What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-16 · 119 added, 139 removed, 140 unchanged (65% of the section changed)

8 unchanged sentences

Risk Factors.”

are a unique pharmaceutical company focused on developing, acquiring, and commercializing innovative pharmaceutical products that fulfill

an unmet patient need.

Since the formation of our company in 2017, we have used our expertise in business development, regulatory, and

product development to assemble a diversified portfolio of eleven products.

Six of our products have been approved by

the FDA and commercially launched.

We plan to continue growing our business through the acquisition of additional late-stage, high-value

product candidates.

are an innovative pharmaceutical company focused on developing, acquiring, and commercializing innovative products to address unmet needs

in patients suffering from rare diseases.

Since the formation of our company in 2017, we have used our expertise in business development,

regulatory, and product development to assemble a diversified portfolio of rare disease products.

of Operations

date, we have realized revenues from the sale of our neurology products portfolio to Azurity in 2021, a licensing arrangement on our

EM-100 product that was sold to Bausch Health and also the launch of our Biorphen®, Alkindi Sprinkle®, and Carglumic Acid products

in December 2019, December 2020, and December 2021, respectively.

We anticipate successfully growing our sales for these products and

commercializing additional product candidates in 2022 and beyond.

EM-100 product that was sold to Bausch Health, the launch of our Biorphen®, ALKINDI SPRINKLE®, and Carglumic Acid products in

December 2019, December 2020, and December 2021, respectively, and also from the sale of our hospital products portfolio to Dr.

Reddy’s in 2022.

We anticipate successfully growing sales of our commercialized products and commercializing

additional product candidates in 2023 and beyond.

Ended December 31, 2022 Compared to Year Ended December 31, 2021

revenues of $21.8 million in 2021 included $19.0 million of milestones, including $17.0 million from Azurity on three neurology

products sold to them at the beginning of the year.

Revenues were nominal in 2020 for Biorphen and reflected the launch of Alkindi Sprinkle®

late in mid-December.

2021 gross profit of $19.2 million was up significantly as the prior year negative gross profit level was adversely impacted by Biorphen

price discounts and a reserve charge to cost of sales for certain slow-moving Biorphen inventory that we do not believe we will be able

to sell before its expiry date.

revenues of $21.3 million in 2022 included $10.0 million of licensing revenue, consisting of $5.0 million from Azurity on the launch of Zonisamide

and $5.0 million from the sale of our hospital products to Dr.

Net revenue of $21.8 million in 2021 included $19.0 million

of licensing revenue, primarily consisting of $17.0 million from Azurity on three neurology products sold to them at the beginning of 2021.

Net product revenue of $11.3 million in 2022 increased by $8.4 million from $2.8 million in 2021 as a result of growth in ALKINDI SPRINKLE®

and Carglumic Acid.

2022 gross profit of $14.3 million was down from $19.0 million in 2021, as a result of lower licensing revenue.

the years ended December 31, 2022 and 2021, we incurred $4.0 million and $6.2 million of research and development (“R&D”)

expenses, respectively, and $18.6 million and $14.3 million of general and administrative (“G&A”) expenses, respectively.

The $7.9 million decrease in R&D was driven by significant milestone payments on a number of our products in development that

did not recur in 2021.

The $1.7 million increase in G&A expenses was primarily due to personnel additions and increased professional/consulting

The $2.2 million decrease in R&D was driven by milestone payments on a number of our products in development in 2021 that did not

recur in 2022.

The $4.3 million increase in G&A expenses was primarily due to personnel additions and increased sales & marketing

spending to support our growing business.

3 unchanged sentences

expenses consist primarily of employee compensation expenses, selling and adverting/promotional expenses, legal and professional fees,

business insurance and FDA fees.

We anticipate that our G&A expenses will increase to support our business growth – particularly

with respect to sales and marketing for additional personnel and promotional expenses.

business insurance and FDA fees associated with approved products.

We anticipate that our G&A expenses will increase to support our

business growth – particularly with respect to sales and marketing for additional personnel and promotional expenses.

and Development Expenses

currently have seven employees that support our overall product development function.

currently have eight employees that support our overall product development function.

The majority of our spend in R&D is to third

parties we contract with to develop and test our products in addition to development partner milestone payments.

We closed our R&D

facility in May 2021.

