Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2023.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
(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; and
(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.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Because of such limitations, there is a risk that material misstatements may not be prevented
57
or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a 15(f) and 15d 15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to evaluate the effectiveness of our internal control over financial reporting. Based on our evaluation, Management has concluded that our internal control over financial reporting was effective as of December 31, 2023.
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, 2023 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, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Collegium Pharmaceutical, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Collegium Pharmaceutical, Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, 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, 2023, of the Company and our report dated February 22, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 22, 2024
59
Item 9B. Other Information
Insider Trading Arrangements
During the three months ended December 31, 2023, none of our directors or officers adopted, amended , or terminated a “Rule 10 b5-1 trading arrangement” or “non-Rule 10 b5- 1 trading arrangement,” as each term is defined in Item 408 (a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART II I
Item 10. 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 — 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 2024 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. The Code of Ethics is available on our website at www.collegiumpharma.com. Our Board of Directors is responsible for overseeing compliance with the Code of Ethics, and our Board of Directors or an appropriate committee thereof must approve any waivers of the Code of Ethics for employees, executive officers or directors. Disclosure regarding any amendments to the Code of Ethics, or any waivers of its requirements, will be made on our website.
Insider Trading Policies
Our Board of Directors has adopted an Insider Trading Policy which governs the purchase, sales, and/or other dispositions of our securities by directors, officers, and employees. Our Insider Trading Policy is attached hereto as Exhibit 19 and incorporated herein.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated herein by reference from our definitive proxy statement for the 2024 Annual Meeting of Shareholders under the captions “Compensation Discussion and Analysis,” “Executive Compensation” (excluding the information under the heading “Pay Versus Performance”), “Director Compensation” and “Compensation Committee Report.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated herein by reference from our definitive proxy statement for the 2024 Annual Meeting of Shareholders under the captions “Compensation Discussion and Analysis,” “Executive Compensation” (excluding the information under the heading “Pay Versus Performance”), “Director Compensation” and “Compensation Committee Report.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated herein by reference from our definitive proxy statement for the 2024 Annual Meeting of Shareholders under the captions “Compensation Discussion and Analysis,” “Executive Compensation” (excluding the information under the heading “Pay Versus Performance”), “Director Compensation” and “Compensation Committee Report.”
60
Item 14. Principa l Accountant Fees and Services
The information required by this Item 14 is incorporated herein by reference from our definitive proxy statement for the 2024 Annual Meeting of Shareholders under the captions “Compensation Discussion and Analysis,” “Executive Compensation” (excluding the information under the heading “Pay Versus Performance”), “Director Compensation” and “Compensation Committee Report.”
PART I V
Item 15. Exhibits and Financial Statement Schedules
Consolidated Financial Statements
Refer to Part II, Item 8 for the Consolidated Financial Statements required to be included in this Form 10 - K.
Consolidated Financial Statement Schedules
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.
Exhibits
Exhibit Number
Exhibit Description
2.1
†
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.
(1)
3.1
†
Third Amended and Restated Articles of Incorporation of Collegium Pharmaceutical, Inc.
(2)
3.2
†
Amended and Restated Bylaws of Collegium Pharmaceutical, Inc.
(3)
4.1
†
Indenture, dated as of February 13, 2020, between Collegium Pharmaceutical, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee.
(4)
4.2
†
First Supplemental Indenture, dated as of February 13, 2020, between Collegium Pharmaceutical, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee.
(4)
4.3
†
Form of certificate representing the 2.625% Convertible Senior Notes due 2026 (included as Exhibit A to Exhibit 4.2).
(4)
4.4
†
Indenture, dated as of February 10, 2023, between Collegium Pharmaceutical, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee.
(5)
4.5
†
Form of certificate representing the 2.875% Convertible Senior Notes due 2029 (included as Exhibit A to Exhibit 4.4).
(5)
4.6
†
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
(6)
10.1
†
Office Lease agreement by and between Campanelli-Trigate 100 TCD Stoughton, LLC, and Collegium Pharmaceutical, Inc as of March 23, 2018.
(7)
10.2
+†
2015 Employee Stock Purchase Plan.
(8)
10.3
+†
Performance Bonus Plan.
(9)
10.4(a)
+†
Amended and Restated 2014 Stock Incentive Plan.
(8)
10.4(b)
+†
Form of Incentive Stock Option Agreement under the Amended and Restated 2014 Stock Incentive Plan.
(8)
10.4(c)
+†
Form of Non-Qualified Stock Option Agreement under the Amended and Restated 2014 Stock Incentive Plan.
(8)
10.4(d)
+
Form of Restricted Stock Unit Agreement under the Amended and Restated 2014 Stock Incentive Plan.
10.4(e)
+†
Form of Performance Share Unit Agreement under the Amended and Restated 2014 Stock Incentive Plan.
(10)
10.5
†
Form of Indemnification Agreement.
(9)
10.6
+†
Amended & Restated Employment Agreement, dated December 27, 2020, by and between Collegium Pharmaceutical, Inc. and Joseph Ciaffoni.
(11)
61
10.7
+†
Amended & Restated Employment Agreement, dated December 27, 2020, by and between Shirley Kuhlmann and Collegium Pharmaceutical, Inc.
(11)
10.8
+†
Amended & Restated Employment Agreement, dated December 27, 2020, by and between Collegium Pharmaceutical, Inc. and Scott Dreyer.
(11)
10.9
†
License Agreement (U.S.), dated as of January 13, 2015, by and among Grünenthal GmbH, Janssen Research & Development, LLC, Assertio Therapeutics, Inc. and Collegium Pharmaceutical, Inc.
(12)
10.10*
†
Consent Agreement, dated January 30, 2020, by and among Grünenthal GmbH, Assertio Therapeutics, Inc. and Collegium Pharmaceutical, Inc.
(12)
10.11*
†
Settlement Agreement, dated September 29, 2020, by and among Collegium Pharmaceutical, Inc. and Teva Pharmaceuticals USA, Inc.
(13)
10.12
+†
Employment Agreement, dated May 24, 2021, by and between Colleen Tupper and Collegium Pharmaceutical, Inc.
(14)
10.13*
†
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.
(15)
10.14
First Amendment and Consent to Amended and Restated Loan Agreement, dated as of January 3, 2023, by and among Collegium Pharmaceutical, Inc., the guarantors party thereto, BioPharma Credit PLC, and BioPharma Credit Investments V (Master) LP, as lenders.
10.15
†
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.
(16)
10.16
†
Third Amendment to Loan Agreement, dated as of June 23, 2023, by and among Collegium Pharmaceutical, Inc., the guarantors party thereto, BioPharma Credit PLC, and Bio Pharma Credit Investments V (Master) LP, as lenders.
(17)
10.17*
†
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).
(18)
10.18
+†
Amendment to Employment Agreement, dated January 20, 2022 by and between Collegium Pharmaceutical, Inc. and Joseph Ciaffoni.
(18)
10.19
+†
Amendment to Employment Agreement, dated January 20, 2022 by and between Collegium Pharmaceutical, Inc. and Colleen Tupper.
(18)
10.20
+†
Amendment to Employment Agreement, dated January 20, 2022 by and between Collegium Pharmaceutical, Inc. and Shirley Kuhlmann.
(18)
10.21
+†
Amendment to Employment Agreement, dated January 20, 2022 by and between Collegium Pharmaceutical, Inc. and Scott Dreyer.
(18)
10.22
+†
Employment Agreement, dated March 23, 2022 by and between Collegium Pharmaceutical, Inc. and Thomas Smith.
(18)
19
Insider Trading Policy
21.1
Subsidiaries of Collegium Pharmaceutical, Inc.
23.1
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
31.1
Certifying Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes ‑ Oxley Act of 2002.
31.2
Certifying Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes ‑ Oxley Act of 2002.
32.1
Certifying Statement of the Chief Executive Officer pursuant to Section 1350 of Title 18 of the United States Code.
32.2
Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code.
97
Compensation Recovery Policy
101
The following financial information from this Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL: (i) Consolidated Balance Sheets as of December 31, 2023, and 2022, (ii) Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021, (iii) Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2023, 2022 and 2021, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.
62
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
†Previously filed.
+Indicates management contract or compensatory plan.
* Certain portions of the exhibits that are not material and would be competitively harmful if publicly disclosed have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Copies of the unredacted exhibits will be furnished to the Securities and Exchange Commission (“SEC”) upon request.
(1) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2022.
(2) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 filed with the SEC on August 5, 2020.
(3) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on December 4, 2017.
(4) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on February 13, 2020.
(5) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on February 13, 2023.
(6) Previously filed as an exhibit to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 23, 2023.
(7) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 filed with the SEC on May 9, 2018.
(8) Previously filed as an exhibit to the registrant’s Registration Statement on Form S-8 (File No. 333-207744) filed with the SEC on November 2, 2015.
(9) Previously filed as an exhibit to the registrant’s Registration Statement on Form S-1/A (File No. 333-203208) filed with the SEC on April 27, 2015.
(10) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 filed with the SEC on May 8, 2019.
(11) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on December 30, 2020.
(12) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 filed with the SEC on May 7, 2020.
(13) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on September 30, 2020.
(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 SEC August 5, 2021.
(15) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on March 23, 2022.
(16) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 filed with the SEC May 4, 2023.
63
(17) Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 filed with the SEC August 3, 2023.
(18) 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 SEC May 10, 2022.
Item 16. Form 10-K Summary
None.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COLLEGIUM PHARMACEUTICAL, INC.
By: /s/ Joseph Ciaffoni
Joseph Ciaffoni
Chief Executive Officer
Signature
Title
Date
/s/ Joseph Ciaffoni
President and Chief Executive Officer (Principal Executive Officer) and Director
February 22, 2024
Joseph Ciaffoni
/s/ Colleen Tupper
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
February 22, 2024
Colleen Tupper
/s/ Michael T. Heffernan, R.Ph.
Chairman of the Board
February 22, 2024
Michael T. Heffernan, R.Ph.
/s/ Rita Balice-Gordon, Ph.D.
Director
February 22, 2024
Rita Balice-Gordon, Ph.D.
/s/ Garen G. Bohlin
Director
February 22, 2024
Garen G. Bohlin
/s/ John A. Fallon, M.D.
Director
February 22, 2024
John A. Fallon, M.D.
/s/ John G. Freund, M.D.
Director
February 22, 2024
John G. Freund, M.D.
/s/ Gwen Melincoff
Director
February 22, 2024
Gwen Melincoff
/s/ Gino Santini
Director
February 22, 2024
Gino Santini
/s/ Neil McFarlane
Director
February 22, 2024
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.
65
COLLEGIUM PHARMACEUTICAL, INC.
Index to Consolidated Financial Statements
Audited Consolidated Financial Statements
Pages
Report of Independent Registered Public Accounting Firm ( PCAOB ID 34 )
F-2
Consolidated Balance Sheets as of December 31, 2023 and 2022
F-4
Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022, and 2021
F-5
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2023, 2022, and 2021
F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021
F-8
Notes to Consolidated Financial Statements
F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Collegium Pharmaceutical, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Collegium Pharmaceutical, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Product Return Liability – Refer to Note 3 to the Financial Statements
Critical Audit Matter Description
Revenue is recognized when control is transferred to the customer, which occurs upon delivery, and revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer (“transaction price”). The transaction price for product sales includes variable consideration related to sales deductions and a refund liability is established for estimated product returns. At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration should be constrained). Variable consideration, including the risk of customer concessions, is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved. The Company updates the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds with the corresponding adjustments recognized as revenue (or reductions of revenue).
F-2
Estimating the variable consideration and the provision for the refund liability requires significant judgment by management. Given the complexity and significant level of estimation uncertainty involved in calculating the refund liability, our audit procedures in this area required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the revenue deductions for returns and the refund liability (the “return provision”) included the following, among others:
● We tested the effectiveness of controls over the measurement and recognition of the return provision.
● We evaluated the Company's methodology and significant assumptions made in developing the return provision.
● We tested the completeness and accuracy of the data underlying the measurement of the return provision.
● We tested the mathematical accuracy of management's underlying calculation of the return provision.
