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 12, 2019,~~August 6, 2020, there were ~~100~~18,374,604 shares of common stock, par value $0.01 per share, outstanding.

(amounts in thousands)	September 30, 2019			December 31, 2018
(amounts in thousands, except share and per share data)							June 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	—		$	—		$	39,410		$	17,740
Accounts receivable, net								382			—
Inventory								753			—
Prepaid expenses and other current assets		1,658			2,514			2,122			2,395
Total current assets		1,658			2,514			42,667			20,135
Property, plant and equipment, net		4,968			3,982			4,610			4,821
Right-of-use asset		832			—			542			730
Intangible assets		26,400			26,400
Intangible assets, net								25,541			26,400
Goodwill		2,127			2,127			2,127			2,127
Total assets	$	35,985		$	35,023		$	75,487		$	54,213
Liabilities and Parent Company Net Investment
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	361		$	2,653		$	2,190		$	271
Accrued expenses and other current liabilities		4,500			9,773			3,972			3,532
Current operating lease liability		356			—
Current portion of long-term debt, net								598			—
Current portion of operating lease liability								258			318
Current portion of contingent consideration		—			10,354			13,135			3,592
Total current liabilities		5,217			22,780			20,153			7,713
Long-term debt, net								8,097			—
Long-term operating lease liability		520			—			329			455
Other long-term liabilities		—			32
Long-term portion of warrant liability								21,410			—
Long-term portion of contingent consideration		65,671			80,558			84,902			62,766
Total liabilities		71,408			103,370			134,891			70,934
Commitments and contingencies (Note 10)
Parent company net investment		(35,423	)		(68,347	)
Total liabilities and parent company net investment	$	35,985		$	35,023
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock, $0.01 par value. Authorized, 10,000,000 shares; NaN issued and outstanding								—			—
Common stock, $0.01 par value. Authorized, 100,000,000 shares; issued and outstanding, 18,374,604 shares at June 30, 2020 and 9,350,709 shares at December 31, 2019								184			94
Additional paid-in capital								47,375			19,405
Accumulated deficit								(106,963	)		(36,220	)
Total shareholders’ equity (deficit)								(59,404	)		(16,721	)
Total liabilities and shareholders’ equity							$	75,487		$	54,213

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
(amounts in thousands)	2019			2018			2019			2018
(amounts in thousands, except share and per share data)													2020			2019			2020			2019
Revenue, net													$	349		$	—		$	349		$	—

Operating expenses:
Cost of sales														650			—			650			—
Research and development	$	1,845		$	9,838		$	18,578		$	25,664			1,350			7,180			4,420			16,734
General and administrative		4,524			5,107			21,809			24,170
Selling, general and administrative														11,217			7,449			19,263			17,284
Amortization of intangible assets														644			—			859			—
Change in warrant valuation														12,667			—			14,045			—
Change in contingent consideration valuation		3,909			4,115			(15,241	)		7,030			4,053			(4,059	)		31,679			(19,150	)
Total operating expenses		10,278			19,060			25,146			56,864			30,581			10,570			70,916			14,868
Operating loss		(10,278	)		(19,060	)		(25,146	)		(56,864	)		(30,232	)		(10,570	)		(70,567	)		(14,868	)
Other income (expense):
Other income (expense)		(37	)		(32	)		(86	)		(122	)
Other expense:
Other expense														(213	)		(12	)		(176	)		(49	)
Net loss	$	(10,315	)	$	(19,092	)	$	(25,232	)	$	(56,986	)	$	(30,445	)	$	(10,582	)	$	(70,743	)	$	(14,917	)

Per share information:
Net loss per share of common stock, basic and diluted													$	(1.72	)	$	(1.13	)	$	(5.11	)	$	(1.60	)
Weighted average common shares outstanding, basic and diluted														17,691,700			9,350,709			13,846,464			9,350,709

Consolidated and Combined Statements of ~~Parent Company Net Investment~~Shareholders’ Equity

For the Nine Months Ended September 30, 2019

Parent Company

(amounts in thousands)

Net Investment

Balance, December 31, 2018

$
(68,347
)
Net loss

(4,335
)
Net transfer from parent

19,823

Parent allocation - share-based compensation

1,527

Balance, March 31, 2019

$
(51,332
)
Net loss

(10,582
)
Net transfer from parent

31,052

Parent allocation - share-based compensation

1,675

Balance, June 30, 2019

$
(29,187
)
Net loss

(10,315
)
Net transfer from parent

3,027

Parent allocation - share-based compensation

1,052

Balance, September 30, 2019

$
(35,423
)

For the Six Months Ended June 30, 2020
	Common Stock				Additional
(amounts in thousands, except share data)	Shares		Amount		paid-in capital			Accumulated Deficit			Total
Balance, December 31, 2019		9,350,709	$	94	$	19,405		$	(36,220	)	$	(16,721	)
Recro Pharma allocation - stock-based compensation		—		—		456			—			456
Stock-based compensation expense		—		—		2,177			—			2,177
Issuance of common stock and warrants for public offering, net		7,692,308		77		14,899			—			14,976
Sale of common stock under equity facility, net of transaction costs		441,967		4		3,608			—			3,612
Issuance of common stock upon Separation		45,874		1		—			—			1
Issuance of restricted stock units, net of shares withheld for income taxes		39,130		—		(95	)		—			(95	)
Net loss		—		—		—			(40,298	)		(40,298	)
Balance, March 31, 2020		17,569,988	$	176	$	40,450		$	(76,518	)	$	(35,892	)
Recro Pharma allocation - stock-based compensation		—		—		445			—			445
Stock-based compensation expense		—		—		1,864			—			1,864
Stock issuance costs		—		—		(3	)		—			(3	)
Warrants issued in connection with financing facility		—		—		1,423			—			1,423
Exercise of warrants		804,616		8		3,196			—			3,204
Net loss		—		—		—			(30,445	)		(30,445	)
Balance, June 30, 2020		18,374,604	$	184	$	47,375		$	(106,963	)	$	(59,404	)

For the Nine Months Ended September 30, 2018
For the Six Months Ended June 30, 2019
	Parent Company			Parent Company
(amounts in thousands)	Net Investment
Balance, December 31, 2017	$	(62,457	)
(amounts in thousands, except share data)				Net Investment
Balance, December 31, 2018				$	(68,347	)
Net loss		(17,457	)		(4,335	)
Net transfer from parent		18,609			19,823
Parent allocation - share-based compensation		1,006			1,527
Balance, March 31, 2018	$	(60,299	)
Balance, March 31, 2019				$	(51,332	)
Net loss		(20,437	)		(10,582	)
Net transfer from parent		14,514			31,052
Parent allocation - share-based compensation		1,096			1,675
Balance, June 30, 2018	$	(65,126	)
Net loss		(19,092	)
Net transfer from parent		15,925
Parent allocation - share-based compensation		1,268
Balance, September 30, 2018	$	(67,025	)
Balance, June 30, 2019				$	(29,187	)

	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
(amounts in thousands)	2019			2018			2020			2019
Cash flows from operating activities:
Net loss	$	(25,232	)	$	(56,986	)	$	(70,743	)	$	(14,917	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		4,254			3,370			4,942			3,202
Non-cash interest expense								76			—
Depreciation expense		369			273			211			246
Amortization								859			—
Change in warrant valuation								14,045			—
Change in contingent consideration valuation		(15,241	)		7,030			31,679			(19,150	)
Changes in operating assets and liabilities:
Inventory								(753	)		—
Prepaid expenses and other current assets		857			770			273			(1,074	)
Right-of-use asset		342			—			188			231
Accounts receivable								(382	)		—
Accounts payable, accrued expenses and other liabilities		(7,109	)		(1,305	)		2,170			(7,464	)
Operating lease liability		(344	)		—			(186	)		(232	)
Net cash used in operating activities		(42,104	)		(46,848	)		(17,621	)		(39,158	)
Cash flows from investing activities:
Purchase of property and equipment		(1,633	)		(2,118	)		—			(1,635	)
Acquisition of license agreement		(165	)		(82	)		—			(82	)
Net cash used in investing activities		(1,798	)		(2,200	)		—			(1,717	)
Cash flows from financing activities:
Proceeds from Parent Company Investment		53,902			49,048
Proceeds from issuance of long-term debt, net of transaction costs								10,231			—
Proceeds from public offering, net of transaction costs								23,085			—
Proceeds from equity facility, net of transaction costs								3,612			—
Proceeds from warrant exercises								2,458			—
Investment from parent company								—			50,875
Payments of withholdings on shares withheld for income taxes								(95	)		—
Payment of contingent consideration		(10,000	)		—			—			(10,000	)
Net cash provided by financing activities		43,902			49,048			39,291			40,875
Net decrease in cash and cash equivalents		—			—
Net increase in cash and cash equivalents								21,670			—
Cash and cash equivalents, beginning of period		—			—			17,740			—
Cash and cash equivalents, end of period	$	—		$	—		$	39,410		$	—
Supplemental disclosure of cash flow information:
Purchase of property, plant and equipment included in accrued expenses and accounts payable	$	—		$	449
Fair value of warrants issued in connection with public offering							$	8,111		$	—
Fair value of warrants issued in connection with financing facility							$	1,423		$	—
Deferred financing costs included in accounts payable and accrued expenses							$	189		$	—

Baudax Bio, Inc. ~~(Baudax Bio~~(“Baudax Bio” or the ~~Company) represents the Acute Care Business of Recro Pharma, Inc. (Recro) and will be~~“Company”) is a pharmaceutical company primarily focused on developing and commercializing innovative products for acute care ~~settings and~~settings. Baudax Bio believes it can bring valuable therapeutic options for patients, prescribers and payers, such as its lead product, ~~candidate, intravenous (IV) meloxicam,~~ANJESO^® (meloxicam) injection, to the acute care ~~markets following~~markets.

On February 20, 2020, the ~~spin-off~~Company announced that the U.S. Food and Drug Administration (“FDA”) approved the New Drug Application (“NDA”) for ANJESO, which is indicated for the management of moderate to severe pain, alone or in combination with other non-NSAID analgesics. On June 15, 2020, Baudax Bio ~~by Recro.~~ announced the full commercial launch of ANJESO and that the Centers for Medicare and Medicaid Services (“CMS”) approved transitional pass-through status and established a new reimbursement C-code for ANJESO.

On August 6, 2020, the company announced CMS established a new permanent J-code for ANJESO facilitating reimbursement in the hospital outpatient, ambulatory surgery center and physician office settings of care. The code, J1738 (Injection, meloxicam, 1 mg), will take effect on October 1, 2020 and it is expected to replace the previously issued C-code.

Pursuant to the Separation Agreement ~~to be entered into~~ between Recro Pharma, Inc. (“Recro”) and Baudax Bio, Recro ~~will transfer~~transferred the assets, liabilities, and operations of its Acute Care business to the Company (the “Separation”) and, on November 21, 2019, the distribution date, each Recro shareholder ~~will receive one~~received 1 share of the Company’s common stock for every two and one-half shares of Recro common stock held of record at the close of business on November 15, 2019, the record date for the distribution (the ~~Distribution)~~“Distribution”). Additionally, Recro contributed $19,000 of cash to Baudax Bio in connection with the Separation. Following the Distribution and Separation, Baudax Bio ~~will operate~~operates as a separate, independent company. References to “the Company” represent Baudax Bio or the Acute Care Business of Recro for periods prior to the Separation.

