What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-23 compared with 2022-02-24 · 621 added, 416 removed, 954 unchanged (52% of the section changed)

7 unchanged sentences

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;

receipts and expenditures are being made only in accordance with authorizations of our management and directors;

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

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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, 2021.

Based on our evaluation, Management has concluded that our internal control over financial reporting was effective as of December 31, 2022.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, our management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer did not identify any change in our internal control over financial reporting during the fiscal quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

During the fourth quarter of 2022, we completed the integration of BDSI into our internal control over financial reporting.

Except for this change, there has been no other changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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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Director s, Executive Officers, and Corporate Governance

Other than the information regarding our executive officers provided in Part I of this report under the heading “Business—Executive Officers of the Registrant,” the information required to be furnished pursuant to this item is incorporated herein by reference to our definitive proxy statement for the 2022 Annual Meeting of the Shareholders.

Other than the information regarding our executive officers provided in Part I of this report under the heading “ Business — Our Executive Officers ,” the information required to be furnished pursuant to this item is incorporated herein by reference to our definitive proxy statement for the 2023 Annual Meeting of the Shareholders.

Our Board of Directors has adopted a Code of Ethics applicable to all of our employees, executive officers and directors.

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All financial statement schedules are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto.

Exhibit Number

Exhibit Description

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

Agreement and Plan of Merger, dated as of February 14, 2022, by and among Collegium Pharmaceutical, Inc., Bristol Acquisition Company, Inc.

and BioDelivery Sciences International, Inc.

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

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Form of certificate representing the 2.625% Convertible Senior Notes due 2026 (included as Exhibit A to Exhibit 4.3).

Indenture, dated as of February 10, 2023, between Collegium Pharmaceutical, Inc.

and The Bank of New York Mellon Trust Company, N.A., as trustee.

Form of certificate representing the 2.875% Convertible Senior Notes due 2029 (included as Exhibit A to Exhibit 4.5).

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith).

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

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

and Michael T.

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

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and Collegium Pharmaceutical, Inc.

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

and Collegium NF, LLC, dated as of December 4, 2017.

Amendment dated January 9, 2018 to Commercialization Agreement by and among Assertio, Inc.

and Collegium Pharmaceutical, Inc.

and Collegium NF, LLC.

Amendment No.

2 to Commercialization Agreement, dated August 29, 2018, by and among Collegium Pharmaceutical, Inc., Collegium NF, LLC, and Assertio Therapeutics, Inc.

Amendment No.

3 to Commercialization Agreement, dated November 8, 2018, by and among Collegium Pharmaceutical, Inc., Collegium NF, LLC, and Assertio Therapeutics, Inc.

Purchase Agreement, dated as of February 6, 2020, by and between Collegium Pharmaceutical, Inc.

and Assertio Therapeutics, Inc.

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

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

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

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

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

Amended and Restated Loan Agreement, dated as of March 22, 2022, by and among Collegium Pharmaceutical, Inc., the guarantors party thereto, BioPharma Credit PLC, and BioPharma Credit Investments V (Master) LP, as lenders.

Second Amendment to Loan Agreement, dated as of February 6, 2023, Amended and Restated Loan Agreement, dated as of March 22, 2022, by and among Collegium Pharmaceutical, Inc., the guarantors party thereto, BioPharma Credit PLC, and BioPharma Credit Investments V (Master) LP, as lenders .

Exclusive License Agreement, dated April 4, 2019, between the Company and Shionogi, Inc.

(incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K filed by BDSI on March 9, 2022).

Amendment to Employment Agreement, dated January 20, 2022 by and between Collegium Pharmaceutical, Inc.

and Joseph Ciaffoni.

Amendment to Employment Agreement, dated January 20, 2022 by and between Collegium Pharmaceutical, Inc.

and Colleen Tupper.

Amendment to Employment Agreement, dated January 20, 2022 by and between Collegium Pharmaceutical, Inc.

and Shirley Kuhlmann.

Amendment to Employment Agreement, dated January 20, 2022 by and between Collegium Pharmaceutical, Inc.

and Scott Dreyer.

Employment Agreement, dated March 23, 2022 by and between Collegium Pharmaceutical, Inc.

and Thomas Smith.

Subsidiaries of Collegium Pharmaceutical, Inc.

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The following financial information from this Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL:

(i) Consolidated Balance Sheets as of December 31, 2021, 2020, (ii) Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019, (iii) Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2021, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

(i) Consolidated Balance Sheets as of December 31, 2022, and 2021, (ii) Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020, (iii) Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2022, 2021 and 2020, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

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

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(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.

(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.

(11) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2023.

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(14) 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.

(15) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 filed with the Commission May 10, 2022.

(16) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on February 14, 2022.

(17) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on March 23, 2022.

Form 10-K Summary

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/s/ Joseph Ciaffoni

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

President and Chief Executive Officer

February 23, 2023

Joseph Ciaffoni

(Principal Executive Officer) and Director

/s/ Colleen Tupper

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

Executive Vice President and Chief Financial Officer

February 23, 2023

Colleen Tupper

(Principal Financial and Accounting Officer)

/s/ Michael T.

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February 23, 2023

/s/ Neil McFarlane

February 23, 2023

Neil McFarlane

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

Critical Audit Matter

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

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

Critical Audit Matters

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

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

Revenue Recognition – Product Return Liability – Refer to Note 3 to the Financial Statements

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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.

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 should be 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.

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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.

Given the complexity and significant level of estimation uncertainty involved in calculating 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

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

Business Combinations - Refer to Note 4 to the financial statements

Critical Audit Matter Description

During the year ended December 31, 2022, the Company acquired BioDelivery Sciences International, Inc (“BDSI”) for $669.4 million and accounted for the transaction as a business combination.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including identifiable intangible assets and inventory of $435.0 million and $77.4 million, respectively.

Management estimated the fair value of these assets using valuation techniques, including income-based models, which required the use of significant estimates and assumptions related to revenue forecasts, future profit margins, and the selection of appropriate discount rates.

We identified the valuation of acquired intangible assets and inventory as a critical audit matter.

Given that the determination of the fair value of the acquired intangible assets and inventory requires significant estimates and assumptions by management, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the revenue forecasts, future profit margins, and the selection of the discount rates for the acquired intangible assets and inventory included the following, among others:

● We tested the effectiveness of controls over the valuation of the acquired intangible assets and inventory, including management's controls over revenue forecasts, future profit margins, and selection of the discount rates.

● We assessed the reasonableness of management's revenue and profit margin forecasts by performing the following:

o We compared the forecasts to historical results of the acquired business.

o We compared the forecasts to internal forecasts and other information obtained while performing the audit.

o We performed a sensitivity analysis to determine the impact of the assumptions under different scenarios.

o We compared the revenue growth rates and profit margins to available external information.

● With the assistance of our fair value specialists, we performed the following:

o We evaluated the reasonableness of the valuation methodologies selected and the mathematical accuracy of the calculation.

o We tested the source information underlying the determination of the discount rates, tested the mathematical accuracy of the calculations and compared those to the amounts selected by management.

/s/ Deloitte & Touche LLP

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Operating lease assets

Intangible asset, net

Intangible assets, net

Restricted cash

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Total liabilities

Commitments and contingencies (see Note 11)

Commitments and contingencies (refer to Note 12)

Shareholders’ equity:

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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

37,084,759 issued and 33,848,936 outstanding shares at December 31, 2022 and 35,806,119 issued and 33,655,402 outstanding shares at December 31, 2021

Additional paid-in capital

Accumulated deficit

Treasury stock, at cost;

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

3,235,823 shares at December 31, 2022 and 2,150,717 shares at December 31, 2021

Accumulated deficit

Total shareholders’ equity

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Cost of product revenues (excluding intangible asset amortization)

Intangible asset amortization

Intangible asset amortization and impairment

Total cost of products revenues

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Total operating expenses

Income (loss) from operations

Income from operations

Interest expense

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(Benefit from) provision for income taxes

Net income (loss)

Earnings (loss) per share — basic

Net (loss) income

(Loss) earnings per share — basic

Weighted-average shares — basic

Earnings (loss) per share — diluted

(Loss) earnings per share — diluted

Weighted-average shares — diluted

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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

Cumulative effect of adjustment for adoption of ASU 2020-06

( 2,150,717 )

Exercise of common stock options

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( 1,085,106 )

Forward contract on ASR agreement

Exercise of warrant

Stock-based compensation

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Operating activities

Net income (loss)

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

Amortization expense

Net (loss) income

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

Amortization and impairment expense

Depreciation expense

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Operating lease assets and liabilities

Other long-term liabilities

Net cash provided by operating activities

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Purchases of property and equipment

Acquisition of BDSI (net of cash acquired)

Net cash used in investing activities

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Payments made for employee stock tax withholdings

Repurchases of common stock, including the ASR agreement

Repurchases of common stock

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

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Repayment of term notes

Proceeds from term note modification

Repayment of term loan

Net cash (used in) provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Net cash provided by (used in) financing activities

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

Cash, cash equivalents and restricted cash at beginning of year

Cash, cash equivalents and restricted cash at end of year

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

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Supplemental disclosure of cash flow information

Cash paid for offering costs

Cash paid for interest

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Receivable from stock option exercises in other current assets

Operating lease assets assumed

Operating lease liabilities assumed

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

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Collegium Pharmaceutical, Inc.