● We performed a retrospective review, comparing prior period product return estimates to actual product returns.
● We developed independent estimates of the return provision using historical sales and returns activity, product dating and expiration dates, and other information.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 22, 2024
We have served as the Company's auditor since 2016.
F-3
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED BALANCE SHEET S
(In thousands, except share and per share data)
December 31,
December 31,
2023
2022
Assets
Current assets
Cash and cash equivalents
$
238,947
$
173,688
Marketable securities
71,601
—
Accounts receivable, net
179,525
183,119
Inventory
32,332
46,501
Prepaid expenses and other current assets
15,195
16,681
Total current assets
537,600
419,989
Property and equipment, net
15,983
19,521
Operating lease assets
6,029
6,861
Intangible assets, net
421,708
567,468
Restricted cash
1,047
2,547
Deferred tax assets
26,259
23,950
Other noncurrent assets
825
100
Goodwill
133,857
133,695
Total assets
$
1,143,308
$
1,174,131
Liabilities and shareholders' equity
Current liabilities
Accounts payable
$
8,692
$
3,494
Accrued liabilities
37,571
36,129
Accrued rebates, returns and discounts
227,331
230,491
Current portion of term notes payable
183,333
162,500
Current portion of operating lease liabilities
988
1,112
Total current liabilities
457,915
433,726
Term notes payable, net of current portion
221,713
397,578
Convertible senior notes
262,125
140,873
Operating lease liabilities, net of current portion
6,124
7,112
Total liabilities
947,877
979,289
Commitments and contingencies (refer to Note 13)
Shareholders’ equity:
Preferred stock, $ 0.001 par value; authorized shares - 5,000,000
—
—
Common stock, $ 0.001 par value; authorized shares - 100,000,000 ; 38,192,441 issued and 31,868,549 outstanding shares as of December 31, 2023 and 37,084,759 issued and 33,848,936 outstanding shares as of December 31, 2022
38
37
Additional paid-in capital
565,949
538,073
Treasury stock, at cost; 6,323,892 shares as of December 31, 2023 and 3,235,823 shares as of December 31, 2022
( 137,381 )
( 61,924 )
Accumulated other comprehensive income
14
—
Accumulated deficit
( 233,189 )
( 281,344 )
Total shareholders’ equity
195,431
194,842
Total liabilities and shareholders’ equity
$
1,143,308
$
1,174,131
The accompanying notes are an integral part of these consolidated financial statements.
F-4
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATION S
(In thousands, except share and per share data)
Years Ended December 31,
2023
2022
2021
Product revenues, net
$
566,767
$
463,933
$
276,868
Cost of product revenues
Cost of product revenues (excluding intangible asset amortization)
94,838
118,190
59,070
Intangible asset amortization and impairment
145,760
136,255
67,181
Total cost of products revenues
240,598
254,445
126,251
Gross profit
326,169
209,488
150,617
Operating expenses
Research and development
—
3,983
9,451
Selling, general and administrative
159,208
172,186
118,960
Restructuring
—
—
4,578
Total operating expenses
159,208
176,169
132,989
Income from operations
166,961
33,319
17,628
Interest expense
( 83,339 )
( 63,213 )
( 21,014 )
Interest income
15,615
1,047
12
Loss on extinguishment of debt
( 23,504 )
—
—
Income (loss) before income taxes
75,733
( 28,847 )
( 3,374 )
Provision for (benefit from) income taxes
27,578
( 3,845 )
( 74,891 )
Net income (loss)
$
48,155
$
( 25,002 )
$
71,517
Earnings (loss) per share — basic
$
1.43
$
( 0.74 )
$
2.05
Weighted-average shares — basic
33,741,213
33,829,495
34,936,817
Earnings (loss) per share — diluted
$
1.29
$
( 0.74 )
$
1.86
Weighted-average shares — diluted
41,788,125
33,829,495
41,045,805
The accompanying notes are an integral part of these consolidated financial statements.
F-5
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Years Ended December 31,
2023
2022
2021
Net income (loss)
$
48,155
$
( 25,002 )
$
71,517
Other comprehensive income:
Unrealized gains on marketable securities
14
—
—
Total other comprehensive income
14
—
—
Comprehensive income (loss)
$
48,169
$
( 25,002 )
$
71,517
The accompanying notes are an integral part of these consolidated financial statements.
F-6
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUIT Y
(In thousands, except share data)
Additional
Accumulated Other
Total
Common Stock
Paid-In
Treasury Stock
Accumulated
Comprehensive
Shareholders’
Shares
Amount
Capital
Shares
Amount
Deficit
Loss
Equity
Balance as of December 31, 2020
34,612,054
$
35
$
519,143
—
$
—
$
( 333,147 )
$
—
$
186,031
Cumulative effect of adjustment for adoption of ASU 2020-06
—
—
( 44,777 )
—
—
5,288
—
( 39,489 )
Exercise of common stock options
803,485
1
11,868
—
—
—
—
11,869
Issuance for employee stock purchase plan
43,719
—
755
—
—
—
—
755
Vesting of RSUs and PSUs
511,743
—
—
—
—
—
—
—
Shares withheld for employee taxes upon vesting of RSUs and PSUs
( 164,882 )
—
( 4,149 )
—
—
—
—
( 4,149 )
Share repurchases
—
—
—
( 2,150,717 )
( 42,861 )
—
—
( 42,861 )
Forward contract on ASR agreement
—
—
( 5,000 )
—
—
—
—
( 5,000 )
Stock-based compensation
—
—
24,255
—
—
—
—
24,255
Net income
—
—
—
—
—
71,517
—
71,517
Balance as of December 31, 2021
35,806,119
$
36
$
502,095
( 2,150,717 )
$
( 42,861 )
$
( 256,342 )
$
—
$
202,928
Exercise of common stock options
742,348
—
11,811
—
—
—
—
11,811
Issuance for employee stock purchase plan
22,627
—
337
—
—
—
—
337
Vesting of RSUs and PSUs
699,285
1
—
—
—
—
—
1
Shares withheld for employee taxes upon vesting of RSUs and PSUs
( 226,286 )
—
( 4,044 )
—
—
—
—
( 4,044 )
Share repurchases
—
—
5,000
( 1,085,106 )
( 19,063 )
—
—
( 14,063 )
Exercise of warrant
40,666
—
—
—
—
—
—
—
Stock-based compensation
—
—
22,874
—
—
—
—
22,874
Net loss
—
—
—
—
—
( 25,002 )
—
( 25,002 )
Balance as of December 31, 2022
37,084,759
$
37
$
538,073
( 3,235,823 )
$
( 61,924 )
$
( 281,344 )
$
—
$
194,842
Exercise of common stock options
498,008
—
8,641
—
—
—
—
8,641
Issuance for employee stock purchase plan
26,505
—
460
—
—
—
—
460
Vesting of RSUs and PSUs
898,817
1
—
—
—
—
—
1
Shares withheld for employee taxes upon vesting of RSUs and PSUs
( 315,648 )
—
( 8,361 )
—
—
—
—
( 8,361 )
Share repurchases
—
—
—
( 3,088,069 )
( 75,457 )
—
—
( 75,457 )
Stock-based compensation
—
—
27,136
—
—
—
—
27,136
Other comprehensive income, net of tax
—
—
—
—
—
—
14
14
Net income
—
—
—
—
—
48,155
—
48,155
Balance as of December 31, 2023
38,192,441
$
38
$
565,949
( 6,323,892 )
$
( 137,381 )
$
( 233,189 )
$
14
$
195,431
The accompanying notes are an integral part of these consolidated financial statements.
F-7
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW S
(In thousands)
Years Ended December 31,
2023
2022
2021
Operating activities
Net income (loss)
$
48,155
$
( 25,002 )
$
71,517
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization and impairment expense
145,760
136,255
67,181
Depreciation expense
3,496
2,684
1,736
Deferred income taxes
( 2,153 )
( 8,391 )
( 78,042 )
Stock-based compensation expense
27,136
22,874
24,255
Non-cash lease (benefit) expense
( 280 )
238
18
Loss on extinguishment of debt
23,504
—
—
Non-cash interest expense for amortization of debt discount and issuance costs
8,635
8,285
3,406
Net amortization of premiums and discounts on investments
( 1,235 )
—
—
Changes in operating assets and liabilities:
Accounts receivable
3,594
( 21,780 )
( 22,524 )
Inventory
14,169
48,274
( 2,296 )
Prepaid expenses and other assets
1,439
( 4,606 )
( 1,086 )
Accounts payable
5,061
( 707 )
( 5,827 )
Accrued liabilities
628
( 11,131 )
4,777
Accrued rebates, returns and discounts
( 3,160 )
( 22,766 )
40,442
Operating lease assets and liabilities
—
3
—
Net cash provided by operating activities
274,749
124,230
103,557
Investing activities
Purchases of property and equipment
( 461 )
( 1,622 )
( 1,944 )
Purchases of marketable securities
( 92,351 )
—
—
Maturities of marketable securities
22,000
—
—
Acquisition of BDSI (net of cash acquired)
—
( 572,069 )
—
Net cash used in investing activities
( 70,812 )
( 573,691 )
( 1,944 )
Financing activities
Proceeds from issuances of common stock from employee stock purchase plans
460
337
755
Proceeds from the exercise of stock options
8,641
11,811
11,952
Payments made for employee stock tax withholdings
( 8,361 )
( 4,044 )
( 4,149 )
Repurchases of common stock
( 75,000 )
( 14,063 )
( 47,861 )
Repayment of term notes
( 162,500 )
( 75,000 )
( 50,000 )
Proceeds from term note modification
—
517,682
—
Proceeds from issuances of 2029 convertible notes, net of issuance costs of $ 6,280
235,220
—
—
Repurchase of 2026 Convertible Notes, including premium
( 138,638 )
—
—
Net cash (used in) provided by financing activities
( 140,178 )
436,723
( 89,303 )
Net increase (decrease) in cash, cash equivalents and restricted cash
63,759
( 12,738 )
12,310
Cash, cash equivalents and restricted cash at beginning of year
176,235
188,973
176,663
Cash, cash equivalents and restricted cash at end of year
$
239,994
$
176,235
$
188,973
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents
$
238,947
$
173,688
$
186,426
Restricted cash
1,047
2,547
2,547
Total cash, cash equivalents and restricted cash
$
239,994
$
176,235
$
188,973
Supplemental disclosure of cash flow information
Cash paid for interest
$
73,256
$
52,528
$
17,608
Cash paid for income taxes
$
24,205
$
10,400
$
3,005
Supplemental disclosure of non-cash activities
Acquisition of property and equipment in accounts payable and accrued liabilities
$
176
$
—
$
72
Excise tax on share repurchases in accrued liabilities
$
457
$
—
$
—
Inventory used in the construction and installation of property and equipment
$
—
$
—
$
516
The accompanying notes are an integral part of these consolidated financial statements.
F-8
COLLEGIUM PHARMACEUTICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Nature of Business
Organization
Collegium Pharmaceutical, Inc. (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 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, 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.
2. Summary of Significant Accounting Policies
Basis of Accounting
The consolidated financial statements include the accounts of Collegium Pharmaceutical, Inc. 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”). All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
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 unsalable 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. The Company evaluates its estimates and assumptions on an ongoing basis. The Company’s actual results may differ from these estimates under different assumptions or conditions.
F-9
Fair Value Measurements
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:
Quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market is defined as a market where transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 inputs:
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3 inputs:
Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
The Company’s approach to fair value measurement is aligned with its investment policy focused on capital preservation. The Company invests in instruments within defined credit parameters to minimize credit risk while ensuring liquidity.
There were no transfers between Levels 1, 2 and 3 during the years ended December 31, 2023 and 2022.
The following table presents the Company’s financial instruments carried at fair value using the lowest level input applicable to each financial instrument as of December 31, 2023 and 2022.
