UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐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 |
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(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 each exchange on which registered |
Common Stock, par value $0.001 per share | COLL | The NASDAQ Global Select Market |
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 Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated |
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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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒⌧
As of OctoberJuly 31, 2017,2023, there were 32,562,27734,734,056 shares of Common Stock, $0.001 par value per share, outstanding.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 | |
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2
Forward-Looking Statements
FORWARD-LOOKING STATEMENTS
Statements made in this Quarterly Reportquarterly report on Form 10-Q (“Quarterly Report”) that are not statements of historical or 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 may be preceded by, followed by or include the words “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.
Forward-looking statements are inherently subject to risks, uncertainties and assumptions; they are not guarantees of performance. You should not place undue reliance on these statements. We have based these forward-looking statements 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 differ materially from those expressed or implied in our forward-looking statements:
| our ability to |
● | our ability to maintain regulatory approval of our products, |
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| the size |
| 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; |
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| the rate and degree of market acceptance of our |
| changing market conditions for our |
| the outcome of any patent infringement, opioid-related or other litigation that may be brought by or against |
| 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; |
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| our ability to obtain funding for our |
| our ability to obtain regulatory approval for any product candidates we may acquire in the future; |
● | 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 |
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| our ability to comply with stringent |
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| our customer concentration, which may adversely affect our financial condition and results of operations; and |
| the accuracy of our estimates regarding expenses, revenue, capital requirements and need for additional |
In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in this Quarterly Report on Form 10-Q (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 experience or 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 heading “Risk Factors” in our Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission, or the SEC, on March 10, 2017 for the year ended December 31, 2016, or Annual Report, as revised and supplemented by those risks described from time to time in other reports which we file with the SEC, including in this Quarterly Report on Form 10-Q.Report. 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 forward-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.
3
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited).
Collegium Pharmaceutical, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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| September 30, |
| December 31, |
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| 2017 |
| 2016 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 107,611 |
| $ | 153,225 |
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Accounts receivable |
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| 5,823 |
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| 2,129 |
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Inventory |
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| 1,401 |
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| 1,316 |
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Prepaid expenses and other current assets |
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| 4,061 |
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| 1,905 |
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Total current assets |
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| 118,896 |
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| 158,575 |
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Property and equipment, net |
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| 1,632 |
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| 1,038 |
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Intangible assets, net |
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| 1,877 |
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| 2,103 |
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Restricted cash |
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| 97 |
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| 97 |
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Other long-term assets |
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| 171 |
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| 204 |
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Total assets |
| $ | 122,673 |
| $ | 162,017 |
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Liabilities and shareholders' equity (deficit) |
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Current liabilities |
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Accounts payable |
| $ | 4,982 |
| $ | 9,106 |
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Accrued expenses |
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| 19,268 |
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| 8,879 |
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Deferred revenue |
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| — |
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| 4,944 |
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Current portion of term loan payable |
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| 2,146 |
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| 2,667 |
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Total current liabilities |
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| 26,396 |
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| 25,596 |
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Lease incentive obligation |
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| 8 |
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| 34 |
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Term loan payable, long-term |
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| — |
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| 1,479 |
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Total liabilities |
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| 26,404 |
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| 27,109 |
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Commitments and contingencies (see Note 10) |
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Shareholders’ equity: |
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Preferred stock, $0.001 par value; authorized shares - 5,000,000 at September 30, 2017 and December 31, 2016; issued and outstanding shares - none at September 30, 2017 and December 31, 2016 |
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| — |
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| — |
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Common stock, $0.001 par value; authorized shares - 100,000,000 at September 30, 2017 and December 31, 2016; issued and outstanding shares - 30,765,100 at September 30, 2017 and 29,364,100 at December 31, 2016 |
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| 31 |
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| 29 |
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Additional paid-in capital |
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| 376,884 |
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| 358,063 |
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Accumulated deficit |
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| (280,646) |
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| (223,184) |
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Total shareholders’ equity |
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| 96,269 |
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| 134,908 |
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Total liabilities and shareholders’ equity |
| $ | 122,673 |
| $ | 162,017 |
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| | June 30, | | December 31, | ||
| | 2023 | | 2022 | ||
Assets |
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Current assets | | | | | | |
Cash and cash equivalents | | $ | 283,749 | | $ | 173,688 |
Marketable securities | | | 41,721 | | | — |
Accounts receivable, net | | | 167,479 | | | 183,119 |
Inventory | | | 26,026 | | | 46,501 |
Prepaid expenses and other current assets | |
| 18,322 | |
| 16,681 |
Total current assets | |
| 537,297 | |
| 419,989 |
Property and equipment, net | |
| 18,040 | |
| 19,521 |
Operating lease assets | | | 6,452 | | | 6,861 |
Intangible assets, net | | | 492,539 | | | 567,468 |
Restricted cash | | | 1,047 | | | 2,547 |
Deferred tax assets | | | 24,606 | | | 23,950 |
Other noncurrent assets | | | 74 | | | 100 |
Goodwill | | | 133,857 | | | 133,695 |
Total assets | | $ | 1,213,912 | | $ | 1,174,131 |
Liabilities and shareholders' equity | | | | | | |
Current liabilities | | | | | | |
Accounts payable | | $ | 2,420 | | $ | 3,494 |
Accrued expenses | |
| 35,245 | |
| 36,129 |
Accrued rebates, returns and discounts | | | 213,089 | | | 230,491 |
Current portion of term notes payable | | | 183,333 | | | 162,500 |
Current portion of operating lease liabilities | | | 971 | | | 1,112 |
Total current liabilities | |
| 435,058 | |
| 433,726 |
Term notes payable, net of current portion | | | 309,898 | | | 397,578 |
Convertible senior notes | | | 261,521 | | | 140,873 |
Operating lease liabilities, net of current portion | |
| 6,630 | |
| 7,112 |
Total liabilities | |
| 1,013,107 | |
| 979,289 |
Commitments and contingencies (refer to Note 16) | | | | | | |
Shareholders’ equity: | | | | | | |
Preferred stock, $0.001 par value; authorized shares - 5,000,000 | | | — | | | — |
Common stock, $0.001 par value; authorized shares - 100,000,000; 37,953,398 issued and 34,717,575 outstanding shares at June 30, 2023 and 37,084,759 issued and 33,848,936 outstanding shares at December 31, 2022 | |
| 38 | |
| 37 |
Additional paid-in capital | |
| 548,492 | |
| 538,073 |
Treasury stock, at cost; 3,235,823 shares at June 30, 2023 and 3,235,823 shares at December 31, 2022 | | | (61,924) | | | (61,924) |
Accumulated other comprehensive loss | | | (38) | | | — |
Accumulated deficit | |
| (285,763) | |
| (281,344) |
Total shareholders’ equity | |
| 200,805 | |
| 194,842 |
Total liabilities and shareholders’ equity | | $ | 1,213,912 | | $ | 1,174,131 |
See accompanying notes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
4
Collegium Pharmaceutical, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
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| Three months ended September 30, |
| Nine months ended September 30, |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Product revenues, net | $ | 11,950 |
| $ | 408 |
| $ | 17,682 |
| $ | 408 |
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Costs and expenses |
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Cost of product revenues |
| 553 |
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| 29 |
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| 1,501 |
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| 29 |
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Research and development |
| 2,069 |
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| 3,254 |
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| 6,378 |
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| 11,617 |
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Selling, general and administrative |
| 22,758 |
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| 23,567 |
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| 67,667 |
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| 55,266 |
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Total costs and expenses |
| 25,380 |
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| 26,850 |
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| 75,546 |
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| 66,912 |
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Loss from operations |
| (13,430) |
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| (26,442) |
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| (57,864) |
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| (66,504) |
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Interest income (expense), net |
| 167 |
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| (2) |
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| 402 |
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| (113) |
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Net loss | $ | (13,263) |
| $ | (26,444) |
| $ | (57,462) |
| $ | (66,617) |
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Loss per share - basic and diluted | $ | (0.45) |
| $ | (1.13) |
| $ | (1.95) |
| $ | (2.85) |
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Weighted-average shares - basic and diluted |
| 29,753,043 |
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| 23,460,340 |
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| 29,517,396 |
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| 23,334,558 |
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| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2023 | | 2022 | | 2023 | | 2022 | ||||
Product revenues, net | $ | 135,546 | | $ | 123,549 | | $ | 280,313 | | $ | 207,300 |
Cost of product revenues | | | | | | | | | | | |
Cost of product revenues (excluding intangible asset amortization) | | 24,257 | | | 33,684 | | | 54,156 | | | 50,016 |
Intangible asset amortization | | 37,463 | | | 37,501 | | | 74,929 | | | 56,424 |
Total cost of products revenues |
| 61,720 | |
| 71,185 | |
| 129,085 | |
| 106,440 |
Gross profit | | 73,826 | | | 52,364 | | | 151,228 | | | 100,860 |
Operating expenses | | | | | | | | | | | |
Research and development | | — | | | — | | | — | | | 3,983 |
Selling, general and administrative |
| 38,193 | |
| 41,254 | |
| 90,968 | |
| 95,782 |
Total operating expenses |
| 38,193 | |
| 41,254 | |
| 90,968 | |
| 99,765 |
Income from operations |
| 35,633 | |
| 11,110 | |
| 60,260 | |
| 1,095 |
Interest expense |
| (21,863) | |
| (17,761) | |
| (43,290) | |
| (23,592) |
Interest income | | 4,027 | | | 5 | | | 6,774 | | | 9 |
Loss on extinguishment of debt | | — | | | — | | | (23,504) | | | — |
Income (loss) before income taxes | | 17,797 | | | (6,646) | | | 240 | | | (22,488) |
Provision for (benefit from) income taxes | | 4,790 | | | (1,455) | | | 4,659 | | | (4,228) |
Net income (loss) | $ | 13,007 | | $ | (5,191) | | $ | (4,419) | | $ | (18,260) |
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Earnings (loss) per share — basic | $ | 0.38 | | $ | (0.15) | | $ | (0.13) | | $ | (0.54) |
Weighted-average shares — basic | | 34,622,284 | | | 34,001,553 | | | 34,471,624 | | | 33,838,638 |
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Earnings (loss) per share — diluted | $ | 0.34 | | $ | (0.15) | | $ | (0.13) | | $ | (0.54) |
Weighted-average shares — diluted | | 42,849,952 | | | 34,001,553 | | | 34,471,624 | | | 33,838,638 |
See accompanying notes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
5
Collegium Pharmaceutical, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE INCOME (LOSS)
(in thousands)
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| Nine Months Ended September 30, | ||||
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| 2017 |
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| 2016 |
Operating activities |
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Net loss | $ | (57,462) |
| $ | (66,617) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
| 464 |
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| 360 |
Lease incentive |
| (26) |
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| (25) |
Stock-based compensation expense |
| 5,867 |
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| 4,137 |
Changes in operating assets and liabilities: |
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Accounts receivable |
| (3,694) |
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| (1,679) |
Inventories |
| (85) |
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| (1,576) |
Prepaid expenses and other assets |
| (33) |
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| (114) |
Accounts payable |
| (4,124) |
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| 5,401 |
Accrued expenses |
| 10,315 |
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| 4,409 |
Deferred revenue |
| (4,944) |
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| 3,938 |
Net cash used in operating activities |
| (53,722) |
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| (51,766) |
Investing activities |
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Purchase of intangible assets |
| — |
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| (2,500) |
Purchases of property and equipment |
| (818) |
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| (136) |
Net cash used in investing activities |
| (818) |
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| (2,636) |
Financing activities |
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Proceeds from issuances of common stock from public offerings, net of issuance costs of $507 and $526 |
| 9,425 |
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| 51,619 |
Proceeds from issuances of common stock from employee stock purchase plans |
| 1,141 |
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| — |
Repayment of term note |
| (2,000) |
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| (2,000) |
Proceeds from the exercise of stock options |
| 428 |
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| 114 |
Payments made for employee restricted stock tax withholdings |
| (68) |
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| — |
Net cash provided by financing activities |
| 8,926 |
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| 49,733 |
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Net (decrease) increase in cash and cash equivalents |
| (45,614) |
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| (4,669) |
Cash and cash equivalents at beginning of period |
| 153,225 |
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| 95,697 |
Cash and cash equivalents at end of period | $ | 107,611 |
| $ | 91,028 |
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Supplemental disclosure of cash flow information |
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Cash paid for offering costs | $ | 447 |
| $ | 512 |
Cash paid for interest | $ | 121 |
| $ | 226 |
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Supplemental disclosure of non-cash activities |
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Offering costs in accrued expenses | $ | 60 |
| $ | — |
Receivable from issuance of common stock from at-the-market offering in other current assets | $ | 2,090 |
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| — |
Acquisition of property and equipment in accrued expenses | $ | 97 |
| $ | — |
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| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2023 | | 2022 | | 2023 | | 2022 | ||||
Net income (loss) | $ | 13,007 | | $ | (5,191) | | $ | (4,419) | | $ | (18,260) |
Other comprehensive loss: | | | | | | | | | | | |
Unrealized losses on marketable securities | | (38) | | | — | | | (38) | | | — |
Total other comprehensive loss | | (38) | | | — | | | (38) | | | — |
Comprehensive income (loss) | $ | 12,969 | | $ | (5,191) | | $ | (4,457) | | $ | (18,260) |
See accompanying notes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
6
Collegium Pharmaceutical, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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| Six Months Ended June 30, | ||||
| | 2023 |
| | 2022 |
Operating activities | | | | | |
Net loss | $ | (4,419) | | $ | (18,260) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
Amortization expense | | 74,929 | | | 56,424 |
Depreciation expense | | 1,712 | | | 1,371 |
Deferred income taxes | | (682) | | | (9,410) |
Stock-based compensation expense |
| 13,107 | |
| 11,827 |
Non-cash lease (benefit) expense | | (213) | | | 429 |
Non-cash interest expense for amortization of debt discount and issuance costs |
| 4,548 | |
| 3,435 |
Loss on extinguishment of debt | | 23,504 | | | — |
Net amortization of premiums and discounts on investments | | (98) | | | — |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | 15,640 | | | (36,165) |
Inventory | | 20,475 | | | 17,007 |
Prepaid expenses and other assets |
| (1,749) | |
| 245 |
Accounts payable |
| (1,075) | |
| 2,426 |
Accrued expenses |
| (884) | |
| (7,659) |
Accrued rebates, returns and discounts | | (17,402) | | | (6,538) |
Operating lease assets and liabilities | | — | | | 4 |
Net cash provided by operating activities |
| 127,393 | |
| 15,136 |
Investing activities | | | | | |
Purchases of property and equipment | | (232) | |
| (569) |
Acquisition of BDSI (net of cash acquired) | | — | | | (572,069) |
Purchases of marketable securities | | (41,661) | | | — |
Net cash used in investing activities |
| (41,893) | |
| (572,638) |
Financing activities | | | | | |
Proceeds from issuances of common stock from employee stock purchase plan | | 169 | | | 203 |
Proceeds from the exercise of stock options |
| 5,099 | |
| 4,806 |
Payments made for employee stock tax withholdings | | (7,956) | | | (3,893) |
Repayment of term notes | | (70,833) | | | (25,000) |
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 provided by financing activities |
| 23,061 | |
| 493,798 |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
| 108,561 | |
| (63,704) |
Cash, cash equivalents and restricted cash at beginning of period |
| 176,235 | |
| 188,973 |
Cash, cash equivalents and restricted cash at end of period | $ | 284,796 | | $ | 125,269 |
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Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets: | | | | | |
Cash and cash equivalents | $ | 283,749 | | $ | 122,722 |
Restricted cash | | 1,047 | | | 2,547 |
Total cash, cash equivalents and restricted cash | $ | 284,796 | | $ | 125,269 |
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Supplemental disclosure of cash flow information | | | | | |
Cash paid for interest | $ | 37,187 | | $ | 17,752 |
Cash paid for income taxes | $ | 10,011 | | $ | 6,776 |
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Supplemental disclosure of non-cash activities | | | | | |
Acquisition of property and equipment in accounts payable and accrued expenses | $ | — | | $ | 105 |
See accompanying notes to the Condensed Consolidated Financial Statements.
7
Collegium Pharmaceutical, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands, except share and per share amounts)
1. Nature of Business
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 CompanyCompany’s mission is to build a leading, diversified specialty pharmaceutical company developing and commercializing next-generation abuse-deterrent products that incorporatecommitted to improving the Company’s patented DETERx® technology platform for the treatmentlives of chronic pain and other diseases.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 Belbuca, and Symproic.
Xtampza isER, an abuse-deterrent, extended-release, oral formulation of oxycodone, a widely prescribed opioid medication. In April 2016,was approved by the U.S. Food and Drug Administration (“FDA”) approved the Company’s new drug application (“NDA”) filing for Xtampzain April 2016 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. InThe Company commercially launched Xtampza ER in June 2016,2016.
The Nucynta Products are extended-release (“ER”) and immediate-release (“IR”) formulations of tapentadol. Nucynta ER 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 indicated for the management of acute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate in adults. The Company began shipping and recognizing product sales on the Nucynta Products in January 2018 and began marketing the Nucynta Products in February 2018.
On March 22, 2022 (the “Acquisition Date”), the Company announcedacquired BioDelivery Sciences International, Inc. (“BDSI”), a specialty pharmaceutical company working to deliver innovative therapies for individuals living with serious and debilitating chronic conditions, pursuant to an Agreement and Plan of Merger, dated as of February 14, 2022, by and among the commercial launchCompany, Bristol Acquisition Company Inc., the Company’s wholly owned subsidiary, and BDSI (the “BDSI Acquisition”). Upon closing, the Company acquired the Belbuca and Symproic products. Belbuca is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA in October 2015 for use in patients with pain severe enough to require daily, around-the-clock, long-term opioid treatment for which alternative options are inadequate. Symproic was approved by the FDA in March 2017 for the treatment of Xtampza.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. The Company began shipping and recognizing product sales related to Belbuca and Symproic in March 2022.
