For the ~~Quarterly Period Ended: September~~quarterly period ended: June 30, ~~2019~~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 every Interactive Data File required to be submitted 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 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~~August 5, ~~2019,~~2020, there were ~~22,730,347~~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, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	37,944		$	38,514		$	22,787		$	19,148
Accounts receivable		16,216			12,866			11,584			14,389
Contract asset		10,643			5,201			8,911			8,851
Inventory		12,921			10,699			11,772			15,072
Prepaid expenses and other current assets		3,784			3,861			2,986			2,700
Total current assets		81,508			71,141			58,040			60,160
Property, plant and equipment, net		48,067			45,640			42,448			42,212
Right-of-use asset		1,366			—
Intangible assets, net		30,329			32,266			1,991			3,283
Goodwill		6,446			6,446			4,319			4,319
Other assets								399			485
Total assets	$	167,716		$	155,493		$	107,197		$	110,459
Liabilities and Shareholders’ Equity
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	1,017		$	4,510		$	871		$	989
Accrued expenses and other current liabilities		8,556			14,165			4,870			4,324
Current operating lease liability		525			—
Current portion of contingent consideration		—			10,354
Current portion of debt								7,289			—
Liabilities of discontinued operation								—			1,172
Total current liabilities		10,098			29,029			13,030			6,485
Long-term debt, net		108,859			64,243
Warrants and other long-term liabilities		2,040			1,163
Long-term operating lease liability		915			—
Long-term portion of contingent consideration		65,671			80,558
Debt, net								109,265			110,319
Other liabilities								313			367
Total liabilities		187,583			174,993			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, 22,614,113 shares at September 30, 2019 and 21,799,961 shares at December 31, 2018		226			218
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		177,281			168,535			204,940			199,938
Accumulated deficit		(197,374	)		(188,253	)		(220,587	)		(206,883	)
Accumulated other comprehensive loss		—			—
Total shareholders’ equity		(19,867	)		(19,500	)
Total liabilities and shareholders’ equity	$	167,716		$	155,493
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)

2019

2018

2019

2018

Revenue

$
25,255

$
18,283

$
81,577

$
59,564

Operating expenses:

Cost of sales (excluding amortization of intangible assets)

11,027

8,472

39,518

31,033

Research and development

1,845

11,348

18,578

29,947

General and administrative

6,879

6,969

31,055

29,442

Amortization of intangible assets

646

646

1,938

1,938

Change in warrant valuation

160

287

939

(78
)
Change in contingent consideration valuation

3,909

4,115

(15,241
)

7,030

Total operating expenses

24,466

31,837

76,787

99,312

Operating income (loss)

789

(13,554
)

4,790

(39,748
)
Other income (expense):

Interest income

323

126

642

382

Interest expense

(5,417
)

(2,198
)

(14,553
)

(6,490
)
Net loss before income taxes

(4,305
)

(15,626
)

(9,121
)

(45,856
)
Income tax benefit

—

2,370

—

7,430

Net loss

$
(4,305
)

$
(13,256
)

$
(9,121
)

$
(38,426
)

Per share information:

Net loss per share of common stock, basic and diluted

$
(0.19
)

$
(0.64
)

$
(0.41
)

$
(1.91
)
Weighted average common shares outstanding, basic and diluted

22,505,723

20,721,330

22,231,990

20,122,569

Net loss

$
(4,305
)

$
(13,256
)

$
(9,121
)

$
(38,426
)
Other comprehensive loss:

Unrealized gain on available-for-sale securities

—

—

(1
)

1

Comprehensive loss

$
(4,305
)

$
(13,256
)

$
(9,122
)

$
(38,425
)

	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

For the Nine Months Ended September 30, 2019

Common Stock

Additional

Accumulated
other

(amounts in thousands, except share data)

Shares

Amount

paid-in
capital

Accumulated
Deficit

comprehensive
loss

Total

Balance, December 31, 2018

21,799,961

$
218

$
168,535

$
(188,253
)

$
—

$
(19,500
)
Stock-based compensation expense

—

—

2,826

—

—

2,826

Stock option exercise

29,750

—

185

—

—

185

Issuance of restricted stock units, net of
   shares withheld for income taxes

268,915

3

(865
)

—

—

(862
)
Issuance of common stock for equity
   facility

34,762

—

301

—

—

301

Change in other comprehensive loss

—

—

—

—

(1
)

(1
)
Net loss

—

—

—

(1,977
)

—

(1,977
)
Balance, March 31, 2019

22,133,388

$
221

$
170,982

$
(190,230
)

$
(1
)

$
(19,028
)
Stock-based compensation expense

—

—

2,359

—

—

2,359

Stock option exercise

206,625

2

907

—

—

909

Issuance of restricted stock units, net of
   shares withheld for income taxes

74,594

1

(114
)

—

—

(113
)
Change in other comprehensive loss

—

—

—

—

1

1

Net loss

—

—

—

(2,839
)

—

(2,839
)
Balance, June 30, 2019

22,414,607

$
224

$
174,134

$
(193,069
)

$
—

$
(18,711
)
Stock-based compensation expense

—

—

1,741

—

—

1,741

Stock option exercise

186,947

2

1,463

—

—

1,465

Issuance of restricted stock units, net of
   shares withheld for income taxes

12,559

—

(57
)

—

—

(57
)
Net loss

—

—

—

(4,305
)

—

(4,305
)
Balance, September 30, 2019

22,614,113

$
226

$
177,281

$
(197,374
)

$
—

$
(19,867
)

	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	)

For the Nine Months Ended September 30, 2018

Common Stock

Additional

Accumulated
other

(amounts in thousands, except share data)

Shares

Amount

paid-in
capital

Accumulated
Deficit

comprehensive
loss

Total

Balance, December 31, 2017

19,127,435

$
191

$
140,006

$
(111,348
)

$
(1
)

$
28,848

Stock-based compensation expense

—

—

1,584

—

—

1,584

Stock option exercise

14,575

—

65

—

—

65

Issuance of restricted stock units, net of
   shares withheld for income taxes

25,364

—

(86
)

—

—

(86
)
Sale of common stock under equity
   facility, net of transaction costs

383,040

4

3,798

—

—

3,802

Net loss

—

—

—

(12,457
)

—

(12,457
)
Cumulative effect of adoption of new
   accounting standards, net of tax

—

—

—

2,818

—

2,818

Balance, March 31, 2018

19,550,414

$
195

$
145,367

$
(120,987
)

$
(1
)

$
24,574

Stock-based compensation expense

—

—

1,719

—

—

1,719

Stock option exercise

159,786

2

960

—

—

962

Issuance of restricted stock units, net of
   shares withheld for income taxes

91,354

1

(2
)

—

—

(1
)
Sale of common stock under equity
   facility, net of transaction costs

700,000

7

7,350

—

—

7,357

Cashless exercise of warrants

214,715

2

2,587

—

—

2,589

Other comprehensive loss

—

—

—

—

1

1

Net loss

—

—

—

(12,713
)

—

(12,713
)
Balance, June 30, 2018

20,716,269

$
207

$
157,981

$
(133,700
)

$
—

$
24,488

Stock-based compensation expense

—

—

1,947

—

—

1,947

Stock option exercise

5,201

—

31

—

—

31

Issuance of restricted stock units, net of
   shares withheld for income taxes

6,028

—

(4
)

—

—

(4
)
Sale of common stock under equity
   facility, net of transaction costs

—

—

341

—

—

341

Net loss

—

—

—

(13,256
)

—

(13,256
)
Balance, September 30, 2018

20,727,498

$
207

$
160,296

$
(146,956
)

$
—

$
13,547

	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)

2019

2018

Cash flows from operating activities:

Net loss

$
(9,121
)

$
(38,426
)
Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

6,926

5,250

Non-cash interest expense

3,872

968

Depreciation expense

4,656

3,819

Amortization

1,938

1,938

Change in warrant valuation

939

(78
)
Change in contingent consideration valuation

(15,241
)

7,030

Deferred income taxes

—

(7,430
)
Changes in operating assets and liabilities:

Inventory

(2,223
)

(343
)
Contract asset

(5,442
)

(3,710
)
Prepaid expenses and other current assets

384

170

Right-of-use asset

500

—

Accounts receivable

(3,351
)

(2,059
)
Accounts payable, accrued expenses and other liabilities

(6,360
)

(2,192
)
Operating lease liability

(506
)

—

Net cash used in operating activities

(23,029
)

(35,063
)
Cash flows from investing activities:

Purchase of property and equipment

(9,643
)

(4,363
)
Purchase of short-term investments

(12,020
)

(6,225
)
Proceeds from maturity of investments

12,100

8,500

Acquisition of license agreement

(165
)

(82
)
Net cash (used in)/provided by investing activities

(9,728
)

(2,170
)
Cash flows from financing activities:

Proceeds from issuance of long-term debt, net of original issue discount of $11,400

43,600

—

Payment of deferred financing costs

(2,936
)

(261
)
Proceeds from sale of common stock, net of transaction costs

—

11,331

Payments of withholdings on shares withheld for income taxes

(1,029
)

(91
)
Payment of contingent consideration

(10,000
)

—

Proceeds from option exercise

2,552

1,058

Net cash provided by financing activities

32,187

12,037

Net decrease in cash and cash equivalents

(570
)

(25,196
)
Cash and cash equivalents, beginning of period

38,514

60,984

Cash and cash equivalents, end of period

$
37,944

$
35,788

Supplemental disclosure of cash flow information:

Cash paid for interest

$
10,601

$
6,214

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

$
21

$
3,185

Common stock issued in connection with equity facility

$
301

$
357

	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 ~~pharma services and pharmaceutical company that operates through two business segments:~~ ~~a revenue-generating~~leading contract development and manufacturing ~~or CDMO, segment~~organization (“CDMO”) with integrated solutions for the development, formulation, regulatory support, manufacturing, and ~~an Acute Care segment. Each~~packaging of ~~these segments are deemed to be reportable segments (see Note 3(m)~~oral solid dose drug products. It leverages its formulation and ~~Note 18). The CDMO segment 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 and~~products. The Company operates in 1 segment.

In November 2019, the Company’s former Acute Care ~~segment develops proprietary product candidates including~~ ~~intravenous, or~~ ~~IV, Meloxicam,~~business, which developed products for ~~which~~hospital and other acute care settings, was spun-out through its former wholly-owned subsidiary, Baudax Bio, Inc. (“Baudax Bio”) when the Company ~~is pursuing resolution~~completed a special dividend distribution of a ~~Complete Response Letter, or CRL,~~ ~~received from~~all the ~~U.S. Food and Drug Administration, or FDA, regarding the New Drug Application, or NDA, for IV meloxicam. On October 31, 2019, the Company announced that it had received a written decision from the FDA granting~~outstanding shares of common stock of Baudax Bio to its ~~appeal of the Complete Response Letter relating~~shareholders. See note 3 to the ~~NDA seeking approval~~consolidated financial statements for ~~IV meloxicam. See Note 23.~~

In April 2019, after receipt of the second CRL for IV meloxicam, the Company announced it had implemented a strategic restructuring initiative, and corresponding reduction in the Acute Care segment workforce, aimed at reducing operating expenses, while maintaining key personnel needed to obtain FDA approval and advance IV meloxicam. The Company anticipates the completion ofadditional information about the spin-off of ~~its Acute Care business into a standalone, publicly-traded company,~~ Baudax ~~Bio, Inc. (Baudax Bio), to Recro shareowners by the end of the fourth quarter 2019. See Note 22.~~

The Company has incurred net losses ~~from operations~~ since inception and has an accumulated deficit of ~~$197,374~~$220,587 as of ~~September~~June 30, ~~2019.~~ ~~Although its CDMO segment has been profitable,~~2020, which is mostly related to activities that are presented as discontinued operations as a result of the ~~Company~~ anticipates incurring additional losses until such time when its development costs are reduced and/or alternative structures have been put in place for its Acute Care product candidates. Additional financing may be needed by the Company to fund its operations and to repay the principal on its debt.spin-off of Baudax Bio. The Company may raise such capital through debt refinancing, bank or other loans, sale of assets, spin-off transactions, strategic research and development, licensing and/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. 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, spin-off transactions, or out-licensing transactions; (iii) the development of competitive therapies by other biotechnology and pharmaceutical companies; and, ultimately, (iv) regulatory approval and market acceptance of the Company’s proposed future products, including IV meloxicam.its manufacturing operations. Management believes that it is probable that the Company will be able to meet its obligations as they become due within one year after the date the financial statements are ~~issued~~.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 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, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2019.~~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, 2018~~ included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~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 represent cash in banks and highly liquid short-term investments that have maturities of three months or less when 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 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 one-step method for determining impairment.