Significant
Quoted Prices
other
Significant
in active
observable
unobservable
markets
inputs
inputs
Total
(Level 1)
(Level 2)
(Level 3)
December 31, 2023
Cash equivalents:
Money market funds
$
77,299
$
77,299
$
—
$
—
U.S. Treasury securities
4,729
—
4,729
—
Marketable securities:
Corporate debt securities
41,612
—
41,612
—
U.S. Treasury securities
25,468
—
25,468
—
Government-sponsored securities
4,521
—
4,521
—
Total assets measured at fair value
$
153,629
$
77,299
$
76,330
$
—
December 31, 2022
Cash equivalents:
Money market funds
$
172,590
$
172,590
$
—
$
—
Total assets measured at fair value
$
172,590
$
172,590
$
—
$
—
The Company’s cash equivalents, which consist of money market funds, are measured at fair value on a recurring basis using quoted market prices. Accordingly, these securities are categorized as Level 1.
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. The fair value was determined based on data points other than quoted prices that are observable, either directly or indirectly, such as broker quotes in a non-active market. As of December 31, 2023, the fair value of the Company’s 2.625 % convertible senior notes due in 2026 was $ 25,033 and the net carrying value was $ 25,992 . As of December 31, 2023, the fair value of the Company’s 2.875 % convertible senior notes due in 2029 was $ 249,803 and the net carrying value was $ 236,133 .
F-10
The Company’s term notes fall into the Level 2 category within the fair value level hierarchy and the fair value was determined using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals. As of December 31, 2023, the carrying amount of the term notes reasonably approximated the estimated fair value.
As of December 31, 2023, and 2022, the carrying amounts of the cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and accrued rebates, returns and discounts, reasonably approximated the estimated fair values.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash deposits primarily with one reputable and nationally recognized financial institution. In addition, as of December 31, 2023, 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 and the nature of the assets in the money market funds.
Three customers comprised 10% or more of the Company’s accounts receivable balance as of December 31, 2023. These customers comprised 38 %, 35 %, and 26 % of the accounts receivable balance as of December 31, 2023 and 37 %, 33 %, and 28 % as of December 31, 2022.
The same customers comprised 10% or more of the Company’s revenue during the year ended December 31, 2023. These customers comprised 33 %, 32 %, and 32 % of revenue during the year ended December 31, 2023; 33 %, 32 %, and 31 % during the year ended December 31, 2022; and 35 %, 31 %, and 29 % during the year ended December 31, 2021.
To date, the Company has not experienced any credit losses with respect to the collection of its accounts receivable and has not recorded an allowance for credit losses as of December 31, 2023 or 2022. The Company has no financial instruments with off balance sheet risk of loss.
Cash and Cash Equivalents
Cash and cash equivalents include cash in readily available checking and savings accounts, including bank deposits, and investments in money market funds. The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents.
Restricted Cash
Restricted cash is reported as non-current unless the restrictions are expected to be released in the next twelve months. Restricted cash as of December 31, 2023 represents cash held in a depository account at a financial institution to collateralize conditional standby letters of credit for the Company’s lease of its corporate headquarters and its leases of vehicles for its field-based employees.
Marketable Securities
As of December 31, 2023, the Company’s marketable securities consisted of investments in available-for-sale corporate debt, U.S. Treasury, and government-sponsored securities with readily determinable fair values. The Company classifies available-for-sale marketable securities as current assets on its consolidated balance sheets. The fair value of these securities is based on quoted prices for identical assets or inputs other than quoted prices that are observable for similar assets, either directly or indirectly.
The Company records interest earned and net amortization of premiums and discounts on investments within interest income on its consolidated statements of operations. The Company records unrealized gains (losses) on available-for-
F-11
sale debt securities as a component of “ Accumulated other comprehensive income,” which is a separate component of shareholders’ equity on its consolidated balance sheets, until such gains and losses are realized. Realized gains and losses are determined using the specific identification method.
For available-for-sale debt securities with unrealized losses, the Company assesses whether a credit loss allowance is required using an expected loss model. This process involves evaluating whether the fair value of an investment is recoverable when compared to its amortized cost. If an increase in fair value is observed, the Company may reduce any previously recognized credit losses. In determining whether impairments are other-than-temporary, the Company considers its ability and intention to hold the investment until market price recovery, as well as issuer-specific credit ratings, historical losses, and current economic conditions. The Company generally intends to retain investments until their amortized cost is recovered and did not identify any investments with other-than-temporary impairment as of December 31, 2023.
Inventory
Inventories are stated at the lower of cost or net realizable value. Inventory costs consist of costs related to the manufacturing of the Company’s products, which are primarily the costs of contract manufacturing and active pharmaceutical ingredients. The Company determines the cost of its inventories on a specific identification basis and removes amounts from inventories on a first-in, first-out basis. If the Company identifies excess, obsolete or unsalable items, inventories are written down to their realizable value in the period in which the impairment is identified. 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.
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 expects to use the inventory over its operating cycle.
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. GAAP.
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.
F-12
Goodwill
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, 2023 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
The Company records the fair value of finite-lived intangible assets as of the transaction date. Intangible assets are then amortized over their estimated useful lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized. The Company tests intangible assets for potential impairment whenever triggering events or circumstances present an indication of impairment. 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.
Property and Equipment
Property and equipment, including leasehold improvements, are recorded at cost. Maintenance and repair costs are expensed as incurred. 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:
Asset Category
Estimated Useful Life
Computers and office equipment
3 - 5 years
Laboratory equipment
5 years
Furniture and fixtures
7 years
Manufacturing equipment
5 - 13 years
Leasehold improvements
Lesser of remaining lease term and estimated useful life
Costs for capital assets not yet placed into service have been capitalized as construction-in-progress and will be depreciated in accordance with the above guidelines once placed into service.
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.
Leases
The Company records lease assets and liabilities for lease arrangements exceeding a 12-month initial term. For operating leases, the Company records a beginning lease liability equal to the present value of minimum lease payments to be made over the lease term discounted using the Company’s incremental borrowing rate and a corresponding lease asset adjusted for incentives received and indirect costs. At lease commencement, the Company measures the lease liability at the present value of the remaining lease payments discounted using the incremental borrowing rate and the corresponding lease asset is adjusted for incentives received and indirect costs. The Company records operating lease rent expense in the statements of operations over the lease term. Variable lease costs are not included in the measurement of the operating lease liability and are recognized in the period in which they are incurred. Leases with an initial term of
F-13
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. The Company does not have any financing lease arrangements.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment, operating and finance lease assets, and definite-lived intangible assets. The Company assesses the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indications of impairment exist, projected future undiscounted cash flows associated with the asset (or asset group) would be compared to the carrying value of the asset to determine whether the asset's value is recoverable. If impairment is determined, the Company writes down the asset to its estimated fair value and records an impairment loss equal to the excess of the carrying value of the long-lived asset over its estimated fair value in the period at which such a determination is made.
Revenue Recognition
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 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
Advertising and product promotion costs are included in selling, general and administrative expenses and were $ 7,406 , $ 11,743 , and $ 4,186 in the years ended December 31, 2023, 2022, and 2021 respectively. Advertising and product promotion costs are expensed as incurred.
Stock-Based Compensation
The Company accounts for grants of stock options, restricted stock units and performance share units to employees, as well as to the Board of Directors, based on the grant date fair value and recognizes compensation expense over the vesting period, net of actual forfeitures. 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. The Company estimates the grant date fair value of restricted stock units based on the fair value of the underlying common stock. For awards with performance conditions, the Company estimates the number of shares that will vest based upon the probability of achieving performance metrics. For 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.
F-14
Restructuring
During the three months ended December 31, 2021, the Company executed a plan to reduce its workforce, primarily related to its salesforce. The arrangements included the payment of a cash severance benefit near the time of separation, together with continued medical benefits and related services. As a result, the Company recognized $ 4,578 in restructuring expense. Of this amount, $ 1,335 was paid by December 31, 2021 and the remaining $ 3,243 was paid in the first half of 2022.
Income Taxes
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. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and the absence of carryback available from results of recent operations.
The Company records uncertain tax positions on the basis of a two-step process whereby: (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more likely than not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company will recognize interest and penalties related to uncertain tax positions within income tax expense. Any accrued interest and penalties will be included within the related tax liability. As of December 31, 2023, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations.
Earnings per Share
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, 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
The Company accounts for derivative financial instruments as either equity or liabilities in accordance with Accounting Standards Codification Topic 815, Derivatives and Hedging , (“ASC 815”) based on the characteristics and provisions of each instrument. Embedded derivatives are required to be bifurcated from the host instruments and recorded at fair value if the derivatives are not clearly and closely related to the host instruments on the date of issuance. The Company’s term notes and convertible notes (refer to Note 14, 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 through December 31, 2023 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.
F-15
Recently Adopted Accounting Pronouncements
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 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 . This ASU simplifies the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exceptions for contracts in an entity’s own equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument, such as the Company’s convertible senior notes, will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments and requires additional disclosures.
The Company elected to early adopt this guidance on January 1, 2021 using the modified retrospective method. Under this transition method, the cumulative effect of the accounting change was removing the impact of recognizing the equity component of the Company’s convertible notes (at issuance and the subsequent accounting impact of additional interest expense from debt discount amortization). The cumulative effect of the accounting change as of January 1, 2021 was an increase to the carrying amount of the convertible notes of $ 39,489 , a reduction to accumulated deficit of $ 5,288 , and a reduction to additional paid-in capital of $ 44,777 . Interest expense of the convertible senior notes will be lower as a result of adoption of this guidance and diluted net loss per share will be computed using the if-converted method for the convertible senior notes. As a result of the adoption of this guidance, interest expense decreased and net income increased by $ 6,488 , basic earnings per share was increased by $ 0.19 , and diluted earnings per share was decreased by $ 0.06 for the year ended December 31, 2021.
In 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 were elective and applied to all entities that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to 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. Following the cessation of LIBOR in the United States on June 30, 2023, the Company elected to apply the optional expedient provided in FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting prospectively. Thus, debt previously referenced to LIBOR was transitioned to the Secured Overnight Financing Rate (“SOFR”) effective July 1, 2023, however, such transition did not have a material effect on the Company’s consolidated financial statements.
F-16
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07 , Segment Reporting (Topic 280). The amendments in this update expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment among other disclosure requirements. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The amendments in this update expand income tax disclosure requirements, including additional information pertaining to the rate reconciliation, income taxes paid, and other disclosures. This update is effective for annual periods beginning after December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the consolidated financial statements upon future adoption.
3. Revenue from Contracts with Customers
The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to wholesalers (customers), which in turn sell the product to pharmacies or other outlets for the treatment of patients.
Revenue Recognition
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 with a customer, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. 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, 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.
The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the assets is one year or less.
Performance Obligations
The Company determined that performance obligations are satisfied, and revenue is recognized when a customer takes control of the Company’s product, which occurs at a point in time. This generally occurs upon delivery of the products to customers, at which point the Company recognizes revenue and records accounts receivable. Payment is typically received 30 to 90 days after satisfaction of the Company’s performance obligations.
Transaction Price and Variable Consideration
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). The transaction price for product sales includes variable consideration related to sales deductions, including: (i) rebates and incentives, including managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances; (ii) product returns, including return estimates; and (iii) trade allowances and chargebacks, including fees for distribution services, prompt pay discounts, and chargebacks. The Company will estimate the amount of variable consideration that should be included in the transaction price under the expected value method for all sales deductions other than trade allowances, which are estimated under the most likely amount method. These provisions reflect the expected amount of consideration to which
F-17
the Company is entitled based on the terms of the contract. In addition, the Company made a policy election to exclude from the measurement of the transaction price all taxes that are assessed by a governmental authority that are imposed on revenue-producing transactions.
The Company bases its estimates of variable consideration, which could include estimates of future rebates, returns, and other adjustments, on historical data and other information. Estimates include: (i) timing of the rebates and returns incurred; (ii) pricing adjustments related to rebates and returns; and (iii) the quantity of product that will be rebated or returned in the future. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period.
