04
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
| ||||
For the year ended December 31 | ||||
| ||||
OR | ||||
| ||||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
| ||||
For the transition period from to |
Commission File Number 001-37372
Collegium Pharmaceutical, Inc.
(Exact name of registrant as specified in its charter)
Virginia | 03-0416362 | |
Stoughton, MA |
|
(781) (781) 713-3699
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered: |
Common stock, par value $0.001 per share | COLL | The NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒⌧ No ☐◻
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |||||||
Large accelerated filer |
| Accelerated filer |
| Non-accelerated filer |
| Smaller reporting company ☐ | | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒⌧
As of June 30, 2017,2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $272$741.8 million, based on the closing price of the registrant’s common stock on The NASDAQ Global Select Market on June 30, 20172023 of $12.51$21.49 per share. Shares of the registrant’s common stock held by each officer and director and each person known to the registrant to own 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not a determination for other purposes.
As of March 1, 2018,January 31, 2024, there were 32,993,89431,959,828 shares of the registrant's common stock, par value, $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 20182024 Annual Meeting of Shareholders (the "Proxy Statement"), to be filed within 120 days of the registrant's year ended December 31, 2017,2023, are incorporated by reference in Part II and Part III of this Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K10-K.
| |||||
|
|
|
| Page No. |
|
| | | | | |
| | 3 |
| ||
| |||||
| |||||
21 |
| ||||
| | 40 | |||
| | 40 | | ||
| | 41 | |||
| | 41 | |||
| | 41 | |||
| | | | | |
| | 41 |
| ||
| | 43 |
| ||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 44 |
| |
| | 56 |
| ||
| | 57 |
| ||
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | ||||
| |||||
57 |
| ||||
| | 57 | |||
| | 60 | |||
| Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | | 60 | | |
| | | | | |
| | 60 |
| ||
| | 60 |
| ||
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | 60 |
| |
| Certain Relationships and Related Transactions, and Director Independence | ||||
| |||||
60 |
| ||||
|
| | 61 |
| |
| | | | | |
| | 61 | | ||
| | 64 | | ||
| | | 65 |
|
2
Forward-Looking Statements
ThisStatements made in this Annual Report on Form 10-K that are not statements of historical or this Form 10-K, includes forward-looking statements.current facts, such as those under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. These statements relate to future eventsmay be preceded by, followed by or to our future financial performance and involve known and unknown risks, uncertainties and other important factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied byinclude the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In some cases, you can identify these statements by terms such aswords “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “outlook,” “plan,” “potential,” “project,” “projection,” “seek,” “may,” “could,” “would,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning. These forward-looking
Forward-looking statements reflect our management's beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Form 10-K and areinherently subject to risks, uncertainties and uncertainties. We discuss manyassumptions; they are not guarantees of these risks in greater detail under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, youperformance. You should not place undue reliance on these forward-looking statements. Any forward-looking statements that we make in this Form 10-K speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
3
Except as required by law, we assume no obligation to updateWe have based these forward-looking statements publicly,on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that the assumptions and expectations will prove to be correct.
You should understand that the following important factors could affect our future results and could cause those results or other outcomes to update the reasons actual results could differ materially from those expressed or implied in our forward-looking statements:
● | our ability to commercialize and grow sales of our products; |
● | our ability to maintain regulatory approval of our products, and any related restrictions, limitations, and/or warnings in the label of an approved product; |
● | the size of the markets for our products, and our ability to service those markets; |
● | the success of competing products that are or become available; |
● | our ability to obtain and maintain reimbursement and third-party payor contracts with favorable terms for our products; |
● | the costs of commercialization activities, including marketing, sales and distribution; |
● | the rate and degree of market acceptance of our products; |
● | changing market conditions for our products; |
● | the outcome of any patent infringement, opioid-related or other litigation that may be brought by or against us; |
● | the outcome of any governmental investigation related to the manufacture, marketing and sale of opioid medications; |
● | the performance of our third-party suppliers and manufacturers; |
● | our ability to secure adequate supplies of active pharmaceutical ingredients for each of our products, manufacture adequate quantities of commercially salable inventory and maintain our supply chain; |
● | our ability to effectively manage our relationships with licensors and to commercialize products that we in-license from third parties; |
● | our ability to attract collaborators with development, regulatory and commercialization expertise; |
● | our ability to obtain funding for our business development; |
● | our ability to comply with the terms of our outstanding indebtedness; |
● | regulatory and legislative developments in the United States, including the adoption of opioid stewardship and similar taxes that may impact our business; |
● | our ability to obtain and maintain sufficient intellectual property protection for our products; |
● | our ability to comply with stringent government regulations relating to the manufacturing and marketing of pharmaceutical products, including U.S. Drug Enforcement Agency (“DEA”) compliance; |
● | our customer concentration, which may adversely affect our financial condition and results of operations; |
● | the accuracy of our estimates regarding expenses, revenue, capital requirements and need for additional financing; and |
● | the other risks, uncertainties and factors discussed under the heading “Risk Factors” in this Annual Report on Form 10-K. |
In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in thesethis Annual Report on Form 10-K (including the exhibits hereto) might not occur. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, even if new information becomes availableexperience or
2
future developments make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.
These and other risks are described under the future.
We obtained the industry, market and competitive position dataheading “Risk Factors” in this Annual Report on Form 10-K10-K. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our own internal estimatesforward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.
PART I
Item 1. Business
Overview
Our mission is to build a leading, diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions. We have leveraged our research and researchdevelopment efforts as well as from industryacquisitions and general publications and research surveys and studies conducted bylicensing relationships with third parties. We believe this data is accurate in all material respects asparties, to develop a portfolio of the date of this Form 10-K. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.”
Overview
We are a specialty pharmaceutical company focused on becoming the leader in responsible pain management by developing and commercializing innovative,meaningfully differentiated products for patients suffering fromuse in the treatment of moderate to severe pain. We commercialize our pain portfolio, consisting of Xtampza ER, Nucynta ER and Nucynta IR (collectively the “Nucynta Products”), Belbuca, and Symproic, in the United States.
Xtampza ER
Our first product,company was formed in 2002 to help address the opioid epidemic through the development of Xtampza ER, a pain treatment option designed with abuse deterrent properties. Xtampza ER is an abuse-deterrent, extended-release, oral formulation of oxycodone,oxycodone. Xtampza ER is formulated using our novel abuse-deterrent technology platform, DETERx, which provides extended-release delivery, while also providing barriers to common methods of abuse and misuse (e.g., crushing, chewing, heating, and injecting). This technology combines an active opioid ingredient with a widely prescribed opioid medication. fatty acid and waxes to form microspheres that are filled into a capsule. These wax-based microspheres are designed to resist particle size reduction and dose dumping when subjected to physical and chemical manipulation.
In April 2016, the U.S.United States Food and Drug Administration or FDA,(“FDA”) approved our new drug application, or NDA, filingNew Drug Application (“NDA”) for Xtampza ER. Xtampza ER is indicated for the management of severe and persistent pain severe enough to requirethat requires an extended treatment period with a daily around-the-clock, long-term opioid treatmentanalgesic and for which alternative treatment options are inadequate. CertainThe approved labeling for Xtampza ER includes human abuse potential studies, are included in the approved label, as well as data supporting the administration of the product as a sprinkle or administered through feeding tubes. Xtampza ER’s label indicates a dosing regimen of one capsule every 12 hours, and it must be taken with food. In June 2016, we announcedcommercially launched Xtampza ER in the commercial launch of Xtampza.United States.
Xtampza hasER, OxyContin, and the same active ingredient asauthorized generic versions of OxyContin OP, which is(which are identical to the largest selling abuse-deterrent,branded versions) are the only extended-release opioidoxycodone products marketed in the United States by dollars,as of January 2024. Xtampza ER and OxyContin (along with $1.7 billion in U.S. sales in 2017. We conducted a comprehensive preclinicalits authorized generics) feature the same active pharmaceutical ingredient (oxycodone) and clinical program for Xtampza consistent with FDA guidance on abuse-deterrence. These studies and clinical trials demonstrated that chewing, crushing and/or dissolving Xtampza, and then taking it orally or smoking, snorting, or injecting it did not meaningfully change its drug release profile or safety characteristics. By contrast, clinical trials performed by us and others — including head-to-head clinical trials comparing Xtampza with OxyContin OP — have shown that drug abusers can achieve rapid release and absorption offeature abuse-deterrent technologies – though the active ingredient by manipulating OxyContin OP using common household tools and methods commonly available on the Internet.abuse deterrent technologies are designed differently. In November 2017, we announced theFDA approval of a Supplemental New Drug Application to the FDA(“sNDA”) for Xtampza ER to include comparative oral pharmacokinetic data from a clinical study evaluating the effect of physical manipulation by crushing Xtampza ER compared with OxyContin OP and a control (oxycodone hydrochloride immediate-release),. In the study, Xtampza ER maintained its extended-release pharmacokinetic profile when crushed, while OxyContin showed a rapid release of oxycodone when crushed with common household tools; crushed OxyContin was bioequivalent to crushed oxycodone IR. The sNDA also added results from an oral human abuse potential study and the addition of an oral abuse deterrent claim.claim to the label, making Xtampza ER the only single-agent extended-release oxycodone with oral, intranasal, and intravenous abuse-deterrent labeling.
In addition,We are committed to ongoing monitoring and public dissemination of our preclinical studiesreal-world abuse and clinical trials have showndiversion data, regardless of the results. The two main sources of real-world abuse, misuse, and diversion data are RADARS® and Inflexxion, an IBH Company. The Researched Abuse, Diversion and Addiction-Related Surveillance (RADARS) System collects product-and geographically-specific data on abuse, misuse, and diversion of prescription drugs through its multiple data sources. Abuse, misuse, and diversion of Xtampza ER has remained low compared to commonly abused
3
schedule II opioid analgesics for three years after introduction into the U.S. market. Methods to defeat the tamper resistant properties of Xtampza ER are reported but there is no indication of widespread or expanding abuse or misuse in the data streams evaluated. Potential limitations are based upon the fact that the contentsPoison Center and Treatment Center Program cases involve self-reporting which may lead to: (i) differential misidentification among drug groups which may affect observed differences, and (ii) case counts of drug groups comprised primarily of branded products (other abuse-deterrent formulations of ER opioids) may be overestimated when based on self-reporting and drug groups comprised primarily of generic products (non-abuse-deterrent formulations of ER opioids and IR oxycodone) may be underestimated. The RADARS data represents a single snapshot in time and is subject to change. Therefore, we plan to continue monitoring real world data characterizing the Xtampza capsule can be removed fromrate of abuse, misuse, and diversion of Xtampza.
Nucynta Products
The Nucynta Products are extended-release (“ER”) and immediate-release (“IR”) oral formulations of tapentadol. In November 2008, the capsule and sprinkled on food or into a cup, and then directly into the mouth, or administered through feeding tubes, without compromising their drug release profile, safety or abuse-deterrent characteristics. By contrast, OxyContin OP, which is formulated in hard tablets, has a black box warning label stating that crushing, dissolving, or chewing can cause rapid release and absorption of a potentially fatal dose of the active ingredient. We believe that Xtampza can address the pain management needs of patients in the United States who have difficulty swallowing and suffer from pain severe enough to require daily, around the clock, long-term opioid treatment and for which alternative treatment options are inadequate.
In December 2017, we entered into a Commercialization Agreement with Depomed, Inc., or Depomed, pursuant to which Depomed agreed to grant us a sublicense of certain of its intellectual property related toFDA approved Nucynta ER and Nucynta IR, or theIR. Nucynta Products, for commercialization of such products in the United States, the District of Columbia and Puerto Rico. We closed the transactions contemplated by the Commercialization Agreement, as amended, on January 9, 2018 and we began marketing the Nucynta Products in February 2018. Nucynta ER is an extended release formulation of tapentadol that is indicated for the management of severe and persistent pain severe enough to requirethat requires an extended treatment period with a daily around the clock, long term opioid treatment,analgesic, including neuropathic pain associated with diabetic peripheral neuropathy in adults, and for which alternate treatment options are inadequate. Nucynta IR is an immediate release formulation of tapentadol that is indicated for the management of moderate to severe acute pain in adults.
4
Since 2010, we have devoted substantially all of our resources to the development of our patented DETERx platform technology, the preclinical and clinical advancement of our product candidates, pre-commercialization activities and the creation and protection of related intellectual property. Since 2011, we have generated limited revenue from product sales and we continue to incur significant research, development and other expenses related to our ongoing operations. Prior to our initial public offering of common stock, or IPO, in May 2015, we funded our operations primarily through the private placement of preferred stock, convertible notes and commercial bank debt. Since our IPO, we have funded our operations primarily through the proceeds of public offerings and sale of our equity securities.
Background on Chronic Pain and Opioid Abuse
Patients Suffering from Chronic Pain
Chronic pain, typically defined as pain that lasts beyond the healing of an injury or that persists longer than three months, is a worldwide problem with serious health and economic consequences. According to the National Institutes of Health, or NIH, chronic pain represents a public health crisis of epidemic proportions affecting approximately 100 million people in the United States and 20‑30% of the population worldwide — more than heart disease, cancer and diabetes combined. Common types of chronic pain include lower back pain, arthritis, headache, and face and jaw pain. The prevalence of chronic pain is expected to rise in the future, as the incidence of associated illnesses such as diabetes, arthritis and cancer increases in the aging population.
Chronic pain leads to over $560 billion in healthcare and productivity costs each year according to the Institute of Medicine. Prescription opioids remain the primary treatment for chronic pain. Chronic pain patients often start treatment with immediate release opioids, but change to extended‑release opioids to achieve more convenient dosing with more consistent blood levels of the active drug. Extended‑release opioids incorporate a large amount of opioid with a time‑release mechanism designed to deliver steady amounts of opioid, typically over 12 to 24 hours.
Annual sales from extended‑release and long‑acting opioids represent approximately $5.0 billion (21 million prescriptions) of the approximately $13 billion U.S. opioid market in 2017. OxyContin OP generated U.S. sales of $1.7 billion in 2017, which represents approximately a 15% U.S. market share of all extended‑release and long‑acting opioid prescriptions.
Prescription Opioid Abuse is an Epidemic in the United States
Abusers tamper with extended‑release opioid drugs to achieve the euphoria that results from rapid increases in the blood concentration of the active ingredient, a potentially fatal activity known as dose dumping. The U.S. Centers for Disease Control and Prevention, or CDC, described abuse of prescription drugs in the United States as a growing and deadly epidemic. Deaths in the United States from prescription opioid overdose have grown from approximately 4,000 in 1999 to approximately 16,000 in 2013.
According to a 2012 study conducted by the CDC, annually there are 144,000 treatment admissions for abuse or misuse of opioids, 560,000 emergency room visits for misuse or abuse of opioids, over 2.5 million individuals who abuse or are dependent on opioids and over 7.3 million non‑medical users who use opioids without prescriptions or for non‑therapeutic effects. The American Journal of Managed Care estimated in a 2013 report that opioid abuse costs public and private healthcare payors over $72 billion annually in direct healthcare costs, including costs of emergency room visits, rehabilitation and associated health problems.
The FDA has estimated that nearly 35 million Americans have used prescription pain relievers, including opioid‑containing drugs, for non‑prescription purposes at least once in their lifetime. A 2011 research report from the Substance Abuse and Mental Health Services Administration estimated that between 1999 and 2009 there was a 430% increase in substance‑abuse treatment facility admissions resulting from the use of prescription pain relievers. According to a 2011 study by the University of Michigan, one in 12 high school seniors reported non‑medical use of Vicodin, a combination of acetaminophen and hydrocodone, and one in 20 high school seniors reported non‑medical use of OxyContin.
Drug abusers find extended‑release opioids desirable because of the large amount of drug payload, which they attempt to release quickly into the bloodstream to create euphoria. It is difficult for drug abusers to achieve this rapid release and
5
absorption into the bloodstream by taking multiple intact extended‑release opioid tablets or capsules because doing so often causes sleepiness and/or respiratory distress before euphoria is achieved. Instead, abusers attempt to defeat the extended‑release properties in order to achieve rapid release of the active ingredient.
Despite the introduction of OxyContin OP in 2010 as the first FDA‑approved, abuse‑deterrent extended‑release opioid formulation, abuse of extended‑release opioids, including OxyContin OP, continues to be a major public health issue. OxyContin OP, even with its abuse‑deterrent formulation, remains vulnerable to abuse using common household objects, like pill crushers. Third party studies found that abusers of OxyContin OP use various routes of abuse — including snorting, injection and oral abuse — despite its abuse‑deterrent features. In a third party study of OxyContin abusers both before and after OxyContin OP was introduced, researchers found that while the non‑oral route of administration of abuse of OxyContin OP (i.e., injection, snorting and smoking) decreased after its introduction, oral abuse of OxyContin OP increased from approximately 52% to 75% of OxyContin abusers.
OxyContin OP Tablet + $6.39 Pill Crusher = Abuseable Fine Powder in 16 Seconds
Legislative and Regulatory Actions
In response to widespread prescription opioid abuse, the U.S. government and a number of state legislatures have introduced, and in some cases have enacted, legislation and regulations intended to encourage the development of abuse‑deterrent forms of pain medications. The FDA has stated that addressing prescription drug abuse is a priority, and the development of abuse‑deterrent opioids is a key part of that strategy.
In 2010, Purdue received approval for a new formulation of OxyContin, named OxyContin OP, designed to make it more difficult to abuse. In April 2013, the FDA approved new product labeling for OxyContin OP, which, for the first time included abuse‑deterrent product label claims consistent with the FDA’s January 2013 draft abuse‑deterrent product label guidance. At the same time, the FDA withdrew the approval of the original, non‑abuse‑deterrent OxyContin formulation, thus preventing the commercialization of generic versions of the original OxyContin that did not have abuse‑deterrent properties. This decision by the FDA is consistent with its public statement that the development of abuse‑deterrent opioid analgesics is a public health priority.
Recent actions to address the opioid abuse epidemic include:
|
|
|
|
6
|
|
|
|
|
|
|
|
|
7
|
|
|
|
Types of Abuse‑Deterrent Technologies
In response to the opioid abuse epidemic, the pharmaceutical industry has created a number of abuse‑deterrent products and product candidates, using a variety of technologies. These strategies generally fall under the following categories:
|
|
|
|
|
|
|
|
Market research studies performed for us have shown that some physicians prefer not to use an abuse‑deterrent formulation with an opioid antagonist because such formulations may be less useful in addressing chronic pain and because their antagonist components may precipitate withdrawal.
|
|
8
|
|
|
We believe Xtampza represents the best‑in‑class approach to an abuse‑deterrent extended‑release opioid formulation. Xtampza does not incorporate an opioid antagonist, is not a prodrug, and is resistant to abuse through physical or chemical manipulation.
Chronic Pain with Dysphagia
It is estimated that more than 10% of patients with chronic pain, or approximately 11 million patients, have dysphagia, or difficulty in swallowing, because they have cancer, are elderly, have other medical problems or have difficulty swallowing without a known medical cause. The FDA recognized the unmet medical needs of this growing population in issuing guidance in June 2015, in which the FDA cited survey data that suggest that as many as 40% of Americans may have difficulties swallowing tablets and capsules and noted that these difficulties can precipitate a number of adverse events and noncompliance with treatment regimens.
Except for Xtampza, all FDA‑approved, orally administered extended‑release opioids have a black box warning product label stating that “crushing, dissolving or chewing can cause rapid release and absorption of a potentially fatal dose of the active drug,” making them unsuitable or unattractive for patients who suffer from chronic pain with dysphagia, or CPD. OxyContin OP’s product label states that “there have been post‑marketing reports of difficulty in swallowing OxyContin tablets. These reports included choking, gagging, regurgitation and tablets stuck in the throat… Consider use of an alternative analgesic in patients who have difficulty swallowing.” An external marketing study performed for us in 2013 estimated that Xtampza has a peak revenue potential for U.S. patients with CPD in excess of $700 million annually.
Our Solution: The DETERx Platform Technology
Overview
DETERx is a novel, proprietary, patented platform technology that is designed to maintain the extended‑release and safety profiles of highly abused drugs in the face of various methods of abuse and tampering, including chewing, crushing and/or dissolving, and then taking them orally or snorting or injecting them. The DETERx formulation consists of wax‑based microspheres that are filled into a capsule. The microspheres are spherical micron‑sized beads that are prepared by combining the active ingredient (oxycodone, in the case of Xtampza) with inactive ingredients. Each microsphere, whether inside or outside the capsule, is designed to be abuse‑deterrent and extended‑release. The active ingredient is solubilized and homogenously dispersed in each microsphere.
Xtampza microspheres have a median particle size of approximately 300 microns and are comprised of the active ingredient (oxycodone), a fatty acid, and wax and surfactant excipients which are all Generally Recognized As Safe, or GRAS, by the FDA. The microspheres are formulated through a proprietary melt process in which the active ingredient, as a free base, is combined with fatty acid and wax and surfactant excipients to form a molten solution in which the base is solubilized via an ionic interaction with the fatty acid. The resulting homogenous liquid is spray congealed into small droplets using a proprietary spinning disk manufacturing process. The droplets rapidly congeal into solid wax‑based microspheres, which are then filled into capsules. Differing product strengths are achieved by varying the weight of the microspheres loaded into a capsule. When administered orally as directed, the Xtampza formulation is designed to be administered every 12 hours and releases oxycodone over an extended period of time in the GI tract by diffusion from the microspheres into gastrointestinal fluids.
9
Because of our proprietary DETERx platform technology, each individual microsphere has extended‑release and abuse‑deterrent properties. The microspheres are designed to be administered in capsule form, sprinkled on food or into a cup then directly in the mouth, or administered into the stomach via a gastric or nasogastric tube without compromising their abuse‑deterrent, extended‑release profile. These features may make Xtampza uniquely suited to address the needs of patients suffering from CPD.
Abuse‑Deterrent Features
Abusers often seek to accelerate the absorption of opioids into the bloodstream by crushing them in order to swallow, snort or smoke the drug, or dissolving them in order to inject the drug. The wax‑based microspheres produced using the DETERx platform technology have physical and chemical barriers that are intended to reduce the potential for these forms of abuse. We believe that microspheres made using our proprietary technology deter the most common methods of manipulating opioids for abuse because of their features described in the table below.
10
Abuse‑Deterrent Features of DETERx Platform Technology
|
|
| ||
|
|
| ||
|
|
| ||
|
| |||
|
| |||
|
|
|
Pipeline
11
We have applied our DETERx platform technology to Xtampza as well as the product candidates in our pipeline, with the exception of the Nucynta Products. We recently completed formulation development work for our extended‑release, abuse‑deterrent hydrocodone program. Based upon an assessment of the market opportunity and the potential to differentiate from currently marketed hydrocodone products as well as programs in development, we are prioritizing our abuse deterrent hydrocodone program as our second product in development. We filed an investigational new drug application, or IND, with the FDA in December 2015 and initiated a clinical trial in the first quarter of 2016. We also have an extended‑release, abuse‑deterrent oxymorphone program for the treatment of chronic pain for which we have filed an IND. This program has been granted Fast Track status by the FDA. In addition, we have other extended‑release, abuse‑deterrent product candidates that have completed preliminary preclinical studies, including morphine for pain and methylphenidate for the treatment of attention deficit hyperactivity disorder, or ADHD. All of these product candidates share similar abuse‑deterrent qualities as Xtampza and are designed to be suitable for patients with difficulty swallowing. We own all of the rights to Xtampza and our DETERx-based product candidates.
Each of our product candidates is being developed to seek FDA approval in accordance with Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FD&C Act. Section 505(b)(2) permits an applicant to file an NDA that relies, in part, on data not developed by or for the applicant and to which the applicant has not received a right of reference, such as the FDA’s findings of safety and efficacy in the approval of a similar drug, or listed drug, or published literature in support of its application.
Xtampza
Overview
Our first FDA-approved product, Xtampza, is an abuse-deterrent, extended-release, oral formulation of oxycodone, a widely prescribed opioid medication. In April 2016, the FDA approved our new NDA filing for Xtampza for the management of pain severe enough to require daily, around-the-clock, long-terman opioid treatmentanalgesic and for which alternative treatment optionstreatments are inadequate. Certain human abuse potential studies are includedinadequate in the approved label, as well as data supporting the administrationadults and pediatric patients aged 6 years and older with a body weight of the product as a sprinkle or administered through feeding tubes.at least 40 kg. In June 2016, we announced the commercial launch of Xtampza. In October 2016, we announced the submission of a New Drug Submission to Health Canada seeking marketing approval of Xtampza for the same indication for which we obtained approval from the FDA.
Xtampza has the same active ingredient as OxyContin OP, which is the largest selling abuse-deterrent, extended-release opioid in the United States by dollars, with $1.7 billion in U.S. sales in 2017. We conducted a comprehensive preclinical and clinical program for Xtampza consistent with FDA guidance on abuse-deterrence. These studies and clinical trials demonstrated that chewing, crushing and/or dissolving Xtampza, and then taking it orally or smoking, snorting, or injecting it did not meaningfully change its drug release profile or safety characteristics. By contrast, clinical trials performed by us and others — including head-to-head clinical trials comparing Xtampza with OxyContin OP — have shown that drug abusers can achieve rapid release and absorption of the active ingredient by manipulating OxyContin OP using common household tools and methods commonly available on the Internet. In November 2017, we announced the approval of a Supplemental New Drug Application toAugust 2023, the FDA granted New Patient Population exclusivity for XtampzaNucynta IR in pediatric patients. This grant extended the period of U.S. exclusivity for Nucynta IR from June 27, 2025 to include comparative oral pharmacokinetic data from a recently completed clinical study evaluatingJuly 3, 2026.
We began commercializing the effect of physical manipulation by crushing Xtampza compared with OxyContin OP and a control (oxycodone hydrochloride immediate-release), results from an oral human abuse potential study and the addition of an oral abuse deterrent claim.
In addition, our preclinical studies and clinical trials have shown that the contents of the Xtampza capsule can be removed from the capsule and sprinkled on food or into a cup, and then directly into the mouth, or administered through feeding tubes, without compromising their drug release profile, safety or abuse-deterrent characteristics. By contrast, OxyContin OP, which is formulatedNucynta Products in hard tablets, has a black box warning label stating that crushing, dissolving, or chewing can cause rapid release and absorption of a potentially fatal dose of the active ingredient.
Market Opportunity
We believe that Xtampza can capture a significant share of the $5.0 billion U.S. extended‑release opioid market, including a portion of the existing $1.7 billion OxyContin OP market. In addition, we believe that Xtampza can become a market leader for treating patients with chronic pain who have difficulty swallowing.
12
OxyContin OP Extended‑Release Market
Purdue launched OxyContin OP in 2010. In April 2013, the FDA determined that Purdue had been successful in demonstrating OxyContin OP’s abuse‑deterrent characteristics and permitted Purdue to amend its product label to include certain abuse‑deterrent claims. Since the launch of OxyContin OP, there has been a reduction in the overall abuse of OxyContin, primarily in the snorted and injected routes of administration.
Despite OxyContin OP’s commercial success, it carries with it a well‑documented abuse stigma both for physicians who prescribe it and for patients who use it to treat chronic pain. In a market research study conducted for us in 2013, 35% of patients surveyed who were taking OxyContin OP indicated concern that their friends or family have a negative perception of OxyContin OP. Of the 1,021 patients surveyed in the study, 11% of chronic pain patients responded that they have had their opioid medication stolen, most often from their home, and 76% indicated an interest in switching2018 pursuant to a pain medication similar to OxyContin OP but that was more abuse‑deterrent. A market research study of 30 physicians conducted for us in 2015 concluded that while physicians view OxyContin OPcommercialization agreement (the “Nucynta Commercialization Agreement”) with Assertio Therapeutics, Inc. (formerly known as an effective and valuable option, one third reported prescribing it less often than they would like because of patients’ reticence to use OxyContin OP because of its reputation for addiction and abuse.
Further, in a third party study of post‑marketing data on misuse and diversion of prescription opioid analgesics, the initial decline in abuse of OxyContin OP by patients who reported abusing the non‑abuse‑deterrent OxyContin 30 days prior to entering treatment for opioid abuse disorder, plateaued at 25% to 30%Depomed) (“Assertio”), with no further decreases from 2012 to study conclusion in 2014. A sub‑population of participants was surveyed to investigate their continued abuse of OxyContin. Among the 88 participants who abused both non‑abuse‑deterrent OxyContin and OxyContin OP, their continued abuse of OxyContin OP was explained by: (i) a transition from non‑oral routes of administration to oral use (approximately 43%); (ii) successful efforts to defeat the abuse‑deterrent formulation mechanism leading to a continuation of inhaled or injected use (approximately 34%); and (iii) exclusive use of the oral route independent of formulation type (approximately 23%). Representative comments of participants who continued to abuse OxyContin OP demonstrated that participants were able to identify methods of circumventing the abuse deterrent properties using the internet.
