity to litigate—the Company sued Teva in the District of Delaware on eleven of the twelve Orange Book Patents that were listed at that time.

Teva responded to the complaint on May 14, 2018, 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 June 4, 2018.

The Company listed two additional patents in the Orange Book in 2018 and Teva amended its ANDA to include certifications to the FDA of non-infringement and invalidity with respect to those patents.

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.

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

The court consolidated the second suit with the first suit, and thus both suits are proceeding on the same schedule.

The parties briefed claim construction and the court heard argument on April 12, 2019.

On September 11, 2019, the Court issued a Report and Recommendation construing two of the six terms or sets of terms that are in dispute.

The remaining terms will be addressed in one or more forthcoming Report and Recommendations.

Fact discovery was scheduled to close on September 20, 2019 and expert discovery was scheduled to close on January 24, 2020.

The Company listed an additional patent in the Orange Book in January 2019 and Teva amended its ANDA to include certifications to the FDA of non-infringement and invalidity with respect to that patent.

Teva notified us of its certification and the Company filed a third lawsuit in the District of Delaware, asserting the additional Orange Book Patent, on May 9, 2019.

Teva responded to the complaint on June 6, 2019, denying infringement by Teva’s proposed ANDA products, and asserting counterclaims of non-infringement and invalidity of the asserted patent.

The Company answered Teva’s counterclaims on June 27, 2019.

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

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

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● 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.

These include lawsuits filed between May 2018 and July 2019 on behalf of Bucks County, Clinton County, Mercer County, Warrington Township, Warminster Township, 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.

● In Massachusetts, there are lawsuits by the City of Worcester, the City of Salem, the City of Framingham, the Town of Lynnfield, 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 Randolph, 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.

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There is no trial date set for this case.

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

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.

On December 24, 2021, the Company entered into a settlement framework with Scott+Scott Attorneys at Law, LLP (the “Scott Firm”), the law firm representing plaintiffs in each of the 27 cases described above.

Pursuant to the terms of the settlement framework, which is subject to approval by all parties of a final settlement agreement, the Company will pay

an aggregate amount not to exceed $ 2,750,000 in exchange for the dismissal, with prejudice, of each plaintiff’s lawsuit against the Company and a release of claims related to such lawsuits.

The Company has entered into this settlement framework to efficiently resolve this litigation and does not admit any liability or acknowledge any wrongdoing in connection with such settlement framework.

The Company currently expects to execute a final settlement agreement and make the corresponding payment during the first quarter of 2022.

Opioid-Related Request and Subpoenas

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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.

On December 16, 2021, the Company entered into an Assurance of Discontinuance with the Massachusetts Attorney General (the “AoD”).

Pursuant to the AoD, the Company provided certain assurances and agreed to pay the Massachusetts Attorney General $ 185,000 , including $ 65,000 relating to that office’s costs of investigation, in exchange for closure of the investigation and a release of claims pertaining to the subject matter of the investigation.

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

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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.

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

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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.

During the years ended December 31, 2021, 2020, and 2019, the Company recognized interest expense of $ 16,339 , $ 19,034 , and zero , respectively, related to the term notes.

As of December 31, 2021, principal repayments under the term notes are estimated to be paid as follows:

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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.

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 .

Prior to the adoption of ASU 2020-06 on January 1, 2021, 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

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

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

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

Subsequent to the adoption of ASU 2020-06 on January 1, 2021, which the Company elected to adopt using the modified

retrospective method, the Company removed the impact of recognizing the Equity Component of the senior convertible

notes (at issuance and the subsequent accounting impact of additional interest expense from debt discount amortization).

The cumulative effective of the accounting change as of January 1, 2021 was an increase to the carrying amount of the

convertible notes of $ 39,489 , a reduction to accumulated deficit of $ 5,288 , and a reduction to additional paid-in capital of $ 44,777 .

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.

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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.

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;

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;

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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, 2021, the convertible notes outstanding consisted of the following:

Liability component:

unamortized debt discount and issuance costs

unamortized 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 %.

Subsequent to the adoption of ASU 2020-06, the effective interest rate on the convertible notes was 3.26 %.

As of December 31, 2021, 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,

The following table presents the total interest expense recognized related to the convertible notes during the years ended December 31, 2021 and 2020:

Years ended December 31,

Contractual interest expense

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Total minimum payments

unamortized debt discount and issuance costs

unamortized 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.

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.

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.

Short-term lease expense is recognized on a straight-line basis over the lease term.

The Company does not have any financing lease arrangements.