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 litigationlitigation. As the COVID-19 pandemic unfolded, and governmental and societal reactions to it evolved, the availability of additional capital financing on terms acceptableCompany’s business was impacted by several trends, including depressed pain patient office visits compared to pre-COVID periods. Notwithstanding the Company.
The Company has experienced net losses and negative cash flows from operating activities since its inception, and, as of September 30, 2017 had an accumulated deficit of $280,646. Thefact that the federal public health emergency for COVID-19 expired in May 2023 in the United States, the Company expects the trends that emerged as a result of the pandemic to continue to incur net lossespersist in the foreseeable future. A successful transitionnear to profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.medium term.
The Company believes that its cash and cash equivalents at SeptemberJune 30, 2017,2023, together with expected cash inflows from the commercialization of Xtampza, as well as proceeds from its ATM offering through October 2017 (see note 2),products, will enable the Company to fund its operating expenses, debt service and capital expenditure requirements into mid-2019. The Company may never achieve profitability, and unless and until it does,under its current business plan for at least one year from 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. Ifdate the Company is unable to obtain financing or increase profitability, the related lackconsolidated financial statements were issued.
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2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements include the accounts of Collegium Pharmaceutical, Inc., a (a Virginia corporation, as well as the accounts of Collegium Securities Corp., a Massachusetts corporation, incorporated in December 2015, a wholly-owned subsidiary requiring consolidation.corporation) and its subsidiaries. The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements.
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to fairly present the financial position of the Company as of SeptemberJune 30, 2017,2023, and the results of operations for three and nine months ended September 30, 2017 and 2016, and cash flows for the ninethree and six months ended SeptemberJune 30, 20172023 and 2016.2022. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results to be expected for the full year.
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When preparing financial statementsthe Condensed Consolidated Financial Statements in conformityaccordance with GAAP requires the Company mustto 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 unsaleable product, estimates of useful lives with respect to intangible assets, accounting for stock-based compensation, contingencies, impairment of intangible assets and deferred tax valuation reserves and accrued expenses.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. The consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report.
Public Offerings of Common Stock
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.
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 September 30, 2017, the Company had sold an aggregate of 1,148,466 ATM Shares under the ATM Sales Agreement at an average gross sales price of $10.42 per share generating net proceeds of $11,455, after deduction of underwriting discounts and commissions and expenses payable by the Company, all of which were sold during the three months ended September 30, 2017.
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Revenue Recognition
Revenue for product sales 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, 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, the Company has determined that it has sufficient experience with sales of Xtampza to estimate its returns at time of shipment. The Company sells its products primarily to distributors and retailers (“customers”), which in turn sell the product to pharmacies for the treatment of patients. The Company provides the right of return to its customers for a limited time before and after its expiration date. As a result of its experience to date with Xtampza sales, the Company determined that it can reasonably estimate the amount of future product returns. The effect on income from operations and on net income is that the Company is able to recognize revenue earlier on the sell-in method, net of a provision for estimated returns, because the Company can record revenue once sold to the customer 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 during 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.
Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.
In October 2017, the Company sold an additional 1,793,290 ATM Shares under the ATM Sales Agreement at an average gross sales price of $11.29 per share generating net proceeds of $19,646, after deduction of underwriting discounts and commissions and expenses payable by the Company.
Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Reportmost recently filed annual report on Form 10-K for the fiscal year ended December 31, 2016.2022 (the “Annual Report”).
AdvertisingMarketable Securities
As of June 30, 2023, the Company’s marketable securities consisted of investments in available-for-sale corporate debt, U.S. Treasury, and Product Promotion Costsgovernment-sponsored securities with readily determinable fair values. The Company classifies available-for-sale marketable securities as current assets on its condensed consolidated balance sheets. The fair value of these securities is based on quoted prices for identical assets or inputs other than quoted prices that are observable for similar assets, either directly or indirectly.
AdvertisingThe Company records interest earned and product promotion costsnet amortization of premiums and discounts on investments within interest income on the condensed consolidated statements of operations. The Company records unrealized gains (losses) on available-for-sale debt securities as a component of Accumulated other comprehensive (loss) income, which is a separate component of shareholders’ equity on its consolidated balance sheets, until such gains and losses are includedrealized. Realized gains and losses are determined using the specific identification method.
For available-for-sale debt securities in selling, generalunrealized loss positions, the Company is required to assess whether to record an allowance for credit losses using an expected loss model. A credit loss is limited to the amount by which the amortized cost of an investment exceeds its fair value. A previously recognized credit loss may be decreased in subsequent periods if the Company’s estimate of fair value for the investment increases. To determine whether to record a credit loss, the Company considers issuer specific credit ratings and administrative expenseshistorical losses as well as current economic conditions and expectations for future economic conditions.
There were $2,489 and $3,486no other changes in the three months ended September 30, 2017 and 2016 respectively. Advertising and product promotion costs were $8,916 and $10,492Company’s significant accounting policies from those described in the nine months ended September 30, 2017 and 2016 respectively. Advertising and product promotion costs are expensedCompany’s Annual Report.
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Subsequent Events
In July 2023, the Company’s Board of Directors authorized an accelerated share repurchase program to repurchase $50,000 of the Company’s common stock, as incurred.part of the $100,000 repurchase program authorized in January 2023.
RecentRecently Adopted Accounting Pronouncements
New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as ofrequired by the specified effective dates.
In May 2014,Following the cessation of the London Interbank Offered Rate (“LIBOR”) in the United States on June 30, 2023, the Company elected to apply the optional expedient provided in FASB issued Accounting Standards Update or ASU, 2014-09 (ASC 606), Revenue from Contracts with Customers, which affects any entity that either enters into contracts with customers(“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 transfer goods and services or enters into contracts for the transfer of nonfinancial assets. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which defers the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09, which has been codified with the Accounting Standards Codification as Topic 606, is now effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, ASC 606 provides guidance on accounting for certain revenue-related costs including, but not limited to, when to capitalize costs associated with obtaining and fulfilling a contract. ASC 606 provides companies with
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two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustmentLIBOR was transitioned to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). Since ASU 2014-09 was issued, several additional ASUs have been issued and incorporated within ASC 606 to clarify various elements of the guidance. The Company will adopt the standard in the first quarter of 2018 using the modified retrospective method. The new standard differs from the current accounting standard in many respects, including the accounting for variable consideration. Under the Company’s current accounting policy, the Company recognizes product revenues and cost of product revenues at time of delivery to customers. The Company is still evaluating its contracts with customers and assessing the potential impacts of the new standard on existing arrangements. However, the Company doesSecured Overnight Financing Rate (“SOFR”) effective July 1, 2023, however, such transition did not expect the implementation of this guidance will have a material impact on its consolidated financial statements as the timing of revenue recognition for product sales is not expected to change significantly.
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,Recently Issued Accounting Pronouncements Not Yet Adopted
Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the FASB issued ASU 2016-15, ClassificationCompany or have a material effect on the consolidated financial statements upon future adoption.
3. Revenue from Contracts with Customers
The Company’s revenue to date is from sales of Certain Cash Receiptsthe Company’s products, which are primarily sold to wholesalers (“customers”), which in turn sell the product to pharmacies for the treatment of patients.
Revenue Recognition
The Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements with a customer, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and Cash Payments,(v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the assets is one year or less.
Performance Obligations
The Company determined that performance obligations are satisfied, and revenue is recognized when a customer takes control of the Company’s product, which occurs at a point in November 2016,time. This generally occurs upon delivery of the FASB issued ASU 2016-18, Restricted Cashproducts to customers, at which point the Company recognizes revenue and records accounts receivable. Payment is typically received 30 to 90 days after satisfaction of the Company’s performance obligations.
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Transaction Price and Variable Consideration
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). The amendments in these updates are effectivetransaction price for public business entitiesproduct sales includes variable consideration related to sales deductions, including (i) rebates and incentives, including managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances; (ii) product returns, including return estimates; and, (iii) trade allowances and chargebacks, including fees for fiscal years beginning after December 15, 2017,distribution services, prompt pay discounts, and interim periods within those fiscal years.chargebacks. The Company will adopt these standardsestimate the amount of variable consideration that should be included in the first quartertransaction price under the expected value method for all sales deductions other than trade allowances, which are estimated under the most likely amount method. These provisions reflect the expected amount of 2018 usingconsideration to which the retrospective transition method as required with respectCompany is entitled based on the terms of the contract. In addition, the Company made a policy election to each period presented. 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 expectsbases 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 adoptionrebates 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 standards will resultassumptions at each reporting period.
Provisions for rebates and incentives are based on the estimated amount of rebates and incentives to be claimed on the related sales. As the Company’s rebates and incentives are based on products dispensed to patients, the Company is required to estimate the expected value of claims at the time of product delivery to wholesalers. Given that wholesalers sell the product to pharmacies, which in turn dispense the product to patients, claims can be submitted significantly after the related sales are recognized. The Company’s estimates of these claims are based on the historical experience of existing or similar programs, including current contractual and statutory requirements, specific known market events and trends, industry data, and estimated distribution channel inventory levels. Accruals and related reserves required for rebates and incentives are adjusted as new information becomes available, including actual claims. If actual results vary, the Company may need to adjust future estimates, which could have an increaseeffect on earnings in net cash provided by investing activitiesthe period of $16the adjustment.
Provisions for product returns, including returns for Xtampza, the year ended December 31, 2015. TheNucynta Products, Belbuca and Symproic, are based on product-level returns rates, including processed as well as unprocessed return claims, in addition to relevant market events and other factors. Estimates of the future product returns are made at the time of revenue recognition to determine the amount of consideration to which the Company expects to be entitled (that is, excluding the products expected to be returned). At the end of each reporting period, the Company analyzes trends in returns rates and updates its assessment of variable consideration for returns to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. To the extent the Company receives amounts in excess of what it expects to be entitled to receive due to a product return, the Company does not expectrecognize revenue when it transfers products to customers but instead recognizes those excess amounts received as a refund liability. The Company updates the adoptionmeasurement of these standardsthe 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 haveits 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 material impactproduct 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.
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 consolidated financial statements forassessment of whether an estimate of variable consideration is constrained) to represent faithfully the years ended December 31, 2016 or December 31, 2017.circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. Variable consideration, including the risk of customer concessions, is included in the transaction price only to the extent that it is
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probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved. In particular, resolution of the unprocessed return claims includes the risk of concession for those that are outside of the Company’s return policy.
Significant judgment is required to determine the variable consideration included in the transaction price as described above. Adjustments to the estimated variable consideration included in the transaction price occur 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.
The following tables summarize activity in each of the Company’s product revenue provision and allowance categories for the six months ended June 30, 2023 and 2022:
| | | | | | | | | |
| | | | |
| Trade | |||
| | Rebates and | | Product | | Allowances and | |||
| | Incentives (1) | | Returns (2) | | Chargebacks (3) | |||
Balance at December 31, 2022 | | $ | 156,937 | | $ | 73,554 | | $ | 22,058 |
Provision related to current period sales | | | 211,709 | | | 20,958 | | | 73,382 |
Changes in estimate related to prior period sales | | | (1,623) | | | 1,230 | | | 593 |
Credits/payments made | | | (227,167) | | | (22,509) | | | (73,076) |
Balance at June 30, 2023 | | $ | 139,856 | | $ | 73,233 | | $ | 22,957 |
| | | | | | | | | |
|
| | | |
| Trade | |||
| | Rebates and | | Product | | Allowances and | |||
| | Incentives (1) | | Returns (2) | | Chargebacks (3) | |||
Balance at December 31, 2021 | | $ | 142,379 | | $ | 54,617 | | $ | 13,226 |
Acquired from BDSI | | | 38,074 | | | 18,187 | | | 7,575 |
Provision related to current period sales | | | 233,089 | | | 16,675 | | | 59,211 |
Changes in estimate related to prior period sales | | | (481) | | | — | | | (37) |
Credits/payments made | | | (244,356) | | | (11,465) | | | (52,939) |
Balance at June 30, 2022 | | $ | 168,705 | | $ | 78,014 | | $ | 27,036 |
(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 June 30, 2023, the Company did not have any transaction price allocated to remaining performance obligations and any costs to obtain contracts with customers, including pre-contract costs and set up costs, were immaterial.
Disaggregation of Revenue
The Company discloses disaggregated revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. When selecting the type of category to use to disaggregate revenue, the Company considers how information about the Company’s revenue has been presented for other purposes as well as what information is regularly reviewed and used for evaluating financial
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performance. As such, the Company disaggregates its product revenues, net from contracts with customers by product, as disclosed in the table below.
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2023 | | 2022 | | 2023 | | 2022 | ||||
Belbuca | $ | 43,136 | | $ | 42,301 | | $ | 87,348 | | $ | 45,611 |
Xtampza ER | | 41,245 |
| | 33,190 | | | 89,114 | | | 64,708 |
Nucynta IR | | 28,158 | | | 26,554 | | | 56,057 | | | 55,889 |
Nucynta ER | | 19,171 | | | 17,077 | | | 40,307 | | | 36,340 |
Symproic | | 3,836 | | | 3,860 | | | 7,487 | | | 4,160 |
Other | | — | | | 567 | | | — | | | 592 |
Total product revenues, net | $ | 135,546 | | $ | 123,549 | | $ | 280,313 | | $ | 207,300 |
The Company began recognizing revenue from net product sales of Belbuca and Symproic following the Acquisition Date (refer to Note 4, Acquisitions).
4. Acquisitions
On March 22, 2022, the Company closed the BDSI Acquisition, with BDSI surviving as a wholly owned subsidiary of the Company. 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 Commonshare 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.
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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 expenses | | | 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 |
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 10, Goodwill and Intangible Assets). In addition, the acquired inventory was recognized at its acquisition-date fair value, which resulted in an increase of $54,700 compared to its preacquisition book value.
The excess of the purchase price over the fair value of identifiable net assets acquired represents goodwill. This goodwill is primarily attributable to synergies of merging operations. The acquired goodwill is not deductible for tax purposes.
5. License Agreements
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 opioid-induced constipation in adult patients with chronic non-cancer pain (the “Shionogi Field”).
Pursuant to the terms of the Shionogi License Agreement, tiered royalty payments on net sales of Symproic in the Shionogi Territory are payable quarterly based on a royalty rate that ranges from 8.5% to 17.5% (plus an additional 1% of net sales on a pass-through basis to a third-party licensor of Shionogi) based on volume of net sales and whether Symproic is being sold as an authorized generic. Unless earlier terminated, the Shionogi License Agreement will continue in effect until the expiration of the royalty obligations, as defined therein. Upon expiration of the Shionogi License Agreement, all licenses granted for Symproic in the Shionogi Field and in the Shionogi Territory survive and become fully-paid, royalty-free, perpetual and irrevocable.
BDSI and Shionogi also had entered into a supply agreement under which Shionogi will supply Symproic at cost plus an agreed upon markup. In the event that Symproic is sourced from a third-party supplier, Shionogi would continue to supply naldemedine tosylate for use in Symproic manufacturing at cost plus such agreed upon markup for the duration of the Shionogi License Agreement.
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6. Earnings Per Share
Basic earnings per share is calculated by dividing the net income or loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted earnings per share is computed by dividing the net income or loss by the weighted-average number of shares of common stock, plus potentially dilutive securities outstanding for the period, as determined in accordance with the treasury stock, if-converted, or contingently issuable accounting methods, depending on the nature of the security. For purposes of the diluted earnings per share calculation, stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), and shares potentially issuable in connection with the Company’s employee stock purchase plan and convertible senior notes are considered potentially dilutive securities and included to the extent that their addition is not anti-dilutive.
The following table presents the computations of basic and dilutive net lossearnings per common share:
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| Three months ended September 30, |
| Nine months ended September 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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Loss attributable to common shareholders — basic and diluted | $ | (13,263) |
| $ | (26,444) |
| $ | (57,462) |
| $ | (66,617) |
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Weighted-average number of common shares used in net loss per share - basic and diluted |
| 29,753,043 |
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| 23,460,340 |
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| 29,517,396 |
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| 23,334,558 |
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Loss per share - basic and diluted | $ | (0.45) |
| $ | (1.13) |
| $ | (1.95) |
| $ | (2.85) |
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| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2023 | | 2022 |
| 2023 | | 2022 | ||||
Numerator: | | | | | | | | | | | |
Net income (loss) | $ | 13,007 | | $ | (5,191) | | $ | (4,419) | | $ | (18,260) |
Adjustment for interest expense recognized on convertible senior notes | | 1,677 | | | — | | | — | | | — |
Net income (loss) - diluted | $ | 14,684 | | $ | (5,191) | | $ | (4,419) | | $ | (18,260) |
Denominator: | | | | | | | | | | | |
Weighted-average shares outstanding — basic | | 34,622,284 |
| | 34,001,553 | | | 34,471,624 |
| | 33,838,638 |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options | | 236,426 | | | — | | | — | | | — |
Restricted stock units | | 481,478 | | | — | | | — | | | — |
Employee stock purchase plan | | 660 | | | — | | | — | | | — |
Convertible senior notes | | 7,509,104 | | | — | | | — | | | — |
Weighted average shares outstanding — diluted | | 42,849,952 | | | 34,001,553 | | | 34,471,624 | | | 33,838,638 |
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Earnings (loss) per share — basic | $ | 0.38 | | $ | (0.15) | | $ | (0.13) | | $ | (0.54) |
Earnings (loss) per share — diluted | $ | 0.34 | | $ | (0.15) | | $ | (0.13) | | $ | (0.54) |
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TableThe 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 Contentsthe two. The Company uses the if-converted method for the convertible senior notes.
