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 ~~September 30, 2017~~March 31, 2024

☐

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 (State or other jurisdiction of incorporation or organization)		03-0416362 (I.R.S. Employer Identification Number)

~~780 Dedham Street, Suite 800~~100 Technology Center Drive ~~Canton,~~ Stoughton, MA (Address of principal executive offices)		~~02021~~02072 (Zip Code)

~~(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.



Large accelerated ~~filer☐~~filer ☒		Accelerated filer ☒
◻
Non-accelerated filer ☐◻ ~~(Do not check if a smaller reporting company)~~		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 ~~October 31, 2017,~~April 30, 2024, there were ~~32,562,277~~32,715,322 shares of Common Stock, $0.001 par value per share, outstanding.

Table of Contents

Forward-Looking Statements

~~FORWARD-LOOKING STATEMENTS~~

Statements made in this ~~Quarterly Report~~quarterly 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 ~~obtain~~commercialize and grow sales of our products;

●

our ability to maintain regulatory approval of our products, ~~and product candidates,~~ and any related restrictions, limitations, and/or warnings in the label of an approved product;

●

~~our plans to commercialize our product candidates and grow sales of our products;~~

the size ~~and growth potential~~ of the markets for our products, and ~~product candidates, and~~ our ability to service those markets;

●

the success of competing products that are or become available;

●

our ability to obtain and maintain reimbursement and third-party payor contracts with favorable terms for our products;

●

the costs of commercialization activities, including marketing, sales and distribution;

●

~~our ability to develop sales and marketing capabilities, whether alone or with potential future collaborators;~~

the rate and degree of market acceptance of our ~~products and product candidates;~~

products;

●

changing market conditions for our ~~products and product candidates;~~

products;

●

the outcome of any patent infringement, opioid-related or other litigation that may be brought by or against ~~us, including litigation with Purdue Pharma, L.P.;~~

us;

●

the outcome of any governmental investigation related to the manufacture, marketing and sale of opioid medications;

●

the performance of our third-party suppliers and manufacturers;

●

our ability to secure adequate supplies of active pharmaceutical ingredients for each of our products, manufacture adequate quantities of commercially salable inventory and maintain our supply chain;

●

our ability to effectively manage our relationships with licensors and to commercialize products that we in-license from third parties;

●

our ability to attract collaborators with development, regulatory and commercialization expertise;

●

~~the success, cost and timing of our product development activities, studies and clinical trials;~~

our ability to obtain funding for our ~~operations;~~

business development;

●

our ability to comply with the terms of our outstanding indebtedness;

●

regulatory and legislative developments in the United States, including the adoption of opioid stewardship and ~~foreign countries;~~

similar taxes that may impact our business;

●

~~our expectations regarding~~ our ability to obtain and ~~adequately~~ maintain sufficient intellectual property protection for our ~~products and product candidates;~~

products;

●

~~our ability to operate our business without infringing the intellectual property rights of others;~~

~~the performance of our third-party suppliers and manufacturers;~~

our ability to comply with stringent ~~U.S. and foreign~~ government regulations relating to the ~~manufacture~~manufacturing and marketing of pharmaceutical products, including U.S. Drug Enforcement Agency ~~or DEA,~~(“DEA”) compliance;

●

~~the loss of key scientific or management personnel;~~

~~our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;~~

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 ~~financing.~~

financing; and

●

the other risks, uncertainties and factors discussed under the heading “Risk Factors” in this Quarterly Report on Form 10-Q.

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. 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.

Table of Contents

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)

September 30,

December 31,

2017

2016

Assets





Current assets

Cash and cash equivalents

$
107,611

$
153,225

Accounts receivable

5,823

2,129

Inventory

1,401

1,316

Prepaid expenses and other current assets

4,061

1,905

Total current assets

118,896

158,575

Property and equipment, net

1,632

1,038

Intangible assets, net

1,877

2,103

Restricted cash

97

97

Other long-term assets

171

204

Total assets

$
122,673

$
162,017

Liabilities and shareholders' equity (deficit)

Current liabilities

Accounts payable

$
4,982

$
9,106

Accrued expenses

19,268

8,879

Deferred revenue

—

4,944

Current portion of term loan payable

2,146

2,667

Total current liabilities

26,396

25,596

Lease incentive obligation

8

34

Term loan payable, long-term

—

1,479

Total liabilities

26,404

27,109

Commitments and contingencies (see Note 10)

Shareholders’ equity:

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

—

—

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

31

29

Additional paid-in capital

376,884

358,063

Accumulated deficit

(280,646)

(223,184)

Total shareholders’ equity

96,269

134,908

Total liabilities and shareholders’ equity

$
122,673

$
162,017


	March 31,		December 31,
	2024		2023
Assets
Current assets
Cash and cash equivalents	$	228,610	$	238,947
Marketable securities		89,438		71,601
Accounts receivable, net		174,693		179,525
Inventory		31,276		32,332
Prepaid expenses and other current assets		15,243		15,195
Total current assets		539,260		537,600
Property and equipment, net		15,457		15,983
Operating lease assets		5,813		6,029
Intangible assets, net		387,191		421,708
Restricted cash		1,047		1,047
Deferred tax assets		30,671		26,259
Other noncurrent assets		954		825
Goodwill		133,857		133,857
Total assets	$	1,114,250	$	1,143,308
Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	6,020	$	8,692
Accrued liabilities		38,190		37,571
Accrued rebates, returns and discounts		217,880		227,331
Current portion of term notes payable		183,333		183,333
Current portion of operating lease liabilities		1,013		988
Total current liabilities		446,436		457,915
Term notes payable, net of current portion		177,360		221,713
Convertible senior notes		262,425		262,125
Operating lease liabilities, net of current portion		5,860		6,124
Total liabilities		892,081		947,877
Commitments and contingencies (refer to Note 14)
Shareholders’ equity:
Preferred stock, $0.001 par value; authorized shares - 5,000,000		—		—
Common stock, $0.001 par value; authorized shares - 100,000,000; 39,029,639 issued and 32,705,747 outstanding shares as of March 31, 2024 and 38,192,441 issued and 31,868,549 outstanding shares as of December 31, 2023		39		38
Additional paid-in capital		565,111		565,949
Treasury stock, at cost; 6,323,892 shares as of March 31, 2024 and 6,323,892 shares as of December 31, 2023		(137,381)		(137,381)
Accumulated other comprehensive (loss) income		(124)		14
Accumulated deficit		(205,476)		(233,189)
Total shareholders’ equity		222,169		195,431
Total liabilities and shareholders’ equity	$	1,114,250	$	1,143,308

See accompanying notes to the ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Table of Contents

Collegium Pharmaceutical, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

Product revenues, net
$
11,950

$
408

$
17,682

$
408

Costs and expenses

Cost of product revenues

553

29

1,501

29

Research and development

2,069

3,254

6,378

11,617

Selling, general and administrative

22,758

23,567

67,667

55,266

Total costs and expenses

25,380

26,850

75,546

66,912

Loss from operations

(13,430)

(26,442)

(57,864)

(66,504)

Interest income (expense), net

167

(2)

402

(113)

Net loss
$
(13,263)

$
(26,444)

$
(57,462)

$
(66,617)

Loss per share - basic and diluted
$
(0.45)

$
(1.13)

$
(1.95)

$
(2.85)

Weighted-average shares - basic and diluted

29,753,043

23,460,340

29,517,396

23,334,558


	Three Months Ended March 31,
	2024		2023
Product revenues, net	$	144,923	$	144,767
Cost of product revenues
Cost of product revenues (excluding intangible asset amortization)		18,950		29,899
Intangible asset amortization		34,517		37,466
Total cost of product revenues		53,467		67,365
Gross profit		91,456		77,402
Operating expenses
Selling, general and administrative		41,982		52,775
Total operating expenses		41,982		52,775
Income from operations		49,474		24,627
Interest expense		(17,339)		(21,427)
Interest income		4,487		2,747
Loss on extinguishment of debt		—		(23,504)
Income (loss) before income taxes		36,622		(17,557)
Provision for (benefit from) income taxes		8,909		(131)
Net income (loss)	$	27,713	$	(17,426)

Earnings (loss) per share — basic	$	0.86	$	(0.51)
Weighted-average shares — basic		32,326,589		34,319,291

Earnings (loss) per share — diluted	$	0.71	$	(0.51)
Weighted-average shares — diluted		41,438,466		34,319,291

See accompanying notes to the ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Table of Contents

Collegium Pharmaceutical, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~COMPREHENSIVE INCOME (LOSS)

(in thousands)

Nine Months Ended September 30,

2017


2016
Operating activities

Net loss
$
(57,462)

$
(66,617)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

464

360
Lease incentive

(26)

(25)
Stock-based compensation expense

5,867

4,137
Changes in operating assets and liabilities:

     Accounts receivable

(3,694)

(1,679)
     Inventories

(85)

(1,576)
     Prepaid expenses and other assets

(33)

(114)
     Accounts payable

(4,124)

5,401
     Accrued expenses

10,315

4,409
     Deferred revenue

(4,944)

3,938
Net cash used in operating activities

(53,722)

(51,766)
Investing activities

Purchase of intangible assets

—

(2,500)
Purchases of property and equipment

(818)

(136)
Net cash used in investing activities

(818)

(2,636)
Financing activities

Proceeds from issuances of common stock from public offerings, net of issuance costs of $507 and $526

9,425

51,619
Proceeds from issuances of common stock from employee stock purchase plans

1,141

—
Repayment of term note

(2,000)

(2,000)
Proceeds from the exercise of stock options

428

114
Payments made for employee restricted stock tax withholdings

(68)

—
Net cash provided by financing activities

8,926

49,733

Net (decrease) increase in cash and cash equivalents

(45,614)

(4,669)
Cash and cash equivalents at beginning of period

153,225

95,697
Cash and cash equivalents at end of period
$
107,611

$
91,028

Supplemental disclosure of cash flow information

Cash paid for offering costs
$
447

$
512
Cash paid for interest
$
121

$
226

Supplemental disclosure of non-cash activities

Offering costs in accrued expenses
$
60

$
—
Receivable from issuance of common stock from at-the-market offering in other current assets
$
2,090

—
Acquisition of property and equipment in accrued expenses
$
97

$
—


	Three Months Ended March 31,
	2024		2023
Net income (loss)	$	27,713	$	(17,426)
Other comprehensive loss:
Unrealized losses on marketable securities, net of tax		(138)		—
Total other comprehensive loss		(138)		—
Comprehensive income (loss)	$	27,575	$	(17,426)

See accompanying notes to the ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Table of Contents

Collegium Pharmaceutical, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Three Months Ended March 31,
		2024		2023
Operating activities
Net income (loss)	$	27,713	$	(17,426)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization expense		34,517		37,466
Depreciation expense		917		817
Deferred income taxes		(4,412)		(46)
Stock-based compensation expense		7,475		6,035
Non-cash lease benefit		(22)		(105)
Non-cash interest expense for amortization of debt discount and issuance costs		1,780		2,287
Loss on extinguishment of debt		—		23,504
Net amortization of premiums and discounts on investments		(415)		—
Changes in operating assets and liabilities:
Accounts receivable		4,832		3,993
Inventory		1,056		13,606
Prepaid expenses and other assets		(177)		(238)
Accounts payable		(2,536)		(502)
Accrued liabilities		660		(12,131)
Accrued rebates, returns and discounts		(9,451)		(29,589)
Net cash provided by operating activities		61,937		27,671
Investing activities
Purchases of property and equipment		(568)		(176)
Purchases of marketable securities		(39,110)		—
Maturities of marketable securities		21,550		—
Net cash used in investing activities		(18,128)		(176)
Financing activities
Proceeds from issuances of common stock from employee stock purchase plan		356		169
Proceeds from the exercise of stock options		4,205		3,848
Payments made for employee stock tax withholdings		(12,874)		(7,736)
Repayment of term notes		(45,833)		(25,000)
Proceeds from issuances of 2029 Convertible Notes, net of issuance costs of $5,846		—		235,654
Repurchase of 2026 Convertible Notes, including premium		—		(138,638)
Net cash (used in) provided by financing activities		(54,146)		68,297

Net (decrease) increase in cash, cash equivalents and restricted cash		(10,337)		95,792
Cash, cash equivalents and restricted cash at beginning of period		239,994		176,235
Cash, cash equivalents and restricted cash at end of period	$	229,657	$	272,027

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents	$	228,610	$	269,480
Restricted cash		1,047		2,547
Total cash, cash equivalents and restricted cash	$	229,657	$	272,027

Supplemental disclosure of cash flow information
Cash paid for interest	$	17,468	$	19,499
Cash paid for income taxes	$	173	$	743


Supplemental disclosure of non-cash activities
Note issuance costs in accounts payable and accrued liabilities	$	—	$	434

See accompanying notes to the Condensed Consolidated Financial Statements.

Table of Contents

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 ~~Company~~Company’s mission is to build a leading, diversified specialty pharmaceutical company ~~developing and commercializing next-generation abuse-deterrent products that incorporate~~committed to improving the ~~Company’s patented DETERx® technology platform for the treatment~~lives of ~~chronic pain and other diseases.~~people living with serious medical conditions. The Company’s ~~first product,~~portfolio includes Belbuca, Xtampza ~~ER®~~ER, Nucynta ER and Nucynta IR (collectively the “Nucynta Products”), ~~or Xtampza, is an abuse-deterrent, extended-release, oral formulation of oxycodone, a widely prescribed opioid medication. In April 2016, the U.S. Food~~ and Drug Administration (“FDA”) approved the Company’s new drug application (“NDA”) filing for Xtampza for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. In June 2016, the Company announced the commercial launch of Xtampza.Symproic.

The Company’s operations are subject to certain risks and uncertainties. The principal risks include ~~inability~~the Company’s ability to continue successfully ~~commercialize~~commercializing products, changing market conditions for products and ~~product candidates (including~~ development of competing ~~products),~~products, changing regulatory environment and reimbursement landscape, ~~negative outcome~~product-related litigation, manufacture of ~~clinical trials,~~adequate commercial inventory, inability ~~or delay in completing clinical trials or obtaining regulatory approvals, the need~~ to ~~retain~~secure adequate supplies of active pharmaceutical ingredients, key personnel ~~and protect~~retention, protection of intellectual property, and patent infringement ~~litigation and the availability of additional capital financing on terms acceptable to the Company.~~litigation.

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. The Company expects to continue to incur net losses in the foreseeable future. A successful transition to profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.

The Company believes that its cash and cash equivalents at September 30, 2017, together with expected cash inflows from the commercialization of Xtampza, as well as proceeds from its ATM offering through October 2017 (see note 2), 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, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from other sources. If the Company is unable to obtain financing or increase profitability, the related lack of liquidity will have a material adverse effect on the Company’s operations and future prospects.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed 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 statements~~Condensed 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 ~~September 30, 2017,~~March 31, 2024, the results of operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~,2023, and cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016.~~2023. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2024 are not necessarily indicative of the results to be expected for the full year.

~~Table~~The preparation of ~~Contents~~

~~When preparing financial statements~~the Condensed Consolidated Financial Statements in ~~conformity~~accordance with GAAP requires the Company ~~must~~to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues, costs and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. ~~The most significant estimates~~Estimates in the Company’s consolidated financial statements ~~relate to~~include 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 Report~~most recently filed annual report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2023 (the “Annual Report”).

~~Advertising and Product Promotion Costs~~

~~Advertising and product promotion costs are included in selling, general and administrative expenses and~~There were ~~$2,489 and $3,486~~no significant changes in the ~~three months ended September 30, 2017 and 2016 respectively. Advertising and product promotion costs were $8,916 and $10,492~~Company’s significant accounting policies from those described in the ~~nine months ended September~~Company’s Annual Report.

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Subsequent Events

Redemption of 2026 Convertible Notes

On April 11, 2024, the Company announced that it called all $26,350 aggregate principal amount of its outstanding 2.625% convertible senior notes due in 2026 (the “2026 Convertible Notes”) for redemption on June 14, 2024 (the “Redemption Date”).

The redemption price will be equal to 100% of the principal amount of each 2026 Convertible Note called for redemption, plus accrued and unpaid interest on such 2026 Convertible Note to, but excluding, the Redemption Date for such 2026 Convertible Note (the “Redemption Price”). For each $1,000 principal amount of 2026 Convertible Notes, the Redemption Price is equal to approximately $1,008.68.

The sending of the notice of redemption to the holders of the 2026 Convertible Notes constituted a “Make-Whole Fundamental Change” under the Indenture, and therefore the conversion rate was required to be increased in accordance with the terms of the Indenture. The conversion rate reflecting such increase is 36.7815 shares of common stock per $1,000 principal amount of 2026 Convertible Notes. This conversion rate will remain subject to adjustment in accordance with the Indenture from time to time for certain events.

The Company elected to settle all conversions of the 2026 Convertible Notes in cash. The cash paid to the holders to settle the conversions that is in excess of the carrying amount of the 2026 Convertible Notes, along with unamortized debt issuance costs, will be recognized as a loss on extinguishment of debt in the Company’s Condensed Consolidated Statement of Operations in the second quarter of 2024.

Authorized Generic Agreement with Hikma Pharmaceuticals USA Inc.

On April 26, 2024, the Company entered into an Authorized Generic Agreement (the “AG Agreement”) with Hikma Pharmaceuticals USA Inc. (“Hikma”), pursuant to which the Company granted to Hikma certain rights relating to an authorized generic version of the Company’s Nucynta IR product (the “Nucynta IR Authorized Generic”) and the Company’s Nucynta ER product (the “Nucynta ER Authorized Generic” and, collectively, the “Nucynta AG Products”) in the United States.

Under the terms of the AG Agreement, the Company granted Hikma the exclusive right to market the Nucynta AG Products in the United States. Hikma agreed to launch the Nucynta IR Authorized Generic and the Nucynta ER Authorized Generic 30 ~~2017~~days prior to loss of exclusivity for each product or earlier under certain circumstances as set forth in the AG Agreement. Hikma will pay the Company a percentage of Net Profits (as defined in the AG Agreement) on sales of the Nucynta AG Products, with the Company’s profit share percentage beginning in the mid-80% range, and ~~2016 respectively. Advertising~~declining based on the number of third-party generic equivalents sold for each Nucynta AG Product, if any. During the term of the AG Agreement, the Company will supply Hikma with its requirements of the Nucynta AG Products at Collegium’s fully burdened manufacturing cost and ~~product promotion costs are expensed~~Hikma will purchase the Nucynta AG Products exclusively from the Company. In addition, Hikma agreed that it will not market any generic equivalent of Nucynta IR or Nucynta ER at the same time it is marketing the Nucynta AG Products.

The AG Agreement has an initial term of five years, with automatic one-year renewals unless notice of termination is provided by either party prior to expiration. The AG Agreement may be terminated by either party in the event of uncured material breach by the other party or certain bankruptcy or insolvency events experienced by the other party. In addition, if Hikma elects to launch its own generic equivalent for either (or both) of Nucynta IR or Nucynta ER and terminate the AG Agreement, it must provide one years’ notice prior to doing so, and may only provide such notice on or after the first anniversary of the first Nucynta AG Product launch.

The foregoing description of the AG Agreement does not purport to be complete and is qualified in its entirety by reference to the AG Agreement, which will be filed as ~~incurred.~~an exhibit to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ending June 30, 2024.

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~~Recent~~

Accelerated Share Repurchase Program

In May 2024, the Company’s Board of Directors authorized an accelerated share repurchase program to repurchase $35,000 of the Company’s common stock, as part of the $150,000 repurchase program authorized in January 2024.

Recently 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.

The Company has not been required to adopt any accounting standards that had a significant impact on its condensed consolidated financial statements during the three months ended March 31, 2024.

Recently Issued Accounting Pronouncements Not Yet Adopted

In ~~May 2014, the~~ ~~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 to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. In August 2015,~~November 2023, the FASB issued ASU ~~2015-14,~~ ~~Revenue from Contracts with Customers~~2023-07, 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 adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application)Segment Reporting (Topic 280). 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 does 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, the FASB issued ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments, and in November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash~~. The amendments in ~~these updates are~~this update expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment among other disclosure requirements. This update is effective ~~for public business entities~~ for fiscal years beginning after December 15, ~~2017,~~2023 for the Company’s annual report, and interim periods within ~~those~~ fiscal ~~years.~~years beginning after December 15, 2024. The ~~Company will adopt these standards in the first quarter of 2018 using the retrospective transition method as required with respect to each period presented. The Company expects the~~ adoption of ~~these standards will result in an increase in net cash provided by investing activities of $16 for the year ended December 31, 2015. The Company does~~this standard is not ~~expect the adoption of these standards~~expected to have a material impact on ~~its~~the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The amendments in this update expand income tax disclosure requirements, including additional information pertaining to the rate reconciliation, income taxes paid, and other disclosures. This update is effective for annual periods beginning after December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the consolidated financial statements upon future adoption.

3. Revenue from Contracts with Customers

The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to wholesalers (“customers”), which in turn sell the product to pharmacies or other outlets for the ~~years ended December 31, 2016~~treatment of patients.

Revenue Recognition

The Company recognizes revenue when a customer obtains control of promised goods or ~~December 31, 2017.~~services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements with a customer, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the assets is one year or less.

Performance Obligations

The Company determined that performance obligations are satisfied, and revenue is recognized, when a customer takes control of the Company’s product, which occurs at a point in time. This generally occurs upon delivery of the products to

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customers, at which point the Company recognizes revenue and records accounts receivable. Payment is typically received 30 to 90 days after satisfaction of the Company’s performance obligations.

Transaction Price and Variable Consideration

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). The transaction price for product sales includes variable consideration related to sales deductions, including: (i) rebates and incentives, including managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances; (ii) product returns, including return estimates; and, (iii) trade allowances and chargebacks, including fees for distribution services, prompt pay discounts, and chargebacks. The Company will estimate the amount of variable consideration that should be included in the transaction price under the expected value method for all sales deductions other than trade allowances, which are estimated under the most likely amount method. These provisions reflect the expected amount of consideration to which the Company is entitled based on the terms of the contract. In addition, the Company made a policy election to exclude from the measurement of the transaction price all taxes that are assessed by a governmental authority that are imposed on revenue-producing transactions.

The Company bases its estimates of variable consideration, which could include estimates of future rebates, returns, and other adjustments, on historical data and other information. Estimates include: (i) timing of the rebates and returns incurred; (ii) pricing adjustments related to rebates and returns; and (iii) the quantity of product that will be rebated or returned in the future. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period.

Rebates and Incentives

Provisions for rebates and incentives are based on the estimated amount of rebates and incentives to be claimed on the related sales. As the Company’s rebates and incentives are based on products dispensed to patients, the Company is required to estimate the expected value of claims at the time of product delivery to wholesalers. Given that wholesalers sell the product to pharmacies, which in turn dispense the product to patients, claims can be submitted significantly after the related sales are recognized. The Company’s estimates of these claims are based on the historical experience of existing or similar programs, including current contractual and statutory requirements, specific known market events and trends, industry data, and estimated distribution channel inventory levels. Accruals and related reserves required for rebates and incentives are adjusted as new information becomes available, including actual claims. If actual results vary, the Company may need to adjust future estimates, which could have an effect on earnings in the period of the adjustment.

Product Returns

Provisions for product returns, including returns for Belbuca, Xtampza, the Nucynta Products, 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 future product returns are made at the time of revenue recognition to determine the amount of consideration to which the Company expects to be entitled (that is, excluding the products expected to be returned). At the end of each reporting period, the Company analyzes trends in returns rates and updates its assessment of variable consideration. To the extent the Company receives amounts in excess of what it expects to be entitled to receive due to a product return, the Company does not recognize revenue when it transfers products to customers but instead recognizes those excess amounts received as a refund liability. The Company updates the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds with the corresponding adjustments recognized as revenue (or reductions of revenue).

The Company provides the right of return to its customers for an 18-month window beginning six months prior to expiration and up until twelve months after expiration. The Company’s customers short-pay an existing invoice upon notice of a product return claim. Adjustments to the preliminary short-paid claims are processed when the return claim is validated and finalized. The Company’s return policy requires that product is returned and that the return is claimed within the 18-month window.

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~~3. Loss~~

Trade Allowances and Chargebacks

Provisions for trade allowances and chargebacks are primarily based on customer-level contractual terms. Accruals and related reserves are adjusted as new information becomes available, which generally consists of actual trade allowances and chargebacks processed relating to sales recognized.

At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained). Variable consideration, including the risk of customer concessions, is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved.

Significant judgment is required to determine the variable consideration included in the transaction price as described above. Adjustments to the estimated variable consideration included in the transaction price 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 three months ended March 31, 2024 and 2023:


					Trade
	Rebates and		Product		Allowances and
	Incentives ⁽¹⁾		Returns ⁽²⁾		Chargebacks ⁽³⁾
Balance as of December 31, 2023	$	149,826	$	77,505	$	20,917
Provision related to current period sales		92,569		9,697		39,013
Changes in estimate related to prior period sales		1,061		1,519		(53)
Credits/payments made		(105,228)		(9,069)		(39,245)
Balance as of March 31, 2024	$	138,228	$	79,652	$	20,632


					Trade
	Rebates and		Product		Allowances and
	Incentives ⁽¹⁾		Returns ⁽²⁾		Chargebacks ⁽³⁾
Balance as of December 31, 2022	$	156,937	$	73,554	$	22,058
Provision related to current period sales		92,871		10,166		34,921
Changes in estimate related to prior period sales		36		571		92
Credits/payments made		(122,852)		(10,381)		(32,563)
Balance as of March 31, 2023	$	126,992	$	73,910	$	24,508

(1)

Provisions for rebates and incentives include 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 March 31, 2024, 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.

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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 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 March 31,
	2024		2023
Belbuca	$	50,663	$	44,212
Xtampza ER		45,813		47,869
Nucynta IR		25,960		27,899
Nucynta ER		19,186		21,136
Symproic		3,301		3,651
Total product revenues, net	$	144,923	$	144,767

4. Earnings Per Share

Basic earnings per ~~Common Share~~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 antidilutive.

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


	Three Months Ended March 31,
	2024		2023
Numerator:
Net income (loss)	$	27,713	$	(17,426)
Adjustment for interest expense recognized on convertible senior notes		1,622		—
Net income (loss) - diluted	$	29,335	$	(17,426)
Denominator:
Weighted-average shares outstanding — basic		32,326,589		34,319,291
Effect of dilutive securities:
Stock options		468,057		—
Restricted stock units		1,134,716		—
Performance share units		—		—
Convertible senior notes		7,509,104		—
Weighted average shares outstanding — diluted		41,438,466		34,319,291

Earnings (loss) per share — basic	$	0.86	$	(0.51)
Earnings (loss) per share — diluted	$	0.71	$	(0.51)

The Company has the option to settle the conversion obligation for its convertible senior notes due in 2026 and 2029 in cash, shares or a combination of the two. On April 11, 2024, the Company announced that it called all $26,350 aggregate principal amount of its 2026 Convertible Notes for redemption on the Redemption Date (refer to Note 2, Summary of Significant Accounting Policies – Subsequent Events), which represented 902,799 shares included in the diluted earnings per share for the three months ended March 31, 2024. The Company uses the if-converted method for the convertible senior notes.

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The following table presents dilutive securities excluded from the calculation of diluted earnings per share:

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

Loss attributable to common shareholders — basic and diluted
$
(13,263)

$
(26,444)

$
(57,462)

$
(66,617)

Weighted-average number of common shares used in net loss per share - basic and diluted

29,753,043

23,460,340

29,517,396

23,334,558

Loss per share - basic and diluted
$
(0.45)

$
(1.13)

$
(1.95)

$
(2.85)


	Three Months Ended March 31,
	2024	2023
Stock options	—	1,443,996
Restricted stock units	1,050	2,455,919
Performance share units	511,680	503,880
Employee stock purchase plan	17,320	—
Convertible senior notes	—	7,509,104

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~~The following potentially dilutive securities, which represent all outstanding potentially dilutive~~For PSUs, these securities were excluded from the calculation of diluted ~~net loss~~earnings per share ~~due to~~as the 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):~~

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

Outstanding stock options
3,056,954

2,258,775

3,056,954

2,258,775

Warrants
2,445

2,445

2,445

2,445

Unvested restricted stock(1)
44,586

95,159

44,586

95,159

Restricted stock units
218,872

41,739

218,872

41,739

(1) - Includes shares of unvested restricted stock remaining from the early exercise of stock options.

inclusion would have had an antidilutive effect.

5. 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 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 ~~(unadjusted)~~ active markets for identical assets or ~~liabilities~~liabilities. An active market is defined as a market where transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 inputs:	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or ~~indirectly~~indirectly. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3 inputs:	Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or ~~liability~~liability.