(the “Company”) was incorporated in Delaware in April 2002 and then reincorporated in Virginia in July 2014.

(the “Company” or “Collegium”) was incorporated in Delaware in April 2002 and then reincorporated in Virginia in July 2014.

The Company has its principal operations in Stoughton, Massachusetts.

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.

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

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

The Company’s product portfolio also includes Nucynta ER and Nucynta IR (the “Nucynta Products”).

In December 2017, the Company entered into a Commercialization Agreement (the “Nucynta Commercialization Agreement”) with Assertio Therapeutics, Inc.

(formerly known as Depomed) (“Assertio”), pursuant to which the Company acquired the right to commercialize the Nucynta Products in the United States.

The Company began shipping and recognizing product sales on the Nucynta Products on January 9, 2018 and began marketing the Nucynta Products in February 2018.

Nucynta ER is an extended-release formulation of tapentadol that is indicated for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy in adults, and for which alternate treatment options are inadequate.

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

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

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

Upon closing, the Nucynta Commercialization Agreement was effectively terminated.

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

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 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 portfolio includes Xtampza ER, Nucynta ER and Nucynta IR (collectively the “Nucynta Products”), Belbuca, and Symproic.

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 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 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 .

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, product-related litigation, 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.

As the COVID-19 pandemic unfolded, and governmental and societal reactions to it evolved, the Company’s business was impacted by several trends, including depressed pain patient office visits compared to pre-COVID periods.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The consolidated financial statements include the accounts of Collegium Pharmaceutical, Inc.

as well as the accounts of its subsidiaries Collegium Securities Corp.

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

as well as the accounts of its subsidiaries Collegium Securities Corporation (a Massachusetts corporation), Collegium NF LLC (a Delaware limited liability company), BioDelivery Sciences International, Inc.

(a Delaware corporation), Arius Pharmaceuticals, Inc.

(a Delaware corporation), and Arius Two, Inc.

(a Delaware corporation), all wholly owned subsidiaries requiring consolidation.

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

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Use of Estimates

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, 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 preparation of the 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, discounts and allowances related to commercial sales of products, estimates related to the fair value of assets acquired and liabilities assumed, including acquired intangible assets and the fair value of inventory acquired, estimates utilized in the ongoing valuation of inventory related to potential unsaleable product, estimates of useful lives with respect to intangible assets, accounting for stock-based compensation, contingencies, impairment of intangible assets and deferred 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

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

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:

Level 1 inputs:

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Accordingly, these securities are categorized as Level 1.

Assets and Liabilities Not Carried at Fair Value

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

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As of December 31, 2022, 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.

As of December 31, 2022, and 2021, 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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In addition, as of December 31, 2022, the Company’s cash equivalents were invested in money market funds.

The Company has not experienced any material losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the financial institutions in which those deposits are held.

Three customers comprised 10% or more of the Company’s accounts receivable balance as of December 31, 2022.

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 37 %, 33 %, and 28 % of the accounts receivable balance as of December 31, 2022 and 46 %, 33 %, and 20 % as of December 31, 2021.

The same customers comprised 10% or more of the Company’s revenue during the year ended December 31, 2022.

These customers comprised 33 %, 32 %, and 31 % of revenue during the year ended December 31, 2022;

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

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.

As of December 31, 2022 and 2021, the Company had restricted cash of $ 2,547 , which represents cash held in a depository account at a financial institution to collateralize conditional standby 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.

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These adjustments are recorded based upon various factors, including the level of product manufactured by the Company, the level of product in the distribution channel, current and projected demand and the expected shelf-life of the inventory components.

As of December 31, 2021, cumulative estimates of excess inventory recorded as a component of cost of product revenues were immaterial.

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

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

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

The Company outsources the manufacturing of its products to contract manufacturers.

In addition, the Company currently relies on a sole supplier or a limited number of suppliers for the active pharmaceutical ingredients in its products.

Accordingly, the Company has concentration risk associated with its commercial manufacturing.

The Company has capitalized $ 46,501 of inventory as of December 31, 2022.

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Costs which materially improve or extend the lives of existing assets are capitalized.

Property and equipment are depreciated when placed into service using the straight-line method based on their estimated useful lives as follows:

equipment are depreciated when placed into service using the straight-line method based on their estimated useful lives as follows:

Asset Category

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Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recorded in the statements of operations.

Business Combination Accounting and Valuation of Acquired Assets

To determine whether acquisitions should be accounted for as a business combination or as an asset acquisition, the Company makes certain judgments regarding whether the acquired set of activities and assets meets the definition of a business.

Judgment is required in assessing whether the acquired processes or activities, along with their inputs, would be substantive to constitute a business, as defined by U.S.

The acquisition method of accounting requires the recognition of assets acquired and liabilities assumed at their acquisition date fair values.

Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed.

The determination of the fair value requires the estimation of fair values based on non-observable inputs that are included in valuation models.

An income approach, which generally relies upon projected cash flow models, is used in estimating the fair value of the acquired intangible assets and the fair value of acquired inventory.

These cash flow projections are based on management's estimates of economic and market conditions including the estimated future cash flows from revenues of acquired assets, the timing and projection of costs and expenses and the related profit margins, tax rates, and an appropriate discount rate.

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination.

Goodwill is not amortized but is subject to impairment testing at least annually as of October 1 or when a triggering event occurs that could indicate a potential impairment.

In performing the goodwill impairment test, the Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying value.

Alternatively, the Company may elect to proceed directly to the quantitative impairment test.

In performing the quantitative analysis, the Company compares the fair value of the reporting unit with its carrying amount, including goodwill.

If the carrying amount of the Company’s reporting unit exceeds its fair value, the Company would recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, up to the amount of goodwill allocated to that reporting unit.

The Company performed a qualitative assessment during the annual impairment review as of October 1, 2022 and concluded that it is not more likely than not that the fair value of the Company’s reporting unit is less than its carrying amount.

Intangible Assets

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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.

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.

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.

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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.

Leases with an initial term of 12 months or less, or short-term leases, are not recorded on the Company’s Consolidated Balance Sheets.

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

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Revenue Recognition

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

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.

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

The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to wholesale pharmaceutical distributors, which in turn sell the product to pharmacies for the treatment of patients.

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.

Refer to Note 3, Revenue from Contracts with Customers , for more information.

Research and Development Costs

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

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

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

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

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

Research and development expenses have historically consisted of product development expenses incurred in identifying, developing, and testing product candidates.

Product development expenses primarily consisted of labor, benefits, and related employee expenses for personnel directly involved in product development activities, fees paid to contract research organizations for managing clinical and non-clinical trials, and regulatory costs.

As of April 1, 2022, the Company focused entirely on commercial products rather than research and development and redirected resources from research and development activities.

As such, there were no expenses incurred in research and development after the three months ended March 31, 2022.

Advertising and Product Promotion Costs

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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.

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

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

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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.

For 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.

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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.

Of this amount, $ 1,335 was paid by December 31, 2021 and the remaining $ 3,243 was 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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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.

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

Embedded Derivatives

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The Company’s term notes and convertible notes (refer to Note 13, 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.

The Company determined that the estimated fair value of the derivatives at issuance and as of December 31, 2022 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.

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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) :

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

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

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

Subsequent to issuance, the FASB issued ASU 2021-01, 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.

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):

In August 2020, the FASB issued Accounting Standards Update (“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 .

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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.

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.

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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.

The Company adopted this standard effective January 1, 2022 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

This ASU amends Accounting Standards Codification (“ASC”) 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606.

As a result of the amendments made by the ASU, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its pre-acquisition financial statements.

The ASU’s amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments.

Early adoption of the amendments is permitted, including adoption in an interim period.

An entity that early adopts in an interim period should apply the amendments (i) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the

interim period of early application and (ii) prospectively to all business combinations that occur on or after the date of initial application.

The Company adopted this standard effective January 1, 2022 and the adoption did not have a material impact on the Company’s consolidated financial statements.