The following potentiallytable presents dilutive securities which represent all outstanding potentially dilutiveexcluded from the calculation of diluted earnings per share:
| | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
Stock options | 751,930 | | 2,230,895 | | 1,368,968 | | 2,230,895 |
Restricted stock units | 1,073,613 | | 2,024,634 | | 2,522,025 | | 2,024,634 |
Performance share units | 503,880 | | 447,770 | | 503,880 | | 447,770 |
Warrants | — | | 1,041,667 | | — | | 1,041,667 |
Convertible senior notes | — | | 4,925,134 | | 7,509,104 | | 4,925,134 |
For PSUs, these securities were excluded from the calculation of diluted net lossearnings per share due toas 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 anti-dilutive effect (in common stock equivalent shares):
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| Nine months ended September 30, |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Outstanding stock options | 3,056,954 |
| 2,258,775 |
| 3,056,954 |
| 2,258,775 |
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Warrants | 2,445 |
| 2,445 |
| 2,445 |
| 2,445 |
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Unvested restricted stock(1) | 44,586 |
| 95,159 |
| 44,586 |
| 95,159 |
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Restricted stock units | 218,872 |
| 41,739 |
| 218,872 |
| 41,739 |
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(1) - Includes shares of unvested restricted stock remaining from the early exercise of stock options. |
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inclusion would have had an antidilutive effect.
4.7. Fair Value of Financial Instruments
Disclosures of fair value information about financial instruments are required, whether or not recognized in the balance sheet, for financial instruments with respect to which it is practicable to estimate that value. Fair value measurements and
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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 |
Level 2 inputs: | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly |
Level 3 inputs: | Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability |
Transfers are calculated on values as of the transfer date. There were no transfers between Levels 1, 2 and 3 during the six months ended June 30, 2023 and 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 at SeptemberJune 30, 20172023 and December 31, 2016.2022:
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| Quoted Prices |
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| other |
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| Significant |
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Description |
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September 30, 2017 |
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Money market funds, included in cash equivalents |
| $ | 81,026 |
| $ | 81,026 |
| $ | — |
| $ | — |
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December 31, 2016 |
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Money market funds, included in cash equivalents |
| $ | 125,515 |
| $ | 125,515 |
| $ | — |
| $ | — |
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| | | | | | | | | Significant | | | |
| | | | | | Quoted Prices | | | other | | | Significant |
| | | | | | in active | | | observable | | | unobservable |
| | | | | | markets | | | inputs | | | inputs |
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| | Total |
| | (Level 1) |
| | (Level 2) |
| | (Level 3) |
June 30, 2023 | | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | | | |
Money market funds | | $ | 123,095 | | $ | 123,095 | | $ | — | | $ | — |
U.S. Treasury securities | | | 5,977 | | | — | | | 5,977 | | | — |
Marketable securities: | | | | | | | | | | | | |
Corporate debt securities | | | 16,922 | | | — | | | 16,922 | | | — |
U.S. Treasury securities | | | 21,622 | | | — | | | 21,622 | | | — |
Government-sponsored securities | | | 3,177 | | | — | | | 3,177 | | | — |
Total assets measured at fair value | | $ | 170,793 | | $ | 123,095 | | $ | 47,698 | | $ | — |
| | | | | | | | | | | | |
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 are comprised of money market funds thatand marketable securities are measured at fair value on a recurring basis based onusing quoted market prices.
Assets and Liabilities Not Carried at Fair Value
As of SeptemberJune 30, 20172023, the fair value of the Company's 2.625% convertible senior notes due in 2026 was $25,033 and the fair value of the Company's 2.875% convertible senior notes due in 2029 was $208,415, which were estimated utilizing market quotations, and are considered Level 2.
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 June 30, 2023, the outstanding principal balance of the term notes of $504,167 reasonably approximated the estimated fair value.
As of June 30, 2023, and December 31, 20162022, the carrying amounts of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable, accrued expenses, deferred revenue and loan payableaccrued rebates, returns and discounts reasonably approximated their estimated fair values becausevalues.
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8. Marketable Securities
Available-for-sale debt securities were classified on the condensed consolidated balance sheets at fair value as follows:
| | | |
| | June 30, | |
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| 2023 | |
Cash and cash equivalents | | $ | 5,977 |
Marketable securities | | | 41,721 |
Total | | $ | 47,698 |
The following table summarizes the available-for-sale securities held as of June 30, 2023:
| | | | | | | | | |
| | Amortized Cost |
| Gross Unrealized (Losses) Gains | | Fair Value | |||
Corporate debt securities | | $ | 16,962 | | $ | (40) | | $ | 16,922 |
U.S. Treasury securities | | | 27,592 | | | 7 | | | 27,599 |
Government-sponsored securities | | | 3,182 | | | (5) | | | 3,177 |
Total | | $ | 47,736 | | $ | (38) | | $ | 47,698 |
The following table summarizes the contractual maturities of available-for-sale securities as of June 30, 2023:
| | | |
| | June 30, | |
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| 2023 | |
Matures within one year | | $ | 41,354 |
Matures after one year through five years | | | 6,344 |
Total | | $ | 47,698 |
The Company did not record any allowances for credit losses to adjust the fair value of available-for-sale debt securities during the three and six months ended June 30, 2023. The Company reviews its investments for other-than-temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the short-term natureinvestment is recoverable outweighs evidence to the contrary. The Company generally does not intend to sell any investments prior to recovery of these financial instruments.their amortized cost basis for any investment in an unrealized loss position. As such, the Company did not hold any securities with other-than-temporary impairment as of June 30, 2023.
The Company did not hold marketable securities as of December 31, 2022.
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9. Inventory
Inventory as of June 30, 2023 and December 31, 2022 consisted of the following:
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| As of September 30, |
| As of December 31, | ||||||||
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| 2017 |
| 2016 | ||||||||
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| | June 30, | | December 31, | ||||||||
| | 2023 | | 2022 | ||||||||
Raw materials |
| $ | 599 |
| $ | 294 | | $ | 6,027 | | $ | 5,600 |
Work in process |
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| 168 |
| 67 | | | 7,467 | | | 24,672 | |
Finished goods |
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| 634 |
|
| 955 | | | 12,532 | | | 16,229 |
Total inventory |
| $ | 1,401 |
| $ | 1,316 | | $ | 26,026 | | $ | 46,501 |
The aggregate charges related to excess and obsolete inventory for both the ninethree and six months ended SeptemberJune 30, 20172023 was $155 and 2016 were immaterial.$1,061, respectively. These expenses were recorded as a component of cost of product revenues. The aggregate charges related to excess and obsolete inventory for the three and six months ended June 30, 2022 were immaterial.
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10. Goodwill and Intangible Assets
The following tables summarizes the changes in the carrying amount of goodwill:
| | | |
| | Amount | |
Balance at December 31, 2022 | | $ | 133,695 |
Goodwill resulting from acquisitions | | | — |
Measurement period adjustments from BDSI Acquisition | | | 162 |
Balance at June 30, 2023 | | $ | 133,857 |
6. Intangible AssetThe Company’s goodwill resulted from the BDSI Acquisition. Refer to Note 4, Acquisitions.
In May 2016,The following table sets forth the cost, accumulated amortization, and carrying amount of intangible assets as of June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | |
| | | June 30, 2023 | | December 31, 2022 | ||||||||||||||
| Amortization Period | | | Cost | | | Accumulated Amortization | | | Carrying Amount | | | Cost | | | Accumulated Amortization | | | Carrying Amount |
Belbuca | 4.8 | | $ | 360,000 | | $ | (96,123) | | $ | 263,877 | | $ | 360,000 | | $ | (58,428) | | $ | 301,572 |
Nucynta Products | 8.0 | | | 521,170 | | | (353,219) | | | 167,951 | | | 521,170 | | | (319,628) | | | 201,542 |
Symproic | 9.6 | | | 70,000 | | | (9,289) | | | 60,711 | | | 70,000 | | | (5,646) | | | 64,354 |
Elyxyb | — | | | — | | | — | | | — | | | 5,000 | | | (5,000) | | | — |
Total intangibles | | | $ | 951,170 | | $ | (458,631) | | $ | 492,539 | | $ | 956,170 | | $ | (388,702) | | $ | 567,468 |
The following table presents amortization expense recognized in cost of product revenues for the three and six months ended June 30, 2023 and 2022:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| | 2023 |
| | 2022 | | | 2023 |
| | 2022 |
Belbuca | $ | 18,846 |
| $ | 18,796 | | $ | 37,695 |
| $ | 20,733 |
Nucynta Products | | 16,795 | | | 16,796 | | | 33,591 | | | 33,591 |
Symproic | | 1,822 | | | 1,821 | | | 3,643 | | | 2,003 |
Elyxyb | | — | | | 88 | | | — | | | 97 |
Total amortization expense | $ | 37,463 | | $ | 37,501 | | $ | 74,929 | | $ | 56,424 |
As of June 30, 2023, the remaining amortization expense expected to be recognized is as follows:
| | | | | | | | | | | |
Years ended December 31, | Belbuca | | Nucynta Products | | Symproic | | Total | ||||
2023 | $ | 37,698 | | $ | 33,590 | | $ | 3,642 | | $ | 74,930 |
2024 | | 75,393 | | | 67,181 | | | 7,285 | | | 149,859 |
2025 | | 75,393 | | | 67,180 | | | 7,285 | | | 149,858 |
2026 | | 75,393 | | | — | | | 7,285 | | | 82,678 |
2027 | | — | | | — | | | 7,285 | | | 7,285 |
Thereafter | | — | | | — | | | 27,929 | | | 27,929 |
Remaining amortization expense | $ | 263,877 | | $ | 167,951 | | $ | 60,711 | | $ | 492,539 |
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11. Accrued Expenses
Accrued expenses as of June 30, 2023 and December 31, 2022 consisted of the following:
| | | | | |
| June 30, | | December 31, | ||
| 2023 |
| 2022 | ||
Accrued royalties | $ | 14,287 | | $ | 13,770 |
Accrued product taxes and fees |
| 4,490 | | | 4,352 |
Accrued interest | | 2,959 | | | 1,410 |
Accrued bonuses | | 2,669 | | | 6,347 |
Accrued payroll and related benefits | | 1,732 | |
| 1,208 |
Accrued incentive compensation |
| 1,376 | |
| 1,507 |
Accrued sales and marketing | | 1,274 | | | 2,130 |
Accrued audit and legal | | 1,213 | | | 1,957 |
Accrued other operating costs | | 5,245 | | | 3,448 |
Total accrued expenses | $ | 35,245 | | $ | 36,129 |
12. Term Notes Payable
2022 Term Loan
On March 22, 2022, in connection with the closing of the BDSI Acquisition, the Company entered into an agreement with BioDelivery Sciences International, Inc. (“BDSI”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 licenserepay the rights to develop, manufacture,Company’s existing term notes and commercialize Onsolis® (fentanyl buccal soluble film), or Onsolis, in the United States. Onsolis isfund a Transmucosal Immediate-Release Fentanyl (“TIRF”) film indicated for the management of breakthrough pain in certain cancer patients. The Company expects to launch the product after the completionportion of the transferconsideration to be paid to complete the BDSI Acquisition. The 2022 Loan Agreement was accounted for as a debt modification and transaction fees of manufacturing$173 were expensed. In connection with the 2022 Loan Agreement, the Company paid loan commitment and required submissionother fees to the FDAlender of a Prior Approval Supplement. Subject to FDA approval$19,818, which together with preexisting debt issuance costs and note discounts of the Prior Approval Supplement, the Company expects to launch Onsolis in mid-2018. In addition, during$2,049 will be amortized over the term of the Licenseloan using the effective interest rate.
The 2022 Term Loan will mature on the 48-month anniversary of the closing of the BDSI Acquisition and is guaranteed by the Company’s material domestic subsidiaries. The 2022 Term Loan is also secured by substantially all of the assets of the Company and its material domestic subsidiaries. Prior to the cessation of LIBOR on June 30, 2023, the 2022 Term Loan bore interest at a rate based upon LIBOR (subject to a LIBOR floor of 1.20%), plus a margin of 7.5% per annum. On June 23, 2023, the Company entered into an amendment to the 2022 Loan Agreement milestoneto adjust the interest terms of the 2022 Term Loan to transition from LIBOR to SOFR in anticipation of the cessation of LIBOR. Effective July 1, 2023, the 2022 Term Loan bears interest at a rate based upon 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 June 30, 2023, the interest rate was 12.9%. The Company paid $100,000 in principal payments under the 2022 Term Loan during the first year and the remaining $550,000 balance is required to be paid in equal quarterly installments over the remaining three years.
The 2022 Loan Agreement permits voluntary prepayment at any time, subject to a prepayment premium. The prepayment premium is equal to 2.00% of the principal amount being prepaid prior to the second-year anniversary of the closing date, or 1.00% of the principal amount being prepaid on or after the second-year anniversary of the closing date. The 2022 Loan Agreement also includes a make-whole premium in the event of a voluntary prepayment, a prepayment due to a change in control or acceleration following an Event of Default (as defined in the 2022 Loan Agreement) on or prior to the second-year anniversary of the closing date, in each case in an amount equal to foregone interest from the date of prepayment through the second-year anniversary of the closing date. A change of control also triggers a mandatory prepayment of the 2022 Term Loan.
The 2022 Loan Agreement contains certain covenants and obligations of the parties, including, without limitation, covenants that limit the Company’s ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business. Failure to comply with these covenants would constitute an Event of Default under the 2022 Loan Agreement, notwithstanding the Company’s ability to meet its debt service obligations. The 2022 Loan Agreement also includes various customary remedies for the lenders following an
19
Event of Default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement.
During the three and six months ended June 30, 2023, the Company recognized interest expense of $19,651 and $39,330, respectively, related to the 2022 Term Loan. During the three and six months ended June 30, 2022, the Company recognized interest expense of $16,591 and $18,414, respectively, related to the 2022 Term Loan.
As of June 30, 2023, future required principal repayments under the 2022 Term Loan are as follows:
| | |
Years ended December 31, | Principal Payments | |
2023 | $ | 91,667 |
2024 | | 183,333 |
2025 | | 183,333 |
2026 | | 45,834 |
Total before unamortized discount and issuance costs | $ | 504,167 |
Less: unamortized discount and issuance costs | | (10,936) |
Term notes carrying value | $ | 493,231 |
13. Convertible Senior Notes
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 $21,000 may become payable by$143,750, in a public offering registered under the Securities Act of 1933, as amended. The 2026 Convertible Notes were issued in connection with funding the acquisition of the Nucynta Products. Some of the Company’s existing investors participated in the 2026 Convertible Notes offering. In connection with the issuance of the 2026 Convertible Notes, the Company incurred approximately $5,473 of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees.
The 2026 Convertible Notes are senior, unsecured obligations and bear interest at a rate of 2.625% per year payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020. Before August 15, 2025, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after August 15, 2025, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The 2026 Convertible Notes will mature on February 15, 2026, unless earlier repurchased, redeemed or converted. The initial conversion rate is 34.2618 shares of common stock per $1 principal amount of 2026 Convertible Notes, which represents an initial conversion price of approximately $29.19 per share of common stock. The conversion rate and conversion price are subject to adjustment upon the satisfactionoccurrence of certain commercialization, intellectual property, and net sales milestones, including $4,000 upon the first commercial saleevents.
Holders of the product2026 Convertible Notes may convert all or any portion of their 2026 Convertible Notes, in multiples of $1 principal amount, at their option only under the U.S. Finally, the Company will be required to pay royalties in the upper teens based on annual net salesfollowing 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 |
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(5) | at any time from, and including, August 15, 2025 until the close of business on the scheduled trading day immediately before the maturity date. |
As of June 30, 2023, none of the product inabove circumstances had occurred and as such, the U.S. As of September 30, 2017, the Company has2026 Convertible Notes could not satisfied the criteria for triggering payment of milestones or royalties under the License Agreement and has not recognized any liabilities for such milestones or royalties in its consolidated financial statements.have been converted.
The Company made an upfront paymentdid not have the right to redeem the 2026 Convertible Notes prior to February 15, 2023. On or after February 15, 2023, the Company may redeem the 2026 Convertible Notes, in whole and not in part, at a cash redemption price equal to the principal amount of $2,500the 2026 Convertible Notes to be redeemed, plus accrued and is contractually committedunpaid 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 reimburse BDSI up to a maximumthe conversion of $2,000 for its out-of-pocket expenses incurredany 2026 Convertible Notes, if converted in connection with the manufacturing transfer.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 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 (“ASC”) 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 upfrontCondensed Consolidated Statements of Operations during the three months ending March 31, 2023, which includes the recognition of previously deferred financing costs of $2,264. After giving effect to the repurchase, the total remaining principal amount outstanding under the 2026 Convertible Notes as of June 30, 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
21
4(a)(2) and Rule 144A under the Securities Act of 1933, as amended. The 2029 Convertible Notes were issued to finance the concurrent repurchase of a portion of the 2026 Convertible Notes, and the remainder of the net proceeds may be used for general corporate purposes. In connection with the issuance of the 2029 Convertible Notes, the Company incurred approximately $6,280 of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees.