The Company invests in instruments within defined credit parameters to minimize credit risk while ensuring liquidity.

There were no transfers between Levels 1, 2, and 3 during the three months ended March 31, 2024 and 2023.

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The following ~~tables present~~table presents the Company’s financial instruments carried at fair value using the lowest level input applicable to each financial instrument ~~at September 30, 2017~~as of March 31, 2024 and December 31, ~~2016.~~2023:

Significant

Quoted Prices

other

Significant

in active

observable

unobservable

markets

inputs

inputs

Description


Total


(Level 1)


(Level 2)


(Level 3)

September 30, 2017

Money market funds, included in cash equivalents

$
81,026

$
81,026

$
—

$
—

December 31, 2016

Money market funds, included in cash equivalents

$
125,515

$
125,515

$
—

$
—


						Significant
				Quoted Prices		other		Significant
				in active		observable		unobservable
				markets		inputs		inputs
		Total		(Level 1)		(Level 2)		(Level 3)
March 31, 2024
Cash equivalents:
Money market funds	$	69,772	$	69,772	$	—	$	—
Marketable securities:
Corporate debt securities		62,501		—		62,501		—
U.S. Treasury securities		24,442		—		24,442		—
Government-sponsored securities		2,495		—		2,495		—
Total assets measured at fair value	$	159,210	$	69,772	$	89,438	$	—

December 31, 2023
Cash equivalents:
Money market funds	$	77,299	$	77,299	$	—	$	—
U.S. Treasury securities		4,729		—		4,729		—
Marketable securities:
Corporate debt securities		41,612		—		41,612		—
U.S. Treasury securities		25,468		—		25,468		—
Government-sponsored securities		4,521		—		4,521		—
Total assets measured at fair value	$	153,629	$	77,299	$	76,330	$	—

The Company’s cash equivalents, ~~are comprised~~which consist of money market funds, ~~that~~ are measured at fair value on a recurring basis ~~based on~~using quoted market prices. Accordingly, these securities are categorized as Level 1.

Assets and Liabilities Not Carried at Fair Value

The Company’s convertible senior notes fall into the Level 2 category within the fair value level hierarchy. The fair value was determined based on data points other than quoted prices that are observable, either directly or indirectly, such as broker quotes in a non-active market. As of ~~September 30, 2017~~March 31, 2024, the fair value of the Company's 2.625% convertible senior notes due in 2026 was $37,624 and the net carrying value was $26,033. As of March 31, 2024, the fair value of the Company's 2.875% convertible senior notes due in 2029 was $272,798 and the net carrying value was $236,392.

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 March 31, 2024, the carrying amount of the term notes reasonably approximated the estimated fair value.

As of March 31, 2024, and December 31, ~~2016~~2023, the carrying amounts of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable, accrued ~~expenses, deferred revenue~~liabilities, and ~~loan payable~~accrued rebates, returns and discounts reasonably approximated their estimated fair ~~values because~~values.

6. Marketable Securities

Available-for-sale debt securities were classified on the condensed consolidated balance sheets at fair value as follows:


	March 31,		December 31,
	2024		2023
Cash and cash equivalents	$	—	$	4,729
Marketable securities		89,438		71,601
Total	$	89,438	$	76,330

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The following table summarizes the available-for-sale securities held as of March 31, 2024 and December 31, 2023:


March 31, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	62,618	$	10	$	(127)	$	62,501
U.S. Treasury securities		24,448		—		(6)		24,442
Government-sponsored securities		2,496		—		(1)		2,495
Total	$	89,562	$	10	$	(134)	$	89,438

December 31, 2023
Corporate debt securities	$	41,610	$	47	$	(45)	$	41,612
U.S. Treasury securities		30,189		8		—		30,197
Government-sponsored securities		4,517		4		—		4,521
Total	$	76,316	$	59	$	(45)	$	76,330

The following table summarizes the contractual maturities of available-for-sale securities other than investments in money market funds as of March 31, 2024 and December 31, 2023:


	March 31,		December 31,
	2024		2023
Matures within one year	$	60,015	$	61,672
Matures after one year through five years		29,423		14,658
Total	$	89,438	$	76,330

The unrealized losses on the Company’s available-for-sale securities were immaterial as of March 31, 2024 and December 31, 2023. In addition, there were no sales of marketable securities during the three months ended March 31, 2024. Net unrealized holding gains or losses for the period that have been included in accumulated other comprehensive loss were not material to the Company’s condensed consolidated results of operations.

The Company did not record any allowances for credit losses to adjust the fair value of available-for-sale debt securities during the three months ended March 31, 2024. 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 nature~~investment 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 March 31, 2024 and December 31, 2023.

7. Inventory

~~Table of Contents~~

~~5. Inventory~~

Inventory as of March 31, 2024 and December 31, 2023 consisted of the following:


	As of September 30,		As of December 31,
	2017		2016

					March 31,		December 31,
					2024		2023
Raw materials	$	599	$	294	$	9,265	$	10,384
Work in process		168		67		8,706		6,740
Finished goods		634		955		13,305		15,208
Total inventory	$	1,401	$	1,316	$	31,276	$	32,332

The aggregate charges related to excess and obsolete inventory for ~~both~~ the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 were ~~immaterial.~~$373 and $906, respectively. These expenses were recorded as a component of cost of product revenues.

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8. Goodwill and Intangible Assets

~~6. Intangible Asset~~

~~In May 2016,~~As of March 31, 2024 and December 31, 2023, the ~~Company entered into an agreement with~~Company’s goodwill balance was $133,857. The Company’s goodwill resulted from the acquisition of BioDelivery Sciences International, Inc. (“BDSI”) on March 22, 2022 (the “BDSI Acquisition”).

The following table sets forth the cost, accumulated amortization, and carrying amount of intangible assets as of March 31, 2024 and December 31, 2023:


	March 31, 2024						December 31, 2023
		Cost		Accumulated Amortization		Carrying Amount		Cost		Accumulated Amortization		Carrying Amount
Belbuca	$	360,000	$	(152,669)	$	207,331	$	360,000	$	(133,821)	$	226,179
Nucynta Products		521,170		(396,555)		124,615		521,170		(382,710)		138,460
Symproic		70,000		(14,755)		55,245		70,000		(12,931)		57,069
Total intangible assets	$	951,170	$	(563,979)	$	387,191	$	951,170	$	(529,462)	$	421,708

The following table presents amortization expense recognized in cost of product revenues for the three months ended March 31, 2024 and 2023:


	Three Months Ended March 31,
		2024		2023
Belbuca	$	18,848	$	18,849
Nucynta Products		13,845		16,796
Symproic		1,824		1,821
Total amortization expense	$	34,517	$	37,466

As of March 31, 2024, the remaining amortization expense expected to ~~license the rights to develop, manufacture,~~be recognized is as follows:


Years ended December 31,	Belbuca		Nucynta Products		Symproic		Total
2024	$	56,545	$	41,539	$	5,461	$	103,545
2025		75,393		55,384		7,285		138,062
2026		75,393		27,692		7,285		110,370
2027		—		—		7,285		7,285
2028		—		—		7,285		7,285
Thereafter		—		—		20,644		20,644
Remaining amortization expense	$	207,331	$	124,615	$	55,245	$	387,191

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9. Accrued Liabilities

Accrued liabilities as of March 31, 2024 and commercialize Onsolis® (fentanyl buccal soluble film), or Onsolis, in the United States. Onsolis is 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 completionDecember 31, 2023 consisted of the ~~transfer~~following:


	March 31,		December 31,
	2024		2023
Accrued income taxes	$	14,077	$	2,136
Accrued royalties		7,141		14,198
Accrued product taxes and fees		5,525		5,013
Accrued sales and marketing		1,754		1,198
Accrued incentive compensation		1,519		1,375
Accrued audit and legal		1,430		700
Accrued bonuses		1,406		4,987
Accrued inventory		1,338		—
Accrued payroll and related benefits		968		1,511
Accrued interest		944		2,853
Accrued other operating costs		2,088		3,600
Total accrued liabilities	$	38,190	$	37,571

10. Term Notes Payable

2022 Term Loan

On March 22, 2022, in connection with the closing of ~~manufacturing~~the BDSI Acquisition, the Company entered into an Amended and ~~required submission~~Restated Loan Agreement by and among the Company, and BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender (collectively “Pharmakon”), as amended (the “2022 Loan Agreement”). The 2022 Loan Agreement provided for a $650,000 secured term loan (the “2022 Term Loan”), the proceeds of which were used to repay the Company’s existing term notes and fund a portion of the consideration to be paid to complete the BDSI Acquisition. The 2022 Loan Agreement was accounted for as a debt modification and transaction fees of $173 were expensed. In connection with the 2022 Loan Agreement, the Company paid loan commitment and other fees to the ~~FDA~~lender 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 ~~License Agreement, milestone payments in~~loan using the ~~aggregate amount~~effective interest rate.

The 2022 Term Loan will mature on the 48-month anniversary of ~~$21,000 may become payable~~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 ~~subject~~and its material domestic subsidiaries. Prior to the ~~satisfaction~~cessation of ~~certain commercialization, intellectual property, and net sales milestones, including $4,000 upon~~LIBOR on June 30, 2023, the 2022 Term Loan bore interest at a rate based on LIBOR (subject to a LIBOR floor of 1.20%), plus a margin of 7.5% per annum. On June 23, 2023, the Company entered into an amendment to the 2022 Loan Agreement to adjust the interest terms of the 2022 Term Loan to transition from LIBOR to SOFR in anticipation of the cessation of LIBOR. Effective July 1, 2023, the 2022 Term Loan bears interest at a rate based on SOFR plus a spread adjustment of 0.26% (subject to a floor of 1.20%), plus a margin of 7.5% per annum. As of March 31, 2024, the contractual interest rate was 13.1%. The Company paid $100,000 in principal payments under the 2022 Term Loan during the first ~~commercial sale of~~year and the ~~product in the U.S. Finally, the Company will be~~remaining $550,000 balance is required to ~~pay royalties~~be paid in ~~the upper teens based on annual net sales of the product in the U.S.~~ As of September 30, 2017, the Company has 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.

The Company made an upfront payment of $2,500 and is contractually committed to reimburse BDSI up to a maximum of $2,000 for its out-of-pocket expenses incurred in connection with the manufacturing transfer. The Company recorded the upfront payment as an intangible asset on the Condensed Consolidated Balance Sheet and will amortize it on a straight-line basisequal quarterly installments over the remaining ~~patent life. As~~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 ~~September 30, 2017,~~ the ~~Company has reimbursed BDSI approximately $1,391 for its out-of-pocket expenses incurred~~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 ~~connection with~~ the ~~manufacturing transfer.~~

Asevent of a ~~result~~voluntary prepayment, a prepayment due to a change in control or acceleration following an Event of ~~U.S. Patent No. 9,597,288 being issued~~Default (as defined in ~~March 2017,~~ the ~~patent protection for Onsolis was extended through July 2027, a period~~2022 Loan Agreement) on or prior to the second-year anniversary of ~~approximately 11.2 years~~the closing date, in each case in an amount equal to foregone interest from the date of ~~original acquisition. As such,~~prepayment through the ~~Company revised~~second-year anniversary of the ~~useful life~~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

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constitute an Event of Default under the 2022 Loan Agreement, notwithstanding the Company’s ability to meet its ~~intangible asset~~debt service obligations. The 2022 Loan Agreement also includes various customary remedies for the lenders following an Event of Default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement.

The following table presents the total interest expense recognized related to the 2022 Term Loan during the three months ended March 31, ~~2017 from 3.7 years~~2024 and 2023.


	Three Months Ended March 31,
	2024		2023
Contractual interest expense	$	13,651	$	17,655
Amortization of debt issuance costs		1,480		2,024
Total interest expense	$	15,131	$	19,679

As of March 31, 2024, the effective interest rate on the 2022 Term Loan was 14.6%.

As of March 31, 2024, principal repayments under the 2022 Term Loan are as follows:


Years ended December 31,	Principal Payments
2024	$	137,500
2025		183,333
2026		45,834
Total before unamortized discount and issuance costs	$	366,667
Less: unamortized discount and issuance costs		(5,974)
Term notes carrying value	$	360,693

11. 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 $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 ~~11.2 years.~~ convert their notes only upon the occurrence of certain events. From and after August 15, 2025, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The 2026 Convertible Notes will mature on February 15, 2026, unless earlier repurchased, redeemed or converted. The initial conversion rate is 34.2618 shares of common stock per $1 principal amount of the 2026 Convertible Notes, which represents an initial conversion price of approximately $29.19 per share of common stock. The conversion rate and conversion price are subject to adjustment upon the occurrence of certain events.

~~During~~Holders of the 2026 Convertible Notes may convert all or any portion of their 2026 Convertible Notes, in multiples of $1 principal amount, at their option only under the following circumstances:

(1)

during any calendar quarter commencing after the calendar quarter ending on March 31, 2020, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

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(2)

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the “trading price” per $1 principal amount of the 2026 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;

(3)

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

(4)

if the Company calls the 2026 Convertible Notes for redemption; or

(5)

at any time from, and including, August 15, 2025 until the close of business on the scheduled trading day immediately before the maturity date.

As of March 31, 2024, none of the above circumstances had occurred and as such, the 2026 Convertible Notes could not have been converted.

The Company did not have the right to redeem the 2026 Convertible Notes prior to February 15, 2023. On or after February 15, 2023, the Company may redeem the 2026 Convertible Notes, in whole and not in part, at a cash redemption price equal to the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on:

(1)

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

(2)

the trading day immediately before the date the Company sends such notice.

Calling the 2026 Convertible Notes for redemption constitutes a make-whole fundamental change, in which case the conversion rate applicable to the conversion of any 2026 Convertible Notes, if converted in connection with the redemption, will be increased in certain circumstances for a specified period of time.

The 2026 Convertible Notes have customary default provisions, including: (i) a default in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any note; (ii) a default for 30 days in the payment when due of interest on any note; (iii) a default in the Company’s obligation to convert a note in accordance with the indenture, if such default is not cured within 3 calendar days after its occurrence; (iv) a default with respect to the Company’s obligations under the indenture related to consolidations, mergers and asset sales; (v) a default in any of the Company’s other obligations or agreements under the indenture that are not cured or waived within 60 days after notice to the Company; (vi) certain payment defaults by the Company or certain subsidiaries with respect to mortgages, agreements or other instruments for indebtedness for money borrowed of at least $20,000 or other defaults by the Company or certain subsidiaries with respect to such indebtedness that result in the acceleration of such indebtedness; (vii) default upon the occurrence of one or more final judgments being rendered against the Company or any of the Company’s significant subsidiaries for the payment of at least $20,000; and (viii) certain events of bankruptcy, insolvency and reorganization with respect to the Company or any of its significant subsidiaries.

Repurchase of a Portion of the 2026 Convertible Notes

Contemporaneously with the offering of the 2029 Convertible Notes (as defined below), the Company entered into separate privately negotiated transactions with certain holders of the 2026 Convertible Notes to repurchase $117,400 aggregate principal amount of the 2026 Convertible Notes for an aggregate of $140,100 of cash, which includes accrued and unpaid interest on the 2026 Convertible Notes to be repurchased. This transaction involved a contemporaneous exchange of cash between the Company and holders of the 2026 Convertible Notes participating in the issuance of the 2029 Convertible Notes. Accordingly, the Company evaluated the transaction for modification or extinguishment accounting in accordance with Accounting Standards Codification Topic 470-50, Debt – Modifications and Extinguishments on a creditor-by-creditor basis depending on whether the exchange was determined to have substantially different terms. The repurchase of the 2026 Convertible Notes and issuance of the 2029 Convertible Notes were deemed to have substantially different terms based on the present value of the cash flows immediately prior to and after the exchange. Therefore, the repurchase of the 2026 Convertible Notes was accounted for as a debt extinguishment. The Company recorded a $23,504 loss on early extinguishment of debt on the condensed consolidated statements of operations during the three months ending March 31, 2023, which includes the recognition of previously deferred

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financing costs of $2,264. The total remaining principal amount outstanding under the 2026 Convertible Notes as of March 31, 2024 was $26,350. On April 11, 2024, the Company announced that it called all $26,350 aggregate principal amount of its 2026 Convertible Notes for redemption on the Redemption Date (refer to Note 2, Summary of Significant Accounting Policies – Subsequent Events).

2029 Convertible Notes

On February 10, 2023, the Company issued 2.875% convertible senior notes due in 2029 (the “2029 Convertible Notes”) in the aggregate principal amount of $241,500, in a private offering to qualified institutional buyers pursuant to Section 4(a)(2) and Rule 144A under the Securities Act of 1933, as amended. The 2029 Convertible Notes were issued to finance the concurrent repurchase of a portion of the 2026 Convertible Notes, and the remainder of the net proceeds may be used for general corporate purposes. In connection with the issuance of the 2029 Convertible Notes, the Company incurred approximately $6,280 of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees.

The 2029 Convertible Notes are senior, unsecured obligations and bear interest at a rate of 2.875% per year payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2023. The 2029 Convertible Notes will mature on February 15, 2029, unless earlier repurchased, redeemed or converted. Before November 15, 2028, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after November 15, 2028, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The initial conversion rate is 27.3553 shares of common stock per $1 principal amount of 2029 Convertible Notes, which represents an initial conversion price of approximately $36.56 per share of common stock. The conversion rate and conversion price are subject to adjustment upon the occurrence of certain events.

Holders of the 2029 Convertible Notes may convert all or any portion of their 2029 Convertible Notes, in multiples of $1 principal amount, at their option only under the following circumstances:

(1)

during any calendar quarter commencing after the calendar quarter ending on June 30, 2023, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(2)

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the “trading price” per $1 principal amount of the 2029 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;

(3)

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

(4)

if the Company calls any or all of the 2029 Convertible Notes for redemption, but only with respect to the 2029 Convertible Notes called for redemption; or

(5)

at any time from, and including, November 15, 2028 until the close of business on the scheduled trading day immediately before the maturity date.

As of March 31, 2024, 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 40^th scheduled trading day before the maturity date, the Company may redeem the 2029 Convertible Notes, in whole or in part, at a cash redemption price equal to the principal amount of the 2029 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on:

(1)

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(2)

the trading day immediately before the date the Company sends such notice.

However, the Company may not redeem less than all of the outstanding 2029 Convertible Notes unless at least $75,000 aggregate principal amount of the 2029 Convertible Notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice.

Calling any 2029 Convertible Note for redemption will constitute a make-whole fundamental change with respect to that 2029 Convertible Note, in which case the conversion rate applicable to the conversion of that 2029 Convertible Note, if it is converted in connection with the redemption, will be increased in certain circumstances for a specified period of time.

The 2029 Convertible Notes have customary default provisions, including: (i) a default in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any note; (ii) a default for 30 days in the payment when due of interest on any note; (iii) a default in the Company’s obligation to convert a note in accordance with the indenture, if such default is not cured within 3 business days after its occurrence; (iv) a default with respect to the Company’s obligations under the indenture related to consolidations, mergers and asset sales; (v) a default in any of the Company’s other obligations or agreements under the indenture that are not cured or waived within 60 days after notice to the Company; (vi) certain payment defaults by the Company or certain subsidiaries with respect to mortgages, agreements or other instruments for indebtedness for money borrowed of at least $30,000 or other defaults by the Company or certain subsidiaries with respect to such indebtedness that result in the acceleration of such indebtedness; (vii) default upon the occurrence of one or more final judgments being rendered against the Company or any of the Company’s significant subsidiaries for the payment of at least $30,000; and (viii) 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 sheets as of March 31, 2024 as convertible senior notes.

As of March 31, 2024, the outstanding balance of the Convertible Notes consisted of the following:


	2026 Convertible Notes		2029 Convertible Notes		Total Convertible Notes
Principal	$	26,350	$	241,500	$	267,850
Less: unamortized issuance costs		(317)		(5,108)		(5,425)
Net carrying amount	$	26,033	$	236,392	$	262,425

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 March 31, 2024, the if-converted value of the 2026 Convertible Notes exceeded the remaining principal amount by approximately $6,267. As of March 31, 2024, the if-converted value of the 2029 Convertible Notes did not exceed the remaining principal amount.

The following table presents the total interest expense recognized related to the Convertible Notes 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 yearsMarch 31, 2024, 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.~~ 2023:


	Three Months Ended March 31,
	2024		2023
Contractual interest expense	$	1,908	$	1,479
Amortization of debt issuance costs		300		263
Total interest expense	$	2,208	$	1,742

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~~7. Accrued Expenses~~

~~Accrued expenses consisted of the following:~~

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

As of March 31, 2024, the future minimum payments on the Convertible Notes were as follows:


Years ended December 31,	2026 Convertible Notes		2029 Convertible Notes		Total Convertible Notes
2024	$	346	$	3,471	$	3,817
2025		692		6,943		7,635
2026		26,696		6,943		33,639
2027		—		6,943		6,943
2028		—		6,943		6,943
Thereafter		—		244,972		244,972
Total minimum payments	$	27,734	$	276,215	$	303,949
Less: interest		(1,384)		(34,715)		(36,099)
Less: unamortized issuance costs		(317)		(5,108)		(5,425)
Convertible Notes carrying value	$	26,033	$	236,392	$	262,425

12. Equity

The changes in shareholders’ equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 were as follows:

Additional



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		Income (Loss)		Equity
Balance, December 31, 2023	38,192,441	$	38	$	565,949	(6,323,892)	$	(137,381)	$	(233,189)	$	14	$	195,431
Exercise of common stock options	200,200		—		4,205	—		—		—		—		4,205
Issuance for employee stock purchase plan	18,538		—		356	—		—		—		—		356
Vesting of RSUs and PSUs	1,000,357		1		—	—		—		—		—		1
Shares withheld for employee taxes upon vesting of RSUs and PSUs	(381,897)		—		(12,874)	—		—		—		—		(12,874)
Stock-based compensation	—		—		7,475	—		—		—		—		7,475
Other comprehensive loss, net of tax	—		—		—	—		—		—		(138)		(138)
Net income	—		—		—	—		—		27,713		—		27,713
Balance, March 31, 2024	39,029,639	$	39	$	565,111	(6,323,892)	$	(137,381)	$	(205,476)	$	(124)	$	222,169

~~9. Stock-based Compensation~~

~~A summary of~~The changes in shareholders’ equity for the ~~Company’s stock-based compensation expense included in theCondensed Consolidated Statements of Operations are~~three months ended March 31, 2023 were as follows:

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~~


				Additional							Total
	Common Stock			Paid- In		Treasury Stock			Accumulated		Shareholders’
	Shares		Amount	Capital		Shares		Amount	Deficit		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

Table 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.Contents

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 ~~are~~were authorized for issuance to employees, officers, directors, consultants

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and advisors of the Company, plus an annual increase on the first day of each fiscal year until the expiration of the Plan equal to 4% of the total number of outstanding shares of common stock on December ~~31st~~31^st 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)~~1^st). As of ~~September 30, 2017,~~March 31, 2024, there were ~~1,142,277~~2,016,363 shares of common stock available for issuance pursuant to the Plan. The Plan provides for granting of both Internal Revenue Service qualified incentive stock options ~~(“ISOs”)~~ and non-qualified options, ~~(“NQs”),~~ restricted stock awards, ~~(“RSAs”) and~~ restricted stock units ~~(“RSUs”). Stock~~and performance stock units. The Company’s qualified incentive stock options and non-qualified options generally vest ratably over a ~~four year~~four-year period of ~~service; however, certain options are also subject to performance conditions. The options~~service and generally have a ~~ten year~~ten-year contractual ~~life and, upon~~life. Upon termination, vested stock options are generally exercisable ~~between one and~~for three months following the termination date, while unvested options are forfeited immediately upon termination. The Company’s RSUs granted prior to 2024 generally vest ratably over a four-year period of service. Beginning in 2024, RSUs granted by the Company vest ratably over a three-year period of service. Upon termination, unvested RSUs are forfeited immediately. Refer to Note 13, Stock-based Compensation, for more information.

Share Repurchases

2023 Repurchase Program

In January 2023, the Company’s Board of Directors authorized the repurchase of up to $100,000 of shares of its common stock at any time or times through December 31, 2023 (the “2023 Repurchase Program”). The 2023 Repurchase Program permitted the Company to effect repurchases through a variety of methods, including open-market purchases (including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act), privately negotiated transactions, or otherwise in compliance with Rule 10b-18 of the Exchange Act.

In July 2023, the Company’s Board of Directors authorized an accelerated share repurchase (“ASR”) program to repurchase $50,000 of the Company’s common stock, as part of the 2023 Repurchase Program. Under the terms of the Company's ASR agreement with an investment bank, the Company paid $50,000 on August 7, 2023, and received 1,702,852 shares, representing 80% of the upfront payment on a price per share of $23.49, the closing price on the date the agreement was executed. The remaining shares purchased by the Company were based on the volume-weighted average price of its common stock through October 31, 2023, minus an agreed upon discount between the parties. In October 2023, the ASR agreement settled and the Company received an additional 462,442 shares, bringing the total shares repurchased pursuant to the ASR agreement to 2,165,294.

In November 2023, the Company’s Board of Directors authorized a second ASR program as part of the 2023 Repurchase Program to repurchase $25,000 of the Company’s common stock. Under the terms of the Company's ASR agreement with an investment bank, the Company paid $25,000 on November 9, 2023, and received 865,426 shares, representing 80% of the upfront payment on a price per share of $23.11, the closing price on the date the agreement was executed. The remaining shares purchased by the Company were based on the volume-weighted average price of its common stock through December 29, 2023, minus an agreed upon discount between the parties. In December 2023, the ASR agreement settled and the Company received an additional 57,349 shares, bringing the total shares repurchased pursuant to the ASR agreement to 922,775.

Each ASR agreement was accounted for as two distinct transactions: (1) an immediate repurchase of common stock, recorded as a treasury stock transaction; and (2) a forward contract indexed to the Company’s own stock. The forward contracts, which represented the remaining shares to be delivered by the investment bank, were recorded as a reduction to stockholders’ equity. Both forward contracts associated with these ASR agreements were settled and not outstanding as of December 31, 2023.

The 2023 Repurchase Program expired on December 31, 2023. Through December 31, 2023, the Company repurchased 3,088,069 shares at a weighted-average price of $24.29 per share for a total of $75,000 under the 2023 Repurchase Program. Repurchased shares were returned to the Company’s pool of authorized but unissued shares. The cost of repurchased shares were recorded as treasury stock in the consolidated balance sheet. Shares repurchased under the 2023 Repurchase Program resulted in an immediate reduction of shares outstanding used to calculate the weighted-average common shares outstanding for both basic and diluted earnings per share. As the Company was entitled to receive

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additional shares of its common stock in connection with the outstanding forward contracts, the receipt of additional shares of common stock was antidilutive. Therefore, no adjustments were made in the computation of earnings per share for the period the forwards were outstanding.

2024-2025 Repurchase Program

In January 2024, the Company’s Board of Directors authorized the repurchase of up to $150,000 of the Company’s common stock through June 30, 2025 (the “2024-2025 Repurchase Program”). The 2024-2025 Repurchase Program permits the Company to effect repurchases through a variety of methods, including open-market purchases (including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act), privately negotiated transactions, or otherwise in compliance with Rule 10b-18 of the Exchange Act. The timing and amount of any shares purchased on the open market will be determined based on the Company’s evaluation of the market conditions, share price and other factors. The Company plans to utilize existing cash on hand to fund share repurchases.

The Company has not yet repurchased shares under the 2024-2025 Repurchase Program. Thus, $150,000 remained available for share repurchases under the 2024-2025 Repurchase Program as of March 31, 2024.

13. 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 award~~PSU activity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and related information is as follows:


		Weighted-Average
	Shares	Grant Date Fair Value
Outstanding as of December 31, 2023	503,880	$	33.13
Granted	203,000		45.06
Vested	(314,921)		33.90
Forfeited	—		—
Performance adjustment	119,721		34.26
Outstanding as of March 31, 2024	511,680	$	37.66

14The 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 three months ended March 31, 2024, and 2023 was $45.06 and $38.71, respectively.

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Weighted-Average

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 three months ended March 31, 2024. RSUs granted prior to 2024 generally vest ratably over a four-year period of ~~unvested restricted stock remaining from~~service. Beginning in 2024, RSUs granted by the ~~early exercise~~Company vest ratably over a three-year period of ~~stock options as of September 30, 2017.~~service.