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

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

The 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, Reference Rate Reform (Topic 848):

Scope, in January 2021 to refine and clarify some of its guidance on ASU 2020-04 and ASU 2022-06, Reference Rate Reform (Topic 848) to defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

As the United Kingdom’s Financial Conduct Authority announced that the intended cessation date of LIBOR in the United States will be June 30, 2023, the Company expects to be impacted by reference reform in the next twelve months as the Company’s contracts and transactions are transitioned to another reference rate, however, the impact of such transition is not yet known.

Recently Issued Accounting Pronouncements Not Yet Adopted

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Revenue Recognition

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

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:

To determine revenue recognition for arrangements with a customer, the Company performs the following five steps:

(i) identify the contract(s) with a customer;

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The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.

At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.

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.

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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 (wholesalers), at which point the Company recognizes revenue and records accounts receivable.

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

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

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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;

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;

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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.

Provisions for product returns, including returns for Xtampza, the Nucynta Products, Belbuca and Symproic, are based on product-level returns rates, including processed as well as unprocessed return claims, in addition to 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).

At the end of each reporting period, the Company analyzes trends in returns rates and updates its assessment of variable consideration for returns to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

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.

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).

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 provides the right of return to its customers for an 18-month window beginning six months prior to expiration and up until twelve months after expiration.

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.

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

The Company’s return policy requires that product is returned and that the return is claimed within the 18-month window.

2021 Returns Adjustment

Prior to the year ended December, 31, 2021, estimates of the refund liability for Xtampza product returns were based on a combination of a limited amount 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 had not been eligible for return until the year ended December 31, 2021, or beyond.

For the Nucynta Products, estimates of the refund liability for product returns were based on historical returns rates as these products have been commercially sold in the U.S.

since 2009 for Nucynta IR and since 2011 for Nucynta ER.

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

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

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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.

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

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.

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.

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

During the year ended December 31, 2022, the Company revised its estimate of variable consideration associated with unprocessed returns claims that arose in prior periods due to the receipt of payment and settlement, which resulted in an increase to product revenues, net of $ 4,684 .

During the year ended December 31, 2021, the Company’s adjustment was a $ 26,644 reduction in product revenues.

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.

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

The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the years ended December 31, 2022, 2021, and 2020, respectively:

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Balance at December 31, 2021

Acquired from BDSI

Provision related to current period sales

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Disaggregation of Revenue

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 :

The Company discloses disaggregated revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

As such, the Company disaggregates its product revenues, net from contracts with customers by product, as disclosed in the table below.

Years Ended December 31,

Nucynta Products (1)

Total product revenues, net

(1) For the year ended December 31, 2021, the Company recognized Nucynta IR and Nucynta ER product revenues, net of $ 102,222 and $ 70,938 respectively.

For the year ended December 31, 2020, the Company recognized Nucynta IR and Nucynta ER product revenues, net of $ 116,318 and $ 65,714 , respectively.

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

The Company began recognizing revenue from net product sales of Belbuca, Symproic, and Elyxyb following the Acquisition Date as defined in Note 4, Acquisitions .

On March 22, 2022 (the “Acquisition Date”), the Company acquired BioDelivery Sciences International, Inc.

(“BDSI”), a specialty pharmaceutical company working to deliver innovative therapies for individuals living with serious and debilitating chronic conditions (the “BDSI Acquisition”).

Upon closing, the Company acquired the Belbuca, Symproic, and Elyxyb products.

Upon completion of t he BDSI Acquisition, management leveraged the Company’s existing sales force and other operations to commercialize additional products that are typically marketed to similar physicians and to develop other synergies.

The Company obtained control through the acquisition of shares in the all-cash transaction which closed on March 22, 2022.

The total consideration paid for the BDSI acquisition was approximately $ 669,431 consisting of the following (in thousands, except per share amounts):

Fair Value of Purchase Price Consideration

Fair value of purchase price consideration paid at closing:

Cash consideration for all outstanding shares of BDSI's common and preferred stock ( 103,235,298 shares acquired at $ 5.60 per share)

Cash consideration paid to settle RSUs and in-the-money options

Cash paid to settle BDSI debt

Total purchase consideration

The Company has accounted for the BDSI Acquisition as a business combination and, accordingly, has included the assets acquired, liabilities assumed and results of operations in its financial statements following the Acquisition Date.

The preliminary purchase price allocation is based on estimates, assumptions, valuations and other studies which have not yet been finalized.

Prior to the finalization of the purchase price allocation, if information becomes available that would indicate it is probable that unknown events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation and may change the carrying value of goodwill.

The Company is finalizing its valuation of acquired deferred tax assets and anticipates finalizing the purchase price allocation as the information necessary to complete the analysis is obtained, but no later than one year after the Acquisition Date.

During the year ended December 31, 2022, the subsequent adjustments within the measurement period to the preliminary purchase price allocation did not have a significant impact on earnings.

The Company recorded measurement period adjustments to increase inventory by $ 14,300 , decrease intangible assets by $ 10,000 , increase accrued rebates, returns and discounts by $ 3,916 , increase prepaid expenses and other current assets by $ 888 , decrease accrued expenses by $ 502 , and increase deferred tax liabilities by $ 3,957 , with a net offsetting increase to goodwill of $ 2,183 .

The following tables set forth the preliminary allocation of the BDSI Acquisition purchase price to the estimated fair value of the net assets acquired at the Acquisition Date (in thousands):

Amounts Recognized at the Acquisition Date

Assets Acquired

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Property and equipment

Operating lease assets

Intangible assets

Liabilities Assumed

Accounts payable

Accrued expenses

Accrued rebates, returns and discounts

Operating lease liabilities

Deferred tax liabilities

Total liabilities

Total identifiable net assets acquired

Total consideration transferred

The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs.

The Company used an income approach to value the $ 435,000 of intangible assets.

The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with risk.

The Company is amortizing the identifiable intangible assets on a straight-line basis over their respective useful lives (refer to Note 10, Goodwill and Intangible Assets ).

In addition, the acquired inventory was recognized at its acquisition-date fair value, which resulted in an increase of $ 54,700 compared to its preacquisition book value.

The excess of the purchase price over the fair value of identifiable net assets acquired represents goodwill.

This goodwill is primarily attributable to synergies of merging operations.

The acquired goodwill is not deductible for tax purposes.

Total revenues attributable to BDSI from the Acquisition Date through December 31, 2022 were $ 140,653 .

However, earnings attributable to BDSI from the Acquisition Date through December 31, 2022 are not distinguishable due to the rapid integration of BDSI’s core operations into the Company.

Unaudited Pro Forma Summary of Operations

The following table shows the unaudited pro forma summary of operations for the years ended December 31, 2022 and 2021, as if the BDSI Acquisition had occurred on January 1, 2021.

This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of January 1, 2021, and is not indicative of what such results would be expected for any future period:

Years Ended December 31,

Total revenues

The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and BDSI.

The pro forma financial information primarily reflects the following pro forma adjustments:

● The Company’s acquisition related transaction costs of $ 14,718 were reflected as of January 1, 2021

● Employee severance related expense of $ 8,008 was reflected as of January 1, 2021

● Additional amortization expense from the acquired intangibles

● Additional cost of product revenues related to the step-up basis in inventory to record inventory at fair value;

● Adjustments to the Company’s interest expense related to repayment of the 2020 Term Loan and entering into the 2022 Term Loan as defined in Note 13, Debt.

In addition, all of the above adjustments were adjusted for the applicable tax impact.

Acquisition Related Expenses

During the year ended December 31, 2022, the Company incurred $ 31,297 of acquisition related expenses as a result of the BDSI Acquisition and the substantial majority were included in “ Selling, general, and administrative” expenses in the Consolidated Statements of Operations.

These costs include transaction costs, which primarily consisted of financial advisory, banking, legal, and regulatory fees, and other consulting fees, incurred to complete the acquisition, employee-related expenses (severance cost and benefits) for terminated employees after the acquisition, BDSI directors and officers insurance, and miscellaneous other acquisition expenses incurred.

The Company does not expect to incur any additional expenses related to the BDSI Acquisition.

Year Ended December 31, 2022

Transaction costs

Employee-related expenses

BDSI directors and officers insurance

Other acquisition expenses

Total acquisition related expenses

LICENSE AGREEMENTS

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

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

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

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.

Shionogi license and supply agreement

Prior to the BDSI Acquisition, BDSI and Shionogi Inc.

(“Shionogi”) entered into an exclusive license agreement (the “Shionogi License Agreement”) for the commercialization of Symproic in the United States including Puerto Rico (the “Shionogi Territory”) for the treatment of opioid-induced constipation in adult patients with chronic non-cancer pain (the “Shionogi Field”).