As of December 31, 2020, the Company had operating lease assets of $ 8,391 and operating lease liabilities of $ 9,495 primarily related to operating lease agreements for its corporate headquarters.

Operating Lease Arrangements

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The Company has the right to extend the term of the Stoughton Lease for two additional five-year terms, provided that written notice is provided to the landlord no later than 12 months prior to the expiration of the then current Stoughton Lease term.

The Company does not believe the exercise of the extension to be reasonably certain as of the balance sheet date and therefore did not include the extension as part of its recognized lease asset and lease liability.

The Company did not believe the exercise of the extension to be reasonably certain as of the lease commencement date and therefore, did not include the extension as part of its recognized lease asset and lease liability.

The annual base rent is $ 1,214 , or $ 23.95 per rentable square foot, and will increase annually by 2.5 % to 3.1 % over the subsequent years.

In September 2019, the Company determined it had ceased use of its lease for the remaining 9,660 square feet at its former corporate headquarters in Canton, Massachusetts (“Canton Lease”).

The Company impaired the o perating lease asset and adjusted the operating lease liability to the fair value of cost that will continue to be incurred under the Canton Lease.

In December 2019, the Company terminated the Canton Lease and the operating lease liability was reduced to zero .

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

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.

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 manufacturing 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 manufacturing suite 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.

The Company determined its best estimate of stand-alone prices for each of the lease and nonlease components by considering observable information including gross margins expected to be recovered from the Company’s service provider and terms of similar lease contracts.

As of December 31, 2021, the Company had operating lease assets of $ 7,644 and operating lease liabilities of $ 8,765 primarily related to operating lease agreements for its corporate headquarters.

Short-Term Lease Arrangements

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Variable Lease Costs

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

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

The components of lease cost for the years ended December 31, 2021, 2020, and 2019 are as follows:

Year ended December 31,

Years ended December 31,

Operating lease cost

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Other information related to operating leases for the years ended December 31, 2021, 2020, and 2019 is as follows:

Year ended December 31,

Years ended December 31,

Other Information:

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Present value of lease liabilities

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).

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, 2021, there were 1,588,735 shares of common stock available for issuance pursuant to the Plan.

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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.

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

As of December 31, 2021, the Warrant was the Company’s only outstanding warrant.

Share Repurchases

In August 2021, the Company’s board of directors authorized the Repurchase Program to repurchase up to $ 100,000 of outstanding shares of the Company’s common stock at any time or times through December 31, 2022.

The Repurchase Program permits the Company to effect repurchases through a variety of methods, including open-market purchases (including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act), privately negotiated transactions, or otherwise in compliance with Rule 10b-18 of the Exchange Act.

Shares repurchased under the Repurchase Program will return to the Company’s pool of authorized but unissued shares available for reissuance.

The timing and amount of any such repurchases will be determined based on share price, market conditions, legal requirements, and other relevant factors.

The Repurchase Program can be discontinued at any time.

There can be no assurance as to the timing or number of shares of any repurchases in the future.

In October 2021, the Company’s board of directors authorized an ASR Program to repurchase $ 25,000 of the Company’s common stock, as part of the Company’s existing $ 100,000 Repurchase Program.

Under the terms of the Company's ASR agreement with an investment bank (the “ASR Agreement”), the Company paid $ 25,000 on November 15, 2021, and received 1,026,694 shares, representing 80 % of the upfront payment on a price per share of $ 19.48 , the closing price on the date the agreement was executed.

The remaining shares purchased by the Company was based on the volume-weighted average price of its common stock through January 7, 2022, minus an agreed upon discount between the parties.

On January 7, 2022, the ASR Agreement settled and the Company received an additional 307,132 shares, bringing the total shares repurchased pursuant to the ASR Agreement to 1,333,826 .

The ASR Agreement was accounted for as two separate transactions (1) a repurchase of common stock in a treasury stock transaction recorded on November 15, 2021 and (2) a forward contract indexed to the Company’s own common stock which settled on January 7, 2022.

The forward contract for the purchase of the remaining $ 5,000 , representing remaining shares to be delivered by the investment bank under the ASR Agreement, was recorded as a reduction to stockholders’ equity as of December 31, 2021.

Forward contracts to repurchase a variable number of the Company’s equity shares that require physical settlement are accounted for in conformity with guidance in ASC 815-10-15.

Under ASC 815-10-15-74, contracts issued or held by a company that are both (1) indexed to its own stock and (2) classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments.

Based on the transaction structure, the Company concluded that the forward purchase contract portion of the Company’s ASR Agreement satisfied these criteria and accordingly was classified as an equity instrument.