A summary of the Company’s ~~restricted stock units~~RSU activity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and related information is as follows:

Weighted-Average

Shares

Grant Date Fair Value
Outstanding at December 31, 2016

41,741

$
16.15
Granted

211,018

12.45
Settled

(14,757)

16.15
Forfeited

(19,130)

15.52
Outstanding at September 30, 2017

218,872

$
12.64


		Weighted-Average
	Shares	Grant Date Fair Value
Outstanding as of December 31, 2023	2,443,907	$	22.88
Granted	885,674		33.70
Vested	(685,436)		23.06
Forfeited	(80,392)		25.83
Outstanding as of March 31, 2024	2,563,753	$	26.47

The weighted-average grant date fair value per share of RSUs granted for the three months ended March 31, 2024 and 2023 was $33.70 and $26.82, respectively. The total fair value of RSUs vested (measured on the date of vesting) for the three months ended March 31, 2024, and 2023 was $23,112 and $14,779, respectively.

Stock Options

The Company’s qualified incentive stock options and non-qualified options generally vest ratably over a four-year period and generally have a ten-year contractual life. Upon termination, vested stock options are generally exercisable for three months following the termination date, while unvested options are forfeited immediately upon termination.

A summary of the Company’s stock option activity for the three months ended March 31, 2024 and related information is as follows:

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 as of December 31, 2023	1,176,750	$	19.48	4.3	$	13,297
Exercised	(200,200)		20.96
Cancelled	(1,000)		27.73
Outstanding as of March 31, 2024	975,550	$	19.17	4.0	$	19,172
Exercisable as of March 31, 2024	974,941	$	19.17	4.0	$	19,160

~~The fair value of each~~There were no stock ~~option is estimated on~~options granted during the ~~grant date using the Black-Scholes option-pricing model using the following assumptions:~~three months ended March 31, 2024 and 2023.

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 ~~our~~the Company’s common stock ~~on (1)~~on: (i) the first day of the purchase ~~period~~period; or ~~(2)~~(ii) the last day of the purchase period. During the ~~nine~~three months ended ~~September 30, 2017, 110,841~~March 31, 2024, 18,538 shares of common stock were purchased for total proceeds of ~~$1,141.~~$356. The expense for the three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 was ~~$74~~$65 and ~~$143,~~$46, respectively. ~~The~~

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Stock-based Compensation Expense

A summary of the allocation of the Company’s stock-based compensation expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 is as follows:


	Three Months Ended March 31,
	2024		2023
Selling, general and administrative	$	7,475	$	6,035
Total stock-based compensation expense	$	7,475	$	6,035

As of March 31, 2024, there was ~~$288~~approximately $72,231 of unrecognized compensation expense related to unvested options, restricted stock units and ~~$311, respectively.~~ performance stock units, which is expected to be recognized as expense over a weighted average period of approximately 2.5 years.

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~~10.~~14. Commitments and Contingencies

Legal Proceedings

From time to time, the Company may face legal claims or actions in the normal course of business. Except as disclosed below, the Company is not currently a party to any material litigation and, accordingly, does not have any other amounts recorded for any litigation related matters.

Xtampza ER Litigation

On March 24, 2015, Purdue sued the Company in the U.S. District Court for the District of Delaware asserting infringement of three of Purdue’s Orange Book-listed patents (Patent Nos. 7,674,799, 7,674,800, and 7,683,072) and a non-Orange Book-listed patent (Patent No. 8,652,497). The ~~Company’s NDA~~lawsuit was initiated in response to the Company filing the New Drug Application (“NDA”) for Xtampza isER as a 505(b)(2) application ~~which allows the Company to reference~~referencing data from ~~an approved drug listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the “Orange Book”), in this case~~Purdue’s OxyContin ~~OP. In connection with the 505(b)(2) process, the Company certified to the FDA and notified Purdue Pharma, L.P. (“Purdue”), as the holder of the~~ NDA, and ~~any other Orange Book-listed patent owners, that~~under the ~~Company does not infringe any of the patents listed for OxyContin OP in the Orange Book. Under the Hatch-Waxman~~Drug 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~~triggered 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. ~~Purdue exercised its option and elected~~

The Delaware court transferred the case to ~~sue the Company for infringement in~~ the District of ~~Delaware in March 2015 asserting infringement of three of Purdue’s Orange Book~~‑~~listed patents and one non-Orange Book-listed patent. In October 2015, the Delaware case was transferred to~~ 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 ~~Company~~Company’s favor on those three patents, and dismissed the claims ~~asserting infringement of those patents with prejudice. Upon dismissal of those claims,~~which lifted the 30-month stay of FDA ~~approval was lifted. As a result,~~approval. Following this judgment, the Company obtained final approval ~~of its~~for Xtampza ER ~~products~~ and ~~has~~ launched ~~the products~~ commercially.

~~In November 2015,~~ Purdue subsequently filed atwo follow-on ~~suit~~lawsuits asserting infringement of ~~another patent, Patent No. 9,073,933, which was~~two patents that had been late-listed in the Orange Book and, therefore, could not trigger any stay of FDA ~~approval.~~approval: Purdue asserted infringement of Patent No. 9,073,933 in November 2015 and Patent No. 9,522,919 in April 2017. In addition, Purdue invoked two non-Orange Book-listed patents, filing suit in June 2016 asserting infringement of Patent No. 9,155,717 and in September 2017, asserting infringement of Patent No. 9,693,961.

On March 13, 2018, the Company filed a Petition for Post-Grant Review (“PGR”) of the ʼ961 patent with the Patent Trial and Appeal Board (“PTAB”). The PGR argued that the ʼ961 patent is invalid.

On November 21, 2017, the Court issued its claim construction ruling, construing certain claims of the ʼ933, ʼ497, and ʼ717 patents. The Court issued an order on September 28, 2018, in which it ruled that the Xtampza ER formulation does not infringe the ʼ497 and ʼ717 patents.

On September 15, 2019, Purdue commenced chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York. Later in September 2019, Purdue gave the District Court of Massachusetts, as well as the PTAB, notice of its bankruptcy filing and sought the imposition of an automatic stay of proceedings. Both the Court and the PTAB granted Purdue’s requests to stay the pending matters.

On September 1, 2020, the Bankruptcy Court entered an Order, lifting the automatic stays in both the District of Massachusetts and PTAB proceedings. On September 11, 2020, Purdue filed a motion to terminate the PTAB action on

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the basis that those proceedings had gone beyond the 18-month statutory period. On November 19, 2021, the PTAB: (i) denied Purdue’s motion to terminate the PGR; and (ii) issued its Final Written Decision, finding that the asserted claims of the ʼ961 patent were invalid for lack of written description and anticipation. Purdue appealed the decision to Federal Circuit, which issued its decision on November 21, 2023, affirming the authority of the PTAB to issue its Final Written Decision and upholding the PTAB’s finding of invalidity relative to the ’961 patent. Purdue has exhausted all possibility of appeal and the judgment of invalidity of the ‘961 patent is final without further right of appeal.

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 ~~suit~~lawsuit asserting infringement of ~~another non-Orange Book listed patent,~~U.S. Patent No. ~~9,155,717. These suits were~~10,407,434. The Company responded to Purdue’s complaint with a motion to dismiss. On May 21, 2021, and in response to the Company’s motion to dismiss, Purdue filed an amended complaint. The Company renewed its motion to dismiss on June 4, 2021, arguing: (i) Purdue cannot, as a matter of law, state a claim for infringement under § 271(e)(2)(A); (ii) Purdue cannot, as a matter of law, state a claim for product-by-process infringement under §271(g); and (iii) Purdue has not alleged facts sufficient to support any indirect infringement theory under §271(b) or (c). The Court held a hearing on the Company’s motion to dismiss on October 13, 2021, and the motion is pending before the Court.

Like the prior follow-on lawsuits, the ’434 patent litigation was consolidated byinto the lead case and a scheduling order was entered. On May 15, 2023, the Court issued an order that: (i) vacated the existing deadlines with respect to the ʼ933, ʼ919, and ʼ434 patents and stayed the case pending the Federal Circuit’s decision in a different litigation that invalidated certain claims of the ʼ933 and ʼ919 patents; and (ii) continued the existing stay concerning the ʼ961 patent pending resolution of Purdue’s appeal rights relating to the decision invalidating the claims of the ʼ961 patent. The Court has not set a deadline for dispositive motions or trial.

The remaining patents-in-suit in the lead consolidated action in the District of Massachusetts ~~into~~are the original action where Purdue’s infringement claim relating to the ’497 patent remains pending. Purdue continues to assert infringement of these three patents against the Company, none of which is associated with any stay of FDA approval.ʼ933, ʼ919, ʼ434, and ʼ961 patents. Purdue has made a demand for monetary relief, ~~but has not quantified their alleged damages. Purdue has also~~and requested a judgment of infringement, an adjustment of the effective date of FDA approval, and an injunction on the sale of the Company’s products accused of infringement. The Company has denied all claims and ~~seeks~~has requested a judgment that the remaining asserted patents are invalid and/or not ~~infringed by~~infringed; the Company ~~and seeks~~is also seeking a judgment that the case is exceptional ~~with~~and has requested an award toof the ~~Company of its~~Company’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.

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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, defending~~defend this case vigorously. At this stage, ~~we are~~the Company is unable to evaluate the likelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any.

Nucynta Litigation

On February 7, 2018, Purdue filed a patent infringement suit against the Company in the U.S. District Court for the District of Delaware, in which it argues that the Company’s sale of immediate-release and extended-release Nucynta infringes U.S. Patent Nos. 9,861,583, 9,867,784, and 9,872,836. On December 6, 2018, the Company filed an Amended Answer asserting an affirmative defense for patent exhaustion. On December 10, 2018, the Court granted the parties’ stipulation for resolution of the Company’s affirmative defense of patent exhaustion and stayed the action, with the exception of briefing on and resolution of the Company’s Motion for Judgment on the Pleadings related to patent exhaustion and any discovery related to that Motion.

Also, on December 10, 2018, the Company filed a Rule 12(c) Motion for Judgment on the Pleadings, arguing that Purdue’s claims were barred by the doctrine of patent exhaustion. On June 19, 2019, the Court issued an order calling for discovery on a factual predicate for the patent exhaustion defense and noted that the case remained “stayed with the exception of discovery and briefing on and resolution of the Company’s anticipated motion for summary judgment based on patent exhaustion.”

On September 19, 2019, Purdue notified the Court of its bankruptcy filing and sought an automatic stay of proceedings, which was granted. The Nucynta litigation currently remains subject to the bankruptcy stay.

The Company plans to defend this case vigorously. At this ~~time~~stage, the Company is unable to ~~provide meaningful quantification~~evaluate the likelihood of ~~how this~~an unfavorable outcome or estimate the amount or range of potential loss, if any.

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Opioid Litigation

As a result of the opioid epidemic, numerous state and local governments and other entities brought suit against manufacturers, distributors, and pharmacies alleging a variety of claims related to opioid marketing and distribution practices. In late 2017, the U.S. Judicial Panel on Multidistrict Litigation ordered the consolidation of cases pending around the country in federal court against opioid manufacturers and distributors into a Multi-District Litigation (“MDL”) in the Northern District of Ohio. The Company was initially named as a defendant in 21 of the MDL cases. By April 19, 2022, all MDL cases naming the Company were dismissed or withdrawn.

Outside of the MDL, several cases were filed against the Company in Arkansas, Pennsylvania, and Massachusetts state courts with allegations similar to those in the MDL related to opioid marketing and distribution practices, as well as allegations including violations of state consumer protections laws.

On March 21, 2019, the Arkansas state court litigation ~~may impact~~was dismissed. On December 24, 2021, the Company entered into a settlement framework with Scott+Scott Attorneys at Law, LLP, the law firm representing plaintiffs in 27 jurisdictions filed either in Pennsylvania and Massachusetts state courts, or filed in other state courts and removed to the MDL. Pursuant to the terms of the settlement, the Company paid $2,750 in exchange for dismissal, with prejudice, of each plaintiff’s lawsuit and a release of claims related to such lawsuits. The Company is currently dismissed from all cases.

The Company settled to efficiently resolve these litigations and did not admit any liability or acknowledge any wrongdoing in connection with the settlement.

Opioid-Related Request and Subpoenas

The Company, like several other pharmaceutical companies, has received subpoenas or civil investigative demands related to opioid sales and marketing practices, from the Offices of the Attorney General of Washington, New Hampshire, Maryland, and Massachusetts.

On December 16, 2021, the Company entered into an Assurance of Discontinuance with the Massachusetts Attorney General’s Office. The Company is currently cooperating with each of the remaining states in their respective investigations.

Aquestive Litigation

On September 22, 2014, Reckitt Benckiser, Inc., Indivior PLC (formerly RB Pharmaceuticals Limited, “Indivior”), and Aquestive Therapeutics, Inc. (formerly MonoSol Rx, “Aquestive”) (collectively, the “RB Plaintiffs”) filed an action in the District Court in the District of New Jersey alleging patent infringement against BDSI related to its ~~future financial condition, results~~Bunavail product. The RB Plaintiffs claimed that Bunavail, whose formulation and manufacturing processes have never been disclosed publicly, infringed U.S. Patent No. 8,765,167.

On January 13, 2017, Aquestive filed a complaint in the District Court for the District of New Jersey against BDSI alleging Belbuca also infringed the ’167 Patent. On March 8, 2023, the parties filed a stipulation of dismissal after agreeing to settle the dispute. Under the terms of the settlement agreement, BDSI resolved both the Bunavail and Belbuca litigations in exchange for a one-time, lump-sum payment of $8,500 to Aquestive, which was recognized as an expense included in “selling, general and administrative expenses” in the consolidated statements of operations for the year ended December 31, 2023.

Litigation Related to the BDSI Acquisition

On February 25, 2022, in connection with the BDSI Acquisition, a purported individual stockholder of BDSI filed a complaint in the District Court for the Southern District of New York naming as defendants BDSI and each member of its Board of Directors as of the date of the Merger Agreement (“Stein Action”). On February 28, 2022, two additional cases were filed by purported individual stockholders of BDSI in the same court: the “Sanford Action” and the “Higley Action.” In March 2022, two additional cases were filed by purported individual stockholders of BDSI in the District Court for the Eastern District of New York: the “Justice Action” and the “Zomber Action” (together with the Stein, Sanford, and Higley Actions, the “Actions”). The Actions and any similar subsequently filed cases involving BDSI, its officers or ~~cash flows.~~Board of Directors, or any committee thereof, and/or any of the Company’s officers or directors relating

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directly or indirectly to the Merger Agreement, the BDSI Acquisition or any related transaction, are referred to as the “Merger Litigations.”

The Merger Litigations filed to date generally allege that the Schedule 14D-9 is materially incomplete and misleading. The Merger Litigations assert violations of Section 14(e) of the Exchange Act and violations of Section 20(a) of the Exchange Act against BDSI’s Board of Directors. The Merger Litigations seek, among other things: an injunction enjoining consummation of the Merger, rescission of the Merger Agreement, a declaration that BDSI and its Board of Directors violated Sections 14(e) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, damages, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees and expenses, and any other relief the court may deem just and proper.

In addition, between February and March of 2022, BDSI received demand letters from three purported stockholders of BDSI seeking to inspect certain books and records of BDSI related to the Merger (collectively, the “Inspection Letters”). In March 2022, BDSI received demand letters from four purported stockholders alleging that the Schedule 14D-9 omits purportedly material information relating to the Merger (collectively, the “Demand Letters”).

Plaintiffs in the Higley, Zomber, and Justice Actions each filed a notice of voluntary dismissal of their complaint in the second quarter of 2022. On July 28, 2022, plaintiff in the Sanford Action filed a partial voluntary dismissal of the individual named defendants, and on October 26, 2022, filed a notice of voluntary dismissal of the BDSI defendant. On February 17, 2023, the Stein Action was dismissed.

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

Alvogen

On September 7, 2018, BDSI filed a complaint for patent infringement in District Court for the District of Delaware against Alvogen Pb Research & Development LLC, Alvogen Malta Operations Ltd., Alvogen Pine Brook LLC, Alvogen, Incorporated, and Alvogen Group, Incorporated (collectively, “Alvogen”), asserting that Alvogen infringed BDSI’s Orange Book-listed patents for Belbuca, including U.S. Patent Nos. 8,147,866, 9,655,843 and 9,901,539 (collectively, “the BEMA patents”). This complaint followed receipt by BDSI on July 30, 2018 of a Paragraph IV Patent Certification from Alvogen stating it had filed an abbreviated New Drug Application (“ANDA”) with the FDA for a generic version of Belbuca Buccal Film in strengths 75 mcg, 150 mcg, 300 mcg, 450 mcg, 600 mcg, 750 mcg and 900 mcg.

A three-day bench trial was held from March 1-3, 2021. On December 20, 2021, the Court issued an opinion upholding the validity of certain claims in BDSI’s ʼ866 patent and certain claims in the ’539 patent. The Court entered final judgment on January 21, 2022 upholding the validity of claims of the ’866 and ’539 patents and thereby extended the effective date of any final approval by the FDA of Alvogen’s ANDA until December 21, 2032, (the expiration date of the ’539 patent) and enjoining Alvogen from commercially launching its ANDA products until December 21, 2032. Alvogen filed a motion to stay certain provisions of the final judgment. BDSI filed an opposition to Alvogen’s request for a stay. The Court retained jurisdiction to decide BDSI’s motion for contempt, which was filed on September 21, 2021.

Alvogen filed a notice of appeal to the Federal Circuit seeking to reverse the Court’s final judgment. Separately, BDSI filed a cross-appeal to the Federal Circuit seeking to reverse the Court’s opinion that claims 3 and 10 of the ʼ866 patent and claims 8, 9 and 20 of the ’843 patent are invalid and thus, Alvogen is not liable for infringement of those claims, as well as any other ruling decided adversely to BDSI. On December 21, 2022, the Federal Circuit affirmed the district court judgment that certain claims of the ʼ866 and ʼ539 patent were not invalid as obvious. The Federal Circuit also vacated the district court’s judgment that certain claims of the ʼ866 and ʼ843 patent were invalid as obvious and remanded to the district court for further proceedings. The mandate issued on February 10, 2023.

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

Chemo Research, S.L.

On March 1, 2019, BDSI filed a complaint for patent infringement in the District Court for the District of Delaware against Chemo Research, S.L., Insud Pharma S.L., IntelGenx Corp., and IntelGenx Technologies Corp. (collectively, the “Chemo Defendants”), asserting that the Chemo Defendants infringe the BEMA patents. This complaint followed receipt by BDSI on January 31, 2019, of a Notice Letter from Chemo Research S.L. stating that it had filed with the FDA an ANDA containing a Paragraph IV Patent Certification, for a generic version of Belbuca Buccal Film in strengths 75 mcg, 150 mcg, 300 mcg, 450 mcg, and 900 mcg.

Chemo agreed to be bound by the decision of the Court with respect to the validity of the BEMA patents as disputed between BDSI and Alvogen. Accordingly, the December 20, 2021 ruling of the Court upholding the validity of certain claims of the BEMA patents is binding upon Chemo. In March 2022, the Court vacated the bench trial set to begin April 25, 2022 to address the remaining Chemo infringement claims. The Court has not yet set a new trial date.

On August 1, 2022, BDSI received a second Paragraph IV certification notice letter from Chemo indicating it amended its ANDA to: (i) withdraw its generic version of the 75 mcg and 150 mcg strengths of Belbuca; and (ii) include its generic version of the 600 mcg and 750 mcg strengths of Belbuca, in addition to the 300 mcg, 450 mcg, and 900 mcg strengths identified in the first Chemo Paragraph IV certification notice letter. In response, BDSI filed a complaint for patent infringement in Federal District Court for the District of Delaware. Chemo answered the complaint on December 1, 2022. The Court has not yet set a schedule for this litigation.

On August 24, 2022, the Court instructed the parties to update the Court at such time as the FDA addresses Chemo's July 29, 2022 response to the FDA. On February 8, 2023, the Court denied Chemo’s request for a trial date in the spring, and again instructed the parties to update the Court at such time as the FDA addresses Chemo’s July 29, 2022 response to the FDA. Chemo received a complete response letter with respect to its July 29, 2022 ANDA in April 2023. Chemo submitted a further amended ANDA to FDA in September 2023.

The Company plans to litigate this case vigorously. At this stage, the Company is unable to evaluate the likelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any.

15. 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 months ended March 31, 2024 and 2023:


	Three Months Ended March 31,
	2024			2023
Provision for (benefit from) income taxes	$	8,909		$	(131)
Effective tax rate		24.3	%		0.7	%

The provision for income taxes for the three months ended March 31, 2024 reflects the estimated annual effective tax rate as adjusted for discrete excess tax benefits from stock-based compensation awards. The provision for income taxes for the three months ended March 31, 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 discrete excess tax benefits related to stock-based compensation awards. The nondeductible costs from the debt extinguishment that occurred in the three months ended March 31, 2023 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

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available evidence including projections of future taxable income, carry back opportunities, reversal of 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 other conditions as of March 31, 2024.

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,~~Factors,” 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 ~~developing~~committed to improving the lives of people living with serious medical conditions. We commercialize our pain portfolio, consisting of Belbuca, Xtampza ER, Nucynta ER and ~~commercializing next-generation abuse-deterrent products that incorporate our patented DETERx platform technology for~~Nucynta IR (collectively the ~~treatment of chronic pain~~“Nucynta Products”), and ~~other diseases. Our first product,~~ Symproic, in the United States.

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.~~United States Food and Drug Administration ~~or FDA, approved our New Drug Application, or NDA, filing for Xtampza~~(“FDA”) in April 2016 for the management of severe and persistent pain ~~severe enough to require~~that requires an extended treatment period with a daily ~~around-the-clock, long-term~~ opioid ~~treatment~~analgesic and for which alternative treatment options are inadequate. ~~Certain human abuse potential studies~~We commercially launched Xtampza ER in June 2016.

The Nucynta Products are ~~included in the approved label, as well as data supporting the administration~~extended-release (“ER”) and immediate-release (“IR”) 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, which~~tapentadol. 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~~severe and persistent pain that requires an extended treatment period with a daily opioid analgesic, including neuropathic pain associated with diabetic peripheral neuropathy in ~~cancer~~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 and pediatric patients 18aged 6 years ~~of age~~ and older ~~who~~with a body weight of at least 40 kg. We began shipping and recognizing product sales on the Nucynta Products in January 2018 and began marketing the Nucynta Products in February 2018. In August 2023, the FDA granted New Patient Population exclusivity in pediatrics for Nucynta IR. This grant extended the period of U.S. exclusivity for Nucynta IR from June 27, 2025 to July 3, 2026.

On March 22, 2022, we acquired BioDelivery Sciences International, Inc. (“BDSI”), a specialty pharmaceutical company working to deliver innovative therapies for individuals living with serious and debilitating chronic conditions (the “BDSI Acquisition”). Upon closing of the BDSI Acquisition, we acquired Belbuca and Symproic.

Belbuca is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA in October 2015 for severe and persistent pain that requires an extended treatment period with a daily opioid analgesic and for which alternative options are ~~already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain. We plan to commercialize Onsolis upon receipt of~~inadequate. Symproic was approved by the FDA ~~approval of a Prior Approval Supplement~~in March 2017 for the ~~manufacturing transfer. Subject~~treatment of opioid-induced constipation (“OIC”) in adult patients with chronic non-cancer pain, including patients with chronic pain related to ~~such approval, we expect to launch Onsolis in mid-2018.~~

~~Since 2010, we have devoted substantially all of our resources to the development of our patented DETERx platform technology, the preclinical~~prior cancer or its treatment who do not require frequent (e.g., weekly) opioid dosage escalation. 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 from~~recognizing product sales ~~and we continue to incur significant research, development and other expenses~~ related to ~~our ongoing operations. Prior to our initial public offering of common stock, or IPO,~~Belbuca and Symproic in May 2015, we funded our operations primarily through the private placement of preferred stock, convertible notes and commercial bank debt. Since our IPO, we have funded our operations primarily through the proceeds of public offerings and sale of our equity securities.March 2022.

Outlook

We expect to continue to incur significant commercialization expenses related to marketing, manufacturing, distribution, selling and reimbursement activities. We are detailing Xtampza to approximately 10,400 physicians who write approximately 60% of the branded extended-release oral opioid prescriptions 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.

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:

~~expand our sales and marketing efforts for Xtampza, including hiring additional personnel to expand our commercial organization;~~

~~expand our regulatory and compliance functions;~~

~~conduct clinical trials of our product candidates;~~

~~continue scale-up and improvement of our manufacturing processes;~~

~~continue our research and development efforts;~~

~~manufacture preclinical study and clinical trial materials;~~

~~maintain, expand and protect our intellectual property portfolio;~~

~~seek regulatory approvals for our product candidates that successfully complete clinical trials;~~

~~hire additional clinical, quality control and technical personnel to conduct our clinical trials;~~

~~hire additional scientific personnel to support our product development efforts;~~

~~implement operational, financial and management systems; and~~

~~hire additional selling, general and administrative personnel to operate as a commercial stage public company.~~

We believe that our cash and cash equivalents ~~at September 30, 2017,~~as of March 31, 2024, 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 seek in~~under our current business plan for the future 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 unable to raise additional funds or enter into such otherforeseeable future.

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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 operationsCritical Accounting Policies and ~~future prospects.~~Significant Judgments and Estimates

~~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 identified~~that 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, impairment~~Report.

Results of ~~long-lived assets, stock-based compensation and income taxes. Estimates include~~ revenue recognition, including the estimates of units prescribed, discounts and allowances related to commercial sales of Xtampza, estimates utilized in the valuation of inventory, estimates of useful lives with respect to intangible assets, accounting for stock-based compensation, contingencies, intangible assets, tax valuation reserves and accrued expenses. We have also identified the estimate of product returns as a significant estimate in the interim period ended September 30, 2017. We base our estimates and assumptions on historical experience when available and on various factors that we believe are reasonable under the circumstances, and we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. ~~It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in our Annual Report.~~Operations


	Three Months Ended March 31,
	2024		2023

	(in thousands)
Product revenues, net	$	144,923	$	144,767
Cost of product revenues
Cost of product revenues (excluding intangible asset amortization)		18,950		29,899
Intangible asset amortization		34,517		37,466
Total cost of product revenues		53,467		67,365
Gross profit		91,456		77,402
Operating expenses
Selling, general and administrative		41,982		52,775
Total operating expenses		41,982		52,775
Income from operations		49,474		24,627
Interest expense		(17,339)		(21,427)
Interest income		4,487		2,747
Loss on extinguishment of debt		—		(23,504)
Income (loss) before income taxes		36,622		(17,557)
Provision for (benefit from) income taxes		8,909		(131)
Net income (loss)	$	27,713	$	(17,426)

~~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)~~

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

(in thousands)

Product revenues, net
$
11,950

$
408

$
17,682

$
408
Cost of product revenues

553


29

1,501


29
Research and development

2,069

3,254

6,378

11,617
Selling, general and administrative

22,758

23,567

67,667

55,266
Interest income (expense), net

167

(2)

402

(113)
Net loss
$
(13,263)

$
(26,444)

$
(57,462)

$
(66,617)

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Comparison of the three months ended ~~September 30, 2017~~March 31, 2024 and ~~September 30, 2016~~March 31, 2023

Product revenues, net

Product revenues, net were ~~$12.0~~$144.9 million for the three months ended ~~September 30, 2017, or the 2017 Quarter,~~March 31, 2024 (the “2024 Quarter”), compared to ~~$408,000~~$144.8 million for the three months ended ~~September 30, 2016, or the 2016 Quarter.~~March 31, 2023 (the “2023 Quarter”). The ~~$11.6~~$0.1 million increase ~~was~~is primarily due to increased revenue for Belbuca of $6.4 million, partially offset by decreased revenue for the Nucynta Products of $3.9 million, Xtampza ER of $2.1 million, and Symproic of $0.3 million.

The increase in revenue for Belbuca of $6.4 million is primarily due to higher sales volume and gross price, partially offset by higher gross-to-net adjustments primarily related to ~~a $5.9~~provisions for chargebacks.

The decrease in revenue for the Nucynta Products of $3.9 million ~~increase~~is primarily due to lower sales volume and higher gross-to-net adjustments primarily related to provisions for rebates, partially offset by higher gross price.

The decrease in ~~sold-through units~~revenue for Xtampza ER of ~~Xtampza, as well as a $1.3~~$2.1 million ~~increase as a result~~is primarily due to lower sales volume, partially offset by higher gross price and lower gross-to-net adjustments primarily related to provisions for rebates.

The decrease in revenue for Symproic of ~~changing~~$0.3 million is primarily due to ~~the sell-in method in the 2017 Quarter. In addition, a $4.4 million increase~~lower sales volume and 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 result~~provisions for rebates and chargebacks, partially offset by higher gross price.