The 2029 Convertible Notes are senior, unsecured obligations and bear interest at a rate of 2.875% per year payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2023. The 2029 Convertible Notes will mature on February 15, 2029, unless earlier repurchased, redeemed or converted. Before November 15, 2028, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after November 15, 2028, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The initial conversion rate is 27.3553 shares of common stock per $1 principal amount of 2029 Convertible Notes, which represents an initial conversion price of approximately $36.56 per share of common stock. The conversion rate and conversion price are subject to adjustment upon the occurrence of certain events.
Holders of the 2029 Convertible Notes may convert all or any portion of their 2029 Convertible Notes, in multiples of $1 principal amount, at their option only under the following circumstances:
(1) | during any calendar quarter commencing after the calendar quarter ending on June 30, 2023, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; |
(2) | during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the “trading price” per $1 principal amount of the 2029 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; |
(3) | upon the occurrence of certain corporate events or distributions on the Company’s common stock; |
(4) | if the Company calls any or all of the 2029 Convertible Notes for redemption, but only with respect to the 2029 Convertible Notes called for redemption; or |
(5) | at any time from, and including, November 15, 2028 until the close of business on the scheduled trading day immediately before the maturity date. |
As of June 30, 2023, none of the above circumstances had occurred and as such, the 2029 Convertible Notes could not have been converted.
The Company may not redeem the 2029 Convertible Notes prior to February 17, 2026. On or after February 17, 2026 and on or before the 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 common stock exceeds 130% of the conversion price on:
(1) | each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and |
(2) | the trading day immediately before the date the Company sends such notice. |
However, the Company may not redeem less than all of the outstanding 2029 Convertible Notes unless at least $75,000 aggregate principal amount of the 2029 Convertible Notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice.
Calling any 2029 Convertible Note for redemption will constitute a make-whole fundamental change with respect to that 2029 Convertible Note, in which case the conversion rate applicable to the conversion of that 2029 Convertible Note, if it is converted in connection with the redemption, will be increased in certain circumstances for a specified period of time.
22
The 2029 Convertible Notes have customary default provisions, including (i) a default in the payment as an intangiblewhen due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any note; (ii) a default for 30 days in the payment when due of interest on any note; (iii) a default in the Company’s obligation to convert a note in accordance with the indenture, if such default is not cured within 3 business days after its occurrence; (iv) a default with respect to the Company’s obligations under the indenture related to consolidations, mergers and asset sales; (v) a default in any of the Company’s other obligations or agreements under the indenture that are not cured or waived within 60 days after notice to the Company; (vi) certain payment defaults by the Company or certain subsidiaries with respect to mortgages, agreements or other instruments for indebtedness for money borrowed of at least $30,000 or other defaults by the Company or certain subsidiaries with respect to such indebtedness that result in the acceleration of such indebtedness; (vii) default upon the occurrence of one or more final judgments being rendered against the Company or any of the Company’s significant subsidiaries for the payment of at least $30,000; and (xiii) upon the occurrence of certain events of bankruptcy, insolvency and reorganization with respect to the Company or any of its significant subsidiaries.
The 2026 Convertible Notes and 2029 Convertible Notes (together, the “Convertible Notes”) are classified on the Condensed Consolidated Balance Sheet and will amortize it on a straight-line basis over the remaining patent life. Sheets as of June 30, 2023 as convertible senior notes.
As of SeptemberJune 30, 2017,2023, the Company has reimbursed BDSI approximately $1,391 for its out-of-pocket expenses incurred in connection withoutstanding balance of the manufacturing transfer.
As a result of U.S. Patent No. 9,597,288 being issued in March 2017, the patent protection for Onsolis was extended through July 2027, a period of approximately 11.2 years from the date of original acquisition. As such, the Company revised the useful life of its intangible asset during the three months ended March 31, 2017 from 3.7 years to 11.2 years.
During the three months ended September 30, 2017, the Company recognized amortization expense of $48 compared to $227 for the three months ended September 30, 2016. For the nine months ended September 30, 2017 the Company recognized amortization expense of $225 compared to $227 for the nine months ended September 30, 2016. As of September 30, 2017, the remaining amortization period is approximately 9.8 years and estimated remaining amortization for 2017, 2018, 2019, 2020, 2021 and thereafter is expected to be $47, $191, $191 $191, $191 and $1,066, respectively.
12
Accrued expensesConvertible Notes consisted of the following:
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|
|
| As of September 30, |
| As of December 31, |
| ||
| 2017 |
| 2016 |
| ||
Accrued rebates, returns and discounts | $ | 10,345 |
| $ | — |
|
Accrued bonuses |
| 2,089 |
|
| 2,210 |
|
Accrued payroll and related benefits |
| 1,762 |
|
| 1,217 |
|
Accrued incentive compensation |
| 1,671 |
|
| 1,160 |
|
Accrued development costs |
| 1,120 |
|
| 2,485 |
|
Accrued sales and marketing |
| 1,076 |
|
| 801 |
|
Accrued other operating costs |
| 792 |
|
| 572 |
|
Accrued audit and legal |
| 404 |
|
| 416 |
|
Accrued interest |
| 9 |
|
| 18 |
|
Total accrued expenses | $ | 19,268 |
| $ | 8,879 |
|
| | | | | | | | |
| 2026 Convertible Notes | | 2029 Convertible Notes | | Total Convertible Notes | |||
Principal | $ | 26,350 | | $ | 241,500 | | $ | 267,850 |
Less: unamortized issuance costs | | (443) | | | (5,886) | | | (6,329) |
Net carrying amount | $ | 25,907 | | $ | 235,614 | | $ | 261,521 |
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 June 30, 2023, the if-converted value did not exceed the remaining principal amount of the Convertible Notes.
The following table presents the total interest expense recognized related to the Convertible Notes during the three and six months ended June 30, 2023, and 2022:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2023 | | 2022 | | 2023 | | 2022 | ||||
Contractual interest expense | $ | 1,909 | | $ | 943 | | $ | 3,388 | | $ | 1,887 |
Amortization of debt issuance costs | | 298 | | | 226 | | | 561 | | | 449 |
Total interest expense | $ | 2,207 | | $ | 1,169 | | $ | 3,949 | | $ | 2,336 |
As of June 30, 2023, the future minimum payments on the Convertible Notes were as follows:
| | | | | | | | |
Years ended December 31, | 2026 Convertible Notes | | 2029 Convertible Notes | | Total Convertible Notes | |||
2023 | $ | 346 | | $ | 3,568 | | $ | 3,914 |
2024 | | 692 | | | 6,943 | | | 7,635 |
2025 | | 692 | | | 6,943 | | | 7,635 |
2026 | | 26,696 | | | 6,943 | | | 33,639 |
2027 | | — | | | 6,943 | | | 6,943 |
Thereafter | | — | | | 251,915 | | | 251,915 |
Total minimum payments | $ | 28,426 | | $ | 283,255 | | $ | 311,681 |
Less: interest | | (2,076) | | | (41,755) | | | (43,831) |
Less: unamortized issuance costs | | (443) | | | (5,886) | | | (6,329) |
Convertible Notes carrying value | $ | 25,907 | | $ | 235,614 | | $ | 261,521 |
23
14. Equity
The changes in shareholders’ equity for the ninethree and six months ended SeptemberJune 30, 20172023 were as follows:
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| Additional |
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| Total | ||
| Common Stock |
| Paid- In |
| Accumulated |
| Shareholders’ | ||||||
| Shares |
|
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | |||
Balance, December 31, 2016 | 29,364,100 |
| $ | 29 |
| $ | 358,063 |
| $ | (223,184) |
| $ | 134,908 |
Exercise of common stock options | 131,755 |
|
| 1 |
|
| 427 |
|
| — |
|
| 428 |
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) |
Issuance of common stock resulting from at-the-market transactions, net of issuance costs of $507 | 1,148,466 |
|
| 1 |
|
| 11,454 |
|
| — |
|
| 11,455 |
Stock-based compensation | — |
|
| — |
|
| 5,867 |
|
| — |
|
| 5,867 |
Net loss | — |
|
| — |
|
| — |
|
| (57,462) |
|
| (57,462) |
Balance, September 30, 2017 | 30,765,100 |
| $ | 31 |
| $ | 376,884 |
| $ | (280,646) |
| $ | 96,269 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | |
| Additional | | | | | |
| | |
| Accumulated Other | | Total | |||
| Common Stock |
| Paid- In | | Treasury Stock | | Accumulated |
| Comprehensive | | Shareholders’ | ||||||||||
| Shares |
| | Amount |
| Capital | | Shares | | | Amount |
| Deficit |
| Loss | | Equity | ||||
Balance, December 31, 2022 | 37,084,759 | | $ | 37 | | $ | 538,073 | | (3,235,823) | | $ | (61,924) | | $ | (281,344) | | $ | — | | $ | 194,842 |
Exercise of common stock options | 234,132 | | | — | | | 3,848 | | — | | | — | | | — | | | — | | | 3,848 |
Issuance for employee stock purchase plan | 11,329 | | | — | | | 169 | | — | | | — | | | — | | | — | | | 169 |
Vesting of RSUs and PSUs | 775,904 | | | 1 | | | — | | — | | | — | | | — | | | — | | | 1 |
Shares withheld for employee taxes upon vesting of RSUs and PSUs | (289,281) | | | — | | | (7,736) | | — | | | — | | | — | | | — | | | (7,736) |
Stock-based compensation | — | | | — | | | 6,035 | | — | | | — | | | — | | | — | | | 6,035 |
Net loss | — | | | — | | | — | | — | | | — | | | (17,426) | | | — | | | (17,426) |
Balance, March 31, 2023 | 37,816,843 | | $ | 38 | | $ | 540,389 | | (3,235,823) | | $ | (61,924) | | $ | (298,770) | | $ | — | | $ | 179,733 |
Exercise of common stock options | 72,405 | | | — | | | 1,251 | | — | | | — | | | — | | | — | | | 1,251 |
Vesting of RSUs and PSUs | 73,805 | | | — | | | — | | — | | | — | | | — | | | — | | | — |
Shares withheld for employee taxes upon vesting of RSUs and PSUs | (9,655) | | | — | | | (220) | | — | | | — | | | — | | | — | | | (220) |
Stock-based compensation | — | | | — | | | 7,072 | | — | | | — | | | — | | | — | | | 7,072 |
Other comprehensive loss, net of tax | — | | | — | | | — | | — | | | — | | | — | | | (38) | | | (38) |
Net income | — | | | — | | | — | | — | | | — | | | 13,007 | | | — | | | 13,007 |
Balance, June 30, 2023 | 37,953,398 | | $ | 38 | | $ | 548,492 | | (3,235,823) | | $ | (61,924) | | $ | (285,763) | | $ | (38) | | $ | 200,805 |
A summary ofThe changes in shareholders’ equity for the Company’s stock-based compensation expense included in theCondensed Consolidated Statements of Operations arethree and six months ended June 30, 2022 were as follows:
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|
|
| Three months ended |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Research and development expenses | $ | 222 |
| $ | 171 |
| $ | 673 |
| $ | 474 |
Selling, general and administrative expenses |
| 1,878 |
|
| 1,470 |
|
| 5,194 |
|
| 3,663 |
Total stock-based compensation expense | $ | 2,100 |
| $ | 1,641 |
| $ | 5,867 |
| $ | 4,137 |
At September 30, 2017, there was approximately $18,889 of unrecognized compensation expense related to unvested options, restricted stock units and restricted stock awards, which is expected to be recognized as expense over a weighted average period of approximately 2.7 years.
| | | | | | | | | | | | | | | | | | |
| | | | |
| Additional | | | | | |
| | |
| Total | ||
| Common Stock |
| Paid- In | | Treasury Stock | | Accumulated |
| Shareholders’ | |||||||||
| Shares |
| | Amount |
| Capital | | Shares | | | Amount |
| Deficit |
| Equity | |||
Balance, December 31, 2021 | 35,806,119 | | $ | 36 | | $ | 502,095 | | (2,150,717) | | $ | (42,861) | | $ | (256,342) | | $ | 202,928 |
Exercise of common stock options | 190,074 | | | — | | | 3,261 | | — | | | — | | | — | | | 3,261 |
Issuance for employee stock purchase plan | 13,421 | | | — | | | 203 | | — | | | — | | | — | | | 203 |
Vesting of RSUs and PSUs | 563,050 | | | — | | | — | | — | | | — | | | — | | | — |
Shares withheld for employee taxes upon vesting of RSUs and PSUs | (191,667) | | | — | | | (3,382) | | — | | | — | | | — | | | (3,382) |
Share repurchases | — | | | — | | | 5,000 | | (307,132) | | | (5,000) | | | — | | | — |
Stock-based compensation | — | | | — | | | 6,135 | | — | | | — | | | — | | | 6,135 |
Net loss | — | | | — | | | — | | — | | | — | | | (13,069) | | | (13,069) |
Balance, March 31, 2022 | 36,380,997 | | $ | 36 | | $ | 513,312 | | (2,457,849) | | $ | (47,861) | | $ | (269,411) | | $ | 196,076 |
Exercise of common stock options | 102,283 | | | — | | | 1,545 | | — | | | — | | | — | | | 1,545 |
Vesting of RSUs and PSUs | 111,056 | | | 1 | | | — | | — | | | — | | | — | | | 1 |
Shares withheld for employee taxes upon vesting of RSUs and PSUs | (26,506) | | | — | | | (511) | | — | | | — | | | — | | | (511) |
Stock-based compensation | — | | | — | | | 5,692 | | — | | | — | | | — | | | 5,692 |
Net loss | — | | | — | | | — | | — | | | — | | | (5,191) | | | (5,191) |
Balance, June 30, 2022 | 36,567,830 | | $ | 37 | | $ | 520,038 | | (2,457,849) | | $ | (47,861) | | $ | (274,602) | | $ | 197,612 |
Common Stock
Restricted Stock Awards, Restricted Stock Units and Stock Options
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 arewere authorized for issuance to employees, officers, directors, consultants
13
and advisors of the Company, plus an annual increase on the first day of each fiscal year until the expiration of the Plan equal to 4% of the total number of outstanding shares of common stock on December 31st31st of the immediately preceding calendar year (or a lower amount as otherwise determined by the Company’s board of directors (“Board of Directors”) prior to January 1st)1st). As of SeptemberJune 30, 2017,2023, there were 1,142,2771,846,667 shares of common stock available for
24
issuance pursuant to the Plan. The Plan provides for granting of both Internal Revenue Service qualified incentive stock options (“ISOs”) and non-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 are also subject to performance conditions.service. The stock options generally have a ten yearten-year contractual life and, upon termination, vested options are generally exercisable between one andfor three months following the termination date, while unvested options are forfeited immediately.immediately upon termination. Refer to Note 15, Stock-based Compensation, for more information.
ShareRepurchases
In August 2021, the Board of Directors authorized a share repurchase program to repurchase up to $100,000 of outstanding shares of the Company’s common stock at any time or times through December 31, 2022 (the “Prior Repurchase Program”). The Prior Repurchase Program permitted the Company to effect repurchases through a variety of methods, including open-market purchases (including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act), privately negotiated transactions, or otherwise in compliance with Rule 10b-18 of the Exchange Act. Shares repurchased under the Prior Repurchase Program were returned to the Company’s pool of authorized but unissued shares available for reissuance. The timing and amount of any such repurchases were determined based on share price, market conditions, legal requirements, and other relevant factors.
Through December 31, 2022, the Company repurchased 3,235,823 shares at a weighted-average price of $19.14 per share for a total of $61,924 under the Prior Repurchase Program and the cost of repurchased shares were recorded as treasury stock in the Consolidated Balance Sheet. The Prior Repurchase Program expired on December 31, 2022.
In January 2023, the Board of Directors authorized a share repurchase program to repurchase up to $100,000 of the Company’s common stock through December 31, 2023 (the “2023 Repurchase Program”). The 2023 Repurchase Program permits the Company to effect repurchases through a variety of methods, including open-market purchases (including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act), privately negotiated transactions, or otherwise in compliance with Rule 10b-18 of the Exchange Act. The timing and amount of any shares purchased on the open market will be determined based on the Company’s evaluation of the market conditions, share price and other factors. The Company plans to utilize existing cash on hand to fund the 2023 Repurchase Program.
As of June 30, 2023, the Company has not yet repurchased shares under the 2023 Repurchase Program. Thus, $100,000 remained available for share repurchases under the 2023 Repurchase Program as of June 30, 2023.
15. Stock-based Compensation
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 Company’s Compensation Committee.
A summary of the Company’s restricted stock awardPSU activity for the ninesix months ended SeptemberJune 30, 20172023 and related information is as follows:
| | | | | |
| | | | Weighted-Average | |
| | Shares | | Grant Date Fair Value | |
Outstanding at 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 at June 30, 2023 | | 503,880 | | $ | 33.13 |
14
The number of PSUs granted 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 six months ended June 30, 2023, and 2022 was $38.71 and $24.12, respectively.