Ended December 31, 2021 Compared to Year Ended December 31, 2020

revenues for 2020 reflected limited benefit from Alkindi Sprinkle which launched in mid-December.

In addition, revenue was negatively

impacted by a price discount for Biorphen in 2020 related to the shelf stock at our wholesale customers.

Our 2020 gross profit was also

adversely impacted by a reserve charge to cost of sales for certain slow-moving Biorphen inventory that we do not believe we will be

revenues of $21.8 million in 2021 included $19.0 million of licensing revenue, including $17.0 million from Azurity on three neurology products

sold to them at the beginning of the year.

Revenues were nominal in 2020 for Biorphen and reflected the launch of ALKINDI SPRINKLE®

late in mid-December.

2021 gross profit of $19.0 million was up significantly as the prior year negative gross profit level was adversely impacted by Biorphen

price discounts and a reserve charge to cost of sales for certain slow-moving Biorphen inventory that we did not believe we would be

able to sell before its expiry date.

Revenue and gross profit in 2019 reflected the initial launch for Biorphen and a $0.5 million milestone

payment for our sale of EM-100 to Bausch Health.

the years ended December 31, 2021 and 2020, we incurred $6.2 million and $14.1 million of research and development (“R&D”)

expenses, respectively, and $14.3 million and $12.6 million of general and administrative (“G&A”) expenses, respectively.

The increase in R&D expense was primarily due to $4.8 million of licensing and development fees for Alkindi Sprinkle in 2020 offset

by reduced spending for Topiramate and Lamotrigine.

The $5.2 million increase in G&A expenses was primarily due to personnel additions

and increased sales/marketing spending to support product launches.

In addition, we incurred significant legal expenses associated with

our patent challenge against Exela Pharma Sciences for the Cysteine product that we have in development.

We incurred a net loss of $28.0

million and $18.3 million for the years ended December 31, 2020 and 2019, respectively.

The $7.9 million decrease in R&D was driven by significant milestone payments on a number of our products in development in 2020

that did not recur in 2021.

The $1.7 million increase in G&A expenses was primarily due to personnel additions and increased professional/consulting

spending to support our growing business.

We incurred a net loss of $2.0 million and $28.0 million for the years ended December 31, 2021

and 2020, respectively.

and Administrative Expenses

expenses consisted primarily of employee compensation expenses, selling and adverting/promotional expenses, legal and professional fees,

business insurance and travel expenses.

Our G&A expenses increased to support our business growth – particularly with respect

to sales and marketing for additional personnel and promotional expenses.

business insurance and FDA fees.

We anticipate that our G&A expenses will increase to support our business growth – particularly

with respect to sales and marketing for additional personnel and promotional expenses.

and Development Expenses

of December 31, 2020, we had six employees that supported our overall product development and we had facility and operating costs for

a laboratory to support product development which we subsequently closed in May 2021.

had seven employees that supported our overall product development function.

The majority of our spend in R&D was to third parties

we contracted with to develop and test our products in addition to development partner milestone payments.

We closed our R&D facility

and Capital Resources

of December 31, 2021, we had total assets of $27.5 million, cash and cash equivalents of $14.4 million and working capital of

$19.0 million.

We had previously capitalized our operations from the June 2017 private placement of approximately $20.1 million

of Series A preferred stock which converted into shares of our common stock concurrent with our IPO in November 2018 and also the IPO

which provided us with net proceeds of $22.0 million.

In addition, we entered into a Credit Agreement with SWK Holdings in November 2019

whereby we drew a $5.0 million loan amount at closing and an additional $2.0 million in August 2020.

In March and April 2020, we received

net proceeds of approximately $7.8 million from the sale of shares of our common stock, and in October 2020, we received net proceeds

of approximately $21.0 million from a public offering of our common stock at an offering price of $7.00 per share.

We believe that our

existing funding, revenues from our approved products and milestone payments expected to be paid in 2022 will be sufficient for at least

the next twelve months of our operations.

However, our projected estimates for our product development spending, administrative expenses

and our working capital requirements could be inaccurate, or we may experience growth more quickly or on a larger scale than we expect,

any of which could result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional

financing earlier than we expect to support our operations.

of December 31, 2022, we had total assets of $25.0 million, cash and cash equivalents of $16.3 million and working capital of $13.5 million.