Pursuant to the terms of the Shionogi License Agreement, tiered royalty payments on net sales of Symproic in the Shionogi Territory are payable quarterly based on a royalty rate that ranges from 8.5 % to 17.5 % (plus an additional 1 % of net sales on a pass-through basis to a third-party licensor of Shionogi) based on volume of net sales and whether Symproic is being sold as an authorized generic.

Unless earlier terminated, the Shionogi License Agreement will continue in effect until the expiration of the royalty obligations, as defined therein.

Upon expiration of the Shionogi License Agreement, all licenses granted for Symproic in the Shionogi Field and in the Shionogi Territory survive and become fully-paid, royalty-free, perpetual and irrevocable.

BDSI and Shionogi also had entered into a supply agreement under which Shionogi will supply Symproic at cost plus an agreed upon markup.

In the event that Symproic is sourced from a third-party supplier, Shionogi would continue to supply naldemedine tosylate for use in Symproic manufacturing at cost plus such agreed upon markup for the duration of the Shionogi License Agreement.

Reddy’s acquired product rights

Prior to the BDSI Acquisition, BDSI and Dr.

Reddy’s Laboratories Limited (“DRL”), entered into an asset purchase agreement (the “ Elyxyb Asset Purchase Agreement”) for the acquisition by BDSI from DRL of certain patents, trademarks, regulatory approvals and other rights related to Elyxyb and its commercialization in the United States and Canada (the “DRL Territory”).

Pursuant to the terms of the Elyxyb Asset Purchase Agreement, a $ 9,000 payment was due to DRL on August 3, 2022.

In addition, up to an additional $ 9,000 of payments are due to DRL upon achievement of certain regulatory milestones as well as for quarterly earn-out payments on potential sales of the Elyxyb Product in the DRL Territory that range from high single digits to the low double digits (subject to reduction in certain circumstances) of net sales based on volume of sales.

DRL will also be entitled to one-time payments upon the achievement of six escalating sales milestones, which range from $ 4,000 to be paid upon the achievement of $ 50,000 in net sales in a calendar year to $ 100,000 to be paid upon the achievement of $ 1,000,000 in net sales in a calendar year up to a total of $ 262,000 .

During the three months ended December 31, 2022, the Company discontinued the commercialization of Elyxyb.

Refer to Note 10, Goodwill and Intangible Assets , for more information.

In February 2023, the Company entered into an agreement with Scilex to transfer to Scilex all assets, rights, and obligations necessary to commercialize Elyxyb in the United States and Canada (the “Elyxyb Sale Agreement”).

Refer to Note 20, Subsequent Events , for more information.

EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net income or loss 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 or 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, 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 (“RSUs”), performance share units (“PSUs”), and shares potentially issuable in connection with the employee stock purchase plan and convertible senior notes are considered potentially dilutive securities and included to the extent that their addition is not anti-dilutive.

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

Years Ended December 31,

Net income (loss)

Net (loss) income

Adjustment for interest expense recognized on convertible senior notes:

Net income (loss) — diluted

Net (loss) income — diluted

Weighted-average shares outstanding — basic

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Weighted average shares outstanding — diluted

Earnings (loss) per share — basic

Earnings (loss) per share — diluted

(Loss) earnings per share — basic

(Loss) earnings per share — diluted

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

Since the Company intends to settle the principal amount of the convertible senior notes in cash, the Company used the treasury stock method for determining the potential dilution in the diluted earnings per share computation for the year ended December 31, 2020.

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 Company uses the if-converted method for the convertible senior notes.

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

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 PSUs, 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.

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:

As of December 31,

Years Ended December 31,

Raw materials

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Total inventory

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 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.

During the year ended December 31, 2022, the expenses related to excess and obsolete inventory that were recorded as a component of cost of products revenues were $ 1,814 .

Expenses related to excess and obsolete inventory were immaterial for the years ended December 31, 2021 and 2020.

During the years ended December 31, 2022, 2021, and 2020, inventory used in the construction and installation of property and equipment was zero , $ 516 , and $ 2,299 , respectively.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

As of December 31,

Years Ended December 31,

Prepaid regulatory fees

Prepaid income taxes

Prepaid co-pay program incentives

Prepaid insurance

Other current assets

Prepaid development costs

Other prepaid expenses

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Property and equipment consisted of the following:

As of December 31,

Years Ended December 31,

Computers and office equipment

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During the years ended December 31, 2022, 2021, and 2020 the Company disposed of fully depreciated assets of $ 1,040 , $ 96 and $ 102 , respectively.

The Company did not have any gains or losses from the retirement, sale or disposal of property and equipment during the years ended December 31, 2021, 2020, or 2019.

INTANGIBLE ASSETS

As of December 31, 2021 and 2020, the Company’s only intangible asset (“Nucynta Intangible Asset”) is related to the Nucynta Acquisition and the Nucynta Commercialization Agreement.

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

Any gains or losses from the retirement, sale or disposal of property and equipment during the years ended December 31, 2022, 2021, and 2020 were immaterial.

GOODWILL AND INTANGIBLE ASSETS

The Company’s goodwill resulted from the BDSI Acquisition.

Refer to Note 4, Acquisitions, for more information.

The following tables summarizes the changes in the carrying amount of goodwill:

Balance at December 31, 2021

Goodwill resulting from BDSI Acquisition

Balance at December 31, 2022

The following table sets forth the cost, accumulated amortization, and carrying amount of intangible assets as of December 31, 2022 and 2021:

As of December 31, 2022

Gross carrying amount

As of December 31, 2021

Amortization Period

Accumulated Amortization

Intangible asset, net

Nucynta Acquisitions

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

commercialization rights, U.S.

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

The Company also agreed to assume certain regulatory and supply chain contracts, and obligations related to Nucynta Products ( 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:

Acquisition consideration:

Base purchase price

Cash paid for inventory

Transaction costs

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

Reduction for accrued royalty obligation discharged upon closing (1)

Total acquisition consideration:

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

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

Assets acquired:

Nucynta Intangible Asset

Total consideration allocated to assets acquired:

The Company concluded that the consideration allocable to the Nucynta Intangible Asset for the additional intellectual property and manufacturing rights it acquired as part of the Nucynta Acquisition were incremental costs associated with the pre-existing intangible asset from the former Nucynta Commercialization Agreement, as such costs result in probable future economic benefits.

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

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.

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

Carrying Amount

Accumulated Amortization

Net Book Value

Balance as of December 31, 2018

Amortization expense

Balance as of December 31, 2019

Amortization expense through Nucynta Acquisition

Additional cost incurred from Nucynta Acquisition

Amortization expense from Nucynta Acquisition through period end

Balance as of December 31, 2020

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 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.

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

The following table presents amortization expense recognized for the years ended December 31, 2021, 2020, and 2019:

Carrying Amount

Nucynta Products

Total intangibles

The following table presents amortization and impairment expense recognized in cost of product revenues for the years ended December 31, 2022, 2021, and 2020:

Years Ended December 31,

Nucynta amortization expense included in cost of product revenues

As of December 31, 2021, the remaining amortization period is approximately 4.0 years and is expected to be recognized in the following periods:

Nucynta Products

Total amortization and impairment expense

(1) Includes $ 214 of amortization expense and $ 4,786 of impairment expense .

Intangible Asset Impairment

During the three months ended December 31, 2022, the Company made the decision to discontinue the commercialization of Elyxyb.

Accordingly, an asset impairment evaluation performed during the three months ended December 31, 2022 resulted in the Company recognizing $ 4,786 of impairment expense related to the Elyxyb intangible asset, which was equivalent to the carrying amount of the Elyxyb asset at the time of the impairment determination.

The impairment expense reflects that no significant proceeds are expected to be realized from its disposition.

The impairment expense is included in “ Intangible asset amortization and impairment ” in the Consolidated Statements of Operations.

Other expenses associated with the discontinuation of Elyxyb were immaterial.

The revenues generated from sales of Elyxyb to date were immaterial.

Elyxyb is not considered a significant component of the entity’s business and therefore, is not presented as a discontinued operation.

There were no employees impacted by the decision to discontinue the commercialization of Elyxyb and therefore, no severance or employee benefit expense were recognized.

In addition, contract termination costs related to the

discontinuation were immaterial and expensed upon the termination of the contracts.

The expected completion date of the remaining exit and other activities associated with the discontuation of Elyxyb is March 31, 2023.

In February 2023, the Company entered into the Elyxyb Sale Agreement with Scilex to transfer to Scilex all assets, rights, and obligations necessary to commercialize Elyxyb in the United States and Canada.

Refer to Note 20, Subsequent Events , for more information.