Rebates and Incentives
Provisions for rebates and incentives are based on the estimated amount of rebates and incentives to be claimed on the related sales. As the Company’s rebates and incentives are based on products dispensed to patients, the Company is required to estimate the expected value of claims at the time of product delivery to wholesalers. Given that wholesalers sell the product to pharmacies, which in turn dispense the product to patients, claims can be submitted significantly after the related sales are recognized. The Company’s estimates of these claims are based on the historical experience of existing or similar programs, including current contractual and statutory requirements, specific known market events and trends, industry data, and estimated distribution channel inventory levels. Accruals and related reserves required for rebates and incentives are adjusted as new information becomes available, including actual claims. If actual results vary, the Company may need to adjust future estimates, which could have an effect on earnings in the period of the adjustment.
Product Returns
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. 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).
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 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.
F-18
During the year ended December 31, 2021, there were unprecedented and significant disruptions in the processing of product returns. Specifically, the Company’s customers, via the third-party returns processor that they and many pharmacies engage to process the majority of the Company’s product returns, failed to return products to the Company in the ordinary course. The value of actual returned product during the year ended December 31, 2021 represented less than 20 % of the value of the product returns claimed during that period. Due to the failure of the customers and their vendor to return product timely in the ordinary course, the Company did not physically receive returned products corresponding to the substantial majority of the returns claimed and could not validate or finalize customer return claims, nor determine if the return was or would be eligible for refund upon the physical return. The lack of timely processing of requested product returns obscures information related to the validation of product returns and increases uncertainty related to the actual volume of product that will be physically returned and credited in accordance with the Company’s returns policy.
During the fourth quarter of 2021, after significant and sustained efforts with customers to resolve the unprocessed return claims, the Company formally denied a significant portion of these claims under the Company’s return policy. The Company subsequently received payment for only a portion of the denied claims and 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 revenues, net of $ 38,329 , with offsetting reductions in accounts receivable or increases in the refund liability for future product returns.
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.
Trade Allowances and Chargebacks
Provisions for trade allowances and chargebacks are primarily based on customer-level contractual terms. Accruals and related reserves are adjusted as new information becomes available, which generally consists of actual trade allowances and chargebacks processed relating to sales recognized.
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). 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.
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 revenues, net and earnings in the period such revisions become known. 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 revenues, net.
F-19
The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the years ended December 31, 2023, 2022, and 2021, respectively:
Trade
Rebates and
Product
Allowances and
Incentives (1)
Returns (2)
Chargebacks (3)
Balance as of December 31, 2020
$
132,775
$
23,779
$
19,055
Provision related to current period sales
378,694
27,229
84,470
Changes in estimate related to prior period sales
1,121
8,763
4
Credits/payments made
( 370,211 )
( 5,154 )
( 90,303 )
Balance as of December 31, 2021
$
142,379
$
54,617
$
13,226
Acquired from BDSI
38,074
18,187
7,575
Provision related to current period sales
497,250
38,250
132,547
Changes in estimate related to prior period sales
( 619 )
2,505
( 592 )
Credits/payments made
( 520,147 )
( 40,005 )
( 130,698 )
Balance as of December 31, 2022
$
156,937
$
73,554
$
22,058
Provision related to current period sales
424,013
41,993
149,976
Changes in estimate related to prior period sales
( 4,802 )
4,268
555
Credits/payments made
( 426,322 )
( 42,310 )
( 151,672 )
Balance as of December 31, 2023
$
149,826
$
77,505
$
20,917
(1) Provisions for rebates and incentives includes managed care rebates, government rebates and co-pay program incentives. Provisions for rebates and incentives are deducted from gross revenues at the time revenues are recognized and are included in accrued rebates, returns and discounts in the Company’s consolidated balance sheets.
(2) Provisions for product returns are deducted from gross revenues at the time revenues are recognized and are included in accrued rebates, returns and discounts in the Company’s Consolidated Balance Sheets.
(3) Provisions for trade allowances and chargebacks include fees for distribution service fees, prompt pay discounts, and chargebacks. Trade allowances and chargebacks are deducted from gross revenue at the time revenues are recognized and are recorded as a reduction to accounts receivable in the Company’s consolidated balance sheets.
As of December 31, 2023, the Company did not have any transaction price allocated to remaining performance obligations and any costs to obtain contracts with customers, including pre-contract costs and set up costs, were immaterial.
Disaggregation of Revenue
The Company 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,
2023
2022
2021
Belbuca
$
182,095
$
126,461
$
—
Xtampza ER
177,374
138,804
103,708
Nucynta IR
108,150
112,058
102,222
Nucynta ER
82,653
72,418
70,938
Symproic
16,495
12,267
—
Other
—
1,925
—
Total product revenues, net
$
566,767
$
463,933
$
276,868
The Company began recognizing revenue from net product sales of Belbuca and Symproic following the Acquisition Date as defined in Note 4, Acquisitions .
F-20
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 Belbuca and Symproic.
The BDSI Acquisition was completed to leverage 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 an 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
Amount
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)
$
578,118
Cash consideration paid to settle RSUs and in-the-money options
28,309
Cash paid to settle BDSI debt
63,004
Total purchase consideration
$
669,431
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 final allocation of the consideration transferred to the assets acquired and liabilities assumed has been completed. During the three months ended March 31, 2023, the Company recorded measurement period adjustments to increase accrued expenses by $ 134 and deferred tax liabilities by $ 28 , with a corresponding increase to goodwill of $ 162 .
The following tables set forth the final allocation of the BDSI Acquisition purchase price to the estimated fair value of the net assets acquired at the Acquisition Date:
Amounts Recognized at the Acquisition Date
Assets Acquired
Cash and cash equivalents
$
97,362
Accounts receivable
55,495
Inventory
77,382
Prepaid expenses and other current assets
6,125
Property and equipment
1,242
Operating lease assets
481
Intangible assets
435,000
Total assets
$
673,087
Liabilities Assumed
Accounts payable
$
12
Accrued liabilities
18,249
Accrued rebates, returns and discounts
56,261
Operating lease liabilities
481
Deferred tax liabilities
62,510
Total liabilities
$
137,513
Total identifiable net assets acquired
535,574
Goodwill
133,857
Total consideration transferred
$
669,431
F-21
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 amortizes the identifiable intangible assets on a straight-line basis over their respective useful lives (refer to Note 11, 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,
2022
2021
Total revenues
$
493,284
$
443,571
Net income
$
8,674
$
15,015
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; and
● 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 14, Debt.
In addition, all of the above adjustments were adjusted for the applicable tax impact.
F-22
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
$
14,718
Employee-related expenses
8,008
BDSI directors and officers insurance
4,492
Other acquisition expenses
4,079
Total acquisition related expenses
$
31,297
5. L icenses Agreements
The Company periodically enters into license agreements to develop and commercialize its products.
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.
6. 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.
F-23
The following table presents the computations of basic and dilutive earnings (loss) per common share:
Years Ended December 31,
2023
2022
2021
Numerator:
Net income (loss)
$
48,155
$
( 25,002 )
$
71,517
Adjustment for interest expense recognized on convertible senior notes:
5,889
—
4,675
Net (loss) income — diluted
$
54,044
$
( 25,002 )
$
76,192
Denominator:
Weighted-average shares outstanding — basic
33,741,213
33,829,495
34,936,817
Effect of dilutive securities:
Stock options
271,540
—
504,699
Restricted stock units
714,190
—
461,471
Performance share units
267,761
—
85,229
Employee stock purchase plan
—
—
1,198
Warrants
—
—
131,257
Convertible senior notes
6,793,421
—
4,925,134
Weighted average shares outstanding — diluted
41,788,125
33,829,495
41,045,805
Earnings (loss) per share — basic
$
1.43
$
( 0.74 )
$
2.05
Earnings (loss) per share — diluted
$
1.29
$
( 0.74 )
$
1.86
The Company has the option to settle the conversion obligation for its convertible senior notes due in 2026 and 2029 in cash, shares or a combination of the two. 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:
Years Ended December 31,
2023
2022
2021
Stock options
259,405
1,683,805
1,202,403
Restricted stock units
31,050
2,047,571
22,605
Performance share units
308,680
447,770
242,714
Employee stock purchase plan
18,591
—
—
Convertible senior notes
—
4,925,134
—
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.
7. Marketable Securities
Available-for-sale debt securities were classified on the consolidated balance sheets at fair value as follows:
December 31,
2023
Cash and cash equivalents
$
4,729
Marketable securities
71,601
Total
$
76,330
F-24
The following table summarizes the available-for-sale securities held as of December 31, 2023:
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Corporate debt securities
$
41,610
$
47
$
( 45 )
$
41,612
U.S. Treasury securities
30,189
8
—
30,197
Government-sponsored securities
4,517
4
—
4,521
Total
$
76,316
$
59
$
( 45 )
$
76,330
The following table summarizes the contractual maturities of available-for-sale securities other than investments in money market funds as of December 31, 2023:
December 31,
2023
Matures within one year
$
61,672
Matures after one year through five years
14,658
Total
$
76,330
The Company did not record any allowances for credit losses to adjust the fair value of available-for-sale debt securities during the year ended December 31, 2023.
The Company did not hold marketable securities as of December 31, 2022.
There were no sales of marketable securities during the year ended December 31, 2023. Net unrealized holding gains or losses for the period that have been included in other comprehensive income were not material to the Company’s consolidated results of operations.
8. Inventory
Inventory consisted of the following:
Years Ended December 31,
2023
2022
Raw materials
$
10,384
$
5,600
Work in process
6,740
24,672
Finished goods
15,208
16,229
Total inventory
$
32,332
$
46,501
During the years ended December 31, 2023 and 2022, the expenses related to excess and obsolete inventory that were recorded as a component of cost of products revenues were $ 1,624 and $ 1,814 , respectively. Expenses related to excess and obsolete inventory were immaterial for the year ended December 31, 2021.
During the years ended December 31, 2023, 2022, and 2021, inventory used in the construction and installation of property and equipment was immaterial.
F-25
9. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
Years Ended December 31,
2023
2022
Prepaid regulatory fees
$
5,938
$
5,614
Prepaid income taxes
1,416
5,138
Prepaid co-pay program incentives
1,758
1,907
Prepaid insurance
672
960
Manufacturing deposits
2,640
—
Other current assets
93
57
Other prepaid expenses
2,678
3,005
Prepaid expenses and other current assets
$
15,195
$
16,681
10. Property and Equipment
Property and equipment consisted of the following:
Years Ended December 31,
2023
2022
Computers and office equipment
$
2,388
$
2,491
Laboratory equipment
436
436
Furniture and fixtures
1,133
1,133
Manufacturing equipment
20,643
20,910
Leasehold improvements
1,061
874
Total property and equipment
25,661
25,844
Less: accumulated depreciation
( 9,678 )
( 6,323 )
Property and equipment, net
$
15,983
$
19,521
Depreciation expense related to property and equipment amounted to $ 3,496 , $ 2,684 , and $ 1,736 for the years ended December 31, 2023, 2022, and 2021, respectively. During the years ended December 31, 2023, 2022, and 2021 the Company disposed of fully depreciated assets of $ 141 , $ 1,040 , and $ 96 respectively. Any gains or losses from the retirement, sale or disposal of property and equipment during the years ended December 31, 2023, 2022, and 2021 were immaterial.
11. 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:
Amount
Balance as of December 31, 2021
$
—
Goodwill resulting from BDSI Acquisition
133,695
Balance as of December 31, 2022
$
133,695
Measurement period adjustments from BDSI Acquisition
162
Balance as of December 31, 2023
$
133,857
F-26
The following table sets forth the cost, accumulated amortization, and carrying amount of intangible assets as of December 31, 2023 and 2022:
As of December 31, 2023
As of December 31, 2022
Amortization Period
(Years)
Cost
Accumulated Amortization
Carrying Amount
Cost
Accumulated Amortization
Carrying Amount
Belbuca
4.8
$
360,000
$
( 133,821 )
$
226,179
$
360,000
$
( 58,428 )
$
301,572
Nucynta Products (1)
8.5
521,170
( 382,710 )
138,460
521,170
( 319,628 )
201,542
Symproic
9.6
70,000
( 12,931 )
57,069
70,000
( 5,646 )
64,354
Elyxyb
—
—
—
—
5,000
( 5,000 )
—
Total intangibles
$
951,170
$
( 529,462 )
$
421,708
$
956,170
$
( 388,702 )
$
567,468
The following table presents amortization and impairment expense recognized in cost of product revenues for the years ended December 31, 2023, 2022, and 2021 :
Years Ended December 31,
2023
2022
2021
Belbuca
$
75,393
$
58,428
$
—
Nucynta Products (1)
63,082
67,181
67,181
Symproic
7,285
5,646
—
Elyxyb (2)
—
5,000
—
Total amortization and impairment expense
$
145,760
$
136,255
$
67,181
(1) During the three months ended September 30, 2023, the United States Food and Drug Administration (“FDA”) granted New Patient Population exclusivity in pediatrics for Nucynta IR which extends the period of U.S. exclusivity for Nucynta IR to July 3, 2026, resulting in an extension of the estimated useful life of the underlying intangible asset from 8.0 years to 8.5 years. This change in estimate resulted in a decrease of amortization expense of $ 4,099 and an increase in net income of $ 3,037 during the year ended December 31, 2023. The impact to earnings per share — basic and earnings per share — diluted was $ 0.09 and $ 0.07 , respectively, during the year ended December 31, 2023.