25
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| Weighted-Average | |
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|
| Purchase Price | |
|
| Shares |
| per Share | |
Unvested at December 31, 2016 |
| 43,265 |
| $ | 5.73 |
Granted |
| — |
|
| — |
Vested |
| (24,336) |
|
| 5.73 |
Unvested at September 30, 2017 (1) |
| 18,929 |
| $ | 5.73 |
(1)Excludes 25,657 shares
Restricted Stock Units
The Company granted RSUs to employees during the six months ended June 30, 2023. The Company’s RSUs generally vest ratably over a four-year period of unvested restricted stock remaining from the early exercise of stock options as of September 30, 2017.
service. A summary of the Company’s restricted stock unitsRSU activity for the ninesix months ended SeptemberJune 30, 20172023 and related information is as follows:
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| 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 September 30, 2017 |
| 218,872 |
| $ | 12.64 |
| | | | | |
| | | | Weighted-Average | |
| | Shares | | Grant Date Fair Value | |
Outstanding at December 31, 2022 | | 2,047,571 | | $ | 19.67 |
Granted | | 1,248,207 | | | 26.33 |
Vested | | (626,539) | | | 20.03 |
Forfeited | | (147,214) | | | 21.62 |
Outstanding at June 30, 2023 | | 2,522,025 | | $ | 22.76 |
The weighted-average grant date fair value per share of RSUs granted for the six months ended June 30, 2023 and 2022 was $26.33 and $17.48, respectively. The total fair value of RSUs vested (measured on the date of vesting) for the six months ended June 30, 2023, and 2022 was $16,480 and $9,697, respectively.
Stock Options
A summary of the Company’s stock option activity for the six months ended June 30, 2023 and related information is as follows:
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| 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 |
| 1,261,373 |
|
| 12.06 |
|
|
|
|
|
|
Exercised |
| (131,755) |
|
| 3.25 |
|
|
|
|
|
|
Cancelled |
| (399,465) |
|
| 13.62 |
|
|
|
|
|
|
Outstanding at September 30, 2017 |
| 3,056,954 |
| $ | 13.00 |
| 8.6 |
| $ | 3,604 |
|
Exercisable at September 30, 2017 |
| 940,101 |
| $ | 12.80 |
| 7.8 |
| $ | 1,727 |
|
Vested and expected to vest at September 30, 2017 |
| 2,909,114 |
| $ | 13.08 |
| 8.5 |
| $ | 3,571 |
|
| | | | | | | | | | |
|
| |
| | |
| Weighted- |
| | |
| | |
| | Weighted- |
| Average | | | |
| | |
| | Average |
| Remaining | | | Aggregate |
| | | | | Exercise Price |
| Contractual | | | Intrinsic |
|
| Shares |
| | per Share |
| Term (in years) |
| | Value |
Outstanding at December 31, 2022 |
| 1,683,805 | | $ | 18.84 |
| 5.5 | | $ | 7,953 |
Exercised |
| (306,537) | | | 16.58 | | | | | |
Cancelled |
| (8,300) | | | 18.80 | | | | | |
Outstanding at June 30, 2023 |
| 1,368,968 | | $ | 19.35 |
| 5.0 | | $ | 4,411 |
Exercisable at June 30, 2023 |
| 1,308,248 | | $ | 19.30 | | 4.9 | | $ | 4,345 |
The fair value of eachThere were no stock option is estimated onoptions granted during the grant date using the Black-Scholes option-pricing model using the following assumptions:six months ended June 30, 2023 and 2022.
|
|
|
|
|
|
| Nine months ended September 30, | ||||
| 2017 |
| 2016 | ||
Risk-free interest rate | 2.0 | % |
| 1.5 | % |
Volatility | 71 | % |
| 77 | % |
Expected term (years) | 6.01 |
|
| 6.02 |
|
Expected dividend yield | — | % |
| — | % |
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) the first day of the purchase period or (2) the last day of the purchase period. During the ninesix months ended SeptemberJune 30, 2017, 110,8412023, 11,329 shares of common stock were purchased for total proceeds of $1,141.$169. The expense for the three months ended SeptemberJune 30, 20172023 and 20162022 was $74$55 and $143,$28, respectively. The expense for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 was $288$101 and $311,$60, respectively.
Stock-based Compensation Expense
15A summary of the allocation of the Company’s stock-based compensation expense for the three and six months ended June 30, 2023 and 2022 is as follows:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2023 | | 2022 | | 2023 | | 2022 | ||||
Research and development | $ | — |
| $ | — | | $ | — |
| $ | 1,591 |
Selling, general and administrative |
| 7,072 | | | 5,692 | |
| 13,107 | | | 10,236 |
Total stock-based compensation expense | $ | 7,072 | | $ | 5,692 | | $ | 13,107 | | $ | 11,827 |
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At June 30, 2023, there was approximately $57,292 of unrecognized compensation expense related to unvested options, restricted stock units and performance stock units, which is expected to be recognized as expense over a weighted average period of approximately 2.8 years.
10.
16. 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
The Company’s NDA filingCompany filed the New Drug Application (“NDA”) for Xtampza isER as a 505(b)(2) application, which allows 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”),Orange Book, in this case OxyContin OP. In connection with theOxyContin. The 505(b)(2) process requires that the Company certifiedcertify to the FDA and notifiedthat the Company does not infringe any of the patents listed for OxyContin in the Orange Book, or that the patents are invalid. The process also requires that the Company notify Purdue Pharma, L.P.L.P (“Purdue”), as the holder of the NDA, and any other Orange Book-listed patent owners that it has made such a certification. On February 11, 2015, the Company made the required certification documenting why Xtampza ER does not infringe any of the 11 Orange Book-listed patents listed for OxyContin, OPfive of which have been invalidated in court proceedings, and provided the Orange Book.required notice to Purdue. Under the Hatch-WaxmanDrug Price Competition and Patent Term Restoration Act of 1984, (the “Hatch-Waxman Act”), Purdue had the option to sue the Company for infringement and receive a stay of up to 30 months before the FDA could issue a final regulatory approval for Xtampza ER, unless the stay was earlier terminated.
In response to these actions, Purdue exercised its option and elected to suesued the Company for infringement in the District of Delaware inon March 24, 2015 asserting infringement of three of Purdue’s Orange Book‑listedBook-listed patents (Patent Nos. 7,674,799, 7,674,800, and one7,683,072) and a non-Orange Book-listed patent. In October 2015,patent (Patent No. 8,652,497), and accordingly, received a 30-month stay of FDA approval.
The Delaware court transferred the Delaware case was transferred 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 favor of the CompanyCompany’s favor on those three patents, and dismissed the claims asserting infringement of those patents with prejudice. Upon dismissal of those claims, the 30-month stay of FDA approval was lifted. As a result, the Company obtainedwas able to obtain final approval of itsfor Xtampza ER products and has launchedlaunch the productsproduct commercially.
In November 2015,Purdue subsequently filed two follow-on lawsuits asserting infringement of two patents that had been late-listed in the Orange Book and therefore, could not trigger any stay of FDA approval: Purdue filed a follow-on suit asserting infringement of another patent, Patent No. 9,073,933 in November 2015, and asserted infringement of Patent No. 9,522,919 in April 2017. In addition, Purdue filed suit on two patents that had not been listed in the Orange Book, filing suit in June 2016 asserting infringement of Patent No. 9,155,717 and in September 2017, asserting infringement of Patent No. 9,693,961.
On March 13, 2018, the Company filed a Petition for Post-Grant Review (“PGR”) of the ʼ961 patent with the Patent Trial and Appeal Board (“PTAB”). The PGR argues that the ʼ961 patent is invalid for lack of a written description, for lack of enablement, for indefiniteness, and as being anticipated by prior art. The PTAB held oral argument on the proceedings on July 10, 2019 and was scheduled to issue a decision on the patentability of the ʼ961 patent by no later than October 4, 2019. On September 15, 2019, Purdue commenced a voluntary case under chapter 11 of title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. On September 24, 2019, Purdue gave the PTAB notice of its bankruptcy filing and sought the imposition of an automatic stay of the PGR proceedings. On October 2, 2019, the PTAB extended the one-year period for issuing its decision by up to six months.
In October 2017, and in response to the filing of the Company’s supplemental New Drug Application (“sNDA”) seeking to update the drug abuse and dependence section of the Xtampza ER 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.
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A claim construction hearing was held on June 1, 2017. On November 21, 2017, the Court issued its claim construction ruling, construing certain claims of the ʼ933, ʼ497, and ʼ717 patents. The Court issued an order on September 28, 2018 in which it granted in part a motion for summary judgment that the Company filed. Specifically, the Court ruled that the Xtampza ER formulation does not infringe the ʼ497 and ʼ717 patents. On September 18, 2019, Purdue gave the Court notice of its bankruptcy filing and sought the imposition of an automatic stay of the proceedings. On September 20, 2019, the matter was stayed pending further order of the Court.
On September 1, 2020, the Bankruptcy Court entered an Order Granting Motions for Relief from the Automatic Stay, lifting the automatic stays in both the District of Massachusetts and PTAB proceedings. The Company appealed the Bankruptcy Court’s Order, in part, and that appeal is stayed, on consent by Purdue, pending the outcome of any appeal of the PTAB proceedings. On September 11, 2020, Purdue filed a motion to terminate the PTAB action on the basis that those proceedings had gone beyond the 18-month statutory period. The Company opposed Purdue’s motion. On November 19, 2021, the PTAB (i) denied Purdue’s motion to terminate the PGR and (ii) issued its Final Written Decision, finding that claims 1-17 of the ʼ961 patent were invalid for lack of written description and anticipation. On December 17, 2021, Purdue filed a Request for Director Review. That request was denied on February 7, 2022. On February 16, 2022, Purdue filed a Federal Circuit notice of appeal. On April 12, 2022, the Company filed a Motion to Dismiss the Appeal as Untimely. On May 20, 2022, the Federal Circuit denied the Motion to Dismiss and directed the parties to address jurisdiction during merits briefing. Oral arguments in the appeal are scheduled for September 5, 2023.
On April 2, 2021, the Court granted Purdue’s Motion to Lift the Stay in the District of Massachusetts that was entered following Purdue’s Notice of Bankruptcy. On April 9, 2021, Purdue filed another follow-on lawsuit asserting infringement of U.S. Patent No. 10,407,434, which was late-listed in the Orange Book and therefore could not trigger any stay of FDA approval. In June 2016,The Company responded to Purdue’s complaint asserting the ’434 patent with a motion to dismiss. On May 21, 2021, and in response to the Company’s motion to dismiss, Purdue filed anotheran amended complaint asserting the ’434 patent. The Company renewed its motion to dismiss on June 4, 2021, arguing: (i) Purdue cannot, as a matter of law, state a claim for infringement under § 271(e)(2)(A); (ii) Purdue cannot, as a matter of law, state a claim for product-by-process infringement under §271(g); and (iii) Purdue has not alleged facts sufficient to support any indirect infringement theory under §271(b) or (c). The Court held a hearing on the Company’s motion to dismiss on October 13, 2021, and the motion is pending before the Court.
Like the prior follow-on suit asserting infringementlawsuits, the ’434 patent litigation was consolidated into the lead case and a scheduling order was entered. On October 5, 2021, the Court held a claim construction hearing for the ʼ961 patent and the ʼ434 patent. On 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 another non-Orange Book listedthe ʼ933 and ʼ919 patents and (ii) continued the existing stay concerning the ʼ961 patent Patent No. 9,155,717. These suits werepending Purdue’s appeal of the PTAB’s order invalidating that patent. The Court has not set a deadline for dispositive motions or trial.
The remaining patents-in-suit in the lead consolidated byaction in the District of Massachusetts intoare the original action whereʼ933, ʼ919, ʼ434, and ʼ961 patents. The parties agreed, however, that litigation concerning the ʼ961 patent is stayed pending resolution of Purdue’s infringement claim relating toFederal Circuit appeal of the ’497 patent remains pending. Purdue continues to assert infringementPTAB decision invalidating the claims of these three patents against the Company, none of which is associated with any stay of FDA approval.ʼ961 patent. Purdue has made a demand for monetary relief, but has not quantified their alleged damages. Purdue has alsoand requested a judgment of infringement, an adjustment of the effective date of FDA approval, and an injunction on the sale of the Company’s products accused of infringement. The Company has denied all claims and seekshas requested a judgment that the remaining asserted patents are invalid and/or not infringed byinfringed; the Company and seeksis also seeking a judgment that the case is exceptional withand has requested an award toof the Company of itsCompany’s attorneys’ fees for defending the case.
In April 2017, Purdue filed another suit asserting infringement of U.S. Patent No. 9,522,919, related to the previously asserted ’933 patent, which recently issued and was late-listed in the Orange Book and therefore could not trigger any stay of FDA approval. Purdue has similarly made a demand for monetary relief and has requested judgment of infringement and an injunction on the sale of the Company’s accused products. The Company will oppose this action.
In September 2017, Purdue filed another suit in the United States District Court, District of Massachusetts, asserting infringement of U.S. Patent No. 9,693,961 (the “’961” patent). The ʼ961 patent is not Orange Book-listed and is unrelated to the patents asserted in the lead case. Because the ʼ961 patent is not Orange Book-listed, it cannot trigger any stay of FDA approval. Purdue has similarly made a demand for monetary relief and has requested judgment of infringement and an injunction on the sale of the Company’s accused products. The Company has not yet filed an answer or otherwise responded to this Complaint.
In October 2017, and in response to the filing of the Company’s supplemental New Drug Application (“NDA”), Purdue filed another suit in the United States District Court, District of Massachusetts, asserting infringement of the ʼ933 and ʼ919 patent. At this time, it is unclear if the suit will trigger an additional stay of FDA approval of the Company’s label change proposed by its supplemental NDA. The Company has not yet filed an answer or otherwise responded to this Complaint.
Purdue continues to assert infringement of four remaining patents by the Company in the lead case, which are the ʼ919 patent, the ʼ933 patent, U.S. Patent No. 8,652,497, U.S. and U.S. Patent No. 9,155,717.
16
The parties are in the early stages of fact discovery. Written discovery has commenced with depositions expected to commence in the fourth quarter of 2017. The parties are also in the claims construction stage of the patent litigation. The parties have briefed their proposed construction. The Company has also filed a motion for summary judgment that the asserted claims of the ’933, ’497, and ’717 patents are invalid and not infringed. The Court heard argument on the claims construction issues and on the Company’s summary judgment motion on June 1, 2017. The Company is not able to predict with certainty when the Court will decide claim construction or the Company’s motion. No trial date has been scheduled.
The Company is, and plans to continue, defendingdefend this case vigorously. At this stage, we arethe 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 the Company in the District of Delaware. Specifically, Purdue 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. Purdue has made a demand for monetary relief in its complaint but has not quantified its alleged damages.
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On December 6, 2018, the Company filed an Amended Answer asserting an affirmative defense for patent exhaustion. On December 10, 2018, the Court granted the parties’ stipulation for resolution of the Company’s affirmative defense of patent exhaustion and stayed the action, with the exception of briefing on and resolution of the Company’s Motion for Judgment on the Pleadings related to patent exhaustion and any discovery related to that Motion. Also, on December 10, 2018, the Company filed a Rule 12(c) Motion for Judgment on the Pleadings, arguing that the Purdue’s claims were barred by the doctrine of patent exhaustion. On June 18, 2019, the Court heard oral argument on the Company’s Rule 12(c) Motion for Judgment on the Pleadings. On June 19, 2019, the Court issued an order stating that “judgment in Collegium’s favor is warranted under the doctrine of patent exhaustion to the extent Collegium’s alleged infringing activities resulted from sales that fall within the scope of that covenant.” The Court explained, however, that based on the current record, it was not possible “to determine whether title of the Nucynta Products was transferred to Collegium” from sales authorized by Purdue’s covenant not to sue. The Court ordered discovery on this issue and 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 gave the Court notice of its bankruptcy filing and sought the imposition of an automatic stay of the proceedings. The Nucynta litigation is subject to the automatic bankruptcy stay.
Pending resolution of the bankruptcy action, the Company plans to defend this case vigorously. At this timestage, the Company is unable to provide meaningful quantificationevaluate the likelihood of howan unfavorable outcome or estimate the amount or range of potential loss, if any.
Litigation Related to the BDSI Acquisition
On February 25, 2022, in connection with the BDSI Acquisition, a purported individual stockholder of BDSI filed a complaint in the United States District Court for the Southern District of New York, captioned Stein v. BioDelivery Sciences International, Inc., et al., No. 1:22-cv-01600, naming as defendants BDSI and each member of its Board of Directors as of the date of the Merger Agreement (“Stein Action”). On February 28, 2022, two additional cases were filed by purported individual stockholders of BDSI in the same court, captioned Sanford v. BioDelivery Sciences International, Inc., et al., No. 1:22-cv-01676 (“Sanford Action”), and Higley v. BioDelivery Sciences International, Inc., et al., No. 1:22-cv-01658 (“Higley Action”). On March 2, 2022 and March 5, 2022, two additional cases were filed by purported individual stockholders of BDSI in the United States District Court for the Eastern District of New York, captioned Justice II v. BioDelivery Sciences International, Inc., et al., No. 1:22-cv-01145 (“Justice Action”) and Zomber v. BioDelivery Sciences International, Inc., et al., No. 1:22-cv-01220 (“Zomber Action”; together with the Stein, Sanford, Higley, and Justice Actions, the “Actions”). The Actions and any similar subsequently filed cases involving BDSI, its officers or Board of Directors, or any committee thereof, and/or any of the Company’s officers or directors relating directly or indirectly to the Merger Agreement, the BDSI Acquisition or any related transaction, are referred to as the “Merger Litigations.”
The Merger Litigations filed to date generally allege that the Schedule 14D-9 is materially incomplete and misleading by allegedly failing to disclose purportedly material information relating to the sale process leading to the Merger, BDSI’s financial projections, and the analyses performed by Moelis & Company LLC in connection with the Merger. The Merger Litigations assert violations of Section 14(e) of the Exchange Act and violations of Section 20(a) of the Exchange Act against BDSI’s Board of Directors. Additionally, the Stein, Higley, Justice, and Zomber complaints assert violations of Section 14(d) of the Exchange Act and Rule 14d-9 promulgated thereunder. The Merger Litigations seek, among other things: an injunction enjoining consummation of the Merger, rescission of the Merger Agreement, a declaration that BDSI and its Board of Directors violated Sections 14(e) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, damages, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees and expenses, and any other relief the court may deem just and proper.