As of December 31, 2022, the remaining amortization expense expected to be recognized is as follows:

Years ended December 31,

Amortization Expense

Nucynta Products

Remaining amortization expense

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Accrued royalties

Accrued audit and legal

Accrued restructuring expenses

Accrued bonuses

Accrued product taxes and fees

Accrued interest

Accrued sales and marketing

Accrued audit and legal

Accrued incentive compensation

Accrued interest

Accrued payroll and related benefits

Accrued sales and marketing

Accrued income taxes

Accrued restructuring expenses

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 other amounts recorded for any litigation related matters.

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

Xtampza ER Litigation

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

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

On February 11, 2015, the Company made the required certification documenting why Xtampza ER does not infringe any of

the 11 Orange Book-listed patents for OxyContin, five of which have been invalidated in court proceedings, and provided the required notice to Purdue.

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

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

On April 12, 2022, the Company filed a Motion to

Dismiss the Appeal as Untimely.

On May 20, 2022, the Federal Circuit denied the Motion to Dismiss and directed the parties to address jurisdiction during merits briefing.

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.

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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;

On November 17, 2022, the Court set (i) the fact discovery deadline for May 4, 2023;

and (ii) expert witness depositions to conclude by August 24, 2023.

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

The parties agreed, however, that litigation concerning the ʼ961 patent is stayed pending resolution of Purdue’s Federal Circuit appeal of the PTAB decision invalidating the claims of the ʼ961 patent.

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.

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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.

Litigation Related to the BDSI Acquisition

On February 25, 2022, in connection with the BDSI Acquisition, a purported individual stockholder of BDSI filed a complaint in the United States District Court for the Southern District of New York, captioned Stein v.

BioDelivery Sciences International, Inc., et al.

1:22-cv-01600, naming as defendants BDSI and each member of its Board of Directors as of the date of the Merger Agreement (“ Stein Action”).

On February 28, 2022, two additional cases were filed by purported individual stockholders of BDSI in the same court, captioned Sanford v.

BioDelivery Sciences International, Inc., et al ., No.

1:22-cv-01676 (“ Sanford Action”), and Higley v.

BioDelivery Sciences International, Inc., et al.

1:22-cv-01658 (“ Higley Action”).

On March 2, 2022 and March 5, 2022, two additional cases were filed by purported individual stockholders of BDSI in the United States District Court for the Eastern District of New York, captioned Justice II v.

BioDelivery Sciences International, Inc., et al.

1:22-cv-01145 (“ Justice Action”) and Zomber v.

BioDelivery Sciences International, Inc., et al.

1:22-cv-01220 (“ Zomber Action”;

together with the Stein , Sanford , Higley , and Justice Actions, the “Actions”).

The Actions and any similar subsequently filed cases involving BDSI, its officers or Board of Directors, or any committee thereof, and/or any of the Company’s officers or directors relating directly or indirectly to the Merger Agreement, the BDSI Acquisition or any related transaction, are referred to as the “Merger Litigations.”

The Merger Litigations filed to date generally allege that the Schedule 14D-9 is materially incomplete and misleading by allegedly failing to disclose purportedly material information relating to the sale process leading to the Merger, BDSI’s financial projections, and the analyses performed by Moelis & Company LLC in connection with the Merger.

The Merger Litigations assert violations of Section 14(e) of the Exchange Act and violations of Section 20(a) of the Exchange Act against BDSI’s Board of Directors.

Additionally, the Stein, Higley, Justice , and Zomber complaints assert violations of Section 14(d) of the Exchange Act and Rule 14d-9 promulgated thereunder.

The Merger Litigations seek, among other things:

an injunction enjoining consummation of the Merger, rescission of the Merger Agreement, a declaration that BDSI and its Board of Directors violated Sections 14(e) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, damages, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees and expenses, and any other relief the court may deem just and proper.

In addition, on February 24, 2022, February 28, 2022, and March 7, 2022, BDSI received demand letters from three purported stockholders of BDSI seeking to inspect certain books and records of BDSI related to the Merger (collectively, the “Inspection Letters”).

On March 4, 2022, March 9, 2022, and March 11, 2022, BDSI received demand letters from four purported stockholders alleging that the Schedule 14D-9 omits purportedly material information relating to the Merger (collectively, the “Demand Letters”).

On April 14, 2022, plaintiff in the Higley Action filed a notice of voluntary dismissal of the complaint.

On May 15, 2022, plaintiff in the Zomber Action filed a notice of voluntary dismissal of the complaint.

And, on June 24, 2022, plaintiff in the Justice Action filed a notice of voluntary dismissal of the complaint.

In the remaining Stein and Sanford Actions, on July 20, 2022, the respective Courts entered an Order for plaintiff to serve a summons and complaint by August 3, 2022.

On July 28, 2022, plaintiff in the Sanford Action filed a partial voluntary dismissal of the individual named defendants but not BDSI from that action and filed a waiver of service as to BDSI.

On October 26, 2022, plaintiff in the Sanford Action filed a notice of voluntary dismissal of the complaint as to Defendant BDSI as well.

To date, the complaint in the Stein Action has not been served on, nor was service waived by, any of the named defendants in that action.

While the Company believes that the remaining Merger Litigations, Inspection Letters, and Demand Letters are without merit and that the disclosures in the Schedule 14D-9 comply fully with applicable law, solely in order to avoid the expense and distraction of litigation, BDSI previously determined to voluntarily supplement the Schedule 14D-9 with certain supplemental disclosures set forth in BDSI’s Schedule 14D-9 filed with the SEC on March 11, 2022 (the “Supplemental Disclosures”).

The Company and BDSI believe that the Supplemental Disclosures mooted all allegations or concerns raised in the Merger Litigations, Inspection Letters, and Demand Letters.

As set forth in the Supplemental Disclosures, nothing therein shall be deemed an admission of the legal necessity or materiality under applicable law of the Supplemental Disclosures.

To the contrary, the Company and BDSI specifically deny all allegations that any of the Supplemental Disclosures, or any other additional disclosures, were or are required.

The Company plans to defend the Merger Litigations 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.

Opioid Litigation

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

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

In late 2017, the U.S.

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

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

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

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

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

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

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

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

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

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

● New Jersey.

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

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

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

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

● Connecticut.

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

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

On June 28, 2019, both cases were transferred to the MDL.

In October 2019, the Company was named in two additional Connecticut lawsuits:

the City of Middletown and the Town of Wethersfield.

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

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

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

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

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

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

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

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

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

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

Of the 21 MDL cases that named the Company as a defendant, the allegations against it were previously dismissed or withdrawn in 13 cases as of December 31, 2021.

As explained below, the remaining eight MDL cases that named the Company were dismissed as of April 19, 2022.

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

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

● In Pennsylvania, six lawsuits naming the Company were 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 included 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.

● In Massachusetts, there were 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 were consolidated before the Business Litigation Session of the Superior Court.

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

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

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

There is no trial date set for this case.

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.

On December 24, 2021, the Company entered into a settlement framework with Scott+Scott Attorneys at Law, LLP, the law firm representing plaintiffs in each of the 27 cases, including the 8 remaining MDL cases and 19 state court cases described above.

Pursuant to the terms of the settlement framework, which were later memorialized in a final settlement agreement, the Company agreed to pay $ 2,750 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 settlement agreement was executed by the Company and all 27 plaintiffs, and the amounts subject to the settlement agreement were paid.

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

The parties have submitted appropriate motions to dismiss the Company with prejudice for each of the 27 cases.

All were granted, thereby dismissing the Company, with prejudice, from all 27 cases.

Ongoing BDSI Litigation Matters

BDSI’s ongoing litigations with Aquestive Therapeutics, Inc.

(formerly MonoSol Rx, “Aquestive”) and Indivior PLC (formerly RB Pharmaceuticals Limited, “Indivior”) are provided below.

Litigation related to BUNAVAIL

On October 29, 2013, Reckitt Benckiser, Inc., Indivior PLC (formerly RB Pharmaceuticals Limited, “Indivior”), and Aquestive Therapeutics, Inc.

(formerly MonoSol Rx, “Aquestive”) (collectively, the “RB Plaintiffs”) filed an action against BDSI relating to its BUNAVAIL product in the United States District Court for the Eastern District of North Carolina (“EDNC”) for alleged patent infringement.

BUNAVAIL is a drug approved for the maintenance treatment of opioid dependence.

The RB Plaintiffs claim that the formulation for BUNAVAIL, which has never been disclosed publicly, infringes its U.S.

8,475,832 (the “‘832 Patent”).

On May 21, 2014, the Court granted BDSI’s motion to dismiss.

On September 22, 2014, the RB Plaintiffs filed an action against BDSI (and BDSI’s commercial partner) relating to BDSI’s BUNAVAIL product in the United States District Court for the District of New Jersey for alleged patent infringement.