We believe that our existing funding and revenues from our approved products will be sufficient for at least the next twelve months of

our operations.

However, our projected estimates for our product development spending, administrative expenses and our working capital

requirements could be inaccurate, or we may experience growth more quickly or on a larger scale than we expect, any of which could result

in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing earlier than we

expect to support our operations.

following table sets forth a summary of our cash flows for the years ended December 31, 2022, 2021 and 2020 (amounts are in thousands):

cash used in operating activities

cash used in investing activities

cash flows provided by financing activities

change in cash and cash equivalents

decrease in cash used in operating activities is primarily a result of lower operating losses, driven by higher revenue.

Investing activities

in 2021 consist primarily of licensing fees for Carglumic Acid, partially offset by the proceeds from the sale of equipment from our

laboratory facility which we closed in May 2021.

The financing activity primarily consists of the October 2020 follow-on common stock

offering and the November 2019 Credit Agreement borrowing from SWK Holdings.

December 31, 2022

December 31, 2021

December 31, 2020

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash flows (used in) provided by financing activities

Net change in cash and cash equivalents

decrease in cash used in operating activities is primarily a result of increased revenue.

activities in 2022 and 2021 consist primarily of licensing fees for Betaine and Carglumic Acid respectively.

Financing activities in

2020 consisted of a follow-on common stock offering in October 2020.

Accounting Policies

financial statements are prepared in accordance with GAAP.

The preparation of our financial statements and related disclosures requires

us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses in our financial statements.

We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under

the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that

are not readily apparent from other sources.

financial statements are prepared in accordance with accounting principles generally accepted in the United States of America

The preparation of our financial statements and related disclosures requires us to make estimates and judgments that

affect the reported amounts of assets, liabilities, costs and expenses in our financial statements.

We base our estimates on

historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the

results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily

apparent from other sources.

We evaluate our estimates and assumptions on an ongoing basis.

Our actual results may differ

from these estimates under different assumptions or conditions.

Our actual results may differ from these

estimates under different assumptions or conditions.

our significant accounting policies are described in more detail in Note 3 to our financial statements included herein, we believe that

41 unchanged sentences

will be more than one year.

sell Biorphen in the U.S.

to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user customers.

Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments

of Biorphen represent performance obligations under each purchase order.

We use a third-party logistics (“3PL”) vendor to

process and fulfill orders and have concluded it is the principal in the sales to wholesalers because it controls access to the 3PL vendor

services rendered and directs the 3PL vendor activities.

We have no significant obligations to wholesalers to generate pull-through sales.

In addition, we sell our Alkindi Sprinkle and Carglumic Acid products to one pharmacy distributor customer which provides order fulfillment

Company sells its ALKINDI SPRINKLE® and Carglumic Acid product to one pharmacy distributor customer which provides order fulfilment

and inventory storage/distribution services.

prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell

Biorphen at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs.

In addition, we pay fees to wholesalers for their distribution services, inventory reporting and chargeback processing.

We pay GPOs fees

for administrative services and for access to GPO members and concluded the benefits received in exchange for these fees are not distinct

from our sales of Biorphen, and accordingly we apply these amounts to reduce revenues.

Wholesalers also have rights to return unsold

product nearing or past the expiration date.

Because of the shelf life of Biorphen and our lengthy return period, there may be a significant

period of time between when the product is shipped and when we issue credits on returned product.

For our Alkindi Sprinkle and Carglumic

Acid products, we bill at the initial product list prices which are subject to offsets for patient co-pay assistance and potential state

Medicaid reimbursements which are estimated and recorded as a reduction of net revenues at the date of sale/shipment.

estimate the transaction price when we receive each purchase order, taking into account the expected reductions of the selling price

initially billed to the wholesaler arising from all of the above factors.

We have developed estimates for future returns and chargebacks

of Biorphen and the impact of the other discounts and fees we pay.

Our sales of Alkindi Sprinkle and Carglumic Acid to our distributor

are not subject to returns.

When estimating these adjustments to the transaction price, we reduce it sufficiently to be able to assert

that it is probable that there will be no significant reversal of revenue when the ultimate adjustment amounts are known.

recognize revenue from Biorphen product sales and related cost of sales upon product delivery to the wholesaler location.