(2) 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 expenses were recognized. In addition, contract termination costs related to the discontinuation were immaterial and expensed upon the termination of the contracts. 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.
F-27
As of December 31, 2023, the remaining amortization expense expected to be recognized is as follows:
Years ended December 31,
Belbuca
Nucynta Products
Symproic
Total
2024
$
75,393
$
55,384
$
7,285
$
138,062
2025
75,393
55,384
7,285
138,062
2026
75,393
27,692
7,285
110,370
2027
—
—
7,285
7,285
2028
—
—
7,285
7,285
Thereafter
—
—
20,644
20,644
Remaining amortization expense
$
226,179
$
138,460
$
57,069
$
421,708
12. Accrued Liabilities
Accrued liabilities consisted of the following:
As of December 31,
2023
2022
Accrued royalties
$
14,198
$
13,770
Accrued product taxes and fees
5,013
4,352
Accrued bonuses
4,987
6,347
Accrued interest
2,853
1,410
Accrued income taxes
2,136
—
Accrued payroll and related benefits
1,511
1,208
Accrued incentive compensation
1,375
1,507
Accrued sales and marketing
1,198
2,130
Accrued audit and legal
700
1,957
Accrued other operating costs
3,600
3,448
Total accrued liabilities
$
37,571
$
36,129
13. Commitments and Contingencies
Legal Proceedings
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 material litigation and, accordingly, does not have any other amounts recorded for any litigation related matters.
Xtampza ER Litigation
On March 24, 2015, Purdue sued the Company in the U.S. District Court for the District of Delaware asserting infringement of three of Purdue’s Orange Book-listed patents (Patent Nos. 7,674,799, 7,674,800, and 7,683,072) and a non-Orange Book-listed patent (Patent No. 8,652,497). The lawsuit was initiated in response to the Company filing the New Drug Application (“NDA”) for Xtampza ER as a 505(b)(2) application referencing data from Purdue’s OxyContin NDA, and under the Drug Price Competition and Patent Term Restoration Act of 1984, triggered a stay of up to 30 months before the FDA could issue a final approval for Xtampza ER, unless the stay was earlier terminated.
The Delaware court transferred the case to the District of Massachusetts. After the Company filed a partial motion for judgment on the pleadings relating to the Orange Book-listed patents, the District Court of Massachusetts ordered judgment in the Company’s favor on those three patents, and dismissed the claims which lifted the 30-month stay of FDA approval. Following this judgment, the Company obtained final approval for Xtampza ER and launched commercially.
F-28
Purdue subsequently filed two follow-on lawsuits asserting infringement of two patents that had been late-listed in the Orange Book and, therefore, could not trigger any stay of FDA approval: Purdue asserted infringement of Patent No. 9,073,933 in November 2015 and Patent No. 9,522,919 in April 2017. In addition, Purdue invoked two non-Orange Book-listed patents, filing suit in June 2016 asserting infringement of Patent No. 9,155,717 and in September 2017, asserting infringement of Patent No. 9,693,961.
On March 13, 2018, the Company filed a Petition for Post-Grant Review (“PGR”) of the ʼ961 patent with the Patent Trial and Appeal Board (“PTAB”). The PGR argued that the ʼ961 patent is invalid.
On November 21, 2017, the Court issued its claim construction ruling, construing certain claims of the ʼ933, ʼ497, and ʼ717 patents. The Court issued an order on September 28, 2018, in which it ruled that the Xtampza ER formulation does not infringe the ʼ497 and ʼ717 patents.
On September 15, 2019, Purdue commenced chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York. Later in September 2019, Purdue gave the District Court of Massachusetts, as well as the PTAB, notice of its bankruptcy filing and sought the imposition of an automatic stay of proceedings. Both the Court and the PTAB granted Purdue’s requests to stay the pending matters.
On September 1, 2020, the Bankruptcy Court entered an Order, lifting the automatic stays in both the District of Massachusetts and PTAB proceedings. On September 11, 2020, Purdue filed a motion to terminate the PTAB action on the basis that those proceedings had gone beyond the 18 -month statutory period. On November 19, 2021, the PTAB: (i) denied Purdue’s motion to terminate the PGR; and (ii) issued its Final Written Decision, finding that the asserted claims of the ʼ961 patent were invalid for lack of written description and anticipation. Purdue appealed the decision to Federal Circuit, which issued its decision on November 21, 2023, affirming the authority of the PTAB to issue its Final Written Decision and upholding the PTAB’s finding of invalidity relative to the ’961 patent.
On April 2, 2021, the Court granted Purdue’s Motion to Lift the Stay in the District of Massachusetts that was entered following Purdue’s Notice of Bankruptcy. On April 9, 2021, Purdue filed another follow-on lawsuit asserting infringement of U.S. Patent No. 10,407,434. The Company responded to Purdue’s complaint with a motion to dismiss. On May 21, 2021, and in response to the Company’s motion to dismiss, Purdue filed an amended complaint. The Company renewed its motion to dismiss on June 4, 2021, arguing: (i) Purdue cannot, as a matter of law, state a claim for infringement under § 271(e)(2)(A); (ii) Purdue cannot, as a matter of law, state a claim for product-by-process infringement under §271(g); and (iii) Purdue has not alleged facts sufficient to support any indirect infringement theory under §271(b) or (c). The Court held a hearing on the Company’s motion to dismiss on October 13, 2021, and the motion is pending before the Court.
Like the prior follow-on lawsuits, the ’434 patent litigation was consolidated into the lead case and a scheduling order was entered. On May 15, 2023, the Court issued an order that: (i) vacated the existing deadlines with respect to the ʼ933, ʼ919, and ʼ434 patents and stayed the case pending the Federal Circuit’s decision in a different litigation that invalidated certain claims of the ʼ933 and ʼ919 patents; and (ii) continued the existing stay concerning the ʼ961 patent pending resolution of Purdue’s appeal rights relating to the decision invalidating the claims of the ʼ961 patent. The Court has not set a deadline for dispositive motions or trial.
The remaining patents-in-suit in the lead consolidated action in the District of Massachusetts are the ʼ933, ʼ919, ʼ434, and ʼ961 patents. Purdue has made a demand for monetary relief, and requested a judgment of infringement, an adjustment of the effective date of FDA approval, and an injunction on the sale of the Company’s products accused of infringement. The Company has denied all claims and has requested a judgment that the remaining asserted patents are invalid and/or not infringed; the Company is also seeking a judgment that the case is exceptional and has requested an award of the Company’s attorneys’ fees for defending the case.
The Company plans to defend this case vigorously. At this stage, the Company is unable to evaluate the likelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any.
F-29
Nucynta Litigation
On February 7, 2018, Purdue filed a patent infringement suit against the Company in the U.S. District Court for the District of Delaware, in which it argues that the Company’s sale of immediate-release and extended-release Nucynta infringes U.S. Patent Nos. 9,861,583, 9,867,784, and 9,872,836. On December 6, 2018, the Company filed an Amended Answer asserting an affirmative defense for patent exhaustion. On December 10, 2018, the Court granted the parties’ stipulation for resolution of the Company’s affirmative defense of patent exhaustion and stayed the action, with the exception of briefing on and resolution of the Company’s Motion for Judgment on the Pleadings related to patent exhaustion and any discovery related to that Motion.
Also, on December 10, 2018, the Company filed a Rule 12(c) Motion for Judgment on the Pleadings, arguing that Purdue’s claims were barred by the doctrine of patent exhaustion. On June 19, 2019, the Court issued an order calling for discovery on a factual predicate for the patent exhaustion defense and noted that the case remained “stayed with the exception of discovery and briefing on and resolution of the Company’s anticipated motion for summary judgment based on patent exhaustion.”
On September 19, 2019, Purdue notified the Court of its bankruptcy filing and sought an automatic stay of proceedings, which was granted. The Nucynta litigation currently remains subject to the bankruptcy stay.
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.
Opioid Litigation
As a result of the opioid epidemic, numerous state and local governments and other entities brought suit against manufacturers, 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 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. The Company was initially named as a defendant in 21 of the MDL cases. By April 19, 2022, all MDL cases naming the Company were dismissed or withdrawn.
Outside of the MDL, several cases were filed against the Company in Arkansas, Pennsylvania, and Massachusetts state courts with allegations similar to those in the MDL related to opioid marketing and distribution practices, as well as allegations including violations of state consumer protections laws.
On March 21, 2019, the Arkansas state court litigation was dismissed. On December 24, 2021, the Company entered into a settlement framework with Scott+Scott Attorneys at Law, LLP, the law firm representing plaintiffs in 27 jurisdictions filed either in Pennsylvania and Massachusetts state courts, or filed in other state courts and removed to the MDL. Pursuant to the terms of the settlement, the Company paid $ 2,750 in exchange for dismissal, with prejudice, of each plaintiff’s lawsuit and a release of claims related to such lawsuits. The Company is currently dismissed from all cases.
The Company settled to efficiently resolve these litigations and did not admit any liability or acknowledge any wrongdoing in connection with the settlement.
Opioid-Related Request and Subpoenas
The Company, like several other pharmaceutical companies, has received subpoenas or civil investigative demands related to opioid sales and marketing practices, from the Offices of the Attorney General of Washington, New Hampshire, Maryland, and Massachusetts.
On December 16, 2021, the Company entered into an Assurance of Discontinuance with the Massachusetts Attorney General’s Office. The Company is currently cooperating with each of the remaining states in their respective investigations.
F-30
Aquestive Litigation
On September 22, 2014, 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 in the District Court in the District of New Jersey alleging patent infringement against BDSI related to its Bunavail product. The RB Plaintiffs claimed that Bunavail, whose formulation and manufacturing processes have never been disclosed publicly, infringed U.S. Patent No. 8,765,167 (the “’167 Patent”).
On January 13, 2017, Aquestive filed a complaint in the District Court for the District of New Jersey against BDSI alleging Belbuca also infringed the ’167 Patent. On March 8, 2023, the parties filed a stipulation of dismissal after agreeing to settle the dispute. Under the terms of the settlement agreement, BDSI resolved both the Bunavail and Belbuca litigations in exchange for a one-time, lump-sum payment of $ 8,500 to Aquestive, which was recognized as an expense included in “ selling, general and administrative expenses ” in the consolidated statements of operations for the year ended December 31, 2023.
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 District Court for the Southern District of New York 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: the “ Sanford Action” and the “ Higley Action.” In March 2022, two additional cases were filed by purported individual stockholders of BDSI in the District Court for the Eastern District of New York: the “ Justice Action” and the “Zomber Action” (together with the Stein , Sanford , and Higley 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. 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. 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, between February and March of 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”). In March 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”).
Plaintiffs in the Higley, Zomber, and Justice Actions each filed a notice of voluntary dismissal of their complaint in the second quarter of 2022. On July 28, 2022, plaintiff in the Sanford Action filed a partial voluntary dismissal of the individual named defendants, and on October 26, 2022, filed a notice of voluntary dismissal of the BDSI defendant. On February 17, 2023, the Stein Action was dismissed.
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.