Table of ~~changing to the sell-in method in the 2017 Quarter.~~ Contents

Cost of product revenues

Cost of product revenues ~~were $553,000~~(excluding intangible asset amortization) was $19.0 million for the ~~2017~~2024 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~~$29.9 million for the ~~2017 Quarter, compared to $3.3 million for the 2016~~2023 Quarter. The ~~$1.2~~$10.9 million decrease was primarily related ~~to:~~to the 2023 Quarter including higher cost of product revenues related to the step-up basis in inventory acquired from BDSI as well as lower sales volume in the 2024 Quarter for Xtampza and the Nucynta Products.



~~a decrease in clinical trial costs of $604,000 due to the completion of certain clinical trials in 2016; and~~

~~a decrease in regulatory costs of $498,000 following the FDA approval and launch of Xtampza in 2016.~~

Intangible asset amortization was $34.5 million for the 2024 Quarter, compared to $37.5 million for the 2023 Quarter. The $3.0 million decrease was primarily a result of the FDA granting New Patient Population exclusivity for Nucynta IR to July 3, 2026 in Q3 2023, resulting in an extension of the estimated useful life of the underlying intangible asset and a reduction of amortization expense recognized during the 2024 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.

Operating Expenses

Selling, general and administrative expenses were ~~$22.8~~$42.0 million for the ~~2017~~2024 Quarter, compared to ~~$23.6~~$52.8 million for the ~~2016~~2023 Quarter. The ~~$0.8~~$10.8 million decrease was primarily related to:

●

a decrease in ~~Post Marketing Requirement (“PMR”) costs required with FDA approval~~audit and legal expenses of ~~Xtampza of $4.4~~$10.1 million, primarily due to ~~higher one-time costs incurred upon~~an $8.5 million litigation settlement during the ~~launch~~2023 Quarter and lower litigation related expenses;

●

a decrease in sales and marketing expenses of ~~Xtampza;~~$1.4 million, primarily due to the timing of marketing related expenses; partially offset by

●

an increase in salaries, wages, and benefits of ~~$2.5~~$0.7 million, primarily due to ~~an increase from 201 to 235 employees, including an increase in incentive compensation and~~higher stock-based compensation ~~expense;~~

expense.

~~an increase in legal fees of $567,000 primarily due to costs related to litigation; and~~

~~an increase in sales training costs of $422,000 primarily due to the ongoing training of our sales force.~~

Interest expense and Interest income

Interest expense was $17.3 million for the 2024 Quarter, compared to $21.4 million for the 2023 Quarter. The $4.1 million decrease was primarily due to lower interest expense associated with the 2022 Term Loan as a result of scheduled principal payments, partially offset by higher interest expense due to the additional principal from the issuance of the 2029 Convertible Notes in February 2023, and higher interest rates impacting our variable rate term loan debt.

Interest income was ~~$167,000~~$4.5 million for the ~~2017~~2024 Quarter, compared to ~~$2,000 of interest expense~~$2.7 million for the ~~2016~~2023 Quarter. The $1.8 million increase ~~in interest income (expense) is~~was primarily due to higher interest rates earned on ~~money market funds,~~cash equivalents and marketable securities and due to a higher overall balance invested in the 2024 Quarter compared to the 2023 Quarter.

Taxes

The provision for income taxes was $8.9 million for the 2024 Quarter, compared to a benefit from income taxes of $131,000 for the 2023 Quarter. The tax provision for the 2024 Quarter primarily reflects federal and state income taxes incurred from earnings during the period as adjusted for discrete excess tax benefits from stock-based compensation awards. The tax benefit for the 2023 Quarter reflects the tax benefit of the loss during the period, as well as ~~a decrease in interest expense~~the impact of discrete nondeductible costs associated with the debt extinguishment, partially offset by discrete tax benefits from ~~our term loan payable as the loan approaches maturity.~~

~~Comparison of the nine months ended September 30, 2017 and September 30, 2016~~

Product revenues, net were $17.7 million for the nine months ended September 30, 2017, or the 2017 Period, compared to $408,000 for the nine months ended September 30, 2016, or the 2016 Period. The $17.3 million increase was primarilyexcess tax benefits related to ~~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.~~ stock compensation.

~~Cost of product revenues were $1.5 million for the 2017 Period, compared to $29,000 for the 2016 Period. The $1.5 million increase was primarily related to increased sales in the 2017 Period.~~Liquidity and Capital Resources

~~Research and development expenses were $6.4 million for the 2017 Period, compared to $11.6 million for the 2016 Period. The $5.2 million decrease was primarily related to:~~



~~a decrease in clinical trial costs of $3.8 million due to the completion of certain clinical trials in 2016;~~

a decrease in Xtampza manufacturing costs associated of $1.3 million reflecting that, prior to April 2016, the Company expensed manufacturing costs associated with Xtampza as research and development expense;

~~a decrease in consulting costs of $840,000 due to lower consulting costs incurred following the launch of Xtampza in June 2016; offset by~~

~~an increase in non-clinical trial costs of $506,000 required with FDA approval of Xtampza; and~~

~~an increase in product candidate manufacturing costs of $336,000~~ ~~for clinical trials~~.

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~~Selling, general and administrative expenses were $67.7 million for the 2017 Period, compared to $55.3 million for the 2016 Period. The $12.4 million increase was primarily related to:~~

an increase in salaries, wages and benefits of $13.8 million primarily due to an increase from 201 to 235 employees, including an increase in incentive compensation and stock-based compensation expense;

~~an increase in legal fees of $2.0 million primarily due to costs related to litigation; offset by~~

~~a decrease in PMR costs required with FDA approval of Xtampza of $3.8 million primarily due to higher one-time costs incurred upon the launch of Xtampza.~~

Interest income was $402,000 for the 2017 Period, compared to $113,000 of interest expense for the 2016 Period. The increase in interest income (expense) is primarily due to higher interest rates on money market funds, as well as a decrease in interest expense from our term loan payable as the loan approaches maturity.

~~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 and~~notes; commercial bank ~~debt.~~debt; and cash inflows from sales of our products. We are primarily dependent on the commercial success of Belbuca, Xtampza, and the Nucynta Products.

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

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$550.0 million balance is required to be paid in equal quarterly installments over the remaining three years of the term note. As of ~~September 30, 2017,~~March 31, 2024, the outstanding principal balance of the 2022 Term Loan was $366.7 million, of which $183.3 million in principal payments are due within the next twelve months.

As of March 31, 2024, the outstanding principal balance of the Convertible Notes was $267.9 million, of which $26.4 million related to the 2026 Convertible Notes and $241.5 million related to the 2029 Convertible Notes. The $26.4 million principal balance in connection with the 2026 Convertible Notes was originally due in 2026. However, on April 11, 2024, we called all $26.4 million aggregate principal amount of our 2026 Convertible Notes for redemption on June 14, 2024 (the “Redemption Date”). Refer to Note 2, Summary of Significant Accounting Policies – Subsequent Events). The $241.5 million principal balance in connection with the 2029 Convertible Notes is due in 2029.

As of March 31, 2024, we had ~~$107.6~~$318.0 million in cash, cash equivalents, and ~~cash equivalents.~~

~~In January 2016, we issued and sold in a public offering an aggregate of 2,750,000 shares of our common stock at $20.00 per share.~~ marketable securities. We ~~received 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 were used to fund the continued commercialization of Xtampza, research and development efforts of our other product candidates, working capital and other general corporate purposes.

~~Although it is difficult to predict future liquidity requirements, we~~ believe that our ~~existing~~ cash, ~~and~~ cash equivalents, and marketable securitiesas ~~well as proceeds~~of March 31, 2024, together with expected cash inflows from ~~our ATM offering through October 2017,~~operations, will ~~be sufficient~~enable us to fund our ~~operations into mid-2019. We~~operating expenses, debt service, and capital expenditure requirements under our current business plan for the foreseeable future.

Borrowing Arrangements

There have ~~based this estimate~~been no material changes in our borrowing arrangements during the quarter ended March 31, 2024. However, on ~~assumptions~~April 11, 2024, we announced that ~~may prove~~we called all $26.4 million aggregate principal amount of our 2026 Convertible Notes for redemption on the Redemption Date. Refer to ~~be incorrect~~Note 2, Summary of Significant Accounting Policies – Subsequent Events; Note 10, Term Notes Payable; 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.~~Note 11, Convertible Senior Notes, for more information.

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Cash Flows

Nine Months Ended September 30,

2017

2016
Net cash used in operating activities
$
(53,722)

$
(51,766)
Net cash used in investing activities

(818)

(2,636)
Net cash provided by financing activities

8,926

49,733


	Three Months Ended March 31,
	2024		2023

	(in thousands)
Net cash provided by operating activities	$	61,937	$	27,671
Net cash used in investing activities		(18,128)		(176)
Net cash (used in) provided by financing activities		(54,146)		68,297
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(10,337)	$	95,792

Operating activities. Cash ~~used in~~provided by operating activities was ~~$53.7~~$61.9 million infor the ~~2017 Period,~~2024 Quarter, compared to ~~$51.8~~$27.7 million infor the ~~2016 Period.~~2023 Quarter. The $34.2 million increase ~~in cash used in operating activities~~ was primarily due to the increase in cash flows from operating results, which reflects operating earnings, after adjustment for non-cash items that are included in net income (loss), including recognition of a loss on extinguishment of debt in connection with the repurchase of a portion of our 2026 Convertible Notes in the 2023 Quarter, combined with changes in ~~the~~ working capital accounts partially offset by the change in net loss. We expect cash used in operating activities to increase for the foreseeable future as we continue to commercialize Xtampza and fund research, development and clinical activities for additional product candidates.capital.

Investing activities. Cash used in investing activities was ~~$818,000 in~~$18.1 million for the ~~2017 Period,~~2024 Quarter, compared to ~~$2.6~~$176,000 for the 2023 Quarter. The $18.0 million ~~in the 2016 Period. The decrease in cash used in investing activities~~increase was primarily due to ~~a one-time upfront fee paid to BDSI in the 2016 Period.~~increased purchases, partially offset by maturities, of marketable securities.

Financing activities. Cash ~~provided by~~used in financing activities was ~~$8.9~~$54.1 million for the ~~2017 Period,~~2024 Quarter, compared to ~~cash provided of $49.7 million in the 2016 Period. The decrease in~~ cash provided by financing activities of $68.3 million in the 2023 Quarter. The $122.4 million decrease was primarily due to:

●

the repurchase of a portion of our 2026 Convertible Notes and issuance of our 2029 Convertible Notes which resulted in net proceeds of $97.0 million in the 2023 Quarter;

●

an increase in repayments of term notes of $20.8 million; and

●

an increase in taxes paid for employee stock withholdings of $5.1 million.

Funding Requirements

We believe that our cash, cash equivalents, and marketable securities as of March 31, 2024, together with expected cash inflows from operations, will enable us to ~~a decrease in net proceeds from the issuance of common stock from public offerings, which was $9.4 million in the 2017 Period~~fund our operating expenses, debt service, and ~~$51.6 million in the 2016 Period. The $8.9 million of cash provided by financing activities~~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

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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 incur additional costs associated with operating as a commercial stage public company. We anticipate that we will need substantial additional funding~~have 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;

●

any judgments rendered against us in connection with any of the litigation matters set forth in Note 14, Commitments and Contingencies, to our financial statements; and

●

in January 2024, our Board of Directors authorized a new share repurchase program for the repurchase of up to $150.0 million of shares of our common stock through June 30, 2025. Future share repurchases will depend upon, among other factors, our cash balances and potential future capital requirements, our results of operations and financial conditions, the price of our common stock on the NASDAQ Global Select Market, and other factors that we may deem relevant.

Additional Information

To supplement our financial results presented on a GAAP basis, we have included information about certain non-GAAP financial measures. We believe the presentation of these non-GAAP financial measures, when viewed with our ~~continuing~~results under GAAP and the accompanying reconciliations, provide analysts, investors, lenders, and other third parties with insights into how we evaluate normal operational activities, including our ability to generate cash from operations, on a comparable year-over-year basis and manage our budgeting and forecasting. In addition, certain non-GAAP financial measures, primarily Adjusted EBITDA, are used to measure performance when determining components of annual compensation for substantially all non-sales force employees, including senior management.

We may discuss the following financial measures that are not calculated in accordance with GAAP in our quarterly and annual reports, earnings press releases and conference calls.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income or loss adjusted to exclude interest expense, interest income, the 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 capital~~and therefore may not be ~~available on reasonable terms, if at all. If we~~comparable to, similarly titled measures used by other companies.

There are ~~unable~~several limitations related to ~~raise additional capital in sufficient amounts~~the use of adjusted EBITDA rather than net income or ~~on terms acceptable to us, we may have to significantly delay, scale back or discontinue~~loss, which is the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing shareholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness,nearest GAAP equivalent, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.as:

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. The amount and timing of future funding requirements, both near- and long-term, will depend on many factors, including:

●

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: (i) 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 (ii) 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;

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●

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(s) 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 the cost of ~~establishing~~operating our business on an ongoing basis.

Adjusted EBITDA for the three months ended March 31, 2024 and 2023 was as follows:


	Three Months Ended
	March 31,
	2024		2023

	(in thousands)
GAAP net income (loss)	$	27,713	$	(17,426)
Adjustments:
Interest expense		17,339		21,427
Interest income		(4,487)		(2,747)
Loss on extinguishment of debt		—		23,504
Provision for (benefit from) income taxes		8,909		(131)
Depreciation		917		817
Amortization		34,517		37,466
Stock-based compensation		7,475		6,035
Litigation settlements		—		8,500
Recognition of step-up basis in inventory		—		10,170
Total adjustments	$	64,670	$	105,041
Adjusted EBITDA	$	92,383	$	87,615

Adjusted EBITDA was $92.4 million for the 2024 Quarter compared to $87.6 million for the 2023 Quarter. The $4.8 million increase was primarily due to 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.

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Adjusted operating expenses for the three months ended March 31, 2024 and 2023 were as follows:


	Three Months Ended
	March 31,
	2024		2023

	(in thousands)
GAAP operating expenses	$	41,982	$	52,775
Adjustments:
Stock-based compensation		7,475		6,035
Litigation settlements		—		8,500
Total adjustments	$	7,475	$	14,535
Adjusted operating expenses	$	34,507	$	38,240

Adjusted operating expenses were $34.5 million in the 2024 Quarter compared to $38.2 million in the 2023 Quarter. The $3.7 million decrease was primarily driven by:

●

a decrease in audit and legal expenses (excluding litigation settlements) of $1.6 million;

●

a decrease in sales and marketing expenses of $1.4 million, primarily due to the timing of marketing related expenses; and

●

a decrease in salaries, wages, and ~~distribution capabilities~~benefits (excluding stock-based compensation) of $0.7 million, primarily due to lower headcount.

Adjusted Net Income and Adjusted Earnings Per Share

Adjusted net income is a non-GAAP financial measure that represents GAAP net income or loss adjusted to exclude significant income and expense items that are non-cash or not indicative of ongoing operations, including consideration of the tax effect of the adjustments. Adjusted earnings per share is a non-GAAP financial measure that represents adjusted net income per share. Adjusted weighted-average shares - diluted is calculated in accordance with the treasury stock, if-converted, or contingently issuable accounting methods, depending on the nature of the security.

Adjusted net income and adjusted earnings per share for the three months ended March 31, 2024 and 2023 were as follows:


	Three Months Ended
	March 31,
	2024		2023

	(in thousands, except share and per share data)
GAAP net income (loss)	$	27,713	$	(17,426)
Adjustments:
Non-cash interest expense		1,780		2,287
Loss on extinguishment of debt		—		23,504
Amortization		34,517		37,466
Stock-based compensation		7,475		6,035
Litigation settlements		—		8,500
Recognition of step-up basis in inventory		—		10,170
Income tax effect of above adjustments ⁽¹⁾		(12,653)		(18,874)
Total adjustments	$	31,119	$	69,088
Non-GAAP adjusted net income	$	58,832	$	51,662

Adjusted weighted-average shares — diluted ⁽²⁾		41,438,466		40,196,015
Adjusted earnings per share ⁽²⁾	$	1.45	$	1.32

(1)

The income tax effect of the adjustments was calculated by applying our blended federal and state statutory rate to the items that have a tax effect. The blended federal and state statutory rate for ~~Xtampza~~the three months ended March 31, 2024 and ~~any other products~~2023 were 26.6% and 26.8%, respectively. As such, the non-GAAP effective tax rates for ~~which we may receive regulatory approval;~~

the three months ended March 31, 2024 and 2023 were 28.9% and 21.5%, respectively.

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~~the generation of reasonable levels of revenue from the sale of Xtampza;~~

(2)

Adjusted weighted-average shares - diluted were calculated using the ~~design, initiation, progress, size, timing, costs and results of preclinical studies and clinical trials~~“if-converted” method for our ~~product candidates;~~

convertible notes in accordance with ASC 260, Earnings per Share. As such, adjusted weighted-average shares – diluted includes shares related to the outcome, timing and cost of regulatory approvals by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies than, or evaluate clinical endpoints other than those that we currently expect;

~~the timing and costs associated with manufacturing Xtampza and our product candidates for preclinical studies, clinical trials and, if approved, for commercial sale;~~

~~the number and characteristics of product candidates that we pursue;~~

the cost of patent infringement litigation, including our litigation with Purdue Pharma, L.P., or Purdue, relating to Xtampza or our product candidates, which may be expensive to defend and delay the commercializationassumed conversion of our ~~product candidates;~~

convertible notes and the associated cash interest expense added-back to non-GAAP adjusted net income. For the three months ended March 31, 2024 and 2023, adjusted weighted-average shares – diluted includes 7,509,104 and 4,646,372 shares, respectively, attributable to our convertible notes. In addition, adjusted earnings per share includes other potentially dilutive securities to the extent that they are not antidilutive.

~~our need to expand our research and development activities, including our need and ability to hire additional employees;~~

~~our need to implement additional infrastructure and internal systems and hire additional employees to operate as a public company;~~

~~our need to expand our regulatory and compliance functions; and~~

~~the effect of competing technological and market developments.~~

If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.Contractual Obligations

~~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 infrom our most recently filed Annual Report.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~We are exposed to market risk related to changes in interest rates. As of September 30, 2017, we had cash and cash equivalents consisting of cash and money market funds of $107.6 million.~~ Our primary exposure to market risk is interest rate sensitivity in connection with our investment portfolio and the 2022 Term Loan. None of these market risk sensitive instruments are held for trading purposes.

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 March 31, 2024, our investment portfolio includes $69.8 million of cash equivalents and $89.4 million of marketable securities, which ~~is affected by changes in the general level~~are primarily comprised of money market funds, U.S. ~~interest rates, particularly because our~~Treasury securities, corporate debt securities, and government-sponsored securities. Our money market funds are short-term highly liquid investments, and our marketable securities have active secondary or resale markets to help ensure liquidity. We account for marketable securities as available-for-sale, thus, no gains or losses are realized due to changes in the fair value of our marketable securities unless we sell our investments prior to maturity or incur a credit loss. Furthermore, our investment policy includes guidelines limiting the term-to-maturity of our investments. Due to the ~~short-term duration and the low risk profile~~nature of our investments, ~~an immediate 10% change~~we do not believe that the fair value of our investments has a material exposure to interest rate risk.

2022 Term Loan

The 2022 Term Loan bears interest at a rate based upon the Secured Overnight Financing Rate (“SOFR”) plus a spread adjustment of 0.26% (subject to a floor of 1.20%), plus a margin of 7.5% per annum. Based on the outstanding principal amount of the 2022 Term Loan as of March 31, 2024 of $366.7 million and the applicable interest rate, a hypothetical 1% increase or decrease in interest rates would ~~not have a material effect on the fair market value of our portfolio.~~increase or decrease future interest expense by approximately $3.7 million.

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 ~~September 30, 2017.~~March 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,

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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 ~~September 30, 2017,~~March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control Over Financial Reporting

NoThere has been no change in our internal control over financial reporting ~~occurred~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ~~ended September 30, 2017~~covered by this Quarterly Report that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

~~There~~Except as set forth in Note 14, Commitments and Contingencies, to our financial statements, which is incorporated herein by reference to the extent applicable, there are no other material changes from the legal proceedings previously disclosed in our ~~Annual Report~~most recently filed annual report on Form 10-K for the ~~period~~fiscal year ended December 31, ~~2016 filed with the SEC on March 10, 2017.~~2023 (the “Annual Report”).

Item 1A. Risk ~~Factors.~~Factors

Risk Factors Summary

~~Investing in our common stock involves~~Our business is subject to a ~~high degree~~number of risk. You should carefully consider the risks described below, as well as all other information included in this Quarterly Report on Form 10-Q, including our financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any of the following risks actually occurs, our business, financial condition, operating results, prospects and ability to accomplish our strategic objectives could be materially harmed. As a result, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties, ~~not presently known~~including those risks discussed at length below. These risks include, among others, the following principal risk factors that make an investment in our company speculative or risky. You are encouraged to ~~us or that we currently deem immaterial may also impair~~carefully review our full discussion of the material risk factors relevant to an investment in our business, ~~operations and~~which follows the ~~market price~~brief bulleted list of our ~~common stock.~~principal risk factors set forth below:

●

Our ability to maintain profitability is dependent upon our ability to continue successfully commercializing our products and any products we may acquire in the future;

●

We have substantial outstanding indebtedness, which may adversely affect our business, financial condition and results of operations;

●

Adverse developments affecting the financial services industry could adversely affect our business, financial condition, or results of operations;

●

If we cannot continue successfully commercializing our products and any products that we may acquire in the future, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline;

●

Despite receiving approval by the FDA, additional data may emerge that could change the FDA’s position on the product labeling of any of our products, including our abuse-deterrent claims with respect to Xtampza ER, and our ability to market our products successfully may be adversely affected;

●

Xtampza ER, the Nucynta Products, and Belbuca are subject to mandatory Risk Evaluation and Mitigation Strategy (“REMS”) programs, which could increase the cost, burden and liability associated with the commercialization of these products;

●

Failure to comply with ongoing governmental regulations for marketing our products, and in particular any failure to promote Xtampza ER’s abuse deterrent labeling in compliance with FDA regulations, could delay or inhibit our ability to generate revenues from their sale and could also expose us to claims or other sanctions;

●

Unfavorable outcomes in intellectual property litigation could be costly and potentially limit our ability to commercialize our products;

●

If we are unable to obtain or maintain intellectual property rights for our technologies, products or any products we may acquire, we may lose valuable assets or be unable to compete effectively in our market;

●

We have been, and may continue to be, forced to litigate to enforce or defend our intellectual property, which could be expensive, time consuming and unsuccessful, and result in the loss of valuable assets;

●

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements;

●

If we are unable to utilize our own sales and marketing capabilities successfully or enter into strategic alliances with marketing collaborators, we may not continue to be successful in commercializing our products and may be unable to generate sufficient product revenue;

●

If the medical community, patients, and healthcare payors do not accept and use our products, we will not achieve sufficient product revenues and our business will suffer;

●

Our products contain controlled substances, the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state and federal law enforcement and other regulatory agencies;

●

Current and future legislation may increase the difficulty and cost for us to continue to commercialize our products and may reduce the prices we are able to obtain for our products;

●

Our products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business. Such pricing regulations may address the

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rebates that manufacturers offer to pharmaceutical benefit managers, or the discounts that manufacturers provide others within the pharmaceutical distribution chain;

●

Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatory and enforcement efforts to combat abuse, could decrease the potential market for our products and may adversely impact external investor perceptions of our business;

●

If the FDA or other applicable regulatory authorities approve generic products with abuse deterrent claims that compete with our products, our sales could decline;

●

If the third-party manufacturers of our products fail to devote sufficient time and resources to these products, or their performance is substandard, and/or we encounter challenges with our dedicated manufacturing suite at our third-party manufacturer’s site for the manufacturing of Xtampza ER, our costs may be higher than expected and could have a material adverse effect on our business;

●

Because we currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredient of our products, any production problems with any of these suppliers could have a material adverse effect on us;

●

We depend on wholesale pharmaceutical distributors for retail distribution of our products; if we lose any of our significant wholesale pharmaceutical distributors or their distribution network is disrupted, our financial condition and results of operations may be adversely affected;

●

Our products could be subject to post-marketing requirements, which requirements may, in some cases, not be capable of timely or satisfactory completion without participation in consortia over which we have limited control;

●

We may not realize all of the anticipated benefits from future acquisitions, and we may be unable to successfully integrate future acquisitions;

●

Our business may be adversely affected by certain events or circumstances outside our control, including macroeconomic conditions and geopolitical turmoil;

●

Litigation or regulatory action regarding opioid medications could negatively affect our business;

●

We face substantial competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing products more successfully than we do;

●

Commercial sales of our products may expose us to expensive product liability claims, and we may not be able to maintain product liability insurance on reasonable terms or at all;

●

Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings; and

●

The price of our common stock may be volatile and you may lose all or part of your investment.

Risks Related to Our Financial Position and Capital Needs

~~We have incurred significant losses since our inception and anticipate that we will continue~~Our ability to ~~incur losses in the future.~~

~~We are an early commercial-stage pharmaceutical company. To date, we have focused on developing our first product, Xtampza. Investment in pharmaceutical product development~~maintain profitability is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. Since 2010, we have only generated limited revenue from product sales, and we continue to incur significant research, development, commercialization and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since January 1, 2011. For the year ended December 31, 2016, we reported a net loss of $94.2 million, and we had an accumulated deficit of $223.2 million at December 31, 2016. For the nine months ended September 30, 2017, we reported a net loss of $57.5 million, and we had an accumulated deficit of $280.6 million at September 30, 2017.

We expect to continue to incur losses for the foreseeable future as we continue to commercialize Xtampza and continue our development of, and seek regulatory approvals for, our product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, ondependent upon our ability to ~~generate revenues~~continue successfully commercializing our products and ~~on the rate of future growth of our expenses. If~~ any ~~of our product candidates fail in clinical trials or does not gain final regulatory approval, or if approved, fails to achieve market acceptance,~~products that we may ~~never become profitable. Even if we achieve profitability~~acquire in the ~~future, we may not be able~~future. Our failure to ~~sustain profitability in subsequent periods. Our prior losses~~do so successfully could impair our growth strategy and ~~expected future losses~~plans and could have ~~had and will continue to have an~~a material adverse effect on our ~~shareholders’ equity~~business, financial position, and ~~working capital.~~operating results.

~~We currently generate limited revenue from the sale of products and may never become profitable.~~

~~We began the commercial sale of our first product, Xtampza, in June 2016 and have only generated limited revenue from product sales.~~ Our ability to ~~generate additional revenue and become profitable~~maintain profitability depends upon our ability to ~~successfully~~realize the full commercial potential of our products and to commercialize ~~Xtampza, our existing product candidates, and~~successfully any other ~~product candidates~~products that we may in-license or acquire in the future. ~~Even if we are able to successfully achieve regulatory approval for these product candidates, we do not know when any of these product candidates will generate revenue for us, if at all.~~ Our ability to generate revenue from our current or future ~~product candidates~~products depends on a number of factors, including ourability to:

●

~~successfully commercialize Xtampza;~~

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successfully satisfy FDA post-marketing requirements for Xtampza, including studies and clinical trials that have been required for other extended release/long acting opioid analgesics and individual studies and clinical trials of Xtampza;

~~set~~realize a commercially viable price for our products;

●

manufacture commercial quantities of our products at acceptable cost levels;

●

~~develop~~sustain a commercial organization capable of sales, marketing and distribution for the products we ~~intend to sell ourselves in the markets in which we have retained commercialization rights;~~

sell;

●

~~find suitable distribution collaborators to help us market, sell and distribute our products, if approved, in markets outside the United States;~~

obtain coverage and adequate reimbursement from third parties, including government payors;

●

acquire new products, or develop new indications or line extensions for existing products, in the event that revenues from our existing products are impacted by price controls, loss of intellectual property exclusivity or competition; and

●

comply with existing and changing laws and regulations that apply to the pharmaceutical industry, including opioid manufacturers, and to our products specifically, including FDA post-marketing requirements.

~~successfully complete development activities, including the necessary clinical trials, with respect to our product candidates;~~

~~complete and submit regulatory submissions to the FDA and obtain regulatory approval; and~~

~~complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities, if we choose to commercialize our product candidates outside the United States.~~

~~In addition, because~~Table of the numerous risks and uncertainties associated with product development, including that our product candidates may not advance through development or achieve the safety and efficacy (including the efficacy of our abuse-deterrent technology) endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Furthermore, we anticipate incurring significant costs associated with commercializing these products.Contents

~~Even if we are able to generate revenues from the sale of our products, we may not become profitable and may need to obtain additional funding to continue operations.~~ If we fail to ~~become profitable or are unable to sustain~~maintain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.