For all periods prior to the Separation, the accompanying ~~unaudited~~ combined financial statements represent the Acute Care Business of Recro and are derived from Recro’s consolidated financial statements and accounting records and 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 Recro’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and the Company’s Registration Statement on Form 10, as amended and filed with the Securities and Exchange Commission.statements. The ~~Recro~~ Acute Care Business of Recro did not consist of a separate, standalone group of legal entities for public company reporting and certain other corporate functions in the periods ~~presented~~prior to the Separation and, accordingly, allocations were ~~required.~~required through the Distribution date. These combined financial statements, prior to the Separation, reflect the Company’s historical financial position, results of operations and cash flows as the business was operated as part of Recro prior to the ~~planned spin-off,~~Separation, in conformity with U.S. generally accepted accounting principles ~~(U.S. GAAP)~~(“U.S. GAAP”). See Note 15 for a description of the agreements entered into between Recro and Baudax Bio following the Separation.

~~The Company has determined that it operates in a single segment involved in~~Prior to the ~~development of innovative products for hospital and other acute care settings.~~

~~The~~Separation, the combined financial statements include certain assets and liabilities that ~~have~~had historically been held at the Recro corporate level, but which ~~are~~were specifically identifiable or allocable to the Company. All intracompany transactions and accounts have been eliminated. All intercompany transactions between the Company and Recro are considered to be effectively settled in the combined financial statements at the time the transaction iswas recorded. The total net effect of the settlement of these intercompany transactions iswas reflected in the combined statements of cash flows as a financing activity and in the combined balance sheet as parent company net investment. The Company ~~does~~did not record interest expense on amounts funded by Recro. Long-term debt held at the Recro corporate level ~~will be~~was retained by Recro and ~~will~~was not be assumed by the Company.

Historically, certain corporate level activity costs have been incurred and reported within the legal entity that includes the Recro Acute Care Business. ~~A portion of these costs have been allocated out and the~~The Company’s combined financial statements, prior to the Separation, include ~~a remaining~~an allocation of these expenses related to these certain Recro corporate functions, including senior management, legal, human resources, finance, and information ~~technology.~~technology through the distribution date. These expenses are included in selling, general and administrative expense and have been allocated based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of expenses, headcount, or other measures. The Company considers the expense allocation methodology and results to be reasonable for all periods presented prior to the Separation, however, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, publicly-traded company for the periods ~~presented.~~presented prior to the Separation. For the three and ~~nine~~six months ended ~~September~~June 30, 2019, a total of ~~$1,516~~ $1,569 and ~~$6,467,~~$4,951, respectively, of these costs have been allocated to Recro’s contract manufacturing and development segment (the ~~CDMO business)~~“CDMO business”). ~~For the three and nine months ended September 30, 2018, a total of $1,151 and $3,760, respectively, of costs have been allocated to the CDMO business.~~

The income tax amounts in ~~these~~the combined financial statements for periods prior to the Separation have been calculated based on a separate return methodology and are presented as if the Company was a standalone taxpayer in each of its tax ~~jurisdictions.~~jurisdictions prior to

the Separation. Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented.

Upon the Separation, the Company adopted its own share‑based compensation plan. Recro maintains its stock-based compensation plan at a corporate level. ~~The~~Certain of the Company’s employees ~~participate~~participated in ~~those programs~~Recro’s stock-based compensation plans prior to the Separation and a portion of the cost of those plans is included in the Company’s combined financial statements using an allocation methodology similar to the methodology used to allocate the cash compensation of the related employees.

The parent company net investment balances in these combined financial statements represents the accumulated deficit of the Recro Acute Care Business and the net funding provided to the Company, which are reflected as net transfers from parent in the ~~combined~~Combined Statements of Parent Company Net Investment prior to the Separation.

Subsequent to the Separation, the accompanying consolidated financial statements are presented on a consolidated basis and include all of ~~parent company net investment.~~the accounts and operations of Baudax Bio and its subsidiaries. The consolidated financial statements reflect the financial position, results of operations and cash flows of Baudax Bio in accordance with U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.

~~In April 2019, after receipt of~~The Company has determined that it operates in a Complete Response Letter (CRL), received from the U.S. Food and Drug Administration (FDA), regarding the New Drug Application (NDA), for IV meloxicam, the Company announced it had implemented a strategic

~~restructuring initiative, and corresponding reduction~~single segment involved in the ~~Acute Care segment workforce, aimed at reducing operating expenses, while maintaining key personnel needed to partner~~commercialization and ~~obtain FDA approval~~development of ~~IV meloxicam.~~

~~On October 31, 2019, the Company announced that it had received a written decision from the FDA granting its appeal of the CRL relating to the NDA seeking approval~~innovative products for ~~IV meloxicam. The FDA granted the Company’s appeal~~hospital 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.other acute care settings.

The Company has incurred losses from operations since inception and has an accumulated deficit of $106,963 as of June 30, 2020.

The Company has a history of operating losses and negative cash flows while operating as part of Recro and, accordingly, was dependent upon Recro for its capital funding and liquidity needs. Recro ~~will contribute~~contributed $19,000 to the Company immediately prior to the ~~Distribution, which management believes is sufficient to maintain operations of the Company for at least one year from the date of the spin-off.~~Distribution. Recro has not committed any additional funding to the Company beyond the $19,000 ~~to be~~that was contributed as of the Distribution date and the Company ~~may~~will be required to raise additional funds needed to operate as a standalone ~~entity beyond one year from the Distribution date.~~entity. The Company’s ability to generate cash inflows is highly dependent on the ~~approval and~~ commercialization of ~~IV meloxicam~~ANJESO and there can be no assurance that ~~such approval will be obtained or that IV meloxicam~~ANJESO can be successfully commercialized. In addition, development activities, clinical and pre-clinical testing and, if approved, commercialization of the Company’s product candidates, ~~if approved,~~ will require significant additional funding. The Company could delay clinical trial activity or reduce funding of specific programs in order to reduce cash needs. Insufficient funds may cause the Company to delay, reduce the scope of or eliminate one or more of its development, commercialization, or expansion activities. The Company may raise such funds, if available, through debt financings, bank or other loans, through strategic research and development, licensing (including out-licensing) and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and failure to raise capital when needed could materially adversely impact the Company’s growth plans and its financial condition or results of operations. Additional debt or equity financing, if available, may be dilutive to ~~future~~ 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~~Management believes that cash and cash equivalents as of June 30, 2020 are sufficient to meet the Company’s obligations as they become due through at least August 11, 2021, however, the Company ~~may~~would be required to ~~wind down operations~~significantly reduce expenses, thereby adjusting the scale of the commercial launch of ANJESO and/or consider out-licensing if ~~IV meloxicam is~~additional funds are not ~~approved or cannot be successfully commercialized.~~available during such period.

The accompanying unaudited consolidated and combined financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. GAAP, for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and notes required by U.S. GAAP for complete annual financial statements. In the opinion of management, the accompanying consolidated and combined 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 interimconsolidated and combined 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~~2019 included in the Company’s Form ~~10.~~10-K.

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. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to seven years for furniture and office equipment; six to ten years for manufacturing equipment; 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 ~~(FASB)~~(“FASB”), Accounting Standards Codification ~~(ASC)~~(“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 and contingent consideration. 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 ~~(IPR&D)~~(“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 and Combined Statements of Operations on the acquisition date.

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the ~~Company (see Note 4).~~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. The Company has ~~one~~1 reporting unit.

~~The~~As of June 30, 2020, the Company’s intangible asset is classified as an asset resulting from R&D activities. Historically, prior to receiving FDA approval, the intangible asset was classified as an IPR&D asset. Intangible assets related 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 and Combined Statements of Operations. 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~~Company determined the useful life of its asset resulting from R&D activities to be approximately 10 years, which is based on the remaining patent life and will be amortized on a ~~one-step test, which compares the fair value of the intangible asset~~straight-line basis. The Company is required to ~~its carrying value. If~~review the carrying value ~~exceeds its fair value,~~of assets resulting from R&D activities 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.~~asset or asset group may not be 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 unit, anticipated changes in industry and market conditions, ~~including recent tax reform,~~ intellectual property protection, and competitive environments. Due to the ~~receipt of the CRL~~global market disruption from COVID-19 in March ~~2019,~~2020, an indicator of potential impairment, the Company performed an impairment test as of March 31, ~~2019,~~2020, which indicated that there was no0 impairment toof goodwill or ~~indefinite-lived~~ intangible ~~assets.~~assets resulting from R&D activities. There have been ~~no additional~~0 further triggering events as of ~~September~~June 30, ~~2019.~~2020. The Company will perform its annual goodwill impairment test as of November 30, ~~2019.~~2020.

Subsequent to regulatory approval for ANJESO from the FDA, the Company began selling ANJESO in the U.S. through a single third-party logistics provider (“3PL”) which takes title to and control of the goods. The Company recognizes revenue from ANJESO product sales at the point the title to the product is transferred to the customer and the customer obtains control of the product. The transaction price that is recognized as revenue for products includes an estimate of variable consideration for reserves, which result from discounts, returns, chargebacks, rebates and other allowances that are offered within contracts between us and our end-customers, wholesalers, group purchasing organizations and other indirect customers. Our payment terms are generally between thirty to ninety days.

The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available. These reserves reflect the Company’s best estimate of the amount of consideration to which the Company is entitled based on the terms of the contracts. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

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

The Company’s accounts receivable balance as of June 30, 2020 is compromised solely from transactions with the Company’s 3PL.

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.

Share-based compensation included in the consolidated financial statements following the Separation is based upon the ~~Recro share-based compensation plan.~~Baudax Bio, Inc. 2019 Equity Incentive Plan (the “2019 Plan”). The ~~Recro~~ plan includes grants of stock options, time-based vesting restricted stock units ~~(RSUs)~~(“RSUs”) and performance-based ~~vesting~~ RSUs. These carve out financial statements reflect share-based compensation related to stock options and RSUs issued to Baudax Bio employees as well as an allocation of a portion of share-based compensation issued to corporate employees and members of the Board of Directors.

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 exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses an average of its peer group’s volatility 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.

The Recro Pharma, Inc. 2018 Amended and Restated Equity Incentive Plan (the “Recro Plan”) includes stock options, time-based vesting RSUs and performance-based vesting RSUs granted to the Company’s employees prior to the Separation. The consolidated and combined financial statements reflect share-based compensation expense based on an allocation of a portion of Recro share-based compensation issued to the Company’s employees based on where their services are performed.

Recro 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. Forfeitures are accounted for 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. Recro uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as Recro has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, Recro 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.

The income tax amounts in these consolidated and combined financial statements for periods prior to the Separation have been calculated based on a separate return methodology and presented as if the Company was a standalone taxpayer in each of its tax jurisdictions. ~~Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented.~~ 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. Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented.

Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the consolidated and combined 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 loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average common shares outstanding during the period. For the three and six months ended June 30, 2020 and 2019, the outstanding warrants, common stock options and unvested restricted stock units have been excluded from 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 stock equivalents if the inclusion of such common stock equivalents would be dilutive.

Prior to the distribution date of November 21, 2019, there were 0 Baudax Bio shares outstanding, as such, the shares outstanding immediately after the Distribution were used to calculate the net loss per share for all pre-Separation periods presented.

The following table sets forth the computation of 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 June 30, 2020 as they would be anti-dilutive:

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

~~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 combined financial statements.

In February 2016, the FASB issued ~~ASU~~Accounting Standards Update (“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)~~(“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 $1,174 and an operating lease liability of $1,219. For additional information regarding how the Company is accounting for leases under the new guidance, refer toNote ~~10 (d).~~8.

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 Company ~~is currently evaluating~~adopted this guidance as of January 1, 2020. The adoption did not have a material impact to the ~~potential impact on~~Company or its 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 ~~combined~~consolidated financial statements.

On April 10, 2015, Recro completed the acquisition of a manufacturing facility in Gainesville, Georgia and the licensing and commercialization rights to IV meloxicam (the Gainesville Transaction). The consideration paid in connection with the Gainesville Transaction consisted of $50,000 cash at closing, a $4,000 working capital adjustment and a seven-year warrant to purchase 350,000 shares of Recro’s common stock at an exercise price of $19.46 per share. In addition, the Company may be required to pay up to an additional $125,000 in milestone payments including $45,000 upon regulatory approval of IV meloxicam, as well as net sales milestones related to IV meloxicam and a 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). 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).