In accordance with ASC 260-10-55-88, the above-noted treasury stock acquisition resulted in an immediate reduction of 1,026,694 shares from the outstanding shares used to calculate the weighted-average common shares outstanding for both basic and diluted earnings per share.

The forward contract was outstanding as of December 31, 2021.

As the Company is entitled to receive additional shares of its common stock in connection

with the outstanding forward contract, the receipt of additional shares of common stock would be antidilutive.

Therefore, no adjustments were made in the computation of earnings per share for the period the forward was outstanding.

As of December 31, 2021, we repurchased 2,150,717 shares at a weighted-average price of $ 19.93 per share for a total of $ 42,861 under the Repurchase Program and the cost of repurchased shares were recorded as treasury stock in the condensed consolidated Balance Sheet.

As of December 31, 2021, $ 57,139 remained available for share repurchases under the Repurchase Program.

STOCK-BASED COMPENSATION

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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.

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.

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.

During the year ended December 31, 2021, the Company adjusted cumulative compensation expense based on the number of shares that vested.

Beginning in February 2020 and subsequently in 2021, the Company granted PSUs with performance criteria related to the relative ranking of the total stockholder return (“TSR”) of the Company’s common stock for each individual year within a three-year performance period as well as 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.

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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 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 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.

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The weighted-average grant date fair value of PSUs granted for the years ended December 31, 2021, 2020, and 2019 was $ 35.15 , $ 28.49 , and $ 15.90 , respectively.

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

For the years ended December 31, 2021, 2020, and 2019, the stock-based compensation expense for PSUs was $ 4,817 , $ 3,551 , and $ 136 , respectively.

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

As of December 31, 2021, the unrecognized compensation cost related to performance share units was $ 4,443 and is expected to be recognized as expense over approximately 2.0 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:

A summary of the Company’s restricted stock units (“RSUs”) activity for the year ended December 31, 2021 and related information is as follows:

Weighted-Average

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The total fair value of RSUs vested (measured on the date of vesting) for the years ended December 31, 2021, 2020 and 2019 was $ 11,165 , $ 6,992 and $ 2,683 , respectively.

As of December 31, 2020, the unrecognized compensation cost related to restricted stock units was $ 16,816 and is expected to be recognized as expense over approximately 2.6 years.

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

As of December 31, 2021, the unrecognized compensation cost related to restricted stock units was $ 24,936 and is expected to be recognized as expense over approximately 2.7 .

The weighted-average grant date fair value of restricted stock units vested during the years ended December 31, 2021, 2020, and 2019 was $ 8,526 , $ 5,989 , and $ 4,066 , respectively.

Stock Options

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The expected term represents the period of time that options are expected to be outstanding.

Because the Company does not have historical exercise behavior through December 31, 2020 it determined the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.

Because the Company does not have historical exercise behavior through December 31, 2021, it determined the expected term assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.

Expected Dividend Yield.

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As of December 31, 2021, the unrecognized compensation cost related to outstanding options was $ 5,096 and is expected to be recognized as expense over approximately 1.9 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.

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, 2021, 43,719 shares of common stock were purchased for total proceeds of $ 755 .

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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

Years ended December 31,

Research and development

Selling, general and administrative

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.

For the years ended December 31, 2021 and 2020, the Company recorded a benefit from income taxes of $ 74,891 and provision for income taxes of $ 830 , respectively.

For the year ended December 31, 2019, the Company did no t record a current or deferred income tax provision or (benefit) due to current and historical losses incurred by the Company.

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

The provision for (benefit from) income taxes contained the following components:

Year Ended December 31,

Current provision (benefit):

Deferred provision (benefit):

Income tax provision (benefit)

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:

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Permanent differences

Stock compensation

Research and development credit

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Operating lease liabilities

Returns and discounts

Stock-based compensation

Accruals and other

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Operating lease assets

Intangible assets

Net deferred tax assets

(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.

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets.

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, 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.

The Company provides a valuation allowance when it is more likely than not that deferred tax assets will not be realized.

In determining the extent to which a valuation allowance for deferred tax assets is required, the Company evaluates all available evidence including projections of future taxable income, carry back opportunities, reversal of certain deferred tax liabilities, and other tax planning strategies.

Prior to generating income during the year ended December 31, 2020, the Company had a history of operating losses and a valuation allowance was maintained on the majority of the Company's deferred tax assets through March 31, 2021.

As a result of sustained positive earnings history through cumulative earnings over the last three years , as of June 30, 2021, the Company began using projections of future taxable income as a source of realizing its deferred tax assets.