In addition, on February 24, 2022, February 28, 2022, and March 7, 2022, BDSI received demand letters from three purported stockholders of BDSI seeking to inspect certain books and records of BDSI related to the Merger (collectively, the “Inspection Letters”). On March 4, 2022, March 9, 2022, and March 11, 2022, BDSI received demand letters from four purported stockholders alleging that the Schedule 14D-9 omits purportedly material information relating to the Merger (collectively, the “Demand Letters”).
On April 14, 2022, plaintiff in the Higley Action filed a notice of voluntary dismissal of the complaint. On May 15, 2022, plaintiff in the Zomber Action filed a notice of voluntary dismissal of the complaint. And, on June 24, 2022,
29
plaintiff in the Justice Action filed a notice of voluntary dismissal of the complaint. In the remaining Stein and Sanford Actions, on July 20, 2022, the respective Courts entered an Order for plaintiff to serve a summons and complaint by August 3, 2022. On July 28, 2022, plaintiff in the Sanford Action filed a partial voluntary dismissal of the individual named defendants but not BDSI from that action and filed a waiver of service as to BDSI. On October 26, 2022, plaintiff in the Sanford Action filed a notice of voluntary dismissal of the complaint as to Defendant BDSI as well. To date, the complaint in the Stein Action has not been served on, nor was service waived by, any of the named defendants in that action.
While the Company believes that the remaining Merger Litigations, Inspection Letters, and Demand Letters are without merit and that the disclosures in the Schedule 14D-9 comply fully with applicable law, solely in order to avoid the expense and distraction of litigation, BDSI previously determined to voluntarily supplement the Schedule 14D-9 with certain supplemental disclosures set forth in BDSI’s Schedule 14D-9 filed with the SEC on March 11, 2022 (the “Supplemental Disclosures”). The Company and BDSI believe that the Supplemental Disclosures mooted all allegations or concerns raised in the Merger Litigations, Inspection Letters, and Demand Letters.
As set forth in the Supplemental Disclosures, nothing therein shall be deemed an admission of the legal necessity or materiality under applicable law of the Supplemental Disclosures. To the contrary, the Company and BDSI specifically deny all allegations that any of the Supplemental Disclosures, or any other additional disclosures, were or are required. The Company plans to defend the Merger Litigations vigorously. At this stage, the Company is unable to evaluate the likelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any.
Opioid Litigation
As a result of the opioid epidemic, numerous state and local governments, healthcare providers, and other entities brought suit against manufacturers, wholesale distributors, and pharmacies alleging a variety of claims related to opioid marketing and distribution practices. In late 2017, the U.S. Judicial Panel on Multidistrict Litigation ordered the consolidation of 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. Of the 21 MDL cases that named the Company as a defendant, the allegations against it were previously dismissed or withdrawn in 13 cases as of December 31, 2021. The remaining eight MDL cases that named the Company were dismissed as of April 19, 2022. In addition, the Company had been previously dismissed from three non-MDL cases filed in Pennsylvania and Arkansas state courts.
Outside of the MDL, there were several cases filed against the Company in state courts in Pennsylvania and Massachusetts:
● | In Pennsylvania, six lawsuits naming the Company were consolidated for discovery purposes in the Delaware County Court of Common Pleas as part of a consolidated proceeding of similar lawsuits brought by numerous Pennsylvania counties against other pharmaceutical manufacturers and distributors. These included lawsuits filed between May 2018 and July 2019, alleging claims related to opioid marketing and distribution, including negligence, fraud, unjust enrichment, public nuisance, and violations of state consumer protections laws. |
● | In Massachusetts, there were lawsuits by 13 municipalities, all of which were consolidated before the Business Litigation Session of the Superior Court. The actions alleged a variety of claims related to opioid marketing and distribution practices including public nuisance, common law fraud, negligent misrepresentation, negligence, violations of Mass Gen. Laws ch. 93A, Section 11, unjust enrichment and civil conspiracy. |
On December 24, 2021, the Company entered into a settlement framework with Scott+Scott Attorneys at Law, LLP, the law firm representing plaintiffs in each of the 27 cases, including the 8 remaining MDL cases and 19 state court cases described above. Pursuant to the terms of the settlement framework, which were later memorialized in a final settlement agreement, the Company agreed to pay $2,750 in exchange for the dismissal, with prejudice, of each plaintiff’s lawsuit against the Company and a release of claims related to such lawsuits. The settlement agreement was executed by the Company and all 27 plaintiffs, and the amounts subject to the settlement agreement were paid. As of April 19, 2022, the Company was dismissed, with prejudice, from each of the 27 cases.
The Company entered into this settlement to efficiently resolve this litigation may impactand does not admit any liability or acknowledge any wrongdoing in connection with the settlement agreement.
30
Aquestive Litigation
On October 29, 2013, Reckitt Benckiser, Inc., Indivior PLC (formerly RB Pharmaceuticals Limited, “Indivior”), and Aquestive Therapeutics, Inc. (formerly MonoSol Rx, “Aquestive”) (collectively, the “RB Plaintiffs”) filed an action against BDSI relating to its Bunavail product in the United States District Court for the Eastern District of North Carolina (“EDNC”) for alleged patent infringement. Bunavail is a drug approved for the maintenance treatment of opioid dependence. This case was dismissed, but the RB Plaintiffs subsequently filed an action against BDSI, on September 22, 2014, relating to Bunavail product in the United States District Court for the District of New Jersey for alleged patent infringement. The RB Plaintiffs claimed that Bunavail, whose formulation and manufacturing processes have never been disclosed publicly, infringes its patent U.S. Patent No. 8,765,167 (the “‘167 Patent”).
On January 13, 2017, Aquestive filed a complaint in the United States District Court for the District of New Jersey alleging Belbuca infringes the ‘167 Patent.
On March 8, 2023, the parties filed a stipulation of dismissal. The RB Plaintiffs dismissed their claims with prejudice, and BDSI dismissed its counterclaims without prejudice. 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.
Chemo Research, S.L
On March 1, 2019, BDSI filed a complaint for patent infringement in United States District Court for the District of Delaware against Chemo Research, S.L., Insud Pharma S.L., IntelGenx Corp., and IntelGenx Technologies Corp. (collectively, the “Chemo Defendants”), asserting that the Chemo Defendants infringe its Orange Book-listed patents for BELBUCA, including U.S. Patent Nos. 8,147,866 (“’866 patent”) and 9,655,843, (“’843 patent”) both expiring in July of 2027, and U.S. Patent No. 9,901,539 (“’539 patent”) expiring December of 2032 (collectively, “the BEMA patents”). This complaint follows a receipt by BDSI on January 31, 2019, of a Notice Letter from Chemo Research S.L. stating that it has filed with the FDA an abbreviated New Drug Application (“ANDA”) containing a Paragraph IV Patent Certification, for a generic version of BELBUCA Buccal Film in strengths 75 mcg, 150 mcg, 300 mcg, 450 mcg, and 900 mcg. Because BDSI initiated a patent infringement suit asserting the patents identified in the Notice Letter within 45 days after receipt, the FDA is prevented from approving the ANDA until the earlier of 30 months or a decision in the case that each of the patents is not infringed or invalid. On March 15, 2019, BDSI filed a complaint against the Chemo Defendants in the Federal District Court for the District of New Jersey asserting the same claims for patent infringement made in the Delaware lawsuit. On April 19, 2019, Defendants filed an answer to the Delaware complaint wherein they denied infringement of the ’866, ’843 and ’539 patents and asserted counterclaims seeking declaratory relief concerning the alleged invalidity and non-infringement of such patents.
On April 25, 2019, BDSI voluntarily dismissed the New Jersey lawsuit given Defendants’ consent to jurisdiction in Delaware.
The trial to adjudicate issues concerning the validity of the Orange Book-listed patents covering BELBUCA was held from March 1-3, 2021. Chemo did not participate in the bench trial. Instead, on February 26, 2021, Chemo agreed to be bound by the decision of the Court with respect to the validity of the BEMA patents from the March 1-3, 2021 trial with Alvogen. On December 20, 2021, the Court issued an opinion upholding the validity of certain claims in BDSI’s ʼ866 patent, which expires in 2027, and certain claims in the ’539 patent, which expires in 2032, to which Chemo is bound. This holding was affirmed on appeal by the Federal Circuit on December 21, 2022. The bench trial to adjudicate issues concerning the Chemo Defendants’ infringement of the Orange Book patents was set to commence on April 25, 2022. On March 30, 2022, the Court vacated the trial and has not yet set a new trial date.
On August 1, 2022, BDSI received a second Paragraph IV certification notice letter from Chemo indicating that Chemo has amended its ANDA to (i) withdraw its generic version of the 75 mcg and 150 mcg strengths of BELBUCA; and (ii) include its generic version of the 600 mcg and 750 mcg strengths of BELBUCA, in addition to the 300 mcg, 450 mcg, and 900 mcg strengths identified in the first Chemo Paragraph IV certification notice letter. In response, BDSI filed a complaint for patent infringement in Federal District Court for the District of Delaware. Chemo answered the complaint on December 1, 2022. The Court has not set a schedule for this litigation.
On August 24, 2022, the Court instructed the parties to update the Court at such time as the FDA addresses Chemo's July 29, 2022 response to the FDA. On February 8, 2023, the district court denied Chemo’s request for a trial date in the
31
spring, and again instructed the parties to update the Court at such time as the FDA addresses Chemo’s July 29, 2022 response to the FDA. Chemo received a complete response letter with respect to its July 29, 2022 ANDA in April 2023.
The Company plans to litigate these cases vigorously. At this stage, the Company is unable to evaluate the likelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any.
Alvogen
On September 7, 2018, BDSI filed a complaint for patent infringement in United States District Court for the District of Delaware against Alvogen Pb Research & Development LLC, Alvogen Malta Operations Ltd., Alvogen Pine Brook LLC, Alvogen, Incorporated, and Alvogen Group, Incorporated (collectively, “Alvogen”), asserting that Alvogen infringes BDSI’s Orange Book-listed patents for BELBUCA, including U.S. Patent Nos. 8,147,866 and 9,655,843, both expiring in July of 2027, and U.S. Patent No. 9,901,539, expiring in December of 2032 (collectively, “the BEMA patents”). This complaint followed receipt by BDSI on July 30, 2018 of a Paragraph IV Patent Certification from Alvogen stating that Alvogen had filed an ANDA with the FDA for a generic version of BELBUCA Buccal Film (75 mcg, 150 mcg, 300 mcg, 450 mcg, 600 mcg, 750 mcg and 900 mcg). Because BDSI initiated a patent infringement suit asserting the patents identified in the Paragraph IV notice within 45 days after receipt of the Paragraph IV Certification, the FDA is prevented from approving the ANDA until the earlier of 30 months or a decision in the case that each of the patents is not infringed or invalid.
The Court scheduled a bench trial to adjudicate issues concerning the validity of the BEMA patents. A three-day bench trial against Alvogen was conducted commencing on March 1, 2021.
On December 20, 2021, the Court issued an opinion upholding the validity of certain claims in BDSI’s ʼ866 patent, which expires in 2027, and certain claims in the ’539 patent, which expires in 2032. Alvogen conceded infringement of those claims prior to the trial. The Court entered final judgment on January 21, 2022. The final judgment entered in this case upholding the validity of claims of the ’866 and ’539 Orange Book-listed patents extends the effective date of any final approval by the FDA of Alvogen’s ANDA until December 21, 2032, which is the expiration date of the ’539 patent, and enjoins Alvogen and those acting in concert with Alvogen from commercially manufacturing, using, selling, or offering for sale Alvogen’s ANDA products until December 21, 2032. Alvogen filed a motion to stay certain provisions of the final judgment in the Court. BDSI filed an opposition to Alvogen’s request for a stay. The Court retained jurisdiction to decide BDSI’s motion for contempt, which was filed on September 21, 2021.
Alvogen filed a notice of appeal to the Federal Circuit seeking to reverse the Court’s final judgment entered on January 21, 2022. Separately, BDSI filed a cross-appeal to the Federal Circuit seeking to reverse the Court’s opinion that claims 3 and 10 of the ʼ866 patent and claims 8, 9 and 20 of the ’843 patent are invalid and thus Alvogen is not liable for infringement of those claims, as well as any other ruling decided adversely to BDSI. On November 1, 2022, the Federal Circuit held oral argument on the parties’ appeal and issued its decision on December 21, 2022. In that decision, the Federal Circuit affirmed the district court judgment that certain claims of the ʼ866 and ʼ539 patent were not invalid as obvious. The Federal Circuit also vacated the district court’s judgment that certain claims of the ʼ866 and ʼ843 patent were invalid as obvious and remanded to the district court for further proceedings. The mandate issued on February 10, 2023.
As it has done in the past, the Company intends to vigorously defend its intellectual property against assertions of invalidity or non-infringement.
Opioid-Related Request and Subpoenas
The Company, like a number of other pharmaceutical companies, has received subpoenas or civil investigative demands related to opioid sales and marketing. The Company has received such subpoenas or civil investigative demands from the Offices of the Attorney General of each of Washington, New Hampshire, Maryland and Massachusetts.
On December 16, 2021, the Company entered into an Assurance of Discontinuance with the Massachusetts Attorney General (the “AoD”). The Company is currently cooperating with each of the remaining states in their respective investigations.
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17. Income Taxes
The Company is subject to U.S. federal and state income taxes. The income tax provision for interim periods reflects the Company’s estimate of the annual effective tax rate expected to be applicable for the full fiscal year, adjusted for any discrete events which are recorded in the period in which they occur.
The following table presents information regarding the Company’s income tax expense (benefit) recognized for the three and six months ended June 30, 2023 and 2022:
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Provision for (benefit from) income taxes | $ | 4,790 | | | $ | (1,455) | | | $ | 4,659 | | | $ | (4,228) | |
Effective tax rate | | 26.9 | % | | | 21.9 | % | | | 1,941.3 | % | | | 18.8 | % |
The provision for income taxes for the three months ended June 30, 2023 reflects the estimated annual effective tax rate as adjusted for discrete tax benefits from excess tax benefits from equity compensation awards. The provision for income taxes for the six months ended June 30, 2023 was impacted by discrete nondeductible costs associated with the debt extinguishment that occurred in the three months ended March 31, 2023, partially offset by excess tax benefits related to stock compensation. The nondeductible costs from the debt extinguishment were $21,238.
The Company provides a valuation allowance when it is more likely than not that deferred tax assets will not be realized. In determining the extent to which a valuation allowance for deferred tax assets is required, the Company evaluates all available evidence including projections of future financial condition, resultstaxable income, carry back opportunities, reversal of operations,certain deferred tax liabilities, and other tax planning strategies. The Company has maintained a valuation allowance on the portion of its deferred tax assets that are not more likely than not to be realized due to tax limitation or cash flows.other conditions as of June 30, 2023.
Item 2. 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 condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report.Quarterly Report, and in conjunction with management’s discussion and analysis and our audited consolidated financial statements included in our Annual Report. The following discussion contains forward-looking statements that involve risks uncertainties and assumptions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this quarterly report,Quarterly Report, including those set forth under “Forward-looking Statements” and “Risk Factors”, under the heading “Risk Factors” in the Company’s Annual Report, as revised and supplemented by those risks described from time to time in other reports which we file with the SEC.
OVERVIEW
OVERVIEW
We are building a leading, diversified specialty pharmaceutical company developingcommitted to improving the lives of people living with serious medical conditions. We commercialize our pain portfolio, consisting of Xtampza ER, the Nucynta Products, Belbuca, and commercializing next-generation abuse-deterrent products that incorporate our patented DETERx platform technology forSymproic, in the treatment of chronic pain and other diseases. Our first product, United States.
Xtampza isER, an abuse-deterrent, extended-release, oral formulation of oxycodone, a widely prescribed opioid medication. Inwas approved by the FDA in April 2016 the U.S. Food and Drug Administration, or FDA, approved our New Drug Application, or 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. Certain human abuse potential studiesWe commercially launched Xtampza ER in June 2016.
The Nucynta Products are included in the approved label, as well as data supporting the administrationextended-release and immediate-release formulations of the product as a sprinkle or administered through feeding tubes. 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, whichtapentadol. Nucynta ER is the largest selling abuse-deterrent, extended-release opioid in the United States by dollars, with $2.1 billion in U.S. sales in 2016. 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 October 2016, we announced the submission of a Supplemental New Drug Application to the FDA for Xtampza to include comparative oral pharmacokinetic data from a recently completed clinical study evaluating the effect of physical manipulation by crushing Xtampza compared with OxyContin OP and a control (oxycodone hydrochloride immediate-release). In March 2017, we amended the Supplemental New Drug Application to include data from a human abuse potential study. In November 2017, the FDA approved our Supplemental New Drug Application. The updated Xtampza label includes: comparative pharmacokinetic data, results from an oral human abuse potential study and 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 formulated in hard tablets, has a black box warning label stating that crushing, dissolving, or
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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 the approximately 11 million patients in the United States who suffer from chronic pain and have difficulty swallowing.