The 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 exceed the total amount of goodwill allocated to the reporting 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 its fair value,~~of definite-lived intangible assets for recoverability whenever events occur or changes in circumstances indicate that the carrying amount of an ~~impairment loss is recognized in an amount equal to the excess. Based on accounting standards, it is required that these assets~~asset or asset group may not 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.~~recoverable.

The Company performs its annual goodwill ~~and indefinite-lived intangible asset~~ impairment test as of November 30^th, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of ~~those assets.~~goodwill. In performing the evaluation, the Company assesses qualitative factors such as overall financial performance, ~~of its reporting units,~~ anticipated changes in industry and market conditions, ~~including recent tax reform, intellectual property protection, market, regulatory and financing risks~~ and competitive environments. ~~Due to the receipt of the CRL in March 2019, an indicator of potential impairment, the~~The Company performed anits last annual impairment test as of March 31, 2019, which indicated that there was no impairment to goodwill or indefinite-lived intangible assets. There have been no additional triggering events as of September 30, 2019. The Company will perform its annual test as of November 30, 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 or other assets. The Company continues to monitor the impact of the COVID-19 pandemic.

The Company generates revenues from manufacturing, packaging, research and development 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 components. ~~The Company’s~~

Manufacturing revenue ~~policies listed below are reflective of Accounting Standards Update, or ASU, No. 2014-09, “Revenue from Contracts with Customers,” or ASU 2014-09, which the Company adopted effective January 1, 2018.~~

Manufacturing and other related services revenue is recognized upon transfer of control of a product to a customer, generally upon shipment, 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 volume-based adjustments.

In addition to manufacturing and packaging revenue, certain customer agreements may have intellectual property sales-based royalties and/or profit-sharing consideration, collectively referred to as royalties, computed on the net product sales of the commercial partner. Royalty revenues are generally recognized under the terms of the applicable license, development and/or supply agreement. For arrangements that include sales-based royalties where the license for intellectual property is deemed to be the 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 outside of the Company’s control including the uncertainty of the timing of future commercial partner sales, mix of volume, customer stocking and ordering patterns, as well as unforeseen price adjustments made by the Company’s commercial partners.

~~Revenues related to research~~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 ~~our CDMO segment~~a customer’s non-clinical, clinical and commercial products. Such revenues are ~~generally~~ recognized ~~over-time as~~at a point in time or over time depending on the ~~related services or activities are performed using the output method~~nature and ~~in accordance~~particular facts and circumstances associated with the contract terms.

In ~~agreements which~~contracts that specify milestones, the Company evaluates whether the milestones are considered probable of being achieved and estimates the 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 ~~the~~our control, ~~of the Company,~~ 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~~.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 four 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.

The ~~Company’s CDMO segment~~Company is dependent on its relationships with a small number of commercial partners, with its ~~four~~4 largest customers having generated ~~96% and 97%~~95% or more of its revenues for ~~three and nine months ended September 30, 2019, respectively.~~the periods presented. A portion of the Company’s revenues isare dependent on U.S. based customers selling to end-users outside the United States.

Research and development costs 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, pre-clinical activities, clinical trials, statistical analysis and report writing and regulatory filing fees and compliance costs. At the end of the reporting period, 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.

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~~.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~~.option.

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, 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~~.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 basis, operating 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, ~~2019~~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 ~~2018.~~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 and diluted ~~loss~~ per ~~share:~~

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding, as ~~of September 30, 2019 and 2018, 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 18. Segment operating income (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 income (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.

~~In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718)~~” or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of ASC 718 “~~Compensation—Stock Compensation” to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50 “Equity-Based Payments to Non-Employees~~”. The guidance is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including in an interim period for which financial statements have not been issued, but not before an entity adopts ASU 2014-09 “~~Revenue from Contracts with Customers (Topic 606)”. The Company adopted this guidance effective June 30, 2018. There was no impact upon adoption~~.

~~In May 2017, the FASB issued ASU No. 2017-09, “Stock Compensation – Scope of Modification Accounting”~~ ~~or ASU 2017-09. ASU 2017-09 provides guidance on which changes to the terms or conditions of a share-based payment award require an~~

entity to apply modification accounting. The new standard was effective for fiscal years beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018. There was no impact upon adoption.

~~In January 2017, the FASB issued ASU No. 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying 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 of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The amendments of 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 Company adopted this guidance as of October 1, 2018 and there was no impact on its consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)~~,” or ASU 2016-02. ASU 2016-02 establishes a wholesale change to lease accounting and introduces a lease model that brings most leases on the balance sheet. It also eliminates the required use of bright-line tests in current U.S. GAAP for determining lease classification. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), ~~Targeted Improvements~~, which provides an alternative transition method permitting the recognition of a cumulative-effect adjustment on the date of adoption rather than restating comparative periods in transition as originally prescribed by Topic 842. The new guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance as of January 1, 2019. The Company elected the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The Company opted to elect the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs, and certain other practical expedients, including the use of hindsight to determine the lease term for existing leases and in assessing impairment of the right-of-use asset, and the exception for short-term leases. For its current classes of underlying assets, the Company did not elect the practical expedient under which the lease components would not be separated from the nonlease components. At January 1, 2019, the Company recorded a right-of-use asset of $1,866 and an operating lease liability of $1,947. For additional information regarding how the Company is accounting for leases under the new guidance, refer to Note 13 (d).

In May 2014, the FASB issued ASU 2014-09. ASU 2014-09 represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled to receive in exchange for those goods or services. This ASU sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. In January 2018, the Company adopted the standard using the modified retrospective method. See Note 19 for additional information on the impact of the transition on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” or ASU 2018-13. ASU 2018-13 removes, modifies and 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 Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019, with early adoption permitted. The~~2019. On January 1, 2020, the Company ~~is currently evaluating the potential~~adopted this standard which did not have any impact on ~~its~~the Company’s consolidated financial statements or disclosures.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a range of reasonable information to 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, ~~2019,~~2022, including those interim periods within those fiscal years. The Company is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

On ~~April 10, 2015,~~November 21, 2019 (the “Distribution Date”), the Company completed the ~~Gainesville Transaction. The consideration paid in connection with~~separation (the “Separation”) of its former Acute Care business by distributing to the ~~Gainesville Transaction consisted~~Company’s shareholders on a pro rata basis all of ~~$50,000 cash at closing, a $4,000 working capital adjustment~~the issued and ~~a seven-year warrant~~outstanding common stock of Baudax Bio, the entity the Company incorporated to ~~purchase 350,000~~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 ~~at an exercise price~~outstanding as of ~~$19.46 per share. In addition,~~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 sold into the public market and the proceeds distributed to the Company’s shareholders. Additionally, in connection with the

Separation, the Company ~~may be required~~contributed $19,000 of cash to ~~pay up~~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 reporting the Separation of Baudax Bio as a discontinued operation were met when the Separation was completed. Accordingly, the accompanying consolidated financial statements for all periods presented reflect this business as a discontinued operation.

In connection with the Separation, the Company and Baudax Bio entered into various agreements to effect the Separation and provide a framework for their relationship after the Separation, including a transition services agreement, an ~~additional $125,000~~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 periods prior to, at, and 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 and statements of operations of the Company and the related notes to the consolidated financial statements have been presented as discontinued operations in ~~milestone payments~~the consolidated financial statements and prior periods have been recast. Discontinued operations include results of the Company’s Acute Care business except for certain corporate overhead costs and certain costs associated with transition services provided by Baudax Bio to the 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 Baudax Bio and 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 tax matters agreement governs the respective rights, responsibilities and obligations of Baudax Bio and the Company with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the Distribution and 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 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 ~~$45,000 upon regulatory approval~~the transfer or assignment of ~~injectable meloxicam, as well as net sales milestones related~~employees from the Company to ~~injectable meloxicam~~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 a ~~percentage~~summary of ~~future product net sales related to injectable~~the Acute Care business expenses for the three and six months ended June 30, 2019:

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 were 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).

In December 2018, the Company entered into an Amendment to the Purchase and Sale Agreement that restructured the $45,000 milestone to $60,000 therefore increasing the amount the Company may be required to pay Alkermes to $140,000, however, the amendment spread the payments of the development milestone over a seven-year period. In addition, the Company amended the warrant agreement with Alkermes, which decreased the exercise price of the warrant to $8.26 per share.

Based on the amended terms of the Alkermes agreement, the contingent consideration consists of four separate components. The first component is (i) a $5,000 payment made in the first quarter of 2019 and (ii) a $5,000 payment made in the second quarter of 2019. The second components will be payable upon certain regulatory approval and include (i) a $5,000 payment due within 180 days following regulatory approval for IV meloxicam and (ii) $45,000 payable in seven equal annual payments of approximately $6,400 beginning on the first anniversary of such approval. The third component consists of three potential payments, based on the achievement of specified annual revenue targets, the last of which represents over 60% of these milestone payments and currently does not have a fair value assigned to its achievement. The fourth component consists of a royalty payment between 10% and 12% (subject to a 30% reduction when no longer covered by patent) for a defined term on future meloxicam net sales. During the nine months ended September 30, 2019, the Company paid the first component consisting of two payments of $5,000 each to Alkermes.

The fair of the contingent consideration liability is measured as the reporting date using inputs and assumptions as of the date of the financial statements. Events and circumstances impacting the fair value of the liability that occur after the balance sheet date, but before the date that the financial statements are available to be issued are adjusted in the period during which such events and circumstances occur. The fair value of the second contingent consideration components is estimated by applying a risk-adjusted discount rate to the probability-adjusted contingent payments based upon the anticipated approval dates. The fair value of the third contingent consideration component is estimated using the Monte Carlo simulation method and applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections based upon the expected revenue target attainment dates. The fair value of the fourth contingent consideration component is 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 NMBAs, and a proprietary reversal agent from Cornell University, or Cornell. The NMBAs and reversal agent are referred to herein as the NMBA Related Compounds. The NMBA Related Compounds include one novel intermediate-acting NMBA that has initiated Phase I clinical trials and two other agents, a novel short-acting NMBA, and a rapid-acting reversal agent specific to these NMBAs.

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.

In addition, the Company is obligated to make: (i) an annual license maintenance fee payment until the first commercial sale of the NMBA Related Compounds; and (ii) milestone payments upon the achievement of certain milestones, up to a maximum, for each NMBA, of $5,000 for U.S. regulatory approval and commercialization milestones and $3,000 for European regulatory approval and commercialization milestones. The Company is also obligated to pay Cornell royalties on net sales of the NMBA Related Compounds at a rate ranging from low to mid-single digits, depending on the applicable NMBA 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 NMBA 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 NMBA 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 NMBA 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 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, 2018:

Assets:

Cash equivalents (See Note 7)

Money market mutual funds

$
24,720

$
—

$
—

Commercial paper

—

2,247

—

U.S. Treasury obligations

2,748

—

$
—

Total cash equivalents

$
27,468

$
2,247

$
—

Liabilities:

Warrants (See Note 14(d))

$
—

$
—

$
1,101

Contingent consideration (See Note 4)

—

—

90,912

$
—

$
—

$
92,013

At September 30, 2019:

Assets:

Cash equivalents (See Note 7)

Money market mutual funds

$
29,301

$
—

$
—

Total cash equivalents

$
29,301

$
—

$
—

Liabilities:

Warrants (See Note 14(d))

$
—

$
—

$
2,040

Contingent consideration (See Note 4)

—

—

65,671

$
—

$
—

$
67,711

	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 Company does not currently expect a portion of the contingent consideration to become payable within one year as of September 30, 2019 (see Note 4 for additional information). The Company plans to continue to reevaluate this classification and measurement as it progresses through discussions with the FDA regarding IV meloxicam.

The Company follows the disclosure provisions of FASB ASC Topic 825, “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, ~~2019,~~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 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, ~~2019 due to the comparison of~~2020 because (i) the terms of borrowings under the ~~debt, including borrowing rates~~Credit Agreement are equivalent to the terms of other borrowings currently available to the ~~Company through~~Company; and (ii) the fair value of the PPP Note, which carries a fixed interest rate below market, is not materially different from its ~~recent debt refinancing process in the first quarter of 2019.~~carrying value.