The assets acquired, including goodwill, and liabilities assumed in the Gainesville Transaction were allocated to Recro’s reporting units as of the date of the acquisition. The accompanying combined financial statements reflect the IPR&D asset of $26,400 and goodwill of $2,127 that were recorded by Baudax Bio related to the Gainesville transaction. The liability for the contingent consideration will be assumed by Baudax Bio following the spin-off and is included in the Company’s Combined Balance Sheets.

~~The warrant associated with the transaction remains on Recro’s Consolidated Balance Sheets with no allocation to the Company as it is a warrant to purchase Recro common stock.~~

In December 2018, Recro entered into a second amendment to the purchase and sale agreement among Alkermes Pharma Ireland Limited, Alkermes US Holdings (together with Alkermes Pharma Ireland Limited, Alkermes), Daravita Limited, Recro and Recro Gainesville LLC (Recro Gainesville) 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, Recro 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 value 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 component is estimated by applying a risk-adjusted discount rate to the probability-adjusted contingent payments and the expected 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 Combined Statements of Operations 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 and contingent consideration. 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:

Liabilities:

Contingent consideration (See Note 4)

$
—

$
—

$
90,912

$
—

$
—

$
90,912

At September 30, 2019:

Liabilities:

Contingent consideration (See Note 4)

$
—

$
—

$
65,671

$
—

$
—

$
65,671

	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	$	36,109	$	—	$	—
Total cash equivalents	$	36,109	$	—	$	—
Liabilities:
Warrants (See Note 13(c))	$	—	$	—	$	21,410
Contingent consideration (See Note 12(b))		—		—		98,037
	$	—	$	—	$	119,447

At December 31, 2019:
Assets:
Cash equivalents (See Note 5)
Money market mutual funds	$	16,514	$	—	$	—
Total cash equivalents	$	16,514	$	—	$	—
Liabilities:
Contingent consideration (See Note 12(b))	$	—	$	—	$	66,358
	$	—	$	—	$	66,358

The Company developed certain of 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~~liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

Contingent
Consideration

Balance at December 31, 2018

$
90,912

Payment of contingent consideration

(10,000
)
Remeasurement

(15,241
)
Total at September 30, 2019

$
65,671

Current portion as of September 30, 2019

—

Long-term portion as of September 30, 2019

$
65,671

	Warrants			Contingent Consideration
Balance at December 31, 2019	$	—		$	66,358
Additions		8,111			—
Exercise of warrants		(746	)		—
Remeasurement		14,045			31,679
Total at June 30, 2020	$	21,410		$	98,037

Current portion as of June 30, 2020	$	-		$	13,135
Long-term portion as of June 30, 2020		21,410			84,902

The ~~Company does not expect a~~current portion of the contingent consideration represents the estimated probability adjusted fair value that is expected to become payable within one year as of ~~September~~June 30, ~~2019 (see Note 4 for additional information).~~ 2020.

The ~~Company plans~~fair value 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 ~~continue~~be issued are adjusted in the period during which such events and circumstances occur. The fair value of the second contingent consideration component is estimated by applying a risk-adjusted discount rate to ~~reevaluate this classification~~the probability-adjusted contingent payments and ~~measurement~~the expected payment 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. As of June 30, 2020, the fair value calculations used discount rates in the range of 15.41% to 33.90%, with a weighted average of 24.76%.

These fair values are based on significant inputs not observable in the market, which are referred to in the guidance as ~~it progresses~~Level 3 inputs. The contingent consideration components are classified as liabilities and are subject to the recognition of subsequent changes in fair value 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 ~~Combined~~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 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 debt approximated fair value at June 30, 2020 due to the fact that the debt arrangements reflect market terms from recent transactions.

Cash equivalents as of June 30, 2020 include money market funds. The following is a summary of cash equivalents:

Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. The Company expenses costs related to inventory within the Research and development line in the Consolidated and Combined Statements of Operations 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 material, sub-assemblies and finished goods levels to reflect obsolescence or impaired balances.

	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Building and improvements	$	196	$	196	$	196	$	196
Furniture, office and computer equipment		1,665		1,688		934		902
Manufacturing equipment		101		101
Manufacturing and laboratory equipment						717		717
Construction in progress		3,814		2,469		3,814		3,846
		5,776		4,454		5,661		5,661
Less: accumulated depreciation and amortization		808		472
Less: accumulated depreciation						1,051		840
Property, plant and equipment, net	$	4,968	$	3,982	$	4,610	$	4,821

Depreciation expense for the three and ~~nine~~six months ended ~~September~~June 30, 2020 was $106 and $211, respectively. Depreciation expense for the three and six months ended June 30, 2019 was $123 and ~~$369, respectively. Depreciation expense for three and nine months ended September 30, 2018 was $161 and $273,~~$246, respectively.

~~The following represents the balance of the intangible assets at September 30, 2019 and December 31, 2018:~~

~~There was no amortization expense for the nine months ended September 30, 2019 or the nine months ended September 30, 2018.~~

After the receipt of the second CRL, the Company incurred approximately $7,200 in restructuring costs (all which was incurred in the first half of 2019), of which $1,386 remains accrued and unpaid as of September 30, 2019.

Recro 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. Recro 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.

Recro 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. Recro 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.

Recro is party to a license agreement with Cornell for the exclusive license of the NMBA Related Compounds. Under the terms of the agreement, Recro 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.

~~These obligations will be transferred to the Company in connection with the spin-off.~~

~~Pursuant to the purchase and sale agreement and subsequent amendment governing the Gainesville Transaction, Recro 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 IV 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.

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

~~These obligations will be transferred to the Company in connection with the spin-off.~~

Recro and the Company are involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. Except as disclosed below, Recro and the Company 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 was filed against Recro 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 Recro 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, Recro filed a motion to dismiss the amended complaint in its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, Recro filed its response and briefing was completed on the motion to dismiss. On June 26, 2019, the judge heard oral arguments on the motion to dismiss. The judge asked the plaintiffs to file a supplemental brief by August 30, 2019, and Recro will have 30 days to submit a reply brief. This matter will be transferred to the Company in connection with the spin-off. Recro and the Company believe that the lawsuit is without merit and intends 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 Recro or the Company.

The Company is a party to various operating leases in Malvern, Pennsylvania, and Dublin, Ireland for office space and office equipment.

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~~the current leased ~~facilities are~~facility is classified as an operating ~~leases~~lease with a remaining lease ~~terms between 1 and~~term of 3 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 ~~Combined~~Consolidated Balance Sheets. Lease expense is recognized on a straight-line basis over the lease term.

As of ~~September~~June 30, ~~2019,~~2020, undiscounted future lease payments for non-cancellable operating leases are as follows:

	Lease payments			Lease payments
2019	$	121
2020		401
Remainder of 2020				$	254
2021		362			367
2022		373			373
Total lease payments		1,257			994
Less imputed interest		(381	)		(407	)
Total operating liabilities	$	876
Total operating lease liability				$	587

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,~~2020, the weighted average remaining lease term was 3 years and the weighted average discount rate was 16%.

Amortization expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020 was $644 and $859, respectively. There was 0 amortization expense for the three and six months ended June 30, 2019.

The following table summarizes the components of the carrying value of debt as of June 30, 2020:

On April 13, 2020, the Company applied to PNC Bank, National Association (the “Lender”) under the Small Business Administration (the “SBA”) Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) for a loan of $1,537 (the “Loan”). On May 8, 2020, the Company entered into a promissory note with respect to the Loan in favor of the Lender (the “PPP Note”). The Company plans to use the proceeds of the Loan for covered payroll costs, rent, utilities, mortgage and interest payments in accordance with the relevant terms and conditions of the CARES Act.

The PPP Note has a two-year term, matures on May 8, 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 Company did not provide any collateral or guarantees for the Loan, nor did the Company pay any facility charge to obtain the Loan. The PPP Note provides for customary events of default, including, among others, those relating to 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.

The Loan may be partially or fully forgiven if the Company complies with the provisions of the CARES Act including the use of Loan proceeds for payroll costs, rent, utilities and other expenses, and at least 60% of the Loan proceeds must be used for payroll costs as defined by the CARES Act. Any forgiveness of the Loan will be subject to approval by the SBA and the Lender will require the Company to apply for such treatment in the future. According to the terms of the Credit Agreement, as defined below, if any amount less than $1,100 is not forgiven, the Company will be required to promptly repay the unforgiven amount of the PPP Note that is less than $1,100.

On May 29, 2020 (the “Credit Agreement Closing Date”), the Company entered into a $50,000 Credit Agreement (the “Credit Agreement”) by and among the Company, Wilmington Trust, National Association, in its capacity as the agent (“Agent”), and MAM Eagle Lender, LLC, as the lender (together with any other lenders under the Credit Agreement from time to time, collectively, the “Lenders”). The Credit Agreement provides for a term loan in the original principal amount of $10,000 (the “Tranche One Loans”) funded on the Credit Agreement Closing Date. Pursuant to the terms of the Credit Agreement, there are four additional tranches of term loans, in an aggregate original principal amount of $40,000 (the “Tranche Two Loans”, “Tranche Three Loans”, “Tranche Four Loans” and the “Tranche Five Loans”, and collectively with the Tranche One Loans, the “Term Loans” and each a “Term Loan”).

The Tranche Two Loans in an amount not to exceed $5,000 may be drawn upon on or before August 29, 2021 provided that the Company generates at least $5,000 in net revenue in the three consecutive calendar months immediately preceding the date such Tranche Two Loans are funded. The Tranche Two Loans may also be drawn on a subsequent date with the satisfaction of the conditions for the Tranche Three Loans, Tranche Four Loans, or Tranche Five Loans, as applicable, provided that the Tranche Two Loans may not be drawn more than once. The Tranche Three Loans in an amount not to exceed $5,000 may be drawn upon on or before November 29, 2021 provided that the Company generates at least $10,000 in net revenue in the three consecutive calendar months immediately preceding such date such Tranche Three Loans are funded. The Tranche Three Loans may also be drawn on a subsequent date with the satisfaction of the conditions for the Tranche Four Loans or Tranche Five Loans, as applicable, provided that the Tranche Three Loans may not be drawn more than once. The Tranche Four Loans in an amount not to exceed $10,000 may be drawn upon, subject to the consent of the Lenders, on or before August 29, 2022 provided that the Company generates at least $20,000 in net revenue in the three consecutive calendar months immediately preceding the date such Tranche Four Loans are funded. The Tranche Four Loans may also be drawn on a subsequent date with the satisfaction of the conditions for the Tranche Five Loans provided that the Tranche Four Loans may not be drawn more than once. The Tranche Five Loans in an amount not to exceed $20,000 may be drawn upon, subject

to the consent of the Lenders, on or before March 1, 2023 provided that the Company generates at least $100,000 in net revenue in the twelve consecutive calendar months immediately preceding the date such Tranche Five Loans are funded.

The Term Loans will bear interest at a per annum rate equal to 13.5%, with monthly, interest-only payments until the date that is three years prior to the Maturity Date (as defined below) (the “Amortization Date”). The maturity date of the Credit Agreement is May 29, 2025, the five-year anniversary of the Credit Agreement Closing Date, but may be extended to May 29, 2026 provided that the EBITDA (as defined in the Credit Agreement) for the consecutive twelve month period ending on or immediately prior to May 29, 2022 is greater than $10,000 (such date, “Maturity Date”). On the Amortization Date, the Company will pay amortization payments (in addition to the interest stated above) each month in equal month installments of principal based on an amortization schedule of thirty-six months. Any unpaid principal amount of the Term Loans is due and payable on the Maturity Date.

Subject to certain exceptions, the Company is required to make mandatory prepayments of the Term Loans, with the proceeds of asset sales, extraordinary receipts, debt issuances and specified other events. The Company may make voluntary prepayments in whole or in part, subject to a prepayment premium equal to (i) with respect to any prepayment paid on or prior to the third anniversary of the Tranche One Loan (or, in the case of each of the Tranche Two Loans, Tranche Three Loans, Tranche Four Loans or Tranche Five Loans, the third anniversary of the date each such loan is funded), the remaining scheduled payments of interest that would have accrued on the Term Loans being prepaid, repaid or accelerated, but that remained unpaid, in no event to be less than 5.0% of the principal amount of the Term Loan being prepaid, and (ii) with respect to any prepayment paid after the third but prior to the fourth anniversary of the Tranche One Loan (or, in the case of each of the Tranche Two Loans, Tranche Three Loans, Tranche Four Loans or Tranche Five Loans, the fourth anniversary of the date each such loan is funded), 3.0% of the principal amount of the Term Loan being prepaid. In addition, an exit fee will be due and payable upon prepayment or repayment of the Term Loans (including, without limitation, on the Maturity Date) equal to the lesser of 2.5% of the sum of the aggregate principal amount of the Term Loans advanced or approved to be advanced by the Lenders and $700; provided that such exit fee will be equal to $700 if fee is paid in conjunction with a change of control that occurs in connection with the payoff or within 6 months thereof. As of June 30, 2020, the Company will have to pay a 2.5% exit fee, which is $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.

The Credit Agreement contains certain usual and customary affirmative and negative covenants, as well as financial covenants including a minimum liquidity requirement of $5,000 at all times and minimum EBITDA levels that the Company may need to satisfy on a quarterly basis beginning in September 2021, subject to borrowing levels. As of June 30, 2020, the Company was in compliance with the required covenants.

In connection with the Credit Agreement, the Company issued a warrant to MAM Eagle Lender, LLC to purchase 527,100 shares of the Company’s common stock, at an exercise price equal to $4.59 per share. See Note 13(c) for additional information. The warrant is exercisable through May 29, 2027.

In addition, the Company recorded debt issuance costs for the Credit Agreement of $1,496 and the fair value of warrants of $1,423, which are being amortized using the effective interest method over the term of Credit Agreement. Debt issuance cost amortization is included in interest expense within the Consolidated and Combined Statements of Operations. As of June 30, 2020, the effective interest rate was 23.11%, which takes into consideration the non-cash amortization of the debt issuance costs and accretion of the exit fee. The Company recorded debt issuance cost amortization related to the Credit Agreement of $70 for the three and six months ended June 30, 2020.

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 ($23,017 as of June 30, 2020) 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 June 30, 2020, 0 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 ($13,699 as of June 30, 2020) 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 June 30, 2020, 0 such milestones have been achieved.

In June 2017, the Company acquired the exclusive global rights to two novel neuromuscular blocking agents (“NMBAs”) and a proprietary reversal agent from Cornell University (“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 Company is obligated to make: (i) an annual license maintenance fee payment to Cornell until the first commercial sale of the NMBA Related Compounds; and (ii) milestone payments to Cornell upon the achievement of certain milestones, up to a maximum, for each NMBA Related Compound, of $5,000 for U.S. regulatory approval and commercialization milestones and $3,000 for European regulatory approval and commercialization milestones. The Company is obligated to pay Cornell royalties on net sales of the NMBA Related Compound 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 is party to a Development, Manufacturing and Supply Agreement (“Supply Agreement”), with Alkermes plc (“Alkermes”) (through a subsidiary of Alkermes), pursuant to which Alkermes will (i) provide clinical and commercial bulk supplies of ANJESO formulation and (ii) provide development services with respect to the Chemistry, Manufacturing and Controls section of an NDA for ANJESO. Pursuant to the Supply Agreement, Alkermes will supply the Company with such quantities of bulk ANJESO formulation as shall be reasonably required for the completion of clinical trials of ANJESO. During the term of the Supply Agreement, the Company will purchase its clinical and commercial supplies of bulk ANJESO formulation exclusively from Alkermes, subject to certain exceptions, for a period of time.

The Company is party to a Master Manufacturing Services Agreement and Product Agreement with Patheon, collectively the Patheon Agreements, pursuant to which Patheon provides sterile fill-finish of injectable meloxicam drug product at its Monza, Italy manufacturing site. We have agreed to purchase a certain percentage of our annual requirements of finished injectable meloxicam from Patheon during the term of the Patheon Agreements.

On April 10, 2015, Recro completed the acquisition of a manufacturing facility in Gainesville, Georgia and the licensing and commercialization rights to injectable meloxicam (the “Alkermes Transaction”). Pursuant to the purchase and sale agreement and subsequent amendment with Alkermes, as amended, governing the Alkermes 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.

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 are payable upon regulatory approval and include (i) a $5,000 payment due within 180 days following regulatory approval for ANJESO and (ii) $45,000 payable in 7 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 injectable meloxicam net sales. As of June 30, 2020, the Company has paid $10,000 in milestone payments to Alkermes.

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 Recro and certain of Recro’s 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 Recro concerning the NDA for ANJESO. 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 as defendants. On February 8, 2019, Recro filed a motion to dismiss the amended complaint in its entirety, which the

lead plaintiff opposed on April 9, 2019. On May 9, 2019, Recro 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. Recro filed a motion to dismiss the second amended complaint on June 18, 2020. The plaintiff’s deadline to file an opposition to the motion to dismiss is August 17, 2020, and Recro 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, the Company accepted assignment by Recro of all of Recro’s obligations in connection with the Securities Litigation and agreed to indemnify Recro for all liabilities related to the Securities Litigation. The Company has recorded a liability equal to the estimated fair value of the indemnification to Recro related to this Securities Litigation. The Company believes that the lawsuit is without merit and intends to vigorously defend against it. At this time, no assessment can be made as to its likely outcome or whether the outcome will be material to the Company.

As of ~~September~~June 30, ~~2019,~~2020, the Company had outstanding non-cancelable and cancelable purchase commitments in the aggregate amount of ~~$4,863~~$10,508 related to inventory ~~capital expenditures~~ and other goods and services, including ~~pre-commercial/~~commercial activities and manufacturing ~~scale-up and clinical activities.~~scale-up. The timing of certain purchase commitments cannot be estimated as it is dependent on ~~timing of FDA approval~~sales launch trajectory or the outcome of other strategic evaluations and agreements.

The Company has entered into employment agreements with certain of its named executive officers. As of ~~September~~June 30, ~~2019,~~2020, these employment agreements provided for, among other things, annual base salaries in an aggregate amount of not less than ~~$624,~~$1,327, from that date through ~~June 2020.~~December 2021.

On November 21, 2019, the Company separated from Recro as a result of a special dividend distribution of all the outstanding shares of its common stock to Recro shareholders. On the distribution date, each Recro shareholder received 1 share of Baudax Bio’s common stock for every two and one-half shares of Recro common stock held of record at the close of business on November 15, 2019. Upon the Distribution, 9,396,583 shares of common stock were issued, of which 45,874 were distributed after December 31, 2019.

The Company is authorized to issue 100,000,000 shares of common stock, with a par value of $0.01 per share.

On February 13, 2020, the Company entered into a Sales Agreement (the “Sales Agreement”) with JMP Securities LLC, as sales agent (the “Agent”), pursuant to which the Company may, from time to time, issue and sell shares of its common stock, par value $0.01 per share, in an aggregate offering price of up to $25,000 through the Agent. As of June 30, 2020, 441,967 shares have been sold under the Sales Agreement for net proceeds of $3,612.

On March 26, 2020, the Company closed an underwritten public offering of 7,692,308 shares of its common stock, Series A warrants to purchase 7,692,308 shares of common stock and Series B warrants to purchase 7,692,308 shares of common stock, at an exercise price of $4.59 per share for Series A Warrants and at an exercise price of $3.25 per share for Series B Warrants, for net proceeds to the Company of$23,085, after deducting underwriting discounts and commissions and estimated offering expenses.

The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.01 per share. As of June 30, 2020, 0 preferred stock was issued or outstanding.

On May 29, 2020, in connection with the Credit Agreement, the Company issued a warrant to MAM Eagle Lender, LLC to purchase 527,100 shares of common stock, at an exercise price equal to $4.59 per share.

During the three and six months ended June 30, 2020, the Company issued 804,616 shares of common stock upon exercise of Series B warrants for net proceeds of $2,458.

As of June 30, 2020, the Company had the following warrants outstanding to purchase shares of the Company’s common

The Series A warrants to purchase 7,692,308 shares of common stock and Series B warrants to purchase 6,887,692 shares of common stock related to the public offering are liability classified as they contain antidilution provisions that do not meet the standard definition of antidilution provisions. The warrant to purchase 527,100 shares of common stock is equity classified.

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

~~Certain employees of~~The Company has adopted the Company participate in Recro’s stock-based compensation plan, which provides for the grants of stock options and RSUs. The expense associated with the Company’s employees who participate in the plan is included in the accompanying combined statements of operations. A portion of these costs have been allocated out of the Company as they relate to employees responsible for corporate level activities that historically were incurred by the entity that represents the Company. Additionally, the entity that represents the Company historically incurred the costs related to the board of directors, which has also been partially allocated out of the Company.

~~In October 2013, Recro established the 2013 Equity Incentive~~2019 Plan, ~~(the 2013 Plan),~~ which allows for the grant of stock options, stock appreciation rights and stock awards for a total of ~~600,000~~3,000,000 shares of common stock. In June 2015, Recro’s shareholders approved the Amended and Restated Equity Incentive Plan (the A&R Plan), which amended and restated the 2013 Plan and increased the aggregate amount of shares of common stock available for issuance to 2,000,000. On December ~~1st~~1^st of each year, pursuant to the “Evergreen” provision of the ~~A&R~~2019 Plan, the number of shares available under the plan ~~may~~shall be increased ~~by the Recro Board~~ by an amount equal to 5% of the outstanding common stock on December ~~1st~~1^st of that ~~year.~~year or such lower amount as determined by the Board of Directors. In December ~~2018 and 2017~~2019, the number of shares available for issuance under the ~~A&R~~2019 Plan was increased by ~~1,082,972 and 956,341, respectively.~~467,535. The total number of shares authorized for issuance under the ~~A&R~~2019 plan as of ~~September~~June 30, 2020 is 3,467,535. As of June 30, 2020, 1,116,396 shares are available for future grants under the 2019 ~~is 8,119,709.~~ Plan.

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 Recro’s A&R Plan.~~

All shares described herein represent shares of Recro. The share information included in this disclosure includes 100% of the shares issued to Baudax Bio employees, corporate employees and Board members of Recro; however, a portion of the expenses related to the corporate employees and Board members of Recro have been allocated out of share-based compensation expense in these carve out financial statements using an allocation methodology similar to the allocation methodology used to allocate cash compensation expense.

The weighted average grant-date fair value of the Baudax Bio options awarded to employees during ~~the nine~~six months ended ~~September~~June 30, 2020 was $2.23. Under the 2019 ~~and 2018 was $5.53 and $6.18, respectively. The~~Plan, the fair value of the Baudax Bio options was estimated on the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Certain employees of the Company participated in the Recro Plan. The combined financial statements prior to the Separation reflect stock-based compensation expense related to Recro stock options and RSUs issued to the Company’s employees as well as an

allocation of a portion of Recro share-based compensation issued to corporate employees and members of the Board of Directors until the Separation date. The weighted average grant-date fair value of the options awarded to employees under the Recro Plan during the six months ended June 30, 2019 was $5.53.

Under the Recro Plan for the six months ended June 30, 2019, the fair value of the options granted to employees of the Company was estimated on the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

The following table summarizes Baudax Bio stock option activity during the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

Number of
shares

Weighted
average
exercise
price

Weighted
average
remaining
contractual life
Balance, December 31, 2018

3,092,606

$
7.32

7.3 years
Granted

1,094,756

$
7.95

Exercised

(408,170
)

$
5.94

Expired/forfeited/cancelled

(678,645
)

$
7.84

Balance, September 30, 2019

3,100,547

$
7.61

6.9 years
Vested

1,973,108

$
7.31

5.9 years
Vested and expected to vest

3,100,547

$
7.61

6.9 years

	Number of shares		Weighted average exercise price		Weighted average remaining contractual life
Balance, December 31, 2019		643,879	$	6.33	9.9 years
Granted		816,299		3.50
Balance, June 30, 2020		1,460,178	$	4.75	9.7 years
Vested		80,479	$	6.33	9.4 years
Vested and expected to vest		1,460,178	$	4.75	9.7 years

Included in the table above are ~~482,876~~633,003 stock options outstanding as of ~~September~~June 30, ~~2019~~2020 that were granted outside of the plan. The grants were made pursuant to the ~~NASDAQ~~Nasdaq inducement grant exception in accordance with ~~NASDAQ~~Nasdaq Listing Rule 5635(c)(4).

As a result of the Company’s reduction in workforce announced in April 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 (RSUs),~~the Baudax Bio RSUs activity during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~

Included in the table above are ~~18,625~~176,307 time-based RSUs outstanding as of ~~September~~June 30, ~~2019~~2020 that were granted outside of the plan. The grants were made pursuant to the ~~NASDAQ~~Nasdaq inducement grant exception in accordance with ~~NASDAQ~~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.Stock-Based Compensation Expense:

Stock-based compensation expense for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 was $4,942 and ~~2018 was $4,254 and $3,370,~~$3,202, respectively. For the current year, this represents stock-based compensation from the 2019 Plan as well as stock-based compensation from the Recro Plan for certain Baudax Bio employees who are continuing to vest in their Recro awards but are not performing services to Recro. For the prior year, this represents the allocated portion of Recro stock-based compensation expense for employees of the Company.

As of ~~September~~June 30, ~~2019,~~2020, there was ~~$7,532~~$13,112 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 ~~2.0 years. As~~2.5 years, which includes stock-based compensation from the 2019 Plan as well as the Recro Plan for certain employees of ~~September 30, 2019, there was $1,621 of unrecognized compensation expense related to unvested performance-based RSUs and will be expensed if~~ the ~~performance criteria are met.~~Company.

The aggregate intrinsic value represents the total amount by which the fair value of the common stock subject to options exceeds the exercise price of the related options. As of ~~September~~June 30, ~~2019,~~2020, the aggregate intrinsic value of the ~~vested and~~ unvested options was ~~$7,514 and $3,331, respectively.~~$532. There was 0 aggregate intrinsic value of the vested options.

A Non-Executive Director of the Company’s Irish subsidiary is a Managing Director and a majority shareholder of HiTech Health Ltd ~~(HiTech Health)~~(“HiTech Health”), a consultancy firm for 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 to engage in both regulatory and supply chain project support and consultancy. In consideration for such services, the Company recorded ~~$11~~$40 and ~~$25~~$29 for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019, the Company recorded ~~$115~~$128 and ~~$278,~~$104, in consideration for such services, respectively. A portion of the amount relates to consultancy services provided by the Non-Executive Director.

Recro became a related party to the Company following the Separation. As part of the Separation, the Company entered into a transition services agreement with Recro. Under the transition services agreement, the Company provides certain services to Recro, each related to corporate functions, and are charged to Recro. Additionally, Recro may incur expenses that are directly related to the Company after the Separation, which are billed to the Company. For the three and six months ended June 30, 2020, the Company recorded income of $516 and $1,032, respectively, related to the transition services agreement, which is recorded as a reduction in selling, general and administrative expenses. The Company recorded a net payable of $33 for activities with Recro as of June 30, 2020.

In connection with the Separation, Recro and Baudax entered into an Employee Matters Agreement. The Employee Matters Agreement allocates liabilities and responsibilities relating to employee compensation and benefits plans and programs and other related matters in connection with the Distribution including, without limitation, the treatment of outstanding Recro equity awards.

In connection with the Separation, Recro and Baudax entered into a Tax Matters Agreement that governs the parties’ respective rights, responsibilities and obligations with respect to taxes, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes for any tax period ending on or before the Distribution date, as well as tax periods beginning after the Distribution date.

The Company has a voluntary 401(k) Savings Plan (the ~~401(k) Plan)~~“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 $120 and ~~2018 were $45 and $90,~~$114, respectively. Total Company contributions to the 401(k) plan for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 were $261 and ~~2018 were $281 and $364,~~$236, respectively.

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 ~~the Company’s Registration Statement~~our Annual Report on Form ~~10, as amended and~~10-K for the year ended December 31, 2019, filed with the ~~Securities and Exchange Commission, or~~ SEC on ~~October 22, 2019, which is referred to herein as the “Form 10.”~~February 13, 2020. As used in this ~~report,~~Quarterly Report, unless the context suggests otherwise, “we,” “us,” “our,” the “Company” or “Baudax Bio” refer to Baudax Bio, Inc. and its ~~combined~~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~~The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” ~~“should,” “expect,” “plan,” “anticipate,~~“would,” “could,” ~~“intend,~~“should,” “potential,” “seek,” “evaluate,” “pursue,” “continue,” “design,” “impact,” “affect,” “forecast,” “target,” ~~“project,~~“outlook,” ~~“contemplates,~~“initiative,” ~~“believes,~~“objective,” ~~“estimates,~~“designed,” ~~“predicts,~~“priorities,” ~~“potential”~~“goal,” or ~~“continue” or other words that convey uncertainty~~the negative of ~~future events or outcomes~~such terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these ~~forward-looking statements.~~identifying words. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.

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, Part I, Item 1A of our Annual Report on Form 10-K for the ~~Company’s Information Statement furnished to~~fiscal year ended December 31, 2019 filed with the SEC on ~~October 22,~~February 13, 2020, or the 2019 ~~as amended,~~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 8, 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~~Quarterly Report and you should not place undue reliance on any forward-looking statements.

We are a pharmaceutical company primarily focused on developing and commercializing innovative products for hospital and related acute care settings. We believe that we can bring valuable therapeutic options for patients, prescribers and payers ~~such as our lead product candidate, IV meloxicam,~~ to the hospital and related acute care markets.

Our first commercial product, ANJESO, had its New Drug Application, or NDA, approved by the United States Food and Drug Administration, or FDA, on February 20, 2020 for the management of moderate to severe pain, alone or in combination with other non-NSAID analgesics. ANJESO is a once daily intravenous, or IV, NSAID with preferential Cox-2 activity, which has successfully completed three Phase III studies, including two pivotal efficacy trials, a large double-blind Phase III safety trial and other safety studies for the management of moderate to severe pain. Overall, the total NDA program included over 1,400 patients. We ~~believe we can create value for our shareholders through~~have established sales management, marketing and reimbursement functions in connection with the ~~development, registration and~~ commercialization of ~~IV meloxicam~~ANJESO in the United States.

We have initially launched with a sales team of approximately 50 sales representatives and collaborate with third parties who would market ANJESO to health care professionals at our ~~other pipeline product candidates. In addition to~~called-on institutions. We commenced our ~~pipeline, we~~commercial launch of ANJESO in June of 2020 and continue to evaluate ~~acquisition, out-licensing~~strategic partnerships to commercialize ANJESO outside of the United States. In August 2020, CMS established a new permanent J-code for ANJESO facilitating reimbursement in the hospital outpatient, ambulatory surgery center and ~~in-licensing opportunities.~~physician office settings of care. We have ~~no revenue~~also entered into agreements with Vizient Inc., the largest member-driven healthcare performance improvement company in the U.S., and ~~our~~ with one of the top 3 integrated delivery networks for terms for availability of ANJESO to their member institutions.

Our costs consist primarily of expenses incurred in conducting our manufacturing scale-up, commercialization of ANJESO, clinical trials and preclinical studies, regulatory activities, ~~pre-commercialization of meloxicam, public-company~~and public company and personnel costs.

We expect to incur significant and increasing operating losses for at least the next few years. We expect substantially all of our operating losses to result from costs incurred in connection with our commercialization activities, including manufacturing costs, and development programs, ~~manufacturing,~~including our clinical, ~~trials, public-company~~non-clinical and ~~pre-commercialization~~formulation development activities. Our expenses over the next several years are expected to relate to ~~the acquisition or in-license of a product and successful commercialization of the acquired or in-licensed product, obtaining regulatory approval for IV meloxicam and, if approved,~~ successfully commercializing ~~IV meloxicam,~~ANJESO and continuing to develop our other current and future product candidates. In addition, we may incur costs associated with the acquisition or in-license of products and successful commercialization of the acquired or in-licensed products.

Our efforts to commercialize ANJESO have been and may continue to be impacted by the COVID-19 pandemic. Hospitals have reduced and diverted staffing, diverted resources to patients suffering from COVID-19 and limited hospital access for nonpatients, including our sales professionals, which we believe may impact our marketing and commercialization efforts. We believe a reduction in elective surgeries during the COVID-19 pandemic has and may continue to result in decreased demand for ANJESO. We anticipate that many hospitals and health care providers will continue to suffer negative financial consequences due to an increase in unexpected costs, including for additional staff, personal protective equipment and ventilators, along with a reduction in revenue due to fewer elective procedures being performed, which may result in a decreased demand for ANJESO. While access restrictions have eased in some locations, spikes of COVID-19 cases in certain states or regions may further impact our sales force as access to hospitals may be restricted and elective surgeries may be limited in those areas. Due to the rapidly evolving environment, continued uncertainties from the impact of the COVID-19 global pandemic, and the recent regional outbreaks that are impacting the recovery, we cannot estimate the full extent to which our commercialization of ANJESO and financial results may be adversely impacted.

In ~~November~~August 2019, Recro announced its plans to separate its acute care business from its ~~CDMO~~ contract manufacturing and development business through a pro rata distribution of our common stock to shareholders of Recro. ~~In preparation for~~As a part of the Separation, Recro ~~will transfer~~transferred the assets, liabilities and operations of its acute care ~~business~~segment to us, pursuant to the terms of a Separation ~~Agreement, entered into between Recro and Baudax Bio.~~Agreement. On November 21, 2019, the distribution date, each Recro shareholder ~~will receive~~received one share of our common stock for every two and one-half shares of Recro common stock held of record at the close of business on November 15, 2019, the record date for the Distribution. ~~Registered shareholders will receive cash in lieu of any fractional shares of our common stock that they would have received as~~As a result of the ~~application of the distribution ratio. Following the~~ Distribution, we ~~will operate as a separate,~~are now an independent ~~company.~~public company whose shares of common stock are trading under the symbol “BXRX” on The ~~Distribution is subject to the satisfaction~~Nasdaq Capital Market, or ~~waiver by Recro of certain conditions. For a more detailed description of these conditions, see “The Separation and Distribution—Conditions to the Distribution” included in the Form 10.~~Nasdaq.

Our historical combined financial statements for periods prior to the Separation have been prepared on a stand-alone basis and are derived from Recro’s consolidated financial statements and accounting records and are presented in conformity with U.S. GAAP. Our financial position, results of operations and cash flows historically operated ~~and will continue to operate,~~ as part of Recro’s financial position, results of operations and cash flows prior to and until the Distribution to Recro’s shareholders. These historical combined financial statements for periods prior to the Separation may not be indicative of our future performance and do not necessarily reflect what our combined results of operations, financial condition and cash flows would have been had we operated as a separate company during the periods presented.

Subsequent to regulatory approval for ANJESO from the FDA, we began selling ANJESO in the U.S. through a single third-party logistics provider, or 3PL, which takes title to and control of the goods. We recognize revenue from ANJESO product sales at the point the title to the product is transferred to the customer and the customer obtains control of the product. The transaction price that is recognized as revenue for products includes an estimate of variable consideration for reserves, which result from discounts, returns, chargebacks, rebates and other allowances that are offered within contracts between us and our end-customers, wholesalers, group purchasing organizations and other indirect customers.

Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available. These reserves reflect our best estimate of the amount of consideration to which we are entitled based on the terms of the contracts. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

Cost of sales includes manufacturing costs, transportation and freight, royalty expense, qualification costs for a secondary manufacturing suite for increased available capacity to meet anticipated demand and indirect overhead costs associated with the manufacturing and distribution of ANJESO including supply chain and quality personnel costs. Cost of sales may also include period costs related to certain manufacturing services and inventory adjustment charges. We expensed a significant portion of the cost of producing ANJESO that we are using in the commercial launch as research and development expense prior to the regulatory approval of ANJESO. We expect ~~that changes will occur in our operating structure and our~~ ~~capitalization~~cost of sales to increase as ~~a result of the Separation from Recro.~~we deplete these inventories.

Research and development expenses currently consist primarily of costs incurred in connection with the development of ~~IV meloxicam~~ANJESO 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. We expense costs related to clinical inventory and pre-commercial inventory until we receive approval from the FDA to market a product, at which time we commence capitalization of costs relating to that product to inventory. Costs related to facilities, depreciation and support are not charged to specific programs. Subsequent to regulatory approval of ANJESO, we allocated or recategorized certain personnel and overhead expenses related to medical affairs, supply chain, quality and regulatory support functions that had previously been recorded within research and development to cost of sales or selling, general and administrative expenses in support of the commercial launch of ANJESO. Pre-commercial activities directly utilizing personnel and overhead expenses from the medical affairs, supply chain, quality and regulatory support function continue to be recorded within research and development.

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 ~~additional information as we progress through~~ our ~~discussions with the FDA regarding obtaining regulatory approval for IV meloxicam, as well as assess IV meloxicam’s~~product candidate’s commercial potential and our 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~~.flows.

We expect our research and development costs to ~~continue to~~ relate to ~~IV meloxicam~~ANJESO, including required pediatric post-marketing studies, as ~~we seek to obtain regulatory approval for IV meloxicam,~~well as development 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 work for maintenance~~ 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.~~pipeline.

Selling, general and administrative expenses consist of sales and marketing expenses and general and administrative expenses.

Sales and marketing expenses primarily consist of compensation and benefits for our sales force and personnel that support our sales and marketing efforts as well as third party consulting costs for the promotion and sale of ANJESO. In addition, sales and marketing expenses include expenses related to communicating the clinical and economic benefits of ANJESO and educational programs for our indirect customers.

General and administrative expenses consist principally of salaries and related costs for personnel in executive, ~~pre-commercial,~~medical affairs, regulatory, finance and information technology functions. General and administrative expenses also include public company costs, directors and officers insurance, professional fees for legal, including patent-related expenses, consulting, auditing and tax services.

Pursuant to the Purchase and Sale Agreement entered into for the acquisition of a manufacturing facility in Gainesville, Georgia and the licensing and commercialization rights for IV meloxicam, or the Gainesville Transaction, as amended in December 2018, among Alkermes Pharma Ireland Limited and Alkermes US Holdings, or Alkermes, Daravita, Recro and Recro Gainesville LLC, 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.~~

~~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~~expect our ~~income tax expense/(benefit) from operations~~ ~~in the current and~~ ~~in future periods. The Tax Act resulted in the following impacts to us:~~

~~Research and Development.~~ Our research and development expenses were $1.8 million and $9.8 million for the three months ended September 30, 2019 and 2018, respectively. The decrease of $8.0 million resulted from a decrease in pre-commercialization manufacturing and clinical costs for IV meloxicam of $4.8 million, a decrease in development costs for other pipeline products of $2.2 million and a decrease in personnel costs of $1.0 million.

~~General and Administrative.~~ ~~Our~~selling, general and administrative expenses ~~were $4.5 million and $5.1 million for the three months ended September 30, 2019 and 2018, respectively. The decrease of $0.6 million was primarily due~~ to decreased commercial team personnel costs of $1.2 million and pre-commercial consulting costs of $0.4 million following the receipt of the second complete response letter, or CRL, for IV meloxicam. These decreases were partially offset by increases in public company costs including legal fees and CRL response costs of $1.0 million.

~~Change in Contingent Consideration Valuation.~~ ~~Our change in contingent consideration valuation was an increase of value of $3.9 million for the three months ended September 30, 2019 and an~~ increase in ~~value~~the future as a result of ~~$4.1 million for the three months ended September 30, 2018. The non-cash charge for contingent consideration~~our commercial launch of ANJESO.

2019 Reduction in ~~each period related to the revaluation of the probability adjusted fair value of the Gainesville Transaction payment obligation.~~

Following the receipt of a second complete response letter from the ~~second CRL,~~FDA with regard to IV meloxicam in March of 2019, we implemented a strategic restructuring initiative, and corresponding reduction in workforce, aimed at reducing operating expenses, while maintaining key personnel needed to select a partner and obtain FDA approval of IV meloxicam. The restructuring initiative included a reduction of approximately 50 positions. During the ~~nine~~six months ended ~~September~~June 30, 2019, we ~~have~~ incurred approximately $7.2 million ~~(all $7.2 million was~~of costs, all of which were incurred in the first half of ~~2019) of costs~~2019, in connection with the strategic restructuring ~~plan which includes~~plan. These costs included severance and related termination benefits and canceled marketing and production ~~costs~~costs.

In connection with the Separation, we entered into an Assignment and a Partial Assignment, Assumption and Bifurcation Agreement, or the Alkermes Agreements, relating to the Purchase and Sale Agreement for the acquisition of certain assets, including the worldwide rights to injectable meloxicam and Recro’s development, formulation and manufacturing business from Alkermes, or the Alkermes Transaction, as amended in December 2018. Pursuant to the Alkermes Agreements, we are required to pay up to $140.0 million in milestone payments, including $10.0 million that was paid during 2019, another $5.0 million due within 180 days of approval of ANJESO 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 injectable 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 Alkermes Transaction. We have continued to reevaluate the fair value each subsequent period and as of June 30, 2020 recorded a $98.0 million payment obligation, representing the estimated probability adjusted fair value of the liability. Each reporting period, we revalue this estimated obligation with changes in fair value recognized as a non-cash operating expense or gain. As of June 30, 2020, we have paid $10.0 million in milestone payments to Alkermes.

Interest expense for the periods presented primarily includes interest expense incurred on our Credit Agreement with MAM Eagle Lender, the amortization of related financing costs, and interest expense on a promissory note with PNC Bank under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) administered by the Small Business Administration (the “SBA”).

We maintained a valuation allowance against our deferred tax assets as of June 30, 2020 and 2019.

	Three Months Ended June 30,
	2020			2019
	(amounts in thousands)
Revenue, net	$	349		$	—

Operating expenses:
Cost of sales		650			—
Research and development		1,350			7,180
Selling, general and administrative		11,217			7,449
Amortization of intangible assets		644			—
Change in warrant valuation		12,667			—
Change in contingent consideration valuation		4,053			(4,059	)
Total operating expenses		30,581			10,570
Operating loss		(30,232	)		(10,570	)
Other expense:
Other expense, net		(213	)		(12	)
Net loss	$	(30,445	)	$	(10,582	)

Revenue, net. For the three months ended June 30, 2020, net product revenue was $0.3 million, related to sales of ANJESO in the U.S. For the three months ended June 30, 2019, we did not recognize any product revenue.

Cost of sales. Our cost of sales was $0.7 million for the three months ended June 30, 2020 and consists of product costs, royalty expense and certain fixed costs associated with the manufacturing of ANJESO including supply chain and quality costs. Based on our policy, we expense costs associated with the manufacturing of our products as research and development prior to regulatory approval. Certain product costs of ANJESO units recognized as revenue during the three months ended June 30, 2020 were incurred prior to FDA approval of ANJESO in February 2020, and therefore are not included in cost of sales during the period. We expect cost of sales to increase as we build new inventorynot expensed during the pre-approval period, validate a larger manufacturing suite and deplete our initial inventory levels. No product cost of sales was recorded for the three months ended June 30, 2019.

Research and Development. Our research and development expenses were ~~$18.6~~$1.4 million and ~~$25.7~~$7.2 million for the ~~nine~~three months ended ~~September~~June 30, 2020 and 2019, respectively, a decrease of $5.8 million. Excluding $2.6 million of costs associated with the strategic restructuring initiative recorded in the three months ended June 30, 2019, our research and ~~2018, respectively.~~development expenses decreased $3.2 million primarily resulting from a decrease in pre-commercialization manufacturing and clinical costs for ANJESO of $2.3 million and a decrease in personnel and overhead expenses of $0.9 million as we allocated or recategorized certain expenses related to supply chain, regulatory, quality and medical affairs associated with support of the commercial launch of ANJESO.

Selling, General and Administrative. Our selling, general and administrative expenses were $11.2 million and $7.4 million for the three months ended June 30, 2020 and 2019, respectively, an increase of $3.8 million. Excluding $3.4 million of costs associated with the strategic restructuring initiative recorded in the three months ended June 30, 2019, our selling, general and administrative expenses increased $7.2 million primarily due to increased selling and marketing expenses in connection with the commercial launch of ANJESO. Selling and marketing expenses of $5.6 million for the three months ended June 30, 2020 increased $5.0 million due to increased personnel costs of $3.1 million and increased commercial costs of $1.9 million. General and administrative expenses of $5.6 million for the three months ended June 30, 2020 increased $2.2 million primarily due to increased personnel costs, including over half of which was attributed to medical affairs and regulatory support functions which had previously been recorded within research and development expense in the prior year period.

Amortization of Intangible Assets. Amortization expense was $0.6 million for the three months ended June 30, 2020, which was related to the amortization of our intangible asset resulting from research and development activities over its estimated useful life. There was no amortization expense for the three months ended June 30, 2019.

Change in Warrant Valuation. The change in warrant valuation was an increase in value of $12.7 million for the three months ended June 30, 2020 due to an increase in the Black-Scholes values as a result of an increase in our stock price.

Change in Contingent Consideration Valuation. The change in contingent consideration valuation was an increase in value of $4.1 million for the three months ended June 30, 2020 and a decrease in value of $4.1 million for the three months ended June 30, 2019. The non-cash charge for contingent consideration in each period related to the revaluation of the probability-adjusted fair value of the Alkermes Transaction payment obligation. The increase in contingent consideration value for the three months ended June 30, 2020 was primarily due to the time value of money associated with the balance as we progress closer to payment of the contingent consideration liability. The decrease in contingent consideration valuation for the three months ended June 30, 2019 was due to the adjusted timing of estimated milestone and royalty payments.

	Six Months Ended June 30,
	2020			2019
	(amounts in thousands)
Revenue, net	$	349		$	—

Operating expenses:
Cost of sales		650			—
Research and development		4,420			16,734
Selling, general and administrative		19,263			17,284
Amortization of intangible assets		859			—
Change in warrant valuation		14,045			—
Change in contingent consideration valuation		31,679			(19,150	)
Total operating expenses		70,916			14,868
Operating loss		(70,567	)		(14,868	)
Other expense:
Other expense, net		(176	)		(49	)
Net loss	$	(70,743	)	$	(14,917	)

Revenue, net. For the six months ended June 30, 2020, net product revenue was $0.3 million, related to sales of ANJESO in the U.S. For the six months ended June 30, 2019, we did not recognize any product revenue.

Cost of sales. Our cost of sales was $0.7 million for the six months ended June 30, 2020 and consists of product costs, royalty expense and certain fixed costs associated with the manufacturing of ANJESO including supply chain and quality costs. Based on our policy, we expense costs associated with the manufacturing of our products as research and development prior to regulatory approval. Certain product costs of ANJESO units recognized as revenue during the six months ended June 30, 2020 were incurred prior to FDA

approval of ANJESO in February 2020, and therefore are not included in cost of sales during the period. We expect cost of sales to increase as we build new inventorynot expensed during the pre-approval period, validate a larger manufacturing suite and deplete our initial inventory levels. No product cost of sales was recorded for the six months ended June 30, 2019.