In May 2016, we entered into a License and Development Agreement with BioDelivery Science International, Inc., which grants us an exclusive license to make, use, sell, offer for sale, import, develop and commercialize Onsolis in the United States. Onsolis is a Transmucosal Immediate-Release Fentanyl film indicated for the management of breakthrough pain severe enough to require daily, around the clock, long-term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy in cancer patients 18 years of ageadults, and older, whofor which alternate treatment options are already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain. We plan to commercialize Onsolis upon receipt of FDA approval of a Prior Approval Supplementinadequate. Nucynta IR is indicated for the manufacturing transfer. Subjectmanagement of acute pain severe enough to such approval, we expect to launch Onsolisrequire an opioid analgesic and for which alternative treatments are inadequate in mid-2018.
Since 2010, we have devoted substantially all of our resources to the development of our patented DETERx platform technology, the preclinicaladults. We began shipping 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 fromrecognizing product sales on the Nucynta Products in January 2018 and began marketing the Nucynta Products in February 2018.
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On March 22, 2022, we continueacquired BDSI, a specialty pharmaceutical company working to incur significant research, developmentdeliver innovative therapies for individuals living with serious and other expensesdebilitating chronic conditions. Upon closing of the BDSI Acquisition, we acquired the Belbuca and Symproic products. Belbuca is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA in October 2015 for use in patients with pain severe enough to require daily, around-the-clock, long-term opioid treatment for which alternative options are inadequate. Symproic was approved by the FDA in March 2017 for the treatment of OIC in adult patients with chronic non-cancer pain, including patients with chronic pain related to our ongoing operations. Prior to our initial public offering of common stock,prior cancer or IPO, in May 2015, we funded our operations primarily through the private placement of preferred stock, convertible notesits treatment who do not require frequent (e.g., weekly) opioid dosage escalation. We began shipping 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.
Outlook
We expect to continue to incur significant commercialization expensesrecognizing product sales related to marketing, manufacturing, distribution, sellingBelbuca and reimbursement activities. We are detailing Xtampza to approximately 10,400 physicians who write approximately 60% of the branded extended-release oral opioid prescriptionsSymproic in the United States with a sales team of approximately 170 sales representatives. In addition, we deploy a separate, focused sales team to detail Xtampza to nursing homes, hospices and other institutions treating large populations of the elderly and other patients who need chronic pain relief and have difficulty swallowing.March 2022.
We have never been profitable and have incurred net losses in each year since inception. We incurred net losses of $57.5 million and $66.6 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, we had an accumulated deficit of $280.6 million. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. We expect to continue to incur net losses in the foreseeable future as we continue to commercialize Xtampza. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses will increase in connection with our ongoing activities as we:
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Outlook
We believe that our cash and cash equivalents at SeptemberJune 30, 2017,2023, together with expected cash inflows from the commercialization of Xtampza, as well as proceeds from our ATM offering through October 2017,products, will enable us to fund our operating expenses, debt service and capital expenditure requirements into mid-2019. In addition, we will seekunder our current business plan for the foreseeable future.
As the COVID-19 pandemic unfolded, and governmental and societal reactions to it evolved, our business was impacted by several trends, including depressed pain patient office visits compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with our products, and labor disruptions that impacted pain offices, which in turn impacted our access to, and quality of interactions with, such offices. Notwithstanding the fact that the federal public health emergency for COVID-19 expired in May 2023 in the futureUnited States, we expect the trends that emerged as a result of the pandemic to fund our operations through additional public or private equity or debt financings or other sources, including from net sales of our products. However, we may be unablepersist in the near to raise additional funds or enter into such other
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arrangements when needed on favorable terms or at all. If we are unable to obtain financing or increase profitability, the related lack of liquidity will have a material adverse effect on our operations and future prospects.medium term.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
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.
The For a description of critical accounting policies we identifiedthat affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to our Annual Report.
There were no changes in our critical accounting policies from those described in our Annual Report relate to revenue recognition, inventory, accrued expenses, impairmentReport.
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Revenue Recognition
Revenue for product sales 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, we determined that we have sufficient experience with sales of Xtampza to estimate returns at time of shipment. We sell our products primarily to distributors and retailers, or customers, which in turn sell the product to pharmacies for the treatment of patients.We provide the right of return to our customers for a limited time before and after its expiration date. As a result of our experience to date with Xtampza, we determined that we can reasonably estimate the amount of future product returns. The effect on income from operations and on net income is that we are able to recognize revenue earlier on the sell-in method, net of a provision for estimated returns, because we can record revenue once sold to the customer rather than waiting until the product is sold to the end user on a sell-through method. The Company recorded a one-time $4.4 million increase to revenues during 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.
RESULTS OF OPERATIONS
(in thousands)
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Product revenues, net | $ | 11,950 |
| $ | 408 |
| $ | 17,682 |
| $ | 408 | $ | 135,546 |
| $ | 123,549 | | $ | 280,313 |
| $ | 207,300 |
Cost of product revenues |
| 553 |
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| 29 |
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Cost of product revenues (excluding intangible asset amortization) | | 24,257 | | | 33,684 | | | 54,156 | | | 50,016 | |||||||||||
Intangible asset amortization | | 37,463 | | | 37,501 | | | 74,929 | | | 56,424 | |||||||||||
Total cost of products revenues | | 61,720 | | | 71,185 | | | 129,085 | | | 106,440 | |||||||||||
Gross profit | | 73,826 | | | 52,364 | | | 151,228 | | | 100,860 | |||||||||||
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Research and development |
| 2,069 |
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Selling, general and administrative |
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| 38,193 | |
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Interest income (expense), net |
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Net loss | $ | (13,263) |
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Total operating expenses |
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Income from operations |
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Interest expense |
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Interest income | | 4,027 | |
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Loss on extinguishment of debt | | — | | | — | | | (23,504) | | | — | |||||||||||
Income (loss) before income taxes | | 17,797 | | | (6,646) | | | 240 | | | (22,488) | |||||||||||
Provision for (benefit from) income taxes | | 4,790 | | | (1,455) | | | 4,659 | | | (4,228) | |||||||||||
Net income (loss) | $ | 13,007 | | $ | (5,191) | | $ | (4,419) | | $ | (18,260) |
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Comparison of the three months ended SeptemberJune 30, 20172023 and SeptemberJune 30, 20162022
Product revenues, net
Product revenues, net were $12.0$135.5 million for the three months ended SeptemberJune 30, 2017, or the 2017 Quarter,2023 (the “2023 Quarter”), compared to $408,000$123.5 million for the three months ended SeptemberJune 30, 2016, or the 2016 Quarter.2022 (the “2022 Quarter”). The $11.6$12.0 million increase wasis primarily due to increases in revenue for Xtampza ER of $8.0 million, the Nucynta Products of $3.7 million, and Belbuca of $0.8 million, partially offset by decreases in other revenue of $0.5 million.
The increase in revenue for Xtampza ER of $8.0 million is primarily due to lower gross-to-net adjustments primarily related to a $5.9 millionprovisions for rebates and an increase in sold-through unitsgross price, partially offset by decreased sales volume and higher gross-to-net adjustments related to provisions for returns.
The increase in revenue for the Nucynta Products of Xtampza, as well as a $1.3$3.7 million is primarily due to lower gross-to-net adjustments primarily related to provisions for rebates and an increase as a result of changingin gross price, partially offset by decreased sales volume and higher gross-to-net adjustments related to the sell-in methodprovisions for returns.
The increase in revenue for Belbuca in the 2017 Quarter. In addition, a $4.42023 Quarter of $0.8 million is primarily due to increases in sales volume and an increase in gross price, offset by higher gross-to-net adjustments primarily related to revenues was recorded in the 2017 Quarter to recognize revenue from shipments from prior periods as a resultprovisions for chargebacks.
Cost of changing to the sell-in method in the 2017 Quarter. product revenues
Cost of product revenues were $553,000(excluding intangible asset amortization) was $24.3 million for the 20172023 Quarter, compared to $29,000 for the 2016 Quarter. The $524,000 increase was primarily related to increased sales in the 2017 Quarter.
Research and development expenses were $2.1$33.7 million for the 2017 Quarter, compared to $3.3 million for the 20162022 Quarter. The $1.2$9.4 million decrease was primarily related to:to the 2022 Quarter including higher cost of product revenues related to the step-up basis in inventory acquired from BDSI combined with lower sales volume for Xtampza and the Nucynta Products.
Intangible asset amortization of $37.5 million was materially consistent in the 2023 Quarter compared to the 2022 Quarter. Intangible asset amortization expense is recognized in connection with our intangible assets. The intangible assets are amortized on a straight-line basis over the respective estimated useful lives. |
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Operating Expenses
Selling, general and administrative expenses were $22.8$38.2 million for the 20172023 Quarter, compared to $23.6$41.3 million for the 20162022 Quarter. The $0.8$3.1 million decrease was primarily related to:
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Interest expense and Interest income
Interest incomeexpense was $167,000$21.9 million for the 20172023 Quarter, compared to $2,000 of interest expense$17.8 million for the 20162022 Quarter. The $4.1 million increase in interest income (expense) iswas primarily due to higher interest rates on money market funds,impacting our variable rate term loan debt as well as a decreasehigher interest expense due to the 2029 Convertible Notes.
Interest income was $4.0 million for the 2023 Quarter, compared to $5,000 for the 2022 Quarter. The $4.0 million increase was primarily due to an increase in interest expenserates earned on cash equivalents and marketable securities due to a higher overall balance invested in the 2023 Quarter compared to the 2022 Quarter.
Taxes
The provision for income taxes was $4.8 million for the 2023 Quarter, compared to a benefit from our term loan payableincome taxes of $1.5 million for the 2022 Quarter. The tax provision for the 2023 Quarter primarily reflects federal and state income taxes incurred from net income. The tax benefit for the 2022 Quarter reflects the tax benefit from the net loss, as well as the loan approaches maturity.impact of discrete nondeductible transaction costs and excess tax benefits.
Comparison of the ninesix months ended SeptemberJune 30, 20172023 and SeptemberJune 30, 20162022
Product revenues, net
Product revenues, net were $17.7$280.3 million for the ninesix months ended SeptemberJune 30, 2017, or2023 (the “2023 Period”), compared to $207.3 million for the 2017six months ended June 30, 2022 (the “2022 Period”). The $73.0 million increase is primarily due to increases in revenue for Belbuca of $41.7 million, Xtampza ER of $24.4 million, the Nucynta Products of $4.1 million, and Symproic of $3.3 million.
The increase in revenue for Belbuca of $41.7 million and Symproic of $3.3 million is primarily due to six months of revenue in the 2023 Period compared to $408,000approximately four months of revenue in the 2022 Period due to the timing of the BDSI Acquisition.
The increase in revenue for Xtampza ER of $24.4 million is primarily due to lower gross-to-net adjustments primarily related to provisions for rebates and an increase in gross price, partially offset by decreased sales volume and higher gross-to-net adjustments related to provisions for returns.
The increase in revenue for the nine months ended September 30, 2016, orNucynta Products of $4.1 million is primarily due to lower gross-to-net adjustments primarily related to provisions for rebates and an increase in gross price, partially offset by decreased sales volume and higher gross-to-net adjustments related to provisions for returns.
Cost of product revenues
Cost of product revenues (excluding intangible asset amortization) was $54.2 million for the 20162023 Period, compared to $50.0 million for the 2022 Period. The $17.3$4.2 million increase was primarily related to the 2023 Period including higher cost of product revenues related to the step-up basis in inventory acquired from BDSI, combined with an increase in sold-through units of Xtampza, as well as an increase in revenues as a result of changing to the sell-in method in the third quarter of 2017 as discussed in the section above.
Costroyalties and cost of product revenues were $1.5for products acquired from BDSI due to six months of revenue in the 2023 Period compared to approximately four months in the 2022 Period. This increase was partially offset by lower cost of product revenues primarily due to lower sales volume for Xtampza and the Nucynta Products.
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Intangible asset amortization was $74.9 million for the 20172023 Period, compared to $29,000$56.4 million for the 20162022 Period. The $1.5$18.5 million increase in intangible asset amortization was primarilydue to six months of amortization expense recognized in the 2023 Period related to increased salesthe intangible assets acquired from BDSI of which $435.0 million of consideration was allocated to our acquired intangible assets, compared to approximately four months of amortization expense in the 20172022 Period. The intangible assets are amortized on a straight-line basis over the respective estimated useful lives.
ResearchOperating Expenses
We did not recognize research and development expenses were $6.4 million forin the 20172023 Period, compared to $11.6$4.0 million forrecognized in the 20162022 Period. The $5.2$4.0 million decrease was primarily related to: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.
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Selling, general and administrative expenses were $67.7$91.0 million for the 20172023 Period, compared to $55.3$95.8 million for the 20162022 Period. The $12.4$4.8 million increasedecrease was primarily related to:
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Interest expense and Interest income
Interest expense was $43.3 million for the 2023 Period, compared to $23.6 million for the 2022 Period. The $19.7 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 2029 Convertible Notes.
Interest income was $402,000$6.8 million for the 20172023 Period, compared to $113,000 of interest expense$9,000 for the 20162022 Period. The $6.8 million increase was primarily due to an increase in interest income (expense) is primarilyrates earned on cash equivalents and marketable securities due to a higher interest rates on money market funds, as well asoverall balance invested in the 2023 Period compared to the 2022 Period.
Taxes
The provision for income taxes was $4.7 million for the 2023 Period, compared to a decreasebenefit from income taxes of $4.2 million for the 2022 Period. The tax provision for the 2023 Period was impacted by discrete nondeductible costs associated with the debt extinguishment that occurred in interest expensethe first quarter of 2023, partially offset by excess tax benefits related to stock-based compensation. The tax benefit for the 2022 Period reflects the tax benefit from our term loan payable as the loan approaches maturity.net loss, which includes the impact of discrete nondeductible transaction costs and excess tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
We have incurred net losses and negative cash flows from operations since inception. Since inception,Historically, we have funded our operations primarily through the private placements and/or public offerings of our preferred stock, public offerings of common stock, and convertible notes; commercial bank debt; and cash inflows from sales of our products. We are primarily dependent on the commercial success of Belbuca, Xtampza, and the Nucynta Products.
As of June 30, 2023, we had total cash, cash equivalents and marketable securities of $325.5 million, which represented an increase of $151.8 million from $173.7 million as of December 31, 2022. We intend to rely on our existing cash, cash equivalents and marketable securities together with cash inflows from sales of our products as our primary sources of liquidity.
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In March 2022, our debt balance increased significantly as we modified our 2020 Term Loan with Pharmakon to an increased principal balance of $650.0 million to fund a portion of the consideration paid to complete the BDSI Acquisition. We paid $100.0 million in principal payments during the first year of the 2022 Term Loan. The remaining $550.0 million balance is required to be paid in equal quarterly installments over the remaining three years of the term note. As of June 30, 2023, the outstanding principal balance of the 2022 Term Loan was $504.2 million, of which $183.3 million in principal payments are due within the next twelve months. As of June 30, 2023, the outstanding principal balance of our 2026 Convertible Notes and 2029 Convertible Notes was $26.4 million and $241.5 million, respectively. The outstanding principal balance of the 2026 Convertible Notes and 2029 Convertible Notes is not due until 2026 and 2029, respectively.
We believe that our cash, cash equivalents and marketable securities as of June 30, 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 foreseeable future.
Borrowing Arrangements and Equity Offerings
The following transactions represent our material borrowing arrangements and equity offerings.
2022 Term Loan
On March 22, 2022, in connection with the closing of the BDSI Acquisition, we entered into the 2022 Loan Agreement. The 2022 Loan Agreement provided for the $650.0 million secured 2022 Term Loan, the proceeds of which were used to repay our existing term notes and commercial bank debt. Asfund a portion of September 30, 2017,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 $173,000 were expensed. In connection with the 2022 Loan Agreement, we had $107.6paid loan commitment and other fees to the lender of $19.8 million, in cashwhich together with preexisting debt issuance costs and cash equivalents.note discounts of $2.0 million will be amortized over the term of the loan using the effective interest rate. Refer to Note 12, Term Notes Payable, for more information.
2026 Convertible Notes
In January 2016,On February 13, 2020, we issued and soldthe 2026 Convertible Notes in the aggregate principal amount of $143.8 million, 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 our existing investors participated in the convertible notes offering. The 2026 Convertible Notes are senior, unsecured obligations and accrue interest at a rate of 2.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. The notes will mature on February 15, 2026, unless earlier repurchased, redeemed or converted.
On February 10, 2023, we entered into privately negotiated transactions with certain holders of the 2026 Convertible Notes to repurchase $117.4 million aggregate principal amount of the 2026 Convertible Notes for an aggregate of 2,750,000 shares$140.1 million of our common stock at $20.00 per share. We receivedcash, which includes accrued and unpaid interest on the 2026 Convertible Notes to be repurchased. After giving effect to the repurchase, the outstanding principal balance of the 2026 Convertible Notes as of June 30, 2023 is $26.4 million. There are no principal repayment obligations due within the next twelve months. Refer to Note 13, Convertible Senior Notes, for more information.
2029 Convertible Notes
On February 10, 2023, we issued the 2029 Convertible Notes in the aggregate principal amount of $241.5 million, 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 from this public offering of approximately $51.2 million, after deduction of underwriting discounts and commissions and expenses payable by us.
In October 2016, we issued and sold in a public offering an aggregate of 5,750,000 shares of our common stock at $16.00 per share, including 750,000 shares of common stock upon the exercise by the underwriters of their option to purchase additional shares at the public offering price. We received net proceeds from this public offering of approximately $86.2 million, after deduction of underwriting discounts and commissions and estimated expenses payable by us.