F-31
Alvogen
On September 7, 2018, BDSI filed a complaint for patent infringement in 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 infringed BDSI’s Orange Book-listed patents for Belbuca, including U.S. Patent Nos. 8,147,866, 9,655,843 and 9,901,539 (collectively, “the BEMA patents”) . This complaint followed receipt by BDSI on July 30, 2018 of a Paragraph IV Patent Certification from Alvogen stating it had filed an abbreviated New Drug Application (“ANDA”) with the FDA for a generic version of Belbuca Buccal Film in strengths 75 mcg, 150 mcg, 300 mcg, 450 mcg, 600 mcg, 750 mcg and 900 mcg.
A three-day bench trial was held from March 1-3, 2021. On December 20, 2021, the Court issued an opinion upholding the validity of certain claims in BDSI’s ʼ866 patent and certain claims in the ’539 patent. The Court entered final judgment on January 21, 2022 upholding the validity of claims of the ’866 and ’539 patents and thereby extended the effective date of any final approval by the FDA of Alvogen’s ANDA until December 21, 2032, (the expiration date of the ’539 patent) and enjoining Alvogen from commercially launching its ANDA products until December 21, 2032. Alvogen filed a motion to stay certain provisions of the final judgment. 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. Separately, BDSI 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 December 21, 2022, 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.
Chemo Research, S.L.
On March 1, 2019, BDSI filed a complaint for patent infringement in the 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 the BEMA patents. This complaint followed receipt by BDSI on January 31, 2019, of a Notice Letter from Chemo Research S.L. stating that it had 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.
Chemo agreed to be bound by the decision of the Court with respect to the validity of the BEMA patents as disputed between BDSI and Alvogen. Accordingly, the December 20, 2021 ruling of the Court upholding the validity of certain claims of the BEMA patents is binding upon Chemo. In March 2022, the Court vacated the bench trial set to begin April 25, 2022 to address the remaining Chemo infringement claims. The Court has not yet set a new trial date.
On August 1, 2022, BDSI received a second Paragraph IV certification notice letter from Chemo indicating it 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 yet 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 Court denied Chemo’s request for a trial date in the spring, and
F-32
again instructed the parties to update the Court at such time as the FDA addresses Chemo’s July 29, 2022 response to the FDA. Chemo received a complete response letter with respect to its July 29, 2022 ANDA in April 2023. Chemo submitted a further amended ANDA to FDA in September 2023.
The Company plans to litigate 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.
14. D ebt
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 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 BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender (collectively “Pharmakon”), as amended (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. Prior to the cessation of LIBOR on June 30, 2023, the 2022 Term Loan bore interest at a rate based on LIBOR (subject to a LIBOR floor of 1.20 %), plus a margin of 7.5 % per annum. On June 23, 2023, the Company entered into an amendment to the 2022 Loan Agreement to adjust the interest terms of the 2022 Term Loan to transition from LIBOR to SOFR in anticipation of the cessation of LIBOR. Effective July 1, 2023, the 2022 Term Loan bears interest at a rate based on SOFR plus a spread adjustment of 0.26 % (subject to a floor of 1.20 %), plus a margin of 7.5 % per annum. As of December 31, 2023, the contractual interest rate was 13.2 %. The Company paid $ 100,000 in principal payments under the 2022 Term Loan during the first year and the remaining $ 550,000 balance is required to be paid 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.
F-33
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 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.
The following table presents the total interest expense recognized related to the 2020 Term Loan and 2022 Term Loan during the years ended December 31, 2023, 2022, and 2021:
Years Ended December 31,
2023
2022
2021
Contractual interest expense
$
67,499
$
51,155
$
13,834
Amortization of debt issuance costs
7,468
7,378
2,505
Total interest expense
$
74,967
$
58,533
$
16,339
As of December 31, 2023, the effective interest rate on the 2022 Term Loan was 14.7 %.
As of December 31, 2023, principal repayments under the 2022 Term Loan are as follows:
Years ended December 31,
Principal Payments
2024
$
183,333
2025
183,333
2026
45,834
Total before unamortized discount and issuance costs
$
412,500
Less: unamortized discount and issuance costs
( 7,454 )
Total term notes
$
405,046
2026 Convertible Notes
On February 13, 2020, the Company issued 2.625 % convertible senior notes due in 2026 (the “2026 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 acquisition of the Nucynta Products. Some of the Company’s existing investors participated in the 2026 Convertible Notes offering.
In connection with the issuance of the 2026 Convertible Notes, the Company incurred approximately $ 5,473 of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees.
The 2026 Convertible Notes are senior unsecured obligations and bear interest at a rate of 2.625 % per year payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020. Before August 15, 2025, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after August 15, 2025, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The 2026 Convertible Notes will mature on February 15, 2026, unless earlier repurchased, redeemed or converted. The initial conversion rate is 34.2618 shares of common stock per $1 principal amount of the 2026 Convertible Notes, which represents an initial conversion price of approximately $ 29.19 per share of common stock. The conversion rate and conversion price are subject to adjustment upon the occurrence of certain events.
F-34
Holders of the 2026 Convertible Notes may convert all or any portion of their 2026 Convertible Notes, in multiples of $1 principal amount, at their option only under the following circumstances:
(1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
(2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the “trading price” per $1 principal amount of the 2026 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;
(4) if the Company calls the 2026 Convertible Notes for redemption; or
(5) at any time from, and including, August 15, 2025 until the close of business on the scheduled trading day immediately before the maturity date.
As of December 31, 2023, none of the above circumstances had occurred and as such, the 2026 Convertible Notes could not have been converted.
The Company did not have the right to redeem the 2026 Convertible Notes prior to February 15, 2023. On or after February 15, 2023, the Company may redeem the 2026 Convertible Notes, in whole and not in part, at a cash redemption price equal to the principal amount of the 2026 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; and
(2) the trading day immediately before the date the Company sends such notice.
Calling any 2026 Convertible Notes for redemption will constitute a make-whole fundamental change, in which case the conversion rate applicable to the conversion of any 2026 Convertibles Notes, if converted in connection with the redemption, will be increased in certain circumstances for a specified period of time.
The 2026 Convertible Notes have customary default provisions, including: (i) a default in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any note; (ii) a default for 30 days in the payment when due of interest on any note; (iii) a default in the Company’s obligation to convert a note in accordance with the indenture, if such default is not cured within 3 calendar days after its occurrence; (iv) a default with respect to the Company’s obligations under the indenture related to consolidations, mergers and asset sales; (v) a default in any of the Company’s other obligations or agreements under the indenture that are not cured or waived within 60 days after notice to the Company; (vi) certain payment defaults by the Company or certain subsidiaries with respect to mortgages, agreements or other instruments for indebtedness for money borrowed of at least $ 20,000 or other defaults by the Company or certain subsidiaries with respect to such indebtedness that result in the acceleration of such indebtedness; (vii) default upon the occurrence of one or more final judgments being rendered against the Company or any of the Company's significant subsidiaries for the payment of at least $ 20,000 ; and (viii) certain events of bankruptcy, insolvency and reorganization with respect to the Company or any of its significant subsidiaries.
Repurchase of a Portion of the 2026 Convertible Notes
Contemporaneously with the offering of the 2029 Convertible Notes (as defined below), the Company entered into separate privately negotiated transactions with certain holders of the 2026 Convertible Notes to repurchase $ 117,400 aggregate principal amount of the 2026 Convertible Notes for an aggregate of $ 140,100 of cash, which includes accrued
F-35
and unpaid interest on the 2026 Convertible Notes to be repurchased. This transaction involved a contemporaneous exchange of cash between the Company and holders of the 2026 Convertible Notes participating in the issuance of the 2029 Convertible Notes. Accordingly, the Company evaluated the transaction for modification or extinguishment accounting in accordance with Accounting Standards Codification Topic 470-50 , Debt – Modifications and Extinguishments on a creditor-by-creditor basis depending on whether the exchange was determined to have substantially different terms. The repurchase of the 2026 Convertible Notes and issuance of the 2029 Convertible Notes were deemed to have substantially different terms based on the present value of the cash flows immediately prior to and after the exchange. Therefore, the repurchase of the 2026 Convertible Notes was accounted for as a debt extinguishment. The Company recorded a $ 23,504 loss on early extinguishment of debt on the consolidated statements of operations during the three months ending March 31, 2023, which includes the recognition of previously deferred financing costs of $ 2,264 . The total remaining principal amount outstanding under the 2026 Convertible Notes as of December 31, 2023 was $ 26,350 .
2029 Convertible Notes
On February 10, 2023, the Company issued 2.875 % convertible senior notes due in 2029 (the “2029 Convertible Notes”) in the aggregate principal amount of $ 241,500 , in a private offering to qualified institutional buyers pursuant to Section 4(a)(2) and Rule 144A under the Securities Act of 1933, as amended. The 2029 Convertible Notes were issued to finance the concurrent repurchase of a portion of the 2026 Convertible Notes, and the remainder of the net proceeds may be used for general corporate purposes. In connection with the issuance of the 2029 Convertible Notes, the Company incurred approximately $ 6,280 of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees.
The 2029 Convertible Notes are senior, unsecured obligations and bear interest at a rate of 2.875 % per year 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. From and after November 15, 2028, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The initial conversion rate is 27.3553 shares of common stock per $1 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 are subject to adjustment upon the occurrence of certain events.
Holders of the 2029 Convertible Notes may convert all or any portion of their 2029 Convertible Notes, in multiples of $1 principal amount, at their option only under the following circumstances:
(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2023, 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 2029 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;
(4) if the Company calls any or all of the 2029 Convertible Notes for redemption, but only with respect to the 2029 Convertible Notes called for redemption; or
(5) at any time from, and including, November 15, 2028 until the close of business on the scheduled trading day immediately before the maturity date.
As of December 31, 2023, none of the above circumstances had occurred and as such, the 2029 Convertible Notes could not have been converted.
F-36
The Company may not redeem the 2029 Convertible Notes prior to February 17, 2026. On or after February 17, 2026 and on or before the 40 th scheduled trading day before the maturity date, the Company may redeem the 2029 Convertible Notes, in whole or in part, at a cash redemption price equal to the principal amount of the 2029 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; and
(2) the trading day immediately before the date the Company sends such notice.
However, the Company may not redeem less than all of the outstanding 2029 Convertible Notes unless at least $ 75,000 aggregate principal amount of the 2029 Convertible Notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice.
Calling any 2029 Convertible Note for redemption will constitute a make-whole fundamental change with respect to that 2029 Convertible Note, in which case the conversion rate applicable to the conversion of that 2029 Convertible Note, if it is converted in connection with the redemption, will be increased in certain circumstances for a specified period of time.
The 2029 Convertible Notes have customary default provisions, including: (i) a default in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any note; (ii) a default for 30 days in the payment when due of interest on any note; (iii) a default in the Company’s obligation to convert a note in accordance with the indenture, if such default is not cured within 3 business days after its occurrence; (iv) a default with respect to the Company’s obligations under the indenture related to consolidations, mergers and asset sales; (v) a default in any of the Company’s other obligations or agreements under the indenture that are not cured or waived within 60 days after notice to the Company; (vi) certain payment defaults by the Company or certain subsidiaries with respect to mortgages, agreements or other instruments for indebtedness for money borrowed of at least $ 30,000 or other defaults by the Company or certain subsidiaries with respect to such indebtedness that result in the acceleration of such indebtedness; (vii) default upon the occurrence of one or more final judgments being rendered against the Company or any of the Company’s significant subsidiaries for the payment of at least $ 30,000 ; and (xiii) upon the occurrence of certain events of bankruptcy, insolvency and reorganization with respect to the Company or any of its significant subsidiaries.
The 2026 Convertible Notes and 2029 Convertible Notes (together, the “Convertible Notes”) are classified on the consolidated balance sheets as of December 31, 2023 as convertible senior notes.
As of December 31, 2023, the Convertible Notes outstanding consisted of the following:
2026 Convertible Notes
2029 Convertible Notes
Total Convertible Notes
Principal
$
26,350
$
241,500
$
267,850
Less: unamortized issuance costs
( 358 )
( 5,367 )
( 5,725 )
Net carrying amount
$
25,992
$
236,133
$
262,125
The Company determined the expected life of the 2026 Convertible Notes and 2029 Convertible Notes was equal to the six-year term of each. The effective interest rate on the 2026 Convertible Notes and 2029 Convertible Notes is 3.34 % and 3.28 %, respectively. As of December 31, 2023, the if-converted value did not exceed the remaining principal amount of the Convertible Notes.
F-37
The following table presents the total interest expense recognized related to the Convertible Notes during the years ended December 31, 2023, 2022, and 2021:
Years Ended December 31,
2023
2022
2021
Contractual interest expense
$
7,206
$
3,773
$
3,773
Amortization of debt issuance costs
1,166
907
902
Total interest expense
$
8,372
$
4,680
$
4,675
As of December 31, 2023, the future minimum payments on the Convertible Notes were as follows:
Years ended December 31,
2026 Convertible Notes
2029 Convertible Notes
Total Convertible Notes
2024
$
692
$
6,943
$
7,635
2025
692
6,943
7,635
2026
26,696
6,943
33,639
2027
—
6,943
6,943
2028
—
6,943
6,943
Thereafter
—
244,972
244,972
Total minimum payments
$
28,080
$
279,687
$
307,767
Less: interest
( 1,730 )
( 38,187 )
( 39,917 )
Less: unamortized issuance costs
( 358 )
( 5,367 )
( 5,725 )
Convertible Notes carrying value
$
25,992
$
236,133
$
262,125
15. L eases
Operating Lease Arrangements
The Company's main operating lease is for its corporate headquarters in Stoughton, Massachusetts, which was entered into in March 2018 and commenced in August 2018. This lease encompasses approximately 50,678 square feet and is for an initial 10-year term, with options for two additional five-year extensions. The initial annual base rent is $ 1,214 , subject to annual increases between 2.5 % to 3.1 %.
As of December 31, 2023, the Company's operating lease assets totaled $ 6,029 and operating lease liabilities amounted to $ 7,112 . This primarily relates to the corporate headquarters lease, with other immaterial operating and embedded operating leases accounted for in the normal course of business.
Short-Term Lease Arrangements
In December 2018, the Company began entering into 12 -month, non-cancelable vehicle leases for its field-based employees. 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 recognized on a straight-line basis over the lease term in the period in which it is incurred.
Variable Lease Costs
Variable lease costs primarily include utilities, property taxes, and other operating costs that are passed on from the lessor.
F-38
The components of lease cost for the years ended December 31, 2023, 2022, and 2021 are as follows:
Years Ended December 31,
2023
2022
2021
Operating lease cost
$
1,306
$
1,805
$
1,305
Short-term lease cost
1,446
993
1,492
Variable lease cost
565
331
292
Total lease cost
$
3,317
$
3,129
$
3,089
The lease term and discount rate for operating leases for the years ended December 31, 2023 and 2022 are as follows:
Years Ended December 31,
2023
2022
Weighted-average remaining lease term — operating leases (years)
5.7
6.6
Weighted-average discount rate — operating leases
6.2 %
6.2 %
Other information related to operating leases for the years ended December 31, 2023, 2022, and 2021 is as follows:
Years Ended December 31,
2023
2022
2021
Cash paid for amounts included in the measurement of operating leases liabilities
$
1,585
$
1,568
$
1,286
Leased assets obtained in exchange for new operating lease liabilities
—
—
—
The Company’s aggregate future minimum lease payments for its operating leases, including embedded operating lease arrangements, as of December 31, 2023, are as follows:
Years ended December 31,
Lease Payments
2024
$
1,398
2025
1,436
2026
1,474
2027
1,489
2028
1,527
Thereafter
1,169
Total minimum lease payments
$
8,493
Less: Present value discount
1,381
Present value of lease liabilities
$
7,112
16. Equity
Common Stock
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, 2023, there were 1,876,424 shares of common stock available for issuance pursuant to the Plan. The Plan provides for granting of both Internal Revenue Service qualified incentive stock options and non-qualified options, restricted stock awards, restricted stock units and performance stock units. The Company’s qualified incentive stock options, non-qualified options and restricted stock units generally vest ratably over a four-year period of service. 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
F-39
immediately upon termination. Shares issued under all of the Company’s plans are funded through the issuance of new shares. Refer to Note 17, Stock-based Compensation , for more information.
Warrants
In connection with execution of the Third Amendment to the Nucynta Commercialization Agreement, the Company issued a warrant to Assertio Therapeutics, Inc. 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 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, 2023, there were no outstanding warrants remaining.
Share Repurchases
Prior Repurchase Program
In August 2021, the Company’s Board of Directors authorized 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.
In October 2021, the Company’s Board of Directors authorized an accelerated share repurchase (“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 Company paid $ 25,000 on November 15, 2021, and initially received 1,026,694 shares, representing 80 % of the upfront payment on a price per share of $ 19.48 , the closing price on the date the agreement was executed. The remaining shares purchased by the Company were based on the volume-weighted average price of its common stock through January 7, 2022, minus an agreed upon discount between the parties. On January 7, 2022, the ASR agreement settled and the Company received an additional 307,132 shares, bringing the total shares repurchased pursuant to the ASR agreement to 1,333,826 .
The ASR agreement was accounted for as two distinct transactions: (1) an immediate repurchase of common stock, recorded as a treasury stock transaction, and (2) a forward contract indexed to the Company’s own stock. The forward contract, which represented the remaining shares to be delivered by the investment bank, was recorded as a reduction to stockholders’ equity and was still outstanding as of December 31, 2021.
The Prior Repurchase Program expired on 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. Repurchased shares were returned to the Company’s pool of authorized but unissued shares. The cost of repurchased shares were recorded as treasury stock in the consolidated balance sheet. Shares repurchased under the Prior Repurchase Program resulted in an immediate reduction of shares outstanding used to calculate the weighted-average common shares outstanding for both basic and diluted earnings per share. As the Company was entitled to receive additional shares of its common stock in connection with the outstanding forward contracts, 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 forwards were outstanding.
2023 Repurchase Program
In January 2023, the Company’s Board of Directors authorized the repurchase of up to $ 100,000 of shares of its common stock at any time or times through December 31, 2023 (the “2023 Repurchase Program”). The 2023 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.
F-40
In July 2023, the Company’s Board of Directors authorized an ASR program to repurchase $ 50,000 of the Company’s common stock, as part of the Company’s $ 100,000 2023 Repurchase Program. Under the terms of the Company's ASR agreement with an investment bank, the Company paid $ 50,000 on August 7, 2023, and received 1,702,852 shares, representing 80 % of the upfront payment on a price per share of $ 23.49 , the closing price on the date the agreement was executed. The remaining shares purchased by the Company were based on the volume-weighted average price of its common stock through October 31, 2023, minus an agreed upon discount between the parties. In October 2023, the ASR agreement settled and the Company received an additional 462,442 shares, bringing the total shares repurchased pursuant to the ASR agreement to 2,165,294 .
In November 2023, the Company’s Board of Directors authorized a second ASR program as part of the Company’s $ 100,000 2023 Repurchase Program to repurchase $ 25,000 of the Company’s common stock. Under the terms of the Company's ASR agreement with an investment bank, the Company paid $ 25,000 on November 9, 2023, and received 865,426 shares, representing 80 % of the upfront payment on a price per share of $ 23.11 , the closing price on the date the agreement was executed. The remaining shares purchased by the Company were based on the volume-weighted average price of its common stock through December 29, 2023, minus an agreed upon discount between the parties. In December 2023, the ASR agreement settled and the Company received an additional 57,349 shares, bringing the total shares repurchased pursuant to the ASR agreement to 922,775 .
Each ASR agreement was accounted for as two distinct transactions: (1) an immediate repurchase of common stock, recorded as a treasury stock transaction, and (2) a forward contract indexed to the Company’s own stock. The forward contracts, which represented the remaining shares to be delivered by the investment bank, were recorded as a reduction to stockholders’ equity. Both forward contracts associated with these ASR agreements were settled and not outstanding as of December 31, 2023.
The 2023 Repurchase Program expired on December 31, 2023. Through December 31, 2023, the Company repurchased 3,088,069 shares at a weighted-average price of $ 24.29 per share for a total of $ 75,000 under the 2023 Repurchase Program. Repurchased shares were returned to the Company’s pool of authorized but unissued shares. The cost of repurchased shares were recorded as treasury stock in the consolidated balance sheet. Shares repurchased under the 2023 Repurchase Program resulted in an immediate reduction of shares outstanding used to calculate the weighted-average common shares outstanding for both basic and diluted earnings per share. As the Company was entitled to receive additional shares of its common stock in connection with the outstanding forward contracts, 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 forwards were outstanding.
2024-2025 Repurchase Program
In January 2024, the Company’s Board of Directors authorized the repurchase of up to $ 150,000 of the Company’s common stock through June 30, 2025 (the “2024-2025 Repurchase Program”). The 2024-2025 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 share repurchases.
17. Stock-based Compensation
Performance Share Units, Restricted Stock Units and Stock Options
Performance Share Units
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.
F-41
In January 2019, the Company granted PSUs with performance conditions related to 2019, 2020, 2021 and three-year cumulative revenue goals for Xtampza ER. The PSUs were to vest following a three-year performance period, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period. PSUs may vest in a range between 0 % and 200 %, based on the satisfaction of performance criteria, and no shares will be issued if the minimum applicable performance metric is not achieved. The Company recognizes compensation expense ratably over the required service period based on its estimate of the number of shares that will vest based upon the probability of achieving the performance metrics. 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 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. The PSUs subject to the annual performance criteria will vest annually, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period. The cumulative PSUs will vest following the three-year performance period, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period. PSUs may vest in a range between 0 % and 200 %, based on the satisfaction of performance, and no shares will be issued if the minimum applicable performance metric is not achieved. As these PSUs vest based on the achievement of market conditions, the grant date fair values were determined using a Monte-Carlo valuation model. The Monte-Carlo valuation model considered a variety of potential future share prices for the Company as well as its peer companies in the selected market index.
A summary of the Company’s PSUs activity for the year ended December 31, 2023 and related information is as follows:
Weighted-Average
Shares
Grant Date Fair Value
Outstanding as of December 31, 2022
447,770
$
28.71
Granted
216,500
38.71
Vested
( 223,170 )
27.99
Forfeited
—
—
Performance adjustment
62,780
27.14
Outstanding as of December 31, 2023
503,880
$
33.13
The number of PSUs awarded represents the target number of shares of common stock that may be earned; however, the actual number of shares earned may vary based on the satisfaction of performance criteria. The weighted-average grant date fair value of PSUs granted for the years ended December 31, 2023, 2022, and 2021 was $ 38.71 , $ 24.12 , and $ 35.15 , respectively.
For the years ended December 31, 2023, 2022, and 2021, the stock-based compensation expense for PSUs was $ 7,037 , $ 5,398 , and $ 4,817 respectively.
As of December 31, 2023, the unrecognized compensation cost related to performance share units was $ 5,585 and is expected to be recognized as expense over approximately 1.6 years.
Restricted Stock Units
A summary of the Company’s RSUs activity for the year ended December 31, 2023 and related information is as follows:
F-42
Weighted-Average
Shares
Grant Date Fair Value
Outstanding as of December 31, 2022
2,047,571
$
19.67
Granted
1,278,256
26.25
Vested
( 675,647 )
19.83
Forfeited
( 206,273 )
21.91
Outstanding as of December 31, 2023
2,443,907
$
22.88
The weighted-average grant date fair value of RSUs granted for the years ended December 31, 2023, 2022, and 2021 was $ 26.25 , $ 17.53 , and $ 24.23 , respectively. The total fair value of RSUs vested (measured on the date of vesting) for the years ended December 31, 2023, 2022, and 2021 was $ 17,677 , $ 10,166 , and $ 11,165 , respectively.
As of December 31, 2023, the unrecognized compensation cost related to restricted stock units was $ 37,022 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, 2023, 2022, and 2021 was $ 13,398 , $ 12,547 , and $ 8,526 , respectively.