Cash equivalents and short-term investments as of September 30, 2019 consist of government money market mutual funds. Short-term investments are included in Cash and cash equivalents when their original maturities are three months or less when acquired. In accordance with FASB ASC Topic 320, “~~Investments – Debt and Equity Securities~~,” 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 Loss in stockholders’ equity and realized gains and losses included in other income/expense. The following is a summary of ~~available-for-sale securities:~~the Company’s cash equivalents:

As of September 30, 2019, the Company had no investments with maturities of three months or less. As of December 31, 2018, all of the Company’s investments had original maturities of less than two months. The fair value of the Company’s U.S. Treasury obligations are 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. To derive the fair value of its commercial paper, the Company uses benchmark inputs and industry standard analytical models.

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 Company expenses costs related to inventory within the Research and development line in the Consolidated Statements of Operations and Comprehensive Loss until it receives approval from the FDA to market a product, at which time the Company commences capitalization of costs relating to that product.

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, 2020 and 2019 was ~~$1,590~~$1,508 and ~~$4,656,~~$1,467, respectively. Depreciation expense for ~~three and nine~~the six months ended ~~September~~June 30, ~~2018~~2020 and 2019 was ~~$1,321~~$3,008 and ~~$3,819,~~$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, 2019:~~

~~The following represents the balance of intangible assets at December 31, 2018:~~

Amortization expense was $646 for ~~each of~~ the three months ended ~~September~~June 30, 2020 and 2019 and ~~2018 was $646. Amortization expense~~$1,292 for ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018 was $1,938.~~2019.

As of ~~September~~June 30, ~~2019,~~2020, future amortization expense is as follows:

After the receipt of the second CRL, in March 2019, the Company incurred approximately $7,200 in restructuring costs ($6,000 incurred in the three months ended June 30, 2019), of which $1,386 remains accrued and unpaid as of September 30, 2019.

The following table presents the maturity of debt principal (including exit fee):

On November 17, 2017, the Company entered into a $100,000 Credit Agreement ~~or the Credit Agreement,~~(the “Credit Agreement”) with Athyrium Opportunities III Acquisition LP ~~or Athyrium.~~(“Athyrium”). The Credit Agreement provided for a term loan in the original principal amount of $60,000 funded at closing. In December 2018, the Company amended the Credit Agreement ~~(as amended, the “Amended Credit Agreement”~~(the “First Amendment”). Pursuant to the ~~Amended Credit Agreement,~~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 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, 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 Company entered into a Second Amendment to Credit Agreement (the “Second Amendment”) with Athyrium. Pursuant to the Second Amendment, (i) the total commitments of the term loan credit facility governed by the ~~Amended~~ Credit Agreement was increased from $100,000 to $125,000, (ii) the $15,000 term B-2 loan and $15,000 term C loan provided for under the ~~Amended~~ Credit Agreement were restructured into a $55,000 term B-2 loan, 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 ~~authorizes~~authorized the release of two of the Company’s 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~~”“Release”) under the Credit Agreement, as amended.

The Release ~~is subject to certain conditions, including consummation of the Distribution. The Release is~~was applicable only to Baudax Bio and Baudax Bio N.A. and ~~will~~did not affect or modify any obligations of the Company or the Guarantors (other than Baudax Bio and Baudax Bio N.A.) under the ~~Existing~~ Credit ~~Agreement.~~

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 term loans ~~will~~ 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. NoNaN 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. As of ~~September~~June 30, ~~2019,~~2020, the Company was in compliance with the covenants.

~~As of September 30, 2019, the remaining payments due under the Amended Credit Agreement include a principal payment of $125,000 and an exit fee of $1,250 due at the Maturity Date.~~

In connection with the Credit Agreement, the Company issued warrants to each of Athyrium and its affiliate, Athyrium Opportunities II Acquisition LP or (“Athyrium ~~II,~~II”), to purchase an aggregate of 348,664 shares of the Company’s common stock with an exercise price of $8.6043 per share. In connection with the ~~Amended Credit Agreement,~~First Amendment, the warrants were amended to decrease the exercise price to $6.84 per share. See ~~Note 14(d)~~note 12(d) for additional information. The warrants are exercisable through November 17, 2024. The initial fair value of the warrant and revaluation adjustment from the repricing of the warrants of $2,232 was recorded as a debt issuance 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 ~~Second Amendment.~~ Amended Credit Agreement. Debt issuance cost amortization is included in interest expense within the Consolidated Statements of ~~Operations and Comprehensive Loss.~~Operations. As of ~~September~~June 30, ~~2019,~~2020, the effective interest rate was ~~16.49%~~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 components of the carrying value of the debt as of September 30, 2019, are detailed below:~~

The Company recorded debt issuance cost amortization related to the ~~credit agreements~~Amended Credit Agreement of $1,384 ~~and $329~~ for the three months ended ~~September~~June 30, 2020 and 2019 and ~~2018,~~$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-year term, 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 ~~recorded debt issuance cost amortization related~~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 ~~credit agreements~~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 ~~$3,746~~the CARES Act, including the use of note proceeds for payroll costs, rent, utilities and ~~$987~~other expenses, and at least 60% of the note proceeds must be used for payroll costs as defined by the ~~nine months ended September 30, 2019~~CARES Act. Any forgiveness of the note will be subject to approval by the SBA and ~~2018, respectively.~~

PNC Bank, and will require the Company to apply for such treatment in the 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 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 ($22,380 as of September 30, 2019) 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, 2019, 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 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 ($13,320 as of September 30, 2019) 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, 2019, no such milestones have been achieved.

The Company is party to a license agreement with Cornell for the exclusive license of the NMBA 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 and subsequent amendment governing the Gainesville Transaction, the Company agreed to pay to Alkermes up to an additional~~ ~~$140,000 in milestone payments including $50,000~~ ~~upon regulatory approval payable over a seven-year period~~, 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). As of September 30, 2019, the Company has paid $10,000 in milestone payments to Alkermes.

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.

On May 31, 2018, a securities class action lawsuit (the “Securities Litigation”) was filed against the Company and certain of its officers and directors in the U.S. District Court for the Eastern District of 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 Company concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and 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 ~~and directors~~ as defendants. On February 8, 2019, the Company filed a motion to dismiss the amended complaint in its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, the Company filed its response and briefing was completed on the motion to dismiss. In response to questions from the Judge, the parties submitted supplemental briefs with regard to the motion to dismiss the amended complaint during the fall of 2019. On February 18, 2020, the 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 ~~26, 2019,~~18, 2020. The plaintiff’s deadline to file an opposition to the ~~judge heard oral arguments on~~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. ~~The judge asked~~In connection with the ~~plaintiffs to file a supplemental brief, which was completed on August 30, 2019, and~~separation of Baudax Bio, Baudax Bio accepted assignment by the Company ~~submitted a reply brief on September 27, 2019.~~of all of its obligations in connection with the Securities Litigation and agreed to indemnify it for all liabilities related to the Securities Litigation. The Company ~~believes~~and Baudax Bio believe that the lawsuit is without merit and ~~intends~~intend to vigorously defend against it. ~~The lawsuit is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to the Company.~~

The Company is a party to various operating leases in Malvern, Pennsylvania, Gainesville, Georgia and Dublin, Ireland for office, manufacturing, and chemistry, manufacturing and controls development space. The Company is also a party to leases for office equipment and storage.

The Company determines if an 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 1 and 6 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 effective interest 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 purchase option or extension that is reasonably certain to be exercised are not included in the right of use asset or lease liability on the Consolidated Balance Sheets. Lease expense is recognized on a straight-line basis over the lease term.

~~As of September 30, 2019, undiscounted future lease payments for non-cancellable operating leases are as follows:~~

As of ~~December 31, 2018 under legacy ASC 840 “Leases”, undiscounted future lease payments for non-cancellable operating leases were as follows:~~

~~For the nine months ended September~~June 30, ~~2019, the weighted average remaining lease term was 4 years and the weighted average discount rate was 16%.~~

~~The components of the Company’s lease cost were as follows for the three and nine months ended September 30, 2019:~~

~~As of September 30, 2019,~~2020, the Company had outstanding non-cancelable ~~and cancelable~~ purchase commitments in the aggregate amount of ~~$10,804~~$10,721 related to inventory, capital expenditures, transition services agreement and other goods and services, including pre-commercial/manufacturing scale-up and clinical activities. The timing of certain purchase commitments cannot be estimated as it is dependent on timing of FDA approval or the outcome of other strategic evaluations. services.

The Company has entered into employment agreements with certain of its named executive officers. As of September 30, 2019, these employment agreements provided for, among other things, annual base salaries in an aggregate amount of not less than $947, from that date through June 2020.

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 ~~or IPO:~~(“IPO”):

On March 12, 2014, the Company completed an 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 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 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 ~~September~~June 30, ~~2019,~~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 2, 2015, the Company entered into a Common Stock Purchase Agreement, or the 2015 Purchase Agreement, with Aspire Capital Fund, LLC, or Aspire Capital, pursuant to which Aspire Capital was committed to purchase, at the Company’s election, up to an aggregate of $10,000 of shares of the Company’s common stock over the 24-month term of the 2015 Purchase Agreement. On the execution of the 2015 Purchase Agreement, the Company issued 96,463 shares of common stock to Aspire Capital with a fair value of $285, as consideration for entering in the 2015 Purchase Agreement. In addition, the Company incurred $253 of costs in connection with the 2015 Purchase Agreement, which, along with the fair value of the common stock, has been recorded as deferred equity costs. During 2016, the Company sold 1,143,940 shares of common stock under the 2015 Purchase Agreement for $7,796. The agreement expired in February 2017.

On March 2, 2018, the Company entered into a Common Stock Purchase Agreement ~~or the 2018~~(the “2018 Purchase ~~Agreement,~~Agreement”) with Aspire Capital Fund LLC (“Aspire Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth in the 2018 Purchase Agreement, Aspire Capital is committed to purchase, at the Company’s sole election, up to an aggregate of $20,000 of shares of the Company’s common stock over the approximately 30-month term of the 2018 Purchase Agreement. On the execution of the 2018 Purchase Agreement, the Company agreed to issue 33,040 shares of common stock to Aspire Capital as consideration for entering into the 2018 Purchase Agreement. As of ~~September~~June 30, ~~2019,~~2020, the Company sold 1,950,000 shares of common stock under the 2018 Purchase Agreement for proceeds of $16,999, at an average per share price of $8.72,~~, none~~ all of which transactions occurred during ~~2019.~~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 ~~or the 2019~~(the “2019 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 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 ~~September~~June 30, ~~2019,~~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, ~~2019, no~~2020, 0 preferred stock was issued or outstanding.

As of ~~September~~June 30, ~~2019,~~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.

~~The~~In November 2019, the warrant to purchase 350,000 shares ~~related~~issued to Alkermes, iswhich was liability classified ~~since they contain~~as it contained a contingent net cash settlement ~~feature. The fair value of the warrants will be remeasured through settlement or expiration with changes in fair value recognized as a period charge within the statement of operations.~~

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

In April 2015, the Company issued a warrant to purchase 294,928 shares of common stock at an exercise price of $3.28 per share to OrbiMed in connection with the OrbiMed Credit Agreement, which was liability classified. In April 2018, the warrantfeature, was exercised on a cashless basis, with ~~OrbiMed~~Alkermes surrendering ~~80,213~~165,673 shares to cover the aggregate exercise price, resulting in the issuance of ~~214,715~~184,327 shares of common stock based on the closing bid price of the Company’s common stock on ~~April 27, 2018~~November 8, 2019 of ~~$12.06.~~$17.45.

The Company’s comprehensive loss is shown on the Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018, 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 months ended September 30, 2019 and 2018 was $4,305 and $13,256, respectively. The total of comprehensive loss for the nine months ended September 30, 2019 and 2018 was $9,122 and $38,425, respectively. There was no tax effect of other comprehensive loss for the nine months ended September 30, 2019 and 2018.

The Company established the 2008 Stock Option Plan, or the 2008 Plan, which allowed 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, 2019, 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. ~~This plan expired in 2018.~~ 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 2018 and 2017, the number of shares available for issuance under the A&R Plan was increased by 1,082,972 and 956,341, respectively. In May 2018, the Company’s shareholders approved the 2018 Amended and Restated Equity Incentive Plan, which amended and restated the A&R Plan to increase the aggregate amount of shares available for issuance to 8,119,709.

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, 2019, 2,524,235 shares are available for future grants under the A&R Plan.~~

The weighted average grant-date fair value of the options awarded to employees during the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 was $8.24 and ~~2018 was $8.14 and $6.13,~~$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, ~~2019:~~

Number of
shares

Weighted
average
exercise
price

Weighted
average
remaining
contractual life
Balance, December 31, 2018

3,775,065

$
7.62

7.4 years
Granted

1,507,229

$
8.14

Exercised

(431,539
)

$
6.08

Expired/forfeited/cancelled

(719,510
)

$
7.86

Balance, September 30, 2019

4,131,245

$
7.93

7.1 years
Vested

2,480,132

$
7.76

6.1 years
Vested and expected to vest

4,131,245

$
7.93

7.1 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 ~~512,876~~438,000 options outstanding as of ~~September~~June 30, ~~2019~~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).

~~In September 2019, 8,217~~Restricted stock ~~options were exercised, however,~~units (“RSUs”) generally vest over four years. The fair value of RSUs on the ~~issuance~~date of ~~common shares was not settled until October 2019. Due to~~grant is measured as the ~~timing~~closing price of ~~settlement, these options are reflected as exercised in the table above, but not reflected in the~~our common stock ~~shares in~~on that date. The weighted average grant-date fair value of RSUs awarded to employees during the ~~Company’s Consolidated Statements~~six months ended June 30, 2020 and 2019 was $15.11 and $8.12, respectively. The fair value of ~~Shareholders’ Equity as they were not shares outstanding as of September~~RSUs vested during the six months ended June 30, ~~2019.~~

~~As a result of the Company’s reduction in workforce announced in April~~2020 and 2019 ~~the Company cancelled approximately 600,000 unvested stock options upon termination, which are reflected in the table above.~~

The following table summarizes ~~restricted stock units, or RSUs,~~RSU activity during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~

Included in the table above are ~~18,625~~15,000 time-based RSUs outstanding as of ~~September~~June 30, ~~2019~~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).

As a result of the Company’s reduction in workforce announced in April 2019, the Company cancelled approximately 300,000 shares related to RSUs upon termination, which is reflected in the table above.Other information

Stock-based compensation expense from continuing operations for the ~~nine~~six months ended ~~September~~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.

For the six months ended June 30, 2020, this represents stock-based compensation expense for the Company’s employees as well as Baudax Bio employees that continue to provide services to the Company through the transition services agreement (See note 3). For the six months ended June 30, 2019, additional stock-based compensation expense of $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 Employee Matters Agreement dated November 20, 2019 by and ~~2018 was $6,926~~between the Company and ~~$5,250, respectively.~~Baudax Bio. In accordance with the terms of the Employee Matters Agreement, the Recro equity grants held by such former employees continue to vest in accordance with their respective vesting schedules. Any stock-based compensation expense with respect to former employees who no longer provide services to the Company is reflected in Baudax Bio’s financial statements.

As of ~~September~~June 30, ~~2019,~~2020, there was ~~$12,486~~$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 2.2 years. As of ~~September~~June 30, ~~2019,~~2020, there

was ~~$2,127~~$2,707 of unrecognized compensation expense related to unvested performance-based RSUs. The performance-based RSUs ~~and~~ will be expensed if the performance criteria are ~~met.~~

~~The aggregate intrinsic value represents the total amount by which the fair value~~achieved or become probable of the common stock subject to options exceeds the exercise price of the related options. As of September 30, 2019, the aggregate intrinsic value of the vested and unvested options was $8,589 and $4,799, respectively.being achieved.

~~As of December 31, 2018, the Company had approximately $21.3 million~~ of federal net operating loss carryforwards. The Company also had federal and state research and development tax credit carryforwards of $4.3 million available to offset future taxable income. U.S. tax laws limit the time during which these carryforwards may be utilized against future taxes. With the exception of the 2018 federal net operating loss which has an indefinite carry forward period, these federal and state net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2028, if not utilized. As of December 31, 2018, the Company had also generated foreign net operating loss carryforwards in Ireland of approximately $92.8 million. The Company currently anticipates that it would continue to record a full valuation allowance against the deferred tax assets until there is sufficient evidence to support the reversal of all or a portion of the valuation allowance.

During the three months ended September 30, 2019, the Company made an election to treat its Irish subsidiary as a disregarded entity for U.S federal income tax purposes, which resulted in a worthless stock and bad debt deduction of approximately $97.0 million for U.S. federal income tax purposes. There was no impact on the condensed consolidated financial statements for this benefit as a result of the full valuation allowance against deferred tax assets.

These tax losses may be subject to audit and future adjustment by the IRS, which could result in a reversal of none, part, or all of the income tax benefit or could result in a benefit higher than the net amount recorded. If the IRS rejects or reduces the amount of the income tax benefit related to the worthless stock and bad debt deduction, we may have to pay additional cash income taxes, which could adversely affect our results of operations, financial condition, and cash flows. We cannot guarantee what the ultimate outcome or amount of the benefit we receive, if any, will be.

~~The Company operates through two business segments that are treated as separate financial segments:~~ a revenue-generating CDMO segment and an Acute Care segment. The CDMO segment leverages 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. The Acute Care segment develops the Company’s proprietary product candidates and is currently focused on achieving FDA approval for IV meloxicam following the receipt of a second CRL. Acute Care has no revenue, and its costs historically have consisted 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. Following the receipt of the second CRL for IV meloxicam, the Company announced a strategic restructuring initiative that reduced the Acute Care operating expenses, including the reduction of staff of approximately 50 employees. CDMO revenue streams are derived from manufacturing, royalty and profit-sharing revenues, 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, 2019:~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2019

2018

2019

2018

Revenues:

CDMO

$
25,255

$
18,283

$
81,577

$
59,564

Acute Care

—

—

—

—

Total

$
25,255

$
18,283

$
81,577

$
59,564

Operating income (loss):

CDMO

$
12,745

$
6,944

$
37,344

$
20,799

Acute Care

(11,956
)

(20,498
)

(32,554
)

(60,547
)
Total

$
789

$
(13,554
)

$
4,790

$
(39,748
)

Depreciation and amortization:

CDMO

$
2,152

$
1,806

$
6,227

$
5,484

Acute Care

119

161

365

273

Total

$
2,271

$
1,967

$
6,592

$
5,757

Capital expenditures:

CDMO

$
535

$
1,092

$
8,008

$
2,245

Acute Care

—

340

1,635

2,118

Total

$
535

$
1,432

$
9,643

$
4,363

Effective January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective method applied to contracts existing as of January 1, 2018. See Note 3 for additional information on the Company’s revenue recognition policies.

~~The Company uses the practical expedient to not account for significant financing components because the period between recognition and collection does not exceed one year in any contract.~~

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 ~~$10,643~~$8,911 and ~~$5,201~~$8,851 at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~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. For the nine months ended September 30, 2019, actual net product sale amounts reported by the Company’s commercial partner exceeded estimates of royalty amounts attributed to manufactured product shipped as of December 31, 2018 for the related arrangements by approximately $2,083.

The following table presents changes in the Company’s contract assets and liabilities for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~

The following table disaggregates revenue by ~~business segment and~~ timing of revenue recognition:

Three Months Ended September 30, 2019

Point in time

Over time

Total

CDMO

$
24,200

$
1,055

$
25,255

Acute Care

—

—

—

Revenue

$
24,200

$
1,055

$
25,255

Three Months Ended September 30, 2018

Point in time

Over time

Total

CDMO

$
18,086

$
197

$
18,283

Acute Care

—

—

—

Revenue

$
18,086

$
197

$
18,283

Nine Months Ended September 30, 2019

Point in time

Over time

Total

CDMO

$
79,582

$
1,995

$
81,577

Acute Care

—

—

—

Revenue

$
79,582

$
1,995

$
81,577

Nine Months Ended September 30, 2018

Point in time

Over time

Total

CDMO

$
58,876

$
688

$
59,564

Acute Care

—

—

—

Revenue

$
58,876

$
688

$
59,564

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Point in time	$	14,365	$	30,432	$	35,420	$	55,382
Over time		1,157		824		1,879		940
Total	$	15,522	$	31,256	$	37,299	$	56,322

~~Adoption of ASU 2014-09 did not require capitalization of any costs to obtain or fulfill contracts. In general, the~~The Company’s payment terms for manufacturing revenue and ~~research and~~ development services isare 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. ~~Based~~

The Company 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 ~~adoption~~Consolidated Balance Sheets.

The Company determines if an arrangement is a lease at inception. The arrangement is a lease if it conveys the right to the Company to control the use of ~~ASU 2014-09,~~identified property, plant, or equipment for a period of time in exchange for consideration. Lease terms vary based on the ~~timing difference~~nature of operations, however, all leased facilities are classified as operating leases with remaining lease terms between ~~recognition~~less than one year and 5 years. Most leases contain specific renewal options where notice to renew must be provided in advance of ~~certain royalty revenues as a contract asset and cash receipt~~lease expiration or automatic renewals where no advance notice is ~~increased~~required. Periods covered by an ~~estimated 90 days.~~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 purchase option or extension that is reasonably certain to be exercised are not included in the right-of-use asset or lease liability. Lease expense is recognized on a straight-line basis over the lease term.

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

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

~~A Non-Executive Director~~Baudax Bio is a related party to the Company. As part of the ~~Company’s Irish subsidiary is a Managing Director and a majority shareholder of HiTech Health Ltd, or HiTech Health, a consultancy firm for~~Separation, the ~~biotech, pharmaceutical and medical device industry. Since 2016, HiTech Health has provided the~~ Company ~~with certain consulting services and in November 2017 both parties~~ entered into a ~~Service Agreement~~transition services agreement with Baudax Bio. Under the transition services agreement, Baudax Bio provides certain services to ~~engage in both regulatory~~the Company, each related to 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 Baudax Bio as a result of the transition services agreement is expected to end by late 2020, unless extended. During the three and ~~supply chain project support and consultancy. In consideration for such services,~~six months ended June 30, 2020, the Company recorded ~~$11~~expense of $516 and ~~$25 for~~$1,032, respectively, related to its transition services agreement with Baudax Bio. These expenses are included in selling, general and administrative expenses on the ~~three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018 the~~Company’s Consolidated Statements of Operations. The Company recorded ~~$115~~a net receivable of $33 and ~~$278, in consideration~~a net payable of $273 for such ~~services,~~activities and other activity with Baudax Bio as of June 30, 2020 and December 31, 2019, respectively. ~~A portion of the amount relates to consultancy services provided by the Non-Executive Director.~~

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 months ended ~~September~~June 30, 2020 and 2019 were $223 and ~~2018 were $219 and $258,~~$237, respectively. Total Company contributions to the 401(k) plan for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 were $539 and ~~2018 were $937 and $959,~~$528, respectively.

The Company anticipates the completion of the spin-off of its Acute Care business, into a standalone, publicly-traded company, Baudax Bio, to Recro shareowners by the end of the fourth quarter of 2019. Since the effective date of the spin-off is anticipated to fall within the fiscal fourth quarter, the assets and liabilities associated with Baudax Bio have been included with the Company’s third quarter Consolidated Balance Sheet. The results of operations for Baudax Bio will be included in the Consolidated Statement of Operations and Consolidated Statement of Cash Flows through the effective date of the spin-off. The Company intends to enter into certain agreements with Baudax Bio including a separation agreement regarding the separation of the acute care business, a transition services agreement for the provision of certain administrative and other services for a limited time and an employee maters agreement regarding the transfer of certain employees and related liabilities.

On October 31, 2019, the Company announced that it had received a written decision from the FDA granting its appeal of the Complete Response Letter relating to the NDA seeking approval for IV meloxicam. The FDA’s granted the Company’s appeal and indicated that the Company’s application provides sufficient evidence of effectiveness and safety to support approval. The Company is now in the process of preparing a comprehensive response to the FDA that includes proposed labeling that aligns with the FDA guidance received in the written decision letter.

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, ~~2018~~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 ~~February 19, 2019.~~March 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, ~~2018~~2019 filed with the SEC on ~~February 19,~~March 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 ~~pharma services~~leading contract development and ~~pharmaceutical company that operates~~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 ~~segments: a revenue-generating CDMO~~ segment ~~and an~~since the completion of the spin-off of our historical Acute Care ~~segment. Each of these segments are deemed to be reportable segments~~business segment, which developed products for ~~financial reporting purposes~~.hospital and other acute care settings, on November 21, 2019.

~~Our CDMO segment leverages~~We leverage our formulation and development expertise to develop and manufacture pharmaceutical products using 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, or profit sharing, and ~~research and development, which support continued operations for our CDMO segment and have contributed excess cash flow to be used for activities in our Acute Care segment.~~development. We operate a 97,000 square foot, DEA-licensed manufacturing facility in Gainesville, Georgia, as well as a 24,000 square foot development and high potency product facility in Gainesville, ~~Georgia that we opened in October 2018.~~Georgia. We currently develop and/or manufacture the following key products with our key commercial partners: Ritalin LA®, Focalin XR®, Verelan PM®, Verelan SR®, Verapamil PM, Verapamil SR and Zohydro ER®, as well as CDMO services for supporting development stage products. ~~Our CDMO segment’s revenue streams are primarily derived from manufacturing, and royalty revenues, as well as research and development services performed for partners~~.

Our Acute Care segment is primarily focused on innovative products for hospital and other settings. Our lead product candidate is a proprietary injectable form of meloxicam, a long-acting preferential COX-2 inhibitor. IV meloxicam has successfully completed three Phase III clinical trials for the management of moderate to severe pain, consisting of two pivotal efficacy trials and a large double-blind Phase III safety trial, as well as other safety studies. Overall, the total new drug application, or NDA, program included over 1,400 patients. In July 2017, we submitted an NDA to the FDA, for our lead investigational product candidate IV meloxicam 30 mg for the management of moderate to severe pain. In May 2018, we received a CRL from the FDA regarding our NDA for IV meloxicam. We resubmitted the NDA for IV meloxicam in September 2018 and in March 2019, we received a second CRL from the FDA regarding our NDA for IV meloxicam. In April 2019, we announced we had implemented a strategic restructuring initiative, and corresponding reduction in the Acute Care segment workforce, aimed at reducing operating expenses, while maintaining key personnel needed to obtain FDA approval and advance IV meloxicam. We are engaged in resolution of the IV meloxicam CRL, and in October 2019 received written notification from the FDA that our appeal relating to the NDA seeking approval for IV meloxicam has been granted. The FDA granted our appeal and indicated that our application provides sufficient evidence of effectiveness and safety to support approval. We are working to prepare a comprehensive response to the FDA that includes proposed labeling that addresses FDA’s concerns and to provide the relevant evidence from the filed NDA that supports the proposed label.

Our Acute Care segment has no revenue and historically our costs consist primarily of expenses incurred in conducting our manufacturing scale-up, clinical trials and preclinical studies, regulatory activities, pre-commercialization of meloxicam and personnel costs. In light of the strategic restructuring, the operating expenses for Acute Care was greatly reduced following the restructuring and associated costs incurred in the first half of 2019. We anticipate that the spin out of the Acute Care segment will become effective in the fourth quarter of 2019, which would result in the CDMO business and the Acute Care business operating as two separately traded public companies.

We have incurred losses and generated negative cash flows from operations since inception and expect to continue to incur operating losses for 2019. Due to cost reductions from the strategic restructuring following the receipt of the second CRL, we were $4.8 million cash flow positive for the third quarter and expect to remain cash flow positive for the second half of 2019 (excluding the impact from any strategic transactions). 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 cash flow generated by our ~~CDMO segment~~business primarily to fund operations at our Gainesville, Georgia manufacturing 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 segment~~business will continue to contribute cash for future operations at our Gainesville facilities and other general corporate ~~purposes and support~~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 ~~IV meloxicam appeal process, maintenance~~outstanding shares of common stock of Baudax Bio to our shareholders. On November 21, 2019, the distribution date, each of our ~~other product candidates,~~shareholders received one share of Baudax Bio’s common stock, or the Distribution, for every two and ~~plan for and execute on other possible structures.~~

On April 10, 2015, we completed the acquisition from Alkermes of certain assets, including the worldwide rights to injectable meloxicam and the development, formulation and manufacturing business that comprised our CDMO segment, which we refer to as the Gainesville Transaction. The consideration paid consisted of $50.0 million cash, a $4.0 million working capital adjustment and a seven-year warrant to purchase 350,000one-half shares of our common stock held of record at ~~an exercise price~~the close of ~~$19.46 per share. In addition, according to~~business on November 15, 2019, the ~~agreement, as amended,~~record date for the Distribution. Additionally, we ~~were required to pay up to an additional $140.0 million in milestone payments, including regulatory and net sales milestones, and a royalty percentage of future product net sales related to IV meloxicam. In December 2018, we entered into an Amendment to the Purchase and Sale Agreement with Alkermes, which restructured the $45.0 million milestone originally due upon FDA approval of IV meloxicam to~~ (i) a $5.0 million payment made within 30 days of the amendment; (ii) a $5.0 million payment made by April 23, 2019; (iii) a $5.0 million payment due within 180 days following approval of an NDA for IV meloxicam; and (iv) an additional $45.0 ~~million following approval of an NDA for injectable meloxicam, payable over a seven year period. In addition, we~~ ~~amended our~~ ~~warrant held by~~ ~~Alkermes to decrease the exercise price to $8.26 per share. As of September 30, 2019, we have paid $10.0 million in milestone payments to Alkermes.~~

Following the receipt of the second CRL, we implemented a strategic restructuring initiative, and corresponding reduction in the Acute Care segment workforce, aimed at reducing operating expenses, while maintaining key personnel needed to obtain FDA approval and advance IV meloxicam. The restructuring initiative included a reduction of a majority of our Acute Care segment workforce of approximately 50 positions. We have incurred approximately $7.2contributed $19 million of ~~costs~~cash to Baudax Bio in connection with the ~~strategic restructuring plan ($6.0 million~~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 ~~was incurred~~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 incremental expenses associated with safe practices for our organization due to COVID-19.

Business Development: We successfully launched our new CTM offering in the 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 COVID-19. Concerns surrounding COVID-19 have resulted in our 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 concerns about the timing of clinical trials.

Manufacturing Demand: We believe that there has been lower demand for some of the commercial products we 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.

Our sales and manufacturing operations could be further disrupted as a result of the pandemic because of production slowdowns, stoppages, or decreased demand for the products we manufacture. Given the uncertain scope and duration of the pandemic, the extent to which the pandemic will continue to impact our financial results remains uncertain in terms of manufacturing volumes and certain profit sharing results, even when our partners have not experienced loss of 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 result of these recent events, we implemented operating improvement initiatives including two separate reduction in force actions during the ~~three months ended June 30, 2019), which includes severance and related termination benefits and canceled marketing and production costs.~~

~~Financial Overview~~first half of 2020 as well as other initiatives. We estimate that these initiatives will provide an annual savings of approximately $3.4 million in fiscal year 2021. Additional cost saving measures continue to be assessed.

During the ~~nine months ended September 30, 2019 and 2018~~periods presented, we recognized revenues from three revenue streams: manufacturing revenue, royalty revenue and ~~research and~~ development ~~services~~ revenue. ~~This 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 upon transfer of control of a product to a customer, generally upon shipment, 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 volume-based ~~adjustments~~.adjustments.

We recognize royalty or profit-sharing revenue, collectively referred to as royalty revenue, related to the sale of products by our commercial partners that incorporate our ~~technologies.~~technologies. Royalty revenues are generally recognized under the terms of the applicable license, development and/or supply 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 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 uncertainty of the timing of future commercial partner sales, mix of volume, customer stocking and ordering patterns, as well as unforeseen price adjustments made by our commercial ~~partners~~.partners.

~~Research and development revenue consists of revenue that compensates us for~~ includes services ~~performed at our CDMO, such as~~associated with formulation, process development, CTM services, as well as custom development of manufacturing processes and ~~preparation of pre-clinical~~analytical methods for a customer’s non-clinical, clinical and ~~clinical drug product materials prepared by our CDMO segment under research~~commercial products. Such revenues are recognized at a point in time or over time depending on the nature and ~~development arrangements with partners. Revenues related to research~~particular facts and ~~development are generally recognized as the related services or activities are performed using the output method and in accordance~~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, we evaluate whether the milestones are considered probable of being achieved and ~~estimates~~estimate the amount to be included in the transaction price using the most likely amount method. ~~If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is recognized at a point in time. Non-refundable milestone~~Milestone payments related to arrangements under which 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~~.received.

~~Research~~In contracts that require revenue recognition over time, we utilize 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 ~~Development Expenses~~

~~Research~~process, which have no alternative use. These projects are customized to each customer to meet its specifications and ~~development expenses currently consist primarily~~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 ~~costs incurred~~its product as the product is being created or enhanced by our ~~Acute Care segment 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 have related 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 to specific programs.

~~The successful development of IV meloxicam and our other product candidates is highly uncertain and subject 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 will assess our IV meloxicam development program based on additional available information as we progress through our discussions with the FDA around the CRL regarding our NDA for IV meloxicam and assess IV meloxicam’s commercial potential and available capital resources. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or costs that we will expend in the future on IV meloxicam prior to regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of any approval, we are currently unable to estimate precisely when, if ever, any of our product candidates will generate revenues and cash flows.

We expect our research and development costs to relate to IV meloxicam as we seek to obtain regulatory approval for IV meloxicam, and if successful in obtaining regulatory approval, advance IV meloxicam through the commercialization scale-up and other activities. ~~We also expect to have expenses related to development of our other product candidates.~~ ~~We may elect to seek 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 remain at a reduced level for the remainder of 2019 as a result of the restructuring and reduced clinical and pre-commercialization manufacturing activities for IV meloxicam and our other pipeline associated activities.specifications upon request.

~~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, finance~~as well as legal, patent-related and ~~information technology 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, and CDMO business development activities. In light of the restructuring and continued advancement of IV meloxicam, our future expected general and administrative expenses related to pre-commercial costs has been substantially reduced.

We currently expect our general and administrative expenses, excluding the impact from the potential Acute Care separation, to remain at a reduced level for the remainder of 2019 as we progress through our discussions with the FDA regarding the CRL and operating under our new structure. We will continue to incur costs relating to our operations as a public company, including salary, consulting, legal, patent and compliance, accounting, insurance and investor ~~relations costs.~~relations. We expect our business development expenses to increase in 2020, compared to prior year, as we continue to expand our sales team in various geographies in support of our new offerings, in anticipation of business growth from new formulation, development and 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 in process research and development, or IPR&D, which is considered an indefinite-lived intangible asset that is 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 we will record a noncash impairment loss on our 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.

Pursuant to the Purchase and Sale Agreement for the Gainesville Transaction, as amended in December 2018, we are required to pay up to an additional $140.0 million in milestone payments, including $10.0 million during the first half of 2019, another $5.0 million due within 180 days of approval of IV meloxicam and $45.0 million over seven years beginning one year after approval, 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). The estimated fair value of the initial $54.6 million payment obligation was recorded as part of the purchase price for the Gainesville Transaction. We have continued to reevaluate the fair value each subsequent period and ~~as of September 30, 2019 recorded a $65.7 million payment obligation~~, representing the estimated probability adjusted fair value. Each reporting period, we revalue this estimated obligation with changes in fair value recognized as a non-cash operating expense or gain. As of September 30, 2019, ~~we have paid $10.0 million in milestone payments to Alkermes.~~

We ~~have~~had previously classified as liabilities certain warrants then outstanding that ~~contain~~contained a contingent net cash settlement feature, upon a change in control. The fair value of these warrants iswas 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 ~~net~~ for the ~~three months ended September 30, 2019 and 2018 was a result of~~periods presented primarily includes interest expense incurred on our Athyrium senior secured term loans, ~~and~~ the amortization of ~~the~~ related financing costs ~~net~~and interest expense on a promissory note with PNC Bank under the Small Business Administration, or “SBA, Paycheck Protection Program of ~~interest income on cash equivalents~~the Coronavirus Aid, Relief and ~~short-term investments.~~Economic Security Act of 2020, or the CARES Act, and collectively the PPP note.

As of December 31, ~~2018,~~2019, we had approximately ~~$21.3~~$121.6 million of federal net operating loss carryforwards. We also had federal and state research and development tax credit carryforwards of ~~$4.3~~$4.4 million available to offset future taxable income. U.S. tax laws limit the time during which these carryforwards may be utilized against future taxes. With the exception of the 2019 and 2018 federal net operating ~~loss~~losses, which ~~has~~have an indefinite carry forward period, these federal and state net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2028, if not utilized. As of December 31, 2018, we had also generated foreign net operating loss carryforwards in Ireland of approximately $92.8 million. We currently anticipate that we would continue to record a full valuation allowance against the deferred tax asset until there is sufficient evidence to support the reversal of all or a portion of the valuation allowance.

~~federal income tax purposes. There was no impact on the condensed consolidated financial statements for this benefit as a result of the full valuation allowance against deferred tax assets.~~

This tax loss may be subject to audit and future adjustment by the IRS, which could result in a reversal of none, part, or all of the income tax benefit or could result in a benefit higher than the net amount recorded. If the IRS rejects or reduces the amount of the income tax benefit related to the worthless stock and bad debt deduction, we may have to pay additional cash income taxes, which could adversely affect our results of operations, financial condition, and cash flows. We cannot guarantee what the ultimate outcome or amount of the benefit we receive, if any, will be.

Under the Tax Reform Act of 1986, or the Act, the utilization of a corporation’s net operating loss and research and development tax credit carryforwards is limited following a greater than 50% change in ownership during a three-year period. Any unused annual limitation may be carried forward to future years for the balance of the carryforward period. We determined that we have experienced ownership changes, as defined by the Act, during the 2008, 2014 and 2016 tax years as a result of past financings; accordingly, our ability to utilize the aforementioned carryforwards will be limited. In addition, state net operating loss carryforwards may be further limited, including in Pennsylvania, which has a limitation of 30%, 35% or 40% of taxable income after modifications and apportionment on state net operating losses utilized in any one year during tax years beginning during 2017, 2018 or 2019 going forward respectively. In addition, we may undergo further ownership changes in the future, including changes to our organizational structure relating to foreign operations, purchases, sales and licenses, spin-offs, bad debt write-offs, which could further limit our ability to use net operating loss carryforwards. As a result, if we generate taxable income, our ability to use some of our net operating loss carryforwards to offset U.S. federal and state taxable income may be subject to limitations, which could result in increased future tax liabilities to us.

In December 2017, the federal government enacted numerous amendments to the Internal Revenue Code of 1986 pursuant to the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act will impact our income tax expense/(benefit) from operations ~~in the current and~~ ~~in future periods. The Tax Act resulted in the following impacts to us:~~

~~Revenue and costs of sales.~~ Our revenues were $25.3 million and $18.3 million and cost of sales were $11.0 million and $8.5 million for the three months ended September 30, 2019 and 2018, respectively. The increase of $7.0 million in revenue was primarily due to increased royalties recognized from one of our commercial partners and an increase in product sales to various of our commercial partners. Cost of sales increased $2.5 million primarily due to expansion of our service and development capabilities as well as growth in manufacturing demand which was partially offset by operating efficiencies gained as a result of higher production volumes.

~~Research and Development.~~ Our research and development expenses were $1.8 million and $11.3 million for the three months ended September 30, 2019 and 2018, respectively. The decrease of $9.5 million was primarily due to a decrease in pre-commercialization manufacturing and clinical costs for IV meloxicam, the shift in focus of our CDMO formulation and development capabilities to cost of sales activities, a decrease in development costs for other pipeline products and a decrease in personnel costs.

~~General and Administrative.~~ Our general and administrative expenses were $6.9 million and $7.0 million for the three months ended September 30, 2019 and 2018, respectively. The decrease of $0.1 million was due to a reduction in commercial team personnel and related costs following the receipt of the second CRL, which suspended our preparation of the anticipated launch of IV meloxicam offset by an increase in public company costs including legal costs.

~~Amortization of Intangible Assets.~~ Amortization expense was $0.6 million for each of the three months ended September 30, 2019 and 2018, respectively, which was exclusively related to the amortization of our CDMO royalties and contract manufacturing relationships intangible asset over its estimated useful life.

~~Interest Expense, net.~~ Interest expense, net was $5.1 million and $2.1 million during the three months ended September 30, 2019 and 2018, respectively. The increase of $3.0 million was primarily due to the higher principal balance on our Athyrium senior secured term loan and amortization of the related financing costs.

~~Income Tax Benefit.~~ We believe that it is more likely than not that the deferred income tax assets associated with our ~~federal, state and foreign~~U.S. operations will not be realized, and as such, there is a full valuation allowance against our deferred tax ~~assets related to the losses. As a result~~assets.

Revenue. The decrease of ~~a full valuation allowance, there was no income tax benefit for the three months ended September 30, 2019. For the three months ended September 30, 2018, the income tax benefit was $2.4~~$15.7 million ~~which was recorded prior to the recording of the full valuation allowance for United States operations in the fourth quarter of 2018.~~

~~Our CDMO segment’s revenues were $25.3 million and $18.3 million in the three months ended September 30, 2019 and 2018, respectively. The increase of $7.0 million in revenue~~ was primarily due to ~~increased~~decreased product sales and royalties recognized from three of our commercial partners. The first key customer experienced lower market share 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 market forces. The third key customer decreased sales due to the impact of a combination of the overall market forces and 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, ~~and an increase in product sales~~overall COVID-19 market force impacts to ~~various~~all of our ~~commercial partners.~~

~~Our CDMO segment’s operating expenses (including cost~~customers, discontinuations of ~~sales) increased~~product lines by ~~$1.2 million, from $11.3 million~~two of our customers, slower than expected new project starts and potential delays in customers programs may continue to impact our revenue in the ~~three months ended September 30, 2018~~third and fourth quarters of 2020. We are continuing to ~~$12.5 million in~~monitor the ~~three months ended September 30, 2019.~~impacts of these events and the COVID-19 pandemic on our business and revenues.

Cost of sales. Cost of sales ~~were $11.0~~decreased $2.5 million and ~~$8.5~~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 ~~three months ended September 30, 2019 and 2018, respectively. Cost of sales increased~~COVID-19 pandemic, which were partially offset by ~~$2.5 million~~higher selling costs due to ~~expansion of our service~~increased headcount and associated personnel costs focused on business development, ~~capabilities~~ as well as ~~growth in manufacturing demand which was offset by operating efficiencies gained as a result~~completion of higher production volumes. Research and development expenses decreased by $1.5 million due to the shift in focus of our formulation and development capabilities to cost of sales activities and general and administration expenses increased by $0.1 million due to increased business development activities. All of the above contributed to CDMO segment’s operating income of $12.7 millionreadiness for the ~~three months ended September 30, 2019, which included non-cash charges of $2.2 million for depreciation and amortization and $0.4 million for stock-based compensation.~~

Our Acute Care segment’s operating expenses (excluding non-cash charges for contingent consideration and warrants) decreased $8.3 million from $16.1 million in the three months ended September 30, 2018 to $7.8 million in the three months ended September 30, 2019. Research and development expenses, decreased $8.0 million as a result of a decrease in pre-commercialization manufacturing and clinical costs for IV meloxicam, a decrease in development costs for other pipeline products and a decrease in personnel costs. General and administrative costs decreased by $0.3 million as a result of decreased salaries and benefits and decreased pre-commercialization marketing expenses following the receipt of the second CRL, which halted our preparation of the anticipated launch of IV meloxicam. The non-cash charge for contingent consideration decreased by $0.2 million due to the adjusted timing of estimated milestone and royalty payments and the non-cash change in value of warrants decreased by $0.1 million primarily as a result of the change in our stock price. All of the above contributed to our Acute Care segment’s operating loss of $11.9 million for the three months ended September 30, 2019, which also included non-cash charges of $3.7 million for stock-based compensation, depreciation and amortization.

~~Revenue and costs of sales.~~ Our revenues were $81.6 million and $59.6 million and cost of sales were $39.5 million and $31.0 million for the nine months ended September 30, 2019 and 2018, respectively. The increase of $22.0 million in revenue was due to increased royalties recognized from one of our commercial partners and an increase in product sales to various commercial partners. Cost of sales increased $8.5 million due to expansion of our service and development capabilities as well as growth in manufacturing demand which was partially offset by operating efficiencies gained as a result of higher production volumes.

~~Research and Development.~~ Our research and development expenses were $18.6 million and $29.9 million for the nine months ended September 30, 2019 and 2018, respectively. Excluding $2.8 of costs associated with the strategic restructuring initiative recorded in the nine months ended September 30, 2019, the decrease of $14.1 million was primarily due to a decrease in pre-commercialization manufacturing and clinical costs for IV meloxicam, a decrease in personnel costs, the shift in focus of our CDMO formulation and development capabilities to cost of sales activities, and a decrease in development costs for other pipeline products.

~~General and Administrative.~~ Our general and administrative expenses were $31.1 million and $29.4 million for the nine months ended September 30, 2019 and 2018, respectively. Excluding $4.4 million of costs associated with the strategic restructuring initiative recorded in the nine months ended September 30, 2019, the decrease of $2.7 million was due to a reduction in commercial team personnel and pre-commercial consulting costs in preparation of the anticipated launch of IV meloxicam following the receipt of the second CRL. These decreases in costs were offset by increases in costs associated with the debt financing, public company costs including legal fees, business development costs in our CDMO segment as well as increased professional fees associated with addressing the first and second CRLs issued by the FDA regarding our NDA for IV meloxicam.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, ~~2019~~2020 and ~~2018,~~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 $13.9 million and $6.1 million during the nine months ended September 30, 2019 and 2018, respectively.~~expense. The ~~increase~~decrease of ~~$7.8~~$0.2 million was primarily due to a slight decrease in the ~~higher principal balance~~LIBOR base rate of interest on our ~~Athyrium senior secured~~ term ~~loan and amortization of~~loans under the ~~related financing costs.~~Credit Agreement with Athyrium.

~~Income Tax Benefit.~~ ~~We believe that it is more likely than not that the deferred income tax assets associated with~~Discontinued operations. In November 2019, our ~~federal, state and foreign operations will not be realized, and as such, there is a full valuation allowance against~~former Acute Care business was spun-out from us through our ~~deferred tax assets related to the losses.~~former wholly-owned subsidiary, Baudax Bio. As a result, of the recording of a full valuation allowance, there was no income tax benefit for the nine months ended September 30, 2019. For the nine months ended September 30, 2018, the income tax benefit was $7.4 million, which was recorded prior to the recording of the full valuation allowance for United States operationsthat business’s results are included in the ~~fourth quarter of 2018.~~2019 period but not the 2020 period.

~~Our CDMO segment’s revenues were $81.6 million~~Comparison of the Six Months Ended June 30, 2020 and ~~$59.6 million for the nine months ended September 30,~~ 2019 ~~and 2018, respectively.~~

Revenue. The ~~increase~~decrease of ~~$22.0~~$19.0 million in revenue was primarily due to ~~increased~~decreased product sales and royalties recognized from three of our commercial partners. The first key customer experienced lower market share 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 market forces. The third key customer decreased sales due to the impact of a combination of the overall market forces and 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, 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 ~~an increase~~potential delays in ~~product sales~~customers programs may continue to ~~various commercial partners.~~

~~Our CDMO segment’s operating expenses (including cost of sales) increased by $5.5 million, from $38.8 million~~impact our revenue in the ~~nine months ended September 30, 2018~~third and fourth quarters of 2020. We are continuing to ~~$44.3 million in~~monitor the ~~nine months ended September 30, 2019.~~ impacts of these events and the COVID-19 pandemic on our business and revenues.

Cost of ~~sales were $39.5 million and $31.0 million in the nine months ended September 30, 2019 and 2018, respectively.~~sales. Cost of sales increased ~~$8.5~~$1.4 million, and was not proportionate to the decrease in revenues, primarily due to ~~expansion of our service~~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 ~~capabilities~~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 higher selling costs due to increased headcount and associated personnel costs focused on business development, as well as ~~growth in manufacturing demand which was offset by operating efficiencies gained as a result~~completion of higher production volumes. Research and development expenses decreased by $4.3 million due to the shift in focus of our formulation and development capabilities to cost of sales activities and general and administration expenses increased by $1.3 million due to increased business development activities. All of the above contributed to our CDMO segment’s operating income of $37.3 millionreadiness for the ~~nine months ended September 30, 2019, which included non-cash charges~~CTM business.

Amortization of ~~$6.2 million for depreciation and amortization and~~intangible assets. Amortization expense was $1.3 million for ~~stock-based compensation.~~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.

~~Acute Care Segment-~~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.

~~Our Acute Care segment’s operating expenses (excluding non-cash charges for contingent consideration and warrants) decreased $6.7~~Interest expense. The increase of $1.4 million ~~from $53.6 million~~was primarily due to additional term loan borrowings under its Credit Agreement with Athyrium in the ~~nine months ended September 30, 2018 to $46.9 million in the nine months ended September 30, 2019. Excluding the $7.2 million~~first quarter of ~~costs associated with the strategic restructuring initiative recorded in the nine months ended September 30,~~ 2019, Acute Care segment’s operating expenses (excluding non-cash charges for contingent consideration and warrants) decreased $13.9 million in the nine months ended September 30, 2019 compared to the prior year period. Research and development expenses, excluding the strategic restructuring costs, decreased $9.9 million as a result ofpartially offset by a decrease in pre-commercialization manufacturing an dclinical costs for IV meloxicam, a decrease in personnel costs, and decreases in development costs for other pipeline products. General and administrative costs, excluding the ~~strategic restructuring costs, decreased by $4.0 million as~~LIBOR base rate of interest on those term loans.

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, ~~of decreased commercial team personnel and pre-commercial consulting costs~~that business’s results are included in ~~preparation of~~ the ~~anticipated launch of IV meloxicam following~~2019 period but not the receipt of the second CRL. These decreases in costs were offset by an increase in costs associated with the debt financing, public company costs including legal fees, as well as increased professional fees associated with addressing the first and second CRLs issued by the FDA regarding our NDA for IV meloxicam. The non-cash charge for contingent consideration decreased by $22.3 million due to the adjusted timing of estimated milestone and royalty payments and the non-cash change in value of warrants increased by $1.0 million primarily as a result of the change in our stock price. All of the above contributed to our Acute Care segment’s operating loss of $32.6 million for the nine months ended September 30, 2019, which also included non-cash charges of $6.0 million for stock-based compensation, depreciation and amortization.2020 period.

As of ~~September~~June 30, ~~2019,~~2020, we had ~~$37.9~~$22.8 million in cash and cash ~~equivalents and short-term investments.~~equivalents.

Since our inception through ~~September~~June 30, ~~2019,~~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 with net proceeds of~~ ~~$133.5 million~~, and term loans made under our previous and existing credit ~~facilities, including~~facilities. During the six months ended June 30, 2020, our ~~credit facility with Athyrium with an outstanding balance of $125.0~~capital expenditures were $2.2 million and ~~contributions of excess cash flow from our CDMO segment.~~primarily related to equipment and facility modifications to support a new customer.

We ~~continue to advance IV meloxicam~~may require additional financing and ~~evaluate and execute on other possible corporate structures, including the spin out of the Acute Care segment which would result in the CDMO business and the Acute Care business operating as two separately traded public companies that~~if we ~~expect to become effective in the fourth quarter of 2019~~. In order to proceed with the development of our product candidates, make the payments which may become due, including milestone payments owed to Alkermes or other licensing partners, to commercialize IV meloxicam, if approved, to commence our clinical trial programs of our other product candidates, to commercialize any of our other product candidates or technologies that receive regulatory approval and to enhance our sales and marketing efforts for additional productsdo, we may ~~acquire, we would need to~~ raise substantial additional funding. 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 any corporate reorganization regarding the Acute Care segment, our ability to timely and adequately resolve the second CRL issued by the FDA regarding our NDA for IV meloxicam, the cost of studies and other actions that may be needed to obtain regulatory approval for IV meloxicam, the timing of approval of IV meloxicam, our ability to commercialize IV meloxicam, the level of market acceptance of IV meloxicam and the costs of commercialization activities for IV meloxicam, if approved, as well as, the continued profitability of our CDMO segment, and our ability to raisesuch additional funds through debt refinancing, bank or other loans, through strategic 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 or access to ~~capital~~.capital.

On March 7, 2015, in connection with the Gainesville Transaction, we, through a wholly owned subsidiary, entered into a credit agreement with OrbiMed. Pursuant to the credit agreement, OrbiMed provided us with a term loan in the original principal amount of $50.0 million on April 10, 2015, which amount was used to fund the Gainesville Transaction. On 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 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 credit facility with Athyrium of approximately $4.2 million. In December 2018 we amended the credit agreement with Athyrium and drew upon a $10.0 million term B-1 loan. In February 2019, we entered into a second amendment to the credit agreement 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, which was funded on the date of execution of the ~~Second Amendment,~~second amendment, net of the original issue discount of $11.4 million. On October 22, 2019, the 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 ~~September~~June 30, ~~2019,~~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 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 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 proceeds to be forgiven must be used for payroll costs as defined by the CARES Act. The 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 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 gain on extinguishment in that period. We 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.

Cash ~~used in~~provided by operating activities, continuing operations, was ~~$23.0~~$4.4 million and ~~$35.1~~$6.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~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 ~~$9.7~~$2.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020, which related to capital expenditures to scale and support our expansion of capabilities. Cash used in investing activities from continuing operations was ~~$2.2~~$9.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018. This~~2019. The 2019 amount reflected cash used for ~~the~~net purchases of short-term investments and for the purchases of property and equipment partially offset by the related maturities of short-term investments. During the nine months ended September 30, 2019, our capital expenditures were $9.6 million, which primarily related to the investment in our CDMO capabilities to scale and support our anticipated growth.equipment.

~~There was $32.2 million of cash~~Cash provided by financing activities, incontinuing operations, was $2.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, which primarily included $4.4 of proceeds from ~~net~~ ~~proceeds of issuance of long-term debt of $43.6~~a PPP Note offset by a $1.1 million ~~and $2.6 million of cash from proceeds related to stock option exercises,~~repayment, which was ~~partially offset~~within the safe harbor time period for repayment established by ~~$10.0 million of contingent consideration payments, deferred financing costs of $2.9 million from~~ the ~~Athyrium transaction, and $1.0 million of payments of withholdings on shares withheld for income taxes. There was $12.0 million of cash provided by financing activities~~Small Business Administration. Certifications made with respect to loan amounts repaid during this safe harbor period are deemed to have been made in the nine months ended September 30, 2018 from net proceeds of $11.3 million from the sale of shares of common stock through our Common Stock Purchase Agreement with Aspire Capital and $1.1 million of cashgood faith. Cash provided by financing activities from continuing operations was $40.8 million, which primarily included proceeds ~~related to stock option exercises, which was~~from debt of $43.6 million partially offset by deferred financing costs of ~~$0.3~~$2.9 million ~~from the Athyrium transaction.~~.

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

the effect of any changes in our effective tax rate due to changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, tax impacts and net operating loss utilization related to the Acute Care segment separation and changes in tax laws.

We might use existing cash and cash equivalents on hand, additional debt, equity financing, sale of assets or out-licensing revenue or a combination 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~~.securities.

The table below reflects our contractual commitments as of ~~September~~June 30, ~~2019:~~

Payments Due by Period (in 000s)

Contractual Obligations

Total

Less than
1 year

1-3 years

3-5 years

More than
5 years

Long-Term Debt Obligations (1):

Athyrium Debt

$
126,250

$
—

$
21,000

$
105,250

$
—

Interest on Debt

44,905

15,091

28,202

1,612

—

Purchase Obligations (2):

10,804

5,988

1,769

—

—

Operating Leases (3)

2,245

656

1,055

405

130

Other Long-Term Liabilities:

Other License Commitments and Milestone
payments (4), (5)

52,265

40

130

170

225

Alkermes Payments (6)

130,000

—

—

—

—

Employment Agreements (7)

947

947

—

—

—

Total Contractual Obligations

$
367,416

$
22,722

$
52,156

$
107,437

$
355

	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

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 Discussion and Analysis of Financial Condition and Results of Operations” section of our 2019 Annual ~~Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 19, 2019.~~ Report. In the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, there were no significant changes to the application of critical accounting policies previously disclosed in our ~~most recent~~2019 Annual ~~Report on Form 10-K.~~Report.

There has been no material change in our assessment of its sensitivity to market risk described in the “Quantitative and Qualitative Disclosures About Market Risk” section of our 2019 Annual ~~Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 19, 2019.~~Report.

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, ~~2019.~~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, ~~2019,~~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.

We are involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. Except as disclosed below, we are 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.

On May 31, 2018, a securities class action lawsuit, or the Securities Litigation, was filed against usthe Company and certain of ~~our~~its officers and directors in the U.S. District Court for the Eastern District of 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 usthe 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 ~~and directors~~ as defendants. On February 8, 2019, wethe Company filed a motion to dismiss the amended complaint in its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, Wethe Company filed its response and briefing was completed on the motion to dismiss. In response to questions from the Judge, the parties submitted supplemental briefs with regard to the motion to dismiss the amended complaint during the fall of 2019. On February 18, 2020, the 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 ~~26, 2019,~~18, 2020. The plaintiff’s deadline to file an opposition to the ~~judge heard oral arguments on~~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 connection with the separation of Baudax Bio, Baudax Bio accepted assignment by the Company of all of its obligations in connection with the Securities Litigation and agreed to indemnify it for all liabilities related to the Securities Litigation. The ~~judge asked the plaintiffs to file a supplemental brief, which was completed on August 30, 2019,~~Company and ~~we submitted a reply brief on September 27, 2019. We~~Baudax Bio believe that the lawsuit is without merit and ~~intends~~intend to vigorously defend against it. ~~The lawsuit is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to us.~~

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 for the fiscal year ended December 31, 2018~~ and our Q1 Quarterly ~~Report of Form 10-Q for the quarterly period ended March 31, 2019.~~Report.

Our appeal relating to the NDA for IV Meloxicam has been granted, however, there can be no certainty that our proposed labeling will address the FDA’s concerns in order to successfully commercialize IV meloxicam.

In July 2017 we submitted an NDA for IV meloxicam for the management of moderate to severe pain to the FDA. On May 23, 2018, we received a CRL from the FDA regarding the NDA, which stated that the FDA determined it could not approve the NDA in its present form. In October 2019 we received written notification from the FDA that our appeal relating to the NDA seeking approval for IV meloxicam has been granted. The FDA’s letter states that the appeal was granted and that the NDA provides sufficient evidence of effectiveness and safety to support approval. We are working to prepare a comprehensive response to the FDA that includes refiling the NDA with proposed labeling that addresses the FDA’s concerns and to provide the relevant evidence from the filed NDA that supports the proposed label, but there can be no guarantee that we will be able to do so in a timely manner, or at all. In addition, if the approved labeling of IV meloxicam is for a more limited indication or different dosing interval than we originally requested, our ability to market to our full target market may be reduced. We could need to significantly revise our launch and commercialization strategy, which could delay commercial launch of IV meloxicam, if approved, and could significantly limit our ability to realize the full market potential of IV meloxicam. The approved labeling could decrease the target market to a point where we would be unable to achieve profitability from IV meloxicam, in which case we may be forced to limit or discontinue the commercialization of IV meloxicam, or seek a collaboration partner for the commercialization of IV meloxicam, all of which would have an adverse impact on our business.

Should we fail to obtain regulatory approval of IV meloxicam, we may be forced to rely on our other product candidates, which are at an earlier development stage and will require significant additional time and resources to obtain regulatory approval and proceed with commercialization.

~~The planned spin-off of our acute care business segment is subject to various risks and uncertainties and~~ may not be completed on the terms or timeline currently contemplated, if at all, and will involve significant time, effort and expense, which could harm our business, results of operations and financial condition.

~~In November 2019, we announced the intent~~entitled to ~~spin-off our acute care business segment from our CDMO segment, resulting in two independent, publicly traded companies, Recro Pharma, Inc. and Baudax Bio, Inc. The separation~~forgiveness of our ~~business segments is expected to be completed~~recently received Paycheck Protection Program Loan, and our application for the Paycheck Protection Program Loan could in the ~~fourth quarter~~future be determined to have been impermissible or could result in damage to our reputation.

On May 12, 2020, we received loan proceeds of ~~2019~~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 ~~satisfaction~~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 ~~certain conditions. Adverse market conditions or delays or difficulties effecting~~ the ~~planned separation could delay or prevent, or adversely impact~~amount due under the ~~anticipated benefits from,~~PPP Note, which was within the ~~planned separation. We may not complete~~safe harbor time period for repayment established by the ~~separation~~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 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 ~~terms or on~~Maturity Date. The amounts outstanding under the ~~timeline that we announced, or~~PPP Note may ~~for any or no reason and~~be prepaid by us at any time ~~until~~prior to maturity without penalty. Under the ~~planned separation~~CARES Act, as amended in June 2020, loan forgiveness is ~~complete, abandon~~generally available for the ~~separation or modify or change its terms. Any~~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 ~~foregoing~~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 ~~not achieving the operational, financial, strategic and other benefits we anticipate, and in each case,~~workforce, our ~~business, results of~~need for additional funding to continue operations, and ~~financial condition~~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 ~~adversely affected.~~

~~We have incurred and will continue~~required to ~~incur significant expenses in connection with the planned separation, and such costs and expenses may be greater than we anticipate. In addition, completion~~return or repay some or all of the ~~spin-off will require a significant amount of management time~~PPP Note, together with interest on the loan, which could reduce our liquidity, and ~~effort which may disrupt our business or otherwise divert management’s attention from other aspects of our business. Any of the foregoing could adversely affect our business, results of operations~~potentially subject us to fines and ~~financial condition.~~penalties.