In March 2017, we commenced an “at-the-market” offering of our common stock and entered into a Controlled Equity Offering Sales Agreement (the “ATM Sales Agreement”) with Cantor Fitzgerald, as agent, pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $60.0 million. As of September 30, 2017, we had sold an aggregate of 1,148,466 shares of common stock under the ATM Sales Agreement at an average gross sales price of $10.42 per share generating net proceeds of $11.5 million, after deduction of underwriting discounts and commissions and expenses payable by us, all of which were sold during the three months ended September 30, 2017. In October 2017, the Company sold an additional 1,793,290 ATM Shares under the ATM Sales Agreement at an average gross sales price of $11.29 per share generating net proceeds of $19.6 million, after deduction of underwriting discounts and commissions and expenses payable by the Company. The proceeds from the sales during the three months ended September 30, 2017 and October 2017 werebe used to fund the continued commercialization of Xtampza, research and development efforts of our other product candidates, working capital and otherfor general corporate purposes.
Although itThe 2029 Convertible Notes are senior, unsecured obligations and accrue interest at a rate of 2.875% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. The 2029 Convertible Notes will mature on February 15, 2029, unless earlier repurchased, redeemed or converted. The outstanding principal balance of the 2029 Convertible Notes as of June 30, 2023 is difficult$241.5 million. There are no principal repayment obligations due within the next twelve months. Refer to predict future liquidity requirements, we believe that our existing cash and cash equivalents, as well as proceeds from our ATM offering through October 2017, will be sufficient to fund our operations into mid-2019. We have based this estimate on assumptions that may prove to be incorrect and we could use our available capital resources sooner than we currently expect. We may never become profitable, or if we do, we may not be able to sustain profitability on a recurring basis.
21
Note 13, Convertible Senior Notes, for more information.
38
Cash Flows
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| Six Months Ended June 30, | |||||||||
| 2023 | | 2022 | |||||||
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| Nine Months Ended September 30, | |||||||||
| 2017 |
| 2016 | |||||||
Net cash used in operating activities | $ | (53,722) |
| $ | (51,766) | |||||
| (in thousands) | |||||||||
Net cash provided by operating activities | $ | 127,393 |
| $ | 15,136 | |||||
Net cash used in investing activities |
| (818) |
|
| (2,636) |
| (41,893) | |
| (572,638) |
Net cash provided by financing activities |
| 8,926 |
|
| 49,733 |
| 23,061 | |
| 493,798 |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 108,561 | | $ | (63,704) |
Operating activities. Cash used inprovided by operating activities was $53.7$127.4 million infor the 20172023 Period, compared to $51.8$15.1 million infor the 20162022 Period. The $112.3 million increase in cash used in operating activities was primarily due to changesthe increase in the working capital accounts partially offset by the changecash flow from operating results, which reflects operating earnings, after adjustment for non-cash items that are included in net loss. We expect cash usedloss, including higher intangible asset amortization as a result of the BDSI Acquisition and recognition of a loss on extinguishment of debt in operating activities to increase forconnection with the foreseeable future as we continue to commercialize Xtampza and fund research, development and clinical activities for additional product candidates.repurchase of a portion of our 2026 Convertible Notes.
Investing activities. Cash used in investing activities was $818,000 in$41.9 million for the 20172023 Period, compared to $2.6$572.6 million infor the 20162022 Period. The $530.7 million decrease in cash used in investing activities was primarily due to a one-time upfront fee paid tothe use of $572.1 million for the BDSI Acquisition, net of cash acquired, in the 20162022 Period partially offset by purchases of marketable securities in the 2023 Period.
Financing activities. Cash provided by financing activities was $8.9$23.1 million for the 20172023 Period, compared to cash provided of $49.7$493.8 million infor the 20162022 Period. The $470.7 million decrease in cash provided by financing activities was primarily due to the repayment of the outstanding balance of the 2020 Term Loan and establishment of the 2022 Term Loan in connection with the BDSI Acquisition, which was accounted for as a decreasedebt modification and resulted in $517.7 million in proceeds from the term note modification in the 2022 Quarter, partially offset by the repurchase of a portion of our 2026 Convertibles Notes and issuance of our 2029 Convertible Notes which resulted in net proceeds from the issuance of common stock from public offerings, which was $9.4$96.6 million in the 2017 Period2023 Quarter.
Funding Requirements
We believe that our cash and $51.6 million in the 2016 Period. The $8.9 millioncash equivalents as of June 30, 2023, together with expected cash provided by financing activitiesinflows from operations, will enable us to fund our operating expenses, debt service and capital expenditure requirements under our current business plan for the 2017 Period primarily reflects net proceeds from the issuance of common stock from public offerings, proceeds from the issuance of shares under our employee stock purchase plan and proceeds from exercises of stock options, offset by repayments of term note and payments made for employee restricted stock tax withholdings. Cash provided by financing activities for the 2016 Period primarily reflects net proceeds from the issuance of common stock from public offerings offset by repayments of term note.
Funding Requirements
Since 2011,foreseeable future. However, we have generated limited revenue from product sales and we continue to incur significant research, development and other expenses related to our ongoing operations. We are in the early stages of commercialization of Xtampza. We anticipate that we will continue to incur losses in the near future as we commercialize Xtampza and continue the development of, and seek regulatory approvals for, other product candidates. We are subject to all of the risks common to the commercialization and development of new pharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.
We will also incurhave significant future capital requirements, including:
● | expected operating expenses to manufacture and commercialize our products and to operate our organization; |
● | repayment of outstanding principal amounts and interest in connection with our 2022 Term Loan and Convertible Notes; |
● | royalties we pay on sales of certain products within our portfolio; |
● | operating lease obligations; |
● | minimum purchase obligations in connection with our contract manufacturer; and |
● | cash paid for income taxes. |
In addition, we have significant potential future capital requirements, including:
● | we may enter into business development transactions, including acquisitions, collaborations, licensing arrangements and equity investments, that require additional capital; and |
● | as of June 30, 2023, we had $100.0 million remaining in authorization under our 2023 Repurchase Program. |
ADDITIONAL INFORMATION
To supplement our financial results presented on a GAAP basis, we have included information about certain non-GAAP financial measures. We use these non-GAAP financial measures to understand, manage and evaluate our business as we believe they provide additional costs associatedinformation on the performance of our business. We believe that the presentation of these non-GAAP financial measures, taken in conjunction with our results under GAAP, provide analysts, investors, lenders
39
and other third parties insight into our view and assessment of our ongoing operating performance. In addition, we believe that the presentation of these non-GAAP financial measures, when viewed with our results under GAAP and the accompanying reconciliations, provide supplementary information that may be useful to analysts, investors, lenders, and other third parties in assessing our performance and results from period to period. We report these non-GAAP financial measures to portray the results of our operations prior to considering certain income statement elements. These non-GAAP financial measures should be considered in addition to, and not as a commercial stage public company. We anticipatesubstitute for, or superior to, net income or other financial measures calculated in accordance with GAAP.
In our quarterly and annual reports, earnings press releases and conference calls, we may discuss the following financial measures that we will need substantial additional fundingare not calculated in connectionaccordance with GAAP, to supplement our continuingconsolidated financial statements presented on a GAAP basis.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) adjusted to exclude interest expense, interest income, the benefit from or provision for income taxes, depreciation, amortization, stock-based compensation, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations.
Until we can generate a sufficient amount of revenue Adjusted EBITDA, as used by us, may be calculated differently from, our pharmaceutical products, if ever, we expect to finance future cash needs through public or private equity or debt offerings. Additional capitaland therefore may not be available on reasonable terms, if at all. If wecomparable to, similarly titled measures used by other companies.
There are unableseveral limitations related to raise additional capital in sufficient amounts or on terms acceptablethe use of adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent, such as:
● | adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA; |
● | we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position; |
● | adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; |
● | adjusted EBITDA does not reflect the benefit from or provision for income taxes or the cash requirements to pay taxes; |
● | adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; |
● | we exclude impairment expenses from adjusted EBITDA and, although these are non-cash expenses, the asset being impaired may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA; |
● | we exclude restructuring expenses from adjusted EBITDA. Restructuring expenses primarily include employee severance and contract termination costs that are not related to acquisitions. The amount and/or frequency of these restructuring expenses are not part of our underlying business; |
● | we exclude litigation settlements from adjusted EBITDA, as well as any applicable income items or credit adjustments due to subsequent changes in estimates. This does not include our legal fees to defend claims, which are expensed as incurred; |
● | we exclude acquisition related expenses as the amount and/or frequency of these expenses are not part of our underlying business. Acquisition related expenses 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, and miscellaneous other acquisition related expenses incurred; |
● | we exclude recognition of the step-up basis in inventory from acquisitions (i.e., the adjustment to record inventory from historic cost to fair value at acquisition) as the adjustment does not reflect the ongoing expense associated with sale of our products as part of our underlying business; and |
● | we exclude losses on extinguishments of debt as these expenses are episodic in nature and do not directly correlate to
40 Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022 was as follows:
Adjusted EBITDA was $85.8 million for the 2023 Quarter compared to $71.2 million for the 2022 Quarter. The $14.6 million increase was primarily due to higher revenues and lower adjusted operating expenses. Adjusted EBITDA was $173.4 million for the 2023 Period compared to $114.7 million for the 2022 Period. The $58.7 million increase was primarily due to higher revenues due to six months of revenue in the 2023 Period compared to approximately four months of revenue in the 2022 Period from products acquired from BDSI, as well as lower adjusted operating expenses. 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 three and six months ended June 30, 2023 and 2022 were as follows:
Adjusted operating expenses were $31.1 million in the 2023 Quarter compared to $32.0 million in the 2022 Quarter. The $0.9 million decrease was primarily driven by a decrease in audit and legal expenses, primarily due to lower litigation related expenses. Adjusted operating expenses were $69.4 million in the 2023 Period compared to $57.2 million in the 2022 Period. The $12.2 million increase was primarily driven by:
Adjusted Net Income and Adjusted Earnings Per Share Adjusted net income is a non-GAAP financial measure that represents GAAP net income (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 three and six months ended June 30, 2023 and 2022 were as follows:
CONTRACTUAL OBLIGATIONS Therehave been no material changes to the contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations 42
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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 June 30, 2023, our investment portfolio includes $129.1 million of cash equivalents and $41.7 million of marketable securities, which 2022 Term Loan Prior to the cessation of LIBOR on June 30, 2023, the 2022 Term Loan had an Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of
summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of Changes in Internal Control Over Financial Reporting
43 PART II—OTHER INFORMATION Item 1. Legal Proceedings.
Risk Factors Summary
44
Risks Related to Our Financial Position and Capital Needs
45
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. As of December 31, In 2021, we completed a study to As part of the acquisition of BioDelivery Sciences International, Inc. (the “BDSI Acquisition”), we acquired an estimated $234.7 million of federal NOL carryovers which are generally subject to a limited carryover/carryback period and are also subject to the annual limitations that may be imposed 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 may potentially limit our ability to reduce our future federal income tax liability by using these losses. Refer to Note 17, Income Taxes, for more information. We have substantial outstanding indebtedness, which may adversely affect our business, financial condition and 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 $504.2 million in principal was outstanding as of June 30, 2023. In addition, we have $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:
46
Holders of our Convertible Notes, subject to a limited 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 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 Further, amounts outstanding under our 2022 Loan Agreement historically bore interest at a rate based on LIBOR, and, effective July 1, 2023, bears interest at a rate based on 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 Adverse developments affecting the financial services industry, including events 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 may in the future lead to market-wide liquidity problems. Recently, in March 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the 47 Risks Related to our Products If we cannot continue successfully commercializing our products, our business, financial condition and
Our business and future success are substantially dependent on our ability to continue successfully commercializing our products, including Xtampza ER, the Nucynta Products, Belbuca and Our ability to continue successfully
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
The FDA has imposed a class-wide REMS on all IR, ER and 48 Any modification of the Opioid Analgesic REMS by the FDA
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
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
49 to commercialize products and our overall financial condition. We expect that litigation may be necessary in some instances to determine the validity and scope of our proprietary rights. Litigation may be necessary in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. Ultimately, the outcome of such litigation, including our pending litigation with Purdue, could compromise the validity and scope of our patents or other proprietary rights or hinder our ability to manufacture and market our products. 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
50
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 evolve and we
If we are not successful in Additionally, our 51 If Physicians
If
Some of our products contain, and our future product candidates may 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. Some of our products contain, and our future product candidates may 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 Controlled Substances Act (“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, see 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 development and commercialization of our products that include controlled substances. The DEA and some states conduct periodic inspections of registered establishments that handle controlled substances. 52 Failure to obtain and maintain required registrations or to comply with any applicable regulations could delay or preclude us from developing 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,
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
Congress of the FDA’s approval process may
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 53
In August 2022, the Inflation Reduction Act (“IRA”) 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. There is pending litigation in the federal courts challenging the constitutionality of the drug price negotiation provisions of 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. 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.
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. See 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 payers. 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 54 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
In November 2017, the FDA issued a final guidance to assist industry in the development of generic versions of approved opioids with abuse-deterrent formulations, including recommendations about the types of studies that companies should conduct to demonstrate that the generic drug is no less abuse-deterrent than its brand-name counterpart. In the second half of 2018, the FDA posted three revised product-specific guidances related to generic abuse-deterrent opioid formulations, including one guidance specifically relating to Xtampza ER, which recommend specific in vivo studies and in vitro study considerations for abuse deterrence evaluations. These guidances are part of the FDA’s wider focus on assisting developers of generic abuse-deterrent formulations in navigating the regulatory path to market more quickly. Earlier market entry of generic abuse-deterrent formulations could have a material adverse effect on our business. Risks Related to Our Dependence on Third Parties If the third-party We do not own any manufacturing facilities 55 other vendors to formulate, test, supply, store and distribute 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. We have completed the activities required to transition 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 development and commercialization activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientific standards. The FDA and other regulatory authorities require 56 withdraw approvals for products previously granted to us, or take other regulatory or legal action, including recall or seizure, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, detention Any stock out, or failure to obtain sufficient supplies of any of our products, or the necessary active pharmaceutical ingredients, excipients or components necessary to manufacture each of our products, could adversely affect our ability to commercialize such products, which could in turn adversely affect our results of operations and financial condition. Because we currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredient of We currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredients of our products. For example, we presently depend upon a single supplier for the active pharmaceutical ingredient for the Nucynta Products (tapentadol) and Symproic, and two active pharmaceutical ingredient suppliers for Xtampza
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 57 results of operations, financial condition and prospects. The significance of each wholesale pharmaceutical distributor account to our business adversely impacts our ability to negotiate favorable commercial terms with each such distributor, and as a result, we may be forced to accept terms that adversely impact our results of operations. 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. In addition, due to unprecedented and significant disruptions in the processing of product returns by wholesale pharmaceutical distributors, as further disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we formally denied a significant portion of unprocessed product claims under our return policy. We subsequently received payment for only a portion of the denied claims and vigorously pursued collections of the full amount of these short-pay receivables. Although we were able to formally settle a portion of the unprocessed product claims and receive payment therefor, payment for a significant portion of the unprocessed product claims has not been and is not expected to be received. There can be no assurance that similar disruptions in the wholesaler distribution network will not occur in the future or if they do, that we will be able to successfully manage such disruptions. Our opioid products are 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. Our opioid products are subject to a comprehensive regulatory scheme, including post-marketing requirements (“PMRs”) to conduct epidemiological studies and clinical trials. We 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. Such withdrawal or restriction would have an adverse impact on our business and financial condition. We have historically relied on third parties to conduct our non-clinical and clinical trials, and may continue to rely upon third parties for any product candidates we develop or acquire in the future. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, or if they terminate their agreement with us, we may not be able to maintain regulatory approval for our products and our business could suffer a material adverse effect. We have relied upon and plan to continue to rely upon contract research organizations (“CROs”) to monitor and manage data for any non-clinical and clinical programs that we may conduct in the future, including the OPC PMR studies discussed above. We rely on these parties for execution of our non-clinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and clinical trials are conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. If we or any of our CROs fail to comply with applicable good clinical practices (“GCP”) and other regulations, including as a result of any recent changes in such regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP requirements. While we have agreements governing the activities of our CROs, we have limited influence over their actual performance. Failure to comply with applicable regulations in the conduct of the clinical trials for our products would have an adverse impact on our commercial efforts. 58 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 has been, and we may in the future continue to be, adversely affected by certain events or circumstances outside our control, including the COVID-19 pandemic and geopolitical turmoil. Our business has been, and we may in the future continue to be, adversely affected by certain events or circumstances outside our control. For example, the COVID-19 pandemic has, and may continue to have, a substantial impact on the delivery of healthcare services in the United States. As the COVID-19 pandemic unfolded, our business was impacted by several trends, including depressed pain patient office visits compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with our products, and labor disruptions that impacted pain offices, which in turn impacted our access to, and quality of interactions with, such offices. We believe that the disruptions caused by COVID-19 may continue and, despite the Department of Health and Human Services planning for the federal public health emergency for COVID-19 to expire in May 2023, we expect the trends that emerged as a result of the pandemic to persist in the near to medium term. These circumstances may result in reduced demand for our products and negatively impact our sales and results of operations. In addition, other 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 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, social unrest, political instability, 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. 59 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. The plaintiffs are a variety of municipalities in Florida, Georgia, and Ohio. These new complaints echo the allegations in the prior complaints that were dismissed or settled, as explained above. We have not yet been served with these complaints, and no schedule has been set. 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 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
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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 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
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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
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
62 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. RECENT SALES OF UNREGISTERED SECURITIES There were no unregistered sales of equity securities during the period covered by this PURCHASE OF EQUITY SECURITIES The following table sets forth
Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable.
During the three months ended June 30, 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.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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