Stock Options
A summary of the Company’s stock option activity for the year ended December 31, 2023 and related information is as follows:
Weighted-
Weighted-
Average
Average
Remaining
Aggregate
Exercise Price
Contractual
Intrinsic
Shares
per Share
Term (in years)
Value
Outstanding as of December 31, 2022
1,683,805
$
18.84
5.5
$
7,953
Exercised
( 498,008 )
17.34
Cancelled
( 9,047 )
18.90
Outstanding as of December 31, 2023
1,176,750
$
19.48
4.3
$
13,297
Exercisable as of December 31, 2023
1,158,209
$
19.45
4.3
$
13,120
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:
Years Ended December 31,
2023
2022
2021
Risk-free interest rate
—
%
—
%
0.7
%
Volatility
—
%
—
%
67.2
%
Expected term (years)
—
—
6.0
Expected dividend yield
—
%
—
%
—
%
Risk-free Interest Rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock option grants.
Expected Volatility. Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility assumption is based on the Company’s volatility as well as the historical volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology and pharmaceutical industries. In evaluating similarity, the Company considers factors such as industry, stage of life cycle and size.
F-43
Expected Term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior through December 31, 2021, it determined the expected term assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.
Expected Dividend Yield. 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 Company did not grant stock options during the years ended December 31, 2023 and 2022. The weighted-average grant date fair value of stock options granted for the year ended December 31, 2021 was $ 12.60 . The total intrinsic value of stock options exercised for the years ended December 31, 2023, 2022, and 2021 was $ 4,786 , $ 3,943 , and $ 6,456 , respectively.
As of December 31, 2023, the unrecognized compensation cost related to outstanding options was $ 110 and is expected to be recognized as expense over approximately 0.2 years.
Employee Stock Purchase Plan
The Company’s 2015 Employee Stock Purchase Plan allows employees as designated by the Company’s Board of Directors to purchase shares of the Company’s common stock. The purchase price is equal to 85 % of the lower of the closing price of the Company’s common stock on: (i) the first day of the purchase period; or (ii) the last day of the purchase period. During the year ended December 31, 2023, 26,505 shares of common stock were purchased for total proceeds of $ 460 . As of December 31, 2023, there were 2,244,157 shares of common stock authorized for issuance pursuant to the employee stock purchase plan. The expense for the years ended December 31, 2023, 2022 and 2021 was $ 209 , $ 117 and $ 224 respectively.
Stock-Based Compensation Expense
Stock-based compensation for all stock options, restricted stock awards, restricted stock units, performance share units and for the employee stock purchase plan are reported within the following:
Years Ended December 31,
2023
2022
2021
Research and development
$
—
$
1,591
$
3,422
Selling, general and administrative
27,136
21,283
20,833
Total stock-based compensation expense
$
27,136
$
22,874
$
24,255
18. Income Taxes
The provision for (benefit from) income taxes contained the following components:
Years Ended December 31,
2023
2022
2021
Current provision:
Federal
$
21,504
$
166
$
—
State
8,227
4,540
3,142
29,731
4,706
3,142
Deferred benefit:
Federal
$
( 1,401 )
$
( 4,631 )
$
( 61,445 )
State
( 752 )
( 3,920 )
( 16,588 )
( 2,153 )
( 8,551 )
( 78,033 )
Provision for (benefit from) income taxes
$
27,578
$
( 3,845 )
$
( 74,891 )
F-44
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:
Years Ended December 31,
2023
2022
2021
Federal income tax expense at statutory rate
21.0
%
21.0
%
21.0
%
Change resulting from:
State income tax, net of federal benefit
4.9
5.0
2.9
Permanent difference - debt extinguishment
7.1
—
—
Permanent differences - all other
1.3
( 1.9 )
( 3.9 )
Stock compensation
1.0
( 5.1 )
( 18.8 )
Research and development credit
—
0.7
16.3
Transaction costs
—
( 4.4 )
—
Change in tax rates and other
0.4
( 2.0 )
—
Change in valuation allowance
0.7
—
2,202.5
Effective income tax rate
36.4
%
13.3
%
2,220.0
%
During the year ended December 31, 2023, the effective tax rate was impacted by permanent differences, including the extinguishment of debt in connection with the repurchase of a portion of the Company’s 2026 Convertible Notes, for which certain extinguishment costs were not deductible for tax purposes. Stock compensation, including the impact of excess benefits and 162(m) limitations, impacted the effective tax rate at varying percentages each year due to changes in the non-deductible amount and profit before tax. In addition, during the year ended December 31, 2022, non-deductible transaction costs resulting from the BDSI Acquisition impacted the effective tax rate. During the year ended December 31, 2021, the Company released the valuation allowance on the majority of its net operating losses, resulting in a significant discrete deferred tax benefit that impacted the effective tax rate.
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets and liabilities are comprised of the following:
Years Ended December 31,
2023
2022
Deferred tax assets:
U.S. and state net operating loss carryforwards
$
33,800
$
56,982
Research and development credits
1,769
5,036
Operating lease liabilities
1,803
2,131
Returns and discounts
18,528
19,423
Stock-based compensation
7,570
6,776
Accruals and other
6,257
5,228
163(j) Carryforward
—
3,647
Capitalized R&D
707
929
Intangible assets
32,771
23,592
Gross deferred tax assets:
103,205
123,744
Valuation allowance
( 5,781 )
( 5,254 )
Total deferred tax assets:
97,424
118,490
Deferred tax liabilities:
Debt discount
( 344 )
( 406 )
Operating lease assets
( 1,529 )
( 1,778 )
Inventory
—
( 3,918 )
Intangible assets
( 65,774 )
( 84,167 )
Property and equipment
( 3,518 )
( 4,271 )
Total deferred tax liabilities:
( 71,165 )
( 94,540 )
Net deferred tax assets
$
26,259
$
23,950
F-45
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, 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, 2023. The valuation allowance was $ 5,781 and $ 5,254 as of December 31, 2023 and 2022, respectively, and reflects limitations based on the Company’s ability to use such assets prior to expiration. The change in the valuation allowance increased the tax provision by $ 527 for the year ended December 31, 2023. The change in 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.
The Tax Cuts and Jobs Act of 2017 (“TCJA”) will generally allow losses incurred after 2017 to be carried over indefinitely but will generally limit the net operating loss (“NOL”) deduction to the lesser of the NOL carryover or 80% of a corporation’s taxable income (subject to Internal Revenue Code Sections 382 and 383). Also, there will be no carryback for losses incurred after 2017. Losses incurred prior to 2018 will generally be deductible to the extent of the lesser of a corporation’s NOL carryover or 100% of a corporation’s taxable income (subject to Internal Revenue Code Section 382 and 383) and be available for twenty years from the period the loss was generated. As of December 31, 2023, the Company had gross U.S. federal net operating loss carryforwards of $ 137,459 , of which $ 95,471 arose prior to 2018, which are available to offset future taxable income, if any, through 2037. The remaining $ 41,988 are available for an indefinite period. As of December 31, 2022, the Company had gross U.S. federal net operating loss carryforwards of $ 229,797 .
As of December 31, 2023 and 2022, the Company also had gross U.S. state net operating loss carryforwards of $ 202,381 and $ 252,597 , respectively, which may be available to offset future income tax liabilities and expire at various dates through 2037.
As of December 31, 2023 and 2022, the Company had federal research and development tax credit carryforwards of approximately $ 1,025 and $ 4,231 , respectively, available to reduce future tax liabilities which expire at various dates through 2032. As of December 31, 2023 and 2022, the Company had state research and development tax credit carryforwards of approximately $ 672 and $ 832 , respectively, available to reduce future tax liabilities which expire at various dates through 2036.
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. The Company acquired $ 234,675 of net operating loss carryforward from the BDSI Acquisition. 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. As of December 31, 2023, remaining net operating losses of $ 124,310 are subject to limitation.
The Company files income tax returns in the United States and in several states. The federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2019 through December 31, 2023. 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.
F-46
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:
Years Ended December 31,
2023
2022
2021
Gross UTB Balance as of January 1
$
11,400
$
654
$
586
Additions based on tax positions related to the current year
—
—
67
Additions for tax positions related to acquisitions
—
10,930
—
(Reductions) additions for tax positions of prior years
( 94 )
( 184 )
1
Gross UTB Balance as of December 31
$
11,306
$
11,400
$
654
Net UTB impacting the effective tax rate as of December 31 excluding valuation allowance impacts, if any
$
11,275
$
11,368
$
500
19. Employee Benefits
The Company has a retirement savings plan, which is qualified under section 401(k) of the Code, for its employees. The plan allows eligible employees to defer, at the employee’s discretion, pretax compensation up to the Internal Revenue Service annual limits. Employees become eligible to participate starting on the first day of employment. The Company is not required to contribute to this plan. Total expense for contributions made by the Company for the years ended December 31, 2023, 2022 and 2021 was $ 1,759 , $ 1,315 , and $ 1,236 , respectively.
F-47
20. Unaudited Quarterly Operating Results
The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2023 and 2022:
First
Second
Third
Fourth
Year Ended December 31, 2023
Quarter
Quarter
Quarter
Quarter
Product revenues, net
$
144,767
$
135,546
$
136,709
$
149,745
Cost of product revenues
Cost of product revenues (excluding intangible asset amortization)
29,899
24,257
20,081
20,601
Intangible asset amortization and impairment
37,466
37,463
36,317
34,514
Total cost of products revenues
67,365
61,720
56,398
55,115
Gross profit
77,402
73,826
80,311
94,630
Operating expenses
Selling, general and administrative
52,775
38,193
35,298
32,942
Total operating expenses
52,775
38,193
35,298
32,942
Income from operations
24,627
35,633
45,013
61,688
Interest expense
( 21,427 )
( 21,863 )
( 20,768 )
( 19,281 )
Interest income
2,747
4,027
4,538
4,303
Loss on extinguishment of debt
( 23,504 )
—
—
—
(Loss) income before income taxes
( 17,557 )
17,797
28,783
46,710
(Benefit from) provision for income taxes
( 131 )
4,790
8,149
14,770
Net (loss) income
$
( 17,426 )
$
13,007
$
20,634
$
31,940
(Loss) earnings per share — basic
$
( 0.51 )
$
0.38
$
0.61
$
0.99
Weighted-average shares — basic
34,319,291
34,622,284
33,744,209
32,301,211
(Loss) earnings per share — diluted
$
( 0.51 )
$
0.34
$
0.53
$
0.82
Weighted-average shares — diluted
34,319,291
42,849,952
42,058,821
41,279,981
F-48
First
Second
Third
Fourth
Year Ended December 31, 2022
Quarter
Quarter
Quarter
Quarter
Product revenues, net
$
83,751
$
123,549
$
127,013
$
129,620
Cost of product revenues
Cost of product revenues (excluding intangible asset amortization)
16,332
33,684
30,622
37,552
Intangible asset amortization and impairment
18,923
37,501
37,552
42,279
Total cost of products revenues
35,255
71,185
68,174
79,831
Gross profit
48,496
52,364
58,839
49,789
Operating expenses
Research and development
3,983
—
—
—
Selling, general and administrative
54,528
41,254
38,372
38,032
Total operating expenses
58,511
41,254
38,372
38,032
(Loss) income from operations
( 10,015 )
11,110
20,467
11,757
Interest expense
( 5,831 )
( 17,761 )
( 19,046 )
( 20,575 )
Interest income
4
5
11
1,027
(Loss) income before income taxes
( 15,842 )
( 6,646 )
1,432
( 7,791 )
(Benefit from) provision for income taxes
( 2,773 )
( 1,455 )
975
( 592 )
Net (loss) income
$
( 13,069 )
$
( 5,191 )
$
457
$
( 7,199 )
(Loss) earnings per share — basic
$
( 0.39 )
$
( 0.15 )
$
0.01
$
( 0.21 )
Weighted-average shares — basic
33,673,912
34,001,553
34,058,802
33,582,202
(Loss) earnings per share — diluted
$
( 0.39 )
$
( 0.15 )
$
0.01
$
( 0.21 )
Weighted-average shares — diluted
33,673,912
34,001,553
34,570,319
33,582,202
F-49