Other Extended‑Release Opioids
While OxyContin OP is the largest selling extended‑release opioid in the United States by dollars in 2017, there are approximately 18 million additional prescriptions for non‑abuse‑deterrent extended‑release opioids annually in the United States. Many of these opioids include active ingredients, such as morphine, that are commonly perceived as having greater adverse side effects than oxycodone‑based formulations. Because of the abuse stigma associated with OxyContin OP and non‑abuse‑deterrent opioid formulations, we believe that Xtampza offers physicians treating chronic pain an attractive alternative to the existing options. Our market research also demonstrates that payors recognize the prevalence of opioid abuse and its corresponding economic burden. This research indicates that “brand” prices would be acceptable for products that are differentiated. As such, we aim to achieve broad Tier 3 payor coverage on commercial plans and contract with Medicare and Medicaid. In a market research study conducted for us, 83% of disease specialists (such as oncologists and neurologists) and 67% of pain specialists surveyed indicated that they would prescribe Xtampza for patients without dysphagia.
Chronic Pain with Dysphagia
In a market research survey conducted for us, of 1,021 patients with chronic pain, 30% of the patients reported that they have trouble swallowing or do not like to swallow pills, and 65% of the patients did not realize that cutting, crushing or grinding extended‑release opioids can change the drug release profile. Most of the currently approved abuse‑deterrent opioid drugs do not have an FDA product label that permits the sprinkling of the product on food or into a cup, and then directly in the mouth and administration through feeding tubes for use by patients with CPD, creating an unmet medical need due to the lack of adequate treatment options. Further, in an effort to make them easier to swallow, some patients with CPD — and 47 of the 1,021 patients participating in the survey conducted for us — crush their prescribed extended‑release opioids and can inadvertently harm themselves because of the rapid immediate‑release of the active ingredient. Because our Xtampza microspheres are designed to be able to be removed from the capsule and still retain their abuse‑
13
deterrent and extended‑release properties, we believe that Xtampza is an effective pain‑management solution for patients with CPD.
Nucynta ER and Nucynta IR
In December 2017, we entered into a Commercialization Agreement with Depomed, pursuant to which Depomed agreed to grantAssertio granted us a sublicense of certain of its intellectual property related to the Nucynta Products for commercialization of such products in the United States, the District of Columbia and Puerto Rico. On January 9, 2018,States. In February 2020, we amended the Commercialization Agreement and consummated the transactions contemplated thereby.
Nucynta ER is an extended release formulation of tapentadol that is indicated for the management of pain severe enough to require daily, around‑the‑clock, long term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy in adults, and for which alternate treatment options are inadequate. Nucynta IR is an immediate release formulation of tapentadol that is indicated for the management of moderate to severe acute pain in adults.
Pursuantacquired additional assets related to the Commercialization Agreement, weNucynta Products from Assertio and assumed all commercialization responsibilities, including sales and marketing, for the Nucynta Products while Depomed continuesthrough the acquisition of a license from Grünenthal Gmbh (the “Grünenthal License” and such acquisition, the “Nucynta Acquisition”). Upon closing the Nucynta Acquisition, the Nucynta Commercialization Agreement and our prior royalty obligation to control manufacturingAssertio ceased; our only remaining royalty obligation is to pay royalties directly to Grünenthal Gmbh based on net sales of the Nucynta Products.Products under the Grünenthal License.
Belbuca and Symproic
On March 22, 2022, we 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 BDSI Acquisition, we acquired Belbuca and Symproic.
Belbuca is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA in October 2015 for severe and persistent pain that requires an extended treatment period with a daily opioid analgesic and for which alternative options are inadequate. Symproic was approved by the FDA in March 2017 for the treatment of opioid-induced constipation (“OIC”) in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g., weekly) opioid dosage escalation. We began shipping and recognizing product sales related to Belbuca and Symproic in March 2022.
Pain, Pain Management, and Opioid Abuse in the United States
Acute and Chronic Pain
Pain can be classified along many different variables, including severity, duration and etiology. There are two broad categories of pain based on duration: acute pain, or pain that is self-limited and generally requires treatment for no more than up to a few weeks, and chronic pain, or pain that lasts beyond the Nucynta Products on January 9, 2018. We began commercial promotionhealing of an injury or that persists longer than 3 to 6 months. The overall prevalence of chronic pain among adults in the United States is 20.9%, affecting approximately 51.6 million Americans. Additionally, 6.9% of the Nucynta Products in February 2018. We will pay a royalty to Depomed on all revenuesU.S. adult population, approximately 17.1 million people, suffer from high-impact chronic pain that frequently limits life or work activities.
A 2011 report from the saleInstitute of Nucynta Products based on certain net sales thresholds,Medicine estimated that chronic pain costs the U.S. between $560.0 and $635.0 billion per year in direct medical costs and lost productivity, which does not include the cost of care for institutionalized
4
individuals (e.g., nursing home residents, prisoners), military personnel, or children, or the costs associated with caregiving. The estimated annual costs of chronic pain exceed the costs for heart disease, cancer, and diabetes.
Role of Prescription Opioids in the Treatment of Pain
Prescription opioids continue to serve as important tools in the treatment of acute and chronic pain where alternative treatments have been inadequate. Prescription opioids are available in immediate-release formulations as well as in long-acting/extended-release formulations, which incorporate a time-release mechanism designed to deliver steady amounts of opioid, typically over 12 to 24 hours. Extended-release opioids are designed to offer more convenient dosing with a fixed annual minimum royalty during the first four yearslonger period of consistent blood levels of the Commercialization Agreement,active drug as compared to immediate-release formulations.
In 2023, there were approximately 139.7 million prescriptions for opioids written in the United States, representing a 3.8% decline from 2022 levels and including approximately 13.6 million prescriptions for long-acting/extended-release opioids, and approximately 126.1 million prescriptions for immediate-release opioids. After marked increases in opioid prescriptions from 2000 to 2015, prescriptions decreased each year since 2015, correlating with rising awareness of the extent and impact of the opioid crisis. However, prescription levels in 2020 returned to levels similar to those seen in the year 2000, when 143.8 million prescriptions for opioids were written in the United States, including 11.4 million prescriptions for extended-release opioids and 132.4 million prescriptions for immediate-release opioids.
Increasingly, practitioners and regulators are focusing on multidisciplinary, multimodal approaches to pain management, including exercise, physical therapy and psychotherapy, and opioid and non-opioid medications. Recognizing the role that opioid therapy continues to play in effective management of moderate to severe pain in appropriate patients, these groups are advocating for best practices that support appropriate opioid prescribing to help mitigate the risks of abuse, addiction and other adverse events associated with prescription opioids.
Prescription Opioid Abuse in the United States
Prescription opioids of all kinds, including both immediate-release and extended-release formulations, are subject to certain conditions.manipulation, diversion, misuse, and abuse. Besides their accepted uses for analgesia, opioids produce a general sense of well-being or euphoria by reducing tension, anxiety, and aggression. These effects contribute to the attractiveness of opioids for abuse and, indeed, the U.S. Centers for Disease Control and Prevention (“CDC”) has described abuse of prescription drugs in the United States as a vast and deadly epidemic. The beginning of the opioid overdose epidemic in the late 1990s was marked by a rise in prescription opioid overdose deaths. For a variety of reasons, heroin use began increasing in the mid-2000s, and had surpassed prescription opioids as a cause of opioid-related overdose by 2016. Meanwhile, the predominant opioid cause of death in 2018 involved synthetic opioids other than methadone. While opioid-related overdose deaths declined slightly in 2018 (in contrast to the sharp increases during 2014 to 2017), the number of drug overdose deaths was still four times higher in 2018 than in 1999.
Despite heightened awareness of the risks associated with opioid use, abuse of prescription opioids, including extended-release formulations, continues to be a public health issue. In 2022, 8.9 million, or 3.2% of people aged 12 and older, reported opioid misuse in the prior year as collected by the National Survey on Drug Use and Health sponsored by the Substance Abuse and Mental Health Services Administration (“SAMHSA”). In 2021, the number of reported deaths involving prescription opioids totaled 16,706, worsening from 2019 levels.
Onsolis
Extended-release opioids may be especially attractive to people who abuse opioids because, if the extended-release mechanism can be defeated through tampering, many extended-release products quickly deliver a relatively large amount of active pharmaceutical ingredient (“API”) (i.e., an effect known as “dose dumping”). By manipulating these products, people who abuse opioids achieve a more intense euphoria as a result of rapid increases in the blood concentration of the API.
In May 2016, we licensedresponse to issues surrounding abuse of prescription opioids, pharmaceutical companies have developed novel, abuse-deterrent formulation strategies. Abuse-deterrent formulations, including the DETERx platform that is incorporated in Xtampza ER, target the known or expected routes of abuse, such as crushing in order to snort or dissolving in order to inject, for the specific opioid drug substance. The FDA has encouraged the development of prescription opioids with abuse-deterrent formulations to help combat the opioid crisis, and expanding access to abuse deterrent formulations is part of the FDA’s comprehensive Opioids Action Plan. These technologies, however, do not eliminate the possibility of
5
misuse and abuse. Moreover, no abuse deterrence technology, including DETERx, is able to deter the most common form of abuse—swallowing a number of intact capsules or tablets to achieve a feeling of euphoria.
Legislative and Regulatory Actions
In response to widespread prescription opioid abuse, the U.S. rightsgovernment and a number of state legislatures enacted new legislation and regulations intended to developfight the opioid epidemic. At the federal level (in addition to the DEA and commercialize Onsolis from BioDelivery Sciences International, Inc.FDA efforts discussed elsewhere in this Annual Report on Form 10-K), or BDSI. Onsolis is a Transmucosal Immediate-Release Fentanyl film indicatedin 2016 the CDC issued clinical practice prescribing guidelines intended to reduce opioid-related harms by encouraging primary care physicians to limit the amount of morphine milligram equivalents (“MMEs”) that they prescribe for chronic pain patients. On November 4, 2022, the CDC released updated guidance on prescribing opioids for pain. The 2022 prescribing guidelines replaced the 2016 guidelines but retained their principles for prescribing opioids for chronic pain. The updated CDC guidelines note that although opioids should not be considered first-line therapy for pain management, of breakthrough pain in cancerthis does not mean that patients 18 years of ageshould be required to sequentially fail nonpharmacologic and older, who are already receiving and who are tolerantnonopioid therapy before proceeding to opioid therapy, but rather the expected benefits specific to the clinical context should be weighed against risks before initiating therapy.
In addition to CDC, the Department of Health and Human Services (“HHS”), and the Department of Veterans Affairs and the Department of Defense (“VA-DoD”) issued clinical practice guidelines in 2017 and updated most recently in 2022 for their underlying persistent cancer pain. In December 2017, after a reviewthe evaluation and management of our product portfolio, we provided written notice to BDSIcare for patients with chronic pain who are on or being considered for opioid treatment. These guidelines are grounded in patient-centered care and the 2022 update provides algorithms for determining the appropriateness of terminationopioids for chronic pain, determining the initiation of opioids, and maintaining, tapering, discontinuing or switching from full agonist opioid treatment.
While much, if not most, of the Licensestate level efforts have focused primarily on increasing people’s access to substance abuse treatment and Development Agreement dated May 11, 2016,harm reduction measures, some initiatives more directly impact manufacturers and distributors of prescription opioid products; these laws include requirements that manufacturers fund statewide drug take-back programs or pay opioid-specific taxes or “impact fees” and laws that limit the License Agreement, which termination will be effective pursuantamount of opioid products that a physician may prescribe. Recent years have also seen a variety of proposed and enacted laws and regulations at the federal, state and local level intended to reduce, or limit increases in, pharmaceutical prices, including prescription drug price disclosure laws. Other jurisdictions may enact similar or novel measures intended to reduce or constrain the growth of pharmaceutical spending or otherwise impose policy measures (either opioid-specific or applicable to the terms of such agreement on March 8, 2018. Upon such termination of the License Agreement,pharmaceutical industry as a whole) that could increase our rights to develop and commercialize Onsolis will revert to BDSI.operating costs associated with compliance.
Manufacturing of DETERxOur Products and Product Candidates
Overview
Xtampza and our product candidates created with our DETERx technology platform areER is manufactured using a proprietary process. This process is reproducible, scalable, and cost‑efficient,cost-efficient, and we believe that the microsphere formulation — and the related manufacturing process — is unique in the extended‑releaseextended-release opioid market.
To date, we have produced Xtampza atER through a contract manufacturing organization, Patheon. The existing Patheon, facility has the capacitya subsidiary of Thermo Fisher Scientific, pursuant to support our commercialization of Xtampza during the first several years after commercial launch. We are working with Patheon to builda third-party supply agreement. Our microsphere production is currently conducted in a dedicated manufacturing capacity at Patheon’s existing facility.suite as we transitioned the microsphere production to the new suite in 2021. Patheon has an established record of manufacturing FDA-approved products approved in the United States, including products containing controlled substances.
We own all of the intellectual property, including know‑howknow-how and specialized manufacturing equipment, necessary to be able to replicatequalify the manufacturing equipment currently located at Patheon’s facility at an alternative location (and with an alternative vendor) if necessary.
Drug Substances
The active ingredient usedNucynta Products are manufactured pursuant to supply agreements with third-party manufacturers. Nucynta ER was historically produced by Janssen at a facility in Xtampza, oxycodone base, is an odorless white crystalline powder. We currently procure this active ingredientPuerto Rico pursuant to a supply agreement that we assumed from Assertio in connection with the Nucynta Acquisition. In September 2022, we completed the transfer of the Nucynta ER manufacturing process through a single U.S.‑based manufacturer. If our current suppliertechnology transfer program to enable manufacturing of Nucynta ER at Patheon in Cincinnati, Ohio. Nucynta ER is currently manufactured by Patheon. Nucynta IR is manufactured by Halo Pharmaceutical, Inc. in Whippany, New Jersey.
14
Belbuca and Symproic are manufactured pursuant to supply agreements with third-party manufacturers. Belbuca laminate (i.e., bulk product) is produced by Adhesives Research in Glen Rock, Pennsylvania. Belbuca laminate is then sent to either LTS Therapy Systems (formerly Tapemark) in St. Paul, Minnesota or Sharp Packaging Solutions in
unable to supply oxycodone base in
Allentown, Pennsylvania where it is converted into individual dosage units and, ultimately, into finished goods. For the quantities and at the times we require it,Belbuca product portfolio, we are aware of other suppliers who we would expectcurrently qualifying alternate bulk and secondary packaging operations at our existing manufacturer’s sites. Symproic is manufactured by UPM Pharmaceuticals in Bristol, Tennessee and packaged by Sharp Packaging Solutions in Allentown, Pennsylvania.
Drug Substances
The API used to be able to satisfyformulate the products in our commercial orders.portfolio and DEA drug scheduling are as follows:
| | | | |
Product | | API | | DEA Drug Schedule |
Xtampza ER | | Oxycodone | | Schedule II |
Nucynta IR | | Tapentadol | | Schedule II |
Nucynta ER | | Tapentadol | | Schedule II |
Belbuca | | Buprenorphine | | Schedule III |
Symproic | | Naldemedine | | Not a controlled substance |
Oxycodone, base istapentadol, and buprenorphine are classified as a narcotic controlled substancesubstances under U.S. federal law. Xtampza is,ER and we expect that our product candidates will be,the Nucynta Products are classified by the U.S. Drug Enforcement Administration, or DEA as Schedule II controlled substances, meaning that theythese products have a high potential for abuse and dependence among drugs thatbut are recognized as having an accepted medical use. Consequently, we expect thatBelbuca is classified as a Schedule III controlled substance, meaning it has a moderate to low potential for abuse. Due to the controlled substances classification, the manufacturing, shipping, dispensing and storing of our product candidates will bethese products are subject to a high degree of regulation, as described in more detail under the caption “— GovernmentalGovernment Regulation — DEA and Opioid Regulation.”
We currently procure the API used in our products from a sole supplier or limited number of suppliers.
Marketing and Commercialization
We are in the process of commercializing Xtampza and the Nucynta Productscommercialize our products in the United States with a direct sales force. We plan to explore out‑licensing partnerships for Xtampza in other international markets, such as Canada, Australia and Japan, as well as countries in Latin America and Europe.
The members of our management team who are leading the commercialization of Xtampza and the Nucynta Products have substantial experience in pharmaceutical sales and marketing. We have a dedicated field sales force, consisting of approximately 131110 sales professionals,representatives and managers, to call on the approximately 11,000 physicians10,000 health care professionals who write approximately 58%66% of the branded extended‑release oralextended-release opioid prescriptions in the United States, with a primary focus on pain specialists. In addition, we deploy a focused sales force of approximately 14 specialty sales representatives to call on hospitals. In addition, we employ medical sales liaisons, or MSLs, to respond to clinician inquiries about Xtampza. We also employ a market‑accessmarket-access team to support our formulary approval and payor contracting.
We are continuing to execute our commercialization strategy with the input of key opinion leaders in the field of pain management, as well as healthcare practitioners. We have developed positioning and messaging campaigns, a publication strategy, initiatives with payor organizations, and distribution and national accounts strategies. Our marketing strategy includesfocuses on increasing awareness of the differentiated features of Xtampzaour products. As an integral part of educating clinicians regarding the properties and differentiated profiles of our products, our sales force is trained to share information relating to significant risks associated with prescription opioids, including risks relating to addiction, abuse, and misuse.
We primarily sell our products to wholesalers that, in turn, distribute our products to retail outlets (such as drug store and supermarket chains and independent pharmacies), managed health care organizations and government agencies. Customers in the Nucynta Productsmanaged health care market include health maintenance organizations, nursing homes, hospitals, clinics, pharmacy benefit management companies and increasing awareness of solutions for patients with CPD who require or would benefit from extended‑release opioids.mail order customers.
Intellectual Property
We regard theThe protection of patents, designs, trademarks and other proprietary rights that we own or license asis critical to our success and competitive position. Our patent portfolio directed toward Xtampza and our DETERx technology consists ofER is protected by twelve issued patents in the United States (seven of which claim compositions of matter, three of which claims(which cover both compositions of matterthe abuse-deterrent technology and methods of use, and two that claim methods of use)using it to treat patients), one granted and two pending applications in the European Patent Office, two issued patents in Canada, and one issued patent in each of Japan and Australia. Finally, we have six patent applications pending in the United States, one pending patent application in each of Canada and Japan, and one pending PCTPatent Cooperation Treaty (“PCT”) application. Our issued U.S. patents are projected to expire in 2023, 2025, 2030, and 2036 and our pending patent applications in the United States, if issued, would be projected to expire in 2023, 2025, 2030 and 2036. In addition, we use a unique and proprietary process to manufacture our products that requires significant know‑how, which we currently protect as trade secrets.
Our policyNucynta IR is protected by one issued patent in the United States (which covers both the drug substance and drug product) that is projected to patentexpire in 2025. Nucynta IR is also covered by New Patient Population exclusivity in
7
pediatric patients that is projected to expire in 2026. Nucynta ER is protected by four issued patents in the technology, inventions and improvements that we consider important toUnited States (which cover the development of our business, but only in those cases in which we believe that the costs of obtaining patent protection is justified by the commercial potentialdrug substance, drug product, certain characteristics of the technology,dosage form, and typically onlymethods of treating patients) that are projected to expire in those jurisdictions2024, 2025, and 2028. Belbuca is protected by three issued patents in the United States (which cover a method of treating patients) that we believe present significant commercial opportunitiesare projected to us. expire in 2027 and 2032.
We have concluded that some of our technology is best protected as proprietary know‑how,know-how, rather than through obtaining patents. In some cases, we publishExcept for licenses from Grünenthal GmbH to commercialize the invention such that it becomes prior artNucynta Products in order for usthe United States and its territories, and a license from Shionogi to secure freedom to operatecommercialize Symproic in the United States and to prevent a third party from patenting the invention before us. Ourits territories, our technology and products are not in‑licensedin-licensed from any third party, and we own all of the rights to Xtampza and our
15
product candidates.ER. We believe we have freedom to operate in the United States and other countries, but there can be no assurance that other companies, known and unknown, will not attempt to assert their intellectual property against us.
We also rely on trademarks and trade designs to develop and maintain our competitive position. We have received trademark registration for Collegium Pharmaceutical, Inc., DETERx, and Xtampza ER in the United States.States, and acquired trademarks associated with the Nucynta Products in connection with the Nucynta Acquisition and Belbuca and Symproic in connection with the BDSI Acquisition.
We also dependOur business depends upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors. To help protect our proprietary know‑howknow-how that is not patentable, we rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we generally require our employees, consultants and advisors to enter into confidentiality agreements prohibiting the disclosure of confidential information and, in some cases, requiring disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. Additionally, these confidentiality agreements require that our employees, consultants and advisors do not bring to us, or use without proper authorization, any third party’s proprietary technology.
Our StrategyCompetition
Our goal is to become the leader in responsible pain management by developing and commercializing innovative, differentiated products for patients suffering from pain. Key elements of our strategy to achieve this goal are to:
|
|
|
|
|
|
|
|
|
|
Our commercialization strategy for our products continues to evolve, and as part of that evolution, we are developing positioning and messaging campaigns, a publication strategy, initiatives with payor organizations, and distribution and
16
national accounts strategies.
Competition
Our industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. We face competition and potential competition from a number ofseveral sources, including pharmaceutical and biotechnology companies, generic and branded drug companies, drug delivery companies and academic and research institutions. However, our primary source of competition stems from the generic opioid market, including both long-acting/extended-release and immediate-release opioid drugs. Most of the existing and potential competitors have significantly more financial and other resources than we do.
Xtampza
Currently, the only opioid drugs on the market for chronic pain relief that have an abuse‑deterrent product label are OxyContin OP and Hysingla®, both from Purdue, Embeda from Pfizer, MorphaBond ER from Inspirion Delivery Technologies and Arymo ER from Egalet. Hysingla is a once a day hydrocodone product. Embeda is a combination of morphine and naltrexone, an opioid antagonist that can be sprinkled on soft food but contains a boxed warning on its product label stating that “the capsules are not to be crushed, dissolved, or chewed due to the risk of rapid release and absorption of a potentially fatal dose of morphine.” MorphaBond ER is a twice daily morphine product formulated with a hard tablet and gelling polymers. Arymo is an extended-release morphine product formulated as a hard tablet.
In addition, there are five other approved extended-release opioids that have abuse deterrent product labeling, Vantrela ER from Teva, Targiniq from Purdue and Troxyca ER from Pfizer, none of which are currently on the market. Vantrela ER is a twice daily hydrocodone product. Targiniq is a combination of oxycodone and naloxone, an opioid antagonist. Troxyca ER is a combination of oxycodone and naltrexone, an opioid antagonist. A number of other large and small companies are developing abuse deterrent drugs for chronic pain. Many other companies have products for the treatment of chronic pain which do not have abuse-deterrent claims in their labels, including Pernix and Mallinckrodt, as well as several generic companies.
We believe the key competitive factors that will affect the development and commercial success of our products include the therapeutic efficacy, convenience of dosing and product candidates include theirdistribution and, in the case of Xtampza ER, the degree of abuse deterrence bioavailability, therapeutic efficacy, and convenience of dosing and distribution,competing products, as well as their safety, cost and tolerability profiles. Xtampza may also face competition from commercially available generic and branded extended‑release and long‑acting opioid drugs other than oxycodone, including fentanyl, hydromorphone, oxymorphone and methadone, as well as opioids that are currently in clinical development, including a generic version of Xtampza ER for which Teva recently submitted an Abbreviated New Drug Application, or ANDA, to the FDA and which is the subject of patent infringement litigation filed by us in February 2018.
Xtampza competes against all extended‑release opioids, including Purdue’s OxyContin OP for the treatment of patients experiencing pain severe enough to require around-the-clock, long-term analgesia. Although no generic oxycodone extended‑release products are currently commercially available, it is possible that generic forms of OxyContin OP could become available, in which case Xtampza would compete with any such generic oxycodone extended‑release products.
Additionally, we are aware of companies with abuse‑deterrent oxycodone product candidates in late-stage development, including Egalet, Intellipharmaceutics, Nektar Therapeutics and Pain Therapeutics. If these products are successfully developed, approved for marketing and become commercially available, they could represent significant competition for Xtampza. It is also possible that a company that has developed an abuse‑deterrent technology could initiate an abuse‑deterrent oxycodone program at any time.
Nucynta
Nucynta ER competes against other long-acting opioid medications, including among others: OxyContin; Butrans; Belbuca; and Embeda.
Nucynta IR competes primarily against short-acting opioids used for the management of moderate to severe acute pain in adults. There are numerous such medicines, including, among others: generic hydrocodone acetaminophen; generic oxycodone; generic oxycodone acetaminophen; and generic tramadol.
17
Government Regulation
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The FD&CFederal Food, Drug, and Cosmetic Act and other federal and state statutes and regulations govern among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post‑approvalpost-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, withdrawal of the product from the market, injunctions, fines, civil penalties, and criminal prosecution. Failure to meet FDA requirements for approval would also result in a medication not being approved for marketing.
The process of developing a pharmaceutical product and obtaining FDA approval to market the medication in the United States typically involves:
● |
| completion of preclinical laboratory and animal testing and formulation studies in compliance with the FDA’s good laboratory practices |
8
● |
| submission to the FDA of an |
● |
| approval by an independent institutional review board, |
● |
| performance of adequate and |
● |
| satisfactory completion of an FDA |
● |
| submission to the FDA of a NDA or, in the case of a generic drug, an |
● |
| satisfactory completion of a |
● |
| FDA review and approval of the |
Satisfaction of FDA pre‑marketpre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the application type, complexity, and novelty of the product or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation, stability and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product.product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLPs. The results of preclinical testing are submitted to the FDA as part of an IND application along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long‑termLong-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND application is submitted.
The IND automatically becomes effective 30 days after receipt by FDA unless, within the 30‑day time period, the FDA raises concerns or questions relating to one or more proposed clinical trials and places the clinical trial on hold, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or subjects under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations includingand GCP, an international standard meant to protectfor the design, conduct, performance, monitoring, auditing, recording, analyses, and reporting of clinical trials that provides assurance that the data and reported results are credible and accurate, and that the rights, safetyintegrity, and wellbeingconfidentiality of trial subjects and to define the
18
roles of clinical trial sponsors, administrators, and monitors;are protected; and (ii) under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and any effectiveness criteria to be evaluated. Each protocol involving testing on U.S. subjects and subsequent protocol amendments must be submitted to the FDA as part of the IND.
GCP requirements include that all research subjects provide their informed consent in writing for their participation in any clinical trial. An independent IRB for each site proposing to conduct the clinical trial must review and approve the informed consent information as well as the clinical trial protocol before the trial commences at that site, and must monitor the study until completed. The FDA or the IRB may order the temporary or permanent discontinuation of a clinical trial at any time and on various grounds, particularly upon the belief that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial subjects, or impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap or be combined. In
● | Phase 1: This phase includes the initial introduction of an investigational new drug into patients or healthy volunteer subjects. These studies are typically closely monitored and designed to determine the metabolism and pharmacological actions of the drug in humans, the side effects associated with increasing doses, and, in some cases, early evidence of effectiveness. |
● | Phase 2: This phase includes well-controlled, closely monitored studies conducted in a relatively small number of patients (typically no more than several hundred patients) to assess effectiveness of the drug for particular indication(s) in patients with the diseases or condition under study as well as to determine the common short-term side effects and risks associated with the drug. |
● | Phase 3: This phase includes expanded controlled and uncontrolled trials which are performed after preliminary evidence suggesting effectiveness of the drug has been obtained. These studies typically include several hundred to several thousand patients and are conducted to gather additional information about the effectiveness and safety of the drug in order to evaluate the overall risk-benefit relationship and provide an adequate basis for labeling. |
For opioid products designed to deter abuse, FDA guidance regarding studies and clinical trials dictates what types of studies should be conducted to demonstrate abuse-deterrence, how those studies and clinical trials will be evaluated, and what product labeling claims may be approved based on the results of those studies and clinical trials. There are four categories of abuse-deterrence studies and clinical trials: Categories 1, the drug is initially introduced into healthy human subjects or patients,2 and is tested3 consist of pre-marketing studies and clinical trials designed to evaluate a product candidate’s abuse potential under controlled conditions, while Category 4 studies analyze post-market data to assess safety, dose tolerance, absorption, metabolism, PK, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidencethe impact of abuse-deterrent properties on effectiveness. Phase 2 usually involves trials in a limited patient population to determineactual abuse. The final guidance also provides examples of product label claims that may be made based on the effectivenessresults of the drug for a particular indication, dosage tolerance,corresponding studies and optimum dosage, and to identify common AEs and safety risks. Multiple Phase 2 trials may be conducted by the sponsor to obtain information prior to beginning larger and more extensive Phase 3 clinical trials. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of subjects, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit‑risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial with other confirmatory evidence may be sufficient in rare instances where the clinical trial is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible. Sponsors of clinical trials generally must register and report key parameters of certain clinical trials at the NIH‑maintained website ClinicalTrials.gov.