~~If we require additional capital to fund our operations and we fail to obtain necessary financing, we may be unable to complete the development and commercialization of our product candidates.~~

Our operations have consumed substantial amounts of cash. We expect to continue to spend substantial amounts to advance the development of our product candidates and to commercialize Xtampza and any product candidates for which we may receive regulatory approval. We believe that our existing cash and cash equivalents and expected revenue contributions from Xtampza, as well as proceeds from our ATM offering through October 2017, will be sufficient to fund our operations into mid-2019, including the commercialization of Xtampza, and the continuation of our development of our product candidates. However, we may require additional capital for the further commercialization of Xtampza and our product candidates and may also need to raise additional funds sooner in order to continue development of our product candidates.

We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts, when required or on acceptable terms, we also could be required to:

~~significantly delay, scale back or discontinue the development or the commercialization of Xtampza, our product candidates or one or more of our other research and development initiatives;~~

~~seek collaborators for Xtampza and/or one or more of our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;~~

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~~relinquish or license on unfavorable terms our rights to technologies, products or product candidates that we otherwise would seek to develop or commercialize ourselves; or~~

~~significantly curtail operations.~~

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

~~our ability to obtain and maintain abuse-deterrent claims in the product labels for our products and product candidates;~~

our ability to successfully satisfy the FDA post-marketing requirements of Xtampza, including studies and clinical trials that have been required for other extended release/long acting opioid analgesics and individual studies and clinical trials of Xtampza;

~~clinical development plans for our product candidates;~~

the outcome, timing and cost of the regulatory approval process by the FDA and foreign regulatory authorities, including the potential for regulatory authorities to require that we perform more studies than those that we currently expect;

~~the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including defending Purdue’s remaining patent infringement claims against us;~~

~~the cost and timing of completion of existing or expanded commercial-scale outsourced manufacturing activities;~~

the cost of maintaining, and if appropriate, expanding, sales, marketing and distribution capabilities for Xtampza and any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products; and

~~the initiation, progress, timing, costs and results of clinical trials for our product candidates and any future product candidates we may in-license.~~

~~Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to Xtampza, our technologies or product candidates.~~

We may seek additional capital through a combination of private and public equity offerings, debt financings, receivables or royalty financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing shareholders’ ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing shareholders. Debt, receivables and royalty financings may be coupled with an equity component, such as warrants to purchase stock, which could also result in dilution of our existing shareholders’ ownership. The incurrence of additional indebtedness could result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur further debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could have a material adverse effect on our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on any of our indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic collaborations and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to Xtampza or our product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds

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through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market our technologies that we would otherwise prefer to develop and market ourselves.

~~We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.~~

Our predecessor was originally incorporated in Delaware in April 2002 under the name Collegium Pharmaceuticals, Inc. In October 2003, our predecessor changed its name to Collegium Pharmaceutical, Inc. In July 2014, we reincorporated in the Commonwealth of Virginia pursuant to a merger whereby Collegium Pharmaceutical, Inc., a Delaware corporation, merged with and into Collegium Pharmaceutical, Inc., a Virginia corporation, with the Virginia corporation surviving the merger. From 2002 until 2010, our operations focused primarily on marketing proprietary therapies to the wound care and dermatology industry through our former subsidiary, Onset Therapeutics, LLC, which was spun off and became a part of PreCision Dermatology, Inc. in 2010. Since 2010, our operations have focused primarily on developing the DETERx technology platform and identifying and developing product candidates that utilize the DETERx technology, including our first product, Xtampza. We are currently in the early stages of the commercial launch of Xtampza and, therefore, we have not yet demonstrated an ability to commercialize a product successfully. Consequently, any predictions about our future success, performance or viability may not be as accurate as they could be if we had a longer operating history.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, ~~2016,~~2023, we had a U.S. federal net operating loss ~~or NOL,~~(“NOL”) carryforward of approximately ~~$190.9~~$137.5 million and state ~~net operating loss~~NOL carryovers of approximately ~~$145.9 million, which are available to offset future taxable income.~~$202.4 million. The U.S. federal and state NOL carryforwards expire at various dates through 2037. Federal NOLs and certain state NOLs incurred in 2018 and onward have an indefinite expiration under the Tax Cuts and Jobs Act of 2017 and applicable state statutes. We also had U.S. federal tax credits of approximately ~~$3.4~~$1.0 million, and state tax credits of approximately ~~$522,000, these~~$0.7 million. These tax attributes are ~~prior~~generally subject to ~~consideration of~~a limited carryover/carryback period and are also subject to the annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended ~~or Section 382. These carryforwards begin~~(“IRC 382”).

In 2021, we completed a study to ~~expire in 2022. Under Section 382, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period,~~assess the ~~corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income may be limited. We may experience~~impact of ownership changes, ~~in the future as a result of shifts in our stock ownership some of which are outside our control. We have not performed~~if any, ~~current analyses under Section 382 and cannot forecast or otherwise rely~~ on ~~deriving benefit from our various federal or state tax attribute carryforwards. As a result, if we earn net taxable income,~~ our ability to use our ~~pre-change~~ NOL ~~carryforwards to offset U.S. federal taxable income may~~and tax credit carryovers as defined under IRC 382 (the “IRC 382 Study”). As a result of the study, we concluded that there were ownership changes that occurred during the years 2006, 2012 and 2015 that would be subject to IRC 382 limitations. These IRC 382 annual limitations may limit our ability to use pre-ownership change federal NOL carryovers and pre-ownership change federal tax credit carryovers, which may potentially limit our ability to reduce our future federal income tax liability by using these losses.

As part of the BDSI acquisition, we acquired an estimated $234.7 million of federal NOL carryovers which are generally subject to 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. As of December 31, 2023, remaining net operating losses of $124.3 million are subject to limitation. Refer to Note 15, Income Taxes, to our consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q.

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 $366.7 million in principal was outstanding as of March 31, 2024. 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 in 2029 (the “2029 Convertible Notes” and, together with the 2026 Convertible Notes, the “Convertible Notes”). On April 11, 2024, we announced that we called all $26.4 million aggregate principal amount of the 2026 Convertible Notes for redemption on June 14, 2024. Refer to Note 2, Summary of Significant Accounting Policies – Subsequent Events, to our consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q.

We may also incur additional indebtedness to meet future financing needs. Our existing and future levels of indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, and among other things:

●

requiring the dedication of a substantial portion of our cash flows from operations to service our indebtedness, which will reduce the amount of cash available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;

●

limiting our ability to obtain additional financing;

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limiting our flexibility to plan for, or react to, changes in our business;

●

exposing us to the risk of increased interest rates as certain of our borrowings, including the 2022 Term Loan, are at variable rates of interest;

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●

diluting the interests of our existing shareholders as a result of issuing shares of our common stock upon conversion of the Convertible Notes;

●

placing us at a possible competitive disadvantage with competitors that are less leveraged than we are or have better access to capital; and

●

increasing our vulnerability to downturns in our business, our industry or the economy in general.

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 ~~potentially~~limit our ability to capitalize on business opportunities that may arise or otherwise place us at a competitive disadvantage relative to our competitors.

Failure to comply with covenants in the indentures governing the Convertible Notes or in the 2022 Loan Agreement would constitute an event of default under those instruments, notwithstanding our ability to meet our debt service obligations. A default under the indentures or a fundamental change could also result in ~~increased future tax liability~~a default under one or more of the agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. In such event, we may not have sufficient funds to ~~us.~~satisfy all amounts that would become due. The 2022 Loan Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement. In addition, because our assets are pledged as a security under the 2022 Loan Agreement, if we are not able to cure any default or repay outstanding borrowings, our assets would be subject to the risk of foreclosure by our lenders.

Further, amounts outstanding under our 2022 Loan Agreement historically bore interest at a rate based on the ~~state level, there~~London Interbank Offered Rate (“LIBOR”), and, effective July 1, 2023, bears interest at a rate based on the Secured Overnight Financing Rate (“SOFR”) subject to a SOFR floor of 1.2%. We have not hedged our interest rate exposure with respect to our floating rate debt. Accordingly, our interest expense for any period will fluctuate based on SOFR and other variable interest rates, as applicable. To the extent the interest rates applicable to our floating rate debt increase, our interest expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be ~~periods during which~~adversely affected.

Adverse developments affecting the ~~use~~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 ~~NOLs is suspended~~operations.

Events involving limited liquidity, defaults, non-performance or ~~otherwise limited,~~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. For example, in early 2023, several financial institutions closed and were taken into receivership by the Federal Deposit Insurance Corporation (“FDIC”). Although we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or economy in general. Further, investor concerns regarding domestic or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.

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Any decline in available funding or access to cash and liquidity resources could, among other risks, adversely impact our ability to meet our financial obligations, which could ~~accelerate~~have material adverse impacts on our liquidity and our business, financial condition, or ~~permanently increase state taxes owed.~~results of operations.

Risks Related to our Products

If we cannot continue successfully commercializing our products and ~~Product Candidates~~

~~Our success depends~~any products that we may acquire in ~~large part on~~ the ~~commercial success~~future, our business, financial condition and results of operations may be materially adversely affected and the price of our ~~lead product, Xtampza.~~common stock may decline.

~~To date, we have invested substantial resources in the development of our lead product, Xtampza, which has been approved by the FDA.~~

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 ~~timely commercialize this product, which may never occur. We currently generate limited revenues from product sales~~Symproic, and any products that we may ~~never be able to commercialize Xtampza, or any product candidates that are approved by~~acquire in the ~~FDA, successfully.~~future.

Our ability to continue successfully ~~commercialize Xtampza~~commercializing our products will depend on many factors, including but not limited to:

●

our ability to successfully satisfy FDA post-marketing requirements, including studies and clinical trials that have been required for other extended release/long acting opioid analgesics and individual studies and clinical trials of Xtampza and its components;

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our ability to manufacture commercial quantities of ~~Xtampza~~our products at reasonable cost and with sufficient speed to meet commercial demand;

●

our ability to ~~continue to build and retain a~~execute sales and marketing ~~organization to market Xtampza;~~

strategies successfully and continually;

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our success in educating physicians, patients and caregivers about the benefits, administration, use and coverage of ~~Xtampza;~~

our products;

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with respect to Xtampza ER, the perceived availability and advantages, relative cost, relative safety and relative efficacy of other abuse-deterrent products and treatments ~~for chronic pain and chronic pain~~ with ~~dysphagia;~~

similar indications;

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our ability to defend successfully ~~defend~~ any challenges to our intellectual property or suits asserting patent infringement relating to ~~Xtampza;~~

our products;

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the availability and quality of coverage and adequate reimbursement for ~~Xtampza; and~~

our products;

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a continued acceptable safety profile of ~~Xtampza following approval.~~

our products;

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our ability to acquire new products, or develop new indications or line extensions for existing products, in the event that revenues from our existing products are impacted by price controls, loss of intellectual property exclusivity or competition; and

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our ability to comply with applicable legal and regulatory requirements, including any additional manufacturing or packaging requirements that may become applicable to certain opioid products.

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 ~~commercialize~~commercializing or to generate sufficient revenue from ~~Xtampza.~~our products. If we cannot do so, or are significantly delayed in doing so, our business will be materially harmed.

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 ~~successfully~~ market ~~Xtampza~~our products successfully may be adversely affected.

~~It is estimated that the U.S. market includes approximately 11 million patients~~

Xtampza ER was approved with chronic pain with dysphagia. Our Xtampza microspheres are designed to be removed from the capsule and sprinkled on food or into a cup, and then directly into the mouth, or in feeding tubes, without compromising their extended-release properties. On April 26, 2016, the FDA granted approval for the Xtampza NDA, including an approved product label. The FDA could change the product labeling. If the product label for Xtampza is modified in the future so as to exclude the flexible dose administration options, or the FDA requires us to have a boxed warning similar to competitor product labeling stating that “crushing, dissolving or chewing can cause rapid release and absorption of a potentially fatal doselanguage describing abuse-deterrent properties of the active drug,” it will limit our ability to differentiate Xtampza from other abuse-deterrent opioid formulations on the basis of flexible dosing options, and we may not be able to market Xtampza to patients with chronic pain with dysphagia. As a result, this may have an adverse effect on our business and our prospects for future growth.

If the FDA does not conclude that our product candidates in development are sufficiently bioequivalent, or demonstrate comparable bioavailability to their respective listed drugs, or if the FDA otherwise does not conclude that our product candidates satisfy the requirements for the Section 505(b)(2) approval pathway, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and the FDA may not approve those product candidates.

A key element of our strategy is to seek FDA approval for our product candidates through the Section 505(b)(2) regulatory pathway. Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FD&C Act, permits the filing of an NDA that contains full safety and efficacy reports but where at least some of the information required for approval comes from studies not conducted by or for the applicant, such as the FDA’s findings of safety and efficacy in the approval of a similar drug, and for which the applicant has not obtained a right of reference and/or published literature. Such reliance is typically predicated on a showing of bioequivalence or comparable bioavailability to an approved drug.

If the FDA does not allow us to pursue the Section 505(b)(2) approval pathway for our product candidates, or if we cannot demonstrate bioequivalence or comparable bioavailability of our product candidates to approved products, we may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for these

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product candidates would increase. Moreover, our inability to pursue the Section 505(b)(2) approval pathway could result in new competitive products reaching the market sooner than our product candidates, which could have a material adverse effect on our competitive position and our business prospects. Even if we are allowed to pursue the Section 505(b)(2) approval pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization on a timely basis, if at all.

In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may change its policies and practicesformulation with respect to ~~Section 505(b)(2) regulatory approvals, which could delay or even prevent~~the nasal and IV routes of abuse, consistent with Guidance for Industry, “Abuse-Deterrent Opioids- Evaluation and Labeling.” In November 2017, the FDA ~~from approving any NDA that we submit under Section 505(b)(2).~~

~~Even if our product candidates are~~ approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products, including additional preclinical studies and clinical trials.

~~Our decision to seek approval of our product candidates, including Xtampza, under Section 505(b)(2) increases the risk that~~ a ~~patent infringement suit may be filed against us, which would delay the FDA’s final regulatory approval of such product candidates.~~

In connection with any NDA that we file under Section 505(b)(2), we are required to notify the patent holders of the reference listed drug that we have certified to the FDA that any patents listed for the reference listed drug in the FDA’s Orange Book publication are invalid, unenforceable or will not be infringed by the manufacture, use or sale of our drug. If the patent holder files a patent infringement lawsuit against us within 45 days of its receipt of notice of our certification, the FDA is automatically prevented from approving our Section 505(b)(2) NDA until the earliest of 30 months, expiration of the patents, settlement of the lawsuit or a court decision in the infringement case that is favorable to us. Accordingly, we may invest significant time and expense in the development of our product candidates only to be subject to significant delay and expensive and time-consuming patent litigation before our product candidates may be commercialized.

Even if we are found not to infringe any potential plaintiff’s patent claims or the claims are found invalid or unenforceable, defending any such infringement claim could be expensive and time-consuming, and could delay the launch of our product candidates and distract management from their normal responsibilities. The Court could decline to hear our summary judgment motion, could decline to act expeditiously to issue a decision or hold a trial, or could decline to find that all of the listed patents are invalid or non-infringed. If we are unsuccessful in our defense of non-infringement and unable to prove invalidity of the listed patents, the court could issue an injunction prohibiting the launch of our product candidates. If we were to receive final regulatory approval by the FDA and launch any of our product candidates, prior to a full and final determination that the patents are invalid or non-infringed, we could be subject to substantial liability for damages if we do not ultimately prevail on our defenses to a claim of patent infringement.

The regulatory approval processes of the FDA and foreign regulatory authorities are lengthy, time-consuming and unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and foreign regulatory authorities is unpredictable, but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval varies among jurisdictions and may change during the course of a product candidate’s clinical development. Although the FDA has approved Xtampza, it is possible that none of our product candidates or any future product candidates that we may in-license, acquire or develop will ever obtain final regulatory approval from the FDA or any foreign regulatory authority. Moreover, even after any product candidate receives final regulatory approval, the FDA may require, as it hassNDA for Xtampza ~~costly post-marketing requirements.~~

~~Table~~ER to include comparative oral pharmacokinetic data from a clinical study evaluating the effect of ~~Contents~~

~~Successful~~physical manipulation by crushing Xtampza ER compared with OxyContin and ~~timely satisfaction~~a control (oxycodone hydrochloride immediate-release), results from an oral human abuse potential study and the addition of ~~these post-marketing requirements will be necessary for us to maintain regulatory approval.~~an oral abuse deterrent claim.

Our product candidates could fail to receive regulatory approval from the FDA or a foreign regulatory authority, or we may be required to conduct more extensive studies and clinical trials in order to receive such approval, for many reasons, including, but not limited to:

~~the FDA and/or foreign regulatory authorities may disagree with or disapprove of the design or implementation of our clinical trials;~~

~~failure to demonstrate that a product candidate is safe and effective for its proposed indication;~~

~~failure to demonstrate that a product candidate is bioequivalent to its listed drug;~~

~~failure of clinical trials to meet criteria required for approval;~~

~~failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;~~

~~the FDA or foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;~~

~~deficiencies in the manufacturing processes or failure of third-party manufacturing facilities with whom we contract for clinical and commercial supplies to pass inspection;~~

~~the FDA or foreign regulatory authorities may not approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; or~~

insufficient data collected from clinical trials of our product candidates or changes in the approval policies or regulations that render our preclinical and clinical data insufficient to support the submission and filing of an NDA or to obtain regulatory approval.

The lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to obtain regulatory approval to market our product candidates, which would harm our business, results of operations and prospects significantly.

In addition, even if we obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve, with respect to certain foreign regulatory authorities, the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing requirements, or may approve a product label that does not include the labeling claims necessary or desirable for the successful commercialization of that product. Any of the foregoing scenarios could have a material adverse effect on our business.

The FDA ~~or a foreign regulatory authority may~~can require ~~more information, including additional preclinical or clinical data~~changes to support approval, which may delay or prevent approval and our commercialization plans, or cause us to abandon the development program. Even if we obtain regulatory approval, our product candidates may be approved for fewer or more limited indications than we request, such approval may be contingent on the performance of costly post-marketing requirements, or we may not be allowed to include the labeling claims necessary or desirable for the successful commercialization of such product candidate.

In order to market and sell our products outside the United States, we will likely need to obtain separate marketing approvals and comply with numerous and varied regulatory requirements and regimes, which can involve additional testing, may take substantially longer than the FDA approval process, and still generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the

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~~product be approved for reimbursement before~~ the product can be approved for sale in that country. FDA approval does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by the FDA or regulatory authorities in other countries or jurisdictions. We may not obtain any regulatory approvals on a timely basis, if at all. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of any of our product candidates by regulatory authorities in countries outside the United States, the commercial prospects of that product candidate may be significantly diminished and our business prospects could decline.

~~Development of our product candidates is not complete, and we cannot be certain that our product candidates will be commercialized.~~

We began the commercial launch of Xtampza, our first approved product, in June 2016. Accordingly, we have only generated limited revenues from product sales. To be profitable, in addition to commercializing Xtampza, we must successfully research, develop, obtain regulatory approval for, manufacture, launch, market and distribute product candidates under development. For each product candidate that we intend to commercialize, we must successfully meet a number of critical developmental milestones, including:

~~selecting and developing a drug delivery technology to deliver the proper dose of drug over the desired period of time;~~

~~determining the appropriate drug dosage that will be tolerated, safe and effective;~~

~~demonstrating the drug formulation will be stable for commercially reasonable time periods;~~

~~demonstrating that the drug is safe and effective in patients for the intended indication; and~~

~~completing the manufacturing development and scale-up to permit manufacture of our product candidates in commercial quantities and at acceptable prices.~~

~~The time necessary to achieve these developmental milestones for any individual product candidate is long and uncertain, and we may not successfully complete these milestones~~labeling for any of our ~~product candidates in development. We may not be able to finalize the design or formulation of~~products at any product candidate. In addition, we may select components, solvents, excipients or other ingredients to include in our product candidates that have not been previously approved for use in pharmaceutical products,time which may require us to perform additional studies and may delay clinical testing and regulatory approval of our product candidates. Even after we complete the design of a product candidate, the product candidate must still be shown to be bioequivalent to an approved drug or safe and effective in required clinical trials before approval for commercialization.

We are continuing to test and develop our product candidates and may explore possible design or formulation changes to address bioavailability, safety, efficacy, manufacturing efficiency and performance issues. We may not be able to complete development of any product candidates that will be safe and effective and that will have a commercially reasonable treatment and storage period. If we are unable to complete development of our product candidates, we will not be able to earn revenue from them.

Xtampza is, and we anticipate that our product candidates, if approved, will be, subject to mandatory REMS programs, which could increase the cost, burden and liability associated with the commercialization of such product and product candidates.

The FDA has approved a REMS for extended release, or ER, and long acting, or LA, opioid drugs formulated with the active ingredients fentanyl, hydromorphone, methadone, morphine, oxycodone, oxymorphone, and others as part of a federal initiative to address prescription drug abuse and misuse, or the ER/LA opioid REMS. In September 2017, the FDA announced that immediate-release, or IR, opioid drugs will be subject to the same REMS as ER/LA opioids. One of the primary goals of the REMS is to ensure that the benefits of these drugs continue to outweigh the risks.

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The REMS introduces new safety measures designed to reduce risks and improve the safe use of opioids, while continuing to provide access to these medications for patients in pain. The REMS applies to more than 20 companies that manufacture opioid analgesics. Under the REMS, companies are required to make education programs available to prescribers based on the FDA Blueprint for Prescriber Education for Extended Release and Long Acting Opioid Analgesics. It is expected that companies will meet this obligation by providing educational grants to continuing education providers, who will develop and deliver the training. The REMS also requires companies to distribute FDA-approved educational materials to prescribers and patients on the safe use of these drugs. The companies must perform periodic assessments of the implementation of the REMS and the success of the program in meeting its goals. The FDA will review these assessments and may require additional elements to achieve the goals of the program.

If the FDA determines that a REMS is necessary during review of an application, the drug sponsor must agree to the REMS plan at the time of approval. Xtampza has been subject to the REMS requirement since its approval. REMS includes a Medication Guide that is dispensed with each prescription, physician training based on FDA-identified learning objectives, audits to ensure that the FDA’s learning objectives are addressed in the physician trainings, letters to prescribing physicians, professional organizations and state licensing entities alerting each to the REMS, and the establishment of a call center to provide more information about the REMS. We anticipate that our future product candidates will also be subject to these REMS requirements. There may be increased cost, administrative burden and potential liability associated with the marketing and sale of these types of product candidates subject to the REMS requirements, which could reduce the commercial benefits to us from the sale of these product candidates.

~~If we fail to obtain the necessary final regulatory approvals, or if such approvals are limited, we will not be able to commercialize our product candidates, and we will not generate product revenues.~~

Even if we comply with all FDA pre-approval regulatory requirements, the FDA may determine that our product candidates are not safe or effective, and we may never obtain final regulatory approval for such product candidates. If we fail to obtain final regulatory approval for some or all of our product candidates, we will have fewer commercial products and correspondingly lower product revenues. Even if our product candidates receive final regulatory approval, such final regulatory approval may involve limitations on the indications and conditions of use or marketing claims for our products, or may not include certain abuse-deterrence claims or clinical trial data that we have sought, and will seek, to include in the product label. If we do not receive regulatory approval to include certain abuse-deterrence claims, or certain clinical data, in our product labels,can impact our ability to successfully commercialize our products may be limited and our financial results may be adversely impacted. Further, later discovery of previously unknown problems or adverse events could result in additional regulatory restrictions, including withdrawal of products and addition of warnings or other statements on thegenerate product label. The FDA may require us to perform lengthy Phase 4 post-approval clinical efficacy or safety trials. Post approval, the FDA may require us to study, as it has with respect to Xtampza, the serious risks of misuse, abuse, addiction, overdose, and death associated with long-term use of our medications for the management of chronic pain, as well as other risks. The FDA may also impose additional post-marketing requirements, which will be very expensive to satisfy.

sales. In jurisdictions outside the United States, we must receive marketing authorizations from the appropriate regulatory authorities before commercializing our product candidates. Regulatory approval processes outside the United States generally include requirements and risks similar to, and in many cases in excess of, those associated with FDA approval.

~~The FDA may not approve product labeling for our product candidates that would permit us to market and promote our products in the United States by describing their abuse-deterrent features.~~

We invest substantial time and money conducting Category 1, Category 2 and Category 3 abuse deterrent studies to ensure that our product candidates developed with our DETERx technology comply with the FDA’s April 2015 guidance regarding opioid abuse deterrence. Our failure to achieve FDA approval of product labeling containing such information will prevent or substantiality limit our promotion of the abuse deterrent features of our product candidates in order to differentiate them from other opioid products containing the same active ingredients. This would make our products less competitive in the market. There can be no assurance that any of our product candidates will receive final FDA-approved product labeling that describes the abuse deterrent features of such products. Furthermore, the FDA’s April 2015 final guidance on abuse deterrent opioids makes clear that the FDA expects sponsors to compare their formulations against approved abuse deterrent versions of the same opioid based on the relevant categories of testing. If a proposed product is

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less resistant to manipulation than an approved product, the FDA has stated that the proposed product may not be eligible for product labeling regarding abuse deterrent properties. If the FDA does not approve product labeling containing abuse deterrence claims, we will not be able to promote such products based on their abuse deterrent features, may not be able to differentiate such products from other opioid products containing the same active ingredients, and may need to lower the price of our products to the extent that there are competing products with abuse deterrent claims on their product labels.

Because the FDA closely regulates promotional materials and other promotional activities, even if the FDA initially approves product labeling that includes a description of the abuse deterrent characteristics of our product, the FDA may object to our marketing claims and product advertising campaigns. This could lead to the issuance of warning letters or untitled letters, suspension or withdrawal of our products from the market, recalls, fines, disgorgement of money, operating restrictions, injunctions, and civil or criminal prosecution. Any of these consequences would harm the commercial success of our products.

Even if any of our product candidates are approved for marketing with certain abuse-deterrence claims, the April 2015 final FDA guidance on abuse-deterrent opioids is not binding law and may be superseded or modified at any time. Also,particular, if the FDA determines that our post-marketing data dofor Xtampza ER does not demonstrate that the abuse-deterrent properties result in reduction of abuse, or ~~demonstrate~~demonstrates a shift to routes of abuse that present a greater risk, the FDA may find that product labeling revisions are needed, and potentially require the removal of our abuse-deterrence ~~claims.~~claims, which would have a material adverse effect on our ability to continue successfully commercializing Xtampza ER.

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Even if our product candidates receive regulatory approval, they will be subject to ongoing regulatory requirements, and we may face regulatory enforcement action if we do not comply with the requirements.

Even after a product is approved, we will remain subject to ongoing FDA and other regulatory requirements governing the product labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, import, export, record-keeping and reporting of safety and other post-market information. If we experience delays in obtaining FDA approval of our advertising and promotional materials for Xtampza or any product candidate that receives marketing approval, or if FDA approval of such materials is contingent upon substantial modifications, our promotional efforts relating to Xtampza and any approved product candidate may be impaired, and sales of suchOur opioid products ~~may suffer.~~

The holder of an approved NDA is obligated to monitor and report adverse events, or AEs, and any failure of a product to meet the specifications in the NDA. In addition, manufacturers of drug products and their facilities are subject to ~~payment~~mandatory REMS programs, which could increase the cost, burden and liability associated with the commercialization of ~~user fees~~these products.

The FDA has imposed a class-wide REMS on all IR, ER and ~~continual review~~long-acting opioid drug products (known as the Opioid Analgesic REMS). The FDA continually evaluates whether the REMS program is meeting its goal of ensuring that the benefit of these drugs continue to outweigh their risks, and ~~periodic inspections~~whether the goals or elements of the program should be modified. As opioids, Xtampza ER, the Nucynta Products and Belbuca are subject to the Opioid Analgesic REMS.

Any modification of the Opioid Analgesic REMS by the FDA ~~and other regulatory authorities for compliance~~to impose additional or more burdensome requirements could increase the costs associated with ~~current good manufacturing practices,~~ marketing these products and/or ~~cGMP, and other regulations. If we or~~reduce the willingness of healthcare providers to prescribe these products, which would have a ~~regulatory agency discover problems with a product which were previously unknown, such as~~material adverse ~~events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions~~effect on that product, the manufacturing facility or us, including requiring product recall, notice to physicians, withdrawal of the product from the market or suspension of manufacturing, among other things. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

~~issue warning letters or untitled letters;~~

~~mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;~~

require us to enter into a consent decree, which can include the imposition of various fines, reimbursements for inspection costs and penalties for noncompliance, and require due dates for specific actions;

seek an injunction or impose civil, criminal and/or administrative penalties, damages, monetary fines, require disgorgement, consider exclusion from participation in Medicare, Medicaid and other federal healthcare programs and require curtailment or restructuring of our operations;

~~suspend or withdraw regulatory approval;~~

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~~suspend any ongoing clinical trials;~~

~~refuse to approve pending applications or supplements to applications filed by us;~~

~~suspend or impose restrictions on operations, including costly new manufacturing requirements;~~

~~seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall; or~~

~~refuse to allow us to enter into government contracts.~~

Similar post-market requirements may apply in foreign jurisdictions in which we may seek approval of our products. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to continue to successfully commercialize ~~our products~~ and generate sufficient revenue ~~and may cause a material adverse impact on our financial condition and cash flows.~~from these products.