At that time,

the wholesalers take control of the product as they take title, bear the risk of loss of ownership, and have an enforceable obligation

They also have the ability to direct sales of product to their customers on terms and at prices they negotiate.

Although wholesalers

have product return rights, we do not believe they have a significant incentive to return the product to us.

We store our Alkindi Sprinkle

and Carglumic Acid inventory at our pharmacy distributor customer location and sales are recorded when stock is pulled and shipped to

fulfill specific patient orders.

The Company may sell products in the U.S.

to wholesale pharmaceutical distributors, who

then sell the product to hospitals and other end-user customers.

Sales to wholesalers are made pursuant to purchase orders subject to

the terms of a master agreement, and delivery of individual shipments represent performance obligations under each purchase order.

Company uses a third-party logistics (“3PL”) vendor to process and fulfill orders and has concluded it is the principal in

the sales to wholesalers because it controls access to the 3PL vendor services rendered and directs the 3PL vendor activities.

has no significant obligations to wholesalers to generate pull-through sales.

its ALKINDI SPRINKLE® and Carglumic Acid products, the Company bills at the initial product list price which are subject to offsets

for patient co-pay assistance and potential state Medicaid reimbursements which are recorded as a reduction of net revenues at the date

of sale/shipment.

Selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks

when the wholesalers sell products at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”)

and government programs.

Because of the shelf life of the product and the Company’s lengthy return period, there may be a significant

period of time between when the product is shipped and when it issues credits on returned product.

Company estimates the transaction price when it receives each purchase order taking into account the expected reductions of the selling

price initially billed to the wholesaler/distributor arising from all of the above factors.

The Company has developed estimates for future

returns and chargebacks and the impact of other discounts and fees it pays, although ALKINDI SPRINKLE® and Carglumic Acid sales are

not subject to returns.

When estimating these adjustments to the transaction price, the Company reduces it sufficiently to be able to

assert that it is probable that there will be no significant reversal of revenue when the ultimate adjustment amounts are known.

Company stores its ALKINDI SPRINKLE® and Carglumic Acid inventory at its pharmacy distributor customer location, and sales are recorded

when stock is pulled and shipped to fulfill specific patient orders.

The Company recognizes revenue and cost of sales from products sold

to wholesalers upon delivery to the wholesaler location.

At that time, the wholesalers take control of the product as they take title,

bear the risk of loss of ownership and have an enforceable obligation to pay the Company.

They also have the ability to direct sales

of product to their customers on terms and at prices they negotiate.

Although wholesalers have product return rights, the Company does

not believe they have a significant incentive to return the product.

recognition of revenue from product sales, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt

payment discounts, state Medicaid and GPO fees are included in sales reserves, accrued liabilities and net of accounts receivable.

monitor actual product returns, chargebacks, discounts and fees subsequent to the sale.

If these amounts end up differing from our estimates,

we will make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period

payment discounts, state Medicaid and GPO fees are included in sales reserves, accrued liabilities and net accounts receivable.

monitors actual product returns, chargebacks, discounts and fees subsequent to the sale.

If these amounts end up differing from its estimates,

it will make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period

of adjustment.

addition, we anticipate we will receive revenues from product licensing agreements where we have contracted for milestone payments and

royalties from products we have developed or for which we have acquired the rights to a product developed by a third party.

addition, the Company anticipates it will continue to receive revenues from product licensing agreements where it has contracted for

milestone payments and royalties from products it has developed or acquired.

account for stock-based compensation under the provisions of ASC 718 Compensation – Stock Compensation.

59 unchanged sentences

on which adoption of such standards is required for other public companies.

to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation, (i) providing

an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley

Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory

audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial

statements, known as the auditor discussion and analysis.

We will remain an emerging growth company until the earlier to occur of (1)

the last day of the fiscal year (a) December 31, 2023, which is the end of the fiscal year following the fifth anniversary of the completion

of our IPO, (b) in which we have total annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a “large

accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates

exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt

during the prior three-year period.

to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation, (i)

providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section

404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting

Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report

providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.

remain an emerging growth company until the earlier to occur of (1) the last day of the fiscal year (a) December 31, 2023, which is

the end of the fiscal year following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross

revenues of at least $1.07 billion or (c) in which we are deemed to be a “large accelerated filer” under the rules of

the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June

30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis