For the ~~Quarterly Period Ended: September~~quarterly period ended: June 30, ~~2017~~2020

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 Section13(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 ~~November 7, 2017,~~August 5, 2020, there were ~~19,123,935~~23,640,494 shares of common stock, par value $0.01 per share, outstanding.

(amounts in thousands, except share and per share data)	September 30, 2017			December 31, 2016			June 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	11,803		$	64,483		$	22,787		$	19,148
Short-term investments		29,507			—
Accounts receivable		13,126			10,411			11,584			14,389
Contract asset								8,911			8,851
Inventory		9,891			8,746			11,772			15,072
Prepaid expenses and other current assets		2,785			1,118			2,986			2,700
Total current assets		67,112			84,758			58,040			60,160
Property, plant and equipment, net		38,197			37,300			42,448			42,212
Deferred income taxes		21,759			17,060
Intangible assets, net		35,496			37,433			1,991			3,283
Goodwill		6,446			6,446			4,319			4,319
Other assets								399			485
Total assets	$	169,010		$	182,997		$	107,197		$	110,459
Liabilities and Shareholders’ Equity
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	2,823		$	4,132		$	871		$	989
Accrued expenses and other current liabilities		9,150			9,893			4,870			4,324
Current portion of contingent consideration		30,372			—
Current portion of long-term debt, net		—			2,236
Current portion of debt								7,289			—
Liabilities of discontinued operation								—			1,172
Total current liabilities		42,345			16,261			13,030			6,485
Long-term debt, net		24,890			22,152
Warrants and other long-term liabilities		3,600			3,397
Long-term portion of contingent consideration		48,525			69,574
Debt, net								109,265			110,319
Other liabilities								313			367
Total liabilities		119,360			111,384			122,608			117,171
Commitments and contingencies (Note 13)
Shareholders’ equity:
Preferred stock, $0.01 par value. Authorized, 10,000,000 shares; none issued and outstanding		—			—
Common stock, $0.01 par value. Authorized, 50,000,000 shares; issued and outstanding, 19,060,260 shares at September 30, 2017 and 19,043,216 shares at December 31, 2016		191			190
Commitments and contingencies (note 11)
Stockholders’ deficit:
Preferred stock, $0.01 par value. 10,000,000 shares authorized, NaN issued or outstanding								—			—
Common stock, $0.01 par value. 50,000,000 shares authorized, 23,638,906 issued and outstanding at June 30, 2020 and 23,312,928 shares issued and outstanding at December 31, 2019								236			233
Additional paid-in capital		136,732			132,691			204,940			199,938
Accumulated deficit		(87,265	)		(61,268	)		(220,587	)		(206,883	)
Accumulated other comprehensive loss		(8	)		—
Total shareholders’ equity		49,650			71,613
Total liabilities and shareholders’ equity	$	169,010		$	182,997
Total stockholders’ deficit								(15,411	)		(6,712	)
Total liabilities and stockholders’ deficit							$	107,197		$	110,459

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(amounts in thousands, except share and per share data)

2017

2016

2017

2016

Revenue

$
17,114

$
16,951

$
52,790

$
51,973

Operating expenses:

Cost of sales (excluding amortization of intangible assets)

6,882

5,745

27,829

25,563

Research and development

9,296

7,046

24,132

23,175

General and administrative

6,635

3,841

16,990

9,263

Amortization of intangible assets

646

646

1,937

1,937

Change in warrant valuation

808

402

15

47

Change in contingent consideration valuation

3,550

3,192

9,323

7,705

Total operating expenses

27,817

20,872

80,226

67,690

Operating loss

(10,703
)

(3,921
)

(27,436
)

(15,717
)
Other income (expense):

Interest income

62

10

284

27

Interest expense

(1,235
)

(1,450
)

(3,625
)

(4,279
)
Net loss before income taxes

(11,876
)

(5,361
)

(30,777
)

(19,969
)
Income tax benefit (expense)

2,821

(18
)

4,780

166

Net loss

$
(9,055
)

$
(5,379
)

$
(25,997
)

$
(19,803
)

Per share information:

Net loss per share of common stock, basic and diluted

$
(0.48
)

$
(0.50
)

$
(1.36
)

$
(2.01
)
Weighted average common shares outstanding, basic and diluted

19,058,956

10,780,911

19,053,636

9,862,526

Other comprehensive loss:

Unrealized gain (loss) on available-for-sale securities

68

—

(8
)

—

Comprehensive loss

$
(8,987
)

$
(5,379
)

$
(26,005
)

$
(19,803
)

	Three months ended June 30,						Six months ended June 30,
(amounts in thousands, except share and per share data)	2020			2019			2020			2019
Revenue	$	15,522		$	31,256		$	37,299		$	56,322
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		11,634			14,100			29,888			28,491
Selling, general and administrative		4,259			5,533			9,705			12,037
Amortization of intangible assets		646			646			1,292			1,292
Change in warrant valuation		—			1,041			—			779
Total operating expenses		16,539			21,320			40,885			42,599
Operating income (loss) from continuing operations		(1,017	)		9,936			(3,586	)		13,723
Interest expense		(4,995	)		(5,176	)		(10,118	)		(8,766	)
(Loss) income from continuing operations		(6,012	)		4,760			(13,704	)		4,957
Loss on discontinued operations		—			(7,596	)		—			(9,771	)
Net loss	$	(6,012	)	$	(2,836	)	$	(13,704	)	$	(4,814	)

Income (loss) per share information:
Basic:
Continuing operations	$	(0.25	)	$	0.21		$	(0.58	)	$	0.22
Discontinued operations		—			(0.34	)		—			(0.44	)
Total	$	(0.25	)	$	(0.13	)	$	(0.58	)	$	(0.22	)
Weighted average shares outstanding		23,577,255			22,265,612			23,486,011			22,092,853
Diluted:
Continuing operations	$	(0.25	)	$	0.21		$	(0.58	)	$	0.22
Discontinued operations		—			(0.33	)		—			(0.43	)
Total	$	(0.25	)	$	(0.12	)	$	(0.58	)	$	(0.21	)
Weighted average shares outstanding		23,577,255			22,926,402			23,486,011			22,825,910

Common Stock

Additional

Accumulated other

(amounts in thousands, except share data)

Shares

Amount

paid-in
capital

Accumulated
Deficit

comprehensive
loss

Total

Balance, December 31, 2016

19,043,216

190

132,691

(61,268
)

—

71,613

Stock-based compensation expense

—

—

4,265

—

—

4,265

Stock option exercise

4,256

1

26

—

—

27

Issuance of restricted stock units

12,788

—

(250
)

—

—

(250
)
Other comprehensive loss

—

—

—

—

(8
)

(8
)
Net loss

—

—

(25,997
)

—

(25,997
)
Balance, September 30, 2017

19,060,260

$
191

$
136,732

$
(87,265
)

$
(8
)

$
49,650

	Common stock				Additional paid-in capital			Accumulated deficit
(amounts in thousands, except share data)	Shares		Amount		Additional paid-in capital			Accumulated deficit			Total
Balance, December 31, 2019		23,312,928	$	233	$	199,938		$	(206,883	)	$	(6,712	)
Stock-based compensation expense		—		—		3,231			—			3,231
Exercise of stock options, net		37,063		—		(105	)		—			(105	)
Vesting of restricted stock units, net		105,242		1		(917	)		—			(916	)
Net loss		—		—		—			(7,692	)		(7,692	)
Balance, March 31, 2020		23,455,233		234		202,147			(214,575	)		(12,194	)
Stock-based compensation expense		—		—		2,446			—			2,446
Exercise of stock options, net		105,606		1		378			—			379
Vesting of restricted stock units, net		78,067		1		(31	)		—			(30	)
Net loss		—		—		—			(6,012	)		(6,012	)
Balance, June 30, 2020		23,638,906	$	236	$	204,940		$	(220,587	)	$	(15,411	)

	Common stock				Additional paid-in capital			Accumulated deficit
(amounts in thousands, except share data)	Shares		Amount		Additional paid-in capital			Accumulated deficit			Total
Balance, December 31, 2018		21,799,961	$	218	$	168,535		$	(188,253	)	$	(19,500	)
Stock-based compensation expense		—		—		2,826			—			2,826
Exercise of stock options, net		29,750		—		185			—			185
Vesting of restricted stock units, net		268,915		3		(865	)		—			(862	)
Issuance of common stock for equity facility		34,762		—		301			—			301
Net loss		—		—		—			(1,978	)		(1,978	)
Balance, March 31, 2019		22,133,388		221		170,982			(190,231	)		(19,028	)
Stock-based compensation expense		—		—		2,359			—			2,359
Exercise of stock options, net		206,625		2		907			—			909
Vesting of restricted stock units, net		74,594		1		(114	)		—			(113	)
Net loss		—		—		—			(2,836	)		(2,836	)
Balance, June 30, 2019		22,414,607	$	224	$	174,134		$	(193,067	)	$	(18,709	)

For the Nine Months Ended September 30,

(amounts in thousands)

2017

2016

Cash flows from operating activities:

Net loss

$
(25,997
)

$
(19,803
)
Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

4,265

2,799

Non-cash interest expense

612

800

Depreciation expense

3,655

3,756

Amortization

1,937

1,937

Acquired in-process research and development charges

766

—

Change in warrant valuation

15

47

Change in contingent consideration valuation

9,323

7,705

Deferred income taxes

(4,698
)

(352
)
Changes in operating assets and liabilities, net of effect of acquisition:

Inventory

(1,146
)

(830
)
Prepaid expenses and other current assets

(1,667
)

(911
)
Accounts receivable

(2,715
)

(3,844
)
Accounts payable, accrued expenses and other liabilities

(2,391
)

4,498

Net cash used in operating activities

(18,041
)

(4,198
)
Cash flows from investing activities:

Purchase of property and equipment

(4,586
)

(2,014
)
Purchase of short-term investments

(55,626
)

—

Proceeds from maturity/redemption of investments

26,000

—

Acquisition of license agreement

(437
)

—

Net cash used in investing activities

(34,649
)

(2,014
)
Cash flows from financing activities:

Proceeds from Aspire facility

—

4,175

Payments on long-term debt

—

(6,324
)
Proceeds from sale of common stock, net of transaction costs

—

13,367

Payments of withholdings on shares withheld for income taxes

(17
)

(33
)
Proceeds from option exercise

27

—

Net cash provided by financing activities

10

11,185

Net decrease in cash and cash equivalents

(52,680
)

4,973

Cash and cash equivalents, beginning of period

64,483

19,779

Cash and cash equivalents, end of period

$
11,803

$
24,752

Supplemental disclosure of cash flow information:

Cash paid for interest

$
3,122

$
3,479

Cash paid for taxes

$
467

$
—

Unrealized loss on available-for-sale securities

$
8

$
—

Purchase of property, plant and equipment included in accrued expenses and accounts
payable

$
774

$
307

Amortization of deferred equity costs

$
—

$
224

Withholdings on shares withheld for income taxes included in accrued expenses

$
233

$
—

Retirement of fully depreciated property, plant and equipment

$
152

$
—

	Six months ended June 30,
(amounts in thousands)	2020			2019
Cash flows from operating activities, continuing operations:
Net loss	$	(13,704	)	$	(4,814	)
Loss on discontinued operations		—			9,771
Adjustments to reconcile income or loss from continuing operations to net cash provided by operating activities, continuing operations:
Stock-based compensation expense		5,677			3,541
Non-cash interest expense		2,919			2,414
Depreciation expense		3,008			2,784
Amortization of intangible assets		1,292			1,292
Change in warrant valuation		—			779
Changes in operating assets and liabilities:
Accounts receivable		2,805			(4,930	)
Contract asset		(60	)		(2,953	)
Inventory		3,300			1,060
Prepaid expenses and other assets		(200	)		(1,896	)
Accounts payable, accrued expenses and other liabilities		(631	)		(453	)
Net cash provided by operating activities, continuing operations		4,406			6,595
Cash flows from investing activities, continuing operations:
Purchases of property and equipment		(2,239	)		(7,462	)
Purchases of short-term investments		—			(12,021	)
Proceeds from maturity of investments		—			10,100
Net cash used in investing activities, continuing operations		(2,239	)		(9,383	)
Cash flows from financing activities, continuing operations:
Proceeds from issuance of debt, net of original issue discount of $11,400 for the six months ended June 30, 2019		4,416			43,600
Repayments of debt		(1,100	)		—
Payment of deferred financing costs		—			(2,936	)
Net payments related to vesting of restricted stock units		(1,181	)		(974	)
Net proceeds related to exercise of stock options		509			1,094
Net cash provided by financing activities, continuing operations		2,644			40,784
Net increase in cash and cash equivalents from continuing operations		4,811			37,996
Discontinued operations:
Cash flows used in operating activities		(1,172	)		(34,382	)
Cash flows used in investing activities		—			(1,728	)
Cash flows used in financing activities		—			(10,000	)
Net decrease in cash and cash equivalents from discontinued operations		(1,172	)		(46,110	)
Cash and cash equivalents, beginning of period		19,148			38,514
Cash and cash equivalents, end of period	$	22,787		$	30,400
Supplemental disclosures of cash flow information:
Cash paid for interest	$	7,228		$	6,644
Purchases of property, plant and equipment included in accrued expenses and accounts payable		1,293			257
Common stock issued in connection with equity facility		—			301

Recro Pharma, Inc.~~, or the Company,~~ (the “Company”) was incorporated in Pennsylvania on November 15, 2007. The Company is a ~~specialty pharmaceutical company that operates through two business divisions: an Acute Care division and a revenue-generating~~leading contract development and manufacturing ~~or CDMO division. Each~~organization (“CDMO”) with integrated solutions for the development, formulation, regulatory support, manufacturing, and packaging of ~~these divisions are deemed to be reportable segments (see Note 3(m)~~oral solid dose drug products. It leverages its formulation and ~~Note 17). The Acute Care division is primarily focused on developing innovative products for hospital and other acute care settings, and the CDMO division leverages the Company’s formulation~~development expertise to develop and manufacture pharmaceutical products using ~~the Company’s~~ proprietary delivery technologies and know-how for commercial partners who commercialize or plan to commercialize these products. ~~On April 10, 2015,~~The Company operates in 1 segment.

In November 2019, the Company’s former Acute Care business, which developed products for hospital and other acute care settings, was spun-out through its former wholly-owned subsidiary, Baudax Bio, Inc. (“Baudax Bio”) when the Company ~~acquired from Alkermes plc, or Alkermes, worldwide rights~~completed a special dividend distribution of all the outstanding shares of common stock of Baudax Bio to intravenous and intramuscular, or injectable, meloxicam, a proprietary long-acting preferential COX-2 inhibitor being developed for the management of moderate to severe pain, as well as a contract manufacturing facility, royalty and formulation business in Gainesville, Georgia. The acquisition is referred to herein as the Gainesville Transaction. In July 2017, the Company submitted a New Drug Application, or NDA,its shareholders. See note 3 to the ~~U.S. Food and Drug Administration, or~~consolidated financial statements for additional information about the ~~FDA, for its lead investigational product candidate intravenous, or IV, meloxicam 30 mg for the management~~spin-off of ~~moderate to severe pain. The FDA has accepted the NDA for review and has set a Prescription Drug User Fee Act, or PDUFA, date of May 26, 2018.~~

The Company has incurred net losses ~~from operations~~ since inception and has an accumulated deficit of ~~$87,265~~$220,587 as of ~~September~~June 30, ~~2017. Though its CDMO segment has been profitable, the Company anticipates incurring additional losses until such time, if ever,~~2020, which is mostly related to activities that ~~it can generate significant sales of its products currently in development. Additional financing will be needed by the Company to fund its~~are presented as discontinued operations ~~and to commercially develop its product candidates, including the payment~~as a result of the ~~Gainesville Transaction contingent payments, which may become due upon achievement~~spin-off of certain development and commercialization milestones for meloxicam (see Note 4). Insufficient funds may cause the Company to delay, reduce the scope of or eliminate one or more of its development, commercialization or expansion activities. The Company may raise such funds through debt refinancing, bank or other loans, through strategic research and development, licensing (including out-licensing) and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and failure to raise capital when needed could materially adversely impact the Company’s growth plans and its financial condition or results of operations. Additional equity financing, if available, may be dilutive to the holders of its common stock and may involve significant cash payment obligations and covenants that restrict the Company’s ability to operate its business.Baudax Bio. The Company’s future operations are highly dependent on ~~a combination of factors, including (i)~~ the continued profitability of ~~the CDMO segment; (ii) the timely and successful completion of additional financing and/or alternative sources of capital, debt, partnering or out-licensing transactions; (iii) the success of~~ its research and development, including the results and timing of its clinical trials; (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies; and, ultimately, (v) regulatory approval and market acceptance of the Company’s proposed future products.manufacturing operations. Management believes that it is probable that the ~~Company’s existing cash, cash equivalents and short-term investments as of September 30, 2017~~Company will be ~~sufficient~~able to ~~fund~~meet its ~~operations through mid-year 2018.~~obligations as they become due within one year after the date the financial statements are issued.

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles or (“U.S. ~~GAAP,~~GAAP”) for interim financial ~~information and~~information. In accordance with ~~the instructions of Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the~~SEC rules for interim financial statements, certain information ~~and notes~~ required by ~~the~~ U.S. GAAP ~~for complete annual financial statements.~~may be condensed or omitted. The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s results for the interim periods. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2017.~~2020.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes ~~as of and for the year ended December 31, 2016~~ included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019.

The preparation of financial statements and the notes to the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

Cash and cash equivalents ~~represents~~represent cash in banks and highly liquid short-term investments that have maturities of three months or less when ~~acquired to be cash equivalents.~~acquired. These highly liquid short-term investments are both readily convertible to known amounts of cash and so near to their maturity that they present insignificant risk of changes in value because of the changes in interest rates.

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to ten years for furniture, office and ~~office~~computer equipment; six to ten ~~or more~~ years for manufacturing equipment; ~~two to five years for vehicles; 35 to~~ 40 years for buildings; and the shorter of the lease term or useful life for leasehold improvements. Repairs and maintenance ~~cost~~costs are expensed as incurred.

In accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 805, “Business Combinations,” or ASC 805, the Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Valuations are performed to assist in determining the fair values of assets acquired and liabilities assumed, which requires management to make significant estimates and assumptions, in particular with respect to intangible assets. Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based in part on historical experience and information obtained from management of the acquired companies and expectations of future cash flows. Transaction costs and restructuring costs associated with the transaction are expensed as incurred. In-process research and development, or IPR&D, is the value assigned to those projects for which the related products have not received regulatory approval and have no alternative future use. Determining the portion of the purchase price allocated to IPR&D requires the Company to make significant estimates. In a business combination, the Company capitalizes IPR&D as an intangible asset, and for an asset acquisition the Company expenses IPR&D in the Consolidated Statements of Operations and Comprehensive Loss on the acquisition date.

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist. The impairment model prescribes a ~~two-step~~one-step method for determining impairment.

The ~~first step compares~~one-step quantitative test calculates the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to ~~its carrying amount to identify potential goodwill impairment. If~~exceed the ~~carrying~~total amount of ~~a reporting unit exceeds the reporting unit’s fair value, the second step of the impairment test must be completed to measure the amount of the reporting unit’s~~ goodwill ~~impairment loss, if any. Step two requires an assignment of the reporting unit’s fair value~~allocated to the reporting unit’s assets and liabilities to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is then compared with the carrying amount of the reporting unit’s goodwill to determine the goodwill impairment loss to be recognized, if any.unit.

Intangible assets include the Company’s royalties and contract manufacturing relationships ~~intangible asset as well as an IPR&D asset.~~assets. The royalties and contract manufacturing relationships intangible asset is considered a definite-lived intangible asset and is amortized on a straight-line basis over a useful life of six ~~years.~~

~~Intangible assets related~~years. The Company is required to IPR&D are considered indefinite-lived intangible assets and are assessed for impairment annually or more frequently if impairment indicators exist. If the associated research and development effort is abandoned, the related assets will be written-off, and the Company will record a noncash impairment loss on its Consolidated Statements of Operations and Comprehensive Loss. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives.

~~The impairment test for indefinite-lived intangible assets is a one-step test, which compares the fair value of the intangible asset to its carrying value. If~~review the carrying value ~~exceeds~~of definite-lived intangible assets for recoverability whenever events occur or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

The Company performs its ~~fair value,~~annual goodwill impairment test as of November 30^th, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of goodwill. In performing the evaluation, the Company assesses qualitative factors such as overall financial performance, anticipated changes in industry and market conditions, and competitive environments. The Company performed its last annual impairment loss is recognized in an amount equal to the excess. Based on accounting standards, it is required that these assets be assessed at least annually for impairment unless a triggering event occurs between annual assessments, which would then require an assessment in the period which a triggering event occurred. The most recent teststest as of November 30, ~~2016, indicated~~2019.

Since the last annual test, the Company has only identified the ongoing novel strain of coronavirus (“COVID-19”) pandemic as a potential indicator of impairment. The Company has performed periodic interim impairment testing that has resulted in 0 impairment of goodwill ~~and indefinite-lived intangible assets were not impaired. There were no indicators~~or other assets. The Company continues to monitor the impact of ~~impairment as of September 30, 2017.~~the COVID-19 pandemic.

The Company generates revenues from manufacturing, packaging, research and development ~~manufacturing, packaging~~ and related services for multiple pharmaceutical ~~companies through its CDMO segment.~~companies. The agreements that the Company has with its commercial partners provide for manufacturing revenues, sales-based royalties and/or ~~profit sharing~~profit-sharing components.

Manufacturing and other related services revenue is recognized ~~when persuasive evidence~~upon transfer of ~~an arrangement exists,~~control of a product to a customer, generally upon shipment, ~~has occurred~~based on a transaction price that reflects the consideration the Company expects to be entitled to as specified in the agreement with the commercial partner, which could include pricing and ~~the title to the product and associated risk of loss has passed to the customer, the sales price is fixed or determinable and collectability is reasonably assured.~~volume-based adjustments.

In addition to manufacturing and packaging revenue, ~~the~~certain customer agreements may have intellectual property sales-based royalties and/or ~~profit sharing payments,~~profit-sharing consideration, collectively referred to as royalties, computed on the net product sales of the commercial partner. Royalty ~~and profit sharing~~ revenues are generally recognized under the terms of the applicable license, development and/or supply ~~agreement in~~agreement. For arrangements that include sales-based royalties where the ~~period~~license for intellectual property is deemed to be the ~~products~~predominant item to which the royalties relate, the Company recognizes revenue when the related sales occur by the commercial partner. For arrangements that include sales-based royalties where the license for intellectual property is not deemed to be the predominant item to which the royalties relate, the Company recognizes revenue upon transfer of control of the manufactured product. In these cases, significant judgment is required to calculate this estimated variable consideration using

the most-likely amount method based on historical customer pricing and deductions and is partially constrained due to items that are ~~sold~~outside of the Company’s control including the uncertainty of the timing of future commercial partner sales, mix of volume, customer stocking and ~~when collectability is reasonably assured.~~ordering patterns, as well as unforeseen price adjustments made by the Company’s commercial partners.

Research and development revenue includes services associated with formulation, process development, CTM services, as well as custom development of manufacturing processes and analytical methods for a customer’s non-clinical, clinical and commercial products. Such revenues are ~~generally~~ recognized asat a point in time or over time depending on the ~~related services or activities are performed, in accordance~~nature and particular facts and circumstances associated with the contract terms. ~~To the extent~~

In contracts that ~~the agreements specify services are to be performed on a fixed basis, revenues are recognized consistent with the pattern of the work performed. In agreements which~~ specify milestones, the Company ~~recognizes revenue from non-refundable milestone payments when~~evaluates whether the ~~earnings process is complete~~milestones are considered probable of being achieved and estimates the ~~payment is reasonably assured. Non-refundable milestone~~amount to be included in the transaction price using the most likely amount method. Milestone payments related to arrangements under which ~~the Company has~~we have continuing performance obligations would be deferred and recognized over the period of performance. Milestone payments that are not within our control, such as submission for approval to regulators by a commercial partner or approvals from regulators, are not considered probable of being achieved until those submissions are submitted by the customer or approvals are received.

In contracts that require revenue recognition over time, the Company utilizes input or output methods, depending on the specifics of the contract, that compare the cumulative work-in-process to date to the most current estimates for the entire performance obligation. Under these contracts, the customer typically owns the product details and process, which have no alternative use. These projects are customized to each customer to meet its specifications and typically only one performance obligation is included. Each project represents a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of its product as the product is being created or enhanced by the Company’s services and can make changes to its process or specifications upon request.

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents ~~short-term investments~~ and accounts receivable. The Company manages its cash and cash equivalents ~~and short-term investments~~ based on established guidelines relative to diversification and maturities to maintain safety and liquidity.

The Company’s accounts receivable balances are primarily concentrated ~~amongst approximately five customers and if~~among 4 customers. If any of these customers’ receivable balances should be deemed uncollectible, it could have a material adverse effect on the Company’s results of operations and financial condition.

~~Research and development costs~~The Company is dependent on its relationships with a small number of commercial partners, with its 4 largest customers having generated 95% or more of its revenues for the Company’s proprietary products/product candidates are charged to expense as incurred. Research and development expenses consist primarily of funds paid to third parties for the provision of services for pre-commercialization and manufacturing scale-up activities, drug development, clinical trials, statistical analysis and report writing and regulatory filing fees and compliance costs. At the endperiods presented. A portion of the ~~reporting period,~~Company’s revenues are dependent on U.S. based customers selling to end-users outside the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on

the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expenses relating to these costs.

Upfront and milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed as services are rendered. Costs incurred in obtaining product technology licenses are charged to research and development expense as acquired IPR&D if the technology licensed has not reached technological feasibility and has no alternative future use.United States.

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. The Company accounts for forfeitures as they occur.

Determining the appropriate fair value of stock options requires the input of subjective assumptions, including the expected life of the option and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future stock option exercise patterns, ~~and post-vesting employment termination behavior for its stock options grants. The simplified method~~which is

based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses the historical volatility of ~~our~~its publicly traded stock in order to estimate future stock price trends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

~~Non-employee~~Upon exercise of stock options or vesting of restricted stock units, the holder may elect to cover tax withholdings by forfeiting shares of an equivalent value. In such cases, the Company issues net new shares to the holder, pays the tax withholding on behalf of the participant and presents the payment similar to a capital distribution as both a reduction to additional paid-in-capital and a financing cash outflow in the consolidated financial statements.

For non-employee stock-based awards, ~~are revalued until an award vests and~~ the Company recognizes compensation expense on a straight-line basis over the vesting period of each separated vesting tranche of the award, which is known as the accelerated attribution method. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax ~~bases and~~basis, operating ~~loss~~losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is recorded to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized. A full valuation allowance was recorded as of June 30, 2020 and December 31, 2019.

Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the consolidated financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

Basic ~~net~~income or loss per common share is determined by dividing net income or loss ~~applicable to common shareholders~~ by the weighted average common shares outstanding during the period.

For ~~all periods presented,~~purposes of calculating diluted income or loss per common share, the numerator and denominator of basic income or loss per share are adjusted to eliminate the income or loss and the dilutive effects on shares, respectively, caused by outstanding common stock options, warrants and unvested restricted stock units, ~~have been excluded from~~using the ~~calculation of diluted net loss per share because their effect would be anti-dilutive.~~

~~For purposes of calculating diluted loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common~~treasury stock ~~equivalents~~method, if the inclusion of such ~~common stock equivalents~~instruments would be dilutive.

There ~~are~~were no ~~dilutive common stock equivalents~~differences in the basic and diluted calculations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~.2020 because the Company reported net losses for those periods. There were also no differences in the income or loss used to calculate basic and diluted per share results in either of the three- or six-month periods ended June 30, 2019.

The following table ~~sets forth~~presents the ~~computation~~reconciliation of weighted average shares outstanding used for basic ~~earnings~~and diluted per share results for the three and ~~diluted earnings per share:~~

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding, as ~~of September 30, 2017 and 2016, as~~ they would behave been anti-dilutive:

Amounts in the table above reflect the common stock equivalents of the noted instruments.

The Company determined its reportable segments based on its strategic business units, the commonalities among the products and services within each segment and the manner in which the Company reviews and evaluates operating performance. The Company has identified CDMO and Acute Care as reportable segments. Segment disclosures are included in Note 17. Segment operating profit (loss) is defined as segment revenue less segment operating expenses (segment operating expenses consist of general and administrative expenses, research and development expenses, and the change in valuation of contingent consideration and warrants). The following items are excluded from segment operating profit (loss): interest income and expense, and income tax benefit (expense). Segment assets are those assets and liabilities that are recorded and reported by segment operations. Segment operating capital employed represents segment assets less segment liabilities.

In ~~July 2017,~~August 2018, the FASB issued ~~Accounting Standards Update,~~ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” or ASU ~~No. 2017-11~~ ~~“Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives~~2018-13. ASU 2018-13 removes, modifies and ~~Hedging (Topic 815): Accounting~~adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. ASU 2018-13 eliminates certain disclosures related to transfers and the valuations process, clarifies the measurement uncertainty disclosure, and requires additional disclosures for ~~Certain Financial Instruments with Down Round Features,”~~ orLevel 3 fair value measurements, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2017-11. ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, as equity-linked instruments or embedded equity-linked features will not be accounted for as a liability solely because there2018-13 is ~~a down-round feature. The amendments are~~ effective for ~~public companies for annual~~fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018. The~~2019. On January 1, 2020, the Company ~~is currently evaluating~~adopted this standard which did not have any impact on the ~~effect that this guidance may have on its~~Company’s consolidated financial ~~statements.~~statements or disclosures.

In ~~May 2017,~~June 2016, the FASB issued ASU No. ~~2017-09,~~ ~~Stock Compensation - Scope~~2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of ~~Modification Accounting~~.Credit Losses on Financial Instruments,” or ASU ~~2017-09 provides guidance on which changes~~2016-13. ASU 2016-13 requires companies to ~~the terms or conditions~~measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a ~~share-based payment award require an entity~~range of reasonable information to ~~apply modification accounting. The new standard~~estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, ~~2017.~~2022, including those interim periods within those fiscal years. The Company is currently ~~evaluating~~assessing the ~~effect that~~impact of adopting this standard, but based on a preliminary assessment, does not expect the adoption of this guidance ~~may~~to have a material impact on its consolidated financial statements.

~~In January 2017,~~On November 21, 2019 (the “Distribution Date”), the ~~FASB issued ASU No. 2017-04~~ ~~“Intangibles - Goodwill and Other (Topic 350): Simplifying~~Company completed the ~~Accounting for Goodwill Impairment,”~~ ~~or ASU 2017-04. ASU 2017-04 allows companies to apply a one-step quantitative test and record the amount~~separation (the “Separation”) of ~~goodwill impairment as the excess of a reporting unit’s carrying amount over~~ its ~~fair value,~~

~~Notes~~former Acute Care business by distributing to the ~~Consolidated Financial Statements~~

~~(amounts in thousands, except~~Company’s shareholders on a pro rata basis all of the issued and outstanding common stock of Baudax Bio, the entity the Company incorporated to hold such businesses. To effect the Separation, the Company distributed to its shareholders 1 share of Baudax Bio common stock for every 2.5 shares of the Company’s common stock outstanding as of November 15, 2019, the record date for the distribution. Fractional shares of Baudax Bio common stock that otherwise would have been distributed were aggregated and ~~per share data)~~

~~not to exceed~~sold into the ~~total amount of goodwill allocated~~public market and the proceeds distributed to the ~~reporting unit. The amendments of~~Company’s shareholders. Additionally, in connection with the ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The

Separation, the Company ~~is currently evaluating the effect that this guidance may have on its consolidated financial statements.~~

~~In August 2016, the FASB issued ASU No. 2016-15~~ ~~“Classification of Certain Cash Receipts and Cash Payments,”~~ ~~or ASU 2016-15. ASU 2016-15 provides guidance in the classification of certain cash receipts and payments in the statement~~contributed $19,000 of cash ~~flows where diversity in practice exists. This new guidance is effective~~to Baudax Bio, the Company retained significant net operating loss carryforwards, and the Company was released from significant milestone and royalty payment obligations.

The accounting requirements for ~~annual periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating~~reporting the ~~effect that~~Separation of Baudax Bio as a discontinued operation were met when the ~~updated standard will have on its~~Separation was completed. Accordingly, the accompanying consolidated financial statements ~~and related disclosures.~~for all periods presented reflect this business as a discontinued operation.

In ~~February 2016,~~connection with the ~~FASB issued ASU No. 2016-02, “Leases (Topic 842),” or ASU 2016-02. ASU 2016-02 establishes~~Separation, the Company and Baudax Bio entered into various agreements to effect the Separation and provide a ~~wholesale change~~framework for their relationship after the Separation, including a transition services agreement, an employee matters agreement, a tax matters agreement and an intellectual property matters agreement. These agreements provide for the allocation between the Company and Baudax Bio of assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to ~~lease accounting~~periods prior to, at, and ~~introduces a lease model that brings most leases on~~after Baudax Bio’s separation from the Company and govern certain relationships between the Company and Baudax Bio after the Separation.

The historical consolidated balance ~~sheet. It also eliminates the required use~~sheet and statements of bright-line tests in current U.S. GAAP for determining lease classification. The new guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect that this guidance may have on its consolidated financial statements.

~~In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments,”~~ ~~or ASU 2015-16.~~ ~~ASU 2015-16 addresses~~ the accounting for and disclosure of measurement-period adjustments that occur in periods after a business combination is consummated. This update requires that the acquirer recognize measurement-period adjustments in the reporting period in which they are determined. Prior period information should not be revised. This update also requires an entity to present separately on the faceoperations of the ~~income statement or disclose in~~Company and the related notes the amount recorded in the current-period income statement that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date. The updated guidance is effective for annual and interim periods beginning after December 15, 2016. The Company adopted the guidance effective January 1, 2017. The guidance did not have a material impact to the consolidated financial statements ~~upon adoption.~~

~~In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,”~~ ~~or ASU 2015-11. ASU 2015-11 addresses changes~~have been presented as discontinued operations in the ~~measurement principle~~consolidated financial statements and prior periods have been recast. Discontinued operations include results of the Company’s Acute Care business except for ~~inventory from the lower of cost or market~~certain corporate overhead costs and certain costs associated with transition services provided by Baudax Bio to the ~~lower~~Company, following the Separation, which are included in continuing operations.

The Separation and Distribution Agreement with Baudax Bio sets forth, among other things, the assets that were transferred, the liabilities assumed, and the contracts that were assigned to each of ~~cost~~Baudax Bio and ~~net realizable value.~~ the Company as part of the Separation of the Company into two companies, and provided for when and how these transfers, assumptions and assignments were to occur.

The ~~amendments in this guidance do not apply~~tax matters agreement governs the respective rights, responsibilities and obligations of Baudax Bio and the Company with respect to inventory that is measured using last-in, first-out, or LIFO, or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost methods. Within the scope of this new guidance, an entity should measure inventory at the lower of cost and net realizable value; where net realizable value is defined as the estimated selling pricestaxes (including taxes arising in the ordinary course of business ~~less reasonably predictable costs~~and taxes, if any, incurred as a result of ~~completion, disposal~~any failure of the Distribution and ~~transportation.~~ certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, uncertain tax positions, tax returns, tax proceedings and certain other tax matters.

The ~~new guidance~~employee matters agreement governs certain compensation and employee benefit obligations and allocates liabilities and responsibilities relating to employment matters, employee compensation and benefit plans and programs and other related matters, including the transfer or assignment of employees from the Company to Baudax Bio.

As of December 31, 2019, certain current liabilities of discontinued operations remained on the Company’s consolidated balance sheet due to timing of payment, which consisted of $22 of accounts payable and $1,150 of accrued expenses, which were paid in the quarter ended March 31, 2020.

The following is ~~effective for annual periods beginning after December 15, 2016, with early adoption permitted. The new guidance must be applied on~~ a ~~prospective basis. The Company adopted~~summary of the ~~guidance effective January 1, 2017. The guidance did not have a material impact to the consolidated financial statements upon adoption.~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~“Revenue from Contracts with Customers,”~~ or ASU 2014-09. ASU 2014-09 represents the accounting for and disclosures of revenue recognition, with an effective date for annual and interim periods beginning after December 15, 2016. The update provides a single comprehensive model for accounting for revenue from contracts with customers. The model requires that revenue recognized reflect the actual consideration to which the entity expects to be entitled in exchangeAcute Care business expenses for the goods or services defined in the contract, including in situations with multiple performance obligations. In July 2015, the FASB deferred the effective date by one year. The guidance will be effective for annualthree and interim periods beginning after December 15, 2017. The new standard permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. The Company currently anticipates adopting the standard using the modified retrospective method. The Company has made substantial progress towards completion of its analysis of existing contracts with customers and its assessment of the differences in accounting for such contracts under ASU 2014-09 compared with current revenue accounting standards. The new standard will result in additional revenue-related disclosures in the footnotes to the consolidated financial statements. The Company will continue to assess new customer contracts during 2017. Adoption of this standard will require changes to business processes, systems and controls to support the additional required disclosures. The Company is in the process of implementing such changes.six months ended June 30, 2019:

On April 10, 2015, the Company completed the Gainesville Transaction. The consideration paid in connection with the Gainesville Transaction consisted of $50.0 million cash at closing, a $4.0 million working capital adjustment and a seven-year warrant to purchase 350,000 shares of the Company’s common stock at an exercise price of $19.46 per share. In addition, the Company may be required to pay up to an additional $125.0 million in milestone payments including $45 million upon regulatory approval, as well as net sales milestones related to injectable meloxicam and a percentage of future product net sales related to injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). Under the acquisition method of accounting, the consideration paid and the fair value of the contingent consideration and royalties are allocated to the fair value of the assets acquired and liabilities assumed. The contingent consideration obligation is remeasured each reporting date with changes in fair value recognized as a period charge within the statement of operations (see Note 6 for further information regarding fair value).

The contingent consideration consists of three separate components. The first component will be payable upon regulatory approval. The second component consists of three potential payments, based on the achievement of specified annual revenue targets. The third component consists of a royalty payment for a defined term on future meloxicam net sales.

The fair value of the first contingent consideration component recognized on the acquisition date was estimated by applying a risk-adjusted discount rate to the probability-adjusted contingent payments and the expected approval dates. The fair value of the second contingent consideration component recognized on the acquisition date was estimated by applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections and expected revenue target attainment dates. The fair value of the third contingent consideration component recognized on the acquisition date was estimated by applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections and the defined royalty percentage.

These fair values are based on significant inputs not observable in the market, which are referred to in the guidance as Level 3 inputs. The contingent consideration components are classified as liabilities and are subject to the recognition of subsequent changes in fair value through the results of operations.

In June 2017, the Company acquired the exclusive global rights to two novel neuromuscular blocking agents, or NMBs, and a proprietary chemical reversal agent from Cornell University, or Cornell. The NMBs and reversal agent are referred to herein as the NMB Related Compounds. The NMB Related Compounds include one novel intermediate-acting NMB that has initiated Phase I clinical trials and two other agents, a novel short-acting NMB, and a rapid-acting reversal agent proprietary to these NMB Related Compounds.

The transaction was accounted for as an asset acquisition, with the total cost of the acquisition of $766 allocated to acquired IPR&D. The Company recorded an upfront payment obligation of $350, as well as operational liabilities and acquisition-related costs of $416, primarily consisting of reimbursement to Cornell for specified past patent, legal and pre-clinical costs, of which $329 is reported as a component of Accrued expenses and other current liabilities and Other non-current liabilities on the Consolidated Balance Sheet as of September 30, 2017.

In addition, the Company is obligated to make: (i) an annual license maintenance fee payment until the first commercial sale of the NMB Related Compounds; and (ii) milestone payments upon the achievement of certain milestones, up to a maximum, for each NMB, of $5 million for U.S. regulatory approval and commercialization milestones and $3 million for European regulatory approval and commercialization milestones. The Company is also obligated to pay Cornell royalties on net sales of the NMB Related Compounds at a rate ranging from low to mid-single digits, depending on the applicable NMB Related Compounds and whether there is a valid patent claim in the applicable country, subject to an annual minimum royalty amount. Further, the Company will reimburse Cornell ongoing patent costs related to prosecution and maintenance of the patents related to the Cornell patents for the NMB Related Compounds.

The Company accounted for the transaction as an asset acquisition based on an evaluation of the accounting guidance (ASC Topic 805) and considered the early clinical stage of the novel and unproven NMB Related Compounds. The Company concluded that the acquired IPR&D of Cornell did not constitute a business as defined under ASC 805 due to the incomplete nature of the inputs and the absence of processes from a market participant perspective. Substantial additional research and development will be required to develop any NMB Related Compounds into a commercially viable drug candidate, including completion of pre-clinical testing and clinical trials, and, if such clinical trials are successful, application for regulatory

~~approvals and manufacturing repeatability and scale-up. There is risk that a marketable compound may not be well tolerated and may never be approved.~~

Acquired IPR&D in the asset acquisition was accounted for in accordance with FASB ASC Topic 730, “Research and Development.” At the date of acquisition, the Company determined that the development of the projects underway at Cornell had not yet reached technological feasibility and that the research in process had no alternative future uses. Accordingly, the acquired IPR&D was charged to expense in the Consolidated Statements of Operations and Comprehensive Loss on the acquisition date. The acquired IPR&D charge is expected to be deductible over a 15-year period for income tax purposes.

The Company follows the provisions of FASB ASC Topic 820, ~~“Fair~~“Fair Value Measurements and Disclosures,” for fair value measurement recognition and disclosure purposes for its financial assets and financial liabilities that are remeasured and reported at fair value each reporting period. The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term investments ~~warrants~~ and ~~the contingent consideration.~~warrants. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

The Company has classified assets and liabilities measured at fair value on a recurring basis as follows:

Fair value measurements at reporting
date using

Quoted prices
in active
markets for
identical
assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

At December 31, 2016:

Assets:

Money market mutual funds (See Note 7)

$
37,079

$
—

$
—

U.S. Treasury obligations (See Note 7)

20,517

—

—

Cash equivalents

$
57,596

$
—

$
—

Liabilities:

Warrants (See Note 14(d))

—

—

$
3,397

Contingent consideration (See Note 4)

—

—

69,574

$
—

$
—

$
72,971

At September 30, 2017:

Assets:

Cash equivalents

Money market mutual funds (See Note 7)

$
134

$
—

$
—

Total cash equivalents

$
134

$
—

$
—

Short-term investments

U.S. Treasury obligations (See Note 7)

$
29,507

$
—

$
—

Total financial assets

$
29,641

$
—

$
—

Liabilities:

Warrants (See Note 14(d))

—

—

$
3,412

Contingent consideration (See Note 4)

—

—

78,897

$
—

$
—

$
82,309

	Fair value measurements at reporting date using
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
At June 30, 2020:
Assets:
Cash equivalents (See note 5)
Money market mutual funds	$	15,347	$	—	$	—
Total cash equivalents	$	15,347	$	—	$	—
At December 31, 2019:
Assets:
Cash equivalents (See note 5)
Money market mutual funds	$	11,609	$	—	$	—
Total cash equivalents	$	11,609	$	—	$	—

The Company developed its own assumptions to determine the value of the warrants that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the contractual term of the warrants, risk free interest rates and dividend yield. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement.

~~The reconciliation of the contingent consideration and warrants measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:~~

The current portion of the contingent consideration represents the estimated probability adjusted fair value that is expected to become payable within one year as of September 30, 2017 (see Note 4 for additional information).

The Company follows the disclosure provisions of FASB ASC Topic 825, ~~“Financial Instruments”~~“Financial Instruments” (ASC 825), for disclosure purposes for financial assets and financial liabilities that are not measured at fair value. As of ~~September~~June 30, ~~2017,~~2020, the financial

assets and liabilities recorded on the Consolidated Balance Sheets that are not measured at fair value on a recurring basis include accounts receivable, accounts payable and accrued expenses and ~~current debt obligations~~ approximate fair value due to the short-term nature of these instruments.

The fair value of long-term debt, where a quoted market price is not available, is evaluated based on, among other factors, interest rates currently available to the Company for debt with similar terms, remaining payments and considerations of the Company’s creditworthiness. The Company determined that the recorded book value of ~~long-term~~its debt, a level 2 measurement, approximated fair value at ~~September~~June 30, ~~2017 due~~2020 because (i) the terms of borrowings under the Credit Agreement are equivalent to the ~~estimated amount~~terms of other borrowings currently available to the Company; and (ii) the fair value of the ~~Excess Cash Flow payments and terms of the debt.~~PPP Note, which carries a fixed interest rate below market, is not materially different from its carrying value.

Short-term investments as of September 30, 2017 consist of government money market funds and U.S. Treasury obligations. In accordance with FASB ASC Topic 320, “Investments – Debt and Equity Securities,” or ASC 320, the Company has classified its entire investment portfolio as available-for-sale securities with secondary or resale markets, and, as such, its portfolio is reported at fair value with unrealized gains and losses included in Comprehensive Income in stockholders’ equity and realized gains and losses included in other income/expense. The following is a summary of ~~available-for-sale securities as of September 30, 2017.~~the Company’s cash equivalents:

As of September 30, 2017, the Company’s investments had maturities ranging from one to four months. As of December 31, 2016, all of the Company’s investments in US. Treasury obligations had original maturities of less than three months. The fair value of the Company’s U.S. Treasury obligations is determined by taking into consideration valuations obtained from third-party pricing services. The third-party pricing services utilize industry standard valuation models, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, and other observable inputs.

Certain investment securities as of September 30, 2017 had fair values less than their amortized costs and, therefore, contained unrealized losses. The Company has evaluated these investments and has determined that the decline in value was not related to any Company or industry specific event. As of September 30, 2017, there were 15 U.S. Treasury investments with unrealized losses. The gross unrealized losses related to these investments were due to changes in interest rates. Given that the Company has no intent to sell any of these investments until a recovery of its fair value, which may be at maturity, and there are no current requirements to sell any of these investments, the Company did not consider these investments to be other-than-temporarily impaired as of September 30, 2017. The Company anticipates full recovery of amortized costs with respect to these investments at maturity or sooner in the event of a more favorable market interest rate environment. The duration of time the investments had been in a continuous unrealized loss position as of September 30, 2017 was less than 6 months.

Inventory is stated at the lower of cost and net realizable value. Included in inventory are raw materials and work-in-process used in the production of commercial products. ~~Cost is determined~~Items are issued out of inventory using the first-in, first-out method.

The provision for inventory obsolescence decreased approximately $190 during the nine months ended September 30, 2017, primarily due to the disposal of the fully reserved inventory at December 31, 2016. Adjustments to inventory are determined at the raw materials, work-in-process, and finished good levels to reflect obsolescence or impaired balances. Inventory is primarily ordered to meet specific customer orders and largely reflects demand. Factors influencing inventory obsolescence include changes in demand, product life cycle, product pricing, physical deterioration and quality concerns.

Depreciation expense for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2020 and 2019 was ~~$1,231~~$1,508 and ~~$3,655,~~$1,467, respectively. Depreciation expense for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016~~2020 and 2019 was ~~$1,245~~$3,008 and ~~$3,756,~~$2,784, respectively.

The following ~~represents~~table presents the ~~balance~~components of our royalties and contract manufacturing relationships asset, which was the only class of intangible ~~assets at September 30, 2017:~~

~~The following represents the balance of intangible assets at December 31, 2016:~~

Amortization expense ~~for each of the nine months ended September 30, 2017 and 2016~~ was ~~$1,937 and $1,937, respectively, and~~$646 for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 was $646.~~ 2019 and $1,292 for the six months ended June 30, 2020 and 2019.

As of ~~September~~June 30, ~~2017,~~2020, future amortization expense is as follows:

The Company financed the Gainesville Transaction with cash on hand and a $50,000 five-year senior secured term loan, pursuant to a credit agreement, entered into on April 10, 2015, with OrbiMed Royalty Opportunities II, LP, or OrbiMed. The unpaid principal amount under the credit agreement is due and payable on April 10, 2020, the five-year anniversarycarrying value of debt consists of the ~~loan provided thereunder by OrbiMed.~~ following as of June 30, 2020:

The credit agreement also provides for certain mandatory prepayment events, including a quarterly excess cash flow prepayment requirement at OrbiMed’s request. The Company may make voluntary prepayments in whole or in part, subject to: (i) on or prior tofollowing table presents the ~~36-month anniversary~~maturity of ~~the closing of the credit agreement, payment of a buy-out premium amount equal to (A) for full prepayments of the unpaid~~debt principal amount, $75,000 less all previously prepaid principal amounts and all previously paid interest or (B) for partial prepayments of the unpaid principal amount, 0.5 times the partial prepayment amount less interest payments previously paid in respect to the partial prepayment amount and (ii) after the 36-month anniversary of the closing of the credit agreement, payment of an(including exit fee amount equal to 10% of the amount of any prepayments. As defined by the agreement, based upon the CDMO segment financial results, OrbiMed has the option to require the Company to prepay a portion of the loan balance based upon an Excess Cash Flow calculation. No paymentsfee):

Term Loans under ~~this option shall be subject to the buy-out premium. As of September 30,~~Credit Agreement

On November 17, 2017, the Company ~~has paid $22,653~~entered into a $100,000 Credit Agreement (the “Credit Agreement”) with Athyrium Opportunities III Acquisition LP (“Athyrium”). The Credit Agreement provided for a term loan in the original principal amount of ~~principal payments~~$60,000 funded at closing. In December 2018, the Company amended the Credit Agreement (the “First Amendment”). Pursuant to the First Amendment, the $20,000 term B loan and $20,000 term C loan provided for under the Credit Agreement, which were contingent on the ~~senior secured~~Company receiving approval of IV meloxicam (developed by the Company’s Acute Care segment) by December 31, 2018, were restructured into (i) a $10,000 term B-1 loan, ~~from~~funded on December 28, 2018; (ii) a $15,000 term B-2 loan; and (iii) a $15,000 term C loan.

On February 28, 2019, the ~~Excess Cash Flow calculation. The credit agreement carries interest at three month LIBOR~~

~~Notes~~Company entered into a Second Amendment to Credit Agreement (the “Second Amendment”) with Athyrium. Pursuant to the ~~Consolidated Financial Statements~~

~~(amounts in thousands, except share~~Second Amendment, (i) the total commitments of the term loan credit facility governed by the Credit Agreement was increased from $100,000 to $125,000, (ii) the $15,000 term B-2 loan and ~~per share data)~~

~~plus 14.0% with a 1.0% floor. The Company’s obligations~~$15,000 term C loan provided for under the ~~senior~~Credit Agreement were restructured into a $55,000 term B-2 loan, ~~are secured by substantially all~~which was funded on the date of execution of the Second Amendment and (iii) the maturity date was extended to March 31, 2023 (the “Maturity Date”). Beginning on March 31, 2021, the Company must repay the outstanding principal amount in quarterly installments of $3,000 with the outstanding principal balance due on the Maturity Date.

On October 22, 2019, the Company entered into a Third Amendment to Credit Agreement (the “Third Amendment”) with Athyrium. The Third Amendment authorized the release of two of the Company’s ~~assets.~~subsidiaries, Baudax Bio and Baudax Bio N.A. LLC (formerly known as Recro N.A. LLC) (“Baudax Bio N.A.”), from their respective obligations as guarantors and the release of any liens granted to or held by Athyrium on collateral provided by or equity interests in Baudax Bio and Baudax Bio N.A., including the security interest in Baudax Bio Limited (formerly Recro Ireland Limited) (the “Release”) under the Credit Agreement, as amended. The Release was applicable only to Baudax Bio and Baudax Bio N.A. and did not affect or modify any obligations of the Company or the Guarantors (other than Baudax Bio and Baudax Bio N.A.) under the Credit Agreement, except that it increased the permitted leverage ratio (which is the Company’s indebtedness under the Credit Agreement divided by EBITDA, each as defined) to 5.00:1.00.

The ~~credit agreement~~term loans bear interest at a rate equal to the three-month LIBOR rate, with a 1% floor plus 9.75% per annum. In addition, in accordance with the Credit Agreement, as amended (the “Amended Credit Agreement”) the Company will have to pay a 1% exit fee, which is $1,250 at the current outstanding loan balance and is being accreted to the carrying amount of the debt using the effective interest method over the term of the loan. In addition, if there is an early repayment, there is a sliding scale of prepayment penalties beginning with a 10% penalty and including a make-whole interest payment. NaN prepayment penalties are assessed for payments made after March 31, 2022.

The Amended Credit Agreement contains certain usual and customary affirmative and negative covenants, as well as financial covenants that the Company will need to satisfy on a monthly and quarterly ~~basis.~~basis. As of ~~September~~June 30, ~~2017,~~2020, the Company was in compliance with the covenants.

~~The~~In connection with the Credit Agreement, the Company issued warrants to ~~OrbiMed a warrant~~each of Athyrium and its affiliate, Athyrium Opportunities II Acquisition LP (“Athyrium II”), to purchase ~~294,928~~an aggregate of 348,664 shares of the Company’s common stock with an exercise price of ~~$3.28~~$8.6043 per share. In connection with the First Amendment, the warrants were amended to decrease the exercise price to $6.84 per share. See note 12(d) for additional information. The ~~warrant is~~warrants are exercisable through ~~April 10, 2022.~~November 17, 2024. The initial fair value of the warrant and revaluation adjustment from the repricing of ~~$2,861~~the warrants of $2,232 was recorded as a debt issuance ~~costs.~~cost.

In addition, the Company recorded debt issuance costs for the Amended Credit Agreement of $4,439 at original signing, an amendment fee of $500 as well as certain other fees and expenses in December 2018, and recorded debt

issuance costs for the Second Amendment consisting of a $2,500 amendment fee, $436 closing fee and $11,400 original issue discount which, along with the fair value of warrants, are being amortized using the effective interest method over the term of the Amended Credit Agreement. Debt issuance ~~costs~~cost amortization is included in interest expense within the Consolidated Statements of Operations. As of June 30, 2020, the effective interest rate was 15.98%, which takes into consideration the non-cash accretion of the exit fee, the amortization of the debt issuance cost and the original issue discount.

The Company recorded debt issuance cost amortization related to the Amended Credit Agreement of $1,384 for the three months ended June 30, 2020 and 2019 and $2,768 and $2,362 for the six months ended June 30, 2020 and 2019, respectively.

On May 12, 2020, the Company entered into a $4,416 promissory note with PNC Bank under the Small Business Administration (“SBA”) Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act,” collectively the “PPP Note”). The note has a two-yearterm, matures on May 12, 2022 and bears interest at a stated rate of 1.0% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence on December 15, 2020. The note requires no collateral or guarantees, nor did the Company pay any fees to acquire the note. The note provides for customary events of default, including, among others, failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the principal of the PPP Note at any time without incurring any prepayment charges. On May 18, 2020, which fell within a safe-harbor period established by the SBA, the Company prepaid $1,100 of the note in order to comply with the SBA’s limitations on the amount that could be borrowed at that time. Certifications made with respect to loan amounts repaid during this safe harbor period are deemed to have been made in good faith.

The PPP Note may be partially or fully forgiven if the Company complies with the provisions of ~~$4,579,~~the CARES Act, including the ~~initial warrant fair value~~use of ~~$2,861, are being amortized to interest expense over the five-year term~~note proceeds for payroll costs, rent, utilities and other expenses, and at least 60% of the ~~loan and netted with~~note proceeds must be used for payroll costs as defined by the ~~loan principal amount. The unamortized balance of debt issuance costs is $2,457 as of September 30, 2017. As of September 30, 2017, the long-term debt balance is comprised~~CARES Act. Any forgiveness of the ~~following:~~

~~The~~note will be subject to approval by the SBA and PNC Bank, and will require the Company ~~has estimated that no amount of the Excess Cash Flow payments will become payable within one year of September 30, 2017. The full amount of the debt is classified as long term~~to apply for such treatment in the ~~accompanying consolidated balance sheet.~~future. Should the Company meet the requirements for forgiveness, it would extinguish the note upon receiving legal release from PNC Bank and record a gain on extinguishment in that period.

The Company is party to an exclusive license with Orion for the development and commercialization of Dexmedetomidine, or Dex, for use in the treatment of pain in humans in any dosage form for transdermal, transmucosal (including sublingual and intranasal), topical, enteral or pulmonary (inhalational) delivery, but specifically excluding delivery vehicles for administration by injection or infusion, worldwide, except for Europe, Turkey and the CIS (currently includes Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan), referred to herein as the Territory. The Company is required to pay Orion lump sum payments of up to €20,500 ($24,215 as of September 30, 2017) on the achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 20% depending on annual sales levels. Through September 30, 2017, no such milestones have been achieved.

The Company is also party to an exclusive license agreement with Orion for the development and commercialization of Fadolmidine, or Fado, for use as a human therapeutic, in any dosage form in the Territory. The Company is required to pay Orion lump sum payments of up to €12,200 ($14,411 as of September 30, 2017) on achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 15% depending on annual sales levels. Through September 30, 2017, no such milestones have been achieved.

The Company is party to a license agreement with Cornell University for the exclusive license of the NMB Related Compounds. Under the terms of the agreement, the Company will pay Cornell an initial upfront fee and Cornell is also entitled to receive additional milestone payments, annual license maintenance fees as well as royalties. See Note 5 for further information regarding these payment obligations.

Pursuant to the purchase and sale agreement governing the Gainesville Transaction, the Company agreed to pay to Alkermes up to an additional $125.0 million in milestone payments including $45 million upon regulatory approval, as well as net sales milestones related to injectable meloxicam and royalties on future product sales of injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent).

The Company is party to a Development, Manufacturing and Supply Agreement, or Supply Agreement, with Alkermes (through a subsidiary of Alkermes), pursuant to which Alkermes will (i) provide clinical and commercial bulk supplies of injectable meloxicam formulation and (ii) provide development services with respect to the Chemistry, Manufacturing and Controls section of an NDA for injectable meloxicam. Pursuant to the Supply Agreement, Alkermes will supply the Company with such quantities of bulk injectable meloxicam formulation as shall be reasonably required for the completion of clinical trials of injectable meloxicam. During the term of the Supply Agreement, the Company will purchase its clinical and commercial supplies of bulk injectable meloxicam formulation exclusively from Alkermes, subject to certain exceptions, for a period of time.

The Company is involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. Except as disclosed below, the Company is not currently a party to any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on its business, financial condition or results of operations.

~~As part of the Gainesville Transaction,~~On May 31, 2018, a securities class action lawsuit (the “Securities Litigation”) was filed against the Company ~~acquired the rights to Zohydro ER®, which the Company licenses to~~and certain of its ~~commercial partner, Pernix Therapeutics Holdings, Inc., or Pernix, in the United States,~~officers and ~~which is subject to ongoing intellectual property litigation and proceedings.~~

Zohydro ER® has been subject to six paragraph IV certifications, two of which were filed in 2014 by Actavis plc, or Actavis, and Alvogen Pine Brook, Inc., or Alvogen, regarding the filing of Abbreviated NDAs, or ANDAs, with the FDA for a generic version of Zohydro ER®, one of which was filed in April 2015 by Actavis regarding the filing of a supplemental ANDA, or sANDA, and another three of which were filed in November 2015 and October 2016 by Actavis, and in December 2015 by Alvogen regarding one of the Company’s recently issued patents relating to a formulation of Zohydro ER®. These certification notices allege that three U.S. patents listed in the FDA’s Orange Book for Zohydro ER®, with an expiration date of November 2019 and September 2034, will not be infringed by Actavis’ or Alvogen’s proposed products, are invalid and/or are unenforceable. In 2014, Daravita Limited (a subsidiary of Alkermes and the Company’s predecessor in interest) filed suit against each of Actavis and Alvogendirectors in the U.S. District Court for the Eastern District of ~~Delaware~~Pennsylvania (Case No. 2:18-cv-02279-MMB) that purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on statements made by the ~~ANDAs,~~Company concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and ~~in 2015,~~other costs. On December 10, 2018, the lead plaintiff filed an amended complaint that asserted the same claims and sought the same relief but included new allegations and named additional officers as defendants. On February 8, 2019, the Company filed ~~suit against Actavis~~a motion to dismiss the amended complaint in its entirety, which the ~~U.S. District Court for~~lead plaintiff opposed on April 9, 2019. On May 9, 2019, the ~~District of Delaware based~~Company filed its response and briefing was completed on the ~~sANDA.~~motion to dismiss. In ~~September 2016, Recro Gainesville LLC entered into a settlement agreement~~response to questions from the Judge, the parties submitted supplemental briefs with Alvogen pursuant to which the case against Alvogen was dismissed. In February 2017, the District Court in the Actavis case ruled in Recro Gainesville LLC’s favor and enjoined Actavis from selling the proposed generic version of Zohydro ER®. Actavis has appealed this decisionregard to the ~~U.S. Court~~motion to dismiss the amended complaint during the fall of ~~Appeals for~~2019. On February 18, 2020, the ~~Federal Circuit.~~motion to dismiss was granted without prejudice. On April 25, 2020, the plaintiff filed a second amended complaint. The Company filed a motion to dismiss the second amended complaint on June 18, 2020. The plaintiff’s deadline to file an opposition to the Company’s motion to dismiss is August 17, 2020, and the Company will have thirty days from the filing of the plaintiff’s opposition to file a reply in support of the motion to dismiss. In ~~October 2017, Recro Gainesville LLC filed suit against Actavis in~~connection with the ~~U.S. District Court for~~separation of Baudax Bio, Baudax Bio accepted assignment by the ~~District~~Company of Delaware based upon another recently issued patent relating to a formulation of Zohydro ER®. Under Recro Gainesville LLC’s license agreement with Pernix, Recro Gainesville LLC has the right to control the enforcementall of its ~~patents~~obligations in connection with the Securities Litigation and ~~related proceedings involving Zohydro ER® and any prospective generic entrant, and Pernix has the obligation~~agreed to ~~reimburse Recro Gainesville LLC~~indemnify it for all ~~reasonable costs of such actions.~~

In addition, in April 2015, the U.S. Patent and Trademark Office, or the USPTO, declared an interference between one of the Company’s patent applications relating to a dosage form of Zohydro ER® and two Purdue Pharma, LP, or Purdue, applications. In April 2016, the USPTO found Recro Gainesville LLC’s claims and the Purdue claims involved in the interference to be invalid. In June 2016, Purdue appealed this decisionliabilities related to the U.S. Court of Appeals for the Federal Circuit and in June 2017, the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the USPTO in Recro Gainesville’s favor and dismissed Purdue’s appeal.

On January 1, 2017, the Company entered into a six-year lease for its Malvern, Pennsylvania facility that expires on December 31, 2022. In February 2017, the Company also entered into a three-year lease for office space in Dublin, Ireland that expires April 2020.Securities Litigation. The Company and Baudax Bio believe that the lawsuit is ~~also a party~~without merit and intend to ~~operating leases for office equipment and storage. Rent expense includes rent as well as additional operating and tenant improvement expenses.~~

~~As of September 30, 2017, future minimum lease payments excluding operating expenses and tenant improvements for the leases, are as follows:~~

As of ~~September~~June 30, ~~2017,~~2020, the Company had outstanding non-cancelable ~~and cancelable~~ purchase commitments in the aggregate amount of ~~$22,338~~$10,721 related to inventory, capital expenditures, transition services agreement and other goods and ~~services, including pre-commercial/manufacturing scale-up and clinical activities.~~services.

The Company has entered into employment agreements with certain of its named executive officers. As of September 30, 2017, these employment agreements provided for, among other things, annual base salaries in an aggregate amount of not less than $918, from that date through calendar year 2018.

The Company is authorized to issue up to 50,000,000 shares of common stock, with a par value of $0.01 per share.

Reflected below are the Company’s capital raises since its initial public offering (“IPO”):

On March 12, 2014, the Company completed an ~~initial public offering, or~~ IPO in which the Company sold 4,312,500 shares of common stock at $8.00 per share, resulting in gross proceeds of $34,500. In connection with the IPO, the Company paid $4,244 in underwriting discounts, commissions and offering ~~costs,~~expenses, resulting in net proceeds of $30,256. Also, in connection with the IPO, all of the outstanding shares of the Company’s Series A Redeemable Convertible Preferred Stock, including accreted dividends, and ~~Bridge Notes,~~certain bridge notes, including accrued interest, were converted into common stock.

On July 7, 2015, the Company closed a private placement with certain accredited investors in which the Company sold 1,379,311 shares of common stock at a price of $11.60 per share, for net proceeds of $14,812. The Company paid the placement agents a fee equal to 6.0% of the aggregate gross proceeds from the private placement, plus reimbursement of certain expenses.

On August 19, 2016, the Company closed an underwritten public offering in which the company sold 1,986,666 shares of common stock at a price per share of $7.50, for net proceeds of $13,367 after deducting underwriting discounts, commissions and offering expenses.

On December 16, 2016, the Company closed an underwritten public offering in which the company sold 6,670,000 shares of common stock at a price per share of $6.00, for net proceeds of $36,888 after deducting underwriting discounts, commissions and offering expenses.

On December 29, 2017, the Company entered into a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which the Company may sell from time to time, at its option, shares of its common stock, $0.01 par value per share, having an aggregate offering price of up to $40,000 through Cowen, as the placement agent. As of June 30, 2020, the Company did not have any sales of common stock under the Sales Agreement. The Sales Agreement will terminate on August 11, 2020.

On ~~February~~March 2, ~~2015,~~2018, the Company entered into a Common Stock Purchase Agreement ~~or the~~(the “2018 Purchase ~~Agreement,~~Agreement”) with Aspire Capital Fund LLC or(“Aspire Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth in the 2018 Purchase Agreement, Aspire Capital ~~pursuant to which Aspire Capital was~~is committed to purchase, at the Company’s sole election, up to an aggregate of ~~$10,000~~$20,000 of shares of the Company’s common stock over the ~~24-month~~approximately 30-month term of the 2018 Purchase Agreement. On the execution of the 2018 Purchase Agreement, the Company ~~issued 96,463~~agreed to issue 33,040 shares of common stock to Aspire Capital ~~with a fair value of $285,~~ as consideration for entering ininto the 2018 Purchase Agreement. ~~In addition, the~~

~~Company incurred $253~~As of ~~costs in connection with the Purchase Agreement, which, along with the fair value of the common stock, has been recorded as deferred equity costs. During 2016,~~June 30, 2020, the Company sold ~~1,143,940~~1,950,000 shares of common stock under the 2018 Purchase Agreement for ~~$7,796.~~proceeds of $16,999, at an average per share price of $8.72, all of which transactions occurred during 2018. The Amended Purchase Agreement, as defined below, replaces the 2018 Purchase Agreement.

On February 19, 2019, the Company entered into a common stock purchase agreement ~~expired~~(the “2019 Purchase Agreement”) with Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth in ~~February 2017.~~the 2019 Purchase Agreement, Aspire Capital is committed to purchase, at the Company’s sole election, up to an aggregate of $20,000 of its shares of common stock over the approximately 30-month term of the 2019 Purchase Agreement. On the execution of the 2019 Purchase Agreement, the Company agreed to issue 34,762 shares of common stock to Aspire Capital as consideration for entering into the 2019 Purchase Agreement. As of June 30, 2020, the Company did not have any sales of common stock under the 2019 Purchase

Agreement. On August 7, 2020, the Company entered into a First Amendment to the 2019 Purchase Agreement with Aspire Capital (the “Amended Purchase Agreement”) which amended the 2019 Purchase Agreement to, among other things, increase the aggregate amount of shares of common stock Aspire is committed to purchase to $30,000 and extend the term of the 2019 Purchase Agreement to March 20, 2022.

The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.01 per share. As of ~~September~~June 30, ~~2017, no~~2020, 0 preferred stock was issued or outstanding.

As of ~~September~~June 30, ~~2017,~~2020, the Company had the following warrants outstanding to purchase shares of the Company’s common stock:

The warrant to purchase 348,664 shares related to Athyrium is equity classified. During March 2019, the warrant to purchase 140,000 shares originally issued to Aegis Capital Corporation, which was equity classified, was forfeited upon expiration.

In November 2019, the warrant to purchase 350,000 shares isissued to Alkermes, which was liability classified ~~since~~as it ~~contains~~contained a contingent net cash settlement ~~feature. The warrant~~feature, was exercised on a cashless basis, with Alkermes surrendering 165,673 shares to ~~purchase 294,928~~cover the aggregate exercise price, resulting in the issuance of 184,327 shares ~~is liability classified since it contains an anti-dilution provision. The fair value~~ of ~~both warrants will be remeasured through settlement or expiration with changes in fair value recognized as a period charge within~~common stock based on the ~~statement~~closing bid price of ~~operations.~~

~~The following table summarizes~~ the ~~fair value and the assumptions used for the Black-Scholes option-pricing model for these liability classified warrants.~~

The Company’s comprehensive loss is shown on the Consolidated Statements of Operations and Comprehensive Loss as of September 30, 2017, and is comprised of net unrealized gains and losses on the Company’s available-for-sale securities. The total of comprehensive loss for the three and nine months ended September 30, 2017 was $8,987 and $26,005, respectively. The tax effect for the nine months ended September 30, 2017 of other comprehensive loss was $3.

The Company established the 2008 Stock Option Plan, or the 2008 Plan, which allows for the granting of common stock awards, stock appreciation rights, and incentive and nonqualified stock options to purchase shares of the Company’s common stock to designated employees, non-employee directors, and consultants and advisors. As of September 30, 2017, no stock appreciation rights have been issued. Subsequent to adoption, the 2008 Plan was amended to increase the authorized number of shares available for grant to 444,000 shares of common stock. In October 2013, the Company established the 2013 Equity Incentive Plan ~~or the 2013 Plan,~~(the “2013 Plan”), which allows for the grant of stock options, stock appreciation rights and stock awards for a total of 600,000 shares of common stock. In June 2015, the Company’s shareholders approved the Amended and Restated Equity Incentive Plan ~~or the~~(the “2015 A&R ~~Plan,~~Plan”), which amended and restated the 2013 Plan and increased the aggregate amount of shares available for issuance to 2,000,000. In May 2018, the Company’s shareholders approved the 2018 Amended and Restated Equity Incentive Plan (the “A&R Plan”) which amended and restated the 2015 A&R Plan to increase the aggregate amount of shares available for issuance to 8,119,709. At June 30, 2020, the total number of shares authorized under the A&R Plan was 9,281,402, of which 3,369,127 shares were available for future grants. On December 1^st of each year, pursuant to the “Evergreen” provision of the A&R Plan, the number of shares available under the plan may be increased by the board of directors by an amount equal to 5% of the outstanding common stock on December 1^st of that year. ~~In December 2016 and 2015, the number of shares available for~~

~~issuance under the A&R Plan was increased by 619,181 and 461,215, respectively. The total number of shares authorized for issuance under the A&R plan as of September 30, 2017 is 3,080,396.~~Stock options

Stock options are exercisable generally for a period of 10 years from the date of grant and generally vest over four years. ~~As of September 30, 2017, 296,453 shares and 174 shares are available for future grants under the A&R Plan and 2008 Plan, respectively.~~

The weighted average grant-date fair value of the options awarded to employees during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$5.39~~$8.24 and ~~$5.02,~~$5.60, respectively. The fair value of the options was estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions:

The intrinsic value of options exercised during the six months ended June 30, 2020 and 2019 was $1,058 and $1,033, respectively.

The following table summarizes stock option activity during the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~

Number of
shares

Weighted
average
exercise
price

Weighted
average
remaining
contractual life
Balance, December 31, 2016

2,611,929

$
7.01

Granted

1,003,580

7.50

Exercised

(4,256
)

6.21

Expired/forfeited/cancelled

(43,233
)

8.12

Balance, September 30, 2017

3,568,020

$
7.14

7.3 years
Vested

1,897,174

$
6.68

5.8 years
Vested and expected to vest

3,429,561

$
7.10

7.2 years

	Number of shares			Weighted average exercise price		Aggregate intrinsic value		Weighted average remaining contractual life
Balance, December 31, 2019		3,695,649		$	7.97
Granted		347,750			12.34
Exercised		(178,747	)		4.52
Forfeited or expired		(111,579	)		8.25
Balance, June 30, 2020		3,753,073			8.53	$	304	6.8 years
Exercisable		2,407,433			8.11		304	6.0 years

Included in the table above are ~~740,000~~438,000 options outstanding as of June 30, 2020 that were granted outside the plan. The grants were made pursuant to the NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).

Restricted stock units (“RSUs”) generally vest over four years. The fair value of RSUs on the date of grant is measured as the closing price of our common stock on that date. The weighted average grant-date fair value of RSUs awarded to employees during the six months ended June 30, 2020 and 2019 was $15.11 and $8.12, respectively. The fair value of RSUs vested during the six months ended June 30, 2020 and 2019 was $3,227 and $3,952, respectively.

The following table summarizes ~~restricted stock units~~RSU activity during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020:

Included in the table above are 15,000 time-based RSUs outstanding as of June 30, 2020 that were granted outside the plan. The grants were made pursuant to the NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).

Stock-based compensation expense from continuing operations for the six months ended June 30, 2020 and 2019 was $5,677 and $3,541, respectively. Of these amounts, $1,991 and $845, respectively, were classified as cost of sales and $3,686 and $2,696, respectively, were classified as selling, general and administrative expenses.

~~During 2017,~~For the ~~Company granted 91,150 performance-based restricted stock units, or RSUs, which vested based on attaining clinical and operational goals during 2017,~~six months ended June 30, 2020, this represents stock-based compensation expense for the Company’s employees as well as ~~277,893 time-based RSUs, which vest over four years.~~

~~During September 2017,~~Baudax Bio employees that continue to provide services to the ~~performance condition associated with~~Company through the ~~Company’s outstanding performance-based RSUs was achieved, which resulted in~~transition services agreement (See note 3). For the six months ended June 30, 2019, additional stock-based compensation expense of ~~$656. Due~~$1,644 is included in amounts presented in the line item “Loss from discontinued operations” on the Company’s Consolidated Statements of Operations.

In conjunction with the Separation, the employment of certain of the Company’s employees was transferred to Baudax Bio pursuant to the ~~timing~~Employee Matters Agreement dated November 20, 2019 by and between the Company and Baudax Bio. In accordance with the terms of the ~~achievement, these RSUs were settled~~Employee Matters Agreement, the Recro equity grants held by such former employees continue to vest in accordance with the issuance of common shares in October 2017, and remain outstanding as of September 30, 2017 in the table above. Included in the 15,050 units of restricted stock vested during the nine months ended September 30, 2017 as well as the 89,400 vested but not yet settled performance-based RSUs are 27,987 sharestheir respective vesting schedules. Any stock-based compensation expense with ~~a weighted average fair value of $8.92 per share that were withheld for withholding tax purposes upon vesting of such awards from stockholders~~respect to former employees who ~~elected to net share settle such tax withholding obligation.~~

~~Notes~~no longer provide services to the ~~Consolidated Financial Statements~~

~~(amounts~~Company is reflected in ~~thousands, except share and per share data)~~

~~Stock-based compensation expense for the nine months ended September 30, 2017 and 2016 was $4,265 and $2,799, respectively.~~Baudax Bio’s financial statements.

As of ~~September~~June 30, ~~2017,~~2020, there was ~~$11,086~~$11,106 of unrecognized compensation expense related to unvested options and time-based RSUs that are expected to vest and will be expensed over a weighted average period of ~~2.8~~2.2 years.

~~The aggregate intrinsic value represents the total amount by which the fair value of the common stock subject to options exceeds the exercise price of the related options.~~ As of ~~September~~June 30, ~~2017,~~2020, there was $2,707 of unrecognized compensation expense related to unvested performance-based RSUs. The performance-based RSUs will be expensed if the ~~aggregate intrinsic value~~performance criteria are achieved or become probable of ~~the vested and unvested options was $4,927 and $2,632, respectively.~~being achieved.

Contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists, and therefore invoicing or associated reporting from the customer regarding the computation of the net product sales has not yet occurred. Contract assets were $8,911 and $8,851 at June 30, 2020 and December 31, 2019, respectively. Generally, the contract assets balance is impacted by the recognition of additional contract assets, offset by amounts invoiced to customers or actual net product sale amounts reported by the commercial partner for the period.

The following table presents changes in the Company’s contract assets and liabilities for the six months ended June 30, 2020:

The Company’s payment terms for manufacturing revenue and development services are typically 30 to 45 days. Royalty revenue is recorded to accounts receivable in the quarter that the product is sold by the commercial partner upon reporting from the commercial partner and payment terms are generally 45 days after quarter end.

The Company ~~operates through two business segments:~~is a party to various operating leases in Georgia for office, manufacturing, chemistry, and manufacturing and controls development space. The Company is also a party to leases for office equipment and storage. Operating lease assets, current lease liabilities and noncurrent lease liabilities are classified as other assets, other current liabilities and other liabilities, respectively, on the Consolidated Balance Sheets.

The Company determines if an ~~Acute Care segment~~arrangement is a lease at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Lease terms vary based on the nature of operations, however, all leased facilities are classified as operating leases with remaining lease terms between less than one year and 5 years. Most leases contain specific renewal options where notice to renew must be provided in advance of lease expiration or automatic renewals where no advance notice is required. Periods covered by an option to extend the lease were included in the non-cancellable lease term when exercise of the option was determined to be reasonably certain. Costs determined to be variable and not based on an index or rate were not included in the measurement of operating lease liabilities. As most leases do not provide an implicit rate, the Company's incremental borrowing rate was used to discount its lease liabilities.

The Company’s leases with an initial term of 12 months or less that do not have a ~~revenue-generating CDMO segment. The Acute Care segment~~purchase option or extension that is ~~primarily focused~~reasonably certain to be exercised are not included in the right-of-use asset or lease liability. Lease expense is recognized on ~~developing innovative products~~a straight-line basis over the lease term.

As of June 30, 2020, undiscounted future lease payments for ~~hospital and related settings,~~non-cancellable operating leases are as follows:

At June 30, 2020, the weighted average remaining lease term was 5 years and the ~~CDMO segment leverages~~weighted average discount rate was 16%.

The components of the Company’s formulation expertise to develop and manufacture pharmaceutical products using the Company’s proprietary delivery technologies for commercial partners who commercialize or plan to commercialize these products. Acute Care has no revenue, and its costs consist primarily of expenses incurred in conducting the Company’s clinical and preclinical studies, acquiring clinical trial materials, regulatory activities, personnel costs and pre-commercialization of meloxicam. CDMO revenue streams are derived from manufacturing, royalty and profit-sharing revenues,lease cost were as ~~well as CDMO’s research and development services performed for commercial partners.~~

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company evaluates performance of its reportable segments based on revenue and operating income (loss). The Company does not allocate interest income, interest expense or income taxes to its operating segments.

~~The following table summarizes segment information as of and for the three and nine months ended September 30, 2017:~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

2017

2016

Revenues:

CDMO

$
17,114

$
16,951

$
52,790

$
51,973

Acute Care

—

—

—

—

Total

$
17,114

$
16,951

$
52,790

$
51,973

Operating income (loss):

CDMO

$
7,781

$
8,621

$
18,039

$
19,899

Acute Care

(18,484
)

(12,542
)

(45,475
)

(35,616
)
Total

$
(10,703
)

$
(3,921
)

$
(27,436
)

$
(15,717
)

Depreciation and amortization:

CDMO

$
1,854

$
1,890

$
5,556

$
5,692

Acute Care

23

1

36

1

Total

$
1,876

$
1,891

$
5,592

$
5,693

Capital expenditures:

CDMO

$
1,036

$
933

$
3,932

$
2,014

Acute Care

365

—

654

—

Total

$
1,401

$
933

$
4,586

$
2,014

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Operating lease cost	$	56	$	50	$	113	$	113
Short-term lease cost		1		20		16		28
Variable lease cost		3		1		9		9
Total lease cost	$	60	$	71	$	138	$	150

~~The Company’s President and Chief Executive Officer, or CEO, owns~~Baudax Bio is a ~~majority~~related party to the Company. As part of the stock of Malvern Consulting Group, or MCG, a pharmaceutical incubator and consulting firm. The CEO’s husband, who is also a shareholder of the Company, is a consultant and a shareholder of MCG. In addition, the CEO’s son is the President and a shareholder of MCG. During 2016, certain immediate family members of the CEO were employees of MCG, including the CEO’s brother and sister-in-law. Since formation,Separation, the Company entered into ~~various transactions~~a transition services agreement with ~~MCG, as detailed below. However, since becoming a public company,~~Baudax Bio. Under the transition services agreement, Baudax Bio provides certain services to the Company, ~~sought~~each related to ~~decrease its~~corporate functions which are charged to the Company. Additionally, the Company may incur expenses that are directly related to Baudax Bio after the Separation, which are billed to Baudax Bio. Our continuing involvement with ~~MCG, and,~~Baudax Bio as ~~of December 31, 2016, the Company no longer has any involvement or transactions with MCG.~~

~~During 2016, certain~~a result of the ~~Company’s executive officers, its CEO, its Senior Vice President, Development~~transition services agreement is expected to end by late 2020, unless extended. During the three and its Senior Vice President, Regulatory Affairs and Quality Assurance, who is also the CEO's sister, provided minimal consulting services from time to time to MCG. Until December 31, 2016, the Company was a party to a Master Consulting Services Agreement with MCG. Pursuant to the agreement, MCG provided the Company with certain consulting services for a fee based upon hourly rates previously approved by the Company’s Board of Directors. In consideration for such services,six months ended June 30, 2020, the Company recorded ~~$88~~expense of $516 and ~~$278~~$1,032, respectively, related to its transition services agreement with Baudax Bio. These expenses are included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. The Company recorded a net receivable of $33 and a net payable of $273 for such activities and other activity with Baudax Bio as of June 30, 2020 and December 31, 2019, respectively.

The Company has a voluntary 401(k) Savings Plan (the 401(k) Plan) in which all employees are eligible to participate. The Company’s policy is to match 100% of the employee contributions up to a maximum of 5% of employee compensation. Total Company contributions to the 401(k) plan for the three ~~and nine~~ months ended ~~September~~June 30, ~~2016,~~2020 and 2019 were $223 and $237, respectively. ~~A portion of these amounts were used during 2016~~Total Company contributions to ~~pay a portion of~~ the ~~respective salaries of MCG employees that, as described above, included immediate family members of the Company’s CEO.~~

~~Until December 31, 2016, the Company was party to an Office Services Agreement with MCG~~401(k) plan for the lease of an aggregate of 8,458 square feet of office and lab space located at its Malvern, Pennsylvania facility and the provision of IT services and general office support. Pursuant to the Office Services Agreement, the Company paid MCG $155 in the ninesix months ended ~~September~~June 30, ~~2016. The Company terminated this agreement on December 31, 2016~~2020 and ~~is now a party to a six-year lease directly with the landlord of the Company’s Malvern, Pennsylvania facility (see Note 13).~~

~~As of December 31, 2016, the Company terminated the Master Consulting Agreement~~2019 were $539 and ~~the Office Services Agreement and MCG no longer provides any services or has any contracts with the Company.~~

The Company’s Senior Vice President, Regulatory and Quality, who is the CEO’s sister, has held that position since 2014. Effective January 1, 2017, the CEO’s sister-in-law and brother, respectively, terminated their employment with MCG and were hired as the Company’s Director of Human Resources and the Company’s Vice President, Manufacturing. The Company’s board of directors approved these hires consistent with the Company’s related person transaction policy.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the interim unaudited financial statements contained in Part I, Item 1 of this ~~quarterly report,~~Quarterly Report, and the audited financial statements and notes thereto for the year ended December 31, ~~2016~~2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March ~~9, 2017.~~4, 2020. As used in this report, unless the context suggests otherwise, “we,” “us,” “our,” “the Company” or “Recro” refer to Recro Pharma, Inc. and its consolidated subsidiaries.

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements. We may, in some cases, use terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” ~~“potential”~~“potential,” or ~~“continue” or~~“continue,” the negatives thereof and other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.

These forward-looking statements in this ~~quarterly report on Form 10-Q~~Quarterly Report include, among other things, statements about:

Any forward-looking statements that we make in this Quarterly Report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

You should also read carefully the factors described in the “Risk Factors” included in Part II, Item 1A of this Quarterly Report, ~~and~~ Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2019 filed with the SEC on March ~~9, 2017~~4, 2020, or the 2019 Annual Report, and Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended March 31, 2020 filed with the SEC on May 11, 2020, or the Q1 Quarterly Report, to better understand significant risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements in this report and you should not place undue reliance on any forward-looking statements.

We are a ~~specialty pharmaceutical company that operates~~leading contract development and manufacturing organization, or CDMO, with integrated solutions for the development, formulation, regulatory support, manufacturing and packaging of oral solid dose drug products. We have operated through ~~two~~a single CDMO business ~~divisions: an~~segment since the completion of the spin-off of our historical Acute Care ~~division and a revenue-generating CDMO division. Each of these divisions are deemed to be reportable segments for financial reporting purposes.~~

~~Our Acute Care~~business segment, ~~is primarily focused on developing innovative~~which developed products for ~~commercialization in~~ hospital and other acute care ~~settings. Our lead product candidate, IV meloxicam, has successfully completed two pivotal Phase III clinical trials, a large Phase III safety trial~~settings, on November 21, 2019.

We leverage our formulation and other safety studies for the management of moderate to severe pain. Overall, we enrolled a total of approximately 1,100 patients in our Phase III program. At the end of July 2017, we submitted an NDA to the FDA for IV meloxicam 30mg for the management of moderate to severe pain. The FDA has accepted the NDA for review and set a PDUFA date of May 26, 2018. Our Acute Care segment has no revenue and our costs consist primarily of expenses incurred in conducting our clinical trials and preclinical studies, manufacturing scale-up, regulatory activities, initial pre-commercialization of meloxicam and personnel costs.

~~Our CDMO segment leverages our formulation~~development expertise to develop and manufacture pharmaceutical products using ~~our~~ proprietary delivery technologies and know-how for commercial partners who develop, commercialize or plan to commercialize these products. These collaborations can result in revenue streams including manufacturing, royalties, profit sharing, ~~research~~ and development and manufacturing, which support continued operations for our CDMO segment and have contributed funds to be used in our research and development and pre-commercialization activities in our Acute Care segment.development. We operate a 97,000 ~~square-foot,~~square foot, DEA-licensed manufacturing facility in Gainesville, Georgia, as well as a 24,000 square foot development and wehigh potency product facility in Gainesville, Georgia. We currently develop and/or manufacture the following key products with our key commercial partners: Ritalin LA®, Focalin XR®, Verelan PM®, ~~generic~~Verelan SR®, Verapamil ~~sustained release~~PM, Verapamil SR and Zohydro ER®, as well as CDMO services for supporting development stage products. ~~Our CDMO segment’s revenue streams are derived from manufacturing, royalty and profit sharing revenues, as well as our research and development of services performed for commercial partners.~~

We have ~~incurred losses and generated negative~~used cash flows from operations since inception, and expect to continue to incur significant and increasing operating losses for the foreseeable future. Substantially all of our operating losses resulted from costs incurred in connection with our development programs, including our non-clinical and formulation development activities, manufacturing, clinical trials and pre-commercialization activities. We have used revenueflow generated by our ~~CDMO segment~~business primarily to fund operations at our Gainesville, Georgia manufacturing ~~facility,~~facilities, to fund our historical Acute Care business and to make payments under our credit ~~facility and to partially fund our development and pre-commercialization activities of our Acute Care segment.~~facility. We believe our ~~CDMO’s revenue~~business will continue to contribute cash for future operations at our Gainesville facilities and other general corporate ~~purposes that may,~~purposes.

In November 2019, our former Acute Care business was spun-out from us through our former wholly-owned subsidiary, Baudax Bio, Inc., or Baudax Bio, when we completed a special dividend distribution of all the outstanding shares of common stock of Baudax Bio to our shareholders. On November 21, 2019, the distribution date, each of our shareholders received one share of Baudax Bio’s common stock, or the Distribution, for every two and one-half shares of our common stock held of record at the close of business on November 15, 2019, the record date for the Distribution. Additionally, we contributed $19 million of cash to Baudax Bio in connection with the separation, retained significant net operating loss carryforwards, and were released from significant milestone and royalty payment obligations. As a result of the Distribution, Baudax Bio is now an independent public company whose shares of common stock are trading under the symbol “BXRX” on The Nasdaq Capital Market, or Nasdaq.

In the second quarter of 2020, we launched a new clinical trial material offering, or CTM. Our capabilities include on-demand services for innovative trial design and direct-to-patient supply logistics. We also can provide non-clinical formulations, Active Pharmaceutical Ingredient (API) characterization, over-encapsulation and manufacturing, in addition to clinical and commercial packaging services. We also made additional capital improvements to support a new tech transfer project for a commercial product and also believe the equipment will be useful for future commercial projects.

Our consolidated results of operations and financial position included in this Quarterly Report reflect the financial results of Baudax Bio as a discontinued operation for all periods presented. For additional information on the spin-off of Baudax Bio please read note 4, Discontinued Operations, to our consolidated financial statements included in the Company’s 2019 Annual Report.

We continue to closely monitor developments related to the COVID-19 pandemic, which continues to have adverse effects on the U.S. and world economies, including the commercial activities of our customers and their peers. While we are committed to continue providing essential pharmaceutical products to our customers, we are also taking all necessary measures to protect the health and safety of our employees. These developments include:

Operations: We have instituted protocols to have appropriate personnel work remotely and have implemented strict social distancing and other protective measures for those employees continuing to support essential operations at our work locations in order to ensure the health of our employees while continuing to provide critical products. Our sales, manufacturing and development efforts have continued since the outbreak of the pandemic. Our cost of sales has increased as a percentage of revenues in part due to lower production volumes, resulting in manufacturing variances, and there are some ~~extent, reduce~~incremental expenses associated with safe practices for our organization due to COVID-19.

Business Development: We successfully launched our new CTM offering in the ~~amount of external capital needed~~second quarter and secured new customers. In other sectors, we have experienced lower than expected new development business growth, which we believe is primarily attributable to fund development operations. We expect to incur increasing expenses over the next several years to develop and commercialize injectable meloxicam, including continued pre-commercial activities for IV meloxicam. Based upon the availability of additional financial resources, we may also develop and commercialize our other product candidatesCOVID-19. Concerns surrounding COVID-19 have resulted in our ~~pipeline,~~adoption of new methods for meeting and contacting customers, have slowed customer access, and have caused delays in plans for development services by some customers and prospects for a variety of reasons, such as ~~well as other~~concerns about the timing of clinical trials.

Manufacturing Demand: We believe that there has been lower demand for some of the commercial products we ~~may in-license.~~manufacture for our customers due to the effects of COVID-19. Third party national data demonstrates that there has been a meaningful impact of COVID-19 on the reduction of total prescriptions filled by patients across most therapeutic areas, including chronic cardiovascular and pediatric medications, etc.

~~On April 10, 2015, we completed the Gainesville Transaction. The Gainesville Transaction transformed our business through the addition of a revenue-generating business~~Our sales and ~~the increase in our workforce~~manufacturing operations could be further disrupted as a result of the ~~addition~~pandemic because of production slowdowns, stoppages, or decreased demand for the products we manufacture. Given the uncertain scope and duration of the ~~employees at~~pandemic, the extent to which the pandemic will continue to impact our ~~Gainesville, Georgia~~financial results remains uncertain in terms of manufacturing ~~facility. The consideration paid consisted~~volumes and certain profit sharing results, even when our partners have not experienced loss of ~~$50.0 million cash,~~market share, in part due to reduced total prescription (TRx) rates for many chronic therapeutics. However, we will continue to monitor the situation closely, we have taken steps to reduce costs and drive more new business, and we are actively evaluating various ways to further conserve operational resources.

Some recent developments have occurred that have impacted and are expected to continue to impact full year expected results, including:

As a ~~$4.0 million working capital adjustment and a seven-year warrant to purchase 350,000 shares~~result of ~~our common stock at an exercise price~~these recent events, we implemented operating improvement initiatives including two separate reduction in force actions during the first half of ~~$19.46 per share. In addition, we may be required to pay up to an additional $125.0 million in milestone payments including $45 million upon regulatory approval of IV meloxicam~~2020 as well as ~~net sales milestones and a royalty percentage~~other initiatives. We estimate that these initiatives will provide an annual savings of ~~future product net sales related to IV meloxicam.~~

~~The up-front payment was funded with $50.0~~approximately $3.4 million in ~~borrowings under a credit agreement that we entered into with OrbiMed and cash on hand. The interest rate under the credit agreement is equal~~fiscal year 2021. Additional cost saving measures continue to LIBOR plus 14.0%, with a 1.0% LIBOR floor. Pursuant to the credit agreement, we issued OrbiMed a warrant to purchase an aggregate of 294,928 shares of our common stock at an exercise price of $3.28 per share, subject to certain adjustments.

During the ~~three and nine months ended September 30, 2017 and 2016~~periods presented, we recognized revenues ~~in four categories:~~from three revenue streams: manufacturing revenue, royalty ~~profit sharing and research~~revenue and development revenue. ~~All revenue is generated from our CDMO segment.~~

We recognize manufacturing revenue from the sale of products we manufacture for our commercial partners. Manufacturing revenues are recognized ~~when persuasive evidence~~upon transfer of ~~an arrangement exists,~~control of a product to a customer, generally upon shipment, ~~has occurred~~based on a transaction price that reflects the consideration we expect to be entitled to as specified in the agreement with the commercial partner, which could include pricing and ~~title~~volume-based adjustments.

We recognize royalty or profit-sharing revenue, collectively referred to ~~the product and associated risk of loss has passed to the customer, the sales price is fixed or determinable and collectability is reasonably assured.~~

~~Royaltyrevenue—We recognize~~as royalty revenue, related to the sale of products by our commercial partners that incorporate our ~~technologies. Royalties~~technologies. Royalty revenues are ~~earned~~generally recognized under the terms of athe applicable license, development and/or supply ~~agreement~~agreement. For arrangements that include sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue when the related sales occur by the commercial partner. For arrangements that include sales-based royalties and the license is not deemed to be the predominant item to which the royalties relate, we recognize revenue when the performance obligation to which the royalty has been allocated has been satisfied, which is upon transfer of control of a product to a customer. In this case, significant judgment is used in the ~~period~~estimation of these royalties based on historical customer pricing and deductions and is partially constrained due to items that are outside of our control including the ~~products are sold by a~~uncertainty of the timing of future commercial partner sales, mix of volume, customer stocking and ~~collectability is reasonably assured.~~

~~Profit sharing revenue—We recognize revenue from profit sharing related to the sale of certain of our manufactured products~~ordering patterns, as well as unforeseen price adjustments made by our commercial partners. ~~Profit sharing revenue is earned under the terms of a license, development and/or supply agreement in the period the products are sold~~

Research and ~~expenses are incurred by our commercial partner and collectability is reasonably assured.~~Development Revenue

Research and development revenue~~—Research~~ includes services associated with formulation, process development, CTM services, as well as custom development of manufacturing processes and ~~development revenue consists of funding~~analytical methods for a customer’s non-clinical, clinical and commercial products. Such revenues are recognized at a point in time or over time depending on the nature and particular facts and circumstances associated with the contract terms.

In contracts that compensates us for formulation, and preparation of pre-clinical and clinical testing drug product materials prepared by our CDMO segment under research and development arrangements with commercial partners. We generally bill our commercial partners under research and development arrangements using a full-time equivalent or hourly rate, plus direct external costs, if any. In agreements which specify milestones, we ~~recognize revenue from non-refundable milestone payments when~~evaluate whether the ~~earnings process is complete~~milestones are considered probable of being achieved and estimate the ~~payment is reasonably assured. Non-refundable milestone~~amount to be included in the transaction price using the most likely amount method. Milestone payments related to arrangements under which we have continuing performance obligations would be deferred and recognized over the period of performance.

Research and development expenses currently consist primarily of costs incurred in connection with the development of injectable meloxicam and other pipeline activities. These expenses consist primarily of:

The majority of our external research and development costs relate to clinical trials, manufacturing of drug supply for pre-commercial products, analysis and testing of product candidates and patent costs. Costs related to facilities, depreciation and support are not ~~charged~~within our control, such as submission for approval to ~~specific programs.~~regulators by a commercial partner or approvals from regulators, are not considered probable of being achieved until those submissions are submitted by the customer or approvals are received.

~~The successful development~~In contracts that require revenue recognition over time, we utilize input or output methods, depending on the specifics of ~~our product candidates is highly uncertain and subject~~the contract, that compare the cumulative work-in-process to ~~a number of risks, including, but not limited to:~~

Development timelines, probability of success and development costs vary widely. As a result of the uncertainties discussed above, we anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate, as well as ongoing assessments of such product candidate’s commercial potential. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or costs that we will be required to expend in the future on our product candidates to complete current or future clinical or pre-commercial stages prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of any approvals, we are currently unable to estimate precisely when, if ever, any of our other product candidates will generate revenues and cash flows.

We expect our research and development costs to primarily relate to injectable meloxicam for the foreseeable future as we advance this product candidate through the pre-commercialization scale-up, clinical and other pre-approval activities. We also expect to have expenses as we initiate clinical trials and related work for our other product candidates. We may elect to seek out collaborative relationships in order to provide us with a diversified revenue stream and to help facilitate the development and commercialization of our product candidate pipeline. We expect our research and development costs to continue to increase as we continue clinical and pre-commercialization manufacturing activities for IV meloxicam, and engage in pipeline development activities.

In addition, research and development expenses consist of costs incurred by our CDMO segment in connection with research and development services performed for our commercial partners, as well as other product development and regulatory activities. We expense research and development costs as incurred. Advanced payments for goods and services that will be used in future research and development activities are initially recorded as prepaid expenses and expensed as the activity is performed or when the goods have been received.

~~General~~Selling, general and administrative expenses consist ~~principally~~ of salaries and related costs for corporate administrative, public company costs, and business development personnel ~~in executive, pre-commercial~~as well as legal, patent-related and ~~finance functions. General and administrative expenses also~~consulting fees. Public company costs include ~~professional fees for legal, including patent-related expenses, consulting,~~compliance, auditing ~~and~~services, tax services, insurance and ~~stock compensation expense.~~

investor relations. We expect our ~~general and administrative~~business development expenses to increase in 2020, compared to prior year, as we continue to ~~increase as we build~~expand our ~~Acute Care commercialization~~sales team in various geographies in support of our new offerings, in anticipation of business growth from new formulation, development and engage in pre-commercialization IV meloxicam marketing, sales, market access and medical affairs activities. In addition, we will continue to incur costs relating to our operations as a public company, including increased headcount and increased salary, consulting, legal, patent and compliance, accounting, insurance and investor relations costs.CTM capabilities.

We recognize amortization expense related to the intangible asset for our contract manufacturing relationships on a straight-line basis over an estimated useful life of six years. The intangible asset related to injectable meloxicam represents IPR&D, which is considered an indefinite-lived intangible asset that is assessed for impairment annually or more frequently if impairment indicators exist.

In connection with the acquisition of injectable meloxicam in the Gainesville Transaction, we are required to pay up to an additional $125.0 million in milestone payments including $45 million upon regulatory approval of IV meloxicam as well as net sales milestones and a royalty percentage of future product net sales related to IV meloxicam of between 10% and 12% (subject to a 30% reduction when no longer covered by patent). The estimated fair value of the initial $54.6 million payment obligation was recorded as part of the purchase price for the Gainesville Transaction. Each reporting period, we revalue this estimated obligation with changes in fair value recognized as a non-cash operating expense or income.

We ~~have~~had previously classified as liabilities certain warrants then outstanding ~~which contain~~that contained a contingent net cash settlement feature, ~~or an anti-dilution provision.~~upon a change in control. The fair value of these warrants ~~are~~was remeasured through settlement or expiration with changes in fair value recognized as a period charge within the Consolidated Statements of ~~Operations~~Operations. There are no remaining liability classified warrants as the last of these warrants were exercised in November 2019. A fair value determination at the time of the exercise occurred and ~~Comprehensive Loss.~~was included in the change in warrant valuation for the year ended December 31, 2019.

Interest expense for the ~~three and nine months ended September 30, 2017 and 2016 was a result of~~periods presented primarily includes interest expense incurred on our ~~OrbiMed~~Athyrium senior secured term ~~loan and~~loans, the amortization of ~~the~~ related financing ~~costs.~~

~~Comparison~~costs and interest expense on a promissory note with PNC Bank under the Small Business Administration, or “SBA, Paycheck Protection Program of the ~~Three Months Ended September 30, 2017~~Coronavirus Aid, Relief and ~~2016~~Economic Security Act of 2020, or the CARES Act, and collectively the PPP note.

~~Revenue~~As of December 31, 2019, we had approximately $121.6 million of federal net operating loss carryforwards. We also had federal and ~~costs of sales.~~ Our revenues were $17.1 million and $17.0 million and cost of sales were $6.9 million and $5.7 million for the three months ended September 30, 2017 and 2016, respectively. Excluding the $2.3 million, one-time, contractually based manufacturing revenue amount from one of our commercial partners in the three months ended September 30, 2016, the $2.4 million increase in revenue versus prior year was primarily due to higher manufacturing revenues. Cost of sales increased $1.2 million, or 20%, primarily due to increases in manufacturing revenue compared to prior year.

~~Research and Development.~~ ~~Our~~state research and development ~~expenses were $9.3~~tax credit carryforwards of $4.4 million ~~and $7.0 million for~~available to offset future taxable income. U.S. tax laws limit the ~~three months ended September 30, 2017 and 2016, respectively. Research and development expenses increased as a result of an increase of $2.0 million for~~time during which these carryforwards may be utilized against future taxes. With the NDA filing fee, an increase of $1.4 million in pre-commercialization manufacturing and other development costs for IV meloxicam, an increase of $1.5 million in salaries and benefits expense due to increased Acute Care headcount, and an increase of $0.4 million in development costs for other pipeline products. These increases in research and development costs were offset by lower IV meloxicam clinical trial expenses of $3.0 million.

~~General and Administrative.~~ Our general and administrative expenses were $6.6 million and $3.8 million for the three months ended September 30, 2017 and 2016, respectively. The increase of $2.8 million was primarily due to increased headcount in our Acute Care division, and pre-commercialization and medical affairs expenses.

~~Amortization of Intangible Assets.~~ ~~Amortization expense was $0.6 million for each~~exception of the ~~quarters ended September 30, 2017~~2019 and ~~2016,~~2018 federal net operating losses, which ~~was exclusively related~~have an indefinite carry forward period, these federal and state net operating loss and federal and state tax credit carryforwards will begin to ~~the amortization of our royalties and contract manufacturing relationships intangible asset over its estimated useful life.~~

~~Interest Expense, net.~~ ~~Interest expense, net was $1.2 million and $1.4 million during the three months ended September 30, 2017 and 2016, respectively. The decrease~~expire at various dates beginning in ~~interest expense, net, was due to a lower principal balance on our OrbiMed senior secured term loan and amortization of the related financing costs.~~

~~Income Tax Benefit.~~ Income tax benefit was $2.8 million for the three months ended September 30, 2017 due to a loss in our U.S. operations and the income tax expense was $0.02 million for the three months ended September 30, 2016 due to income tax related to our U.S. operations.2028, if not utilized. We believe that it is more likely than not that the deferred income tax assets associated with our ~~foreign~~U.S. operations will not be realized, and as such, there is a full valuation allowance against our ~~foreign~~ deferred tax assets.

~~Our CDMO’s gross margin percentage was 60%~~Comparison of the Three Months Ended June 30, 2020 and ~~66% in the three months ended September 30, 2017 and 2016, respectively. Excluding the $2.3~~2019

Revenue. The decrease of $15.7 million ~~one-time, contractually based manufacturing revenue amount from one of our commercial partners in the three months ended September 30, 2016, the $2.4 million increase in revenue versus prior year~~ was primarily due to ~~higher manufacturing revenues. Cost~~decreased product sales and royalties recognized from three of ~~sales increased $1.2 million, or 20%, primarily~~our commercial partners. The first key customer experienced lower market share compared to 2019 due to ~~increases in~~the re-entry of a competitor to the market but has maintained its market share since the first quarter of 2020. The second key customer saw decreased sales that reduced our royalties and manufacturing ~~revenue compared to prior year.~~

CDMO’s operating expenses (excluding cost of sales) decreased by $0.1 million, from $1.9 million in the three months ended September 30, 2016 to $1.8 million in the three months ended September 30, 2017. Research and development expenses decreased by $0.1 million and general and administration expenses decreased by $0.1 million. All of the above contributed to CDMO’s operating income of $7.8 million for the three months ended September 30, 2017, which included non-cash charges of $1.9 million for depreciation and amortization and $0.3 million for stock-based compensation.

Acute Care’s operating expenses increased $5.2 million from $8.9 million in the three months ended September 30, 2016 to $14.1 million in the three months ended September 30, 2017. Research and development expenses increased $2.3 millionvolumes as a result of increased IV meloxicam pre-commercialization manufacturing costs, NDA filing fees and increased headcount, which was partially offset by a decrease in our IV meloxicam clinical trial expenses. General and administrative costs increased by $2.8 million as a result of increased headcount and increased pre-commercialization marketing expenses. Non-cash charges relatedmarket forces. The third key customer decreased sales due to the ~~warrant valuation increased $0.4 million and contingent consideration increased by $0.4 million. All~~impact of a combination of the ~~above contributed to Acute Care’s operating loss~~overall market forces and the discontinuation of ~~$18.5 million for the three months ended September 30, 2017, which also included non-cash charges of $1.7 million for stock-based compensation, depreciation and amortization.~~

~~Revenue and costs of sales.~~ Our revenues were $52.8 million and $52.0 million and cost of sales were $27.8 million and $25.6 million for the nine months ended September 30, 2017 and 2016, respectively. Excluding the $2.3 million, one-time, contractually based manufacturing revenue amount from one of oura commercial ~~partners~~product line in the ~~nine months ended September 30, 2016, the $3.1 million increase in revenue versus prior year was primarily~~first quarter of 2020. We also experienced slower than expected new business project starts and overall growth due to ~~increased profit share revenue as~~the impacts of COVID-19.

We expect that the return of a ~~result of increased sales volumes and pricing~~competitor to the market experienced by one of our commercial partners, ~~as well as increased manufacturing revenue. These increases~~overall COVID-19 market force impacts to all of our customers, discontinuations of product lines by two of our customers, slower than expected new project starts and potential delays in customers programs may continue to impact our revenue in the third and fourth quarters of 2020. We are continuing to monitor the impacts of these events and the COVID-19 pandemic on our business and revenues.

Cost of sales. Cost of sales decreased $2.5 million and was not proportionate to the decrease in revenues, primarily due to lower commercial volumes and slower than anticipated new project starts (including $0.2 million related to the second reduction in force associated with continued revised commercial volume and development revenue). Annual savings from this reduction in force and an earlier reduction in force are estimated to be $3.4 million in fiscal year 2021.

Selling, general and administrative. The decrease of $1.3 million was primarily related to lower public company costs and lower travel and marketing costs driven by the COVID-19 pandemic, which were partially offset by ~~decreased royalty revenue due to a change in the mix of generic and brand sales by one of our commercial partners. Cost of sales increased $2.2 million, or 9%,primarily due to increases in manufacturing revenue compared to prior year and changes in the product mix.~~

~~Research and Development.~~ Our research and development expenses were $24.1 million and $23.2 million for the nine months ended September 30, 2017 and 2016, respectively. Research and development expenses increased as a result of an increase of $2.0

~~million for the NDA filing fee, an increase of $3.6 million in pre-commercialization manufacturing and other development~~higher selling costs for IV meloxicam, an increase of $2.3 million in salaries and benefits expense due to increased Acute Care headcount, an increase of $0.8 million in IPR&D costs for the acquisition of the NMB Related Compounds and an increase of $1.5 million in development costs for other pipeline products. These increases in research and development costs were offset by lower IV meloxicam clinical trial expenses of $9.3 million.

~~General and Administrative.~~ ~~Our general and administrative expenses were $17.0 million and $9.3 million for the nine months ended September 30, 2017 and 2016, respectively. The increase of $7.7 million was primarily~~ due to increased headcount ~~in our Acute Care division~~ and ~~pre-commercialization and medical affairs expenses.~~associated personnel costs focused on business development, as well as completion of readiness for the CTM business.

Amortization of ~~Intangible Assets.~~intangible assets. Amortization expense was ~~$1.9~~$0.6 million for ~~the nine months~~both three-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 which was ~~exclusively~~ related to the amortization of ~~our~~the CDMO royalties and contract manufacturing relationships intangible asset over its estimated useful life.

Change in warrant valuation. Previously, certain warrants were outstanding whose fair value was remeasured each period with changes in fair value recognized in earnings. The last of those warrants were exercised in November 2019.

Interest ~~Expense, net.~~ ~~Interest expense, net was $3.3 million and $4.3 million during the nine months ended September 30, 2017 and 2016, respectively.~~expense. The decrease ~~in interest expense, net, was due to a lower principal balance on our OrbiMed senior secured term loan and amortization~~ of ~~the related financing costs.~~

~~Income Tax Benefit.~~ ~~Income tax benefit was $4.8 million and~~ $0.2 million for the nine months ended September 30, 2017 and 2016, respectively, due to an income tax benefit related to a loss in our U.S. operations. We believe that it is more likely than not that the deferred income tax assets associated with our foreign operations will not be realized, and as such, there is a full valuation allowance against our foreign deferred tax assets.

Our CDMO’s gross margin percentage was 47% and 51% in the nine months ended September 30, 2017 and 2016, respectively. Excluding the $2.3 million, one-time, contractually based manufacturing revenue amount from one of our commercial partners in the nine months ended September 30, 2016, the $3.1 million increase in revenue versus prior year was primarily due to ~~increased profit~~a slight decrease in the LIBOR base rate of interest on our term loans under the Credit Agreement with Athyrium.

Discontinued operations. In November 2019, our former Acute Care business was spun-out from us through our former wholly-owned subsidiary, Baudax Bio. As a result, that business’s results are included in the 2019 period but not the 2020 period.

Revenue. The decrease of $19.0 million in revenue was primarily due to decreased product sales and royalties recognized from three of our commercial partners. The first key customer experienced lower market share ~~revenue~~compared to 2019 due to the re-entry of a competitor to the market but has maintained its market share since the first quarter of 2020. The second key customer saw decreased sales that reduced our royalties and manufacturing volumes as a result of ~~increased~~market forces. The third key customer decreased sales ~~volumes~~due to the impact of a combination of the overall market forces and ~~pricing~~the discontinuation of a commercial product line in the first quarter of 2020. We also experienced slower than expected new business project starts and overall growth due to the impacts of COVID-19.

We expect that the return of a competitor to the market experienced by one of our commercial partners, ~~as well as~~overall COVID-19 market force impacts to all of our customers, discontinuations of product lines by two of our customers, slower than expected new project starts and potential delays in customers programs may continue to impact our revenue in the third and fourth quarters of 2020. We are continuing to monitor the impacts of these events and the COVID-19 pandemic on our business and revenues.

Cost of sales. Cost of sales increased ~~manufacturing revenue. These increases~~$1.4 million, and was not proportionate to the decrease in revenues, primarily due to lower commercial volumes and slower than anticipated new project starts (including spending reductions that included $1.0 million related to reductions in force associated with revised commercial volume and development revenue). Annual savings from these reduction in force actions are estimated to be $3.4 million in fiscal year 2021.

Selling, general and administrative. The decrease of $2.3 million was primarily related to lower public company costs and lower travel and marketing costs driven by the COVID-19 pandemic, which were partially offset by ~~decreased royalty revenue~~higher selling costs due to ~~a change~~increased headcount and associated personnel costs focused on business development, as well as completion of readiness for the CTM business.

Amortization of intangible assets. Amortization expense was $1.3 million for both six-month periods ended June 30, 2020 and 2019, which was related to the amortization of the CDMO royalties and contract manufacturing relationships intangible asset over its estimated useful life.

Change in ~~the mix~~warrant valuation. Previously, certain warrants were outstanding whose fair value was remeasured each period with changes in fair value recognized in earnings. The last of ~~generic and brand sales by one~~those warrants were exercised in November 2019.

Interest expense. The increase of ~~our commercial partners. Cost of sales increased $2.2~~$1.4 million ~~or 9%,~~was primarily due to ~~increases in manufacturing revenue compared to prior year and changes~~additional term loan borrowings under its Credit Agreement with Athyrium in the ~~product mix.~~

~~CDMO’s operating expenses (excluding cost~~first quarter of sales) increased by $0.4 million, from $4.6 million in the nine months ended September 30, 2016 to $5.0 million in the nine months ended September 30, 2017. Research and development expenses increased by $0.5 million due to expanded investment in our future capabilities and general and administration decreased by $0.1 million. All of the above contributed to CDMO’s operating income of $18.0 million for the nine months ended September 30, 2017, which included non-cash charges of $5.6 million for depreciation and amortization and $0.8 million for stock-based compensation.

Acute Care’s operating expenses increased $8.2 million from $27.9 million in the nine months ended September 30, 2016 to $36.1 million in the nine months ended September 30, 2017. Research and development expenses increased $0.5 million as a result of increased IV meloxicam pre-commercialization manufacturing costs, NDA filing fees and increased headcount, which was2019, partially offset by a decrease in the LIBOR base rate of interest on those term loans.

Discontinued operations. In November 2019, our ~~IV meloxicam clinical trial expenses. General and administrative costs increased by $7.8 million as~~former Acute Care business was spun-out from us through our former wholly-owned subsidiary, Baudax Bio. As a result, ~~of increased headcount and increased pre-commercialization marketing expenses. The non-cash charge for contingent consideration increased by $1.6 million. All of~~that business’s results are included in the ~~above contributed to Acute Care’s operating loss of $45.5 million for~~2019 period but not the ~~nine months ended September 30, 2017, which also included non-cash charges of $3.5 million for stock-based compensation, depreciation and amortization.~~2020 period.

As of ~~September~~June 30, ~~2017,~~2020, we had ~~$41.3~~$22.8 million in cash and cash ~~equivalents and short-term investments.~~equivalents.

Since our inception through ~~September~~June 30, ~~2017,~~2020, we have financed our product development, operations and capital expenditures primarily from sales of equity and debt securities, ~~including sales of our common stock of $116.4 million, which includes $57.6 million raised in 2016. Revenues from our CDMO segment are used primarily to fund operations at our Gainesville, Georgia~~

~~manufacturing facility, to make payments~~and term loans made under our previous and existing credit ~~facility and to partially fund the development and pre-commercialization activities of our Acute Care segment.~~facilities. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, our capital expenditures were ~~$4.6 million.~~$2.2 million and primarily related to equipment and facility modifications to support a new customer.

We ~~will need to raise substantial~~may require additional funds in order to fund the payments which may become due, including milestone payments owed to Alkermes or other licensing partners, to continue our clinical trials of our approved or development state product candidates, to commercialize any approved product candidates or technologiesfinancing and ~~to enhance our sales and marketing efforts for additional products~~if we may acquire. Insufficient funds may cause us to delay, reduce the scope of or eliminate one or more of our development, commercialization or expansion activities. Our future capital needs and the adequacy of our available funds will depend on many factors, including the cost of clinical studies and other actions needed to obtain regulatory approval of our products in development, and the costs of commercialization activities, as well as the continued profitability of our CDMO segment. If additional funds are required,do, we may raise such additional funds through debt refinancing, bank or other loans, through strategic ~~research and~~ development, licensing, including out-licensing activities, sale of assets and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition or results of operations. Further, our ability to access capital market or otherwise raise capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. Additional debt or equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our ~~business.~~business or access to capital.

On ~~March 7, 2015,~~November 17, 2017, we entered into our credit agreement with Athyrium, pursuant to which we drew upon an initial $60.0 million term loan. We used the proceeds from the initial term loan to (i) repay in ~~connection~~full all outstanding indebtedness under our credit facility with OrbiMed of approximately $31.7 million, which included the remaining debt principal balance of $27.3 million and early termination charges of $4.4 million and (ii) pay transaction fees associated with the ~~Gainesville Transaction,~~credit facility with Athyrium of approximately $4.2 million. In December 2018 we ~~through~~amended the credit agreement with Athyrium and drew upon a ~~wholly owned subsidiary,~~$10.0 million term B-1 loan. In February 2019, we entered into a ~~credit agreement with OrbiMed. Pursuant~~second amendment to the credit agreement ~~OrbiMed provided us~~ with Athyrium pursuant to which the credit facility was (i) expanded from $100.0 million to $125.0 million and (ii) the two additional $15.0 million tranches were restructured into a $55.0 million term B-2 loan, inwhich was funded on the date of execution of the second amendment, net of the original ~~principal amount~~issue discount of ~~$50.0 million on April 10, 2015, which amount was used to fund~~$11.4 million. On October 22, 2019, the ~~Gainesville Transaction. The unpaid principal amount~~Company entered into a third amendment that, among other things, released Baudax Bio from its obligations under the credit agreement and increased the permitted leverage ratio (which is our indebtedness under the Credit Agreement divided by EBITDA, each as defined) to 5.00:1.00. Beginning on March 31, 2021, we must repay the outstanding principal amount in quarterly installments of $3.0 million with the outstanding principal balance due on March 31, 2023. As of June 30, 2020, we had $125.0 million outstanding principal under our credit agreement with Athyrium.

On May 12, 2020, we entered into a $4.4 million PPP Note. The note has a two-year term, natures on May 12, 2022 and ~~payable~~bears interest at a stated rate of 1.0% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence on December 15, 2020. The note requires no collateral or guarantees, nor did the ~~five-year anniversary~~Company pay any fees to acquire the note. The note provides for customary events of default, including, among others, failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the principal of the Loan at any time without incurring any prepayment charges. On May 18, 2020 the Company prepaid $1.1 million of the note.

The PPP Note may be partially or fully forgiven if the Company complies with the provisions of the CARES Act, including the use of note proceeds for payroll costs, rent, utilities and mortgage interest, and at least 60% of the amount of the loan ~~provided thereunder~~proceeds to be forgiven must be used for payroll costs as defined by ~~OrbiMed.~~the CARES Act. The ~~credit agreement also provides~~SBA has announced its intention to audit loans in excess of $2.0 million, and any forgiveness of the Loan will be subject to approval by the SBA and PNC Bank. Forgiveness of the PPP Note will require the Company to apply for ~~certain mandatory prepayment events, including~~such treatment in the future. Should we meet the requirements for forgiveness, it would extinguish the note upon receiving legal release from PNC Bank and record a ~~quarterly excess cash flow prepayment requirement at OrbiMed’s request.~~gain on extinguishment in that period. We ~~may make voluntary prepayments~~expect that the full $3.3 million balance of the PPP Note will be forgiven, however, no assurance can be given that we will obtain forgiveness of the PPP Note in whole or in part, subject to: (i) on or prior to the 36-month anniversary of the closing of the credit agreement, payment of a buy-out premium amount equal to (A) for full prepayments, $75 million less all previously prepaid principal amount and all previously paid interest or (B) for partial prepayments of the unpaid principal amount, 0.5 times the partial prepayment amount less interest payments previously paid in respect to the partial prepayment amount and; and (ii) after the 36-month anniversary of the closing of the credit agreement, payment of an exit fee amount equal to 10% of the amount of any prepayments. As defined by the agreement, based upon our CDMO segment financial results, OrbiMed has the option to require us to prepay a portion of the Loan balance based upon an Excess Cash Flow calculation. No payments under this option shall be subject to the buy-out premium. The credit agreement carries interest at three-month LIBOR plus 14.0% with 1.0% floor. This obligation is secured by substantially all of our assets. As of September 30, 2017, we have paid $22.7 million of the outstanding principal on our senior secured term loan from free cash flow.part.

Cash ~~used in~~provided by operating activities, continuing operations, was ~~$18.0~~$4.4 million and ~~$4.2~~$6.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, which represents our ~~operating losses less our~~income or loss from continuing operations as adjusted for stock-based compensation, depreciation, non-cash interest expense, changes in fair value of warrants ~~and contingent consideration~~ and amortization of intangibles, as well as changes in operating assets and liabilities.

Cash used in investing activities, continuing operations, was ~~$34.6 million and $2.0~~$2.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, which related to capital expenditures to scale and ~~2016, respectively, and~~support our expansion of capabilities. Cash used in investing activities from continuing operations was $9.4 million for the six months ended June 30, 2019. The 2019 amount reflected cash used for ~~the purchase~~net purchases of short-term investments ~~offset by maturities/redemption~~and for the purchases of ~~investments in 2017 and~~ property and ~~equipment in 2017 and 2016. Our short-term investments are classified as available for sales securities maturities of less than one year.~~equipment.

~~There was $0.01 million cash provided by financing activities in nine months ended September 30, 2017 from proceeds from exercise of options offset by the repurchase of shares traded for taxes.~~ Cash provided by financing activities, continuing operations, was ~~$11.2~~$2.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, which primarily ~~as a result~~included $4.4 of ~~the sale of common stock raising net proceeds of $13.4 million, $4.2 million in~~ proceeds from ~~the sale of shares of common stock through our common stock purchase agreement with Aspire Capital,~~a PPP Note offset by ~~excess cash flow payments~~a $1.1 million repayment, which was within the safe harbor time period for repayment established by the Small Business Administration. Certifications made with respect to loan amounts repaid during this safe harbor period are deemed to have been made in good faith. Cash provided by financing activities from continuing operations was $40.8 million, which primarily included proceeds from debt of ~~$6.3~~$43.6 million ~~made related to the OrbiMed credit agreement.~~partially offset by deferred financing costs of $2.9 million.

~~Our~~Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

We might use existing cash and cash equivalents on hand, additional debt, equity financing, sale of assets or out-licensing revenue or a combination ~~of the four~~thereof to fund our operations or ~~product~~ acquisitions. If we increase our debt levels, we might be restricted in our ability to raise additional capital and might be subject to financial and restrictive covenants. Our shareholders may experience dilution as a result of the issuance of additional equity or debt securities. This dilution may be significant depending upon the amount of equity or debt securities that we issue and the prices at which we issue any securities.

The ~~following is a discussion of~~table below reflects our contractual commitments as of ~~September~~June 30, ~~2017.~~

~~We have in-licensed product candidates that generally trigger or require payments to the partner from whom we have licensed the product. Such payments frequently take the form of:~~2020:

We are party to exclusive licenses with Orion for the development and commercialization of Dex and Fado, under which we may be required to make certain milestone and royalty payments to Orion. We also license the NMB Related Compounds from Cornell pursuant to a license agreement to which we are obligated to make annual license maintenance fee payments, milestone payments and patent cost payments and to pay royalties on net sales of the NMB Related Compounds. See Note 5 and Note 13(a) to the Consolidated Financials Statements included in the Form 10-Q. We are unable to reliably estimate the timing of these payments because they are dependent on the type and complexity of the clinical studies and intended uses of the products, which have not been established. In accordance with U.S. GAAP, these obligations are not recorded on our Consolidated Balance Sheets.

~~We may also out-license products for which we hold the rights to other companies for commercialization in other territories or, at times, for other uses and would seek appropriate compensation.~~

Pursuant to the purchase and sale agreement governing the Gainesville Transaction, we agreed to pay to Alkermes up to an additional $125.0 million in milestone payments including $45 million upon regulatory approval of IV meloxicam as well as net sales milestones and a royalty percentage of future product net sales related to IV meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent).

On January 1, 2017, we entered into a six-year lease of our Malvern, Pennsylvania facility that expires on December 31, 2022. In February 2017, we also entered into a three-year lease for office space in Dublin, Ireland that expires in April 2020. We are also party to operating leases for office equipment and storage.

Pursuant to our credit agreement with OrbiMed, OrbiMed provided us with a term loan in the original principal amount of $50.0 million on April 10, 2015. The unpaid principal amount under the credit agreement is due and payable in April 2020. The credit agreement also provides for certain mandatory prepayment events, including a quarterly excess cash flow prepayment requirement at OrbiMed’s request. As defined by the agreement, based upon our CDMO segment financial results, OrbiMed has the option to require the Company to prepay a portion of the loan balance based upon an Excess Cash Flow calculation. As of September 30, 2017, we have paid $22.7 million of the outstanding principal on our senior secured term loan from free cash flow.

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Our critical accounting policies and estimates are disclosed in the ~~Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations” section of our 2019 Annual ~~Report on Form 10-K December 31, 2016 filed with~~Report. In the ~~SEC on March 9, 2017. There have not been any~~six months ended June 30, 2020, there were no significant changes to ~~such~~the application of critical accounting policies ~~since.~~previously disclosed in our 2019 Annual Report.

~~We are exposed~~There has been no material change in our assessment of its sensitivity to market ~~risks~~risk described in the ~~ordinary course~~“Quantitative and Qualitative Disclosures About Market Risk” section of our business. These market risks are principally limited to interest rate fluctuations. At September 30, 2017, we had approximately $29.6 million invested in money market instruments and government and agency bonds. We believe our policy of investing in highly-rated securities, whose liquidities are, at September 30, 2017, all less than one year, minimizes such risks. Due to the short-term duration of our investment portfolio and the low-risk profile of our investments, an immediate 10.0% change in interest rates would not have a material effect on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio. We do not enter into investments for trading or speculative purposes. Our OrbiMed senior secured term loan interest expense is based on the current committed rate of LIBOR plus 14% with a 1.0% LIBOR floor. A fluctuation in LIBOR of 0.25% would result in a charge of $0.1 million of interest expense.2019 Annual Report.

We have license agreements with Orion for Dex and Fado which require the payment of milestones upon the achievement of certain regulatory and commercialization events and royalties on product sales, which are required to be made in Euros. As of September 30, 2017, no milestones or royalties were due under these agreements, and we do not anticipate incurring milestone or royalty costs under these agreements until we advance our development of Dex or Fado. We do not believe foreign currency exchange rate risk is a material risk at this time; however, these agreements could, in the future, give rise to foreign currency transaction gains or losses. As a result, our results of operations and financial position could be exposed to changing currency exchange rates. In the future, we may periodically use forward contracts to hedge certain transactions or to neutralize exposures.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of ~~September~~June 30, ~~2017.~~2020. We maintain disclosure controls and procedures

that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, and not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2020, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~As part of the Gainesville Transaction, we acquired the rights~~We are involved, from time to ~~Zohydro ER®, which we license to our commercial partner, Pernix Therapeutics Holdings, Inc., or Pernix,~~time, in various claims and legal proceedings arising in the ~~United States, and which is subject~~ordinary course of its business. Except as disclosed below, we are not currently a party to ~~ongoing intellectual property litigation and proceedings.~~any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on its business, financial condition or results of operations.

~~Zohydro ER® has been subject to six paragraph IV certifications, two of which were filed in 2014 by Actavis plc,~~On May 31, 2018, a securities class action lawsuit, or ~~Actavis, and Alvogen Pine Brook, Inc., or Alvogen, regarding~~ the ~~filing of Abbreviated NDAs, or ANDAs, with the FDA for a generic version of Zohydro ER®, one of which~~Securities Litigation, was filed ~~in April 2015 by Actavis regarding~~against the ~~filing~~Company and certain of ~~a supplemental ANDA, or sANDA,~~its officers and another three of which were filed in November 2015 and October 2016 by Actavis and in December 2015 by Alvogen regarding one of our recently issued patents relating to a formulation of Zohydro ER®. These certification notices allege that the three U.S. patents listed in the FDA’s Orange Book for Zohydro ER®, with an expiration date in November 2019 or September 2034, will not be infringed by Actavis’ or Alvogen’s proposed products, are invalid and/or are unenforceable. In 2014, Daravita Limited (a subsidiary of Alkermes and our predecessor in interest) filed suit against each of Actavis and Alvogendirectors in the U.S. District Court for the Eastern District of ~~Delaware~~Pennsylvania (Case No. 2:18-cv-02279-MMB) that purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on statements made by the ~~ANDAs,~~Company concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and other costs. On December 10, 2018, lead plaintiff filed an amended complaint that asserted the same claims and sought the same relief but included new allegations and named additional officers as defendants. On February 8, 2019, the Company filed a motion to dismiss the amended complaint in ~~2015, we~~its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, the Company filed ~~suit against Actavis in the U.S. District Court for the District of Delaware based~~its response and briefing was completed on the ~~sANDA.~~motion to dismiss. In ~~September 2016, we entered into a settlement agreement~~response to questions from the Judge, the parties submitted supplemental briefs with Alvogen pursuant to which the case against Alvogen was dismissed. In February 2017, the District Court in the Actavis case ruled in our favor and enjoined Actavis from selling the proposed generic version of Zohydro ER®. Actavis has appealed this decisionregard to the ~~U.S. Court~~motion to dismiss the amended complaint during the fall of ~~Appeals for~~2019. On February 18, 2020, the ~~Federal Circuit.~~motion to dismiss was granted without prejudice. On April 25, 2020, the plaintiff filed a second amended complaint. The Company filed a motion to dismiss the second amended complaint on June 18, 2020. The plaintiff’s deadline to file an opposition to the Company’s motion to dismiss is August 17, 2020, and the Company will have thirty days from the filing of the plaintiff’s opposition to file a reply in support of the motion to dismiss. In ~~October 2017, we filed suit against Actavis~~connection with the separation of Baudax Bio, Baudax Bio accepted assignment by the Company of all of its obligations in connection with the ~~U.S. District Court for the District of Delaware based upon another recently issued patent relating~~Securities Litigation and agreed to a formulation of Zohydro ER®. Under our license agreement with Pernix, we have the right to control the enforcement of our patents and related proceedings involving Zohydro ER® and any prospective generic entrant, and Pernix has the obligation to reimburse usindemnify it for all ~~reasonable costs of such actions.~~

In addition, in April 2015, the U.S. Patent and Trademark Office declared an interference between one of our patent applications relating to a dosage form of Zohydro ER® and two Purdue Pharma, LP, or Purdue, applications. In April 2016, the USPTO found our claims and the Purdue claims involved in the interference to be invalid. In June 2016, Purdue appealed this decisionliabilities related to the ~~U.S. Court of Appeals for~~Securities Litigation. The Company and Baudax Bio believe that the ~~Federal Circuit~~lawsuit is without merit and ~~in June 2017, the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the USPTO in our favor and dismissed Purdue’s appeal.~~intend to vigorously defend against it.

~~There~~You should carefully consider the risk factors described in our 2019 Annual Report and our Q1 Quarterly Report under the caption “Item 1A. Risk Factors.” Except as set forth below, there have been no material changes ~~from~~in our risk factors ~~as previously reported~~disclosed in our 2019 Annual Report ~~on Form 10-K~~and our Q1 Quarterly Report.

We may not be entitled to forgiveness of our recently received Paycheck Protection Program Loan, and our application for the ~~year ended~~Paycheck Protection Program Loan could in the future be determined to have been impermissible or could result in damage to our reputation.

On May 12, 2020, we received loan proceeds of approximately $4.4 million pursuant to the PPP under the CARES Act administered by the SBA. We intend to use the PPP Note to retain current employees, maintain payroll and make lease and utility payments. The PPP Note is evidenced by a promissory note, dated as of May 12, 2020, issued by PNC Bank, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP Note is scheduled to mature on May 12, 2022, or the Maturity Date, bears interest at a rate of 1.00% per annum, and is subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act. On May 18, 2020, we prepaid $1.1 million of the amount due under the PPP Note, which was within the safe harbor time period for repayment established by the Small Business Administration. Certifications made with respect to loan amounts repaid during this safe harbor period are deemed to have been made in good faith.