In addition, the FDA’s regulations, policies or guidance may change and new or additional statutes or government regulations in the United States and other jurisdictions may be enacted that could further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from pending or future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our products and/or product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.

Failure to comply with ongoing governmental regulations for marketing our products, and in particular any ~~product, including~~failure to promote Xtampza ER’s abuse deterrent labeling in compliance with FDA regulations, could delay or inhibit our ability to generate revenues from their sale and could also expose us to claims or other sanctions.

~~Advertising~~

In addition to scrutiny by the FDA, advertising and promotion of any pharmaceutical product ~~that obtains approval~~marketed in the United States ~~including Xtampza, will be~~is heavily scrutinized by, among others, the ~~FDA, the~~ Department of Justice, ~~or the DOJ,~~ the Office of Inspector General offor the U.S. Department of Health and Human Services, ~~or HHS,~~ state attorneys general, members of Congress and the public. Violations, including promotion of ~~Xtampza, and any product for which we receive final regulatory approval,~~our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by government agencies.

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 orclosely regulates promotional materials and other ~~government agencies. Additionally,~~promotional activities, even though the FDA-approved product labeling includes a description of the abuse deterrent characteristics of Xtampza ER, the FDA may object to our marketing claims and product advertising ~~and promotion of any product that obtains approval outside the United States will be heavily scrutinized by foreign regulatory authorities.~~campaigns.

~~In the United States, engaging~~

Engaging in off-label promotion of our products, including Xtampza ~~or any products, can also~~ER, could subject us to false claims ~~litigation~~liability under federal and state statutes, and other litigation and/or ~~investigation, which can~~investigations, and could lead to ~~civil and criminal penalties and fines and agreements that materially restrict~~ the ~~manner in which we promote~~issuance of warning letters or distribute our drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of falseuntitled letters, suspension or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlement funds. False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth in recent years, leading to several substantial civil and criminal settlements based on certain sales practices promoting off-label drug uses. This increased focus and scrutiny has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid and other federal and state healthcare programs.

If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotionwithdrawal of our products ~~we could become subject to significant liability, which could materially adversely affect~~from the market, recalls, fines, disgorgement money, operating restrictions, injunctions, and civil or criminal prosecution. Any of these consequences would harm the commercial success of our ~~business and financial condition.~~products, including Xtampza ER.

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~~In addition, later~~Further, discovery of ~~previously unknown~~serious and unanticipated adverse events associated with the product; the emergence of other problems with athe product, manufacturer or ~~facility,~~facility; or our failure to ~~update~~make required regulatory ~~files,~~submissions may result in ~~restrictions,~~adverse regulatory actions, including withdrawal of the product from the ~~market. Any~~market or the requirement to add or strengthen label warnings about the product. The failure to obtain or maintain requisite governmental approvals or the imposition of ~~the following~~additional or ~~other similar events, if they were to occur,~~stronger warnings could delay or preclude us from ~~further developing, marketing or~~ realizing the full commercial potential of ~~Xtampza and our product candidates:~~

~~failure to obtain or maintain requisite governmental approvals;~~

~~failure to obtain approvals of product labeling with abuse-deterrent claims; or~~

~~FDA required product withdrawals or warnings arising from identification of serious and unanticipated adverse side effects in our product candidates.~~

Xtampza and our product candidates contain controlled substances, the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state, federal and foreign law enforcement and other regulatory agencies.

Xtampza and our product candidates contain, and our future product candidates will likely contain, controlled substances which are subject to state, federal and foreign laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Xtampza’s active ingredient, oxycodone, is classified as a controlled substance under the Controlled Substances Act of 1970, or CSA, and regulations of the U.S. Drug Enforcement Administration, or DEA. A number of states also independently regulate these drugs, including oxycodone, as controlled substances. Controlled substances are classified by the DEA as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk. The active ingredient in Xtampza, oxycodone, is listed by the DEA as a Schedule II controlled substance under the CSA. For our product candidates containing controlled substances, we and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicable registrations from state, federal and foreign law enforcement and regulatory agencies and comply with state, federal and foreign laws and regulations regarding the manufacture, use, sale, importation, exportation and distribution of controlled substances. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

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. We may not be able to obtain sufficient quantities of these controlled substances in order to complete our clinical trials or meet commercial demand. If commercial demand for Xtampza increases and we cannot meet such demand in a timely fashion because of our limited supply of its active ingredient, oxycodone, then physicians may perceive Xtampza 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, recordkeeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with development and commercialization of Xtampza and product candidates that include controlled substances. The DEA and some states conduct periodic inspections of registered establishments that handle controlled substances.

Failure to obtain and maintain required registrations or to comply with any applicable regulations could delay or preclude us from developing and commercializing Xtampza and product candidates 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 products containing controlled substances.

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Clinical development is a lengthy and expensive process with an uncertain outcome, and failure can occur at any stage of clinical development. If we are unable to design, conduct and complete clinical trials successfully, our product candidates will not be able to receive regulatory approval.

In order to obtain FDA approval for any of our product candidates, we must submit to the FDA an NDA with substantial evidence that demonstrates that the product candidate is both safe and effective in humans for its intended use. This demonstration requires significant research, preclinical studies and clinical trials.

Other than Onsolis, all of our product candidates are in preclinical and clinical development. Clinical trials are time-consuming, expensive and difficult to design and implement, in part because they are subject to rigorous requirements and their outcomes are inherently uncertain. Clinical testing may take many years to complete, and failure can occur at any time during the clinical trial process, even with active ingredients that have previously been approved by the FDA as being safe and effective. We could encounter problems that halt our clinical trials or require us to repeat such clinical trials. If patients participating in clinical trials suffer drug-related adverse reactions during the clinical trials, or if we or the FDA believe that patients are being exposed to unacceptable health risks, such clinical trials may be suspended or terminated. Suspensions, termination or the need to repeat a clinical trial can occur at any stage.

The clinical trial success of each of our product candidates depends on reaching statistically significant changes in patients’ symptoms based on clinician-rated scales. There is a lack of consensus regarding standardized processes for assessing clinical outcomes based on clinician-rated scales. Accordingly, the scores from our clinical trials may not be reliable, useful or acceptable to the FDA or other regulatory agencies.

Changes in standards related to clinical trial design could have a material adverse effect on our ability to design and conduct clinical trials as planned. For example, we have conducted or will conduct clinical trials comparing our product candidates to both placebo and other approved drugs, but regulatory authorities may not allow us to compare our product candidates to a placebo in a particular clinical indication where approved products are available. In that case, both the cost and the amount of time required to conduct a clinical trial could increase. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the product labeling claims or removal of certain warnings that we believe are necessary or desirable for the successful commercialization of our product candidates.

~~Approval may be contingent on a REMS, which could have a material adverse effect on the product labeling, distribution or promotion of a drug product.~~

Any of these delays or additional requirements could cause our product candidates to not be approved, or if approved, significantly impact the timing of commercialization and significantly increase our overall costs of drug development.

Because the results of preclinical studies and early-stage clinical trials are not necessarily predictive of future results, any product candidate we advance into additional clinical trials may not continue to have favorable results or receive regulatory approval.

Other than Onsolis, all of our product candidates are in preclinical or early-stage clinical development. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of an investigational drug. Many companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after positive results in earlier clinical trials. Despite preliminary preclinical studies for our other extended-release, abuse deterrent product candidates, including hydrocodone and oxymorphone for pain, and methylphenidate for the treatment of ADHD, we do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety or otherwise provide adequate information to result in regulatory approval to market any of our product candidates in any particular jurisdiction. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval for any of our product candidates may be compromised.

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Conducting clinical trials of Xtampza and our product candidates and any commercial sales of Xtampza and/or product candidates may expose us to expensive product liability claims, and we may not be able to maintain product liability insurance on reasonable terms or at all.

We currently carry product liability insurance with coverage up to approximately $10.0 million. Product liability claims may be brought against us by patients enrolled in our clinical trials, patients, healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselves against claims that our products or product candidates caused injuries, we could incur substantial liabilities. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, liability claims may result in:

~~decreased demand for any product or product candidates that we may develop;~~

~~termination of clinical trial sites or entire trial programs;~~

~~injury to our reputation and significant negative media attention;~~

~~withdrawal of clinical trial participants;~~

~~significant costs to defend the related litigation;~~

~~substantial monetary awards to patients;~~

~~loss of revenue;~~

~~diversion of management and scientific resources from our business operations;~~

~~the inability to commercialize any products that we may develop; and~~

~~an increase in product liability insurance premiums or an inability to maintain product liability insurance coverage.~~

Our inability to maintain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of Xtampza and our product candidates. Any agreements we may enter into in the future with collaborators in connection with the development or commercialization of Xtampza and our product candidates may entitle us to indemnification against product liability losses, but such indemnification may not be available or adequate should any claim arise. In addition, many of our agreements require us to indemnify third parties and these indemnifications obligations may exceed the coverage under our product liability insurance policy.

Xtampza and our product candidates may be associated with undesirable adverse reactions or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of their approved product label, or result in significant negative consequences following any marketing approval.

Undesirable adverse reactions associated with Xtampza and our product candidates could cause us, our IRBs, clinical trial sites or regulatory authorities to interrupt, delay or halt clinical trials and could result in a restrictive product label or the delay, denial or withdrawal of regulatory approval by the FDA or foreign regulatory authorities. For example, even though Xtampza has generally been well tolerated by patients in our clinical trials, in some cases there were adverse reactions, one of which was a serious adverse event, moderate in severity, of gastroesophageal reflux.

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If we or others identify undesirable adverse events associated with Xtampza or any product candidate for which we receive final regulatory approval, a number of potentially significant negative consequences could result, including:

~~we may be forced to suspend marketing of the product;~~

~~regulatory authorities may withdraw their approvals of the product or impose restrictions on its distribution;~~

~~regulatory authorities may require additional warnings or contradictions in the product label that could diminish the usage or otherwise limit the commercial success of the product;~~

~~we may be required to conduct additional post-marketing studies;~~

~~we could be sued and held liable for harm caused to patients; and~~

~~our reputation may suffer.~~

~~Any of these events could prevent us from achieving or maintaining market acceptance of Xtampza or any of our product candidates, if approved.~~

Risks Related to Intellectual Property

Unfavorable outcomes in intellectual property litigation could ~~result in~~be costly ~~litigation~~ and potentially limit our ability to commercialize our products.

Our commercial success depends upon our ability to ~~develop product candidates and~~ commercialize products without infringing the intellectual property rights of others. Our current or future ~~product candidates or~~ products, or any uses of them, may now or in the future infringe third-party patents or other intellectual property rights. This is due in part to the considerable uncertainty within the pharmaceutical industry about the validity, scope and enforceability of many issued patents in the United States and elsewhere in the world and, to date, there is no consistency regarding the breadth of claims allowed in pharmaceutical patents. We cannot currently determine the ultimate scope and validity of patents which may be granted to third parties in the future or which patents might be asserted to be infringed by the manufacture, use and sale of our products. In part as a result of this uncertainty, there has been, and we expect that there will continue to be, significant litigation in the pharmaceutical industry regarding patents and other intellectual property rights.

Third parties may assert infringement claims against us, or other parties we have agreed to indemnify, based on existing patents or patents that may be granted in the future. We are aware of third-party patents and patent applications related to oxycodone, oxymorphone, hydrocodone, morphine, and methylphenidate drugs and formulations, including those listed in the FDA’s Orange Book for oxycodone products. Because of the delay between filing and publication of patent applications, and because applications can take several years to issue, there may be currently pending third-party patent applications that are unknown to us, which may later result in issued patents. Because of the uncertainty inherent in intellectual property litigation, we could lose, even if the case against us was weak or flawed.

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 ~~Xtampza or~~ our ~~product candidates,~~ products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced,

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including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing ~~Xtampza or~~ our ~~product candidates~~products or force us to cease some of our business operations.

In connection with any NDA that we file under Section 505(b)(2), including the NDA for Xtampza, we are required to notify the patent holder of the reference listed drug that we identify in our NDA, that we have certified to the FDA that

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any patents listed for the listed drug in the FDA’s Orange Book publication are invalid, unenforceable or will not be infringed by the manufacture, use or sale of our drug. If the patent holder files a patent infringement lawsuit against us within 45 days of its receipt of notice of our certification, the FDA is automatically prevented from approving our Section 505(b)(2) NDA until the earliest of 30 months after the lawsuit is filed, expiration of the patents, settlement of the lawsuit and a court decision in the infringement case that is favorable to us. Accordingly, we may invest significant time and expense in the development of our product candidates only to be subject to significant delay and patent litigation before our product candidates may be commercialized.

If we are found by the court to have infringed a valid patent claim, we could be prevented from using the patented technology or be required to pay the patent holder for the right to license the patented technology. If we decide to pursue a license to use one or more of these patents, we may not be able to obtain a license on commercially reasonable terms, if at all, or the license we obtain may require us to pay substantial royalties or grant cross licenses to our patent rights. For example, if the relevant patent is owned by a competitor, such as Purdue, that competitor may choose not to license patent rights to us. If we decide to develop alternative technology, we may not be able to do so in a timely or cost-effective manner, if at all.

Even if we are found not to infringe or patent claims are found invalid or unenforceable, defending any such infringement claim would be expensive and time consuming, and could delay the approval or commercialization of our product candidates and distract management from their normal responsibilities.

~~Competitors may sue us as a way of delaying the introduction of our products.~~ Any litigation, including any interference or derivation proceedings to determine priority of inventions, oppositions or other post-grant review proceedings to patents in ~~the United States or in countries outside~~ the United States, or litigation against our collaborators may be costly and time consuming and could have a material adverse effect on our operating results, our ability to raise capital needed 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 ~~technology,~~technologies, products ~~and product candidates,~~or any products we may acquire, we may lose valuable assets or ~~experience reduced market share.~~be unable to compete effectively in our market.

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 ~~and other countries~~ with respect to our proprietary technology and ~~product candidates.~~products.

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 ~~both inside and outside~~in the United States. The rights already granted under any of our currently issued patents and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking.

The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.

Given the amount of time required for the development, testing and regulatory review of product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products identical, similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected.

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With respect to patent rights, our patent applications may not issue into patents, and any issued patents may not provide protection against competitive technologies, may be held invalid or unenforceable if challenged or may be interpreted in a manner that does not adequately protect our technology, product candidates or future product candidates. Even if our patent applications issue into patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us, or otherwise provide us with any competitive advantage. The examination process may require us to narrow the claims in our patents, which may limit the scope of patent protection that may be obtained. Our competitors may design around or otherwise circumvent patents issued to us or licensed by us.

~~The scope of patent protection in the United States and in foreign jurisdictions is highly uncertain, and changes in U.S. and foreign patent law~~We have ~~increased that uncertainty and could diminish the value of patents in general, thereby impairing our ability to protect our product candidates and any future products.~~

~~The patent position of pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years~~ been, the subject of much litigation. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States, and these foreign laws may also be subject to change.

Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions typically are not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights, both in the United States and abroad, are highly uncertain.

Recent patent reform legislation could increase the uncertainties and costs associated with the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith America Invents Act, or the Leahy-Smith Act, which was signed into law on September 16, 2011, made significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted and litigated. Many of the substantive changes to patent law associated with the Leahy-Smith Act and, in particular, the “first to file” provisions described below, only became effective on March 16, 2013. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Pursuant to the Leahy-Smith Act, the United States transitioned to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. In addition, third parties are allowed to submit prior art before the issuance of a patent by the U.S. Patent and Trademark Office, or USPTO, and may become involved in opposition, derivation, reexamination, or inter partes review challenging our patent rights or the patent rights of others. Grounds for a validity challenge could be an alleged failurecontinue to meet any of several statutory requirements, including novelty, nonobviousness and enablement. It is possible that prior art of which both we and the patent examiner were unaware during prosecution exists, which could render our patents invalid. Moreover, there may exist prior art of which we were or are aware, and which we did not or do not consider relevant to our patents, but which could nevertheless be determined to render our patents invalid. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could have a material adverse effect on our competitive position with respect to third parties.

Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or license from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our patented technology, trademarks and other intellectual property rights is expensive, difficult and, may in some cases not be possible. In some cases, it may be difficult or impossible to detect third party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

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~~We may~~ be, forced to litigate to enforce or defend our intellectual property, which could be expensive, time consuming and unsuccessful, and result in the loss of valuable assets.

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 ~~secrets. To counter infringement or unauthorized use,~~secrets, including in connection with our pending litigation ~~may be necessary in the future~~against generic competitors that have filed Paragraph IV Certifications relating to ~~enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope~~certain of our ~~own intellectual property rights.~~products. In so doing, we may place our intellectual property at risk of being invalidated, rendered unenforceable or limited or narrowed in scope.

~~Further, this can be~~ This litigation is expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can.

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. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock.

~~We may be subject to claims by third parties of ownership of what we regard as our own intellectual property or obligations to make compensatory payments to employees or others.~~

While it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing or obtaining such an agreement with each party who, in fact, develops intellectual property that we regard as our own. In addition, they may breach the assignment agreements or such agreements may not be self-executing, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

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 ~~products~~ and ~~product candidates,~~products, we rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts ~~both within and outside~~in the United States may be less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed

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by a competitor, we would have no right to prevent such competitor, or those towith whom they communicate, ~~with,~~ from using that technology or information to compete with us. If any of our trade secrets were to be disclosed or independently developed, our competitive position would be harmed.

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~~We may not be able to protect our intellectual property rights throughout the world.~~

Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop and sell their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents or our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or the marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

~~We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.~~

Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including potential competitors. These employees typically executed proprietary rights, non-disclosure and non-competition agreements in connection with their previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs, damage our reputation and be a distraction to management.

The ~~USPTO~~United States Patent and ~~various foreign governmental patent agencies require~~Trademark Office (“USPTO”) requires compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents are required to be paid to the USPTO ~~and foreign patent agencies~~ in several stages over the lifetime of the patents. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our ~~product candidates,~~products, our competitive position would be adversely affected.

Risks Related to the Commercialization of Our ~~Product Candidates~~Products

~~We currently have limited sales and marketing capabilities and, if~~

If we are unable to ~~successfully~~ utilize our own sales and marketing capabilities successfully or enter into strategic alliances with marketing collaborators, we may not continue to be successful in commercializing ~~Xtampza and~~ our ~~product candidates~~products and may be unable to generate sufficient product revenue.

~~Although our executive officers have experience marketing pharmaceutical products,~~

Our commercial organization continues to evolve and we ~~currently have limited sales, marketing or distribution capabilities. Our sales and marketing team has worked together for only a limited period of time. We~~ cannot guarantee that we will continue to be successful in marketing ~~Xtampza or any of~~ our ~~product candidates which may~~

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~~be approved for marketing.~~products. In addition, we ~~will have to~~ compete with other pharmaceutical and biotechnology companies with extensive and well-funded sales and marketing operations to recruit, hire, train and retain sales and marketing personnel. If we are unable to ~~establish~~continue to grow and maintain adequate sales, marketing and distribution capabilities, whether independently or with third parties, including with respect to our recent acquisition of Belbuca and Symproic, we may not be able to generate sufficient product revenue and may not ~~become~~remain profitable. Factors that may inhibit our efforts to ~~commercialize~~continue successfully commercializing our ~~product candidates~~products in the United States include:

●

our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

●

the inability of sales personnel to ~~obtain access to or persuade~~reach adequate numbers of physicians towho may prescribe ~~Xtampza~~our products; and ~~our product candidates;~~

●

~~the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and~~

unforeseen costs and expenses associated with creating and maintaining an independent sales and marketing organization.

If we are not successful in ~~recruiting and~~ retaining sales and marketing personnel or in ~~building a~~maintaining our sales and marketing infrastructure or if we do not ~~successfully enter into appropriate~~preserve strategic alliances with marketing collaborators, agreements with contract sales organizations or collaboration arrangements, we will have difficulty ~~commercializing Xtampza or~~in continuing to commercialize our product candidates. To the extent we commercialize Xtampza or our product candidates by entering into agreements with third-party collaborators, we may have limited or no control over the sales, marketing and distribution activities of these third parties, in which case our future revenues would depend heavily on the success of the efforts of these third parties.products.

If ~~physicians, patients, healthcare payors and~~ the medical community, patients, and healthcare payors do not accept and use ~~Xtampza or~~ our ~~product candidates,~~products, we will not achieve sufficient product revenues and our business will suffer.

Physicians ~~patients, healthcare payors~~ and others in the medical community, patients, and healthcare payors may not continue to accept and use ~~Xtampza~~our products, or accept and use any ~~of our product candidates, for which~~new products that we ~~receive final regulatory approval.~~may acquire. Acceptance and use of ~~Xtampza and any product candidates for which we receive final regulatory approval~~our products will depend on a number of factors including:

●

~~the timing of market introduction of Xtampza and the product candidates as well as competitive products;~~

approved indications, warnings and precautions language that may be less desirable than ~~anticipated;~~

competitive products;

●

perceptions of physicians and other healthcare community members of the safety and efficacy of our products;

●

perceptions by members of the healthcare community, including physicians, about the ~~safety and efficacy of Xtampza and our product candidates, and, in particular, the~~ relevance and efficacy of our abuse deterrent ~~technology in reducing potential risks~~technology;

●

the availability of ~~unintended use;~~

competitive products;

●

~~perceptions by physicians regarding~~ the ~~cost benefit of Xtampza~~pricing and ~~our product candidates in reducing potential risks of unintended use;~~

~~published studies demonstrating the~~ cost-effectiveness of ~~Xtampza and~~ our ~~product candidates~~products relative to competing products;

●

the potential and perceived advantages of ~~Xtampza and~~ our ~~product candidates~~products over alternative treatments;

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●

the convenience and ease of administration to patients of ~~Xtampza and~~ our ~~product candidates;~~

products;

●

actual and perceived availability and quality of coverage and reimbursement for ~~Xtampza and~~ our ~~product candidates~~products from government or other third-party payors;

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~~any~~ negative publicity related to our products or negative or positive publicity related to our competitors’ ~~products that include the same active ingredient as Xtampza and our product candidates;~~

products;

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the prevalence and severity of adverse side ~~effects, including limitations~~effects;

●

policy initiatives by FDA, HHS, DEA, or ~~warnings contained in a product’s FDA approved product labeling;~~

other federal or state agencies regarding opioids;

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our ability to ~~implement a~~comply with the Opioid Analgesic REMS; and

●

the effectiveness of marketing and distribution efforts by us and any licensees and distributors.

If ~~Xtampza or~~ our ~~product candidates for which we receive final regulatory approval,~~products fail to ~~achieve~~have an adequate level of acceptance by ~~physicians, healthcare payors, patients or~~ the medical community, patients, or healthcare payors, we will not be able to generate ~~significant~~sufficient revenue ~~and we may not become or~~to remain profitable. Since we expect to rely on sales generated by Xtampza ER, the Nucynta Products, Belbuca, and Symproic for substantially all of our revenues for the foreseeable future, the failure of ~~Xtampza~~these products to ~~find~~maintain market acceptance would harm our business prospects.

~~Recently enacted~~

Some of our products contain controlled substances, and the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state and federal law enforcement and other regulatory agencies.

Some of our products contain controlled substances that are subject to state and federal laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Xtampza ER’s active ingredient, oxycodone, and the Nucynta Products’ active ingredient, tapentadol, are both classified as Schedule II controlled substances under the 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, refer to the section in our Annual Report entitled “Business — Government Regulation — DEA and Opioid Regulation.” We may not be able to obtain sufficient quantities of these controlled substances in order to meet commercial demand. If commercial demand for Xtampza ER, or any of our other approved products, increases and we cannot meet such demand in a timely fashion because of our limited supply of its active pharmaceutical ingredient (in the case of Xtampza ER, oxycodone or in the case of the Nucynta Products, tapentadol) then physicians may perceive such product as unavailable and may be less likely to prescribe it in the future.

In addition, controlled substances are also subject to regulations governing manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas (for Schedule I and II substances), recordkeeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with commercialization of our products that include controlled substances. The DEA and some states conduct periodic inspections of registered establishments that handle controlled substances.

Failure to obtain and maintain required registrations or to comply with any applicable regulations could delay or preclude us from manufacturing and commercializing our products that contain controlled substances and subject us to enforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In some circumstances, violations could lead to criminal proceedings. Because of their restrictive nature, these regulations could limit commercialization of our products containing controlled substances.

Current and future legislation may increase the difficulty and cost for us to continue to commercialize ~~Xtampza and~~ our ~~product candidates~~products and may reduce the prices we are able to obtain for our products.

In the United States, ~~and some foreign jurisdictions,~~ there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system generally, and the manufacturing, distribution, and marketing of opioids in particular, that could ~~prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities or~~ affect our ability to ~~profitably sell Xtampza~~commercialize our products. For example, several states, including New York, have imposed taxes or ~~any product candidates for which we obtain marketing approval.~~

~~Cost reduction legislation~~fees on the sale of opioids. Other states, and even the federal government, could ~~decrease the coverage~~impose similar taxes or fees, and ~~price that we receive for any approved products, including for reimbursement through Medicare~~ such laws

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and ~~private payors.~~

~~The pricing of pharmaceutical products, in general, and specialty drugs, in particular, has also been a topic of concern~~proposals can vary in the ~~U.S. government. There can be no assurance as~~tax and fee amounts imposed and the means of calculation. Liabilities for taxes or assessments under any such laws could have an adverse impact on our results of operations.

California and several other states have enacted legislation related to ~~how~~prescription drug pricing transparency and it is unclear the effect this ~~scrutiny~~legislation will have on ~~pricing of pharmaceutical products will impact future pricing of~~ our products or pharmaceutical products generally. The current administration has indicated that reducing the price of prescription drugs will be a priority of the administration. The implementation of any price controls on prescription drugs, whether at the federal or state level, may adversely affect our business, operating results and financial condition.

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. We expect that the Affordable Care Act, as well as other healthcare reform measures that have been and may be adopted in the future, may result in more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may compromise our ability to generate revenue, attain profitability or commercialize our products.

There have been repeated calls to repeal the Affordable Care Act. Any new laws or regulations that have the effect of imposing additional costs or regulatory burden on pharmaceutical manufacturers, or otherwise negatively affect the industry, would adversely affect our ability to successfully commercialize Xtampza and our product candidates, if approved.

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 ~~approvals~~ of our ~~product candidates, if any,~~products may be. In addition, increased scrutiny by the U.S.

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Congress of the FDA’s approval process may ~~significantly delay or prevent marketing approval, as well as~~ subject us to more stringent product labeling and post-marketing testing and other requirements.

In addition, state pharmacy laws may permit pharmacists to substitute generic products for branded products if the products are therapeutic equivalents, or may permit pharmacists and pharmacy benefit managers to seek prescriber authorization to substitute generics in place of Xtampza or our product candidates, which could significantly diminish demand for them and significantly impact our ability to successfully commercialize our products and generate revenues.

~~Even if we are able to commercialize Xtampza and any of our product candidates, our~~Our products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business. Such pricing regulations may address the rebates that manufacturers offer to pharmaceutical benefit managers, or the discounts that manufacturers provide others within the pharmaceutical distribution chain.

The regulations that govern marketing approvals, pricing and reimbursement for new drug products can vary ~~widely from country to country.~~widely. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues we are able to generate from the sale of the product in that particular country. Pricing limitations may hinder our ability to recoup our investment in ~~Xtampza and~~ our ~~product candidates even if our product candidates obtain marketing approval.~~products.