Even if the spin-off is completed, the anticipated operational, financial, strategic and other benefits of the spin-off may not be achieved. The combined value of the common stock of the two publicly-traded companies may not be equal to or greater than what the value of our common stock would have been had the separation not occurred. The combined value of the common stock of the two companies could be lower than anticipated for a variety of reasons, including the failure of either company to operate and compete effectively as an independent company. The common stock price of each company may experience periods of extreme volatility. In addition, the two independent companies will be smaller and less diversified, with a narrower business focus, and may be more vulnerable to changing market conditions. The spin-off also presents a number of significant risks to our internal processes, including the failure to maintain an adequate control environment due to changes to our infrastructure technology systems and financial reporting processes.

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.

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~~each class	Trading ~~Symbol~~symbol	Name of ~~Exchange~~exchange on ~~Which Registered~~which registered
Common Stock, par value $0.01	REPH	Nasdaq Capital Market

			Page

PART I. FINANCIAL INFORMATION			3

	Item 1.	Consolidated Financial Statements (Unaudited)	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3024

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4133

	Item 4.	Controls and Procedures	4134

PART II. OTHER INFORMATION			4235

	Item 1.	Legal Proceedings	4235

	Item 1A.	Risk Factors	4235

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4336

	Item 3.	Defaults Upon Senior Securities	4336

	Item 4.	Mine Safety Disclosures	4336

	Item 5.	Other Information	4336

	Item 6.	Exhibits	4337

SIGNATURES			4539

	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

	Three months ended June 30, 2019			Six months ended June 30, 2019
Operating expenses:
Research and development	$	7,180		$	16,734
Selling, general and administrative		4,464			12,138
Change in contingent consideration valuation		(4,059	)		(19,150	)
Total operating expenses		7,585			9,722
Other income (expense), net		(11	)		(49	)
Loss on discontinued operations	$	(7,596	)	$	(9,771	)

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☒☐

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(amounts in thousands, except share and per share data)	2019			2018			2019			2018
Revenue	$	25,255		$	18,283		$	81,577		$	59,564
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		11,027			8,472			39,518			31,033
Research and development		1,845			11,348			18,578			29,947
General and administrative		6,879			6,969			31,055			29,442
Amortization of intangible assets		646			646			1,938			1,938
Change in warrant valuation		160			287			939			(78	)
Change in contingent consideration valuation		3,909			4,115			(15,241	)		7,030
Total operating expenses		24,466			31,837			76,787			99,312
Operating income (loss)		789			(13,554	)		4,790			(39,748	)
Other income (expense):
Interest income		323			126			642			382
Interest expense		(5,417	)		(2,198	)		(14,553	)		(6,490	)
Net loss before income taxes		(4,305	)		(15,626	)		(9,121	)		(45,856	)
Income tax benefit		—			2,370			—			7,430
Net loss	$	(4,305	)	$	(13,256	)	$	(9,121	)	$	(38,426	)

Per share information:
Net loss per share of common stock, basic and diluted	$	(0.19	)	$	(0.64	)	$	(0.41	)	$	(1.91	)
Weighted average common shares outstanding, basic and diluted		22,505,723			20,721,330			22,231,990			20,122,569

Net loss	$	(4,305	)	$	(13,256	)	$	(9,121	)	$	(38,426	)
Other comprehensive loss:
Unrealized gain on available-for-sale securities		—			—			(1	)		1
Comprehensive loss	$	(4,305	)	$	(13,256	)	$	(9,122	)	$	(38,425	)

For the Nine Months Ended September 30, 2019
	Common Stock				Additional						Accumulated other
(amounts in thousands, except share data)	Shares		Amount		paid-in capital			Accumulated Deficit			comprehensive loss			Total
Balance, December 31, 2018		21,799,961	$	218	$	168,535		$	(188,253	)	$	—		$	(19,500	)
Stock-based compensation expense		—		—		2,826			—			—			2,826
Stock option exercise		29,750		—		185			—			—			185
Issuance of restricted stock units, net of shares withheld for income taxes		268,915		3		(865	)		—			—			(862	)
Issuance of common stock for equity facility		34,762		—		301			—			—			301
Change in other comprehensive loss		—		—		—			—			(1	)		(1	)
Net loss		—		—		—			(1,977	)		—			(1,977	)
Balance, March 31, 2019		22,133,388	$	221	$	170,982		$	(190,230	)	$	(1	)	$	(19,028	)
Stock-based compensation expense		—		—		2,359			—			—			2,359
Stock option exercise		206,625		2		907			—			—			909
Issuance of restricted stock units, net of shares withheld for income taxes		74,594		1		(114	)		—			—			(113	)
Change in other comprehensive loss		—		—		—			—			1			1
Net loss		—		—		—			(2,839	)		—			(2,839	)
Balance, June 30, 2019		22,414,607	$	224	$	174,134		$	(193,069	)	$	—		$	(18,711	)
Stock-based compensation expense		—		—		1,741			—			—			1,741
Stock option exercise		186,947		2		1,463			—			—			1,465
Issuance of restricted stock units, net of shares withheld for income taxes		12,559		—		(57	)		—			—			(57	)
Net loss		—		—		—			(4,305	)		—			(4,305	)
Balance, September 30, 2019		22,614,113	$	226	$	177,281		$	(197,374	)	$	—		$	(19,867	)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Basic and Diluted Loss Per Share
Net loss	$	(4,305	)	$	(13,256	)	$	(9,121	)	$	(38,426	)
Weighted average common shares outstanding, basic and diluted		22,505,723			20,721,330			22,231,990			20,122,569
Net loss per share of common stock, basic and diluted	$	(0.19	)	$	(0.64	)	$	(0.41	)	$	(1.91	)

	September 30,				Three months ended June 30,				Six months ended June 30,
	2019		2018		2020		2019		2020		2019
Options and restricted stock units outstanding		5,037,746		5,057,765		4,371,266		3,267,522		2,433,452		3,488,802
Warrants		698,664		838,664		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, 2018:
Assets:
Cash equivalents (See Note 7)
Money market mutual funds	$	24,720	$	—	$	—
Commercial paper		—		2,247		—
U.S. Treasury obligations		2,748		—	$	—
Total cash equivalents	$	27,468	$	2,247	$	—
Liabilities:
Warrants (See Note 14(d))	$	—	$	—	$	1,101
Contingent consideration (See Note 4)		—		—		90,912
	$	—	$	—	$	92,013
At September 30, 2019:
Assets:
Cash equivalents (See Note 7)
Money market mutual funds	$	29,301	$	—	$	—
Total cash equivalents	$	29,301	$	—	$	—

Liabilities:
Warrants (See Note 14(d))	$	—	$	—	$	2,040
Contingent consideration (See Note 4)		—		—		65,671
	$	—	$	—	$	67,711

	Warrants		Contingent Consideration
Balance at December 31, 2018	$	1,101	$	90,912
Payment of contingent consideration		—		(10,000	)
Remeasurement		939		(15,241	)
Total at September 30, 2019	$	2,040	$	65,671

Current portion as of September 30, 2019		—		—
Long-term portion as of September 30, 2019	$	2,040	$	65,671

	September 30, 2019								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	$	29,301	$	—	$	—	$	29,301	$	15,347	$	—	$	—	$	15,347
Total investments	$	29,301	$	—	$	—	$	29,301	$	15,347	$	—	$	—	$	15,347

	Cost		Accumulated Amortization		Net Intangible Assets
Royalties and contract manufacturing relationships	$	15,500	$	11,571	$	3,929
In-process research and development		26,400		—		26,400
Total	$	41,900	$	11,571	$	30,329

	Amortization		Amortization
2019	$	646
2020		2,583
Remainder of 2020			$	1,291
2021		700		700
Total	$	3,929	$	1,991

	September 30,		December 31,
	2019		2018
Clinical trial and related costs	$	100	$	683
Professional and consulting fees		1,012		672
Payroll and related costs		4,410		4,782
Accrued restructuring costs		1,386		—
Property, plant and equipment		—		1,737
Deferred revenue		775		66
Pre-commercialization scale-up costs		—		4,445
Other research and development costs		138		678
Other		735		1,102
	$	8,556	$	14,165

	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

	Lease payments
2019	$	182
2020		604
2021		527
2022		529
2023		156
2024 and thereafter		247
Total lease payments		2,245
Less imputed interest		(805	)
Total operating liabilities	$	1,440

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	180	$	535
Short-term lease cost		12		54
Variable lease cost		8		17
Total lease cost	$	200	$	606

Number of Shares	Exercise Price per Share		Expiration Date	Exercise Price per Share		Expiration Date
350,000	$	8.26	April 2022
348,664	$	6.84	November 2024	$	6.84	November 2024

	September 30,				June 30,
	2019		2018		2020		2019
Range of expected option life	5.5 - 6 years		5.5 - 6 years		5.5 - 6 years		5.5 - 6 years
Expected volatility	78.62% - 81.54%		73.26% - 82.00%		75.34% - 81.09%		79.11% - 81.54%
Risk-free interest rate	1.59 - 2.66%		2.32 - 2.98%		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, 2018		3,775,065		$	7.62	7.4 years
Granted		1,507,229		$	8.14
Exercised		(431,539	)	$	6.08
Expired/forfeited/cancelled		(719,510	)	$	7.86
Balance, September 30, 2019		4,131,245		$	7.93	7.1 years
Vested		2,480,132		$	7.76	6.1 years
Vested and expected to vest		4,131,245		$	7.93	7.1 years

	~~Number of~~ ~~shares~~
~~Balance, December 31, 2018~~		~~1,103,396~~
~~Granted~~		~~757,641~~
~~Vested and settled~~		~~(474,353~~	)
~~Expired/forfeited/cancelled~~		~~(480,183~~	)
~~Balance, September 30, 2019~~		~~906,501~~
~~Expected to vest~~		~~640,301~~

	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

Contract asset, beginning of year	$	5,201
Change in estimate arising from changes in transaction price		2,083
Reclassification of contract asset to receivables, as the result of rights to consideration becoming unconditional		(7,284	)
Contract assets recognized		10,643
Contract asset, end of period	$	10,643

	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	)

	Three Months Ended September 30, 2019
	Point in time		Over time		Total
CDMO	$	24,200	$	1,055	$	25,255
Acute Care		—		—		—
Revenue	$	24,200	$	1,055	$	25,255

	Three Months Ended September 30, 2018
	Point in time		Over time		Total
CDMO	$	18,086	$	197	$	18,283
Acute Care		—		—		—
Revenue	$	18,086	$	197	$	18,283


	Nine Months Ended September 30, 2019
	Point in time		Over time		Total
CDMO	$	79,582	$	1,995	$	81,577
Acute Care		—		—		—
Revenue	$	79,582	$	1,995	$	81,577

	Nine Months Ended September 30, 2018
	Point in time		Over time		Total
CDMO	$	58,876	$	688	$	59,564
Acute Care		—		—		—
Revenue	$	58,876	$	688	$	59,564

	Payments Due by Period (in 000s)
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations (1):
Athyrium Debt	$	126,250	$	—	$	21,000	$	105,250	$	—
Interest on Debt		44,905		15,091		28,202		1,612		—
Purchase Obligations (2):		10,804		5,988		1,769		—		—
Operating Leases (3)		2,245		656		1,055		405		130
Other Long-Term Liabilities:
Other License Commitments and Milestone payments (4), (5)		52,265		40		130		170		225
Alkermes Payments (6)		130,000		—		—		—		—
Employment Agreements (7)		947		947		—		—		—

Total Contractual Obligations	$	367,416	$	22,722	$	52,156	$	107,437	$	355

Exhibit No.	Description	Method of Filing

~~10.1~~5.1	~~Third Amendment to Credit Agreement and Release Agreement, dated as~~Opinion of ~~October 22, 2019, by and between Recro Pharma, Inc. and Athyrium Opportunities III Acquisition LP~~.	~~Filed herewith.~~

~~31.1~~	~~Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer.~~Troutman Pepper Hamilton Sanders LLP	Filed herewith.

~~31.2~~10.1	~~Rule 13a-14(a)/15d-14(a) certification of Principal Financial~~Note dated May 12, 2020, between Recro Pharma, Inc. and ~~Accounting Officer.~~PNC Bank, National Association.	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.

10.2	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.

	RECRO PHARMA, INC.

Date: ~~November 8, 2019~~August 10, 2020	By:	/s/ Gerri A. Henwood
		Gerri A. Henwood
		President and Chief Executive Officer
		(Principal Executive Officer)



Date: ~~November 8, 2019~~August 10, 2020	By:	/s/ Ryan D. Lake
		Ryan D. Lake
		Chief Financial Officer
		(Principal Financial and Accounting Officer)