9
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. The FDA approvalconducts a preliminary review of all NDAs within the first 60 days after submission before accepting them for filing. Pursuant to agreements reached during reauthorization of the NDA is required before marketingPrescription Drug User Fee Act (“PDUFA”), the FDA has a goal of acting on most original NDAs within six months or ten months of the product may begin inapplication submission or filing date, depending on the United States. The NDA must includenature of the results of all preclinical, clinical,drug and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee and the manufacturer and/or sponsor under an approved new drug application are also subject to annual product and establishment user fees. These fees are typically increased annually.
type. The FDA has 60 days from its receipta number of an NDAprograms intended to determine whether the application will be accepted for filing based on the agency’s threshold determinationhelp expedite testing, review, and approval of drug candidates that it is sufficiently complete to permit substantive review. Rather than accept an NDA for filing, then FDA may request additional information. In this event, the NDA must be resubmitted with the additional information and may be subject to payment of additional user fees. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in‑depth substantive review.meet certain eligibility criteria. The FDA has established certain performance goals for the review of new drug applications. The agency endeavors to review applications for standard review drug products within 10 to 12 months of the acceptance for filing, and aims to review applications for drugs granted priority review, which may apply to drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists, within six to eight months. The review process for both standard and priority review may be extended by FDA for three additional months to consider certain late‑submitted information, or information intended to clarify information already provided in the submission.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy,effectiveness, to an advisory committee — typically a panel that includes clinicians and other experts — for review, evaluation, and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. In addition, before approving an NDA,
If the FDA will typically inspect one or more clinical sites to assure compliance with
19
GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
After the FDA evaluates the NDA and of the sponsor’s manufacturing facilities it issues either an approval letter or a complete response letter to indicate that the review cycle for an application is complete and that the application is not ready for approval. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA may ultimately decide that an application does not satisfy the regulatory criteria for approval. If, and when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA,are favorable, the FDA will issue an approval letter.letter, and the sponsor may begin marketing the drug for the approved indications, subject to any post-approval requirements, described further below. If the FDA determines it cannot approve the NDA in its current form, it will issue a complete response letter indicating that the application will not be approved in its current form. The complete response letter usually describes the specific deficiencies that the FDA has committedidentified in the application and may require additional clinical or other data or impose other conditions that must be met in order to reviewing such resubmissions in two or six months depending on the type of information included.
Anobtain approval letter authorizes commercial marketing of the drug with specificNDA. After receiving a complete response letter, the applicant may resubmit the application addressing all deficiencies in the letter or withdraw the application. Addressing the deficiencies noted by the FDA can be costly and can result in significant delays prior to approval. Moreover, even if the applicant believes it has addressed the deficiencies, it is possible that approval may not ultimately be obtained.
Where a sponsor wishes to expand the originally approved prescribing information, for specific indications. Changes to certain of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submissionsuch as by adding a new indication, it must submit and FDAobtain approval of a new NDA or NDA supplement before the changesNDA. Changes to an indication generally require additional clinical studies, which can be implemented, which maytime-consuming and require usthe expenditure of substantial additional resources. Under PDUFA, the target timeframe for the review of a sNDA to develop additional data or conduct additional preclinical studies and clinical trials. An NDA supplement foradd a new clinical indication typically requires clinical data similar to that inis six or ten months from the original application, andreceipt date, depending on whether or not the sNDA has priority review. As with an NDA, if the FDA uses similar procedures and actionsdetermines that it cannot approve a sNDA in reviewing NDA supplementsits current form, it will issue a complete response letter as it does in reviewing NDAs.discussed above.
REMS
The FDA has the authority to require a Risk Evaluation and Mitigation Strategy or REMS,(“REMS”), either as a condition of the approval of an NDA or after approvalapproval. A REMS is a program to manage known or potential serious risks associated with a drug product and may be required by the FDA to ensure that the benefits of a drug outweigh its risks. In determining whether a REMS is necessary, the FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events, and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary for a new drug, the drug sponsor must submit a proposed REMS plan as part of its NDA prior to approval. The FDA may also impose a REMS requirement on a drug already on the market if the FDA determines, based on new safety information, that a REMS is necessary to ensure that the drug’s benefits continue to outweigh its risks. A REMS can include medication guides, communication plans for healthcare professionals, and Elements To Assure Safe Use or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries.(“ETASU”). In addition, the REMS must include a timetable tofor periodically assessassessing the strategy, at a minimum, at 18 months, three years, and seven years after the REMS approval. The requirement for a REMS can materially affect the potential market and profitability of a drug.
In February 2009,July 2012, the FDA informed manufacturers of certainapproved a class-wide REMS for extended-release and long-acting opioid products that it would require a REMS for their opioid drug products. Subsequently, the FDA initiated efforts to develop a new standardized REMS for these opioid medications to ensure their safe use, and in July 2012, approved a class‑wide REMS for extended‑release and long‑acting opioid products. Extended‑release(Opioid Analgesic REMS). Extended-release formulations of oxycodone, morphine, hydrocodone and hydromorphone, for example, are required to have a REMS. The goal of the Opioid Analgesic REMS is to educate prescribers and other healthcare providers (including pharmacists and nurses) on the treatment and monitoring of patients with pain. Manufacturers subject to this class‑wideclass-wide REMS must work together to implement the REMS as part of the Opioid Analgesic REMS Program Companies ("RPC"), which is a collaboration of drug product companies to implement a single shared systemREMS to reduce the burden of the REMS on the healthcare system.system accessed from the RPC REMs website. The content on this website is determined by, hosted on behalf of, and is financially supported by the RPC. The central component of the extended release/long actingextended-release/long-acting opioid REMS program is an education program for prescribershealthcare providers who prescribe, and patients.healthcare providers involved in the treatment and monitoring of patients who receive opioid analgesics. Specifically, the REMS includes a product-specific Medication Guide and the Patient Counseling Guide available for distribution to patients who are dispensed the drug, as well as a number of ETASU. These ETASU include trainingREMS-compliant accredited continuing education for healthcare professionalsproviders, which includes all healthcare providers who prescribe or are involved in the drug;management of patients with pain; information provided to prescribers that they can use
10
to educate patients in the safe use, storage, and disposal of opioids; and information provided to prescribers ofabout the existence of the REMS and the need to successfullystrong recommendation that they complete the necessaryavailable training. Prescriber training required to be offered as part of the REMS is conducted by accredited, independent continuing education providers, without cost to healthcare professionals, under unrestricted grants funded by the opioid analgesic manufacturers. Moreover, REMS assessments must be submitted on an annual basis to assess the extent to which the ETASU are meeting the goals of the REMS and whether the goals or elements should be modified.
As part of the FDA’s OpioidIn September 2018, and pursuant to its Opioids Action Plan, the agency intendsFDA approved the final class-wide REMS, which includes several measures to update the extended-release and long-acting opioid REMS after having evaluated existing requirements and considered recommendations from the joint meetingfacilitate communication of the Drug Safetyrisks associated with opioid pain medications to patients and Risk Management Advisory Committee and the Anesthetic and Analgesic Drug Products Advisory
20
Committee on May 3-4, 2016. The recommendations from that meeting included: extending training to other health care professionalsprofessionals. For the first time, FDA notified companies that have NDAs or ANDAs for certain opioid analgesic drug products (“NDA/ANDA holders”) of the elements required for a single REMS for opioid analgesic products, whether branded or generic. The REMS requires that training be made available to health care providers who are involved in the management of patients with pain; expandingpain (including nurses and pharmacists) and requires that the education cover broad information about appropriate pain management, including alternatives to opioids for the treatment of pain. In connection with the 2018 REMS, requirements to include the immediate-release opioid analgesic drug manufacturers; and evaluatingFDA also approved new product labeling containing information about the best approach to implementing mandatory prescriberhealth care provider education on pain management.available through the 2018 REMS.
Advertising and Promotion
The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among other things, standardsguidance and regulations for direct‑to‑consumerdirect-to-consumer advertising, communications regarding unapproved uses, industry‑sponsoredindustry-sponsored scientific and educational activities, and promotional activities involving the Internet.internet. A product cannot be commercially promoted before it is approved. After approval, product promotion can include only those claims relating to safety and effectivenessefficacy that are consistent with the labeling approved by the FDA. Healthcare providers are permitted to prescribe drugs for “off‑label”“off-label” uses — that is, uses not approved by the FDA and therefore not described in the drug’s labeling — because the FDA does not regulate the practice of medicine. However, FDA regulations impose stringent restrictions on manufacturers’ communications regarding off‑labeloff-label uses. Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse publicity and enforcement action by the FDA, the U.S. Department of Justice, or the Office of the Inspector General of the HHS, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products.
Fast Track DesignationPost-Approval Requirements
The FDA has various programs to facilitate the development and expedite the review of drugs that are intended for the treatment of a serious or life‑threatening condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the Fast Track designation program, the sponsor of a new product candidate may request the FDA to designate the product for a specific indication as a Fast Track product concurrent with or after the submission of the IND for the product candidate. The FDA must determine if the product candidate qualifies for Fast Track designation within 60 days after receipt of the sponsor’s request.
In addition to other benefits, such as the ability to have more frequent interactions with the FDA, the FDA may initiate review of sections of a Fast Track product’s NDA before the application is complete. The FDA’s time period goal for reviewing a Fast Track application does not begin until the last section of the NDA is submitted. In addition, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Post‑Approval Requirements
Once an NDA is approved, a product will be subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to drug listing and registration, recordkeeping, periodic reporting, product sampling and distribution, adverse event reporting and advertising, marketing and promotion restrictions. In addition, the Drug Supply Chain Security Act (“DSCSA”), was enacted in 2013 with the aim of building an electronic system to identify and trace certain prescription drugs and biologics distributed in the United States. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers that culminated in November 2023. The FDA has issued two compliance policy guidances that establish a one-year stabilization period from November 2023 to November 2024 for trading partners to continue to build and validate interoperable systems and processes to meet certain requirements of the DSCSA. The law’s requirements include the quarantine and prompt investigation of a suspicious product, to determine if it is illegitimate, notifying trading partners and the FDA of any illegitimate product, and compliance with product tracking and tracing requirements.
Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require, post‑marketin addition to REMS discussed above, post-market testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration subjects entities to periodic announced or unannounced inspections by the FDA or these state agencies, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals, or request product recalls, or take other punitive action if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered. In addition, other regulatory actions may be taken, including, among other things, warning letters, the seizure of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations, refusal to approve pending applications or supplements to approved applications, civil penalties, and criminal prosecution.
21
As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians. The Prescription Drug Marketing Act, or PDMA, and associated regulations, impose certain recordkeeping and reporting requirements and other limitations on the distribution of drug samples to physicians. The PDMA also requires that state licensing of distributors who distribute prescription drugs meet certain federal guidelines that include minimum standards for storage, handling and record keeping. In addition, the PDMA and a growing majority of states also impose certain drug pedigree requirements on the sale and distribution of prescription drugs. The PDMA sets forth civil and criminal penalties for violations. In 2010, a statutory provision was enacted that required manufacturers and authorized distributors of record to report on an annual basis certain information about prescription drug samples they distributed. The FDA issued a draft compliance policy guide on the reporting requirement. The FDA stated that it would exercise enforcement discretion with regard to companies that have not submitted reports until the FDA finalizes the reporting requirement and/or provides notice that it is revising its exercise of enforcement discretion.
The FDA may require post‑approvalpost-approval studies, including post-marketing surveillance and observational studies and clinical trials, if the FDA finds that scientific data, including information regarding related drugs, deem it appropriate.warrant them. The purpose of such studies would be to collect additional information to assess a known serious risk or signals of serious risk related to the drug or to monitor for or identify an unexpected serious risk when available data indicate the potential for such a serious risk. The FDA may also require a labeling change if it becomes aware of new safety information that it believes should be included in the labeling of a drug. Discovery of previously unknown problems with a drug or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, untitled or warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others.
The Hatch‑WaxmanFDA held a meeting of the Anesthetic and Analgesic Drug Products Advisory Committee on April 19, 2023. The committee discussed post-marketing requirements (“PMRs”) 3033-11, issued to holders of NDAs for extended-release and long-acting opioid analgesics to evaluate long-term efficacy of opioid analgesics and the risk of opioid-induced hyperalgesia. The discussion focused on a clinical trial designed to address these objectives. We participated in this meeting and as a result, the proposed design of study 3033-11, the enriched enrollment randomized withdrawal design was not supported. As part of the Opioid PMR Consortium, Collegium is working with the FDA to redesign study 3033-11.
The Hatch-Waxman Amendments
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whosewith claims that cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors as referenced listed drugs (“RLDs”) in support of approval of an abbreviated NDA, or ANDA. An ANDA provides for marketing of a drug product that has the same active pharmaceutical ingredient in the same strengths and dosage form as the listed drugRLD and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug.RLD. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or efficacy of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to make certain certifications to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method‑of‑usemethod-of-use rather than make certifications concerning a listed method‑of‑usemethod-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non‑patent exclusivity listed in the Orange Book for the referenced product has expired.Exclusivity
Exclusivity
22
Upon NDA approval of an NDA for a new chemical entity or NCE,(“NCE”), which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which time the FDA cannot receive any ANDA seeking approval of a generic version of that drug or any Section 505(b)(2) NDA,
12
discussed in more detail below, that relies on the FDA’s findings of safety and effectiveness regarding thatthe NCE drug. A drugsponsor may obtain a three‑yearthree-year period of exclusivity for a change to thean approved drug, such as the addition of a new indication to the labeling or a new formulation, during which FDA cannot approve an ANDA or any Section 505(b)(2) NDA, if the supplement includes reports of new clinical trials (other than bioavailability clinical trials) essential to the approval of the supplement.
An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period. No ANDA application will receive final approval before any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
Section 505(b)(2) NDAs
Generally, drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a Section 505(b)(2) NDA which enables the applicant to rely, in part, on data not developedis a special type of NDA often used by the applicant, such as the FDA’s findings of safety and efficacy in the approval of a similar product or published literature in support of its application.
Section 505(b)(2) NDAs may provide an alternate path to FDAapplicants seeking approval for new or improved formulations or new uses of previously approved products.active moieties. Under Section 505(b)(2) permitsof the filingFederal Food, Drug, and Cosmetic Act, in lieu of developing all of the information normally required for approval of an NDA, where at least some of the information required for approval comes from clinical trials not conductedan applicant may rely, in part, on data developed by or for, the applicantanother party and for which the applicant has not obtained a right of reference. IfMost commonly, 505(b)(2) applicants rely on the Section 505(b)(2) applicant can establish that reliance on FDA’s previous findings of safety and efficacy is scientifically appropriate, iteffectiveness in a prior approval of a similar product (although they may eliminate the need to conduct certain preclinicalalso rely on information in published literature). A 505(b)(2) application that references a prior approval may seek approval for some or clinical trialsall of the new product. The FDA may also require companies to perform additional clinical trials referenced product’s labeled indications and/or provide additional materials to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for whicha different indication not included in the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.product’s label.
To the extent that the Section 505(b)(2) applicant is relying on the FDA’s findings of safety and effectiveness for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus, approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired; until any non‑patentnon-patent exclusivity such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired; and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant. In the interim period, the FDA may grant tentative approval. Tentative approval indicates that the FDA has determined that the applicant meets the standards for approval as of the date that the tentative approval is granted. Final regulatory approval can only be granted if the FDA is assured that there is no new information that would affect final regulatory/regulatory approval. As with traditional NDAs, a Section 505(b)(2) NDA may be eligible for three‑yearthree-year marketing exclusivity, assuming the NDA includes reports of new clinical trials (other than bioavailability clinical trials) essential to the approval of the NDA. For further detail regarding our litigation with Purdue regarding our Section 505(b)(2) NDA for Xtampza ER, refer to “Item 3. Legal Proceedings”.
DisclosureDEA and Opioid Regulation
Several of Clinical Trial Information
Sponsors of clinical trials of FDA‑regulatedour products including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, clinical trial sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to post certain information regarding the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
DEA Regulation
Our first product, Xtampza, is regulated as a “controlled substance”substances” as defined in the Controlled Substances Act or CSA,(“CSA”), which establishes registration, security, recordkeeping, reporting, storage, distribution, importation, exportation,
23
and other requirements administered by the DEA. The DEA regulates the handling of controlled substances through a closed chain of distribution. This control extends to the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce.
The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Schedule II drugs are those that meet the following characteristics:
|
|
|
|
|
|
|
|
Xtampza an abuse-deterrent oral formulation of oxycodone, is listed byER and the DEA as a Schedule II controlled substance under the CSA. The Nucynta Products are also listed by the DEA as Schedule II controlled substances under the CSA.CSA, while Belbuca is listed as a Schedule III controlled substance. Consequently, the manufacturing, shipping, storing, selling and usinguse of thethese products is subject to a high degree of regulation. Also, distribution and dispensing of these drugs are highly regulated. Schedule II drugs are subject to the strictest requirements for registration, security, recordkeeping, and reporting. Also, distribution and dispensing of these drugs are highly regulated. For example,Further, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist, and may not be refilled without a new prescription.
Annual DEA registration is required for any facility that manufactures, distributes, dispenses, imports, or exports any controlled substance. The registration is specific to the particular location, activity, and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized.
13
The DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirements vary by controlled substance schedule, with the most stringent requirements applying to Schedule I and Schedule II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages, surveillance cameras and inventory reconciliations. Records must be maintained for the handling of all controlled substances, and periodic reports made to the DEA, for example distribution reports for Schedule I and II controlled substances, Schedule III substances that are narcotics, and other designated substances. Reports must also be made for thefts or losses of any controlled substance, and to obtain authorization to destroy any controlled substance. In addition, special permits and notification requirements apply to imports and exports of narcotic drugs.
In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II. Distributions of any Schedule I or II controlled substance must also be accompanied by special order forms, with copies provided toAnnually, the DEA. Because Xtampza is regulated as a Schedule II controlled substance, it is subject to the DEA’s production and procurement quota scheme. The DEA establishes annually an aggregate quota for how much active opioid ingredients, such as oxycodone and tapentadol, may be produced in total in the United States based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. The limited aggregate amount of opioids that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annuallyquarterly to the DEA for individual production and procurement quotas. WeXtampza ER and ourthe Nucynta Products are regulated as Schedule II controlled substances, and thus, are subject to the DEA’s production and procurement quota system. Our contract manufacturers must receive an annuala quarterly quota from the DEA in order to produce or procure any Schedule I or Schedule II substance, including oxycodone base for use in manufacturing Xtampza.Xtampza ER and tapentadol for use in manufacturing the Nucynta Products. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments.
Distributions of any Schedule I or II controlled substance must also be accompanied by special order forms, with copies provided to the DEA.
The DEA also requires drug manufacturers to design and implement a system that identifies suspicious orders of controlled substances, such as those of unusual size, those that deviate substantially from a normal pattern and those of unusual frequency, prior to completion of the sale. A compliant suspicious order monitoring system includes well-defined due diligence, “know your customer” efforts and order monitoring.
To enforce these requirements, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance with applicable requirements, particularly as manifested in loss or
24
diversion, can result in administrative, civil, or criminal enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate administrative proceedings to revoke those registrations. In certain circumstances, violations could result in criminal proceedings.
Individual states also independently regulate controlled substances. We and our contract manufacturers will beare subject to state regulation on the distribution of these products.
International Regulation
Federal laws have been enacted to address the national epidemics of prescription opioid abuse and illicit opioid use. In 2016, the Comprehensive Addiction and Recovery Act (“CARA”), was enacted to address the national epidemics of prescription opioid abuse and heroin use. CARA expands the availability of naloxone for law enforcement and other first responders, forms an interagency task force to develop best practices for pain management with opioid medications and provides resources to improve state monitoring of opioids. The Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (“SUPPORT Act”), which was signed into law in November 2018, includes a number of measures directed towards regulation and improvement of treatment for substance use-disorder and increased coverage by the Centers for Medicare and Medicaid Services (“CMS”) of medically-assisted treatment options. In addition, the SUPPORT Act requires HHS to regulations in the United States, we will be subjectreport to a variety of foreign regulations regarding safetyCongress on existing barriers to access to abuse-deterrent opioid formulations by Medicare Part C and efficacyD beneficiaries.
Healthcare Fraud and governing, among other things, clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and can involve additional product testing and additional review periods, and the time may be longer or shorter than that required to obtain FDA approval and, if applicable, DEA classification. The requirements governing, among other things, the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.
Many foreign countries are also signatories to the internal drug control treaties and have implemented regulations of controlled substances similar to those in the United States. Our products will be subject to such regulation which may impose certain regulatory and reporting requirements and restrict sales of these products in those countries.
Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval. In addition, as with HIPAA in the United States, the collection and use of personal health data in the EU is governed by the EU General Data Protection Regulation (GDPR), with many requirements mandated by the GDPR for the consent of the individuals to whom the personal data relates, the information provided to the individuals, transfer of personal data within and outside of the EU and the security and confidentiality of the personal data. Enforcement of the GDPR is scheduled to begin on May 25, 2018, and failure to comply with the requirements of the GDPR may result in substantial fines and other administrative penalties.
In addition to regulations in Europe and the United States, we will be subject to a variety of foreign regulations governing, among other things, the conduct of clinical trials, pricing and reimbursement and commercial distribution of our products. If we fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Other HealthcareAbuse Laws and Compliance Requirements
In the United States, the research, manufacturing, distribution, sale and promotion of drug products and medical devicesWe are subject to regulation by various federal, state and local authoritieslaws targeting fraud and abuse in additionthe healthcare industry, violations of which can lead to the FDA,civil and criminal penalties, including the Centers for Medicare & Medicaid Services, other divisionsfines, imprisonment and exclusion from participation in federal healthcare programs. These laws are potentially applicable to us as both a manufacturer and a supplier of HHS (e.g., the Office of Inspector General), the DOJ, state Attorneys Generalproducts and they also apply to hospitals, physicians and other state and local government agencies. For example, sales, marketing and scientific/educational grant programs must comply withpotential purchasers of our products. The applicable federal fraud and abuse laws such as the federal Anti‑Kickback Statute, the federal False Claims Act, as amended and similar state laws. In orderapply to participate in the Medicaid program, existing federal law requires pharmaceutical manufacturers to pay rebates to state governments, based on a statutory formula, on covered outpatient drugsproducts or services reimbursed by the Medicaid program as a condition of having their drugs paid forfederal healthcare programs. Some states, however, have applicable fraud and abuse laws that apply more broadly to include products or services reimbursed by Medicaid. Manufacturers are required to report AMP and best price for each of their covered outpatient drugs to the government on a regular basis. Additionally, some state Medicaid programs have imposed a requirement for supplemental rebates over and above the formula set forth in federal law, as a condition for coverage. In addition to the Medicaid Rebate Program, federal law also requires that if a pharmaceutical manufacturer wishes to have its outpatient drugs covered under Medicaid as well as
25
under Medicare Part B, it must sign a “Master Agreement” obligating it to provide a formulaic discount that results in a federal ceiling price, or maximum price that participating manufacturers may charge for covered drugs sold to the U.S. Departments of Defense (including the TRICARE retail pharmacy program), Veterans Affairs, the Public Health Service and the Coast Guard, and also provide discounts through a drug pricing agreement meeting the requirements of Section 340B of the Public Health Service Act, for outpatient drugs sold to certain specified eligible health care organizations. The formula for determining the discounted purchase price under the 340B drug pricing program is defined by statute and is based on the AMP and rebate amount for a particular product as calculated under the Medicaid Drug Rebate Program, discussed above.private payors.
The federal Anti‑KickbackAnti-Kickback Statute (“AKS”) (42 U.S.C. § 1320a-7b(b)) prohibits any person from knowingly and willfully soliciting, receiving, offering or payingproviding remuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers, on one hand, and prescribers, purchasers, and formulary managers, on the other. The term “remuneration”Remuneration is not defined in the federal Anti‑KickbackAnti-Kickback Statute and has been broadly interpreted to include the transfer of anything of value, including for example, gifts, discounts,
14
coupons, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything at otherless than its fair market value. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain business arrangements from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not meet all of the criteria for safe harbor protection from federal Anti‑Kickback Statute liability in all cases. The reach ofUnder the federal Anti‑KickbackAnti-Kickback Statute was broadened byand the recently enacted Affordable Care Act, which, among other things, amends the intent requirement of the federal Anti‑Kickback Statute such thatapplicable criminal healthcare fraud statutes contained within 42 U.S.C. § 1320a-7b, a person or entity no longer needs toneed not have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti‑Kickback Statute42 U.S.C. § 1320a-7b, constitutes a false or fraudulent claim for purposes of the federalcivil False Claims Act (discussed below) or the civil monetary penalties statute, which imposes fines against any person who is determined to have presented or caused to be presented claims to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Additionally, many states have adopted laws similar toThe federal Anti-Kickback Statute and implementing regulations provide for certain exceptions for “safe harbors” for certain discounting, rebating or personal services arrangements, among other things. However, the lack of uniform court interpretation of the Anti-Kickback Statute makes compliance with the law difficult. Violations of the federal Anti‑KickbackAnti-Kickback Statute some of which apply to referral of patients for healthcare items or services reimbursed by any third‑party payor, not only thecan result in significant criminal fines, exclusion from participation in Medicare and Medicaid programs in at least some cases, and do not contain safe harbors.
The federal False Claims Act imposes liability on any person or entity that,follow-on civil litigation, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by aboth entities and individuals.
Other federal healthcare program.fraud-related laws also provide criminal liability for violations. The “qui tam” provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically. In addition, various states have enacted false claims laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third‑party payor and not merely a federal healthcare program. There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The False Claims Act has been used to assert liability on the basis of inadequate care, kickbacks and other improper referrals, improperly reported government pricing metrics such as Best Price or Average Manufacturer Price, improper promotion of off‑label uses not expressly approved by FDA in a drug’s label, and allegations as to misrepresentations with respect to the services rendered. To the extent we participate in government healthcare programs, our future activities relating to the reporting of discount and rebate information and other information affecting federal, state and third party reimbursement of our products, and the sale and marketing of our products and our service arrangements or data purchases, among other activities, may be subject to scrutiny under these laws. We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the cost of defending such claims, as well as any sanctions imposed, could adversely affect our financial performance. Also, HIPAA created several new federal crimes, including healthcare fraud and false statements relating to healthcare matters. The healthcare fraudCriminal Healthcare Fraud statute, 18 U.S.C. § 1347 prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third‑partythird-party payors. The false statements statuteFederal criminal law at 18 U.S.C. § 1001, among other sections, prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
26
the False Claims Act and similar state laws allow a private individual to bring civil actions on behalf of the federal or state government and to share in any monetary recovery. The Federal Physician Payments Sunshine Act and similar state laws impose reporting requirements for various types of payments to physicians, other licensed healthcare practitioners and teaching hospitals. Failure to comply with required reporting requirements under these laws could subject manufacturers and others to substantial civil monetary penalties. In addition, we may be subject to,government entities and private litigants have asserted claims under state consumer protection statutes against pharmaceutical and medical device companies for alleged false or misleading statements in connection with the marketing, promotion and/or sale of pharmaceutical and medical device products, including state investigations and litigation by certain government entities regarding our marketing activitiesof opioid products.
The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the future may be limiteddelivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Like the AKS, the Patient Protection and Affordable Care Act (the “ACA”) amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
HIPAA, as amended by data privacythe Health Information Technology for Economic and security regulation by both the federal governmentClinical Health Act of 2009 (“HITECH”) and the states in which we conduct our business. HIPAA and itstheir respective implementing regulations, established uniform standards foralso impose requirements on certain “covered entities,” which arecovered healthcare providers, health plans, and healthcare clearinghouses governingas well as their respective business associates that perform services for them that involve the conductcreation, use, receipt, maintenance or disclosure of specified electronic healthcare transactions and protectingindividually identifiable health information, relating to the privacy, security and privacytransmission of protectedindividually identifiable health information. The American Recovery and Reinvestment Act of 2009, commonly referred to as the economic stimulus package, included expansion of HIPAA’s privacy and security standards through HITECH, which became effective on February 17, 2010. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” which are independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased thecreated four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties that may be imposed against covered entities,directly applicable to business associates, and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’sattorneys’ fees and costs associated with pursuing federal civil actions.
Additionally,The federal Physician Payments Sunshine Act, created under the federal Open Payments program, created under Section 6002 of the Affordable Care ActACA, and its implementing regulations, requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) mustto report annually to the CMS under the Open Payments Program, information related to “paymentspayments or other transfers of value”value made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), to certain non-physician providers such as physician assistants and nurse
15
practitioners, and to teaching hospitals, and manufacturers and applicable group purchasing organizations must reportas well as ownership and investment interests held by physicians (as defined above) and their immediate family members. Such reports
Federal price reporting laws require manufacturers to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on approved products. In addition, federal consumer protection and unfair competition laws broadly regulate marketplace activities and activities that potentially harm consumers. There are also analogous state and foreign laws and regulations, such as state and foreign anti-kickback, false claims, consumer protection and unfair competition laws which may apply to pharmaceutical business practices, including but not limited to, research, distribution, sales and marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to the Centers for Medicare & Medicaid Services, or CMS, by the 90th day following the end of each subsequent yearhealthcare providers and CMS subsequently is to publish the reported information on a publicly available website.
There are also an increasing number ofother potential referral sources; state “sunshine” laws that require drug manufacturers to file reports with states onregarding pricing and marketing information. Manyinformation, such as the tracking and reporting of these laws contain ambiguities as to what is required to comply with the laws. Several states have enacted legislation requiring pharmaceutical companies to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trialsgifts, compensation and other activities and/or register their sales representatives. Such legislation also prohibits pharmaciesremuneration and otheritems of value provided to healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in salesprofessionals and marketing and prohibits certain other sales and marketing practices. These laws may affect our future sales, marketing and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinententities; state and federal authorities.local laws requiring the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of availablethe statutory exceptions and regulatory exemptions,safe harbors available, it is possible that some of oura pharmaceutical manufacturer’s business activities could be subject to challenge under one or more of such laws. Efforts to ensure that business arrangements comply with applicable healthcare laws involve substantial costs. It is possible that governmental and enforcement authorities will conclude that a pharmaceutical manufacturer’s business practices do not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operationsany such actions are found to beinstituted against a pharmaceutical manufacturer, and it is not successful in violationdefending itself or asserting its rights, those actions could have a significant impact on its business, including the imposition of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, includingsignificant civil, criminal and significant civil monetaryadministrative penalties, damages, disgorgement, imprisonment, monetary fines, imprisonment,possible exclusion from participation in governmentMedicare, Medicaid and other federal healthcare programs, injunctions, recall or seizurereporting obligations and oversight if we become subject to integrity and oversight agreements to resolve allegations of products, total or partial suspensionnon-compliance, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of production, denial or withdrawal of pre‑marketing product approvals, private qui tam actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts and the curtailment or restructuring of our operations, any of which could adversely affect oura pharmaceutical manufacturer’s ability to operate ourits business and ourthe results of operations. ToIn addition, commercialization of any drug product outside the extent that any of our products are approved and sold in a foreign country, we mayU.S. will also likely be subject to similar foreign equivalents of the healthcare laws and regulations, which may include, for instance, applicable post‑marketing requirements, including safety surveillance, anti‑fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.mentioned above, among other foreign laws.
Third‑PartyThird-Party Payor Coverage and Reimbursement
The commercial success of Xtampza, the Nucynta Products and our product candidates, if approved,products will depend, in part, upon the availability of coverage and adequate reimbursement from third‑partythird-party payors at the federal, state and private levels. Third‑partyThird-party payors include governmental programs such as Medicare or Medicaid, private insurance plans and managed care plans. These third‑partythird-party payors may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that the product or therapy was not medically appropriate or necessary. Also, third‑partythird-party payors
27
have attempted to control costs by limiting coverage through the use of formularies and other cost‑containmentcost-containment mechanisms and the amount of reimbursement for particular procedures or drug treatments. In addition, some third-party payors also require preapproval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who prescribe such therapies.
The cost of pharmaceuticals and devices continues to generate substantial governmental and third‑partythird-party payor interest. We expect that the pharmaceutical industry will continue to experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Our results ofAs a result, our operations and business could be adversely affected by current and future third‑partythird-party payor policies as well as healthcare legislative reforms.
Some third‑party payors also require pre‑approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. While we cannot predict whether any proposed cost‑containmentcost-containment measures will be adopted or otherwise implemented in the future, these requirements or any announcement or adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for Xtampza, the Nucynta Productsour products and our product candidatesany other products we may seek to commercialize, and to operate profitably.
16
In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
Healthcare Reform
In the United States, and foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs. The Medicare Modernization Act imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand‑alonestand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive marketing approval.products. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from Medicare Part D may result in a similar reduction in payments from non‑governmentalnon-governmental payors.
The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by HHS, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness clinical trials are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. If third‑party payors do not consider our products to be cost‑effective compared to other available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
In March 2010, the Affordable Care Act was enacted, which includes measures to significantly changechanged the way healthcare is financed by both governmental and private insurers. Among the provisions of the Affordable Care Act of importance to the pharmaceutical and biotechnology industry are the following:
● | an annual, |
28
● | an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively; |
● | a |
● | extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; |
● | expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaid rebate liability; |
● | expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; |
● | a licensure framework for |
● | a |
● | a |
● |
|
| establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug |
The Affordable Care Act has been subject to challenges in the courts. On June 17, 2021, in an appeal from a lower court decision holding that the individual mandate under the Affordable Care Act is unconstitutional, the Supreme Court ruled that the plaintiffs lacked standing to challenge the law as they had not alleged personal injury traceable to the allegedly unlawful conduct. As a result, the Supreme Court did not rule on the constitutionality of the Affordable Care Act or any of its provisions.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. The Budget Control Act of 2011 among other things, created the Joint Select Committee on Deficit Reduction to recommend proposalsand subsequent legislation has resulted in spending reductions to Congress. The Joint Select Committee on Deficit Reduction did not achieve its targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, triggering the legislation’s automatic reductions to several government programs. These reductions include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to the Bipartisan Budget Act of 2015, will remain in effect through 20252030 unless additional action is taken by Congress. In January 2013, President Obama signed into law the
17
The American Taxpayer Relief Act of 2012 which, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and, accordingly, our financial operations.
In December 2017, The American Rescue Plan Act of 2021 eliminates the Tax Cutsstatutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and Jobs Act, or the TCJA, repealed the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000Ainnovator multiple source drugs, beginning January 1, 2024. Removal of the Internal Revenue Code, commonly referred to as the individual mandate, beginning in 2019. The Joint Committee on Taxation estimates that the repeal willdrug rebate cap can result in paying rebate payments to Medicaid that are higher than the sale price of the drug.
The Inflation Reduction Act of 2022 (“IRA”) contains substantial drug pricing reforms, including the establishment of a drug price negotiation program within the U.S. Department of Health and Human Services that would require manufacturers to charge a negotiated “maximum fair price” for certain selected drugs or pay an excise tax for noncompliance. Another component of the IRA includes the establishment of rebate payment requirements on Medicare Part D drugs which penalize price increases that outpace inflation. The IRA also redesigned Medicare Part D to reallocate cost across the various stakeholders: CMS, payors, manufacturers, and beneficiaries. Certain aspects of the Part D redesign take effect in 2024 which ultimately shifts some liability from beneficiaries to the payors. Starting in 2025, all remaining components of the Part D Redesign will take effect. Ultimately, the existing coverage gap will be removed and replaced with greater exposure for manufacturers after the beneficiary pays their deductible. Additionally, the exemption previously applied on the low-income subsidy (“LIS”) population has been removed and increases manufacturer rebate exposure for that population. Some manufacturers, including Collegium, will qualify for a “phase in” of rebate utilization for the LIS population which should limit our exposure in the short term, but will increase it over 13 million Americans losing their health insurance coverage overtime. The implementation of the next ten years, andIRA is likely to lead to increases in insurance premiums. It is uncertain how or whether this legislation may affect our customers and, accordingly, our financial operations.
Other Regulatory Requirements
29
We are alsocurrently subject to various lawsongoing litigation that challenges the constitutionality of the IRA’s Medicare drug price negotiation program. The IRA could have the effect of reducing the prices we can charge and regulations regarding laboratory practices, the experimental use of animals,reimbursement we receive for our products, thereby reducing our profitability, and the use and disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect on us.our financial condition, results of operations and growth prospects. The effect of the IRA on our business and the pharmaceutical industry in general is not yet known.
Our Environmental, Social, and Governance (“ESG”) Initiatives
Research
Our commitment to serving as a responsible corporate citizen is rooted in our longstanding history of advancing our mission, executing our commercial strategy, governing our business to drive efficiency and value creation, and supporting our communities. We have prioritized corporate governance and risk mitigation; employee development and culture; our environmental footprint; and giving back to our communities. As a reflection of this commitment, our annual Corporate Scorecard has included metrics relating to our performance relative to specific ESG initiatives.
In February 2024, we published our annual ESG report on our corporate website highlighting our ESG accomplishments to date. The information contained in our ESG report is not a part of, nor is it incorporated by reference into, this Form 10-K.
Human Capital Management
Collegium Culture and Employee Engagement
Our employees are foundational to our current and future success, and we believe that their engagement and commitment are among our most valuable assets. As we seek to build and sustain a challenging, inspiring, and inclusive environment for our employees, we have focused on talent acquisition and retention; employee training and development; diversity and inclusion; and employee health and safety.
At Collegium, we recognize that we have a responsibility to hold ourselves to the highest standard of business and professional ethics. Our Core Values are the foundational principles of our organization and guide our work, how we interact with each other and our communities and influence the business strategies we employ to fulfill our mission. Our Core Values are: Uphold Integrity, Embrace Differences, Encourage Expression, and Be Accountable.
We prioritize transparency, recognition, and collaboration to support our team’s engagement. We facilitate transparent communications through various channels, such as quarterly all-employee meetings, small-group employee conversations with our Chief Executive Officer, and periodic employee engagement surveys.
18
Talent Acquisition and Retention
We seek to identify, recruit, retain, incentivize, and integrate our existing and new employees, advisors, and consultants. All full-time employees receive stock-based and cash-based compensation awards through the compensation cycle; stock-based compensation includes restricted stock units for the entire organization. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel as they strive to increase stockholder value and contribute to the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Employee Training and Development
We incurred researchbelieve career development begins with good conversations between employees and their managers that ensure regular feedback, and we have implemented tools and annual processes that allow all employees in conjunction with their managers to explore possibilities and drive development expenses of $8.6 million, $14.9 millionaction. Our comprehensive performance review process ensures our employees are on track with their development throughout the year.
Diversity, Equity, and $8.0 million forInclusion
We are committed to fostering diversity, equity, and inclusion (“DEI”) in our workplace. We are unwavering in our commitment to treat our colleagues fairly, and we are open-minded and inclusive in our engagements with one other, our partners, and customers. We believe that when people feel appreciated and included, they are more creative, innovative, and successful, which in turn improves our business and performance and enhances shareholder value. We are committed to employing people whose diverse backgrounds contribute to innovation and allow us to approach the years ended December 2017, 2016complex issues that face our industry from many different perspectives.
We are executing our multi-year DEI strategic plan that strives to integrate DEI with our overall business goals by focusing on topics such as developing, retaining, and 2015, respectively.attracting talent; creating and sustaining a work environment where all employees feel valued and engaged; and developing a strong reputation and strategic alliance partnerships with the communities we serve.
Employees
As of December 31, 2017,2023, we had a total of 250 full‑197 employees with representation with respect to gender and self-reported race and ethnicity as follows:
| | | | |
Ethnicity | | # | | % |
Asian (Not Hispanic or Latino) | | 15 | | 7.6% |
Black or African American (Not Hispanic or Latino) | | 12 | | 6.1% |
Hispanic or Latino | | 5 | | 2.5% |
Prefer Not to Disclose | | 3 | | 1.5% |
Two or More Races (Not Hispanic or Latino) | | 3 | | 1.5% |
White (Not Hispanic or Latino) | | 159 | | 80.8% |
Total | | 197 | | 100% |
| | | | |
Gender | | # | | % |
Female | | 98 | | 49.7% |
Male | | 99 | | 50.3% |
Total | | 197 | | 100% |
As in everything we do, we are committed to continuous improvement in this area. While we are proud of the diversity of backgrounds and identities that our workforce exhibits, we will make the necessary investments of time, employees. Of these, 19 were engagedresources, and engagement to make sustained improvements in full‑time researchthis area.
19
Employee Health and development activities. NoneSafety
We believe that the success of our business is fundamentally connected to the well-being of our employees; accordingly, we are committed to their health, safety, and wellness. We provide all employees are represented byand their families with access to a labor organization or under any collective‑bargaining arrangements. We consider our employee relations to be good.variety of innovative, flexible, and convenient health and wellness programs.
Our Executive Officers of the Company
The following table lists the positions, names and ages of our executive officers as of March 1, 2018:February 22, 2024:
| | | | | |
Name | | Age | | Position(s) | |
Joseph Ciaffoni | | 52 | | ||
|
|
| |||
| |||||
|
| ||||
| | 48 |
| ||
| | Executive Vice President and Chief Financial Officer | |||
| | 51 | | Executive Vice President and Chief | |
Shirley Kuhlmann | | 40 | | Executive Vice President, General Counsel and Chief Administrative Officer | |
Thomas Smith | | 63 | | Executive Vice President and Chief Medical Officer |
Executive Officers
Michael T. Heffernan, R.Ph., Chairman,Joseph Ciaffoni, Director, President and Chief Executive Officer. Mr. Heffernan has servedCiaffoni was appointed as our President and Chief Executive Officer andof Collegium Pharmaceutical in July 2018. Mr. Ciaffoni joined us in May 2017 as a member of our board of directors since October 2003. Mr. Heffernan has over twenty-five years of experience in the pharmaceutical and related healthcare industries. He was previously the Founder, President and Chief Executive Officer of Onset Therapeutics, LLC, a dermatology-focused company that developed and commercialized products for the treatment of skin-related illnesses and was responsible for the spin-off of the business from the Company to create PreCision Dermatology, Inc. which was acquired by Valeant Pharmaceuticals International, Inc. Mr. Heffernan has held prior positions as Co-Founder, President and Chief Executive Officer of Clinical Studies Ltd., a pharmaceutical contract research organization that was sold to PhyMatrix Corp., and as President and Chief Executive Officer of PhyMatrix. Mr. Heffernan started his career at Eli Lilly and Company, where he served in numerous sales and marketing roles. He serves on the board of directors of Keryx Biopharmaceuticals, Inc (NASDAQ: KERX) (July 2016 to present) and Veloxis Pharmaceuticals A/S (CPH: VELO) (March 2015 to present). Mr. Heffernan previously served on the board of directors and as Chairman of Ocata Therapeutics, Inc. (NASDAQ: OCAT), Cornerstone Therapeutics Inc. (now known as Chiesi USA, Inc.) (NASDAQ: CRTX) and numerous privately held companies. Mr. Heffernan graduated from the University of Connecticut with a B.S. in Pharmacy in 1987 and is a Registered Pharmacist.
Joseph Ciaffoni, Executive Vice President and Chief Operating Officer. Mr. Ciaffoni has served as our Executive Vice President and Chief Operating Officer since May 2017. Prior to joining us, Mr. Ciaffonihe served as President, U.S. Branded Pharmaceuticals of Endo International plc from August 2016 until May 2017.plc. Before that, Mr. Ciaffoni held various positions of increasing responsibility at Biogen, Idec since 2012, including Senior Vice President, Global Specialty Medicines Group, Senior Vice President, U.S. Commercial and Vice President, U.S. Neurology Field Operations and Marketing. Prior to joining Biogen, Idec, Mr. Ciaffonihe was Executive Vice President and Chief Operating
30
Officer of Shionogi Inc. and President of Shionogi Pharmaceuticals. Mr. Ciaffoni also previously served as Vice President, Sales for Schering-Plough (now Merck) and held several commercial leadership roles at Sanofi-Synthelabo (now Sanofi) and Novartis. Mr. Ciaffoni received a B.A. in Communications and an M.B.A. from Rutgers, The State University of New Jersey. Rutgers.
Paul Brannelly,Colleen Tupper, Executive Vice President and Chief Financial Officer. Ms. Tupper joined us in May 2021 as Executive Vice President and Chief Financial Officer. Prior to joining us, Ms. Tupper most recently served as Chief Financial Officer, U.S. Business Unit as well as a member of the U.S. Business Unit Executive Leadership Team and the Global Finance Leadership Team at Takeda from January 2019 to April 2021. Prior to that role, Ms. Tupper held several roles of increasing responsibility at Shire Pharmaceuticals (acquired by Takeda in 2019) including Vice President, U.S. Commercial Finance; Vice President, Finance Integration Lead; and Vice President, Head of Finance Global Neuroscience and Ophthalmics. Earlier in her career, Ms. Tupper served in various finance and accounting roles at both Shire Pharmaceuticals and Antigenics (now Agenus). Ms. Tupper received a B.S. in Accounting from Franklin Pierce University.
Scott Dreyer, Executive Vice President and Chief Commercial Officer. Mr. Brannelly has servedDreyer was appointed as our Executive Vice President and Chief FinancialCommercial Officer since February 2015. Prior to joiningin July 2018. Mr. Dreyer joined us Mr. Brannelly servedin January 2018 as Senior Vice President Financeof Sales, Marketing, Commercial Capabilities and Administration,Training. He has over 25 years of commercial experience across sales, marketing, commercial operations and Treasurer of Karyopharm Therapeutics Inc. (NASDAQ: KPTI) from June 2013 to August 2014. From August 2014 to November 2014,strategic planning, all within the biopharma industry. Most recently, Mr. Brannelly served as a consultant to Karyopharm.Dreyer was Senior Vice President, Marketing and Commercial Operations for The Medicines Company. Prior to joining Karyopharm, Mr. Brannelly served asThe Medicines Company, he was Vice President Finance, Treasurer and SecretaryChief Marketing Officer-U.S. at Verastem, Inc. (NASDAQ: VSTM) from August 2010Biogen. Prior to May 2013. From January 2010 to September 2011,Biogen, Mr. BrannellyDreyer held the position of Chief Financial Officer at the Longwood Fund, a venture capital firm aimed at investing in, managing and building healthcare companies, where he set up the financial and operational infrastructure following the closing of its first fund and eventually served as Chief Financial Officer of its two startup companies, Verastem and OvaScience, Inc. (NASDAQ: OVAS). From November 2005 to September 2009, he served as Vice President, Finance at Sirtris Pharmaceuticals, Inc., a biopharmaceutical company which GlaxoSmithKline plc purchased for $720 million in 2008, where he managed the S-1 preparation and due diligence process for Sirtris' initial public offering and managed the company's transition to being a public company. Mr. Brannelly started his biopharmaceutical career at Dyax Corporation from September 1999 to May 2002, and subsequently moved on tovarious commercial leadership positions of increasing responsibility at CombinatoRx Inc.Merck & Co, including Vice President-U.S. Hospital and Oncology Sales and Commercial Operations, Vice President-U.S. Primary Care Sales, Executive Director U.S. Regional Marketing Leader – Neuroscience, Executive Director Customer Marketing and Solutions, Sr. Director of Strategic Planning and Director of Cardiovascular Marketing. Mr. Dreyer received a B.S. in Biology from May 2002 to November 2005, including asMessiah College.
Shirley Kuhlmann, Executive Vice President, FinanceGeneral Counsel and Treasurer, where he ledChief Administrative Officer. Ms. Kuhlmann joined Collegium Pharmaceutical in March 2018 as Executive Vice President, General Counsel and Secretary and has also served as Chief Administrative Officer since March 2022. Prior to joining Collegium, Ms. Kuhlmann was an attorney in the initialHealth Sciences Group of Pepper Hamilton LLP, a law firm headquartered in Philadelphia, Pennsylvania. Ms. Kuhlmann began her career at Pepper Hamilton in 2007 as an Associate and was elected a Partner of the firm in 2016. While with Pepper Hamilton, she advised private and public offering process. Mr. Brannelly graduatedcompanies on a range of transactional matters, including securities offerings, mergers and acquisitions and other financing transactions. Ms. Kuhlmann received a B.A. in Economics and Political Science from Columbia University and a J.D. from the Emory University School of Massachusetts at Amherst with a B.B.A. in Accounting in 1995.Law.
20
Alison B. Fleming, Ph.D.Thomas Smith, M.D., Chief Technology Officer.Dr. Fleming has served as our Executive Vice President and Chief TechnologyMedical Officer. Dr. Smith has served as our Chief Medical Officer since March 2022 following the acquisition of BDSI. Dr. Smith has more than twenty-five years of experience in a variety of leadership roles at various major pharmaceutical companies, including serving as the Chief Medical Officer for BDSI from July 2018 to March 2022, Charleston Laboratories from January 2017.2017 to July 2018, Ameritox and Mallinckrodt Pharmaceuticals. Prior to being our Chief Technology Officer,these, Dr. Fleming led our development team as our Vice President, Product Development since October 2002. Prior to joining us,Smith served in scientific, medical and clinical leadership roles at Abbott Laboratories, Teva Pharmaceuticals and Kendle International. He is a member of several medical and scientific societies, including the American Medical Association and the American Academy of Family Physicians. Dr. Fleming's academic research focused on implantable drug delivery systems for cancer therapy. Dr. Fleming is an inventor on several U.S. patents and pending patent applications, and has authored numerous scientific publications and poster presentations in the field of novel drug delivery systems. In 2001, Dr. Fleming was the recipient of the Jorge Heller Journal of Controlled Release Outstanding Paper Award. Dr. Fleming graduatedSmith earned his M.D. from the Indiana University School of Massachusetts, Amherst in 1997 withMedicine and a B.S. in Chemical Engineering and received a Ph.D. in Chemical and Biomolecular Engineering from Cornell University in 2002.Purdue University.
Our Corporate Information
We are headquartered in Stoughton, Massachusetts and our common stock trades on the NASDAQ Global Select Market (“NASDAQ”) under the trading symbol “COLL.”
Our predecessor was incorporated in Delaware in April 2002 under the name Collegium Pharmaceuticals, Inc. Inand in October 2003, our predecessor changed its name to Collegium Pharmaceutical, Inc. In 2010, our predecessor divested its subsidiary, Onset Therapeutics, LLC to PreCision Dermatology, Inc. In July 2014, we reincorporated in the Commonwealth of Virginia pursuant to a merger whereby Collegium Pharmaceutical, Inc., a Delaware corporation, merged with and into Collegium Pharmaceutical, Inc., a Virginia corporation, with the Virginia corporation surviving the merger. Since 2010, we have devoted substantially all of our resources to the development of our patented DETERx platform technology, the preclinical and clinical advancement of our product candidates, the commercialization of Xtampza and the Nucynta Products, the acquisition and licensing of other products, and the creation and protection of related intellectual property.
Available Information
We maintain a website at www.collegiumpharma.com. We make available, free of charge on our website, our annual reportreports on Form 10‑K,10-K, quarterly reports on Form 10‑Q,10-Q, current reports on Form 8‑K8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended or the (“Exchange Act,Act”), as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the Securities and Exchange Commission or the SEC.(“SEC”). We also make available, free of charge on our website, the reports filed with the SEC by our officers, directors and 10% shareholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. The SEC also maintains a website, at www.sec.gov, that contains reports, proxy and information statements and other information regarding us and other issuers that file electronically. The information contained on, or that can be accessed through, our website is not a part of or incorporated by reference in this Form 10‑K.10-K.
31
Investing in our common stock involves a high degree of risk. YouInvestors should carefully consider the risks described below, as well as all other information included in this Annual Report on Form 10-K, including our financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any of the following risks actually occurs, our business, financial condition, operating results, prospects and ability to accomplish our strategic objectives could be materially harmed. As a result, the trading price of our common stock could decline and youinvestors could lose all or part of yourtheir investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and the market price of our common stock.
Risk Factors Summary
Our business is subject to a number of risks and uncertainties, including those risks discussed at length below. These risks include, among others, the following principal risk factors that make an investment in our company speculative or risky. You are encouraged to carefully review our full discussion of the material risk factors relevant to an investment in our business, which follows the brief bulleted list of our principal risk factors set forth below:
● | Our ability to maintain profitability is dependent upon our ability to continue successfully commercializing our products and any products we may acquire in the future; |
● | We have substantial outstanding indebtedness, which may adversely affect our business, financial condition and results of operations; |
● | Adverse developments affecting the financial services industry could adversely affect our business, financial condition, or results of operations; |
● | If we cannot continue successfully commercializing our products and any products that we may acquire in the future, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline; |
● | Despite receiving approval by the FDA, additional data may emerge that could change the FDA’s position on the product labeling of any of our products, including our abuse-deterrent claims with respect to Xtampza ER, and our ability to market our products successfully may be adversely affected; |
● | Xtampza ER, the Nucynta Products, and Belbuca are subject to mandatory REMS programs, which could increase the cost, burden and liability associated with the commercialization of these products; |
● | Failure to comply with ongoing governmental regulations for marketing our products, and in particular any failure to promote Xtampza ER’s abuse deterrent labeling in compliance with FDA regulations, could delay or inhibit our ability to generate revenues from their sale and could also expose us to claims or other sanctions; |
● | Unfavorable outcomes in intellectual property litigation could be costly and potentially limit our ability to commercialize our products; |
● | If we are unable to obtain or maintain intellectual property rights for our technologies, products or any products we may acquire, we may lose valuable assets or be unable to compete effectively in our market; |
● | We have been, and may continue to be, forced to litigate to enforce or defend our intellectual property, which could be expensive, time consuming and unsuccessful, and result in the loss of valuable assets; |
● | Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements; |
● | If we are unable to utilize our own sales and marketing capabilities successfully or enter into strategic alliances with marketing collaborators, we may not continue to be successful in commercializing our products and may be unable to generate sufficient product revenue; |
● | If the medical community, patients, and healthcare payors do not accept and use our products, we will not achieve sufficient product revenues and our business will suffer; |
● | Our products contain controlled substances, the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state and federal law enforcement and other regulatory agencies; |
● | Current and future legislation may increase the difficulty and cost for us to continue to commercialize our products and may reduce the prices we are able to obtain for our products; |
● | Our products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business. Such pricing regulations may address the |
22
rebates that manufacturers offer to pharmaceutical benefit managers, or the discounts that manufacturers provide others within the pharmaceutical distribution chain; |
● | Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatory and enforcement efforts to combat abuse, could decrease the potential market for our products and may adversely impact external investor perceptions of our business; |
● | If the FDA or other applicable regulatory authorities approve generic products with abuse deterrent claims that compete with our products, our sales could decline; |
● | If the third-party manufacturers of our products fail to devote sufficient time and resources to these products, or their performance is substandard, and/or we encounter challenges with our dedicated manufacturing suite at our third-party manufacturer’s site for the manufacturing of Xtampza ER, our costs may be higher than expected and could have a material adverse effect on our business; |
● | Because we currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredient of our products, any production problems with any of these suppliers could have a material adverse effect on us; |
● | We depend on wholesale pharmaceutical distributors for retail distribution of our products; if we lose any of our significant wholesale pharmaceutical distributors or their distribution network is disrupted, our financial condition and results of operations may be adversely affected; |
● | Our products could be subject to post-marketing requirements, which requirements may, in some cases, not be capable of timely or satisfactory completion without participation in consortia over which we have limited control; |
● | We may not realize all of the anticipated benefits from future acquisitions, and we may be unable to successfully integrate future acquisitions; |
● | Our business may be adversely affected by certain events or circumstances outside our control, including macroeconomic conditions and geopolitical turmoil; |
● | Litigation or regulatory action regarding opioid medications could negatively affect our business; |
● | We face substantial competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing products more successfully than we do; |
● | Commercial sales of our products may expose us to expensive product liability claims, and we may not be able to maintain product liability insurance on reasonable terms or at all; |
● | Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings; and |
● | The price of our common stock may be volatile and you may lose all or part of your investment. |
Risks Related to Our Financial Position and Capital Needs
We have incurred significant losses since our inception and anticipate that we will continueOur ability to incur losses in the future.
We are an early commercial-stage pharmaceutical company. To date, we have focused on developing our first product, Xtampza. Investment in pharmaceutical product developmentmaintain profitability is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. Since 2010, we have only generated limited revenue from product sales, and we continue to incur significant research, development, commercialization and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since January 1, 2011. For the year ended December 31, 2017, we reported a net loss of $74.9 million, and we had an accumulated deficit of $298.0 million at December 31, 2017.
We expect to continue to incur losses for the foreseeable future as we continue to commercialize Xtampza and the Nucynta Products and continue our development of, and seek regulatory approvals for, our product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, ondependent upon our ability to generate revenuescontinue successfully commercializing our products and on the rate of future growth of our expenses. If any of our product candidates fail in clinical trials or does not gain final regulatory approval, or if approved, fails to achieve market acceptance,products that we may never become profitable. Even if we achieve profitabilityacquire in the future, we may not be ablefuture. Our failure to sustain profitability in subsequent periods. Our prior lossesdo so successfully could impair our growth strategy and expected future lossesplans and could have had and will continue to have ana material adverse effect on our shareholders’ equitybusiness, financial position, and working capital.operating results.
We currently generate limited revenue from the sale of products and may never become profitable.
We began the commercial sale of our first product, Xtampza, in June 2016 and assumed responsibility for the sales and marketing of the Nucynta Products in January 2018, and in each case have generated limited revenue from product sales. Our ability to generate additional revenue and become profitablemaintain profitability depends upon our ability to successfullyrealize the full commercial potential of our products and to commercialize Xtampza, the Nucynta Products, our existing product candidates, andsuccessfully any other products and product candidates that we may in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we do not know when any of these product candidates will generate revenue for us, if at all. Our ability to generate revenue from our current or future product candidatesproducts depends on a number of factors, including ourability to:
● |
|
|
|
|
|
|
● |
| manufacture commercial quantities of our products at acceptable cost levels; |
● |
|
|
32
● |
|
|
| obtain coverage and adequate reimbursement from third parties, including government payors; |
● |
|
|
● |
|
|
| comply with existing and changing laws and regulations that apply to the pharmaceutical industry, including opioid |
|
|
23
|
|
|
In addition, because of the numerous risks and uncertainties associated with product development, including that our product candidates may not advance through development or achieve the safety and efficacy endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Furthermore, we anticipate incurring significant costs associated with commercializing these products if regulatory approval is obtained.
Even if we are able to generate revenues from the sale of our products, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustainmaintain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.
If we require additional capital to fund our operations and we fail to obtain necessary financing, we may be unable to complete the development and commercialization of our product candidates.
Our operations have consumed substantial amounts of cash. We expect to continue to spend substantial amounts to advance the development of our product candidates and to commercialize Xtampza, the Nucynta Products and any product candidates for which we may receive regulatory approval. We believe that our existing cash and cash equivalents and expected revenue contributions from Xtampza and the Nucynta Products will be sufficient to fund our operations into 2020, including from sales of Xtampza and the Nucynta Products, and the continuation of our development of our product candidates. However, we may require additional capital for the further commercialization of Xtampza, the Nucynta Products and our product candidates and may also need to raise additional funds sooner in order to continue development of our product candidates.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts, when required or on acceptable terms, we also could be required to:
|
|
|
|
|
|
|
|
33
|
|
Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to Xtampza, our technologies or product candidates.
We may seek additional capital through a combination of private and public equity offerings, debt financings, receivables or royalty financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing shareholders’ ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing shareholders. Debt, receivables and royalty financings may be coupled with an equity component, such as warrants to purchase stock, which could also result in dilution of our existing shareholders’ ownership. The incurrence of additional indebtedness could result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur further debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could have a material adverse effect on our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on any of our indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic collaborations and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to Xtampza, the Nucynta Products, or our product candidates, or grant licenses on terms that are not favorable to us. If we are unable to
34
raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market our technologies that we would otherwise prefer to develop and market ourselves.
We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Our predecessor was originally incorporated in Delaware in April 2002 under the name Collegium Pharmaceuticals, Inc. In October 2003, our predecessor changed its name to Collegium Pharmaceutical, Inc. In July 2014, we reincorporated in the Commonwealth of Virginia pursuant to a merger whereby Collegium Pharmaceutical, Inc., a Delaware corporation, merged with and into Collegium Pharmaceutical, Inc., a Virginia corporation, with the Virginia corporation surviving the merger. From 2002 until 2010, our operations focused primarily on marketing proprietary therapies to the wound care and dermatology industry through our former subsidiary, Onset Therapeutics, LLC, which was spun off and became a part of PreCision Dermatology, Inc. in 2010. Since 2010, our operations have focused primarily on developing the DETERx technology platform and identifying and developing product candidates that utilize the DETERx technology, including our first product, Xtampza. We are currently in the early years of operating as a commercial stage company, and although we have expanded our product portfolio to include Xtampza and the Nucynta products, we have a limited track record of successful commercialization of these products. Consequently, any predictions about our future success, performance or viability may not be as accurate as they could be if we had a longer operating history.
The Commercialization Agreement with Depomed, pursuant to which we assumed responsibility for the sales and marketing of the Nucynta Products, requires us to pay significant license fees, some of which are payable whether or not our commercialization efforts are successful. Such licensing fees may adversely affect our cash flow and our ability to operate our business and our prospects for future growth.
In December 2017, we entered into the Commercialization Agreement, pursuant to which we assumed responsibility for the sales and marketing of the Nucynta Products. We closed the transactions contemplated by the Commercialization Agreement, as amended, on January 9, 2018 and we began marketing the Nucynta Products in February 2018. During the term of the Commercialization Agreement and through December 31, 2021, we are required to pay to Depomed a minimum annual license fee of $135.0 million paid quarterly in arrears, plus double-digit royalties on net sales of Nucynta Products in excess of $233.0 million per year. Beginning January 1, 2022 and for each year of the Commercialization Agreement term thereafter, we are required to pay double-digit royalties on all net sales of Nucynta Products. If our commercialization efforts of the Nucynta Products are unsuccessful, there can be no assurance that we will have sufficient cash flow to pay such licensing fees.
Our obligation to Depomed to pay such licensing fees could:
|
|
|
|
|
|
|
|
|
|
|
|
Any of the factors listed above could materially and adversely affect our business and our results of operations. If we do not have sufficient cash flow to pay the licensing fees under the Commercialization Agreement, we may be required to
35
terminate the Commercialization Agreement, sell assets, borrow money or sell securities, none of which we can guarantee we will be able to do on favorable terms, if at all.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2017,2023, we had a U.S. federal net operating loss or NOL,(“NOL”) carryforward of approximately $249.5$137.5 million and state net operating lossNOL carryovers of approximately $205.1 million, which are available to offset future taxable income.$202.4 million. The U.S. federal NOL carryforwards begin to expire in 2022, and the state NOL carryforwards begin to expire at various dates through 2037. Federal NOLs and certain state NOLs incurred in 2030.2018 and onward have an indefinite expiration under the Tax Cuts and Jobs Act of 2017 and applicable state statutes. We also had U.S. federal tax credits of approximately $3.4$1.0 million, and state tax credits of approximately $589,000.$0.7 million. These tax attributes are generally subject to a limited carryover/carryback period and are also subject to the annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended (Code), or Section 382.(“IRC 382”).
The TCJA generally will allow losses incurred after 2017In 2021, we completed a study to be carried over indefinitely, but limits the NOL deduction to the lesser of the NOL carryover or 80% of a corporation’s taxable income (subject to Sections 382 and 383 of the Code and other conditions). 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, and be available for twenty years from the period the loss was generated. We have not finalized our review ofassess the impact of TCJA on the NOL rules, and the impact,ownership changes, if any, to our ability to utilize and carryover net operating losses.
The federal R&D credit generally has a twenty year carryover term, and our state R&D credit is generally available for a fifteen year carryover.
Under Section 382, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership some of which are outside our control. We have not completed a current study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation. As a result, if we earn net taxable income,on our ability to use our pre-change NOL carryforwards to offset U.S. federal taxable income mayand tax credit carryovers as defined under IRC 382 (the “IRC 382 Study”). As a result of the study, we concluded that there were ownership changes that occurred during the years 2006, 2012 and 2015 that would be subject to IRC 382 limitations. These IRC 382 annual limitations may limit our ability to use pre-ownership change federal NOL carryovers and pre-ownership change federal tax credit carryovers, which couldmay potentially result in increasedlimit our ability to reduce our future federal income tax liability by using these losses.
As part of the BDSI acquisition, we acquired an estimated $234.7 million of federal NOL carryovers which are generally subject to us. In addition, ata limited carryover/carryback period and are also subject to the state level, thereannual limitations that may be periodsimposed under IRC 382. We performed an IRC 382 study following the BDSI Acquisition in 2022 and concluded that there were ownership changes that occurred during the years 2006 and 2022 that would be subject to IRC 382 limitations. These IRC 382 annual limitations may limit our ability to use pre-ownership change federal NOL carryovers and pre-ownership change federal tax credit carryovers, which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
may potentially limit our ability to reduce our future federal income tax liability by using these losses. As of December 31, 20172023, remaining net operating losses of $124.3 million are subject to limitation. Refer to Note 18, Income Taxes, to our consolidated financial statements included in Part IV of this Annual Report on Form 10-K for more information.
We have substantial outstanding indebtedness, which may adversely affect our business, financial condition and 2016,results of operations.
In March 2022, we entered into a $650.0 million secured term loan (the “2022 Term Loan”) pursuant to our Amended and Restated Loan Agreement with BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender (as amended from time to time, the “2022 Loan Agreement”), of which $412.5 million in principal was outstanding as of December 31, 2023. In addition, we have provided$26.4 million in 2.625% Convertible Senior Notes due in 2026 (the “2026 Convertible Notes”) and $241.5 million in 2.875% Convertible Senior Notes due 2029 (the “2029 Convertible Notes” and, together with the 2026 Convertible Notes, the “Convertible Notes”). We may also incur additional indebtedness to meet future financing needs. Our existing and future levels of indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, and among other things:
● | requiring the dedication of a substantial portion of our cash flows from operations to service our indebtedness, which will reduce the amount of cash available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes; |
● | limiting our ability to obtain additional financing; |
● | limiting our flexibility to plan for, or react to, changes in our business; |
● | exposing us to the risk of increased interest rates as certain of our borrowings, including the 2022 Term Loan, are at variable rates of interest; |
● | diluting the interests of our existing shareholders as a result of issuing shares of our common stock upon conversion of the Convertible Notes; |
● | placing us at a possible competitive disadvantage with competitors that are less leveraged than we are or have better access to capital; and |
● | increasing our vulnerability to downturns in our business, our industry or the economy in general. |
24
Holders of our Convertible Notes, subject to a full valuation allowancelimited exception described in the notes, may require us to repurchase their notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the notes or pay the cash amounts due upon conversion. Applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the notes or pay the cash amounts due upon conversion, and any failure by us to repurchase notes or to pay the cash amounts due upon the conversion when required would constitute a default under the indenture.
Additionally, the indentures governing the Convertible Notes and our 2022 Loan Agreement contain certain covenants and obligations applicable to us, including, without limitation, covenants that limit our ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business, which could limit our ability to capitalize on business opportunities that may arise or otherwise place us at a competitive disadvantage relative to our competitors.
Failure to comply with covenants in the indentures governing the Convertible Notes or in the 2022 Loan Agreement would constitute an event of default under those instruments, notwithstanding our ability to meet our debt service obligations. A default under the indentures or a fundamental change could also result in a default under one or more of the agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. In such event, we may not have sufficient funds to satisfy all amounts that would become due. The 2022 Loan Agreement includes various customary remedies for deferred taxthe 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. In addition, because our assets are pledged as a security under the 2022 Loan Agreement, if we are not able to cure any default or repay outstanding borrowings, our assets would be subject to the risk of foreclosure by our lenders.
Further, amounts outstanding under our 2022 Loan Agreement historically bore interest at a rate based on the London Interbank Offered Rate (“LIBOR”), and, effective July 1, 2023, bears interest at a rate based on the Secured Overnight Financing Rate (“SOFR”) subject to a SOFR floor of 1.2%. We have not hedged our interest rate exposure with respect to our floating rate debt. Accordingly, our interest expense for any period will fluctuate based on SOFR and other variable interest rates, as applicable. To the extent the interest rates applicable to our floating rate debt increase, our interest expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected.
Adverse developments affecting the financial services industry, including NOLevents or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition, or results of operations.
Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and taxmay in the future lead to market-wide liquidity problems. For example, in early 2023, several financial institutions closed and were taken into receivership by the Federal Deposit Insurance Corporation (“FDIC”). Although we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit carryovers.arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or economy in general. Further, investor concerns regarding domestic or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to cash and liquidity resources could, among other risks, adversely impact our ability to meet our financial obligations, which could have material adverse impacts on our liquidity and our business, financial condition, or results of operations.
25
Risks Related to our Products
If we cannot continue successfully commercializing our products and Product Candidates
Our success dependsany products that we may acquire in large part on the commercial successfuture, our business, financial condition and results of Xtampza, our lead product,operations may be materially adversely affected and the Nucynta Products, which we will commercialize pursuant to a Commercialization Agreement with Depomed.
To date, we have invested substantial resources in the developmentprice of our lead product, Xtampza, which has been approved by the FDA. common stock may decline.
Our business and future success are substantially dependent on our ability to continue successfully and timely commercialize this product, which may never occur. We currently generate limited revenues from product sales and we may never be able to commercializecommercializing our products, including Xtampza ER, the Nucynta Products, orBelbuca and Symproic, and any product candidatesproducts that are approved bywe may acquire in the FDA, successfully.future.
Our ability to continue successfully commercialize Xtampzacommercializing our products will depend on many factors, including but not limited to:
● |
|
|
| our ability to manufacture commercial quantities of |
36
● |
| our ability to |
● |
| our success in educating physicians, patients and caregivers about the benefits, administration, use and coverage of |
● |
| with respect to Xtampza ER, the perceived availability and advantages, relative cost, relative safety and relative efficacy of other abuse-deterrent products and treatments |
● |
| our ability to defend successfully |
● |
| the availability and quality of coverage and adequate reimbursement for |
● |
| a continued acceptable safety profile of |
Our
● | our ability to acquire new products, or develop new indications or line extensions for existing products, in the event that revenues from our existing products are impacted by price controls, loss of intellectual property exclusivity or competition; and |
● | our ability to
Many of these matters are beyond our control and are subject to other risks described elsewhere in this “Risk Factors” section. Accordingly, we cannot assure you that we will be able to continue successfully Despite receiving approval by the FDA, additional data may emerge that could change the FDA’s position on the product labeling of any of our products, including our abuse-deterrent claims with respect to Xtampza ER, and our ability to
Xtampza ER was approved with
The FDA
sales. In
26 Our opioid products are subject to
The FDA has imposed a
Any modification of
Failure to comply with ongoing governmental regulations for marketing our products, and in particular any
In addition to scrutiny by the FDA, advertising and promotion of any pharmaceutical product In particular, Xtampza ER has FDA-approved product labeling that describes its abuse deterrent features, which allows us to promote those features and differentiate Xtampza ER from other opioid products containing the same active pharmaceutical ingredients. Because the FDA
Engaging in off-label promotion of our products, including Xtampza
Further, discovery of
Risks Related to Intellectual Property Unfavorable outcomes in intellectual property litigation could Our commercial success depends upon our ability to
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing or commercializing 27 proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could
prevent us from commercializing
If we are unable to obtain or maintain intellectual property rights for our We depend on our ability to protect our proprietary technology. We rely on patent and trademark laws, unpatented trade secrets and know-how, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability to obtain and maintain patent protection in the United States The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights
We have been, and may continue to be, forced to litigate to enforce or defend our intellectual property rights against infringement and unauthorized use by competitors, and to protect our trade
Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition. In addition, an adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. In addition to seeking patents for some of our technology
those 28 that technology or information to compete with us. If any of our trade secrets were to be disclosed or independently developed, our competitive position would be harmed.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. The
Risks Related to the Commercialization of Our If we are unable to Our commercial organization continues to
If we are not successful in If Physicians
29
If
Some of our products contain controlled substances, and the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state and federal law enforcement and other regulatory agencies. Some of our products contain controlled substances that are subject to state and federal laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Xtampza ER’s active ingredient, oxycodone, and the Nucynta Products’ active ingredient, tapentadol, are both classified as Schedule II controlled substances under the CSA and regulations of the DEA and the active ingredient in Belbuca, buprenorphine, is classified as a Schedule III controlled substance. A number of states also independently regulate these drugs, including oxycodone, tapentadol and buprenorphine, as controlled substances. We and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicable registrations from state and federal law enforcement and regulatory agencies and comply with state and federal laws and regulations regarding the manufacture, use, sale, importation, exportation and distribution of controlled substances. Furthermore, the amount of Schedule II substances that can be obtained for clinical trials and commercial distribution is limited by the CSA and DEA regulations. For more information, refer to the section in our Annual Report entitled “Business — Government Regulation — DEA and Opioid Regulation.” We may not be able to obtain sufficient quantities of these controlled substances in order to meet commercial demand. If commercial demand for Xtampza ER, or any of our other approved products, increases and we cannot meet such demand in a timely fashion because of our limited supply of its active pharmaceutical ingredient (in the case of Xtampza ER, oxycodone) then physicians may perceive such product as unavailable and may be less likely to prescribe it in the future. In addition, controlled substances are also subject to regulations governing manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas (for Schedule I and II substances), recordkeeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with commercialization of our products that include controlled substances. The DEA and some states conduct periodic inspections of registered establishments that handle controlled substances. Failure to obtain and maintain required registrations or to comply with any applicable regulations could delay or preclude us from manufacturing and commercializing our products that contain controlled substances and subject us to enforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In some circumstances, violations could lead to criminal proceedings. Because of their restrictive nature, these regulations could limit commercialization of our products containing controlled substances. Current and future legislation may increase the difficulty and cost for us to continue to commercialize In the United States,
30 California and several other states have enacted legislation related to business. Laws intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms may continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing
The regulations that govern marketing approvals, pricing and reimbursement for new drug products can vary
Our ability to commercialize any product successfully will also depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors
In August 2022, the Inflation Reduction Act of 2022 was signed into law. This legislation contains substantial drug pricing reforms, including the establishment of a drug price negotiation program within the U.S. Department of Health and Human Services that would subject manufacturers of some brand-name medications without generic or biosimilar competition to a price negotiation program that results in a negotiated “maximum fair price” (or pay an excise tax for noncompliance), the establishment of rebate payment requirements on manufacturers of drugs payable under Medicare Parts B and D to penalize price increases that outpace inflation, and revises the way manufacturers provide discounts on Part D drugs. The IRA also caps Medicare beneficiaries’ annual out-of-pocket drug expenses at $2,000 per year, thereby eliminating the Medicare Part D coverage gap or “donut hole.” Substantial penalties can be assessed for noncompliance with the drug pricing provisions in the IRA. The IRA could have the effect of reducing the prices we can charge and reimbursement we receive for our products, thereby reducing our profitability, and could have a material adverse effect on our financial condition, results of operations and growth prospects. The effect of the IRA on our business and the pharmaceutical industry in general is not yet known. 31 Our inability to The Affordable Care Act and any changes in healthcare law may increase the difficulty and cost for us to continue to commercialize our products and affect the prices we may obtain. The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that may affect our ability to profitably sell our products, including implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. The Affordable Care Act was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. There have been significant ongoing judicial, administrative, executive and legislative efforts to modify or eliminate the Affordable Care Act, and the Affordable Care Act has also been subject to challenges in the courts. Refer to the section in our Annual Report entitled “Business — Government Regulation — Healthcare Reform.” Further changes to and under the Affordable Care Act remain possible. It is unknown what form any such changes or any law proposed to replace the Affordable Care Act would take, and how or whether it may affect our business in the future. We expect that changes to the Affordable Care Act, the Medicare and Medicaid programs, changes allowing the federal government to directly negotiate drug prices and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry. Any reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue and maintain profitability. Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatory and enforcement efforts to combat abuse, could decrease the potential market for
Law enforcement and regulatory agencies may apply policies and guidelines that seek to limit the availability or use of opioids. Such efforts may inhibit our ability to continue to commercialize Aggressive enforcement and unfavorable publicity regarding, for example, the use or misuse of oxycodone or other opioid drugs; the limitations of abuse-resistant formulations; the ability of
Federal laws have been enacted to address the national epidemics of prescription opioid abuse
If the FDA or other applicable regulatory authorities approve generic products with Once an NDA, including a Section 505(b)(2) application, is approved, the product covered thereby becomes a “listed drug” which can, in turn, be cited by potential competitors in support of approval of an 32 create modified, non-infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes.
We may seek FDA pediatric exclusivity for some of our products. Pediatric exclusivity, if granted, adds six months of patent term and
In November 2017, the FDA issued a final guidance to Risks Related to Our Dependence on Third Parties If the third-party We do not own any manufacturing facilities In 2020, we completed the build-out of a dedicated manufacturing suite for Xtampza ER at a site operated by our contract manufacturing organization, Patheon, part of Thermo Fisher Scientific. This facility requires the maintenance of regulatory approvals and other costs, all of which we absorb. We cannot guarantee that we will be able to continue to leverage the dedicated manufacturing suite in a profitable manner. If the demand for Xtampza ER and any future related products never meets our expectations and forecasts, or if we do not produce the output we plan, we may not be able to realize the return on investment we anticipated, which would have a negative impact on our financial condition and results of operations. 33 We have also transitioned commercial manufacturing for Nucynta ER from Janssen to Patheon. While we were successful in our regulatory approval and validation activities, we could encounter issues in obtaining commercial supply from Patheon's facility due to technical problems or challenges obtaining adequate and/or timely DEA procurement quota. Although we have identified alternate sources for these services, it would be time-consuming, and require us to incur additional Our reliance on a limited number of vendors and, in particular, Patheon as our single manufacturer for Xtampza ER and Nucynta ER, exposes us to the following risks, any of which could
Failure to obtain the necessary active pharmaceutical ingredients, excipients or components necessary to manufacture our products could adversely affect our ability to continue to commercialize our products, which could in turn adversely affect our results of operations and financial condition. Likewise, the inability of any of our sole or limited suppliers to provide components that meet our specifications and requirements could adversely impact our ability to manufacture our products. In addition, DEA regulations, through the quota procurement process, limit the amount of DEA-controlled active pharmaceutical ingredient we have available for manufacture. Consequently, we are limited in our ability to maintain an appreciable safety stock of finished drug product. Our reliance on third parties reduces our control over our
Any stock out, or failure to obtain sufficient supplies of 34 Because we currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredient of We
Global supply chain disruptions and shortages may limit manufacturing and commercial supply of our
There are currently global supply chain disruptions and
Manufacturing issues may arise that could increase product and regulatory approval costs, delay commercialization or limit commercial supply.
In our current commercial manufacturing operations, and as we scale up manufacturing of our products
We depend on wholesale pharmaceutical distributors for retail distribution of our products; if we lose any of our significant wholesale pharmaceutical distributors or their distribution network is disrupted, our financial condition and results of A significant percentage of our product shipments are to a limited number of independent wholesale In addition, these wholesaler customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This distribution network has undergone, and may continue to undergo, significant consolidation marked by mergers and acquisitions. As a result, a small number of large wholesale distributors control a significant share of the market. Consolidation of drug wholesalers has increased, and may continue to increase, competitive and pricing pressures on pharmaceutical products. We cannot guarantee that we can manage these pricing pressures or that wholesaler purchases will not fluctuate unexpectedly from period to period. 35 Certain of our opioid products are subject to post-marketing requirements or commitments, which may, in some cases, not be capable of timely or satisfactory completion without participation in consortia over which we have limited control. For certain of our products, we are subject to post-marketing requirements to conduct epidemiological studies and clinical trials, or, in some cases, to conduct post-marketing surveillance or observational studies to gather additional information about our products. For our opioid products, we generally intend to fulfill our PMRs by virtue of our participation in the Opioid PMR Consortium (“OPC”). Although we retain discretion in how to discharge such PMRs, the scale and scope of the studies required by the FDA make it cost prohibitive to discharge these requirements other than by joining the OPC that was formed to conduct them. We are a member of the OPC and engage in decision-making as a member of that organization, but do not have a majority. If the OPC fails to conduct sufficiently rigorous studies or is unable to achieve the patient enrollment or other requirements established by the FDA, we may be unable to satisfy our PMRs and the FDA may choose to withdraw or otherwise restrict its approval of our opioid products. Additionally, there may be certain PMRs or post-marketing commitments that we fulfill on our own for our products, including via the conduct of post-marketing surveillance or observational studies. If such studies lead to the discovery of adverse findings regarding the safety or benefit profiles of our products, then the FDA may choose to withdraw or otherwise restrict the approval of our products or the FDA or we may determine that labeling changes are warranted based on their finding. Such withdrawal or restriction or labeling changes for our products would have an adverse impact on our business and financial condition. Risks Related to Our Business and Strategy We may not realize all the anticipated benefits from our future acquisitions, and we may be unable to successfully integrate future acquisitions. Our growth strategy will, in part, rely on acquisitions. We must plan and manage acquisitions effectively to achieve revenue growth and maintain profitability in our evolving market. We may not realize all the anticipated benefits from our future acquisitions, such as increased earnings, cost savings and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher than expected acquisition and operating costs or other difficulties, inexperience with operating in new geographic regions, unknown liabilities, inaccurate reserve estimates and fluctuations in market prices. In addition, integrating acquired businesses and properties involves a number of special risks and unforeseen difficulties can arise in integrating operations and systems and in retaining and assimilating employees. These difficulties include, among other things:
Any of these or other similar risks could lead to potential adverse short-term or long-term effects on our operating results. The process of integrating our operations could cause an interruption of, or loss of momentum in, the activities of our business. Members of our management may be required to devote considerable amounts of time to this integration process, which decreases the time they have to manage our business. If our management is not able to effectively manage the integration process, or if any business activities are interrupted as a result of the integration process, our business could suffer. Our business may be adversely affected by certain events or circumstances outside our control, including macroeconomic conditions and geopolitical turmoil. Events or circumstances outside of our control, including macroeconomic conditions such as recession or depression, inflation, and declines in consumer-spending could result in reduced demand for our products. An economic downturn could result in business closures, higher levels of unemployment, or declines in consumer disposable income which 36 could have an impact on the number of patients seeking and receiving treatment for conditions that might otherwise result in the prescription of our products, as patients may make efforts to avoid or postpone seeking non-essential medical care to allocate their resources to other priorities or essential items. These circumstances, in addition to the impact of geopolitical turmoil, such as the ongoing Ukrainian War and current conflict in Israel and Gaza (including any escalation or expansion), social unrest, political instability in the United States and elsewhere, terrorism, cyberwarfare or other acts of war, may result in reduced demand for our products and negatively impact our sales, results of operations, and liquidity. Security breaches and other disruptions to our, or our vendors’, information technology systems may compromise our information and expose us to liability that could adversely impact our financial condition, operations, and reputation. We, our collaborators, third-party providers, distributors, customers and other contractors utilize information technology systems and networks (“Systems”) to transmit, store and otherwise process electronic data in connection with our business activities, including our supply chain processes, operations and communications including, in some cases, our business proprietary information, and Electronic Data Interchange (“EDI”) on purchase orders, invoices, chargebacks, among other things. Our Systems, along with those of the third parties whom we rely on to process confidential and sensitive data in a variety of contexts, are potentially vulnerable to a variety of evolving threats that may expose this data to unauthorized persons or otherwise compromise its integrity. These threats may include, but are not limited to, social-engineering attacks (including through phishing attacks), business email compromise, online and offline fraud, malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks, access attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats. We may expend significant resources to try to protect against these threats to our Systems. Certain data privacy and security laws, as well as industry best practice standards, may require us to implement and maintain security measures. While we have implemented security measures designed to protect our Systems and confidential and sensitive data, there can be no assurance that these measures will be effective. Threat actors and their techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred. If we, or a third party upon whom we rely, experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Further, our insurance coverage may not be adequate or sufficient in type or amount to protect us from or to mitigate liabilities arising out of our privacy and security practices. Litigation or regulatory action regarding opioid medications could negatively affect our business. Beginning in 2018, lawsuits alleging damages related to opioids have been filed naming us as a defendant along with other manufacturers of prescription opioid medications. These lawsuits, filed in multiple jurisdictions, are brought by various local governments as well as private claimants, against various manufacturers, distributors and retail pharmacies. These lawsuits generally allege that we had engaged in improper marketing practices related to Xtampza ER and the Nucynta Products. In March 2022, we entered into a Master Settlement Agreement resolving 27 pending opioid-related lawsuits brought against us by cities, counties, and other subdivisions in the United States. As part of the Master Settlement Agreement, we paid $2.75 million to the plaintiffs and the cases were dismissed, with prejudice. In late March 2023, three new cases were filed in three federal courts, naming us as one of numerous defendants, from which we have been dismissed. Certain governmental and regulatory agencies are focused on the abuse of opioid medications, a concern we share, and we have received Civil Investigative Demands or subpoenas from four state attorneys general investigating our sales and marketing of opioids and seeking documents relating to the manufacture, marketing and sale of opioid medications. In December 2021, we entered into an Assurance of Discontinuance with the Massachusetts Attorney General pursuant to which we provided certain assurances and agreed to pay certain of the Massachusetts Attorney General’s costs of investigation, in exchange for closure of the investigation and a release of claims pertaining to the subject matter of the investigation. We are cooperating fully in the open investigations. Managing litigation and responding to governmental investigations is costly and may involve a significant diversion of management attention. Such proceedings are 37 unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these lawsuits or investigations may involve injunctive relief or substantial monetary penalties, either or both of which could have a material adverse effect on our reputation, business, results of operations and cash flows.
We face substantial competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing products
Competition in the pain and opioid market is intense.
Commercial sales of our products
We currently carry product liability insurance. Product liability claims may be
Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings. Healthcare providers, physicians and payors play a primary role in the recommendation and prescription of
We or the third parties upon whom we
Natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of 38 become difficult or, in certain cases, impossible for us to continue our business, and The disaster recovery and business continuity plans we
Risks Related to Our Common Stock The price of our common stock may be volatile and you may lose all or part of your investment. The market price of our common stock is highly volatile and may be subject to wide fluctuations in response to numerous factors described in these “Risk Factors,” some of which are beyond our control.
We are subject to anti-takeover provisions in our second amended and restated articles of incorporation and amended and restated bylaws and under Virginia law that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our shareholders. Certain provisions of Virginia law, the state in which we are incorporated, and our second amended and restated articles of incorporation and amended and restated bylaws could hamper a third party’s acquisition of us, or discourage a third party from attempting to acquire control of us. These provisions
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting.
Sales of
Sales of our common stock in the public market, either by us or by our current shareholders, or the perception that these sales could occur, could cause a decline in the market price of our securities. All of the shares of our common stock held by
39 aggregate of
There can be no assurance that we will repurchase additional shares of our common stock In August 2021, our Board of Directors authorized a repurchase program for the repurchase of up to
Directors authorized a share repurchase program for the repurchase of up to $100.0 million of shares of our common stock In January 2024, our Board of Directors authorized a new share repurchase program for the repurchase of
Item 1B. Unresolved Staff Comments
Not applicable. Item 1C. Cybersecurity Risk Management and Strategy We In addition to If a cybersecurity incident were to occur, we would implement our incident response plan in an effort to contain and mitigate the threat. As part of our incident response plan, our Cybersecurity Incident Response Team (a cross-functional taskforce comprised of senior representatives), would convene to assess the potential impact to our business, including financial reporting requirements and legal implications. 40 We, like other companies in our industry, face a number of cybersecurity risks in connection with our business. Although such risks have not Governance One of the key functions of our Board is informed oversight of our risk management process. Our Board administers this oversight function directly through our Board as a whole, as well as through various standing committees of our Board that address risks inherent in their respective areas of oversight. Our Audit Committee, a subcommittee of our Board, is responsible for the At the management level, our Head of Information Technology is responsible for assessing and managing risks from cybersecurity threats through oversight of our
Item 2. Properties Our corporate headquarters are located in We believe that our existing
Item 4. Mine Safety Disclosures Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock
41 Holders As of Dividends We have never declared or paid cash dividends on our common stock, and we do not expect to pay any cash dividends on our common stock in the foreseeable future.