Accordingly, the Company released the portion of the valuation allowance on deferred tax assets expected to be realized through future earnings in the three months ended June 30, 2021.

The Company recognized a deferred tax benefit of $ 78,042 for the year ended December 31, 2021.

The net operating losses expected to be recovered through ordinary income in the year ended December 31, 2021 are included in the annual effective tax rate.

The Company has maintained a valuation allowance on the portion of its deferred tax assets that are not more likely than not to be realized due to tax limitation or other conditions of $ 1,966 as of December 31, 2021.

As of December 31, 2021, 2020, and 2019, the Company had gross U.S.

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To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.

The Company originally recorded an unrecognized tax benefit of $ 902 (net rate effected unrecognized tax benefit of $ 235 ) during 2017 associated with its IRS examination of its 2015 federal income tax return, and accordingly reduced its NOL deferred tax asset during 2017.

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

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

Since a full valuation allowance has been provided against the Company’s net operating loss carryover, the true up of the NOL carryover and associated deferred tax asset during 2018 does not result in any financial statement impact.

For all years through December 31, 2021, the Company generated research credits but has not conducted a study to document the qualified activities.

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The Company has reduced its deferred tax asset for its estimate of credits that could be reduced, and that is included in the tabular rollforward of uncertain tax positions.

Since a full valuation allowance has been provided against the Company’s research and development credits the reduction in the gross deferred tax asset established for the research and development credit carryforwards does not result in any financial statement impact.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) is as follows:

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Reductions for tax positions of prior years

Reductions due to lapse of applicable statute of limitations

Gross UTB Balance at December 31

Net UTB impacting the effective tax rate at December 31 (included in the change in the valuation allowance in rate reconciliation)

Net UTB impacting the effective tax rate at December 31 excluding valuation allowance impacts, if any

EMPLOYEE BENEFITS

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Selling, general and administrative

Restructuring

Total operating expenses

Income from operations

Income (loss) from operations

Interest expense

Interest income

Income before income taxes

Provision for income taxes

Earnings per share — basic

Income (loss) before income taxes

(Benefit from) provision for income taxes

Net income (loss)

Earnings (loss) per share — basic

Weighted-average shares — basic

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Total operating expenses

Loss from operations

Income from operations

Interest expense

Interest income

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 per share — diluted

Weighted-average shares — diluted

(1) In the fourth quarter of 2021, product revenues, net included a $ 38,329 product revenue adjustment related to returns adjustments, of which $ 13,787 related to Xtampza revenue and $ 24,542 related to Nucynta Products revenue.

In addition, selling general and administrative operating expense includes $ 2,935 of expense related to litigation settlements .

BIODELIVERY SCIENCES INTERNATIONAL, INC.

On February 14, 2022, the Company and BioDelivery Sciences International, Inc.

BDSI) announced the Merger Agreement pursuant to which Collegium will acquire BDSI for $ 5.60 per share in cash.

The transaction, which has been unanimously approved by the boards of directors of both companies, is expected to close late in the first quarter 2022, subject to customary closing conditions, including receipt of required regulatory approvals and the tender of a majority of outstanding shares of BDSI’s common stock.

Following the successful closing of the tender offer, the Company will acquire any shares of BDSI that are not tendered in the tender offer through a second-step merger at the same consideration as paid in the tender offer.

In connection with the definitive agreement to acquire BDSI, Collegium entered into a commitment letter (the “Debt Commitment Letter” with Pharmakon Advisors, L.P.

pursuant to which funds managed by Pharmakon Advisors, L.P.

have committed, subject to customary conditions, to provide to Collegium a four ( 4 ) year senior secured term loan facility in an aggregate principal amount of $ 650 million (the “Term Facility”).

Proceeds will be used to finance a portion of Collegium’s acquisition of BDSI, as well as to repay the outstanding debt of Collegium and BDSI and pay certain fees and expenses related thereto.

Under the terms of the Debt Commitment Letter, the Term Facility will have $ 100 million in amortization payments during the first year and the remaining $ 550 million balance will amortize in equal quarterly installments over the remaining three ( 3 ) years.

The loan will initially bear interest at 3-month LIBOR plus 7.50 % per annum subject to a 1.20 % floor, and Collegium will pay a one-time fee of 2 % due at signing and 1 % due at closing.

The obligation of Pharmakon Advisors, L.P.

to provide the financing under the Debt Commitment Letter is subject to a number of conditions, including the receipt by Pharmakon Advisors, L.P.

of executed loan documentation, the accuracy of certain representations and warranties in all material respects and consummation of the transactions as contemplated by the Merger Agreement.

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