Research and Development. Our research and development expenses were $4.4 million and $16.7 million for the six months ended June 30, 2020 and 2019, respectively, a decrease of $12.3 million. Excluding $2.8 of costs associated with the strategic restructuring initiative recorded in the ~~nine~~six months ended ~~September~~June 30, 2019, the decrease of ~~$9.9~~$9.5 millionresulted from a decrease in pre-commercialization manufacturing and clinical costs for IV meloxicam of ~~$6.7~~$6.2 million, ~~a decrease in personnel costs of $1.9 million, and~~ a decrease in development costs for other pipeline products of ~~$1.3 million.~~$2.1 million and a decrease in personnel and overhead expenses of $1.2 million as we re-allocated costs related to supply chain, regulatory, quality and medical affairs associated with support of the commercial launch of ANJESO.

Selling, General and Administrative. Our selling, general and administrative expenses were ~~$21.8~~$19.3 million and ~~$24.2~~$17.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Excluding $4.4 million of costs associated with the strategic restructuring initiative recorded in the ~~nine~~six months ended ~~September~~June 30, 2019, the ~~decrease~~increase of ~~$6.8~~$6.4 million ~~was~~primarily due to ~~a reduction~~increased selling and marketing expenses in connection with the commercial ~~team~~launch of ANJESO. Selling and marketing expensesof $8.9 million for the six months ended June 30, 2020 increased $3.5 million due to increased personnel costs of ~~$5.5~~$1.9 million and ~~reduced pre-commercial consulting~~increased commercial costs of ~~$2.5~~$1.6 million. General and administrative expenses of $10.4 million for the six months ended June 30, 2020 increased $2.9 million primarily due to increased personnel costs of $2.4 million, including over half of which was attributed to medical affairs and regulatory support functions, which had previously been recorded within research and development expense in ~~preparation of~~ the ~~anticipated launch of IV meloxicam following the receipt of the second CRL. These decreases in costs were partially offset by increases in costs associated with the~~prior year period, and increased public company costs ~~including legal fees,~~ of approximately $0.5 million as the prior year costs represent an allocated portion of the costs in the historical combined financial statements prior to the Separation.

Amortization of Intangible Assets. Amortization expense was $0.9 million for the six months ended June 30, 2020, which was related to the amortization of our intangible asset resulting from research and development activities over its estimated useful life. There was no amortization expense for the six months ended June 30, 2019.

Change in Warrant Valuation. The change in warrant valuation was an increase of $14.0 million for the six months ended June 30, 2020, related to the warrants sold as ~~well~~part of the March 26, 2020 underwritten public offering and represents an increase in the Black-Scholes values as ~~increased professional fees associated with addressing the first and second CRLs issued by the FDA regarding~~a result of an increase in our ~~NDA for IV meloxicam of $0.3 million.~~

Change in Contingent Consideration Valuation. ~~Our~~The change in contingent consideration valuation ~~consisted of a reduction of value of $15.2 million for the nine months ended September 30, 2019 as compared to~~was an increase in value of ~~$7.0~~$31.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2020 as compared to a decrease in value of $19.2 million for the six months ended June 30, 2019. The non-cash charge for contingent consideration in each period related to the revaluation of the ~~probability adjusted~~probability-adjusted fair value of the ~~Gainesville~~Alkermes Transaction payment obligation. The increase in contingent consideration value for the six months ended June 30, 2020 was primarily due to the increase in probability of success of milestones tied to the FDA approval of ANJESO. The decrease ~~of $22.2 million~~in contingent consideration valuation for the six months ended June 30, 2019 was due to the adjusted timing of estimated milestone and royalty payments after ~~the~~ receipt of the second CRL from the FDA in March 2019.

As of June 30, 2020, we had $39.4million in cash and cash equivalents. Historically, the primary source of liquidity for our business was cash flow ~~allocated~~provided to us from Recro. Prior to the Separation, transfers of cash to and from Recro ~~are~~were reflected in Net Parent Investment in the historical combined balance sheets, statements of cash flows and statements of changes in Net Parent Investment. We have not reported cash or cash equivalents for the periods presented in the combined balance ~~sheets. We expect Recro~~sheets prior to ~~continue~~the Separation.

On May 29, 2020, we entered in a $50.0 million Credit Agreement with MAM Eagle Lender, pursuant to ~~fund our cash needs through~~which we have drawn $10.0 million as of the date of this Quarterly Report and may draw upon four additional tranches of term loans. The Tranche Two Loans in an amount not to exceed $5.0 million may be drawn upon on or before August 29, 2021 provided that we generate at least $5.0 million in net revenue in the ~~Separation.~~three consecutive calendar months immediately preceding the date such Tranche Two Loans are funded. The Tranche Two Loans may also be drawn on a subsequent date with the satisfaction of the conditions for the Tranche Three Loans, Tranche Four Loans, or Tranche Five Loans, as applicable, provided that the Tranche Two Loans may not be drawn more than once. The Tranche Three Loans in an amount not to exceed $5.0 million may be drawn upon on or before November 29, 2021 provided that we generate at least $10.0 in net revenue in the three consecutive calendar months immediately preceding such date such Tranche Three Loans are funded. The Tranche Three Loans may also be drawn on a subsequent date with the satisfaction of the conditions for the Tranche Four Loans or Tranche Five Loans, as applicable, provided that the Tranche Three Loans may not be drawn more than once. The Tranche Four Loans in an amount not to exceed $10.0 million may be drawn upon, subject to the consent of the Lenders, on or before August 29, 2022 provided that we generate at least $20.0 million in net revenue in the three consecutive calendar months immediately preceding the date such Tranche Four Loans are funded. The Tranche Four Loans may also be drawn on a subsequent date with the satisfaction of the conditions for the Tranche Five Loans provided that the Tranche Four Loans may not be drawn more than once. The Tranche Five Loans in an amount not to exceed $20.0 million may be drawn upon, subject to the consent of the Lenders, on or before March 1, 2023 provided

that we generate at least $100.0 million in net revenue in the twelve consecutive calendar months immediately preceding the date such Tranche Five Loans are funded.

On May 8, 2020, we entered into a promissory note for $1.5 million under the PPP of the CARES Act administered by the SBA. We plan to use the loan proceeds for covered payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act. This Loan may be partially or fully forgiven if we comply with the provisions of the CARES Act including the use of Loan proceeds for payroll costs, rent, utilities and other expenses, and at least 60% of the loan proceeds must be used for payroll costs as defined by the CARES Act. Any forgiveness of the Loan will be subject to approval by the SBA and the Lender will require us to apply for such treatment in the future. Should we meet the requirements for forgiveness, we would extinguish the note upon receiving legal release from PNC Bank and record a gain on extinguishment in the period. We expect that the full $1.5 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.

On March 26, 2020, we closed an underwritten public offering of 7,692,308 shares of our common stock, Series A warrants to purchase 7,692,308 shares of our common stock at an exercise price of $4.59 per share and Series B warrants to purchase 7,692,308 shares of our common stock at an exercise price of $3.25 per share, resulting in $23.1 million of net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses. Subsequent to the closing of the underwritten public offering, the exercise of warrants related to the transaction has provided net proceeds of an additional $2.5 million.

On February 13, 2020, we entered into a Sales Agreement with JMP Securities LLC, as sales agent, or the Agent, pursuant to which we may, from time to time, issue and sell shares of our common stock, in an aggregate offering price of up to $25.0 million through the Agent, or the ATM Program. As of June 30, 2020, 441,967 shares have been sold under the ATM Program for net proceeds of $3.6 million.

Under the terms of the Separation Agreement, ~~prior to or upon the completion of the Distribution,~~ Recro ~~will make~~made a cash capital contribution of ~~$19~~$19.0 million to us to fund our initial operations. ~~This cash capital contribution is in an amount that we estimate will, based on our current plans and expectations, meet our cash needs for at least 12 months after the completion of the Separation.~~ Subsequent to the Separation, we ~~will~~ no longer participate in Recro’s centralized cash management or benefit from direct funding from Recro. Our ability to fund our operations and capital needs will depend on our ability to raise additional funds through debt financings, bank or other loans, licensing, including out-licensing activities, sale of assets and/or marketing arrangements, the exercise of our short-dated warrants, 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.

We anticipate that our principal uses of cash in the future will be primarily to launch and commercialize ANJESO and to fund our operations, pipeline development activities, working capital needs, capital expenditures and other general corporate purposes.

Cash used in operations was ~~$42.1~~$17.6 million and ~~$46.8~~$39.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which represents our operating losses less our non-cash items including: stock-based compensation, non-cash interest expense, depreciation, amortization, changes in warrant valuations, and changes in fair value of contingent consideration, as well as changes in operating assets and liabilities.

There was no cash used in investing activities for the six months ended June 30, 2020. Cash used in investing activities was ~~$1.8 million and $2.2~~$1.7 million for the ~~nine~~six months ended ~~September~~June 30, 2019, ~~and 2018, respectively. During the nine months ended September 30, 2019 and 2018,~~which was primarily due to our capital expenditures ~~were~~of $1.6 ~~million and $2.1 million, respectively.~~million.

There was ~~$43.9~~$39.3 million of cash provided by financing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2019 from~~2020 consisting of net proceeds of $23.1 million from ~~parent company investment~~the public offering of ~~$53.9~~common stock and warrants, net proceeds of $1.5 million ~~which was partially offset by $10.0~~from the issuance of the PPP Loan, net proceeds of $8.7 million from the incurrence of ~~contingent consideration payments.~~long-term debt under the Credit Agreement with MAM Eagle Lender, net proceeds of $3.6 million from our ATM Program, and net proceeds of $2.5 million from warrant exercises. There was ~~$49.0~~$40.9 million of cash provided by financing activities infor the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from net proceeds of $50.9 million from parent company ~~investment.~~investment, partially offset by a payment of contingent consideration of $10.0 million.

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

We might use existing cash and cash equivalents on hand, debt, equity financing, sale of assets or out-licensing revenue or a combination thereof to fund our ~~ability to operate as a standalone company and execute~~operations or product acquisitions. If we increase our ~~strategic priorities;~~

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly under “Risk Factors,” that we ~~believe could cause actual results or events to differ materially from~~issue and the ~~forward-looking statements that~~prices at which we ~~make. Our forward-looking statements do not reflect the potential impact of~~issue any ~~future acquisitions, mergers, dispositions, joint ventures, collaborations or investments we may make.~~securities.

The table below reflects our contractual commitments as of ~~September~~June 30, ~~2019:~~2020:

Payments Due by Period (in 000s)

Contractual Obligations

Total

Less than
1 year

1-3 years

3-5 years

More than
5 years

Purchase Obligations (1):

$
4,863

$
1,816

$
—

$
—

$
—

Operating Leases (2)

1,257

434

730

93

—

Other Long-Term Liabilities:

Other License Commitments and Milestone
payments (3), (4)

52,265

40

130

170

225

Alkermes Payments (5)

130,000

—

—

—

—

Employment Agreements (6)

624

624

—

—

—

Total Contractual Obligations

$
189,009

$
2,914

$
860

$
263

$
225

	Payments Due by Period (in 000s)
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt Obligations (1):
Debt	$	11,537	$	598	$	4,828	$	6,111	$	—
Interest on Debt		7,737		2,301		4,095		1,341		—

Purchase Obligations (2):	$	10,508	$	4,320	$	2,971	$	—	$	—
Operating Leases (3)		994		440		554		—		—
Other Long-Term Liabilities:
Other License Commitments and Milestone payments (4), (5)		53,285		40		130		170		225
Alkermes Payments (6)		130,000		11,429		12,857		12,857		12,857
Employment Agreements (7)		1,327		1,018		309		—		—

Total Contractual Obligations	$	215,388	$	20,146	$	25,744	$	20,479	$	13,082

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 ~~the Form 10.~~ our 2019 Annual Report. In the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, therewere ~~no significant~~ changes to the application of critical accounting policies previously disclosed in ~~“Management’s Discussion~~our 2019 Annual Report related to the launch of ANJESO and ~~Analysis of Financial Condition and Results of Operations”~~the related revenue recognition, as described below.