The RB Plaintiffs claim that BUNAVAIL, whose formulation and manufacturing processes have never been disclosed publicly, infringes its patent U.S.

8,765,167 (the “‘167 Patent”).

On December 12, 2014, BDSI filed a motion to transfer the case from New Jersey to North Carolina and a motion to dismiss the case against its commercial partner.

On October 28, 2014, BDSI filed multiple IPR petitions on certain claims of the ‘167 Patent.

The USPTO instituted three of the four IPR petitions.

The PTAB upheld the claims and denied collateral estoppel applied to the PTAB decisions in March 2016.

BDSI appealed to Court of Appeals for the Federal Circuit.

The USPTO intervened with respect to whether collateral estoppel applied to the PTAB.

On June 19, 2018, BDSI filed a motion to remand the case for further consideration by the PTAB in view of intervening authority.

On July 31, 2018, the Federal Circuit vacated the decisions, and remanded the ‘167 Patent IPRs for further consideration on the merits.

On February 7, 2019, the PTAB issued three decisions on remand vacating institution of the three previously instituted IPRs of the ‘167 patent.

BDSI timely appealed the PTAB decisions, and that appeal was ultimately denied.

On May 18, 2021, the RB Plaintiffs filed an amended complaint dropping BDSI’s commercial partner from the action it began on September 22, 2014.

On June 1, 2021, BDSI answered the amended complaint asserting counterclaims of non-infringement, invalidity, and unenforceability.

On December 16, 2021, the parties completed claim construction briefing on the disputed claim terms of the ʼ167 patent.

The Court has not set a date for the claim construction hearing, or for a subsequent trial.

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.

Litigation related to BELBUCA

On January 13, 2017, Aquestive filed a complaint in the United States District Court for the District of New Jersey alleging BELBUCA infringes the ‘167 Patent.

In lieu of answering the complaint, BDSI filed motions to dismiss the complaint and, in the alternative, to transfer the case to the EDNC.

On July 25, 2017, the New Jersey Court administratively terminated the case pending the parties’ submission of a joint stipulation of transfer because the District of New Jersey was an inappropriate venue.

This case was later transferred to the Delaware District Court.

On October 31, 2017, BDSI filed motions to dismiss the complaint and, in the alternative, to transfer the case to the EDNC.

On October 16, 2018, denying the motion to dismiss as moot, the Delaware District Court granted BDSI’s motion to transfer the case to the EDNC.

On November 20, 2018, BDSI moved the EDNC to dismiss the complaint for patent infringement for failure to state a claim for relief.

On August 6, 2019, the EDNC granted BDSI’s motion to dismiss, and dismissed the complaint without prejudice.

On or about November 11, 2019, Aquestive refiled a complaint in the EDNC against BDSI alleging that BELBUCA infringes the ‘167 Patent.

On January 13, 2020, in lieu of answering the complaint, BDSI filed a motion to dismiss the complaint.

After that motion was denied, BDSI answered the complaint on April 16, 2020.

Aquestive moved to dismiss BDSI’s counterclaim of unenforceability, but the court denied that motion.

On December 16, 2021, the parties completed claim construction briefing on the disputed claim terms of the ʼ167 patent.

The Court has not set a date for the claim construction hearing, or for a subsequent trial.

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.

Chemo Research, S.L

On March 1, 2019, BDSI filed a complaint for patent infringement in United States District Court for the District of Delaware against Chemo Research, S.L., Insud Pharma S.L., IntelGenx Corp., and IntelGenx Technologies Corp.

(collectively, the “Chemo Defendants”), asserting that the Chemo Defendants infringe its Orange Book-listed patents for BELBUCA, including U.S.

8,147,866 (“’866 patent”) and 9,655,843, (“’843 patent”) both expiring in July of 2027, and U.S.

9,901,539 (“’539 patent”) expiring December of 2032 (collectively, “the BEMA patents”).

This complaint follows a receipt by BDSI on January 31, 2019, of a Notice Letter from Chemo Research S.L.

stating that it has filed with the FDA an ANDA containing a Paragraph IV Patent Certification, for a generic version of BELBUCA Buccal Film in strengths 75 mcg, 150 mcg, 300 mcg, 450 mcg, and 900 mcg.

Because BDSI initiated a patent infringement suit asserting the patents identified in the Notice Letter within 45 days after receipt, the FDA is prevented from approving the ANDA until the earlier of 30 months or a decision in the case that each of the patents is not infringed or invalid.

On March 15, 2019, BDSI filed a complaint against the Chemo Defendants in the Federal District Court for the District of New Jersey asserting the same claims for patent infringement made in the Delaware lawsuit.

On April 19, 2019, Defendants filed an answer to the Delaware complaint wherein they denied infringement of the ’866, ’843 and ’539 patents and asserted counterclaims seeking declaratory relief concerning the alleged invalidity and non-infringement of such patents.

On April 25, 2019, BDSI voluntarily dismissed the New Jersey lawsuit given Defendants’ consent to jurisdiction in Delaware.

The trial to adjudicate issues concerning the validity of the Orange Book-listed patents covering BELBUCA was held from March 1-3, 2021.

Chemo did not participate in the bench trial.

Instead, on February 26, 2021, Chemo agreed to be bound by the decision of the Court with respect to the validity of the BEMA patents from the March 1-3, 2021 trial with Alvogen.

On December 20, 2021, the Court issued an opinion upholding the validity of certain claims in BDSI’s ʼ866 patent, which expires in 2027, and certain claims in the ’539 patent, which expires in 2032, to which Chemo is bound.

This holding was affirmed on appeal by the Federal Circuit on December 21, 2022.

The bench trial to adjudicate issues concerning the Chemo Defendants’ infringement of the Orange Book patents was set to commence on April 25, 2022.

On March 30, 2022, the Court vacated the trial and has not yet set a new trial date.

On August 1, 2022, BDSI received a second Paragraph IV certification notice letter from Chemo indicating that Chemo has amended its ANDA to (i) withdraw its generic version of the 75 mcg and 150 mcg strengths of BELBUCA;

and (ii) include its generic version of the 600 mcg and 750 mcg strengths of BELBUCA, in addition to the 300 mcg, 450 mcg, and 900 mcg strengths identified in the first Chemo Paragraph IV certification notice letter.

In response, BDSI filed a complaint for patent infringement in Federal District Court for the District of Delaware.

Chemo answered the complaint on December 1, 2022.

The Court has not set a schedule for this litigation.

On August 24, 2022, the Court instructed the parties to update the Court at such time as the FDA addresses Chemo's July 29, 2022 response to the FDA.

On February 8, 2023, the district court denied Chemo’s request for a trial date in the spring, and again instructed the parties to update the Court at such time as the FDA addresses Chemo’s July 29, 2022 response to the FDA.

The Company plans to litigate these cases 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.

On September 7, 2018, BDSI filed a complaint for patent infringement in United States District Court for the District of Delaware against Alvogen Pb Research & Development LLC, Alvogen Malta Operations Ltd., Alvogen Pine Brook LLC, Alvogen, Incorporated, and Alvogen Group, Incorporated (collectively, “Alvogen”), asserting that Alvogen infringes BDSI’s Orange Book-listed patents for BELBUCA, including U.S.

8,147,866 and 9,655,843, both expiring in July of 2027, and U.S.

9,901,539, expiring in December of 2032 (collectively, “the BEMA patents”) .

This complaint followed receipt by BDSI on July 30, 2018 of a Paragraph IV Patent Certification from Alvogen stating that Alvogen had filed an ANDA with the FDA for a generic version of BELBUCA Buccal Film (75 mcg, 150 mcg, 300 mcg, 450 mcg, 600 mcg, 750 mcg and 900 mcg).

Because BDSI initiated a patent infringement suit asserting the patents identified in the Paragraph IV notice within 45 days after receipt of the Paragraph IV Certification, the FDA is prevented from approving the ANDA until the earlier of 30 months or a decision in the case that each of the patents is not infringed or invalid.

The Court scheduled a bench trial to adjudicate issues concerning the validity of the BEMA patents.

A three-day bench trial against Alvogen was conducted commencing on March 1, 2021.

Alvogen conceded infringement of those claims prior to the trial.

The Court entered final judgment on January 21, 2022.

The final judgment entered in this case upholding the validity of claims of the ’866 and ’539 Orange Book-listed patents extends the effective date of any final approval by the FDA of Alvogen’s ANDA until December 21, 2032, which is the expiration date of the ’539 patent, and enjoins Alvogen and those acting in concert with Alvogen from commercially manufacturing, using, selling, or offering for sale Alvogen’s ANDA products until December 21, 2032.

Alvogen filed a motion to stay certain provisions of the final judgment in the Court.

BDSI filed an opposition to Alvogen’s request for a stay.

The Court retained jurisdiction to decide BDSI’s motion for contempt, which was filed on September 21, 2021.

Alvogen filed a notice of appeal to the Federal Circuit seeking to reverse the Court’s final judgment entered on January 21, 2022.

Separately, BDSI has filed a cross-appeal to the Federal Circuit seeking to reverse the Court’s opinion that claims 3 and 10 of the ʼ866 patent and claims 8, 9 and 20 of the ’843 patent are invalid and thus Alvogen is not liable for infringement of those claims, as well as any other ruling decided adversely to BDSI.

On November 1, 2022, the Federal Circuit held oral argument on the parties’ appeal and issued its decision on December 21, 2022.

In that decision, the Federal Circuit affirmed the district court judgment that certain claims of the ʼ866 and ʼ539 patent were not invalid as obvious.

The Federal Circuit also vacated the district court’s judgment that certain claims of the ʼ866 and ʼ843 patent were invalid as obvious and remanded to the district court for further proceedings.

The mandate issued on February 10, 2023.

As it has done in the past, the Company intends to vigorously defend its intellectual property against assertions of invalidity or non-infringement.

Opioid-Related Request and Subpoenas

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

Pharmakon Term Notes

2020 Term Loan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If equity prepayment occurs prior to the second-

year anniversary of the Closing Date, a prepayment premium of 5.00 % would apply, with no make-whole premium.

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

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

The 2020 Loan Agreement provided for a $ 200,000 secured term loan (the “2020 Term Loan”), the proceeds of which were used to finance a portion of the purchase price paid pursuant to the Nucynta Purchase Agreement.

O n February 13, 2020 (the “2020 Term Loan Closing Date”) , the Company received the $ 200,000 proceeds from the 2020 Term Loan.

On March 22, 2022 the outstanding balance under the 2020 Loan Agreement was fully paid in connection with the closing of the BDSI Acquisition and establishment of the 2022 Term Loan, as described below.

2022 Term Loan

On March 22, 2022, in connection with the closing of the BDSI Acquisition, the Company entered into an Amended and Restated Loan Agreement by and among the Company, and Pharmakon (the “2022 Loan Agreement”).

The 2022 Loan Agreement provided for a $ 650,000 secured term loan (the “2022 Term Loan”), the proceeds of which were used to repay the Company’s existing term notes and fund a portion of the consideration to be paid to complete the BDSI Acquisition.

The 2022 Loan Agreement was accounted for as a debt modification and transaction fees of $ 173 were expensed.

In connection with the 2022 Loan Agreement, the Company paid loan commitment and other fees to the lender of $ 19,818 , which together with preexisting debt issuance costs and note discounts of $ 2,049 will be amortized over the term of the loan using the effective interest rate.

The 2022 Term Loan will mature on the 48-month anniversary of the closing of the BDSI Acquisition and is guaranteed by the Company’s material domestic subsidiaries.

The 2022 Term Loan is also secured by substantially all of the assets of the Company and its material domestic subsidiaries.

The 2022 Term Loan bears interest at a rate based upon the London Interbank Offered Rate (“LIBOR”) (subject to a LIBOR floor of 1.20 %), plus a margin of 7.5 % per annum.

As of December 31, 2022, the interest rate was 11.2 %.

The Company is required to repay the 2022 Term Loan by paying $ 100,000 in principal payments during the first year and the remaining $ 550,000 balance will amortize in equal quarterly installments over the remaining three years.

The 2022 Loan Agreement permits voluntary prepayment at any time, subject to a prepayment premium.

The prepayment premium is equal to 2.00 % of the principal amount being prepaid prior to the second-year anniversary of the closing date, or 1.00 % of the principal amount being prepaid on or after the second-year anniversary of the closing date.

The 2022 Loan Agreement also includes a make-whole premium in the event of a voluntary prepayment, a prepayment due to a change in control or acceleration following an Event of Default (as defined in the 2022 Loan Agreement) on or prior to the second-year anniversary of the closing date, in each case in an amount equal to foregone interest from the date of prepayment through the second-year anniversary of the closing date.

A change of control also triggers a mandatory prepayment of the 2022 Term Loan.

The 2022 Loan Agreement contains certain covenants and obligations of the parties, including, without limitation, covenants that limit the Company’s ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business.

Failure to comply with these covenants would constitute an event of default under the 2022 Loan Agreement, notwithstanding the Company’s ability to meet its debt service obligations.

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

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

During the 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:

The 2022 Loan Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement.

During the years ended December 31, 2022, 2021, and 2020, the Company recognized interest expense of $ 58,533 , $ 16,339 , and $ 19,034 , respectively.

As of December 31, 2022, principal repayments under the 2022 Term Loan are as follows:

Years ended December 31,

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Total term notes

Silicon Valley Bank Term Loan Facility

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

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

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

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

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

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

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

Convertible Senior Notes

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

2026 Convertible Notes

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

The 2026 Convertible Notes were issued in connection with funding the Nucynta Acquisition, and the proceeds of the convertible notes were used to finance a portion of the purchase price payable pursuant to the Nucynta Purchase Agreement.

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

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

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

In connection with the issuance of the convertible notes, the Company incurred approximately $ 5,473 of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs between the Liability Component and the Equity Component based on the allocation of the proceeds.

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

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

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 portion allocated to the Liability Component was expected to be 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 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 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 excess of the principal amount of the Liability Component over its carrying amount was expected to be 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 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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(1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

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

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

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

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

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

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

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

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

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

The effective interest rate on the convertible notes was 3.26 %.

As of December 31, 2022, the if-converted value did not exceed the remaining principal amount of the convertible notes.

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Operating Lease Arrangements

In March 2018, the Company entered into an operating lease for its new corporate headquarters (the “Stoughton Lease”) pursuant to which the Company leases approximately 50,678 of rentable square feet of space, in Stoughton, Massachusetts.

In March 2018, the Company entered into an operating lease for its corporate headquarters (the “Stoughton Lease”) pursuant to which the Company leases approximately 50,678 of rentable square feet of space, in Stoughton, Massachusetts.

The Stoughton Lease commenced in August 2018 when the Company took possession of the space.

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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.

The contract term continued through December 2022 and was automatically renewed for successive two-year terms as neither party gave written notice of termination two-years in advance.

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.

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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.

In connection with the BDSI Acquisition, the Company acquired an operating lease for the former headquarters of BDSI pursuant to which the Company leases 11,628 of rentable square feet of space in Raleigh, North Carolina (the “BDSI Lease”).

The BDSI Lease continues through July 2023.

The Company does not expect to renew or extend the lease beyond its contractual expiration in July 2023.

As of December 31, 2022, the Company had operating lease assets of $ 6,861 and operating lease liabilities of $ 8,224 primarily related to operating lease agreements for its corporate headquarters.

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Each vehicle lease is executed separately and expires at varying times with automatic renewal options that are cancelable at any time.

The rent expense for these leases is therefore recognized on a straight-line basis over the lease term in the period in which it is incurred.

The rent expense for these leases is recognized on a straight-line basis over the lease term in the period in which it is incurred.

Variable Lease Costs

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The lease term and discount rate for operating leases for the years ended December 31, 2022 and 2021 are as follows:

As of December 31,

Years Ended December 31,

Lease Term and Discount Rate:

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Present value of lease liabilities

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).

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 prior to January 1st).

As of December 31, 2022, there were 1,920,793 shares of common stock available for issuance pursuant to the Plan.

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

Shares issued under all of our plans are funded through the issuance of new shares.

Refer to Note 16, Stock-based Compensation , for more information.

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.

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

The Warrant was set to expire in November 2022 and included customary adjustments for changes in the Company’s capitalization.

In November 2022, the Warrant was exercised through a cashless exercise and the Company issued 40,666 shares.

As of December 31, 2022, there were no outstanding warrants remaining.

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.

In August 2021, the Company’s Board of Directors authorized a repurchase program for the repurchase of up to $ 100,000 of shares of its common stock at any time or times through December 31, 2022 (the “Prior Repurchase Program”).

The Prior Repurchase Program permitted 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 Prior Repurchase Program were returned to the Company’s pool of authorized but unissued shares available for reissuance.

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

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 $ 100,000 Prior 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.

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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.

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.

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

The forward contract was no longer outstanding as of December 31, 2022.

Through December 31, 2022, the Company repurchased 3,235,823 shares at a weighted-average price of $ 19.14 per share for a total of $ 61,924 under the Prior Repurchase Program and the cost of repurchased shares were recorded as treasury stock in the Consolidated Balance Sheet.

The Prior Repurchase Program expired on December 31, 2022.

In January 2023, the Company’s Board of Directors authorized the 2023 Share Repurchase Program for the repurchase of up to $ 100,000 of the Company’s common stock through December 31, 2023.

The 2023 Share 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.

The timing and amount of any shares purchased on the open market will be determined based on the Company’s evaluation of the market conditions, share price and other factors.

The Company plans to utilize existing cash on hand to fund the share repurchase program.

STOCK-BASED COMPENSATION

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Performance Share Units

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

The Company periodically grants PSUs to certain members of the Company's senior management team.

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

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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.

Beginning in February 2020 and each year thereafter, 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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PSUs may vest in a range between 0 % and 200 %, based on the satisfaction of performance, and no shares will be issued if the minimum applicable performance metric is not achieved.

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

As these PSUs vest based on the achievement of market conditions, the grant date fair values were

determined using a Monte-Carlo valuation model.

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

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

The total expense for these PSUs in years ended December 31, 2021, 2020, and 2019 was $ 289 , $ 950 and $ 136 , respectively.

The total expense for these PSUs in years ended December 31, 2022, 2021, and 2020 was zero , $ 289 and $ 950 , respectively.

A summary of the Company’s performance share units activity for the year ended December 31, 2022 and related information is as follows:

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Restricted Stock Units

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

A summary of the Company’s RSUs activity for the year ended December 31, 2022 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, 2022, 2021 and 2020 was $ 10,166 , $ 11,165 and $ 6,992 respectively.

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 .

As of December 31, 2022, the unrecognized compensation cost related to restricted stock units was $ 26,742 and is expected to be recognized as expense over approximately 2.6 years.

The weighted-average grant date fair value of restricted stock units vested during the years ended December 31, 2022, 2021, and 2020 was $ 12,547 , $ 8,526 , and $ 5,989 , respectively.

Stock Options

The Company granted stock options to employees for the years ended December 31, 2021, 2020 and 2019.

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

A summary of the Company’s stock option activity for the year ended December 31, 2022 and related information is as follows:

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

Year ended December 31,

Years Ended December 31,

Risk-free interest rate

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

The weighted-average grant date fair value of stock options granted for the years ended December 31, 2021, 2020, and 2019 was $ 12.60 , $ 12.78 and $ 9.07 respectively.

The weighted-average grant date fair value of stock options granted for the years ended December 31, 2022, 2021, and 2020 was zero , $ 12.60 and $ 12.78 respectively.

The total intrinsic value of stock options exercised for the years ended December 31, 2022, 2021, and 2020 was $ 3,943 , $ 6,456 and $ 7,516 , respectively.

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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, 2022, 22,627 shares of common stock were purchased for total proceeds of $ 337 .

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Total stock-based compensation expense

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)

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

Years Ended December 31,

Current provision:

Deferred benefit:

(Benefit from) provision for income taxes

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:

As of December 31,

Years Ended December 31,

Federal income tax expense at statutory rate

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Research and development credit

Transaction costs

Change in tax rates and other

Change in valuation allowance

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The significant components of the Company’s deferred tax assets and liabilities are comprised of the following:

As of December 31,

Years Ended December 31,

Deferred tax assets:

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Accruals and other

163(j) Carryforward

Capitalized R&D

Intangible assets

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Operating lease assets

Intangible assets

Property and equipment

Total deferred tax liabilities:

Net deferred tax assets

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.

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, carryback opportunities, reversal of certain deferred tax liabilities, and other tax planning strategies.

The Company maintains a partial valuation against its federal and state operating losses and federal R&D credits as of December 31, 2022.

The valuation allowance was $ 5,254 and $ 1,966 as of December 31, 2022 and 2021, respectively.

The change in the valuation allowance did not impact the tax provision for the year ended December 31, 2022.

As a result of sustained positive earnings history through cumulative earnings over the prior three years, as of June 30, during the year ended December 31, 2021, the Company began using projections of future taxable income as a source of realizing its deferred tax assets.

Accordingly, the Company recognized a deferred tax benefit of $ 78,042 for the year ended December 31, 2021 related to the reversal of valuation allowances.

As of December 31, 2022, 2021, and 2020, the Company had gross U.S.

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state net operating loss carryforwards of $ 252,597 , $ 103,044 , and $ 170,280 , respectively, which may be available to offset future income tax liabilities and expire at various dates through 2037.

As of December 31, 2021, 2020 and 2019, the Company had federal research and development tax credit carryforwards of approximately $ 4,503 , $ 4,623 , and $ 4,044 , respectively, available to reduce future tax liabilities which expire at various dates through 2036.

As of December 31, 2022, 2021 and 2020, the Company had federal research and development tax credit carryforwards of approximately $ 4,231 , $ 4,503 , and $ 4,623 , respectively, available to reduce future tax liabilities which expire at

various dates through 2037 and some are indefinite lived.

As of December 31, 2022, 2021 and 2020 the Company had state research and development tax credit carryforwards of approximately $ 832 , $ 955 , and $ 1,150 , respectively, available to reduce future tax liabilities which expire at various dates through 2037.

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

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

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

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

The net operating losses acquired in the BDSI acquisition, totaling $ 234,675 are subject to limitation.

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

The Company concluded that there were ownership changes that occurred during the years 2006, 2012 and 2015 that would be subject to IRC 382 limitations.

In addition, the Company concluded that there were ownership changes for BDSI that occurred during the years 2006 and 2022 that would be subject to IRC 382 limitations.

These IRC 382 annual limitations may limit the Company’s ability to use pre-ownership change federal NOL carryovers and pre-ownership change federal tax credit carryovers.

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

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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.

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

This study may result in an adjustment to the Company’s research and development credit carryforwards.

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.

The Company has not recognized deferred tax assets for certain federal and state research and development credits related to uncertain tax positions, and that is included in the tabular rollforward of uncertain tax positions.

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

As of December 31,

Years Ended December 31,

Gross UTB Balance at January 1

Additions based on tax positions related to the current year

Additions for tax positions of prior years

Reductions for tax positions of prior years

Additions for tax positions related to acquisitions

(Reductions) additions for tax positions of prior years

Gross UTB Balance at December 31

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Cost of product revenues (excluding intangible asset amortization)

Intangible asset amortization

Intangible asset amortization and impairment

Total cost of products revenues

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Selling, general and administrative

Restructuring

Total operating expenses

Income (loss) from operations

(Loss) income from operations

Interest expense

Interest income

Income (loss) before income taxes

(Loss) income before income taxes

(Benefit from) provision for income taxes

Net income (loss)

Earnings (loss) per share — basic

Net (loss) income

(Loss) earnings per share — basic

Weighted-average shares — basic

Earnings (loss) per share — diluted

(Loss) earnings per share — diluted

Weighted-average shares — diluted

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Cost of product revenues (excluding intangible asset amortization)

Intangible asset amortization

Intangible asset amortization and impairment

Total cost of products revenues

2 unchanged sentences

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

Earnings per share — diluted

Earnings (loss) per share — diluted

Weighted-average shares — diluted

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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.

SUBSEQUENT EVENTS

2029 Convertible Notes

On February 10, 2023, the Company issued $ 241,500 principal amount of its 2.875 % Convertible Senior Notes due 2029.

The 2029 Convertible Notes issued on February 10, 2023 include $ 31,500 principal amount of notes issued pursuant to the full exercise by the initial purchasers of such optional purchase.

The 2029 Convertible Notes will be the Company’s senior, unsecured obligations and will be (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness, including its existing 2.625 % convertible senior notes due 2026;

(ii) senior in right of payment to the Company’s future indebtedness that is expressly subordinated to the notes;

(iii) effectively subordinated to the Company’s existing and future secured indebtedness, including borrowings under the Company’s secured term loan agreement, to the extent of the value of the collateral securing that indebtedness;

and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.

The 2029 Convertible Notes will accrue interest at a rate of 2.875 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2023.

The 2029 Convertible Notes will mature on February 15, 2029, unless earlier repurchased, redeemed or converted.

Before November 15, 2028, noteholders will have the right to convert their notes only upon the occurrence of certain events.

The Company will settle conversions by

paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.

The initial conversion rate is 27.3553 shares of common stock per $ 1,000 principal amount of 2029 Convertible Notes, which represents an initial conversion price of approximately $ 36.56 per share of common stock.

The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events.

Contemporaneously with the pricing of the notes in the offering, Collegium entered into separate privately negotiated transactions with certain holders of the 2026 Convertible Notes to repurchase $ 117,400 aggregate principal amount of the 2026 notes for an aggregate of approximately $ 140,100 of cash, which includes accrued and unpaid interest on the 2026 Convertible Notes to be repurchased.

Tranfser of Elyxyb Rights and Obligations to Scilex

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