Stock Performance Graph The following graph Total cumulative shareholder return assumes an
The performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act, except to the extent that we specifically incorporate it by reference into such filing. Recent Sales of Unregistered Securities There were no unregistered sales of equity securities during the period covered by this
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 6.
43 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Overview We are building a leading, diversified specialty pharmaceutical company Xtampza
at least 40 kg. We began shipping and recognizing product sales on the Nucynta Products On March 22, 2022, we 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 of the Belbuca is a
Financial Operations Overview Product Revenues Product
Cost of Product Revenues Cost of product revenues include amortization and impairment expense for the intangible assets acquired in connection with business combinations and asset acquisitions, royalty expenses, the cost of active pharmaceutical ingredient, 44 related to freight, packaging, stability and quality testing. Refer to Note 5, License Agreements, and Note 11, Goodwill andIntangible Assets, for further detail around the intangible assets acquired from the BDSI Acquisition, the Nucynta Intangible Asset and royalty expenses. Research and Development Expenses Research and development expenses
incurred.
Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and
Interest Expense Interest expense consists primarily of cash and non-cash interest costs related to our debt, including the term loan issued in March 2022 in connection with the On March 22, 2022 the outstanding balance related to the
Provision for Income Taxes The provision for income taxes reflects expense or tax benefit for federal and
Critical Accounting Policies and Significant Judgments and Estimates Our 45 historical experience when available and on various We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results. While our significant accounting policies are described in more detail in
Our accounting policy for revenue recognition will have a substantial impact on reported results and relies on certain estimates. Estimates are based on historical experience, current conditions and Product Revenue Our only source of revenue to date has been generated by sales of our products, which are primarily sold to distributors (“customers”), which in turn sell the product to pharmacies and others for the treatment of patients. Revenue for product sales is recognized when
Sales Deductions Sales deductions consist primarily of provisions for: (i) rebates and incentives, including managed care Provisions for rebates and incentives are based on rebates and incentives are adjusted as new information becomes available, including actual claims. If actual results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.
46 At the end of each reporting period, we analyze trends in returns rates and update our assessment of variable consideration for returns. To the extent we receive amounts in excess of what we expect to be entitled to receive due to a product We 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. Actual results may differ from these estimates under different assumptions or conditions. Business Combination Accounting and Valuation of Acquired Assets We The acquisition method of accounting requires that we recognize the 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 of the acquired assets and liabilities assumed is a critical accounting estimate because the estimation of fair values requires significant management judgment and requires various assumptions 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. During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair values of assets acquired and liabilities assumed, if based on facts and circumstances existing at the acquisition date, are recorded on a retroactive basis as of Intangible Assets We record the
the As of December 31, 47 Income Taxes We
As a result of sustained positive earnings history as demonstrated through cumulative earnings, we are using projections of future taxable income as a source of realizing our deferred tax assets. We have maintained a valuation allowance on the
Results of Operations In this section, we discuss the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022. Comparison of the Years Ended December 31, The following table summarizes the results of our operations for the years ended December 31,
48
Product revenues, net Product revenues, net were The increase in revenue for Belbuca of $55.6 million and Symproic of $4.2 million is primarily due to a full year of revenue in 2023, compared to a partial year of revenue in 2022 due to the timing of the BDSI Acquisition. The increase in revenue for Xtampza ER of $38.6 million is primarily due to lower gross-to-net adjustments primarily related to The increase in Cost of Cost of product revenues (excluding intangible asset amortization) was Intangible asset amortization was $145.8 million for 2023, compared to $136.3 million for 2022. The $9.5 million increase in intangible asset amortization was due to a full year
We did not recognize research and development expenses in 2023, compared to $4.0 million recognized in 2022. The $4.0 million decrease was due to redirection of resources from research and development activities during 2022 as we shifted our focus to supporting our commercial products rather than research and development. Selling, general and administrative expenses were
Interest expense and Interest income Interest expense was $83.3 million for 2023, compared to $63.2 million for 2022. The $20.1 million increase was primarily due to the 2022 Term Loan that we entered into in connection with the BDSI Acquisition, higher interest rates impacting our variable rate term loan debt, and higher interest expense due to the issuance of the 2029 Convertible Notes (offset by the partial repurchase of the 2026 Convertible Notes).
49
Interest income was $15.6 million for 2023, compared to $1.0 million for 2022. The $14.6 million increase was primarily due to a higher overall balance invested in 2023 compared to 2022 and higher interest rates earned on cash equivalents and marketable securities. Loss on extinguishment of debt We recognized a $23.5 million loss on extinguishment of debt in 2023 in connection with the repurchase of a portion of our 2026 Convertible Notes. This transaction involved a contemporaneous exchange of cash between us and holders of the 2026 Convertible Notes participating in the issuance of the 2029 Convertible Notes. 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. Income Taxes The provision for income taxes was $27.6 million for 2023, compared to a $3.8 million benefit from income taxes for 2022. The tax provision for 2023 was impacted by non-deductible costs, including non-deductible costs associated with the debt extinguishment that occurred in the first quarter of 2023 as well as non-deductible costs related to stock-based compensation, including 162(m) limitations. In 2022, we recognized a deferred tax benefit, partially offset by state income tax expense. The provision for income taxes in 2022 primarily consisted of state income tax for states for which our state-level NOLs did not fully offset state-level taxable income. The effective tax rate was 36.4% and 13.3% for 2023 and 2022, respectively. Liquidity and Capital Resources Sources of
Historically, we have funded our operations primarily through the private placements and/or public offerings of our preferred stock,
Borrowing Arrangements and Equity Offerings The following transactions represent our material borrowing arrangements and equity offerings: the 2022 Term Loan, the 2026 Convertible Notes, and the 2029 Convertible Notes. Refer to Note 14, Debt, for more information. 50 Cash flows In this section, we
Operating activities. Cash provided by operating activities was $274.7 million in 2023, compared to $124.2 million in 2022. The
Investing activities. Cash used in investing activities was Financing activities.Cash used in
Funding requirements We believe that our cash, cash equivalents, and marketable securities as of December 31, 2023, together with expected cash inflows from operations, will enable us to fund our operating expenses, debt service and capital expenditure requirements under our current business plan for the
We
Contractual Obligations
We also have employment agreements with executive officers that would require us to make severance payments to them if we terminate their employment without cause or the executives resign for good cause. These payments are contingent upon the occurrence of various future events, and the amounts payable under these provisions depend upon the level of compensation at the time of termination of employment, and therefore, are Non-GAAP Financial Measures To supplement our financial results presented on a
We Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income or loss adjusted to exclude interest expense, interest income, the There are several limitations related to the use of adjusted EBITDA rather than net income or loss, which is the nearest GAAP equivalent, such as:
52
Adjusted EBITDA for the years ended December 31, 2023 and 2022 was as follows:
Adjusted EBITDA was $367.0 million for 2023 compared to $266.0 million for 2022. The $101.0 million increase was primarily due to higher revenues and gross profit before excluded costs, partially offset by higher adjusted operating expenses. 53 The following is a summary of 2023 quarterly Adjusted EBITDA:
Adjusted Operating Expenses Adjusted operating expenses is a non-GAAP financial measure that represents GAAP operating expenses adjusted to exclude stock-based compensation expense, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations. Adjusted operating expenses for the years ended December 31, 2023 and 2022 were as follows:
Adjusted operating expenses were $123.6 million for 2023 compared to $122.0 million for 2022. The $1.6 million increase was primarily driven by:
54 The following is a summary of 2023 quarterly adjusted operating expenses:
Adjusted Net Income and Adjusted Earnings Per Share Adjusted net income is a non-GAAP financial measure that represents GAAP net income or loss adjusted to exclude significant income and expense items that are non-cash or not indicative of ongoing operations, including consideration of the tax effect of the adjustments. Adjusted earnings per share is a non-GAAP financial measure that represents adjusted net income per share. Adjusted weighted-average shares - diluted is calculated in accordance with the treasury stock, if-converted, or contingently issuable accounting methods, depending on the nature of the security. Adjusted net income and adjusted earnings per share for the years ended December 31, 2023 and 2022 were as follows:
55 The following is a summary of 2023 quarterly adjusted net income and adjusted earnings per share:
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
Investment Portfolio Our investment portfolio includes financial instruments that are sensitive to interest rate risks. Our investment portfolio is used to preserve capital, maintain liquidity sufficient to meet cash flow requirements, and maximize returns commensurate with our risk appetite. We invest in instruments that meet the credit quality, diversification, liquidity, and maturity standards outlined in our investment policy. As of December 31, 2023, our investment portfolio includes $82.0 million of cash equivalents and $71.6 million of marketable securities, which 56 2022 Term Loan The 2022 Term Loan bears interest at a rate based upon the Secured Overnight Financing Rate (“SOFR”) plus a spread adjustment of 0.26% (subject to a floor of 1.20%), plus a margin of 7.5% per annum. Based on the outstanding principal amount of the 2022 Term Loan as of December 31, 2023 of $412.5 million and the applicable interest rate, a hypothetical 1% increase or decrease in interest rates would Item 8. Consolidated Financial Statements and Supplementary Data Our Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures
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 (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 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
Changes in 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 10b5-1 trading arrangement” or “non-Rule 10b5-1 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 Item 10. Other than the information regarding our executive officers provided in Part I of this report under the heading Our 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 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 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 60
The information required by this Item 14 is incorporated herein by reference from our definitive proxy statement for the PART IV Consolidated Financial Statements
Consolidated Financial Statement Schedules All financial statement schedules are omitted because they are not applicable or the required information is included in the Exhibits
61
62
†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.
64 SIGNATURES Pursuant to the requirements of
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
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, 20172023 and 2016,2022, the related consolidated statements of operations, convertible redeemable preferred stock andcomprehensive income (loss), shareholders' equity, (deficit), and cash flows, for each of the twothree years in the period ended December 31, 2017,2023, 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, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 2017,2023, 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 Public Company Accounting Oversight Board (United States) (PCAOB)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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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
March 7, 2018February 22, 2024
We have served as the Company's auditor since 2016.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Collegium Pharmaceutical, Inc.
We have audited the consolidatedbalance sheet of Collegium Pharmaceutical, Inc. and its subsidiary (the “Company”) as of December 31, 2015 (not presented herein), and the related statements of operations, convertible redeemable preferred stock and shareholders’ equity (deficit), and cash flows for the year ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Collegium Pharmaceutical, Inc. and its subsidiary as of December 31, 2015, and the results of their operations and their cash flows for the year ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Boston, Massachusetts
March 18, 2016
F-3
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
|
| 2017 |
| 2016 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| $ | 118,697 |
| $ | 153,225 |
|
Accounts receivable |
|
|
| 9,969 |
|
| 2,129 |
|
Inventory |
|
|
| 1,813 |
|
| 1,316 |
|
Prepaid expenses and other current assets |
|
|
| 3,005 |
|
| 1,905 |
|
Total current assets |
|
|
| 133,484 |
|
| 158,575 |
|
Property and equipment, net |
|
|
| 1,826 |
|
| 1,038 |
|
Intangible assets, net |
|
|
| — |
|
| 2,103 |
|
Restricted cash |
|
|
| 97 |
|
| 97 |
|
Other long-term assets |
|
|
| 161 |
|
| 204 |
|
Total assets |
|
| $ | 135,568 |
| $ | 162,017 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
| $ | 5,684 |
| $ | 9,106 |
|
Accrued expenses |
|
|
| 8,541 |
|
| 8,879 |
|
Accrued rebates, returns and discounts |
|
|
| 15,784 |
|
| — |
|
Deferred revenue |
|
|
| — |
|
| 4,944 |
|
Current portion of term loan payable |
|
|
| 1,479 |
|
| 2,667 |
|
Total current liabilities |
|
|
| 31,488 |
|
| 25,596 |
|
Lease incentive obligation |
|
|
| — |
|
| 34 |
|
Term loan payable, long-term |
|
|
| — |
|
| 1,479 |
|
Total liabilities |
|
|
| 31,488 |
|
| 27,109 |
|
Commitments and contingencies (see Note 9) |
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; authorized shares - 5,000,000 at December 31, 2017 and December 31, 2016; issued and outstanding shares - none at December 31, 2017 and December 31, 2016 |
|
|
| — |
|
| — |
|
Common stock, $0.001 par value; authorized shares - 100,000,000 at December 31, 2017 and December 31, 2016; issued and outstanding shares - 32,770,678 at December 31, 2017 and 29,364,100 at December 31, 2016 |
|
|
| 33 |
|
| 29 |
|
Additional paid-in capital |
|
|
| 402,096 |
|
| 358,063 |
|
Accumulated deficit |
|
|
| (298,049) |
|
| (223,184) |
|
Total shareholders’ equity |
|
|
| 104,080 |
|
| 134,908 |
|
Total liabilities and shareholders’ equity |
|
| $ | 135,568 |
| $ | 162,017 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Product revenues, net | $ | 28,476 |
| $ | 1,711 |
| $ | — |
Costs and expenses |
|
|
|
|
|
|
|
|
Cost of product revenues |
| 2,595 |
|
| 213 |
|
| — |
Research and development |
| 8,572 |
|
| 14,948 |
|
| 7,975 |
Selling, general and administrative |
| 92,756 |
|
| 80,632 |
|
| 18,932 |
Total costs and expenses |
| 103,923 |
|
| 95,793 |
|
| 26,907 |
Loss from operations |
| (75,447) |
|
| (94,082) |
|
| (26,907) |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest income (expense), net |
| 582 |
|
| (94) |
|
| (439) |
Gain on extinguishment of debt |
| — |
|
| — |
|
| 91 |
Total other income (expense), net |
| 582 |
|
| (94) |
|
| (348) |
|
|
|
|
|
|
|
|
|
Net loss | $ | (74,865) |
| $ | (94,176) |
| $ | (27,255) |
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted | $ | (2.47) |
| $ | (3.88) |
| $ | (1.48) |
Weighted-average shares - basic and diluted |
| 30,265,262 |
|
| 24,262,945 |
|
| 13,542,282 |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series A |
| Series B |
| Series C |
| Series D |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| Convertible |
| Convertible |
| Convertible |
| Convertible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total | ||||||||||||
| Redeemable |
| Redeemable |
| Redeemable |
| Redeemable |
|
|
|
|
|
|
|
| Additional |
|
| Treasury |
|
|
|
|
| Shareholders’ | ||||||||||||
| Preferred Stock |
| Preferred Stock |
| Preferred Stock |
| Preferred Stock |
|
| Common Stock |
|
| Paid- In |
|
| Stock, |
|
| Accumulated |
|
| Equity | |||||||||||||||
| Shares |
|
| Amount |
| Shares |
|
| Amount |
| Shares |
|
| Amount |
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| at cost |
|
| Deficit |
|
| (Deficit) |
Balance at December 31, 2014 | 9,232,334 |
| $ | 12,781 |
| 27,324,237 |
| $ | 51,212 |
| 8,658,008 |
| $ | 13,114 |
| — |
| $ | — |
|
| 1,006,219 |
| $ | 1 |
| $ | 12,407 |
| $ | (3) |
| $ | (101,753) |
| $ | (89,348) |
Exercise of common stock options | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 173,251 |
|
| — |
|
| 517 |
|
| — |
|
| — |
|
| 517 |
Exercise of warrants | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 16,062 |
|
| — |
|
| 6 |
|
| — |
|
| — |
|
| 6 |
Issuance of restricted stock awards to employees | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 194,694 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Issuance of Series D convertible redeemable preferred stock, net of issuance costs of $193 | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| 37,500,000 |
|
| 44,807 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Conversion of notes to Series D convertible redeemable preferred stock | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| 4,166,667 |
|
| 5,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Extinguishment of prior preferred stock dividends | — |
|
| (3,733) |
| — |
|
| (23,341) |
| — |
|
| (4,110) |
| — |
|
| — |
|
| — |
|
| — |
|
| 31,184 |
|
| — |
|
| — |
|
| 31,184 |
Accruals of dividends and accretion to redemption value | — |
|
| 2,297 |
| — |
|
| 18,034 |
| — |
|
| 2,996 |
| — |
|
| 1,245 |
|
| — |
|
| — |
|
| (24,572) |
|
| — |
|
| — |
|
| (24,572) |
Conversion of preferred stock to common stock | (9,232,334) |
|
| (11,345) |
| (27,324,237) |
|
| (45,905) |
| (8,658,008) |
|
| (12,000) |
| (41,666,667) |
|
| (50,000) |
|
| 12,591,463 |
|
| 13 |
|
| 119,237 |
|
| — |
|
| — |
|
| 119,250 |
Initial Public Offering, net of issuance costs of $2,408 | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 6,670,000 |
|
| 7 |
|
| 72,022 |
|
| — |
|
| — |
|
| 72,029 |
Issuance of common stock in payment of Series D accrued dividends | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (1,052) |
|
| 87,662 |
|
| — |
|
| 1,052 |
|
| — |
|
| — |
|
| 1,052 |
Stock-based compensation expense | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 2,209 |
|
| — |
|
| — |
|
| 2,209 |
Net loss | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (27,255) |
|
| (27,255) |
Balance at December 31, 2015 | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 20,739,351 |
|
| 21 |
|
| 214,062 |
|
| (3) |
|
| (129,008) |
|
| 85,072 |
Exercise of common stock options | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 81,831 |
|
| — |
|
| 443 |
|
| — |
|
| — |
|
| 443 |
Issuance for employee stock purchase plan | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 42,918 |
|
| — |
|
| 442 |
|
| — |
|
| — |
|
| 442 |
Public offerings of common stock, net of issuance costs of $845 | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 8,500,000 |
|
| 8 |
|
| 137,332 |
|
| — |
|
| — |
|
| 137,340 |
Retirement of treasury stock |
|
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (3) |
|
| 3 |
|
| — |
|
| — |
Stock-based compensation | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 5,787 |
|
| — |
|
| — |
|
| 5,787 |
Net loss | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (94,176) |
|
| (94,176) |
Balance at December 31, 2016 | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 29,364,100 |
|
| 29 |
|
| 358,063 |
|
| — |
|
| (223,184) |
|
| 134,908 |
Exercise of common stock options | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 158,801 |
|
| 1 |
|
| 735 |
|
| — |
|
| — |
|
| 736 |
Issuance for employee stock purchase plan | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 110,841 |
|
| — |
|
| 1,141 |
|
| — |
|
| — |
|
| 1,141 |
Vesting of restricted stock units | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 14,757 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Shares withheld for employee taxes upon vesting of restricted stock units | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (4,819) |
|
| — |
|
| (68) |
|
| — |
|
| — |
|
| (68) |
Public offerings of common stock, net of issuance costs of $1,253 | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 3,126,998 |
|
| 3 |
|
| 34,280 |
|
| — |
|
| — |
|
| 34,283 |
Stock-based compensation | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 7,945 |
|
| — |
|
| — |
|
| 7,945 |
Net loss | — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (74,865) |
|
| (74,865) |
Balance at December 31, 2017 | — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
|
| 32,770,678 |
| $ | 33 |
| $ | 402,096 |
| $ | — |
| $ | (298,049) |
| $ | 104,080 |
The accompanying notes are an integral part of these consolidated financial statements
F-6
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | |
| | 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 |
(In thousands)
|
|
|
|
|
|
|
|
|
| Years ended December 31, | |||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
Operating activities |
|
|
|
|
|
|
|
|
Net loss | $ | (74,865) |
| $ | (94,176) |
| $ | (27,255) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 594 |
|
| 655 |
|
| 171 |
Non-cash impairment charges |
| 1,845 |
|
| — |
|
| — |
Lease incentive obligation |
| (34) |
|
| (34) |
|
| (34) |
Stock-based compensation expense |
| 7,945 |
|
| 5,787 |
|
| 2,209 |
Non-cash interest expense |
| — |
|
| — |
|
| 6 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
| (7,840) |
|
| (2,129) |
|
| — |
Inventories |
| (497) |
|
| (1,316) |
|
| — |
Prepaid expenses and other assets |
| (1,057) |
|
| (923) |
|
| (659) |
Refundable PDUFA fee |
| — |
|
| — |
|
| 2,335 |
Accounts payable |
| (3,422) |
|
| 5,569 |
|
| 1,298 |
Accrued expenses |
| (527) |
|
| 6,570 |
|
| 362 |
Accrued rebates, returns and discounts |
| 15,784 |
|
| — |
|
| — |
Deferred revenue |
| (4,944) |
|
| 4,944 |
|
| — |
Net cash used in operating activities |
| (67,018) |
|
| (75,053) |
|
| (21,567) |
Investing activities |
|
|
|
|
|
|
|
|
Purchase of intangible assets |
| — |
|
| (2,500) |
|
| — |
Purchases of property and equipment |
| (990) |
|
| (477) |
|
| (362) |
Net cash used in investing activities |
| (990) |
|
| (2,977) |
|
| (362) |
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuances of common stock from public offerings, net of issuance costs of $1,198, $845 and $2,408, respectively |
| 34,338 |
|
| 137,340 |
|
| 72,029 |
Proceeds from issuances of common stock from employee stock purchase plans |
| 1,141 |
|
| 442 |
|
| — |
Proceeds from issuance of Series D convertible redeemable preferred stock, net of issuance costs of $193 |
| — |
|
| — |
|
| 44,807 |
Repayment of term note |
| (2,667) |
|
| (2,667) |
|
| (1,286) |
Repayment of lease note payable |
| — |
|
| — |
|
| (59) |
Restricted cash |
| — |
|
| — |
|
| (16) |
Proceeds from the exercise of stock options |
| 736 |
|
| 443 |
|
| 517 |
Payments made for employee restricted stock tax withholdings |
| (68) |
|
| — |
|
| — |
Net cash provided by financing activities |
| 33,480 |
|
| 135,558 |
|
| 115,992 |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
| (34,528) |
|
| 57,528 |
|
| 94,063 |
Cash and cash equivalents at beginning of period |
| 153,225 |
|
| 95,697 |
|
| 1,634 |
Cash and cash equivalents at end of period | $ | 118,697 |
| $ | 153,225 |
| $ | 95,697 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for offering costs | $ | 1,228 |
| $ | — |
| $ | — |
Cash paid for interest | $ | 139 |
| $ | 284 |
| $ | 353 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities |
|
|
|
|
|
|
|
|
Offering costs in accrued expenses | $ | 55 |
| $ | — |
| $ | — |
Acquisition of property and equipment in accrued expenses | $ | 216 |
| $ | 81 |
| $ | — |
Preferred stock conversion to common stock | $ | — |
| $ | — |
| $ | 120,302 |
Extinguishment of preferred stock | $ | — |
| $ | — |
| $ | 31,184 |
Accruals of dividends and accretion to redemption value | $ | — |
| $ | — |
| $ | 24,572 |
Conversion of bridge note to preferred stock | $ | — |
| $ | — |
| $ | 5,000 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
COLLEGIUM PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(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’ EQUITY
(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 FLOWS
(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
1. NATURE OF BUSINESSOrganization
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 Canton,Stoughton, Massachusetts. The Company Company’s mission is to build a leading, diversified specialty pharmaceutical company focused on becomingcommitted to improving the leader in responsible pain management by developing and commercializing innovative, differentiated products for patients suffering from pain.lives of people living with serious medical conditions. The Company’s first product,portfolio includes Xtampza ER®ER, Nucynta ER and Nucynta IR (collectively the “Nucynta Products”), or Xtampza, is an abuse-deterrent, extended-release, oral formulation of oxycodone, a widely prescribed opioid medication. In April 2016, the U.S. FoodBelbuca, and Drug Administration (“FDA”) approved the Company’s new drug application (“NDA”) filing for Xtampza for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. In June 2016, the Company announced the commercial launch of Xtampza.Symproic.
The Company’s operations are subject to certain risks and uncertainties. The principal risks include inability to continue successfully commercializecommercializing products, changing market conditions for products and product candidates (including development of competing products),products, changing regulatory environment and reimbursement landscape, negative outcomeproduct-related litigation, manufacture of clinical trials,adequate commercial inventory, inability or delay in completing clinical trials or obtaining regulatory approvals, the need to retainsecure adequate supplies of active pharmaceutical ingredients, key personnel and protectretention, protection of intellectual property, and patent infringement litigation and the availabilitylitigation.
2. Summary of additional capital financing on terms acceptable to the Company.Significant Accounting Policies
Public Offerings of Common Stock
In May 2015, the Company closed an initial public offering (“IPO”) of its common stock, which resulted in the sale of 6,670,000 shares of its common stock at a public offering price of $12.00 per share, including 870,000 shares of common stock upon the exercise by the underwriters of their option to purchase additional shares at the public offering price. The Company received proceeds from the IPO of approximately $72,029 after deducting underwriting discounts, commissions and expenses payable by the Company.
In April 2015, in connection with preparing for the IPO, the Company’s board of directors and shareholders approved a one‑for‑6.9 reverse split of the Company’s common stock. All common stock share and per share amounts in the financial statements have been retroactively adjusted for all periods presented to give effect to the reverse split of the Company’s common stock, including reclassifying an amount equal to the reduction in par value to additional paid‑in capital.
In connection with the closing of the IPO, all of the Company’s outstanding convertible preferred stock and accrued dividends automatically converted to common stock in May 2015, resulting in an additional 12,591,463 shares of common stock of the Company becoming outstanding. The significant increase in common stock outstanding in May 2015 impacted the year-over-year comparability of the Company’s net loss per share calculations.
In January 2016, the Company issued and sold in a public offering an aggregate of 2,750,000 shares of its common stock at $20.00 per share. The Company received net proceeds from this public offering of approximately $51,174, after deduction of underwriting discounts and commissions and expenses payable by the Company.
In October 2016, the Company issued and sold in a public offering an aggregate of 5,750,000 shares of its common stock at $16.00 per share. The Company received net proceeds from this public offering of approximately $86,166, after deduction of underwriting discounts and commissions and expenses payable by the Company.
F-8
Controlled Equity Offering Sales Agreement
In March 2017, the Company entered into a Controlled Equity Offering Sales Agreement (the “ATM Sales Agreement”), with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which the Company may issue and sell, from time to time, through Cantor Fitzgerald, shares of the Company’s common stock, up to an aggregate offering price of $60,000 (the “ATM Shares”).
Under the ATM Sales Agreement, Cantor Fitzgerald may sell the ATM Shares by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on The NASDAQ Global Select Market, on any other existing trading market for the ATM Shares or to or through a market maker. In addition, under the ATM Sales Agreement, Cantor Fitzgerald may sell the ATM Shares by any other method permitted by law, including in privately negotiated transactions.
The Company is not obligated to make any sales of the ATM Shares under the ATM Sales Agreement. The Company or Cantor Fitzgerald may suspend or terminate the offering of ATM Shares upon notice to the other party and subject to other conditions. The Company will pay Cantor Fitzgerald a commission of up to 3.0% of the gross proceeds from the sale of the ATM Shares pursuant to the ATM Sales Agreement and has agreed to provide Cantor Fitzgerald with customary indemnification and contribution rights.
As of December 31, 2017, the Company had sold an aggregate of 3,126,998 ATM Shares under the ATM Sales Agreement at an average gross sales price of $11.36 per share generating net proceeds of $34,283 after deduction of underwriting discounts and commissions and expenses payable by the Company, all of which were sold during the year ended December 31, 2017.
Basis of Accounting
The consolidated financial statements include the accounts of Collegium Pharmaceutical, Inc. (a Virginia corporation) as well as the accounts of its subsidiaries Collegium Securities Corp.Corporation (a Massachusetts corporation), incorporated in December 2015, and Collegium NF LLC (a Delaware limited liability company), incorporated in December 2017, bothBioDelivery 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 generally accepted in the United States of America.America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.
Liquidity
The Company has experienced net losses and negative cash flows from operating activities since its inception, and as of December 31, 2017, had an accumulated deficit of $298,049. The Company expects to continue to incur net losses in the near future. A successful transition to profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.
The Company believes that its cash and cash equivalents at December 31, 2017, together with expected cash inflows from sales of its products will enable the Company to fund its operating expenses, debt service, contractual obligations and capital expenditure requirements into 2020. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from other sources. If the Company is unable to obtain financing or increase profitability, the related lack of liquidity will have a material adverse effect on the Company’s operations and future prospects.
F-9
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the Company’sconsolidated financial statements in accordance with GAAP requires itthe 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. The most significant estimatesEstimates in the Company’s consolidated financial statements relate toinclude revenue recognition, including the estimates of product returns, units prescribed, discounts and allowances related to commercial sales of Xtampza,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 reserves.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
Disclosures of fair value information about financial instruments are required, whether or not recognized in the balance sheet, for financial instruments with respect to which it is practicable to estimate that value. The carrying amounts reported in the Company’s financial statements for cash and cash equivalents, accounts payable, term loan payable and accrued liabilities approximate their respective fair values because of the relative short‑term nature of these accounts.
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 |
Level 2 inputs: | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or |
Level 3 inputs: | Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or |
Transfers are calculatedThe Company’s approach to fair value measurement is aligned with its investment policy focused on values as of the transfer date. 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, 20172023 and 2016.2022.
The following tables presenttable presents the Company’s financial instruments carried at fair value using the lowest level input applicable to each financial instrument atas of December 31, 20172023 and 2016.2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
|
| Quoted Prices |
|
| other |
|
| Significant |
|
|
|
|
|
|
| in active |
|
| observable |
|
| unobservable |
|
|
|
|
|
|
| markets |
|
| inputs |
|
| inputs |
|
Description |
|
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds, included in cash equivalents |
| $ | 81,225 |
| $ | 81,225 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds, included in cash equivalents |
| $ | 125,515 |
| $ | 125,515 |
| $ | — |
| $ | — |
|
| | | | | | | | | | | | |
| | | | | | | | | 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 and in federally insured financial institutions in excess of federally insured limits.institution. In addition, as of December 31, 2017,2023, the Company’s cash equivalents were invested in one money market fund. Three customers comprised 10% or more of the Company’s accounts receivable balance as of December 31, 2017. These customers
F-10
comprised 49%, 24% and 20% of the accounts receivable balance, respectively. Three customers comprised 10% or more of the Company’s revenue during the year ended December 31, 2017. These customers comprised 39%, 29% and 23% of revenue, respectively.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.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‑offbalance 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.
TheRestricted 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 cash equivalents, which consistlease of money market funds, are measured at fair value on a recurring basis. its corporate headquarters and its leases of vehicles for its field-based employees.
Marketable Securities
As of December 31, 20172023, the Company’s marketable securities consisted of investments in available-for-sale corporate debt, U.S. Treasury, and 2016, the carrying amount of cash equivalents was $81,225 and $125,515, respectively, which approximatesgovernment-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 and was determined based upon Level 1 inputs. Money market funds are valued using quoted market prices with no valuation adjustments applied. Accordingly,of these securities is based on quoted prices for identical assets or inputs other than quoted prices that are categorizedobservable 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 Level 1.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.
InventoryFor 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 Xtampza,the Company’s products, which are primarily the costs of contract manufacturing.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. As of December 31, 2017, cumulative estimates of excess inventory recorded as a component of cost of product revenues were immaterial. Inventories that are not expected to be used within one year are recorded as a non-current asset.
The Company outsources the manufacturing of Xtampzaits products to a sole contract manufacturer that produces the finished product.manufacturers. In addition, the Company currently relies on a sole supplier or a limited number of suppliers for the active pharmaceutical ingredient for Xtampza.ingredients in its products. Accordingly, the Company has concentration risk associated with its commercial manufacturing of Xtampza.manufacturing.
Prior to the approval of Xtampza by the FDA in April 2016, the Company recorded all costs incurred related to the manufacturing of Xtampza as research and development expense. Subsequent to approval, the Company began capitalizing these costs as inventory as they are incurred.
The Company has capitalized $1,813expects to use the inventory over its operating cycle.
Business Combination Accounting and Valuation of inventoryAcquired 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 December 31, 2017.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 expects salesperformed 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 capitalized unitsCompany’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 occur duringbe utilized. The Company tests intangible assets for potential impairment whenever triggering events or circumstances present an indication of impairment. If the next twelve months.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 historical cost. Maintenance and repair costs are expensed as incurred. Costs which materially improve or extend the lives of existing assets are capitalized. The Company provides for depreciationProperty and amortizationequipment are depreciated when placed into service using the straight‑linestraight-line method over thebased on their estimated useful lives of the assets, which are as follows:
| | | |
Asset Category | Estimated Useful Life | ||
|
| ||
Computers and office equipment |
|
| |
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.
F-11
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.
Intangible AssetsLeases
IntangibleThe Company records lease assets thatand 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 deemed to have a definite life are amortized over their useful livesnot included in the measurement of the operating lease liability and are evaluated separately for impairment at least annuallyrecognized 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 (See Note 7). Amortizationrecoverable. If indications of intangible assets is recognized on a straight-line basis.
Restricted Cash
Restrictedimpairment exist, projected future undiscounted cash represents cash held in a depository account at a financial institution to collateralize a conditional stand‑by letter of credit relatedflows associated with the asset (or asset group) would be compared to the Company’s Canton, Massachusetts facility lease agreement. Restricted cashcarrying value of the asset to determine whether the asset's value is reported as non‑current unlessrecoverable. If impairment is determined, the restrictions are expectedCompany writes down the asset to be releasedits 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 next twelve months.period at which such a determination is made.
Revenue Recognition
Revenue for product salesThe Company’s revenue to date is recognized when there is persuasive evidence of an arrangement, title and risk of loss have passed to the customer, which generally occurs upon delivery; when estimated provisions for chargebacks, rebates, sales incentives and allowances, distribution service fees, and returns are reasonably determinable; and when collectability is reasonably assured. Product sales are recorded net of estimated chargebacks, rebates, sales incentives and allowances, distribution service fees, as well as estimated product returns.
Beginning in the third quarter of 2017, the Company determined that it had sufficient experience withfrom sales of Xtampzathe Company’s products, which are primarily sold to estimate its returns at time of shipment. The Company sells its products primarily towholesale pharmaceutical distributors, (“customers”), which in turn sell the product to pharmacies for the treatment of patients. The Company providesrecognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the rightconsideration 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 returnproduct 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 its customerscontract research organizations for a limited time beforemanaging clinical and after its expiration date. non-clinical trials, and regulatory costs.
As a result of its experience to date with Xtampza sales,April 1, 2022, the Company determined that it can reasonably estimate the amount of future product returns. This determination has enabled the Company to recognize revenue earlierfocused entirely on the sell-in method, net of a provision for estimated returns, because the Company can record revenue once sold to the customercommercial products rather than waiting until the product is sold to the end user on a sell-through method. The Company recorded a one-time $4,377 increase to revenues duringresearch 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 September 30, 2017 as a result of the Company’s change to the sell-in method in the third quarter of 2017.March 31, 2022.
The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
| Rebates and |
| Product |
| Trade Allowances and | |||
|
| Incentives (1) |
| Returns (2) |
| Chargebacks (3) | |||
Balance at December 31, 2016 |
| $ | - |
| $ | - |
| $ | - |
Provision related to current period sales |
|
| 23,505 |
|
| 3,523 |
|
| 6,476 |
Adjustment related to prior period sales |
|
| 179 |
|
| - |
|
| (140) |
Credits/payments made |
|
| (11,037) |
|
| (386) |
|
| (4,080) |
Balance at December 31, 2017 |
| $ | 12,647 |
| $ | 3,137 |
| $ | 2,256 |
F-12
Research and Development Costs
Research and development costs are charged to expense as incurred and consist of costs incurred to further the Company’s research and development activities including salaries and employee related costs, costs associated with market research and design, costs associated with conducting preclinical, clinical and regulatory activities including fees paid to third‑party professional consultants and service providers, costs incurred under clinical trial agreements, costs for laboratory supplies, costs to acquire, develop and manufacture preclinical study and clinical trial materials, facilities, depreciation and other expenses including allocated expenses for rent and maintenance of facilities.
Patent Costs
Costs related to filing and pursuing patent applications are recorded as selling, general and administrative expense as incurred since the recoverability of such expenditures is uncertain.
Advertising and Product Promotion Costs
Advertising and product promotion costs are included in selling, general and administrative expenses and were $11,019$7,406, $11,743, and $16,328$4,186 in the years ended December 31, 20172023, 2022, and 2016,2021 respectively. Advertising and product promotion costs are expensed as incurred.
Stock‑BasedStock-Based Compensation
The Company accounts for grants of stock options, restricted stock awardsunits and restricted stockperformance share units to employees, including membersas well as to the Board of the board of directors,Directors, based on theirthe grant date fair value and recognizes compensation expense over theirthe vesting period.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 as of the date of grant using the Black‑ScholesBlack-Scholes option pricing model and restricted stock awards andmodel. The Company estimates the grant date fair value of restricted stock units based on the fair value of the underlying common stock as determined by management orstock. For awards with performance conditions, the valueCompany estimates the number of shares that will vest based upon the services provided, whichever is more readily determinable.
Stock‑basedprobability of achieving performance metrics. For awards with market conditions, the Company recognizes compensation expense represents the cost ofon an accelerated attribution basis. The Company estimates the grant date fair value of employee stock option grantsawards 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 over$4,578 in restructuring expense. Of this amount, $1,335 was paid by December 31, 2021 and the requisite service periodremaining $3,243 was paid in the first half of the awards (usually the vesting period) on a straight‑line basis, net of estimated forfeitures. The expense is adjusted for actual forfeitures as they occur.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
F-13
tax-planning strategies and the absence of carryback available from results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future, in excess of its net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions on the basis of a two‑steptwo-step process wherebywhereby: (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 positionposition; 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 percent50% 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, 2017 and 2016,2023, 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.
Net LossEarnings per Common Share
Basic net lossearnings per common share is calculated by dividing the net income or loss attributable to common shareholders by the weighted‑averageweighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net lossearnings per share is computed by dividing the net income or loss attributable to common shareholders by the weighted‑averageweighted-average number of shares of common stock, andplus potentially dilutive securities outstanding for the period.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 net lossearnings per share calculation, stock options, warrants, redeemablerestricted stock units, performance share units, and shares potentially issuable in connection with the employee stock purchase plan and convertible preferred stock and unvested restricted stocksenior notes are considered potentially dilutive securities. Becausesecurities 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 has reportedas 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 net lossconvertible 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 years ended December 31, 2017, 2016if-converted method to be applied for all convertible instruments and 2015,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 common share iswill be computed using the same asif-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 net loss per common share for those periods.
Diluted earnings per share is computed usingwas increased by $0.19, and diluted earnings per share was decreased by $0.06 for the more dilutiveyear ended December 31, 2021.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform(Topic 848): Facilitation of (i) the two‑class method,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 (ii)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 if‑converted method. The Company allocates earnings firstFASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, in January 2021 to preferred shareholders basedrefine and clarify some of its guidance on dividend rightsASU 2020-04 and thenASU 2022-06, Reference Rate Reform (Topic 848) to common and preferred shareholders based on ownership interests. The weighted‑average numberdefer the sunset date of common shares includedTopic 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 computation of diluted earnings (loss) gives effectUnited States on June 30, 2023, the Company elected to all potentially dilutive common equivalent shares, including outstanding stock options, warrants, convertible redeemable preferred stock andapply the potential issuance of stock upon the conversionoptional 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 convertible notes. Common stock equivalent shares are excluded from the computation of diluted earnings (loss) per share if their effect is antidilutive.consolidated financial statements.
F-16
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2015,November 2023, the FASB issued ASU No. 2015-14, Revenue from Contracts2023-07, Segment Reporting (Topic 280). The amendments in this update expand segment disclosure requirements, including new segment disclosure requirements for entities with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). ASU 2015-14 defers by one year thea single reportable segment among other disclosure requirements. This update is effective date of ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). The deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017.2023, and interim periods within fiscal years beginning after December 15, 2024. The main provision of ASU 2014-09 is to recognize revenue when control of the goods or services transfers to the customer, as opposed to the existing guidance of recognizing revenue when the risks and rewards transfer to the customer. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company adopted ASU 2014-09 effective January 1, 2018, using the modified retrospective approach. Prior periods were not retrospectively adjusted. The implementationadoption of this guidance didstandard is not expected to have a material impact on itsthe 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 for the reasons discussed in detail below.upon future adoption.
3. Revenue from Contracts with Customers
Currently,
The Company’s revenue to date is from sales of the Company’s only source of revenue is derived through the sales of Xtampza. The Company sells its products, which are primarily sold to customers,wholesalers (customers), which in turn sell the product to pharmacies or other outlets for the treatment of patients. Under current GAAP,
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 product salesthose 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 there is persuasive evidencea customer takes control of an arrangement, title and risk of loss have passed to the customer,Company’s product, which occurs at a point in time. This generally occurs upon delivery and when estimated provisions for chargebacks, rebates, sales incentives and allowances, distribution service fees, and returns are reasonably determinable, and when collectability is reasonably assured. Product sales are recorded net of estimated chargebacks, rebates, sales incentives and allowances, distribution service fees, as well as estimated product returns. Beginning in the third quarter of 2017,products to customers, at which point the Company determined that it had sufficient experience with sales of Xtampzarecognizes revenue and records accounts receivable. Payment is typically received 30 to estimate its returns at time of shipment,
F-14
resulting in the Company recognizing revenue once sold to customers.
Under Topic 606, revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control90 days after satisfaction of the promised products or services is transferred to customers. 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”). Incidental items that are immaterial in the context of the contract are recognized as expense. To the extent that theThe transaction price for product sales includes variable consideration therelated 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 is required towill estimate the amount of variable consideration that should be included in the transaction price utilizingunder the expected value method orfor all sales deductions other than trade allowances, which are estimated under the most likely amount methodmethod. 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.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 if, inonly to the Company’s judgment,extent that it is probable that a significant future reversal in the amount of cumulative revenue under the contractrecognized will not occur. Estimates ofoccur when the uncertainty is subsequently resolved.
Significant judgment is required to determine the variable consideration and the determination of whether to include estimated amountsincluded in the transaction price are based largely on an assessmentas 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 anticipated performanceproduct revenue provision and all information (historical, current and forecasted) that is reasonably available. Sales taxes and other taxes collected on behalf of third parties are excluded from revenue. All of the Company's performance obligations, and associated revenue, are generally transferred to customers at a point in time. Revenue will be recognized at the time the related performance obligation is satisfied by transferring control of a promised good or service to a customer.
As a result of the considerations discussed above, the Company concluded that it had sufficient information to conclude that the transaction price was fixed or determinable under current GAAP and would record revenue once sold to customers under either Topic 605 or Topic 606. The Company determined that the cumulative effect adjustment will have an immaterial impact to the Company’s opening balance of retained earnings. The Company’s adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date or for periods beginning January 1, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 most significantly impacts lessee accounting and disclosures. First, this guidance requires lessees to identify arrangements that should be accounted for as leases. Under ASU 2016-02, for lease arrangements exceeding a 12-month term, a right-of-use asset and lease obligation is recorded by the lessee for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities. The Company has not chosen early adoption for this ASU and is currently evaluating its effect on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, and in
November 2016, the FASB issued ASU 2016-18, Restricted Cash. The amendments in these updates are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will adopt these standards in the first quarter of 2018 using the retrospective transition method as required with respect to each period presented. The Company does not expect the adoption of these standards to have a material impact on its consolidated financial statementsallowance categories for the years ended December 31, 2017 or2023, 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, 2016.2023, 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
3. NET LOSS PER COMMON SHARE
ForThe 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, 2017, 20162022 and 2015,2021, as if the securities discussed belowBDSI 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 anti‑dilutive dueadjusted 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. Licenses 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 lossessales of Symproic in those periodsthe 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 therefore,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 used to compute basic andof 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 same for of those periods.extent that their addition is not anti-dilutive.
F-15F-23
The following table presents the computations of basic and dilutive net lossearnings (loss) per common share:
|
|
|
|
|
|
|
|
|
| Years ended December 31, | |||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
Net loss | $ | (74,865) |
| $ | (94,176) |
| $ | (27,255) |
Extinguishment of preferred stock - see Note 11 |
| — |
|
| — |
|
| 31,806 |
Accretion and dividends of prior preferred stock - See Note 11 |
| — |
|
| — |
|
| (23,327) |
Accretion and dividends of Series D preferred stock |
| — |
|
| — |
|
| (1,245) |
Loss attributable to common shareholders — basic and diluted | $ | (74,865) |
| $ | (94,176) |
| $ | (20,021) |
Weighted-average number of common shares used in net loss per share - basic and diluted |
| 30,265,262 |
|
| 24,262,945 |
|
| 13,542,282 |
Loss per share - basic and diluted | $ | (2.47) |
| $ | (3.88) |
| $ | (1.48) |
| | | | | | | | |
| 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 potentiallytable presents dilutive securities outstanding have been excluded from the computationscalculation of diluted weighted‑average shares outstanding because suchearnings 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 impact dueeffect.
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 reported (in common stock equivalent shares):
|
|
|
|
|
|
| Years ended December 31, | ||||
| 2017 |
| 2016 |
| 2015 |
Outstanding stock options | 3,037,690 |
| 2,326,801 |
| 1,452,149 |
Warrants | 2,445 |
| 2,445 |
| 2,445 |
Unvested restricted stock(1) | 31,943 |
| 82,512 |
| 75,718 |
Restricted stock units | 218,872 |
| 41,741 |
| — |
|
|
|
|
|
|
(1) - Includes shares of unvested restricted stock remaining from the early exercise of stock options.
|
for the period that have been included in other comprehensive income were not material to the Company’s consolidated results of operations.
8. Inventory
4. INVENTORY
Inventory consisted of the following:
|
|
|
|
|
| |||||||
|
| As of December 31, |
| As of December 31, | ||||||||
|
| 2017 |
| 2016 | ||||||||
| | | | | | | ||||||
| | Years Ended December 31, | ||||||||||
| | 2023 | | 2022 | ||||||||
Raw materials |
| $ | 616 |
| $ | 294 | | $ | 10,384 | | $ | 5,600 |
Work in process |
|
| 322 |
| 67 | | | 6,740 | | | 24,672 | |
Finished goods |
|
| 875 |
|
| 955 | | | 15,208 | | | 16,229 |
Total inventory |
| $ | 1,813 |
| $ | 1,316 | | $ | 32,332 | | $ | 46,501 |
As ofDuring the years ended December 31, 2017,2023 and 2022, the aggregate charges to dateexpenses related to excess and obsolete inventory were immaterial. These expensesthat were recorded as a component of cost of product revenues.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-16F-25
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS9. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
| As of December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Prepaid regulatory fees |
| $ | 1,434 |
| $ | 512 |
|
Prepaid development costs |
|
| 526 |
|
| 485 |
|
Prepaid insurance |
|
| 310 |
|
| 328 |
|
Other prepaid expenses |
|
| 279 |
|
| 276 |
|
Other current assets |
|
| 456 |
|
| 304 |
|
Prepaid expenses and other current assets |
| $ | 3,005 |
| $ | 1,905 |
|
| | | | | | |
|
| 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 |
6. PROPERTY AND EQUIPMENT
10. Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
| As of December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Machinery and equipment |
| $ | 1,447 |
| $ | 863 |
|
Computers and office equipment |
|
| 702 |
|
| 590 |
|
Leasehold improvements |
|
| 700 |
|
| 700 |
|
Construction-in-process |
|
| 528 |
|
| 100 |
|
Furniture and fixtures |
|
| 117 |
|
| 117 |
|
Total property and equipment |
|
| 3,494 |
|
| 2,370 |
|
Less: accumulated deprecation |
|
| (1,668) |
|
| (1,332) |
|
Property and equipment, net |
| $ | 1,826 |
| $ | 1,038 |
|
| | | | | | |
|
| 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 $336, $258$3,496, $2,684, and $171$1,736 for the years ended December 31, 2017, 20162023, 2022, and 2015,2021, respectively.
7. INTANGIBLE ASSETS
In May 2016, During the years ended December 31, 2023, 2022, and 2021 the Company entered into an agreement with BioDelivery Sciences International, Inc. (“BDSI”)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 licenseNote 4, Acquisitions, for more information.
The following tables summarizes the rights to develop, manufacture, and commercialize Onsolis® (fentanyl buccal soluble film), or Onsolis,changes in the United States. Onsolis is a Transmucosal Immediate-Release Fentanyl (“TIRF”) film indicated for the management of breakthrough pain in certain cancer patients. During the term of the License Agreement, milestone payments in the aggregatecarrying amount of $21,000 may become payable bygoodwill:
| | | |
| | 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 Company subject to the satisfactioncost, accumulated amortization, and carrying amount of certain commercialization, intellectual property, and net sales milestones, including $4,000 upon the first commercial sale of the product in the U.S. Finally, the Company will be required to pay royalties in the upper teens based on annual net sales of the product in the U.S. Asintangible assets as of December 31, 2017, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2023 | | As of December 31, 2022 | ||||||||||||||
| Amortization Period | | | 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 Company has not satisfied the criteria of any milestones or royalties payable under the License Agreement and has not recognized any liabilities for such milestones or royalties payable in its consolidated financial statements.
During the yearyears ended December 31, 2016,2023, 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 upfront payment of $2,500 and was contractually committed to reimburse BDSI up to a maximum of $2,000 for its out-of-pocket expenses incurredasset impairment evaluation performed during the three months ended December 31, 2022 resulted in connection with the manufacturing transfer. On December 8, 2017, the Company after a reviewrecognizing $4,786 of its product portfolio, provided written notice to BDSI of termination of the License and Development Agreement. The termination will be effective pursuantimpairment expense related to the terms of such agreement on March 8, 2018. Upon such termination of the License Agreement, the Company’s rightsElyxyb intangible asset, which was equivalent to develop and commercialize Onsolis will revert to BDSI. As a result of this notice of termination, the Company determined that the carrying amount of the intangibleElyxyb asset wasat 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 recoverableconsidered a significant component of the entity’s business and that the carrying amount exceeded its fair value. As such, an impairment loss of $1,845 was recognized and includedtherefore, is not presented as a componentdiscontinued operation.
There were no employees impacted by the decision to discontinue the commercialization of sales, generalElyxyb 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-17F-27
administrative expense during the year ended December 31, 2017 and the net intangible asset is zero asAs of December 31, 2017. 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 |
8. ACCRUED EXPENSES
12. Accrued Liabilities
Accrued expensesliabilities consisted of the following:
|
|
|
|
|
|
|
| As of December 31, |
| As of December 31, |
| ||
| 2017 |
| 2016 |
| ||
Accrued bonuses | $ | 2,940 |
| $ | 2,210 |
|
Accrued incentive compensation |
| 1,790 |
|
| 1,160 |
|
Accrued payroll and related benefits |
| 1,382 |
|
| 1,217 |
|
Accrued sales and marketing |
| 624 |
|
| 801 |
|
Accrued development costs |
| 517 |
|
| 2,485 |
|
Accrued audit and legal |
| 405 |
|
| 416 |
|
Accrued interest |
| 6 |
|
| 18 |
|
Accrued other operating costs |
| 877 |
|
| 572 |
|
Total accrued expenses | $ | 8,541 |
| $ | 8,879 |
|
| | | | | |
| 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
9. 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 filedfiling the NDANew Drug Application (“NDA”) for Xtampza ER as a 505(b)(2) application which allows the Company to referencereferencing data from an approved drug listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book), in this casePurdue’s OxyContin OP. The 505(b)(2) process requires that the Company certifies to the FDA and notify Purdue, as the holder of the NDA, and any other Orange Book-listed patent owners, thatunder the Company does not infringe any of the patents listed for OxyContin OP in the Orange Book, or that the patents are invalid. The Company made such certificationDrug Price Competition and provided such notice on February 11, 2015 and such certification documented why Xtampza does not infringe any of the 11 Orange Book listed patents for OxyContin OP, five of which have been invalidated in court proceedings. Under the Hatch-WaxmanPatent Term Restoration Act of 1984, Purdue had the option to sue us for infringement and receivetriggered a stay of up to 30 months before the FDA could issue a final approval for Xtampza ER, unless the stay was earlier terminated.
Purdue exercised its option and elected to sue the Company for infringement in the District of Delaware on March 24, 2015 asserting infringement of three of Purdue’s Orange Book-listed patents (Patent Nos. 7,674,799, 7,674,800, and 7,683,072) and a non-Orange Book-listed patent (Patent No. 8,652,497), and accordingly, received a 30-month stay of FDA approval.
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 asserting infringement of those patents with prejudice. Upon dismissal of those claims,which lifted the 30-month stay of FDA approval was lifted. As a result,approval. Following this judgment, the Company was able to obtainobtained final approval for Xtampza ER and launch the productlaunched commercially.
In November 2015, F-28
Purdue subsequently filed atwo follow-on suitlawsuits asserting infringement of another patent, Patent No. 9,073,933, which wastwo patents that had been late-listed in the Orange Book and, therefore, could not trigger any stay of FDA approval.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 Purdue filed another follow-on suit asserting infringement of another non-Orange Book listed patent, Patent No. 9,155,717. In April9,155,717 and in September 2017, Purdue filed another follow-on suit asserting infringement of another patent, Patent No. 9,522,919, which was late-
F-18
listed in the Orange Book and therefore could not trigger any stay of FDA approval. Then, in September 2017, Purdue filed another follow-on suit asserting infringement of another non-Orange Book listed patent, Patent No. 9,693,961.
In October 2017, and in response toOn March 13, 2018, the filing of the Company’s Supplemental NDA (“sNDA”) seeking to update the drug abuse and dependence section of the Xtampza label, Purdue filed another suit asserting infringement of the ʼ933 and ʼ919 patent. The Company filed a motion to dismiss that action, and the Court granted its motion on January 16, 2018.
The current suits have been consolidated by the DistrictPetition for Post-Grant Review (“PGR”) of Massachusetts, where Purdue continues to assert infringement of five patents: the ʼ497 patent, the ʼ933 patent, the ʼ717 patent, the ʼ919 patent, and the ʼ961 patent. None of these suits are associatedpatent with any stay of FDA approval for the Xtampza drug product. Purdue has made a demand for monetary relief but has not quantified their alleged damages. Purdue has also requested a judgment of infringementPatent Trial and an injunction on the sale of the Company’s products accused of infringement.Appeal Board (“PTAB”). The Company has denied all claims and seeks a judgmentPGR argued that the patents are invalid and/or not infringed by the Company; the Companyʼ961 patent is also seeking a judgment that the case is exceptional, with an award to the Company of its fees for defending the case.invalid.
The parties are in the early stages of fact discovery. Written discovery has commenced with depositions expected to commence during the second half of 2018. A claim construction and summary judgment hearing was held on June 1, 2017. On November 21, 2017, the Court issued its claim construction ruling, construing certain claims of the ʼ933, ʼ497, and ʼ717 patents. At this time,The Court issued an order on September 28, 2018, in which it ruled that the MotionXtampza 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 Summary Judgment, whichthe 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 that claims of the ’933, ’497,ʼ961 patent were invalid for lack of written description and ’717 patents are invalidanticipation. 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 not infringed, remains pending. The Company is not ableupholding the PTAB’s finding of invalidity relative to predict with certainty whenthe ’961 patent.
On April 2, 2021, the Court will decidegranted Purdue’s Motion to Lift the Company’s motion. The Scheduling Order has been amended to stay the close of fact discovery until after the Court decides our Motion for Summary Judgment. No trial date has been scheduled.
The Company is, and plans to continue, defending 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.
Nucynta Litigation
On February 7, 2018, Purdue filed a patent infringement suit against Collegium NF, LLC and Collegium Pharmaceutical, Inc.Stay in the District of Delaware. Specifically,Massachusetts that was entered following Purdue’s Notice of Bankruptcy. On April 9, 2021, Purdue argues thatfiled 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 salemotion 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 immediate releaselaw, 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 extended release Nucynta infringes U.S. Patent Nos. 9,861,583, 9,867,784,(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 9,872,836.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, inand requested a judgment of infringement, an adjustment of the Complaint buteffective 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 quantified its alleged damages. Theinfringed; the Company is also seeking a judgment that the case is exceptional and has requested an award of the Company’s response toattorneys’ fees for defending the Complaint is currently due April 9, 2018. 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
Teva Litigation
The CompanyOn February 7, 2018, Purdue filed the NDA for Xtampza as a 505(b)(2) application, which allowspatent infringement suit against the Company to reference data from an approved drug listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book), in this case OxyContin OP.The Company has twelve patents listed in the FDA Orange Book as covering the Company’s abuse-deterrent product and methods of using it to treat patients: Patents Nos. 7,399,488; 7,771,707; 8,449,909; 8,557,291; 8,758,813; 8,840,928; 9,044,398; 9,248,195; 9,592,200; 9,682,075; 9,737,530 and 9,763,883.
Teva Pharmaceuticals USA filed a Notice Letter of Patent Certification against all twelve listed patents, alleging that they were invalid and/or not infringed by the proposed oxycodone product that is the subject of Teva’s ANDA. On February 22, 2018—within the 45-day period that gives the Company a 30-month stay on FDA approval of Teva’s ANDA while the parties have an opportunity to litigate—the Company sued Teva inU.S. District Court for the District of Delaware, on elevenin 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 patents listed inCompany’s affirmative defense of patent exhaustion and stayed the Orange Book.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 case was assignedNucynta litigation currently remains subject to the Hon. Judge Stark.bankruptcy stay.
F-19
The Company plans to assert and defend its intellectual property vigorously in this case.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.
Operating LeasesOpioid 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 leases its officesettled to efficiently resolve these litigations and research facility in Canton, Massachusetts under a non‑cancellable operating lease (the “Canton Facility Lease”). Terms of the agreement provide for an initial two‑month rent‑free period and future rent escalation, and provide that in addition to minimum lease rental payments, the Company is responsible for a pro‑rata share of operating expenses and taxes. In March 2015, the Company amended its lease to include an additional 9,660 square feet of space for a total of 19,335 square feet. In addition, the lease term was extended and now terminates on August 30, 2020. At the Company’s election, the lease term may be extended for an additional 5-year term.
Aggregate minimum annual lease commitments of the Company under its non‑cancellable operating lease as of December 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
2018 |
| $ | 234 |
|
2019 |
|
| 241 |
|
2020 |
|
| 164 |
|
Total minimum lease payments |
| $ | 639 |
|
Rent expense under the operating lease agreement amounted to approximately $194, $182 and $112 for the years ended December 31, 2017, 2016 and 2015, respectively. In addition, the Company maintained a stand‑by letter of creditdid not admit any liability or acknowledge any wrongdoing in connection with the Canton Facility Leasesettlement.
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 $97 atthe 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, 2017 and December 31, 2016. This amount is classified as restricted cash2023.
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 Consolidated Balance Sheets.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.”
Amounts provided
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 lessor relatedFDA 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 tenant improvementsstay 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 considered inducementsinvalid and thus, Alvogen is not liable for infringement of those claims, as well as any other ruling decided adversely to enter intoBDSI. On December 21, 2022, the lease. 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 has recorded these costsplans 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. Debt
2020 Term Loan
On February 6, 2020, in the Consolidated Balance Sheets as leasehold improvements,connection with the corresponding liabilitiesexecution 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 deferred lease incentivecollateral agent and leaselender, 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. On 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 payable. These liabilities arediscounts of $2,049 will be amortized on a straight‑line basis over the term of the lease.loan using the effective interest rate.
10. TERM LOAN PAYABLE
On August 28, 2012,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 entered into a loan agreement (“Original Term Loan”) with Silicon Valley Bank (“SVB”)and its material domestic subsidiaries. Prior to borrow up to a maximum amountthe cessation of $1,000. In August 2012, October 2012 and February 2013,LIBOR on June 30, 2023, the Company borrowed $250, $250 and $500, respectively. The Original2022 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 of 2.25% aboveannum. On June 23, 2023, the prime rate fixed atCompany entered into an amendment to the time of advance2022 Loan Agreement to adjust the interest terms of the Original2022 Term Loan (5.50%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 OriginalCompany paid $100,000 in principal payments under the 2022 Term Loan provided for interest‑only payments forduring the first 12 months basedyear 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 each borrowing,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 thereafter, 36 monthly paymentsobligations 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 and interest. 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 Original Term Loan,issuance of the 2026 Convertible Notes, the Company granted SVB a warrant to purchase 11,850 sharesincurred approximately $5,473 of common stock at an exercise pricedebt issuance costs, which primarily consisted of $0.07 per share (See Note 11).underwriting, legal and other professional fees.
In January 2014, the Original Term Loan was amended (“Amendment No. 1”) to provide for the following: borrowings of up to $6,000, repayment in full of the Original Term Loan balance outstanding,
The 2026 Convertible Notes are senior unsecured obligations and an adjustment of the variable interest rate from 2.25% above the prime rate to 1.75% above the prime rate. In February 2014, the Company borrowed $2,000. The proceeds from the initial borrowing were used to pay down the Original Term Loan balance outstanding resulting in the Company receiving $1,056. Borrowings under Amendment No. 1 borebear interest at a rate of 5.0%. Amendment No. 1 provided for interest‑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 payments forupon the first 12 months basedoccurrence 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 datescheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of each borrowing,the Company’s common stock or a combination of cash and thereafter, 36 monthly paymentsshares of principal and interest. In connection with Amendment No. 1, the Company granted to SVB a warrant to purchase 14,430Company’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 withper $1 principal amount of the 2026 Convertible Notes, which represents an exerciseinitial conversion price of $0.05approximately $29.19 per share (See Note 11).of common stock. The conversion rate and conversion price are subject to adjustment upon the occurrence of certain events.
In August 2014 the Original Term Loan was further amended (“Amendment No. 2”) to provide for total borrowings of up to $8,000. In August 2014 and September 2014 the Company drew down $3,000 and $3,000, respectively. Pursuant
F-20F-34
to Amendment No. 2, interest‑only payments are to be made for the first 12 months based on the date of each borrowing; thereafter, 36 monthly payments of principal and interest are to be made. Borrowings under Amendment 2 bear interest at the rate of 5.0%. The warrant agreement contains a performance clause that the Company met, resulting in additional financing extended and issuance of a warrant to purchase 86,580 additional shares of common stock with an exercise price of $0.05 per share (See Note 11).
In September 2014, the Original Term Loan was further amended (“Amendment No. 3”) to extend the loan draw period.
In November and December of 2014 the Company entered into a Note Purchase Agreement (the “Bridge Notes”) allowing for the issuance of $5,000 of convertible promissory notes to a group of investors (the “Holders”) bearing interest at a rate per annum of 6.0%. The Holders are related parties of the Company. In March 2015,2026 Convertible Notes may convert all or any portion of their 2026 Convertible Notes, in connection with the Series D convertible preferred stock financing, the Bridge Notes converted into 4,166,667 sharesmultiples of Series D convertible preferred stock. Upon the conversion, the Company recognized a gain on extinguishment of $91. The accrued interest on the Bridge Notes was waived.
In June 2015, SVB exercised all of its warrants.
As of December 31, 2017, future payments$1 principal amount, at their option only under the Company’s term loan are $1,479 and are due in the year ended December 31, 2018.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. |
11. EQUITY
Common Stock
As of December 31, 20172023, none of the above circumstances had occurred and 2016,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 had reservedmay redeem the following2026 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 for the issuanceper $1 principal amount of 2029 Convertible Notes, which represents an initial conversion price of approximately $36.56 per share of common stock forstock. The conversion rate and conversion price are subject to adjustment upon the exerciseoccurrence of stock options and warrants andcertain events.
Holders of the issuance2029 Convertible Notes may convert all or any portion of sharestheir 2029 Convertible Notes, in multiples of $1 principal amount, at their option only under the 2015 Employee Stock Purchase Plan:following circumstances:
|
|
|
|
|
|
| As of December 31, | ||
|
| 2017 |
| 2016 |
Options to purchase common stock |
| 4,153,055 |
| 3,348,310 |
Employee stock purchase plan |
| 547,276 |
| 364,476 |
Warrants |
| 2,445 |
| 2,445 |
Total |
| 4,702,776 |
| 3,715,231 |
(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. |
Warrants
In November 2010, the Company issued a warrant to Comerica Bank. The warrant represents the right to purchase 2,445 shares of common stock with an exercise price of $12.27. The warrant expires in May 2018.
As of December 31, 20172023, none of the above circumstances had occurred and 2016,as such, the 2,445 warrants issued2029 Convertible Notes could not have been converted.
F-36
The Company may not redeem the 2029 Convertible Notes prior to Comerica Bank wereFebruary 17, 2026. On or after February 17, 2026 and on or before the 40th 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 onlycommon 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 warrants.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.
Series A, B, C
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 Series D Redeemableasset 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 Preferred StockNotes 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, 2014, 54,481,000 shares2023, the Convertible Notes outstanding consisted of preferred stockthe 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 authorized, designated as Series A, Series Bfollows:
| | | | | | | | |
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. Leases
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 Series C Preferred Stockcommenced 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 which 9,232,334, 27,324,237December 31, 2023, the Company's operating lease assets totaled $6,029 and 8,658,008 were issuedoperating lease liabilities amounted to $7,112. This primarily relates to the corporate headquarters lease, with other immaterial operating and outstanding, respectively.embedded operating leases accounted for in the normal course of business.
Short-Term Lease Arrangements
In March 2015,December 2018, the Company sold 41,666,667 shares of Series D convertible preferred stockbegan entering into 12-month, non-cancelable vehicle leases for aggregate consideration of $50,000, comprised of $45,000its 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 cashthe period in which it is incurred.
Variable Lease Costs
Variable lease costs primarily include utilities, property taxes, and conversion of $5,000 in convertible notes with related parties. The convertible notes converted into 4,166,667 shares of Series D convertible preferred stock. The accrued interestother operating costs that are passed on from the convertible notes was waived. In this financing, the mandatory conversion for all series of preferred stock was modifiedlessor.
F-21F-38
solease 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 occur upon an initial public offering with gross proceeds in excessoperating 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 $50,000. 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 |
12. STOCK‑BASED COMPENSATION16. Equity
Common Stock Options, Restricted Stock Awards and Restricted Stock Units
In May 2015, the Company adopted the Amended and Restated 2014 Stock Incentive Plan (the “Plan”), under which an aggregate of 2,700,000 shares of common stock were authorized for issuance to employees, officers, directors, consultants and advisors of the Company, plus an annual increase to be added on the first day of each fiscal year until the expiration of the Plan equal to 4% of the total number of outstanding shares of common stock on December 31st31st of the immediately preceding calendar year (or a lower amount as otherwise determined by the boardCompany’s Board of directorsDirectors prior to January 1st)1st). As of December 31, 2017, 1,134,495 2023, there were 1,876,424 shares of common stock were available for issuance pursuant to the Plan.Plan. The Plan provides for granting of both Internal Revenue Service qualified incentive stock options (“ISOs”) and non‑qualifiednon-qualified options, (“NQs”), restricted stock awards, (“RSAs”)restricted stock units and performance stock units. The Company’s qualified incentive stock options, non-qualified options and restricted stock units (“RSUs”). Stock options generally vest ratably over a four yearfour-year period of service; however, certain options contain performance conditions.service. The stock options generally have a ten yearten-year contractual life and, upon termination, vested options are generally exercisable between one and three months following the termination date, while unvested options are forfeited immediately.
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 underfor the Planyear ended December 31, 2023 and related information is summarized 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
|
|
|
|
|
|
|
|
| Weighted- |
| Average |
|
|
|
|
|
|
|
|
| Average |
| Remaining |
|
| Aggregate |
|
|
|
|
|
| Exercise Price |
| Contractual |
|
| Intrinsic |
|
|
| Shares |
|
| per Share |
| Term (in years) |
|
| Value |
|
Outstanding at December 31, 2016 |
| 2,326,801 |
| $ | 13.07 |
| 8.7 |
| $ | 7,927 |
|
Granted |
| 1,380,123 |
|
| 12.30 |
|
|
|
|
|
|
Exercised |
| (158,801) |
|
| 4.63 |
|
|
|
|
|
|
Cancelled |
| (510,433) |
|
| 14.04 |
|
|
|
|
|
|
Outstanding at December 31, 2017 |
| 3,037,690 |
| $ | 13.00 |
| 8.4 |
| $ | 16,829 |
|
Exercisable at December 31, 2017 |
| 1,025,252 |
| $ | 12.86 |
| 7.6 |
| $ | 5,871 |
|
Vested and expected to vest at December 31, 2017 |
| 2,920,652 |
| $ | 13.00 |
| 8.3 |
| $ | 16,183 |
|
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 yearyears ended December 31, 20172023, 2022, and 2021 was $1,100. $4,786, $3,943, and $6,456, respectively.
As of December 31, 2017,2023, the unrecognized compensation cost related to outstanding options was $14,829, and is expected to be recognized as expense over approximately 2.5 years.
As of December 31, 2017, the weighted-average grant date fair value of vested options was $8.69. The weighted-average grant date fair value of options granted during the year ended December 31, 2017 was $7.86. The weighted-average grant date fair value of options that vested during the year ended December 31, 2017 was $9.62.
Restricted stock awards under the Plan are summarized as follows:
|
|
|
|
|
|
|
|
|
| Weighted-Average | |
|
|
|
| Purchase Price | |
|
| Shares |
| per Share | |
Unvested at December 31, 2016 |
| 43,265 |
| $ | 5.73 |
Granted |
| — |
|
| — |
Vested |
| (32,449) |
|
| 5.73 |
Unvested at December 31, 2017 (1) |
| 10,816 |
| $ | 5.73 |
(1) Excludes 21,127 shares of unvested restricted stock remaining from the early exercise of stock options as of December 31, 2017.
F-22
The total fair value of restricted stock awards vested during the years ended December 31, 2017, was $186. As of December 31, 2017, the unrecognized compensation cost related to restricted stock awards was $47,$110 and is expected to be recognized as expense over approximately 0.2 years.
Restricted stock units under the Plan are summarized as follows:
|
|
|
|
|
|
|
|
|
| Weighted-Average | |
|
| Shares |
| Grant Date Fair Value | |
Outstanding at December 31, 2016 |
| 41,741 |
| $ | 16.15 |
Granted |
| 211,018 |
|
| 12.45 |
Settled |
| (14,757) |
|
| 16.15 |
Forfeited |
| (19,130) |
|
| 15.52 |
Outstanding at December 31, 2017 |
| 218,872 |
| $ | 12.64 |
As of December 31, 2017, the unrecognized compensation cost related to restricted stock units was $2,218, and is expected to be recognized as expense over approximately 3.1 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 ourthe Company’s common stock on (1)on: (i) the first day of the purchase periodperiod; or (2)(ii) the last day of the purchase period. The first purchase period commenced inDuring the year ended December 31, 2016.2023, 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, 20172023, 2022 and 20162021 was $380$209, $117 and $457,$224 respectively.
Stock‑BasedStock-Based Compensation Expense
The Company granted stock options to employees for the years ended December 31, 2017, 2016 and 2015. The Company estimates the fair value of stock options as of the date of grant using the Black‑Scholes option pricing model and restricted stock awards and restricted stock units based on the fair value of the award. Stock options and restricted stock issued to non‑board member, non‑employees are accounted for using the fair value approach and are subject to periodic revaluation over their vesting terms.
Stock‑basedStock-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:within the following:
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Research and development expenses | $ | 888 |
| $ | 638 |
| $ | 223 |
Selling, general and administrative expenses |
| 7,057 |
|
| 5,149 |
|
| 1,986 |
Total stock-based compensation expense | $ | 7,945 |
| $ | 5,787 |
| $ | 2,209 |
| | | | | | | | |
| 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 weighted‑average assumptions used inprovision for (benefit from) income taxes contained the Black‑Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:following components:
|
|
|
|
|
|
|
|
|
| Year ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Risk-free interest rate | 2.0 | % |
| 1.5 | % |
| 1.7 | % |
Volatility | 71.0 | % |
| 76.3 | % |
| 77.0 | % |
Expected term (years) | 6.01 |
|
| 6.02 |
|
| 6.20 |
|
Expected dividend yield | — | % |
| — | % |
| — | % |
| | | | | | | | | |
| | 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-23F-44
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 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, we consider factors such as industry, stage of life cycle and size.
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, 2017 it determined the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.
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.
13. INCOME TAXES
For the years ended December 31, 2017, 2016 and 2015, the Company did not record a current or deferred income tax expense or (benefit) due to current and historical losses incurred by the Company. The Company's losses before income taxes consist solely of losses from domestic operations.
The enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017, as further described below, resulted in a remeasurement of the Company’s net deferred tax asset due to the reduction in corporate rates from 35% to a 21% flat tax, which is included in the Company’s 2017 rate reconciliation. A reconciliation of income tax expense (benefit) computed at the statutory federal income tax rate to income taxes as reflected in the consolidated financial statements is as follows:
|
|
|
|
|
|
|
|
|
| As of December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2015 |
|
Federal income tax expense at statutory rate |
| 34.00 | % | 34.00 | % | 34.00 | % |
(Increase) decrease income tax (benefit) resulting from: |
|
|
|
|
|
|
|
State income tax, net of federal benefit |
| 3.93 |
| 3.43 |
| 5.29 |
|
Permanent differences |
| (2.49) |
| (1.45) |
| (1.70) |
|
U.S. - TCJA |
| (43.32) |
| — |
| — |
|
Research and development credit |
| 0.53 |
| 0.27 |
| 0.89 |
|
Change in valuation allowance |
| 7.35 |
| (36.25) |
| (38.48) |
|
Effective income tax rate |
| 0.00 | % | 0.00 | % | 0.00 | % |
| | | | | | | |
|
| 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:
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
U.S. and state net operating loss carryforwards |
| $ | 62,715 |
| $ | 71,049 |
| $ | 38,405 |
|
Research and development credits |
|
| 3,892 |
|
| 3,712 |
|
| 3,421 |
|
Accruals and other |
|
| 3,615 |
|
| 1,541 |
|
| 144 |
|
Depreciation and amortization |
|
| 145 |
|
| 261 |
|
| 94 |
|
Total deferred tax assets |
|
| 70,367 |
|
| 76,563 |
|
| 42,064 |
|
Valuation allowance |
|
| (70,367) |
|
| (76,563) |
|
| (42,064) |
|
Net deferred tax assets |
| $ | — |
| $ | — |
| $ | — |
|
| | | | | | |
| | 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-24F-45
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. As of December 31, 2017 and 2016, based on the Company's history of operating losses, the Company has concluded thatprovides a valuation allowance when it is not more likely than notmore-likely-than-not that the benefit of its deferred tax assets will not be realized. Accordingly,In determining the Company has providedextent to which a full 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, 2017 and 2016.2023. The valuation allowance decreased $6,196 primarily duewas $5,781 and $5,254 as of December 31, 2023 and 2022, respectively, and reflects limitations based on the Company’s ability to the enacteduse such assets prior to expiration. The change in the corporate income tax rate from the enactment of TCJA signed into law in December 2017. The valuation allowance increased $34,499 during the yearstax provision by $527 for the year ended December 31, 2016 due primarily to net operating losses generated.
As of2023. The change in valuation allowance did not impact the tax provision for the year ended December 31, 2017, 2016, and 2015,2022. 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 had U.S. federal net operating loss carryforwardsbegan using projections of $249,511, $190,926,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 $104,888, respectively, which may be available to offset future income tax liabilities. TCJAJobs Act of 2017 (“TCJA”) will generally allow losses incurred after 2017 to be carried over indefinitely but will generally limit the NOLnet operating loss (“NOL”) deduction to the lesser of the NOL carryover or 80% of a corporation’s taxable income (subject to Internal Revenue Code Section 382/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. TheAs of December 31, 2023, the Company has not finalized its reviewhad gross U.S. federal net operating loss carryforwards of the impact$137,459, of TCJA on the NOL rules, and the impact,which $95,471 arose prior to 2018, which are available to offset future taxable income, if any, tothrough 2037. The remaining $41,988 are available for an indefinite period. As of December 31, 2022, the Company’s ability to utilize and carryoverCompany had gross U.S. federal net operating losses.
loss carryforwards of $229,797.
As of December 31, 2017, 2016,2023 and 2015,2022, the Company also had gross U.S. state net operating loss carryforwards of $205,074, $145,902,$202,381 and $59,875$252,597, respectively, which may be available to offset future income tax liabilities and expire at various dates through 2037.
As of December 31, 2017, 20162023 and 2015,2022, the Company had federal research and development tax credit carryforwards of approximately $3,426, $3,367,$1,025 and $3,110,$4,231, respectively, available to reduce future tax liabilities which expire at various dates through 2037.2032. As of December 31, 2017, 20162023 and 20152022, the Company had state research and development tax credit carryforwards of approximately $589, $522,$672 and $469,$832, respectively, available to reduce future tax liabilities which expire at various dates through 2032.
2036.
The TCJA was enacted in December 2017. Among other things, the TCJA reduces the U.S. federal corporate tax rate from 35 percentCompany has completed studies to 21 percent beginning in 2018. The SEC staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for enactment effects of the TCJA. SAB 118 provides a measurement period of up to one year from the TCJA’s enactment date for companies to complete their accounting under ASC 740. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
In connection with the Company’s initial analysis ofassess the impact of the enactment of the TCJA, the Company recorded no tax expense. For various reasons that are discussed more fully below, including the issuance of additional technical and interpretive guidance, the Company has not completed its accounting for the income tax effects of certain elements of the TCJA. However, with respect to the following, the Company was able to make reasonable estimates of the TCJA’s effects:
Remeasurement of deferred tax assets/liabilities and other impacts: The Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent under the TCJA. The impact of the remeasurement of the Company’s deferred tax assets and liabilities is included in the rate reconciliation above.
Code Section 162(m) Limitations: Employers can generally deduct reasonable compensation for personal services as an ordinary and necessary business deduction. Internal Revenue Code Section 162(m) limits the ability to deduct compensation expenses of certain “covered” employees of a publicly held corporation. TCJA has modified these rules by expanding the definition of “covered” employee and repealed the performance-based compensation and commissions exceptions of Section 162(m). The Company is still analyzing this issue to determine what impact,ownership changes, if any, this change
F-25
may have on the Company’s ability to deduct performance-based compensation touse its employees,NOL and at this time cannot determine a provisional estimate to be included in its financial statements in accordance with SAB 118.
The Company is still analyzing certain aspects of the TCJA, considering additional technical guidance, and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
Under the provisionscredit 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 carryforwardscarryovers. As of December 31, 2023, remaining net operating losses of $124,310 are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed numerous financings as well as its IPO since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.
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, 20142019 through December 31, 2017.2023. 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. The Company’s 2015 return is currently under examination with the IRS, and as a result the IRS is challenging certain positions on its return that may result in a decrease to the Company’s NOL carryover.
F-46
The Company is protesting the matter with the IRS, but has reduced the NOLnot recognized deferred tax assetassets for the amount of contested deductions. This is included in the tabular rollforward below of gross unrecognized tax benefits. Since a full valuation allowance has been provided against the Company’s net operating loss carryover, the reduction in the gross deferred tax asset established for net operating losses does not result in any financial statement impact.
For all years through December 31, 2017, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’scertain federal and state research and development credit carryforwards. The Company has reduced its deferredcredits related to uncertain tax asset for its estimate of credits that could be reduced,positions, and that is included in the tabular rollforward of uncertain tax positions. Since a full valuation allowance has been provided against the Company’s research and development credits the reduction in the gross deferred tax asset established for the research and development credit carryforwards does not result in any financial statement impact.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB)(“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 |
Federal, State and Foreign Tax
|
|
|
|
|
|
|
|
| As of December 31, | ||||
|
| 2017 |
| 2016 | ||
Gross UTB Balance at January 1 |
| $ | — |
| $ | — |
Additions based on tax positions related to the current year |
|
| 57 |
|
| — |
Additions for tax positions of prior years |
|
| 1,307 |
|
| — |
Reductions for tax positions of prior years |
|
| — |
|
| — |
Settlements |
|
| — |
|
| — |
Reductions due to lapse of applicable statute of limitations |
|
| — |
|
| — |
|
|
|
|
|
|
|
Gross UTB Balance at December 31 |
|
| 1,364 |
|
| — |
|
|
|
|
|
|
|
Net UTB impacting the effective tax rate at December 31 (included in the change in the valuation allowance in rate reconciliation) |
| $ | 680 |
| $ | — |
F-26
14. EMPLOYEE BENEFITS19. 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 the first full month 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, 2017, 20162023, 2022 and 20152021 was $969, $613$1,759, $1,315, and $44$1,236, respectively.
F-47
15. UNAUDITED QUARTERLY OPERATING RESULTS
20. Unaudited Quarterly Operating Results
The following is a summary of unaudited quarterly results of operations for the years ended December 31, 20172023 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
Year ended December 31, 2017 |
|
|
| Quarter |
|
| Quarter |
|
| Quarter (1) |
|
| Quarter |
Product revenues, net |
|
| $ | 2,172 |
| $ | 3,560 |
| $ | 11,950 |
| $ | 10,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues |
|
|
| 371 |
|
| 577 |
|
| 553 |
|
| 1,094 |
Research and development |
|
|
| 2,130 |
|
| 2,179 |
|
| 2,069 |
|
| 2,194 |
Selling, general and administrative |
|
|
| 22,847 |
|
| 22,062 |
|
| 22,758 |
|
| 25,089 |
Total costs and expenses |
|
|
| 25,348 |
|
| 24,818 |
|
| 25,380 |
|
| 28,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| $ | (23,176) |
| $ | (21,258) |
| $ | (13,430) |
| $ | (17,583) |
Interest income (expense), net |
|
|
| 98 |
|
| 137 |
|
| 167 |
|
| 180 |
Net loss |
|
| $ | (23,078) |
| $ | (21,121) |
| $ | (13,263) |
| $ | (17,403) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares - basic and diluted |
|
|
| 29,350,268 |
|
| 29,441,514 |
|
| 29,753,043 |
|
| 32,485,572 |
Loss per share - basic and diluted |
|
| $ | (0.79) |
| $ | (0.72) |
| $ | (0.45) |
| $ | (0.54) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
Year ended December 31, 2016 |
|
|
| Quarter |
|
| Quarter |
|
| Quarter |
|
| Quarter |
Product revenues, net |
|
| $ | - |
|
| - |
|
| 408 |
|
| 1,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues |
|
|
| - |
|
| - |
|
| 29 |
|
| 184 |
Research and development |
|
|
| 4,062 |
|
| 4,301 |
|
| 3,254 |
|
| 3,331 |
Selling, general and administrative |
|
|
| 11,525 |
|
| 20,173 |
|
| 23,567 |
|
| 25,367 |
Total costs and expenses |
|
|
| 15,587 |
|
| 24,474 |
|
| 26,850 |
|
| 28,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| $ | (15,587) |
| $ | (24,474) |
| $ | (26,442) |
| $ | (27,579) |
Interest (expense) income, net |
|
|
| (66) |
|
| (46) |
|
| (2) |
|
| 20 |
Net loss |
|
| $ | (15,653) |
| $ | (24,520) |
| $ | (26,444) |
| $ | (27,559) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares - basic and diluted |
|
|
| 23,130,153 |
|
| 23,417,378 |
|
| 23,460,340 |
|
| 27,100,231 |
Net loss |
|
| $ | (0.68) |
| $ | (1.05) |
| $ | (1.13) |
| $ | (1.02) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) - In the third quarter of 2017, the Company recorded a one-time $4,377 increase to revenues as a result of the Company’s change to the sell-in method in the third quarter of 2017. |
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 |
16. SUBSEQUENT EVENTS
Consummation of Commercialization Agreement
In December 2017, the Company and its wholly owned subsidiary, Collegium NF, LLC (“Collegium NF”), entered into a Commercialization Agreement with Depomed, Inc. (“Depomed”), pursuant to which Depomed agreed to grant a sublicense of certain of its intellectual property related to Nucynta ER and IR products (the “Nucynta Products”) to Collegium NF for commercialization of the Nucynta Products in the United States, the District of Columbia and Puerto Rico. On January 9, 2018 (the “Closing Date”), the parties amended the Commercialization Agreement (as amended, the
F-27F-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
“Commercialization Agreement”) and consummated the transactions contemplated thereby.
Pursuant to the Commercialization Agreement, the Company paid a one-time non-refundable license fee (the “License Fee”) of $10,000 to Depomed at the closing of the Commercialization Transaction, plus $6,200 for transferred inventory. During the term of the Commercialization Agreement and through December 2021, the Company will be required to pay (i) a minimum royalty of $135,000 per year, payable in quarterly payments of $33,750, plus (ii) 25% of annual net sales of the Nucynta Products between $233,000 and $258,000, plus (iii) 17.5% of annual net sales of the Nucynta Products above $258,000. After the first anniversary of the Closing Date, the Company may terminate the Commercialization Agreement for any reason upon one (1) year prior written notice to Depomed, provided that, if the effective date of termination designated in such notice is prior to the fourth anniversary of the Closing Date, then such termination will be contingent upon the payment by the Company to Depomed of a termination fee in the amount of $25,000.
Beginning January 2022 and for each year of the Commercialization Agreement term thereafter, the Company will continue to pay royalties on annual net sales of the Nucynta Products, but without a guaranteed minimum. The Company will pay to Depomed: (i) 58% of annual net sales of the Nucynta Products up to $233,000, payable quarterly within 45 days of the end of each calendar quarter, plus (ii) 25% of annual net sales of the Nucynta Products between $233,000 and $258,000, plus (iii) 17.5% of annual net sales of the Nucynta Products above $258,000. If Depomed or its contract manufacturers are unable to deliver a certain percentage of ordered quantities for a period of two months or longer in calendar year 2018, then Depomed may be required to make a payment (or offset the minimum royalties) to ensure that the Company receives a minimum level of gross profit of $40,000 for 2018 for the Nucynta Products.
Consent and Sixth Amendment to Loan and Security Agreement
In connection with, and as a condition to, consummation of the transactions contemplated by the Commercialization Agreement, the Company entered into a Consent and Sixth Amendment to Loan and Security Agreement (the “Consent and Amendment”) with SVB to amend the Original Term Loan. The Consent and Amendment provided the Company with a new term loan facility in an original principal amount of $11,500 (the “New Term Loan”), which replaces the Company’s existing term loan facility (the “Existing Term Loan”) and the proceeds of which were used by the Company to finance certain payment obligations under the Commercialization Agreement and to repay the balance of the Existing Term Loan. The Consent and Amendment also provided SVB’s consent with respect to transactions contemplated by the Commercialization Agreement, including the delivery by SVB of a standby letter of credit in an aggregate amount of $33,750.
The New Term Loan bears interest at a rate per annum of 0.75% above the prime rate (as defined in the Consent and Amendment). The Company will repay the New Term Loan in equal consecutive monthly installments of principal plus monthly payments of accrued interest, commencing in July 2019, provided that, if the Company achieves EBITDA (as defined in the Consent and Amendment) in excess of $2,500 for two (2) consecutive calendar quarters prior to June 2019, such payments will commence in January 2020. All outstanding principal and accrued and unpaid interest under the New Term Loan, and all other outstanding obligations with respect to the New Term Loan, are due and payable in full in December 2022. The Company may prepay the New Term Loan, in full but not in part, with a prepayment fee of (i) 3.0% of the outstanding principal balance prior to the first anniversary of the Consent and Amendment, (ii) 2.0% of the outstanding principal balance following the first anniversary of the Consent and Amendment and prior to the second anniversary of the Consent and Amendment and (iii) 1.0% of the outstanding principal balance following the second anniversary of the Consent and Amendment, plus, in each case, a final payment fee of $719.
Under the Consent and Amendment, the Company will be required to maintain a liquidity ratio of at least 2.0 to 1.0. Any amounts outstanding during the continuance of any event of default under the Consent and Amendment will bear additional interest at the per annum rate of 5.0%.
F-28
INDEX TO EXHIBITS
|
|
| |
| |
| |
|
* Subject to confidential treatment request.
101
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.
| ||
| ||
| ||
|
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
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
102