Revenue Recognition-- Subsequent to regulatory approval for ANJESO from the FDA, we began selling ANJESO in the ~~Information Statement.~~U.S. through a single third party logistics provider, or 3PL, which takes title to and control of the goods. We recognize revenue from ANJESO product sales at the point the title to the product is transferred to the customer and the customer obtains control of the product. The transaction price that is recognized as revenue for products includes an estimate of variable consideration for reserves which result from discounts, returns, chargebacks, rebates and other allowances that are offered within contracts between us and our end-customers wholesalers, group purchasing organizations and other indirect customers. Our payment terms are generally between thirty to ninety days.

Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. These reserves reflect our best estimate of the amount of consideration to which we are entitled based on the terms of the contracts. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

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 Recro and certain of Recro’s 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 usRecro concerning the NDA for ~~IV meloxicam.~~ANJESO. 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, Recro 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~~Recro 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. Recro filed a motion to dismiss the second amended complaint on June ~~26, 2019,~~18, 2020. The plaintiff’s deadline to file an opposition to Recro’s motion to dismiss is August 17, 2020, and Recro will have thirty days from the ~~judge heard oral arguments on~~filing of the plaintiff’s opposition to file a reply in support of the motion to dismiss. ~~The judge asked the plaintiffs to file a supplemental brief, which was completed on August 30, 2019, and Recro submitted a reply brief on September 27, 2019. As part of~~In connection with the Separation, we ~~are assuming~~accepted assignment by Recro of all of Recro’s obligations in connection with the Securities Litigation and agreed to indemnify Recro for all liabilities related to ~~this litigation from Recro. We~~the Securities Litigation. Recro and we believe that the lawsuit is without merit and ~~intends~~intend to vigorously defend against it. ~~The lawsuit is in the early stages and, at~~At this time, no assessment can be made as to its likely outcome or whether the outcome will be material to us.

~~Information regarding~~You should carefully consider the risk factors ~~appears~~described in ~~“Management’s Discussion~~our 2019 Annual Report and ~~Analysis of Financial Condition and Results of Operations – Information Related to Forward-Looking Statements,” in Part I – Item 2 of this Form 10-Q and in~~our Q1 Quarterly Report, under the ~~“Risk Factors” section of the Form 10.~~caption “Item 1A. Risk Factors.” Except as set forth below, there ~~were~~have been no material changes ~~during~~in our risk factors disclosed in our 2019 Annual Report and our Q1 Quarterly Report.

We have incurred significant indebtedness, which could adversely affect our business.

As of June 30, 2020, we had an outstanding balance under our PPP Note of approximately $1.5 million and an outstanding balance of $10 million under our credit agreement with MAM Eagle Lender. Our indebtedness could have important consequences to our shareholders. For example, it:

Any of the ~~quarter ended September 30, 2019~~above-listed factors could materially adversely affect our business, financial condition, results of operations and cash flows. Our credit agreement with MAM Eagle Lender also contains certain financial and other covenants, including a minimum liquidity requirement of $5 million at all times, and includes limitations on, among other things, additional indebtedness, paying dividends in certain circumstances, and making certain acquisitions and investments. The credit agreement provides for certain mandatory prepayment events, including with respect to the ~~risk factors reported in~~net proceeds of asset sales, extraordinary receipts, casualty payments and other specified events, based on the ~~“Risk Factors” section~~terms of the ~~Information Statement.~~

~~Our appeal relating~~credit agreement with MAM Eagle Lender. Any failure to comply with the ~~NDA for IV Meloxicam has been granted, however, there can be no certainty that our proposed labeling will address~~terms, covenants and conditions of 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 marketcredit agreement 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~~draw upon additional tranches of ~~IV meloxicam. The approved labeling~~term loans and may result in an event of default under such agreement, which could ~~decrease the target market to~~have 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 anmaterial adverse ~~impact~~effect on our ~~business.~~ business, financial condition and results of operation.

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.

~~Our planned spin-off from Recro is subject to various risks and uncertainties and~~We may not be ~~completed on~~entitled to forgiveness of our recently received Paycheck Protection Program Loan, and our application for the ~~terms or timeline currently contemplated, if at all, and will involve significant time, effort and expense, which~~Paycheck Protection Program Loan could ~~harm our business, results of operations and financial condition.~~

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

On May 8, 2020, we received loan proceeds of ~~2019~~approximately $1.5 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 8, 2020, issued by PNC Bank, National Association, 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 8, 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.

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 ~~certain conditions. Adverse market conditions or delays or difficulties effecting~~ the ~~planned separation could delay or prevent, or adversely impact the anticipated benefits from, the planned separation. We may not complete the separation~~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 8-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 to offset the 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.”

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 were to be audited and receive an adverse finding in such audit, 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 potentially subject us to fines and penalties.

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 and financial condition.

Exhibit No.	Description	Method of Filing

4.1	Common Stock Purchase Warrant, dated May 29, 2020, in favor of MAM Eagle Lender, LLC.	Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 2, 2020 (File No. 001-39101).

10.1	Note dated May 8, 2020, between Baudax Bio, Inc. and PNC Bank, National Association.	Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 13, 2020 (File No. 001-39101).

10.2	Credit Agreement, dated as of May 29, 2020, among the Company, the lenders party thereto and Wilmington Trust, National Association.	Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 2, 2020 (File No. 001-39101).

10.3	Security Agreement, dated as of May 29, 2020, by and among the Company, Baudax Bio N.A. LLC, Baudax Bio Limited and Wilmington Trust, National Association.	Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 2, 2020 (File No. 001-39101).

10.4	Intellectual Property Security Agreement, dated as of May 29, 2020, by and among the Company, Baudax Bio N.A. LLC, Baudax Bio Limited and Wilmington Trust, National Association.	Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 2, 2020 (File No. 001-39101).

31.1	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 INS~~101.SCH	Inline XBRL ~~Instance Document~~Taxonomy Extension Schema Document.	Filed herewith.

~~101 SCH~~101.CAL	Inline XBRL Taxonomy Extension ~~Schema~~Calculation Linkbase Document.	Filed herewith.

~~101 CAL~~101.LAB	Inline XBRL Taxonomy Extension ~~Calculation~~Label Linkbase Document.	Filed herewith.

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

~~101 LAB~~101.DEF	Inline XBRL Taxonomy Extension ~~Label~~Definition Linkbase Document.	Filed herewith.

~~101 PRE~~104	Cover Page Interactive Data File (formatted as inline XBRL ~~Taxonomy Extension Presentation Linkbase Document~~and contained in Exhibit 101).	Filed herewith.

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

Pennsylvania	47-4639500
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

Title of Each Class	Trading Symbol	Name of Exchange on Which Registered
Common Stock, par value $0.01	BXRX	Nasdaq Capital Market

			Page

PART I. FINANCIAL INFORMATION			3

	Item 1.	Consolidated and Combined Financial Statements (Unaudited)	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2024

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2734

	Item 4.	Controls and Procedures	2735

PART II. OTHER INFORMATION			2836

	Item 1.	Legal Proceedings	2836

	Item 1A.	Risk Factors	2836

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2937

	Item 3.	Defaults Upon Senior Securities	2937

	Item 4.	Mine Safety Disclosures	2937

	Item 5.	Other Information	2937

	Item 6.	Exhibits	2937

SIGNATURES			3139

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	121	$	363
Short-term lease cost		-		14
Total lease cost	$	121	$	377

	June 30, 2020
	Series A Warrants			Series B Warrants
Fair value	$	12,691		$	8,719
Expected dividend yield		—	%		—	%
Expected volatility	74.49		%	96.13		%
Risk-free interest rates	.29		%	.16		%
Remaining contractual term	4.7 years			0.8 years

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☒

	June 30,
	2020
Options and restricted stock units outstanding		3,121,319
Warrants		15,107,100

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

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

	June 30, 2020
	Amortized		Gross Unrealized				Estimated
Description	Cost		Gain		Loss		Fair Value
Money market mutual funds	$	36,109	$	—	$	—	$	36,109
Total cash equivalents	$	36,109	$	—	$	—	$	36,109

	June 30, 2020		December 31, 2019
Raw materials	$	76	$	—
Sub-assemblies		56		—
Finished goods		621		—
	$	753	$	—

	September 30,		December 31,
	2019		2018
Clinical trial and related costs	$	101	$	683
Professional and consulting fees		1,012		671
Payroll and related costs		1,753		2,172
Accrued restructuring costs		1,386		—
Property, plant and equipment		—		278
Pre-commercialization scale-up costs		—		4,445
Other research and development costs		136		678
Other		112		846
	$	4,500	$	9,773

	Cost		Accumulated Amortization		Net Intangible Assets
Asset resulting from R&D activities	$	26,400	$	859	$	25,541
Total	$	26,400	$	859	$	25,541

	Amortization
Remainder of 2020	$	1,288
2021		2,576
2022		2,576
2023		2,576
2024 and thereafter		16,525
Total	$	25,541

Paycheck Protection Program Loan	$	1,537
Credit Agreement		10,000
Unamortized deferred issuance costs		(2,848	)
Exit fee accretion		6
Total debt	$	8,695

Current portion as of June 30, 2020		598
Long-term portion, net as of June 30, 2020	$	8,097

	Number of Shares		Exercise Price per Share		Expiration Date
Series A Warrants		7,692,308	$	4.59	March 24, 2025
Series B Warrants		6,887,692	$	3.25	April 24, 2021
MAM Eagle Lender Warrant		527,100	$	4.59	May 29, 2027

	June 30,
	2020
Range of expected option life	6 years
Expected volatility	73.75%
Risk-free interest rate	.42%
Expected dividend yield		—

	Number of shares
Balance, December 31, ~~2018~~2019		~~981,453~~1,380,030
Granted		~~664,210~~331,351
Vested and settled		(~~421,552~~50,240	)
~~Expired/forfeited/cancelled~~Balance, June 30, 2020		~~(455,437~~	)
~~Balance, September 30, 2019~~		~~768,674~~1,661,141
Expected to vest		~~517,474~~1,661,141

	Three Months Ended September 30,
	2019			2018
	(amounts in thousands)
Operating expenses:
Research and development	$	1,845		$	9,838
General and administrative		4,524			5,107
Change in contingent consideration valuation		3,909			4,115
Total operating expenses		10,278			19,060
Operating loss		(10,278	)		(19,060	)
Other income (expense):
Other income (expense), net		(37	)		(32	)
Net loss	$	(10,315	)	$	(19,092	)

	Nine Months Ended September 30,
	2019			2018
	(amounts in thousands)
Operating expenses:
Research and development	$	18,578		$	25,664
General and administrative		21,809			24,170
Change in contingent consideration valuation		(15,241	)		7,030
Total operating expenses		25,146			56,864
Operating income (loss)		(25,146	)		(56,864	)
Other income (expense):
Other income (expense), net		(86	)		(122	)
Net loss	$	(25,232	)	$	(56,986	)

	BAUDAX BIO, INC.

Date: ~~November 14, 2019~~August 10, 2020	By:	/s/ Gerri A. Henwood
		Gerri A. Henwood
		President and Chief Executive Officer
		(Principal Executive Officer)



Date: ~~November 14, 2019~~August 10, 2020	By:	/s/ Ryan D. Lake
		Ryan D. Lake
		Chief Financial Officer
		(Principal Financial and Accounting Officer)