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 ~~such as private health insurers and health maintenance organizations,~~ determine which medications they will cover and establish reimbursement ~~levels.~~levels and tiers of preference based on the perceived value and innovation of a given product. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular ~~medications.~~medications and establishing administrative hurdles that incentivize use of generic and/or lower cost products first. Increasingly, third-party payors are requiring that drug companies provide them with discounts and rebates from list prices and are challenging the prices charged for medical products. We have agreed to provide such discounts and rebates to certain third-party payors. We expect increasing pressure to offer larger discounts and rebates. Additionally, a greater number of third-party payors may seek discounts and rebates in order to offer or maintain access for ~~Xtampza and~~ our ~~product candidates, if approved.~~products. We cannot be sure that high-quality coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be and whether it will be satisfactory. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from policy and payment limitations in setting their own reimbursement policies.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) 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 revisions to the way manufacturers provide discounts on Part D drugs. The IRA also caps Medicare beneficiaries’ annual out-of-pocket drug expenses at $2,000 per year, thereby eliminating the Medicare Part D coverage gap or “donut hole.” Substantial penalties can be assessed for noncompliance with the drug pricing provisions in the IRA. The IRA could have the effect of reducing the prices we can charge and reimbursement we receive for our products, thereby reducing our profitability, and

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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 ~~promptly obtain~~expand and maintain coverage and profitable reimbursement rates from both government-funded and private payors for ~~any approved~~our products ~~that we develop~~ could have a material adverse effect on our operating results, our ability to raise capital needed to continue to commercialize our products and our overall financial condition.

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.

~~Table~~The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that may affect our ability to profitably sell our products, including implementing cost-containment programs to limit the growth of ~~Contents~~

government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs.

The Affordable Care Act was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. There have been significant ongoing judicial, administrative, executive and legislative efforts to modify or eliminate the Affordable Care Act, and the Affordable Care Act has also been subject to challenges in the courts. Refer to the section in our Annual Report entitled “Business — Government Regulation — Healthcare Reform.”

Further changes to and under the Affordable Care Act remain possible. It is unknown what form any such changes or any law proposed to replace the Affordable Care Act would take, and how or whether it may affect our business in the future. We expect that changes to the Affordable Care Act, the Medicare and Medicaid programs, changes allowing the federal government to directly negotiate drug prices and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry.

Any reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue and maintain profitability.

Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatory and enforcement efforts to combat abuse, could decrease the potential market for ~~Xtampza~~our products and may adversely impact external investor perceptions of our ~~product candidates.~~business.

~~Media stories regarding prescription drug abuse and the diversion of opioids and other controlled substances are commonplace.~~

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 ~~Xtampza and~~ our ~~product candidates.~~products.

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 ~~drug abusers~~people who abuse drugs to discover previously unknown ways to abuse opioid drugs, including ~~Xtampza;~~Xtampza ER, the Nucynta Products and Belbuca; public inquiries and investigations into prescription drug abuse; litigation; or regulatory activity regarding sales, marketing, distribution or storage of opioid drugs could have a material adverse effect on our reputation. Such negative publicity could reduce the potential size of the market for ~~Xtampza and~~ our ~~product candidates and~~products, decrease the revenues we are able to generate from their ~~sale.~~sale and adversely impact external investor perceptions of our business. Similarly, to the extent opioid abuse becomes less prevalent or less urgent of a public health issue, regulators and ~~third party payers~~third-party payors may not be willing to pay a premium for abuse-deterrent formulations of opioids.

~~Efforts by the FDA and other regulatory bodies to combat abuse of opioids may negatively impact the market for our product candidates. In February 2016, the FDA released an action plan~~

Federal laws have been enacted to address the national epidemics of prescription opioid abuse ~~epidemic~~ and reassess the FDA’s approach to opioid medications. The plan identifies the FDA’s focus on implementing policies to reverse the opioid abuse epidemic, while maintaining access to effective treatments. The actions set forth in the FDA’s plan include strengthening post marketing study requirements to evaluate the benefit of long-termillicit opioid use, ~~changing~~including the ~~REMS requirements to provide additional funding~~Comprehensive Addiction and Recovery Act and the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for ~~physician education courses, releasing a draft guidance setting forth approval standards for generic-abuse deterrent opioid formulations,~~Patients and ~~seeking input from~~Communities Act. These laws are described in more detail in our Annual Report under the FDA’s Science Board to broaden the understanding of the public risks of opioid abuse. The FDA’s Science Board met to address these issues on March 1, 2016. The FDA’s plan is part of a broader initiative led by the HHS to address opioid-related overdose, deathcaption “Business — Government Regulation — DEA and dependence. The HHS initiative’s focus is on improving physician’s use of opioids through education and resources to address opioid over-prescribing, increasing use and development of improved delivery systems for naloxone, which can reverse overdose from both prescription opioids and heroin, to reduce overdose-related deaths, and expanding the use of Medication-Assisted Treatment, which couples counseling and behavioral therapies with medication to address substance abuse. Also as part of this initiative, the CDC has launched a state grant program to offer state health departments resources to assist with abuse prevention efforts, including efforts to track opioid prescribing through state-run electronic databases. In March 2016, as part of the HHS initiative, the CDC released a Guideline for Prescribing Opioids for Chronic Pain. The guideline is intended to assist primary care providers treating adults for chronic pain in outpatient settings. The guideline provides recommendations to improve communications between doctors and patients about the risks and benefits of opioid therapy for chronic pain, improve the safety and effectiveness of pain treatment, and reduce the risks associated with long-term opioid therapy. The guideline states that no treatment recommendations about the use of abuse-deterrent opioids can be made at this time. Many of these changes and others could cause us to expend additional resources in developing and commercializing Xtampza and our product candidates to meet additional requirements. Advancements in development and approval of generic abuse-deterrent opioids could also compete with and potentially impact physician use of our product candidates and cause our product candidates to be less commercially successful.Opioid Regulation.”

The FDA continues to evaluate extended release and abuse-deterrent opioids in the postmarket setting. In March 2017, the FDA’s Advisory Committee met to discuss OPANA ER (oxymorphone hydrochloride) extended release tablets. A majority of the Advisory Committee voted that the benefits do not outweigh the risks of OPANA ER. Upon the FDA’s subsequent request in June 2017, OPANA ER was removed from the market. Also, in July 2017, the FDA held a public workshop to discuss available data and methods to assess the impact of opioid formulations with abuse-deterrent properties on misuse, abuse, addiction, overdose, and death in the postmarket context. The FDA will continue to scrutinize the impact of abuse-deterrent opioids and in the future could impose further restrictions to products currently on the market, which may include changing labeling, imposing additional prescribing restrictions, or seeking a product’s removal from the market.

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If the FDA or other applicable regulatory authorities approve generic products with ~~abuse deterrent~~ claims that compete with ~~Xtampza or any of~~ our ~~product candidates, it~~products, our sales could ~~reduce our sales.~~decline.

Once an NDA, including a Section 505(b)(2) application, is approved, the product covered thereby becomes a “listed drug” which can, in turn, be cited by potential competitors in support of approval of an ~~abbreviated NDA, or~~ ANDA. The ~~FD&C~~Federal Food, Drug, and Cosmetic Act, FDA regulations and other applicable regulations and policies provide incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes. These manufacturers might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredients, dosage form, strength, route of administration, and conditions of use, or product labeling, as our product and that the generic product is absorbed in the body at the same rate and to the same extent as, or is bioequivalent to, our product. These generic equivalents would be significantly less costly than ours to bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices. Additionally, under the Food and Drug Omnibus Reform Act of 2022, FDA will assign therapeutic equivalence ratings for certain prescription drugs approved via the Section 505(b)(2) NDA pathway with respect to other approved drug products and it is unclear how assignment of these ratings will impact the market opportunity for our products. Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product are typically lost to the generic product. Accordingly, competition from generic equivalents to our products would substantially limit our ability to generate revenues and therefore, to obtain a return on the investments we have made in our ~~product~~products. In the past, we have initiated litigation with generic competitors that have filed Paragraph IV Certifications challenging certain of our patents. While we have entered into settlement agreements with certain competitors, we are currently pursuing litigation to defend against Paragraph IV Certifications related to Belbuca. Refer to Note 14, Commitments and ~~product candidates.~~Contingencies, to our consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q. We believe that we will continue to be subject to ANDA-related litigation, which can be costly and distracting and has the potential to impact the long-term value of our products.

~~Guidelines~~

We may seek FDA pediatric exclusivity for some of our products. Pediatric exclusivity, if granted, adds six months of patent term and ~~recommendations published~~marketing exclusivity to existing exclusivity periods for all formulations, dosage forms, and indications for the active moiety, provided that at the time pediatric exclusivity is granted there is not less than nine months of term remaining. The regulatory exclusivity period for Nucynta IR in the United States has been extended through July 3, 2026, following the grant of New Patient Population exclusivity in pediatrics by ~~various organizations can reduce~~the FDA in August 2023 based on data from pediatric trials which were submitted in response to the FDA's Pediatric Written Request (the “Written Request”) to evaluate the use of ~~our products,~~Nucynta as a treatment for pain in pediatric patients aged 6 years and older. If the FDA deems these data to be responsive to its Written Request, the exclusivity of the entire Nucynta franchise could be extended an additional six months, to December 2025 for Nucynta ER and January 2027 for Nucynta IR. However, there is no guarantee that the FDA will agree that the Written Request has been satisfied and that we will receive this additional exclusivity, or that we will maintain such exclusivity, if ~~approved.~~granted.

~~Government agencies promulgate regulations and guidelines directly applicable~~

In November 2017, the FDA issued a final guidance to ~~us and~~assist the 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 recommended 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 product candidates. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the healthcare and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations or guidelines suggesting the reduced use of our products or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of our products.business.

Risks Related to Our Dependence on Third Parties

If the third-party ~~manufacturer~~manufacturers of ~~Xtampza fails~~our products fail to devote sufficient time and resources to ~~Xtampza,~~these products, or ~~its~~their performance is substandard, and/or we encounter challenges with our dedicated manufacturing suite at our third-party manufacturer’s site for the manufacturing of Xtampza ER, our costs may be higher than expected and could have a material adverse effect on our business.

We do not own any manufacturing facilities ~~and have limited experience~~ in drug development and commercial manufacturing. We currently have no plans to build our own clinical or commercial scale manufacturing ~~facility. We lack~~facility and do not have the resources and expertise to manufacture and test, on a commercial scale, the technical performance of ~~Xtampza and~~ our ~~product candidates.~~products. We currently rely, and expect to continue to rely, on a limited number of experienced personnel and ~~one~~ contract ~~manufacturer~~manufacturers for ~~Xtampza and each product candidate,~~our products, as well as other vendors to formulate, test, supply, store and distribute ~~Xtampza and~~ our ~~product candidates for our clinical trials and FDA registration,~~products, and we control only certain aspects of their activities.

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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 also transitioned commercial manufacturing for Nucynta ER from Janssen to Patheon. While we were successful in our regulatory approval and validation activities, we could encounter issues in obtaining commercial supply from Patheon's facility due to technical problems or challenges obtaining adequate and/or timely DEA procurement quota.

Although we have identified alternate sources for these services, it would be time-consuming, and require us to incur additional ~~cost,~~costs, to qualify these sources.

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 ~~delay FDA approval of our product candidates and~~impact commercialization of our products, result in higher costs, or deprive us of potential product revenues:

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Our contract manufacturer, or other third parties we rely on, may encounter difficulties in achieving the volume of production needed to satisfy commercial demand, may experience technical issues that impact quality or compliance with applicable and strictly enforced regulations governing the manufacture of pharmaceutical products, may be affected by natural disasters that interrupt or prevent manufacturing of our products, may experience shortages of qualified personnel to adequately staff production operations, may experience shortages of raw materials and may have difficulties finding replacement parts or ~~equipment.~~

equipment;

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Our contract manufacturer could default on ~~its~~their agreement with us to meet our requirements for commercial

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supplies of ~~Xtampza.~~

our products and/or we could experience technical problems in the operation of our dedicated manufacturing suite;

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The use of alternate manufacturers may be difficult because the number of potential manufacturers that have the necessary governmental licenses to produce narcotic products is limited. Additionally, the FDA and the DEA must approve any alternative manufacturer of ~~Xtampza or any product candidate for which we receive regulatory approval,~~our products, before we may use the alternative manufacturer to produce commercial ~~supplies.~~

supplies;

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It may be difficult or impossible for us to find a replacement manufacturer on acceptable terms quickly, or at all. Our contract manufacturer and vendors may not perform as agreed or may not remain in the contract manufacturing business for the time required to ~~successfully~~ produce, store and distribute our ~~products.~~

products successfully; and

●

If our contract manufacturer were to terminate our arrangement or fail to meet our commercial manufacturing demands, we may be forced to delay our development and commercial programs.

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~~manufacturing 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 ~~that Xtampza and~~ our ~~product candidates that we may eventually commercialize~~products to be manufactured according to ~~cGMP and similar foreign standards.~~Current Good Manufacturing Practice regulations promulgated by the FDA (“cGMP”). Any failure by our third-party manufacturer to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of ~~product candidates~~products in a timely manner, could lead to inspection deficiencies, a ~~delay in,~~shortage of commercial product, or ~~failure to obtain, regulatory approval of~~potential products liability exposure for any ~~of our product candidates. In addition, such~~noncompliant distributed products. Such failure could also be the basis for the FDA to issue a warning or untitled letter, 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

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supplemental applications, detention orof product, refusal to permit the import or export of products, injunction, imposing civil penalties or pursuing criminal prosecution.

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 ~~Xtampza,~~our products, any production problems with ~~our supplier~~any of these suppliers could have a material adverse effect on us.

We ~~presently depend upon~~currently rely on a ~~single~~sole supplier ~~for~~or limited number of suppliers to manufacture the active ~~ingredient for Xtampza — oxycodone base — and we intend to~~pharmaceutical ingredients of our products. We contract with ~~this supplier, as necessary,~~these suppliers for commercial supply ofto manufacture our products. ~~Although we have identified an~~Further, our suppliers of the active pharmaceutical ingredients for Xtampza ER and the Nucynta Products also supply our primary competitor in the extended-release oxycodone space, Purdue. Identifying alternate ~~source~~sources of active pharmaceutical ingredients for ~~oxycodone base, it would be~~our products is generally time-consuming and ~~costly~~costly. Any changes that our suppliers make to ~~qualify this source. Since we currently obtain~~the respective drug substance raw materials, intermediates, or manufacturing processes would introduce technical and regulatory risks to our ~~active ingredient from this manufacturer on a purchase-order basis, either we or our supplier may terminate our arrangement, without cause, at any time without notice.~~downstream drug product supply. If our ~~supplier~~suppliers were to terminate ~~our~~an arrangement for an active pharmaceutical ingredient, or fail to meet our supply needs (including as a result of any disruptions in personnel or the global supply chain), we might incur substantial costs and be forced to delay our development or commercialization programs. Any such delay could have a material adverse effect on our business.

~~We rely on third parties to conduct~~

Global supply chain disruptions and shortages may limit manufacturing and commercial supply of our clinical trials. 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 obtain regulatory approval for or commercialize our product candidatesproducts and ~~our business could suffer~~have a material ~~adverse effect.~~impact on our business.

~~We have relied upon~~

There are currently global supply chain disruptions and ~~plan to continue to rely upon contract research organizations, or CROs, to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these parties for execution~~shortages caused by a variety of ~~our 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~~factors, including geopolitical turmoil, such as the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with federal regulationsUkrainian War and current ~~Good Clinical Practices, or GCP, which are international standards meant to protect the rights~~conflict in Israel and health of patients and to define the roles of clinical trial sponsors, advisors and monitors, enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, or EEA, and foreign regulatory authorities in the form of International Conference on Harmonization, or ICH, guidelines for all of our product candidates in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. In addition,Gaza. While we and our ~~CROs~~suppliers are ~~required~~still able to comply with special regulations regarding the enrollment of recreational drug abusers in clinical trials. If we or any of our CROs fail to comply with applicable GCP and other regulations, including as a result of any recent changes in such regulations, the

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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. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements. While we have agreements governing activities of our CROs, we have limited influence over their actual performance. Failure to comply with applicable regulations in the conductreceive sufficient inventory of the ~~clinical trials for~~key materials and components needed, we could experience pressure on our ~~product candidates may require us to repeat preclinical studies~~supply chain, including shipping delays, higher prices from suppliers, and ~~clinical trials, which would delay the regulatory approval process.~~

~~Our CROs are~~reduced availability of materials, including excipients and packaging components. To date, supply chain pressure has not had a material impact on our ~~employees,~~results of operations. However, if these disruptions and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated andshortages continue, we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed.

Switching or adding additional CROs involves additional cost and requires management time and focus, and there is a limited number of CROs that are equipped and willing to manage clinical trials that involve recreational drug abusers. Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the patients participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated. Identifying, qualifying and managing performance of third-party service providers can be difficult, time-consuming and cause delays in our development programs. In addition, there is a natural transition period when a new CRO commences work and the new CRO may not provide the same type or level of services as the original provider. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future ~~or that these delays or challenges will not~~experience a material interruption to our supply chain. Such an interruption could have a material adverse impact on our business, ~~financial condition and prospects. If any of our relationships with our CROs terminate, we may~~including but not ~~be able~~limited to, ~~enter into arrangements with alternative CROs or to do so on commercially reasonable terms. As a result, delays may occur, which can materially impact~~ our ability to ~~meet our desired clinical development timelines.~~

~~Our internal capacity to perform these functions is limited. Outsourcing these functions involves risks that third parties may not perform to our standards, may not produce results in a~~ timely manner or may fail to perform at all. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. We currently have a small number of employees, which limits the internal resources we have available to identifymanufacture and monitor our third-party providers. To the extent, we are unable to identify and successfully manage the performance of third-party service providers in the future, our ability to advance our product candidates through clinical trials will be compromised. There can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

In the future, we may depend on collaborations with third parties for the development and commercialization of Xtampza and our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

We may not be successful in establishing development and commercialization collaborations which could adversely affect, and potentially prohibit, our ability to develop or commercialize Xtampza and our product candidates. These collaborations, including our license agreement for the development and marketing of Onsolis, pose the following risks to us:

~~Collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations.~~

~~Collaborators may not pursue development and commercialization of our product or product candidates or may~~

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elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities.

Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon our product or product candidate, repeat or conduct new clinical trials or require a new formulation of our product or product candidate for clinical testing.

Collaborators may conduct clinical trials inappropriately, or may obtain unfavorable results in their clinical trials, which may have an adverse effect on the development or commercialization of our product or product candidates.

Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours.

~~A collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such products.~~

Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation.

Disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our product and product candidates or that result in costly litigation or arbitration that diverts management attention and resources.

~~We may lose certain valuable rights under circumstances specified in our collaborations.~~

~~Collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product or product candidates.~~

Collaboration agreements may not lead to development or commercialization of products or product candidates in the most efficient manner or at all. If a future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated.

~~We may rely on collaborators to market and commercialize Xtampza and, if approved, our product candidates, who may fail to effectively commercialize~~distribute our products.

We may utilize strategic collaborators or contract sales forces, where appropriate, to assist in the commercialization of Xtampza and our product candidates, if approved by the FDA. We currently possess limited resources and may not be successful in establishing collaborations or co-promotion arrangements on acceptable terms, if at all. We also face competition in our search for collaborators and co-promoters. If we enter into strategic collaborations or similar arrangements, we will rely on third parties for financial resources and for development, commercialization, sales and marketing and regulatory expertise. Our collaborators, if any, may fail to develop or effectively commercialize our products and product candidates because they cannot obtain the necessary regulatory approvals, they lack adequate financial or other resources or they decide to focus on other initiatives. Any failure of our third-party collaborators to successfully market and commercialize our product and product candidates would diminish our revenues.

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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 ~~and product candidates~~ and conduct required stability testing, we may encounter product, packaging, equipment and process-related issues that may require refinement or resolution in order to ~~proceed with~~successfully commercialize our ~~planned clinical trials, obtain regulatory approval for commercial marketing and build commercial supplies.~~products. In the future, we may identify impurities, which could result in increased scrutiny by regulatory authorities, delays in our clinical programs and regulatory approval, increases in our operating expenses, failure to obtain or maintain approval or limitations in our commercial supply.

~~Our customer concentration may materially adversely affect~~

A significant percentage of our product shipments are to a limited number of independent wholesale ~~drug~~pharmaceutical distributors. Three of our wholesale pharmaceutical distributors represented ~~35%, 28% and 27%~~greater than 90% of our product shipments for the ~~year~~quarter ended ~~December~~March 31, ~~2016. If we were to lose the business~~2024. Our loss of ~~one or more of these distributors, or if~~ any of these ~~distributors failed~~wholesale pharmaceutical distributors’ accounts, or a material reduction in their purchases or a significant disruption to ~~fulfill their obligations~~transportation infrastructure or ~~refused or experienced difficulty in paying us on a timely basis, or negotiated larger discounts, it would~~other means of distribution of our products, could have a material adverse effect on our business, 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.

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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.

Certain of our opioid products are subject to post-marketing requirements or commitments, which may, in some cases, not be capable of timely or satisfactory completion without participation in consortia over which we have limited control.

For certain of our products, we are subject to post-marketing requirements to conduct epidemiological studies and clinical trials, or, in some cases, to conduct post-marketing surveillance or observational studies to gather additional information about our products. For our opioid products, we generally intend to fulfill our post-marketing requirements (“PMRs”) by virtue of our participation in the Opioid PMR Consortium (“OPC”). Although we retain discretion in how to discharge such PMRs, the scale and scope of the studies required by the FDA make it cost prohibitive to discharge these requirements other than by joining the OPC that was formed to conduct them. We are a member of the OPC and engage in decision-making as a member of that organization, but do not have a majority. If the OPC fails to conduct sufficiently rigorous studies or is unable to achieve the patient enrollment or other requirements established by the FDA, we may be unable to satisfy our PMRs and the FDA may choose to withdraw or otherwise restrict its approval of our opioid products. Additionally, there may be certain PMRs or post-marketing commitments that we fulfill on our own for our products, including via the conduct of post-marketing surveillance or observational studies. If such studies lead to the discovery of adverse findings regarding the safety or benefit profiles of our products, then the FDA may choose to withdraw or otherwise restrict the approval of our products or the FDA or we may determine that labeling changes are warranted based on their finding. Such withdrawal or restriction or labeling changes for our products would have an adverse impact on our business and financial condition.

Risks Related to Our Business and Strategy

We may not realize all the anticipated benefits from our future acquisitions, and we may be unable to successfully integrate future acquisitions.

Our growth strategy will, in part, rely on acquisitions. We must plan and manage acquisitions effectively to achieve revenue growth and maintain profitability in our evolving market. We may not realize all the anticipated benefits from our future acquisitions, such as increased earnings, cost savings and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher than expected acquisition and operating costs or other difficulties, inexperience with operating in new geographic regions, unknown liabilities, inaccurate reserve estimates and fluctuations in market prices.

In addition, integrating acquired businesses and properties involves a number of special risks and unforeseen difficulties can arise in integrating operations and systems and in retaining and assimilating employees. These difficulties include, among other things:

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operating a larger organization;

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coordinating geographically disparate organizations, systems, and facilities;

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integrating corporate, technological, and administrative functions;

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diverting management’s attention from regular business concerns;

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diverting financial resources away from existing operations;

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increasing our indebtedness; and

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incurring potential environmental or regulatory liabilities and title problems.

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

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manage the integration process, or if any business activities are interrupted as a result of the integration process, our business could suffer.

Our business may be adversely affected by certain events or circumstances outside our control, including macroeconomic conditions and geopolitical turmoil.

Events or circumstances outside of our control, including macroeconomic conditions such as recession or depression, inflation, and declines in consumer-spending could result in reduced demand for our products. An economic downturn could result in business closures, higher levels of unemployment, or declines in consumer disposable income which could have an impact on the number of patients seeking and receiving treatment for conditions that might otherwise result in the prescription of our products, as patients may make efforts to avoid or postpone seeking non-essential medical care to allocate their resources to other priorities or essential items. These circumstances, in addition to the impact of geopolitical turmoil, such as the ongoing Ukrainian War and current conflict in Israel and Gaza (including any escalation or expansion), social unrest, political instability in the United States and elsewhere, terrorism, cyberwarfare or other acts of war, may result in reduced demand for our products and negatively impact our sales, results of operations, and liquidity.

Security breaches and other disruptions to our, or our vendors’, information technology systems may compromise our information and expose us to liability that could adversely impact our financial condition, operations, and reputation.

We, our collaborators, third-party providers, distributors, customers and other contractors utilize information technology systems and networks (“Systems”) to transmit, store and otherwise process electronic data in connection with our business activities, including our supply chain processes, operations and communications including, in some cases, our business proprietary information, and Electronic Data Interchange (“EDI”) on purchase orders, invoices, chargebacks, among other things. Our Systems, along with those of the third parties whom we rely on to process confidential and sensitive data in a variety of contexts, are potentially vulnerable to a variety of evolving threats that may expose this data to unauthorized persons or otherwise compromise its integrity. These threats may include, but are not limited to, social-engineering attacks (including through phishing attacks), business email compromise, online and offline fraud, malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks, access attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats.

We may expend significant resources to try to protect against these threats to our Systems. Certain data privacy and security laws, as well as industry best practice standards, may require us to implement and maintain security measures. While we have implemented security measures designed to protect our Systems and confidential and sensitive data, there can be no assurance that these measures will be effective. Threat actors and their techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred. If we, or a third party upon whom we rely, experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Further, our insurance coverage may not be adequate or sufficient in type or amount to protect us from or to mitigate liabilities arising out of our privacy and security practices.

Litigation or regulatory action regarding opioid medications could negatively affect our business.

Beginning in 2018, lawsuits alleging damages related to opioids have been filed naming us as a defendant along with other manufacturers of prescription opioid medications. These lawsuits, filed in multiple jurisdictions, are brought by various local governments as well as private claimants, against various manufacturers, distributors and retail pharmacies. These lawsuits generally allege that we had engaged in improper marketing practices related to Xtampza ER and the Nucynta Products. In March 2022, we entered into a Master Settlement Agreement resolving 27 pending opioid-related lawsuits brought against us by cities, counties, and other subdivisions in the United States. As part of the Master Settlement Agreement, we paid $2.75 million to the plaintiffs and the cases were dismissed, with prejudice. In late March 2023, three new cases were filed in three federal courts, naming us as one of numerous defendants, from which we have been dismissed.

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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.

~~Risks Related to Our Business and Strategy~~

We face substantial competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing products ~~before or~~ more successfully than we do.

~~The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. In addition, the competition~~

Competition in the pain and opioid market is intense. ~~We have~~Our competitors ~~both in the United States and internationally, including~~include major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions.

~~We face and will continue to face competition from other companies in the pharmaceutical and medical device industries. Xtampza and our product candidates, if approved, will~~ Our products compete with ~~currently marketed~~ oral opioids, transdermal opioids, local anesthetic patches, stimulants and implantable and external infusion pumps that can be used for infusion of opioids and local anesthetics. Products of these types are marketed by Actavis, ~~Depomed, Egalet,~~ Endo, Mallinckrodt, ~~Pernix, Pfizer,~~ Purdue, Teva, and others. Some of these current and potential future competitors may be addressing the same therapeutic areas or indications as we are. Many of our current and potential future competitors have significantly greater research and development capabilities than we do, have substantially more marketing, manufacturing, financial, technical, human and managerial resources than we do, and have more institutional experience than we do. ~~Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors.~~

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that allow them to develop and commercialize their products before us and limit our ability to develop or commercialize our product and product candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and less costly than ours, and they may also be more successful than us in manufacturing and marketing their products.

Furthermore, if the FDA approves a competitor’s 505(b)(2) application for a drug candidate before our application for a similar drug candidate and grants the competitor a period of exclusivity, the FDA may take the position that it cannot approve our NDA for a similar drug candidate. For example, several competitors have developed extended-release hydrocodone products, and if the FDA grants exclusivity, we could be subject to a delay that would dramatically reduce the expected market penetration for our hydrocodone product candidate. Additionally, even if our 505(b)(2) application is approved for marketing, we may still be subject to competition from other hydrocodone products, including approved products or other approved 505(b)(2) NDAs for different conditions of use that would not be restricted by any grant of exclusivity to us.

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~~In addition,~~ competitors have developed or ~~are in the process of developing~~may develop technologies that are, or ~~in the future~~ may be, the basis for competitive ~~products. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic effects than our product candidates. Our competitors may develop~~ products that are safer, more effective or less costly than our ~~product candidates and, therefore, present a serious competitive threat to our product offerings.~~

The widespread acceptance of currently available therapies with which our product and product candidates, if approved, compete may limit market acceptance of our product and product candidates even if commercialized. Oralproducts. Moreover, oral medications, transdermal drug delivery systems, such as drug patches, injectable products and implantable drug delivery devices are currently available treatments for chronic pain, are widely accepted in the medical community and have a long history of use. These treatments will compete with our ~~product and product candidates, if approved,~~products and the established use of these competitive products may limit the potential for our ~~product and product candidates~~products to receive widespread ~~acceptance if commercialized.~~acceptance.

The use of legal and regulatory strategies by competitors with innovator products, including the filing of citizen petitions, may delay or prevent the introduction or approval of our product candidates, increase our costs associated with the introduction or marketing

Commercial sales of our products ~~or significantly reduce the profit potential of our~~and any products we acquire, may expose us to expensive product ~~candidates~~.