Commencing December ~~31, 2016.~~15, 2020, we are required to pay regular monthly payments in an amount equal to one month’s accrued interest under the PPP Note. All interest which accrues during the initial six months of the loan period will be deferred and payable on the Maturity Date. The amounts outstanding under the PPP Note may be prepaid by us at any time prior to maturity without penalty. Under the CARES Act, as amended in June 2020, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the date of the first disbursement of the PPP Note. The amount of the PPP Note eligible to be forgiven may be reduced in certain circumstances, including as a result of certain headcount or salary reductions. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will apply for forgiveness, or that any amount of the PPP Note will ultimately be forgiven by the SBA.

In order to apply for the PPP Note, we were required to certify, among other things, that the current economic uncertainty made the PPP Note request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, the maintenance of our workforce, our need for additional funding to continue operations, and our ability to access alternative forms of capital in the current market environment in light of the uncertainty resulting from the COVID-19 pandemic. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Note, and that our receipt of the PPP Note is consistent with the broad objectives of the CARES Act. The certification described above did not contain any objective criteria and is subject to interpretation.

On April 23, 2020, the SBA issued new guidance that questioned whether a public company with substantial market value and access to capital markets would qualify to participate in the PPP. The SBA guidance further indicates that borrowers “must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” Subsequently, on April 29, 2020 the SBA issued guidance that it will review all PPP loans of more than $2 million, including our PPP Note, following the lender’s submission of the borrower’s loan forgiveness application.

Under PPP, all or a portion of the PPP Note is eligible for forgiveness if we were eligible for the PPP Note, use the loan proceeds for eligible expenses and otherwise satisfy PPP requirements. While we believe we are eligible for the PPP Note, in the event it was determined that we were not eligible for the PPP Note, it is possible we would be required to repay the PPP Note on an accelerated basis, rather than over two years provided under the PPP Note, and at a higher interest rate than 1.000% per annum. If we receive an adverse finding in any audit related to the PPP Note, some or all of the PPP Note might not be forgiven and we could be required to return or repay some or all of the PPP Note, together with interest on the loan, which could reduce our liquidity, and potentially subject us to fines and penalties.

On August 7, 2020, we entered into a First Amendment to our Common Stock Purchase Agreement with Aspire Capital Fund, LLC, or Aspire Capital, originally dated February 19, 2019, (as amended, the “Amended Purchase Agreement”) pursuant to which we have the right to sell to Aspire Capital Fund, LLC, or Aspire Capital, from time to time in our sole discretion up to $30.0 million in shares of our common stock through March 20, 2022, subject to certain limitations and conditions set forth in the Amended Purchase Agreement. The Amended Purchase Agreement also replaces our Common Stock Purchase Agreement, dated March 2, 2018, under which $3.0 million shares of our common stock were issuable as of June 30, 2020.

Under the Amended Purchase Agreement, on any trading day we select, following the filing of the prospectus supplement and the satisfaction of other closing conditions, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, or Purchase Notice, directing Aspire Capital (as principal) to purchase up to 75,000 shares of common stock per trading day, up to an aggregate of $30.0 million of common stock, at a per share price, or the Purchase Price, equal to the lesser of:

The aggregate purchase price payable by Aspire Capital on any one purchase date may not exceed $500,000, unless otherwise mutually agreed, and upon mutual agreement we may issue up to 2,000,000 shares of common stock under a purchase notice.

In addition, on any date on which we submit a purchase notice to Aspire Capital, we also have the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice, or VWAP Purchase Notice, directing Aspire Capital to purchase an amount of common stock equal to up to 30% of the aggregate shares of common stock traded on our principal market on the next trading day, or the VWAP Purchase Date, as we determine. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average price for the common stock traded on our principal market on the VWAP Purchase Date.

We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the Amended Purchase Agreement, so long as the most recent purchase has been completed.

The Amended Purchase Agreement provides that we and Aspire Capital will not affect any sales under the Amended Purchase Agreement on any purchase date where the closing sale price of our common stock is less than $0.50. There are no trading volume requirements or restrictions under the Amended Purchase Agreement, and we will control the timing and amount of sales of common stock to Aspire Capital.

The Amended Purchase Agreement provides that the number of shares that may be sold pursuant to the Amended Purchase Agreement will be limited to 4,725,734 shares, or the Exchange Cap, which represents 19.99% of our outstanding shares of common stock as of August 7, 2020, unless stockholder approval or an exception pursuant to the rules of the Nasdaq Capital Market is obtained to issue more than 19.99%. This limitation will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price paid for all shares issued under the Amended Purchase Agreement is equal to or greater than $4.11, which was the closing sale price of our common stock immediately preceding the execution of the Amended Purchase Agreement. We are not required or permitted to issue any shares of common stock under the Amended Purchase Agreement if such issuance would breach our obligations under the rules or regulations of the Nasdaq Capital Market.

The Amended Purchase Agreement may be terminated by us at any time, at our discretion, without any cost to us. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the Amended Purchase Agreement. Aspire Capital has no right to require any sales by us, but is obligated to make purchases from us as directed by us in accordance with the Amended Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the Amended Purchase Agreement.

Any proceeds we receive under the Amended Purchase Agreement are expected to be used for general corporate purposes, which may include increasing our working capital, acquisitions or investments in businesses and capital expenditures.

The foregoing description of the Amended Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended Purchase Agreement, which is attached hereto as Exhibit 10.2 and incorporated by reference herein.

Troutman Pepper Hamilton Sanders LLP, counsel to the Company, has issued an opinion to the Company, dated August 10, 2020, regarding the validity of the shares of common stock to be issued and sold pursuant to the Amended Purchase Agreement. A copy of the opinion is filed as Exhibit 5.1 to this Annual Report on Form 10-Q.

In connection with entering into the Amended Purchase Agreement, we terminated our sales agreement, dated December 29, 2017, with Cowen and Company, LLC, effective August 11, 2020.

Exhibit No.	Description	Method of Filing

~~10.1~~ †5.1	~~Master Manufacturing Services Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited~~	~~Incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 11, 2017 (File No. 001-36329).~~
~~10.2~~ †	~~Product Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited~~	~~Incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 11, 2017 (File No. 001-36329).~~
~~10.3~~	~~Employment Agreement, dated August 21, 2017, between Recro Pharma, Inc. and Jyrki Mattila, MD, PhD, MBA~~Opinion of Troutman Pepper Hamilton Sanders LLP	Filed herewith.

~~31.1~~10.1	~~Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer~~Note dated May 12, 2020, between Recro Pharma, Inc. and PNC Bank, National Association..	~~Filed herewith.~~Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 15, 2020.

~~31.2~~10.2	~~Rule 13a-14(a)/15d-14(a) certification of Principal Financial Officer~~.	~~Filed herewith.~~

~~31.3~~	~~Rule 13a-14(a)/15d-14(a) certification of Principal Accounting Officer~~.First Amendment to Common Stock Purchase Agreement, by and between Aspire Capital Fund, LLC and Recro Pharma, Inc., dated August 7, 2020.	Filed herewith.

~~32.1~~23.1	~~Section 1350 certification, as adopted pursuant to Section 906~~Consent of ~~the Sarbanes-Oxley Act of 2002~~Troutman Pepper Hamilton Sanders LLP (included in Exhibit 5.1).	Filed herewith.

~~101 INS~~31.1	~~XBRL Instance Document~~Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer.	Filed herewith.

31.2	Rule 13a-14(a)/15d-14(a) certification of Principal Financial and Accounting Officer.	Filed herewith.

32.1	Section 1350 certification, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

101 SCH	Inline XBRL Taxonomy Extension Schema	Filed herewith.

101 CAL	Inline XBRL Taxonomy Extension Calculation Linkbase	Filed herewith.

101 DEF	Inline XBRL Taxonomy Extension Definition Linkbase	Filed herewith.

101 LAB	Inline XBRL Taxonomy Extension Label Linkbase	Filed herewith.

101 PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)	Filed herewith.

† ~~Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933.~~

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pennsylvania	26-1523233
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

490 Lapp Road, Malvern, Pennsylvania	19355
(Address of principal executive offices)	(Zip Code)

Title of each class	Trading symbol	Name of exchange on which registered
Common Stock, par value $0.01	REPH	Nasdaq Capital Market

Large accelerated filer	☐	Accelerated filer	☐
			☒
Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☒
		Emerging growth company	☒☐

			Page

PART I. FINANCIAL INFORMATION			3

	Item 1.	Consolidated Financial Statements (Unaudited) ~~(Unaudited)~~	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2624

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

	Item 4.	Controls and Procedures	34

PART II. OTHER INFORMATION			35

	Item 4.1.	~~Controls and Procedures~~Legal Proceedings	35

~~PART II. OTHER INFORMATION~~			37

	~~Item 1.~~	~~Legal Proceedings~~	37

	Item 1A.	Risk Factors	3735

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3736

	Item 3.	Defaults Upon Senior Securities	3736

	Item 4.	Mine Safety Disclosures	3736

	Item 5.	Other Information	3736

	Item 6.	Exhibits	37

SIGNATURES			39

	Three months ended June 30, 2019		Six months ended June 30, 2019
Weighted average shares outstanding, basic		22,265,612		22,092,853
Dilutive impact of:
Restricted stock units		218,745		303,326
Stock options		360,899		359,077
Warrants		81,146		70,654
Weighted average shares outstanding, diluted		22,926,402		22,825,910

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(amounts in thousands, except share and per share data)	2017			2016			2017			2016
Revenue	$	17,114		$	16,951		$	52,790		$	51,973
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		6,882			5,745			27,829			25,563
Research and development		9,296			7,046			24,132			23,175
General and administrative		6,635			3,841			16,990			9,263
Amortization of intangible assets		646			646			1,937			1,937
Change in warrant valuation		808			402			15			47
Change in contingent consideration valuation		3,550			3,192			9,323			7,705
Total operating expenses		27,817			20,872			80,226			67,690
Operating loss		(10,703	)		(3,921	)		(27,436	)		(15,717	)
Other income (expense):
Interest income		62			10			284			27
Interest expense		(1,235	)		(1,450	)		(3,625	)		(4,279	)
Net loss before income taxes		(11,876	)		(5,361	)		(30,777	)		(19,969	)
Income tax benefit (expense)		2,821			(18	)		4,780			166
Net loss	$	(9,055	)	$	(5,379	)	$	(25,997	)	$	(19,803	)

Per share information:
Net loss per share of common stock, basic and diluted	$	(0.48	)	$	(0.50	)	$	(1.36	)	$	(2.01	)
Weighted average common shares outstanding, basic and diluted		19,058,956			10,780,911			19,053,636			9,862,526

Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities		68			—			(8	)		—
Comprehensive loss	$	(8,987	)	$	(5,379	)	$	(26,005	)	$	(19,803	)

	Common Stock				Additional						Accumulated other
(amounts in thousands, except share data)	Shares		Amount		paid-in capital			Accumulated Deficit			comprehensive loss			Total
Balance, December 31, 2016		19,043,216		190		132,691			(61,268	)		—			71,613
Stock-based compensation expense		—		—		4,265			—			—			4,265
Stock option exercise		4,256		1		26			—			—			27
Issuance of restricted stock units		12,788		—		(250	)		—			—			(250	)
Other comprehensive loss		—		—		—			—			(8	)		(8	)
Net loss		—		—					(25,997	)		—			(25,997	)
Balance, September 30, 2017		19,060,260	$	191	$	136,732		$	(87,265	)	$	(8	)	$	49,650

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Basic Earnings Per Share
Net loss	$	(9,055	)	$	(5,379	)	$	(25,997	)	$	(19,803	)
Weighted average common shares outstanding, basic and diluted		19,058,956			10,780,911			19,053,636			9,862,526
Net loss per share of common stock, basic and diluted	$	(0.48	)	$	(0.50	)	$	(1.36	)	$	(2.01	)

	September 30,				Three months ended June 30,				Six months ended June 30,
	2017		2016		2020		2019		2020		2019
Options and restricted stock units outstanding		3,928,013		2,363,794		4,371,266		3,267,522		2,433,452		3,488,802
Warrants		784,928		784,928		348,664		350,000		174,332		350,000

	Fair value measurements at reporting date using
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
At December 31, 2016:
Assets:
Money market mutual funds (See Note 7)	$	37,079	$	—	$	—
U.S. Treasury obligations (See Note 7)		20,517		—		—
Cash equivalents	$	57,596	$	—	$	—
Liabilities:
Warrants (See Note 14(d))		—		—	$	3,397
Contingent consideration (See Note 4)		—		—		69,574
	$	—	$	—	$	72,971
At September 30, 2017:
Assets:
Cash equivalents
Money market mutual funds (See Note 7)	$	134	$	—	$	—
Total cash equivalents	$	134	$	—	$	—
Short-term investments
U.S. Treasury obligations (See Note 7)	$	29,507	$	—	$	—
Total financial assets	$	29,641	$	—	$	—
Liabilities:
Warrants (See Note 14(d))		—		—	$	3,412
Contingent consideration (See Note 4)		—		—		78,897
	$	—	$	—	$	82,309

	Warrants		Contingent Consideration
Balance at December 31, 2016	$	3,397	$	69,574
Additions		—		—
Remeasurement		15		9,323
Total at September 30, 2017	$	3,412	$	78,897

Current portion		—		30,372
Long-term portion		3,412		48,525

	September 30, 2017									June 30, 2020
	Amortized		Gross Unrealized					Estimated		Amortized		Gross unrealized				Estimated
Description	Cost		Gain		Loss			Fair Value
										cost		Gain		Loss		fair value
Money market mutual funds	$	134	$	—	$	—		$	134	$	15,347	$	—	$	—	$	15,347
U.S. Treasury obligations		29,515		—		(8	)		29,507
Total investments	$	29,649	$	—	$	(8	)	$	29,641	$	15,347	$	—	$	—	$	15,347

	Cost		Accumulated Amortization		Net Intangible Assets
Royalties and contract manufacturing relationships:	$	15,500	$	6,404	$	9,096
In-process research and development		26,400		—		26,400
Total	$	41,900	$	6,404	$	35,496

	Amortization
October - December 2017	$	645
2018		2,583
2019		2,583
2020		2,583
2021		702
Total	$	9,096

	September 30,		December 31,
	2017		2016
Clinical trial and related costs	$	—	$	2,564
Professional and consulting fees		551		360
Payroll and related costs		4,996		4,547
Property plant and equipment		495		720
Deferred revenue		563		418
Income tax payable		—		311
Other		2,545		973
	$	9,150	$	9,893

	June 30, 2020		December 31, 2019
Contract liabilities (see note 14)	$	1,727	$	337
Payroll and related costs		1,383		2,958
Property, plant and equipment		1,002		88
Professional and consulting fees		221		370
Other		537		571
Total	$	4,870	$	4,324

	Term loans under Credit Agreement			PPP Note			Total
Principal balance outstanding	$	125,000		$	3,316		$	128,316
Unamortized deferred issuance costs		(12,333	)		—			(12,333	)
Exit fee accretion		571			—			571
Total debt		113,238			3,316			116,554
Current portion of debt		(6,000	)		(1,289	)		(7,289	)
Debt, net	$	107,238		$	2,027		$	109,265

Principal balance outstanding	$	27,347
Unamortized deferred issuance costs		(2,457	)
Total	$	24,890

	Lease payments
2017	$	151
2018		566
2019		502
2020		405
2021		362
2022		373
Total	$	2,359

Number of Shares	Exercise Price per Share		Expiration Date
140,000	$	12.00	March 2019
350,000	$	19.46	April 2022
294,928	$	3.28	April 2022

	Date of issuance			September 30, 2017			December 31, 2016
Fair value	$	5,331		$	3,412		$	3,397
Expected dividend yield		—	%		—	%		—	%
Expected volatility	80		%	77		%	85		%
Risk-free interest rates	1.73		%	1.92		%	1.93		%
Remaining contractual term	7 years			4.50 years			5.25 years

	September 30,				June 30,
	2017		2016		2020		2019
Range of expected option life	6 years		6 years		5.5 - 6 years		5.5 - 6 years
Expected volatility		84.71%		79.95%	75.34% - 81.09%		79.11% - 81.54%
Risk-free interest rate	1.87-2.17%		1.07-1.91%		0.34 - 1.40%		1.82 - 2.66%
Expected dividend yield		—		—		—		—

	Number of shares			Weighted average exercise price		Weighted average remaining contractual life
Balance, December 31, 2016		2,611,929		$	7.01
Granted		1,003,580			7.50
Exercised		(4,256	)		6.21
Expired/forfeited/cancelled		(43,233	)		8.12
Balance, September 30, 2017		3,568,020		$	7.14	7.3 years
Vested		1,897,174		$	6.68	5.8 years
Vested and expected to vest		3,429,561		$	7.10	7.2 years

	Number of shares			Weighted average grant date fair value
Balance, December 31, 2019		1,197,502		$	10.92
Granted		274,775			15.11
Vested		(243,682	)		9.23
Forfeited		(295,611	)		8.73
Balance, June 30, 2020		932,984			13.29

	~~Number of shares~~
~~Balance, December 31, 2016~~		~~7,750~~
~~Granted~~		~~369,043~~
~~Vested and settled~~		~~(15,050~~	)
~~Expired/forfeited/cancelled~~		~~(1,750~~	)
~~Balance, September 30, 2017~~		~~359,993~~
~~Expected to vest~~		~~359,993~~

	Contract assets			Contract liabilities
Balance at beginning of period	$	8,851		$	(337	)
Changes to the beginning balance of contract assets arising from:
Reclassification to receivables as a result of rights to consideration becoming unconditional		(9,559	)		—
Changes in estimate related to the transaction price		2,700			—
Contract assets recognized since beginning of period, net of reclassification to receivables and changes in estimates		6,919
Changes to contract liabilities:
Cash received in advance of contract performance		—			(2,434	)
Revenue recognized		—			1,044
Balance at end of period	$	8,911		$	(1,727	)

	Lease payments
Remainder of 2020	$	80
2021		160
2022		156
2023		156
2024		156
2025 and thereafter		91
Total lease payments		799
Less imputed interest		(373	)
Total operating lease liabilities	$	426

	Payments Due by Period (in 000s)
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt obligations (1):
Principal	$	129,566	$	7,289	$	122,277	$	—	$	—
Interest		30,463		13,573		16,890		—		—
Purchase obligations (2):		10,721		10,721		—		—		—
Operating leases (3)		799		160		314		312		13
Total	$	171,549	$	31,743	$	139,481	$	312	$	13

	RECRO PHARMA, INC.

Date: ~~November 9, 2017~~August 10, 2020	By:	/s/ Gerri A. Henwood
		Gerri A. Henwood
		President and Chief Executive Officer
		(Principal Executive Officer)



Date: ~~November 9, 2017~~	~~By:~~	~~/s/ Michael Celano~~
		~~Michael Celano~~
		~~Chief Financial Officer~~
		~~(Principal Financial Officer)~~

~~Date: November 9, 2017~~August 10, 2020	By:	/s/ Ryan D. Lake
		Ryan D. Lake
		Chief ~~Accounting~~Financial Officer
		(Principal Financial and Accounting Officer)