~~Companies with innovator drugs often pursue strategies that may serve to prevent or delay competition from alternatives to their innovator products. These strategies include, but are not limited to:~~

~~filing “citizen petitions” with the FDA that may delay competition by causing delays of our product approvals;~~

~~seeking to establish regulatory~~liability claims, and ~~legal obstacles that would make it more difficult to demonstrate a product’s bioequivalence or “sameness” to the related innovator product;~~

~~filing suits for patent infringement that automatically delay FDA approval of products seeking approval based on the Section 505(b)(2) pathway;~~

~~obtaining extensions of market exclusivity by conducting clinical trials of innovator drugs in pediatric populations or by other methods;~~

persuading the FDA to withdraw the approval of innovator drugs for which the patents are about to expire, thus allowing the innovator company to develop and launch new patented products serving as substitutes for the withdrawn products;

~~seeking to obtain new patents on drugs for which patent protection is about to expire; and~~

~~initiating legislative and administrative efforts in various states to limit the substitution of innovator products by pharmacies.~~

~~These strategies could delay, reduce or eliminate our entry into the market and our ability to generate revenues from our product and product candidates.~~

~~Our future success depends on our ability to retain our key personnel.~~

We are highly dependent upon the services of our key personnel, including our President and Chief Executive Officer, Michael T. Heffernan, our Chief Financial Officer, Paul Brannelly, our Chief Operating Officer, Joseph Ciaffoni and our Chief Technology Officer, Alison Fleming, PhD. Each employee is employed by us at will and is permitted to terminate his or her employment with us at any time pursuant to the terms of his employment agreement. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of Mr. Heffernan, Mr.

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~~Brannelly, Mr. Ciaffoni or Dr. Fleming could impede the achievement of our development and commercialization objectives.~~

~~If we are unable to attract and retain highly qualified scientific and technical employees,~~ we may not be able to ~~grow effectively.~~maintain product liability insurance on reasonable terms or at all.

Our future growth and success depend on our ability to recruit, retain, manage and motivate our scientific, clinical, manufacturing and commercial employees. The loss of any member of our senior management team or the inability to hire or retain experienced management personnel could compromise our ability to execute our business plan and harm our operating results. Because of the specialized scientific nature of our business, we rely heavily on our ability to attract and retain qualified personnel. The competition for qualified personnel in the pharmaceutical field is intense, and as a result, we

We currently carry product liability insurance. Product liability claims may be ~~unable to continue to attract and retain qualified personnel necessary for the development of~~brought against us by patients; healthcare providers; or others using, administering or selling our ~~business or to recruit suitable replacement personnel.~~

~~We will need to grow the size of~~products. If we cannot successfully defend ourselves against claims that our ~~organization, and~~products caused injuries, we ~~may experience difficulties in managing this growth.~~

~~We have experienced a period of rapid growth. Our management, personnel and systems may not be adequate to support this and future growth.~~could incur substantial liabilities. We may not be able to ~~effectively manage the expansion~~maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Regardless of ~~our operations, which~~merit or eventual outcome, liability claims may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Future growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of our existing or future product candidates. Future growth would impose significant added responsibilities on members of management, including:

~~managing the commercialization of any FDA-approved products;~~

~~overseeing clinical trials effectively;~~

identifying, recruiting, maintaining, motivating and integrating additional employees, including any sales and marketing personnel engaged in connection with the commercialization of any approved product;

~~managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;~~

~~improving our managerial, development, operational and financial systems and procedures; and~~

~~developing our compliance infrastructure and processes to ensure compliance with regulations applicable to public companies.~~

As our operations expand, we will need to manage additional relationships with various strategic collaborators, suppliers and other third parties. Our future financial performance and our ability to commercialize our product and product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies, that could have a material adverse effect on our operating results, dilute our shareholders’ ownership, increase our debt or cause us to incur significant ~~expense.~~costs to defend the litigation.

As part of our business strategy, we may pursue acquisitions of assets, including preclinical, clinical or commercial stage products or product candidates, or businesses, in-licensing or out-licensing of products, product candidates or technologies, or other strategic alliances and collaborations, to expand our existing technologies and operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize

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the anticipated benefits of any such transaction, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. We have limited experience with acquiring other companies, products or product candidates, and limited experience with licensing and forming strategic alliances and collaborations. We may not find suitable acquisition candidates, and if we make an acquisition, we may not integrate the acquisition successfully into our existing business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith. Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwise focus on developing our existing business. We may not be able to find suitable strategic alliance or collaborators or identify other investment opportunities, and we may experience losses related to any such investments.

To finance any acquisitions, licenses or collaborations, we may incur significant transaction expenses and we may choose to issue debt or shares of our common or preferred stock as consideration. Any such issuance of shares would dilute the ownership of our shareholders. If the price of our common stock is low or volatile, we may not be able to acquire, license, or otherwise obtain rights to other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.

Our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.

We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates:

~~FDA, DEA or similar regulations of foreign regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities;~~

~~manufacturing standards;~~

~~federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by foreign regulatory authorities; or~~

~~laws that require the reporting of financial information or data accurately.~~

In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Ethics, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a material adverse effect on our business and results of operations, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could have a material adverse effect on our ability to operate our business and our results of operations.

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Healthcare providers, physicians and payors play a primary role in the recommendation and prescription of ~~Xtampza and any product candidates for which we may obtain marketing approval.~~our products. Our ~~future~~ arrangements with payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute ~~Xtampza and any product candidates for which we may obtain marketing approval.~~our products. Even though we do not and will not control referrals of healthcare services or bill ~~directly to~~ Medicare, Medicaid or other third-party payors ~~federal~~directly, we may provide reimbursement guidance and support regarding our products to our customers and patients. Federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. ~~Restrictions under applicable federal, state and foreign healthcare laws and regulations may affect our ability to operate and expose us to areas of risk, including:~~

the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

the federal False Claims Act, which imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute to defraud any healthcare benefit program or specific intent to violate it in order to have committed a violation;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which also imposes obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

federal laws requiring drug manufacturers to report annually information related to certain payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership or investment interests held by physicians and their immediate family members, including under the federal Open Payments program, commonly known as the Sunshine Act, as well as other state and foreign laws regulating marketing activities and requiring manufacturers to report marketing expenditures, payments and other transfers of value to physicians and other healthcare providers;

federal government price reporting laws, which require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed drugs. Participation in these programs and compliance with the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs, potential liability for the failure to report such prices in an accurate and timely manner, and potentially limit our

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~~ability to offer certain marketplace discounts; and~~

state and foreign equivalents of each of the above laws, including state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental payors, including private insurers; state laws which require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restricting payments that may be made to healthcare providers; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

While we do not submit claims and our customers will make the ultimate decision on how to submit claims, we may provide reimbursement guidance and support regarding our products to our customers and patients. If a government authority were to conclude that we provided improper advice to our customers and/or encouraged the submission of false claims for reimbursement, we could face action by government authorities. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Nonetheless, it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.

~~If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur significant costs.~~

In connection with our research and development activities and our manufacture of materials and products and product candidates, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. Although we believe that we have complied with the applicable laws, regulations and policies in all material respects and have not been required to correct any material noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Our research and development involves the use, generation and disposal of hazardous materials, including chemicals, solvents, agents and biohazardous materials. Although we believe that our safety procedures for storing, handling and disposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. We currently contract with third parties to dispose of these substances that we generate, and we rely on these third parties to properly dispose of these substances in compliance with applicable laws and regulations. We cannot eliminate the risk of contamination or injury from these materials. If these third parties do not properly dispose of these substances in compliance with applicable laws and regulations, we may be subject to legal action by governmental agencies or private parties for improper disposal of these substances. The costs of defending such actions and the potential liability resulting from such actions are often very large. In the event we are subject to such legal action or we otherwise fail to comply with applicable laws and regulations governing the use, generation and disposal of hazardous materials and chemicals, we could be held liable for any damages that result, and any such liability could exceed our resources.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees, this insurance may not provide adequate coverage against potential liabilities. We maintain insurance for environmental liability or toxic tort claims, but we may not continue to maintain such insurance in the future, and such insurance, to the extent maintained, may not be adequate to cover liabilities that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

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~~Our~~We or the third parties upon whom we depend may be adversely affected by natural disasters and/or health epidemics, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage, health epidemic or other event occurred that prevented us from using all or a significant portion of our facilities, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it might become difficult or, in certain cases, impossible for us to continue our business, and ~~operations would suffer~~any disruption could last for a substantial period of time.

The disaster recovery and business continuity plans we have in place, and the technology that we may rely upon to implement such plans, may prove inadequate in the event of ~~computer system failures, accidents~~a serious disaster or ~~security breaches.~~

~~Despite~~similar event. We may incur substantial expenses as a result of the ~~implementation of security measures, our internal computer systems, and those~~limited nature of our ~~CROs, contract manufacturing organization, or CMO,~~disaster recovery and ~~other third parties on~~business continuity plans, which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could ~~cause interruptions in our operations, and could result in~~have a material ~~disruption~~adverse effect on our business, financial condition and results of our commercial and clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our commercialization and drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.operation.

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. ~~In addition to the factors discussed in these Risk Factors, these factors include:~~

~~the success of competitive products or technologies;~~

~~regulatory actions with respect to our product and product candidates or our competitors’ products or product candidates;~~

~~actual or anticipated changes in our growth rate relative to our competitors;~~

~~the outcome of any patent infringement or other litigation that may be brought against us, including the ongoing Purdue litigation;~~

~~announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital commitments;~~

~~results of clinical trials of our product and product candidates or those of our competitors;~~

~~regulatory or legal developments in the United States and other countries;~~

~~developments or disputes concerning patent applications, issued patents or other proprietary rights;~~

~~the recruitment or departure of key personnel;~~

~~the level of expenses related to our product and product candidates or clinical development programs;~~

~~actual or anticipated variations in our quarterly operating results;~~

~~the number and characteristics of our efforts to in-license or acquire additional product candidates or products;~~

~~introduction of new products or services by us or our competitors;~~

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~~failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;~~

~~actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;~~

~~variations in our financial results or those of companies that are perceived to be similar to us;~~

~~fluctuations in the valuation of companies perceived by investors to be comparable to us;~~

~~share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;~~

~~announcement or expectation of additional financing efforts;~~

~~sales of our common stock by us, our insiders or our other shareholders;~~

~~changes in accounting practices;~~

~~significant lawsuits, including patent or shareholder litigation;~~

~~changes in the structure of healthcare payment systems;~~

~~market conditions in the pharmaceutical and biotechnology sectors;~~

~~general economic, industry and market conditions;~~

~~publication of research reports about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities or industry analysts; and~~

~~other events or factors, many of which are beyond our control.~~

~~In addition, the~~The stock market in general, and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume ~~fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.~~fluctuations. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our business model, prospects or actual operating performance. The realization of any of ~~the above~~these risks, or any of a broad range of other risks ~~stated above~~discussed in this report, could have a material adverse effect on the market price of our common stock.

As we operate in the pharmaceutical and biotechnology industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

~~Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.~~

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of December 31, 2016, holders of an aggregate of approximately 6.3 million shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other shareholders. Once we register these shares, they can be freely sold in the public market, subject to volume limitations applicable to affiliates.

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Actual or potential sales of our common stock by our directors or employees, including our executive officers, pursuant to pre-arranged stock trading plans could cause our stock price to fall or prevent it from increasing for numerous reasons, and actual or potential sales by such persons could be viewed negatively by investors.

In accordance with the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, our directors and employees, including our executive officers, could adopt stock trading plans pursuant to which they may sell shares of our common stock from time to time in the future. Generally, sales under such plans by our executive officers and directors require public filings. Actual or potential sales of our common stock by such persons could cause our common stock to fall or prevent it from increasing for numerous reasons. For example, a substantial number of shares of our common stock becoming available (or being perceived to become available) for sale in the public market could cause the market price of our common stock to fall or prevent it from increasing. Also, actual or potential sales by such persons could be viewed negatively by investors.

Future issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our shareholders and could cause our stock price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in material dilution to our investors. Such sales may also result in material dilution to our existing shareholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock.

~~Our principal shareholders and management own a majority of our stock and have the ability to exert significant control over matters subject to shareholder approval.~~

As of December 31, 2016, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned a majority of our voting stock, including shares subject to outstanding options and warrants. As a result, if these shareholders were to choose to act together, they would be able to significantly influence the outcome of all matters requiring shareholder approval, including the election of directors, amendments of our organizational documents, or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest. The interests of this group of shareholders may not always coincide with your interests or the interests of other shareholders and they may act in a manner that advances their best interests and not necessarily those of other shareholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock. Such concentration of ownership control may:

~~delay, defer or prevent a change in control;~~

~~entrench our management and/or the board of directors; or~~

~~impede a merger, consolidation, takeover or other business combination involving us that other shareholders may desire.~~

In addition, persons associated with Longitude Capital Partners, LLC and Skyline Venture Partners V, L.P. currently serve on our board of directors. The interests of Longitude Capital Partners, LLC and Skyline Venture Partners V, L.P. may not always coincide with the interests of the other shareholders, and the concentration of control in Longitude Capital Partners, LLC and Skyline Venture Partners V, L.P. limits other shareholders’ ability to influence corporate matters. We may also take actions that our other shareholders do not view as beneficial, which may adversely affect our results of operations and financial condition and cause a decline in our stock price.

~~Table of Contents~~

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 ~~include:~~

a provision allowing our board of directors to set the terms of and issue preferred stock with rights senior to those of the common stock without any vote or action by the holders of our common stock. The issuance of preferred stock could adversely affect the rights and powers, including voting rights, of the holders of common stock;

~~advance written notice procedures and notice requirements with respect to shareholder proposals and shareholder nomination of candidates for election as directors;~~

~~a provision that only the board of directors, the chairman of the board of directors or the president may call a special meeting of the shareholders;~~

the application of Virginia law prohibiting us from entering into certain transactions with the beneficial owner of more than 10 percent of our outstanding voting stock for a period of three years after such person first reached that level of stock ownership, unless certain conditions are met;

~~a provision dividing our board of directors into three classes, each serving three-year terms;~~

~~the requirement that the authorized number of our directors be changed only by resolution of our board of directors;~~

~~a provision that our board of directors shall fill any vacancies on our board of directors, including vacancies resulting from a board of directors’ resolution to increase the number of directors;~~

~~limitations on the manner in which shareholders can remove directors from the board of directors;~~

~~the lack of cumulative voting in the election of directors; and~~

~~the prohibition on shareholders acting by less-than-unanimous written consent.~~

~~These provisions also~~ could limit the price that certain investors might be willing to pay in the future for shares of our common stock. In addition, these provisions make it more difficult for our shareholders to remove our ~~board~~Board of ~~directors~~Directors or management or elect new directors to our ~~board~~Board of ~~directors.~~Directors.

~~We may fail to qualify for continued listing on The NASDAQ Global Select Market which could make it more difficult for investors to sell their shares.~~

Our common stock is listed on The NASDAQ Global Select Market (“NASDAQ”). As a NASDAQ listed company, we are required to satisfy the continued listing requirements of NASDAQ for inclusion in the Global Select Market to maintain such listing, including, among other things, the maintenance of a minimum closing bid price of $1.00 per share and shareholders’ equity of at least $10.0 million. There can be no assurance that we will be able to maintain compliance with the continued listing requirements or that our common stock will not be delisted from NASDAQ in the future. If our common stock is delisted by NASDAQ, we could face significant material adverse consequences, including:

~~a limited availability of market quotations for our securities;~~

~~reduced liquidity with respect to our securities;~~

~~Table of Contents~~

a determination that our shares are a “penny stock,” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares;

~~a limited amount of news and analyst coverage for our company; and~~

~~a decreased ability to issue additional securities or obtain additional financing in the future.~~

~~If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.~~

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

We are an “emerging growth company” and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in our common stock being less attractive to investors and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our shares of common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various reporting requirements applicable to other public companies, but not to emerging growth companies, including, but not limited to, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements pursuant to the rules applicable to smaller reporting companies and no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements. We will remain an emerging growth company until the earliest of (i) December 31, 2020, (ii) the first fiscal year after our annual gross revenue are $1.07 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.

If investors find our common stock less attractive as a result of our reduced reporting requirements, there may be a less active trading market for our common stock and our stock price may be more volatile. We may also be unable to raise additional capital as and when we need it.

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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to ~~accurately~~ report our financial condition, results of operations or cash flows accurately, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting. ~~Commencing with our annual report on Form 10-K for the year ended December 31, 2016, we~~We are required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement.

Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion, which could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. During the evaluation and testing process, ifIf we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its reviews,Further, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to ~~the~~ capital markets.

~~Our disclosure controls and procedures may not prevent or detect all errors or acts~~

Table of ~~fraud.~~Contents

~~We are subject to~~Sales of our common stock in the ~~periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed~~public market, either by us ~~in reports we file~~ or ~~submit under~~by our current shareholders, or the ~~Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified~~perception that these sales could occur, could cause a decline in the ~~rules and forms~~market price of the SEC. We believe that any disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations reflect the reality that judgments can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our ~~control system, misstatements due to error or fraud may occur and not be detected.~~

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~~The~~securities. Moreover, the exercise of options ~~and warrants~~ and other issuances of shares of common stock or securities convertible into or exercisable for shares of common stock will dilute your ownership interests and may adversely affect the future market price of our common stock.

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 ~~those of~~ our current shareholders may be immediately eligible for resale in the open market either in compliance with an exemption under Rule 144 promulgated under the Securities Act, or pursuant to an effective resale registration statement that we have previously filed with the SEC. Such sales, along with any other market transactions, could adversely affect the market price of our common stock.

~~In addition, as~~ As of ~~September 30, 2017,~~March 31, 2024, there were ~~(a)~~ outstanding options to purchase an aggregate of ~~3,056,954~~975,550 shares of our common stock at a weighted average exercise price of ~~$13.00~~$19.17 per share, of which options to purchase ~~940,101~~974,941 shares of our common stock were then ~~exercisable, and (b) 2,445 shares of common stock issuable upon the exercise of warrants to purchase common stock at a weighted-average exercise price of $12.27 per share.~~exercisable. The exercise of options ~~and warrants~~ at prices below the market price of our common stock could adversely affect the price of shares of our common stock. Additional dilution may result from the issuance of shares of our common stock in connection with collaborations or manufacturing arrangements or in connection with other financing efforts.

~~Any issuance~~

There can be no assurance that we will repurchase additional shares of our common stock ~~that is not made solely~~at all or at favorable prices.

In August 2021, our Board of Directors authorized a repurchase program for the repurchase of up to then-existing shareholders proportionate to their interests, such as in the case of a stock dividend or stock split, will result in dilution to each shareholder by reducing his, her or its percentage ownership of the total outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in the future and those options or warrants are exercised you may experience further dilution. Holders$100 million of shares of our common stock ~~have no preemptive rights that entitle them~~at any time or times through December 31, 2022 (the “Prior Repurchase Program”). We repurchased $61.9 million of shares pursuant to ~~purchase their pro rata~~the Prior Repurchase Program prior to its expiration on December 31, 2022. In January 2023, our Board of Directors authorized a share repurchase program for the repurchase of ~~any offering~~up to $100.0 million of shares of ~~any class or series.~~our common stock through December 31, 2023 (the “2023 Repurchase Program”). We repurchased $75.0 million of shares pursuant to the 2023 Repurchase Program prior to its expiration on December 31, 2023.

~~We have broad discretion in~~In January 2024, our Board of Directors authorized a new share repurchase program for the ~~use~~repurchase of ~~our cash and cash equivalents, and, despite our efforts, we may use them in a manner that does not increase the value~~up to $150.0 million of ~~your investment.~~

We have broad discretion in the use of our cash and cash equivalents, and investors must rely on the judgment of our management regarding the use of our cash and cash equivalents. Our management may not use cash and cash equivalents in ways that ultimately increase the valueshares of our common ~~stock. Our failure~~stock through June 30, 2025 (the “2024-2025 Repurchase Program”). The 2024-2025 Repurchase Program permits us to ~~use~~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. Share repurchases under the 2024-2025 Repurchase Program will depend upon, among other factors, our cash balances and ~~cash equivalents effectively could result in~~potential future capital requirements, our results of operations and financial ~~losses that could have a material adverse effect on our business, cause~~condition, the price of our common stock ~~to decline~~on the NASDAQ Global Select Market, and delay the commercialization or development of our product and product candidates. We may invest our cash and cash equivalents in short-term or long-term, investment-grade, interest-bearing securities. These investments may not yield favorable returns. If we do not invest or apply our cash and cash equivalents in waysother factors that ~~enhance shareholder value,~~ we may ~~fail~~deem relevant. We can provide no assurance that we will continue to ~~achieve expected financial results, which could cause the price~~repurchase shares of our common stock ~~to decline.~~at favorable prices, if at all.

~~Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.~~

We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our capital stock will be your sole source of gain for the foreseeable future.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

~~RECENT SALES OF UNREGISTERED SECURITIES~~

There were no unregistered sales of equity securities during the period covered by this ~~Quarterly Report~~quarterly report on Form 10-Q.

~~PURCHASE OF EQUITY SECURITIES~~

Purchases of Equity Securities

The following table sets forth ~~purchases~~shares of ~~our~~ common stock ~~for the three months ended September 30, 2017:~~

Period
(a) Total number of shares purchased (1)
(b) Average Price Paid per Share
(c) Total number of shares purchased as part of publicly announced plans or programs
(d) Maximum number of shares that may yet be purchased under the plans or programs
July 1, 2017 through July 31, 2017
1,403
12.39
-
-
August 1, 2017 through August 31, 2017
-
-
-
-
September 1, 2017 through September 30, 2017
-
-
-
-
Total
1,403
$ 12.39
-
-

~~(1) All of the~~repurchased under our 2024-2025 Repurchase Program, as well as shares ~~were~~ transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of performance share units and restricted stock units during the ~~period.~~three months ended March 31, 2024:


Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs ⁽¹⁾		Maximum approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
January 1, 2024 through January 31, 2024	750		$	32.63	—		$	150,000
February 1, 2024 through February 29, 2024	379,818			33.70	—			150,000
March 1, 2024 through March 31, 2024	1,329			37.50	—			150,000
Total	381,897	⁽²⁾	$	33.71	—	⁽²⁾	$	150,000

(1)

The 2024-2025 Repurchase Program was announced on January 3, 2024. The 2024-2025 Repurchase Program provides for the repurchase of up to $150.0 million of outstanding shares of our common stock at any time or times through June 30, 2025. The 2024-2025 Repurchase Program did not expire during the three months ended March 31, 2024, nor do we currently plan to terminate the 2024-2025 Repurchase Program prior to expiration. However, there can be no assurance as to the timing or number of shares of any repurchases in the future.

(2)

The difference, if any, between the total number of shares purchased and the total number of shares purchased as part of a publicly announced program relates to common stock withheld by us for employees to satisfy their tax withholding obligations arising upon the vesting of performance share units and restricted stock units granted under our Amended and Restated 2014 Stock Incentive Plan.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

~~Not applicable.~~Rule 10b5-1 Trading Plans

The disclosure set forth in Part II – Item 2 above is incorporated herein by reference.

The following table shows the “Rule 10b5-1 trading arrangements” or “non-Rule 10b5-1 trading arrangements” (as each term is defined in Item 408(a) of Regulation S-K) adopted, amended, or terminated by our directors and officers during the three months ended March 31, 2024:

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Trading Arrangement

Name

Title

Action

Effective Date

Rule 10b5-1

Non-Rule 10b5-1

Scheduled Expiration Date of Trading Plan ⁽¹⁾

Maximum Shares Subject to Trading Plan

Joseph Ciaffoni

Director, President and Chief Executive Officer

Adoption

February 26, 2024

December 31, 2024

157,285

Colleen Tupper

Executive Vice President and Chief Finance Officer

Adoption

February 26, 2024

October 31, 2024

19,710

Shirley Kuhlmann

Executive Vice President, Chief Administrative Officer, General Counsel & Secretary

Adoption

February 26, 2024

June 7, 2024

37,500

(1)

A trading arrangement may expire on an earlier date if all contemplated transactions are completed before such trading arrangement’s expiration date, upon termination by broker or the holder of the trading arrangement, or as otherwise provided in the trading arrangement.

Item 6. Exhibits.

~~See the Exhibit Index on the following page of this Quarterly Report on Form 10-Q.~~

~~Table of Contents~~

~~EXHIBIT INDEX~~

Exhibit Number		Exhibit Description
31.1



~~31.1~~		Certification of Chief Executive Officer pursuant to Rules 13a- 14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Chief Financial Officer pursuant to Rules 13a- 14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

~~Table of Contents~~

~~SIGNATURES~~

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.


				COLLEGIUM PHARMACEUTICAL, INC.
	~~COLLEGIUM PHARMACEUTICAL, INC.~~

Date: ~~November 8, 2017~~	May 9, 2024		By:	/s/ ~~MICHAEL HEFFERNAN~~JOSEPH CIAFFONI
		~~Michael Heffernan~~		Joseph Ciaffoni
				Chief Executive Officer
				(Principal executive officer)

Date: ~~November 8, 2017~~	May 9, 2024		By:	/s/ ~~PAUL BRANNELLY~~COLLEEN TUPPER
		~~Paul Brannelly~~		Colleen Tupper
				Chief Financial Officer
				(Principal financial and accounting officer)

6962

	PART I—FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17 32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
~~Item 4.~~	~~Controls and Procedures~~	23

	~~PART II—OTHER INFORMATION~~
		39
Item 1.4.	~~Legal Proceedings~~Controls and Procedures	25 39

	PART II—OTHER INFORMATION

Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	25 41
Item 2.1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65 60
Item 3.	Defaults Upon Senior Securities	65 60
Item 4.	Mine Safety Disclosures	65 60
Item 5.	Other Information	65 60
Item 6.	Exhibits	66 61
Signatures		62




	September 30,		December 31,
	2017		2016
Assets
Current assets
Cash and cash equivalents	$	107,611	$	153,225
Accounts receivable		5,823		2,129
Inventory		1,401		1,316
Prepaid expenses and other current assets		4,061		1,905
Total current assets		118,896		158,575
Property and equipment, net		1,632		1,038
Intangible assets, net		1,877		2,103
Restricted cash		97		97
Other long-term assets		171		204
Total assets	$	122,673	$	162,017
Liabilities and shareholders' equity (deficit)
Current liabilities
Accounts payable	$	4,982	$	9,106
Accrued expenses		19,268		8,879
Deferred revenue		—		4,944
Current portion of term loan payable		2,146		2,667
Total current liabilities		26,396		25,596
Lease incentive obligation		8		34
Term loan payable, long-term		—		1,479
Total liabilities		26,404		27,109
Commitments and contingencies (see Note 10)
Shareholders’ equity:
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		—		—
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		31		29
Additional paid-in capital		376,884		358,063
Accumulated deficit		(280,646)		(223,184)
Total shareholders’ equity		96,269		134,908
Total liabilities and shareholders’ equity	$	122,673	$	162,017


	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Product revenues, net	$	11,950	$	408	$	17,682	$	408
Costs and expenses
Cost of product revenues		553		29		1,501		29
Research and development		2,069		3,254		6,378		11,617
Selling, general and administrative		22,758		23,567		67,667		55,266
Total costs and expenses		25,380		26,850		75,546		66,912
Loss from operations		(13,430)		(26,442)		(57,864)		(66,504)

Interest income (expense), net		167		(2)		402		(113)

Net loss	$	(13,263)	$	(26,444)	$	(57,462)	$	(66,617)

Loss per share - basic and diluted	$	(0.45)	$	(1.13)	$	(1.95)	$	(2.85)
Weighted-average shares - basic and diluted		29,753,043		23,460,340		29,517,396		23,334,558


						Significant
				Quoted Prices		other		Significant
				in active		observable		unobservable
				markets		inputs		inputs
Description		Total		(Level 1)		(Level 2)		(Level 3)
September 30, 2017
Money market funds, included in cash equivalents	$	81,026	$	81,026	$	—	$	—

December 31, 2016
Money market funds, included in cash equivalents	$	125,515	$	125,515	$	—	$	—


				Additional				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



	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


		Weighted-Average
		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


		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-
			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


Period	(a) Total number of shares purchased (1)	(b) Average Price Paid per Share	(c) Total number of shares purchased as part of publicly announced plans or programs	(d) Maximum number of shares that may yet be purchased under the plans or programs
July 1, 2017 through July 31, 2017	1,403	12.39	-	-
August 1, 2017 through August 31, 2017	-	-	-	-
September 1, 2017 through September 30, 2017	-	-	-	-
Total	1,403	$ 12.39	-	-